Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-4_13-cv-00088/USCOURTS-azd-4_13-cv-00088-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Declaratory Judgment

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

SCOTT and BEVERLY CANDRIAN,

husband and wife, and SCOTT and

BEVERLY CANDRIAN on behalf of

RS INDUSTRIES, INC., an Iowa

Corporation,

Plaintiffs, 

vs.

RS INDUSTRIES, INC., an Iowa

Corporation, PERRY HINTZE,

STANLEY HINTZE, TIM HINTZE,

JEFF HINTZE, TODD HINTZE, GREG

HESTER, and KEVIN CONKLIN,

Defendants. 

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No. CIV 13-088-TUC-CKJ 

ORDER

Pending before the Court is Plaintiffs’ Application for Temporary Restraining Order

with Notice, Preliminary Injunction, Appointment of Receiver, and Request for CourtDirected Mediation (Doc. 7) and the Motion to Dismiss TRO Application (Doc. 13) filed by

Defendant RS Industries, Inc.

Factual and Procedural Background

RS Industries, Inc. ("RS") is the parent company and sole owner of The Ryan Group,

Inc. ("Ryan"), in Davenport, Iowa, and Sun Mechanical Contracting, Inc. ("Sun"), in Tucson,

Arizona. The retirement of the largest RS shareholder, Plaintiff Scott Candrian ("Candrian"),

is scheduled for August 2013. Candrian alleges that, under the agreements between the

shareholders of RS, Candrian's shares are to be purchased by RS and the shares distributed

Case 4:13-cv-00088-CKJ Document 28 Filed 03/08/13 Page 1 of 10
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The Declaration of Conklin states that he is a voting stockholder of RS. Doc. 15-1,

p. 5.

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among the company and the current shareholders. 

Candrian asserts that Senior Shareholder and self-proclaimed RS President Perry

Hintze, and a minor, non-voting shareholder Kevin Conklin (and other defendant

shareholders) are conspiring to circumvent the agreements with Candrian and fabricate

justification for not compensating Candrian his fair share upon retirement, calculated to be

worth approximately $7,000,000.00, and are unilaterally acting to subvert the authority of

the rest of the Board of Directors and individual shareholders to further their own personal

agenda.1

 Candrian alleges that the individually-named Defendants are:

1. Engaging in secret business deals through RS entities without informing

Candrian or the other shareholders.

2. Barring RS Chief Financial Officer and shareholder Tom Peters from his office

at the Ryan headquarters.

3. Interrupting four key shared RS employees' access to the RS network and

accounting system. As a result, the Chief Financial Officer, the Director of Human

Resources, the Director of Administrative Services, and the IT Manager are unable

to perform their duties for RS, Ryan, and Sun. (Candrian also alleges that his access

has been interrupted.)

4. Subverting the authority of the RS IT Manager, Aaron Meyers ("Meyers"),

who takes directions from the board of directors. (Candrian asserts the IT Manager

was threatened with being fired (by Stan Hintze) or having criminal charges brought

against him if he interfered with individually-named Defendants' efforts to control the

server and accounting system (by Hintze and Conklin).)

5. Intimidating Meyers and the Director of Administrative Services, Bonnie Dana

("Dana") to prevent them from accessing the RS accounting system or server, which

access is necessary for Meyers and Dana to perform their work for RS, Ryan, and

Sun. (Candrian alleges that Conklin told Meyers it would be illegal for Meyers to

make any changes to the server without authority from Hintze, and if Meyers did

anything without instructions from Hintze, Conklin would "take it to the next level."

Hintze told Dana that if she tried to access the server, she would be subject to criminal

and civil liability for "unauthorized computer access, misappropriation of trade

secrets, copyright infringement, and/or trespass to computer systems under applicable

federal and state law.")

Candrian alleges that the consequences of these actions include:

1. Without access to both the Chief Financial Officer and the RS accounting

system and server, the Director of Administrative Services, Bonnie Dana, is impotent

to perform crucial aspects of her job including: procuring insurance for RS, Ryan,

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and Sun employees; procuring workers' compensation coverage for each entity; and

obtaining bonding required before the companies can begin projects.

2. Without the Chief Financial Officer in place, and Perry Hintze trying to take

over his authority, the Company's bank, U.S. Bank, has asked for concerted direction

from the RS Board of Directors, including Candrian, because the Defendants' actions

have created confusion and uncertainty.

