Schreiber v. Redhawk Holdings Corp. et al

Filing 18

ORDER (Re Dkt # 16 ): Plaintiff's Application for a Temporary Restraining Order is denied. Plaintiff's request for a preliminary injunction will be set for a hearing on 8/3/2017 at 02:00 PM in Courtroom 14B. Any formal opposition must be filed no later than 7/17/2017. Any reply must be filed no later than 7/24/2017. Signed by Judge William Q. Hayes on 6/23/2017. (mdc) Modified text on 6/23/2017 to correct a minor misspelling. NEF was regenerated. (mdc)

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FILED

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JUN 2 3 2017

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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DANIEL J. SCHREIBER, individually
and as Trustee of the Schreiber Living
Trust, a California trust,

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CASE NO. 17cv824-WQH-BLM
ORDER

Plaintiff,
V.

REDHA WK HOLDINGS CORP., a
Nevada corporation formerly known
as Independence Energy Corp.; et. al.,

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Defendants.

16 HAYES, Judge:
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The matter before the Court is the Ex Parte Application for Temporary

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Restraining Order and Order to Show Cause RE: Preliminary Injunction (ECF No. 16)

19 filed by Plaintiff Daniel Schreiber, individually and as Trustee of the Schreiber Living
20 Trust ("Plaintiff') on June 22, 201 7.
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On April 24, 2017, Plaintiff initiated this action by filing the Complaint (ECF

22 No. 1). On June 5, 2017, Plaintiff filed proof of summons returned executed for
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Defendants Felix C. Spizale, Redhawk Holdings Corp., and Robert Rhune, Jr. (ECF

24 Nos. 3, 5-6). On June 6, 201 7, the parties filed a joint motion to extend time for all
(ECF No. 7).

The joint motion states that counsel for

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Defendants to answer.

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Defendants agreed to accept service for Defendant RedHawk and the remaining

27 Defendants who had not yet been served in this matter. Id. at 2. On June 8, 2017, the
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Court granted the joint motion (ECF No. 8). On June 15, 2017, Plaintiff filed proof of
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1 summons returned executed for Defendants Thomas J. Concannon, Phillip Harris IV,
2 Kav Hundle, G. Darcy Klug, Redhawk Holdings Corp., and Andre F. Toce, Sr. (ECF
3 Nos. 9-14).
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On June 22, 2017, Plaintiff filed the Ex Parte Application for Temporary

5 Restraining Order and Order to Show Cause RE: Preliminary Injunction (ECF No. 16).
6 On June 22, 2017, Defendants RedHawk Holdings Corp., Thomas J. Concannon, G.
7 Darcy Klug, Felix C. Spizale, Phillip Harris IV, Andre F. Toce, Sr., Robert Rhyne, Jr.,
8 and Kav Hundle ("Defendants") filed a preliminary opposition 1 to the Ex Parte
9 Application for Temporary Restraining Order and Order to Show Cause RE:
10 Preliminary Injunction (ECF No. 17).
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I. Allegations of the Complaint (ECF No. 1)

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Plaintiff alleges that he "is a former Director and Chief Executive Officer of

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RedHawk, a publicly traded company[,]" and the Schreiber Living Trust "(the 'Trust')

14 is the owner of common shares in RedHawk. Schreiber is the Trustee of the Trust."
15 (ECF No. 1 at

if 1). "Since on or around September 28, 2016, RedHawk, by and

16 through its officers and Board of Directors, has sought to obstruct the Trust's sale of
17 its shares in RedHawk." Id. at if 2. "[T]hese efforts included an unfounded demand to
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RedHawk's transfer agent to prohibit sales of Plaintiff's stock, delays in filing required

19 SEC forms and, more recently, the termination ofRedHawk's transfer agent." Id.
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"Schreiber was appointed as a Director to RedHawk's Board of Directors on

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March 31, 2014. Schreiber was also the CEO ofRedHawk from February 27, 2015."

22 Id. at if 18. "In a sale and purchase transaction dated March 31, 2014, the Trust was
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issued 57,064,608 shares of restricted RedHawk stock." Id. at if 19. "Due to a strained

24 personal and business relationship between Klug and Schreiber ... Schreiber was
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removed from the Board of Directors on April 20, 2016, and resigned as CEO on July

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Defendants title this pleading a "Preliminary 0Rposition" because it "is based
solely on byJsic] Plaintiffs counsef oral descr!J?tion oYthe nature of the application.
28 Defendants id not receive or review any of Plaintiff's_papers in advance of their
preparation of this preliminary opposition." (ECF No. 1Tat2 n.l).
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1 5, 2016." Id. at if 20. "After Schreiber was removed from his officer and director roles
2 with RedHawk, Schreiber sought to cut all ties with the company and began selling the
3 Trust's restricted shares of RedHawk." Id. at if 23.
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"[T]he Trust sought to sell its restricted stock to the public under the registration

