Firemen's Ins. Co. of Newark, NJ v. Keating

• Decision Date: 21 December 1990
• Docket Number: 90 Civ. 1678 (PKL),90 Civ. 1753 (PKL),No. 90 Civ. 1076 (PKL),90 Civ. 1676 (PKL),90 Civ. 1809 (PKL),90 Civ. 1677 (PKL),90 Civ. 6164 (PKL) and 90 Civ. 6288 (PKL).,90 Civ. 1754 (PKL),90 Civ. 1076 (PKL)
• Citation: 753 F. Supp. 1146
• Parties: FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY, Plaintiff, v. Robert F. KEATING, Ellen N. Keating, Eugene F. Loro and Ruth E. Loro Trust, Ronald D. Mercaldo, Barbara R. Mercaldo, Delores M. O'Gorman, Rae Pyper and John N. Sakellariadis, Defendants. FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY, Plaintiff, v. Ian BROWN, Defendant. FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY, Plaintiff, v. Albert H. STONE and Cynthia A. Stone, Defendants. FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY, Plaintiff, v. Joseph A. HENDRICH, Defendant. FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY, Plaintiff, v. Reva Butler HOFMANN, Defendant. FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY, Plaintiff, v. Warren CHISUM, Defendant. FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY, Plaintiff, v. SMITH & LEANY PARTNERSHIP, Don Smith and Lynn Leany, Defendants. FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY, Plaintiff, v. Joel C. ALSAKER, Bruce Babcock, Jr., Kenneth G. Braun, Paul F. Depond, Carolina A. Depond, Hassan Fakouraghai, Karen L. Fakouraghai, Robert I. Lewy, Henry K. Lui, John E. Metzger, R. Hamilton Morrison, Patricia Sipl a/k/a Patricia Sipl-Gannon, William J. Gannon, David C. Smith Family Trust, David E. Sponsler, Stanford Builders Supply, Inc., Don R. Wangberg and Bonnie J. Wangberg, Defendants. FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY, Plaintiff, v. Edward L. CAHILL, Edward L. Carter, Linda S. Carter, George Chimples, Carl Forsyth, Velma Forsyth, Marc S. Hermelin, Linda Hermelin, David H. Jaffe, Aram H. Keith, Edward S. Kraemer, Richard L. Monteith, Charlotte B. Monteith, Gary S. Nachman, Victor A. Nix, Jr., Ken O'Gorman, Jr., Floyd Stuart Reid, Lawrence S. Rich, William J. Sahl, Mayer A. Sarfan, Sidney M. Seltzer, George W. White and J.P. Wilson, Defendants.
• Court: U.S. District Court — Southern District of New York

753 F. Supp. 1146

FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY, Plaintiff, v. Robert F. KEATING, Ellen N. Keating, Eugene F. Loro and Ruth E. Loro Trust, Ronald D. Mercaldo, Barbara R. Mercaldo, Delores M. O'Gorman, Rae Pyper and John N. Sakellariadis, Defendants.

FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY, Plaintiff, v. Ian BROWN, Defendant.

FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY, Plaintiff, v. Albert H. STONE and Cynthia A. Stone, Defendants.

FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY, Plaintiff, v. Joseph A. HENDRICH, Defendant.

FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY, Plaintiff, v. Reva Butler HOFMANN, Defendant.

FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY, Plaintiff, v. Warren CHISUM, Defendant.

FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY, Plaintiff, v. SMITH & LEANY PARTNERSHIP, Don Smith and Lynn Leany, Defendants.

FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY, Plaintiff, v. Joel C. ALSAKER, Bruce Babcock, Jr., Kenneth G. Braun, Paul F. Depond, Carolina A. Depond, Hassan Fakouraghai, Karen L. Fakouraghai, Robert I. Lewy, Henry K. Lui, John E. Metzger, R. Hamilton Morrison, Patricia Sipl a/k/a Patricia Sipl-Gannon, William J. Gannon, David C. Smith Family Trust, David E. Sponsler, Stanford Builders Supply, Inc., Don R. Wangberg and Bonnie J. Wangberg, Defendants.

FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY, Plaintiff, v. Edward L. CAHILL, Edward L. Carter, Linda S. Carter, George Chimples, Carl Forsyth, Velma Forsyth, Marc S. Hermelin, Linda Hermelin, David H. Jaffe, Aram H. Keith, Edward S. Kraemer, Richard L. Monteith, Charlotte

B. Monteith, Gary S. Nachman, Victor A. Nix, Jr., Ken O'Gorman, Jr., Floyd Stuart Reid, Lawrence S. Rich, William J. Sahl, Mayer A. Sarfan, Sidney M. Seltzer, George W. White and J.P. Wilson, Defendants.

Nos. 90 Civ. 1076 (PKL), 90 Civ. 1676 (PKL), 90 Civ. 1677 (PKL), 90 Civ. 1678 (PKL), 90 Civ. 1753 (PKL), 90 Civ. 1754 (PKL), 90 Civ. 1809 (PKL), 90 Civ. 6164 (PKL) and 90 Civ. 6288 (PKL).

United States District Court, S.D. New York.

December 21, 1990.

Hart & Hume, New York City; Mark S. Gamell, of counsel, for plaintiff.

Beigel & Sandler, New York City; Patricia C. Hayashi, of counsel and Barry H. Hart, Ltd., Phoenix, Ariz. (Barry H. Hart, of counsel), and Kelly & Roth, New York City (William H. Roth, of counsel), for defendants.

ORDER AND OPINION

LEISURE, District Judge:

These nine related actions arise from purchases by defendants of investments in a limited partnership. Plaintiff Firemen's Insurance Company of Newark, New Jersey ("plaintiff" or "Firemen's"), has now moved for an order seeking preliminary injunctive relief. For the reasons stated below, plaintiff's motion is denied.¹

BACKGROUND

On November 18, 1985, the promoters of CSH-I Hotel Limited Partnership (the "Partnership"), a Texas limited partnership, began an offering of $20,000,000 in limited partnership interests in the Partnership. Investors could purchase units in the Partnership either with a single cash payment, or by making a small cash down payment and executing an installment promissory note. In cases in which the latter method of payment was employed, a surety bond would be issued, guaranteeing, in effect, the payments due under the note. The investor was then required to execute an "Indemnification and Pledge Agreement" ("Indemnification Agreement") in favor of the surety.

When the offering failed to sell a sufficient number of partnership units, the promoters arranged to borrow approximately $19,360,000 from Contitrade Services Corporation ("Contitrade"). This amount was required to close escrow on certain hotel properties throughout the United States that the promoters were obligated to purchase. The promoters and Contitrade then arranged for plaintiff to provide the necessary surety bonds, the loan from Contitrade to the Partnership collateralized by the investors' promissory notes, which were assigned to Contitrade, and by plaintiff's accompanying surety bonds, in which Contitrade was named the obligee.

Between January and May 1986, the defendants in these actions purchased units of the Partnership. These investments were purchased using the installment method, and thus each defendant executed a promissory note in favor of the Partnership, an Indemnification Agreement in favor of plaintiff,² and plaintiff issued a surety bond on behalf of each defendant. After Contitrade was assigned the Partnership's rights under the notes, Contitrade in turn assigned both the notes and plaintiff's surety bonds to Manufacturer's Hanover Trust Company ("MHT"), as agent for Massachusetts Mutual Life Insurance Company.

The Partnership filed for bankruptcy in June 1989, and defendants have refused— since October 1, 1989—to make payments on the notes, alleging that their investments in the Partnership were induced by misrepresentation and fraud.³ Consequently, defendants are now in default on those notes, and MHT has demanded and received payment from plaintiff pursuant to plaintiff's surety bonds. Plaintiff first made such payments on or about December 1, 1989, and has made additional payments to MHT since then, totalling at least $400,000. The next round of payments are due from plaintiff to MHT on December 28, 1990. Defendants, however, have refused to make payments to plaintiff pursuant to the Indemnification Agreements, asserting that those agreements, like the notes, are void and unenforceable as a matter of law. Plaintiff commenced the first of the above-captioned actions on February 16, 1990, seeking to compel defendants to comply with the terms of the Indemnification Agreements. Plaintiff originally informed the Court, at a pretrial conference in June 1990, that it intended to move for summary judgment in these actions. Plaintiff thereafter chose not to move for summary judgment, and, instead, on August 27, 1990, decided to move for an order (1) granting a preliminary injunction requiring each defendant to comply with a cash collateral clause in the Indemnification Agreement between plaintiff and each defendant by posting cash collateral with plaintiff, or, in the alternative, (2) granting a preliminary injunction enforcing plaintiff's equitable rights as surety to exoneration and quia timet, by requiring each defendant to deposit either with plaintiff or with the Court that sum for which plaintiff is still at risk with respect to each defendant. Plaintiff's motion became fully submitted on October 22, 1990.⁴ By agreement of the parties, consideration of this motion has been held in abeyance pending decision by the Court of defendants' motions to dismiss these actions.⁵

