National Viatical, Inc. et al v. Universal Settlements International, Inc.

Filing 93

OPINION ; signed by Judge Robert Holmes Bell (Judge Robert Holmes Bell, kcb)

UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

NATIONAL VIATICAL, INC., and
JAMES TORCHIA,
Plaintiffs,
File No. 1:11-CV-1226
v.
HON. ROBERT HOLMES BELL
UNIVERSAL SETTLEMENTS
INTERNATIONAL, INC.,
Defendant.
/
OPINION
This diversity breach of contract action is before the Court on Defendant’s motion to
confirm that the temporary restraining order entered by the Georgia state court has expired,
or, in the alternative, to dissolve any existing injunction (Dkt. No. 68). For the reasons that
follow, Defendant’s motion will be granted in part and denied in part.
I.
Plaintiffs National Viatical, Inc. and James Torchia filed this action in the Cherokee
County Superior Court in Georgia, alleging that Defendant Universal Settlements
International, Inc. (“USI”) breached the confidentiality provision of their oral settlement
agreement in Universal Settlements International, Inc. v. National Viatical, Inc., No. 1:07CV-1243 (W.D. Mich.) Plaintiffs seek a judgment (1) declaring that USI’s breaches excuse
Plaintiffs from performance under the settlement agreement, (2) awarding them damages for

breach of contract, (3) temporarily enjoining USI from seeking default or demanding
performance of the settlement agreement until this case can be tried on the merits, and (4)
permitting Plaintiffs to setoff all damages incurred from USI’s breaches against their
performance under the settlement agreement. (Dkt. No. 1, Ex. 1, Compl.)
On April 21, 2011, Plaintiffs obtained a temporary restraining order (“TRO”) from
the Georgia court restraining USI from “(1) demanding performance under its settlement
agreement with Plaintiffs; and (2) seeking default against Plaintiffs.” (Dkt. No. 1, Ex. 4.)
On April 27, 2011, this action was removed to the United States District Court for the
Northern District of Georgia. On May 10, 2011, Plaintiffs filed a motion for a preliminary
injunction requesting the same relief addressed by the TRO. (Dkt. No. 3.) On November 17,
2011, the action was transferred to this Court. (Dkt. No. 29.) Following a telephone Rule
16 scheduling conference, Magistrate Judge Joseph G. Scoville entered a Case Management
Order which addressed the TRO and motion for preliminary injunction as follows:
If defendants seek relief from the TRO entered in state court, they should
move to dissolve the TRO. Plaintiffs’ motion for preliminary injunction
(docket #3) is DISMISSED as moot.
(Dkt. No. 61.) Defendant now seeks an order confirming that the TRO has expired, or, in
the alternative, an order dissolving any existing injunction.
II.
Defendant has requested a ruling that the TRO issued by the Georgia state court has
expired as a matter of law.

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The Case Management Order assumed the continued viability of the TRO and
dismissed Plaintiffs’ motion for preliminary injunction as moot. Because Defendant did not
appeal or move for relief from the Case Management Order, the Court is not inclined to
consider Defendant’s argument that the TRO has expired. The Court will turn instead to
Defendant’s alternative argument that any existing injunction should be dissolved.
Determining whether an order is a TRO or a preliminary injunction depends on the
nature and substance of the order rather than its label. Ne Ohio Coal. for Homeless & Serv.
Emps. Int’l Union, Local 1199 v. Blackwell, 467 F.3d 999, 1005 (6th Cir. 2006). “[A]
temporary restraining order continued beyond the time permissible under Rule 65 must be
treated as a preliminary injunction, and must conform to the standards applicable to
preliminary injunctions.” Sampson v. Murray, 415 U.S. 61, 86 (1974).
The continuation of the TRO assumes that the order is the functional equivalent of a
preliminary injunction, but the court must consider whether the order conforms to the
standards applicable to preliminary injunctions.

