Judge: Glenda Sanders, Case: 2019-01050162, Date: 2022-11-03 Tentative Ruling
Intervenors Norman Rockmaker, as Trustee of the Norbrite, Inc. Retirement Trust, Alice Noble, as Trustee of the Noble Family Trust dated 11/21/83, Mike Rozenblatt as Trustee of the Manhattan Revocable Trust dated 4/16/2013, and Eric Swindemann seek a preliminary injunction as follows:
(1) Restraining and enjoining Defendants TwinRock Partners, LLC, TwinRock Holdings, LLC, TRP Management Murrayfield, LLC, TwinRock Management Inc., Alexander Philips, and Michael L. Meyer, their officers, directors, successors in interest, agents, employees, attorneys in fact, affiliates, and all those in active concert and participation with them (collectively, TwinRock Enterprise) from causing MO Murrayfield, LLC (Murrayfield) to enter into any settlement agreement in connection with TwinRock Holdings, LLC, et al. v. Southside Ventures, LLC, et al., Case No. 18BA-CV00443 (Missouri Lawsuit) without first obtaining the affirmative vote and approval of the Unconflicted Members holding a majority of the Unconflicted Membership Interests, which shall be obtained by calling a meeting of the members of Murrayfield pursuant to Section 5.2 of Murrayfield’s Operating Agreement;
(2) Requiring Murrayfield’s Managing Member, TRP Management Murrayfield, LLC, to call a meeting of the members of Murrayfield pursuant to Section 5.2 of Murrayfield’s Operating Agreement to be held within ten (10) days of the Court’s Order so the Unconflicted Members can vote to approve the appointment of an Unconflicted Member (or a committee of Unconflicted Members) to serve as Murrayfield’s legal representative (Murrayfield’s Legal Representative);
(3) Murrayfield’s Legal Representative shall: (i) have full power of attorney to act on Murrayfield’s behalf with respect to any matters relating to Murrayfield’s interests in the Missouri Lawsuit; (ii) owe Murrayfield fiduciary duties of undivided loyalty and reasonable care with respect to the management, direction, control, supervision, and oversight of Murrayfield’s interests in the Missouri Lawsuit; and (iii) be indemnified by Murrayfield to the same extent the Managing Member is indemnified pursuant to Section 5.4 of the Operating Agreement; and
(4) Murrayfield’s Legal Representative’s powers and duties shall become effective immediately once Murrayfield’s Legal Representative is voted on and appointed by the Unconflicted Members holding a majority of the Unconflicted Membership Interests present at the meeting, and shall remain in full force and effect until the sooner of (i) a final judgment in the Missouri Lawsuit is issued and the time to appeal the judgment expires; (ii) Murrayfield’s claims against each and every defendant in the Missouri Lawsuit are fully settled; or (iii) the Unconflicted Members holding a majority of the Unconflicted Membership Interests vote to appoint a new legal representative to serve as Murrayfield’s Legal Representative in accordance with the provisions set forth above.
Intervenors argue a preliminary injunction is necessary because of the clear conflicts of interests between TwinRock Partners, LLC, TwinRock Holdings, LLC, TRP Management Murrayfield, LLC, TwinRock Management Inc., Alexander Philips, and Michael L. Meyer (collectively, TwinRock Defendants) and Murrayfield. Intervenors contend the TwinRock Defendants have used their position as the managing member of Murrayfield for their own benefit in order to obtain potential damages in the Missouri Lawsuit that belong to Murrayfield. In particular, Intervenors contend TwinRock Defendants hired counsel that they control to represent Murrayfield in the Missouri Lawsuit, failed to differentiate between the claims of TwinRock Holdings, LLC and TwinRock Partners LLC (collectively referred to as TwinRock) and Murrayfield in the Missouri Lawsuit in order to gain standing and obtain damages due to Murrayfield, preventing Murrayfield from obtaining a loan to finance the Missouri Litigation to force Murrayfield to obtain a “loan” from the TwinRock Defendants, and concealing these conflicts and actions from Intervenors. As such, among other things, Intervenors contend that TwinRock Defendants have breached their fiduciary duties and duty of loyalty to Murrayfield. See ROA 1751, Complaint in Intervention, ¶¶158-217, ¶¶296-301 [10th COA for Breach of Fiduciary Duty in Connection with Murrayfield’s Claims Against Seller and Marcus & Millichap], ¶¶302-307 [11th COA for Breach of Duty of Undivided Loyalty in Connection with TwinRock’s Purported Loan to Murrayfield].
