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WWW. NYLJ.COM
FRIDAY, JUNE 28, 2013
VOLUME 248—NO. 124
Expert Analysis
COMMERCIAL DIVISION UPDATE
The Threatened Destruction
Of a Business as Irreparable Harm
N
ew York courts have long characterized
a preliminary injunction as a “drastic
remedy,” and are sparing about the
instances in which it may be granted.1
A party seeking a preliminary injunction must establish, by clear and convincing
evidence, (1) a likelihood of success on the
merits; (2) irreparable harm absent a preliminary injunction; and (3) a balance of equities
tipping in the moving party’s favor.2 Economic
loss, compensable by money damages, does
not constitute irreparable harm.3
Longstanding appellate precedent holds that
the threat of destruction of a business if a preliminary injunction is not granted can constitute
irreparable harm not compensable by money
damages. While a number of recent Commercial Division cases follow this precedent, some
have drawn factual distinctions in denying relief,
leading to holdings that an award of the value of
the destroyed business would be adequate and,
thus, irreparable harm was not demonstrated.
Additionally, even where destruction of a business is threatened, recent decisions have denied
an injunction where the opposing party would
be adversely impacted thereby tipping the balance of equities.
Appellate Precedent
In 1988, the Appellate Division, Second Department set precedent in its U.S. Ice Cream v. Carvel
holding that the danger of the plaintiff going out
of business pending trial constituted irreparable harm warranting a preliminary injunction
despite the existence of disputed issues of fact
on the underlying merits.4 The plaintiff, a Carvel
ice cream franchisee, moved for a preliminary
GEORGE BUNDY SMITH is an arbitrator and mediator with
JAMS in New York City, and is a former associate judge
of the New York Court of Appeals. THOMAS J. HALL is a
litigation partner with Chadbourne & Parke. JILL KAHN,
a litigation associate at Chadbourne, assisted with the
preparation of this article.
Ice Cream, the court held that the granting of the
injunction was particularly appropriate where
the defendant had not shown that it would be
harmed by such interim relief.
Irreparable Harm
By
George
Bundy
Smith
And
Thomas J.
Hall
injunction preventing Carvel from terminating its
franchise throughout Israel. Reversing the trial
court’s denial of injunctive relief, the court found
that absent a preliminary injunction, there was
no assurance that the plaintiff would be able to
stay in business pending trial. The court held that
“[s]uch interference with an ongoing business,
particularly one involving a unique product and
an exclusive licensing and distribution arrangement, risks irreparable injury and is enjoinable.”5
The court found that “[i]n the absence of any
proof that Carvel will be harmed by the granting
of injunctive relief in order to maintain the status quo, the existence of disputed factual issues
should not preclude the remedy.”6
A year later, the Second Department in Mr.
Natural v. Unadulterated Food Prods., echoed
its holding in U.S. Ice Cream when faced with
similar facts.7 The plaintiff sought a preliminary
injunction to prevent the defendant, the manufacturer of Snapple beverages, from terminating
five exclusive distributorship agreements with
plaintiff, whose sole business was distributing
Snapple. The court found that the termination
of these agreements while the action was pending placed the plaintiff in danger of losing its
business or dissolving. Citing U.S. Ice Cream,
in reversing the trial court’s denial of relief, the
court found that an injunction was appropriate
because interference with exclusive distributorship arrangements “risks injury for which monetary damages will be inadequate.”8 As in U.S.
In 2010, Justice Stephen Bucaria of the Nassau
County Commercial Division held that a preliminary injunction was warranted to prevent the
plaintiff, an operator and manager of a tennis
facility, from going out of business.9 In S.J.J.K.
Tennis v. Confer Bethpage, the plaintiff entered
into a 1999 licensing agreement entitling it to
operate, manage and occupy a tennis facility.
In 2010, the owner served plaintiff with a 10-day
notice that its possession, operation and use of
the tennis facility were to be revoked. The plaintiff
moved for a preliminary injunction enjoining such
termination during the pendency of the action.
