Global Financial & Leasing, Inc. v. LOJY Air Company
Filing
23
OPINION & ORDER: Lojy's Motion for Leave to File an Amended Answer 16 is Granted and Lojy is ordered to file immediately the amended answer as proposed. Lojy's Motion for a Preliminary Injunction 8 is Denied. Signed on 4/28/11 by Magistrate Judge Paul Papak. (gm)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
GLOBAL FINANCIAL & LEASING INC.,
an Oregon corporation,
Plaintiff,
CV lO-1369-PK
OPINION AND ORDER
LOIY AIR COMPANY, an Egyptian
corporation,
Defendant.
PAPAK, Judge:
Plaintiff Global Financial and Leasing Inc. ("Global") originally filed this action in state
court against defendant Lojy Air Company ("Lojy") arising from an agreement between the
parties concerning a potential fhture purchase and lease of an aircraft. Global's complaint alleges
a single claim for declaratory relief, asserting that Lojy materially breached the agreement, and
prays for an order declaring that it is entitled to keep the $300,000 deposit it received from Lojy
Page 1 - OPINION AND ORDER
as liquidated damages for Lojy's breach. This cOUlt has original jurisdiction over Global's claim
under 28 U.S.C. § 1332 and removal jurisdiction under 28 U.S.C. § 1446(b). Now before the
court are two motions. The first is Lojy's motion for leave to file an amended answer (#16),
including new affirmative defenses, counterclaims, and a third-party complaint against Global's
president Richard Keith Ward ("Ward"). Also before the court is Lojy's motion for preliminary
injunction (#8) pursuant to Fed. R. Civ. P. 65 seeking an order requiring Global to place the
$300,000 deposit it received from Lojy into an interest-bearing escrow account. I have examined
the paliies' briefing and heard oral arguments in the matter. For the following reasons, Lojy's
motion to amend is granted, and Lojy's motion for preliminaty injunction is denied.
BACKGROUND
Plaintiff Global is an Oregon-based aviation finance company, while Lojy is an Egyptian
aviation company. I On January 25,2010, Lojy's C.E.O. Galal Barakat and Global's president
Keith Ward signed a "Letter ofIntent" (hereinafter "LOI") which purpOlted to "outline[] the
basic telms and conditions upon which [Global] is willing to lease to [Lojy] one Airbus A320200 aircraft, .... " (Ward Decl., #15, Ex. 1 at 1.) Overall, the LOI envisions a potential
transaction wherein Global would finance Lojy's acquisition of an aircraft? Global would
For the purposes of this overview, I include only facts that appear in evidence presented
in the record before me on Lojy's motion for preliminaty il\iunction. Statements offered by
counsel at oral argument at'e not evidence. Further, the factual allegations contained within
Lojy's proposed amended answer, counterclaims, and third-patty complaint - which today' s
decision permits defendants to file- do not take the form of testimony, declarations, or affidavits
constituting evidence.
I
2 A recent email from Global's president suggests that Global had planned to finance the
transaction by relying on "private equity sources." (Barakat Decl., #10, Ex. C.)
Page 2 - OPINION AND ORDER
purchase the aircraft from another entity and then lease it to Lojy, requiring Lojy to buy the plane
at the end ofthc 10 year lease, but offering an option to purchase it sooner. ld. at 2,5. To that
end, the LOT describes S01l1C- but not .all- of the terms and conditions that would eventually
comprise a "definitive lease-purchase agrcement" between Global and Lojy. Thc LOI identifies
a specific aircraft, "serial number 630," to be leased. ld. at I (Section 1). The LOT also provides
somewhat vaguely that "[t]he Aircraft is subject to final inspection, appraisal and approval by
[Global.]" Jd. Significantly, the LOT does not specify how much financing Global would
provide. ld. ("The amount to be financed is to be determined.")
Sometime before the parties signed the LOT, Lojy paid Global $300,000 as an "initial
deposil." (Barakat Decl., #10,
~3.)
The LOT acknowledgcs Global's previous receipt of the
$300,000 deposit. (Ward Decl., #15, Ex. I at 3). The LOT describes that the initial deposit will
be "applied to otIset the Security Deposit as set out under Section 9 below." ld. Section 9, in
tUl'll, envisions that Global would use the security deposit during the term of a lease-purchase
agreement to cover any of Lojy's missed payments, with the rcmainder to be refunded back to
Lojy at the end of the leasc term. Jd at 3 (LOT Section 9).
