GE Commercial Distribution Finance Corporation v. Carter Bros. Mfg. Co., Inc. et al

Filing 12

ORDER CONSIDERING, ORDERING AND ADJUDGING as follows: (1) the plf's 4 MOTION for Temporary Restraining Order be and the same is hereby DENIED; and (2) the plf's 4 MOTION for a Writ of seizure without hearing be and the same is hereby DE NIED; and (3) pursuant to 28 U.S.C. § 636, this case be and the same is hereby REFERRED to the US Magistrate Judge for consideration and disposition or recommendation on all pretrial matters as may be appropriate. Signed by Honorable Ira De Ment on 8/5/10. (Attachments: # 1 civil appeals checklist)(djy, )

GE Commercial Distribution Finance Corporation v. Carter Bros. Mfg. Co., Inc. et al (MAG+)

Doc. 12

IN THE UNITED STATES DISTRICT COURT F O R THE MIDDLE DISTRICT OF ALABAMA N O R T H E R N DIVISION G E COMMERCIAL DISTRIBUTION F IN A N C E CORPORATION, a Delaware corporation, f/k/a T R A N S A M E R IC A COMMERCIAL F IN A N C E CORPORATION P la in tiff, v. C A R T E R BROS. MFG. CO., INC., an A la b a m a corporation; and PO W ERSPO RTS WORLD, LLC, an Alabama limited lia b ility company, D e fe n d a n ts . ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

C A S E NO. 2:10-cv-655-ID (W O )

ORDER
T h is cause is presently before the Court on Plaintiff's Motion for Order to Issue Writ o f Seizure of Personal Property and Temporary Restraining Order (Doc. #4) filed on July 29, 2 0 1 0 . For the following reasons, the Court finds that the Plaintiff's motion is due to be d e n ie d . I. JURISDICTION P la in tiff GE Commercial Distribution Finance Corporation (CDF) filed a motion s e e k in g a temporary restraining order and a writ of seizure against the Defendants Carter B ro s . Mfg. Co., Inc., and Powersports World, LLC. The Plaintiff alleges that this Court has s u b je c t matter jurisdiction over this action pursuant to 28 U.S.C. § 1332 because there is 1

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complete diversity of citizenship between Plaintiff and the Defendants and the amount in c o n tro v e rsy exceeds $75,000, exclusive of interest and costs. The Plaintiff contends that v e n u e is proper in the Middle District of Alabama under 28 U.S.C. § 1391(a) because the D e fe n d a n ts have their principal places of business in this district, the events giving rise to the P la in tiff's action occurred in this district, and some of the property at issue is located in this d is tr ic t. II. BACKGROUND A c c o rd in g to the Plaintiff's motion (Doc. #4), the affidavit of CDF Account Manager D e b ra Flanagan (Doc. #1-1), the supplemental affidavit of Debra Flanagan (Doc. #9), and th e Plaintiff's complaint (Doc. #1), Plaintiff financed the Defendants' acquisition of certain p ro p e rty in return for a security interest in the Defendants' property as more specifically set o u t in the financing arrangements in the record. The Plaintiff alleges that the Defendants, b o th controlled by the same individual, defaulted on their obligations under the security a g re e m e n t by failing to remit payment to Plaintiff and by selling inventory "out-of-trust." Plaintiff sought to resolve these issues out of court by notifying the Defendants of the breach a n d at one point entering into a forbearance agreement with Defendant Carter Bros. However, according to the Plaintiff, the Defendants continued to default on the security a g re e m e n ts . On July 12, 2010, a fire at Defendant Carter Bros.' warehouse destroyed some o f the collateral. According to the Plaintiff, after the fire the value of the remaining collateral is insufficient to secure the amount of the debt that the Defendants owe to the Plaintiff. The P la in tiff alleges that the remaining collateral is being stored in two locations in Alabama and 2

