Barrett v. Reynolds et al

Filing 46

MEMORANDUM AND ORDER granting in part 36 Motion for TRO and 22 Motion for Preliminary Injunction. Defendants are prohibited from retaining possession or control of any of the coins subject to the consignment contract entered into between the Plaintiff and Defendants, and must return immediately to Barrett's attorneys any coins that remain in his possession or control; Within ten (10) days of this Order, the Defendants must provide Plaintiff a detailed accounting of all of the sa les of the coins subject to the consignment contract entered into between the Plaintiff and the Defendants; The Defendants must identify the escrow or trust account established for purposes of holding the sale proceeds of the coins subject to said consignment contract; The Defendants are prohibited from commingling the proceeds from the sale of the coins subject to the consignment contract entered into between the Plaintiff and the Defendants with any of the Defendants' other funds. Ordered by Chief Judge Laurie Smith Camp. (ADB)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
M. SCOTT BARRETT,

CASE NO. 8:12CV328

Plaintiff,
vs.

MEMORANDUM
AND ORDER

THOMAS D. REYNOLDS, and EARLY
AMERICAN COIN GALLERY, LLC,
Defendants.

This matter is before the Court on the Plaintiff’s Motion for Preliminary Injunction
(Filing No. 22) and Motion for Temporary Restraining Order (“TRO”) (Filing No. 36.)
Having considered the parties’ briefs, evidence, and arguments heard on November 14,
2012, the Court will grant the Plaintiff’s Motions, in part.
BACKGROUND
Plaintiff M. Scott Barrett and Defendant Thomas D. Reynolds are both rare coin
collectors. In addition to collecting coins, Reynolds also acts as a coin dealer. He is the
sole owner of Defendant Early American Coin Gallery, LLC. Prior to the dispute giving
rise to this litigation, Barrett and Reynolds had been personally acquainted with each
other for more than twenty years, and were good friends. (Filing No. 23-1, Decl. of M.
Scott Barrett, at ¶ 2.)
In April 2009, Reynolds tendered a $35,475.00 check to purchase coins at an
Early American Coppers, Inc. (“EAC”),1 annual coin auction. (Id. at ¶ 4.) That check
was returned marked “Insufficient Funds.”

(Id.)

As a result, the EAC suspended

Reynolds’s right to bid at annual EAC auctions for his own account. (Id.) At the May
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The “EAC is a not-for-profit numismatic specialty organization founded in 1967 to serve as a
point of contact for collectors of early U.S. copper coins[.]” (Id. at ¶ 3.)

2011 annual EAC meeting, the EAC decided to continue Reynolds’s suspension. (Id.)
Barrett believed that Reynolds had only committed an honest mistake. (Id.)
On March 31, 2012, Reynolds and Barrett entered into a consignment contract
(the “Contract”). (Filing No. 21-2.) The Contract states, in pertinent part:
3. Consignment invoices. Barrett shall provide Reynolds with a list
of selling prices for each coin listed in Exhibit “A.”
4. Acceptance of Possession and Sale. Reynolds shall accept
possession of the coins on consignment and shall sell the coins for
Barrett’s account at the selling prices that Barrett has listed on Exhibit “A”
or at such other amounts as Barrett may establish or authorize from time
to time. . . .
7. Sales. Reynolds shall undertake sales on credit only to
customers judged by Reynolds to be good credit risks. Unless otherwise
agreed, Reynolds will make sales on credit only if the entire amount of
credit sale is to be paid in three or less monthly installments. Reynolds
shall not be entitled to any compensation under paragraph 8 of this
agreement until all installment payments have been received in full. . . .
9. Risk of Loss. Reynolds shall assume all risk of loss for damage
to or destruction of the consigned coins from any cause whatsoever from
the time Reynolds receives possession of the coins until sale and delivery
to a customer or until return to Barrett. . . .
11. Records. Reynolds shall keep accurate records showing
(a) all coins received from Barrett on consignment with the agreed
selling price;
(b) all sales to customers with the names, addresses, and
telephone numbers of the customers, coins purchased, and the
terms of the sale;
(c) all consigned coins remaining on hand;
(d) all coins returned by or repossessed from customers together
with credits allowed; and
(e) all coins returned to Barrett and resulting credits.

