Travis Rosser vs. Kenneth Rueter

Motion to Appoint Receiver

Cal. Super. - 4th Dist.March 9, 2018

O O 0 3 O N W n k A W O N B N N N N N N N N N N m m e m e m p m e m e a p m e m 0 N N A L r A W N R O V N N D D R A W N R S MICHAEL B. KUSHNER (State Bar No. 196224) JONATHAN D. KENT (State Bar No. 292415) JONATHAN P. SCHMIDT (State Bar No. 293290) Kushner Carlson A Professional Law Corporation 85 Enterprise, Suite 310 Aliso Viejo, CA 92656 Telephone: (949) 421-3030 Telecopier: (949) 421-3031 Attorneys for Plaintiffs THE SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF ORANGE TRAVIS ROSSER,an individual; BLINK FIRST, LLC, a California limited liability company, derivatively on behalf of KAJABI, LLC, a California limited liability company, Plaintiffs, Vs. KENNETH RUETER,an individual; BINARY FROG, INC.a California corporation; JONATHAN CRONSTEDT, an individual; KAJABI, LLC, a California limited liability company, as a nominal defendant; and DOES 1- 20, inclusive, Defendants. Case No.: 30-2018-00978565 PLAINTIFFS’ NOTICE OF MOTION AND MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARY INJUNCTION; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT The Honorable Melissa R. McCormick, Dept. C13 Date: Time: Dept.: June 7, 2018 1:30 p.m. C13 March 9, 2018 N/A Complaint Filed: Trial Date: [Concurrently-filed with Declaration of Travis Rosser; Declaration of David Stapleton; and [Proposed] Order] TO ALL PARTIES AND TO THEIR ATTORNEYS OF RECORD: PLEASE TAKE NOTICEthat, on the above-captioned date and time or as soon thereafter as the matter can be heard, in Department C13 of the above-entitled court located at 700 Civic Center Drive West, Santa Ana, California 92701, plaintiffs Travis Rosser (“Rosser”) and Blink First, LLC (“Blink First”) (the “Rosser Parties”) will move for an order pursuant to Code of Civil Procedure NOTICE OF MOTION AND MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARYINJUNCTION O o 0 9 O N n b W O N N N N N N N D N N N N = r m e m e m e m e d p m e m p d e a 0 J A N n N B R A W N = O 0 N N R A W L I N S section 564 for David Stapleton of the Stapleton Group (“Stapleton”), or some other qualified person designated by the Court, be immediately appointed as receiverfor allpurposes over Kajabi, LLC (“Kajabi” and/or the “Company”), or alternatively,for the limitedpurpose of controlling all financial aspects of and decisions at the Company, orfor the very limitedpurpose of determining and issuing reasonable distributions of Company funds to Kajabi’s members (the “Motion”) pending a resolution. PLEASE TAKE NOTICEthat the Rosser Parties will also move for an order restraining and enjoining defendants Jonathan Cronstedt (“Cronstedt”), Kenneth Rueter (“Rueter”), and Binary Frog, Inc. (“Binary Frog”) (“Defendants”) from interfering with the discharge of the receiver’s duties, as well as committing waste of Company property or interfering with the Rosser Parties’ contact with Kajabi employees or customers. The Rosser Parties further move for an order enjoining Defendants from paying Rueter any unauthorized compensation as CEO withoutissuing reasonably monetary distributions to Kajabi’s members, as well as to allow Rosser full access to Kajabi’s software and accounts, including application software, Slack leadership chats, credit cards, company subscriptions, healthcare, payroll, insurance, and systems to which the Rosser Parties are entitled access. Rosseris one of two equal co-managers of Kajabi, and Blink First, Rosser’s company,is one of two thirty-five percent (35%) voting members of Kajabi. The other equal co-manager and CEO is Rueter, the otherthirty-five percent (35%) voting memberis Binary Frog, Rueter’s company, and Cronstedt is a recently-awarded twenty-five (25%) member and recently-appointed President of Kajabi. Kajabi operates under an Amended and Restated Operating Agreement dated November of 2014 (the “Operating Agreement”) to function with two co-managers, Rueter and Rosser, making every significant decision for the company. But, instead, Defendants have completely shut Rosser out both practically by interfering with his managementrights and access, and financially by making unauthorized payments and withholding monetary distributions on a unilateral basis. A receiveris necessary because, in their capacities as co-manager, voting member, CEO, and President, Defendants have locked the Rosser Parties out of administrative access to Kajabi’s software or “app.” Defendants have also demanded that Kajabi employees not speak to the Rosser Parties. And, Defendants have refused to provide the Rosser Parties access to usernames and passwords for ii NOTICE OF MOTION AND MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARY INJUNCTION O O 0 0 N N O N n n B A W N N N N N N N N N N N N = o m e m e m e m p m e m p m e m x X N I A n n B R A W N = O O N O N R W N R m , Kajabi credit cards, company subscriptions, healthcare, payroll, insurance, and other accounts and systems to which the Rosser Parties are entitled access. Defendants have engaged in this conduct while taking unauthorized compensation and halting monetary distributions to members, based on a unilateral decision by Rueter contrary to the Operating Agreement. Defendants have also simply locked the Rosser Parties out of any decision-making regarding the Company. This has rendered it not reasonably practicable to carry on the business in conformity with the Operating Agreement, which requires both Rosser’s and Rueter’s joint decision- making, and the management of Kajabiis effectively deadlocked. Even Defendants acknowledged in writing that there is a dispute between the co-managers and voting members that cannot be resolved. As a result, the Rosser Parties will be irreparably injured if they are unable to institute a receiverto take control of Kajabito protect the value oftheir interest pending final determination in this action for dissolution of Kajabi. At the very least, the Rosser Parties request that a receiver be instituted for the limited purpose of to control the Company’s bank account and accounting functions, or for the more limited purpose ofissuing distributions to Kajabi’s members based on an independent review of the Company’s finances. Defendants have demonstrated that they are unwilling to distribute Company funds to the Rosser Parties, and Defendants continue to take compensation only for themselves. Without a receiver to determine and issue distributions to other Kajabi members, the Rosser Parties will be (and are) completely shut out from financially benefitting from the Company. This Motion is based on this Notice, the accompanying Memorandum of Points and Authorities, the Declarations of Rosser and Stapleton, and any exhibits, pleadings, and recordson file, any matters to which this Court may take judicial notice, and any evidence produced at the hearing. Dated: April 12,2018 KUSHNER CARLSON, PC MICHAEL B. KUSHNER ATHAN D. KENT JONATHAN P. SCHMIDT Attorneys for