Gephart v. Merryman et al, No. 2:2018cv01670 - Document 17 (D. Nev. 2018)
Court Description: ORDER granting 12 Motion for Temporary Restraining Order. Brief due by 10/30/2018. Signed by Chief Judge Gloria M. Navarro on 10/19/2018. (Copies have been distributed pursuant to the NEF - ASB)
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Gephart v. Merryman et al Doc. 17 1 UNITED STATES DISTRICT COURT 2 DISTRICT OF NEVADA 3 4 5 6 7 8 9 BRENT GEPHART, an individual, ) ) Plaintiff, ) ) vs. ) ) ) DOUG MERRYMAN, as an individual and as the ) managing member of OPMNY, LLC, ) ) Defendant. ) Case No.: 2:18-cv-01670-GMN-CWH ORDER 10 Pending before the Court is Plaintiff Brent Gephart’s (Plaintiff’s) Emergency Motion for 11 12 Temporary Restraining Order or Preliminary Injunction (“Motion”), (ECF No. 12). Defendant 13 filed a Response, (ECF No. 14), on October 18, 2018, and the Court held a hearing for the 14 Motion on October 19, 2018. For the reasons discussed below, the Court grants Plaintiff’s 15 Motion. 16 17 I. BACKGROUND This case concerns a business dispute regarding companies owned by Plaintiff and 18 Defendant. The company at the center of this dispute is OPMNY, LLC (“OPMNY”). Plaintiff 19 and Defendant are the sole “equitable and legal owners” of OPMNY. (Am. Compl. ¶ 5, ECF 20 No. 11). Specifically, Plaintiff owns a 49% interest, and he controls the development of 21 technology; whereas Defendant owns a 51% interest, and he controls the financial aspects of 22 the company. (Id.); (Emergency Mot. TRO 5:3–5, ECF No. 12). OPMNY is in the business of 23 providing merchant services and marketing to businesses that accept credit cards as payments 24 for goods or services. (Decl. Brent Gephart ¶ 5, ECF No. 12-1). 25 Page 1 of 9 Dockets.Justia.com 1 To provide those merchant services, OPMNY operates alongside two other companies 2 also run by Defendant and Plaintiff: Ploutos Holdings, LLC and Instant Accept, LLC. (Am. 3 Compl. ¶ 7). According to Plaintiff, Ploutos Holdings, LLC operates a “payment gateway” 4 known as “Prismpay,” and OPMNY merely receives the revenue from Ploutos Holdings, LLC 5 to “pay the bills” for the above-named companies. (Decl. Brent Gephart ¶¶ 5(a), 13). In 6 contrast, Defendant argues that Prismpay is an “asset of OPMNY,” and OPMNY provides 7 merchants with the ability to use that technology for “secure credit card and direct payments 8 processing.” (Decl. Dough Merryman ¶¶ 4, 22, ECF No. 14-2). Undisputed, however, is that 9 the payment gateway technology of Prismpay enables merchants to securely transmit credit 10 card and transaction data to payment processing platforms that subsequently “clear the credit 11 card transactions and fund the merchants.” (Decl. Brent Gephart ¶ 5(a)); (Resp. 8:6–10, ECF 12 No. 14). 13 In 2018, Plaintiff alleges that he discovered evidence of Defendant misusing the 14 technology of OPMNY and mismanaging the company. (Am. Compl. ¶ 10, ECF No. 11). After 15 attempting to investigate those wrongful actions, Plaintiff filed suit against Defendant on 16 September 1, 2018, in this Court naming Defendant and OPMNY as parties. (ECF No. 1). 17 Defendant then filed a Motion to Dismiss Plaintiff’s Complaint, (ECF No. 6), after which 18 Plaintiff filed an Amended Complaint, (ECF No. 11). The Amended Complaint removed 19 OPMNY from the action and named only Defendant as a party. (See id.). The Amended 20 Complaint alleges four claims against Defendant: (1) breach of fiduciary duty; (2) constructive 21 fraud; (3) embezzlement/conversion; (4) accounting. (Id. ¶¶ 14–40). 22 However, four days after filing the initial Complaint in this Court, Plaintiff filed two 23 additional suits against Defendant in the Delaware Chancery Court—first seeking dissolution of 24 Ploutos Holdings, LLC, and second seeking an order allowing Plaintiff to “inspect the books 25 and records of Ploutos and Instant Accept.” (Decl. Brent Gephart ¶ 20). The Delaware Page 2 of 9 1 Chancery Court issued a Status Quo Order prohibiting Defendant from taking specific actions 2 to harm Ploutos property during the pendency of those actions. (Id. ¶ 27). 3 Defendant also filed his own suit against Plaintiff on October 4, 2018. (See Resp. 10:6– 4 12); (see Ex. A-10 to Resp., ECF No. 14-12). Defendant’s case is before the Eighth Judicial 5 District Court of Nevada, and he sues on behalf of himself individually as well as on behalf of 6 OPMNY. (See Resp. 10:6–12). 