Judge: James C. Chalfant, Case: 22STCV29769, Date: 2022-10-20 Tentative Ruling

Case Number: 22STCV29769    Hearing Date: October 20, 2022    Dept: 85

            Plaintiff Hollywood Lanai Apartments (“Hollywood”) applies for a preliminary injunction enjoining Defendants Paul Krzemuski (“Paul”), as an individual and as Successor Trustee of the Violette Krzemuski, aka Violette Adamian 2013 Family Trust (“Trust”), and Trustee Lender Solutions, Inc. (“Trustee”) from proceeding with foreclosure sale of (1) 210 N. Eucalyptus Ave., Inglewood, California, APN 4020-020-015 (“Eucalyptus Property”); and (2) 235-243 West Regent Street, Inglewood California, APN 4020-020-016 (“Regent Property”) (collectively, the “Properties”).

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

            A. Statement of the Case

            1. Complaint

            Plaintiff Hollywood commenced this proceeding on September 13, 2022, alleging (1) quiet title, (2) cancellation of instruments, (3) slander of title, (4) marshaling of assets, (5) declaratory relief, and (6) permanent and preliminary injunction.  The Complaint alleges in pertinent part as follows.

            George Adamian (“George”) acquired the Regent Property on July 20, 1976 and the Eucalyptus Property on May 18, 1984.  On July 26, 2001, George obtained a $351,000 loan from Point Center Financial by encumbering the Regent Property and a $214,500 loan by encumbering the Eucalyptus Property. 

Also on July 26, 2001, George executed a promissory note for $161,000 to George’s sister, Violette Adamian (“Violette”), in exchange for a deed of trust (“Violette DOT”) against the Regent Property, Eucalyptus Property and two other properties owned by George located at 520 W. Olive Street, Inglewood, California (“Olive Property”) and 2709 E. South Street, Long Beach, California (“South Property”).

            On December 6, 2002, George quitclaimed the Regent Property and Eucalyptus Property to Alice Adamian (“Alice”), as trustee of the Pico-Sepulveda Y2000 Trust (“Pico Trust”).  Alice also quitclaimed any interest she personally had for those properties.        

            On October 17, 2003, George and Alice filed for Chapter 11 bankruptcy and requested the bankruptcy court to (1) authorize them to obtain financing on a senior lien basis from Lone Oak Mortgage Fund, LLC in the amount of $3,050,000 against the Olive, South, Regent, and Eucalyptus Properties (“Loan Oak Loan”); (2) subordinate existing junior liens; and (3) expunge certain liens from title.  On March 11, 2005, the bankruptcy court entered an order approving the request and ordered the Lone Oak Loan to be in first priority position on the properties.  George and Alice secured the Lone Oak Loan on March 28, 2005.

            On November 29, 2006, George obtained a $939,000 loan from East West Bank secured by a deed of trust on the Regent Property.  In connection with this loan, the Violette DOT was forgiven against the Eucalyptus Property.  On the same day, George obtained a $500,000 loan from East West Bank secured by a deed of trust encumbering the Eucalyptus Property, which George used to pay off or otherwise render the Violette DOT unenforceable.

            On June 2, 2009, George executed quitclaim deeds conveying any interest held by him in the Regent Property and Eucalyptus Property to himself as trustee of the George Adamian Living Trust. 

            On December 11, 2012, George sold the Olive Property to Gerard Michael Kabala (“Kabala”).  In the process, he paid off the Lone Oak Loan, which rendered the Violette DOT unenforceable.

            On March 22, 2013, Violette died.  During probate proceedings a year later, Paul, the representative of her estate, claimed that he could not locate the promissory note that was secured by the Violette DOT.  He assumed that the promissory note was non-interest bearing since the parties were related.

            On November 13, 2014, George sold the Regent and Eucalyptus Properties to Hollywood.

            On September 9, 2019, the probate court for Violette’s estate entered an order that distributed the $161,000 promissory note allegedly secured by the Violette DOT to Paul as an individual. 

