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Hanover American Insurance Co. v. Tattooed Millionaire Entertainment, Inc.

United States District Court, W.D. Tennessee, Western Division

January 24, 2017

HANOVER AMERICAN INSURANCE COMPANY, Plaintiff,
v.
TATTOOED MILLIONAIRE ENTERTAINMENT, INC.; CHRISTOPHER C. BROWN; DANIEL R. MOTT; and JOHN FALLS, Defendants.

          ORDER GRANTING PRELIMINARY INJUNCTION AGAINST DEFENDANT BROWN

          JON P. McCALLA UNITED STATES DISTRICT COURT JUDGE

         Before the Court is Plaintiff Hanover American Insurance Company (“Hanover”)'s Application for Temporary Restraining Order, Preliminary Injunction and Constructive Trust, filed November 14, 2016. (ECF No. 29.) On November 22, 2016, the Court in part denied the Temporary Restraining Order. (ECF No. 41.) Following limited discovery and further briefing by the parties, on December 7, 2016, the Court entered an Order Concerning Assets of Defendant Christopher C. Brown Prior to Preliminary Injunction Determination, ordering that Defendant Brown's $1.2 million home not be encumbered or sold until the Court rules on Hanover's Application for Preliminary Injunction. (ECF No. 58.)

         The Court held a Preliminary Injunction Hearing on January 6, 2017. (Min. Entry, ECF No. 74.) At the hearing, Hanover requested that the Court extend its Order (ECF No. 58) and order that Brown's home not be encumbered or sold until all proceedings in the instant case are concluded. For the reasons stated below, the Court GRANTS Hanover's Motion for Preliminary Injunction, and ORDERS that Defendant Brown refrain from selling or otherwise encumbering his $1.2 million home until resolution of this case or with leave of the Court. Hanover shall post a $400, 000.00 security bond.

         I. BACKGROUND

         Hanover's Complaint, which was filed on October 14, 2016, alleges that Defendants Tattooed Millionaire Entertainment LLC, and its owner Christopher C. Brown, along with Defendants Daniel C. Mott and John Falls, committed insurance fraud in connection with a November 5, 2015 fire that damaged a recording studio and its contends in Memphis, TN. (See generally ECF No. 1.)

         A. Factual Background

         Defendant Christopher Caleb Brown formed Defendant Tattooed Millionaire Entertainment LLC (“TME”), a music production company, in 2014, as the sole owner and member. (ECF No. 1 ¶ V; see also ECF 68 at PageID 1834.) Also in 2014, TME purchased a building in Memphis, TN (“insured premises”). (Id.) The insured premises included three studios, two of which were leased to Defendants Falls and Mott. (ECF No. 1 ¶ VII.)

         On February 5, 2015, TME submitted a Commercial Insurance Application to Hanover. (Id. ¶ X; ECF No. 68 at PageID 1835.) The application requested Building Coverage, Business Personal Property, and Business Income, for coverage in total amount of $10.75 million. (Id.) Hanover issued the policy for the period February 6, 2015 to February 6, 2016. (ECF No. 1 ¶ XI; see also ECF No. 68 at PageID 1835.)

         Before securing this insurance, Brown asserts that he purchased millions of dollars' worth of studio equipment and gear. (ECF No. 61-1 at PageID 998: 12-25.) According to Brown, Michael Sargenti is one seller Brown used “over the last few years” to make these purchases. (Id. at PageID 990:11-15.) Brown and Sargenti made contact “through a website called Gearslutz.” (Id. at PageID 1002:5-9.) Despite their years of transactions, Brown testified that he does not have Sargenti's phone number, e-mail address, and has never seen Sargenti in-person or otherwise. (Id. at PageIDs 990:24-25, 1007:9-18, 1034:19-23.) According to Brown, he bought hundreds of pieces of equipment from Sargenti. (see id. at PageIDs 992:5-17, 1003:4-15.) Brown asserts that deliveries from Sargenti were made to various locations (id. at PageID 996:13-16), and that Brown made arrangements for these deliveries through his burner phone(s) (id. at PageIDs 1035:19-25, 1036:1-11). Additionally, Brown testifed that each purchase was made in cash without a receipt or other record, over an unspecified period of time and on unknown dates. (Id. at PageIDs 993:2-20, 1005:23-25, 1006:9-21, 1036:14-18, 1039:9-21, 1006:1-8.) Brown further testified that he always carried large quantities of cash on him (id. at PageID 1006:18), allowing him to pay for each “60, 80, 100, 000” purchase in cash (id. at PageID 1039:12-15).

         On November 5, 2015, an arson fire occurred at the insured premises, causing substantial damage to the building and studio property therein (e.g., equipment). (ECF No. 1 ¶ XVII.) In addition to the fire, Defendants allege that local gang members started the fire and stole equipment. (Id. ¶ XX.)

