Judge: James C. Chalfant, Case: 24STCV04202, Date: 2024-03-14 Tentative Ruling

Case Number: 24STCV04202    Hearing Date: March 14, 2024    Dept: 85

            Plaintiffs Darren Haas (“Haas”) and Heather Strauch (“Strauch”) apply for a preliminary injunction enjoining Defendants Peak Foreclosure Services, Inc. (“Peak”) and Richards Real Estate, Inc. (“Richards”) from conducting a trustee’s sale or otherwise disposing of 745 Eighth Place, Hermosa Beach, CA (“Eighth Property”) or 825 Pacific Coast Highway, Hermosa Beach, CA (“Pacific Property”).

            The court has read and considered the moving papers and Richards’ opposition (no opposition from Peak is on file),[1] and renders the following tentative decision.

            A. Statement of the Case

            1. Complaint

            Plaintiffs commenced this proceeding on February 19, 2024, alleging (1) wrongful foreclosure, (2) violation of Civil Code sections 2924 et. seq., (3) declaratory relief, and (4) injunctive relief.  The verified Complaint alleges in pertinent part as follows.

            Haas and Strauch each own a 50% undivided interest in each Property as tenants-in-common.  In August 2020, Plaintiffs executed two separate Line of Credit Promissory Notes for $600,000 (“Eighth Note” and “Pacific Note”) in favor of Thompson Falls, LLC (“Thompson”), secured by their interests in the Properties.  Although the Eighth Note misstates the address as “745 Pacific Coast Highway,” the deed of trust for the Eighth Note (“Eighth DOT”) reflects the correct address.

            Neither Plaintiff has requested or received an advance under any of the Notes and no amount is due thereunder.  Despite this, in January 2024, Plaintiffs received a Notice of Trustee’s Sale (“NOS”) for each Property alleging default under the two DOTs. 

            Plaintiffs contacted Thompson representative Brian Dozier (“Dozier”), who informed them that Thompson had transferred its rights and obligations under the Notes to Richards.  Dozier assured Plaintiffs he would contact Richards’ principal, Leslie Richards (“Leslie”), and have the mistake corrected.

            On February 18, 2024, Dozier advised Plaintiffs that Leslie orally agreed to call off the sales.  To date, Leslie has not provided written confirmation.

            Plaintiffs seek actual damages, a judicial declaration voiding each NOS and Notice of Default (“NOD”), injunctive relief enjoining foreclosure on the Properties, and attorneys’ fees and costs.

            2. Course of Proceedings

            On February 21, 2024, the court granted Plaintiff’s ex parte application for a temporary restraining order (“TRO”) and order to show cause re: preliminary injunction (“OSC”) to enjoin Defendants from conducting a foreclosure sale as to either Property.

            On February 22, 2024, Plaintiffs personally served Defendants with the Complaint, Summons, and moving papers for the ex parte application.

            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

            Plaintiffs, who are siblings, each own a 50% undivided interest as tenants-in-common for both Properties.  Haas Decl., ¶¶ 1-3; Strauch Decl., ¶¶ 1-3.

            In August 2020, Plaintiffs signed the Eighth Note and the Pacific Note in Thompson’s favor to borrow up to $600,000 against each Property.  Haas Decl., ¶¶ 4-5, Exs. A, C; Strauch Decl., ¶¶ 4-5, Exs. A, C.  Under the Notes, Plaintiffs had the right to request loan advances from Thompson.  Haas Decl., ¶¶ 4-5, Exs. A, C; Strauch Decl., ¶¶ 4-5, Exs. A, C.  The advances were to be reflected on Schedule A, which was blank when Plaintiffs signed the Notes.  Haas Decl., ¶¶ 4-5, Exs. A, C; Strauch Decl., ¶¶ 4-5, Exs. A, C.  Plaintiffs’ managing member would initial the entry on the Schedule when they received the advance.  Haas Decl., ¶¶ 4-5, Exs. A, C; Strauch Decl., ¶¶ 4-5, Exs. A, C.  Interest would accrue at a 6% annual rate until August 14, 2023, when the Notes would mature.  Haas Decl., ¶¶ 4-5, Exs. A, C; Strauch Decl., ¶¶ 4-5, Exs. A, C.  Interest would then accrue from inception at a 6.5% rate.  Haas Decl., ¶¶ 4-5, Exs. A, C; Strauch Decl., ¶¶ 4-5, Exs. A, C.

            Each Note was secured by a DOT recorded against that Property in Thompson’s favor.  Haas Decl., ¶¶ 4-5, Exs. B, D; Strauch Decl., ¶¶ 4-5, Exs. B, D.  Although the Eighth Note lists the Eighth Property’s address as “745 Pacific Coast Highway, Hermosa Beach, CA 90254,” the Eighth DOT lists the correct address as “745 Eighth Place Hermosa Beach, CA 90254.”  Haas Decl., ¶4, Exs. A-B.  Plaintiffs do not own an interest in Property at 745 Pacific Coast Highway, Hermosa Beach, CA 90254.  Haas Decl., ¶4.

            Plaintiffs never requested nor received an advance under either Note.  Haas Decl., ¶6; Strauch Decl., ¶6.  Despite this, in January 2024, Peak sent Plaintiffs a NOS for each Property.  Haas Decl., ¶7, Exs. E-F; Strauch Decl., ¶7, Exs. E-F.  Because neither Plaintiff has withdrawn money under the Notes, neither is in default and the foreclosure sales are improper.  Haas Decl., ¶9; Strauch Decl., ¶9. 

