Federal court denies Chinese stainless steel company's motion for injunction

By Nicholas Malfitano | Feb 23, 2016

Penglai Jinfu Stainless Steel Products  

PHILADELPHIA – A Chinese stainless steel manufacturer has had its motion for a temporary restraining order and injunctive relief in a breach of contract action denied in federal court.

On Oct. 5, 2014, plaintiff Penglai Jinfu Stainless Steel Products, Co., a Chinese entity, entered into a sales agreement with defendant Geemacher, LLC. Afterwards, Penglai and Geemacher entered into several additional sales agreements that required Penglai to “manufacture, sell, and ship kegs to Geemacher in accordance with the written terms.”

In return, Geemacher was required to pay Penglai by the agreed-upon terms of the contracts.

In 2014, Geemacher was unable to make payments by these terms, or according to the terms of a deferred payment arrangement. As a result, Penglai stopped shipping kegs to Geemacher in November.

Penglai estimates Geemacher has in its possession kegs worth between $100,000 and $150,000 that have not been paid for, and Penglai also alleges Geemacher has an outstanding invoice balance of $1,344,324.75. To date, Geemacher has not paid this balance and has refused to return the kegs to Penglai.

Geemacher is now insolvent and looking to sell all of its assets, including the kegs it has not paid for, and has entered into negotiations with a proposed buyer. Any proceeds from the proposed asset sale would be insufficient to satisfy Geemacher’s debt with its largest secured creditor, Covenant Bank. Consequently, Geemacher will be unable to use any proceeds from the proposed sale to satisfy its debt with Penglai.

Penglai filed a complaint in U.S. District Court for the Eastern District of Pennsylvania on Feb. 3, alleging breach of contract, quantum meruit, account stated, and reclamation, along with filing the instant motion for a temporary restraining order and injunctive relief. Covenant Bank filed an unopposed motion to intervene and opposing response to Penglai’s motion.

Judge Richard Barclay Surrick said for Penglai to be entitled to the temporary restraining order and injunctive relief, it needed to prove irreparable harm, or “harm that cannot adequately be compensated after the fact by monetary damages.”

“It is uncontested that defendant intends to use the proceeds from the sale of its assets to pay the debt owed to its largest secured lender – Covenant Bank,” Surrick said. “Moreover, the proceeds would not be sufficient to pay the secured lender in full.

“Plaintiff argues that the harm it faces is irreparable because a money judgment against defendant would have no practical effect. In response, defendant argues that plaintiff’s request for injunctive relief cannot be granted because its right to sue for money damages is an adequate remedy at law."

Surrick said Geemacher “correctly” argued Penglai has failed to demonstrate the irreparable harm in question, since it is a contract dispute that can be brought to final resolution and whose harm can be adequately compensated by money damages.

Penglai also pled reclamation, seeking the return of any kegs that Geemacher did not pay for, but Surrick explained this request was also denied, due to “insurmountable procedural and substantive hurdles”; since Pennsylvania law does not usually call for the reclamation of goods on credit.

“Where the seller discovers that the buyer has received goods on credit while insolvent he may reclaim the goods upon demand within ten days after the receipt, but if misrepresentation of solvency has been made to the particular seller in writing within three months before delivery the ten-day limitation does not apply,” Surrick said.

Surrick concluded Penglai hasn’t claimed or provided evidence demonstrating facts to the contrary or made an allegation Geemacher misrepresented its solvency. Also, movant Covenant Bank filed UCC financing statements with Pennsylvania officials against Geemacher, who owes Covenant Bank in excess of $2 million – the filing of these statements, Surrick said, made Covenant Bank a secured creditor and gave it preference over the claims of Penglai, an unsecured creditor.

“Based upon the foregoing, plaintiff’s emergency motion for a temporary restraining order and injunctive relief must be denied,” Surrick said.

The plaintiff is represented by David G. Dragich and Amanda C. Vintevoghel of Dragich Law in Grosse Point, Mich., and Natalie D. Ramsey of Montgomery McCracken Walker & Rhoads in Philadelphia.

The defendant is represented by Leo M. Gibbons of Macelree Harvey, in West Chester.

The movant is represented by Gretchen M. Santamour of Stradley Ronon Stevens Young, also in Philadelphia.

U.S. District Court for the Eastern District of Pennsylvania case 2:16-cv-00552

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com

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