Judge: Robert S. Draper, Case: 22STCV28003, Date: 2022-12-14 Tentative Ruling

Case Number: 22STCV28003    Hearing Date: December 14, 2022    Dept: 78

Superior Court of California 

County of Los Angeles 

Department 78 

Plaintiffs Hawkeye Entertainment, LLC and W.E.R.M. Investments, LLC’s Motion for Preliminary Injunction is GRANTED.

Within one week of the issuance of this order Plaintiffs are ordered to post a bond in the amount of $100,000. Within one day if the bond being posted, Defendants are ordered to sign and notarize the CUB application.

FACTUAL BACKGROUND   

This is an action for breach of a commercial lease. The Complaint alleges as follows.

Plaintiff Hawkeye Entertainment, LLC (“Hawkeye”) entered into a lease agreement for commercial space (the “Subject Property”) with Defendants Smart Capital Investment I, LLC, Smart Capital II, LLC, Smart Capital Investment III, LLC, Smart Capital IV, LLC, and Smart Capital V, LLC’s (together, “Smart Capital”) predecessor-in-interest. (Compl. ¶¶ 9-14.) Hawkeye then sublet the Subject Property to Plaintiff W.E.R.M. (“WERM”, and with Hawkeye, “Plaintiffs”). (Compl. ¶ 20.) Smart Capital operates as Plaintiffs’ landlord under the lease. (Compl. ¶ 21.)

Prior to Smart Capital’s purchase of the Subject Property, Plaintiffs invested substantial resources into making the Subject Property code compliant. (Compl. ¶ 23.) Additionally, Plaintiffs obtained a conditional use permit for the on-site sale of alcoholic beverages (the “CUB Permit”) for the Subject Property. (Ibid.) With the CUB Permit obtained, WERM opened and began operating a successful night club (the “Night Club”) in the subject property. (Compl. ¶ 23.)

Plaintiffs are current with all obligations under the Lease. (Compl. ¶ 25.) This was confirmed in a recent Bankruptcy Court evidentiary hearing on a Motion to Assume Lease and Sublease (“Assumption Motion”) filed by Hawkeye and opposed by Smart Capital. (Ibid.)

Nonetheless, Smart Capital, through its manager Defendant Michael Chang (“Chang”, and with Smart Capital, “Defendants”), have attempted to interfere with WERM’s operation of the Night Club. (Compl. ¶ 33.) Relevant here, Defendants have refused to sign Plaintiffs’ CUB renewal application. (Ibid.) Plaintiffs allege that Defendants are intentionally interfering with Plaintiffs’ business operations because Defendants believe their lease is far under market value and would like the Night Club to go out of business to be replaced by a higher paying tenant.

PROCEDURAL HISTORY 

On August 29, 2022, Plaintiffs filed the Complaint asserting seven causes of action:

1.    Breach of Contract;

2.    Breach of Implied Covenant of Good Faith and Fair Dealing;

3.    Breach of Implied Covenant of Quiet Enjoyment;

4.    Negligent Interference with Prospective Economic Advantage;

5.    Intentional Interference with Prospective Economic Advantage;

6.    Intentional Interference with Contractual Relations; and,

7.    Specific Performance

On September 28, 2022, Defendants filed a Motion to Strike Plaintiffs’ Prayer for Punitive Damages. That Motion is to be heard on February 8, 2023.

On October 31, 2022, Defendants filed an Anti-SLAPP Motion. That Motion is to be heard on December 19, 2022.

On November 7, 2022, Plaintiffs filed the instant Motion for Preliminary Injunction.

On December 1, 2022, Defendants filed an Opposition.

On December 7, 2022, Plaintiffs filed a Reply.

DISCUSSION

I.                REQUEST FOR JUDICIAL NOTICE

The court may take judicial notice of “official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States,” “[r]ecords of (1) any court of this state or (2) any court of record of the United States or of any state of the United States,” and “[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” (Evid. Code § 452, subds. (c), (d), and (h).)   

