Judge Joel R Wohlfeil, Case Number: 37-2024-00023390-CU-CO-CTL, Date: 2024-06-18 Tentative Ruling

Judge: Joel R Wohlfeil, Case: 37-2024-00023390-CU-CO-CTL, Date: 2024-06-18 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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HALL OF JUSTICE

TENTATIVE RULINGS - June 17, 2024

06/18/2024 02:30:00 PM C-73 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Joel R. Wohlfeil

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Civil - Unlimited Contract - Other OSC - Non-Sanction 37-2024-00023390-CU-CO-CTL WAISBURD VS VARGAS [IMAGED] CAUSAL DOCUMENT/DATE FILED:

The Order to Show Cause Re: Preliminary Injunction (ROA # 10, 26, 27, 29) of Plaintiff Salomon Waisburd ('Waisburd' or 'Plaintiff') against Defendant Tomas Vargas ('Vargas' or 'Defendant') is GRANTED IN PART. and DENIED IN PART.

Defendant's Request (ROA # 41) for judicial notice is DENIED.

Defendant's objections (ROA # 42) are OVERRULED.

Plaintiff's objections (ROA # 46) are, except as noted, SUSTAINED. The objections to Defendant's declaration are OVERRULED.

As discussed below, during the pendency of this action Defendant is enjoined from enforcement of the section 9.6 buy-out procedure with respect to the five deadlock notices Defendant has already transmitted. This ruling does not prohibit use of the section 9.6 procedure for any purported future transgressions.

Plaintiff is ordered to submit a proposed order reflecting this narrower preliminary injunction.

Also as discussed below, Plaintiff is required to post an undertaking in the amount of $5,000.00 before a preliminary injunction will issue.

The Court considers two interrelated questions in deciding whether to issue a preliminary injunction: (1) is Plaintiff likely to suffer greater injury from a denial of the injunction than Defendant is likely to suffer from its grant; and (2) is there a reasonable probability that Plaintiff will prevail on the merits. Robbins v. Superior Court (1985) 38 Cal. 3d 199, 206; Code Civ. Proc. 526(a).

The Court's determination must be guided by a 'mix' of the potential-merit and interim-harm factors.

Butt v. State of California (1992) 4 Cal. 4th 668, 678.

A preliminary injunction is appropriate in the following cases: (1) When it appears by the complaint that Plaintiff is entitled to the relief demanded, and the relief, or any part thereof, consists in restraining the commission or continuance of the act complained of; (2) When it appears by the complaint or affidavits that the commission or continuance of some act during the litigation would produce waste, or great or irreparable injury; (3) When it appears, during the litigation, that a party to the action is doing, or threatens, or is about to do, some act in violation of the rights of another party to the action respecting Calendar No.: Event ID: TENTATIVE RULINGS

3136635 8 CASE NUMBER: CASE TITLE: WAISBURD VS VARGAS [IMAGED] 37-2024-00023390-CU-CO-CTL the subject of the action, and tending to render the judgment ineffectual; (4) When pecuniary compensation would not afford adequate relief; (5) Where it would be extremely difficult to ascertain the amount of compensation which would afford adequate relief; and (6) Where the restraint is necessary to prevent a multiplicity of judicial proceedings. Code Civ. Proc. 526(a).

The burden is on the moving party to show all elements necessary to support issuance of a preliminary injunction. O'Connell v. Superior Court (2006) 141 Cal. App. 4th 1452, 1481.

A preliminary injunction amounts to a mere interlocutory order to maintain the status quo pending a determination of the action on its merits. Varian Medical Systems, Inc. v. Delfino (2005) 35 Cal. 4th 180, 191.

Plaintiff's Likelihood of Prevailing on the Merits The probability of prevailing is dependent on an interpretation of the 'AMENDED AND RESTATED LIMITED LIABILITY COMP ANY AGREEMENT OF PROSPECT COASTAL, LLC a Delaware limited liability company.' See Declaration of Salomon Waisburd, Exhibit A.