7 In the instant Motion, Plaintiff essentially seeks to extend the Status Quo Order from the 8 Delaware Chancery Court by requesting an emergency temporary restraining order or 9 preliminary injunction to prevent Defendant from taking certain actions with respect to 10 OPMNY. (See Emergency Mot. TRO at 2–4). 11 II. 12 LEGAL STANDARD Temporary restraining orders are governed by the same standard applicable to 13 preliminary injunctions. See Cal. Indep. Sys. Operator Corp. v. Reliant Energy Servs., Inc., 181 14 F. Supp. 2d 1111, 1126 (E.D. Cal. 2001). Furthermore, a temporary restraining order “should 15 be restricted to serving [its] underlying purpose of preserving the status quo and preventing 16 irreparable harm just so long as is necessary to hold a hearing, and no longer.” Granny Goose 17 Foods, Inc. v. Bhd. of Teamsters & Auto Truck Drivers Local No. 70, 415 U.S. 423, 439 (1974). 18 A preliminary injunction may be issued if a plaintiff establishes: (1) likelihood of 19 success on the merits; (2) likelihood of irreparable harm in the absence of preliminary relief; (3) 20 that the balance of equities tips in his favor; and (4) that an injunction is in the public interest. 21 Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008). “Injunctive relief [is] an 22 extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is 23 entitled to such relief.” Id. at 22. 24 The Ninth Circuit has held that “‘serious questions going to the merits’ and a hardship 25 balance that tips sharply toward the plaintiff can support issuance of an injunction, assuming Page 3 of 9 1 the other two elements of the Winter test are also met.” Alliance for the Wild Rockies v. 2 Cottrell, 632 F.3d 1127, 1132 (9th Cir. 2011). 3 “In deciding a motion for a preliminary injunction, the district court ‘is not bound to 4 decide doubtful and difficult questions of law or disputed questions of fact.’” Int’l. Molders’ & 5 Allied Workers’ Local Union No. 164 v. Nelson, 799 F.2d 547, 551 (9th Cir. 1986) (quoting 6 Dymo Indus., Inc. v. Tapeprinter, Inc., 326 F.2d 141, 143 (9th Cir. 1964)). “The urgency of 7 obtaining a preliminary injunction necessitates a prompt determination and makes it difficult to 8 obtain affidavits from persons who would be competent to testify at trial. The trial court may 9 give even inadmissible evidence some weight, when to do so serves the purpose of preventing 10 irreparable harm before trial.” Flynt Distrib. Co., Inc. v. Harvey, 734 F.2d 1389, 1394 (9th Cir. 11 1984) (citing 11 C. Wright and A. Miller, Federal Practice and Procedure, Civil, § 2949 at 471 12 (1973)). 13 III. 14 DISCUSSION In the instant Motion, Plaintiff moves for a temporary restraining order to prevent 15 Defendant from engaging in conduct that would damage OPMNY. (Emergency Mot. TRO 16 15:17–23, ECF No. 12). In response, Defendant argues that the Court should deny Plaintiff’s 17 request because the Court does not have subject-matter jurisdiction over this case; because 18 Plaintiff failed to follow the Court’s Local Rules in filing the instant Motion; and because the 19 evidence in this case does not warrant a temporary restraining order or preliminary injunction. 20 (Resp. 2:4–4:21, ECF No. 14). The below discussion addresses each of Defendant’s arguments 21 in turn, beginning first with the Court’s jurisdiction over this case. 22 A. 23 Plaintiff’s Amended Complaint asserts that the Court has subject-matter jurisdiction Subject-Matter Jurisdiction 24 under 28 U.S.C. § 1332(a)(1) because Plaintiff and Defendant are completely diverse and the 25 amount in controversy exceeds $75,000. (Am. Compl. ¶ 1, ECF No. 11). However, Defendant Page 4 of 9 1 argues that Plaintiff’s failure to include OPMNY as a party in the Amended Complaint is in a 2 violation of Federal Rule of Civil Procedure 19. (Resp. 3:1–11). According to Defendant, 3 OPMNY must be included as a party, which would destroy complete diversity under 28 U.S.C. 4 § 1332 because OPMNY is a limited liability company with a citizenship in the same states as 5 both its members, the Plaintiff and the Defendant. (Id. 3:1–11). 