In granting the relief, the court rationalized
that “[a]bsent a preliminary injunction, the plaintiff would be out of business. Such interference
with an ongoing business (since 1999), particularly one that relies exclusively on the right to
remain in possession at the tennis facility, risks
injury for which monetary damage will be inadequate.”10 The court cited the Second Department’s Mr. Natural decision for the proposition
that “[t]he existence of a factual dispute will not
bar the granting of a preliminary injunction if one
is necessary to preserve the recognized status
quo and the party to be enjoined will suffer no
great hardship as a result of its issuance.”11
Even where destruction of a business is
threatened, recent decisions have denied an injunction where the opposing
party would be adversely impacted.
In Voom HD Holdings v. Echostar Satellite, Justice Richard Lowe III of the New York County Commercial Division also recognized that destruction of a business without injunctive relief could
FRIDAY, JUNE 28, 2013
constitute irreparable harm.12 Nevertheless,
the court found that the plaintiff had failed to
establish that it faced such harm. The court was
asked to enjoin the defendant, a direct-to-home
satellite television provider, from terminating an
affiliation agreement with the plaintiff, the owner and operator of 15 high-definition channels.
The plaintiff claimed that it would suffer irreparable harm without injunctive relief because it
would lose business as well as its reputation
and goodwill.
In denying the motion, the court explained
that “[e]ven without the total destruction of a
business, irreparable harm may be found where
a product will be lost if plaintiff can make a clear
showing that the product is a truly unique opportunity or where a business will suffer a significant loss of good will.”13 The court went on to
note, however, that “courts have refused to find
irreparable harm where only a part of the business will be affected or where a company has
not been in business long enough for goodwill
to be created.”14
Lowe held that the plaintiff had not proven
irreparable harm caused by loss of customer
goodwill because it had not demonstrated a
strong enough brand loyalty, or that viewers
would not follow it to a regional cable distributor, if one could be obtained. The court acknowledged that there may be irreparable harm for loss
of prospective goodwill, but in those instances
“there must be a clear showing that a product
that a plaintiff has not yet marketed is a truly
unique opportunity for a company.”15 The court
held that the plaintiff had failed to show that its
programming was either not already marketed or
a truly unique opportunity, and therefore failed
to demonstrate that it would suffer irreparable
harm from the loss of prospective goodwill.
Money Damages
While some courts have found that the potential destruction of a business—particularly one
that is unique and longstanding—constitutes
irreparable harm for which money damages
would be inadequate, in New York Office Sys.
v. Canon USA, Justice Marguerite Grays of the
Queens County Commercial Division denied a
preliminary injunction despite the plaintiff’s
contention that it would go out of business if
relief were not granted.16
In that case, the plaintiff was a licensed dealer
of Canon copy machines. When the plaintiff hired
an employee with whom Canon had a bad experience in the past, and refused to fire him upon
Canon’s request, Canon terminated the plaintiff’s
dealer sale and service agreement. This prompted the plaintiff to move for a preliminary injunction restoring its right to sell Canon products
and to purchase supplies necessary to service
machines it previously sold.
In denying the preliminary injunction, the
court noted that “[p]reliminary injunctive relief
is a drastic remedy,” and the plaintiff had not met
its burden to establish, by clear and convincing
evidence, that a preliminary injunction was warranted.17 The court held that the plaintiff had
made only conclusory allegations concerning the
alleged harm, and failed to point to any imminent
and non-speculative harm that would occur in
the absence of a preliminary injunction.
The court emphasized that “it is well-established that ‘economic loss, which is compensable
by monetary damages, does not constitute irreparable harm.’”18 It held that, even if the plaintiff
were correct that it would go out of business
without the preliminary injunction, “there can
be no question that such loss is compensable as
monetary damages, i.e., a monetary valuation of
[the plaintiff’s] worth.”19 Perhaps significant to
that determination was Canon’s argument that,
without an injunction, plaintiff could continue
in business by becoming an authorized dealer
for other equipment brands.
In ‘Voom HD,’ Justice Richard Lowe III of
the New York County Commercial Division recognized that destruction of a
business without injunctive relief could
constitute irreparable harm. Nevertheless, the court found that the plaintiff had
failed to establish that it faced such harm.
Impact on Opposing Party
When faced with the assertion that the plaintiff
will likely go out of business without a preliminary injunction, another factor courts consider
in balancing the equities is the adverse impact
such an injunction will have on the defendant.
