Case Name: Cioffi v. Solomon, et al.

 

Case No.: 114-CV263050

 

Plaintiff Ronald Cioffi moves for a preliminary injunction against Defendants Alex Solomon and  Maralyn Solomon (“Individual Defendants”), and Solomon Technology Solutions, Inc. (“the Company”).  Plaintiff seeks to enjoin Defendants (1) from distributing or disbursing shareholder distributions from the Company to the Individual Defendants; (2) from disposing, selling, or transferring any assets of the Company; and (3) from doing any act that will, or that will tend to, impair, injure, defeat, or prejudice the financial condition of the Company.

 

Defendant Company provides networking, communications, and information technology services and products to customers through the United States and at locations throughout the world.  (Cioffi Decl. ¶ 2.)  Each Individual Defendant had 1,000 shares in the company, and there are no other shareholders.  (Ibid.) Defendant Alex Solomon is the President of the Company. (Ibid.)  Because both Individual Defendants are African-American, the Company was certified as a minority-owned business by the United States Small Business Administration. (Solomon Decl. ¶ 3.)  This certification was required for the Company to participate in the 8(a) Streamlined Technology Application Resources for Services (STARS) II Governmentwide Acquisition Contract (GWAC) program.  (Solomon Decl. ¶ 4.)  Prior to 2007, Defendant Alex Solomon’s identity was stolen.  (Solomon Decl. ¶ 7.)  With his credit destroyed, Defendant Alex Solomon turned to Plaintiff for a business loan, to which Plaintiff agreed as long as he received an option to purchase 51% of the stock of the Company and the position of Vice-President and Chief Operating Officer.  (Solomon Decl. ¶¶ 7-10.)  Defendant Alex Solomon claims that he and Plaintiff knew that the stock option could not be exercised because if it were, the Company would cease to be a minority-owned company and would lose its 8(a) certification and any contracts that require that certification.  (Solomon Decl. ¶ 11.)  Defendant Alex Solomon signed the agreement on Plaintiff’s express promise that he understood the minority ownership issue and would not exercise his option.  (Solomon Decl. ¶ 12.)  At that time in 2007, Plaintiff took over exclusive control of the Company’s finances.  (Solomon Decl. ¶¶ 12-13.)

 

In 2009, Defendant Alex Solomon’s U.S. government security clearance was revoked. (Cioffi Decl. ¶ 5.)  Because the security clearance is required for certain government contracts, the revocation of the security clearance caused the Company’s largest contract for services to be terminated.  (Ibid.)  On April 22, 2009, Plaintiff entered a Management Services Agreement appointing Plaintiff to be Administrative Manager of the Company for a term of two years because Defendant Alex Solomon could no longer hold that position.  (Ibid.)  At that time, Plaintiff was also appointed Director, Chairman of the Board, Chief Executive Officer, Chief Financial Officer, and President of the Company.  (Ibid.)  Defendant Alex Solomon resigned from the board and assumed the role of Director of Business Development and provided sales projection for Defendant Company.  (Cioffi Decl. ¶ 6.)

 

From 2009 to 2011, Plaintiff put his time and effort to turning the Company around. (Cioffi Decl. ¶ 7.)  Plaintiff claims that he was not paid adequate compensation over this time. (Ibid.)  Plaintiff also made a loan of $96,861.05 to the Company.  (Ibid.)  Plaintiff also claims that Defendant Alex Solomon misrepresented the condition of the Company to induce Plaintiff to make the loan.  (Ibid.)  On March 15, 2010, as part of the consideration for the loan, Plaintiff and Individual Defendants entered into a Revised Option Agreement that allowed Plaintiff the right and option to purchase 1,040 shares from Individual Defendants on the terms set in the Agreement.  (Cioffi Decl. Ex. D.)  Defendant Alex Solomon asserts that both he and Plaintiff understood and expressly agreed that the stock options represented collateral for the loan and could not be exercised if the Company was to survive.  (Solomon Decl. ¶ 21.)  The $96,861.05 loan was repaid in full by December of 2010.  (Solomon Decl. ¶ 23.)  Defendant Alex Solomon believed that right to any options were then void because the option just represented collateral. (Solomon Decl. ¶ 24.)  The parties entered into a Second Revised Option Agreement to remove the option expiration date completely.  (Solomon Decl. ¶ 25.)  Defendant Alex Solomon asserts that both parties had agreed that the option could not be exercised.  (Ibid.)  Plaintiff exercised the option in March 2014.  (Cioffi Decl. ¶ 10.)  On August 2, 2012, the parties entered into another agreement to pay Plaintiff an amount equal to the previous “shareholder distributions” made to Individual Defendants from March 1, 2007 to August 2, 2012, as compensation for Plaintiff’s previous and ongoing services at the Company.  (Cioffi Decl. ¶ 11.)  The distribution was not to be less than $796,697.25.  (Ibid.)  Plaintiff contends that he has not received this amount.  (Ibid.)

