Arista Records LLC et al v. Lime Wire LLC et al
MEMORANDUM OF LAW in Opposition re: 242 MOTION for Preliminary Injunction Freezing Defendants' Assets. Revised Public Version. Document filed by Mark Gorton, Lime Group LLC, Lime Wire LLC, M.J.G. Lime Wire Family Limited Partnership. (Attachments: # 1 Certificate of Service)(Klausner, Tonia Maria)
Arista Records LLC et al v. Lime Wire LLC et al
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
ARIST A RECORDS LLC; ATLANTIC RECORDING CORPORATION; BMG MUSIC; CAPITOL RECORDS, INC.; ELEKTRA ENTERTAINMENT GROUP INC.; INTERSCOPE RECORDS; LAF ACE RECORDS LLC; MOTOWN) RECORD COMPANY, L.P.; PRIORITY RECORDS LLC; SONY BMG MUSIC ENTERTAINMENT; UMG RECORDINGS, INC.;) VIRGIN RECORDS AMERICA, INC.; and WARNER BROS. RECORDS INC., Plaintiffs, v. LIME WIRE LLC; LIME GROUP LLC; MARK GORTON; GREG BILDSON; and M.J.G. LIME WIRE FAMILY LIMITED PARTNERSHIP, Defendants.
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CaseNo. 06 CV 5936 (KMW) ECF Case REVISED PUBLIC VERSION
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--------------------------------~) DEFENDANTS' MEMORANDUM IN OPPOSITION TO PLAINTIFFS' MOTION FOR A PRELIMINARY INJUNCTION FREEZING DEFENDANTS' ASSETS Michael S. Sommer Tonia Ouellette Klausner JessicaL. Margolis Michael S. Winograd WILSON SONSINI GOODRICH & ROSATI, P.C. 1301Avenue of the Americas, 40th Floor New York, New York 10019 Tel: (212) 999-5800 Fax: (212) 999-5899 firstname.lastname@example.org; email@example.com; firstname.lastname@example.org; email@example.com Colleen Bal (pro hac vice) WILSON SONSINI GOODRICH & ROSATI, P.C. SpearTower, Suite 3300 SanFrancisco, California 94105 Tel: (415) 947-2000 Fax: (415) 947-2099 firstname.lastname@example.org Attorneysfor Defendants Lime Wire LLC, Lime Group LLC, Mark Gorton and MJ G Lime Wire Family Limited Partnership
TABLE OF CONTENTS
PRELIMINARY BACKGROUND ARGUMENT I.
1 4 5 INJUNCTION 5 6 10 12 14 15
PLAINTIFFS ARE NOT ENTITLED TO A PRELIMINARY FREEZING DEFENDANTS' ASSETS A. B. C. D. E. Plaintiffs Have Not Shown Irreparable Harm
Plaintiffs Have Not Demonstrateda Probability of Successon the Merits that Would Justify A Preliminary Injunction Freezing Assets The Balance of Hardships DoesNot Tip Decidedly in Plaintiffs' Favor The Public Interest Does Not Support an Injunction Plaintiffs Would Be Required to Post a Significant Security if A Preliminary Injunction Were Granted
THE SCOPEOF THE PRELIMINARY INJUNCTION PLAINTIFFS SEEK GOES BEYOND THE COURT'S EQUITABLE POWERS, IS OVERBROAD AND LACKS THE REQUIRED SPECIFICITy 16 A. B. A Preliminary Injunction to FreezeAssets Is Only Available with Respectto the Profits of Lime Wire that Plaintiffs Seekto Disgorge from Defendants 16
The ProposedInjunction is Overly Broad and Lacks the Required Specificity ... 21 25
T ABLE OF AUTHORITIES
CASES Page(s) 1800Postcards, Inc. v. Morel, 153 F. Supp. 2d 359 (S.D.N.Y. 2001) Additive Controls & Measurements Sys.Inc. v. Flowdata, Inc., 96 F.3d 1390 (Fed. Cir. 1996) Algonquin Power Corp., Inc. v. Trafalgar Power Inc., No. CIVA5:00CV1246, 2000 WL 33963085 (N.D.N.Y. Nov. 8,2000) Alliance Bond Fund, Inc. v. Grupo Mexicano de Desarrollo, S.A., 143 F.3d 688 (2d Cir. 1998) Am.Cyanamid Co. v. Us. Surgical Corp., 833 F. Supp. 92 (D. Conn. 1992) Arch Assocs., Inc. v. Hedeya Bros., Inc., No. 93 Cry. 4267 (RWS), 1993 WL 426888 (S.D.N.Y. Oct. 21, 1993) Arista Records LLC v. Usenet.com,Inc., No. 07-CV-8822 (HB) (THK) (S.D.N .Y. Feb. 2, 2010) Bascom Food Prods. Corp. v. ReeseFiner Foods, Inc., 715 F. Supp. 616 (D.N.J. 1989) Citibank, N.A. v. Citytrust, 756 F.2d 273 (2d Cir. 1985) Credit Agricole Indosuez v. Rossiyskiy Kredit Bank 94 N. Y.2d 541 (2000) Dreier v. Music Makers Group, Inc., No. 73 Civ. 1470, 1973 WL 399 (S.D.N. Y. June20, 1973) Dystar Corp. v. Canto, 1 F. Supp. 2d 48 (D. Mass. 1997) E.A. Renfroe & Co., Inc. v. Moran, 338 Fed. Appx. 836 (11th Cir. 2009) (per curiam) Echostar Satellite LLC v. Rollins, No. 5:07-CV-00096, 2008 WL 314145 (S.D.W.Va. Feb. 4, 2008) " ESPN, Inc. v. Quiksilver, Inc., 586 F. Supp. 2d 219 (S.D.N.Y. 2008) Faiveley Transp. Malmo AB v. Wabtec Corp. 559 F.3d 110 (2d Cir. 2009) Fonar Corp. v. Deccaid, Inc. 983 F.2d 427 (2d Cir. 1993)
18 23 16 18,20 16 12 9, 10 11 6 21 10 23 23 15 11 22,25 .22
TABLE OF AUTHORITIES CASES (continued) Page(s) Freedom Holdings, Inc. v. Spitzer, 408 F.3d 112 (2d Cir. 2005) Giraldo v. Rosen 355 F. Supp. 54 (S.D.N.Y. 1973) Great Earth Int 'I. Franchising Corp. v. Milks Devs., Inc., 302 F. Supp. 2d 248 (S.D.N.Y. 2004) Grupo Mexicano de Desarrollo, SA. v. Alliance Bond Fund, Inc., 527 U.S. 308 (1999), (Ginsburg, J., dissenting) In re Amaranth Natural Gas Commodities Litig., _ F. Supp. 2d _, No. 07 CIY. 6377 (SAS) 2010 WL 1838718 (S.D.N.Y. May 3, 2010) In re Baldwin-United Corp., 770 F.2d 328 (2d Cir. 1985) In re Feit & Drexler, Inc., 760 F.2d 406 (2d Cir. 1985) In re Manshull Const. Corp., No. 96B44079 (JHG), No. 96B44080 (JHG), 97 CIY. 8851 (JGK), 99 CIY. 2825 (JGK), 2000 WL 1228866 (S.D.N.Y. Aug. 30, 2000) Joneil Fifth Ave. Ltd. v. Ebeling & ReussCo. 458 F. Supp. 1197 (S.D.N.Y. 1978) JSC Foreign Econ. Ass 'noTechnostroyexport V. Int 'I Dev. and Trade Servs., 295 F. Supp. 2d 366 (S.D.N.Y. 2003) Karaha Bodas Co., L.L. C. V. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 500 F.3d 111 (2d Cir. 2007) cert. denied, 128 S. Ct. 2958 (2008) Kraft Gen. Foods, Inc. v. Del Monte Corp., No. 93 CY L.G.B. Inc.
6 12 13,15 passim
21 24 20
12 15 6
18 .15 7 25, 26 7 20 5
Gitana Group, Inc., 769 F. Supp. 1236 (S.D.N.Y. 1991)
Leone Indus. 1992)
AssociatedPackaging, Inc., 795 F. Supp. 117 (D.N.J.
