Tecnitoys Juguetes S.A. v. Distributoys.com, Inc et al

Filing 13

MEMORANDUM Opinion and Order Signed by the Honorable Joan B. Gottschall on 6/9/2011:Mailed notice(srn, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
TECNITOYS JUGUETES, S.A.,
Plaintiff,
v.
DISTRIBUTOYS.COM, INC. and RONNIE
GOLDFINGER,
Defendants.

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Case No. 11 CV 3731
Honorable Joan B. Gottschall

MEMORANDUM OPINION AND ORDER
Tecnitoys Juguetes, S.A. (“Tecnitoys”), a toy car manufacturer, filed this breach of
contract suit against its distributor, Distributoys.com, Inc. (“Distributoys”), and its distributor’s
president, Ronnie Goldfinger (collectively, the “defendants”), alleging that the defendants failed
to pay for toy cars Distributoys sold on Tecnitoys’ behalf and refused to return toy cars
Tecnitoys entrusted to Distributoys. Tecnitoys also includes counts alleging conversion and
requesting injunctive relief. Before the court is Tecnitoys’ motion for a temporary restraining
order that would: (1) enjoin the defendants from (a) soliciting sales of the toy cars, or (b)
disposing of the toy cars or any proceeds from the sale or other disposition of the toy cars, and
(2) direct the defendants to return the toy cars to Tecnitoys. For the reasons that follow, the
motion is granted in part and denied in part.
I.

LEGAL STANDARD

“The standards for issuing temporary restraining orders are identical to the standards for
preliminary injunctions.” Long v. Bd. of Educ., Dist. 128, 167 F. Supp. 2d 988, 990 (N.D. Ill.
2001) (citing Bernina of Am., Inc. v. Fashion Fabrics Int’l, Inc., No. 01 C 585, 2001 WL
128164, at *1 (N.D. Ill. Feb. 9, 2001)). Thus, to obtain the temporary restraining order it has

proposed, Tecnitoys must show that: (1) it is likely to succeed on the merits, (2) it is likely to
suffer irreparable harm without the temporary restraining order, (3) the harm it would suffer is
greater than the harm that the temporary restraining order would inflict on the defendants, and
(4) the temporary restraining order is in the public interest. Judge v. Quinn, 612 F.3d 537, 546
(7th Cir. 2010) (setting forth the requirements for a preliminary injunction) (citing Winter v.
Natural Res. Def. Council, Inc., 555 U.S. 7, 129 S. Ct. 365, 374 (2008); St. John’s United
Church of Christ v. City of Chi., 502 F.3d 616, 625 (7th Cir. 2007)). “How strong a claim on the
merits is enough depends on the balance of harms: the more net harm an injunction can prevent,
the weaker the plaintiff’s claim on the merits can be while still supporting some preliminary
relief.” Hoosier Energy Rural Elec. Coop., Inc. v. John Hancock Life Ins. Co., 582 F.3d 721,
725 (7th Cir. 2009) (citing Cavel Int’l, Inc. v. Madigan, 500 F.3d 544 (7th Cir. 2007), and Girl
Scouts of Manitou Council, Inc. v. Girl Scouts of the U.S., Inc., 549 F.3d 1079 (7th Cir. 2008)).
II.
A.

ANALYSIS

Goldfinger
As an initial matter, Tecnitoys has failed to show that it is reasonably likely to succeed on

