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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Tisha Castillo, et al.,

Plaintiffs,

v. 

George Harry Johnson, et al.,

Defendants.

No. CV-17-04688-PHX-DLR

ORDER 

Before the Court is Plaintiffs’ motion for preliminary injunction against Defendant 

Johnson Utilities (“JU”) to prevent JU from distributing the proceeds of its asset sale, which 

is fully briefed. (Docs. 229, 232, 234.) The Court will grant Plaintiffs’ motion, as 

explained below. 

I. Background

JU is under contract to sell its assets to EPCOR Water Arizona, Inc. (“EPCOR”), 

the entity appointed by the Arizona Corporation Commission (“ACC”) to take over JU’s 

management and operations. (Doc. 229 at 2.) On October 5, 2020, JU and EPCOR applied 

for asset sale approval, which the ACC granted on December 22, 2020.

1

 (Doc. 229-1.) 

The asset sale price is $110,300,000. (Doc. 234-1.)

Plaintiffs’ Second Amended Complaint (“SAC”), inter alia, contains claims arising 

1 Pursuant to stipulation, Defendants agreed not to distribute sale proceeds prior to 

January 11, 2021, regardless of the issuance date of the Court’s order addressing Plaintiffs’ 

motion for preliminary injunction. (Doc. 231.) 

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from allegations that Defendant George Johnson fraudulently caused JU to transfer tens of 

millions of dollars out of JU to related entities and others referred to as the “Fraudulent 

Transfer Defendants.” (Doc. 207.) Concerned that JU might engage in similar conduct

following the asset sale, thereby thwarting Plaintiffs from collecting on a potential 

judgment,2 on December 11, 2020, Plaintiffs filed an emergency application seeking, inter 

alia, a preliminary injunction to prevent JU from transferring or otherwise disposing of the 

proceeds from the asset sale. (Doc. 229.) Recognizing the potential financial constraints 

that such an injunction might impose, Plaintiffs suggest allowing JU to retain up to $5 

million of the sale proceeds to cover its expenses and to deposit the remaining proceeds in 

an interest-bearing federally insured account or in publicly-traded securities during the 

injunction period. Plaintiffs’ motion is now ripe. 

II. Discussion

Having carefully considered the parties’ briefs, the Court finds that it has the 

authority to grant the requested injunction and that Plaintiffs have carried their burden on 

all four elements of the preliminary injunction test. 

A. Authority

The Court may grant an injunction to preserve the status quo and prevent the 

dissipation of assets when the plaintiff seeks equitable relief in the underlying action. 

Johnson v. Couturier, 572 F.3d 1067, 1084 (9th Cir. 2009) (quoting De Beers Consol. 

Mines v. U.S., 325 U.S. 212, 220 (1945)). The “nexus between the assets sought to be 

frozen through an interim order and the ultimate relief requested in the lawsuit is essential

to the authority of a district court in equity to enter a preliminary injunction freezing 

assets.” In re Focus Media Inc., 387 F.3d 1077, 1085 (9th Cir. 2004) (quoting United 

States v. Oncology Assocs., P.C., 198 F.3d 489, 496 (4th Cir. 1999)). 

Here, the Court has the authority to enter a preliminary injunction preserving the 

proceeds from the asset sale for two reasons. First, Plaintiffs seek equitable relief in the 

2 Plaintiffs assert that their maximum claim as of December 31, 2020 was $66 

million (if damages are trebled), and damages (if trebled) continue to accrue at the rate of 

$5.7 million per year. (Doc. 234.) 

