Staff Management Solutions, LLC et al v. Feltman et al

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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In re:
CORPORATE RESOURCES SERVICES, INC., et al.,1
Debtors.
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NOT FOR PUBLICATION
Chapter 11
Case No. 15-12329 (MG)
STAFF MANAGEMENT SOLUTIONS, LLC and
PEOPLESCOUT MSP, LLC,
Plaintiffs,
Adv. Proc. No. 19-01371 (MG)
v.
JAMES S. FELTMAN, as Chapter 11 Trustee of the
Estate of Corporate Resource Services, Inc., et al.,
WELLS FARGO BANK, N.A., and
NOOR STAFFING GROUP, LLC,
Defendants.
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MEMORANDUM OPINION AND ORDER DENYING STAFF MANAGEMENT’S MOTION
FOR A PRELIMINARY INJUNCTION
A P P E A R A N C E S:
The Hughes Firm, LLC
Attorneys for Staff Management Solutions, LLC and
PeopleScout MSP, LLC
2027 West Division Street, Suite 122
Chicago, Illinois 60622
By: 	Ray Hughes, Esq.
Togut, Segal & Segal LLP
Attorneys for James S. Feltman, Not Individually
But Solely in His Capacity as Chapter 11 Trustee of
the Estate of Debtors Corporate Resource Services, Inc., et al.
1 	The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax
identification number, are: (1) Corporate Resource Services, Inc. (1965); (2) Accountabilities, Inc. (5619); (3)
Corporate Resource Development, Inc. (1966); (4) Diamond Staffing Services, Inc. (7952); (5) Insurance Overload
Services, Inc. (9798); (6) Integrated Consulting Services, Inc. (2385); (7) The CRS Group, Inc. (1458); and (8) TS
Staffing Services, Inc. (8647).
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One Penn Plaza, Suite 3335
New York, New York 10119
By: 	Neil Berger, Esq.
Patrick Marecki, Esq.
MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE
Pending before the Court is Staff Management Solutions, LLC and PeopleScout MSP,
LLC’s (collectively “Staff Management”) motion for entry of a preliminary injunction against
James S. Feltman, as chapter 11 trustee (the “Trustee”) of the estate of Debtors Corporate
Resource Services, Inc. and its affiliated debtors (the “Debtors”). (“Injunction Motion,” ECF
Doc. # 13.) 2 The Injunction Motion is supported by the declarations of Jeremy Nunn and Ray
Hughes. (“Nunn Declaration,” ECF Doc. # 13-1; “Hughes Declaration,” ECF Doc. # 13-2.) On
March 30, 2020, the Trustee filed an objection to the Injunction Motion. (“Objection,” ECF
Doc. # 20.) The Objection is supported by the declaration of the Trustee. (“Trustee
Declaration,” ECF Doc. # 20-1.) On April 6, 2020, Staff Management filed a reply to the
Trustee’s Objection. (“Reply,” ECF Doc. # 31.)
Staff Management seeks entry of an order that preliminarily enjoins the Trustee from
taking any action with respect to $1,020,182.46 in cash referenced in the Corporate Monthly
Operating Report (Case No. 15-12329, ECF Doc. # 1017). (Proposed Order.) The Proposed
Order would require the Trustee to open a bank account and transfer those funds into that
account, so that they are held separately from the other estate assets to protect from further use.
2 	On October 15, 2019, Staff Management filed an emergency motion for a temporary restraining order and
preliminary injunction, seeking substantially similar relief to the relief sought in the pending Injunction Motion.
(“First Injunction Motion,” ECF Doc. # 3.) Both motions are substantially similar, with the main differences being
that the Injunction Motion includes updated financial information and does not include a request for a temporary
restraining order. Staff Management has withdrawn the First Injunction Motion, so the Court will not consider it for
the purposes of this Opinion. (“Proposed Order,” ECF Doc. # 13-4 at 3.)
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(Id. at 3.) The Proposed Order also would require Staff Management to post a bond with this
Court in the amount of $10,000 within 30 days of entry of the Proposed Order. (Id.)
For the following reasons, the Court denies Staff Management’s Injunction Motion.
I. 	BACKGROUND
A. General Background
Staff Management is in the temporary staffing business and subcontracted work to Debtor
Corporate Resource Development, Inc. (“CRD”). (Injunction Motion ¶ 1.) On September 29,
2014, CRD provided Staff Management with written authorization to make payments to CRD by
electronic transfer to a specific account at Wells Fargo Bank, N.A. (the “Wells Fargo Account”);
Staff Management thereafter made payments to the Wells Fargo Account for services provided
by CRD. (Id. ¶¶ 9–10.) On January 10, 2015, Staff Management entered into a written supplier
non-exclusive master service agreement with CRD (the “CRD Contract”). (Id. ¶ 7.) Pursuant to
the CRD Contract, CRD supplied temporary labor to Staff Management clients, and Staff
Management processed and forwarded payments from those clients to the Wells Fargo Account.
(Id. ¶ 8.)
On February 26, 2015, CRD transferred its business to Noor Staffing Group, LLC
(“Noor”) by entering into an Asset Purchase Agreement with Noor. (Id. ¶¶ 11–12.) Staff
Management entered into a new written supplier non-exclusive master service agreement with
Noor, effective March 21, 2015 (the “Noor Contract”). (Id. ¶ 13.) Pursuant to the Noor
Contract, Noor was required to supply temporary labor to Staff Management’s client, and in
exchange, Staff Management would process and forward payments from that client. (Id. ¶ 14.)
