Case Number: EC062630    Hearing Date: September 02, 2014    Dept: NCD

Order to Show Cause Re Preliminary Injunction

TENTATIVE:
Application for preliminary injunction is GRANTED. Plaintiff has presented facts which establish a probability of prevailing on a claim of conversion, and facts which suggest that defendant Hakeem is doing or about to do acts in violation of the rights of plaintiff respecting the subject of the action.

The court further finds that the harm to plaintiff if the injunction is not granted (potential loss of evidence, and risk to his business license, insurance and personal liability for conduct of the business) is greater than the harm to defendants if it is granted (loss of ability to control or manage the business in which he has a purely financial interest).

The Court will retain during the pendency of the preliminary injunction the bond filed with the court on August 15, 2014.

BACKGROUND:

Moving Party: Plaintiff Mokhatar Moheb Mokhtar
Responding Party: Defendants Hakeem Fawzy Hakeem and Basima Darwish Shilleh

RELIEF REQUESTED:
Order restraining defendant Hakeem from engaging in financial transactions in the name of plaintiff or Bambino Insurance Agency, contacting any person or company doing business with plaintiff or Bambino Insurance Agency, entering into the offices of Bambino Insurance, including its satellite offices, or interfering with mail directed to the Temple City office.

SUMMARY OF FACTS:
Plaintiff Mokhtar Mohel Mokhtar alleges that he is a licensed insurance broker, and that in 1998 he began doing business under the fictitious name Bambino Insurance Agency (“BIA”). Shortly thereafter, plaintiff entered into an agreement with defendant Hakeem Fawzy Hakeem, who is not a licensed real estate broker or agent, whereby defendant invested $50,000 in plaintiff’s business in exchange for Mokhtar’s agreement to pay defendant 50% of BIA’s net profits each month.

Plaintiff alleges that he has recently discovered a checking account established in 2008 in the name of defendant Basima Shilleh, defendant Hakeem’s wife, into which hundreds of commission checks sent from various insurance companies made payable to BIA or Mokhtar have been deposited without the knowledge or authorization of plaintiff. Plaintiff believes that defendant secretly took checks from the mail intended for Mokhtar and BIA and deposited them into the Basima account. It is also alleged that defendant has discovered four other accounts with defendant and Mokhtar as authorized signers, about which Mokhtar knew nothing, so that the Mokhtar signatures are forgeries, and that payments have been redirected from insurance companies which could only have occurred if defendant called the companies himself and falsely claimed to be plaintiff, or falsely represented that his conduct was authorized by plaintiff.

The complaint alleges causes of action for breach of contract, conversion, misappropriation of funds, conspiracy to misappropriate funds, breach of fiduciary duty, intentional interference with contract, fraud (concealment and intentional misrepresentation) and negligence.

On August 8, 2014, plaintiff brought an ex parte application for a TRO and OSC re preliminary injunction, which was heard by Judge Argento. The application was granted, the TRO issued and an OSC set. Bond was filed on August 15, 2014.

ANALYSIS:
Substantive
Here, the moving papers argue that plaintiff must preserve the status quo so that he may bring his business and finances back into accountability, preserve evidence necessary to rectify the damage caused by defendant’s alleged fraudulent activities, prevent intimidation of agents and employees, and prevent removal or destruction of evidence critical to plaintiff’s case.

Plaintiff to date has been unable to obtain declarations from witnesses at either Bank of America or Wells Fargo authenticating the documents they provided plaintiff which show that checks from insurance companies to BIA or Mokhtar have been deposited into accounts of which plaintiff was previously unaware. [See Mokhtar Decl., paras. 21-23, Exs. F-L; para. 29, Exs. M-P]. The court may consider the testimony that plaintiff has discovered accounts he has reason to believe were opened by defendant without plaintiff’s permission (Mokhtar Decl., paras. 16, 17, 21) testimony from employees that defendant has been very insistent about opening all mail (Tartoussia Decl., paras. 5, 6; Stoll Decl., paras. 4-7), and testimony from the BIA accountant and defendant concerning their investigation of irregularities. Specifically, in February of 2014, the accountant, Ossama Tartoussia, noticed an envelope which had arrived in the mail at the Temple City office, before Hakeem had arrived in the office, opened it at plaintiff’s request, saw a check from National General Insurance, which he made a note of, put the check back in the envelope and returned it to the stack of mail, including the envelope containing the check. When defendant arrived, he took the stack of mail, and never returned the check to the accountant, as he was required to do to have the check input into the accounting system. [Tartoussia Decl., para. 9]. Plaintiff then testifies that he contacted National General Insurance about the check, and was informed it had been cashed at Bank of America, but it did not show up in the bank records, and plaintiff has learned it was deposited in the account of which he had no knowledge, and into which he did not authorize deposits. [Mokhtar Decl., paras. 20-21].

