Judge James C. Chalfant, Case Number: 23STCV31783, Date: 2024-01-25 Tentative Ruling

Ennerdale 401K Profit Sharing Plan & Trust v. ASLM Gas, Inc. and ASLM Investments, Inc., 23STCV31783

Tentative decision on application for a preliminary injunction: granted

Plaintiff Ennerdale 401K Profit Sharing Plan & Trust (“Ennerdale”) applies for a preliminary injunction enjoining Defendants ASLM Gas, Inc. (“Gas”) and ASLM Investments, Inc. (“Investments”) from (1) committing waste at a gas station and convenience store located at 390 West Aten Road, Imperial, CA 92251 (“Property”) or removing its fixtures; (2) collecting any revenue or rent from the Property; and (3) selling or encumbering the Property.

The court has read and considered the ex parte application (no opposition was filed) and renders the following tentative decision.

Plaintiff Ennerdale filed this action on December 28, 2023, seeking specific performance of an assignment of rents, appointment of receiver, and accounting. The Complaint alleges as follows.

On December 21, 2021, Open Bank (“Bank”) and Defendants signed a promissory note (“Note”) whereby Bank loaned Defendants $4,047,000 (“Loan”). The parties signed a Business Loan Agreement (“BLA”) the same day defining the terms and conditions of the Loan.

Also on December 21, 2021, to secure payment of the Loan, Defendant Investments executed a Deed of Trust against the Property (“DOT”) and an Assignment of Rents. Investments also executed a Commercial Security Agreement (“CSA”) granting a security interest in present and future inventory, equipment, and accounts (“Collateral”) plus products and proceeds thereof.

Also on December 21, 2021, Defendant Mandeep Singh (“Singh”) signed an Unconditional Guaranty to personally guarantee the Loan.

Bank perfected its interest in the Collateral when it filed a UCC Financing Statement with the California Secretary of State on December 27, 2021. (Collectively, the Note, DOT, Assignment of Rents, CSA, Unconditional Guaranty, and UCC filing are referred to as “Loan Documents”). The DOT and Assignment of Rents were recorded on December 28, 2021.

Defendants failed to make the required payments due under the Note on January 1, 2023 and the first of every month thereafter. Defendants also defaulted on the Loan for failure to make the required property taxes payments and failing to maintain adequate insurance on the Property.

On March 22, 2023, Bank recorded a Notice of Default and Election to Sell Under Deed of Trust (“NOD”).

On March 24, 2023, each of Gas and Investments filed a chapter 11 bankruptcy case. On June 8, 2023, the bankruptcy court dismissed Gas’s bankruptcy case. On July 12, 2023, it granted Bank’s motion for relief from the stay in Investment’s bankruptcy case which allowed Bank to continue the foreclosure process on the DOT.

Bank has assigned the Note and DOT to Plaintiff Ennerdale. As of December 27, 2023, the outstanding Loan principal is $3,716,292.91. Defendants also owes $396,277.68 in interest, $22,950.36 in late charges, $40,000 in legal fees, $2,000 in foreclosure environmental assessment fees, $18,973.53 in foreclosure trustee’s fees, $8,550 in foreclosure appraisal costs, and $49,818.28 in insurance advances for coverage effective as of December 27, 2023. The total amount owed is $4,254,862.76.

The DOT entitles Ennerdale to appointment of a receiver to take possession of the Property in the event of default. Ennerdale seeks an appointment of a receiver and a judgment compelling specific performance of assignment of rents, an accounting of the businesses and the Property, and giving Ennerdale full access to their books and records.

On January 4, 2024, the court granted Ennerdale’s ex parte application for a TRO/OSC but denied the concurrent ex parte application for appointment of a receiver to take possession of the Property. The court ordered Ennerdale to serve Defendants with the Summons, Complaint, moving papers, and order granting the ex parte application for a TRO/OSC by January 8, 2024.

Also on January 4, 2024, Ennerdale served Gas and Singh with the TRO/OSC by U.S. mail. On January 8, 2024, Ennerdale served the order again by electronic and U.S. mail.

On January 8, 2024, Singh signed a Notice of Acknowledgement and Receipt for the Complaint and Summons on behalf of both Gas and Investments.

