Judge: James C. Chalfant, Case: 24STCV18012, Date: 2024-08-20 Tentative Ruling

Case Number: 24STCV18012    Hearing Date: August 20, 2024    Dept: 85

Plaintiff Palm Court Properties, Inc. (“Palm Court”) seeks a preliminary injunction against Defendant Bank of America, N.A. (“Bank of America”) to freeze the bank account held in the name of Defendant 427 South Elm, LLC (“Elm LLC”) such that the funds are not accessible to 427 South or its agents.

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

A. Statement of the Case

1. Complaint

On July 19, 2024, Plaintiff Palm Court filed a Complaint against Defendants Elm LLC, Zhan Hairong aka Zhan Hai Rong aka Hai Rong Zhan (“Hai Rong”), Bank of America, Eric Gallego (“Gallego”), and Merchants Bonding Company (“Merchants”) alleging causes of action for (1) declaratory relief, (2) conversion, (3) unjust enrichment, and (4) negligence of notary public and for recovery on notary bond. The Complaint alleges in pertinent part as follows.

The real property which is the subject of this action is located at 427 S. Elm Drive, Beverly Hills, CA 90212 (“Elm Drive Property”).  Compl., ¶10. 

On May 26, 2016, Ming Lu acquired title to the Elm Drive Property pursuant to the recordation of a grant deed in the Recorder’s Office of Los Angeles County (“County”).  Compl., ¶11.  A deed of trust between Ming Lu, as borrower, and BOFI Federal Bank, as lender, was also recorded (“BOFI Deed of Trust”).  Compl., ¶12.  The BOFI Deed of Trust secured Ming Lu’s repayment of a $1,400,000 promissory note (“BOFI Note”) with the Elm Drive Property.  Compl., ¶12.

On January 17, 2023, Elm LLC was created by David Turner with Defendant Hai Rong as its manager.  Compl., ¶13.  Elm LLC was organized for the sole purpose of fraudulently acquiring title to the Elm Drive Property and unlawfully converting proceeds from its sale.  Compl., ¶15.  The Statement of Information filed with the California Secretary of State listed the registered members of Defendant Elm LLC as Ming Lu and David Turner.  Compl., ¶14. 

On February 26, 2024, a grant deed was recorded purporting to convey title to the Elm Drive Property from Ming Lu to Elm LLC (“Fraudulent Grant Deed”).  Compl., ¶16.  The Fraudulent Grant Deed contains the notarial acknowledgement of Defendant Gallego, a California notary public.  Compl., ¶17.  The Fraudulent Grant Deed states that it merely “confirms title to the grantee [Elm LLC] who continues to hold the same interest acquired [by Ming Lu] on 5/26/2016, Document No. 20160606114.”  Compl., ¶18.

On March 20, 2024, a Statement of Information for Elm LLC removed David Turner and Ming Lu as members and replaced them with Defendant Hai Rong as the sole member and Chief Executive Officer.  Compl., ¶19.

On or about March 2024, Palm Court entered into a purchase agreement with Elm LLC to purchase the Elm Drive Property for $1,950,000.  Compl., ¶¶ 20-21.  Escrow was first opened with Pacific Escrow before being moved to Escrow Hub, and a title order was opened with Fidelity National Title Company (“FNTC”).  Compl., ¶22.

Palm Court deposited a down payment in the amount of $60,000 with Escrow Hub for its purchase of the Elm Drive Property.  Compl., ¶23.  During the transaction, Palm Court asked Escrow Hub about Ming Lu’s prior conveyance of the Elm Drive Property to Elm LLC.  Palm Court was informed that Hai Rong provided Escrow Hub with (a) a statement from Ming Lu’s husband, Long Jia, (b) an agreement between Ming Lu and Hai Rong, and (c) an email from Hai Rong to Escrow Hub and FNTC indicating that Ming Lu wanted to sell the Elm Drive Property because she is in default on her debts.  Compl., ¶¶24-25.

