Judge James C. Chalfant, Case Number: 23STCV26001, Date: 2023-11-21 Tentative Ruling

Plaintiff Zen Ventures, Inc. (“ZVI”) applies for a preliminary injunction enjoining Defendants Bay Point Capital Partners I, LP and Bay Point Capital Partners II, LP (collectively, “Bay Point”) from conducting a public foreclosure sale of ZVI’s membership in The Comeback Trail LLC (“Movie LLC”).

The court has read and considered the ex parte moving papers, supplemental moving papers, opposition, and reply, and renders the following tentative decision.

Plaintiff ZVI filed the Complaint on October 24, 2023, alleging (1) breach of contract, (2) account stated, (3) equitable accounting, (4) unfair business practices under Business and Professions (“Bus. & Prof.”) Code section 17200 et. seq. (“UCL” or “Section 17200”), (5) intentional interference with prospective economic advantage, (6) negligence, (7) declaratory relief, and (8) permanent injunction.

ZVI is a British Columbia corporation, domiciled in California. It owns 100% of Movie LLC.

On August 30, 2019, Movie LLC and Rapid Farms Productions Limited (“Rapid”) executed a Loan Agreement (“Loan”) for a $10,635,382 principal to cover the production costs for the movie “The Comeback Trail” (“Movie”). Under a Collection Account Management Agreement (“CAMA”) with Freeway CAM B.V. (“Freeway”), payments on the Loan would be made to Rapid through Freeway.

On September 3, 2019, Movie LLC issued a copyright mortgage assignment in favor of Rapid as security for the Loan.

At the time, ZVI and or Empire DJ Venture LLC’s (“EDV”) had split the ownership interest in Movie LLC, with ZVI owning 51% and EDV 49%. ZVI executed a Membership Interest Agreement pledging its membership interest in Movie LLC to Rapid to secure the performance of Movie LLC’s duties under the Loan (“ZVI Pledge”). EDV executed a similar agreement in Rapid’s favor (“EDV Pledge”). In June 2020, EDV forfeited its 49% interest in Movie LLC to ZVI. This made ZVI the 100% owner of Movie LLC.

Movie LLC met its obligations under the Loan at least through November 2021. It also prepaid $1.6 million into an interest reserve account, for use if Movie LLC defaulted on its Loan payments.

On July 31, 2022, Rapid assigned the Loan to Bay Point (“Assignment”). The Assignment listed the outstanding principal as $713,489 as of July 31, 2022. Because this was less than the amount listed on Freeway’s November 30, 2021 CAMA statement, Freeway must have paid $80,000 toward the Loan between November 2021 and July 2022. The Assignment acknowledged there might be $433,862 in unpaid accrued interest, but it did not state how much of the $1.6 million interest reserve remained.

As of the Complaint, Movie LLC has paid a total of $9,949,469.60 on the Loan. Movie LLC believes that the maximum outstanding balance is $1,313,702. This does not include the $73,000 in Freeway’s collection account, balances owed to Movie LLC, money paid to Bay Point but not reported to ZVI, and money left in the interest reserve.

On June 9, 2023, Movie LLC and ZVI learned that Rapid claimed that Movie LLC was in default and during the Assignment had started charging 18% default interest on the $713,489 balance. ZVI thought Movie LLC timely paid the Loan until the June 2023 default notice. Section 11.2 of the Loan required Rapid, and Bay Point after the Assignment, to notify Movie LLC and ZVI of the default, provide accurate accounting and payment history for the Loan, and provide 48 hours to cure the default. Neither Rapid nor Bay Point gave such notice or accounting. To date, ZVI does not know the purported date of default.

Rapid benefited from concealing the default and charging the 18% default interest without providing notice of default and an opportunity to cure. The balance grew at an interest rate higher than allowed under the California Constitution.

ZVI seeks (1) an injunction prohibiting foreclosure sale of its interest in Movie LLC, (2) a judgment that the ZVI Pledge was fully performed and satisfied, (3) a judgment that either Movie LLC never defaulted on the Loan or that Bay Point has waived its right to default interest for failure to provide adequate default notice, (4) actual and punitive damages, (5) attorney’s fees and costs, (6) offset of any interest paid over the legal limit to be applied to the outstanding Loan balance, and (7) and prejudgment interest.

On October 25, 2023, Department 86 (Hon. Mitchell Beckloff) granted ZVI’s ex parte application for a temporary restraining order (“TRO”) and order to show cause re: preliminary injunction (“OSC”) enjoining the foreclosure sale of its interest in Movie LLC.

No proof of service is on file for the Complaint and Summons. However, Bay Point has made an appearance in opposition to the OSC.

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.[1] 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).[2] 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.

A license search revealed that neither Rapid nor Bay Point is registered in California as a licensed mortgage finance lender. Tallmadge Ex Parte Decl., ¶8.

On August 30, 2019, Movie LLC and Rapid executed a Loan establishing a $10,743,382 credit facility with 8% interest. Kim Ex Parte Decl., ¶2; Kim Supp. Decl., ¶2, Ex. A. The Loan states Rapid was organized and maintained under the laws of England and Wales. Kim Supp. Decl., ¶2, Ex. A. Movie LLC was incorporated under the laws of New Mexico. Kim Supp. Decl., ¶2, Ex. A.

Under section 4.3, the credit facility included a $1,084,935 reserve withheld to pay estimated foreign exchange cost reserves (“FX Cost”) and Transaction Fees. Kim Supp. Decl., ¶2, Ex. A. Movie LLC could only draw the Facility Net proceeds of $9,550,447. Kim Supp. Decl., ¶2, Ex. A. Movie LLC was required to use these proceeds solely for the “Purpose”, which was to defray the Movie’s production costs. Kim Supp. Decl., ¶2, Ex. A.