On April 1, 2022, Paul recorded a Notice of Default and Election to Sale (“Notice of Default”) against the Olive Property, South Property, Regent Property and Eucalyptus Property due to an outstanding loan balance of $663,445.  A second Notice of Default issued on May 31, 2022, reflected a modified balance of $516,506.28.  Paul scheduled a Notice of Trustee’s Sale for September 29, 2022.

            Paul and Trustee do not have the original or copy of the promissory note, or any evidence that Violette ever made a loan to George.  Paul told the probate court that the note had an interest rate of 10% per year plus a 5% late fee per missed payment, but he also represented to the probate court that the note was non-interest bearing.  It is unclear how Paul would have knowledge of the interest rate.  George contends that he never signed any promissory note in favor of Violette and never obtained a $161,000 loan from her.  Paul therefore has no authority to foreclose against the Properties.

            Hollywood seeks (1) a judgment that quiets title for the Properties as of November 13, 2014, and finds that the Violette DOT is invalid and unenforceable; (2) if the Violette DOT is enforceable, a judgment that Defendants must foreclose on the South Property before the Properties; (4) a preliminary and permanent injunction enjoining and restraining all Defendants from selling, transferring, or otherwise disposing of the Properties, including through the trustee’s sale; (5) damages; and (6) attorney’s fees and costs.

            2. Course of Proceedings

            On September 15, 2022, Hollywood filed an ex parte application for a temporary restraining order (“TRO”) and order to show cause re: preliminary injunction (“OSC”) to enjoin Paul and Trustee from proceeding with foreclosure sale of the Properties.  On September 19, 2022, Department 82 (Hon. Mary Stroebel) granted a TRO/OSC and set the hearing date for October 11, 2022.

            On September 19, 2022, Hollywood served Trustee with the Complaint, summons, ex parte application for the TRO/OSC, the TRO/OSC, and supplemental evidence by substitute service effective September 29, 2022.

            On September 21, 2022, Department 47 (Hon. Theresa Traber) related this case to George Adam Adamian vs. Paul Krzemuski, et. al. (“George Adamian”) (2022), 22STCV29709 and assigned both cases to her department.

            On September 28, 2022, Hollywood provided notice that George Adamian is related to Gerard Michael Kabala vs. Paul Krzemuski, et. al. (“Kabala”) (2022), 22STCV30044.

            On September 28, 2022, The OSCs for this case and George Adamian were reassigned to this department.

            On October 4, 2022, Department 47 (Hon. Theresa Traber) granted Hollywood’s ex parte application for the issuance of an order directing that service of the Complaint and summons on Paul be effected by publication thereof in the Daily Journal, the newspaper of general circulation most likely to give notice. 

            On October 5, 2022, this court granted Hollywood’s ex parte application for issuance of a new TRO and resetting the OSC and ordered that Hollywood personally serve Paul by October 10, 2022 and file proof thereof by October 11.  Hollywood also was directed to email Paul and advise him that the court will go forward with the OSC hearing on October 20, 2022 even if only Trustee had not been served.  Hollywood sent that email the same day.

            On October 7, 2022, Hollywood personally served Trustee with the new TRO/OSC and the ex parte application and supporting documents.  On October 7 and 9, 2022, Hollywood’s process server unsuccessfully attempted to serve Paul with the Complaint, Summons, and the ex parte applications. 

            B. Applicable Law

            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.  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.

            C. Statement of Facts[4]

            1. Hollywood’s Evidence

             Prior to 2002, George owned the Eucalyptus, Regent, Olive, and South Properties.  Hollywood RJN Ex. 1 (Compl., ¶¶ 8-9, Exs. 1-2).[5]  On July 26, 2001, George obtained a $351,000 loan from Point Center Financial by encumbering the Regent Property and a $214,500 loan by encumbering the Eucalyptus Property.  Hollywood RJN Ex. 1 (Compl., ¶10, Exs. 3-4).  Also on July 26, 2001, George executed a promissory note for $161,000 for George’s sister Violette in exchange for the Violette DOT against the Regent Property, Eucalyptus Property, Olive Property, and South Property.  Hollywood RJN Ex. 1 (Compl., ¶11, Ex. 5). 

