IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Richmond Division

LEMBERG LAW, LLC, et al..

Appellants,

V. Civil Action No. 3:16-cv-00763-JAG

RICHARD ARROWSMITH,

Liquidating Trustee ofthe 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 notfollow 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

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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, theBankruptcy 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").

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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'sruling on themerits of theComplaint," 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 ofthe 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 ofthe Defendants shall be entitled to file pleadings and

motionsthey deem appropriate in connection with and related to the

reliefsought in the Complaint

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

^Miller, Wickstrom, andWomen's Health did notjoin in the appeal.

3

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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 & RBlock 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 offact).

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

(asincorporated 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 suchfindings, the Courtcannotconductany meaningfiil review,

so must conclude that the Bankruptcy Court abused its discretion. Accordingly, the Court

vacates the Preliminary Injunction Order.

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B, Failure to Describe the Acts Restrained in Reasonable Detail

Even ifthe 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 appellatereview. 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 enteredin

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 ofAm., 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)).

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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 ofthis Opinion to all counsel ofrecord.

Date: February

Richmond, VA

• 2017 John A. Gibney, Jr. / )

United States DistrictJudge>

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