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Management Registry, Inc. v. A.W. Companies, Inc.

United States District Court, D. Minnesota

January 16, 2018

MANAGEMENT REGISTRY, INC., Plaintiff,
v.
A.W. COMPANIES, INC., ALLAN K. BROWN, WENDY BROWN, and ERIC BERG, Defendants.

          JAMES M. MORRIS, MORRIS & MORRIS, P.S.C., AND JANET M. OLAWSKY, JESSICA M. MARSH, AND LAURA J. MCKNIGHT, JACKSON LEWIS P.C., FOR PLAINTIFF.

          DARREN M. SHARP AND LAWRENCE P. SCHAEFER, SCHAEFER HALLEEN LLC FOR DEFENDANTS.

          MEMORANDUM OPINION AND ORDER

          JOHN R. TUNHEIM CHIEF JUDGE

         Plaintiff Management Registry, Inc. (“MRI”) brought this diversity action against A.W. Companies, Inc. (“A.W.”), Allan and Wendy Brown, and Eric Berg for events that transpired after MRI acquired numerous business entities from Mr. Brown and two other non-parties. It was generally understood - but not necessarily agreed - that Mr. Brown's wife, Wendy Brown, would purchase some of those entities from MRI after the acquisition. Ms. Brown's purchase never happened.

         When the negotiations between MRI and Ms. Brown broke down, Mr. Brown - who had been previously hired by MRI in relation to the acquisition - resigned or was fired. Allan and Wendy Brown promptly formed A.W. and employed Mr. Berg, who had worked for one of the entities that MRI acquired and that Ms. Brown was planning to purchase. A.W. began hiring other employees that had worked for the company that Ms. Brown planned to purchase, and A.W. began servicing clients.

         MRI filed this action alleging numerous business-related causes of action. Simultaneous with its complaint, MRI moved for a temporary restraining order (“TRO”) and preliminary injunction. The Court granted MRI an ex parte TRO against the Defendants to preserve the status quo pending a response from the Defendants. The Court heard from MRI and Defendants on whether the Court should convert the TRO to a preliminary injunction. Because there were factual disputes that prevented the Court from finding that MRI was likely to succeed on the merits of its claims and because MRI failed to show irreparable harm absent preliminary relief, the Court vacated the TRO and denied MRI's motion for a preliminary injunction.

         This memorandum opinion further details the Court's rationale for vacating the TRO and denying MRI's motion.

         MRI now moves under Federal Rule of Civil Procedure 62(c) for an injunction pending appeal. For substantially the same reasons that the Court vacated the TRO and denied MRI's motion for a preliminary injunction, the Court will deny MRI's Rule 62(c) motion.

         I. FACTUAL BACKGROUND

         MRI is a healthcare, professional, and general-labor staffing company comprised of approximately thirty smaller staffing companies. (Pl.'s Mem. in Supp. of Mot. for Prelim. Inj. (“Pl.'s Mem.”) at 2-3, Nov. 3, 2017, Docket No. 7.)[1] In 2017, MRI began negotiating the purchase of twelve more staffing companies for which Mr. Brown served as president and co-owner. (Id. at 3; see Compl. ¶¶ 18, 21, Exs. A & B, Nov. 3, 2017, Docket No. 1.) Before that acquisition closed, MRI hired Mr. Brown to help lead the companies that MRI's would acquire. (See Compl. ¶¶ 18-20, Ex. A.) At that time there was also an understanding that, after closing, MRI would sell one of the twelve acquired companies, titled AllStaff Recruiting, Inc. (“ARI”), to Mr. Brown's wife, Wendy Brown. (Decl. of Wendy Brown (“W. Brown Decl.”) ¶ 4, Nov. 10, 2017, Docket No. 25; Decl. of Allan Brown (“A. Brown Decl.”) ¶ 17, Nov. 10, 2017, Docket No. 26.) ARI operates in Minnesota and services clients in Minnesota and the surrounding states. (See W. Brown Decl. ¶ 42.)

         On September 11, 2017, MRI's acquisition closed. (Compl. ¶ 16.) Ms. Brown's purchase of ARI did not take place on September 11; rather, MRI and Ms. Brown had an understanding that she would purchase ARI within 30 days of September 11 on mostly agreed-to terms. (W. Brown Decl. ¶¶ 3-4; see Id. ¶ 8, Ex. 4.) There was never a written agreement regarding Ms. Brown's purchase of ARI from MRI. (Defs.' Opp. at 17, Nov. 10, 2017, Docket No. 23.) According to Ms. Brown, she and MRI agreed that, during the 30-day period following closing, she was to “run ARI as its CEO” and “Eric Berg would be second-in-command.” (W. Brown Decl. ¶ 5.) Also during that 30-day period, all revenue from ARI was to be credited to Ms. Brown. (Id. ¶ 6.) Moreover, in an email from MRI's controller to Ms. Brown, MRI's controller referred to ARI employees as “your people” and “your employees.” (Id. ¶ 6, Ex. 3.) MRI claims that it never knew that Ms. Brown was holding herself out as the CEO of ARI after September 11. (Decl. of Tim Malone (“Malone Decl.”) ¶¶ 44-45, Nov. 15, 2017, Docket No. 37.)

