SMC Speciality Finance v. Zhengfu Pictures Limited CA2/2

Filed 6/23/22 SMC Speciality Finance v. Zhengfu Pictures Limited 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NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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
SMC SPECIALTY FINANCE, B314024
LLC,
(Los Angeles County
Plaintiff and Respondent, Super. Ct. No.
21SMCV00716)
v.
ZHENGFU PICTURES
LIMITED,
Defendant and Appellant.
APPEAL from an order of the Superior Court of Los
Angeles County, Mark A. Young, Judge. Affirmed.
Zhong Lun Law Firm and Leodis C. Matthews for
Defendant and Appellant.
Raskin Gorham Anderson Law, Scott J. Tepper, and Gary
J. Gorham for Plaintiff and Respondent.
******
This is a tale about the making of two movies set during
World War II, which has spawned a minor skirmish of its own. A
Chinese-based company agreed to help a Hollywood studio
finance and distribute a film depicting World War II called
Greyhound. In order to finance a second World War II film called
Destroyer, the company surrendered its rights under the
Greyhound contract as collateral for a short-term loan. When the
company defaulted, the lender foreclosed and took title to those
rights. The Chinese company and the lender have now sued each
other, chiefly over the company’s postforeclosure epiphany that it
did not have the power to surrender its rights under the
Greyhound contract. Immediately after filing a cross-complaint,
the Chinese company sought a preliminary injunction that would
turn back time by nullifying the lender’s foreclosure. The trial
court declined to issue the injunction. Because that was not an
abuse of discretion, we affirm.
FACTS AND PROCEDURAL BACKGROUND
I. Facts
A. Distribution and financing of Greyhound
Greyhound is a film set during World War II and stars Tom
Hanks.
In July 2017, Sony Pictures Worldwide Acquisition Inc.
(Sony) entered into a “co-financing and distribution” agreement
for Greyhound (the Greyhound Agreement) with a Chinese
company called Zhengfu Pictures Limited (Zhengfu). Under the
Greyhound Agreement, Sony and Zhengfu agreed that (1) each
2
would contribute money toward the production of the film, (2)
each would collect “certain additional revenues” from the film, (3)
each would own a share of the film’s copyrights, and (4) Zhengfu
would have a 15-year exclusive license to distribute the film in
mainland China as well as the right to negotiate for the right to
distribute the film in Hong Kong, Taiwan, and Macau.
The only person Sony dealt with on behalf of Zhengfu was
Alex Zhang (Zhang). Consistent with his primary role, Zhang
was listed as an “executive producer” during the end credits of
the Greyhound film.
B. Zhengfu finances Destroyer by offering up its
rights in the Greyhound Agreement as collateral
Zhengfu and another Chinese company called Beijing
Zhumeng Qiming Culture & Art Co., Ltd. (Zhumeng) formed a
British Virgin Islands-based company called Golden Title
Investments Limited (Golden Title) in order to finance another
World World II film called Destroyer.1 Zhang is a principal of
Golden Title.
In October 2018, Golden Title signed an agreement (Bridge
Loan Agreement) to obtain a shorter-term, so-called “bridge loan”
of up to $5.33 million from SMC Specialty Finance, LLC (SMC
Specialty). SMC Specialty is a California-based company in the
business of making bridge loans to film financiers.
As “collateral” for the bridge loan to Golden Title to finance
Destroyer, Zhengfu granted SMC Specialty a “first-priority
security interest” in all of Zhengfu’s “assets, rights and
entitlements” under the Greyhound Agreement. To effectuate the
use of Zhengfu’s interest in the Greyhound Agreement as
1 Interestingly, Zhumeng also participated in the financing of
a third World War II film called Midway.
3
collateral for the Destroyer bridge loan, Zhengfu and SMC
Specialty executed (1) an Accommodation and Security
Agreement, (2) a Copyright Mortgage and Assignment, and (3) a
Power of Sale and Power of Attorney. Zhang signed these
documents on behalf of Zhengfu.
SMC Specialty thereafter perfected its security interest by
filing a UCC-1 form.
C. Golden Title defaults on the bridge loan
Golden Title ended up borrowing $4.305 million under the
Bridge Loan Agreement and did not repay any of it.
