Opinion
A149212
12-21-2017
ITOCHU CORPORATION, ET AL., Plaintiffs, v. SIMBOL, INC., Defendant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Alameda County Super. Ct. No. HG15787280)
Appellants EnergySource, LLC, and Hudson Ranch Power I, LLC, are not parties to this litigation, but the trial court entered an order requiring them to transfer and return certain property based on a receivership order previously issued in the case. Appellants contend (1) the court exceeded its jurisdiction because, as non-parties, they are not bound by the receivership order; (2) the order was based in part on the court's erroneous conclusion that a commercial lease was not terminated upon the expiration of its term; and (3) the order was based on a receivership sale that did not comply with Code of Civil Procedure section 586.5. We will reverse the order.
I. FACTS AND PROCEDURAL HISTORY
A. Appellants' Contracts with Simbol
Appellant EnergySource, LLC (EnergySource) entered into an agreement with Simbol, Inc. (Simbol) to cooperate in the development of Simbol's facilities to extract minerals from geothermal brines. EnergySource is an indirect owner of appellant Hudson Ranch Power I, LLC (Hudson Ranch). Hudson Ranch entered into a ground lease with Simbol, effective as of November 6, 2012 (Ground Lease), to allow Simbol to construct a demonstration plant and chemical analysis laboratory (Demonstration Facility) on a site in Calipatria, California.
The Ground Lease provided for an initial term expiring on November 6, 2014, and the possibility of an extended term for an additional year - expiring on or about November 6, 2015. Under section 7.5 of the Ground Lease, any property of Simbol not removed within 180 days after expiration of the lease would be "deemed abandoned, and may either be retained by Landlord [Hudson Ranch] as its property or removed from the property and disposed of, without accountability."
Simbol constructed the Demonstration Facility. In early 2015, however, Simbol went out of business and reduced its workforce to a skeleton staff, and the Demonstration Facility was turned off.
B. This Case: ITOCHU and Geothermal's Receivership Action Against Simbol
In September 2015, two of Simbol's creditors - ITOCHU Corporation (ITOCHU) and Geothermal Energy Project, LLC (Geothermal) - filed a complaint in this action for breach of contract and related claims arising out of loans they made to Simbol, which were not repaid. Among other things, ITOCHU requested that a receiver be appointed to take custody of collateral and other property to which ITOCHU and Geothermal claimed a right or interest. Neither EnergySource nor Hudson Ranch has been named a party to this litigation.
1. Receivership Order
Pursuant to a stipulation among ITOCHU, Geothermal, and Simbol, the trial court entered an order appointing Andrew De Camara as the receiver for Simbol on October 27, 2015 (Receivership Order).
The Receivership Order required the receiver to take possession, custody, and control of Simbol's assets, with the aim of repaying the debts owed to ITOCHU and Geothermal. It also set forth numerous powers of the receiver. In addition, paragraph 21 of the Receivership Order purported to enjoin third parties from any unauthorized interference with Simbol assets: "Except by leave of this Court and during the pendency of this receivership, all claimants, creditors, lessors and other persons seeking relief of any kind, in law or in equity, from [Simbol], and all others acting on behalf of any such persons, . . . are restrained and enjoined, directly or indirectly, from . . . [c]ommencing, prosecuting, continuing or enforcing any suit or proceeding, within this Court's jurisdiction, except by motion before this court;" "[t]aking, retaining, retaking or attempting to retake possession of any real or personal property;" and "[d]oing any act or thing whatsoever to interfere with the possession of or management by the [r]eceiver herein and of the property and assets owned, controlled or in the possession of receivership defendants . . . during the pendency of this proceeding with the exclusive jurisdiction of this Court over defendants."
2. Receiver's Marketing of Simbol's Assets
The receiver marketed Simbol's assets for sale in order to obtain funds to pay off Simbol's debts, and established a proposed schedule for the submission of bids from prospective purchasers. The receiver also prepared an asset purchase agreement (APA) that would govern the sale of Simbol's assets to the highest qualifier bidder.
