IEMFS Ltd v. Economy Lift Rentals LLC et al

Filing 49

ORDER signed by Judge Rudolph T. Randa on 11/9/2015 DENYING 27 Plaintiff's Motion for Preliminary Injunction. (cc: all counsel) (cb)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
IEFMS, Ltd., d/b/a FLEXX,
Plaintiff,
-vs-

Case No. 15-C-917

ECONOMY LIFT RENTALS, LLC,
SUSAN SUGRUE, MICHAEL SUGRUE,
M&W INDUSTRIAL EQUIPMENT CORP.,
JAMES J. WEBBER, MICHAEL WEBBER, and
JAMES J. WEBBER II,
Defendants.
DECISION AND ORDER
This is an action brought by IEFMS, Ltd., d/b/a/ Flexx, a company
that leases fleets of industrial equipment. Flexx is suing two groups of
defendants: the Economy defendants and the M&W defendants. According
to the complaint, Flexx agreed to lease commercial scissor and boom lifts to
Economy. At Economy’s request, Flexx purchased the lifts from M&W,
which was then supposed to deliver the lifts to Economy. Instead of
delivering the lifts, Flexx alleges that M&W conspired with Economy to
defraud Flexx by “knowingly issuing false invoices and false Certificates of
Acceptance in order to induce Flexx to pay approximately $1.5 million for
lifts that Economy has not turned over to Flexx or even been able to

locate.” Amended Complaint, ¶ 11. In other words, Flexx paid for nonexistent lifts.
Flexx brings a series of claims, including breach of the lease
agreement (Economy), breach of contract (M&W), tortious interference
with contract (M&W), fraud (all defendants), and conspiracy (all
defendants). Flexx also moves for a preliminary injunction. Flexx asks the
Court to freeze the defendants’ assets; restrain and enjoin the defendants
from dissipating the proceeds of the fictional lifts; order the defendants to
turn over records establishing the disposition of proceeds; and direct
Economy to help Flexx repossess any existing lifts. For the reasons that
follow, Flexx’s motion is denied.1
I.

Background
Flexx’s principal place of business is in San Antonio, Texas.

Economy and M&W are Wisconsin companies located in Waukesha.
Flexx’s business relationship with Economy began in February of
2014. At that time, Michael Sugrue, Economy’s general manager,
encouraged Flexx to purchase lifts from M&W because it would reduce
Flexx’s costs of delivery. Declaration of Robert Coffey, Flexx’s Director of
Originations.
1

Oral argument, requested by counsel for M&W, is not necessary.

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The practice for the purchase of lifts was as follows. Michael Sugrue
would call or send an e-mail to Tim D’Anza, Flexx’s Rental Segment
Manager, expressing the need to lease additional lifts. This request was
typically accompanied by a “quote” from M&W presented to Flexx on a
standard M&W invoice form. The M&W quote/invoice matched the
quantity of lifts Economy wanted to lease from Flexx. The invoice was
submitted to Flexx via facsimile or e-mail. Flexx would indicate acceptance
by a phone call between Sugrue and D’Anza. Flexx then prepared a new
Lease Schedule and Certificate of Acceptance for the lifts to be purchased
and leased.
Susan Sugrue, Michael’s wife and the managing member of
Economy,

signed

off

on

each

Lease

Schedule

and

certified

the

corresponding Certificate of Acceptance, representing to Flexx that the lifts
– identified by serial number – had been received and accepted. Susan
Sugrue submitted the signed documents to Flexx via e-mail. Upon receipt
of the signed documents, Flexx would pay the invoice.
In total, M&W submitted 37 invoices to Flexx for the sale of 189 lifts
(including three forklifts), all of which were supposedly delivered to
Economy. Upon receipt of payment, M&W would issue a check to Economy
for the amount of the Invoice, minus a small handling fee. Flexx was not
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aware that the lifts it was purchasing from M&W did not exist or that
M&W was transmitting all or substantially all of the proceeds of its fraud
on Flexx to Economy.
M&W’s President, James J. Webber, explains that M&W has been
doing business with Economy for the better part of a decade. Often,
Economy would sell machinery to M&W, only to buy it back from M&W
weeks or months later if it found a buyer or lessee for the equipment. As
M&W continued working with Economy, the relationship became less
formalized. M&W and Economy would often exchange invoices when
money changed hands, but the transaction was not documented as a
matter of course. See Webber Declaration.
Michael Sugrue told Webber that Flexx was Economy’s financial
partner or financial backer. Webber observed Sugrue painting Flexx on his
machinery, and there were signs outside his business with the Flexx
company name on it.
In July of 2014, Sugrue told Webber that he had machinery on his
property that Flexx would be financing for him, but that the sale needed to
go through a third party. Webber believed that the transactions were
almost identical to many of those that had already occurred – M&W would,
effectively, be buying the machinery from Economy, then reselling the
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machinery to Flexx for a small profit. For these transactions, Flexx would
wire-transfer the funds to M&W, and then M&W would cut a check back to
Sugrue for most of the value of the machinery. Occasionally, M&W would
pay Sugrue in kind, in which case Sugrue would acquire a piece of
equipment rather than receive full payment from M&W. Sugrue
represented to Webber and to M&W employees that the machinery on each
of the invoices with Flexx existed and was located on his property.
For each transaction, Sugrue would handwrite an invoice with the
appropriate billing information and serial numbers, and an M&W
employee would then type it up and tender it back to Sugrue. Neither
Webber nor M&W employees had knowledge of the actual nature of the
relationship between Economy and Flexx, nor did M&W have knowledge
that the machinery on the invoices did not exist. Webber believed that
Flexx was aware of the full details of each transaction.
II.

