LRY, LLC et al

Filing 18

OPINION AND ORDER: Plaintiff LRY, LLC's Motion for a Preliminary Injunction 2 is denied. The temporary restraining order in this case is vacated. Signed on 5/17/2017 by Judge Michael J. McShane. (cp)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
MEDFORD DIVISION

LRY, LLC dba LAKE RAILWAY,
an Oregon LLC,

Civ. No. 1:17-cv-00675-MC

Plaintiff,

OPINION & ORDER

v.
LAKE COUNTY, a political subdivision
of the State of Oregon,
Defendant.
_______________________________________
McSHANE, District Judge.
This matter comes before the Court on Plaintiff LRY, LLC’s Motion for Preliminary
Injunction, filed April 28, 2017. ECF No. 2. LRY seeks to enjoin Defendant Lake County (“the
County”) from terminating LRY’s lease pending final resolution of this matter on the merits.
The Court heard oral argument on this motion on May 12, 2017. ECF No. 17. For the reasons
discussed below, LRY’s motion is DENIED.
LEGAL STANDARDS
A preliminary injunction is an “extraordinary remedy that may only be awarded upon a
clear showing that the plaintiff is entitled to such relief.” Winter v. Nat. Res. Def. Council, 555
U.S. 7, 22 (2008). A plaintiff seeking a preliminary injunction generally must show that: (1) the

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plaintiff is likely to succeed on the merits; (2) the plaintiff is likely to suffer irreparable harm in
the absence of preliminary relief; (3) the balance of equities tips in favor of the plaintiff; and (4)
an injunction is in the public interest. Id. at 20.
The Supreme Court’s decision in Winter, however, did not disturb the Ninth Circuit’s
alternative “serious questions” test. All. for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1131-32
(9th Cir. 2011). Under this test, “‘serious questions going to the merits’ and a hardship balance
that tips sharply toward the plaintiff can support issuance of an injunction, assuming the other
two elements of the Winter test are also met.” Id. at 1132. Thus, a preliminary injunction may
be granted “if there is a likelihood of irreparable injury to plaintiff; there are serious questions
going to the merits; the balance of hardships tips sharply in favor of the plaintiff; and the
injunction is in the public interest.” M.R. v. Dreyfus, 697 F.3d 706, 725 (9th Cir. 2012). While a
stronger showing of irreparable harm may offset a weaker showing of likelihood of success on
the merits, a preliminary injunction is never appropriate upon a showing of a mere possibility of
irreparable harm. Winter, 555 U.S. at 22.
BACKGROUND
LRY operates a railroad service across portions of southern Oregon and northern
California. Compl. ¶ 1. LRY leases approximately fifty-five miles of track from Lake County
(“the Lakeview Branch”). Compl. ¶¶ 6, 9. LRY and the County entered into the Lake County
Lease and Operating Agreement (“the Agreement”) on November 3, 2010. Compl. ¶ 10. When
LRY commenced operations, the line was in serious disrepair and LRY has made $700,000 in
capital investments to triage the line. Didelius Decl. ¶¶ 7-8. LRY provides rail service to two
clients: a perlite mine and a lumber mill. Didelius Decl. ¶ 5.

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LRY has contracted with the State of Oregon through a grant program known as
ConnectOregon for funds to improve and repair portions of the Lakeview Branch. Didelius
Decl. ¶¶ 10-15. Under certain circumstances, violation of the ConnectOregon contract may
obligate LRY to refund the grant money. See, e.g., Didelius Decl. Ex. 4, at 15. As part of the
ConnectOregon grant program, the County and LRY amended the Agreement to extend the lease
through December 31, 2035. Didelius Decl. Ex. 2, at 20.
Section 13 of the Agreement governs termination of the lease. Didelius Decl. Ex. 2, at 89. Section 13.04 of the Agreement requires LRY to cooperate with the orderly transition of
common carrier obligations to a third party in order to avoid disruption of rail service. Didelius
Decl. Ex. 2, at 9. Section 13.05 provides:
In the event the County terminates this lease agreement without reasonable cause,
including through condemnation of all or a sufficient portion of the leased
premises to prevent service to one or more LRY customers, then, in that event, the
County shall pay termination costs of twenty five thousand dollars ($25,000) to
LRY as liquidated damages.
Didelius Decl. Ex. 2, at 9.
On April 12, 2017, the County sent a letter to LRY announcing that the County was
terminating the Agreement pursuant to Section 13.05 and that it expected that LRY would
comply with its obligations under Section 13.04. Didelius Decl. Ex. 1. Based on the record, the
termination was the result of an ongoing dispute over a number of issues, including LRY’s rates
and which party was responsible for repairs and improvements. There is no indication in the
record of any third party prepared to take over operation of the Lakeview Branch and the
County’s briefing indicates that it expects LRY to continue operations, notwithstanding the
termination of the Agreement, until a new carrier can be found.

