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Sterling Commercial v. Phoenix Industries I

January 28, 2011


The opinion of the court was delivered by: Paul L. Friedman United States District Judge

OPINION This matter is before the Court on plaintiff's motion for a temporary restraining order and preliminary injunction "with notice." Plaintiff's title notwithstanding, it is far from clear whether any of the defendants have in fact received notice of this motion. Accordingly, although no opposition has been filed, the Court does not treat plaintiff's motion as unopposed. Upon consideration of plaintiff's arguments, the relevant legal authorities, and the entire record in this case, the Court will deny plaintiff's motion.*fn1


Plaintiff Sterling Commercial Credit - Michigan, LLC, "specializes in providing businesses with asset-based lending solutions by purchasing credit-worthy accounts receivable." Small Aff. ¶ 3. In other words, plaintiff is in the business of "factoring." See id. In this commercial practice, a "factor" or factoring company - here, plaintiff - enters into a factoring agreement with a business, whereby the factor "buys accounts receivable [from a business] at a discount, the [business] obtains immediate operating cash, and the factor profits when the face value of the account is collected." 32 AM. JUR. 2D FACTORS AND COMMISSION MERCHANTS § 2 (2010); see, e.g., Staff, IT, Inc. v. United States, 482 F.3d 792, 794 (5th Cir. 2007). This case arises from alleged breaches of a factoring agreement executed in 2008 and purportedly assigned to plaintiff in 2010.

Defendant Phoenix Industries I, LLC ("Phoenix") "provides building maintenance and facility support services." Compl. ¶ 13. On March 13, 2008, Phoenix entered into a factoring agreement - the Agreement at issue here - with Michigan Commercial Credit, LLC ("MCC"), another factoring company. See Agreement at 1; Small Aff. ¶ 4. In brief, the Agreement provides that Phoenix will sell its accounts receivable to MCC and that Phoenix will grant to MCC a security interest in other assets belonging to Phoenix. See Agreement §§ 2.1, 8; Small Aff. ¶ 4. Phoenix's president, defendant Dannette Wright, later entered into a Guaranty with MCC, whereby Ms. Wright, in her individual capacity, guaranteed "all [of Phoenix's] present and future obligations" to MCC. See Guaranty §§ 1.7, 2.1; Small Aff. ¶¶ 20-22.

On November 20, 2008, MCC purportedly assigned all of its rights in this Agreement and any guaranty agreement to Midstates Capital LLC ("Midstates"). See Small Aff. ¶ 6. Subsequently, on August 24, 2010, Midstates purportedly assigned all of its rights in the Agreement and any guaranty agreement to plaintiff. See id. ¶ 7. Thus, plaintiff asserts that, as of August 24, 2010, "all contractual provisions at issue in this matter pertain to [plaintiff]." Id.

Pursuant to the Agreement, plaintiff alleges that Phoenix is currently indebted to plaintiff in the amount of $908,009.64. Small Aff. ¶ 26. Plaintiff, however, "has received no payments toward satisfaction of" this debt, and plaintiff contends that Phoenix and Ms. Wright have failed to perform their duties under the Agreement and the Guaranty, respectively. See id. ¶¶ 30, 35, 38. Specifically, plaintiff alleges that Phoenix has violated the Agreement by "wrongfully diverting accounts from which [plaintiff] is to receive payments." Id. ¶ 24; see Mot. at 3. And Ms. Wright has allegedly violated the Guaranty by failing to make any payments toward satisfaction of Phoenix's outstanding debt. Mot. at 4; see Small Aff. ¶¶ 20-22, 27-30.

Plaintiff alleges that Phoenix further violated the Agreement when, on October 30, 2010, Phoenix unilaterally, and without plaintiff's consent, executed a Bill of Sale with defendant United Concepts International LLC ("United") and its president, defendant Melvin Woodard. See Mot. at 5; Small. Aff. ¶¶ 13-19. Pursuant to the Bill of Sale, Phoenix sold its accounts receivable and assets to United for $1.5 million. See Bill of Sale at 1. All of the cash proceeds from this sale were to be paid by United to Phoenix on January 1, 2011. Bill of Sale at 1; see Small Aff. ¶ 32. Plaintiff contends that this sale violated the express terms of the Agreement and again diverted accounts that were payable exclusively to plaintiff. See Small Aff. ¶¶ 13, 16. Plaintiff further contends that "all or part of the cash proceeds due under the Bill of Sale may have been paid into an escrow account of an unknown third party and may be disbursed to other third parties, including a relative of [Ms.] Wright." Id. ¶ 33.

