Lexel Imaging Systems, Inc. et al v. Video Display Corporation
Filing
18
OPINION AND ORDER: The Court ORDERS that the 2 Motion for Restraining Order or in the Alternative for a Temporary Injunction is DENIED and 17 Motion for Leave to File a supplemental response is DENIED as moot. Signed by Judge Karen K. Caldwell on 1/28/2015. (SCD)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
AT LEXINGTON
CIVIL ACTION NO. 5:14-CV-462-KKC
LEXEL IMAGING SYSTEMS, INC. and
CITIDAL PARTNERS, LLC
v.
PLAINTIFF
OPINION AND ORDER
VIDEO DISPLAY CORPORATION
DEFENDANT
** ** ** ** **
This matter is before the Court on the motion for a temporary restraining order or
injunction (DE 2) filed by the plaintiff Citidal Partners, LLC. For the following reasons, the
motion will be denied.
The defendant in this matter, Video Display Corporation (VDC), sold its wholly
owned subsidiary – Lexel Imaging Systems, Inc. – to Citidal for $3.9 million. Each party
argues that the other party has somehow breached various agreements between the parties
that governed the sale. And each party argues that it should be in control of Lexel.
VDC’s representatives have now entered Lexel and taken physical control of the
company and have locked Citidal’s representatives out of Lexel’s offices. Citidal filed this
action seeking an injunction that would require VDC’s representatives to leave Lexel’s
premises and restore Citidal’s control of Lexel.
The stock purchase agreement between the parties pretty clearly requires
arbitration of all disputes regarding the agreement as long as one party serves written
notice of intent to arbitrate. (DE 1-1, Stock Purchase Agreement, ¶ 10(i)(ii).) By letter dated
October 21, 2104, VDC served Citidal notice of its intent to arbitrate disputes over whether
Citidal had made the payments required for the purchase of Lexel. (DE 2-2, Oct. 21, 2014
Letter.) Both parties agree that the underlying issue of whether either party has defaulted
on its obligations must be arbitrated.
The arbitration clause notwithstanding, the agreement permits the parties to go to
court to seek injunctive relief. (DE 1-1, Stock Purchase Agreement, ¶ 10(i)(iii).) Each party
has now come to this Court seeking some form of injunctive relief. VDC filed the first action
and then voluntarily dismissed it. Video Display Corporation v. Lexel Imaging Systems, Inc.
et al., No. 5:14-cv-403-KKC (filed October 23, 2014).
Citidal then filed this action also seeking injunctive relief. VDC objects to this
Court’s personal jurisdiction over it and also objects to Citidal’s entitlement to the
requested relief.
I.
VDC is a Georgia corporation. (DE 12, Response at 8.) It argues that this Court
cannot exercise personal jurisdiction over it. VDC has not actually filed a motion to dismiss
this action for lack of personal jurisdiction under Rule 12(b)(2) but did object to this Court’s
jurisdiction in its response to Citidal’s motion and at the hearing on the motion. In
compliance with the Court’s order, both parties have briefed the issue. Because VDC
requests that this matter be dismissed for lack of personal jurisdiction, the Court will
analyze its request under the 12(b)(2) standard.
AThe procedural scheme which guides the district court in disposing of Rule 12(b)(2)
motions is well-settled.@ Theunissen v. Matthews, 935 F.2d 1454, 1458 (6th Cir. 1991). The
2
plaintiff has the burden of establishing personal jurisdiction. Id. In responding to such a
motion, the plaintiff cannot Astand on his pleadings but must, by affidavit or otherwise, set
forth specific facts showing that the court has jurisdiction.@ Id.
The court has three options for deciding a 12(b)(2) motion prior to trial: 1) the court
can decide the motion upon the affidavits alone; 2) the court can permit discovery to decide
the motion; or 3) the court can conduct an evidentiary hearing to resolve any factual
disputes. Serras v. First Tennessee Bank Nat. Ass=n, 875 F.2d 1212, 1214 (6th Cir. 1989)
(quoting Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2nd Cir. 1981)).
