Lemberg Law, LLC et al v. Arrowsmith et al

Filing 25

OPINION. Signed by District Judge John A. Gibney, Jr. on 02/08/2017. (walk, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
Richmond Division

LEMBERG LAW, LLC, et al..

Appellants,
Civil Action No. 3:16-cv-00763-JAG

V.

RICHARD ARROWSMITH,

Liquidating Trustee of the HDL
Liquidating Trust,
Appellee.
OPINION

Preliminary injunctions are extraordinary remedies designed to prevent irreparable harm
from occurring while cases progress through the typical stages of litigation. See Winter v. Nat.

Res. Def. Council, Inc., 555 U.S. 7, 20, 24 (2008). Based on this extraordinary nature, the
Federal Rules of Civil Procedure set forth very specific procedures on how courts must evaluate

and issue preliminary injunctions. In this case, the United States Bankruptcy Court for the
Eastern District of Virginia, Richmond Division (the "Bankruptcy Court"), issued a preliminary

injunction. The Bankruptcy Court, however, did not follow the required rules. Specifically, the
Bankruptcy Court did not make findings as required by Rule 52, and did not describe the
proscribed conduct in reasonable detail as required by Rule 65. In doing so, the Bankruptcy
Court abused its discretion. Accordingly, this Court must vacate the preliminary injunction.
I. BACKGROUND

Health Diagnostic Laboratory ("HDL") filed for bankruptcy in June 2015. In September
2015, the Bankruptcy Court approved a sale of substantially all of HDL's assets, but HDL
retained accounts receivable aged 180 days or more (the "Excluded Receivables"). In May 2016,

the Bankruptcy Court confirmed HDL's liquidation plan, through which its assets passed to

Richard Arrowsmith, the Liquidating Trustee of the HDL Liquidating Trust (the "Liquidating
Trustee").

The Liquidating Trustee hired three outside debt collectors to pursue collection on the

Excluded Receivables.^ Some consumers who received debt collections letters soughthelp from
their healthcare provider, who sent a letter to consumers encouraging them to dispute the debt.
Other consumers hired lawyers, who challenged the collections as violations of the Fair Debt
Collection Practices Act.

On August 3, 2016, the Liquidating Trustee initiated an adversary proceeding against

multiple defendants, including some consumers, their lawyers, and a healthcare provider. The

complaint included seven causes of action, all related to the defendants' attempts to interfere
with collection of the Excluded Receivables. The same day, the Liquidating Trustee filed a
motion for preliminary injunction.

On August 18, 2016, the Bankruptcy Court held a hearing on the preliminary injunction
motion. Afterhearingargument from each side, the Bankruptcy Court grantedthe motion. It did
not make any findings of fact, discuss the legal standard for granting preliminary injunctions, or
state its conclusions (e.g., on which claim the Liquidating Trustees would likely succeed on the
merits). The Bankruptcy Court did, however, instruct the Liquidating Trustee to add language to
the draft order about not infnnging on the defendants' constitutional rights. (See Appellee's
App. 196-97,41:22-42:4.)

' Actually, HDL originally hired the debt collectors, but the Liquidating Trustee continued and
managed these contracts.

^ The healthcare provider is Northwest Health Summit PS, doing business as Women's Health
Connection ("Women's Health"). One consumer, Kristen Wickstrom, hired attorney Kirk
Miller. Twenty^one other consumers (the "Appellant-Consumers") hired Lemberg Law, LLC
("Lemberg Law").

On August 30, 2016, the Bankruptcy Court entered the order granting a preliminary

injunction (the "Preliminary Injunction Order").

In the Preliminary Injunction Order, the

Bankruptcy Court made preliminary findings about its jurisdiction and appropriate notice.

Additionally, the Bankruptcy Court found that (1) "the relief request[ed] in the Motion is in the
best interest of the . . . [Liquidating Trustee], the estate and creditors thereof," (2) "the estate

stands to suffer irreparable harm if it is not granted an order to maintain the status quo ante

pending this Court's ruling on the merits of the Complaint," and (3) "uponthe record herein, and
after due deliberation thereon, good and sufficient cause exists for the granting of the relief as
set forth in the Preliminary Injunction Order. (Appellants' App. 136-37.)

Pertinent to this appeal, the PreliminaryInjunction Order ordered:
THAT the Defendants shall be preliminarily enjoined fi:om taking
any action adverse to the Liquidating Trustee, the Collectors, or any
other professionals or agents acting at the direction of the
Liquidating Trustee to collect or administer the Excluded
Receivables for the benefit of the estate ...

THAT the Defendants shall be preliminarily enjoined from

contacting physicians, groups of physicians, related entities,
patients, or any other persons or entities concerning the Excluded
Receivables...

