Westchester Fire Insurance Company v. DeNovo Constructors, Inc. et al
Filing
55
MEMORANDUM AND ORDER denying 29 Motion for Preliminary Injunction; terminating 50 Letter Motion for Oral Argument. For the foregoing reasons, Westchester's motion for a preliminary injunction is denied. This resolves Dkt. Nos. 29, 50. (As further set forth in this Memorandum and Order.) (Signed by Judge Alison J. Nathan on 4/5/2016) (mro)
USDCSDNY
DOCU1\1ENT
ELECTRONICALLY FILED
DOC #:
.
. 2:0"
DATE FILED: /\PR 0 ! ) l
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
e
Westchester Fire Insurance Company,
Plaintiff,
15-CV-7940 (AJN)
-vMEMORANDUM AND
ORDER
DeNovo Constructors, Inc. et al.,
Defendants.
ALISON J. NATHAN, District Judge:
Plaintiff Westchester Fire Insurance Company ("Westchester") brings this indemnity
action against DeNovo Constructors, Inc., DeNovo Properties Holdings, LLC (together,
"DeNovo"), D Transport, Inc., and Jonathon K. Markoff (collectively, "Defendants"). Dkt.
No. 1. On January 15, 2016, Westchester filed a motion for a preliminary injunction seeking to
require Defendants "to deposit collateral ... totaling $2,271,478.62 relative to Westchester's
remaining exposure to liability under[] surety bonds." Br. at 1. Westchester subsequently
clarified that, due to additional claims initiated since the filing of its motion, it sought the deposit
of $3,263,269.99 in collateral. Reply Br. at 1, 2 n.2. Because Westchester fails to demonstrate
irreparable harm, its motion for preliminary injunction is DENIED.
I.
BACKGROUND
In 2014, Westchester issued surety bonds on behalf ofDeNovo. Comp. if 8. Westchester
claims that these bonds require Defendants to indemnify it and pay collateral security with
respect to claims asserted against it as surety. Id.
irir 9-12. Westchester filed suit on October 7,
2015 alleging nonperformance of these obligations, Dkt. No. 1, and filed a motion for a
preliminary injunction on January 15, 2016. Dkt. No. 29. In the motion for a preliminary
1
injunction, Westchester seeks the deposit of collateral related to $1,273,269.00 in unpaid
payment bond claims and an estimated $1,990,000 in unpaid performance bond claims. Reply
Br. at 1, 14-15. At the initial pretrial conference in this matter, the parties confirmed that a
preliminary injunction hearing was not required and indicated that the Court could resolve the
motion on the papers. Dkt. No. 54.
II.
LEGALSTANDARD
"A preliminary injunction is an extraordinary remedy never awarded as of right." Winter
v. NRDC, 555 U.S. 7, 22, 24 (2008). To receive a preliminary injunction, a plaintiff must
demonstrate:
1) irreparable harm absent injunctive relief; 2) either a likelihood of
success on the merits, or a serious question going to the merits to
make them a fair ground for trial, with a balance of hardships tipping
decidedly in the plaintiffs favor; and 3) that the public's interest
weighs in favor of granting an injunction.
Metro. Taxicab Bd. of Trade v. City ofNew York, 615 F.3d 152, 156 (2d Cir. 2010) (internal
citations and quotation marks omitted). "The burden is even higher on a party ... seek[ing] 'a
mandatory preliminary injunction that alters the status quo by commanding some positive act, as
opposed to a prohibitory injunction seeking only to maintain the status quo."' Cacchillo v.
Insmed, Inc., 638 F.3d 401, 406 (2d Cir. 2011) (quoting Citigroup Glob. Mkts., Inc. v. VCG
Special Opportunities Master Fund Ltd., 598 F.3d 30, 35 n.4 (2d Cir. 2010)). In such a case, the
Court should issue a preliminary injunction "only upon a clear showing that the moving party is
entitled to the relief requested, or where extreme or very serious damage will result from a denial
of preliminary relief." Id. (citing Citigroup Glob. Mkts., Inc., 598 F.3d at 35 n.4).
As a general rule, "irreparable harm exists only where there is a threatened imminent loss
that will be very difficult to quantify at trial." Ins. Co. of the State ofPa. v. Lakeshore Toltest
2
JV, LLC ("Lakeshore Toltest"), No. 15-CV-1436 (ALC), 2015 WL 8488579, at *2 (S.D.N.Y.
Nov. 30, 2015) (quoting Tom Doherty Assocs., Inc. v. Saban Entm 't, Inc., 60 F.3d 27, 38 (2d Cir.
