SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS …

SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELESCivil Division

Central District, Stanley Mosk Courthouse, Department 34

21STCP00887 June 30, 2021MELISA SPAMER, DERIVATIVELY ON BEHALF OF KRENGEL, SPAMER & VANCE, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY vs JOSEPH J. VANCE

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Judge: Honorable Michael P. Linfield CSR: Keri Logan, CSR# 12608Judicial Assistant: Reyna Navarro ERM: NoneCourtroom Assistant: Vanessa Galindo Deputy Sheriff: None

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APPEARANCES:

For Petitioner(s): James E. Hornstein via LACourtConnect (Video); Norman H. Levine via

LACourtConnect (Video)

For Respondent(s): W. Allan Edmiston via LACourtConnect (Video); Daniela M. Spencer via

LACourtConnect (Video)

Other Appearance Notes: James W. Hill for Plaintiff via LACourtConnect (Telephonic)

NATURE OF PROCEEDINGS: Hearing on Motion for Preliminary Injunction

The Court's tentative ruling is provided to all sides via the Court's website.

The matter is called for hearing.

Pursuant to Government Code sections 68086, 70044, and California Rules of Court, rule 2.956, Keri Logan, CSR# 12608, certified shorthand reporter is appointed as an official Court reporter pro tempore in these proceedings, and is ordered to comply with the terms of the Court Reporter Agreement. The Order is signed and filed this date.

After oral argument, the Court's tentative ruling is adopted as the Order of the Court as follows:

Case Number: 21STCP00887 Hearing Date: June 30, 2021 Dept: 34SUBJECT: Motion for Preliminary Injunction

Moving Party: Petitioner Melisa Spamer, derivatively on behalf of Krengel, Spamer & Vance LLC

Resp. Party: Respondent Joseph J. Vance

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The motion for preliminary injunction is GRANTED.

BACKGROUND:

Petitioner, on behalf of a limited liability company, brings this petition to expel Respondent, a 40% member of the limited liability company, from the limited liability company and for an accounting on the grounds that Respondent allegedly engaged in embezzlement and other significant misconduct. (Petition, ¶ 1.)

On March 18, 2021, Petitioner Melisa Spamer, derivatively on behalf of Krengel, Spamer & Vance LLC filed a petition against Respondent Joseph J. Vance to expel member from limited liability company and for an accounting.

On April 1, 2021, the Court made the following orders as a stop-gap measure: (1) all proceeds from the Jane Lynch Bucktown and Jorja Fox deals are to be held until further order of the court; and (2) two signatures are required on any checks issued on behalf of the LLC. (04/01/2021 Minute Order.)

On April 12, 2021, the Court continued the hearing on the ex parte application for temporary

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restraining order and order to show cause re: preliminary injunction to April 19, 2021.

On April 15, 2021, the Court found that the following cases, 21STCP00887 and 21STCP00918, are related and designated 21STCP00887 as the lead case.

On April 19, 2021, the Court continued the hearing on the ex parte application for temporary restraining order and order to show cause re: preliminary injunction to May 3, 2021.

On April 29, 2021, Respondent filed a verified response to the petition.

On May 3, 2021, the Court made the ruling that all previous orders remain in full force and effect. (05/03/2021 Minute Order.)

On May 14, 2021, pursuant to the parties’ stipulation and for good cause showing, the Court extended the Temporary Orders until June 18, 2021, pending the continued hearing on Petitioner’s Motion. (05/14/2021 Stipulation and Order.)

On May 26, 2021, Petitioner filed the instant motion for preliminary injunction.

On June 18, 2021, the Court continued the hearing on the motion for preliminary injunction to 06/30/2021 to allow for supplemental briefing. The Court stated that “Supplemental simultaneous briefs regarding the size of the undertaking, tweaking of the injunction, and

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paragraph 1D of the ‘[proposed] Order’ are to be filed and served by June 25, 2021.” (06/18/2021 Minute Order.)

On June 25, 2021, Petitioner and Respondent each filed supplemental briefing.

Before the Court is Petitioner’s motion for preliminary injunction.

ANALYSIS:

I. Motion for Preliminary Injunction

A. Request for Judicial Notice

Respondent requests that the Court take judicial notice of:

· Exhibit 1: Declaration of Joseph Vance in Opposition to Ex Parte Application for Temporary Restraining Order and Order to Show Case Re Injunction;

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· Exhibit 2: Declaration of W. Allan Edmiston in Opposition to Ex Parte Application for Temporary Restraining Order and Order to Show Case Re Injunction;

· Exhibit 3: Minute Order, dated April 1, 2021, re Hearing on Spamer’s Ex Parte Application for Temporary Restraining Order and Order to Show Cause re Preliminary Injunction;

· Exhibit 4: Minute Order, dated April 19, 2021, re Hearing on Spamer’s Ex Parte Application for Temporary Restraining Order and Order to Show Cause re Preliminary Injunction;

· Exhibit 5: Minute Order, dated May 3, 2021, re Hearing on Spamer’s Ex Parte Application for Temporary Restraining Order and Order to Show Cause re Preliminary Injunction;

· Exhibit 6: Stipulation to Extend Temporary Orders Pending Hearing on Motion for Preliminary Injunction; Order Thereon; and

· Exhibit 7: Complaint for Involuntary Dissolution of Limited Liability Company.

The Court DENIES Respondent’s request for judicial notice as superfluous. (Cal. Rules of Court, rule 3.1110(d).) Any party that wishes to draw the Court’s attention to a matter filed in this action may simply cite directly to the document by execution and filing date. (See Cal. Rules of Court, rule 3.1110(d).)