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On April 28, 2017, LRY filed the Complaint and a Motion for a Preliminary Injunction
and Temporary Restraining Order. ECF Nos. 1, 2. On May 1, 2017, this Court granted a
temporary restraining order maintaining the pre-termination status quo between the parties. ECF
No. 8. On May 12, 2017, the Court heard oral argument on LRY’s Motion for a Preliminary
Injunction. ECF No. 17.
DISCUSSION
At oral argument, LRY clarified that its motion for a preliminary injunction rests on its
claim for breach of contract. Accordingly, the Court confines its analysis to that claim. LRY has
not met its burden of clearly showing a likelihood of irreparable harm and is not entitled to a
preliminary injunction.
I.

Arbitration
As a preliminary matter, the County asserts that the Agreement requires any dispute

between the parties to be submitted to arbitration and that LRY’s filing of this case in federal
court constitutes a breach of the Agreement. Section 31 of the Agreement provides, in relevant
part: “Any dispute arising out of this agreement under Federal law shall be submitted to
arbitration under the Federal Arbitration Act and shall be brought in the United States District
Court for the District of Oregon.” Didelius Decl. Ex. 2, at 18.
On its face, Section 31 appears to permit (or possibly require) that any dispute be
submitted to arbitration and this Court. At oral argument, both parties agreed that the language
of Section 31 is ambiguous, although LRY contends that it offers the parties a choice between
the forums, while the County argued that the clear intent was to require arbitration. Resolution
of that issue is not, however, presently before the Court. Nor does the presence of a debatably
enforceable arbitration clause divest this Court of authority to consider a motion for injunctive

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relief. See Toyo Tire Holdings of Am., Inc. v. Continental Tire N. Am., Inc., 609 F.3d 975, 981
(9th Cir. 2010).
II.

Success on the Merits
A court’s decision on a motion for preliminary injunction is not a ruling on the merits.

See Ass’n des Eleveurs de Canards et d’Oies du Quebec v. Harris, 729 F.3d 937, 944 (9th Cir.
2013).
LRY rests its motion for preliminary injunction on its claim for breach of contract. To
state a claim for breach of contract under Oregon law, a “plaintiff must allege the existence of a
contract, its relevant terms, plaintiff’s full performance and lack of breach and defendant’s
breach resulting in harm to plaintiff.” Slover v. Or. State Bd. of Clinical Soc. Workers, 144 Or.
App. 565, 570 (1996) (internal quotation marks and citation omitted).
Resolution of this claim turns on the meaning of Section 13.05 of the Agreement. The
County asserts that Section 13.05, by its plain terms, permits the County to terminate the lease
without reasonable cause and incur only $25,000 in liquidated damages. LRY contends that the
liquidated damages provision is unenforceable under Oregon law and that, by invoking Section
13.05, the County has explicitly affirmed that they have no reason or cause to terminate the
Agreement.
The Court need not definitively resolve these conflicting interpretations at this stage of
the case, but LRY has met its burden of showing serious questions going to the merits as
required by Cottrell. LRY’s showing on the merits is not, however, sufficiently strong to
overcome the comparative weakness of its showing on the likelihood of irreparable harm,
discussed below.

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III.

Irreparable Harm
Although plaintiff is not required to show actual harm at the preliminary injunction stage,

the plaintiff “must establish that irreparable harm is likely, not just possible[.]” Cottrell, 632
F.3d at 1131 (emphasis in original).

The harm must be supported by a “clear showing.”