Section 7.1 of this agreement addresses Manager(s)' responsibilities and is the only provision in the agreement that defines 'Unresolved Disagreement': '... in the event ... unanimity among the Managers shall not be achieved with respect to any decision.' The complete section 7.1 states as follows: 'The responsibility for managing the business and affairs of the Company shall be delegated to the Manager(s). The initial Managers shall be Tomas Vargas and Salomon Waisburd. The Managers shall attempt to reach unanimous consensus with respect to any decisions or actions taken on behalf of the Company, but in the event (an 'Unresolved Disagreement') unanimity among the Managers shall not be achieved with respect to any decision, (a) unless and until the entire Capital Contribution of the Waisburd Member has been returned, the Waisburd Member shall resolve any such Unresolved Disagreement, and (b) from and after the date on which the Waisburd Member's Capital Contribution has been returned, the provisions of Section 9 .6 below shall be available to the Members to resolve any such deadlock as a result of an Unresolved Disagreement among the Managers.' Section 7.2 and its subparts specifies the powers and authority of a Manager, acting alone or with the other Manager.

Section 7.3.1 sets forth several actions for which the Manager(s) cannot act without 'the written consent or ratification of all of the Members.' Section 7.1 is clear and unambiguous. Plaintiff's status as a Member with an outstanding capital contribution gives him the unilateral authority to resolve disagreements among the Managers. Of course, this authority only extends to decisions the Managers are permitted to make in the first place, as set forth within sections 7.2 and 7.3.1. Section 7.1 does not give Plaintiff the unilateral authority to resolve disagreements among the Members.

Section 9.6(i) addresses a deadlock among 'Members': 'In the event ... there is not a unanimous vote of the Members with respect to a decision to sell a property owned by the Company, or any other decision requiring consent of the Members, thereby constituting an Unresolved Disagreement which the Members have been unable, using their best efforts, to resolve (any such event, a 'Deadlock'), then within two (2) business days after the occurrence of such Deadlock, either Member may provide to the other Member a written notice ( the 'Deadlock Notice') describing in reasonable detail the nature of the dispute and the reason for its position with respect thereto.' Thereafter, subsections (ii) - (xi) describe a valuation and buyout procedure to be utilized after written notice of a 'Deadlock' has occurred.

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3136635 8 CASE NUMBER: CASE TITLE: WAISBURD VS VARGAS [IMAGED] 37-2024-00023390-CU-CO-CTL Section 9.6(i) is somewhat ambiguous and confusing because section 9.6 addresses a deadlock among Members, but uses a defined term that appears to pertain only to Manager responsibilities. However, 'ambiguous terms in the Agreement should be construed against the General Partner as the entity solely responsible for the articulation of those terms.' SI Management L.P. v. Wininger (Del. 1998) 707 A. 2d 37, 43. Ambiguous terms should be construed against their drafter. Stockman v. Heartland Indus.

Partners, L.P. (Del. Ch., July 14, 2009) 35 Del. J. Corp. L. 993.

Interpreting the agreement as a whole, and for purposes of this application only, the Court finds that Plaintiff's unilateral authority to resolve disagreements extends to decisions for which the Managers are entitled to make without Member approval. This unilateral authority does not extend to any decision requiring consent of the Members. Member decisions, therefore, can become 'deadlocked' and can result in the buy-out procedure outlined in section 9.6. Given this conclusion, the ability to prevail on the merits is dependent on an analysis of each deadlock notice to determine if it sets forth a disagreement over a decision requiring unanimous consent of the Members and for which the Members have been unable to resolve.

Between April 18, 2024, and May 9, 2024, Defendant issued five separate 'Deadlock Notices' to Plaintiff regarding management issues. Deadlock Notice # 1 and Deadlock Notice #2 (Waisburd declaration, Exhibits B and D) pertain to a disagreement regarding the terms and execution of a promissory note on behalf of the LLC, and in favor of Plaintiff.

Section 4.8.1 provides: 'The Managers, in their sole and absolute discretion, may borrow money on behalf of the Company from any Member in such amounts and for such purposes as it considers necessary, convenient or incidental to the accomplishment of the purposes of the Company .... Each loan to the Company by a Member ... is: � ...(a) to be evidenced by a promissory note or similar instrument of the Company; ... � ... (b) to be on terms that the Managers reasonably believe are no less favorable to the Company than those that would be available from an independent creditor ....' Section 7.2.7 gives the Managers authority to 'borrow money (including from Members or their Affiliates) and issue evidence of indebtedness and secure any Company indebtedness by mortgage, pledge, security interest or other lien' Given these provisions, the issuance of the promissory note, and its terms, are left to the authority of the Managers. As a result, section 7.1 gives Plaintiff the unilateral authority to resolve this disagreement.

There can be no deadlock on this issue such that Plaintiff has demonstrated a probability of prevailing with respect to Deadlock Notice # 1 and Deadlock Notice # 2.

