Obispo Constructors, Inc. v. Ashley Day, 17CV-0474

Hearing: Application for Temporary Restraining Order

Date: March 28, 2018

On September 1, 2017, Obispo Constructors, Inc. (“Plaintiff”) filed a breach of contract complaint against Ashley Day (“Day”) and N999DA, LLC (the “LLC”), in connection with the sale of an airplane (“Plane”). A First Amended Complaint (“FAC”), filed on September 21, 2017, added a sixth cause of action for fraudulent conveyance.

According to the FAC, Plaintiff sold the Plane to CH2E, LLC (“CH2E”) in January 2014, for the purchase price of $200,000. CH2E made a down payment of $20,000, and agreed to monthly payments of $2,500 for six months or until CH2E was able to pay the entire balance due. On August 27, 2014, after months of making inconsistent payments, CH2E executed a promissory note for $175,000 (“Note”).

The Note provides that the sale of a material portion of CH2E’s business or assets would constitute a default, upon which the Note and any other obligations of CH2E to Plaintiff shall become immediately due and payable. The Note further provides that CH2E “shall be in default if there is a sale, transfer, assignment, or any other disposition of any assets pledged as security for the payment of this Note, or if there is a default in any security agreement which secures this Note.”

That same day, CH2E executed a FAA Aircraft Security Agreement in favor of Plaintiff for $175,000 (“FAA Security Agreement”); and Day executed a Continuing Unlimited Guaranty Agreement. The FAA Security Agreement provides that upon default, Plaintiff was empowered to “with or without foreclosure action, enter upon the premises where the said aircraft may be and take possession thereof; and remove and sell and dispose of the same at public or private sale ….”

On October 13, 2014, CH2E made a lump payment of $100,000 on the Note to be applied to future monthly payments through November 2016. CH2E made no further payments on the Note. In December 2014, Day transferred possession of the Plane from CH2E to the LLC. CH2E is now a dissolved entity.

In the interim, Day had solicited Theodore Lilly (“Lilly”) to invest in the Plane and create the LLC for purposes of co-ownership of the Plane. The Plane is the LLC’s sole asset.

2

On January 5, 2018, the LLC and Lilly (the sole remaining member of the LLC) filed a cross-complaint against Day, Plaintiff, and Sun West Aviation, Inc. (“Sun West”).1 The cross-complaint alleges that prior to investing, Lilly performed a title search of the Plane which did not indicate Plaintiff held any interest; that Plaintiff’s principal (James Miller) was aware of the Plane’s transfer from CH2E to the LLC; and that each of the crossdefendants concealed the fact that CH2E did not have clear title to the Plane.

The LLC now seeks a preliminary injunction enjoining Plaintiff from moving, assigning, modifying, or transporting the Plane; and from using, operating, damaging, modifying, selling, or further encumbering the Plane. Plaintiff currently has possession of the Plane, which is being stored in this County.2 Plaintiff alleges the current value of the Plane is $125,000. (Ogden Decl., ¶ 3.)

The Court must consider two interrelated factors when ruling on a request for a preliminary injunction: (1) the probable outcome at trial; and (2) the relative balance of harms that is likely to result from the granting or denial of the interim injunctive relief. (White v. Davis (2003) 30 Cal.4th 528, 554.)

Here the LLC seeks a preliminary injunction to maintain the status quo. (Mtn., p. 6, ll. 27-28; Reply, p. 2, ll. 8-9.) In support of the preliminary injunction, the LLC states the Plane is unique3 and that the LLC, the registered owner of the Plane, would suffer great injury as the Plane is the LLC’s sole asset.

Plaintiff responds that the LLC has not, and cannot, show a likelihood of success on the merits because Day, who was a member of the LLC, knew at the time of creating the LLC and transferring the Plane to the LLC’s possession that Plaintiff had a security interest in the Plane; thus, imputing that knowledge to the LLC.

