Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_07-cv-01897/USCOURTS-casd-3_07-cv-01897-0/pdf.json

Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 18:1961 Racketeering (RICO) Act

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07cv1897

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

PACIFIC ROLLFORMING, LLC,

Plaintiff,

v.

TRAKLOC INTERNATIONAL, LLC, et

al.

Defendants.

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Civil No. 07cv1897-L(JMA)

ORDER (1) GRANTING

PLAINTIFF’S EX PARTE

APPLICATION FOR A

TEMPORARY RESTRAINING

ORDER; (2) GRANTING

PLAINTIFF’S REQUEST FOR AN

ORDER SHORTENING TIME; AND

(3) SETTING HEARING DATE AND

BRIEFING SCHEDULE ON

PLAINTIFF’S MOTION FOR A

PRELIMINARY INJUNCTION

Plaintiff Pacific Rollforming, LLC dba Trakloc Pacific (“Pacific”), filed a complaint for

breach of contract, fraud, breach of implied covenant of good faith and fair dealing, defamation,

interference with prospective business advantage and violation of the Racketeer Influenced and

Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq. The dispute arises primarily out

of a Master Area License Agreement (“License Agreement”) whereby Defendant Trakloc

International, LLC (“TLI”) granted Pacific a license to manufacture and market a certain

proprietary drywall and stud framing system (“Trakloc”). Defendant Trakloc North America

(“TLNA”), allegedly TLI’s successor-in-interest, issued a notice of termination of Pacific’s

License Agreement and allegedly interfered with Pacific’s business in Nevada. On October 30,

2007, prompted by the alleged interference, Pacific filed an ex parte motion for a temporary

Case 3:07-cv-01897-IEG-MDD Document 16 Filed 11/07/07 Page 1 of 8
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restraining order (“TRO”), motion for a preliminary injunction and a request for an order

shortening time. Pacific argues a TRO is required because TLNA’s unlawful conduct is

threatening to put Pacific out of business. Defendants TLNA and its President David Jablow

(collectively “TLNA”) opposed Pacific’s motions. They argue they are not interfering with

Pacific’s sales in Nevada because their interests are aligned with Pacific’s. For the reasons

which follow, Pacific’s ex parte application for a TRO is GRANTED.

Pursuant to 28 U.S.C. § 1331, the court has subject matter jurisdiction over the action

because it arises under RICO, a federal statute.

The purpose of preliminary injunctive relief, including a temporary restraining order, “is

to preserve the status quo pending a determination of the action on the merits.” Chalk v. U.S.

Dist. Ct. (Orange County Superintendent of Sch.), 840 F.2d 701, 704 (9th Cir. 1988). “The

status quo ante litem refers not simply to any situation before the filing of a lawsuit, but instead

to the last uncontested status which preceded the pending controversy.” GoTo.com, Inc. v. The

Walt Disney Co., 202 F.3d 1199, 1210 (9th Cir. 2000). A party seeking preliminary injunctive

relief, including a temporary restraining order, under Rule 65 must show either (1) a

combination of probable success on the merits and the possibility of irreparable harm, or (2) that

serious questions going to the merits are raised and the balance of hardships tips sharply in the

moving party's favor. Sun Microsystems, Inc. v. Microsoft Corp., 188 F.3d 1115, 1119 (9th Cir.

1999). “These two formulations represent two points on a sliding scale in which the required

degree of irreparable harm increases as the probability of success decreases.” Roe v. Anderson,

134 F.3d 1400, 1402 (9th Cir. 1998). 

It is undisputed that Pacific entered into an exclusive License Agreement with TLI to

manufacture, distribute and sell the proprietary Trakloc system in several states, including

Nevada. TLNA maintains it acquired TLI’s interest in the License Agreement in July 2007. 

Pacific argues that on September 12, 2007, TLNA wrongfully issued a thirty-day notice of

termination of the License Agreement. In addition, TLNA, together with Defendants Bert Tabor

(“Tabor”), Thomas Horst (“Horst”), Southeastern Metals, Inc., and its President Gary Nelson, Jr.

(“Nelson”), contacted Pacific’s Trakloc customers and prospective customers in Las Vegas,

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1 The declarations filed in support of TLNA’s opposition were themselves filled

with hearsay.