Plaintiffs iii NOTICE OF MOTION AND MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARY INJUNCTION © 0 N N O N n n B A W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF CONTENTS MEMORANDUM OF POINTS AND AUTHORITIES ......oitiiiiiiiiiieieeeeeeeeeeeeee1 L INTRODUCTION ....itiiiiiiitiieeeeeeeeeeeeeeeeeee 1 IL. STATEMENT OF FACTSLo.1 II. LEGAL STANDARD FOR THE APPOINTMENT OF A RECEIVER AND IV. ISSUANCE OF A PRELIMINARY INJUNCTION ......cccomiminineninenirceeeieeeenenene6 THE ROSSER PARTIES SEEK A RECEIVER TO OPERATE KAJABI BECAUSE THE MATERIAL DISPUTE BETWEEN THE ONLY TWO MANAGERS AND VOTING MEMBERS IS CAUSING THE ROSSER PARTIES’ MEMBERSHIP INTEREST AND RIGHTS TO BE IRREPARABLY ENDANGERED ...................7 a. A Receiver is Necessary to Preserve the Rosser Parties’ Contractual Rights as Co-Manager and Voting Member Because Defendants Have Locked the Rosser Parties Out of Business and Financial Operations ..............8 A Receiver is Necessary to Preserve the Value of the Rosser Parties’ Membership Interest Because Defendants Are Leveraging the Lock Out and Lack of Monetary Distributions to Force Rosser to Relinquish His INtErest .......euiinininiiiiiiiiieieeveeeen9 THE ROSSER PARTIES SEEK A RECEIVER FOR THE LIMITED PURPOSE OF MAKING FINANCIAL DECISIONS BECAUSE DEFENDANTS ARE USING THEIR WRONGFUL CONTROL TO NOT ISSUE MONETARY DISTRIBUTIONS AND TO ONLY MAKE FINANCIAL DECISIONS IN THEIR BEST INTEREST .....ovvviiiiiiiiiiiiiieeeee, 10 a. A Limited Receiver for Financial Decisions is Necessary to Preserve the Rosser Parties’ Membership Rights Because Defendants Have Wrongfully and Unilaterally Declined to Issue Distributions to the Rosser Parties to Gain Leverage .........ocooeviviiiiiiiiiiiiiiieiiiienianen 11 A Limited Receiver for Financial Decisions is Necessary to Preserve iv NOTICE OF MOTION AND MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARY INJUNCTION O O 0 9 O N n D W N N N D N D N N D N N N N = e m e m e m e m p m p m a e m p e 0 9 A N L n B h W N = , D O V W N N N D N R A W N = , o o Kajabi’s Rights and Property Because Defendants Continue to Issue Compensation From Kajabi to Rueter Even Though the Rosser Parties Withdrew Their Authorization ...............ccoeiiiiieinininnee, 12 c. A Limited Receiver for Financial Decisions is Necessary to Preserve Kajabi’s Rights and Property Because Defendants Are Improperly Using Kajabi Funds Without Approval and to Pay Defendants’ Individual Attorneys’ FEES ...ouuirininiiriiiiiieeieee,12 VI. AT THE VERY LEAST, THE ROSSER PARTIES SEEK A RECEIVER FOR THE LIMITED PURPOSE OF DETERMINING AND ISSUING DISTRIBUTIONS BECAUSE DEFENDANTS HAVE UNILATERALLY AND WRONGFULLY DECLINED TO CONSIDER DISTRIBUTIONS DUE TO THIS LITIGATION.......cceiriiirereteenteririnieesieteeters ses sessess see essess ese ens 13 VII. APRELIMINARY INJUNCTION MUST ALSO ISSUE TO FACILITATE THE RECEIVER PROCESS AND TO PROTECT THE ROSSER PARTIES’ MANAGERIAL AND MEMBERSHIP RIGHTS UNDER THE OPERATING AGREEMENT....coouiiiiiiiiiiii eeeeeeeee13 VIII. CONCLUSION......ttititiieeeeee eee eeeeee ane 15 Vv NOTICE OF MOTION AND MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARY INJUNCTION O O 0 9 O A L n B R W N = N S N O N N N N O N N N m m e m a e m e m e m p m m d m d p e R X N N n n A WL W = O L V N N N N R W N = O o TABLE OF AUTHORITIES CASES 14859 Moorpark Homeowner's Association v. VRT Corp. (1998) 63 Cal.App.4th 1396, 1402.....14 14859 see also Moorpark, supra, 63 Cal.App.4th at p. 1402 ....ooverieeeeieeceeeeeeeeeeecece 15 Abrams v. St. John’s Hospital & Health Center (1994) 25 Cal.App.4th 628, 636.........cccrveveeneeeee. 14 Abrams, supra, 25 CalLAPP.Ath at P. 636........ooieviiriiienieeiesieeeetertestesseerase eee sess ere ese nnes 15 Alhambra-Shumway Mines, Inc. v. Alhambra Gold Mine Corp. (1953) 116 Cal.2d 869, 872.......... 7 Alhambra-Shumway Mines, supra, 116 Cal.2d at p. 602........c.coovvvvereeienieeeeereeteeseers8 Califano v. Yamasaki (1979) 442 U.S. 682, 702 ...cc.eovrieiiririeneeseecreereeeeseeeesee sree sae eves saa sess esses 14 City and Cnty. ofSan Fran. v. Daley (1993) 16 Cal.App.4th 734, T44.......covvevevvierieiineeirienennes 7 Daley, supra, 16 Cal.APP.Ath Qt P. 745 coerceettereeeestersbeers bae sae ssaesseens 7,13 Feminist Women’s Health Center v. Blythe (1993) 17 Cal.App.4th 1543, 1554.....cccvvenivenineencns 14 Gold v. Gold Realty Co. (2003) 114 Cal.4th 791, 802......coieviriieiiieierirteieeteseseesiesta 10 Hampton v. Rose (1934) 3 CalLAPDP.2A 167 ...cuueoeeieiieieieeeeeeceterasess tesresne sess esne es 8 Hampton, supra, 3 CalLAPDP.2d 167 ...cc.oouimiiiieieeteeeteeteesesterstesters sees eevee sne es 9 IT Corp. v. County ofImperial (1983) 35 Cal.3d 63, 69 ......c..covevimeminiriniirieienerreserieneseeseres 13 Madsen v. Women’s Health Center, Inc. (1994) 512 U.S. 753, 7605.....ccvriininieninieenieieeieienns 14 Moore v. Oberg (1943) 61 Cal.App.2d 216, 218.....cooimiriiiiiiicitetcteecesete ee8 Moore, supra, 61 Cal.APP.2d at P. 218 ..eeeeieieieeeteeeeeereeseteressteers9,12 Neider v. Dardi (1955) 130 Cal.App.2d 646, 650 ......coceveirirviiririenierenteiese eset erestesre esse seeeiees 7 Prigmore v. City ofRedding (2012) 211 Cal.App.4th 1322, 1333 ....oooiieriieeeeeeecrecreenereeee 13 Prigmore, supra, 211 Cal.App.4th at p. 1333...iisssees 14 Sachs v. Killeen (1958) 165 Cal.APP.2d 205, 213...meioticecie ene seeesreeeve esses ae ee esnessneens 7 Sachs, supra, 165 Cal.APP.2d at P. 213.eectsesterases esses sree eben eae s es eesaennes 8 vi NOTICE OF MOTION AND MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARY INJUNCTION O o 0 9 A n m R A W N N D N N N N D N N N N = m e m e m e m e m e m p m pe d a © 9 N N L n BR A W N = O O N N N N W N R = , STATUTES Code of Civil Procedure, § 527, SUDA. (@)....ccceevrirriieirieiireiieeiieeceecteeeee cere ects eete eevee essere eens erseessessnes 14 Code of Civil Procedure, § 564, SUDA. (@).....cccoerrerieerieieieieeeieeeeeeteeteetersevecare se sane 6 Code of Civil Procedure, § 564, subds. (b)(1), (9) «eeeeeeieiereeieerieienecieeeeeeeeeee7 Code of Civil Procedure, § 564, Subd. (D)(9)....eceeieereeieieereeteeeeteee etreeeectseave eveeresans 7 Corporations Code, § 17707.03 © SEQ. c.ervererrererririreerirereserreeesesresresseere ese aeeeseese esas sessessesesseess 14 Corporations Code, § 17707.03, SUDA. (D) ..coeeeeririiriirierieieierieieetest esteseveresteee a sess erases 15 vii NOTICE OF MOTION AND MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARY INJUNCTION O O 0 9 A n n B A W N N O N N N N N N O N N N M m e m m m e a e m a p d p m e m e m © 9 L L B A W N = O O N Y R A W S O N = o MEMORANDUM OF POINTS AND AUTHORITIES L INTRODUCTION The Rosser Parties, Rueter, and Binary Frog are deadlocked as the only two co-managers and voting members of the Company. Under the Operating Agreement, Rosser and Rueter must jointly make all financial and business decisions at Kajabi, and their respective companies Blink First and Binary Frog must jointly approve of any compensation or receipt of Company