Prudential Real Estate v. PPR Realty

• Citation: 204 F.3d 867
• Decision Date: 23 February 2000
• Docket Number: Nos. 99-55673,99-55258,s. 99-55673
• Parties: (9th Cir. 2000) PRUDENTIAL REAL ESTATE AFFILIATES, INC., Plaintiff-Appellee, v. PPR REALTY, INC., Defendant, RONALD CROUSHORE and HELEN SOSSO, Defendants-Appellees, and KATHY MCKENNA, Defendant-Appellant. PRUDENTIAL REAL ESTATE AFFILIATES, INC., Plaintiff-counter-defendant-Appellee, v. PPR REALTY, INC.; RONALD CROUSHORE; HELEN SOSSO, Defendants-cross-defendants, and KATHY MCKENNA, Defendant-counter-claimant-cross-claimant-Appellant
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 867

204 F.3d 867 (9th Cir. 2000)

PRUDENTIAL REAL ESTATE AFFILIATES, INC., Plaintiff-Appellee, v. PPR REALTY, INC., Defendant, RONALD CROUSHORE and HELEN SOSSO, Defendants-Appellees, and KATHY MCKENNA, Defendant-Appellant.

PRUDENTIAL REAL ESTATE AFFILIATES, INC., Plaintiff-counter-defendant-Appellee, v. PPR REALTY, INC.; RONALD CROUSHORE; HELEN SOSSO, Defendants-cross-defendants, and KATHY MCKENNA, Defendant-counter-claimant-cross-claimant-Appellant.

Nos. 99-55673, 99-55258

U.S. Court of Appeals for the Ninth Circuit

Argued and Submitted December 7, 1999

Filed February 23, 2000

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

COUNSEL: Richard Derevan, Snell & Wilmer, Irvine, California, for the plaintiff-counter-defendant-appellee.

Bryan K. Shreckengost, Pittsburgh, Pennsylvania, for the defendants-appellees.

Dennis St. J. Mulvihill, Robb, Leonard & Mulvihill, Pittsburgh, Pennsylvania; Thomas J. Farnan, Pittsburgh, Pennsylvania, for the defendant-counter-claimant-cross-claimant-appellant.

Appeals from the United States District Court for the Central District of California; Alicemarie H. Stotler, District Judge, Presiding. D.C. No. CV-98-00775-AHS

Before: Dorothy W. Nelson, Robert Boochever, and Thomas G. Nelson, Circuit Judges.

OPINION

BOOCHEVER, Circuit Judge:

Kathy McKenna appeals the district court's orders granting a preliminary injunction against transfer of disputed stock in PPR Realty, Inc., and its affiliated companies (collectively, "PPR"), and denying her motion to dissolve the injunction. We conclude that the district court did not abuse its discretion by entering the injunction, and that the district court correctly concluded that it lacked jurisdiction to dissolve the injunction while an appeal of the order granting the injunction was pending.

I

PPR is a closely held real estate brokerage and related services concern with multiple offices in and around Pittsburgh, Pennsylvania. PPR is a franchisee of Prudential Real Estate Affiliates, Inc. ("PREA"), a national franchisor of real estate brokerages. In late September 1995, Kathy McKenna, a PPR employee who had acquired 10% of PPR Realty and 5% of its affiliated companies, offered to purchase for $460,000 the shares of Herman and Howard Engelberg, who together held nearly 40% of PPR's shares. The Engelbergs notified the managing shareholders, Ron Croushore and Helen Sosso, of McKenna's offer to purchase the stock, and communicated their acceptance of McKenna's offer to her.

Sosso and Croushore each responded to the notice by asserting that, under a 1990 "Pre-Incorporation Agreement" and subsequent amendments (collectively, "the Shareholder Agreement"), they possessed rights of first refusal to purchase the Engelbergs' shares. On a promise of indemnity should McKenna sue, the Engelbergs offered Sosso and Croushore their shares.

The Shareholder Agreement subjected share transfers to the terms of "any then effective franchise agreement entered into by [PPR]." PPR's Franchise Agreement with PREA granted PREA rights of first refusal and consent to any transfers of more than 25% of the equity in the franchised companies. The Franchise Agreement required PREA to exercise its rights within ten days of receiving notice concerning a proposed transfer, and provided for renewed rights should the transfer not be effected within 90 days, or upon a material change in terms of the proposed transfer.

PPR notified PREA of the proposed transfer to Sosso and Croushore. PREA responded that it declined to exercise its right of first refusal, and consented to the transfer of stock from the Engelbergs to Sosso and Croushore. Shortly after the transfer took place, McKenna initiated an arbitration against Croushore, Sosso, the Engelbergs, and PPR. McKenna claimed that she, and not Croushore and Sosso, had the right to buy the Engelbergs' stock under the Shareholder Agreement.