Intervenors contend that they will suffer irreparable harm if the Court does not enjoin TwinRock Defendants from settling the Missouri Lawsuit without first obtaining the approval of the unconflicted members of Murrayfield and requiring that Murrayfield’s interests in the Missouri Lawsuit be directed and controlled by an independent legal representative voted on and appointed by a majority of the unconflicted members of Murrayfield. ROA 1771, P&A, pp. 2, 11-15.
In Opposition, TwinRock Defendants argue that Intervenors should not be permitted to interfere in the Missouri Lawsuit, which is not pending before this Court, and have not demonstrated any irreparable harm because there is an adequate remedy at law and any compensatory damages can be quantifiable. Rather, TwinRock Defendants contend they will suffer irreparable harm if an injunction is granted because it will interfere with TwinRock Defendants’ ability to settle the Missouri Lawsuit.
Additionally, TwinRock Defendants argue that Intervenors’ request to change counsel is moot since Spencer Fane LLP (Spencer Fane), Murrayfield’s and TwinRock’s counsel in the Missouri Lawsuit, filed a motion to withdraw, which was granted by the Missouri court. ROA 1853, D. Rozenblatt Decl., at ¶10 and Ex. 9.
TwinRock Defendants also contend that Murrayfield’s motion improperly asks this Court to re-write Murrayfield’s Operating Agreement and to issue an order requiring a meeting be held within 10 days that is contrary to the express notice requirements for meetings in the Operating Agreement.
Further, TwinRock Defendants argue Intervenors have not met the high standard for demonstrating the likelihood of success for the issuances of a mandatory injunction and that Intervenors unreasonably delayed in bringing this motion.
Relevant Authority: A preliminary injunction is proper only when there is a substantial basis for supposing that the defendant, if not restrained, will actually engage in the conduct to be enjoined. (Epstein v. Superior Court (2011) 193 Cal.App.4th 1405, 1410.) The plaintiff's request for injunctive relief must be supported by evidence that there is a realistic prospect that the defendant intends to engage in prohibited activity. (Korean Philadelphia Presbyterian Church v California Presbytery (2000) 77 Cal.App.4th 1069, 1084.)
“’Irreparable harm’ is a cornerstone of the availability of . . . injunctive relief . . . . In the context of injunctions, insolvency or the inability to otherwise pay money damages is a classic type of irreparable harm.” (California Retail Portfolio Fund GmbH & Co. KG v. Hopkins Real Estate Group (2011) 193 Cal.App.4th 849, 857. See also West Coast Const. Co. v. Oceano Sanitary Dist. (1971) 17 Cal.App.3d 693, 700 [court may properly consider the solvency of the party against whom judgment is sought]; Pacific Decision Sciences Corp. v. Superior Court (2004) 121 Cal.App.4th 1100, 1110 [“[B]efore a court may issue a nonstatutory injunction as a provisional remedy for breach of contract, it must appear that monetary relief would not afford adequate relief or that it would be extremely difficult to ascertain the amount of damages.”].)
In determining whether to issue a preliminary injunction, the trial court considers two interrelated factors: (1) the likelihood that the plaintiff will prevail on the merits at trial and (2) the interim harm that the plaintiff is likely to sustain if the injunction is denied as compared to the harm that the defendant is likely to suffer if the court grants a preliminary injunction. (Abrams v. St. John's Hospital & Health Center (1994) 25 Cal.App.4th 628, 635–36; Smith v. Adventist Health System/West (2010) 182 Cal.App.4th 729, 749.) The court’s determination must be guided by a mix of the potential-merit and interim-harm factors; the greater the plaintiff’s showing on one, the less must be shown on the other to support an injunction. (Butt v. State of California (1992) 4 Cal.4th 668, 678.) Absent a reasonable probability of success, the court should deny a preliminary injunction. (Jessen v. Keystone Savings and Loan Assoc. (1983) 142 Cal.App.3d 454, 459.)
