Ma v. Cao CA2/2 ( 2024 )

Filed 5/30/24 Ma v. Cao CA2/2
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
YUE MA et al., B329293
Plaintiffs and Respondents, (Los Angeles County
Super. Ct. No.
v. 21STCV43979)
LINGHAN HANK CAO et al.,
Defendants and Appellants.
APPEAL from an order of the Superior Court of Los
Angeles County, Gail Killefer, Judge. Affirmed.
KJC Law Group, Kevin J. Cole and W. Blair Castle for
Defendants and Appellants.
Law Offices of Paul P. Cheng, Cameron H. Totten, Paul P.
Cheng, Gene S. Lizaso and Suleiman Oladeinde for Plaintiffs and
Respondents.
_________________________________________
The trial court issued a preliminary injunction after
plaintiffs showed that defendants were removing assets from
their jointly owned business. Defendants argue that the
injunction is void because plaintiffs did not post an undertaking.
(Code Civ. Proc., § 529.)1 They also challenge the preliminary
injunction on the merits.
We conclude that defendants waived their right to an
undertaking, and the court did not abuse its discretion by issuing
the preliminary injunction. Plaintiffs are likely to prevail on
their breach of contract claim, and, on balance, they will suffer
the greater harm if defendants transfer, sell or hide corporate
assets. We affirm.
FACTS AND PROCEDURAL HISTORY
Plaintiffs’ Lawsuit
Plaintiffs filed suit in 2021. Their third amended
complaint (TAC) describes the dispute. Plaintiffs Yue Ma and
Lihong Zhao (through their companies Sunny West Coast Co. and
Hua Ming Technology Co.) own a 35 percent interest and
defendant Linghan “Hank” Cao owns a 65 percent interest in
Ideal International Investment (Ideal). Ideal is a trucking
company formed in 2018. The owners constitute Ideal’s board of
directors.
The parties agreed that Ideal would operate for three years,
at which point they had to decide whether to continue the
business. At the three-year mark, no decision was made.
Without a decision to continue, the parties’ agreement required
dissolution. Instead of dissolving the business, Cao continued to
1 Undesignated statutory references are to the Code of Civil
Procedure.
2
operate Ideal, removed assets, and the parties had a breakdown
in their relationship. Plaintiffs assert claims for breach of
contract; breach of fiduciary duty; conversion; unfair business
practices; and to dissolve Ideal.2
Ideal’s Cross-complaint
In a cross-complaint, Ideal alleges that cross-defendants
unlawfully took corporate funds and are creating a competing
business. Specifically, Ideal’s chief operating officer Jiafeng Yuan
(the husband of plaintiff Ma) took wrongful possession of Ideal’s
funds in 2021.
Cao called for a board meeting in October 2021. Cross-
defendants came with counsel, objected to the lack of formal
notice, refused to discuss Ideal, then filed suit. Yuan allegedly
threatened Cao with a hammer and falsely claimed Cao
threatened him with a gun, leading to criminal charges. Cross-
defendants are taking Ideal’s assets, customers, and employees.
The pleading asserts claims for financial misappropriation;
breach of fiduciary duty; and unfair competition.
Plaintiffs Request a Preliminary Injunction
Plaintiffs assert that they have an agreement with Cao to
operate a trucking company, signed October 13, 2018 (the
Agreement). Ma and Zhao invested $100,000 and $300,000. Cao
invested $50,000 and five trucks.
The Agreement states, “The Company’s operating term is
tentatively set for three years. Upon expiration of the three-year
term, if no two or more investors request for an extension, the
Company will dissolve.” Further, “After the Company declares
2 In a request for judicial notice, defendants note that
plaintiffs later omitted their claim for unfair practices.
3
its termination of operation, the board of directors will appoint
personnel to liquidate the Company’s properties. If there are
assets available for distribution after the debts are repaid, the
remaining assets shall be distributed to the investors according
to the ratio of shareholding.”
