This case was last updated from Los Angeles County Superior Courts on 04/15/2022 at 05:39:39 (UTC).

LAB CAPITAL, LLC VS SCIENTIFIC HOLDINGS, LLC

Case Summary

On 09/16/2020 LAB CAPITAL, LLC filed a Contract - Business Governance lawsuit against SCIENTIFIC HOLDINGS, LLC. This case was filed in Los Angeles County Superior Courts, Alhambra Courthouse located in Los Angeles, California. The Judge overseeing this case is JOEL L. LOFTON. The case status is Other.
Case Details Parties Documents Dockets

 

Case Details

  • Case Number:

    *******0287

  • Filing Date:

    09/16/2020

  • Case Status:

    Other

  • Case Type:

    Contract - Business Governance

  • County, State:

    Los Angeles, California

Judge Details

Presiding Judge

JOEL L. LOFTON

 

Party Details

Cross Defendant and Plaintiff

LAB CAPITAL LLC A DELAWARE LIMITED LIABILITY COMPANY

Cross Plaintiff and Defendant

SCIENTIFIC HOLDINGS LLC A DELAWARE LIMITED LIABILITY COMPANY

Attorney/Law Firm Details

Plaintiff Attorney

BARTH KARL P.

Cross Plaintiff Attorney

HUGHES KEVIN DOUGLAS

Cross Defendant Attorney

HARRISON MICHAEL

 

Court Documents

Stipulation and Order - STIPULATION AND ORDER STIPULATION AND [PROPOSED] ORDER RE: COURT RETAINING JURISDICTION TO ENFORCE SETTLEMENT PURSUANT TO C.C.P. SECTION 664.6

1/13/2022: Stipulation and Order - STIPULATION AND ORDER STIPULATION AND [PROPOSED] ORDER RE: COURT RETAINING JURISDICTION TO ENFORCE SETTLEMENT PURSUANT TO C.C.P. SECTION 664.6

Request for Dismissal

1/14/2022: Request for Dismissal

Declaration - DECLARATION DECLARATION OF KARL P. BARTH IN SUPPORT OF PLAINTIFF LAB CAPITAL, LLCS MOTION TO ENFORCE SETTLEMENT

1/18/2022: Declaration - DECLARATION DECLARATION OF KARL P. BARTH IN SUPPORT OF PLAINTIFF LAB CAPITAL, LLCS MOTION TO ENFORCE SETTLEMENT

Memorandum of Points & Authorities

1/18/2022: Memorandum of Points & Authorities

Minute Order - MINUTE ORDER (ORDER TO SHOW CAUSE RE: STATUS/SUBMISSION OF STIPULATION IN S...)

1/18/2022: Minute Order - MINUTE ORDER (ORDER TO SHOW CAUSE RE: STATUS/SUBMISSION OF STIPULATION IN S...)

Motion to Enforce Settlement

1/18/2022: Motion to Enforce Settlement

Opposition - OPPOSITION TO PLAINTIFF LAB CAPITAL, LLC'S MOTION TO ENFORCE SETTLEMENT AGREEMENT

1/28/2022: Opposition - OPPOSITION TO PLAINTIFF LAB CAPITAL, LLC'S MOTION TO ENFORCE SETTLEMENT AGREEMENT

Reply - REPLY PLAINTIFF LAB CAPITAL, LLCS REPLY TO DEFENDANTS OPPOSITION TO MOTION TO ENFORCE SETTLEMENT AGREEMENT

2/3/2022: Reply - REPLY PLAINTIFF LAB CAPITAL, LLCS REPLY TO DEFENDANTS OPPOSITION TO MOTION TO ENFORCE SETTLEMENT AGREEMENT

Notice - NOTICE OF WITHDRAWAL OF MOTION TO ENFORCE SETTLEMENT AGREEMENT

2/8/2022: Notice - NOTICE OF WITHDRAWAL OF MOTION TO ENFORCE SETTLEMENT AGREEMENT

Certificate of Mailing for - CERTIFICATE OF MAILING FOR (COURT ORDER) OF 08/13/2021

8/13/2021: Certificate of Mailing for - CERTIFICATE OF MAILING FOR (COURT ORDER) OF 08/13/2021

Minute Order - MINUTE ORDER (COURT ORDER)

8/13/2021: Minute Order - MINUTE ORDER (COURT ORDER)

Notice of Case Reassignment and Order for Plaintiff to Give Notice

9/16/2021: Notice of Case Reassignment and Order for Plaintiff to Give Notice

Proof of Service (not Summons and Complaint)

9/22/2021: Proof of Service (not Summons and Complaint)

Status Conference Statement

11/8/2021: Status Conference Statement

Stipulation Re: Settlement Conference

11/12/2021: Stipulation Re: Settlement Conference

Minute Order - MINUTE ORDER (MANDATORY SETTLEMENT CONFERENCE (MSC))

11/12/2021: Minute Order - MINUTE ORDER (MANDATORY SETTLEMENT CONFERENCE (MSC))

Order - ORDER COURT'S ORDER RE: MOTION TO SEAL; MOTION FOR PRELIMINARY INJUNCTION

5/28/2021: Order - ORDER COURT'S ORDER RE: MOTION TO SEAL; MOTION FOR PRELIMINARY INJUNCTION

Notice - NOTICE OF WITHDRAWAL OF DEFENDANT SCINTIFIC HOLDINGS LLC'S SECOND AMENDED CROSS-COMPLAINT

6/2/2021: Notice - NOTICE OF WITHDRAWAL OF DEFENDANT SCINTIFIC HOLDINGS LLC'S SECOND AMENDED CROSS-COMPLAINT

76 More Documents Available

 

Docket Entries

  • 02/14/2022
  • Docketat 09:00 AM in Department X, Joel L. Lofton, Presiding; Non-Appearance Case Review (rePayment of Pro Hac Vice Fees by plaintiff's counsel Karl Barth) - Not Held - Vacated by Court

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  • 02/10/2022
  • Docketat 08:30 AM in Department X, Joel L. Lofton, Presiding; Hearing on Motion to Enforce Settlement - Not Held - Taken Off Calendar by Party

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  • 02/08/2022
  • DocketNotice (OF WITHDRAWAL OF MOTION TO ENFORCE SETTLEMENT AGREEMENT); Filed by Lab Capital, LLC, a Delaware limited liability company (Plaintiff)

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  • 02/03/2022
  • DocketReply (TO DEFENDANTS OPPOSITION TO MOTION TO ENFORCE SETTLEMENT AGREEMENT); Filed by Lab Capital, LLC, a Delaware limited liability company (Plaintiff)

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  • 01/28/2022
  • DocketOpposition (TO PLAINTIFF LAB CAPITAL, LLC'S MOTION TO ENFORCE SETTLEMENT AGREEMENT); Filed by Scientific Holdings, LLC, a Delaware limited liability company (Defendant)