Staff Management was not involved in the transaction, but agreed to a new contract with Noor
covering work performed by them in March 2015. (Id. ¶ 1.)
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B. Bankruptcy Proceedings
On July 23, 2015, the Debtors, including CRD, filed voluntary chapter 11 petitions which
were jointly administered in this Court in In re Corporate Resource Services, Inc., et al, Case
No. 15-12329 (MG) [hereinafter “Main Case”]. (Id. ¶ 16.) Staff Management states that during
the transition of the business from CRD to Noor, Staff Management was not aware that CRD
was experiencing financial difficulties and it did not receive notice of the CRD bankruptcy
proceedings at that time. (Id. ¶¶ 15, 18.)
C. Payments from Staff Management to the Wells Fargo Account
During the transition of the business from CRD to Noor, Staff Management states that it
continued sending payments to CRD’s Wells Fargo Account. (Id. ¶ 19.) After CRD transferred
the business to Noor, Staff Management made eighty-four (84) payments to the Wells Fargo
Account from April 8, 2015 through January 27, 2016, totaling $1,541,056.31. (Id. ¶¶ 20, 22
(citing Nunn Declaration, Ex. 2).) Account statements provided by Bank of America3 evidence
these payments. (Id. ¶ 21 (citing Nunn Declaration, Ex. 2).)
An itemized list of the transfers provided by Wells Fargo to Staff Management shows
that Wells Fargo transferred funds in the Wells Fargo Account to the Trustee on the following
dates and in the following amounts:
 	12/3/2015: $340,161.52
 	12/4/2015: $16,239.69
 	12/11/2015: $38,396.32
 	12/18/2015: $65,534.14
 	12/23/2015: $50,047.45
 	12/30/2015: $28,010.90
 	1/8/2016: $20,663.49
 	1/15/2016: $71,170.43
 	1/22/2016: $100,924.59
3 	The Hughes Declaration indicates that Staff Management’s bank is Bank of America. (Hughes
Declaration, ¶ 7.)
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 	1/27/2016: $21,082.86
 	7/18/2017: $67,626.86
(Id. ¶ 26; Nunn Declaration, Ex. C.)
The total amount transferred from the Wells Fargo Account to the Trustee in these eleven
transactions was $819,858.25. (Id. ¶ 26.) Based on Staff Management’s discussions with Wells
Fargo, Staff Management believes an additional $200,324.21 was transferred from the Wells
Fargo Account to the Trustee, for a total amount of $1,020,182.46.4 (Injunction Motion ¶ 27
(citing Hughes Declaration ¶¶ 16–18).) In motion papers filed earlier this year, Wells Fargo also
stated that “it turned over any funds it held on CRD’s behalf either to the Trustee or to Noor. . .
.” (Id. ¶ 29 (citing Main Case, ECF Doc. # 978 at 2).)
Staff Management alleges that the Trustee knew that the monies transferred from the
Wells Fargo Account included Staff Management’s money. (Id. ¶ 31.) Staff Management points
to the complaint filed on March 4, 2016 by the Trustee in the Noor adversary proceeding to
support its view. (Id.; “Noor Complaint,” Noor Adv. Proc. No. 16-01037 (the “Noor Adversary
Proceeding”), ECF Doc. # 1.) In the Noor Complaint, the Trustee sought, among other things:
(i) the immediate turnover pursuant to section 542 of the Bankruptcy Code of the past due
payments under the Asset Purchase Agreement and all cash collected on account of any CRD
Receivables; (ii) the avoidance of the CRD sale as a constructive fraudulent transfer pursuant to
sections 548 and 550 of the Bankruptcy Code; (iii) a judgment that Noor’s failure to pay the
amounts past due under the Asset Purchase Agreement and withhold collections from the CRD
Receivables violated the automatic stay pursuant to section 362 of the Bankruptcy Code; and (iv)
4 	Staff Management states that these funds were not reflected on Wells Fargo’s summary because the
summary was based on payments listed in Staff Management’s original complaint. (Injunction Motion ¶ 28;
“Complaint,” ECF Doc. # 1.) On November 29, 2019, Staff Management filed an amended complaint (“Amended
Complaint,” ECF Doc. # 10) listing additional payments by Staff Management to the Wells Fargo Account.
(Injunction Motion ¶ 28.) Wells Fargo is still confirming the additional $200,324.21 amount. (Id.)
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a declaratory judgment that certain funds held at, or distributed by Wells Fargo, were property of
the estate pursuant to section 541 of the Bankruptcy Code. (Objection ¶ 11.)
The Noor Complaint alleged that “Noor represented that . . . Wells Fargo had collected
and retained the monies collected on account of the Noor Receivables that belong to Noor and
that those amounts were material to Noor.” (Noor Complaint ¶ 144.) The Noor Complaint also
states that “Wells Fargo holds approximately $1.3 million of CRD-Noor Disputed Funds” and
sought a declaration that those funds were property of the estate under section 541 of the
Bankruptcy Code. (Id. ¶¶ 239, 244.) Lastly, the Noor Complaint provides that “various Noor
customers—who used to be customers of CRD until the Transaction—have continued to pay
Wells Fargo by accident because of a failure to change bank payment information (and human
error).” (Noor Adversary Proceeding, ECF Doc. # 1-6 ¶ 5.) Staff Management also states that
the Trustee had access to CRD financial records and could see that disputed funds came from
Staff Management but did not return the funds or notify Staff Management that the funds would
be disbursed. (Injunction Motion ¶¶ 33–34.)