Candrian also alleges that a regularly-scheduled RS Board meeting was cancelled by Hintze

because of Hintze’s work load and a special meeting of the RS Board of Directors and

Shareholders has been called by Hintze to take place in Iowa on March 11, 2013. "Based on

the agenda for the special meeting, it is believed the meeting, if held, will result in significant

and material changes to the way RS has operated, and will result in the termination of the RS

Chief Financial Officer and an intentional deprivation of the share value Scott Candrian is

due at retirement in August 2013." Appl. for TRO, p. 6. A request by Candrian to postpone

the meeting because of his work load has been denied.

On February 12, 2013, Plaintiffs Scott and Beverly Candrian, as husband and wife,

filed a Complaint (Doc. 1) seeking a Declaratory Judgment and an Accounting from RS. On

March 1, 2013, Plaintiffs Scott and Bevery Candrian, as husband and wife and on behalf of

RS Industries, Inc., filed an Amended Complaint (Doc. 5) seeking a declaratory judgment,

an order for an accounting, the appointment of a receiver, and alleging claims of ultra vires

acts, breach of fiduciary duty, breach of covenant of good faith and fair dealing, and

defamation.

An Application re: for Temporary Restraining Order with Notice, Preliminary

Injunction, Appointment of Receiver, and Request for Court Directed Mediation (Doc. 7) has

been filed by Plaintiffs. Defendant RS has filed a Motion to Dismiss TRO Application (Doc.

13). Evidence and argument were presented to the Court on March 6-7, 2013.

Temporary Restraining Order Standard

Injunctive relief is an equitable remedy. "The basis for injunctive relief in the federal

courts has always been irreparable injury and the inadequacy of legal remedies." Weinberger

v. Romero-Barcelo, 456 U.S. 305, 312, 102 S.Ct. 1798, 1803 (1982). Injunctive relief is not

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automatic: "In each case, a court must balance the competing claims of injury and must

consider the effect on each party of the granting or withholding of the requested relief.

Although particular regard should be given to the public interest . . . a federal judge sitting

as chancellor is not mechanically obligated to grant an injunction for every violation of law."

Amoco Production Co. v. Village of Gambell, Alaska, 480 U.S. 531, 107 S.Ct. 1396, 1402

(1987). The standard for issuing a TRO is the same as that for issuing a preliminary

injunction. See Brown Jordan Int'l, Inc. v. The Mind's Eye Interiors, Inc., 236 F.Supp.2d

1152, 1154 (D.Haw.2007). 

Because a preliminary injunction is an extraordinary remedy, the moving party must

carry its burden of persuasion by a "clear showing." Mazurek v. Armstrong, 520 U.S. 968,

117 S.Ct. 1865 (1997); City of Angoon v. Marsh, 749 F.2d 1413 (9th Cir. 1984). 

To obtain injunctive relief, a moving party must show either "(a) probable success on

the merits combined with the possibility of irreparable injury or (b) that [it] has raised serious

questions going to the merits, and that the balance of hardships tips sharply in [its] favor."

Bernhardt v. Los Angeles County, 339 F.3d 920, 925 (9th Cir.2003). The Ninth Circuit has

explained that "these two alternatives represent ‘extremes of a single continuum,' rather than

two separate tests. Thus, the greater the relative hardship to the moving party, the less

probability of success must be shown." Immigrant Assistant Project of Los Angeles County

Fed'n of Labor (AFLCIO) v. INS, 306 F.3d 842, 873 (9th Cir.2002), citation omitted.

Likelihood of Success

Only a reasonable probability of success, not an overwhelming likelihood, is all that

need be shown for preliminary injunctive relief. Gilder v. PGA Tour, Inc., 936 F.2d 417, 422

(9th Cir. 1991). In this case, Plaintiffs have alleged Defendants are seeking to avoid a

contractual obligation regarding the terms of his retirement. Further, the parties have each

alleged unethical conduct and actions not in the interests of RS, Ryan, and Sun committed

by each opposing side. Resolution of these disputes will necessarily require a review of

business records. Plaintiffs have requested an Accounting, but at this time the Court cannot

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ascertain which claims, if any, will be corroborated by the records. Additionally, the

contradictory claims of each party justifying their actions (e.g., conduct by Candrian

committed with knowledge of Tom Peters, defense claims actions were taken pursuant to an

investigation of Candrian) requires not only credibility determinations but consideration in

light of any supporting documents. Plaintiffs’ claims are bolstered by supporting

declarations. However, during the hearing, counsel for Plaintiffs stated something had been

“brewing” since the end of December. This may support Defendants’ claims that they

recently learned of the misappropriation of funds. The Court also considers that Candrian’s

expenses were documented, Defendants have not been transparent in the efforts to investigate

Candrian, and that Bruce Beach (“Beach”), who has served as an advisor to the advisory

board since 2003 and whose firm has viewed and audited financial statements of RS, testified

that he had no knowledge that Tom Peters had participated in any financial improprieties.