Majorica, SA. V. R.H. Macy & Co., Inc. 762 F.2d 7 (2d Cir. 1985) Mason TendersDist. Council Pension Fund v. Messera,No. 95 CIY. 9341 (RWS), 1997 WL 223077 (S.D.N.Y. May 7, 1997) Mazurek V. Armstrong 520 U.S. 968 (1997)
TABLE OF AUTHORITIES CASES (continued) Page(s) Merit Capital Group, LLC v. Trio Indus. Mgm 't, LLC, No. 04 Civ. 7690 (RCC), 2005 WL 53283 (S.D.N.Y. Jan. 10, 2005) Motorola, Inc. v. Abeckaser, No. 07-CV-3963 (CPS)(SMG), 2009 WL 1362833 (E.D.N.Y. May 14, 2009) Newby v. Enron Corp., 188 F. Supp. 2d 684 (S.D. Tex. 2002) Nintendo of Am., Inc. v. Lewis Galoob Toys,Inc., 16 F.3d 1032 (9th Cir. 1994) OSRecovery,Inc. v. One Groupe Int '., Inc. 305 F. Supp. 2d 340 (S.D.N.Y. 2004) Pashaian v. Eccelston Properties, Ltd. 88 F.3d 77 (2d Cir. 1996) Peregrine Myanmar Ltd. v. Segal, 89 F.3d 41 (2d Cir. 1996) Quantum Corporate Funding, Ltd. v. Assist YouHome Health Care Services of Va., 144 F. Supp. 241 (S.D.N.Y. 2001) Republic of Phil. v. Marcos, 806 F.2d 344 (2d Cir. 1986) Republic of Phil. v. N. Y.Land Co., 852 F.2d 33 (2d Cir. 1988) Rodriguez v. DeBuono, 175 F.3d 227 (2d Cir. 1999) SE.e. v. Cavanagh, 445 F.3d 105 (2d Cir. 2006) Salinger v. Colting F.3d No. 09-2878-cv, 2010 WL 1729126 (2d Cir. Apr. 30, 2010) Sanders v. Air Line Pilots Association, 473 F.2d 244 (2d Cir.1972) Sanofi-Synthelabov. Apotex Inc., 488 F. Supp.2d 317 (S.D.N.Y.), aff'd, 470 F.3d 1368 Fed. Cir. 2006) SEC v. ETS Payphones,Inc. 408 F.3d 727 (l l th Cir. 2005) SEC v. Hickey, 322 F.3d 1123 (9th Cir. 2003) SEC v. Zubkis No. 97 Cry. 8086 (JGK) 2003 WL 22118978 (S.D.N.Y. Sept. 11, 2003)
10 10 18 15 18 20 22 9 20 25 6 15 13 24 16 18, 19, 20 23
TABLE OF AUTHORITIES CASES (continued) Page(s) Serio v. Black, Davis & ShueAgency, Inc. No. 05 Civ. 15 (MHD), 2005 WL 3642217 (S.D.N.Y. Dec. 30, 2005) Shred-It Am., Inc. v. Haley SalesInc., No. 01-CV-0041E(SR), 2001 WL 209906 (W.D.N.Y. Feb. 26, 2001) Sussmanv. Crawford, 488 F.3d 136 (2d Cir. 2007) United Statesex rei. Rahman v. Oncology Assocs.,pc., 198 F.3d 489 (4thCir.1999) Winter v. Natural Res.De! Counsel 129 S. Ct. 365 (2008) Zepeda v. United StatesI.N.s., 753 F.2d 719 (9th Cir. 1985) STATUTES C.P.L.R. § 6201 C.P.L.R. § 6301 DEL. CODEANN. tit. 6, §§ 18-703(a) and (e) (2010) N.Y. LTD. LIAB. CO.LAW §§ 607(a) and (b) (McKinney 2010) NEV. REV. STAT.§§ 87A.480(l) and (5) (West 2009) RULES Fed. R. Civ. P. 64 Fed. R. Civ. P. 65(d) 21 passim 21 21 24 24 24
passim 16 .5 19 5, 13, 15 22
Defendants Lime Wire LLC ("L W"), Mark Gorton, Lime Group LLC ("LG") and the MJ.G. Lime Wire Family Limited Partnership ("LWFLP"), respectfully submit this Memorandum of Law in Opposition to Plaintiffs' Motion for Preliminary Injunction Freezing Assets. For the following reasons,Plaintiffs' motion should be denied in its entirety. PRELIMINARY STATEMENT
Relying solely upon the Court's summaryjudgment ruling on secondaryliability with respect to thirty works, Plaintiffs ask this Court to grant them relief that they are not entitled to-a pre-judgment freeze of "all" of Defendants' assets. Plaintiffs' requestflies in the face of Supreme Court authority, is unprecedentedin its overbreadth, and is premised upon purported fraudulent conveyances asto which the Court has deniedsummaryjudgment. The Court should reject the absurdly broad andpunitive "asset freeze" which threatensto have a devastatingimpact on businesses,non-profit organizations and other entities that have nothing to do with the conduct at issue in this copyright litigation. Plaintiffs have made clear that they intend to elect statutory damages. The United States Supreme Court hasmade clear that a pre-judgment assetfreeze is not an available remedy in connection with a damagesclaim, even where there is evidence that the defendantis dissipating assets(which is not the casehere, as confirmed by the affidavits of a third party forensic accountant and Mr. Gorton). Even if Plaintiffs were to forego statutory damagesand seekdisgorgement of LW's profits from the distribution of the LimeWire Software, then Plaintiffs are limited to an asset freeze restricted to the total of such profits retained by LWand paid out to the three other Defendants. That sum is significantly less than "all" of Defendants' assets. More importantly, even then, Plaintiffs would have to make the requisite "clear showing" that they are entitled to the drastic remedy of a preliminary injunction, which Plaintiffs have not even come close to doing here.
Plaintiffs have not shown -
much less"clearly" -
that they will suffer actual and
imminent irreparable harm in the absenceof injunctive relief. Aside from the inexplicable three year delay in seeking injunctive relief, which alonejustifies its denial, Plaintiffs' assertion that there exists an "actual and imminent threat" that Defendants are dissipating LW' s profits in order to frustrate a potential judgment is without basis in fact. As we show below, the evidence is clear: The Defendants are not engaged,have never engaged,and have no intent to engage,in any effort to dissipate their assets. Mr. Gorton maintains significant assets- in New York. He has no off-shore bank accounts, has never set up any off-shore entities to hold his assets,and maintains his assetsdomestically. An independent accounting expert has conducted a comprehensiveand detailed review of historical financial data for LW, LG and LWFLP and found absolutely no evidence whatsoever that Defendants were attempting to hide, dissipate or otherwise shield assetsfrom potential judgment creditors. The expert concluded that there were no suspicious transfers from LW to investors, vendors or any other party. Although Plaintiffs make much of LW's capital distributions to its investors (some of whom are related to Mr. Gorton) between 2005 and 2007, there is nothing suspicious or untoward about thesedistributions. The independent accounting expert found that thesedistributions - as with all of LW's capital distributions to investors - were consistent both with the recipient's ownership interest aswell as with fluctuations in profitability of the company over time. Indeed, although Plaintiffs speculatethat tens of millions of dollars must have flowed from LW to Mr. Gorton and his family in the years since 2007, the fact is there have been no capital distributions to any investors - whether related to Mr. Gorton, his family, or otherwise - since February 2008. In short, there is simply no basis to conclude that Defendantsever attempted to shield assetsin order to avoid
a potential monetary judgment, let alone that Defendantswould suddenly begin engaging in such conduct in the absenceof a freeze order. Plaintiffs also have not shown a likelihood of successor sufficiently seriousquestions going to the merits on their claims beyond the thirty works at issue on the summaryjudgment opinion. They have not presentedthe Court with a shredof evidence that they own any of the 3000+ other sound recordings identified in their Amended Complaint, or that any such work they do own has been infringed utilizing the LimeWire Software. A plaintiff simply may not obtain a preliminary injunction basedon their pleadings and the argumentsof counsel alone. And there are sharply disputed issuesof fact with respect to Plaintiffs' claims. Nor have Plaintiffs made a clear showing that the balance of hardshipstips decidedly in their favor. Just the opposite is true. Plaintiffs readily admit that the only hardship they could suffer would be their inability to fully collect on a moneyjudgment. But Defendantsand other non-party businessesand not-for-profit organizations that have nothing to do with the conduct at issue in this caseface potentially disastrous effects should the Court grant the extraordinary relief sought by Plaintiffs. Three third-party entities that rely on Mr. Gorton for funding would likely ceaseto exist, with dozens of employeeslosing their jobs. Finally, the scopeof the relief Plaintiffs requestin their ProposedOrder is unfounded. Plaintiffs seekto enjoin personsbeyond thosepermitted by Rule 65. Other relief sought in their ProposedOrder is no where mentioned, let alonejustified in Plaintiffs' brief. For example, Plaintiffs' ProposedOrder would prohibit Defendantsfrom making any paymentsby credit card, even the ordinary coursepayments that are excluded from the proposed freeze. It also would require the appointment of a "fiscal agent" to pre-approveordinary coursepayments,including the
daily living expensesofMr. Gorton's family. There is no basis for such a draconian and punitive remedy. Plaintiffs' motion should be denied. In the event, however, that the Court determines that some kind of assetfreeze is appropriate, it must be carefully limited to personswho may properly be enjoined under Rule 65, and be "narrowly tailored" to provide only that relief Plaintiffs have demonstrated they are entitled to, and without which they will suffer imminent irreparable harm. Here, that could at most amount to a freeze over the assetsofLW, LG and LWFLP (other than funds neededfor ordinary course payments), plus a freeze of no more than _ Gorton's assets. ofMr.
