Opinion
F081728
05-31-2022
JOSEPH M. ALCALA, Plaintiff and Respondent, v. CARLOS ALCALA, Individually and as Trustee, etc. et al., Defendants and Appellants.
Georgeson Law Offices, C. Russell Georgeson and Robert J. Willis for Defendants and Appellants. Dias Law Firm, Inc., Sarah M. Hacker and Paula C. Clark for Plaintiff and Respondent.
NOT TO BE PUBLISHED
Appeal from an order of the Superior Court of Kings County. No. 19C0435 Valerie R. Chrissakis, Judge.
Georgeson Law Offices, C. Russell Georgeson and Robert J. Willis for Defendants and Appellants.
Dias Law Firm, Inc., Sarah M. Hacker and Paula C. Clark for Plaintiff and Respondent.
OPINION
LEVY, ACTING P. J.
INTRODUCTION
Plaintiff Joseph M. Alcala (Joseph) along with his father, defendant Ralph Alcala (Father), and his brothers, defendants Carlos Alcala (Carlos), Adolph Alcala, and Ralph Alcala, Jr. (collectively, Brothers), were the co-owners of defendant Alcala Farms, a general partnership (Partnership), and defendant Alcala Ranches, LLC (LLC). (Partnership and LLC are collectively referred to as the Family Business. Father, Brothers, and the Family Business are collectively referred to as Defendants Alcala.)
We refer to plaintiff and the individual brothers by their first names since they share the same surname. No disrespect is intended.
In 2018, Joseph, on the one hand, and Brothers and the Family Business, on the other hand, signed an agreement (Buyout Agreement) for the sale and purchase of Joseph's ownership interests in the Family Business. The Buyout Agreement provided that the majority of funds used to make the purchase would be held in a reserve account (Reserve Account) and used to indemnify Defendants Alcala against, among other things, costs incurred and damages awarded, if any, in a separate civil action for wrongful death asserted by a third party against Joseph and the Family Business.
In 2019, Joseph initiated this lawsuit seeking rescission of the Buyout Agreement, damages, and additional relief. Concerned by Brothers' control over the Reserve Account and their alleged refusal to provide him with information regarding it, Joseph sought and obtained a preliminary injunction which, among other things, prohibits any party from withdrawing funds from the Reserve Account absent trial court approval and requires Defendants Alcala to provide him with Reserve Account bank statements and related bank correspondence.
Defendants Alcala appeal the order granting the preliminary injunction. They contend the trial court erred because (1) the scope of the preliminary injunction exceeds the scope of relief available to Joseph should he prevail on the merits; (2) the court failed to make findings regarding the relative harm the parties will experience if the preliminary injunction is granted or denied, and the evidence is insufficient to support Joseph's claim of interim harm; (3) the court failed to apply the correct standard in evaluating the likelihood Joseph would prevail on the merits, and based its related findings on fear and speculation instead of evidence; and (4) the bond amount was unconscionably low. We affirm the order.
FACTUAL AND PROCEDURAL BACKGROUND
I. Undisputed Facts.
Prior to consummation of the Buyout Agreement, Joseph was a 20 percent owner of the Family Business. Father and Brothers, in their individual and/or trustee capacities, owned the remaining ownership interests.
In or about January 2016, Joseph was arrested and later indicted for the murder of Deborah Lynn Jessup (Pen. Code, § 187, subd. (a)) in People v. Joe Mario Alcala, Kings County Superior Court, case No. 16CM0206 (the Criminal Matter). Joseph is incarcerated and awaiting trial on the Criminal Matter.
In January of 2017, Jessup's husband filed a wrongful death action (Wrongful Death Action) against Joseph and the Family Business alleging they are liable for Jessup's death. The Family Business cross-complained against Joseph for equitable indemnity, contribution, and declaratory relief. On May 8, 2017, the Kings County Superior Court, on Joseph's motion, issued an order staying the Wrongful Death Action due to pendency of the Criminal Matter.
On September 27, 2018, Joseph and Brothers signed the Buyout Agreement which recites that Joseph "has been unable, and remains unable, to perform any of his duties as a general partner of the Partnership" and that Brothers opted to purchase Joseph's Partnership interest pursuant to sections 17 C. and 18 C. of the parties' SECOND AMENDED AND RESTATED PARTNERSHIP AGREEMENT dated as of May 2013 (Partnership Agreement). The Buyout Agreement purports to establish terms upon which Joseph agreed to sell his interest in the Family Business effective November 30, 2017.
Among other things, section 17 C. of the Partnership Agreement provides that, in the event a partner "is unable to substantially perform his duties … and to devote his time and attention to the Partnership business for a period of twelve (12) consecutive months" he "shall be deemed disabled" and the remaining partners "shall have the option" to purchase his partnership interest. Section 18 C. of the Partnership Agreement provides the manner by which the remaining partners are to provide notice to the disabled partner of their exercise of the option to purchase his interest. Section 17 C. of the Partnership Agreement also provides that the purchase price for the buyout of a disabled partner will be determined according to section 19 of the Partnership Agreement. Among other things, section 19 provides that if the parties are unable to agree on a purchase price, then the disabled (i.e., selling) partner and the group of remaining (i.e., purchasing) partners will each choose an appraiser to value the assets of the Partnership (other than cash and receivables). Those two appraisers will, in turn, choose a third appraiser to also value the same Partnership assets.
