Latitude Service Company v. Reese
Filing
64
OPINION AND ORDER: For the reasons set forth in the Opinion and Order, the Court DENIES Mr. Reeses Motion for Temporary Restraining Order (DE 37 ). Signed by Chief Judge Jon E DeGuilio on 11/18/2022. (jss)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
SOUTH BEND DIVISION
LATITUDE COMPANY, INC.,
Plaintiff,
v.
Case No. 3:21-CV-728 JD
CLINTON C. REESE,
Defendant/Third Party Plaintiff.
v.
BRAD LANKFORD; NORTH AMERICAN
KTRADE ALLIANCE, LLC;
RETIREMENT SYSTEMS OF AMERICA,
LLC; HIGHLAND MANAGEMENT
GROUP, INC.; and EIRA, LLC,
Third Party Defendants.
OPINION AND ORDER
Plaintiff Latitude Service Company Inc. sued Defendant Clinton Reese seeking a
declaratory judgment binding Mr. Reese to the terms of a 2014 shareholder agreement and a
separate agreement Mr. Reese allegedly entered into to sell his shares in Latitude and other
Latitude-affiliated entities in the spring of 2021. (DE 24.) Mr. Reese filed several iterations of a
combined answer, counterclaim, and third-party complaint. Mr. Reese’s filings denied that he
was subject to the prior agreements and brought claims of his own seeking relief from Latitude
and other third-party defendants for their attempts to, among other things, limit his business
opportunities and withhold money from him that he alleges he was owed as a shareholder of
Latitude and the other entities. (DE 26; DE 34.) Mr. Reese also moved for a preliminary
injunction asking the Court to order Latitude and related parties to prepare for Mr. Reese a new
Schedule K-1 tax form; to refrain from representing to others that Mr. Reece has sold or
transferred any interest in Latitude or any of its affiliates, or that he is subject to a non-compete
agreement with Latitude; and stop interfering with Mr. Reese’s new contractual and employment
relationships. 1 For the reasons stated below, the Court will deny the motion.
A.
Factual Background
Mr. Reese was a Latitude employee and was involved in various agreements with other
individuals, including Third-Party Defendant Brad Lankford, that led to the combination of
several prior business entities into what is today Latitude, a third-party retirement plan
administration firm. The 2014 shareholder agreement Latitude is trying to enforce on Mr. Reese
is one such agreement. Mr. Reese claims to hold just under 5% of the shares in Latitude as well
as a similar percentage of shares in other related companies, several of which Mr. Reese has now
named as third-party defendants. Mr. Reese left his employment with Latitude in the late spring
of 2021 and the parties dispute how his leaving affected his shares in Latitude and the affiliated
companies. Mr. Reese maintains that he is still a shareholder, but Latitude has brought a claim
for breach of contract in which it alleges that Mr. Reese previously agreed to sell his shares back
as part of a separation agreement the parties reached near the time Mr. Reese stopped working
with Latitude. (DE 24 ¶¶ 43–47.) Latitude’s complaint also seeks a declaration that Mr. Reese
remains bound by several noncompete agreements. Latitude alleges that Mr. Reese is bound by
Although Mr. Reese titles his motion as both a motion for a temporary restraining order and a motion for
preliminary injunction, the Court interprets the motion as a motion for preliminary injunction, given that Mr.
Reese’s requests more closely resemble a request for a preliminary injunction. See Decker v. Lammer, 2022 WL
125429, at *2 (7th Cir. 2022) (citing a request for relief that would last an unspecified amount of time and a non-ex
parte proceeding as suggesting a preliminary injunction instead of a temporary restraining order). This treatment is
immaterial to the Court’s consideration of the issues, however, because “[t]he standards for granting a temporary
restraining order and preliminary injunction are the same.” USA-Halal Chamber of Comm., Inc. v. Best Choice
Meats, Inc., 402 F. Supp. 3d 427, 433 n.5 (N.D. Ill. 2019).
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restrictive covenants from a shareholder agreement from 2014 and from a buyout agreement in
2021.
