Court Opinion

ID: 201720
Source: CourtListenerOpinion
Date Created: 2011-02-07 05:32:45+00
Date Added: 2024-06-11T17:27:20.566016
License: Public Domain

United States Court of Appeals
                        For the First Circuit
No. 04-2563

                     MICRO SIGNAL RESEARCH, INC.,

                         Plaintiff, Appellee,

                                  v.

                   NURI OTUS and MAUREEN CUNNINGHAM,

                        Defendants, Appellants.
                               __________

                   CUPERTINO NATIONAL BANK & TRUST,

                               Trustee.

             APPEAL FROM THE UNITED STATES DISTRICT COURT
                   FOR THE DISTRICT OF MASSACHUSETTS

     [Hon. Edward F. Harrington, U.S. Senior District Judge]

                                Before

                          Boudin, Chief Judge,
                       Torruella, Circuit Judge,
                  and Baldock,* Senior Circuit Judge.

     Michael C. Fee with whom Sabrina K. Lanz and Fee, Rosse &
Lanz, P.C. were on brief for appellants.
     Timothy J. Perry with whom Perry, Krumsiek & Wayland LLP was
on brief for appellee.

                             July 19, 2005

     *
         Of the Tenth Circuit, sitting by designation.
          BOUDIN, Chief Judge.        Nuri Otus and Maureen Cunningham,

defendants   in    the    district    court,    seek    review     of   three

interlocutory orders entered by the district court at the behest of

the plaintiff, Micro Signal Research, Inc. ("Micro").            The purpose

of the orders was to provide security to satisfy the money judgment

that Micro is seeking against the defendants.

          The facts, drawn from the initial filings in the district

court, appear as follows.     Otus and Cunningham are married to each

other and work together in business ventures.                  One of their

ventures involved a business entity called AuctioNet.              AuctioNet

ran a website (auctionet.com) and specialized in buying and selling

used technology equipment.

          The     exact   relationship     of   Otus   and    Cunningham   to

AuctioNet is cloudy.      From 1999 to 2001, AuctioNet was affiliated

with a California corporation called AuctioNet.com, Inc.; in July

2001 it merged into Realm Connect Corporation (“Realm”), which

apparently continued the AuctioNet business.           Otus and Cunningham

together owned 44 percent of the equity in Realm.            Otus was Realm’s

president and CEO and one of its three directors; Cunningham was

present for at least one board meeting and, according to Micro's

later affidavit, held herself out to be AuctioNet’s CFO and vice

president.

          During October 2003, Otus discussed with Daniel Epstein,

President of Micro, a joint venture to buy certain electronic

                                     -2-
equipment that Otus said was available and some of which the pair

viewed together.   By e-mail exchanges during October and November,

the two men agreed that Micro would provide $210,000 for a half

share in the acquisition venture.      On November 10, 2003, Otus e-

mailed Epstein to wire the money to Cupertino National Bank &

Trust, as the destination bank, payable to AuctioNet.com.    Epstein

wired the money.

          Thereafter, Otus advised by e-mail that he had contracted

to buy the equipment and described deals allegedly being set up so

the equipment could be resold at a profit.      In April 2004, after

delays by Otus in providing further information, Epstein discovered

that Otus had never purchased the equipment, which had been sold in

November 2003 to someone else.   When Epstein sought the return of

his $210,000, Otus over several months claimed that he would repay

the money, eventually saying that he and Cunningham were on the

verge of refinancing their house to pay Micro back.

          No repayment ever occurred.      Instead, in August 2004,

Realm went out of business, unable to pay its creditors.          By

October 2004, Otus and Cunningham were engaged in the same business

through a new company called Asset Management Associates Group,

Ltd. (“AMA”)--Cunningham as a shareholder and Otus allegedly as an

independent contractor serving as an “auctioneer.” On October 28,

2004, Micro filed the present action against Otus, Cunningham and

                                 -3-
Cupertino in the federal district court in Massachusetts based on

diversity jurisdiction.

          Micro’s complaint made claims against Otis and Cunningham

for inter alia conversion, fraud, breach of contract, and under

Mass. Gen. Laws ch. 93A (2002), which provides for multiple damages

and attorneys' fees for egregious misconduct. Micro also sought as

interim relief a preliminary injunction requiring Otus and his wife

to pay to Micro or into the registry of the district court “all

funds” up to $210,000 “that they are presently earning from the[ir]

new business entity”; trustee process attachment of all funds up to

the same amount held at Cupertino in the couples’ name; and

attachment of real property (also up to $210,000) held by the

couple in Massachusetts or California.1

          On November 4, 2004, after a hearing the district court

granted all three requests for interim relief, requiring by the

preliminary injunction that the $210,000 from present earnings be

paid into court rather than Micro.   The grant followed submission

of motion papers, an opposition and affidavits. The district court

     1
      Fed. R. Civ. P. 64 allows for the grant of prejudgment
security "in the manner provided by the law of the state in which
the district court is held." Massachusetts allows attachment of
property "upon a writ of attachment in any action in which the debt
or damages are recoverable . . . ." Mass. Gen. Laws ch. 223 § 42
(2002); Mass. R. Civ. P. 4.1. A trustee process attachment is a
different Massachusetts device to freeze interests held by a third
party but belonging to the defendant. See Xerox Fin. Servs. Life
Ins. Co. v. High Plains Ltd. P’ship, 44 F.3d 1033, 1036-37 (1st
Cir. 1995); Mass. R. Civ. P. 4.2.