In April 2019 and again in early June 2020, SMC Specialty
provided Zhengfu with written notice of its liability for Golden
Title’s outstanding debt, which by early June 2020 totaled
$10,353,950.
In late June 2020, SMC Specialty wrote to Sony, informing
it that Zhengfu had pledged its interest in the Greyhound
Agreement, and asking Sony to provide its records so that SMC
Specialty could receive Zhengfu’s share of the revenue stream
from the movie’s distribution, which was to be released on the
Apple TV+ streaming platform in July 2020.
On September 21, 2020, SMC Specialty held a foreclosure
sale for Zhengfu’s rights under the Greyhound Agreement,
purchased those rights on a credit bid, and thus took title to those
rights.
D. Postforeclosure events
The day after the foreclosure sale, SMC Specialty wrote to
Sony, informing it of the sale and asking Sony to hold Zhengfu’s
revenues in a separate account and to provide an accounting of
those revenues. SMC Specialty has taken no further action to
collect on Zhengfu’s rights under the Greyhound Agreement: It
4
has not sought to distribute the Greyhound film in mainland
China, and it has taken no further actions to collect Zhengfu’s
share of revenues currently being held by Sony and other third
parties. Indeed, SMC Specialty has offered to stipulate that Sony
and the other third parties may continue to collect and hold those
funds until the lawsuits discussed below are resolved.
Also after the foreclosure sale, Zhengfu for the first time
denounced as void Zhengfu’s grant of a security interest in its
rights under the Greyhound Agreement, asserting that Zhang’s
position at Zhengfu was little more than as a glorified translator
and go-between and, in the alternative, that Zhang had forged
Zhengfu’s company seal.
In response to these conflicting positions, Sony informed
Zhengfu and SMC Specialty that it “has no choice but to hold
payment” of the revenues owed to Zhengfu “until [Sony] can
resolve the dispute between Zhengfu and SMC [Specialty]
regarding which entity is the rightful beneficiary of the Zhengfu
[p]ayment[s].”
II. Procedural Background
A. Pleadings
In April 2021, SMC Specialty sued Zhengfu, and others, for
declaratory relief. As pertinent here, SMC Specialty seeks a
declaration that its perfected security interest in Zhengfu’s rights
under the Greyhound Agreement as well as the subsequent
foreclosure sale of those rights are both “valid and effective.”2
2 In the alternative, SMC Specialty also named Zhang (and
Han Sanping, the principal of Zhumeng with whom it dealt) for
fraud.
5
In May 2021, Zhengfu responded with a 56-page, 222-
paragraph cross-complaint against SMC Specialty, Golden Title,
and Zhang alleging eight different cross-claims. Among other
causes of action, Zhengfu alleges three claims for declaratory
relief seeking the inverse relief sought by SMC Specialty, and has
also sued SMC Specialty for intentional interference with a
contractual relationship, negligent interference with a
prospective economic advantage, conversion, and unfair business
practices.
B. Zhengfu’s requests for injunctive relief
1. The TRO
The day after Zhengfu filed its cross-complaint, Zhengfu
filed an ex parte application for a temporary restraining order
(TRO) as well as a preliminary injunction. Zhengfu sought to
enjoin SMC Specialty from engaging in five different activities,
including “[i]nterfering with Zhengfu’s contractual rights by
communicating with third parties or taking any acts, apart from
participating in this action, to interfere with or prevent Zhengfu’s
rights to obtain, possess and exercise its right to distribute the
Greyhound motion picture in China.”3
After an accelerated round of briefing, the trial court
denied Zhengfu’s ex parte application for a TRO. In its order
denying relief, the court found that Zhengfu had not established
a likelihood of prevailing on the merits and that the balance of
harms “overwhelmingly favor[ed] SMC [Specialty],” particularly
because “SMC [Specialty] . . . has not attempted to collect [on]
3 This activity was the fifth listed. This was the only activity
Zhengfu pursued as a basis for a preliminary injunction because
it withdrew the other four activities after the TRO was denied.
6
any payment receivable[], and has not even begun the process of
transferring or encumbering any of [Zhengfu’s] assets or rights.”
