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No chance Finn!
Best
Either way it doesn’t any more binary that this. The hearing on the 6th is surely irrelevant now. We will either be deemed solvent or insolvent next week. I would think the cause list for next weeks grand court cases will be release later today. Expect FRR to be listed. Wonder who the judge will be
My head tells me one day Rodney is right on this....but maybe one more twist. It all comes down to next Thursday and as Spudsoil said will Zaza and Steve N put up a personal guarantee
So we need to keep an eye on Cayman court again....we’ll both eyes. Come on Zaza please play a blinder
Jeremiah if it’s correct that the liquidation process is now in independent hands I don’t think a smoking gun will make any difference anymore. We still go after Hope after the fact for damages but the company will already be gone. It’s all down to whether we can prove solvency. But what do I know
I agree one day....I don’t think the injunction will be granted. What are the chances that Zaza will complete the declaration of solvency by the 29th? Basically he has to say that FRR will pay its debts within 12 months. If he doesn’t do this I think it’s all over. If he knowingly misleads the court he faces 2 years in prison. Can he find $30 million in that time and be certain of it? Are we actually producing oil?
and the Motion is therefore moot. Californians, 2018 U.S. Dist. LEXIS 56105 at *42.7 IV. CONCLUSION Plaintiffs’ Motion for a Preliminary Injunction asserts facts that are either wholly irrelevant to the claims at issue or are conclusively asserted in such a way that cannot be used to support the extraordinary remedy that is a preliminary injunction. The Grand Court in the Cayman Action has already made findings against Frontera to this effect. Even if Plaintiffs made the requisite showing to grant a preliminary injunction, the requested relief cannot prevent the alleged irreparable harm and is therefore moot. The ultimate relief Plaintiffs seek—prevention of all collection activity between Cayman Islands entities and the liquidation of FRCC—is governed by Cayman Islands law and completely beyond Defendants’ control. Accordingly, Defendants respectfully request that the Court deny the Plaintiffs’ Motion for a Preliminary Injunction. DATED: May 23, 2019 MUNSCH HARDT KOPF & HARR, P.C. By: /s/ Ross H. Parker Ross H. Parker (admitted pro hac vice) Attorneys for Defendants STEPHEN HOPE, OUTRIDER MANAGEMENT, LLC, AND OUTRIDER ONSHORE, LP
Cayman Islands entity has been placed into official liquidation with a Cayman Islands court, “the prior actions of the [JVLs] shall be valid and binding upon the company and its official liquidator.” (Companies Law § 133.) As a result, and by operation of Cayman Islands law, Plaintiffs’ Motion and the relief requested therein is moot because the liquidation of FRCC is not within the control or direction of Outrider. Accordingly, “a preliminary injunction would not prevent or remedy” the irreparable harm Plaintiffs claim is at issue. Numrich v. Gleason, 700 F. Supp. 512, 515 (D. Or. 1988). A matter becomes moot “when the issues presented are no longer ‘live’ or the parties lack a legally cognizable interest in the outcome.” Californians v. United States EPA, No. C 15-3292 SBA, 2018 U.S. Dist. LEXIS 56105, at *42 (N.D. Cal. 2018); Dream Palace v. Cty. of Maricopa, 384 F.3d 990, 996 (9th Cir. 2004). The threshold question in determining whether Plaintiffs’ requested relief is moot is whether “there is any effective relief the Court can provide.” Californians, 2018 U.S. Dist. LEXIS 56105 at *42; Doe v. Reed, 697 F.3d 1235, 1238 (9th Cir. 2012). The JVLs’ appointment has caused the relief Plaintiffs seek to “lose its character as a present, live controversy of the kind that must exist if a court is to avoid advisory opinions on abstract propositions of law.’” Dream Palace, 384 F.3d at 996., quoting Hall v. Beals, 396 U.S. 45, 48, 24 L. Ed. 2d 214, 90 S. Ct. 200 (1969). Because Plaintiffs seek to obtain injunctive relief against parties who no longer have the ability to cause harm, the request is moot. The parties with present control over the alleged harm are the JVLs and the Cayman Islands court, neither of whom are parties to this lawsuit. It is firmly established that a court may not enter an injunction against a person who has not been made a party to the case before it. LifeScan Scot., LTD v. Shasta Techs., LLC, No. 11-cv-04494-WHO, 2013 U.S. Dist. LEXIS 122858, at *15 (N.D. Cal. 2013). Pursuant to Cayman Islands law, the JVLs appointment, and the pending liquidation process, this Court simply cannot fashion the relief Plaintiffs seek, or any other “effective relief,”
