CALYX Peak Inc et al vs HQM Group LLC et al

Case Number

25CV01380

Case Type

Hearing Date / Time

Fri, 04/11/2025 - 10:00

Nature of Proceedings

Motion

Tentative Ruling

(1)       For the reasons and to the extent set forth herein, the application of defendants and cross-complainants HQM Group LLC, Wael Nagui Abdo, and Heather Abdo for issuance of a preliminary injunction is granted. The temporary restraining order shall remain in effect until the earlier of the entry of the preliminary injunction or April 17, 2025.

(2)       Howard Keum, Calyx Peak, Inc., and Bosim 1628 Management Company LLC, and their employees, agents, and other persons acting with any of them or on any of their behalf are hereby enjoined from (1) communicating with the Santa Barbara Planning & Development Department and the California Department of Cannabis Control with respect to the business or business activities operated on or from 1628 Cravens Lane, Carpinteria, California, without the prior written consent of cross-complainant Heather Abdo; (2) interfering with or obstructing cross-complainants’ right to manage the business per the Master Services Agreement; and (3) entering or accessing 1628 Cravens Lane, Carpinteria, by Keum, Collin Dvorak, or other person, without the prior written consent of cross-complainant Heather Abdo. 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.

(3)       On or before April 16, 2025, cross-complainants shall present to the court a proposed order for signature consistent with this ruling, and shall file with the court an undertaking in the amount of $5,000, as required by Code of Civil Procedure section 529 and California Rules of Court, rule 3.1150.

Background:

These cross-actions between plaintiffs and cross-defendants Calyx Peak, Inc. (Calyx) and Bosim 1628 Management Company, LLC (Bosim) and defendants and cross-complainants HQM Group LLC (HQM), Wael Nagui Abdo, and Heather Abdo (Abdo defendants) arise out of the purchase and operation of a cannabis business. Calyx is, or was, the sole owner of Bosim. (Complaint, ¶ 19; Cross-complaint, ¶ 14.)

The underlying transactions between the parties are undisputed. Prior to September 2023, Bosim was the lessee of real property located at 1628 Cravens Lane, in Carpinteria (the Location), and operated a cannabis cultivation, nursery, and processing facility at the Location. (Complaint, ¶¶ 17-18; Cross-complaint, ¶ 28.) In September 2023, Bosim, HQM, and Calyx entered into a Membership Interest Purchase Agreement (MIPA). (Complaint, ¶ 19 & exhibit B [MIPA]; Cross-complaint, ¶ 3.)

The MIPA provides, among other things, that Calyx would 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. (MIPA, §§ 2.1(a), 2.3.) The MIPA granted the Abdos defendants the rights to manage Bosim’s licensed cannabis cultivation operations at the Location pursuant to a Management Services Agreement (MSA). (MIPA, § 3.6; Complaint, ¶ 21 & exhibit C [MSA]; Cross-complaint, ¶ 3.) The MIPA provided that as each payment was made to Calyx, certain percentages of Calyx’s ownership interest would be transferred to HQM. (MIPA, § 2.4(b) & schedule A.)

After the defendants assumed management of the operations at the Location, disputes arose between the parties of which there are sharp disagreements as to the underlying facts. According to defendants, defendants discovered that plaintiffs and cross-defendant Howard Keum had made material misrepresentations regarding the status and operation of the business that required defendants to spend over $1 million in improvements and higher-than-represented expenses. (H. Abdo decl., ¶¶ 2-12.) Asserting money claims against plaintiffs, defendants have withheld direct payments to plaintiffs and made payments into an escrow account. (Id., ¶ 24.)

According to plaintiffs, defendants have failed to make payments as and when due under the MIPA and consequently are in default. (Complaint, ¶¶ 29-32.) Based on this default, plaintiffs have asserted the termination of the MIPA and MSA. (Complaint, ¶¶ 33-34.)

It is undisputed between the parties that plaintiffs attempted, but failed, to physically retake possession of the Location and the operations. (Complaint, ¶¶ 35-36; H. Abdo decl., ¶¶ 25-26; Happe decl., ¶ 10.) Plaintiffs have also sought to assert their rights, as against defendants, to renew licenses and permits necessary for the operation of the business. (Complaint, ¶¶ 41-47; H. Abdo decl., ¶ 22 & exhibit D.)