Evidence Code Section 452 provides that judicial notice may be taken for facts and propositions that are “not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” (Cal. Evid. Code § 452(h).) Further, “a court may take judicial notice of [recorded documents and] the fact of a document's recordation, the date the document was recorded and executed, the parties to the transaction reflected in a recorded document, and the document's legally operative language, assuming there is no genuine dispute regarding the document's authenticity. From this, the court may deduce and rely upon the legal effect of the recorded document, when that effect is clear from its face.” (Scott v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 743, 745-755.)  

Taking judicial notice of a document is not the same as accepting the truth of its contents or accepting a particular interpretation of its meaning. (Fremont Indem. Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 113-14 (citations and internal quotations omitted).) In addition, judges “consider matters shown in exhibits attached to the complaint and incorporated by reference.” (Performance Plastering v. Richmond American Homes of California, Inc. (2007) 153 Cal.App.4th 659, 665.)  However, “[w]hen judicial notice is taken of a document . . . the truthfulness and proper interpretation of the document are disputable.” (Aquila, Inc. v. Sup. Ct. (2007) 148 Cal.App.4th 556, 569 (quoting StorMedia Inc. v. Sup. Ct. (1999) 20 Cal.4th 449, 457 n. 9).) 

The party requesting judicial notice must (a) give each adverse party sufficient notice of the request to enable the adverse party to prepare to meet the request and (b) provide the court with sufficient information to enable it to take judicial notice of the matter. (Cal. Evid. Code § 453.) 

Plaintiffs request judicial notice of the following:

1.    The Merriam Webster Dictionary’s definition of the word “nightclub”.

2.    City of Los Angeles Ordinance Section 12.24. (Ex. 1.)

3.    City of Los Angeles instruction documents for submittal of CUB permit application. (Ex. 2.)

Plaintiffs’ requests for Judicial Notice are GRANTED.

II.              EVIDENTIARY OBJECTIONS

Plaintiffs’ Evidentiary Objections to the Declaration of Stephen A. Jamieson

All Evidentiary Objections are OVERRULED.

Plaintiffs’ Evidentiary Objections to the Declaration of Michael S. Chang

All Evidentiary Objections are OVERRULED.

Plaintiffs’ Evidentiary Objections to the Declaration of Danny Kim

All Evidentiary Objections are OVERRULED.

III.            MOTION FOR PRELIMINARY INJUNCTION

Plaintiffs move for a Preliminary Injunction compelling Defendants to sign Plaintiffs’ application for a renewal of their CUB permit.

The purpose of a preliminary injunction is to preserve the status quo pending final resolution upon a trial. (See Scaringe v. J.C.C. Enterprises, Inc. (1988) 205 Cal.App.3d 1536.) The status quo has been defined to mean the last actual peaceable, uncontested status which preceded the pending controversy. (14859 Moorpark Homeowner’s Assn. v. VRT Corp. (1998) 63 Cal.App.4th 1396. 1402.) Preliminary injunctive relief requires the use of competent evidence to create a sufficient factual showing on the grounds for relief. (See, e.g., ReadyLink Healthcare v. Cotton (2005) 126 Cal.App.4th 1006, 1016; Ancora-Citronelle Corp. v. Green (1974) 41 Cal.App.3d 146, 150.) Injunctive relief may be granted based on a verified complaint only if it contains sufficient evidentiary, not ultimate, facts. (See Code Civ. Proc. § 527(a).) For this reason, a pleading alone rarely suffices. (Weil & Brown, California Procedure Before Trial, 9:579, 9(ll)-21 (The Rutter Group 2007).) The burden of proof is on the plaintiff as moving party. (O’Connell v. Superior Court (2006) 141 Cal.App.4th 1452, 1481.) A plaintiff seeking injunctive relief must show the absence of an adequate damages remedy at law. (Code Civ. Proc. § 526(4); Thayer Plymouth Center, Inc. v. Chrysler Motors (1967) 255 Cal.App.2d 300, 307.)   

