Judge: H. Jay Ford, III, Case: 23SMCV00648, Date: 2023-05-25 Tentative Ruling

Case Number: 23SMCV00648    Hearing Date: May 25, 2023    Dept: O

  Case Name:  Jamal Holdings (US), Inc., et al. v. 9010 Melrose Avenue, LLC, et al.

SUBJECT:                 MOTION FOR PRELIMINARY INJUNCTION

MOVING PARTY:   Plaintiffs Jamal Holdings (US), Inc., 0999849 B.C. Ltd. d/b/a Hardy Capital Ltd., Innhouse US Investments Inc., UVMA, Inc. and Arya Alexander  

RESP. PARTY:         Defendants 9010 Melrose Avenue, LLC, Futura Media, Inc., Boujis US 1, LLC, Bouis Group, LLC, Draycott LA, LLC, Issima 627 La Peer LLC, Olivetta La Peer, LLC, 8478 Melrose Avenue, LLC, Cadogan Hospitality Collective, LLC, Hermer Enterprises, LLC

TENTATIVE RULING

            Plaintiffs Jamal Holdings (US), Inc., 0999849 B.C. Ltd d/b/a Hardy Capital Ltd., Innhouse US Investments Inc., UVMA, Inc. and Arya Alexander’s Motion for Preliminary Injunction is GRANTED in part.  The Court will issue the preliminary injunction using the same terms as the current temporary protective order.

In deciding whether to issue a preliminary injunction, a court must weigh two interrelated factors:  (1) the likelihood that the moving party will ultimately prevail on the merits, and (2) the relative interim harm to the parties from issuance or non-issuance of the injunction.  Butt v. State of California, 4 Cal. 4th 668, 677-78 (1992); Alliant Ins. Services, Inc. v. Gaddy (2008) 159 Cal. App. 4th 1292, 1299.  “The trial 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, supra, 4 Cal. 4th at 678. 

            The general objective in issuing a preliminary injunction is to preserve the status quo.  See Continental Baking Co. v. Katz (1968) 68 Cal.2d 512, 528.  In addition, it is rarely appropriate to grant a preliminary injunction that not only does not preserve the status quo but also grants the ultimate relief sought in the action, before trial.  See Paramount Pictures Corp. v. Davis (1965) 228 Cal.App.2d 827.  A preliminary injunction must not issue unless the plaintiff can demonstrate reasonable probability that he will prevail on the merits, regardless of the balancing of the hardships or the irreparable nature of the harm.  See San Francisco Newspaper Printing Co. v. Superior Court (1985) 170 Cal.App.3d 438, 442.

I.  Plaintiffs establish a probability of prevailing on the merits of their claims for breach of contract, breach of fiduciary duty and conversion

            As moving party, Plaintiffs bear the burden of establishing all necessary elements to justify issuance of the injunction.  See O'Connell v. Sup.Ct. (Valenzuela) (2006) 141 Cal.App.4th 1452, 1481.  This requires Plaintiffs to provide the Court with admissible evidence establishing irreparable harm and the likelihood that Plaintiff will prevail on the merits in this action.  See CCP §527(a).  A preliminary injunction must not issue unless the Plaintiff can demonstrate reasonable probability that he will prevail on the merits, regardless of the balancing of the hardships or the irreparable nature of the harm.  See San Francisco Newspaper Printing Co. v. Superior Court (1985) 170 Cal.App.3d 438, 442. 

            In order for Plaintiffs to prevail at trial they must establish their claims by a preponderance of the evidence.  In civil cases, the requisite degree of proof is generally a “preponderance” of the evidence: “Except as otherwise provided by law, the burden of proof requires proof by a preponderance of the evidence.”  Ev.C. § 115.  “Preponderance of the evidence” means evidence that has more convincing force than that opposed to it. “If the evidence is so evenly balanced that [the jury is] unable to say the evidence on either side of an issue preponderates, [the jury's finding] on that issue [must be] against the party who had the burden of proving it.”  See BAJI 2.60 (emphasis and brackets added); compare CACI 200—“more likely to be true than not true.”  “The trial court is the judge of the credibility of the affidavits filed in support of the application for preliminary injunction and it is that court's province to resolve conflicts.”  Yu v. University of La Verne (2011) 196 Cal.App.4th 779, 787 (substantial evidence supported trial court’s factual determination that university’s disciplinary action against student was not based on student’s exercise of speech rights). 

Plaintiffs’ complaint alleges that Defendants breached the Subscription and Operating Agreements of 9010 Melrose Avenue, LLC and converted the funds of 9010 Melrose Avenue, LLC by overpaying the Hermers and Futura management fee, making loans to the Hermer LLCs without approval of Members and using 9010 Melrose Avenue’s assets for the benefit of Hermer LLCs.  See Complaint, ¶¶118, 119, 130-136. 

