Jain v. Unilodgers, Inc. et al

Filing 91

ORDER by Judge Thomas S. Hixson granting 74 Motion for TRO. Preliminary Injunction Hearing set for 2/15/2024 11:00 AM. The Court GRANTS Plaintiffs Motion for Temporary Restraining Order. This Temporary Restraining Order shall remain in effec t until for a period of 14 days, through February 21, 2024, or further order of this Court. This order shall expire at 5:00 pm on February 21, 2024 unless the Court orders an extension. Defendants are ORDERED TO SHOW CAUSE why a preliminary i njunction should not issue. Defendants shall file any response to this Order to Show Cause on or before noon Pacific time on February 12, 2024. Plaintiff shall file any reply on or before noon Pacific time February 14, 2024. Page limits and any affid avits or declarations shall be in compliance with Civil Local Rule 7. The Court sets a hearing on the Order to Show Cause for February 15, 2024, at 11:00 a.m. in Courtroom E, 15th floor, 450 Golden Gate Avenue, San Francisco, California 94102. Any party may file a request to appear by telephone. (tshlc2, COURT STAFF) (Filed on 2/7/2024)

Download PDF
1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 SHIPRA JAIN, Plaintiff, 8 TEMPORARY RESTRAINING ORDER; ORDER TO SHOW CAUSE v. 9 10 Re: Dkt. No. 74 UNILODGERS, INC., et al., Defendants. 11 United States District Court Northern District of California Case No. 21-cv-09747-TSH 12 13 I. 14 INTRODUCTION On January 17, 2024, Plaintiff Shipra Jain filed an emergency motion for a temporary 15 restraining order to enjoin Defendants Vaibhav Verma and Unilodgers, Inc. from proceeding with 16 an impending sale of all of Unilodgers’ assets to an India-based portfolio company of one of 17 Unilodgers’ investors. Application for a Temporary Restraining Order, ECF No. 74 at 1; ECF No. 18 81 at 7, 28.1 Jain also requested that the court issue an order to show cause why a preliminary 19 injunction should not issue. ECF No. 74 at 2, 17. Defendants filed an Opposition (ECF No. 80) 20 and Jain filed a Reply (ECF No. 81). The Court held a hearing on January 25, 2024. On January 21 31, 2024, the Court issued an order calling for supplemental briefing on the propriety of Jain’s 22 proposed TRO and preliminary injunction. ECF No. 86. The parties filed responses at ECF Nos. 23 87, 88 and 89. For the reasons set forth below, the Court GRANTS a temporary restraining order, 24 enjoining Defendants or their agents from selling Unilodgers’ assets or otherwise liquidating the 25 26 27 28 For precision’s sake, citations herein are to the unredacted versions of Plaintiff’s declaration in support of this motion (ECF No. 73-2, Decl. of Shipra Jain) and of Plaintiff’s reply to Defendants’ opposition (ECF No. 81), which were filed under seal. Most sections of these documents cited within this order can be found in the redacted versions that Plaintiff filed on the public docket. See ECF No. 74-20 (Redacted Jain Decl.); No. 82 (Plaintiff’s Reply and Second Administrative Motion to File Under Seal). 1 1 company. See Fed. R. Civ. P. 65(b). The temporary restraining order shall expire at 5:00 p.m. on 2 February 21, 2024.2 3 II. In September 2018, Defendant Unilodgers, Inc. (“Unilodgers”) was incorporated under the 4 5 laws of Delaware with a principal place of business in Mill Valley, California. Plaintiff’s Second 6 Amended Complaint (“SAC”) ¶ 19, ECF No. 45. Plaintiff was appointed Chief Operating Officer 7 and Chief Financial Officer of Unilodgers, and Defendant Verma was appointed Chief Executive 8 Officer and Secretary. ECF No. 73-1 at 3; ECF No. 73-2 (Decl. of Shipra Jain) ¶ 4. Plaintiff and 9 Verma were appointed as members of Unilodgers’ Board of Directors (“Board”). ECF No. 80-2 10 (Decl. of Vaibhav Verma) ¶ 5. On December 17, 2021, Plaintiff filed the instant action against Defendants Unilodgers and 11 United States District Court Northern District of California BACKGROUND 12 Verma. ECF No. 1. On February 16, 2023, Plaintiff filed her Second Amended Complaint 13 (“SAC”), alleging the following causes of action: 1) Breach of Contract (against