Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_08-cv-02248/USCOURTS-cand-5_08-cv-02248-0/pdf.json

Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 18:1962 Racketeering (RICO) Act

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United States District Court

For the Northern District of California

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 The case was originally assigned to Magistrate Judge Seeborg, however, because not all parties

have been served and provided consent to proceed before a magistrate judge, the case was

reassigned to the undersigned upon the filing of plaintiffs' TRO and Attachment Applications. 

ORDER DENYING APPLICATION FOR TEMPORARY RESTRAINING ORDER—No. C-08-02248 RMW

MAG

United States District Court

For the Northern District of California

E-FILED on 6/8/08

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

STEVE TRACHSEL et al.,

Plaintiffs,

v.

RONALD BUCHHOLZ et al.,

Defendants.

No. C-08-02248 RMW

ORDER DENYING APPLICATION FOR

TEMPORARY RESTRAINING ORDER

[Re Docket No. 22]

On June 3, 2008, plaintiffs, three individuals and three fictitious entities, filed (1) a notice of

ex parte application for temporary restraining order ("TRO Application") and (2) an application for

a right to attach order and an order for issuance of writ of attachment after hearing ("Attachment

Application"). The Attachment Application was filed with notice to defendants pursuant to N.D.

Cal. L.R. 7-3(b); the TRO Application was not.1

 Defendants Solomon Towers, Ronald Buchholz,

Charice Fischer, RDB Development, LLC received a copy of the TRO Application on June 4, 2008

and submitted an opposition on June 5, 2008. 

Case 5:08-cv-02248-RMW Document 42 Filed 06/08/08 Page 1 of 7
United States District Court

For the Northern District of California

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 Based on the Operating Agreement, plaintiff Sun City Towers contributed $200,000, plaintiff

Cirrito Holdings contributed $150,000 and plaintiff Atocha Land contributed $650,000. Trachsel

Decl., Ex. A. 

ORDER DENYING APPLICATION FOR TEMPORARY RESTRAINING ORDER—No. C-08-02248 RMW

MAG 2

In their TRO Application, plaintiffs ask that the court, without notice to all parties under Fed.

R. Civ. P. 65(b), to (1) enjoin defendants' continued expenditure of Solomon Towers, LLC funds; (2)

prevent the alteration or destruction of evidence; and (3) prevent the use of Solomon Towers, LLC

funds or other investor funds for the defense of this action. As set forth above, all defendants have

now had notice of plaintiffs' TRO Application. For the reasons set forth below, the court denies

plaintiffs' TRO Application. 

I. BACKGROUND

Plaintiffs are investors in an investment opportunity offered by Solomon Capital, Solomon

Towers, LLC, a high-rise condominium investment ("Solomon Towers project"). Defendant Ronald

Buchholz is allegedly the president of Solomon Capital and defendant Charice Fischer is its CFO. 

Plaintiffs allege that in February 2005, the Solomon Towers project was presented to them as

an investment opportunity. Compl. ¶ 44. As part of the Solomon Towers project, defendants were

to purchase land in downtown Phoenix, Arizona using investors' funds, then develop the land into

upscale condominiums, with investors eventually receiving return on the sale of the condominiums.

Decl. Steve Trachsel Supp. TRO Application ("Trachsel Decl.") ¶ 3. The presentation given to

investors was a PowerPoint presentation and was accompanied by "pro forma" financial statements. 

Compl. ¶¶ 44-45. Investors were allegedly not provided with a private placement memorandum at

the presentation or thereafter. See, e.g., Trachsel Decl. ¶ 3. In March 2005, plaintiffs and other

investors executed an Operating Agreement with Solomon Towers, LLC. The Operating Agreement

includes 18 initial members who contributed a total of $4,169,400.00.2

 Id. ¶ 47, Ex. C. Together

with loans set forth in the Operating Agreement, the total investment by investors in the Solomon

Towers project is allegedly $5,100,000.

In July 2002, a company owned by defendant Donald Zeleznak purchased property at 625-

643 N. 2nd Avenue, Phoenix, Arizona ("the Property") for $14.00 per square foot. Trachsel Decl. ¶

4. In April 2005, defendants Zeleznak and Vento sold the Property to Solomon Towers at $178.75

per square foot. Id. Defendants Buchholz and Fischer paid for the Property using the investment

Case 5:08-cv-02248-RMW Document 42 Filed 06/08/08 Page 2 of 7
United States District Court

For the Northern District of California

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ORDER DENYING APPLICATION FOR TEMPORARY RESTRAINING ORDER—No. C-08-02248 RMW

MAG 3

funds contributed by investors. Id. Zeleznak allegedly received a commission of $1,000,000 for the

sale. Id. According to plaintiffs, the actual market rate for comparable land was $33.19 per square

foot and Zeleznak's commission of approximately 20% of the sale price was well above the

prevailing commission rate of 5-6%. Id.

