Jain v. Unilodgers, Inc.

Background

Shipra Jain sued Unilodgers, Inc. and Vaibhav Verma. Her remaining claims alleged breach of contract against Unilodgers, breach of fiduciary duty against all defendants, and declaratory relief against Unilodgers. The court had previously dismissed claims for tortious interference with contractual relations, conversion against Unilodgers, and civil conspiracy.

Jain alleges that she is a rightful minority shareholder in Unilodgers and that the defendants took her shares. She sought emergency relief after learning of a proposed sale of all of Unilodgers’ assets to an India-based portfolio company of one of Unilodgers’ investors. The proposed transaction would allegedly leave Unilodgers with its existing liabilities and no assets.

Legal standard

The court treated the request under the standards governing a temporary restraining order and preliminary injunction. Those standards require consideration of whether the plaintiff is likely to succeed on the merits, likely to suffer harm that cannot be repaired later, whether the balance of harms favors the plaintiff, and whether the injunction serves the public interest. Because the case was based on diversity jurisdiction, the court also considered whether California law permitted the requested relief and whether the injunction was consistent with traditional federal equitable principles.

Court’s analysis

The court found that Jain was very likely to succeed on her contract, fiduciary-duty, and declaratory-relief claims. The court relied on evidence and admissions indicating that Jain was not removed from Unilodgers’ board until July 2021; that Unilodgers did not provide the required notice to repurchase her unvested shares; that some shares would have vested by July 2021; that Unilodgers refused to deliver shares after Jain demanded them; and that company records listed Jain as owning 2,253,472 shares through December 31, 2021.

The court found likely irreparable harm because the proposed transaction could drain Unilodgers of its assets and leave Jain unable to collect a judgment. The court also concluded that the balance of equities favored Jain. Although defendants argued that the restraining order could burden negotiations and cause the purchaser to abandon the transaction, defense counsel stated at the hearing that the company would go out of business regardless of whether the transaction proceeded. The public-interest factor was neutral because the order was limited to the parties.

The court rejected the argument that the injunction would improperly freeze Unilodgers’ assets under the Supreme Court’s decision in Grupo Mexicano. It distinguished an order freezing all assets from the narrower order requested by Jain, which would prevent a specific asset sale or liquidation. The court also concluded that Jain was seeking both equitable relief and damages, and that she was more properly viewed as a shareholder rather than an unsecured creditor. The court found the requested injunction sufficiently related to Jain’s underlying claims because selling the company’s assets could make her requested remedies—return of her shares or monetary compensation—worthless.

Disposition

The court GRANTED Jain’s motion for a temporary restraining order. It ENJOINED AND RESTRAINED Unilodgers, Verma, and their officers, agents, servants, employees, and attorneys from selling all or substantially all of Unilodgers’ assets, including through the proposed sale, or otherwise liquidating Unilodgers. The order took effect immediately and remained in effect through February 21, 2024, or until further order of the court.

The court determined that no bond was necessary because defendants had represented that Unilodgers would go out of business regardless of whether the transaction proceeded, and Verma had not shown specific damages from the restraint. The defendants were ORDERED TO SHOW CAUSE why a preliminary injunction should not issue, with a hearing set for February 15, 2024.