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underlying action. Namely, they assert fraudulent transfer claims in counts five through 

seven of their SAC that ultimately request an injunction to unwind JU’s alleged prior 

fraudulent transfers and to prevent JU from transferring its assets in the future. See Focus 

Media, 387 F.3d at 1085 (affirming preliminary injunction preventing shareholder from 

transferring company assets in case in which the plaintiff pled fraudulent conveyance);

Wimbledon Fund, SPC Class TT v. Graybox, LLC, 648 F. App’x. 701, 702 (9th Cir. 2016) 

(explaining that the district court had the authority to grant an injunction preventing the 

dissipation of assets because “this is a fraudulent conveyance case and one in which [the 

plaintiff seeks] equitable relief”). Second, a nexus ties Plaintiffs’ proposed injunction to 

the relief sought in the underlying action. Plaintiffs’ requested injunction is not merely

“similar in character” to the equitable relief sought in the underlying action; the requests 

to prevent future fraudulent transfers in this motion and in the underlying action overlap. 

Nevertheless, the requested injunction and the relief sought in the underlying action need 

not be identical. See Couturier, 572 F.3d at 1084 (rejecting the defendants’ argument that 

the district court impermissibly granted the plaintiffs’ injunction because the relief sought 

was “different in character than any judgment that might finally issue,” noting that the court

had authority to grant the injunction because “this is not a case where the preliminary 

injunction ‘deals with a matter lying wholly outside the issues in the suit’”). In sum, 

because Plaintiffs seek equitable relief in the underlying action and the injunction requested 

deals with matters directly at issue in the case, the Court has the authority to issue a 

preliminary injunction under Fed. R. Civ. P. 65. 

B. Preliminary Injunction Test

“A plaintiff seeking a preliminary injunction must establish that he is likely to 

succeed on the merits, that he is likely to suffer irreparable harm in the absence of 

preliminary relief, that the balance of equities tips in his favor, and that an injunction is in 

the public interest.” Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008); Am. 

Trucking Ass’n, Inc. v. City of Los Angeles, 559 F.3d 1046, 1052 (9th Cir. 2009). These 

elements may be balanced on a sliding scale, whereby a stronger showing of one element 

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may offset a weaker showing of another. See Alliance for the Wild Rockies v. Cottrell, 632 

F. 3d 1127, 1131, 1134-35 (9th Cir. 2011). But the sliding-scale approach does not relieve 

the movant of the burden to satisfy all four prongs for the issuance of a preliminary 

injunction. Id. at 1135. Instead, “‘serious questions going to the merits’ and a balance of 

hardships that tips sharply towards the plaintiff can support issuance of a preliminary 

injunction, so long as the plaintiff also shows that there is a likelihood of irreparable injury 

and that the injunction is in the public interest.” Id. The movant bears the burden of proof 

on each element of the test. Envtl. Council of Sacramento v. Slater, 184 F. Supp. 2d 1016, 

1027 (E.D. Cal. 2000). 

1. Likelihood of Success on the Merits

Here, Plaintiffs have met their burden by, at the very least, demonstrating the 

existence of “serious questions going to the merits” on their claims where the balance of 

hardships tips sharply towards Plaintiffs. Plaintiffs’ claims fall into two categories: those 

concerning bribery of a public servant and those alleging fraudulent transfer. The Court 

will address each category, in turn. 

a. Bribery of a Public Servant

Defendants’ alleged bribery scheme, involving bribery of a public servant, serves 

as the basis of counts one through four of Plaintiffs’ SAC. In Arizona, a person commits 

bribery of a public servant if, with corrupt intent, that person “offers, confers or agrees to 

confer any benefit upon a public servant [] with the intent to influence the public servant’s 

[] vote, opinion, judgment, exercise of discretion or other action in his official capacity [.]” 

A.R.S. § 13-2602. Here, inter alia, Plaintiffs point to witness testimony from Kelly Norton,

which meets each element of the Arizona bribery statute. Specifically, during the related

criminal trial, Ms. Norton testified that she helped Johnson repeatedly funnel money to 

Gary Pierce through his wife, Sherry, with the intent to influence Mr. Pierce’s vote as an 

ACC Commissioner. (Doc. 2291-1 at 47-77.) Although Defendants seek to undercut this 

evidence by casting Ms. Norton’s credibility into doubt, it is the factfinders’ role during 

trial, not the Court’s role at this juncture, to assess Ms. Norton’s credibility. At this stage, 

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Plaintiffs have met their burden in demonstrating the presence of serious questions going 

to the merits of their bribery claim by proffering evidence suggesting that Defendants 

offered a benefit to a public servant with the intent to influence his vote. 

b. Fraudulent Transfer 

Plaintiffs allege fraudulent transfer as the basis for counts five through seven of their

SAC. (Doc. 207.) In Arizona, a transfer of assets by a debtor is fraudulent if the transfer 

is “made with the intent to hinder, delay or defraud a creditor.” A.R.S. § 44-1004(A)(1).