Unilodgers), 2) 14 Tortious Interference with Contractual Relations (against Verma), 3) Breach of Fiduciary Duty 15 (Against all Defendants), 4) Conversion (Against all Defendants), 5) Civil Conspiracy (Against all 16 Defendants), and 6) Declaratory Relief (Against Unilodgers). ECF No. 45. The Court granted 17 Defendants’ motion to dismiss the causes of action based on tortious interference with contractual 18 relations against Verma, conversion against Unilodgers, and civil conspiracy against both 19 Defendants; Plaintiff’s other causes of action were allowed to proceed. ECF No. 50. In her prayer 20 for relief, Plaintiff requests judgment in her favor against Defendants on all her claims; damages 21 with interest; and for Plaintiff’s shares to be returned to her or, in lieu of receiving the shares, for 22 damages in a sum capable of identification in an amount according to proof within the jurisdiction 23 of this Court. ECF No. 45 at 17. 24 III. LEGAL STANDARD 25 In a federal diversity action, Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938), advises that 26 the Court should apply federal procedural law and state substantive law. See Hanna v. Plumer, 27 28 2 The parties consent to magistrate judge jurisdiction pursuant to 28 U.S.C. § 636(c). ECF Nos. 10, 21, 54. 2 United States District Court Northern District of California 1 380 U.S. 460, 471 (1965); Sonner v. Premier Nutrition Corp., 971 F.3d 834, 839 (9th Cir. 2020). 2 When determining the law that should apply to decide the availability of temporary injunctive 3 relief in a diversity action, the Erie test can be a little tricky. On the one hand, in a diversity case, 4 preliminary injunctive relief is not available in federal court if state law rejects the availability of 5 that remedy. Sims Snowboards, Inc. v. Kelly, 863 F.2d 643, 647 (9th Cir. 1988) (“The general 6 equitable powers of federal courts should not enable a party suing in diversity to obtain an 7 injunction if state law clearly rejects the availability of that remedy.”). On the other, just because 8 state law authorizes an injunction doesn’t mean a federal court sitting in diversity can issue one. 9 See Sonner, 971 F.3d at 841–44. Rather, “traditional principles governing equitable remedies in 10 federal courts . . . apply when a party requests” equitable relief under state law “in a diversity 11 action.” Id. at 844. Thus, a TRO may be issued in a diversity case only if applicable state law 12 would permit it and an injunction would conform to traditional principles governing equitable 13 remedies in federal courts. 14 A federal court sitting in diversity must look to the forum state’s choice of law rules to 15 determine the controlling substantive law. Zinser v. Accufix Research Inst., Inc., 253 F.3d 1180, 16 1187 (9th Cir.), opinion amended on denial of reh’g, 273 F.3d 1266 (9th Cir. 2001). Defendant 17 Unilodgers was incorporated under the laws of Delaware with its principal place of business in 18 California. SAC ¶ 6. The parties both apply Delaware law to Plaintiff’s causes of action. ECF 19 Nos. 47 at 3; 48 at 1. However, the application of California law regarding injunctive relief is 20 appropriate here, where Plaintiff moves for a TRO under California Code of Civil Procedure § 526 21 and no party advocates for the application of Delaware law. See Wash. Mut. Bank v. Superior 22 Court, 24 Cal. 4th 906, 919–20 (2001) (under California choice of law rules, foreign law 23 proponent bears burden of establishing true conflict). 24 Requests for temporary restraining orders are governed by the same general standards that 25 govern the issuance of a preliminary injunction. See New Motor Vehicle Bd. v. Orrin W. Fox Co., 26 434 U.S. 1345, 1347 n.2 (1977); Stuhlbarg lnt’l Sales Co., Inc. v. John D. Brush & Co., Inc., 240 27 F.3d 832, 839 n.7 (9th Cir. 2001). Preliminary injunctive relief, whether in the form of a 28 temporary restraining order or a preliminary injunction, is an “extraordinary and drastic remedy,” 3 United States District Court Northern District of California 1 that is never awarded as of right. Munaf v. Geren, 553 U.S. 674, 689–690 (2008) (internal 2 citations omitted). In order to obtain such relief, a plaintiff must establish four factors: (1) that she 3 is likely to succeed on the merits; (2) that she is likely to suffer irreparable harm in the absence of 4 preliminary relief; (3) that the balance of equities tips in her favor; and (4) that an injunction is in 5 the public interest. Winter v. Natural Resources Defense Council. Inc., 555 U.S. 7, 20 (2008). 