CAYLX Peak Inc et al vs HQM Group LLC et al

Case Number

25CV01380

Case Type

Hearing Date / Time

Fri, 03/28/2025 - 10:00

Nature of Proceedings

Motion

Tentative Ruling

Plaintiffs advised the Court on 3/20/25 that they were withdrawing their motion, and taking it off calendar. The Court has accepted the withdrawal.

Because no properly sworn declaration of Heather Abdo has been submitted to the Court in support of the motion for preliminary injunction, the Court will be forced to deny the motion. Were such a properly sworn declaration before the Court, the Court would be inclined to issue a preliminary injunction.

BACKGROUND: On March 4, 2025, plaintiffs Calyx Peak, Inc. (Calyx) and Bosim 1628 Management Company, LLC (Bosin) filed the current action, naming as defendants HQM Group LLC (HQM), Wael Nagui Abdo, and Heather Abdo (Abdo defendants; all three referred to collectively as HQM when appropriate). Wael Abdo is alleged to be the manager and/or owner of HQM, and Heather Abdo is alleged to be involved in its operation.

The complaint alleges that Bosim is lessee of premises at 1628 Cravens Lane, in Carpinteria (the Location), under a lease dated January 1, 2018, and amended as of December 22, 2022. It has 13 licenses issued by the California Department of Cannabis Control, the California Department of Consumer Affairs, and a cannabis business license from Santa Barbara County, which authorized it to conduct commercial cannabis cultivation operations at the location.

In 2023, Bosim and Calyx, Bosim’s sole owner, entered into discussion with HQM, through the Abdo defendants, which resulted in the parties entering into a Membership Interest Purchase Agreement (MIPA) dated September 29, 2023. Under the MIPA, Calyx agreed to sell its membership interest in Bosim to HQM in exchange for $4,938,000.00, plus interest accrued on all amounts owed, to be paid in a series of scheduled payments. The MIPA granted the Abdos the rights to manage Bosim’s licensed cannabis cultivation operations at the Location pursuant to a Management Services Agreement (MSA). As each payment was made to Calyx, certain percentages of Calyx’s ownership interest would be transferred to HQM. HQM’s payment obligations were secured by a Senior Secured Promissory Note between HQM and Calyx, which obligated HQM to make payments pursuant to a payment schedule. At ¶ 7.1, the note provides that HQM’s failure to pay any amount of the loan when due, when that failure continues for 25 days after notice thereof, constitutes an event of default. At ¶ 8.1(b), it gives Calyx the right to take certain actions in the event of default, including the right to enter the property and take possession of the collateral without demand or legal process. At ¶ 9.3(d) of the MIPA, Calyx has the right to terminate the MIPA upon any material breach by HQM of any term or condition of the note, provided that HQM shall have 30 days to cure any such breach. Pursuant to ¶ 8.1 of the MSA, the MSA automatically terminates upon the occurrence of any act or omission that provides grounds for terminating the MIPA.

HQM made payments under the note, but failed to make required monthly payments beginning on about June 30, 2024. Despite requests that it do so, HQM has made no further monthly payments, and the delinquency totaled more than $900,000 at the time the action was filed. Calyx provided formal notice of the breach in its Notice of Non-Payment dated August 2, 2024, which was delivered to HQM and its counsel on that date. HQM failed to remedy the breaches within the permitted time periods, and has failed to cure. Because it failed to cure the breaches, Calyx and Bosim provided HQM and the Abdo defendants with a formal Notice of Immediate Termination of Membership Interest Purchase Agreement and Management Services Agreement, on February 28, 2025.

Calyx sought to exercise its rights under the agreement at approximately 4:10 p.m. on that same date, when Calyx and Bosim representatives arrived at the location with a copy of the termination notice, intending to take possession of the collateral and secure the location. They were denied entry to the location, and were not allowed to view or take possession of any collateral. In a telephone conversation at about 6:30 p.m. on that date, Wael Nagui Abdo made “threating” statements to a Calyx representative.

On March 1, 2025, Bosim and Calyx wrote to HQM, through the Abdo defendants, advising them they were committing trespass at the location and, under the terms of the agreement, they were not permitted to take any collateral from the location. There was no response. Subsequently, staff and personnel acting on defendants’ behalf were seen removing collateral, including cannabis flower and cannabis product from the location, in contravention of the agreements and the termination notice. That removal also violated governing laws and regulations regarding the transport and control of cannabis, because HQM and the Abdo defendants do not have cannabis licenses in their own right. Having terminated the agreements, only Bosim was authorized to transport and control cannabis and cannabis products, which are subject to Bosim’s cannabis license.

On March 3, 2025, Bosim gave notice to the DCC, including notice through the Marijuana Enforcement Tracking Reporting Compliance (METRC) system that HQM and its principals no longer had authority act for Bosim.

