Judge John J. Kralik, Case 22BBCV00550 2023-03-17 Tentative Ruling

Plaintiffs Alan Karben is the Chief Executive Officer and Ronit Karben is the Director of Finance and Human Resources of Plaintiff XML Team Solutions, LLC (“XML LLC”). Alan Karben founded KML Team Solutions, Inc. (“XML Inc.”) in 2003, which is a company that specializing in delivering and integrating live sports data feeds. In 2006, XML Inc. formed XML Team Solutions Corp. of Ontario (“XML Canada”). In October 2009, XML Canada acquired Fantasy Sports Services (“FSS”).

Defendant Icon Sportswire, Inc. (“Icon”) was allegedly formed by its two shareholders, Defendants Jamison Calsyn and Timothy Curlee.

On April 1, 2013, XML Inc. and Icon merged through a formation of a new entity, Plaintiff XML LLC. They entered into an Operating Agreement whereby XML Inc. would have 75% membership interest and Icon would have 25%. Thereafter, Icon and XML Inc. dissolved and those shareholders became members of XML LLC with Alan Karben assuming 75% membership interest, Calsyn assuming 18.0555% interest, and Curlee assuming 6.9445% interest. XML LLC assumed all of XML Inc.’s interest in XML Canada, which in turn wholly owns FSS (hereinafter, “XML Entities”). From Spring 2013 through Spring 2016, XML LLC faced many financial challenges and diminishing revenues.

On May 14, 2021, Curlee and Calsyn, individually and as derivative claimants in their capacity as members of XML LLC, filed a demand for arbitration against Karben with JAMS. On April 15, 2022, Plaintiffs filed a lawsuit against Calsyn and Curlee in LASC Case No. 22BBCV00249. On May 2, 2022, Curlee, Calsyn, Alan Karben, and Ronit Karben (Alan Karben’s wife) attended a mediation, and the parties discussed the arbitration claims. The parties reached a Short Form Settlement Agreement, which contemplated a Long Form Settlement, Separation Agreement, and Mutual Release Agreement. The parties were not able to reach agreement on the Long Form agreements, which have never been signed. Plaintiffs allege that the failure to reach these long form agreements constituted Defendants’ repudiation of the Short Form.

The complaint, filed July 28, 2022, alleges causes of action for: (1) declaratory relief; (2) breach of the short form agreement; (3) breach of the implied covenant of good faith and fair dealing – settlement; (4) breach of employment agreement; (5) breach of fiduciary duty; (6) breach of the duty of loyalty; (7) unfair competition (Bus. & Profs. Code, §§ 17200 et seq.); and (8) breach of the implied covenant of good faith and fair dealing – operating agreement.

On January 17, 2023, the Court granted Defendants’ motion to compel arbitration. An Order to Show Cause re: Status of Arbitration is set for September 7, 2023.

On February 23, 2023, Plaintiff XML LLC filed a motion for preliminary injunction.

With the moving papers, XML LLC submitted a request for judicial notice of Exhibits: (A) the State of California Office of the Secretary of State, Articles of Incorporation CA General Stock Corporation for Defendant Icon; (B) Notice of Withdrawal of Calsyn and Curlee’s Application for an order to enforce settlement agreement pursuant to CCP § 664.6; and (C) Defendants’ reply in support of the motion to compel arbitration and stay proceedings. The request is granted. (Evid. Code, § 452(c), (d).)

With the reply papers, XML LLC submitted evidentiary objections to Defendants’ evidence submitted in support of the opposition. The Court rules as follows:

“[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).)