                               -4-
made no findings in the order granting relief, beyond saying that

the defendants admitted their debt to Micro.                Otus and Cunningham

now   appeal,     contesting     all   three    grants     of    interim   relief.

Cupertino has never entered an appearance.

           The grant of a preliminary injunction is immediately

appealable, 28 U.S.C. § 1292(a)(1) (2000); Charlesbank Equity Fund

II v. Blinds To Go, Inc., 370 F.3d 151, 155-56 (1st Cir. 2004), and

must be justified under the familiar four-part test: likelihood of

success on the merits, irreparable injury absent relief, harm to

the   defendant    if   relief    is   granted,     and    any   public    interest

considerations.       Ross-Simons of Warwick, Inc. v. Baccarat, Inc.,

102 F.3d 12, 15 (1st Cir. 1996).               Review, except on issues of

abstract law, is deferential.          Id.

           In attacking the preliminary injunction, defendants' main

arguments are that the joint venture was between Micro and Realm,

that Otus was acting on its behalf rather than in a personal

capacity, that facts necessary to “pierce the corporate veil” have

not been show, and that neither husband nor wife is liable for

Realm’s debts.     Thus, they say, Micro has not shown a likelihood of

success   on    the     merits   which,      with   rare    exceptions,     is   an

independent precondition for a preliminary injunction.

           As to Otus, the argument is hopeless.                   The facts set

forth above, based on the evidence thus far, strongly suggest fraud

on Otus's part.         Even if AuctioNet or Realm was a legitimate

                                       -5-
business venture and Otus was merely acting on its behalf, fraud by

a corporate officer normally makes him independently liable without

any   need   to    pierce   the   corporate   veil.2      Otus   may   offer   a

countervailing version of events when the merits are tried but, on

this record, a likelihood of success on the fraud claim against him

personally is made out.

             The defendants also deny that irreparable injury has been

established.       The possibility that a defendant may not have assets

on the day of judgment may not automatically make out a showing of

irreparable injury, GA Enters., Inc. v. Leisure Living Cmtys.,

Inc., 355 F. Supp. 947, 948 (D. Mass. 1973), but the story is quite

different where there is a strong indication that the defendant may

dissipate or conceal assets.         See, e.g., Conn. Gen. Life Ins. Co.

v. New Images of Beverly Hills, 321 F.3d 878, 881 (9th Cir. 2003);

Elliot v. Kiesewetter, 98 F.3d 47, 58 (3d Cir. 1996).                   Otus's

probable fraud, his prevarications about repayment, and the switch

of the business from Realm to AMA are ample indication of the need

for relief against Otus.

             The    preliminary   injunction    against    Cunningham    is    a

different story, since her involvement in the fraud is less clear.

In explaining the basis for the injunction, the district court’s

      2
      See Bond Leather Co. v. Q.T. Shoe Mfg. Co., 764 F.2d 928, 938
(1st Cir. 1985); Townsends, Inc. v. Beaupre, 716 N.E.2d 160, 164
(Mass. App. Ct. 1999); Wyatt v. Union Mortgage Co., 598 P.2d 45, 52
(Cal. 1979); A-1 Check Cashing Serv., Inc. v. Goodman, 538 N.Y.S.2d
830, 831 (App. Div. 1989).

                                      -6-
order   merely   said--before   specifying   the   relief   granted--that

“defendants do not contest the existence of the [$210,000] debt

owed to plaintiff, and they have repeatedly acknowledged their

obligation to repay same.”      Micro Signal Research, Inc. v. Otus,

No. 04-12300 (D. Mass. Nov. 4, 2004).

           The lack of detail does not preclude us from affirming if

the record demonstrates that Cunningham has admitted her own

liability.   Although Fed. R. Civ. P. 52(a) requires fact-findings

in support of a preliminary injunction, appellate courts are not

overly demanding where the evidence makes clear what the court has

implicitly found. In all events, an admission in court of personal

liability would not need further explanation.

           Whether Cunningham admitted liability could be disputed.

The only pertinent portion of the transcript furnished to us

reveals defense counsel saying to the district judge: "[T]hey [the

defendants] acknowledge the existence of the debt, and they have

made attempts to try and work out arrangements whereby --" [counsel

is then cut off by the judge].           There is also evidence in the

correspondence of supposed      efforts to refinance the family home,

which is probably the effort to which counsel is referring.         This

is about all in the record.

           In Micro’s brief, plaintiff’s counsel asserts that when

Micro threatened to take the matter to the police,

           [a]ppellants . . . promised to personally
           repay the debt. They did so repeatedly both

                                   -7-
          orally and in writing through their counsel
          for a period of approximately six months.
          Appellants went so far as to state that they
          would refinance their own home to repay the
          debt and, indeed, provided supposed refinance
          documents from their bank to reassure [Micro].

