Opinion
CASE NO. 21-CIV-60152-RAR
2021-02-05
ECAPITAL COMMERCIAL FINANCING CORP., Plaintiff, v. HITACHI CAPITAL AMERICA CORP., et al., Defendant.
Brian M. Johnson, Pro Hac Vice, Dickinson Wright PLLC, Lexington, KY, Christopher Donald Cathey, Dickinson Wright PLLC, Ft. Lauderdale, FL, for Plaintiff. Peter Harlan Levitt, Shutts & Bowen, Miami, FL, Craig E. Rushmore, Pro Hac Vice, Richard M. Beck, Pro Hac Vice, Klehr Harrison Harvey Branzburg LLP, Wilmington, DE, for Defendant.
Brian M. Johnson, Pro Hac Vice, Dickinson Wright PLLC, Lexington, KY, Christopher Donald Cathey, Dickinson Wright PLLC, Ft. Lauderdale, FL, for Plaintiff.
Peter Harlan Levitt, Shutts & Bowen, Miami, FL, Craig E. Rushmore, Pro Hac Vice, Richard M. Beck, Pro Hac Vice, Klehr Harrison Harvey Branzburg LLP, Wilmington, DE, for Defendant.
ORDER GRANTING PLAINTIFF'S EX PARTE EXPEDITED MOTION FOR TEMPORARY RESTRAINING ORDER
RODOLFO A. RUIZ II, UNITED STATES DISTRICT JUDGE
THIS CAUSE is before the Court upon Plaintiff's Ex Parte Expedited Motion for Temporary Restraining Order and Preliminary Injunction [ECF No. 10] ("Motion"), filed on February 3, 2021. Plaintiff eCapital Commercial Financing Corp. ("eCapital") requests that this Court order Defendant Hitachi Capital America Corp. ("Hitachi") to rescind letters sent to eCapital's customers, through which Hitachi allegedly asserted a false security interest in funds owed to eCapital. See generally id. eCapital further requests that the Court enjoin Hitachi from sending any additional letters of this nature and enjoin Defendant James Giaimo from directing Hitachi to do so. Id. Having carefully considered the Motion as well as the record, it is hereby
ORDERED AND ADJUDGED that Plaintiff's Motion [ECF No. 10] is GRANTED IN PART for the reasons set forth below.
The factual background is taken from Plaintiff's Complaint [ECF No. 1], Plaintiff's Motion, and supporting evidentiary submissions. Plaintiff also attached declarations and exhibits in support of its Motion.
Hitachi is a financial services company that provides financing to commercial businesses. In March 2016, Hitachi entered into a Credit Agreement and related financing documents with Trade Finance Solutions Holdings, Inc. ("TFS"), which subsequently changed its name to Global Merchant Finance Inc. ("GMF"). Compl. ¶ 8. Pursuant to these contracts, Hitachi extended credit to GMF in connection with GMF's business of factoring accounts receivable for third parties. Id.
Factoring is, in general terms, the business of purchasing accounts receivable at a discounted rate, then undertaking the responsibility of collecting those accounts. The factor (e.g. , GMF) executes a contract with its customer, through which the factor purchases accounts receivable from its customer, which, in turn, directs its customers to send payments to the factor. Thus, the factor does not collect amounts directly from its own customer, but from its customers’ customers.
As security for the loans made to GMF, Hitachi filed UCC financing statements asserting a lien on all assets of GMF. As relevant here, the lien would have attached to accounts receivable obtained by GMF, which were included in the "borrowing base" on which Hitachi advanced funds to GMF. Id. ¶ 10. As GMF collected accounts receivable in the borrowing base, payments would be made to Hitachi. Once collected, accounts receivable were no longer part of the borrowing base because those accounts ceased to exist. Thus, Hitachi did not continue to have a security interest in a collected account, although it could have a security interest in funds received by GMF in payment of those accounts. Id. ¶ 11.
In December 2019, problems began to arise between Hitachi and GMF, and the two companies formally decided to wind down the Credit Agreement in advance of the scheduled maturity date. See Compl., Ex. B [ECF No. 1-2]. The parties memorialized this decision in a letter signed and acknowledged by officers of both companies, which they titled the Letter Agreement. Compl., Ex. A [ECF No. 1-1]. Therein, the parties stipulated that "the payment requirements contained in the Credit Agreement in respect of the Borrowing Base Certificates shall be replaced by the payment agreements contained in th[e] Letter Agreement and the Credit Agreement is deemed amended accordingly." Id. at 2. Pursuant to the Letter Agreement, Hitachi and GMF agreed to divide the remaining open accounts that formed the borrowing base for the loans into two categories: performing and nonperforming (delinquent) accounts. GMF would repay its obligations relating to the performing accounts in three payments made in short succession, while it would repay its obligations relating to the nonperforming accounts as the accounts were collected, but with all outstanding amounts due to Hitachi by June 30, 2020. Id.