            On December 6, 2002, George quitclaimed the Regent Property and Eucalyptus Property to Alice as trustee of the Pico Trust.  Hollywood RJN Ex. 1 (Compl., ¶12, Ex. 6).  At the same time, Alice quitclaimed any interest she personally had as to those properties.  Hollywood RJN Ex. 1 (Compl., ¶12).

            On October 17, 2003, George and Alice filed for Chapter 11 bankruptcy and requested the bankruptcy court to (1) authorize them to obtain financing on a senior lien basis from Lone Oak Mortgage Fund, LLC in the amount of $3,050,000 against the Olive, South, Regent, and Eucalyptus Properties (“Loan Oak Loan”); (2) subordinate existing junior liens; and (3) expunge certain liens from title.  Hollywood RJN Ex. 1 (Compl., ¶13).  On March 11, 2005, the court entered an order approving the request and ordered the Lone Oak loan to be in first priority position on the properties.  Hollywood RJN Ex. 1 (Compl., ¶13, Ex. 7).  George and Alice secured the Lone Oak Loan via deed of trust against all four properties on March 28, 2005.  Hollywood RJN Ex. 1 (Compl., ¶14). 

            On November 29, 2006, George obtained (1) a $939,000 loan from East West Bank, secured by a deed of trust encumbering the Regent Property; and (2) a $500,000 loan from East West Bank secured by a deed of trust encumbering the Eucalyptus Property.  Hollywood RJN Ex. 1 (Compl., ¶¶ 15-16, Exs. 8-9).  In connection with these East-West Bank loans, Hollywood alleges that the Violette DOT was forgiven, discharged, satisfied, cancelled, paid in full, or otherwise no longer enforceable against the Eucalyptus and Regent Properties.  Hollywood RJN Ex. 1 (Compl., ¶¶ 15-16).

            Hollywood further asserts that George sold the Olive Property to Kabala on December 11, 2012.  Hollywood RJN Ex. 1 (Compl., ¶18).  In the process, George paid off the Lone Oak loan, which rendered the Violette DOT unenforceable if he had not done so already in connection with the East-West Bank loans.  Hollywood RJN Ex. 1 (Compl., ¶18). 

            On March 22, 2013, Violette died.  Hollywood RJN Ex. 1 (Compl., ¶20).  During the Probate Case a year later, Paul, as the representative of Violette’s estate, claimed in his Inventory and Appraisal that he could not locate the $161,000 promissory note secured by the Violette DOT.  Hollywood RJN Ex. 2.  He assumed that the promissory note was non-interest bearing since the parties were related.  Hollywood RJN Ex. 2. 

            On November 13, 2014, George sold the Regent and Eucalyptus Properties to Hollywood for $1,610,000 and $965,000, respectively, and had grant deeds recorded to that effect.  Jessee Decl., ¶4; Hollywood RJN Ex. 1 (Compl., ¶19, Exs. 11-12).  Hollywood agreed to buy both Properties if George conveyed title free and clear of any encumbrances.  Jessee Decl., ¶4.  At the time, Hollywood was not aware of the Violette DOT or that it was a valid and enforceable encumbrance.  Jessee Decl., ¶4.

            On September 9, 2019, the court in the Probate Case entered an order that distributed the $161,000 promissory note to Paul as an individual.  Hollywood RJN Ex. 1 (Compl., ¶22, Ex. 14).

            On April 1, 2022, Paul recorded a Notice of Default against the Olive Property, South Property, Regent Property and Eucalyptus Property due to an outstanding loan balance of $663,445.  Hollywood RJN Ex. 1 (Compl., ¶23, Ex. 15).  A second Notice of Default on May 31, 2022, reflected a modified balance of $516,506.28.  Hollywood RJN Ex. 1 (Compl., ¶24, Ex. 16).  This was the first that Hollywood Lanai became aware that Paul attempted to initiate foreclosure proceedings under the Violette DOT.  Jessee Decl., ¶5.