D. The Noor Settlement
On May 30, 2017 the Trustee entered into a settlement with Noor in the Noor Adversary
Proceeding (the “Noor Settlement”), which was so ordered by the Court on June 2, 2017.
(Objection. ¶ 12 (citing Noor Adversary Proceeding, ECF Doc. # 102); see Noor Settlement,
Noor Adversary Proceeding, ECF Doc. # 97-2.) The Noor Settlement provided, among other
things, the following settlement consideration:
Settlement Consideration. Upon approval of this Settlement Agreement:
a. 	Defendants release any claims to money that Defendants allege
the Trustee has received from Wells Fargo (the “Wells Fargo
Amounts”), the amount and ownership of which is subject to a
dispute between the Trustee and Defendants, and
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b. 	Defendants release any claims to the entirety of the CRD-Noor
OAP held by Wells Fargo, the ownership of which is disputed,
and which Wells Fargo has confirmed is $1,241,806.79 as of
April 26, 2017, to the Trustee. . . .
(Objection ¶ 13 (quoting Noor Settlement ¶¶ 1(a)-(b)).)
The Noor Settlement further provided that “[t]here will be no reconciliation of the CRD-
Noor OAP, the Wells Fargo Amounts, or any other amounts related thereto.” (Id. ¶ 14 (quoting
Noor Settlement ¶ 1(e)).)
The Noor Settlement provided the following release (the “Release”) from Noor to the
Trustee and the Debtors:
Defendants on behalf of themselves, their heirs, representatives and assigns,
do hereby fully, finally and forever waive, release and/or discharge the
Trustee, the Debtors, their estates, and their respective heirs, successors,
assigns, affiliates, officers, directors, shareholders, members, associates,
partners, subsidiaries, predecessors, successors, employees, attorneys, and
agents from any and all of Defendants’ claims, causes of action, suits, debts,
obligations, 	liabilities, 	accounts, 	damages, 	defenses, 	or 	demands
whatsoever, known or unknown, asserted or unasserted, which arise from
or otherwise relate to the transactions referenced in the Adversary
Proceeding or the Claim or result from any act or omission with respect
to the Adversary Proceeding or the Claim to the extent permitted by
law. . . .
(Id. ¶ 15 (quoting Noor Settlement ¶ 10) (emphasis in original).)
Staff Management indicates that it was not aware of or involved in the Noor Settlement
negotiations between Noor and the Trustee. (Nunn Declaration ¶ 12.)
E. The Illinois Lawsuit
On January 25, 2019, Noor filed an action against Staff Management in the United States
District Court for the Northern District of Illinois captioned Noor Staffing Group, LLC d/b/a J.D.
& Tuttle Hospitality Staffing v. Staff Management Solutions LLC and PeopleScout MSP, LLC,
Case No. 1:19-cv-00529 (the “Illinois Lawsuit”), seeking to recover the funds that Staff
Management sent to the Wells Fargo Account. (Injunction Motion ¶ 23.) Noor alleges in its
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complaint in the Illinois Lawsuit that “Staff Management directed a portion of the payments for
the labor services performed by [Noor] Staffing to a bank account, which was not owned by
[Noor] Staffing.” (Id. ¶ 24 (quoting Illinois Lawsuit, ECF Doc. # 1 ¶ 25).) Noor alleges that
Staff Management owes $1,082,447.29 under the Noor Contract. (Id. (citing Illinois Lawsuit,
ECF Doc. # 1 ¶¶ 18–31).) After the Illinois Lawsuit was filed, Staff Management claims that it
asked the Trustee and Wells Fargo to preserve the transferred funds, but they refused to do so.
(Injunction Motion ¶ 25.)
On June 24, 2019, Staff Management filed its answer and counterclaims against Noor in
the Illinois Lawsuit. (Illinois Lawsuit, ECF Doc. # 24 at 6–14.) Staff Management
counterclaims for unjust enrichment and a declaratory judgment that “the [Noor] Settlement
Agreement release[d] any claims by Noor against [Staff Management] regarding the funds sent
by Staff Management to the Wells Fargo Account.” (Id. at 13.) Staff Management’s unjust
enrichment claim against Noor is premised on Noor’s negotiations with the Trustee for the Noor
Settlement while simultaneously making claim to funds in the Wells Fargo Account. (Id. at 14.)
Noor was therefore enriched by, and benefited from, the funds paid by Staff Management. (Id.)
On March 6, 2020, Noor responded to Staff Management’s counterclaims and (i) denied
that it authorized Staff Management to send payments the Wells Fargo Account, (ii) admitted
that, while making claim to those funds, Noor negotiated the Noor Settlement with the Trustee,
and (iii) denied that it was enriched by, and benefited from, the funds paid by Staff Management.
(Id.; ECF Doc. # 59 at 5.)