“A preliminary injunction is an

extraordinary remedy which should be granted only if the movant carries [its] burden of
proving that the circumstances clearly demand it.” Overstreet v. Lexington–Fayette Urban
Cnty. Gov’t, 305 F.3d 566, 573 (6th Cir. 2002) (citing Leary v. Daeschner, 228 F.3d 729, 739
(6th Cir. 2000)). “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.” Fed. R. Civ. P. 65(c).
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Plaintiffs assert that the order was entered “after notice and hearing evidence.” (Dkt.
No. 72, Pls.’ Resp. 4.) However, the record reflects that the existing injunction was entered
on an ex parte basis and without requiring security. The certification of counsel filed with
the Georgia Court on April 21, 2011 states:
Counsel for Plaintiffs certifies they have called Robert Franzinger, Mark Van
Der Laan, and Randy Bennett, counsel for USI on this day. Mr. Bennett stated
to Jason W. Graham that USI intends to oppose this action and the temporary
restraining order in the future, but has not retained local counsel or taken any
action to oppose the requested temporary restraining order at this time.
(Dkt. No. 1, Ex. 3, Certif. of Counsel.) The TRO similarly indicates that it was entered after
considering “Plaintiff’s motion and evidence.” (Dkt. No. 1, Ex. 4, TRO (emphasis added).)
Although Defendant was given notice of Plaintiffs’ application for a TRO, Defendant was
not given an opportunity to be heard.
The Court concludes that the issue of injunctive relief should be revisited so that
Defendant can be heard. The Court will decide the issue of whether to continue or dissolve
the existing injunction de novo based on the briefs filed on the current motion to dissolve,
as well as the briefs filed in support of and in opposition to Plaintiffs’ motion for preliminary
injunction.
In evaluating a motion for a preliminary injunction, this Court considers:
(1) the movant’s likelihood of success on the merits; (2) whether the movant
will suffer irreparable injury without a preliminary injunction; (3) whether
issuance of a preliminary injunction would cause substantial harm to others;
and (4) whether the public interest would be served by issuance of a
preliminary injunction.

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McNeilly v. Land, No. 10-2244 slip op. 5-6 (6th Cir. July 3, 2012) (citing American Imaging
Services, Inc. v. Eagle-Picher Indus., Inc., 963 F.2d 855, 858 (6th Cir. 1992)). These four
considerations are “factors to be balanced and not prerequisites that must be satisfied.” Id.
(quoting Eagle-Picher, 963 F.2d at 859).
A. Likelihood of Success on the Merits
Plaintiffs contend that Defendant breached the confidentiality provision of the
Settlement Agreement by disclosing the total amount of the settlement. Plaintiffs allege in
their verified complaint that Defendant, in violation of their obligations under the
confidentiality provision of the Settlement Agreement, posted a “Notice of Settlement of US
Litigation” on its website reporting essential terms of the Settlement Agreement, including
the total amount of the settlement, and the term of payments of the settlement amount. (Ver.
Compl. ¶¶ 16-20.) Plaintiffs allege that USI also disclosed confidential information to thirdparties without ensuring compliance with its confidentiality obligations, and that Ernst &
Young, USI’s Monitor in Canadian restructuring proceedings, disclosed confidential
information regarding the settlement and posted the information prominently on its website,
where it remains publically available. (Ver. Compl. ¶¶ 21-22).
Defendant does not deny making the disclosures. Defendant contends, however, that
such disclosures did not violate the confidentiality provision.
When the parties’ settlement was placed on the record, it was understood that the
confidentiality provision would except any necessary reporting to the Canadian bankruptcy