            Plaintiffs contacted Thompson representative Dozier, who informed them Thompson had transferred to Richards its rights and obligations under the Notes.  Haas Decl., ¶8; Strauch Decl., ¶8.  Dozier assured Plaintiffs that he would contact Richards’ principal, Leslie, and have the mistake corrected.  Haas Decl., ¶8; Strauch Decl., ¶8.  Dozier repeated this during daily conversations.  Haas Decl., ¶8; Strauch Decl., ¶8. 

            On February 18, 2024, Dozier advised Plaintiffs that Leslie orally had agreed to call off the sales.  Haas Decl., ¶9; Strauch Decl., ¶9.  To date, Leslie has not provided written confirmation.  Haas Decl., ¶9; Strauch Decl., ¶9. 

            The estimated value of the Eighth and Pacific Properties on real estate websites are $1.3-$1.5 million and $1.5 million, respectively.  Haas Decl., ¶¶ 11-12; Strauch Decl., ¶¶ 11-12.  Assuming arguendo Plaintiffs had drawn the maximum $600,000 on each line of credit, the maximum owed on each Note after 6.5% annual interest would be $726,509.59.  Ficenec Decl., ¶5.

            D. Analysis

            Plaintiffs seek a preliminary injunction enjoining the foreclosure sale of the Properties.

            1. Probability of Success

            The Complaint’s first cause of action is for wrongful foreclosure.  Plaintiffs provide evidence that they signed two Notes in August 2020 to borrow up to $600,000 against each Property.  Haas Decl., ¶¶ 4-5, Exs. A, C; Strauch Decl., ¶¶ 4-5, Exs. A, C.  Each Note was secured by a DOT recorded in Thompson’s favor against that Property.  Haas Decl., ¶¶ 4-5, Exs. B, D; Strauch Decl., ¶¶ 4-5, Exs. B, D.   Thompson later assigned these Notes and DOTs to Richards.  Haas Decl., ¶8; Strauch Decl., ¶8. 

            Under the Notes, Plaintiffs received the right to request loans and advances.  Haas Decl., ¶¶ 4-5, Exs. A, C; Strauch Decl., ¶¶ 4-5, Exs. A, C.  The advances were to be reflected on Schedule A, which was blank when Plaintiffs signed the Notes.  Haas Decl., ¶¶ 4-5, Exs. A, C; Strauch Decl., ¶¶ 4-5, Exs. A, C.  Plaintiffs’ managing member was to initial the entry on the Schedule when they received the advance.  Haas Decl., ¶¶ 4-5, Exs. A, C; Strauch Decl., ¶¶ 4-5, Exs. A, C. 

            In January 2024, Peak sent Plaintiffs a NOS for each Property.  Haas Decl., ¶7, Exs. E-F; Strauch Decl., ¶7, Exs. E-F.  Plaintiffs never withdrew money under the Notes and are not in default.  Haas Decl., ¶9; Strauch Decl., ¶9.   Defendants do not have the right to foreclose on either Property.  Haas Decl., ¶9; Strauch Decl., ¶9. 

            Plaintiffs have demonstrated a probability of success on their claim for wrongful disclosure. 

            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.

            Plaintiffs assert that the harm Defendants will incur due to an injunction is non-existent.  Mot. at 5-6.  The estimated value of the Eighth and Pacific Properties on real estate websites is $1.3-$1.5 million and $1.5 million, respectively.  Haas Decl., ¶¶ 11-12; Strauch Decl., ¶¶ 11-12.  Even if Plaintiffs had drawn the maximum $600,000 on each line of credit, the maximum owed on each Note after 6.5% annual interest would be $726,509.59.  Ficenec Decl., ¶5.  Defendants are over-secured by more than $500,000 per Note.  Mot. at 5-6.

            The court need not discuss this in detail.  Real property is a unique asset.  Where land is the subject matter, the inadequacy of the legal remedy is well settled, and the equitable jurisdiction is firmly established.  Stockton v. Newman (1957), 148 Cal. App. 2d 558, 564.  Plaintiffs would lose ownership of the Properties if the foreclosure sales proceed.  At worst, Defendants’ financial harm from the improvident issuance of a preliminary injunction will be compensated by eventual foreclosure sales.

            The balance of hardships strongly 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, (“Abba”) (1991) 235 Cal.App.3d 1, 15.¿ The damages include any lost profits resulting from the injunction.  See Allen v. Pitchess, (1973) 36 Cal.App.3d 321, 327-28.  The attorney’s fees necessary to successfully procure a final decision dissolving the injunction also are damages that should be included in setting the bond.  Abba, supra, 235 Cal.App.3d at 15-16.  While Abba reasoned that the plaintiff’s likelihood of prevailing is irrelevant to setting the bond, a more recent case disagreed, stating that 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.  In lieu of a bond, the judge may permit a deposit into court.  CCP §995.710.

             Richards opposes on the basis that Plaintiffs must post an undertaking and requests a $1,200,000 undertaking to reflect the two $600,000 lines of credit under the Notes.  Opp. at 2. 

The harm caused by a wrongfully issued preliminary injunction is not the line of credit itself.  Rather, it is the amount of damage Richards will sustain from a delayed foreclosure.  This ordinarily is the lost use of the foreclosure sale proceeds during the pendency of the lawsuit, plus plus attorney’s fees incurred in setting aside the preliminary injunction, whether by motion or at trial.  Defendants present no evidence on this issue.  The bond is set at $1500, cash or corporate surety.