2016-00204441-CU-BT

Folsom Ready Mix-Anderson, LLC vs. Randy David Barnes

Nature of Proceeding: Motion for Preliminary Injunction

Filed By: Finnerty, Kathleen E.

Plaintiff Folsom Ready Mix-Anderson, LLC (“FRMA”) and Folsom Ready-Mix, Inc.’s (“FRMI”) motion for preliminary injunction is granted.

Plaintiffs allege 12 causes of action against Defendants Randy Barnes, Jeri F. Barnes, and Central Valley CDL Services, LLC for conversion of assets from Folsom Ready-Mix Anderson, LLC, conversion of assets from Folsom Ready-Mix, Inc., breach of fiduciary duty as to both Plaintiffs, negligence, constructive fraud, conspiracy to defraud, unjust enrichment, imposition of constructive trust, breach of contract, injunctive relief, and violation of Penal Code § 496.

On September 18, 2018, this Court granted Plaintiff’s ex parte application for a TRO and issued an OSC restraining Defendants from wasting, using, selling, encumbering, hypothecating, concealing or otherwise disposing of certain specified assets:

1. The Jefferson National Monument Advisor Variable Annuity, a non-qualified variable annuity, owned by Randall Barnes with Jeff Barnes listed as co-owner, Account No.: 4693733, for which HBW Advisor Services LLC, acts as the Third-Party Investment Advisor and Richard E. Jones acts as the Investment Advisor (“Annuity”);

2. The American Funds from Capital Group, Account No.: 88287170, a 529 A investment account, held in the name of Kaci L. Boyd, as owner, FBO Blake L. Boyd, a minor (“Mutual Fund”); and
3. The real property located at 12174 Borden Road, Herald, California 95638, Sacramento County Parcel ID Number: 152-0080-100-0000 (“Residence”).

In January 2018, this Court previously granted Plaintiffs’ application for a preliminary injunction restraining Defendants from dissipating 8 specific vehicles which Plaintiffs

showed were purchased with Plaintiffs’ funds. The Court found that Plaintiffs were likely to prove their claims for conversion and breach of fiduciary duty against Mr. Barnes and conspiracy against Mrs. Barnes.

The instant application essentially seeks a preliminary injunction on the same grounds as before but regarding different assets traced to Mr. Barnes’ misappropriation.

Defendants’ 34 page opposition is a violation of CRC Rule 3.1113(d). Defendants did not obtain an order from the Court allowing them to file such an oversized opposition memorandum. Nonetheless, the court has reviewed the entirety of the opposition.

“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

Nothing has changed with respect to the Court’s previous finding that Plaintiffs are likely to succeed on their claims for conversion and breach of fiduciary duty and conspiracy.

As seen from the previous declarations filed in connection with the previous application for a preliminary injunction, upon which they rely in part for the instant application, Plaintiffs provided evidence that Mr. Barnes misappropriated at least $540,000. (S. Silva Decl. ¶ 9 (ROA 57).) That evidence also showed that Mr. Barnes used company credit cards, bank accounts, and other funds to pay for his family home, autos, travel, dining, and other expenses; including paying the Barnes’ personal IRS obligations; and purchasing equipment, computers, insurance, licensing and supplies to operate a business known as Central Valley CDL (“CVCDL”). Both Mr. and Mrs. Barnes also used Plaintiffs’ company assets, including facilities, equipment and employees, to acquire, improve, and maintain their personal vehicles and those belonging to CVCDL.

The Court previously found that Mr. Barnes admitted to spending over $300,000 of company funds on personal expenses, specifically on his classic cars and other vehicles. (Finnerty Decl. filed on 11/3/17 [ROA 56] Exh. K.)

Plaintiffs have submitted evidence in connection with the instant application that Mr. and Mrs. Barnes have continued to use assets that are proceeds of Plaintiffs’ funds on personal expenses. (Finnerty Decl. Exhs. I-J.) $38,794 of the funds Plaintiffs claim to have been misappropriated are traced to the assets that are the subject of the instant motion. Plaintiffs have traced proceeds of the funds they claim Mr. Barnes misappropriated to specific funds which were commingled in a bank account used to fund the Annuity. (Id. Exhs. F, G.) Specifically, Plaintiffs present evidence that Mr.

Barnes used FRMA’s funds to make a $4,339.10 down payment on a Corvette for Mrs. Barnes which was sold and that the funds are traceable to a Wells Fargo bank account used to fund the Annuity. (Finnerty Decl. Exh. D at 31:25-32:17, Exh. I at DMV66, Exh. F at WFB 99, 100, 103-105, 109, 111, 896, 939, 943, Exh. G. at Jefferson National 103; L. Silva Decl. ¶ 2, Exh. A.) Plaintiffs also submitted evidence tracing fund to fixtures and improvements that Mr. Barnes made at the Residence. (Masters Decl. ¶¶ 3-9; Finnerty Decl. Exh. E at 443:7-444:5; Miller Decl.; L. Silva Decl. ¶¶ 4-6, Exh. B.) The evidence also traces $2,650 of the funds claimed to be misappropriated to the Mutual Fund. (Finnerty Decl. Exh. E at 341:7-343:20 and Exh. 528 thereto)

In addition, Defendants’ accountant testified in his recent deposition that Mr. and Mrs. Barnes are moving financial assets to a previously undisclosed account. (Id. Exh. K.)