1 Sun West performed work on the Plane in 2017 at the request of Lilly on behalf of the LLC. Sun West states that despite numerous attempts to obtain Lilly’s cooperation to voluntarily pay the invoices, no payment was received. Sun West thereafter recorded a mechanic’s lien ($8,037.85) against the Plane. Plaintiff paid off the lien in exchange for assignment of the lien claim and possession of the Plane pursuant to the FAA Security Agreement. (Jones Decl., ¶¶ 2-6.)

2 Plaintiff’s counsel states he informed Lilly by letter dated September 7, 2017, that Plaintiff had possession of the Plane. (Ogden Decl., Ex. 1.) Lilly disputes the letter was ever sent, and states he has been unaware of the Plane’s location since the autumn of 2017. (Lilly Supp. Decl., ¶ 8; Lilly Decl., ¶ 5.)

3 The Court notes many of these arguments reflect statements made in the ex parte application for interim relief filed by Plaintiff in September 2017, which the Court (Hon. Charles Crandall) denied. At that time, however, the complaint had just been filed five (5) days earlier; responses to the complaint had not been filed; and the cross-complaint had not yet been filed. The Court further notes that Plaintiff did not seek a writ under Code of Civil Procedure section 512.010, et seq. for possession of the Plane.

3

In its reply, the LLC states it has shown some likelihood that it can prevail because Lilly did a title search before investing in the Plane and did not discover any existing lien; and further Lilly relied on Day’s representations that he had sole control of the Plane. Lilly argues he is therefore a bona fide purchaser.

First, Lilly is not the cross-complainant seeking injunctive relief and he personally does not own an interest in the Plane. His interest is in the LLC. Moreover, it is arguable that Day’s knowledge of the Plaintiff’s security interest in the Plane may be imputed to the LLC (which is the party seeking injunctive relief). Second, Lilly’s reliance on Day’s representations may tend to show a likelihood of success on his claims against Day but does not support the LLC’s claims against Plaintiff, which are limited to conversion and cancellation of instrument.

Plaintiff next argues the LLC has not shown that it could not be adequately compensated with monetary damages. “Injunctions will rarely be granted (absent specific statutory authority) where a suit for damages provides an adequate remedy.” (Weil & Brown, Cal. Practice Guide: Civ. Proc. Before Trial (The Rutter Group 2017) ¶ 9:504.)

The LLC responds that if the preliminary injunction is not granted it “has nothing except the hope of monetary recovery against Ashley Day, who is in default on the FAC.” (Reply, p. 4, ll. 7-8.) As noted above, the LLC’s stated causes of action against Plaintiff are conversion and cancellation of instrument. Day is not a listed defendant on those causes of action; and the LLC has not offered any evidence that should it prevail on either of those two claims that it would be unable to obtain monetary relief from Plaintiff.4

Finally, Plaintiff argues it will suffer the greater harm if the injunction is granted because it is incurring daily costs to store and maintain the Plane. As an example, Plaintiff states it was required to pay $2,978.45 for past due hanger fees which went unpaid by the LLC (Robillard Decl., ¶¶ 3-7), and has incurred, and continues to incur, storage fees of $40 per day since September 7, 2017, for hangar space for the Plane. (Miller Decl., ¶ 11).

The LLC has not offered to pay or split those costs, or any other ongoing expenses associated with maintaining the Plane during the course of the litigation. Moreover, ongoing expenses incurred by one party would not maintain the status quo, but create the prospect of increasing damages.

The LLC as the party seeking injunctive relief has the burden to show all elements necessary to support issuance of a preliminary injunction. (O’Connell v. Superior Court (2006) 141 Cal.App.4th 1452, 1481.) It has failed to do so in this application. The Motion for a preliminary injunction is therefore denied.
4 In considering the “adequacy” of damages as a remedy, the Court may consider whether the party against whom the judgment is sought is able to respond in damages (i.e., if the defendant is shown to be insolvent, a monetary judgment may be inadequate). (Weil & Brown, supra, at ¶ 9:504.2.)