Under section 4, Movie LLC agreed to pay Expenses on demand and Further Distribution Receipts. Kim Supp. Decl., ¶2, Ex. A. Expenses include all legal charges Rapid incurred on an indemnity basis along with actual, verifiable out-of-pocket expenses incurred in enforcement of the Loan Documents. Kim Supp. Decl., ¶2, Ex. A. Further Distribution Receipts meant 4% of all net profits from the Movie in perpetuity. Kim Supp. Decl., ¶2, Ex. A.

Under section 5.1, Movie LLC was required to repay all outstanding Loan amounts within five business days of any demand for such payment from Rapid. Kim Supp. Decl., ¶2, Ex. A.

Section 11.1.9 defined Default to include failure to pay amounts owed under the Loan when due. Kim Supp. Decl., ¶2, Ex. A. After any occurrence of a default, on demand from Rapid, Section 5.5 required Movie LLC to pay interest on the overdue amount until the date of the actual payment at the Default Rate of 12.5%. Kim Supp. Decl., ¶2, Ex. A.

Upon Movie LLC’s default, section 7.11 allowed Rapid to set off and apply any deposits and any other indebtedness it may hold or owe to or for the credit or the account of Movie LLC against the amount Movie LLC owed. Kim Supp. Decl., ¶2, Ex. A.

Section 11.2 of the Loan required Rapid to give Movie LLC 48 hours after written notice to remedy the default. Kim Supp. Decl., ¶2, Ex. A. After this opportunity to cure passed, section 11.2.2 entitled Rapid to declare any outstanding debt immediately due and payable upon notice to Movie LLC. Kim Supp. Decl., ¶2, Ex. A. Section 11.2.3 entitled Rapid to exercise its powers under “Borrower’s Security,” which included both Pledges. Kim Supp. Decl., ¶2, Ex. A.

Freeway provides receipt collection, payment, and reporting services to entertainment productions in accordance with CAMAs for that production. Tallmadge Ex Parte Decl., ¶3. The Loan provided that Freeway would make payments to Rapid pursuant to the CAMA for the Loan. Kim Supp. Decl., ¶2, Ex. A; Kim Ex Parte Decl., ¶4.

To protect Rapid, ZVI prepaid $1.6 million in interest into a trust reserve when the Loan was funded. Kim Ex Parte Decl., ¶5.

ZVI also executed the ZVI Pledge which granted Rapid a security interest in ZVI’s 51% membership of Movie LLC as collateral for the Loan. Kim Supp. Decl., ¶3, Ex. B. If any Event of Default under the Loan Documents occurred, Rapid was entitled to exercise all rights as holder of this membership interest. Kim Supp. Decl., ¶3, Ex. B. ZVI waived any notice of an Event of Default under the Mortgage of Copyright (“Copyright Agreement”), and any other notice to which ZVI might otherwise be entitled. Kim Supp. Decl., ¶3, Ex. B. The ZVI Pledge identified ZVI as a British Columbia corporation, but the pledge would be governed by the laws of California. Kim Supp. Decl., ¶3, Ex. B.

EDV executed a similar EDV Pledge granting rapid a security interest in its 49% of Movie LLC. Kim Ex Parte Decl., ¶2. When EDV forfeited its interest to ZVI in June 2020, ZVI became the sole owner of Movie LLC. Kim Ex Parte Decl., ¶3.

Under section 18.1 of the Loan, the entire agreement between Rapid and Movie LLC included all Relevant Agreements to which they are a party. Kim Supp. Decl., ¶2, Ex. A. “Relevant Agreements” include the Loan and security agreements like the Pledges. Kim Supp. Decl., ¶2, Ex. A.

Rapid later transferred its interests under the Loan to Bay Point via the Assignment for $1.2 million. Kim Supp. Decl., ¶4, Ex. C. As of July 31, 2022, the Assignment listed the outstanding principal as $713,489, interest as $433,862, and total amount owed as $1,511,090. Kim Supp. Decl., ¶4, Ex. C.

Throughout 2022 and 2023, the Movie generated revenue from overseas distributions. Kim Supp. Decl., ¶5. Some of this was paid into the CAMA and distributed to various creditors without complaint. Kim Supp. Decl., ¶5. Movie LLC and ZVI never received notice that Freeway stopped paying the Loan, or that the Loan was in default. Kim Ex Parte Decl., ¶5.

On June 9, 2023, Bay Point issued the Notice of Default. Kim Ex Parte Decl., ¶6, Ex. A. The Notice of Default asserted that Movie LLC had failed to pay the full amount owed under sections 4 and 5 of the Loan. Kim Ex Parte Decl., ¶6, Ex. A. As of May 23, 2023, the existing default of $1,602,334 remained uncured. Kim Ex Parte Decl., ¶6, Ex. A.

Bay Point demanded all amounts due and owing under the Loan, including the full outstanding balance thereof and any proceeds from Movie LLC. Kim Ex Parte Decl., ¶6, Ex. A. This did not give the 48-hour opportunity to cure the default as the Loan required. Kim Ex Parte Decl., ¶6.

On October 17, 2023, ZVI informed Bay Point that it recently received a Notice of Public Foreclosure Sale (“NOS”) of ZVI’s membership interest in Movie LLC. Duckett Decl., ¶3, Exs. A-B. The Sale Notice was undated but listed a sale date of October 26, 2023 at 10:00 a.m. Duckett Decl., ¶3, Ex. A.

