Court Opinion

ID: 868777
Source: CourtListenerOpinion
Date Created: 2013-05-23 14:27:18.461371+00
Date Added: 2024-06-11T09:10:59.402716
License: Public Domain

RECOMMENDED FOR FULL-TEXT PUBLICATION
                        Pursuant to Sixth Circuit I.O.P. 32.1(b)
                               File Name: 13a0147p.06

              UNITED STATES COURT OF APPEALS
                            FOR THE SIXTH CIRCUIT
                              _________________

                                             X
                                              -
 NATIONAL VIATICAL, INC. and JAMES

                      Plaintiffs-Appellants, --
 TORCHIA,

                                              -
                                                        No. 12-2262

                                              ,
                                               >
                                              -
          v.

                                              -
                                              -
 UNIVERSAL SETTLEMENTS INTERNATIONAL,
                                              -
 INC.,
                       Defendant-Appellee. -
                                             N

                 On Appeal from the United States District Court
              for the Western District of Michigan at Grand Rapids.
             No. 1:11-cv-01226—Robert Holmes Bell, District Judge.
                               Argued: May 1, 2013
                        Decided and Filed: May 23, 2013
         Before: MARTIN, SUHRHEINRICH and COLE, Circuit Judges.

                               _________________

                                    COUNSEL
ARGUED: Jason Wayne Graham, GRAHAM & PENMAN, LLP, Atlanta, Georgia, for
Appellants. Robert J. Franzinger, DYKEMA GOSSETT PLLC, Detroit, Michigan, for
Appellee. ON BRIEF: Jason Wayne Graham, GRAHAM & PENMAN, LLP, Atlanta,
Georgia, for Appellants. Robert J. Franzinger, Timothy M. Kuhn, DYKEMA GOSSETT
PLLC, Detroit, Michigan, Mark D. van der Laan, DYKEMA GOSSETT PLLC, Grand
Rapids, Michigan, for Appellee.

                               _________________

                                    OPINION
                               _________________

       SUHRHEINRICH, Circuit Judge. Plaintiffs-Appellants National Viatical, Inc.
and James Torchia (respectively, “NVI” and “Torchia”) challenge the district court’s

                                         1
No. 12-2262            Nat’l Viatical Inc., et al. v. Universal                                   Page 2
                       Settlements Int’l, Inc.

dissolution of a preliminary injunction that prevented Universal Settlements
International, Inc. (“USI”) from collecting a money judgment owed by NVI and Torchia
to USI. Because we conclude that the district court properly ruled that the requirements
for a preliminary injunction were not met, we AFFIRM.

                                          I. Background

A.       Prior Action

         The present action has its genesis in a prior lawsuit. In the prior lawsuit, filed
in the United States District Court for the Western District of Michigan, USI sued NVI
and Torchia, as well as their attorney Marc Celello, for five million dollars, claiming that
they misappropriated funds they were holding in escrow for USI. E.g., Universal
Settlements Int’l, Inc. v. Nat’l Viatical, Inc., No. 1:07-CV-1243, 2009 WL 1606648
(W.D. Mich. June 8, 2009). While this case was pending, USI sought relief under the
Companies’ Creditors Arrangement Act of Canada (“CCAA”) in the Ontario Superior
Court of Justice in Canada. A CCAA case is similar to a reorganization bankruptcy
under Chapter 11 of the United States Bankruptcy Code.

         NVI and Torchia moved for summary judgment but it was denied by the
magistrate judge who was presiding over the dispute. Subsequently, the parties held a
settlement conference and agreed on settlement terms. The record indicates that NVI
and Torchia agreed to pay USI $1,242,000 in installment payments.1 NVI and Torchia
further agreed that a default penalty of five million dollars would be due if NVI and
Torchia defaulted on any payment and did not cure it within ten days. After the
settlement conference, the parties placed their agreement on the record. It was only then
that confidentiality was discussed. The record indicates that counsel for NVI and
Torchia asked for a “standard mutual confidentiality agreement,” but agreed that, as an
exception, USI could report the settlement terms to the CCAA court, any taxing
authorities, attorneys, and accountants on a need-to-know basis:

         1
          Specifically, the amount was to be paid in four installments, including a balloon payment at the
end of twelve months.
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                   Settlements Int’l, Inc.

