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Small Business Lending, LLC v. Pack

United States District Court, S.D. Indiana, Indianapolis Division

July 30, 2019

DAVID PACK, Defendant.



         In 1788, Alexander Hamilton wrote that “[t]he great and primary use of a court of equity is to give relief IN EXTRAORDINARY CASES.” The Federalist No. 83 (Alexander Hamilton) (emphasis in original). In the context of preliminary injunctions, the notion that such a measure is in an extraordinary remedy has been reiterated time and time again, most recently by the U.S. Supreme Court in 2018. See Benisek v. Lamone, __ U.S. __, 138 S.Ct. 1942, 1943 (2018).

         By its Motion for Preliminary Injunction, Plaintiff Small Business Lending, LLC (“SBL”) has asked the Court for this extraordinary remedy by requesting that the Court enjoin Defendant David Pack from engaging in certain activities related to a 2018 independent contractor agreement between the two parties. [Filing No. 40.] In addition to SBL's Motion for Preliminary Injunction, two other Motions filed by SBL are currently pending before the Court: a Motion for Leave to File Amended Complaint, [Filing No. 56]; and a Motion to Strike, [Filing No. 65]. All three motions are fully briefed, and are now ripe for the Court's review.

         The Court will first consider SBL's Motion to Strike. The Court will then turn to jurisdictional arguments that are peppered throughout the parties' briefs. Next, the Court will consider the Motion for Preliminary Injunction. Lastly, the Court will take up SBL's Motion for Leave to File an Amended Complaint.

         I. Motion to Strike

         SBL filed a Motion to Strike Mr. Pack's proposed findings of fact and related exhibit. [Filing No. 65.] SBL's first argument relates to the amount in controversy - SBL argues that Mr. Pack's use of the parties' settlement negotiations should be stricken because it violates Federal Rule of Evidence 408. [Filing No. 65 at 1.] Next, SBL argues that Mr. Pack's proposed findings of fact should be stricken because they “reflect[] a desire to attain summary judgment on a plethora of issues, when the only motion before the Court is whether or not to grant a measure of preliminary relief to Plaintiff.” [Filing No. 65 at 2.] SBL gives the following examples in support if its second argument: Mr. Pack argues in his proposed findings that SBL has abandoned its claim related to the non-compete clause because “at this stage, comprehensive enforcement of the non-compete clause is not sought, ” [Filing No. 65 at 2]; Mr. Pack illegitimately argues that “he should not be restrained from holding himself out as an agent of SBL” which is “a finding/ruling that simply cannot be requested, ” [Filing No. 65 at 3]; and Mr. Pack asks “the Court to give him a blank check” by wanting “the right to use disseminate (sic) prospective borrower[s'] confidential personally-identifying data, along with proprietary documents, ” [Filing No. 65 at 3]. Lastly, SBL argues that Mr. Pack's proposed findings of fact should be stricken because his testimony indicates that the jurisdictional amount is not met. [Filing No. 65 at 3-4.]

         In response, Mr. Pack argues that there was “nothing improper at all about providing the Court with SBL's $490, 000 demand, ” because “the Seventh Circuit has explicitly held that Federal Rule of Evidence 408 would not preclude reference to settlement discussions when deciding jurisdictional questions, ” and because “SBL incorporated its demand into its sworn answers to Mr. Pack's interrogatories.” [Filing No. 66 at 1-2.] Regarding SBL's allegations as to jurisdiction, Mr. Pack argues that “SBL cannot narrow its claim so as to defeat jurisdiction once removal has occurred.” [Filing No. 66 at 3.]

         The Court begins by observing that SBL's Motion to Strike contains arguments that go beyond articulating possible grounds to strike portions of Mr. Pack's proposed findings of fact and wades into arguments as to why the Court should remand this case. Any such arguments are misplaced in a motion to strike and will not be considered in ruling upon the Motion. The Court will consider jurisdictional allegations in Part II, infra.