The complaint further alleged that plaintiffs are in danger of being immediately and irreparably harmed by defendants’ actions, in that all active cannabis licenses issued to Bosim must be renewed beginning on March 6, 2025. On information and belief, neither HQM nor its principals timely renewed the cannabis licenses prior to the termination of the agreements. Under the California Code of Regulations, in the event the license is not submitted for renewal prior to the expiration date, the licensee must not sell, transfer, transport, manufacture, test, or distribute any commercial cannabis or cannabis products until the license is renewed. Further, while a licensee may submit a license renewal form up to 30 calendar days after the license expires, such application is subject to a late fee, and if not submitted within 30 days, the licensee forfeits eligibility for license renewal and must submit a new license application.

The MIPA authorizes the seeking of injunctive relief, and the complaint alleges that the thrust of “this matter” is the injunctive relief required for plaintiffs to gain access and control of the collateral and location, for the purposes of renewing and abiding by all regulations which govern and apply to Bosim’s cannabis licenses.

Based on these allegations, the complaint asserts causes of action for (1) declaratory relief, (2) breach of contract, (3) conversion, (4) trespass, and (5) trespass to chattel. It prays for the requested declarations, damages, attorneys’ fees, and costs, and includes a demand for jury trial.

Plaintiffs’ ex parte application for order granting access and to preserve status quo: Filed on March 7, 2025, and originally set for ex parte hearing on March 10, and actually heard on March 11, the ex parte sought orders that:

(1) plaintiffs and their employees, agents, and representatives have “immediate and unfettered access to the premises located at 1628 Cravens Lane,”

(2) defendants provide plaintiffs’ representatives with all passcodes, passwords, access codes, security codes, alarm codes, keys, fobs, or other information, devices, or equipment necessary to allow access to (a) all interior rooms or areas, (b) all exterior doors, gates, garages, or points of entry or exit, (c) all other areas throughout the entirety of the location, and (d) the security, alarm, security camera, and other similar systems at the location;

(3) defendants provide plaintiffs’ representatives with all passcodes, access codes, passwords, credentials, or other information or devices necessary to allow complete, full, and unfettered access to any and all electronic, computerized, mechanical, or other devices or equipment necessary to operate, control, or interact with, the agricultural control systems in the location, including those related to the agricultural control systems used to provide water, nutrients, or lighting to the cannabis plants at the location;

(4) defendants provide plaintiffs’ representatives with all necessary passcodes, access codes, passwords, credentials, or other information necessary to allow plaintiffs to have immediate and unfettered access to the METRC track-and-trace system used to track commercial cannabis activity and movement within the State of California for the accounts in Bosim’s name;

(5) defendants be prohibited from transferring, selling, exchanging, distributing, or otherwise moving any cannabis, cannabis products, personal property, fixtures, inventory, or equipment from the location until further order of the court; and

(6) an OSC issue providing defendants an opportunity to show cause why a preliminary injunction should not issue restraining and enjoining defendants in the same manner until further order of the court, setting a hearing date for the preliminary injunction.

The ex parte application was based upon the same facts as alleged in the complaint, and contended that plaintiffs were likely to succeed on the merits of their claims against defendants since Bosim is the lessee with legal right to access to the premises, is the holder of the licenses and legally responsible for all activities conducted under the licenses, as license holder is entitled to access to the METRC system to ensure all cannabis activity is in compliance with applicable laws and regulations, there is substantial evidence that defendants have engaged in illegal and improper movement of cannabis products from the location, there is significant risk that Calyx as Bosim’s majority owner and Bosim would suffer immediate and irreparable harm should the orders not issue because the valuable licenses could be lost, and the balance of hardships tips in plaintiffs’ favor as the requested relief will preserve the status quo and not negatively affect the defendants.

Opposition: On the day of the ex parte hearing, defendants filed opposition to plaintiff’s ex parte application. As does their cross-complaint filed the same date (see below), the ex parte application contends that plaintiffs made material misrepresentations with respect to Bosim’s compliance with regulatory requirements, including infrastructure upgrades costing more than $1 million which were necessary to meet County’s requirements, after which defendants halted their payments and initiated negotiations with plaintiffs with respect to the need to revise the MIPA. After discovering that defendants were close to obtaining a County business license, plaintiffs attempted to physically retake control of the premises. Defendants contended they renewed state licenses, were near to obtaining county approval for a business license, had always managed METRC access in accordance with regulatory guidance and standard business practices, and discovered that the tenancy was not the long-term tenancy which plaintiffs had represented, but rather an uncertain month-to-month tenancy.