the merits against Goldfinger. See Mazurek v. Armstrong, 520 U.S. 968, 972 (1997) (“‘It
frequently is observed that a preliminary injunction is an extraordinary and drastic remedy, one
that should not be granted unless the movant, by a clear showing, carries the burden of
persuasion.’” (quoting 11A C. Wright, A. Miller, & M. Kane, FED. PRACTICE & PROCEDURE
§ 2948 (2d ed. 1995) (emphasis added; footnotes omitted))). Tecnitoys names Goldfinger as a
defendant only in its conversion and injunctive relief counts. In Illinois, “[t]o prove the tort of
conversion, a plaintiff must establish that he or she: (1) had a right to the converted property; (2)
had an absolute and unconditional right to its immediate possession; (3) demanded its possession
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from the defendant; and (4) the defendant wrongfully and without authorization assumed control,
dominion, or ownership over the property.” Meyer v. Dep’t of Pub. Aid, 392 Ill. App. 3d 31, 36
(Ill. App. Ct. 2009) (citing Cruthis v. Firstar Bank, N.A., 354 Ill. App. 3d 1122 (Ill. App. Ct.
2004)). Even assuming that Tecnitoys can satisfy the first three prongs of the test, Tecnitoys
fails to offer any evidence that Goldfinger assumed control, dominion, or ownership of the
property as an individual and not merely as an officer of Distributoys. 1 In addition, Tecnitoys
fails to offer any evidence that would allow this court to pierce the corporate veil to reach
Goldfinger. 2 Since Tecnitoys cannot show that it is likely to succeed against Goldfinger on the
conversion count, it cannot show that it is likely to succeed against Goldfinger on the injunctive
relief count since success on the merits is an element of injunctive relief. See Old Republic Ins.
Co. v. Employers Reinsurance Corp., 144 F.3d 1077, 1081 (7th Cir. 1998) (“Before a court may
award permanent injunctive relief, a party must demonstrate (1) it has succeeded on the merits;
(2) no adequate remedy at law exists; (3) the moving party will suffer irreparable harm without
injunctive relief; (4) the irreparable harm suffered without injunctive relief outweighs the
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For its conversion count against Goldfinger, Tecnitoys alleges that Goldfinger “as an officer of Distributoys
. . . actively participated when Distributoys took possession of the inventory, and was involved when Distributoys
refused to return Tecnitoys’ inventory.” (Compl. ¶¶ 34-35.) This is not enough to show a likelihood of success
against Goldfinger as an individual.
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“Veil-piercing is an equitable remedy governed by state law.” Laborers’ Pension Fund v. Lay-Com, Inc.,
580 F.3d 602, 610 (7th Cir. 2009). “In determining which state’s law applies, the court looks to the choice-of-law
provisions of the forum state, here Illinois.” Kellers Sys., Inc. v. Transp. Int’l Pool, Inc., 172 F. Supp. 2d 992, 999
(N.D. Ill. 2001) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941)). “Illinois follows the
internal affairs doctrine as its choice-of-law principle in cases alleging impropriety of corporate governance.” Id.
(citing Bagdon v. Bridgestone/Firestone, Inc., 916 F.2d 379, 382-83 (7th Cir. 1990), Paulman v. Kritzer, 38 Ill.2d
101 (1967), and the Restatement (2d) of Conflicts of Law §§ 301-10). “Under the internal affairs doctrine the
substantive law of the state of incorporation governs.” Id. (citing Heyman v. Beatrice Co., No. 89 C 7381, 1995 WL
151872 at *6 (N.D. Ill. April 3, 1995)). Distributoys is a Delaware corporation. “Delaware law permits a court to
pierce the corporate veil of a company ‘where there is fraud or where [it] is in fact a mere instrumentality or alter
ego of its owner.’” In re Broadstripe, LLC, 444 B.R. 51, 102 (Bankr. D. Del. 2010) (quoting Geyer v. Ingersoll
Publ’ns Co., 621 A.2d 784, 793 (Del. Ch. 1992)). “To prevail on an alter ego claim under Delaware law, a plaintiff
must show (1) that the companies ‘operated as a single economic entity’ and (2) that an ‘overall element of injustice
or unfairness ... [is] present.’” Harper v. Del. Valley Broad., Inc., 743 F. Supp. 1076, 1085 (D. Del. 1990).
Tecnitoys has not presented evidence that Goldfinger and Distributoys operated as a single economic entity or that it
is unfair not to hold Goldfinger liable for Distributoys’ actions.