If, however, the lease-purchase agreement is not consummated, the Lor discusses two
potential dispositions of the "initial deposit" depending on the parties' conduct. The LOT
provides:
In (he event the Lease purchase agreement is not consummated at no fault of Lessor
[Global], Lessee [LOJY] will pay all fees and expenses associated with the transaction,
limited to the initial deposil. If the Lease purchase agreement is not consummated duc to
the fault of Lessor [Global], the initial deposit will be refunded to Lessee [LO.TY].
Jd at 3 (LOT Section 7). Finally, in a separate section of the document, the LOT permits Global
Page 3 - OPINION AND ORDER
to keep the entire "initial deposit as liquidated damages" in the event o["a breach of this
agreement" by Lojy which "results in the termination of this agreement .... " ld. at 17 (LOI
Section 17). Global's declaratory relief claim, and some ofLojy's proposed counterclaims, seek
judicial determination of the parties' rights to the $300,000 initial deposit.
After Global and Lojy signed the Lor, and Lojy identified an available Airbus A320-200
aircraft, Global retained AVITAS, Inc. to produce a "desktop valuation report," or appraisal, of
the particular aircraft. (Suppl. Barakat Dec!., #19, Ex. 2 at 3-40). AVITAS described its task as
"to provide its opinion as to the Base Value, Current Market Value, Distress Value, and Orderly
Liquidation Value" for the aircraft. Id. at 3. AVITAS opined that the Base Value, or the
"underlying economic value of [the] aircraft in an open, unrestricted, stable market environment
with a reasonable balance of supply and demand" was $18.8 million. Id. at 3, 5. The appraisal
estimated the Current Market Value, or "the most likely trading price that may be generated for
an aircraft under the market conditions that are perceived to exist at the time in question," as
$16.9 million. ld. at 4, 5. The appraisal approximated the Orderly Liquidation Value ("OLV"),
defined as "the same as the Market Value definition above except that OLV is net of all
brokerage fees, storage costs and other liquidation fees," at $15.2 million. 3 Id. at 4,5. Finally,
the appraisal listed the Distress Value, or "the price at which an aircraft could be sold under
abnormal conditions, such as an artificially limited market timing period, ... the seller being
under duress to sell, an auction, a liquidation, commercial restrictions, legal complications or
other such facts ... " as $12.7 million. ld. at 4,5.
3 AVITAS recognized that Orderly Liquidation Value was not a term defined by the
International Society of Transport Aircraft Trading (ISTAT), an industry trade group of aircraft
appraisers.
Page 4 - OPINION AND ORDER
There is some indication that the appraisal did not take into consideration all the speci fic
technical aspects of the particular aircraft Lojy sought to acquire. Although the appraisal
acknowledged that Airbus A320 planes existed in various "marks" with differing engines, it did
not appear to base its estimated values on the particular engines included on the serial number
630 aircraft. Id. at 19,22 (generally using the A320-200 "family" of planes for its analysis).
Thus, Emannuel Ballesteros, who described himself as Global's "representative" regarding its
potential deal with Lojy, criticized the appraisal for failure to consider that the serial number 630
aircraft had a "-5b" engine which "gives more power than the -5A normally installed in a
A320 .... " (Supp!. Barakat Decl., #19, Ex. 3 at 2.) Ballesteros also faulted the appraisal for failing
to consider that the serial number 630 aircraft was undergoing an inspection costing the current
owner approximately $2 million. Id
Even more than the potential deficiencies in the appraisal itself, Lojy objects to the way
Global used the appraisal to determine the amount it would finance. There is some indication
that the seller sought $17.5 million for the aircraft. (Supp!. Barakat Dec!., #19, Ex. 3 at 2.) At
the Vety least, it is clear that the proposed purchase price substantially exceeded the estimated
orderly liquidation value of$15.2 million. (Ward Dec!., #15, '\13.) On february 22, 2010,
Emmanuel Ballesteros wrote an email to Global encouraging it to offer to purchase the aircraft
for $15.2 million, the orderly liquidation value. (Supp!. Barakat Dec!., #19, Ex. 3 at 2.) Global
apparently did not take Ballesteros' suggestion: Two days later, on february 24, 2010, Lojy's
C.E.O. (Barakat) emailed Global's president (Ward) reporting that Lojy had decided to
4 Later emails, discussed more below, suggest that Global offering to proceed with the
purchase ifLojy provided a bank guarantee for the difference between the orderly liquidation
value and the purchase price.