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  • 01/18/2022
  • Docketat 09:30 AM in Department X, Joel L. Lofton, Presiding; Non-Jury Trial - Not Held - Advanced and Vacated

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  • 01/18/2022
  • Docketat 08:30 AM in Department X, Joel L. Lofton, Presiding; Order to Show Cause Re: (Status/Submission of Stipulation in Settlement) - Held

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  • 01/18/2022
  • DocketMemorandum of Points & Authorities; Filed by Lab Capital, LLC, a Delaware limited liability company (Plaintiff)

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  • 01/18/2022
  • DocketDeclaration (DECLARATION OF KARL P. BARTH IN SUPPORT OF PLAINTIFF LAB CAPITAL, LLCS MOTION TO ENFORCE SETTLEMENT); Filed by Lab Capital, LLC, a Delaware limited liability company (Plaintiff)

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  • 01/18/2022
  • DocketMinute Order ( (Order to Show Cause Re: Status/Submission of Stipulation in S...)); Filed by Clerk

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91 More Docket Entries
  • 10/29/2020
  • DocketStipulation and Order (Staying Plaintiff's Claim for Dissolution); Filed by Lab Capital, LLC, a Delaware limited liability company (Plaintiff)

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  • 10/23/2020
  • DocketCross-Complaint; Filed by Scientific Holdings, LLC, a Delaware limited liability company (Defendant)

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  • 10/23/2020
  • DocketAnswer; Filed by Scientific Holdings, LLC, a Delaware limited liability company (Defendant)

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  • 10/05/2020
  • DocketProof of Personal Service; Filed by Lab Capital, LLC, a Delaware limited liability company (Plaintiff)

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  • 09/16/2020
  • DocketSummons (on Complaint); Filed by Lab Capital, LLC, a Delaware limited liability company (Plaintiff)

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  • 09/16/2020
  • DocketComplaint; Filed by Lab Capital, LLC, a Delaware limited liability company (Plaintiff)

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  • 09/16/2020
  • DocketNotice of Case Management Conference; Filed by Clerk

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  • 09/16/2020
  • DocketOrder to Show Cause Failure to File Proof of Service; Filed by Clerk

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  • 09/16/2020
  • DocketCivil Case Cover Sheet; Filed by Lab Capital, LLC, a Delaware limited liability company (Plaintiff)

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  • 09/16/2020
  • DocketNotice of Case Assignment - Unlimited Civil Case; Filed by Clerk

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Tentative Rulings

Case Number: *******0287    Hearing Date: May 28, 2021    Dept: NCB

Superior Court of California

County of Los Angeles

North Central District

Department B

lab capital, llc,

Plaintiff,

v.

scientific holdings, llc,

Defendant.

Case No.: *******0287

Hearing Date: May 28, 2021

[TENTATIVE] order RE:

motion to seal;

motion for preliminary injunction

BACKGROUND

A. Allegations

Plaintiffs Lab Capital, LLC (“Plaintiff”) alleges that it is a financial investor in Defendant Scientific Holdings, LLC (“Defendant”), is a 41.4% owner of the Class A Units of Defendant, and does not participate in the day-to-day operations of the company. Plaintiff alleges that Jeffrey and Mark Raber are Defendant’s sole officers and managers and that their company, Jamrab, Inc., owns a 58.6% majority of the Class A Units. Plaintiff alleges that Defendant has violated the Operating Agreement because the managers have treated the company as their own personal business, refused to operate in accordance with the annual budget, and refused to provide financial books and records to Plaintiff.

The complaint, filed September 16, 2020, alleges causes of action for: (1) declaratory relief; (2) dissolution; (3) breach of contract; (4) violation of Cal. Corp. Code, ; 17704.10; and (5) accounting.

On February 8, 2021, Defendant filed the first amended cross-complaint (“FAXC”) against Plaintiff for: (1) declaratory relief; and (2) accounting. Defendant alleges that it is in the cannabis business and has numerous patents. It alleges that Plaintiff became an investor and minority owner in Defendant in 2014. Defendant alleges that Plaintiff, through one of its principals, John Jenkins, has engaged in self-dealing to enrich itself at the expense of the company by insisting that the company purchase a private box suite to watch USC football games for $1 million, Jenkins insisting on being paid a salary for 2 years, and secretly met with the company’s biggest customers to destroy the company’s relationships.

B. Motions on Calendar

On April 2, 2021, Plaintiff filed a motion for preliminary injunction, enjoining Defendant (or the “Company”) from entering into any financial transactions without the prior approval of Plaintiff and from violating provisions of the Company’s Operating Agreement. On April 12, 2021, Defendant filed an opposition brief, which has been filed conditionally under seal. On April 16, 2021, Plaintiff filed a reply brief.

On April 12, 2021, Defendant filed a motion to seal court records. On April 14, 2021, Defendant filed an amended motion to seal court records. The motion to seal pertains to the papers filed in support of and opposition to the motion for preliminary injunction. On May 7, 2021, Defendant filed a Notice of No Opposition to the amended motion to seal.

DISCUSSION RE MOTION TO SEAL

A. Legal Standard

“Unless confidentiality is required by law, court records are (CRC Rule 2.550(c).)

Pursuant to California Rules of Court, Rule 2.550(d), “The court may order that a record be filed under seal only if it expressly finds facts that establish:

(1) There exists an overriding interest that overcomes the right of public access to the record;

(2) The overriding interest supports sealing the record;

(3) A substantial probability exists that the overriding interest will be prejudiced if the record is not sealed;

(4) The proposed sealing is narrowly tailored; and

(5) No less restrictive means exist to achieve the overriding interest.”

The owner of a trade secret has the privilege to refuse to disclose the secret, or to present another from disclosing it. (Evid. Code, ; 1060.) “[T]he protection of trade secrets is an interest that can support sealing records in a civil proceeding. (In re Providian Credit Card Cases (2002) 96 Cal.App.4th 292, 298–299 & fn. 3, 116 Cal.Rptr.2d 833).” “Trade secret” means “information, including a formula, pattern, compilation, program, device, method, technique, or process, that: [¶] (1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and [¶] (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” (Civ. Code, ; 3426.1(d).)

B. Merits of Motion

Defendant moves to seal court records on behalf of itself and its employees to maintain the confidentiality and privacy of information contained in certain records filed with the Court. Defendant seeks to seal and redact information and exhibits contained in: (1) Plaintiff’s motion for preliminary injunction papers and the supporting declarations of Karl Barth and John Jenkins, filed April 2, 2021; (2) Defendant’s opposition to the motion for preliminary injunction and supporting declaration of Jeffrey C. Raber, filed April 12, 2021; and (3) this instant motion to seal.

