Federal Insurance Company v. Metropolitan Transportation Authority et al

Filing 33

OPINION & ORDER. The application for a preliminary injunction is DENIED. The Court, having concluded that Federal has not demonstrated that it will suffer irreparable harm without injunctive relief, declines to reach the parties' remaining arguments concerning this application. SO ORDERED. (Signed by Judge John F. Keenan on 7/10/17) (yv)

Case 1:09-md-02013-PAC Document 57

Filed 09/30/10 Page 1 of 45

USDC SDNY
UNITED STATES DISTRICT COURT
DOCUMENT
SOUTHERN DISTRICT OF NEW YORK
ELECTRONICALLY FILED
------------------------------ X
DOC #: _________________
FEDERAL INSURANCE COMPANY,
:
DATE FILED: 07/10/2017
UNITED STATES DISTRICT COURT :
SOUTHERN DISTRICT OF NEW YORK
Plaintiff,
:
-----------------------------------------------------------x
:
In re FANNIE MAE 2008 SECURITIES:
:
08 Civ. 7831 (PAC)
-againstLITIGATION
:
09 MD 2013 (PAC)
:
: No. 17 Civ. 3425 (JFK)
METROPOLITAN TRANSPORTATION
:
OPINION & ORDER
:
OPINION & ORDER
AUTHORITY, NEW YORK CITY
:
-----------------------------------------------------------x
TRANSIT AUTHORITY, and
:
LANMARK GROUP, INC.
:
:
Defendants.
:
HONORABLE PAUL A. CROTTY, United
------------------------------ X States District Judge:
JOHN F. KEENAN, United States District Judge:
BACKGROUND1
Plaintiff, Federal Insurance Company (“Federal”) has moved

The early years of this decade saw a boom in home financing which was fueled, among
by Order to Show Cause for a preliminary injunction under
other things, by low interest rates and lax credit conditions. New lending instruments, such as
Federal Rule of Civil Procedure 65(a). Federal seeks to
subprime mortgages (high credit risk loans) and Alt-A mortgages (low-documentation loans)
restrain Defendants Metropolitan Transportation Authority
kept the boom going. Borrowers played a role too; they took on unmanageable risks on the
(“MTA”) and New York City Transit Authority (“NYCTA”) and
assumption that the market would continue to rise and that refinancing options would always be
collectively, (“Defendants”) from enforcing Federal’s
available in the future. Lending discipline was lacking in the system. Mortgage originators did
obligations under a performance bond related to a contract for
not hold these high-risk mortgage loans. Rather than carry the rising risk on their books, the
construction at one of NYCTA’s headquarters located at 130
originators sold their loans into the secondary mortgage market, often as securitized packages
Livingston Plaza in Brooklyn, New York (the “NYCTA
known as mortgage-backed securities a hearing markets grew almost exponentially.
Headquarters”). The Court held(“MBSs”). MBSon June 29, 2017, and
now denies But then the housing bubble burst. In 2006, the demand for housing dropped abruptly
the preliminary injunction because Federal has not

and home that it will In light of the changing housing market, banks modified
demonstrated prices began to fall. suffer irreparable harm in the absence their
lending practices
of such relief. and became unwilling to refinance home mortgages without refinancing.

1

Unless otherwise indicated, all references cited as “(¶ _)” or to the “Complaint” are to the Amended Complaint,
dated June 22, 2009. For purposes of this Motion, all allegations in the Amended Complaint are taken as true.

1

1

I. Background
Federal is an Indiana corporation with its principal place
of business in New Jersey.

All defendants are New York

corporations with their principal places of business in New
York.

Lanmark Group Inc. (“Lanmark”), who contracted to perform

the work entailed in upgrading the elevator, roofing, and other
portions of the NYCTA Headquarters, is not implicated in the
instant application for injunctive relief.
On December 5, 2014, Lanmark and NYCTA entered into a
construction contract (the “Contract”) to upgrade the façade at
the NYCTA Headquarters. (See Decl. of Derek Popeil [hereinafter
“Popeil Decl.”] Ex. A, ECF No. 23-1 (filed June 20, 2017).)
original price of the Contract was $24,517,850. (Id.)

The

On

September 19, 2014, Federal, as surety, executed a performance
bond (the “Bond”) in favor of MTA, acting by NYCTA, as obligee
under the Bond. (Id. Ex. C, ECF No. 23-2.)

