United States District Court, D. New Jersey
STRIKE PCH, LLC, on behalf of itself and derivatively on behalf of Sokaor Capital, LLC, Plaintiff,
ISAAC STERN and SOKAOR CAPITAL, LLC, Defendants.
OPINION AND ORDER
WILLIAM J. MARTINI, U.S.D.J.
Strike PCH (“Strike”), on behalf of itself and
derivatively on behalf of Sokaor PCH, LLC
(“Sokaor”), seeks a temporary restraining order
against Isaac Stern and Sokaor pursuant to Federal Rule of
Civil Procedure 65(b). Strike seeks to restrain Stern, as the
sole manager of Sokaor, from disposing of any Class A shares
of Pinnex Capital Holdings, LLC (“Pinnex”) or
creating a “litigation fund” using Sokaor
resources. Strike also moves the Court to require Stern to
make cash distributions to Sokaor members and to provide
certain financial information pertinent to Strike's tax
reporting requirements. The motion is
GRANTED with respect to Defendants'
failure to provide certain financial and tax-related
information specified under the Sokaor Agreement. All other
requests for immediate restraints are DENIED
in light of Strike's inability to establish the existence
of “imminent harm” that would be unsusceptible to
damages traditionally available at law.
July 1, 2016, Sokaor's only member was Isaac Stern.
Compl. ¶ 9. At that time, Sokaor owned 30.21% of
outstanding “Class A” preferred shares of Pinnex,
of which Stern also served as a manager. Id. at
¶ 10. Sokaor's sole purpose is and has always been
to invest in preferred Class A shares of Pinnex. Id.
at ¶ 15. On July 1, 2016, Plaintiff Strike purchased a
19.76% stake in Sokaor for $4, 800, 000 at $8.00 per share.
Id. at ¶ 13. Stern remains the majority owner
and sole manager of Sokaor. Id. at ¶¶
16-17. The Amended and Restated Operating Agreement of Sokaor
Capital LLC (the “Sokaor Agreement”) prohibits
Stern from, among other things, amending or waiving any
provision of Sokaor's agreement with Pinnex (the
“Pinnex Agreement”) “in a manner that is
adverse to the interests of Strike (including, without
limitation, Strike's indirect interests arising from its
status as a Member [of Sokaor]).” Sokaor Agreement
alleges that in mid-2017, Stern learned of an opportunity to
purchase a majority stake in Pinnex. According to Strike,
Stern had both a fiduciary and contractual obligation to
inform Sokaor of this business opportunity. Compl. at
¶¶ 74-75. Instead, in May 2017, Stern purchased for
himself the majority stake in Pinnex at roughly $2.21 per
share, a price “far below the valuation of $8.00 per
share implied by Strike's indirect purchase of the same
class of Pinnex shares on July 1, 2016.” Id.
at ¶¶ 20-23. Upon being confronted by
representatives from Strike, Stern offered to sell Strike 1%
of Pinnex at the reduced price paid by Stern. Id. at
¶ 29. Strike declined the offer and requested to
purchase a pro rata share of the newly acquired
Pinnex stock, as the Sokaor Agreement provided. Id.
at ¶ 30.
September 6, 2017, Strike requested certain financial
information from Stern regarding Pinnex income and
distribution. Id. at ¶ 31. Stern has allegedly
failed to provide this information, nor has he provided K-1
forms that Strike needs to prepare its September 15, 2017,
tax filings. Id. at ¶ 35. Instead, Stern has
repeatedly threatened litigation. Id. at
¶¶ 26, 37, 43. On September 14, 2017, Stern advised
Strike that “Sokaor's management has reason to
believe Sokaor may soon be embroiled in extensive and
expensive litigation, ” and that Sokaor would be
discontinuing its normal distributions in order to build a
litigation reserve. Id. at ¶ 37. Strike
interpreted this action as retribution for Strike's
continuing inquiry into Stern's private acquisition of
Pinnex shares. Id. at ¶ 38.
October 3, 2017, Strike notified Stern of an arbitration
demand pursuant to Section 12.13 of the Sokaor Agreement.
Id. at ¶ 45. On or about December 17, 2017, Stern
advised that Pinnex had made a capital call upon its members
and that Sokaor used funds to meet that call. Id. at
¶¶ 53-55. At this time, Stern was the controlling
member of both Sokaor and Pinnex. According to Strike, Stern
failed to provide detailed information about the capital
call, again violating the Sokaor Agreement. Id. at
¶ 63. Stern informed Strike that if Sokaor was unable to
meet additional capital calls, Sokaor's interest in
Pinnex- and, by extension, Strike's interest in
Pinnex-would be subject to dilution under the terms of the
Pinnex Operating Agreement. Id. at ¶ 57.
