Flanders Corporation v. EMI Filtration Products, LLC et al

Filing 47

ORDER denying 33 Motion for Judgment on the Pleadings, denying 33 Motion to Strike, granting 35 Motion for Preliminary Injunction and denying as moot 40 Motion for Extension of Time and 43 Motion for Extension of Time to File Response/Reply. Signed by Senior Judge W. Earl Britt on 4/22/2014. Counsel should read order in its entirety for critical information and deadlines. Copy of order to EMI defendants via US Mail at addresses on record. (Marsh, K)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NORTH CAROLINA
EASTERN DIVISION
NO: 4:13-CV-00189-BR
FLANDERS CORPORATION,
Plaintiff,
v.
EMI FILTRATION PRODUCTS LLC, et al.,
Defendants.

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ORDER

This matter is before the court on plaintiff’s motions for judgment on the pleadings or,
alternatively, to strike and for a preliminary injunction. (DE ## 33, 35.)
I. BACKGROUND
In July 2013 and by verified complaint, plaintiff, a North Carolina corporation with its
principal place of business in North Carolina, filed this action in North Carolina state court,
asserting claims against EMI Filtration Products LLC, EMI Filtration Products Management
Company, Inc., EMI Filtration Products Holding Company, Inc., EMI Filtration Products
Equipments Leasing, Inc., EMI Filtration Products-SLC, Inc., EMI Filtration Products-Kent, Inc.
(collectively, the “EMI Defendants”), Darren Fitch (“Darren”), Laurie Fitch (“Laurie”), Cody
Fitch (“Cody”), Jordan Fitch (“Jordan”), and Integrity Air Filtration, LLC (“Integrity”).
(Compl., DE # 1-13.) Plaintiff’s claims arise out of a promissory note and related documents
that the EMI Defendants, Darren, and Laurie entered into with plaintiff. In August 2013,
defendants removed the action to this court.
Shortly thereafter, in lieu of filing an answer, Cody, Jordan, and Integrity moved to
dismiss the claim against them for lack of personal jurisdiction. (DE # 16.) The court recently

allowed that motion, dismissing those defendants from this action. (DE # 46.)
In the meantime, the other defendants filed answers, asserting therein a number of
defenses. (DE ## 20, 28.) Thereafter, plaintiff filed the instant motions, and Darren and Laurie
filed a notice with the court stating that they had filed a voluntary petition under Chapter 7 of the
United States Bankruptcy Code, (DE # 37). In October 2013, counsel for the EMI Defendants
moved to withdraw, (DE # 38), and in support thereof stated, “The undersigned is now moving
to withdraw as counsel of record for the EMI Defendants because those defendants have now
elected not to pursue a defense in this matter, and they have instructed the undersigned to
discontinue their representation.” (Mem., DE # 39, at 2). On 1 November 2013, U.S. Magistrate
Judge James E. Gates allowed the motion to withdraw; directed the EMI Defendants to retain
new counsel no later than 22 November 2013; informed them of their obligation to comply with
applicable rules and orders of the court; and, directed the Clerk to serve a copy of the order on
the EMI Defendants at the address provided by counsel. (DE # 42.) Since that time, nothing has
been filed on behalf of the EMI Defendants, including any response to the instant motions.
II. DISCUSSION
A.

Motion for Judgment on the Pleadings or, Alternatively, to Strike

Pursuant to Federal Rules of Civil Procedure 12(c) and 12(f), plaintiff requests that the
court enter judgment in its favor on, or strike, certain affirmative defenses that the EMI
Defendants1 assert, namely, failure to state a claim upon which relief may be granted; breach of
the implied covenant of good faith and fair dealing; novation; estoppel; failure to mitigate

1

Although the motion is directed to the EMI Defendants’ and Darren and Laurie’s answers, because Darren
and Laurie have filed a petition in bankruptcy, the court considers the motion only as to the EMI Defendants. See 11
U.S.C. § 362(a) (filing of bankruptcy petition operates as a stay of the continuation of a judicial action against the
debtor that was commenced before the bankruptcy proceeding).

