NORTH AMERICAN COMMUNICATIONS, INC. v. HERMAN

Filing 52

MEMORANDUM OPINION AND ORDER denying 37 Motion for Preliminary Injunction. Accordingly, the Preliminary Injunction Hearing currently scheduled for 3/14/2018, at 1:30 p.m. is CANCELLED. Additionally, the Motion to Expedite Discovery for Purposes of Motion for Preliminary Injunction Relief in the Form of a Constructive Trust (ECF No. 39 ) is denied as moot, and as more fully stated in said Memorandum Opinion and Order. Signed by Judge Kim R. Gibson on 3/8/2018. (dlg)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF PENNSYLVANIA
NORTH AMERICAN
COMMUNICATIONS, INC.,

)

)

CIVIL ACTION NO. 3:17-157

)

Plaintiff,

)

) JUDGE KIM R. GIBSON

v.

)
)

MICHAEL HERMAN,

)

)
)

Defendant and
Counterclaim
Plaintiff,

)

)
)
)

v.

)

)

NORTH AMERICAN
COMMUNICATIONS, INC., ROBERT
HERMAN, and NICHOLAS ROBINSON,

)

)
)
)

Counterclaim
Defendants.

)
)

MEMORANDUM OPINION
I.

Introduction
Pending before the Court are Defendant/Counterclaim Plaintiff Michael Herman's

Motion for Preliminary Injunctive Relief in the Form of a Temporary Constructive Trust (ECF
No. 37) and Motion to Expedite Discovery for Purposes of Motion for Preliminary Injunctive
Relief in the Form of a Constructive Trust (ECF No. 39). The motions have been fully briefed (see
ECF Nos. 38, 43, 44, 50, 51) and are ripe for disposition. For the reasons that follow, the Court
will deny both motions.

II.

Background
This case arises from the Retirement Agreement that Michael Herman executed with

Defendant North American Communications, Inc. ("NAC") in June of 2013, which provided
Michael Herman with a retirement benefit of $130,000 per month for ten years. (Answer to
Amended Complaint, ECF No. 35 at 13.)
NAC filed suit in this Court seeking a declaratory judgment that (1) Michael Herman
violated the Retirement Agreement's non-compete and non-solicitation clauses 1 and that (2)
because Michael Herman breached the Retirement Agreement's non-compete and non-

This Court previously summarized the facts alleged in NAC's Amended Complaint against Michael
Herman as follows:
1

In 2016, Herman and two other partners founded !FM.US, LLC ("IFM"), a Delaware
corporation with its principal place of business in New Jersey. ([ECF No. 12] at 'JI 26.) IFM
is a direct mail and fulfillment company that "competes with NAC." (Id. at 'lI 25.)
Herman serves as IFM's CEO. (Id. at 'JI 30.) Herman invested $15,000 cash in IFM to
finance IFM's purchase of a printer and to cover IFM's payroll expenses. (Id.) Herman
also represented IFM in visits to Fry Communications on at least three occasions in 2016
and conducted business on behalf of IFM using an IFM email account. (Id.)
Herman "utilized the services of his former secretary at NAC, Susan Bender, in
connection with his participation in IFM." (Id. at 'JI 32.) At Herman's request, Bender-a
NAC employee-corresponded with IFM's counsel, submitted an invoice to IFM for
Herman's travel expenses incurred during his business trips to Fry Communications, and
transferred Herman's $15,000 investment to IFM's bank account. (Id. at 'lI 33.) ...
On February 9, 2017, Herman emailed Ms. Bender and offered her a job at IFM. (Id. at
37.) Herman followed up his email with a telephone call. (Id. at 'lI 40.) ...

'lI

Herman successfully persuaded his son, Michael R. Herman, to resign from NAC and
work for Herman at IFM. (Id. at 'lI'lI 42-48.) ...
On April 6, 2017, Michael resigned from IFM, effective April 13, 2017. (Id. at 'JI 47.) IFM
subsequently hired Michael who, by May 2017, conducted business on IFM's behalf
using an IFM email account. (Id. at 'JI 49.)

