Judge: Theresa M. Traber, Case: 23STCV26493, Date: 2024-01-19 Tentative Ruling

Case Number: 23STCV26493    Hearing Date: April 5, 2024    Dept: 47

Tentative Ruling

Judge Theresa M. Traber, Department 47

HEARING DATE:     April 5, 2024              TRIAL DATE: NOT SET

CASE:                         Herbert Capital, LLC, et al. v. Bryce Egbert, et al.

CASE NO.:                 23STCV26493           

RENEWED MOTION FOR PRELIMINARY INJUNCTION

MOVING PARTY:               Plaintiffs Herbert Capital, LLC and 1010 Eighty, LLC

RESPONDING PARTY(S): Defendants Bryce Egbert and Egbert Enterprises, LLC

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

            This is a shareholder derivative action that was filed on October 31, 2023. Plaintiffs allege that Defendants Bryce Egbert and Taisiia Popova conspired to raid the assets of a pair of LLCs in the business of cannabis oil manufacture.

Plaintiffs bring a renewed motion for preliminary injunction seeking the removal of Defendant Egbert from control of both nominal Defendants and the appointment of David Moss or another qualified person as receiver to take control of the nominal Defendants. Plaintiffs also seek monetary sanctions for violation of the Court’s January 26, 2024 order.

TENTATIVE RULING:

Plaintiffs’ Renewed Motion for Preliminary Injunction is DENIED.

DISCUSSION:

Plaintiffs bring a renewed motion for preliminary injunction seeking the removal of Defendant Egbert from control of both nominal Defendants and the appointment of David Moss or another qualified person as receiver to take control of the nominal Defendants.

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Plaintiffs’ Request for Judicial Notice

            Plaintiffs request that the Court take judicial notice of (1) the Complaint in this action; (2) the October 31, 2023 Notice of Ruling filed in this action as to Plaintiffs’ ex parte application for order for removal of managing member and appointment of receiver; (3) the November 22, 2023 Notice of Ruling filed in this action as to Plaintiffs’ ex parte application for a Temporary Restraining Order; (4) the January 19, 2024 Notice of Ruling filed in this action as to Plaintiffs’ application for a Preliminary Injunction; (5) the Order on that Preliminary Injunction filed on January 26, 2024; (6) the Court’s January 26, 2024 order correcting the Order on the Preliminary Injunction nunc pro tunc; and (7) the Declaration of Bryce Egbert filed in opposition to the Motion for Preliminary injunction heard on January 19, 2024. These requests are GRANTED pursuant to Evidence Code section 452(d) (court records).

Defendants’ Request for Judicial Notice

            Defendants request that the Court take judicial notice of (1) the Declaration of Bryce Egbert submitted on January 5, 2024 in opposition to the previous Motion for Preliminary Injunction; and (2) the January 26, 2024 Order for Preliminary Injunction. Defendants’ requests are GRANTED pursuant to Evidence Code section 452(d) (court records).

Legal Standard

            “A party who originally made an application for an order which was refused in whole or part, or granted conditionally or on terms, may make a subsequent application for the same order upon new or different facts, circumstances, or law, in which case it shall be shown by affidavit what application was made before, when and to what judge, what order or decisions were made, and what new or different facts, circumstances, or law are claimed to be shown.” (Code Civ. Proc. § 1008(b).)

A party may request a preliminary injunction “by serving a noticed motion,” as Plaintiffs have in this case, when the party against whom the preliminary injunction is sought has appeared in the action. (Cal. Rule of Court 3.1150(a).) 

“An injunction is a writ or order requiring a person to refrain from a particular act.” (Code Civ. Proc. § 525.) “A preliminary injunction may be granted at any time before judgment upon a verified complaint, or upon affidavits if the complaint in the one case, or the affidavits in the other, show satisfactorily that sufficient grounds exist therefor.” (Code Civ. Proc.§ 527(a).) An injunction may be granted in the following cases:    

(1) When it appears by the complaint 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.  

(2)¿When it appears by the complaint or affidavits that the commission or continuance of some act during the litigation would produce waste, or great or irreparable injury, to a party to the action. 

(3)¿¿When it appears, during the litigation, that a party to the action is doing, or threatens, or is about to do, or is procuring or suffering to be done, some act in violation of the rights of another party to the action respecting the subject of the action, and tending to render the judgment ineffectual. 
 

(4) When pecuniary compensation would not afford adequate relief.  

(5) Where it would be extremely difficult to ascertain the amount of compensation which would afford adequate relief.  

            . . . . 

(Code Civ. Proc. § 526(a)(1)-(5).) 

In deciding whether to issue a preliminary injunction, two factors must be considered prior to issuing a preliminary injunction: (1) the balance of the harm to the applicant should the injunction not issue, compared to the harm to the enjoined party should the injunction issue; and (2) whether the applicant is ultimately likely to prevail on the merits. (Common Cause v. Board of Supervisors (1989) 49 Cal.3d 432, 441442.)  A trial court has broad discretionary powers to grant or deny a request for a preliminary injunction if it does not act capriciously.  The court should exercise its judgment in favor of the party most likely to be injured. (Robbins v. Superior Court (1985) 38 Cal.3d 199, 205.)  In addition, the two factors are interrelated: the greater the Plaintiff’s showing as to one of the factors, the less that must be shown as to the other factor. (Butt v. State of California (1992) 4 Cal.4th 668, 678.) 