At oral argument before this Court on April 8, 2020, the Trustee argued that Staff
Management’s defenses and counterclaims against Noor in the Illinois Lawsuit are duplicative of
Staff Management’s claims against the Trustee in this adversary proceeding. According to the
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Trustee, Staff Management should fully prosecute its claims against Noor before the Illinois
District Court, instead of substituting the Trustee for Noor in the present case by asserting the
same claims.
At oral argument, the parties also indicated that fact discovery in the Illinois Lawsuit
must be completed by May 6, 2020. A status conference is scheduled in the Illinois Lawsuit for
May 14, 2020.
F. 	Staff Management’s Motion to Enforce the Noor Settlement
On August 8, 2019, Staff Management filed a motion in the Debtors’ chapter 11 case to
enforce the Noor Settlement. (“Settlement Enforcement Motion,” Main Case, ECF Doc. # 965.)
In the Settlement Enforcement Motion, Staff Management argued that Noor’s Release in the
Noor Settlement covered the funds in the Wells Fargo Account that were being litigated in the
Illinois Lawsuit, thus precluding any liability. (Objection ¶ 16; see, e.g., Settlement Enforcement
Motion ¶¶ 1, 18–20, 26–27, 32–33, 36, 38–39, 41–42, 44–45, 48.)
On October 10, 2019, the Court entered an order denying the Settlement Enforcement
Motion. (“Settlement Enforcement Order,” Main Case, ECF Doc. # 991.) The Settlement
Enforcement Order found that the “[Noor Settlement] provided, among other things, that Noor
released all claims related to the Wells Fargo Account” and the “the terms of the [Noor
Settlement] protect the Trustee, the Debtors, [and] their estates.” (Id. at 4, 15; Objection ¶ 17.)
However, the Court held that Staff Management did not have standing to directly enforce the
Noor Settlement because Staff Management was not a party to the Noor Settlement and was not
unambiguously included in Noor’s Release. (Settlement Enforcement Order at 14; Objection ¶
17.) The Settlement Enforcement Order expressly declined to reach the issue whether the Noor
Settlement and Noor’s Release barred any claims that Staff Management could assert against the
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Debtors’ estates related to the Wells Fargo Account, as that issue was not before the Court.
(Settlement Enforcement Order at 7 n.2; Objection ¶ 18.)
Pursuant to the Settlement Enforcement Order, Staff Management told the Court at oral
argument that it is precluded from raising certain affirmative defenses and counterclaims in the
Illinois Lawsuit.
G. The Current Estate Balance
As of the filing of the Injunction Motion, the Trustee’s operating report, dated December
9, 2019, lists a remaining cash balance for the estate of $2,610,754 as of October 31, 2019.
(Main Case, ECF Doc. # 1017 at 2.)5 The operating report also lists $5,072,505 in accounts
payable, and a number of large fee applications have been filed recently totaling $2,930,533.53.
(Injunction Motion ¶ 36.) Thus, Staff Management argues that it is not adequately protected
because the estate only has $2,610,754 on hand, but contemplates making payments in excess of
$2,930,533.53. (Id. ¶ 37.)
The Trustee counters that the Debtors continue to bring in millions of dollars in
receivables and from litigations that have been concluded. (Objection ¶ 31.)
H. The Pending Adversary Proceeding and Injunction Motion
On October 11, 2019, Staff Management filed the Complaint against the Trustee, Wells
Fargo, and Noor seeking to recover funds that were mistakenly transferred to the Wells Fargo
Account. (Injunction Motion ¶ 35.) After Staff Management filed its First Injunction Motion,
the Court entered a consent order on October 25, 2019, requiring the Trustee to “set aside and
reserve $440,000 of funds in the Debtor’s estates . . . for ninety (90) days (the ‘Reserve Period’),
5 	Since December 2019, the Trustee has filed three subsequent operating reports. The most recent operating
report, dated March 23, 2020, indicates a remaining cash balance of $1,563,669 as of January 31, 2020. (ECF Doc.
# 1050 at 2.) The March operating report also lists $4,732,113 in accounts payable (for professional fees incurred
and unpaid since February 2020). (Id. at 5; Reply ¶ 7.)
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and such amount shall not be disbursed during the Reserve Period absent a further Order of this
Court.” (“Consent Order,” ECF Doc. # 5 at 3 (emphasis omitted).) On November 29, 2019,
Staff Management filed the Amended Complaint for money had and received and unjust
enrichment against the Trustee and Wells Fargo. (Amended Complaint.)
On December 24, 2019, Staff Management filed the pending Injunction Motion, arguing
that (1) it will suffer irreparable harm if the Trustee uses the funds; (2) Staff Management’s
adversary proceeding against the Trustee is likely to succeed on the merits; and (3) serious issues
going to the merits and tipping of the equities weigh in Staff Management’s favor. (Injunction
Motion ¶¶ 38–53.)
I. 	Trustee’s Objection
On March 30, 2020, the Trustee filed the Objection, arguing that the Noor Settlement and
Staff Management’s prior admissions bar recovery from the Debtors’ estates in this adversary
proceeding. (Objection at 6.) The Trustee further argues that, although Staff Management may
have defenses to the claims that Noor asserts against it in the Illinois Lawsuit, those defenses do
not constitute affirmative claims against the Debtors’ estates or the Trustee. (Id.)