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damages; and, the reservation of the right to amend their answer. (Mot., DE # 33, at 4-5.)
Plaintiff’s motion is based on the argument that the EMI Defendants have not adequately pled
these defenses in accordance with the standards of Ashcroft v. Iqbal, 556 U.S. 662 (2009), and
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007). It does not appear that the Fourth Circuit
Court of Appeals has addressed the issue. The district courts within this Circuit are divided.
Compare Warren v. Tri Tech Labs., Inc, No. 6:12-cv-00046, at *7 n.7 (W.D. Va. May 15, 2013)
(noting that “the district judges in the Western and Eastern Districts of Virginia who have
considered the argument have not applied the Twombly and Iqbal pleading requirements to
affirmative defenses raised in an answer” (citing cases)), with Racick v. Dominion Law Assocs.,
270 F.R.D. 228, 234 (E.D.N.C. 2010) (“This court . . . agrees with the district courts within the
Fourth Circuit that have considered the question and concludes that ‘the considerations of
fairness, common sense and litigation efficiency underlying Twombly and Iqbal’ mandate that
the same pleading requirements apply equally to complaints and affirmative defenses.” (citation
omitted)). Fortunately, the court can save its resolution of the issue for another day. Given the
current posture of the case and the Fourth Circuit Court of Appeals’ recognition that motions to
strike2 are not favored, see Waste Mgmt. Holdings, Inc. v. Gilmore, 252 F.3d 316, 347 (4th Cir.
2

Although Plaintiff[ has] moved under both Rules 12(c) and 12(f) of the Federal
Rules of Civil Procedure, this Court will treat the motion as one to strike
[defendants’] affirmative defenses under Rule 12(f). A Rule 12(c) motion for
judgment on the pleadings is more appropriately resolved where “all material
allegations of fact are admitted or not controverted in the pleadings and only
questions of law remain to be decided by the district court.” 5C WRIGHT &
MILLER, FEDERAL PRACTICE AND PROCEDURE § 1367, at 208 (3d ed.
2004). On the other hand, a Rule 12(f) motion to strike is more fitting for
situations, such as the one at bar, where a plaintiff challenges only some of the
defenses raised in a defendant's pleading. Id. at § 1369, at 260 (noting that Rule
12(f) “serves as a pruning device to eliminate objectionable matter from an
opponent's pleadings and, unlike the Rule 12(c) procedure, it is not directed at
gaining a final judgment on the merits”).
(continued...)

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2001) (“Rule 12(f) motions are generally viewed with disfavor ‘because striking a portion of a
pleading is a drastic remedy and because it is often sought by the movant simply as a dilatory
tactic.’” (quoting 5A Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure §
1380 (2d ed. 1990))), the court sees no useful purpose in striking the defenses. Accordingly, the
court will deny plaintiff’s motion to strike without prejudice to its renewal should the EMI
Defendants decide to defend the case and/or should the case ultimately proceed against Darren
and Laurie.
B.

Motion for Preliminary Injunction

Plaintiff requests that pursuant to Federal Rule of Civil Procedure 65, the court
preliminarily enjoin the EMI Defendants3 from “interfering with Flanders' efforts to collect and
preserve Defendants' collateral;” “withholding their Collateral from Flanders;” “selling or
disposing of Defendants' Collateral; and” “using any of Defendants' Collateral including
customer lists, contact lists, and general goodwill of the EMI Defendants.” (Mot., DE # 35, at 78.) “To obtain a preliminary injunction, a moving party must establish the presence of the
following: (1) ‘a clear showing that it will likely succeed on the merits’; (2) ‘a clear showing that
it is likely to be irreparably harmed absent preliminary relief’; (3) the balance of equities tips in
favor of the moving party; and (4) a preliminary injunction is in the public interest.” United
States v. South Carolina, 720 F.3d 518, 533 (4th Cir. 2013) (citation omitted). The court

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(...continued)
Haley Paint Co. v. E.I. Du Pont De Nemours and Co., 279 F.R.D. 331, 335 (D. Md. 2012).
3

Plaintiff’s motion for preliminary injunction is directed to all defendants. However, because Darren and
Laurie have filed a petition in bankruptcy, see supra n.1, and because Jordan, Cody, and Integrity have been
dismissed from the action, the court considers the motion only as to the EMI Defendants.

