Michael Pashaie and Shahla Pashaie v. H77LA, LLC

• Court: District Court, C.D. California
• Decided: July 22, 2024
• Docket: 2:23-cv-06567
• Status: Unknown

Opinion

1 O 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 Case No.: 2:23-cv-06567-MEMF-AJR 11 MICHAEL PASHAIE and SHAHLA

PASHAIE, 12 ORDER HOLDING DEFENDANT IN Plaintiffs, CONTEMPT FOR VIOLATION OF COURT 13 ORDER AND SETTING ORDER TO SHOW v. CAUSE AS TO WHY COUNSEL FOR 14 DEFENDANT SHOULD NOT BE

SANCTIONED 15 H77LA, LLC, 16 Defendant. 17

18 19 20 I. Background 21 The Court has previously summarized the factual allegations of this case in its order granting 22 preliminary injunction, issued on December 7, 2023. ECF No. 33 (“PI Order”). In particular, the 23 case involves a dispute between two neighboring property owners—Plaintiffs Michael and Shahla 24 Pashaie (the “Pashaies”), who own the property downslope of Defendant H77LA, Inc. (“H77LA”). 25 The Pashaies entered into a restrictive covenant with the prior owners of the property, now owned by 26 H77LA, which the Pashaies allege prohibit H77LA from construction activities that H77LA seeks to 27 conduct and has been conducting. 28 / / / 1 A. Procedural History 2 On September 28, 2023, the Pashaies moved this Court for a preliminary injunction to restrict 3 the construction activities of H77LA in accordance with the Pashaies’ interpretation of a recorded 4 covenant. ECF No. 13. On December 7, 2023, the Court granted a preliminary injunction enjoining 5 H77LA from the following conduct: 6 1. Conducting any further construction without written consent from the Pashaies on the 7 slope portion of the Sierra Mar Property (the “Property”), defined as the whole slope 8 including the slope portion of the property where the current structure is located, but 9 excluding remodeling strictly to the interior of the structure; and 10 2. Constructing any pool on the property unless it is a rectangular pool compliant with the 11 dimensions specified in Section 1 of the October 1, 1992 Slope Agreement (the “Slope 12 Agreement”), until a resolution is reached in this lawsuit. 13 PI Order at 14. In the PI Order, the Court added the following:

14 At the hearing, counsel for H77LA raised concerns that to the extent an injunction is granted that enforces the right of the Pashaies to approve H77LA’s construction, the 15 Pashaies would be able to unreasonably withhold their approval. However, at this point, H77LA has not presented any evidence, nor can the Court presume, that the Pashaies 16 would violate the implied covenant of good faith and fair dealing inherent to every contract under the law. Storek & Storek, Inc. v. Citicorp Real Estate, Inc., 100 Cal. App. 17 4th 44, 57 (2002) (explaining that “when a party is given absolute discretion by express contract language, the courts will imply a covenant of good faith and fair dealing . . . 18 and avoid a finding that the promise is illusory”). Nevertheless, to the extent that H77LA believes that the Pashaies are unreasonably withholding their approval, it may 19 file a motion with the Court as necessary. 20 PI Order at 12, n.14. The injunction took effect on January 3, 2024, when the Pashaies entered bond. 21 ECF No. 34. 22 On April 29, 2024, H77LA moved ex parte for an order permitting it to conduct 23 waterproofing and sealing activities on the Property. ECF No. 39 (“H77LA Ex Parte”). On May 6, 24 2024, the Pashaies also moved ex parte for an order to show cause as to why H77LA should not be 25 held in contempt for violation of the Court’s PI Order. ECF No. 43. On May 28, 2024, the Court 26 found that it was “clear” based on the record of the ex partes that H77LA had conducted 27 construction in violation of the PI Order. ECF No. 58 (“Ex Parte Order”) at 6. The Court issued an 28 order denying H77LA’s ex parte and granting the Pashaies’ ex parte. Id. The Court set an order to 1 show cause as to why H77LA should not be held in contempt on June 6, 2024, instructing H77LA to 2 explain to the Court: 3 1. What construction, if any, has been done on the slope portion of the Property since 4 January 3, 2024; 5 2. If any construction has been done, why consent was not first sought or not necessary 6 to be sought. 7 Id. at 6–7. 