The Court finds that Plaintiffs have shown a likelihood of success of their claims.

As to Plaintiffs’ claims regarding the modification agreement, it also appears there is

a likelihood of success on this claim. Indeed, Beach testified that the difference between the

advisory board and the Board of Directors is not significant. The approval of the

modification plan by the advisory board supports a conclusion that there is a likelihood of

success by Candrian on these claims. Further, actions were taken pursuant to that agreement

(e.g., Candrian testified that he has received benefits from the agreement).

Irreparable Injury

The issuance of a preliminary injunction is only appropriate "when the moving party

has demonstrated a significant threat of irreparable injury, irrespective of the magnitude of

the injury." Simula, Inc. V. Autoliv, Inc., 175 F.3d 716, 725 (9th Cir. 1999). Additionally,

Plaintiff must "demonstrate immediate threatened harm." Caribbean Marine Serv. Co. v.

Baldridge, 844 F.2d 668, 674 (9th Cir. 1988). Moreover, where requested injunctive relief

is based on past wrongs, a plaintiff must show there is a real and immediate threat he or she

will be wronged again. City of Los Angeles v. Lyons, 461 U.S. 95, 102, 103 S.Ct. 1660, 1665

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(1983).

Economic damages are not traditionally considered irreparable because the injury can

later be remedied by a damage award. Cal. Pharmacists Ass'n v. Maxwell Jolly, 563 F.3d

847, 852 (9th Cir.2009), modified on other grounds, quoting Sampson v. Murray, 415 U.S.

61, 90, 94 S.Ct. 937, 39 L.Ed.2d 166 (1974). Although there may be a likelihood of success

by Candrian as to his claims regarding the modification agreement, the Court finds that no

irreparable harm will result from these claims – rather, any injuries related to these claims

can be remedied by a damages award.

Although the Court has determined that Plaintiffs have shown a likelihood of success

as to the misconduct claims, the Court does not find that a significant showing has been

made. Therefore, a sliding scale requires a higher degree of irreparable harm be shown. See

e.g. United States v. Odessa Union Warehouse Co-op, 833 F.2d 172, 174, 175 (9th Cir.

1987). The testimony established that actions of Defendants may affect the businesses (e.g.,

ability to acquire additional contracts, reputation of Candrian, reputation of businesses,

ability to conduct business with other entities including banks). However, this case does not

present a situation where, based on the evidence, the Court can conclude that there is a

substantial danger that laws will be broken if a TRO is not issued. See e.g. Pridgen v.

Andresen, 891 F.Supp. 733 (D.Conn. 1995). Rather, it is just as likely that the failure to issue

injunctive relief could result in lawful conduct as the lawful conduct that may result from the

issuance of a TRO. Indeed, although Plaintiffs have submitted/discussed cases that involve

maintaining the status quo and/or taking steps to stop illegal or unethical conduct, Prudential

Real Estate Affiliates, Inc. PPR Realty, Inc., 204 F.3d 867 (9th Cir. 2000); Shepard v. Patel,

2012 WL 6019036 (D.Ariz. 2012); Haggiag v. Brown, 728 F.Supp. 286 (S.D.N.Y. 1990);

AHI Metnall, L.P. by AHI Kansas, Inc. v. J.C. Nichols Company, 891 F.Supp. 1352

(W.D.Mo. 1995), this case involves allegations of unethical conduct on both sides. 

Nonetheless, because of the irreparable harm that may immediately result from failing

to provide injunctive relief, the Court finds it appropriate to grant limited injunctive relief.

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Balance of Hardships

Plaintiffs argue that if an injunction is not granted, RS is subject to gross

mismanagement and self-dealing by some of the directors without board approval and that

Defendants have no legitimate rights to protect. However, RS argues that Candrian has

misappropriated corporate funds. Defendants, however, had not demonstrated that

maintaining the employment status of Candrian or the duties or access of Sun employees will

in any way harm RS, Sun, or Ryan.

In light of the possibility of harm to Plaintiffs and the businesses if Candrian’s

employment status is modified, the Court finds Plaintiffs have shown that the balance of

hardships tips in favor of a granting a TRO.

Public Interest

Plaintiffs also argue that there is public interest in issuing injunctions to maintain the

status quo for claims of accounting and dissolution of partnerships. Shepard v. Patel, 2012

WL 6019036 at *5. Plaintiffs assert that the injunction would only affect the parties, and

would simply prevent Defendants from violating the RS Articles of Incorporation, bylaws,

and fiduciary duties. See id. (where an injunction's reach is narrow and affects only the

parties, the public interest will be at most a neutral factor in the analysis rather than one that

favors granting or denying the preliminary injunction). Here, the injunctive relief

contemplated by the Court is narrow and will only affect the parties and their affiliates. The

Court finds this factor is neutral.