Mark Gorton. Mr. Gorton is a successfultrader, investor and entrepreneur. With a background in engineering and an MBA, yearsbefore LW ever made a profit, he co-founded several large financial companies and founded a significant not-for-profit organization dedicatedto green transportation, open government and open sourcemapping (Open Plans). SeeDeclaration of Mark Gorton datedJune 30,2010 ("Gorton Decl."),,-r,-r 2-12, 18-20. Mr. Gorton amassedmost of his wealth from trading and investment activities. Id. ,-r,-r 24. He holds his assetsin the United 6, States, Id. ,-r,-r 25,32-33. Mr. Gorton continues to fund severalentities and organizations, including a startup electronic heathrecords company (Lime Medical), a start-up website building business(Lime Labs), and severalnot-for-profits. Id. ,-r,-r 14-16,21-23. A freeze on all of Mr. Gorton's assets would cripple severalof these entities, resulting in dozensof lost jobs, and the loss to the public of the valuable work being done by OpenPlans. Seeid. ,-r,-r 16, 21, 35; 14,
Declaration of John Enright ("Enright Decl."), ~~ 4-5; Declaration of Sunil Sreenivasan ("Sreenivasan Dec!.) ~~ 2, 5; Declaration of VanessaHamer ("Hamer Dec!."), ~ 5. Lime Wire. Over the years LW has made distributions to its investors consistent with the profits ofLW. Declaration of Anthony M. Lendez ("Lendez Decl."), ~ 15. There have been no
disproportionate distributions to Mr. Gorton or his related entities or family members. Id. ~ 16. Disbursements from LW, LG, and LWFLP to Mr. Gorton and his related entities significantly decreasedfrom 2007 to the present. Id. ~ 11. LW hasmade no distributions to Mr. Gorton, is related entities or any other investors (including Mr. Gorton's relatives) since February of2008. Id. ~ 16. Since then, LW's profits have largely been re-invested in a separatebusinessunit referred to as LimeWire Store, which is an on-line music service offering licensed downloads. Gorton Decl, ~ 26. LW has invested_ significant assets. Declaration of George Searle("Searle Decl.") ~ 7. This Motion. Nearly four years after filing their Complaint, and more than three years since learning of the only transfers on which Plaintiffs basetheir speculation that Defendants are engaged in the dissipation of their assets,Plaintiffs filed the instant motion for preliminary injunction. They also filed a proposedorder that contains extensiveprovisions well beyond any relief requestedin there brief. For the reasonsset forth below, the motion should be denied. ARGUMENT I. PLAINTIFFS ARE NOT ENTITLED TO A PRELIMINARY FREEZING DEFENDANTS' ASSETS INJUNCTION in LimeWire Store. Lendez Decl. Ex. A. It also holds other
Becausea preliminary injunction is an "extraordinary and drastic remedy," it should not be granted unless the movant, "by a clear showing, carries the burden of persuasion." Sussmanv. -5-
Crawford, 488 F.3d 136,139-40 (2d Cir. 2007) (emphasis in original) (quoting Mazurek v. Armstrong, 520 U.S. 968, 972 (1997)); accord Winter v. Natural Res.De! Counsel, 129 S. Ct. 365, 375-76 (2008). Thus, to be entitled to the extraordinary remedy soughthere, Plaintiffs must clearly establish (i) irreparable harm; (ii) likelihood of successon the merits or sufficiently serious questions going to the merits to make them fair ground for litigation; (iii) a balance of hardships tipped in favor of Plaintiffs - decidedly so where there are serious questionsgoing to the merits; and (iv) that the injunction is in the public interest. Id. at 374. A. Plaintiffs Have Not Shown Irreparable Harm
Irreparable harm is "'the single most important prerequisite for the issuanceof a preliminary injunction." Freedom Holdings, Inc. v. Spitzer, 408 F.3d 112, 114 (2d Cir. 2005) (quoting
Rodriguez v. DeBuono, 175 F.3d 227,233 (2d Cir. 1999)). Accordingly, "the moving party must first demonstratethat such injury is likely before the other requirementsfor the issuanceof an injunction will be considered." !d. at 234. To satisfy the irreparable harm requirement, Plaintiffs must show that unlessthe injunction they requestis entered, "they will suffer 'an injury that is neither remote nor speculative, but actual and imminent,' and one that cannot be remedied 'if a court waits until the end of trial to resolve the harm,'" Id. (citation omitted). In an effort to satisfy this heavy burden, Plaintiffs argue that they will be irreparably harmed absentan injunction becauseDefendants and, in particular, Mr. Gorton will attempt to dissipate assetsby transferring them from LW to private family partnerships or other family members. PIs. Mem. at 17. In support of this assertion,Plaintiffs rely exclusively on the fact that, between 2005 and 2007, LW distributed funds to LWFLP and other LW investors, including some who are related to Mr. Gorton. Id.
As an initial matter, Plaintiffs claim of irreparable harm should be rejected becausePlaintiffs have known about thesetransfers but took no action for over three years. SeePIs. Mem. in Support of Motion for Leave to File an Amended Complaint, at 7 (Dkt. No. 28). Courts in this Circuit have rejected claims of irreparable harm where the delay was far shorter than Plaintiffs' substantialdelay in this case. See,e.g., Citibank, NA. v. Citytrust, 756 F.2d 273, 277 (2d Cir. 1985) (internal quotations omitted) (ten weeks delay); JSC Foreign Econ. Ass 'noTechnostroyexport V. Int 'I Dev. and Trade Servs.,295 F. Supp. 2d 366, 390 (S.D.N.Y. 2003) (six-week delay) (citing cases);L.G.B. Inc.