funds. However, since November of 2017, Rueter, Binary Frog, and new Kajabi member, Cronstedt, have unilaterally locked Rosser and Blink First out of all business operations, administrative software, and accounts, have made all financial and business decisions without them, and have unilaterally declined to issue Blink First any monetary distributions. Defendants have done so while unilaterally paying Rueter unauthorized compensation, paying many others approximately $3,545,422.98 without Rosser’s authorization since June of 2017, and paying their attorneys, Call & Jensen, with Kajabi money. This conduct necessitated the filing of the action and this subsequent Motion. And, Rueter should agree with the Motion’s premise: He indicated on multiple occasions that Kajabi cannot continue to operate with both Rosser and Rueter as the only co-managers. Rueter has also made clear that he is withholding distributions to Kajabi members in what he alone believesis “the best interests ofthe Company.” Because ofthat, and because Defendants’ other conduct also violates the Operating Agreement, the Rosser Parties seek a receiverto take over Kajabi’s business operations. Should the Court not deem a general receiver appropriate, the Rosser Parties request a limited receiver to control the Company’s accounting functions, or at the very least, a limited receiver to determine and issue distributions to Kajabi members based on an independent evaluation. The Rosser Parties also seek injunctive relief to facilitate this process and to protect the Rosser Parties’ membership rights. IL. STATEMENT OF FACTS In or around 2010, Rosser and Rueter formed Kajabi specifically to develop, market, and/or sell computer software technology, services, and solutions to clients and companies whose primary ! This includes without limitation: (i) credit cards; (ii) company subscriptions; (iii) healthcare; (iv) payroll; (v) insurance; (vi) Kajabi leadership chat forum on Slack; and (vii) administrative account for Kajabi’s software or “app.” 1 NOTICE OF MOTION AND MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARY INJUNCTION O O 0 N N O& A U n B h W O N N D N N N N D N N N N o m e m e m e m e m p m e m e m p m 0 N A n n B W L D = O V N O Y R N W N R e business is membership-driven internet activities and transactions. (Rosser Dec., §2.) Rosser and Rueter successfully operated the Company together for several years and grew Kajabi into a multi- million dollar enterprise with increasing opportunities for growth. (Rosser Dec., §2.) With a progressively developing business came increasing responsibilities, silent investors, and aneedto formalize the Company’s management structure. (Rosser Dec., 3.) As aresult, in November of 2014, the Rosser Parties, Rueter, and Binary Frog entered into the Operating Agreement to govern their actions. (Rosser Dec., 3.) Under the Operating Agreement, Rosser and Rueter are the only two co-equal managers of the Company. Rosser’s separate entity, Blink First, and Rueter’s separate entity, Binary Frog, are the only two co-equal voting members each having a thirty-five percent (35%) interest in the Company.? (Rosser Dec., § 3.) Blink First and Binary Frog each have the ability to appoint managers to the two co-equal positions, and Rosser and Rueter are the respective appointed managers operating the Company.? (Rosser Dec., 3.) Rueter, Binary Frog, and the Rosser Parties’ other pertinent obligations under the Operating Agreement are as follows: —Rosser and Rueter to jointly make all decisions regarding the business,assets, and affairs of the Company, including whether to make distributions to the members; —Rosser and Rueter to perform their managerial duties in good faith, and in a manner they reasonably believe to be in the best interests of the Company, and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances; —Blink First and Binary Frog to jointly approve of any compensation entitled to be received, directly or indirectly, by any officer of the Company; and —Blink First and Binary Frog to jointly approve of any manager or officer’s possession of Company funds or assets. (Rosser Dec., § 4.) Rueter, Binary Frog, and the Rosser Parties appeared to operate the Company amicably for the next couple of years. (Rosser Dec., J 4.) Rosser and Rueter would jointly operate the Company together and make all business decisions together. (Rosser Dec., §4.) Rosser and Rueter 2 The current membership interest in Kajabiis: (i) Blink First, 35%; (ii) Binary Frog, 35%; Cronstedt, 25%; and Brandon Burchard (“Burchard”), 5%. Cronstedt and Burchard have no managing or voting rights in the Company. 3 While Rueter is also the “CEO,” Rosser holds no officer position. Reuter draws a “compensation” as CEO without any written employment agreement. 2 NOTICE OF MOTION AND MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARY INJUNCTION O O 0 0 3 O& O W n A ” W N e e N N N N N N N N N m m e m e d e m e m e a e m m d p e R X N N n n BR A W O N = O V N N N R E W I N D = o would also consider all decisions regarding distributions together, always taking into account Kajabi’s available funds and the other members’ and co-manager’s personal needs. (Rosser Dec., J 4.) And, in September of 2017, Rosser and Rueter agreed that Kajabi would issue set distributions to its members on an ongoing, monthly basis.* (Rosser Dec., § 4.) It recently became clear to the Rosser Parties, however, that Defendants had been attempting to take over Kajabi in contravention of the Operating Agreement and California law. (Rosser Dec., { 5.) In or about November of 2017, Rueter blindsided Rosser by unilaterally declaring that their partnership as equal managers of Kajabi could not continue. (Rosser Dec., 5.) With this decree, Rueter issued an exceptionally low buy-out offer to Rosser not in conformity with the Operating Agreement and demanded hisexit.’ (Rosser Dec., 5.) Rosser soon realized that Rueter had been positioning himselffor this oppressive action for some time. (Rosser Dec., 6.) Upon review of the Company’s current Statement of Information filed with the California Secretary of State (the “SOI”), Rosser found that Rueter had unilaterally misrepresented that he was the sole manger of Kajabi. (Rosser Dec., § 6.) Rueter filed the fraudulent SOI on June 27, 2016 without Rosser’s knowledge. (Rosser Dec., § 6.) And, Rosser also realized that Rueter had carefully procured his position as CEO to give him a separate source of income, other than distributions to members, for leverage. (Rosser Dec., § 6.) Moreover, in January of 2017, Rueter recruited reinforcements in the form of his friend and informal Kajabi consultant, Cronstedt. (Rosser Dec., § 7.) It appears that Rueter recruited Cronstedt to further conspire to take over the Company and lock out Rosser and Blink First. (Rosser Dec., 7.) In furtherance ofthat goal, on or around January 1, 2017 and in the months thereafter, Rueter and 4 The set distributions were to be made in accordance withthe Operating Agreement’s mechanism regarding distributions, and Rosser and Rueter agreed to make the set distributions on a monthly basis due to Kajabi’s continuing exponential growth in revenue. 