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dissolving state court temporary restraining order
Summary of this case from Free v. Allstate Indem. Co.Opinion
Civil Action No. 3:02-CV-1278-G
June 28, 2002
MEMORANDUM ORDER
Before the court is the motion of the plaintiff Consolidated Restaurant Operations, Inc., ("CRO") for an order of contempt, which seeks enforcement through contempt of a temporary restraining order ("TRO") issued ex parte by a state district judge on June 14, 2002. Also before the court is the motion of the defendant National Processing Company, L.L.C., ("NPC") to dissolve the TRO. For the reasons discussed below, NPC's motion to dissolve the TRO is granted and CRO's motion for contempt is denied as moot.
I. BACKGROUND
CRO is a Delaware corporation with its principal place of business in Dallas, Texas. Plaintiff's Original Petition and Application for Temporary Restraining Order, Temporary Injunction, and Permanent Injunction ("Complaint") at 1, attached to Notice of Removal at tab C-1. NPC is an Ohio corporation conducting business in Texas, Complaint at 1-2, with its principal place of business in Louisville, Kentucky. Notice of Removal at 1. NPC is a credit card processing servicer. Plaintiff's Brief in Support of Temporary Restraining Order and Temporary Injunction ("CRO's TRO Motion") at 3. CRO manages and operates restaurants in several locations in Texas and elsewhere in the United States. Complaint at 2. The restaurants managed and operated by CRO are owned by its affiliates, including El Chico Restaurants, Inc. and Spaghetti Warehouse, Inc. Id. Credit card transactions for the purchases of meals and beverages by customers of CRO's affiliates are commonplace in the restaurants CRO manages and operates. Id. CRO uses income from these credit card transactions to pay its business expenses such as taxes, rental obligations, and employee salaries. Id.
In April 2001, CRO entered into a merchant agreement (the "agreement") with NPC concerning the processing and settlement by NPC of credit card transactions at various restaurants operated by CRO. Id. at 3; Defendant's Motion to Dissolve 06/14/02 TRO, Request for Declaration That the TRO Does Not Require Mandatory, Affirmative Action, and Request for Expedited Treatment and Supporting Brief ("NPC's Motion to Dissolve") at 1. The agreement is a requirements contract continuing until April 1, 2005 and giving NPC the exclusive right to process all VISA and MasterCard credit card transactions for restaurants operated by CRO. NPC's Motion to Dissolve at 1-2. Under the agreement, NPC receives funds from credit card companies relating to the credit card transactions at CRO restaurants. Id. After settlement of the restaurant transactions, application of chargebacks and credits, and deduction of fees, NPC pays the remaining settlement funds to CRO. Id.
According to CRO, NPC failed to provide services under the agreement including, among other things, timely processing CRO's restaurant customer credit card transactions and providing prompt responses to resolve various service issues. Complaint at 3-4. On May 17, 2002, CRO advised NPC that it intended to terminate the agreement due to non-performance by NPC. Id. at 4; see also May 17, 2002 letter of Paul G. Hargett, attached to Complaint as Exhibit 2. CRO, however, continued the agreement until a successor credit card processor could be selected. Complaint at 4. CRO contends that NPC terminated and breached the agreement on June 12, 2002. Id. On that date, CRO received a letter in which NPC acknowledged CRO's termination and advised CRO that it was withholding settlement funds due CRO in the amount of approximately $540,000. Id. at 4; see also June 11, 2002 letter of Don S. Huffman, attached to Complaint as Exhibit 3.
On June 14, 2002 at 1:22 p.m., CRO filed a complaint and application for a TRO against NPC in the 14th Judicial District Court of Dallas County, Texas. Complaint at 1. CRO obtained the TRO ex parte that same day at 1:55 p.m. Temporary Restraining Order at 4, attached to Notice of Removal at tab C-2; Defendant's Supplemental Papers in Further Support of its Motion to Dissolve 06/14/02 TRO ("NPC's Supplemental Brief") at 2. During the TRO appearance before Judge David Kelton of the 44th Judicial District Court, sitting for Judge Mary Murphy of the 14th Judicial District Court, CRO represented to the court that it had attempted to contact Don S. Huffman ("Huffman") at NPC on June 14, 2002, but was unable to reach him. CRO's TRO Motion at 8; see also Certificate Pursuant to Local Rules, attached to Notice of Removal at tab C-3. NPC disputes this claim and submits Huffman's declaration, which states that he was in his office the entire day and was unaware of any calls from CRO or its counsel or any attempts by them to leave messages for him. NPC's Supplemental Brief at 2; see also Declaration of Donald S. Huffman Under 28 U.S.C. § 1746 ("Huffman Declaration"), located in Courtesy Binder of NPC's Exhibits Submitted With its Various Briefs to Date ("NPC's Appendix") at Exhibit 8. NPC also asserts that Huffman's first and only contact with CRO was the letter he wrote to the company on June 11, 2002 and that CRO was aware that other persons at NPC were in fact responsible for communicating with CRO. NPC's Supplemental Brief at 2. According to NPC, despite CRO's knowledge of this situation, CRO made no effort to contact the responsible persons at NPC. NPC's Supplemental Brief at 2; NPC's Response at 2.
