Louis Leos and Wayne Johnson v James Maggard et al

1-12-CV-233577

 

After full consideration of the evidence submitted by each party, and the authorities submitted by each party, the court makes the following rulings:

 

Background

 

This action arises out a dispute about the ownership of a company, defendant Schricker Engineering Group, Inc (“SEG”).  In 2012, plaintiffs Louis Leos (“Leos”) and Wayne Johnson (“Johnson”) filed a complaint against defendant James Maggard (“Maggard”) and SEG essentially seeking share certificates reflecting their ownership in SEG for which they allegedly gave complete consideration. Maggard filed a cross-complaint essentially asserting he did not receive full consideration and seeking rescission, among other relief.

 

In October, 2012, plaintiffs filed an Ex Parte Application for TRO and OSC regarding issuance of a Preliminary Injunction against Defendant Maggard.  In conjunction therewith, Leos filed a declaration.  Paragraph 31 of the declaration states

 

“From roughly June 2011 to the present, Maggard has ceased actively participating in the management and operation of SEG, which has left Wayne Johnson and I with the majority of the responsibility for running the company.  In fact, over the past year, the amount of time Maggard typically spends at the office has been drastically reduced.  For example, in the month of September, I kept a personal log of the time Maggard was in the office…….(the log) indicates that Maggard was in the office for approximately 76 hours for the month of September 2012, which equates to about 19 hours per week.  This is consistent with Maggard’s pattern of behavior since at least June of 2011.”

 

According to the unrebutted declaration of  counsel for defendant, Eric Gravink, the parties negotiated the terms of a Stipulated Preliminary Injunction for several month and discussed the issue of Maggard’s onsite attendance. Discussions also included the circumstances under which parties could be terminated and when compensation levels could be modified as plaintiffs took the position Maggard was not showing up to work and Maggard took the position plaintiffs were preventing him from participating in the operation and management of SEG.   The parties agreed to a Stipulated Preliminary Injunction in January, 2013 purportedly to maintain the status quo until a trial on the respective claims.

 

The Stipulated Preliminary Injunction does not require either plaintiffs or defendant to be physically present at SEG for a certain amount of time per week.  The Stipulated Preliminary Injunction (SPI) also did not require any of the parties to perform any specific tasks, other than those specifically set forth in the SPI.

 

Importantly, the SPI provided that none of the parties or their agents could alter the compensation level of any of the parties.  (See, SPI p.2 line 26)

 

 

A year and a half after the SPI was executed and about 3 months before trial in this matter, Plaintiffs filed a Motion for Order  1) Modifying Preliminary Injunction To Preclude Unearned Compensation 2) For Disgorgement of Unearned Salary and Benefits; and 3) For Order to Show Cause re; Violation of Preliminary Injunction.

 

In connection therewith, plaintiff Leos submitted a declaration stating, in part, “Since January 2013, Maggard has conducted no substantive work  for SEG, either as its CEO or as an officer or manager of the company.  The company access log…..reveals that Maggard only visited the premises  a few times per month—from July 31, 2013 through June 16, 2014.  During those short visits, he did no actual work and only signed company checks required of him under the SPI…”

 

In opposition to plaintiffs’ Motion to Modify the SPI, defendant took the position that he was essentially working the same amount of hours on SEG business now as he was at the time the SPI was entered into. (Maggard Decl Exh. A)  And, that most of the work he conducted was out in the field and not at the SEG office. (Maggard Dec.)  Maggard also takes the position, as he did at the time the SPI was executed, that plaintiffs were not allowing him to participate in the management and operation of SPI, giving several examples of same in his declaration.

 

In their reply, plaintiffs’ dispute they were thwarting Maggard’s efforts to participate in the operation and management of SEG and essentially argue that he simply is not pulling his weight,  there are no legitimate excuses for same and SEG should not have to pay his salary when he is not meaningfully contributing to the company’s operation.

 

Page 4, paragraph (f) of the SPI provides the parties can seek to modify the SPI upon a showing of “good cause.”

 

Legal Discussion

 

Plaintiffs erroneously cite Civil Code section 3424 as the authority governing the modification of this Stipulated Preliminary Injunction.  That code section applies to final injunctions, not preliminary injunctions.

 

Code of Civil Procedure Section 533 governs the modification of preliminary injunctions.  It states in relevant part:

“In any action, the court may on notice modify or dissolve an injunction or temporary restraining order upon a showing there has been a material change in the facts upon which the injunction….was granted, that the law upon which the injunction…was granted has changed, or that the ends of justice would be served by the modification or dissolution of the injunction…”

 

The Court does not find sufficient grounds to modify the SPI on any of the foregoing grounds.

Plaintiffs have not demonstrated there is a material change in facts from the scenario that existed in January, 2013.  Plaintiffs are still complaining that Maggard does not come into the office frequently or meaningfully participate in the management and operation of SEG.  If it was important for plaintiffs to require Maggard to be at  SEG for particular set hours or times they could have negotiated that as part of the SPI in January, 2013..  Plaintiffs did negotiate that Maggard would have to perform certain tasks at SEG as set forth on page 4 paragraph (e) of the SPI.  But, there are no provisions stating that Maggard has to perform other substantive tasks.  Maggard takes the position that he is essentially performing the same types of marketing and in the field work for SEG that he was doing at the time the SPI was negotiated.

Plaintiffs have not submitted any competent evidence demonstrating there is a material change in the way Maggard is contributing to SEG now as compared to his involvement with SPI at the time the SPI was executed in January, 2013.  Plaintiffs are basically complaining about the same problems they perceive with Maggard.  Nor have plaintiffs argued or shown a change in the law or other good cause to warrant the relief they are seeking.

 

Despite knowing how little Maggard was allegedly  contributing to the operation and management of SEG back in January, 2013, , all parties negotiated that their compensation levels would not be altered as part of the SPI., (See, SPI p.2 ( c ) )

Plaintiffs have not shown good cause to modify the terms of the Preliminary Injunction to preclude unearned compensation or require Maggard to disgorge the compensation he has already earned.   Accordingly, plaintiffs’ Motion for Order Modifying Preliminary Injunction to Preclude Unearned Compensation and for Disgorgement of Unearned Salary and Benefits in DENIED.

 

Plaintiffs also request an Order to Show Cause re: Violation of Preliminary Injunction.  Plaintiffs argue Maggard has violated certain terms of the SPI by competing with SEG while acting as a company officer and director.  Maggard denies any such misconduct.

 

Plaintiffs do not cite any case or statutory authority allowing them to request an Order to Show Cause re Violation of Preliminary Injunction. It appears as though plaintiffs may be seeking to initiate a contempt proceeding in which case they will need to fulfill the requirements under  CCP  Section 1211.  (See, Enforcement of Injunctions by Contempt Proceedings, California Practice Guide, Civil Procedure before Trial, 9 (ll) 48.11; Conn. V Superior Court (1987) 196 CA3d 774, 784.

Plaintiffs’ current request for an OSC does not meet the necessary requirements for a contempt proceeding and is DENIED.