Apple versus Samsung. Samsung unveiled its new Galaxy Tab 7.7, a new Android tablet, but had to remove it from a convention show and from its German website after a court in Germany issued an injunction against Samsung and in favor of Apple. Very brief details were contained in the Engadget September 4th post by Amor Toor. We are trying to locate the court papers and ruling for further comment.
In an excellent blog post, attorney Michael R. Greco refers to case IDG USA v. Kevin Schupp and the need to be specific when requesting an injunction and when drafting an order. This often presents a quandary in trade secret litigation because a detailed description reveals the trade secret you want to conceal. In some cases, filing under seal may be the answer.
LegalMetric Research reports that success rates on contested preliminary injunction motions in patent cases is 30% nationwide. But the success rate varies by district. California Central’s win rate is 38% and New Jersey’s win rate is 40%. Here is the link to LegalMetric. Its full report costs several hundred dollars.
The report includes:
This is Part II of a post on the Amylin v. Eil Lilly Litigation. For background on the case and to read about the original TRO see Part I of the post.
Denial of Preliminary Injunction
After granting the temporary restraining order, the parties further briefed the matter and a preliminary injunction hearing was held on June 2, 2011. As a result, the Court vacated the TRO and denied the preliminary injunction.
The main thrust of the Court’s reversal comes from a more careful analysis of the irreparable harm factor. The Court did not address the remaining elements of the preliminary injunction after determining that Amylin failed to show irreparable harm:
Under Winter, Amylin “must establish that irreparable harm is likely, not just possible, in order to obtain a preliminary injunction.”
In footnote 2 of its order, the Court repudiated the presumption of irreparable harm from the original TRO. Instead, the Court examined Amylin’s injury claims: (1) harm attributable to Defendant’s misuse of Amylin’s confidential information and (2) loss of prospective customer and goodwill.
The Court found Amylin’s claim of harm—misuse of confidential information— was too speculative. “Speculative injury does not constitute irreparable injury sufficient to warrant granting a preliminary injunction.” Carribean Marine Servs.
Secondly, the Court points to Food and Drug Administration’s regulations that prohibit Lilly’s sales representatives from making any potentially misleading statement regarding Amylin’s product without adequate supporting data, including statements comparing the attributes of the other product. Amylin’s argument that the Defendant’s sales representatives would intentionally mislead consumers to the detriment of Amylin is clearly specious. The Court concluded that the sales representatives would not risk FDA sanctions to maximize sales of a competing product.
Finally, in order to prevail in a preliminary injunction, damages cannot be monetarily compensable: “[E]conomic injury alone does not support a finding of irreparable harm, because such injury can be remedied by a damage award.” Rent-A-Center, Inc. v. Canyon Television & Appliance Rental, Inc., 944 F.2d 597, 603 (9th Cir. 1991). The Court relied on Defendant’s economic expert who asserted money damages were sufficient to cover any harm arising from Defendant’s actions:
To the extent that Amylin would suffer from the alleged actions, the resulting loss would take the form of profits on lost exenatide sales. Losses of this nature are generally calculable through the use of standard economic analyses undertaken in the calculation of economic harm generally and, specifically, in antitrust actions. Amylin Pharmaceuticals, Inc. v. Eli Lilly and Company, Case No. 11-CV-1061 JLS (NLS) (S.D.
The courts do not enjoin actions that would result in a calculable economic injury. Accordingly, misappropriation of a trade secret can be remedied with money damages.
Finding no irreparable harm, the Court ended its analysis.
By Jay Lewis
Amylin Pharmaceuticals, Inc. v. Eli Lilly and Company, Case No. 11-CV-1061 JLS (NLS) (S.D.
Background
Amylin Pharmaceuticals (“Amylin”) and Eli Lilly (“Defendant”) entered into a business relationship in 2002 to develop and commercialize exenatide, a drug used for treatment of type-2 diabetes. In early 2011, Defendant announced that it was entering a similar alliance with Boehringer Ingelheim GmbH (“Boehringer”) to develop and commercialize linagliptin, also a drug used for treatment of type-2 diabetes. Amylin and Boehringer are direct competitors so needless to say, Amylin was opposed to Defendant’s entering into the second agreement.
Amylin and Defendant held private negotiations regarding the Boehringer alliance. The parties were unable to resolve the matter so Amylin filed for a temporary restraining order (“TRO”) and preliminary injunction. Amylin requested the Court to restrain and enjoin Defendant and others acting in concert from 1) disclosing any of Amylin’s confidential information; 2) using the same sales force used for Amylin’s drug; and 3) falsely describing Amylin’s products.
Legal Standard
The Court applied the appropriate legal standard, citing Winter v. Natural Res. Def. Council, 555 U.S. 7 (2008) for the general factors a plaintiff must show to obtain a preliminary injunction:
The Court further applied the 9th Circuit’s sliding scale balancing test as articulated in Alliance for Wild Rockies v. Cottrell, 622 F.3d 1045 (9th Cir. 2010). Under this test, a stronger application of one factor may offset a weaker application of another.
Original TRO
The Court granted Amylin’s request for a TRO but would later deny all of Amylin’s requests in a subsequent hearing. The Court’s analysis in the original TRO decision was focused on Amylin’s likelihood of success on the merits. Specifically, the Court found that Amylin would likely prove that the Defendant-Boehringer alliance would violate the confidentiality clause in Defendant-Amylin’s existing agreement. The Court reasoned that the sales force for Defendant was already privy to Amylin’s confidential information and to task that same individuals with the sale of the Boehringer drug ostensibly puts Amylin’s confidential information in the hands of its competitor.
After finding a likely success on the merits, the Court briefly discussed irreparable harm by reiterating the risk of loss of confidential information to a competitor. The Court quoted TMX Funding, Inc., v. Impero Technologies, Inc., 2010 WL 1028254, at *8 (N.D. Cal. March 18, 2010), “
Part II will discuss the subsequent denial of the preliminary injunction.
by Jay Lewis
The following are links to several current emergency litigation matters:
Apple escalates patent war claiming Samsung is slavishly copying Apple's products. Apple claims Samsung is violating iPad and iPhone hardware and software patents.
Court of Appeals in Manila denies motion to lift preliminary injunction. "The Court of Appeals has denied the plea of the Banco Filipino Savings and Mortgage Bank for the lifting of the writ of preliminary injunction that had stopped what could have been a P25-billion assistance package for the beleaguered bank." The Court wrote, "[A]llowing the case a quo to proceed will prevent the [Monetary Board] from, or hamper their functions in, exercising regulatory functions over private respondent, which in turn, would work great injustice and cause irreparable injury to the general public,”
Vermilion cancels single-sex classes. "A second attempt at getting a preliminary injunction to halt single-sex classes at Rene Rost Middle School in Kaplan is now moot because of the Vermilion Parish School Board's decision to discontinue the classes."