Mr. Reese filed a motion for preliminary injunction against Plaintiff Latitude Service
Company; Third-Party Defendant Brad Lankford; and Third-Party Defendants Highland
Management Group Inc., Retirement Systems of America LLC, North American KTRADE
Alliance, and EIRA LLC. (For simplicity sake and because Plaintiff Latitude Service Company
is the driving force behind this lawsuit, the Court will refer to all of Mr. Reese’s opponents in
this case as “Latitude.”) Mr. Reese is asking the Court to order Latitude to prepare for Mr. Reese
a new Schedule K-1 tax form; to refrain from representing to others that Mr. Reece has sold or
transferred any interest in Latitude, or that he is subject to a non-compete agreement with
Latitude; and stop interfering with Mr. Reese’s new contractual and employment relationships. 2
In support of the motion, Mr. Reese states that he’s not bound by the 2014 shareholder
agreement to which he was a signatory and which contained restrictive covenants. He submits
that the shareholder agreement became void under its own terms as a result of the merger of the
controlling companies into Latitude. He also insists that the shareholder agreement was in effect
only for a period when he owned his shares under the agreement plus two years from the date of
the disposal of such shares, and that he had disposed of such shares during the merger. He thus
argues that Latitude has no right to represent to others that he remains bound by the restrictive
covenant of the 2014 shareholder agreement.
Mr. Reese also maintains that he has retained his ownership interest in Latitude even
upon his employment termination with Latitude. Mr. Reese owns or owned––depending on
In his motion, Mr. Reese also has a request concerning any shareholder meetings, but he had filed a
separate motion addressing this issue, which the Court denied (DE 51).
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which party is to be believed––just under 5% of the outstanding shares in Latitude Service
Company and Highland Management Group. 3 Mr. Reese states that, in April 2021, Mr. Lankford
informed him that his employment with Latitude would be terminated effective May 31, 2021.
Mr. Reese and Mr. Lankford then began negotiating a separation agreement, including a possible
purchase of Mr. Reese’s ownership interest. Toward the end of the negotiations, Latitude’s inhouse counsel, Keith Pyle, sent Mr. Reese an attachment of “the final term sheet based on [their]
conversation this morning.” (DE 54-1, Pyle Email.) At the top of the proposed terms of Mr.
Reese’s Termination and Buyout, the document has a disclaimer:
The terms included herein are not intended to constitute a binding or enforceable
agreement, express or implied, for the transaction(s) that are the subject hereof or
be a binding agreement upon any of the parties hereto. Included below are the basic
proposed terms regarding employment separation and ownership buyout of Reese
from all ownership in Latitude and its related companies (the “Company”) and
interests. If the terms laid out are agreeable, we will draft the appropriate
agreement(s) and related documents to effect the transaction.
(DE 38-2.) In his email, Mr. Kyle asked Mr. Reese to “[p]lease confirm you are in agreement
and we’ll draw up an agreement.” (Id.) Half an hour later, Mr. Reese responded with “I agree
with the terms listed in the attached PDF.” (Id., Reese’s Email.) A week later, Mr. Pyle emailed
Mr. Reese and his attorney “drafts of the separation agreement and transfer powers.” (DE 38-2,
Pyle email; DE 38-2, Redemption and Separation Agreement.) He asked them to “[p]lease let us
know your thoughts at your earliest convenience.” (Id.) Mr. Reese rejected the proposal. Mr.
Reese was terminated on May 31, 2021.
In January 2022, Mr. Reese began working as a consultant for SMS Retirement in
Cincinnati, Ohio. Mr. Reese claims that he has not solicited or initiated any contact or
Mr. Reese is also a shareholder and president of CCR TPA Inc. which was also an owner of shares in
Latitude-related companies, but for the purposes of this order, CCR TPA can be ignored.
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communication with any of Latitude’s clients or customers since his termination of the
employment. (DE 38-1, Reese Aff. ¶ 20.) On August 1, 2022, Latitude’s counsel contacted Mr.
Reese’s counsel, stating that if Mr. Reese did not agree to sell his ownership interest in Latitude,
SMS Retirement would be informed that Mr. Reese was violating his restrictive covenants in the
shareholder agreement. That same day, Mr. Reese relayed this conversation to Mark Strakowski,
the president of SMS, who consulted with his counsel and terminated the business relationship
with Mr. Reese out of concern for litigation. Five days later, on August 6, Latitude’s counsel
wrote a letter to SMS stating among other things that Mr. Reese’s employment with SMS
violated the shareholder agreement:
Mr. Reese still maintains his ownership interest in Latitude and its affiliates. As an
owner of Latitude, Mr. Reese entered into a Shareholder Agreement that included
certain restrictive covenants, including covenants not to compete, divert business
away from Latitude, or solicit Latitude’s customers. Mr. Reese’s employment with
SMS as a Retirement Plan Consultant, in addition to his solicitation efforts on
behalf of SMS, plainly violate his Shareholder Agreement.
(DE 38-2, Macchia Letter at 94.)
