eGumball v. Merrick Bank Corp. CA4/3 ( 2023 )

Filed 5/17/23 eGumball v. Merrick Bank Corp. CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
EGUMBALL, INC.,
Plaintiff and Respondent, G060853
v. (Super. Ct. No. 30-2021-01216871)
MERRICK BANK CORPORATION, OPINION
et al.,
Defendants and Appellants.
Appeal from an order of the Superior Court of Orange County, James L.
Crandall, Judge. Reversed.
Duane Morris, Paul J. Killion, C. Todd Norris, Michelle N. Khoury, Daniel
G. Gurfein and James J. Regan for Defendant and Appellant Merrick Bank Corporation.
Roxborough, Pomerance, Nye & Adreani and Gary A. Nye for Defendant
and Appellant Paysafe Payment Processing Solutions, LLC.
Gibson, Dunn & Crutcher, Timothy W. Loose and Blaine H. Evanson for
Defendant and Appellant Visa, Inc.
The Samini Firm, Bobby Samini, Michael J. Buley, and Michael S. Yasin;
Greines, Martin, Stein & Richland, Alana Rotter and Nadia A. Sarkis for Plaintiff and
Respondent eGumball, Inc.
* * *
This is an appeal from a temporary restraining order (TRO) directed to
Merrick Bank Corporation (Merrick), Paysafe Payment Processing Solutions, LLC
(Paysafe), and Visa, Inc. (Visa) (collectively appellants). The trial court issued the TRO
after appellants placed eGumball on the “Mastercard Alert to Control High-Risk
1
Merchants” system (the MATCH list). The MATCH list is a database of high-risk
merchants maintained by Mastercard. Financial institutions that provide credit card
processing services use the MATCH list to screen merchants before entering into
agreements with them, to determine their risk as a merchant account holder.
Merrick placed eGumball on the MATCH list based on an investigation run
by Visa. Visa used two test credit cards when investigating two online pharmacies,
which were illegally selling opioids. eGumball, which is in the business of search engine
optimization, submitted transactions involving those cards to its bank Merrick. After it
did so, Merrick terminated eGumball’s merchant account and added eGumball to the
MATCH list. eGumball admits it ran the cards but explains it did so in an attempted
business relationship with one of the pharmacies. The pharmacy gave eGumball the
credit card numbers to pay for eGumball’s search engine optimization services.
eGumball claimed it did not know the credit cards did not belong to the pharmacy or that
the credit cards were part of Visa’s sting operation. It presented this information to
appellants, but Merrick did not remove eGumball from the MATCH list.
eGumball filed an action against appellants in the superior court. Several
weeks later, eGumball filed an ex parte application for a TRO. Following a noticed
1
In the record, MATCH is sometimes referred to as Mastercard’s “Member Alert to
Control High-Risk Merchants.”
2
hearing, the court granted the TRO and issued an order to appellants to show cause why a
preliminary injunction should not issue. The TRO directs appellants to request that
Mastercard remove eGumball from the MATCH list and enjoins appellants from placing
eGumball back on the MATCH list based on the same incident.
Appellants contend the court abused its discretion by issuing the TRO. We
conclude the provision in the TRO directing appellants to request eGumball’s removal
from the MATCH list is a mandatory injunction, subject to heightened scrutiny on
appeal. The purpose of a properly issued TRO is to preserve the status quo pending a
preliminary injunction hearing. The evidence in this record is insufficient to support the
issuance of the TRO. eGumball did not show it would suffer great or irreparable injury
before a hearing on the preliminary injunction could be held. Thus, we conclude the
court abused its discretion by issuing the TRO. The trial court properly issued an order to
2
show cause, and we note a preliminary injunction hearing is pending in the trial court.
FACTUAL AND PROCEDURAL BACKGROUND
I.
THE PARTIES
eGumball is in the search engine optimization industry; it helps other
“businesses acquire customers by optimizing their online presence.” Prior to being
placed on the MATCH list, eGumball employed about 450 people, had thousands of
business clients, and its market valuation was $80 million. eGumball’s clients paid
almost exclusively with credit cards, typically set up for monthly recurring charges
pursuant to written agreements.
2
We express no view on how the court should resolve any of the issues before it at the
preliminary injunction hearing. Our opinion is based on the evidence before the trial
court at the time it issued its decision, and the parties may present different evidence at
the preliminary injunction hearing.
3
To process these credit card transactions, merchants like eGumball usually
contract with an independent sales organization (ISO) and a bank that is a member of a
credit card network. The bank and ISO process the merchant’s credit card transactions,
settle them with the credit card companies, and deposit funds into the merchant’s
business banking account.
In 2014, eGumball was looking for a new bank to process its clients’ credit
card payments. MeritCard Solutions, an ISO and predecessor of Paysafe, assisted
eGumball with its application to Merrick. eGumball’s owner and principal, John Bauer,
signed and submitted to Merrick a “Merchant Application and Agreement.” The
Merchant Application and Agreement lists “Important Merchant Responsibilities:”
including “Reviewing and understanding the Merchant Agreement” and “Complying
with Visa’s operating regulations.” Just above Bauer’s signature, the Merchant
Application and Agreement states: “By executing this Merchant Application on behalf of
the merchants described above (‘Merchant’), the undersigned individual(s) represent(s),
warrant(s), and acknowledge(s) that: . . . (vii) The undersigned has received, read,
understood, the Merchant Agreement, which is incorporated herein by reference thereto,
and agrees on behalf of the merchant to be bound by the terms of such Merchant
Agreement.” Bauer avers, however, eGumball never received a copy of Merrick’s
Merchant Agreement and never agreed to its terms.