The Buyout Agreement set the purchase price for Joseph's Partnership interests at $3,743,740 payable in 20 installments (Buyout Funds). The first installment, in the amount of $250,000, was scheduled to be paid on October 1, 2018. The second and remaining installments were evidenced by a promissory note (Promissory Note). The second installment, likewise in the amount of $250,000, was scheduled to be paid on February 15, 2019. The third and remaining installments, in the amount of $244,407.73 each, were scheduled to occur annually commencing August 15, 2020. The Promissory Note states it "is subject to the rights and obligations of the parties under Paragraph 6 of the [Buyout Agreement]."
The Buyout Agreement also provides for the sale of Joseph's LLC membership interests for 20 percent of "the then current balance of the checking account for the [LLC] on September 30, 2018."
Subparagraph 6.1 of the Buyout Agreement acknowledges the Wrongful Death Action and the potential liability it created for the Family Business. It provides that Joseph agrees to indemnify, defend, and hold Defendants Alcala harmless in connection with the Wrongful Death Action and other contingent liabilities (collectively, "Contingent Liabilities"). Subparagraph 6.2 of the Buyout Agreement provides:
"Pending a final determination of the Contingent Liabilities, and [Joseph's] defense and indemnity obligations under Paragraph 6.1 above, [Brothers] and the Partnership shall make each payment [under the Promissory Note] commencing with the third installment payment payable on August 15, 2020, as such payment may become due, into a separate [R]eserve [A]ccount specifically for purposes of holding the payments until the Contingent [L]iabilities are finally resolved and [Joseph's] defense and indemnity obligations under Paragraph 6.1 with respect to such Contingent Liabilities are satisfied."
Joseph's attorney, Kevin Little, delivered the Buyout Agreement, Promissory Note and related transactional documents (collectively, the Buyout Documents), signed by Joseph, to counsel for Defendants Alcala (Defense Counsel). In addition, Little provided Defense Counsel with instructions, signed by Joseph, directing that all payments of Buyout Funds be delivered, and made payable, to Little in trust for Joseph.
On October 1, 2018, Defense Counsel sent Little the Buyout Documents executed where necessary by Brothers and the Family Business along with payment of the first installment of $250,000.
On December 27, 2018, Little wrote Defense Counsel and advised that Joseph was "threatening to try to rescind the [Buyout Agreement], because he believes that we had promised him that the [Buyout Agreement] itself would declare him disabled. This is the primary, but not the sole reason for his present position." Defense Counsel responded on January 14, 2019, indicating reasons he believed Joseph's threats were without merit. On February 1, 2019, Defense Counsel sent Little the second installment of $250,000.
On December 31, 2019, Joseph filed the present lawsuit against Defendants Alcala, Little, Defense Counsel's law firm, and several Defense Counsel attorneys. On February 20, 2020, Joseph filed an unverified, first amended complaint (FAC), the operative complaint for purposes of this appeal. It sets forth causes of action for rescission; illegal and unfair business practices (Bus. & Prof. Code, § 17200 et seq.); breach of fiduciary duty; intentional misrepresentation; promissory fraud; unjust enrichment; constructive trust; injunctive relief; and declaratory relief.
Defense Counsel defendants included Chielpegian Cobb, formerly Chielpegian Law Offices; Chielpegian Cobb LLP; and attorneys Michael Chielpegian, Mark Chielpegian, and Lee Cobb.
Defendants Alcala are named defendants under all causes of action except the promissory fraud cause of action.
On July 22, 2020, Joseph filed a motion for a preliminary injunction to obtain an order prohibiting Defendants Alcala from depositing Buyout Funds into "an unknown reserve account" and requiring that the 2020 annual installment (due August 15, 2020) be deposited into "a blocked account" with an FDIC insured banking institution. That same day, July 22, 2020, Defendants Alcala opened the Reserve Account and deposited the August 15, 2020, installment in the amount of $244,407.73 into it. At the August 13, 2020, hearing on the motion, Defendants Alcala notified Joseph and the trial court of the deposit and provided them with information concerning the Reserve Account number and the banking institution in which it was held.
On August 18, 2020, the trial court granted, in part, Joseph's motion. In its order, the court found "some possibility that [Joseph] may ultimately prevail on the merits of one or more of his claims" and Defendants Alcala "have clearly asserted and demonstrated on multiple occasions their unwillingness to voluntarily share information about the Partnership with [Joseph], including the … Reserve Account." The court ordered, among other things, that (1) funds in the Reserve Account "shall not be withdrawn by any party to this litigation, their attorney of record, and/or any third party, without order of the court"; (2) all future installment payments of Buyout Funds made by Defendants Alcala shall be deposited in the Reserve Account subject to the previously stated limitation on withdrawals; and (3) until such time as the present litigation and the Wrongful Death Action are resolved, Defendants Alcala shall provide Joseph with bank statements and correspondence received from the bank concerning the Reserve Account. The court set the required undertaking at $2,000, finding Defendants Alcala presented inadequate evidence to support a greater bond sum.
In its order, the trial court granted the parties' respective requests for judicial notice and ruled on the parties' respective evidentiary objections. The parties do not challenge the court's evidentiary rulings.
On September 10, 2020, Defendants Alcala timely appealed the preliminary injunction order.
II. Additional Evidence Submitted in Support of the Preliminary Injunction Motion.
The following additional information was provided by Joseph in support of his motion for a preliminary injunction.
A. Joseph's Declarations.
In or around April 2017, Defendants Alcala notified Joseph they were exercising their option to purchase his interest in the Family Business on grounds he was "disabled" as defined in the Partnership Agreement.
