21 F. Supp. 3d 173
E.D.N.Y2014Background
- RMP Capital (factor) and affiliate RMP Trade (purchase-order financier) provided financing to BAM under two written contracts (Factoring Agreement governed by New York law; Purchase Order Agreement governed by Illinois law) executed in April 2012. Both gave RMP first-priority security interests in BAM’s collateral and included extensive reserve-account and fee provisions.
- RMP Capital alleged BAM defaulted after misrepresenting invoices and transferring assets, stopped advancing funds, and sued BAM seeking about $1.5M. RMP perfected UCC liens; RMP Trade assigned its rights to RMP Capital.
- BAM (with Creative II) moved for a preliminary injunction seeking (1) ability to obtain alternate financing free and clear of RMP’s security interest (or require RMP Trade to provide financing); (2) distribution of certain letter-of-credit proceeds; (3) termination of UCC statements against Creative II (later moot); and (4) an order preventing RMP from contacting BAM/Creative II customers and lenders.
- At hearing BAM narrowed relief: it sought only permission to obtain alternate financing for pending purchase orders and subordination of RMP’s security interest to that new financing; it argued RMP owed fiduciary duties and that usury defenses barred RMP’s claims.
- The Court found BAM would suffer irreparable harm without alternate financing but denied the preliminary injunction because BAM failed to show a substantial likelihood of success on the merits (no fiduciary duty; usury defense unavailable under choice-of-law). Other requested relief was denied for failure to show irreparable harm or was moot.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether BAM is entitled to a preliminary injunction allowing alternate financing free of RMP’s first-priority security interest | BAM: Without alternate financing it will likely fail; injunction preserving business is necessary and irreparable harm exists | RMP: Agreements grant first-priority security interest; parties are sophisticated; RMP may refuse financing under contract | Court: Irreparable harm shown, but injunction denied because BAM cannot show substantial likelihood of success on the merits (cannot subordinate RMP’s perfected security interest) |
| Whether RMP Trade / RMP Capital owed fiduciary duties to BAM | BAM: Contract language and RMP’s control via the Reserve Account created fiduciary duties | RMP: Relationship is arm’s-length creditor-debtor; reserve account protects RMP; no extraordinary circumstances exist | Court: No fiduciary duty under Illinois or New York law; parties were sophisticated and dealt at arm’s length; claims unlikely to succeed |
| Whether RMP aided and abetted a fiduciary breach by RMP Trade | BAM: RMP Capital is indistinguishable from RMP Trade and aided breaches | RMP: No fiduciary duty existed for RMP Trade to breach | Court: Aiding-and-abetting requires an underlying fiduciary breach; claim fails because no fiduciary duty existed |
| Whether BAM can assert a usury defense to fees assigned from RMP Trade | BAM: New York public policy against usury should apply to prevent RMP from collecting assigned fees | RMP: Choice-of-law clause selects Illinois law for the Purchase Order Agreement; Illinois law bars corporate usury defense | Court: Enforces Illinois choice-of-law; corporate usury defense unavailable; BAM unlikely to prevail |
Key Cases Cited
- Winter v. Natural Resources Defense Council, 555 U.S. 7 (2008) (standard for preliminary injunction requires likelihood of success, irreparable harm, balance of equities, public interest)
- Sunward Elecs., Inc. v. McDonald, 362 F.3d 17 (2d Cir. 2004) (higher showing required where injunction would change the status quo)
- Roso-Lino Beverage Distributors, Inc. v. Coca-Cola Bottling Co., 749 F.2d 124 (2d Cir. 1984) (loss of an ongoing business can constitute irreparable harm)
- Pommier v. Peoples Bank Marycrest, 967 F.2d 1115 (7th Cir. 1992) (debtor-creditor relationship is not a fiduciary relationship as a matter of law)
- New York Progress and Protection PAC v. Walsh, 733 F.3d 483 (2d Cir. 2013) (reciting preliminary injunction standard in Second Circuit)