Frome Wye Limited v. Hosie Rice LLP

Background

Frome Wye Limited sued Hosie Rice LLP, Spencer Hosie, and Diane Rice. The opinion says Hosie Rice is a law firm and that Hosie and Rice are its partners. According to the complaint, the parties entered into a 2018 funding agreement under which Frome Wye provided funding for the firm’s operating expenses. The agreement granted Frome Wye security interests in firm property and in certain real property in Belvedere, California.

The defendants allegedly failed to repay the funding. The opinion states that they owed more than $1.8 million, as reflected in an arbitration award confirmed by a Delaware district court. A nonjudicial foreclosure sale appeared to be scheduled for December 14, 2023. The individual defendants also appeared to have marketed the property for sale, with an estimated sale price exceeding $7.7 million, although the opinion says it was unclear whether that sale occurred.

Frome Wye had previously sought a temporary restraining order to preserve some sale proceeds for repayment. The court denied that request because Frome Wye had not shown a likelihood of irreparable harm. The defendants then filed the motion addressed in this order.

Defendants’ Requests

The defendants asked the court to temporarily restrain Frome Wye from enforcing its lien on the property, asserting that the lien was inchoate, or not yet fully established. They also asked the court to stop Frome Wye from threatening third parties—such as the listing brokers and title company—in a way that could disrupt the sale.

Court’s Analysis

A temporary restraining order is a form of preliminary relief. The court stated that the moving party generally must show a likelihood of success on the merits, likely irreparable harm without relief, favorable balancing of the hardships, and that the injunction would serve the public interest. Under the Ninth Circuit’s alternative “sliding scale” approach, serious questions on the merits and a sharply favorable balance of hardships may suffice if the moving party also shows likely irreparable injury and a public interest in the injunction.

The court denied the first requested form of relief because preliminary relief generally should not give the moving party the full relief it could receive after a trial. The court denied the second requested form of relief because the defendants failed to show a likelihood of irreparable injury. Their argument depended on Frome Wye’s allegedly threatening conduct preventing the property sale, but the defendants did not provide competent evidence that Frome Wye’s conduct threatened to disrupt the sale.

The court said that Frome Wye’s request for the escrow agent’s contact information and its provision of the complaint to the listing agent could not reasonably be treated as a threat. It also found that Frome Wye’s letter to the title company merely warned that the company could face liability if it distributed sale proceeds to taxing authorities ahead of Frome Wye. The court noted there was no indication that the title company had withdrawn from the sale or that the buyer would abandon the transaction because of the dispute over distribution of the proceeds.

Ruling

The court denied defendants’ motion for a temporary restraining order and stated that the order disposed of Docket No. 21. The court expressly did not decide the merits of the parties’ dispute over whether the taxing authorities’ liens were junior to Frome Wye’s lien. It did note that the federal tax liens appeared to have been recorded in January and October 2020, after Frome Wye had disbursed funds to the defendants in 2019.