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irreparable harm the nonprevailing party will suffer if the injunction is granted; and (5) the
injunction will not harm the public interest.” (citing Amoco Prod. Co. v. Vill. of Gambell, 480
U.S. 531, 546 n.12 (1987), NLRB v. Electro-Voice, Inc., 83 F.3d 1559, 1567 (7th Cir. 1996), and
Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380, 386-88 (7th Cir. 1984)). As a result,
Tecnitoys’ motion for a temporary restraining order is denied insofar as Tecnitoys seeks to
enjoin Goldfinger.
B.

Distributoys
Whether Tecnitoys has made a sufficient showing that it is likely to succeed on the merits

of its claims against Distributoys is a closer question. The court has already set forth the
elements of a conversion claim in Illinois. “The elements of a breach of contract claim under
Illinois law are: (1) the existence of a contract, (2) the performance of its conditions by the
plaintiff, (3) a breach by the defendant, and (4) damages as a result of the breach.” Am. Safety
Cas. Ins. Co. v. City of Waukegan, --- F. Supp. 2d ----, 2011 WL 830763, at *30 (N.D. Ill. Mar.
3, 2011) (citing Roberts v. Adkins, 397 Ill. App. 3d 858, 866-67 (Ill. App. Ct. 2010)). “A party’s
‘failure to comply with a duty imposed by the contract gives rise to the breach.’” Id. (quoting
Gallagher Corp. v. Russ, 309 Ill. App. 3d 192, 199 (Ill. App. Ct. 1999)).
It is undisputed that: (a) Distributoys accepted delivery of the toy cars even though
Distributoys did not place an order for toy cars, (b) Distributoys asked Tecnitoys to pay for the
cost of handling and storing the toy cars 3 , (c) Distributoys fulfilled orders of toy cars for various
retailers and end-users, and (d) Distributoys refused Tecnitoys’ request that Distributoys return
the toy cars. (Decl. of Ronald E. Goldfinger ¶¶ 4, 13, 19, 21.) Notably, Distributoys does not

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In his declaration, Goldfinger states, “the logistics requirements for handling and storage of the inventory
have been expensive and have drained Distributoys[’] resources . . . Distributoys has sought payment for these costs
. . . .” (Decl. of Ronald E. Goldfinger ¶ 19.)