One of the prospective purchasers to whom the receiver marketed Simbol's assets was appellant EnergySource. Although the receiver informed EnergySource of the prospective sale, EnergySource elected not to submit a bid.
On March 23, 2016, the receiver filed a report indicating there were no prospects for the sale of Simbol's assets. The receiver advised that the California Department of Toxic Substances Control had issued violation notices against Simbol, due to its pollution of both the Demonstration Facility in Calipatria and another facility in Brawley, remediation of which would cost at least $140,000. The receiver also asserted that the Ground Lease at Calipatria had "lapsed."
By April 2016, only Alger Alternative Energy, LLC (AAE) had bid on Simbol's assets, offering to purchase them for $1,100,000. Since the receiver had been able to find only one bidder by the deadline, he concluded there was no point in holding an auction.
In April 2016, the receiver filed an ex parte application for an order approving the sale of assets to AAE. The receiver represented that he had given notice of the ex parte application to the parties in the litigation and was unaware of any objection. A supporting declaration averred that the receiver had given notice of the bidding procedures and deadlines to the litigation parties and those who had identified themselves as potentially interested bidders.
3. Sale Order
On April 21, 2016, the trial court granted the receiver's application and, noting that ITOCHU and Geothermal had released their liens, issued an order that "authorized and instructed" the receiver to sell the assets in the receivership to AAE (Sale Order).
4. Appellants' Application for Leave to Sue Simbol
EnergySource and Hudson Ranch learned of the prospective sale and, on June 7, 2016, filed a "Notice of Ex Parte Application for Leave to File a Complaint Against Simbol." Appellants sought relief from paragraph 21 of the Receivership Order so they could file a complaint against Simbol and obtain, among other things, a judicial declaration quieting title to their real property.
5. Dispute Over EnergySource's Seizure of Simbol Assets
Meanwhile, AAE claimed that EnergySource, without approval of the court, had moved or exerted control over some of the assets that were subject to the Receivership Order and to be transferred to AAE. Specifically, some of Simbol's property had been moved from Simbol's Brawley facility to the Calipatria facility. In addition, EnergySource contended that Simbol's property at the Calipatria facility had been abandoned under the terms of the Ground Lease and thus belonged to EnergySource.
6. AAE's Application for Order of Contempt and Return of Assets
On or about June 9, 2016, AAE filed an ex parte application seeking an order (1) holding EnergySource in contempt of the Receivership Order and (2) directing EnergySource to relinquish control over the assets it had seized and to turn them over to AAE. In support of its application, AAE submitted declarations from its employees and the receiver.
Appellants opposed AAE's application. As to the property moved from the Brawley facility to the Calipatria facility, appellants asserted that the property had been moved by an agent of the receiver with the receiver's knowledge. Specifically, appellants claimed, the receiver had hired former Simbol employee Mike Garska in January 2016 to supervise Simbol's facilities in Brawley and Calipatria; with the receiver's knowledge, Garska moved Simbol property in March 2016 from the Brawley facility, which was subject to a potential unlawful detainer proceeding, to the Calipatria facility, where appellants permitted it to be stored separate from the property and equipment that comprised the Demonstration Facility; Garska only later became an employee of EnergySource in April 2016; and the property was ready to be returned to the Brawley facility. (Appellants subsequently asserted that the property had been returned to the Brawley facility, although AAE disputed that it had been returned in its entirety.)
As to the Calipatria Demonstration Facility, Energy Source argued that the property Simbol left there had been "abandoned" pursuant to section 7.5 of the Ground Lease, because the Ground Lease expired on November 6, 2015, and the property had not been removed within 180 days thereafter (i.e. May 2016).
In reply, AAE submitted a declaration from the receiver, who denied authorizing anyone to move any of Simbol's property from the Brawley facility and denied abandoning any property. AAE also submitted declarations from its employees, who explained that the property EnergySource took from the Brawley facility appeared to have been targeted in an effort to gain access to Simbol's intellectual property and research.
