Judge: Peter A. Hernandez, Case: 22PSCV01156, Date: 2022-12-06 Tentative Ruling

Case Number: 22PSCV01156    Hearing Date: December 6, 2022    Dept: O

The Order to Show Cause Re: Preliminary Injunction is GRANTED. The court will reserve on the amount of bond until the time of the hearing.

Background    

Plaintiff Michael Inclan, individually and derivatively on behalf of A.A. & M. auto Group, LLC (“Plaintiff”) alleges as follows:

A.A. & M. Auto Group, LLC dba Al’s Automotive (“Company”) was organized for the purpose of operating an automotive repair and services in El Monte for customers in the community and under a contract with Enterprise- Rent-A-Car (“Enterprise”). Albert Garcia (“Albert”) is Company’s majority member and holds a 60% interest in same; Albert’s brother, Andrew Garcia (“Andrew”), and Plaintiff each hold a 20% interest. Albert has been using Company funds to pay his own personal expenses, has failed and refused to purchase Worker’s Compensation Insurance and has failed to pay all local, state, and federal taxes for the Company. Plaintiff presented a letter to Albert on September 19, 2022, demanding therein that Albert return the funds he took from the Company; in response, Albert changed all the passwords, blocked Plaintiff from accessing the Auto Integrate portal used by Company to process vehicles needing repair from Enterprise and suspended Plaintiff from work without pay pending an “ongoing investigation” with Enterprise. Plaintiff seeks an involuntary dissolution of Company.

On October 4, 2022, Plaintiff filed a complaint, asserting causes of action against and Does 1-100 for:

1.               Breach of Fiduciary Duty

2.               Breach of Contract

3.               Fraud

4.               Accounting

5.               Conversion

6.               Involuntary Dissolution

7.               Member Derivative Action

On October 7, 2022, the court granted Plaintiff’s “Ex Parte Application for Temporary Restraining Order and Order to Show Cause Re: Preliminary Injunction” and set an Order to Show Cause Re: Preliminary Injunction for December 6, 2022.

On October 10, 2022, the “Order on Ex Parte Application for Temporary Restraining Order and Order to Show Cause Re Preliminary Injunction” was filed.

A Case Management Conference is set for February 22, 2023.

Legal Standard

“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.” (Code Civ. Proc., § 525.) “[A]n injunction may be more completely defined as a writ or order commencing a person either to perform or to refrain from performing a particular act.” (McDowell v. Watson (1997) 59 Cal.App.4th 1155, 1160.)

“In determining whether to issue a preliminary injunction, the trial court considers who related factors: (1) the likelihood that the plaintiff will prevail on the merits of its case at trial, and (2) the interim 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.” (14859 Moorpark Homeowner’s Ass’n v. VRT Corp. (1998) 63 Cal.App.4th 1396, 1402.) “The trial court’s determination must be guided by a ‘mix’ of the potential-merit and interim-harm factors; the greater the plaintiff’s showing on one, the less must be shown on the other to support an injunction.” (Butt v. State of California (1992) 4 Cal.4th 668, 678.) “Generally, weighing these factors lies within the broad discretion of the superior court.” (County of Kern v. T.C.E.F., Inc. (2016) 246 Cal.App.4th 301, 315.)

Discussion

Plaintiff moves the court for an order enjoining Albert and all members of Company from utilizing, removing or otherwise accessing any Company funds in any bank account maintained by any of the defendants for any reason except for the payment of regular wages and ordinary business expenses until such time as a full and proper accounting has been prepared and submitted by Albert and the Company has begun the process of involuntary dissolution.

1.               Likelihood of Prevailing on the Merits

On October 4, 2022, Plaintiff filed a verified complaint, alleging causes of action against Albert and Company for (1) Breach of Fiduciary Duty; (2) Breach of Contract; (3) Fraud; (4) Accounting; (5) Conversion; (6) Involuntary Dissolution and (7) Member Derivative Action.

