Beanstalk Innovation, Inc. v. SRG Tech., LLC

• Decision Date: 31 August 2017
• Docket Number: Case No. 1:17-cv-553
• Citation: Beanstalk Innovation, Inc. v. SRG Tech., LLC, Case No. 1:17-cv-553 (S.D. Ohio Aug 31, 2017)
• Parties: BEANSTALK INNOVATION, INC., Plaintiff, v. SRG TECHNOLOGY, LLC, Defendant.
• Court: U.S. District Court — Southern District of Ohio

BEANSTALK INNOVATION, INC., Plaintiff, v. SRG TECHNOLOGY, LLC, Defendant.

Case No. 1:17-cv-553

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF OHIO WESTERN DIVISION

August 31, 2017

Judge Timothy S. Black

ORDER GRANTING PLAINTIFF'S MOTION FOR TEMPORARY RESTRAINING ORDER (Doc. 5) AND ISSUANCE OF TEMPORARY RESTRAINING ORDER

This civil action is before the Court regarding Plaintiff Beanstalk Innovation, Inc.'s motion for temporary restraining order (Doc. 5) and the parties' responsive memoranda (Docs. 9, 13).

I. BACKGROUND

Plaintiff Beanstalk Innovation, Inc. is a corporation in the business of marketing and reselling various technology, content, and media products and services. On September 1, 2014, Plaintiff entered into a "strategic reseller agreement" with Defendant SRG Technology, LLC. (Doc. 1-1). Per the agreement, Plaintiff provided direct sales services for Defendant to assist in securing a contract between Defendant and the Hamilton County, Ohio Education Service Center ("HCESC"), which is not a party to this action. In exchange, Defendant was to pay Plaintiff a sales fee of $437,500, in four equal installments of $109,375; each payment was due within 30 days of Defendant receiving a scheduled payment of license fees from HCESC. (Id. at 4).

Defendant made the first payment to Plaintiff on schedule, but failed to pay Plaintiff within 30 days of receiving its second license fee payment from HCESC. Plaintiff accordingly filed suit in this District on October 26, 2015, to recover the amount owed under the contract. Beanstalk Innovation, Inc., v. SRG Technology, LLC, Case No. 1:15-cv-695, Doc. 1 (S.D. Ohio Oct. 26, 2015).

On January 13, 2016, Plaintiff and Defendant entered into a settlement agreement. (Doc. 1-2). Under the terms of the Settlement Agreement, Defendant agreed to make the second installment payment, as well as additional amounts for interest and attorneys' fees, in two payments on dates specified in the Settlement Agreement. (Id. at 2). Defendant also agreed that, upon receipt of the forthcoming third and fourth licensing fee payments from HCESC, Defendant would hold the amount from each payment owed to Plaintiff in trust for Plaintiff's benefit until the money was transferred to Plaintiff. (Id. at 3).

As a result of the settlement, the prior case filed in this District was closed. Defendant made the second installment payments (modified by the settlement agreement) as required. (Doc. 1, at 4). Defendant also made the third of four installment payments as required and without issue. (Id.).

Defendant received funds from HCESC for its final licensing fee payment on April 19, 2017. (Doc. 9). Defendant admits that it did not hold that portion of the final payment owed to Plaintiff in trust as required by the settlement agreement; instead,Defendant comingled the entirety of the final payment from HCESC with Defendant's general finds and spent the money received from HCESC on "operating expenses." (Id. at 2).

Plaintiff filed the instant complaint in this Court on August 22, 2017, advancing a breach of contract claim against Defendant for failing to abide by the settlement agreement from the previous case in this district. (Doc. 1). The same day, Plaintiff filed the motion for temporary restraining order currently before the Court. (Doc. 5). Plaintiff's motion requests that the Court enjoin Defendant from distributing the funds held in trust for Plaintiff except to the extent that said funds are paid to Plaintiff. (Id. at 10). In the alternative, Plaintiff requests that the Court impose a constructive trust against Defendant's assets to protect the res of the trust while litigation moves forward. (Id.).

II. STANDARD OF REVIEW

Per the original contract of the parties, as modified by the subsequent settlement agreement closing the previous case filed in this District, this breach of contract claim is governed by Florida law. (Doc. 1-1, at 3).

The factors to be evaluated in reviewing a motion for temporary restraining order under Florida law are identical to those evaluated in reviewing a motion for preliminary injunction. "The requirements for establishing the right to preliminary injunctive relief are: (a) the likelihood of irreparable harm, and the unavailability of an adequate remedy at law, (b) the substantial likelihood of success on the merits, (c) the threatened injury to petitioner outweighs any possible harm to the respondent, and, (d) the issuance of the injunction will not disserve the public interest." Sanchez v. Solomon, 508 So. 2d 1264,1265 (Fla. 3d Dist. Ct. App. 1987). "The trial court may exercise broad discretion in granting, denying, dissolving, or modifying injunctions, and unless a clear abuse of discretion is demonstrated, this court will not disturb the trial court's decision." Id.