ZVI demanded proof that it or Movie LLC owed money on the Loan. Duckett Decl., ¶4, Ex. B. This was to include a detailed accounting and ledger of payments showing outstanding amounts owed and the applied interest rate. Duckett Decl., ¶4, Ex. B. ZVI also asked for a copy of any notice of default issued contemporary to default payments, proof that Rapid and Bay Point were licensed mortgage and finance lenders in California, proof that Bay Point could enter a loan agreement whose interest rate exceeds the permissible rate under California’s usury laws, and proof that they provided ZVI and Movie LLC with a chance to cue the default. Duckett Decl., ¶4, Ex. B.

On October 19, 2023, Bay Point responded via email and produced 18 documents. Duckett Decl., ¶5, Ex. C. The email asserted ZVI owed $1,628,845 as of August 15, 2023. Duckett Decl., ¶5, Ex. C. To Bay Point’s knowledge, ZVI had not made any payments of principal or interest under the Loan. Duckett Decl., ¶5, Ex. C. The email also asserted that the Loan was governed by the laws of England, not California. Duckett Decl., ¶5, Ex. C.

As to the interest rate, Bay Point asserted that the Loan was exempt from usury laws under Corp. Code section 25118. Duckett Decl., ¶5, Ex. C. The initial indebtedness under the Loan was over $300,000, and ZVI and Movie LLC could both reasonably have been assumed capable of protecting their interests at the time of the Loan’s execution. Duckett Decl., ¶5, Ex. C. As to licensing requirements, Rapid was exempt because it did not make more than one loan in California in 2019. Duckett Decl., ¶5, Ex. C.

The June 2023 Notice of Default was the only default notice produced, and it listed no option to cure the default. Duckett Decl., ¶6, Ex. D. Based on its review of all produced documents, ZVI concluded that Bay Point had still failed to provide an accounting of the amount owed, a notice of default contemporary to the time of Movie LLC’s default, and proof that Bay Point and Rapid’s licenses authorized them to lend to companies operating in California. Duckett Decl., ¶5.

Freeway’s November 30, 2021 Collection Statement shows that it would pay Rapid $80,424.08 on December 27, 2021. Tallmadge Supp. Decl., ¶3, Ex. A. Based on this Collection Statement, ZVI’s business affairs consultant has calculated the maximum amount that Movie LLC, and hence ZVI, could owe. Tallmadge Ex Parte Decl., ¶4, Exs. A-B. The Loan principal was $10,635,382 but increased by $108,000 to $10,743,382 after a deal for Italian territory closed. Tallmadge Ex Parte Decl., ¶4, Ex. A. ZVI has paid at least $9,949,469.60. Tallmadge Ex Parte Decl., ¶5. No more than $713,489 of principal is outstanding. Tallmadge Ex Parte Decl., ¶4, Ex. A. The default interest is not more than $600,213, a total of $1,313,702. Tallmadge Ex Parte Decl., ¶¶ 4-5, Ex. A. This total of $1,313,702 is less than the $1.6 million Bay Point asserts is outstanding. Tallmadge Ex Parte Decl., ¶4.

Freeway’s online portal shows five deposits totaling $73,462.86 from overseas distributors into the ZVI collection account since the last Collection Statement. Tallmadge Ex Parte Decl., ¶6, Ex. C.

The Complaint alleges (1) breach of contract, (2) account stated, (3) equitable accounting, (4) unfair business practices under section 17200, (5) intentional interference with prospective economic advantage, (6) negligence, (7) declaratory relief, and (8) permanent injunction. Kim Ex Parte Decl., ¶8.

Movie LLC has filed a bankruptcy action based on other business-related disputes. Kim Ex Parte Decl., ¶7.

If ZVI tried to bid on its Movie LLC membership at the foreclosure, it would be prejudiced because it has no accounting to show how much it owes. Kim Ex Parte Decl., ¶10.

ZVI has multiple working relationships with movie distribution companies. Kim Ex Parte Decl., ¶11. It plans to use them for domestic distribution of the Movie once the writers’ and actors’ strikes end. Kim Ex Parte Decl., ¶11. A release so timed would maximize the viewing audience, ZVI’s reputation and goodwill, and business relationships with other elements of the film industry. Kim Ex Parte Decl., ¶11. The loss of this opportunity would result in incalculable damages. Kim Ex Parte Decl., ¶11.

Rapid was formed for the sole purpose of making the Loan. Rierson Decl., ¶10. Rapid did not make more than one loan in California in 2019. Rierson Decl., ¶10. Bay Point did not make any loans in California in 2019. Rierson Decl., ¶5.

ZVI is a British Columbia corporation. Rierson Decl., ¶7. Phillip Kim (“Kim”) is ZVI’s sole direct or indirect owner and an experienced producer, director, and actor. Rierson Decl., ¶7.

A November 3, 2023 search of the term “Zen Ventures” in the California Secretary of State’s online records showed that an entity called Zen Ventures, Inc. was dissolved on June 14, 2005. Villar Decl., ¶3; RJN Exs. 1, 2. It is not clear whether this is the same ZVI as Plaintiff but no other entity called Zen Ventures, Inc. appears in the search results. Villar Decl., ¶3.

Harris Tulchin, Esq. (“Tulchin”) acted as counsel for ZVI and Movie LLC when they negotiated the Loan Documents. Rierson Decl., ¶8. Tulchin specializes in legal services for the development, financing, production, and distribution of entertainment products and services. Rierson Decl., ¶8.

