Judge: Gail Killefer, Case: 21STCV43979, Date: 2023-12-18 Tentative Ruling
Case Number: 21STCV43979 Hearing Date: January 11, 2024 Dept: 37
HEARING DATE: Thursday, January 11, 2024
CASE NUMBER: 21STCV43979
CASE NAME: Yue Ma, et
al. v. Linghan “Hank” Cao, et al.
MOVING PARTY: Defendant/Cross-Complainant
Ideal International Investment, Inc.
OPPOSING PARTY: Plaintiffs/Cross-Defendants Yue Ma,
Lihong Zhao, Sunny West Coast Co., and Hua Ming Technology Co.
TRIAL DATE: 18 June 2024
PROOF OF SERVICE: OK
PROCEEDING: Motion for a Preliminary
Injunction
OPPOSITION: 28 December 2023
REPLY: 3
January 2024
TENTATIVE: Cross-Complainant Ideal’s Motion for a
Preliminary Injunction is denied.
Background
This
is a breach of contract, fiduciary duty, and corporate dissolution action
arising out of investments made by Plaintiffs Yue Ma (“Ma”), Lihong Zhao
(“Zhao”), Sunny West Coast Co. (“Sunny”), and Hua Ming Technology Co. (“HM
Tech”), into Defendant Ideal International Investment, Inc. dba Ideal Logistics
(“Ideal”), a trucking and logistics business. Defendant Linghan “Hank” Cao (“Cao”)
is the CEO, CFO, and secretary of Ideal.
Plaintiffs
allege Ideal also operates several subsidiaries that are undercapitalized and
shells of Ideal and Cao. Plaintiffs further allege Ideal was to operate until
October 13, 2021, pursuant to an agreement between the parties, when the
parties could decide to continue or dissolve the business. Plaintiffs allege
that in late September or early October 2021, Coa offered to buy out
Plaintiffs’ share at an unreasonable rate in exchange for 25% of the equipment
used.
On
October 19, 2021, the Plaintiffs allege Cao had a discussion with Ma’s husband
regarding a disputed $650,000 payment when Cao took out a firearm and
threatened to kill Ma’s husband and his entire family. Plaintiffs then allege
that in November 2021, Cao sold off, used, transferred, or otherwise disposed
of Ideal’s corporate assets into Cao’s other businesses. Plaintiffs allege Cao
continues to operate Ideal’s business in Atlanta. Plaintiffs bring derivative
claims as shareholders and individual causes of action.
Plaintiffs’
Complaint alleges the following causes of action: (1) breach of contract
(derivatively) (2) breach of fiduciary duty (derivatively), (3) conversion
(derivatively), (4) violation of Business and Professions code 17200
(derivatively), and (5) involuntary dissolution of corporation
(individually).
On
December 20, 2021, Plaintiffs filed the First Amended Complaint. (“FAC”) The
FAC alleges the same five causes of action.
On
March 11, 2022, Plaintiffs filed a Second Amended Complaint. (“SAC”) The SAC
alleges the same five causes of action but was amended to include individual
claims for the first cause of action. On June 07, 2022, the demurrer
to the SAC was sustained with leave to amend.
On
July 7, 2022, Plaintiffs filed the Third Amended Complaint (“TAC”). The TAC
alleges the same five causes of action as the original Complaint. On July 5,
2023, Defendants Hweisan Liu and E&C Logistics filed a demurrer to the TAC.
In response, the Plaintiffs dismissed the first and fourth causes of action
against Defendants Liu and E&C Logistics, and the second cause of action as
against E&C Logistics. The demurrer to the third cause of action was
sustained with leave to amend.
On
August 22, 2023, Plaintiffs filed the Fourth Amended Complaint (“4AC”). On
January 10, 2024, Plaintiffs filed the operative Fifth Amended Complaint (“5AC”),
which is nearly identical to the 4AC. The 5AC alleges:
1)
Breach of Contract (Directly) against
Defendants Cao and Does 1 to 100
2)
Breach of Contract (Derivatively)
against Cao and Does 1 to 100;
3)
Breach of Fiduciary Duty (Directly)
against all Defendant Cao and Does 1-100;
4)
Breach of Fiduciary Duty (Derivatively)
against all Defendants except Ideal;
5)
Conversion (Derivatively) against all
Defendants except Ideal;
6)
Involuntary Dissolution of Corporation
– Ideal International Investment (Corp. Code § 1800) against Ideal and Does 1 to 100.
