United States District Court, W.D. Washington, Seattle
OZONE INTERNATIONAL, LLC, a Washington limited liability company, Plaintiff,
WHEATSHEAF GROUP LIMITED, a foreign private limited company registered in England and Wales, Defendant.
ORDER DENYING PLAINTIFF'S MOTION FOR A TEMPORARY
RESTRAINING ORDER AND PRELIMINARY INJUNCTION
HONORABLE RICHARD A. JONES UNITED STATES DISTRICT JUDGE
matter comes before the Court on Plaintiff's Motion for a
Temporary Restraining Order and Preliminary Injunction (Dkt.
#3). Defendant opposes the Motion (Dkt. #9). Having
considered the submissions of the parties, the relevant
portions of the record, and the applicable law, the Court
finds that oral argument is unnecessary. For the reasons
stated below, the Court DENIES the motion.
Ozone International, LLC (“Ozone”) is a
Washington-based company that “developed an ozone
machine that significantly extends the shelf life of food and
beverage products.” Dkt. #3 at 2. In 2016, Ozone began
discussions with Defendant, Wheatsheaf Group Ltd.
(“Wheatsheaf”), a private limited company based
in the United Kingdom, regarding Wheatsheaf's potential
acquisition of Ozone. Dkt. #3 at 5. For the purposes of
facilitating the deal, Ozone alleges that Wheatsheaf created
two subsidiaries: Wheatsheaf Group U.S. Inc.
(“WGUS”), a Delaware corporation with a principal
place of business in Minnesota, and Wheatsheaf Group U.S.
Food Safety LLC d/b/a TriStrata (“TriStrata”), a
Delaware limited liability corporation based in Washington.
Dkt. #3 at 7; Dkt. #1 ¶ 7. On August 17, 2017, Ozone
entered into an Asset Purchase Agreement (“APA”)
(Dkt. #1-1, Ex. A) with TriStrata whereby TriStrata acquired
a substantial number of Ozone's assets, excluding certain
contracts (“the Excluded Contracts”) which Ozone
retained ownership over. Dkt. #3 at 6. Wheatsheaf
(TriStrata's parent company) was also a party to the APA
“solely for the purposes of Section 6.05 and any
provisions of Article I, Article IX, and Article XI as they
relate to Section 6.05.” Dkt. #1-1, Ex. A. Section 6.05
provides: “Buyer has sufficient cash on hand or other
sources of immediately available funds to enable Buyer to
make payment of the Purchase Price and consummate the
transactions contemplated by this Agreement.”
Id. In addition to the APA, TriStrata and Ozone also
entered into a Transition Services Agreement
(“TSA”) (Dkt. #1-1, Ex. B), providing for the
transition of Ozone's business to TriStrata over a period
of time. Dkt. #9 at 6. Wheatsheaf is not a party to the TSA.
Id. at 10. Under section 4.02 of the TSA, TriStrata
agreed to service the Excluded Contracts and, in exchange,
Ozone agreed to pay TriStrata a service fee. Dkt. #1-1, Ex.
B. The total purchase price ($9.9 million) included a $1.5
million reserve to allow Ozone to “pay TriStrata for
its continued servicing of the Excluded Contracts under the
TSA.” Dkt. #9 at 7.
the close of the deal, Wheatsheaf alleges that TriStrata
routinely invoiced Ozone for services provided under the TSA,
however, after Ozone exhausted the $1.5 million reserve, it
stopped paying the invoiced amounts. Dkt. #9 at 8. As of
February 28, 2019, TriStrata alleges that Ozone has failed to
pay up to $1, 860, 166.99 in invoices. Dkt. # 9 at 8. On
March 29, 2019 TriStrata brought suit against Ozone in King
County Superior Court alleging breach of contract and
requesting a declaratory judgment excusing TriStrata from
further performance under the TSA due to Ozone's
“material breach.” Dkt. #10-1. Two months later,
on May 31, 2019, TriStrata filed a petition for receivership
in King County Superior Court. Dkt. # 10-2. Since filing for
receivership, Ozone alleges that TriStrata has fallen behind
on servicing the Excluded Contracts under the TSA. Dkt. #3 at
11. According to Ozone, it has received multiple complaints
from customers regarding TriStrata's failure to service
their ozone machines. Id. at 11-12. If left
unchecked, Ozone contends that TriStrata's failure to
service the ozone machines will have a “catastrophic
effect on Ozone and the users of the North American food
supply.” Id. at 12.