Plaintiff XML LLC moves for a preliminary injunction against Calsyn, Curlee, and Icon from: (1) diverting, directing, accepting, or otherwise receiving funds, revenue, income, or other monies from XML LLC’s current, former, or prospective clients (collectively, “Clients”) identified in Appendix 1; (2) issuing invoices to XML LLC’s Clients; (3) contracting with XML LLC’s photographers identified in Appendix 2 (“Photographers”); and (4) representing to anyone (including XML LLC’s Clients and/or Photographers) that XML LLC assigned to Icon, its photo division (including assets of the photo division, XML’s intellectual property, photographers’ agreements, customers’ agreements and business partners’ agreements). (See Notice of Motion at pp. 1-2.)

XML LLC argues that it is likely to prevail on the merits of its breach of contract claim related to the employment agreements and its claim for intentional interference with contractual relations. The 4^th cause of action in the complaint is for breach of employment agreement. However, the complaint does not allege a cause of action for intentional interference with contractual relations. As such, the Court will only discuss the breach of contract (re employment agreement) claim. The Court notes that XML LLC has not discussed the probability of success of its 1^st, 2^nd, 3^rd, 5^th, 6^th, 7^th, or 8^th causes of action.

The essential elements of a cause of action for breach of contract are: “(1) the existence of the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to plaintiff.” (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.)

The 4^th cause of action in the complaint is alleged against Calsyn and Curlee. XML LLC alleges that Calsyn and Curlee entered into employment agreements with XML LLC wherein they agreed to provide full-time and exclusive executive services to XML LLC for salary and benefits. (Compl., ¶112.) XML LLC alleges that Calsyn and Curlee were to refrain from doing anything that would injure XML LLC’s rights to receive the benefits under the employment agreements, they were to promote the company’s interests, they were to refrain from engaging in activity that would materially interfere with or adversely affect their performance, and they were to refrain from interfering with XML LLC’s relationships with its customers/employees/third-party consultants. (Id., ¶¶113-116.) XML LLC alleges that Calsyn and Curlee breached their express and implied terms under the employment agreements by interfering with XML LLC’s relationships with its customers, advising XML LLC’s clients to refrain from making payments to XML LLC, advising some XML LLC clients that they should make payments to New Icon, advising XML LLC clients that XML LLC’s employees joined New Icon, advising XML LLC clients that New icon has taken over or would take over XML LLC’s Photo Division, and interfering with the company’s relationships with its employees and third-party service providers through various solicitations and disparaging remarks. (Id., ¶118.)

The employment agreements entered by Curlee and Calsyn with XML LLC include provisions regarding the “restrictions” of executive activities. Section 9.1 states that Curlee and Calsyn will not complete with the company (i.e., sell products/services, engage in business activity with, or solicit any persona/entity who was or is a client/customer of the company, enter into any business/activity that is similar to or competitive with the company). (Karben Decl., Exs. A. and B.) XML LLC argues that Curlee and Calsyn breached the employment agreements by, among other things: (1) communicating with XML LLC’s client, Firefly Books, regarding banking information on February 3, 2023 (Karben Decl., ¶7, Ex. C); (2) Calsyn directed XML LLC’s clients, AFLO and Imago, to make payments to Icon sometime in January 2023 and AFLO and Imago have been making payments to AFLO (id., Exs. D and E); (3) since May/June 2022, at Calsyn’s instructions, XML LLC’s client, Sportfolio, has made at least 8 payments to Icon (id., Ex. F); (4) on December 8, 2022, Calsyn used his XML LLC email to send an invoice to XML LLC’s client, Innovent Brands, but directed Innovent Brands to make payment to Icon (id., Ex. G); (5) starting July 2022, Calsyn used his XML LLC email to send an invoice to XML LLC’s client, All Over Press, but directed All Over Press to make payment to Icon (id., Ex. H); (6) Calsyn directed XML LLC’s longstanding client, LeafTrading Cards to make all payments to Icon (id., Ex. I); (7) Calsyn directed XML LLC’s clients Sage Collectibles and Rotowire to pay Icon on 2 invoices (id., Ex. J); and (8) Calsyn presented XML LLC’s client, ESPN, with falsified invoice with Icon’s banking information (id., Ex. L). Alan Karben (CEO of XML LLC) states that Defendants have been diverting XML LLC’s business opportunities to Icon, such as the September 20, 2022 renewal letter of understanding stating that ICON will provide photo coverage for NHL games and events. (Karben Decl., ¶10, Ex. N.) In an email dated July 19, 2022, Calsyn informed All Over Press that he and some other were a part of the XML Team but that they have become their own corporation at Icon Sportswire. (Karban Decl., ¶13, Ex. H.) Mr. Karban also states that Icon entered into its own license agreements with XML LLC’s photographs and replaced XML LLC’s logos with its own Icon logo. (Id., ¶11.)