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B. Evidentiary Objections

Petitioner submits nine evidentiary objections to request for judicial notice, Exhibit 1, declaration of Joseph Vance; one evidentiary objection to the supplemental declaration of Joseph Vance; and one evidentiary objection to the supplemental declaration of W. Allan Edmiston. The Court rules as follows:

Vance Declaration

Paragraph 8-OVERRULEDParagraph 9-SUSTAINEDParagraph 13-OVERRULEDParagraph 15-SUSTAINEDParagraph 15-SUSTAINEDParagraph 16-SUSTAINEDParagraph 17-SUSTAINEDParagraph 20-SUSTAINEDParagraph 32-OVERRULED

Supplemental Vance Declaration

Paragraph 7-SUSTAINED

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Supplemental Edmiston Declaration

Paragraph 6 and Exhibit 25-OVERRULED

C. Legal Standard

“A party to an arbitration agreement may file in the court in the county in which an arbitration proceeding is pending, or if an arbitration proceeding has not commenced, in any proper court, an application for a provisional remedy in connection with an arbitrable controversy, but only upon the ground that the award to which the applicant may be entitled may be rendered ineffectual without provisional relief.” (Code Civ. Proc., § 1281.8(b).) A provisional remedy includes a preliminary injunction issued pursuant to Code of Civil Procedure section 527. (Code Civ. Proc., § 1281.8(a)(3).)

“A preliminary injunction may be granted at any time before judgment upon a verified complaint, or upon affidavits if the complaint in the one case, or the affidavits in the other, show satisfactorily that sufficient grounds exist therefore.” (Code Civ. Proc., § 527(a).) The purpose of a preliminary injunction is to preserve the status quo pending a decision on the merits. (Major v. Miraverde Homeowners Ass’n. (1992) 7 Cal. App. 4th 618, 623.)

In deciding whether to issue a preliminary injunction, courts “should evaluate two interrelated factors . . . The first is the likelihood that the plaintiff will prevail on the merits at trial. The second is the interim harm that the plaintiff is likely to sustain if the injunction were denied as compared to the harm that the defendant is likely to suffer if the preliminary injunction were

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issued.” (IT Corp. v. County of Imperial (1983) 35 Cal.3d 63, 69-70.) “Before issuing a preliminary injunction, the trial court must ‘carefully weigh the evidence and decide whether the facts require[ ] such relief.’ [Citation.] The court evaluates the credibility of witnesses and makes factual findings on disputed evidence.” (Fleishman v. Superior Court (2002) 102 Cal.App.4th 350, 356.)

“In seeking a preliminary injunction, [the party seeking the injunction] b[ears] the burden of demonstrating both likely success on the merits and the occurrence of irreparable harm.” (Savage v. Trammell Crow Co. (1990) 223 Cal.App.3d 1562, 1571; Citizens for Better Streets v. Board of Sup'rs of City and County (2004) 117 Cal.App.4th 1, 6.) A plaintiff seeking injunctive relief must show the absence of an adequate damages remedy at law. (Code Civ. Proc., §526(a)(4).) Injunctions will rarely be granted (absent specific statutory authority) where a suit for damages provides a clear remedy. (Pacific Designs Sciences Corp. v. Sup.Ct. (Maudlin) (2004) 121 Cal.App.4th 1100, 1110.)

D. Discussion

Petitioner moves “for a Preliminary Injunction restraining and enjoining Respondent Joseph Vance (‘Respondent’ or ‘Mr. Vance’), and all those acting in concert with him as follows:

1. Restraining Respondent and his representatives, agents, and all persons acting on his behalf from signing any checks on Petitioner’s operating and client trust bank accounts or accessing funds in such accounts.

2. Permitting Ms. Spamer to sign checks unilaterally and have full access Petitioner’s accounts.

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3. Requiring that all commissions based on deals where negotiations began before March 17, 2021, as well as any renewals of such deals, not be deposited or retained by Respondent or his representatives, agents, and all persons acting on his behalf, and immediately be transferred to Petitioner.

4. Restraining Respondent and his representatives, agents, and all persons acting on his behalf from depositing any check or receiving any other funds on deals for which negotiations began with Petitioner.

5. Allowing Petitioner to pay its employees and vendors, including Dustin Rios (Assistant), Ronnie Kaufman (Junior Agent), a bookkeeper to be selected by Ms. Spamer, and Armanino, LLP (financial consultant), via transfers signed or approved only by Ms. Spamer.

6. Pending disposition of the Petition to Expel Respondent from Petitioner, limiting Respondent’s role and rights in Petitioner to those he would have in the event expulsion is granted—i.e. as a transferee only.” (Motion, p. 2:3-24.)

Petitioner brings this motion “pursuant to Code of Civil Procedure §§ 526, 527, and 1281.8 (without waiving Petitioner’s right to arbitration under the arbitration provision of the Operating Agreement that is the subject of this matter), on the grounds that good cause exists for the issuance of a preliminary injunction in that Petitioner has established a likelihood that it will prevail on the merits, that in the absence of a Preliminary Injunction, Petitioner will suffer great or irreparable injury, and that any arbitration award to which Petitioner might be entitled may be rendered ineffectual without injunctive relief.” (Id. at p. 3:17-23.)

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Petitioner asserts that “a preliminary injunction is necessary to protect KSV from further harm pending resolution of this action and the JAMS arbitrations.” (Id. at p. 19:18-19.) Petitioner maintains that “there is an imminent threat Mr. Vance will irreparably harm the company, such that, without provisional relief, and without enabling Ms. Spamer to operate the business profitably in the interim, any judgment or arbitration award will be rendered ineffectual.” (Id. at p. 19:19-22.) Petitioner contends that “there is no adequate remedy at law, both because KSV, once damaged, may not be capable of being revived, and because Mr. Vance’s financial condition make collection of any money judgment or award unlikely.” (Id. at p. 19:22-24.)

