CREDIT AGRICOLE v. Rossiyskiy

• Decision Date: 30 March 2000
• Citation: 94 N.Y.2d 541,708 N.Y.S.2d 26,729 N.E.2d 683
• Parties: CREDIT AGRICOLE INDOSUEZ et al., Respondents, v. ROSSIYSKIY KREDIT BANK et al., Appellants.
• Court: New York Court of Appeals Court of Appeals

94 N.Y.2d 541

729 N.E.2d 683

708 N.Y.S.2d 26

CREDIT AGRICOLE INDOSUEZ et al., Respondents, v. ROSSIYSKIY KREDIT BANK et al., Appellants.

Court of Appeals of the State of New York.

Argued February 17, 2000.

Decided March 30, 2000.

Stroock & Stroock & Lavan, L. L. P., New York City (Charles G. Moerdler, Brian M. Cogan and Charles E. Torres of counsel), for appellants.

Dewey Ballantine, L. L. P., New York City (A. Grant McCrea, Robert C. Myers, James P. Smith, III, and Joshua R. Weiss of counsel), for respondents.

Chief Judge KAYE and Judges BELLACOSA, SMITH, CIPARICK, WESLEY and ROSENBLATT concur.

OPINION OF THE COURT

LEVINE, J.

Plaintiffs are three foreign banking institutions suing on unsecured debts totaling some $30 million of defendant Rossiyskiy Kredit Bank (Rossiyskiy), a Russian banking institution, guaranteed by defendant Rossiyskiy Kredit Securities PV. Plaintiffs were participants in a syndicate which purchased some $200 million of Rossiyskiy's first series debentures in 1997. The debentures were due September 29, 2000, bearing a fixed interest rate of 10.25% per annum, payable semiannually. Under the terms of the debentures, defendants agreed to submit to the jurisdiction of the New York courts in the event of a default and to be governed by New York law in any such action.

Apparently as a result of the worsening crisis in the Russian economy in 1998, Rossiyskiy became financially distressed. It defaulted on an interest payment on the debentures due March 29, 1999. Plaintiffs proceeded to exercise their right to accelerate the entire principal and interest on those debt securities. Defendants do not contest the fact of their complete default.

Plaintiffs then brought this action to recover the full amount of principal and interest due under their debentures. Their complaint sets forth two causes of action on the debts. In a third cause of action they allege that defendants are presently insolvent and as such owe a fiduciary duty to preserve assets for the benefit of general creditors; that defendants had breached their fiduciary duty by transferring Rossiyskiy's branch network and clientele (its principal assets) to Impexbank, another Russian banking institution, thus stripping defendants of the assets necessary to satisfy any judgment awarded plaintiffs; and that they are entitled to permanent injunctive relief to protect their expected money judgment.

Simultaneously with the commencement of this action, plaintiffs moved for an order of attachment and a temporary injunction against defendants' further transfer of assets. Supreme Court granted plaintiffs both of those provisional remedies. The preliminary injunction, among other things, prohibits defendants from "(1) dissipating, transferring, conveying or otherwise encumbering their assets and (2) taking steps in furtherance of [Rossiyskiy's] alliance with Impexbank." The Appellate Division affirmed in all respects, then granted leave to appeal to us on the certified question of the propriety of that affirmance. Defendants have limited their appeal to the portion of the Appellate Division order affirming the grant of a preliminary injunction. We now reverse.

The provisional remedy of a preliminary injunction in New York civil actions is governed by CPLR 6301, which provides in pertinent part:

"A preliminary injunction may be granted in any action where it appears that the defendant threatens or is about to do, or is doing or procuring or suffering to be done, an act in violation of the plaintiff's rights respecting the subject of the action, and tending to render the judgment ineffectual, or in any action where the plaintiff has demanded and would be entitled to a judgment restraining the defendant from the commission or continuance of an act, which, if committed or continued during the pendency of the action, would produce injury to the plaintiff" (emphasis supplied).

Plaintiffs are unsecured contract creditors, whose ultimate objective is attaining an enforceable money judgment. Their third cause of action for injunctive relief to prevent the threatened dissipation of Rossiyskiy's assets, making it judgment proof, is incidental to and in aid of the monetary relief they seek. In applying provisional equitable remedies under civil procedure codes, from as early as 1892 in Campbell v Ernest (64 Hun 188), our courts have consistently refused to grant general creditors a preliminary injunction to restrain a debtor's asset transfers that allegedly would defeat satisfaction of any anticipated judgment.