In Jem Caterers of Woodbury v. Woodbury Jewish
Ctr., Justice Vito DeStefano of the Nassau County
Commercial Division suggested that, even where
one party’s business may be irreparably harmed
without an injunction, the avoidance of that harm
must be weighed against the hardship the other
party would suffer as a result of the injunction.20
In that case, the plaintiff, a caterer, moved for a
preliminary injunction to enjoin the defendant,
a temple, from revoking plaintiff’s license to conduct catered functions on the temple’s premises.
DeStefano denied the injunction, finding that
the defendant temple would suffer hardship if the
injunction were granted because the caterer was
violating Jewish law concerning kashrut, thereby
harming the reputation of the temple and its
rabbi. The court distinguished appellate decisions in U.S. Ice Cream and Mr. Natural explaining
that, in those cases, a contributing factor to the
granting of the preliminary injunction was that
the requested injunction did not impose hardship on the defendant licensors.
The defendant temple had also moved for
a preliminary injunction to enjoin the plaintiff
caterer from using the premises during the pendency of the action. The temple claimed that, if
the caterer continued to use the premises without paying money due under the agreement, the
temple would be irreparably harmed because
it would be forced to terminate employees and
raise membership fees. Nevertheless, the court
denied the temple’s motion as well, finding that
this alleged harm could be adequately rectified
through monetary damages.
Conclusion
Considerable precedent exists in New York
that, in the appropriate circumstances, the likely
destruction of a business without the issuance
of a preliminary injunction constitutes irreparable harm for which money damages would be
inadequate. Several factors, however, may alter
the court’s evaluation. For one, a court may be
reluctant to find irreparable harm where the business is relatively new or has not acquired strong
customer loyalty. Further, irreparable harm may
be found not to exist where, without an injunction, only a part of the plaintiff’s business will
be harmed or destroyed. Finally, even where a
showing of potential destruction of the business
is made, courts may refuse to grant injunctive
relief where the non-moving party would be
harmed by the injunction.
•••••••••••••
••••••••••••••••
1. RG & RH v. Schmidt’s Auto Body & Glass, 964 N.Y.S.2d
437, 438 (4th Dept. 2013); see also Uniformed Firefighters
Ass’n of Greater New York v. City of New York, 79 N.Y.2d 236,
241, 581 N.Y.S.2d 734, 736-37 (1992).
2. Aetna Ins. v. Capasso, 75 N.Y.2d 860, 862, 552 N.Y.S.2d
918, 919 (1990); RG & RH, 964 N.Y.S.2d at 438.
3. Family-Friendly Media v. Recorder Television Network,
74 A.D.3d 738, 739, 903 N.Y.S.2d 80, 82 (2d Dept. 2010).
4. 136 A.D.2d 626, 627-28, 523 N.Y.S.2d 869, 871 (2d Dept.
1988).
5. Id. at 628 (internal citations omitted).
6. Id. (internal citations omitted).
7. 152 A.D.2d 729, 730, 544 N.Y.S.2d 182, 183 (2d Dept.
1989).
8. Id. (internal citations omitted).
9. No. 002533/10, 2010 WL 1640101, at *4-5 (Nassau Co.
April 6, 2010) (Bucaria, J.).
10. Id. at *4.
11. Id. (citing Mr. Natural v. Unadulterated Foods Prods.,
152 A.D.2d 729, 730, 544 N.Y.S.2d 182, 183 (2d Dept. 1989)).
12. No. 0600292/08, 2008 WL 1999520, at *6 (N.Y. Co. April
23, 2008) (Lowe III, J.).
13. Id. at *7 (internal citation omitted).
14. Id. (internal citation omitted).
15. Id. at *10 (quoting Tom Doherty Assocs. v. Saban
Entm’t, 60 F.3d 27, 38 (2d Cir. 1995)). 16. No. 10659/12 (Queens Co. Aug. 6, 2012) (Grays, J.).
17. Id. at *5.
18. Id. at *6.
19. Id.
20. 35 Misc. 3d 1220(A), 951 N.Y.S.2d 86 (Nassau Co. 2012)
(DeStefano, J.).
Reprinted with permission from the June 28, 2013 edition of the NEW YORK LAW
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