In support of the motion, Defendant provides the declaration of Jeffrey C. Raber, who is the CEO of Defendant. Mr. Raber explains that the cannabis industry is a growing and dynamic field where competitive pressures are intense and Defendant’s Annual Budget is a valuable trade secret, which is important for Defendant to protect. (Raber Decl., ¶3.) He states that Defendant’s 2021 Annual Budget spells out each subcategory of projected income, cost of goods sold, subcategory of expenses, projected EBITDA, the total number of employees, and each employee’s name, which constitute Defendant’s trade secrets. (Raber Decl., ¶2.) He states that Defendant keeps this information strictly confidential and restricts access to this information to Defendant’s management, accountants, tax preparer, lawyers, and owners (who are bound by the operating agreement to keep information confidential) and that only certain employees have username and password access to electronic repositories containing Defendant’s financial records. (Id.) He states that if the information is made public, a substantial probability exists that Defendant’s competitors would use the information to gain a competitive advantage over Defendant such as learning Defendant’s cost structure, revenue streams, and profit margins, as well as challenging Defendant’s patents or initiating patent infringement lawsuits against Defendant. (Id.) He states that the February 2021 profit and loss statement has protected information similar to the Annual Budget. (Id., ¶4.) With regard to Exhibits E (historical balance sheets for 2014-2020) and F (February 2021 balance sheet), he states that the documents spell out Defendant’s cash holdings, its account receivables, inventory, the book value of its intellectual property and equipment, and each of its current and noncurrent liabilities. (Id., ¶¶5-6.) Mr. Raber states that Exhibits E and F constitute trade secrets which are kept strictly confidential in the same manner as the Annual Budget. (Id., ¶7.)

While Defendant and its employees may have taken steps to maintain the secrecy of its finances, Defendant has not shown that the financial documents constitute a formula, pattern, compilation, program device, method, technique, or process that derives independent economic value from not being generally known to the public who can obtain economic value from its disclosure or use. The Court does not find that Mr. Raber’s declaration sufficiently shows that the budgets and financial information of the Company constitute trade secrets for the purpose of sealing. While it may reveal some of Defendant’s profits and losses and other financial information, it does not reveal Defendant’s particular formulas or methods for making their products, customer lists, etc. which are ordinarily the type of matter subject to sealing. For example, every publicly traded company must disclose such information.

As stated above, court records are presumed to be open unless confidentiality is required by law. Further, the parties have put the Company, its finances, the salaries paid to its employees, how monies are used, etc. into issue by the filing of this action. Given the breadth of information that the parties wish to seal, it will be unworkable to process the dispute in court. As such, the Court does not find that this motion to seal, the motion for preliminary injunction, and the supporting documents are subject to sealing.

The motion to seal is denied.

DISCUSSION RE MOTION FOR PRELIMINARY INJUNCTION

Plaintiff moves for a preliminary injunction enjoining Defendant (or “Company”) from entering into any financial transactions and violating provisions of the Operating Agreement without the prior approval of Plaintiff. Plaintiff argues that an injunction is necessary to restore the parties to the status quo established by the Operating Agreement and prevent the dissipation of assets and self-dealing by the managers. Plaintiff acknowledges that the language of the requested injunction is broad, but argues that it is consistent with the parties’ obligations under the Company’s Operating Agreement.

A. Relevant Portions of the Operating Agreement

The Operating Agreement of Scientific Holdings, LLC is attached as Exhibit A to the declaration of John D. Jenkins.

The Operating Agreement defines the following relevant terms in Section 1.1:

Annual Budget” means each annual operating budget of the Company and its Subsidiaries for a given calendar year, as reasonably approved by a Super Majority Vote of the Class A Members pursuant to Section 7.10, as such budget may be modified or amended from time to time with the approval of a Super Majority Vote of the Class A Members. Each Annual Budget shall include: (a) overhead expenses, including but not limited to salaries, bonuses, benefits, rent, office expenses, consulting and advisory fees, insurance, and sales and marketing expenses, (b) estimated research and development, and (c) estimated capital expenditures for equipment and other operational expenses.

Super Majority Vote” means the affirmative vote of greater than eighty percent (80%) of the total outstanding Class A Units.

(Operating Agreement, ; 1.1 at pp. 3, 10.)

Article VII (Operations and Management) states in relevant part:

Section 7.1. Management; Significant Events.

(a) Management. Except as otherwise provided in this Agreement or by applicable law, the power and authority to manage, direct and control the Company will be vested in the Board of Managers. Except as otherwise provided in this Agreement or by applicable law, the Board of Managers will have full, complete and exclusive authority to manage, direct and control the business, affairs and properties of the Company, to incur indebtedness on behalf of the Company and to perform any and all other acts or activities customary or incident to the management of the Companys activities. Unless expressly authorized to do so by the provisions hereof or by applicable law or by formal action of the Board of Managers, no Member may claim or exercise any authority to act, or to enter into any contract or agreement, on behalf of the Company.

(b) Significant Events. Notwithstanding any other provision in this Agreement to the contrary, the following events by the Company and each Subsidiary of the Company, as applicable, shall require the prior approval of a Super Majority Vote (provided that if any of the following events are expressly included in any Annual Budget approved in accordance with Section 7.10, then such event, to the extent included in an Annual Budget, shall not require a Super Majority Vote pursuant to this Section 7.1(b)):

(ii) any of the following (A) the hiring, retention, engagement or termination of any manager, officer, consultant, independent contractor or other employee with annualized compensation of $75,000 or more; (B) the adoption, approval, amendment, increase or renewal of the compensation or benefits of any manager, officer, consultant, independent contractor or other employee whose annualized compensation exceeds $75,000; (C) the adoption, entry into, approval, amendment, renewal or termination of any employment agreement, independent contractor agreement or consulting agreement with any manager, officer, consultant, independent contractor or other employee whose annualized compensation exceeds $75,000; or (D) the adoption, approval, amendment, increase, renewal or termination of any compensation plan (including any option, bonus, incentive compensation or similar plan) or any health or other employee benefit plan or similar arrangement, or authorize or approve any awards (or amendment to existing awards) thereunder.

(v) the expending of funds or incurrence of obligations in any one fiscal quarter of more than 125% of the forecasted expenses in the Annual Budget for such calendar quarter;

(ix) the entering into of any contract or agreement (other than the contracts and agreements contemplated by the Contribution Agreement) with any Member or any Affiliate of any Member other than on arm’s length terms and conditions;

(xi) any of the following: (i) entering into, amending, terminating or renewing any agreement, lease or arrangement that has a term of more than one (1) year (A) with terms negotiated on less than an arms-length basis, or (B) that involve receiving or making annual payments in excess of $100,000; or (ii) the disposal of any asset or group of assets having a fair market value greater than $50,000 or that is otherwise material to the Business of the Company;

(xii) the incurrence of any indebtedness for borrowed money or the entry into any agreement, guarantee, commitment, assumption or guarantee in respect of indebtedness or borrowed money;

Section 7.2. Board of Managers.

