Filed 12/5/17 CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION ONE

ITV GURNEY HOLDING INC. et al.

,

P laintiffs and Appellan t s ,

v.

SCOTT GURNEY et al.

,

Defendants and Responde nt s

. B2 81 6 9 4 (consolidated w/B 283476 )

(Los Angeles County Super. Ct. No. B C 643237 )

APPEAL from an order of the Superior Court of
Los Angeles County, Susan Bryant

- Deason , Judge. Affirm ed in part and reversed in part

.

____________________________

Munger, Tolles & Olson, Fred A. Rowley, Jr., Mark R. Yohalem, Joh n L. Schwab, Nicholas S. Dufau; Hogan Lovells US, Paul B. Salvaty, Megan Dixon, Poo pak Nourafchan and Laura M.
Groe n for Plaintiff

s and Appellant s

. Kendall Br ill & Kelly, Ph ilip M. Kelly, Nicholas F. Daum;
W hite & Case, Bryan A. Merryman; Lavely & Singer, and
Michael E. Weinstein for Defendants and Respondent s

.

____________________________2 Plaintiffs and appella nts ITV Gurney Holding Inc. (ITV)
and Gurney Pro ductions, LLC (the C ompany) challenge the
trial court’s grant of a preliminary injunction in favor of
defendants and respondents Scott Gurney and Deirdre Gurney (the Gurneys) , and Little Win, LLC. The Gurneys are the minority owners of the Company and formerly served as its
chief executive officers ( CEO ’ s )

, pursuant to an employment agreement. The Company fired the Gurneys as CEO ’ s and removed them from managing t he day

- to

- day operations of
the Company

. The Gurneys do not ch allenge the Company’s righ t to fire them as CEO ’ s

. Rather, they contend that under
the operating agreement that governs the C ompany , they could
not be removed from managing its day

- to

- day operations.
Plaintiffs contend the o perating a greement gave the Company, through its board o f managers

, the ultimate authority to manage the C ompany , and thus permitted the b oard t o remove the Gurneys as managers of the day

- to

- day operations

. We agree
with plaintiffs and reverse the trial court’s order to the extent that it reinstated the Gurneys to their positions managing the day

- to

- day operations of the Company

. The Gurneys continue as members of the Company ’s board of managers , and we affirm the portion of the preliminary injunction barring the Company fro m impinging on their rights as board members

.

FACTS AND PROCEEDINGS BELOW

The Gurneys have been producing reality

- television programming since 2005

. Their greatest success was the

program Duck Dynasty

. In 2012, the Gurneys agree d to sell 61.5 percent of their production business to I TV, an affiliate of the British media company ITV plc. As part of the trans action, the parties signed two contracts relevant to this appeal: an operating a greement, which defined the s tructure of the Company and the terms

u nder which the owners could buy and sell their stakes

, and3

employment a greements, which established the terms of the Gurneys’ employment as joint CEO ’ s. The operating a greement provided for a board of manager s composed of five members, three of whom were to be appointed by ITV

, and two by the Gurneys’ shell company , Little Win, LLC.
T he Gurneys themselves were designated as Little Win , LLC ’s representatives on the board. In most instances, t he operating agreement allowed the board to decide matters by majority vote,
but several situations required unanimity. In particular, unanimous appr oval was required for “[o]perating the Company and its [s]ubsidiaries other than as a television production company in the ordinary course of business consis tent with past practice of the Gurneys, the Company’s five year forecasts and the [b]udget; except that, without the approval o f all [m] anagers, the Gurneys may [among other powers] : [¶] . . . manage the day

- to

- day business and affairs of the Company.”
T he operating a greement also provided for specific time frames within which ITV was entitled to buy out the Gurneys’ ownership interest , and the Gurneys were entitled to sell their
interest to ITV. ITV’s right to “ call, ” or purchase, the Gurneys’
interest

, was to run for 90 days after the Company’s auditor
delivered the audited financial statements for the year 2015.
In addition, if “the Company term inates the employment of
either Gurney w ith [g]ood [c] ause (as such term is de fined in
such Gurney’s [e]mplo yment [a] greement with the Company ) .