In that action, CRO asserts claims for breach of contract, conversation (sic), breach of fiduciary duty, tortious interference, declaratory judgment, and attorneys fees, as well as temporary and permanent injunctive relief. Complaint at 8-20.
CRO also claims to have placed "multiple telephone calls to the NPC contact in Louisville, Kentucky" on June 12, 2002. CRO's TRO Motion at 7; Affidavit of Cindy Graham attached to CRO's TRO Motion. As NPC notes, however, both of these calls related to the status of settlement funds rather than CRO's intent to seek a TRO. Defendant's Brief in Response to Plaintiff's 06/21/02 Brief in Support of TRO and Temporary [Sic] Injunction ("NPC's Response") at 1-2.
In particular, NPC states in its response that, "CRO admits in its brief and in Ms. Graham's affidavit that Brad Schrader was CRO's `NPC contact.' Given this admission, it is all the more inexcusable that CRO's counsel did not attempt to contact Mr. Schrader before seeking an ex parte TRO. Indeed, CRO's counsel contends that he placed only a single call to Mr. Huffman and received `no answer.' Mr. Chapman [counsel for CRO] did not bother to leave a message on Mr. Huffman's voice mail. Nor, apparently, did he attempt to contact Mr. Schrader." NPC's Response at 2.
The ex parte TRO entered by Judge Kelton on June 14, 2002 orders NPC to cease withholding settlement funds, charge back escrow or funds for liquidated damages as defined under the agreement. Temporary Restraining Order, attached to Notice of Removal at tab C-2. On June 19, 2002, NPC removed CRO's action to this court on the basis of diversity of citizenship. Notice of Removal at 1. That same day, CRO filed its motion for an order of contempt for NPC's alleged failure to comply with the TRO, see Motion for Order of Contempt and Brief in Support ("Motion for Contempt") at 1, and NPC filed its motion to dissolve the TRO. NPC's Motion to Dissolve at 1. The court held a brief informal conference with counsel on these motions during the afternoon of June 19, 2002. Following that conference, the court issued an order requiring the parties to submit any evidence, in support of, or in opposition to, the motions in the form of affidavits. See Order, filed June 20, 2002. Having the parties' submissions, and having had the benefit of a conference with counsel on these motions, the court now deems the motions ripe for decision.
The order also required that, "Each movant shall file and serve affidavits in support of its motion by Friday, June 21, 2002, and responsive affidavits on each motion shall be filed and served on Monday, June 24, 2002." Order, filed June 20, 2002.
II. ANALYSIS A. Motion to Dissolve TRO 1. Standard of Review
NPC removed the instant action to this court on the basis of diversity of citizenship. Notice of Removal at 1. At the time of removal, the TRO entered into by the state district judge was in effect, and it continues in effect. See 28 U.S.C. § 1450 ("Whenever any action is removed from a State court to a district court of the United States, . . . [a]ll injunctions, orders, and other proceedings had in such action shall remain in full force and effect until dissolved or modified by the district court."). However, the TRO entered against NPC is "purely interlocutory" and "remains subject to reconsideration just as it had been prior to removal." Nissho-Iwai American Corporation v. Kline, 845 F.2d 1300, 1303 (5th Cir. 1988) (citing General Investment Co. v. Lake Shore Michigan Southern Ry., 260 U.S. 261, 267 (1922) ("Had the cause remained in the state court the power to reconsider would have been in that court, but when the removal was made the power passed with the cause to the District Court.")). Moreover, it is also "well established that the state court order becomes federalized insofar as federal, rather than state, procedure governs the manner of its enforcement as well as supplies whatever policy justification that might support its continuance." Kline, 845 F.2d at 1303 (citations omitted). Thus, the propriety of the ex parte TRO is now governed by the requirements of FED. R. CIV. P. 65.