Court ruling on ex parte application: The trial court denied the orders sought by plaintiffs, but set a hearing on the merits of the motion for March 28, 2025, with any supplemental briefing by plaintiffs to be filed no later than March 20, 2025, and any supplemental briefing by defendants to be filed no later than March 25, 2025.

Withdrawal of ex parte application: On March 20, 2025, in lieu of filing any further briefing on their ex parte application for unfettered access to the premises, plaintiffs filed a notice of withdrawal of its ex parte application. The notice stated that plaintiffs’ counsel had notified defendants’ counsel telephonically and electronically that the application was being withdrawn. The Notice request that the court allow plaintiffs to withdraw their application, and take off calendar the March 28, 2025 hearing currently set on the application. Counsel also notified the court telephonically that the request to withdraw was being filed and that plaintiffs were requesting that the hearing on their application not go forward on March 28, 2025.

Defendants’ cross-complaint: On March 14, HQM and the Abdo defendants (collectively HQM) filed their cross-complaint, naming as defendants Calyx, Bosim, and Howard Keum (collectively Calyx). The cross-complaint alleges causes of action for (1) fraudulent misrepresentation, (2) negligent misrepresentation, (3) breach of contract, (4) breach of the implied covenant of good faith and fair dealing, (5) unjust enrichment, (6) declaratory relief, and (7) injunctive relief. The cross-complaint is based upon allegations that Calyx, Bosim, and Keum made multiple material misrepresentations in connection with the sale of Bosim and the entry into the MIPA and MSA, have breached the MIPA, and have interfered in bad faith with cross-complainants’ lawful management of the cannabis business.

HQM alleges that as part of its initial payment under the MIPA, it provided Calyx with $190,000 worth of extraction equipment. The sale required HQM to provide payments to Calyx for the purchase of Bosim, and the MSA granted HQM complete control over Bosim’s business operations. Calyx represented the facility was in compliance with all applicable laws and regulations, including state cannabis licensing requirements and local County regulations. In November 2023, HQM discovered multiple compliance deficiencies and financial liabilities that had not been disclosed or were misrepresented to it. Calyx knew that compliance upgrades would cost between $1 million and $1.2 million, but did not disclose it to HQM. After taking over operations, HQM discovered that Calyx did not use METRC tags in one of the greenhouses, in violation of law. HQM also discovered that the PRIVA system which controls greenhouse operations was nonfunctional, and electrical issues in the greenhouse rendered portions of the facility out of compliance with state and local building codes. Calyx falsely claimed during negotiations that HQM could process cannabis on-site (dry, trim, package), but the processing building lacked the necessary sprinkler system to operate it compliantly with Santa Barbara Codes. County regulations required HQM to remove harvested cannabis that could not be dried on-site. As a result, Bosim was forced to relinquish the processing license, and HQM was forced to transport the product to a different processing facility incurring additional costs. Without the ability to process cannabis grown at the farm, operating profitably became significantly more challenging.

Further, Calyx knew before the sale that a mechanic’s lien had been placed on the property, but did not disclose it to HQM. The MIPA stated HQM would be responsible for $65,000/month in lease payments, but after taking over operations, HQM discovered the facility was on a month-to-month lease. The landlord informed HQM that Bosim was a holdover tenant, and increased the rent by 10%. HQM has invested over $900,000 in installing more than 150 new exhaust fans and blackout curtains, upgrading infrastructure to meet County’s fire and safety standards, and addressing other unexpected costs like $150,000 in deposits required by utility companies because of Calyx’s history of late payments.

After discovery Calyx’s misrepresentations and undisclosed financial liabilities on the property, HQM continued making payments toward rent and additional expenses. After months of delays and promises by Keum about renegotiating the terms, HQM made the final payment toward the purchase price on January 15, 2025. HQM has made good faith efforts to negotiate a resolution, including entering into an Escrow Agreement and setting aside funds for ongoing discussions to amend the terms of the MIPA and loan.

During this time, Calyx discovered that HQM was close to securing Bosim’s County business license. Instead of acting in good faith, Calyx sought to seize control of the business. HQM restricted Calyx’s access to the facility, where an aggressive group of Bosim representatives, competitors, and unidentified individuals attempted a take-over of the farm. The following day, Keum engaged in hostile behavior, shouting at farm employees to let him onto the facility, and threatening to use his car to block employees from leaving. Once denied the hostile take-over, Calyx sought to interfere with the Santa Barbara licensing process, by filing a cease-and-desist letter with county regulators on March 12, 2025.  

Defendants’ ex parte application for TRO and OSC re preliminary injunction: Filed contemporaneously with the cross-complaint on March 14, 2025, HQM filed an ex parte application for TRO and OSC why preliminary injunction should not issue, seeking orders enjoining Calyx, Bosim and Keum (1) from engaging in any further interference with the licensing process, including directing any communications to the Santa Barbara Planning & Development Department; (2) contacting regulators with misleading or obstructive information; or (3) obstructing cross-complainants’ right to manage the business per the MSA.