N. Am. Commc'ns, Inc. v. Herman, No. CV 3:17-157, 2018 WL 581069 at *2 (W.D. Pa. Jan. 25, 2018).
2

solicitation clauses, NAC is released from its payment obligations to Michael Herman under the
Retirement Agreement. (See Amended Complaint, ECF No. 12 at 1.)
Michael Herman counterclaimed against NAC, Robert Herman (Michael Herman's son
and the current president of NAC), and Nicholas Robinson (NAC's Chief Executive Officer),
asserting the following claims: (1) breach of contract against NAC; (2) alternatively, quantum
meruit/unjust enrichment against NAC; (3) alternatively, promissory estoppel against NAC; (4)
fraud in the inducement against NAC, Robert Herman, and Nicholas Robinson; (5) negligent
misrepresentation against NAC, Robert Herman, and Nicholas Robinson; (6) fraud against
NAC, Robert Herman, and Nicholas Robinson; (7) fraudulent and voidable transfer against
NAC, Robert Herman, and Nicholas Robinson; (8) conspiracy against Robert Herman and
Nicholas Robinson; (9) unlawful, unfair and fraudulent business practice under the California
Business and Professions Code against NAC, Robert Herman, and Nicholas Robinson; and (10)
declaratory judgment. (Counterclaims, ECF No. 35.)
Shortly after filing his counterclaims, Michael Herman filed a Motion for Preliminary
Injunctive Relief in the Form of a Temporary Constructive Trust (ECF No. 37). Michael Herman
seeks preliminary injunctive relief in the form of a constructive trust that will last for the
duration of this litigation and consist of (1) between $1,600,000 and $3,600,000 (to be determined
by the Court), paid for by Robert Herman and Nicholas Robinson, to disgorge them of monies
they allegedly inappropriately paid themselves by inflating their salaries at NAC starting in
2014, which prevented NAC from honoring its contractual obligations to Michael Herman
under the Retirement Agreement; (2) $5,500,000 in past due amounts owed to Michael Herman

3

under the Retirement Agreement, paid by NAC; and (3) $130,000 per month for the pendency of
the litigation that NAC owes Michael Herman pursuant to the Retirement Agreement. (See id. at
1-2.) Michael Herman contends that if the Court fails to impose a constructive trust, Robert
Herman and Nicholas Robinson will dissipate NAC's assets in an attempt to become judgment
proof and evade NAC's obligation to compensate Michael Herman for the injuries he alleges in
his counterclaims. (ECF No. 37 at 5.)
The Court scheduled a date for a preliminary injunction hearing and set a briefing
schedule. After reviewing the parties' submissions, the Court finds that a hearing is
unnecessary and would waste valuable judicial resources because Michael Herman cannot
satisfy the high bar for obtaining a preliminary injunction.
III.

Legal Standard
"Federal Rule of Civil Procedure 65(a) allows a court to issue a preliminary injunction."

Lookout Windpower Holding Co., LLC v. Edison Mission Energy, No. 3:2009-CV-104, 2010 WL
3292690, at *2 (W.D. Pa. Aug. 19, 2010) (Gibson, J.).
"[T]he grant of injunctive relief is an 'extraordinary remedy which should be granted
only in limited circumstances."' Brightwell v. Lehman, No. CIV A 03-205J, 2007 WL 543047, at *1
(W.D. Pa. Feb. 16, 2007) (Gibson, J.) (quoting American Telephone & Telegraph Co. v. Winback and

Conserve Program, Inc., 42 F.3d 1421, 1426-27 (3d Cir. 1994)).
"In determining whether to grant a preliminary injunction, a court must consider
whether the party seeking the injunction has satisfied four factors: '(1) a likelihood of success on
the merits; (2) he or she will suffer irreparable harm if the injunction is denied; (3) granting

4

relief will not result in even greater harm to the nonmoving party; and (4) the public interest
favors such relief."' Bimbo Bakeries USA, Inc. v. Botticella, 613 F.3d 102, 109 (3d Cir. 2010)
(quoting Miller v. Mitchell, 598 F.3d 139, 145 (3d Cir. 2010)).
"The Third Circuit has further explained that '[w]hile these factors structure the inquiry,
no one aspect will necessarily determine its outcome. Rather, proper judgment entails a
'delicate balancing' of all elements."' Lookout Windpower Holding Co., 2010 WL 3292690, at *2
(quoting Constructors Ass'n of Western Pa. v. Kreps, 573 F.2d 811, 815 (3d Cir. 1978)).

IV.

Discussion
As explained below, after examining the relevant factors and weighing the competing

interests, the Court finds that Michael Herman failed to satisfy the high bar of demonstrating
that he is entitled to preliminary injunctive relief.2