2. Notice of TRO
Rule 65(a) provides that "[n]o preliminary injunction shall be issued without notice to the adverse party." FED. R. CIV. P. 65(a)(1). Rule 65 (b) provides that courts may grant a TRO "without written or oral notice to the adverse party or that party's attorney only if (1) it clearly appears from specific facts shown by affidavit or by the verified complaint that immediate and irreparable injury, loss, or damage will result to the applicant before the adverse party or that party's attorney can be heard in opposition, and (2) the applicant's attorney certifies to the court in writing the efforts, if any, which have been made to give notice and the reasons supporting the claim that notice should not be required." FED. R. CIV. P. 65(b). The court has serious concerns about whether the requirements of Rule 65(b) have been met in this case.
First, the ex parte TRO was entered late on a Friday afternoon by a state district judge sitting for the judge assigned. CRO's TRO Motion at 9. Second, it is contested whether CRO actually attempted to notify NPC of its intention to seek a TRO. NPC's Supplemental Brief at 2; Huffman Declaration at 2. CRO claims it called Mr. Huffman of NPC, but that there was no answer at his number. CRO's TRO Motion at 8. NPC avers that Mr. Huffman was in his office the entire day and that he was unaware that CRO had attempted to reach him. NPC's Supplemental Brief at 2; Huffman Declaration at 2. Inexplicably, CRO's counsel did not leave a message for Mr. Huffman on his voice mail. NPC's Response at 2. In addition, it does not appear that CRO's counsel attempted to contact other responsible persons at NPC. NPC's Supplemental Brief at 2; NPC's Response at 2. NPC further contends that CRO was aware, as its own pleadings indicate, that Mr. Schrader was in fact its contact at NPC. NPC's Response at 2.
As a practical matter, not much effort could have been expended between the time the case was filed by the district clerk at 1:22 p.m. and the time the state district judge signed the order granting relief, after hearing the argument of counsel, a mere 31 minutes later. Suffice it to say that whatever efforts CRO made to contact NPC before seeking ex parte relief appear to have been, at best, half-hearted and desultory. In light of these circumstances, there is a substantial question whether issuance of the TRO ex parte was appropriate. See FED. R. CIV. P. 65(b) (temporary restraining orders may be issued ex parte, under certain circumstances, when requisite procedures are observed). This question need not be answered, however, in light of CRO's failure to make the showing required for the grant of injunctive relief.
3. Standard for a TRO
To obtain injunctive relief pendente lite in this circuit, it is well established that the movant must show: (1) a substantial likelihood that the movant will ultimately prevail on the merits; (2) a substantial threat that the movant will suffer irreparable injury if the injunction is not granted; (3) that the threatened injury to the movant outweighs whatever damage the proposed injunction may cause the opposing party; and (4) that granting the injunction is not adverse to the public interest. Vision Center v. Opticks, Inc., 596 F.2d 111, 114 (5th Cir. 1979) (citation omitted), cert. denied, 444 U.S. 1016 (1980); Mississippi Power Light Co. v. United Gas Pipe Line Co., 760 F.2d 618, 621 (5th Cir. 1985) (citing Canal Authority of State of Florida v. Callaway, 489 F.2d 567, 572 (5th Cir. 1974)).
The decision to grant or deny preliminary injunctive relief is left to the sound discretion of the district court. Mississippi Power Light, 760 F.2d at 621. Such relief is an extraordinary remedy which should only be granted if the movant has clearly carried its burden of persuasion on all of the four factors. Id.; Allied Marketing Group, Inc. v. CDL Marketing, Inc., 878 F.2d 806, 809 (5th Cir. 1989) (citations omitted). In this case, the court's analysis can stop with the irreparable injury factor because, as discussed below, CRO has not shown that there is a substantial threat that it will suffer irreparable injury if the TRO is dissolved.
Because preliminary injunctive relief should be granted only if the movant has clearly carried the burden of persuasion on all four factors, Mississippi Power Light Co., 760 F.2d at 621, it is unnecessary for the court to consider the remaining factors when the movant fails to carry its burden on any one of the factors. Medlin v. Palmer, 874 F.2d 1085, 1091 (5th Cir. 1989) ("The failure of a movant to establish one of the above four elements will result in the denial of a motion for a temporary injunction."); Anderson v. Douglas Lomason Co., 835 F.2d 128, 133 (5th Cir. 1988) ("if the movant does not succeed in carrying its burden of persuasion on any one of the four prerequisites, a preliminary injunction may not issue. . . .").