. . before the end of fiscal year 2015

, ” ITV would be entitled to purchase the Gurneys’ interest on similar terms. If ITV did

not exercise its call rights, the Gurneys were entitled to “ put, ”

or sell

, their stake to I TV at any time after the auditor delivered
the financial statements for 2017. T he operating agreement
establishe d the price for the Gurneys’ ownership interest in a put or call as a multiple of the Company’s average EBITDA ( earnings before interest, taxes , depreciation, and amortization ) for the preceding three years.4 The Gurneys also signed employment a greements to

serve as co

- CEO ’ s of the Company. These agreements required the Gurneys to devote their “ full business time and efforts to
the performance of [their] duties for [the] Company ” for the
five

- year period ending December 31, 2017, with annual renewals thereafter at the option of both the Gurneys and ITV. For their work, the Gurneys were each to receive $500,000 per year.
A majority of the Compa ny’s board could vote to remove the Gurneys for good cause if, among other reasons, the Gurneys

“ willfully engage [d] in any activity that is in direct conflict with [their] duties and responsibilities ” under the a greements, or

“ breach [ed their] fiduciary d uty to the Company or any affiliated entity, including acts of self

- dealing (whether or not for personal profit) .” The Company was also entitled to terminate the Gurneys’ employment without cause at any time after the
contract had been in force for three years , that is

, after 2015

. In the employment a greements, the Gurneys agreed not to

“ engage directly or indirectly in any activity that competes with the business activities of the Comp any. The business activities
of the Company are defined as the development, production, promotion, and marketing of reality

- based programs whether for television, internet or other broadcast, cabl e, electronic or digital media.” The Gurneys al so agreed that, while the y were employed and for one year after ward , they w ould “ not interfere with,
im pair, disrupt or damage [the] Company’ s business by soliciting, encouragi ng or recruiting any of [the] Company’ s employees or causing others to soli cit or encourage any of [the] Company’ s employees to discontinue their employmen t with [the] Com pany.” In the summer of 2016, t he Gurneys learned that ITV ’s parent company was pressuring its United States

- based subsidiaries and affiliates, including the Compa ny, to reduce

expenses. Around July 2016, the Gurneys formed a new televisio n production company c alled Snake River Productions. According to the Gurneys, their intention was to produce5

progr a mming other th an reality shows, and to have an
alternative s ource of employment in case ITV elected not to
renew their co ntracts at the Com pany. At around the same time, the Gurneys were attempting, without success, to se ll a second season of a reality program called Sons of Winter to a network for
broadcast. The Discovery Channel had aired the first season of the program but elected not to r enew it. At a September 2016
board me eting, the Gurneys informed the other board members that they had sold the rights to Sons of Winter for $3.6 million.
When asked who the buyer was , Deirdre Gurney cla imed she
could not remember the c ompany’s name, but when Scott
reminded her

, she acknowledged that it was Snake River
Productions . Neither of t he Gurneys told the board that they
owned Snake River Productions

. Plaintiffs allege that the purpose of Snake River Productions’ purchase of Son s of Winter was financial manipulation. They claim that t he sale of Sons of Winter was an attempt by the Gurneys to increase the Company’ s EBITDA

, and
thus to increase the price at which the Gurneys would be entit led
to sell their stake in the C ompany to ITV under the terms of the operating agreement . A witness for the plaintiffs calculated that
the sale of Sons of Winter , if considered in calculating EBITDA,
would increase the poten tial sale price of the Gurneys’ ownership
interest by approximately $3.71 million

. In a ddition, b ecause the Gurneys and t heir holding company owned 38.5 percent of the Company, the y would be entitled to a distribution of approximately $1.39 million of the price Snake River Productions had paid for the rights to Sons of Winter

