Judge: Jon R. Takasugi, Case: 22STCV30700, Date: 2022-10-27 Tentative Ruling

Case Number: 22STCV30700    Hearing Date: October 27, 2022    Dept: 17

Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENTATIVE RULING

Plaintiff’s motion for a preliminary injunction is DENIED.

            On 9/19/2022, Plaintiff Shadow Holdings, LLC (Plaintiff) filed a complaint for injunctive relief against John Paul Mitchell Systems (Defendant), alleging: (1) breach of contract; and (2) breach of good faith and fair dealing.

            Now, Plaintiff moves for a preliminary injunction.

Legal Standard

CCP section 527(a) requires a motion for a preliminary injunction to establish with facts in affidavits or in a verified complaint that there are grounds to issue a preliminary injunction. ¿Declarations may be used under section 2015.5 because they are equivalent to an affidavit.  

The plaintiff has the burden of establishing that grounds exist for the injunction with evidence offered under oath. (Ancora-Citronelle Corp. v. Green (1974) 41 Cal.App.3d 146, 148.) The granting or denial of a preliminary injunction rests in the sound discretion of the Court and is based upon a consideration of all the particular circumstances of each individual case. (Froomer v. Drollinger (1960) 183 Cal.App.2d 787, 788-789.) If granted, the preliminary injunction does nothing more than to preserve the status quo until the merits of the plaintiff’s claim can be adjudicated. (Id.) 

“[T]wo interrelated factors bear on the issuance of a preliminary injunction – the likelihood of the plaintiff’s success on the merits at trial and the balance of harm to the parties in issuing or denying injunctive relief.”  (County of Los Angeles v. Hill (2011) 192 Cal.App.4th 861, 866.)  The burden is on the moving party to show all elements necessary to support the issuance of a preliminary injunction.  (See O’Connell v. Superior Court (2006) 141 Cal.App.4th 1452, 1481.)   

Finally, 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. (Code Civ. Proc., section 529, subd. (a); City of South San Francisco v. Cypress Lawn Cemetery Association (1992) 11 Cal.App.4th 916, 920.) 

Factual Background

            On 9/14/2022, Defendant terminated the parties’ Supply and Manufacturing Agreement by invoking the contractual provision allowing termination based on the occurrence of “Failure Events.”

Discussion

            Plaintiff moves to enjoin Defendant from terminating the parties’ agreement.

I.                   Likelihood of Success on the Merits

Sufficient grounds exist for the issuance of injunctive relief when “it appears . . . 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.” § 526(a)(1). The Court must find that it is “a reasonable probability that plaintiff will be successful in the assertion of his rights.” (Bennett v. Lew (1984) 151 Cal. App. 3d 1177, 1183.) 

To show that it has a reasonable likelihood of succeeding on the merits, Plaintiff submitted that Defendant’s notice purports to terminate under the provision of the Supply Agreement that requires six “Failure Events” with respect to Plaintiff’s production of JPMS products within 30 days of each other. (Gotch Decl., Ex. 1 § 10.1(b).)

A Failure Event occurs in one of two circumstances: (1) failure to “fill any JPMS production requirement”; or (2) failure to “produce any of the Professional Salon Products for JPMS in a timely manner and in accordance with the JPMS Product Specifications.” (Id. § 10.1(a) (emphasis added).) The six separate events must have occurred within 30 days of each other to justify invocation of Section 10.1(b). JPMS must also provide written notice “within ten (10) days thereof,” i.e., within ten days of the 30-day period of six or more coinciding Failure Events.

            Plaintiff submitted evidence that Defendant “made no effort to set forth or define the underlying production issues that would justify the existence of Failure Events under the contract’s definition—let alone confirm the six separate events were within the same 30-day window. Instead, JPMS made unfounded allegations regarding extra-contractual information sharing requests—which are totally unrelated and irrelevant to the termination provision that JPMS invokes. JPMS then lists product-specific SKU numbers for which it asserts that Failure Events have occurred. (Gotch Decl., Ex. 2.) But JPMS provides no backup data, no unfulfilled purchase orders, no late deliveries, no proof of out-of-specification deliverables—nothing—in support of its allegation that any SKU it cites qualifies under the Supply Agreement’s definition of “Failure Event.” (Id.) JPMS’ purported Notice of Termination fails to even articulate which SKUs fall into which of the two potential “Failure Event” circumstances, and more importantly, as of when, such that Bocchi or the Court can test JPMS’s baseless claims of Failure Events. (Id.)” (Motion, 10: 1-5.)

            Moreover, Plaintiff argues that the definition of Failure Event expressly excludes any events that occur as a result of a Force Majeure. Thus, to the extent there were timeliness issues, the Notice of Termination fails to explain why the broad definition of Force Majeure would not apply to excuse any failures to the SKUs listed in Defendant’s Appendix A given the supply chain constrained environment impacting Plaintiff’s suppliers.

            In opposition, Defendant argues that Plaintiff repeatedly breached the agreement, and that it gave Plaintiff compliant notice of its intention to terminate: “After numerous missed productions in a thirty-day period (many multiples of the six required by the contract), JPMS exercised its early termination rights pursuant to Section 10.1(b) of the Agreement. Shadow can neither plausibly argue that JPMS breached by terminating the Agreement, nor can it excuse its repeated breaches with vague references to supply chain delays or force majeure, particularly because Shadow’s own September 9 Report—the basis for JPMS’s termination—lacks any explanation for the 48 undelivered orders that entitled JPMS to terminate the Agreement.” (Opp., 7:12-19.)