1995)). "Therefore, where monetary damages may provide adequate compensation, a
preliminary injunction [generally] should not issue." Jayaraj v. Scappini, 66 F.3d 36, 39 (2d Cir.
1995). In such a case, injunctive relief for the deposit of the sum of money is only appropriate if
the "non-movant's assets may be dissipated before final relief can be granted, or where the nonmovant threatens to remove its assets from the court's jurisdiction." Firemen's Ins. Co. of
Newark, N.J. v. Keating, 753 F. Supp. 1146, 1153 (S.D.N.Y. 1990). Courts in this district have
applied this standard to the enforcement of a collateral deposit provision. See id.; see also
Lakeshore Toltest, 2015 WL 8488579, at *2.
III.
DISCUSSION
Westchester makes two arguments with respect to irreparable harm. First, it argues that
failure to deposit bargained-for collateral constitutes, by itself, irreparable hann. Second, it
argues that Defendants' recent transfer of assets establishes irreparable harm. The Court
considers each of these arguments in tum.
A.
Failure to Deposit Bargained-For Collateral
Westchester argues that Defendants' failure to deposit collateral constitutes irreparable
injury because Westchester risks "becoming a general unsecured creditor." Br. at 19 (quoting
U.S. Fid. & Guar. Co. v. J. United Elec. Contracting Corp., 62 F. Supp. 2d 915, 923 (E.D.N.Y.
1999)). This argument has been rejected by other courts in this district, see Lakeshore Toltest,
2015 WL 8488579, at *2-*3; Keating, 753 F. Supp. at 1154, and the cases that Westchester cites
in support of its position are either distinguishable or contradicted by Second Circuit precedent.
3
Contrary to Westchester's argument, the first two cases it cites do not stand for the
proposition that breach of a collateral security provision necessarily implicates irreparable harm.
See Br. at 19 (first citing Am. Motorists Ins. Co. v. United Furnace Co., 876 F.2d 293, 302 (2d.
Cir. 1989); then citing US. Fid. & Guar. Co. v. J United Elec. Contracting Corp., 62 F. Supp.
2d 915, 923 (E.D.N.Y. 1999)). Although the Second Circuit has noted that it is a "real and
immediate" injury to "bargain[] for collateral security" but "fail[] to receive it," it did so in
holding that an injury was ripe for adjudication, not that it was irreparable. Am. Mororists Ins.
Co., 876 F.2d at 302. Similarly, one district court in this circuit has held that "breach of the
collateral security clause" established irreparable injury justifying a preliminary injunction, but
that case presented a risk of dissipation of assets. US. Fid. & Guar. Co., 62 F. Supp. 2d at 923
(noting defendant's secret transfers of property). Thus, neither case stands for the proposition
that failing to provide contractually required collateral, by itself, constitutes an irreparable injury.
In discussing another line of cases to support its argument, Westchester conflates the
specific performance inquiry about an adequate remedy at law with the preliminary injunction
inquiry into irreparable injury. See Reply Br. at 4 (quoting Nat'l Sur. Corp. v. Titan Constr.
Corp, 26 N.Y.S.2d 227, 231 (N.Y. Sup. Ct. 1940); id. at 5 (first quoting Ohio Cas. Ins. Co. v.
Fratarcangelo, 7 F. Supp. 3d 206, 214 (D. Conn. 2014) (granting summary judgment and
specific performance), then quoting Safeco Ins. Co. ofAm. v. Hirani/MES, JV, 480 F. App'x 606,
608 (2d Cir. 2012) (same)). As an initial matter, "[t]he requirements for the grant of a
preliminary injunction are more stringent than those for specific performance." Keating, 753 F.
Supp. at 1152 (quoting ECRI v. McGraw-Hill, Inc., 809 F.2d 223, 227 (3d Cir. 1987)). The
analogy between the two concepts is even more strained here, because "specific performance" of
a collateral deposit provision requires the payment of a set sum of money. See Comp. at 13; Br.
4
at 1; Lakeshore To/test, 2015 WL 8488579, at *2 ("Because [plaintiff's] motion for preliminary
injunction seeks an easily quantifiable monetary award, it fails to establish extreme or very
serious and irreparable harm."). As a result, the fact that Westchester may ultimately be entitled
to specific performance does not govern its entitlement to a preliminary injunction.
Finally, the out-of-circuit cases Westchester cites are not persuasive in light of Second
Circuit precedent. Westchester identifies a number of cases squarely holding that failure to
deposit required collateral "irreparably hann[ s] the Plaintiff[] by depriving it of a pre-judgment
relief to which it is contractually entitled." See Br. at 20 (quoting United Fire & Cas. Co. v.
