2018-00241441-CU-BC

11415 Folsom, LLC vs. Donald H. Reinnoldt

Nature of Proceeding: Motion for Preliminary Injunction

Filed By: Fairbrook, John

Cross-Complainant Donald H. Reinnoldt, II (“Reinnoldt”), moves for a preliminary

injunction to prohibit Cross-Defendant 11415 Folsom, LLC (“LLC”), from proceeding with a trustee’s sale under a Deed of Trust as to property commonly known as 11415 Folsom Boulevard, Rancho Cordova, California (“Folsom Property”). The motion for preliminary injunction is granted as set forth below.

Reinnoldt’s objections to evidence are ruled upon as follows: Sustained Objection No. 2, 6, and 7; overruled Nos. 1, 3, 4, 5, and 8.

The subject Deed of Trust dated January 31, 2017 (“Deed of Trust”) encumbers the

Folsom Property which is owned by Reinnoldt and LLC as tenants-in-common, with undivided interests of 30% and 70% respectively.

LLC had noticed a trustee’s sale for February 1, 2019, under the Deed of Trust. On January 24, 2019, Reinnoldt sought a temporary restraining order as to the approaching sale, which the court granted with an order to show cause as to this preliminary injunction motion.

Reinnoldt contends that the abated trustee’s sale is based on LLC’s improper attempted acceleration of a Promissory Note secured by the Deed of Trust. Reinnoldt argues that the attempted acceleration is based on LLC’s erroneous assertion that Reinnoldt defaulted on the Promissory Note.

In connection with the parties’ acquisition of the Folsom Property, LLC loaned to Reinnoldt his portion of the Folsom Property acquisition price in the amount of $840,000. Reinnoldt executed a Promissory Note in favor of LCC in the corresponding sum of $840,000.00 (“Note”). The Note called for interest-only payments of $3,500 per month for a period of 36 months, with any unpaid principal and accrued unpaid interest due and payable on January 31, 2020. The Note is secured by a Deed of Trust under the Folsom Property. (Declaration of Donald H. Reinnoldt, II (“Reinnoldt Dec”), Exhibit B.) At the time of the Folsom Property’s acquisition, it was occupied by two commercial tenants. There existed no long term leases, with each tenant occupying a portion of the building under a month-to-month lease. Most of Folsom Property expenses including maintenance, utilities, taxes and other Folsom Property expenses had to be borne by the owners. (Reinnoldt Dec.)

The parties entered into a Tenant-in-Common Agreement (“TIC Agreement”) which set forth, among other terms, the parties’ agreement for sharing and paying specified property expenses, including real property taxes, maintenance and repair, professional fees, and insurance.

As the parties’ relationship regarding ownership of the Folsom Property progressed, Reinnoldt contends that he and LLC agreed that loan payments due under the Note would be offset against Folsom Property expenses owed by LLC which it had not been paying. Reinnoldt contends that LLC’s agreement to accept a credit for Reinnoldt’s payment of Folsom Property expenses against Reinnoldt’s due Note payments is evidenced in written communications between the parties. Reinnoldt specifically points to documentaiton acknowledging the offset of loan payments including an attachment to an April 17, 2017 email from LCC’s principal (Mr. Le) to Reinnoldt exhibiting LCC’s acknowledgement of $28,000 in credit to Reinnoldt for his payment of TIC expenses for LCC. (See, MPA, p. 10, and Reinnoldt Dec. Exh. G.)

Reinnoldt contends that the first notice that LCC objected to offset process, where LLC credited Reinnoldt’s payment of expenses against Note payments that he owed, was when he received a Notice of Default which was served on him on October 17, 2018. (Reinnoldt Dec, ¶ 4.) According to Reinnoldt, this was the first time he was advised that LLC claimed to have accelerated the balance due under the Note as a result of his alleged failure to make payments under the terms of the Note. (Reinnoldt Dec, ¶4.) Reinnoldt contends that at no time prior to the service of LLC’s Notice of Default was any demand made upon him to pay any amount which LLC claimed was delinquent and/or otherwise due under the Note.

Further, Reinnoldt contends that there was no notice of default or an opportunity for him to cure any alleged default as required by the terms of the Note, and that LCC has not yet exercised the option to accelerate the Note under its terms because LLC did not provide written notification to Reinnoldt of the default and LLC’s election to accelerate.

Reinnoldt argues that he is likely to prevail on the merits of his cross-complaint because he is not in default under the Note. Moreover, Reinnoldt contends that he paid and/or became obligated to pay for expenses related to the Folsom Property in excess of $271,401.00, and he incurred indirect expenses of $24,000.00. (Reinnoldt Dec, ¶23, Exhibit G to Tanner Dec.) He argues he is entitled to an equitable offset to outstanding obligation on the Note because these amounts significantly exceed the Note payments which would have otherwise been due under its terms and if the offsets are applied, LLC is still indebted to Reinnoldt for direct expenses in the amount of $49,732.42 and for indirect expenses of $24,000.00.

Reinnoldt also asserts that aside from the lack of his default, the lack of notice and an opportunity to cure, and the outstanding offset for sums owed by LLC to him, Reinnoldt contends that the Notice of Default stated an amount to cure the default as of October 3, 2018 of $967,824.38 which he argues is erroneously based upon a fictitious acceleration of the Note as of May 31, 2017. (MPA, p. 18:22-28.)