A few weeks after eGumball submitted its application, MeritCard informed
eGumball the application had been approved and eGumball was issued a merchant
identification number (MID). The approval letter advised eGumball: “The card
associations require merchants comply with all current rules and regulations regarding
card acceptance practices. For additional information regarding the terms of your
agreement please refer to your Program Guide.” An Internet address was provided for
eGumball to use to access the Program Guide. The approval letter also listed “Prohibited
Transactions,” which included, among others: (1) “Attempting multiple authorizations
4
on a previously declined sale”; (2) “Accepting transactions where cardholder is not the
same as person presenting card. This includes acceptance of any card where signature on
back of card does not match transaction receipt”; and (3) “Factoring (Draft Laundering)
as defined as the process where merchant deposits drafts (sales) on behalf of another
business (merchant).” eGumball was instructed to contact the “Merchantcard Risk and
Suspicious Transaction Support” (boldface and capitalization omitted) anytime it was
presented with a suspicious card, prior to accepting the sale or order.
Thereafter, Merrick was eGumball’s bank. Paysafe acquired MeritCard
around 2016 and became the ISO. According to eGumball, each of its credit card
transactions initially goes through Paysafe for processing to verify and secure the
transaction information before the transaction goes to Merrick, which sends it to Visa.
II.
VISA’S INVESTIGATION
Visa maintains a Global Brand Protection Program (GBPP) that “endeavors
to protect the Visa payment system from transactions that are illegal or otherwise
damaging to Visa’s brand.” As part of this effort, Visa’s GBPP team attempts to identify
merchants that try to submit prohibited transactions into the Visa payment system.
In May 2021, Visa’s GBPP team learned prescription-strength opioids were
unlawfully being sold without a prescription and could be purchased with a credit card
from two Internet-based pharmacies. We will refer to these two online pharmacies as
SMS and GSP.
Seeking to investigate these two pharmacies, the GBPP team created two
test credit cards to use in transactions with them, so Visa could track all activity on these
cards after they had been given to pharmacies. A GBPP team member used one of the
credit cards to purchase Norco pills from GSP; the other card was used to purchase
Oxycodone from SMS. Both sales were unlawful as they were made without requiring a
valid prescription.
5
The GBPP team monitored the test credit cards’ accounts and waited to see
how these cards’ numbers were used after they were provided to the online pharmacies.
Visa’s GBPP team did not expect to see charges from GSP or SMS on the test cards’
accounts because usually websites engaged in illicit activity do not have credit card
processing services.
In May 2021, the GBPP team saw the card numbers for both test cards were
submitted into the Visa payment system by eGumball, meaning eGumball tried to run
both test cards for payment. Visa, however, had intentionally set the cards to decline any
authorization attempts because Visa did not want to illegally obtain opioids and did not
want to transfer money to anyone involved in such transactions.
A few days later, a GBPP investigator e-mailed GSP, using the alias the
investigator had used in the opioid purchase. The GBPP investigator inquired about the
opioid order and charge, asking if the charges “SEACH ENGINE LISTING and
EGUMBALL INC” were from GSP. An individual responding on behalf of the
pharmacy responded: “They are both from me.” Based on the GBPP team’s
investigation, Visa concluded there was a potential connection between the two pharmacy
websites and eGumball.
On May 25, 2021, Visa sent Merrick two letters concerning the two
pharmacy transactions and eGumball. In the letters, Visa informed Merrick its GBPP
team had identified eGumball as processing illegal and/or brand damaging transactions
involving the sale of controlled substances without a prescription. Visa gave Merrick
five business days to investigate the matter and provide a written response addressing
how the violations would be remediated and documentation “demonstrating merchant
compliance with the Visa Rules requirement that prohibits illegal transactions from
entering the payment system.” Visa also advised Merrick if the results of Merrick’s
investigation conflicted with Visa’s findings, Merrick should immediately contact Visa
before contacting eGumball. The letters further stated Merrick might be subject to a
6
$25,000 fine for each violation and escalating fines might be levied if eGumball remained
“non-compliant.”
Merrick did not uncover any evidence to contradict Visa’s finding
eGumball processed transactions on the test cards that were used for the purchases at the
two online pharmacies. Merrick’s risk monitoring vendor ran test transactions through
the two pharmacies’ websites and the transactions did not run through eGumball’s MID.
But Merrick did not consider this to be evidence contradicting Visa’s findings.
III.
TERMINATION OF EGUMBALL’S MERCHANT ACCOUNT
On June 1, 2021, Paysafe informed eGumball its account had been placed
on hold because the company had reason to believe, based on information from Visa,
sales generated from SMS and GSP were processed through eGumball’s MID. Paysafe
requested eGumball provide information regarding its connection to the two pharmacy
websites. eGumball denied any connection to the two pharmacies and asked for
additional details to investigate the matter. Paysafe responded it did not have details and
the information it had received came from Visa. Paysafe informed eGumball Visa stated
it had “positively confirmed” transactions processed on eGumball’s MID were connected
to the two pharmacy websites. Paysafe told eGumball Visa would not provide additional
information on how the transaction was traced but Visa had “confirmed” there was
“transaction laundering” on eGumball’s MID.
eGumball repeatedly denied any connection to the two pharmacy websites
and sought to clear up what it believed was an error. eGumball explained it does not
process any credit cards through its public website. Its clients provide credit card
numbers in their contracts to pay for eGumball’s services. eGumball audited its
accounts. It reported to Paysafe all of its charges were legitimate as it was able to
reconcile the charges with its clients’ contracts. eGumball offered to provide copies of its
7
clients’ contracts and its audit results so Paysafe and Visa could validate eGumball’s
findings.
eGumball investigated the two pharmacy websites and informed Paysafe
the websites had foreign hosting and were possibly related to each other by hosting,
ownership, or development agreements. eGumball could not find any backlinks for these
domains that were tied to its business. It maintained Visa had the wrong merchant as it
believed it had not been involved with these pharmacies.