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examines these factors in turn.4
As to the likelihood of success, the court considers only plaintiff’s breach of contract
claim.5 Under North Carolina law,6 the elements of a breach of contract claim are “(1) existence
of a valid contract and (2) breach of the terms of that contract.” Ahmadi v. Triangle Rent A Car,
Inc., 691 S.E.2d 101, 103 (N.C. Ct. App. 2010) (internal quotation marks and citation omitted).
According to plaintiff’s verified complaint and the sworn declaration of its Director of
Financial Reporting, plaintiff and defendants EMI Filtration Products LLC and EMI Filtration
Products Holding Company, Inc. executed a promissory note pursuant to which those defendants
agreed to pay plaintiff the principal amount of $5,056,360.17. (Compl., Ex. A, DE # 1-14;
Harper Decl., DE # 35-1, ¶ 5.) As security for that note, the EMI Defendants executed a security
agreement by which they each granted to plaintiff
a continuing security interest in and lien upon the following
described property, whether now owned or hereafter acquired, and
any additions, replacements, accessions, or substitutions thereof
and all cash and non-cash proceeds and products thereof
(collectively, "Collateral"):
All of the personal property and fixtures of such Debtor of every
kind and nature including, without limitation, all accounts,
equipment, accessions, fixtures, inventory, goods, chattel paper,
instruments, investment property (including without limitation the
4
Given that the EMI Defendants did not file any responsive documents to the motion and that they have not
retained counsel in accordance with the court’s order, it would be fruitless for the court to hold a hearing on the
motion. See Lone Star Steakhouse & Saloon, Inc. v. Alpha of Va., Inc., 43 F.3d 922, 938 (4th Cir. 1995)
(recognizing that “a court need not conduct an evidentiary hearing before issuing a permanent injunction if the
affidavits and documentary evidence clearly establish the plaintiff's right to the injunction such that a hearing would
not have altered the result”).
5

Although plaintiff asserts additional claims against the EMI Defendants (i.e., claims for money owed on
account, an accounting, and possession of collateral), the court does not analyze plaintiff’s likelihood of success on
those claims. The injunctive relief plaintiff requests is within the remedy permitted in the event of breach of
contract.
6
The pertinent agreements provide that they are governed by North Carolina law. (Compl., Ex. A, DE # 114, at 6; id., Ex. B, DE # 1-15, at 8.)

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Pledged Interests and the other Pledged Property), documents,
letter-of-credit rights, deposit accounts and general intangibles,
wherever located.
(Compl., Ex. B, DE # 1-15, at 1.) The agreement provides a number of remedies to plaintiff in
the event of default:7
(i) to take immediate possession of Collateral, without notice or
resort to legal process, and for such purpose, to enter upon any
premises on which Collateral or any part thereof may be situated
and to remove the same therefrom, or, at its option, to render
Collateral unusable or dispose of said Collateral on any Debtor's
premises; (ii) to require Debtors to assemble the Collateral and
make it available to the Corporation at a place to be designated by
the Corporation; (iii) to exercise its or its affiliate's right of set-off
or the Corporation lien as to any monies of any Debtor deposited
in deposit accounts and investment accounts of any nature
maintained by Debtor or the Corporation, without advance notice,
regardless of whether such accounts are general or special; (iv) to
dispose of Collateral, as a unit or in parcels, separately or with any
real property interests also securing the Secured Obligations, in
any county or place to be selected by the Corporation, at either
private or public sale (at which public sale the Corporation may be
the purchaser) with or without having the Collateral physically
present at said sale.
(Id. at 7.) Defendants EMI Filtration Products Management Company, Inc., EMI Filtration
Products Equipments Leasing, Inc., EMI Filtration Products-SLC, Inc., and EMI Filtration
Products-Kent, Inc. unconditionally guaranteed the payment and performance of all obligations
under the promissory note. (Id., Ex. D, DE # 1-17.)
As of September 2011, defendants EMI Filtration Products LLC and EMI Filtration
Products Holding Company, Inc. were in default under the promissory note. (Harper Decl., DE
# 35-1, ¶ 6; see also Compl., DE # 1-13, ¶ 29 (listing some of the events of default).) Plaintiff
7

Default under the security agreement is defined to include default under the promissory note, (Compl., Ex.
B, DE # 1-15, at 7), which in turn exists when payment is not made or any other obligation is not performed, among
other things, (id., Ex. A, DE # 1-14, at 4).

