George Bundy Smith and Thomas J. Hall ()
In New York, parties to an arbitration may petition the state court for the provisional remedies of orders of attachment and preliminary injunctions in aid of arbitration. Such remedies provide valuable tools for parties seeking to preserve during the arbitration process the ability to enforce an arbitral award once obtained. Section 7502(c) of the New York Civil Practice Law and Rules (CPLR) provides that, to obtain such relief, a petitioner must demonstrate that “the award to which the applicant may be entitled may be rendered ineffectual without such provisional relief.” Although Section 7502(c) provides that the CPLR provisions applicable to orders of attachment (Article 62) and preliminary injunctions (Article 63) outside the arbitration context apply to the procedural aspects of an application for such provisional remedy in aid of arbitration, including “those relating to undertakings and to the time for commencement of an action,”1 Section 7502(c) provides that a showing of an ineffectual award is the “sole ground for the granting of the remedy.”2
With no precedent from the New York Court of Appeals, the Appellate Division and trial courts have applied, over time, evolving standards to determine whether such provisional remedies in aid of arbitration are authorized. Earlier courts focused on whether the ultimate arbitration award may be ineffective if the remedy is not granted,3 whereas more recent courts have fashioned a stricter test, incorporating an “equitable criteria” analysis for preliminary injunction motions—specifically likelihood of success on the merits, irreparable harm and the balance of equities in movant’s favor—into the standard for establishing provisional relief under Section 7502(c).
Recent trial court cases, including one in the Commercial Division, likewise have applied the equitable requirements to petitions for orders of attachment. As discussed below, the application of these criteria to petitions for orders of attachment in aid of arbitration raises the issue of whether a showing of irreparable harm is inconsistent with the dictates of Section 7502(c) that the “rendered ineffectual” test is the sole substantive ground for such relief.
For a preliminary injunctions in aid of arbitration, the First and Second Departments have recently made clear that petitioners must show “customary equitable criteria,” including “a likelihood of success on the merits, irreparable harm and a balance of equities in their favor,” in addition to the Section 7502(c) “rendered ineffectual” test.4 The Third and Fourth Departments do not appear to have expressly weighed in on this issue of whether this three-prong test for injunctive relief needs to be met.5
Recent Commercial Division decisions have followed this trend in the First and Second Departments. Justice Eileen Bransten of the New York County Commercial Division recently stated in JetBlue Airways v. Stephenson that “Article 63 criteria [including the equitable criteria traditionally required for the granting of preliminary relief] must be applied to a motion under Section 7502(c).”6 In another Commercial Division decision, Matter of Richard Manno & Co. v. Manno, Justice Thomas Whelan of the Suffolk County Commercial Division found that the petitioner for preliminary injunction under Section 7502(c) failed to show that an award in its favor would be rendered ineffectual because the petitioner failed to satisfy the three-prong test for injunctive relief.7
Litigants seeking a preliminary injunction in aid of arbitration thus now appear to face a clear standard—they must demonstrate that they have satisfied the three-prong test for preliminary injunction relief, and that the award to which they would be entitled would be rendered ineffectual in the absence of the preliminary injunction as required by Section 7502(c).
Orders of Attachment
With respect to the standard for an order of attachment in aid of arbitration, however, New York decisions are somewhat less clear. Early First Department cases held that because the “sole ground” for the granting of provisional relief in aid of arbitration is a showing that, in the absence of such relief, the award would be rendered ineffectual, the substantive requirements of Sections 6201(3) for order of attachments and 6301 for preliminary injunction generally are “irrelevant.”8 In that 1988 decision, Drexel Burnham Lambert v. Ruebsamen, the First Department reversed the Supreme Court’s denial of attachment in aid of arbitration, finding that “the language of [Section 7502(c)] neither limits an order of attachment in aid of arbitration to the narrow circumstances set forth in CPLR 6201(c) nor requires that the petitioner demonstrate any affirmative conduct on the part of the respondent(s).”