         On November 10, 2015, Coastal Technical Services (“CTS”) was hired by Hanover to inspect the fire damaged studio and studio equipment that was there. (ECF No. 61-16 at PageIDs 1340-41.) TME “also engaged CTS to perform moving, packing and storage of the remaining [equipment] . . . [, which] included shipping some of the equipment . . . to Orlando, Florida.” (Id. at PageID 1341.) CTS categorized the remaining equipment as either repairable, not worth repairing, or undamaged. (Id. at PageIDs 1341-42.) In total, CTS recorded approximately 260 pieces of equipment. (ECF No. 61-16 at PageIDs 1341-42, 1354-61.)

         Following the fire, Brown understood that he would need to substantiate any claims of loss to Hanover with documentation. (ECF No. 61-1 at PageIDs 1017:15-25, 1018:1-7.) Brown then contacted Sargenti, telling “[Sargenti] to give [him] a copy of gear that [he] had purchased from [Sargenti]” over the years. (id. at PageID 1002:21-22.) In response, Sargenti gave Brown falsified sales invoices from New York Liquidation (id. at PageID 1011:6-17), Canada Liquidation Sales (id. at PageIDs 999:9-25, 1000:1-5), and the State of Oregon (id. at PageIDs 991:8-17, 992:1-11), as well as Visa and Bank of America transaction statements (id. at PageIDs 999:14-25, 1000:1-2, 1015:3-10). Despite admitting the falsity of the documents, Brown claims that the documents accurately reflect every item that he owned and that was present in the insured premises at the time of the November 2015 fire. (Id. at PageID 1003:4-8.) In total, the falsified documents reflect 764 pieces of equipment. (See ECF Nos. 1-6 - 1-8.)

         After Sargenti sent these documents by postal mail, Brown gave the falsified documents to his public adjuster, Keith Hayman, who tendered them to Hanover for a claim of loss. (ECF No. 61-1 at PageIDs 1015:14-25; 1037:1-19.) Hayman provided these documents to Hanover in December 2015. (Id. at PageID 1016; ECF No. 72-1 at PageID 2318 (“On December 31, 2015, [Hanover's Executive General Adjuster Gary A. Barkman] received initial sworn proofs of loss under oath by each of the defendants dated December 30, 2015.”); ECF No. 61-13 at PageIDs 1303-04 (Keith Hayman, on behalf of defendants, emailed Gary Barkman on December 14, 2015 stating, “Enclosed please find invoices for some original studio purchases. Some of these may have been previously provided. . . . Insured has provided ample documentation, information, statements, executed consent forms, etc…to facilitate the initial partial payments. Information will continue to be provided, as requested.”)

         Hanover's adjuster Barkman then “made initial advance payments to the defendants on February 24, 2016.” (ECF No. 72-1 at PageID 2318.) Hanover specifically paid Defendants Brown and TME $1, 208, 898.49 for building coverage and $1, 096, 265.68 for business personal property coverage. (ECF No. 1 at PageID 12.)

         Thereafter, it came to Hanover's attention that the documents it received were falsified, leading Hanover to file the current cause of action to recover benefit payments paid and to void the policy.

         B. Procedural Background

         On October 14, 2016, Hanover filed its Complaint. (Id.) On November 14, 2016, Hanover filed its Application for Temporary Restraining Order (“TRO”), Preliminary Injunction and Constructive Trust, seeking to require Defendants to place the remaining insurance proceeds into a constructive trust until the final resolution of this cause of action. (ECF No. 29.) On November 21, 2016, Defendants filed responses in opposition to Hanover's TRO request. (ECF Nos. 36-37.)

         A TRO hearing was held on November 22, 2016. (Min Entry, ECF No. 39.) The Court denied the TRO in part for lack of adequate factual development. (ECF No. 41.) Accordingly, the Court permitted the parties to conduct limited discovery before deciding the issue of a preliminary injunction. (Id.) On November 28, 2016, the parties submitted Motions for Limited Discovery. (ECF Nos. 42, 44, 46.) The Court granted some of the requests on November 30, 2016. (ECF No. 47.) Also on November 28, 2016, Defendants filed Motions to Dismiss for Failure to State a Claim. (ECF Nos. 43, 45.)

         On December 7, 2016, the Court held an in-person Scheduling Conference. (Min. Entry, ECF No. 54.) At the conference, the Court granted Hanover leave to amend its complaint to (1) add the public adjusting firm as a party, and (2) clarify its claims against Defendants Mott and Falls, and if it did so, the Court noted that the Motions to Dismiss for Failure to State a Claim would be rendered moot. (ECF No. 57.) Also on December 7, 2016, the Court entered an Order Concerning Assets of Defendant Christopher C. Brown Prior to Preliminary Injunction Determination, ordering that Brown's $1.2 million home not be encumbered in any way or sold until the Court has ruled on Hanover's Application for Preliminary Injunction. (ECF No. 58.)

         On December 19, 2016, Hanover filed its Amended Complaint. (ECF No. 60.) On December 22, 2016, Hanover filed its Memorandum in Support of its TRO and Preliminary Injunction application. (ECF No. 61.) Defendants filed responses in opposition on December 30, 2016. (ECF Nos. 64-65.) On December 30, 2016, Hanover also responded to Defendants' Motions to Dismiss for Failure to State a Claim. (ECF Nos. 62-63.)