3 Interestingly, this was not the first time this happened at Kajabi. Kajabi was originally comprised of three managing members: Rosser, Rueter, and an individual named Andy Jenkins (“Jenkins”). In 2011, Rueter engaged in a similar scheme to withhold distributions and force out Jenkins from Kajabi. Now, as discussed herein, Rueter is attempting to engage in the same scheme against Rosser. 6 The Company’s prior Statement of Information filed on October 9, 2015 properly listed both Rosser and Rueteras the two co-equal managers of Kajabi. 3 NOTICE OF MOTION AND MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARY INJUNCTION S S O X N N n n R W N S N N N N N N N N N = e m e m e k a e m p m m d p m p m 0 N N L n B W L D = O V N D N R W Cronstedt harangued and pressed Rosser to agree to an absurd and completely one-sided Promissory Note, Membership Interest Purchase Agreement, and Employment Agreement’ (the “Cronstedt Agreements”) granting Cronstedt a twenty-five percent (25%) membership interest and an officer position as President.® (Rosser Dec., 97.) During those months, Rueter and Cronstedt consolidated power and attempted to conduct business without the Rosser Parties’ input whatsoever. (Rosser Dec., § 8.) They repeatedly set secret meetings, conducted Company business, and made plans without the RosserParties. (Rosser Dec., | 8.) They moved office locations and signed a lease without Rosser.’ (Rosser Dec., 8.) They also repeatedly started to engage in financial transactions (and continue to this day to engage in financial transactions) from Kajabi’s general operating account at Wells Fargo, account number *****%32(03, without the Rosser Parties’ knowledge or consent under the Operating Agreement. (Rosser Dec., § 8 [a specific list of unapproved financial transactions is shown in J 8.1-8.66 totaling approximately $3,545,422.98].) And, they attempted to trick the Rosser Parties into relinquishing their rights in many ways. (Rosser Dec., § 8.) For example, when Rosser indicated on one occasion that he would have issues paying his estimated taxes without regular distributions, Defendants conspired to try to convince Rosser to file bankruptcy. (Rosser Dec., 8.) They misrepresented that Rosser could avoid paying taxes that way, and they did so while concealing that section 10.5 of the Operating Agreement would strip the Rosser Parties oftheir rights if Rosserfiled bankruptcy.!® (Rosser Dec., 8.) It was in December of 2017, however, that Defendants finally used Rueter’s leverage as CEO and Cronstedt’s leverage as President to gain a complete advantage over the Rosser Parties, whose only source of income was distributions. (Rosser Dec., 19.) Citing as pretext Kajabi’s “operational needs” and Rueter’s manufactured “dispute between the managers,” Rueter unilaterally halted monetary 7 1t is worth noting that the Employment Agreement requires Cronstedt to report to Rosser, as well as Rueter, for all decision-making authority and performance of duties. However, as a co-conspirator to Rueter and Binary Frog as discussed herein, Cronstedt only reports to Rueter. 8 Rosser ultimately signed the Cronstedt Agreements in June of 2017. 9 The layout for the new Kajabi office also conspicuously did not contain an office for Rosser. The lease was entered into on November 10, 2017, with the only Kajabi signatories being Cronstedt and Rueter. 10 Fortunately, Rosser declined to file bankruptcy at that time. 4 NOTICE OF MOTION AND MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARY INJUNCTION O O 0 N N O N n b W N N N N N N N N N N = m e m e m e m a e m p d e d p d p m 0 N N L n B R W N = O D N D W N = o distributions to the Company’s members. (Rosser Dec., §9.) Defendants made this decision without consulting Rosser on his or Kajabi’s finances, providing any documentation or reasoning, or obtaining the Rosser Parties’ approval as required by the Operating Agreement.!! (Rosser Dec., 19.) Rueter’s position as CEO allowed him to the expedient justification to continue to receive income from Kajabi while the other co-manager, Rosser, could not. (Rosser Dec., § 10.) Cronstedt, too, was able to be compensated via salary under the Cronstedt Agreements. (Rosser Dec., 10.) Using their officer positions and Rosser’s inability to collect a payroll salary, Defendants conspired and halted distributions to gain an advantage over Rosser to force him out. (Rosser Dec., § 10.) In response, the Rosser Parties withdrew their approval under the Operating Agreement for Rueter to receive any compensation as CEO.!? (Rosser Dec., 10.) However, Defendants disregarded the Rosser Parties’ withdrawal and continue to siphon Kajabi’s assets from its bank account for a variety ofunknown and unauthorized reasons, as detailed in the attached Declaration. (Rosser Dec., § 10.) Defendants also engaged in the following conduct resulting in a deadlock of Kajabi’s equal voting and managing members: (i) Defendants demanded that the Rosser Parties not contact Kajabi employees, such as Joel Vivanco, Vice President of Marketing Joe Hanschel, and others; (ii) Defendants contacted Kajabi employees and told them to not speak to Rosser; (iii) Defendants have locked the Rosser Parties out of administrative access to Kajabi’s software; (iv) Defendants have refused to provide the Rosser Parties access to usernames and passwords for Kajabi credit cards, company subscriptions, healthcare, payroll, insurance, and other systems to which the Rosser Parties are entitled access; and (v) banned Rosser from inclusion in the “leadership chat” for Company managers on Slack, a message platform. (Rosser Dec., 11.) This and other wrongful conduct has continued to date, all while Defendants have withheld rightful distributions to Kajabi’s members due to Rueter’s unilateral decision based on a contrived 1 Rueter’s unilateral decision also contravened the managers’ prior joint decision in September of2017 to issue set monthly distributions to members based on Kajabi’s continued growth. And, at the time of Rueter made his unilateral decision, the Company was experiencing the kind of exponential growth that would prompt a distribution based on past practice. 12 Rosser could not make such a decision with regard to Cronstedt as his salary was governed by the Cronstedt Agreements. 