Judge: Yolanda Orozco, Case: BC551112, Date: 2022-08-03 Tentative Ruling

Case Number: BC551112    Hearing Date: August 3, 2022    Dept: 31

MOTION FOR ORDER TO FIX AN UNDERTAKING OR APPEAL BOND IS GRANTED

Background 

On July 9, 2014, Plaintiff Pine Valley, Inc. (“Plaintiff”) filed a Complaint against Defendants Ajinomoto North America, Inc., Ajinomoto Frozen Foods, U.S.A, Inc., and Trader Joe’s Company alleging the following causes of action: (1) breach of written contract, (2) intentional interference with prospective economic advantage, (3) fraud, (4) negligent misrepresentation, (5) unfair competition, (6) breach of fiduciary duty, (7) aiding and abetting breach of fiduciary duty, (8) violation of California Uniform Trade Secrets Act, and (9) misappropriation of confidential and/or proprietary information. 

On January 28, 2016, Plaintiff won a jury verdict against Defendants Ajinomoto North America, Inc. and Ajinomoto Frozen Foods, U.S.A, Inc. (“Defendants”). The jury found, among other things, that Defendants willfully and maliciously misappropriated Plaintiff’s trade secret for frozen-chicken fried rice and frozen-vegetable fried rice (the “Trade Secrets”). In addition, the Court found that a reasonable royalty to be paid by Defendants to Plaintiff was appropriate. Plaintiff and Defendants stipulated to a royalty of 4% of gross sales from the Trade Secrets sold and to be sold by Defendants starting from January 28, 2016. 

On November 10, 2016, the Court found that the royalty payments were to start on January 28, 2016 and continue for so long as Defendants sell the Trade Secrets. On November 10, 2016, the Court issued an order, which provided in relevant part, that Defendants would not be required to pay the royalty when the Trade Secrets cease to exist. On September 24, 2018, Green filed a Cross-Complaint against the City, asserting the same causes of action. 

On February 28, 2017, the Court entered judgment against Defendants, which included the royalty payments (the “Judgment”). 

On May 11, 2017, the parties filed appeals. Plaintiff appealed from orders denying its ability to recover punitive damages; Defendants appealed (1) the verdict and all of the causes of action (2) the royalty award, and (3) the dismissal with prejudice of the Defendant’s cross-complaint against Plaintiff. 

On April 9, 2019, the Court of Appeal affirmed the Court’s Judgment against Defendants in all respects to all the causes of action, including the royalty award, and affirmed the dismissal of Defendant’s cross-complaint. The Court of Appeal denied Plaintiff’s right to pursue punitive damages. 

On September 9, 2021, the Court denied Defendants’ motion to modify the Judgment to have the royalty paid into an interest-bearing escrow arrangement. 

On May 20, 2022, the Court denied the Motion to Modify Judgment filed by Defendants and granted the Motion for Appointment of a Receiver filed by Plaintiff. 

On June 22, 2022, Defendants filed an appeal of the May 20, 2022 order pursuant to pursuant to Code of Civil Procedure §§ 904.1(a)(2), 904.1(a)(6)–(7). 

On July 12, 2022, Defendants filed the instant ex parte Application for Order to Fix an Undertaking or Appeal Bond. 

            On July 14, 2022, after consideration of Defendants’ ex parte application and oral arguments, the Court deemed the ex parte application as the moving paper for a Motion for Order to Fix an Undertaking or Appeal Bond and instructed the parties to file their respective opposition and reply papers. On July 21, 2022, Plaintiff timely filed its opposition papers. On July 27, 2022, Defendants timely filed their reply papers. 

 Legal Standard 

In instances where a receiver has been appointed, the posting of a bond fixed by the trial court is necessary to stay the proceedings in the trial court.  (Code Civ. Proc. § 917.5.)  In those instances, the fixed sum “is given on condition that if the judgment or order is affirmed or the appeal is withdrawn, or dismissed, the appellant will pay all damages which the respondent may sustain by reason of the stay in the enforcement of the judgment.” (Id.) When an appellant fails to post an undertaking when appealing an order appointing a receiver, the trial court is free to make any appropriate orders respecting the property, including an order allowing the receiver to sell the property.  (City of Riverside v. Horspool (2014) 223 Cal.App.4th 670, 683.) 

Evidentiary Objections 

Defendants’ Objections to Declaration of Tami Sheeler are OVERRULED. 

Discussion 

A.    Premature Appeal

Plaintiff argues that Defendants’ notice of appeal of the Court’s May 20, 2022 order is premature because a receiver has not actually been appointed. (Opposition at pp. 4-8.) 

Pursuant to Code of Civil Procedure § 904.1(a)(7), “[a]n appeal, other than in a limited case, is to the 17 court of appeal. An appeal, other than in a limited civil case, may be taken from any of the following: . . . (7) from an order appointing a receiver.” 

