Judge James C. Chalfant, Case Number: 22STCV28721, Date: 2023-09-12 Tentative Ruling

1st Source Bank v. Screamline Investment Corporation, et al., 22STCV28721

Tentative decision on application for a preliminary injunction: granted

Plaintiff 1st Source Bank (“Bank”) applies for a preliminary injunction enjoining Defendants Screamline Investment Corporation (“Screamline”), Starline Tours of Hollywood, Inc. (“Starline”), Shoeleh Sapir (“Shoeleh”), Vahid Sapir (“Vahid”), and Karmouz Farhadi (“Farhadi”) from transferring any interest in 2018 MCI J4500 Intercity Vehicles, VIN Nos. 2MG3JMBA4JW068842, 2MG3JMBA6JW068843, and 2MG3JMBA8JW068844 (collectively, “Vehicles”), disposing or encumbering them, concealing them as to make them less available to seizure by a levying officer, impairing their value, or disposing of proceeds from the transfer of any interest in them.

The court has read and considered the moving papers, opposition, and reply,[1] and renders the following tentative decision.

Plaintiff Bank filed this action on September 2, 2022, alleging (1) breach of contract, (2) four causes of action for enforcement of guaranty, (3) claim and delivery, (4) injunctive relief, (5) conversion, (6) unjust enrichment, (7) account stated, and (8) open book account. The Complaint alleges as follows.

On June 6, 2018, Bank and Screamline executed a Loan and Security Agreement (“Loan Agreement”) whereby the Bank agreed to lend money for purchase of the Vehicles, which would then be collateral securing the loan. The parties also executed a Promissory Note (“Note”) for the principal amount owed.

Starline, Farhadi, Shoeleh, and Vahid (collectively, “Guarantors”) executed separate Guaranties of Payment (“Guaranty”) for all sums owed by Screamline, including costs and attorneys’ fees incurred in the collection thereof and the enforcement of the Guaranties.

On April 7 and July 3, 2020, Bank and Screamline entered into Amendment Agreements modifying the terms of the Loan Agreement and Note (collectively, the Loan Agreement, Note, and Amendment Agreements are referred to as the “Loan Documents”).

Bank has perfected its first priority interest in the Vehicles through a Certificate of Title for each Vehicle.

On May 31 and June 16, 2022, Bank gave notice to Screamline and Guarantors that Screamline had defaulted. It demanded payment of the delinquent amounts under the Loan Documents or turnover of the Vehicles.

On June 29, 2022, Bank gave notice to Screamline and Guarantors that it was accelerating the balance due under the Loan Documents and demanding turnover of the Vehicles.

As of August 9, 2022, Screamline owes $971,409.28 plus accrued and unpaid interest, reasonable attorneys’ fees, and other sums. Demands for repayment and turnover of the Vehicles have failed.

Bank seeks (1) $971,409.28, plus accrued and unpaid interest, reasonable attorney’s fees and costs, and other sums against Defendants, (2) recovery of the Vehicles, or present value thereof if recovery cannot be had, (3) a writ of possession for the Vehicles, and (4) injunctive relief enjoining Defendants from concealing or transferring possession of the Vehicles.

Cross-Complainants Screamline and Guarantors filed a Cross-Complaint on April 13, 2023, alleging breach of contract and declaratory relief. The Cross-Complaint alleges in pertinent part as follows.

On June 12, 2018, Screamline borrowed $1,433,396.01 from Bank through the Note. Guarantors signed separate Guaranties for all amounts Screamline owed under the Note.

In March 2020, because COVID-19 and related shutdown orders had impacted business, Bank and Screamline entered an agreement to amend the Note’s repayment terms. Bank then abandoned the repayment terms of the Note, and Screamline made payments as financial circumstances permitted.

On June 29, 2022, Bank purported to call the Note to be paid in full and falsely demanded $1,427,208.04, which Screamline does not actually owe. Other communications show that Bank made this demand in bad faith.