       COUNSEL FOR CELELLO: Why don’t we just exempt from the
       confidentiality except to the extent necessary for reporting to the
       Canadian court and/or taxing authorities, et cetera, et cetera, something
       like that?
       MR. TORCHIA: Then they’re going to put it on a website, right?
       COUNSEL FOR USI: I don’t know.
       MR. TORCHIA: I mean, I don’t care. It doesn’t matter.

The magistrate judge also clarified for the record that the concern for the confidentiality
clause was that Torchia “doesn’t want it to appear to any credit authority or any other
entity that he has a five-million-dollar judgment against him.”

       Following the settlement conference, USI petitioned the CCAA court to obtain
the necessary directions and clearance to proceed with the settlement. Pursuant to these
directions, USI posted a notice on its website informing its creditors of the settlement
agreement:

       USI has entered into a settlement of the US Litigation (identified in s. 2.3
       of the CCAA Plan of Compromise and Arrangement as Universal
       Settlements International Inc. v. James Torchia, Marc Celello and
       National Viatical, Inc. (United States District Court, Western District of
       Michigan, Court File No. 1:07-cv-1243). The settlement has been
       reached as a result of a judicial mediation held on October 26, 2010 in
       Grand Rapids, Michigan.
       Although the settlement is subject to a U.S. Federal Court judicial order
       requiring confidentiality, the essential terms that may be reported are as
       follows:
       USI will receive a total amount of $1,242,000 payable over a period of
       one year and there are terms imposing sanctions if there is a default on
       any of the required payments. The counterclaim against USI will be
       dismissed. USI’s litigation committee has approved the settlement. The
       terms of settlement are in the process of being finalized and documented.
       The Settlement will be presented to the Ontario Superior Court of Justice
       on a motion for directions pursuant to s. 7.8 of the CCAA Plan of
       Compromise and Arrangement. USI is of the view that there is no court
       approval required of the Settlement but is bringing the motion out of an
       abundance of caution.
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                   Settlements Int’l, Inc.

       Alleging that the website posting violated the confidentiality clause, Celello,
NVI, and Torchia refused to pay in accordance with the settlement agreement and
returned to the magistrate judge with an emergency motion to enforce the confidentiality
provision of the settlement agreement. The magistrate judge ruled that there was no
breach because the website posting was “very, very vague,” but she permitted NVI and
Torchia to reserve the right to file a separate breach of contract claim against USI in the
future. Although she found no breach, the magistrate judge nonetheless issued an
injunction enjoining USI from any future publication of the settlement information. USI
appealed the injunction to a district court judge of the United District Court for the
Western District of Michigan, who reversed the injunction, holding that magistrate
judges are not authorized to issue injunctions. Universal Settlements Int’l, Inc. v. Nat’l
Viatical, Inc., No. 1:07-CV-1243, 2011 WL 1642341, at *2 (W.D. Mich. May 2, 2011).

B.     Present Action

       NVI and Torchia filed this action in the Cherokee Superior Court in Georgia,
claiming that USI breached the confidentiality provision of their settlement agreement
by virtue of the web posting, and that under the “first-breach doctrine,” one who
commits the first “substantial breach” of a contract cannot maintain an action against the
other party for failure to perform. Chrysler Int’l Corp. v. Cherokee Exp. Co., 134 F.3d
738, 742 (6th Cir. 1998) (quoting Ehlinger v. Bodi Lake Lumber Co., 36 N.W.2d 311,
316 (Mich. 1949)). They sought a judgment (1) declaring that USI’s breaches excused
NVI and Torchia from performance under the settlement agreement; (2) awarding NVI
and Torchia damages for breach of contract; (3) temporarily enjoining USI from seeking
default or demanding performance of the settlement agreement until the case could be
tried on the merits; and (4) permitting NVI and Torchia to set off all damages incurred
from USI’s breaches against their performance under the settlement agreement.