IV.
EGUMBALL IS PLACED ON THE MATCH LIST
On June 4, 2021, Merrick and Paysafe terminated their Merchant
Agreement with eGumball. Because of this, eGumball was unable to receive its clients’
credit card payments, which were its main source of revenue. Merrick informed Visa it
had terminated its relationship with eGumball. The same day, Merrick reported
eGumball to the MATCH list.
MATCH “is a compliance program operated by Mastercard, which allows
financial institutions that acquire and/or process payment card transactions for merchants
(‘acquirers’) to review certain merchant risk information before entering into an
agreement with a new merchant.” The MATCH list is a database with information about
merchants who have been terminated by participating financial institutions. When an
acquirer considers entering into a new agreement with a merchant, it can use the MATCH
list to determine if another acquirer has previously terminated the merchant “due to
circumstances that could affect the decision whether to” work with the merchant and
“whether to implement specific action or conditions . . . .” (
(Mastercard Rules) ch. 11, p. 111 [as of May 15, 2023], archived at:
.) “MATCH is a mandatory system for Mastercard
Acquirers unless excused by Mastercard or prohibited by law.” (Ibid.)
8
Pursuant to the Mastercard Rules, if an acquirer like Merrick terminates its
relationship with a merchant and at the time of termination “has reason to believe that a
condition described in Table 11.4 exists, then the Acquirer must add the required
information to MATCH within five calendar days of” the decision to terminate the
merchant relationship. (Mastercard Rules, ch. 11.2.2, p. 115.) The Mastercard Rules
further state, “Acquirers must act diligently, reasonably, and in good faith to comply with
MATCH system requirements.” (Ibid.) “An Acquirer that fails to enter a Merchant into
MATCH is subject to a noncompliance assessment, and may be subject to an unfavorable
ruling in a compliance case filed by a subsequent Acquirer of that Merchant.” (Ibid.)
The Mastercard Rules also address removal of a merchant from the MATCH list, stating
Mastercard may remove a merchant listing from MATCH if the acquirer reports to
3
Mastercard it added the merchant “in error.” (Id., ch. 11.4, p. 116.)
Here, Merrick determined, under the Mastercard Rules Table 11.4, the
applicable code was “03 Laundering.” In this context, laundering has a specific
definition. The Mastercard Rules define it as “The Merchant was engaged in laundering
activity. Laundering means that a merchant presented to its Acquirer Transaction records
that were not valid Transactions for sales of goods or services between that Merchant and
a bona fide Cardholder.” (Mastercard Rules, ch. 11, p. 118.) Merrick concluded the
illegal and/or brand damaging transactions identified by Visa met this definition, and
Merrick used this code for eGumball’s MATCH listing.
After being placed on the MATCH list, eGumball was unable to find a
credit card processing bank (acquirer) that would work with it. eGumball was told no
3
Visa has its own rules relating to the MATCH list. Visa’s rules require an acquirer to
add a merchant to the MATCH list promptly upon terminating an account. Visa’s rules
also state “only the Member that added the Merchant to the Terminated Merchant File
may request deletion of the Merchant name or information.” (See Visa Core Rules and
Visa Product and Service Rules (Apr. 17, 2021) at p. 644, [as of May 15, 2023], archived at: .)
9
bank would consider it because of the laundering label on the MATCH list and it would
have to get “a MATCH list removal letter from” appellants before it could open a new
account.
eGumball e-mailed its clients and informed them it no longer accepted
credit card payments. Thousands of eGumball’s clients cancelled their accounts and
several of eGumball’s key employees resigned.
V.
EGUMBALL’S CONTINUED INVESTIGATION UNCOVERS TRANSACTION WITH SMS
On July 1, 2021, eGumball informed Paysafe it had discovered SMS was a
business that signed up for eGumball’s services on May 4, 2021, and eGumball had
attempted to process two credit cards provided by SMS for $308. eGumball twice
attempted to process one credit card, but the card was denied both times. SMS provided
another credit card, which eGumball also ran, and it, too, was denied. eGumball believed
these credit card transactions were the ones flagged by Visa. After both cards were
declined, eGumball ceased contact with SMS.
eGumball also explained how it came into contact with SMS. In April
2021, a company that provides eGumball with monthly sales leads listed SMS as a
potential customer. eGumball’s call center contacted SMS on May 4, 2021, to solicit its
business. eGumball accepted SMS’s application/contract for its optimization services.
This document states eGumball’s monthly service includes keyword research and
analysis and “Optimized Listings in Google My Business & Bing Places.” SMS’s
keyword statements listed on the document include “pain relief medication,”
“Oxycontin/Roxicodone/Dilaudid,” and “Xanax/Percocet Adderall.” After eGumball
attempted to process SMS’s credit card information and the transactions were declined,
eGumball cancelled the contract and the sale never reached eGumball’s “quality control
systems.”
10
eGumball asserted this information showed it was not involved in any fraud
and the transactions occurred during the processing of a sale with what it “believed was a
legitimate pharmacy.” Appellants, however, refused to remove eGumball from the
MATCH list.
