Judge Thomas D. Long, Case 22PSCV01377 2023-03-21 Tentative Ruling

On October 20, 2022, Plaintiff Envision WC Toy Auto, LLC dba Envision Toyota of West Covina (“Envision”) filed this action against Defendants UCNP II, LLC (“UCNP”), West Covina Motor Group LLC (“Trophy”), and Byron Moldo (erroneously sued as Byron Muldo). The action arises from a dispute over possession of real property located at 205 North Citrus Street, West Covina, California, 91791 (“Property”). Envision alleges that it paid Trophy for all or substantially all of Trophy’s assets, as well as an assignment of Trophy’s interests in a commercial lease with UCNP. (Complaint ¶ 1.) UCNP, through Moldo as its Receiver, refuses to honor the lease assignment and has blocked Envision from accessing the Property while accepting Envision’s rent payments. (Ibid.)

On November 4, 2022, Envision filed a motion for a preliminary injunction. In summary, Envision seeks an order enjoining Defendants and their agents from accessing the Property, enjoining Defendants from preventing Envision’s use of the Property, and requiring Defendants to honor the lease assignment.

On February 23, 2023, the Court related this case with Leonard Schrage v. Michael Schrage, et al., Case No. BC579623. The Court also set a briefing schedule on the motion for preliminary injunction in this case.

“Trial courts traditionally consider and weigh two factors in determining whether to issue a preliminary injunction. They are (1) how likely it is that the moving party will prevail on the merits, and (2) the relative harm the parties will suffer in the interim due to the issuance or nonissuance of the injunction.” (Dodge, Warren & Peters Ins. Services, Inc. v. Riley (2003) 105 Cal.App.4th 1414, 1420.) “‘[T]he greater the . . . showing on one, the less must be shown on the other to support an injunction.’” (Ibid., quoting Butt v. State of California (1992) 4 Cal.4th 668, 678.)

When the effect of an injunction mandates a change in the parties’ relationship to one another from the status quo at the time the action was filed, the injunction is considered a mandatory injunction as opposed to a prohibitory one. (Agricultural Labor Bd. v. Superior Court (1983) 149 Cal.App.3d 709, 713.) Preliminary mandatory injunctions rarely are granted and are reserved for extreme cases where the right is clearly established and irreparable injury will occur in the absence of the injunction. (Board of Supervisors v. McMahon (1990) 219 Cal.App.3d 286, 295 (McMahon).)

The burden of proof is on the moving party to show all elements necessary to support issuance of a preliminary injunction. (O’Connell v. Superior Court (2006) 141 Cal.App.4th 1452, 1481.) “‘Generally, the ruling on an application for a preliminary injunction rests in the sound discretion of the trial court. The exercise of that discretion will not be disturbed on appeal absent a showing that it has been abused.’” (Cohen v. Board of Supervisors (1985) 40 Cal.3d 277, 286.)

According to the Complaint, UCNP and Moldo are preventing Envision from accessing the Property and receiving the benefits of the lease assignment. Moldo, as Receiver, put 24-hour security at the Property after Trophy vacated the property, and Envision has never had control of the property. (Moldo Decl. ¶¶ 9-10.) In September 2022, Envision learned that it was being blocked from accessing the Property. (Complaint ¶ 6.)

Envision seeks a preliminary injunction (1) enjoining Defendants and their agents (including security personnel) from accessing the Property, except as permitted under the terms of the Lease, Addendum and Assignment at issue; (2) enjoining Defendants and their agents from preventing Envision’s use and enjoyment of the Property in accordance with the Lease, Addendum and Assignment at issue; (3) enjoining Defendants and their agents from restricting Envision’s access to the Property, including by security personnel, changed locks, physical barriers, and other impediments; (4) enjoining Defendants and their agents from possessing all keys to the Property, including to the locks they installed on the Property; (5) requiring Defendants to turn over to Envision keys to the Property; (6) enjoining Defendants and their agents from infringing on Envision’s possessory rights to the Property under the lease, addendum and assignment; (7) requiring Defendants to credit or prorate the $347,875 in rent Envision has already paid on the remaining term of the lease; (8) requiring Defendants to deposit the $347,875 already paid to Envision in an escrow account and restricting Defendants’ access thereto; (9) enjoining Defendants from distributing or spending the $347,875 already paid by Envision in rent; (10) requiring Defendants to provide to Envision any and all notices and correspondence directed to the Property since the assignment’s execution on August 5, 2022; (11) holding all further obligations to pay rent under the Lease in abeyance, or alternatively, require that Envision pay the rent to an escrow account to which Defendants have no access, until the validity of the assignment is determined by the Court; (12) requiring Defendants to pay the $101,584.99 in property taxes due on December 10, 2022; (13) ordering that Defendants properly secure the Property; and (14) ordering that Defendants are responsible for the Property, include all maintenance and liability thereon. (See Notice of Motion.)