Schedule 5 of the Loan (Repayment Schedule) required Movie LLC to repay Rapid $6,193,195 by September 30, 2020, and $4,550,187 by December 31, 2020. Rierson Decl., ¶18, Ex. A.

Movie LLC and Rapid entered a Copyright Agreement. Rierson Decl., ¶12, Ex. C. The Copyright Agreement granted Rapid a continuing security interest in and copyright mortgage on all of Movie LLC’s rights to any copyright and contract rights in the Movie. Rierson Decl., ¶12, Ex. C. Pursuant to this agreement, on September 3, 2019, Rapid filed a UCC-1 financing statement with the New Mexico Secretary of State. Rierson Decl., ¶17, Ex. F.

Under section 11(a)(i)(1) of the ZVI Pledge, ZVI waived any notice of any Event of Default. Rierson Decl., ¶13, Ex. D.

In section 3(e) of the Assignment, Rapid represented to Bay Point that Movie LLC owed $1,511,090. Rierson Decl., ¶¶ 14-15, Ex. E. This included $713,489 in principal, $433,862 in accrued interest, and transaction fees and FX Costs totaling $363,739. Rierson Decl., ¶15, Ex. E. Rapid also provided an accounting of the Loan showing Movie LLC had not made a payment since December 27, 2021. Rierson Decl., ¶16.

On October 19, 2022, Bay Point filed a UCC-1 financing statement against ZVI’s membership interest in Movie LLC with the Washington D.C. Secretary of State. Rierson Decl., ¶17, Ex. F. On October 20, Bay Point filed a lien against ZVI’s membership interest with the British Columbia Personal Property Registry. Rierson Decl., ¶17, Ex. F.

Movie LLC has repaid $10,029,893 of the $10,743,382 drawn principle of the Loan, for an outstanding balance of $713,489. Rierson Decl., ¶¶ 20-21. Movie LLC also owes $574,736 in interest, $33,114 in “FX Roll,” and $330,595 in “FX Close Out.” Rierson Decl., ¶21. These calculations use the 12.5% default interest rate. Rierson Decl., ¶22. Bay Point has prepared an accounting that calculates the outstanding principal and the default interest accrued since each portion of the principal became due under the Repayment Schedule and all FX Costs incurred from August 2019 through January 2021. Rierson Decl., ¶26, Ex. I.

From 2021 to 2023, Bay Point constantly notified ZVI, Movie LLC, and Kim that the Loan was in default. Rierson Decl., ¶23. ZVI and Movie LLC were therefore aware of such default. Rierson Decl., ¶23.

On June 9, 2023, Bay Point sent ZVI and Movie LLC the formal Notice of Default. Rierson Decl., ¶24, Ex. G. Because the Loan already had matured on December 31, 2020, no acceleration of the amount due was required. Rierson Decl., ¶¶ 18, 24, Ex. A.

Pursuant to the CAMA, Freeway delivered detailed account statements to Bay Point, Movie LLC, and ZVI. Rierson Decl., ¶27, Exs. J-K. The most recent was Collection Statement #11 for the period ending on August 31, 2023. Rierson Decl., ¶27, Ex. K.

On November 6, 2023, Bay Point sent ZVI a second Notice of Default. Rierson Decl., ¶25, Ex. H. This notice stated Movie LLC owed $1,651,964, including $713,489 in principal, $574,736 in interest, $33,114 in “FX Roll,” and $330,595 in “FX Close Out.” Rierson Decl., ¶25, Ex. H. The November Default Notice gave ZVI until November 15, 2023 to cure this default. Rierson Decl., ¶25, Ex. H.

On August 15, 2023, Movie LLC filed for Chapter 11 bankruptcy. Villar Decl., ¶4; RJN Ex. 3. The Summary of Assets and Liabilities lists $1,586,329 in assets and $17,589,785 in liabilities. Villar Decl., ¶4; RJN Ex. 3. The current value of Movie LLC’s interest in the Movie as intellectual property was $1,000,000. Villar Decl., ¶4; RJN Ex. 3.

The schedule of creditors lists the amount of Bay Point’s claim as $5,843,372. Villar Decl., ¶4; RJN Ex. 3. Movie LLC acknowledged that the Movie is subject to a lien in Bay Point’s favor. Villar Decl., ¶4; RJN Ex. 3. It also lists ZVI as a creditor. Villar Decl., ¶4; RJN Ex. 3.

Bay Point originally scheduled the foreclosure sale of ZVI’s membership interest in Movie LLC for October 26, 2023 at 10:00 a.m. Rierson Decl., ¶28. Bay Point sent ZVI and Movie LLC the Sale Notice on September 20 and printed advertisements in the Hollywood Reporter on September 25, October 11, and October 25, 2023. Rierson Decl., ¶¶ 29-30, Exs. L-M. The advertisements costs $15,867.42. Rierson Decl., ¶30. Bay Point will have to repeat this process for a rescheduled sale. Rierson Decl., ¶31.

Plaintiff ZVI seeks a preliminary injunction enjoining any foreclosure sale on its membership interest in Movie LLC.

Foreign corporations are required to obtain a certificate of qualification from the Secretary of State before transacting intrastate business in California. Corp. Code §2105. A foreign corporation that transacts intrastate business in California and has failed to qualify with the Secretary of State may nevertheless defend an action brought against it in California court. United Medical Management, Ltd. v. Gatto, (“United Medical”) (1996) 49 Cal.App.4^th 1732, 1739. A foreign corporation transacting intrastate business in California which has failed to qualify with the Secretary of State also may file an action but may not maintain it. Ibid. To establish that a foreign corporation is not entitled to maintain suit, the defendant bears the burden of proving the action arouse out of the transaction of business by a foreign corporation and that the action was commenced by the foreign corporation prior to qualifying to transact business. Id. at 1740. If the defendant establishes the statutory bar, the matter should be stayed to permit the foreign corporation to comply with Corp. Code section 2203(c). Id.

