Frome Wye Limited v. Hosie Rice LLP ( 2023 )

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 FROME WYE LIMITED, Case No. 23-cv-06153-EMC 8 Plaintiff, ORDER DENYING DEFENDANTS’ 9 v. MOTION FOR TEMPORARY RESTRAINING ORDER 10 HOSIE RICE LLP, et al., 11 Defendants. Docket No. 21 12 13 14 Plaintiff Frome Wye Limited has filed suit against Defendants Hosie Rice LLP, Spencer 15 Hosie, and Diane Rice. Hosie Rice is a law firm, and Mr. Hosie and Ms. Rice (i.e., the two 16 individual defendants) partners in the firm. In its complaint, Plaintiff alleges that, in 2018, it 17 entered into an agreement with all three Defendants under which the law firm obtained funding 18 from Plaintiff (e.g., to pay monthly operating expenses). See Compl. ¶¶ 11-12. Under the funding 19 agreement, Plaintiff was granted “a continuing, first priority, perfected security interest in the Firm 20 Collateral . . . and all proceeds thereof.” Agmt. ¶ 13.6. In addition, Plaintiff “was granted a 21 continuing, third priority, perfected security interest in the ‘Partner Collateral’ and all proceeds 22 thereof.” Compl. ¶ 14; see also Agmt. ¶ 13.6. “Partner Collateral” was defined as “‘all present 23 and future right, title and interest of either Partner (or both Partners)” in certain real property 24 located in Belvedere, California. Compl. ¶ 14; see also Agmt. ¶ 1.23. Defendants failed to make 25 repayments under the funding agreement, and currently owe Plaintiff more than $1.8 million (as 26 reflected in an arbitration award confirmed by a Delaware district court). See Compl. ¶¶ 20, 25- 27 27. 1 the Partner Collateral. Based on the most recent evidence of record, it appears that a nonjudicial 2 foreclosure sale (initiated by Perkins Coie) is set for December 14, 2023. See Hosie Decl., Ex. C 3 (Letter at 3). It also appears that, to avoid nonjudicial foreclosure, the individual defendants 4 marketed the property for sale and found a buyer, with the sale price being more than $7.7 million. 5 See Hosie Decl., Ex. D (Estimated Seller’s Statement). It is not clear whether that contract sale 6 went forward; it appears to have been set at one time on December 1, 2023, and then later on 7 December 8, 2023. 8 Previously, Plaintiffs moved for a temporary restraining order (“TRO”) – not to stop the 9 contract sale but rather to ensure that some of the sale proceeds would be set aside so that Plaintiff 10 could recover the $1.8 million owed. The title company/escrow agent did not account for any lien 11 held by Plaintiff in its planned disbursement of funds. See Hosie Decl., Ex. D (indicating that 12 funds would be used to pay off a first mortgage loan to Chase (more than $546,000), a second 13 mortgage loan to Perkins Coie (more than $1.9 million), a state tax lien (more than $319,000), and 14 a federal tax lien (more than $4.1 million)). Plaintiff acknowledged that there were two mortgage 15 loans senior to its interest but asserted that its interest was senior to the liens of the state and 16 federal taxing authorities. 17 This Court denied Plaintiff’s motion for a TRO based on its failure to establish a likelihood 18 of irreparable harm. See Docket No. 17 (order, filed on December 1, 2023). On December 7, 19 2023, Defendants filed their own motion for a TRO. This is the motion now pending before the 20 Court. Defendants ask the Court: (1) to enjoin Plaintiff from enforcing its lien (on the basis that it 21 is inchoate) and (2) to enjoin Plaintiff “from threatening third-parties, e.g., the listing brokers and 22 title company, to enforce its lien to disrupt the sale.” Prop. Order at 1. 23 “A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on 24 the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the 25 balance of equities tips in his favor, and that an injunction is in the public interest.” Winter v. 26 NRDC, 555 U.S. 7, 20 (2008); see also Garcia v. Google, Inc., 786 F.3d 733, 740 (9th Cir. 2015) 27 (noting the same). In the Ninth Circuit, however, a court may employ scale variant of the Winter standard. Under that formulation, serious 1 questions going to the merits and a balance of hardships that tips sharply towards the [moving party] can support issuance of a 2 preliminary injunction, so long as the [moving party] also show[s] that there is a likelihood of irreparable injury and that the injunction 3 is in the public interest. 4 Fraihat v. United States Immigration & Customs Enf’t, 16 F.4th 613, 635 (9th Cir. 2021) (internal 5 quotation marks omitted). 6 Based on the parties’ submissions in the instant case, Defendants’ motion for a TRO is 7 denied. As to the first form of relief requested, “‘[i]t is not usually proper to grant the moving 8 party the full relief to which he might be entitled if successful at the conclusion of a trial’ in a 9 preliminary injunction,” and therefore in a TRO as well. Toomey v. Arizona, No. 94-9310, 2021 10 U.S. Dist. LEXIS 36944, *17-18 (D. Ariz. Feb. 26, 2021). 11 As to the second form relief requested, it is unwarranted because Defendants have failed to 12 show a likelihood of irreparable injury. Defendants assert that, “[a]bsent a sale [of the real 13 property], [the individual defendants] will suffer irreparable harm” because “they cannot clear 14 their debts,” which total in the millions. Mot. at 10. As is clear from this statement, Defendants’ 15 position is predicated on Plaintiff’s conduct threatening to disrupt the sale. However, Defendants 16 have failed to provide competent evidence that Plaintiff’s conduct threatens to disrupt the sale. 17 For example, the fact that Plaintiff asked the broker/listing agent for the contact information of the 18 escrow agent and provided a copy of the complaint to the broker/listing agent, see Hosie Decl., Ex. 19 E (emails), can hardly be construed as a threat, particularly when she was not named as a 20 defendant. As for Plaintiff’s letter to the title company/escrow agent, it simply indicated that the 21 title company could be exposed to liability post-sale if, post-sale, it distributed payments in favor 22 of the taxing authorities over Frome Wye. See Hosie Decl., Ex. B (letter). There is no indication 23 that the title company has since asked to disengage from the sale proceedings such that the sale 24 would not be able to go forward. (Indeed, the title company could avoid liability through an 25 interpleader.) Finally, there is no indication that the buyer of the real property would back out of 26 the sale simply because there is a dispute among others as to how the sale proceeds will be 27 distributed after the sale is completed. 1 opining here on the merits of the parties’ dispute as to whether the taxing authorities’ lien is junior 2 || to Plaintiff’s. However, it does appear that, at the very least, the federal tax liens (totaling more 3 than $4.1 million) were not recorded until January 2020 and October 2020 which was after 4 || Plaintiff had already disbursed funds to Defendants (pursuant to the funding agreement) in April 5 2019. See Friel Decl. {8 (testifying that a drawdown of $800,000 was made between January and 6 || April 2019); Pl.’s RJN, Exs. 2-3 (notices of federal tax liens, dated January 2020 and October 7 |} 2020). 8 This order disposes of Docket No. 21. 9 10 IT ISSO ORDERED. 11 12 Dated: December 12, 2023 13 Lx EDWARD M. CHEN United States District Judge 16 4 18 19 20 21 22 23 24 25 26 27 28