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court and/or taxing authorities, and that USI would make a good-faith effort limit public
disclosures. (No. 1:07-CV-1243, Dkt. No. 470, Tr. of Settlement Conf. 10-12.)
Plaintiffs’ allegation that USI violated the confidentiality agreement by placing the
settlement on its web site was considered by Magistrate Judge Carmody in the prior action.
Judge Carmody, who conducted the settlement hearing, noted that the parties agreed on the
record that there would have to be some disclosure in connection with the Canadian
bankruptcy proceeding. (No. 1:07-CV-1243, Dkt. No. 494, Mot. Hr’g Tr. 4.) She reviewed
what was actually posted on web sites by USI and the monitor, and expressed her doubt that
such disclosure was a breach of the confidentiality agreement because it did not disclose
details of the settlement and because the disclosure appeared to be consistent with USI’s
corporate obligations to its creditors. (No. 1:07-CV-1243, Dkt. No. 494, Mot. Hr’g Tr. 5-6,
8-9, 16.) As the Magistrate Judge noted, “it seems this is just as bare bones as they could
have made it within their obligation, I think, to disclose to their investors that the case had
been settled.” (Id. at 9.) The Magistrate Judge’s observations did not rise to the level of
findings of fact. (No. 1:07-CV-1243, Dkt. No. 495, Op. 2-3.) Nevertheless, her observations
are a preliminary view of the available evidence, much as this Court is required to do on a
motion for a preliminary injunction. See Kos Pharms., Inc. v. Andrx Corp., 369 F.3d 700,
718 (3rd Cir. 2004) (“[A] preliminary injunction is customarily granted on the basis of
procedures that are less formal and evidence that is less complete than in a trial on the
merits.”) In light of the Magistrate Judge’s preliminary assessments, and because Plaintiffs

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have not offered any additional evidence of USI’s alleged breach of the confidentiality
agreement, the Court cannot find that Plaintiffs have a strong likelihood of success on the
merits of their claim that Defendant breached the confidentiality agreement.
Plaintiffs have indicated that their primary claim in this action is their request for a
declaratory judgment that USI’s breach of contract excuses their performance. Under the
first-breach doctrine, one who commits the first “substantial breach” of a contract cannot
maintain an action against the other contracting party for failure to perform. Chrysler Intern.
Corp. v. Cherokee Exp. Co., 134 F.3d 738, 742 (6th Cir. 1998) (quoting Ehlinger v. Bodi
Lake Lumber Co., 324 Mich. 77 , 36 N.W.2d 311, 316 (1949)). A substantial breach is one
that has “effected such a change in essential operative elements of the contract that further
performance by the other party is thereby rendered ineffective or impossible, such as the
causing of a complete failure of consideration or the prevention of further performance by
the other party.” Id. (quoting McCarty v. Mercury Metalcraft Co., 372 Mich. 567, 127
N.W.2d 340, 343 (1964)); see also Chrysler Realty Co., LLC v. Design Forum Architects,
Inc., 341 F. App’x 93, 96 (6th Cir. 2009) (same).
Even if Plaintiffs had shown a likelihood of success on the merits of their claim that
Defendant breached the confidentiality agreement, Plaintiffs have not alleged that the breach
rendered their performance ineffective or impossible. Plaintiffs have not shown a strong
likelihood of success on the merits of their claim that Defendant’s breach excused them from
performing their obligations under the Settlement Agreement.

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B. Irreparable Harm
Plaintiffs contend that they will suffer irreparable harm in the absence of preliminary
injunctive relief because they will have no adequate legal remedy. Plaintiffs contend that
their primary claim is a declaratory judgment that USI’s breach of contract excuses their
performance, and that without injunctive relief, this claim will be moot.
When courts consider irreparable harm, the key word is “irreparable:”
Mere injuries, however substantial in terms of money, time and energy
necessarily expended in the absence of a stay, are not enough. The possibility
that adequate compensatory or other corrective relief will be available at a later
date, in the ordinary course of litigation, weighs heavily against a claim of
irreparable harm.
Babler v. Futhey, 618 F.3d 514, 523-24 (6th Cir. 2010) (quoting Sampson v. Murray, 415
U.S. 61, 90 (1974)). “The general rule is that ‘a plaintiff’s harm is not irreparable if it is fully
compensable by money damages.’” Langley v. Prudential Mortg. Capital Co., LLC, 554
F.3d 647, 649 (6th Cir. 2009) (quoting Basicomputer Corp. v. Scott, 973 F.2d 507, 511 (6th
Cir. 1992)). “Normally the mere payment of money is not considered irreparable . . . because
money can usually be recovered from the person to whom it is paid.” Philip Morris USA Inc.
v. Scott, — U.S. —, 131 S.Ct. 1, 4 (2010).
Plaintiffs describe their harm as the loss of equitable relief. However, the real harm
Plaintiffs seek to avoid is the payment of money. Plaintiffs are essentially arguing that if a
preliminary injunction is not entered, they will have to pay the amount they agreed to pay
under the Settlement Agreement, or be subject to the Settlement Agreement’s default

