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Posted: March 7, 2014

Standard for Pre-Award Attachment Under CPLR 7502(c) is that Award Must Otherwise Be “Rendered Ineffectual”

On March 6, 2014, the First Department issued a decision in Matter of Kadish v. First Midwest Securities, Inc., 2014 NY Slip Op. 01517, addressing the standard in deciding motions for CPLR 7502(c) attachments.

In Matter of Kadish, the First Department addressed whether, in addition to the grounds stated in CPLR 7502(c)–that without the attachment, the award will be rendered ineffectual–a petitioner seeking a pre-award attachment also must also demonstrate the traditional factors for injunctive relief under CPLR article 63.

Without making a clear statement, the court implied that the “rendered ineffectual” standard is the only one governing Article 75 attachments, writing:

CPLR 7502(c) provides, in pertinent part, that the court may

entertain an application for an order of attachment or for a preliminary injunction in connection with an arbitration . . . but only upon the ground that the award to which the applicant may be entitled may be rendered ineffectual without such provisional relief. The provisions of articles 62 [attachment] and 63 [injunction] of this chapter shall apply to the application, including those relating to undertakings and to the time for commencement of an action (arbitration shall be deemed an action for this purpose), except that the sole ground for the granting of the remedy shall be as stated above”

(emphasis added).

Respondent FMSI disputes this standard, citing to multiple cases which involve injunctions under CPLR 7502(c), and clarify that, in addition to the usual three-prong test for preliminary injunctions under article 63 of the CPLR, a petitioner must demonstrate that a potential arbitral award could be rendered ineffectual (see Interoil LNG Holdings, Inc. v Merrill Lynch PNG LNG Corp., 60 AD3d 403, 404 [1st Dept 2009]; Founders Ins. Co. Ltd. v Everest Natl. Ins. Co., 41 AD3d 350, 351 [1st Dept 2007]; Erber v Catalyst Trading, 303 AD2d 165 [1st Dept 2003]; Matter of Cullman Ventures [Conk], 252 AD2d 222, 230 [1st Dept 1998]; Koob v IDS Fin. Servs., 213 AD2d 26 [1st Dept 1995]; see also SG Cowen Sec. Corp. v Messih, 224 F3d 79, 81-84 [2d Cir 2000] [detailed analysis of interplay between CPLR 7502 and CPLR article 63]).

Recent cases of this Court, however, continue to apply the “rendered ineffectual” standard with regard to a CPLR 7502(c) attachment in aid of arbitration (Matter of Sojitz Corp. v Prithvi Info. Solutions Ltd., 82 AD3d 89, 96 [1st Dept 2011] [citing Matter of H.I.G. Capital Mgt. v Ligator, 233 AD2d 270, 271 [1st Dept 1996]; Sullivan & Worcester LLP v Takieddine, 73 AD3d 442, 442 [1st Dept 2010]), and we agree with this interpretation.

The First Department went on to find that “under either standard, petitioner’s evidentiary showing was insufficient” to support the imposition of a pre-award attachment.

The implication of this decision is that the First Department will require only that an award be “rendered ineffectual” in order to grant a CPLR 7502(c) attachment. Hopefully, at some point the court will provide clearer guidance. Until then, litigators seeking an Article 75 attachment still must be prepared to address an argument that they must meet the traditional Article 63 standards for preliminary injunctive relief as well.

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