SG Cowen Sec. Corp. v. Messih, Docket No. 00-7607

• Decision Date: 01 August 1999
• Docket Number: Docket No. 00-7607
• Citation: SG Cowen Sec. Corp. v. Messih, 224 F.3d 79, 2000 WL 1174969 (2nd Cir. 1999)
• Parties: (2nd Cir. 2000) SG COWEN SECURITIES CORPORATION, Petitioner-Appellant, v. ROBERT W. MESSIH, Respondent-Appellee
• Court: U.S. Court of Appeals — Second Circuit

Page 79

224 F.3d 79 (2nd Cir. 2000)

SG COWEN SECURITIES CORPORATION, Petitioner-Appellant, v. ROBERT W. MESSIH, Respondent-Appellee.

Docket No. 00-7607

August Term, 1999

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

Argued: July 10, 2000

Decided: August 18, 2000

Appeal from a partial denial of a motion for preliminary injunction in aid of arbitration, by the United States District Court for the Southern District of New York(Harold Baer, Jr., Judge).Because New York's injunction-in-aid-of-arbitration provision incorporates traditional equitable criteria, the district court did not abuse its discretion in denying the motion based on the merits of the case, the danger of irreparable harm, and the balance of the equities.We therefore affirm.

PHILIPPE M. SALOMON, Willkie Farr & Gallagher(Judd F. Sneirson, Brett E. Wiggins, of counsel), New York, New York, for Petitioner-Appellant.

LAWRENCE I. WEINSTEIN, Proskauer Rose LLP(Michael T. Mervis, Kevin J. Perra, of counsel), New York, New York, for Respondent-Appellee.

Before: WINTER, Chief Judge, WALKER, and JACOBS, Circuit Judges.

WINTER, Chief Judge:

SG Cowen Securities Corporation("Cowen") appeals from Judge Baer's partial denial of a motion for a preliminary injunction in aid of arbitration.Appellant contends that the state law provision under which the injunction was sought, N.Y. C.P.L.R. § 7502(c), does not permit the issuing judge to consider traditional equitable standards for preliminary injunctive relief, namely, irreparable harm, likelihood of success, and the balance of the equities.We disagree and affirm.

BACKGROUND

The pertinent facts are not in dispute.In July 1999, Cowen hired appelleeRobert W. Messih, an investment banker, to serve as managing director in its San Francisco office.Messih was hired to lead Cowen's efforts in the electronics and semiconductor sectors.Messih signed an eighteen-month contract that included, among other things: (i) a non-compete provision that purported to prevent Messih from "act[ing] as an officer, director, [or] employee of any firm, corporation, institution or entity directly or indirectly engaged in a business that is substantially similar to that in which [he was] engaged during [his] employment with [Cowen]" throughout the prescribed term of the contract; (ii) a clause that required all disputes to be resolved by an arbitration panel in San Francisco pursuant to the rules of the New York Stock Exchange; (iii) a clause that purported to grant Cowen the right to injunctive relief against a breach of the non-compete clause; and (iv) a choice-of-law clause designating New York law as governing the interpretation and application of the terms of the contract.

Messih worked for Cowen until April 11, 2000, when he resigned to begin work for Banc of America, a Cowen competitor in Palo Alto.Three days later, Cowen brought an action in New York Supreme Court seeking temporary injunctive relief in aid of arbitration, pursuant to N.Y. C.P.L.R. § 7502(c), and served Messih and Banc of America with notice of intent to arbitrate.The New York Supreme Court issued an ex parte temporary restraining order ("TRO") enjoining, without geographical limitation, Messih from working for "any entity that competes with SG Cowen," and from divulging any Cowen trade secret or confidential information.That court also issued an order to show cause, returnable April 28, 2000, why a preliminary injunction should not issue pending arbitration.

On April 27, 2000, Messih removed the action to the Southern District of New York.On May 1, he filed a motion to dissolve so much of the TRO as restrained him from working for any Cowen competitor.On May 17, the district court granted the motion, holding that an injunction issued pursuant to Section 7502(c) requires analysis under traditional equitable criteria including "(1) a likelihood of success on the merits, (2) danger of irreparable injury if provisional relief is withheld; and (3) a balance of the equities tipping in [petitioner's] favor."SG Cowen Sec. Corp. v. Messih, No. 00 Civ. 3228, 2000 WL 633434, at *2(S.D.N.Y.May 17, 2000).With regard to the merits, the district court found that the choice-of-law clause was inapplicable under New York choice-of-law rules because enforcement of the non-compete provision would violate the public policy of California, which had more substantial contacts with the contract; that California law, rather than New York law, governed the dispute; that under either state's law, the non-compete provision was unenforceable; and that, therefore, Cowen could not demonstrate any likelihood of success on the merits.Seeid. at *3-*5.The district court further found that Cowen failed to demonstrate irreparable harm and that the equities did not tip in its favor.Seeid. at *6.Nonetheless, with Messih's consent, the district court issued a preliminary injunction enjoining him from divulging any Cowen trade secrets or otherwise confidential information and from soliciting any client he had developed while at Cowen.Seeid.