Mr. Karban states that XML LLC has performed its obligations on the employment agreements by employing Calsyn and Curlee, paying them their base salaries and benefits, and reimbursing reasonable expenses incurred by Calsyn and Curlee in connection with their employment services. (Karban Decl., ¶6.)

In opposition, Defendants argue that Plaintiffs have failed to comply with the Short Form Agreement, such that Plaintiffs have not reimbursed a $100,000 check; they paid Jeff Kichaven $4,275 for mediation fees and $27,785 in legal services for this action, which violate the Short Form Agreement on the limits of the legal fund expenditures; they refused to pay for legal services paid by Defendants in relation to preparing the long form settlement drafts; etc. (Opp. at pp. 5-7.) Defendants also argue that Plaintiff fails to make any substantive arguments regarding the enforceability of the Short Form. (Opp. at p.8.)

Plaintiff’s argue that the Short Form agreement, effective as of May 3, 2021, was contemplated by Alan Karben, Ronit Karben, Calysn, and Curlee; it does not name XML LLC as a party to the agreement. (Calsyn Decl., Ex. A [Short Form].) The Short Form states that the parties intend to execute a long form settlement agreement within 1 week following the execution of the Short Form; however, if the parties are unable to execute a Long Form, the parties, and the rights and obligation provided in the Short Form, shall be enforceable as to the parties. It states that New Icon will be formed by Curlee and Calsyn as soon as possible, New Icon will take over XML LLC’s Photo Division, Curlee and Calsyn relinquish all rights/title/interest in XML LLC, revenues from XML LLC and New Icon will go into a joint bank account, etc.

In the 1^st cause of action for declaratory relief in the complaint, Plaintiffs allege that the Short Form required the parties to enter into a Long Form and settlement documents and that the Short Form is void and unenforceable. (Compl., ¶¶71-73.) In the 2^nd cause of action for breach of the Short Form, Plaintiffs allege that the parties were required to execute the Long Form, required Calsyn and Curlee to withdraw from XML LLC, enter into an assignment agreement from XML LLC to New Icon for the photo division, and other such obligations, but Defendants repudiated and breached the Short Form by failing to enter into the Long Form, failing to resign from XML LLC, etc. (Id., ¶¶86-96.)

XML LLC’s motion focuses solely on the 4^th cause of action for breach of the Employment Agreements. However, in the context of this case, the Court declines to view the Employment Agreement in a vacuum. The enforceability of the Short Form agreement is hotly disputed by the parties. Here, by way of this motion, XML LLC has not shown the probability of success of the merits of each of its claims, including the 1^st and 2^nd causes of action in the complaint, principally because it appears that all of these disputes were intended to be settled by the Short Form agreement While XML LLC argues that it is not a party to the Short Form and therefore it cannot be enforced against it, the terms of the Short Form (if enforceable) would directly affect XML LLC, whether Curlee and Calysn are employees of XML LLC, whether it has assigned or will be assigning the Photo Division to New Icon, etc. Moreover, it appears that the individuals were signing the Short Form on behalf of the XML LLC and that what was contemplated was a complete settlement of all disputes then pending. While further agreements were contemplated, it was also contemplated that the Short Form would be binding in the event that negotiations on the longer form were inconclusive. In the reply brief, XML LLC argues that the Short Form does not immunize Curlee and Calsyn from breaching the Employment Agreements. While this may be true, the Short Form (in the absence of a Long Form) also contemplates their formation of New Icon and New Icon’s takeover of the Photo Division, which would not necessarily be a breach of the Employment Agreements, but rather a shift of their duties based on what appears to be a new “partnership” between these parties.[1] It may also be the eventual finding of the arbitrator that the Short Form contemplated termination of the Employment Agreements, but Plaintiffs appear to argue against that result.