2. The preliminary injunction
After SMC Specialty filed a more fulsome opposition, after
Zhengfu filed a reply, and after a hearing,4 the trial court issued
a written order denying Zhengfu’s request for a preliminary
injunction. In denying this relief, the court reasoned that
Zhengfu had not demonstrated that it was likely to prevail on the
merits of its cross-complaint because Zhengfu had “not shown
that the [Greyhound Agreement] prohibited” the grant of its
security interest to SMC Specialty and because the balance of
harms favored SMC Specialty, as Zhengfu was in no danger of
imminent harm given that “SMC [Specialty] has . . . done nothing
[to distribute Greyhound or otherwise seek to collect Zhengfu’s
revenues under the Greyhound Agreement] since foreclosing on
the security interest.”
C. Appeal
Zhengfu filed this timely appeal.
DISCUSSION
Zhengfu argues that the trial court erred in denying its
request for a preliminary injunction. “A trial court may grant a
preliminary injunction upon a showing that (1) the party seeking
the injunction is likely to prevail on the merits at trial, and (2)
the ‘interim harm’ to that party if an injunction is denied is
greater than ‘the [interim] harm the [opposing party] is likely to
suffer if the . . . injunction is issued.’” (Integrated Dynamic
Solutions, Ltd. v. VitaVet Labs, Inc. (2016) 6 Cal.App.5th 1178,
1183 (Integrated Dynamic); O’Connell v. Superior Court (2006)
141 Cal.App.4th 1452, 1463; Code Civ. Proc., § 527, subd. (a).)
4 The hearing was not transcribed.
7
These two showings operate on a sliding scale: “[T]he more likely
it is that [the party seeking the injunction] will ultimately
prevail, the less severe must be the harm that they allege will
occur if the injunction does not issue.” (King v. Meese (1987) 43
Cal.3d 1217, 1227.) We review a trial court’s denial of a
preliminary injunction for an abuse of discretion (Integrated
Dynamics, at p. 1184), but review for substantial evidence any
subsidiary factual findings (ibid.) and review de novo any
subsidiary legal questions as well as the application of the law to
any disputed facts (City of Vallejo v. NCORP4, Inc. (2017) 15
Cal.App.5th 1078, 1085; Westchester Secondary Charter School v.
Los Angeles Unified School Dist. (2015) 237 Cal.App.4th 1226,
1236).
I. Likelihood of Success on the Merits
In this appeal, Zhengfu asserts that it is likely to prevail on
its claims against SMC Specialty for declaratory relief,
interference with its contractual rights, conversion, and unfair
business practices. All of these claims rest on the premise that
Zhengfu’s act of granting a security interest in the Greyhound
Agreement to SMC Specialty was a nullity. Zhengfu offers two
reasons why, in its view, it is likely to establish the truth of this
premise (and hence the validity of its claims resting on this
premise).5 First, Zhengfu asserts that paragraph E.6 of the
5 Before the trial court, Zhengfu offered a third reason—
namely, that Zhang had effectively “confessed” to engaging in
subterfuge by pretending to have authority to act on Zhengfu’s
behalf while executing the various agreements granting SMC
Specialty a security interest in Zhengfu’s rights under the
Greyhound Agreement. The trial court rejected this argument,
finding that the sole evidence proffered in support of Zhang’s
“confession” was the statement of someone else relaying what
8
Greyhound Agreement prohibits Zhengfu from assigning its
rights under the agreement to third parties as secured collateral,
and that Commercial Code section 94086—which sometimes
overrides “anti-assignment” clauses like the one Zhengfu says is
in the Greyhound Agreement—would still not permit SMC
Specialty to take any action to enforce its security interest (such
as foreclosing on the security interest and taking title to it).
Second, Zhengfu asserts that the Greyhound Agreement is a
“personal services” contract, which means it may not be assigned
to anyone else, including SMC Specialty.
A. Does the Greyhound Agreement prevent Zhengfu
from giving SMC Specialty a security interest?
The premise of Zhengfu’s first argument is that the
language in paragraph E.6 of the Greyhound Agreement
prohibited Zhengfu from using its rights under that agreement as
collateral for Golden Title’s loan, which thus triggers the
provisions of section 9408. Paragraph E.6 provides as follows:
“After receipt by [Sony] of all funding due from
Zhengfu for the [Greyhound] Picture, Zhengfu shall
Zhang had confessed to, and was therefore inadmissible hearsay.
