Rajala v. Gardner et al

Filing 249

MEMORANDUM AND ORDER denying 244 Motion for Temporary Restraining Order and 244 for Preliminary Injunction. Signed by District Judge Eric F. Melgren on 6/14/2012. (ses)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS

ERIC C. RAJALA,
Trustee in Bankruptcy for the Estate of
Generation Resources Holding Company,
LLC
Plaintiff,

vs.

Case No. 09-2482-EFM

ROBERT H. GARDNER, et al.

Defendants.

MEMORANDUM AND ORDER
Plaintiff Eric Rajala, the Trustee for the estate of Generation Resources Holding Company
(“GRHC”), requests a temporary restraining order and preliminary injunction (Doc. 245). On May
8, 2012, the Court denied the Trustee’s Motion for Rule (54)b Certification to the Tenth Circuit.1
In this Order, the Court lifted a stay on funds of approximately $9 million that were being held in
the Kansas Bankruptcy Court. The Clerk of the Bankruptcy Court distributed those funds to
Defendant Lookout Windpower Holding Company (“LWHC”) and Defendant FreeStream that same
day. On May 22, 2012, the Trustee filed a Motion for Temporary Restraining Order and Preliminary
Injunction requesting that the Court prohibit distribution of the funds from the Kansas Bankruptcy

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Doc. 236. The Court will not set forth the background of this case here because it was set forth in several
previous Orders. A brief recitation of the factual and procedural background on the funds at issue can be found in Doc.
236. A more detailed recitation of the factual and procedural background can be found in Doc. 217.

Court. Because the funds had already been distributed, the Trustee withdrew his motion. On May
31, the Trustee filed another Motion for Temporary Restraining Order or Preliminary Injunction.
In this motion, the Trustee requests that the Court (1) freeze the funds and any assets for which they
have been exchanged; (2) require the individual Defendants to account for the funds; and (3) require
the individual Defendants to notify any transferee of the Trustee’s claims. Defendants oppose the
motion.2 The Court ordered an expedited briefing schedule and held a hearing on the motion on
June 13, 2012.

Legal Standard
Granting or denying a temporary restraining order or other preliminary injunction rests
within the sound discretion of the trial court.3 The purpose of a temporary restraining order or
preliminary injunction is “to preserve the status quo pending the outcome of the case.”4 The
standards which govern the granting of a preliminary injunction are well settled in the Tenth Circuit.
The moving party must establish: “(1) it is substantially likely to succeed on the merits; (2) it will
suffer irreparable injury if the injunction is denied; (3) its threatened injury outweighs the injury the
opposing party will suffer under the injunction; and (4) the injunction would not be adverse to the
public interest.”5 A movant has the burden to establish by clear proof its right to a preliminary

2

The Trustee did not address FreeStream’s portion of the distribution of funds, and the Court notes that
FreeStream is no longer a Defendant in this case because the Court granted summary judgment on all of the Trustee’s
claims against FreeStream.
3

Beltronics USA, Inc. v. Midwest Inventory Distrib., LLC, 562 F.3d 1067, 1070 (10th Cir. 2009).

4

Tri-State Generation & Transmission Ass'n., Inc. v. Shoshone River Power, Inc., 805 F.2d 351, 355 (10th Cir.

5

Beltronics, 562 F.3d at 1070.

1986).

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injunction. Mere allegations are insufficient. A preliminary injunction is an extraordinary remedy
that is an exception rather than the rule, and courts do not grant it as a matter of right.6
Success on the Merits
Although the Trustee has a few remaining claims against Defendants,7 he affirmatively
states that he is only proceeding on the fraudulent transfer claims with respect to this preliminary
injunction motion. The Trustee contends that he is likely to be successful on the merits of his
fraudulent transfer claims because the Second Amended Complaint alleges sufficient facts to
demonstrate fraud under Kansas’ Uniform Fraudulent Transfer Act. Defendants assert that the
Trustee is not likely to be successful on the fraudulent transfer claims because (1) the Trustee lacks
standing to pursue the claims because the creditors were not damaged as a result of the alleged
fraudulent transfers, and (2) the Trustee cannot establish a prima facie case because the Trustee
cannot identify any interest or right that GRHC owned that was fraudulently transferred.
The Trustee fails to articulate reasons as to why he is likely to prevail on his fraudulent
transfer claims. Instead, the Trustee relies on conclusory allegations taken from his Second
Amended Complaint and simply asserts that he is likely to prevail. Although the Court agrees that
the facts, as stated in the Complaint, are sufficient to state a claim, the Court cannot say that the
Trustee is likely to succeed on the merits of those claims. The Trustee provides no support for his
factual contentions. Defendants, in contrast, provide the Court with some evidence that their
arguments may have merit. The Court cannot say that the Trustee is likely to succeed on the merits
of these claims. For that reason, this factor does not weigh in the Trustee’s favor.

6

Id.

7

The Trustee also has a breach of fiduciary duty claim and a conspiracy claim remaining against Defendants.

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Irreparable Injury
The Trustee contends that if the Court does not freeze the funds, LWHC (an alleged empty
shell) and the individual Defendants may dispose of the funds. If Defendants dispose of those funds,
and the Trustee later prevails on his fraudulent transfer claims, the Trustee argues that there may be
no money left to recover for the bankruptcy estate and he will have a difficult time collecting for
GRHC’s estate. For purposes of this preliminary injunction motion, the Court is willing to assume
that Defendants may dispose of the money and the Trustee will be irreparably harmed. Accordingly,
this factor weighs in the Trustee’s favor.
Threatened Injury versus Prejudice
The Trustee contends that if the Court does not freeze the funds and LWHC and the
individual Defendants disburse all of those funds, the Trustee would have to file a multitude of
lawsuits against subsequent transferees. Defendants argue that the Trustee has engaged in tactics
to delay the proceedings and that they are prejudiced because they have had to respond to the
Trustee’s numerous baseless motions on this issue. They assert that the Trustee’s concern with filing
numerous lawsuits is unwarranted and inconsistent with his prior actions. The balancing of the
threatened injury to the Trustee and the prejudice to Defendants is about equal. For this reason, this
factor is neutral.
Public Interest
The Trustee contends that a preliminary injunction is not adverse to the public interest
because the bankruptcy code has a policy of preserving assets so that there is a fair and equitable
distribution of assets from what are usually limited resources. The Trustee’s argument is flawed
because the Court previously decided that these funds were not property of the estate. Because the

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funds are not an asset of GRHC’s bankruptcy estate, freezing the funds would not promote the
bankruptcy code’s policy of preserving assets. Accordingly, this factor does not weigh in the
Trustee’s favor.
Because the Trustee does not establish by clear proof his right to a preliminary injunction,
the Court denies the Trustee’s motion.
IT IS ACCORDINGLY ORDERED that Plaintiff’s Motion for Temporary Restraining
Order and Preliminary Injunction (Doc. 245) is DENIED.
IT IS SO ORDERED.
Dated this 14th day of June, 2012.

ERIC F. MELGREN
UNITED STATES DISTRICT JUDGE

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