In response to the Injunction Motion, the Trustee first argues that Staff Management
cannot meet its burden of establishing a clear right to the drastic remedy of a preliminary
injunction. (Id. ¶¶ 24–25.) Staff Management faces no irreparable harm: (i) Staff Management’s
claims are speculative and premature because they are contingent on Noor obtaining a judgment
against it; (ii) Staff Management sat on its rights for several years, and its inaction establishes
that it will not suffer irreparable injury in the absence of an injunction; (iii) Staff Management’s
pursuit of money damages bars the issuance of a preliminary injunction; and (iv) Staff
Management remains adequately protected. (Id. ¶¶ 26–32.)
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Second, the Trustee argues that Staff Management cannot demonstrate likelihood of
success on the merits because the Noor Settlement and Staff Management’s prior admissions
both expressly indicate that Noor released the Trustee of any liability related to the funds in the
Wells Fargo Account. (Id. ¶¶ 34–40.) The Trustee further argues that Staff Management’s
equitable claims must be defeated because the “mistake of fact” doctrine is inapplicable where
the payee has changed its position to its detriment in reliance on the mistaken payments. (Id. ¶¶
41–43.)
Finally, the Trustee argues that the equities strongly weigh against granting Staff
Management the requested relief because such relief would effectively unwind the Noor
Settlement by voiding an unambiguous release and forcing the Trustee to indirectly repay to
Noor the very settlement currency that he fought to obtain. (Id. ¶¶ 44–47.)
J. 	Staff Management’s Reply
In its Reply, Staff Management rejects the Trustee’s argument that it has not shown a
likelihood of success on the merits because the Trustee does not deny that he has funds
belonging to Staff Management. (Reply ¶ 1.) Further, Staff Management took immediate action
after being served in the Illinois Lawsuit, including requesting that the Trustee immediately
preserve the disputed funds and bank records to support future motion practice. (Id. ¶ 2.) Staff
Management soon thereafter filed the Settlement Enforcement Motion. (Id.)
Citing to case law in this Circuit, Staff Management indicates that injunctions are
appropriate where a defendant took steps to frustrate a future judgment or where the defendant
may become insolvent. (Id. ¶ 3 (quoting Broker Genius, Inc. v. Volpone, 313 F. Supp. 3d 484,
497 (S.D.N.Y. 2018).) Staff Management also argues that it is not adequately protected because
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the estate has been depleted by $1,047,085 in 3.5 months and there are over $2 million in unpaid
fee applications. (Id. ¶¶ 4–7.)
Additionally, the Trustee argues that it was not a party to the Noor Settlement between
the Trustee and Noor, so just because Noor released the Trustee does not mean that
Staff Management has released Noor. (Id. ¶ 8.) Finally, Staff Management maintains that a
change of position defense to the mistake of fact doctrine is inapplicable where, as here, the
payee—i.e., the Trustee—was aware that it had funds that did not belong to the estate, yet
provided no notice to Staff Management. (Id. ¶ 10.)
II. 	LEGAL STANDARD
Pursuant to section 105(a) of the Bankruptcy Code, “[t]he court may issue any order,
process, or judgment that is necessary or appropriate to carry out the provisions of this title.” 11
U.S.C. § 105(a). The traditional standards for issuance of an injunction pursuant to Rule 65 of
the Federal Rules of Civil Procedure are made applicable to adversary proceedings under
Bankruptcy Rule 7065. See E. Air Lines v. Rolleston (In re Ionosphere Clubs, Inc.), 111 B.R.
423, 431 (Bankr. S.D.N.Y. 1990). “A decision to grant or deny a preliminary injunction is
committed to the discretion of the district court.” Polymer Tech. Corp. v. Mimran, 37 F.3d 74,
78 (2d Cir. 1994).
The Second Circuit recognizes a preliminary injunction as “one of the most drastic tools
in the arsenal of judicial remedies” that should be granted only in extraordinary circumstances.
Amusement Indus., Inc. v. Citigroup Glob. Mkts. Realty Corp. (In re First Republic Group
Realty, LLC.), 421 B.R. 659, 677 (Bankr. S.D.N.Y. 2009) (quoting Hanson Trust PLC v. SCM
Corp., 774 F.2d 47, 60 (2d Cir. 1985)). Because the issuance of a preliminary injunction is
considered an extraordinary remedy, the movant bears a heavy burden to show that it is entitled
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to an injunction. See Sussman v. Crawford, 488 F.3d 136, 139–40 (2d Cir. 2007) (“[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.”) (quoting Mazurek v.
Armstrong, 520 U.S. 968, 972 (1997)) (emphasis in original).
The Second Circuit has explained that a party seeking a preliminary injunction must
show that either “he is likely to succeed on the merits; that he is likely to suffer irreparable harm
in the absence of preliminary relief; that the balance of equities tips in his favor; and that an
injunction is in the public interest,” or, alternatively, “show irreparable harm and either a
likelihood of success on the merits or sufficiently serious questions going to the merits to make
them a fair ground for litigation and a balance of hardships tipping decidedly toward the party
requesting the preliminary relief.” Am. Civil Liberties Union v. Clapper, 785 F.3d 787, 825 (2d
Cir. 2015) (internal quotation marks and citations omitted); see also Winter v. Nat. Res. Def.
Council, Inc., 555 U.S. 7, 20 (2008).