one location in California. According to the Plaintiff, the Defendants have threatened to m o v e the secured collateral beyond the reach of the Plaintiff. The Plaintiff also believes that th e Defendants may continue to sell the property without remitting payment back to the P la in tiff. In fact, Exhibit A of the supplemental affidavit of Debra Flanagan contains a p h o to c o p y of a purported newspaper advertisement in which Carter Bros. announces a " fa c to ry direct" sale of its inventory. (Doc. #9, 6). The Plaintiff filed a motion for a writ of seizure and a temporary restraining order to p re v e n t the Defendants from selling any more of the secured collateral. To this point the P la in tiff has proceeded without providing notice to the Defendants for fear that notice will o n ly encourage the Defendants to dispose of the collateral. Accordingly, the Plaintiff re q u e s ts that this Court grant a writ of seizure without hearing and issue a temporary re s tra in in g order without notice to the Defendants under Federal Rule of Civil Procedure 6 5 (b )(1 ). Attached to the complaint was a Rule 65 certification from the Plaintiff's attorney c e rtify in g that no efforts have been made to give notice to the Defendants because, according to the Plaintiff's attorney, any notice would likely result in the Defendants selling, tra n s fe rrin g , conveying, or otherwise disposing of the secured collateral. III. DISCUSSION A temporary restraining order is an "extraordinary and drastic remedy[.]" Z a rd u i-Q u in ta n a v. Richard, 768 F.2d 1213, 1216 (11th Cir. 1985). The factors to be c o n s id e re d in determining whether a temporary restraining order should be granted are: "(1) a substantial likelihood of success on the merits; (2) that irreparable injury will be suffered 3

if the relief is not granted; (3) that the threatened injury outweighs the harm the relief would in f lic t on the non-movant; and (4) that entry of the relief would serve the public interest." Schiavo ex rel. Schindler v. Schiavo, 403 F.3d 1223, 1225-26 (11th Cir. 2005). To obtain a te m p o ra ry restraining order without notice, the plaintiff must also show: (A ) specific facts in an affidavit or a verified complaint clearly show that im m e d ia te and irreparable injury, loss, or damage will result to the movant b e fo re the adverse party can be heard in opposition; and (B) the movant's attorney certifies in writing any efforts made to give notice a n d the reasons why it should not be required. Fed. R. Civ. P. 65(b)(1). Ultimately, the decision to grant or deny a temporary restraining o rd e r is within the "sound discretion of the district court." Sierra Club v. Georgia Power Co., 1 8 0 F.3d 1309, 1310 (11th Cir. 1999) (citing United States v. Lambert, 695 F.2d 536, 539 (1 1 th Cir. 1983)). A motion for a temporary restraining order requires the plaintiff to clearly show irre p a ra b le harm. An injury is "`irreparable' only if it cannot be undone through monetary d a m a g e s ." Cate v. Oldham, 707 F.2d 1176, 1189 (11th Cir. 1983) (citations omitted); Water W o r k s and Sewer Bd. Of City of Birmingham v. Inland Lake Investments, LLC, 31 So. 3d 6 8 6 , 692 (Ala. 2009). The absence of a substantial likelihood of irreparable injury, standing a lo n e , makes a temporary restraining order improper. See Siegel v. LePore, 234 F.3d 1163 (1 1 th Cir. 2000). The Plaintiff directs the Court to Martin v. First Federal Sav. & Loan Ass'n, 559 So. 2 d 1075, 1079 (Ala. 1990), as support for its argument that it will be irreparably harmed

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without a temporary restraining order. The Martin case involved an agreement between a m o rtg a g e lender and a mortgage service company. Id. at 1076. Under the agreement, the s e rv ic e company was to collect payments from borrowers, hold the funds in trust, take a c o m m iss io n , and then remit payment back to the mortgage lender on the fifteenth day of each m o n th . Id. When the service company failed to properly hold the funds in trust, the lender te rm in a te d its agreement with the service company and sought a temporary restraining order a n d preliminary injunction to protect its interests. Id. at 1076-77. After an ore tenus hearing, th e trial court granted the preliminary injunction. Id. at 1077-78. On appeal, the Supreme C o u rt of Alabama held that the trial court's finding that irreparable harm would result if the p re lim in a ry injunction was not granted was not "plainly and palpably erroneous." Id. at 1078. There are several reasons why Martin does not control the Court's decision in this c a s e . First, this Court is not bound by decisions of the Supreme Court of Alabama with re s p e c t to the standard to be applied for a Rule 65 temporary restraining order. Second, the S u p r e m e Court of Alabama applied a deferential standard of review to the trial court's fin d in g of irreparable harm. As a result, the Martin case provides only limited persuasive s u p p o rt for the Plaintiff's position. Finally, under circumstances similar to the present case, a federal district court denied a motion for a temporary restraining order. See AGCO v. M a s s e y Tractor Co., Inc., 2009 WL 1010047 (S.D. Ala. April 14, 2009). In AGCO, the p la in tiff alleged that the debtor had breached a dealership agreement and a floor plan fin a n c in g arrangement by selling secured property "out-of-trust." Id. at * 1. The plaintiff 5