The trial court considers two factors in determining whether to issue a preliminary injunction: (1) the likelihood the plaintiff will prevail on the merits of its case at trial, and (2) the interim harm the plaintiff is likely to sustain if the injunction is denied as compared to the harm the defendant is likely to suffer if the court grants a preliminary injunction. (Code Civ. Proc. § 526(a); Husain v. McDonald’s Corp. (2012) 205 Cal.App.4th 860, 866-67.) The balancing of harm between the parties “involves consideration of such things as the inadequacy of other remedies, the degree of irreparable harm, and the necessity of preserving the status quo.” (Husain, supra, 205 Cal.App.4th at 867.) Thus, a preliminary injunction may not issue without some showing of potential entitlement to such relief. (Doe v. Wilson (1997) 57 Cal.App.4th 296, 304.) The decision to grant a preliminary injunction generally lies within the sound discretion of the trial court and will not be disturbed on appeal absent an abuse of discretion. (Thornton v. Carlson (1992) 4 Cal.App.4th 1249, 1255.) 

Here, Plaintiffs move the Court to compel Defendants to sign Plaintiffs’ CUB Application, as their current CUB Permit is set to expire in March 2023. (A. McAbian Decl. ¶ 10.) Plaintiffs contend that this will maintain the status quo, as the CUB Permit Plaintiffs seek merely extends, rather than modifies, its current CUB permit.

A.   Likelihood That Plaintiffs Will Prevail on the Merits

Plaintiffs contend that they are substantially likely to prevail on the merits, as the current lease explicitly states that Plaintiffs are to use the Subject Property for a night club, and that Plaintiffs are to maintain liquor liability insurance for the Subject Property. (Ex. 1-A-1.) Additionally, Plaintiffs note that the Subject Property has maintained a CUB permit for the sale of alcoholic beverages for the entirety of their leasehold. (A. McAbian Decl., ¶¶ 4-5.) Finally, Plaintiffs note that the Lease assumes the existence of a valid CUB permit, as the lease explicitly states that the “entire rights under the CU[B] shall belong to Landlord following the expiration of the Term or earlier termination of this Lease.” (Ex. 1-A-1, ¶ 5.4)

In Opposition, Defendants argue that Plaintiffs are unlikely to succeed on the merits, as no provision in the lease obligates Defendants to sign or execute the CUB Application. (Opposition at p. 14.) Additionally, Defendants note that section 5.4 of the Lease, which Plaintiffs cite as providing explicit recognition of the CUB permit in the Lease, states that the CUB shall belong to Defendants rather than Plaintiffs upon expiration of the term or early termination of the lease. (Ibid.) Finally, Defendants note that Plaintiffs did not provide any authority under which a landlord is obligated by preliminary injunction to sign a CUB permit. (Ibid.)

Defendants’ arguments are unavailing. While Defendants correctly note that the lease does not explicitly require Defendants to sign a CUB permit application, the Lease does state that the use of the Subject Property is solely for operation of a nightclub, restaurant and entertainment venue (Ex. 1-A-1, ¶ 1.17); that Plaintiffs are required to provide liquor liability insurance (Ex. 1-A-1, ¶ 1.18); and that Defendants shall not unreasonably interfere with the Plaintiffs’ business operations. (Ex. 1-A-1, ¶ 2.2.)

By refusing to sign the CUB application, Defendants deny Plaintiffs the opportunity to serve alcoholic beverages in the Subject Property, thereby interfering with Plaintiffs’ ability to operate a nightclub and entertainment venue, as described in the Lease.

Accordingly, the Court finds that Plaintiffs have a substantial likelihood of success on the merits.

B.   Balancing of Harms

Plaintiffs argue that, should their CUB permit expire, the Night Club will almost certainly go out of business, as 2/3 of the Night Club’s revenue comes from the sale of alcoholic beverages. Additionally, Plaintiffs note that over one hundred employees and vendors will lose their jobs if the Night Club goes out of business.

In Opposition, Defendants make three arguments.

First, Defendants argue that Plaintiffs have repeatedly breached the Lease, the CUB requirements, and the law, which makes Defendants reticent to sign the CUB application. Plaintiffs argue that these same breaches were alleged in the Bankruptcy Court and found to be untrue.

The Court need not and will not consider the veracity of Plaintiffs’ alleged breaches here. Should Defendants believe that Plaintiffs are in breach of the lease, Defendants may file a suit or a countercomplaint for breach of contract to test the veracity of their claims. Should Defendants believe Plaintiffs are in breach of their obligations under the CUB permit, they may raise those concerns at the public hearing on Plaintiffs’ CUB application that follows the submittal of the form. Should Defendants believe that Plaintiffs are in violation of the law, they may contact the police, or the proper authorities, to report such a violation.