More recently, the Appellate Division expressly integrated the requirements of Section 6212(a)—including that a movant for an order of attachment demonstrate a probability of success on the merits—into the standard for obtaining an order of attachment in aid of arbitration.9 In Thornton v. Naumes v. Athari Law Office, the Third Department cited the criteria set forth in Section 6212(a) for orders of attachment as applicable to petitions in aid of arbitration under Section 7502(c):
In granting an order of attachment in aid of arbitration, petitioners were required to show that there is a viable cause of action, a probability of success on the merits, that the award may be rendered ineffectual without the relief sought and that the amount demanded exceeds all counterclaims known to petitioners.
While the probability of success element of Section 6212(a) overlaps with the three-prong test for a preliminary injunction, the court did not apply that three-prong test.
Other courts have required petitioners for orders of attachment in aid of arbitration to demonstrate that the respondent was hiding or dissipating assets.10 For example, in Spiegel v. D.H. Blair & Co., the First Department held that the trial court did not abuse its discretion in denying a petition for an order of attachment pursuant to Section 7502(c) where there was no evidence that respondents were hiding or dissipating assets.11 While these cases might be read as applying the Section 6201(3) ground for orders of attachment, which other courts have rejected, they can be easily characterized as instead applying the requirement of Section 7502(c) that the petitioner demonstrate the award may be rendered ineffective without provisional relief.
In explaining the incorporation of Section 6212(a) requirements into the Section 7502(c) standard for attachment, the Supreme Court in Erickson v. Kidder Peabody & Co. stated that since “CPLR 7502(c) replaces only the ‘grounds’ which must be established for a grant of attachment or injunctive relief, which are set forth in sections 6201 and 6301,” the “remainder of these articles still apply.”12 According to this court, this means that a party seeking an order of attachment under Section 7502(c) still needs to establish a valid cause of action and grounds for relief as required by Rule 6212(a), even if it does not need to meet the substantive grounds for an order of attachment provided in Section 6201.
While this distinction appears conceptually sound, it may fail to provide complete guidance to arbitration claimants seeking an order of attachment in light of more recent trial court decisions that reflect yet another variant in the standard applicable to orders of attachment in and of arbitration—applying the three-prong test for preliminary injunctions to petitions for orders of attachment in aid of arbitration.
Irreparable Harm Component
In First Wind Energy v. Clipper Windpower,13 Justice Peter Sherwood of the New York County Commercial Division invoked the traditional preliminary injunction standard of likelihood of success, irreparable harm and balance of the equities in deciding whether to issue an order of attachment in aid of arbitration. The claimant, First Wind Energy, petitioned the Commercial Division for an attachment order in aid of arbitration against Clipper Windpower to recover advance payments made by First Wind Energy to Clipper Windpower in connection with the purchase of wind turbines.
First Wind Energy claimed that Clipper Windpower was ceasing operations, that its financials revealed impending insolvency and that it failed to provide First Wind Energy with adequate assurances that it would perform on the contract to deliver the turbines. On this basis, First Wind Energy claimed, any potential award would be rendered ineffectual absent an attachment.
While recognizing that Section 7502(c) permits a court to issue an order of attachment in connection with an arbitration upon the ground that the award may be rendered ineffectual without such relief, the court explained that attachment is a “harsh” and “extraordinary” remedy. Labeling attachment as a general provisional remedy, the court held that the petitioner needed to “demonstrate the traditional elements of a preliminary injunction,” including “irreparable harm, likelihood of success on the merits and a balance of the equities.” According to the court, “simply satisfying the minimal showing [of Section 7502(c)] that the arbitration award would be rendered ineffectual is not sufficient.…Rather, Petitioners must also demonstrate the traditional criteria for injunctive relief.”
Applying the three-prong equitable standard, the court denied First Wind’s petition. The court found, inter alia, that First Wind Energy failed to make a sufficient showing of likelihood of prevailing on its merits, and that the balance of equities did not tip in the petitioner’s favor as the attachment of Clipper Windpower’s property would likely throw it into involuntary bankruptcy. While the court stated that the petitioner also was required to demonstrate irreparable harm, the court never analyzed that element given the other failed conditions. Likewise, in Dilone v. Williams,14 the Queens County Supreme Court held that irreparable harm is a necessary component of a petition for an order of attachment in aid of arbitration, but did not otherwise address that issue as, the court found, the petition failed for other reasons.