Gitano Group, Inc., 769 F. Supp. 1236, 1242 (S.D.N.Y. 1991) (four month delay); seealso
Majorica, S.A. v. R.H. Macy & Co., Inc., 762 F.2d 7, 8 (2d Cir. 1985) (reversing grant of
preliminary injunction where district court failed to consider effect of substantial delay on claim of irreparable harm and noting that "[l]ack of diligence, standing alone, may ... preclude the granting of preliminary injunctive relief").' Moreover, and perhaps more importantly, the transfers so heavily relied upon by Plaintiffs utterly fail to support their assertion that Mr. Gorton or the other Defendantsintend to dissipate LW's assetsor otherwise evade potential judgment creditors. To the contrary, a forensic accountant with the international account firm of BDO Seidmanfound that the distributions relied upon by Plaintiffs-as with all of LW' s capital distributions to investors-were consistent both with the
recipient's ownership interest as well aswith fluctuations in the profitability of LW over time. Lendez Decl. ~~ 12-16. In other words, there was nothing suspicious,unusual or otherwise
1 Serio V. Black, Davis & ShueAgency, Inc., No. 05 Civ. 15 (MHD), 2005 WL 3642217 (S.D.N.Y. Dec. 30,2005), relied upon by Plaintiffs, is not to the contrary. In fact, the Court in that caseconfirmed that "[ s]ignificant delay in seekinga preliminary injunction" weighs againsta finding of irreparable harm. !d. at * 18. In Serio, although the conduct at issuewas over four years old, "Plaintiff apparently first learned of the diversion of moneys" sevenmonths before filing his motion. Id. And although even that delay was "troubling," it was "attributable to plaintiff's efforts to obtain discovery as to the details of the transactions" used to divert the money. Id. at *18. The Court also noted the existence of other evidenceupon which it substantially relied in finding irreparable harm. Id. at *17-18. -7-
untoward about thesetransfers from LW. Plaintiffs' further speculation that "tens of millions of dollars" must have flowed from LW to Mr. Gorton and his family members in the years since November 2007 (Pis. Mem. at 6) is similarly wrong. There hasbeen only one capital distribution to LW investors - including investors related to Mr. Gorton - since November 2007, totaling approximately _. Lendez Decl. ~ 16 & n.15. Since then, LW has used its profits only for
operating expensesand to build an on-line music service offering licensed downloads of digital sound recordings with the goal of working collaboratively with the recording industry. Lendez Decl. ~~ 11, 17; Gorton Decl. ~ 26. Lendez Decl. ~ 16. More generally, the expert who reviewed detailed historical financial data for LW, LG, and LWFLP in an effort to identify changesin disbursementpatterns,unusual or suspicious payment activity, irregular disbursement amountsor other potential indicia of dissipation, found "no indication" that LW, LG, or LWFLP "is moving assetsin an attempt to hide or protect them from a potential judgment creditor" - whether through capital distributions or otherwise. Id. ~~ 10-11. In particular, Mr. Lendez identified no suspiciousor unusual disbursementsfrom LW to Mr. Gorton's family members,vendors, investors, or other entities with which Mr. Gorton is involved. Id. ~~ 11, 17. There similarly is no indication that Mr. Gorton is dissipating any profits of LW, which, as explained below, are the only assetsthat could properly be subject to any assetfreeze order. See Gorton Decl. ~~ 25-26, 31-34. He maintains significant assetsin his name, and all of his assets within the United States. Id. at ~~ 25, 32. In fact, he maintains bank accountsin New York holding approximately $17 million. Id. ~ 32. He has no off-shore bank accounts,and has never setup any off-shore entities to hold his assets. Id. ~ 33. Mr. Gorton is an avid investor, and hasusedhis assets
to createmore wealth through investments. Id. ~~ 6,24. Mr. Gorton's conduct in keeping substantial assetswithin the United Statesbelies any inference basedon the establishment of the LWFLP in 2005 that he is currently engagedin conduct intended to hide his assetsfrom Plaintiffs? The lack of any evidence of a current intent to dissipate assetshere standsin stark contrastto the facts at issuein the casesrelied upon by Plaintiffs. In Arista RecordsLLC v. Usenet. om, Inc., c No. 07-CV-8822 (HB) (THK) (S.D.N.Y. Feb. 2, 2010), plaintiffs presentedevidence that the defendant was in theprocess of dissipating his assetsat that time, including purchasing a large home in Florida protected from liens by Florida law, and making payments"to a third party apparently located in Russia under highly suspicious circumstances." Id. Dkt. No. 255 (Prelim. Injun. Order) at 1-2; Id., Dkt. No. 302 (PIs. Perm. Inj. Mem.), at 2; Dkt. No. 306 (Am. Report and Recommendations),at 11, 21.3 In Quantum Corporate Funding, Ltd. v. Assist YouHome Health Care Servicesof Va., 144 F. Supp. 241 (S.D.N.Y. 2001), a caserepeatedly cited by Plaintiffs (PIs. Mem. at 9,10,15,18), the Court found an imminent threat where the defendant companieswere "wrought with accounting and payroll problems" and owned and controlled by individual defendant who had "a history of making judgments uncollectible" by shutting down companies. Id. at 245-46, 248. And in Motorola, Inc. v. Abeckaser,No. 07-CV-3963 (CPS)(SMG), 2009 WL 1362833 (E.D.N.Y. May 14,2009), the defendanttransferred his home during the litigation and in violation of an expressprovision of the parties' agreementthat prohibited the transfer. Id. at * 1, *3. The Motorola court also found an imminent threat of assetdissipation becausethere was evidencethat
2 This point distinguishes Serio. In Serio, the Court concluded that transfers that took place several yearsbefore the assetfreezemotion raised a concern "that defendantis continuing to drain those funds." 2005 WL 3642217, at * 16. But there was no indication that the Serio defendanthad submitted evidence(such as that which Defendants have presentedhere) reflecting conduct inconsistent with a current intent to dissipateassets. 3 The court in Usenethad already found defendantsto have engagedin a pattern of egregious misconduct throughout the case. Id. at Dkt. No. 306, at 11,21; Dkt. No. 240 (Opinion and Order), at 8-12, 15-16 (defendants sanctionedmultiple times for widespreaddiscovery misconduct).