6 The plaintiff must make a threshold showing of likelihood of success on the merits and irreparable 7 harm, but a stronger showing on one element may offset a weaker showing on another. Alliance 8 for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1131–33 (9th Cir. 2011). In that regard, courts 9 employ a sliding scale: “serious questions going to the merits and a balance of hardships that tips 10 sharply toward the plaintiff can support issuance of a preliminary injunction, so long as the 11 plaintiff also shows that there is a likelihood of irreparable injury and that the injunction is in the 12 public interest.” Id. at 1135 (internal quotations omitted). 13 Federal Rule of Civil Procedure 65 requires a court granting an injunction or a restraining 14 order to state why it is being issued, to state the specific terms, and to describe in reasonable detail 15 the act or acts restrained. Fed. R. Civ. P. 65(d)(1). In addition, a TRO issued without notice must 16 state the date and hour it was issued, describe the injury and state why it is irreparable, state why 17 the order was issued without notice, and be promptly filed. Id. (b)(2). Moreover, if the TRO is 18 issued without notice, the motion for preliminary injunction “must be set for hearing at the earliest 19 possible time, taking precedence over all other matters except hearings on older matters of the 20 same character.” Id. (b)(3). The present TRO was issued with notice, however. 21 Under California law, an injunction may be granted “[w]hen it appears by the complaint or 22 affidavits that the commission or continuance of some act during the litigation would produce 23 waste, or great or irreparable injury, to a party to the action.” Cal. Civ. Proc. Code § 526(a)(2). 24 “In the context of injunctions, insolvency or the inability to otherwise pay money damages is a 25 classic type of irreparable harm.” California Retail Portfolio Fund GMBH & Co. KG v. Hopkins 26 Real Est. Grp., 193 Cal. App. 4th 849, 857 (2011) (citing Leach v. Day, 27 Cal. 643, 646 (Cal. 27 1865), Friedman v. Friedman, 20 Cal. App. 4th 876, 890 (1993)). An injunction may also be 28 granted “[w]hen it appears, during the litigation, that a party to the action is doing, or threatens, or 4 1 is about to do, or is procuring or suffering to be done, some act in violation of the rights of another 2 party to the action respecting the subject of the action, and tending to render the judgment 3 ineffectual.” Cal. Civ. Proc. Code § 526(a)(3). 4 5 United States District Court Northern District of California 6 IV. A. DISCUSSION Plaintiff Is Likely to Succeed on the Merits The Court finds that Jain is very likely to succeed on the merits. Jain’s claims for breach 7 of contract, breach of fiduciary duty and for declaratory relief are each based on her claim that she 8 is a rightful minority shareholder in Unilodgers and that Defendants stole her stake in the 9 company. ECF No. 45 at 1, 12. In response, Defendants argue that Plaintiff’s July 2021 10 termination from the Unilodgers Board of Directors was actually effective February 2020, at 11 which time none of her shares in Unilodgers had vested. ECF No. 80 at 12–13. And, Defendants 12 maintain, a February 2020 redlined draft settlement agreement between Plaintiff and Unilodgers 13 gave Plaintiff timely and adequate notice of Unilodgers’ intent to repurchase Jain’s then-unvested 14 shares at the same price at which they were purchased. Id. at 9–10. But the parties’ briefing on 15 Plaintiff’s motion for a TRO confirms that Jain was not terminated from the Board until July 2021, 16 see ECF