Global Generation Group, LLC et al v. Mazzola et al

Filing 22

ORDER Denying Plaintiff's Emergency 18 Motion for Injunctive Relief/ TRO. Signed by District Judge Gershwin A. Drain. (Bankston, T)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
GLOBAL GENERATION GROUP, LLC,
et al.,
Plaintiffs,
v.

Civil Action No. 2:13-CV-14979
Honorable Gershwin A. Drain

FRANK MAZZOLA, et al.,
Defendants.
_________________________________/
ORDER DENYING PLAINTIFFS’ EMERGENCY MOTION FOR INJUNCTIVE RELIEF
[#18]
I. INTRODUCTION

This case arises out of Plaintiffs, Global Generation Group, LLC’s and Benchmark Capital,
LLC’s, (collectively “Plaintiffs”) claims of securities fraud as governed by the Securities Exchange
Act of 1934, 15 U.S.C. §§ 78j(b) and Rule 10b-5(b), and the Securities Act of 1933, 15 U.S.C. §
77q(a), as well as state law claims of breach of contract, fraud/misrepresentation, innocent
misrepresentation, unjust enrichment and unlawful conversion.
Plaintiffs claim that Defendants, Frank Mazzola, Emilio DiSanluciano, FB Management
Associates II, LLC, Pipio Management Associates, LLC, Felix Venture Partners Qwiki Management
Associates, LLC, Facie Libre Management Associates, LLC and FMOF Management Associates, LLC
(collectively “Defendants”), fraudulently misrepresented and deceived Plaintiffs into investing over

$6,355,436.84 in a sham corporation, Felix Multi-Opportunity Fund II, LLC (“FMOF II”) that was
established and operated by Defendants. Specifically, Plaintiffs argue that Defendants fraudulently
induced them into purchasing interest or “Series” in FMOF II, which in turn held pre-IPO shares of
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Facebook and Palantir, by overstating the value of the shares which allowed Defendants to charge
a higher rate for the Series purchased by Plaintiffs.
Additionally, Plaintiffs assert that they have exercised their “Put Rights,” which allowed
them to cash out their Series investments and collect on the value of their Facebook and Palantir
shares, however Defendants continued to hold on to the shares. Defendants later sold both the
Palantir and Facebook shares but retained the sale proceeds.
Defendants filed a Motion to Dismiss in lieu of an Answer on March 10, 2014. Defendants
maintain that all of Plaintiffs’ claims are subject to mandatory arbitration pursuant to the parties’
agreements, as well as raise other arguments concerning the sufficiency of Plaintiffs’ factual
allegations. The Court scheduled a hearing on Defendants’ Motion to Dismiss for June 10, 2014.
Presently before the Court is the Plaintiffs’ Emergency Motion for Temporary Restraining
Order, filed on April 22, 2014. Plaintiffs maintain that an immediate restraining order is required to
preserve Plaintiffs’ interests in the shares and profits derived therefrom in order to prevent Defendants
from converting, transferring, concealing, squandering or diverting the funds to another member,
including transferring the funds beyond the jurisdiction of this Court. Plaintiffs request that $6, 355,
436.841 be placed in an escrow account with the Court until the matter is fully adjudicated.
The Court issued an Order requiring Defendants to file a Response to the Plaintiffs’ present
motion. Defendants filed a Response in Opposition on April 30, 2014. A hearing was held on May 2,
2014. For the reasons that follow, the Court will DENY Plaintiffs’ Emergency Motion for Temporary
Restraining Order.
1

At the hearing, Plaintiffs changed their request to $1.75 million dollars due to the parties
dispute concerning the amount of money that has been returned by Defendants. See fn.2, infra.
However, as explained below, Plaintiffs cannot establish that injunctive relief is warranted. Thus,
the fact that Plaintiffs have decreased the amount they seek to have placed in an account with the
Court does not change this Court’s conclusion that injunctive relief is unwarranted under the
circumstances.