the defendant was then attempting to transfer other assets,and that he was planning to leave the country. Id. at *3. Here, there is simply no proof of any such egregious conduct or ongoing efforts to dissipate assetsassets. Accordingly, the Court should deny Plaintiffs' motion. See,e.g., Merit Capital Group, LLC v. Trio Indus. Mgm 't, LLC, No. 04 Civ. 7690 (RCC), 2005 WL 53283, at *2 (S.D.N.Y. Jan. 10,2005) ("Plaintiffs speculative and unsubstantiated assertions"failed to support finding of
imminent dissipation of assets);Dreier v. Music Makers Group, Inc., No. 73 Civ. 1470, 1973WL 399, at *2 (S.D.N.Y. June 20, 1973) (denying motion for preliminary injury where allegation of imminent dissipation of assetswas unsupported). B. Plaintiffs Have Not Demonstrated a Probability of Success the Merits that on Would Justify A Preliminary Injunction FreezingAssets
In order to obtain the extraordinary remedy of a preliminary injunction, the moving party must come forward with evidence that it is likely to succeedon the merits of its claims. See,e.g., ESPN, Inc. v. Quiksilver, Inc., 586 F. Supp. 2d 219, 229 (S.D.N.Y. 2008) ("On preliminary injunction motions, the plaintiff cannot rest on its pleadings, but must offer evidence showing that it is likely to prevail on the merits at trial."; contrasting obligation on motion to dismiss); Bascom Food Prods. Corp. v. ReeseFiner Foods, Inc., 715 F. Supp. 616, 624 n.14 (D.N.J. 1989) (plaintiff "must offer proof beyond the unverified allegations of the pleadings"); 13 Moore's Federal Practice § 65.23  (3d ed. 2010) ("Allegations contained in an unverified complaint may not be considered in support of a motion for a preliminary injunction"). Here, Plaintiffs' two paragraph discussionof likelihood of successon the merits of their copyright claims (PIs. Mem. at 11-12) relies entirely on the Court's Amended Opinion and Order of May 25,2010. But that Opinion decided liability only with respectto thirty sound recordings. Am. Order at 5. Plaintiffs have made no showing whatsoeverin this motion or elsewhereas to the alleged infringement of the remaining -10-
"thousands" of recordings for which they seekrelief. PIs. Mem. at 8. They have come forward with no proof of ownership or infringement of any works beyond the 30 addressedin the Order. Plaintiffs' lack of proof dooms their request,since they do not and cannot contend that there is any risk Defendantswould be unable to satisfy a disgorgement of profits judgment with respectto 30 works. Plaintiffs likewise have not shown a probability of successas to their fraudulent conveyance claim againstMr. Gorton or unjust enrichment claim against LWFLP. Nor could they; the Court has already held that a genuine issue of fact exists as to both claims. Am. Order at 57. Because there are sharply contested issuesof fact with respect to theseclaims, there is no basis to find a likelihood of success. See Giraldo v. Rosen,355 F. Supp. 54, 57 (S.D.N.Y. 1973) (court should not find probability of successfor purposesof preliminary injunction where "sharply contestedissuesof fact exist"); Arch Assocs.,Inc. v. Hedeya Bros., Inc., No. 93 CIY. 4267 (RWS), 1993 WL 426888, at *5-6 (S.D.N.Y. Oct. 21,1993) (no probability of successon merits where "[s]erious unresolved factual issuesexist"). Plaintiffs' assertionsconceming the timing ofMr. Gorton's establishmentof the LWFLP in relation to the Grokster decision is rank speculation. The case-lawmakes clear that when intrafamily transfers are at issue, courts must look to the entire context to determine whether a particular transfer constitute a fraudulent conveyance. See,e.g., In re Manshull Const. Corp., No. 96B44079 (JHG), No. 96B44080 (JHG), 97 CIV. 8851 (JGK), 99 CIY. 2825 (JGK), 2000 WL 1228866,at *48 (S.D.N.Y. Aug. 30,2000). Here, Mr. Gorton had been advised for yearsby his accountantsto consult with an attomey about estateandtax planning measuresdue to the breadth of his assets. Gorton Decl. ~ 33. In early January 2005, six months before the SupremeCourt decided Grokster, Mr. Gorton took that advice. Although the formal organization of the LWFLP was completed in
June of2005, the structure and assetsto be contributed was decidedlong before then. Mr. Gorton was not even threatenedwith legal action by Plaintiffs until months later. Id. These chronological facts belie Plaintiffs' speculation that Mr. Gorton establishedthe LWFLP with the intent to defraud Plaintiffs. See,e.g., In re Manshull, 2000 WL 1228866, at **32-36 (rejecting fraudulent conveyanceclaim where chronological facts showed that the transfersat issue were made aspart of a bonajide estateplan).
The Balance of Hardships DoesNot Tip Decidedly in Plaintiffs' Favor
Even if the Court concludes that Plaintiffs have demonstratedsufficiently serious questions going to the merits of their claims, Plaintiffs have not demonstratedthat the balance of hardships tips "decidedly" in their favor. See,e.g., Salinger v. Colting, _ F.3d _ No. 09-2878-cv, 2010 WL 1729126, at *9 (2d Cir. Apr. 30,2010) (where court relies upon showing of sufficiently serious questions, balanceof hardships must tip decidedly in plaintiffs favor). Before granting a preliminary injunction, the Court "must balance the competing claims of injury and must consider the effect on eachparty of the granting or withholding of the requestedrelief." Winter, 129 S. Ct. at 376 (citation omitted). The Court likewise should consider the impact on non-parties. Where granting the preliminary injunction would injure non-parties, that weighs against granting the relief. SeeGreat Earth Int 'I. Franchising Corp. v. Milks Devs., Inc., 302 F. Supp. 2d 248, 255 (S.D.N.Y. 2004). Plaintiffs readily admit that the only harm they might suffer would be the inability to fully collect on a money judgment basedon an award of statutory damages. PIs. Mem. at 18. But, as explained below, becausepreliminary injunction freezing assetsis not available in connectionwith claims for monetary damages,at most Plaintiffs would be entitled to a freeze order limited to the profits of LW from its distribution of the LimeWire Software, which Plaintiffs could seekto
disgorge. Plaintiffs have made no showing that Defendants could not fully satisfy ajudgment disgorging profits. In contrast, the relief Plaintiffs requestwould lead to considerableharm to Defendants and third parties. Plaintiffs seek to enjoin "all" of Defendants' assets. ProposedOrder at 1. If Mr. Gorton cannot continue funding Lime Labs, Lime Medical, and Open Plans-two start-ups and a
not-for-profit entity that rely upon Mr. Gorton's funding for their existence, theseentities will likely go out of business,resulting in the loss of dozens of jobs, and the elimination of any chancethat Mr. Gorton will receive a return on his large investments in Lime Labs and Lime Medical. Gorton Decl. ~~ 14,16,21,35; Sreenivsan Decl. ~5; Enright Decl. ~~ 4-5; Hamer Decl. ~5. Plaintiffs' Proposed Order also would prohibit Defendantsfrom making even ordinary coursepayments without prior authorization by a fiscal agent designatedby the Court, and would prohibit Defendants from making any payments (whether ordinary courseor not) by credit card. ProposedOrder at 1.C.E. Sucha broad injunction would significantly disrupt the ongoing businessoperations of LWand otherwise causesubstantial hardship to the company. SearleDecl. at ~~ 3-6. Plaintiffs' argument that there is no harm to Mr. Gorton becausehe hasno right to use the profits ofLW (PIs. Mem. at 19) simply ignores the fact that Mr. Gorton hasassetsin excessof the LW profits he has received. SeeGorton Decl. ~ 24-25. Even Plaintiffs cannot seriously dispute that it would be a hardship for an individual to obtain pre-approval/or any payment 0/any kind and to forgo all use of credit cards with respect to assetsthat cannot be enjoined. Lest there be any doubt, Mr. Gorton has confirmed this to be the case. Seeid. ~ 36. He also has demonstratedthat a freeze on his assetswould otherwise result in hardship becausehe would be unableto obtain any return on his significant investments in Lime
Medical and Lime Labs, and would lose the ability to reinvest his frozen assets,resulting in direct loss of income. Id.,-] 14, 16,35.4 Far from clearly tipping decidedly in Plaintiffs' favor, the balance of hardships here tip decidedly the other way. Accordingly, the Court should deny Plaintiffs' requestedpreliminary injunction. SeeKraft Gen. Foods, Inc. v. Del Monte Corp., No. 93 Cv. 4413, 1993 WL 557864, at *43 (S.D.N.Y. Sept. 22, 1993) (balanceof hardships weighs againstparty whose only (prospective) injury would be money, while other party would suffer immediate injury to its business);Joneil Fifth Ave. Ltd. v. Ebeling & ReussCo., 458 F. Supp. 1197, 1201-02 (S.D.N.Y. 1978) (denying preliminary injunction that would harm third party's business); Great Earth, 302 F. Supp. 2d at 255 (denying preliminary injunction that would prevent third parties from taking stepsto increasetheir businessrevenues). D. The Public Interest DoesNot Support an Injunction
Plaintiffs must make a clear showing that the preliminary injunction they seekis in the public interest. See Winter, 129 S. Ct. at 374. This showing is particularly difficult where a case involves only private parties. See,e.g., s.E.C. v. Cavanagh,445 F.3d 105, 118 n.29 (2d Cir. 2006). Plaintiffs have made no such showing here.
4 Plaintiffs' proposed order purports to carve out from any assetfreeze "purchases,salesor other investmentsof assetsof third parties, or of assetsof Defendantsor Defendant Affiliates commingled with assetsof third parties,by any Investment Affiliate pursuant to normal trading activities." (ProposedOrder at I.A.3) Defendants understandthat the intent of this carve-out is to allow third parties designatedasDefendant Affiliates, including those whose operating funds may involve funds commingled with Defendants' funds, to carryon their normal businessactivities even if an assetfreeze is entered in this action. Defendants' understandingis consistent with what Plaintiffs' counsel has previously representedto the Court. SeeLetter from Glenn D. Pomerantzto the Honorable Kimba M. Wood, datedJune 15,2010, at 2.