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contest Tecnitoys’ assertion that Tecnitoys always retained control over how Distributoys
disposed of the toy cars – whether by distributing the toy cars through channels approved by
Tecnitoys (e.g. by fulfilling orders made with online retailers) or by fulfilling orders arranged by
Tecnitoys itself. (Decl. of Charles A. Ehredt ¶¶ 6, 14-15.) Distributoys also represented in open
court that it is in financial distress (in the midst of a controlled liquidation at the direction of its
bank, the Community Bank of Oak Park River Forest (the “Bank”); indeed, the Bank has a lien
on all of Distributoys’ assets. See Decl. of Goldfinger ¶ 20). In addition, it is undisputed that
Distributoys has not paid for the toy cars.
Tecnitoys argues that these undisputed facts suggest that the arrangement it had with
Distributoys is a bailment. In Illinois, “‘[a] bailment is the delivery of property for some purpose
upon a contract, express or implied, that after the purpose has been fulfilled, the property shall be
redelivered to the bailor, or otherwise dealt with according to his directions, or kept until he
reclaims it.’” Robledo v. City of Chi., --- F. Supp. 2d ----, 2011 WL 1303384, at *11 (N.D. Ill.
Apr. 6, 2011) (quoting Am. Ambassador Cas. Co. v. City of Chi., 205 Ill. App. 3d 879, 884 (Ill.
App. Ct. 1990)). Distributoys, on the other hand, contends that their arrangement was a “sale or
return”, which the Uniform Commercial Code (“UCC”) (which Illinois has adopted) defines as
an arrangement in which “delivered goods may be returned by the buyer even though they
conform to the contract” and “the goods are delivered primarily for resale.” 810 Ill. Comp. Stat.
5/2-326(1) (2001). Importantly, “goods held on sale or return are subject to [the claims of the
buyer’s creditors] while in the buyer’s possession.” 810 Ill. Comp. Stat. 5/2-326(2) (2001).
Distributoys argues that its creditor, the Bank, has a lien on the toy cars that takes precedence
over any interest Tecnitoys may have over either the toy cars or any proceeds from the sale of the
toy cars. Alternatively, Distributoys argues that the arrangement was a consignment, which the
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UCC (as effective in 2008) defined as certain transactions “in which a person delivers goods to a
merchant for the purpose of sale” and where the merchant “is not generally known by its
creditors to be substantially engaged in selling the goods of others.” 810 Ill. Comp. Stat. 5/9102(a)(20) (2002). However, it seems unlikely that the arrangement fits the description of a
consignment where Distributoys acknowledges that it is a distributor in the habit of selling the
goods of others. (Decl. of Ronald E. Goldfinger ¶¶ 3-4.)
Unfortunately, some of the facts the parties point to are not helpful since they are
consistent with either position. For example, the fact that Distributoys accepted delivery of the
toy cars could be a bailment or a “sale or return”. Only two facts weigh in favor of one side over
the other: first of all, if Tecnitoys had sold the toy cars to Distributoys, then Tecnitoys likely
would have relinquished control over the toy cars and would not have had the ability (for years
after the purported sale) to direct Distributoys to fulfill orders Tecnitoys had arranged using toy
cars in Distibutoys’ possession. Secondly, the fact that Distributoys asked Tecnitoys to bear the
cost of handling and storing the toy cars for years after the toy cars were delivered is not
consistent with what happens in the typical sale. As stated above, it is undisputed that, for years
after Distributoys accepted delivery of the toy cars, Tecnitoys continued to direct the sale of the
toy cars and provide services for Tecnitoys in connection with the sale of the toy cars, while
Distributoys charged Tecnitoys for these services. These facts compel the court to find that
Tecnitoys has shown that it is reasonably likely to prevail over Distributoys on its conversion
claim since the undisputed facts tend to show that Tecnitoys never relinquished ownership of the

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toy cars, has a right to the toy cars, has a right to immediately possess the toy cars, asked that
Distributoys return the toy cars, and Distributoys refuses to return them. 4
Having concluded that Tecnitoys has met its burden of showing that it is likely to succeed
on the merits against Distributoys, the court easily concludes that Tecnitoys has made an
adequate showing that: (1) it would suffer irreparable harm, (2) the irreparable harm it would
suffer is far greater than that that would befall Distributoys, and (3) the injunction will not harm
the public interest. As noted above, Distributoys is in financial distress – in fact, it is being
liquidated and the Bank has a lien over all of its assets, which may (as Distributoys argues) or
may not include the toy cars. If Distributoys liquidates the toy cars, perhaps for pennies on the
dollar, and uses the proceeds to satisfy its debt with the Bank or with other creditors, Tecnitoys
will suffer irreparable harm.
Similarly, if Distributoys disposes of the toy cars or the proceeds from the sale of the toy
cars and uses money due and owing to Tecnitoys to pay other creditors, Tecnitoys’ irreparable
injury will be greater than any injury that might befall Distributoys were this court to issue an
order prohibiting Distributoys from disposing of the toy cars or their proceeds. Distributoys
suggested in open court that any such standstill order may prevent it from meeting its obligations

