Commercial Division Blog

Posted: April 24, 2024 / Written by: Jeffrey M. Eilender, Thomas A. Kissane, Samuel L. Butt, Joshua Wurtzel, Channing J. Turner / Categories Commercial, Injunction

Court Grants Mandatory Injunction Requiring Purchaser To Close On Transaction

On April 6, 2024, Justice Andrea Masley granted plaintiff’s motion for a preliminary injunction and required the defendant purchaser to close on the sale of a business within 10 days of the order.  In James River Group Holdings, Ltd. v. Fleming Intermediate Holdings, LLC, Index No. 651281/2024, the parties were to close on March 1, 2024 on the sale of plaintiff’s reinsurance subsidiary to defendant.  However, defendant refused to do so absent significant concessions.  Plaintiff brought suit and sought a preliminary injunction requiring the specific performance of the parties’ Stock Purchase Agreement.  In granting the motion, the Court explained:

"The Court of Appeals explained in Bachman that a mandatory injunction may be permitted where "the status quo is a condition not of rest, but of action, and the condition of rest is exactly what will inflict the irreparable injury upon complainant," ... In other words, the status quo itself may consist of a defendant's obligation to perform an affirmative act." (Vincent Alexander, 2020 Supp Prac Commentary, McKinney's Cons Laws of NY, Book 7B, CPLR 6301, citing Bachman v Harrington, 184 NY 458,464 [1906] [mandatory injunction compelling defendant to take affirmative action may be "necessary to preserve the status of the parties"].)

As to the irreparable injury, the Court held: 

In §8.4,iv the SPA provides for specific performance because the parties agree that there is irreparable harm if the contract is breached, and damages would be difficult to calculate. Courts enforce such provisions when negotiated by sophisticated counsel, as is true here. (Bank of Am., N.A. v PSW NYC LLC, 29 Misc 3d 1216[A] *12 [Sup Ct, NY County 201 O], quoting Roswell Capital Partners LLC v Alternative Constr. Tech., 2009 WL 222348, *17, 2009 US Dist LEXIS 7690 [SD NY 2009] ["terms throughout the contracts at issue specify that a default constitutes irreparable harm entitling Plaintiffs to injunctive relief to cure breaches," which, "(w)hile not dispositive, (may be viewed by) courts ... as evidence of an admission that irreparable harm has occurred"]; see also Level 4 Yoga, LLC v CorePower Yoga, LLC, CV 2020-0249-JRS, 2022 WL 601862, at *30 [Del Ch Mar. 1, 2022], judgment entered, [Del Ch 2022], aff'd, 287 A3d 226 [Del 2022] ["(T)his court has not hesitated to order specific performance in cases of this nature [concerning an asset purchase agreement], particularly where sophisticated parties represented by sophisticated counsel stipulate that specific performance would be an appropriate remedy in the event of breach" (internal quotation marks and citation omitted)]; Snow Phipps Group, LLC v Kcake Acquisition, Inc., CV 2020-0282-KSJM, 2021 WL 1714202 [Del Ch Apr. 30, 2021] [court ordered specific performance of SPA to purchase a cake decorating company where parties agreed that any breach causes irreparable harm].) The court is inclined to accept the parties' agreement in the SPA where the parties crafted the SPA to prevent this precise situation with SPA §8.4 and §1.4.

In any case, JRGH has established a clear right to a mandatory injunction because of the severe irreparable harm it is enduring. (Borini, 2019 NY Slip Op 32489[U], 4 [Plaintiff satisfied higher standard of 'clear right' to relief because of severe irreparable harm in the name of maintaining the status quo while the unused apartment sat vacant, undermining of the value of the property, plaintiffs with their child lived in temporary housing, and "with no end in sight."] [citation omitted].)

JRGH and JRG Re have suffered and will continue to suffer reputational harm among its stakeholders and potential purchasers if Fleming refuses to close and JRGH continues to run JRG Re with severe economic consequences that are impossible to calculate. (NYSCEF 38, D'Orazio aff ¶ 27-40.) JRGH is a publicly traded company, and thus, publicly announced this transaction as part of a long-term strategic plan to focus on core business. (Id. ¶¶ 4, 5.) JRGH's share price immediately dropped to an all-time low when the news of Fleming's refusal to close became public. (Id. ¶ 37.) Indeed, an analyst opined that Fleming's refusal to close potentially impacted JRGH's core value, further interferes with JRG Re's employees and operations, and distracts JRGH from its strategic plan while it maintains JRG Re. (NYSCEF 47, Compass Report at 1.) Accordingly, tarnishing the reputation of JRG Re by implying some flaw sufficient for Fleming to walk away from this deal will impact JRGH's ability to sell JRG Re consistent with its strategy. (NYSCEF 38, D'Orazio aff ¶¶ 28, 29; see Matter of Riccelli Enters., Inc. v State of NY Workers' Compensation Bd., 117 AD3d 1438, 1440 [concluding that "the loss of business" caused by the defendant's actions was difficult or impossible to quantify and thus constituted irreparable harm], reargue denied, 119 AD3d 1388 [4th Dept 2014]; In re IBP, Inc. Shareholders Litig., 789 A2d 14, 23 [Del Ch 2001] [applying New York law to order specific performance of a merger agreement following the buyer's refusal to close because closure was "the only method by which to adequately redress the harm threatened to (plaintiff seller) and its stockholders"]); Destiny USA Holdings, LLC, 69 AD3d at 222 ["Harm to business reputation is harm for which money damages are insufficient and for which injunctive relief may be appropriate."].)

On March 1, 2024, because of Fleming's failure to close, JRGH became the unexpected operator of JRG Re, a company it had prepared for four months to deliver to Fleming. During those four months, JRGH completed transactions in anticipation of closing that it cannot easily unwind, if at all, because they involve transactions with lenders and other unrelated entities. (NYSCEF 38, Orazio aff ¶¶ 34, 35.) JRGH's new role as JRG Re's operator after March 1, 2024 has consequences for JRGH which must now unexpectedly provide resources to JRG Re. (Id. ¶ 31, 33.) JRG Re's employees were expected to be employed by Fleming or decided to leave, but now JRGH needs to retain those employees, but some will never return. (Id. ¶ 28.) JRG Re made long term compensation decisions consistent with the expectation of selling JRG Re to Fleming which affects its relationships with and reputation among employees. (Id. ¶ 33.) JRGH's Bermudan regulator approved the SPA transaction pursuant to which JRGH should not be operating JRG Re now. (Id. ¶¶ 9, 27, 31.) Finally, JRG RE's projects were naturally put on hold awaiting its new owner-Fleming-with untold economic consequences. (Id. ¶ 38.)

Contact the Commercial Division Blog Committee at if you or a client have questions concerning the mandatory injunctions, specific performance, or irreparable harm.