Page 5 - OPINION AND ORDER
"terminate the LO!" and requested return ofLojy's security deposit. (Ward Dec!., #15, Ex. 5 at
1.) On March 22,2010, Ward emailed Barakat confirming his offer to proceed with the purchase
ifLojy provided a bank guarantee "to make up the difference in appraised value and selling
price.'" (Ward Dec!., #15, Ex. 2 at I.) Ward also offered to consider financing a different
aircraft with "a more realistic pricing structure." ld Although Ward perceived that Lojy was
amenable to obtaining a guarantee, an April 8,2010 cmail from Ward to Barakat suggests that
Lojy was unwilling to do so. (Ward Dec!., #15, Ex. 3 at I.) Barakat now disputes the propriety
of Global's reliance on the orderly liquidation value to determine the limit of its financing,
asserting that "the most common and 'standard' valuation method for determining the price of an
aircraft in a commercial setting is market value or base value." (Suppl. Barakat Dec!., #19, '\[2.)
On April 14 2010, Lojy still expressed an interest in financing a plane through Global, but
asserted that Lojy would no longer participate in price negotiation and demanded that Global and
Ballesteros locate and purchase a plane in no more than 10 days, or else Lojy would terminate the
LO! and require refund of its deposit. This demand seemingly reversed the roles of the pmiies
under the LOI, which Lojy admits required it to "research, identify, and present Global with
Airbus aircraft purchase opportunities .... "6 (D. 's Br., #9, at 6.) The next day, Global rejected
Lojy's proposal and time-frame and reasserted that the LO! was still in effect. (Ward Dec!., #15,
Ex. 4 at 2-3.) On April 15 and 16,2010, Barakat and Ward exchanged emails in which Barakat
objected to the appraisal methodology and Ward asserted that Lojy's demands constituted a
Ward's reference to "appraised value" apparently refers to the appraised Orderly
Liquidation Value.
5
Despite this admission, neither Global nor Lojy point to language in the LO! that
specifies which party was responsible for identifying potential aircraft for purchase.
6
Page 6 - OPINION AND ORDER
breach of the LOr. (Ward Decl., #15, Ex. 4 at 1-2.) On April18, 2010, even before Lojy's ten
day time-frame had expired, Barakat requested refund ofthe initial deposit. (Ward Decl., #15,
Ex. 4 at 1.) Ward responded that Barakat's request for a refund was "referred to legal counsel for
processing." (Ward Decl., #15, Ex. 6 at 2.) On April 19,2010, Barakat wrote Ward to clarity
that although Lojy requested a refund of the deposit, the Lor was still active and that Lojy still
wanted to do business with Global. Jd. Barakat reiterated that assertion on April 21, 2010. Jd. at
2.
No lease-purchase agreement was consummated and Global never returned the $300,000
deposit to Lojy. Instead, on September 3, 2010, Global filed an action in state court requesting a
declaratory judgment that it was entitled to retain the entire initial deposit as liquidated damages
for Lojy's breach of the LOT. (Notice of Removal, #1, Ex. 1.) On Octobcr 29, 2010, Barakat
emailed Global proposing several "options" for resolving the dispute, including continuing to
work with Global to acquire an appropriate aircraft. Lojy removed the action to this court on
November 5, 2010. (Notice of Removal, #1.) On February 17, Lojy moved for a preliminary
injunction requiring Global to place the $300,000 deposit into an interest-bearing escrow
account, fearing that Global and its president Keith Ward would use the deposit to payoff
pending tax liens and judgments or would file for bankruptcy.7 (Barakat Decl., # 10, 'Il9, Ex. B.)
Lojy, however, had not yet filed any counterclaims when it moved for a preliminary il~unction.
On March 14, 2011, Global acknowledged that its currcnt cash and bank account balance was
approximately $62,000. (Ward Decl., #15, 'Il1O.) Finally, on April 1, 2011, less than a week
7 Lojy continued to pursue a lease-purchase agreement with Global, even after moving for
a preliminary injunction. (Ward Decl., #15, 'Il11.)
Page 7 - OPINION AND ORDER
before oral argument, Lojy filed its reply brief supporting its motion for preliminary injunction
and simnltaneously moved for leave to file an amended answer, including specific denials of
Global's allegations and, for the first time, counterclaims against Global and "third party" claims
against Ward.
LEGAL STANDARDS
I.
Motion to Amend
A party may amend a pleading once as a matter of course before being served with a
responsive pleading or within 20 days after serving the pleading but thereafter may only amend
by consent of the opposing party or leave of the court. Fed. R. Civ. P. 15(a). "The court should
freely give leave when justice so requires." Fed. R. Civ. P. 15(a)(2). Leave to amend is within
the discretion of the trial court, but that discretion "should be guided by the underlying purpose
of Rule 15(a) which was to facilitate decisions on the merits, rather than on technicalities or
pleadings." In re Morris, 363 F.3d 891, 894 (9th Cir. 2004) (citation omitled). "A district court
may, however, take into consideration such factors as bad faith, undue delay, prejudice to thc
opposing party, futility of the amendment, and whether the party has previously amended his
pleadings." Id. (citation omitted). Of these factors, the most important is the potential for
prejUdice to opposing parties. See Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321,
330-31 (l971). While futility alone provides suHicient grounds for denying a motion to amend,
see .!ohnson v. Buckley, 356 F.3d 1067, 1077 (9th Cir. 2004), undue delay by itself cannot justify
denial ofa motion to amend. See Bowles v. Reade, 198 F.3d 752, 758 (9th Cir. 1999). "An
outright refusal to grant leave to amend without a justifying reason is ... an abuse of discretion."