The application first sets forth the factual history of the MIPA and MSA, and HQM’s discovery that plaintiffs had failed for five years to bring the facility into regulatory compliance or secured a Santa Barbara Business License; that considerable infrastructure upgrades were needed in order to bring the facility into compliance; that plaintiffs did not use the METRC tags in one of the greenhouses, in violation of California law; that the PRIVA system which controls greenhouse operations was nonfunctional, and electrical issues in the greenhouse rendered portions of the facility out of compliance with state and local building codes; that plaintiffs knew but did not disclose to HQM that a mechanic’s lien had been placed on the property; that the lease was not a long-term, stable lease, as represented by plaintiffs, but instead that plaintiff had failed to exercise the option to renew and the tenancy had revered to a month-to-month tenancy, which the landlord deemed a hold-over tenancy and increased the $65,000/month rent by 10%; that HQM has invested more than $900,000 installing over 150 new exhaust fans and blackout curtains, upgrading infrastructure to meet County fire and safety standards, and addressing other unexpected costs like $150,000 in utility deposits required due to plaintiffs’ history of late payments; and that County has stated that if the property does not receive approval from all agencies by May 1, the business license will not be issued—three of the four required approvals had been obtained by HQM by March, 2025, with the final step obtaining approval from Planning & Development, but plaintiffs sent County a “cease and desist” letter one day prior to the meeting, which caused County to cancel it.

HQM contends it is likely to prevail on the merits of the dispute, first because plaintiffs knew of compliance deficiencies and concealed critical information. In addition to misrepresenting compliance costs, plaintiffs falsely warranted that the facility was in full compliance with all applicable laws and regulations (MIPA 5.9), but failed to disclose multiple compliance failures. The failure to use METRC tags could have resulted in fines, ordered destruction of untagged plants, or suspension or revocation of the state licenses. The nonfunctional PRIVA system severely impacted the facility’s ability to regulate growing conditions. The electrical issues in the greenhouse rendered the facility unusable. The undisclosed mechanic’s lien created a financial burden and impacted the facility’s operations. These misrepresentations directly impacted the value and viability of the business. Without the ability to process cannabis on the property, the licenses were effectively half as valuable as what was negotiated prior to signing the agreements. Further, the representations that the licenses were validly existing and in good standing (MIPA 5.1) was false, and the processing license, which was a key part of the purchase, could not be utilized without significant investment in upgrades, so the company was not operating as represented.

Further, plaintiff misrepresented the lease length and amount, and the landlord deemed the tenancy a holdover, month-to-month tenancy, which is terminable at any time, and for which the landlord raised the rent 10%. Had HQM known of the lease’s precarious status, it would have negotiated the transaction differently.

HQM contends that it will suffer irreparable harm if injunctive relief is not granted, in the form of (1) the imminent loss of the County Business License, which is essential for legal operation of the facility, and (2) the complete loss of HQM’s substantial investment.

HQM asserts that Heather Abdo has been working ‘tirelessly’ over the last six months, to secure the County Business License for the facility, which Calyx had been unable to achieve. To obtain the license, HQM must satisfy the regulatory requirements of the Sheriff’s Department, Fire Department, County Executive Office, and Planning & Development. HQM successfully secured approvals from the first three, and the final step was obtaining a recommendation from the Planning & Development Department. In early March 2025, after months of effort, HQM secured a meeting with P&D to finalize the process, scheduled for March 13. It confirmed the meeting on 3/11, and the same day followed up with Calyx to confirm that Sean Maddocks had been added as an Authorized Agent on the Business License application. Maddocks is HQM’s consulting advisor and a critical figure in securing the business license, with a proven track record of obtaining and maintaining regulatory approvals.

Plaintiffs interfered with the licensing process by sending a cease-and-desist letter to county regulators, instructing them to stop working with Maddocks on the business license renewal process. This demonstrates a calculated effort not to protect any legitimate financial interest, but to obstruct and undermine HQM’s ability to operate the business. P&D immediately canceled the meeting. If P&D approval is not obtained by 5/1, County will not issue the business license, and the business will need to close. If that happens, HQM will lose the business and its substantial investment.

HQM contends that plaintiffs’ actions justify emergency relief, and the urgency of the situation cannot be overstated. Until their interference, HQM was on track to meet the May 1 deadline and secure the County Business License. With the licensing meeting canceled, there is no clear path forward. If plaintiffs are permitted to continue to interfere with regulators, HQM will lose its license and all rights to operate, resulting in irreparable harm that cannot be remedied through monetary damages alone. HQM contends the balance of hardships favors grant of the TRO/injunction, given all of these losses, whereas plaintiffs will suffer no legitimate harm if the TRO is granted, They sold the business, and their remaining interest is in receiving financial payments, which requires the business to remain operational. Blocking HQM from obtaining the license harms plaintiffs’ own interests, making clear they have no legitimate dispute.