To fund the payments to Hitachi, GMF sold certain of the performing accounts to eCapital. According to eCapital, GMF used these funds to make all payments to Hitachi specified in Paragraph 2(i) of the Letter Agreement that would have been due to Hitachi if GMF had collected the performing accounts itself. Compl. ¶ 18. GMF, however, has been unable to collect on the non-performing accounts. Consequently, Hitachi, believing GMF to be in default of its contractual obligations, has sought to assert its rights to funds owed to eCapital in connection with the accounts transferred from GMF. Specifically, Defendant James Giaimo, Hitachi's Chief Credit Officer, directed counsel for Hitachi to send letters to certain of eCapital's customers—the accounts transferred from GMF to eCapital—representing that the amounts currently owed to eCapital are subject to Hitachi's purported security interest and demanding that any further payments due to eCapital be made to Hitachi instead. Id. ¶¶ 21, 23.
eCapital maintains that the accounts that were initially assigned by GMF to eCapital have been collected, and new amounts have become due as a result of new and ongoing business between eCapital and those third parties. Id. ¶ 25. According to eCapital, "a new account arising from an arrangement directly between eCapital and one of those companies would never have been part of the borrowing base to which Hitachi's lien may arguably have attached. Thus, Hitachi's letters misrepresent that Hitachi has a right to receive payments based on the on-going business relationship between eCapital and its customers." Id.
As a result of Hitachi's letters, eCapital anticipates that payments presently due to it will be withheld and that future business opportunities with customers that received Hitachi's letters will be disrupted. Id. ¶ 27. Attached as an exhibit to the Motion is a letter from one of eCapital's customers indicating that it will comply with the directions provided in Hitachi's letter and will make payment to Hitachi by February 5, 2021, unless eCapital is able to provide "legal grounds under which [the customer] is not obligated to direct payments as instructed" by Hitachi. Mot., Ex. D [ECF No. 10-4] at 1.
eCapital filed its Complaint on January 22, 2021, asserting a claim against Defendants Hitachi and its corporate officer Defendant Giaimo for tortious interference with a business and contractual relationship. In addition, eCapital brings a claim against Defendant Hitachi for conversion of eCapital's property. eCapital then filed the instant Motion on February 3, 2021. In its Motion, eCapital seeks a temporary restraining order, followed by a preliminary and permanent injunction, requiring Hitachi to rescind all of the letters sent to parties with which eCapital does business, and prohibiting Defendants from sending similar communications in the future.
Plaintiff initially filed its Motion for a Temporary Restraining Order in conjunction with its Complaint on January 22, 2021. See [ECF No. 3]. However, because Plaintiff did not meet the requirements of ex parte relief under Federal Rule of Civil Procedure 65, the Court was unable to consider the merits of said motion. See Order on Plaintiff's Motion for Temporary Restraining Order and Preliminary Injunction [ECF No. 5].
LEGAL STANDARD
To obtain a temporary restraining order, a party must demonstrate "(1) a substantial likelihood of success on the merits; (2) that irreparable injury will be suffered if the relief is not granted; (3) that the threatened injury outweighs the harm the relief would inflict on the non-movant; and (4) that the entry of the relief would serve the public interest." Schiavo ex. rel Schindler v. Schiavo , 403 F.3d 1223, 1225–26 (11th Cir. 2005) (per curiam) (citations omitted). Ex parte temporary restraining orders "should be restricted to serving their underlying purpose of preserving the status quo and preventing irreparable harm just so long as is necessary to hold a hearing, and no longer." Granny Goose Foods, Inc. v. Bhd. of Teamsters & Auto Truck Drivers Local No. 70 of Alameda Cty. , 415 U.S. 423, 439, 94 S.Ct. 1113, 39 L.Ed.2d 435 (1974) (footnote call number omitted).