6 To determine whether a party must be added to the case under Rule 19 of the Federal 7 Rule of Civil Procedure, courts take a two-step approach. First, a court must determine 8 whether the absent party is “necessary” to the case. Makah Indian Tribe v. Verity, 910 F.2d 9 555, 558 (9th Cir. 1990). If the party is “necessary,” the court must then determine whether 10 that party is “indispensable” so that “in equity and good conscience” the suit should be 11 dismissed. Id. 12 A party is “necessary” under the first step if: (1) “complete relief” is not possible among 13 those already parties to the suit; and (2) the absent party has a “legally protected” interest in the 14 suit. Id. If the court finds that a party is not “necessary,” then the court does not need to 15 consider the second step under Rule 19 and the case may continue without the absent party. Id. 16 at 559. 17 In this case, Defendant argues that OPMNY is “necessary” and “indispensable” under 18 Rule 19 because Plaintiff brings his claims to seek relief on behalf of OPMNY—and thus this 19 is a “derivative claim” rather than as a “direct claim.” (Resp. 13:15–14:8). Moreover, 20 Defendant cites Ross v. Bernhard, 396 U.S. 531, 539 (1970), for the position that if the claims 21 resemble a derivative claim, OPMNY would then be a “necessary party” because such action 22 arises from the company itself. (See id.). However, this argument fails to recognize numerous 23 cases decided by this District which recognizes a narrow exception relieving a court from 24 making the hardline designation of a claim as direct versus derivative. See, e.g., Carstarphen v. 25 Milsner, 693 F. Supp. 2d 1247, 1249 (D. Nev. 2010). For example, in the context of a closely Page 5 of 9 1 held corporation, this District has adopted an exception which allows minority shareholders to 2 file a direct action for wrongs that normally must be derivative. Id.; see Simon v. Mann, 373 3 F.2d 1196, 1198 (D. Nev. 2005) (recognizing the exception for the first time). 4 Though it is a question of state law whether a claim is derivative or direct, see Sax v. 5 World Wide Press, Inc., 809 F.2d 610, 613 (9th Cir. 1987), the Nevada Supreme Court has not 6 foreclosed or limited this District’s interpretation of state law to permit the above-mentioned 7 exceptions. The Nevada Supreme Court’s recent decision in Parametric Sound Corp. v. Eighth 8 Judicial Dist. Court in & for Cty. of Clark, 401 P.3d 1100 (Nev. 2017) specifically discussed 9 when a claim is direct or derivative under Nevada law. Parametric Sound Corp. did not, 10 however, render an opinion about the exceptions created in Simon v. Mann; nor do the facts or 11 analysis in Parametric Sound Corp. suggest that the Simon v. Mann exceptions are no longer 12 viable. Defendant fails to provide case law demonstrating that the decision in Simon v. Mann, 13 or anylater cases relying upon that decision, have been rejected. 14 the Court finds that the facts in this case resemble that of a closely held corporation, and 15 thus warrant the application of the exception created in Simon v. Mann to categorize a claim as 16 direct rather than derivative. See 373 F.2d at 1198. Plaintiff and Defendant are the only owners 17 of OPMNY, with Plaintiff serving as a minority shareholder owninga 49% interest while 18 Defendant owns a 51% interest. (Am. Compl. ¶ 5); (Emergency Mot. TRO 5:3–5, ECF No. 12). 19 Accordingly, because of the exception allowing minority shareholders to file a direct action for 20 wrongs that normally must be derivative, the Court considers the Plaintiff’s claims as “direct” 21 claims. In effect, then, OPMNY need not be added as a party to this case. See Carstarphen v. 22 Milsner, 693 F. Supp. 2d 1247, 1253 (D. Nev. 2010) (“Because we do not characterize 23 [Plaintiff’s] suit as derivative, American Medflight is not a necessary party to the suit, and its 24 absence as a party is not a basis for dismissal . . . .”). Therefore, the Court has subject-matter 25 jurisdiction through diversity under 28 U.S.C. § 1332 because the only named parties are Page 6 of 9 1 citizens of different states. (Am. Compl. ¶ 3) (stating that Plaintiff is a citizen of Georgia and 2 Defendant is a citizen of California). 3 B. 4 Defendant also argues that the Court should not consider Plaintiff’s instant Motion 5 because Plaintiff’s failed to file a mandatory certification for emergency motion practice. 