Nevada Supreme Court Enforces Contractual Irreparable-Harm Presumptions to Support Mandatory Injunction and Specific Performance in Convertible Note Disputes

Introduction

In Blackstar Enterprise Group, Inc. v. GS Capital Partners LLC, the Supreme Court of Nevada affirmed a district court order granting a preliminary mandatory injunction and specific performance in favor of a noteholder under a convertible, redeemable promissory note. The dispute arose after GS Capital sought to convert portions of Blackstar’s loan balance into common stock pursuant to conversion rights and a share-reserve covenant, and Blackstar refused. Although Blackstar later tendered a payoff of the note, the district court nonetheless ordered specific performance of the initial conversion and of additional conversions that would have occurred during a 15-day period had Blackstar honored the note’s terms.

On appeal, Blackstar challenged the injunction on three grounds: (1) irreparable harm was not shown under the heightened standard for mandatory injunctions; (2) its payoff cured any breach and dissolved remaining obligations; and (3) the district court effectively decided the merits without an evidentiary hearing. The Nevada Supreme Court rejected each argument, emphasizing the parties’ express contractual stipulation that irreparable harm would be presumed upon breach and that the noteholder would be entitled to injunctive relief and specific performance “without the necessity of showing economic loss.”

The decision carries notable implications for Nevada contract enforcement, especially in the context of micro-cap finance and convertible notes. It signals that Nevada courts will give dispositive weight to clear, unambiguous clauses stipulating irreparable harm and specific performance, even at the preliminary stage and even when the relief is mandatory in nature.

Summary of the Opinion

The Nevada Supreme Court affirmed the district court’s grant of a preliminary mandatory injunction and specific performance. It held:

A clear and unambiguous contractual clause presuming irreparable harm and providing for injunctive relief and specific performance can satisfy the irreparable-harm requirement for preliminary relief—even under the heightened standard for mandatory injunctions.
Blackstar’s post-breach payoff did not retroactively cure or moot the harm caused by its earlier refusal to honor conversion rights; the noteholder may have earned more through conversions and share sales than by payoff, so specific performance of conversions that would have occurred in the 15-day window pre-payoff was appropriate.
The district court did not impermissibly decide the merits: it found only a reasonable likelihood of success and enforced the parties’ agreed-upon equitable remedies pending trial. Liability, duration of breach, and damages remain to be adjudicated.
As to a competing forum-selection clause, because Blackstar inadequately briefed why the SPA’s New York clause should supersede the later-amended Note’s Nevada clause, the Court assumed jurisdiction.

Analysis

Precedents Cited and Their Influence

University & Community College System of Nevada v. Nevadans for Sound Government, 120 Nev. 712, 100 P.3d 179 (2004): The Court reiterated the standard of review—district courts have discretion on preliminary injunctions; factual findings are reviewed for clear error and substantial evidence; legal questions de novo. This framed the appellate posture and deference to the district court’s fact-finding.
Pickett v. Comanche Construction, Inc., 108 Nev. 422, 836 P.2d 42 (1992): Reaffirmed the two-part test for preliminary injunctions: reasonable likelihood of success on the merits and irreparable harm. The Court applied this test but recognized the contractual clause as satisfying the irreparable harm prong.
Chudacoff v. University Medical Center of Southern Nevada, 609 F. Supp. 2d 1163 (D. Nev. 2009): Cited for the proposition that mandatory injunctions entail a heightened burden because they compel action and alter the status quo. The Court acknowledged this stricter standard, then found it met via the parties’ explicit stipulation regarding irreparable harm and entitlement to specific performance.
Canfora v. Coast Hotels & Casinos, Inc., 121 Nev. 771, 121 P.3d 599 (2005): Quoted for the principle that courts cannot rewrite unambiguous contracts. This undergirded the decision to enforce the parties’ stipulation that irreparable harm is presumed and that equitable relief is available without showing economic loss.
Edwards v. Emperor’s Garden Restaurant, 122 Nev. 317, 130 P.3d 1280 (2006): Cited to explain why the Court declined to resolve a forum-selection conflict where the appellant failed to supply cogent argument and authority. This preserved the case in Nevada without reaching a broader doctrinal ruling on competing forum clauses across integrated deal documents.

