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Iroquois Bio-Energy Company, LLC v. Vertex Railcar Corp.

United States District Court, E.D. North Carolina, Southern Division

September 18, 2019

IROQUOIS BIO-ENERGY COMPANY, LLC, Plaintiff,
v.
VERTEX RAILCAR CORPORATION, Defendant.

          ORDER AND MEMORANDUM & RECOMMENDATION

          KIMBERLY A. SWANK, UNITED STATES MAGISTRATE JUDGE

         This matter is before the court on Plaintiff's Motion for Prejudgment Attachment, Temporary Restraining Order, and Preliminary Injunction, filed August 22, 2019 [DE #17]. Plaintiff's motion has been referred to the undersigned by Senior United States District Judge Malcolm J. Howard for such disposition as may be appropriate pursuant to 28 U.S.C. § 636(b)(1). On September 13, 2019, a hearing was held, via telephone, on Plaintiff's motion. Plaintiff was represented at the hearing by Benton Louis Toups of Cranfill Sumner & Hartzog, LLP; and Defendant was represented by Michael Murchison of Murchison, Taylor & Gibson, PLLC. For the reasons set forth below, Plaintiff's motion for prejudgment attachment is granted and it is recommended that Plaintiff's motion for injunctive relief be denied.

         BACKGROUND

         On March 11, 2019, Plaintiff Iroquois Bio-Energy Company, LLC (“Iroquois”), filed this diversity action against Defendant Vertex Railcar Corporation (“Vertex”) for breach of contract, alleging the following facts.

         Iroquois is a fuel ethanol producer and relies heavily on railcars to transport its ethanol from its plant in Indiana. Vertex, a Delaware corporation authorized to do business in the State of North Carolina, is a manufacturer of railcars with a facility in Wilmington, North Carolina. In 2016, Vertex and Iroquois entered into a sales contract pursuant to which Vertex agreed to manufacture and sell to Iroquois one hundred railcars at the price of $94, 500 each. Vertex has failed to deliver the railcars under the terms of the contract and has therefore breached the terms of the parties' agreement, causing Iroquois to suffer monetary damages. (Compl. [DE #1].)

         Vertex answered Iroquois' complaint, admitting that it did not deliver any railcars to Iroquois and is not in a position to do so. However, Vertex denies the existence of a valid contract or its breach thereof. (Answer [DE #9].)

         DISCUSSION

         In the motion presently before the court, Iroquois seeks prejudgment attachment of assets belonging to Vertex and preliminary injunctive relief restraining and enjoining the removal, destruction, or other disposition of property located at Vertex's manufacturing facility in Wilmington, North Carolina, as well as the transfer of any funds held by Vertex in any bank or financial institution to any foreign financial institution or foreign-held entity.

         In support of its motion, Iroquois has presented an affidavit of its attorney attesting to the following: Vertex is owned by three entities - 76% of its shares are owned by two companies based in China and 24% of its shares are owned by a Massachusetts limited liability company. Vertex has discontinued its operations and has no insurance coverage available to satisfy any judgment should one be entered in Plaintiff's favor. Iroquois is informed that there is approximately $35.2 million worth of business equipment and supplies located at Vertex's leased facility in Wilmington, North Carolina. Since it discontinued operations, Vertex has employed security guards at the facility. However, Iroquois has recently received information that security has been or will be discontinued in the near future. Given the facility's proximity to the North Carolina State Port in Wilmington (approximately two miles), Iroquois is concerned that Vertex's owners will ship its tangible property and transfer any funds located in domestic bank or financial institutions to a place outside the United States. Iroquois estimates it has incurred $5 million in damages as a result of Vertex's alleged breach and seeks to attach and enjoin any disposition of Vertex's “property, equipment or other assets [so that it is not] faced with the daunting, financially prohibitive and potentially impossible, prospect of attempting to enforce and collect the judgment in a foreign country.” (Aff. Benton L. Toups [DE #18] ¶ 17.)

         At the hearing of this matter, the court was informed that Vertex's financial accounts have been seized in partial satisfaction of a tax lien held by New Hanover County, North Carolina, and that the landlord of the Wilmington facility has a potential competing interest in Vertex's equipment and other property.

         I. Prejudgment Attachment

         Rule 64 of the Federal Rules of Civil Procedure provides that a litigant may avail itself of such prejudgment remedies as are available “under the law of the state where the court is located.” Fed.R.Civ.P. 64. (“At the commencement of and throughout an action, every remedy is available that, under the law of the state where the court is located, provides for seizing a person or property to secure satisfaction of the potential judgment.”). North Carolina law allows for prejudgment attachment ancillary to a pending action. The remedy is “in the nature of a preliminary execution against property . . . intended to bring property of a defendant within the legal custody of the court in order that it may subsequently be applied to the satisfaction of any judgment for money which may be rendered against the defendant in the principal action.” N.C. Gen. Stat. § 1-440.1. Grounds for prejudgment attachment exist, inter alia, where a money judgment is sought and the defendant is a for-profit corporation organized under a law other than the law of State of North Carolina. N.C. Gen. Stat. §§ 1-440.2, 1-440.3.

         Iroquois has demonstrated that it is entitled to prejudgment attachment under North Carolina law. Iroquois initiated this action seeking a money judgment for damages incurred as a result of Vertex's alleged breach of contract and has submitted an affidavit of its attorney in compliance with N.C. Gen. Stat. § 1-440.11(a). Records maintained by the State of Delaware, of which the court takes judicial notice, confirm that Vertex is a for-profit corporation organized under the laws of Delaware. See https://icis.corp.delaware.gov/Ecorp/EntitySearch/NameSearch.aspx (search “Entity Name” for “Vertex Railcar”) (last visited Sep. 17, 2019). Thus, Iroquois is entitled to a writ authorizing the prejudgment attachment of Vertex's property located within this district pursuant to N.C. Gen. Stat. § 1-440.1 et seq. and Rule 64.

         II. ...


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