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has made demand for payment on the note and upon the EMI Defendants for possession of the
Collateral. (Harper Decl., DE # 35-1, ¶ 8.) As of 1 July 2013, approximately $5.4 million
remains due on the promissory note. (Compl., DE # 1-13, ¶ 30.) While it appears that the EMI
Defendants initially cooperated with plaintiff in turning over some of the Collateral, it is evident
that all of the Collateral has not been provided to plaintiff and some of it may have been
transferred. (See Harper Decl., DE # 35-1, ¶¶ 8-10, 14 & Exs. A, B, E.)
By refusing to pay sums due under the promissory note and by failing to turn over the
Collateral, the EMI Defendants have breached their contractual obligations. Accordingly,
plaintiff has clearly shown that it is likely to succeed on its claim for breach of contract.
Turning to consideration of the irreparable harm plaintiff will suffer in the absence of
preliminary relief, “[w]here secured creditors (under the UCC or otherwise) seek court
intervention to maintain their position, the prospective loss of their status quo security interest
has been held sufficient to constitute irreparable harm needed to justify an injunction.”
Plainfield Speciality Holdings II Inc. v. Children’s Legal Servs. LLC, 634 F. Supp. 2d 833, 846
(E.D. Mich. 2009) (citing cases);see also Whitney Nat’l Bank v. The Flying Tuna, LLC, Civil
Action No. 11-0249-WS-N, 2011 WL 2669450, at *2 (S.D. Ala. July 7, 2011) (when considering
irreparable harm to a bank seeking to enjoin the borrower from disposing of property subject to
its security interest, “[f]ederal courts recognize that ‘the judicial process can be rendered futile
by a defendant’s action or refusal to act during the pendency of the suit’ and that Rule 65 relief
may be appropriate ‘to preserve the court’s power to render a meaningful decision after a trial on
the merits” (citation omitted)).
In the absence of a preliminary injunction, [the EMI Defendants]
would potentially remain free to transfer, convey or otherwise
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dispose of assets to which [plaintiff] may otherwise be entitled as
collateral pursuant to the [security a]greement. The result of such
transfer, conveyance or disposal could be that any monetary
judgment ultimately obtained by [plaintiff] for breach of the
[promissory n]ote would be a hollow victory, absent collateral that
can be seized or other assets belonging to [the EMI Defendants]
that might be used to satisfy the judgment. Particularly given [the
EMI Defendants’] silence in the face of the Rule 65 Motion, the
Court finds that the irreparable harm element is satisfied as to the
proposed injunction barring [them] from disposing of collateral
within the scope of the [security a]greement.
Whitney Nat’l, 2011 WL 2669450, at *2.
Weighing the balance of the harms, the court concludes that the equities favor plaintiff.
The EMI Defendants knew what they were bargaining away in return for the loan from plaintiff.
By all accounts it appears that those entities have ceased functioning, and therefore, there should
be little to no burden on them to refrain from selling or disposing of the Collateral. On the other
hand, because the EMI Defendants are no longer functioning, without injunctive relief, plaintiff
may lose its one viable remedy for the breach of the obligations owed to it. See id. at *3.
Finally, the public interest also favors granting injunctive relief.
“[U]pholding the rights of . . . secured parties to repossess
collateral without awaiting the resolution of unsecured creditor
claims is in the best interest of our credit-based economy.” The
nature of the relief sought by [plaintiff] would serve the public
interest in vindicating the system of security agreements that
makes our economic system possible.
Because the UCC system is designed to ensure that secured
creditors do not have to fight with their debtors in litigation in
order to obtain satisfaction of monies lent on security, allowing a
debtor . . . to avoid its financial commitments and contractual
obligations would not be in the public interest.
Plainfield Speciality Holdings, 634 F. Supp. 2d at 848 (some alterations and omissions in
original) (citation omitted); see also Whitney Nat’l, 2011 WL 2669450, at *3 (“Banks would