III. ANALYSIS

A. Plaintiff has demonstrated the likelihood of irreparable harm and the unavailability of an adequate remedy at law

Typically, a temporary restraining order or preliminary injunction is an inappropriate remedy when the moving party seeks only monetary compensation, as the law provides an adequate remedy for monetary harm. Bender v. CenTrust Mortg. Corp., 51 F.3d 1027, 1030 (11th Cir. 1995); see also Landmark at Crescent Ridge LP v. Everest Financial, Inc., 219 So. 3d 218, 220 (Fla. 1st DCA 2017) ("irreparable harm is not established where the potential loss can be adequately compensated for by a monetary award"). This is the case even when, as in this case, a plaintiff claims that an injunction is necessary because a failure to quickly act could result in the plaintiff being permanently unable to recover the full amount owed. See id.; see also IMG Fragrance Brands, LLC, 2009 WL 10667869 at *2 (citing Florida precedent that the test is whether a judgment can be obtained in a proceeding at law, not whether that judgment would procure monetary compensation).

However, this case differs from a typical case alleging monetary harm because Plaintiff does not seek general damages for breach of contract but specific funds that Defendant agreed to hold in trust per the previous settlement agreement between the parties. The settlement agreement supports Plaintiff's claim:

4.

...

(b) SRGT will hold in trust for the benefit of Beanstalk that portion of the third and fourth payments received from HSESC that are owed to Beanstalk under the Agreement. On or before the third business day following the clearance of such funds in the accounts of SRGT, SRGT will pay to Beanstalk the portion from the third and fourth payments under the Agreement owed to Beanstalk as a result of such applicable third or fourth payment[.]

(Doc. 1-2, at 1-2 (emphasis added)). Florida courts have held that an injunction may be entered to prevent the dissolution of funds held in trust for the benefit of a plaintiff. See Georgia Banking Co. v. GMC Lending, 923 So. 2d 1224, 1225 (Fla. Dist. Ct. App 2006).

Defendant's response to Plaintiff's argument regarding injunctive relief for funds held in trust is that there are in fact no funds held in trust for the benefit of Plaintiff. Although the settlement agreement between the parties required Defendant to hold the last payment due to Plaintiff in trust, Defendant admits that it failed to do so. Instead, Defendant spent the money on "operating expenses." (Doc. 9, at 2). Defendant claims that "[t]he specific funds received from HCESC are no longer in any bank account belonging to (Defendant), nor were they used to buy or improve any property belonging to (Defendant)." (Doc. 9-1, at 2). Therefore, Defendant argues, Plaintiff cannot receive injunctive relief despite Florida courts allowing injunctive relief to prevent dissipation of trust funds because Defendant's actions have ensured that no such trust funds exist.

Adopting Defendant's argument would completely undermine the additional protections given to trust assets in the form of allowed injunctive relief. The Florida Supreme Court agrees with this assessment, and has held that a party cannot avoid itsobligations as the holder of funds in trust by comingling designated trust funds with general funds:

General depositors also know, or should know, that by the commingling of trust funds with the general funds of the banking institution all the funds so commingled become impressed with the trust and the entire commingled fund is available to discharge the trust.

Glidden v. Gutelius, 119 So. 140, 145 (Fla. S. Ct. 1928). In this case, $109,375 of the money received from HCESC was money Defendant held in trust for the benefit of Plaintiff per the settlement agreement. Defendant's admission that it comingled those funds with its general funds and spent them does not prevent this Court from granting equitable relief that would otherwise be available to protect funds held in trust.

In its brief in opposition, Defendant cites to several Florida cases which stand for the proposition that injunctive relief cannot be used to freeze the general accounts of an entity or individual. The cases relied on by Defendant are distinguishable from the case before the Court as none of those cases involved an agreement in which a preexisting obligation to hold funds in trust was actually established. See, e.g., Stand Up for Animals, Inc. v. Monroe County, 69 So. 3d 1011, 1013 (Fla. Dist. Ct. 2011) ("The County does not claim that SUFA's bank accounts are trust accounts or that all of the funds deposited in them belong to or are being held for the benefit of the County."); Bank of America v. Bank of Salem, 48 So. 3d 155, 158 (Fla. Dist. Ct. 2010) (finding that specific funds could not be traced back to the original loan made by bank); Bender v. CenTrust Mort. Corp., 51 F.3d 1027, 1029 (11th Cir. 1995) (finding plaintiff failed to state a claim for constructive trust in his complaint); Trend Setter Villas of Deer Creek v. Villas on theGreen, Inc., 569 So. 2d 766, 768 (Fla. Dist. Ct. 1990) (finding no connection between the specific trust funds and the general assets at...