III. 	DISCUSSION
The Court denies Staff Management’s Injunction Motion. First, Staff Management’s
claims against the Trustee in the pending adversary proceeding and Injunction Motion are
duplicative of the issues currently being litigated by Staff Management and Noor in the Illinois
Lawsuit. Second, Staff Management has failed to meet its burden to show that the drastic
remedy of a preliminary injunction is warranted here. See Sussman, 488 F.3d at 139.
A. Staff Management’s Claims Against the Trustee Are Duplicative of Staff
Management’s Counterclaims Against Noor in the Illinois Lawsuit
After this Court denied Staff Management’s Settlement Enforcement Motion on the
ground that Staff Management lacked standing to enforce Noor’s release of the Debtors and the
Trustee, Staff Management sued the Trustee in the pending adversary proceeding for the same
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defenses it raised against Noor in the Illinois Lawsuit. At oral argument, it was revealed that
Staff Management filed a counterclaim against Noor in the Illinois Lawsuit, and that the Illinois
Lawsuit is in the middle of discovery. Staff Management’s counterclaim against Noor in the
Illinois Lawsuit includes a cause of action for unjust enrichment. Like the allegations against the
Trustee for unjust enrichment in the Amended Complaint, Staff Management alleges in the
Illinois Lawsuit that it sent payments to the Wells Fargo Account; Noor, while making claim to
those funds, negotiated the Settlement Agreement with the Trustee; and Noor was therefore
enriched by and/or benefited from the funds paid by Staff Management. (Illinois Lawsuit, ECF
Doc. # 24 at 14.) The Trustee is correct in arguing that Staff Management should pursue the
merits of its defenses against Noor before the Illinois District Court, where its case has been
pending for fourteen months, instead of seeking injunctive relief against the Trustee from this
Court for identical causes of action.
B. Staff Management Has Not Clearly Shown That It Is Entitled to a Preliminary
Injunction
Staff Management has not made a clear showing of irreparable harm absent the relief
requested, a likelihood of success on the merits in the pending adversary proceeding, or that the
balance of the equities tip decidedly in its favor.
1. 	Staff Management Has Not Demonstrated Irreparable Harm in the Absence of
a Preliminary Injunction
“Irreparable harm is an injury that is not remote or speculative but actual and imminent,
and for which a monetary award cannot be adequate compensation.” EMA Fin., LLC v. Vystar
Corp., 1:19-cv-01545 (ALC), 2020 WL 1233608, at *4 (S.D.N.Y. Mar. 13, 2020) (quoting
Aguilar v. Immigration & Customs Enf’t Div. of the U.S. Dep’t of Homeland Sec., 811 F. Supp.
2d 803, 828 (S.D.N.Y. 2011)). “Irreparable harm is the single most important prerequisite for
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the issuance of a preliminary injunction.” Freedom Holdings, Inc. v. Spitzer, 408 F.3d 112, 114
(2d Cir. 2005) (quoting Rodriguez v. DeBuono, 175 F.3d 227, 233–34 (2d Cir. 1999)).
“To determine whether a plaintiff has shown irreparable harm, the court must actually
consider the injury the plaintiff will suffer if he or she loses on the preliminary injunction but
ultimately prevails on the merits, paying particular attention to whether the remedies available at
law, such as monetary damages, are inadequate to compensate for that injury.” Hyde v. KLS
Prof’l Advisors Grp., LLC, 500 F. App’x 24, 25 (2d Cir. 2012) (quoting Salinger v. Colting, 607
F.3d 68, 80 (2d Cir. 2010)). “An irreparable harm is one that cannot be remedied through a
monetary award.” In re First Republic Group Realty, LLC., 421 B.R. at 678. In Grupo
Mexicano de Desarrollo S.A. v. All. Bond Fund, Inc., 527 U.S. 308 (1999), the Supreme Court
held that, in an action for money damages, a trial court did not have the authority issue a
preliminary injunction to prohibit a defendant from transferring assets. Thus,
Pursuant to Grupo . . . , district courts have no authority to issue a
prejudgment asset freeze pursuant to Rule 65 where such relief was not
‘traditionally accorded by courts of equity.’ But they maintain the equitable
power to do so where such relief was traditionally available: where the
plaintiff is pursuing a claim for final equitable relief, . . . and the preliminary
injunction is ancillary to the final relief.
Gucci Am., Inc. v. Weixing Li, 768 F.3d 122, 131 (2d Cir. 2014) (internal quotation marks and
citations omitted).
Staff Management’s basis for demonstrating irreparable harm is that, due to purportedly
dwindling estate assets,6 the Trustee will not be able to satisfy a judgment in Staff Management’s
favor if Staff Management prevails in this adversary proceeding. (Injunction Motion ¶¶ 43–45.)
Citing to Vis Vires Grp., Inc. v. Endonovo Therapeutics, Inc., the Trustee argues that Staff
6 	The estate’s remaining cash balance is $1,563,669 as of February 29, 2020 (Main Case, ECF Doc. # 1050)
and the Trustee expects to bring in further recoveries for Debtors’ estate from future litigations. (Objection ¶ 31.)
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Management’s pursuit of monetary damages precludes the issuance of a preliminary injunction.
