Dumanian v. Schwartz, 1:19-cv-06771

Background

Mesh Suture, Inc. was formed by Drs. Gregory Dumanian and Mark Schwartz to commercialize Dumanian’s patented "mesh suture;" each held ~50% via preferred shares but Dumanian retained a $10 common share to preserve ultimate control.
In late August–early September 2019 relations collapsed: Schwartz sought a $324,000 loan, then locked the Dumanians out of company email/systems and transferred $3.93 million from Mesh Suture’s Wells Fargo account to an account he controlled.
After the transfer, Schwartz circulated draft board minutes and a settlement release; Dumanian (and his wife and son) signed a set of Board Minutes and a Settlement Agreement on September 5–9, 2019, which shifted effective control to Schwartz and released claims.
Plaintiffs sued seeking rescission/declaratory relief (duress, invalid board minutes for lack of notice, and that Dumanian validly terminated Schwartz as CEO) and moved for a preliminary injunction to prevent Schwartz from exercising CEO/board authority.
The court found Plaintiffs likely to succeed: Schwartz’s taking of funds and threats constituted wrongful acts, Plaintiffs signed under coercive circumstances depriving free will, and Dumanian lawfully terminated Schwartz under the employment agreement.
The court granted a preliminary injunction enjoining enforcement of the Board Minutes and Settlement Agreement and barring Schwartz from acting as CEO or exercising financial authority over Mesh Suture during the litigation, conditioned on a $50,000 surety bond.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the Board Minutes and Settlement Agreement were procured by duress	Dumanian was coerced to sign after Schwartz seized company funds, locked them out, and implied he would not return funds unless they signed	The Minutes/Settlement were collaboratively negotiated and voluntarily signed; no duress	Court: Likely duress — wrongful act (funds transfer/threats) and Plaintiffs lacked free will when signing; Plaintiffs likely to prevail on duress claims
Whether Dumanian validly terminated Schwartz as CEO under the employment agreement	Employment agreement unambiguously gives Gregory Dumanian unilateral right to terminate with or without cause on 90 days’ notice	Schwartz contended alternative interpretations (e.g., notice/contractual nuances) but failed to raise coherent legal defense in briefing	Court: Termination language is clear under New York law; Dumanian likely validly terminated Schwartz (notice period affects effective date but not validity)
Whether Plaintiffs will suffer irreparable harm absent preliminary relief	Company on brink of insolvency, trials and funding imperiled, sale of property blocked by control dispute — monetary damages inadequate	Defendants identified no concrete, countervailing irreparable injury	Court: Plaintiffs showed likely irreparable harm (loss of business/funding/regulatory progress); favors injunction
Appropriate scope and security for preliminary injunction	Enjoin enforcement of the Minutes/Settlement and bar Schwartz from acting as CEO or exercising financial authority; request for no bond	Defendants argued generally against relief but offered little evidence of harm; contested scope in hearing	Court: Injunction issued as requested (prohibiting reliance/enforcement and barring Schwartz from CEO/financial roles) and required $50,000 surety bond (Rule 65(c))

Key Cases Cited

Dexia Credit Local v. Rogan, 602 F.3d 879 (7th Cir. 2010) (courts may consider hearsay at a preliminary injunction hearing if reliable)
S.E.C. v. Cherif, 933 F.2d 403 (7th Cir. 1991) (hearsay can be considered in issuing preliminary injunctions)
Mazurek v. Armstrong, 520 U.S. 968 (1997) (movant bears burden of persuasion for preliminary injunction)
Winter v. Nat. Res. Def. Council, 555 U.S. 7 (2008) (plaintiff must show likelihood of irreparable harm and balance of equities supports injunction)
Rissman v. Rissman, 213 F.3d 381 (7th Cir. 2000) (Illinois law standard for economic duress: wrongful act or threat plus deprivation of free will)
Oxxford Clothes XX, Inc. v. Expeditors Int'l of Wash., Inc., 127 F.3d 574 (7th Cir. 1997) (availability of feasible legal remedies undercuts duress claims)
Castellano v. Wal-Mart Stores, 373 F.3d 817 (7th Cir. 2004) (duress requires lack of reasonable alternatives)
Life Spine, Inc. v. Aegis Spine, Inc., 8 F.4th 531 (7th Cir. 2021) (business loss and lost opportunities can constitute irreparable harm)
Gateway E. Ry. Co. v. Terminal R.R. Ass'n of St. Louis, 35 F.3d 1134 (7th Cir. 1994) (damages remedy may be inadequate if it comes too late to save plaintiff’s business)
Donohue v. Cuomo, 184 N.E.3d 860 (N.Y. 2022) (clear and unambiguous contract language governs under New York law)