5 NOTICE OF MOTION AND MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARY INJUNCTION O O 0 J O N w n B A W N = N N N D N N N N N m m e m e m e m e m p m e m p d e m R X 9 A N n n B A W O N D E R O V N N N D N W N R R , dispute. (Rosser Dec., § 12.) Defendants continue to do so in spite of Kajabi’s growth, the prior agreement between the co-managers in September of 2017, and the members’ practice ofpaying estimated federal taxes after these disbursements. (Rosser Dec., J 12.) And, Defendants continue to lock the Rosser Parties out of the decision-making to the Company’s detriment, and continue to pay Rueter an unauthorized compensation to gain an unfair advantage over Rosser. (Rosser Dec., § 12.) Defendants have also recently stated, through their attorneys at Call & Jensen, that they will use Kajabi funds to defend againstthislitigation. (Rosser Dec., 12.) As aresult, the Rosser Parties seek the appointment of Stapleton as receiver, or at the very least, as a third equal co-manager and voting member to break the deadlock and operate the Company, whether it be general operation or limited to financial decisions or evaluating and deciding monetary distributions for Kajabi members. (Rosser Dec., § 13.) This, along with appropriate injunctions described below and in the concurrently-filed [Proposed] Order, should facilitate the Company’s proper function and use of Kajabi funds during litigation between its principals. (Rosser Dec., § 13.) As of March 19, 2018, Rosseralso received Kajabi financial documents and records pursuant to an inspection demand. (Rosser Dec., § 14.) These financial documents show that Kajabi had approximately $3,233,803.90 in its general operating account at Wells Fargo at the end of January of 2018, and Kajabi’s most-recent balance sheet and income statement for the period of January 1, 2017 to September 13, 2017 show a total income of $6,298,384.00 and net income after expenses, including wages, etc., of $2,542,525.00. (Rosser Dec., § 14.) It further shows that the member’s equity is $1,664,920.00. (Rosser Dec., J 14.) Any reasonable manager would issue distributions to Kajabi members with these numbers, and Rosser and Rueter issued distributions with far less in the Kajabi accounts. (Rosser Dec., § 14.) The Rosser Parties seek a limited receiver at the very least to make that determination and issue distributions accordingly. (Rosser Dec., § 14.) III. LEGAL STANDARD FOR THE APPOINTMENT OF A RECEIVER AND ISSUANCE OF A PRELIMINARY INJUNCTION The Court may appoint a receiver in any pending action or proceeding in which the Courtis empowered by law to appoint a receiver. (See Code Civ. Proc., § 564, subd. (a).) Under Code of Civil 6 NOTICE OF MOTION AND MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARY INJUNCTION O O 0 0 9 O N W n B A W N N N N D N N N N N N N m E e m e m e a e m e d pe ed p d R X 9 O N n n A W N = O V O N N N N W N e o Procedure sections 564 et seq., there are enumerated cases that authorize a court to appoint a receiver. Here, the Court is authorized pursuant to Code of Civil Procedure sections 564, subdivisions (b)(1) and (9) below. Code of Civil Procedure section 564, subdivision (b)(1) authorizes a receiver: In an action ... between partners or others jointly owning or interest in any property or fund, on the application of the plaintiff, or of any party whose right to or interest in the property or fund, or the proceeds thereof, is probable, and where it is shown that the property or fund is in danger of being lost, removed, or materially injured. Code of Civil Procedure section 564, subdivision (b)(9) authorizes a receiver : In all other cases where necessary to preserve the property or rights of any party. Given the appropriate authorization, the appointment of a receiver rests largely in the discretion ofthe trial court. (City and Cnty. ofSan Fran. v. Daley (1993) 16 Cal.App.4th 734, 744; Sachs v. Killeen (1958) 165 Cal.App.2d 205, 213.) To that end, the main purpose of a receivership is “that of receiving the rents,issues, and profits ofthe land or other thing in question pending the suit, where it does not seem reasonable to the court to entrust either party with such right.” (Neider v. Dardi (1955) 130 Cal.App.2d 646, 650.) Prior to appointing a receiver, the court should consider the availability and efficacy oflesser remedies — however, even if such remedies exist, that does not preclude the use of a receivership. (Daley, supra, 16 Cal.App.4th at p. 745.) Furthermore, the court should also consider other equitable concerns, such as whether irreparable injury will result absent a receivership. (Alhambra-Shumway Mines, Inc. v. Alhambra Gold Mine Corp. (1953) 116 Cal.2d 869, 872.) IV. THE ROSSER PARTIES SEEK A RECEIVER TO OPERATE KAJABI BECAUSE THE MATERIAL DISPUTE BETWEEN THE ONLY TWO MANAGERS AND VOTING MEMBERS IS CAUSING THE ROSSER PARTIES’ MEMBERSHIP INTEREST AND RIGHTS TO BE IRREPARABLY ENDANGERED The appointment of a receiver is appropriate where the subject property or fund is “in danger of being lost, removed, or materially injured,” or “where necessary to preserve the property or rights of any party.” (Code Civ. Proc., § 564, subds. (b)(1), (9).) To have standing under this section, there must be “evidence that the plaintiff has at least a probable right or interest in the property sought to be 7 NOTICE OF MOTION AND MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARY INJUNCTION O O 0 I a n n H h Ww W N D N D N N N N N N N N = e m m e m e m e m e m e d e m 0 N A N n n B A W N R O O N N N R E W I N D R S placed in receivership.” (Sachs, supra, 165 Cal.App.2d at p. 213.) In considering whether such property is “in danger” of being “materially injured,” the court may look to whether a part-owner improperly uses corporate assets and/or commingles corporate funds. (Moore v. Oberg (1943) 61 Cal.App.2d 216, 218.) Another important factor is the exclusion of the plaintiff from the management ofthe business if plaintiff was a previous operator. (Ibid; Hampton v. Rose (1934) 3 Cal.App.2d 167.) Finally, the court must consider whether irreparable harm will result should a receiver not be instituted. (Alhambra-Shumway Mines, supra, 116 Cal.2d at p. 602.) In this case, the Rosser Parties have standing to bring the Motion because of Rosset’s statusas a co-manager under the Operating Agreement, and Blink First’s status as a thirty-five percent (35%) voting member of Kajabi. The Rosser Parties have a direct interest in Kajabi’s operation and its funds. In that capacity, the Rosser Parties seek a receiver, Stapleton, to operate Kajabi because: (i) Defendants have locked the Rosser Parties out of Kajabi business and financial operations despite their status as co-equal manager and voting member;(ii) Defendants are leveraging the lock out and withholding monetary distributions to force Rosser to relinquish his interest. At the very least, due to the Kajabi deadlock, the Rosser Parties request Stapleton to act as a third equal co-manager and voting member to operate the Company pending litigation. a. A Receiver is Necessary to Preserve the Rosser Parties’ Contractual Rights as Co- Manager and Voting Member Because Defendants Have Locked the Rosser Parties Out of Business and Financial Operations The Operating Agreement requires the Rosser Parties, and particularly Rosser as equal co- manager, to be involved in business and financial decisions. Thisis true notwithstanding Rueter’s position as CEO and