Medical marijuana injunction hearing starts Monday in
Judge grants
Rhode Island Supreme Court upholds eviction of homeless from
By Jay Lewis
Hold-Separate Conditions
In order to maintain Roche’s rights, the lower Court set forth conditions for MAS and Alere’s sale to move forward. The hold-separate portion of the order contained the following:
The ten conditions above, however, did not address MAS and Alere’s agreement preventing MAS from incurring substantial liabilities before a completed purchase. Under the agreement, MAS could not allow its assets to become subject to liens, sell new stock or acquire new business, dispose of intellectual property, or incur debt other than in the ordinary course of business prior to close. The Appellate Court added an additional condition to appease Alere’s concerns.
If MAS and Alere meet conditions one through eleven, they would be allowed to move forward with the sale. Once the arbitrator makes a final deicison as to Roche’s right of first refusal, the sale would either close or die on the vine, but either way, Roche’s rights would not be harmed prior to the completion of the arbitration.
Bond
In dicta, the Court addresses the lower court’s decision not to require Roche to post a bond. Although the Roche-MAS contract waives the parties’ entitlement to an injunction bond, the Court cautions judges to take care in setting a bond, “[P]reliminary injunctions…are more likely to be erroneous than injunction issued at the close of the litigation. A party injured by an erroneous preliminary injunction is entitled to be made whole.” The Court also stated, “Judges therefore should take care that the bond is set high enough to cover the losses that their handiwork could cause.”
The Court attempted to hedge any potential mistake in entering a conditional injunction by asking Roche to promise to pay for MAS the same amount as Alere. “[I]f Roche eventually acquires the shares it will pay the investors at least $43 million plus interest from the time the MAS-Alere deal originally was scheduled to close.”
By Jay Lewis
Roche Diagnostics Corporation v. Medical Automation Systems, Inc; Gregory A. Menke; and Kurt M. Wassenar, Case No. 11-1446 (7th Cir. May 24, 2011)
Facts
Roche Diagnostics (Roche) is a glucose monitor manufacturer. Medical Automation Systems (MAS) is a software company. Roche and MAS entered into a contract whereby MAS would supply software for Roche’s glucose monitors. During the course of the contract, MAS agreed to sell its stock and assets to Alere, Inc. (“Alere”), one of Roche’s competitors. Roche claimed a right of first refusal under the contract. MAS denied that the right of first refusal was effective because the sale was scheduled to close after the expiration of the contract. Roche filed for injunctive relief. On February 23, 2011, the Southern District Court of Indiana allowed the sale to move forward subject to hold-separate conditions. Roche appealed. The Seventh Circuit affirmed the lower court’s ruling with an additional condition.
Arbitration Clause
The Roche-MAS contract contained an arbitration clause covering any disputes over the right of first refusal. The clause allowed either party to seek equitable relief pending arbitration. The Court acknowledged this clause and refrained from discussing the merits of the contract dispute. Instead, the Court focused solely on the equitable relief. Specifically, the Court examined the potential for irreparable harm to the parties should the sale take place prior to a resolution in arbitration.
Balance of Harms
Roche’s right of first refusal would be damaged or eliminated if MAS was allowed to move forward with the sale of its assets. It would be incredibly difficult to unravel a sale if the arbitrator later decided Roche had a right to buy the company. However, enjoining the sale could harm MAS by killing the deal or diminishing its value should the arbitrator decide that Roche has no right of first refusal. The Court decided to set aside the uncertainty in the arbitrator’s decision and examine who faces the greater harm.
The Court found that Roche faced the greatest harm. Should an unbridled sale go forward, the parties would be completely unable to “unscramble the eggs.” Changes to the corporate structure and management, disclosure of intellectual property, sell-off of assets, and alterations in strategy all create a potential impossibility of restoring the status quo ante. Additionally, MAS has two potential purchasers and any uncertainty will be resolved when the arbitrator decides who gets to buy it. Ultimately, the Court decided that the sale could continue on the condition MAS and Alere were separately maintained during arbitration.
Part II will delineate the Hold-Separate Conditions.
A judge issued a preliminary injunction last week in a lawsuit against the city of Enid, preventing the use of a construction manager at-risk contract for the Enid Renaissance Project.
Plaintiffs withdraw their request for a preliminary injunction preventing the sale of Lubrizol to Berkshire Hathaway. The plaintiffs have opted to allow the shareholders to vote on whether to sell rather than seek a preliminary injunction.
Judge denies a taxicab company's request for an injunction to stop the city of
Catholic Charities filed an emergency injunction against the
Daytona Beach-based insurance agency, Brown & Brown, seeks to temporarily shut down a rival company formed by former executives.
Tiffany & Co. won a temporary restraining order June 7 against a Michigan jewelry store it claims is selling counterfeit Tiffany rings on eBay.
Written by Jay Lewis
Irreparable Harm
The Court presumed the threat of irreparable harm to the movant based on the likelihood of confusion and success on the merits. Because trademarks are similar to “intangible assets such as reputation and goodwill, a showing of irreparable injury can be satisfied if it appears that [the movant] can demonstrate a likelihood of consumer confusion.” General Mills, 824 F.2d at 625.
Public Interest
So after finding (1) the balance of harms weighed in favor of Worldcare, (2) Worldcare was likely to demonstrate consumer confusion and therefore likely succeed on the merits and (3) Irreparable harm was presumed based on the consumer confusion; the Court found that (4) an injunction favors the public interest. “A strong public interest exists in preventing confusion as to the source of products and services included in a medical coverage insurance policy, and as to who will be providing those services.” Worldcare.
After careful examination, the Court ordered the following:
For in-depth discussion of Trademark Infringement, see Chapter 10 of Handling the Business Emergency.
Written by Jay Lewis
Probability of Success on the Merits
Worldcare established trademark infringement by proving, “it ha[d] ownership or rights in the trademark and that the defendant ha[d] used the mark in connection with goods or services in a manner [that] cause[d] consumer confusion as to the source and sponsorship of the goods or services.” Community of Christ Copyright Corp. v. Devon Park Restoration Branch of Jesus Christ’s Church, 634 F.3d 1005, 1008-09 (8th Cir. 2011). The parties agreed that Worldcare had acquired rights in the mark. The parties disagreed that confusion existed with use of the WORLDCARE mark. The following is the six-factor test used by the Eighth Circuit to determine whether a trademark is likely to cause confusion:
Frosty Treats v. Sony Computer Ent. Am. Inc., 426 F.3d 1001, 1008 (8th Cir. 2005). Not all factors must be satisfied.
The Court determined that the WORLDCARE mark was both conceptually and commercially strong. The mark fell into the “suggestive” category under the conceptual strength test. “A suggestive mark is one that requires some measure of imagination to reach a conclusion regarding the nature of the product.”
The second factor, the similarity of the owner’s mark and the alleged infringer’s mark, was clearly met in this case. The United State Patent and Trademark Office (“PTO”) had rejected Defendant’s trademark application. The PTO found that the wording was identical and believed that consumers would likely be confused as to the source of the services.
The third factor compared the degree of competition between the products. Both companies operate in the insurance industry. Worldcare’s products are sold as a rider to health insurance policies. Likewise, Defendant’s product is sold as a medical insurance plan. The Court determined that the products were aligned closely enough to create confusion among consumers.