8 On May 31, 2024, counsel for H77LA emailed the Court requesting that the OSC hearing be 9 continued from June 6, 2024, to June 13, 2024. See ECF No. 73-1 at 3. Counsel for H77LA stated 10 that the reason for the request was because the witnesses that were planned to be presented were “not 11 all available on June 6, 2024, but will be available the following Thursday, June 13, 2024.” Id. The 12 Court accordingly continued the OSC hearing to June 13, 2024. ECF No. 61. On June 12, 2024, the 13 parties filed a stipulation to continue the OSC Hearing from June 13, 2024, to June 20, 2024. ECF 14 No. 65. In particular, the stipulation noted that the continuance was “due to Defense counsel’s 15 religious obligation, and that of one of Defendant’s witnesses,” for which the Pashaies agreed to 16 accommodate. Id. at 2. The Court ultimately continued the OSC hearing to July 2, 2024, after 17 confirming the availability of the parties. ECF Nos. 66, 71. 18 On June 28, 2024, the Pashaies filed a Notice of Ongoing Construction Activities in Support 19 of Order to Show Cause, and included evidence of what they alleged to be ongoing construction in 20 violation of the Court’s prior orders, even after the Ex Parte Order. ECF No. 73.1 21 B. OSC Hearing 22 On July 2, 2024, the Court held the OSC hearing. Counsel for both parties gave opening 23 statements, and the Pashaies presented a direct examination of Michael Pashaie and Alan Lazar. 24 H77LA conducted a cross-examination of Lazar. ECF No. 80 (“Day 1 Transcript”). The Pashaies 25 rested their case. The Court continued the hearing to July 16, 2024, and July 17, 2024. ECF No. 86. 26

27 1 H77LA filed an objection to the evidence submitted in the Pashaies’ filing, which the Court resolved at the OSC hearing. ECF No. 74. In particular, the Court only considers evidence in this Order that has been 28 1 On July 16, 2024, H77LA brought an oral motion to discharge the OSC, arguing that the 2 Pashaies had failed to present evidence of monetary or economic damages beyond attorney’s fees. 3 ECF No. 95 (“Day 2 Transcript”) at 8–9. The Court found that the authority cited by H77LA2 did 4 not prohibit the Court from finding H77LA in contempt, and denied the motion without prejudice. 5 Id. H77LA proceeded to examine Pashaie as an adverse witnesses. 6 On July 17, 2024, H77LA renewed its motion to discharge, arguing that the Pashaies had not 7 met their burden of establishing by clear and convincing evidence that H77LA had violated the 8 Court’s orders willfully, that even if there was a violation it was only a technical one, and that 9 regardless, the orders and the Slope Agreement itself were unclear. The Court denied the motion 10 without prejudice. H77LA then presented the testimony of Hany Messiha (the civil engineer in 11 charge of H77LA’s remodeling project), Andrey Svetakov (the project superintendent for H77LA’s 12 contractor),3 and Aidin Khoei (the architect designer involved with H77LA’s remodel project). At 13 the close of the hearing, the Court orally made a finding that the Pashaies had established by clear 14 and convincing evidence that H77LA had violated the Court’s PI Order and Ex Parte Order, and that 15 H77LA’s actions doing so were intentional. Accordingly, the Court found H77LA in contempt.4 16 A. Factual Findings 17 Based on the evidence presented at the OSC hearing and the record before it, the Court 18 makes the following factual findings. 19 H77LA first sought consent for waterproofing and sealing activities on January 31, 2024, 20 only after the Pashaies contacted H77LA expressing concern with what they observed to be ongoing 21 construction at the Property. ECF No. 39-1 (“Pessah Decl.”) at 2. In H77LA’s communication, 22 H77LA affirmatively states that it “had to take urgent measures to waterproof and seal” the property 23 24 2 In re Dual-Deck Video Cassette Recorder Antitrust Litig., 10 F.3d 693 (9th Cir. 1993); In re Crystal Palace Gambling Hall, Inc., 817 F.2d 1361 (9th Cir. 1987). 25 3 Although it appears that Igal Azran, the principal contractor and Svetakov’s supervisor, came to the first two 26 days of the OSC hearing, H77LA did not ultimately present any testimony from Azran. 