Movie LLC is incorporated under the laws of New Mexico (Kim Supp. Decl., ¶2, Ex. A) and ZVI is incorporated under the laws of British Columbia (Kim Supp. Decl., ¶3, Ex. B). A November 2023 search of California Secretary of State records showed that an entity called Zen Ventures, Inc. was dissolved on June 14, 2005. Villar Decl., ¶3; RJN Exs. 1, 2. It is not clear whether this is the same ZVI as Plaintiff, but no other entity called Zen Ventures, Inc. appears in the search results. Villar Decl., ¶3.

ZVI asserts that a foreign corporation has standing to defend or commence actions in California state courts. Conseco Marketing, LLC v. IFA & Ins. Services, Inc. (“Conseco”) (2013) 221 Cal.App.4th 831, 840. Under Corp. Code section 17001(1) and (2) in effect at the time, a foreign limited liability company is not transacting intrastate business solely by (A) maintaining or defending any action of suit, or (H) securing or collecting debts. Conesco, supra, 221 Cal.App.4th at 840. Reply at 2.

ZVI is a corporation, not an LLC. A similar rule excludes maintaining or defending any action of suit as conduct of a corporation that constitutes intrastate business. Corp. Code §§ 191(c)(1). Unlike Corp. Code section 17708.03(b)(8), no provision of Corp. Code section 191(c) excludes securing or collecting debts from the type of conduct that constitutes intrastate business for a corporation.

Conesco also is distinguishable. The plaintiff in Conesco sought to enforce a sister state judgment under the Sister State and Foreign Money—Judgments Act (“SSFMJA”). Conesco, supra, 221 Cal.App.4th at 836. The United States Constitution requires each state to give full faith and credit to judicial proceedings of other states. Id. at 837. The California Legislature therefore enacted the SSFMJA to provide for economic and expeditious registration to enforce sister state money judgments. Id. at 837. The court held that a corporation need not qualify with the Secretary of State before it seeks enforcement under the SSFMJA because it is not the transaction of intrastate business. Id. at 840. This holding is distinguished from an action seeking damages or injunctive relief against a defendant for breach of contract.

ZVI filed the Complaint in 2023 and is not compliant with Corp. Code section 2105. Bay Point asserts that this non-compliance is reason to deny the preliminary injunction and the court should dismiss the Complaint. Opp. at 7.

Bay Point is only partly correct. As ZVI argues (Reply at 3), as a foreign corporation transacting intrastate business, it may commence or defend an action. CLD Construction, Inc. v. City of San Ramon, (2004) 120 Cal.App.4th 1141, 1151. ZVI implicitly admits that it may not maintain the action and correctly states that it may correct the defect by complying with Corp. Code section 2203, after which it may prosecute the action. Id. See United Medical, supra, 49 Cal.App.4^th at 1740.

Therefore, the preliminary injunction must be denied but the court must stay this action until ZVI obtains a valid certificate of qualification from the Secretary of State pursuant to Corp. Code section 2203(c). Assuming, arguendo, that ZVI has cured this defect by the time of hearing, the following analysis applies.

Bay Point asserts that ZVI cannot prevail on any of the eight causes of action in the Complaint (Opp. at 7-11), but ZVI relies only on the claim for declaratory relief. Ex Parte App. at 11. The Complaint’s other claims most relevant to ZVI’s arguments are breach of contract, equitable accounting, and unfair business practices under Section 17200. See Kim Ex Parte Decl., ¶8.

Under section 11.2.3 of the Loan, Movie LLC’s default entitled Rapid and its assignee Bay Point to exercise their rights under the ZVI Pledge and the EDV Pledge. Kim Supp. Decl., ¶2, Ex. A. When the default is curable, section 11.2 imposes the consequences of default only after Movie LLC receives written notice and 48 hours to remedy the default. Kim Supp. Decl., ¶2, Ex. A.

The ZVI Pledge allowed Rapid to exercise its rights against ZVI’s entire membership interest. Kim Supp. Decl., ¶3, Ex. B (§§ 2-3). In the event of default, Rapid may, without notice sell any of the membership interest at a public or private sale. Kim Supp. Dec., Ex. B (§9).

ZVI argues that the June 2023 Notice of Default demanded all amounts due and owing under the Loan, including the full outstanding balance. Kim Ex Parte Decl., ¶6, Ex. A. This did not give ZVI a 48-hour opportunity to cure the default as the Loan requires. Kim Ex Parte Decl., ¶6. It also provided no accounting of the $1,602,334 purportedly owed. Ex Parte App. at 12; Kim Ex Parte Decl., ¶6. ZVI asserts that Bay Point’s NOS therefore breached the Loan. Duckett Decl., ¶3, Ex. A.

Bay Point responds that ZVI cannot sustain a breach of contract claim because it was not a party to the Loan and cannot demonstrate it is a third-party beneficiary of the Loan. Opp. at 8. In reply, ZVI shows that Rapid’s Loan Agreement included the Relevant Agreements, the Relevant Agreements were defined to include the Borrower’s Security, and the Borrower’s Security was defined to include ZVI’s Pledge. Reply at 4. Therefore, ZVI was a party to the Loan Agreement for purposes of enforcement.[4]

Bay Point then asserts that ZVI waived any right to notice of any Event of Default under section 11(a)(i)(5) of the ZVI Pledge. Rierson Decl., ¶13, Ex. D.