149 F. Supp. 3d 376 (E.D.N.Y. 2016). However, that case is not applicable to the Injunction
Motion. Vis Vires Grp., Inc. holds that Grupo and its progeny “do[] not preclude a court from
entering a preliminary injunction to protect the assets where the plaintiff’s underlying claims are
primarily equitable in nature.” Id. at 393 (emphasis added). Staff Management’s claims—
money had and received and unjust enrichment—are both equitable and, therefore, nothing
prevents this Court from entering a preliminary injunction to protect estate assets. See Volpone,
313 F. Supp. 3d at 497 (“An unjust enrichment claim ‘can serve as the basis for a preliminary
injunction freezing assets,’ under circumstances where ‘the defendant took steps to frustrate a
future judgment or that the defendant is or imminently will be insolvent.’”) (quoting Shaoxing
Bon Textiles Co. v. 4-U Performance Grp. LLC, No. 16 CIV. 6805 (JSR), 2017 WL 737315, at
*3 (S.D.N.Y. Feb. 6, 2017)) (emphasis omitted).
Staff Management cites to Drobbin v. Nicolet Instrument Corp. to support its claim of
irreparable harm because “[w]here a plaintiff’s injury is theoretically compensable in money
damages but, as a practical matter, the defendant would not or could not respond fully for those
damages, preliminary injunctive relief has been deemed necessary to protect plaintiff from
irreparable injury.” 631 F.Supp. 860, 912 (S.D.N.Y. 1986). Not only did Drobbin involve a
claim for money damages (which, as discussed above, is not the case here), but the parties
against whom an injunction was being sought in that case also did not have “sufficient assets to
pay any damages to which [the Movant] would be entitled in lieu of the shares.” Id. Unlike those
parties, Staff Management appears to be adequately protected in the pending matter. The
Debtors have $1,563,669 cash on hand as of their March operating report. (Objection ¶ 31
(citing Main Case, ECF Doc. # 1050 at 5–6).) Further, the Trustee maintains that the Debtors
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continue to bring in millions of dollars in receivables and from litigations that have been
concluded, and the Trustee is still prosecuting litigations that are expected to result in significant
recoveries for the Debtors’ estates. (Id. ¶ 31 (citing Case No. 15-12329, ECF Doc. # 1050, at
MOR-3 (Balance Sheet)).) Despite Staff Management’s concerns regarding the several pending
fee applications, Staff Management’s funds are adequately protected given the state of Debtors’
estate. (Compare Injunction Motion ¶¶ 36, 44, with Objection ¶¶ 31–32.)
The Court also finds that Staff Management will not suffer irreparable harm in the
absence of a preliminary injunction because Staff Management sat on its rights for several years.
Staff Management alleges that its last payment to the Wells Fargo Account was made in January
2016, and Noor filed the Illinois Lawsuit against Staff Management in January 2019—more than
fourteen months ago. (Objection ¶ 28 (citing Injunction Motion ¶¶ 20, 23).) Nearly four years
after its last payment to the Wells Fargo Account and ten months after Noor filed the Illinois
Lawsuit against it, Staff Management filed the First Injunction Motion. (Id.) Staff Management
claims that it made a strategic decision to pursue an alternative course of action to a preliminary
injunction after the Illinois Lawsuit was filed—i.e., the Settlement Enforcement Motion—but
that motion was still filed nearly seven months after the Illinois Lawsuit was filed.
Staff Management’s delay clearly undermines its claim of irreparable harm and
“demonstrates a lack of need for speedy action” that would justify the issuance of a preliminary
injunction. See Lanvin Inc. v. Colonia, Inc., 739 F. Supp. 182, 192 (S.D.N.Y. 1990) (citing
Citibank, N.A. v. Citytrust, 756 F.2d 273, 276 (2d Cir. 1985) (denying preliminary injunction
where movant sat on rights for seven months because “[p]reliminary injunctions involve an
urgent need for speedy action to protect the movant’s rights”)); see also Tough Traveler, Ltd. v.
Outbound Prods., 60 F.3d 964, 968 (2d Cir. 1995) (“[A]ny such presumption of irreparable harm
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is inoperative if the plaintiff has delayed either in bringing suit or in moving for preliminary
injunctive relief. Though such delay may not warrant the denial of ultimate relief, it may,
standing alone, preclude the granting of preliminary injunctive relief because the failure to act
sooner undercuts the sense of urgency that ordinarily accompanies a motion for preliminary
relief and suggests that there is, in fact, no irreparable injury.”) (internal quotations marks and
citations omitted); Citibank, 756 F.2d at 276 (delay of suit for nine months after receiving notice
in the press, and ten weeks after receiving actual notice, negates any presumption of irreparable
harm).
2. 	Staff Management Is Not Likely To Succeed on the Merits Of Its Equitable
Claims
Staff Management argues that it is likely to succeed in recovering the funds mistakenly
transferred and credited to the Wells Fargo Account and the Trustee by applying the mistake of
fact doctrine to its unjust enrichment and money had and received claims. (Injunction Motion ¶¶
46–51.) 7
With respect to the mistake of fact doctrine, the Court agrees with the Trustee that Staff
Management is unlikely to recover under the mistake of fact doctrine because the Trustee
changed its position to its detriment in reliance on the allegedly mistaken payments. (Objection
¶¶ 41–43.) “[T]he rule that a mistaken payment must be restored ‘has been applied where the
cause of action has been denominated as one for money had and received, for unjust enrichment
or restitution, or upon a theory of quasi contract.’” U.S. ex rel. Ryan v. Staten Island University
Hosp., No. 04–CV–2483 (JG)(CLP), 2011 WL 1841795, at *5 (E.D.N.Y. 2011) (quoting Banque
Worms v. BankAmerica Int’l, 77 N.Y.2d 362, 366 (1991)). Under New York law, while a party
7 	Staff Management also asserts a claim for declaratory relief in the Amended Complaint. The relief
requested in the Injunction Motion, however, is limited to Staff Management’s causes of action against the Trustee
for money had and received and unjust enrichment. (Id. ¶ 46.)