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Reynolds shall allow Barrett . . . to have access to the records on demand
and . . . shall permit Barrett . . . to inventory the consigned coins in
Reynolds’s possession.
12. Separate Bank Account; No Commingling of Funds.
(a) Reynolds shall establish an escrow or trust account at a
commercial bank . . . into which Reynolds shall deposit the proceeds of all
coins sold subject to this agreement. . . .
(b) Reynolds represents and warrants that he will hold the proceeds
of all coins sold subject [to] this agreement in trust for the benefit of
Barrett; subject only to his right to compensation due him under paragraph
8 of this agreement. Reynolds further represents and warrants that he will
not commingle any of the proceeds of coins sold subject to this agreement
with any other funds or bank accounts of Reynolds.
13. Accounting and Remittance. Reynolds shall render to Barrett
not later than the 15th day of each month an accurate, detailed account of
all sales of coins made from the consigned coins during the previous
month, together with returns and repossessions, if any. Simultaneously
with the accounting, Reynolds shall remit to Barrett a sum equal to the
agreed selling price, less compensation due Reynolds under paragraph 8
of this agreement. . . .
15. Term. . . .
(b) Barrett may terminate this Agreement at any time by giving
notice to Reynolds. Once Barrett gives notice of termination, Reynolds
shall, within seven (7) days, return to Barrett all consigned coins remaining
unsold and shall account for and remit to Barrett all proceeds due and
remaining unpaid.
16. Notices. Any communications made in connection with this
Agreement shall be deemed to have been made when sent by registered
or certified mail (postage prepaid, return receipt requested), or overnight
delivery or delivered in person, to the parties hereto at the addresses
listed in this paragraph.
17. Controlling Law. The validity, interpretation, and performance
of this Agreement shall be controlled by and construed under the laws of
the State of Indiana.

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(Id. at ¶¶ 3, 4, 7, 9, 11, 12, 13, 15, 16, 17.) Prior to entering into the Contract, Barrett
and Reynolds agreed to the prices at which Reynolds would sell the coins that became
subject to the Contract. (See Filing No. 43, Aff. of Thomas D. Reynolds, at ¶¶ 6-7.)
Sometime prior to May 26, 2012, Reynolds had sold some of the coins Barrett
consigned to him.

On or about May 26, 2012, Barrett learned that Reynolds had

commingled proceeds from the sale of consigned coins with money in Reynolds’s
general bank account. (Filing No. 38-1, Supplemental Decl. of M. Scott Barrett, at ¶ 7.)
On or about September 6, 2012, Barrett notified Reynolds in accordance with the
Contract that he was terminating the Contract. (Id. at ¶ 8.)

On or about September

13, 2012, Reynolds met with Barrett and returned at least some of the unsold consigned
coins to Barrett. Reynolds contends he returned all the coins he had in his possession
or control to Barrett on that date. (See Filing No. 43, at ¶12.) He maintains that he no
longer has any of the consigned coins because, with the exception of one coin which
Reynolds represents is missing but was probably sold prior to the termination of the
Contract, he either sold them during the term of the Contract or returned them to Barrett
upon the termination of the Contract.
Barrett alleges that Reynolds refused to return a total of forty-four consigned
coins; he asserts that those coins were “‘sold’ to faux collectors.” (Filing No. 38-1, at ¶
9.) He claims, and Reynolds does not seem to dispute, that Reynolds has failed to
provide an accounting containing the names, addresses, and telephone numbers for
those faux collectors. (See id. at ¶ 10.) Furthermore, Barrett alleges that since filing his
Amended Complaint, he has received information that reflects Reynolds has continued
to sell Barrett’s coins despite the termination of the Contract. (See id. at ¶¶ 13-15, 18.)