1. Likelihood of Prevailing

“On application by the limited liability company, the person is expelled as a member by judicial order because the person has done any of the following:

(1) Engaged, or is engaging, in wrongful conduct that has adversely and materially affected, or will adversely and materially affect, the limited liability company's activities.

(2) Willfully or persistently committed, or is willfully and persistently committing, a material breach of the operating agreement or the person's duties or obligations under Section 17704.09.

(3) Engaged, or is engaging, in conduct relating to the limited liability company's activities that makes it not reasonably practicable to carry on the activities with the person as a member.” (Corp. Code, § 17706.02, subd. (e).)

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“The fiduciary duties that a member owes to a member-managed limited liability company and the other members of the limited liability company are the duties of loyalty and care under subdivisions (b) and (c).” (Corp. Code, § 17704.09(a).) “A member’s duty of loyalty to the limited liability company and the other members is limited to the following:

(1) To account to the limited liability company and hold as trustee for it any property, profit, or benefit derived by the member in the conduct and winding up of the activities of a limited liability company or derived from a use by the member of a limited liability company property, including the appropriation of a limited liability company opportunity.

(2) To refrain from dealing with the limited liability company in the conduct or winding up of the activities of the limited liability company as or on behalf of a person having an interest adverse to the limited liability company.

(3) To refrain from competing with the limited liability company in the conduct or winding up of the activities of the limited liability company.” (Corp. Code, § 17704.09(b).)

“A member’s duty of care to a limited liability company and the other members in the conduct and winding up of the activities of the limited liability company is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.” (Corp. Code, § 17704.09(c).)

An operating agreement shall not “[e]liminate the duty of loyalty under subdivision (b) of Section 17704.09, but the operating agreement may do any of the following:

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(A) Identify specific types or categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable.

(B) Specify the number or percentage of members that may authorize or ratify, after full disclosure to all members of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty.” (Corp. Code, § 17701.10(c)(14).)

Petitioner argues that “KSV is likely to succeed on the merits of the instant Petition to Expel” because clear grounds exist for expulsion under Code of Civil Procedure section 17706.02, subdivision (e), subsections (1) and (2). (Motion, pp. 19:26, 20:4.) Petitioner asserts that “there are few clearer breaches of a member’s fiduciary duties to an LLC than rampant embezzlement and concealment of the same.” (Id. at p. 20:17-18.) Petitioner argues that “Mr. Vance embezzled $545,500 from KSV by routinely paying himself far more than he paid to Ms. Spamer—though distributions were supposed to be equal – even after being confronted with his misdeeds in June of 2019.” (Id. at p. 20:18-20.) Petitioner maintains that “when he was caught again and pressed by Ms. Spamer’s counsel, he repaid KSV without interest or legal fees.” (Id. at p. 20:20-22.) Further, Petitioner argues that Respondent “destroyed or hid evidence, improperly charged expenses, including car payments, to the company, and wrote other checks to himself.” (Id. at p. 20:22-23.) Petitioner asserts that Respondent “deposited client funds intended for the client trust account into KSV’s operating account.” (Id. at p. 20:23-24.)

Petitioner argues that “Mr. Vance then abruptly left, founding Realm as a competing agency and stealing KSV’s clients, deals and employees, all while remaining a member of KSV.” (Id. at p. 20:25-26.) Petitioner maintains that “he apparently thought he could receive all of the revenue from his half of the clients and half of the revenue from clients loyal to Ms. Spamer who remained with KSV.” (Id. at p. 20:26-28.) Petitioner argues that this conduct breached Respondent’s fiduciary duties and no court of equity will allow that result. (Id. at pp. 20:28-21:1.)

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In opposition, Respondent argues that Petitioner has not proved a likelihood of success on the merits because Respondent “did not ‘embezzle’ money from KSV, and the former imbalance in distribution payments was completely resolved nearly two years ago.” (Opp., p. 12:1-4.) Respondent asserts that “the imbalance in distribution payments dates back to the summer of 2019, and was completely resolved nearly two years ago.” (Id. at p. 13:17-19.) Therefore, Respondent argues, “it does nothing to support the issuance of an injunction now.” (Id. at p. 13:19.)

Respondent also argues that his “operation of a new talent agency is not wrongful, and does not constitute a breach of the Amended Operating Agreement or of Vance’s limited duty of loyalty.” (Id. at p. 13:20-22.) Respondent maintains that “section 6.04.1 of the Amended Operating Agreement defines KSV’s members’ ‘limited’ duty of loyalty . . . [a]nd it tracks the language of Section 11704.09(b).” (Id. at p. 14:10-11.) Respondent argues that this “limited duty is then carved back further by Section 6.04.3 of the Amended Operating Agreement” which “makes abundantly clear that any member may engage in other business activities – even if they are ‘competitive’ with KSV – without violating any duty of loyalty owed to KSV or its members.” (Id. at p. 14:12-25.) respondent maintains that “the plain meaning of the Amended Operating Agreement is controlling: Vance can engage in competitive talent agency activities, as long as he does not interfere with or seek to appropriate KSV’s existing business deals or commissions.” (Id. at p. 15:18-21.) Respondent asserts that he “has not engaged in ‘self-dealing’ by engaging in new procurement work through a new talent agency” because “Section 6.04.3 affirms that Vance is free to engage ‘in whatever activities, whether similar to or competitive with the LLC or another Member or Transferee, without any obligation to offer any interest to the LLC or any other Member or Transferee.’” (Id. at p. 17:7-13, citing RJN, Ex. 1, Vance Decl., ¶ 5, Ex. 2, Section 6.04.3.)

