# Candid Ventures LLC v. Nestlings, Inc.

> District Court, S.D. Ohio · September 30, 2024

URL: https://www.frixlaw.com/law-library/cases/10665462

## Case

- **Court:** District Court, S.D. Ohio
- **Decided:** September 30, 2024
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10665462

## How later opinions describe it (automated extraction)

- explaining that such orders “should be restricted to serving their underlying purpose of preserving the status quo and preventing irreparable harm just so long as is necessary to hold a hearing”
- affirming an asset-freezing injunction because the defendant had “engaged in a number of . . . questionable financial transactions” suggesting a threat of asset dissipation

## Opinion text

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION - CINCINNATI
CANDID VENTURES, LLC, : Case No. 1:24-cv-528
Plaintiff, : Judge Matthew W. McFarland
Vv.
NESTLINGS, INC., et al.,
Defendants. :

ORDER GRANTING MOTION FOR
TEMPORARY RESTRAINING ORDER (Doc. 2)

This matter is before the Court on Plaintiff's Motion for Temporary Restraining
Order (Doc. 2).1 For the reasons explained below, the Court GRANTS Plaintiff's motion
and ISSUES a temporary restraining order.
FACTS
Plaintiff Candid Ventures LLC (“Candid Ventures”) is the exclusive shareholder
of Defendant Nestlings Inc.’s (“Nestlings”) Series Seed Preferred Stock (“Preferred
Stock”). (Compl., Doc. 1, 1.) As the exclusive Preferred Stock shareholder, Candid
Ventures was entitled by Nestling’s Articles of Incorporation (the “ Articles”) to elect a
Preferred Director. (Id. at § 15-17.) Furthermore, the Articles prohibited Nestlings from
dissolving the corporation, modifying the Preferred Stock, or selling any corporation

1 Defendant Dew Ventures, Inc. filed a Motion to Dismiss for Lack of Jurisdiction and opposed the issuing
of a temporary restraining order. (See Docs. 12, 13.) The Court will consider this motion in due course. This
Order only addresses Plaintiff's Motion for Temporary Restraining Order (Doc. 2). Plaintiff has not filed a
Motion for Preliminary Injunction at this time.

assets below market value, unless approved by the Preferred Director. (Id. at { 18.)
Candid Ventures and Nestlings also entered into a Series Seed Preferred Stock
Purchase Agreement and an Investor's Rights Agreement. (Compl., Doc. 1, J 20.) Under
the Investor’s Rights Agreement, Nestlings agreed, among other things, to not incur debt
greater than $100,000 and to not “sell, assign, license, or encumber material technology
or intellectual property,” without the Preferred Director’s approval. (Id. at § 21; Investor's
Rights Agreement, Doc. 1-3, Pg. ID 105.)
Then, Defendants Rajashekar Basavaraju and Sowmya Satish, both Nestlings
officers, requested additional funding from Candid Ventures. (Compl., Doc. 1, ¥ 23.)
Candid Ventures responded by loaning Nestlings $51,000 through the execution of two
promissory notes (“Candid Ventures’ Notes” or “Notes”), listing all of Nestling’s assets
as collateral. (/d. at { 78-81.) These promissory notes were filed and perfected with the
California Secretary of State on August 13, 2024. (Id. at 9 24.) After executing the
promissory notes, Basavaruju and Satish travelled to Cincinnati, Ohio, to meet with
Candid Ventures investors. (Id. { 26.) The investors provided Basavaruju and Satish with
due diligence requests. (I[d.) Basavaruju and Satish, however, ultimately failed to supply
the investors with the due diligence reports because the pair had failed to properly
maintain corporate records. (Id. at § 28.)
Due to Basavaraju and Satish’s inability to provide corporate records, Candid
Ventures demanded that Nestlings produce — among other things — specific information
such as “balance sheets, income statements, [and] cashflow statements.” (Compl., Doc. 1,
{ 30.) In response, Nestlings produced a capitalization table reflecting a $334,000 debt to