       On April 21, 2011, NVI and Torchia obtained a temporary restraining order
(“TRO”) from the Cherokee Superior Court restraining USI from “(1) demanding
performance under its settlement agreement with Plaintiffs; and (2) seeking default
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                   Settlements Int’l, Inc.

against Plaintiffs.” On April 27, 2011, the case was removed to the United States
District Court for the Northern District of Georgia, and then transferred back to the
United States District Court for the Western District of Michigan (the “District Court”),
where the prior action had been settled. USI requested that the District Court either
confirm that the TRO had expired, or if it had not expired, for the District Court to
dissolve any existing injunction.

       The District Court held that because the TRO continued beyond the time
permissible under Federal Rule of Civil Procedure 65, it must be treated as a preliminary
injunction. See Sampson v. Murray, 415 U.S. 61, 86 (1974) (agreeing with the D.C.
Circuit that “a temporary restraining order continued beyond the time permissible under
Rule 65 must be treated as a preliminary injunction”). The District Court then conducted
the traditional four-factor balancing test for a preliminary injunction, which included an
evaluation of the movant’s likelihood of success on the merits, and whether the movant
would suffer irreparable harm. Am. Imaging Servs., Inc. v. Eagle-Picher Indus., Inc.,
963 F.2d 855, 858 (6th Cir. 1992). The District Court concluded that NVI and Torchia
did not have a strong likelihood of success because even if USI had breached the
confidentiality agreement, the breach was not substantial. The District Court also ruled
that NVI and Torchia would not suffer irreparable harm absent injunctive relief because
they were suing for money damages.

       As a result, the District Court dissolved the injunction, giving NVI and Torchia
fourteen days to make payments under the settlement agreement. NVI and Torchia
failed to make any payments, and as a result, USI demanded payment and sought default
against NVI and Torchia. Still refusing to pay, NVI and Torchia now appeal the District
Court’s dissolution of the preliminary injunction.
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                   Settlements Int’l, Inc.

                                    II. Jurisdiction

       This court has appellate jurisdiction pursuant to 28 U.S.C. § 1292(a)(1), which
gives appellate courts jurisdiction over district court orders dissolving preliminary
injunctions.

                                      III. Analysis

       NVI and Torchia claim that the District Court erred in two ways: (1) by failing
to hold an evidentiary hearing and issue findings of fact in dissolving the preliminary
injunction; and (2) by failing to rule that NVI and Torchia were entitled to preliminary
injunctive relief under the traditional four-factor balancing test. The standard of review
for preliminary injunctions is de novo for legal conclusions and clear error for factual
findings. Certified Restoration Dry Cleaning Network, L.L.C. v. Tenke Corp., 511 F.3d
535, 540-41 (6th Cir. 2007) (citations omitted).

A.     Preliminary Injunction Procedure

       First, we find that the District Court’s failure to hold an evidentiary hearing is not
grounds for reversal. Ordinarily, Rule 65 is interpreted to require that the party opposing
the injunction, not the party seeking the injunction, be given notice and an opportunity
for a hearing. See, e.g., SEC v. G. Weeks Secur., Inc., 678 F.2d 649, 651 (6th Cir. 1982);
Detroit & T.S.L.R. Co. v. Bhd. of Locomotive Firemen, 357 F.2d 152, 154 (6th Cir.
1966). NVI and Torchia were the parties seeking, not opposing, the injunction. We also
find that the District Court did not err in failing to hold an evidentiary hearing because
NVI and Torchia had the opportunity to proffer evidence in their opposition to USI’s
motion to dissolve the preliminary injunction, but instead, only attached their complaint
and the TRO order from the Cherokee Superior Court in Georgia.

       We also hold that the District Court did not fail to issue findings of fact. In
granting or refusing an interlocutory injunction, a court must state findings of facts and
conclusions of law. Fed. R. Civ. P. 52(a)(1)-(2). The District Court clearly articulated
findings of facts that it made from the testimony of NVI, Torchia, and USI; the court
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                    Settlements Int’l, Inc.

documents from the magistrate judge’s court recording the settlement agreement; the
magistrate judge’s notes; orders from the CCAA court; and other documents.

B.      Preliminary Injunction Balancing Test

        We also hold that the District Court did not err in dissolving the preliminary
injunction.