            However, as set forth in detail below, the Court has concluded that Plaintiff has not established that monetary damages would be inadequate such that injunctive relief is available. Accordingly, the Court does not consider whether the evidence indicates that Plaintiff has a reasonable probability of prevailing on the merits. 

II.               Balance of Harms

Plaintiff argues that the balance of harms is in its favor because monetary damages are inadequate here and there is a high risk of irreparable harm if the injunction is denied.

      In particular, Plaintiff argues that allowing Defendant to terminate will: (1) lead to a near-term reduction of the workforce by hundreds of employees and contractors; (2) may result in the temporary closure of Defendant’s Santa Clarita plant for an unknown period of time; (3) will require Defendant to expend “incalculable resources working to procure replacement business to fill the unexpected void, as well as costs to hire and re-train employees once the new business is secured” (Motion, 13:12-13); (4) create the “need to attempt to negotiate cancellations of purchase orders previously placed to fill JPMS’ PPN with its suppliers, which are among the largest and best in the industry, resulting in further damage to Bocchi’s reputation and goodwill” (Motion 13: 22-24); and (5) will have its reputation damaged with its creditors. Plaintiff also argues that in the agreement “the parties agreed that a breach [] will cause irreparable harm that would justify an injunction.” (Motion, 12: 23-24.)

In opposition, Defendant argues that the balance of harms weighs strongly against injunctive relief because Plaintiff has not shown that the alleged injuries could not be compensated in damages.

The Court agrees with Defendant.

First, typically,, “damages afford an adequate remedy by way of compensation for breach of contract.” Thayer Plymouth Ctr., Inc. v. Chrysler Motors Corp. (1967) 255 Cal. App. 2d 300, 306. For this reason, “injunctive relief is typically not available to forestall a breach of contract.” (Mesa Shopping Ctr.-E., LLC v. O Hill (2014) 232 Cal. App. 4th 890, 903 n.6; see also Cal. Civ. Pro. Code § 3423(e).) While Plaintiff argues that the parties agreed that that a breach of the agreement would produce an irreparable injury justifying an injunction, this overstates the provision. As noted by defendant, “all the cited provision stands for is that injunctive relief is a possible avenue that parties may pursue; it is not a dispositive determination that any breach is categorically not compensable by money damages.” (Opp., 21: 18-19.)

Second, any layoffs are entirely speculative—Plaintiff only argues that they may lead to a “near-term reduction of the workforce” and “may” result in temporary closure of Defendant’s Santa Clarita plant. While the Court sympathizes with this possibility, the narrow question is whether or not there has been an adequate demonstration of irreparable harm. If this showing were sufficient to meet that bar, nearly every employer could satisfy its burden by suggesting that without injunctive relief it could impact their operations.

Third, Plaintiff’s general claim that its reputation will be harmed is insufficient. (AK Metals, LLC v. Norman Indus. Materials Inc., (S.D. Cal. Jan 13, 2013) No. 12cv2595-IEG (WVG) 2013 WL 417323 at *10.) (denying preliminary injunction where plaintiff relied on “general and speculative” statements that there may be a general loss of goodwill.)

Fourth, Plaintiff’s own contentions characterize the potential harm as a fundamentally monetary one: Plaintiff asserts that it will “need to expend significant resources…at a significant costs” to procure replacement business and hire and train employees once new business is secured. (Motion at p. 5) Plaintiff’s Complaint alleges that Defendant “ha[s] caused [Plaintiff] and its owners to suffer tens of millions of dollars…, including lost sales, buildup of millions of dollars of unusable inventory…and other monetary harms.” (Complaint ¶ 14.)

Fifth, as argued by Defendant, an injunction would require extensive Court oversight of a now highly contentious business relationship. California law strongly disfavors equitable remedies which compel a “continuing series of acts between the parties” and “demands cooperation…for [] successful performance.” (Thayer Plymouth Ctr., Inc. v. Chrysler Motors Corp. (1967) 255 Cal.App.2d 300, 303-304; See also Wooley v. Embassy Suites, Inc. (1991) 227 Cal.App.3d 1520, 1533) (“Courts wish to avoid the friction and social costs which result when the parties are reunited in a relationship that has already failed.”) Both parties extensively argue conduct by the other to undermine one another, clearly demonstrating that there is no longer “a marked degree of cooperation and goodwill” here. (Barndt v. Cnty of LA (1989) 211 Cal.App.3d 397, 404-405.)  As such, the evidence strongly suggests that to compel continued performance of the contract would require constant Court maintenance of, and intervention into, the parties’ course of conduct.

In sum, the Court concludes that there is insufficient evidence to conclude that monetary damages are inadequate here and that the failure to issue an injunction would result in irreparable harm.

Based on the foregoing, Plaintiff’s motion for a preliminary injunction is denied.

It is so ordered.

Dated:  October    , 2022

   Hon. Jon R. Takasugi
   Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the court at smcdept17@lacourt.org by 4 p.m. the day prior as directed by the instructions provided on the court website at www.lacourt.org.  If a party submits on the tentative, the party’s email must include the case number and must identify the party submitting on the tentative.  If all parties to a motion submit, the court will adopt this tentative as the final order.  If the department does not receive an email indicating the parties are submitting on the tentative and there are no appearances at the hearing, the motion may be placed off calendar. 

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