Palm Court agreed to purchase the Elm Drive Property primarily based on the marketable fee simple title purportedly held by Elm LLC, Hai Rong’s representations that Elm LLC legally acquired title from Ming Lu, and the signatures and documents it received for the transaction.  Compl., ¶27.

On June 21, 2024, in anticipation of the closing, Palm Court deposited additional funds with FNTC via wire transfer in the amount of $1,893,333.21.  Compl., ¶28.  The same day, FNTC wired the sum of $1,199,401.75 to Axos Bank to pay off the balance due on the BOFI Note and cause a reconveyance of the BOFI Deed of Trust.  Compl., ¶29.  FNTC also wired the sum of $687,691.46 to Escrow Hub’s bank, Wells Fargo Bank, for further disbursement.  Compl., ¶30.  Pursuant to wire instructions previously made by Hai Rong and Elm LLC, Escrow Hub then wired the sum of $743,704.51 to Elm LLC’s Bank of America bank account number ending in 7346 (“Deposit”).  Compl., ¶31.  All or a portion of the Deposit remains in the possession of Bank of America for the benefit of Hai Rong and Elm LLC.  Compl., ¶32. 

A grant deed was recorded in the County Recorder’s Office with Elm LLC as grantor and Palm Court as grantee.  Compl., ¶33.

On June 23, 2024, Ming Lu visited the Elm Drive Property to check on the progress of improvements to the home and discovered a three-day notice to vacate posted on the home notifying all occupants that Palm Court was the new owner.  Compl., ¶34.  The next day, Ming Lu filed a police report with the Beverly Hills Police Department reporting fraud and contacted Escrow Hub concerning the same.  Compl., ¶35.  Ming Lu denies ever signing the Fraudulent Grant Deed or appearing before Gallego to sign the Fraudulent Grant Deed and asserts that her signature was forged.  She was not even in the United States when it was purportedly signed on February 13, 2024.  She contends that she did not participate in the sale transaction and did not receive any of the Deposit.  Compl., ¶36.  That same day, Palm Court was informed of Ming Lu’s claims that the sale was fraudulent.  Compl., ¶37.

If Ming Lu’s assertions are true, Hai Rong and Elm LLC fraudulently stole title to the Elm Drive Property from Ming Lu via the Fraudulent Grant Deed and unlawfully converted a portion of Palm Court’s purchase money in the form of the Deposit.  Compl., ¶38.  Ming Lu remains the lawful fee simple title holder of the Elm Drive Property because the Fraudulent Grant Deed is void.  Compl., ¶39.

Bank of America has refused to voluntarily freeze the bank account and the Deposit from withdrawal or disbursement and will only do so upon receipt of a court order instructing it to do so.  Compl., ¶40.

Palm Court seeks an order and judicial declaration that it is the owner in fee of the Elm Drive Property or alternatively, in the event Ming Lu’s claim of fraud is verified, that Palm Court be deemed the owner of the Deposit and for an order that the balance of the Deposit be disbursed to Palm Court.  Palm Court also seeks damages for conversion in the amount of $743,704.51, pre-judgment interest, and compensatory damages for the lost use of money and for the time expended of no less than $250,000.  Palm Court further seeks costs of suit incurred herein and other and further relief the court deems proper and just.  Compl., at 14-16.

2. Course of Proceedings

On July 29, 2024, the court issued a temporary restraining order (“TRO”) and issued an order to show cause (“OSC”) against Defendants Elm LLC, Hai Rong, Bank of America, Gallego, and Mutual.

Proofs of service on file show that Defendant Bank of America was served with Summons, Complaint, and the TRO/OSC on July 31 and August 2, 2024.

Proofs of service on file show that Defendant 427 South Elm LLC was served with Summons, Complaint, and the TRO/OSC on July 31 and August 2, 2024.

A proof of service on file show that Defendant Merchants was served with Summons and Complaint on August 2, 2024.

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.[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.