But there is no citation in support of the prior oral admissions,

and the pertinent correspondence in the record from California

counsel appears to be written primarily on behalf of Otus. Nothing

in Epstein’s affidavit in the district court describes any oral

admission by Cunningham.

          The proof at trial might implicate Cunningham in the

fraud or provide a basis for finding that the contractual agreement

was with her and Otus personally or ultimately prove that Realm was

a shell and she and Otus were the real parties in interest. But all

this is unclear and the district judge made no findings on the

point.   Nor, as with Otus, can we say that the admission is

irrelevant because of the patent evidence of personal liability

(contained, as to Otus, in the Epstein affidavit).

          Nevertheless, defense counsel’s above quoted statement in

court looks like an admission of liability--although not of fraud--

as to both defendants.   If there were some doubt about its meaning

(e.g., that counsel was only intending to admit that Otus was

liable), we could expect counsel to have said so in his reply

brief, since Micro’s answering brief (like the district judge)

relies so squarely on defense counsel’s admission as binding both

defendants.   Nothing of the kind is claimed.

                                -8-
              Instead, the reply brief attempts to assert that any

admissions that defendants may have made earlier in attempting to

settle      the   case   were   “offers    of   compromise”   or   “gratuitous”

promises that are not enforceable.              Not a word is said to suggest

that       defense   counsel’s    statement       in   open   court   has   been

misinterpreted.          Whatever the status of out-of-court offers to

compromise or pay, an admission by counsel of his clients’ personal

liability in open court is ample basis for determining that the

other side is likely to prevail on the merits.

              For all we know, the admission, seemingly on behalf of

both defendants, might have led Micro to withhold evidence or

arguments that might otherwise have been presented, or dissuaded

the district judge from seeking more evidence and making more

detailed findings.        If counsel meant to concede only the liability

of Otus and to deny it as to Cunningham, it would have been easy

enough to say so.         Whatever the significance of the admission in

further proceedings, it is enough to support the preliminary

injunction.

              This disposes of the claims made on appeal pertaining to

the preliminary injunction.3          There remain claims by defendants

       3
      Appellants might have argued that injunctive relief in these
circumstances is beyond the historic role of equity, see Grupo
Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S.
308, 332-33 (1999), but that case involved only federal equity
power and a claimed breach of contract. In this diversity case,
state law might arguably govern, see R.G. v. Hall, 640 N.E.2d 492,
492 & n.3 (Mass. App. Ct. 1994) (upholding such relief), but in any

                                          -9-
that the district court had no authority to issue its attachment

order as to defendants' real property located in California, and

that it lacked jurisdiction to order trustee process attachment

directed   at    Cupertino,    a   bank    apparently    located   only    in

California.     Compare Mass. Gen. Laws ch. 246 § 1 (2002).

           But unlike preliminary injunctions, which are immediately

appealable by statute, no such exception to the normal final

judgment rule exists as to attachments.         See Charlesbank, 370 F.3d

at 156; Teradyne, Inc. v. Mostek Corp., 797 F.2d 43, 45-46 (1st

Cir. 1986).     Nor have defendants made any effort to show that, in

their particular circumstances, the collateral order exception to

the final judgment rule applies to their case.          See Rhode Island v.

U.S. Envtl. Prot. Agency, 378 F.3d 19, 25 (1st Cir. 2004); see also

Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 546-47 (1949).

           Defendants do argue that the attachment of their property

and the trustee process attachment are in substance preliminary

injunctions.    Admittedly, substance, and not the name given in the

order, controls as to whether relief amounts to an injunction.

Charlesbank, 370 F.3d at 156; Teradyne, 797 F.2d at 46-47.            But in

both   those    cases,   the   orders     involved   directives    that   the

defendants there act or refrain from acting--the substance of a

classic injunction.       E.g., Teradyne, 797 F.2d at 44-45 (order

event the Grupo objection was not made an appeal and so is
forfeited.

                                   -10-
enjoining defendant from disposing of $4 million and requiring the

money to be put aside in an account).

          By contrast, the attachment of appellants’ real property

merely imposes a lien and does not compel them to do or refrain

from doing anything. The trustee process is a closer case because,

although it does not compel the defendants to do or refrain from

doing anything, it effectively prevents the trustee from turning

over the property to them.    On the merits, trustee process may be

barred here if Cupertino has no connection with Massachusetts.

Mass. Gen. Laws ch. 246 § 1 (2002).     See also Wyshak v. Anaconda

Copper Mining Co., 103 N.E.2d 230, 232 (Mass. 1952).

          However, defendants argue in support of our jurisdiction

only that the two attachments were part of the same request as the

preliminary injunction. That argument proves nothing. See FDIC v.

Elio, 39 F.3d 1239, 1249 (1st Cir. 1994).        Part of a single

judgment may be appealable and another part not.       It is up to

defendants to show that we have jurisdiction over their appeal of

the attachments; whether or not a stronger case for jurisdiction

could have been made, it has not been provided here.

          The preliminary injunction is affirmed.    Insofar as the

appeal is from the attachments, the appeal is dismissed.

          It is so ordered.

                                -11-