Furthermore, now that FRCC has entered voluntary liquidation, “all the powers of the directors cease, except so far as the company in a general meeting or the liquidator sanctions their continuance.” (Companies Law § 119(5).) The JVLs sent notice of the liquidation to FIC and the Insider Directors on May 1, 2019. (Second Hope Decl., Ex. F.) The JVLs also published notice of the voluntary liquidation in the Cayman Islands Gazette and filed the liquidation documents with the Cayman Islands Registrar of Companies, as required under the Companies Law. (Companies Law § 123.) After an initial twenty-eight (28) day voluntary liquidation period, the JVLs must apply to a Cayman Islands court for an order that the liquidation continue under its supervision, unless the directors of FRCC have filed a declaration of solvency within the twenty-eight (28) day period. (Companies Law § 124.) Under Cayman Islands law, a “declaration of solvency” is: a declaration or affidavit in the prescribed form to the effect that a full enquiry into the company’s affairs has been made and that to the best of the directors’ knowledge and belief the company will be able to pay its debts in full together with interest at the prescribed rate, within such period, not exceeding twelve months from the commencement of the winding up. (Companies Law § 124(2).) However, a director of FRCC “who knowingly makes a declaration under the section without having reasonable grounds for the opinion that the company will be able to pay its debts in full, together with interest at the prescribed rate, within the period specified commits an offence and is liable on summary conviction to a fine of ten thousand dollars and to imprisonment for two years.” (Companies Law § 124(3)). The JVLs have recently asked the FRCC directors to complete and return to them a declaration of solvency, affirming whether FRCC is solvent or insolvent. If a declaration of solvency is filed by any of FRCC’s directors within the twenty-eight day period, then the JVLs will consider the declaration and decide whether to proceed with official liquidation if they independently determine that: (a) [FRCC] is or is likely to become insolvent; or (b) the Supervision of the Court will facilitate a more effective, economic or expeditious liquidation of the company in the interests of the contributories and creditors. (Companies Law § 131.) If a declaration of solvency is not filed by any of FRCC’s directors by May 29, 2019, then the JVLs shall apply to a Cayman Islands court for the liquidation to continue under the supervision of the court as prescribed by Section 124(1) of the Companies Law. After a
possibility” of irreparable harm, and instead must demonstrate that “irreparable harm is likely to result in the absence of the injunction,” a burden which they simply cannot satisfy. Alliance For The Wild Rockies, 632 F.3d at 1135 (emphasis added). Regardless of whether Plaintiffs were to obtain the preliminary injunction they seek, the Defendants do not have the right to under Cayman Islands law to direct or control the liquidation process. In fact, Frontera has been and may continue to participate directly in the Cayman Islands process. Ultimately, irrespective of any injunction in this action, the liquidation of FRCC will remain in the control of the JVLs and the Cayman Islands Court. The liquidation process was agreed to by Frontera and Outrider in 2016 and is currently being carried out in accordance with controlling Cayman Islands law. Specifically, Section 116 of the Companies Law provides: A company incorporated and registered under this Law or an existing company may be wound up voluntarily—(a) when the period, if any, fixed for the duration of the company by its memorandum or articles of association expires; (b) if the event, if any, occurs, on the occurrence of which the memorandum or articles of association provide that the company is to be wound up; (c) if the company resolves by special resolution that it be wound up voluntarily; or (d) if the company in a general meeting resolves by ordinary resolution that it be wound up voluntarily because it is unable to pay its debts as they fall due.” (Companies Law § 116.) The voluntary liquidation of FRCC commenced on May 1, 2019 and lasts until such time as the JVLs request court-supervised official liquidation. (Companies Law § 117.) The JVLs have fiduciary duties to act impartially and independently under Cayman Islands law, which provides that the fees and expenses incurred by the JVLs in pursuing the voluntary liquidation of FRCC are “payable out of [FRCC’s] assets in priority to all other claims.”6 (Companies Law § 130(1).) Under Cayman Islands law, a company in voluntary liquidation shall cease from carrying on its business, except as necessary and beneficial for its winding up. (Companies Law § 118.)