From approximately September of 2017 until March 9, 2018, Little represented Joseph in negotiating terms of the buyout. During this time, and for a period of time thereafter, Little also represented Joseph in the Criminal Matter. On March 9, 2018, Joseph discharged Little from representing him in the buyout negotiations. From then until September 27, 2018, Little never discussed the Buyout Agreement or buyout terms with Joseph and never provided him with related documents or information.
At some point in time (presumably while Joseph was unrepresented in the buyout negotiations), Defense Counsel sent Joseph a copy of the "CALCULATION REPORT OF THE FAIR MARKET VALUE OF A TWENTY PERCENT (20.0%) PARTNERSHIP INTEREST IN ALCALA FARMS, a CALIFORNIA GENERAL PARTNERSHIP AS OF NOVEMBER 30, 2017" (Calculation Report) prepared by Martin Garcia, C.P.A. (C.P.A. Garcia). The Calculation Report was used to establish the purchase price for Joseph's interest in the Partnership.
In preparing the Calculation Report, C.P.A. Garcia used an appraisal performed by Randy Wagenleitner to establish the value of the Partnership's machinery and equipment and an appraisal performed by Timothy J. Simon, MAI, of Simon and Hower, Inc. to establish the value of real property owned by the Partnership.
Little continued to represent Joseph in the Criminal Matter. During the spring and summer of 2018, Joseph was unable to pay Little for his services. Little began to pressure Joseph to resolve his business affairs so that Little could get paid. Although Joseph did not re-retain Little to represent him in connection with the buyout, he authorized Little to convey an offer to sell his interest in the Family Business to Defendants Alcala. He did not authorize Little to further negotiate buyout terms on his behalf.
On September 27, 2018, Little visited Joseph in prison and presented him with an unexecuted copy of the Buyout Agreement. The visit was unplanned, late in the day, and problematic for Joseph. Joseph, who had not had a chance to use the restroom, was transferred to an attorney conference room. He was uncomfortable because he was shackled and needed to relieve himself. He was unable to request that a guard return him to his cell and had to wait for Little to "press a button that would notify the guards to come."
Joseph told Little he could not review the Buyout Agreement at that time. Little responded that he had hired a notary to come to the jail and that "now was the time to sign" the Buyout Agreement. However, Little promised Joseph that "if [he] signed the [Buyout Agreement] at that time, Little would hold [it] until he received [Joseph's] approval. Due to [his] discomfort and Little's pressure and knowing that [he] may not get a deputy to transport [him] back to the restroom in time, [Joseph] signed the [Buyout Agreement]" and payment instructions directing that all Buyout Funds be paid to Little in trust for Joseph.
In his FAC, Joseph alleges Little sent the signed Buyout Documents to Defense Counsel without Joseph's subsequent approval.
Joseph states that "at the time [he] signed the [Buyout Agreement]" and related documents, "[he] relied upon [his] family that the valuation numbers were accurate. [He] relied upon them because they are [his] family and because [he is] incarcerated and [has] no ability to conduct an independent investigation."
B. Declarations from Joseph's Counsel.
The declaration of Joseph's counsel, Sarah M. Hacker, authenticated the following correspondence between Defense Counsel and Joseph's counsel:
On September 19, 2019, Joseph's counsel wrote Defense Counsel and made the following request for information concerning the Reserve Account: "First and foremost, were there any discussions between the partnership and [Joseph] regarding the contingency reserve before the [Buyout Agreement] was signed? Were those discussions memorialized in another writing? Was [Joseph] informed how and where his payments were to be held? What banking or financial institution is the [Reserve Account] with? Whose name is on the account? Who has access to this account? If you haven't already, when did you intend to disclose to [Joseph] the specifics of this [Reserve Account]?" In addition, the letter requested "bank statements or a statement of all deposits and withdrawals for [Joseph's] Individual Capital Account … between January 2016 through November 31, 2017."
On September 24, 2019, Defense Counsel responded to the September 19, 2019, letter, in relevant part, as follows:
"Your letter represents the fourth time in roughly the past two months that you have made a demand for information and/or documentation related to the partnership. These demands continue despite the fact that [Joseph] waived and released any and all rights, claims and obligations related to his interest in the partnership. (See [Buyout Agreement], ¶¶ 14 and 15.) Thus, pursuant to the express terms and provisions of the [Buyout Agreement], [Joseph] has no right to the information and documentation requested in your letter. At this juncture, the partnership is not going to waste any more time or money responding to frivolous and belated requests for information and/or documentation.
"To the extent that you are having difficulty understanding the express terms and provisions of the [Buyout Agreement] and/or the circumstances surrounding [Joseph's] execution of the [Buyout Agreement], as set forth in your letter or otherwise, your questions are more appropriately directed to [Joseph] and his former counsel, [Little]."
The declaration of Joseph's counsel, Paula C. Clark, provides the following information:
On July 10, 2020, Joseph's counsel, wrote Defense Counsel to advise that Joseph no longer wanted Buyout Funds to be paid to Little and, instead, wanted future payments of Buyout Funds to be paid to Joseph's new criminal defense attorney, Marianne Gilbert in trust for Joseph. A signed instruction to that effect was included with the correspondence..
Defense Counsel responded to Joseph's counsel, in writing on July 13, 2020. He acknowledged receipt of her July 10, 2020, letter, and new written instructions regarding future payments of Buyout Funds. He then stated, "however, any and all payments shall be subject to and made in accordance with the express terms and provisions of the [Buyout Agreement] and the Promissory Note including, without limitation, Paragraph 6 of the [Buyout Agreement]."