When assessing intent, the Court considers—among other factors—whether the transfer 

was made to an “insider,” A.R.S. § 44-1004(B)(1), and whether “[t]he value of the 

consideration received [] was reasonably equivalent to the value of the asset transferred or 

the amount of the obligation incurred.” A.R.S § 44-1004(B)(7).

Here, Plaintiffs have pointed to evidence indicating that the Fraudulent Transfer 

Defendants transferred cash from JU to themselves—insiders. They have also offered 

evidence that a reasonable juror might conclude shows that the Fraudulent Transfer 

Defendants did so with the intent to hinder, delay or defraud a creditor. Particularly, 

evidence indicates that JU created shell affiliates, such as Ultra, exclusively to funnel

substantial cash to insiders while avoiding liability. For example, the ACC concluded that 

Ultra “does not benefit JU in any way, is completely superfluous for the purposes of JU’s 

operations (because everything is done by Hunt employees), is simply a way to provide 

revenues to Chris and Barbara Johnson, and is actually detrimental to JU’s financial wellbeing and the adequacy of its service and operations.” (Doc. 229-1 at 34). Similarly, Gary 

Drummond, successor to Johnson, testified that Ultra was set up as a shell entity to isolate 

JU assets from liability. (Id. at 22.) Despite the lack of assistance that Ultra provided to 

JU, Ultra retained up to $9.5 million annually for the benefit of its owners—Johnson’s 

children, Chris and Barbara—evidence strongly suggesting that JU did not receive a 

reasonably equivalent value for its transfers. (Id. at 39.) Looking to this evidence, the 

Court finds that Plaintiffs have demonstrated a likelihood of success on their claims that 

the Fraudulent Transfer Defendants transferred cash from JU to themselves with the intent 

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to hinder, delay, or defraud a creditor.

In a final effort to dispute that Plaintiffs have met their prong-one burden, 

Defendants point to the fact that the jury hung in their criminal trial to suggest that Plaintiffs 

cannot demonstrate a likelihood of success on the merits in their civil suit. The fact that 

the jury could not reach a unanimous verdict convicting Defendants in the criminal trial 

when applying the stricter beyond-a-reasonable-doubt standard does not suggest that 

serious questions going to the merits are absent, here. To the contrary, the fact that some 

jurors did vote to convict, even when applying a more exacting standard, indicates that 

Plaintiffs may likely prove their claims by a preponderance of the evidence. Similarly,

Defendants argue that Plaintiff cannot have not raised serious questions going to the merits 

because the Ninth Circuit (by granting Defendants’ Rule 23(f) petition) and this Court (by 

granting a stay while the interlocutory appeal remains pending) have indicated that 

Defendants are likely to prevail on the merits. To the contrary, this Court noted in its stay 

order that the Ninth Circuit’s acceptance of Defendants’ petition for appeals “show[s] at a 

minimum, the presence of serious questions on the merits.” (Doc. 227 at 1 (citations 

omitted)). Each side may simultaneously introduce serious questions going to merits. The 

Court rejects Defendants’ contentions and concludes that Plaintiffs have met their burden 

on the first prong. 

2. Irreparable Harm

A plaintiff suffers irreparable injury when there is “a likelihood of dissipation of the 

claimed assets, or other inability to recover monetary damages, if relief is not granted.” 