had just executed the Third Amendment to avoid Frontera’s default of the Note because it was unable to pay even the interest payment due. The Grand Court held the same, noting “[a] solvent company does not need to borrow money to pay its current debts. [Furthermore], a cursory review of the FRC Condensed Consolidated Balance Sheets (unaudited) for the year ending June 30, 2018 paints a pretty clear picture of balance sheet insolvency.” (Dkt. 23-8, Cornwell Decl., Ex. G.) At the time the proposed (and wholly inadequate) financing options were introduced, it is “strongly arguable that FRC [was] insolvent and that the directors’ primary regard ought to have been to the best interests of the creditors,” which includes OMF. See Tatung Co., 217 F.Supp.3d 1138; (Dkt. 23-8, Cornwell Decl., Ex. G.) Hope’s objection to debt financing and pleas for restructuring were therefore neither motivated by self-interest nor were they a breach of his fiduciary duty. During the relevant time period, Frontera was insolvent and therefore Hope’s (as well as the Insider Directors’) fiduciary duties were expanded to include the company’s creditors. For these reasons, Plaintiffs cannot prove that Hope’s rejection of any financing proposal was a breach of a duty owed to FRC. Hope was simply carrying out that duty to avoid actions that “divert, dissipate, or unduly risk corporate assets that might otherwise be used to pay creditors claims.” Tatung Co., 217 F. Supp. 3d at 1138. Plaintiffs thus have not demonstrated a “likelihood of success on the merits” of their claims. C. Frontera Cannot Demonstrate a Likelihood of Irreparable Harm in the Absence of Injunctive Relief As disclosed to this Court and Plaintiffs, non-party OMF has exercised its indisputably valid powers as a secured creditor holding a defaulted Note and directed the Collateral Agent to take steps to protect and realize all value in its Collateral. (Second Hope Decl., ¶ 9.) These actions placed FRCC in the sole control of the JVLs. Accordingly, even if Plaintiffs obtained the preliminary injunction they seek, it would be of no effect because the Defendants (even at the bounds of their indirect influence over OMF) have no present control over the liquidation of FRCC. Preserving the current “status quo,” therefore, will not prevent any “irreparable harm” (to the extent that any actually exists) which Plaintiffs seek to avoid. Furthermore, to obtain a preliminary injunction, Plaintiffs must demonstrate more than a
Plaintiffs have even gone so far as to allege that Hope caused FRC’s default of the Note on September 30, 2018. (Dkt. 36 at 13.) These claims fly in the face of logic and represent Frontera’s systemic problem of attributing blame everywhere but to themselves. As a director and principal of the secured creditor, Hope’s incentive at all times is to maximize the value of Frontera. Why would he be motivated otherwise? This is why he chose to defer FIC’s interest payments originally due on January 1, 2018, to September 30, 2018. (Dkt. 23-8, Cornwell Decl., Ex. C.) It is truly illogical for Plaintiffs to argue that Hope’s intention for years was to “cause” FIC’s default when he postponed FIC’s obligations under the Note to help it avoid default. As noted by the Grand Court in the Cayman Action, “[t]he suggestion that the Defendants are seeking to commercially benefit from destroying FRC’s value is inherently improbable and borders on the fantastical.” (Dkt. 23-8, Cornwell Decl., Ex. G.) Additionally, it is unfathomable to conclude that any director, including Hope, violates his fiduciary duties (under any circumstances) by voting against a financing or other transaction that violates the priority provisions of an uncontested loan agreement. By failing to describe the “rejected” transactions, Frontera glosses over this seminal issue. Again, Frontera has the burden to carry, and it simply does not adequately describe the transactions that Hope should have approved or connected the dots in any meaningful way to support its theory that Hope’s actions as a director caused, in any way, harm to Frontera. Moreover, Plaintiffs ignore the fact that during the time Hope and the Insider Directors were considering transactions in March and April 2018 to fund Frontera’s operations, their fiduciary duties ran directly to Frontera’s creditors. It is well established in California that “directors owe a fiduciary duty to an insolvent corporation’s creditors to avoid actions that divert, dissipate, or unduly risk corporate assets that might otherwise be used to pay creditors claims.” BTI 2014 LLC v Sequana SA & Ors, 2019 WL 00453777 (2019 EWCA Civ 112) (United Kingdom); Tatung Co. v. Shu Tze Hsu, 217 F. Supp. 3d 1138 (C.D. Cal. 2016). There is no question that, at the time Hope expressed disapproval of certain financing options, FRC could not pay its debts as they accrued and was insolvent. See Carramerica Realty Corp. v. NVIDIA Corp.,
