Elliott & Son Excavating LLC v. Square Funding LLC, d/b/a SQ Advance

IN THE UNITED STATES BANKRUPTCY COURT FOR THE

EASTERN DISTRICT OF TENNESSEE

In re Case No. 3:26-bk-31028-SHB ELLIOT & SON EXCAVATING LLC Chapter 11 Debtor

ELLIOT & SON EXCAVATING LLC Plaintiff

v. Adv. Proc. No. 3:26-ap-03022-SHB SQUARE FUNDING LLC d/b/a

SQ ADVANCE

Defendant

PRELIMINARY INJUNCTION

Elliot & Son Excavating LLC ("Plaintiff") filed the Voluntary Petition commencing its Chapter 11 bankruptcy case on May 22, 2026, together with a Master List of Creditors that included "SQ Advance, 7901 4th ST N, STE 300, Saint Petersburg, FL 33702." [Case No. 3:26- bk-31028-SHB, ECF No. 1 at 33.] "SQ Advance" also was included in the List of 20 Largest Creditors with the same address. [Case No. 3:26-bk-30239-SHB, ECF No. 4.]

SO ORDERED.

SIGNED this 23rd day of June, 2026

THIS ORDER HAS BEEN ENTERED ON THE DOCKET.

PLEASE SEE DOCKET FOR ENTRY DATE.

_____________________________________________________________

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Plaintiff filed the Complaint to Avoid Preferential Transfer, Determine Validity and Priority of Lien, for Turnover of Property of the Estate, for Violation of the Automatic Stay, and for Injunctive Relief ("Complaint") commencing this adversary proceeding on June 3, 2026 [Doc. 1]. The Complaint raised the following causes of action: (I) Determination of Validity, Extent, Priority, Perfection, Enforceability, and Avoidability of Defendant's Asserted Lien; (II) Avoidance of Preferential Transfer; (III) Preservation of Avoided Transfer; (IV) Turnover of Property of the Estate; (V) Violation of the Automatic Stay; and (VI) Injunctive Relief. [Id.] On June 5, 2026, Plaintiff filed a Motion for Preliminary Injunction ("Motion"), asking the Court to enter a preliminary injunction:

(A) enjoining Square Funding LLC dba SQ Advance, together with its officers, agents, servants, employees, attorneys, and all other persons acting in concert with it (collectively, "Defendant") from directing, demanding, instructing, or otherwise causing any account debtor of Plaintiff to withhold payment from Plaintiff for remittance to Defendant;

(B) directing Defendant to withdraw all directives, notices, demands, or similar communications previously issued to Alpha Industries, Inc. or any other account debtor of Plaintiff concerning receivables, payments, or funds owed to Plaintiff;

(C) directing Defendant to provide written notice to Alpha Industries, Inc. withdrawing any prior collection directives concerning receivables, payments, or funds owed to Plaintiff; and

(D) directing Defendant to identify to Plaintiff all account debtors of Plaintiff to whom Defendant has issued collection directives, notices, demands, or communications. After notice, a hearing on the Motion was held June 18, 2026. Present at the hearing were

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Plaintiff's counsel and Sheryl Elliott, member and authorized representative of Plaintiff.

FACTUAL FINDINGS

Based on the Declaration of Ms. Elliott filed on June 5, 2026 [Doc. 7-1], and her testimony at the hearing on June 18, the Court makes the following factual findings. Defendant, a merchant cash advance company to whom Plaintiff is indebted,¹asserted an interest in Plaintiff's receivables with respect to Alpha Industries, Inc. and likely other companies who owe payments to Plaintiff. Specifically, on March 17, 2026, through a "UCC Lien Notice and Notice of Power of Attorney Granted by Merchant to Square Funding LLC d/b/a SQ Advance Giving Square Funding LLC d/b/a SQ Advance Power-of-Attorney Over Account Receivables of Merchant," Defendant's counsel directed Alpha Industries, Inc. to withhold and remit $17,907.10 from the $44,500.00 it owed to Plaintiff. [Doc. 1-2.] Based on Defendant's directive, Alpha Industries, Inc. paid $26,592.90 to Plaintiff but withheld the remaining $17,907.10. Ms. Elliott testified that the withholding of accounts receivable significantly impacted and impaired Plaintiff's cash flow and ability to operate.

Plaintiff filed its Chapter 11 bankruptcy case on May 22, 2026. Notwithstanding notice of the bankruptcy case on May 22 and demands made to Defendant's counsel by Plaintiff's counsel on May 22, 27, and 28 [Doc. 1-3], Defendant has failed to withdraw its directive to Alpha Industries, Inc. and/or authorize Alpha Industries, Inc. to pay the $17,907.10 to Plaintiff, resulting in detriment to Plaintiff and the bankruptcy estate and leading to the filing of this adversary proceeding on June 3.