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.

On December 21, 2021, Bank and Defendants signed a Note for a $4,047,000 Loan to ASLM. Reay Decl., ¶4, Ex. 2. Defendants were required to make payments of $24,251.56 on the first day of every month. Reay Decl., ¶4, Ex. 2.

The Note defined an event of default to include failure to comply with any term of any Loan Document, failure to pay taxes when due, and becoming the subject of a proceeding under any bankruptcy law. Reay Decl., ¶4, Ex. 2. After an event of default, Bank would have the right to require immediate payment of all amounts owed under the Note, collect all amounts owed from any borrower or guarantor, take possession of any collateral, or sell, lease, or otherwise dispose of the collateral without advertisement. Reay Decl., ¶4, Ex. 2.

The BLA signed the same day further defined the terms and conditions of the Loan. Reay Decl., ¶5, Ex. 3. As borrower, Defendants were required to maintain various types of insurance on the Property and provide evidence of such insurance to Bank. Reay Decl., ¶5, Ex. 3. Defendants could not cancel or diminish coverage without at least 30 days written notice to Bank. Reay Decl., ¶5, Ex. 3.

The BLA defined an event of default as failure to make any payment when due under the Loan, failure to comply with any term or obligation in any Loan Document, and a material adverse change in Defendants’ financial condition. Reay Decl., ¶5, Ex. 3. An event of default would allow Bank to declare all indebtedness immediately due and payable. Reay Decl., ¶5, Ex. 3.

Singh signed the Note and BLA in his capacity as President and Secretary of both Gas and Investments. Reay Decl., Exs. 2-3. Singh also signed an Unconditional Guaranty for the Loan. Reay Decl., ¶8, Ex. 8.

Also on December 21, 2021, to secure repayment of the Loan, Investments executed a DOT against the Property. Reay Decl., ¶6, Ex. 4. The DOT’s list of remedies upon default included foreclosure by sale, judicial foreclosure, the right to collect rents, and the right to appointment of a receiver to take possession of and preserve the Property. Reay Decl., ¶6, Ex. 4.

Investments also executed an Assignment of Rents giving Bank a security interest in all rents from the Property. Reay Decl., ¶6, Ex. 5. The Assignment of Rents’ list of remedies upon default included appointment of a receiver and the right to collect rents. Reay Decl., ¶6, Ex. 5.

Investments also executed a CSA granting Bank a security interest in the Personal Collateral, including present and future inventory, equipment, and accounts. Reay Decl., ¶7, Ex. 6. Investments agreed to not remove the Personal Collateral from its current location without Bank’s consent. Reay Decl., ¶7, Ex. 6.

The CSA defined default as failure to make any payment when due under the Loan, failure to comply with any term or obligation in any Loan Document, and a material adverse change in Defendants’ financial condition. Reay Decl., ¶7, Ex. 6. An event of default would entitle Bank to possession and beneficial use of the Personal Collateral. Reay Decl., ¶7, Ex. 6.

Bank perfected its interest in the Personal Collateral when it filed a UCC Financing Statement with the California Secretary of State on December 27, 2021. Reay Decl., ¶7, Ex. 7.

Defendants failed to make the required payments due under the Note on January 1, 2023 and the first of every month thereafter. Reay Decl., ¶11. On March 22, 2023, recorded an NOD against the Property. Reay Decl., ¶11, Ex. 9.

On March 24, 2023, both Gas and Investments filed chapter 11 bankruptcy cases in the bankruptcy court. Reay Decl., ¶12. On June 8, 2023, the bankruptcy court granted a motion to dismiss Gas’s bankruptcy case. Reay Decl., ¶12, Ex. 10. On July 12, 2023, it granted Bank’s motion for relief from the automatic stay in Investment’s bankruptcy case. Reay Decl., ¶12, Ex. 11.

On June 22, 2023, Defendants cancelled the Property’s insurance policy with Nationwide. Reay Decl., ¶15, Ex. 12. Ennerdale has not received confirmation of reinstatement of insurance. Reay Decl., ¶15. Defendants defaulted under the BLA for failure to maintain adequate insurance. Reay Decl., ¶15.