Manzarekv. Sf. Paul Fire & IIk/rine Ins. Co., 519 F.3dl025, 1034 (9th Cir. 2008) (citation
Page 8 - OPINION AND ORDER
omitted).
n.
Motion for Preliminary Injunction
A preliminary injunction is an "extraordinary and drastic remedy, one that should not be
granted unless the movant, by a clear showing, carries the burden of persuasion." lvfazlIrek v.
Arlllstrong, 520 U.S. 968, 972,117 S. Ct. 1865, 138 L.Ed. 2d 162 (1997). "The purpose ofa
preliminary injunction is merely to preserve the relative positions of the parties until a trial on the
merits can be held," and it is generally inappropriate for a federal court at the preliminary
injunction stage to give a final judgment on the merits. University of'Texas v. Camenisch, 451
U.S. 390, 395, 101 S. Ct. 1830,68 L. Ed. 2d 175 (1981); Tanner Motor [,ivel:V, Ltd. V. Avis, Inc.,
316 F.2d 804, 808 (9th Cir. 1983); see also Regents o.fUniversity o.fCalijornia v. ABC, Inc., 747
F.2d 511, 514 (9th Cir. 1984) ("the fimction of a preliminary injunction is to preserve the status
quo ante litem") A party seeking preliminary injunctive relief must demonstrate: (1) that it is
likely to succeed on the merits; (2) that it is likely to suffer irreparable harm in the absence of
injunctive relief; (3) that the balance of equities tips in its favor; and (4) that an injunction is in
the public interest. Winter v. NRDC, Inc., 555 U.S. 7(2008). Although Winter overruled certain
Ninth Circuit precedent allowing courts to grant injunctions based on a "sliding scale" when there
was only a "possibility" of irreparable harm, recent Ninth Circuit case law holds that the "sliding
scale" approach survives Winter to the extent that "serious questions going to the merits" and a
balance of hardships that tips sharply toward the plaintiff can suppOli issuance of an injunction,
assuming the other two elements of the Winter test are also met. Alliance/or the Wild Rockies v.
Cottrell, 632 F.3d 1127, 1132 (9th Cir. 2011).
DISCUSSION
Page 9 - OPINION AND ORDER
I.
Motion to Amend
Lojy seeks to amend its answer to include specific denials of Global's allegations,
counterclaims against Global, and "third party" claims against Ward. Global argues that granting
leave to amend and allowing Lojy's proposed counterclaims to serve as the basis for granting
Lojy's motion [or preliminary injunction would prejudice Global by effectively denying it the
opportunity to respond to Lojy's actual counterclaims. Global, however, concedes that Lojy's
proposed amendments are appropriate so long as the court denies Lojy's preliminary injunction
motion, and thus, ensures that Global suffers no prejudice. Since Tdeny Lojy's motion for
preliminary injunction in today's decision, Global will suffer none of the prejudice it alleges
from Lojy's amendment. Consistent with the liberal amendment standard in Rule 15, Lojy's
motion to amend is granted. See FecI. R. Civ. P. 15(a)(2).
II.
Motion for l'rcliminary Injunction
Lojy seeks a preliminalY injunction ordering Global to place the $300,000 deposit it
received from Lojy into an interest-bearing escrow account until adjudication on the merits.
Global resists the preliminary injunction on several grounds. First, Global contends that a
preliminary injunction JI'eezing assets cannot issue here becausc the district court only has
jurisdiction to freeze assets on the basis of equitable claims, and Lojy's equitable claims arc
precluded by the presence of the LOT, a legally enforceable contract concerning the disputed
$300,000 deposit. Second, Global argues the even if the court could order injunctive reliet: it
would not be warranted because Lojy cannot satisfy the applicable standards for injunctive relief
on any of its counterclaims. Although Ttake a slightly diflerent approach, I find Global's
arguments generally persuasive, and accordingly, I deny Lojy's motion for preliminary
Page 10 - OPINION AND ORDER
injunction.
A.