VI.
EGUMBALL SUES MERRICK, PAYSAFE, AND VISA
In August 2021, eGumball filed a complaint alleging six causes of action
against Merrick, Paysafe, and Visa: (1) trade libel; (2) defamation; (3) conversion;
(4) unfair business practices; (5) intentional inference with prospective economic
advantage; and (6) negligent interference with prospective economic advantage. In the
complaint, eGumball alleged appellants falsely published a statement on the MATCH list
that eGumball was a launderer, knowing the statement was false.
VII.
EGUMBALL’S EX PARTE APPLICATION FOR A TEMPORARY RESTRAINING ORDER
More than a month after filing its complaint, eGumball filed an ex parte
application for a TRO and an order to show cause (OSC). eGumball sought an order
compelling appellants to act to remove eGumball from the MATCH list and to restrain
them from placing eGumball back on the MATCH list pending a hearing on a
preliminary injunction. The TRO application included a declaration by Bauer,
eGumball’s owner. Bauer declared eGumball had been unable to find a bank to process
its credit card payments because of the MATCH listing, and as a result, eGumball’s
revenue had come “to an abrupt and almost complete halt.” eGumball argued absent a
restraining order, it would “suffer great and immediate irreparable harm in that its
business will continue to be harmed by its revenue being restrained to the point that it
will ultimately be unable to continue to exist.” eGumball asserted its business “may
never recover and it may cease to exist entirely if a TRO is not issued ordering [its]
removal from the MATCH list.” eGumball contended there was a reasonable probability
11
it would prevail on the merits of its underlying claims. A hearing on the TRO application
was set for the following day.
All three appellants opposed eGumball’s ex parte TRO application. Visa
argued the court should deny the TRO application because: (1) eGumball failed to show
an urgent need for emergency relief; (2) eGumball was not entitled to injunctive relief as
it was unlikely to succeed on the merits and failed to establish immediate or irreparable
harm; and (3) the relief eGumball requested was “improper because it upsets the status
quo, compels Visa to speak, and is impossible to administer.” Visa asserted the TRO was
improper because the court could not require Visa to take the steps necessary to remove
eGumball from a list maintained by nonparty Mastercard. Visa attached a declaration by
a director of GBPP, who stated the GBPP team had not received any information from
eGumball demonstrating eGumball’s two transaction records affiliated with the opioid
purchase were created in error.
Merrick relied heavily on its Merchant Agreement in arguing the TRO
application should be denied. Pursuant to Merrick’s Merchant Agreement, eGumball had
agreed to Utah as the exclusive jurisdiction for any action against Merrick, and Merrick
intended to seek dismissal of the complaint filed in California on this ground and others.
The Merchant Agreement also stated the merchant (eGumball) “expressly agrees and
consents to [MATCH] reporting if Merchant is terminated for any reason requiring listing
on the MATCH file. Merchant waives and will hold harmless Bank [Merrick] from any
claims that Merchant may raise as a result of Bank’s MATCH file reporting.’” (Boldface
omitted.) Merrick asserted under the Merchant Agreement, it properly terminated
eGumball, was required to identify it as a terminated merchant on MATCH, and
eGumball could not bring claims against Merrick based on Merrick’s MATCH reporting.
Merrick further asserted the TRO eGumball was requesting would restrain Merrick’s
speech by requiring Merrick to retract eGumball’s MATCH listing. Paysafe joined in the
oppositions filed by Visa and Merrick.
12
Appellants appeared at the hearing on eGumball’s ex parte TRO
application. The court continued the hearing until October 21, 2021 and provided the
parties an opportunity to submit additional briefing. Each party filed additional briefing,
reiterating and supplementing their prior arguments.
In its supplemental brief, eGumball stated it had lost one-half of its revenue
because of appellants’ conduct. It asserted an injunction was needed to save the company
“and allow it to survive long enough for the trier of fact to determine the appropriate
remedies to right [appellants’] wrongs and allow eGumball to begin to rebuild its
reputation and business.” Visa maintained eGumball attempted to initiate transactions
with credit cards used to purchase illegal prescription drugs and Visa acted reasonably in
alerting Merrick to potential misconduct linked to eGumball’s account. Merrick
contended eGumball was correctly placed on the MATCH list for the reason listed,
asserting eGumball’s evidence confirmed it sought to complete transactions with the
online pharmacy website that were not valid transactions with a bona fide cardholder, an
action that meets MATCH’s laundering definition. Merrick argued, “the standard for
listing a merchant on MATCH for transaction laundering doesn’t require proof of
knowing participation in fraud.”
VIII.
HEARING ON THE APPLICATION AND ISSUANCE OF THE TRO
A hearing on the TRO was held in October 2021. Visa, Merrick, and
Paysafe argued against issuance of a TRO. Merrick argued eGumball’s transactions met
the definition of laundering, and therefore, it had an obligation to report it had terminated
eGumball for this type of transaction. The court stated it thought “maybe a temporary
restraining order is the fairer thing to do and we will get all the evidence out at the
preliminary injunction hearing,” which the court expected would be held soon.
Indicating it would issue a TRO, the court explained, “there is not a basis here to put this
company out of business and put them on the M[ATCH] system that is going to prevent
13
other people from doing business with them.” The court stated it had to grant the TRO
“as a matter of basic fairness.”