Analysis

“Irreparable harm” arises when monetary damages would not be sufficient to remedy the injury. (Wind v. Herbert (1960) 186 Cal.App.2d 276, 285; Code Civ. Proc. § 526(a)(4).) Injuries rising from wrongs of “continuing character” may also constitute “irreparable harm.” (People ex rel. Gow v. Mitchell Bros.’ Santa Ana Theater (1981) 118 Cal.App.3d 863, 871.) An injunction preventing disposal of property is proper if disposal would render the final judgment ineffectual. (Code Civ. Proc. § 526(a)(3); Wilkins v. Oken (1958) 157 Cal.App.2d 603, 606-607.) In the context of a derivative suit, irreparable harm includes disposal of profits of a transaction by officers or directors. (See Heckman v. C.L. Ahmanson (1985) 168 Cal.App.3d 119, 127 [affirming preliminary injunction imposing trust on profits from sale of corporation].) Other examples include circumstances where “the directors and majority of the stockholders are so managing or disposing of its business or assets in their own interest that they will probably be lost or destroyed before a decree can be rendered,” or “where there are such dissensions within the corporation that its business cannot be honestly or properly managed.” (Misita v. Distillers Corp. (1942) 54 Cal.App.2d 244, 250-51 [appointment of receiver].)

Plaintiffs argue that if the injunction does not issue, they will suffer greater harm in that Defendant Egbert will continue to damage the LLCs’ business and assets by, inter alia, incurring debts against the LLCs while keeping the loan proceeds for himself, enacting a plan to sell both LLCs to a third party whom Plaintiffs contend is not licensed to operate a cannabis oil business, and disposing of equipment belonging to the LLCs without compensation. Although Plaintiffs offer voluminous evidence in support of their contentions, most of the conduct identified took place before the entry of the January 26 preliminary injunction. (See, e.g., Declaration of Matthew Novello ISO Mot. ¶¶ 10-13, 15-17; Declaration of Elan Chen ISO Mot. ¶¶ 2-7.) Evidence of activity predating the original injunction does not suffice to establish that further injunctive measures are warranted because this evidence does not demonstrate a continuing risk of harm.

That said, Plaintiffs also offered evidence that, despite the Court’s order to that effect, Defendant Egbert did not provide Plaintiffs with access to the facility video cameras. (Novello Decl. ¶¶ 3-5, 14; Exhs. 27, 28, 36, 37.) Before this motion could be heard, Plaintiffs brought an ex parte application for emergency relief seeking, in essence, the same remedy: removal of Bryce Egbert as manager, appointing Plaintiffs as temporary managers of the Nominal Defendants, and requiring Egbert to provide up-to-date records for the Nominal Defendants. (March 8, 2024 Ex Parte Application.) The Court granted the application in part, ordering:

Plaintiffs and moving parties will have access to the facility and financial records during an initial visit on March 13, 2023, between 10:00 a.m. and 12 Noon, with each visit to last up to an hour, with up to 5 visits between now and the April 5th, 2024 hearing date.

After the initial March 13 visit, 2 hours’ notice shall be given for an on-site inspection to be conducted during business hours of 10:00 a.m. to 5:00 p.m.

There shall be no interference with the business operations during the visits.

The Court permits cameras and photographs to be taken during the on-site inspections.

With respect to the METRC issue, to the extent defendants have administrative access they shall add and GRANT plaintiffs access within 24 hours.

(March 11, 2024 Minute Order.) Defendants contend in their opposition filed on March 22 they have complied with this order. (Declaration of David Welch ISO Opp. ¶¶ 11-13.)

In reply, Plaintiffs concede that they have obtained access to the METRC system, the facility, and to the cameras. (Declaration of Robert Finkle ISO Reply ¶ 5.) Plaintiffs claim they still lack access to the Nominal Defendants’ financial records, but fail to explain whether they attempted to inspect the records at the facility or whether any documents were made available during those inspections, only disclosing that they demanded production of the records pursuant to the Corporations Code on March 22, 2024. (Finkle Reply Decl. ¶ 5, Exh. C.) Although Plaintiffs may be entitled to these documents as members of the corporations pursuant to Corporations Code §17704.10, or as Plaintiffs in this action under the Civil Discovery Act (see Code Civ. Proc. §§ 2031.010 et seq.), Defendants’ failure to produce these records is weak evidence of irreparable harm. Moreover, the force of this evidence as support for new injunctive relief is undermined by the existence of the Court’s March 11 order which provided Plaintiffs the opportunity to inspect the relevant records on-site during their inspections. Nothing in the record suggests that Plaintiffs have availed themselves of that opportunity. This meager showing is not sufficient to demonstrate that the risk of harm to Plaintiffs outweighs the substantial disruption of the status quo that appointment of a receiver would represent.

            As Plaintiffs have not demonstrated that the balance of harms favors appointment of a receiver, the Court does not address whether Plaintiffs have shown a likelihood of success on the merits with respect to this motion.

            The Court therefore finds that the injunctive relief sought by Plaintiffs is not warranted. It appears, however, that an extension of the Court’s March 11 order granting Plaintiffs the right to inspect the facilities and records on a regular basis might serve to balance the interests of the parties, in that a continuing right to inspection would mitigate any potential risk of misappropriation or loss of assets, records, and inventory of the Nominal Defendants without the disruption and expense that would likely stem from the appointment of a receiver. The Court wishes to hear arguments from the Parties concerning this proposal at the hearing on this motion.

CONCLUSION:

            Accordingly, Plaintiffs’ Renewed Motion for Preliminary Injunction is DENIED.

            Moving Parties to give notice.

IT IS SO ORDERED.

Dated:  April 5, 2023                          ___________________________________

                                                                                    Theresa M. Traber

                                                                                    Judge of the Superior Court

            Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept47@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.