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Barrett asserts seven causes of action against the Defendants in his Amended
Complaint: (1) replevin, (2) breach of fiduciary duty, (3) breach of contract, (4) unjust
enrichment, (5) conversion, (6) negligence, (7) “action sounding in injunctive relief.” He
acknowledges that his unjust enrichment and negligence claims “are money oriented,”
and thus, does not address those claims when briefing his Motions. (Filing No. 37 at
CM/ECF p. 11 n. 3.) In his Motions, Barrett seeks an order directing Defendants to
immediately: (1) cease and desist selling, transferring, or otherwise alienating Barrett’s
coins; (2) return to Barrett all coins consigned to Defendants that are in Defendants’
possession or control; (3) pay Barrett, or place into escrow, the proceeds Reynolds
received for any of the consigned coins Defendants sold; and (4) provide Barrett with an
accounting of the location of every coin Barrett consigned to Defendants that has been
transferred or resold. On November 12, 2012, Reynolds filed his Answer to Amended
Complaint and Counterclaims (Filing No. 40), asserting counterclaims against Barrett for
defamation and tortious interference with business relationships.
STANDARD
Courts in the Eighth Circuit apply the factors set forth in Dataphase Sys., Inc. v.
CL Sys., Inc., 640 F.2d 109, 114 (8th Cir. 1981) (en banc), when determining whether to
issue a TRO or preliminary injunction. See McCrary v. Stifel, Nicolaus & Co., Inc., 687
F.3d 1052, 1060 (8th Cir. 2012); S.B. McLaughlin & Co., Ltd. v. Tudor Oaks Condo.
Project, 877 F.2d 707, 708 (8th Cir. 1989) (approving the district court’s use of
Dataphase factors for analyzing a motion for a TRO). Those factors are: “(1) the threat
of irreparable harm to the movant; (2) the state of balance between this harm and the
injury that granting the injunction will inflict on other parties litigant; (3) the probability

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that movant will succeed on the merits; and (4) the public interest.” Dataphase, 640
F.2d at 114. “No single factor is determinative.” WWP, Inc. v. Wounded Warriors, Inc.,
566 F. Supp. 2d 970, 974 (D. Neb. 2008). The movant bears the burden of establishing
the propriety of the injunction. See Roudachevski v. All-Am. Care Ctrs., Inc., 648 F.3d
701, 705 (8th Cir. 2011).
Barrett has addressed all four Dataphase factors. Reynolds limits his opposition
to the “threat of irreparable harm” factor. As a matter of completeness, the Court will
address each of the four Dataphase factors.
I. Threat of Irreparable Harm
“[A] party moving for a preliminary injunction is required to show the threat of
irreparable harm.” Baker Elec. Co-op., Inc. v. Chaske, 28 F.3d 1466, 1472 (8th Cir.
1994). “‘Irreparable harm occurs when a party has no adequate remedy at law, typically
because its injuries cannot be fully compensated through an award of damages.’”
Rogers Group, Inc. v. City of Fayetteville, Ark., 629 F.3d 784, 789 (8th Cir. 2010)
(quoting Gen. Motors Corp. v. Harry Brown’s, LLC, 563 F.3d 312, 319 (8th Cir. 2009)).
“Conversely, where the movant has an adequate legal remedy, a preliminary injunction
will not issue.” Branstad v. Glickman, 118 F. Supp. 2d 925, 942 (N.D. Iowa 2000) (citing
Frank B. Hall & Co. v. Alexander & Alexander, Inc., 974 F.2d 1020, 1025 (8th Cir.
1992)); Watkins Inc. v. Lewis, 346 F.3d 841, 844 (8th Cir. 2003) (“When there is an
adequate remedy at law, a preliminary injunction is not appropriate.”) However, “[e]ven
if a loss is fully compensable by an award of money damages, . . . extraordinary
circumstances, such as a risk that the defendant will become insolvent before a
judgment can be collected, may give rise to the irreparable harm necessary for a