In reply, Petitioner asserts that “Respondent openly concedes that he is in competition with KSV using former KSV employees, stating that ‘many of [KSV’s] clients have made the decision to follow Vance to his new agency.’” (Reply, p. 8:7-9, citing Opp., p. 9:7-8.) Petitioner argues that

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the operating agreement does not permit Respondent’s conduct because “investigating and engaging in a business that competes with KSV is a far cry from taking KSV’s existing business while remaining a member of KSV.” (Id. at p. 9:25-26.) Petitioner maintains that “whether Section 6.04.3 might allow Mr. Vance to purchase a separate, existing talent agency, with different clients and different employees, without offering Ms. Spamer the right to participate in the purchase, it certainly does not allow him to start a new agency with the same clients and employees while simultaneously remaining a member of KSV.” (Id. at pp. 9:26-10:2.)

Petitioner argues that “Section 6.04.1(iii) of the KSV Operating Agreement (Spamer Decl., Exh. A) requires the members ‘[t]o refrain from competing with the LLC in the conduct … of the activities of the LLC,’ i.e. not to do exactly what Respondent is doing” and that Respondent makes no effort to reconcile the two provisions of the operating agreement. (Id. at p. 10:5-11.) Petitioner maintains that “the KSV Operating Agreement does not identify Respondent’s conduct in question as conduct that ‘do[es] not violate the duty of loyalty’; Section 6.04.1(iii) states exactly the opposite, that there is an obligation imposed by the duty of loyalty ‘to refrain from competing with the LLC in the conduct or winding up of the activities of the LLC.” (Id. at p. 10:18-22.) Petitioner asserts that Respondent’s “conduct clearly constitutes self-dealing” because “he unmistakably seeks to profit from KSV business while remaining a member – and fiduciary – of KSV.” (Id. at p. 10:24-25.)

The Court finds that KSV’s operating agreement does not eliminate Respondent’s fiduciary duty of loyalty, which would include not setting up a competing company. It is true that the operating agreement may “[i]dentify specific types or categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable.” (Corp. Code, § 17701.10(c)(14)(A).) Here, however, the KSV operating agreement does not identify Respondent’s alleged conduct as conduct that “do[es] not violate the duty of loyalty.” (See ibid.) Instead, the operating agreement explicitly states that:

“The duty of loyalty is limited to the following:

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(i) To account to the LLC and hold as trustee for it any property, profit, or benefit derived by the Member in the conduct and winding up of the activities of the LLC or derived from a use by the Member of the LLC’s property, including the appropriation of an LLC opportunity;

(ii) To refrain from dealing with the LLC in the conduct or winding up of the activities of the LLC as or on behalf of a party having an interest adverse to the LLC; or

(iii) To refrain from competing with the LLC in the conduct or winding up of the activities of the LLC.” (Spamer Decl., Ex. A, Amended and Restated Operating Agreement, § 6.04.1.)

The operating agreement also states that:

“Notwithstanding Sections 6.04.1 and 6.04.2, any Member or Transferee, either separately or with others, may engage or invest in whatever activities, whether similar to or competitive with the LLC or another Member or Transferee, without any obligation to offer any interest to the LLC or any other Member or Transferee.” (Id. at § 6.04.3.)

Here, Section 6.04.3 does not permit Respondent’s behavior of creating a competing company and Respondent’s reading of Section 6.04.3 of the operating agreement would make the conduct manifestly unreasonable. Section 6.04.3 does not provide that members do not breach their fiduciary duty of loyalty if they create a new competing company; instead, it provides that members would not breach their fiduciary duty by engaging or investing in a competitive company. (See ibid.) Petitioner has demonstrated that Respondent did not merely engage or invest in a competitive company, but rather Respondent created a competitive company and took

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clients and employees to this company. Petitioner has established that it is likely that Respondent has breached his fiduciary duties by “competing with the LLC in the conduct or winding up of the activities of the LLC” by creating this new company. (See Spamer Decl., Ex. A, Amended and Restated Operating Agreement, § 6.04.1.)

Considering the evidence presented in support of this motion for preliminary injunction, the Court finds that Petitioner will probably prevail on the petition to expel Respondent as a member of the limited liability company. Petitioner establishes that it will likely prevail on the merits of its claim because the following evidence demonstrates that Respondent likely breached his fiduciary duties to KSV by embezzling funds, taking clients and employees, and setting up a competing company.

For example, Petitioner provides evidence to show that Respondent embezzled money from KSV. Petitioner demonstrates that in June 2019, Ms. Spamer learned that in the preceding 17 months, without her knowledge or consent, Respondent had paid himself at least $545,500.00 more than he paid her. (Spamer Decl., ¶ 8, Ex. B.) Petitioner shows that during 2018, Respondent wrote himself 35 checks totaling $548,500.00, but write Ms. Spamer only 18 checks totaling $258,000.00. (Id. at ¶ 9, Ex. B.) Between January 1, 2019 and June 2019, Respondent wrote himself 19 checks and one direct transfer totaling $222,500.00 and write Ms. Spamer 6 checks totaling $50,000.00. (Id. at ¶ 10.) Between June and August 12, 2019, Respondent wrote himself 10 more checks totaling $160,000.00 and wrote Ms. Spamer 7 checks totaling $110,025.00. (Ibid.) After Ms. Spamer and her counsel confronted Respondent, on August 16, 2019, Respondent repaid the stolen funds, without interest or attorney’s fees. (Levine Decl., ¶ 2; Spamer Decl., ¶ 10.)