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understandably be loath to lend money if the borrowers could wriggle out of their security
agreement obligations before entry of final judgment on a defaulted promissory note, simply by
the sleight of hand of transferring collateral away from the borrower LLC to some other
non-debtor entity controlled or managed by the same underlying corporate or individual
interests.”).
Plaintiff has established all factors to warrant preliminary injunctive relief. As far as the
scope of that relief, plaintiff should be sufficiently protected by an injunction prohibiting the
EMI Defendants from selling or disposing of the Collateral and from withholding the Collateral
from plaintiff. Before issuing an injunction, the court is required to consider the appropriate
amount of security for the movant to post. See Fed. R. Civ. P. 65(c). Plaintiff has not addressed
this issue.
In fixing the amount of an injunction bond, the district court
should be guided by the purpose underlying Rule 65(c), which is to
provide a mechanism for reimbursing an enjoined party for harm it
suffers as a result of an improvidently issued injunction or
restraining order. The amount of the bond, then, ordinarily
depends on the gravity of the potential harm to the enjoined party:
[T]he judge usually will fix security in an amount that covers the
potential incidental and consequential costs as well as either the
losses the unjustly enjoined or restrained party will suffer during
the period he is prohibited from engaging in certain activities or
the complainant's unjust enrichment caused by his adversary being
improperly enjoined or restrained.
11A Charles Alan Wright et al., Federal Practice & Procedure §
2954, at 292 (2d ed. 1995). Where the district court determines
that the risk of harm is remote, or that the circumstances otherwise
warrant it, the court may fix the amount of the bond accordingly.
In some circumstances, a nominal bond may suffice. See, e.g.,
International Controls Corp. v. Vesco, 490 F.2d 1334 (2d Cir.
1974) (approving district court's fixing bond amount at zero in the
absence of evidence regarding likelihood of harm).
Hoechst Diafoil Co. v. Nan Ya Plastics Corp., 174 F.3d 411, 421-22 n.3 (4th Cir. 1999)
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(alteration in original). Considering that the risk of harm to the EMI Defendants is remote given
plaintiff’s strong showing of entitlement to preliminary injunctive relief, the court will require
plaintiff to post security in a relatively nominal amount.
III. CONCLUSION
Plaintiff’s motion for judgment on the pleadings or, alternatively, to strike is DENIED
WITHOUT PREJUDICE. Plaintiff’s motion for preliminary injunction is ALLOWED as to the
EMI Defendants and DENIED WITHOUT PREJUDICE as to defendants Darren Fitch and
Laurie Fitch. Defendants Cody, Jordan, and Integrity’s motions for extension of time, (DE ##
40, 43), are DENIED as moot because they have been dismissed from this action.
It is hereby ORDERED that:
1.

EMI Filtration Products LLC, EMI Filtration Products Management Company, Inc., EMI
Filtration Products Holding Company, Inc., EMI Filtration Products Equipments Leasing,
Inc., EMI Filtration Products-SLC, Inc., and EMI Filtration Products-Kent, Inc. are
enjoined from selling or disposing of any of their personal property and fixtures of every
kind and nature including, without limitation, all accounts, equipment, accessions,
fixtures, inventory, goods, chattel paper, instruments, investment property (including
without limitation the Pledged Interests and the other Pledged Property identified in the
UCC Financing Statements attached to the Security Agreement dated June 9, 2010),
documents, letter-of-credit rights, deposit accounts and general intangibles, wherever
located.

2.

EMI Filtration Products LLC, EMI Filtration Products Management Company, Inc., EMI
Filtration Products Holding Company, Inc., EMI Filtration Products Equipments Leasing,

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Inc., EMI Filtration Products-SLC, Inc., and EMI Filtration Products-Kent, Inc. are
enjoined from withholding the property identified in Paragraph 1 above from plaintiff;
3.

Plaintiff shall post security with Clerk in the amount of $1,000.

4.

The Clerk serve a copy of this order on the EMI Defendants at the address listed in the 1
November 2013 Order.
This 22 April 2014.

__________________________________
W. Earl Britt
Senior U.S. District Judge

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