Authority to Grant Preliminary Injunction
Jurisprudence on the district court's authority to issue asset-freezing injunctive relief
derives from three seminal Supreme Court decisions. In Deckert v. Independence Share;; Corp.,
311 U.S. 282 (1940), the Supreme Court ruled that a district court possessed the power to enjoin
a defendant from transferring a specificied amount of money where the plaintiff alleged claims
seeking both money damages and equitable remedies, since an injunction freezing assets was a
reasonable measure to preserve the status qllo pending a final determination of the plaintiIrs
equitable claims. In De Beers Consolo Mines, Ltd.
V.
United States, 325 U.S. 212 (1945), the
Court recognized the general principles it laid out in Deckert, particularly that a "preliminary
iqjunction is always appropriate to grant intermediate relief ofthe same character as that which
may be granted finally," but denied an asset-freezing injunctionmeanl to prevent defendants
from taking assets outside of the country, since the suit pertained to antitrust violations and, thus,
the injunction dealt with "a matter lying wholly outside the issues in the suit." Id. at 220.
Finally, in Grupo Mexicano de Desarrollo V. Alliance Bond Fund, 527 U.S. 308 (1999), the
Supreme Court approved of De Beers but distinguished Deckert, holding that a federal court
lacks the authority to issue injunctive relief freezing assets in actions for money damages in
which no lien or equitable interest is claimed. Grupo Mexicano de Desarrollo V. Alliance Bond
Fund, 527 U.S. 308 (1999).
The most thorough analysis of these cases can be found in United States ex rei. Rahman
V.
Oncology Associates P. C., 198 F.3d 489(4th Cir. 1999). There, the Fourth Circuit upheld a
prejUdgment asset-freezing injunction where the plaintiff (the United States) presented facts
Page 11 - OPINION AND ORDER
showing that the defendant health care providers had defrauded federal health care insurance
programs and were transferring assets to protect themselves from liability, and also alleged
claims for both money damages and equitable relief. Rahman, 198 F.3d at 493. In affirming the
injunction to n·eeze assets, the Fourth Circuit agreed with the district court that when "both
money damages and equitable relief are sought ... , the controlling authority is not Grupo
Mexicano but Deckerf . ... " ld. at 492. The Fourth Circuit also condensed the Supreme Court's
jurisprudence into several general principles:
First, where a plaintiff creditor has no lien or equitable interest in the assets of a
defendant debtor, the creditor may not interfere with the debtor's use of his property
before obtaining judgment. A debt claim leads only to a money judgment and does not in
its own right constitute an interest in specific property. Accordingly, a debt claim does
not, before reduction to judgment, authorize prejudgment execution against the debtor's
assets.
On the other hand, when the plaintiff creditor asserts a cognizable claim to specific assets
of the defendant or seeks a remedy involving those assets, a court may in the interim
invoke equity to preserve the status quo pending judgment where the legal remedy might
prove inadequate and the preliminary relief furthers the court's ability to grant the final
relief requested. This nexus between the assets sought to be frozen through an interim
order and the ultimate relief requested in the lawsuit is essential to the authority of a
district court in equity to enter a preliminary injunction freezing assets.
ld. at 496.
The Rahman court also created a two-part inquiry applying those principles, first
analyzing whether the complaint's claims seek cognizeable relief in equity involving specific
assets of the defendant, and second determining whether a preliminary injunction freezing assets
would be a reasonable measure to preserve the status quo in aid of the ultimate equitable relief
claimed. ld. at 497. Numerous district courts have since adopted Rahman's analytical approach.
Page 12 - OPINION AND ORDER
See, e.g., Newby v. Enron C0I1)., 188 F.Supp.2d 684, 696 .. 97 (S.D. Tex. 2002); Fairview
Maching & Tool Co., Inc. v. Oakbrook Int 'I, Inc., 77 r.Supp.2d 199,204 (D. Mass. 1999);
Matrix Partners VIII, LLP v. Natural Resource Recovel)!, Inc., 2009 WL 175132 (E.D. Tex.
2009). Moreover, the Ninth Circuit has indirectly approved of Rahman's approach, even where
equitable relief is not the "true gravamen" of the complaint. See Connecticut General Life Ins.
Co. v. Nell' Images o/Beverly Hills, 321 F.3d 878, 882 & n.4 (9th Cir. 2003). Accordingly, I
apply this framework to analyze whether Lojy's equitable claims are cognizeable and whether
they allege a sufficient nexus to the defendant's assets. If both these inquiries are answered in
the affirmative, this court has the authority to freeze assets to aid in granting the ultimate
equitable relief Lojy seeks.
n.