On July 14, 2020, Joseph's counsel, wrote again to Defense counsel contending Defense Counsel's letter of July 13, 2020, was not responsive to Joseph's new payment instruction and asking, "Are your clients going to follow the Instruction or not?" The letter concluded, as follows: "Confirm whether or not your clients will follow the Instruction you received on Friday, July 10, 2020. A simple yes or no will suffice."
Upon receipt of Joseph's counsel's letter of July 14, 2020, Defense Counsel responded the same day and took issue with the characterization that his prior communication was nonresponsive. He largely reiterated the position set forth in his letter of July 13, 2020, and stated with regard to various statements and arguments made by Joseph's counsel, "it is sufficient to state that your positions are nonsensical, lack any merit and do not warrant further response."
Joseph filed his motion for a preliminary injunction eight days later on July 22, 2020.
DISCUSSION
I. Standard of Review.
"Generally, a superior court's ruling on an application for a preliminary injunction is reviewed for an abuse of discretion. [Citation.] … Appellate courts typically state that an abuse of discretion occurs when the lower court exceeds the bounds of reason or contravenes the uncontradicted evidence." (Smith v. Adventist Health System/West (2010) 182 Cal.App.4th 729, 738-739 (Smith).)
"Notwithstanding the applicability of the abuse of discretion standard of review, the specific determinations underlying the [trial] court's decision are subject to appellate scrutiny under the standard of review appropriate to that type of determination. [Citation.] For instance, the [trial] court's express and implied findings of fact are accepted by appellate courts if supported by substantial evidence, and the [trial] court's conclusions on issues of pure law are subject to independent review." (Smith, supra, 182 Cal.App.4th at p. 739.)
Where mixed questions of law and fact are presented, a trial court's factual determinations remain subject to review for substantial evidence and questions of pure law remain subject to de novo review. (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 800.) However, our review of mixed questions of law and fact requires additional considerations." '" 'If application of the rule of law to the facts requires an inquiry that is "essentially factual," [citation]-one that is founded "on the application of the fact-finding tribunal's experience with the mainsprings of human conduct," [citation]-the concerns of judicial administration will favor the [trial] court, and the [trial] court's determination should be classified as one of fact reviewable under the clearly erroneous standard. If, on the other hand, the question requires us to consider legal concepts in the mix of fact and law and to exercise judgment about the values that animate legal principles, then the concerns of judicial administration will favor the appellate court, and the question should be classified as one of law and reviewed de novo.'" '" (Id. at pp. 800-801.)
" 'Whether the trial court granted or denied a preliminary injunction, the appellate court does not resolve conflicts in the evidence, reweigh the evidence, or assess the credibility of witnesses.… Thus, even when presented by declaration, "if the evidence on the application is in conflict, we must interpret the facts in the light most favorable to the prevailing party and indulge in all reasonable inferences in support of the trial court's order." '" (Oiye v. Fox (2012) 211 Cal.App.4th 1036, 1049 (Oiye).) "Of course, '[t]he scope of available preliminary relief is necessarily limited by the scope of the relief likely to be obtained at trial on the merits.'" (Butt v. State of California (1992) 4 Cal.4th 668, 678.)
Defendants Alcala bear the burden of demonstrating the trial court abused its discretion in granting the preliminary injunction. (Smith, supra, 182 Cal.App.4th at p. 739.)
II. The Scope of the Preliminary Injunction.
Defendants Alcala contend the trial court erred by granting injunctive relief that exceeds the scope of relief sought by Joseph in the FAC, or that is likely to be obtained by him at trial should he prevail. We disagree.
The scope of preliminary injunction is limited to (1) prohibiting any party from withdrawing funds from the Reserve Account without prior trial court approval; (2) requiring "all payments made by [Defendants Alcala] to [Joseph] in accord with Paragraph 6.2 of the [Buyout Agreement] shall be deposited into the [Reserve Account] .…"; (3) directing Defendants Alcala to provide Joseph with bank statements and bank correspondence concerning the Reserve Account; (4) requiring 15 days' notice for requests to withdraw funds from the Reserve Account; (5) requiring Joseph to file an undertaking of $2,000; and (6) requiring a copy of the preliminary injunction order be served on Citibank, where the Reserve Account was established. The trial court's order expressly states it does not "guarantee that any party will be granted leave to withdraw funds [from the Reserve Account] for any reason."
A. The Scope of the Preliminary Injunction is Consistent With the Scope of Relief Sought in the FAC.
In arguing the scope of the preliminary injunction is excessive, Defendants Alcala contend Joseph only placed four causes of action at issue-"the first cause of action for rescission, the second cause of action for illegal and unfair practices, the third cause of action for breach of fiduciary duty, and the fourth cause of action for intentional misrepresentation." By focusing solely on these "causes of action," Defendants Alcala fail to address several specific remedies sought by Joseph, namely (1) "injunctive relief preventing [Defendants Alcala] or [Defense Counsel] from deducting or charging any funds from the Reserve [Account and] requiring them to hold sums to be paid for [Joseph's] Partnership Interest," (2) a judicial declaration that Joseph is entitled to information about the Reserve Account (i.e., where the deposits will be made, the banking or financial institution where the Reserve Account is held, and the identity of the account holder and those with access to the account); and (3) imposition of a constructive trust with the Alcala Defendants serving as "involuntary trustees for the benefit of [Joseph] concerning [Joseph's] Interest" in the Family Business. Although these remedies are pled as additional causes of action, they are all premised on the same allegations of wrongdoing underlying Joseph's plea for rescission and separate causes of action for illegal and unfair business practices, breach of fiduciary duty, and intentional misrepresentation. We conclude the scope of the preliminary injunction is consistent with the scope of the remedies sought in the FAC.