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II. FACTUAL BACKGROUND
FMOF II is an investment vehicle that owns a portfolio of shares of various social media
companies, such as Facebook and Groupon. The investment goal of FMOF II was to purchase shares
of social media companies when the companies were privately owned and then sell those shares once
the companies became publically traded through an initial public offering.
Plaintiffs allege that their investment in FMOF II was memorialized in a December 7, 2011
Letter Agreement. Only Defendants FMOF Management Associates, LLC, Facie Libre Management
Associates, LLC and non-party FMOF II signed the December 2011 Letter Agreement. Within FMOF
II, Mazzola and DiSanluciano established Libre Associates II, LLC (“FLA II”) for the purpose of
holding the Facebook stock. Potential investors could not purchase Facebook shares directly. Rather,
a potential investor would purchase Series of FMOF II because FMOF II held interest in FLA II.
Section III of the December 2011 letter granted Plaintiffs’ “Put Rights,” which granted them
the right and option “to redeem (or purchase) all or any portion(s) of the Investments (including any
individual Series or portions of various Series) held by each Purchaser upon the exercise by [a]
Purchaser[s] of its Put Right[s] . . . at any time following the one year anniversary of the date the
purchase of the particular Series was funded.” See Compl., Ex. A at 4. All of the named Defendants
“agreed to personally guarantee all payments that Manager may be required to make to Purchasers
related to the Put Rights.” See Plfs.’ Em. Mot., Ex. B at 1.
On August 14, 2012, Plaintiffs exercised the “Put Rights” with respect to all of their Facebook
shares. Id., Ex. D. Plaintiffs maintain that Defendants have failed to return Plaintiffs’ investment with
respect to the Facebook shares. Pursuant to the 2011 letter, Defendants were required to remit the sale
proceeds within 45 days of Plaintiffs’ put notice.

See Compl., Ex. A at 4. Plaintiffs claim that

Defendants retained the Facebook shares until May 9, 2013 when they were sold for $27.52 per share.
Plaintiffs exercised their “Put Rights” as to the Palantir shares on October 9, 2012. Defendants sold

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the Palantir shares without paying Plaintiffs for their shares. To date, Defendants have only returned
$500,000 or 12% of Plaintiffs’ entire investment.2 Plaintiffs further assert that Defendants failure to
disclose the substantial compensation they received in connection with the investments related to the
pre-IPO shares has led to the Securities and Exchange Commission’s initiation of a lawsuit against
many of the Defendants named herein in a California federal district court.
Plaintiffs maintain that an immediate restraining order is necessary to preserve their property
that continues to be unlawfully retained by Defendants. Plaintiffs argue that they have reason to believe
Defendants are distributing Plaintiffs’ investment as well as the ill-gotten profits derived from the sale
of Plaintiffs’ Facebook and Palantir shares. Without this Court’s intervention, the Plaintiffs assert that
they will have no recourse to collect their investment and profits due and owing under the parties’
December 2011 Letter Agreement and Guarantee.
III. LAW & ANALYSIS

A. Standard of Review
Temporary restraining orders and preliminary injunctions are extraordinary remedies
designed to protect the status quo pending final resolution of a lawsuit. See University of Texas v.
Camenisch, 451 U.S. 390 (1981). Whether to grant such relief is a matter within the discretion of
the district court. Certified Restoration Dry Cleaning Network, L.L.C. v. Tenke Corp., 511 F.3d 535,
540 (6th Cir. 2007). The same factors are considered in determining whether to grant a request for
either a temporary restraining order or a preliminary injunction. See Sandison v. Michigan High
School Athletic Assoc., 64 F.3d 1026, 1030 (6th Cir. 1995). The four factors that must be balanced
and considered before the court may issue a temporary restraining order or preliminary injunction
include: (1) the likelihood of the plaintiff’s success on the merits; (2) whether the plaintiff will suffer
2

The parties dispute how much has been remitted to Plaintiffs. Defendants maintain they
returned more than $4,000,000.00 to Plaintiffs.

