New 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 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. 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

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

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 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.

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.

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.

Endnotes:

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.).