No. 80-11 (Ex. I to Verma Decl.) at 2–3 (July 29, 2021 action removing Jain from the 17 Board by written consent); ECF No. 81, Ex. 7 (July 31, 2021 message from Defendants’ counsel 18 “to inform” Jain that she was removed from the Board); ECF Nos. 74-16 and 74-17, RFA Nos. 19 19–21 (Defendants’ admissions that they invited Plaintiff to attend Board meetings in August 20 2020 and March 2021, and that Plaintiff attended a Board meeting in March 2021); and that 21 Unilodgers failed to provide notice to repurchase Jain’s unvested shares. ECF Nos. 74-16 and 22 74-17, RFA Nos. 10–15 (Defendants’ admissions that they never provided Jain with notice of 23 Unilodgers’ intent to repurchase Plaintiff’s unvested shares according to the methods set forth in 24 the Vesting Agreement (an agreement confirming stock allocation and providing a repurchasing 25 option for Unilodgers)), 17–18 (Defendants’ admissions that neither they nor Plaintiff signed the 26 February 2020 draft settlement agreement that Defendants claim constitutes notice of intent to 27 repurchase Jain’s shares in the company). 28 The parties’ briefing further confirms that the Vesting Agreement between Jain and 5 United States District Court Northern District of California 1 Unilodgers was never modified, amended, waived, or superseded (see ECF Nos. 74-16 and 74-17, 2 RFA Nos. 1–5); that some of Jain’s shares would have vested by July 2021 (ECF No. 74-4, 3 August 2019 Vesting Agreement ¶ 3.1); that Unilodgers was required to deliver all vested shares 4 to a stockholder upon request (ECF No. 74-4, August 2019 Vesting Agreement ¶ 3.2); that 5 Unilodgers refused to deliver any shares to Jain in response to her demands made in May and July 6 2021 (ECF Nos. 74-16 and 74-17, RFA Nos. 43–44) and had not delivered any shares to her as of 7 December 2023 (ECF Nos. 74-16 and 74-17, RFA No. 45); that Defendants refused to permit Jain 8 to inspect Unilodgers’ books and records in response to her demand prior to her removal from the 9 Board (ECF No. 80-10 at 4; ECF Nos. 74-16 and 74-17, RFA No. 46); that Unilodgers’ 2020 and 10 2021 statements of profit and loss listed Plaintiff as the owner of 2,253,472 shares of Unilodgers 11 stock through December 31, 2021 (ECF No. 73-11 at 6; ECF No. 73-12 at 6); that Unilodgers 12 didn’t buy back any shares in 2020 or 2021 (id.); and that Verma, along with Lightspeed Indian 13 Partners, Lumis Partners, and Agarsha Innovations, now owns shares of Unilodgers stock that 14 were previously owned by or allocated to Jain (ECF No. 74-17, RFA Nos. 50–53). No matter how 15 high the bar for demonstrating likelihood of success on the merits may be, Jain readily clears it. 16 B. Plaintiff Is Likely to Suffer Irreparable Harm 17 “An irreparable harm is one that cannot be redressed by a legal or equitable remedy 18 following trial.” Optinrealbig.com, LLC v. Ironport Sys., Inc., 323 F. Supp. 2d 1037, 1050 (N.D. 19 Cal. 2004) (citing Public Util. Comm'n v. FERC, 814 F.2d 560, 562 (9th Cir. 1987)). Generally, 20 economic injury is not irreparable because monetary damages are an adequate remedy. Rent–A– 21 Center, Inc. v. Canyon Television & Appliance Rental, Inc., 944 F.2d 597, 603 (9th Cir. 1991). 22 Nevertheless, “intangible injuries, such as damage to ongoing recruitment efforts and goodwill, 23 qualify as irreparable harm.” Id.; see also Stuhlbarg Int'l Sales Co., 240 F.3d at 841. While a 24 “loss of control over business reputation and damage to goodwill could constitute irreparable 25 harm,” courts determining that such harm exists cannot be “grounded in platitudes rather than 26 evidence.” Herb Reed Enters., LLC v. Fla. Entm’t Mgmt., Inc., 736 F.3d 1239, 1250 (9th Cir. 27 2013). Instead, a plaintiff must “demonstrate a likelihood of irreparable injury—not just a 28 possibility—in order to obtain preliminary relief.” Winter, 555 U.S. at 21. 