7. Order Requiring Appellants to Return and Transfer Property
The court held hearings to address the disputes between appellants and AAE. At one of the hearings, the court expressed concern that AAE and appellants were not parties to the litigation: "[W]e have got this problem here that I have got two entities who are appearing in front of me on a regular basis who are not actually parties in the proceeding. And it's kind of—it's an awkward position. Because normally that's how we proceed in litigation, is you have parties, and they file things, rather than all these nonparties filing things. [¶] ...I am not sure that I should be granting any relief to anybody. . . . [¶] . . . I am not quite sure what I am supposed to do with [EnergySource], which has not yet entered the proceeding, or I think, even formally at any point accepted the jurisdiction of the Court over any of this stuff. [¶] And I haven't asked them to. But at some point we have to make a decision about whether or not I could grant anything in your favor here without—other than to grant you leave to file something somewhere else, which I don't know whether that would require being a party or not." (Italics added.) The court noted, however, that AAE's request was submitted "under color of Receiver," to which the receiver's counsel agreed, stating that the receiver was requesting that EnergySource be compelled to turn over the assets.
Counsel for appellants and counsel for AAE did nothing to address the court's concern about EnergySource not being a party to the litigation. The receiver's attorney stated that EnergySource was bound by the order simply "because it had actual notice." The court took the matter under submission.
Appellants contend they "repeatedly disputed that the lower court had the authority to issue any orders against Appellant, a non-party to the proceedings." While appellants did argue that the requested order could not be imposed against them, nowhere in the portions of the record cited by appellants did they contend the court lacked authority because, as nonparties, appellants were not bound by the Receivership Order. To the contrary, appellants implied they were bound by the Receivership Order, as reflected in their application to be relieved from it. Nonetheless, AAE does not contend that appellants waived the arguments they now raise in this appeal. Nor does AAE assert that the court's authority to bind a nonparty is an issue that could be waived.
On August 22, 2016, the court issued the order from which appellants now appeal (Order), granting in part and denying in part AAE's application for an order holding appellants in contempt for violation of the Receivership Order.
The court ruled that AAE and the receiver failed to establish sufficient evidence to impose monetary sanctions against appellants, finding that EnergySource's actions in securing the "property in question" was with the involvement of Garska, a former Simbol employee retained by the receiver and later hired by EnergySource.
The court ordered, however, that "the property in question should all be transferred as directed by the Receiver to AAE pursuant to the purchase agreement approved by the Court." The court rejected EnergySource's contention that some of the property was abandoned pursuant to section 7.5 of the Ground Lease, because it was not established that the Lease was terminated in the absence of any notice of termination to Simbol or the receiver. "In addition," the court noted, "Energy Source had actual knowledge of the Court's 10/27/2015 receivership order, and should have brought any concerns about the Lease to this Court pursuant to the October 27, 2015 Receivership Order." The court ordered that "ALL PROPERTY TAKEN FROM THE PREMISES OF SIMBOL, INC. BY ENERGY SOURCE OR ITS EMPLOYEES AND/OR AGENTS SHALL BE TRANSFERRED TO AAE WITHIN 15 CALENDAR DAYS." (Capitalization in original.)
By separate order, the court denied EnergySource's ex parte application for leave to file a complaint against Simbol. Appellants do not appeal from this order.
II. DISCUSSION
Appellants contend the court erred in issuing the Order requiring it to return and transfer Simbol's property, for three reasons. First, appellants argue that the Order was based on appellants having knowledge of the Receivership Order, but they are not bound by the Receivership Order since they are not a party to this proceeding or acting as the agent of a party. Second, to the extent the Order pertained to the property Simbol left at the Calipatria site, appellants contend the property became abandoned in May 2016 when it was not removed within 180 days after the termination of the Ground Lease, and the court erred in concluding the Ground Lease was not terminated when its term expired. Third, appellants contend the Order must be reversed because it was based on a receivership sale that did not comply with Code of Civil Procedure section 586.5. We need address only the first issue to resolve the appeal.