ANALYSIS
i. Likelihood of Success on the Merits
eCapital has shown a substantial likelihood of succeeding on the merits of its claim against Hitachi for tortious interference with eCapital's contractual and business relationships with the customers that received Hitachi's letters and demands for payment. "To establish a substantial likelihood of success on the merits, a plaintiff must demonstrate a likelihood of success at trial as to both its prima facie case and the affirmative defenses asserted by the defendant." TracFone Wireless, Inc. v. Clear Choice Connections, Inc., 102 F. Supp. 3d 1321, 1325 (S.D. Fla. 2015). Under Florida law, the elements of a cause of action for tortious interference with a contractual relationship are: (1) the existence of a contract; (2) the defendant's knowledge of the contract; (3) the defendant's intentional procurement of the contract's breach; (4) absence of any justification or privilege; and (5) damages resulting from the breach. See Johnson Enters. of Jacksonville, Inc. v. FPL Grp., Inc., 162 F.3d 1290, 1322 (11th Cir. 1998) (citing Fla. Tel. Corp. v. Essig , 468 So. 2d 543, 544 (Fla. 5th DCA 1985) ).
The Court concludes, without the benefit of briefing on the issue, that Florida law is likely to apply to this dispute. Florida choice-of-law rules determine what law applies to eCapital's tortious interference claims. Grupo Televisa, S.A. v. Telemundo Commc'ns Grp., Inc. , 485 F.3d 1233, 1240 (11th Cir. 2007). And "Florida resolves conflict-of-laws questions according to the most significant relationship test outline in the Restatement (Second) of Conflict of Laws." Id. at 1240. Under this test, four types of contacts are evaluated: "(a) the place where the injury occurred, (b) the place where the conduct causing the injury occurred, (c) the domicile, residence, nationality, place of incorporation and place of business of the parties, and (d) the place where the relationship, if any, between the parties is centered." Id. (quoting Restatement (Second) of Conflict of Laws § 145 (1971) ). The first contact type—where the injury occurred—"is generally the most important, as absent special circumstances, the state where the injury occurred would be the decisive consideration in determining the applicable choice of law." Melton v. Century Arms, Inc. , 243 F. Supp. 3d 1290, 1299 (S.D. Fla. 2017) (Moreno, J.). Because the alleged injury here took place in Florida, where eCapital is incorporated and maintains its principal place of business, Florida law is likely to apply. See MasTec Renewables Puerto Rico LLC v. Mammoth Energy Servs., Inc. , No. 20-CIV-20263, 2020 WL 6781823, at *6-7 (S.D. Fla. Nov. 18, 2020) (relying primarily on the location of the injury occurring in Florida in concluding that Florida law applied to plaintiff's claim for tortious interference with a business relationship).
Florida courts have determined that tortious interference with a business relationship and tortious interference with a contract are nearly identical causes of action, with the "only material difference" being "in one there is a contract and in the other there is only a business relationship." Smith v. Ocean State Bank , 335 So. 2d 641, 642 (Fla. 1st DCA 1976). Here, there are contracts between eCapital and its customers.
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The first three elements are plainly met here, as each of Hitachi's letters identifies the contract at issue between the customer and eCapital and specifically seeks to redirect to Hitachi payments that are—at least allegedly—contractually owed to eCapital. See Compl., Ex. C [ECF No. 1-3] at 1; Mot., Ex. D at 2. Likewise, funds rightfully owed to eCapital being unjustifiably redirected to Hitachi would clearly allow eCapital to establish damages. Thus, the success of eCapital's claim turns on whether Hitachi asserting a right to payment from eCapital's customers was privileged or justified.
At this infantile stage of the proceedings, considering only the facts as laid out in the Verified Complaint, the Court concludes that eCapital has shown a substantial likelihood of demonstrating that Hitachi was not justified in its actions. "Florida law recognizes the principle that actions taken to safeguard or protect one's financial interest, so long as improper means are not employed, are privileged." Id. at 1321. Therefore, a party's interference with another's business relationship is justified where "the defendant has any beneficial or economic interest in, or control over, that relationship." Treco Int'l S.A. v. Kromka , 706 F. Supp. 2d 1283, 1289 (S.D. Fla. 2010) (citing Palm Beach Cty. Health Care Dist. v. Prof'l Med. Educ., Inc. , 13 So. 3d 1090, 1094 (Fla. 4th DCA 2009) ).
In its letter to Plaintiff's customers, Hitachi states that it has a security interest in all of GMF's assets, which includes the accounts receivable from the customers at issue, and asserts its right to payment under Section 9-607 of the Uniform Commercial Code. Compl., Ex. C.; Mot., Ex. D at 2. That provision does allow a secured party, in the event of a default, to exercise the rights of the debtor in enforcing the obligations of third parties on collateral. U.C.C. § 9-607(a)(1), (3) ( AM. LAW INST. 2020). Moreover, that provision allows a secured party to "take any proceeds to which the secured party is entitled under Section 9-315." Id. § 9-607(a)(2). Section 9-315, in turn, mandates that a security interest continues in collateral even if the collateral is sold, id. § 9-315(a)(1), so Hitachi's security interest in GMF's accounts receivable did survive the sale of the accounts at issue to eCapital.
