Cortland Line Holdings LLC et al v. Lieverst
DECISION & ORDER denying 212 Motion for Recovery of Bond. Signed by Senior Judge Thomas J. McAvoy on 10/13/2020. (dpk)
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UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
CORTLAND LINE HOLDINGS LLC and
Thomas J. McAvoy, Sr. U.S.D.J.
DECISION & ORDER
Before the Court is bankruptcy Trustee Edmund J. Wood’s motion for recovery of
security pursuant to Federal Rule of Civil Procedure 65(c). See dkt. # 212. Plaintiffs
oppose the motion The parties have briefed the issues and the Court has determined to
decide the matter without oral argument.
Plaintiff Cortland Line Holdings, LLC (“Cortland Line”) manufacturers fly-fishing
equipment. For a period of time, Plaintiffs employed Defendant Jason Lieverst, a
professional angler known worldwide for his innovative fly-fishing techniques, to help
market its products. Defendant’s employment contract contained a restrictive covenant
preventing Lieverst from engaging in certain activities for two years following the end of his
employment. Plaintiffs filed a Complaint in State court and sought injunctive relief against
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the Defendant when Defendant allegedly began soliciting Plaintiffs’ customers for a fly-rod
business he had started. Plaintiffs contend that these actions violated the restrictive
covenants in Defendant’s contract. Plaintiffs’ Complaint alleged contract and tort claims
against Defendant. Defendant denies that he was ever an employee and argues that the
restrictive covenants are not enforceable against him.
Upon filing the Complaint, Plaintiffs sought injunctive relief from the State court,
which that court granted. Plaintiffs moved to extend these restraints after Defendant
removed the case to this Court. See dkt. # 9. The Court granted the motion, extending the
restraints until the Court had time to consider Plaintiffs’ motion for a preliminary injunction.
See dkt. # 18. The Court, after considering the parties’ arguments, granted that
preliminary injunction motion. See dkt. # 53. The Court required the Plaintiffs to post a
$200,000 bond as security. Id. Defendant filed a motion to dismiss portions of Plaintiffs’
Complaint. See dkt. # 48. The Court denied that motion from the bench after oral
argument. See dkt. entry 5/14/18. The Court later granted the Defendant’s motion to
alter the terms of the injunction to clarify the work he was permitted to engage in related to
fly fishing. See dkt. # 73.
The Court’s preliminary injunction remained in place as the parties engaged in
discovery. Defendant’s financial situation changed as the case ground on. Documents in
the record indicate that he filed a petition for Chapter 7 bankruptcy relief in the United
States Bankruptcy Court for the Western District of Washington on October 12, 2018. See
dkt. # 198-2. That filing delayed discovery and somewhat altered the terms of the action,
but the Washington court discharged the bankruptcy on January 16, 2019. See dkt. # 1983.
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The parties resumed discovery, requiring intervention from the Magistrate Judges
assigned to the case to resolve disputes raised by either side on more than one occasion.
Eventually, Defendant filed a motion to set aside the preliminary injunction. See dkt. #
144. Having been informed that the parties had an agreement to settle the case, the Court
delayed ruling on that motion. Negotiations to finalize the settlement failed, however, and
Plaintiffs filed a motion for leave to voluntarily dismiss the case. On March 23, 2020, the
Court granted the Plaintiffs’ motion and dismissed the case without prejudice. See dkt. #
204. The Court’s Order permitted any party to seek attorneys fees and costs by motion
within thirty days, and permitted the bankruptcy Trustee to seek recovery of the security
that Plaintiffs’ provided for the preliminary injunction. Defendant filed a motion for
attorneys fees, which the Court denied on August 18, 2020.
Presently before the Court is the Trustee’s motion for recovery of the bond, as well
as attorneys’ fees. Plaintiffs oppose the motion. The parties have briefed the issues, and
the Court will decide the motion without oral argument.
Federal Rule of Civil Procedure 65(c) provides that “[t]he 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). This
rule serves to “‘assure the [restrained] party that it may readily collect damages from the
funds posted in the event that it was wrongfully [restrained], and that it may do so without
further litigation and without regard to the possible insolvency of the plaintiff.” U.S. D.I.D.
Corp. v. Winstream Comms, 775 F.3d 128, 135 (2d Cir. 2014) (quoting Nokia Corp. v.
