CW Baice Limited v. Wisdomobile Group Limited

Background

CW Baice Limited invested $13,880,000 for preferred shares representing 8.82% of the issued share capital of The Wisdomobile Group Limited. After learning that the company’s founder and employees had been detained and arrested in connection with suspected computer fraud, CW Baice sought to rescind the share purchase agreement or obtain indemnification for its investment. The agreements required disputes to be arbitrated in Hong Kong, and arbitration proceedings were ongoing.

A Hong Kong court issued an injunction prohibiting the defendants from disposing of or reducing the value of their assets, including assets in two Silicon Valley Bank accounts in California. CW Baice then sought relief in this court. The court first issued a temporary restraining order and later issued a preliminary injunction, which prevented the defendants and related persons from disposing of or reducing the value of assets in the two accounts pending the Hong Kong arbitration.

The defendants moved to dissolve, meaning end, the preliminary injunction. They relied on a December 28, 2020 decision in which the Hong Kong court discharged its related injunction. The defendants argued that this decision was a significant change in circumstances requiring dissolution of the California injunction.

Legal standard

A party seeking to dissolve a preliminary injunction bears the burden of showing that a significant change in facts or law warrants changing the order. The court evaluates the same four factors used to issue a preliminary injunction: whether the plaintiff is likely to succeed on the merits, whether the plaintiff is likely to suffer irreparable harm without the injunction, whether the balance of equities favors the plaintiff, and whether the injunction serves the public interest.

Court’s analysis

The court assumed, for purposes of its analysis, that the Hong Kong decision established a significant change in facts or law. It nevertheless held that the defendants failed to show that the change justified dissolving the injunction.

First, the court found that CW Baice remained likely to succeed in the underlying dispute. The court relied on prior findings that the defendants’ chief financial officer and founder and chief executive officer had admitted alleged illegal conduct, including unauthorized activation on mobile phones. The court also relied on the Hong Kong court’s findings that there was a good arguable case that the defendants had breached the relevant agreements and had made unauthorized transfers and payments.

Second, the court found that CW Baice remained likely to suffer irreparable harm. The court had previously found that the defendants were depleting their assets and that approximately $4 million in the two Silicon Valley Bank accounts was the only money they had not yet dissipated. The defendants also represented that they intended to access those funds if the injunction were dissolved. The court concluded that dissipation could prevent CW Baice from recovering through arbitration.

Third, the court found that the balance of equities continued to favor CW Baice. CW Baice faced the risk of being unable to recover its claims, while the defendants were being held to the restrictions in agreements they had voluntarily signed. The arbitration had not concluded, and no arbitral award had been issued.

Fourth, the court found that maintaining the injunction served the public interest. In the court’s view, the order supported the federal policy favoring enforcement of arbitration awards by preserving assets that could be used to satisfy a foreign award. The court also concluded that maintaining the order respected international comity because the Hong Kong court’s decision included findings of dishonesty, unauthorized transfers, and contractual violations, even though that court had ended its own injunction after the transfers were disclosed.

Disposition

The court denied the defendants’ motion to dissolve the preliminary injunction. The preliminary injunction therefore remained in place pending the parties’ ongoing arbitration.

The opinion’s signature identifies the judge as “KOH”; the supplied case metadata identifies Yvonne Rogers, so the judge’s full name is uncertain from the provided materials.