Plaintiff argues that the Supreme Court decision in Grupo Mexicano de Desarrollo S.A. v. Alliance Bond
Fund, Inc., 506 U.S. 308 (1999) prohibits this Court from granting a preliminary injunction. This Court
disagrees. In Grupo Mexicano, the Supreme Court held that a federal court lacks the power to issue an
injunction that freezes assets in an action for damages when the plaintiff does not claim any equitable
interest. Id. at 310 ("This case presents the question whether, in an action for money damages,_ a United
States District Court has the power to issue a preliminary injunction preventing the defendant from
transferring assets in which no lien or equitable interest is claimed.") Grupo Mexicano does not apply here
because Michael Herman seeks both legal and equitable relief from this Court. See, e.g., In re Brockway
Pressed Metals, Inc., 363 B.R. 431, 453 (Bankr. W.D. Pa. 2007) (internal citations omitted) (emphasis added)
("Under both Pennsylvania and federal law, a constructive trust is not a real trust but rather an equitable
remedy utilized to avoid unjust enrichment."); In re Kamand Constr., Inc., 298 B.R. 251, 254 (Bankr. M.D. Pa.
2003) ("constructive trusts arise as an equitable remedy" under Pennsylvania law). Because Michael
Herman seeks an equitable remedy and Grupo Mexicano does not apply, the Court will analyze the merits
of Michael Herman's Motion for Preliminary Injunctive Relief in the Form of a Constructive Trust. See
Berger v. Weinstein, No. CIV. A. 07-994, 2008 WL 191172, at *10 (E.D. Pa. Jan. 23, 2008) (holding that Grupo
Mexicano did not apply when plaintiff "sought to invoke both the legal and equitable powers of this
Court.")
5
2

1.

Likelihood of Success on the Merits

Michael Herman argues that he is likely to succeed on the merits because the evidence
he presented via affidavits 3 demonstrates that Robert Herman and Nicholas Robinson unjustly
enriched themselves and committed fraud due to their overcompensating themselves "$4.4
million dollars between 2014-2016 while NAC has paid $0 to [Michael] Herman under the
Retirement Agreement .... " (ECF No. 38 at 11) In response, the Third-Party Defendants assert
that Michael Herman's Third-Party Complaint fails to assert a plausible claim for relief because
it merely asserts that NAC overpaid Robert Herman and Nicholas Robinson. (ECF No. 43 at 1213.) The Third-Party Defendants further contend that Michael Herman failed to establish
likelihood of success on the merits because he failed to state the elements for any of his
counterclaims. (Id. at 13.)
The Court finds that this factor weighs against granting a stay. Michael Herman did not
analyze the elements of any of his ten counterclaims against the Third-Party Defendants. (See,

generally, ECF No. 38.) In fact, the argument section of Michael Herman's brief in support of his
motion for preliminary injunctive relief fails to even address the majority of his counterclaims,
much less demonstrate that he is likely to succeed on the merits of those claims. (See id. at 1012.) Michael Herman's allegation that Robert Herman and Nicholas Robinson paid themselves
salaries in excess of the industry standard does not persuade this Court that he is likely to

In support of his Motion for Preliminary Injunctive Relief in the Form of a Constructive Trust, Michael
Herman filed affidavits from himself (ECF No. 37-1) and his business partner Manny Ortiz (ECF No. 372). Ortiz testifies that Robert Herman and Nicholas Robinson paid themselves salaries of $800,000 and
$600,000 per year, respectively, despite the fact that the industry standard for similar positions is
approximately $200,000 to $250,000 per year. (Id. at 2.)
6
3

prevail on his counterclaims. Because Michael Herman failed to satisfy his burden, this factor
weighs against granting a preliminary injunction.
2.

Irreparable Harm

Herman asserts that he will suffer irreparable harm if the Court denies his motion for a
preliminary junction because Robert Herman and Nicholas Robinson will dissipate NAC' s
funds, rendering NAC unable to satisfy a judgment that Michael Herman may obtain against it.

(Id. at 12-13.) In response, the Third-Party Defendants argue that Michael Herman cannot show
irreparable harm because money damages could adequately compensate him for the injuries he
alleges. (ECF No. 43 at 13-15.)
As the Third Circuit has stated, "[i]n order to demonstrate irreparable harm the plaintiff
must demonstrate potential harm which cannot be redressed by a legal or an equitable remedy
following a trial. The preliminary injunction must be the only way of protecting the plaintiff
from harm." Instant Air Freight Co. v. C.F. Air Freight, Inc., 882 F.2d 797, 801 (3d Cir. 1989) (citing

Weinberger v. Romero-Barcelo, 456 U.S. 305, 312 (1982)); Minard Run Oil Co. v. U.S. Forest Serv.,
670 F.3d 236, 255 (3d Cir. 2011) (internal quotation marks omitted) (quoting Frank's GMC Truck

Ctr., Inc. v. GMC, 847 F.2d 100, 102 (3d Cir. 1988) ("a purely economic injury, compensable in
money, cannot satisfy the irreparable injury requirement."); see Hadeed v. Advanced Vascular Res.

of Johnstown, LLC, No. 3:15-CV-22, 2016 WL 7176658, at *3 (W.D. Pa. Dec. 8, 2016) (Gibson, J.)
(citing Minard Run, 670 F.3d at 255) ("In the absence of exceptional circumstances, economic loss
does not qualify as irreparable harm.")