If all the specific facts which the plaintiff alleges collectively fail to state a prima
facie case for jurisdiction, the court need not conduct an evidentiary hearing before
dismissing the claim. Kerry Steel, Inc. v. Paragon Industries, Inc., 106 F.3d 147 (6th Cir.
1997). A prima facie showing means that the plaintiff only has to present enough facts to
avoid a motion to dismiss. Welsh v. Gibbs, 631 F.2d 436, 438 (6th Cir. 1980) (quoting Data
Disc, Inc. v. Systems Technology, Associates, Inc., 557 F.2d 1280, 1285 (9th Cir. 1977)). In
determining whether the plaintiff has met this burden, the court must consider the
pleadings and affidavits in a light most favorable to the plaintiff. Dean v. Motel 6 Operating
L.P., 134 F.3d 1269, 1272 (6th Cir. 1998). The court Adoes not weigh the controverting
assertions of the party seeking dismissal.@ Theunissen, 935 F.2d at 1459 (citing Serras, 875
F.2d at 1214). A court is not required, however, to Aignore undisputed factual
representations of the defendant which are consistent with the representations of the
plaintiff.@ Kerry Steel, 106 F.3d at 153.
The determination that the plaintiff has made the prima facie showing of
jurisdiction necessary to survive a motion to dismiss does not relieve him from ultimately
3
having to prove jurisdiction by a preponderance of the evidence if the defendant again
raises the jurisdictional issue later in the action. Serras, 875 F.2d. at 1214 (stating that
even if court issues pretrial order denying defendant=s 12(b)(2) motion, the defendant may
proceed to trial without waiving the defense; a threshold determination that personal
jurisdiction exists does not relieve the plaintiff at the trial from proving the facts upon
which jurisdiction is based by a preponderance of the evidence); Dean, 134 F.3d at 1272
(stating that a defendant Acan raise jurisdictional arguments during the trial as well. It is
not as if this early determination, with the burden on the plaintiff so low, is the last word
on jurisdiction@); Neogen Corp. v. U.S. Dept. of Justice, 2006 WL 3422691, at * 7 n.4 (E.D.
Ky. 2006).
If there are no factual disputes regarding the jurisdiction issue, then the court need
not conduct a hearing but can decide on the pleadings and affidavits whether the plaintiff
has established jurisdiction by a preponderance of the evidence. Dean, 134 F. 3d at 1272.
(stating that where Athe reason for not having an evidentiary hearing was that there was no
>real dispute= as to the facts or to the extent of discovery. . . plaintiffs face the same burden
as they would if there had been an evidentiary hearing: proof of jurisdiction by a
preponderance of the evidence.@).
Neither party in this case has requested discovery on the issue of jurisdiction or an
evidentiary hearing to resolve relevant factual disputes. Thus, to resolve the jurisdictional
issue raised by VDC, the Court will determine whether, taking all of Citidal’s allegations as
true, it has made the necessary prima facie showing of jurisdiction.
4
When determining whether personal jurisdiction exists over a defendant in a
diversity case, Aa federal court must apply the law of the state in which it sits, subject to
constitutional limitations.@ Reynolds v. Int'l Amateur Athletic Fed'n, 23 F.3d 1110, 1115
(6th Cir.1994). A[T]he defendant must be amenable to suit under the forum state's long-arm
statute and the due process requirements of the Constitution must be met.@ CompuServe,
Inc. v. Patterson, 89 F.3d 1257, 1262 (6th Cir. 1996) (citation omitted).
The Kentucky Supreme Court has determined that the state’s long-arm statute does
not allow for personal jurisdiction to the full extent of the due-process clause. Caesars
Riverboat Casino, LLC v. Beach, 336 S.W.3d 51, 57 (Ky. 2011). In other words, there may be
situations where a defendant has sufficient contacts with the state to satisfy jurisdiction
under the due-process clause but the Kentucky statute still does not permit jurisdiction. Id.
(citing Banco Ambrosiano, S.P.A. v. Artoc Bank & Trust Ltd., 62 N.Y.2d 65, 476 N.Y.S.2d
64, 464 N.E.2d 432, 435 (1984)).