NPC argues that the TRO is defective for a number of reasons, including (1) CRO has an adequate remedy at law through money damages; and (2) CRO's allegations concerning irreparable harm are conclusory and are not supported by sufficient facts. NPC's Motion to Dissolve at 5-6. CRO claims that there is no adequate remedy at law for its alleged injuries. CRO's TRO Motion at 8-11; Plaintiff's Response to Defendant's Supplemental Papers in Further Support of its Motion to Dissolve 06/14/02 TRO ("CRO's Response") at 3-4. Specifically, CRO argues that the credit card settlement funds being withheld by NPC create "a financial crisis affecting the ability to pay taxes, rental obligations, employee salaries and benefits, vendors and other creditors of CRO restaurant affiliates, and impact the financial well-being and stability of CRO and its affiliate restaurants." CRO's TRO Motion at 9.
At the outset, the court agrees with NPC, NPC's Supplemental Brief at 6 and NPC's Response at 6-9, that these allegations of irreparable harm, contained in CRO's application for TRO and its supplemental papers, are conclusory in nature. See also Affidavit of Paul G. Hargett ("Hargett Affidavit") ¶ 14, located in CRO's TRO Motion. CRO has failed to provide this court with any specific evidence that the company will suffer liquidity problems if the withheld settlement funds are not released. See Henry v. Baker, No. 3:00-CV-2046-G, 2001 WL 1112441, at *2 (N.D. Tex. Sept. 13, 2001) (Fish, J.) ("The court does not issue a TRO or an injunction on unsubstantiated fears of irreparable injury.") (order adopting magistrate judge findings); Hunt v. Bankers Trust Company, 646 F. Supp. 59, 63 (N.D. Tex. 1986) (conjecture in affidavit concerning irreparable injury is insufficient).
The court also notes that CRO's claims of irreparable harm from the withholding of the settlement funds are, as NPC observes, undercut by the substantial revenues CRO generated in 2001. See NPC's Supplemental Brief at Exhibit 12 (Dallas Morning News article of May 19, 2002 reporting gross revenues of $211 million for CRO in 2001). Federal Savings Loan Insurance Corp. v. Dixon, 835 F.2d 554, 558 (5th Cir. 1987) (district court did not err in relying on affidavits and other materials containing hearsay in a preliminary injunction proceeding).
In addition, the court also concludes that CRO has not shown irreparable injury because it has an adequate remedy at law. The general rule is that courts do not issue injunctions to protect legal remedies "[b]ecause the availability of a legal remedy often indicates that an applicant's injury is not irreparable." Federal Deposit Insurance Corporation v. Faulkner, 991 F.2d 262, 265 (5th Cir. 1993); see also Canal Authority, 489 F.2d at 573 ("[O]nly those injuries that cannot be redressed by the application of a judicial remedy after a hearing on the merits can properly justify a preliminary injunction."). "The word irreparable connotes that which cannot be repaired, retrieved, put down again [or] atoned for." Jews for Jesus v. Brodsky, 993 F. Supp. 282, 311 (D. N.J.) (citation and internal quotations omitted), aff'd, 159 F.3d 1351 (3rd Cir. 1998) (table); see also Canteen Corporation v. Republic of Texas Properties, Inc., 773 S.W.2d 398, 401 (Tex.App.-Dallas 1989, no writ) ("`Irreparable injury' is stated to be `an injury of such nature that the injured party cannot be adequately compensated therefore in damages, or that the damages which result therefrom cannot be measured by any certain pecuniary standard.'") (internal citations omitted).
In this dispute, CRO seeks the return of withheld funds and argues that it has "no remedy other than injunctive relief to gain immediate possession of its funds." CRO's Response at 3. While CRO concedes that it "has causes of action that it may bring through the lengthy judicial process," it argues that "such causes would be ineffective in returning its funds, and would deny CRO possession of its very own property." Id. at 4. In support of this argument, CRO cites Westside Airways, Inc. v. JR Aircraft Corporation, 694 S.W.2d 100, 103 (Tex.App. — Houston [14th Dist.] 1985, no writ) (noting "that the possibility of an ineffective but available remedy" is not "the same as an adequate remedy at law."). In Westside Airways, the Texas Court of Appeals affirmed the grant of temporary injunctive relief which restrained the defendant from interfering with the plaintiff's use and possession of an aircraft. Id. at 103-04.
