Judge: John J. Kralik, Case: 22BBCV00336, Date: 2023-03-17 Tentative Ruling
Case Number: 22BBCV00336 Hearing Date: March 17, 2023 Dept: NCB
North
Central District
|
raymond
zargaryan, Plaintiff, v. karen
petrosyan, et al., Defendants. |
Case No.: 22BBCV00336 Hearing Date: March 17, 2023 [TENTATIVE] order RE: motion for a preliminary injunction |
BACKGROUND
A.
Allegations
Plaintiff Richard Zargaryan (“Plaintiff”)
alleges that on January 6, 2020, Defendant Karen Petrosyan (“Petrosyan”) solicited
Plaintiff to, jointly and equally, purchase Cold Stone Creamery number 20242 in
Seal Beach (“SB Store”) and Cold Stone Creamery number 22066 in Costa Mesa (“CM
Store”). The SB Store was owned and
operated by SGB Enterprise, Inc. and the CM Store was owned and operated by MP
Ice Cream, Inc., both of which Plaintiff believes Sharon Gottlieb was the
primary officer, director, and shareholder of SGB Enterprise, Inc. and MP Ice
Cream, Inc.
Plaintiff alleges that on January
21, 2020, he and Petrosyan formed Cooler West Enterprises (“CWE”) for the
purpose of purchasing and operating both Stores. Plaintiff alleges that CWE reached an
agreement with Gottlieb and simultaneously entered into escrow for both stores,
putting an earnest money deposit of $25,000 each. The escrows for the SB Store and the CM Store
were scheduled to close on April 1, 2020 and April 8, 2020 respectively, based
on several conditions including approval from franchisor Kahala Franchising,
LLC (“Kahala”). On April 8, 2020, CWE executed a franchise agreement with Kahala on the SB Store and closed escrow upon the deposit of $620,000 from Plaintiff and $50,000
from Petrosyan. Plaintiff alleges that
he deposited $620,000 into escrow with an agreement and understanding between
Petrosyan and Plaintiff, that Plaintiff would be reimbursed $285,000, which was
loaned and promised to be paid back by Petrosyan, in order to finalize the
closing of the SB Store. Plaintiff
alleges that Petrosyan failed to reimburse him.
Plaintiff
alleges that the CM Store was delayed due to Petrosyan’s inability to marshal
capital to finance his portion of the investment and that Petrosyan canceled
escrow on the CM Store on May 6, 2020, resulting in the loss of the $25,000 earnest
money deposit.
Plaintiff
alleges that CWE took over possession of the SB Store and almost immediately Petrosyan,
with the cooperation of his spouse Defendant Naira Kalashyan (“Kalashyan”), conspired
to defraud Plaintiff by converting and misappropriating CWE’s funds for
personal benefit and excluding Plaintiff from the books, accounts and
suppliers, in order to cover their wrongdoing.
By October 2021 Petrosyan insisted that he bought CWE for upwards of $500,000
but was unwilling to provide access to CWE’s books for Plaintiff to conduct due
diligence and assess the corporate value. Plaintiff alleges that Petrosyan and Kalashyan
conspired to exclude Plaintiff and his family from overseeing the SB Store. He alleges that Petrosyan and Kalashyan embezzled
cash receipts and diverted supplies for personal gain. Plaintiff alleges that Petrosyan closed
escrow on the CM Store in June 2021 and began converting and embezzling CWE’s
bank funds for his personal benefit.
The second amended
complaint (“SAC”), filed January 9, 2023, alleges causes of action for: (1) breach
of contract against Petrosyan; (2) common count against Petrosyan; (3) breach
of fiduciary duty by Plaintiff and derivatively on behalf of CWE and against
Petrosyan and Kalashyan; (4) trade secret misappropriation by Plaintiff and derivatively
on behalf of CWE and against Petrosyan and Kalashyan; (5) tortious interference
with prospective economic advantage derivatively on behalf of CWE and against
Petrosyan; (6) intentional interference with contract derivatively on behalf of
CWE and against Petrosyan; (7) negligent interference with prospective economic
advantage derivatively on behalf of CWE and against Petrosyan; (8) fraudulent concealment
by Plaintiff and derivatively on behalf of CWE and against Petrosyan and
Kalashyan; (9) conversion by Plaintiff and derivatively on behalf of CWE and
against Petrosyan and Kalashyan; and (10) accounting against Petrosyan and CWE.
B.
Motion on Calendar
On February 23, 2023, Plaintiff filed a
motion for a preliminary injunction and order removing Karen Petrosyan as
director, or alternatively, appointing a provisional director.
On March 7, 2023, Plaintiff filed a notice
of non-opposition, stating he was not in receipt of an opposition brief.