However, to the extent that it is Plaintiffs' position that their ProposedOrder would freeze operating funds of any of the "affiliates" with operations other than normal trading activities and paymentsto third parties, without any exception for ordinary coursepayments (relief that as explained infra Plaintiffs are not entitled to), there would be an obvious, irreparable and severe hardship to theseentities as well. SeeGorton Decl. ,-]35. -14-
Instead,Plaintiffs rely entirely for their public policy argument on two casesfrom outside of this Circuit that did not even addressa requestfor an injunctionjreezing assets. SeeNintendo of Am., Inc. v. Lewis Galoob Toys,Inc., 16 F.3d 1032 (9th Cir. 1994); Echostar Satellite LLC v. Rollins, No. 5:07-CV-00096, 2008 WL 314145 (S.D.W.Va. Feb. 4, 2008). Moreover, in Nintendo, the Ninth Circuit held that public policy only supports entry of permanent injunctions in intellectual property suits, and not preliminary injunctions. Nintendo, 16 F.3d at 1038. A preliminary injunction freezing assetsin this private dispute, which would result in, among other things, the loss of dozensof jobs and the crippling of a not-for-profit organization, plainly would not be in the public interest. SeeAm.Cyanamid Co. v. U.S Surgical Corp., 833 F. Supp. 92,125 (D. Conn. 1992) Gobloss, especially in "difficult economic times," is not in public interest).
Plaintiffs Would Be Required to Post a Significant Security if A Preliminary Injunction Were Granted
Plaintiffs concedethat where hardship may result from the issuanceof a preliminary injunction, the movant must post a bond. PIs. Mem. at 19. Rule 65(c) of the Federal Rules of Civil Procedurespecifically requires that the movant post a bond in an amount determined by the Court to provide security for the payment of all "costs and damagesas may be incurred or suffered by any party who is found to have been wrongfully enjoined." Seealso Grupo Mexicano de Desarrollo, SA. v. Alliance Bond Fund, Inc., 527 U.S. 308, 340-41 (1999) (Ginsburg, J., dissenting) (noting bond requirement as important safeguard). As explained above, the preliminary injunction Plaintiffs seekwould likely causeseveral entities to go out of business, dozensof people to lose their jobs, and other serioushardshipsto Defendants,including lost retum on substantial investments. Thus, if the Court entersthe requested relief, Plaintiffs should be required to post bond of hundreds of millions of dollars. SeeSanofiSynthelabo v. Apotex Inc., 488 F. Supp.2d 317,349 (S.D.N.Y.), aff'd, 470 F.3d 1368(Fed. Cir. -15-
2006) (requiring plaintiff to post $400 million injunction bond to adequately protect defendants from "lost profits, lost market shareand associatedcosts"); Shred-It Am., Inc. v. Haley SalesInc., No. 01-CV-0041E(SR), 2001 WL 209906, at *4 (W.D.N.Y. Feb. 26, 2001) (injunction bond should be sufficient to fully compensateparty likely to be driven out of businessby injunction); Algonquin Power Corp., Inc. v. Trafalgar Power Inc., No. CIVA5:00CV1246, 2000 WL 33963085,at *22 (N.D.N.Y. Nov. 8,2000) (considering defendant's inability to reinvest frozen assetsin determining amount of bond for injunction). II. THE SCOPE OF THE PRELIMINARY INJUNCTION PLAINTIFFS SEEK GOES BEYOND THE COURT'S EQUITABLE POWERS, IS OVERBROAD AND LACKS THE REQUIRED SPECIFICITY A. A Preliminary Injunction to FreezeAssetsIs Only Available with Respectto the Profits of Lime Wire that Plaintiffs Seekto Disgorge from Defendants
The scopeof Plaintiffs' ProposedOrder covering "all" of Defendants' assetsseeksto defy the clear edict of the United StatesSupremeCourt and, at the sametime, impermissibly penalize Defendants (and third parties). Plaintiffs emphasizehow large any statutory damagesaward might be in this action asjustification for the broad injunctive relief they seek. But under the seminal case Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308 (1999), a preliminary injunction to freeze assetspending judgment on claims for money damagesstatutory or punitive actual,
is only available with respectto assetsin which the moving party has a
contemporaneous"lien or equitable interest." Id. at 310,333; see,e.g., CSCHoldings, 309 F.3d at 996 (Grupo Mexicano bars preliminary injunction to protect potential judgment for statutory and actual damages). This is true regardlessof whether a court is sitting in law or equity: "Even when sitting as a court in equity, we have no authority to craft a 'nuclear weapon' of the law" restraining a civil defendants' assetsin which the movant has no lien or equitable interest. Grupo Mexicano, 527 U.S. at 332. -16-
In Grupo Mexicano, the SupremeCourt reversedthe SecondCircuit's holding that "a district court has authority to issue a preliminary injunction where the plaintiffs can establishthat money damageswill be an inadequateremedy due to impending insolvency of the defendantor that defendanthas engagedin a pattern of secreting or dissipating assetsto avoid judgment." Alliance Bond Fund, Inc. v. Grupo Mexicano de Desarrollo, S.A., 143 F.3d 688, 696 (2d Cir. 1998) (internal quotations and citation omitted); see 527 U.S. at 333. Although it was a casewhere there was no defense,the plaintiffs would likely be unable to satisfy anyjudgment due to the defendant's ongoing transfer of its assetsto preferred creditors, andthere was other evidence that the defendant was actively concealing assets,see527 U.S. at 341-42, the Court held that a party seeking a money judgment may not obtain a preliminary injunction freezing assetsto ensurethat they are available to pay a subsequentjudgment, id. at 333. In so holding the Court explained: "[W]e suspectthere is absolutely nothing new about debtors' trying to avoid paying their debts, or seekingto favor some creditors over others-or even about their seeking to achievetheseends through 'sophisticated ... strategies. The law offraudulent conveyancesand bankruptcy was developed to prevent such conduct; an equitable power to restrict a debtor's useof his unencumberedproperty before judgment was not." !d. at 322 (emphasisadded). To hold otherwise, would be a "dramatic departure" from longstanding principles. !d. at 329; accord Karaha Bodas Co., L.L. C. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 500 F.3d 111, 117 n.8 (2d Cir. 2007), cert. denied, 128 S. Ct. 2958 (2008). After Grupo Mexicano, a preliminary injunction freezing assetsis available only where a movant has an equitable interest or lien in specific funds for
example, a claim for disgorgementof "ill-gotten" profits. See,e.g., SEC v. ETS Payphones,Inc., 408 F.3d 727,734-35 (l l th Cir. 2005); Serio, 2005 WL 3642217, at *6; OSRecovery,Inc. v. One Groupe uĞ: Inc., 305 F. Supp. 2d 340, 348 (S.D.NY. 2004); Newby v. Enron Corp., 188 F. Supp. -17-
2d 684, 696 n.6 (S.D. Tex. 2002) ("District courts since Grupo Mexicano have consistently recognized the requirement that a private plaintiff must allege a cognizable claim in equity, having a sufficient nexus to the assetssoughtto be enjoined, before a court may issue a prejudgment injunction freezing or limiting a defendant's use of his assets.")(citing cases). The import of Grupo Mexicano here is clear: Plaintiffs may not obtain a preliminary injunction freezing assetsin order to protect a potential judgment for actual, statutory or punitive damages,whether or not the potential judgment might be sizeable,and with or without any intent to frustrate it. See,e.g., 527 U.S. at 322,328,333; 1800Postcards,Inc. v. Morel, 153 F. Supp. 2d 359, 366 (S.D.N.Y. 2001). Thus, the very basis on which Plaintiffs seekto justify an assetfreeze herethe supposedlikelihood of a large damagesaward - is foreclosed by Grupo Mexicano. Plaintiffs can seek an assetfreeze with respectto profits they could elect to disgorge, but even then the amount of the freeze would have to be limited to the amount Plaintiffs could potentially disgorge, and no more. See,e.g., Serio, 2005 WL 3642217, at *9; ETS Payphones, 408 F.3d at 734-35; United Statesex ref. Rahman v. Oncology Assocs., P. c., 198 F.3d 489, 496-97 (4th Cir. 1999) ("This nexus between the assetssought to be frozen through an interim order and the ultimate relief requestedin the lawsuit is essentialto the authority of a district court in equity to enter a preliminary injunction freezing assets.,,).5 Although Plaintiffs request"a preliminary injunction imposing an immediate freeze on all of Defendants' assets" (PIs. Mem. at 1), their brief suggeststhat they in fact well understandthat the most to which they could be entitled to enjoin would be the amount of LW's allegedly ill-gotten