To date the Solomon Towers project has not been built and plaintiffs allege that the financial

statements disseminated by Solomon Capital, Buchholz and Fischer on February 29, 2008 indicate

that the project is in severe financial distress and overleveraged in an amount in excess of

$2,400,000. Id. ¶ 5. Plaintiffs allege that defendants have not applied the investment funds toward

the development of the Property but have instead divided the investment funds among themselves

and left the investors holding the overleveraged property. They refer to this as a "pump and dump"

scheme. Plaintiffs claim to have learned of defendants' fraudulent scheme after July 2007, when

authorities raided Solomon Capital's San Jose offices due to allegations of fraudulent investment

schemes. Id. ¶ 6. 

On April 30, 2008, plaintiffs filed a complaint against numerous individuals and companies

involved in Solomon Capital, Inc., and the transactions surrounding the Solomon Towers project for

RICO violations, federal securities violations, breach of fiduciary duty, breach of contract, negligent

and intentional misrepresentation, conspiracy, fraud and violation of Cal. Bus & Prof. Code § 17200. 

Plaintiffs also seek damages and rescission of sale under California securities laws, specifically Cal.

Corp. Code §§ 25102, 25110, 25501, 25503, 25401, and 25504.

II. ANALYSIS

Under Fed. R. Civ. P. 65(b), plaintiffs must make a showing that immediate and irreparable

injury, loss or damage will result to plaintiff if the order is not issued to support their motion for a

temporary restraining order. Temporary restraining orders are governed by the same standard

applicable to preliminary injunctions. See Cal. Indep. Sys. Operator Corp. v. Reliant Energy Servs.,

Inc., 181 F. Supp. 2d 1111, 1126 (E.D. Cal. 2001) ("The standard for issuing a preliminary

injunction is the same as the standard for issuing a temporary restraining order."). The standard for

obtaining ex parte relief under Rule 65 is very stringent. Reno Air Racing Ass'n v. McCord, 452

F.3d 1126, 1130 (9th Cir. 2006).

Case 5:08-cv-02248-RMW Document 42 Filed 06/08/08 Page 3 of 7
United States District Court

For the Northern District of California

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 Defendants further object to this statement in Trachsel's declaration as hearsay, lacking foundation

(because it does not explain how Trachsel came to this knowledge), failing to display personal

knowledge and stating a legal conclusion. 

ORDER DENYING APPLICATION FOR TEMPORARY RESTRAINING ORDER—No. C-08-02248 RMW

MAG 4

The Ninth Circuit has set forth two separate sets of criteria for determining whether to grant

preliminary injunctive relief:

Under the traditional test, a plaintiff must show: (1) a strong likelihood of success on

the merits, (2) the possibility of irreparable injury to plaintiff if preliminary relief is

not granted, (3) a balance of hardships favoring the plaintiff, and (4) advancement of

the public interest (in certain cases). The alternative test requires that a plaintiff

demonstrate either a combination of probable success on the merits and the

possibility of irreparable injury or that serious questions are raised and the balance of

hardships tips sharply in his favor. 

Taylor v. Westly, 488 F.3d 1197, 1200 (9th Cir. 2007). "These two formulations represent two

points on a sliding scale in which the required degree of irreparable harm increases as the probability

of success decreases." Id. "They are not separate tests but rather outer reaches of a single

continuum." Id.

B. Likelihood of Success on the Merits

For purposes of obtaining a temporary restraining order, plaintiffs assert that their claim for

rescission of their investment contracts under the California Corporations Code is likely to succeed

on the merits. Under Cal. Corp. Code § 25019 the definition of "security" includes an "investment

contract." It certainly appears that the investment in the condominium project described in this

action involves a security under California law. See People v. Coster, 151 Cal. App. 3d 1188, 1193

(1984) ("For the purpose of both the federal and the California securities law, an investment contract

means a contract or transaction whereby a person invests money in a common enterprise with the

expectation of deriving a profit solely from the efforts of a promoter or a third person."). 

Cal. Corp. Code § 25110 makes it illegal to offer or sell an unqualified security in the state

unless the security is exempt. Plaintiffs, relying on Steve Trachsel's declaration, assert conclusorily

that defendants neither qualified nor exempted themselves in accordance with these securities. 