            On May 23, 2022, Paul swore in an affidavit that the promissory note issued pursuant to the Violette DOT carries an interest rate of 10% per year and late fees of 5% per payment missed.  Howard Decl., ¶7, Ex. 6.  Said note was never forgiven, discharged, satisfied, cancelled, assigned, subordinated, sold, transferred, encumbered, pledged, hypothecated, or paid in full.  Howard Decl., ¶7, Ex. 6.  Paul stated that he could not find a copy of the note and claimed that the original trustee to the Violette DOT destroyed the original note before going out of business in 2009.  Howard Decl., ¶7, Ex. 6.

            On September 1, 2022, Paul issued a Notice of Trustee’s Sale that scheduled the sale for September 29, 2022.  Jessee Decl., ¶6, Ex. 1; Hollywood RJN Ex. 1 (Compl., ¶25, Ex. 17).  Every day between September 4 and 7, 2022, Hollywood requested to meet Paul to discuss the matter.  Howard Decl., ¶4, Ex. 3.  The September 5 email also asserted that assuming arguendo the Violette DOT is enforceable, Paul should first sell the property still owned by George.  Howard Decl., ¶8, Ex. 3.

            Paul responded on September 4, 2022 that he was moving forward with the sale unless Hollywood arranged for full payment.  Howard Decl., ¶4, Ex. 3.  Paul also interpreted the September 5 email as a request for a Payoff Demand Statement, so on September 7, 2022 he sent a payoff demand for $529,718.28: $161,000 in principal balance, $342,510.96 in interest, and $17,105.40 in late charges.  Howard Decl., ¶5, Ex. 4.

            On September 6, 2022, George’s counsel informed Paul that George disputed that he ever obtained a loan from Violette and that the Violette DOT was invalid.  Howard Decl., ¶6, Ex. 5.  The letter demanded that Paul cease and desist with the foreclosure sale of all four properties.  Howard Decl., ¶6, Ex. 5. 

            On September 12, 2022, George filed the complaint in George Adamian.  Hollywood RJN Ex. 3.  He alleged that he never received loan proceeds from Violette, and that if he had, the various rounds of refinancing paid off that loan.  Hollywood RJN Ex. 3.

            George still owns the South Property subject to the Violette DOT.  Hollywood RJN Ex. 1 (Compl., ¶45).  The South Property has an estimated sale value of $775,994 on Redfin.  Howard Decl., ¶8, Ex. 7.  Kabala owns the Olive Property.  Howard Decl., ¶3. 

            2. Paul’s Evidence[6]

            George used to own several Texaco gas stations.  Paul Decl., ¶6.  He collected sales tax on gasoline purchases without remitting the tax to the Franchise Tax Board (“FTB”).  Paul Decl., ¶6.   In 2001, he was under criminal investigation and the FTB seized his possessions, including several expensive automobiles, for his failure to remit sales tax.  Paul Decl., ¶6.  To prevent his automobiles from being auctioned, Violette loaned him $161,000 in June 2001 to pay the FTB.  Paul Decl., ¶6.

            George secured this loan with two deeds of trust.  Paul Decl., ¶7.   The first was the Violette DOT signed on June 27, 2001 and recorded on July 26, 2001, against the Regent Property, Eucalyptus Property, Olive Property, and South Property.  Paul Decl., ¶¶ 8, 10; Chrisman Decl., ¶4, Ex. 2.  The Violette DOT states that it is for the purpose of securing a promissory note with a principal of $161,000.  Chrisman Decl., ¶4, Ex. 2.  The second was a deed of trust signed on July 26, 2011 for 5011 Crescent Avenue, La Palma, California (“Crescent Avenue Property Trust”).  Paul Decl., ¶11[7].