Petitioner also demonstrates that after Respondent paid back the funds, he had resumed his embezzlement by writing to himself five unauthorized checks totaling $10,073.70 between September 2020 (the month after he repaid KSV for his prior embezzlement) and January 2021 for his auto payments. (Spamer Decl., ¶ 18, Ex. D.) Respondent also wrote another unauthorized check to himself for $10,000.00 on March 3, 2021. (Id. at ¶ 20, Ex. E.) Petitioner presents

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evidence to show that Respondent created a competing talent agency, took KSV employees to the new company, and negotiated major deals on behalf of two of KSV’s key clients – Jane Lynch and Jorja Fox, with the intent for his new company to receive the resulting commissions while depriving KSV of the revenue. (Id. at ¶ 23.)

Accordingly, the Court concludes that Petitioner has shown a probability of prevailing on the merits of its claim that Respondent breached his duty of loyalty to KSV and that Respondent will be dissociated as a result.

2. Balance of Harms

The second factor the Court considers is a balancing of the “irreparable harm” that the plaintiff is likely to sustain if the injunction is denied compared to the harm that the defendant is likely to suffer if the court grants a preliminary injunction. (Code of Civ. Proc. § 526(a)(2); 14859 Moorpark Homeowner’s Assn. v. VRT Corp. (1998) 63 Cal.App.4th 1396, 1402; Pillsbury, Madison & Sutro v. Schectman (1997) 55 Cal.App.4th 1279, 1283.) For this factor, “irreparable harm” means that the defendant’s act constitutes an actual or threatened injury to the personal or property rights of the plaintiff that cannot be compensated by a damages award. (Brownfield v. Daniel Freeman Marina Hospital (1989) 208 Cal..App.3d 405, 410.) A plaintiff is not required to wait until suffering actual harm; threatened harm is enough. (Southern Christian Leadership Conference v. Al Malaikah Auditorium Co. (1991) 230 Cal.App.3d 207, 223.)

The issue of irreparable harm is closely related to the issue of damages as an adequate remedy at law. Monetary loss will not constitute irreparable harm unless the plaintiff also shows that the defendant is insolvent or unable to pay damages. (Friedman v Friedman (1993) 20 Cal.App.4th 876, 890.)

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Petitioner argues that “absent injunctive relief, Mr. Vance threatens to damage KSV and potentially leave it unable to meet its obligations.” (Motion, p. 23:13-14.) Petitioner asserts that Respondent, “on the other hand, will not be harmed by an injunction” because “KSV has successfully operated for 16 years” and “there can be no harm in maintaining the long-standing status quo pending trial.” (Id. at p. 23:15-16.) Petitioner contends that “to the extent Mr. Vance remains a member, he will benefit if KSV is able to continue to operate its business.” (Id. at p. 23:16-17.)

Petitioner provides evidence that Respondent admitted in deposition, that hundreds of thousands of dollars of tax liens have been levied against him (Spamer Decl., ¶ 33, Ex. J, Levine Decl., ¶ 14, Ex. U, Vance Depo., pp. 138:21-140:8.) Petitioner argues that based on Respondent’s financial condition, “he has a substantial incentive to continue to take money from KSV improperly and divert commissions to his competing agency during the pendency of this litigation.” (Motion, pp. 16:27-17:2.) Petitioner argues that “Ms. Spamer is working diligently to keep KSV in operation, but is impeded because Mr. Vance remains an owner and most company decisions require unanimity.” (Id. at p. 17:8-10, citing Spamer Decl., ¶¶ 30-35.)

Respondent argues that “Spamer has not demonstrated any threat of irreparable injury.” (Opp., p. 17:17.) First, Respondent asserts that “the injuries Spamer alleges principally relate to completed acts dating back nearly two years ago” and “they are all monetary in nature.” (Id. at p. 17:17-19.) Second, Respondent argues that “there is no imminent threat of future injury, and no likelihood of future harm particularly since both parties have agreed that no KSV checks may issue without both parties’ signatures.” (Id. at p. 18:4-6.) Respondent maintains that “if Spamer is allowed to seize control of KSV and shove Vance to the sidelines, she will be free to operate KSV and control her compensation – indefinitely – for her own purposes and personal advantage” which “would be extremely prejudicial to Vance.” (Id. at p. 18:13-16.)

The Court finds that Petitioner has demonstrated that the future harms that KSV may endure absent injunctive relief outweigh any harm to Respondent. First, Petitioner establishes that KSV

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will endure irreparable harm going forward if the Court does not (1) restrain Respondent from signing checks on Petitioner’s accounts; (2) allow Ms. Spamer to sign checks unilaterally; (3) require commissions to be held and transferred to Petitioner for any deal where negotiations began before March 17, 2021, when Respondent formed his competing agency; (4) allow Petitioner to pay its employees; and (5) limit Respondent’s role with KSV to that of a transferee pending his expulsion from KSV. Petitioner demonstrates that KSV will endure irreparable harm in the future given Respondent’s pattern of conduct of embezzling funds and his incentive to continue to take money and commissions from KSV to divert to his competing company based on his financial situation.

Second, Respondent does not show how the requested relief will result in prejudice to him. For this matter, if Respondent prevails, Petitioner will either buy out Respondent or KSV will be dissolved and if Petitioner prevails, Respondent will be dissociated. In either circumstance, Respondent will no longer be with KSV. Therefore, the requested injunctive relief will maintain the status quo while the parties determine the details regarding Respondent’s departure from KSV.