In Campbell v Ernest, just as here, plaintiff averred that the "`defendant herein will, during the pendency of this action, dispose of his property * * * with intent to defraud the plaintiff herein, and to render nugatory any proceeding or effort by this plaintiff to obtain payment of his claim in this action'" (id., at 189 [emphasis supplied]). At the time, section 604 (2) of the Code of Civil Procedure authorized a preliminary injunction where the "defendant, during the pendency of the action, threatens or is about to remove or dispose of his property, with intent to defraud the plaintiff." The Campbell court held that section 604 (2) did not apply "to an action of this character, where a moneyed judgment only is sought" (id., at 192). Rather, provisional injunctive relief was limited to equitable actions where the defendant threatened to violate the rights of the plaintiff "respecting the subject of the action, which would tend to render the judgment ineffectual" (id. [emphasis supplied]). Campbell explained that, in a pure contract money action, there is no right of the plaintiff in some specific subject of the action; hence, no prejudgment right to interfere in the use of the defendant's property; and no entitlement to injunctive relief pendente lite.

"In no proper or legal sense can a defendant do or permit any act in violation of the plaintiff's rights respecting the subject of the action, in an action on contract for the recovery of money only. The plaintiff in such an action has no rights as against the property of the defendant until he obtains a judgment, and until then he has no legal right to interfere with the defendant in the use and sale of the same" (id. [emphasis supplied]).

More than 100 years after the Campbell v Ernest decision, the United States Supreme Court, in Grupo Mexicano de Desarrollo v Alliance Bond Fund (527 US 308), came to the very same conclusion—that an unsecured creditor suing to collect a debt was not entitled to preliminary injunctive relief to prevent the debtor's dissipation of assets prior to judgment. The plaintiff in Grupo Mexicano brought a money damage action in the Federal courts on its unsecured debt; and to freeze assets, it sought a preliminary injunction under rule 65 of the Federal Rules of Civil Procedure, the Federal counterpart to CPLR 6301. The plaintiff's allegations in support of its request for a preliminary injunction in Grupo Mexicano parallel the grounds the plaintiff averred in Campbell and those asserted by plaintiffs here. Plaintiff in Grupo Mexicano claimed that "`[defendant] GMD is at risk of insolvency, if not insolvent already'; that GMD was dissipating its most significant asset * * * and was preferring its Mexican creditors * * * and that these actions would `frustrate any judgment' respondents could obtain" (Grupo Mexicano de Desarrollo v Alliance Bond Fund, 527 US, at 312).

Both the majority and the dissent in Grupo Mexicano agreed that, under the Federal Judiciary Act of 1789, Federal Rules of Civil Procedure, rule 65 could not be extended to grant preliminary injunctive relief beyond that provided under "`traditional principles of equity jurisdiction'" (527 US, at 319, quoting 11A Wright, Miller and Kane, Federal Practice and Procedure § 2941, at 31 [2d ed]; see, 527 US, at 335-336 [Ginsburg, J., concurring in part and dissenting in part]). They differed on whether, under those established equitable principles, a Federal court had the authority to interfere with a debtor's use of unencumbered property during the pendency of a creditor's money action on the debt. Precisely as the New York court reasoned in Campbell, the Supreme Court majority in Grupo Mexicano concluded that no provisional injunctive remedy was available because of "the substantive rule that a general creditor (one without a judgment) had no cognizable interest, either at law or in equity, in the property of his debtor, and therefore could not interfere with the debtor's use of that property" (id., at 319-320).

It is well worth noting that, in support of that holding, Justice Scalia, writing for the majority, invoked a venerable New York authority on general principles of equity jurisdiction:

"As stated by Chancellor Kent: `The reason of the rule seems to be, that until the creditor has established his title, he has no right to interfere, and it would lead to an unnecessary, and, perhaps, a fruitless and oppressive interruption of the exercise of the debtor's rights'" (id., at 320, quoting Wiggins v Armstrong, 2 Johns Ch 144, 145-146).

Our courts have uniformly followed the precept of Campbell v Ernest (supra), both before and after enactment of the CPLR (see, Eastern Rock Prods. v Natanson, 239 App Div 529; Babho Realty Co. v Feffer, 230 App Div 866 [under former Civil Practice Act]; First Natl. Bank v Highland Hardwoods, 98 AD2d 924; Fair Sky v International Cable Ride Corp., 23 AD2d 633 [post-CPLR]).

It cannot be argued that CPLR 6301 was intended to expand or liberalize the traditional equity principle against provisional injunctive relief in a general creditor's action on a debt, to prevent the dissipation of assets necessary to satisfy the anticipated money judgment. To the contrary, the evidence is that section 6301 was intended to embody the very same traditional principles of equity jurisdiction Grupo Mexicano found reflected in Federal Rules of Civil Procedure, rule 65 in an action on...