Trachsel Decl. ¶ 3 ("Further, as I subsequently learned, Defendants neither qualified nor exempted

themselves to be issuers or broker-dealers of securities in accordance with the requirements of

California Corporations Code section 25510.").3

 In a reply declaration, plaintiffs present evidence

that they have conducted searches to determine whether defendants Bucholz, Fischer, RDB

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United States District Court

For the Northern District of California

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ORDER DENYING APPLICATION FOR TEMPORARY RESTRAINING ORDER—No. C-08-02248 RMW

MAG 5

Development and Solomon Capital were qualified to sell securities. Their searches at the SEC and

California Department of Corporations website returned no results. See Decl. Jesshill Love Supp.

Plfs' Reply ¶ 4, Ex. A. However, plaintiffs present no concrete information regarding whether

defendants' sale of the security was exempt. See also Compl. ¶ 50 ("Based on information and

belief, [defendants] have neither qualified for nor exempted themselves from qualification of the

'securities' in accordance with California Corporations Code § 25110."). Although plaintiffs'

allegations raise serious questions, the court does not have sufficient information based on plaintiffs'

sparse allegations on "information and belief" about the sale of the investment contracts to conclude

that plaintiffs' have a strong likelihood of success on the merits.

C. Irreparable Harm

In support of their motion for an ex parte temporary restraining order, plaintiffs state only

that they are seeking to enjoin defendants' alleged "continued expenditure of fraudulently obtained

investor funds." TRO Application at 6. They assert that the requested temporary restraining order

may be granted ex parte because they were allegedly deprived of investment funds in the amount of

$5,100,000 and that defendants are now on notice of a lawsuit and "based on their prior dishonest

business dealings and concealment of funds" are thus inclined to "spend conceal or disperse the

investment funds to frustrate Plaintiffs' legal efforts." Id. at 7; Trachsel Decl. ¶ 9. This is insufficient

to establish the requisite great and irreparable injury for the grant of an ex parte restraining order. It

is also insufficient to raise a possibility of irreparable injury sufficient to tip the balance of harms in

plaintiffs' favor given the court's conclusion regarding plaintiffs' likelihood of success on the merits

of their rescission claim as discussed above.

Although the facts as pleaded certainly do not paint defendants in a favorable light, plaintiffs

have failed to show any imminent additional injury sufficient to warrant the grant of the requested

temporary restraining order. This is particularly true in light of plaintiffs' submission of the Trachsel

declaration stating that plaintiffs have known about "defendants' fraudulent enterprise" since July

2007, but did not act to file a complaint until April 30, 2008. Further, as pointed out by defendants,

Trachsel's Declaration is dated April 30, 2008. There is no explanation for the 5 week delay in filing

the TRO Application. Finally, the facts asserted do not show the threat of further dissipation of

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United States District Court

For the Northern District of California

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ORDER DENYING APPLICATION FOR TEMPORARY RESTRAINING ORDER—No. C-08-02248 RMW

MAG 6

funds or that any evidence is being destroyed. On the facts before it, the court does not find a

sufficient showing of irreparable injury and therefore declines to issue the requested temporary

restraining order.

III. ORDER

Plaintiffs' application for a temporary restraining order is denied without prejudice. Plaintiffs

may refile an application that demonstrates a need for immediate temporary relief pending the

hearing on their application for a right to attach order. The parties should note that due to the

reassignment of the case, the hearing on plaintiffs' Attachment Application shall be renoticed from

July 9, 2008 on Judge Seeborg's calendar to July 18, 2008 at 9:00 in courtroom 6 before the

undersigned.

DATED: 6/6/08

RONALD M. WHYTE

United States District Judge

Case 5:08-cv-02248-RMW Document 42 Filed 06/08/08 Page 6 of 7
United States District Court

For the Northern District of California

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ORDER DENYING APPLICATION FOR TEMPORARY RESTRAINING ORDER—No. C-08-02248 RMW

MAG 7

Notice of this document has been electronically sent to:

Counsel for Plaintiff:

Jesshill E. Love jlove@ropers.com

Todd Andrew Roberts troberts@ropers.com

Counsel for Defendants:

Michael George Descalso mgd@greenechauvel.com 

William W. Schofield wschofield@pinnaclelawgroup.com 

Counsel are responsible for distributing copies of this document to co-counsel that have not

registered for e-filing under the court's CM/ECF program.

Dated: 6/8/08 /s/ MAG

Chambers of Judge Whyte

Case 5:08-cv-02248-RMW Document 42 Filed 06/08/08 Page 7 of 7