The arbitrators' March 1998 award declared that "Kathy McKenna . . . should have been offered the shares of Howard Engelberg and Herman Engelberg prior to the Managing Shareholders . . . ." The arbitrators awarded McKenna "specific performance of the Agreement between the parties set forth in the exchange of letters between Kathy McKenna and the Engelbergs of September 28, 1995 and October 3, 1995 . . . ," and directed the arbitration defendants "to implement such specific performance."

McKenna petitioned the Pennsylvania Court of Common Pleas to enforce the award, while Sosso and Croushore petitioned to vacate it. On March 9, 1998, Sosso and Croushore sent copies of the award and their petition to vacate to PREA. On March 31, PREA sent a letter to McKenna stating its understanding that the arbitration had been decided and had been appealed. PREA's letter asserted that under the Franchise Agreement, the transfer would require PREA's consent should the award survive appeal. In the interim, PREA requested that McKenna complete certain forms and meet with PREA's representatives for the purpose of assessing her qualifications.

In response to the opposing petitions, the Pennsylvania court sent the parties back to the arbitration panel to resolve various outstanding issues, including whether McKenna had failed to meet certain "conditions precedent" to receiving the shares under the Franchise Agreement. On August 28, 1998, the arbitrators entered a second award reaffirming the first, and setting out detailed terms for the transfer. The award ordered transfer of the stock

[o]n payment to Helen Sosso and Ron Croushore the amount due by Kathy McKenna of $450,000 and ($10,000 to Herman and Howard Engelberg) and the payment of $95,830 to Helen Sosso and Ron Croushore . . . , net of the amount of distributions and dividends Kathy McKenna should have received as a shareholder and interest . . . .

Respecting the effect of the Franchise Agreement, the award continued:

Nothing in this Award is meant to override the requirements and obligations set forth in the Franchise Agreement . . . ., but the arbitrators deny PPR's claim that there has been a failure by Kathy McKenna of a condition precedent under the Agree ment with PREA; and PPR is ordered to submit to PREA a request to approve the transfer of ownership interest in PPR to Kathy McKenna.

In addition, the award enjoined Sosso, Croushore, and PPR from "doing any act that would materially adversely affect Kathy McKenna's full right to ownership as provided in this order . . . ."

On September 1, 1998, McKenna notified Sosso and Croushore of her willingness to tender the net price due for the stock under the award, which she calculated to be $66,425 as of that date. On September 4, Sosso and Croushore sent a copy of the award to PREA under cover of a letter, on PPR letterhead, notifying PREA of the proposed transfer to McKenna, and offering to sell PREA the stock for the same price pursuant to PREA's right of first refusal under the Franchise Agreement.

On September 14, 1998, over McKenna's objection, PREA responded that it intended to exercise its right to purchase the stock on the terms available to McKenna under the award. PREA then filed this suit in federal court in the Central District of California, naming McKenna, Sosso, Croushore, and PPR as defendants, and seeking a declaration that PREA is entitled to purchase the shares. At the same time, McKenna petitioned the Pennsylvania court to confirm the arbitration award.

In November 1998 the Pennsylvania court entered a nonfinal order granting McKenna's petition to confirm the award. In February 1999 the Pennsylvania court entered its final order enforcing the award. The final enforcement order substantially repeated the terms of the arbitration award, except that the paragraph concerning PREA's rights under the Franchise Agreement was shortened to a single sentence:"PPR is ordered to submit to PREA a request to approve the transfer of ownership interest in PPR to Kathy McKenna." A second order the same day denied McKenna's motion to hold her adversaries in contempt of the Pennsylvania court's November order confirming the award. The order enforcing the arbitration award was affirmed by the Pennsylvania Superior Court shortly before this case was argued, and at the time of argument was pending review before the Pennsylvania Supreme Court.

Meanwhile, in January 1999, the California district court issued a preliminary injunction prohibiting McKenna, Sosso, Croushore, and PPR from transferring the stock. McKenna appealed the preliminary injunction, and then moved the district court to dissolve it on the ground that a declaration offered in support of the injunction had contained false statements regarding the intention of the Pennsylvania judge to defer to the California proceedings. On the ground that McKenna's appeal of the preliminary injunction order divested the district court of jurisdiction to dissolve the injunction, the district court denied the motion to dissolve the injunction. McKenna's appeal of the order denying her motion to dissolve the injunction was consolidated with her appeal of the injunction itself.

II

McKenna argues (1) that the district court lacks subject matter jurisdiction because the parties were improperly aligned, (2) that the injunction was improper on the merits, (3) that the injunction is barred by the Anti-Injunction Act, and (4) that the district court erroneously concluded that it lacked jurisdiction to consider her motion to dissolve the injunction.

III

The district court's jurisdiction and our jurisdiction on appeal are based on diversity of citizenship. See 28 U.S.C. S 1332 (1994). The plaintiff PREA is a California corporation with its principal place of business in California, and the defendants are each individual or corporate citizens of Pennsylvania. McKenna urges that Sosso, Croushore, and PPR should be realigned according to their interests in this lawsuit as plaintiffs with PREA. The realignment of any defendant as a...