Shortly thereafter, Stern notified Strike that Sokaor indeed
failed to satisfy a Pinnex capital call. Id. at
¶ 64. Because Stern owns the majority interest in both
Sokaor and Pinnex, ” Strike argues, “Stern has it
in his power to both issue calls on behalf of Pinnex and
refuse to respond on behalf of Sokaor.” Id. at
¶ 66. After several acrimonious exchanges with
Stern's counsel, Strike filed its derivative action
(along with the instant order to show cause) against Stern
and Sokaor on January 18, 2018.
considering a temporary restraining order or preliminary
injunction, district courts weigh the following four factors:
(1) the likelihood of success on the merits; (2) irreparable
harm if the injunction is not granted; (3) the balance of
hardships between the parties; and (4) the public interest.
Winters v. Natural Resources Defense Council, Inc.,
555 U.S. 7, 20 (2008); American Tel. and Tel. Co. v.
Winback and Conserve Program, Inc., 42 F.3d 1421, 1427
(3d Cir. 1994). The injunction should issue only if the
plaintiff produces evidence sufficient to convince the
district court that all four factors favor preliminary
relief. Opticians Ass'n v. Independent
Opticians, 920 F.2d 187, 192 (3d Cir.1990). Unlike a
Court's decision to grant or deny a preliminary
injunction, a decision as to temporary restraining order is
not an adjudication on the merits. See United States v.
Atl. Richfield, Co., 297 F.Supp.2d 1060, 1061 (S.D.N.Y.
showing of irreparable harm is the single most important
prerequisite” for immediate injunctive relief.
Faiveley Transp. Malmo AB v. Wabtec Corp., 559 F.3d
110, 118 (2d Cir. 2009). Economic loss does not constitute
irreparable harm. Acierno v. New Castle Cty., 40
F.3d 645, 653 (3d Cir. 1994). “The possibility that
adequate compensatory or other corrective relief will be
available at a later date, in the ordinary course of
litigation, weighs heavily against a claim of irreparable
harm.” Id. (citing Sampson v. Murray,
415 U.S. 61, 90 (1974)). Here, Strike alleges that
irreparable harm will befall it if Stern proceeds to dilute
Sokaor's interest in Pinnex:
Stern's transparent intention is to dilute the interest
of Sokaor, and thereby of Strike, in Pinnex, by orchestrating
an alleged default by Sokaor in meeting Pinnex capital calls
and then selling additional units of Pinnex to himself or
others affiliated with him . . . If immediate injunctive
relief is not issued, the arbitration may be rendered a
nullity through the improper actions of Stern in diverting
the cash of Strike to Pinnex, wrongfully using it to create a
litigation ‘war chest' to fund vexatious litigation
to avoid the consequences of his breaches of his fiduciary
and contractual duties, and diluting Strike's interest in
Compl. ¶¶ 67, 69.
actions, if true, are troublesome. Nevertheless, they do not
result in the sort of “irreparable harm” required
for the Court to impose immediate restraints. Most courts
have held that stock dilution, absent a major change in
voting power, is more like traditional economic harm-which
can be remedied with money damages-than the sort of
irreparable harm contemplated by Rule 65. See In re
Molycorp, Inc., No. BR 15-11357-CSS, 2016 WL 4473332, at
*3 (D. Del. Aug. 23, 2016) (rejecting claim that
“severe dilution” of stock amounted to
irreparable harm); Spencer Trask Software & Info.
Servs.,LLC v. RPost Int'l Ltd., 190
F.Supp.2d 577, 581 (S.D.N.Y. 2002) (rejecting the proposition
that the dilution of a plaintiff's stock necessarily
constitutes irreparable harm). Weber v. Cont'l Motors
Corp., 305 F.Supp. 404, 406 (S.D.N.Y. 1969)
(“Plaintiff has also made no showing of irreparable
injury to the minority stockholders if the injunction is not
granted. If at trial, plaintiff proves his allegations, the
court can order payment of the dividends, set aside the
Exchange Offer, and award damages.”). See also
Calamore v. Juniper Networks Inc., No. C07-01772MJJ,
2007 WL 1100313, at *2 (N.D. Cal. Apr. 12, 2007)
(“[T]here is little evidence in the record indicating
that the number of shares that would be issued between today
and the ...