(a) Composition. There will be three (3) members of the Board of Managers. Managers need not be Members of the Company. The Managers shall be elected by a Majority Vote of the Class A Members. Subject to Section 7.2(f) below, each Manager will hold office until his or her successor, if any, is elected and qualified. As of the Effective Date, the Managers are Jeff Raber, Mark Raber, and a third person to be designated by a Majority Vote of the Class A Members.

Section 7.4. Officers. The Board of Managers may, from time to time, designate one or more Persons to be Officers of the Company, with such titles as the Board of Managers may assign to such Persons. No Officer need be a Member or a resident of the State of Delaware. Officers so designated will have such authority and perform such duties as the Board of Managers may, from time to time, delegate to them and, unless otherwise specified by the Board of Managers, will have the authority and responsibilities generally held by officers of a Delaware corporation holding the same titles. Any number of offices may be held by the same Person. The salaries or other compensation, if any, of the Officers and agents of the Company will be fixed from time to time by the Board of Managers. Any Officer may resign as such at any time. Such resignation will be made in writing and delivered to the Board of Managers and will take effect at the time specified therein, or if no time be specified, at the time of its receipt by the Board of Managers. Any Officer may be removed as such, either with or without cause, by the Board of Managers, in its discretion. Any vacancy occurring in any office of the Company may be filled by the Board of Managers. The Officers of the Company, and their respective titles, as of the Effective Date are set forth on Exhibit C hereto.

Section 7.10. Annual Budget.

(a) Within ninety (90) days following the date of this Agreement, the Board of Managers shall present to the Class A Members for approval by a Super Majority Vote a budget of the Company and its Subsidiaries for calendar year 2014 (the “Initial Annual Budget”). At least forty-five (45) days prior to January 1, 2015 and each calendar year thereafter, the Board of Managers shall present to the Class A Members for approval by a Super Majority Vote a budget of the Company and its Subsidiaries for the following calendar year (each, a “Subsequent Annual Budget,” the Initial Annual Budget and each Subsequent Annual Budget may be referred to herein from time to time as an “Annual Budget”). The Annual Budget may be amended, supplemented or modified by a Super Majority Vote. Each proposed Annual Budget shall be a detailed budget of the internal and external costs and expenses that the Board of Managers, in good faith, reasonably expects to incur during the applicable calendar year that will be required in connection with the Company’s and its Subsidiaries’ then existing business. Each such Annual Budget shall, at a minimum, set forth the Board of Managers’ good faith estimate of the (i) general and administration expenses the Company and its Subsidiaries expects to incur; (ii) number of employees of the Company and its Subsidiaries’ and compensation for each; (iii) capital expenditures reasonably expected to be incurred; and (iv) such other expenses and liabilities as reasonably required by the Board of Managers.

(b) The Officers shall be responsible for managing the day to day operations of the Company in accordance with the Annual Budget, subject to such limitations and directions as are provided by the Board of Managers. The senior Officers will annually prepare and submit to the Board of Managers for its approval an Annual Budget. In furtherance of the foregoing, the Board of Managers shall review each Annual Budget at least quarterly (or more frequently as determined by the Board of Managers), and the Annual Budget shall be amended or modified to reflect any amendments or modifications thereto approved by the Board of Managers and a Super Majority Vote and as so modified or amended shall thereafter constitute the Annual Budget for the remainder of the calendar year to which such Annual Budget relates.

(Operating Agreement, ; 7.1, 7.2, 7.4, 7.10 at pp. 25-28, 31.)

Section 9.3 is regarding Inspection of Company Records. It states in relevant part:

In addition to the other rights specifically set forth in this Agreement, the Members will have access to all information to which a Member is entitled to have access pursuant to the Act. Each Class A Member shall have the right, at all reasonable times during usual business hours, to audit, examine and make copies of, or extracts from, the books of account and other financial records of the Company at its principal place of business, and to discuss all aspects of the Company’s business, affairs, finances, and accounts with the Officers and the Company’s independent public accountants. Such right may be exercised through any agent or employee of a Class A Member designated by such Class A Member or by an independent certified public accountant designated by such Class A Member. Each Class A Member shall bear all expenses incurred in any examination made for such Member’s account and shall keep all information obtained during such inspection confidential. In the exercise of their rights under this Section, the Class A Members agree that they shall not cause any unreasonable interference with or disruption of the Company business.

(Operating Agreement, ; 9.3 at pp. 32-33.)

B. Probability of Success on the Merits

Plaintiff argues that it can show the probability of success of the merits of its declaratory judgment and breach of contract claims. With regard to the declaratory relief claim, Plaintiff argues that there is an actual controversy between the parties where Plaintiff believes that section 7.1(b) in the Operating Agreement requires Defendant to obtain Plaintiff’s prior approval before entering into “Significant Events” transactions, whereas Defendant has been entering into such transaction without obtaining prior approval. (Mot. at p.10.) With regard to the breach of contact cause of action, Plaintiff argues that Defendant has breached the Operating Agreement by failing to obtain approval by a Super Majority Vote prior to entering “Significant Event” transactions. (Id.)

John Jenkins (managing member of Plaintiff) states that Plaintiff provided all the initial start-up capital for Defendant in exchange for 41.4% of the Class A Units of the Company, and the remaining 58.6% is owned indirectly by 2 managers of the Company. (Jenkins Decl., ¶4.) He states that Jeff Raber and Mark Raber are the managers of the Company, comprise the Board of Managers of the Company, and manage the Company on a day-to-day basis. (Id., ¶¶6-7.)

Plaintiff argues that the Operating Agreement at section 7.1(b) provides Plaintiff certain protections, including a system of “blocking rights” preventing Defendant from entering into specifically enumerated “Significant Events” transactions without a Super Majority Vote (80% of the Class A units)—or Plaintiff’s prior approval of the transaction. Plaintiff argues that the managers have operated the Company in breach of the important contractual provisions, including making unauthorized payments of one of the manager’s personal expenses.

As pointed out by Defendant, the Operating Agreement does not make any mention of “blocking rights.” (Opp. at pp.4-5; Raber Decl., ¶11.) Rather, the Board of Managers (Dr. Raber and his brother Mark Raber) had the obligation to put together the Annual Budget, “have full, complete and exclusive authority to manage, direct and control the business, affairs and properties of the Company, to incur indebtedness on behalf of the Company and to perform any and all other acts or activities customary or incident to the management of the Companys activities,” and could fix the salary or other compensation of Officers and agents of the Company. (Operating Agreement, ;; 7.1(a), 7.4, 7.10.) While the Super Majority Vote is required in certain circumstances, it is not always required where the annual budget already includes such entries.