When asked for clarification, the court indicated it was finding the
statement Merrick made in putting eGumball on the MATCH list was “not false, [but]
simply inaccurate.” The court stated it was not finding defamation or an intent to make a
false statement at that time and the parties could present further evidence and argument at
the preliminary injunction hearing. The court remarked, “there may be a likelihood of
success as to the defamation,” but “[the court needed] further evidence as to the basis for
that inaccuracy.” The court stated it was “appropriate to have [eGumball] removed from”
the MATCH list at the time, but if it did not grant the preliminary injunction, appellants
could put eGumball back on the list. The court did not require a bond, stating it would
take care of that at the preliminary injunction stage, if it granted a preliminary injunction.
On November 3, 2021, the court issued the TRO addressed to Merrick,
Paysafe, and Visa. It states:
“You, your agents, assigns, employees, partners and all those acting in
concert with you, are hereby ordered to request Mastercard to have eGumball, Inc.’s
Member Alert to Control High-Risk Merchants List (aka ‘MATCH’ list) designation
reversed and to request Mastercard remove eGumball, Inc. from the MATCH list.
“Upon eGumball, Inc.’s removal from the MATCH list, you, your agents,
assigns, employees, partners and all those acting in concert with you, are hereby
restrained and enjoined from placing eGumball, Inc. back on the MATCH list on the
basis of events underlying or related to its placement on the MATCH list on June 4, 2021.
“This Temporary Restraining Order is effective this date, is without
prejudice to Defendant[s’] position that its actions were not in error, and shall remain in
full force and effect unless and until further ordered by the Court.” (Boldface & some
capitalization omitted.)
14
The court also issued an order for appellants to show cause on
November 22, 2021, why a preliminary injunction should not issue restraining them from
placing eGumball back on the MATCH list for the remainder of the litigation.
IX.
APPEAL FROM THE TRO
Appellants appealed from the trial court’s issuance of the TRO and asserted
the TRO was automatically stayed pending their appeal. (See Code Civ. Proc, § 916,
subd. (a); Daly v. San Bernardino County Bd. of Supervisors (2021) 11 Cal.5th 1030(Daly) [mandatory injunction automatically stayed pending appeal].)
DISCUSSION
I.
APPEALABILITY OF A TRO
We invited the parties to brief the appealability of the court’s issuance of a
4
TRO. Only appellants accepted our invitation. We agree with appellants a TRO is
5
appealable under Code of Civil Procedure section 904.1, subdivision (a)(6). (Bustos v.
Wells Fargo Bank, N.A. (2019) 39 Cal.App.5th 369, 375 [“A TRO, as an interim
provisional order granting injunctive relief, is immediately appealable”]; McLellan v.
McLellan (1972) 23 Cal.App.3d 343, 357 [“A temporary restraining order is separately
appealable”].) Nearly a century ago, when discussing former Code of Civil Procedure
section 963, the predecessor to section 904.1, the Court of Appeal stated: “It is clear that
4
eGumball declined our invitation. It sought, instead, to stay the appeal pending a ruling
by the trial court on its request for a preliminary injunction. eGumball expressed its
“desire” was “to have the TRO vacated and this appeal dismissed as moot.”
5
Code of Civil Procedure section 904.1, subdivision (a)(6), states an appeal may be
taken “[f]rom an order granting or dissolving an injunction, or refusing to grant or
dissolve an injunction.”
15
the intent of the statute is that all orders granting or refusing injunctions, whether
temporary or permanent or provisional pending appeal, shall be appealable . . . .”
(Brydon v. Hermosa Beach (1928) 93 Cal.App. 615, 620.) This intent remains clear in
section 904.1, subdivision (a)(6).
Typically, TROs are of a short or limited duration as a preliminary
injunction hearing follows quickly thereafter, at which time the TRO is automatically
dissolved or terminated when the court grants or denies a preliminary injunction. (Code
Civ. Proc, § 527.) When a preliminary injunction is issued, the appeal from the TRO is
often rendered moot and dismissed. (See O’Kane v. Irvine (1996) 47 Cal.App.4th 207,
210, fn. 4 [“appeal from the TRO, following the trial court’s grant of the three-year
restraining order, is moot” and dismissed].)
Here, when the court issued the TRO and order to show cause, it scheduled
a preliminary injunction hearing to be held in a month. However, after appellants filed
6
their notice of appeal, the trial court vacated the preliminary injunction hearing date.
The preliminary injunction hearing was later placed back on calendar, but it has been
repeatedly continued and was last on calendar for April 2023. The TRO remains in place
7
but is stayed.
6
It appears from the record the trial court believed it lacked jurisdiction to proceed with
the preliminary injunction hearing after the notice of appeal was filed.
7
Appellants argue the TRO here “is more properly described as a preliminary
injunction” because it states it shall remain in effect until further order of the court. (See
McManus v. KPAL Broadcasting Corp. (1960) 182 Cal.App.2d 558, 562.) We disagree.
This language in the TRO does not compel us to treat the order as a preliminary
injunction. At the hearing on eGumball’s TRO application, the trial court made
numerous comments reflecting its intent the order be a TRO and a preliminary injunction
hearing would follow soon thereafter.
16
II.
APPLICABLE LEGAL PRINCIPLES
“A temporary restraining order is issued to prohibit the acts complained of,
pending a hearing on whether the plaintiff is entitled to a preliminary injunction.
