Jain v. Unilodgers, Inc.

Background

Shipra Jain’s Second Amended Complaint alleged breach of contract against Unilodgers, Inc.; breach of fiduciary duty against Unilodgers and Vaibhav Verma; conversion against Verma; and declaratory relief against Unilodgers. The claims concerned Jain’s alleged ownership of shares in Unilodgers and the company’s alleged failure to validly repurchase them. Jain also alleged that she was denied access to the company’s financial records and excluded from its finances, operations, and board.

Jain moved for a temporary restraining order to prevent Verma and Unilodgers from completing a proposed sale of all Unilodgers’ assets to an India-based portfolio company of one of its investors. The court granted the temporary restraining order, finding that Jain had made a strong showing on her claims concerning the alleged theft of her shares and that the sale could leave Unilodgers unable to satisfy a judgment. The parties later extended the temporary restraining order while they explored settlement, but the case did not settle.

Before the court decided whether to issue a preliminary injunction, Unilodgers returned Jain’s shares and stated that it had rescinded, withdrawn, and nullified the purported repurchase.

Claims After the Shares Were Returned

The court concluded that returning the shares appeared to give Jain all the relief her breach-of-contract claim sought, at least as that claim was pleaded. Jain argued that she could also seek damages based on a decline in the value of Unilodgers between the alleged taking and return of the shares. The court assumed for purposes of the motion that such damages might be available as supplemental relief related to specific performance, which is a court order requiring a party to perform a contractual obligation.

The court found, however, that Jain had not provided a developed or supported damages theory. A decline in the value of shares would not automatically establish damages because, if Jain had kept the shares, she would ordinarily have borne the loss from a decline in the investment’s value. The court said Jain might have a damages remedy if she could show that she would have sold the shares before the decline but had been prevented from doing so. It found no such allegation in the complaint and no evidence before it that Jain would have sold them.

The court also noted difficulties in valuing the damages, including conflicting evidence about Unilodgers’ value, the schedule on which Jain’s shares vested, and the fact that Unilodgers was not publicly traded. The court emphasized that Jain had not yet provided an expert report substantiating her damages claim.

The court said Jain’s declaratory-relief claim appeared moot because Unilodgers had returned the shares and purportedly nullified the repurchase. It said her fiduciary-duty claim was not completely moot because she still had a potential damages claim based on being excluded from company meetings, denied information, and allegedly defamed. But Jain had not shown that she was likely to prevail on those aspects of the claim or established what the damages would be. The court also stated that Jain could not recover the value of her shares a second time after their return.

Preliminary-Injunction Ruling

To obtain a preliminary injunction, Jain had to show, among other things, a likelihood of success on the merits and a risk of irreparable harm. The court found that the earlier justification for blocking the sale had changed because the shares had been returned. Jain’s possible contract damages claim was too undeveloped and unsupported to show likely success, and she had not shown likely success or meaningful damages on the remaining fiduciary-duty allegations.

The court acknowledged that an eventual damages judgment might be difficult to collect if the asset sale occurred. But it found that the balance of the equities did not favor stopping a business transaction based on damages theories that had not been meaningfully explained or proven. It also found that the public interest was not affected by the dispute.

The court noted that Jain argued the proposed sale involved self-dealing and violated Delaware law. It stated that she was free to pursue a separate Delaware-law action, but that assertion concerned conduct unrelated to the claims pending in this case and therefore could not support a preliminary injunction here.

Disposition

The court denied Plaintiff’s motion for a preliminary injunction.