The application was supported by the declaration of Heather Abdo, which includes much of the factual information contained in the ex parte application, and authenticates various documents in support of the argument. Curiously, the declaration does not contain the required statement that it is executed under penalty of perjury, or the date and place of its execution.

Opposition to ex parte application: The morning of the hearing on the ex parte application, Calyx and Bosim submitted opposition papers. The opposition recites the entry into the MIPA with defendants, whereby they would purchase membership interests in Bosim through payment of amounts set forth in the Senior Secured Promissory Note. It asserts that defendants became delinquent in their payments beginning with the payment due on January 30, 2023 (presumably 2024, given that the agreement was not entered into until September 29, 2023). Their arrearage currently totals $1,128,875, plus unpaid interest of $28,314.47.

While the Abdo declaration states that the final payment toward the purchase price was made on January 15, 2025, that is misleading, because a payment was made on January 6, 2025, but it was applied to the delinquent 4th payment which was due on July 30, 2024. There has been no “final payment,” and the total amount remaining due is $4,929,374.00. Because of the default and “other violations” of the MIPA and MSA, Calyx notified HQM that it was in default under the terms of the note on august 2, 2024, and the MIPA and MSA were terminated on February 28, 2025. As a result of the termination, HQM has no right to operate under the licenses or to act on Bosim’s behalf.

To maintain the state licenses, all cannabis activity conducted under the licenses must be in strict compliance with all state and local laws and regulations. Bosim must also have approval of local regulatory agencies including the County Planning & Development Department, the Carpinteria/Summerland Fire District, and the Santa Barbara County Sheriff’s Office. It has been working to obtain all necessary local approvals, including the business license, through its authorized agent, Allison Stockman. On March 12, 2025, Howard Keum, Allison Stockman, and other persons were copied on an email from Sean Maddocks, an attorney who represents defendants—sent to Petra Leyva, Supervising planner, Cannabis Program/Code Enforcement County of Santa Barbara Planning & Development Department, thanking her for her email confirming that she had been informed by the County Executive Office that Maddocks had been added as an Authorized Agent on the business license application.

Calyx claims that Maddocks has never been authorized to represent Bosim in any capacity, and specifically not with regard to its pending business license application. When Keum received the email, he was alarmed. At his instruction, a letter was sent that same day to Maddocks, copy to Leyva, stating that Maddocks was not authorized to serve as counsel or agent with Bosim or its assets, and demanding that he immediately cease and desist from holding himself out as being Bosim’s counsel or agent. The letter had to be sent immediately, because the meeting with P&D related to Bosim’s business license application was scheduled for the next morning, and the MIPA and MSA had been terminated. The meeting was canceled, with the statement that it would be rescheduled when any or all persons provide documentation that they are legally an owner of Bosim, or an authorized agent. Keum asserts that he is committed, as majority owner of Bosim, to ensuring that the business license application is approved, and will cooperate and act in good faith to ensure the approval is received.

The sole “interference” upon which defendants rely in seeking the injunction is the letter sent to Maddocks, with a copy to Petra Leyva, clarifying that Maddocks was not an agent for Bosim. Defendants’ claim that there will be catastrophic and irreversible harm unless the application is granted, and cross-complainants face permanent loss of business and investment, are without any factual support. Their claim that plaintiffs will not suffer any harm if the injunction is granted is also false, because both the MIPA and MSA have terminated, and County was simply wanting clarity concerning who represents Bosim “post-termination.”

In its legal argument, Calyx argued that HQM was not entitled to injunctive relief, because it is clear from their allegations that a pecuniary recovery would adequately compensate them for all harms. Defendants also failed to offer any evidence other than Abdo’s unsworn declaration that they had a likelihood of succeeding on the merits. The entire application is premised on the false assumption that defendants own Bosim, that the letter sent to Maddocks was done with malice, and that the P&D meeting cannot be rescheduled now that the issue of Maddocks’ involvement has been resolved. Defendants’ arguments are illogical. The Business License application is for Bosim to operate at the location. Bosim is owned by Calyx, and the MIPA and MSA have been terminated. It is illogical to claim that Calyx is attempting to have County deny Bosim’s business license. Further, the email which canceled the meeting stated that the meeting would be rescheduled once ownership of Bosim is clarified “post-termination of the MIPA and MSA.” HQM should have just contacted County to reschedule the meeting.