            Paul is unable to locate the promissory note for the Violette DOT, but he has found copies of the title insurance policies for both deeds of trust issued by First American Title Insurance Company (“First American”) for the 2001 deeds of trust.  Paul Decl., ¶12, Exs. 1-2. 

Violette told Paul about her loan to George several times through the years and her frustration that he failed to repay it.  Paul Decl., ¶13.  For years after Violette’s death, George never asserted to Paul that Violette never loaned him the money or that his signature on either deed of trust was forged.  Paul Decl., ¶¶ 14, 29.

            In 2017, George had a second deed of trust recorded against the South Property in favor of Theroul Corporation to secure a $200,000 promissory note.  Paul Decl., ¶15.  The terms of the Theroul deed of trust included an acknowledgment that the Violette DOT both was valid and had priority over the Theroul deed of trust.  Paul Decl., ¶15.[8]

            On September 5, 2019, the court in the Probate Case entered an order that distributed the $161,000 promissory note and the Violette DOT to Paul.  Paul Decl., ¶16.

            In October 2021, George and his two sisters, Marie Adamian (“Marie”) and Yvette Adamian (“Yvette”), told Paul that Marie’s home at 801 Westholme Avenue, Los Angeles, California 90024 (“Westholme Property”) was in foreclosure.  Paul Decl., ¶17.  George asked Paul to forgive the Violette loan – acknowledging again that it was valid – so that he could borrow against the properties secured by the Violette DOT to prevent the foreclosure of Aunt Mari’es home.  Paul Decl., ¶17.  George did not inform Paul that he had already sold three of the properties and still owned only the South Property.  Paul Decl., ¶18. 

Paul initially agreed to release the Violette DOT against all four properties therein if George had a new deed of trust recorded on the Westholme Property once George brought it out of arrears.  Paul Decl., ¶19.  However, on October 12, 2021, Paul sent an email to the lender for the Westholme Property, Deutsche Bank National Trust Company (“Deutsche Bank”).  Paul Decl., ¶20, Ex. 3.  Deutsche Bank informed Paul that the note was not for sale because the account was current.  Paul Decl., ¶20, Ex. 3.  Paul then told Marie that he would not release any properties encumbered by the Violette DOT.  Paul Decl., ¶21.

            George then called Paul on the telephone and asserted for the first time that the signature on the Violette DOT was a forgery, although he did not claim that he never received the loan.  Paul Decl., ¶22.  Paul responded that he would have an expert verify the authenticity of George’s signature, which made George belligerent.  Paul Decl., ¶22. 

On October 5, 2021, Paul’s sister Natalia Krzemuski (“Natalia”) signed a letter that conceded that the signatures of George and Violette on the Violette DOT were forgeries.  Paul RJN Ex. 4.  Natalia has no personal knowledge whether this is true because she was not a witness to the signing of this deed of trust.  Paul RJN Ex. 5 (Natalia Decl., ¶8).  She signed this at George’s and Marie’s request because they said it was the only way to prevent Marie from losing her home.  Paul RJN Ex. 5 (Natalia Decl., ¶¶ 6-9).  Natalia did not know that they would use her notation to prevent Paul from enforcing the deed of trust against the South Property; she would not have signed it if she did.  Paul RJN Ex. 5 (Natalia Decl., ¶10).

A handwriting expert confirmed on December 4, 2021 that George’s signature on the Violette DOT is genuine.  Chrisman Decl., ¶¶ 3, 5, Exs. 1, 3; Paul Decl., ¶23.

            The Statement of Information for Theroul Corporation lists Barry Levine (“Levine”) as its CEO, CFO, and Secretary.  Paul Decl., ¶26, Ex. 6.  The Secretary of State website shows that it suspended Theroul Corporation’s corporate status on August 28, 2018.  Paul Decl., ¶26, Ex. 7. 