Plaintiff argues that the Operating Agreement requires the managers to operate the Company in accordance with an Annual Budget approved by a Super Majority Vote, but that the Company has operated without one from 2019 to 2021. Mr. Jenkins states that Plaintiff did not approve any proposed annual budget for 2018 to 2021. (Jenkins Decl., ¶10.) However, Defendant argues that Plaintiff approved the budget for 2014, which included Dr. Jeffrey C. Raber’s salary and payment for “Staff Housing”, as well as the 2017 budget with larger expenses. (Raber Decl., ¶¶8, 10, Ex. A.) Plaintiff has not shown that it did not receive the proposed annual budgets. Rather, Dr. Raber states that the Company provided Plaintiff with the budgets in 2018-2021, solicited Plaintiff’s approval, and attempted to address concerns raised by Plaintiff, but Plaintiff did not grant approval. (Id. ¶13.) The Operating Agreement defines “Annual Budget” as the budget “reasonably” approved for a given calendar year by a Super Majority Vote. While a legitimate dispute exists regarding whether the budgets have been approved, and whether approval has been reasonably withheld, the Court cannot conclude that Plaintiff’s success on this question is so probable that the operations should be shut down or severely restricted by equitable relief pending trial.

Next, Plaintiff argues that Defendant violated section 7.1(b)(v) by failing to obtain a Super Majority Vote to expend funds or incur obligations in any one fiscal quarter of more than 125% of the forecasted expenses in the Annual Budget for that calendar quarter. Plaintiff then argues without specification that Defendant made payments totaling millions of dollars since 2019, but it is unclear what those payments are regarding and whether they are contrary to the quarterly/annual budgets.

Plaintiff also argues that Defendant’s payment of manager’s personal expense from the Company’s funds violates the Operating Agreement, such as a “staff housing” payment for Dr. Raber. However, as pointed out by Defendant, Dr. Raber’s staff housing was approved of by both parties in 2014, such that this should not be a surprise to Plaintiff now. (Raber Decl., ¶8, Ex. A.) Dr. Raber further explains that the Company paid his rent directly to the landlord because banks are uncomfortable with doing business with cannabis companies, cannabis companies are largely cash businesses, and the parties had previously indicated their understanding and agreement to the payment of his rent directly in order to avoid the bank closing Dr. Raber’s personal account. (Id., ¶9.) Thus, while Plaintiff argues that this is an improper “personal expense,” Plaintiff agreed to the payment of staff housing in prior approved versions of the annual budget. Thus, the matter seems disputed to the point that the Court cannot conclude that Plaintiff is likely to prevail on this record.[1]

Next, Plaintiff argues that Defendant has violated section 7.1(b)(ix), which preclude party-related transaction without a Super Majority Vote. Specifically, Plaintiff refers to an asset describes as “Due from Jamrab.” However, Defendant explains in opposition that this was not a loan made to Jamrab Industries, Inc. (owned by Jeffrey and Mark Raber), but rather the entry was a reference to track cash flow between the predecessor entity to the Company and the Company relating to the buyout of an investor’s interests, which the Company provided document to support the explanation. (Hughes Decl., ¶6, Ex. B [11/19/20 Email].) Once again, the Court cannot determine on this record that Plaintiff’s contentions will prevail over those of the Defendant.

Plaintiff argues that Defendant also cannot dispose of assets without a Super Majority Vote, there was a significant depreciation of equipment, and that Defendant has announced its desire to sell a piece of equipment. Dr. Raber explains the transactions regarding the equipment, which resulted in a write-down in the book values, and how the transactions were shared with Kevin DeMeritt (one of the owners of Plaintiff). (Raber Decl., ¶15.) He admits that he did not disclose an October 2020 sale because the sale occurred days after the lawsuit was filed and the Company believed that Plaintiff’s adversarial position would render the question of approval moot. (Id.) However, it appears that the parties were recently in communication about the possible further sale of equipment, as evidenced by their February and March 2021 communications. (See Barth Decl., Ex. K-M.)

At most, Plaintiff may have shown that there are issues with regard to obtaining Super Majority Votes for the disposal of equipment. However, the injunction sought by Plaintiff is overbroad in scope, as it seeks to enjoin Defendant from entering any financial transaction without Plaintiff’s prior approval. This injunction request does not conform to the Operating Agreement’s terms. If granted as requested by Plaintiff, potentially any transaction involving finances (i.e., paying the Company’s rent and utilities, compensating employees, engaging in any business transactions, defending itself in this lawsuit, etc.) would effectively be subject to scrutiny. As stated above, the officers of the Company are tasked with the day-to-day management of the Company and the Board of Managers have the power and authority to manage, direct and control the Company and its business, affairs, and properties, to incur indebtedness on behalf of the Company, and to perform any and all other acts or activities customary or incident to the management of the Companys activities. Such a wide-sweeping injunction is not justified.

  1. Weighing the Balance of Harms

Before a court will grant a preliminary injunction, the moving party must establish at least some probability of success on the merits. (Butt v. State of California (1992) 4 Cal.4th 668, 678.) “If a moving party is able to make such a showing, a court will then “examin[e] all of the material before it in order to consider ‘whether a greater injury will result to the defendant from granting the injunction than to the plaintiff from refusing it, ....’ [Citations.]” (Take Me Home Rescue v. Luri (2012) 208 Cal.App.4th 1342, 1353.) Irreparable injury may include injury resulting from wrongs of a repeated and continuing character. (Wind v. Herbert (1960) 186 Cal.App.2d 276, 285.)

Plaintiff argues that it will suffer irreparable harm if injunctive relief is denied because Defendant has violated the Operating Agreement and diverted Company assets to pay for personal expenses of one of the Managers. It argues that Defendant will not suffer any hardship because Plaintiff only seeks to prevent Defendant “from disbursing funds or incurring obligations to pay expenses that have not been approved by Lab Capital” and argues that it seeks “no depletion of Company assets.” (Mot. at pp.11-12.) However, the Court finds that the balance of harms does not weigh in favor of granting an injunction. As discussed above, the injunction sought is overbroad and would effectually cause operations of the Company to be disrupted to its detriment. Defendant argues that if the injunction is granted and every expense limited, then the Company’s revenue would collapse, the Company would lose clients, it would risk losing crucial intellectual property rights, and it would face a default judgment in this case. Defendant argues that granting such an injunction would require continuing Court supervision or the appointment of a receiver, which would defeat any attempt to reduce costs.

  1. Adequacy of Monetary Damages

An injunction may be granted in cases when pecuniary compensation would not afford adequate relief and where it would be extremely difficult to ascertain the amount of compensation which would afford adequate relief. (CCP ; 526(a)(4), (5).) An injunction cannot be granted where an adequate remedy exists at law and if monetary damages afford such adequate relief. (Thayer Plymouth Center, Inc. v. Chrysler Motors Corp. (1967) 255 Cal.App.2d 300, 306.)