(Zhengfu also offered a translated statement by Zhang himself
purporting to admit to his subterfuge, but that statement was
buried in an attachment to an attachment to an attachment, and
was in any event unsworn and hence of no evidentiary value
(People v. Engstrom (2011) 201 Cal.App.4th 174, 184 [“unsworn
declarations are of little to no evidentiary value”]). Zhengfu does
not renew this argument on appeal, except to emphasize Zhang’s
alleged confession while concealing from this court the exclusion
of that evidence by the trial court.
6 All further statutory references are to the Commercial Code
unless otherwise indicated.
9
be entitled to assign or transfer all or a portion of its
rights hereunder if Zhengfu complies with the
following requirements: (i) prior to negotiating for or
making such assignment or transfer, Zhengfu will
first negotiate in good faith with [Sony] for not less
than thirty (30) days with respect to the potential
assignment or transfer to [Sony] of such rights; and
(ii) following such first negotiation period with
[Sony], if no agreement has been reached between
Zhengfu and [Sony], Zhengfu may negotiate with and
agree to assign or transfer Zhengfu’s rights
hereunder to a third-party, provided: (A) such
assignee or transferee is not a “Competitor” or
“Industry Related Party” (as each is customarily
defined by [Sony]); (B) such assignee or transferee
certifies to [Sony] that each of the representations
and warranties made by Zhengfu in the definitive
agreement are true and correct with respect to such
assignee or transferee, as if made to [Sony] directly
by such transferee or assignee as of the date of such
assignment or transfer; and (C) such assignee or
transferee provides to [Sony] such additional
documents or information regarding such assignee or
transferee as may be reasonably requested by [Sony]
to confirm the certification in subclause (B). Any
attempted or purported transfer, delegation or
assignment by Zhengfu of any of its rights, duties or
obligations hereunder or in the Picture in violation of
the provisions hereof shall be void ab initio and of no
force or effect and shall constitute a material breach
10
of, and an event of default under, the definitive
agreement. Notwithstanding the foregoing, this
provision shall not prohibit the foreclosure by any
party having a lien on any of Zhengfu’s rights
hereunder permitted by this Term Sheet in accordance
with any applicable intercreditor agreement.”
(Italics and underlining added.)
In determining whether this language prohibits Zhengfu
from granting SMC Specialty a security interest in its rights
under the Greyhound Agreement, we must interpret this
contractual provision. This is a task we undertake de novo.
(E.M.M.I. Inc. v. Zurich American Ins. Co. (2004) 32 Cal.4th 465,
470.)
Independently examining this contractual language, we
conclude that it does not prohibit Zhengfu from granting SMC
Specialty a foreclose-able security interest in Zhengfu's rights
under the Greyhound Agreement. As we read it, the first portion
of the provision (that is, the portion without underlining or
italics) sets forth a general rule that prohibits Zhengfu from
voluntarily transferring its rights and duties under the
Greyhound Agreement without (1) first giving Sony what
amounts to a “right of first negotiation” either to buy out
Zhengfu’s interest or, if the negotiations fail, (2) requiring that
the third party who seeks to purchase Zhengfu’s interest meet
certain requirements specified by Sony. The underlined portion
sets forth the consequences of “violat[ing] the provisions hereof”
(that is, of violating the general rule)—namely, that the
assignment is “void ab initio” and constitutes a “material breach.”
And the italicized portion creates an exception to the general
rule—namely, that “this provision shall not prohibit” a
11
“foreclosure by any party having a lien on any of Zhengfu’s rights
hereunder permitted by this Term Sheet in accordance with any
applicable intercreditor agreement.” This reading is dictated by
the provision’s plain text, and that text is controlling. (Rosen v.
State Farm General Ins. Co. (2003) 30 Cal.4th 1070, 1074-1075.)