Legal Reasoning

1) Contractual presumption of irreparable harm and specific performance

The linchpin of the Court’s analysis was a clause in the parties’ SPA/Note package in which Blackstar “acknowledges that a breach by it of its obligations hereunder will cause irreparable harm,” that “the remedy at law will be inadequate,” and that the investor “shall be entitled…to an injunction… and to enforce specifically the terms and provisions hereof, without the necessity of showing economic loss.” The Court viewed this language as an enforceable allocation of equitable risk and remedy, not merely precatory recital.

Against Blackstar’s argument that mandatory injunctions require a heightened showing, the Court effectively held that the parties themselves supplied the requisite showing by stipulation. Enforcing that stipulation honored freedom of contract (per Canfora) and furnished substantial evidence that irreparable harm exists for preliminary relief purposes—even in the mandatory injunction posture recognized by Chudacoff.

2) Payoff does not retroactively cure breach or moot equitable relief

Blackstar argued its November 17 payment satisfied and discharged the principal liability and thereby dissolved obligations and harm. The Court rejected this as a cure-all. It emphasized the temporal dimension of breach: for roughly 15 days, Blackstar did not honor a valid conversion request and impeded further conversions. The Note structure (including an equity blocker limiting percentage ownership) contemplated serial conversions and sales. The district court credited that GS Capital may have reaped more through market transactions than by a simple payoff. Thus, the payoff did not eliminate the harm already caused by depriving the investor of the bargained-for conversion pathway.

On this logic, the court upheld specific performance not only of the initial conversion but also of the additional conversions that “would have occurred” during the 15-day pre-payoff window had Blackstar complied. That relief preserves the benefit-of-the-bargain pending trial and prevents a breaching issuer from nullifying agreed conversion mechanics by tendering payment after hindering performance.

3) No premature merits determination; appropriateness of preliminary specific performance

Blackstar characterized the preliminary injunction and specific performance as a de facto merits ruling without an evidentiary hearing. The Court disagreed. It confirmed that the district court found only a “reasonable likelihood of success,” not final liability, and then enforced the contractual entitlement to injunctive and specific performance as an interim measure. The Court emphasized that key merits issues remain open: whether Blackstar ultimately breached, the duration and scope of any breach, damages, and whether any of the payoff must be returned.

The takeaway is that Nevada courts may issue preliminary, mandatory specific performance when the parties have expressly contracted for it, and when the record supports the Pickett factors, without thereby foreclosing a full trial on liability and damages.

4) Forum selection clause conflict and appellate practice

The SPA contained a New York forum clause; the Note, later amended, provided exclusive Nevada jurisdiction. Because the dispute straddled both instruments and Blackstar did not adequately explain why the SPA’s clause should supersede the Note’s amendment, the Court assumed jurisdiction. The message is practical: when integrated deal documents carry conflicting forum clauses, counsel must brief hierarchy, amendment effects, and integration principles with authority, or risk waiver of the argument.

Impact

1) Contract drafters: make—and expect enforcement of—irreparable-harm/specific-performance clauses

Nevada’s high court gave decisive effect to an express presumption of irreparable harm and entitlement to specific performance. For commercial agreements—credit facilities, M&A covenants, IP licenses, NDAs, and especially convertible instruments—Nevada parties should expect courts to treat such clauses as dispositive on the irreparable-harm inquiry at the preliminary stage, including for mandatory injunctions.

Strongly consider including explicit language that (a) breach causes irreparable harm, (b) legal remedies are inadequate, and (c) the non-breaching party is entitled to injunctive relief and specific performance “without the necessity of showing economic loss.”
Ensure the language is unambiguous; Canfora’s rule against re-writing contracts favored enforcement here.

2) Convertible note litigation: payoff cannot erase lost conversion opportunities

Issuers cannot rely on post-breach payoff to moot equitable claims where prior obstruction foreclosed or delayed conversions. Courts may order specific performance replicating the conversions that “would have occurred,” even after payment, to protect the deal’s economics. Noteholders gain leverage to enforce share reserves, timely honoring of conversion notices, and compliance with equity blockers.