5 exemption provisions of the Security and Exchange Commission ('SEC') Rule 144[.]"
6 Id. at if 24. "The general conditions of Rule 144 ... limit Plaintiff to selling one
7 percent ( 1% ) of the total outstanding RedHawk shares every 90 days, which as of
8 December 31, 2016, totaled 361,049,027 shares; i.e. Plaintiff can sell approximately
9 3.6 million shares every 90 days." Id. "Between September 2016 and January 19,
10 2017, Plaintiff sold 3,120,000 shares of RedHawk pursuant to the Rule 144
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requirements . . . [d]ue to RedHawk missing multiple SEC filing requirements,

12 Plaintiffs subsequent sales were delayed and the Trust has been damaged." Id. at if 25.
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"On or about January 25, 2017, Plaintiff requested that RedHawk's transfer

14 agent, Continental Stock Transfer & Trust Company ('Continental'), remove the
15 restrictive legend on an additional 1,500,000 of the Trust's shares." Id. at if 26.
16 Plaintiff alleges that "[o]n January 31, 201 7, the CFO of RedHawk, Klug, sent a letter
17 requesting that Continental 'not permit or otherwise facilitate the transfer' ofRedHawk
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shares" and "reference[ d] a lawsuit by RedHawk and another entity ... filed against

19 Plaintiff in the United States District Court for the for the Eastern District of
20 Louisiana[.]" Id. at if 27. "[O]n February 15, 2017, Continental notified Plaintiffs
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counsel that Continental had received the issuer's written consent to proceed with the

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requested sale transfer of 1,500,000. Because the Rule 144 opinion letter extended

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only until February 15, 2017, however, the transfer could not be completed by that

24 same day and Continental requested a subsequent letter be issued." Id. at iii! 31-32. "In
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order for Plaintiff to receive an updated Rule 144 opinion letter then, he needed to wait

26 until RedHawk filed its Form 10-Q.... RedHawk did not file its updated 10-Q,
27 however, until March 13, 2017, nearly a month late." Id. at iii! 33, 35.
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"After RedHawk's intentional delays, when Plaintiff was finally able to again
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1 request that the restrictive legend on the Trust's shares be removed in March 2017,
2 RedHawk again delayed Plaintiff's sale by secretly terminating its relationship with its
3 transfer agent." Id.
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at~ 36.

"On April 6, 2017, Continental informed Plaintiff's broker

it was 'not currently servicing' RedHawk as a transfer agent as its services had been

5 "suspended" by RedHawk .... RedHawk did not notify the public that it was now
6 operating without a transfer agent. ... Accordingly, RedHawk mislead the investing
7 public by its failure to file a Form 8-Kregarding this material change." Id.

at~~ 37,

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"On April 13, 201 7, counsel for Plaintiff demanded a response from RedHawk

10 regarding its transfer agent situation. As of the date of filing this complaint, RedHawk
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has not responded." Id.

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42. "To-date, Plaintiff has been unable to transfer the

12 Trust's shares in RedHawk and has been damaged as a result." Id.
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43. "[A]t a

minimum, Defendants' actions have caused Plaintiff to miss sales of at least 7.2 million

14 shares. From September 2016 through the date of this complaint, RedHawk shares
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have traded between one and two cents, meaning that Defendants' actions have caused

16 Plaintiff to lose sales between $72,000 and $144,000. Further, Defendants' actions
17 have devalued all of Plaintiff's outstanding 53,944,608 shares by delaying or
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preventing their future sale at the earliest possible date." Id.

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II. Ex Parte Application for Temporary Restraining Order and Order to Show

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Cause RE: Preliminary Injunction (ECF No. 16)

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Plaintiff requests the Court issue an order restraining Defendant RedHawk "from

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blocking the transfer of Plaintiff's common shares ofRedHawk" and allowing Plaintiff

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"to sell his shares to interested third-parties." (ECF No. 16 at 2). Plaintiff contends

24 that it continues to suffer harm as the price ofRedHawk's stock has declined in value
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and Plaintiff's opportunity to sell his shares "become scarcer." (ECF No. 16-1 at 4).

26 Plaintiff contends that on June 14, 2017, "RedHawk filed its Form 10-Q Quarterly
27 Report with the [SEC]" which demonstrates "a substantial decrease in the company's
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current and total assets since 2016[,] a net decrease in the company's cash[,]" and that
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1 RedHawk intends to sell two real estate assets in 201 7. Id. at 5. Plaintiff further
2 contends that "RedHawk' s CFO [Defendant Klug] recently made clear that RedHawk' s
3 refusal to transfer Plaintiffs shares has nothing to do with any legal objection to the
4 transfer, but is instead contingent upon a' global resolution' of disputed claims between
5 the parties." Id.
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Plaintiff contends that "[ w]ithout an injunction preventing RedHawk from

7 further interfering with Plaintiffs right to sell his shares, Plaintiff will be harmed
8 irreparably because RedHawk has explicitly made clear its intention to block Plaintiffs
9 transfer of shares while simultaneously selling off the company's assets, leaving
10 Plaintiff with no remedy if and when he prevails at trial in this matter." Id. at 6.
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Plaintiff contends that "[f]ormal notice is not necessary in this case due to the

12 impending harm Plaintiff will suffer ifthere is any delay." (ECF No. 16 at 2).
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In their preliminary opposition, Defendants contend that Plaintiffs request for

14 injunctive relief improperly seeks to change the status quo of this action. Defendants
15 contend that Plaintiff cannot demonstrate an irreparable injury or a non-monetary
16 injury. (ECF No. 17 at 3). Defendants contend that Plaintiff has not demonstrated a
17 substantial likelihood of success on the merits in this action, because Plaintiff is being
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sued in another action for failing to disclose a material fact at the time when Plaintiff

19 "obtained shares of stock from RedHawk" that are at issue in this action.