6 As noted, “[i]nsolvency or the inability to otherwise pay money damages is a classic type 1 2 of irreparable harm” under California law. California Retail Portfolio Fund, 193 Cal. App. 4th at 3 857; see also Friedman, 20 Cal. App. 4th at 890. Defendants do not dispute that the pending transaction will drain Unilodgers of all assets, United States District Court Northern District of California 4 5 rendering Plaintiff unable to collect on any judgment if she prevails in the lawsuit. ECF No. 80 at 6 14–15, 18; see also ECF No. 74-2 ¶ 11(a); ECF No. 80-15 ¶ 7(g)(h). Nor do they dispute that the 7 proposed transaction will leave Unilodgers with its existing liabilities. See ECF No. 80-14, Ex. L 8 at 2 (“all liability prior to the execution of the deal . . . for all Pending litigations and past dues 9 should continue to remain previous entity and won’t be picked up by the acquiring entity in any 10 form.”). Although Defendants maintain that the deal is at an early stage and is unlikely to close in 11 the first half of February, the proposed terms of the transaction—an asset purchase for $9 million, 12 payable in stock, by a portfolio company of a Unilodgers investor (see ECF No. 80-15, Decl. of 13 Gautam Verlekar)—appear straightforward enough that the transaction could potentially close 14 before the resolution of a motion for a preliminary injunction. A TRO would “preserve[] the 15 status quo and prevent[] the irreparable loss of rights before judgment.” Walczak v. EPL Prolong, 16 Inc., 198 F.3d 725, 730 (9th Cir. 1999). Accordingly, the Court finds that Plaintiff is likely to 17 suffer irreparable harm in the absence of a TRO. 18 C. 19 The Balance of Equities Tips in Plaintiff’s Favor When analyzing this element, courts “must balance the competing claims of injury and 20 must consider the effect on each party of the granting or withholding of the requested relief.” 21 Winter, 555 U.S. at 24; see also Int’l Jensen, Inc. v. Metrosound U.S.A., Inc., 4 F.3d 819, 827 (9th 22 Cir. 1993). In assessing whether a plaintiff establishes a balance of equities that tips in their favor, 23 “the district court has a ‘duty . . . to balance the interests of all parties and weigh the damage to 24 each.’” Stormans, Inc. v. Selecky, 586 F.3d 1109, 1138 (9th Cir. 2009) (alteration in original) 25 (citation omitted). 26 If Defendants are able to proceed with the planned transaction, Unilodgers will be rendered 27 28 7 United States District Court Northern District of California 1 insolvent and Plaintiff will get nothing in spite of the strength of her claims.3 On the other hand, 2 Defendants argue that a TRO would “burden[] the negotiation process and potentially caus[e] the 3 Purchaser to abandon the transaction.” ECF No. 80 at 1. However, although Defendants have 4 characterized the impending transaction as Unilodgers’ “last chance for survival,” ECF No. 80 at 5 14, Defendants’ counsel confirmed at the hearing on this motion that the company will go out of 6 business regardless of whether the transaction is allowed to proceed. Accordingly, the Court 7 concludes that the balance of the equities favors Plaintiff. 8 D. An Injunction Is Not Against the Public Interest 9 The public interest factor is neutral in this case. See Stormans, 586 F.3d at 1138–39 10 (“When the reach of an injunction is narrow, limited only to the parties, and has no impact on non- 11 parties, the public interest will be at most a neutral factor in the analysis rather than one that favors 12 granting or denying the preliminary injunction.”) (cleaned up). 13 E. 14 The Requested Injunction Complies with Traditional Principles Governing Equitable Remedies in Federal Courts In ECF No. 86, the Court requested supplemental briefing concerning whether a federal 15 court may issue the injunctive relief Jain requests. The Court also specifically directed the parties 16 to consider Grupo Mexicano de Desarrollo S.A. v. All. Bond Fund, Inc., 527 U.S. 308 (1999), 17 Dateline Exports, Inc. v. Basic Const., Inc., 306 F.3d 912, 914 (9th Cir. 2002), and Walczak v. 18 EPL Prolong, Inc., 198 F.3d 725, 729–30 (9th Cir. 1999). The Court appreciates the parties’ 19 supplemental briefs. 