The Court found no evidence that Defendant intended to pass off its products as those of Worldcare. Although Defendant knew of the protected mark, knowledge is not equivalent to intent. General Mills, Inc. v. Kellog Co., 824 F.2d 622, 627 (8th Cir. 1987).
Under factor five, Worldcare attempted to show evidence of actual confusion in the form of alleged misdirected phone calls received in the summer of 2009. Worldcare claimed these calls were in regards to insurance products. The Court found this evidence limited and could not conclude actual confusion. However, Worldcare was not required to show incidents of actual confusion to succeed in an infringement case. Sunsient Tech. Corp. v. SensoryEffects Flavor Co., 613 F.3d 754 (8th Cir. 2010).
The sixth and final factor the Court examined was the condition of purchase and the degree of care expected of customers. “In considering this factor, [the Court] must stand in the shoes of the ordinary purchaser; buying under the normally prevalent conditions of the market and giving the attention such purchasers usually give in buying that class of goods.” Luigino's, Inc. v. Stouffer Corp., 170 F.3d 827, 831 (8th Cir.1999). The Court found this factor weighed in favor of Worldcare stating: “When selecting medical coverage and related products, a customer or potential customer may not recognize that distinct products with different WORLDCARE marks would come from different sources.” Worldcare, Case No. 8:11CV99 (D.
The Court found that customer confusion between the marks was likely in this case. The marks were identical and both companies sold their products in the insurance market. Therefore, Worldcare would likely succeed on the merits of their claim.
Part III will examine the remaining elements of the Injunction.
Worldcare Limited Corporation v. World Insurance Company, Case No. 8:11CV99 (D.
Written by Jay Lewis
On May 9, 2011, WorldCare Limited Corporation (“WorldCare”) was granted a preliminary injunction against World Insurance Corporation (“Defendant”) preventing further use of the “WORLDCARE” mark or name.
WorldCare is a provider of second-opinion telemedicine services. The service allows individuals and insureds to request second opinions through WorldCare’s consortium of specialized physicians at highly regarded hospitals and universities. WorldCare sells its services through insurance policies as an additional benefit. WorldCare registered its trademark, “WORLDCARE,” in June of 1996.
Defendant provides health insurance products and services including basic medical, major medical, comprehensive major medical, short-term medical, and dental insurance. Defendant began using WORLDCARE in February 2003 as a brand name on its insurance products. Defendant applied for a registration of the WORLDCARE mark on March 28, 2005, but the application was rejected. Defendant continued to use the mark creating customer confusion in violation of the Lanham Act, 15 U.S.C. §§ 1114(a), 1125(a). WorldCare filed for a preliminary injunction against Defendant on September 21, 2010.
Defendant argued that WorldCare failed to renew its ownership in the WORLDCARE mark under 15 U.S.C. § 1059(a). The Court stated: “Nevertheless, ownership of registration is not determinative of ownership of trademark rights, and ‘the absence of federal registration does not unleash the mark to public use.’" quoting, Gilbert/Robinson, Inc. v. Carrie Beverage-Missouri, Inc., 989 F.2d 985, 992 (8th Cir. 1993).
The Court cited Dataphase Sys., Inc. v. C.L. Systems Inc., 640 F.2d 109 (8th Cir. 1981) for the four factors of a preliminary injunction: “(1) The threat of irreparable harm to the movant; (2) the state of balance between this harm and the injury that granting the injunction will inflict on other parties litigant; (3) the probability that movant will succeed on the merits; and (4) the public interest.” Dataphase at 114.
Balance of Harms
The Court first reviewed the ‘balance of harms’ between the parties and found in favor of WorldCare. Defendant’s executive testified that the company had already started to phase out the use of the WORLDCARE mark from its products. The executive explained, however, the phase-out was only temporary. Defendant was not willing to consent to a complete termination of the mark’s use. The executive believed the company was not legally obligated to terminate the use and it could be harmed by a negative public perception if did so voluntarily. The Court found that due to Defendant’s own actions in phasing out the use of the mark, the burden of an injunction had been significantly minimized. An injunction reinforcing the phase-out would not cause significant additional harm.
Part II of this post will examine the Probability of Success on the Merits.
By Jay Lewis
Part III
After finding that Verizon had met all the four factors, the Court turned to the Defendants’ arguments:
The Court found that each of the Defendants’ arguments failed. The Defendants argued that the injunctive relief was moot because Verizon already shut them out of the network therefore an injunction was irrelevant. However, the Defendants had been shut out once before but were again on the network violating the MMA Best Practices. The Court held that if Defendants were not enjoined, they could legally attempt to regain access again and again.
The Dormant Commerce Clause invalidates state regulation if it excessively burdens interstate commerce. The Court found the Defendants did not make a showing that the ACFA discriminates against out-of-state commerce or that the burdens imposed by the ACFA are excessive in light of the local benefits.
Under the primary jurisdiction doctrine, the Defendants argued that the Court could not decide the standards to apply in this case as the industry is regulated by the Federal Communications Commission and the Federal Trade Commission. The Court countered by stating the MMA Best Practices applied because the Defendants contractually agreed to those standards.
The defense of unclean hands is an equitable remedy whereby the asserting party must prove inequitable conduct by the opposing party. Defendants alleged that Verizon misrepresented Defendants’ web pages to the Court, released false press releases, misrepresented business practices to the Texas Attorney General, and alleged that the Defendants’ corporate structure was rife with criminal conspiracy while Verizon maintained a complicated corporate structure. The Court found Verizon’s conduct did not rise to the level of fraud nor was its conduct false or misleading.
The Court granted Verizon’s request for preliminary injunction effective upon payment of a relatively token $25,000 bond.
By Jay Lewis
Part II
Verizon filed a motion for preliminary injunction based on Defendants’ deceptive acts, which induced customers to purchase non-compliant premium services. Verizon also claimed that the customers, in turn, threatened to leave the Verizon network because of Defendants’ actions. The Court granted Verizon’s motion for a preliminary injunction after conducting a hearing.
The Court cited Winter v. Natural Res. Def. Council, 555 U.S. 7 (2008) for the general factors a plaintiff must show to obtain a preliminary injunction:
The Court further cited Alliance for Wild Rockies v. Cottrell, 622 F.3d 1045 (9th Cir. 2010) for the 9th Circuit sliding scale balancing test. Under this 9th Circuit test, if the balance of hardships tips sharply in the plaintiff’s favor, likelihood of success on the merits becomes less of a factor to consider.
Verizon based its request for preliminary injunction on three legal bases:
ACFA, the Court decided, did not apply in this case. AFCA protects the merchant-consumer relationship. It provides a means for consumers to bring an action against merchants for deceptive or fraudulent practices. Here, Verizon was not a purchaser of Defendants services but merely a conduit to the customers. Therefore, Verizon would not likely succeed on the merits of its AFCA claim.