When read in this manner, paragraph E.6’s general rule
restricts Zhengfu’s ability to make a voluntary, noncontingent
assignment of its interests in the Greyhound Agreement unless
Zhengfu first negotiates with Sony and, failing that, Zhengfu’s
preferred assignee meets Sony’s special requirements. This
restriction does not reach so far as to restrict Zhengfu’s ability to
offer up its interest in the Greyhound Agreement as security for a
loan. That is because the provision’s negotiation and special
requirement mandates make sense if Zhengfu is trying to step
away from all or part of its duties under the Greyhound
Agreement and have someone else take its place on a going-
forward basis. They make little to no sense if Zhengfu is merely
trying to use its interest in the Greyhound Agreement as
collateral for another loan because Zhengfu will continue working
alongside Sony unless and until there is a default on that other
loan. We decline to construe the provision in a way that leads to
results inconsistent with the objective manifestation of the
parties’ intent. (Stewart v. Preston Pipeline Inc. (2005) 134
Cal.App.4th 1565, 1587 [“[m]utual assent to contract is based
upon objective and outward manifestations of the parties”];
SDC/Pullman Partners v. Tolo (1997) 60 Cal.App.4th 37, 46
[“literal language of a contract does not control . . . if it is wholly
inconsistent with the main intention of the parties”]; see
generally Civ. Code, § 1653.)
12
Zhengfu resists this conclusion with what boils down to two
arguments.7
First, Zhengfu argues that the last, italicized phrase must
be read to limit Zhengfu’s power to collateralize its interest to
situations where there is an “applicable intercreditor agreement,”
which exists only when two or more creditors have entered into
an agreement regarding the priority of any lien they may
simultaneously have in Zhengfu’s interest. (E.g., Sedgwick
FundingCo, LLC v. Newdelman (Bankr. E.D.Cal. Jan. 20, 2022,
No. 15-29890-A-7) 2022 Bankr. Lexis 150, *61-*62.) We reject
this argument. To begin, this last phrase—by stating that it
applies “[n]otwithstanding the foregoing”—operates as an
exception to paragraph E.6’s general rule. Because, as we have
concluded, that general rule does not apply here, the exception
also does not apply. This is also why we reject Zhengfu’s
7 Before the trial court, Zhengfu seemed to suggest a third
argument—namely, that Sony itself read paragraph E.6 as
barring Zhengfu’s creation of a security interest. The opinion of
Sony regarding the meaning of paragraph E.6 is inadmissible
because it is nothing more than a legal opinion. (Pond v.
Insurance Co. of North America (1984) 151 Cal.App.3d 280, 289
[lay opinion inadmissible]; Cooper Companies v. Transcontinental
Ins. Co. (1995) 31 Cal.App.4th 1094, 1100 (Cooper) [expert
opinion on meaning of contract inadmissible]; Gilkyson v. Disney
Enterprises, Inc. (2021) 66 Cal.App.5th 900, 921 (Gilkyson)
[same].) And to the extent the opinion of Sony is offered as to
what Sony subjectively intended paragraph E.6 to mean, it is also
irrelevant because contracts are adjudged by their objective
meaning rather than by unspoken, subjective intentions of the
parties. (Founding Members of the Newport Beach County Club
v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944,
956.) Zhengfu does not press this argument on appeal.
13
suggestion that the language somehow creates a second, general
rule barring all security interests. Had Sony and Zhengfu
wanted to bar the creation or enforcement of all security
interests, they could have done so directly by saying, “No security
interests are allowed.” They did not do so, and we decline to walk
the circuitous and tortured path necessary to read the last,
italicized clause as having that effect. (See, e.g., Lunardi v.
Great-West Life Assurance Co. (1995) 37 Cal.App.4th 807, 820
[courts are not to “engage in strained or tortured interpretation[s]
of the terms of a[] . . . contract”].)
Second, Zhengfu argues that SMC Specialty’s conduct in
this case violates section 9408, subdivision (d). We need not
determine whether there was any violation because section 9408
is irrelevant to this case. Although the Commercial Code in
California generally allows parties to decide whether their
contractual interests may be assigned to third parties as security
(§ 9201, subd. (a)), section 9408, subdivision (a) limits their power
to prohibit future assignments: Specifically and in pertinent
part, that section deems “ineffective” as a matter of statutory law
any “term” “that relates to . . . a general intangible,” if that term
(1) “would impair the creation, attachment, or perfection of a
security interest,” or (2) “provides that the assignment or transfer
or the creation, attachment, or perfection of the security interest
may give rise to a default [or] breach.” (§ 9408, subd. (a).) In this
fashion, section 9408 resurrects a right to assign or transfer
security interests that the parties, by contract, have sought to put
to death. But the life that section 9408 breathes back into the
power to create, perfect, and transfer security interests is a
limited one, and its limits are spelled out in subdivision (d) of
section 9408. (§ 9408, subd. (d).) The limits set forth in
14
subdivision (d) are irrelevant in this case because they only
pertain to a right to transfer if it has been resurrected by
subdivision (a) of section 9408. Because, as we have noted above,
paragraph E.6 does not prohibit the type of assignment at issue
in this case, there was no need for section 9408 to override that
prohibition; thus, the conditions set forth in subdivision (d) that
attach to revenant anti-assignment clauses are never implicated,
so whether SMC Specialty did or did not exceed them is
irrelevant.