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Interdigital, Inc., 645 F.3d 553, 558 (2d Cir. 2011) (alterations in original)). “A party has
been ‘wrongfully enjoined’ under Fed. R. Civ. P. 65(c) if it is ultimately found that the
enjoined party had at all times the right to do the enjoined act.” Blumenthal v. Merril
Lynch, Pierce, Fenner & Smith, Inc., 910 F.2d 1049, 1054 (2d Cir. 1990). “The focus of
the ‘wrongfulness’ inquiry is whether, in hindsight in light of the ultimate decision on the
merits after a full hearing, the injunction should not have issued in the first instance.” Id.
“[A] wrongfully enjoined party is entitled to a presumption in favor of recovery” of the bond.
Nokia Corp., 645 F.3d at 558. While that presumption applies, a “wrongfully enjoined party
must first demonstrate that the damages were proximately caused by the wrongful
injunction.” Id. at 559.
The Trustee argues that the bankruptcy estate should recover the bond because
the Court wrongfully issued the injunction. He contends that discovery in this case
revealed that many of the facts on which the Court based the injunction were not accurate,
and that the injunction would not have been entered if the Court had been apprised of
Plaintiffs’ position is partly that the Trustee attempts to reargue the preliminary
injunction motion. In reply, the Trustee argues in part that the Plaintiffs’ position applies
the wrong legal standard. The Trustee points out that the issue here is whether the Court
“wrongfully enjoined or restrained” the Defendant, an issue that requires the Court to
reexamine the original decision in light of facts collected since then which undermine the
Court’s original decision to enjoin the Defendant. The Court largely agrees with the
Trustee in this respect. The Trustee’s motion should be considered in light of all the
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evidence in the case. Indeed, many Rule 65(c) motions appear only after an appeals
Court concludes that the injunction was improper. See, e.g., Nokia Corp. v. Interdigital,
Inc., 645 F.3d 553 (2d Cir. 2011) (Court of Appeals vacated an injunction and remanded,
restrained party then sought relief pursuant to Rule 65(c); NCAA v. Governor of N.J., 939
F.3d 597, 606 (3d Cir. 2019) (“Because a court can only be certain of an enjoined party’s
rights after a case has been fully litigated, ‘wrongfully enjoined’ can only be determined
after a final judgment on the merits.”). This case is in a unique situation, because the
Plaintiffs voluntarily dismissed the case before a final judgment on the merits, but that does
not necessarily mean that Court cannot determine, based on the facts developed in the
case, whether the injunction was “wrongful.” In a somewhat analogous situation, the Court
of Appeals has also concluded that the question of wrongful restraint remains open when
the party that obtained a temporary restraining order voluntarily dismissed the case after
the trial court denied a motion for a preliminary injunction. U.S. D.I.D., 775 F3d at 137-40.
In his reply brief, the Trustee cites to Wright and Miller’s Federal Practice and
Procedure to argue that Plaintiffs’ voluntarily dismissal “has the same effect as a final
decision that the parties seeking the injunction were not entitled to it.” Trustee’s
Response, dkt. # 231, at 11 (quoting 11A Charles Alan Wright & Arthur R. Miller, FEDERAL
PRACTICE AND PROCEDURE, § 2972). The section of the treatise from which the Trustee
quotes addresses motions to recover on a security. The treatise concludes that such a
will not precede the final determination on the merits. In the case of an injunction
bond, the claim against the surety does not accrue until it is finally determined that
plaintiff was not entitled to the restraining order or injunction, or until something
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occurs that is the equivalent of a decision on this question. A final determination
may take the form of a decree dismissing the suit, total or partial dissolution of the
injunction, or the failure to carry the burden of proof at the hearing on the
preliminary injunction. A voluntary dismissal or abandonment of the request for
injunctive relief, if it comes after a temporary restraining order has been granted or
after defendant has filed an answer or counterclaim, has the same effect as a final
decision that the parties seeking the injunction were not entitled to it. However,
dismissal of the action by the party who instituted it, if consented to by the party,
precludes proceeding against the bond.
Wright and Miller, § 2972.
This wording would seem to support the Trustee’s position that Plaintiffs’ voluntary
dismissal of the case constitutes an admission that the injunction the Court issued was
wrongful.1 Cases cited by Wright & Miller indicate that a voluntary dismissal of a case after
a party obtains a temporary restraining order indicate that the party seeking dismissal
admits the impropriety of the original restraint. See, General Broadcasting System v.