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preliminary injunction.” 11A Charles Alan Wright et al., Federal Practice and Procedure
§ 2948.1 (2d ed. 2011); see also MeccaTech, Inc. v. Kiser, No. 8:05CV570, 2008 WL
1774992, at *6 (D. Neb. Apr. 15, 2008) (citing Deckert v. Independence Shares Corp.,
311 U.S. 282, 290 (1940)) (“The United States Supreme Court has determined that an
injunction is reasonable to preserve the status quo pending determination of a lawsuit
when the Defendant is insolvent and its assets are in danger of dissipation or
depletion.”).
Barrett contends there is a threat of irreparable harm if no injunction is issued
because a monetary award cannot be adequate compensation for goods that are
unique in character or have special characteristics, such as the coins at issue. Barrett
cites to cases he contends stand for the proposition that monetary damages are
inadequate when the movant seeks to obtain unique, rare, and/or irreplaceable property
by virtue of injunctive relief. See Robins v. Zwirner, 713 F. Supp. 2d 367, 374 (S.D.N.Y.
2010); King Aerospace Commercial Corp., Inc. v. Al-Anwa Aviation, Inc., No. CIV A
308-CV-0999-L, 2008 WL 2676362, *6 (N.D. Tex. July 9, 2008). Reynolds contends
that there is no threat of irreparable harm here because Barrett’s sole remedy is money
damages. Reynolds asserts that Barrett’s sole remedy is money damages because he
no longer retains the coins consigned to him.
The circumstances of this case do not indicate a threat of irreparable harm based
on the rare and unique nature of the coins. Although the coins may be rare and unique,
Barrett entered into the Contract with Reynolds because he was willing to part with the
coins in exchange for money. Other circumstances, however, lead the Court to believe
there is a threat of irreparable harm in this case.

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Barrett has pointed to evidence

indicating that on at least one occasion, Reynolds wrote a check despite having
insufficient funds in his checking account to satisfy the payment.

Furthermore,

Reynolds has failed to provide Barrett with an accounting of the forty-four coins
allegedly sold to faux collectors, and acknowledges that he has commingled proceeds
from the sale of the consigned coins with his own personal funds, both in violation of the
Contract.

Based on these circumstances, it is not unreasonable to believe that

Reynolds may become judgment proof prior to the time Barrett could collect on a
judgment if one ultimately is rendered in his favor. Therefore, the Court finds that there
is a threat of irreparable harm in this case.
II. Likelihood of Success on the Merit2
When examining the movant’s likelihood of success on the merits, the question is
not “whether the movant for a preliminary injunction will ultimately win.”

Uncle B's

Bakery, Inc. v. O'Rourke, 920 F. Supp. 1405, 1424 (N.D. Iowa 1996) (citing Glenwood
Bridge, Inc. v. City of Minneapolis, 940 F.2d 367, 371 (8th Cir.1991); O'Connor v. Peru
State College, 728 F.2d 1001, 1002 (8th Cir.1984)). Rather, “[l]ikelihood of success on
the merits requires that the movant find support for its position in governing law.”
Prudential Ins. Co. of Am. v. Inlay, 728 F. Supp. 2d 1022, 1029 (N.D. Iowa 2010).
Furthermore, “[i]n isolation, the likelihood of success on the merits is meaningless,” and
“[t]herefore, the court must consider other factors, especially the threat of irreparable
harm.” Uncle B’s Bakery, 920 F. Supp. at 1424 (citing Glenwood Bridge, 940 F.2d at
371).
2

As noted above, the Contract contains a choice of law provision in which the parties agreed that
Indiana law would apply, at least with respect to the Contract’s “validity, interpretation, and performance.”
(Filing No. 21-2 at ¶ 17.) In his support briefs, Barrett addresses each of his claims under Indiana law.
Reynolds does not dispute that Indiana law applies to Barrett’s claims. For purposes of the present
Motions, the Court will assume that Indiana law applies to Barrett’s claims.

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Barrett contends that he has shown a likelihood of success on the merits of his
claims for breach of fiduciary duty, breach of contract, and conversion. Under Indiana
law, Barrett is required to prove three elements to support his claim for breach of
fiduciary duty: “(1) the existence of a fiduciary relationship; (2) a breach of the duty
owed by the fiduciary to the beneficiary; and (3) harm to the beneficiary.” Farmers
Elevator Co. of Oakville, Inc. v. Hamilton, 926 N.E.2d 68, 79 (Ind. Ct. App. 2010). To
establish his claim for breach of contract, he will be required to show “‘the existence of a
contract, the defendant's breach thereof, and damages.’” Corry v. Jahn, 972 N.E.2d
907, 913 (Ind. Ct. App. 2012) (quoting Haegert v. Univ. of Evansville, 955 N.E.2d 753,
758 (Ind. Ct. App. 2011)).