B. Injunctive Relief Is Available Under Code of Civil Procedure Section 526.
Subdivision (a) of section 526 of the Code of Civil Procedure authorizes a court to grant injunctive relief in several circumstances relevant here. For example, such relief is available "[w]hen 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." (Id. at subd. (a)(1).) As we discuss in a separate section of this opinion, it appears Joseph is entitled to the injunctive relief ordered by the trial court given his present interest in the Buyout Funds, Defendants Alcala's unilateral control over those funds, and their refusal to provide Joseph with Reserve Account information.
Injunctive relief is also available "[w]here the restraint is necessary to prevent a multiplicity of judicial proceedings." (Code Civ. Proc., § 526, subd. (a)(6).) Because Defendants Alcala's payment obligations under the Promissory Note recur annually, their alleged refusal to provide Joseph with information concerning the Reserve Account and their otherwise unfettered control over the Buyout Funds make it likely additional litigation will occur absent injunctive relief.
In addition, injunctive relief is also authorized "[w]here the obligation arises from a trust" (Code Civ. Proc., § 526, subd. (a)(7)) and also in situations where a party "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." (Id., subd. (a)(3).) Here, subparagraph 6.2 of the Buyout Agreement provides that "[p]ending a final determination of the Contingent Liabilities" Buyout Funds deposited in the Reserve Account are to be held "until the Contingent [L]iabilities are finally resolved." If Defendants Alcala were permitted to withdraw Buyout Funds from the Reserve Account while their interest in those funds remained contingent, such an action would be in violation of Joseph's existing interest in those funds and would tend to render a judgment in favor of Joseph (including, but not limited to, any constructive trust that might be imposed over those funds) ineffectual.
Although we understand Defendants Alcala's contention that the preliminary injunction is inherently inconsistent with Joseph's plea to rescind the Buyout Agreement (see Sharabianlou v. Karp (2010) 181 Cal.App.4th 1133, 1145 ["rescission is a remedy that disaffirms the contract"]), we need not decide that issue. The propriety of the trial court's order granting the preliminary injunction does not depend on Joseph's plea for rescission and may, instead, rest on his claim for breach of fiduciary duty which does not require rescission of the Buyout Agreement. Under the breach of fiduciary duty cause of action, Joseph requests both a determination the Buyout Agreement is "voidable" and damages. A contract that is deemed voidable may be affirmed or rescinded at the election of the aggrieved party. (BGJ Associates v. Wilson (2003) 113 Cal.App.4th 1217, 1229.)
III. Analysis of Factors Relevant to the Imposition of the Preliminary Injunction.
" 'Ordinarily an appeal from the granting of a preliminary injunction involves a very limited review of the [superior court's] exercise of discretion concerning two factors: (1) the likelihood that plaintiffs will ultimately prevail and (2) the interim harm plaintiffs will sustain if the preliminary injunction is denied compared to the interim harm defendant will suffer if the injunction is granted pending a final determination of the merits.'" (People ex rel. Gallo v. Acuna (1997) 14 Cal.4th 1090, 1136.) "These two showings operate on a sliding scale: '[T]he more likely it is that [the party seeking the injunction] will ultimately prevail, the less severe must be the harm that they allege will occur if the injunction does not issue.'" (Integrated Dynamic Solutions, Inc. v. VitaVet Labs, Inc. (2016) 6 Cal.App.5th 1178, 1183.)
A. Likelihood of Joseph Prevailing on the Merits.
1. The Trial Court's Use of the Phrase "Some Possibility" To Describe the Likelihood Joseph May Prevail Is Not a Ground for Reversal.
In its preliminary injunction order, the trial court found "some possibility that [Joseph] may ultimately prevail on the merits of one or more of his claims." Defendants Alcala contend the court's use of the phrase "some possibility" indicates the court erred by departing from established legal guidelines used to determine whether to grant a preliminary injunction. We disagree.
The trial court quoted our state Supreme Court when it wrote, "A trial court may not grant a preliminary injunction, regardless of the balance of interim harm, unless there is some possibility that the plaintiff would ultimately prevail on the merits of the claim," citing Butt v. State of California, supra, 4 Cal.4th at page 678. When read in context, the Supreme Court's statement merely acknowledges that both sliding-scale factors (i.e., likelihood of prevailing on the merits and the parties' relative harm) are necessary to the issuance of a preliminary injunction. As explained by one court, "[a]n injunction should not issue where there is no possibility of success even though its issuance might prevent irreparable harm; there is no justification in delaying that harm where, although irreparable, it is also inevitable." (Choice-in-Education League v. Los Angeles Unified School Dist. (1993) 17 Cal.App.4th 415, 422; Jessen v. Keystone Savings & Loan Assn. (1983) 142 Cal.App.3d 454, 459.)
Defendants Alcala contend that the trial court's use of the phrase" 'some possibility' is unfortunate, because it suggests that as little as a 1% probability of prevailing can qualify as a sufficient showing for the 'prevail on the merits' factor." They further contend "such a reading does not comport with the body of law on preliminary injunctions which makes clear that a preliminary injunction is an extraordinary use of judicial power that should only issue under circumstances that warrant an immediate response to prevent irreparable harm," that it should be "exercised with great caution," and that the court's order "contradicts case law plainly indicating that a 'reasonable probability' must be shown to support a finding that a plaintiff will prevail on the merits."