Bank has added false charges to the claimed amount owed and has failed to honor its representations and course of conduct. It has not complied with the March 2020 amendments to accept and credit irregular payments towards the Note to reduce the principal balance owed.

Cross-Complainants seek (1) $2,000,000 plus pre-judgment interest, (2) injunctive, restitutionary, accounting, and declaratory relief, and (3) attorney’s fees and costs.

On March 10, 2023, the court denied Bank’s ex parte application for a writ of possession, turnover order, and temporary restraining order (“TRO”).

On March 14, 2023, Bank withdrew another ex parte application for a writ of possession, turnover order, and TRO.

On March 16, 2023, the court denied the Bank’s ex parte application for a writ of possession, turnover order, and TRO.

On March 24, 2023, Department 50 (Hon. Teresa Beaudet) sustained Defendants’ demurrer to the Complaint’s seventh and ninth causes of action without leave to amend.

On April 13, 2023, Cross-Complainants filed and served the Cross-Complaint and an Answer to the Complaint.

On August 31, 2023, Department 50 dismissed the action without prejudice for all Does.

On September 12, 2023, this court granted a writ of possession to recover the Vehicles against Screamline but denied it as to all other Defendants. It stayed execution of the writ until September 19, 2023 to provide time for an appraisal of the Vehicles and stipulation to modify the writ and require an undertaking.

On October 2, 2023, this court granted Bank’s application for a temporary restraining order (“TRO”) and order to show cause re: preliminary injunction (“OSC”) to enjoin Defendants from transferring any interest in the Vehicles, disposing or encumbering them, concealing them as to make them less available to seizure by a levying officer, impairing their value, or disposing of proceeds from the transfer of any interest in them.

An injunction is a writ or order requiring a person to refrain from a particular act; it may be granted by the court in which the action is brought, or by a judge thereof; and when granted by a judge, it may be enforced as an order of the court. Code of Civil Procedure (“CCP”) §525. An injunction may be more completely defined as a writ or order commanding a person either to perform or to refrain from performing a particular act. See Comfort v. Comfort, (1941) 17 Cal.2d 736, 741. McDowell v. Watson, (1997) 59 Cal.App.4th 1155, 1160.[2] It is an equitable remedy available generally in the protection or to prevent the invasion of a legal right. Meridian, Ltd. v. City and County of San Francisco, et al., (1939) 13 Cal.2d 424.

The purpose of a preliminary injunction is to preserve the status quo pending final resolution upon a trial. See Scaringe v. J.C.C. Enterprises, Inc., (1988) 205 Cal.App.3d 1536. Grothe v. Cortlandt Corp., (1992) 11 Cal.App.4th 1313, 1316; Major v. Miraverde Homeowners Assn., (1992) 7 Cal.App.4th 618, 623. The status quo has been defined to mean the last actual peaceable, uncontested status which preceded the pending controversy. Voorhies v. Greene (1983) 139 Cal.App.3d 989, 995, quoting United Railroads v. Superior Court, (1916) 172 Cal. 80, 87. 14859 Moorpark Homeowner’s Assn. v. VRT Corp., (1998) 63 Cal.App.4th 1396. 1402.

A preliminary injunction is issued after hearing on a noticed motion. The complaint normally must plead injunctive relief. CCP §526(a)(1)-(2).[3] Preliminary injunctive relief requires the use of competent evidence to create a sufficient factual showing on the grounds for relief. See e.g. Ancora-Citronelle Corp. v. Green, (1974) 41 Cal.App.3d 146, 150. Injunctive relief may be granted based on a verified complaint only if it contains sufficient evidentiary, not ultimate, facts. See CCP §527(a). For this reason, a pleading alone rarely suffices. Weil & Brown, California Procedure Before Trial, 9:579, 9(ll)-21 (The Rutter Group 2007). The burden of proof is on the plaintiff as moving party. O’Connell v. Superior Court, (2006) 141 Cal.App.4th 1452, 1481.

