2018-00240587-CU-BC

Vujadin Jovic vs. Sperry and Sons Capital Investments, LLC

Nature of Proceeding: Motion for Preliminary Injunction

Filed By: Dudensing, Janice D.

Plaintiff Vujadin Jovic’s motion for preliminary injunction is denied.

The Court received but did not consider Plaintiff’s reply brief filed on October 11, 2018.

At the outset, the Court notes that the motion refers to a second amended complaint. However, the Court’s file only reflects that Plaintiff filed his original complaint on September 13, 2018 and a first amended complaint on September 14, 2018. There is no second amended complaint in the Court’s file. Nor could there be absent a motion or stipulation of the parties and Court order. Therefore, the Court’s analysis is premised on the first amended complaint. Plaintiff also refers to a verified complaint, but the FAC is not verified. Nor was the original complaint.

In this action Plaintiff alleges causes of action for fraud, negligent misrepresentation and wrongful foreclosure. Plaintiff alleges that he purchased a commercial property in Old Sacramento in July 2014. He alleged that he worked with Defendant Sperry and Sons Capital Investments, LLC (“SS Capital”) on numerous ventures and obtained a second mortgage from SS Capital in the amount of $520,000 which was a “hard money” loan. Plaintiff alleges that after the loan was funded it was discovered that the property was in more disrepair than previously projected and that Plaintiff contacted SS Capital partner/owner Defendant Kirk Sperry to refinance the loan and pay down

the note carried by SS Capital. Plaintiff alleged that he refinanced the property in October 2015 and paid down the SS Capital Note to $380,000. He alleges that Mr. Sperry funneled $26,000 of that amount to himself as an exit fee. Plaintiff allegedly made additional payments on the note and then contacted Mr. Sperry again after he fell behind. He alleged that Mr. Sperry represented that he would modify the loan by extending the maturity of the loan for one year on condition that Plaintiff continued to make improvements on the property. Plaintiff fell behind again and contacted Mr. Sperry who allegedly asked Plaintiff to pay SS Capital $26,000. Plaintiff alleged that the parties agreed that the money would be taken out of a separate property (“Scripps”). Plaintiff had a second loan on the Scripps property funded by SS Capital. Plaintiff alleges that the $26,000 was paid to SS Capital and Mr. Sperry promised to freeze payments while Plaintiff continued to improve the property. Plaintiff alleged that Mr. Sperry and Defendant Nick Leap represented that as long as Plaintiff was continuing to improve the property that it would not move forward with collecting the debt or proceeding with foreclosure.

Plaintiff alleges that contrary to the representations, Defendants recorded a notice of default on May 11, 2018. Plaintiff alleges that a trustee’s sale was scheduled for September 17, 2018.

On September 14, 2018, the Court granted Plaintiff’s ex parte application for a TRO and issued an OSC restraining the foreclosure sale pending a hearing on the merits.

“To obtain a preliminary injunction, a plaintiff ordinarily is required to present evidence of the irreparable injury or interim harm that it will suffer if an injunction is not issued pending an adjudication of the merits. Past California decisions further establish that, as a general matter, the question whether a preliminary injunction should be granted involves two interrelated factors: (1) the likelihood that the plaintiff will prevail on the merits, and (2) the relative balance of harms that is likely to result from the granting or denial of interim injunctive relief.” (White v. Davis (2003) 30 Cal.4th 528, 554.) The greater the showing on one factor, the lesser the showing must be on the other. (Butt v. State of California (1992) 4 Cal.4th 668, 678.) “[T]he party seeking the injunction must present sufficient evidentiary facts to establish a likelihood that it will prevail.” ( Tahoe Keys Property Owners’ Assn. v. State Water Resources Control Board (1994) 23 Cal.App.4th 1459, 1478.)

Likelihood of Success

Fraud/Negligent Misrepresentation

Plaintiff argues that he is likely to succeed on his claims for fraud and negligent misrepresentation based on the misrepresentations made by Mr. Sperry and Mr. Leap.