Defendant Dew Ventures. (Id. at § 32.) This debt, however, was incurred without the
required approval of the Preferred Director. (Id. at { 33.) Basavaruju and Satish then
attempted to ratify the unauthorized debt through Nestlings’ board approval, but the
Preferred Director voted against ratification. (Id. at J 34.)
Basavaraju later produced four promissory notes dated between December 2022
and July 2024, which showed that Nestlings accepted the $334,000 from Dew Ventures
and listed all of Nestlings’ assets as collateral (“Dew Ventures’ Notes”). (Compl., Doc. 1,
4] 35.) The “metadata,” however, for each of Dew Ventures’ Notes show that they were
not created until the last weeks of July 2024. (Id. at ¥ 36.)
On August 9, 2024, Dew Ventures offered to purchase 50% equity of Nestlings, on
the condition that Candid Ventures waive all of its rights as a shareholder, grant Dew
Ventures unilateral decision-making authority, and grant Dew Ventures “the right to
assume 100% of Nestlings on a ‘debt-free basis’ without consideration to Candid
Ventures’ equity holdings in Nestlings.” (Compl., Doc. 1, § 42.) Candid Ventures rejected
this offer. (Id. at | 43.) On August 15, 2024, Nestlings’ board voted to assole the
corporation. (Id. at { 44.) The Preferred Director agreed to this action on the condition
that Nestlings provide a winddown proposal with a list of company assets, accounts, and
an order of the distribution of assets. Id. Nestlings has not provided Candid Ventures
with these materials. (Id. § 45.)
On September 13, 2024, Dew Ventures sent a letter to Nestlings demanding
payment of the $334,000 debt, or alternatively that Nestlings transfer all of its assets to
Dew Ventures. (Compl., Doc. 1, § 46.) On the same day, Candid Ventures also demanded

repayment of its Notes, which were perfected and filed before any other credit given to
Nestlings. (Id. at § 47.) On September 18, 2024, Nestlings notified Candid Ventures that
it had rejected Candid Ventures’ payment demand in favor of transferring all assets to
Dew Ventures. (Id. at { 49.) On September 19, 2024, Candid Ventures wrote to Nestlings
and Dew Ventures, notifying them that Candid Ventures’ Notes have priority over Dew
Venture’s Notes. (Id. at { 50.) Despite this notice, Nestlings and Dew Ventures agreed to
“convey all of Nestlings’ company assets to Dew Ventures.” (Id. § 51.)
On September 24, 2024, Candid Ventures brought this action, seeking a temporary
restraining order—as well as extended injunctive relief—preventing the transfer of
Nestlings’ assets to Dew Ventures, a declaratory judgment voiding Dew Ventures’ Notes,
breach of contract against Nestlings, tortious interference of contract against Dew
Ventures, breach of fiduciary duties and fraud against Basavaraju and Satish, conspiracy
by all Defendants, and a demand for accounting by Nestlings. (See Compl., Doc. 1.)
LAW & ANALYSIS
Federal Rule of Civil Procedure 65 empowers the Court to issue a temporary
restraining order against an adverse party. Fed. R. Civ. P. 65(b). The purpose of issuing a
temporary restraining order is to preserve the status quo. CUC Properties, LLC v. 1680
Carillon, LLC, No. 1:12-CV-71, 2012 WL 540560, *1 (S.D. Ohio Feb. 17, 2012). A district
court may issue an ex parte temporary restraining order only if:
(A) specific facts in an affidavit or a verified complaint clearly show that
immediate and irreparable injury, loss, or damage will result to the movant
before the adverse party can be heard in opposition; and
(B) the movant’s attorney certifies in writing any efforts made to give notice

and the reasons why it should not be required.
Fed. R. Civ. P. 65(b)(1).
Plaintiff filed a verified complaint clearly showing that immediate and irreparable
harm would result before the adverse party can be heard, and counsel certified efforts to
give notice and why further notice should not be required. (See Compl., Doc. 1, Pg. ID
24.) Specifically, Defendants’ recent signing of the agreement to transfer all of Nestlings’
assets to Dew Ventures demonstrates the need for immediate relief to preserve the status

quo. (Id. at § 25-53.) See Granny Goose Foods, Inc. v. Bhd. of Teamsters & Auto Truck Drivers
Loc. No. 70 of Alameda Cnty., 415 U.S. 423, 439 (1974) (explaining that such orders “should
be restricted to serving their underlying purpose of preserving the status quo and
preventing irreparable harm just so long as is necessary to hold a hearing”). To the extent
notice has not been made to Defendants, Plaintiff's verified complaint and certification
comports with Rule 65(b)’s requirements.
The Court must consider four factors when determining whether to grant or deny
a temporary restraining order: “(1) whether the movant has a strong likelihood of success

on the merits; (2) whether the movant would suffer irreparable injury without the
injunction; (3) whether issuance of the injunction would cause substantial harm to others;
(4) whether the public interest would be served by issuance of the injunction.” Id. (citing
Chabad of S. Oh. & Congregational Lubavitch v. City of Cincinnati, 363 F.3d 427, 432 (6th Cir.
2004)). “These are factors to be balanced, not prerequisites that must be met.” United States

v. Edward Rose & Sons, 384 F.3d 258, 261 (6th Cir. 2004).