            Defendants admit that they pooled resources and funds of the Hermer LLCs and 9010 Melrose Avenue, LLC in order to survive the impact of the COVID pandemic.  Defendants characterize the use of 9010 Melrose Avenue’s funds for the benefit of the Hermer LLCs as “intercompany balances” and admit to transferring funds belonging to 9010 Melrose Avenue to the various Hermer LLCs for the benefit of those Hermer LLCs.  See Dec. of Marissa Hermer, ¶13; Dec. of Matthew Hermer, ¶¶16-19; Dec. of K. Elam, ¶¶10-31. 

Therefore, based on Defendants’ own admissions, they “loaned” 9010 Melrose Avenue LLC’s funds to other Hermer LLCs for the benefit of Hermer LLC.  Defendants insist this was done for the collective benefit of the Hermer LLCs and 9010 Melrose Avenue. 

However, regardless of Defendants’ motivation for making these intercompany loans, the admitted conduct is a breach of the Operating Agreement, a breach of fiduciary duty and a conversion of 9010 Melrose’s assets.  Defendant Futura and Defendants Hermers as Futura’s principals were only allowed to access and use the assets of 9010 Melrose in accordance with the Operating Agreement.  The Operating Agreement expressly states that the sole purpose of 9010 Melrose was the operation of a Mediterranean restaurant “located at 9010 Melrose Avenue, West Hollywood, California 90069 (the ‘Restaurant’).  See Dec. of C. Dance, Ex. E, Subscription Agreement, Ex. A, Operating Agreement, Recitals, para. 3.  Keeping the other Hermer LLCs afloat during COVID is not part of the stated purpose of 9010 Melrose Avenue. 

In addition, the Operating Agreement also limits the authority of Futura in managing 9010 Melrose.  The limitations prohibit Futura from (1) merging the Company with any other Person; and (2) lending to any Person any funds, capital assets or credit of the Company in excess of Ten Thousand ($10,000) Dollars in value other than trade payment payables incurred in the ordinary course of the Company’s business.  See Dec. of C. Dance, Ex. E, Subscription Agreement, Ex. A, ¶5.05(b) and (d).  The Hermers’ admission that they operated 9010 Melrose and their other LLCs as a single enterprise and that they transferred assets of 9010 Melrose to those LLCs to help keep them afloat would support a finding of breach of the Operating Agreement. 

Despite these admissions, Defendants argue their actions have not damaged 9010 Melrose in any way, because the funds floated to the Hermer LLCs have all been repaid.  According to Plaintiffs’ accountant Ziegler-Benjamin, (1) $8.6 million of 9010 Melrose’s funds were diverted by the Hermers for their own personal purposes with no benefit to the Company and for the benefit of their other business ventures, the Hermer LLCs; (2) only $3.5 million have been repaid; and (3) $5,170,200 is still due back to 9010 Melrose.  See Dec. of E. Ziegler-Benjamin, ¶23.  Ziegler-Benjamin adjusted her assessment of the amount of excessive management fees are due in a supplemental declaration.  See Supp. of Dec. of E. Ziegler-Benjamin, ¶6.

Defendants’ accounting expert contends there are no funds due because they have all been repaid.  However, Defendants’ expert fails to indicate when the alleged repayments were made. Were these repayments after the fact and post-litigation, including Plaintiffs’ prior action for production of corporate records?  In addition, assuming these were loans, the repayment does appear to include appropriate interest.  Defense expert does not mention inclusion of interest in repayments. 

Defense expert’s conclusion that a $0 balance is due from entities to 9010 Melrose is insufficiently supported with explanation and reasoning.  For example, Defense expert refers to Ziegler-Benjamin’s finding that Olivetta La Peer owes 9010 Melrose an outstanding balance of $1,088,068, which includes amounts paid by 9010 Melrose to Olivetta for Olivetta’s taxes.  See Dec. of E. Ziegler-Benjamin, Ex. O.  According to Defense expert Elam, Olivetta La Peer’s outstanding balance is actually zero because “the accounting records of Olivetta La Peer that show the offset of this balance as a receivable of the same amount, which ultimately flows to the 9010 Melrose tax returns, creating a $0 net effect.”  See Dec. of K. Elam, ¶22.  Elam’s explanation for why the balance showing as a receivable on Olivetta La Peer’s accounting records qualifies as full payment of the $1,088,068 improperly transferred from 9010 Melrose to Olivetta La Peer.

In addition, Elam’s declaration is not executed in compliance with CCP §2015.5.  Elam executed the declaration in Texas.  See Dec. of K. Elam, p. 14.  Elam was required to include the following certification in his declaration:  “I certify (or declare) under penalty of perjury under the laws of the State of California that the foregoing is true and correct.”  CCP §2015.5(b).  No such certification is included. 

II.  Balancing of Harms

            Plaintiffs establish that 9010 Melrose will suffer greater harm if the requested injunction does not issue.  Defendants are disregarding the separate corporate existence and interest of 9010 Melrose from that of the Hermers and the Hermers’ LLCs.  Defendants are admittedly operating in violation of the Operating Agreement and Subscription Agreement of 9010 Melrose and contrary.  If the injunction issues as modified by this Court, it would only prevent Defendants from continuing to disregard the separate interest and existence of 9010 Melrose from the Hermers and the Hermers’ other LLCs.  Plaintiffs establish that Defendants’ conduct jeopardizes the operation of 9010 Melrose, because the Hermers are prioritizing the interests of their other LLCs over the interest of 9010 Melrose, or at the very least, equating those interests as one and the same. 