instruct the Court, stating, “Defendants have not indicated whether they intend to have this Court apply the law of the Cayman Islands pursuant to Fed. R. Civ. P. 44.1.” (Dkt. 36, 15:6-12.) This claim disregards the fact that Plaintiffs (not Defendants) carry the burden of demonstrating a likelihood of success in order to obtain a preliminary injunction. Preminger v. Principi, No. C-04-2012-JF (HRL), 2004 U.S. Dist. LEXIS 20184, at *11 (N.D. Cal. 2004). Furthermore, as in Plaintiff’s Motion for a TRO, Plaintiffs have alleged Hope’s culpability in an insufficient, conclusory fashion. Plaintiffs fail to disclose critical facts to this Court even after this Court stated Plaintiffs’ failure to disclose the Cayman Action in their initial filings was “troubling.” Instead, Plaintiffs have doubled-down and seek to justify their blatant non-disclosure by stating they “knew if Defendants believed [the Cayman Action] was relevant (Plaintiffs do not) Defendants would so inform the Court.” (Dkt. 36 at 12.) Once again, Plaintiffs have violated Local Rule 3-13, which requires that parties give notice to this Court of material facts, such as the Cayman Action, appointment of the JVLs, and the related liquidation process. See N.D. Cal. L. R. 3-13. Additionally, Plaintiffs have cursorily and without merit attempted to argue that Hope breached his fiduciary duties while he served as a director of FRC. Although Plaintiffs have not affirmatively demonstrated which law applies to its own Motion, it is obvious that the law they do cite does not support their position. As cited by Plaintiffs, under California law, Plaintiffs must demonstrate: (1) the existence of a fiduciary relationship; (2) breach of fiduciary duty, and (c) damage proximately caused by the breach. Tribeca Cos., LLC v. First Am. Title Ins. Co., 239 Cal. App. 4th 1088, 1090, 192 Cal. Rptr. 3d 354, 357 (2015). The majority of factual allegations asserted within Plaintiffs’ Motion are wholly irrelevant as they pre-date Hope’s appointment to FRC’s board of directors (and, as explained above, have been released). Plaintiff cannot demonstrate a likelihood of success on claims whose factual support relies on events occurring before a fiduciary duty was owed. Id. (describing the first element of a breach of fiduciary duty as “the existence of a fiduciary relationship”). As to their remaining allegations, Plaintiffs claim that Hope breached his fiduciary duty when he disagreed with certain opinions and proposed decisions of the Insider Directors.
liquidation process. This is not because Outrider wants to outmaneuver Frontera or frustrate the injunctive powers of this Court or any other tribunal—it is simply the way Cayman Islands law requires liquidation of its entities, and represents OMF’s last-resort remedy to realize value from its Collateral. Because of this, as described herein, Frontera’s requested relief is moot. III. ARGUMENT AND AUTHORITIES Similar to their motion for a TRO, Frontera’s request for a preliminary injunction is entirely without merit. The type of “extraordinary remedy” Frontera seeks is not available for the baseless and conclusory allegations asserted in this lawsuit. Even if Frontera made an adequate showing as to its causes of action, the requested relief has no effect and the Court should not grant a preliminary injunction under these circumstances. A. Legal Standard for Preliminary Injunction Plaintiffs are not entitled to a preliminary injunction because they have not demonstrated the following four elements: (1) a likelihood of success on the merits; (2) a likelihood of irreparable harm to plaintiffs in the absence of preliminary relief; (3) the balance of equities tips in plaintiffs’ favor; and (4) an injunction is in the public interest. Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 129 S. Ct. 365, 374, 172 L. Ed. 2d 249 (2008). “A preliminary injunction is an extraordinary remedy never awarded as of right.” Id. At 374. Although this circuit applies a “sliding scale” approach to preliminary injunctions, it does not disregard the requirement that all four elements must be present. Alliance For The Wild Rockies v. Cottrell, 632 F.3d 1127, 1135 (9th Cir. 2011). Specifically, a preliminary injunction will only issue under the “sliding scale” test where “the likelihood of success is such that ‘serious questions going to the merits were raised and the balance of hardships tips sharply in [plaintiff’s] favor,’ . . . assuming the other two elements . . . are also met.” Id. at 1132, quoting Clear Channel Outdoor, Inc. v. City of Los Angeles, 340 F.3d 810, 813 (9th Cir. 2003). B. Frontera Cannot Demonstrate a Likelihood of Success on the Merits At the outset, Frontera’s request for a temporary injunction fails because the Court cannot analyze the claims’ likelihood of success when Plaintiffs fail to affirmatively contend what jurisdiction’s law applies. (Dkt. 36, 15:6-12). Frontera purports to put the onus on Outrider to