By holding that irreparable harm must be demonstrated for the issuance of an order of attachment in aid of arbitration, these cases surfaced, but did not reach, a difficult analytical issue: Is applying the irreparable harm part of the traditional three-prong test for injunctive relief inconsistent with Section 7502(c)’s dictate that the sole substantive ground for granting such relief is that the award may be rendered ineffectual without it? Outside the arbitration context, New York courts have long held that showing that a defendant will become judgment proof without provisional relief does not demonstrate irreparable harm because “a general creditor has no legally recognized interest in or right to interfere with the use of unencumbered property of the debtor prior to obtaining judgment.”15 But Section 7502(c) provides for just that, the issuance of an order of attachment on the sole ground that an award may be rendered ineffectual without such relief.
Applying the traditional irreparable harm requirement to Section 7502(c) petitions for orders of attachment, and even to Section 7502(c) motions for preliminary injunctions that seek to preserve the debtor’s assets during the pendency of the arbitration, thus can be construed as being inconsistent with the rendered ineffectual test. As the very purpose of an order of attachment is to secure an expected judgment, if the fact that an award will be rendered ineffectual without an order of attachment does not demonstrate irreparable harm, it is questionable how a petitioner can ever prove irreparable harm in seeking an attachment order in aid of arbitration.
In contrast, the other elements of the three-prong test do not appear to raise similar concerns. Applying the probability of success part of the three-prong test is expressly authorized in Section 6212(a) which, as noted above, a number of courts have found applicable to Section 7502(c) petitions for orders of attachment in aid of arbitration. Likewise, applying the balancing of the equities prong to Section 7502(c) attachment petitions can find statutory roots in Section 7502(c) itself, which makes the granting of relief thereunder discretionary, thereby invoking the court’s equitable discretion.
When petitioning for provisional remedies in aid of arbitration, parties should be attuned to the various standards as they may apply, including those between preliminary injunctions and orders of attachment. Recent Commercial Division cases appear to provide consistent guidance on the standard needed to obtain a preliminary injunction in aid of arbitration.
In the absence of clearer guidance by the appellate courts, however, petitioners for orders of attachment in aid of arbitration need to pay careful attention to the standard applied by the particular court from which they are seeking such an order. Moreover, future courts applying the three-prong test for injunctive relief to petitions for orders of attachment in aid of arbitration will need to harmonize the application of the irreparable harm requirement with the dictates of Section 7502(c) that the rendered ineffectual test is the sole substantive ground for granting relief thereunder.
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 partner and the co-head of the commercial litigation practice at Chadbourne & Parke. Pooja Asnani, an associate with Chadbourne, assisted with the preparation of this article.
1. CPLR §7502(c).
3. See Natl. Telecom. Assoc. v. Natl. Communications Assoc., 189 A.D.2d 573, 573, 592 N.Y.S.2d 591, 591 (1st Dept. 1993) (holding that irreparable harm and a likelihood of success on the merits are an inappropriate standard for deciding a motion for preliminary injunction pursuant to CPLR §7502(c) because the only ground for such a motion is whether the award may be rendered ineffectual without it.); H.I.G. Capital Management v. Ligator, 233 A.D.2d 270, 650 N.Y.S.2d 124 (1st Dept. 1996) (holding that the courts may issue a preliminary injunction in aid of arbitration “but only upon the ground that the award to which the applicant may be entitled may be rendered ineffectual without such provisional relief. This is the sole applicable standard.”).
4. See, e.g., G Builders IV, LLC v. Madison Park Owner, LLC, 84 A.D.3d 694, 924 N.Y.S.2d 75 (1st Dept. 2011) (reversing the lower court’s decision, court held that supposed increased costs associated with arbitration (even if they were certain to occur) are quantifiable and the fear that witnesses would invoke Fifth Amendment was entirely speculative, thus plaintiff failed to establish irreparable harm); Winter v. Brown, 49 A.D.3d 526, 853 N.Y.S.2d 361 (2d Dept. 2008) (trial court erred when it granted preliminary injunction in favor of seller in breach of contract action where seller failed to satisfy the traditional equitable criteria for preliminary injunctive relief).