sought a temporary restraining order and preliminary injunction to prevent the disposition o f the secured property. Id. In denying the plaintiff's motion for a temporary restraining o rd e r, the court held that the creditor's assertion that the debtor's ability to pay the debt was u n k n o w n was insufficient to establish the requisite irreparable injury element for entry of a te m p o ra ry restraining order. Id. This Court agrees with that opinion. In this case, the Plaintiff's showing of irreparable injury is deficient because the type o f harm threatened here (i.e., the misuse, ill treatment, damage, destruction, or sale of the s e c u re d collateral) is readily compensable via an award of money damages at trial. As the E le v e n th Circuit has pointed out, "`[t]he possibility that adequate compensatory or other c o rre c tiv e relief will be available at a later date, in the ordinary course of litigation, weighs h e a v ily against a claim of irreparable harm.'" United States v. Jefferson County, 720 F.2d 1 5 1 1 , 1520 (11th Cir. 1983) (quoting Sampson v. Murray, 415 U.S. 61, 90 (1974)). In other w o rd s, "economic losses alone do not justify a preliminary injunction." BellSouth T e le c o m m u n ic a tio n s , Inc. v. MCIMetro Access Transmission Services, LLC, 425 F.3d 964, 9 7 0 (11th Cir. 2005). A c c o rd in g ly , based on the pleadings and evidence currently before the Court, the P la in tiff's motion for a temporary restraining order is due to be denied. The Plaintiff's motion also requests a writ of seizure without a hearing. (Doc. #4). The motion incorporates a Complaint for Detinue and the Seizure of Personal Property and T e m p o ra ry Restraining Order (Doc. #1) filed by the Plaintiff on the same day as the motion. (Id. at 4). Detinue is a state-law remedy available to recover possession of personal property 6

and is governed by Alabama Code § 6-6-250 et seq.1 Under Rule 64 of the Federal Rules of C iv il Procedure, detinue is available to the Plaintiff. See Fed. R. Civ. P. 64(a) ("[A]t the c o m m e n c e m e n t of and throughout an action, every remedy is available that, under the law o f the state where the court is located, provides for seizing a person or property to secure s a tis fa c tio n of the potential judgment. But a federal statute governs to the extent it applies."). In this case, the Plaintiff seeks to seize the property in detinue prior to judgment and w ith o u t a hearing. Rule 64 of the Alabama Rules of Civil Procedure contains provisions a llo w in g for the issuance of a writ of seizure without a hearing and is applicable to the P la in tiff's current action in detinue. Despite these Alabama provisions, a claim for preju d g m e n t seizure without a hearing must meet constitutional standards of due process. In Mitchell v. W.T. Grant Co., 416 U.S. 600 (1974), the Supreme Court upheld a L o u is ia n a statute against a challenge that it failed to meet the due process requirements of th e Constitution. Under the statute at issue in that case, in order to obtain a writ of a tta c h m e n t, the creditor was required to file an affidavit setting forth the specific facts e n titlin g him to relief. Id. at 605. The creditor was also required to post a bond to c o m p e n s a te the debtor for any damages resulting from a wrongful attachment. Id. at 606. The writ of attachment could be issued only by a judge with discretion to deny the writ and th e debtor was entitled to an immediate post-seizure hearing at which the creditor was

The Court notes that Count I of the complaint invokes Alabama Code § 6-5-250, et seq. However, that portion of the Alabama Code deals with redemption of real property. In the light of the Plaintiff's claim for detinue, the Court presumes this reference was a clerical error and that the Plaintiff intended to refer to Alabama Code § 6-6-250, which deals with detinue. 7