Analysis
A preliminary injunction is “an extraordinary equitable remedy that

is available only when the movant shows clear need.” Turnell v. CentiMark
Corp., 796 F.3d 656, 661 (7th Cir. 2015). The party seeking a preliminary
injunction must make a threshold showing that (1) absent preliminary
injunctive relief, he will suffer irreparable harm in the interim prior to a
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final resolution; (2) there is no adequate remedy at law; and (3) he has a
reasonable likelihood of success on the merits. Id. at 662 (citing Girl Scouts
of Manitou Council, Inc. v. Girl Scouts of USA, Inc., 549 F.3d 1079, 1086
(7th Cir. 2008).
If these elements are satisfied, the Court proceeds to consider (4) the
irreparable harm the moving party will endure if the preliminary
injunction is wrongfully denied versus the irreparable harm to the
nonmoving party if it is wrongfully granted, and (5) the effects, if any, that
the grant or denial of the preliminary injunction would have on nonparties
– i.e., the “public interest.” Id. “The court weighs the balance of potential
harms on a ‘sliding scale’ against the movant’s likelihood of success: the
more likely he is to win, the less the balance of harms must weigh in his
favor; the less likely he is to win, the more it must weigh in his favor.” Id.
This action was originally brought by Flexx in an effort to repossess
lifts from Economy. In that connection, the Court granted Flexx’s motion
for an order directing Economy to provide records establishing the location
of the leased equipment – approximately 239 boom and scissor lifts. ECF
No. 7. Flexx and Economy then engaged in discussions for the entry of a
stipulated injunction. Thus far, Flexx has recovered only 58 lifts, 49 of
which were sourced from a non-M&W supplier. This means that Economy
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can only account for a handful of the 189 lifts supposedly delivered by
M&W. Indeed, Economy explicitly stipulated to the existence of “reliable
information which suggests that a significant number of the alleged 240
lifts may not exist, but that documents were created to give Plaintiff the
impression that such lifts had been purchased by Plaintiff and delivered to
[Economy].” ECF No. 17, Stipulation as to Entry of Agreed Preliminary
Injunction, ¶ 6. Accordingly, Flexx appears likely to succeed on the merits
of its claims.
Even so, Flexx cannot establish the existence of irreparable harm or
an inadequate remedy at law. Once Flexx discovered the true nature of the
fraud, this became a damages case, not a specific performance, return-ofproperty case. In other words, Flexx can be made whole through an award
of damages at the conclusion of this litigation. Flexx cannot be made whole
by ordering the return of property that does not exist.
Flexx argues that the defendants’ outrageous and fraudulent
conduct demonstrates that they will likely hide, dissipate, or dispose of the
money they fraudulently obtained. This is pure speculation and, in any
event, such could be the case in any action sounding in fraud. All litigation
presents the possibility that the defendant will have less money at the
conclusion of the case than at the outset. This falls far short of establishing
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irreparable harm.
Irreparable harm – harm that cannot be prevented or fully rectified
by the final judgment after trial – occurs if the plaintiff becomes insolvent
or loses its business, is unable to finance the lawsuit, incurs damages that
are very difficult to calculate, or if the defendant becomes insolvent or loses
its business. Roland Mach. Co. v. Dresser Indus. Inc., 749 F.2d 380, 386
(7th Cir. 1984). Dissipating funds is different from becoming insolvent.
Indeed, it makes little sense for the defendants to bankrupt their
businesses because those businesses are the sole sources of income for their
members.
In this respect, the defendants would also prevail at the balancing
stage because Flexx is essentially asking the Court to shut down the
defendants’ businesses. See Webber Declaration, ¶ 25 (“If M&W’s bank
accounts are frozen, we will be unable to pay any of our expenses, and the
company will be forced to lay off our employees and close down”);
Declaration of Michael Sugrue, ¶ 26 (“If Economy is unable to pay its
expenses, Economy will be unable to keep its doors open”). Flexx, on the
other hand, is one of the leading national providers of material handling
equipment, generates between $100 and $500 million in annual revenue,
and employs approximately 500 people. Declaration of Joseph Newbold, Ex.
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5. Flexx would suffer no irreparable harm if the requested injunction is
denied, but the defendants, both of which are small, local, family-owned
businesses, would suffer irreparable damage.
NOW, THEREFORE, BASED ON THE FOREGOING, IT IS
HEREBY ORDERED THAT Flexx’s motion for a preliminary injunction
[ECF No. 27] is DENIED.
Dated at Milwaukee, Wisconsin, this 9th day of November, 2015.
BY THE COURT:
__________________________
HON. RUDOLPH T. RANDA
U.S. District Judge

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