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irreparable injury without the injunction; (3) the harm to others which will occur if the injunction
is granted; and (4) whether the injunction would serve the public interest. Certified Restoration, 511
F.3d at 542; In re Eagle-Pitcher Industries, Inc., 963 F.2d 855, 858 (6th Cir. 1992); and N.A.A.C.P.
v. City of Mansfield, Ohio, 866 F.2d 162, 166 (6th Cir. 1989).
“None of these factors, standing alone, is a prerequisite to relief; rather, the court should
balance them.” Golden v. Kelsey-Hayes Co., 73 F.3d 648, 653 (6th Cir. 1996). Preliminary
injunctive relief “is an extraordinary measure that has been characterized as ‘one of the most drastic
tools in the arsenal of judicial remedies.’” Bonnell v. Lorenzo, 241 F.3d 800, 808 (6th Cir. 2001).
B. Likelihood of Success on the Merits
Plaintiffs argue that there is an “overwhelming likelihood” of success on the merits of their
claims because the 2011 Letter Agreement and the Guarantee required that Defendants return Plaintiffs’
investment once they exercised their “Put Rights.” Moreover, all of the Defendants named herein
personally guaranteed the payments required pursuant to the parties’ agreements.
Conversely, Defendants maintain that Plaintiffs do not have a likelihood of success on the
merits. Defendants argue that all of Plaintiffs’ claims are subject to arbitration pursuant to the FMOF
II Operating Agreement. Defendants assert that as a condition to becoming members of FMOF II,
Plaintiffs became parties to FMOF’s Amended and Restated Operating Agreement by executing certain
Subscription Agreements. The Operating Agreement contains an arbitration agreement:
14.1 Dispute Resolution Process. In the event of any claim, dispute or controversy
arising under, out of or relating to this Agreement or any breach or purported breach
thereof (the “Dispute”) which the Parties hereto have been unable to settle or agree
upon in the normal course of business, the Parties shall follow the dispute resolution
process as set forth herein.
See Def.’s Mot. to Dismiss, Ex. 1. The FMOF II Amended and Restated Operating Agreement further
states:

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14.4 Exclusivity. The procedures specified in this Article XIV shall be the sole and
exclusive procedures for the resolution of Disputes between the Parties arising out of
or in connection with this Agreement; provided, however, that a Party, without
prejudice to the above procedures, may seek a preliminary injunction or other
preliminary judicial relief in the court specified in paragraph 14.7, if in its sole
judgment such action is necessary to avoid irreparable damage or to preserve the status
quo.
The FMOF II Amended and Restated Operating Agreement also contains a forum selection clause
requiring any proceedings brought pursuant to Paragraph 14.4 to be initiated in state or federal courts
sitting in New York County, New York. Id. at ¶ 14.7. Lastly, the Agreement was “deemed to include
the Investment Management Agreement, the Subscription Agreement and any Side Letters (which may
modify the terms of this Agreement with respect to the Members party thereto) . . . .” Id. at ¶ 15.3.
Side letters are defined as “any written agreements or side letters entered into by the Company and one
or more Members on or after the date hereof.” Id. at 6.
Defendants contend that Plaintiffs demanded a waiver of fees and a put option, which were not
made available to other FMOF II investors. To memorialize these agreements, the parties entered into
the 2011 Letter Agreement, which references the Operating Agreement and states that its purpose is
to memorialize “various terms of the Investments that are (i) not documented elsewhere; or (ii) may
conflict with various provisions of the . . . FMOF II OA.” See Compl., Ex. A at 1. Plaintiffs counter
that the 2011 Agreement represented the entire agreement between the parties relying on the following
language:
To the extent that any provision of this letter conflicts with any other provision(s) of
any other documents or agreements that are related to or concern the investments . . .
the terms and conditions of the letter shall prevail.
*

*

*

This letter constitutes a valid and binding obligation of the Manager, Manager II,
FMOF II, and Purchasers and supersedes any actual or potentially conflicting words in
the FMOF OA or the Facie Libre OA.