The Court held that Verizon would likely succeed on the merits of its claim for tortious interference with contractual relations. The Court affirmatively stated that, under
The Court found that Verizon’s theory for unjust enrichment would not likely succeed on the merits. Specifically, Verizon did not suffer the required impoverishment. In fact, Verizon gained an estimated $24 million from Defendants’ actions.
After determining that Verizon has a likelihood of success on the merits for tortious interference, the Court found the three other factors of a preliminary injunction had been met:
Part III shall discuss the Defendants' arguments.
Written by Jay Lewis
Cellco Partnership d/b/a Verizon Wireless v. Jason Hope, et al., CV11-0432-PHX-DGC (D.
In the United Stated District Court for the District of Arizona, Verizon Wireless (“Verizon”) filed a complaint and motion for preliminary injunction against Jason Hope, Wayne Destefano, and Eye Level Holdings, LLC, d/b/a JAWA (“Defendants”) to prevent ongoing deceptive practices. The court granted Verizon’s motion. The facts are as follows:
Verizon operates a wireless telephone network. Defendants market and sell premium short message service (“PSMS”) on Verizon’s network. PSMS sends content to the user’s wireless device such as ring tones, horoscopes, recipes, celebrity gossip and news alerts for a standard monthly fee. The fee appears on the customer’s Verizon bill.
Verizon requires that companies who seek access to Verizon’s customers comply with guidelines for marketing practices developed by the Mobile Marketing Association (“MMA Best Practices”). Under the guidelines, content providers like the Defendants, must submit details of their marketing and sales programs to Verizon through a third-party, known as an aggregator. Once approved, the content provider can begin to provide services like PSMS on the Verizon network. After the services begin, Verizon uses a third-party auditor, Aegis, to ensure that the provider is not violating the MMA Best Practices.
Previous to this lawsuit, the Defendants had been suspended from the Verizon network for violating the MMA Best Practices. As a result of the suspension, Verizon required Defendants to identify themselves as Hope and Destefano when submitting a marketing and sales plan to the aggregator. Instead, the Defendants set up separate limited liability companies in the names of other employees with principal places of business at various UPS stores throughout the country. This was a ploy to prevent Verizon from associating the LLCs and their applications for network access with the named Defendants. The Defendants were successful in regaining access to the Verizon network and its customers.
Defendants sell their services through their websites. A customer will visit one of Defendants’ websites and enter information to sign up for the premium services. Verizon requires these websites to be MMA Best Practices compliant. This includes details on price, terms, conditions, cancellation policy, as well as requirements for font size and font color. The MMA Best Practices also requires that certain disclosures appear on the first page of the site. The third-party auditor, Aegis, monitors the sites for compliance.
At first, the Defendants operated websites that were MMA Best Practices compliant. However, they soon began dropping prices from the site, reducing font size, failing to provide termination information, and removing terms and conditions from the first page. In order to avoid detection, Defendants used either a firewall or cloaking software to prevent Aegis from viewing the non-compliant landing pages. When an Aegis auditor attempted to review the Defendants non-compliant website, the software would detect the auditor’s Internet Protocol address and redirect that auditor to a compliant site.
Aegis and Verizon eventually caught on to Defendants’ actions and barred them from the Verizon network. Verizon also took remedial steps in satisfying customer complaints by refunding subscription fees and increasing the costs of monitoring the Defendants’ actions.
PART II will discuss the legal aspects of this case.
By: Jay Lewis
On the international front, Chinese telecom equipment supplier, Huawei, has won another battle in the intellectual property war against its rivals. On May 12, 2011, a German court awarded Huawei with an injunction preventing ZTE from using a trademark designed by Huawei. The trademark was used to signify compliance with European environmental standards. Full article here. ZTE has filed patent infringement cases against Huawei and has applied to have Huawei's trademark revoked.
Back in February, Huawei had been successful in winning an injunction against Motorola who was on the verge of selling assets to Nokia Siemens. Huawei had provided competitive trade secrets to Motorola when helping develop and design communication networks. The court ruled that Huawei would suffer irreperable harm if Motorola was allowed to sell assets to Nokia. Article here. Huawei later settled the dispute for an undisclosed amount which cleared the way for the Motorola-Nokia deal.
By: Jay Lewis
On September 15, 2008, Alberto C. Santalo was terminated by Avisena, Inc., a Florida corporation. On September 16, 2009, Santalo’s newly formed business, CareCloud, began to compete with Avisena. Santalo had been the founder, president and chief executive officer of Avisena before his termination. Avisena filed a complaint and request for a temporary injunction claiming that Santalo was violating the non-compete clause of his employment contract. The employment contract included a post-employment restrictive convenant with time restrictions dependent on how his employment was terminated. If the Santalo was terminated for cause, he could not compete for 18 months. If the he was terminated without cause, Santalo could not compete for one year. Finally, if Santalo terminated his own employment without cause, he could not compete for a period of two years. Although the parties stipulated that Santalo was terminated by the company without cause, Avisena requested that the two-year restriction be placed on Santalo.
In the preliminary hearing, Santalo testified that he formed CareCloud in January, 2009, but he did not begin to compete with Avisena until after the twelve-month restriction had expired. Avisena argued the two-year, not the twelve-month, non-compete applied. The trial court agreed with Santalo’s interpretation of the contract and refused Avisena’s request for a preliminary injunction. Avisena appealed.
Florida law requires a party seeking a temporary injunction to establish all four of the traditional elements: (1) a likelihood of irreparable harm and the unavailability of an adequate remedy at law; (2) a substantial likelihood of success on the merits; (3) the threatened injury to the petitioner outweighs any possible harm to the respondent, and (4) the granting of a temporary injunction will not disserve the public interest. The burden of persuasion rests on the applicant. See Cordis Corp. v. Prooslin, 482 So. 2d at 489, 490 (Fla. 3d DCA 1986).
The appellate court affirmed the lower court’s finding that Avisena had failed to prove a substantial likelihood of success on the merits. The appellate court interpreted the underlying employment contract to provide for a twelve-month non-competition period following a termination by the company without cause. Avisena asserted the applicable restrictive clause states, "Employee shall not for a period of two (2) years during the period of time immediately following the Employee's termination of employment with the company [compete with the company]” However, the court highlighted the language “...Employee’s termination of employment…” and interpreted it to mean that if the employee decided to terminate his own employment, only then will a two-year restriction apply. But because the Avisena had stipulated that it had terminated Santalo without cause, the court determined a one year restriction applied.
Additionally, the appellate court found no evidence that Santalo had violated the clause by soliciting Avisena’s customers or employees prior to the expiration of the one-year restriction. The court cited Harllee v. Professional Serv. Indus., Inc., 619 So.2d 298 (Fla. 3d DCA 1992) which held that “mere preparation to open a competing business, such as assisting in the opening of a bank account, the obtaining of office space and other services with respect to the future employer are insufficient to demonstrate a breach.”
The dissent argued that the majority is “read[ing] language into the parties' agreement that simply is not there.” The dissent further asserted that in the case of ambiguity in contract interpretation, extrinsic evidence should be considered so as to do justice to the contracting parties’ intent. The dissent pointed to Avisena’s testimony that it was both parties’ intent to have Santalo restricted for two years after termination. Santalo did not recall any such conversation. The dissenting justice argued that if an individual does not recall an event it does not mean that the event did not happen and therefore the majority should have looked to parole evidence to make its decision.