Id.

20 Defendants further request the opportunity "to file a substantive opposition before any
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ruling is issued" on Plaintiffs Application, "unless the Court is inclined to summarily

22 deny Plaintiffs [A]pplication[.]" Id. at 2.
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III. Analysis

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A. Temporary Restraining Order

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Rule 65(b)(l) of the Federal Rules of Civil Procedure states that

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The court may issue a temporary restraining order without written or oral
notice to the adverse party or its attorney only if:
(A) specific facts m an affidavit or a verified complaint
clearly show that immediate and irreRarable injury, loss, or
damage will result to the movant before the adverse party
can be heard in opposition; and

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(B) the movant's attorney certifies in writing any efforts
mad~ to give notice and the reasons why it sbouid not be
reqmred.

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Fed. R. Civ. P. 65(b)(l). The Supreme Court has explained that "The stringent
restrictions imposed by . . . Rule 65, on the availability of ex parte temporary
restraining orders reflect the fact that our entire jurisprudence runs counter to the
notion of court action taken before reasonable notice and an opportunity to be heard
has been granted both sides of a dispute." Granny Goose Foods, Inc. v. Bhd. of

Teamsters, 415 U.S. 423, 438-39 (1974). "Consistent with this overriding concern,
courts have recognized very few circumstances justifying the issuance of an ex parte
TRO. For example, an ex parte TRO may be appropriate where notice to the adverse

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party is impossible either because the identity of the adverse party is unknown or
because a known party cannot be located in time for a hearing." Reno Air Racing

Ass 'n, Inc. v. McCord, 452 F .3d 1126, 1131 (9th Cir. 2006) (citation and quotation
marks omitted).
In this case, Plaintiff has attached a declaration from its attorney stating that he
informed Defendants' attorney by telephone on June 21, 2017 and by email on June 22,
2017 that Plaintiff "would be immediately proceeding via an ex parte application for
a temporary restraining order and an order to show cause why a preliminary injunction
should not be issued." (ECF No. 16-3 at 2; Praskievicz Deel.

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3). Defendants

confirm that Plaintiffs attorney made efforts to provide Defendants with notice of the
Application. See ECF No. 17 at 2 n.1. The Court concludes that Plaintiff has satisfied
the notice requirement of Rule 65(b )( 1)(B ).
However, Plaintiff has not set forth "specific facts" that "clearly show that
immediate and irreparable injury, loss, or damage will result to the movant before the
adverse party can be heard in opposition[.]" Fed. R. Civ. P. 65(b )( 1)(A). 2 Plaintiff has

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In this case, Defendants filed a preliminary opposition to Plaintiffs Application
(ECF No. 17) that Defendants contend was prepared before Defendants had a chance
to review the Application. The Court concludes that Defendants have not been given
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1 failed to set forth specific facts as to why the Court should grant Plaintiff the injunctive
2 relief that it requests "before reasonable notice and an opportunity to be heard has been
3 granted both sides of a dispute." Granny Goose, 415 U.S. at 439. See Zakar v. CHL
4 Mortg. Pass Through Trust, No. 11CV457 JLS (WVG), 2011WL915293, at *2 (S.D.
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Cal. Mar. 8, 2011) (Sammartino, J.) (denying the plaintiffs' application for a temporary

6 restraining order because the plaintiffs "failed to set forth specific facts in an affidavit
7 or a verified complaint clearly showing that immediate and irreparable loss would
8 result before the Defendants could be heard in opposition."). Because Plaintiff has
9 failed to meet the requirement set forth in Rule 65(b )(1 )(A), Plaintiffs Application for
10 a Temporary Restraining Order is DENIED.
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B. Preliminary Injunction

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Plaintiffs Application also includes a request for a preliminary injunction

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pursuant to Federal Rule of Civil Procedure 65(a). See ECF No. 16-1 at 6 ("Plaintiff

14 requests this Court immediately enter a restraining order and preliminary injunction
15 prohibiting RedHawk from further blocking Plaintiffs requested transfer of shares.").
16 Rule 65(a) states that "The court may issue a preliminary injunction only on notice to
17 the adverse party."

Fed. R. Civ. P. 65(a)(l).

Plaintiff has demonstrated that

18 Defendants received notice of the Application. See ECF No. 16 at 4; 16-1at17; 16-2
19 at 66; 16-3 at 6. Accordingly, Plaintiffs request for a preliminary injunction will be
20 set for a hearing on August 3, 2017 at 2:00 PM in Courtroom 14B. Any formal

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the full opportunity to be heard in opposition to Plaintiffs Application. Therefore, the
Court treats Plaintiffs Application as an ex parte request for a temporary restraining
order.
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