2 Moreover, it also appears that some of the alleged non-monetary grounds for

termination were in fact TLNA’s defaults under the License Agreement rather than Pacific’s. 

For example, TLNA maintained Pacific failed to obtain ICC certification. Aside from the fact

that Pacific submitted evidence that it had the requisite certification (see Phillips Decl. Exh. 3,

5), the duty to obtain the certification was the licensor’s not licensee’s (License Agreement ¶

16.5). 

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Nevada, to solicit business from them by falsely representing that Pacific’s Trakloc products

were not ICC certified and that Pacific was no longer a Trakloc licensee. 

In the opposition, TLNA initially maintains that the court should disregard much of

Pacific’s evidence as hearsay. In the TRO context, “[t]he trial court may give even inadmissible

evidence some weight, when to do so serves the purpose of preventing irreparable harm before

trial.” Flynt Distributing Co., Inc. v. Harvey, 734 F.2d 1389, 1394 (9th Cir. 1984). 

Accordingly, the court gave both sides’ hearsay1

 some weight for purposes of considering

Pacific’s application for a TRO.

TLNA also maintains that its efforts in Las Vegas, Nevada are not intended to damage

Pacific’s business under the License Agreement, but only to help Pacific since TLNA’s and

Pacific’s interests are aligned. This argument is not supported by the declarations filed by

TLNA or by the copious correspondence between TLNA and Pacific in the late summer and

early fall 2007. 

In the notice of termination letter, TLNA alleged Pacific was in monetary and nonmonetary default under the License Agreement. Although TLNA acknowledged the existence of

an elaborate provision governing license termination by licensor, it expressly refused to follow

it. (Phillips Decl. Exh. 1; First Am. Compl. Exh. 1 (License Agreement) ¶ 20.2.) Accordingly,

TLNA’s 30-day notice of termination appears to have been in violation of the express terms of

the License Agreement.2

 

Even before the expiration of the 30-day cure period, TLNA stepped up its efforts to

interfere with Pacific’s performance under the License Agreement and discredit it in its

exclusive license territory. TLNA had its counsel write to Pacific’s counsel to demand Pacific

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3 On October 12, 2007, TLNA informed all licensees “that they are prohibited by

the terms of their respective license agreements from marketing, selling or distributing

TRAKLOC products outside their respective territories. Additionally, any consents which

TLNA may have given to permit a licensee to market, sell or distribute TRAKLOC products

outside of that licensee’s territory are hereby revoked.” (Phillips Decl. Exh. 8.) The effect of

this letter was to terminate Pacific’s supply of the part it was ordering from Trakloc MidAmerica. Furthermore, TLNA’s instruction to its licensees in this regard appears to have been in

violation of the License Agreement. (See License Agreement ¶¶ 2.1, 7.5, 8.6, 12.5; see also

Darmody Decl. ¶ 3.)

4 TLNA also argues that lack of ICC certification on Pacific’s Trakloc products

raises a public safety issue and should weigh against granting a TRO. This argument is

unsupported by evidence, admissible or inadmissible. Moreover, the duty under the License

Agreement to obtain the certification rests with TLNA as the licensor. (License Agreement ¶

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cease communicating with TLNA regarding operational issues under the License Agreement. 

(Phillips Decl. Exh. 2.) TLNA threatened Pacific with a lawsuit it if appeared at the Metalcon

International trade show in Las Vegas from October 3 though 5, where Pacific was to have a

Trakloc booth. (Phillips Decl. Exh. 4 & 5.) TLNA wrote to another Trakloc licensee, Trakloc

Mid-America, to inform them Pacific was in default and that as of October 12, 2007, they may

be prohibited from supplying Pacific with the a certain slotted TSE part Pacific was using in

manufacturing the Trakloc system.3

 (See Samide Decl. Exh. 2.) TLNA’s declarations

demonstrate that TLNA together with Nelson, Tabor and Horst, came to Las Vegas to meet with

Pacific’s existing and prospective customers and solicited their business. This was in itself in

violation of the License Agreement, which prohibits licensor interference with licensees’

business in their exclusive territories and prohibits the licensor from enabling third parties, such

as Southeastern Metals, Inc., Nelson, Tabor and Horst, to market Trakloc in another licensee’s

exclusive territory. (See License Agreement ¶¶ 4.2 - 4.4.) 