On
June 30, 2023, Defendants JPI Express, Inc. and Jun Pan filed a Cross-Complaint
against Defendants Cao and Ideal International Investment for indemnity.
On March 7, 2022,
Defendant/Cross-Complainant Ideal filed a Cross-Complaint against You Ma;
Linhong Zhoa; Sunny West Coast Co.; Hua Ming Technology Co.; Jiafeng Yuan; and
Jianhua Liu (the “Cross-Defendants”), alleging: (1) Breach of Penal Code § 495;
(2) Breach of Fiduciary Duties; and (3) Violation of the Bus. & Prof. Code
§§ 17200, et seq.
On October 23, 2023,
Ideal filed a Motion for Preliminary Injunction against the
Cross-Defendants. The Cross-Defendants oppose
the Motion. The matter is now before the court.
I.
Legal Standard
CCP § 527(a) provides in relevant
part: “[a] preliminary injunction may be granted at any time before judgment
upon a verified complaint, or upon affidavits if the complaint in the one case,
or the affidavits in the other, show satisfactorily that sufficient grounds
exist therefor.”¿ (CCP § 527(a).)¿ “The purpose of a preliminary injunction is
to preserve the status quo pending final resolution upon a trial.”¿ (Grothe¿v.
Cortlandt Corp.(1992) 11 Cal.App.4th 1313, 1316.)
“The ultimate questions on a
motion for a preliminary injunction are (1) whether the plaintiff is ‘likely to
suffer greater injury from a denial of the injunction than the defendants are
likely to suffer from its grant,’ and (2) whether there is ‘a reasonable
probability that the plaintiffs will prevail on the merits.’ ”(Huong Que,
Inc. v.¿Luu(2007) 150 Cal.App.4th 400, 408.)¿ “In thus balancing the
respective equities of the parties, the court must determine whether, pending a
trial on the merits, the defendant should or should not be restrained from
exercising the right claimed by it.”¿(Tahoe Keys Property Owners' Assn. v.
State Water Resources Control Bd. (1994) 23 Cal.App.4th 1459, 1471.)
“The decision to grant a
preliminary injunction rests in the sound discretion of the trial court ...
before the trial court can exercise its discretion the applicant must make a
prima facie showing of entitlement to injunctive relief.¿ The applicant must
demonstrate a real threat of immediate and irreparable injury.”¿ (Triple A
Machine Shop, Inc. v. State of California(1989) 213 Cal.App.3d 131,
138.)¿¿“[A]n injunction is an unusual or extraordinary equitable remedy which
will not be granted if the remedy at law (usually damages) will adequately
compensate the injured plaintiff,” and the party seeking injunctive relief
bears the burden to prove its absence.¿ (Department of Fish & Game v.
Anderson-Cottonwood Irrigation Dist. (1992) 8 Cal.App.4th 1554,
1564-1565.)
II.
Request for Judicial Notice
The court may
take judicial notice of “official acts of the legislative, executive, and
judicial departments of the United States and of any state of the United
States,” “[r]ecords of (1) any court of this state or (2) any court of record
of the United States or of any state of the United States,” and “[f]acts and
propositions that are not reasonably subject to dispute and are capable of
immediate and accurate determination by resort to sources of reasonably
indisputable accuracy.” (Evid. Code § 452, subds. (c), (d), and (h).) “Taking
judicial notice of a document is not the same as accepting the truth of its
contents or accepting a particular interpretation of its meaning.” (Joslin v. H.A.S. Ins. Brokerage (1986) 184 Cal.App.3d 369, 374.)
Cross-Complainant Ideal
requests judicial notice of the following:
1)
Plaintiffs’ Fourth Amended Complaint, including
Exhibits 1 and 2.
Ideal’s request for judicial
notice is granted.
Plaintiffs/Cross-Defendants
request judicial notice of the following:
1)
Exhibit 1: Statement of Information of LA
GreenWheels Transportation Inc., filed with the California Secretary of State
on February 10, 2021.
2)
Exhibit 2: Statement of Information of LA
GreenWheels Transportation Inc., filed with the California Secretary of State
on April 15, 2023.
Cross-Defendants request for
judicial notice is granted.
III.
Evidentiary Objections
Cross-Defendants submit
evidentiary objections to the Declaration of Linghan “Hank” Coa:
Objection No. 1 is sustained as
the Declarant fails to provide facts as to how and when it came to know that LA
GreenWheels was wholly owned by Ideal.