         Turning to SBL's arguments in support of its Motion, the Court first considers whether an email containing a settlement offer from SBL should be stricken as an exhibit. On this point, SBL's argument is without merit. It is true that Federal Rule of Evidence 408 provides that evidence of compromise offers and negotiations are “not admissible. . . either to prove or disprove the validity or amount of a disputed claim or to impeach by a prior inconsistent statement or a contradiction.” Fed.R.Evid. 408(a). However, settlement negotiations “can be considered ‘to show the stakes' when determining whether the amount in controversy is met.” Grinnell Mut. Reinsurance Co. v. Haight, 697 F.3d 582, 585 (7th Cir. 2012) (citing Rising-Moore v. Red Roof Inns, Inc., 435 F.3d 813, 816 (7th Cir. 2006)).

         SBL's other contentions in support of its Motion show that SBL disagrees with Mr. Pack's proposed findings of fact, not that such findings are inadmissible.[1] Had the Court wished to consider responses and replies to the proposed findings of fact, it would have ordered the parties to file such documents. It did not, and will not strike Mr. Pack's submission on the grounds that SBL disagrees with it. Moreover, SBL misapprehends the legal effect of findings of fact at this stage of litigation. “[F]indings of fact and conclusions of law made by a court granting a preliminary injunction are not binding at trial on the merits.” Univ. of Texas v. Camenisch, 451 U.S. 390, 395 (1981). Accordingly, SBL's argument that Mr. Pack's findings of fact are an attempt to attain summary judgment is misplaced.

         For the reasons set forth herein, SBL's Motion to Strike, [Filing No. 65], is DENIED.

         II. Jurisdiction

         The Court next addresses the parties' arguments concerning jurisdiction. Following the evidentiary hearing in this matter on May 13, 2019, SBL submitted a “Supplementation as to Law, ” in which it contends that after the evidentiary hearing, it became “apparent” that Mr. Pack's “initial submissions to this Court were invalid as to satisfaction of the jurisdictional amount at issue.” [Filing No. 58 at 1.] SBL goes onto argue that “it is apparent that the actual monetary value of the claim at the time of removal (and, to the present, given the current state of discovery; if discovery shows otherwise, however, then, at that time, diversity jurisdiction may exist) was approximately $20, 038, far less than [Mr.] Pack's conjectures.” [Filing No. 58 at 2.]

         In response, Mr. Pack alleges that SBL's Complaint “included a prayer for disgorgement of all ‘ill-gotten gains,' which SBL defined as all ‘compensation or consideration Pack received for Broker Financing services he provided between April 3, 2018 to the conclusion of this action,' plus other damages.” [Filing No. 64-1 at 1-2.] Mr. Pack further contends that SBL sought $490, 000 as a settlement demand and has represented to the Court that the amount in controversy exceeds the jurisdictional amount. [Filing No. 64-1 at 2.] Lastly, Mr. Pack contends that the amount in controversy should include “the estimated cost to him” to comply “with a noncompete in the business-lending field from the filing of the Complaint until July 2020” - the end of the term of the alleged non-compete agreement. [Filing No. 64-1 at 2.]

         It is well settled that “the requirements for diversity jurisdiction must be satisfied only at the time a suit is filed.” Grinnell Mut. Reinsurance Co. v. Shierk, 121 F.3d 1114, 1116 (7th Cir. 1997) (citations omitted). For cases that have been removed from state to federal court, “determination as to whether the $75, 000 minimum is actually in controversy is made at the time of the removal.” Bush v. Roadway Express, Inc., 152 F.Supp.2d 1123, 1125 (S.D. Ind. 2001). “[I]f the amount in controversy exceeds the jurisdictional amount when a suit is filed in federal court, the fact that subsequent events reduce the total amount in controversy will not divest the court of diversity jurisdiction.” Id. at 1116. Moreover, a party seeking removal “does not need to establish what damages the plaintiff will recover, but only how much is in controversy between the parties.” Blomberg v. Serv. Corp. Int'l, 639 F.3d 761, 763 (7th Cir. 2011) (citing Brill v. Countrywide Home Loans, Inc., 427 F.3d 446, 448 (7th Cir. 2005)). “Whether damages will exceed $75, 000 is not a fact but a prediction, and with respect to that subject the court must decide whether to a legal certainty . . . the claim is really for less than the jurisdictional amount.” Meridian Sec. Ins. Co. v. Sadowski, 441 F.3d 536, 541 (7th Cir. 2006) (quotations omitted). The “removing defendant, as proponent of federal jurisdiction, must establish what the plaintiff stands to recover, ” and may do so . . . . by reference to the plaintiff's informal estimates or settlement demands.” Id. at 541-42.