Accordingly, on December 30, 2010, plaintiff filed a complaint against Phoenix, Ms. Wright, United, and Mr. Woodward. See generally Compl. Plaintiff sets forth six separate claims in its complaint: (1) breach of contract against Phoenix; (2) breach of contract against Ms. Wright; (3) common law conversion against all defendants; (4) statutory conversion against Phoenix, United, and Ms. Wright; (5) temporary restraining order against all defendants; and (6) preliminary injunction against all defendants. See generally id. On January 6, 2011, plaintiff filed the pending motion for a temporary restraining order and preliminary injunction. See generally Mot. Plaintiff requests, among other things, that the Court enjoin defendants from collecting any further payments purportedly subject to the Agreement; enjoin defendants from disposing of the cash proceeds and any other assets associated with the sale of Phoenix to United; and order that all of the disputed money and assets be paid into the Court pending the final disposition of this case on its merits. See id. at 10-11.


A preliminary injunction is "'an extraordinary remedy that should be granted only when the party seeking the relief, by a clear showing, carries the burden of persuasion.'" Chaplaincy of Full Gospel Churches v. England, 454 F.3d 290, 297 (D.C. Cir. 2006) (quoting Cobell v. Norton, 391 F.3d 251, 258 (D.C. Cir. 2004)). To warrant preliminary injunctive relief, a moving party must show: (1) that there is a substantial likelihood that it will succeed on the merits of its claims; (2) that it will suffer irreparable harm in the absence of an injunction; (3) that an injunction would not substantially harm the defendant or other interested parties (balance of harms); and (4) that the public interest would be furthered, or at least not adversely affected, by the injunction. See id.; Davis v. Pension Benefit Guar. Corp., 571 F.3d 1288, 1291 (D.C. Cir. 2009); Serono Labs., Inc. v. Shalala, 158 F.3d 1313, 1317-18 (D.C. Cir. 1998). "The same standard applies to both temporary restraining orders and to preliminary injunctions." Hall v. Johnson, 599 F. Supp. 2d 1, 3 n.2 (D.D.C. 2009).

These four factors must be viewed as a continuum, with more of one factor compensating for less of another. Davis v. Pension Benefit Guar. Corp., 571 F.3d at 1291-92. "If the arguments for one factor are particularly strong, an injunction may issue even if the arguments in other areas are rather weak." CityFed Fin. Corp. v. Office of Thrift Supervision, 58 F.3d 738, 747 (D.C. Cir. 1995). An injunction may be justified "where there is a particularly strong likelihood of success on the merits even if there is a relatively slight showing of irreparable injury." Id. Conversely, when the other three factors strongly favor interim relief, a court may grant injunctive relief when the moving party has merely made out a "substantial" case on the merits. The necessary level or degree of likelihood of success that must be shown will vary according to the Court's assessment of the other factors. Washington Metro. Area Transit Comm'n v. Holiday Tours, Inc., 559 F.2d 841, 843-45 (D.C. Cir. 1977). An injunction may be issued "with either a high probability of success and some injury, or vice versa." Cuomo v. U.S. Nuclear Regulatory Comm'n, 772 F.2d 972, 974 (D.C. Cir. 1985).

Despite this flexibility, however, "a movant must demonstrate 'at least some injury' for a preliminary injunction to issue," and "[a] . . . failure to show any irreparable harm" constitutes grounds for denying the motion for a preliminary injunction, "even if the other three factors entering the calculus merit such relief." Chaplaincy of Full Gospel Churches v. England, 454 F.3d at 297 (quoting CityFed Fin. Corp. v. Office of Thrift Supervision, 58 F.3d at 747, and citing Sea Containers Ltd. v. Stena AB, 890 F.2d 1205, 1210-11 (D.C. Cir. 1989)) (emphasis added).


A. Notice to ...

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