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As authorized by Federal Rule of Bankruptcy Procedure 7004, Plaintiff's counsel served the Complaint and Summons on Defendant through United States Mail, first class, postage prepaid, addressed to Defendant's registered agent on June 4, 2026 [Doc. 5]. On June 5, Plaintiff's counsel served the Motion, supporting brief [Doc. 7], Ms. Elliott's Declaration, and a proposed order via email to Defendant's counsel, Shanna Kaminski,²and to Defendant directly by United States Mail, first class, postage prepaid, at its business address [Doc. 6 at 6].

CONCLUSIONS OF LAW

"The court may issue a preliminary injunction only on notice to the adverse party." Fed. R. Civ. P. 65(a) (applicable to adversary proceedings through Fed. R. Bankr. P. 7065). "The purpose of a preliminary injunction is to preserve the status quo until a trial can occur[.]" Lackey v. Stinnie,

604 U.S. 192, 193 (2025).

I. Notice Required Under Rule 65

"While Rule 65(a)(1) does not expressly require a hearing, Supreme Court precedent establishes that "[t]he notice required by Rule 65(a) . . . implies a hearing in which the defendant is given a fair opportunity to oppose the application and to prepare for such opposition." Hunter v. Hamilton Cnty. Bd. of Elections, 635 F.3d 219, 246 (6th Cir. 2011) (quoting Granny Goose Foods, Inc. v. Brotherhood of Teamsters & Auto Truck Drivers Local No. 70 of Alameda Cnty., 415 U.S. 423, 432 n.7 (1974)).

Attempts at service must also satisfy the constitutional minimum for due process— that is, notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections. Where personal service cannot be effected, it is generally constitutionally sufficient to effect service via mail.

Rover Pipeline LLC v. Kanzigg, No. 2:17-CV-105, 2019 WL 13161928, at *3 (S.D. Ohio July 12,

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2019) (quoting Greene v. Lindsey, 456 U.S. 444, 449-450 (1982)) (citation modified). Courts in this Circuit have recognized that service "via email and FedEx" provide "sufficient notice" under Rule 65. See CFO Leverage, LLC v. Fennema, No. 2:26-CV-02167-MSN-TMP, 2026 WL 485484, at *3 (W.D. Tenn. Feb. 20, 2026).

Here, the Complaint including a request for injunctive relief was served on Defendant as authorized by the Federal Rules of Bankruptcy Procedure, and the Motion, supporting brief, and Ms. Elliott's Declaration were served on Defendant directly through United States Mail at its business address and via email to Defendant's counsel. Defendant, therefore, received notice in a manner that was "reasonably calculated, under all the circumstances, to apprise [Defendant] of the pendency of the action and afford [it] an opportunity to present [an objection]." Rover Pipeline, 2019 WL 13161928, at *3. Accordingly, the Court finds that Defendant received notice as required by Rule 65(a).

II. Factors Necessary to Grant Injunctive Relief

Injunctive relief is an extraordinary remedy, and each request for such relief requires the court to "balance the competing claims of injury" and to "consider the effect on each party of the granting or withholding of the requested relief." Winter v. Nat'l Res. Def. Council, Inc., 555 U.S. 7, 24 (2008) (citations omitted). Accordingly, the moving party must establish (1) the likelihood of success on the merits; (2) the likelihood of irreparable harm absent the relief; (3) that a balancing of the equities tips in the moving party's favor; and (4) that granting the injunction is in the public interest. Winter, 555 U.S. at 20. The moving party "bears the burden of justifying such relief."

Memphis A. Philip Randolph Inst. v. Hargett, 2 F.4th 548, 554 (6th Cir. 2021) (citation omitted). If one factor is not satisfied, a court is not required to consider the others. D.T. v. Sumner Cnty. Schs., 942 F.3d 324, 327 (6th Cir. 2019). Based on the testimony provided by Ms. Elliott, the

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Court finds that Plaintiff has met its burden of proof and that immediate injunctive relief is appropriate.

1. Likelihood of Success on the Merits The likelihood of success on the merits "can often drive the results of a request for relief."