This appeal followed.

DISCUSSION

We review a district court's denial of a preliminary injunction for abuse of discretion.Errors of law or fact may constitute such abuse.SeeBeal v. Stern, 184 F.3d 117, 122(2d Cir.1999);Sal Tinnerello & Sons, Inc. v. Stonington, 141 F.3d 46, 51-52(2d Cir.), cert. denied, 525 U.S. 923(1998)).The primary question on appeal is whether the district court erred as a matter of law when it applied traditional equitable criteria to its consideration of Cowen's petition for a preliminary injunction under N.Y. C.P.L.R. § 7502(c).

Section 7502(c) provides, in relevant part:

The supreme court . . . may entertain an application for an order of attachment or for a preliminary injunction in connection with an arbitrable controversy, 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 and 63 of this chapter shall apply to the application . . . except that the sole ground for the granting of the remedy shall be as stated above.

N.Y. C.P.L.R. § 7502(c).Articles 62 and 63 constitute, respectively, New York's rules on the granting of prejudgment attachments and preliminary injunctions.N.Y. C.P.L.R. §§ 6201,6301.Article 63 incorporates the equitable criteria traditionally required for the granting of preliminary injunctive relief: likelihood of the petitioner's success on the merits, danger of irreparable harm to the petitioner should preliminary relief be denied, and a balancing of the equities that tips in the petitioner's favor.See, e.g., Aetna Ins. Co. v. Capasso, 552 N.E.2d 166, 167(N.Y.1990);Kensington Court Assocs. v. Gullo, 579 N.Y.S.2d 485, 486(3d Dep't1992).

Appellant argues that because Section 7502(c) authorizes relief "only upon the ground that the award . . . may be rendered ineffectual without such provisional relief,"a court entertaining an application for an injunction in aid of arbitration cannot take into account the traditional standards governing preliminary injunctive relief described above.Based on this interpretation, Cowen claims that it is entitled to injunctive relief enjoining Messih from working for its competitor because each day that he is permitted to work at Banc of America renders any possible arbitral award in its favor increasingly "ineffectual."

There is support for Cowen's position.SeeH.I.G. Capital Management, Inc. v. Ligator, 650 N.Y.S.2d 124, 125(1st Dep't1996)(holding that "rendered ineffectual" standard is "sole applicable standard" in deciding § 7502(c) motion);In re Guarini, 650 N.Y.S.2d 4, 4-5(1st Dep't1996)(holding that trial court"properly refused to consider the merits" of arbitrable claim that was basis for petitioner's § 7502(c) motion);Nat'l Telecomm. Ass'n v. Nat'l Communications Ass'n, 592 N.Y.S.2d 591, 591(1st Dep't1993)("In arguing that petitioner has failed to demonstrate irreparable harm and a probability of success on the merits, respondent would have this court adopt an inappropriate standard for deciding whether relief should be granted under CPLR 7502(c), under which the ground for entertaining an application . . . is whether the award may be rendered ineffectual without it."(internal quotation marks and citations omitted));Suffolk Cty. Patrolmen's Benevolent Ass'n v. County of Suffolk, 540 N.Y.S.2d 882, 883(2d Dep't1989)(holding that Article 63"is simply inapplicable to applications for injunctive relief in . . . arbitrable controversies"(internal quotation marks omitted))(citingDrexel Burnham Lambert Inc. v. Ruebsamen, 531 N.Y.S.2d 547, 550(1st Dep't1988));Kobra Int'l, Ltd. v. D. Klein & Son, Inc., N.Y.L.J., May 28, 1999, at 26(N.Y. Sup. Ct.1999)("[Section 7502(c)] should be applied as written, and [whether an arbitral award to which petitioner might be entitled may be rendered ineffectual without provisional relief] should be the only consideration in deciding whether to grant a preliminary injunction . . . .");see alsoIn re Denihan, 506 N.Y.S.2d 39, 42(1st Dep't1986)(discussing requirement, under N.Y. C.P.L.R. § 7501, that "[i]n determining any matter arising under [Article 75], the court shall not consider whether the claim with respect to which arbitration is sought is tenable, or otherwise pass upon the merits of the dispute"(internal quotation marks omitted)), aff'd504 N.E.2d 694(N.Y.1987);Eric J. Wallach, Litigating "Raiding" Cases, 1166 PLI/Corp. 285, 299 (2000)("In New York State . . . the standard for granting temporary or preliminary injunctive relief in aid of arbitration is a significantly less onerous standard than the normal elements.").

Notwithstanding those decisions, New York caselaw is at best ambivalent about whether or not Section 7502(c) requires that traditional equitable criteria for the granting of temporary relief be met, and several c...