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See Compl., Ex. A, § 5. Plaintiffs maintain that because the 2011 Letter Agreement is silent as to
arbitration, this requires the conclusion that the Letter represents the parties intent to forego arbitration.
Based on the arbitration provision, this Court may lack jurisdiction to review the merits of this matter.3
Plaintiffs are correct that a district court has jurisdiction under the Federal Arbitration Act to
issue injunctive relief where a dispute is subject to a mandatory arbitration clause. However, the
moving party must still satisfy the standard set forth in Rule 65. See Performance Unlimited, Inc. v.
Questar Publishers, 52 F.3d 1373,1380 (6th Cir. 1995). The authority of the district court to order
preliminary injunctive relief despite a mandatory arbitration clause is appropriate, “where the
withholding of injunctive relief would render the process of arbitration meaningless or a hollow
formality because an arbitral award, at the time it was rendered, could not return the parties
substantially to the status quo ante.” Id. (internal quotations omitted).
In Questar Publishers, the plaintiff sought the issuance of a preliminary injunction requiring
the defendant to pay royalties to the plaintiff pursuant to the parties’ licensing agreement. Id. at 1377.
The plaintiff in Questar Publishers established that absent injunctive relief, it would be irreparably
harmed because of “the collapse of its business, which will render the process of arbitration a hollow
and meaningless formality.” Id. Questar Publishers is distinguishable from the matter before this
Court. As explained in the section discussing irreparable harm, there is no suggestion in the record that
Defendants will be unable to compensate Plaintiffs should they ultimately succeed in the arbitral forum.
As such Questar Publishers would appear to preclude this Court from issuing injunctive relief under
the circumstances present here.
While Plaintiffs may ultimately succeed on the merits of their breach of contract claim, the

3

Plaintiffs have also agreed to dismiss Count II in its entirety and dismiss Mazzola and
FMOF II as to Count III only.

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other factors this Court must consider favor the denial of Plaintiffs’ requested relief.
C. Irreparable Harm
To satisfy this prong of the test, a party must demonstrate that unless the injunction is granted,
it will suffer “‘actual and imminent harm’ rather than harm that is speculative or unsubstantiated.”
Abney v. Amgen, Inc., 443 F.3d 540, 552 (6th Cir. 2006). Here, Plaintiffs seek monetary damages.
It is well settled that harm is not irreparable if it is compensable by money damages. Langley v.
Prudential Mortg. Capital Co., LLC, 554 F.3d 647, 649 (6th Cir. 2009); Sampson v. Murray, 415 U.S.
61, 90 (1974).
Plaintiffs have made no effort to substantiate their claim that they will suffer irreparable harm
if an injunction is not granted. Defendants attached the affidavit of John Bivona, a manager of the
Defendant entities, to their Response, which states that: “None of the Corporate Defendants has
dissipated or has any intention of dissipating corporate assets in the future.” See Resp., Ex. 1 at ¶ 2.
Bivona further states that “[t]here are no plans to dissolve FMOF II or any of the Corporate Defendants
or to leave these entities as “shells” as claimed by the Plaintiffs.” Id. at ¶ 3.
Plaintiffs reliance on United States Securities and Exchange Commission v. Bravata, 763 F.
Supp. 2d 891 (E.D. Mich. 2011), is misplaced as the standard for granting preliminary injunctions in
actions brought by the Securities and Exchange Commission is different than the standard under Rule
65 of the Federal Rules of Civil Procedure. Id. at 913 (“[U]nlike private actions, which are rooted
wholly in the equity jurisdiction of the federal court, SEC suits for injunctions are ‘creatures of the
statute.’ Therefore, ‘proof of irreparable injury or the inadequacy of other remedies as in the usual suit
for injunction’ is not required.”) (quoting SEC v. Mgmt. Dynamics, Inc., 515 F.2d 801 (2d Cir. 1975)).
This is a private matter rather than an enforcement action brought by the Securities and Exchange
Commission.
Furthermore, the Court declines to follow the other case relied upon by Plaintiffs, specifically,

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Concheck v. Barcroft, No. 2:10-cv-656, 2010 WL 4117480 (S.D. Ohio Oct. 18, 2010). In Concheck,
the plaintiff asserted various claims stemming from his investment relationship with the defendants.
Id. at *1. The Concheck court granted the plaintiff’s motion for injunctive relief and request to deposit
$500,000.00 into an interest bearing account with the clerk of the court. Id. at *3. The Concheck court
recognized the Supreme Court’s admonition that district courts lack the authority to issue preliminary
injunctions freezing the defendant’s assets pending adjudication of claims for money damages. Id. at
*2. However, the Concheck court concluded that the plaintiff’s claim for unjust enrichment “sounds
in equity,” thus injunctive relief did not run afoul of the Supreme Court’s decision in Grupo Mexicano
de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308 (1999). Id. at *2-3.