20 In Grupo Mexicano, the district court issued a preliminary injunction enjoining petitioners 21 22 23 24 from “dissipating, disbursing, transferring, conveying, encumbering or otherwise distributing or affecting any petitioner’s right to, interest in, title to or right to receive or retain, any of the Toll Road Notes.” 527 U.S. at 312–13. The Supreme Court overturned the injunction, rejecting the claim that “a person’s unencumbered assets can be frozen by general-creditor claimants before 25 26 27 28 3 Plaintiff also raises serious questions whether the pending transaction involves self-dealing and would violate Plaintiff’s rights under Delaware law. See ECF No. 81 at 4–5, 7; No. 80-15 ¶ 7(c), 7(f). Because the Court finds irreparable harm exists and that the requirements for an injunction under Cal. Civ. Proc. Code § 526(a)(2) are otherwise met, the Court refrains from evaluating the strength of those arguments in considering this motion. 8 1 their claims have been vindicated by judgment.” Id. at 322–23. “Because such a remedy was 2 historically unavailable from a court of equity, we hold that the District Court had no authority to 3 issue a preliminary injunction preventing petitioners from disposing of their assets pending 4 adjudication of respondents’ contract claim for money damages.” Id. at 333; see also Dateline 5 Exports, Inc. v. Basic Const., Inc., 306 F.3d 912, 914 (9th Cir. 2002) (“Under general equitable 6 principles recognized by the United States Supreme Court, a district court lacks authority to issue 7 a preliminary injunction that freezes a debtor’s assets in cases involving unsecured creditors.”). 8 United States District Court Northern District of California 9 Grupo Mexicano does not bar an injunction in this case. First, Jain is seeking both equitable relief and damages. Indeed, her sixth claim for relief seeks only equitable relief. The 10 equitable relief she seeks is the return of her shares, and the damages she seeks would include the 11 money Unilodgers was obligated to pay her (but did not) when her shares were stolen. It is true 12 that down the line she will have to choose between those remedies, but pleading in the alternative 13 is fine, see Fed. R. Civ. Proc. 8(d)(3), and she has pled both equitable remedies and damages. The 14 Ninth Circuit has held that “the holding of Grupo Mexicano is limited to cases in which only 15 monetary damages are sought. The Supreme Court expressly stated that a preliminary injunction 16 barring asset transfer is available where the suit seeks equitable relief.” Johnson v. Couturier, 572 17 F.3d 1067, 1083–84 (9th Cir. 2009); see also Rubin v. Pringle (In re Focus Media Inc.), 387 F.3d 18 1077, 1085 (9th Cir. 2004) (“Grupo Mexicano thus exempts from its proscription against 19 preliminary injunctions freezing assets cases involving bankruptcy and fraudulent conveyances, 20 and cases in which equitable relief is sought.”). 21 Second, Jain does not seek (or no longer seeks) an asset freeze, and she is more properly 22 viewed as a shareholder rather than a creditor that lacks rights in the company’s assets. While the 23 original request for a TRO (ECF No. 74) looked a little broad, Jain has now narrowed her request 24 and seeks an order that states: “Defendants Unilodgers and Verma (and their officers, agents, 25 servants, employees, and attorneys) are enjoined from selling Unilodgers’ assets, including via the 26 proposed sale transaction, or otherwise liquidating Unilodgers, effective immediately, until further 27 order of the Court.” The Court will narrow this a bit further to add “all or substantially all” before 28 Unilodgers’ assets, which the Court believes is the intent of the request. So revised, the request 9 1 United States District Court Northern District of California 2 does not resemble an asset freeze. As discussed above, Jain has a strong case on the merits that she is rightfully a minority 3 shareholder in Unilodgers and Defendants stole her shares. The most relevant Ninth Circuit 4 precedent therefore seems to be Walczak. In that case, the plaintiff was a minority shareholder in 5 defendant EPL Prolong. 