Defendant's argument with respect to the section 7.2 'expense' in excess of $5,000 language lacks merit. A loan is not the 'payment of expenses.' This provision does not require Member approval, but instead defines the conditions for actions by one Manager. The 'shall require the approval of the Members' language only applies 'to the extent required hereunder.' In other words, only if a different provision requires Member approval.

Deadlock Notice # 3 (Waisburd declaration, Exhibit F) pertains to the retention of a property manager (the Parkstone Management Services Agreement). Defendant's argument in support of the purported 'unresolved disagreement' again relies on the section 7.2 'expense' in excess of $5,000 language. As discussed above, this argument is not persuasive.

Section 7.2.5 gives the Managers authority to 'enter into contracts on behalf of the Company.' Section 7.2.8 gives the Managers authority to 'perform all normal business functions, and otherwise operate and manage the business and affairs of the Company, in accordance with and as limited by this Agreement, the Approved Budget and the Business Plan defined herein.' It is reasonable that a company in the business of owning and operating commercial properties would retain a property manager in its normal course of business. Given these provisions of the agreement, Calendar No.: Event ID: TENTATIVE RULINGS

3136635 8 CASE NUMBER: CASE TITLE: WAISBURD VS VARGAS [IMAGED] 37-2024-00023390-CU-CO-CTL the retention of a property manager is left to the authority of the Managers. As a result, section 7.1 gives Plaintiff the unilateral authority to resolve this disagreement. There can be no deadlock on this issue such that Plaintiff has demonstrated a probability of prevailing with respect to Deadlock Notice # 3.

Deadlock Notice # 4 (Waisburd declaration, Exhibit H) pertains to the lease for 1245 Coast Boulevard.

Specifically, this notice pertains to a discussion regarding terminating a month-to-month lease with Plaintiff's parents and instead listing the unit on Airbnb. This notice contends Plaintiff has unilaterally mismanaged (through delay) the property resulting in the loss of substantial summer vacation rental income, and that Plaintiff improperly communicated with counsel for the LLC.

Defendant's notice cites section 7.3.1(a), which provides: 'written consent or ratification of all of the Members' is necessary for giving the Manager authority to 'do any act in contravention of this Agreement.' Although Defendant could argue Plaintiff's conduct breached a fiduciary duty Plaintiff owes the LLC, the LLC is in the business of leasing these premises. This is the core conduct of the Managers in running the day-to-day operations of the LLC. Leasing this property is not in 'contravention' of the agreement. Thus, Member ratification was not required, and section 7.1 gives Plaintiff the unilateral authority to resolve this disagreement.

Defendant's notice also cites section 7.3.1(f), which provides: 'written consent or ratification of all of the Members' is necessary for giving the Manager authority to 'enter into any transaction with an Affiliate of the Manager.' 'Affiliate' is defined as follows: '... (i) any Person directly or indirectly controlling or under common control with the specified Person; (ii) any director, officer, partner or trustee of the specified Person; (iii) any Person beneficially owning or controlling, directly or indirectly, five percent (5%) or more of any class of voting securities of, or otherwise having a substantial beneficial interest in, the specified Person; and (iv) any ancestor, spouse or family member, whether by blood or marriage, of the specified Person, or any trust for the primary benefit of such Persons.' (emphasis added) The evidence demonstrates that Defendant, not Plaintiff, executed the subject lease in 2023 (Waisburd declaration, Exhibit L). Defendant, not Plaintiff, entered into this transaction with Plaintiff's parents.

Thus, there was no transaction between a manager and his affiliate. Member ratification was not required and section 7.1 gives Plaintiff the unilateral authority to resolve this 'disagreement' (to the extent any disagreement exists). There can be no deadlock on this issue such that Plaintiff has demonstrated a probability of prevailing with respect to Deadlock Notice # 4.

Deadlock Notice # 5 (Waisburd declaration, Exhibit J) involves Defendant's demand to amend the LLC agreement: 'On May 8, 2024, I emailed you proposing to amend the LLC Agreement to remove Section 7.