The property CRO is seeking from NPC is money. CRO's Response at 3. CRO argues that it "has demonstrated an unlawful conversion of its property by NPC," id., but this does not appear to be the case under settled Texas law. "Texas jurisprudence holds that money can be the subject of conversion, but only when it is in the form of specific chattel, such as old coins, or when `the money is delivered to another party for safekeeping, the keeper claims no title, and the money is required and intended to be segregated, either substantially in the form in which it was received or as an intact fund.'" Mitchell Energy Corporation v. Samson Resources Company, 80 F.3d 976, 984 (5th Cir. 1996) (quoting Dixon v. State, 808 S.W.2d 721, 723 (Tex.App.-Austin 1991, writ dism'd w.o.j.)); also Edlund v. Bounds, 842 S.W.2d 719, 727 (Tex.App.-Dallas 1992, writ denied) ("An action for the conversion of money may be brought where money is (1) delivered for safekeeping; (2) intended to be kept segregated; (3) substantially in the form in which it is received or an intact fund; and (4) not the subject of a title claim by the keeper."). Since NPC asserts title to the funds, CRO's claimed demonstration of conversion rings hollow.
Despite CRO's claims to the contrary, the court is hard-pressed to see the similarities between this dispute and Westside Airways. This case involves a dispute over settlement funds being withheld by NPC. Complaint ¶ 17 ("NPC wrongfully and illegally asserts a right to withhold settlement funds from CRO. . . . The funds which NPC holds as charge back escrow funds and signing bonus refund are greatly in excess of the amounts provided for under the Agreement. . . ."). In essence, notwithstanding CRO's assertion of claims sounding in tort, this is a case for monetary damages. There is abundant case law in this circuit and other federal courts that where money damages are adequate, there is no irreparable injury. See, e.g., DFW Metro Line Services v. Southwestern Bell Telephone Co., 901 F.2d 1267, 1269 (5th Cir.) (per curiam) ("There can be no irreparable injury where money damages would adequately compensate a plaintiff."), cert. denied, 498 U.S. 985 (1990); Our Company, Inc. v. Eagle Snacks, Inc., 812 F. Supp. 6, 7 (D. Me. 1993) (holding "[w]here a party seeking prejudgment injunctive relief asserts claims that, in essence, are capable of being addressed by an award of monetary damages, it cannot be said that there is irreparable injury unless it is shown that there is some unique category of loss not capable of being addressed on existing legal theories by an award of damages."). Here, CRO has not alleged that it will cease operations if the settlement funds are not immediately returned to its possession or that NPC's alleged noncompliance with the agreement will cause harm that is not remediable in damages. In light of the nature of this dispute, the amount of any funds owed to CRO will be determined after a trial on the merits, and CRO can receive redress through an award of damages. CRO has not met its burden of demonstrating a substantial threat of irreparable injury. Accordingly, the ex parte TRO is DISSOLVED due to its failure to meet the standards required in this court for preliminary injunctive relief. Canal Authority, 489 F.2d at 572.
Even if CRO claimed that withholding of these funds would cause it to cease operations, it is far from certain that this would suffice to show irreparable injury. In Hardin v. Houston Chronicle Publishing Company, 426 F. Supp. 1114 (S.D. Tex. 1977), the court denied preliminary injunctive relief to two newspaper distributors who claimed they would go out of business unless the defendant were restrained from terminating their distributorships. It found that
Hardin and Pate [the distributors] have wholly failed to carry their burden of showing that the injury caused by their termination is irreparable, and that if they should prevail in the trial on the merits, the legal remedy of treble damage would be inadequate. Plaintiffs have not even attempted to show that the value of their distributorships is not ascertainable, or that their damages would be difficult to measure. Likewise, no attempt has been made to show that defendants would be unable to satisfy a monetary judgment against them.
Hardin, 426 F. Supp. at 1117. On appeal, this decision was affirmed. 572 F.2d 1106 (5th Cir. 1978).
III. CONCLUSION
NPC's motion to dissolve the ex parte TRO is GRANTED and CRO's motion for contempt is DENIED as moot.
SO ORDERED.