B. Are Zhengfu’s cofinancing and distributorship
duties under the Greyhound Agreement “personal services”
that may not be assigned?
Zhengfu’s second argument rests on the premise that its
responsibility to cofinance Greyhound and to distribute it in
mainland China constitute “personal services” that may not be
assigned, such that Zhengfu’s duties under the Greyhound
Agreement may not be assigned to SMC Specialty as security for
the Destroyer bridge loan. It has long been the law in California
that “a contract [that] calls for the skill, credit or other personal
quality of the promisor . . . is not assignable.” (Knipe v. Barkdull
(1963) 222 Cal.App.2d 547, 551 (Knipe); Manela v. Stone (2021)
66 Cal.App.5th 90, 107.)
We conclude that the prohibition against assignment of
personal services is not violated by SMC’s act of foreclosing upon,
and taking title to, Zhengfu’s rights under the Greyhound
Agreement. That is because Zhengfu’s duties under that
agreement to cofinance Greyhound and distribute it do not
constitute personal services.
To the extent that Zhengfu is arguing that its duties are
personal services because they may not be assigned, we reject
15
this argument because it rests on the premise that the
Greyhound Agreement prohibits Zhengfu from assigning its
rights under the agreement as collateral. (See Unite Here Local
30 v. Department of Parks & Recreation (2011) 194 Cal.App.4th
1200, 1213-1214 [assignability undercuts claim that duties are
personal services].) As we have ruled, that premise is incorrect.
To the extent that Zhengfu is arguing that its duties under
the Greyhound Agreement are personal services because they
otherwise fit within the definition of “personal services,” we reject
this argument on its merits.8 As noted above, personal services
are those that rest on the “skill, credit or other personal quality of
the promisor.” (Knipe, supra, 222 Cal.App.2d at p. 551.) Thus,
for example, contracts for a person to perform as a singer qualify.
(E.g., Beverly Glen Music, Inc. v. Warner Communications, Inc.
(1986) 178 Cal.App.3d 1142, 1143-1145.) Zhengfu’s duties as
cofinancer and distributor are not based on its “skill, credit or
other personal quality” of a similar ilk. Cofinancing consists of
providing funding; while financiers may not be wholly fungible, a
bank or other company’s act of providing money is not akin to a
special talent or skill. While distributing a film might in certain
cases constitute something that turns on a particular
distributor’s skill, that is not the case here because the
Greyhound Agreement gives Sony complete control over how
Greyhound is to be marketed, leaving Zhengfu little to do other
8 What is more, the opinion of Zhengfu’s expert witness—
that is, that a production company’s process in selecting a
distributor indicates that the distributor is performing personal
services—amounts to nothing more than an inadmissible legal
opinion that has no impact on our conclusion. (Cooper, supra, 31
Cal.App.4th at p. 1100; Gilkyson, supra, 66 Cal.App.5th at p.
921.)
16
than obtain permission from the Chinese government to
distribute the film and then follow Sony’s instructions on how to
effect that distribution. (Accord, Husain v. McDonald’s Corp.
(2012) 205 Cal.App.4th 860, 868-870 [franchisee’s duties are not
personal services when the franchisor heavily regulates how
those duties are to be performed]; cf. Woolley v. Embassy Suites,
Inc. (1991) 227 Cal.App.3d 1520, 1534 [daily discretionary duties
called for by management agreement constitute personal
services].) Indeed, the very fact that the Greyhound Agreement
gives Zhengfu the power to assign its duties to someone else as
long as they meet Sony’s special requirements indicates that
Zhengfu’s role under the agreement is not somehow something
only Zhengfu may do. What is more, even if we were to agree
with Zhengfu that Zhengfu’s conduct in cofinancing and
distributing Greyhound did involve its personal services, SMC
Specialty has not sought to take over those functions from
Zhengfu; all SMC Specialty has done is seek to collect the
revenues to which Zhengfu is entitled. Thus, SMC Specialty’s
conduct has not effected an assignment of any personal services
under the Greyhound Agreement.