         On January 3, 2017, Defendants filed their answers to Hanover's Amended Complaint. (ECF Nos. 68-69.) Defendants Falls and Mott also filed counterclaims against Hanover. (ECF No. 70.) So did TME. (ECF No. 68.)

         On January 5, 2017, Defendants Falls and Mott filed forty-one affidavits by witnesses purporting to have seen equipment inside the recording studio at issue at various time prior to the 2015 fire. (ECF No. 71.) That same day, Hanover filed several affidavits in further support of its Motion for Preliminary Injunction. (ECF No. 72.) Hanover also filed a Notice that it was no long seeking injunctive relief against Defendants Mott and Falls. (ECF No. 73.)

         A Preliminary Injunction hearing was held on January 6, 2017. (Min. Entry, ECF No. 74.) At the hearing, Hanover amended its request for injunctive relief. Hanover now requests that the Court extend its December 7, 2016 Order, forbidding Defendant Brown from selling or otherwise encumbering his $1.2 million home without first notifying the parties and Court, until the resolution of this case.

         II. LEGAL STANDARD

         A. Preliminary Injunction

         “The purpose of a preliminary injunction is merely to preserve the relative positions of the parties until a trial on the merits can be held.” Univ. of Tex. v. Camenisch, 451 U.S. 390, 395 (1981). “Accordingly, a party ‘is not required to prove his case in full at a preliminary injunction hearing and the findings of fact and conclusions of law made by a court granting the preliminary injunction are not binding at trial on the merits.'” Certified Restoration Dry Cleaning Network, L.L.C. v. Tenke Corp., 511 F.3d 535, 542 (6th Cir. 2007) (quoting Camenisch, 451 U.S. at 395).

         Four factors are used to determine whether injunctive relief is appropriate: (1) the likelihood of success on the merits; (2) whether the injunction will save the movant from irreparable injury; (3) whether the injunction would cause substantial harm to others; and (4) whether the public interest would be served by the injunction. Ohio Democratic Party v. Donald J. Trump for President, Inc., No. 16-4268, 2016 WL 6608962, at *1 (6th Cir. Nov. 6, 2016). “These four considerations are factors to be balanced, not prerequisites that must be met.” Tenke Corp., 511 F.3d at 542 (internal quotation marks omitted) (quoting Camenisch, 451 U.S. at 395). No one factor is dispositive. Capobianco, D.C. v. Summers, 377 F.3d 559, 561 (6th Cir. 2004); see also Mich. Bell Tel. Co. v. Engler, 257 F.3d 587, 592 (6th Cir. 2001). The burden of persuasion is on the party seeking the injunctive relief. See Stenberg v. Cheker Oil Co., 573 F.2d 921, 925 (6th Cir. 1978).

         B. Security Bond Associated with Preliminary Injunction

         “The Court may issue a preliminary injunction or a temporary restraining order only if the movant gives security in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained.” Fed.R.Civ.P. 65(c). While the Sixth Circuit has stated a district court “errs when it fails to expressly consider the question of requiring a bond when the issue has been raised, ” it has also found that a court has no mandatory duty to impose a bond as a condition for issuance of injunctive relief. NACCO Materials Handling Grp., Inc. v. Toyota Materials Handling USA, Inc., 246 F.App'x 929, 952 (6th Cir. 2007) (alterations, quotation marks, and citations omitted). Thus, if the Court finds injunctive relief appropriate, the Court must address whether a bond is needed, but it need not require one.

         III. DISCUSSION

         A. Preliminary Injunction

         1. Likelihood of Success on the Merits

         Hanover asserts that there is a high likelihood of its success on the merits because Defendants clearly “acted with intent to deceive” and “to fraudulently induce Hanover to make insurance payments on claims that were fabricated and for losses [that] were not actually incurred.” (ECF No. 61 at PageID 972.) Hanover contends that “[w]hen an insured lies about the existence, value, or acquisition of property in a claim to an insurer, the insured has made a material, willful misrepresentation with an intent to deceive and the entire policy is voided.” (Id. at PageID 963 (citing Smith v. Fireman's Fund Ins. Co., 16 F.3d 1221 (6th Cir. 1994).) Hanover asserts that Defendant Brown's deposition revealed the following:

“[N]either [Brown] nor TME filed tax returns in either 2014 or 2015; Brown used almost $1 million of insurance proceeds to make an all cash purchase of a $1.2 million mansion; Brown has apparently squandered all of the $1.2 million paid to TME by Hanover for building repairs on ‘touring with his band'; TME has no assets other than the damaged building; there is no money left to repair the building; and Brown could offer no testimony as to the balance of any of his bank or savings accounts or put a value on any of his other property.”

(Id. at PageID 961.) Hanover also highlights the policy language contained in each of the Defendants' policies, which states, in pertinent part:

         This Coverage Part is void in any case of fraud by you as it relates to this Coverage Part at any time. It is also void if you or any other insured, at any time, ...


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