OSC re Preliminary Injunction
Tentative Ruling:??Plaintiff Nha Quyen Tran?s?unopposedMotion for Preliminary Injunction is DENIED.
Plaintiff has failed to sufficiently establish that the balancing of harm lies in her favor, and a likelihood of prevailing on the merits at trial.
Prevailing Party is to give notice.
(1) Plaintiff has failed to sufficiently establish that the balancing of harm lies in her favor.? Preliminarily, in the TRO, the court struck some of the requests for mandatory injunctive relief that Plaintiff is simply not entitled to.? With respect to request to prohibit Defendant from using corporate funds to pay its attorney fees, the harm lies in Defendant?s favor.? Essentially,?Defendant Corporation may only appear by way of counsel?(i.e., it cannot appear in?pro per), and as a separate legal entity, it should be able to hire and pay for an attorney to defend itself from Plaintiff?s lawsuit.? At minimum, Plaintiff has failed to establish as a matter of law that?Defendant Corporation?may not use corporate funds to represent itself in an involuntary dissolution proceeding.
With respect to the remaining requests to use only corporate funds to pay for business operating expenses only and to document those expenses with receipts, and to not be able to renegotiate or replace the lease of the caf?, this will restrict Defendant?s ability to pay off certain lenders as outlined in the Declaration of Mrs. Huynh and restrict Defendant?s ability to enter into a better lease for the caf?.
Finally, the final request for injunctive relief is to restrict Defendant from engaging in any action for the purpose of harming the business or prejudicing the rights or interest of any shareholder.? As discussed below (probability of prevailing on the merits), Plaintiff has failed to provide sufficient evidence showing that Defendant has engaged in any wrongful conduct that threatens the rights or interest of itself (corporate entity) or its shareholders.
Although Plaintiff contends Defendant?s other shareholder (Mrs. Huynh) is embezzling funds and mismanaging the company, as discussed below, Plaintiff has failed to provide sufficient evidence in support of this contention.
In sum, the balancing of harm does not lie in Plaintiff?s favor. Rather, the injunctive relief sought will unduly restrict Defendant?s right to efficiently operate its business.
(2)?Plaintiff has failed to sufficiently establish a probability of prevailing on the merits.
The facts of this case boil down to two shareholders, who are extended family members, who own a 50 percent interest in a restaurant, and are no longer getting along and are accusing each other of inappropriate conduct.? The parties submit dueling declarations wherein they allege that the?other?shareholder engaged in mismanaging the corporation and embezzling money.
Plaintiff seeks involuntary dissolution pursuant to Corporations Code section 1800, subd. (b)(2) and (b)(3).? Subdivision (b)(2) and (b)(3) provides that grounds for involuntary dissolution include:
(2) The corporation has an even number of directors who are equally divided and cannot agree as to the management of its affairs, so that its business can no longer be conducted to advantage or so that there is danger that its property and business will be impaired or lost, and the holders of the voting shares of the corporation are so divided into factions that they cannot elect a board consisting of an uneven number.
(3) There is internal dissension and two or more factions of shareholders in the corporation are so deadlocked that its business can no longer be conducted with advantage to its shareholders or the shareholders have failed at two consecutive annual meetings at which all voting power was exercised, to elect successors to directors whose terms have expired or would have expired upon election of their successors.
There is insufficient evidence showing that Mrs. Huynh (the other 50 percent interest holder) is mismanaging the corporation so that it is no longer conducting business to its advantage and/or that the internal dissension of the shareholders renders the business to no longer be able to conduct business to its advantage.? For example, there is insufficient evidence showing Mrs. Huynh is mismanaging the company, failing to pay rent and vendors, and is failing to pay the company?s employees.? Although Plaintiff points to a check transferring $11,000 of the Company?s money into a new bank account (Verified Complaint, at ? 25), there is insufficient evidence to show the Company is?notusing this money via the new bank account for business expenses and/or that Mrs. Huynh is improperly embezzling the money.
There is insufficient evidence showing that Defendant Corporation and/or Mrs. Huynh is attempting to disrupt the rental agreement between the landlord and the Corporate Defendant, and/or that the Corporate Defendant has defaulted in paying rent, its vendors, and/or employee wages.
With respect to the rental agreement, it appears from the evidence that the lease agreement from which the caf? is operating is not entered into between landlord Trico Savi Business Park and Defendant, but rather Plaintiff?s husband Kenneth Le and the landlord. (Decl. of Aileen Huynh, at ?? 34-36, 38.)? Defendant is paying Mr. Le the rent due to the landlord, but seeks to renegotiate a lease between?itself?and the landlord. (Id.)? Therefore, Defendant?s seeking of renegotiating a rental agreement?between itself?and the landlord from which its caf? is operating, rather than continuing to pay Plaintiff?s husband for rent that is then sent to the landlord, is reasonable.