The Court granted Plaintiff’s Motion for Appointment of a Receiver and instructed the parties to meet and confer on the issue of who would be appointed to be the receiver; if the parties were unable to come to an agreement, the parties were instructed to file a joint list with the Court. (May 20, 2022 Minute Order at pp. 9-10.) Rather than follow this set procedure, Defendants filed a notice of appeal. While the Court agrees that Defendants’ appeal may be premature, the Court lacks the authority to adjudicate the timeliness of Defendants’ appeal because such a determination is strictly within the jurisdiction of the Court of Appeal, not the trial court. (See Leonard v. Superior Court (2015) 237 Cal. App. 4th 34, 44 [“this appellate court, not the trial court, had jurisdiction to determine whether that filing was timely.”]) 

Accordingly, the Court declines to make a finding regarding the timeliness of  Defendants’ appeal. 

B.    Bond Amount 

Defendants request the Court to fix an undertaking in the amount of $1,350,000 pursuant to the condition set forth under Code of Civil Procedure § 917.5. (Motion at pg. 4.) 

“It is the settled law of California that since an appeal lies from an order appointing a receiver . . . an undertaking may be given staying all proceedings upon said order pending the determination of the appeal upon its merits. . . .” (Santa Ynez Mercury Corp. v. Superior Court (1938) 26 Cal. App. 2d 279, 281.) A court may not refuse to fix an amount of undertaking. (Rondos v. Superior Court (1957) 150 Cal. App. 2d 304, 305.) 

Defendants contend that a bond amount of $1,350,000 is reasonable because the issue of whether Defendants owe Plaintiff additional damages premised on the alleged misappropriation of Plaintiff’s trade secretions on additional products not litigated at trial is speculative. (Motion at pg. 5.) Also, this proposed amount equates to $50,000 per month for a period of 27 months, which is the estimated time for adjudication on the pending appeal. (Id.) 

In opposition, Plaintiff argues that Defendants proposed bond amount is inadequate, and instead, the bond amount should be $30,000,000. (Opposition at pg. 9.) Plaintiff reaches this amount by relying on the following information: (1) inflation is currently calculated at 9.1%, which diminishes the value of bond amount (Sheeler Decl. ¶ 4); and (2) the unpaid royalties over the course of six years associated with 23 of Plaintiff’s products is estimated to equal $100 million, inclusive of pre-judgment interest (Sheeler Decl. ¶ 5-7). Thus, Plaintiff reasons that $30,000,000 is reasonable “[b]ased upon a calculation of 10% interest on the total royalties, over two years, and applying the normal 1.5 multiplier for what bonds are required from an appeal of a money judgment in California.” (Sheeler Decl. ¶ 8.) Plaintiff further reasons that the delay would negatively impact Plaintiff’s business and how it intends to use the royalty payments. (Sheeler Decl. ¶¶ 2-3.) 

In reply, Defendants argue that Plaintiff’s proposed bond amount is unreasonable because it presumes that a receiver will definitively agree with Plaintiff’s position that Defendants “engaged in the ongoing willful and malicious misappropriation of [Pine Valley’s] trade secrets.” (Reply at pg. 3; Opposition at pg. 9.) Additionally, Defendants argue that Plaintiff’s proposed bond would equate to royalty payments of $1.1 million per month. (Reply at pg. 3.) Defendants contend that a more reasonable amount at the upper limit would be $2,214,000, which would equate to doubling Plaintiff’s final judgment with an award of another $82,000 per month payment. (Reply at pg. 3; Hori Decl. ¶ 10.) Furthermore, Defendants argue that a 1.5 multiplier is inapplicable because Code of Civil Procedure § 917.5 does not provide for a multiplier. (Reply at pg. 4.) 

Under these circumstances, the Court finds that a bond in the sum of $2,214,000 is appropriate because it would account for a doubling of the royalty payments, assuming that additional products are later found to have been misappropriated. Plaintiff has failed to substantiate its request for a $30 million bond amount because Plaintiff’s evidence only consists of the declaration of its controller Tami Sheeler. In her declaration, Ms. Sheeler refers to financial models that were created to estimate the total royalties, but copies of those financial models were not included for the Court to review. Furthermore, while Plaintiff claims to possess evidence that Defendants are selling products that use or are derived from Plaintiff’s trade secrets, the extent of this alleged conduct has not been determined. If the Court adopted Plaintiff’s proposed bond amount, it would be based on speculation. Moreover, Plaintiff’s request for a 1.5 multiplier is not justified because it is not provided by Code of Civil Procedure § 917.5. 

Based on the foregoing, the Court sets a bond in the amount of $2,214,000 pursuant to Code of Civil Procedure § 917.5. 

C.    Extent of the Stay 

Defendants seek a stay of all proceedings and related discovery during the pendency of the appeal upon the posting of the bond. (Motion at pp. 3-4.) 