On September 13, 2022, Latitude issued Schedule K-1 tax forms to Mr. Reese
representing that he is not an owner and that he sold or transferred his ownership interest in
2021. Mr. Reese, who maintains that he’s still a shareholder of Latitude, believes that Latitude’s
filing is preventing him from filing his tax returns and wants Latitude to correct its Schedule K-1
Forms.
B.
Standard of Review
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.” Mazurek v.
Armstrong, 520 U.S. 968, 972 (1997) (quoting 11A C. Wright, A. Miller, & M. Kane, Federal
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Practice and Procedure § 2948, pp. 129–130 (2d ed.1995)). It is “never awarded as of right.”
Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 24 (2008). “As a threshold matter, a party
seeking a preliminary injunction must demonstrate (1) some likelihood of succeeding on the
merits, and (2) that it has ‘no adequate remedy at law’ and will suffer ‘irreparable harm’ if
preliminary relief is denied.” Cassell v. Snyders, 990 F.3d 539, 544–45 (7th Cir. 2021) (quotation
marks and citations omitted). “If the moving party cannot establish either of these prerequisites, a
court’s inquiry is over and the injunction must be denied.” Abbott Lab’ys v. Mead Johnson &
Co., 971 F.2d 6, 11 (7th Cir. 1992); see also Girl Scouts of Manitou Council, Inc. v. Girl Scouts
of U.S. of Am., Inc., 549 F.3d 1079, 1086 (7th Cir. 2008) (same). “If these threshold factors are
met, the court proceeds to ‘a balancing phase,’ where it “must then consider: (3) the irreparable
harm the non-moving party will suffer if preliminary relief is granted, balancing that harm
against the irreparable harm to the moving party if relief is denied; and (4) the public interest,
meaning the consequences of granting or denying the injunction to non-parties.” Cassell, 990
F.3d at 544–45 (7th Cir. 2021) (quotation marks and citations omitted).
“Harm is irreparable if legal remedies are inadequate to cure it. Inadequate does not mean
wholly ineffectual; rather, the remedy must be seriously deficient as compared to the harm
suffered.” Life Spine, Inc. v. Aegis Spine, Inc., 8 F.4th 531, 545 (7th Cir. 2021) (quotation marks
and brackets omitted); see also Orr v. Shicker, 953 F.3d 490, 502 (7th Cir. 2020) (irreparable
harm is “harm that ‘cannot be repaired’ and for which money compensation is inadequate”).
Moreover, “an injunction will not be issued when the plaintiff has an adequate remedy at law,
which he does if he can assert the ground on which he seeks an injunction as a defense to the
very proceeding that the injunction would put a stop to.” W.C.M. Window Co. v. Bernardi, 730
F.2d 486, 490 (7th Cir. 1984).
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C.
Discussion
The Court will address Mr. Reese’s arguments for preliminary injunction. In his briefs,
Mr. Reese focuses the majority of his attention on the merits prong of the test for granting a
preliminary injunction. However, as to each request, Mr. Reese has failed to make a clear
showing that he would suffer irreparable harm or that no adequate remedy at law exists if the
injunction is not granted. As such, the Court need not explore whether Mr. Reese’s claims have a
reasonable likelihood of success on the merits. After all, even if the Court were to assume that
Mr. Reese is likely to prevail in this case, given that a preliminary injunction is an extraordinary
remedy, he must still show that he will suffer irreparable harm absent an injunction. See Abbott
Lab’ys v. Mead Johnson & Co., 971 F.2d at 11 (“If the moving party cannot establish either of
[the threshold prerequisites], a court’s inquiry is over and the injunction must be denied.” ) A
motion for a preliminary injunction is not meant to short-circuit the legal process that leads to
trial but to provide an equitable remedy when no legal remedies are available. In addition,
without the threshold showing, there’s no need for the Court to analyze the balance of harms
between the parties and the effect of granting or denying a preliminary injunction on the public
interest.
(1)
Mr. Reese’s Ownership Interest in Latitude
Mr. Reese claims that Latitude’s filing of the Schedule K-1 Forms for Mr. Reese have
placed him “in an untenable situation, as [he] cannot file his tax returns without violating federal
law.” (DE 38 at 18.) He therefore asks that the Court enjoin Latitude from making further false
statements to the IRS and to file accurate Schedule K-1 Forms. He insists that “[i]n the absence
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of immediate injunctive relief, ordering Latitude and its Affiliates to prepare accurate, truthful
Schedule K-1 Forms, [he] has no possible remedy at law to redress the unlawful situation created
by Latitude.” (Id. at 19.) In making his request for this preliminary injunction, Mr. Reese has not
established that he will suffer irreparable harm or that no adequate remedy at law exists.