I. Likelihood of Success
“The moving party need only show a likelihood of success on the merits on one
claim where there are multiple claims at issue in the complaint.” J.P. Morgan Securities,
LLC v. Duncan, No. 2:22-CV-11732, 2022 WL 3325514, *4 (E.D. Mich. Aug. 11, 2022). This
Court will consider the likelihood of Plaintiff's success on its breach of contract claim
against Nestlings.
On its breach of contract claim, Plaintiff alleges, in part, that Nestlings entered into
the Notes with Candid Ventures, in which Candid Ventures loaned Nestlings an amount
totaling $51,000. (Compl., Doc. 1 78-80.) Both Notes were secured by “all assets of the
[Nestlings], including but not limited to hardware, software, intellectual property,
customer contracts, cash or cash equivalents, bank accounts, or any other intangible
property” owned by Nestlings. (Id. at {| 81.) Candid Ventures’ Notes matured on June 1,
2024, and September 13, 2024, respectively. (Id. at {{ 78, 80.) Although Plaintiff made a
written request for repayment of Candid Ventures’ Notes on September 13, 2024,
Nestlings has yet to repay Plaintiff. (Id. at J 82-87.)
As Candid Ventures’ Notes both have a choice of law provision dictating that Ohio
law will govern any disputes (Notes, Docs. 1-4, 1-5, Pg. ID 117-18), the Court will analyze
the likelihood of success on the merits based on Ohio breach of contract law. Savedoff v.
Access Group, Inc., 524 F.3d 754, 762 (6th Cir. 2008) (“When interpreting contracts in a
diversity action, we also generally enforce the parties’ contractual choice of governing
law.”). Under Ohio law, the essential elements of a breach of contract claim are: “(1) the
existence of an enforceable contract; (2) the performance (or excuse from performance) of

the contractual obligations by the party seeking relief; (3) breach or failure to fulfill
contractual obligations by the other party; and (4) damages suffered by the party seeking
relief as a result of the breach.” CUC Properties, 2012 WL 540560 at *2.
Considering the evidence provided to the Court at this time, Plaintiff has
established each element. Plaintiff and Nestlings executed two Notes that detail the terms
of the contracts. (Notes, Doc. 1-4, 1-5.) By evidence of the Notes themselves, Plaintiff has
satisfied the first element of breach. Plaintiff also alleged that it paid the amounts
promised in the Notes to Nestlings. In doing so, Plaintiff has performed its contractual
obligations, satisfying the second element. Plaintiff further alleges that it requested
repayment on the date agreed upon in the Notes. (Id. { 82.) Yet, Nestlings has refused to
repay Plaintiff, constituting a breach of contract on the part of Nestlings. (Id.) Finally, as
a result of its breach, Nestlings has deprived Plaintiff of money that Plaintiff is rightfully
owed, resulting in damages. Thus, Plaintiff has established, for the purposes of a
temporary restraining aren, a strong likelihood of success on the merits of its breach of
contract claim.
IL. Irreparable Harm
A sufficient showing of irreparable harm is “the single most important
prerequisite for the issuance of a preliminary injunction” and receives “increased
emphasis” as a factor within the temporary restraining order context. Blount Pride, Inc. v.
Desmond, 690 F. Supp. 3d 796, 807 (E.D. Tenn. 2023) (citations omitted). A harm is
irreparable when it “is not fully compensable by monetary damages.” Overstreet v.
Lexington-Fayette Urban Cty. Gov't, 305 F.3d 566, 578 (6th Cir. 2002).

Plaintiff argues that it would suffer irreparable harm both as a secured creditor
and a preferred shareholder if the temporary restraining order is not granted. (Motion,
Doc. 2, Pg. ID 131.) When secured creditors “seek court intervention to maintain their
position,” courts have found “the prospective loss of their status quo security interest . .