The Bond

incorporates the full amount of the Contract and states that the
Contract “is annexed to and hereby made a part of this bond as
though herein set forth in full[.]” (Id.)

The Bond also

provides:
The Surety, for value received, hereby stipulates
and agrees, if requested to do so by the
Authority, to fully perform and complete the
Project to be performed under the Contract,
pursuant to the terms, conditions, and covenants
thereof, if for any cause, the Contractor fails
or neglects to so fully perform and complete such
Project.
2

(Id.)

Lanmark paid Federal a premium in connection with

executing the Bond.
On November 22, 2016, NYCTA notified Lanmark and Federal of
ten putative events of default under the Contract pertaining to
Lanmark’s allegedly negligent and delaying work at the NYCTA
Headquarters.

On April 19, 2017, NYCTA notified Lanmark by

letter (the “Termination Letter”) of its decision to terminate
Lanmark due to its various alleged failures.

In May 2017,

however, the Supreme Court of the State of New York, Kings
County, temporarily enjoined NYCTA from enforcing its
termination of Lanmark until September 6, 2017. (See Pl.’s Mem.
of L. in Support of Appl. for Prelim. Inj. & TRO [hereinafter
“Pl.’s Mem. of L.”] Ex. A, ECF No. 22 (filed June 20, 2017);
see also Popeil Decl. Ex. J, ECF No. 23-8.)

According to the

parties, the dispute regarding NYCTA’s termination of Lanmark is
currently proceeding pursuant to the dispute resolution
procedure set out in the Contract.
In the Termination Letter, also sent to Federal, NYCTA
demanded that Federal honor its obligations under the Bond to
ensure completion of the work under the Contract.

Federal has

refused, claiming that it cannot be required to participate in
the performance of Contract work because the NYCTA Headquarters
allegedly has state and city code violations that pre-date the

3

Contract.1 (See Pl.’s Mem. of L. at 10-12, 14-15.)

Federal

further asserts that to complete the work now would require that
it violate safety provisions in the New York Labor Law. (Id. at
9.)
In the instant application, Federal seeks a preliminary
injunction enjoining Defendants from enforcing its obligations
under the Bond.

Federal maintains that it will suffer

irreparable harm unless an injunction issues and, further, that
it is likely to succeed on the merits of this litigation.
Defendants contend that Federal, as the surety, may satisfy its
obligations under the Bond without actually participating in or
performing the actual work.

Thus, Defendants claim that Federal

will not suffer irreparable injury without an injunction and
that Federal will not succeed on the merits.
II. Legal Standard
Preliminary injunctive relief is “one of the most drastic
tools in the arsenal of judicial remedies.” Hanson Trust PLC v.
SCM Corp., 774 F.2d 47, 60 (2d Cir. 1985).

In the Second

After NYCTA notified Lanmark and Federal of the alleged events
of default in November 2016, Federal retained WDP Consulting
Engineers, PC (“WDP”) to investigate the façade. WDP conducted
numerous site visits and memorialized its conclusions, including
its findings regarding building code violations, in several
reports. Federal’s claims concerning code violations that
allegedly pre-date the Contract need not be resolved here
because, as explained further below, Federal may satisfy its
obligations under the Bond without actually performing the
Contract work itself.
1

4

Circuit, it is axiomatic that “[a] party seeking a preliminary
injunction must show ‘(a) irreparable harm and (b) either (1)
likelihood of success on the merits or (2) sufficiently serious
questions going to the merits to make them a fair ground for
litigation and a balance of hardships tipping decidedly toward
the party requesting the preliminary relief.’” Park Irmat Drug
Corp. v. Optumrx, Inc., 152 F. Supp. 3d 127, 132 (S.D.N.Y. 2016)
(quoting Citigroup Glob. Mkts., Inc. v. VCG Special
Opportunities Master Fund Ltd., 598 F.3d 30, 35 (2d Cir. 2010)
(reciting standard in case where jurisdiction was premised on
diversity of the parties)).

“A moving party must show that the

injury it will suffer is likely and imminent, not remote or
speculative, and that such injury is not capable of being fully
remedied by money damages.” NAACP v. Town of E. Haven, 70 F.3d
219, 224 (2d Cir. 1995).
“In addition, the court must ensure that the public
interest would not be disserved by the issuance of a preliminary
injunction.” Park Irmat Drug Corp., 152 F. Supp. 3d at 132.
(internal quotation marks omitted).