. Thus, by buying Sons of
Winter for $3.6 million, the Gurneys could potentially obtain as much as $ 5.1 million for themselves, even if Sons of Winter had
no value

. Around the sa me time, the Gurneys decided to fi re two of the employees on the Company’s de velopment te am with the expectation of rehiring them to work at Snake River Productions

.6 Approximately one week after the September board meeting, the Company ’s chief financial o fficer (CFO) , who under
the terms of the o perating a greement was appointed by ITV, informed ITV that the Gurneys owned Snake River Productions

. The CFO also told ITV about other financial irregularities he perceived in the Gurneys’ management of the C ompany , including the payment of a $350,000 advance to the Gurneys that
the CFO believed was improper

. At a board meeting in Dec ember 2016, the ITV

- appoint ed
board members

— who constituted a majority of the board

— voted to place the Gurneys on a paid leave of absence while the charges against them were being investigated. A few days la ter, the same boar d members voted to termin ate the Gurneys’ employment for cause, alleging that the Gurneys had violate d their duty of loyalty to the C ompany by concealing the facts surrounding the
sale of Sons of Winter , along with engaging in other misco nduct. The next day, ITV and the Company filed suit against defendants
and thereafter defendants filed a cross

- complai nt against
the Company. ITV also attempted to exercise its call rights and purchase the Gurneys ’ share of the Company, and the Gurneys

a ttempted to exercise their put rights and sell their share of the Company to ITV. The parties , however, did not consummate a sale because they could not agree on a price. On February 1, 2017, t he Gurneys filed a motion for a preliminary injunction , reques ting that the court restrain plaintiffs from breaching the operating agreement. In particular, the Gurneys asked the court to bar ITV from exercising its call rights

, and to order the Company to restore the Gurneys to the day

- to

- day management of the Company. After a hearing, t he trial court issued a preliminary injunction granting both requests. The trial court found that
ITV was unlikely to succeed in its claim regarding its call rights because, by the time ITV elected to exercise those rights, thos e rights had expired. Under the terms of the operating a greement,7

the period in which ITV was entitled to buy out the Gurneys’ shares ran 90 days from the end of the 2015 fiscal year, but ITV did not notify the Gurneys of its intent to pur chase the shares until February 2017. T he injunction also requir ed that the Company restore the Gurneys to their position s as day

- to

- day managers of the C ompany.

DISCUSSION

Plaintiffs contend that the trial court abused its discretion by granting the preliminary injunct io n. They argue that because the employment a greement allowed the board to terminate the Gurneys’ employment with or without cause at any time, it is irrelevant for purposes of a preliminary injunction whether or not good cause supported the Gurneys’ term ination. Plaintiffs also

argue that the operating a greement does not provide the Gurneys

an independent basis for exercising day

- to

- d ay authority over the Company. We agree with plaintiffs’ position regar ding the interpretation of the operating agreement and employment

a greements

. On this basis, we conclude that the trial court abused its discretion by granting a preliminary injunction reinstating the Gurneys to management positions. Because the interpretation of the contracts is decisive in this case, w e need
not and do not reach a determination of the other issues the parties have raised in their briefs, including the questions of whether the Gurneys violated their fiduciary duties or otherwise
breached their contracts wi th the Company, and whether
the trial court erred by sustaining a number of the Gurneys’ objections to plaintiffs’ evidence. 1 Although we reverse the trial court’s order restoring the Gurneys to day

- to

- day management of the Company, we leave in

1 Defendants filed a motion to strike portions of plaintiffs’ reply brief, and plaintiffs filed a motion to strike portions of the defendants’ motion. We deny both motions.8

place the other portions of the preliminary injunction. This includes the portion of the injunction denying ITV’s request

to exercise its call right s to purchase the remainder of the
C ompany, a ruling which plaintiffs have not challenged on appeal. It also includes the portion of the inju nction b arring the Company from violating the Gurneys’ rights as members of
the board of managers , including their right to vote on matters requiring unanimous board approval

. Those rights belong to the Gurneys so long as they and their shell company own at least
10 percent of the C ompany, regardless of whether they continue to be employed as CEO ’ s.