Coggeshall Constr. Co., No. 91-3159 (RM), 1991 WL 169147, at *2 (C.D. Ill. June 28, 1991));
see also id. at 20 n. 8 (collecting cases). These cases are entitled to little weight in light of the
Second Circuit's holding in Baker's Aid v. Hussmann Foodservice Co., 830 F.2d 13, 16 (2d Cir.
1987). In that case, the Second Circuit emphasized that "contractual language declaring money
damages inadequate in the event of a breach does not control the question whether preliminary
injunctive relief is appropriate." Id. Because a contract cannot define irreparable injury, see id.,
the fact that Westchester "is contractually entitled" to "pre-judgment relief' in the form of a set
sum of money, see Coggeshall Constr. Co., 1991WL169147, at *2, does not mean that a breach
of that obligation always constitutes an irreparable injury. See Lakeshore To/test, 2015 WL
8488579, at *2; Keating, 753 F. Supp. at 1154. As a result, the Court concludes that a collateral
deposit provision, standing alone, is insufficient to demonstrate irreparable injury.
B.
Transfer of Assets
Next, Westchester argues that the behavior of two defendants who have transferred assets
justifies injunctive relief. Specifically, Westchester argues that these transfers "constitute clear
evidence that certain of the [Defendants] may not be able to satisfy a money judgment against
5
them and have dissipated assets, which establishes irreparable harm." Reply Br. at 7.
Defendants respond that they have not dissipated assets to avoid payment to creditors, but
instead "entered into an assignment of[] assets to a trustee in order to pay creditors." Surreply
Br. at 4. Defendants also note that the trustee has set aside at least $5 million to satisfy
Westchester's claims. Id. at 3; Dkt. No. 53
if 7.
Courts in this circuit have granted preliminary injunctions in cases seeking monetary
relief if the "non-movant' s assets may be dissipated before final relief can be granted, or where
the non-movant threatens to remove its assets from the court's jurisdiction." Keating, 753 F.
Supp. at 1153. In such cases, injunctive relief is appropriate because "assets [plaintiff] seeks are
likely to disappear unless the application is granted." Bridgestone/Firestone, Inc. v. Recovery
Credit Servs., Inc., 147 F.R.D. 66, 68 (S.D.N.Y. 1993); see also Transamerica Rental Fin. Corp.
v. Rental Experts, 790 F. Supp. 378, 381 (D. Conn. 1992) (an injunction is appropriate in a
money damages case if there is a "danger of depletion of assets"). For example, courts have
granted relief under this standard where defendants have "secretly transferr[ ed their] interest" in
the relevant assets. US. Fid. & Guar. Co., 62 F. Supp. 2d at 923. However, courts have found
the mere fact of filing for bankruptcy insufficient to establish irreparable harm absent evidence
that a plaintiff would actually be unable to collect on a judgment against a defendant. See
Lakeshore Toltest, 2015 WL 8488579, at *2.
These cases illustrate that the real concern with dissipating assets in the irreparable harm
context is that currently available assets will disappear during the proceedings and become
unavailable to creditors by the time of final judgment. See Rental Experts, 790 F. Supp. at 3 8182 (citing Tucker Anthony Realty Corp. v. Schlesinger, 888 F.2d 969, 972 (2d Cir. 1989))
("[W]here there is danger of the status quo deteriorating in the time between a prejudgment
6
remedy and a final judgment, an injunction may be appropriate."). The transfer at issue here
does not implicate such a concern, as it does not suggest a "danger of depletion of assets," id. at
381, or otherwise indicate that assets "are likely to disappear." Bridgestone/Firestone, Inc., 147
F.R.D. at 68. To the contrary, the executed transfer agreement indicates that DeNovo
"transferr[ ed] its property to a Trustee[] for the benefit of its creditors," Dkt. No. 48 Ex. A at 1,
and DeNovo has represented that the trustee has set aside at least $5 million for Westchester's
use. Dkt. No. 53
if 7.
Westchester makes no showing that this $5 million fund is "likely to
disappear" unless the preliminary injunction is granted. Bridgestone/Firestone, Inc., 147 F .R.D.
at 68. As a result, Westchester has not shown that there is a risk of dissipation of assets
constituting irreparable harm, and is thus not entitled to the requested preliminary injunction for
the deposit of $3,263,269.99 in collateral.
Because the Court concludes that Westchester has failed to demonstrate irreparable harm,
it does not address the likelihood of Westchester's success on the merits of its claim.
IV.
CONCLUSION
For the foregoing reasons, Westchester's motion for a preliminary injunction is denied.
This resolves Dkt. Nos. 29, 50.
SO ORDERED.
_S_,
2016
Dated: April
New York, New York
United States District Judge
7
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?