On April 19, 2022, Levine, on behalf of Oakwood Financial Group (“Oakwood”) sent a letter to First American stating that it wanted to arrange financing for George to cure default on a loan called “TS #1117835.”  Paul Decl., ¶24, Ex. 4.  The letter alleged that Paul had been uncooperative and/or unresponsive in George’s efforts to cure the default, possibly because of the familial relationship.  Paul Decl., ¶24, Ex. 4.

            On June 2, 2022, Levine sent a letter to Trustee.  Paul Decl., ¶25, Ex. 5.  The letter requested that Trustee confirm the correct payoff amount, effective until June 30, 2022, for “TS #220525132.”  Paul Decl., ¶25, Ex. 5. 

            On June 14, 2022, Levine sent an email to Paul that said that he wanted to provide George with the $518,000 needed to pay Paul for the note.  Paul Decl., ¶27, Ex. 8.  However, the foreclosure trustee could not find the promissory note and claimed that Paul had provided it with a Lost Instrument Affidavit instead.  Paul Decl., ¶27, Ex. 8.  Levine needed either that affidavit or the note before he could lend George $500,000, and Levine had asked Paul for either one several times before.  Paul Decl., ¶27, Ex. 8.

            On June 15, 2022, Paul sent Levine the Lost Instrument Affidavit and both deeds of trust to demonstrate George’s indebtedness.  Paul Decl., ¶28, Ex. 9.  The email reminded Levine that because Theroul Corporation’s corporate status was suspended, the junior Theroul deed of trust was unenforceable for the South Property; Theroul Corporation and Levine would receive nothing if a foreclosure sale occurred.  Paul Decl., ¶28, Ex. 9. 

            After Paul’s email on June 15, 2022, George asserted for the first time that Violette never made a loan secured by the Violette DOT.  Paul Decl., ¶29.

            D. Analysis

            Plaintiff Hollywood seeks a preliminary injunction against Defendants Trustee and Paul, both individually and as successor trustee of the Trust, to enjoin foreclosure of the Eucalyptus Proeprty and the Regent Property. 

            1. Probability of Success

            Hollywood asserts it can prevail on the causes of action listed in the Complaint because there is no evidence of a debt underlying the Violette DOT, Paul must first foreclose on the South Property under Civil Code section 2899, and there is no evidence of assignment of the Violette DOT to Paul. 

            a. The Loan

            Paul admits that he could not find the promissory note for his mother’s $161,000 loan to George.  Paul Decl., ¶12.  In 2022, Paul provided a Lost Instrument Affidavit to this effect.  Paul Decl., ¶¶ 27-28, Exs. 8-9.  While some of his evidence is incomplete or not judicially noticed, he presents sufficient evidence that the loan was made. 

Paul shows that George obtained the $161,000 loan to pay the FTB sales tax he owed from his gas stations in order to save his automobiles from auction.  Paul Decl., ¶6.   George secured this loan with two deeds of trust, including the Violette DOT.  Paul Decl., ¶¶ 7, 8, 10.  First American issued title insurance policies in connection with both deeds of trust.  Paul Decl., ¶12, Exs. 1-2.  Violette told Paul about her loan to George several times through the years and her frustration that he failed to repay it.  Paul Decl., ¶13. 

In 2017, George had a second deed of trust recorded against the South Property that included an acknowledgment that the Violette DOT both was valid and had priority over the Theroul deed of trust.  Paul Decl., ¶15.

            On September 5, 2019, the court in the Probate Case entered an order that distributed the $161,000 promissory note and the Violette DOT to Paul.  Paul Decl., ¶16.

            In October 2021, George and his two sisters falsely told Paul that Marie’s home was in foreclosure.  Paul Decl., ¶17.  George asked Paul to forgive the Violette loan – acknowledging again that it was valid – so that he could borrow against the properties secured by the Violette DOT to prevent the foreclosure of Aunt Marie’s home.  Paul Decl., ¶17.  George did not inform Paul that he had already sold three of the properties and still owned only the South Property.  Paul Decl., ¶18.  Deutsche Bank subsequently informed Paul that the note was current and not in foreclosure.  Paul Decl., ¶20, Ex. 3. 