The moving party bears the burden of showing all elements necessary to support the issuance of a preliminary injunction. (O’Connell v. Superior Court (2006) 141 Cal.App.4th 1452, 1482.) “Granting or denying an injunction is within the sound discretion of the trial court and will be upheld on appeal absent an abuse of discretion.” (Jessen v. Keystone Savings & Loan Assn., supra, 142 Cal.App.3d at 458 (trial court did not abuse its discretion in denying injunction; there was “substantial evidence” to show that plaintiffs have not shown a reasonable likelihood of success on the merits where plaintiffs proffered nothing but their verified complaint and defendant responded with a verified answer and specific declarations from percipient witnesses).)
Although the general purpose of this interim measure is to preserve the status quo pending a determination on the merits of the action, the court “also has the power to issue a preliminary injunction that ‘ “ ‘mandates an affirmative act that changes the status quo’ ” ’ [citation], but should do so only in those ‘ “ ‘extreme cases where the right thereto is clearly established.’ ” ’ ” (Integrated Dynamic Solutions, Inc. v. VitaVet Labs, Inc. (2016) 6 Cal.App.5th 1178, 1183–1184, 211 Cal.Rptr.3d 873 (Integrated Dynamic).)
(Brown v. Pacifica Found., Inc. (2019) 34 Cal. App. 5th 915, 925.)
Likelihood of Success: The Complaint in Intervention asserts several causes of action against TwinRock Defendants, but Intervenors only discuss their breach of fiduciary duty claims related to the Missouri Lawsuit against TwinRock Defendants. ROA 1771, P&A, pp. 11-12; ROA 1849, Reply, at pp. 3-8.
The Complaint in Intervention alleges separate direct and derivative breach of fiduciary duty claims against TwinRock Defendants. ROA 1751, Complaint, 8th & 10th COAs. Relevant here is the derivative breach of fiduciary duty claim, which alleges TwinRock Defendants “(1) attempted to enter into self-dealing transactions with Murrayfield whereby the TwinRock Defendants will keep for themselves at least 50% of any recovery from the Missouri Lawsuit; (2) misled Members about the extent of damages Murrayfield is entitled to seek; and (3) failed to retain a separate, independent law firm to represent Murrayfield.” ROA 1751, Complaint, 10th COA, ¶298.
Intervenors also allege direct and derivative claims for breach of the duty of undivided loyalty against TwinRock Defendants, which falls within TwinRocks’ fiduciary duties. ROA 1751, ROA, 9th and 11th COAs. Relevant here is the derivative claim for breach of duty of undivided loyalty which alleges TwinRock Defendants “(1) purported to agree to loan terms on Murrayfield’s behalf whereby Murrayfield borrows money from the TwinRock Defendants in order to pay for the TwinRock Defendants’ legal costs in the Missouri Lawsuit and California Actions; (2) purported to agree to loan terms on Murrayfield’s behalf whereby Murrayfield is obligated to compensate the TwinRock Defendants the greater of 35% of the recovery in the Missouri Lawsuit or 3.75x the loan amount, irrespective of whether or when any principal amounts were actually lent to Murrayfield; (3) attempted to coerce the Members into releasing the TwinRock Defendants from all claims by offering better loan terms (the Carrot Terms) than the purported loan terms (the Stick Terms); (4) made false and/or misleading representations and omissions about the loan that was purportedly made by Murrayfield; (5) made false and/or misleading representations and omissions about the purpose of the loan, Murrayfield’s obligation to accept the loan, and Murrayfield’s obligation to pay for the TwinRock Defendants’ legal costs in the Missouri Lawsuit and California Actions; (6) made false and/or misleading representations and omissions about the availability of litigation financing and typical litigation financing terms; and (7) intend to fraudulently pay themselves a “lender participation” fee on loan amounts that were never actually loaned to Murrayfield.” ROA 1751, Complaint, 11th COA, ¶304.