4 Although the Court stated it intended to also hold counsel for H77LA in contempt, the Court noted that as 27 counsel was not previously put on notice, the Court would refrain from holding counsel in contempt at this time. ECF No. 98. However, the Court will set an order to show cause as to why counsel for H77LA should 28 1 as of January 31, 2024. Id., Ex. A. Counsel for H77LA further affirmed H77LA’s view that 2 “[w]aterproofing does not involve construction, per se. . .” Id. On February 1, 2024, the Pashaies 3 granted conditional approval for H77LA to complete waterproofing and protective activities on the 4 Property, including using tarps. Id., Ex. B. However, the Pashaies specified that their conditional 5 approval was “not a blanket approval for anything that, according to Defendant’s own contractors, 6 can be considered ‘waterproofing’ or ‘protection.’” Id. According to Svetakov, H77LA had 7 previously attempted the usage of tarps before January 1, 2024. Day 3 Transcript; Exhibits 26-29. 8 On February 2, 2024, H77LA responded to the Pashaies, stating that “Waterproofing is not a 9 violation of the Court’s order.” Id., Ex. C. Counsel for H77LA stated that “waterproofing is not 10 tantamount to construction,” and that “[w]aterproofing is not construction, full stop.” Id. Notably, 11 H77LA represented that it “will not, and cannot, limit its waterproofing activities” to using tarps, and 12 rejected the notion that consent was required to complete any waterproofing activities. Id. (emphasis 13 added). Messiha testified that waterproofing is construction, and Svetakov testified that 14 waterproofing under “normal circumstances” would be considered construction. Day 3 Transcript. 15 On February 13, 2024, counsel for H77LA noted that although it had “halted waterproofing,” it 16 intended to resume doing so. Id., Ex. D. Counsel for the Pashaies requested further clarification on 17 what type of waterproofing H77LA intended to do. Id., Ex. E. As of February 20, 2024, H77LA had 18 not responded to the request for further detail, and the Pashaies reiterated their concerns about “what 19 is being defined as ‘waterproofing.’” Id., Ex. F. 20 On March 21, 2024, counsel for the Pashaies noted that H77LA had still not responded to the 21 Pashaies’ request for more detail on what activities H77LA intended to pursue as “waterproofing,” 22 “despite several follow up attempts.” Id., Ex. G. On April 12, 2024, H77LA reiterated its position 23 that it did not need any consent to conduct its waterproofing activities, and that “[s]uch activities do 24 not entail constructing any structures at the property or on what the Court has interpreted as the 25 ‘slope.’” Id., Ex. J. On April 15, 2024, counsel for the Pashaies noted that the Pashaies had seen 26 further exterior construction, and would be deciding soon to seek court intervention. Id., Ex. L. 27 According to testimony from Svetakov and Pashaie, construction on the roof was done around 28 March or April, including the installation of the skylight dome on the roof. Day 1 Transcript 117:7– 1 13; Day 3 Transcript. Svetakov also testified that to seal the hole in the roof, they could have put a 2 piece of glass on it, but it would not have been the “skylight in the plans.” Day 3 Transcript. On 3 April 29, 2024, counsel for H77LA gave the Pashaies notice of its intent to move ex parte for an 4 order permitting H77LA to complete waterproofing and sealing activities on the Property, and 5 further to allow other activities to protect the Property. Id., Ex. M. 6 On May 28, 2024, the Court’s ruling on H77LA’s ex parte stated as follows: “The Court will 7 take this opportunity to remind the parties that the injunction prohibits H77LA from ‘conducting any 8 [] construction without written consent from the Pashaies on the slope portion of the Sierra Mar 9 Property’ and does not limit that prohibition on how the construction is characterized, the purpose of 10 the construction, or how important or necessary H77LA determines that it is.” Ex Parte Order at 4. 11 “Whether the work was necessary for waterproofing or sealing is irrelevant,” as “the PI Order did 12 not make any exception as to waterproofing or sealing activities (nor did H77LA seek any such 13 exception).” Id. at 6. 