While Mr. Reese insists that, as shareholder of Latitude, he cannot file his own tax return
unless Latitude first amends its filing, he has not explained how his position is grounded in law.
In fact, he merely speculates that his hands are tied. He quotes 26 U.S.C. § 7206(1) as placing a
legal obligation on Latitude to file true and correct returns, but he does not explain how the law
prohibits him from filing a return that is contrary to Latitude’s position, so long as he believes
that his return is “true and correct as to every material matter,” § 7206(1). Moreover, although
Latitude points out that 26 U.S.C. §§ 6222(c) and 6037(c) provide a remedy for situations where
a partner or a shareholder takes an inconsistent position with the company’s tax return, 4 Mr.
Reese provides no argument to the contrary in his reply brief, further undermining his assertions.
The Court is unconvinced that Mr. Reese cannot file his tax return unless Latitude changes its
filing. In other words, Mr. Reese has not shown that, absent a preliminary injunction regarding
Latitude’s filing of Schedule K-1 Forms, he will suffer irreparable harm or that there is no
adequate remedy at law.
Further, to the extent that Mr. Reese complains that Latitude is falsely representing that
he has sold or transferred any of his ownership interests in Latitude, here, too, he has not shown
irreparable harm or that no adequate remedy at law exists. One of the alleged harms is that Mr.
In addition, Internal Revenue Service instructions state that Form 8082 may be used to “notify the IRS of
any inconsistency between your tax treatment of an item and the way the pass-through entity treated and reported
the same item on its return.” Instructions for Form 8082, https://www.irs.gov/pub/irs-pdf/i8082.pdf (last viewed
November 16, 2022).
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Reese is not getting paid the “management fees” which are due pursuant to his ownership of the
shares. Yet, if he prevails at trial, any past due amounts will be readily ascertainable and
damages can be awarded without much difficulty. Also, while Mr. Reese alludes to the fact that,
as a shareholder he has some input in steering the companies (presumably to increase his
financial returns), he has not shown that he has an actual ability to change the course, especially
in light of the fact that Mr. Lankford is the president and overwhelming majority owner
(80.25%) of Latitude and most of the Latitude affiliates. (See DE 38-1, Reese Aff. ¶ 12.)
(2)
Restrictive Covenants
Mr. Reese also asks the Court to enjoin Latitude from making any oral or written
statements to any third party asserting that he is subject to any restrictive covenants with
Latitude, arising either from the 2014 shareholder agreement or any alleged agreement as part of
his termination of employment at Latitude, or otherwise meddle into his future business
prospects. He submits that he “has already suffered serious, immediate, and irreparable harm”
due to SMS Retirement terminating its consulting agreement with him as a result of Latitude’s
insistence that he is subject to restrictive covenants (DE 38 at 18.) According to Mr. Reese, this
has resulted “in incalculable damages to his important business relationship and the loss of future
income and business opportunities, which will be difficult to ascertain and calculate. And SMS
Retirement is merely one of the prospective business, contract, and employment opportunities at
risk, due to Latitude’s threat of litigation against Reese’s potential business partners, employer’s
and customers.” (Id.) Mr. Reese submitted an affidavit from the president of SMS Retirement
who states that SMS was considering a full-time employment opportunity for Mr. Reese when it
learned of Latitude’s legal claims. (DE 55 at 9 n.17.) He thus assumes that he would still be
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working at SMS and potentially getting paid salary, bonus, employment benefits, and equity
opportunities. (Id. at 9.)
Although the Court can appreciate the difficulties Mr. Reese is facing as a result of
Latitude’s actions, be they justified or not, Mr. Reese has not clearly shown that the harms he is
suffering are irreparable, that is, they cannot be repaired and for which money compensation is
inadequate. See Orr v. Shicker, 953 F.3d at 502 (7th Cir. 2020) (describing irreparable harm).
Mr. Reese cites no case law where the Court granted a preliminary injunction in similar
circumstances. Instead, he relies on two cases neither of which helps him much. The first case is
from this district, Lincoln Chem. Corp. v. DuBois Chemicals, Inc., No. 3:12-CV-303 RLM-CAN,
2012 WL 6553098, at *1 (N.D. Ind. Dec. 13, 2012), where a chemical company sought to enjoin
a former employee from misappropriating trade secrets. Id. at *6. The Court granted the
injunction to the company and enjoined the former employee from violating the restrictive
covenants. Id. at *10. In discussing the nature of possible harm to the chemical company, the
court observed that, by the time a trial would be conducted, only speculative damages would be
available and no expert could determine what business the chemical company would have gotten
but lost because of the employee’s breach of his covenant not to compete. “Nor could damages
be reasonably calculated for any misuse of trade secrets between now and the end of the
litigation process.” Id. at *7.