A plaintiff seeking injunctive relief must show the absence of an adequate damages remedy at law. CCP §526(4); Thayer Plymouth Center, Inc. v. Chrysler Motors, (1967) 255 Cal.App.2d 300, 307; Department of Fish & Game v. Anderson-Cottonwood Irrigation Dist., (1992) 8 Cal.App.4th 1554, 1565. The concept of “inadequacy of the legal remedy” or “inadequacy of damages” dates from the time of the early courts of chancery, the idea being that an 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. Department of Fish & Game v. Anderson-Cottonwood Irrigation Dist., (1992) 8 Cal.App.4th 1554, 1565.

In determining whether to issue a preliminary injunction, the trial court considers two factors: (1) the reasonable probability that the plaintiff will prevail on the merits at trial (CCP §526(a)(1)), and (2) a balancing of the “irreparable 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. CCP §526(a)(2); 14859 Moorpark Homeowner’s Assn. v. VRT Corp., (1998) 63 Cal.App.4th 1396. 1402; Pillsbury, Madison & Sutro v. Schectman, (1997) 55 Cal.App.4th 1279, 1283; Davenport v. Blue Cross of California, (1997) 52 Cal.App.4th 435, 446; Abrams v. St. Johns Hospital, (1994) 25 Cal.App.4th 628, 636. Thus, a preliminary injunction may not issue without some showing of potential entitlement to such relief. Doe v. Wilson, (1997) 57 Cal.App.4th 296, 304. The decision to grant a preliminary injunction generally lies within the sound discretion of the trial court and will not be disturbed on appeal absent an abuse of discretion. Thornton v. Carlson, (1992) 4 Cal.App.4th 1249, 1255.

A preliminary injunction ordinarily cannot take effect unless and until the plaintiff provides an undertaking for damages which the enjoined defendant may sustain by reason of the injunction if the court finally decides that the plaintiff was not entitled to the injunction. See CCP §529(a); City of South San Francisco v. Cypress Lawn Cemetery Assn., (1992) 11 Cal.App.4th 916, 920.

On September 15, 2023, the court entered an order for a writ of possession against Screamline for the Vehicles. Rasheed Decl., ¶3, Ex. 1. The order authorized entry onto 2130 South Tubeway Avenue, Commerce, California 90040, as well as any public or commercial address. Rasheed Decl., ¶3, Ex. 1. The order included a transfer order for Screamline to transfer possession of the Vehicles, and a warning that failure to do so may subject Screamline to contempt of the court. Rasheed Decl., ¶¶ 3, 8, Ex. 1. Execution of the order was stayed until the end of the business day on September 19, 2023. Rasheed Decl., ¶3, Ex. 1.

On September 19, 2023 at 5:36 p.m., Defendants’ selected appraiser, Clint Guth (“Guth”), emailed Bank’s counsel. Rasheed Decl., ¶4, Ex. 2. This email included a chain of emails between Guth and Defendants regarding turnover of the Vehicles. Rasheed Decl., ¶4, Ex. 2. At 1:58 p.m. that day, Guth had told Defendants that Bank wanted him to pick up the Vehicles the next day unless Defendants wanted to deliver them to a designated location. Rasheed Decl., ¶4, Ex. 2. At 4:19 p.m., Defendants responded that they needed their attorney to approve it. Rasheed Decl., ¶4, Ex. 2. The Vehicles were in the yard and Defendants did not like anyone entering it. Rasheed Decl., ¶4, Ex. 2. They would have the Vehicles delivered if required. Rasheed Decl., ¶4, Ex. 2.

At 7:13 p.m., Bank responded that there was nothing to discuss with Screamline’s lawyer. Rasheed Decl., ¶4, Ex. 2. It sounded like Screamline was refusing to provide possession of the Vehicles by the close of the business day per the court’s order. Rasheed Decl., ¶4, Ex. 2. If it did not allow Guth to pick up the Vehicles the next morning, Bank would seek a contempt ruling against Screamline. Rasheed Decl., ¶4, Ex. 2.