In 2021, the parties failed to reach a consensus to continue
Ideal. Yuan saw Cao load forklifts onto a truck at Ideal’s
warehouse in California to ship them out of state. Cao allegedly
pulled a gun on Yuan and threatened to kill him and his family.
Ma sought an injunction to preserve the status quo until Ideal
can be dissolved.
Plaintiffs argued that they will succeed on the merits. Cao
continues to operate Ideal without his co-owners’ consent, though
the Agreement expired in 2021. Cao’s transfer of equipment
harms plaintiffs: He is depleting corporate assets and they do
not know where he is secreting them. Plaintiffs will suffer the
greater injury if Ideal’s assets disappear.3
Defendants Oppose an Injunction
Defendants argued that plaintiffs failed to show irreparable
harm with competent testimony. Cao did not breach the
Agreement by continuing to operate Ideal because the Agreement
is vague. Plaintiffs did not prove that they have standing to sue,
or an unfair business practice occurred, or that persistent fraud
or mismanagement justifies dissolving Ideal. Dissolving Ideal
would harm Ideal, Cao, and employees in California, Tennessee,
3 In December 2021 and January 2022, the court found no
need to grant plaintiffs’ ex parte application after defense counsel
agreed that no trucks would be sold pending a full hearing.
4
and Georgia. It would impact businesses that rely on Ideal to
move goods around the country.
Cao declared that the parties discussed the Agreement and
agreed to continue operating Ideal. Cross-defendant Yuan
recently retained funds received from a client instead of
depositing them in a company bank account. The opposition
papers do not mention any need for an undertaking.
Plaintiffs’ Reply
Plaintiffs replied that no agreement extends the operations
of Ideal past October 2021. Defendants are admittedly still
operating the company. Cao is depleting Ideal’s assets by moving
equipment out of state. Plaintiffs will be obliged to file suit in
multiple states to recoup assets.
Defendants’ Supplemental Opposition
While plaintiffs’ request for an injunction was pending, the
court sustained defendants’ demurrers. It continued the hearing
on the injunction while plaintiffs amended their pleading, and
authorized the parties to submit supplemental briefing.
In supplemental papers, defendants argued that plaintiffs
cannot prevail on their claims and have not shown harm.
Though Yuan saw Cao loading forklifts onto a truck at Ideal’s
California warehouse, there is no proof the equipment was taken
out of state; even if it was, this is not evidence of wrongdoing
because Ideal operates warehouses in other states and moves
equipment among them. The status quo is not in jeopardy
because there is no evidence that defendants have sold assets.
Ideal will suffer injury if an injunction shuts down its business.
Defendants also asserted, “Plaintiffs have failed to provide an
undertaking for damages,” citing section 529.
5
In support of the supplemental opposition, Cao declared
that Ideal employs 70 people in three states, transports goods
throughout the country daily, and routinely moves assets among
its warehouses. Cao has not improperly moved assets or funds.
He averred, “Each of Ideal’s shareholders explicitly agreed the
company would continue operating—and there were numerous
requests to do so.”
Plaintiffs’ Supplemental Reply
Plaintiffs reiterated that Cao is transferring or selling
Ideal’s assets to reduce the company’s value or hide its assets,
and prevent plaintiffs from receiving the fair market value of
their investment. Defendants claim not to have a list of
equipment owned by Ideal; therefore, it is impossible for
plaintiffs to know if defendants are selling assets. Allowing Ideal
to continue operating violates the Agreement. Plaintiffs did not
address the need for an undertaking.
The Trial Court’s Ruling and Order
After a hearing in April 2023, the court granted a
preliminary injunction. It found that plaintiffs are likely to
prevail on their breach of contract claim, and showed they will
suffer greater harm because Cao was moving assets out of Ideal
that cannot be traced and could bankrupt Ideal. The court’s
minute order does not mention the need for a bond. Defendants
did not challenge the court’s tentative or final ruling by asking it
to impose an undertaking.