On March 4, 2025, plaintiffs filed their complaint in this action asserting five causes of action: (1) declaratory relief; (2) breach of contract; (3) conversion; (4) trespass; and (5) trespass to chattel.

On March 7, 2025, plaintiffs filed their ex parte application for a temporary restraining order (TRO) to grant plaintiffs immediate possession and access to the Location and to the operation. The application was opposed by defendants. The court denied the TRO, but set the matter on March 28 (on shortened time) for issuance of a preliminary injunction.

On March 14, 2025, defendants filed their cross-complaint asserting seven causes of action: (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. Also on March 14, defendants filed their ex parte application for a TRO seeking orders prohibiting interference with the licensing process or with their management of operations. (Note: For convenience in writing, defendants and cross-complainants are referred to herein simply as “defendants,” and plaintiffs and cross-defendants are referred to as “plaintiffs.”)

On March 17, 2025, the court granted defendants’ application for a TRO with qualifications and set the order to show cause for issuance of a preliminary injunction to March 28. The court also noted a procedural problem with the then-filed declaration of Heather Abdo.

On March 20, 2025, plaintiffs filed a notice of withdrawal of their application for TRO and preliminary injunction.

On March 25, 2025, plaintiffs filed their response to the defendants’ application for preliminary injunction. Also on March 25, defendants filed further papers, and a corrected declaration of Heather Abdo, in support of issuance of the preliminary injunction.

On March 28, 2025, the court noted that plaintiffs’ counsel had just substituted in and had suggestions on how to proceed and that plaintiffs had withdrawn their application for relief. At the March 28 hearing, the court provided its initial analysis of the factual arguments made by the parties, which analysis is not repeated here. The court extended its prior TRO, continued the hearing on defendants’ application for preliminary injunction to April 11, ordered the parties to meet and confer, and set a deadline for defendants’ opposition papers or response to April 7.

No further opposition or response papers have been filed by any party, by the April 7 deadline or otherwise.

Analysis:

Notwithstanding the issuance of the TRO, the burden is on defendants, as the parties seeking injunctive relief, to show all elements necessary to support issuance of a preliminary injunction. (O’Connell v. Superior Court (2006) 141 Cal.App.4th 1452, 1481.) A preliminary injunction is available “[w]hen it appears by the complaint or affidavits that the commission or continuance of some act during the litigation would produce waste, or great or irreparable injury, to a party to the action.” (Code Civ. Proc., § 526, subd. (a)(2).)

“The trial courts consider two interrelated questions in deciding whether to issue a preliminary injunction: 1) are the plaintiffs likely to suffer greater injury from a denial of the injunction than the defendants are likely to suffer from its grant; and 2) is there a reasonable probability that the plaintiffs will prevail on the merits. [Citations.] ‘[By] balancing the respective equities of the parties, [the court] concludes that, pending a trial on the merits, the defendant should or that he should not be restrained from exercising the right claimed by him.’ [Citations.]” (Robbins v. Superior Court (1985) 38 Cal.3d 199, 206.)

“The general purpose of such an injunction is the preservation of the status quo until a final determination of the merits of the action.” (Continental Baking Co. v. Katz (1968) 68 Cal.2d 512, 528.) The “status quo” “ ‘ “has been defined to mean ‘the last actual peaceable, uncontested status which preceded the pending controversy.’ ” [Citation.]’ [Citation.]” (14859 Moorpark Homeowner’s Ass’n v. VRT Corp. (1998) 63 Cal.App.4th 1396, 1408.)

(1)       Balance of Harms

The parties have conflicting positions as to the respective harms, and hence the necessity for issuance of a preliminary injunction. In the event that the court grants the application for a preliminary injunction as requested by defendants, plaintiffs would be prohibited from communicating with the Santa Barbara Planning & Development Department and the California Department of Cannabis Control, interfering with or obstructing defendants’ right to manage the business under the MSA, and from entering or accessing the Location without the prior written consent of Heather Abdo.