At 6:54 p.m., Bank informed Screamline it was moving forward with retrieving the Vehicles. Rasheed Decl., ¶5, Ex. 3. At 7:01 p.m., Bank added that it had received word that Screamline was preventing collection. Rasheed Decl., ¶5, Ex. 3. The order required Screamline to transfer possession of the Vehicles or risk being held in contempt of court. Rasheed Decl., ¶5, Ex. 3.

On September 20, 2023 at 9:25 a.m., Bank told Screamline to allow Guth to pick up the Vehicles that morning. Rasheed Decl., ¶6, Ex. 4. If Bank did not have possession of all three that day, it would move ex parte for a TRO and contempt. Rasheed Decl., ¶6, Ex. 4.

At 11:56 a.m. that day, Bank sent another email saying Screamline had not cooperated. Rasheed Decl., ¶7, Ex. 5. Bank therefore gave notice that it was moving for a TRO preventing continued obstruction to Bank’s possession of the Vehicles. Rasheed Decl., ¶7, Ex. 5.

Defendants have failed to deliver possession of the Vehicles despite demand to do so. Rasheed Decl., ¶9. The Vehicles are located at 2130 South Tubeway Avenue, Commerce, California. Rasheed Decl., ¶9. Defendants have not made payments on the loans for the Vehicles in over a year. Rasheed Decl., ¶10. Their continued possession of the Vehicles has prevented Bank from mitigating damages. Rasheed Decl., ¶10.

On October 2, 2023, this court granted the Bank’s ex parte application for a TRO. Vivonia Decl., ¶2, Ex. A. It noted that Defendants had not made any substantive arguments against the application in its objection, which the court overruled. Vivonia Decl., ¶2, Ex. A.

When the court granted Bank’s application for a writ of possession on September 12, 2023, it ruled that Bank had provided sufficient evidence via three invoices that Defendants owed at least $997,408.03. Rasheed Reply Decl., ¶¶ 3-4, Exs. A-B.

Bank obtained an order for writ of possession and a writ of possession. Rasheed Reply Decl., ¶5, Exs. C-D. The Sherriff’s Department then asked for an amended order for writ of possession which the court signed on October 23, 2023. Rasheed Reply Decl., ¶6, Ex. E.

Plaintiff Bank applies for a preliminary injunction enjoining Defendants from transferring any interest in the Vehicles, disposing or encumbering them, concealing them as to make them less available to seizure by a levying officer, impairing their value, or disposing of proceeds from the transfer of any interest in them.

Defendants argue that Bank cannot meet its heavy evidentiary burden for a preliminary injunction because its evidence consists of a single declaration from its counsel. Therefore, Bank has not demonstrated a probability of success on any of the Complaint’s causes of action. Opp. at 3-4.

Defendants misunderstand the focus of the requested preliminary injunction. Bank obtained a writ of possession because it had already demonstrated its right to the Vehicles as against Screamline. See CCP §512.010(b). As such, Bank has already demonstrated a probability of success on the merits of the underlying claim. Reply at 3; Rasheed Reply Decl., ¶¶ 3-4, Exs. A-B.

Defendants assert that Bank fails to provide any evidence that they attempted to transfer, convey, encumber, or impair the Vehicles. Opp. at 4. Bank obtained an order for a writ of possession and a turnover order from Defendants. Bank has shown that Defendants have failed to comply with the turnover order despite several demands from opposing counsel. Defendants’ willingness to ignore a court order for turnover of the Vehicles gives rise to an inference that they may transfer or conceal the Vehicles to prevent their recovery by a levying officer.