The Court does not find that Plaintiff has shown that monetary damages would be inadequate in this case. For example, there are quarterly and annual financial reports issued by Defendant such suggests that monetary damages are quantifiable, as well as the actual expenditures of the Company, lack of payment to Plaintiff, etc.—all of which are monetary in nature. The disputes between the parties seem to encompass a relatively limited universe such that reimbursement of these expenses to the company may be a sufficient remedy. Further, Plaintiff’s motion broadly seeks an injunction enjoining Defendant from entering into any financial transactions (i.e., payment of compensation, buying/selling equipment, etc.) without Plaintiff’s prior approval, but such transactions would be susceptible to identification in amount. The level of disputed transactions does not appear to represent an existential threat to Plaintiff’s investment.

Thus, this factor too weighs in favor of denying the motion.

CONCLUSION AND ORDER

Defendant’s motion to seal is denied.

Plaintiff’s motion for preliminary injunction is denied.

Defendant shall give notice of this order.


[1] Plaintiff also takes issue with Dr. Raber’s increased salary, arguing that he is breaching his fiduciary duties and the Operating Agreement. However, the Operating Agreement, ; 7.4 states that the “salaries or other compensation, if any, of the Officers and agents of the Company will be fixed from time to time by the Board of Managers.” Further, the Super Majority Vote does not apply where the Annual Budget has been approved. (Operating Agreement, ; 7.2(b).) A copy of the 2021 Annual Budget is attached as Exhibit A to Mr. Barth’s declaration showing Dr. Raber’s salary is $120,000. While Mr. Jenkins states that he would not approve a salary of $196,800 for Dr. Raber (Jenkins Decl., ¶12), Plaintiff has not first established the amount of Dr. Raber’s actual salary.



Case Number: *******0287    Hearing Date: May 14, 2021    Dept: B

Superior Court of California

County of Los Angeles

North Central District

Department B

lab capital, llc,

Plaintiff,

v.

scientific holdings, llc,

Defendant.

Case No.: *******0287

Hearing Date: May 14, 2021

[TENTATIVE] order RE:

motion to seal; motion for preliminary injunction; demurrer

BACKGROUND

A. Allegations

Plaintiffs Lab Capital, LLC (“Plaintiff”) alleges that it is a financial investor in Defendant Scientific Holdings, LLC (“Defendant”), is a 41.4% owner of the Class A Units of Defendant, and does not participate in the day-to-day operations of the company. Plaintiff alleges that Jeffrey and Mark Raber are Defendant’s sole officers and managers and that their company, Jamrab, Inc., owns a 58.6% majority of the Class A Units. Plaintiff alleges that Defendant has violated the Operating Agreement because the managers have treated the company as their own personal business and piggybank, refused to operate in accordance with the annual budget, and refused to provide financial books and records to Plaintiff.

The complaint, filed September 16, 2020, alleges causes of action for: (1) declaratory relief; (2) dissolution; (3) breach of contract; (4) violation of Cal. Corp. Code, ; 17704.10; and (5) accounting.

On February 8, 2021, Defendant filed the first amended cross-complaint (“FAXC”) against Plaintiff for: (1) declaratory relief; and (2) accounting. Defendant alleges that it is in the cannabis business and has numerous patents. It alleges that Plaintiff became an investor and minority owner in Defendant in 2014. Defendant alleges that Plaintiff, through one of its principals, John Jenkins, has engaged in self-dealing to enrich itself at the expense of the company by insisting that the company purchase a private box suite to watch USC football games for $1 million, Jenkins insisting on being paid a salary for 2 years, and secretly met with the company’s biggest customers to destroy the company’s relationships.

B. Motions on Calendar

On April 2, 2021, Plaintiff filed a motion for preliminary injunction, enjoining Defendant (or the “Company”) from entering into any financial transactions without the prior approval of Plaintiff and violating provisions of the Company’s Operating Agreement. On April 12, 2021, Defendant filed an opposition brief, which has been filed conditionally under seal. On April 16, 2021, Plaintiff filed a reply brief.

On April 12, 2021, Defendant filed a motion to seal court records. On April 14, 2021, Defendant filed an amended motion to seal court records. The motion to seal pertains to the papers filed in support of and opposition to the motion for preliminary injunction. On May 7, 2021, Defendant filed a Notice of No Opposition to the amended motion to seal.

On March 10, 2021, Plaintiff filed a demurrer to Defendant’s FAXC. On April 28, 2021, Defendant filed an opposition. On May 7, 2021, Plaintiff filed a reply brief.

DISCUSSION RE MOTION TO SEAL AND MOTION FOR PRELIMINARY INJUNCTION

Defendant filed a motion to seal court records on April 12, 2021, concurrently with its opposition brief to the motion for preliminary injunction. The motion to seal, as well as a demurrer in this action, are currently on calendar for May 14, 2021.

There is also a Proposed Stipulation and Order for Protective Order lodged with the Court on April 9, 2021.

The motion to seal appears to be regarding Plaintiff’s motion for preliminary injunction papers and Defendant’s opposition to the motion for preliminary injunction. A review of Plaintiff’s motion for preliminary injunction and Defendant’s opposition thereto show that the papers have been redacted.

However, the Court is not in receipt of the unredacted documents. Thus, the parties should each provide physical, unredacted courtesy copies of the motion to seal and motion for preliminary injunction papers with the Court, as well as send electronic copies of the unredacted papers to BurDeptB@lacourt.org. The Court will continue the hearing on the motion to seal and the motion for preliminary injunction.

DISCUSSION RE DEMURRER

Plaintiff demurs to Defendant’s FAXC as to the 1st and 2nd causes of action.

A. Request for Judicial Notice

Plaintiff requests judicial notice of Exhibit A to the declaration of John D. Jenkins (managing member of Plaintiff), which includes a copy of the Second Amended and Restated Limited Liability Company Agreement of Scientific Holdings, LLC, dated June 24, 2016. The Court will take judicial notice of the operating agreement as it was incorporated by reference by the operative pleadings and Defendant has not objected to the request for judicial notice. (See Maryland Sound Industries, Inc. (1995) 31 Cal.App.4th 1137, 1145.)

B. 1st cause of action for Declaratory Relief

A cause of action for declaratory relief is a remedy created by CCP ; 1060 and it is pleaded if it: (1) sets forth facts showing the existence of an actual controversy relating to the legal rights and duties of the respective parties and (2) requests that the rights and duties be adjudged.  (City of Tiburon v. Northwestern Pac. R.R. Co. (1970) 4 Cal.App.3d 160, 170; see CCP ; 1060 [identifying the remedy of declaratory relief].)  If these requirements are met, the Court must declare the rights of the parties whether or not the facts alleged establish that the plaintiff is entitled to a favorable declaration. (Id.) Declaratory relief is a broad remedy, and the rule that a complaint is to be liberally construed is particularly applicable to one for declaratory relief.  (Id.) 