Based on the foregoing, the Court concludes that the harms to KSV outweigh any harms to Respondent.

3. Form of Proposed Order

a. Issue No. 1: Paragraph 1(d)

At the June 18, 2021, the Court indicated that it was therefore inclined to GRANT the motion for preliminary injunction. However, the Court had concern with ¶ 1(d) of the proposed injunction.

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This paragraph states:

“Respondent and his representatives, agents, and all persons acting on his behalf, are restrained from retaining or depositing any check or receiving any other funds on deals for which negotiations began with Petitioner.” (Proposed Order, ¶ 1(d).)

In the supplemental response, Petitioner explained that “the parties have met and conferred and have agreed to replace Paragraphs 1(c) and 1(d) with a new Paragraph 1(c), which provides that certain commissions:

which are received by Respondent, shall be transferred to KSV as soon as possible, but no later than within eight business days of receipt by Respondent, except that the commissions attributable to Jorja Fox’s CSI project shall be deposited into KSV’s trust account, with the distribution of such funds only upon agreement of both Ms. Spamer and Mr. Vance or order of the Court.” (Petitioner’s Suppl. Briefing, pp. 4:28-5:5.)

Petitioner asserts that with this new language, “certain commissions will be transferred to KSV, which may treat the commissions like any other revenue, except that one commission will be held in the KSV trust account pending further agreement or Order of Court.” (Id. at p. 5:6-8.)

However, Petitioner maintains that “the parties disagree in one respect as to which commissions are to be turned over.” (Id. at p. 5:9-10.) Petitioner argues “that all commissions for deals for which negotiations began before March 17, 2021 belong to KSV, and that any such commissions received by Realm must be turned over to KSV.” (Id. at p. 5:15-17.) Therefore, “Petitioner proposes the following language be inserted at the beginning of Paragraph 1(c):

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Commissions received in connection with deals entered into or negotiated before March 17, 2021, or in connection with any extensions, renewals, modification, substitution of deals negotiated or entered into before March 17, 2021.” (Id. at p. 5:17-21.)

In contrast, Petitioner explains that “Respondent contends that KSV is only entitled to commissions which were ‘substantially negotiated’ at KSV:

“Commissions received in connection with deals entered into or substantially negotiated before March 17, 2021, or in connection with any renewals of such deals, but only to the extent the terms of those renewals were substantially negotiated or completed.” (Id. at p. 5:22-26.)

Petitioner maintains that the language should include all commissions because “regardless of whether Realm is owed commissions under contract (it is not), the Court has already held that it was a breach of Respondent’s duty of loyalty to form Realm while still a member of KSV, and that these new contracts constitute self-dealing.” (Id. at p. 6:2-6, 7:12-13.)

The Court agrees with the parties’ decision to replace Paragraphs 1(c) and 1(d) with a new Paragraph 1(c), which provides that certain commissions:

“which are received by Respondent, shall be transferred to KSV as soon as possible, but no later than within eight business days of receipt by Respondent, except that the commissions attributable to Jorja Fox’s CSI project shall be deposited into KSV’s trust account, with the distribution of such funds only upon agreement of both Ms. Spamer and Mr. Vance or order of the Court.”

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The Court also finds that the language should state that all the commissions entered into or negotiated prior to March 17, 2021, are subject to the language stated above in new Paragraph 1(c). All commissions are subject to the preliminary injunction because it was a breach of Respondent’s duty of loyalty to form his new company while still a member of KSV and that these new contracts constitute self-dealing.

Further, the Preliminary Injunction allows for Petitioner to petition the Court to allow distribution of funds to Petitioner should the parties not agree.

The Court finds that Petitioner’s proposed language should be included in the proposed order for preliminary injunction.

b. Issue No. 2: Notification of Petitioner’s Clients

“Petitioner proposes that, to ensure that clients know where to send commissions, Respondent be required to sign letters to clients.” (Petitioner’s Suppl. Briefing, p. 7:14-15.) Specifically, “Petitioner seeks to add the following language to the Proposed Order (which Respondent opposes):

Upon written request of Ms. Spamer, Mr. Vance shall promptly sign any letters to clients or their representatives instructing them to send directly to KSV all commissions which are to be turned over to KSV under the terms of this Order.” (Id. at p. 7:15-19.)

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Petitioner maintains that “KSV wants to avoid a situation where a client learns of a dispute between the parties or of the establishment of a new agency and withholds commissions to avoid sending them to the wrong place.” (Id. at pp. 7:21-8:2.) Petitioner asserts that “to assure minimal interruption to Petitioner’s business, Respondent should be required to sign letters instructing clients where to deliver payment.” (Id. at p. 8:2-3.)

In his supplemental briefing, Respondent argues that “this proposal is unnecessary, it’s confusing, and it’s inappropriate in the circumstances here.” (Respondent’s Suppl. Briefing, p. 4:12-13.) Respondent asserts that he “has never contested KSV's right to receive commissions relating to deals entered into or substantially negotiated before March 17, and all such commissions have been, or as far as Mr. Vance is concerned, will be, paid to KSV.” (Id. at p. 4:13-15.)

The Court agrees with Respondent that such a notice to clients would be confusing and perhaps inappropriate. Petitioner has not identified any circumstances where clients have withheld commissions. If Petitioner learns of any such instances, she can either petition the Court for an order, or conversely, can await trial where the amounts of any withheld commissions will be determined and equitably distributed.