        As the District Court held, NVI and Torchia cannot meet the four-factor test for
a preliminary injunction. Am. Imaging Servs., Inc., 963 F.2d at 858. Under the test, the
court considers: (1) the movant’s likelihood of success on the merits; (2) whether the
movant will suffer irreparable injury without a preliminary injunction; (3) whether
issuance of a preliminary injunction would cause substantial harm to others; and (4)
whether the public interest would be served by issuance of a preliminary injunction. Id.
These four considerations are “factors to be balanced and not prerequisites that must be
satisfied.” Id. at 859.

        As the District Court held, NVI and Torchia do not have a high likelihood of
success on the merits. The plain language of the settlement hearing simply does not
support their case. During the settlement hearing, Torchia inquired, “Then [USI’s] going
to put it on a website, right?” USI replied that it did not know, and Torchia responded,
“I mean, I don’t care. It doesn’t matter.”

        Furthermore, the website posting was consistent with the magistrate judge’s
characterization of the confidentiality clause. At the settlement hearing, the magistrate
judge described the confidentiality clause in the following way:

        Let me just state, and you can correct me if I’m wrong, Mr. Graham
        [counsel for NVI and Torchia] or Mr. Torchia, but my understanding of
        the concern for the sealed nature and the confidentiality is that Mr.
        Torchia doesn’t —if he’s complying with the terms of the agreement
        doesn’t want it to appear to any credit authority or any other entity that
        he has a five-million-dollar judgment against him because as I
        understand it, it doesn’t become really a judgment for five million until
        he defaults. . . . [A]nd I think it’s understood that this needs to be
        reported to the [CCAA court].
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                     Settlements Int’l, Inc.

(emphasis added). Graham and Torchia did and said nothing to correct the magistrate
judge’s statement.

         Additionally, NVI and Torchia admittedly permitted USI to disclose the terms
of the settlement agreement to a large number of third parties that were not bound by the
confidentiality agreement. Specifically, NVI and Torchia agreed that USI could disclose
the terms of the settlement agreement to the CCAA court. The CCAA court proceeding
involved thousands of USI’s creditors who were not bound by the confidentiality clause.
NVI and Torchia also agreed that USI would be allowed to disclose the terms of the
settlement to the monitor of its CCAA court restructuring, Ernst & Young, Inc. Ernst
& Young has also posted similar information about the judgment on their website. As
such, it is more than likely that the settlement terms would have been disseminated at
large.

         Finally, USI argued that NVI and Torchia had little likelihood of succeeding on
the merits because under the first-breach doctrine, a party to a contract is excused from
performance only if the other party made a “substantial” breach. Chrysler Int’l Corp.,
134 F.3d at 742 (quoting Ehlinger, 36 N.W.2d at 316). A substantial breach is one that
has “effected such a change in essential operative elements of the contract that further
performance by the other party is thereby rendered ineffective or impossible, such as the
causing of a complete failure of consideration or the prevention of further performance
by the other party.” Id. NVI and Torchia have not shown that the alleged breach
rendered their performance ineffective or impossible. For these reasons, the District
Court did not err in its analysis of NVI and Torchia’s likelihood of success.

         As the District Court also held, NVI and Torchia cannot establish irreparable
harm. We have held that “[d]espite the overall flexibility of the test for preliminary
injunctive relief, and the discretion vested in the district court, equity has traditionally
required [a showing of] irreparable harm before an interlocutory injunction may be
issued.” Friendship Materials, Inc. v. Mich. Brick, Inc., 679 F.2d 100, 103 (6th Cir.
1982). We agree with the District Court that the “general rule is that ‘a plaintiff’s harm
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                   Settlements Int’l, Inc.

is not irreparable if it is fully compensable by money damages.’” Langley v. Prudential
Mortg. Capital Co., LLC, 554 F.3d 647, 649 (6th Cir. 2009) (quoting Basicomputer
Corp. v. Scott, 973 F.2d 507, 511 (6th Cir. 1992)). We also agree with the District Court
that “the real harm [NVI and Torchia] seek to avoid is the payment of money.”

       Finally, as the District Court noted, harm to third parties and the public are not
significantly implicated here, because this is a private dispute between USI, NVI, and
Torchia.   Therefore, we conclude that the District Court properly dissolved the
preliminary injunction.

                                    IV. Conclusion

       For the reasons set forth above, we AFFIRM the District Court’s dissolution of
the preliminary injunction.