Israel Disc. Bank of N.Y. v. H.N. Int'l Grp., Inc.
| Decision Date | 14 October 2016 |
| Docket Number | Civil Action No. 16-6258-BRM-LHG |
| Parties | ISRAEL DISCOUNT BANK OF NEW YORK, Plaintiff, v. H.N. INTERNATIONAL GROUP, INC., Defendant. |
| Court | U.S. District Court — District of New Jersey |
NOT FOR PUBLICATION
Before this Court is an application for an Order to Show Cause with restraints filed by plaintiff Israel Discount Bank of New York ("IDB" or "Plaintiff"). (Dkt. No. 10.) Defendant H.N. International Group, Inc. ("HN" or "Defendant") opposes the application. (Dkt. No. 11.) The Court heard oral argument on October 13, 2016. For the reasons set forth below, Plaintiff's application is DENIED.
This matter was originally filed on September 29, 2016 in the Superior Court of New Jersey, Somerset County under Docket No. SOM-L-1257-16 (the "State Court Action") by way of an Order to Show Cause with restraints, purportedly on an ex parte basis. (See Notice of Removal (Dkt. No. 1), at ¶ 2 ().) On October 2, 2016, HN timelyremoved this matter to this Court on the basis of diversity of citizenship pursuant to 28 U.S.C. §1332 and 28 U.S.C. § 1441(a)-(b).
On October 3, 2016, this Court held a telephonic conference and set a briefing schedule for IDB's application. (See Dkt. No. 6.)
IDB seeks a Writ of Replevin directing the U.S. Marshals to seize collateral in which IDB purportedly has a perfected security interest comprised of cash, checks or other remittances received by HN, inventory, equipment, and books and records and/or the proceeds thereof (collectively, the "Collateral"), as a result of HN's alleged default under a certain line letter agreement for a $5,000,000 Line of Credit, dated November 16, 2015, between IDB, as lender, and HN, as borrower, pursuant to which IDB agreed to extend loans, advances and other financial accommodations to HN (the "Loan"). (See proposed Order to Show Cause (Dkt. No. 10) at pp. 1-2, ¶ (a).) IDB also seeks a Writ of Attachment over HN's bank accounts at Chase Bank and Habib American Bank (collectively, the "Bank Accounts"). (Id. at p. 2, ¶ (b).) Finally, IDB seeks a temporary restraining order, pursuant to Red. R. Civ. P. 65, enjoining HN from transferring or otherwise encumbering its interests in the Collateral and the Bank Accounts. (Id. at pp. 2-3, ¶¶ (b)-(c).)
HN has been engaged in the business of selling textiles since 1999. In or around 2015, HN began discussions with IDB about entering into a multi-year line of credit loan. (Id. at ¶ 5.)
Prior to entering into the Loan, IDB engaged Durkin Group & Associates, LLC ("Durkin") to conduct a field examination of HN as of July 31, 2015 (the "2015 Field Investigation"). (Id. at ¶ 6.) Whatever issues the 2015 Field Investigation revealed were resolved by the parties and the Loan closed on or about November 16, 2015. (Id. at ¶ 9.)
Pursuant to its rights under the various Loan documents, on or about August 10, 2016, IDB engaged Durkin to conduct a subsequent field examination of HN (the "2016 Field Examination"). Steve Foti ("Foti"), a Durkin field examiner, was sent to perform the 2016 Field Examination. (Id.) HN claims that, while conducting the 2016 Field Examination, "HN received a report from one of its employees, Yecenia Callejas, that Foti harassed her." (Dkt. No. 12 (citing Malek Cert. at ¶ 12.) HN complained to IDB about Foti's alleged behavior and requested a new field examiner be sent, at HN's cost. (Id. (citing Malek Cert. at ¶¶ 14-15).) In response to HN's complaints, IDB requested Durkin send two (2) other field examiners to complete the 2016 Field Examination the following week. (Id.; see also Durkin Aff. at ¶ 5.)
While the 2016 Field Examination was ongoing, IDB requested HN's principal, Nagesh Malik, execute a personal guaranty on the Loan. (Malik Cert. at ¶ 19.) According to Mr. Malik, IDB misrepresented the document as "ministerial" and necessary to renew the Loan, and not as a "guaranty." (Id.)
Thereafter, IDB informed HN that Durkin allegedly had discovered problems during the 2016 Field Examination. (Malik Cert. at ¶ 21.) HN claims neither IDB nor Durkin offered HN an exit interview or provided HN with an exit interview document detailing any issues allegedly revealed during the 2016 Field Examination, as IDB and Durkin had done with the 2015 Field Examination. (Id. at ¶ 22.) Around the same time, HN began making substantial pay-downs on the Loan, including a payment of $120,000.00 on August 31, 2016. (Id. at ¶ 29.)
