Ironridge Global IV, Ltd. v. ScripsAmerica, Inc.

• Citation: 189 Cal.Rptr.3d 583,238 Cal.App.4th 259
• Decision Date: 30 June 2015
• Docket Number: B256198
• Court: California Court of Appeals Court of Appeals
• Parties: IRONRIDGE GLOBAL IV, LTD., Plaintiff and Respondent, v. SCRIPSAMERICA, INC., Defendant and Appellant.

238 Cal.App.4th 259

189 Cal.Rptr.3d 583

IRONRIDGE GLOBAL IV, LTD., Plaintiff and Respondent

v.SCRIPSAMERICA, INC., Defendant and Appellant.

B256198

Court of Appeal, Second District, Division 8, California.

Filed June 30, 2015

Rehearing Denied July 22, 2015

Review Denied Sept. 30, 2015

Needham Law Firm and Carlos E. Needham, Valencia, for Defendant and Appellant.

Horvitz & Levy, Encino, David S. Ettinger, Steven S. Fleischman ; Incite Law Group, and Mark A. Vegas, Los Angeles, for Plaintiff and Respondent.

Opinion

GRIMES, J.

Plaintiff Ironridge Global IV, Ltd., sued defendant ScripsAmerica, Inc., to recover a debt. The parties were able to reach a settlement, by which defendant agreed to give plaintiff shares of defendant's stock in satisfaction of the debt. The agreement also provided a mechanism whereby plaintiff would receive additional shares if the value of defendant's stock decreased. The parties petitioned the court to enter judgment on their stipulated settlement, and to retain jurisdiction under Code of Civil Procedure section 664.6 to enforce the settlement. The trial court entered judgment as requested. Plaintiff later moved ex parte to enforce the settlement, because defendant had failed to complete a stock transfer required by its falling stock prices. The trial court entered an order compelling defendant to issue stock to plaintiff, and prohibiting defendant from transferring stock to any third parties until the outstanding shares were transferred to plaintiff.

Defendant appealed, arguing that the trial court lacked authority to restrain it from transferring shares to third parties, and that the court could not provide injunctive relief on an ex parte basis. Since entry of the order, defendant has transferred millions of shares of stock to third parties and has not issued any shares to plaintiff. Based on defendant's repeated violations of the trial court's order, plaintiff has moved to dismiss the appeal under the disentitlement doctrine. We agree that dismissal is the appropriate remedy for defendant's flagrant disregard for the order which is the subject of this appeal.

BACKGROUND

On October 11, 2013, plaintiff sued defendant to collect a debt. On November 8, 2013, the parties filed a stipulation for settlement of plaintiff's claim, setting forth the terms of the parties' settlement, and asking the court to enter judgment in accordance with their stipulation. The parties' stipulation provided that plaintiff owned a legitimate claim against defendant, valued at $686,962.08, plus interest and attorney fees. To satisfy this claim, defendant would initially issue plaintiff 8,690,000 shares of “unrestricted and freely [tradeable] exempted” common stock in its company.¹ The agreement contemplated additional stock transfers to plaintiff upon plaintiff's demand, in the event defendant's stock prices fell below a threshold amount (the value of the claim, plus an allowance for costs and attorney fees).

The agreement also provided that “Defendant has reserved and will continue to reserve all shares of Common Stock that could be issued to Plaintiff pursuant to the terms of the Order....” “Defendant will not reserve, issue or transfer any shares of Common Stock to any other person unless and until sufficient shares have been irrevocably reserved for Plaintiff....”

At the time the parties entered into the agreement, defendant had 150,000,000 shares of common stock of which 78,238,653 were issued and outstanding, and 34,265,051 were unissued and unreserved.

The agreement also provided that “[u]pon entry of the Order approving this Stipulation, the Action shall be dismissed in its entirety, with the Court retaining jurisdiction to enforce the terms of the Stipulation and Order by ex parte application, judgment, motion or other proceeding under Section 664.6 of the California Code of Civil Procedure.”

On November 8, 2013, the parties jointly sought entry of the judgment on an ex parte basis. In support of the ex parte application, defendant's CEO, Mark Schneiderman, submitted a declaration averring that ex parte relief was necessary given the “volatility of the marketplace” and the significant fluctuations in the value of defendant's stock. Mr. Schneiderman averred that any delay in entry of judgment “may effectively preclude effectuation of a settlement, because of the likely continual variation in the company's stock price.”

On November 8, 2013, the court entered judgment, signing the parties' proposed order which included the terms of the settlement.