Defendants finally argue that Bank fails to distinguish between Defendants. Opp. at 3. This argument is spurious. The court granted the application for a writ of possession and turnover order as to Screamline. Rasheed Decl., ¶3, Ex. 1. Starline, Farhadi, Shoeleh, and Vahid are guarantors of Screamline’s debt. Injunctions commonly enjoin not only the parties, but also their officers, employees, and agents. Pitchess v. Superior Court, (1969) 2 Cal.App.3d 653, 656. Any agent of a defendant may be included within the scope of a preliminary injunction and all of Starline, Farhadi, Shoeleh, and Vahid are Screamline’s agents.

The second factor which a trial court examines is the interim harm that 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. Donahue Schriber Realty Group, Inc. v. Nu Creation Outreach, (2014) 232 Cal.App.4th 1171, 1177. This factor involves consideration of the inadequacy of other remedies, the degree of irreparable harm, and the necessity of preserving the status quo. Id.

Defendants do not argue that it would suffer harm from a granted preliminary injunction. The preliminary injunction would maintain the status quo to allow for execution of the writ of possession. This would not cause harm to Screamline, which has lost its right to possess the Vehicles.

Defendants argue that Bank offers no proof that the Defendants will transfer, convey, encumber, or impair the value of the Vehicles in the absence of a preliminary injunction. Opp. at 4. The court has rejected the argument because Screamline has refused to comply with the turnover order.

Bank argues that, until it recovers the Vehicles, it cannot lease them to someone else or otherwise use them to try and reduce the damages from Screamline’s own breach of the Note. Rasheed Decl., ¶10. The balance of hardships favors a preliminary injunction.

The application for a preliminary injunction is granted. Defendants may not transfer any interest in the Vehicles, dispose or encumber them, conceal them as to make them less available to seizure by a levying officer, impair their value, or dispose of proceeds from the transfer of any interest in them.

The court must require a bond supporting the preliminary injunction. The purpose of a bond is to cover the defendant’s damages from an improvidently issued injunction. CCP §529(a). In setting the bond, the court must assume that the preliminary injunction was wrongly issued. Abba Rubber Co. v. Seaquist, (1991) 235 Cal.App.3d 1, 15. The attorney’s fees necessary to successfully procure a decision dissolving the injunction are damages that should be included in setting the bond. Id., supra, 235 Cal.App.3d at 15-16. The greater the likelihood of the plaintiff prevailing, the less likely the preliminary injunction will have been wrongly issued, and that is a relevant factor for setting the bond. Oiye v. Fox, (2012) 211 Cal.App.4^th 1036, 1062. The likelihood of Defendants succeeding in setting aside the injunction is minimal. The bond will be set at $500.

[1] Defendants failed to lodge a courtesy copy of their opposition in violation of the Presiding Judge’s First Amended General Order Re: Mandatory Electronic Filing. Their counsel is admonished to provide courtesy copies of all relevant documents in future filings in this case, including before the I/C judge.

[2] The courts look to the substance of an injunction to determine whether it is prohibitory or mandatory. Agricultural Labor Relations Bd. v. Superior Court, (1983) 149 Cal.App.3d 709, 713. A mandatory injunction — one that mandates a party to affirmatively act, carries a heavy burden: “[t]he granting of a mandatory injunction pending trial is not permitted except in extreme cases where the right thereto is clearly established.” Teachers Ins. & Annuity Assoc. v. Furlotti, (1999) 70 Cal.App.4th 187, 1493.

[3] However, a court may issue an injunction to maintain the status quo without a cause of action in the complaint. CCP §526(a)(3).

[4] In reply, Bank requests judicial notice of (1) the court’s tentative ruling and minute order on the Bank’s application for a writ of possession, both dated September 12, 2023 (RJN Exs. A-B; Rasheed Reply Decl., ¶¶ 3-4, Exs. A-B); and (2) the order for writ of possession, signed October 23, 2023 (RJN Ex. C; Rasheed Reply Decl., ¶6, Ex. E). The court need not judicially notice these documents; it is always free to review prior filings in the current action.