Thus, in determining whether this Court may exercise personal jurisdiction over a
defendant, the Court must first look to whether jurisdiction is permissible under
Kentucky’s long-arm statute. That statute provides, in relevant part, that a Kentucky court
may exercise personal jurisdiction over a person with regards to a claim arising from that
person’s “[t]ransacting any business in this Commonwealth.” KRS § 454.210(2)(a)(1).
Thus, the Court must look to the claims that Citidal makes in its complaint and
determine whether those claims arise from VDC transacting business in Kentucky. Neither
Citidal nor VDC is a Kentucky corporation. Citidal is a Michigan limited liability company
and, as stated, VDC is a Georgia corporation. Neither party alleges that either Citidal or
VDC has offices in Kentucky. This dispute centers on which of them should control Lexel
5
pending arbitration. Lexel is a Delaware corporation but its principal place of business is
located in Lexington, Kentucky. (DE 1, Complaint, ¶ 1.)
Citidal asserts, after signing the documents governing the sale of Lexel, it became
the owner of Lexel. (DE 1, Complaint, ¶ 9.) It asserts that VDC failed to make a working
capital contribution to Lexel as required under one of the agreements between the parties
and that it failed to make a payment required under another agreement. (DE 1, Complaint,
¶ 12.) Citidal asserts that, in total, VDC now owes it more than $900,000. (DE 1,
Complaint, ¶ 12.)
By e-mail dated October 16, 2014, Citidal notified VDC that VDC had breached the
agreements. (DE 1, Complaint, ¶ 14; DE 2-2, Ex. A-1.) By letter dated October 21, 2014,
VDC responded with its own notice of default alleging that Citidal had failed to make
payments when due under the Stock Purchase Agreement between the parties. VDC also
notified Citidal of its intent to seek arbitration. (DE 1, Complaint, ¶ 14; DE 2-2, Ex. A-2.)
Citidal alleges that it agreed to arbitrate the parties’ disputes. (DE 1, Complaint, ¶ 14; DE
2-1, Mem. at 5, 10.)
Nevertheless, on October 23, 2014, VDC filed an action in this Court in which it
sought an injunction. The parties agreed to permit VDC to inspect Lexel’s books and
records and, on November 3, 2014, this Court ordered that such an inspection commence by
November 5, 2014. (Video Display Corporation v. Lexel Imaging Systems, Inc., No. 5:14-cv403-KKC, DE 12.) By letter dated November 17, 2014, VDC informed Citidal that Citidal
had breached its obligation to make payments totaling $900,000 for the purchase of Lexel.
(DE 1, Complaint, ¶ 18; DE 2-2, Ex. A-5.) VDC further informed Citidal that it had canceled
Citidal’s stock certificates evidencing Citidal’s ownership of 200 shares of Lexel stock and
had reissued the stock in VDC’s name. VDC stated that Citidal had pledged the stock as
6
security for the payments required under the agreements between the parties. VDC
asserted that it was now the sole owner of Lexel and that Citidal had no ownership in Lexel
at all. VDC demanded that Citidal immediately surrender the operation and management
of Lexel to VDC. (DE 2-2, Ex. A-5.)
On December 2, 2014, VDC voluntarily dismissed the first action. Video Display
Corporation v. Lexel Imaging Systems, Inc., et al., No. 5:14-cv-403-KKC, DE 16.
On December 29, 2014, Citidal then filed this action. It alleges that VDC, with the
assistance of two of Lexel’s officers, has “locked out” Citidal. It further alleges that VDC’s
local counsel accompanied certain VDC employees and entered Lexel’s premises. (DE 1,
Complaint, ¶ 18.) Citidal alleges that VDC then threatened to fire Lexel’s employees if they
communicated with Citidal or its officers. Citidal alleges that VDC has already fired one
Lexel employee “as an example.” (DE 1, Complaint, ¶ 18.) Citidal alleges that VDC has
hired armed guards to ensure that Citidal remains locked out of the premises. (DE 1,
Complaint, ¶ 18.) Citidal alleges that VDC is now accessing Citidal’s proprietary and
confidential information concerning a certain technology called “Guardian View 360” and is
interfering with certain of Citidal’s business relationships. (DE 1, Complaint, ¶ 19.)