It is improper for Defendants to raise these concerns as a defense against signing the CUB application, which does not ask for Defendants to certify Plaintiffs are in full compliance with the CUB requirements. Instead, the Property Owner portion of the CUB Application asks that Defendants certify to the following:

a. I hereby certify that I am the owner of record of the herein previously described property located in the City of Los Angeles which is involved in this application or have been empowered to sign as the owner on behalf of a partnership, corporation, LLC or trust as evidenced by the documents attached hereto.

b. I hereby consent to the filing of this application on my property for processing by the Department of City Planning.

c. I understand if the application is approved, as a part of the process the City will apply conditions of approval which may be my responsibility to satisfy including, but not limited to, recording the decision and all conditions in the County Deed Records for the property.

d. By my signature below, I declare under penalty of perjury under the laws of the State of California that the foregoing statements are true and correct. (Peterson-Gower Decl., Ex. A.)

Accordingly, the aforementioned concerns are irrelevant to Defendants’ signing of the application.

Second, Defendants argue that there is no risk to an imminent, irreparable harm, as the City of Los Angeles tolled CUB expiration dates during the Covid-19 crisis. (Jamieson Decl., ¶¶ 13-14.) Defendants contend that this means Plaintiffs’ CUB permit will not expire “for anywhere from 6 months to 3 years after that city emergency order and Tolling Order is lifted.” (Ibid.)

However, as Defendants are unable to provide an exact date or date range as to when the CUB will expire, as the face of the CUB permit says that it will expire in March 2023, and as a consultant hired by Plaintiffs states that she recommends her clients submit their application two years before the CUB expiration date, the Court finds Defendants’ argument regarding timing unavailing.

Finally, Defendants contend that, though the face of the CUB Application does not appear to create substantial obligations for the property owner, the CUB itself creates substantial obligations.

Defendants contend that once a CUB is issued, the property owner is required to sign and record a Master Covenant and Agreement (“MCA”) that covenants the property will abide by all the conditions of the CUB. (Jamieson Decl., ¶ 9.) Additionally, Defendants note that, should Plaintiffs be found in violation of the CUB, Defendants may be liable, typically for an automatic fee of approximately $50,000. (Ibid.) Next, Defendants note that, should a legal challenge to the CUB application arise, Defendants may be forced to indemnify the City for any legal fees. (Ibid.) Finally, Defendants contend that under new policy, the CUB permits are perpetual, meaning that the Subject Property will encumber the Subject Property beyond Plaintiffs’ tenancy.

As to the point regarding financial exposure, Defendants’ argument is well-taken. Accordingly, as will be discussed below, the Court will order a substantial undertaking from Plaintiffs in case Plaintiffs are found in violation of the CUB permit, and the Court determines the preliminary injunction was wrongfully granted.

As to the point of the permanent encumbrance, as Plaintiffs note, Defendants will retain full control of the CUB permit after Plaintiffs’ tenancy and may seek recission of the permit, or may simply not use it, after Plaintiffs’ tenancy. Accordingly, this does not present a substantial hardship to Defendants.

C.   The Undertaking

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. (See Code Civ. Proc. § 529(a); Cal. Rules of Court, rule 3.1150(f); City of South San Francisco v. Cypress Lawn Cemetery Assn. (1992) 11 Cal.App.4th 916, 920.) 

Here, Plaintiffs seek a $10,000 undertaking to cover the cost of attorney fees should the Court determine Plaintiffs were not entitled to the injunction. Defendants seek $500,000.

Though the Court finds Defendants’ request excessive, it agrees that a very substantial undertaking is required in case legal issues arise from the issuance of the CUB permit, and Defendants are forced to shoulder those costs.

Accordingly, Plaintiffs Hawkeye Entertainment, LLC and W.E.R.M. Investments, LLC’s Motion for Preliminary Injunction is GRANTED.

Within one week of the issuance of this order Plaintiffs are ordered to post a bond in the amount of $100,000. Within one day if the bond being posted, Defendants are ordered to sign and notarize the CUB application.

DATED: December 14, 2022            

____________________________ 

Hon. Robert S. Draper

Judge of the Superior Court