The Court declines to include this language in the Preliminary Injunction.

c. Issue No. 3: Petitioner’s Salary

Petitioner seeks permission to pay herself a salary not to exceed the average salary she received

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for the past three years, 2018, 2019, and 2020. (Motion, p. 8:22-24.) “Petitioner requests that the salary be paid retroactive to March 17, 2021, the date Mr. Vance gave Ms. Spamer notice that he had formed Realm.” (Petitioner’s Suppl. Briefing, p. 8:7-8.) Petitioner argues that “taking into account that Mr. Vance started Realm approximately two and a half months into 2021, Petitioner proposes to compute the average such compensation and to cap Ms. Spamer’s 2021 salary at 19/25th of that amount (or, more precisely, 289/365th).” (Id. at p. 8:9-11.) Petitioner asserts that “for 2022, the amount of the salary would be the average of those three years, prorated for the portion of the year through trial or settlement.” (Id. at p. 8:11-13.)

Petitioner asserts that “limiting the salary to the average for the past three years is fair, particularly recognizing that a portion of that three years was the COVID-19 pandemic, where business in the motion picture and television business, and therefore commission income, was impacted.” (Id. at p. 8:14-16.) Petitioner argues that “it obviously would be unfair for Mr. Vance to work full-time at Realm (in violation of his fiduciary duty) and generate compensation from his work there, while leaving Ms. Spamer to run KSV without compensation, or alternatively, sharing compensation equally with Mr. Vance.” (Id. at p. 8:20-22.) Petitioner also contends that Respondent’s request for “the salary to be prospective only, meaning that Ms. Spamer would be unpaid from March 17, 2021 until the date of the Order” is obviously not fair. (Id. at p. 8:26-28.)

Petitioner asserts that “given what the Court has recognized as Mr. Vance’s breaches of fiduciary duties, it is likely that in the final analysis he will receive significantly less of the money generated from past and present KSV clients than Ms. Spamer receives.” (Id. at p. 9:1-3.) However, for now, “Petitioner simply requests that the Court level the playing field by permitting Ms. Spamer to earn a salary from KSV at the same time that Mr. Vance earns a salary from Realm.” (Id. at p. 9:3-5.)

In his supplemental briefing, Respondent asserts that he “does not dispute that Ms. Spamer is entitled to receive compensation for the value she creates through her procurement of work after March 17.” (Respondent’s Suppl. Briefing, p. 5:9-10.) However, Respondent argues that “the value created before that date, in large part due to his hard work and efforts, should be split 50/50

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by Ms. Spamer and Mr. Vance, following payment of those expenses reasonably necessary to realizing that value.” (Id. at p. 5:10-13.)

Respondent asserts that “for purposes of the preliminary injunction, Mr. Vance will accede to a not-to-exceed salary of $15,000 per month, prospectively from the date of the injunction.” (Id. at p. 6:15-16.)

The parties do not dispute that Petitioner is entitled to be paid a salary. Respondent does not explain why a salary not to exceed $15,000.00 per month is justified or why Petitioner’s proposed average distributions for 2018, 2019, and 2020 would be unreasonable for calculating Petitioner’s salary. The Court finds that it is appropriate to include language in the order that KSV may pay Petitioner a salary not to exceed the average salary Petitioner received for the past three years of 2018, 2019, and 2020, for the portion of the year beginning March 17, 2021.

d. Issue No. 4: Petitioner’s $100,000.00 Loan Reimbursement

Petitioner argues that she “should also be entitled to reimbursement of the $100,000 loan she has made to KSV, Spamer Decl. ¶ 23, which was used to balance its Client Trust account, as well as the approximately $5,000 in expenses she had advanced to the company.” (Petitioner’s Suppl. Briefing, p. 9:6-8.)

Respondent “does not dispute that [Petitioner] should be reimbursed for that loan, just as Mr. Vance should be reimbursed for all of the loans he has made to KSV.” (Respondent’s Suppl. Briefing, p. 6:18-20.) However, Respondent “believes that the ostensible purpose of that loan can and, indeed, should be addressed — before the payment of any salary — through monies now held in KSV's operating account, or through incoming pre-March 17 commission.” (Id. at p.

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6:20-23.) Respondent “does not agree that Ms. Spamer should be expressly permitted by the Court to repay herself other funds, including the alleged $5,219.33 in KSV credit card payments” because “Ms. Spamer has not provided any documentation regarding this request, which was first raised by Ms. Spamer on June 24, 2021, the day before this briefing is due.” (Id. at p. 6:24-27.)

The parties do not contest that Petitioner is entitled to reimbursement of the $100,000.00 loan she made to KSV. Petitioner provides evidence that she made the $100,000.00 loan to KSV. (Spamer Decl., ¶ 23.) Therefore, the Court will include the language that Petitioner is entitled to reimbursement of the $100,000.00 loan to KSV.

However, Petitioner does not provide any evidence of the credit card payments she made for KSV. Therefore, the Court declines to include any language in the order regarding the repayment of these expenses.

4. Undertaking

A preliminary injunction ordinarily cannot take effect unless and until the plaintiff provides an undertaking for damages which the enjoined defendant may sustain by reason of the injunction if the court finally decides that the plaintiff was not entitled to the injunction. (See Code Civ. Proc. § 529(a); City of South San Francisco v. Cypress Lawn Cemetery Ass’n. (1992) 11 Cal. App. 4th 916, 920.)

The obligation of an undertaking is “imposed upon the trial court by statute, independent of any request from the party to be restrained.” (Abbat Rubber Co. v. Seaguist (1991) 235 Cal. App. 3d 1, 11. Additionally, “an undertaking is an indispensable prerequisite to the issuance of a

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preliminary injunction.” (Id. at p. 10.) The amount of the bond is set by the judge “based on the probable damage that the enjoined party may sustain because of the injunction.” (Oiye v. Fox (2012) 211 Cal.App.4th 1036, 1061.)