Citidal asserts a breach of contract claim against VDC alleging that VDC refuses to
arbitrate their disputes as the contracts require. Citidal asks for an order requiring VDC to
arbitrate the disputes. Citidal also requests an order directing VDC to restore Citidal to
control of Lexel.
Thus, Citidal’s claim arises from two actions by VDC. First, is VDC’s alleged refusal
to arbitrate as required under the agreements. This is a nonissue because VDC agrees to
arbitrate the disputes between the parties. Second, is VDC’s alleged assumption of control
over Lexel, a company with its principal place of business in Kentucky. VDC
7
representatives allegedly entered Lexel’s offices in Kentucky and assumed control over all
of Lexel’s assets and operations. Again, before entering Lexel, VDC demanded that Citidal
immediately surrender the operation and management of Lexel to VDC. (DE 1, Complaint,
¶ 14; DE 2-2, Ex. A-5.)
Further, VDC allegedly hired armed guards in Kentucky to keep Citidal’s
representatives off the Kentucky premises. In other words, Citidal alleges that VDC
representatives are now physically on the premises of Lexel in Kentucky and operating and
managing the business. As VDC itself has characterized it, “Lexel is 100% owned and under
control of. . . VDC.” (DE 12-4, November 26, 2014 Letter.) Further, Citidal alleges that
VDC and Lexel continue to sell materials and services to each other. These actions clearly
constitute transacting business in Kentucky. Because Citidal’s claims arise from these
actions by VDC, this Court has personal jurisdiction over VDC under Kentucky’s long-arm
statute.
This Court’s exercise of jurisdiction over VDC also comports with federal due
process. The following criteria are used to determine personal jurisdiction in the Sixth
Circuit:
First, the defendant must purposefully avail himself of the privilege of
acting in the forum state or causing a consequence in the forum state.
Second the cause of action must arise from the defendant=s activities
there. Finally, the acts of the defendant or consequences caused by
the defendant must have a substantial enough connection with the
forum state to make the exercise of jurisdiction over the defendant
reasonable.
Southern Mach. Co. v. Mohasco Industries, Inc., 401 F.2d 374, 381 (6th Cir. 1968).
AIf these criteria are satisfied, jurisdiction is appropriate if maintenance of the suit
does not offend traditional notions of fair play and substantial justice.@ Tobin v. Astra
8
Pharmaceutical Products, Inc., 993 F.2d 528, 543 (6th Cir. 1993) (citations and internal
quotation marks omitted).
As discussed, VDC representatives traveled to Kentucky to take over operation and
management of Lexel. Citidal alleges that VDC representatives are now physically on the
premises of Lexel in Kentucky and operating the business. Further, Citidal alleges that
VDC and Lexel continue to sell materials and services to each other. Accordingly, VDC has
very purposefully availed itself of the privilege of acting and causing a consequence in
Kentucky.
The next issue is whether the plaintiff's cause of action arises from the defendant’s
activities in Kentucky. This is a “lenient standard.” Bird v. Parsons, 289 F.3d 865, 875 (6th
Cir. 2002). “If a defendant's contacts with the forum state are related to the operative facts
of the controversy, then an action will be deemed to have arisen from those contacts.” Id.
(citing CompuServe, Inc. v. Patterson, 89 F.3d 1257, 1267 (6th Cir.1996)). This factor
“requires only ‘that the cause of action, of whatever type, have a substantial connection
with the defendant's in-state activities.’” Id. (quoting Third Nat’l Bank in Nashville v.
WEDGE Group, Inc., 882 F.2d 1087, 1091 (6th Cir.1989)).
Citidal’s claim for injunctive relief clearly has a substantial connection to VDC’s
actions in Kentucky. In fact, Citidal asks this Court to order VDC to cease those very
actions.
Finally, VDC’s acts must have a substantial enough connection with Kentucky to
make the exercise of jurisdiction over it reasonable. Where there is a finding of purposeful
availment and that the cause of action arose from the defendant's contacts with the forum
state, an inference arises that this third factor is also met. CompuServe, 89 F.3d at 1268.