         Defendant Eric Berg was employed starting in 2015 by AllStaff Solutions, Inc., which was one of the entities that MRI would acquire. (See Compl. ¶¶ 50-51, Ex. C.) A few days after closing, MRI sent ARI's employees packets of employment-related paperwork. (See, e.g., Decl. of Eric Berg (“Berg Decl.”) ¶ 19, Nov. 10, 2017, Docket No. 27..)[2] Neither Mr. Berg nor any of ARI's employees ever signed those employment agreements with MRI. (See, e.g., id.; see also n.2. supra.) Nevertheless, MRI continued to pay those employees. (See Decl. of Susan LaCoe ¶¶ 7-10, Nov. 15, 2017, Docket No. 39.)

         In mid to late October, MRI's negotiations with Ms. Brown broke down. (Pl.'s Mem. at 6.) According to Defendants, MRI demanded that it would only sell ARI if Ms. Brown agreed not to service any clients outside of Minnesota - a condition that was never part of the original understanding, and that would have forced ARI to forfeit more than half its revenue. (W. Brown Decl. ¶¶ 27-29.) MRI maintains that negotiations broke down because the Defendants insisted that they be allowed to operate outside of Minnesota after having led MRI to believe that ARI only had clients in Minnesota. (Malone Decl. ¶¶ 20-26.) On October 27, Ms. Brown and MRI were at an impasse, and MRI alleges that Mr. Brown resigned from MRI on that day. (Id. ¶¶ 38-40.) Mr. Brown maintains that he did not resign - that he showed up for work the following Monday, October 30, and was fired. (A. Brown Decl. ¶¶ 50-53.)

         Allan and Wendy Brown formed A.W. on October 30 for the admitted purpose of directly competing with MRI. (Defs.' Opp. at 11.) A.W. hired Mr. Berg and began to get the newly formed business up and running. (Berg Decl. ¶ 23, Ex. 4.) Ms. Brown asked the ARI employees to work for A.W. and to bring client files and computers with them for the purpose of continuing to service ARI clients. (See W. Brown Decl. ¶¶ 36-37, 41, 44-45.) According to MRI, Ms. Brown used these employees to steal MRI property. (Pl.'s Mem. at 10-11.) Defendants maintain that those files and computers belong to clients, not to MRI. (Defs.' Opp. at 14.)[3] MRI alleges that Defendants began soliciting MRI clients and servicing them - clients that were previously ARI clients. (See Malone Decl. ¶¶ 46-49.) Defendants, however, maintain they were up front and honest with those clients and that the clients chose to continue working with A.W. because those “clients simply made the understandable decision to continue working with the team they had a productive relationship with.” (Defs.' Opp. at 14.)

         It was the conduct of the Browns, A.W., and Mr. Berg in late 2017 that gave rise to this lawsuit.

         II. PROCEDURAL HISTORY

         MRI filed this action on Friday, November 3, 2017. MRI asserts claims for tortious interference and unfair competition against A.W.; claims for breach of contract, breach of the duty of loyalty, and fraudulent misrepresentation against Mr. Brown and Mr. Berg; and claims for civil conspiracy, unjust enrichment, and computer fraud against all Defendants. (Compl. ¶¶ 90-140.)

         Simultaneously with its complaint, MRI filed a motion for a temporary restraining order, which the Court granted - also on Friday, November 3 - to maintain the status quo. (Order, Nov. 3, 2017, Docket No. 16.) MRI asked the Court to convert the TRO into a preliminary injunction. Because there were factual disputes that prevented the Court from finding that MRI was likely to succeed on the merits of its claims, and because MRI failed to show irreparable harm absent preliminary relief, the Court vacated the ex parte temporary restraining order and denied MRI's motion for a preliminary injunction. (Order, Nov. 17, 2017, Docket No. 53.)

         MRI appealed the Court's November 17 Order to the Eighth Circuit. (See Notice of Appeal to Eighth Circuit, Nov. 29, 2017, Docket No. 64.)[4] MRI then filed a motion under Federal Rule of Civil Procedure 62(c) for an injunction pending appeal. (See Pl.'s Mot. for Prelim. Inj. Pending Appeal, Dec. 4, 2017, Docket No. 67.)

         DISCUSSION

         I. ...


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