Michael v. Gld Foremost Holdings, Llc et al

BRIEF IN OPPOSITION re MOTION for Temporary Restraining Order and a Preliminary Injunction

M.D. Pa.March 15, 2017

IN THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA Ralph C. Michael, Plaintiff v. GLD Foremost Holdings, LLC and Daniel Gordon, Defendants ) ) ) ) ) ) ) ) ) ) CIVIL ACTION NO: 15-CV-02230-YK JURY TRIAL IS DEMANDED GLD Foremost Holdings, LLC, Plaintiff v. Ralph C. Michael, Don E. Myers, and Laurie A. Myers, Defendants ) ) ) ) ) ) ) ) ) ) CIVIL ACTION NO: 15-CV-02234-YK JURY TRIAL IS DEMANDED GLD FOREMOST HOLDINGS, LLC AND DANIEL GORDON’S MEMORANDUM OF LAW IN OPPOSITION TO RALPH C. MICHAEL’S MOTION FOR TEMPORARY RESTRAINING ORDER AND A PRELIMINARY INJUNCTION Case 1:15-cv-02230-YK Document 42 Filed 03/15/17 Page 1 of 12 Plaintiff Ralph C. Michael has filed a Motion for Temporary Restraining Order and a Preliminary Injunction seeking to prevent Defendant’s from selling real estate belonging to Foremost Industries. For the reasons stated, below, that motion should be denied. 1 1 Michael failed to “state with particularity the grounds for seeking the order” within its Motion as required by F.R.C.P. 7(b)(1). Rather, Michael incorporated its Memorandum of Law into the Motion. Therefore, Defendants response to Michael’s Motion is in the form of a responsive memorandum of law. Case 1:15-cv-02230-YK Document 42 Filed 03/15/17 Page 2 of 12 i I. Table of Contents II. Table of Authorities ....................................................................................... ii. III. Facts ................................................................................................................. 1 III. Argument ......................................................................................................... 3 A. Michael is not entitled to immediate injunctive relief. ......................... 3 1. Michael is not likely to succeed on the merits of his claims. ......................................................................................... 3 a. Breach of Contract claim. ................................................. 3 b. Fraud ................................................................................. 5 c. Unjust enrichment ............................................................. 6 2. Michael will not suffer immediate and irreparable harm in the absence of an injunction.................................................... 6 3. The non-moving Defendant’s will suffer harm with the issuance of an injunction ............................................................. 7 4. The public interest favors defendants ......................................... 7 B. This Court should not require a nominal bond to be posted as security .................................................................................................. 8 V. Conclusion ....................................................................................................... 8 Case 1:15-cv-02230-YK Document 42 Filed 03/15/17 Page 3 of 12 ii II. Table of Authorities Brennan by Brennan v. Sch. Dist. of Philadelphia, No. 88-6869, 1988 U.S. Dist. LEXIS 14409 at *6 (E.D. Pa. Sept. 16, 1988) ................................................................................................................ 3 Bruce v. Martin, 1993 U.S. Dist. LEXIS 5776 (S.D. N.Y., April 28, 1993) .............................. 4 Deligiannis v. Pepsico, Inc., 757 F.Supp. 241, 253 No. 88-6243, 1991 U.S. Dist. LEXIS 1311, at *34-35 (S.D.N.Y. 1991) .................................................................................. 5 Frank’s GMC Truck Ctr., Inc. v. GMC, 847 F.2d 100, 102 (3d Cir. 1988) .................................................................... 6 Longo v. Shore & Reich, Ltd., No. 90-6905, 1993 U.S. Dist. LEXIS 14862, at *6 n. 1, (S.D.N.Y. Oct. 20, 1993) .................................................................................................. 5 McNeil Nutritionals LLC v. Heartland Sweeteners, LLC, 511 F.3d 350, 356-57 (3d Cir. 2007) ............................................................... 3 Petrello v. White, 344 Fed. Appx. 651, 653 (2d Cir. 2009) ......................................................... 4 Stratton Group, Ltd. v. Sprayregen, 458 F. Supp. 1216 (S.D.N.Y. 1978) ............................................................. 3,4 Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 24, 129 S. Ct. 365, 172 L. Ed. 2d 249 (2008) .............................. 3 Case 1:15-cv-02230-YK Document 42 Filed 03/15/17 Page 4 of 12 1 III. Facts Prior to May of 2015, Plaintiff, Ralph C. Michael (“Michael”) owned all of the issued and outstanding shares of the capital stock of Foremost Industries, Inc. (“Foremost”), a modular home business. Michael also served as the president and chief executive of Foremost, while his daughter, Laurie Meyers (“Meyers”) served as the treasurer and controller. After the 2008 financial crisis, Foremost’s business was severely compromised as sales of the Company’s modular home business plummeted along with the residential real estate sector. From the period of 2008 through 2014, Foremost suffered millions of dollars in financial losses, all of which were funded by the sale of certain of Foremost’s assets and personal capital contributions by Michael. By 