Bridgeport Broadcasting Station, 53 F.2d 664, 664 (D. Conn. 1931) (plaintiff, “by its motion
asking that its own bill of complaint be dismissed, . . . admits its failure to prevail”);
Middlewest Motor Freight Bureau v. U.S., 433 F.2d 212, 243 (8th Cir. 1970) (noting “the
The Supreme Court of Kansas long ago explained the reason for this rule in a case
where the plaintiff had obtained a temporary injunction and then had the case dismissed
If the law were otherwise, a party might commence an action, obtain a temporary
injunction, execute his undertaking, put the defendant to great trouble,
inconvenience, and expense, and then, after all the evidence in his case was
presented, relieve himself from liability upon the injunction undertaking by simply
dismissing his action before the final submission of the case to the jury or to the
court. In such a case the undertaking would be no protection to a defendant, and
the statute ought not to be construed to permit such hardship, if any other
construction is reasonable and within the spirit of the law.
Mitchell v. Sullivan, 1 P. 518, 519 (KS 1883).
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generally adopted proposition that the voluntary dismissal of an injunction suit by a plaintiff
without the consent of the defendant is a determination of the merits of a controversy so as
to render the plaintiff and his surities liable on the injunction bond.”).
The Court is unconvinced by this argument that the Court is required to find that
Plaintiffs’ voluntary dismissal of the case requires a finding that Defendant was wrongfully
restrained. The Second Circuit Court of Appeals, citing a case relied on by the treatise the
Trustee cites, has concluded that “[w]hen a plaintiff files a voluntary dismissal under Rule
41(a)(1)2, the district court’s denial of the plaintiff’s motion for a preliminary injunction may
establish that the TRO should not have been granted and the defendant was wrongfully
restrained by a preceding TRO.” U.S. D.I.D., 775 F.3d at 140 (citing Middlewest Motor
Freight Bureau, 433 F.2d at 243) (emphasis added). In U.S. D.I.D., the Court of Appeals
analyzed the district court’s decision that the TRO had been wrongfully issued because the
plaintiff voluntarily dismissed the complaint and concluded that recovery was not proper on
the entire bond because defendant could not “claim damages based on wrongful restraint
when it was not entitled to take the action that was restrained” during a particular period.
Id. at 142. Thus, even if the Court had dismissed the case pursuant to Rule 41(a)(1), the
Court would be required to consider whether the defendant was entitled to take the actions
that had been restrained by the Court’s earlier injunction. See, e.g., Belfer v. Minko, No.
Rule 41(a)(1) permits a plaintiff to voluntarily dismiss a case without prejudice when
the party files notice “before the opposing party serves either an answer or a motion for
summary judgment[.]” Fed. R. Civ. P. 41(a)(1)(i). The Defendant here filed an answer.
See dkt. # 72. The Court, in permitting the Plaintiffs voluntarily to dismiss the action,
applied Rule 41(a)(2), which provides, in relevant part, that “[e]xcept as provided in Rule
41(a)(1), an action may be dismissed at the plaintiff’s request only by court order, on terms
that the court considers proper . . . Unless the order states otherwise, a dismissal under
this paragraph (2) is without prejudice.” See dkt. # 204.
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05CV02473, 2008 WL 163615 at *2 (N.D. OH Jan. 17, 2008) (rejecting notion that
voluntary dismissal required recovery of bond for defendants because of long procedural
history of the case, the lack of any finding that the TRO issued was improper, a finding by
a district court in the Northern District of Illinois that such cases must be examined on a
case-by-case basis, and because there was no evidence that plaintiffs abused the process
to obtain a TRO that they then abandoned at first opportunity).
Thus, to the extent that the Trustee’s argument is that the Court must find
Defendant was wrongfully restrained because the Court granted Plaintiffs’ motion to
voluntarily dismiss the case without prejudice, the Court will deny the motion. As the Court
explained in great detail in granting the Plaintiffs’ motion to dismiss, the history of this case
indicates that the reason the Plaintiffs sought to dismiss the case was not related to the
merits of their case, but due to the fact that Defendant’s bankruptcy filing had so delayed
this matter that there was no reason for the Plaintiffs to continue. The restrictive
covenants that had formed the basis for the preliminary injunction had expired, and the
bankruptcy meant that any attempt to recovery monetary damages had become futile.