5. See Spatz v. Ridge Lea Associates, LLC., 309 A.D.2d 1248, 765 N.Y.S.2d 84 (4th Dept. 2003) (court found that petitioner failed to satisfy the “rendered ineffectual” test and did not reach the additional issue of the three-part test for issuance of preliminary injunction).
6. JetBlue Airways v. Stephenson, 31 Misc.3d 1241(A), 932 N.Y.S.2d 761 (N.Y. Co. 2010), aff’d, 88 A.D.3d 567, 931 N.Y.S.2d 284 (1st Dept. 2011) (denying petition for injunctive relief under Section 7502(c) because, although the petitioner presented arguments regarding the Article 63 criteria, it ignored the “ineffectual award” requirement); see also Witham v. VFinance Investments, 17 Misc.3d 1136(A), 851 N.Y.S.2d 75 (N.Y. Co. 2007), aff’d, 52 A.D.3d 403, 860 N.Y.S.2d 98 (1st Dept. 2008) (court discusses the preliminary injunction standard under Section 7502(c), noting that earlier courts required only a showing that the award may be rendered ineffectual without the preliminary injunction, whereas the current standard is to determine additionally whether the petitioner has met the equitable criteria under Article 63); Gurary v. Rendler, 2013 N.Y. Slip Op. 51361(U) (Kings Co. 2013) (citing K.W.F. Realty Corp. v. Kaufman, 16 A.D.3d 688, 793 N.Y.S.2d 67 (2d Dept. 2005), which stated that, in addition to making a showing of ineffectual award to obtain provisional relief, in aid of arbitration, a petitioner must make “a showing of the traditional equitable criteria for the granting of temporary relief under CPLR article 63.”).
7. 34 Misc.3d 1225(A), 2012 N.Y. Slip Op 50224(U) (Suffolk Co. 2012).
8. See Drexel Burnham Lambert v. Ruebsamen, 139 A.D.2d 323, 327-28, 531 N.Y.S.2d 547, 550 (1st Dept. 1988) (court reversed the Supreme Court’s denial of attachment in aid of arbitration, finding that “the language of [Section 7502(c)] neither limits an order of attachment in aid of arbitration to the narrow circumstances set forth in CPLR §6201(c) nor requires that the petitioner demonstrate any affirmative conduct on the part of the respondent(s)”), motion for leave to appeal denied, 73 N.Y.2d 703, 534 N.E.2d 328 (Ct. App. 1988); see also Cnty. Natwest Sec. Corp. USA v. Jesup, Josephthal & Co., 180 A.D.2d 468, 469, 579 N.Y.S.2d 376, 377 (1st Dept. 1992) (“standards generally applicable to attachments pursuant to CPLR 6201(3), such as sinister maneuvers or fraudulent conduct, are not required to be shown in an application pursuant to CPLR 7502(c)”).
9. See Erber v. Catalyst Trading, LLC, 303 A.D.2d 165, 754 N.Y.S.2d 885 (1st Dept. 2003) (“[c]ontrary to petitioner’s argument, the criteria for provisional relief set forth in CPLR articles 62 and 63 are not relaxed when such relief is sought in aid of arbitration pursuant to CPLR 7502(c)”).
10. See, e.g., Spatz v. Ridge Lea Associates, LLC, 309 A.D.2d 1248, 765 N.Y.S.2d 84 (4th Dept. 2003).
11. 289 A.D.2d 22, 733 N.Y.S.2d 602 (1st Dept. 2001).
12. Erickson v. Kidder Peabody & Co., 166 Misc.2d 1, 4, 630 N.Y.S.2d 861, 862 (N.Y. Co. 1995) (denying provisional relief in part because the petitioner did not present a viable claim against the respondent).
13. First Wind Energy, LLC v. Clipper Windpower, LLC, Index No. 653088/2012 (N.Y. Co. Oct. 2, 2012) (Sherwood, J.).
14. 31 Misc. 3d 1219(A), 927 N.Y.S.2d 815 (Queens Co. 2011).
15. Credit Agricole Indosuez V. Rossiyskiy Kredit Bank, 94 N.Y.2d 541, 549, 708 N.Y.S.2d 26, 30 (2000).