5 In addition to seeking disgorgement,Plaintiffs also seekto set aside transfers and restitution (regarding the subject of thosetransfers)basedon claims that Mr. Gorton fraudulently conveyed assetsfrom LW to LWFLP. E.g., PIs. Mem. at 2, 3-6. To the extent assetssubject to recovery under Plaintiffs' fraudulent conveyanceand/or unjust enrichment claim could be frozen under Grupo Mexicano, all such assetswould be subsumedaspart of the allegedly "ill-gotten gains" from LW in any event. SeePIs. Mem. at 5-6. -18-
profits distributed to the other defendantsor retained by LW. See,e.g., PIs. Mem. at 1,2-3. But Plaintiffs try and confuse the Court into granting a freeze over assetsbeyond profits received from LW by referencing the on-point SupremeCourt authority in a footnote (PIs. Mem. at 10 n.5), and citing extensively in the text of their briefto casesthat were decided before Grupo Mexicano and relied upon by the SecondCircuit for its holding that was ultimately reversedby the SupremeCourt. SeePIs. Mem. at 8-9 (citing Pashaian v. Eccelston Properties, Ltd., 88 F.3d 77 (2d Cir. 1996); Republic of Phil. v. Marcos, 806 F.2d 344 (2d Cir. 1986); In re FeU & Drexler, Inc., 760 F.2d 406 (2d Cir. 1985)); seeAlliance Bond, 143 F.3d at 692-93, 695, 697. The only two post-Grupo Mexicano casescited by Plaintiffs are entirely consistentwith Grupo Mexicano 's holding that a movant must have a lien or equitable interest in the assetssought to be frozen on a motion for preliminary injunction. SeeQuantum, 144 F. Supp. 2d at 249 (discussing Grupo Mexicano and entering injunction of specific assetsin which movant had a security interest); Mason TendersDist. Council Pension Fund v. Messera, No. 95 CIV. 9341 (RWS), 1997 WL 223077 at *8 (S.D.N.Y. May 7, 1997), at *8 (to obtain a preliminary injunction freezing assetsplaintiff must show"(2) that the final relief requestedis equitable in nature; [and] (3) that the frozen assetsare related to the subject matter of the action"). Although Plaintiffs concedeas they must that any assetfreeze must be limited to "the direct proceeds of Defendants' illegal conduct that is the subject matter of this action" (PIs. Mem. at 11) (emphasisadded), Plaintiffs have failed to make any showing as to that amount. It is "incumbent on a district court to match the scopeof its injunction to the most probable size of the likely judgment, thereby sparing the defendant from undue hardship." Grupo Mexicano, 527 U.S. at 340-41 (Ginsburg, J., dissenting) (internal quotations omitted). Thus, Plaintiffs have "the burden [of] showing the amount of assetssubject to disgorgement(and, therefore available for freeze)." ETS -19-
Payphones, 408 F.3d at 735. In addition, the preliminary injunction "must perforce be limited to those proceeds not identified ashaving been dispersedto other entities and individuals, who are not parties to this litigation." Serio, 2005 WL 3642217, at *9 (citations omitted). Plaintiffs have made no showing as to the value of the assetsin which they claim equitable interest, save a vague allegation that "Lime Wire has earnedsignificant profits from its facilitation of enormous infringement." PIs. Mem. at 4. In fact, as determined by an independentaccountant, Mr. Gorton received only approximately _ from LW since August 4,2003 (i.e., the period
for which Plaintiffs may obtain any recovery basedupon the Copyright Act's three year statute of limitations). Lendez Decl. ~ 8. LG, LWFLP and Mr. Gorton combined received approximately $31.7 million. Id. ~ 9. LW itself has retained substantialprofit. Id. ~ 16 & Ex. A (reflecting $14.6 million investment in LimeWire store); SearleDecl. ~ 7. Thus, at most, any assetfreeze may only be enteredwith respectto the assetsofLW, LGand LWLFLP, and any assetfreezewith respect to Mr. Gorton must be limited to
6 Plaintiffs cursorily point out this Court's authority through Rule 64 of the Federalrules of Civil Procedureto issue a preliminary injunction under New York law (i.e., N.Y. C.P.L.R. § 6301). PIs. Mem. at 9 n.4. But the standardsgoverning injunctive relief under New York law are identical to those governing Rule 65 of the Federal Rules of Civil Procedure. Credit Agricole Indosuez v. RossiyskiyKredit Bank, 94 N.Y.2d 541, 547 (2000).
Without any discussion whatsoever, Plaintiffs also mention in a footnote New York's attachment statute,N.Y. C.P.L.R. § 6201. PIs. Mem. at 9 n.4. But Plaintiffs have neither moved for relief under that statute,complied with its formal requirements(including the required plaintiff's affidavit), nor offered any argument as to why they should be entitled to relief under it. They would not be. As Plaintiffs presumably are aware, "Plaintiffs' burden of proving the right to an attachment is 'high'" and "the New York attachment statutesare construed strictly againstthosewho seekto invoke the remedy." In re Amaranth Natural Gas CommoditiesLitig., _ F. Supp.2d _, No. 07 CIY. 6377 (SAS) 2010 WL 1838718, at *2 (S.D.N.Y. May 3,2010). Indeed, Plaintiffs' motion makes no showing whatsoeveras to certain elementsrequired for attachmentand falls well short of meeting other elements. Plaintiffs cannot do an endrun around "complying with local attaclunent and garnishment statutes" simply by styling their requestas one for a preliminary injunction. Grupo Mexicano, 527 U.S. at 330-31. To the extent Plaintiffs determine to move under N.Y. C.P.L.R. § 6201, Defendantsreservethe right at that time to oppose any suchmotion. -20-
The ProposedInjunction is Overly Broad and Lacks the Required Specificity
Preliminary injunctive relief "should be 'narrowly tailored to fit specific legal violations' and to avoid 'unnecessaryburdens on lawful commercial activity. '" Faiveley Transp. Malmo AB v. Wabtec Corp., 559 F.3d 110, 119 (2d Cir. 2009) (citation omitted); seealso Zepedav. United States I.N. s., 753 F.2d 719, 728 n.l (9th Cir. 1985). Moreover, every restraining order must "describe in reasonabledetail ... the act or acts restrained or required." Fed. R. Civ. P. 65(d). An injunction order that is indefinite, vague or ambiguous will be vacated. See,e.g., Fonar Corp. v. Deccaid Servs.,Inc., 983 F.2d 427,430 (2d Cir. 1993); Peregrine Myanmar Ltd. v. Segal, 89 F.3d 41,52 (2d Cir. 1996). The scope of the relief Plaintiffs request is inordinate. Beyond seeking to enjoin all of the assetsof all of the Defendants, Plaintiffs requesta slew of relief in their ProposedOrder that they do not mention anywhere else in their moving papers,much less provide any support for, and to which they are not entitled. They also have included languagethat is vague and ambiguous,making compliance with the ProposedOrder uncertain. First and foremost, Plaintiffs include within the sweepof their proposed enjoined persons not only the named Defendants,who are subject to this Court's jurisdiction, but also a long list of non-parties (ProposedOrder at I.A) that far exceedsthe permissible scopeof personsor entities who can be bound by an injunction under Rule 65(d)(2) (limiting personsbound by an injunction to "the parties," and their "officers, agents,servants,employees,and attorneys" and "other person who are in active concert or participation with" any of thosepersonsor entities). Plaintiffs have offered no explanation for their inclusion of additional personssuch as "distributors," "corporations" and "affiliates" in their definition of persons to be bound by the order. The law doesnot permit it. Although a party that is "in active concert" with a defendantmay be held in contempt for