On May 4, 2023, the court enjoined defendants from
(1) selling, distributing, moving or transferring any and all
assets, equipment, money, inventory, or personal and real
property belonging to Ideal, and (2) using any assets, equipment,
inventory, money, or personal or real property belonging to Ideal.
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The court ordered defendants to return all assets, equipment,
money, inventory, personal or real property belonging to Ideal
taken on or after October 14, 2021. The order does not contain
any requirement of a cash bond or undertaking.
DISCUSSION
1. Appeal and Review
A preliminary injunction is an appealable order. (§ 904.1,
subd. (a)(6); Ezer v. Fuchsloch (1979) 99 Cal.App.3d 849, 856–
857.) The appellant has the burden of showing an abuse of
discretion, such that the ruling “exceeds the bounds of reason or
contravenes the uncontradicted evidence.” (Smith v. Adventist
Health System/West (2010) 182 Cal.App.4th 729, 739–740
(Smith).) The substantial evidence standard applies to the trial
court’s resolution of disputed facts, which are viewed in the light
most favorable to its ruling. (Id. at p. 740.)
2. Failure to Require or Post an Undertaking
An undertaking is required when the trial court grants an
injunction. (§ 529.)4 The undertaking is intended to compensate
a party who is wrongly enjoined, if it is ultimately determined
that the plaintiff was not entitled to an injunction. (Top Cat
4 “On granting an injunction, the court or judge 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 an 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. Within five days
after the service of the injunction, the person enjoined may object
to the undertaking. If the court determines that the applicant’s
undertaking is insufficient and a sufficient undertaking is not
filed within the time required by statute, the order granting the
injunction must be dissolved.” (§ 529, subd. (a).)
7
Productions, Inc. v. Michael’s Los Feliz (2002) 102 Cal.App.4th
474, 478.) The court estimates the harmful effect the injunction
is likely to have on the restrained party and sets the undertaking
at that sum. (White v. Davis (2003) 30 Cal.4th 528, 551; ABBA
Rubber Co. v. Seaquist (1991) 235 Cal.App.3d 1, 14 (ABBA).)
It is undisputed that plaintiffs did not post an undertaking
and the court did not require one. Defendants argue that the
preliminary injunction is void in the absence of an undertaking.
Plaintiffs maintain that defendants waived the claim.
A. The Undertaking May Be Waived
Compliance with Code of Civil Procedure section 529 “is
typically a necessary condition to obtain a valid preliminary
injunction.” (Stevenson v. City of Sacramento (2020) 55
Cal.App.5th 545, 551.) However, “rights conferred by statute
may be waived unless specific statutory provisions prohibit
waiver.” (Bickel v. City of Piedmont (1997) 16 Cal.4th 1040, 1048,
fn. 4). “Any one may waive the advantage of a law intended
solely for his benefit.” (Civ. Code, § 3513.)
Bonds for injunctions may be waived. (Smith, supra, 182
Cal.App.4th at pp. 740–742.) Section 529 benefits enjoined
persons like defendants and does not prohibit waiver of that
benefit. Defendants concede the point by writing, the “ ‘bond
requirement of section 529 can be waived or forfeited by the party
to be enjoined’ ” and “ ‘[t]his can be done orally or in writing, or it
may be “inferred from [a party’s] conduct,” ’ ” quoting Committee
to Support Recall of Gascon v. Logan (2023) 94 Cal.App.5th 352,
372 (Gascon). In City of Los Angeles v. Superior Court (1940) 15
Cal.2d 16, 23, our Supreme Court concluded that petitioners
waived their right to a bond, owing to the passage of time after
the injunction issued.