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remedies. Plaintiffs seek to avoid paying the money owed under the Settlement Agreement
until it is determined whether payment is excused in full, or whether there will be a set-off
against the money owed as a result of Defendant’s alleged breach of the confidentiality
agreement.
Plaintiffs correctly note that even in cases involving monetary relief, courts have
found irreparable harm when a party would lack the ability to satisfy monetary relief. See,
e.g., Janvey v. Alguire, 647 F.3d 585, 600-01 (5th Cir. 2011) (holding that preliminary
injunction was appropriate to protect against monetary asset dissipation); Transamerica Ins.
Fin. Corp. v. N. Am. Trucking Ass’n, Inc. 937 F. Supp. 630, 635 (W.D.Ky.,1996) (citing
cases involving insolvency); but see Hendricks v. Comerica Bank, 122 F. App’x 820 (6th Cir.
2004) (holding that a beneficiary’s insolvency is insufficient as a matter of law to obtain an
injunction preventing a bank from honoring the beneficiary’s draw on an international letter
of credit). Nevertheless, to demonstrate irreparable harm, Plaintiffs must show that unless
a preliminary injunction is entered, they 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). A plaintiff seeking preliminary injunctive relief is required to demonstrate that
irreparable injury is not only possible, but that it is “likely” in the absence of an injunction.
Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 22 (2008).
Plaintiffs assert that they will not be able to recoup any money they might pay under
the Settlement Agreement because every cent they pay to USI will disappear to Canada. In

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support of this assertion Plaintiffs point only to evidence that Defendant is proceeding in the
Canadian bankruptcy court. The record reflects that Defendant is not in bankruptcy per se,
but is involved in a restructuring in a Canadian Companies’ Creditors Arrangement Act
court. (No. 1:07-CV-1243, Dkt. No. 470, Tr. of Settlement Hr’g 13.) The record also reflects
that the Creditors Committee supports the settlement, and that the Canadian Superior Court
of Justice has ordered the settlement proceeds to be held in trust by the law firm of Dykema
Gossett, which is a Michigan law firm. (Dkt. No. 70, Ex. G.) Plaintiffs’ claim that monetary
relief will not be available at the conclusion of this case and that equitable relief is necessary
to protect their monetary remedy is speculative at best.
C. Balance of Hardships
Finally, the Court must consider whether the issuance of a preliminary injunction will
cause substantial harm to others and whether it would serve the public interest.
USI contends that it will be harmed by the issuance of a preliminary injunction
because it will be denied the timely performance it negotiated in the Settlement Agreement.
The dispute in this case is primarily a private dispute between Plaintiffs and
Defendant. The public does not have a strong interest in this case other than ensuring that
parties have a forum for the resolution of their disputes, and in ensuring the finality of cases,
including cases settled by agreement of the parties.
Upon review of all of the preliminary injunction factors, the Court concludes that the
balance of considerations does not favor the continuation of injunctive relief. Plaintiffs have

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not shown a strong likelihood of success on the merits, and Plaintiffs have not shown that
they do not have a legal remedy for any harm they might suffer. Accordingly, the TRO
entered by the state court will be dissolved. However, because Plaintiffs have relied on the
continuation of the TRO entered by the state court, the Court will continue the injunction for
fourteen days from the date of this opinion in order to provide Plaintiffs with a reasonable
opportunity to comply with their obligations under the Settlement Agreement. The TRO will
expire fourteen days from the date of this opinion.
An order consistent with this opinion will be entered.

Dated: August 31, 2012

/s/ Robert Holmes Bell
ROBERT HOLMES BELL
UNITED STATES DISTRICT JUDGE

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