         In this case, Mr. Pack removed this matter on the basis of diversity jurisdiction on August 30, 2018. [Filing No. 1.] In response to the Court's Order noting deficiencies in the initial Notice of Removal, [Filing No. 5], Mr. Pack filed an Amended Notice of Removal the next month, [Filing No. 8]. SBL responded to the Amended Notice of Removal and argued that the amount in controversy had not been satisfied. [Filing No. 13.] Mr. Pack responded in turn, arguing that the amount in controversy exceeded $75, 000 exclusive of interest and costs on the date of removal because Mr. Pack's cost of complying with the injunction SBL seeks would exceed the jurisdictional amount. [Filing No. 13 at 3.] On October 18, 2018, the Court ruled that Mr. Pack had discharged his obligation to set forth a plausible, good-faith estimate that the amount in controversy in this matter exceeds the statutory threshold, exclusive of interest and costs, and stated that SBL should seek remand by November 2, 2018 if it continued to believe that remand was required. [Filing No. 17.] SBL did not file any such motion.

         As a starting point, SBL's argument that current or subsequent discovery affects or will affect this Court's jurisdiction is without merit. Grinnell, 121 F.3d at 1116 (citations omitted) (“the fact that subsequent events reduce the total amount in controversy will not divest the court of diversity jurisdiction”). As for SBL's contention that “after the May 13, 2019 evidentiary hearing, ” it became “apparent” that Mr. Pack's submissions to the Court regarding jurisdiction were invalid, [Filing No. 58 at 1], SBL states - without citation to the record or any indication as to where such a figure was derived - that all that “was sought” was disgorgement in the amount of $12, 429. To the extent that SBL argues that the only damages it sought by its complaint was disgorgement, the Court notes that its complaint also requested compensatory damages for breach of contract, breach of fiduciary duties and a violation of Indiana Trade Secrets Acts [Filing No. 1-1 at 14], along with “all revenues generated from Broker Financing activity by Pack . . . from April 2, 2018 through the conclusion of the instant litigation, ” [Filing No. 1-1 at 14].

         The Court has already issued an order determining that the amount in controversy was satisfied at the time of removal. Although SBL asks the Court to revisit its October 24, 2018 finding, nothing in its Supplementation as to Law alters the Court's earlier finding that Mr. Pack had met his burden of establishing what SBL stands to recover. To the contrary, Mr. Pack's recent submission of SBL's settlement discussions adds credence to his earlier contention that the amount in controversy is satisfied in this matter. As such, the Court finds that it continues to have jurisdiction to hear this case, and now turns to the merits of SBL's Motion for Preliminary Injunction.

         III. Motion for Preliminary Injunction

         A. Preliminary Injunction Standard

         “In the case of the usual preliminary injunction, the plaintiff seeks to enjoin, pending the outcome of the litigation, action that [it] claims is unlawful.” Grupo Mexicano de Desarrollo S.A. v. All. Bond Fund, Inc., 527 U.S. 308, 314 (1999). “[A] preliminary injunction is an extraordinary and drastic remedy, one that should not be granted unless the movant, by a clear showing, carries the burden of persuasion.” Mazurek v. Armstrong, 520 U.S. 968, 972 (1997) (citation omitted). “Preliminary relief is properly sought only to avert irreparable harm to the moving party.” Chicago United Indus., Ltd. v. City of Chicago, 445 F.3d 940, 944 (7th Cir. 2006). Because the merits of the underlying litigation are not at issue at this stage, “the reluctance to disturb the status quo prior to trial on the merits is an expression of judicial humility . . . [that] enables the court to stay relatively neutral in the underlying legal dispute.” Id. at 945-46.