As Intervenors correctly point out, TwinRock Defendants do not object to any of Intervenors’ evidence or address any of Intervenor’s allegations, arguments or evidence on the merits of the breach of fiduciary duty claim in their Opposition. See generally, ROA 1832, Opp. Instead, TwinRock Defendants argue that because Intervenors seek a mandatory injunction, Intervenors must show the law and facts “clearly favor” their success on the merits, which TwinRock Defendants argue, without evidence, that Intervenors cannot do. ROA 1832, Opp., pp. 9-10. Intervenors have met this burden.
Murrayfield’s Operating Agreement requires that its internal affairs are governed under Delaware law and lawsuits “involving any dispute or matter” arising under the Agreement be brought in federal or state courts in Orange County, California. Noble Decl., Ex. 1, at §§10.5 and 10.8, p. 41. Intervenors contend that Delaware law applies and there is no dispute by TwinRock Defendants.
The elements for breach of fiduciary duty under California and Delaware law, are the same: (1) the existence of a fiduciary duty; (2) breach of the fiduciary duty; and (3) damages. (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 820; In re PennySaver USA Publ'g, LLC (Bankr. D. Del. 2018) 587 B.R. 445, 464.)
Under Delaware law, there are three ways fiduciary duties can be established in LLCs: (1) the limited liability company agreement; (2) if the LLC agreement, or where the LLC agreement is silent, the manager or director of the LLC owes fiduciary duties to fellow LLC members and the LLC; and (3) in rare and highly fact-specific instances, a fiduciary duty of loyalty has been found if the defendant had actual control over an LLC which control was not granted under the LLC agreement. (In re PennySaver USA Publ'g, LLC, supra, 587 B.R. at 464.; Auriga Cap. Corp. v. Gatz Properties (Del. Ch. 2012) 40 A.3d 839, 856; William Penn P’ship v. Saliba (Del. 2011) 13 A.3d 749, 756 (Del. 2011); Feeley v. NHAOCG, LLC (Del. Ch. 2012) 62 A.3d 649, 660.)
Under California law a “manager of an LLC has a fiduciary duty and owes to the members of the LLC the same duties of loyalty and good faith as a partner owes to the partnership and its partners. (§ 3307; Corp. Code, former § 17153, repealed by Stats. 2012, now § 17704.09.)” (Feresi v. The Livery, LLC (2014) 232 Cal.App.4th 419, 426.) This means, the manager is obligated to act with the utmost loyalty and in the highest good faith when dealing with any member of the LLC and may not obtain any advantage over any other member of the LLC by even the slightest misrepresentation or concealment. (Id. See also, Enea v. Superior Court (2005) 132 Cal.App.4th 1559, 1564.)
TRP Management Murrayfield, LLC (TRP Management), as Murrayfield’s Managing Member, owes fiduciary duties to Intervenors. Since Intervenors allege TwinRock Defendants, including TRP Management, are alter egos (ROA 1751, ¶F), TwinRock Defendants also owe fiduciary duties.
Intervenors contend that the Murrayfield Operating Agreement does not alter TwinRock Defendants’ fiduciary duties of loyalty and care. See ROA 1782, Noble Decl., Ex. 1. There is no dispute otherwise.
Intervenors present undisputed evidence that TwinRock Defendants breached their fiduciary duties by among other things: (i) intentionally conflating Murrayfield’s claims and damages with TwinRock’s claims and damages in the Missouri Lawsuit, (ii) making false allegations regarding TwinRock’s connection to the transaction, (iii) retaininglawyers to represent TwinRock’s interests rather than Murrayfield’s interests, (iv) concealing TwinRock’s relationship with Murrayfield’s lawyers, (v) retaining a single law firm in Missouri to represent both TwinRock and Murrayfield, notwithstanding TwinRock’s knowledge that doing so violates California ethics rules, (vi) preventing Murrayfield from obtaining legitimate litigation funding, and (vii) misleading the members about the extent of Murrayfield’s damages in an attempt to misappropriate Murrayfield’s recovery in the Missouri Lawsuit. See generally, ROA 1776, 1780, 1782, 1784 and Exs. 1 – 14 attached thereto.
