Frome Wye Limited v. Hosie Rice LLP

• Court: District Court, N.D. California
• Decided: December 1, 2023
• Docket: 3:23-cv-06153
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 FROME WYE LIMITED, Case No. 23-cv-06153-EMC

8 Plaintiff, ORDER DENYING PLAINTIFFS’ 9 v. MOTION FOR TEMPORARY RESTRAINING ORDER 10 HOSIE RICE LLP, et al., 11 Defendants. Docket No. 5

12 13 14 Plaintiff Frome Wye Limited has filed suit against Defendants Hosie Rice LLP, Spencer 15 Hosie, and Diane Rice. Hosie Rice is a law firm, and Mr. Hosie and Ms. Rice partners in the firm. 16 In its complaint, Plaintiff alleges that, in 2018, it entered into an agreement with all three 17 Defendants (the law firm and the individual partners) under which the law firm obtained funding 18 from Plaintiff (e.g., to pay monthly operating expenses). See Compl. ¶¶ 11-12. Under the funding 19 agreement, Plaintiff was granted “a continuing, first priority, perfected security interest in the Firm 20 Collateral . . . and all proceeds thereof.”1 Agmt. ¶ 13.6. In addition, Plaintiff “was granted a 21

22 1 Firm Collateral is defined in the agreement as follows:

23 collectively, (i) all present and future Revenue Events, Gross Revenues, and any payments, distributions, recoveries, and/or 24 proceeds resulting therefrom or attributable thereto (including any and all rights of Firm and/or any Partner to receive any of the 25 foregoing), (ii) all present and future right, title and interest of the Firm in its discounted deferred fees in the Space Data Case and (iii) 26 the Collateral Account or any other account of Firm or any Partner which holds any such payments, distributions, recoveries, and/or 27 proceeds. 1 continuing, third priority, perfected security interest in the ‘Partner Collateral’ and all proceeds 2 thereof.” Compl. ¶ 14; see also Agmt. ¶ 13.6. “Partner Collateral” was defined as “‘all present 3 and future right, title and interest of either Partner (or both Partners)” in certain real property 4 located in Belvedere, California. Compl. ¶ 14; see also Agmt. ¶ 1.23. Defendants failed to make 5 repayments under the funding agreement, and currently owe Plaintiff more than $1.8 million (as 6 reflected in an arbitration award recently confirmed by a Delaware district court). See Compl. ¶¶ 7 20, 25-27. 8 It now appears that Mr. Hosie and Ms. Rice are about to sell the real property at issue, i.e., 9 the Partner Collateral. See Compl. ¶ 29 (asserting that the sale is set to close on December 1, 10 2023). But see Opp’n at 2 n.1 (asserting that “[t]he sale is not set to close until December 8”). 11 The sale price appears to be more than $7.7 million. See Friel Decl., Ex. 7 (Estimated Seller’s 12 Statement). Plaintiff does not seek to stop the sale of the property but has filed a motion for a 13 temporary restraining order so that Defendants and their agents will be enjoined from “disbursing 14 $1,817,000 of the sale proceeds pending determination of [Plaintiff’s] (or Defendants’ or other 15 creditors’) claims to these funds.” Mot. at 3. Plaintiffs maintain:

16 If Defendants are not immediately enjoined, Defendants will close the sale of the Property and will disburse the sale proceeds as 17 scheduled on the Estimated Sellers’ Statement, without paying Frome Wye. Thus, Frome Wye will (1) lose the opportunity to be 18 paid what it is owed, and (2) be required to take on the burden of clawing back sums from the junior lienholders (or Defendants), and 19 will likely have to bring a multiplicity of lawsuits in order to get paid what it is owed. 20 21 Mot. at 10. 22 Plaintiff admits its interest is “junior to two previously-recorded deed of trust liens in favor 23 of First Republic Bank and the Perkins Coie law firm.” Mot. at 4. The combined interest of those 24 two entities appears to be more than $2.7 million. See Friel Decl., Ex. 7. However, Plaintiff 25 maintains that its interest is superior to other lienholders – specifically, federal and state taxing 26 authorities who, together, appear to have an interest of about $4.48 million. See Friel Decl., Ex. 7; 27 see also Mot. at 4 (asserting that the taxing authorities recorded notice of tax liens against the 1 recorded its deed of trust). Defendants have filed an opposition to Plaintiff’s motion for a TRO, 2 disputing Plaintiff’s claim that the federal and state taxing authorities have a junior interest. See, 3 e.g., Opp’n at 4, 7 (arguing that Plaintiff’s “lien was not perfected, but rather a placeholder that [it] 4 might be owed ‘up to $2 million’[;] [w]hen [Plaintiff] recorded this lien, the [Law] Firm owed 5 [Plaintiff] nothing” and “even now, the amount due is the subject of ongoing litigation,” 6 presumably, because, even though a court affirmed the arbitration award, Plaintiff now seeks 7 additional prejudgment interest).2 8 In order to obtain temporary or preliminary injunction relief, a plaintiff must show the 9 following: “‘(1) she is likely to succeed on the merits, (2) she is likely to suffer irreparable harm in 10 the absence of preliminary relief, (3) the balance of equities tips in her favor, and (4) an injunction 11 is in the public interest.’” Garcia v. Google, Inc., 786 F.3d 733, 740 (9th Cir. 2015) (citing Winter 12 v. NRDC, 555 U.S. 7 (2008)). In the Ninth Circuit, however, a court may employ