Only then did George call Paul on the telephone and assert for the first time that the signature on the Violette DOT was a forgery, still not claiming that he never received the loan.  Paul Decl., ¶22.  Paul obtained a handwriting expert’s opinion that George’s signature on the Violette DOT is genuine.  Paul Decl., ¶22.  Chrisman Decl., ¶¶ 3, 5, Exs. 1, 3.

            Letters First American and Trustee subsequently confirmed that George wanted to arrange financing to payoff the Violette loan Paul Decl., ¶¶ 24-25, Exs. 4, 5.  As late as June 14, 2022, Levine sent an email to Paul that said that he wanted to provide George with the $518,000 needed to pay Paul for the note and needed Paul’s Lost Instrument Affidavit.  Paul Decl., ¶27, Ex. 8. 

For years after Violette’s death, George never asserted to Paul that Violette never loaned him the money or that his signature on either deed of trust was forged.  Paul Decl., ¶¶ 14, 29.  George did not assert that Violette did not loan him the money secured by the Violette DOT until after June 15 of this year.  Paul Decl., ¶29.

Paul also provides evidence that George’s attempts to disclaim the Violette DOT were made in bad faith.  His sister Natalia provided a note stating that the signatures of George and Violette on the Violette DOT were forgeries.  Paul RJN Ex. 4.  Natalia now declares that she has no personal knowledge whether this is true because she was not a witness to the signing of the Violette DOT.  Paul RJN Ex. 5 (Natalia Decl., ¶8).  She signed the note at George’s and Marie’s request because they said it was the only way to prevent Marie from losing her home.  Paul RJN Ex. 5 (Natalia Decl., ¶¶ 6-9).  Natalia did not know that they would use her notation to prevent Paul from enforcing the Violette DOT and she would not have signed it if she did.  Paul RJN Ex. 5 (Natalia Decl., ¶10).

b. The Need for the Note

            Hollywood argues that Paul cannot enforce the Violette DOT without the note.  App. at 12.  Hollywood argues that Commercial Code[9] section 3309(a) permits a person not in possession of an instrument to enforce it only if (1) the person was in possession of the instrument and entitled to enforce it when loss of possession occurred, (2) the loss of possession was not the result of a transfer by the person or a lawful seizure, and (3) the person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process.  Paul concedes that he never possessed the Note and was not entitled to enforce it before it was lost.  App. at 12; Reply at 3; Paul Decl., ¶13. 

The short answer is that Paul is not enforcing the note; he is enforcing the Violette DOT.  There is no statutory requirement that the beneficiary physically possess the underlying promissory note in order to foreclose.  Debrunner v. Deutsche Bank National Trust Company, (2012) 204 Cal.App.4th 433, 440-42.

c. Marshalling of Liens

Where one has a lien upon several things, and other persons have subordinate liens upon, or interests in, some but not all of the same things, the person having the prior lien, if he can do so without risk of loss to himself, or of injustice to other persons, must resort to the property in the following order, on the demand of any party interested: (1) to the things upon which he has an exclusive lien; (2) to the things which are subject to the fewest subordinate liens; (3) in like manner inversely to the number of subordinate liens upon the same thing;¿and (4) when several things are within one of the foregoing classes, and subject to the same number of liens, resort must be had (a) to the things which have not been transferred since the prior lien was created; (b) to the things which have been so transferred without a valuable consideration;¿and (c) to the things which have been so transferred for a valuable consideration in the inverse order of the transfer.  Civil Code §2899.

