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Preliminary Injunction Improperly Granted Where Primary Relief Sought Is Money Damages

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  • Posted on: Nov 8 2017

Preliminary injunctions can be an important and potent weapon in business and commercial litigation.  In New York, “[a] preliminary injunction may be granted … where it appears that the defendant threatens or is about to do … an act in violation of the plaintiff’s rights” with regard to the subject matter of the action, and which “render[s] the judgment ineffectual ….” CPLR 6301.

Whether to grant a preliminary injunction lies within the sound discretion of the court.  Doe v. Axelrod, 73 N.Y.2d 748, 750 (1988); Zoller v. HSBC Mtge. Corp. (USA), 135 A.D.3d 932, 933 (2d Dept. 2016). The movant must, therefore, show entitlement to preliminary injunctive relief by demonstrating (with clear and convincing evidence) satisfaction of the following: (1) probability of success on the merits; (2) irreparable harm absent the injunction; and (3) the balance of the equities favoring the relief sought. Zoller, 135 A.D.3d at 933; W. T. Grant Co. v. Srogi, 52 N.Y.2d 496, 517 (1981). “[A]bsent extraordinary circumstances, a preliminary injunction will not issue where to do so would grant the movant the ultimate relief to which he or she would be entitled in a final judgment.” SHS Baisley, LLC v. Res Land, Inc., 18 A.D.3d 727, 728 (2d Dept. 2005); see also Board of Mgrs. of Wharfside Condominium v. Nehrich, 73 A.D.3d 822, 824 (2d Dept. 2010).

Likelihood of Success on the Merits

Success on the merits does not mean certainty of success. Indeed, certainty of success is not the standard; instead, the movant must establish that it is likely to succeed on the merits of the claim. In this regard, the movant must demonstrate its right to the relief, though the evidence submitted need not be conclusive. Terrell v. Terrell, 279 A.D.2d 301 (1st Dept. 2001); McLaughlin, Piven, Vogel v. Nolan & Co., 114 A.D.2d 165, 172-173 (2d Dept.) (“[a]s to the likelihood of success on the merits, a prima facie showing of a right to relief is sufficient; actual proof of the case should be left to further court proceedings”), lv. denied, 67 N.Y.2d 606 (2d Dept. 1986). Notably, issues of fact are insufficient to defeat the motion. See CPLR 6312(c) (providing that issues of fact identified in opposition to the application are insufficient to defeat the motion and “shall not in itself be grounds for denial of the motion.”). But, the movant must nevertheless show a clear right to relief which is plain from the undisputed facts. Matter of Related Prop., Inc. v Town Bd. of Town/Village of Harrison, 22 A.D.3d 587 (2d Dept. 2005).

Irreparable Harm

Irreparable injury, for purposes of the second prong, means an injury for which money damages are insufficient. Walsh v. Design Concepts, Ltd., 221 A.D.2d 454, 455 (2d Dept. 1995); McLaughlin, 114 A.D.2d at 174. See also Sterling Fifth Assoc. v. Carpentille Corp., Inc., 5 A.D.3d 328, 330 (1st Dept. 2004)). The injury claimed must be direct and concrete. Rowland v. Dushin, 82 A.D.3d 738 (2d Dept, 2011) (noting that preliminary injunctive relief is not appropriate where the irreparable harm claimed is remote or speculative); Family-Friendly Media, Inc. v. Recorder Tel. Network, 74A.D.3d 738 (2d Dept. 2010). Satisfying this prong can be the most difficult of the three because most plaintiffs seek monetary damages. Consequently, courts will deny a motion for a preliminary injunction where the movant has an adequate remedy at law. E.g., Dana Distr., Inc. v. Crown Imports, LLC, 48 A.D.3d 613 (2d Dept. 2008) (“Where, as here, a litigant can fully be recompensed by a monetary award, a preliminary injunction will not issue.”).

There are two exceptions to the general rule.

First, when the subject matter of the case concerns a specific fund, courts will find irreparable injury even though the plaintiff seeks monetary relief. In these cases, the courts grant the injunction because there is harm to the property, not to the value of the property. Genger v. Genger, 2010 NY Slip Op. 33929 (Sup. Ct. N.Y. County July 2, 2010); Ma v. Lien, 198 A.D.2d 186, 604 N.Y.S.2d 84 (1st Dept. 1993) (holding that if “the requested relief is not granted, a substantial amount of money may be dissipated or otherwise unavailable for recovery”).

Second, courts will issue a preliminary injunction when such relief is authorized by statute and is in the public interest. People v. Empire Prop. Solutions, LLC, 2012 NY Slip Op. 30346 (Sup. Ct. Nassau County Jan. 27, 2012); Spitzer v. Lev, ___ Misc.3d. ___, 2003 WL 21649444, at *2 (Sup. Ct. N.Y. County 2003) (noting that “when the Attorney General is authorized by statute to seek injunctive relief to enjoin fraudulent or illegal acts, no showing of irreparable harm is necessary.”); State of New York v. Terry Buick Inc., 137 Misc. 2d 290 (Sup. Ct. Dutchess County Oct. 9, 1987). As the Empire Prop. court noted, “the irreparable injury to be enjoined is an injury to the public, which need not be focused upon an individual to be actionable.”

Balance of Equities

To satisfy the third prong of the preliminary injunction standard, the movant must establish that the injury it would sustain is more burdensome to it than the harm that would be caused to the non-movant through the imposition of the injunction. Winter Bros. Recycling Corp. v. Jet Sanitation Serv. Corp., 23 Misc. 3d 1115[A], 2009 NY Slip Op. 50753[U] (Sup. Ct. Nassau County Mar. 13, 2009); Fischer v. Deitsch, 168 A.D.2d 599, 601 (2d Dept. 1990). Conclusory assertions will not suffice to satisfy this prong. A fact-based, client affidavit is critical to the success of the application.

