Opinion
No. C02-0302 BZ
August 28, 2002
ORDER GRANTING PLAINTIFF'S MOTION FOR A PRELIMINARY INJUNCTION
Before the court is plaintiff's motion for a preliminary injunction to restrain defendant from proceeding with a Trustee's sale of plaintiff's real property in Montana pending a final determination of the underlying action for declaratory and equitable relief. In October, 1997, plaintiff borrowed approximately $160,000 on a personal line of credit he obtained from First Bank (the "first personal debt"). The personal line of credit was secured by plaintiff's real property in Montana. Plaintiff paid this loan off in 1999.
The parties have consented to the jurisdiction of a United States Magistrate Judge for all proceedings including entry of final judgment pursuant to 28 U.S.C. § 636(c).
Subsequently, plaintiff again borrowed approximately $160,000 on the personal line of credit (the "second personal debt"), though he contends this debt was unsecured. Defendant claims that in 2001, it purchased this debt from First Bank's successor in interest, U.S. Bank.
Meanwhile, plaintiff was sued by U.S. Bank for money owed by A Montana Lifestyle, Inc. and guaranteed by plaintiff (the "corporate debt"). U.S. Bank assigned this guarantee to defendant. In December, 2000, the parties entered into a Settlement Agreement, which included Release and Integration clauses. Plaintiff claims that the Settlement Agreement was intended to govern not just the dispute relating to the corporate debt, but any and all disputes between plaintiff, defendant and U.S. Bank, including any dispute relating to the second personal debt. Defendant contends that the Settlement Agreement was meant only to govern the parties' dispute over the corporate debt. On April 11, 2002, defendant served plaintiff with a Notice of Trustee's Sale, informing him of a September 9, 2002 sale of plaintiff's real property in Montana which, according to defendant, secures the second personal debt. Plaintiff now moves for a preliminary injunction pursuant to Fed.R.Civ.P. 65 to restrain this sale pending the resolution of this action. Trial is set for December 2, 2002.
Defendant first argues that the local action doctrine bars this court from enjoining a sale of real property in Montana. The local action doctrine stands for the proposition that "[a] local action involving real property can only be brought within the territorial boundaries of the state where the land is located." Hayes v. Gulf Oil Corp., 821 F.2d 285, 287 (5th Cir. 1987) (citing Ellenwood v. Marietta Chair Co., 158 U.S. 105, 107 (1895)). In other words, "federal and state courts lack jurisdiction over the subject matter of claims to land located outside the state in which the court sits." Id.
Although defendant has cited no authority from the Ninth Circuit on the local action doctrine, and this court is aware of none, a number of federal and state courts have recognized and applied the rule. See Hayes, 821 F.2d at 287 (collecting cases).
There is some dispute over whether the local action doctrine runs to the jurisdiction or the venue of a court, see Trust Co. Bank v. U.S. Gypsum Co., 950 F.2d 1144, 1149 n. 7 (5th Cir. 1992), and whether federal or state law should determine the application of the local action doctrine. See id. at 1149-50. However, I need not address these questions because, as shown below, this is not the type of claim to which the local action doctrine applies.
This case is distinguishable. Local actions are those where the transactions upon which they are founded could only have occurred in the location where the real property was situated. See, e.g., Ellenwood, 158 U.S. at 108 (trespass to land and conversion of timber thereon); Livingston v. Jefferson, 15 F. Cas. 660, 667 (No. 8411) (C.C.D. Va. 1811) (trespass to land); Hayes, 821 F.2d at 288 (action to terminate interest in land under an oil and gas lease); Still v. Rossville Crushed Stone Co., 370 F.2d 324, 325 (6th Cir. 1966), cert. denied, 387 U.S. 918 (1967) (action for damage to real estate). Contrary to defendant's assertions, however, the focus of this action is not the parties' rights with respect to plaintiff's real property in Montana, but their rights and responsibilities under the Settlement Agreement. Determining whether the second personal debt was discharged by the Settlement Agreement would at most only indirectly affect the parties' rights to the property in Montana. Granting plaintiff's motion would merely allow the underlying action to proceed unaffected by the proposed sale. Therefore, the local action doctrine does not limit this court's jurisdiction to grant a preliminary injunction enjoining the sale of the Montana property.
Although defendant argues that plaintiff is asking the court to extinguish the Deed of Trust on his property in Montana, I find nothing in plaintiff's prayer asking me to do so. Nor could defendant point to anything during argument.
A preliminary injunction "is not a preliminary adjudication on the merits but rather a device for preserving the status quo and preventing the irreparable loss of rights before judgment." Sierra On-Line, Inc. v. Phoenix Software, Inc., 739 F.2d 1415, 1422 (9th Cir. 1984). "Preliminary injunctive relief is available to a party who demonstrates either: (1) a combination of probable success on the merits and the possibility of irreparable harm; or (2) that serious questions are raised and the balance of hardships tips in its favor. . . . These two formulations represent two points on a sliding scale in which the required degree of irreparable harm increases as the probability of success decreases." AM Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1013 (9th Cir. 2001) (citing Prudential Real Estate Affiliates, Inc. v. PPR Realty, Inc., 204 F.3d 867, 874 (9th Cir. 2000)). See also Stuhlbarg Int'l Sales Co., Inc. v. John D. Brush and Co., Inc., 240 F.3d 832, 839-40 (9th Cir. 2001); Arcamuzi v. Continental Air Lines, Inc., 819 F.2d 935, 937 (9th Cir. 1987). "`The critical element in determining the test to be applied is the relative hardship to the parties. If the balance of harm tips decidedly toward the plaintiff, then the plaintiff need not show as robust a likelihood of success on the merits as when the balance tips less decidedly.'" Sierra On-Line, Inc., 739 F.2d at 1421 (quoting Benda v. Grand Lodge of the Int'l Ass'n of Machinists, 584 F.2d 308, 315 (9th Cir. 1978), cert. denied, 441 U.S. 937 (1979)).