This evidence appears sufficient to state a claim for conversion, which requires establishment of the following elements: Ownership, or right to possession of property; wrongful disposition of property right; and damages. Imperial Valley Land Co. v. Globe Grain & Milling Co. (1921) 187 Cal.352, 354. See also 5 Witkin, Cal.Proc.3d section 654. There is therefore a likelihood of plaintiff prevailing on a claim of conversion in at least one instance.

This appears to be a situation where any harm to plaintiff from the suspected embezzlement can be compensated in pecuniary damages. However, the conduct at issue suggests that if defendant is not kept away from the premises, he may be in a position to engage in acts which could prevent plaintiff from documenting all potential losses, as if evidence on the premises is destroyed, plaintiff may not have other means of proving the extent of the problem. In addition, if any conduct with respect to the misapplication of funds continues, or employees feel coerced or intimidated, plaintiff argues that his business license, insurance coverages, and personal affairs otherwise will be placed at risk, if only because defendant is not a licensed broker or agent. [See Mokhtar Decl., paras. 3, 4, 39]. Defendant, on the other hand, is a financial partner so that any harm to him could be compensated in monetary compensation if it should turn out that there are profits due to him from the operation of the business. In sum, an injunction shall issue here.

The Court has considered defendants’ opposition papers that were provided to the Court on or about August 28, 2014. Essentially, defendant Hakeem in a detailed Declaration states among other things that he (Hakeem) contributed substantial additional monies to the parties’ joint venture (Hakeem Declaration, para. 7), that he (Hakeem) since at least November 1998 ran “the day to day affairs” of the parties’ insurance businesses (i.d., para. 8), that plaintiff Mokhtar beginning in 2000 essentially became an absentee owner of the enterprise when he began spending several months every year in Saudi Arabia and Egypt (i.d., para. 11), that Mokhtar beginning in 2005 “started living in Saudi Arabia and Egypt full-time because he had opened car tinting and auto detailing shops in those countries” (i.d., para. 12), that the insurance enterprise was grown to 5 locations by 2008 (i.d., para. 17), that the business is now “solid and stable” (i.d., para. 21), that Mokhtar lied in his moving papers herein in alleging that a certain business account at the Temple City branch of Bank of America was basically some kind of secret account (i.d., para. 24), and generally that Mokhtar has acted improperly in seeking to lock Hakeem out of the business which Hakeem helped build over many years.

It is apparent that this dispute in its current posture cannot countenance having both Mr. Mokhtar and Mr. Hakeem present at the subject business locations, nor will it be possible under the current circumstances to jointly operate the Bambino Insurance Agency and its related activities. Only Mr. Mokhtar’s petition is now before the Court, and the Court therefore at this time has somewhat limited options. Past experience suggests that if the parties fail to reach some kind of operating agreement the likelihood is that a petition to appoint a receiver will eventually be forthcoming. The Court is neither urging nor suggesting any such petition, but rather is simply encouraging the parties to explore some kind of accommodation in an effort to avoid pouring tens or even hundreds of thousands of dollars into legal resources that might very well fail to deliver either side to a satisfactory place. Such accommodation might take the form of a detailed Stipulation and proposed Order re the interim management of the business, pending the resolution of this case.

Under CCP § 529, if the court grants the injunction it “must require an undertaking on the part of the applicant to the effect that the applicant will pay to the party enjoined any damages, not exceeding the amount to be specified, the party may sustain by reason of the injunction, if the court finally decides that the applicant was not entitled to the injunction.”

The bond requirement is mandatory. Abba Rubber Co. v. Seaquist (1991) 235 Cal.App.3d 1, 10.

The “damages” to be covered by the statute include both lost profits and the expenses incurred in having the injunction dissolved; “It is now well settled that reasonable counsel fees and expenses incurred in successfully procuring a final decision dissolving the injunction are recoverable as ‘damages’ within the meaning of the language of the undertaking, to the extent that those fees are for services that relate to such dissolution. Russell v. United Pacific Ins. Co. (1963) 214 Cal.App.2d 78, 88-89.

In determining the appropriate amount of an undertaking:
“the trial court’s function is to estimate the harmful effect which the injunction is likely to have on the restrained party, and to set the undertaking at that sum.”
Abba, at 14.

Here, Judge Argento previously required a bond of $100,000. There is testimony of plaintiff that as of the date of the declaration, “the total value of wrongfully diverted insurance commission checks into the Basima Account alone totals nearly $100,000.” [Mokhtar Decl., para. 26]. The court is not being asked to freeze or prohibit access to accounts which belong to defendant. The damages accordingly would not likely be the loss of use of those funds alleged to have been embezzled, but the loss of use of any monies which defendant would not have access to going forward during the course of this litigation by otherwise being a part of management and permitted on the premises. These damages appear fairly minimal, and for the most part can be compensated for by a judgment with appropriate interest. However, the expenses to defend against these accusations, if the injunction turns out to be wrongful, may turn out to be substantial. The court properly required a bond in the $100,000 sum. Bond has been filed in this amount.