Lojy's Equitable Counterclaim
The Oregon Supreme Court recognizes quasi-contract as one of two parallel means of
"accomplishing substantial justice by preventing unjust enrichment and forcing restitution to the
plaintiff of something which in equity and good conscience did not belong to the defendant.'"
Derenco v. Bel?j. Franklin Fed. Sal'. and Loan, 281 Or. 533, 558, 577 P.2d 477 (1978). Quasi-
contract is a remedy at law properly used when "the possession of no specific identifiable
property is sought and only a money judgment is requested." Id. Despite being labeled a legal
remedy, the Oregon Supreme Court recognizes that the form of quasi-contract most applicable
The other means is a constructive trust, a remedy at equity which is proper "when there
is some specific property identified as belonging to the plaintiff." Derenco, 281 Or. at 558
(finding "no need to resOlt to a constructive trust" where only a money judgment was requested).
Lojy, however, has not alleged a counterclaim asking the COUlt impose a constructive trust as an
equitable remedy, despite the numerous references in briefing to Lojy's perception that Global
held the initial deposit in "constructive trust" for Lojy.
8
Page 13 - OPINION AND ORDER
here, "money had and received," is actually more akin to an equitable remedy. See Powell1'.
Sheets, 196 Or. 682, 700, 251 P.2d 108 (1952) ("The term 'money had and received' is the
technical designation of a form of declaration in assumpsit, wherein plaintiff declares that
defendant had and received certain money, etc. Although an action at law, an action for money
had and received is equitable ill its nature and is go1'emed by equitable principles. It may, in
general, be maintained whenever one has money in his hands belonging to another, which, in
equity and good conscience, he ought to pay over to that other. Recovery in such case is based on
a promise implied by law or quasi contract and on the equitable principle that one who has been
unjustly enriched at the expense of another is required to make restitution.") (emphasis added).
In particular, where a party uses the language of quasi-contract and also seeks an accounting, the
case sounds in equity, not law. Derenco, 281 Or. at 558.
Here, Lojy's proposed answer asserts one cognizeable counterclaim ill equity involving
the $300,000 deposit that Global retained. Lojy's answer includes a counterclaim for "Unjust
Enrichment" seeking disgorgement of "any gain" which Global and Keith Ward unjustly
obtained. (Memo. in Supp. of Motion to Amend, #17, Ex. A, '1['1[61-63). Lojy also pleads a
separate claim for "Accounting," seeking an accounting of all unjust gains." (Memo. in SUpp. of
Motion to Amend, #17, Ex. A, '1['1[64-66.) Thus, Lojy's claim for unjust enrichment clearly can be
understood as a claim for breach of a quasi-contract, and the inclusion of a request for accounting
suggests that it sounds in equity rather than in law. Moreover, Lojy has pled facts supporting all
the elements of a quasi-contract claim in its proposed amended answer. See Robinowitz 1'. Pozzi,
"The accounting counterclaim is more appropriately viewed in association with Lojy's
unjust enrichment claim, not as a separate claim for relief.
Page 14 - OPINION AND ORDER
127 Or. App. 464, 467, 872 P.2d 993 (Or. App.1994) (elements are: (1) a benefit is conferred; (2)
the recipient is aware that a benefit has been received; and (3) it would be unjust to allow the
recipient to retain the benefit without requiring the recipient to pay for it). Accordingly, Lojy's
claim for unjust enrichment with its associated request for accounting is a cognizeable
counterclaim sounding in equity.
Lojy's equitable counterclaim also alleges a sufficient nexus to the $300,000 deposit that
is the subject of Lojy's proposed asset freeze. Although the unjust enrichment counterclaim does
not specifically reference the deposit, it seeks disgorgement of "any gain ... unjustly obtained,"
which easily encompasses the $300,000 deposit described elsewhere in the proposed amended
answer. Since both the requirements identified by Rahman are present, this court has the
authority to order the injunctive relief requested by Lojy.
It is important to note that Lojy's fraud and conversion counterclaims do not provide
authority for this court to order an asset freeze, since those counterclaims seek damages, not
equitable relief. Oregon law is clear that a plaintiff bringing a fraud claim may choose to pursue
either an equitable or a legal remedy. See Federici v. Lehman, 230 Or. 70, 72-73, 368 P.2d 611
(Or. 1962) (plaintiff "may either rescind the contract and be returned to his former position or he
may affirm the contract and sue for the damages suffered by reason of the fraud"). If the plaintiff
pursues damages through an action at law, the party guilty of the fraud is liable for any damages
that "naturally and proximately" result from the fraud. Selman v. Shirley, 161 Or. 582, 609, 85
P .2d 384 (1938). Here, Lojy asserts precisely this type of fraud claim at law, seeking over
$1,600,000 in money damages for "irreparable harm and loss" suffered as a result of Global and
Page 15 - OPINION AND ORDER
Keith Ward's conduct attributable to loss of its deposit, expenses incurred, consequential
damages, and lost profits. (Memo. in Supp. of Motion to Amend, #17, Ex. A, '1[55.)