. sufficient to constitute the irreparable harm needed to justify an injunction.” Plainfield
Specialty Holdings II Inc. v. Children’s Legal Servs. PLLC, 634 F. Supp. 2d 833, 846 (E.D. Mich.
2009) (collecting cases). Here, Plaintiff is a secured creditor, with all of Nestlings’ assets
serving as collateral. (Compl., Doc. 1, 79, 81.) Defendants nevertheless entered into an
asset transfer agreement on September 19, 2024, to convey all of Nestlings’ assets to Dew
Ventures. (Id. at 9 51-53.)
Additionally, “the strong likelihood that a judgment-debtor would thwart
collection efforts through the ‘concealment and dissipation of assets’ can establish
irreparable harm.” United States v. Kelly, No. 2:21-CV-12570, 2021 WL 12302024, at *5 (E.D.
Mich. Nov. 3, 2021) (citing McGirr v. Rehme, 891 F.3d 603, 613-14 (6th Cir. 2018); Williamson
v. Recovery Ltd. P'ship, 731 F.3d 608, 628 (6th Cir. 2013) (affirming an asset-freezing
injunction because the defendant had “engaged in a number of . . . questionable financial
transactions” suggesting a threat of asset dissipation)). As explained, the Defendants in
this case, among other things, allegedly conspired to deprive Plaintiff of its rights as a
preferred shareholder and secured creditor by improperly entering into the asset transfer
agreement with Dew Ventures. (Compl., Doc. 1, { 60, 109-110.)
Plaintiff is not only a secured creditor but also the sole Preferred Shareholder with
unilateral control over decisions to dissolve, winddown, or indebt Nestlings in excess of

$100,000. (Compl., Doc. 1, {| 22.) Courts have found that “a bargained-for minority right
to participate in corporate management has value in and of itself and a denial of that
right, without more, can give rise to irreparable harm.” Wisdom Imp. Sales Co. v. Labatt
Brewing Co., 339 F.3d 101, 115 (2d Cir. 2003) (collecting cases). If all of Nestlings’ assets —
including intellectual property, software, and social media assets—are improperly
transferred to Dew Ventures, this would likely harm Plaintiff specifically as a Preferred
Shareholder.
Together, these considerations support a finding of irreparable harm to Plaintiff if
the temporary restraining order is not granted. This factor therefore supports granting
such relief.
III. Substantial Harm to Others or the Public
The third and fourth factor also weigh in favor of a temporary restraining order.
First, any harm that Defendants may allegedly suffer is due to Defendants’ own alleged
conduct. This Court has held that self-inflicted harm to a Defendant does not preclude
injunctive relief. Cooey v. Taft, 430 F. Supp. 2d 702, 708 (S.D. Ohio 2006). Second, nothing
in the record suggests that preventing Nestlings from transferring assets to Dew Ventures
would cause substantial harms to any third parties. The public interest is generally served
in the enforcement of “voluntarily assumed contract obligations.” Certified Restoration Dry
Cleaning Network, L.L.C. v. Tenke Corp, 511 F.3d 535, 551 (6th Cir. 2007). Thus, substantial
harm will not be caused to others and the public interest will be served by issuing a
temporary restraining order.

IV. Security
Plaintiff's Motion for Temporary Restraining Order seeks such relief without bond
because there will be “no obvious harm to any of the Defendants at this early stage of the
proceeding.” (Doc. 2, Pg. ID 135.) At this time, the Court agrees and concludes that
Plaintiff need not post bond. The Court shall revisit the issue of bond, if necessary, when
adjudicating any motion for preliminary injunction that Plaintiff may file.
CONCLUSION
Thus, the Court GRANTS Plaintiff's Motion for Temporary Restraining Order
(Doc. 2) and ORDERS the following:
1. Nestlings is ENJOINED from (1) transferring any Nestlings assets to Dew
Ventures or any third party; or (2) from taking any corporate action that would
harm Candid Ventures’ status as Nestlings’ Preferred Shareholder, pending
further approval by Candid Ventures or the Court.
2. This Order shall expire on the 14th day following the entry of this Order, subject
to further orders of the Court.
IT IS SO ORDERED.
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
€
Date / Time: Sogf. 2024 By: | i 4 W, falouf
G + 12/0 6 po, JUDGE MATTHEW W. McFARLAND

10

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10665462. Public record. Not legal advice.