On March 7, 2023, Defendants Karen
Petrosyan filed opposition papers.
On March 10, 2023, Plaintiff filed a reply
brief.
EVIDENTIARY
OBJECTIONS
With the opposition papers,
Defendants submitted evidentiary objections to the Declaration of Davit
Zargaryan, counsel for Plaintiff. The Court
sustains the objections to paragraphs 2 and 14 of counsel’s declaration, and tentatively
overrules the objections to paragraphs 3-13.
The Court is concerned in that it is unusual for counsel to be the
declarant as to such detailed statements about individual financial
transactions engaged in by the corporation. Apparently, the corporate
accountant is available—indeed he has offered a declaration and is proposed as
an additional director. Counsel states that these statements are made on the
basis of personal knowledge, yet a detailed basis for such knowledge is not given,
and it would be unusual for counsel to have such knowledge.
LEGAL STANDARD
“[A] court will deny a preliminary
injunction unless there is a reasonable probability that the plaintiff will be
successful on the merits, but the granting of a preliminary injunction does not
amount to an adjudication of the merits.”
(Beehan v. Lido Isle Community Assn. (1977) 70 Cal.App.3d 858,
866.) “The function of a preliminary
injunction is the preservation of the status quo until a final determination of
the merits.” (Id.)
“Trial courts traditionally consider and
weigh two factors in determining whether to issue a preliminary injunction.
They are (1) how likely it is that the moving party will prevail on the merits,
and (2) the relative harm the parties will suffer in the interim due to the
issuance or nonissuance of the injunction.”
(Dodge, Warren & Peters Ins. Services, Inc. v. Riley (2003)
105 Cal.App.4th 1414, 1420.) “[T]he
greater the ... showing on one, the less must be shown on the other to support
an injunction.” (Id. [quoting Butt v. State of
California, (1992) 4 Cal.4th 668, 678].)
The burden of proof is on the plaintiff as 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.)
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 upon a
verified complaint only if it contains sufficient evidentiary as opposed to
ultimate facts. (CCP §527(a).) For this reason, a pleading alone rarely
suffices. (Weil & Brown, Cal.
Practice Guide: Civil Proc. Before Trial (The Rutter Group 2016) ¶¶ 9:579-580.)
A plaintiff seeking injunctive relief
must also show the absence of an adequate damages remedy at law. (CCP §526(a)(4).)
DISCUSSION
Plaintiff moves for a preliminary injunction
and order removing Defendant Karen Petrosyan as a Director on the Board of Directors
of CWE for fraudulent, dishonest acts and gross abuse of authority and discretion
pursuant to Corporations Code, § 304 or, alternatively, to appoint David
Davidian, CPA, as a provisional director pursuant to Corporations Code, § 308. In addition, Plaintiff moves for a preliminary
injunction against Petrosyan and his agents, assigns, and those acting in
concert from: (1) misappropriating CWE funds and supplies for personal benefit;
(2) selling, conveying, gifting, or otherwise transferring CWE shares, property,
or assets; (3) procuring any loan or line of credit based on CWE shares,
property, or assets; and (4) prohibiting Plaintiff’s access to CWE
administrative systems and vendor accounts.
A. Opposition Arguments
In opposition, Petrosyan argues that this
motion is premature because there is a demurrer and motion to strike pending on
the SAC, Plaintiff’s counsel should be disqualified, and there is no cause of
action for preliminary injunction regarding the removal of a director. Petrosyan states that he is willing to submit
to and agree to the appointment of a provisional director, as there is a deadlock
and the Board of Directors of CWE is not able to meet and is equally divided. Petrosyan requests that a neutral, impartial
provisional director be appointed.
As an initial matter, the fact that Petrosyan
has not filed an answer and a demurrer/motion to strike is pending (currently scheduled
for April 14, 2023) is not a sufficient ground to deny the motion for
preliminary injunction. Petrosyan has
not provided any case law showing that a preliminary injunction motion cannot
go forward until after a responsive pleading has been filed.
Next, the Court declines to disqualify Plaintiff’s
counsel Davit Zargaryan (“Counsel Zargaryan”) based on Petrosyan’s opposition
papers. (See Opp. at pp.7-8.) Further, disqualifying Counsel Zargaryan is
not a sufficient ground to deny this motion. If such an action is to be
considered, it should be brought by separate motion. Here, the grounds for the conflict asserted
are not fully developed or responded to in the moving papers.
Petrosyan also argues that the complaint,
FAC, and SAC lack any cause of action for injunctive relief, such that this motion
is improper. The SAC does not include a cause of action for injunctive relief,
removal of a director, or a prayer for damages regarding these sought-after requests
for relief.