While Plaintiffs similarly assert a claim for unjust enrichment, their claim is most likely noncognizable under Michigan law because an express contract governs the subject matter at issue
herein. See Fodale v. Waste Management of Michigan, Inc., 271 Mich. App. 11, 36, 718 N.W.2d
827 (2006) (“In this case, an express contract, the 1987 loan agreements, governs the parties’ loan.
This alone would foreclose plaintiff’s unjust enrichment claim.”); see Belle Isle Grill Corp. v.
Detroit, 256 Mich. App. 463, 478, 666 N.W.2d 271 (2003) (“[A] contract will be implied only if
there is no express contract covering the same subject matter.”). In any event, Concheck is not
controlling precedent and the Court does not find its reasoning persuasive. As such, Concheck
likewise does not support Plaintiffs’ argument.4
4

Plaintiffs reliance on Fehribach v. City of Troy, 341 F. Supp. 2d 727 (E.D. Mich. 2004),
is also misplaced. Fehribach did not involve compensatory monetary damages, rather the plaintiff
in Fehribach sought preliminary injunctive relief preventing the City of Troy from enforcing time
and numerical limits on political signs. Id. at 728-29. The Fehribach court concluded that
“[p]laintiff will suffer irreparable injury if he is prevented from displaying more than two political
yard signs.” Id. at 733. The court explained:
This is because the loss of a First Amendment right constitutes irreparable harm as a
matter of law. The loss of First Amendment freedoms, even for minimal periods of
time, unquestionably constitutes irreparable injury.

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Additionally, Plaintiffs delay in bringing the instant motion suggests they will not suffer
irreparable harm. Plaintiffs filed the instant action nearly five months ago, yet they are just now
requesting injunctive relief. They do not identify any event or change in circumstances within the last
five months that necessitates the need for injunctive relief. See Allied Erecting & Dismantling Co. v.
Genesis Equip. & Mfg., 511 F. App’x 398, 405 (6th Cir. 2013) (“an unreasonable delay in filing for
injunctive relief will weigh against a finding of irreparable harm”); see also Protech Diamond Tools,
Inc. v. Liao, No. 08-3684, 2009 U.S. Dist. LEXIS 53382, at *19-20 (N.D. Cal. Jun. 8, 2009)
(“Undue delay, standing alone, constitutes grounds for rejecting a motion for preliminary injunction.”)
Plaintiffs have failed to demonstrate irreparable harm which is the “single most important
prerequisite for the issuance of a preliminary injunction.” Lucero v. Detroit Pub. Sch., 160 F. Supp.
2d 767, 801 (E.D. Mich. 2001). This factor favors denying injunctive relief.
D. Harm to Others
Plaintiffs argue that Defendants will not be harmed by placing the funds in escrow. To the
contrary, the Court agrees with Defendants that an injunction will cause harm to others, Defendants and
other member investors included. If Defendants were ordered to withdraw over a million dollars from
their operations, this would negatively impact Defendants’ operations, as well as potentially expose
them to premature tax consequences. Such a withdrawal also could affect the rights and assets of other
investors in funds managed by some of the Defendants. This factor likewise favors denying injunctive
relief.
E. Public Interest
This is a private dispute, thus the public interest factor does not appear relevant to the analysis.
This factor does not favor either side’s position.

Id. (internal quotations and citations omitted). As such, Fehribach is distinguishable from the
circumstances present here.

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IV. CONCLUSION
Because the balance of factors favors denial of Plaintiffs’ requested relief, Plaintiffs’
Emergency Motion for Injunctive Relief [#18] is DENIED.
SO ORDERED.
Dated: May 2, 2014

/s/Gershwin A Drain
GERSHWIN A. DRAIN
UNITED STATES DISTRICT JUDGE

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