Judge: Robert S. Draper, Case: 22STCV37412, Date: 2023-02-07 Tentative Ruling

Case Number: 22STCV37412    Hearing Date: February 7, 2023    Dept: 78

Superior Court of California 

County of Los Angeles 

Department 78 

Plaintiffs Windsor Terrace Healthcare, LLC and Windsor Healthcare Sepulveda, LLC’s Motion for Preliminary Injunction is GRANTED.

Defendant Commercial Loan Servicing, LLC is enjoined from proceeding with the foreclosure process on the Subject Property pending trial.

At hearing, the Court will consider arguments as to the proper amount of an undertaking that Plaintiffs will be required to post before the preliminary injunction is issued.

FACTUAL BACKGROUND   

This is an action for fraud and quiet title. The Complaint alleges as follows.

Plaintiffs Windsor Terrace Healthcare, LLC (“Windsor Terrace”) and Windsor Healthcare Sepulveda, LLC, (“Windsor Sepulveda” and with Windsor Terrace, “Plaintiffs”) own and operate a skilled nursing facility in Van Nuys (the “Subject Property”). (Compl. ¶ 1.) Defendant Lawrence E. Feigen (“Feigen”) owns an indirect minority interest in the Plaintiffs. (Ibid.)

Feigen does not have the authority to encumber the Subject Property. (Compl. ¶ 2.) Nonetheless, Feigen obtained a loan (the “CLS Loan”) from Defendant Common Loan Servicing, LLC (“CLS” and together with Feigen, “Defendants”) using the Subject Property as collateral. (Ibid.) Feigen used the CLS Loan to aid in the operation of his business in Missouri, Defendant SA Hospital Real Estate Holdings-Jefferson LLC (“SA Hospital”), which is separate and apart from Plaintiffs. (Ibid.) Both Feigen and CLS knew that Feigen did not have the authority to encumber the Subject Property. (Ibid.) Defendants hid the fraudulent trust deed by not immediately recording it, and by sending all notice regarding the CLS Loan to Feigen rather than to Plaintiffs. (Ibid.)

When Feigen defaulted on the CLS Loan, CLS recorded the trust deed on the Subject Property. (Compl. ¶ 3.) This prevented Plaintiffs from refinancing the Subject Property resulting in substantial damages. (Ibid.)

When confronted about the CLS Loan, Feigen admitted that he knew he did not have the authority to encumber the Subject Property, and that he did it to extricate SA Hospital from a difficult financial situation. (Compl. ¶ 55.)

PROCEDURAL HISTORY 

On November 29, 2022, Plaintiffs filed the Complaint asserting ten causes of action:

1.    Fraudulent Concealment;

2.    Constructive Fraud;

3.    Aiding and Abetting Fraud;

4.    Breach of Fiduciary Duty;

5.    Breach of Operating Agreement;

6.    Slander of Title;

7.    Cancellation of Instrument;

8.    Recission, Cal. Civ. Code § 1689;

9.    Quiet Title; and,

10.                   Declaratory Judgment

On December 2, 2022, Plaintiffs filed a Notice of Lis Pendens.

On December January 1, 2023, Plaintiffs filed the instant Motion for Preliminary Injunction.

On January 9, 2023, CLS filed a Cross-Complaint asserting nine causes of action:

1.    Breaches of Contract;

2.    Breaches of Guaranty;

3.    Money Due;

4.    Money Lent;

5.    Intentional Misrepresentation;

6.    Negligent Misrepresentation;

7.    False Promise;

8.    Promissory Estoppel; and,

9.    Equitable Indemnity

On January 25, 2023, CLS filed an Opposition.

On January 31, 2023, Plaintiffs filed a Reply.

DISCUSSION

I.                EVIDENTIARY OBJECTIONS

CLS’s Evidentiary Objections to the Declaration of A. Sasha Frid

Objection Number 1 is OVERRULED.

CLS’s Evidentiary Objections to the Declaration of Andrew Boland

Objection Number 1 is OVERRULED.

CLS’s Evidentiary Objections to the Declaration of Joshua Sable

Objection Numbers 5 and 9 are SUSTAINED.

The remaining objections are OVERRULED.

CLS’s Evidentiary Objections to the Declaration of Lee Samson

All objections are OVERRULED.

II.              MOTION FOR PRELIMINARY INJUNCTION

Plaintiffs move the Court to enjoin CLS from proceedings with its foreclosure on the Subject Property until this matter is tried on its merits.

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.) 

A.   Likelihood of Success on the Merits

Plaintiffs contend that they have established a factual record sufficient to show that they are likely to succeed on the merits as to the invalidity of CLS’s deed of trust on the Subject Property.

First, Plaintiffs provide the CLS Loans showing that Feigen granted CLS a second priority security interest in the Subject Property. (Exs. 3-5.)