14 After May 28, 2024, construction on the exterior of the house continued. See, e.g., Day 1 15 Transcript 143:1-21; Exhibits 4-11. In particular, Svetakov testified that he had a conversation with 16 his supervisor that all activity had to cease, but he “took initiative” to install sliding glass doors once 17 they arrived on or around June 15, 2024—given that H77LA had been waiting for the doors to be 18 delivered from overseas for nearly a year, he did not want to risk storing them on the Property, and 19 he wanted to install them to provide additional waterproofing. Day 3 Transcript. Svetakov explained 20 that the standard schedule for installation is to install things as soon as the items arrived—and 21 accordingly, the skylight was installed as soon as it was received, as well as the sliding doors. Id. 22 II. Applicable Law 23 “Civil contempt . . . consists of a party’s disobedience to a specific and definite court order 24 by failure to take all reasonable steps within the party’s power to comply. The contempt ‘need not be 25 willful,’ and there is no good faith exception to the requirement of obedience to a court order. But a 26 person should not be held in contempt if his action ‘appears to be based on a good faith and 27 reasonable interpretation of the [court’s order].’” In re Dual-Deck, 10 F.3d at 695 (internal citations 28 omitted). To find a party in civil contempt, the “moving party has the burden of showing by clear 1 and convincing evidence that the contemnors violated a specific and definite order of the court. The 2 burden then shifts to the contemnors to demonstrate why they were unable to comply.” FTC v. 3 Affordable Media, 179 F.3d 1228, 1239 (9th Cir. 1999) (quoting Stone v. City and County of San 4 Francisco, 968 F.2d 850, 856 n.9 (9th Cir. 1992)).5 5 III. Discussion 6 For the reasons discussed below, the Court finds H77LA in contempt. 7 A. The Court Finds That H77LA Violated the Court’s Prior Orders 8 It was clear from the evidence presented that—despite being ordered not to conduct any 9 further construction without approval of the Pashaies—H77LA conducted further construction after 10 the entry of the injunction without approval of the Pashaies. This construction included, at the very 11 least, construction on the roof (including installation of the skylight). Even after the issuance of the 12 Ex Parte Order—which reiterated the provisions of the preliminary injunction order and advised the 13 parties that the preliminary injunction order made no exception for purported “waterproofing and 14 sealing activities,” H77LA conducted even more construction, including installation of the sliding 15 glass doors. 16 H77LA apparently maintains that construction on the roof and installation of the sliding glass 17 doors constitutes “waterproofing and sealing” and not “construction.” This is belied by common 18 sense; of course, installation of sliding doors is construction, regardless of whether it also serves to 19 waterproof and seal the property. H77LA’s position is also belied by the evidence at the hearing 20 which showed that these activities were and are commonly considered construction by the 21 individuals responsible for the project, and that the activities were all part of the original 22 construction plans. There was no evidence even suggesting that any of these activities were engaged 23 in solely for the purpose of waterproofing and had not been part of the original plans. What is 24 25 5 The Court notes that in closing argument, counsel for the Pashaies appeared to characterize some of the remedies sought as punitive in nature, which would require a finding of criminal contempt. See Shell 26 Offshore, Inc. v. Greenpeace, Inc., 815 F.3d 623, 629 (9th Cir. 2016) (“The purpose of civil contempt is coercive or compensatory, whereas the purpose of criminal contempt is punitive.”). However, as the Court’s 27 Ex Parte Order did not reference criminal contempt, the Court solely makes a finding of civil contempt at this time. To the extent that the Pashaies believe that a finding of criminal contempt is warranted, they may brief 28 1 patently clear is that if H77LA adjusted its conduct at all in response to the PI Order, it was merely 2 to scale back construction to those pre-planned construction activities that it—in its sole discretion— 3 deemed necessary for waterproofing. 4 Thus, the Court finds that H77LA violated the Court’s preliminary injunction order—a specific 5 and definite order of the Court. 6 B. The Court Finds that H77LA Acted Intentionally And Not In Good Faith 7 H77LA has failed to show that it was unable to comply with the preliminary injunction order 8 or that its construction activities were based on a good faith and reasonable interpretation of the 9 order. To the contrary, the evidence shows that H77LA acted intentionally and not in good faith. 