Calyx contends that since the MIPA and MSA have been terminated, the status quo is that of a terminated status. Since granting relief would change the status quo, a close scrutiny standard applies. HQM has failed to provide evidence sufficient to support their request for injunctive relief, and evidence has been presented that there is no danger of harm and HQM would be fully compensated by damages should they prevail at trial, precluding issuance of an injunction. Their claimed harm is “hypothetical, imagined, and contrary to the evidence before this Court.”

Calyx contends that plaintiffs have established a likelihood that they will prevail on the merits, in having established that (1) Bosim is the owner of the licenses, (2) Bosim is the applicant for the business license; (3) Calyx is the majority owner of Bosim; (4) defendants defaulted under the agreements, providing grounds for termination; (5) defendants still owe $4,929,375.00 under the note, and (6) there was a compelling reason that the letter was sent.

Finally, Calyx reiterates its contention that the relief requested is unclear and overbroad.

Court’s ruling on ex parte application: The Court granted the TRO, and set the matter for hearing on 3/28, along with plaintiffs’ ex parte application for order permitting access (etc.), with supplemental briefing deadlines to be in accord with those previously established in response to the plaintiffs’ ex parte application. The court sustained plaintiffs’ objection to the Heather Abdo declaration, since it was not executed under penalty of perjury. The court further ordered that Allison Stockman would be permitted to participate in the process and communicate with the county as an authorized agent of Calyx.

No supplemental brief was filed by defendants.

Plaintiffs’ supplemental opposition to HQM’s motion for preliminary injunction: Calyx contends that the requested injunction is not narrowly drawn in a manner that would give fair notice of the conduct which is forbidden, and that a preliminary injunction should be as limited as possible.

Plaintiffs assert a preliminary injunction is not necessary because Calyx agrees that all necessary steps should be taken to ensure that Bosim’s business license application is approved as soon as possible, and before May 1, 2025. Plaintiffs and cross-defendants agreed at the ex parte hearing that Allison Stockman would act as the authorized representative of Calyx in pursuing approval of the Business License, and the TRO included the language that “Notwithstanding the above, Allison Stockman, as an authorized representative of Bosim, shall be permitted to continue participating in the process of obtaining the County Business License.”

Should a preliminary injunction issue, and adopt any language of the TRO, Calyx requests that the Court use different terms to ensure that the preliminary injunction is both specific and limited to the scope necessary to protect the purported harm which serves as the basis for the application, to ensure plaintiffs are fully aware of the conduct that is prohibited. Calyx contends that “engaging in any further interference with the licensing process,” “with misleading or obstructive information,” and “obstructing” HQM’s right to manage the business, are overbroad, vague, or generally phrased.

If the court determines it necessary to issue the preliminary injunction, Calyx proposes that the following language would serve the same function as that used in the TRO, while also providing plaintiffs with a more precise statement regarding what conduct is being prohibited: “Howard Keum, Calyx Peak Inc. and Bosim Management Company LLC, and its employees, agents, and other persons acting with him or on his behalf are hereby enjoined from (1) contracting, interacting with, or initiating, responding to, or directing any communications to the Santa Barbara Planning & Development Department related to Bosim 1628 Management Company, LLC’s pending Business License Application, which must be completed by May 1, 2025, without prior order of this Court or without the express written consent of Heather Abdo; (2) providing Santa Barbara County or State of California regulators with any information regarding Bosim 1628 Management Company, LLC’s cannabis operations or cannabis licenses doe [sic] the premises located at 1628 Cravens Lane, Carpinteria, CA 93013, without prior order of this Court or without the express written consent of Heather Addo [sic]; (3) attempting to gain access to Bosim 1628 Management Company LLC’s cannabis operations at 1628 Cravens Lane, Carpinteria, CA 93013 without prior order of this Court or without the express written consent of Heather Addo [sic]. This injunction shall remain in effect until Bosim’s pending Business License Application, which must be completed by May 1, 2025, is either approved or denied. Notwithstanding the above, Allison Stockman, as an authorized representative of Bosim, shall be permitted to continue participating in the process of obtaining Bosim’s County Business License.” 

ANALYSIS: For the reasons more fully articulated below, the Court will deny the motion for preliminary injunction, and order the TRO dissolved, based upon HQM’s failure to submit admissible evidence in support of its request for preliminary injunction, given that it has never submitted a substantive declaration in support of the motion which was executed under penalty of perjury. Had that been done, the Court would have been inclined to grant the preliminary injunction, although perhaps by either utilizing or further refining the language in the manner proposed by Calyx in its supplemental opposition to the injunction motion. However, since as of the time this tentative ruling was prepared, the motion was unsupported by any evidence, it must be denied.

