Side, Inc. v. Official Partners New York, LLC

Background

Side alleged that Official Partners New York, LLC, Tal Alexander, and Oren Alexander breached an amended and restated secured promissory note and an amended and restated security agreement. The agreements concerned Official Partners’ $5,000,000 loan from Side and pledged assets of the Alexanders as collateral. Side alleged that Official Partners defaulted and that the Alexanders’ real estate licenses were disassociated from Side, which the note treated as an event that could make the full balance due. Side also alleged that the defendants failed to provide assurances and documents concerning the preservation, identification, and protection of the collateral. Side’s complaint asserted two breach-of-contract claims: one against all defendants and one against the Alexanders as guarantors.

The parties also had an earlier Master Services Agreement containing an arbitration clause. The later restated note and security agreement contained provisions requiring claims arising from those agreements to be brought exclusively in state or federal courts in San Francisco County. They also stated that the restated agreements would prevail over inconsistent terms in other related agreements, including the Master Services Agreement.

Motion to Compel Arbitration

The defendants argued that the Master Services Agreement’s arbitration clause governed the dispute. They also argued that the restated agreements were illegal and unenforceable because Side allegedly was required to hold a California finance-lender license but did not do so.

Judge Orrick denied the motion to compel arbitration. He concluded that Side’s claims were rooted in the restated note and security agreement, not the Master Services Agreement. The note governed payment obligations, and the security agreement governed the collateral obligations. The later agreements’ exclusive-jurisdiction provisions therefore applied. The court further reasoned that the conflicting-agreements provisions supported using the later agreements’ provisions rather than the earlier arbitration clause.

The court also rejected the illegality argument. It treated the loan as a commercial loan under the California Financial Code because it exceeded $5,000 and was intended primarily for business use. Although the defendants argued that Side’s alleged failure to obtain a lender’s license made the agreements void, the court found that the cited California statutes did not provide a remedy voiding unlicensed commercial loans. The court therefore concluded that the restated agreements were not illegal on that basis.

Preliminary Injunction

A preliminary injunction is a court order issued before final judgment to prevent harm while the case continues. The court had already issued such an injunction, and this opinion explained its basis. The injunction prevented the defendants and persons acting with them from leasing, selling, transferring, concealing, pledging, granting a security interest in, or otherwise disposing of the collateral and real property. It did not prohibit paying counsel or ordinary daily living expenses.

The court found at least serious questions about the merits of Side’s breach-of-contract claims. It noted that the license disassociations were undisputed, although the parties disputed who initiated them. The court also noted that the defendants had not paid the amount Side demanded after the alleged default and had not sufficiently identified or secured the collateral as required by the agreements. The court stated that the defendants’ own materials indicated that they had not complied with the security agreement’s requirements to provide documents and information concerning the collateral.

The court found a risk that the collateral could be dissipated during the lawsuit. It concluded that the balance of hardships favored Side because the defendants continued to avoid identifying what the collateral was and where it was located, while the defendants had stated that they would not dissipate the assets they understood to be collateral. The court also found that preserving the collateral served the public interest.

Disposition

The defendants’ motion to compel arbitration was denied. Side’s request for a preliminary injunction remained in place. The court also denied as moot Side’s administrative motion for leave to file supplemental material, because the court granted that motion without considering the proposed supplemental material.