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Kentucky CVS Pharmacy, LLC v. McKinney

United States District Court, Sixth Circuit

September 20, 2013

JOHN McKINNEY, et al., Defendants.


KARL S. FORESTER, Senior District Judge.

This matter is before the Court on Plaintiff's motion for preliminary injunction. For the reasons discussed below, the motion will be denied.


Many of the background facts of this case are set forth in the Court's Opinion and Order dated April 15, 2013 (DE 37) and will not be repeated here. Plaintiff filed its motion for injunctive relief soon after filing its Complaint. It then filed an Amended Complaint, sought expedited discovery, and the parties filed supplemental briefing. Meanwhile, CVS moved to dismiss two counts (Fraud and Negligent Misrepresentation) of its claims against the McKinneys before the McKinneys filed an Answer to the Amended Complaint. Fed.R.Civ.P. 41(a)(1)(A)(I). Counterclaims by the McKinneys and the Trust were also dismissed.

CVS's remaining counts against the McKinneys are Breach of Contract, Tortious Interference With Existing Contractual Relationship, and Tortious Interference With Prospective Business Relationship. CVS alleges Tortious Interference With Existing Contractual Relationship against the Louise Wagers McCord Trust B ("Trust") and Spencer Drug and Unfair Competition against Spencer Drug. For injunctive relief, CVS seeks to enjoin the McKinneys from violating their non-competition agreement, to void all lease agreements between the Trust and Spencer Drug, and to enjoin Spencer Drug from operating a pharmacy at its current location.

In brief summary, the McKinneys sold certain assets of M & M Drug to CVS and signed a covenant not to compete within ten miles for ten years. Seventeen months later, the Trust that owns the property on which M & M Drug was located leased the property to Spencer Drug. The sole Trustee of the Trust at the time of the lease was John McKinney's mother, Eleanor. CVS claims the lease to Spencer Drug violated the non-compete agreement. There is no dispute that Spencer Drug is operating within four miles of CVS.

CVS originally maintained that the McKinneys represented to CVS that they, not the Trust, owned the property on which M & M pharmacy was located and on which Spencer Drug is currently located. DE 19 at 2. Discovery revealed, however, that documents from the McKinneys disclosed that they were leasing or renting the property. DE 65, 66. John Newman, CVS's Regional Director of Pharmacy Acquisitions, admitted that he was told the "family" owned the property, and he incorrectly assumed that meant the McKinneys. Newman Dep. at 29-30, 135-36, 154-55. On a Purchase and Sale Abstract, he wrongly said "yes" that "Seller Owns Building." Id. at 40-41, 105. He also admitted that his affidavit stating the McKinneys repeatedly represented that they owned the property at the time they signed the agreement was not a true statement. Id. at 96. Had he realized that the McKinneys did not own the property, CVS would have required a separate restrictive covenant from the property owner. Id. at 136-37, 145-47.

In its Amended Complaint, CVS alleged that the McKinneys were involved in the Trust administration and/or had significant influence over the Trustee and business interests of the Trust. CVS sought limited, expedited discovery relating to the requested preliminary injunction, including information regarding the relationship between the McKinneys and the Trust. DE 15-1. In its Supplemental Memorandum in support of injunctive relief, CVS argues that the McKinneys for years had preferential leasing terms, that they are contingent beneficiaries of the Trust, and that John assisted the Trustee, his mother, in leasing the property to Spencer Drug. CVS also argues that the M & M Drug rent checks were made payable to his parents, not the Trust, and were not deposited into a Trust account. CVS claims that the McKinneys and the Trust worked together and caused the non-compete agreement to be violated. DE 61. It is CVS's position that "the McKinneys are so conflated with - and enmeshed in - the Trust, that they cannot be easily separated from one another." Id. at 4. It also argues that "the McKinney family does not treat the Trust as a separate legal entity." Id. at 12.

The McKinneys and the Trust defend against Plaintiff's claims by arguing that the Trust is a separate legal entity that had every right to lease the property to whomever it chose. They present evidence that the negotiations and leasing decision were made by Eleanor McKinney, and that she manages the Trust with the assistance of her daughter, who is a CPA. They claim John McKinney's role with respect to Spencer Drugs was to drive Eleanor McKinney to the site to meet John Spencer and to answer questions regarding the property where John McKinney was the pharmacist for many years. DE 67, 68. Spencer Drug corroborates that the negotiations were with Eleanor McKinney, and further argues that the goodwill of M & M Drug was not purchased by CVS. DE 69.


"A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 20 (2008). "Our frequently reiterated standard requires plaintiffs seeking preliminary relief to demonstrate that irreparable injury is likely in the absence of an injunction." Id. at 23 (emphasis in original). "A preliminary injunction is an extraordinary remedy never awarded as of right." Id. See also Performance Unlimited, Inc. v. Questar Publishers, Inc., 52 F.3d 1373, 1381 (6th Cir. 1995) (factors to be balanced).

A. Likelihood of Success on the Merits

CVS's claims of breach of contract and tortious interference all hinge on proof that the McKinneys and the Trust are basically a single entity, rather than separate entities. This is a threshold issue that is essential to all of the tortious interference claims. CVS argues the McKinneys are "conflated" and "enmeshed" with the Trust, such that "they cannot be easily separated from one another." DE 61 at 4. In other words, it is CVS's position that the Trust is the "alter ego" of the McKinneys. Disregard of the separate identity of a trust requires much more than a family relationship and some interaction between the trust and third parties. "[T]he corporate veil should only be pierced reluctantly and cautiously...." White v. Winchester Land Dev. Corp., 584 S.W.2d 56, 62 (Ky. Ct. App. 1979) (overruled on other grounds by Inter-Tel Technologies, Inc. v. Linn Station Properties, LLC, 360 S.W.3d 152, 155 (Ky. 2012)).

The same type of veil piercing or alter ego analysis applicable to corporations is applied in disregarding the separate identity of a family trust. See Limbright v. Hofmeister, Case No. 09-cv-107, 2011 WL 5523713 at *3 (E. D. Ky. 2011). The two key dispositive elements are: "(1) domination of the corporation resulting in a loss of corporate separateness and (2) circumstances under which continued ...

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