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Accordingly, the defendants’ argument that Tecnitoys’ motion for a temporary restraining order must fail
because Tecnitoys did not name the Bank as a party falls flat. The defendants contend that the Bank is a necessary
party per Federal Rule of Civil Procedure 19(a)(1)(B), which requires that a plaintiff name a “person [that] claims an
interest relating to the subject of the action [who] is so situated that disposing of the action in the person’s absence
may: (i) as a practical matter impair or impede the person’s ability to protect the interest; or (ii) leave an existing
party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the
interest.” Fed. R. Civ. P. 19(a)(1)(B). The defendants further argues that since Tecnitoys did not name the Bank,
Tecnitoys’ complaint can be dismissed under Federal Rule of Civil Procedure 12(b)(7), which enables a defendant to
move to dismiss a complaint for “failure to join a party under Rule 19.” Fed. R. Civ. P. 12(b). However, having
found that the evidence tends to show that Tecnitoys did not sell the toy cars to Distributoys and that Distributoys
wrongfully refused to return of the toy cars, the Bank’s lien (which the defendants point out is a lien on all of
Distributoys’ assets, see Decl. of Goldfinger ¶ 20) is likely inapplicable to the toy cars, which do not belong to
Distributoys and cannot be accurately characterized as assets of Distributoys. Accordingly, the Bank, at least for the
purposes of deciding Tecnitoys’ motion for a temporary restraining order, is not a necessary party.

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to its creditors, which may lead it to file for bankruptcy. However, given that Distributoys is
currently in financial distress so severe that it is being liquidated, Distributoys will not incur any
material change in status as a result of the proposed temporary restraining order.
Distributoys contends that granting Tecnitoys’ motion for a temporary restraining order
will harm the public interest in the priority of liens by “effectively wip[ing] out the Bank’s
interest in the [toy cars] despite the Bank’s superior security interest.” (Defs.’ Resp. at 9.) From
the parties’ arguments, it appears that the Bank’s lien reaches only property of Distributoys; the
Bank’s lien would reach the toy cars, therefore, only if Tecnitoys sold Distributoys the toy cars.
It would not reach the toy cars if Tecnitoys were correct that Distributoys held the toy cars by
means of a bailment. While the court is persuaded, for the reasons discussed above, that
Tecnitoys has shown a likelihood of success on the merits of this argument, Distributoys’
concern is unfounded even if, when all the evidence is presented, Distributoys prevails on its
argument that it purchased and owns the toy cars. Regardless of which argument carries the day
in the end, it is undisputed that Distributoys has the toy cars, will not return them to Tecnitoys
and will not pay for them. Because this is clear, and in recognition of the fact that determining
the exact nature of the parties’ agreement and the possessory rights that accompany it may be
difficult, the court will limit its temporary restraining order to ensuring that neither the toy cars
nor their proceeds are dissipated during the course of this litigation. The order will, therefore,
protect the rights of Tecnitoys, if the court is correct that only a bailment has occurred, but will
also protect the Bank, if it turns out that the cars are owned by Distributoys and are subject to the
Bank’s lien. By limiting the scope of the injunction to the protection of the cars and any
proceeds from their sale, the court can insure that, whoever ultimately prevails, that party’s rights
are fully protected. In addition, the bond that Tecnitoys will be required to post will also protect
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Distributoys against any injury it incurs if it turns out that this order was erroneously granted.
See Fed. R. Civ. P. 65(c) (“The court may issue a preliminary injunction or a temporary
restraining order only if the movant gives security in an amount that the court considers proper to
pay the costs and damages sustained by any party found to have been wrongfully enjoined or
restrained.”).
II.

CONCLUSION

Given the foregoing, Tecnitoys’ motion for a temporary restraining order is denied as to
Goldfinger and denied insofar as Tecnitoys requested that Distributoys be ordered to return the
toy cars to Tecnitoys, but will be granted insofar as Distributoys will be enjoined from disposing
of the toy cars or any proceeds from the sale or other disposition of the toy cars.

The parties

shall appear in court for a bond hearing on Friday, June 10, 2011 at 10:30 a.m. to discuss a bond
and the terms of the temporary restraining order.

ENTER:
______/s/___________________
JOAN B. GOTTSCHALL
United States District Judge
DATED: June 9, 2011

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