The parties agree that, of the four properties secured by the Violette DOT, George still owns the South Property.  Hollywood RJN Ex. 1 (Compl., ¶45); Paul Decl., ¶18.  He encumbered each of the two Properties with deed of trusts to obtain loans from East West Bank on November 29, 2006.  Hollywood RJN Ex. 1 (Compl., ¶¶ 15-16, Exs. 8-9).  He then sold both properties to Hollywood on November 13, 2014.  Jessee Decl., ¶4; Hollywood RJN Ex. 1 (Compl., ¶19, Exs. 11-12).  As George executed the Violette DOT when he owned the four properties, Civil Code section 2899 requires that Paul foreclose on the South Property as a property which has “not been transferred since the prior lien was created”.  Paul must therefore sell the South Property first to satisfy the note.

            The question then becomes what is the amount of the promissory note?  Paul assumed in the Probate Case that the $161,000 promissory note was non-interest bearing since the parties were related. Hollywood RJN Ex. 1 (Compl., ¶21); Hollywood RJN Ex. 2.  Paul subsequently asserted, on May 23, 2022, that the note carries an interest rate of 10% per year and late fees of 5% per late payment missed.  Howard Decl., ¶7, Ex. 6.  

In reply, Hollywood argues that Paul is judicially estopped from contending that the amount of the debt is more than $161,000.  Reply at 3-5.  It is improper to raise this issue in reply. Regency Outdoor Advertising v. Carolina Lances, Inc., (1995) 31 Cal.App.4th 1323, 1333  (New evidence/issues raised for the first time in a reply brief are not properly presented to a trial court and may be disregarded).  In any event, Paul is not judicially estopped.  In the Probate Case, Paul admitted that he did not see the note himself and only assumed a 0% interest rate because George and Violette were family.  Hollywood RJN Ex. 2.  This was a statement made in ignorance andis not binding for purposes of judicial estoppel.  Swahn Group, Inc. v Segal, (2010), 183 Cal.App.4th 831, 842.  Paul may therefore assert now, as he has, that the note carried a 10% interest rate plus a 5% late charge.  Howard Decl., ¶7, Ex. 6.  

            Nonetheless, as Hollywood contends, Paul appears to have no basis to claim these terms when he never saw the note.  Even if interest is an implied term, Hollywood presents evidence that the fair market value of the South Property is $775,994, almost $250,000 higher than Paul’s September 7, 2022 payoff demand of $529,718.28.  Howard Decl., ¶5, Ex. 4.  While Paul references a declining real estate market (Opp. at 20), he presents no evidence that this decline would reduce the value of the South Property below the amount he claims.

            Hollywood has shown a probability of success that Paul must foreclose on the South Property before attempting to foreclose on the Properties under Civil Code 2899.

            2. Balance of Hardships

            In determining whether to issue a preliminary injunction, 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.

            Paul asserts that Hollywood has not demonstrated irreparable harm because it does not claim that the Properties have been rented and yield any income.  Opp. at 19.  As Hollywood notes, however, the loss of the Properties is sufficient harm.  App. at 11.  Real property is a unique asset, and while investment properties are less so, monetary damages still may not compensate for their loss.  Stockton v. Newman (1957), 148 Cal. App. 2d 558, 564.  Reply at 7.

            Paul asserts that every day he cannot foreclose on the Properties is another day that part of the security for Violette’s loan evaporates.  Paul also cites to the declining real estate market.  Opp. at 19.  As Hollywood replies, this harm is weak.  The obvious question is why Paul has not enforced the Violette DOT since the court in the Probate Case distributed the note to him on September 9, 2019.  In any event, on this record Paul may foreclose on the South Property and avoid harm.

            The balance of hardships favors a preliminary injunction.

            E. Conclusion

            The application for a preliminary injunction is granted.  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.¿

            Paul alleges that the bond should be the sum of (1) $1,400,000 for the fair market value of the Regent Property; (2) $900,000 for the fair market value of the Eucalyptus Property; and (3) $100,000 in anticipated attorney’s fees.  Opp. at 20.  This contention misunderstands the purpose of a bond, which is to secure the defendant from the lost use of funds, not to secure the funds themselves.  Further, Paul can satisfy that debt through foreclosure of the South Property even if the preliminary injunction has been wrongly issued.  The court will discuss the amount of the bond with counsel at hearing.