Plaintiffs did not manipulate the system to obtain an injunction and then abandon the case
at the first opportunity. They litigated the case until circumstances made continuing
fruitless. The Court has already examined whether Plaintiffs hid evidence to make an
injunction seem more credible and concluded they have not.3
In his reply brief, the Trustee argues that Plaintiffs have admitted to a wrongful
restraint. He points out that in arguing that Defendant did not suffer any actual damages
from the restraints the Court imposed, Plaintiffs contended that Defendant could have
accepted an offer of employment from a reels company while under the injunction’s
strictures “if [he] stayed away from those customers and vendors with whom he did
business at Cortland Line.” The Court does not view this statement as an admission of
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Moreover, in deciding that issue and the Defendant’s motion for attorneys’ fees, the
Court addressed the general issue raised by the trustee’s motion: that the Court’s
Temporary Restraining Order and the Preliminary Injunction should not have been issued
because new facts have come to light which destroy the basis for that injunction. The
Court undertook an inquiry very similar to the “wrongfulness” inquiry described above and
rejected arguments similar to those the Trustee makes now. As a general matter, the
Court relies on those earlier opinions to conclude that the Court did not “wrongfully” issue
the previous injunction because the Court has concluded that no evidence indicates that
the Defendant had a right to engage in the behavior that the Court restrained.
The Court will, however, address each of the three specific arguments that the
Trustee makes concerning the wrongfulness of the injunctive relief the Court issued.
Whether Defendant Had a Unique Status
The Trustee first takes issue with the Court’s conclusion that the Plaintiffs suffered
irreparable harm from Defendant breaching the restrictive covenants in his contract. While
the Trustee couches this argument as different from an attempt to convince the Court to
reconsider its opinion, but instead as an effort to get the Court to look at evidence
uncovered since the original decision which demonstrates that the Court should not have
issued the injunctive relief, the Trustee’s argument is not about changed factual
wrongful restraint. Plaintiffs here argue that the restraint was not as restrictive as
Defendant claims it was, and that Defendant had many opportunities to work in fly fishing
during the period the injunction was in place. Indeed, in considering the balance of the
hardships in imposing the injunction, the Court found that “the operation of the noncompete provision” would allow the Defendant “to earn a living from the fly-fishing industry,
even if he will not be permitted to sell fly rods or use information he has about Plaintiffs’
business in aid of his sales efforts.” Dkt. # 53 at 21. Pointing out the limits on the nature
of a restraint is not an admission that the restraint was wrongful.
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circumstances. Instead, the Trustee essentially argues that the Court’s anlaysis in the
preliminary injunction decision misconstrued the legal standard and failed to discuss the
The Court found that Defendant’s skills were “unique” and thus justified enforcing
those restrictive covenants. The Trustee here argues that the Court failed to provide a
detailed and case-specific analysis of the reasons why the Defendant’s skills were of the
type that could be the subject of such a restrictive covenant. He does not point to any
evidence that was not available to the Court when the Court granted the preliminary
injunction on this basis. Instead, the Trustee points to case law that establishes that:
In analyzing whether an employee’s services are unique, the focus today is less on
the uniqueness of the individual person or the employee . . . [but is] more focused
on the employee’s relationship to the employer’s business to ascertain whether his
or her services and value to that operation may be said to be unique, special, or
extraordinary; that inquiry, because individual circumstances differ so wildly, must of
necessity be on a case-by-case basis.
Trustee’s Brief, dkt. # 212-2, at 123 (quoting Boston Laser, Inc. v. Qinxin Zu, 2007 U.S.
Dist. LEXIS 78021 at *23 (N.D.N.Y. Sept. 21, 2007)). The Trustee argues that the Court’s
examination of the nature of the Defendant’s services to the Plaintiff did not receive “the
detailed, case-by-case analysis the case law requires.”
The Trustee’s arguments here, however, are unpersuasive. First, the Court has
already explained in previous decisions why the evidence which the Trustee uses to
dispute the Court’s finding on uniqueness supports that finding. The Court relies on those
previous opinions. Second, the Trustee has not persuaded the Court that any evidence or
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legal argument exists to support a different conclusion.4 The Court, looking backwards
and considering the evidence as the Trustee requests, cannot find wrongful restraint on
this basis. The Court will deny the motion in this respect.