That having been said, this appears to be a case in which it is in the best interests of both plaintiffs and defendants to ensure that Bosim obtains its licensing, and it is critical that no party to this litigation do anything which could even conceivably jeopardize Bosim’s prospects of obtaining the Business License from the County of Santa Barbara.

The main dispute between the parties at this time is whether or not the MIPA and MSA are still in force and effect. Calyx contends that they are not, based upon HQM’s defaults in their payments, which resulted in Calyx declaring that the agreements have terminated under their terms. HQM contends that they are still in effect, and that its decision to stop making payments pursuant to the schedule was made in response to its discovery, upon taking control of the premises, that Calyx had made substantial allegedly fraudulent misrepresentations with respect to material issues related to its purchase of Bosim which caused it to demand that Calyx renegotiate the terms of the MIPA—something which Calyx has simply ignored. Calyx has not acknowledged or responded to HQM’s assertion that it has requested that the MIPA be renegotiated, or to its claims of substantial misrepresentations.

While these issues substantially color each side’s perceptions of the issues related to the competing injunction requests, their resolution is not necessary at this time, and ultimately will occur through resolution of the litigation as a whole. Further, regardless of how those issues are ultimately resolved, the value of the business lies in its licenses, and it is critical to both parties that they ensure that the licenses are obtained and maintained, including the County Business License, and that neither side does anything that might cause this process to derail.

1.         Without evidentiary support for the motion for preliminary injunction, it must be denied.  

HQM’s ex parte application for TRO and issuance of OSC re preliminary injunction, heard by the trial court on March 17, 2025, was substantively based entirely upon the supporting declaration of Heather Abdo. However, that declaration was not executed under penalty of perjury, such that it could have provided evidentiary support for the request, nor did the declaration comply with the remaining requirements of Code of Civil Procedure section 2015.5, by setting forth where and when it was executed.

Calyx objected to the declaration on that basis, and this Court sustained the objection to the declaration at the ex parte hearing.

Even so, in recognizing the exigencies of the circumstances which brought the parties before the court on HQM’s ex parte application, the Court issued the TRO, and set the preliminary injunction for hearing on March 28, 2025, permitting the parties to submit further briefs in support of the motion for preliminary injunction by March 20 (HQM) and March 25 (Calyx).

Given that the initial Abdo declaration was wholly defective and of no evidentiary value, and the objection to it on that basis had been sustained, the Court fully expected HQM to submit a properly executed declaration to the Court at some time prior to the hearing on the preliminary injunction. However, as of the time this tentative ruling has been prepared, no such properly executed declaration has been submitted.

Were such a properly executed declaration to be placed before the Court, the Court would be inclined to issue a preliminary injunction in this case. (See discussion, below.) However, if no such declaration is placed before the Court, the motion for preliminary injunction will be entirely without evidentiary support, and the Court will have no alternative but to dissolve the TRO and deny the motion for preliminary injunction.

2.         Had HQM provided the Court with a properly executed declaration in support of its TRO and/or motion for preliminary injunction, the Court would have been inclined to issue the preliminary injunction in some form.

A.        Standards for issuance of an injunction.

The purpose of the preliminary injunction is to preserve the status quo until a final determination of the merits of the action. (Casmalia Resources, Ltd. v. County of Santa Barbara (1987) 195 Cal.App.3d 827, 832.) The burden is on the plaintiff to show that it is entitled to the relief sought. (Id. at p. 838.)

The grant or denial of an injunction does not amount to an adjudication of the ultimate rights in a controversy, and merely determines that the court, balancing the respective equities of the parties, concludes that, pending a trial on the merits, exercise of the right claimed by the defendant should or should not be restrained. (Jamison v. Department of Transportation (2016) 4 Cal.App.5th 356, 361.)

In deciding whether to issue a preliminary injunction, a trial court must evaluate two interrelated factors: (1) the likelihood that the plaintiff will prevail on the merits at trial, and (2) the interim harm that the plaintiff would be likely to sustain if the injunction were denied, as compared to the harm the defendant would be likely to suffer if the preliminary injunction were issued. (Smith v. Adventist Health System/West (2010) 182 Cal.App.4th 729,749.) The trial court's determination must be guided by a mix of the potential-merit and interim-harm factors; the greater the plaintiffs' showing on one, the less that must be shown on the other to support an injunction. (Butt v. State of California (1992) 4 Cal.4th 668, 678.) However, a trial court may not grant a preliminary injunction, regardless of the balance of interim harm, unless there is some possibility that the plaintiff would ultimately prevail on the merits of the claim. (Ibid.)