Such an order would alter, rather than preserve, the status quo. Envision attempts to argue otherwise: “[T]he Property was being used as a car dealership—much as Envision seeks to use it as now. By receiving an assignment of the Lease, Envision is to step into the shoes of Trophy and take possession of the Property. That is the true status quo.” (Reply at p. 4.) The Court disagrees. Envision is clearly seeking expansive injunctive relief requiring that UCNP and Moldo no longer access the Property and that UCNP and Moldo affirmatively permit Envision to access the Property under a new lease assignment that the Defendants argue is an invalid assignment.

This is therefore a mandatory injunction, which requires a showing of irreparable harm. (McMahon, supra, 219 Cal.App.3d at p. 295.)

B. Envision Has Not Shown That It Will Suffer Irreparable Harm Without an Injunction.

The motion is devoid of any binding authority supporting Envision’s argument of irreparable harm. (See Motion at pp. 14-16.) On this basis, the Court could conclude that such an argument is legally unsupported. (See Dabney v. Dabney (2002) 104 Cal.App.4th 379, 384 [“We need not consider an argument for which no authority is furnished.”]; Interinsurance Exchange v. Collins (1994) 30 Cal.App.4th 1445, 1448 [“[P]arties are required to include argument and citation to authority in their briefs, and the absence of these necessary elements allows this court to treat [an] issue as waived.”].) Nevertheless, the Court will consider the argument.

Envision argues that the future of its business “rests on its ability to have prompt access to the Property.” (Motion at p. 14.) Envision’s Franchise Operations Director explains that it will relocate its Toyota dealership to the Property so it can expand. (Villegas Decl. ¶ 7.) This is part of a larger plan to renovate its East Garvey location (where the Toyota dealership currently is) so that it can move its Mercedes-Benz franchise to that location. (Villegas Decl. ¶ 8; see Villegas Decl. ¶ 3.) After Mercedes-Benz moves to its new location, Envision will renovate the current Mercedes-Benz location and ultimately move its Audi franchise to that location. (Villegas Decl. ¶ 8.) Envision obtained approval from the Audi, Mercedes-Benz and Toyota manufacturers, and the approvals are subject to strict timelines. (Villegas Decl. ¶ 9.) If Envision completes the Toyota project on time, Toyota will pay Envision $2.5 million. (Villegas Decl. ¶ 9.) After the Toyota construction and renovation, Envision will begin construction at East Garvey for the Mercedes-Benz franchise. (Villegas Decl. ¶ 10.) Envision must also meet Audi’s requirements and begin construction “at the beginning of Q5 2025 (to complete by Q2 2026).” (Villegas Decl. ¶ 10.) Envision can meet its deadlines only if it can access the Property to begin the work. (Villegas Decl. ¶ 11.) “If Envision has any hope of salvaging its business plan—which is much larger than its single Toyota dealership—it needs to access the Property promptly, to meet the deadlines imposed by the car manufacturers.” (Motion at p. 14.)

The majority of Envision’s harm appears to be (1) failure to meet the construction deadlines and therefore not receive a $2.5 million payment from Toyota; (2) retraction of the Mercedes-Benz approval and potential loss of facility bonuses; and (3) potentially missing deadlines in 2025 and 2026 for the Audi project. (See Villegas Decl. ¶¶ 9-10, 12.) Envision admits that failure to meet the deadlines will ultimately result in derailing the projects, “a loss of receipt of facility bonuses from Mercedes-Benz. And a loss of $2.5 million from Toyota.” (Villegas Decl. ¶ 4.) The inability to expand its business on its desired timeline and these potential monetary losses are not irreparable harms and could be remedied by monetary damages. Similarly, Envision’s other incurred costs—including bills, gate locks, attorney fees, and property taxes—are merely monetary losses. (Sarriedine Decl. ¶¶ 11, 20, 22.)

“Case law has made it clear that mere monetary loss does not constitute irreparable harm in the context of proposed injunctive relief unless there is some showing that one against whom injunctive relief is sought is insolvent or otherwise unable to respond in damages.” (Friedman v. Friedman (1993) 20 Cal.App.4th 876, 890.) Envision has not made such a showing.