A. Standards of Review of a Preliminary Injunction Pursuant to longstanding Supreme Court case law, “ trial
courts should evaluate two interrelated factors when deciding
whether or not to issue a preliminary injunction

. The first is the likelihood that the plaintiff will prevail on the merits at trial.
The second is the interim harm that the plaintiff is likely to sustain if the injunction were denied as compare d to the harm
that the defendant is likely to suffer if the preliminary injunction

were issued. ” ( IT Corp. v. County of Imperial (1983) 35 Cal.3d 63, 69

– 70 .) We review a tria l court’s application of these factors for abuse of discretion. ( Oiye v. Fox (2 012) 211 Cal.App.4th 1036, 1047 .)

“ Notwithstanding the applicability of the abuse of discretion standard of review, the specific determination s underlying the superior court’ s decision are subject to appellate scrutiny under the standard of rev iew appro priate to that type
of determination. [Citation.] F or instance, the superior court’ s express and implied findings of fact are accepted by appellate courts if supported by substantial e vidence, and the superior court’ s conclusions on issues of pure law ar e subject to independent review. ” ( Smith v. Adventist Health System/ West (2010) 182 Cal.App.4th 729, 739.) Because this case involves only9

the interpretation of contract s , which is a question of pure law,
our review is de novo. (See Taylor v. Nu Digital Marketing, Inc. (2016) 245 Cal.App.4th 283, 288 .) Injunctions may be either m andatory, in that they compel

a party to take an action, or prohi bitory, in that they attempt

to maintain the status quo by restraining a party from taking
action. ( Oiye v. Fox

, supra , 211 Cal.App.4th at p. 1048 .)

“ ‘ “ ‘ A preliminary mandatory injun ction is rarely granted,
and is subject to stricter review on appeal. ’ ” ’ ” ( Ibid. ) In this

case, plaintiffs contend that the preliminary injunction was mandatory; the Gurneys co ntend that it was prohibitory.
Because our decision in this case would be the same regardless
of which standard of review applied, we need not resolve this dispute.

B. The Operating and Employment Agreements The key question in this case is whether the Gurneys
retain ed the right, despite their termination fr om employment

as CEO ’ s, to continue managing the Company’s day

- to

- day operations. Our answer to that question is no. The operating

a greement reserves to the b oard

— by majority, and in some

cases una nimous, vote

— the au thority to manage th e Company’s
affairs. In context, t he lang uage in the operating agreement authorizing the Gurneys to manage the Company without
the approval of the other board members serve s as an accommodation to the Gurneys to exer cise authority as CEO ’ s, not as an irrevocable grant to continue managing the C ompany indefinitely

.10 1. Termination U nder the Employment Agreements

U nder the terms of the employment a greements, the Company was entitled to termi nate the Gurneys’ employment

at any time for good cause. In addition, the employment

a greements provided that “[t] he Company may terminate [the Gurneys’] employment without [g]ood [c]ause at any time
after the third a nniversary of the date of this [a] greement on [30]

. . . days ’ advance written notice.” The board’s decision to fire the Gurneys occurred in December 201 6, almost four years after the employment a greements were signed. Consequently,

we agree with plaintiffs’ contention that the employment

a greements provide no basi s for a preliminary injunction. ( In

any case, the Gurneys do not so contend. ) E ven if the Gurneys are correct that there was no good cause for their firing, the only difference between a termination with or without cause is whether the Gurneys would be e ntitled to 30 days ’ not ice before
their termination.