TLNA claims it is not interfering with Pacific’s customer relationships, but merely

assisting Pacific’s customers who were dissatisfied with Pacific’s service. The default provision

of the License Agreement provides a remedy for this situation. When the licensee is in default

so as to fail to generate sufficient sales to pay minimum royalties, as TLNA claims Pacific is, the

licensor’s remedy is to evaluate the licensee’s operations and make recommendations to assist

the licensee for at least one year in improving its sales in the territory. (Id. ¶ 20.2.) TLNA

expressly refused to follow this provision.4

 Based on the foregoing, Pacific has shown a strong

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16.5.) On the other hand, Pacific presented evidence, albeit probably inadmissible, that it had

obtained the requisite certification. (See Phillips Exh. 5.) 

5 In addition, both parties allude to, but do not directly address, another issue going

directly to the merits. It appears the issue whether TLNA in fact acquired the licensor interest

under the License Agreement is presently the subject of litigation. (See TLNA Memo. of P. &

A. at 2; Phillips Decl. Exh. 9.) If TLNA is not the licensor, then Pacific’s probability of success

on the merits against TLNA is greater.

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probability of success on the merits.5 

The court next considers whether Pacific has also made the requisite showing of

possibility of irreparable harm. See Sun Microsystems, 188 F.3d at 1119. “[E]conomic injury

alone does not support a finding of irreparable harm, because such injury can be remedied by a

damage award. . . . However, . . . intangible injuries such as damage to . . . goodwill, qualify as

irreparable harm.” Rent-a-Center, Inc. v. Canyon Television and Appliance Rental, Inc., 944

F.2d 597, 603 (9th Cir. 1991) (damage to advertising efforts and goodwill held irreparable

harm). The factors supporting irreparable harm determination include inability to calculate

damages, harm to goodwill, diminishment of competitive positions in marketplace, and lost

opportunities to distribute unique products. Dominion Video Satellite, Inc. v. Echostar Satellite

Corp., 356 F.3d 1256, 1263 (9th Cir. 2004). Pacific has sustained damage to its marketing

efforts, diminishment in its competitive position in the Las Vegas market, loss of sale

opportunities in its exclusive territory, and damage to the goodwill it had invested in and created

with its customers in Las Vegas. Such damage would be difficult to quantify and therefore

constitutes possible irreparable harm. See Rent-a-Center, 944 F.2d at 603. 

TLNA maintains that granting Pacific’s TRO application will visit irreparable harm on

TLNA because it will damage its marketing and customer relations efforts it made in Las Vegas

over the past few months. Because these marketing and customer relations efforts appear to

constitute interference with Pacific’s business in Nevada, this argument lacks merit. TLNA as

licensor is prohibited from directly or indirectly marketing Trakloc system in a licensee’s

exclusive territory or assisting any third party in such endeavors. (See License Agreement ¶¶ 4.2

-4.4.) 

/ / / / /

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Having shown a strong likelihood of success on the merits and possibility of irreparable

harm, Pacific is entitled to a TRO. The parties disagree on the amount of the bond Pacific

should be required to post. While Pacific proposes a $25,000 bond, TLNA claims that no less

than $ 2.2 million on a monthly basis will do. 

District courts have wide discretion in setting the amount of the bond. Walczak v. EPL

Prolong, Inc., 198 F.3d 725, 733 (9th Cir. 1999). The bond amount may be set at zero if there is

no evidence the party will suffer damages from the injunction. Gorbach v. Reno, 219 F.3d 1087,

1092 (9th Cir. 2000). Furthermore, in the Ninth Circuit the language of Rule 65(c) does not

“absolve[] the party affected by the injunction from its obligation of presenting evidence that a

bond is needed, so that the district court is afforded an opportunity to exercise its discretion in

setting the amount of the bond.” Connecticut Gen. Life Ins. Co. v. New Images of Beverly Hills,

321 F.3d 878, 883 (9th Cir. 2003). 

It is unclear how TLNA calculated the bond amount. It argues that 30 million lineal feet

of Trakloc system are anticipated to be sold over an unspecified period of time, which would

generate $1.2 million in base royalty fees under the License Agreement.. (TLNA Mem. of P. &