Unlike with fraud, a plaintiff alleging conversion has no choice but to pursue damages.
In fact, one of the elements of conversion is the "intentional exercise of dominion or control over
a chattel which so seriously interferes with the right of another to control it that the actor may
justly be required to pay the other the fitll value of the chattel." Mustola v. Toddy, 253 Or. 658,
663-664,456 P.2d 1004 (1969) (quoting Restatement (Second) of Tolis §222A, at 431 (1965)
and adopting that Restatement definition). Thus, the standard remedy for conversion is the
market value of propeliy at the time and place of conversion. Austin v. Vanderbilt, 48 Or. 206,
211, 85 P. 519 (1906); see Black's Law Dictionmy (9th ed. 2009) ("trover" defined as "[a]
common-law action for the recovelY of dc/mages for the conversion of personal property, the
damages generally being measured by the property's value") (emphasis added). Thus, even if it
is cognizeable, Lojy's conversion claim seeks damages, not an equitable remedy.
Accordingly, this court may only grant Lojy's preliminary injunction if its equitable
counterclaim- as opposed to its other counterclaims- satisfies the traditional test for a
preliminmy injunction. See s.E.c. v. ETS Payphones, Inc., 408 F.3d 727,734 (11th Cir. 2005)
("the asset freeze is justified as a means of preserving funds for the equitable remedy"). If a
preliminary injunction is not justified on the basis ofLojy's unjust enrichment counterclaim,
issuing the injunction would contravene the Supreme COUli's clear ruling in Grupo lviexicano
that courts lack authority to grant preliminary equitable assistance in the collection of legal debts.
See Matrix Partners VIII, LLP v. Natural Resource Recovery, Inc., 2009 WL 175132, at*4,
Page 16 - OPINION AND ORDER
(E.D.Tex.2009)(citing Grllpo Mexicano, 527 U.S. at 325).
Test for Preliminary Injunction
III.
Despite that this court has the authority to grant Lojy's motion for preliminary injunction,
Lojy fails to meet the requirements for an injunction to issue on its unjust enrichment
counterclaim. The major obstacle to Lojy's success is the very presence of the LOI, which likely
constitutes an enforceable contract at least concerning the disposition ofLojy's $300,000 initial
deposit.
Oregon courts are clear that there cannot be both a valid legally enforceable contract and
a quasi-contract concerning the same conduct. Ken Hood Canst. Co. v. Pacific Coast Canst.,
Inc., 203 Or.App. 768, 772 126 P.3d 1254 (Or. App. 2006); Prestige Homes Real Estate Co. v.
Hanson, 151 Or. App. 756, 762, 951 P.2d 193 (Or. App. 1997). Thus, although it is proper to
plead contract and quasi-contract claims in the alternative, "the two theories are mutually
exclusive." Id; Kashmir Corp. v. Patterson, 43 Or. App. 45, 48602 P.2d 294 (Or. App. 1979).
Consequently, an admission or judicial determination that a valid enforceable contract exists
precludes recovery under a quasi-contract theory. See Kashmir, 43 Or. App. at 48-49 (where a
contract was pleaded and incorporated in plaintiff's complaint, defendants admitted the contract
in their answer, and the enforceability of the contract was not in dispute, the action became one
in contract and the quasi-contract claim was properly stricken); Hanson, 151 Or. App. at 762
(agreeing with trial court's determination that listing agreement was a valid contract and thus
affilming trial comt's dismissal of plaintiffs qllantllll1l11el'lIit claim.)
Here, the parties still dispute which particular aspects of the LOI constitute an enforceable
Page 17 - OPINION AND ORDER
contract. Further, the court has not yet had occasion to definitely determine what aspects of the
Lor constitute a binding agreement. Nevertheless, the evidence presented by the parties suggests
that the Lor at least constitutes an enforceable contract concerning the disposition of the
$300,000 initial deposit. Although letters of intent are generally assumed to be nonbinding
expressions contemplating the terms ofa future contract, Remnickv. D.P.T1.D.N. Care, Inc., 77
F.3d 309, 315 (9th Cir. 1996), Oregon courts examine the language of the letter of intent to
determine whether any of its provisions are enforceable. Logan D. W Sivers Co., 343 Or. 339,
346-49, 169 P.3d 1255(Or. 2007). For example, in Logan, the Oregon Supreme COUlt found
that, although the letter of intent was not a contract in its entirety, the letter clearly conveyed the
parties' intention to abide by three distinct promises described within it. Id. at 347. Further, the
Court determined that the terms of those promises were sufficiently definite to form a binding
contract. Id.