Objections Nos. 2, 3, 4, 7, 8, and
9 are overruled.
Objection No. 5 is sustained as to
the statement “Mr. Yuan unlawfully took possession of Certain Ideal funds” is a
legal conclusion.
Objection No. 8 is sustained due
to hearsay.
IV. Discussion
Defendant/Cross-Complainant
Ideal seeks an order freezing the assets of Cross-Defendants Yue Ma, Lihong
Zhao, Sunny West Coast Co., Hua Ming Technology Co., Jiafeng Yuan, Jianhua Liu
(collectively “Cross-defendants), and their officers, employes and agents, and
more specifically from diverting, transferring, pledging, spending, disposing
of, assigning, hypothecating or otherwise encumbering or moving any of the
funds in the bank account number 325118478393 (the “Bank
Account”) at Bank of America or any other funds or assets that are the property
of Ideal and/or Ideal’s wholly owned subsidiary LA GreenWheels Transportation
Inc (“LA GreenWheels).
Ideal also seeks an order
requiring Cross-Defendants to redeposit in the Bank Account any funds
previously diverted, transferred, or otherwise moved from the Bank Account and
order Cross-Defendant to place any other funds or assets that are the property
of Ideal and/or its wholly owned subsidiary LA GreenWheels into escrow with an
escrow agent which is mutually agreeable to Ideal and Cross-Defendants.
Ideal alleges that beginning on
March 20, 2019, it operated through its wholly owned subsidiary, LA
GreenWheels. (Cao Decl. ¶ 4.) Ideal was owned by Cross-Complainants and
Cross-Defendants, with each being a minority shareholder owning 35% of Ideal’s
shares. (Cross-Complainants’ RJN Ex. 1 [Agreement at § 1].) Cao asserts that Cross-Defendant Jiafeng Yaun
(“Yuan”), Ideal’s Chief Operating Officer, opened the Bank Account and
established himself as the sole signatory on the Bank Account. (Cao Decl. ¶¶ 3,
5.)
Ideal provides
evidence that from 2019 to 2021, payments were made from LA GreenWheels to
Ideal from the Bank Account. (Cao Decl. ¶ 6, Ex. A.) Yaun stopped remitting
funds to Ideal when the Agreement expired on October 13, 2021. (Cao Decl. ¶ 8.)
Ideal asserts that Yuan unlawfully took possession of certain Ideal funds held
in the Bank Account. (Cao Decl. ¶ 9.) Despite Fleet One Factoring making
payments to LA GreenWheels during October 2021 and November 1, 2021, totaling
$976,279.09, none of those funds were forwarded to Ideal. (Cao Decl. ¶ 10.) Cao
believes that those funds are in danger of being diverted by Cross-Defendants .
such that an order is needed to prevent the funds from being diverted, or if
they were diverted, ordering that the funds be restored. (Cao Decl. ¶ 11, 12.)
A.
Reasonable
Probability on Prevailing on the Merits
“In seeking a
preliminary injunction, [the party seeking the injunction] b[ears] the burden
of demonstrating both likely success on the merits and the occurrence of
irreparable harm.” (Savage v. Trammell Crow Co. (1990) 223 Cal.App.3d
1562, 1571.) A plaintiff seeking injunctive relief must show the absence of an
adequate damages remedy at law. (CCP § 526(a)(4).) “Injunctions will rarely be
granted (absent specific statutory authority) where a suit for damages provides
a clear remedy.” (Weil & Brown, Civ. Proc. Before Trial (The Rutter Group
2016) ¶ 9:519.)
The court agrees that
Ideal’s moving papers fail to discuss the likelihood of success on the merits
as to any of the three causes of action alleged against Cross-Defendants. Ideal
raises the point for the first time on reply in response to the
Cross-Defendants' assertion that Ideal has not established an ownership
interest in the funds in the Bank Account.
Cross-Defendants
assert that Ideal failed to sue LA GreenWheels for its failure to transfer
funds to Ideal and failed to present evidence that LA GreenWheels is a wholly
owned subsidiary of Ideal. As stated above, Cross-Defendants produced evidence
that LA GreenWheels is independently owned by Cross-Defendant Yuan.