Envision also argues that it will suffer “customer frustration and loss of goodwill.” (Motion at p. 15.) The motion provides no legal authority, but the Reply contends that “[c]ourts have clearly held that monetary damages are not an adequate remedy for loss of goodwill,” citing a Ninth Circuit case and two unpublished federal district court cases. (Reply at p. 8.) This authority has only persuasive, not precedential, value. (City of Hawthorne ex rel. Wohlner v. H&C Disposal Co. (2003) 109 Cal.App.4th 1668, 1678, fn. 5.)

The underlying action in Stuhlbarg Intern. Sales Co., Inc. v. John D. Brush and Co., Inc. (9th Cir. 2001) 240 F.3d 832 (Stuhlbarg) involved a dispute over the use of a trademark. The plaintiff had begun targeting the defendant’s customers while using a similar mark. (Id. at p. 835.) After the defendant recorded its trademark with the U.S. Customs Service, Customs detained a large import of the plaintiff’s products. (Ibid.) The plaintiff sued for a declaratory judgment of non-infringement and cancellation of the defendant’s trademark, and the district court granted a preliminary injunction that prevented the defendant from hindering the plaintiff’s importation. (Id. at pp. 834-836.) The district court had found that without an injunction, the plaintiff “stood to lose its newfound customers and accompanying goodwill and revenue.” (Id. at p. 841.) The Ninth Circuit stated, ‘“Evidence of threatened loss of prospective customers or goodwill certainly supports a finding of the possibility of irreparable harm.” (Ibid.) In so stating, it cited a Second Circuit trademark licensing case where a deprivation of opportunity to expand business was considered irreparable harm. (Ibid.)

The district court in Ben Graupner v. Patrick Oakes (C.D. Cal., Aug. 17, 2020, No. LACV2007004JAKEX) 2020 WL 5441574, at p. *7 (Graupner) cited Stuhlbarg for the proposition that “evidence of reputational harm and loss of customer goodwill may demonstrate irreparable injury.” The court ultimately found that plaintiff provided no evidence of irreparable harm due to defamatory statements; the plaintiffs made only “the conclusory statement that ‘if a potential customer is interested in hiring Plaintiffs but then sees the Defamatory Websites, those potential customers are going to look for other tax professionals.’” (Ibid.) The court determined that this harm was not irreparable and could be remedied by monetary damages, noting that “[s]pecific evidence of harm to goodwill is generally required to justify a preliminary injunction.” (Ibid.)

In Tengen, Inc. v. Nintendo of America, Inc. (N.D. Cal., June 23, 1989, No. C-88-4805-FMS) 1989 WL 201201, at *2, a copyright infringement case with cross-motions for preliminary injunctions, the district court found that monetary damages were not adequate “because of the possibility of consumer and retailer confusion leading to loss of goodwill,” and it enjoined one party from distributing the video game in dispute. The district court’s order did not rely on the loss of goodwill in finding irreparable harm because “irreparable harm is presumed from a prima facie showing of [copyright] infringement.” (Ibid.)

According to Envision, the goodwill it has amassed in the area requires it to expand its Toyota and other dealerships to larger lots. (Motion at p. 15.) Because it cannot access the Property, it “cannot accept additional inventory from Toyota or provide cars to its customers” and “cannot house as many used cars or take on as many repairs as it otherwise would.” (Motion at p. 15.) Envision’s only evidence of a loss of goodwill is the assertion of its Franchise Operations Director that “if Envision cannot provide cars to customers who want them, those customers will go elsewhere.” (Villegas Decl. ¶ 12.) None of this explains a potential loss of Envision’s existing goodwill. As Defendants note (Opposition at p. 10), Envision operates its current West Covina Toyota only 0.8 miles away from the Property. (Baeza Decl. ¶ 18.)

This vastly differs from the facts in Stuhlbarg, where the plaintiff’s imported products were seized and the plaintiff was seeking a judgment of non-infringement. Here, Envision presents no evidence that it is being prevented from continuing its existing business with its existing goodwill. Instead, it has merely “outgrown its lot on East Garvey and has needed additional space to accommodate additional vehicles for some time,” and it views the Property as “an important and significant expansion opportunity.” (Villegas Decl. ¶¶ 6-7.) Like the plaintiffs in Graupner, Envision provides no specific evidence of harm to goodwill, only conclusory assumptions that customers may go elsewhere.

Accordingly, the Court finds that Envision did not meet its burden of showing that it will suffer irreparable harm in the absence of a preliminary injunction. This is enough reason for the Court to deny the motion. (See McMahon, supra, 219 Cal.App.3d at p. 295.) However, the Court will still proceed to the other considerations.

