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Posted: March 14, 2015

Court Analyzes Damages For Which Enjoined Party May Recover

On February 27, 2015, Justice Demarest of the Kings County Commercial Division issued a decision in Metropolitan Lofts of NY, LLC v. Metroeb Realty 1, LLC, 2015 NY Slip Op. 50251(U), awarding the plaintiff the proceeds of the bond for the damages it sustained by reason of a preliminary injunction.

In Metropolitan Lofts, the plaintiff brought an action for specific performance of a contract to purchase real property. The defendant obtained a preliminary injunction enjoining the plaintiff from selling the property to anyone else. In connection with the injunction, the defendant posted a bond. Plaintiff ultimately prevailed and sought to recover for the damages it suffered as a result of the injunction. The court explained it calculation of damages:

The undertaking posted under CPLR 6312(b) provides a ready source from which the defendant may recover for damages which it may have sustained where it is later finally determined that the preliminary injunction was improperly granted. The extent of any liability of the plaintiff for damages for obtaining the preliminary injunction is limited to the amount of the bond. CPLR 6315 provides an expeditious procedure for ascertaining the amount of damages sustained by reason of a preliminary injunction or temporary restraining order upon motion on such notice to all interested persons as the court shall direct in the same action in which the injunction was granted.

The measure of damages awarded from the proceeds of the bond should equal the amount that is necessary to compensate the injured party for losses sustained as the proximate result of the improperly granted preliminary injunction or temporary restraining order. To be entitled to recovery for these losses, the moving party is required to prove its claimed measure of damages.

(Internal quotations and citations omitted) (emphasis added). The court went on to analyze the categories of damages sought by the plaintiff. Regarding lost interest, the court explained:

Interest on the damages sustained by reason of a wrongful injunction may be allowed where the amount of the damages is either certain or capable of being made certain, and such an award of interest, as damages, is recoverable where the owner of property or one entitled to the use of such property has been deprived of monies as the direct and proximate result of the injunction. Such interest may be recovered for the entire period in which a preliminary injunction was in effect if the defendant has sustained damages from that time or from the time that the defendant sustained damages while the preliminary injunction was in effect. CPLR 5001 (a) provides that interest shall be recovered upon a sum awarded because of an act or omission depriving or otherwise interfering with title to, or possession or enjoyment of, property, except that in an action of an equitable nature, interest and the rate and date from which it shall be computed shall be in the court’s discretion. Thus, Metroeb is not entitled to interest at the 9% statutory rate as of right, but, rather, interest is computed in the court’s discretion.

Here, Metroeb has demonstrated that it lost interest on the net proceeds of the sale during the time that the preliminary injunction prevented the closing on the RedSky contract to the date the injunction was vacated upon the finding that it was not warranted. However, the court must subtract from the sum of $25,605,427.53, the $3 million down payment that Metroeb held in escrow in an interest bearing account pursuant to its escrow agreement with RedSky (as discussed below). Thus, Metroeb is only entitled to interest on the sum of $22,605,427.53. In addition, the preliminary injunction was only in effect until June 9, 2014 when the Appellate Division, Second Department, lifted the temporary order staying the May 6, 2014 decision and order. Therefore, Metroeb is only entitled to interest from the date that the closing was scheduled to take place, i.e. November 1, 2012, until June 9, 2014 (a 19-month period), and not to the date of the delayed closing on July 31, 2014. Additionally, the court finds that the 9% rate of interest sought by Metroeb is excessive based upon the existing market conditions at the time for which interest is sought. In the court’s discretion, pursuant to CPLR 5001 (a), the court finds that the applicable rate of interest should be 7% per annum computed from the date that the closing was scheduled to take place, November 1, 2012, to the lifting of the injunction on June 9, 2014. This results in interest of $2,536,143.17 ($4,4335.29 daily interest multiplied by 585 days). Subtracting the net profit of $570,353.93, which Metroeb derived from the property, from this amount of interest, results in damages of $1,965,789.24.

(Internal quotations and citations omitted). With respect to the plaintiff’s legal fees, the court held:

It is well established that the injured party may recover its costs and expenses, including the attorneys’ fees expended by it, as damages for wrongfully procuring a preliminary injunction, but, in order to be recoverable, such fees must have been incurred solely or principally in consequence of the injunction. Thus, generally, counsel fees incurred merely in the preparation of the case for trial, but not as a consequence of the preliminary injunction granted in that action, are not recoverable. Therefore, if the injunctive relief is not the sole or principal purpose of the action and is merely incidental thereto, only the attorneys’ fees that are incurred by reason of the preliminary injunction itself are recoverable. Similarly, attorneys’ fees incurred in opposing the original motion for the preliminary injunction are not recoverable as damages resulting from the wrongful procurement of the injunction since they could not have been incurred by reason of the injunction.

However, since attorneys’ fees incurred in a successful effort to vacate a restraining order may be recoverable damages under CPLR 6315, attorneys’ fees on the trial of the main action are recoverable when the trial was necessary in order to terminate the preliminary injunction and where, as here, the principal issue upon the trial involves the right to injunctive relief, such as specific performance. Thus, counsel fees for the entire proceeding may be recoverable where the plaintiff’s right to injunctive relief is the primary object of and inseparable from the merits of the action. Attorneys’ fees incurred by the defendant on an appeal from an order dissolving a preliminary injunction are also recoverable from an injunction bond. The defendant must show that the counsel fees have actually been incurred since they may be awarded only by way of reimbursement.

(Internal quotations and citations omitted) (emphasis added).

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