Although Plaintiff points to a $651.26 check issued by Mrs. Huynh to Huy Dinh Nguyen, this check in and of itself is insufficient to establish that Mrs. Huynh has been improperly mismanaging the corporate funds and/or is embezzling money.? In addition, Plaintiff?s allegation that the Huynhs have been significantly increasing their hours spent at the restaurant, and claiming that these hours are ?excessive and unnecessary,? lacks foundation, is speculative, and is insufficient to establish that the Corporate Defendant is being mismanaged.
With respect to the attorney fees paid by the Corporate Defendant to its lawyers, Plaintiff has failed to establish as a matter of law that this is improper.? Plaintiff, indeed, is suing the Corporate Defendant and not Mrs. Huynh individually.? In addition, Plaintiff has failed to cite to any authority showing that the Corporate Defendant may not use corporate funds to pay its attorney fees in a dissolution proceeding.
In addition, in the opposition papers, Defendant contends it is allowed to buy-out Plaintiff?s shares for a fair value pursuant to Corporations Code section 2000(b) and Shareholder Agreement ?? 3.1 and 3.2. (Go v. Pacific Health Services, Inc.?(2009) 179 Cal.App.4th?522.)
Indeed, the Code contains an escape provision to avoid dissolution of the corporation where just 50 percent of the voting shares have voted for dissolution (typically, where there are two equal shareholders and one wants to dissolve the corporation). (Cal. Prac. Guide: Corprations (The Rutter Group 2017) at 8:773.)? Unless?its articlesprovide to the contrary, the corporation has a statutory right to purchase for cash, at their ?fair value,? the shares of the 50 percent shareholder who has initiated the voluntary dissolution.? Moreover, if the corporation declines to exercise this right, it may be exercised by the holders of the remaining 50 percent of the voting shares. (Corp. Code ? 2000(a); Cal. Prac. Guide: Corps. (The Rutter Group 2017) at 8:773 and 8:861.)
Here, although the Shareholder Agreement provides for disposition of share upon specified events (? 3 of the Shareholder Agreement), Defendant appears to contend that the Shareholder Agreement does not provide ?contrary provisions? of?Corporations Code section?2000.? Therefore, Defendant contends section 2000 is applicable.
Here, the articles of incorporation is attached as Exhibit 3 to the Notice of Lodging in support of the opposition papers.? There does not appear to be contrary language in the article to?Corporations Code section?2000(a), nor does there appear to be a reference to a separate written agreement between shareholders pertaining to the purchase of shares.? Therefore, Defendant has sufficiently established for the purposes of this preliminary injunction motion that Plaintiff cannot prevail on the involuntary dissolution proceeding because it is entitled to a buy-out under?Corporations Code section?2000.
Defendant also contends that ?? 3.1 and 3.2 of the Shareholder Agreement provides for an ?option to purchase? a shareholder?s share upon certain events, including:
- Termination of a shareholder?s employment with the Corporation by involuntary discharge for Cause.? For the purpose of this Section 3, ?Cause? shall be deemed to exist if: ? (ii) there is a material, uncured breach by the Shareholder of any agreement between the Shareholder and the Corporation; (iii) the Shareholder materially fails to comply with the Corporation?s written policies or rules, or the terms of his or her employment; ? (v) the Shareholder engages in gross misconduct in connection with her employment, including, but not limited to, mismanagement or misappropriation of corporate assets or willful violation of applicable law?.?
Defendant submits the Declaration of Aileen Huynh, wherein she declares Plaintiff engaged in wrongful conduct including but not limited to embezzling money, engaging in payroll skimming, and failing to invest ? of the moneys owed as a 50 percent shareholder.? Although much of the evidence submitted by way of Decl. of Huynh is objectionable based on lack of foundation and speculation, the evidence that appears to be unobjectionable is that the parties obtained a $50,000 loan from investor Ngoc Nguyen, that those funds were supposed to be used to pay back Mr. Wang (seller of the restaurant? in the amount of $45,000), that each shareholder agreed to repay Mr. Nguyen $25,000, and that Plaintiff failed to pay back Mr. Wang for the purchase price with the investment money of Mr. Nguyen. (Decl. of Huynh, at ?? 12-18.)
Therefore, the court finds Defendant has sufficiently established a purported gross misconduct by Plaintiff resulting in the triggering of a buy-out provision of the Shareholder Agreement.
In sum, the court finds Plaintiff has failed to sufficiently establish a probability of prevailing on the merits.