Int'l Union of Painters & Allied Trades Dist. Council No. 6 v. Smith, 148 F.4th 365, 371 (6th Cir. 2025). Pursuant to 11 U.S.C. § 362(a)(3) and (a)(6), the filing of a bankruptcy petition "operates as a stay, applicable to all entities, of . . . any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate[] and/or any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title." A willful violation of the automatic stay occurs when "the creditor knew of the stay and violated the stay by an intentional act." TranSouth Fin. Corp. v. Sharon (In re Sharon),

234 B.R. 676, 687 (B.A.P. 6th Cir. 1999). Plaintiff avers that Defendant has engaged and is continuing to engage in the postpetition collection of the debt by directing third-party entities, payors, customers, or account debtors such as Alpha Industries, Inc. to withhold payments owed to Plaintiff and remit those funds directly to Defendant. Such actions violate the automatic stay provisions of 11 U.S.C. § 362(a) that became effective on the filing of the bankruptcy petition on May 22. The continued withholding of payments owed to Plaintiff (which clearly constitute property of Plaintiff's bankruptcy estate under

11 U.S.C. § 541(a)) as an enforcement of Defendant's purported lien rights in accounts receivable also constitutes a stay violation and is a violation of 11 U.S.C. § 542, "which requires any entity in possession, custody, or control, during the case, of property [of the estate] . . . shall deliver to the trustee [or debtor in possession], and account for, such property or the value of such property."³

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Although Defendant originally began diverting funds before Plaintiff filed the bankruptcy case, there is ample evidence that Defendant received notice of the bankruptcy case after it was filed, as evidenced in the emails from Plaintiff's counsel to Defendant's counsel attached as Exhibit C to the Complaint [Doc. 1-3] and including the notice that was sent to creditors listed on Plaintiff's Master List of Creditors [Case No. 3:26-bk-31028-SHB, ECF No. 1 at 33]. Based on the allegations in the Complaint buttressed by Ms. Elliott's testimony, Plaintiff has proved more than a likelihood that it will succeed on the merits.

2. Likelihood of Irreparable Harm Even if it can show a likelihood of success on the merits, the party seeking preliminary relief also must demonstrate that "irreparable injury is likely in the absence of an injunction."

Winter, 555 U.S. at 22; see also Fetch! Pet Care, Inc. v. Atomic Pawz Inc., 170 F.4th 546, 558 (6th Cir. 2026) (clarifying that courts in the Sixth Circuit should apply the federal burden of proof stated in Winter rather than the clear-and-convincing standard); EOG Res., Inc. v. Lucky Land Mgmt., LLC, 134 F.4th 868, 883 (6th Cir. 2025) ("Irreparable harm is the core of the preliminary injunction, as we and the Supreme Court have made clear."). Courts may "balance the four factors, but while the extent of an injury may be balanced against other factors, the existence of an irreparable injury is mandatory." EOG Res., Inc., 134 F.4th at 883 (citation modified). Further, "[t]he injury must be irreparable, in the legal sense, and not every injury is irreparable. 'Irreparable' means not fully compensable by monetary damages," Id. at 884 (citation modified), and "must be both certain and immediate, not speculative or theoretical." D.T., 942 F.3d at 327 (citation modified). Additionally, "[u]nlike lost profits, which can be fairly easily tautological. It is so fundamental that it is set forth as such in Collier's. 5 Collier on Bankruptcy ¶ 542.02 ('By its express terms, [section] 542(a) is self-executing, and does not require that the trustee take any action or commence a proceeding or obtain a court order to compel the turnover.')."

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remedied through damages, courts can't easily compensate a movant for loss of competitive position and goodwill." Churchill Downs Tech. Initiatives Co. v. Michigan Gaming Control Bd.,

162 F.4th 631, 643 (6th Cir. 2025) (citation modified). Ms. Elliott's testimony concerning the irreparable harm Plaintiff faces without injunctive relief was clear: absent the injunction, Defendant would continue intercepting accounts receivable funds owed to Plaintiff from its customers, and Plaintiff's operations would be unsustainable. Plaintiff requires its accounts receivable income for payment of payroll to four employees, insurance obligations, fuel expenses, equipment and maintenance, and operational costs. Defendant's continued violation of the stay threatens Plaintiff's relationships with its customers and its ability to reorganize under Chapter 11. These harms exceed a mere monetary injury to Plaintiff. Instead, Plaintiff's injury will be fatal to its continued operations. These types of injuries are certain, immediate, and cannot be remedied merely by a monetary judgment after this adversary proceeding is litigated. This factor is satisfied.

3. Balancing of the Equities. With respect to balancing the equities, "courts must balance the competing claims of injury and must consider the effect on each party of the granting or withholding of the requested relief."

Winter, 555 U.S. at 24. Here, the Court easily finds that a balance of the equities weighs in Plaintiff's favor. The severity of the injury and harm that Plaintiff - and its employees and customers - will face is heavy. On the other side, however, Defendant will suffer no harm by the Court's issuance of an injunction.⁴

Notably, the Bankruptcy Code itself contains an injunction against what Defendant is doing - the automatic stay in § 362(a). Plaintiff scheduled Defendant as a creditor in the bankruptcy

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