Reta v. Monterey Fin. Servs., Inc.

• Decision Date: 17 December 2012
• Docket Number: B236988
• Parties: DAVID A. RETA et al., Plaintiffs and Appellants, v. MONTEREY FINANCIAL SERVICES, INC., Defendant and Respondent.
• Court: California Court of Appeals Court of Appeals

DAVID A. RETA et al., Plaintiffs and Appellants, v. MONTEREY FINANCIAL SERVICES, INC., Defendant and Respondent.

B236988

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION SEVEN

Dated: December 17, 2012

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Los Angeles County Super. Ct. No. BC455962)

APPEAL from an order of the Superior Court of Los Angeles County, Mark Mooney, Judge. Affirmed.

Parisi & Havens, David C. Parisi, Suzanne Havens Beckman; Preston Law Offices and Ethan Preston for Plaintiffs and Appellants.

Call & Jensen, Matthew R. Orr, Michael S. Orr and Melinda Evans for Defendant and Respondent.

David A. Reta and Patricia Diaz filed a putative class action lawsuit against Be., LLC (Be), a company that promoted itself as providing management services for children pursuing careers in the entertainment industry, and Monterey Financial Services, Inc. (Monterey), which financed Be's advance-fee contracts with its customers. Their complaint alleged causes of action for fraud and for violations of the Advanced Fee Talent Services Act (AFTSA) (former Lab. Code, § 1701 et seq.),¹ in effect at the relevant time, and various other consumer protection statutes. The trial court denied Reta and Diaz's motion for a preliminary injunction to impose a constructive trust on all funds Monterey had collected from Be customers, to prohibit Monterey from reporting unpaid sums as bad debts to credit reporting agencies and to require it to expunge any negative reports it had previously made.² We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

1. The Contracts with Be and the Financing Agreements with Monterey

According to her declaration in support of the motion for preliminary injunction, in February 2008 Diaz responded to an advertisement seeking children for nonunion work with major television networks. A talent scout for Be invited Diaz and her son to attend a screen test. After a third meeting a Be employee offered to provide Diaz's son with access to auditions attended by talent agents who could secure employment for him.Diaz executed a contract with Be stating, "We are an entertainment company that offers a membership comprised of a collection of resources, discounts and a support system designed to help individuals get started on a pathway to success." The membership was valid for five years and included a list of services at "discounted" fees, such as $50 for an acting workshop, $25 each for singing, dance and modeling workshops, $25 for showcase registration and $75 for 50 duplicate photos. The cost of the membership was $3,495, with a down payment of $325 and the balance (including interest) to be paid in 12 installments of $295.17. The separate financing agreement included notice that Be had assigned the "retail installment contract" to Monterey.

In his declaration Reta stated he and his son had been approached by a Be representative while they were at a mall in September 2008. After Reta's son completed three screen tests, a Be representative made a sales presentation similar to the one Diaz had received. Reta and his wife signed a contract with Be for a two-year membership at a cost of $2,495 with a $325 down payment and the balance financed. After making several monthly payments to Monterey, Reta had the monthly payments for December 2008 through February 2009 reversed by his credit card company. Monterey sent the Retas a letter seeking to collect the unpaid balance of the contract ($1,860 plus interest). The Retas did not pay it. More than a year later, Reta obtained a copy of his credit report, which reflected the unpaid amount as a negative event. Reta testified, "On information and belief, Monterey's derogatory remarks on my credit reports have increased the cost of my current mortgage and will increase the cost of any refinancing until the remarks are removed." Additionally, Reta stated he had "experienced severe annoyance and deep frustration when attempting to remove Monterey's remark" from his credit reports.

2. The Class Action Complaint

On February 24, 2011 Reta and Diaz filed a 12-count complaint on behalf of themselves and a putative class consisting of all persons residing in California who had entered into a contract with Be that purported to provide a discounted fee for acting workshops or similar activities in exchange for upfront payments prior to professionalemployment of the contract beneficiary.³ The complaint asserted causes of action against Be, Monterey and Dynamic Showcases, LLC for fraud and violations of AFTSA and several other consumer protection statutes. The complaint acknowledged Be had denied in a newscast expose of its practices that it was subject to AFTSA—claiming a client "can't meet an agent through us"; "[y]ou have to meet an agent through the showcase company we contract with." Nonetheless, Reta and Diaz alleged, Be was in fact operating an advance-fee talent service agency and its contracts violated AFTSA in part because they did not include right-to-refund and right-to-cancel provisions. The complaint further alleged, even if it were legal for Be to collect advance fees, it lacked the ability and experience to provide career management services and used emotionally manipulative sales practices to ensnare consumers.