A preliminary matter likely to be raised in Relativity’s Response, as was raised in Ms. Genis’ letter, is whether the Superior Court of the State of
However, the location of the claim can be a key indicator as to whether a Court will grant a preliminary injunction. The Ninth Circuit has held that even though a dispute is arbitrable, that does not foreclose the right of preliminary relief pending arbitration if the elements for an injunction are met. (See PMS Distrib.
Therefore, the Court may grant a preliminary injunction to preserve the status quo if it finds that the elements are met. From Ms. Genis' letter, the underlying Contract and the possible breaches smacks of a need for full scale arbitration. As such, TWC desires an injunction to prevent Relativity from causing irrevocable harm to TWC's distribution rights while the matter is sorted out in arbitration.
We will report back when more information becomes available.
By: Jay Lewis
With half-baked reboots easily grossing over $50 million in
On April 20, 2011, TWC filed for Injunctive Relief against Relativity. See Complaint here. TWC alleges that it entered a contract with Relativity on March 25, 2009 (“Contract”) wherein TWC was granted exclusive distribution for any and all remakes, sequels, and prequels to The Crow. TWC further alleges that Relativity plans on selling those distribution rights to other companies in breach of the Contract. I have not yet read the Contract but I have read a letter from Carol Genis of K&L Gates on behalf of Relativity. Ms. Genis alleges that TWC has already breached the Contract or as she refers to it, the Termination Agreement. She goes on to discuss the “NDA” but never defines it. She states the NDA sets forth in great detail that all disputes shall be arbitrated. However, she later states that the NDA is terminated and therefore Relativity is not bound by it. See the letter here.
Part II will be posted tomorrow.
Two months after Kraft denied Starbucks’ offer, Starbucks accused Kraft of materially breaching the contract and informed Kraft that it would be terminating the contract effective March 1, 2011, unless Kraft “cured the alleged breaches within 30 days,” resulting in Kraft’s filing a complaint and motion for preliminary injunction. (Complaint, ¶ 58). In its complaint, Kraft alleged that Starbucks made misleading statements to the press, its investors and Kraft’s customers by “falsely maligning Kraft’s performance” in order to avoid the amount of money that Starbucks would be obligated to pay Kraft for its material breach of the business contract. (Complaint, ¶ 1).
Kraft argued that Starbucks’ breach allegations lacked merit because Kraft’s overall performance under the contract and its “effective in promoting Starbucks Products ha[d] been outstanding by any reasonable measure,” and that Starbucks’ attempt to terminate the contract without complying with its disputed resolution provisions was improper. (Complaint, ¶ 61, 67). Further, Kraft argued that Starbucks’ issuance of a press release impugning Kraft’s performance was misleading and caused an interference with Kraft’s customer relationships. (Complaint, ¶ 76).
Kraft’s argument that it would suffer irreparable harm if injunction was not granted was as follows: 1) Kraft would lose its right to arbitration, 2) Starbucks would continue to publicize the purported termination of its contract with Kraft thereby confusing the market, and 3) Kraft would have no adequate remedy at law, and “money simply [would] not be able to compensate Kraft for the damage that will ensue to its business and reputation.” (Complaint, ¶ 131).
Kraft Foods filed a complaint and motion for preliminary injunction relief against Starbucks in attempt to protect its twelve-year relationship with the Coffee Company and to provisionally restrain Starbucks from acting on its purported termination of the contract with Kraft. Kraft Foods Global, Inc. v. Starbucks Corporation, Case Number 7:10-cv-09085 S.D.N.Y.).
Under the contract, Starbucks manufactured and supplied the Starbucks branded products to Kraft, and Kraft owned the exclusive right to sell, market and distribute certain packaged Starbucks roasted whole bean and ground coffee to Kraft’s customer base of grocery stores and other retail food outlets. This contract between the parties had an initial term that would expire in 2014 and an automatic renewal for successive ten-year terms.
In 2010, Starbucks decided that it wanted to take over Kraft’s portion of the business and sought to terminate its contract with Kraft. Pursuant to the contract, Starbucks had the express right to terminate its relationship with Kraft as long as it 1) provided 180 days’ advance notice, and 2) compensated Kraft for the loss of its rights under the contract in an amount tied to fair market value of the business. Starbucks gave notice to Kraft and offered $750 million in exchange for a consensual termination of the contract to which Kraft declined alleging that $750 was not the fair market value of its business. (Agreement, ¶ 5).
(Blog written by: Jay Lewis)
In Simmons, a Complaint for Injunctive Relief and a Motion for a Statutory Restraining Order were brought under Section 6c(a) of the Commodity Exchange Act (the “Act”), 7 U.S.C. §6c(a) (2006). The Act allows U.S. district courts to grant ex parte restraining orders, to freeze assets, and prohibit any person from destroying records. (7 U.S.C. §13a-1 (2006)). Under the Act, restraining orders may be issued whenever it appears that any person has engaged in a practice constituting a violation of the Act. (Memorandum p 25, citing CFTC v Clothier, 788 F. Supp. 490, 492-3 (D. Kan. 1992)). A prima facie case of illegality is sufficient under the Act eliminating the need for proof of irreparable injury or inadequacy of other remedies otherwise required in private actions seeking injunctions. (Memorandum p 27, citing NRLB v Aerovox Corp., 389 F. 2d 475, 477 (4th Cir. 1967). Additionally, a preliminary injunction pursuant to the Act may be granted without bond. (7 U.S.C. §13a-1(b) (2006)).
On February 11, 2011, Chief U.S. District Judge Robert Conrad signed an Order finding that:
· The Court has jurisdiction over the parties and subject matter pursuant to Section 6c of the Act and venue is proper under 6c(e).
· The Court found good cause to believe that the named Defendants engaged in acts that violated the Act.
· The named Relief Defendants received assets as a result of Defendants’ acts and have been unjustly enriched.
· Immediate and irreparable damage to the Court’s ability to grant effective final relief in the form of monetary redress will occur unless the Defendants and Relief Defendants are immediately restrained and enjoined.
· The Court found good cause to freeze assets controlled by Defendants and Relief Defendants.
· The Court found good case to prohibit Defendants from denying Commission representatives access to books and records.
· The Court found good cause to order repatriation of assets controlled by Defendants and Relief Defendants.
· The Court found good cause for expedited discovery.
· The Court also weighed the equities and considered the Commission’s likelihood of success in its claims, and as a result, found that it is in the public’s interest to issue a restraining order.
As a result of the findings above, the Judge ordered the following:
· The Defendants were ordered not to transfer, dissipate, or dispose of assets.
· The Judge ordered any financial or brokerage institutions, business entity, or others controlling the Defendants’ assets to prohibit the Defendants from removing any such assets and to deny Defendants access to safe deposit boxes.