notice by a substantively identical filing in this Court. Since dismissal of the Cayman Action, OMF has diligently taken steps to secure its Collateral and whatever value remains therein. First, on April 17, 2019, after the Cayman Action was dismissed, OMF notified the Collateral Agent, MaplesFS Limited, of FIC’s default, which caused the Collateral Agent to send the Enforcement Notice. The Enforcement Notice was sent pursuant to Section 3.3 of the Collateral Agency Agreement. (Dkt. 23-8, Cornwell Decl., Ex. B.) On May 1, 2019, the Collateral Agent executed a unanimous written shareholder’s resolution electing to voluntarily liquidate FRCC in accordance with the Collateral Agreement and Section 116 of the Cayman Islands Companies Law, which ultimately led to the appointment of FTI and its Senior Managing Directors, David Griffin and Andrew Morrison, as joint voluntary liquidators of FRCC. Under Cayman Islands law, the voluntary liquidation of FRCC is deemed to have commenced on May 1, 2019, the date that the resolution was passed. (Companies Law § 117.) Under Cayman Islands law, official liquidation begins after voluntary liquidators request that a Cayman Islands court supervise the process until the entity is ultimately dissolved. Upon appointment, the JVLs have fiduciary duties to act impartially and independently under Cayman Islands law. In accordance with their legal obligations, on May 1, 2019, the JVLs sent notice to FIC, as well as the Insider Directors, among others, informing them that FRCC was put into voluntary liquidation that day. (Second Hope Decl., Ex. F.) The JVLs also published notice of the voluntary liquidation in the Cayman Islands Gazette and filed the liquidation documents with the Cayman Islands Registrar of Companies, as required under the Companies Law. (Companies Law § 123.) Unlike Plaintiffs’ initial attempts to obtain an ex parte TRO from this Court despite not only knowing that Defendants were represented by counsel but being in consistent contact with Defendants’ counsel, Plaintiffs received repeated notice of the voluntary liquidation process in the Cayman Islands and know that, in fact, the current status quo is Joint Voluntary Liquidation. As a result, and by operation of Cayman Islands law, the liquidation of FRCC is not within the control or direction of Outrider. In accordance with the Collateral Agreement, Outrider did direct the Collateral Agent to begin the process, but has since maintained zero control of FRCC’s
Moreover, the fact that the original debt instruments sold for a discount to Outrider is of no moment to the relief sought in the Motion. The replacement Note’s face amount is not in dispute, nor is the fact that Frontera has never made a principal or interest payment to Outrider. Similarly, there was never an indication or disclosure by Frontera that any “replacement lending” was proposed or available. (Dkt. 36, 16:3.) In fact, Frontera has never made any serious attempt to repay the Note to OMF; and, if it had, OMF and Outrider would willingly accept the payment, by way of “replacement lending” or otherwise. Additionally, it is contrary to Cayman Islands law (as detailed below) and simply false to allege that FTI is either an “agent” or “puppet” of Outrider. (Dkt. 36, 1:6-7.) The JVLs employed by FTI are required by Cayman Islands law to operate independently and impartially, and neither the Defendants nor OMF have any control or ability to direct the JVLs from taking or refraining to take any action for which the JVLs believe is in the best interest of FRCC and its creditors. OMF, as a stakeholder, can merely give its opinions to the JVLs. B. Outrider’s Valid Debt and FRCC’s Voluntary Liquidation in Accordance with the Loan Documents and Cayman Islands Law Hope and OMF were prevented from taking any steps to preserve their Collateral under the Note for six (6) months while the Cayman Action was pending. Contrary to Plaintiffs’ insinuation that OMF was somehow dilatory in advancing its rights to the Collateral, this delay was caused solely by Plaintiffs’ initiation of the Cayman Action. (Dkt. 36 at 13:9-12.) After the Cayman Grand Court discharged Plaintiffs’ ex parte temporary injunction and the Plaintiffs’ appeal caused a stay of the proceeding by operation of law, Plaintiffs sought to withdraw the Cayman Action without prejudice. Outrider consented to the withdrawal without prejudice only on the condition that Frontera pay a portion of Outrider’s attorney’s fees in the amount of $100,000 by May 7, 2019, and because Outrider did not have a mechanism under Cayman Islands law to require a dismissal with prejudice. (Second Hope Decl., Ex. F.) Plaintiffs agreed and subsequently dismissed the Cayman Action the day after filing the instant lawsuit. Outrider did not “quickly capitulate[]”; it simply accepted Frontera’s inevitable concession and continued to engage in discussions while pursuing its collections rights, only to be blind-sided without proper