All of Envision’s causes of action arise from Defendants refusing to honor a lease assignment from Trophy to Envision and preventing Envision from accessing the Property, despite Envision paying rent. (E.g., Complaint ¶¶ 1-2, 34, 51, 58, 64, 73, 79, 87, 96-97, 100.) Accordingly, the likelihood of any party prevailing on the merits of any claim depends on a determination of the validity of the lease assignment. (See Motion at pp. 16-22; Opposition at pp. 10-14.)

According to Envision, Trophy was authorized to assign its interests in the lease without first obtaining consent from UCNP or Receiver Moldo under certain conditions. (Motion at p. 7.) Envision asserts that all of those conditions were met. (Ibid.)

Envision provides a copy of Trophy’s Lease and Addendum to the Standard Industrial/Commercial Single-Tenant Lease. (Sarriedine Decl., Ex. A.) Section 58.1 of the Addendum provides, “Notwithstanding the provision of Article 12, Lessee shall not be required to obtain Lessor’s consent for any of the following: . . . (b) a sale of substantially all of Lessee’s assets to an assignee approved by the new vehicle manufacturer approved for the Premises and a guarantor of the Lease having at least Twenty Five Million Dollars ($25,000,000) verifiable tangible net worth for this Lease. Any other release of the Lessee will be at the reasonable consent by the Lessor.”

On August 5, 2022, Envision and Trophy executed the Assignment, whereby Envision purchased all assets in Trophy’s Fixed Asset Inventory, which enumerated all of Trophy’s fixed assets. (Sarriedine Decl. ¶ 7 & Ex. C; Baeza Decl. ¶ 5.) Defendants contend that this was not “a sale of substantially all of Lessee’s assets” because it was limited to the fixed assets listed in the inventory. (Opposition at pp. 11-12.)

Defendants provide evidence of additional Trophy assets that were not part of the Assignment and sale to Envision. On August 20, 2022, Leonard Schrage observed a box truck on the Property loading multiple cardboard boxes into its cargo hold, and he was informed that Trophy was clearing the Property of movable assets, which were being transferred to other related dealerships. (Schrage Decl. ¶ 17.) Schrage took pictures of numerous expensive items of machinery and other property, including tools and inventory, that were being transferred to Trophy’s Universal City Nissan dealership and Vehicle Processing Center. (Schrage Decl. ¶¶ 17-18 & Ex. 18.) Additionally, at Defendants’ request, Trophy’s counsel later provided Defendants’ counsel with a list of assets sold to Envision. (Bubman Decl. ¶ 5.) This list does not match the Fixed Asset Inventory. (Opposition at p. 13; Bubman Decl. ¶ 7 & Exs. 13-14.)

Therefore, whether the Assignment included “a sale of substantially all of Lessee’s assets,” as required by Addendum Section 58.1, is reasonably in dispute.

If the assignment was not a valid one under Addendum Section 58.1, then any assignment is subject to the Lease’s Section 12. (See Sarriedine Decl., Ex. A.) Under Section 12.2(b), “Lessor may accept Rent or performance of Lessee’s obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor’s right to exercise its remedies for Lessee’s Default or Breach.” Accordingly, if the assignment was not valid under Section 58.1, then Defendants’ acceptance of rent from Envision is not clearly wrongful.

In sum, Envision has not met its burden of showing that it is likely to prevail on the merits of its claims.

As discussed previously, Envision has not shown that it will suffer irreparable harm or anything other than monetary damages in the absence of an injunction.

If the preliminary injunction issues, Envision will be able to go forward with its anticipated “soft demolition of structures on the Property.” (Baeza Decl. ¶ 20.) However, the Property is part of the Receivership Estate in Case No. BC579623. (Moldo Decl. ¶ 3.) Moldo, as Receiver, is attempting to sell the Property. (See Moldo Decl. ¶¶ 16, 19-21.) Envision’s possession of the property before a final determination of rights would therefore interfere with Moldo’s rights. The balance of harms therefore favors Defendants.

When either one of the interrelated factors (likelihood of prevailing and the balance of harms) does not favor the movant, the preliminary injunction should not be issued. (American Academy of Pediatrics v. Van de Kamp (1989) 214 Cal.App.3d 831, 837-838.) Here, no factor favors the movant. The Court finds that Envision has not shown that it will suffer irreparable harm in the absence of its mandatory injunction. Additionally, Envision has not shown a likelihood of prevailing on the merits or that the harm it would suffer without an injunction will outweigh Defendants’ harm if an injunction issued.

Parties who intend to submit on this tentative must send an email to the Court at SMCDEPT48@lacourt.org indicating intention to submit. Parties intending to appear are encouraged to appear remotely and should be prepared to comply with Dept. 48’s new requirement that those attending court in person wear a surgical or N95 or KN95 mask.

Hon. Thomas D. Long

Judge of the Superior Court