CCP § 526(a)
states in relevant part:
(a) An
injunction may be granted in
the following cases:
(1) When it appears by the complaint that the 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, either
for a limited period or perpetually.
(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, to
a party to the action.
(3) When it appears, during the litigation,
that a party to the action is doing, or threatens, or is about to do, or is
procuring or suffering to be done, some act in violation
of the rights of another party to the action respecting 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.
…
(CCP
§ 526(a)(1)-(5).) “Generally, the complaint must set
forth a cause of action for injunctive relief to support issuance of a TRO or
PI. [See, e.g., CCP § 526(a)(1)-(2)] However,
the court may issue injunctions at any stage of the proceedings to maintain the status quo until judgment—regardless
of whether the complaint seeks equitable relief. [CCP § 526(a)(3) …].” (Rutter
Guide, Cal. Prac. Guide Civ. Pro. Before Trial (June 2022 Update) Ch. 9(II)-A,
§ 9:539.1.) Here, the lack of a cause of
action for preliminary injunction is not fatal to Plaintiff bringing this
motion. However, the Court is unwilling
to appoint a provisional director until such a cause of action is directly
plead.
The
Court will not deny the motion for preliminary injunction based on these
arguments raised by Petrosyan in the opposition brief.
B. Probability of
Success on the Merits
Plaintiff argues
that he can prevail on his causes of action in the SAC for breach of fiduciary
duty, fraudulent concealment, and conversion against Petrosyan. He argues that these would be the basis for
the fraudulent and dishonest acts and gross abuse of authority and discretion
that would warrant Petrosyan’s removal as a director.
In support of the
motion, Plaintiff provides the declaration of his counsel, Davit Zargaryan (“Counsel
Zargaryan”). Counsel Zargaryan states
that Pestroyan engaged in the following acts:
To state a cause of action for
breach of fiduciary duty, Plaintiff must establish: (1) the existence of a
fiduciary relationship; (2) its breach; and (3) damage proximately caused by
that breach. (Roberts v. Lomanto (2003) 112 Cal. App. 4th 1553, 1562.)
Here, the parties are each 50%
owners of the corporation. The first
element of the existence of a fiduciary relationship is not contested as they are
each officers, directors, shareholders, and/or partners of the CWE. Next, the Zargaryan Declaration, taken at
face value, has provided sufficient evidence as the moving party to show that Petrosyan breached
his duties to CWE and Plaintiff, which caused them to suffer damages in lost profits,
funds, and business opportunities.
In opposition, Petrosyan argues that the Court
cannot remove a director based on unfounded and untruthful allegations in the unverified
complaint. However, the fact that
Petrosyan disputes the allegations is not a ground to deny the motion. Further, Petrosyan’s other arguments (e.g.,
that Counsel Zargaryan should be disqualified, that a demurrer/motion to strike
are pending, and the complaint lacks a cause of action for injunctive relief) are
unpersuasive for the reasons discussed above. Petrosyan has not directly contradicted the specific
factual points made regarding the accounting records. The Court finds that Plaintiff has established
his burden in showing the probability of success on the merits of his claim for
breach of fiduciary duty.
For the same reasons, the Court finds that
Plaintiff has established his claims for conversion and fraudulent concealment. As summarized above, Plaintiff has shown (at the
preliminary injunction stage) that Petrosyan converted certain ascertainable
sums of money from CWE without consent. In
addition, Plaintiff has shown that funds were redirected from CWE to Petrosyan
and Cooler G., Inc. without making these disclosures to Plaintiff and without his
consent. While the Court is concerned
regarding the basis on which counsel has claimed personal knowledge of these
facts, they do appear to be backed by apparently genuine documents.
The Court tentatively finds that Plaintiff
has established his burden in showing the probability of success on the merits
of his claims.
C.
Balance of Harms
Before a court will grant a preliminary injunction,
the moving party must establish at least some probability of success on the
merits. (Butt v. State of California (1992) 4 Cal.4th 668, 678.) “If a moving party is able to make such a
showing, a court will then “examin[e] all of the material before it in order to
consider ‘whether a greater injury will result to the defendant from granting
the injunction than to the plaintiff from refusing it, ....’ [Citations.]” (Take Me Home Rescue v. Luri (2012)
208 Cal.App.4th 1342, 1353.)
“An injunction cannot issue in a vacuum based on the
proponents' fears about something that may happen in the future. It must be
supported by actual evidence that there is a realistic prospect that the party
enjoined intends to engage in the prohibited activity.” (Korean Philadelphia Presbyterian Church v.