7

Furthermore, "[e]stablishing a risk of irreparable harm is not enough. A plaintiff has the
burden of proving a 'clear showing of immediate irreparable injury."' Hohe v. Casey, 868 F.2d 69,
72 (3d Cir. 1989) (quoting ECRI v. McGraw-Hill, Inc., 809 F.2d 223, 226 (3d Cir. 1987)).
Michael Herman failed to establish that he will suffer irreparable harm if this Court
denies his motion for a preliminary injunction. Michael Herman's counterclaims arise out of his
central allegation that the Third-Party Defendants improperly failed to honor his Retirement
Agreement. (See, generally, ECF No. 35.) If Michael Herman prevails on his counterclaims,
money damages will adequately compensate him for his injuries. For example, if a finder of fact
determines that the Third-Party Defendants breached the Retirement Agreement, it could order
the Third-Party Defendants to compensate Michael Herman by awarding him expectation
damages. 4 Therefore, Michael Herman has failed to convincingly explain why this remedy
would be inadequate.
Moreover, Michael Herman has not made a "clear showing of immediate irreparable
injury." In fact, he concedes the speculative nature of the alleged harm by equivocally
prognosticating that "the harm ... may well be irreparable because the funds may be dissipated
by NAC, Nick Robinson, and/or Rob Herman." (ECF No. 38 at 13.) Michael Herman's
conjectures of potential harm fail to rise to the level of "immediate irreparable injury" required

See, e.g., Crown Coal & Coke Co. v. Powhatan Mid-Vol Coal Sales, L.L.C., 929 F. Supp. 2d 460, 471 (W.D. Pa.
2013) (Cercone, J.) (noting that under Pennsylvania law, "expectation damages are the preferred
approach [in breach of contract cases] because they place the injured party in the position that would
have resulted from receiving the benefit of the bargain.")
4

8

for the Court to grant the "extraordinary remedy" of a preliminary injunction. See Lehman, 2007
WL 543047, at *l.

3.

Harm to the Non-Moving Party and the Public Interest

Herman contends that the harm to the Third-Party Defendants is minimal and that
granting a preliminary injunction would serve the public interest because a constructive trust
would merely cement the status quo "as it would have been in 2014" before Robert Herman and
Nick Robinson orchestrated their scheme to drain funds from NAC by inflating their salaries.
(ECF No. 38 at 14.) In response, the Third-Party Defendants contend that granting a preliminary
injunction would "cause unrecoverable harm to NAC" and violate the public interest because it
would likely "render the company and its owners insolvent with no option but to terminate all
employees and cease all operations." (ECF No. 43 at 15.)
The Court finds that the harm that the Third-Party Defendants may suffer if the Court
were to grant the preliminary injunction is greater than any benefit that Michael Herman would
likely receive. Specifically, the Court agrees with NAC that forcing the company out of business
would represent a far greater harm to NAC than the benefit that an injunction would bring to
Michael Herman. The Court further finds that granting a preliminary injunction would likely
frustrate the public interest because NAC would be forced to close its doors and leave its
employees unemployed. Accordingly, these factors strongly weigh towards denying
preliminary injunctive relief.

9

V.

Conclusion
After weighing the relevant factors and considering the competing interests, the Court

finds that all four factors weigh against granting the preliminary injunction. Accordingly, the
Court finds that Michael Herman failed to satisfy his heavy burden to demonstrate that the
circumstances of this case warrant granting a preliminary injunction.
An appropriate order follows.

10

IN THE UNITED STA TES DISTRICT COURT FOR THE
WESTERN DISTRICT OF PENNSYLVANIA
NORTH AMERICAN
COMMUNICATIONS, INC.,

Plaintiff,

)

)

CIVIL ACTION NO. 3:17-157

)

) JUDGE KIM R. GIBSON

v.

)
)

MICHAEL HERMAN,

)

)
)

Defendant.

)

ORDER
NOW, this 8th day of March, 2018, upon consideration of Michael Herman's Motion for

Preliminary Injunctive Relief in the Form of a Temporary Constructive Trust (ECF No. 37) and
Motion to Expedite Discovery for Purposes of Motion for Preliminary Injunctive Relief in the
Form of a Constructive Trust (ECF No. 39), and for the reasons set forth in the accompanying
Memorandum Opinion, it is HEREBY ORDERED as follows:
1. The Motion for Preliminary Injunctive Relief in the Form of a Temporary

Constructive Trust (ECF No. 37) is denied. Accordingly, the Preliminary Injunction
Hearing currently scheduled for March 14, 2018 at 1:30 p.m. is cancelled.
2. Additionally, the Motion to Expedite Discovery for Purposes of Motion for
Preliminary Injunctive Relief in the Form of a Constructive Trust (ECF No. 39) is

denied as moot.

BY THE COURT:

~~~

KIM R. GIBSON
UNITED STATES DISTRICT JUDGE