3) Preliminary mandatory injunctions in Nevada

While mandatory injunctions are scrutinized under a higher standard, this decision shows that a contractual stipulation can satisfy the irreparable-harm component of that heightened test. Parties seeking to resist such relief must be prepared to attack the clause’s enforceability (e.g., ambiguity, unconscionability, public policy), or to demonstrate that the alleged breach falls outside the clause’s scope.

4) Procedural posture and evidentiary hearings

The Court did not require an evidentiary hearing on irreparable harm where the parties’ agreement supplied the presumption and the district court found a likelihood of success. Litigants should marshal the contract language and a clear record to support preliminary relief; opponents should surface concrete factual disputes material to the Pickett factors if they seek a hearing.

5) Integrated deals: align forum clauses across documents

Mismatched forum-selection clauses across related deal documents can produce avoidable litigation over venue and governing forum. The Court’s refusal to reach the forum argument due to inadequate briefing underscores the importance of consistent clauses and robust appellate presentation.

Complex Concepts Simplified

Mandatory vs. prohibitory injunction: A prohibitory injunction preserves the status quo by ordering a party not to do something. A mandatory injunction compels affirmative action (for example, issuing shares). Courts are more cautious granting mandatory injunctions, typically demanding a stronger showing.
Irreparable harm and “adequate remedy at law”: Irreparable harm is injury that cannot be fully compensated by money damages later. Contracts sometimes stipulate that certain breaches cause irreparable harm and that equitable relief is appropriate. Here, that stipulation was enforced.
Specific performance: An equitable remedy compelling a party to carry out a contractual obligation (e.g., issue shares as required by a convertible note) rather than merely paying damages.
Convertible note: A loan instrument allowing the lender to convert debt into equity under specified formulas. These often include a share-reserve covenant (issuer must keep enough authorized shares available) and an equity blocker (limits the holder’s ownership percentage at any moment, forcing serial conversions).
Reasonable likelihood of success on the merits: A preliminary-injunction requirement meaning the plaintiff has a plausible, fact-supported chance of winning at trial, not that victory is certain.
Standard of review: Appellate courts defer to a trial court’s factual findings unless clearly erroneous, review legal questions anew (de novo), and review the ultimate decision to grant or deny an injunction for abuse of discretion.
Status quo and status quo ante: Sometimes, courts define the “status quo” as the last peaceable, non-breaching state of affairs. A mandatory injunction may restore that status quo ante when a party’s breach has already altered conditions.

Conclusion

Blackstar Enterprise Group, Inc. v. GS Capital Partners LLC reinforces the enforceability in Nevada of express contractual provisions that (1) presume irreparable harm upon breach and (2) entitle the non-breaching party to injunctive relief and specific performance “without the necessity of showing economic loss.” The Nevada Supreme Court held that such language can satisfy the irreparable-harm requirement for preliminary relief, even under the heightened standard for mandatory injunctions. The Court further clarified that a debtor’s post-breach payoff does not retroactively cure the harm from obstructed conversion rights; courts may order specific performance of conversions that would have occurred during the breach period.

For practitioners, the decision affirms the strategic value of precise remedial clauses and cautions issuers in convertible transactions that delaying or denying conversion requests can yield immediate equitable relief—despite later tender of payment. Although the district court’s order was preliminary and left central merits issues for trial, the Supreme Court’s analysis offers clear guidance for Nevada courts and contracting parties: unambiguous bargains about equitable remedies will be enforced as written.

Key takeaways:

Expect Nevada courts to give dispositive effect to unambiguous irreparable-harm and specific-performance stipulations at the preliminary stage.
Mandatory injunctions can issue based on contractual presumptions, not just evidentiary showings of noncompensable harm.
Payoff after breach does not eliminate the court’s power to order specific performance replicating foregone conversions.
Align forum-selection clauses across integrated deal documents and brief any conflicts with cogent authority.

In short, the Court underscored a robust commitment to honoring parties’ remedial bargains, strengthening the predictability of equitable relief in Nevada’s commercial landscape—especially in the volatile arena of convertible financing.