As of December 27, 2023, the outstanding principal is $3,716,292.91. Reay Decl., ¶13. Defendants also owe $396,277.68 in interest, $22,950.36 in late charges, $40,000 in estimated legal fees, $2,000 in foreclosure environmental assessment fees, $18,973.53 in foreclosure trustee’s fees, $8,550 in foreclosure appraisal costs, and $49,818.28 in insurance advances for coverage effective as of December 27, 2023. Reay Decl., ¶13. The total amount owed is $4,254,862.76. Reay Decl., ¶13.

Defendants also defaulted under the Note for failure to pay real property taxes on the Property for 2022/23, as well as the first installment of real property taxes on the Property for 2023/24. Reay Decl., ¶14.

In December 2023, Bank assigned the DOT to Ennerdale. Reay Decl., ¶3, Ex. 1. During a December 9, 2023 inspection of the Property, Ennerdale noticed signs on the gas station’s pumps saying no gas was available. Reay Decl., ¶18, Ex. 14. The pumps appeared inoperative. Reay Decl., ¶18. A sign on the door to the Property’s convenience store read “Cash Only.” Reay Decl., ¶18. The store had very few items in stock on the shelves. Reay Decl., ¶18. When the Ennerdale trustee asked the sales clerk what was going on, he said “we are closing down.” Reay Decl., ¶18.

Ennerdale has reinstated the insurance on the Property, effective December 27, 2023. Reay Decl., ¶15.

Ennerdale believes Defendants are collecting rent and revenue from the Property gas station and convenience store. Reay Decl., ¶17. Despite this, Defendants have not paid the obligations owed to Ennerdale. Reay Decl., ¶17.

Plaintiff Ennerdale applies for a preliminary injunction enjoining Defendants from (1) committing or permitting waste as to the Property’s gas station and convenience store, or removing, transferring, encumbering, or otherwise disposing of the Property or fixtures on it; (2) demanding, collecting, receiving, discounting, using, or diverting any revenue or rent from the Property; or (3) transferring, assigning, selling, mortgaging, encumbering, concealing, or creating a security interest in the Property or rents thereof.

On December 21, 2021, Bank and Defendants signed a Note for a $4,047,000 Loan to Defendants. Reay Decl., ¶4, Ex. 2. Defendants was required to make payments of $24,251.56 on the first day of every month. Reay Decl., ¶4, Ex. 2. Defendants also signed various other Loan Documents. Reay Decl., Exs. 4-6. Bank later assigned the DOT to Ennerdale. Reay Decl., Ex. 1.

Defendants failed to make payments due under the Note from January 2023 thereafter. Reay Decl., ¶11. The recorded NOD shows that Investments owed $120,577.37 as of March 20, 2023. Reay Decl., ¶11, Ex. 9. This constitutes a breach under the Loan Documents. Reay Decl., ¶5, Ex. 3.

The Loan Documents also required Defendants to maintain insurance on the Property and provide 30 days’ written notice before any reduction or cancellation of coverage. Reay Decl., ¶5, Ex. 3. Ennerdale presents evidence that Defendants cancelled its insurance policy in June 2023. Reay Decl., ¶15, Ex. 12.

Ennerdale has demonstrated a probability of success on its claim that it is entitled to the Personal Collateral and all rents from the Property, as well as to foreclose on the Property itself. These are the interests that the preliminary injunction would protect.

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.

The requested preliminary injunction would protect the Property, any fixtures, the businesses, and the rent and revenue from those businesses. Ennerdale asserts that Defendants may thwart the management of the Property and abscond with its rents and revenue if the court denies the application. Because Defendants no longer have an interest in these assets, they would not suffer harm from a preliminary injunction. Mem. at 17.

The application for a preliminary injunction is granted. ASLM may not (1) commit or permit waste as to the Property or remove, transfer, encumber, or otherwise dispose of the Property or its fixtures; (2) demand, collect, receive, discount, use, or divert any revenue or rent from the Property; or (3) transfer, assign, sell, mortgage, encumber, conceal, or create a security interest in the Property or rents thereof.

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 damages from an improperly issued injunction are minimal. The bond will be set at $500.

[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).