PRASAD v. CJ Investment Services, Inc.

Background

Ricky J. Prasad and Ashika K. Prasad sought to refinance a second-position mortgage on their property. They obtained a $115,000 loan from defendants after signing documents stating that the property was not their principal or secondary address and that the loan was for a business purpose rather than a consumer purpose. The plaintiffs later stopped making payments on the loan and on the first-position mortgage. Defendants recorded a notice of default and later a notice of trustee’s sale.

The plaintiffs sued defendants for fraud and alleged statutory violations arising from the loan’s origination and later loan-modification discussions. They sought to stop foreclosure and obtain other relief. Defendants filed counterclaims alleging that the plaintiffs misrepresented the property’s status and the loan’s purpose.

The plaintiffs moved for a preliminary injunction to prevent CJ Investment Services, Inc. and Sridhar Capital Advisors, LP from conducting a foreclosure sale scheduled for July 10, 2024. The court had previously denied the plaintiffs’ request for a temporary restraining order without prejudice as moot after defendants agreed to move the sale date to August 14, 2024. The court held a hearing on the preliminary-injunction request on July 30, 2024.

Legal standard

A preliminary injunction requires a showing that the plaintiff is likely to succeed on the merits, likely to suffer harm that money cannot adequately remedy, that the balance of hardships favors the plaintiff, and that an injunction would serve the public interest. The Ninth Circuit also permits a sliding-scale approach, under which a particularly strong showing on one factor may offset a weaker showing on another, so long as the plaintiff shows likely irreparable harm and that the public interest supports relief.

Court’s analysis

The court concluded that the plaintiffs had not shown that the factors supported an injunction.

First, the court found that the evidence supported a pattern of misrepresentations by the plaintiffs, particularly Mr. Prasad. The court applied the unclean-hands doctrine, which can deny equitable relief to a plaintiff whose misconduct is directly related to the dispute. The court stated that the plaintiffs had signed documents under penalty of perjury saying that the loan was not for their primary residence. It also found evidence that Mr. Prasad fabricated documents and investigations to obtain more favorable loan-modification terms and that both plaintiffs signed a state-court complaint containing false information under penalty of perjury.

The court also considered the use of a doctored email in the state-court and federal-court proceedings. It found that the plaintiffs’ alleged misconduct related directly to their claims concerning loan origination, loan modification, and foreclosure. The court therefore concluded that the unclean-hands doctrine would likely prevent the plaintiffs from obtaining equitable relief, regardless of the ultimate merits of their claims.

Second, the court recognized that losing a primary residence through foreclosure would be an irreparable harm. But it found that an injunction against these defendants would not likely prevent that harm because the first-position lender, which was not a party to the case, could foreclose independently on the property. Payments on that mortgage were also past due.

Third, the court found that the balance of equities did not strongly favor the plaintiffs. The plaintiffs had made no payments on defendants’ loan, while defendants had advanced funds to the first-position lender. If the first-position lender foreclosed first, defendants’ junior lien could be extinguished, causing defendants to lose their interest in the property and the funds they had advanced.

Finally, the court treated the public-interest factor as evenly balanced. Because the parties offered conflicting evidence and accounts about the loan’s origination, the court said it could not determine what the public interest required at the preliminary-injunction stage.

Disposition

The court DENIED the plaintiffs’ request for a preliminary injunction. The opinion did not resolve the underlying fraud and statutory claims on the merits.