198 F.3d at 728. EPL entered into a February 1998 agreement with 6 Prolong International under which the latter would purchase substantially all of the assets of EPL 7 Prolong, leaving EPL Prolong to be liquidated and dissolved. Id. Walczak moved for a TRO and 8 preliminary injunction, seeking to prevent the consummation of the 1998 agreement. Id. The 9 district court granted both, and its “motivation for granting the preliminary injunction was its 10 concern that dissolution of EPL Prolong would preclude Walczak from collecting on a future 11 judgment.” Id. at 729. 12 In Walczak, the Ninth Circuit distinguished Grupo Mexicano on the ground that the 13 preliminary injunction did not amount to an asset freeze. Id. at 730. Rather, the district court’s 14 order stated: 15 16 17 18 19 Plaintiffs’ request for a preliminary injunction is hereby granted. It is ordered that all defendants, their agents, assigns, officers and representatives are hereby enjoined from consummating the exchange of the planned “two for one” stock swap of EPL Prolong Inc. for Prolong International Corp. stock, and from liquidating EPL Prolong Inc. or its patent rights in any fashion until further notice from this court or until a final judgment on the merits is reached in this litigation as to all parties. Id. The Court of Appeals explained that “unlike the injunction at issue in Grupo Mexicano, this 20 injunction does not completely prohibit Appellants from taking any action with regard to their 21 22 assets.” Id. The court thus held that “the injunction in this case is distinguishable from the injunction in Grupo Mexicano. Here, the effect of the preliminary injunction was not to ‘freeze’ 23 Appellants’ assets. Rather, the injunction appropriately preserved the status quo and prevented the 24 irreparable loss of rights before judgment.” Id. at 730. 25 The Ninth Circuit further addressed the differences between Grupo Mexicano and Walczak 26 in Dateline Exports, Inc. v. Basic Const., Inc., 306 F.3d 912 (9th Cir. 2002). The Court of 27 Appeals explained that in Walczak “the request for an injunction came from a minority 28 10 1 shareholder trying to prevent a company from proceeding with a specific stock sale.” Id. at 914. 2 Further, “the injunction rejected in Grupo Mexicano effected a freeze on all of the debtors’ assets 3 while the injunction affirmed in Walczak did not completely prohibit Appellants from taking any 4 action with regard to their assets. It only prohibited the Appellants from either proceeding with a 5 stock sale or otherwise liquidating the company.” Id. (cleaned up). In addition, Dateline 6 emphasized the distinction between a minority shareholder (at issue in Walczak) and “a creditor 7 with no right to the debtor’s assets,” id. 8 9 United States District Court Northern District of California 10 The injunction Jain seeks here is similar to the one in Walczak. It prohibits an asset sale or otherwise liquidating of the company. And it is sought by a plaintiff who has shown she is rightfully considered a shareholder. 11 The Ninth Circuit has also explained that “there must be a relationship between the injury 12 claimed in the motion for injunctive relief and the conduct asserted in the underlying complaint.” 13 Pacific Radiation Oncology, LLC v. Queen’s Medical Center, 810 F.3d 631, 636 (9th Cir. 2015). 14 “This requires a sufficient nexus between the claims raised in a motion for injunctive relief and the 15 claims set forth in the underlying complaint itself.” Id. “[A] remedy is justified only insofar as it 16 advances the ultimate objective of alleviating the initial . . . violation.” Armstrong v. Newsom, 58 17 F.4th 1283, 1292 (9th Cir. 2023) (citation omitted). 18 Here, “[t]he new allegations in the motion[] at issue here are closely related to those in the 19 operative Complaint.” Id. The gist of Plaintiff’s SAC is that Defendants deprived her of her 20 ownership interest in Unilodgers. The proposed transaction would strip the company of all assets, 21 leaving it worthless, so that even if Jain prevails in this lawsuit and wins back her shares, they 22 would be worthless. While the SAC targets the stealing of her shares, and the proposed 23 transaction aims to separate those shares from any assets, those are just slightly different ways of 24 achieving the same goal of depriving Jain of her ownership interest in Unilodgers. In this 25 situation, granting an injunction advances the ultimate objective of alleviating the initial violation. 