· Judge Conrad also required businesses to provide expedited discovery to the CFTC in the form of account numbers, account balances, account dates, and safe deposit box numbers.
· The Judge ordered Defendants to provide full accounting for all accounts inside and outside the United States within 10 days of the Order.
· The Defendants are also ordered to transfer all assets from outside the United States to inside the United States.
· The Judge ordered that any and all of the Defendants’ business records may not be destroyed.
· CFTC is allowed to inspect and copy all of Defendants’ books and records.
· CFTC is allowed to conduct expedited discovery- they may take depositions with only 5 days notice.
· Pursuant to the Act, CFTC is not required to post a bond.
As of February 23, 2011, discovery in this case has been stayed pending the Keith F. Simmons criminal case.
(Blog written by: Jay Lewis)
In United States Commodity Futures Trading Commission (“CFTC”) v. Simmons et. al., (Case Number 3:11-cv-00023 W.D.N.C.), CFTC filed a Motion for Preliminary Injunction against a plethora of defendants including Keith F. Simmons and Black Diamond Capital Solutions, L.L.C. for their roles in an alleged Ponzi scheme. The Complaint was filed on January 13, 2011.
CFTC alleges that starting in April 2007 until Simmons’ arrest in December 2009 $35 million was fraudulently solicited from more than 240 individuals and businesses. (Complaint, ¶ 2). The Defendants in Simmons obtained investments with promises of remarkable returns using a forex trading system. (Complaint, ¶ 4). Forex is short-hand for foreign exchange market, an over-the-counter market used to exchange one national currency for another. The forex was created to assist corporations transacting business overseas to pay each other in their respective currencies, but is now dominated by speculators. Mark Levinson, Guide to Financial Markets pp 14-36 (4th ed., The Economist 2006).
In Simmons, the Defendants persuaded investors they had developed an advanced computerized trading system created by a group of software developers. (Plaintiff’s Memorandum in Support of its Motion for a Statutory Restraining Order, p 10). They enticed investors with promotional materials claiming a track record of exceptional returns. (Memorandum p 11). But according to the CFTC allegations no such system ever existed, and the Defendants never traded a dime of investors’ money in the forex market. (Memorandum pp 9-16). Instead, CFTC alleges the investments went to pay for the Defendants’ real estate purchases, cars and lavish trips. (Memorandum pp 14-15).
However, once investors started demanding their returns on investment or attempted to withdraw principal, the whole system crumbles and the schemers are left making excuses. CFTC alleges that starting in March of 2009 the Defendants created fanciful reasons as to why the investors were unable to receive any payments. (Complaint ¶¶ 8-9) To keep investors placated, they altered existing bank statements by fraudulently multiplying actual assets ten-fold. (Memorandum p 20). CFTC alleges the Defendants claimed agencies froze Black Diamond’s accounts to conduct investigations, that banking restrictions limited the payouts, and that “a non-existent German liquidity provider by the name of Klaus” was planning to buy out Black Diamond. (Complaint ¶ 9). Allegedly these frauds were still perpetuated even as the Defendants failed to pay their own employees. (Memorandum pp 18-24). By December of 2009 it was obvious to the investors they had been scammed and the FBI arrested Keith F. Simmons for his role in the fraud.
A TRO lasts for a very short amount of time, usually only ten days. So, it wasn’t surprising that after the Court granted its motion for a TRO Amaretto moved for a preliminary injunction, which can last indefinitely. However, what was unexpected is that Defendant Ozimals filed a Statement of Non-Opposition to Amaretto’s request for a preliminary injunction. Ozimals filed a complaint for copyright infringement against Amaretto in the United States District Court for the Northern District of Alabama. Thus, Ozimals believed that the parties were well beyond the DMCA notification activity and didn’t object to Amaretto’s service provider being enjoined from acting on Ozimal’s takedown notice. While it didn’t oppose the entry of a preliminary injunction, Ozimals requested that the Court vacate the injunction hearing. In its Statement of Non-Opposition, Amaretto expressed its concerns that conducing a hearing would be an inefficient use of judicial resources. Amaretto also feared that a hearing would cause the Court to rule on the likelihood of success on the merits “on an extremely abbreviated schedule and without the opportunity for full briefing or evidentiary submissions by the parties, or even any discovery at all by the parties.” (Defendant Ozimals, Inc.’s Response and Statement of Non-Opposition to Plaintiff Amaretto Ranch Breedables, LLC’s Motion for Preliminary Injunction; Request to Vacate Hearing, p. 2). The Court entered the preliminary injunction as unopposed and vacated the hearing. Ozimals’ decision not to oppose Amaretto’s motion for a preliminary injunction was tactical. If an evidentiary hearing was held on the injunction, there was a risk that the Court could make various findings against Ozimals, which could ultimately be detrimental in its copyright infringement action. Thus, Ozimals determined that would it be better to yield to the entry of a preliminary injunction, barring Amaretto’s service provider from taking down offending material on its website, in order to maximize its chances of ultimate success.
In light of the ruling summarized previously, one can't help but ponder the effect of the virtual world. If Amaretto didn't sell virtual animals and products, would the court have granted an ex parte TRO? If Amaretto simply sold another more conventional product, which wasn't at risk of virtual death, would Amaretto have been successful in arguing a loss of good will and reputational harm? This case is a good example of how the concept of irreparable harm expands as technology progresses and becomes more sophisticated.
The Amaretto case further serves to demonstrate how lawyers should always critically analyze the facts of a case, as the lawyers in this case did, and also be sensitive to the concerns of our clients and relate their fears to the Court. Amaretto's Motion for a TRO stated:
If the company is not able to sell its products for even a short period of time, Plaintiff's virtual horses, sold to hundreds of customer users, will die if not fed. The virtual animated horses "virtual food" grow into different stages if they continue to eat the "virtual food," but will die within 72 hours if not fed the "virtual food". If Plaintiff is not able to sell virtual food to its customers, the horses die, and the customer is deprived of the product (the virtual horse) they purchased from the Plaintiff. Customers denied the ability to buy food for their virtual pets will no longer trust a company that cannot fulfill its obligations and therefore, will unlikely return to Plaintiff's business. (Plaintiffs' Memorandum of Points and Authorities in Support of Plaintiff's Ex Parte Application for Entry of Temporary Restraining Order, p. 10).
Amaretto's plea for the survival of its virtual animals inevitably bolstered the strength of its argument regarding loss of good will and reputational harm.
In my Book (www.abanet.org/abastore/index.cfm) I lay out various categories of what constitutes irreparable harm, which is paramount in demonstrating the need for injunctive relief. In Amaretto Ranch Breedables, LLC v. Ozimals, Inc. (case no. CV 10 5696, (N.D. Cal.)) the Plaintiff's allegations and arguments regarding its risk of irreparable harm were innovative.
Amaretto and Ozimals are in the business of creating and selling animated, virtual digital breedable animals and products, including virtual food, in their virtual stores. On December 1, 2010, Ozimals filed a take-down notice with Amaretto's internet provider under the Digital Millennium Copy Act ("DMCA"), in accordance with 17 USC 512, claiming that Amaretto's Horse Product Line infringes with and is a clone of Ozimals' virtual bunny.
