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CJS Investors, LLC v. Berke

United States District Court, M.D. Florida, Orlando Division

May 24, 2018

CJS INVESTORS, LLC and CARY J. SIEGEL, Plaintiffs,
v.
MATT BERKE and SSLS-FACTORING, LLC, Defendants.

          ORDER

          GREGORY A. PRESNELL UNITED STATES DISTRICT JUDGE

         This matter comes before the Court after a hearing on the Motion for Preliminary Injunction (Doc. 15) filed by the Plaintiffs, CJS Investors, LLC (henceforth, “CJSI”) and Cary J. Siegel (“Siegel”), and the response in opposition (Doc. 25) filed by the Defendants, Matt Berke (“Berke”) and SSLS-Factoring, LLC (“SSLS”). At the hearing, which was held on May 17, 2018, the Court denied the motion. This order explains the rationale behind the denial.

         I. Background [1]

         The instant case involves a falling-out among the owners of a Florida limited liability company: HBC Strategies, LLC (“HBC”). HBC is not a party to this suit. HBC has, however, been sued by SSLS in state court in Georgia. And it is this Georgia suit that gives rise to the instant motion.

         Siegel owns CJSI. In October 2014, CJSI filed articles of organization with the Florida Department of State, thereby establishing HBC. Siegel has been president and Chief Executive Officer of HBC since its inception. On the same day the articles of organization were filed, CJSI executed an operating agreement (henceforth, the “Operating Agreement”), which, among other things, sets forth that HBC is to be managed by a board of managers. At the outset, CJSI was the sole member of HBC, owning all 1, 000 of HBC's membership units, as well as being the sole manager. In the succeeding months, another non-party, Walter Crossley, invested in HBC. Crossley received 100 membership units in HBC.

         In late 2014 and the first half of 2015, a Georgia limited liability company, Red Wizard Group, LLC (“Red Wizard”), made a number of loans totaling several hundred thousand dollars to HBC pursuant to a promissory note (the “Note”). On August 6, 2015, HBC entered into a loan modification agreement (henceforth, the “LMA”) with Defendant SSLS, to which Red Wizard had transferred all of its interest in the Note.[2] The LMA altered several terms of the Note, such as the interest rate to be paid by HBC and the deadline for paying off the loan, and authorized HBC to borrow up to another $575, 000. The LMA also provided that HBC transferred 460 membership units to SSLS and 50 to Defendant Berke. Thus, as of the date of the LMA, SSLS owned 46 percent of HBC; CJSI/Siegel[3] owned 39 percent; Crossley 10 percent, and Berke 5 percent. As part of this arrangement, Berke was named CFO of HBC.

         The LMA included two provisions under which SSLS's 460 membership units could be shifted to Siegel. First, the LMA provided that if HBC paid off the debt on time and with no events of default, SSLS would transfer 20 of its membership units to Siegel. The second potential equity shift involved National Landscape Management, another company controlled by Van de Grift (who controlled Red Wizard and SSLS). SSLS agreed that if HBC or Siegel helped land a maintenance contract for National Landscape Management with one of HBC's customers, SSLS would transfer 50 of its membership units to Siegel. As with the 20-unit shift, this 50-unit shift was made contingent upon HBC paying off the debt on time and without any events of default.

         The parties agree that HBC paid off the debt in August 2017, before it was due. They also agree that prior to that payoff, HBC and Siegel helped National Landscape Management obtain a maintenance contract with one of HBC's customers. However, they disagree as to whether any events of default occurred before the debt was paid. As a result, they also disagree as to whether Siegel is entitled to the 2 percent and 5 percent equity shifts from SSLS. In addition, the parties agreed to have HBC buy out Crossley's 10 percent interest in October 2017, but they disagree as to what happened to that interest. The Plaintiffs contend that the parties agreed to distribute Crossley's 10 percent interest to each owner in proportion to the interest they already owned; the Defendants argue that those 100 membership units are simply being held by HBC.

         Thus, the Defendants contend that the current ownership of HBC is essentially the same as it was when the LMA was executed, except that HBC now holds Crossley's share:

SSLS 46%
CJS 39%
HBC 10%

         Berke 5% The Plaintiffs contend that, as a result of the equity shifts from SSLS to Siegel and the distribution of Crossley's ...


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