RiskOn International, Inc.; Ecoark, Inc.; and Hyperscale Data, Inc. v. Zest Labs Holdings, LLC, and Gary Metzger

Summary

The United States District Court for the District of Nevada partially granted the plaintiffs’ motion for a preliminary injunction and denied their motion for a temporary restraining order as moot. The court enjoined the defendants from further distributing Walmart settlement proceeds to the litigation funder, litigation counsel, other related expense recipients, or the defendants themselves, and barred retention of a 5% compensation amount, while allowing payments to defense counsel in the present case and Stretto, Inc. The court found serious questions concerning compliance with the parties’ stock purchase agreement and the risk that funds would not reach eligible beneficial owners.

Holdings

1. Plaintiffs demonstrated serious questions concerning whether transferring the proceeds to DTC would result in the proper beneficial owners receiving their shares, likely irreparable harm because defendants lacked assets to compensate them if the money disappeared, and a balance of equities and public interest favoring preservation of the funds. The court therefore enjoined distribution of any Walmart proceeds to DTC.
2. The court enjoined further distributions of Walmart proceeds to the litigation funder, counsel in the Walmart litigation, and other parties owed expenses related to that litigation.
3. The court enjoined defendants from retaining five percent of the net proceeds as compensation because plaintiffs raised a serious question concerning the amount defendants were owed and the governing documents did not establish that amount.
4. The court waived any security-bond requirement under Federal Rule of Civil Procedure 65 because the injunction caused no harm to defendants.

Questions Presented

1. Whether plaintiffs established the requirements for a preliminary injunction preventing defendants from distributing Walmart litigation proceeds to DTC.
2. Whether plaintiffs established grounds to enjoin further payments to the litigation funder, litigation counsel, other litigation-related payees, and defendants themselves.
3. Whether defendants should be enjoined from retaining five percent of the net proceeds as compensation.
4. Whether plaintiffs' motion for a temporary restraining order should be denied as moot after issuance of the preliminary injunction.
5. Whether a security bond should be required under Federal Rule of Civil Procedure 65.

Disposition

other