In a recent case before the United States District Court for the District of Alaska, a motion for preliminary injunction by an alarm company against the defendants was denied.

The facts as set out in the case were that the alarm company was in the business of selling, installing, servicing and monitoring security alarm systems throughout the United States and Canada, and that its primary means of acquiring new customers was by purchasing customer accounts from other security alarm companies.

The alarm company purchased 1,300 accounts in the state of Alaska. The annualized account attrition rate for those 1,300 accounts was significantly greater than its normal annual rise account attrition rate. The alarm company noted that many of the customers requested cancellation and that the cancellations were on cards or handwritten notes containing identical handwriting. After investigating the account cancellations, the alarm company filed a lawsuit seeking a preliminary injunction against the defendants, alleging that the defendants had been inducing its customers to cancel their contracts with the plaintiff and establish service through the defendants using deceptive business practices.

In its motion, the plaintiff maintained that the contracts it purchased were all substantially similar and that they obligated the customer to pay a monthly monitoring fee for a set period of time. If the customer canceled the contract prior to the expiration of the time period, the customer was obligated to pay a sliding cancellation fee. The plaintiff asserted that the defendants hired former salespersons from the company the plaintiff had acquired the accounts from to solicit the former company’s customers to cancel their contracts with the plaintiff and instead obtain security services from the defendants. 

In its motion, the plaintiff attempted to seek an order enjoining the defendant from engaging in the unlawful activities while the case was moving forward, as well as an order preventing the defendants from selling any of its Alaska accounts from former plaintiff’s customers during the pendency of the case.

The court pointed out that in seeking preliminary injunctive relief, the plaintiff must establish that 1.) they are likely to succeed on the merits; 2.) they are likely to suffer irreparable harm in the absence of preliminary relief; 3.) the balance of equities tips in their favor; and 4.) a preliminary injunction is in the public interest. The United States Supreme Court precedent requires that, “Plaintiffs must establish that irreparable harm is likely, not just possible, in order to obtain a preliminary injunction.”

Even though the plaintiff asserted that it has and will continue to lose customers and suffer damages to its good will if the defendants’ deceptive practices were not stopped, a court must find that irreparable harm is likely — not merely possible — to accord preliminary injunctive relief. Here, the court indicated that the plaintiff failed to meet that standard. The court indicated that the extent of the loss of current customers due to defendants’ allegedly illegal actions is both discoverable and quantifiable. Therefore those losses are likely to be fully compensable through money damages. Therefore, the court pointed out that the plaintiff’s alleged loss of customers does not support a finding of a likelihood of irreparable harm.

The court stated that while the Ninth Circuit has recognized that intangible injuries, such as damage to ongoing recruitment efforts and good will, qualify as irreparable harm, the mere possibility of such harm does not equate to the likelihood of irreparable harm. The court further said that loss of good will is not per selikely to cause an irreparable harm.

The court found that the plaintiff did not demonstrate that there is a likely loss of good will prior to trial that could not be adequately compensated by a damages award if the plaintiff prevailed on its claims. Therefore, the court found that the plaintiff had not demonstrated the requisite likelihood of irreparable harm to support preliminary injunctive relief. Further, the court ruled that the plaintiff failed to demonstrate a likelihood of irreparable harm, which is a prerequisite to preliminary injunctive relief, and the motion for preliminary injunction was denied.

It should be noted that the plaintiff could proceed to trial and recover damages if it prevailed in the litigation. 

Readers Ask:

Quetion:

To ask Les Gold a question, e-mail sdm@bnpmedia.com. I have a residential customer who wanted me to install a system at their residence. I understand that I have to give the subscriber a right to rescind the agreement for 72 hours. The subscriber wanted me to install the system immediately, which we did. What is my exposure? To read the answer, go to SDMmag.com. Click the Columns tab and select Security & the Law.

Answer:

This question is asked frequently and the answer can vary from state to state. As I understand it, in most states you can install the system on the day the contract was signed; however, you do so at your own risk. If the subscriber decides to rescind the contract within the three-day period, then you must remove the system at no cost to the subscriber and return any monies that the subscriber may have paid to you.

In addition, it is your responsibility to make certain that when the system is removed, you restore the premises to its original state prior to the installation. In some states, I understand there is a provision that if you get a written acknowledgement from the subscriber that it is an emergency, then you can install the system without concern about the three-day right of rescission. If you rely on the “emergency” provision, make sure you get a written note from the subscriber stating the reason for the immediate installation.