C. Statement of Facts

1. Moving Plaintiffs’ Evidence

a. Fassai Declaration

Plaintiff Palm Court is a real estate investment corporation in Torrance, CA, which invests in real estate, manages properties, buys and holds, and fixes and flips properties.  Fassai Decl., ¶¶1, 3.  Ebrahim Fassai (“Fassai”) is the Chief Executive Officer, Chief Financial Officer, and Director of Palm Court.  Fassai Decl., ¶1.  At all relevant times, Fassai was acting as the authorized representative of Palm Court.  Fassai Decl., ¶2.

In March 2024, Fassai was introduced to the Elm Drive Property by a friend who informed him that the property was abandoned and the seller wanted to sell.  Fassai Decl., ¶3.  Upon Fassai’s physical inspection, the Elm Drive Property appeared to be suffering from deferred maintenance.  Fassai Decl., ¶3.

After some discussion with a woman who Fassai was told represented the seller, Palm Court offered to purchase the Elm Drive Property for $1,950,000.  An escrow for the purchase was opened with Pacific Escrow, and a title order was opened with Lawyers Title Company.  Fassai Decl., ¶4. 

Palm Court could not find a suitable lender to fund its purchase of the Elm Drive Property and the title company did not want to insure Palm Court's purchase.  Fassai Decl., ¶5.  It was then suggested to Fassai by a friend that the transaction be moved to Escrow Hub, as the new escrow company, and FNTC as the new title company.  Fassai Decl., ¶6.

Following the opening of the escrow with Escrow Hub, Palm Court made a good faith deposit in the amount of $60,000 towards the purchase of the Elm Drive Property.  Fassai Decl., ¶7.  Fassai received a Preliminary Report which identified Elm LLC as the owner of the Elm Drive Property.  Fassai Decl., ¶8.  Fassai received from both Escrow Hub and FNTC typical documents on which Palm Court relied in deciding to purchase the Elm Drive Property, including that Hai Rong represented that Elm LLC owned the Elm Drive Property and that the prior owner, Ming Lu, no longer held any interest in the Elm Drive Property and was consenting to the sale.  Fassai Decl., ¶9.  Fassai was also made aware that Hai Rong had deposited an executed grant deed in favor of Palm Court which was to be recorded when all the conditions to the sale had been satisfied.  Fassai Decl., ¶10.

Palm Court agreed to purchase the Elm Drive Property based upon Elm LLC’s representations that it was the owner of the Elm Drive Property.  Fassai Decl., ¶11.

On or about June 19, Palm Court wired to FNTC the balance of its purchase-money funds in the amount of $1,893,333.21.  Fassai Decl., ¶12.

On or about June 21, 2024, Fassai was informed that the transaction had closed and that the grant deed executed by Hai Rong on behalf of Elm LLC was out for recording.  Fassai Decl., ¶13.

On June 23, 2024, Fassai caused a three-day notice to vacate to be posted on the Elm Drive Property.  Fassai Decl., ¶15.  The following day, a grant deed between Elm LLC, as grantor, and Palm Court, as grantee, was recorded as Document No. 20240405883 in the County Recorder’s Office.  Fassai Decl., ¶16, Ex. 1. 

Fassai received a call from FNTC, who told him that there was someone living in the Elm Drive Property who claimed to be the owner of the property.  Fassai Decl., ¶17.  Fassai has since learned through his lawyers and the title insurance company that Ming Lu, a prior owner and the grantor of title to Elm LLC, was claiming that her signature had been forged on a recorded deed purportedly vesting title to the Elm Drive Property in Elm LLC.  She asserted that she did not know about the sale, had not participated in it, had not agreed to sell the Elm Drive Property, did not convey title to Elm LLC, and did not receive any proceeds of sale.  Fassai Decl., ¶18.

b. Declaration of Diego Salazar

Diego Salazar (“Salazar”) is an escrow officer with Escrow Hub, the escrow company which was engaged to handle the sale between Elm LLC and Palm Court.  Salazar Decl., ¶1.   

On or about June 17, 2024, Escrow Hub was engaged to act as the escrow holder for Palm Court’s purchase of the Elm Drive Property.  Salazar Decl., ¶3.   A file was opened and assigned the escrow file number 100649-DS, with the “DS” representing Salazar’s initials as the escrow officer assigned.  Salazar Decl., ¶3.  Palm Court made an initial good faith deposit of $60,000 upon the opening of the escrow.  Salazar Decl., ¶4.