Couturier, 572 F.3d at 1085. A defendant’s prior attempts to conceal or transfer assets 

demonstrates a likelihood that, without an injunction to prevent future transfers, the 

defendant will engage in similar conduct in the future, inhibiting plaintiff from satisfying

its potential judgment. See Arch Ins. Co. v. Sierra Equip. Rental, No. CIV S-12-0617 KJM 

KJN, 2012 WL 5897327, at *5 (E.D. Cal. Nov. 13, 2013) (the movant demonstrated a 

likelihood of irreparable harm by showing there was a substantial danger that the defendant 

would transfer or conceal the subject assert, thereby preventing the movant’s potential 

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recovery, based on evidence that the defendant had concealed and transferred funds in the 

past); Conn. Gen. Life Ins. Co. v. New Images of Beverly Hills, 321 F.3d 878, 881 (9th Cir. 

2003) (affirming asset freeze because the “family’s history of fraudulent intra-family 

transfers” supported a finding of irreparable harm). Here, there is evidence that the 

Fraudulent Transfer Defendants transferred tens of millions of dollars out of JU to 

themselves for no legitimate business purpose. Instead, that evidence suggests that 

Defendants have transferred assetsto shield them from JU’s creditors, even to the detriment 

of JU. (Doc. 229-1 at 34). Nevertheless, Defendants argue that an injunction is not 

necessary to prevent irreparable harm to Plaintiffs because the people and entities that JU

allegedly transferred its assets to in the past are now defendants in the case and within the 

Court’s reach, should a transfer occur. This argument ignores the possibility that JU, in 

the absence of an injunction, would simply transfer sale proceeds to non-defendants in 

order to conceal them. Plaintiffs have met their burden of establishing the likelihood of 

irreparable injury in the absence of an injunction. 

3. Balance of Equities

Turning to the third prong of the preliminary injunction test, the Court balances “the 

competing claims of injury and must consider the effect on each party of the granting or 

withholding of the requested relief.” Winter, 555 U.S. at 24 (quoting Amoco Prod. Co. v. 

Village of Gambell, AK, 480 U.S. 531, 542 (1987)). In the absence of an injunction, 

Plaintiffs face the prospect of being unable to collect on a potential judgment. In contrast, 

if an injunction freezes the sale proceeds in their entirety, JU will be unable to pay its 

ongoing legitimate expenses, including attorney and professional fees, taxes on the sale 

proceeds, and other future liabilities. Acknowledging the financial constraints that the 

injunction would pose, Plaintiffs propose that the injunction freeze all but $5 million of the 

sale proceeds, giving JU a not insignificant sum with which to pay its expenses while the 

lawsuit continues. The Court, in setting a bond, has considered the highest amount of 

recoverable damages that could be realized at the conclusion of this matter and has 

recognized JU’s need to handle burdensome ongoing expenses. Looking to the value of 

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Plaintiffs’ current maximum claim—$66 million, the $5.7 million maximum annual 

accrual rate, the stage in the litigation, and asset sale’s $110.3 million value, the Court will

exclude $15.5 million from the injunction’s freeze.

3

 With this arrangement, JU will have 

adequate access to funds to manage its ongoing financial obligations4 while preserving 

Plaintiffs’ ability to recover their maximum potential judgment. In the absence of this 

arrangement, Plaintiffs may never see recovery. Therefore, the balance of hardships of an

injunction that prevents JU from transferring the asset sale proceeds (excluding the $15.5 

million) tips sharply towards the Plaintiffs. 

4. Public Interest

Plaintiffs’ injunction, by protecting Plaintiffs’ ability to recover a potential future 

judgment, advances “the public’s interest in seeing the satisfaction of judgment debts.” 

Life Share Collateral Holdings, LLC v. Dewitty, No. CV 16-1907 PSG (ASx), 2018 WL 

3357462, at *1 (C.D. Cal. May 7, 2018); State Farm Mut. Auto. Ins. Co. v. Am. Rehab and 

Physical Therapy, Inc., 376 F. App’x. 182, 184 (3d Cir. 2010). The public’s interest in the 

seeing the satisfaction of the potential judgment, here, is particularly strong. The plaintiff 

class is enormous, consisting of 40,000 wastewater customers and 30,000 water customers, 

and the outcome of the lawsuit and the enforcement of any judgment necessarily carries 

public consequences. Plaintiffs have consequently met their burden on the fourth prong. 