facilitating a violation of an injunction, it is "axiomatic that courts may only enjoin parties before the court." E.A. Renfroe & Co., Inc. v. Moran, 338 Fed. Appx. 836, 839 (11th Cir. 2009) (per curiam); seeAdditive Controls & MeasurementsSys.,Inc. v. Flowdata, Inc., 96 F.3d 1390, 1394 (Fed. Cir. 1996) ("Courts of equity have long observedthe general rule that a court may not enter an injunction against a person who has not been made a party to the casebefore it."): Dystar Corp. v. Canto, 1 F. Supp. 2d 48,57-58 (D. Mass. 1997) ("'Having a relationship to an enjoined party of the sort set forth in Rule 65(d) exposesa non-party to contempt for assisting the party to violate the injunction, but does not justify granting injunctive relief against the non-party in its separate capacity.'''). Plaintiffs have made no showing, much less the showing of extraordinary circumstance that in rare instanceshasjustified an exception to this rule. SeeSEC v. Hickey, 322 F.3d 1123, 1133 (9th Cir. 2003) (noting that "the mere fact of control over assetswhose title belongs to a third party does not justify freezing the third party's assets"but ordering assetfreeze against third party in SEC enforcement action after defendantsfailed to disgorge profits pursuant to court order); SECv. Zubkis, No. 97 CIV. 8086 (JGK) 2003 WL 22118978, at * 6 (S.D.N.Y. Sept. 11,2003) (same). Plaintiffs also include a long, vague, and ambiguous description of the assetsto be frozen, which again includes assetsthat Defendants do not own. SeeProposedOrder at I.A (proposing freeze over all "funds, real or personal property, or other asset" "in the actual or constructive possessionof Defendants, "controlled by ... or subject to accessby" Defendants,or "in the actual or constructive possessionof, or owned or controlled by, or subject to accessby, or belonging to, any corporation, partnership, trust or any other entity directly or indirectly owned, managed,or controlled by, or under common control with Defendants"). But Plaintiffs cannot freeze anything other than profits obtained from L W, and they certainly cannot, and have provided no basis to, -22-
freeze assetsthat Defendants do not even own. Plaintiffs' proposed order is also overbroad in that it seeksto freeze interests and assetsthat Defendantshold in conjunction with other parties and entities wholly unrelated to this litigation. Multiple entities listed in Section LA.3 of Plaintiffs' proposed order are limited liability companiesand limited partnerships with members and partners whose interests and assetsare not, and should not, be reachable by Defendants' judgment creditors pursuant to applicable state law governing theseentities.' Plaintiffs have failed to articulate a basis to extend the assetfreeze order to cover the interestsof non-parties to the litigation, especially when theseinterests would be unavailable even in the event of judgment in Plaintiffs' favor. Moreover, the wording of Plaintiffs' ProposedOrder with respectto the entities Plaintiffs have deemed"Defendant Affiliates," many of which no longer exist, Gorton Decl. ~ 27, is ambiguous. It refers both to "any assetsheld by or for Defendants" at any financial institution including any of the listed entities, but also includes earlier languageregarding any funds "in the possessionof' the "Defendant Affiliates."s Suchvague and seemingly contradictory language violates the requirement that the "specificity required for an injunction is that 'the party enjoined must be able to ascertainfrom the four comers of the order precisely what acts' are forbidden." In re Baldwin-United Corp., 770 F.2d 328,339 (2d Cir. 1985) (quoting Sandersv. Air Line Pilots Ass 'n, 473 F.2d 244, 247 (2d Cir.1972)). Moreover, Plaintiffs certainly have not met their burden of showing that they are entitled to the relief they seekwhen they do not even addressthis provision in their brief. Republic of Phil. v. N.Y. Land Co., 852 F.2d 33, 36 (2d Cir. 1988).
7 SeeN.Y. LTD. LIAB. CO.LAW §§ 607(a) and (b) (McKinney 2010) (limiting judgment debtor to charging order on LLC debtor member's interest and expressly prohibiting right to property of LLC); DEL. CODE ANN. tit. 6, §§ 18-703(a) and (e) (2010) (same); seealso NEV.REV.STAT. § § 87A.480( 1) and (5) (West 2009) (limiting judgment creditor to exclusive remedy of charging order on judgment debtor limited partner's interest). S Section I E setsforth an exception for ordinary course payments that only applies to the named Defendants. So if Plaintiffs' ProposedOrder doesrestrict assetsof non-parties and it were adopted by the Court, non-parties would be subject to a substantially harsher freezethan Defendants. This cannot possibly be what Plaintiffs had in mind. -23-
They also do not addressand could not justify their request for the appointment of a "fiscal agent" to authorize all payments of "reasonable,usual, ordinary, and necessaryliving and business expenses,and reasonableattorney's fees." ProposedOrder at I.E. Preliminary injunctive relief must be "narrowly tailored" to avoid "unnecessaryburdens on lawful commercial activity." Faiveley Trans., 559 F.3d at 119. Thus, "there are few caseswhere a 'special fiscal agent' hasbeen utilized." Republic of Phil., 852 F.2d at 36. Plaintiffs have offered no evidenceto suggestthat were the Court to issueinjunctive relief, the addedburden of a fiscal agent would be "clearly necessary" to avoid irreparable harm. Id. There is no evidencethat Defendants have ever violated or attempted to circumvent any previous order of this or any other court. Cf Leone Indus. v. Associated Packaging, Inc., 795 F. Supp. 117, 121 (D.N.J. 1992). The appointment of a fiscal agent is not warranted here. Plaintiffs also seekto prohibit the incurring of any "charges on any credit card" issuedin Defendants' names(ProposedOrder at I.C), notwithstanding the burdens of dealing with automatic businesspaymentsmade with those cards andthe like, and the "repatriation" of "all documents and assets"located outside of the United States,without regard, for example, to whether any such assets are indirectly heldthrough domestically purchasedmutual or other funds (ld. at III). They have included a lengthy section on "Duties of Asset Holders" that requires affirmative creation of financial reports by third party financial institutes (Id. at II.C) and contains an exception that no financial institution could possibly implement (Id. at II.F). And they have included a provision requiring burdensomefinancial reports to be affirmatively createdby the Defendantsconcerning all of Defendants' assets.Id. at IV. Plaintiffs have not provided any support that would permit entry of an order containing such unfounded and overly burdensomedemands. Thus, there is no basis to
include any of them (or any of the other provisions for which Plaintiffs have failed to come forward with support) in any assetfreeze order. CONCLUSION For the foregoing reasons,Defendants respectfully request that the Court enter an order DENYING Plaintiffs' Motion to FreezeDefendants' Assets. In the event the Court concludes that an Order should be entered freezing any assets,Defendants respectfully submit that any such Order must be limited to the assetsofLW, LG and LWFLP, plus _ ofMr. Gorton's assets,
representing the LW profits from the distribution of the LimeWire Software that he received. Additionally, the languageof any such Order should be limited to a freeze with respect to persons who may be enjoined under Rule 65, and to allow for ordinary coursepayments. Respectfully submitted, Dated: June 30, 2010 New York, New York Colleen Bal (pro hac vice) WILSON SONSINI GOODRICH & ROSATI, P.C. SpearTower, Suite 3300 San Francisco, California 94105 Tel: (415)947-2000 email@example.com By: Isl Tonia Ouellette Klausner Tonia Ouellette Klausner Michael S. Sommer Tonia Ouellette Klausner JessicaL. Margolis Michael S. Winograd WILSON SONSINI GOODRICH & ROSATI, P.C. 1301Avenue of the Americas, 40th Floor New York, New York 10019 Tel: (212) 999-5800 firstname.lastname@example.org; email@example.com; firstname.lastname@example.org; email@example.com Attorneysfor DefendantsLime Wire LLC, Lime Group LLC, Mark Gorton and M.J. G. Lime Wire Family Limited Partnership