Intervenors have demonstrated Murrayfield has been damaged by TwinRock Defendants’ actions. At the very least, it appears TwinRock Defendants prevented Murrayfield from obtaining more favorable third-party financing terms for the litigation and have not sought the full amount of damages to which Murrayfield is entitled in the Missouri Lawsuit. Noble Decl., Exs. 2, 6, 7, 8, 12-14; M. Rozenblatt Decl., ¶7-8, 11.
Irreparable Harm and Balance of Equities:
Irreparable harm may be found and an injunction may be issued to enjoin a party from obtaining funds to which it is not entitled or to prevent the dissipation of funds in a pending suit. (Mitsui Manufacturers Bank v. Texas Commerce Bank-Fort Worth (1984) 159 Cal.App.3d 1051, 1057-59 [beneficiary of letter of credit enjoined from negotiating the instrument to obtain funds to which it was not entitled]; Heckmann v. Ahmanson (1985) 168 Cal.App.3d 119, 136 [owner is entitled to funds intact rather than a “naked claim for damages” against the wrongdoing or having to “trace” assets into the hands of third parties].) This is exactly the relief that Intervenors seek. Intevenors seek an injunction in order to preserve and protect Murrayfield’s rights and interests in the Missouri Lawsuit and prevent TwinRock from obtaining proceeds due to Murrayfield in that lawsuit. Intervenors have demonstrated irreparable harm.
The balance of the equities favor an injunction. As discussed, Intervenors have presented undisputed evidence that TwinRock Defendants have breached fiduciaries duties owed to Murrayfield. The conflicts between the parties were so apparent that Spencer Fane withdrew as counsel for both.
Since the Missouri Lawsuit is currently stayed and new counsel must be obtained, there is an opportunity to permit Murrayfield to have a vote of its nonconflicting members and appoint a legal representative to act on Murrayfield’s behalf in the Missouri Lawsuit.
Further, as the parties are aware, the Court in the present actions has not approved the proposed Settlements amongst the parties. Having independent counsel may help facilitate further settlement discussions and ensure all parties are properly represented.
The Court GRANTS the motion for preliminary injunction but orders that the notice procedures in Section 5.2 of the Murrayfield Operating Agreement apply.
Bond: TwinRock Defendants provide no information on the amount of the bond. Therefore, the Court orders that Intervenors provide a bond in the amount of $1,000 as requested.
Intervenors are ordered to give notice.
(2) Non-Party Geronimo Perez’s Objection and Motion to Strike
Non-Party Geronimo Perez’s Objection and Motion to Strike is DENIED.
Although Perez is counsel for MO Murrayfield, LLC and TRP Fund VII, LLC, he is not a party to this action and has not demonstrated he is permitted the relief he seeks. (DRFP, LLC v. Republica Bolivariana de Venezuela, No. 2:04-cv-793, 2012 WL 995288, at *2 (S.D. Ohio Mar. 22, 2012); see also Commodity Futures Trading Comm'n v. Oasis Int'l Grp., Ltd., No. 8:19-cv-886-VMC-SPF, 2022 WL 1136571, at *1 (M.D. Fla. Apr. 18, 2022) (striking declarations submitted by non-parties individuals on grounds that “none of these non-party individuals has standing to submit such unauthorized filings in this case”); Code Civ. Proc. §§ 367, 387(b)(3) and (d)(2), 420 and 435(b)(1).
Additionally, sufficient notice was not provided for the Motion. (Code Civ. Proc. §§ 435 and 1005.)
Intervenors are ordered to give notice.