The elements of fraud “are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) A failure to disclose a material fact can constitute actionable fraud. (Collins v eMachines, Inc. (2011) 202 Cal.App.4th 249, 255.) “The tort of negligent misrepresentation is similar to fraud, except that it does not require scienter or an intent to defraud.” (Tenet v. Healthsystem Desert, Inc. v. Blue Cross of California (2016) 245 Cal.App.4th 821, 839.)

Plaintiff argues that Defendants represented that he would have time to complete

improvements to the property and that they would not foreclose during such time. He
argues that he relied on those representations and spent $140,000 in improvements.
He also argues that he spent $26,000 to secure the grace period and tendered
$129,400 to Defendants to negotiate a work-out plan on the principal balance owed in
a manner customary with the parties’ past relationship. Plaintiff argues that
Defendants representations were false because they nevertheless recorded a Notice
of Default despite Plaintiff’s performance. Plaintiff argues that the representations
were made with the intent to induce him into renovating the property before foreclosure
so that they could obtain the benefits of Plaintiff’s efforts. He argues that his reliance
was reliable because on at least eight prior business dealings for the improvements of
real property where it was customary to extend the loan and/or modify it.

The Court concludes for purposes of the instant motion only, that Plaintiff has failed to demonstrate a reasonable likelihood of success on his claims. The crux of these two claims are the purported representations by Mr. Sperry and Mr. Leap that Defendants would hold off on foreclosure if Plaintiff continued to improve the property. To that end, Plaintiff’s declaration attempts to set forth approximately four times that Mr. Sperry and/or Mr. Leap represented that no foreclosure would occur. (Jovic Decl. ¶ 15.) First he confusingly declares that Mr. Sperry communicated that he sought a workout proposal on August 23, 2017 via email but that the communications were made on May 15, 2018. (Id.) However, the communications which Plaintiff attached to his compendium of evidence (Exh. D, Exh. 6 thereto) do not in any way refer to an agreement to hold off on foreclosure. The supposed May 15, 2018 email is actually a text message in which Mr. Sperry only states that he is “confident that there’s still a workout solution.” (Id.) He also declares that Mr. Sperry told Plaintiff via email on August 18, 2017 that he would not move forward with filing a Notice of Default if Plaintiff continued collecting rent, making repairs and providing specific details to bring the loan current. (Id.) There is no such email from Mr. Sperry attached even though the claimed representation was made via email. Plaintiff’s evidence does not bear out any specific representation by Mr. Sperry that Defendants would not proceed with foreclosure if Plaintiff continued with improvements.

Plaintiff also declares that Mr. Leap represented to him on May 23, 2018 that so long as Plaintiff provided information regarding financials and income, Defendants would not continue with foreclosure. (Id.) However, Mr. Leap’s declaration in opposition attached all of his communications with Plaintiff, including an email on May 23, 2018, and there is no representation that Defendants would not foreclose. (Leap Decl. Exh. A.) The May 23, 2018 email from Mr. Leap to Plaintiff only asked Plaintiff to provide certain financials. (Id.) In addition, the Court would note that the communications discuss the NOD filed and Plaintiff did not indicate that Defendants had promised not to foreclose and instead discussed being surprised because he thought they were trying to work things out and even discussed whether Defendants wanted to take over the property with a Deed in Lieu of Foreclosure. (Id.) As with Mr. Sperry, Plaintiff’s evidence does not bear out any claim that Mr. Leap falsely represented that Defendants would not foreclose.

As further pointed out by Defendants in opposition, the subject agreement stated that it could only be modified in writing. (Jovic Decl. Exh. D, Exh. 1 thereto at ¶ 23.) As seen from Plaintiff’s own evidence, there were previous written modifications of the initial loan the parties entered into. (Jovic Decl. Exh. D, Exhs. 2 and 3 thereto.) There is not any evidence of a written agreement by which Defendants agreed to hold off on

foreclosure.