While we do not decide that a plaintiff must demonstrate a particular percentage of likely success on the merits in order to obtain injunctive relief pendente lite, we do agree that such relief is an extraordinary use of judicial power to be exercised with caution, and that, generally speaking, a plaintiff must show a reasonable probability of prevailing on the merits. (West v. Lind (1960) 186 Cal.App.2d 563, 565; San Francisco Newspaper Printing Co. v. Superior Court (1985) 170 Cal.App.3d 438, 442.) We disagree, however, that the court's use of this phrase "some possibility" suggests the court strayed from these principles in issuing the preliminary injunction. The phrase, while imprecise, is sufficiently broad to include a reasonable probability of success on the merits. In any event, "we review the correctness of the trial court's ruling, not its reasoning." (Oiye v. Fox, supra, 211 Cal.App.4th at p. 1049.) The court's use of the phrase "some possibility" will not affect that inquiry.
2. Joseph's Allegations of Breach of Fiduciary Duty.
As mentioned, our review focuses on Joseph's claim for breach of fiduciary duty." 'The elements of a cause of action for breach of fiduciary duty are: (1) existence of a fiduciary duty; (2) breach of the fiduciary duty; and (3) damage proximately caused by the breach.'" (Gutierrez v. Girardi (2011) 194 Cal.App.4th 925, 932.)
We accept both express and implied findings necessary to support the preliminary injunction order if supported by substantial evidence. (Smith, supra, 182 Cal.App.4th at p. 739.) Substantial evidence is evidence that is "reasonable, credible and of solid value." (Chase v. Wizmann (2021) 71 Cal.App.5th 244, 257.) It may be established by the testimony of a single witness. (Ibid.) "[A]bsent an express credibility finding, we must infer the trial court resolved questions of credibility in a manner that supports its findings and order." (Ibid.)
Joseph alleged in the FAC that Defendants Alcala, as partners in the Partnership, "were in a fiduciary relationship" with him, "had a duty to act in the highest good faith" towards him, and could not rightfully "obtain any advantage [over him] by misrepresentation or concealment." Joseph alleged Defendants Alcala breached their fiduciary duties toward him by (1) misrepresenting the value of his interest in the Partnership through the underreporting revenue and inflating expenses for 2016 and 2017; (2) failing to disclose information concerning the Reserve Account (e.g., where deposits will be made, and the identities of the banking institution, the account holder, and those with access to the account); (3) failing to provide him with Partnership insurance information; and (4) failing to provide him with a 2018 Schedule K-1 tax form. Joseph alleged, as a result, that he was damaged because he sold his interest in the Family Business for less than it is worth, that he will be further damaged if and when Defendants Alcala deposit his annual payment in the Reserve Account, and that he has been unable to file a claim under the Partnership's insurance policy.
3. Substantial Evidence of Fiduciary Relationship and Related Duties.
There is substantial evidence of the existence of a fiduciary relationship between Joseph and Defendants Alcala. Father and Brothers concede they were in a partnership relationship with Joseph and there is ample, uncontroverted evidence of the same. The California Supreme Court has "often stated that '[p]artners are trustees for each other, and in all proceedings connected with the conduct of the partnership every partner is bound to act in the highest good faith to his copartner and may not obtain any advantage over him in the partnership affairs by the slightest misrepresentation, concealment, threat or adverse pressure of any kind.'" (Page v. H.B. Page (1961) 55 Cal.2d 192, 197.)
Of particular relevance to our inquiry is the allegation that Defendants Alcala breached their fiduciary duty to Joseph by withholding information from him concerning the Reserve Account. Partners are "under a legal duty to disclose [to other partners] matters affecting their business relationship." (Berg v. King-Cola, Inc. (1964) 227 Cal.App.2d 338, 341.) The right to such information includes the right of a partner to obtain "[w]ithout demand, any information concerning the partnership's business and affairs reasonably required for the proper exercise of the partner's rights and duties under the partnership agreement .…" (Corp. Code, § 16403, subd. (c)(1).) Notably, "[a] partner's fiduciary duty extends to the dissolution and liquidation of partnership affairs, as well as to the sale by one partner to another of an interest in the partnership." (Everest Investors 8 v. McNeil Partners (2003) 114 Cal.App.4th 411, 424.)
To the extent a mixed question of law and fact is presented as to whether Defendants Alcala, under the circumstances of this case, had a fiduciary duty to provide Joseph with information concerning the Reserve Account, we believe factual issues predominate the inquiry. The trial court's resolution of this question is viewed as a factual determination subject to a clearly erroneous standard. (See Ghirardo v. Antonioli, supra, 8 Cal.4th at pp. 800-801.) Undoubtedly, a fiduciary relationship exists between the parties. And, as mentioned, the fiduciary duties of partners extend to the sale of partnership interests from one partner to another. Given Defendants Alcala's complete control over the Reserve Account and Joseph's inability (arguably complicated by his incarceration) to obtain information concerning the Reserve Account absent cooperation from Defendants Alcala, a determination that Defendants Alcala owe Joseph a fiduciary duty to provide him with information concerning the Reserve Account is not clearly erroneous. Moreover, even if resolution of this mixed question of law and fact were more properly viewed as reviewable under a de novo standard (see ibid.), we would nevertheless conclude Defendants Alcala owe Joseph a duty to provide him with information concerning the Reserve Account based on those same considerations.
4. Substantial Evidence Supports a Finding That Joseph Has a "Reasonable Probability" of Prevailing On His Breach of Fiduciary Duty Claim.