However, a security interest also attaches to any identifiable proceeds of the sale of collateral, id. § 9-315(a)(2), and "[t]he secured party may claim both any proceeds and the original collateral but, of course, may have only one satisfaction." Id. § 9-315 cmt. 2. Here, eCapital alleges that it paid GMF fair market value for the accounts that were transferred, and GMF in turn used those funds to pay Hitachi in full satisfaction of the amounts owed to it in connection with those accounts. This would mean that Hitachi, by accepting the proceeds of the sale of the relevant account receivable, obtained satisfaction of its contractual rights with respect to the accounts at issue. See Interbusiness Bank, N.A. v. First Nat. Bank of Mifflintown , 328 F. Supp. 2d 522, 529 (M.D. Pa. 2004) ("An action to enforce a priority security interest ... is, in reality, an action to obtain satisfaction of the debt underlying the security interest."). As a result, Hitachi would have no further legal rights to the monies owed to eCapital from those customers.
In addition, the Letter Agreement indicates that the accounts receivable in which Hitachi maintained a security interest were for fixed amounts to be collected from the customers rather than a right to collections from those accounts in perpetuity. See Compl., Ex. A. eCapital maintains that all of the accounts that were transferred to eCapital have been collected, and the amounts now owed by customers of the recipients of Hitachi's letters are due to eCapital because new accounts were generated. If established at trial, this would mean that the accounts receivable which were subject to Hitachi's security interest ceased to exist, and any surviving security interest maintained by Hitachi would not extend to accounts that were acquired by eCapital of its own efforts.
For these reasons, eCapital has established a substantial likelihood that Hitachi was not justified in asserting a right to the monies owed to eCapital. eCapital has therefore demonstrated a substantial likelihood of prevailing on the merits of its claim for tortious interference with its contractual relationships.
ii. Balance of Hardships
eCapital has established that it is likely to suffer irreparable harm in the absence of injunctive relief. "[I]rreparable injury is presumed in cases involving tortious interference with business relationships. In such cases, irreparable injury need not be alleged or proven." Special Purpose Accts. Receivable Co-op Corp. v. Prime One Capital Co. , 125 F. Supp. 2d 1093, 1105 (S.D. Fla. 2000) (citing Dotolo v. Schouten , 426 So.2d 1013, 1015 (Fla. 2d DCA 1983) and Unistar Corp. v. Child , 415 So.2d 733, 735 (Fla. 3d DCA 1982) ); see also FC Funding LLC v. MC Auto Sales of Cent. Fla., Inc. , No: 6:12-cv-1713, 2012 WL 12883964, at *3 (M.D. Fla. Dec. 5, 2012). In addition, eCapital is likely to suffer damage to its business reputation and future business opportunities if Defendants are permitted to continue telling eCapital's customers that Hitachi is the real party in interest to eCapital's accounts receivable. Such allegations, which could be proven to be untrue, would likely drive away potential customers. See Ferrellgas Partners, L.P. v. Barrow, 143 F. App'x 180, 190 (11th Cir. 2005) ("Grounds for irreparable injury include loss of control of reputation, loss of trade, and loss of goodwill.") (internal citation omitted).
On the other hand, Defendants are unlikely to suffer any substantial harm from a temporary order enjoining them from making claims to eCapital's accounts receivable. The only possible harm that would befall Defendants from such an order would be a minor delay in receiving funds owed to Hitachi—if this Court is to ultimately determine that Hitachi maintains a valid security interest in the accounts at issue. Because such an injury could be adequately redressed by money damages, this harm is not considered irreparable. See FHR TB, LLC v. TB Isle Resort, LP , 865 F.Supp.2d 1172, 1211–12 (S.D. Fla. 2011). This is significantly outweighed by the harm that would be suffered by eCapital in the absence of injunctive relief, and consequently, the Court finds that the balance of hardships favors the entry of a temporary restraining order.
iii. The Public Interest
The Court finds that the public interest will be served by the issuance of a temporary restraining order. Preserving the status quo and preventing irreparable harm just so long as is necessary to hold a hearing—and no longer—will allow the parties to adjudicate their contractual rights in an orderly setting before any funds are disbursed. See Moon v. Med. Tech. Assocs., Inc. , No. 8:13-cv-02782, 2014 WL 1092291, at *3 (M.D. Fla. Mar. 19, 2014) ("Public interest favors the protection and enforcement of contractual rights ..."). This temporary injunctive relief will also free third parties from unnecessary confusion as to whom to direct payment on their outstanding obligations until they receive further guidance from the Court. Thus, "hitting pause" on these disputed claims for payment until the Court may consider the merits of such claims serves the public interest far more than allowing the disputed transactions to take place, only to potentially need to unwind them later.