 

In October 2013, Plaintiff learned that Defendant Alex Solomon had been receiving a distribution of $14,000 to $20,000 per month from the Company.  (Cioffi Decl. ¶ 13.)  Plaintiff asserted that the distribution is improper and demanded that Defendants stop distributing the cash to Defendant Alex Solomon.  (Ibid.)  Defendant Alex Solomon refused.  (Ibid.)  Defendant Alex Solomon claims that this distribution is actually a salary that Plaintiff had instructed the Company to pay in July 2012.  (Solomon Decl. ¶ 29.)  Plaintiff resigned as Chariman because of his frustration with Defendants.  (Cioffi Decl. ¶ 15.)  In May 2014, Defendant Alex Solomon terminated the employment of Mr. Dean Franks, who was Chief Technical Officer at the Company.  (Cioffi Decl. ¶ 17.)  On June 3, 2014, Defendant Alex Solomon called Plaintiff to say that he intended to sell assets of the Company because he was short on cash.  (Cioffi Decl. ¶ 19.) Plaintiff has attached a financial projection for the Company that estimates its financial position for 2014, which was based on a February 2014 sales projection and a January 2014 actual cash balance.  (Cioffi Decl. ¶ 18, Ex. H.)  However, Plaintiff had previously attached a different financial projection for the Company in Plaintiff’s ex parte motion based on February 2014 sales projection and January 2014 actual cash, and the two financial projections differ with respect to when the Company would lose its money.  (June 12, 2014 Cioffi Decl. Ex. E.)  Defendant Alex Solomon admits that the Company has had challenges when it comes to cash flow, but argues that such challenges are the result of Plaintiff.  (Solomon Decl. ¶ 58.)  Defendant Alex Solomon has attached his own financial projections, showing a turnaround in net profit and sales in July and a net cash balance of $303,121.11.  (Solomon Decl. Ex. S.)

 

Plaintiff argues that he is likely to succeed on his claim because Plaintiff entered into valid and enforceable agreements (the option contract and the disbursement contract) with Defendants.  Plaintiff argues that he properly exercised the option and Defendants have refused to honor the exercise without a valid or justified ground for doing so.  Plaintiff also argues that he will suffer irreparable harm because the Company is virtually insolvent and does not have sufficient cash to carry out its day-to-day operations.  Plaintiff asserts that Defendant Alex Solomon’s weekly withdrawals are unlawful and jeopardize the viability of the Company. Plaintiff additionally asserts that issuing the injunction will not harm the Company because it will be able to keep the money that Defendant Alex Solomon is continuing to withdraw.  Plaintiff also asserts that issuing the injunction is beneficial to the Company because it will require Defendants to perform on their contracts, which can only result in a benefit to all parties.

 

Defendants argue that Plaintiff has not shown that he is likely to prevail on the merits because the parties had a different understanding of the contract and that there was no meeting of the minds.  Defendants also argue that Defendant Alex Solomon would not have entered into a contract if he knew that Plaintiff would break his contemporaneously made promise never to exercise the option.  Defendants also argue that Plaintiff will not be able to prevail on the distribution agreement claim because Defendants have proved that they have paid all amounts owed to Plaintiff.