Viewing the evidence in the light most favorable to Joseph, we conclude substantial evidence exists to support an implied finding that Joseph has a "reasonable probability" of prevailing on his breach of fiduciary duty claim. Defendants Alcala refused requests by Joseph's counsel for information concerning the Reserve Account. Defense Counsel responded to the requests, as follows: "[Joseph] has no right to the information and documentation requested in your letter." In making that statement, Defense Counsel relied on paragraphs 14 and 15 of the Buyout Agreement which contain a general release of past and present claims and a related waiver of unknown claims. We are unconvinced that the release and waiver should be read so broadly as to deny Joseph's subsequent requests for information concerning the Reserve Account and there is no evidence in the record before us to suggest that is what the parties intended by those provisions.
Defendants Alcala note that, at the time the request for information concerning the Reserve Account was made, the account had not yet been established and, therefore, Defense Counsel was unable to provide the information to Joseph's counsel. That fact, however, does not change the tenor or import of Defense Counsel's refusal to provide the information. There is no evidence in the record on appeal that Defense Counsel advised Joseph's counsel that the information did not yet exist or that the information would be forthcoming at a later date. On this limited record, the trial court could reasonably infer the refusal applied prospectively to any requests that might be made after the Reserve Account was established.
Defendants Alcala contend the trial court "allowed fears about the future to infect its decision." In support of this contention, they note that Joseph argued the following in his brief in support of his motion for a preliminary injunction: "Absent intervention from this Court, it is unknown what [Defendants Alcala] will do with the Partnership Payment. If the Partnership Payment is deposited into the Reserve Account, it could be consumed forthwith by [Defendants Alcala]. Once it is gone, there will be no recourse and no accounting. Another possibility is that [Defendants Alcala] will not pay the Partnership Payment at all." Defendants Alcala contend "[t]his is nothing but hyperbole and speculation driven by ostensive fear." They quote Korean Philadelphia Presbyterian Church v. California Presbytery (2000) 77 Cal.App.4th 1069, for the following proposition: "An injunction cannot issue in a vacuum based on the proponents' fears about something that may happen in the future. It must be supported by actual evidence that there is a realistic prospect that the party enjoined intends to engage in the prohibited activity." (Id. at p. 1084.)
The evidence viewed in the light most favorable to Joseph supports a finding that Defendants Alcala negatively influenced the valuation placed on Joseph's interest in the Partnership by (1) omitting walnut crop account receivables from C.P.A. Garcia's consideration in rendering his Calculation Report; (2) suggesting to equipment appraiser Wagenleitner that he reduce his valuation of specific Partnership machinery and equipment; and (3) retaining C.P.A. Garcia to prepare the Calculation Report under a "calculation engagement" rather than a "valuation engagement." A calculation engagement "does not include all of the procedures required for a valuation engagement," requires the "valuation analyst and the client agree on the specific valuation approaches and valuation methods the valuation analyst will use," and may provide a different result than a valuation engagement. Joseph denied any involvement in the preparation of the Calculation Report. Together with the fact that Defendants Alcala refused to provide Joseph with information concerning the Reserve Account, these facts are substantial evidence in support of an inference that Buyout Funds deposited in the Reserve Account would thereafter be at risk of withdrawal, without notice to Joseph or opportunity to object.
Substantial evidence exists to demonstrate a reasonable probability Joseph will prevail on his cause of action for breach of fiduciary duty.
B. Relative Harm.
1. The Trial Court Did Not Err In Documenting Its Basis for Granting the Preliminary Injunction.
Defendants Alcala contend the trial court erred by failing to make findings regarding the relative harm that would be experienced by them upon granting the preliminary injunction versus the harm that Joseph would experience upon its denial. They argue the "failure to find any harm is sufficient ground alone to reverse the granting of the preliminary injunction," citing 14859 Moorpark Homeowners' Assn. v. VRT Corp. (1998) 63 Cal.App.4th 1396, 1403 (Moorpark) and Carsten v. City of Del Mar (1992) 8 Cal.App.4th 1642, 1649 (Carsten).) We disagree.
Neither Moorpark nor Carsten stands for the proposition that a trial court is required to make express findings in ruling on an application for a preliminary injunction. In fact, Moorpark expressly acknowledges that where the court has failed to make express findings, a court of appeal will "presume that the trial court made appropriate factual findings [citation] and review the record for substantial evidence to support the rulings." (Moorpark, supra, 63 Cal.App.4th at p. 1402; see also Smith, supra, 182 Cal.App.4th at p. 739 ["court's express and implied findings of fact are accepted by appellate courts if supported by substantial evidence" (italics added)].)
In City of Los Altos v. Barnes (1992) 3 Cal.App.4th 1193, the defendant contended the trial court erred because its "order does not indicate that it considered the hardships an injunction would impose upon [the defendant] and her business." (Id. at p. 1197.) The appellate court rejected this contention and affirmed the order. (Id. at pp. 1198, 1206.) It noted, "the fact that the [trial] court's conclusion is set forth in summary fashion does not mean the court failed to engage in the requisite analysis, or that its analysis was incorrect." (Id. at p. 1198.) Because such proceedings do not require the trial court to issue a statement of decision, the appellate court determined "there was no impropriety in the court's failure to set forth its reasoning" in the order. (Ibid.) Accordingly, we find no error in the manner in which the trial court documented its basis for granting the preliminary injunction.
2. Substantial Evidence Supports a Finding that the Equities Weigh in Joseph's Favor and In Favor of Granting the Preliminary Injunction.