While "preventing companies from interfering with another's existing or prospective business relations ... [also] furthers the public interest," Bancroft Life & Cas. ICC, Ltd. v. Intercontinental Mgmt. Ltd. , 456 F. App'x 184, 190 (3d Cir. 2012), the Court notes that it makes no final determination as to the ultimate merits of Plaintiff's claims in this Order. Indeed, the letters sent by Defendants to eCapital's customers describe a far different factual scenario than that detailed by eCapital in its Complaint. For example, the letters seem to indicate that the accounts receivable were transferred from eCapital to GMF, rather than vice versa. With the benefit of time and the opportunity to respond, perhaps Defendants will be able to show that Plaintiff is not entitled to permanent relief. Nonetheless, at this current stage of the proceedings, the facts laid out in Plaintiff's Verified Complaint, sworn to under penalty of perjury by eCapital's Chief Financial Officer, demonstrate a sufficiently substantial likelihood of success to justify granting temporary injunctive relief.
iv. Rule 65 Factors
Plaintiff has satisfied the requirements of Rule 65 for ex parte injunctive relief. Rule 65 states as follows:
The court may issue a temporary restraining order without written or oral notice to the adverse party or its attorney only if: (A) specific facts in an affidavit or a verified complaint clearly show that immediate and irreparable injury, loss, or damage will result to the movant before the adverse party can be heard in opposition; and (B) the movant's attorney certifies in writing any efforts made to give notice and the reasons why it should not be required.
One of eCapital's customers has informed the company that it will accede to Hitachi's demands for payment—with the expectation that such payment will be credited toward its obligations to eCapital—unless it is provided legal grounds not to undertake such action by the date of this Order. Mot., Ex. D at 1. Because of this development, the Court finds that immediate and irreparable harm, which is presumed present due to the claim for tortious interference, will result to eCapital before the Defendants can be heard in opposition.
In addition, counsel for eCapital has certified in writing that the contents of the above-mentioned letter are accurate and described his efforts to inform counsel for Defendants of this action—and the request for injunctive relief—over a week ago. Mot., Ex. E [ECF No. 10-5] at 1. The Court is therefore satisfied that both requirements of Rule 65 have been met.
CONCLUSION
For the foregoing reasons, it is hereby
ORDERED AND ADJUDGED as follows:
1. Plaintiff's Ex Parte Expedited Motion for Temporary Restraining Order and Preliminary Injunction [ECF No. 10] is GRANTED IN PART .
2. Defendants are hereby ENJOINED from sending any letters to, or communicating with, any of eCapital's customers or customer accounts that it received from Global Merchant Finance Inc. ("GMF") for the purpose of collecting on those customer accounts.
3. Plaintiff shall post a bond in the amount of $1,000.00. 4. An evidentiary hearing on Plaintiff's preliminary injunction request is hereby set for Friday, February 19, 2021 at 10:00 a.m via Zoom videoconference. Directions regarding this hearing shall follow in a separate order.
5. Defendants shall file a combined response to Plaintiff's Motion for Preliminary Injunction on or before Wednesday, February 17, 2021 at 5:00 p.m .
6. Plaintiff and Defendant shall each file Proposed Findings of Facts and Conclusions of Law, opening statements, and any supplemental materials the parties would like the Court to consider on or before Thursday, February 18, 2021 at 5:00 p.m . The Proposed Findings of Fact and Conclusions of law submitted by the parties must address the requirements for a preliminary injunction and apply the facts contained in the supporting affidavits—with proper citations—to the applicable legal standards.
7. Failure to comply with this Order will result in the entry of sanctions, including, but not limited to, monetary sanctions and the grant or denial of Plaintiff's Motion.
8. This Order shall expire on Friday, February 19, 2021 at 5:00 p.m .
9. The Clerk is directed to UNSEAL Plaintiff's Motion [ECF No. 10].
DONE AND ORDERED in Fort Lauderdale, Florida, this 5th day of February, 2021.