Similarly, it is likely that the Lor in this case created a binding contract concerning the
treatment of the $300,000 initial deposit. r read the Lor to express three potential dispositions of
the initial deposit upon failure to consummate a lease-purchase agreement: (1) if the failure is
Global's fault, Global returns the entire deposit to Lojy; (2) if the failure is Lojy's fault, Global
retains the entire deposit as liquidated damages; and (3) if neither party is at fault, Global retains
its fees and expenses associated with the failed transaction, returning the remainder of the deposit
to Lojy. Importantly, these Lor terms concern money that had already been given to Global, not
a hypothetical deposit that would occur along with consummation of the lease-purchase
agreement. Moreover, unlike much of the Lor that merely sketches the non-binding terms of a
Page 18 - OPINION AND ORDER
potential future lease-purchase agreement, the parts of the LOI describing the initial deposit laid
out the obligations of the parties if they failed to consummate a later agreement. In essence, the
patiies expressly decided how to handle disposition of the initial deposit in the LOI, in
anticipation that the transaction might fall apart, as indeed occurred. Thus, these terms provide
written evidence of the parties' manifestation of mutual intent to form a contract, at least
concerning disposition of the initial deposit. See Wooton v. Viking Distributing Co., 136 Or.
App. 56, 59, 899 P.2d 1219 (01'.1995) (mutual intent can be demonstrated through writing of
parties).
Moreover, Lojy C.E.O. Galal Barakat's conduct following their creation of the LOI
provides some additional evidence of at least Lojy's assent to contract. See Citibank S.D. iVA. v.
Santoro, 210 Or. App. 344, 349, 150 P3d 429 (2006). On several occasions in April 2010,
Barakat referred to terminating the LOI and requesting refund of the $300,000 deposit,
suggesting that he understood that the parties' failure to consummate the agreement envisioned
by the LOI triggered an obligation to return the deposit. The patiies could potentially present
additional evidence at a later stage indicating that no meeting ofthe minds occurred concerning
the disposition of the initial deposit. The evidence before the court on this motion, however,
signals formation of a contract, and thus, Lojy's unjust enrichment counterclaim will likely be
dismissed.
Lojy also does not satisfy the other three requirements for a preliminary injunction. Lojy
has not presented persuasive evidence that it is likely to suffer irreparable harm in the absence of
injunctive relief. An injunction can only maintain the status quo, and thus can freeze at most the
Page 19 - OPINION AND ORDER
$62,000 that Global currently possesses in liquid assets. The evidence presented by Lojy simply
does not support its argument that "Global's questionable financial histOlY, debts owed, and
misrepresentations" suggest that Global is likely to hide the $62,000 to avoid a potential
judgment. (D.'s Br., #9, at 9.) The bankruptcy filings for Global were discharged over 10 years
ago, and the tax liens pertain to Keith Ward, not Global. 10 Additionally, the balance of equities
does not clearly tip in Lojy's favor. The evidence suggests that the parties failed to consummate
a lease-purchase agreement because they had differing expectations about the amount of the
aircraft's purchase price that Global would finance; Lojy apparently believed that Global should
finance up to the full market value of the aircraft, while Global was apparently prepared to
finance only up to the orderly liquidation value of the aircraft, requiring a bank guarantee for the
difference. Since the LOr explicitly leaves the amount to be financed unspecified, neither party
is paliicularly blameless. Finally, Lojy does not demonstrate that an asset freeze is in the public
interest. In fact, the Supreme Court described an asset-freezing preliminary injunction as the
"nuclear weapon of the law" which "would manifestly be susceptible of the grossest abuse."
Grupo Mexicano, 527 U.S. at 329-330 (internal citations and quotations omitted). In sum, Lojy
has failed to demonstrate the necessity of this extraordinalY remedy.
CONCLUSION
For the foregoing reasons, Lojy's motion for leave to file an amended answer (#16) is
granted and Lojy is ordered to file innnediately the amended answer as proposed. Lojy's motion
This distinction is relevant, since the court has not yet addressed whether Ward's and
Global's conduct warrant piercing ofthe corporate veil.
10
Page 20 - OPINION AND ORDER
for preliminmy injunction (#8) is denied.
Dated this 28th day of April, 2011.
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Honorable Paul Papak
United States Magistrate Judge
Page 21 - OPINION AND ORDER
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