II. Balancing the Interim Harms
Even if we were to ignore our conclusion that Zhengfu has
not carried its burden of proving a likelihood of success on the
merits of its claims, the trial court’s denial of the preliminary
injunction was appropriate because the court also did not abuse
its discretion in finding that the balancing of interim harms
counsels against its issuance. This balancing required the trial
court to examine (1) the harm to Zhengfu if the preliminary
injunction is denied against (2) the harm to SMC Specialty if the
17
preliminary injunction is granted. (Integrated Systems, supra, 6
Cal.App.5th at p. 1183.)
The harm to Zhengfu if the preliminary injunction is denied
is relatively minor because Zhengfu did not establish how
issuance of that injunction would improve its position. Even if we
assume that the Greyhound Agreement barred SMC Specialty’s
acquisition of a security interest in Zhengfu’s rights under the
Greyhound Agreement, and that section 9408 nevertheless
resurrected SMC Specialty’s right to acquire that interest subject
to the limitations of subdivision (d) of section 9408, subdivision
(d) would prohibit SMC Specialty from enforcing the security
interest and from demanding that Sony pay it Zhengfu’s share of
the revenues. (§ 9408, subd. (d)(1), (2), (3), (6).) Critically,
however, section 9408 would still allow SMC Specialty to
maintain its perfected security interest in Zhengfu’s interest in
the Greyhound Agreement. Zhengfu maintains that it is being
harmed by Sony’s refusal to proceed with distributing Greyhound
in mainland China due to the dispute over SMC Specialty’s
potential ownership of Zhengfu’s rights under the agreement, but
Zhengfu has presented no evidence that the shift in SMC
Specialty’s status from title holder of Zhengfu’s rights to secured
creditor against those rights would resolve the dispute in Sony’s
mind and hence remove the roadblock Sony has imposed on
distributing the film. Absent such evidence, there is no reason to
believe that granting the injunction would have any benefit to
Zhengfu and, conversely, that its denial would do Zhengfu any
harm.
Concomitantly, the harm to SMC Specialty if the
preliminary injunction is granted is great. If, as we are
assuming, the injunction would downgrade SMC Specialty from
18
being title holder of Zhengfu’s rights under the Greyhound
Agreement to being a secured creditor under section 9408,
subdivision (d), then SMC Specialty would either be in the same
position (if Sony maintained its roadblock on distribution) or in a
much worse position (if Sony removed the roadblock and allowed
Zhengfu to collect revenues, which Zhengfu would then be free to
withdraw and thereby remove from SMC Specialty’s reach).
Where, as here, the potential harm from denying the
injunction is minor and the potential harm from granting it
major, the trial court did not abuse its discretion in denying
relief.
* * *
In light of our analysis, we have no occasion to address the
parties’ other arguments regarding the difficulty of calculating
damages should Sony maintain its roadblock on distribution
(because such difficulty does not affect our analysis that
Zhengfu’s claims are unlikely to succeed on the merits); regarding
which point in time constitutes the “status quo” (because this
inquiry at most determines whether the injunction is considered
mandatory or prohibitory, which at best would require us to
apply even greater scrutiny to the decision whether to issue the
injunction); regarding whether the foreclosure sale was defective
(because we have assumed for purposes of balancing the interim
harms that the foreclosure would be unwound and because
Zhengfu did not make any cogent arguments along these lines on
appeal); and regarding whether the trial court was correct to
draw a distinction between assignments of a contract and
assignments of the proceeds of a contract (because what we
evaluate is the trial court’s ruling and not its rationale).
19
DISPOSITION
The order is affirmed. SMC Specialty is entitled to its costs
on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
______________________, J.
HOFFSTADT
We concur:
_________________________, P. J.
LUI
_________________________, J.
CHAVEZ
20