Often, in the context of a partnership dispute or business divorce, clients ask me if there is a way to stop the opposition from doing something that is hurting the business or hurting the client as a co-owner of the business.
Under New York law, one can “restrain” or “enjoin” a party from engaging in certain conduct provided it meets the requisite legal standard.
When a party is seeking to permanently restrain another party it is called injunctive relief.
At the beginning of a case this is called a “preliminary injunction“.
CPLR 6301 – Preliminary Injunctions
Pursuant to CPLR §6301, the grounds for getting a preliminary injunction and temporary restraining order are as follows: “A preliminary injunction may be granted in any action where it appears that the Defendants 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 Defendants 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. A temporary restraining order may be granted pending a hearing for a preliminary injunction where it appears that immediate and irreparable injury, loss or damage will result unless the Defendants is restrained before the hearing can be had”.
The Three Part Test
Courts have come up with a 3-part test for determining whether they will grant a request (a “motion”) for a preliminary injunction.
In order to obtain a preliminary injunction, a moving party must demonstrate: (1) a likelihood of ultimate success on the merits; (2) irreparable injury absent the granting of the injunction; and (3) that the equities balance in the movant’s favor (Benjamin Kurzban & Son, Inc. v. Board of Education of the City of New York, 129 A.D.2d 756 [2d Dept. 1987], citing McLaughlin, Piven, Vogel, Inc. v. W.J. Noland & Company, Inc., 114 A.D.2d 165 [2d Dept. 1986]).
Let’s take a look at this 3 part test in greater detail and specifically in the context of a partnership dispute or business divorce.
Likelihood of success on the merits:
This means that you have to get into detail about the claims you’re asserting in your lawsuit, how the facts satisfy the elements of each claim, and why you believe you will be successful on your claims.
You need only make a prima facie showing of likelihood of success on the merits, and need not demonstrate a certainty of success on a motion for a preliminary injunction. See Parkmed Co. v. Pro-Life Counselling, Inc., 91 A.D.2d 551, 552 (1st Dept. 1982); see also Terrell v. Terrell, 279 A.D.2d 301, 303 (1st Dept. 2001) (evidence showing likelihood of success on the merits need not be conclusive); Demartini v. Catham Green, Inc., 169 A.D.2d 689, 690 (1st Dept. 1991) (same). That being said, you will want to bring as much information to the table to support your claims.
Even “the existence of a factual dispute will not bar the granting of a preliminary injunction if one is necessary to preserve the status quo and the party to be enjoined will suffer no great hardship as a result of its issuance.” Mr. Natural, Inc. v Unadulterated Food Products, Inc., 152 A.D.2d 729, 730, (2d Dep’t 1989) (a preliminary injunction may be granted where injunctive relief is deemed necessary to maintain the status quo, even if the movant’s success on the merits cannot be determined at the time that the application for a preliminary injunction is brought). Id; see also, U.S. Ice Cream Corp. v Carvel Corp., 136 A.D.2d 626, 628 (2d Dep’t 1988); Burmax Co. v B & S Indus., Inc., 135 A.D.2d 599, 600 (2d Dep’t 1987).
Irreparable injury is probably the most significant prong of the 3-part test for injunctive relief. It means that the injury claimed must be more than just money damages. If money will rectify the issue then you’re going to run into a tough hurdle to prove irreparable injury.
“Irreparable injury is an injury that is neither remote nor speculative, but rather actual and imminent (Khan v. State University of New York Health Science Center at Brooklyn, 271 A.D.2d 656 [2d Dept., 2000]).” Spivak ex rel. Eyeball On the Floor, Inc. v. Bertrand, Index No. 653712/2015, at *15-16 (N.Y. Sup. Ct. 2016)
For example, Courts in New York have uniformly found irreparable injury where an equity holder is being squeezed out of control or management:
- In Alcatel Space, S.A. v. Loral Space & Communications Ltd., 154 F. Supp 2d 570, 584 (S.D.N.Y. 2001) the court found that loss of certain bargained for minority rights to participate in management of the company constituted irreparable harm), aff d by summary order, 25 Fed. Appx. 83 (2nd Cir 2002);
- In Davis v. Rondina, 741 F. Supp 1115, 1125 (S.D.N.Y. 1990) the Court found that breach of the shareholders agreement by excluding minority shareholder from management of corporation constituted irreparable harm;
- In Street v. Vitti, 685 F. Supp 379, 384 (S.D.N.Y. 1988) the court found that the potential infringement of the minority shareholder voice in management of the company, by the majority shareholder constituted irreparable injury;
- In Louis Foodservice Corp. v. Konstantinos Vouviouklis, 2002 WL 31663230 (Sup. Ct., Kings Cty, 2002) the court determined that loss of control of a closely held business constitutes irreparable injury; also see Spivak ex rel. Eyeball On the Floor, Inc. v. Bertrand, Index No. 653712/2015, at *17 (N.Y. Sup. Ct. 2016).