As to Monterey, the complaint alleged Monterey had loaned a significant sum of money to Be in exchange for assignment of Be's accounts receivables. By early 2008 Monterey knew consumers had complained Be's contracts violated AFTSA, yet it continued to collect or attempt to collect on Be accounts. The claims asserted against Monterey included many of the same claims alleged against Be, as well as a cause of action for violation of the Rosenthal Fair Debt Collection Practices Act (Civ. Code, § 1788 et seq.) for communicating information it knew or should have known was false to rating agencies and failing to provide proper written notice to Be customers before reporting the debts.

3. The Trial Court's Denial of the Motion for Preliminary Injunction

In August 2011 Reta and Diaz moved for a preliminary injunction to impose a constructive trust on all money Monterey had collected pursuant to the financing contracts; to prohibit Monterey from reporting uncollected sums as delinquent to credit agencies; and to require it to expunge any delinquent reports already made. Reta and Diaz explained the United State District Court for the Northern District of California hadalready determined Be's contracts violated AFTSA and had granted a constructive trust as to money paid to Be. (DuFour v. Be., LLC (N.D. Cal. Dec. 7, 2009, No. 09-3770) 2009 U.S. Dist. Lexis 120563 (DuFour).)⁴ Reta and Diaz argued, because there could be no question the Be contracts were illegal, any money collected pursuant to the financing agreements was wrongfully obtained and thus properly subject to imposition of a constructive trust, and any uncollected sums improperly reported as delinquent debts. Reta and Diaz also argued irreparable harm, a general requirement for issuance of preliminary injunctive relief, must be presumed whenever a constructive trust is an available remedy and no showing of irreparable injury is necessary under the Consumer Credit Reporting Agencies Act (CCRAA) (Civ. Code, § 17851.1 et seq.)

The trial court denied the motion for preliminary injunction after hearing argument on September 6, 2011.⁵ The court expressed significant doubt about Reta and Diaz's likelihood of success on the merits, but concluded, even if they had made a minimal showing on the merits, they had failed to demonstrate irreparable harm: "[Plaintiffs]haven't met their burden to convince me that preliminary injunction, that's extraordinary relief, that you've got to really show that you're entitled to it, and that there is going to be some immediate harm. I just don't see it here . . . ."

DISCUSSION

1. Governing Law

a. Standard of review

"As its name suggests, a preliminary injunction is an order that is sought by a plaintiff prior to a full adjudication of the merits of its claim. [Citation.] To obtain a preliminary injunction, a plaintiff ordinarily is required to present evidence of the irreparable injury or interim harm that it will suffer if an injunction is not issued pending an adjudication of the merits." (White v. Davis (2003) 30 Cal.4th 528, 554; see DVD Copy Control Assn., Inc. v. Bunner (2004) 116 Cal.App.4th 241, 249 ["preliminary injunction is appropriate to maintain the status quo pending trial of the merits"].) "In deciding whether to issue a preliminary injunction, a trial court weighs two interrelated factors: the likelihood the moving party ultimately will prevail on the merits, and the relative interim harm to the parties from the issuance or nonissuance of the injunction." (Hunt v. Superior Court (1999) 21 Cal.4th 984, 999.)

We generally review the trial court's ruling for abuse of discretion. (Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, 1449-1450.) An order denying an application for a preliminary injunction may be reversed only if the trial court abused its discretion with respect to both the question of success on the merits and the question of irreparable harm. (Cohen v. Board of Supervisors (1985) 40 Cal.3d 277, 286-287.) However, if the "likelihood of prevailing on the merits" determination depends on construction of a statute and its application to undisputed facts, our review of that issue is independent or de novo. (Marken v. Santa Monica-Malibu Unified School Dist. (2012) 202 Cal.App.4th 1250, 1274; see California Medical Assn. v. Regents of University of California (2000) 79 Cal.App.4th 542, 547, fn. 8 [de novo review when characterization of evidence is...