During the course of the transaction, Elm LLC, by and through its purported manager, Hai Rong, deposited several items concerning how and why it acquired its interest in the Elm Drive Property from Ming Lu, including: (a) a statement by Long Jia, the husband of Ming Lu, who stated that Ming Lu knew the property on Elm was being sold and agrees to the sale of it; (b) an agreement between Ming Lu and Hai Rong; and (3) an email from Hai Rong to Escrow Hub and FNTC wherein Hai Rong attempted to justify the low sales price by attesting that Ming Lu is on the Chinese Government watchlist and was selling the Elm Drive Property because she is in default of her debts.  Salazar Decl., ¶5.

On June 21, 2024, Escrow Hub received Palm Court’s purchase money funds from FNTC.  Salazar Decl., ¶6.  Subsequently, the escrow closed.  After the payment of customary costs and fees, Escrow Hub disbursed via wire transfer the amount of $743,704.51 to a bank account at Bank of America for the benefit of Elm LLC, with the last four digits of the bank account number ending in 7346.  Salazar Decl., ¶7. 

On June 24, 2024, Escrow Hub was notified by Richard Stine that Ming Lu was claiming the transaction was fraudulent, that she did not participate in it, and that she had not signed the grant deed that purportedly vested title in Elm LLC.  Salazar Decl., ¶8.  Escrow Hub attempted to recall the wire transfer of the proceeds, but the request was not honored by Bank of America.  Salazar Decl., ¶9.

c. Declaration of Ming Lu

Ming Lu has owned the Elm Drive Property since April 2016.  Lu Decl., ¶2, Ex. 1.  Ming Lu briefly occupied the Elm Drive Property before using it as a rental property until around mid-2023.  Lu Decl., ¶2.  Subsequently, Ming Lu started some remodeling and improvements at the Elm Drive Property.  Lu Decl., ¶2.

On June 15, 2024, Ming Lu started living at the Elm Drive Property.  Lu Decl., ¶3.  On June 23, 2024, Ming Lu left the Elm Drive Property in the morning. When she returned in the afternoon, she saw a notice on the door that Palm Court was the new owner and instructing all occupants to vacate within three days.  Lu Decl., ¶3.

Upon further investigation, Ming Lu discovered that her name and signature appeared on a grant deed recorded on February 26, 2024, pursuant to which she purportedly transferred title and ownership of the Elm Drive Property to Elm LLC.  Lu Decl., ¶4, Ex. 2.  Ming Lu filed a police report with the Beverly Hills Police Department later that day.  Lu Decl., ¶4, Ex. 2.

The signature on that grant deed is not Ming Lu’s signature and she did not appear before the notary public to have her signature acknowledged.  Lu Decl., ¶6.  In fact, Ming Lu was not in the United States on February 13, 2024, the date on which she purportedly signed the grant deed; she was in Thailand with her family on vacation.  Lu Decl., ¶6.

Ming Lu did not authorize anyone to sign her name to the grant deed and did not know that it had been recorded.  Lu Decl., ¶7.  Ming Lu also did not know that a sale occurred until the week of June 23, 2024.  Lu Decl., ¶7.  Ming Lu has never held an interest in Elm LLC, does not know anyone associated with that entity, never sold her property, and did not receive any proceeds from the attempted sale of the Elm Drive Property.  Lu Decl., ¶7.

2. Bank of America’s Evidence

On June 27, 2024, Bank of America closed and immediately froze all funds in Elm LLC’s account ending in 7346, which total $331,721.57.  Watkins Decl., ¶4.  Bank of America continues to hold these funds and intends to do so pending further court order, including possibly via interpleader.  Watkins Decl., ¶4.

Bank of America is a mere stakeholder and claims no interest in or right to the frozen funds.  It is ready, willing, and able to pay these monies to the person or persons legally entitled to them.  Watkins Decl., ¶5.  Bank of America’s own investigation regarding the origin and disposition of the funds is ongoing.  Watkins Decl., ¶5.