Plaintiff has alleged that Company was organized for the purpose of operating an automotive repair and services in El Monte for customers in the community and under a contract with Enterprise (Complaint, ¶ 6); that Albert is Company’s majority member and holds a 60% interest in same (Id., ¶¶ 1 and 5, Exh. 1); that Albert’s brother, Andrew, and Plaintiff each hold a 20% interest in same (Id., ¶¶ 3 and 5, Exh. 1); that, at the outset, Albert represented to the other members of Company that he would be responsible for all bookkeeping for the Company, filing all taxes for the Company, engaging with the customers and managing all administrative tasks and would occasionally work on vehicles needing repair (Id., ¶ 7); that Albert was entrusted with all the money for the Company and had sole access to the Company credit card and banking account (Id.); that, while Albert represented to Andrew and Plaintiff that no initial capital contribution was required from them because he was contributing $20,000.00, there is no record of any capital contribution from Albert (Id., ¶ 9); that, in or around August 2022, Albert told Plaintiff that Company did not have the funds to pay Plaintiff his full pay for the week and that Plaintiff’s weekly draw would be reduced by $100.00 (Id., ¶ 10); that the next day, Plaintiff noticed an email received by Company’s shared email account detailing Albert’s use of Company’s credit card and funds to pay his divorce attorney $4,000.00; (Id., ¶ 11); that Plaintiff subsequently reviewed the Company’s banking statements going back to January 2022 (i.e., when Company’s account was first opened) and determined that Albert had embezzled approximately $17,356.70 from Company to, inter alia. make payments on his own personal Toyota vehicle, to purchase Disneyland tickets and food/drinks for himself, to repay a personal loan and to purchase vacation rentals (Id., ¶¶ 13 and 14); that Albert failed and refused to purchase worker’s compensation insurance (Id., ¶ 15); that Albert failed and refused to pay all local, state, and federal taxes for the Company (Id., ¶ 16); that on September 19, 2022, Plaintiff presented a letter to Albert, demanding therein that Albert return the funds he took from the Company (Id., ¶ 20); that in response, Albert changed all the passwords, blocked Plaintiff from accessing the Auto Integrate portal used by Company to process vehicles needing repair from Enterprise and suspended Plaintiff from work without pay pending an “ongoing investigation” with Enterprise (Id., ¶¶ 21 and 22.) Albert, to date, still refuses to pay Company taxes, keep diligent records and ledgers for Company by hiring an accountant or CPA, cease using Company’s card and account for his personal expenditures, return the $17,356.70 or to obtain Worker’s Compensation Insurance (Id., ¶ 24.) The foregoing allegations are largely repeated in Plaintiff’s supporting declaration.

Plaintiff asserts that, as per the above conduct, Albert has breached his fiduciary duty as a member-manager of Company owed to the other members of Company under Corporation Code § 17704.09 (Id., ¶¶ 28 and 29); that Albert breached Company’s operating agreement by entering into agreements without receiving approval from a majority of the members and by failing to maintain accounting and tax records (Id., ¶ 34); that Albert committed fraud by making representations to Company’s members to induce them to agree to give him “complete and unfettered access” to Company’s banking account (Id., ¶ 41) and that Albert converted $17,356.70 in funds belonging to Company (Id., ¶¶ 55 and 56).

Albert, in opposition, asserts that all transactions were approved by a majority of the members. Albert’s declaration, however, is unsigned. Additionally, Albert failed to provide a declaration corroborating this statement from his brother, Andrew, who is the third member of Company.

The court determines that Plaintiff has shown a likelihood of prevailing on the merits against Albert.

2.               Interim Harm

The court determines that Plaintiff has also shown that the balance of relative hardships favors him/Company. Although Albert contends that monetary damages afford Plaintiff an adequate remedy, Plaintiff explains that Company’s ability to pay its expenses, including employee wages, would be jeopardized if an injunction is not issued.

3.               Bond

“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, subd. (a).)

The court will hear from the parties regarding the amount of bond.

4.               Conclusion

The Order to Show Cause Re: Preliminary Injunction is granted.