KANSAS CITY – A federal judge denied a request for a temporary restraining order in a dispute over ownership of an online business.
In an opinion issued May 21, District Judge Greg Kays at the Western District of Missouri denied the plaintiffs' request for a temporary restraining order on the grounds they had not met their burden showing the need for relief.
Plaintiff Tarvisium Holdings and 45N123 LLC alleged they bought Essential Hardware from Dukat LLC with $1 million cash and a $4 million promissory note backed by a security agreement covering assets that would revert to Dukat if Tarvisium failed to pay. Tarvisium allegedly then contracted with Dukat and 36Lower Inc. to operate and run the business after the Sept. 21, 2018, closing to ensure continued profitability.
Sometime after the sale, the plaintiffs filed a federal lawsuit alleging Dukat and 36Lower breached their deal to keep running the business, resulting in extensive losses. The plaintiffs also alleged Dukat founder Elliott Kattan, along with key employee Ben Schwartz, misrepresented the store’s financial health during negotiations by inflating sales and profit figures and shut down operations, either because they didn't care if it succeeded or in order to intentionally cause failure, enabling them to recover the business.
Kays wrote the defendants alleged the plaintiffs only filed the suit after receiving notice of missing two promissory note payments, “knowing full well that the business’s critical assets had already reverted… (and) contend the request for pretrial injunctive relief is an attempt to manipulate the court into allowing plaintiffs to retain sole ownership of the business’ key assets and intellectual property while avoiding any payments on the assets, effectively undoing the security agreement during the pendency of the litigation.”
Kays said the plaintiffs failed to demonstrate a threat of irreparable harm such that a restraining order would be justified. Although he agreed the plaintiffs would likely be unable to operate Essential Hardware without the injunction, “an award of monetary damages, including damages for lost profits, can compensate them for this harm. Alternately, they could seek to rescind the sale and for the return of any amounts paid.”
The plaintiffs further argued they would suffer substantial or devastating injuries without the injunction, and that the defendants wouldn’t be harmed since they allegedly have no rights to the store's assets after allegedly violating the purchase agreement. The defendants countered by arguing the injunction would deny them money owed under the promissory note and also deny control of the intellectual property.
Kays said the plaintiffs didn’t “come close” to showing the defendants violated the purchase agreement.
“Plaintiffs' combined motion and suggestions in support is somewhat threadbare and conclusory concerning what allegedly happened here,” Kays wrote. “The court finds it noteworthy, however, that plaintiffs do not dispute that they failed to make required promissory note payments just a few months after signing the deal.
Kays said the pleadings on file don’t make it clear which party violated the agreement, meaning the plaintiffs failed to show they had a fair chance of prevailing, and that the public interest doesn’t favor either side of the dispute. He denied the plaintiffs' motion for a temporary restraining order and opted not to rule on the request for a preliminary injunction.