II. STATEMENT OF FACTS5 A. Plaintiffs’ Undisclosed or Misstated Facts Frontera’s misstatements of fact are misleading and require clarification. First and foremost, Frontera devotes a lengthy portion of the Motion to transactions and events that occurred before the Note was executed and before Hope was appointed as a director of FRC. The underlying bases for these accusations and the claims themselves were withdrawn, settled, and fully released in the Settlement Agreement. In relevant part, the settlement agreement provides: The Parties agree to release and discharge each other, effective as of the execution of the New Note Agreement by FIC and Outrider and FIC's issuance of the Replacement Notes to Outrider, from any and all claims, demands or suit, whether known or unknown, fixed or contingent, liquidated or unliquidated, and whether or not asserted in the Bankruptcy Case, the Adversary Proceeding or otherwise, arising from or related to the [replaced] 2016 Notes. This mutual release runs to the benefit of all attorneys, agents, employees, officers, directors, shareholders, partners, affiliates, successors and assigns of any Party. (Second Hope Decl., Ex. E.) More importantly, the released allegations all pre-date the time that Hope was appointed as a board member of FRC (and therefore pre-date any time in which he owed fiduciary duties). Plaintiffs also mischaracterize the nature of Outrider’s business. Although Outrider is in the business of buying distressed debt, there is no evidence of “predator[y] behavior,” and all terms of the Loan Documents were arms-length transactions negotiated extensively by sophisticated, represented parties. (Dkt. 36, 1:19.) Specifically, Hope’s appointment to FRC’s board of directors was expressly contemplated by the parties, as memorialized within a letter dated December 20, 2016. (Second Hope Decl., Ex. E.) This letter was authored by Frontera and outlined the parties’ “agreement to and describes the process by which Stephen Hope, as representative of Outrider, will be appointed to the board of directors of FRC.” (Second Hope Decl., Ex. E.)
Frontera also attempts to support its Motion through very generally describing certain proposed transactions that may have been available to Frontera in the Spring and Summer of 2018, which Hope questioned and/or rejected as a member of the FRC Board. Frontera baldly concludes that Hope failed in his obligations to FRC because he didn’t bend to the will of insiders to the extreme detriment of OMF’s security rights. But Frontera never explains why Hope’s rejection of the proposals was improper. Plaintiffs cannot connect the dots of proximate cause because the proposals would have been unacceptable to any neutral, independent director. Frontera also omits all explanation relating to the dire financial status of its business during all relevant time periods and provides nearly zero data respecting the proposed transaction terms. Frontera likewise does not explain to the Court that every proposed transaction rejected by Hope required granting a priming lien ahead of OMF’s interest in violation of the Loan Documents and/or transferring assets beyond the reach of OMF. By comparison, the Motion does not—and cannot—honestly allege that Hope, in his capacity as an FRC Board member, voted against any infusion of equity capital, new unsecured notes, loans secured by second-priority liens, or even additional parity-lien debt expressly contemplated in the Collateral Agency Agreement. In fact, no such allegations exist because Frontera has been unable to secure funding/capital without vitiating OMF’s rights. Frontera’s allegations are conclusory, as previously held by the Grand Court in the Cayman Action, and defy economic common sense. In sum, the Motion should be denied because the relief sought by Frontera is legally and factually unsupportable, would require enjoining a party not before this Court, and belies the pending liquidation process under Cayman Islands law—a last-resort option and remedy employed by OMF to realize any remaining value from FRCC and facilitate the inevitable unwinding of impermissible priming transactions advanced by FRC during the pendency of the Cayman Islands injunction.