Factors relevant to the reasonableness inquiry include, “the burden on the defendant, the
9
interest of the forum state, the plaintiff's interest in obtaining relief, and the interest of
other states in securing the most efficient resolution of controversies.” Id.
Here, there is clearly no burden on VDC in litigating this action in Kentucky. As
discussed, it was VDC that first brought an action in this Court based on the same disputes
that are at issue in this action. VDC cannot now claim that litigating this matter in this
Court is unduly burdensome. Further, Kentucky has a legitimate interest in protecting the
business interests of its citizens. The outcome of this action will determine which entity
controls Lexel while arbitration is pending. Citidal has an obvious interest in obtaining
relief and, although Michigan or Georgia may also have an interest, that does not make
jurisdiction by this Court unreasonable.
As an alternative to dismissing this action, VDC requests that the Court transfer it
to federal district court in Atlanta, Georgia pursuant to 28 U.S.C. § 1404(a) which permits
the Court to transfer a civil action “[f]or the convenience of parties and witnesses” to any
other district or division where it might have been brought. VDC does not argue that this
Court is an improper venue, but only that this matter should be transferred for the
convenience of the parties.
Courts within the Sixth Circuit have identified nine factors which should be
considered when ruling upon a motion to transfer venue under section 1404(a):
(1) the convenience of witnesses; (2) the location of relevant documents and
relative ease of access to sources of proof; (3) the convenience of the parties;
(4) the locus of the operative facts; (5) the availability of process to compel the
attendance of unwilling witnesses; (6) the relative means of the parties; (7)
the forum's familiarity with the governing law; (8) the weight accorded the
plaintiff's choice of forum; and (9) trial efficiency and the interests of justice,
based on the totality of the circumstances.
Perceptron, Inc. v. Silicon Video, Inc., 423 F. Supp. 2d 722, 729 (E.D.Mich.2006).
10
The burden is generally placed on the party seeking transfer, and a plaintiff's choice
of forum is ordinarily entitled to considerable weight. MSDG Mobile, LLC v. Am. Fed., Inc.,
No. 1:05-cv-123-M, 2006 WL 515531, at * 6 (W.D.Ky. Feb.28, 2006). As a result, “[u]nless
the balance is strongly in favor of the defendant, the plaintiff's choice of forum should rarely
be disturbed.” Nicol v. Koscinski, 188 F.2d 537 (6th Cir.1951) (citations omitted). Further, a
motion to transfer venue under § 1404(a) cannot simply be an attempt to shift the
inconvenience of litigation from the defendant to the plaintiff. Copeland Corp. v. Choice
Fabricators, Inc., 492 F.Supp.2d 783, 789 (S.D.Ohio 2005).
VDC points out that the parties agreed to arbitrate any disputes in Georgia. The
Court declines to give this great weight in determining which federal court is most
convenient for litigation. The fact that the parties agreed to arbitrate in Georgia but
neglected to specify any location for litigation to obtain injunctive relief other than “a court
of competent jurisdiction” indicates that the parties agreed that litigation could occur in
any proper venue. (DE 1-1, Ex. A, Stock Purchase Agreement, ¶ 10(i)(iii).)
Next VDC argues that all of its “accessible sources of proof” are in Georgia and all of
its witnesses are located there and, thus, litigation in Kentucky is unduly burdensome. The
Court does not find this argument credible. Again, VDC just brought an action itself in this
Court based on the very same dispute. Further, this action centers on VDC’s occupation,
operation and management of Lexel, which is located in Lexington, Kentucky. Thus, some
relevant documents and witnesses are most certainly located here. In fact, in the action it
brought, VDC sought an accounting of Lexel’s financial records and inventory, all of which
were located in Lexington. VDC does not raise any other arguments in support of its motion
to transfer venue. Considering all of the relevant factors and the plaintiff’s choice of forum,
11
the Court does not find that the interest of justice warrants transferring this case to
Georgia under 28 U.S.C. § 1404(a).