Despite providing a Counter DMCA Notification, Amaretto feared that its service provider was about to take down its virtual animals and product line. Thus, Amaretto filed a Motion for an ex-parte TRO. Amaretto argued that it would be irreparably harmed if it was not able to sell its horse product line, especially during the Holiday Season, and that the Company's business and reputation would be destroyed. In particular, Amaretto argued that depriving its customers of products for even a short time would have disastrous results, as the virtual horses, which were sold to many customers, would die if not fed virtual food.
The Court granted the Motion and agreed that Amaretto would suffer a loss of goodwill and reputation harm if its products were taken down, especially during the prime buying season.
Our next posts will consider the implications of this ruling.
The Supreme Court’s begins hearing January arguments today. Of interest to shareholders, however, is not a case argued today but rather a case heard in November 2009. Before the end of the current term, the Court will issue an opinion in Merck v. Richard Reynolds. Merck focuses on whether the statute of limitations on a federal securities fraud action begins to run when an investor obtains evidence of scienter of fraud or when any evidence of fraud is uncovered.
The distinction is real and would impact many securities fraud cases. Federal law requires securities fraud cases to be brought within the earlier of two years of knowledge or five years of the violation. Generally speaking, the two year period relating to knowledge does not run until all elements of a violation are discovered. The issue is important in security fraud cases because there is often evidence of fraud before there is evidence of the requisite intent. The evidence of fraud, however, is only recognizable in hindsight based on newer evidence demonstrating the intent to defraud. For example, in Merck, an internal study reached a suspicious but supportable conclusion. It was not until an independent study was published two years later that Merck’s original position demonstrated its intent to defraud.
If the statute of limitations is applied to the first instance of possible fraud, shareholders are put in a position whereby they need to take aggressive action to protect their rights. Such action is expensive, such as instituting preliminary injunction and temporary restraining order actions to preserve possible evidence of intent, and may not uncover any fraud on the part of the corporation. Corporations would also incur an added expense as they are forced to defend preliminary litigation. Waiting until all of the evidence necessary to bring a case is available will not harm corporations that are engaged in ethical practices.
Merck will be an important case to watch not only for its impact on the discovery rule in securities fraud cases. As the Wall Street Journal Law Blog points out today, it may also demonstrate whether the Obama Administration can affect a change in the Court’s pro-business stance under President Bush.
Illinois is supposed to be more shareholder friendly than Delaware. Its Business Corporation Act provides minority shareholders protections if the majority shareholders are
There was an article in Business Law Today a while ago that contended that minority shares of stock are worthless apart from whatever rights were provided in a shareholders’ agreement, but I disagree: minority shareholders in Illinois--without any shareholders’ agreement-- have the rights given them by the Illinois Business Corporation Act (and this Act influenced the drafting of the Model Business Corporation Act). If they sue to vindicate these rights, the majority shareholders can elect to buy them out, and their buy out price is the fair value (not the fair market value) of their shares.
Listing the rights given by statute begins to answer the question posed. If you are a minority shareholder, you need a preliminary injunction if the majority shareholders are doing one or more of the above acts and you or the corporation is going to be immediately irreparably harmed as a result. Waste of corporate assets might not be recoverable absent immediate action; an illegal act may cause the corporation to be sanctioned by law enforcement officials. Oppression is an elastic concept, but the standard is the reasonable expectation of the shareholders. Most of these defalcations will diminish the goodwill of the corporation, a harm that is difficult to quantify, justifying a preliminary injunction.
In the midst of the ill-will that accompanies actions that necessitate shareholder actions, actual or threatened improper withdrawals from the corporation may require a preliminary injunction or temporary restraining order. Minority shareholders need to be vigilant in guarding the corporate purse. A preliminary injunction can be justified on a constructive trust theory (corporate money is a res that is the subject of dispute over whether the payment is proper). The Illinois Business Corporation Act codifies the court’s power to issue injunctions as well. And the Act provides panoply of remedies available to the court: appointment of a receiver or director, for example, and, more broadly, any order necessary.
While I make my living suing people, I think all clients should be advised of the top ten reasons not to file a lawsuit. I offer this list:
If none of your clients are now contemplating a lawsuit, print and save.
It was with some excitement that Volterra Semiconductor Corporation announced that U.S. District Court Judge Joseph Spero granted its motion for a preliminary injunction against Infineon Technologies AG, Infineon Technologies North America Corporation and Primarion Inc. (Infineon/Primarion) in its patent infringement lawsuit. (Case No. 08-cv-05129-JCS (N.D. Cal.).
Commentators note that this is a rare decision because, since the Supreme Court’s ruling in eBay, Inc. v. Mercexchange, L.L.C., which eliminated the presumption of irreparable harm in the context of permanent relief, it has been difficult to win injunctions in patent infringement cases.
Thus, Volterra was obviously pleased and stated that “"[w]e believe this ruling signals the likelihood of success on the merits of our case against Infineon/Primarion, and validates the strength of our intellectual property position."
While the Judge orally ruled on the issue of granting the preliminary injunction, a formal order has not yet been issued. Instead, the court directed the parties to both file briefs on the amount of the bond and submit proposed orders. Not surprisingly, the parties’ proposed orders are vastly different. The language of an injunction order is important because it defines who is to be restrained, what acts are to be restrained, and essentially protects a judge from an embarrassing appeal. Fed. R. Civ. P. 65 (d) dictates what each order must contain:
Infineon’s order also cautions that any relief not granted in the order is denied.
The parties are currently briefing the issue of the proper bond amount. (As is the case in patent litigation, most portions of the briefs are redacted, and the exhibits are sealed). Judge Spero is expected to issue a formal order soon, and I will let you know when he does, as it will be interesting to see which order was more persuasive.
My prior two posts noted that in Hart Intercivic, Inc. vs. Diebold, Inc., the District Court for the District of Delaware denied a request for a TRO but ordered discovery and scheduled a hearing for a preliminary injunction in a case in which one voting machine company challenged a merger between its dominant competitor and another failing company.
The court’s opinion noted that the plaintiff requested the mandatory relief of undoing a merger. And the plaintiff did request in part an order of divestiture and the appointment of a trustee or receiver.
But the plaintiff also requested a hold order by which the assets, personnel, accounts, customers, technology and intellectual property of the acquired company would be kept separate from the acquired company while the litigation pended. Based on Federal Trade Comm’n v. Weyerhaeuser Co., 665 F.2d 1072, 1075 n. 7 (D.C. Cir. 1981), a hold order keeps the acquired unit as a separate entity during the litigation to keep the assets “unscrambled” while the litigation pends, making divestiture easier if the plaintiff is successful after the final trial. Perhaps the court will consider this in more depth at the preliminary injunction hearing.
My prior post noted that in Hart Intercivic, Inc. vs. Diebold, Inc., the District Court for the District of Delaware denied a request for a TRO but ordered discovery and scheduled a hearing for a preliminary injunction in a case in which one voting machine company challenged a merger between its dominant competitor and another failing company that would result in the merged company controlling 68% of the market for voting machines.