In their March 25 response, plaintiffs argue that the preliminary injunction is not necessary because: “Calyx, as the majority owner of Bosim, agrees with the Cross-Complainants that all necessary steps should be taken to ensure that Bosim’s Business License application is approved as soon as possible and certainly before May 1, 2025. In that regard, at the hearing held on March 17, 2025, Plaintiffs and the Cross-Complainants agreed that Allison Stockman would act as the authorized representative of Calyx in pursuing approval of the Business License. The agreement regarding Ms. Stockman’s involvement was confirmed in the TRO issued by this Court dated March 18, 2025: ‘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.’ [Citation.]” (Response, filed Mar. 25, 2025, at p. 4.)

This argument effectively means that a preliminary injunction with the continued term of permitting Allison Stockman to participate in the process of the County Business License renders the harm from a prohibition in communication with regulators as minimal. As plaintiffs’ note, all parties have a strong incentive to ensure that all required licenses or permits are renewed or obtained. Regardless of who succeeds on the merits, these licenses and permits are necessary to the continued value of the business as a going concern.

Interference with management or access is a potential harm to plaintiffs if they succeed on the merits only to the extent that defendants manage the business in such a way as to leave the business at the time of the disposition of the merits in a state that is substantially worse than the plaintiffs would have left the business. There is conflicting evidence on this point, with each side presenting evidence that the other has harmed, is harming, or will harm the business by its management.

Conversely, if the preliminary injunction is erroneously denied, the potential harms to defendants are exactly the same as the potential harms to the plaintiffs, in reverse, in the potential harm to the business by failure to obtain or renew required licenses and permits and by harm to the business by management leading to substantially worse results for the business than with the injunction. Again, the evidence is conflicting on these points.

The underlying transaction provided for management of the business by defendants. The defendants’ evidence is persuasive that they have, and are, taking steps to protect the value of the business as a going concern and are working to make it valuable to them following what defendants argue will be success on the merits of their claims against plaintiffs. There is evidence that the plaintiffs have, contrary to their own immediate financial interests in the business, interfered with obtaining needed approvals. Plaintiffs’ other evidence suggesting waste by the defendants in their management of the business is not, under the totality of the circumstances, sufficiently strong as against the evidence now presented by the defendants. Balancing these harms, and weighing the evidence presented by the parties, the court finds that the balance of the harms weighs in favor of issuing the injunction.

(2)       Likelihood of Success on the Merits

“[T]he trial court must also consider the likelihood of plaintiffs’ ultimate success on the merits in determining whether to issue a preliminary injunction. Although consideration of this issue does not entail final adjudication of the ultimate rights in controversy [citation], it does affect the showing necessary to a balancing-of-hardships analysis. That is, the more likely it is that plaintiffs will ultimately prevail, the less severe must be the harm that they allege will occur if the injunction does not issue. This is especially true when the requested injunction maintains, rather than alters, the status quo.” (King v. Meese (1987) 43 Cal.3d 1217, 1227.) “The trial court’s determination must be guided by a ‘mix’ of the potential-merit and interim-harm factors; the greater the plaintiff’s showing on one, the less must be shown on the other to support an injunction.” (Butt v. State of California (1992) 4 Cal.4th 668, 678.)

Both sets of parties have presented evidence supporting their respective claims against the others. For the reasons explained by the court in addressing the temporary restraining order (with evidentiary problems now resolved), defendants have presented sufficient evidence to demonstrate a reasonable probability of success on the merits of their claims against plaintiffs to support the issuance of a preliminary injunction. This evidence includes the evidence of misrepresentations as to the facilities and costs and requirements for business operations.

(3)       Balance of Equities

Both the balance of harms and the likelihood of success questions weigh in favor of issuing the preliminary injunction. Issuance of the injunction is further supported by the purpose of the injunction to maintain the status quo with defendants in possession and control of the Location and the business.

Plaintiffs argue that the preliminary injunction is unnecessary because they are cooperating in taking steps to obtain and renew licenses and permits. The court finds that a preliminary injunction is necessary based upon the evidence of the conduct of plaintiffs to engage in various acts of self-help in aid of their repossession of the Location and of the business operations.

Plaintiffs further argue that if a preliminary injunction issues, the terms need to be more definite than in the temporary restraining order. The TRO now provides:

“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) 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; (3) obstructing Cross-Complainants’ right to manage the business per the Master Services Agreement (MSA). 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.” (Order, filed Mar. 18, 2025.)