As the moving party, it is XML LLC’s burden to establish the probability of success on the merits of its claims in the complaint. The Court finds that XML LLC has not done so here. Although a final decision may be the province of an Arbitrator, based on this preliminary view of the merits, it appears that the Short Form will control the future relationship of the parties.

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.)

The Court need not reach this step as it has found that XML LLC has not established its initial burden on showing the probability of success on the merits of its claims.

XML LLC argues that while it was aware that Calsyn and Curlee formed Icon in May 2022, they did not know that Defendants were diverting business and revenues from XML LLC to Icon until recently. It argues that if the Court were to deny this motion, then it would suffer irreparable harm in the amount of $147,000 of XML LLC’s revenues, which would put XML LLC in financial peril, damage its goodwill and relationships, and hinder its business and financial obligations like payroll, overhead expenses, delay fees paid to photographers, etc. XML LLC argues that it could potentially face bankruptcy. In contrast, XML LLC argues that the potential harm to Defendants would be minimal since it would only enforce Calsyn and Curlee’s contractual/employment obligations and prevent waste of the company.

In opposition, Defendants argue that XML LLC knew about Defendants’ purported conduct since latest August 31, 2022, but chose to do nothing about it and thereby delayed too long in seeking injunctive relief. They argue that they would be prejudiced by complying with the parties’ Short Form Agreement, which contemplated their separation from XML LLC. Defendants argue that they would suffer irreparable harm to their rights, property, reputation, and funds.

The Court finds the argument regarding waiver to be unpersuasive. As stated by Karben, XML LLC knew of some of Defendants’ misconduct, but not the full extent of Defendants’ actions. (Karben Decl., ¶15.) Simply because some of the conduct occurred 6 months to a year ago does not necessarily mean that XML LLC was aware of the misconduct. Moreover, the Short Form Agreement appears to this Court to be binding, and if it contemplated separation from XML, LLC, it is this Court’s opinion on preliminary injunction that this is the likely outcome.

However, XML LLC has not shown that irreparable harm is imminent, as opposed to merely possible in the future. 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).) Mere monetary loss is not grounds for the remedy of injunction unless there is a showing that the parties causing the monetary loss are insolvent or in any manner unable to respond in damages. (West Coast Constr. Co. v. Oceano Sanitary Dist. (1971) 17 Cal.App.3d 693, 700.) Here, XML LLC has not shown that it will soon be insolvent or unable to meet its financial obligations. At most, Mr. Karben states that XML LLC “may” not be able to pay its operating expenses, payroll, royalties, overhead expenses, etc. (Karben Decl., ¶16.)

As XML LLC has not met its burden on this issue on establishing the balance of harms and it appears that money damages would be adequate, the motion is denied.

Plaintiff XML Team Solutions, LLC’s motion for preliminary injunction against Defendants Jamison Calsyn, Timothy Curlee, and Icon Sportswire, Inc. is denied.

[1] Although the motion is focused only on the Employment Agreements, the requested preliminary injunction would directly affect the terms of the Short Form agreement. For example, XML LLC moves for a preliminary injunction against Calsyn, Curlee, and Icon from diverting funds from XML LLC’s Clients, issues invoices to XML LLC’s Clients, contracting with XML LLC’s Photographers, and representing to everyone that XML LLC assigned to Icon its Photo Division.

Superior Court of California

County of Los Angeles

Department B