l(a) and the first part of 7.1(b) ('from and after the date on which the Waisburd Member's Capital Contribution has been returned') of the Agreement. This amendment, which requires unanimous consent of the Members according to Section 7.3.1(e) of the LLC Agreement, would assure that we treat each other as we intended and as required for business partners in a partnership like this. You replied on May 8, 2024 saying that you 'disagree with almost every word of [my] email' and would not agree to amending the LLC Agreement. Accordingly, we have an Unresolved Disagreement under Section 9.6 of the LLC Agreement, or a Deadlock. Please accept this Deadlock Notice pursuant to Section 9.6.' Defendant's notice cites section 7.3.1(e), which provides: 'written consent or ratification of all of the Members' is necessary to 'amend this Agreement, except as otherwise expressly provided.' Deadlock Notice # 5 memorializes Plaintiff's refusal to agree to remove contract language that favors Plaintiff by protecting his interest in the LLC. Defendant argues this refusal constitutes a lack of unanimity pursuant to section 9.6 'of the Members with respect to a decision to sell a property owned by the Company, or any other decision requiring consent of the Members.' Defendant argues this is, in turn, an 'Unresolved Disagreement which the Members have been unable, using their best efforts, to resolve' (section 9.6) such that a deadlock exists supporting the buy-out procedure.

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3136635 8 CASE NUMBER: CASE TITLE: WAISBURD VS VARGAS [IMAGED] 37-2024-00023390-CU-CO-CTL When interpreting a contract, the Court gives effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful. VFLA Eventco, LLC v. William Morris Endeavor Entertainment, LLC (2024) 100 Cal. App. 5th 287, 297 (citing Civ. Code 1636).

If the contract language is clear and explicit, and does not involve an absurdity, the language governs the interpretation. Id. (citing Civ. Code 1638).

If possible, the intention of the parties is to be ascertained from the writing alone. Id. (citing Civ. Code 1639).

The Court interprets the contract as a whole so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other. Id. (citing Civ. Code 1641).

The Court seeks to avoid interpretations that render the contract unusual, extraordinary, harsh, unjust or inequitable, or which would result in an absurdity. Id. Based on the limited evidence addressed on this Motion, it appears Defendant's interpretation of sections 7.3.1(e) and 9.6 would result in the unusual result. The LLC agreement represents an arrangement between the parties regarding the means by which the company was created and structured. Plaintiff was induced to invest six million dollars with the understanding that his interest would be protected by the provisions of the LLC agreement. This meeting of the mind would be eviscerated if Plaintiff was forced to change the LLC or face a mandatory buy-out procedure. Instead, for purposes of this Motion, the Court interprets 'decision requiring consent of the Members' to mean decisions involving company operations, not a decision to fundamentally change the company by restructuring the parties' previous agreement.

In sum, the refusal to amend the LLC agreement cannot, under the terms of the LLC agreement, result in a deadlock. Plaintiff has also demonstrated a probability of prevailing with respect to Deadlock Notice # 5.

Balance of Injuries This Motion seeks to maintain the status quo pending a judicial determination of the rights and duties of the parties under the agreement. Plaintiff has made a sufficient showing that altering the status quo would cause him irreparable harm given the financial ramifications of the section 9.6 buy-out procedure.

A preliminary injunction will prevent a multiplicity of judicial proceedings.

On the other hand, there is little evidence that Defendant will be placed in a worse position if the status quo is maintained pending the adjudication of this matter. Paragraph 21 of Defendant's declaration refers to Plaintiff's 'poor management of the LLC.' However, no specifics are provided in support of this conclusion. There are interim remedies available to Defendant short of invoking the buy-out procedure (e.g., a receivership).

Breadth of Preliminary Injunction Plaintiff has demonstrated a likelihood or prevailing and irreparable harm based on enforcement of the section 9.6 buy-out procedure with respect to the five deadlock notices Defendant has already transmitted. This action seeks a judicial declaration that these five deadlock notices are invalid and ineffective.

As a result, a preliminary injunction is appropriate enjoining Defendant's ability to utilize the section 9.6 buy-out procedure only as to the five deadlock notices that have already been transmitted. The proposed order is overbroad to the extent it seeks to enjoin any use of the section 9.6 procedure based on future transgressions.

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3136635 8 CASE NUMBER: CASE TITLE: WAISBURD VS VARGAS [IMAGED] 37-2024-00023390-CU-CO-CTL Plaintiff will need to seek additional Court intervention (e.g., an amended pleading coupled with a modified or expanded preliminary injunction order) if he contends any future deadlock notices should be enjoined.

Undertaking 'On granting an injunction, the court or judge must require an undertaking on the part of the applicant to the effect that the applicant will pay to the party enjoined any damages, not exceeding an amount to be specified, the party may sustain by reason of the injunction, if the court finally decides that the applicant was not entitled to the injunction.' Code Civ. Proc. 529(a). The opposition does not raise this issue. As a result, the Court sets a nominal undertaking in the amount of $5,000.

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