Finally, to establish his claim for conversion, he “must

establish the appropriation of personal property by another for that party's own use and
benefit in exclusion and defiance of the owner's rights.” Shourek v. Stirling, 621 N.E.2d
1107, 1109 (Ind. 1993).
Keeping in mind the threat of irreparable harm present in this case, Barrett has
made a sufficient showing of a “likelihood of success on the merits.” There appears to
be no dispute that the Contract is valid, and the terms of the Contract require Reynolds
to, among other things, take possession of the coins and sell them, holding the
proceeds of the sales of the coins in trust for Barrett’s benefit; provide a detailed
accounting of all sales made pursuant to the Contract; and not commingle those
proceeds with Reynolds’s personal funds. Furthermore, Barrett has pointed to evidence
indicating that Reynolds breached these obligations, and may have misappropriated
coins and sold them for his own benefit.

Therefore, the “likelihood of success”

Dataphase factor supports the issuance of an injunction.

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III. Balance of Hardships
The balance of harms here weighs in favor of Barrett. As noted previously, he
faces a threat of irreparable harm if an injunction is not granted. In contrast, the harm
Reynolds indicates he might suffer is a possibility of being subject to contempt
proceedings anytime a third party sells or attempts to sell one of the consigned coins
that Reynolds alleges he sold prior to the termination of the Contract.

It seems,

however, that this concern could be alleviated, or at least reduced, by providing Barrett
an accounting of the transactions which Reynolds contends were arms-length
transactions carried out prior to the termination of the Contract, but which Barrett
believes were “sham” transactions. Cf. Prudential Ins. Co., 728 F. Supp. 2d at 1031
(“Another consideration in the balance of harms calculus is whether the defendant has
already voluntarily taken remedial action.”). Therefore, the Court finds that the “balance
of hardships” factor weighs in favor of Barrett.
IV. Public Interest
“The public has a strong interest in ensuring that defendants do not fraudulently
or otherwise transfer assets during litigation to circumvent recovery by a wronged
plaintiff.” MeccaTech, 2008 WL 934366, at *4. Reynolds does not dispute that he has
commingled proceeds from the sale of the consigned coins with his personal funds, and
the Contract contains a provision that prohibits him from doing so. Although Reynolds
contends that he no longer has possession or control of any of the consigned coins, an
injunction that prevents him from retaining possession or control of any of the consigned
coins and from commingling the proceeds from the sale of the consigned coins with his
personal funds would serve the public’s interest of ensuring that “defendants do not . . .

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transfer assets during litigation to circumvent recovery by a wronged plaintiff.”
MeccaTech, 2008 WL 934366, at *4. Therefore, the Court finds that the “public interest”
factor weighs in favor of an injunction.
CONCLUSION
Based on an analysis of the Dataphase factors, the Court finds that a preliminary
injunction is warranted in this case. Accordingly,
IT IS ORDERED that the Plaintiff’s Motion for Preliminary Injunction (Filing No.
22) and Motion for Temporary Restraining Order (Filing No. 36) are granted, in part, as
follows:
1.

Defendants are prohibited from retaining possession or control of any of

the coins subject to the consignment contract entered into between the Plaintiff
and Defendants, and must return immediately to Barrett’s attorneys any coins
that remain in his possession or control;
2.

Within ten (10) days of this Order, the Defendants must provide Plaintiff a

detailed accounting of all of the sales of the coins subject to the consignment
contract entered into between the Plaintiff and the Defendants, which shall, at a
minimum, consist of, with respect to each coin sold:
a.
b.

The date of the sale;

c.

The coin’s purchase price; and

d.
3.

The purchaser’s full name and address;

The terms of the sale;

The Defendants must identify the escrow or trust account established for

purposes of holding the sale proceeds of the coins subject to said consignment

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contract under the consignment contract entered into between the Plaintiff and
the Defendants; and
4.

The Defendants are prohibited from commingling the proceeds from the

sale of the coins subject to the consignment contract entered into between the
Plaintiff and the Defendants with any of the Defendants’ other funds.

Dated this 15th day of November, 2012.
BY THE COURT:

s/Laurie Smith Camp
Chief United States District Judge

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