To the extent that Plaintiff argues that there is some type of special relationship between the parties because they were partners, such an argument is not borne out by the evidence. As seen from Defendants’ opposition, SS Capital funded deals where there was a debt/equity hybrid structure where it provided 2nd position debt financing and in exchange received equity in the property. This was the structure created for the Scripps property but not the subject property. (Sperry Decl. ¶¶ 4-6.) With respect to the subject property, SS Capital simply provided 2nd position debt financing. (Id. ¶ 6.)

Lastly Plaintiff references an April 7, 2017 representation from Mr. Sperry that the

$26,000 from the Scripps property would be applied to the subject loan as an exit fee before the maturity of the loan. He states on “information and belief” that Mr. Sperry did not apply the $26,000 to the loan. Allegations based on information and belief do not establish personal knowledge of the facts. (Bowden v. Robinson (1977) 67 Cal.App.3d 705, 719.) Statements made on information and belief “are hearsay and must be disregarded…, and [they] are ‘unavailing for any purpose’ whatever…A ruling ‘of the court is to be based upon facts which may be presented to it, and not upon the belief of the affiant…Such allegations on ‘information and belief’ furnish no proof of the facts stated.” (Thiebaut v. Blue Cross (1986) 178 Cal.App.3d 1157, 1161 [quoting Star Motors Imports, Inc. v. Superior Court (1979) 88 Cal.App.3d 201, 204].) Plaintiff’s declaration on “information and belief” is not evidence. In any event, as shown by Defendants’ opposition, there was never a written or verbal agreement to “freeze” monthly payments in exchange for this claimed fee. Specifically, Mr. Sperry declares that Defendants never allowed or told Plaintiff that funds could be taken from the Scripps property that could be put towards the subject loan.

In short, the Court concludes, for purposes of the instant motion only, that Plaintiff has failed to provide evidence of any false representation made by Defendants that they would not proceed with a foreclosure if Plaintiff continued with improvements on the property. Accordingly, the Court concludes that Plaintiff failed to demonstrate a reasonable likelihood of success on his claims for fraud and/or negligent misrepresentation.

Given the above, the Court need not address Defendants’ argument that because loan is in the name of Arcade Old Sac, LLC (of which Plaintiff appears to be the managing member) he does not have standing individually to bring the claims on his own behalf.

Wrongful Foreclosure

Plaintiff argues that he has a reasonable probability of prevailing on this claim because the Notice of Default and Notice of Trustee Sale contain inaccurate information. However, he provides no evidence to support this claim. He provides no declaration to demonstrate that the amounts stated in the NOD or NOTS are incorrect in any manner.

By contrast, Defendants presented a breakdown of the outstanding balance on the loan in addition to the interest and penalties that have accrued. (Leap Decl. Exh. B.)

Balance of Harms

Here, Plaintiff fails entirely to address the balance of the harms. The motion could be

denied on this basis alone.

In any event, because the Court concluded above that Plaintiff failed to demonstrate a likelihood of prevailing on the merits, the Court need not consider the balance of the harms and whether the balance tips in Plaintiff’s favor. (Hunt v. Superior Court (1999) 21 Cal.4th 984, 999 [“trial court may not grant a preliminary injunction, regardless of the balance of the interim harm, unless there is some possibility that the plaintiff would ultimately prevail on the merits of the claim.”]; see also Jessen v. Keystone Sav. & Loan Ass’n (1983) 142 Cal.App.3d 454, 459 [court may deny preliminary injunction solely on finding that the moving party failed to demonstrate reasonable probability of success on the merits].) “Because we conclude plaintiff cannot succeed on the merits of his action, we need not address the balance of harms granting or not granting the injunction would impose on the parties…” (Jamison v. Dept. of Trans. (2016) 4 Cal.App.5th 356, 366.)

In short, the motion is denied in its entirety.

The Court need not rule on Defendants’ evidentiary objections. Even if the Court considered all of Plaintiff’s evidence, the outcome of the motion is not affected.

This minute order is effective immediately. No formal order pursuant to CRC rule 3.1312 or other notice is required.