 

An injunction may be granted “[w]hen it appears by the complaint or affidavits that the commission or continuance of some act during the litigation would produce waste, or great or irreparable injury, to a party to the action” and “when it appears, during the litigation, that a party to the action is doing, or threatens, or is about to do, or is procuring or suffering to be done, some act in violation of the rights of another party to the action respecting the subjection of the action, and tending to render the judgment ineffectual.”  (Cal. Code Civ. Proc., § 526(a)(2)-(3).)  Before a court may issue a preliminary injunction, it must appear that monetary relief would not afford adequate relief or that it would be extremely difficult to ascertain the amount of damages. (Thayer Plymouth Ctr., Inc. v. Chrysler Motors Corp. (1967) 255 Cal.App.2d 300, 306.) However, courts have held that injunctive relief is proper even when pecuniary compensation is adequate where there is a showing that the parties causing the loss are insolvent or in any manner unable to respond to damages, thereby resulting in irreparable injury to the party seeking the injunction.  (West Coast Constr. Co. v. Oceano Sanitary Dist. (1971) 17 Cal.App.3d 693, 700.)  In West Coast Construction, the plaintiff asserted that he was owed $103,146.52, and the defendant only had funds of $55,512.73.  (Ibid. at 700-701.)  The defendant filed a counterdeclaration asserting that it had approximately $99,000 at hand, and that whether the money should be paid is in dispute.  (Ibid. at 701.)  The court found that the defendant did not expressly deny the plaintiff’s assertion that it was insolvent and that the funds mentioned still showed that they fell short of a sufficiency to meet the plaintiff’s demands.  (Ibid.)  The court therefore found that if there were any conflict as to the matter of the defendant’s insolvency, all of the circumstances favored the position advanced by the plaintiff. (Ibid.)

 

A trial court must evaluate two factors when ruling on request for preliminary injunction: (1) the likelihood that the plaintiff will prevail on the merits, and (2) the interim harm that the plaintiff would likely sustain if the injunction were denied, as compared to the harm the defendant would likely suffer if the preliminary injunction were issued.  (Smith v. Adventist Health System/West (2010) 182 Cal.App.4th 729, 749.)  The ultimate goal of any test to be used in deciding whether a preliminary injunction should issue is to minimize the harm which an erroneous interim decision may cause.  (O’Connell v. Superior Court (2006) 141 Cal.App.4th 1452, 1468.)

 

The third prong of the requested relief is too vague to give adequate notice to Defendants as to the acts which would be prohibited.

 

Plaintiff has not established a likelihood of success on the merits of his contract claims, and Plaintiff has not met his burden that he will suffer great harm in the event that the proposed injunction is not granted.  Plaintiff’s request for relief is that shareholder disbursements stop; however, the evidence does not weigh in favor of Plaintiff.  Plaintiff argues that once the Company has become insolvent, then no distributions can be made.  However, the evidence presented to show that the Company is insolvent is Plaintiff’s own financial projection made on the basis of February’s projected sales and January’s actual cash balance. Defendant Alex Solomon also presented a financial projection that shows that the Company is not insolvent and will not be in the future.  Defendant’s financial projections are more persuasive because Defendant Alex Solomon still works at the Company and has better knowledge of what is occurring with corporate assets. Additionally, Plaintiff has not shown that the Company’s current assets are insufficient to satisfy Plaintiff’s claims.  Defendant Alex Solomon asserts that the payments are not shareholder distributions, but rather a salary obligation that has been paid to him since 2012.  Plaintiff has suggested that Defendant Marvalyn Solomon has defaulted on her bank account, but Plaintiff does not show that the Company will be affected by alleged default.

 

In addition, Plaintiff has not met his burden that he will suffer harm greater than the Defendants in the event that the proposed injunction is not granted. Plaintiff argues that Defendant Alex Solomon called Plaintiff to say that he intended to sell assets of Defendant Corporation because he was short on cash.  Defendants explain that the only asset sold was a company vehicle to reduce expenses.  An injunction would harm Defendants because it would require Defendants to retain assets that require overhead expenses to maintain.  Plaintiff has not showed why the selling of that asset or future assets to limit expenses would cause harm to Plaintiff.  Therefore, if the injunction is not granted, the harm suffered to Plaintiff will not be greater than the harm suffered by Defendants if the injunction is granted.

 

Therefore, the motion for a preliminary injunction is DENIED.