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CRG Financial LLC v. Two Diamond Capital Corp.

United States District Court, D. Massachusetts

April 4, 2019

CRG FINANCIAL LLC et al., Plaintiffs,
v.
TWO DIAMOND CAPITAL Corp. et al., Defendants.

          MEMORANDUM AND ORDER

          Denise J. Casper, United States District Judge.

         Introduction

         For the reasons discussed here, the Court DENIES Plaintiffs' motion for a temporary restraining order and/or preliminary injunction, D. 5, principally due to lack of irreparable harm since Plaintiffs' requested injunctive relief is primarily concerned with recouping money damages and Plaintiffs have failed to demonstrate the lack of an adequate remedy at law.

         Relief Sought

         The parties entered agreements to fund a loan facility that would be used to help a distributor, Bevriqo, Inc. (“Bevriqo”), acquire vodka inventory from Defendant Medea, Inc. (“Medea”). Plaintiffs CRG Financial, LLC (“CRG”) and Claims Recovery Group, LLC (“Claims Recovery”) (collectively, “Plaintiffs”) seek injunctive relief against Defendant Two Diamond Capital Corp. (“Two Diamond”) in connection with the loan facility and related participation agreements, namely that Two Diamond: 1) immediately pay out $21, 757.83 to participants, including Plaintiffs; 2) be enjoined from keeping any or all of $26, 067.75 in proceeds from sale of a portion of the inventory at issue; 3) collect funds owed pursuant to a judgment in a civil action, Two Diamond Capital Corp. v. Bevriqo, Inc., et. al., Civil Action No. 17-83-cv-00865 (Mass. Super. Ct.); foreclose on security interests in Bevriqo and liquidate those security interests for the benefit of participants to the loan facility; 4) immediately provide participants with all documentation on potential sales of the vodka inventory; and 5) be enjoined from alienating assets “outside of the ordinary course of business” until further order of this Court. D. 5 at 1-2.

         Legal Standard

         To prevail on its motion, CRG must establish a reasonable likelihood of success on the merits; the potential for irreparable harm if the injunction is withheld; that the balance of equities tips in its favor; and that the injunction is in the public interest. Adams v. Wells Fargo Bank, N.A., No. 16-cv-40153-TSH, 2016 WL 6275589, at *3 (D. Mass. Oct. 26, 2016) (citing Voice of The Arab World, Inc. v. MDTV Medical News Now, Inc., 645 F.3d 26, 32 (1st Cir. 2011)). The Court has “broad discretion in deciding what evidence to consider in connection with a motion for preliminary injunction” or other injunctive relief. Rice v. Wells Fargo Bank, N.A., 2 F.Supp.3d 25, 31 (D. Mass. 2014) (considering affidavit of bank employees over plaintiff's hearsay objection in connection with preliminary injunction).

         Relevant Factual Background

         Two Diamond is an asset-based lender. D. 9 ¶ 5. On or about April 11, 2017, Two Diamond and Bevriqo entered a Loan and Security Agreement (“the “Loan Agreement”) secured by a promissory note (the “Bevriqo Note”) pursuant to which Two Diamond agreed to issue a $2, 000, 000 loan facility to Bevriqo. D. 1 ¶ 20; D. 1-8; D. 1-9. Richard Cabael (“Cabael”), a principal at Bevriqo, signed a personal guaranty in connection with the Bevriqo Note. D. 1-10. Two Diamond and Bevriqo also executed an inventory addendum pursuant to which Two Diamond agreed to make loan advances to the Bevriqo on a revolving demand basis that were not to exceed the lesser of $1, 500, 000 or “60% of the Lender-approved value of [Bevriqo's] Eligible Inventory located at Gateway Warehouses, Inc.” D. 1-8 at 23.

         Plaintiffs and others who had agreed to help Two Diamond finance Bevriqo's loan entered into separate participation agreements with Two Diamond. See, e.g., D. 1-11 (including CRG's Participation Agreement); D. 1-12 (including Claims Participation Agreement). Pursuant to their Participation Agreements, Plaintiffs CRG and Claims agreed to pay Two Diamond $800, 000 and $500, 000, respectively, for a total of $1.3 million to help finance Bevriqo's loan. See D. 1-11 at 2; D. 1-12 at 2. Under the Participation Agreements, Two Diamond agreed to (1) collect and receive Bevriqo's loan interest and other payments on behalf of Plaintiffs; and (2) distribute the portion of such payments owed to Plaintiffs. D. 1-11 at 4; D. 1-12 at 4. Plaintiffs and other participants were not parties to the Loan Agreement between Bevriqo and Two Diamond.

         At some point between April 11, 2017 and May 2017, Two Diamond transferred approximately $1.5 million to Medea to finance Bevriqo's acquisition of Medea's vodka. D. 1-14 at 4. In May 2017, Two Diamond paid Plaintiffs $12, 638.92 in purported interest on Bevriqo's loan, and, in June 2017, Two Diamond paid Plaintiffs $17, 222.26 in interest on the same. D. 1 ¶¶ 30-31. Plaintiffs allege, however, that these funds did not originate with Bevriqo, but instead, Two Diamond paid Plaintiffs from funds it had extended to Bevriqo as an advance on the loan at issue. D. 1 ¶ 32.

         By July 2017, Bevriqo had defaulted on the Loan Agreement. D. 1 ¶¶ 33-34. On August 16, 2017, Two Diamond filed a civil action against Bevriqo, Cabael and others in Plymouth Superior Court. D. 1 ¶ 35. Around the same time, Two Diamond took control of Bevriqo's vodka inventory and engaged The Branford Group (“Branford”), a third-party appraiser, to help liquidate the inventory. D. 9 ¶ 25; see D. 1 ¶ 36. Branford sold one container of vodka to a wholesaler for the State of New Hampshire Liquor and Wine Outlets. D. 1 ¶ 36. Two Diamond recovered $21, 757.83 from the proceeds of this sale (“the New Hampshire Sale”). D. 1 ¶ 37. Branford has been unable to sell the remaining collateral since the New Hampshire Sale. D. 9 ¶ 27. Two Diamond's efforts at liquidation are ongoing. D. 9 ¶ 28. On May 31, 2018, Two Diamond settled with Bevriqo, Cabael and Spectrum Spirits, Inc., which was also named as a defendant in the Plymouth Action, (collectively, “Bevriqo Parties”). According to the Settlement Agreement, the Bevriqo Parties jointly owed Two Diamond approximately $2, 250, 000, but Two Diamond agreed to accept $2, 100, 000 to settle the matter. D. 1-15 at 2. Two Diamond also agreed, among other things and under limitations discussed later, to release Cabael from his guaranty and to share certain net proceeds from sales of the remaining inventory. D. 1-15 at 4-5. On June 27, 2018, Two Diamond, Bevriqo, Cabael and Spectrum filed an agreement of judgment as to the Settlement Agreement. D. 1 ¶ 43; D. 1-16. That same day, Two Diamond requested an execution on the judgment. D. 1 ¶ 44.

         In December 2018, a company called Grocery Outlet submitted a purchase order for approximately 1, 000 cases of Medea vodka inventory. Plaintiffs allegedly asked Two Diamond for a copy of the purchase order and for the amount to be paid to Cabael as commission for his involvement in the ...


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