[Citations.]” (6 Witkin, Cal. Proc. (6th ed. 2021) Provisional Remedies, § 277, p. 208;
accord, Chico Feminist Women’s Health Center v. Scully (1989) 208 Cal.App.3d 230,
237, fn. 1.) A TRO is similar to a preliminary injunction as it is appealable (see
discussion ante) and enforceable by contempt proceedings (Code Civ. Proc., § 1209,
subd. (a)(5)). “But it is distinguishable in the following respects: it may be issued ex
parte; a bond, though commonly required, is not essential; and it is of short duration,
normally expiring at the time of the hearing on the preliminary injunction.” (6 Witkin,
Cal. Proc. (6th ed. 2021) Provisional Remedies, § 277, p. 208.)
A trial court’s analysis is circumscribed when considering a TRO. “The ex
parte hearing concerning a TRO is no more than a review of the conflicting contentions
to determine whether there is a sufficiency of evidence to support the issuance of an
interlocutory order to keep the subject of litigation in status quo pending a full hearing to
determine whether the applicant is entitled to a preliminary injunction. [Citation.] The
issuance of a TRO is not a determination of the merits of the controversy. [Citation.] All
that is determined is whether the TRO is necessary to maintain the status quo pending the
noticed hearing on the application for preliminary injunction. [Citation.]” (Landmark
Holding Group, Inc. v. Superior Court (1987) 193 Cal.App.3d 525, 528 (Landmark).)
The moving party has the burden of establishing it is entitled to the requested relief.
(Drakes Bay Oyster Co. v. California Costal Com. (2016) 4 Cal.App.5th 1165, 1172
(Drakes).)
When ruling on a TRO application, the trial court should evaluate “‘two
interrelated factors’”: (1) the likelihood the moving party will prevail on the merits at
trial, and (2) the relative interim harm to the parties from issuance or nonissuance of the
17
order. (Church of Christ in Hollywood v. Superior Court (2002) 99 Cal.App.4th 1244,
1251.) “‘The trial court’s determination must be guided by a “mix” of the potential-merit
and interim-harm factors; the greater the plaintiff’s showing on one, the less must be
shown on the other to support [a restraining order]. . . .’” (Id. at pp. 1251-1252.) But
“‘[a] trial court may not grant a [restraining order], regardless of the balance of interim
harm, unless there is some possibility that the plaintiff would ultimately prevail on the
merits of the claim.’ [Citation.]” (Id. at p. 1252.)
Similarly, appellate review of an order granting a temporary restraining
order involves reviewing the trial court’s evaluation of the likelihood of success and
interim harm factors. “If the trial court abused its discretion on either factor, the Court of
Appeal must reverse. [Citation.]” (Church of Christ in Hollywood v. Superior Court,
supra, 99 Cal.App.4th at p. 1252.) “A trial court will be found to have abused its
discretion only when it has ‘“exceeded the bounds of reason or contravened the
uncontradicted evidence.”’ [Citations.] Further, the burden rests with the party
challenging the injunction to make a clear showing of an abuse of discretion.
[Citations.]” (IT Corp. v. County of Imperial (1983) 35 Cal.3d 63, 69 [decision to grant
preliminary injunction reviewed for abuse of discretion].)
An “appellate court does not resolve conflicts in the evidence, reweigh the
evidence, or assess the credibility of witnesses. [Citation.]” (Whyte v. Schlage Lock Co.
(2002) 101 Cal.App.4th 1443, 1450.) If the evidence before the trial court was in
conflict, “‘we must interpret the facts in the light most favorable to the prevailing party
and indulge in all reasonable inferences in support of the trial court’s order.’ [Citation.]”
(Ibid.) “Our task is to ensure that the trial court’s factual determinations, whether express
or implied, are supported by substantial evidence. [Citation.] Thus, we interpret the facts
in the light most favorable to the prevailing party and indulge in all reasonable inferences
in support of the trial court’s order. [Citations.]” (Shoemaker v. County of Los Angeles
(1995) 37 Cal.App.4th 618, 625.)
18
An injunctive order can be mandatory, prohibitory, or both. An interim
mandatory injunctive order is scrutinized “‘“even more closely for abuse of discretion.”’”
(Oiye v. Fox (2012) 211 Cal.App.4th 1036, 1047-1048.) Thus, we must first determine
whether the TRO is mandatory or prohibitory to apply the appropriate standard of review.
III.
MANDATORY AND PROHIBITORY INJUNCTION
Appellants contend the TRO is a mandatory injunction and is therefore
subject to heightened scrutiny on appeal. eGumball disagrees and asserts the TRO is
prohibitory. We conclude the TRO has both mandatory and prohibitory provisions.
A mandatory injunction compels a party to perform an affirmative act.
(Daly, supra, 11 Cal.5th at p. 1041.) “Such an injunction, by definition, commands some
change in the parties’ positions.” (Ibid.) A prohibitory injunction, on the other hand,
requires a party to refrain from a particular act. (Ryland Mews Homeowners Assn. v.
Munoz (2015) 234 Cal.App.4th 705, 712, fn. 4 (Ryland).) “The substance of the
injunction, not the form, determines whether it is mandatory or prohibitory. [Citation.]”
(Davenport v. Blue Cross of California (1997) 52 Cal.App.4th 435, 447.)
Here, the TRO issued by the trial court has two provisions; one is
mandatory, and the other is prohibitory. In the TRO’s first provision, the court ordered
appellants to take affirmative actions to have eGumball removed from the MATCH list.