The injunction requested by defendants is:

“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 from [sic] (1) communicating with the Santa Barbara Planning & Development Department and the California Department of Cannabis Control; (2) interfering with or obstructing Cross-Complainants’ right to manage the business per the Master Services Agreement; (3) permitting Keum and Collin Dvorak to enter or access the premises without the prior written consent of Cross-Complainant Heather Abdo. 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.” (Proposed Order, lodged Mar. 25, 2025.)

Plaintiffs suggest an alternative:

“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) contacting, 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; (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. 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.” (Response, filed Mar. 25, 2025, at p. 5.)

Using the defendants’ proposed order as a starting point, it is a reasonable limitation that prohibitions on communications to regulators be limited in scope to the business and business activities operated on or from the Location, that is, plaintiffs need not be prohibited from communications to regulators that involve a different business or unrelated matters. At the same time, there should not be any reason to require a court order authorizing communications that are approved by the party for whose benefit the injunction is being issued. And for the same reasons, the continued exception for Allison Stockman, as an authorized representative of Bosim, for continued participation in the process of obtaining the County Business License is appropriate. The specific language proposed by plaintiffs (“contacting, interacting with, or initiating, responding to, or directing any communications”) is functionally the same as “communicating with,” so there is no apparent need to expand the term “communicating with” to include more verbs.

The prohibition against interfering with or obstructing defendants’ right to manage the business per the MSA is a necessary term to prevent plaintiffs from engaging in interfering behavior in a manner other than by physically accessing the Location. As noted above, the court finds that there remains a sufficient threat of interference to warrant such a prohibition. Because the rights and obligations in the MSA are terms defined by the parties and for which interference may support a claim for breach of contract or breach of the implied covenant of good faith and fair dealing, these terms are sufficiently specific to circumscribe the permitted and prohibited conduct of plaintiffs. The provision regarding access should, as plaintiffs suggest, be tightened to clearly prohibit access absent prior consent.

The preliminary injunction will remain until a disposition of the merits of defendants’ claims against plaintiffs, subject to modification or dissolution as otherwise provided by law. It is unnecessary to include provisions regarding further order of the court as an exception because that is in effect a modification of the injunction.

After consideration of all of the evidence and arguments of the parties, the court finds that the balance of the equities favors issuance of a preliminary injunction with terms as described above. The application for a preliminary injunction will therefore be granted and a preliminary injunction will issue.

(4)       Bond

“On granting an injunction, the court or judge must require an undertaking on the part of the applicant to the effect that the applicant will pay to the party enjoined any damages, not exceeding an amount to be specified, the party may sustain by reason of the injunction, if the court finally decides that the applicant was not entitled to the injunction.” (Code Civ. Proc., § 529, subd. (a).)

The parties have not provided much discussion as to the amount of the bond that would be appropriate. Defendants ask that the court waive a bond because, they argue, plaintiffs will suffer no harm from issuance of a preliminary injunction. (Application, filed Mar. 25, 2025, at pp. 25-16.) Plaintiffs do not discuss the issue of the bond amount. The court’s duty to require a bond is mandatory and not discretionary. (Abba Rubber Co. v. Seaquist (1991) 235 Cal.App.3d 1, 10.) Based upon the arguments and evidence presented, the court will require an undertaking in the amount of $5,000.00. In the event there are reasons why this amount should be increased or decreased, the parties may make an appropriate motion to address the amount of the required undertaking as otherwise provided by law.

“Notwithstanding rule 3.1312, whenever an application for a preliminary injunction is granted, a proposed order must be presented to the judge for signature, with an undertaking in the amount ordered, within one court day after the granting of the application or within the time ordered. Unless otherwise ordered, any restraining order previously granted remains in effect during the time allowed for presentation for signature of the order of injunction and undertaking. If the proposed order and the undertaking required are not presented within the time allowed, the TRO may be vacated without notice. All bonds and undertakings must comply with rule 3.1130.” (Cal. Rules of Court, rule 3.1150(f).)

The proposed order consistent with this ruling, and the undertaking required, must be presented or filed with the court on or before April 16, 2025.