Frome Wye Limited v. Hosie Rice LLP

Background

Frome Wye Limited sued Hosie Rice LLP, Spencer Hosie, and Diane Rice. The complaint alleged that, in 2018, the parties entered into a funding agreement under which Hosie Rice received funding for expenses including monthly operating costs. The agreement allegedly gave Frome Wye a continuing, first-priority, perfected security interest in the firm’s collateral and a continuing, third-priority, perfected security interest in the partners’ collateral. The partners’ collateral included their interests in certain real property in Belvedere, California.

The complaint alleged that the defendants had not repaid the funding and owed Frome Wye more than $1.8 million, as reflected in an arbitration award recently confirmed by a Delaware district court. Frome Wye said Hosie and Rice were preparing to sell the real property. It did not ask the court to stop the sale itself; instead, it asked for a temporary restraining order preventing the defendants and their agents from distributing $1,817,000 of the sale proceeds while the parties’ claims to the funds were determined.

Frome Wye acknowledged that its interest was junior to previously recorded deed-of-trust liens held by First Republic Bank and the Perkins Coie law firm. It argued, however, that its interest was superior to the interests of federal and state taxing authorities. The defendants disputed that position and argued, among other things, that Frome Wye’s lien was not perfected and that the amount owed remained subject to litigation.

Court’s analysis

A temporary restraining order is emergency relief. The court stated that a party generally must show a likelihood of success on the merits, likely irreparable harm without relief, favorable balancing of the hardships, and consistency with the public interest. The court also noted that a party may use an alternative standard involving serious questions on the merits and a sharply favorable balance of hardships, but a likelihood of irreparable injury remains essential.

The court said the motion turned on irreparable harm rather than the defendants’ main argument concerning the likelihood of success. Frome Wye argued that it would suffer irreparable injury because it might not be paid from the sale proceeds and might have to pursue the junior creditors or the defendants in multiple lawsuits. The court rejected that showing because the claimed injury was purely financial. Financial injury ordinarily does not qualify as irreparable harm because it can be remedied through a damages award.

The court recognized that irreparable harm can sometimes be shown when a money judgment would go unsatisfied without equitable relief. But it found that Frome Wye had submitted no evidence that any of the three defendants who entered into the funding agreement were insolvent or unable to pay the alleged debt. The court also noted that Frome Wye had not shown that other collateral, including the firm’s collateral, would not protect its interest. The funding agreement gave Frome Wye a first-priority, perfected security interest in that firm collateral.

Disposition

Because Frome Wye had not shown a likelihood of irreparable injury, the court denied its motion for a temporary restraining order. The order was signed by Judge Edward Chen on December 1, 2023.