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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: July 19, 2020

Court Vacates Preliminary Injunction Undertaking Because of Defendants’ Failure to Obey the Injunction

On July 3, 2020, Justice Friedman of the New York County Commercial Division issued a decision in Zacharias v. Wassef, 2020 NY Slip Op. 32161(U), vacating a preliminary injunction undertaking because of the defendants’ failure to obey the injunction, explaining:

On this motion, plaintiffs seek an order cancelling and discharging the undertaking.

CPLR 6312(b) requires that prior to the granting of a preliminary injunction, the plaintiff shall give an undertaking in an amount to be fixed by the court. The amount of the undertaking is within the court’s discretion. The court acts within its discretion in setting an undertaking rationally related to the enjoined party’s potential damages if the preliminary injunction is determined to be unwarranted. Plaintiffs argue that “the Court should exercise its discretion and cancel and discharge the Undertaking while maintaining the preliminary injunction. Plaintiffs concede that the relief sought by the motion is extraordinary, but warranted where, as here, the defendant has willfully ignored the Orders of this Court, including the preliminary injunction granted herein— rendering the restraining device useless (and with almost certainty ensuring an ineffectual judgment).

The court holds that defendants’ protracted failures to comply with this court’s orders support the court’s exercise of discretion to reduce the undertaking to a nominal amount. The record of this case, as cited by plaintiffs in support of the motion, evidences defendants’ manifest disregard of this court’s orders and plaintiffs’ rights to relief thereunder, including the Preliminary Injunction Order. By order dated June 13, 2017, this court held defendants in contempt for failure to comply with the Preliminary Injunction Order.

To date, defendants have not purged their contempt. Following defendants’ failure to comply with the Contempt Order, this court granted plaintiffs’ motion, pursuant to Judiciary Law 773, for an award of plaintiffs’ attorney’s fees and expenses incurred as a result of defendants’ contempt. Judgment in the amount of $95,058.98 was entered upon that Decision and Order on February 1, 2019. Defendants, however, have also failed to pay the Judgment.

In opposition to the motion, defendants do not appear to dispute, or even defend, their multiple and protracted failures to comply with the orders and judgment. Defendants argue, however, that the existing undertaking should remain in place because the undertaking must be sufficient to cover all damages that the defendants may sustain from the injunction and, if cancelled, the enjoined party would be left without a remedy if the preliminary injunction is later determined to have been unwarranted. Defendants’ argument may correctly address the general purpose of the CPLR 6203(b) undertaking requirement— to provide security for the relief granted by the preliminary injunction; but it ignores the actual facts on the record before the court. Defendants have sustained no potential damages because they have never complied with the Preliminary Injunction. Further, defendants’ brazen disregard of the related Contempt Order and Judgment for Judiciary Law 773 fines, taken together with the passage of nearly four years since entry of the Preliminary Injunction, make the likelihood that defendants will incur potential damages, based on some future compliance, remote at best. Thus, even if the Preliminary Injunction were later found to have been unwarranted, defendants would not be entitled to any remedy secured by the undertaking.

The $250,000 undertaking required by the Preliminary Injunction was rationally related to defendants’ potential damages arising from compliance with the order based upon the evidence submitted to the court on the record of that motion. Due to defendants’ conduct in the intervening years, the $250,000 undertaking is no longer rationally related to any potential damages, because there are none. It would be manifestly unjust to require plaintiffs to maintain an undertaking for injunctive relief with which defendants have never complied. As defendants argue, the requirement of an undertaking is mandatory. Under the circumstances presented here, however, the court in its discretion holds that the Preliminary Injunction Order shall be amended to set the undertaking in the nominal amount of $100.

(Internal quotations and citations omitted).

It is common in commercial litigation that parties seek equitable relief such as injunctions, attachments or the appointment of a temporary receiver in order to preserve assets or maintain the status quo when money damages will not make them whole at the end of a litigation. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding seeking–or opposing–such relief.

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