- In Oracle Real Estate Holdings Co. 1 v. Adrian Holdings Co. 1, LLC, 582 F Supp.2d 616, 621 (SD NY 2008), the court granted a preliminary injunction where the issue was loss of control of a company, finding irreparable harm, noting that “[plaintiff] seeks to enforce (1) a bargained-for right to corporate control (2) that is difficult or almost impossible to value, which (3) could be meaningless or substantially diminished in value by the end of the litigation in the absence of injunctive relief.”
- In Bank of America, N.A. v. U.S. Bank National Association, 2010 WL 4243437, at *10-11 (Sup Ct NY Co. 2007) the court found irreparable harm to exist where in the absence of injunctive relief, the plaintiffs would lose their bargained-for right to control the management of property which consisted of approximately 11,000 units, 25,000 residents and 550 employees.
- In Cantwest Global Communications Corp. v. Mirkaei Tikshoret Limited, 9 Misc. 3d 845, 804 N.Y.S.2d 549 (NY Ct. 2005), the Court held that the lost bargained-for right to participate in the management of a company constituted irreparable harm. In addition, the Court held that the (1) firing of employees (2) moving of operations (3) and changing of vendors further necessitated a finding of irreparable harm.
- Irreparable injury may be demonstrated by the loss of customers, permanent loss of revenues and loss of good will. See for example Wisdom Import Sales Company v. Labatt Brewing Company, Ltd., 339 F.3d 101 (2d Cir 2003).
- Irreparable harm may also be found where absent a preliminary injunction the plaintiff would in sum and substance be terminated as a member and employee of the company. See Matter of Madelone v. Whitten, 18 Misc.3d 1131(A) [Sup. Ct., Albany Cty., 2008].
In finding irreparable harm in the context of partnership/business disputes Courts have also considered the following:
- (1) where the defendant has made it impossible for the Company to profit
- (2) where the defendant has utterly defeated your reasonable expectations in profits
- (3) where the defendant has made it impossible for the Company to conduct business
- (4) where the defendant has destroyed the Company’s goodwill, and
- (5) where the defendant’s conduct has resulted in loss/permanent loss of the Company’s customers.
What Goes Into Drafting a Motion for a Preliminary Injunction?
A motion for a preliminary injunction consist of the following:
- An Order to Show Cause (the cover page asking for the specific relief)
- Attorney Affirmation
- Client Affidavit of Facts (which need to be notarized)
- Memorandum of Law in Support (reciting the facts of the case and the law in support of the the three-pronged test discussed above)
- A Verified Summons and Complaint (setting for the facts and the causes of action)
What is the Process for Filing a Motion for a Preliminary Injunction?
The process of filing a motion for a preliminary injunction looks generally as follows:
- Electronically file the motion papers (proposed Order to Show Cause, Affirmation, Affidavit, Memorandum of Law, and Summons/Complaint)
- Appear in Court to provide hard copies to the Judge so he/she can sign the proposed Order to Show Cause (if you’re seeking a temporary restraining order — “TRO” — you may need to argue the basis for doing so the day you bring the papers to the Judge for signature)
- Await a signed and completed Order to Show Cause from the Judge which will set forth (1) the process and due date for papers to be served on the defendant, (2) the due date for opposing papers to be submitted, (3) and if the Court will hear oral argument, the date when the parties will be in court for oral argument
- Show up in Court for oral argument
- Either await a decision from the Court OR in some cases the Judge will issue a Decision and Order on the day of oral argument
For a detailed consultation regarding your partnership dispute, business dispute, or business divorce, contact us today!