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Diesel Props S.R.L. v. Greystone Business Credit II LLC

March 5, 2008

DIESEL PROPS S.R.L. AND DIESEL KID S.R.L., PLAINTIFFS / COUNTER-DEFENDANTS,
v.
GREYSTONE BUSINESS CREDIT II LLC AND GLOBAL BRAND MARKETING INC., DEFENDANTS / COUNTER-PLAINTIFFS,
v.
DIESEL S.P.A., THIRD-PARTY DEFENDANT.



The opinion of the court was delivered by: Hon. Harold Baer, Jr., District Judge

OPINION & ORDER

On February 8, 2008, Plaintiffs Diesel Props S.r.l ("Props") and Diesel Kid S.r.l. ("Kid" and, together with Props, "Plaintiffs"), moved this Court, by order to show cause, for a temporary restraining order andpreliminary injunction, enjoining Defendants Greystone Business Credit II LLC ("Greystone") and Global Brand Marketing Inc. ("GBMI" and, together with Greystone, "Defendants"), and all others in active concert or participation with them, including, but not limited to, Titan Apparel, Inc. ("Titan"), from transferring, selling, distributing or otherwise disposing of approximately 101,000 pairs of Diesel-branded shoes. On February 11, 2008, this Court imposed the Temporary Restraining Order and, on February 29, 2008, after hearing the parties' oral arguments, this Court issued an Order that granted the preliminary injunction pending this Court's further opinion. For the reasons set forth below, the Plaintiffs' motion for a preliminary injunction is hereby GRANTED.

I. BACKGROUND

Plaintiffs Props and Kid are corporations organized under Italian law with registered offices in Italy. Pl.s' Mot. for Temp. Restraining Order & Prelim. Injunction (Oct. 26, 2007) ("Oct. 26, 2007 Mot.") Ex. D at 4. Their parent company, Diesel S.p.A. ("SpA"), is the owner of numerous Diesel trademarks, which have been licensed to Props and Kid for the manufacturing and sale worldwide of Diesel-branded footwear. Pl.s' Mem. of Law in Support of Mot. for Prelim. Injunction (Feb. 22, 2008) ("Pl.s' Mem.") 3. On November 4, 2005, both Props and Kid entered into distribution agreements with Defendant GBMI (the "Distribution Agreements"), pursuant to which GBMI would distribute Diesel-branded shoes to retailers. Oct. 26, 2007 Mot. Ex. B.

The choice of law clauses in the Distribution Agreements expressly provided that the Agreements "shall be governed by and construed in accordance with Italian law." Id. ¶ 21.1. Paragraph 5.4 of the Distribution Agreements provided that "the ownership of the Products [Diesel-branded shoes] will be transferred to the Distributor [GBMI] only when total payment of the same is collected by the Company [Props or Kid]," even if this took place after delivery of the shoes to GBMI. Id. ¶ 5.4 (emphasis added). Paragraph 12.3 of the Distribution Agreements, as amended by the parties effective October 27, 2006, provided that upon the Agreement's termination by either party, GBMI must sell Diesel-branded product back to Props or Kid, at their request, "at the original cost price that the Distributor [GBMI] paid for such Product to the Company [Props or Kid]." Id. ¶ 12.3.

On December 4, 2006, Defendant GBMI entered into a loan and security agreement with Defendant Greystone (the "Loan Agreement"), which granted Greystone a security interest in, inter alia, all inventory of GBMI. Oct. 26, 2007 Mot. Ex. C. To perfect that security interest, Greystone filed a UCC financing statement in California, where GBMI was located. Greystone obtained from SpA and Kid, but not Props, letters in which they consented to GBMI's entry into the Loan Agreement and agreed not to interfere with Greystone's security interest. Oct. 26, 2007 Mot. Ex. D.

On December 4, 2006, GBMI and Greystone also entered into agreements with Props and Kid (the "Tripartite Agreements") under which Props and Kid would ship shoes to GBMI but invoice Greystone, which, as GBMI's lender, would then pay Props or Kid. Oct. 26, 2007 Mot. Ex. F. The Tripartite Agreements, which refer to the Distribution Agreements, state that they are "not in any way intended to limit any of" the obligations of GBMI to Plaintiffs.

Greystone failed to pay Plaintiffs under the Tripartite Agreements. When Greystone failed to cure and GBMI failed to pay Plaintiffs for the Diesel shoes delivered to it, Plaintiffs notified GBMI that the Distribution Agreements were terminated effective October 4, 2007. Oct. 26, 2007 Mot. Ex. L. In letters dated October 17, 2007, Plaintiffs demanded that GBMI return to them all Diesel shoes remaining in their warehouse, but GBMI kept the shoes-101,000 pairs- and they are now the subject of the instant preliminary injunction. Complicating matters, whenGBMI defaulted under the Loan Agreement, Greystone treated the shoes as collateral and sold them to Titan, financing the sale itself, on December 14, 2007. Supp. Decl. of Ira S. Sacks (Feb. 22, 2008) ("Sacks Decl.") ¶ 20, Exs. H, I. Titan now intends to sell the shoes to yet another buyer. Greystone's Resp. to Pl.s' Mot. Prelim. Injunction 8.

II. LEGAL STANDARD

"To secure a preliminary injunction in district court, the moving party must demonstrate (1) that it will be irreparably harmed in the absence of an injunction, and (2) either (a) a likelihood of success on the merits or (b) sufficiently serious questions going to the merits of the case to make it a fair ground for litigation, and a balance of hardships tipping decidedly in its favor." MONY Group, Inc. v. Highfields Capital Mgmt, L.P., 368 F.3d 138, 143 (2d Cir. 2004) (quoting Forest City Daly Hous., Inc. v. Town of North Hempstead, 175 F.3d 144, 149 (2d Cir. 1999)).

III. DISCUSSION

A. Irreparable Harm

Irreparable harm exists where, "but for the grant of equitable relief, there is a substantial chance that upon final resolution of the action the parties cannot be returned to the positions they previously occupied." Brenntag Int'l Chems. Inc. v. Bank of India, 175 F.3d 245, 249 (2d Cir. 1999). The shoes at issue here are the heart of Plaintiffs' lawsuit. Plaintiffs argue that if Defendants (or Titan) are not enjoined from selling the shoes, Plaintiffs' business, an allegedly high-end haberdasher, will be irreversibly damaged, Plaintiffs will lose goodwill because the market will be flooded with discounted, out-of-style Diesel shoes that are a season or two behind, and their injuries will not be adequately compensated by monetary damages.

Based on Greystone's counsel's representations to Plaintiffs' counsel in November 2007 that all the shoes soon would be sold to discount retailers as approved by Plaintiffs, Plaintiffs assured Plaintiffs' high-end retail customers that few, if any, shoes remained to be sold to the discount market. Pl.s' Mem. 12; Sacks Decl. ¶ 12; Decl. of Stephen G. Birkhold (Feb. 8, 2008) ¶ 5; Decl. of Anthony N. Strippoli (Feb. 8, 2008) ¶ 5. Plaintiffs argue that if the shoes are sold ...


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