Second, Plaintiffs’ President, Lee Samson, attests that Feigen confessed to Samson that Feigen did not have authority to encumber the Subject Property, and knew that he did not have that authority at the time he entered into the loan agreement with CLS. (Samson Decl. ¶ 7.)

Third, Plaintiffs’ General Counsel, Joshua Sable, attests that none of the funds from the CLS Loan were used for Plaintiffs’ benefit. (Sable Decl. ¶ 13.)

Fourth, Sable attests that the deed of trust on the Subject Property was not recorded until SA Hospital defaulted on the CLS Loan in the summer of 2022. (Sable Decl. ¶ 24.)

Fifth, Sable attests that Plaintiffs only became aware of the CLS Loan and of its deed of trust on the Subject Property when Plaintiffs attempted to secure debt refinancing on the Subject Property in September 2022. (Sable Decl. ¶ 27.)

Finally, Plaintiffs provide CLS’s Notice of Default and Election to Sell Under Deed of Trust for the Subject Property. (Ex. 6.)

In Opposition, CLS makes two arguments.

First, CLS contends that Plaintiffs have not provided sufficient admissible evidence for the Court to find that Plaintiffs have a reasonable likelihood of success on the merits. However, as noted above, the Court largely overruled CLS’s evidentiary objections, and Plaintiffs have provided ample admissible evidence demonstrating its likelihood of success in showing the invalidity of the deed of trust. While CLS rightly notes that in their moving papers, Plaintiffs at times editorialize beyond what their admissible evidence can competently demonstrate, this editorialization does not render that documentary evidence inadmissible.

Second, CLS spends the bulk of its Opposition arguing that Plaintiffs have failed to sufficiently show that CLS intentionally behaved maliciously in securing the deed of trust against the Subject Property. For instance, while Plaintiffs note that Feigen is not listed as Plaintiffs’ manager in Plaintiffs’ Statement of Information with the California Secretary of State, CLS contends that its failure to obtain this information could be readily explained by mere inadvertence or careless blundering on CLS’s part rather than malice or wanton and reckless discard.

While this is a compelling argument, as Plaintiffs note, their Complaint does not just assert a single cause of action for fraud. CLS fails to address the other causes of action in its Opposition, or Plaintiffs’ likelihood of success on those causes.

For example, Plaintiffs’ Seventh Cause of Action is for Cancellation of Written Instrument.

Civil Code section 3412 provides that a written instrument may be canceled if it is adjudged to be void or voidable, either by being obtained by fraud or otherwise. (See Civ. Code, § 3412; California Credit & Collection Corp. v. Goodin (1926) 76 Cal.App. 785, 794.) 

In his Answer, Feigen concedes that he obtained the CLS Loan fraudulently, and in its Cross-Complaint CLS accuses Feigen of same. However, CLS’s Opposition does not address how Plaintiffs are unlikely to succeed on this cause of action considering these facts.

Accordingly, the Court finds that Plaintiffs are substantially likely to succeed in proving the invalidity of the deed of trust if the matter is tried on its merits.

B.   Balancing of Harm

Next, Plaintiffs argue that the balancing of harm also weighs in favor of granting the motion for preliminary injunction.

Plaintiffs contend that, should its motion be denied, Plaintiffs will lose the Subject Property to foreclosure. As Plaintiffs note, California Courts have repeatedly held that such a loss is irreparable. Indeed, it is clear that to maintain the status quo, Plaintiffs should maintain possession of the Subject Property pending trial.

Additionally, Plaintiffs argue that should CLS proceed with foreclosure, the elderly and infirm who currently reside in the Subject Property could lose their homes.

In Opposition, CLS contends that it is unlikely that the residents of the senior care facility will lose their homes, as their leases were made before the execution of the deed of trust, and therefore CLS would be required to take the property subject to those leases.

While this might be true, CLS does not address the issue of Plaintiffs’ loss of the subject property, or the interference to the status quo that a foreclosure would constitute.

Accordingly, the Court finds that the weighing of the harm balances in favor of granting Plaintiffs’ Motion for Preliminary Injunction.

C.   Undertaking

Finally, the Court notes that in their briefing, neither party addresses the issue of an 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, as neither party discussed an undertaking or the damages CLS might sustain should the Court decide that Plaintiffs were not entitled to this injunction, the Court cannot approximate the proper value of such a bond.

Accordingly, at hearing, the Court will consider arguments as to the proper value of an undertaking and order Plaintiffs to post a bond in that amount before issuing the preliminary injunction.

III.            CONCLUSION

The Court finds that Plaintiffs are substantially likely to succeed on the merits in this matter, and that the balance of harm weighs in favor of granting Plaintiffs’ Motion for Preliminary Injunction and maintaining the status quo pending trial.

Accordingly, Plaintiffs’ Motion for Preliminary Injunction is GRANTED. CLS is enjoined from continuing its foreclosure proceedings on the Subject Property pending trial.

DATED: February 7, 2023                 

____________________________ 

Hon. Robert S. Draper

Judge of the Superior Court