In considering the relative harm parties are likely to experience upon a grant or denial of the preliminary injunction, courts consider"' "such things as the inadequacy of other remedies, the degree of irreparable harm, and the necessity of preserving the status quo." '" (Donahue Schriber Realty Group, Inc. v. Nu Creation Outreach (2014) 232 Cal.App.4th 1171, 1177.) Defendants Alcala contend each of these considerations favor reversal of the trial court's order. We disagree.
Here, there is substantial evidence Defendants Alcala would suffer little or no harm by depositing future installments of Buyout Funds into the Reserve Account as opposed to another account. The record before us does not reveal any present need for, or present right of, Defendants Alcala to access those funds. The Wrongful Death Action is presently stayed pending resolution of the Criminal Matter. So long as it is stayed, no judgment will issue in the action and any liability which might entitle Defendants Alcala to access those funds remains contingent. Moreover, under subparagraph 6.1 of the Buyout Agreement, any interim settlement of the Wrongful Death Action appears to require Joseph's approval in order to trigger his related defense and indemnity obligations. Based on this evidence, the trial court impliedly found Defendants Alcala's need and/or right to access Buyout Funds on deposit in the Reserve Account was remote and unlikely to materialize absent a substantial change in circumstances. In addition, the plain language of subparagraph 6.2 of the Buyout Agreement appears to provide that the right of Defendants Alcala to access Buyout Funds will not materialize until there is a final determination of the Contingent Liabilities.
There is no evidence in the record to suggest Joseph intended Defendants Alcala to have the unilateral right to withdraw Buyout Funds from the Reserve Account prior to a "final determination" of the Contingent Liabilities. The prohibition on any party (including Joseph) withdrawing those funds absent further order of the trial court serves to protect the Alcala Defendants' contingent interest in those funds as well as Joseph's present interest in those funds. As a result, the status quo is preserved by the preliminary injunction.
An implied finding that Joseph would suffer greater harm if the preliminary injunction were denied is also supported by substantial evidence. Defense Counsel refused to provide Joseph or his counsel with information concerning the Reserve Account, asserting Joseph had no right to the information. Although the Reserve Account had not yet been established, the trial court could reasonably infer Defense Counsel's refusal communicated an intent not to provide such information even upon establishment of the Reserve Account.
Absent information concerning the Reserve Account as well as timely information concerning any deposits and withdrawals to and from the account, Joseph would never know if Defendants Alcala complied with, or breached, their obligations under the Buyout Agreement. Damages are an inadequate remedy where a party, in the absence of preliminary injunctive relief, lacks the means of determining whether he or she has been damaged. Moreover, irreparable injury may be reasonably expected to follow in such circumstances because the right to sue may be lost over time. Without a mechanism for determining the propriety of withdrawals and challenging improper withdrawals, Joseph would have no means of protecting himself against improper withdrawals. Requiring court approval of withdrawals from the Reserve Account is a narrowly tailored means of providing such a mechanism. Joseph was not required to wait until he actually suffered such harm before seeking injunctive relief. (Oiye v. Fox, supra, 211 Cal.App.4th at p. 1059.)
Substantial evidence supports an implied finding that the equities weigh heavily in Joseph's favor and in favor of granting the preliminary injunction.
IV. Bond Amount.
Defendants Alcala contend the bond amount of $2,000 is "unconscionably low." In setting the amount of an undertaking for a preliminary injunction, "the trial court's function is to estimate the harmful effect which the injunction is likely to have on the restrained party, and to set the undertaking at that sum. [Citations.] That estimation is an exercise of the trial court's sound discretion, and will not be disturbed on appeal unless it clearly appears that the trial court abused its discretion by arriving at an estimate that is arbitrary or capricious, or is beyond the bounds of reason." (ABBA Rubber Company v. Seaquist (1991) 235 Cal.App.3d 1, 14.)
At the hearing on Joseph's motion for a preliminary injunction, Defendants Alcala argued that the bond amount "be dollar for dollar for any and all amounts that go into a blocked account plus $50,000 in estimated initial legal fees, to be increased as necessary." Defendants Alcala contend the amount of the undertaking "should have been set at no less than the amount of the payment into the … Reserve Account .…"
As previously discussed, substantial evidence exists that Defendants Alcala's interest in the Buyout Funds deposited in the Reserve Account is contingent and will remain contingent until a "final determination" of the Contingent Liabilities. A final determination of those Contingent Liabilities is unlikely to occur any time soon due to the stay of the Wrongful Death Action and the requirement that Joseph approve any interim settlement. Moreover, the trial court considered the prospect of Family Business liability in the Wrongful Death Action to be overstated. "[T]he law is clear that an employer is not strictly liable for all actions of its employees during working hours. Significantly, an employer will not be held vicariously liable for an employee's malicious or tortious conduct if the employee substantially deviates from the employment duties for personal purposes." (Farmers Ins. Group v. County of Santa Clara (1995) 11 Cal.4th 992, 1004- 1005, italics omitted.) The foregoing principle does not eliminate the potential the Family Business will be held liable in the Wrongful Death Action but does provide an obvious and potentially powerful defense to the action.
Based on the foregoing, the trial court could have reasonably concluded the potential harm to Defendants Alcala arising from imposition of the preliminary injunction is both remote and limited. We cannot say the court's determination of the bond amount was arbitrary and capricious or exceeds the bounds of reason.
DISPOSITION
The trial court's order granting the preliminary injunction is affirmed. Costs on appeal are awarded to Joseph.
WE CONCUR: POOCHIGIAN, J., SNAUFFER, J.