C. Bond

Federal Rule of Civil Procedure 65(c) permits a court to grant preliminary injunctive 

relief “only if the movant gives security in an amount that the court considers proper to pay 

the costs and damages sustained by any party found to have been wrongfully enjoined or 

restrained.” Yet, the district court maintains the discretion to determine “the amount of 

3 The Court arrived at the $15.5 million figure by adding five years of the maximum 

value of additional accrued damages (acknowledging that this suit is likely to endure for 

several more years) to the $66 million current maximum recovery. The Court then 

subtracted this sum from the $110.3 million sale value. 

4 Although the Court presently determines that $15.5 million is a reasonable sum to 

be excluded based on Plaintiffs’ maximum potential recovery, should Defendants find 

themselves in a position in which JU requires a larger sum to fulfill its obligations, 

Defendants may file a motion demonstrating that they have expended the $15.5 million on 

legitimate obligations, listing their remaining legitimate outstanding obligations, and 

explaining why a larger sum should be made available. 

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security required, if any.” Jorgensen v. Cassiday, 320 F.3d 906, 919 (9th Cir. 2003) 

(quoting Barahona–Gomez v. Reno, 167 F.3d 1228, 1237 (9th Cir.1999)). Moreover, 

“[t]he district court may dispense with the filing of a bond when it concludes there is no 

realistic likelihood of harm to the defendant from enjoining his or her conduct.” Id. 

Additionally, where public policy favors an injunction and the plaintiffs lack the means to 

pay a bond, the bond requirement should be nominal. See Barahona-Gomez, 167 F.3d at 

1237 (affirming $1,000 bond based on “the public interest underlying the litigation and the 

unremarkable financial means of the class as a whole”). Further, substantial bonds are 

inappropriate where the defendant has not established financial harm if the injunction is 

granted. See, e.g., Yue v. Conseco Life Ins. Co., 282 F.R.D. 469, 485 (C.D. Cal. 2012). 

Here, Defendants assert that they will be harmed by the preliminary injunction 

because it will render them unable to fulfill legitimate future financial obligations and argue

that a bond is necessary to protect them from damages that they will incur should the 

preliminary injunction later be found erroneous. This argument in unpersuasive because 

the Court will set aside $15.5 million for Defendants and will permit Defendants to file a 

motion requesting a greater allotment in the future, should the $15.5 million be insufficient

to maintain JU’s fulfillment of legitimate obligations. Moreover, Defendants have not 

proposed a bond amount that they believe would act as an appropriate safeguard against 

damages incurred from an erroneous preliminary injunction. Considering the public 

interest underlying the litigation, the unremarkable financial means of the class, and 

Defendants’ failure to make any showing of cost, the Court will impose a nominal bond of 

$1,000. In sum,

IT IS ORDERED that Plaintiffs’ motion for preliminary injunction (Doc. 229) is 

GRANTED. Johnson Utilities is hereby ENJOINED from transferring or otherwise 

disposing of the proceeds of the asset sale to EPCOR Water Arizona, Inc, excluding $15.5 

million. The parties shall confer and submit a stipulation outlining how the sale proceeds

shall be preserved pending resolution of the litigation no later than January 11, 2021 at 

12:00 p.m. Should the parties fail to reach an agreement, they shall submit a joint memo, 

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limited to five pages, that describes the parties' respective positions by no later than January 

11, 2021 at 12:00 p.m. 

IT IS FURTHER ORDERED that Plaintiffs shall be required to post a cash bond 

in the amount of $1,000 no later than January 11, 2021 at 12:00 p.m. 

Dated this 8th day of January, 2021.

Douglas L. Rayes

United States District Judge

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