A. at 7.) However, TLNA is requesting a bond for $2.2 million. (Id. at 8.) Even the $1.2

million bond is excessive. The 30 million lineal feet estimate is based on the declaration of

Pacific’s President that Pacific has a “back log of over 30,000,000 feet of product . . . either on

order or in the pipeline for future order.” (Beasley Decl. at 3.) Based on the declarations filed

by both parties, it is not at all certain whether these orders will in fact be placed due to the

confusion caused by representations made by TLNA, Southeastern Metals, Inc., Nelson, Tabor

and Horst, that Pacific’s products are not ICC certified and that Pacific is no longer a Trakloc

licensee. (See Jablow Supp. Decl. at 2; Beasley Decl. at 6-7.) It is unclear how much Trakloc

product will be sold at all. To the extent sales will be made, it is unclear over what period of

time. Finally, the License Agreement calls for payment of base royalty fees only when payment

is received (License Agreement, Schedule B), and it is unclear when payment will be received

on any of the sales actually made. Accordingly, TLNA has not met its burden regarding the

bond. See Connecticut Gen. Life Ins. Co., 321 F.3d at 883.

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The License Agreement obligates Pacific to pay, starting 24 months after first production,

a minimum royalty fee of $44,000 per year for the Nevada territory. (License Agreement,

Schedule B.) Accordingly, the court finds the $25,000 bond proposed by Pacific to be

reasonable for purposes of its TRO application.

For the foregoing reasons, Pacific’s ex parte application for a TRO is GRANTED as

follows, pending a hearing on its motion for a preliminary injunction:

1. Trakloc North America, LLC and its officers and agents are prohibited from

restricting shipment of the slotted TSE part from Trakloc North America’s licensee Trakloc MidAmerica to Pacific Rollforming, LLC dba Trakloc Pacific; and 

2. Trakloc North America, LLC and its officers and agents, Southeastern Metals, Inc.,

Gary Nelson, Jr., Bert Tabor and Thomas Horst are prohibited from (1) claiming that they, or

any of them, are the authorized licensees for the Trakloc system in Nevada; (2) claiming that

Trakloc Pacific is not the lawful licensee; and (3) contacting Trakloc Pacific’s existing

customers and prospective customers for the purpose of soliciting business or otherwise

interfering with Trakloc Pacific’s existing or prospective contracts.

This order is conditioned on Pacific posting a bond in the amount of $25,000 as security

for the payment of such costs and damages as may be incurred or suffered by any party who is

found to have been wrongfully enjoined or restrained.

Pacific’s request for an order shortening time on its motion for a preliminary injunction is

GRANTED. Pacific’s motion for a preliminary injunction is set for an evidentiary hearing on

November 20, 2007 at 10:30 a.m. As the parties have already filed voluminous papers, no

additional briefing will be accepted by the court except as follows:

1. No later than November 13, 2007 at 4:30 p.m. Pacific shall file a memorandum of

points and authorities no longer than fifteen (15) pages and supporting evidence, if any,

addressing the following issues: (1) any and all lawsuits pertaining to the status of TLNA as

licensor, including the parties, court, and the status of each such lawsuit; (2) the status of ICC

certification of Pacific’s Trakloc products; and (3) the appropriate bond amount if a preliminary

injunction is granted. 

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2. No later than November 15, 2007 at 4:30 p.m., Defendants shall file a responsive

memorandum of points and authorities no longer than fifteen (15) pages and supporting

evidence, if any, addressing the same issues. 

The court will entertain only admissible evidence for purposes of ruling on Pacific’s

motion for a preliminary injunction. Due to the evidentiary deficiencies in the declarations filed

in support of and in opposition to Pacific’s ex parte application for a TRO and its motion for a

preliminary injunction, the parties are expected to produce witnesses at the evidentiary hearing.

IT IS SO ORDERED.

DATED: November 7, 2007

M. James Lorenz

United States District Court Judge

COPY TO: 

HON. JAN M. ADLER

UNITED STATES MAGISTRATE JUDGE

ALL PARTIES/COUNSEL

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