(Cross-Defendants’ RJN Ex. 1, 2.) Cross-Defendants also state that Ideal fails
to show that any of the business contracts LA GreenWheels required it to remit
the funds to Ideal. Cross-Defendants attach a copy of a purchase agreement
between WEX Bank supported by Fleet One Factoring, LLC and LA
GreenWheels, that makes no reference to Ideal or transmitting funds to Ideal.
(Totten Decl. ¶ 2, Ex. A.) The court agrees that Ideal fails to show that an
agreement existed between Ideal and LA GreenWheels that required LA GreenWheels
to remit funds to Ideal and that if such an agreement existed, the obligation
did not expire at the time Ideal’s Agreement expired.
Accordingly, Cross-Defendants
maintain that Ideal cannot prove that LA GreenWheels was a wholly owned
subsidiary of Ideal. Moreover, Cross-Defendants argue that even if LA
GreenWheels was required to transfer funds to Ideal, any such duty expired on
October 13, 2021, when Ideal’s operating agreement was set to expire.
(Cross-Complainants’ RJN Ex. 1.) Accordingly, Ideal’s claim that the course of
dealing showed LA GreenWheels issued about 27 checks to Ideal, does not support
the finding that the obligation to continue giving funds to Ideal continued
after October 13, 2021, when Ideal’s operating agreement expired.
As Ideal has failed
to show that it continues to have an ownership interest in the Bank Account,
Ideal fails to meet its burden of showing it has a probability of succeeding on
the merits.
B.
Balance of Equities
Ideal
contends that it will suffer irreparable harm if the court does not issue a
preliminary injunction because if the funds of LA GreenWheels are diverted it
would likely render Cross-Defendants insolvent and unable to pay damages owed
to Cross-Complainants. Cross-Defendants argue that the court lacks personal
jurisdiction over LA GreenWheels because it is not a named party in this
action. However, Ideal is not seeking an order requiring LA GreenWheels to turn
over funds in the Bank Account to Ideal. Instead, as shown by the proposed
order, the order is aimed at Cross-Defendants and their offers, employees, and
agents and seeks to enjoin them from diverting funds from the Bank Account and
if the funds have been diverted, an order requiring that the funds be restored.
That LA GreenWheels has not been served in this action is irrelevant as the
remedy Ideal seeks in this Motion does not require LA GreenWheels’
participation, but that of Yuan and other Cross-Defendants who control or have
access to the Bank Account.
Cross-Defendants
assert that LA Green Wheels is not a wholly owned subsidiary of Ideal, but is
an independent company owned by Yuan. (Cross-Defendants RJN Ex. 1, 2.) Ideal
fails to rebut this evidence. Therefore, Ideal fails to show after its
Agreement expired on October 13, 2021, LA GreenWheels had a continuing
obligation to transfer funds to Ideal and that Ideal continues to have an
ownership interest in the funds held in the Bank Account. Moreover,
Cross-Defendants assert Ideal fails to present evidence LA GreenWheels will or
has actually diverted funds from the Bank Account. “An injunction cannot issue
in a vacuum based on the proponents' fears about something that may happen in
the future. It must be supported by actual evidence that there is a realistic
prospect that the party enjoined intends to engage in the prohibited activity.”
(Korean Philadelphia Presbyterian Church v. California Presbytery
(2000) 77 Cal.App.4th 1069, 1084.)
The only evidence
offered by Ideal is Cao’s declaration as Chief Executive Officer stating that
LA GreenWheels is a wholly owned subsidiary of Ideal. (Cao Decl. ¶ 4.) Ideal
failed to show that LA GreenWheels’ operating agreement or governing documents
show that LA GreenWheels is a wholly owned subsidiary of Ideal. Moreover, the
checks LA GreenWheels sent to Ideal only indicate that it was for “factor” and
not because of agreement the parties. (Cao Decl. Ex. A.) Moreover, the checks
stopped after Ideal’s operating agreement expired, and Ideal failed to produce
evidence that LA GreenWheels has a continued obligation to send checks.
Accordingly, Ideal fails to show that it has an ownership interest in the Bank
Account and that Cross-Defendants have wrongfully diverted funds from the Bank
Account. Without such evidence, the court cannot find that Cross-Defendants
have diverted funds to be insolvent at the time of judgment and that the
damages they currently seek are inadequate to compensate Ideal.
Based on the above,
the Motion is denied.
Conclusion
Cross-Complainant
Ideal’s Motion for a Preliminary Injunction is denied.