Cronstedt’s position as President. However, as discussed above, Defendants have: (i) demanded that the Rosser Parties not contact Kajabi employees, such as Joel Vivanco, Vice President of Marketing Joe Hanschel, and others; (ii) contacted Kajabi employees and told them to not speak to Rosser; (iii) locked the Rosser Parties out of administrative access to Kajabi’s software or “app”; (iv) refused to provide the Rosser Parties access to usernames and passwords for Kajabi credit cards, company subscriptions, healthcare, payroll, insurance, and other systems to which the Rosser 8 NOTICE OF MOTION AND MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARY INJUNCTION O o 0 3 O N n n B R W L N O N N N N D O N N N N O N m m o m e m e d e m e m e m p m e m R N A N n n B R A W N = O Y E N Y N ER E W N R e o Parties are entitled access; and (v) banned Rosser from inclusion in the “leadership chat” for Company managers and operators on Slack, the web-based message platform that Kajabi uses. Defendants have also made a number ofmajor business and financial decisions without the Rosser Parties’ involvement whatsoever. This includes: (i) halting monetary distributions to Kajabi members “in the best interests of the Company”; (ii) paying Defendants’ attorneys, Call & Jensen, with Kajabi funds; (iii) paying “compensation” to Rueter as CEO even though Blink First withdrew its authorization to issue compensation to the CEO under the Operating Agreement; (iv) making several additional major business and financial decisions without Rosser, as enumerated at length in the Rosser Declaration, paragraphs 8.1 through 8.66; and (v) moving office locations and signing a lease. Undoubtedly, the Rosser Parties’ interests as manager and voting member are in continuing danger of being “materially injured,” (see Moore, supra, 61 Cal.App.2d at p. 218), as Defendants have locked the Rosser Parties out of business operations and decision-making. (See Hampton, supra, 3 Cal.App.2d 167.) This requires a general receiver for Kajabi business operations or a third co-equal manager and voting member to break the deadlock (i.e., Stapleton). Without a receiver or third co- equal manager and voting member, Defendants will continue to make these business and financial decisions during the pendency of the litigation without regard for the Rosser Parties’ rights. They may also have increasing incentives to conduct themselves in a variety of ways not in the best interests of Kajabi and its employees. As such, a receiver is appropriate to manage Company affairs. b. A Receiver is Necessary to Preserve the Value of the Rosser Parties’ Membership Interest Because Defendants Are Leveraging the Lock Out and Lack of Monetary Distributions to Force Rosser to Relinquish His Interest On many occasions, Defendants have used their power and lack of monetary distributions to attempt to force Rosser to relinquish his membership interest via Blink First. For example, in November of 2017, Rueter blindsided Rosser by unilaterally declaring that their partnership as equal managers of Kajabi could not continue and declined to issue any more monetary distributions as a result. Rueter then issued an exceptionally low buy-out offer to Rosser not in conformity with the Operating Agreement and demanded his exit. As another example, when Rosser indicated on one 9 NOTICE OF MOTION AND MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARY . INJUNCTION O O 0 9 O N n m B A W w W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 occasion that he would have issues paying his estimated taxes without regular distributions, Defendants conspired to try to convince Rosser to file bankruptcy. They misrepresented that Rosser could avoid paying taxes that way, and they did so while concealing that section 10.5 of the Operating Agreement would strip the Rosser Parties oftheir rights if Rosser filed bankruptcy.!® Asthe lock out and lack of monetary distributions continue, Defendants will continue to have leverage in forcing a favorable buy-out and settlement of this dispute. Defendants will also continue to pay their attorneys, Call & Jensen, with Kajabi funds,so as to not affect their personal finances and ability to litigate. Indubitably, Defendants are counting on the Rosser Parties running out of available fundsto litigate this issue and into settling on favorable terms—including with a favorable buy-out. The Rosser Parties thus seek a receiver to conduct business operations in support of Kajabi’s business, rather than in support of Defendants’ singular interests in defeating the lawsuit and securing leverage. V. THE ROSSER PARTIES SEEK A RECEIVER FOR THE LIMITED PURPOSE OF MAKING FINANCIAL DECISIONS BECAUSE DEFENDANTS ARE USING THEIR WRONGFUL CONTROL TO NOT ISSUE MONETARY DISTRIBUTIONS AND TO ONLY MAKE FINANCIAL DECISIONS IN THEIR BEST INTEREST In circumstances where a general receivership is inappropriate, the court may consider a “limited purpose receiver” to take charge of a defined aspect of a business. (Gold v. Gold Realty Co. (2003) 114 Cal.4th 791, 802.) This can include holding funds, collecting accounts, taking charge of accounting functions, prosecuting and settling lawsuits, and other aspects of a business pending litigation regarding the business. (/bid.) Should this Court not deem a general receivership of Kajabi appropriate, the Rosser Parties request that Stapleton be appointed to access the Kajabi bank accounts and take charge of accounting functions pending resolution of the case. That way, Stapleton can ensure that Kajabi funds are properly being disbursed under the Operating Agreement and only for Company purposes. This limited purpose receiver would thwart Defendants conduct right now, which is improperly using Kajabi funds by: (i) unilaterally declining to issue monetary distributions to Kajabi 13 Fortunately, Rosser declined to file bankruptcy at that time. 10 NOTICE OF MOTION AND MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARY INJUNCTION O O 0 NO N O N n n B A W N N D N N N N N N N N N N = o m m m e m e m e m p d e m p m p m 0 u N 4 A n n B W L D E D O V N D R A W R E S members in contravention of the Operating Agreement due to the litigation; (ii) unilaterally issuing “compensation” to Rueter without authorization under the Operating Agreement; and (iii) improperly using Kajabi funds without authorization and to pay Defendants’ individual attorneys’ fees. a. A Limited Receiver for Financial Decisions is Necessary to Preserve the Rosser Parties’ Membership Rights Because Defendants Have Wrongfully and Unilaterally Declined to Issue Distributions to the Rosser Parties to Gain Leverage Defendants, and specifically Rueter, have used their positions as defacto controllers of Kajabi operations to decline monetary distributions to members. Until November of 2017, Rosser and Rueter would considerall distribution decisions together as required under the Operating Agreement. Due to the Operating Agreement’s requirement