A. Appellants Are Not Bound by the Receivership Order
A court generally has authority to compel obedience to its orders, including validly-issued injunctions. (Code Civ. Proc., § 128, subd. (a)(4); Vanderstok v. Bank of America (1972) 29 Cal.App.3d 731, 734 [authority to order defendant bank to comply with terms of an interlocutory judgment, which was in the nature of a mandatory injunction]; Blueberry Properties, LLC v. Chow (2014) 230 Cal.App.4th 1017, 1019-1020 [authority to enforce a judgment by appointing the clerk as an elisor to execute escrow documents on behalf of a party who refused to do so].) The question here, however, is whether the court could exercise this authority against nonparty appellants.
An injunction is a "personal decree" directed to a defendant. (People ex rel. Gwinn v. Kothari (2000) 83 Cal.App.4th 759, 765.) It is not effective "against the world at large." (Planned Parenthood Golden Gate v. Garibaldi (2003) 107 Cal.App.4th 345, 352 (Planned Parenthood).) Nonetheless, to preclude the enjoined party from evading the injunction by carrying out prohibited acts through someone else, the injunction may be made binding not only upon the litigant named in the injunction, but also upon that party's agent, representative, or other person through whom the named party might act; the injunction will be enforced against that nonparty if the nonparty had actual knowledge of the injunction. (Id. at p. 353; Ross v. Superior Court of Sacramento County (1977) 19 Cal.3d 899, 906 (Ross).) On the other hand, a nonparty's mere knowledge of the injunction is not, in itself, sufficient for it to be bound by it; the nonparty must also be acting in concert with a party. (Planned Parenthood, supra, 107 Cal.App.4th at pp. 352, 358.)
As appellants assert, Planned Parenthood is instructive. There, Planned Parenthood Golden Gate (PPGG) filed a declaratory relief action against certain individuals (Foti and the Garabaldis), seeking a judicial declaration that they were bound by an injunction that had been issued in a prior case to which neither Foti nor the Garibaldis were parties. (Planned Parenthood, supra, 107 Cal.App.4th at pp. 350-351.) The injunction had enjoined two named defendants in the prior case ("ORC" and "Cochran") and their respective "agents, employees, representatives and all persons acting in content or participation with them, or either of them, and all persons with actual notice of this judgment." (Id. at p. 349.) PPGG moved for summary judgment against Foti and the Garibaldis, contending inter alia that they had notice of the injunction. (Id. at p. 351.) The trial court entered judgment in favor of PPGG, but the order was reversed on appeal. (Ibid.) As relevant here, the appellate court held that the injunction's provision purporting to bind "all persons with actual notice of this judgment" was invalid. (Id. at pp. 352, 358.) The court explained: "Actual notice of an injunction is a requirement but cannot be an independent ground upon which to apply an injunction to a nonparty. Therefore, the . . . injunction applies to the defendants against whom it was entered (ORC and Cochran) and their agents, employees, representatives and all persons acting in concert or participation with them, or either of them who have actual notice of the judgment." (Id. at p. 358.)
Applying Planned Parenthood to the matter at hand, the mere fact that appellants knew about the Receivership Order does not mean they were bound by it. Appellants are not parties to the litigation, and they were not alleged to be agents of or acting in concert with Simbol or any other party.
Respondent AAE acknowledges that Planned Parenthood's holding is "consistent with well-established law." (See, e.g., People v. Conrad (1997) 55 Cal.App.4th 896, 902 [reversing conviction of contempt against non-parties that violated an injunction, due to a lack of evidence that they were acting in concert with the enjoined party in addition to having knowledge of the injunction].) As our Supreme Court stated in Ross four decades ago: " 'In matters of injunctions . . . it has been a common practice to make the injunction run also to classes of persons through whom the enjoined person may act, such as agents, servants, employees, aiders, abettors, etc., though not parties to the action, and this practice has always been upheld by the courts, and any of such parties violating its terms with notice thereof are held guilty of contempt for disobedience of the judgment.' " (Ross, supra, 19 Cal.3d at p. 906, italics added.)
In quoting from Ross, respondent AAE replaced the language we italicized with an ellipsis, thereby making it appear that the court was saying an injunction may run against nonparties, not just nonparties "through whom the enjoined person may act, such as agents, servants, employees, aiders, abettors, etc." The use of the ellipsis by AAE's appellate counsel is misleading. (Cal. Rules Prof. Resp. 5-200(B), (C); see Bus. & Prof. Code § 6068, subd. (d).)