III. Irreparable Harm

“[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.”  Pacific Decision Sciences Corp. v. Superior Court (2004) 121 Cal.App.4th 1100, 1110 (court improperly issued attachment order as to out of state property; plaintiff could not “convert” attachment order into an injunctive order given plaintiff failed to demonstrate inadequacy of monetary damages); see also Tahoe Keys Property Owners' Assn. v. State Water Resources Control Bd. (1994) 23 Cal.App.4th 1459, 1471 (“In general, if the plaintiff may be fully compensated by the payment of damages in the event he prevails, then preliminary injunctive relief should be denied”). 

An injunction will ordinarily not issue where only money is at stake and damages will compensate for the loss.  CCP §526(a)(4) and (5).  However, injunctions are appropriate where plaintiff seeks to enjoin dissipation of specific funds or assets and there is a claim for constructive trust asserted.  See Heckmann v. Ahmanson (1985) 168 Cal.App.3d 119, 136 (trial court properly issued injunction over specific profits generated from sale of stock where complaint sought constructive trust over those funds and loss of specific funds would leave plaintiff with inadequate monetary damages).

An injunction may also issue where money damages would be inadequate or extremely difficult to calculate. CCP §526 (a)(4) & (5); Thayer Plymouth Center, Inc. v. Chrysler Motors Corp. (1967) 255 Cal.App.2d 300, 306.  If the defendant is shown to be insolvent, a monetary judgment may be inadequate.  See West Coast Const. Co. v. Oceano Sanitary Dist. (1971) 17 Cal.App.3d 693, 700.  “[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.”  Pacific Decision Sciences Corp. v. Superior Court (2004) 121 Cal.App.4th 1100, 1110. 

Plaintiffs establish irreparable harm if the requested injunction does not issue.  Plaintiffs are not only alleging monetary loss in the form of damages, but misappropriation and conversion of specific funds.  Plaintiffs are also alleging Defendants’ intentional disregard of the separate existence of 9010 Melrose, in which they agreed to invest, and the Hermer LLCs, in which they never agreed to invest.  Plaintiffs’ and Defendants’ evidence support these allegations. 

  Case Name:  Jamal Holdings (US), Inc., et al. v. 9010 Melrose Avenue, LLC, et al.

SUBJECT:                 MOTION FOR ORDER APPOINTING RECEIVER   

MOVING PARTY:   Plaintiffs Jamal Holdings (US), Inc., 0999849 B.C. Ltd. d/b/a Hardy Capital Ltd., Innhouse US Investments Inc., UVMA, Inc. and Arya Alexander  

RESP. PARTY:         Defendants 9010 Melrose Avenue, LLC, Futura Media, Inc., Boujis US 1, LLC, Boujis Group, LLC, Draycott LA, LLC, Issima 627 La Peer LLC, Olivetta La Peer, LLC, 8478 Melrose Avenue, LLC, Cadogan Hospitality Collective, LLC, Hermer Enterprises, LLC

TENTATIVE RULING

            Plaintiffs’ Motion for Appointment of Receiver is GRANTED pursuant to CCP §564(b)(1) and (9).  The Court intends to adopt the Amended Proposed Order Appointing Receiver submitted by Plaintiff on May 19, 2023.

            Plaintiffs move for appointment of a receiver (1) to take possession, custody and control of 9010 Melrose Avenue, LLC and its assets; (2) to operate and manage its principal operating asset, Olivetta Restaurant, located at 9010 Melrose Avenue, West Hollywood, CA; (3) to replace the current manager, Futura Media, Inc.; and (4) to remove Futura Media, Inc.’s president, Matthew Hermer and Marissa Hermer, who is allegedly an officer and owner of Futura Media, Inc., from any involvement or control over the finances of 9010 Melrose Avenue and/or the operation of Olivetta Restaurant.  Plaintiffs also ask that the Court order Futura and the Hermers to turn over to the receiver possession of the Olivera restaurant, all financial and management records, all insurance information on the property, and all monies relating to the property.  Plaintiffs seek appointment of a receiver pursuant to CCP §564(b)(1) and (9). 

             As discussed in greater detail in the preliminary injunction, the Hermers have admitted that they indiscriminately pool the resources and assets of 9010 Melrose and their other business ventures.  Based on the Hermers’ declarations, they do not believe this pooling of resources and assets violates any legal or contractual duties.  The Court disagrees based on Plaintiffs’ showing, including the Subscription and Operating Agreements of 9010 Melrose.  Based on the expert declarations of Plaintiffs’ and Defendants’ assets, the Hermers have also failed to properly keep the accounting records of 9010 Melrose, necessitating back-end payments and entries.   Appointment of a receiver is necessary to preserve the assets of 9010 Melrose from continued pooling and use for operation of the Hermers’ other entities.