Candid Ventures, LLC v. Dew Ventures, Inc. ( 2024 )

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 CANDID VENTURES, LLC, Case No. 24-cv-07800-HSG 8 Plaintiff, ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF’S 9 v. REQUEST FOR TEMPORARY RESTRAINING ORDER 10 DEW VENTURES, INC., et al., Re: Dkt. No. 2 11 Defendants. 12 13 Pending before the Court is Plaintiff Candid Ventures, LLC’s (“Plaintiff”) application for a 14 temporary restraining order. Dkt. No. 2. The Court held a hearing on the motion on November 15 26, 2024, and took the matter under submission. The Court GRANTS IN PART and DENIES 16 IN PART the request. 17 I. BACKGROUND 18 Plaintiff alleges that Defendants Suresh Deopura, FeathersUp India Pvt. Ltd. 19 (“FeathersUp”), and Dew Ventures, Inc. (“Dew Ventures”) (collectively, “Defendants”) engaged 20 in the fraudulent transfer of assets held by non-party Nestlings, Inc. (“Nestlings”) in order to 21 deprive Plaintiff of its equity interest in Nestlings. See Dkt. No. 1 (“Compl.”) at ¶¶ 1, 62. 22 Specifically, Plaintiff alleges that it loaned Nestlings a total of $51,000 via two loans reflected in 23 notes perfected with the California Secretary of State in August 2024, while Nestlings also 24 incurred an unauthorized and unsecured debt from Dew Ventures. Id. ¶¶ 22, 34. Then, in 25 September 2024, after Plaintiff demanded repayment of its loans, Plaintiff alleges Defendants 26 improperly transferred all of Nestlings’ assets to Dew Ventures without obtaining Plaintiff’s 27 authorization as priority creditor and preferred shareholder of Nestlings. Id. ¶¶ 53, 63. 1 restraining order in the Southern District of Ohio to enjoin the transfer of Nestlings’ assets to Dew 2 Ventures or any other third party. See Candid Ventures, LLC v. Nestlings, Inc., No. 1:24-CV-528, 3 2024 WL 4647881, at *2 (S.D. Ohio Nov. 1, 2024). Plaintiff also brought a breach of contract 4 claim against Nestlings, a tortious interference of contract claim against Dew Ventures, breach of 5 fiduciary duty and fraud claims against Nestlings officers Rajashekar Basavaraju and Sowmya 6 Satish, conspiracy claims against all Defendants, and a demand for accounting by Nestlings. See 7 id. at *3. The Ohio court granted the TRO, enjoining Nestlings from transferring any of its assets 8 and preventing Nestlings from taking any corporate action to harm Candid Ventures as a 9 shareholder. See id. Plaintiff then moved for a preliminary injunction, and Dew Ventures filed a 10 motion to dismiss it as a defendant for lack of personal jurisdiction, which the court granted. 11 See id. 12 The Ohio court ultimately denied the motion for preliminary injunction on November 1, 13 2024. The court found that although Plaintiff was likely to succeed on the merits of its breach of 14 contract claim against Nestlings, the irreparable harm requirement was not met: by the time the 15 court considered the preliminary injunction motion, Nestlings no longer controlled or possessed 16 any of the contested assets, and so Plaintiff could not show that its shareholder rights would be 17 irreparably harmed without the freezing of Nestlings’ remaining assets. Candid Ventures, 2024 18 WL 4647881, at *5. 19 Plaintiff then filed an action in this Court against Defendants Suresh Deopura (founder of 20 Dew Ventures), FeathersUp (an entity formerly owned by Nestlings), and Dew Ventures seeking 21 declaratory judgment that Plaintiff’s notes against Nestlings have priority over Dew Ventures’ 22 debt, and bringing numerous other claims including tortious interference with contract, violation 23 of the California Uniform Voidable Transactions Act, breach of fiduciary duties, conspiracy, and 24 conversion. See Compl. at ¶¶ 51–177. Plaintiff also sought an immediate TRO freezing all of 25 Nestlings’ assets and accounts transferred to Dew Ventures and preventing Defendants from 26 further transfers of any such assets or accounts. See Dkt. No. 2 at 1. The Court denied Plaintiff’s 27 request to grant a TRO before Defendants could be heard and ordered Plaintiff to serve 1 and the Court heard oral argument on November 26, 2024. See Dkt. Nos. 13, 31. 2 II. LEGAL STANDARD 3 Under Federal Rule of Civil Procedure 65, a temporary restraining order may enjoin 4 conduct pending a hearing on a preliminary injunction. See Fed. R. Civ. P. 65(b). The standard 5 for issuing a temporary restraining order and issuing a preliminary injunction are substantially 6 identical. See Stuhlbarg Int’l Sales Co., Inc. v. John D. Brush & Co., 240 F.3d 832, 839, n.7 (9th 7 Cir. 2001). A plaintiff seeking preliminary relief must establish: (1) that it is likely to succeed on 8 the merits; (2) that it is likely to suffer irreparable harm in the absence of preliminary relief; 9 (3) that the balance of equities tips in its favor; and (4) that an injunction is in the public interest. 