Relationship with Confidential Vendor
The Trustee next argues that the Court did not have accurate information about a
vendor with whom Cortland Line supposedly had a confidential relationship at the time the
Court issued the preliminary injunction. Accurate information about this vendor, the
Trustee argues, would have demonstrated to the Court that the Defendant had a right to
engage in the conduct the Court restrained. As such, the Trustee contends, the injunction
was wrongful. Plaintiffs respond that evidence in the case supports a finding that
Defendant had confidential information about a vender that exclusively supplied items to
Cortland Line, and that Cortland Line kept this relationship confidential. Moreover,
Defendant obtained this information due to his employment with Cortland Line, and
Plaintiffs contend that Defendant attempted to use this confidential information in other
employment in violation of the restrictive covenants in his contract.
Courts in New York “recognize the legitimate interest an employer has in
safeguarding that which has made the business successful and to protect himself against
The Court understands why the Plaintiffs would characterize these arguments as
an attempt to “reargue” the preliminary injunction decision, since the evidence supporting
them and the legal basis for them were available at the time the Court made its earlier
decision. Indeed, if this were a motion for reconsideration, the Court would deny the
motion. See Analytical Surveys, Inc. v. Tonga Partners, L.P., 684 F.3d 36, 41 (2d Cir.
2012) (a motion for reconsideration is “not a vehicle for relitigating old issues, presenting
the case under new theories, securing a rehearing on the merits, or otherwise taking ‘a
second bite at the apple[.]’”) (quoting Sequa Corp. v. GBJ Corp., 156 F.3d 136, 144 (2d
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deliberate surreptitious commercial piracy.” Reed, Roberts Associates, Inc. v. Strauman,
40 N.Y.2d 303, 308 (N.Y. 1976). As here, courts enforce “restrictive covenants . . . to the
extent necessary to prevent the disclosure of trade secrets or confidential customer
information. Id. In other words, the “cognizable employer interests” a restrictive covenant
can protect include “misappropriation of the employer’s trade secrets or of confidential
customer lists, or protection from competition by a former employee whose services are
unique or extraordinary.” Bdo Seidman v. Hirshberg, 83 N.Y.2d 382, 389 (N.Y. 1999).
The Court notes that the information that Defendant allegedly misappropriated has
been provided the Court under seal. The Court has examined this information and
concludes that the confidential information was subject to protection by a restrictive
covenant: it involved secrets concerning the methods and sources of production of certain
goods Plaintiffs offered for sale. The Trustee has not persuaded the Court that Defendant
had a right to use those secrets, as the information appears to the Court the type a
restrictive covenant could legitimately protect. The Trustee has not persuaded the Court
that the Defendant was wrongfully restricted on this basis. The Court will deny the motion
in this respect as well.
Admission of Irreparable Harm
As a third grounds for finding the injunction wrongful, the Trustee argues that the
Court should not have found that provisions in the Defendant’s contract amounted to an
admission that Plaintiffs would suffer irreparable harm if he violated the non-compete
clauses in the parties’ contract. The Trustee points to arguments that Plaintiffs made in
their reply brief for their preliminary injunction motion and argues that those arguments
misstated the law. The Trustee also argues that this briefing failed to cite to other case law
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from a United States District Court in California that would undermine the argument that
Plaintiffs made regarding irreparable harm based on contract provisions. Moreover, he
contends, the Court should not have found irreparable harm based on the contract
because the contractual provision that allegedly entitled Plaintiffs to an injunction did not
contain the phrase “irreparable harm.”
The Court addressed arguments about this contractual provision in the Court’s
decision granting the preliminary injunction. The Trustee essentially argues that the Court
got that decision wrong. The Trustee does not even attempt to offer an argument based
on new evidence from discovery that undermines the Court’s conclusions. The Court
relies on its earlier findings on the law and facts of the case and finds that Defendant did
not have a right to engage in the behavior that the Court enjoined and will not repeat that
analysis here. The motion will be denied in this respect as well.
If the Court had concluded that the Defenant had been wrongfully restrained, the
Court would need to consider his damages and determine how much of the bond should
be returned. As the Court has concluded that Defendant is not entitled to recover the bond
because he did not have the right to engage in the conduct that the Court restrained, the
Court will decline to consider the amount of damages to which he would be entitled.
For the reasons stated above, the Court will DENY the Trustee’s motion for
recovery of the bond, dkt. # 212.
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IT IS SO ORDERED.
Dated: October 13, 2020
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