Defendants’ 34 page opposition, which is difficult to follow, appears to argue that Mr. Barnes did not embezzle any funds, that Defendants’ damages on their claims in their cross-complaint match or exceed any damages Plaintiffs will recover and Plaintiffs are holding Defendant CVCDL’s assets which would cover any judgment.

Defendants’ opposition does not present any persuasive argument or evidence demonstrating that they did not embezzle the funds. To that end, they do not present evidence that the $4,339.10 down payment for the Corvette was not funded by an unauthorized check issued by FRMA. Rather they argue that Lisa Silva cannot authenticate that check. They are incorrect. Ms. Silva is a 50% shareholder and Director of FRMI and FRMI is a 75% owner of FRMA. She is qualified to declare that Mr. Barnes, a 25% member of FRMA was not authorized to use FRMA funds for a down payment on a Corvette for Mrs. Barnes. Defendants do not dispute that the funds are traceable from FRMA to the Corvette, to their bank account to the Annuity. Defendants also do not dispute that the Mutual Fund was funded with Plaintiffs’ funds. Nor do they dispute that the improvements on their residence were funded through Plaintiffs’ funds. Rather they argue that Plaintiffs are overreaching to prevent Defendants from funding their defense. But they provide no evidence that the residence is funding the defense. In addition, as pointed out in reply, Defendants own additional real property.

Nor have Defendants shown that their claimed damages in their cross-complaint “vastly exceed” Plaintiffs’ damages claims. As noted in reply, Plaintiffs’ claimed damages with respect to the fraudulent conversion claims are $634,711, which could become $1,931, 133 if trebled pursuant to Penal Code § 496(c). Plaintiffs also claim $282,552 for repayment under a promissory note.

Defendants spend the vast majority of their 34 page opposition arguing that they are likely to prevail on their claims in the cross-complaint at trial. However, they fail to adequately explain how this would affect the analysis of whether Plaintiffs are likely to prevail. They do appear to argue that FRMI ratified Mr. Barnes’ misappropriation of funds to fund CVCDL by accepting deposits from Central Valley into its bank accounts in 2013-2015. But FRMI was not even aware of the deposits until late 2015. (S. Silva Reply Decl. ¶ 3.) FRMI did not consent to Mr. Barnes’ actions with respect to its funds. (Id. ¶ 3.)

Defendants also argue that FRMA authorized Mr. Barnes to fund CVCDL. However, they provide no evidence to support this claim. They simply refer to a check drawn on FRMA’s bank account for “equipment” which does not even reference CVCDL.

(Cozens Decl. Exh. 5.)

Defendants also argue that Mr. Barnes was permitted under the FRMA Operating Agreement to pay his personal taxes with FRMA funds. Yet, the cited provision does not indicate that he was able to do so. FRMA’s managing member Scott Silva never authorized Mr. Barnes make such tax payments with FRMA funds. (S. Silva Reply Decl. ¶ 4.)

Mr. Barnes argues that he is entitled to additional FRMA revenue dating back to 2005. Setting aside any statute of limitations problems, he provides no competent evidence to support this claim. To that end, he simply refers to numerous of the 75 exhibits attached to Defendants’ counsel’s declaration that FRMA’s bank statements show it underreported income. Mr. Barnes argues that certain deposit represented income which in turn constitutes a 25% profit to which he is entitled. There is no evidence from any competent witness regarding accounting principles and how any deposit was income, or how profit could be calculated from any deposit. Mr. Barnes also argues that he is entitled to a substantial sum based on a Management Bonus Agreement from October 2005. In reply Plaintiffs point out that FRMA ‘s balance sheet for December 31, 2005 does not refer to any accrued bonus liability for Mr. Barnes. (S. Silva Reply Decl. ¶ 5.)

In short, Defendants’ arguments regarding their claims in the cross-complaint are not supported by the evidence presented in opposition to this motion.

As they did in opposing Plaintiffs’ previous motion for preliminary injunction, Defendants argue that Plaintiffs’ request for an equitable remedy is barred by the unclean hands doctrine. “The doctrine demands that a plaintiff act fairly in the matter for which he seeks a remedy. He must come into court with clean hands, and keep them clean, or he will be denied relief, regardless of the merits of his claim.” ( Kendall-Jackson Winery, Ltd. v. Superior Court (1999) 76 Cal.App.4th 970, 978.) Defendants again argue that Scott Silva made fraudulent promises to Mr. Barnes to distribute 25% of FRMA’s profits and pay a Management Bonus. But as pointed out by Plaintiffs in reply, profits were distributed as shown by Defendants’ own evidence. (Cozens Decl. Exhs. 15, 16.) Further, the evidence also shows that Mr. Barnes was paid a bonus in 2006. (Id. Exh. 57.)