2015, upon information and belief, Michael had exhausted his personal funds and could no longer fund Foremost’s operating losses. For several years prior to 2015, Michael had attempted to sell Foremost, with no success. In February of 2015, without personal capital to continue to fund Foremost’s operating losses, Michael entered into exclusive negotiations with GLD concerning the sale of Foremost. In March of 2015, the Defendants provided Michael with a draft stock purchase agreement outlining the terms to which GLD would agree to acquire Michael’s share of Foremost. Michael, Myers, and GLD held several discussions concerning the draft stock agreement. In light of Case 1:15-cv-02230-YK Document 42 Filed 03/15/17 Page 5 of 12 2 Foremost’s financial losses and Michael’s inability to fund Foremost’s cash flow deficits, Michael was desperate to consummate a sale transaction. On or about May 29, 2015, Michael and GLD entered into a stock purchase agreement (the “Agreement”), pursuant to which GLD purchased all of the issued and outstanding shares of capital stock of Foremost from Michael. In exchange for the purchased shares, GLD agreed to pay, inter alia, the sum of $3 million to Michael. Michael made many representations in the Agreement related to the operations of Foremost. A significant number of these representations were, in fact, false and made with the intent to fraudulently induce GLD to purchase Foremost from Michael. Michael’s misrepresentations included the failure to disclose existence of DEP permits, the failure to disclose the existence of DEP violations, that the company’s financial statements were not GAAP compliant, the failure to disclose violations of zoning and NPDES Regulations, violations of Maryland state regulations, and other misrepresentations in the stock purchase agreement. When confronted with the material allegations in Defendant’s initial complaint, Michael hastily filed his complaint alleging breach of contract, fraud, and unjust enrichment. Michael now seeks an injunction which will prevent the owners of Foremost from executing actions which are the best interest of the company. Case 1:15-cv-02230-YK Document 42 Filed 03/15/17 Page 6 of 12 3 IV. Argument A. Michael is not entitled to immediate injunctive relief. An injunction is an "extraordinary remedy" not to be awarded lightly. Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 24, 129 S. Ct. 365, 172 L. Ed. 2d 249 (2008). A court must weigh four factors to determine whether to issue a preliminary injunction: (1) the likelihood that the moving party will succeed on the merits; (2) the extent to which the moving party will suffer irreparable harm without injunctive relief; (3) the extent to which the non-moving party will suffer irreparable harm if the injunction is issued; and (4) the public interest. McNeil Nutritionals LLC v. Heartland Sweeteners, LLC, 511 F.3d 350, 356-57 (3d Cir. 2007). Even when injunctive relief is appropriate, courts should still be "reluctant to grant an injunction any greater in scope than is absolutely necessary[.]" Brennan by Brennan v. Sch. Dist. of Philadelphia, No. 88-6869, 1988 U.S. Dist. LEXIS 14409 at *6 (E.D. Pa. Sept. 16, 1988). In the instant case, all four elements weigh in favor of denying the injunction. 1. Michael is not likely to succeed on the merits of his claims. a. Breach of Contract claim. Michael is not likely to succeed on the merits of his breach of contract claim in this matter. The elements essential to pleading a breach of contract claim are: (1) the making of an agreement; (2) due performance by plaintiff; (3) breach Case 1:15-cv-02230-YK Document 42 Filed 03/15/17 Page 7 of 12 4 thereof by defendant; and (4) causing damage to the plaintiff. Stratton Group, Ltd. v. Sprayregen, 458 F. Supp. 1216 (S.D.N.Y. 1978). While it is acknowledged that there was an agreement in place in the instant matter, Michael remains unlikely to succeed on the merits of this claim because the Agreement was induced through fraud on the part of Michael. A defense of fraud in the inducement requires an allegation of all the traditional elements of fraud. Bruce v. Martin, 1993 U.S. Dist. LEXIS 5776 (S.D. N.Y., April 28, 1993). A claim for fraud in the inducement under New York law requires the following elements: (1) a misrepresentation; (2) as to a material fact existing; (3) which was false; (4) with scienter; (5) that the representation was made for the purpose of inducing reliance; (6) actual reasonable reliance; (7) in ignorance of its falsity; (8) to his or her injury. Petrello v. White, 344 Fed. Appx. 651, 653 (2d Cir. 2009). Defendants are likely to meet this burden and, thus, defeat Michael’s breach of contract claim. As laid out in the complaint of GLD Foremost Holdings against Michael and Myers and her husband, Don Myers, Michael misled and defrauded GLD in inducing GLD to enter into the stock purchase agreement. Specifically, Myers and Michael worked in concert to conceal DEP permits, DEP violations, GAAP deficiencies, and zoning deficiencies and made misrepresentations in order to induce GLD to enter into the stock purchase agreement and pay a significantly inflated amount for the company. Thus, all eight elements of fraud in the Case 1:15-cv-02230-YK Document 42 Filed 03/15/17 Page 8 of 12 5 inducement