10 H77LA has suggested that it understood the preliminary injunction order to permit 11 “waterproofing and sealing,” or at the very least that the preliminary injunction order was vague as 12 to whether waterproofing and sealing activities were permitted. Although in “certain circumstances 13 vagueness can operate as a defense to contempt,” “where a party has bypassed opportunities to 14 present its asserted vagueness claim on appeal or through a motion to clarify or modify the 15 injunction, the party cannot disregard the injunction and then object to being held in contempt when 16 the courts conclude that the injunction covered the party’s conduct.” TiVo Inc. v. EchoStar Corp., 17 646 F.3d 869, 886 (Fed. Cir. 2011). A party who undertakes “to make their own determination” of 18 what a court order means “act[s] at their own peril.” Id. (quoting McComb v. Jacksonville Paper Co., 19 336 U.S. 187, 192 (1949). The fact that H77LA continued its construction even after the Court 20 clarified that the preliminary injunction order prohibited even construction that could be considered 21 “waterproofing” demonstrates that H77LA’s violation of the Court’s preliminary injunction order 22 was not due to a good faith belief that H77LA’s conduct was permitted. Even Svetakov’s testimony 23 made clear that H77LA “took the initiative” and determined what activities should continue based 24 upon what was needed to protect the property, not because of any understanding that the Court 25 permitted construction to protect the property. 26 H77LA has also suggested that the Pashaies were unreasonably withholding consent to 27 conduct necessary waterproofing activities. But the Court made very clear to H77LA in the 28 preliminary injunction order what it should do if the Pashaies were to unreasonably withhold 1 consent. Rather than seek consent before engaging in construction, and rather than seeking 2 permission from the Court if and when such consent was unreasonably withheld, H77LA continued 3 construction, virtually unabated, for the entire first half of this year. This brazen course of conduct 4 clearly shows bad faith. 5 Finally, much of H77LA’s argument and witness examination at the OSC hearing seemed 6 geared toward proving that the Slope Agreement was invalid or that the Court’s preliminary 7 injunction order did not accurately capture H77LA’s obligations under the Slope Agreement. Even if 8 H77LA believed that the Slope Agreement or the preliminary injunction order was invalid, the 9 proper course of conduct was to seek review of the order. See GTE Sylvania, Inc. v. Consumers 10 Union of U.S., Inc., 445 U.S. 375, 387 (1980) (explaining that the “established doctrine” is that 11 “persons subject to an injunctive order issued by a court with jurisdiction are expected to obey that 12 decree until it is modified or reversed, even if they have proper grounds to object to the order”); see 13 also Zapon v. U.S. Dept. of Justice, 53 F.3d 283, 285 (9th Cir. 1995) (noting that “obedience to even 14 an assertedly void [] order is required unless and until it has been vacated or reversed”). H77LA 15 chose not to do that, further demonstrating its lack of good faith. 16 *** 17 Given that the Pashais showed by clear and convincing evidence that H77LA violated a 18 specific and definite order of the court, the burden shifted to H77LA to demonstrate why it was 19 unable to comply. It utterly failed to do so. 20 The Court finds H77LA in contempt. 21 *** 22 Order to Show Cause Why H77LA’s Counsel Should Not Be Sanctioned for Violating Rule 11 23 and the Local Rules of this Court 24 At the close of the evidentiary hearing, counsel for the Pashaies argued that H77LA’s 25 counsel had engaged in a “pattern and practice” of bad faith conduct and should be held in contempt 26 along with H77LA itself. Although the Court was originally inclined to find H77LA’s counsel in 27 contempt for its role in H77LA’s contemptuous conduct, neither the Pashaies’ original contempt 28 request (ECF Nos. 43, 53) nor the Court’s original Order to Show Cause (ECF No. 58) put H77LA’s 1 counsel on notice that it might be held in contempt and what conduct might be considered 2 contemptuous. See ECF No. 98. Should the Pashaies still seek to have this Court hold H77LA’s 3 counsel in contempt, they will be required to file a properly noticed motion with appropriate support. 