There is no reason to deviate from the Court’s previous conclusion that Plaintiffs are likely to succeed on their claims for conversion and breach of fiduciary duty against Mr. Barnes. The same holds true with respect to the finding that Plaintiffs are likely to succeed on their claim for conspiracy against Mrs. Barnes. On the instant application, Plaintiff has again shown that Mr. Barnes has used at least $38,794 of Plaintiffs’ funds for personal expenses associated with the Annuity, the Mutual Fund and the Residence and that he was not authorized to do so and never disclosed to Plaintiffs that he was doing so. Further, Mrs. Barnes is a co-owner of the bank accounts and was aware of the improvements to the Residence. Her financial interest was furthered by Mr. Barnes’ unauthorized expenditure of Plaintiffs’ funds.

Balance of Harms

Here, the balance of harms tips in Plaintiffs’ favor. To that end, the Defendants’ dissipation of assets would create irreparable harm to Plaintiffs as it could result in depriving them of a constructive trust over proceeds traceable to Defendants’

misappropriation. The injunction will simply maintain the status quo for a short time pending trial which is set for November 19, 2018. An injunction against disposing of property is proper if the disposal would render the final judgment ineffectual. ( Heckmann v. Ahmanson (1985) 168 Cal.App.3d 119, 136.)

By contrast, Defendants will suffer minimal hardship if a preliminary injunction pending trial in approximately one month. Indeed, the subject financial accounts are not Mr. and Mrs. Barnes checking or savings accounts. (Finnerty Decl. Exhs. B, C [Barnes’ responses to SROG 6].)

The application for preliminary injunction is granted.

In so ruling the Court would note that a preliminary injunction is merely a provisional or auxiliary remedy to preserve the status quo until final judgment. (See Kendall v. Foulks (1919) 180 Cal. 171, 173.) The order granting preliminary injunction is not a determination of the ultimate right to a permanent injunction; it is, as noted, based on a showing that it is desirable to maintain the status quo pending a determination of the merits. (See Continental Baking Co. v. Katz (1968) 68 Cal.2d 512, 528; State Bd. of Barber Examiners v. Star (1970) 8 Cal. App.3d 736, 739, 740, [trial judge’s purported ruling on constitutional question at hearing on preliminary injunction was not binding on court at trial]).

The Court need not rule on Plaintiffs’ voluminous evidentiary objections. Even if all of the evidence objected to is considered, it does not change the result above.

Plaintiff shall post a bond in the amount of $10,000.

The TRO is dissolved and the OSC is discharged.

Pursuant to CRC 3.1312, Plaintiffs shall prepare an order for the Court’s signature consistent with the above and the terms of the TRO issued on September 18, 2018, which the Court will sign once the bond is posted.

Item 6 2016-00204441-CU-BT

Folsom Ready Mix-Anderson, LLC vs. Randy David Barnes

Nature of Proceeding: Application for Order Sealing Record

Filed By: Cozens, Philip

Defendants’ unopposed application to seal is granted.

Plaintiff Folsom Ready Mix-Anderson, LLC (“FRMA”) and Folsom Ready-Mix, Inc.’s (“FRMI”) filed a non-opposition.

Defendants move to seal portions of their memorandum of points and authorities in support of their opposition to Plaintiffs’ motion for preliminary injunction and the exhibits attached to the declaration of their counsel. The portions of the documents to be sealed contain Defendants’ social security numbers, Plaintiffs’ taxpayer identification, and confidential business information. The unredacted documents were conditionally lodged under seal on October 5, 2018 and redacted versions were filed the same day.

In order to issue the requested order, the Court must find that there is an overriding interest to support the sealing of these records; that there is a substantial probability that the parties’ interest will be prejudiced absent sealing; that the proposed sealing is narrowly tailored to serve the parties’ interest; and that there is no less restrictive means of achieving the overriding interest. (See In re Providian Credit Card Cases (2002) 96 Cal.App.4th 292; CRC 2.550(d).)

Here, the Court finds that Defendants have shown that the requirements of California Rules of Court, Rule 2.550 and 2.551 have been met with respect to the documents they seek to seal. The Court finds that the privacy interests of the parties overcomes public access to the information, that interest supports sealing, there is a substantial probability that the interest will be prejudiced without sealing, the sealing is narrowly tailored, and there is no less restrictive means to achieve the overriding interest.

As a result, the motion to seal is granted.

To that end, the documents lodged conditionally under seal on October 5, 2018 by Defendants are ordered sealed, at a security level which prevents public access. Redacted copies were filed on October 5, 2018.

Pursuant to CRC 3.1312, Defendants shall submit a proposed order in accordance with CRC 2.550(e) and 2.551(e).