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Sotheby's International Realty Affiliates LLC v. Holdings

July 12, 2012

SOTHEBY'S INTERNATIONAL REALTY AFFILIATES LLC, PLAINTIFF,
v.
HOLDINGS, LLC D/B/A HON. HARRY D. LEINENWEBER SOUTHPORT SOTHEBY'S INTERNATIONAL REALTY, KARINA M. CAULFIELD, AND GRAFTON HOLDINGS, LLC D/B/A CONLON, A REAL ESTATE COMPANY, DEFENDANTS.



The opinion of the court was delivered by: Harry D. Leinenweber, Judge United States District Court

MEMORANDUM OPINION AND ORDER

Before the Court is Plaintiff's Motion for a Preliminary Injunction seeking the deposit into escrow of commissions on the sale of some seventy real estate listings. For the reasons stated herein, the Motion is denied.

I. BACKGROUND

Plaintiff Sotheby's International Realty Affiliates, LLC (hereinafter, "SIR") had a Franchise Agreement with Defendant MLJ Holdings, LLC ("MLJ"). MLJ is a real estate brokerage firm and agreed to pay certain royalties and fees to SIR. The Franchise Agreement was personally guaranteed by MLJ's manager, Defendant Karina M. Caulfield ("Caulfield"). MLJ also signed a promissory note in July 2010 agreeing to pay SIR $195,090.30 over 30 months.

MLJ executed a security agreement in July 2010 with SIR for both payment of the note and performance of the Franchise Agreement.

MLJ admits it subsequently breached the terms of the note. MLJ's Am. Answer ¶ 95, 96. MLJ and SIR disagree over whether the Franchise Agreement was revoked, but it is clear that MLJ owes SIR a significant amount of money. Id. In its Answer to SIR's Complaint, MLJ admits its breach of the terms of the note damaged SIR in the amount of at least $20,533.26, plus interest. Id. It also admits to missing payments under the Franchise Agreement. Id. at ¶ 99.

The expansive Security Agreement with MLJ granted SIR: a security interest in all accounts; accounts receivable; contract rights . . . finished goods and all other items customarily classified as inventory . . . chattel paper; instruments; documents; letters of credit; all funds on deposit with any financial institution; commissions; real estate listings and listing Agreement and related rights which are located at or related to the residential real estate brokerage business conducted by Debtor and including the proceeds and products therefrom and any and all substitutions, replacements, additions and accessions thereto and . . . all general intangibles (collectively the Collateral") as well as all parts, replacements, substitutions, profits, products and cash and non-cash proceeds of the foregoing Collateral. . . .

Compl. Ex D, at 1, ECF No. 1-6.

SIR sent MLJ a letter dated July 25, 2011 terminating the franchise. Caulfield Dec. Ex. A, at 1, ECF No. 26, PageID 349. However, the letter granted MLJ a months-long grace period to wind down the business. The parties dispute whether MLJ continued to operate as a franchisee during that time (and thus, whether no-compete provisions are applicable). In any event, it does not seem to be disputed that SIR eventually ordered MLJ to cease all operations by March 23, 2012.

Defendant Grafton Holdings, LLC, (doing business as Conlon) ("Conlon") is a competitor of SIR. Conlon admits that on March 15, 2012, it entered into a lease for the same office space that MLJ occupied, but it contends it did not begin operating its business there until March 21, 2012, the same day MLJ wound down operations there. Caulfield is now an employee of Conlon, but she represents that she has no ownership or management interest in Conlon. On March 23, 2012, SIR filed a UCC-1 Financing Statement recording its security interest in MLJ's collateral. It also filed suit in this Court on the same day. On April 3, 2012, Caulfield filed for bankruptcy. MLJ has not filed for bankruptcy.

SIR's Amended Complaint sues Conlon and MLJ for trademark infringement, false designation of origin/false advertising, trademark dilution, common law unfair competition, and breach of the promissory note. MLJ also is sued for breach of the Franchise Agreement, replevin, and for an audit and accounting. Conlon is sued for unjust enrichment and tortious interference with a contract. All Defendants are sued under civil conspiracy and constructive trust actions.

SIR argued in its original Motion that MLJ had control over seventy property listings that were part of the Security Agreement MLJ signed with SIR. SIR now seems to concede the number of listings at issue is significantly less, but its main contention, that the listings are SIR's property to which it is entitled, remains the same. It seeks a preliminary injunction in regards to these disputed listings. But rather than seeking to repossess the listings (and trying to sell the properties at issue itself), SIR argues the least intrusive temporary injunction would be to order Conlon to put into escrow the commission earned from these properties. The Conlon agent who sells the property could then come to SIR and negotiate with Conlon for a reasonable agent commission, SIR suggests.

II. LEGAL STANDARD

To win a preliminary injunction, a party must show that: it is reasonably likely to succeed on the merits, it is suffering from irreparable harm that outweighs any harm the nonmoving party will suffer if the injunction is granted, there is no adequate remedy at law, and an injunction would not harm the ...


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