On September 8, 2016, IDB sent HN a letter entitled "Exit from Credit Facility" asserting the 2016 Field Examination "concluded that material accounts receivable and inventory information had been inaccurately reported by [HN] to IDB and other material accounts receivableand inventory information reported by [HN] to IDB could not be verified by Durkin as being accurate." The September 8, 2016 letter asserts:
The reporting of inaccurate information by [HN] to IDB constitutes events of default under the Loan Documents. Additional events of default have arisen due to [HN]'s failure to deliver a Borrowing Base Certificate, Accounts Receivable Aging, Inventory Reporting and Sales report for the month of July on or before August 20, 2016. As a result of the occurrence of these events of default, IDB has, among other rights and remedies, the right to terminate the Credit Facility, demand immediate payment of all Obligations and to foreclose on its Collateral.
(Id.) In the September 8, 2016 letter, "IDB agree[d] to allow [HN] up to sixty (60) days to repay and satisfy in full all Obligations," while retaining its rights under the Loan documents and subject to certain conditions. (Id.)
In the interim, HN continued to pay down the Loan, specifically, $328,933.20 in September 2016. (Malik Cert. at ¶ 31.) HN contends that, as of September 2016, the Loan was fully performing in all monetary respects, HN had never missed a payment under the Loan and, instead, paid down $448,933.20 in less than one (1) month. (Id. at ¶¶ 31-32.)
On September 23, 2016, IDB sent HN a Notice of Default, Acceleration and Demand for Payment in which IDB reiterated that "[e]ach instance of reporting of inaccurate information by [HN] to [IDB] constituted an event of default under the Loan Documents" and that "[a]dditional events of default have arisen" as a result of HN's alleged failure to deliver certain documents to IDB. IDB further claimed that "[s]ince the September [8, 2016] letter, [HN] has failed to allow [IDB] to conduct a Field Examination and has failed to factor all of its accounts receivable with [IDB] or deposit all proceeds of accounts receivable and other Collateral into [HN]'s bank account maintained at [IDB]..." (Id.) As a result, IDB "declare[d] the entire unpaid principal amounts of the Line Letter, and all interest accrued and unpaid thereon, and all other obligations to be immediately due and payable." (Id.) IDB demandedpayment of "no less than $4,015,810.54, in immediately available funds by 5:00 p.m. on September 23, 2016". (Id.)
Simultaneously, IDB exercised its right to setoff the funds held by HN in accounts at IDB in the total amount of approximately $330,000.00. Following IDB's exercise of its setoff rights, as of September 27, 2016, the total amount owed under the Loan was $3,686,877.24, plus interest, fees and expenses.
Almost immediately thereafter, on September 28, 2016, IDB commenced litigation against Mr. Malik in the Supreme Court of New York on his alleged personal guaranty of the Loan. The next day, September 29, 2016, IDB filed the State Court Action now before this Court.
In its Verified Complaint, Plaintiff asserts three (3) causes of action: Replevin (Count I); Breach of the Loan Agreement (Count II); and Pre-Judgment Writ of Attachment (Count III). (See Dkt. No. 10-1.) IDB also seeks a temporary restraining order, pursuant to Fed. R. Civ. P. 65.
"Preliminary injunctive relief is an 'extraordinary remedy, which should be granted only in limited circumstances.'" Ferring Pharms., Inc. v. Watson Pharms., Inc., 765 F.3d 205, 210 (3d Cir. 2014) (quoting Novartis Consumer Health, Inc. v. Johnson & Johnson-Merck Consumer Pharms. Co., 290 F.3d 578, 586 (3d Cir. 2002)). "A plaintiff seeking a preliminary injunction must establish that he is [1] likely to succeed on the merits, [2] that he is likely to suffer irreparable harm in the absence of preliminary relief, [3] that the balance of equities tips in his favor, and [4] that an injunction is in the public interest." Ferring, 765 F.3d at 210 (quoting Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 20 (2008)). The movant bears the burden of showing that these four factors weigh in favor of granting the injunction, and a failure to establish any one factor will render a preliminary injunction inappropriate. Ferring, 765 F.3d at 210. See also Am.Tel. & Tel. Co. v. Winback Conserve Program, Inc., 42 F.3d 1421, 1427 (3d Cir. 1994) ().
IDB has failed to carry its burden of showing the extraordinary remedy of preliminary injunctive relief is necessary to maintain the status quo. Among other things, IDB has failed to establish it is likely to succeed on the merits of its claims and/or any possibility it would suffer irreparable harm in the absence of preliminary relief. IDB also has not established the balance of equities tips in its favor or that an injunction would be in the...
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