Arkansas Court Considers and Rejects Preliminary Injunction Against
LLC Member Who Was Looting the Company
Under Arkansas law, as is the law of Kentucky, one of the
requirements for seeking injunctive relief is that the alleged injury cannot be
redressed with monetary damages. In a recent decision from Arkansas, this rule
was considered in the context of an allegation that an LLC’s member was looting
the company. Finding that, if proven, the remedy could be addressed with
monetary payment, the preliminary injunction issued by the trial court was
vacated. Wait v. Elmen, 2017 Ark.
App. 648 (Ark. App. Nov. 29, 2017).
Wait and Elmen, amongst others, were
members of a series of LLCs that, between them, operated an apparently local
chain of lingerie stores. Elmen, individually and on behalf of the LLCs,
brought suit against Wait alleging “causes of action for conversion, breach of
contract, fraud, gross negligence and breach of fiduciary duty.” These claims
were brought on the basis that Elmen had used company assets to pay personal
expenses, including:
Car payments, house payments,
utility payments, insurance payments, and fringe benefits. In addition to these
expenses, Elmen withdrew $100,000 from the various Cupid's entities to pay part
of a $550,000 settlement with a former business partner and took money to help
pay personal tax lien in favor of the IRS of over $100,000.
The trial court had granted a preliminary injunction against
Wait, leading to this appeal.
Focusing upon the requirement that there be irreparable harm
in order for injunctive relief to be granted, the court characterized the issue
as:
Elmen alleges that Wait has diverted
cash from the companies to pay personal expenses for himself and his mother and
stepfather. Wait has also alleged to have increased his salary without proper
authorization. We find this is the type of financial harm that is
quintessentially reparable by monetary damages.
On that basis, the preliminary injunction was dissolved.
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