Litrinium, Inc. vs. Adas

The court finds it appropriate to revisit its comments regarding the existence of an automatic stay and the applicability of section 917.2 in deciding Adas’s application for an OSC and Litrinium’s current motion regarding a stay. The court’s comments were not essential to its ruling denying the earlier motion because the motion sought a discretionary stay, and therefore the comments essentially were dicta. Regardless, the court possesses the inherent power to reconsider its prior rulings at any time prior to entry of judgment.

Here, all these proceedings are postjudgment so the entry of judgment does not prevent the court from revisiting its earlier comments. Moreover, at the time the court denied Litrinium’s earlier motion, the court stated it would consider further argument regarding any stay in this case. Finally, the existence of an automatic stay affects the court jurisdiction to take action enforcing the judgment and the existence of jurisdiction is a question the court must consider every time it acts. (See Varian Medical Systems, Inc. v.

Delfino (2005) 35 Cal.4th 180, 196-197.) Adas’s request for an OSC re contempt allows Litrinium to argue in defense that the judgment was stayed.

Pursuant to Code of Civil Procedure section 916, subdivision (a), “Except as provided in Sections 917.1 to 917.10, inclusive, and in Section 116.810, the perfecting of an appeal stays proceedings in the trial court upon the judgment or order appealed from or upon the matters embraced therein or affected thereby, including enforcement of the judgment or order, but the trial court may proceed upon any other matter embraced in the action and not affected by the judgment or order.” An appeal is “perfected” when a notice of appeal is timely filed. (Kroger Co. v. Workers' Compensation App. Bd. (2012) 210 Cal.App.4th 952, 959.) Hence, filing an appeal automatically stays enforcement of a judgment unless one of the exceptions identified in Code of Civil Procedure sections 917.1 to 917.10 applies.

Litrinium contends no recognized exception to section 916’s automatic stay applies in this case, and therefore the stay arose upon Litrinium filing its notice of appeal. Adas argues section 917.2 applies such that there is no stay without the posting of a bond—and no bond has been posted.

As noted above, section 917.2 provides there is no stay of enforcement absent a bond “if the judgment or order appealed from directs the assignment or delivery of personal property, including documents, whether by the appellant or another party to the action.” Adas relies on case law recognizing California treats corporate stock as personal property (see, e.g., Holistic Supplements, LLC v. Stark (2021) 61 Cal.App.5th 530, 542), and therefore concludes section 917.2 applies and requires a bond because the judgment requires and directs Litrinium to issue share certificates reflecting Adas’s founder’s shares.

Although the court initially agreed with that assertion, upon further reflection and consideration the court concludes that is based on too simplistic of a view of the judgment. The judgment granted Adas declaratory relief against Litrinium finding Adas’s founder’s shares are valid and outstanding continuously since March 2016, and directing Litrinium to properly issue share certificates to Adas reflecting his shares. The judgment also found Litrinium breached the Restricted Stock Purchase Agreement by refusing to recognize the validity of Adas’s shares. The statement of decision orders Litrinium to recognize Adas’s shares.

The physical shares the judgment directs Litrinium to issue and deliver to Adas are the evidence of the ownership interest in Litrinium to which Adas is entitled. The judgment and statement of decision, however, do not simply require Litrinium to issue and delivery the shares and nothing more. Rather, the judgment and statement of decision also require Litrinium to recognize all the rights and interests Adas has as the owner of the shares, and therefore as a partial owner of Litrinium. The rights include voting rights, access to records, and distributions (when and if made), to name a few.

In connection with its earlier motion, Litrinium suggested the issuance of the shares was a ministerial act and a mere recognition or declaration of rights Adas always has had since March 2016. Litrinium, however, has not allowed Adas to exercise any of the rights associated with his shares based on Litrinium’s assertions Adas was not entitled to the shares. Even though the judgment recognizes Adas has been entitled to the shares and the

associated rights since March 2016, he has never been able to exercise those rights. Accordingly, the judgment includes an injunction that not only requires Litrinium to issue Adas his shares, but more importantly, requires Litrinium to recognize and allow Adas to exercise the rights that come with those shares.

Whether an appeal from a judgment imposing an injunction is automatically stayed depends on the nature of the injunction. A prohibitory injunction—i.e., one that restrains action, rather than requires it—is not automatically stayed because it merely maintains the status quo. A mandatory injunction—i.e., one that requires the enjoined party to take affirmative action—is automatically stayed because it changes the status quo. (Daly v. San Bernardino County Board of Supervisors (2021)11 Cal.5th 1030, 1035 (Daly).) Although this rule and the distinction between a mandatory and prohibitory injunction may be easy to state, the case law recognizes it is not always easy to apply. (Id. at p. 1041.) Indeed, often times a mandatory injunction can be stated in prohibitory language, and vice versa. It therefore is important to look to the injunction’s impact or substance.