4 Nevertheless, the Court’s findings above with respect to H77LA’s conduct suggest to the 5 Court that H77LA’s counsel may have violated Rule 11 of the Federal Rules of Civil Procedure and 6 the corresponding Local Rules in its briefing in support of the H77LA Ex Parte. ECF No. 39. Rule 7 11(a) requires each application and other paper filed to be signed by an attorney and Rule 11(b) 8 establishes that the signature of an attorney on an application is that attorney’s certification that: 9 (1) [the application] is not being presented for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation; 10 (2) the claims, defenses, and other legal contentions are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or 11 for establishing new law; (3) the factual contentions have evidentiary support or, if specifically so identified, will 12 likely have evidentiary support after a reasonable opportunity for further investigation or discovery; and 13 (4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on belief or a lack of information. 14 See Rule 11(b). Rule 11(c)(1) also permits the Court to impose an appropriate sanction for a 15 violation of this certification after reasonable notice and an opportunity to respond. See Truesdell v. 16 Southern California Permanente Medical Group, 293 F.3d 1146, 1153 (9th Cir. 2002) (explaining 17 that Rule 11(c) allows sanctions if a filing is either “legally frivolous” or “factually misleading”). 18 The Court’s factual findings and the evidence presented at the hearing in support thereof 19 supports a finding that H77LA’s Ex Parte, and counsel’s declarations in support thereof violated 20 Rule 11. H77LA’s entire ex parte application was based upon the premise that it sought direction 21 from the Court as to whether the waterproofing and sealing activities were permitted. H77LA Ex 22 Parte at 2 (“H77LA . . . hereby seeks . . . a court order permitting Defendant to complete specific and 23 limited waterproofing and sealing activities at the Sierra Mar Property.”); 4 (“[H77LA] seeks an 24 emergency order confirming that its waterproofing and sealing activities are not a violation of the 25 Order, and expressly permitting Defendant to prevent further irreversible damage to Sierra Mar by 26 completing the waterproofing and sealing of the property . . . .”). The fact that H77LA—upon 27 receiving explicit direction from the Court that these activities were not permitted—continued these 28 1 “warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing 2 existing law or for establishing new law.” See Rule 11(b)(1), (b)(2). 3 Accordingly, per Rule 11(c)(3), H77LA’s counsel is ORDERED to show cause as to why its 4 conduct has not violated Rule 11(b) and why it should not be sanctioned for any violation. 5 Similarly, Local Rule 83-7 permits this Court to impose sanctions for violation of or failure 6 to conform to this Court’s Local Rules. The conduct described above would appear to violate this 7 Court’s Local Rules as well—including, in particular, Local Rule 11-9 regarding the presentation to 8 the Court of frivolous motions. H77LA’s counsel is ORDERED to show cause why its conduct has 9 not violated Local Rule 11-9 and why it should not be sanctioned for any violation. 10 IV. Conclusion 11 For the foregoing reasons, the Court hereby ORDERS as follows: 12 1. H77LA is hereby held in contempt; 13 2. The parties are ordered to brief the question of whether and what the Court should order 14 demolished as a remedy for H77LA’s contempt; 15 3. The parties are ordered to brief the question of whether, in what amount, and to whom 16 H77LA shall be ordered to pay monetary sanctions in view of its contempt; 17 4. H77LA’s counsel is ordered to show cause as to why its conduct has not violated Rule 11(b) 18 of the Federal Rules of Civil Procedure and Local Rule 11-9 and why it should not be 19 sanctioned for any violation; 20 5. The Court sets the briefing schedule for items 2 and 3 above as agreed on by the parties (ECF 21 Nos. 99, 100): 22 a. The Pashaies’ opening briefs will be due on August 1, 2024; 23 b. H77LA’s opposition briefs will be due on August 15, 2024; 24 c. The Pashaies’ reply briefs will be due on August 22, 2024; and 25 6. As to item 4 above, the Court sets the following briefing schedule6: 26 a. Counsel for H77LA’s response will be due on August 15, 2024; 27

28 6 1 b. A response, if any, from the Pashaies will be due on August 22, 2024; 2 c. Counsel for H77LA’s reply brief, if any, will be due on September 5, 2024; and 3 7. The Court will determine whether or if any additional hearings are needed. 4 5 IT IS SO ORDERED.

7 Dated: July 22, 2024 8 MAAME EWUSI-MENSAH FRIMPONG 9 United States District Judge 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28