Posting an Undertaking

CPLR 6312(b) requires the movant to post a bond contemporaneously with the issuance of a preliminary injunction order. The amount to be posted is a matter within the sound discretion of the court. Lelekakis v. Kamamis, 303 A.D.2d 380, 380 (2d Dept. 2003). However, the amount of the undertaking must be rationally related to the amount of the non-movant’s potential liability if the preliminary injunction later proves to be unwarranted. Id. at 381. The purpose of the undertaking therefore is to secure for the non-movant the actual losses and costs – not theoretical losses, “if it is later finally determined that the preliminary injunction was erroneously granted.” Id. at 380. Mere conclusory assertions of potential monetary loss are insufficient to justify anything more than a minimal bond. 7th Sense, Inc. v. Liu, 220 A.D.2d 215, 217 (1st Dept. 1995).

JSC VTB Bank v. Mavlyanov

As noted above, demonstrating irreparable injury can be the most difficult of the three prongs to satisfy. In JSC VTB Bank v. Mavlyanov, 2017 NY Slip Op. 07339 (1st Dept. Oct. 19, 2017), decided by the Appellate Division, First Department, on October 19, 2017, the plaintiff learned this lesson the hard way.

JSC VTB Bank involved an alleged fraudulent conveyance by the defendant Igor Mavlyanov (“Mavlyanov”) in violation of New York Debtor and Creditor Law Article 10 (N.Y. DCL §§ 270, et seq.). The plaintiff, JSC VTB Bank (“VTB” or the “Bank”), a Russian bank, alleged that Mavlyanov transferred real and/or personal property in the United States while purportedly owing more than $30 million to the Bank. VTB sought to set aside and void the alleged fraudulent transfers between Mavlyanov and his immediate family and close associates or, alternatively, for money damages.

According to the Bank, VTB had extended loans to a non-party under two facility agreements (the “Facility Agreements”). Mavlyanov personally guaranteed all principal and interest due under the Facility Agreements (the “Guarantees”). The recipient of the loans defaulted on its obligations and Mavlyanov refused, upon demand by VTB, to honor his obligations under the Guarantees.

VTB commenced an action against Mavlyanov on the Guarantees in Russia. The Russian court ruled in favor of VTB and judgments on the Guarantees were issued, which awarded VTB rub. 2,245,899,146.78 (approximately $34,000,000) in damages and court costs.

Thereafter, VTB filed the action in New York, alleging that Maylyanov took a number of actions to thwart collection under the Russian judgment. In this regard, the Bank alleged that unbeknownst to it, Mavlyanov transferred all of his real property located in New York and California after executing the Guarantees. Mavlyanov also transferred numerous properties located in Russia to his wife, Defendant Stella Mavlyanova, all within a four-week period just prior to the default under the Facility Agreements.

According to VTB, the conveyances involved, among other things, transfers to immediate family and close associates, a lack of fair consideration, knowledge of VTB’s claims under the Guarantees, suspicious transfers not within the usual course of business, Mavlyanov’s continued retention and use of the properties, and the use of “dummy” or “sham” entities.

VTB alleged that the Defendants’ conduct had placed the properties outside the reach of VTB as a creditor and a judgment creditor. As a result, VTB sought a temporary restraining order, preliminary injunction and an attachment of the property claiming that there was a significant risk that the Defendants would continue to transfer or encumber the transferred properties and that Mavlyanov or the other Defendants would divert additional assets to avoid paying on the Russian judgments or on an ultimate judgment in the New York action.

The motion court, which had previously granted VTB’s motion for a temporary restraining order, granted in part the Bank’s motion for a preliminary injunction and attachment, but fixed the amount of the undertaking at $25 million, which at the time of the appeal had not been posted.

The Defendants’ appealed, arguing that the motion court’s order should be reversed on the grounds that, among other things, VTB failed to establish: (1) a likelihood of success on the merits of its underlying fraudulent conveyance claims; (2) the irreparable injury required for an order granting injunctive relief or an attachment; and (3) a balance of equities in its favor.

The First Department’s Ruling

The First Department unanimously modified the motion court’s ruling, reversing the grant of the preliminary injunction, vacating the attachment of properties, and reducing the undertaking ordered in connection with the temporary restraining order to $1 million.

With regard to the preliminary injunction, the Court held that “on the merits, the [motion] court should not have granted” it, “because the primary relief sought in this action is money damages.” The Court noted that “[e]ven if this were an appropriate case for an injunction, the injunction should not be granted, because the fact that plaintiff can be fully compensated by damages shows that he would not suffer irreparable injury absent the injunction.”

Takeaway

“Preliminary injunctive relief is a drastic remedy and will only be granted if the movant establishes a clear right to it under the law and the undisputed facts found in the moving papers.” Koultukis v. Phillips, 285 A.D.2d 433, 435 (1st Dept. 2001). Because it is “a drastic remedy” it “should be used sparingly.” Fischer v. Deitsch, 168 A.D.2d 599, 601 (2d Dept. 1990). For this reason, the showing of irreparable harm is the most difficult element to demonstrate for obtaining injunctive relief under New York law. And in this regard, the courts are clear that the harm will not be considered irreparable if it can be redressed with monetary damages. As noted above, VTB learned just how hard it is to demonstrate irreparable harm.

 

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