In the 1st cause of action, Defendant alleges that an actual controversy has arisen between Defendant and Plaintiff and their respective rights, obligations, and interest arising out of the Operating Agreement. (FAXC, ¶19.) Defendant contends:

a. Under Delaware law, the implied covenant of fair dealing applies to and is incorporated into the Operating Agreement, the same as with any other contract, and the parties to the Operating Agreement must govern themselves accordingly;

b. Contrary to the contention made by Lab Capital in the dissolution cause of action in its Complaint, it would indeed be “reasonably practicable” for the Company to carry on the business in conformity with the Operating Agreement, provided that Lab Capital would comply in good faith with the terms of the Operating Agreement;

c. Lab Capital has an obligation under the Operating Agreement and Delaware law to avoid taking actions that are harmful to the Company and the Company’s interests;

d. Lab Capital cannot seek judicial dissolution of the Company without approval of a “Super Majority Vote,” as required by the express terms of the Operating Agreement;

e. If Lab Capital withholds its approval of a matter that requires Super Majority Approval (such as the Annual Budget, an individual budget item, or a Significant Event, as that term is defined in the Operating Agreement), and if Lab Capital’s failure or refusal to approve of the matter is unreasonable, then the Company is permitted under the Operating Agreement and California law to proceed in connection with such matter as per the direction of the Board of Managers;

f. The provisions of the Operating Agreement, and Delaware law, vest the power to manage, direct and control the Company in the Board of Managers, and not in the members. Except as otherwise provided in the Operating Agreement or Delaware law, the Board of Managers has complete and exclusive authority to manager, direct and control the business and affairs of the Company, including in the event that the Company’s members cannot reach a consensus or Super Majority viewpoint on a particular matter relating to the Company’s operations;

g. The Operating Agreement does not entitle Lab Capital to prohibit the Company from incurring legal fees in connection with its representation in this litigation;

h. John Jenkins was acting as an agent on behalf of Lab Capital, with its knowledge, consent and approval, when (i) he insisted that the Company acquire a USC Coliseum suite; (ii) when he demanded a salary and an office in Aliso Viejo; and (iii) when he interfered with the Company’s relationship with Coalinga Capital Partners;

i. John Jenkins’ conduct, as described above, caused the Company to suffer damages; and

j. The Company is entitled to adjust future cash distributions to Lab Capital to compensate for any damages caused to the Company by Lab Capital’s malfeasance.

(FAXC, ¶19.)

Plaintiff argues that “contentions” are an improper basis for declaratory relief.

With regard to ¶19(a), Plaintiff argues that subsection (a) is a basic a principle of law, which is improper for a declaratory relief cause of action. In opposition, Defendant acknowledges that both parties do not dispute this contention, but that Defendant had made this allegation for contextual purposes only and that it was not seeking a judicial declaration on this undisputed item. (Opp. at p.10.) In paragraph 20 of the FAXC, Defendant makes this clear by stating that it seeks a judicial declaration as to the contentions in paragraph 19, except for subsection (a). (FAXC, ¶20.) Thus, this will not be a basis upon which the demurrer is sustained as to the 1st cause of action.

With regard to ¶19(b), Defendant essentially alleges a hypothetical that it would be “reasonably practicable” for the Company/Defendant to carry on the business in conformity with the Operating Agreement provided that Plaintiff comply in good faith with the Operating Agreement. However, for a declaratory relief cause of action, “[i]t must be a real and substantial controversy admitting of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.” (Centex Homes v. St. Paul Fire & Marine Ins. Co. “The ‘actual controversy’ referred to in this [the declaratory relief] statute is one which admits of definitive and conclusive relief by judgment within the field of judicial administration, as distinguished from an advisory opinion upon a particular or hypothetical state of facts.” (Nisei Farmers League v. Labor & Workforce Development Agency (2019) 30 Cal.App.5th 997, 1023.) This is not a proper basis for a declaratory relief cause of action. Rather, this seems better suited for injunctive relief.

With regard to ¶19(c) and (f), Plaintiff argues that Defendant is seeking an advisory opinion about the law without regard to the application of any factual background. With regard to ¶19(d), Plaintiff argues that Defendant seeks a judicial determination of a purely legal issue. With regard to ¶19(e), Plaintiff argues that this presents a double-hypothetical situation, which is improper. However, by way of these subsections, Defendant seeks a judicial determination regarding the parties’ rights and obligations under the Operating Agreement, which is a proper matter for declaratory relief. (Southern Cal. Edison Co. v. Superior Court In opposition, Defendant argues that subsection (e) could have been more simply stated, but that the California rules liberal pleading standard does not require brevity. Upon amendment, Defendant should consider clarifying the requested relief in ¶19(e).

With regard to ¶19(g), Plaintiff argues that Defendant has not cited which part of the Operating Agreement exempts Plaintiff’s counsel from the requirement that expenses be approved by a Super Majority. However, Plaintiff has not provided any legal authority showing that particular citations to an agreement must be alleged in order to make a claim for declaratory relief. Further, to the extent that Plaintiff argues that it is entitled to legal fees and Defendant does not, this presents a controversy between the parties.

With regard to ¶19(h) and (i), Plaintiff argues that judicial declarations that Mr. Jenkins was an “agent” for past conduct and that Defendant suffered damages thereto are not a proper basis for declaratory relief. “Declaratory relief generally operates prospectively to declare future rights, rather than to redress past wrongs” and is a remedy in the interests of “... preventative justice, to declare rights rather than execute them.” (Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 909.; Babb v. Superior Court (1971) 3 Cal.3d 841, 848.) In opposition, Defendant concedes that these contentions relate to “past acts” and are more properly the subject of separate damages claims and thus it will not pursue these contentions. (Opp. at p.9.)

With regard to ¶19(j), Plaintiff argues that Defendant seeks a judicial declaration on the proper method to pay damages to Defendant, which would depend on ultimate findings that Plaintiff is liable to Defendant, Defendant was damaged, and that the method of repayment is legally required. Plaintiff argues that this controversy is not ripe. The parties appear to acknowledge that the Operating Agreement requires damage claims to be arbitrated, while this Court can only consider equitable relief claims. While subsection (j) seeks a judicial declaration of the parties’ future rights, it does so in the event various prerequisites are met. Thus, this is really either an improper hypothetical declaratory relief claim or a request for an advisory opinion.

Here, Defendant has alleged some valid grounds for a declaratory relief cause of action (¶19(c), (d), (f), (g)), but it has also alleged improper contentions upon which declaratory relief is not proper (¶19(b), (j)). In addition, Defendant concedes that certain claims are not proper for declaratory relief (¶19(h)-(i) or need further clarification (¶19(e)). Thus, the demurrer to the 1st cause of action is sustained with leave to amend.