10 See Winter v. Nat. Res. Def. Council, 555 U.S. 7, 20 (2008). Preliminary relief is “an 11 extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled 12 to such relief.” Id. at 22. A court must find that “a certain threshold showing” is made on each of 13 the four required elements. Leiva-Perez v. Holder, 640 F.3d 962, 966 (9th Cir. 2011). Under the 14 Ninth Circuit’s sliding scale approach, a preliminary injunction may issue if there are “serious 15 questions going to the merits” if “a hardship balance [also] tips sharply towards the [movant],” 16 and “so long as the [movant] also shows that there is a likelihood of irreparable injury and that the 17 injunction is in the public interest.” All. for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1135 (9th 18 Cir. 2011). 19 III. DISCUSSION 20 Plaintiff requests a temporary restraining order 1) “freezing all assets” of Nestlings 21 transferred to Dew Ventures, and 2) “enjoining any transfer of Nestling’s assets by and/or between 22 the Defendants and any other individual or entity.” Mot. at 1. 23 A. Likelihood of Success on the Merits 24 Plaintiff argues it is likely to succeed on the merits of its claims for declaratory judgment, 25 violation of the California Uniform Voidable Transfer Act, and conspiracy. See Dkt. No. 2 at 15. 26 Specifically, Plaintiff argues that because Candid Ventures perfected its notes, Plaintiff has 27 priority over Dew Ventures as a creditor, and the transfer to Dew Ventures in order to deprive 1 Plaintiff argues that Defendants conspired to deprive Candid Ventures of its rights as a secured 2 creditor and as a preferred shareholder of Nestlings. See id. 3 The Court agrees that Plaintiff has shown that there are at least serious questions going to 4 the merits of its claim that the transfer to Dew Ventures was void under California law. California 5 Civil Code Section 3439.04 provides that a transfer by a debtor is voidable if made “(1) [w]ith 6 actual intent to hinder, delay, or defraud any creditor of the debtor,” and (2) [w]ithout receiving a 7 reasonably equivalent value in exchange for the transfer or obligation.” See Cal. Civ. Code 8 § 3439.(a)(3)(A). In addition, the creditor must show that the debtor either “was engaged or was 9 about to engage in a business or a transaction for which the remaining assets of the debtor were 10 unreasonably small in relation to the business or transaction,” or “[i]ntended to incur, or believed 11 or reasonably should have believed that the debtor would incur, debts beyond the debtor’s ability 12 to pay as they became due.” See id. 13 Here, Defendants concede that Nestlings transferred all of its assets to Dew Ventures, 14 despite the fact that Plaintiff was a secured creditor with priority over Dew Ventures’ unsecured 15 debt. See Dkt. No. 21 at 10; Cal. Com. Code § 9322(a)(1) (“Conflicting perfected security 16 interests . . . rank according to priority in time of filing or perfection.”). Plaintiff alleges that 17 Defendants did so “with the specific intent to prevent Candid Ventures from acquiring Nestlings’ 18 assets.” Compl. ¶¶ 85–86. Given the timing of the asset transfer shortly after Plaintiff alleges it 19 demanded repayment as priority creditor and protested the transfer as a preferred shareholder, 20 Plaintiff has shown that there are at least serious questions going to its claim under California’s 21 Uniform Voidable Transactions Act, which allows a creditor to seek an injunction against further 22 disposition by a transferee in receipt of a fraudulent transfer. See Cal. Civ. Code 23 § 3439.07(a)(3(A). Moreover, Defendants’ only substantive counterargument is that Plaintiff’s 24 priority debt should be equitably subordinated due to its own bad faith conduct. See Dkt. No. 21 25 at ဓဓဓ–. But the Court need not decide that issue now given that Plaintiff has asserted a 26 “cognizable claim,” and an equitable order to preserve the status quo is necessary here, as 27 discussed below. See In re Focus Media Inc., 387 F.3d 1077, 1085 (9th Cir. 2004). 1 B. Irreparable Harm 2 The Court finds that Plaintiff has shown that it is likely to suffer irreparable harm if the 3 Court does not prevent Defendants from transferring the assets Dew Ventures acquired from 4 Nestlings. Plaintiff is essentially seeking to unwind the transfer to Dew Ventures for various 5 reasons, based on its status both as secured creditor and as preferred shareholder of Nestlings. 6 Plaintiff argues that it needs to freeze the assets to exercise its rights as priority creditor on the 7 $51,000 debt, but also contends that intangible assets, such as Nestlings’ IP, contracts with third 8 parties, web platforms, and social media accounts, were fraudulently transferred without Plaintiff’s 9 required authorization as preferred shareholder.1 See Mot. at 5. Further, as counsel confirmed at 10 the hearing on the motion, Plaintiff’s lawsuit against Nestlings in the Southern District of Ohio is 11 ongoing. A TRO is therefore necessary to prevent any further transfer of the contested assets, 12 which would require Plaintiff to (once again) seek relief against a different defendant or 13 defendants in potentially yet another court. See In re Focus Media, 387 F.3d at 1085 (TRO is 14 appropriate to “preserve the status quo pending judgment where the legal remedy might prove 15 inadequate and the preliminary relief furthers the court’s ability to grant the final relief 16 requested”). 