17, 2019, Ozone filed a complaint (Dkt. #1) alleging breach
of contract, fraud, negligent representation, and alter ego
claims along with a motion for a temporary restraining order
(“TRO”) and preliminary injunction (Dkt. # 3).
Wheatsheaf opposes Ozone's motion (Dkt. #9).
preliminary injunction is an “extraordinary remedy that
may only be awarded upon a clear showing that the plaintiff
is entitled to such relief.” Winter v. Nat. Res.
Def. Council, Inc., 555 U.S. 7, 22 (2008). The standards
for a preliminary injunction and temporary restraining order
are “substantially identical.” Stuhlbarg
Int'l Sales Co. V. John D. Brush & Co., 240 F.3d
832, 839 n.7 (9th Cir. 2001). To obtain injunctive relief,
Ozone must show that (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. Stormans, Inc. v. Selecky, 586 F.3d 1109,
1127 (9th Cir. 2009). “A preliminary injunction is
appropriate when a plaintiff demonstrates that serious
questions going to the merits were raised and the balance of
hardships tips sharply in the plaintiff's favor.”
All For The Wild Rockies v. Cottrell, 632 F.3d 1127,
1134-35 (9th Cir. 2011). This is only appropriate as long as
the plaintiff also shows there is a likelihood of irreparable
injury and that the injunction is in the public interest.
asks the Court to issue a TRO or preliminary injunction
forcing Wheatsheaf to either disregard its corporate form and
collapse Wheatsheaf, WGUS, and TriStrata into one entity, or
require Wheatsheaf to “make WGWA [TriStrata] solvent
through equity without giving itself a preference over any of
WGWA creditors.” Dkt. #3 at 3-4.
order to obtain injunctive relief, Ozone must first establish
a likelihood of success on the merits. Here, Ozone contends
that it insisted that Wheatsheaf be a party to section 6.05,
in order to ensure that TriStrata had the financial backing
to meet its obligations under the APA and the TSA.
Dkt. #3 at 8. By failing to provide TriStrata with the
necessary funds to enable it to continue servicing the
Excluded Contracts under the TSA and allowing it to go into
receivership, Ozone argues that Wheatsheaf has breached its
obligations under the APA. Id. at 15.
on the other hand, insists that it was only a party to the
APA for the limited purpose of ensuring TriStrata had
sufficient funds to consummate the closing and pay the
Purchase Price and that its obligation did not extend to the
TSA (to which it is not a party). Dkt. #9 at 11.
Wheatsheaf notes that Section 6.05 is a representation and
warranty, not a guarantee, and that it has already satisfied
its obligation under the APA, when TriStrata paid the
Purchase Price in full. Id. at 11-12. In addition,
Wheatsheaf argues, even if TriStrata did have an obligation
to service the Excluded Contracts, it is no longer required
to continue servicing the Excluded Contracts in light of
Ozone's material breach of the TSA. Id. at 12.
Washington law, if a party is in material breach of a
contract, the other party may treat the breach as a condition
excusing further performance. Colorado Structures, Inc.
v. Ins. Co. of the W., 161 Wash.2d 577, 589 (2007). A
material breach is one that “substantially
defeats” a primary function of the agreement. Park
Ave. Condo. OwnersAss'n v. Buchan Devs.,
LLC, 117 Wash.App. 369, 383 (2003). Materiality is
“dependent upon the circumstances of each particular
case.” Jacks v. Blazer, 39 Wash.2d 277, 286
(1951). Here, TriStrata agreed to service the Excluded
Contracts and, in exchange, Ozone agreed to pay a service fee
within fifteen days of receipt of an invoice from TriStrata.
Dkt. 1-1, Ex. B, TSA § 4.02. According to Wheatsheaf,
Ozone has failed to pay up to $1, 860, 166.99 in invoices as
of February 28, 2019. Dkt. # 9 at 8. Without these funds,
TriStrata alleges that it is unable to cover its monthly
costs, forcing it to file for receivership. Id. at
9. On the record before the Court, it seems likely that a
jury would find Ozone's breach “material.”
Jacks, 39 Wash.2d at 286 (holding a breach was
material where the buyer failed to ...