Mazurek v. Armstrong, 520 U.S. 968, 972 (1997). Speculative injuries are insufficient. Goldie’s
Bookstore, Inc. v. Superior Court, 739 F.2d 466, 472 (9th Cir. 1984).
It is well established that monetary injury is not normally considered “irreparable harm.”
Los Angeles Mem’l Coliseum Comm’n v. NFL, 634 F.2d 1197, 1202 (9th Cir. 1980) (citing
Sampson v. Murray, 415 U.S. 61, 88 (1974)). The fact that adequate compensatory damages will
be available in the ordinary course of litigation weighs heavily against a claim of “irreparable”
harm. Sampson, 415 U.S. at 90; see also Idaho v. Coeur d’Alene Tribe, 794 F.3d 1039, 1046
(9th Cir. 2015) (“Purely economic harms are generally not irreparable, as money lost may be
recovered later, in the ordinary course of litigation.”). In this case, it appears that most, if not all,
of the harm LRY will suffer in the absence of injunctive relief is monetary.
LRY’s briefing and argument were vague as to potential non-economic harms, but it has
suggested that it will suffer a loss of business goodwill, which can constitute an irreparable harm.
See, Stuhlbarg Int’l Sales Co., Inc. v. John D. Brush and Co., Inc.. 240 F.3d 832, 841 (9th Cir.
2001).

“Although the loss of goodwill and reputation are important considerations in

determining the existence of irreparable injury, there must be credible and admissible evidence
that such damage threatens Plaintiff’s businesses with termination.” Dotster, Inc. v. Internet
Corp. for Assigned Names & Nos., 296 F. Supp.2d 1159, 1163-64 (C.D. Cal. 2003). Statements
that are conclusory, speculative, or without sufficient factual support cannot sustain a finding of

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irreparable harm to intangible assets like reputation or goodwill. Am. Promotional Events, Inc.Nw. v. City and Cnty. of Honolulu, 796 F. Supp.2d 1261, 1283-84 (D. Haw. 2011).
In this case, the Court notes that LRY has only two customers and both have expressed
dissatisfaction with LRY’s service and they have made arrangements to carry their freight by
truck due, at least in part, to LRY’s surcharge policies.

Broadfoot Decl., ECF No. 12-3;

Addington Decl., ECF No. 12-2. On this record, the Court cannot conclude that LRY has clearly
made out irreparable harm based on a loss of business goodwill.
LRY’s arguments about the disruption of interstate commerce and the possibility that it
may have to refund the ConnectOregon grants are speculative in light of the County’s invocation
of Section 13.04, which requires LRY to participate in transferring its obligations to a new
carrier. Such speculative harms are insufficient to sustain a preliminary injunction.
On this record, LRY has failed to meet its burden of clearly showing that it will suffer
irreparable harm in the absence of injunctive relief.
IV.

Balance of Equities
“In each case, courts must balance the competing claims of injury and must consider the

effect on each party of the granting or withholding of the requested relief.” Winter, 555 U.S. at
24 (internal quotation marks and citation omitted).
LRY asserts that it will suffer serious economic harm if the Agreement is terminated,
including losing the benefit of their capital investments and potentially having to repay the
ConnectOregon grants. The County’s briefing concedes that LRY will suffer economic harm if
the Agreement is terminated, but argues that the balance of equites favors denying an injunction
because LRY’s injuries will be compensable by monetary damages. The Ninth Circuit has

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observed, however, that “[e]conomic harm may indeed be a factor in considering the balance of
equitable interests.” Earth Island Inst. v. Carlton, 626 F.3d 462, 475 (9th Cir. 2010).
The County asserts that it will be harmed by an injunction requiring it to continue doing
business with LRY. The Court notes, however, that after several years of doing business with
LRY under the Agreement, the County opted to extend the lease through December 31, 2035.
Didelius Decl. Ex. 2, at 20. The Court is not impressed with the County’s argument that it will
be harmed by a contract that it voluntarily extended for such a long period and concludes that the
balance of the equities favors LRY. The balance of the equities does not, however, overcome
LRY’s inability to show a likelihood of irreparable harm.
V.

Public Interest
“In exercising their sound discretion, courts of equity should pay particular regard for the

public consequences in employing the extraordinary remedy of injunction.” Winter, 555 U.S. at
24. “The public has an interest in enforcement of valid contracts to which the parties have
voluntarily agreed.” Giftango, LLC v. Rosenberg, 925 F. Supp.2d 1128, 1141 (D. Or. 2013).
There are serious questions going to the merits of this contract dispute, however. The Court
cannot conclude that an injunction is in the public interest, especially in the absence of a clear
showing of a likelihood of irreparable harm.
CONCLUSION
For the reasons set forth above, Plaintiff LRY, LLC’s Motion for Preliminary Injunction,
ECF No. 2, is DENIED. The temporary restraining order in this case is VACATED.
It is so ORDERED and DATED this 17th day of May, 2017.

s/ Michael J. McShane
MICHAEL McSHANE
United States District Judge

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