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The Bond and Undertaking Law (§ 995.010 et seq.) governs
all bonds and undertakings required by statute, including those
in section 529. (§ 995.020, subd. (a); Stevenson v. City of
Sacramento, supra, 55 Cal.App.5th at p. 554.) Objections to
bonds relating to an action or proceeding require a written
motion. (§§ 995.910, 995.930, subd. (a).) “If no objection is made
within the time required by statute, the beneficiary is deemed to
have waived all objections except upon a showing of good cause
for failure to make the objection within the time required by
statute.” (§ 995.930, subd. (c), italics added.) A person enjoined
by a preliminary injunction must object to an undertaking
“[w]ithin five days after the service of the injunction.” (§ 529,
subd. (a).)
“The objection procedure outlined by section 995.930 . . .
reduce[s] the likelihood that the trial court will persist in an
erroneous failure to comply with its duty to require the posting of
a sufficient bond; and [does] so in a way which will provide
sufficient notice to the opposing side to meaningfully respond.”
(ABBA, supra, 235 Cal.App.3d at p. 12.) In ABBA, the
defendants submitted written objections to a proposed
preliminary injunction that had no provision for any
undertaking, and asked for an undertaking of $315,000. (Id. at
p. 9.) In that scenario, the defendants did not waive their right to
an undertaking because their objection to the lack of a bond was
timely and fully presented to the trial court. (Id. at pp. 13–14.)
B. Defendants Waived the Undertaking
In 2022, defendants glancingly mentioned section 529 in
supplemental papers. Another eight months passed before the
court conducted hearings in 2023. At the hearings, defendants
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did not propose an undertaking.5 They were silent about an
undertaking from April 2023 (when the court granted the request
for an injunction) to May 2023 (when the injunction issued).
Defendants filed a premature notice of appeal three days
after plaintiffs’ request for an injunction was granted. An
injunction order was not entered until two weeks later. The
order requiring a person to refrain from a particular act is final
and appealable, not the interlocutory order granting a request for
an injunction, which does not compel a party to do anything.
(Ezer v. Fuchsloch, supra, 99 Cal.App.3d at pp. 856–857.)
Defendants squandered multiple opportunities to demand a
bond. First, at hearings on the request for an injunction; second,
when the court granted the request for an injunction on April 17,
2023; and third, when the court issued the injunction on May 4.
Significantly, they did not object in the trial court to the lack of
an undertaking with “an estimate of the amount that would be
sufficient.” (§§ 529, subd. (a), 995.930, subd. (a).)6
Defendants “ ‘sav[ed] the injunction bond issue for appeal
when it could have been dealt with more efficiently in the lower
court with much less detriment to the party who obtained the
injunction.’ ” (Gascon, supra, 94 Cal.App.5th at p. 373; Smith,
supra, 182 Cal.App.4th at pp. 748–749.) Defendants were more
interested in halting further court proceedings on the merits of
5 No transcript was provided, but counsel declared that
defendants did not raise the bond requirement at the hearings.
6 We take judicial notice that defendants asked the trial
court to dissolve the injunction during this appeal, citing the lack
of an undertaking. By then, the trial court lacked jurisdiction.
(Royals v. Lu (2022) 81 Cal.App.5th 328, 342 [trial court cannot
vacate, modify, or change an order that has been appealed].)
10
plaintiffs’ complaint by taking a premature appeal than they
were in obtaining a bond from the trial court. We decline to
reward this strategy. Defendants waived any objection to the
lack of an undertaking. (§ 995.930, subd. (c).)
3. Issuance of the Injunction
We determine whether the court abused its discretion in
evaluating (1) the likelihood plaintiff will prevail on the merits at
trial, and (2) the interim harm plaintiff is likely to sustain if the
injunction is denied versus the harm the defendant is likely to
suffer if the injunction issues. (People ex rel. Gallo v. Acuna
(1997) 14 Cal.4th 1090, 1109; White v. Davis, supra, 30 Cal.4th at
p. 554.)