for joint decision-makingfor financial decisions, they would always take into account Kajabi’s available funds and the other members’ and co-manager’s personal needs. The many text messages and communications attached to the Rosser Declaration reflect this reality. And, in September of 2017, Rosser and Rueter agreed that Kajabi would issue set distributions on an ongoing, monthly basis due to Kajabi’s continuing exponential growth in revenue. However, as ofNovember of 2017, Defendants halted distributions unilaterally. This, of course, was in contravention of Rosser and Rueter’s decision in September of 2017. It was also in contravention of the joint decision-making required in the Operating Agreement and made without regard to Kajabi’s funds, which show that Kajabi had approximately $3,233,803.90 in its general operating account at Wells Fargo at the end of January of 2018. Kajabi had a practice of issuing monetary distributions to members at times where the general operating account hadfar less in funds. Clearly, and as indicated by Rueter, Defendants are now withholding distributions unilaterally to force the Rosser Parties into a de-leveraged position due to the lawsuit.!* Rueter and Cronstedt continue to draw “compensation,” while the Rosser Parties only source of income (i.e., distributions) is cut off. 14 They have indicated recently that this decision was made “in the best interests of the Company” due to costs and upcoming litigation. However, Kajabi’s most-recent balance sheet and income statement for the period ofJanuary 1, 2017 to September 13, 2017 show a total income of $6,298,384.00 and net income after expenses, including wages, etc., of $2,542,525.00. It further shows that the member’s equity is $1,664,920.00. Under any metric, a reasonable individual would conclude that there is room for monetary distributions to Kajabi’s four members. 11 NOTICE OF MOTION AND MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARY INJUNCTION O O 0 9 O& O w n A O W O N = N N N D N D N N N N N N = m m e m e m e b e m e d p m e m p m 0 N N O N L n A W N R E O V N D N W N R = , Such conduct requires a limited receiver for Kajabi financial decisions to be instituted to preserve the Rosser Parties” membership rights to proper, reasonable distributions. b. A Limited Receiver for Financial Decisions is Necessary to Preserve Kajabi’s Rights and Property Because Defendants Continue to Issue Compensation From Kajabi to Rueter Even Though the Rosser Parties Withdrew Their Authorization The Operating Agreement requires, among other things, that Blink First and Binary Frog jointly approve of any compensation entitled to be received, directly or indirectly, by any officer ofthe Company, and that they jointly approve of any manager or officer’s possession of Company funds or assets. In response to the lock out, the Rosser Parties withdrew their approval under the Operating Agreement for Rueter to receive any compensation as CEO." However, Defendants disregarded the Rosser Parties’ withdrawal and continue to siphon Kajabi’s assets from its bank account, of which Defendants have control. Kajabi money is thus being delivered to Rueter (and other companies and individuals) without authorization. This conduct constitutes conversion of Kajabi assets and,if history is any guide, will continue to “materially injure” Kajabi interests. (See Moore, supra, 61 Cal.App.2d atp. 218.) A receiver should thus issue to make financial determinations in Kajabi’s interest, as well as the interests of its members. c. A Limited Receiver for Financial Decisions is Necessary to Preserve Kajabi’s Rights and Property Because Defendants Are Improperly Using Kajabi Funds Without Approval and to Pay Defendants’ Individual Attorneys’ Fees Finally, a receiver should issue to access the Kajabi accounting functions and bank accounts, including the Wells Fargo account, as well as any available Kajabi financial and business-related information, to evaluate significant and unapproved financial transactions for compliance with the Operating Agreement. (See Rosser Decl., {] 8.1-8.66.) And,as discussed below, a corresponding injunction should issue to prevent Defendants from committing any further corporate waste. Defendants have also recently stated, through their attorneys at Call & Jensen, that they will use Kajabi 15 Rosser could not make such a decision with regard to Cronstedt as his salary was governed by the Cronstedt Agreements. 12 NOTICE OF MOTION AND MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARY INJUNCTION O O 0 3 O a w n A W N N N N N N N D N N N N o m e m e m e m p d e a e m e m p e 0 9 A A L i B A W = O 0 N D R A W R e funds to defend against thislitigation. Cronstedt, Rueter, and his company, Binary Frog, are being sued in their individual and corporate capacities. Kajabiis only being sued as a nominal defendantto the action. Defendants have no right, whether contractual or otherwise, to use Kajabi funds to defend againstthislitigation, and they are doing so in further detriment to Kajabi’s and its members’ interests. VI. AT THE VERY LEAST, THE ROSSER PARTIES SEEK A RECEIVER FOR THE LIMITED PURPOSE OF DETERMINING AND ISSUING DISTRIBUTIONS BECAUSE DEFENDANTS HAVE UNILATERALLY AND WRONGFULLY DECLINED TO CONSIDER DISTRIBUTIONS DUE TO THIS LITIGATION As discussed at length in section V, subsection a. of this Motion, Defendants, and specifically Rueter, have used their positions as defacto controllers of Kajabi operations to decline monetary distributions to members. Should the Court not deem a broad receiver necessary for the above- discussed purposes of general or financial decision-making, the Rosser Parties,at the very least, seek a limited receiver only for the purpose of determining and issuing Kajabi’s monetary distributions. This receiver (i.e., Stapleton) would have access to Kajabi income statements, balance sheets, bank accounts, and financial documents, and would be able to determine whether monetary distributions may be issued to Kajabi members. Should Stapleton determine that monetary distributions may be issued, he would be allowed to issue those distributions to Kajabi’s four members, Blink First, Binary Frog, Cronstedt, and Burchard, from Kajabi’s Wells Fargo account. This limited receivership is absolutely essential because no other equitable remedy will do the job. (See Daley, supra, 16 Cal.App.4th at p. 745.) Stapleton’s costs would also be able to be recovered from the Kajabi account. VII. A PRELIMINARY INJUNCTION MUST ALSO ISSUE TO FACILITATE THE RECEIVER PROCESS AND TO PROTECT THE ROSSER PARTIES’ MANAGERIAL AND MEMBERSHIP RIGHTS UNDER THE OPERATING AGREEMENT In seeking a preliminary injunction, a plaintiff must establish that the defendant should be restrained from the challenged activity pending the court’s final judgmentin the matter. (Prigmore v. City ofRedding (2012) 211 Cal.App.4th 1322, 1333; IT Corp. v. County ofImperial (1983) 35 Cal.3d 63, 69.) To do this, the plaintiff has