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who has made a mistaken payment to another based upon a unilateral mistake of fact may
recover the payment under the mistake of fact doctrine, such recovery is precluded where “the
payee has changed his position to his detriment in reliance upon the mistaken payment.” Mfrs.
Bank Saderat Iran v. Amin Beydoun, Inc., 555 F. Supp. 770, 773 (S.D.N.Y. 1983) (citation
omitted).
Assuming Staff Management meets its burden to show that mistaken payments were
made to the Wells Fargo Account, the Trustee has convincingly shown that he detrimentally
changed his position in reliance on the purportedly mistaken payments. Staff Management’s
admissions in the Settlement Enforcement Motion that the funds it mistakenly transferred to the
Wells Fargo Account were used by Noor to fund the Noor Settlement support this conclusion.
(Objection ¶ 35 (“Noor used those [Wells Fargo] funds as leverage in its negotiations for the
Settlement Agreement.”) (citing Settlement Enforcement Motion ¶ 27).) The Trustee states that
he would not have entered into the Noor Settlement if it did not finally and fully resolve Noor’s
claims, or if more than $1 million of the settlement consideration was subject to being clawed
back. (Id. ¶ 43.) 8
As argued by the Trustee, the clear intent of the Noor Settlement was to fully and finally
resolve all claims between the Trustee, the Debtors, and Noor, which expressly included any
claims related to the Wells Fargo Account. (Id. ¶ 40.) It cannot be reasonably argued that the
Trustee negotiated and entered into the Noor Settlement on the understanding that Noor would
8 	Staff Management argues that the defense of a change in position is not available to the Trustee because (1)
the Trustee’s position is not irrevocable (as required for a change in position defense under New York law), since he
can still pursue Noor, a party to this lawsuit, and (2) the Trustee was aware of the mistaken payments. (Reply ¶¶
10–14 (citing 82 N.Y. JUR. 2d Payment and Tender § 106 n.8 (2020)).) Both arguments lack merit. First, the
Settlement Enforcement Order squarely precludes the Trustee from pursuing claims against Noor for funds in the
Wells Fargo Account. Second, in the Trustee Declaration, the Trustee states that he “was not aware of Staff
Management’s allegedly mistaken payments until years later when Staff Management raised the issue in the context
of this litigation.” (Trustee Declaration ¶ 14.)
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later be able seek recovery from a third party—Staff Management—that would then turn to the
Trustee in order to recover any monetary damages due to Noor.
While Staff Management may argue that its claims for money had and received and
unjust enrichment are likely to succeed on the merits, it is equally true that the Trustee relied on
the mistaken payments to its detriment, as indicated by its good-faith negotiations with Noor
resulting in the Noor Settlement. Accordingly, Staff Management has not persuasively argued
that it is likely to succeed on the merits of this adversary proceeding in light of the Trustee’s
defense.
The Trustee’s argument that Staff Management cannot demonstrate likelihood of success
on the merits because the Noor Settlement and Staff Management’s prior admissions expressly
indicate that Noor released the Trustee of any liability related to the Wells Fargo funds is not
dispositive. (Id. ¶¶ 34–40.) Though the Trustee points to Staff Management’s prior admissions
in the Settlement Enforcement Motion, the Court expressly declined to reach the issue of
whether the Noor Settlement and Noor’s Release barred any claims that Staff Management could
assert against the Debtors’ estates related to the Wells Fargo funds, as that issue was not before
the Court. (Settlement Enforcement Order at 7 n.2.) Accordingly, Staff Management’s prior
admissions in the Settlement Enforcement Motion are not dispositive of whether Staff
Management is likely to succeed on the merits of its claims.
3. 	The Tipping of the Equities Weighs Against Injunctive Relief
Irreparable injury is a requirement for issuing a preliminary injunction and the Court has
found it lacking here. The Court likewise concludes that Staff Management has failed to carry
its burden of demonstrating that there are sufficiently serious questions going to the merits to
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make them a fair ground for litigation. Thus, the Court does not need to go further with its
analysis.
Nevertheless, the Court rejects Staff Management’s alternative argument that serious
issues going to the merits, coupled with a tipping of the equities in favor of the injunction, would
also be satisfied. (Injunction Motion ¶ 52.) The requested relief would effectively unwind the
Noor Settlement by voiding an unambiguous release and forcing the Trustee to indirectly repay
to Noor the very settlement currency that he fought to obtain. (Objection ¶ 45.) The Court finds
that it would be highly inequitable to deprive the Debtors’ estates of their hard-fought settlement
consideration, or to impede the Trustee’s administration of the Debtors’ estates to the detriment
of the estates and their creditors. (Id. ¶ 46.)
IV. 	CONCLUSION
For the foregoing reasons, this Court denies Staff Management’s Injunction Motion.
Dated: 	April 15, 2020
New York, New York
_____Martin Glenn____________
MARTIN GLENN
United States Bankruptcy Judge
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