The defendant effectively argued the plaintiff’s delay, stating the following:
The title for this section was “Plaintiff’s Schizophrenic Litigation Approach.”
Continuing our discussion of the Illinois Appellate Court case Santella v. Kolton, in the second part of the opinion, the court determined that it lacked jurisdiction to hear the appeal of a trial court order requiring the return of bonus money paid to the individual defendants who were officers of a close corporation.
The order requiring the return of bonus money was found to be an injunction but the appellate court declined to assert jurisdiction on this aspect of the order as well. Rule 307(a)(1) only grants jurisdiction for appeals of injunctions “that merely preserve the status quo pending a decision on the merits, conclude no rights, and are limited in duration, in no case extending beyond the conclusion of the action.” As the mandated return of money altered the status quo and did not provide for the return of the money to the defendants, it was a permanent injunction and jurisdiction was not available under Rule 307(a)(1). The court refused jurisdiction under Rule 304, which provides for appeal of final judgments that do not dispose of an entire proceeding, because the trial court did not provide the requisite finding that no just reason exists to delay enforcement or appeal of the order.
Parties seeking to appeal injunction orders now need to be especially vigilant to ensure that the order has the necessary language that it is temporary, that is, that it lasts only until a further order or to the end of the case. The court’s decision that Rule 307 does not permit the appeal of mandatory injunctions will cause problems. Parties will argue over whether the injunction was mandatory or prohibitory. What should be a fast vehicle to review the propriety of a preliminary injunction will morph into arguments over the meaning of the rule. If this cannot be changed by another appellate opinion, the rule itself should be amended.
In Santella v Kolton, a derivative and individual action alleging corporate waste and mismanagement of a close corporation, the plaintiff filed an emergency motion to enjoin the defendants from dissipating assets of the company and remove the m as officers pursuant to Illinois Business Corporation Act § 12.56. After an evidentiary hearing, the trial court ordered the defendant officers replaced and three years of their bonuses returned to the company. The defendants then appealed the trial court’s order under the Illinois rule permitting an interlocutory appeal from orders “granting, modifying, refusing, dissolving, or refusing to dissolve or modify an injunction.”
The appellate court never reached the merits. It held that under Rule 307(a)(1), the order removing the officers was not appealable for these reasons:
Preliminary injunction orders that lack a temporal scope are often deemed overbroad; they should be written to end upon the conclusion of the trial on the merits or some other event. In support of its determination that there was no injunctive action in removing the officers and directors, the court cites a treatise and the CJS for the proposition that the removal of officers or directors cannot be done through an injunction.
While removal of the officers is a statutory remedy, the statute also provides that injunctions can be entered to enforce its provisions. This may be the first case that decided that the Act provided a remedy easier to obtain than an injunction and impossible to appeal as an injunction. The statements about the lack of in personam jurisdiction ignored that they were removed from their positions and restrained from exercising their rights as officers.
The other half of the opinion will be commented upon tomorrow.
A few days after the Court granted the Bank of America’s motion for an ex parte TRO, the Federal Deposit Insurance Corporation (“FDIC”), in its capacity as receiver for Colonial Bank, was substituted as the real party in the case, and moved the court to dissolve the TRO. The FDIC argued that, pursuant to 12 U.S.C. § 1821 (j), the Court lacked subject matter jurisdiction to restrain the FDIC in exercising its powers and functions as a receiver. Because the Court determined that the sale proceeds and loan agreements, which the Bank seeks the return of, are outside the receivership estate, it denied the FDIC’s jurisdiction argument.
Of interest to me today, however, is the fact that the FDIC admitted, in its motion to dissolve the TRO, that the Court properly issued the injunction. While declining to torture the FDIC with this admission, the Court noted that there may have been “public interest considerations contemplated by the injunctive-relief analysis,” in light of Colonial Bank’s collapse and subsequent involvement of the FDIC, but the FDIC’s failed to raise the issue. The FDIC could have strengthen its motion if it demonstrated how the four factor test weighed against the issuance of an injunction, emphasizing the public interest in supporting the FDIC in its role as receiver.
Bank of America, N.A. v. Federal Deposit Insurance Corp. (Receiver for Colonial Bank), Case No. 09-22384-CIV-JORDON, currently before U.S. District Court Judge Adalberto Jordan of the Southern District of Florida, has garnered some media attention in the Atlanta Business Chronicle and The New Times, but is of interest to us in today’s post because the court granted an emergency motion for an ex parte TRO in a billion dollar case.
Facts
Bank of America (“the Bank”) filed a lawsuit on August 12, 2009 against Colonial Bank (Colonial) to obtain the return of loan agreements, mortgages and sale proceeds valued in excess of a billion dollars. The Bank had sent Colonial a demand for all sale proceeds and loan agreements held by Colonial Bank. Colonial refused to return the loans, and the Bank filed suit for breach of trust and other agreements.
Motion for an Emergency ex parte TRO
Along with the complaint, Colonial filed a motion for an emergency temporary restraining order (TRO), which sought to enjoin Colonial from liquidating, transferring or otherwise encumbering the assets. The motion recited the familiar four-factor test, but is of interest to me today for these three reasons:
Our next post will discuss a few other interesting aspects of this case.
At a presentation last week to the DuPage County Bar Association, I mentioned that the federal courts required the movant to present a draft order along with the motion for a temporary restraining order or preliminary injunction. Illinois and many other states lack this requirement, but following a suggestion made by Maxwell II and Jacobs, I said it was useful to focus your attention on the exact relief you needed: who you are going to enjoin and what you are going to prohibit or require, because“[t]he first thing the court wants to know is precisely what action it is being asked to take.” Edward B. Maxwell II & Jack B. Jacobs, How to Win an Injunction, 10 Litig. 20, 21 (1983).
Afterward, Dupage County Circuit Court Judge Kenneth L.Popejoy agreed that it was useful for a Judge to see exactly what the movant was proposing, but mentioned a more important point: Judges are required to make specific findings of fact and conclusions of law. A draft order helps them focus on what facts have been shown and what conclusions the movant thinks are required by the facts. As a practitioner, I instantly agreed.
One of the functions of an injunction requestor is to protect the court from being reversed on appeal or having to reconsider an order. To some extent this is true in every case, but injunctions happen quickly and interlocutory appeals are permitted, so an early mistake might not be as recoverable in injunction actions as it would be in ordinary litigation. Why embarrass a Judge by persuading him or her to enter an order that on its face is erroneous?
In a recent case, for example, my opponent got an ex parte TRO and tendered a draft order without mentioning a bond. In federal court, a bond is required, although the court has discretion to set the amount. Failure to discuss the bond required is a reason to vacate the TRO. In our motion opposing the extension of the TRO, we pointed out how the movant (not the Judge) had erred in failing to post a bond, and the Judge ruefully noted that perhaps he should have required one, and thereafter brokered a reasonable agreed order. I liked being able to challenge the credibility of an opponent on a clear requirement in my first appearance in the case.
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