A. Likelihood of Prevailing
Defendants argue that plaintiffs’ injunction request is
based solely on a breach of contract, i.e., the continued operation
of Ideal beyond the term specified in the Agreement. Defendants
maintain that plaintiffs are unlikely to succeed on the merits of
their contract claim because the termination clause in the
Agreement is ambiguous. It reads, “The Company’s operating
term is tentatively set for three years. Upon expiration of the
three-year term, if no two or more investors request for an
extension, the Company will dissolve.”
Defendants focus on the word “tentatively” in the
termination clause, suggesting it “could mean that the parties
either intended to ‘tentatively set’ the duration of Ideal at the
time of contracting, or that Ideal would continue to operate until
the Parties decided to cease operations.” Defendants believe that
“Ideal would continue to operate indefinitely upon request for an
extension.” They then conclude that “at least two investors of
11
Ideal requested an extension, and thus, Ideal’s operating term
never expired.”
Although the Agreement places Ideal’s operative term at
“tentatively” three years, the next sentence specifies that at the
three-year mark, Ideal “will dissolve” unless two or more
investors request an extension. There is no ambiguity in the
plain language of the Agreement: Ideal must dissolve after three
years unless there is a consensus to continue the business. The
plain language governs. (Civ. Code, § 1638.)
The issue boils down to a factual dispute. Cao declared
that in October 2021, the parties “had numerous discussions
about extending the dissolution timeframe” and “agreed the
company would continue operating.” By contrast, Ma declared
that the three principals “have not agreed to extend the
operations of Ideal Investment Corporation, except to preserve
the status quo for purposes of dissolution.”
The trial court resolved the factual dispute in favor of
plaintiffs, finding they are likely to prevail because defendants
continued business operations in defiance of the Agreement’s
termination clause. The court did not find that two investors
requested an extension. The record shows that plaintiffs and
their attorney met with Cao, objected to the lack of formal notice,
and refused to discuss an extension. The parties’ relationship
was fraught—Cao allegedly brandished a gun and threatened to
kill Ma’s family, Ma’s husband allegedly threatened Cao with a
hammer and refused to deposit checks into Ideal’s bank account.
The court could reasonably infer that the parties were unlikely to
agree to extend the Agreement and operate Ideal together.
In sum, there is no evidence of a request to extend
operations, as required by the Agreement. The trial court’s
12
resolution of disputed facts is supported by substantial evidence.
(Huong Que, Inc. v. Luu (2007) 150 Cal.App.4th 400, 408–409.)
B. Balance of Harm
Plaintiffs argued that they will be harmed if Cao transfers
Ideal’s equipment and assets. They have no documentation of
Ideal’s assets and it will be difficult to track down equipment
once it is sold, or to pursue lawsuits in multiple jurisdictions.
Defendants claimed that transferring forklifts and other
equipment did not harm plaintiffs because it was simply going to
warehouses in other states.
The trial court found that the balance of harm favors
plaintiffs. It agreed that plaintiffs would suffer greater interim
harm by “losing track of assets and equipment, which may be
transferred to unknown parties and locations, necessitating
inefficient lawsuits and a waste of judicial resources to track
down.” The court expressly rejected the contention that
“Plaintiffs should not be allowed to ask that assets and
documents remain within the corporation during the interim.”
The court’s determination is supported by the evidence.
The Agreement specified that Ideal “will dissolve” in October
2021 absent an agreement to continue the business. Instead of
winding up Ideal, Cao continued to operate it despite tensions
with his co-owners. In discovery, he denied having a list of
equipment owned by Ideal, making it impossible to know if
defendants are selling or hiding equipment or other assets.
Under the circumstances, the court reasonably preserved the
status quo by preventing a transfer or sale of Ideal’s assets,
which would reduce the company’s value and deprive plaintiffs of
a fair price for their investment.
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DISPOSITION
The order granting a preliminary injunction is affirmed.
Appellants to bear all costs on appeal.
NOT TO BE PUBLISHED.
LUI, P. J.
We concur:
ASHMANN-GERST, J.
HOFFSTADT, J.
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