DISCUSSION

"A preliminary injunction is an extraordinary remedy that should not be granted as a routine matter." JSG Trading Corp. v. Tray-Wrap, Inc., 917 F.2d 75, 80 (2d Cir.1990); see also Patton v. Dole, 806 F.2d 24, 28 (2d Cir.1986); Medical Society of New York v. Toia, 560 F.2d 535, 538 (2d Cir.1977) (preliminary injunction is "an extraordinary and drastic remedy which should not be routinely granted."). "A party seeking a preliminary injunction must demonstrate that it is likely to suffer possible irreparable harm if the requested relief is not granted and `either (1) a likelihood of success on the merits of its case or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly in its favor.'" Citibank, N.A. v. Nyland (CF8) Ltd., 839 F.2d 93, 97 (2d Cir.1988) (quoting Coca-Cola Co. v. Tropicana Products, Inc., 690 F.2d 312, 314-15 (2d Cir.1982)); see also Consolidated Gold Fields, supra, 871 F.2d at 256. In general, "the purpose of a preliminary injunction is to preserve the status quo." Tucker Anthony Realty Corp. v. Schlesinger, 888 F.2d 969, 972 (2d Cir.1989).

The Second Circuit has repeatedly stressed the importance of a showing of irreparable harm by the movant. "Inequitable conduct alone cannot justify the entry of a preliminary injunction. The linchpin of such interim relief is that threatened irreparable harm will be prevented by that injunction." Buckingham Corp. v. Karp, 762 F.2d 257, 262 (2d Cir. 1985). "`Perhaps the single most important prerequisite for the issuance of a preliminary injunction is a demonstration that if it is not granted the applicant is likely to suffer irreparable harm before a decision on the merits can be rendered.'" Citibank, N.A. v. Citytrust, 756 F.2d 273, 275 (2d Cir.1985) (quoting Bell & Howell: Mamiya Co. v. Masel Supply Corp., 719 F.2d 42, 45 (2d Cir.1983)); Mulligan, Forward, Preliminary Injunction in the Second Circuit, 43 Brooklyn L.Rev. 831, 833 (1977) (showing of irreparable harm is fundamental and traditional requirement in any action where preliminary injunctive relief is sought).

The Second Circuit has consistently stressed that in order to be deemed "irreparable," so as to warrant the granting of injunctive relief, the harm alleged by the movant "must be one requiring a remedy of more than mere monetary damages. A monetary loss will not suffice unless the movant provides evidence of damage that cannot be rectified by financial compensation." Tucker Anthony, supra, 888 F.2d at 975; see also Huntington v. Marsh, 884 F.2d 648, 651 (2d Cir.1989), cert. denied, ___ U.S. ___, 110 S.Ct. 1296, 108 L.Ed.2d 473 (1990); Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir.1979) ("irreparable injury means injury for which a monetary award cannot be adequate compensation."). Furthermore, "to establish irreparable harm, plaintiffs must demonstrate `an injury that is neither remote nor speculative, but actual and imminent.'" Tucker Anthony, supra, 888 F.2d at 975, (quoting Consolidated Brands, Inc. v. Mondi, 638 F.Supp. 152, 155 (E.D.N.Y.1986)); accord Kaplan v. Board of Education, 759 F.2d 256, 259 (2d Cir.1985). Finally, the Second Circuit has emphasized that it is not sufficient for a movant to demonstrate merely the...