impermissible under California law and necessitates denial of the Motion. Enjoining party Defendants for the sole purpose of enjoining a non-party foreign entity is equally unlawful, inequitable, and destructive of corporate formalities. Frontera has failed to factually support its injunction request. Like the TRO request, the Motion disguises Frontera’s lack of factual support through conjecture and doomsday prognostication. Frontera uses the first 8 pages of its Motion to cursorily describe pre-2016 allegations against Outrider. These entirely baseless allegations2 were at the epicenter of the chapter 7 bankruptcy (of the original Frontera borrower) and related Adversary Proceeding filed by Frontera in 2016. (Dkt. 23, 62-15.) The allegations were fully settled and released in connection with a Mediated Settlement Agreement (“Settlement Agreement”) between Frontera and Outrider, which culminated in Outrider’s receipt of a full replacement note, increased security interest, and Hope’s seat on FRC’s board of directors. (See Declaration of Stephen Hope in Support of Defendants’ Opposition to Motion for Preliminary Injunction (“Second Hope Decl.”), Ex. D.)3 Despite suggestions in the Motion to the contrary, Hope was appointed to the FRC Board by agreement of the parties contemporaneously with issuance of the replacement Note.4 His board appointment was designed to gain access to fundamental data relating to operations (which was not previously available, despite loan covenants requiring the provision of this information), providing needed financial expertise and market connections to FRC to all parties’ mutual benefit, and protecting OMF’s Collateral by virtue of “unanimous consent” requirements relative to the operating assets. Moreover, these fully-released allegations are entirely irrelevant in the present lawsuit because they pre-date Hope’s appointment as a director of FRC and thus have no bearing on whether Hope breached his fiduciary duties as director.
(“Insider Directors”), have received notice of the JVLs’ appointment and commencement of the voluntary liquidation. The JVLs have requested, pursuant to Cayman Islands law, that FRCC’s directors, which include the Insider Directors, prepare a “declaration of solvency.” On information and belief, Frontera may contest the insolvency of FRCC within the “declaration of solvency” they give to the JVLs. Frontera’s involvement in the liquidation process is therefore inevitable. OMF, however, has no control of the JVLs or the insolvency process and no ability to direct how it proceeds. As a stakeholder, OMF can merely give its opinions to the JVLs—it cannot control them or their actions. Within their Motion, Plaintiffs ask the Court no less than five times to “preserve the status quo” between the parties, specifically “as of the date of the Court’s Order.” (Dkt. 36, 3:14-15.) Under applicable Cayman Islands law, the liquidation of FRCC is outside the control of OMF (and is certainly not, and never was within the Defendants’ control). Granting the Motion will have no bearing on the status quo of Frontera. FRCC is now controlled by the JVLs and will likely be under the supervision and control of a Cayman Islands court as early as May 29, 2019, although the hearing on FRCC’s liquidation in the Grand Court has not yet been scheduled. As a result, even if Plaintiffs could make the requisite factual showing—which they cannot, have not, and will not—Plaintiffs cannot obtain the relief they seek by operation of Cayman Islands law. Injunctive relief against a non-party is impermissible. Moreover, as explained in the TRO Opposition, OMF is the noteholder under the Loan Documents and, therefore, was the sole entity with authority to direct the Collateral Agent (which it has already done). OMF is not a party to this proceeding. Nonetheless, Frontera seeks to restrain OMF by reaching through and enjoining the actions of the Defendants, which are merely OMF-affiliated parties. Frontera tried, and ultimately failed, in the Cayman Action to enjoin OMF. It should not now be allowed to indirectly impair OMF’s rightful collection actions, including participation in the pending Cayman Islands liquidation process (again, having no authority or control over such process), directing the Collateral Agent as may be appropriate under the governing Loan Documents, or taking any other enforcement action in the Cayman Islands. Enjoining a party not before this Court is