In this case, defendant has not established that it would be harmed if the sale of the Montana property were temporarily enjoined for about 3 months until a final resolution of this action. Its only claim is that it would delay it from enforcing its rights under the security agreement. Plaintiff, on the other hand, has demonstrated that he would suffer irreparable harm if the sale were to proceed. Plaintiff would lose his property in Montana before a decision was rendered on the proper interpretation and scope of the Settlement Agreement. If I were to rule in plaintiff's favor in this action, there would be no legal basis for defendant having sold the property, yet plaintiff would no longer own the property.
Furthermore, plaintiff has raised serious questions regarding the interpretation of the Settlement Agreement. Plaintiff points to broad language in the Mutual Release clause indicating the desire of both parties to settle all claims "arising out of the debtor/creditor relationship that originated from Bank's Bozeman, Montana locations." Under California law, "where a written agreement attempts to cover all relationships of the contracting parties, interpretation to be given the contract is determined, as a matter of law, solely from the instrument itself. . . ." General Cas. Co. of Am. v. Azteca Films, Inc., 278 F.2d 161, 168 (9th Cir.), cert. denied, 364 U.S. 863 (1960) (citing Republic Pictures Corp. v. Rogers, 213 F.2d 662, 665 (9th Cir.), cert. denied, 348 U.S. 858 (1954)). Defendant disputes whether the second personal debt originated in Montana, and seeks to introduce parol evidence of defendant's intent to limit the terms of the Settlement Agreement to the dispute over the corporate debt by claiming that plaintiff fraudulently misrepresented the fact that he had no other debts with U.S. Bank other than the corporate debt. See California State Auto. Ass'n Inter-Ins. Bureau v. Policy Management Sys. Corp., 1996 WL 45280 at *11 (N.D.Cal. Jan. 9, 1996) (citing Ron Greenspan Volkswagen, Inc. v. Ford Motor Land Dev. Corp., 32 Cal.App.4th 985, 992-95 (1995)) ("Under California law, a contract integration provision stating that all representations are contained therein does not bar a claim of fraudulent inducement by parol misrepresentations. . . ."); Sanguinetti v. Viewlogic Sys., Inc., 1996 WL 33967 at *15-16 (N.D.Cal. Jan 24, 1996) (same). In response, plaintiff denies there was any fraud and argues that, in any event, defendant undertook its own investigation of plaintiff's financial history. See Goodman v. Jonas, 142 Cal.App.2d 775, 793 (1956) ("It is a well settled rule that where a party relies on his independent investigation after acquiring all the knowledge he desires without hindrance, he will not be heard to say that he relied on the representation of the other party.").
The parties have also filed a number of objections to evidence. Defendant's first objection is GRANTED as to whether Lucy Goodman requested and received certain forms. Defendant's third objection is GRANTED as to Lucy Goodman's execution of the Credit Compliance Checklist. Defendant's fifth objection is GRANTED. Defendant's sixth objection is GRANTED as to defendant's knowledge. Defendant's second, fourth and seventh through tenth objections are DENIED.
Plaintiff's first through fifth objections to Smith's declaration are DENIED. Plaintiff's sixth through eighth objections to Smith's declaration are GRANTED as to Ms. Tubbs representations to Mr. Smith. Plaintiff's objection to Iriki's declaration is DENIED.
Without ruling on the merits, it is clear that plaintiff has raised serious questions for the purpose of granting a preliminary injunction. More importantly, the balance of hardships tip overwhelmingly in plaintiff's favor. Therefore, under the second prong of the preliminary injunction test, I find it appropriate to grant a preliminary injunction to preserve the status quo pending a resolution of this action.
Defendant requests a bond pursuant to Fed.R.Civ.P. 65(c) in the amount of $100,000 for anticipated litigation costs. "No restraining order or preliminary injunction shall issue except upon the giving of security by the applicant, in such sum as the court deems proper, for the payment of such costs and damages as may be incurred or suffered by any party who is found to have been wrongfully enjoined or restrained." Fed.R.Civ.P. 65(c). A district court has considerable discretion in setting the amount of the security bond. See Walczak v. EPL Prolong, Inc., 198 F.3d 725, 733 (9th Cir. 1999). "The amount of the bond will generally be what the court deems sufficient to cover losses and damages incurred or suffered by the party enjoined if it turns out that the injunction should not have been granted." ATT Communications v. Pac. Bell, 1996 WL 940836 at *11 (N.D.Cal. July 3, 1996), aff'd, 108 F.3d 1384 (9th Cir. 1997). Defendant has failed to offer any evidence of damage it would incur by temporarily enjoining the sale of the Montana property. Nor has defendant cited any authority for the proposition that a plaintiff seeking a preliminary injunction must post a security bond for the potential costs in litigating the underlying action. Regardless of whether the sale is enjoined, defendant would still incur the same costs in litigating the underlying action. Therefore, defendant's request for a $100,000 security bond is DENIED. However, it is hereby ORDERED that plaintiff post security in the amount of $2,500 for any losses or damages associated with the canceling of the Trustee's sale.
Accordingly, pursuant to Fed.R.Civ.P. 65, I hereby GRANT plaintiff's motion for preliminary injunctive relief pending the final disposition of this action.