D. Analysis

Plaintiff Palm Court seeks a preliminary injunction against Defendants Elm LLC, Hai Rong, Bank of America, Gallego, and Merchants to prevent them from accessing $743,704.51 in Bank of America account number XXXXXX7346, owned by 427 South Elm, LLC. 

As only Defendants Elm LLC and Bank of America have been served with the TRO/OSC, the court has jurisdiction only over those two Defendants and their agents.

Palm Court presents evidence that it entered into a purchase agreement with Elm LLC to buy the Elm Drive Property on or about March of 2024.  The parties agreed on a $1,950,000 purchase price.  An escrow was opened with Pacific Escrow but later moved to Escrow Hub.  In connection with Palm Court's anticipated purchase of the Elm Drive Property, Palm Court deposited an initial $60,000 with Escrow Hub.

During the course of the transaction, questions were asked by Escrow Hub concerning Ming Lu's prior conveyance of the Elm Drive Property to Elm LLC and of her interest, if any, in Elm LLC.  Hai Rong provided Escrow Hub with the following items, all of which are claimed by Ming Lu to be fraudulent: (a) A statement by Long Jia, the husband of Ming Lu, in which Long Jia states that Ming Lu "knows that the property on Elm is being sold and agrees to the sale of it." (b) An "Agreement Between Lu Ming and Zhan Hai Rong" which, inter alia, states that "Lu Ming wishes to sell her house at 427 South Elm Drive.... Lu Ming wishes to sell her house through her company (427 South Elm, LLC) and wishes to use the services of Zhan Hai Rong to do this." (c) an email from Escrow Hub and FNTC in which Hai Rong attempts to justify the low sales price on the basis that Ming Lu is on Chinese government watch list, and that she is selling the Elm Drive Property because she is in default of her debts.

Hai Rong deposited a grant deed in favor of Palm Court with Escrow Hub. On June 2I,2024, and in anticipation of closing, Palm Court caused additional purchase money funds to be deposited in the amount of $1,893,333.21.  On June 21, 2024, FNTC wired the sum of $687,691.46 to Escrow Hub's bank, Wells Fargo Bank, for further disbursement.  Escrow Hub thereafter wired $743,704.51 to Elm LLC's Bank of America account.  On June 21, 2024, a grant deed was recorded with Palm Court as grantee.

On June 23, 2024, Ming Lu visited the Elm Drive Property to check in on the progress of improvements she was making to the home and discovered a notice on the home that Palm Court was the new owner of the Elm Drive Property and that any and all occupants had three days to vacate the premises. The next day, she filed a police report with the Beverly Hills Police Department reporting the alleged fraud.

Ming Lu denies that she ever signed the Fraudulent Grant Deed, denies that she appeared before Gallego to sign the Fraudulent Grant Deed, asserts that her signature was forged thereon, and that she was not in the United States on the February 13, 2024 date the Fraudulent Grant Deed was purportedly signed by her in front of Gallego.  She contends that she did not participate in the sale and did not receive any of the sale proceeds.

Palm Court has presented a prima facie case of fraud by at least Defendants Elm LLC and Hai Rong in the purported acquisition and then sale of the Elm Drive Property.  The result is that Palm Court has shown a probability of success on its claim for conversion of $743,704.51 that was sent to the Elm LLC account at Bank of America.[3]

Bank of America opposes, but only to the extent that Palm Court asks that it hold more than the $331,721.57 currently in the account or seeks additional relief from it. 

The preliminary injunction will prevent access to funds in the account up to the $743,704.51 amount that is part of the sale.  If there is less than that in the account, Bank of America is not required by the preliminary injunction to retrieve funds; it can only freeze the funds that are there.  As for the issue of Palm Court’s potential further relief against Bank of America, that is not an issue in this application.

E. Conclusion

The preliminary injunction is granted against Bank of America and their agents.  Palm Court will be required to post a nominal bond of $100.