On May 6, 2014, plaintiff moved, ex parte, for an order enforcing the settlement, and ordering defendant to issue to plaintiff 1,646,008 additional shares of stock owed under the adjustment mechanism of the stipulation, due to the poor performance of defendant's stock. Specifically, plaintiff sought an order requiring transfer of the stock, and restraining defendant from “issuing ... any shares to any other person until” the outstanding shares were issued to plaintiff. Plaintiff was owed a total of 11,951,558 shares of stock under the adjustment mechanism, of which 10,305,550 had already been issued. Despite repeated demands for the outstanding shares, defendant had not issued them to plaintiff. Plaintiff's application urged that good cause existed to resolve the matter on an ex parte basis given the volatility of defendant's stock, and the congestion of the court's calendar. The application also set forth the calculations supporting the requested stock issuance.

In support of the application, counsel submitted a declaration stating that it gave defendant notice on May 1, 2014, of its intent to seek ex parte relief in the event the outstanding shares were not transferred. The parties were unable to reach a resolution, so plaintiff noticed the ex parte hearing for May 6.

Counsel's declaration also authenticated an April 29, 2014 e-mail from plaintiff's counsel to defendant, providing that “[a]s of today, you owe Ironridge 1,646,550 additional shares. Based on today's 10 cent closing price, that equals $164,655.00. Please immediately issue the shares, or wire us the money.” Counsel's May 5, 2014 ex parte notice to defendant indicated that plaintiff would ask the court to order issuance of the outstanding shares, or payment of $164,655.

Plaintiff also submitted a declaration by a certified financial analyst, averring that defendant's common stock was volatile, and that the price had fluctuated significantly. The declaration also set forth calculations for the stock plaintiff was owed under the adjustment mechanism.

In opposition to the application, defendant argued that plaintiff had violated federal securities law and “engaged in manipulative trading activity designed to artificially depress the value of Defendant's stock and thereby yield grossly unfair levels of issuance of stock to Plaintiff.”² The opposition opined that “further issuances could be in violation of securities law.” The “conclusion” portion of the opposition argued that “Plaintiff has not, and cannot, make a sufficient showing of a need for an immediate order compelling issuance of shares. Plaintiff's request should be adjudicated on a normal timetable that permits a responsible and careful consideration (and development) of relevant facts and law in the complex area of securities subterfuge and manipulation. Also, there is no need for any TRO in the interim to safeguard the shares. The shares are reserved and Plaintiff has, in effect, acknowledged that money damages would suffice in any event.” The opposition did not dispute the correctness of the calculated shares plaintiff claimed it was owed.

No declarations or admissible evidence were submitted in support of the opposition. Rather, defendant's evidence consisted of a hearsay online article accusing plaintiff of manipulative trading activity, and an unauthenticated November 8, 2013 letter to defendant's transfer agent, instructing it to issue 8,690,000 shares to plaintiff (the initial issuance) and to reserve an additional 8,260,000 shares for plaintiff.³ Also included was an unauthenticated letter from defendant's securities counsel, advising that the unregistered distribution of shares to plaintiff might violate federal securities law. The opposition also included press releases by the Securities and Exchange Commission (SEC) concerning settlements it made for civil proceedings commenced against entities who had abused the exemption provided for by title 15 of United States Code section 77c, (a)(10).

The trial court signed the proposed order, ordering defendant, within 24 hours of issuance of the order, “to issue ... Plaintiff 1,646,008 shares” of common stock. The order also “restrained and enjoined [Defendant] from issuing or transferring any shares to any other person or entity until Defendant is in complete compliance with this Order.” The order recited that the ex parte application “came on for hearing on May 6, 2014....” No reporter's transcript is part of the record on appeal.

Defendant immediately filed a notice of appeal.

DISCUSSION

Plaintiff has moved to dismiss this appeal under the disentitlement doctrine, arguing that defendant has repeatedly violated the trial court's order restraining it from transferring shares of stock to third parties until it complied with its obligation to issue to plaintiff the 1,646,008 shares ordered by the court.⁴ In support of its motion, plaintiff has submitted defendant's SEC filings indicating that defendant has transferred a total of 8,745,184 shares to third parties since the court entered its May 6, 2014 order.⁵

Under the disentitlement doctrine, a reviewing court has inherent power to dismiss an appeal when the appealing party has refused to comply with the orders of the trial court. (Stoltenberg v. Ampton Investments, Inc. (2013) 215 Cal.App.4th 1225, 1229, 159 Cal.Rptr.3d 1.) “ ‘Appellate disentitlement “is not a jurisdictional doctrine, but a discretionary tool that may be applied when the balance of the...