ZVI replies that it only waived its rights to notice of default of the Security Agreement, Assignment, and Copyright Agreement. Kim Supp. Decl., ¶3, Ex. B. Reply at 6.

ZVI explicitly waived these rights, but it more generally also waived its right to any other notice to which it might otherwise be entitled. Kim Supp. Decl., ¶3, Ex. B.[5]

ZVI cites Baypoint Mortgage Corp. v. Crest Premium Real Estate etc. (“Baypoint”) (1985) 168 Cal.App.3d 818, 829, which noted the law looks with disfavor upon forfeitures. Reply at 6. Baypoint emphasized that this legal principal is more relevant when the defect is minor or technical. Id. at 829. In that case, a lender could not file its foreclosure action after it accepted a late payment. Id. at 828. ZVI provides no evidence that it has or could pay an outstanding balance if it had received proper notice.

Baypoint cites Talbot v. Gadia (1954) 123 Cal.App.2d 712, 719, which clarifies that courts will acknowledge the validity of a forfeiture clause, but construe will it narrowly, favorably regard evidence of its waiver, and avoid forfeiture upon reasonable showing. Id; Civil Code §1442. ZVI’s waiver of notice in the ZVI Pledge requires no construction based on ambiguity and there is no evidence that Bay Point waived this provision. ZVI waived all rights to notice. Kim Supp. Decl., ¶3, Ex. B.

Moreover, from 2021 to 2023, Bay Point constantly notified ZVI, Movie LLC, and Kim that the Loan was in default. Rierson Decl., ¶23. ZVI and Movie LLC were therefore aware of such default. Rierson Decl., ¶23. This makes sense because the Loan matured on December 31, 2020. Rierson Decl., ¶¶ 18, 24, Ex. A. After that date, ZVI and Movie LLC would have been well aware that the Loan was due. ZVI’s evidence that neither it nor Movie LLC received notice that Freeway stopped paying the Loan, or that the Loan was in default, is not credible. See Kim Ex Parte Decl., ¶5.

ZVI is correct that the first formal notice of default occurred in the June 2023 Notice of Default. ZVI asserts this notice was defective because it did not accurately set forth the amount owing, provide information that would allow the recipients to determine if the amount demanded is accurate, or give five days to cure the default. Reply at 5. However, since issuance of the TRO, Bay Point has issued a second Notice of Default providing an accurate demand and seven business days to cure the default. Rierson Decl., ¶25, Ex. H. The issue of notice and 48-hour cure therefore is moot.

The Complaint does not specify the legal basis for ZVI’s cause of action for an accounting. Bay Point cites authority that identifies accounting as a remedy, not a cause of action. Batt v. City and County of San Francisco (2007) 155 Cal. App. 4th 65, 82. A fiduciary relationship between the parties is not required to state a cause of action for accounting. Reply at 6; Conservatorship of Farrant (2021), 67 Cal. App. 5th 370, 376. All that is required is a relationship that requires an accounting. Id. A mortgagor-lender relationship does not suffice to require an accounting. Manlin v. Ocwen Loan Servicing, LLC, LLC, (C.D. Cal. June 5, 2018) 2018 WL 3326656, *9.

The relationship between Movie LLC and Rapid (Bay Point) is that of lender and borrower. ZVI is a pledgor of assets for purposes of the Loan. These relationships are not the type for which a formal accounting could be required.

ZVI cites an unpublished appellate decision, Walker v. Pennymac Loan Services, LLC, (“Walker”) (2016) 2016 WL 3192214 *4, to assert that foreclosure is premature until a lender provides an accurate accounting of the amounts due to cure a default. Supp. Br. at 5. This opinion is unpublished and not citable. Opp. at 15. In any case, Walker relied on a lender’s statutory obligation under Civil Code section 2924c to " provide the [borrower] with an accurate accounting of the amounts due to cure a default….This amount is __________ as of (date). . . .'" 2016 WL 3192214 *4. It is clear that the “accounting” referred to in Civil Code section 2924c and Walker is simply an accurate statement of the amount owed.

ZVI asserts it is entitled to an accounting because it otherwise cannot know how much it owes Bay Point, if anything. Ex Parte App. at 11. Although ZVI cite no authority in the Loan or Pledge for this proposition, the court will assume that ZVI is entitled to know how much it owes. The November 2023 Notice of Default performs just that task. It asserts that Movie LLC owes $1,651,964, including $713,489 in principal, $574,736 in interest, $33,114 in “FX Roll,” and $330,595 in “FX Close Out.” Rierson Decl., ¶25, Ex. H.

ZVI asserts that the amount owed is no more than $1.3 million before various offsets. Supp. at 5. Based on its business affairs consultant's calculations, ZVI asserts it has paid $9,949,469.60 of the $10,743,382 Loan principal. Tallmadge Ex Parte Decl., ¶¶ 4-5, Ex. A. This leaves an outstanding principal of $713,489, which matches the November 2023 Notice of Default. Tallmadge Ex Parte Decl., ¶4, Ex. A; Rierson Decl., ¶25, Ex. H.

The difference may lie in the parties’ calculations of interest. The Loan included a Repayment Schedule requiring Movie LLC to repay Rapid $6,193,195 by September 30, 2020, and $4,550,187 by December 31, 2020. Rierson Decl., ¶18, Ex. A. The Default Rate of interest is 12.5%. Rierson Decl., ¶18, Ex. A. Bay Point prepared an accounting that calculates the outstanding principal and the default interest accrued since each portion of the principal became due under the Repayment Schedule. Rierson Decl., ¶26, Ex. I.