Our Supreme Court has long recognized an automatic stay reaches injunctive “orders requiring the defendant ‘to do some affirmative act, not to refrain from doing a thing’ . . . . [because] an affirmative act, ‘if completed, would change the condition of the parties, and render a reversal . . . partially ineffectual.’ [Citation.] By contrast, when an order instead merely restrains the defendant, an automatic stay on appeal does not serve the same purpose; the defendant ‘is not injured in contemplation of law’ when the defendant is required to abide by the restraint pending appeal. [Citation.] [Accordingly,] . . . ‘[a] stay of proceedings, from its nature, only operates upon orders or judgments commanding some act to be done, and does not reach a case of injunction.’ [Citation.]” (Daly, supra, 11 Cal.5th at p. 1040, quoting Merced Mining Co. v. Fremont (1857) 7 Cal. 130, 132.)

Courts generally are directed to “consider[] whether the order was mandatory by reference to the position of the parties at the time the injunction was entered, and declined to require the defendant to take affirmative steps to remedy an adjudged violation of law until the correctness of the judgment had been considered on appeal. . . . [T]his approach makes sense, given the doctrine’s overarching concern with avoiding injuries ‘from the premature enforcement of a determination which may later be found

to have been wrong.’ [Citation.]” (Daly, supra, 11 Cal.5th at p. 1044.)

Here, as stated above, Litrinium has never recognized Adas’s shares and he has never been able to exercise the rights associated with those shares. The injunction requires Litrinium to recognize Adas’s shares and allow him to exercise his rights based on those shares. That changes the status quo and leads the court to conclude the injunction is mandatory in nature and therefore subject to an automatic stay without Litrinium posting a bond. Although California law recognizes corporates shares as persona property and section 917.2 requires a bond to stay enforcement of a judgment that directs the assignment or delivery of personal property, the judgment in this case goes beyond directing the delivery of personal property and requires Litrinium to take affirmative steps that would change the status quo.

Those steps include not only the various steps Litrinium identifies in its motion to issue the shares, but more importantly, the steps necessary to allow and accept Adas’s exercise of his rights as the holder of his founder’s shares. In its earlier ruling, the court stated, following the judgment in Adas’s favor, Litrinium should not be able to block Adas’s exercise of his shareholder rights without posting a bond. That statement, however, is consistent with the governing principles as stated in Daly.

Adas also argues the Legislature has made clear its view shareholders enjoy their rights during appeal. Specifically, because Code of Civil Procedure section 917.8 provides an appeal does not automatically stay enforcement of a judgment ordering a corporation to permit a shareholder to inspect or make copies of corporate records, Adas asserts an appeal from any judgment affecting substantive shareholder rights should not be subject to an automatic stay. Adas overstates the importance of section 917.8.

That statute identifies four otherwise unrelated instances in which perfecting an appeal does not stay proceedings. One of those instances is when a judgment directs a corporation to give a shareholder an opportunity to inspect and copy corporate records. (Code Civ. Proc., § 917.8, subd. (b).) The other instances relate to judgments (1) finding a party guilty of usurping, or intruding into, or unlawfully holding a public office, (2) finding a building or place to be a nuisance and directing the closing or discontinuance of the use, (3) granting relief under certain provisions of the Penal Code of Health and Safety Code regarding places where certain illegal activities occur or that constitutes nuisances. (Code Civ.

Proc., § 917.8, subds. (a), (c), (d).) Nothing in

section 917.8 extends it bar on an automatic stay to any other type of shareholder rights.

Based on the foregoing, Adas’s application for an OSC re contempt as to why Litrinium should not be held in contempt is DENIED. This court is without jurisdiction to enforce an order or judgment by contempt when an appeal from the underlying order or judgment has been taken that stays enforcement. (See, e.g., Gold v. Superior Court (1970) 3 Cal.3d 275, 278, 287.) As stated above, the court concludes Litrinium’s appeal automatically stayed enforcement of the judgment as a judgment imposing a mandatory injunction. As such, Litrinium cannot be held in contempt for not issuing the shares or otherwise acknowledging Adas’s shareholder rights as stayed in the judgment until the appeal is finally resolved.

As for Litrinium’s motion, it is DENIED AS MOOT. As stated above, the court denies Adas’s application for an OSC re contempt and therefore there are not ongoing enforcement proceedings. Moreover, as Litrinium recognizes, any automatic stay arises by operation of law, no order or other action by this court is required.

Nothing stated in this ruling has any impact on Adas’s efforts to collect his costs pursuant to his memorandum of costs or either motion for attorney fees the court currently has under submission. Those matters are collateral to the judgment and separately appealable, and nonetheless no judgment or amended judgment has yet been entered award any such relief.

Litrinium’s counsel is ordered to give notice of this ruling.

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