If a preliminary injunction is granted, the court must require a bond or undertaking (Code Civ. Proc., § 529), or allow a cash deposit in lieu thereof (Code Civ. Proc., § 995.710). (Stevenson v. City of Sacramento (2020) 55 Cal.App.5th 545, 555.) The purpose of the bond is to cover any damages to the defendant (respondent) caused by issuance of the injunction, if it is finally determined that plaintiffs (petitioners) was (were) not entitled to the injunction. (Code Civ. Proc., § 529.)

B.        Court’s evaluation of those factors.

While the parties are deeply divided on the current status of Bosim, including who owns it (and in what percentages, if ownership is still divided), and who is entitled to operate it, the Court has concluded that HQM has at least a possibility of ultimately prevailing on the merits of its claims against Calyx.

Calyx contends that HQM defaulted in its performance of the MIPA and MSA, in failing to make the required payments, starting in July 2024. Since it unilaterally declared that the agreements had therefore terminated, it contends that it is the sole owner of Bosim, and is entitled to possession of the facility, as well as its operation.

HQM, on the other hand, contends that it stopped making payments because it discovered that Calyx made multiple material misrepresentations in the course of the negotiations over HQM’s purchase of Bosim, and that its cessation of payments was intended to force Calyx to renegotiate the terms of the MIPA. It contends that the MIPA is still valid and executory, except to the extent that certain of its terms need to be renegotiated, and that it is entitled to possession of the Bosim facility, and to continue its current operation of that facility.

Each party’s position on the issues related to obtaining the County Business License stem from their own positions on these issues. Calyx contends that, as a result of the termination of the MIPA and MSA, it is the sole owner of Bosim, and the sole party authorized to deal with the County in an attempt to obtain the Business License for the facility, and therefore its “cease and desist” letter which was copied to Planning & Development was entirely proper, because neither Calyx nor Calyx-owned Bosim had authorized Mr. Maddocks to contact or engage with County P&D on Bosim’s behalf.

HQM contends that it is still at least a part owner of Bosim (given that not all payments were made under the MIPA, and the percentage of its ownership interest was to increase as payments were made), and wholly entitled to operate the Bosim facility under the MSA. It had designated Mr. Maddocks as its agent to engage with County P&D on Bosim’s behalf in order to obtain P&D approval, which is the last local approval required for issuance of the County Business License. It therefore viewed Calyx’s “cease and desist letter” as an interference with its attempts to obtain P&D’s approval, particularly since P&D canceled the approval-related meeting once it had received Calyx’s cease and desist letter.

The Court has concluded that there is, at a minimum, a reasonable possibility that the issues regarding the alleged misrepresentations made by Calyx in the negotiations surrounding HQM’s purchase of Bosim, HQM’s resulting stoppage of its payments and alleged demand that Calyx renegotiate the MIPA, and what impact that had on the ongoing validity of the MIPA and MSA, could be resolve in HQM’s favor.

The Court has further concluded that the balance of harms weighs in favor of HQM with respect to the injunction. HQM contends that it obtained three of the four required local approvals necessary to obtain the County Business License, and the scheduled March 13 meeting was with the fourth agency who needed to approve, County Planning & Development. As it was preparing for that crucial meeting, Calyx sent its “cease and desist” order, in which it contended that Maddocks—who had been retained by HQM to assist in obtaining the Business License, including meeting with County P&D—had no authority to act on Bosim’s behalf. As noted above, the validity of that position was at best a matter of Calyx’s interpretation of the events.

Further, the immediate impact of that letter was that County P&D cancelled the meeting, the language of its communication implying that it would not reschedule the meeting until it became clear that whomever it would be meeting with was authorized to act on Bosim’s behalf. Given Calyx’s position taken in its cease and desist letter, that would never be HQM’s designated agent, Maddocks, and could only be its own representative. While Calyx’s opposition contended HQM should not have come to court and needed only to have called County P&D to reschedule, that appears extremely speculative to the Court, particularly given Calyx’s own strident position on who may—and may not—act on Bosim’s behalf in meeting with County P&D. Had HQM not sought the TRO, the Court believes it is more likely that this dispute would have been ongoing, that County P&D would have refused to meet until it was resolved, and that County’s May 1 deadline for obtaining all approvals would have expired prior to any meeting ever being held.

In its opposition papers, Calyx asserted that closer scrutiny must be given to any preliminary injunction that seeks to upset the status quo, and contended that the “status quo” in this case is “the terminated status of the agreements.” The Court disagrees. Rather, the “status quo” in this case are the circumstances present on the ground at the Bosim facility, where HQM is currently in possession of the facility, is currently conducting the business operations of Bosim at the facility, has already renewed Bosim’s State licenses, and has been working to obtain the County Business License. Consequently, the injunction which HQM sought is what preserves the status quo.

As a result, if a properly sworn declaration of Heather Abdo were before the Court, the Court’s weighing of the required factors would result in its issuance of a preliminary injunction in this case.