ZVI asserts that Bay Point could not assess interest at the Default Rate until the June 2023 Notice of Default. Supp. at 4. The Loan does not make imposition of the default interest rate contingent on notice of default. In any event, the evidence shows that both Movie LLC and ZVI received numerous informal notices of default. Rierson Decl., ¶23. This is sufficient to trigger the default interest.

ZVI cites System Inv. Corp. v. Union Bank, (1971) 21 Cal. App. 3d 137, 154, where a bank lulled the plaintiff borrower into a sense of security that the bank would not declare a default without giving them prior notice and an opportunity to cure it. In reliance on that sense of security, the borrower then spent substantial time and money to complete the building under construction. Id. at 155. As Bay Point notes, the plaintiff’s claim was based on estoppel and this is not an estoppel case. Opp. at 14. Neither Rapid nor Bay Point lulled Movie LLC into a false sense of security that the Loan was not in default and ZVI took no action in reliance on a false sense of security.

ZVI asserts that the Loan included a $1,084,935 reserve that Bay Point should have used the same way. Kim Supp. Decl., ¶2, Ex. A. ZVI cites to section 7.11 of the Loan, which allowed Bay Point to set off and apply any deposits against the amount Movie LLC owed. Kim Supp. Decl., ¶2, Ex. A. Supp. at 4.

The Loan only provided the reserve for FX Costs and Transaction Fees. Kim Supp. Decl., ¶2, Ex. A. Bay Point provides an accounting of the FX Costs in the November 2023 Notice of Default which includes $33,114 in “FX Roll” and $330,595 in “FX Close Out”. Rierson Decl., ¶¶ 25-26, Exs. H-I. It seems plain from the comprehensive nature of the accounting that the entire $1,084,935 reserve has been applied.

ZVI has had notice of the $1,651,964 owed and 48 hours to cure. Even if ZVI were correct that the amount owed should be $1.3 million, it provides no evidence that it is ready and willing to pay that amount. See Lona v. Citibank, N.A., (“Lona”) (2011) 202 Cal.App.4th 89, 112-13 (tender rule). As a result, ZVI has not demonstrated a probability of success on the merits of either its breach of contract or accounting claims.

Section 17200 prohibits unfair competition, broadly defined as any unlawful, unfair or fraudulent business act or practice. Unlawful conduct is defined as any practice forbidden by law. Farmers Ins. Exchange v. Superior Court, (1992) 2 Cal.4th 377, 383.

Bay Point cites Linear Technology Corp. v. Applied Materials, Inc., (2007) 152 Cal. App. 4th 115, 135, which indicates that alleged victims who are neither competitors nor powerless, unwary consumers, but rather sophisticated business entities which presumably have the resources to seek damages or other relief, may not assert a UCL claim based on its contract with the defendant. Id. at 135. When an action is based on contracts not involving either the public in general or individual consumers who are parties to the contracts, a corporate plaintiff may not rely on section 17200. Id. (citation omitted).

ZVI and Movie LLC are corporate entities. ZVI’s UCL arguments stem from the performance of the Loan between Rapid and Movie LLC. Kim Supp. Decl., Ex. A. ZVI cannot bring an action under the UCL.

No person shall engage in the business of a finance lender or broker without obtaining a license from the commissioner. Financial Code (“Fin. Code”) §22100(a).

As Bay Point asserts (Opp. at 13), there is no private right of action to enforce this requirement of the California Financial Lenders Law (“CFL”) in civil court. Nor does the Complaint plead a CFL claim.

Finally, the CFL’s licensing requirement does not apply to any person who makes no more than one loan in a 12-month period if that loan is a commercial loan. Fin. Code §22050.2. A commercial loan is one with a principal of over $5,000 whose proceeds are intended for use primarily for other than personal, family, or household purposes. Fin. Code §22502.

While neither Rapid nor Bay Point is registered in California as a licensed mortgage finance lender (Tallmadge Ex Parte Decl., ¶8), the Loan was for approximately $10 million and for a commercial purpose. ZVI presents no evidence that either Bay Point or Rapid made another loan in 2019. ZVI has failed to show that either Movie LLC or Bay Point was required to be licensed as finance lenders to issue the Loan.

Under California law, a loan that charges an interest rate greater than 10% is usurious. Const. Art. XV §1; Regents of University of California v. Superior Court, (1976) 17 Cal.3d 533, 536; 321 Henderson Receivables Origination, LLC v. Sioteco, (2009) 173 Cal.App.4^th 1059, 1076. For purposes of usury analysis, prepaid interest held as a reserve will be considered as reducing the loan amount. Buck v. Dahlgren, (1972) 23 Cal.App.3d 779, 785. A lender is not prohibited by usury from charging for incidental services, expenses, or risk in addition to interest. Forte v. Nolfi, (1972) 25 Cal. App. 3d 656, 681. Such items must be confined to specific service or expenses incidental to the loan incurred in such a way as to preclude it being a device from which additional interest or profit on the loan may be exacted. Id.

ZVI asserts the interest rate under the Loan was a usurious 18%. Ex Parte App. at 12-13. The Default Rate listed in the Loan was 12.5%. Kim Supp. Decl., ¶2, Ex. A. ZVI provides no support for its argument of a greater rate. Bay Point admits that the 12.5% interest rate would be usurious under normal circumstances, but that an exemption applies. Opp. at 13-14.