6 (Resp. 20:19–27). Local Rule 7-4 requires “[a] statement of movant certifying that, after 7 participation in the meet-and confer process to resolve the dispute, the movant has been unable 8 to resolve the matter without court action.” D. Nev. Local R.7-4. However, in light of the 9 parties’ recent prior communication about the central issues in this dispute during the 10 Delaware Chancery Court litigation, the Court finds that Plaintiff’s failure to include a 11 certification statement does not render the instant Motion premature. Violation of the Court’s Local Rules 12 C. 13 Finding no impediment, this Court now addresses the merits of Plaintiff’s request for a Temporary Restraining Order 14 temporary restraining order.A preliminary injunction may be issued if a plaintiff establishes: (1) 15 likelihood of success on the merits; (2) likelihood of irreparable harm in the absence of 16 preliminary relief; (3) that the balance of equities tips in the plaintiff’s favor; and (4) that an 17 injunction is in the public interest. Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7 (2008). 18 The Ninth Circuit has held that “‘serious questions going to the merits’ and a hardship balance 19 that tips sharply toward the plaintiff can support issuance of an injunction, assuming the other 20 two elements of the Winter test are also met.” Alliance for the Wild Rockies v. Cottrell, 632 21 F.3d 1127, 1132 (9th Cir. 2011). 22 Here, the Court finds that each factor favors the granting of a temporary restraining 23 order. Looking first to whether there is a likelihood of success on the merits, the Court 24 examines the claims and evidence supporting those claims. Plaintiff’s Amended Complaint 25 asserts claims for breach of fiduciary duties owed to Plaintiff by Defendant during his operation Page 7 of 9 1 of OPMNY and embezzlement of OPMNY funds. (See Am. Compl. at 9–14). To support 2 these claims, Plaintiff provides evidence that Defendant has been misusing OPMNY’s business 3 operations in violation of federal banking laws and failing to report funds earned by OPMNY. 4 (Decl. Brent Gephart ¶ 15, ECF No. 12-1); (Balance Sheet, ECF No. 12-8). At this early stage 5 of the case, the Court finds that this evidence weighs in favor of Plaintiff’s likelihood of 6 success on the merits. 7 Looking next to the likelihood of irreparable harm, Plaintiff argues that an injunction is 8 necessary to “preserve the status quo” because “OPMNY stands to lose customers, goodwill, 9 and revenue.” (Emergency Mot. TRO 19:27–28). Plaintiff also provides evidence that one of 10 OPMNY’s customers (Worldpay), notified Defendant on September 11, 2018, that it was 11 declining to renew its underwriting approval of OPMNY because of the “nature of the 12 allegations” raised in this dispute. (Email to Doug Merryman (Defendant), ECF No. 12-25)). 13 During the hearing, Plaintiff also clarified that this suit was primarily brought because 14 Defendant was claiming OPMNY possessed rights over the Prismpay intellectual property so 15 the Delaware Status Quo Order did not prevent him from exercising his authority as the 16 manager of OPMNY. In response to the Court’s inquiry, Defendant declined to agree that 17 OPMNY did not posses any authority over the intellectual property sought to be preserved by 18 the Delaware Status Quo Order. Thus, at this stage, the Court finds that this factor weighs in 19 favor of granting the temporary restraining order to prevent the irreparable harm of threatened 20 loss of prospective customers or goodwill of OPMNY. See Stuhlbarg Int’l Sales Co. v. John D. 21 Brush & Co., 240 F.3d 832, 841 (9th Cir. 2001). 22 Last, the Court finds that both the balance of equities and public interest favor a 23 temporary restraining order. As stated in the hearing on the instant Motion, the Court’s 24 granting of a temporary restraining order should only preserves the current status of OPMNY 25 and the protect the Prismpay technology; it does not grant any additional rights to Plaintiff that Page 8 of 9 1 did not exist before. Further, the Court required Plaintiff to tailor its proposed terms for the 2 temporary restraining order to preserve OPMNY and its technology in its current state, thereby 3 preventing any change to the business relationships and connections between OPMNY, its 4 customers, and those associated with OPMNY. 5 IV. 6 7 8 9 10 11 CONCLUSION IT IS HEREBY ORDERED that Plaintiff’s Emergency Motion for Temporary Restraining Order (“Motion”), (ECF No. 12), is GRANTED. IT IS FURTHER ORDERED that the parties may file supplemental briefs before 5:00 pm Tuesday, October 30, 2018 addressing the extension of the Temporary Restraining Order beyond 14 days. 19 day of October, 2018. DATED this _____ 12 13 14 15 16 ___________________________________ Gloria M. Navarro, Chief Judge United States District Judge 17 18 19 20 21 22 23 24 25 Page 9 of 9
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