17 However, the Court does not find that freezing the contested assets themselves is 18 warranted. Plaintiff has not shown that it is likely to suffer irreparable harm if Defendants are not 19 prevented from “using” any of the assets by, for example, using Nestlings’ IP to service its former 20 customer accounts or contracts with universities. If Plaintiff ultimately prevails on its challenge to 21 the transfer to Dew Ventures, and establishes that Defendants’ use of any Nestlings’ assets harmed 22 Plaintiff or its interests, that harm is compensable by monetary damages. Accordingly, equitable 23 relief is necessary only to prevent Defendants from transferring those assets and thus preventing 24 Plaintiff from obtaining relief as to them. See Johnson v. Couturier, 572 F.3d 1067, 1085 (9th Cir. 25 2009) (“A party seeking an asset freeze must show a likelihood of dissipation of the claimed 26 27 1 Defendants submitted a sworn declaration under penalty of perjury stating that Dew Ventures 1 assets, or other inability to recover monetary damages, if relief is not granted.”). 2 C. Balance of the Equities 3 The Court finds that, given the considerations outlined above, the balance of the equities 4 tips sharply in Plaintiff’s favor. Without an order enjoining Defendants from transferring 5 Nestlings’ assets pending the resolution of Plaintiff’s challenge to the conveyance to Dew 6 Ventures, Defendants would be free to transfer the contested assets to a third party beyond this 7 Court’s jurisdiction, forcing Plaintiff to continue chasing them from one venue to another. 8 Further, Defendants have not shown how such an order simply maintaining the status quo and 9 keeping the assets in their possession and control would harm them. By contrast, a freezing order 10 prohibiting Defendants from using any of these assets is likely to harm Defendants’ business 11 interests and is not necessary to ensure that Plaintiff may obtain final relief. This factor thus 12 weighs in favor of granting Plaintiff’s request to enjoin Defendants from transferring or conveying 13 the Nestlings assets. 14 D. Public Interest 15 The Court finds that the public interest factor is neutral in this case given that an order 16 prohibiting Defendants from transferring any of the contested assets will only impact the parties in 17 this quintessentially private dispute. See Jain v. Unilodgers, Inc., No. 21-CV-09747-TSH, 2024 18 WL 478030, at *5 (N.D. Cal. Feb. 7, 2024) (“When the reach of an injunction is narrow, limited 19 only to the parties, and has no impact on non-parties, the public interest will be at most a neutral 20 factor in the analysis rather than one that favors granting or denying the preliminary injunction.”) 21 (citing Stormans, Inc. v. Selecky, 586 F.3d 1109, 1138–39 (9th Cir. 2009)). 22 * * * 23 The Court accordingly GRANTS IN PART and DENIES IN PART Plaintiff’s motion for 24 temporary restraining order. The Court GRANTS the motion to the extent Plaintiff seeks to 25 prevent Defendants from transferring the Nestlings assets to any third parties. The Court DENIES 26 Plaintiff’s request to prevent Defendants from using the assets. 27 // 1 IV. BOND 2 Under Rule 65(c), “[t]he court may issue a. . . temporary restraining order only if the 3 movant gives security in an amount that the court considers proper to pay the costs and damages 4 sustained by any party found to have been wrongfully enjoined or restrained.” Fed. R. Civ. P. 5 65(c). However, district courts have considerable discretion in determining whether the posting of 6 a bond is necessary: 7 Despite the seemingly mandatory language, Rule 65(c) invests the district court with discretion as to the amount of security required, if any. In particular, the district court may 9 dispense with the filing of a bond when it concludes there is no realistic likelihood of harm to the defendant from enjoining his or her conduct. 10 11 Johnson v. Couturier, 572 F.3d at 1086 (quotation and internal citations omitted). The Court finds 12 a bond is not necessary here because there is no realistic likelihood of harm to Defendants from 5 13 temporarily enjoining further transfer of the contested assets. 14 |) v. CONCLUSION 3 15 The Court GRANTS IN PART Plaintiff's TRO application and ORDERS that a 16 || Defendants are ENJOINED from transferring, selling, or otherwise ceding control and/or 17 possession of any of the assets Dew Ventures received from Nestlings to any third party. The 18 || Court DENIES Plaintiff's request to prevent Defendants from using these assets. This TRO shall 19 take effect immediately and shall remain in effect until further order of this Court. 20 The Court further DIRECTS the parties to meet and confer and submit a joint stipulation 21 and proposed order by December 4, 2024, proposing a schedule for briefing and hearing on 22 || Plaintiffs motion for preliminary injunction. 23 IT IS SO ORDERED. 24 || Dated: = 11/27/2024 25 5 Mb). HAYWOOD S. GILLIAM, JR. 26 United States District Judge 27 28