A loan is exempt from usury provisions if the indebtedness aggregate at the time of issuance was over $300,000. Corp. Code §25118(b)(1). This exemption only applies if either (1) the lender and either the issuer of indebtedness, guarantor, or respective officers, directors, or controlling persons have a preexisting relationship; or (2) the lender and the issuer, or the lender and the guarantor, by reason of their own business and financial experience or that of their professional advisers, could reasonably be assumed to have the capacity to protect their own interests in connection with the transaction. Corp. Code §25118(f).

Bay Point asserts that the Loan is exempt from usury pursuant to Corp. Code section 25118[6] the Loan exceeded $300,000, Rapid and Movie LLC had a pre-existing business relatioinship, and Movie LLC had business and financial experience and professional advisors. Bay Point asserts that Tulchin acted as counsel for ZVI and Movie LLC when they negotiated the Loan. Rierson Decl., ¶8. Tulchin specializes in legal services pertaining to the development, financing, production, and distribution of entertainment products and services. Rierson Decl., ¶8. Opp. at 14.

Even if this usury exception does not apply, whether the Default Rate of 12.5% is usurious is irrelevant. When a loan is usurious, the plaintiff’s remedy is to reduce the amount owed to the amount of principal without interest. Since ZVI has not shown that it is ready and able to pay even the $1.3 million it calculates without Default Interest (see Lona, supra, 202 Cal.App.4th at 112-13), usury law does not prevent foreclosure.

The elements of the tort of interference with prospective economic advantage are (1) an economic relationship between the plaintiff and another party containing the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the existence of the relationship; (3) the defendant's intentional wrongful acts, designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) resulting damage. Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1153.

Although it does not argue intentional interference in its moving papers, ZVI asserts in reply that Bay Point has conceded ZVI is likely to prevail on the claim. Bay Point’s only argument is that ZVI has failed to show a working relationship with other companies that would yield an economic benefit. ZVI argues that in an action for injunctive relief, the plaintiff need not quantify the harm suffered or likely to be suffered. Reply at 7-8.

Bay Point did not concede this cause of action. It noted that ZVI only alleged Bay Point exercised its contractual right to foreclose on ZVI’s membership in Movie LLC. Opp. at 10. Bay Point argued that ZVI cannot show wrongful action because it had that contractual right. As discussed ante, the court agrees that Bay Point did not breach the contracts at issue.

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.

Bay Point asserts that ZVI cannot assert irreparable harm for two reasons. First, ZVI’s interest in Movie LLC is underwater. Movie LLC’s bankruptcy filings list $1,586,329 in assets and $17,589,785 in liabilities. Villar Decl., ¶4; RJN Ex. 3. The value of the Movie as intellectual property was listed as $1,000,000. Villar Decl., ¶4; RJN Ex. 3. ZVI’s interest in Movie LLC is in effect a negative interest. Second, ZVI has the legal remedy of damages for unlawful foreclosure, which would be recovery of the value of ZVI’s ownership interests in Movie LLC. Second, Opp. at 12.

Both arguments ignore the type of harm ZVI asserts it will face without injunctive relief. ZVI has multiple working relationships with movie distribution companies. Kim Ex Parte Decl., ¶11. It plans to use them for domestic distribution of the Movie as the writers’ and actors’ strikes end. Kim Ex Parte Decl., ¶11. A release so timed would maximize the viewing audience, ZVI’s reputation and goodwill, and business relationships with other elements of the film industry. Kim Ex Parte Decl., ¶11. Because this benefit depends on the timing of the Movie’s release, the damages in an action to recover the value of Movie LLC may be difficult to calculate. ZVI also may suffer reputational damage in the industry. Reply at 8-9.

Bay Point does not argue harm of its own if a preliminary injunction issues. See Opp. at 12. Bay Point discusses the $15,867.42 spent for the original foreclosure sale (Rierson Decl., ¶¶ 28-30, Exs. L-M) and the fact that it will have to repeat this process for a rescheduled sale. (Rierson Decl., ¶31). However, the repeated cost will be incurred if a preliminary injunction is denied and does not bear on the harm from a preliminary injunction.

Bay Point has demonstrated ZVI cannot maintain this action until it complies with Corp. Code section 2203(c). Although it has shown some irreparable harm, ZVI has not demonstrated a likelihood of success for any of its claims. The application for a preliminary injunction is denied.

[1] 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.

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

[3] Bay Point requests judicial notice of (1) online search results for ZVI’s name in the California Secretary of State records (RJN Ex. 1); (2) a June 14, 2005 Certificate of Dissolution for ZVI from the California Secretary of State’s website (RJN Ex. 2); and (3) the Summary of Amended Schedules, Master Mailing List, and/or Statements filed by Movie LLC in the bankruptcy court on October 16, 2023 (RJN Ex. 3). The requests are granted. Evid. Code §§ 452 (c), (d).

The court has ruled on Bay Point’s written objections to ZVI’s evidence. The clerk is directed to scan and electronically file the court’s rulings.

[4] As for Bay Point, it is Rapid’s assignee standing in the shoes of Rapid and required to perform Rapid’s obligations to receive the benefits of the Assignment.

[5] Movie LLC did not waive its right to notice. Section 11.2 of the Loan required Rapid to give Movie LLC 48 hours after written notice to remedy the default. Kim Supp. Decl., ¶2, Ex. A. After this opportunity to cure passed, section 11.2.2 entitled Rapid to declare any outstanding debt immediately due and payable upon notice to Movie LLC. Kim Supp. Decl., ¶2, Ex. A. ZVI does not show that it may raise Movie LLC’s rights.

[6] Bay Point miscites the statute as Fin. Code section 25118.