California Presbytery (2000)
77 Cal.App.4th 1069, 1084.) Thus, the
threat of “irreparable harm” must be imminent, as opposed to a mere possibility
of harm sometime in the future. (Rutter
Guide, Cal. Prac. Guide Civ. Pro. Before Trial (June 2018 Update) Ch. 9(II)-A,
§9:508.)
Plaintiff argues that he will likely suffer
irreparable harm if denied relief because Petrsoyan’s conduct has and will continue
to produce waste or irreparable injury to Plaintiff. Plaintiff argues that the Court should grant
the motion based on the conversion, liquidation, and dilution of corporate
assets and violation of rights and property interest to Plaintiff caused by
Petrosyan’s alleged fraudulent and dishonest acts and abuse of authority.
In opposition, Petrosyan argues that Plaintiff
has not provided his own declaration to show that he has suffered irreparable
harm and that the declaration of Counsel Zargaryan is objectionable. The Court will inquire further regarding Mr.
Zargaryan’s knowledge.
Here, it appears that appreciable harm has
already occurred by way of a lost business opportunity by CWE for the CM Store. (See David Zargaryan Decl., ¶¶7, 8, 15, Exs. D,
E, and K.) Further, Plaintiff has provided
evidence showing that funds have been diverted by Petrosyan away from CWE to
Cooler G.
At this time, the Court finds that the
balance of harms weighs in favor of granting a preliminary injunction.
D. Adequacy of
Monetary Damages
An
injunction may be granted in cases when pecuniary compensation would not afford
adequate relief and where it would be extremely difficult to ascertain the
amount of compensation which would afford adequate relief. (CCP § 526(a)(4), (5).) An injunction cannot be granted where an
adequate remedy exists at law and if monetary damages afford such adequate
relief. (Thayer Plymouth Center, Inc.
v. Chrysler Motors Corp. (1967) 255 Cal.App.2d 300, 306.) While ordinarily an injunction will not issue
where only money is involved, a party may be enjoined from obtaining funds to which it is not entitled. (Mitsui
Manufacturers Bank v. Texas Commerce Bank-Fort Worth (1984) 159 Cal.App.3d
1051, 1057-58.)
While this action includes monetary
damages, the Court finds that Plaintiff has established for the purposes of
this motion for preliminary injunction that monetary damages are insufficient. Injunctive relief may be proper to enjoin a
party from obtaining funds to which he is not entitled, such as this case where
Plaintiff is alleging that Petrosyan has fraudulently misappropriated and
converted funds from CWE.
E.
Relief
At this time, while there are grounds to
grant this motion, the Court does not find that the preliminary injunction to
remove Petrosyan as a director is proper.
The Court will enter
a preliminary injunction against Petrosyan and his agents, assigns, and those
acting in concert from: (1) misappropriating CWE funds and supplies for personal
benefit; (2) selling, conveying, gifting, or otherwise transferring CWE shares,
property, or assets; (3) procuring any loan or line of credit based on CWE
shares, property, or assets; and (4) prohibiting Plaintiff’s access to CWE
administrative systems and vendor accounts.
If Plaintiff finds
that this limited preliminary injunctive relief is not sufficient, it may move for
a further preliminary injunction for the appointment of a provisional
director. As noted in the opposition
brief, Petrosyan is not opposed to the appointment of a provisional director due
to the deadlock within the Board of Directors of CWE, as Plaintiff and
Petrosyan are each 50% owners/shareholders of CWE and thereby the only
directors. (See Mot. at pp.11-12, Opp.
at pp.9-11.) However, it appears that
Mr. Davidian is not accepted as a provisional director as he is perceived by
one shareholder as supportive of the other. The parties should consider whether they can
really afford the services of a retired judge in this role.
CONCLUSION AND
ORDER
Plaintiff Richard Zargaryan’s motion for
preliminary injunction is granted in part and denied in part. The Court grants the motion for preliminary
injunction in part such that limited injunctive relief will be provided as follows:
Defendant Karen Petrosyan and his
agents, assigns, and those acting in concert are enjoined from: (1)
misappropriating Cooler West Enterprises’ funds and supplies for personal
benefit; (2) selling, conveying, gifting, or otherwise transferring Cooler West
Enterprises’ shares, property, or assets; (3) procuring any loan or line of
credit based on Cooler West Enterprises’ shares, property, or assets; and (4)
prohibiting Plaintiff’s access to Cooler West Enterprises’ administrative
systems and vendor accounts. The motion
is denied as to the request to remove Defendant Karen Petrosyan as a Director
on the Board of Directors. The motion is
denied without prejudice as to the alternative request for the appointment of a
provisional director.
Plaintiff shall provide notice of
this order.