26 Armstrong, 58 F.4th at 1292. The initial violation was the stealing of her shares. Jain sought to 27 alleviate that violation by suing to get her shares back or for monetary damages as compensation. 28 The proposed transaction would rob the shares of any value and make the company unable to pay 11 1 any monetary judgment. Thus, an injunction advances the ultimate objective of alleviating the 2 initial violation by preventing the remedies Jain seeks from becoming worthless. Accordingly, the Court concludes that the proposed injunction comports with traditional 3 4 principles of equity in federal courts. 5 F. United States District Court Northern District of California 6 A Bond Is Not Necessary to Ensure Against Harm to Defendants Federal Rule of Civil Procedure 65(c) provides that “[t]he court may issue a preliminary 7 injunction or a temporary restraining order only if the movant gives security in an amount that the 8 court considers proper to pay the costs and damages sustained by any party found to have been 9 wrongfully enjoined or restrained.” Fed. R. Civ. P. 65(c). Rule 65(c) invests the district court 10 “with discretion as to the amount of security required, if any.” Barahona–Gomez v. Reno, 167 11 F.3d 1228, 1237 (9th Cir. 1999) (emphasis added) (citing Doctor's Assoc., Inc. v. Stuart, 85 F.3d 12 975, 985 (2d Cir. 1996)). “The district court may dispense with the filing of a bond when it 13 concludes there is no realistic likelihood of harm to the defendant from enjoining his or her 14 conduct.” Jorgensen v. Cassiday, 320 F.3d 906, 919 (9th Cir. 2003). Given Defendants’ own 15 representations that Unilodgers will go out of business regardless of whether Defendants are able 16 to proceed with the transaction, the issuance of an injunction will not impose any harm on 17 Unilodgers. At most, it would affect the acquiring entity and investors or creditors that stand to 18 benefit from the transaction, but they are not parties in this action. Nor has Defendant Verma 19 substantiated any damages specific to him that would occur if the transaction is enjoined. 20 Accordingly, the Court determines that no bond is necessary. 21 22 V. CONCLUSION For the foregoing reasons, the Court GRANTS Plaintiff’s Motion for Temporary 23 Restraining Order. The Court hereby ENJOINS AND RESTRAINS Defendants Unilodgers and 24 Verma (and their officers, agents, servants, employees, and attorneys) from selling all or 25 substantially all of Unilodgers’ assets, including via the proposed sale transaction, or otherwise 26 liquidating Unilodgers, effective immediately. This Temporary Restraining Order shall remain in 27 effect until for a period of 14 days, through February 21, 2024, or further order of this Court. This 28 order shall expire at 5:00 pm on February 21, 2024 unless the Court orders an extension. 12 1 Defendants are ORDERED TO SHOW CAUSE why a preliminary injunction should not 2 issue. Defendants shall file any response to this Order to Show Cause on or before noon Pacific 3 time on February 12, 2024. Plaintiff shall file any reply on or before noon Pacific time February 4 14, 2024. Page limits and any affidavits or declarations shall be in compliance with Civil Local 5 Rule 7. The Court sets a hearing on the Order to Show Cause for February 15, 2024, at 11:00 a.m. 6 in Courtroom E, 15th floor, 450 Golden Gate Avenue, San Francisco, California 94102. Any 7 party may file a request to appear by telephone. 8 IT IS SO ORDERED. 9 10 Dated: February 7, 2024 United States District Court Northern District of California 11 THOMAS S. HIXSON United States Magistrate Judge 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 13

Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.

Why Is My Information Online?