Specifically, appellants were ordered “to request MasterCard to have eGumball, Inc.’s
Member Alert to Control High-Risk Merchants List (aka ‘Match’ list) designation
reversed and to request MasterCard remove eGumball, Inc. from the MATCH list.” This
fits the definition of a mandatory injunction. It compels appellants to perform affirmative
acts that will change the status quo from the time the order is entered. (Daly, supra,
11 Cal.5th at pp. 1045-1046.)
The second part of the TRO is prohibitory. It restrains and enjoins
appellants from placing eGumball back on the MATCH list based on the “events
19
underlying or related to its placement on the MATCH list on June 4, 2021.” It is
prohibitory because it requires appellants refrain from taking a particular action. (Ryland,
8
supra, 234 Cal.App.4th at p. 712, fn. 4.)
eGumball’s argument the TRO is only prohibitory is based on a
misunderstanding of Daly, supra, 11 Cal.5th 1030. In Daly, the Supreme Court
acknowledged “the distinction between a mandatory and a prohibitory injunction” is
sometimes “easier to state than to apply.” (Id. at p. 1041.) To provide clarity, the high
court identified “certain benchmarks that help guide the inquiry.” (Id. at p. 1042.) The
court reviewed case law spanning more than a century that addressed the mandatory-
prohibitory injunction distinction in various contexts. (Id. at pp. 1042-1044.) In these
cases, the Daly court explained, the determination of whether the order was mandatory or
prohibitory was based on consideration of whether the injunction changed the position of
the parties at the time it was issued. (Id. at p. 1044.) If the injunction changed the
relative rights, status, or position of the parties at the time it was entered, the injunction
was mandatory. (Ibid.)
In Daly, the Supreme Court recognized some cases had suggested “a
different baseline” for measuring the change in the parties’ relative positions. (Daly,
supra, 11 Cal.5th at p. 1045.) In those cases, the relevant status quo was not the parties’
position at the time the injunction was entered “but an earlier ‘“actual peaceable,
uncontested status which preceded the pending controversy.”’ [Citation.]” (Ibid.)
8
In their appellate briefs, the parties do not parse the TRO into separate parts.
Appellants have taken the position the TRO is mandatory and therefore stayed in its
entirety pending this appeal. Only the mandatory provision of the TRO is stayed pending
appeal. (See Ironridge Global IV, Ltd. v. ScripsAmerica, Inc. (2015) 238 Cal.App.4th
259, 265, fn. 4 [when an injunction grants both mandatory and prohibitory relief, an
appeal stays the mandatory provisions but not the prohibitory provisions].) Here, the stay
of the mandatory provision rendered the prohibitory provision purposeless. Until
appellants act to remove eGumball from the MATCH list, they need not be prohibited
from placing eGumball back on the MATCH list.
20
eGumball focuses on this formulation in its argument the TRO is prohibitory. The
Supreme Court, however, made clear this baseline was limited to “an injunction
preventing the defendant from committing additional violations of the law,” as it orders
the defendant not to repeat its past violations. (Id. at p. 1046.) Thus, the “last actual
peaceable, uncontested status” formulation applies only where the injunctive order aims
to prevent injury from future conduct. (Ibid.) It does not apply where the injunction calls
for the performance of an affirmative act to remedy a past violation. (Ibid.)
Here, the first portion of the TRO requires appellants to perform an
affirmative act to remedy what eGumball alleges is a past violation—placing eGumball
on the MATCH list. Therefore, the “last actual peaceable, uncontested status” baseline
does not apply. (Daly, supra, 11 Cal.5th at p. 1046.) Following Daly’s guidance, we
conclude the TRO’s first provision is a mandatory injunction. (See id. at p. 1047 [order
board rescind appointment of member so replacement could be seated was mandatory];
Shoemaker v. County of Los Angeles, supra, 37 Cal.App.4th at p. 625, fn. 4 [injunction
requiring defendants take action to restore plaintiff to his positions was “undoubtedly
mandatory” because he had already been removed when court issued order].)
“When, as here, the preliminary injunction mandates an affirmative act that
changes the status quo, it is scrutinized even more closely on appeal: ‘“‘“The judicial
resistance to injunctive relief increases when the attempt is made to compel the doing of
affirmative acts. A preliminary mandatory injunction is rarely granted, and is subject to
stricter review on appeal.”’ [Citation.] The granting of a mandatory injunction pending
trial ‘“is not permitted except in extreme cases where the right thereto is clearly
established.”’ [Citation.]” [Citation.]’ [Citation.]” (City of Corona v. AMG Outdoor
Advertising, Inc. (2016) 244 Cal.App.4th 291, 299.) But even if courts are more reluctant
to interpose a mandatory injunction, it is not to be denied in the proper case. (Ryland,
supra, 234 Cal.App.4th at p. 712, fn. 4.)
21
IV.
THE TRIAL COURT ABUSED ITS DISCRETION
It bears repeating, the purpose of a TRO is to preserve or change the status
quo pending a hearing on the application for a preliminary injunction. (Landmark, supra,
193 Cal.App.3d at p. 528.) As the moving party, eGumball had the burden of showing it
was likely to prevail on the merits of its claims and it would suffer great or irreparable
harm if the court did not grant the TRO. (See Drakes, supra, 4 Cal.App.5th at pp. 1171-
1172.) If eGumball failed to establish one of these factors, then we must reverse the
court’s granting of the TRO. (Church of Christ in Hollywood v. Superior Court, supra,
99 Cal.App.4th at p. 1252.) We focus only on whether eGumball made a showing
sufficient to support the issuance of the TRO. To be specific, we focus on whether the
evidence was sufficient to support the trial court’s implied finding of interim harm
pending the preliminary injunction hearing. We conclude the evidence was insufficient
and the court abused its discretion by issuing the TRO. Our opinion should not be read as
addressing whether eGumball is entitled to a preliminary injunction, a hearing on which
is pending in the trial court. Our opinion is limited to the evidence before the trial court
at the time it issued the TRO.