II.
The next issue is whether Citidal is entitled to the injunctive relief it seeks. Again,
Citidal asks this Court to order two things. First, it asks the Court to order VDC to
arbitrate the disputes between them as required under the agreements. Second, it asks the
Court to order VDC to transfer Lexel’s stock back to Citidal and permit Citidal to again
assume control over Lexel. It further asks the Court to order VDC to, among other actions,
return all funds or property to Citidal that it allegedly took and to cease communicating
with any Lexel employee about the business plans or operations of Lexel and Citidal. (DE
2, Motion.)
In addressing a motion for a preliminary injunction, a court should consider: (1) the
likelihood that the movant will succeed on the merits; (2) whether the movant will suffer
irreparable harm without the injunction; (3) the probability that granting the injunction
will cause substantial harm to others; and (4) whether the public interest will be advanced
by issuing the injunction. See Six Clinics Holding Corp., II v. Cafcomp Sys., Inc., 119 F.3d
393, 399 (6th Cir.1997). The agreements between the parties provide that Georgia law
controls but Georgia’s standard for the issuance of a preliminary injunction is substantively
the same as the federal standard. Accordingly, the Court need not decide which standard
applies to this motion.
As to Citidal’s likelihood of success on the merits, Citidal argues that the only issue
before this Court is whether VDC was justified in taking control of Lexel or whether
Citidal’s control of Lexel should be restored pending the outcome of arbitration. It argues
that, pursuant to the agreements between the parties, “all of the underlying issues, such as
12
who breached the Contracts, who owes whom and, if so, how much, must be arbitrated.”
(DE 2-1, Mem. at 14.) It argues, “[w]hether Plaintiffs are actually in default or whether
VDC actually still owes compensation to Lexel must be arbitrated pursuant to the
Contracts.” (DE 2-1, Mem. at 15.) VDC agrees that these issues must be arbitrated. (DE 12,
Response at 8, 14). Accordingly, the Court will not address the underlying issue of which
party defaulted on its obligations, there being no dispute between the parties that the
agreements require that issue to be arbitrated and not submitted to this Court for
resolution.
Citidal’s argument seems to be that, even assuming it is in default, VDC had no
right to assume ownership and control of Lexel prior to arbitration. At the hearing on this
motion, Citidal explained that its position is that VDC could not assume ownership of Lexel
until an arbitrator decides that Citidal is in default. It argued that VDC had no right under
the agreements between the parties to unilaterally decide Citidal was in default and
assume control over Lexel.
As VDC points out, however, the parties entered into a Stock Pledge Agreement, the
very purpose of which was to “give VDC a security interest in all of the stock of [Lexel] until
at least ONE MILLION DOLLARS ($1,000,000) of the Purchase Price under the [Stock
Purchase Agreement] is paid in full and all other obligations under the [Stock Purchase
Agreement] are satisfied.” (DE 12-5, Stock Pledge Agreement, Recitals.) In the agreement,
both parties recognize that VDC would not sell Lexel under the terms provided in the Stock
Purchase Agreement unless Citidal signed the Stock Pledge Agreement. (DE 12-5, Stock
Pledge Agreement, Recitals.)
With the Stock Pledge Agreement, Citidal granted VDC a security interest in all of
Citidal’s shares of Lexel stock and all of its share certificates. (DE 12-5, Stock Pledge
13
Agreement, § § I (A), II.) The agreement provides that VDC shall hold the stock as “security
for the payment and performance” of Citidal’s obligations to make payments of $1,000,000
under the Stock Purchase Agreement. (DE 12-5, Stock Pledge Agreement, § II.)
The Stock Pledge Agreement further provides that Citidal must deliver all
certificates and a stock power executed in blank to VDC and perform any other acts that
VDC may reasonably request to establish and maintain a valid security interest in the
Lexel stock. (DE 12-5, Stock Pledge Agreement, § III (D).) With the agreement, Citidal
granted VDC a power of attorney that was irrevocable until Citidal paid the $1,000,000.