THAT nothing contained in this Order shall be construed to impair
any of the Defendants' First Amendment, Fifth Amendment, or
other Constitutional rights. In addition, in accordance with the
federal rules of bankruptcy procedure and the local rules of this
Court, each of the Defendants shall be entitled to file pleadings and
motions they deem appropriate in connection with and related to the
relief sought in the Complaint

(Appellants' App. 137-38.) Lemberg Law and the Appellant-Consumers appealed.^

^Miller, Wickstrom, and Women's Health did notjoin in the appeal.
3

II. ANALYSIS

Appellate courts review the grant of a preliminary injunction for abuse of discretion. WV

Ass 'n ofClub Owners tfe Fraternal Servs., Inc. v. Musgrave, 553 F.3d 292, 298 (4th Cir. 2009).
A, Failure to Make Required Findings

The Court vacates the Preliminary Injunction Order because the Bankruptcy Court did
not make the required findings of fact or conclusions of law. The federal rules require a court

granting or denying a preliminary injunction to "find the facts specially and state its conclusions
of law separately." Fed. R. Civ. P. 52(a)(1), (2); Fed. R. Bankr. P. 7052. Courts can make these
findings and conclusion on the record at a hearing or in writing through an opinion or order.
Fed. R. Civ. P. 52(a)(1). These findings "are necessary in order for an appellate court to conduct

meaningfiil appellate review." Greenhill v. Clarke, No. 16-6542, 2016 WL 7414198, at *1 (4th
Cir. Dec. 22, 2016) (citingH & R Block Tax Servs. LLC v. Acevedo-Lopez, 742 F.3d 1074, 1078

(8th Cir. 2014)). Without such findings, appellate courts "are constrained to conclude that the

[lower] court abused its discretion." Id. (vacating the denial of a preliminary injunction where
the district court made no findings of fact).

In this case, the Bankruptcy Court did not make any of the findings required by Rule 52

(as incorporated through Bankruptcy Rule 7052). It did not explain its findings on the record at
the August 18, 2016 hearing, nor did it detail its findings in the Preliminary Injunction Order.
Indeed, the Bankruptcy Court never even referred to the legal factors necessary for granting a

preliminary injunction. Without such findings, the Courtcannot conduct any meaningfiil review,
so must conclude that the Bankruptcy Court abused its discretion. Accordingly, the Court
vacates the Preliminary Injunction Order.

B, Failure to Describe the Acts Restrained in Reasonable Detail

Even if the Bankruptcy Court had made the required findings, the Court would vacate the

Preliminary Injunction Order because it does not describe the acts it seeks to restrain. When a
court decides to issue a preliminary injunction, the order must: "(A) state the reasons why it
issued; (B) state its terms specifically; and (C) describe in reasonable detail—and not by

referring to the complaint or other document—^the act or acts restrained or required." Fed. R.

Civ. P. 65(d)(1); Fed. R. Bankr. P. 7065. This Rule "was designed to prevent uncertainty and

confusion on the part of those faced with injunctive orders, and to avoid the possible founding of
a contempt citation on a decree too vague to be understood." CPC Int'l, Inc. v. SkippyInc., 214

F.3d 456, 459 (4th Cir. 2000) (quoting Schmidt v. Lessard, 414 U.S. 473, 476 (1974))."^ The
specificityrequirement also facilitates appellate review. Id.

Here, the Preliminary Injunction Order effectively says that the defendants cannot take
actions adverse to the efforts to collect the Excluded Receivables, but that they can take adverse

actions if it would implicate the Constitution. The Court does not know what actions this
directive would or would not cover, and finds that an everyday consumer would have trouble
understanding it.

The Liquidating Trustee argues that the Preliminary Injunction Order "was not entered in
a vacuum," but "was supported by a well-developed factual record that identifie[d] the enjoined
conduct." (Appelle's Br. 20.) This argument ignores Federal Rule of Civil Procedure 65(d)(C)
(as incorporated by Bankruptcy Rule 7065), which says that an order granting a preliminary
injunction must state in detail the proscribed acts, "and not by referring to the complaint or other

^ See also CF & I Steel Corp. v. United Mine Workers of Am., 507 F.2d 170, 173 (10th Cir.
1974) ("A decree is vague when the delineation of the proscribed activity lacks particularity, or
when containing only an abstract conclusion of law, not an operative command capable of
enforcement." (internal alteration, quotation marks, and footnotes omitted)).

document." Fed. R. Civ. P. 65(d)(C). Thus, in the alternative, the Court vacates the Preliminary

Injunction Order for failing to describe the proscribed acts in reasonable detail.
III. CONCLUSION

In summary, the Bankruptcy Court abused its discretion when it issued the Preliminary
Injunction Order because it did not follow Rule 52 or Rule 65. Consequently, the Court vacates
the Preliminary Injunction Order.
The Court will enter an appropriate order.

Let the Clerk send a copy of this Opinion to all counsel of record.

Date: February

Richmond, VA

• 2017

John A. Gibney, Jr. /
)
United States District Judge>