At the time of the TRO hearing, the issue before the trial court was whether
eGumball had provided evidence demonstrating great or irreparable injury if a TRO was
not issued pending a hearing on the preliminary injunction. (Landmark, supra,
193 Cal.App.3d at p. 528; Cf. White v. Davis (2003) 30 Cal.4th 528, 554 [“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”].) Stated more succinctly, eGumball needed to show
interim harm without a TRO in place. This they did not do. eGumball made a showing
the MATCH listing had damaged its business and this injury had been ongoing since the
beginning of June 2021. But eGumball did not show it would be out of business or
22
would lose significantly more business before a preliminary injunction hearing could be
held. eGumball simply did not demonstrate a need for the court to take immediate action
pending a hearing on the preliminary injunction. This was not a situation where a
building was about to be demolished and a TRO was needed to enjoin the demolition
pending a hearing on a preliminary injunction. (See Ciani v. San Diego Trust & Savings
Bank (1991) 233 Cal.App.3d 1604, 1610.)
Nor was this a situation where the TRO requested would provide
immediate relief. The relief eGumball sought was to have appellants remove its name
from the MATCH list. Even if this was not a mandatory injunction stayed on appeal, this
relief would not have permitted eGumball to immediately begin processing credit cards
and repair its revenue stream. Once eGumball is taken off the MATCH list, it still has to
obtain the services of an acquirer to process the credit card payments eGumball receives.
The record demonstrates this process takes weeks. In 2014, when eGumball applied for a
merchant account with Merrick, the process took three weeks from the time eGumball
submitted its merchant application until it was approved. When Merrick terminated
eGumball’s account, eGumball’s owner, Bauer, recognized the company would need
time to find a new acquirer. In an e-mail to Paysafe, Bauer requested 60 days of payment
processing, stating “It’s not like a merchant account can be set up with a flick of a
switch.” Thus, it was unlikely eGumball would have been able to process any credit card
payments prior to the preliminary injunction hearing, even if the TRO had not been
9
stayed pending this appeal.
9
In granting the TRO, the court stated it might not grant a preliminary injunction after
hearing additional evidence and arguments, and if it did not, appellants could put
eGumball back on the MATCH list. This and other comments by the court suggest the
court was not convinced at that time eGumball was entitled to a preliminary injunction.
With the possibility of being placed back on the MATCH list looming, it is unlikely
eGumball would have been able to obtain a merchant account with a new acquirer prior
to the anticipated preliminary injunction hearing.
23
In the trial court, appellants argued the TRO should be denied because
eGumball had not established exigent circumstances warranting immediate relief. They
noted eGumball was placed on the MATCH list more than 16 weeks before it sought the
TRO and eGumball had provided no evidence explaining why “emergency” injunctive
relief was necessary. Although given an opportunity, eGumball did not provide evidence
of great or irreparable injury pending a preliminary injunction hearing.
We conclude eGumball did not show it would suffer great or irreparable
injury before a hearing on the preliminary injunction could be held. Accordingly, the
trial court abused its discretion by issuing the TRO.
We are sympathetic to the difficult analysis before the trial court in
considering eGumball’s application for a TRO. The trial court was presented with
eGumball’s allegations appellants’ actions of trade libel and defamation were destroying
its business and removal from the MATCH list was the only thing that could save
eGumball. Appellants responded with several arguments. In addition to arguing
eGumball had not shown an urgent need for relief, appellants argued eGumball was not
entitled to injunctive relief because it was unlikely to succeed on the merits and had not
established irreparable harm. But they also asserted that under the terms of Merrick’s
Merchant Agreement, eGumball could not bring claims against Merrick for Merrick’s
MATCH reporting and had to bring any claims against Merrick in Utah. Appellants
further asserted the TRO should be denied because it would restrain their speech by
requiring them to retract eGumball’s MATCH listing. They argued eGumball could not
succeed on the merits of its claims because appellants’ “allegedly defamatory statements
are protected by a common interest privilege” under Civil Code section 47 and eGumball
could not prove malice. eGumball responded to the contract argument by asserting the
terms were not enforceable against it, but eGumball did not respond to the arguments
concerning the common interest privilege or invoking the First Amendment to the United
24
States Constitution. Appellants also filed numerous evidentiary objections to the
declaratory evidence eGumball submitted in support of its TRO application.
The record does not show the trial court analyzed the contract or common
interest privilege arguments or the First Amendment concerns. Nor did the court rule on
the evidentiary objections. The record indicates the court was inclined to address these
issues at the preliminary injunction hearing. We express no opinion on these issues. Our
decision is limited to our conclusion the trial court abused its discretion by issuing the
mandatory TRO prior to conducting a hearing on the preliminary injunction. We
emphasize—we conclude only that the trial court abused its discretion by issuing a TRO
based on the evidence before it.
We encourage the trial court and the parties to give priority to the pending
preliminary injunction hearing as the matter was originally scheduled to be heard in
November 2021 and has been repeatedly continued since. If the trial court issues a
preliminary injunction, it must be carefully crafted based on the evidence before it
concerning the different roles and responsibilities of Merrick, Paysafe, and Visa. The
record before this court reflects only Merrick has the ability to request eGumball be
placed on or removed from the MATCH list.
25
DISPOSITION
The temporary restraining order is reversed. Each party shall bear its own
costs on appeal.
MOTOIKE, J.
WE CONCUR:
O’LEARY, P. J.
SANCHEZ, J.
26