The power of attorney permits VDC to exercise “any and all powers which may be exercised
by the owners of said stock and to accomplish such actions necessary to transfer and reissue
said stock in the name of [Citidal].” (DE 12-5, Stock Pledge Agreement, § IV.)
The Stock Pledge Agreement provides that “[i]f any Event of Default has occurred
and is continuing, [VDC] may exercise from time to time the rights and remedies available
to it under the Uniform Commercial Code and any other applicable law, in equity, or under
any agreement.” The U.C.C. provides that, “[a]fter default, a secured party. . . may take
possession of the collateral.” U.C.C. § 9-609(a)(1). Further, the secured party may proceed
“without judicial process, if it proceeds without breach of the peace.” U.C.C. § 9-609(b)(2).
Citidal agreed that, if an Event of Default occurred, at VDC’s request, it would
deliver the stock certificates which were not then in VDC’s possession to VDC. (DE 12-5,
Stock Pledge Agreement, § V.) The Stock Pledge Agreement does not terminate until Citidal
has paid the $1,000,000. (DE 12-5, Stock Pledge Agreement, § VI.)
While Citidal argues that none of its representatives actually signed a stock power,
it does not contest that an authorized representative signed the Stock Pledge Agreement on
its behalf. Considering the intent and provisions of that agreement, the Court cannot find it
14
likely that VDC did not have the right to assume ownership of Lexel in the event that
Citidal failed to pay the first $1,000,000 for the purchase of the company. For these reasons,
Citidal has not established a likelihood of success on the merits of their claim for injunctive
relief that would force VDC to leave the premises of Lexel and restore Citidal’s control of
the company while arbitration is pending.
Nor has Citidal established that it will suffer irreparable injury if its ownership of
Lexel is not restored while arbitration is pending. Citidal argues that Lexel’s relationships
with its customers are endangered because those customers “remain uncertain about the
control of Lexel.” (DE 2-1, Mem. at
19.) But Citidal has only asked this Court for a
temporary injunction that would only temporarily restore its control of Lexel. Thus, the
injunction will not resolve uncertainty as to the ultimate control of Lexel.
Further, the Court has no basis to find that Lexel’s customers would be any more
comfortable with Citidal in control of Lexel than with VDC controlling it. Citidal argues
that VDC “drove Lexel to the brink of bankruptcy or dissolution” but the Court cannot
make that finding on the record before it.
Citidal argues that Lexel must have a license from the federal government to export
products and that it relies on Citidal’s license to do so, but VDC has presented evidence
that it also has such a license.
Citidal argues that it developed the Guardian View 360 technology and that
confidential and proprietary information about it is available on Lexel’s computers. It
argues that VDC has accessed that information and has communicated about Guardian
View 360 with Lexel’s customers in some way that has damaged Citidal’s ability to market
the technology. VDC, in contrast, argues that Lexel – not Citidal – developed Guardian
View 360. The Court cannot resolve that issue based on the record before it. Nor can it find
15
that VDC has irreparably injured Citidal’s ability to market the technology. Further, any
damages that VDC causes to the sales of this new technology can likely be compensated
through money damages.
Citidal argues that VDC may be misappropriating inventory that belongs to Citidal.
If so, Citidal can be repaired through money damages. Citidal argues that it has loaned
money to Lexel but has no way of determining the status of the loans because it has no
access to Lexel’s bank accounts and financial records. Like any lender, however, Citidal
can be compensated with money damages in the event that Lexel fails to repay the loans.
Finally, the public interest will not be substantially advanced by the granting of an
injunction in this case. This is a dispute between two private companies who appear to be
on equal footing. To the extent the public has any interest it is in the enforcement of
contracts as written between the parties. It appears likely that the parties agreed that VDC
could take the actions it has taken in the event of Citidal’s default. The public interest is
certainly not advanced if this Court should enter an order that is contrary to the parties’
agreement.
For all these reasons, the Court hereby ORDERS that the plaintiffs’ Motion for
Restraining Order or, in the Alternative, for a Temporary Injunction (DE 2) is DENIED and
the VDC’s motion for leave to file a supplemental response (DE 17) is DENIED as moot.
Dated January 28, 2015.
16
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?