Conclusion of TRO Analysis

Although Plaintiffs have shown there may be a likelihood of success as to the

contractual claims, they have not shown that irreparable harm will result if a TRO is not

issued as to those claims. However, Plaintiffs have shown that there is a likelihood of

success as to the misconduct claims and that irreparable harm may result if injunctive relief

is not granted. Further, a balancing of the hardships tips in favor of granting a TRO. 

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The Court does not find it appropriate to enjoin Ryan from terminating a employee.

Therefore, the Court is specifically not enjoining Ryan from terminating Peters. However,

the Court also does not find it appropriate to enjoin Plaintiffs or Sun from hiring Peters if

they so choose. 

3

The Court will block its calendar for one day, 10:00 a.m. - 5:00 p.m. If counsel

anticipated the hearing lasting longer than that time, he/she shall so notify the Court’s staff.

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Because actions taken by Defendants may affect the day-to-day operations of RS,

Ryan, and Sun, and may harm Plaintiffs and the businesses, the Court finds limited injunctive

relief to be appropriate. The Court finds it appropriate to permit Defendants to conduct their

business as they determine in the businesses’ best interests at this time. In other words,

Defendants may determine to proceed with the shareholder and/or board of director meetings,

terminate any RS or Ryan employees if within bylaws, and continue to investigate any

financial irregularities.2

 However, the Court will order Defendants to not modify the

employment status of Candrian and will order that Candrian, Sun, and Sun’s employees shall

continue to have the historical access to RS and Ryan systems (including servers, networks,

and information technology) that was permitted prior to the filing of the original Complaint

in this case.

This injunctive relief being issued as a TRO on short notice and with little time to

prepare, the Court will set this matter for further hearing on the request for a preliminary

injunction.3

 It is anticipated that, at that time, not only will Plaintiffs be afforded an

opportunity to present any additional evidence they choose, but Defendants will have an

opportunity to present evidence. At that time, the Court will determine whether to cease,

continue, or expand the injunctive relief. The Court will also schedule the pending motions

for the appointment of a receiver and court-ordered mediation for additional argument. This

will permit the filing of a response and a reply.

If the parties mutually agree to mediation, they shall so notify the Court. In that event,

the Court will continue the hearing on the aforementioned issues pending resolution of the

mediation.

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Setting of a Bond

Plaintiffs request that no bond or a minimal bond be required because there is no cost

to Defendants in ceasing to violate the RS Articles of Incorporation and bylaws. See Conn.

General Life Ins. Co. v. New Images of Beverly Hills, 321 F.3d 878, 882 (9th Cir. 2003) (A

"district court has wide discretion in setting the amount of a bond, and the bond amount may

be zero if there is no evidence the party will suffer damages from the injunction."); see also

Doctor's Assocs., Inc. v. Distajo, 107 F.3d 126, 136 (2d Cir. 1997) (district court did not

abuse discretion by issuing preliminary injunctions without requiring moving party to post

bonds where there was "no proof of likelihood of harm" to the party enjoined); Am. Fed'n &

Mun. Emples., Local 3190 v. Maricopa County Bd., 2007 U.S. Dist. LEXIS 18356, *58-59

(D. Ariz. Mar. 13, 2007) (Because the "purpose of such a bond is to cover any costs or

damages suffered by the [enjoined party] arising from a wrongful injunction," the district

court has discretion to waive the bond requirement where the issuance of a preliminary

injunction will not likely result in damages to the enjoined party).

The Court has determined that it is appropriate to only grant at this time some of the

injunctive relief requested by Plaintiffs. The Court declines to set a bond at this time, but

may revisit this issue with the consideration of the Preliminary Injunction.

Motion to Dismiss TRO Application

Defendant RS requests that the Court dismiss the TRO Application. The Court does

not find dismissal of the application to be appropriate and will deny the request.

Accordingly, IT IS ORDERED:

1. Plaintiffs’ Application for Temporary Restraining Order with Notice,

Preliminary Injunction, Appointment of Receiver, and Request for Court-Directed Mediation

(Doc. 7) is GRANTED IN PART. The Court will issue the Temporary Restraining Order

as a separate Order.

2. Defendants’ Motion to Dismiss TRO Application (Doc. 13) is DENIED.

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3. This matter is set for evidentiary hearing on the Application for Preliminary

Injunction and argument on the requests for an appointment of a receiver and court-ordered

mediation on March 26, 2013, at 10:00 a.m. 

DATED this 7th day of March, 2013.

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