“In deciding a motion for

preliminary injunction, a court may consider the entire record
including affidavits and other hearsay evidence.” Id. (internal
quotation marks omitted).

5

III. Discussion
The application for a preliminary injunction must be denied
because Federal has not demonstrated that it will suffer
irreparable harm in the absence of injunctive relief.

A showing

of irreparable harm is the sine qua non of a preliminary
injunction. See REDF Organic Recovery, LLC v. Kafin, No. 12 Civ.
7973(JFK), 2012 WL 5844191, at *2 (S.D.N.Y. Nov. 19, 2012); see
also Town of E. Haven, 70 F.3d at 224 (“[A] showing of
irreparable harm [is] the most important prerequisite for the
issuance of a preliminary injunction.”).

Here, Federal’s

principal argument is that, without an injunction, it will
suffer irreparable harm if required to participate in the
performance of work that it contends is dangerous and does not
correct alleged code violations. (See Pl.’s Mem. of L. at 10-12,
14-15.)

Federal’s argument is unpersuasive, however, because

any injury Federal claims either can be compensated by money
damages or constitutes an injury, not to Federal, but to unknown
third parties not presently before the Court.
As the surety, Federal has the option to perform the
Contract work itself, but need not do so.

Instead, Federal may

satisfy its obligations under the Bond by tendering funds so
that the Contract work may be completed by another party. See
Granite Computer Leasing Corp. v. Travelers Indem. Co., 894 F.2d
547, 551 (2d Cir. 1990) (“Under a performance and completion
6

bond, a surety generally has two options upon its principal’s
default.

First, the surety may undertake to complete the

principal’s work itself; this obligation may be satisfied by the
surety funding the principal to complete its work.

Second, the

surety has the option of paying the obligee under the bond its
damages, essentially the obligee’s cost of completion.”
(citations omitted)); see also U.S. Fid. & Guar. Co. v.
Braspetro Oil Servs. Co., 369 F.3d 34, 66 (2d Cir. 2004)
(“Because the Sureties chose not, either on their own or through
agents, to incur the costs of completion, the Sureties must
reimburse the Obligees for those costs in the form of an award
of damages.”).

Because Federal can meet its obligations by

tendering funds, any injury it might sustain—for example, if
fault ultimately lies with Defendants—would be financial in
nature and, therefore, could be redressed by money damages.
Accordingly, Federal fails to demonstrate irreparable harm
warranting injunctive relief. See Town of E. Haven, 70 F.3d at
224 (“A moving party must show that the injury . . . is not
capable of being fully remedied by money damages.”); see also
Brenntag Int’l Chems., Inc. v. Bank of India, 175 F.3d 245, 249
(2d Cir. 1999) (“As a general matter, because monetary injury
can be estimated and compensated, the likelihood of such injury
usually does not constitute irreparable harm.”).

7

The only other injury that Federal identifies is the
potential for physical danger in connection with performance of
work under the Contract, which allegedly fails to correct
purported code violations.

According to Federal, its

participation in the performance of the Contract work in any way
“would create a hazard for both the workers performing that work
and the public.” (Pl.’s Mem. of L. at 15.)

To be sure, the

public interest is a factor in the preliminary injunction
analysis, but the theoretical possibility of harm to third
parties is not relevant to, and does not establish, the required
showing of irreparable harm to Federal, the proponent of
injunctive relief in this application. See Town of E. Haven, 70
F.3d at 224 (“The public safety factor is, of course, only one
aspect of the irreparable harm prong of the showing necessary to
secure a preliminary injunction.

In the final analysis, it is

the [applicants] who must demonstrate how they would be
irreparably harmed if the injunction were not granted.”).
Thus, Federal’s argument that its involvement in performing the
Contract might endanger the community members, the workers in
the NYCTA Headquarters, and the people responsible for repairs
and restoration does not demonstrate the irreparable harm to
Federal that it is required to show.

8

Conclusion

For the reasons

stat~d

above, the application for a
The Court, having concluded

preliminary injunction is DENIED.

that Federal has not demonstrated that it will suffer
irreparable harm without injunctive relief, declines to reach
the parties' remaining arguments concerning this application.
SO ORDERED.

Dated:

New York, New York
July 10, 2017
John F. Keenan
United States District Judge

9