United States District Court, E.D. California
MEMORANDUM AND ORDER RE: MOTION FOR PRELIMINARY
PROHIBITORY AND MANDATORY INJUNCTION
WILLIAM B. SHUBB UNITED STATES DISTRICT JUDGE.
Rackwise, Inc. brought this action against defendant Guy A.
Archbold for conversion, fraud, breach of the duty of good
faith and fair dealing, tortious interference with
prospective economic advantage, and declaratory relief
arising from defendant's actions before and after his
purported termination as plaintiff's President, CEO, and
Chairman of the Board of Directors. Before the court is
plaintiff's Motion for preliminary prohibitory and
mandatory injunctive relief. (Docket No. 6.)
Factual and Procedural History
2011, defendant became President, CEO, and Chairman of the
Board of Rackwise. (First Am. Compl. (“FAC”)
¶ 9 (Docket No. 4).) On May 7, 2014, Rackwise Funding
II, LLC (“RFII”) allegedly entered into a
Subscription Agreement that entitled it to appoint two
members to Rackwise's board of directors and created
warrants that permitted RFII to purchase shares of Rackwise
upon notice and payment. (Id. ¶¶ 10-11;
id., Ex. B (“Subscription Agreement”) (Docket No.
7-3).) Defendant, as Rackwise CEO, also allegedly granted
another company, Triple R-F, LLC, warrants to purchase shares
of Rackwise stock. (Richert Suppl. Decl. ¶¶ 4-5,
Exs. 2-3 (Docket Nos. 10-1, 10-3 to -4).)
February 2, 2017, plaintiff alleges its board of directors
consisted of Archbold, John Kyees, and Michael Feinberg.
(Imeson Decl. ¶ 9 (Docket No. 6-3).) That day, Patrick
Imeson, as RFII's Managing Member, allegedly appointed
himself and Bart Richert to Rackwise's Board of Directors
pursuant to RFII's Subscription Agreement. (FAC ¶
13; Imeson Decl. ¶¶ 10-12.) On February 3, 2017,
Feinberg, Kyees, Imeson, and Richert allegedly held a special
board meeting and terminated Archbold as President, CEO, and
chairman of the board. (FAC ¶ 14.) Archbold disputed the
validity of this action.
March 22, 2017, RFII and Triple R-F exercised their warrants
to purchase shares of plaintiff's stock. (Imeson Decl.
¶¶ 14, 16; Richert Supp. Decl. ¶¶ 9-10.)
The next day, shareholders possessing over 79% of
Rackwise's outstanding stock voted by written consent to
terminate Archbold as President, CEO, and chairman of the
board. (Imeson Decl. ¶¶ 20-23; FAC Ex.
E (“Written Consent of Shareholders”) (Docket No.
7-6); Richert Suppl. Decl. ¶¶ 13-15.)
his alleged termination, defendant continued to act as CEO,
President, and chairman of Rackwise. He allegedly held
himself out as the CEO to Rackwise constituents and
employees, held a meeting with other former Rackwise board
members purporting to act on Rackwise's behalf, filed
documents with the SEC on Rackwise's behalf,
communicated with potential Rackwise investors using
confidential and proprietary Rackwise information, and
terminated a contract with a current client. (FAC
¶¶ 28-36; Imeson Decl. ¶¶ 26-28, 34-40,
initiated this action against defendant, alleging conversion,
fraud, breach of the duty of good faith and fair dealing, and
tortious interference with prospective economic advantage.
Plaintiff now moves for a preliminary prohibitory injunction
preventing defendant from (1) accessing or logging into
Rackwise's account in the SEC's online EDGAR filing
system; (2) representing himself to anyone as being an
officer, director, or employee of, or otherwise affiliated
with, Rackwise; and (3) acting, attempting to act, or
purporting to act on behalf of Rackwise. Plaintiff also moves
for a mandatory injunction requiring defendant to submit a
declaration attesting to (1) the identities of all Rackwise
customers he has contacted since March 22, 2017, purportedly
on behalf of Rackwise with true and correct copies of all
communications with those customers and (2) the identifies of
all potential investors that Archbold has solicited or
attempted to solicit investments or financial on behalf of
Rackwise, including copies of all communications.
law “controls the issue of whether a plaintiff is
entitled to seek injunctive relief on the claim.”
Anselmo v. Mull, Civ. No. 2:12-1422 WBS EFB, 2012 WL
5304799, at *6 (E.D. Cal. Oct. 25, 2012). The parties do not
dispute that state law permits plaintiff to seek a
preliminary injunction. However, “federal, not state,
standards govern issuance of a preliminary injunction when a
federal court is sitting in diversity or exercising
supplemental jurisdiction over state law claims.”
Id. at *5; see, e.g., Certified Restoration Dry
Cleaning Network, L.L.C. v. Tenke Corp., 511 F.3d 535,
541 (6th Cir. 2007) (“[W]e apply our own procedural
jurisprudence regarding the factors to consider in granting a
preliminary injunction . . . .”); Equifax Servs.,
Inc. v. Hitz, 905 F.2d 1355, 1361 (10th Cir. 1990)
(“[T]he doctrine of Erie . . . does not apply to
preliminary injunction standards . . . .”); Kane v.
Chobani, Inc., Case No.: 12-CV-2425-LHK, 2013 WL
3776172, at *3 (N.D. Cal. July 15, 2013) (“[A]pplying
federal standards to determine whether a preliminary
injunction should be issued will not alter the final outcome
of the litigation.”).
order to obtain a preliminary injunction, the moving party
must establish (1) it is likely to succeed on the merits, (2)
it is likely to suffer irreparable harm in the absence of
preliminary relief, (3) the balance of equities tips in its
favor, and (4) an injunction is in the public interest.
Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7,
20-21 (2008); Humane Soc. of the U.S. v. Gutierrez,
558 F.3d 896, 896 (9th Cir. 2009). Injunctive relief is
“an extraordinary and drastic remedy, one that should
not be granted unless the movant, by a clear showing, carries
the burden of persuasion.” Mazurek v.
Armstrong, 520 U.S. 968, 972 (1997) (per curiam).
determine likelihood of success on the merits, the court must
first determine whether Rackwise will be likely to establish
that plaintiff's shareholders validly removed defendant
from his positions as CEO, President, and chairman of the
federal court sitting in diversity applies the choice of law
rules of the forum state. Mazza v. Am. Honda Motor
Co., 666 F.3d 581, 589 (9th Cir. 2012). Under
California's internal affairs doctrine, “a court
must look to the law of the state of incorporation with
respect to matters involving the regulation of [a
corporation's] ‘internal affairs.'”
Patriot Scientific Corp. v. Korodi, 504 F.Supp.2d
952, 956 (S.D. Cal. 2007) (citing State Farm Mut. Auto.
Ins. Co. v. Superior Court, 114 Cal.App.4th 434, 442 (2d
Dist. 2003)). Because plaintiff Rackwise is incorporated in
Nevada, Nevada law governs its internal affairs.
argues that shareholders possessing over 75% of
Rackwise's outstanding stock removed defendant as CEO,
President, and chairman of the board by written
consent. The Rackwise bylaws permit the removal of
a director by “at least seventy-five percent (75%) of