“[T]he 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.” (Code Civ. Proc. § 916(a).) “When there is a stay of proceedings other than the enforcement of the judgment, the trial court shall have jurisdiction of proceedings related to the enforcement of the judgment as well as any other matter embraced in the action and not affected by the judgment or order appealed from.” (Code Civ. Proc. § 916(b).) “In determining whether a proceeding is embraced in or affected by the appeal, we must consider the appeal and its possible outcomes in relation to the proceeding and its possible results.” (Varian Med. Sys., Inc. v. Delfino (2005) 35 Cal. 4th 180, 189.) “[A]n appeal does not stay proceedings on ‘ancillary or collateral matters which do not affect the judgment [or order] on appeal’ even though the proceedings may render the appeal moot.” (Id. at 191.) 

Defendants contend that Plaintiff’s pending discovery motions are further efforts to collect additional royalties on products that were not litigated at trial. Furthermore, Defendants point out that Plaintiff insisted on the appointment of a receive in order to remove post judgment discovery issues and motions from the Court’s calendar. (Motion at pg. 7.) Thus, Defendants reason that these discovery requests and any other post-judgment discovery are “are in furtherance of the Court’s order appointing a receiver.” (Id.) 

In opposition, Plaintiff argues that the pending discovery motions do not have any bearing on the appeal of the post-judgment order appointing a receiver, and as a result, the stay should not extend to these post-judgment discovery motions. (Opposition at pp. 11-12.) 

In reply, Defendants reassert that the post-judgment discovery motions are embraced by the appeal because they are related to receiver’s goal of determining whether any additional products are derived from Plaintiff’s trade secrets. (Reply at pg. 6.) Additionally, Defendants reject the argument that the post-judgment discovery does not relate back to the judgment because the receiver is to “ensure fair and orderly satisfaction of the Judgment.” (Reply at pg. 6; May 20, 2022 Minute Order at pg. 9.) Furthermore, Defendants’ appeal encompasses the Motion to Modify the royalty award which would include all proceedings, including the receivership proceedings. (Reply at pg. 7.) 

Having carefully considered these arguments, the Court finds that a stay of all proceedings is warranted. Plaintiff’s post-judgment discovery motions seek information relating to Defendants’ alleged misappropriation of Plaintiff’s trade secrets with other of its products. In its prior Order, the Court granted Plaintiff’s motion to appoint a receiver in order “to determine whether the products identified in Exhibit “B” of the Feicht Declaration use or are derived from Plaintiff’s Trade Secrets.” (May 20, 2022 Minute Order at pg. 9.) The Court further found that “the appointment of a receiver is a reasonable method to obtain the fair and orderly satisfaction of the Judgment.” (Id.) Consequently, the post-judgment discovery and similar trial proceedings are embraced by the Defendants’ appeal of the Court’s order appointing a receiver. 

For the reasons stated, the Court GRANTS Defendants’ stay request.  

D.    Plaintiff’s Request for Attorney’s Fees 

Plaintiff asserts that it is entitled to attorneys’ fees for opposing the instant motion and in enforcing the judgment. 

Code of Civil Procedure § 685.040 states: “[t]he judgment creditor is entitled to the reasonable and necessary costs of enforcing a judgment. Attorney’s fees incurred in enforcing a judgment are not included in costs collectible under this title unless otherwise provided by law. Attorney’s fees incurred in enforcing a judgment are included as costs collectible under this title if the underlying judgment includes an award of attorney’s fees to the judgment creditor pursuant to subparagraph (A) of paragraph (10) of subdivision (a) of Section 1033.5.” 

The Court finds that Plaintiff may not recover attorney’s fees as the costs incurred did not relate to “enforcing a judgment.” Defendants are not seeking to withhold royalty payments that are due pursuant to the underlying judgment. Accordingly, Plaintiff has failed to show that it is entitled to attorney’s fees because its Opposition to the Motion is “enforcing a judgment.” 

Based on the foregoing, the Court DENIES Plaintiff’s request for attorneys’ fees. 

Conclusion 

The Court GRANTS Defendants Motion for Order to Fix an Undertaking or Appeal Bond in the modified amount of $2,214,000. Upon the posting of the aforementioned undertaking, the proceedings shall be stayed. Also, Plaintiff’s request for attorneys’ fees is DENIED. 

The pending discovery motions are taken off-calendar. The Court sets a Status Conference re Appeal on January 26, 2023, at 9 a.m. 

Moving parties to give notice. 

The parties are strongly encouraged to attend all scheduled hearings virtually or by audio. Effective July 20, 2020, all matters will be scheduled virtually and/or with audio through the Court’s LACourtConnect technology. The parties are strongly encouraged to use LACourtConnect for all their matters. All masking protocols will be observed at the Courthouse and in the courtrooms.