are present in the instant matter and Michael is unlikely to succeed in his claim for breach of contract. b. Fraud Michael is also unlikely to succeed on his claim of fraud. Michael’s allegations of fraud appear to be based upon actions that Gordon, who is not a party to the stock purchase agreement, allegedly said he would take in the future. These statements are not actionable under fraudulent inducement theory. Deligiannis v. Pepsico, Inc., 757 F.Supp. 241, 253 No. 88-6243, 1991 U.S. Dist. LEXIS 1311, at *34-35 (S.D.N.Y. 1991) (noting that, under New York law, a promise to do something in the future, which promise is not kept, in not fraud because it is not “a misrepresentation of fact”); Longo v. Shore & Reich, Ltd., No. 90-6905, 1993 U.S. Dist. LEXIS 14862, at *6 n. 1, (S.D.N.Y. Oct. 20, 1993) (“In order to state a claim for fraudulent inducement, plaintiff must allege misrepresentations of present facts, not future acts or promises.”) Accordingly, the statements allegedly made by Gordon do not support a claim of fraudulent misrepresentation, particularly given the fact that Gordon is not a party to the stock transfer agreement. Further, as noted above, it was Michael who fraudulently induced GLD to enter into the stock purchase agreement by misrepresenting known facts. Hence, it is unlikely that Michael will succeed on his fraud claim. Case 1:15-cv-02230-YK Document 42 Filed 03/15/17 Page 9 of 12 6 c. Unjust enrichment Michael’s claim of unjust enrichment is also unlikely to succeed. In his memorandum of law to this Court, Michael alleged that “equity and good conscience do not permit Gordon and GLD to retain Michael’s company without paying the value of the company to Michael” and “Gordon should not be permitted to continue profiting from his fraudulent and illegal behavior.” As noted above, Gordon was not a party to the stock purchase agreement. Further, the fraudulent and illegal behavior was committed by Michael and the Myers in an effort to induce GLD to enter into the stock purchase agreement and pay a significantly inflated amount for the company. Therefore, it is unlikely that Michael will succeed on the merits of his unjust enrichment claim. 2. Michael will not suffer immediate and irreparable harm in the absence of an injunction. In order to prove the likelihood of immediate and irreparable harm in the absence of an injunction, the movant must “articulate and adduce proof of actual or imminent harm which cannot otherwise be compensated by money damages.” Frank’s GMC Truck Ctr., Inc. v. GMC, 847 F.2d 100, 102 (3d Cir. 1988) (emphasis added). Michael fails to articulate this in the instant matter. In fact, it is apparent from Michael’s complaint that Michael is seeking a remedy of money damages. Michael has attempted to assert that Gordon’s financial situation Case 1:15-cv-02230-YK Document 42 Filed 03/15/17 Page 10 of 12 7 compels an injunction in the instant matter. It is once again noted that Gordon was not a party to the stock transfer agreement. Further, Michael fails to explain how the sale of various assets make it less likely that the Defendants could satisfy a monetary judgment. In fact, the opposite is true. If Michael’s seeks a monetary judgment against the defendants, a liquidation of the assets of the assets of Foremost Holdings is actually helpful rather than harmful. 3. The non-moving Defendant’s will suffer harm with the issuance of an injunction. Contrary to Michael, the non-moving defendant’s will suffer harm if the Court issues an injunction prohibiting the sale of real estate of Foremost Holdings. It is acknowledged that GLD took possession of Foremost Holdings on or about June 7, 2015. Because of the fraudulent misrepresentations of Michael, Foremost Holdings is in a significantly more precarious financial situation than GLD could have anticipated prior to the execution of the stock purchase agreement. The sale of real estate is a way to keep the company, which is under the control of GLD, financially solvent. Thus, the issuance of an injunction preventing such sales could cause great harm to the Defendants. 4. The public interest favors defendants. There is no significant public interest at stake in this proceeding. Denial of the injunction, which provides defendants with the ability to continue operating the Case 1:15-cv-02230-YK Document 42 Filed 03/15/17 Page 11 of 12 8 company which they were fraudulently induced into buying, serves the public interest of fairness. B. This Court should not require a nominal bond to be posted as security. Because this Court should not grant the temporary restraining order/preliminary injunction, it should not require a bond be posted as requested by Michael. However, should a temporary restraining order/preliminary injunction be issued a bond should be required to cover the losses GLD will suffer. V. Conclusion Based on the foregoing, it is respectfully requested that this Honorable Court deny Michael’s motion for temporary restraining order and preliminary injunction. Respectfully submitted, CIPRIANI & WERNER, P.C. BY: Jeffrey McGuire_________________________ JEFFREY T. MCGUIRE, ESQUIRE RYAN J. BRADY, ESQUIRE Counsel for the Defendants, Date: 3/15/17 GLD Foremost Holdings, LLC and Daniel Gordon Case 1:15-cv-02230-YK Document 42 Filed 03/15/17 Page 12 of 12