LLC opposes the motion. LLC, through its principal Mr. Le, presents a very different picture of the relationship between LLC and Reinnoldt during the parties’ ownership of the Folsom Property. In summary, LLC presents evidence to the effect that (1) Reinnoldt had been in chronic default under the Note after the first three months and LLC notified him of the defaults and demanded that he cure the defaults (Le Decl., ¶15, Exh. 4; ¶28, Exh. 9.) (2) Reinnoldt made misrepresentations to Mr. Le regarding more than $100,000 of property expenses that Reinnoldt claimed he paid for the benefit of the cotenancy and requested and received offsets against his Note payments, but Reinnoldt in fact had not paid or the expenses were not attributable to the Folsom Property or the contenancy, (3) Reinnoldt concealed a lawsuit involving the Folsom Property’s prior owners and current tenants of the property, and negotiated a settlement without LLC’s prior knowledge or involvement, and (4) Reinnoldt engaged in negotiations to become an owner of a business that was a tenant in the Folsom Property, and he incurred a personal loan for the benefit of that enterprise but now attempts to shift $105,000 of the debt to the LLC on the ground that it resolved the lawsuit in a manner that preserved the current tenants in the property which benefits the Reinnoldt and LLC’s cotenancy.

LLC further argues that its delivery of the Notice of Default functioned as its notice to Reinnoldt of its election to accelerate the Note. LLC contends that the NOD properly sets the date of default as June 1, 2017, and the demand and default amount due is thus properly calculated.

LLC, relying upon the work of Karl Sense, CPA, argues that his revised schedule of credits and debits and a Detailed Cash Flow Analysis, demonstrate that the overall income Reinnoldt received which was attributable to LLC exceeded by $74,896.12 the expenses Reinnoldt paid on the LLC’s behalf. LLC contends that cash flow analysis shows as of the date of each income or expense transaction there was no overpayment of expenses by Reinnoldt.

The general principles which normally guide the court’s analysis upon a motion for preliminary injunction are well-established. “In determining whether or not to issue a preliminary injunction, a trial court must evaluate two interrelated factors. The first is the likelihood that the plaintiff will prevail on the merits at trial. The second is the interim harm the plaintiff may suffer if the injunction is denied as compared to the harm that the defendant may suffer if the injunction is granted.” (IT Corp. v. County of Imperial (1983) 35 Cal.3d 63, 69-70; Tahoe Keys Property Owners’ Ass’n v. State Water Res. Co. (1994) 23 Cal.App.4th 1459, 1471) In thus balancing the respective equities of the parties, the court must determine whether, pending a trial on the merits, the defendant should or should not be restrained from exercising the right claimed by it. (Id.) The trial court’s determination must be guided by a “mix” of the potential-merit and interim-harm factors; the greater the plaintiff’s showing on one, the less must be shown on the other to support an injunction. (King v. Meese (1987) 43 Cal.3d 1217, 1227-1228.) 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. (Id., at pp. 442-443.)

Based upon the record evidence the question of the likelihood that Reinnoldt will prevail on the merits of his declaratory relief claim to the effect that he is not in default on the Note so the NOD is invalid and inaccurate, is at best in equipoise between the parties. However, on the interim-harm factor the Court is persuaded that harm Reinnoldt may suffer if the injunction is denied is greater when compared to the harm that the LLC may suffer if the injunction is granted.

Thus, the Court shall issue a preliminary injunction to restrain, enjoin and prevent Cross-Defendant 11415 Folsom, LLC and its officers, agents, employees, representatives and all persons acting in concert or participating with them during the pendency of this action, from selling or attempting to sell, or causing to be sold the real property located at 11415 Folsom Boulevard, Rancho Cordova, California under the power of sale contained in the Deed of Trust dated January 31, 2017 recorded in Book 20170131 at Page 1156 in the Official Records of Sacramento County, California, which encumbers the Property, through the non-judicial trustee’s sale of the property previously noticed for February 1, 2019.

On granting an injunction, the court must require an undertaking on the applicant’s part to the effect that the applicant will pay the party enjoined any damages, not exceeding an amount to be specified, that may be sustained by reason of the injunction if the court finally decides that the applicant was not entitled to the injunction. (Code Civ. Proc. § 529(a); see Cal. Rules of Ct., Rule 3.1150(f).) The undertaking is mandatory, and a preliminary injunction does not become operative until it is furnished. (Casitas Inv. Co. v. Charles L. Harney, Inc. (1962) 203 Cal. App. 2d 811, 816; Griffin v. Lima (1954) 124 Cal. App. 2d 697, 699.) Having considered the parties’ competing arguments as to the amount of the bond, the Court sets the bond amount at $75,000.00. The bond shall be posted on or before March 18, 2019. If the bond is not posted within that period, the temporary restraining order shall dissolve, and the preliminary injunction granted herein shall be inoperative.

Reinnoldt shall prepare a formal order for the court’s execution in accordance with the ruling pursuant to California Rules of Court, Rule 3.1312.