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FOURTH DEPARTMENT HOLDS THAT PRELIMINARY INJUNCTIVE RELIEF IS NOT AVAILABLE FOR BREACH OF A CONTRACT WITH A LIQUIDATED DAMAGES CLAUSE BECAUSE CONTRACTUAL MONETARY DAMAGES UNDERMINES THE “IRREPARABLE HARM” ELEMENT

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  • Posted on: May 6 2020

Article 63 of New York’s Civil Practice Law and Rules (“CPLR”) governs, inter alia, the provisional remedy of the preliminary injunction.  Thus, CPLR 6301 provides, in relevant part:

Grounds for preliminary injunction and temporary restraining order.  A preliminary injunction may be granted in any action where it appears that the defendant threatens or is about to do, or is doing or procuring or suffering to be done, an act in violation of the plaintiff’s rights respecting the subject of the action, and tending to render the judgment ineffectual, or in any action where the plaintiff has demanded and would be entitled to a judgment restraining the defendant from the commission or continuance of an act, which, if committed or continued during the pendency of the action, would produce injury to the plaintiff….

The purpose of a preliminary injunction is to “preserve the status quo pending a trial.”  Trump on the Ocean, LLC v. ASH, 81 A.D.3d 713, 715 (2nd Dep’t 2011) (citations omitted).  A preliminary injunction is an “drastic” remedy that should be used “sparingly.”  Trump, 81 A.D.3d at 715 (citations omitted).  Such “extraordinary” relief will be granted only where the movant can demonstrate: (1) the likelihood of success on the merits of the underlying action; (2) irreparable injury in the absence of the preliminary injunction; and, (3) the balance of the equities tipping in the movant’s favor.  Harris v. Patients Medical, P.C., 169 A.D.3d 433, 434 (1st Dep’t 2019) (citations omitted); see also, Aetna Insurance Co. v. Capasso, 75 N.Y.2d 860 (1990) (citations omitted); Trump, 81 A.D.3d at 715 (citations omitted).  The granting of preliminary injunctive relief “is committed to the sound discretion of the motion court.”  Harris Medical, 169 A.D.3d at 434.

It is generally accepted that irreparable injury will not be found, and, therefore, a preliminary injunction will be denied, if the movant’s “alleged damages are compensable in money damages and [are] capable of calculation.”  Trump, 81 A.D.3d at 716 (citations omitted).  In Mar v. Liquid Management Partners, LLC, 62 A.D.3d 762 (2nd Dep’t 2009), plaintiff was a distributor of defendant manufacturer’s energy drink.  Plaintiff alleged that defendant breached their distribution agreement by distributing the energy drink in plaintiff’s territory.  The trial court granted plaintiff a preliminary injunction “prohibiting the defendant from competing with the plaintiffs by distributing certain beverage products in specified territories, and compelling the defendants to sell such beverage products to the plaintiff….”.  Mar, 62 A.D.3d at 762.  The Appellate Division reversed the trial court and denied plaintiff’s motion for a preliminary injunction.  Mar, 62 A.D.3d at 762.  After recognizing that full compensation by a monetary award could undermine injunctive relief due to the absence of irreparable harm, the Mar Court stated:

The plaintiffs argue on appeal that they demonstrated a risk of “injury for which monetary damages will be inadequate” by showing that the failure to grant a preliminary injunction will likely result in the dissolution of their business. However, in their complaint, they seek nothing more than monetary damages. Accordingly, the plaintiffs have effectively acknowledged that they will be fully compensated by obtaining such damages, and thus are not entitled to a preliminary injunction

Mar, 62 A.D.3d at 763 (citations omitted).

On April 24, 2020, the Appellate Division, Fourth Department, decided Eastview Mall, LLC v. Grace Holmes, Inc., in which the Court vacated the trial court’s grant of a preliminary injunction to plaintiff.  The defendant/tenant in Eastview held a 10-year lease in the mall owned by plaintiff/landlord.  The lease permitted defendant to terminate the lease early if its “gross sales” failed to meet the contracted for threshold during the lease’s fifth year.  During the fifth year, plaintiff was advised that defendant failed to meet the bargained for sales goals.  Instead of terminating the lease, the parties modified the lease by reducing the rent and extending the termination option for one year.

The following year, plaintiff was again advised that defendant had still not met its sales goals and, accordingly, that it was exercising its right to terminate the lease.  Plaintiff’s retort was that it had learned through auditor’s reports that defendant had “wrongly excluded certain sales from their calculation of gross sales and were thus precluded from exercising the option to terminate the lease.”  Plaintiff, landlord, commenced action seeking a declaratory judgment and asserting causes of action for breach of contract and anticipatory repudiation.  In addition, plaintiff moved for and obtained “a preliminary injunction enjoining defendants from ceasing business operations or otherwise taking steps to terminate the lease.”

In reversing the trial court, the Eastview Mall Court determined, inter alia, that plaintiff failed to establish that it would suffer “irreparable injury” absent injunctive relief.  In so doing, the Eastview Mall Court reiterated that “[i]t is an anodyne proposition that irreparable injury, for purposes of equity means any injury for which money damages are insufficient” and that “where any loss of sales caused by the allegedly improper conduct of the defendant can be calculated, a plaintiff has an adequate remedy in the form of money damages and is not entitled to injunctive relief.”  (Citation and internal quotation marks, ellipses and brackets omitted.)  The Court’s analysis was as follows:

Here, the lease contains a liquidated damages provision that entitles plaintiff to certain money damages if defendants prematurely vacate the premises and cease operations. The lease also contains an integration clause stating that the lease is “the entire and only agreement between the parties.” Thus, because the lease specifically provides that plaintiff is entitled to certain money damages in the event that defendants vacate the premises in breach of the agreement—the very injury that serves as the predicate for plaintiff’s action— we conclude that plaintiff has an adequate remedy at law and, moreover, that plaintiff has not suffered irreparable harm because the liquidated damages clause was intended as the sole remedy for such a breach (cf. Karpinski v Ingrasci, 28 NY2d 45, 52-53 [1971]; Picotte Realty, Inc. v Gallery of Homes, Inc., 66 AD2d 978, 979 [3d Dept 1978]).

The Majority rejected the Dissent’s view that irreparable injury was established by “the loss of goodwill that would occur if defendant[ was] to cease operations by prematurely terminating the lease.  According to the Dissent, plaintiff established that “defendant[‘s] store is a premier retailer in the mall and that their tenancy impacts the leases of the other tenants of the mall.”  Unless stores like defendant’s operate in a certain percentage of the square footage of the mall, “other tenants are not required to operate under their lease agreements.”  According to the Dissent:

The potential injury to plaintiff is not limited to the loss of rental income from one of approximately 150 tenants in the mall, a loss that is easily quantified and remedied by monetary compensation pursuant to the lease. Here, the potential injury to plaintiff include domino effect involving other tenants in the mall. Stated simply, if defendant[] breach[es] the lease by vacating the mall prior to the expiration of [its] lease term, plaintiff will be entitled to recover liquidated damages based on that breach. Plaintiff’s other tenants in the mall whose co-tenancy provisions in their leases depend on defendant[‘s]continued occupancy in the mall throughout its lease term, however, will have the ability to terminate their leases based on defendant[‘s] premature departure, thereby causing irreparable harm to plaintiff. In our view, plaintiff sufficiently demonstrated that the premature termination of defendant[‘s] lease will cause a loss of goodwill and damage to plaintiff’s customer relationships that will not be remedied by an award of liquidated damages and thus that temporary injunctive relief is appropriate.

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