2. The Gurneys’ Rights U nder the Operating Agreement Our conclusion regardi ng the employment agreements
is insufficient to decide this case, however. The operating

a greement includes a provision statin g that, “ without the approval of all [m] anagers, the Gurneys may [among other

powers ] : [¶] . . . manage the day

- to

- day business and affairs
of the Company consistent with past practice of the Gurneys (except as otherwise restricted in this [a] greement) .” The Gurneys contend that this provision is a blanket grant of authority to control the operations of the C ompany, regardless
of the wishes of the majority owners , regardless of whether or
not the Gurneys continued to be employed under the employment

a gre ements
, and thus, apparently, regardless of whether there
i s cause for firing them

. W e disagree

. The Gurneys misinterpret11

the language of the operating a greement itself and its connectio n with the Gurneys’ employment a greements. The provision regarding the management of day

- to

- day operations must be understood in the context of the operating

a greement as a whole

. ( American Alternative Ins. Corp. v. Superior Court (2006) 135 Cal.App.4th 1239, 1245 [“ W e consider
the contract as a whole and interpret the language in context
, rather than interpret a provision in isolation

. ” ] ; Civ. Code, § 1641.) In this case, the relevant language is found in the
section de scribing the circumstances in which the board may make decisions by majority or unanimous vote. The operating

a greement provides that “[a]ll actions by the [b]oard

. . . shall require the affirmative vote of a majority of the [m] anagers, except for such actions as to which a greater than majority vo te may be required pursuant to the provisions of th e [a] ct or this [a] greement. ” The operating a greement t hen goes on to list a number
of exceptions for which u nanimous approval is required

. The
first of these exceptions is for any action involving “[o] perating
the Company and its [s] ubsidia ries other th an as a television production company in the ordinary course of business consistent with past practice of the Gurneys, the Company’ s five [

- ] year forecasts and the [b] udget .” In other words, the C ompany
may not deviat e from its prior way of doing business without unanimous board approval. The same section of the o perating

a greement then continues: “except tha t, without the approval of all [m] anagers, the Gurneys may: (i) manage the day

- to

- day business and affairs of the Company consistent with past pract ice of the Gurneys (except a s otherwise restricted in this [a] greement); (ii) hire and fire employees other than the chief financial officer; (iii) decide which productions are sol d, to whom, and upon what terms

. . . ;12 (iv) spend up to $500,000 on dev elopment in [f]iscal [p]eriod 2014 and each [f]iscal [p] eriod forward; (v) introduce new business st reams to the Company, including merchandising and music rights ; (vi) utilize the Company’ s resources to maximize profits; (vii) deploy employees of the C ompany in their sole
discretion ” ; along with a few other similar functions. Thus, in general, the board may make decisions by majority vote, with the exception that some decisions require unanimity. The Gurneys’ authority over th e day

- to

- day operations o f the
C ompany is an exception to the exception. It describes instances in which the Gurneys may operate autonomously. Within the operating a greement these exceptions serve a clear role: T hey
relieve the Gurneys, when acting in their role as joint CEO ’ s of the Company, from needing to seek the approval of the other board members for every decision that might represent a departure in some small way from their prior course of business. Presumably, neither the Gurne ys nor the other members of
the board wi shed to become bogged down in constant votes over minor matters. The exception s to the exception did not grant the Gurneys lifetime jobs as managers of the Company. If the Gurneys were
removed as CEO ’ s, these exception s would no longer have any practic al effect . At that point, the Gurneys would no longer
be operating the Company, and so they would no longer need

an exemption from the unanimity requiremen t to perform the specified job functions

.13 3. The Oper ating Agreement Inter preted in Broader C ontex t As we have seen, the operating a greement, even when interpreted on its own, does not grant the Gurneys authority

to manage the C ompany’s day

- to

- day operations indefinitely.
If there could be any doubt about the Gurneys ’ rights u nder
the operating a greement, it i s dispelled when the operating

a greement is considered in light of the employment a greeme nts. The Gurneys signed their employment a greements on the same day that they signed the operating agreement, and the operating

a greement explicitly ref ers to the termination provisions of the employment a greements. Thus, the section of the operating