But AAE contends that, unlike the injunction at issue in Planned Parenthood, the Receivership Order did not purport to bind the world at large, but designated a class of persons to whom EnergySource belonged. AAE then reasons: "EnergySource was a prospective creditor party claiming rights to the property and the Receivership Order enjoined any prospective parties claiming rights to the property from taking steps to enforce those rights, e.g., from filing lawsuits, taking possession of property, or interfering in any way with the property or assets subject to the receivership, without the trial court's permission."
AAE's contention that an injunction is binding on a nonparty if the nonparty is a "prospective party" cannot possibly be squared with Planned Parenthood, and AAE does not offer any authority to support it. The idea that appellants might someday be joined to the litigation does not justify enforcing the Receivership Order against them now.
Nor are appellants bound by the Receivership Order on the theory that they fall within a class of persons mentioned in the order. Paragraph 21 of the Receivership Order purports to enjoin "all claimants, creditors, lessors and other persons seeking relief of any kind, in law or in equity, from [Simbol], and all others acting on behalf of any such persons." (Italics added.) In reaching its ruling, the trial court did not make a factual finding that appellants did, in fact, fall within any of those classes (although arguably Hudson Ranch was a lessor of Simbol when the Receivership Order was filed, and it was the Landlord who would have taken ownership of any property abandoned at Calipatria). In any event, none of these classes were named parties to the litigation, except for "creditors" ITOCHU and Geothermal, and appellants were certainly not acting on behalf of ITOCHU or Geothermal. And while the Receivership Order could restrain defendant Simbol and its agents from interfering with the receiver's duties and the transfer of its assets, there is no indication that the order could restrain nonparties such as appellants under the circumstances here.
A court cannot authorize a receiver to take property in the possession of a nonparty who claims to own it; the receiver typically must bring a separate action against the nonparty. (Stuparich Mfg. Co. v. Superior Court of San Francisco (1899) 123 Cal. 290, 292 [in action for dissolution of partnership where receiver was appointed to take possession of partnership property, the court had no jurisdiction to authorize the receiver to seize property claimed by a nonparty to the action]; First National Housing Trust Ltd. v. Superior Court of San Francisco (1928) 88 Cal.App. 292, 295 [court has no jurisdiction to order receiver to seize property that is claimed by a nonparty in possession of the property, but it may authorize the receiver to maintain an action for its recovery]; Tapscott v. Lyon (1894) 103 Cal. 297, 305 [receiver may not seize goods in possession of a purchaser, but must bring a separate lawsuit].) --------
Because appellants are not parties to this action and have not been found to be acting as an agent of any party bound by the Receivership Order, appellants are not bound by the Receivership Order and cannot be held in contempt of it. To the extent the Order required appellants to return and transfer property based on the mere fact that appellants knew about the Receivership Order, the court erred.
Finally, we note that neither the trial court nor the parties have addressed whether there might be some other basis - besides appellants' knowledge of the Receivership Order - by which the court would have authority to order appellants to return and transfer the property. The problem, of course, is that such an order would still purport to bind appellants who are not parties to the action and have not been served or otherwise found to be subject to the jurisdiction of the court. (See Maloney v. Rhode Island Insurance Co. (1953) 115 Cal.App.2d 238, 249 [referring in dicta to the "substantial body of law to the effect that a receivership court does not have jurisdiction to bring into a pending receivership proceeding by a mere order to show cause persons who are not parties to the receivership and who assert an independent claim of ownership to assets in their possession"].) In the absence of any such contention, we need not and do not reach the issue.
Based on the appellate record and the briefing in this case, the court erred in issuing the Order requiring appellants to transfer and return property.
B. Appellants' Other Arguments
As mentioned ante, appellants assert alternative reasons for the reversal of the Order. Because we resolve the appeal on the ground that appellants were not a party to the litigation or bound by the Receivership Order, we need not and do not reach these other issues.
III. DISPOSITION
The order is reversed.
/s/_________
NEEDHAM, J. We concur. /s/_________
JONES, P.J. /s/_________
BRUINIERS, J.