But that’s different from the case at hand. Mr. Reese’s potential damages––by his own
admission––are mostly monetary: salary, bonuses, employment benefits, business opportunities,
and equity opportunities. Mr. Reese was in the process of negotiating his terms of possible
employment at SMS, so presumably there’s information available about his potential
compensation. And evidence already exists as to how much SMS had paid Mr. Reese for his
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consulting services. In addition, expert testimony may be employed to determine the scope of the
damages. What’s more, the restrictive covenants are in effect for at most two years, so the period
within which the damages would accrue is limited. And while Mr. Reese suggests that he may be
missing business opportunities, he has not offered anything concrete for the Court to consider. A
speculation that the damages are unascertainable doesn’t suffice in establishing irreparable harm.
The second case upon which Mr. Reese is relying, Turnell v. Centimark Corp., 796 F.3d
656, 666–67 (7th Cir. 2015), is similarly unavailing. To be fair, to say that Mr. Reece is
“relying” on this case is a stretch: he does not explain how it is similar to his predicament, how it
supports his motion, or how it undermines Latitude’s opposition to his motion for preliminary
injunction. Instead, he merely cites Turnell to suggest that his situation involves the “canonical
form of irreparable harm.” (DE 55 at 9.) While this quote may suggest an orthodox standard, Mr.
Reese needs to show that the facts of his case fit that standard. This he has failed to do.
Worse yet, Turnell’s reference to “canonical form of irreparable harm” is in relation to
the employer’s injury flowing from a former employee’s violation of a restrictive covenant, not
the other way around:
The injuries that flow from the violation of a non-compete are difficult to prove and
quantify. See CertainTeed, 481 F.3d at 529 (“[I]t may be very difficult to show that
the ex-employee has used confidential information.”); John G. Bryant Co. v. Sling
Testing and Repair, Inc., 471 Pa. 1, 369 A.2d 1164, 1167 (1977) (characterizing
such damage as “incalculable”). That is what makes restrictive covenants prime
candidates for injunctive relief. [Defendant’s] breaches, if left unchecked, might
cause little harm to [Plaintiff], or they might cause great harm. But either way, the
magnitude and even the existence of the injury will be difficult to discern.
Injunctive relief is therefore the best, and probably the only, adequate remedy.
Turnell, 796 F.3d at 666–67. In fact, Turnell found just the opposite about the employee’s
potential harm: “[Former employee’s] harm seems largely reparable. If he prevails in a trial on
the merits, it should be possible to quantify his losses and compensate him fully with damages.”
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Id. at 666. In summary, Turnell provides no help to Mr. Reece’s argument that his harms arising
out of Latitude’s insistence that he is bound by the restrictive covenants are irreparable. Without
such a showing, the Court cannot enter a preliminary injunction on Mr. Reese’s behalf.
As a final matter, the Court notes that there are some circumstances in which the
availability of monetary damages would not preclude preliminary relief. For example, if having
to wait for a final judgment to receive the damages would force the plaintiff into insolvency in
the interim, a preliminary injunction can be justified. See, e.g., E.g., Girl Scouts, 549 F.3d at
1089 (finding irreparable harm where the defendant’s conduct, if not enjoined, “would impose
severe financial stress on [the plaintiff] that could ultimately force [the plaintiff] into
insolvency”); see also Hamlyn v. Rock Island Cnty. Metro. Mass Transit Dist., 960 F. Supp. 160,
162 (C.D. Ill. 1997). But Mr. Reese has not argued that, but for the Court entering a preliminary
injunction, he will be financially ruined. He does allude that perhaps Latitude is now worth a
fraction of what it used to be worth, yet he does not suggest that it would not be able to pay a
judgment in his favor. In other words, Mr. Reese has not provided an alternative basis for
establishing irreparable harm.
C.
Conclusion
For the foregoing reasons, the Court DENIES Mr. Reese’s Motion for Temporary
Restraining Order (DE 37).
SO ORDERED.
ENTERED: November 18, 2022
/s/ JON E. DEGUILIO
Chief Judge
United States District Court
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