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required to prove his entitlement to the writ. Id. at 605-07; see also Jones v. Preuit & M a u ld in , 822 F.2d 998, 1006 (11th Cir. 1987) (Johnson, J., dissenting). The Supreme Court fo u n d that this procedure was an adequate constitutional accommodation. Mitchell, 416 U.S. a t 607. In Connecticut v. Doehr, 501 U.S. 1 (1991), the Supreme Court tightened this standard fu rth e r by holding that a Connecticut statute authorizing pre-judgment attachment of real e s ta te without prior notice, without a hearing, and without requiring a showing of exigent c irc u m s ta n c e s did not satisfy constitutional due process requirements. Doehr, 501 U.S. at 16. The Alabama procedure for pre-judgment seizure without a hearing contains various s a fe g u a rd s to prevent a violation of due process. See Ex Parte Boykin, 568 So. 2d 1243, 1245 (A la . Civ. App. 1990) ("The Rule 64 provisions were promulgated to assure that the c o n s titu tio n a l guarantees of due process are not violated."). Under Alabama Rule of Civil P ro c e d u re 64(b), "[w]henever any provision of law is invoked through which there is an a tte m p t to seize property through judicial process prior to the entry of judgment," a plaintiff m a y apply for a pre-judgment seizure of property by filing an affidavit on personal k n o w le d g e that contains the following: (1) a description of the property, (2) a statement that th e plaintiff is entitled to possession of the property and a copy of any instrument on which th e entitlement is based, (3) specific facts showing that the defendant is wrongfully detaining th e property and the cause of such detention, to the plaintiff's knowledge, and (4) specific fa c ts supporting the contention that there is a risk of concealment, transfer, or other 8

disposition of, or damage to the property which will injure the plaintiff. The court is then required to "examine the complaint, the application and supporting a ffid a v it and its attachments and any further showing offered by the plaintiff in support of th e plaintiff's right to the immediate possession of the property." Ala. R. Civ. P. 64(b)(2)(A). F o llo w in g the preliminary examination: If the court . . . finds that the risk of concealment, transfer or other disposition o f or damage to the property by permitting it to remain in the possession of the d e fe n d a n t between the filing of the action and the time of a hearing is real, th e n the court shall forthwith enter an order authorizing the issuance of a writ o f seizure but the court shall provide in said order that the defendant is e n title d , as a matter of right, to a pre-judgment hearing on the issue of d is s o lu tio n of the writ if a written request for hearing is served on counsel for th e plaintiff within five (5) days from the date of seizure of the property by the s h e riff or other duly constituted officer. If such a request is made, the writ shall e x p ire upon the fifteenth day from said date of seizure unless the court, after h e a rin g , continues the order in effect. Alabama R. Civ. P. 64(b)(2)(B). In addition, Alabama's detinue statute requires that a p la in tiff post "a bond in such sum and with such surety as may be approved by the clerk." Ala. Code § 6-6-250(a). T h e Court is mindful of the Plaintiff's allegations that the Defendants are actively try in g to sell the collateral. However, the Court has concerns about whether Alabama's d e tin u e statute used together with Alabama Rule of Civil Procedure 64 to seize collateral preju d g m e n t, without a hearing ­ and, in this case, without notice ­ complies with constitutional s ta n d a rd s of due process. While there may be a risk that the Defendants will dispose of the c o lla te ra l, in light of the Court's prior finding that the Plaintiff has not shown irreparable h a rm for purposes of the temporary restraining order, the Court is of the opinion that the 9

Plaintiff has also failed to show sufficient risk of harm to justify the pre-judgment seizure w ith o u t a hearing. In this sense, the Court interprets Alabama Rule of Civil Procedure 6 4 (b )(2 )(B ) to require a finding of a real risk of harm that is not capable of being remedied b y an award of monetary damages. See Ala. R. Civ. P. 64(b)(2)(B); see also The Boat Shack I I , Inc. v. ITT Commercial Finance Corporation, 584 So. 2d 1354, 1359 (Ala. 1991) (a ffirm in g the notion that Rule 64(b)(2)(B) is concerned with the availability of an adequate re m e d y ). Were it not so, a plaintiff who had failed to show irreparable harm sufficient for a temporary restraining order to maintain the status quo, would be able to change the status q u o and seize the property pre-judgment by simultaneously requesting a writ of seizure w ith o u t hearing. A motion for a writ of seizure without a hearing must, at a minimum, meet th e irreparable harm requirements for obtaining a temporary restraining order. As a result, th e Plaintiff's motion for writ of seizure without hearing is due to be denied. IV. CONCLUSION F o r the reasons above stated, it is CONSIDERED, ORDERED, and ADJUDGED as follows: 1 . The Plaintiff's motion for a temporary restraining order (Doc. #4) be and the same is hereby DENIED; 2 . The Plaintiff's motion for a writ of seizure without hearing (Doc. #4) be and the s a m e is hereby DENIED; and 3 . Pursuant to 28 U.S.C. § 636, this case be and the same is hereby REFERRED to th e United States Magistrate Judge for consideration and disposition or recommendation on a ll pretrial matters as may be appropriate. 10

Done this the 5th day of August, 2010. /s / Ira DeMent SENIOR UNITED STATES DISTRICT JUDGE

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