C. 2nd cause of action for Accounting

“A cause of action for an accounting requires a showing that a relationship exists between the plaintiff and defendant that requires an accounting, and that some balance is due the plaintiff that can only be ascertained by an accounting.” (Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 179.) “An action for accounting is not available where the plaintiff alleges the right to recover a sum certain or a sum that can be made certain by calculation.” (Id.) “A right to an accounting is derivative; it must be based on other claims.” (Janis v. California State Lottery Com.

It is equitable in nature and may be sought where the accounts are “so complicated that an ordinary legal action demanding a fixed sum is impracticable.” (Meister v. Mensinger Namely, this arises where the defendant has abused a special relationship with the plaintiff (i.e., cases involving trusts, partnerships and domestic relations, or fiduciary relationships), such that the review of financial records is better left to qualified forensic accountants. (Id. at 403-404.)

In the 2nd cause of action, Defendant alleges that it is entitled to an accounting of the damages caused to the company by Plaintiff’s malfeasance. (FAXC, ¶22.) It alleges it has no plain, adequate, or speedy remedy at law. (Id., ¶23.) It alleges that an accounting is necessary to calculate the proper adjustment to future cash distributions to Plaintiff and/or to distribute the company’s assets upon dissolution and that the precise value of the damages Plaintiff caused the company is presently unknown and cannot be ascertained without an accounting. (Id., ¶¶24-25.)

Plaintiff argues that this cause of action fails because the Operating Agreement requires all damage claims to be arbitrated. However, a cause of action for accounting is equitable in nature and thus this will not be a basis to sustain the demurrer. Further, as pointed out by Defendant, Plaintiff too alleged a cause of action for accounting in its own complaint, such that it is disingenuous of Plaintiff to argue that Defendant cannot do the same.

Next, Plaintiff argues that the FAXC fails to allege sufficient facts to state a cause of action for accounting because it fails to allege that a special relationship existed between the parties and that some balance is due to Defendant that can only be ascertained by accounting. In the FAXC, Defendant alleges that Plaintiff is a member of the company, a significant minority owner of the company, and a party to the Operating Agreement. (See FAXC, ¶¶10-11.) In the opposition brief, Defendant states that it can add further allegations regarding fiduciary duties owed by Plaintiff to the company. (Opp. at p.14.) Thus, the Court will allow leave to amend to add such facts so that Defendant can sufficiently allege the existence of a relationship.

Next, Defendant admits that it is in possession of the company’s books and records, but argues that it is not in possession of Plaintiff’s own books and records, which it believes contains evidence necessary for a full accounting for the benefits, monies, and opportunities that Plaintiff diverted from the company to itself. (Opp. at p.13.) However, such facts should be alleged in the FAXC to clarify this cause of action.

The demurrer to the 2nd cause of action is sustained with leave to amend.

CONCLUSION AND ORDER

Plaintiff’s motion for preliminary injunction and Defendant’s motion to seal is continued to May 28, 2021 at 8:30 a.m. The parties are ordered to provide physical, unredacted courtesy copies of the motion to seal and motion for preliminary injunction papers, as well as any opposition and reply briefs thereto, with the Court by May 20, 2021 by the end of the business day. The parties are also ordered to send electronic copies of the unredacted papers by email to BurDeptB@lacourt.org.

Plaintiff’s demurrer to Defendant’s First Amended Cross-Complaint is sustained with 20 days leave to amend.

Plaintiff shall give notice of this order.

DATED: May 14, 2021 ___________________________

John Kralik

Judge of the Superior Court



Case Number: *******0287    Hearing Date: April 23, 2021    Dept: NCB

Superior Court of California

County of Los Angeles

North Central District

Department B

lab capital, llc,

Plaintiff,

v.

scientific holdings, llc,

Defendant.

Case No.: *******0287

Hearing Date: April 23, 2021

[TENTATIVE] order RE:

motion for preliminary injunction

BACKGROUND

A. Allegations

Plaintiffs Lab Capital, LLC (“Plaintiff”) alleges that it is a financial investor in Defendant Scientific Holdings, LLC (“Defendant”), is a 41.4% owner of the Class A Units of Defendant, and does not participate in the day-to-day operations of the company. Plaintiff alleges that Jeffrey and Mark Raber are Defendant’s sole officers and managers and that their company, Jamrab, Inc., owns a 58.6% majority of the Class A Units. Plaintiff alleges that Defendant has violated the Operating Agreement because the managers have treated the company as their own personal business and piggybank, refused to operate in accordance with the annual budget, and refused to provide financial books and records to Plaintiff.

The complaint, filed September 16, 2020, alleges causes of action for: (1) declaratory relief; (2) dissolution; (3) breach of contract; (4) violation of Cal. Corp. Code, ; 17704.10; and (5) accounting.

On February 8, 2021, Defendant filed the first amended cross-complaint (“FAXC”) against Plaintiff for: (1) declaratory relief; and (2) accounting. Defendant alleges that it is in the cannabis business and has numerous patents. It alleges that Plaintiff became an investor and minority owner in Defendant in 2014. Defendant alleges that Plaintiff, through one of its principals, John Jenkins, has engaged in self-dealing to enrich itself at the expense of the company by insisting that the company purchase a private box suite to watch USC football games for $1 million, Jenkins insisting on being paid a salary for 2 years, and secretly meeting with the company’s biggest customers to destroy the company’s relationships.

B. Motion on Calendar

On April 2, 2021, Plaintiff filed a motion for preliminary injunction, enjoining Defendant (or the “Company”) from entering into any financial transactions without the prior approval of Plaintiff and violating provisions of the Company’s Operating Agreement.

On April 12, 2021, Defendant filed an opposition brief, which has been filed conditionally under seal.

On April 16, 2021, Plaintiff filed a reply brief.

DISCUSSION

Defendant filed a motion to seal court records on April 12, 2021, concurrently with its opposition brief to the motion for preliminary injunction. The motion to seal, as well as a demurrer in this action, are currently on calendar for May 14, 2021.

There is also a Proposed Stipulation and Order for Protective Order lodged with the Court on April 9, 2021.

The motion to seal appears to be regarding Plaintiff’s motion for preliminary injunction papers and Defendant’s opposition to the motion for preliminary injunction. A review of Plaintiff’s motion for preliminary injunction and Defendant’s opposition thereto show that the papers have been redacted.

As the motion to seal involves the parties’ papers and evidence in connection with the preliminary injunction motion, the Court will continue the hearing on the motion for preliminary injunction to be heard concurrently with the motion to seal and demurrer.

CONCLUSION AND ORDER

Plaintiff’s motion for preliminary injunction is continued to May 14, 2021 at 8:30 a.m.

Plaintiff shall give notice of this order.