13 an alternative serious questions standard, also known as the sliding scale variant of the Winter standard. Under that formulation, serious 14 questions going to the merits and a balance of hardships that tips sharply towards the plaintiff[s] can support issuance of a preliminary 15 injunction, so long as the plaintiff[s] also show[] that there is a likelihood of irreparable injury and that the injunction is in the 16 public interest. 17 Fraihat v. United States Immigration & Customs Enf’t, 16 F.4th 613, 635 (9th Cir. 2021) (internal 18 quotation marks omitted). Under Winter, demonstrating the likelihood of irreparable injury is 19 essential. 20 In the instant case, although Defendants focus their opposition on the lack of likelihood of 21 success on the merits, resolution of the pending motion turns on the likelihood of irreparable harm. 22 As indicated above, Plaintiff claims irreparable injury on the basis that it

23 is owed payment for years, and it has priority over the junior taxing authorities. It will be costly and expensive for Frome Wye to suffer 24 the burden of having to claw back sums from the junior creditors (or Defendants) if the sale closes and the funds are disbursed as 25 scheduled on the Estimated Sellers’ Statement. If Defendants are not immediately enjoined, Defendants will close the sale of the 26 Property and will disburse the sale proceeds as scheduled on the 27 Estimated Sellers’ Statement, without paying Frome Wye. Thus, 1 Frome Wye will (1) lose the opportunity to be paid what it is owed, and (2) be required to take on the burden of clawing back sums from 2 the junior lienholders (or Defendants), and will likely have to bring 4 a multiplicity of lawsuits in order to get paid what it is owed.

4 || Mot. at 10. 5 The problem for Plaintiff is that “economic injury alone does not support a finding of 6 || treparable harm, because such injury can be remedied by a damage award.” Rent-A-Center, Inc. 7 v. Canyon Television & Appliance Rental, Inc., 944 F.2d 597, 603 (9th Cir. 1991); see also Los 8 || Angeles Mem’] Coliseum Comm'n v. Nat'l Football League, 634 F.2d 1197, 1202 (9th Cir. 1980) 9 || ([MJonetary injury is not normally considered irreparable.”). Here, the injury is purely financial. 10 || To be sure, irreparable harm may be established by showing that “‘a money judgment will go 11 unsatisfied absent equitable relief.”” Alpha Capital Aktiengesellschaft v. Advanced Viral Research 12 Corp., No. 02cv10237, 2003 U.S. Dist. LEXIS 2077, at *13 (S.D.N.Y. Feb. 11, 2003). However,

13 Plaintiff has not submitted any evidence that any or all three Defendants who entered into the

v 14 || funding agreement are insolvent or that they would not be able to pay the amount owed (as © 15 alleged).* Nor has Plaintiff shown that there is no other collateral, including Firm Collateral, to A 16 protect their interest; in fact, § 13.6 of the funding agreement gives Plaintiff a “first priority,

17 || perfected security interest in the Firm Collateral.” 8 18 Because Plaintiff has not shown a likelihood of irreparable injury, Plamtiff’s motion for a 19 || temporary restraining order is therefore DENIED. 20 IT ISSO ORDERED. 21 22 Dated: December 1, 2023 23 Lx 24 tt EDWARD". CHEN 25 United States District Judge 26 27 28 3 That Defendants have not made payments may be explained by the fact that the arbitration award was only recently confirmed in September 2023. See Compl. § 27.