Petitioner asserts that “only a nominal bond should be required.” (Motion, p. 23:17-18.) Respondent only states that “if a motion for preliminary injunction is granted, the court must require an undertaking,” but does not address how much the undertaking should be. (See Opp., p. 12:18-19.)

In the initial briefing, the parties did not indicate to the Court what an appropriate amount for an undertaking would be to represent an adequate measure of damages Respondent may sustain by reason of the injunction if the Court finally decides that Petitioner was not entitled to the injunction.

In his supplemental briefing, Respondent asserts that “probable damages are difficult to quantify because the preliminary injunction gives Ms. Spamer carte blanche to manage KSV's business and affairs; because Mr. Vance has only limited visibility into Ms. Spamer's activities since March 17; and because Mr. Vance cannot know what Ms. Spamer will do, or not do, going forward.” (Respondent’s Suppl. Briefing, p. 7:7-10.) However, Respondent maintains that there are some useful benchmarks, such as the anticipated pre-March 17 commissions revenue or “salary.” (Id. at p. 7:11-12, 7:19.) Respondent asserts that he “presumes that this case will conclude within the next year, and he estimates that the pre-March 17 commissions revenue will total approximately $1 million, ballpark, over that time period.” (Id. at p. 7:12-14.) Respondent explains that if “using that anticipated stream as a benchmark, the bond amount should be $535,275.50, or 50% of the estimated stream of revenue.” (Id. at p. 7:14-16.)

For the “salary” benchmark, Respondent argues that “if the Court orders that Ms. Spamer is also entitled to cause KSV to pay Ms. Spamer an annual salary of up to approximately $400,000, that

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sum, together with the amount now being paid to KSV's employees, provides a benchmark for potential damages.” (Id. at p. 7:21-24.)

Respondent contends that “presuming this case will conclude within the next year, the bond amount should be 50% of the total salary or other compensation of $500,000, or $250,000.” (Id. at p. 7:24-25.) Respondent also asserts that “if the Court finds that Ms. Spamer should be permitted to pay herself a salary of up to $15,000 a month (or $180,000 per year), presuming this case concludes within one year, the amount of the bond should be 50% of $280,000 (which is the total of Ms. Spamer's not-to-exceed salary and the compensation now being paid to two employees), or $140,000.” (Id. at pp. 7:26-8:3.)

In contrast, Petitioner argues that “a 10,000 bond is adequate and satisfies the statutory requirement.” (Petitioner’s Suppl. Briefing, p. 12:20.) Petitioner asserts that Respondent arguing for a $600,000.00 bond based on his analysis “that KSV generally has grossed approximately $1 million per year, had expenses of approximately forty percent (40%), and distributed the balance to its two members . . . overlooks many things.” (Id. at p. 10:7-10.) First, Petitioner contends that “counsel’s analysis seems to wrongly assume Mr. Vance would receive the entire $600,000.00” of KSV’s net revenue instead of splitting the net revenue. (Id. at p. 10:11-14.) Petitioner asserts that “it is unlikely, however, that with Mr. Vance moving clients to Realm, future results will approximate those in the past” and it is more likely that “revenues will drop, perhaps by half or more, because one of the two principals has left and the pandemic reduced movie and television production for a year, meaning there is less money in the pipeline.” (Id. at p. 10:15-18.) Petitioner maintains that “assuming revenues drop by 50% and expenses drop by 25%, the math would be ($500,000 - $300,000) / 2 = $100,000.” (Id. at p. 10:21-22.)

Second, Petitioner argues that “with or without an injunction, Ms. Spamer is entitled to a salary” and “even if the injunction were found to be improperly entered, Ms. Spamer would have been entitled to compensation for running the company when Mr. Vance had already left, so her salary would not ‘damage’ the company.” (Id. at p. 10:23-26.) Third, Petitioner argues that “there is no foreseeable harm from the injunction.” (Id. at p. 11:1.) Petitioner maintains that “because the injunction will limit Ms. Spamer’s salary, there is more risk of damage without the injunction than with it.” (Id. at p. 11:9-10.) Further, Petitioner argues that “no damage from the injunction is

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foreseeable” because “there is no evidence, or even allegation, that Ms. Spamer ever improperly took a penny.” (Id. at p. 11:11-13.) Fourth, Petitioner contends that “there also would be no foreseeable harm if it were determined that ‘the applicant was not entitled to the injunction,’” because “if Petitioner does not succeed on his Petition to Expel Respondent – the Court has concluded she probably will succeed – the company would be dissolved.” (Id. at p. 11:17-20.)

The Court is not persuaded that the undertaking proposed by Respondent is an adequate measure of damages Respondent may sustain by reason of the injunction if the Court finally decides that Petitioner was not entitled to the injunction, especially given that (1) Petitioner would still be entitled to a salary with or without an injunction and (2) Respondent has not demonstrated a foreseeable harm that would be proximately caused by the injunction.

Instead, the Court concludes that a $50,000.00 undertaking is an adequate measure of damages Respondent may sustain by reason of the injunction if the Court finally decides that Petitioner was not entitled to the injunction.

The Court orders an undertaking of $50,000.00 as required by CCP § 529.

The Motion for Preliminary Injunction filed by Melisa Spamer, derivatively on behalf of Krengel, Spamer & Vance, LLC, a California limited liability company on 05/26/2021 is Granted.

Case Management Conference is scheduled for 07/21/21 at 08:30 AM in Department 34 at Stanley Mosk Courthouse.

Plaintiff is to submit a revised proposed Order and give notice.

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