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NVR, Inc. v. Majestic Hills, L.L.C.

United States District Court, W.D. Pennsylvania

September 25, 2019

NVR, INC. d/b/a RYAN HOMES, Plaintiff,
v.
MAJESTIC HILLS, L.L.C. et al., Defendants.

          MEMORANDUM OPINION

          J. NICHOLAS RANJAN, UNITED STATES DISTRICT JUDGE

         Before the Court is Plaintiff NVR, Inc.’s (“NVR”) motion for preliminary injunction [ECF 142] against Defendants Majestic Hills, LLC (“Majestic Hills”), JND Properties, LLC (the corporate parent of Majestic Hills), its manager, Joseph DeNardo, and his wife, Shari DeNardo (collectively, “Developer Defendants”). For the reasons that follow, the Court will deny the motion.

         I. BACKGROUND

         In 2004, homebuilder NVR contracted with Majestic Hills to purchase 179 residential building lots in what is now known as the Majestic Hills development in North Strabane Township, Washington County, Pennsylvania. [ECF 1, at ¶ 12]. In 2018, a devastating landslide occurred at the development, which caused four families to evacuate their homes and necessitated significant remediation work. [ECF 143, at 2]. Homeowners, municipal entities, and others have pursued legal action in state court against NVR, the Developer Defendants, and others. [Id.].

         On October 5, 2018, NVR filed this action against the Developer Defendants, engineering firm Pennsylvania Soil & Rock, Inc., engineer Mark R. Brashear, and earthwork contractor Alton Industries, Inc., asserting, among other things, causes of action for negligence, breach of contract, and indemnification. [ECF 1, at ¶¶ 86-115]. NVR seeks money damages in excess of $1.6 million, but claims that the total damages caused by the Developer Defendants’ alleged negligence currently exceeds $7 million. [ECF 143, at 2].

         On July 17, 2019 NVR filed a motion for preliminary injunction to preserve Developer Defendants’ assets. [ECF 142]. NVR argues that a freeze is appropriate for various reasons, including that: 1) Developer Defendants’ insurance coverage is in doubt; 2) they are likely to be found liable in this action; 3) they have already fallen behind on payments to subcontractors; 4) they have a practice of shifting assets between non-party entities; and 5) they have publicly admitted that they are or will be insolvent. [ECF 143, at 13]. In particular, NVR seeks an order either freezing Developer Defendants’ assets (as well as the assets of related entities Ashwood Land Partners, LP and Ashwood Commons, LLC) or ordering the Developer Defendants to put $7 million into an escrow account pending the conclusion of this action. [ECF 142-1].

         The parties submitted the motion on the briefs and did not request oral argument. The motion is ripe for disposition.

         II. DISCUSSION

         A. Preliminary Injunction Standard.

         Federal Rule of Civil Procedure 65(a) grants federal courts the authority to issue preliminary injunctions. In diversity cases, like this one, federal courts apply state law to substantive issues and federal law to procedural issues. See Hanna v. Plumer, 380 U.S. 460, 465 (1965) (“[F]ederal courts are to apply state substantive law and federal procedural law.”). The Third Circuit has clearly stated that it “utilize[s] a federal standard in examining requests to federal courts for preliminary injunctions.” Instant Air Freight Co. v. C.F. Air Freight, Inc., 882 F.2d 797, 799 (3d Cir. 1989); see System Operations, Inc. v. Scientific Games Dev. Corp., 555 F.2d 1131, 1141 (3d Cir. 1977) (“Although the right upon which this cause of action is based is state-created, Rule 65(a) of the Federal Rules of Civil Procedure contemplates a federal standard as governing requests addressed to federal courts for preliminary injunctions.”). Therefore, there can be no dispute that federal law applies to the preliminary injunction standard to be applied here.

         The preliminary injunction standard is well known-“[t]here are four factors to consider in assessing a motion for a preliminary injunction: (1) whether the movant has shown a reasonable probability of success on the merits; (2) whether the movant will be irreparably harmed by the denial of relief; (3) whether granting preliminary relief will result in even greater harm to the nonmoving party; and (4) whether granting the preliminary relief will be in the public interest.” Figueroa v. Precision Surgical, Inc., 423 F. App’x 205, 207-08 (3d Cir. 2011) (citing Council of Alternative Political Parties v. Hooks, 121 F.3d 876, 879 (3d Cir.1997)); accord American Express Travel Related Servs., Inc. v. Sidamon-Eristoff, 669 F.3d 359, 366 (3d Cir. 2012). However, before the Court can examine these four factors, it first must decide whether it even has the authority to issue a preliminary injunction under the circumstances.

         B. Preliminary Injunctions in Non-Equity Cases Are Controlled by Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308 (1999).

         In Grupo, the Supreme Court held that a federal district court lacks the authority to freeze assets in an action for damages where no lien or equitable interest in the assets is claimed. 527 U.S. at 332–33; see also Karpov v. Karpov, 555 F. App’x 146, 147 n.2 (3d Cir. 2014) (same; affirming district court’s determination that it “lacked the authority” to issue an injunction preventing the defendant from transferring assets). The Court reasoned that the equity power of the federal courts equates with that exercised by the High Court of Chancery in England at the time of the adoption of the Constitution and the Judiciary Act of 1789. Grupo, 527 U.S. at 318. Rule 65 has not altered the contours of this power. Id. at 318-19. The flexibility of equity must be “confined within the broad boundaries of traditional equitable relief,” absent a federal statute which has expanded the traditional rules. Id. at 322. Therefore, absent an act by Congress bestowing additional power upon the courts, the traditional rule remains that the federal courts have no equity power to restrain a defendant from controlling or alienating its assets pending a decision in an action for money damages and before any judgment is entered. Id. at 333.

         Since Grupo, district courts in the Third Circuit have nearly uniformly declined to grant preliminary injunctions in cases, such as the instant one, where only damages are sought and no judgment has been entered. See, e.g.,Novatek Corp. v. Mallet, 324 F. Supp. 3d 560, 566 (E.D. Pa. 2018) (“Under the circumstances, we conclude that even if Novatek has proven the elements for a preliminary injunction . . ., Novatek asks for equitable relief this court has no power to grant.”); Wallace v. Powell, CA Nos. 9-286, 9-291, 9-357, 9-630, 2014 WL 12638031, at *2 (M.D. Pa. Oct. 21, 2014) (“Under Grupo[,]. . . absent an equitable interest in the Avoca Fee or a claim for equitable relief, Plaintiffs’ claim is not sufficient to warrant entry of a freeze order. And, because Plaintiffs have not identified an equitable basis upon which the prejudgment freeze sought here can be granted, the Supreme Court’s decision in Grupo . . . forecloses Plaintiffs’ request for a preliminary injunction.”); CNG Int’l v. Power Ptnrs. Int’l, Inc., CA No. 01-1393, 2006 U.S. Dist. LEXIS 3603, at *3-*4 (W.D. Pa. Jan. 31, 2006) (“Plaintiffs make no allegation that they have an equitable claim to any of the assets defendant holds, or might obtain under the California judgment. Plaintiffs’ arguments and authorities are simply unavailing in the face of controlling Supreme Court precedent.”); Smithson v. York Cnty. Court of Common Pleas, CA No. 15-1794, 2016 U.S. Dist. LEXIS 102674, at *6 (M.D. Pa. Aug. 3, 2016) (citing Grupo for why court had no authority to grant “preliminary injunction freezing all of the defendants’ assets until this case is resolved.”); Akers v. Akers, CA No. 15-2512, 2015 U.S. Dist. LEXIS 100118, at *4 (E.D. Pa. ...


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