         The purpose of a preliminary injunction is “merely to preserve the relative positions of the parties until a trial on the merits can be held.” Univ. Texas, 451 U.S. at 395. “Given this limited purpose, and given the haste that is often necessary if those positions are to be preserved, a preliminary injunction is customarily granted on the basis of procedures that are less formal and evidence that is less complete than in a trial on the merits.” Id.

         “To obtain a preliminary injunction, the moving party must show that [its] case has ‘some likelihood of success on the merits' and that [it] has ‘no adequate remedy at law and will suffer irreparable harm if a preliminary injunction is denied.'” Stuller, Inc. v. Steak N Shake Enters., Inc., 695 F.3d 676, 678 (7th Cir. 2012) (quoting Ezell v. City of Chi., 651 F.3d 684, 694 (7th Cir. 2011)). “If the moving party meets these threshold requirements, the district court ‘must consider the irreparable harm that the nonmoving party will suffer if preliminary relief is granted, balancing such harm against the irreparable harm the moving party will suffer if relief is denied.'” Stuller, 695 F.3d at 678 (quoting Ty, Inc. v. Jones Grp., Inc., 237 F.3d 891, 895 (7th Cir. 2001)). “The district court must also consider the public interest in granting or denying an injunction.” Stuller, 695 F.3d at 678.

         B. Background

         The background of this case was set forth in the Court's Order dated January 4, 2019, which the Court incorporates by reference. [Filing No. 26 at 3.] In addition, the Court's understanding of the background of this matter was informed by an evidentiary hearing that was held on May 13, 2019, [Filing No. 57], after which the parties submitted proposed findings of fact and conclusions of law, [Filing No. 59; Filing No. 64]. For the purposes of deciding the Motion for Preliminary Injunction, the Court summarizes the facts of this case as follows:

         1. SBL's Business Model

         SBL is a financial brokerage firm that works with small businesses to assist them with acquiring loans. SBL is owned by Robin Green[2] and conducts business throughout the United States. In order to identify and reach potential leads, SBL purchases data, including telephone numbers, and uses an auto-dialer to leave voicemails for business owners. There is nothing secret about prospective borrowers' phone numbers or names as they may be purchased on a nonexclusive basis. The prospective borrowers' telephone number goes “stale” after 30 to 60 days of purchase.

         Business owners may respond to SBL's message by leaving their telephone numbers on a voicemail to SBL. SBL will then refer the telephone number to an independent contractor via email.

         SBL also purchased trigger leads, which are generated when a business' credit is ran. Multiple brokers are able to purchase the trigger leads and they are not, therefore, exclusive to SBL.

         SBL also used survey leads, whereby they send business owners a survey and at the end, the survey would ask the business owner if he or she was interested in working capital. If so, the business owner could leave his or her contact information, which would be sent to an independent contractor via email for follow-up.

         SBL's independent contractors then gather the required application information from business owners seeking to borrow money (“Borrowers”). Borrowers fill out an application that includes the Borrower's Social Security number, date of birth, and personal address and the business' tax ID number and address. In addition, Borrowers must submit six months of bank statements and merchant processing statements.

         SBL's independent contractor gathers and screens the required documents and submits them to Ms. Green. Ms. Green then contacts potential lenders.

         SBL provides scripts to independent contractors as part of its training program for their interactions with Borrowers' employees. In addition, SBL provides independent contractors with a step-by-step outline of the process from the time the independent contractor receives a lead.

         2. The Agreement between SBL and Mr. Pack

         On or about April 4, 2018, Mr. Pack and SBL entered into an independent contractor agreement (the “Agreement”). [Filing No. 1-1 at 32.] The Agreement provides, in relevant part, as follows:

This Agreement (the "Agreement") is made on 04/03/2018, by and between Small Business Lending LLC, (the "Company"), located at 7206 Franklin Parke Blvd, Indianapolis, Indiana 46259 in the County of Marion, and David W. Pack, (the "Independent Contractor" or "Contractor") located at ¶ 163 Caroway Ct, Spartanburg, Georgia 29303

[Filing No. 1-1 at 19.] Thereafter, the Agreement states that “[t]he Independent Contractor is secured to provide the services described below at the Company's principal place of business as aforementioned, or from the Contractor's principal place of ...

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