the burden of showing (i) a reasonable probability that he/she/it 13 NOTICE OF MOTION AND MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARY INJUNCTION O O 0 9 A N n h l W N B N N D N N N N N N N e m e m e k e k e a p m e d p a p m 0 N N O N L n B W L D = , D O V N N D R A W N = , will prevail on the merits; and (ii) that the harm to the plaintiff if a preliminary injunction is not granted outweighs any harm to the defendant from granting the injunction. (Prigmore, supra, 211 Cal.App.4th at p. 1333.) The crux ofthis analysis lies within the courts balancing of the interim harm to the plaintiff, which is done by weighing the inadequacy of other remedies, the degree of irreparable harm, and the necessity ofpreserving the status quo. (Abrams v. St. John’s Hospital & Health Center (1994) 25 Cal.App.4th 628, 636; 14859 Moorpark Homeowner's Association v. VRT Corp. (1998) 63 Cal.App.4th 1396, 1402.) Courtsutilize their discretion in choosing to grant or deny injunctive relief based on well- settled equitable principles and taking into consideration all facts and circumstances in the case. (Feminist Women’s Health Center v. Blythe (1993) 17 Cal.App.4th 1543, 1554.) A preliminary injunction can 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 case, demonstrate sufficient grounds for the injunction. (Code Civ. Proc., § 527, subd. (a).) Lastly, injunctiverelief is proper where it is no more burdensometo the defendant than necessary to provide complete relief to the plaintiffs. (Madsen v. Women’s Health Center, Inc. (1994) 512 U.S. 753, 765; Califano v. Yamasaki (1979) 442 U.S. 682, 702.) (Emphasis added.) In this case,there is a reasonable probability that the Rosser Parties prevail on the merits of their derivative and individual breach of fiduciary duty claims, as well as their breach of contract claim and claim for judicial dissolutionunder Corporations Code section 17707.03 et seq. (See Prigmore, supra, 211 Cal.App.4th at p. 1333.) As shown in the corresponding Rosser Declaration, Defendants have breached the Operating Agreement by: (i) failing to consult the Rosser Parties regarding decisions affecting the business,assets, and affairs of the Company, including whether to make distributions to the members; (ii) continuing to convert Company funds as unauthorized compensation; and (iii) failing to perform managerial duties in good faith and in the interest of Kajabi. Those actions further breached Defendants’ duties of loyalty, good faith, and to use reasonable care in acting in the best interest of the Rosser Parties—the other and equalthirty-five percent (35%) voting member and managing member of Kajabi. At the very least, Defendants’ above-described 14 NOTICE OF MOTION AND MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARY INJUNCTION O O 0 N N O& O W n A W N N N N N N N N N N N = o m a e m e d p m e d e m e m p m 0 9 A N L n B A W = O O N Y R E W N = o actions constitute a breach of Corporations Code section 17707.03(b), which states that dissolution may occur when: (i) it is not reasonably practicable to carry on the business in conformity with an operating agreement; (ii) dissolution is reasonably necessary for the protection ofthe rights or interests of the complaining members; (iii) the management of the company is deadlocked or subject to internal dissension; or (iv) those in control of the company have been guilty of, or have knowingly countenanced, persistent and pervasive fraud, mismanagement, or abuse of authority. The Rosser Parties thus seek injunctive relief to prevent further interference and also to facilitate the receivership process. They seek to stop Defendants from interfering with the discharge of the receiver’s duties, as well as committing waste of Company property or interfering with the Rosser Parties’ contact with Kajabi employees or customers. The Rosser Parties further move for an order enjoining Defendants from paying Rueter any unauthorized compensation as CEO without issuing reasonably monetary distributions to Kajabi’s members, as well as to allow the Rosser Parties full access to Kajabi’s software and accounts, including application software, Slack leadership chats, credit cards, company subscriptions, healthcare, payroll, insurance, and other systems to which the Rosser Parties are entitled access. Such injunctive relief would merely maintain the status quo by allowing the Rosser Parties to enforce their managerial and membership interest rights at Kajabi under the Operating Agreement, which is in danger of being materially injured. (See Abrams, supra, 25 Cal.App.4th at p. 636; 14859 see also Moorpark, supra, 63 Cal.App.4th at p. 1402.) VIII. CONCLUSION The Rosser Parties respectfully request that this Court grant the Motion and appoint a receiver in the manner described above with a corresponding preliminary injunction. Dated: April 12, 2018 KUSHNER CARLSON, PC By: MICAAEL B. KUSHNER JONATHAN D. KENT ONATHAN P. SCHMIDT Attorneys for Plaintiffs 15 NOTICE OF MOTION AND MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARY INJUNCTION 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PROOF OF SERVICE STATE OF CALIFORNIA ) ) ss. COUNTY OF ORANGE ) I am employed in the County of Orange, State of California. I am over the age of 18 and not a party to the within action. My business address is 85 Enterprise, Suite 310, Aliso Viejo, CA 92656. On April 12, 2018, I served the following document(s) described as follows: PLAINTIFFS’ NOTICE OF MOTION AND MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARY INJUNCTION; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT On the following interested parties in this action: David R. Sugden Melinda Evans CALL & JENSEN 610 Newport Center Drive, Suite 700 Newport Beach, California 92660 Tel: (949) 717-3000 Fax: (949 717-3100 dsugden@calljensen.com Attorneysfor Defendants VIA MAIL -- CCP §1013(a). I caused a true copy of said document(s) to be placed in a sealed envelope, addressed as above and placed for collection and processing under the firm’s ordinary course of business. I am readily familiar with Kushner Carlson’s practice of collecting, processing and depositing correspondence for mailing. Underthis practice, envelopes would be deposited with the United States Postal Service at Aliso Viejo, California the same day with postage thereon fully prepaid. VIA E-SERVICE. By causing One Legalto effect e-service at the time the subject document was submitted for filing with the Court using the email address for each recipient that is on file with One Legal for each party served, as per the “Order Receipt” from One Legal which is incorporated herein by reference as well as mailing a copy via regular U.S. Mail. Proof Of Service 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 I declare under penalty of perjury, under the laws of the State of California that the foregoing is true and correct. Executed on April 12, 2018,at Aliso Viejo, California. (ct > Diane D. Acuna Proof Of Service