a greement describing actions that require unanimous board approval states that unanimity is required for “[f] iring any
senior executive, other than the Gurn eys (whose employment may be terminated in accordance wi th their [ e ] mployment [ a ] greements).” 2
T he employment a greements described in detail the
circumstances under which t he Gurneys’ employment could be
terminated. In addition to setti ng out time frames during which the Gurneys could be terminated with or without cause, the employment agreements explain ed exactly what would constitute good cause. They also spell ed out the procedure the board must follow, including allowing the Gurneys an opportunity to r espond to the evidence against them. It would be unimaginable for
ITV and the Gurneys to go to th is much trouble to describe
the procedures surrounding th e Gurneys’ termination, if they intended that the Gurneys would continue to “manage the day

- to

- day bu siness and affairs of the Company,” “hire and fire

2 This reference in the operating agreement to the termination of the Gurneys’ e mployment shows that it is proper to interpret the operating agreement in light of the employment agreements in spite of the integration clause in the operating agreement.14

employees,” and exercise other functions ordinarily reserved for
CEO ’ s , even after they were removed from th ose position s

. Furthermore, the operating a greement must be interpreted in light of common understandings in corporate law. Although
the C ompany was established as a limited liability company rather than as a corporation, we i nterpret the establishment
of a formal board as a choice by the Company to organize itself according to the ordinary rul es of a board of directors. (See Friedman et al., Cal. Pr actice Guide: Corporations (The Rutter Group 2017) ¶ 2:36.18, p. 2

- 16

. ) Ordinarily, a majority
shareholder who has the authori ty to appoint a majority of
the board of directors may make decisions d espite the object ion
of a minority shareholder. If the Gurneys’ interpretation were correct, that rule would be flipped o n its head, with essentially

no recourse for the majority to assert its authority. Under
their interpretation, the Gurneys could neve r be removed from managing the C ompany, regardless of any bad behavior on their part or the terms of their employment. Even if the Gurneys
had already breached their duty of loyalty by entering into a
self

- dealing transaction to benefit themselves at the expense of the Company and ITV, the remaining board members would have no means of preventing the Gurneys from continuing indefinitely to operate the Company , except by dissolving the Company

. If the parties intended the operating a greement to grant the G urneys , as minority shareholders, this much
control regardless of the wishes of the majority shareholder

,

we would expect to find such authority granted prominently and unequivoca lly in the text of the document. Instead, the language that the Gurneys rely on appears as an exception to a rule requiring unanimous approval of board actions. Our conclusion that the operating a greement do es not give the Gurneys this unchecke d authority does not render
the Gurneys powerless. Although the Gurneys lost the right

to manage the day

- to

- day operations of the Company when the15

majority of the board voted to remove them as CEO ’ s, they
retain ed the ir rights as board members. This include d the ability to veto proposed actions requiring unanimous boa rd approval

. Furthermore, as board members, the Gurneys retain ed
the right to visit and inspect the C ompany’s properties, books,
and records , and to speak with the C ompany’s officers regarding
the Company’s affairs, finances, a nd accounts. We perceive no error in the trial court’s grant of a preliminary injunction in favor of the Gurneys with respect to these matters.
The trial court’s order granting the injunction depende d

on its interpretation of the operating agreement as granting
the Gurneys authorit y to manage the day

- to

- day affairs of the Company regardless of whether t hey continued to be employed

as CEO ’ s. Because the trial court e rred in its interpretation of a question of law , it s grant of the inj unction constituted an abuse
of discretion , and we must reverse

.16 DISPOSITION

We reverse the order gran ting the preliminary injunction

to the extent that the injunction re instat es the Gurneys to
exercise the functions described in s ection 5.7(a)(i)

- (ix) of the operating a greement, including the day

- to

- day management
of the Company

. In all other respects, the trial court’s order granting the preliminary injunction is affirmed. Appellants are awarded their cost s on appeal.
CERTIFIED FOR PUBLICATION

.

ROTHSCHILD, P. J.
We concur:

JOHNSON

, J

.

LUI , J.