Opinion
No. 02 Civ. 1363 (PKL).
June 11, 2002
Attorneys for Plaintiffs: Richard F. Horowitz, Esq. and May Orenstein, Esq. of Heller Horowitz Feit, P.C. from New York, N.Y.
Attorneys for Defendant Valcucine S.p.A.: Charles Buffon, Esq. and Gerald J. Russello, Esq. of Covington Burling from New York, N.Y.
Attorneys for Defendants IBI, LLC, Kitchens of Veneto, Inc., Brian Jevremov and Jeffrey McDuffee: Richard Menaker, Esq. and Cheryl Davis, Esq. of Menaker Hermann LLP from New York, NY.
OPINION AND ORDER
Plaintiffs AIM International Trading, L.L.C. ("AIM"), Moshe Aviv, AIM Dania, Inc. ("AIM Dania"), and AIM International Trading, Inc. ("AIM, Inc.") apply pursuant to Rule 65 of the Federal Rules of Civil Procedure for a preliminary injunction against defendants Valcucine S.p.A. ("Valcucine"), IBI, L.L.C. ("IBI"), Kitchens of Veneto, Inc. ("Veneto"), Brian Jevremov, Ruben Braha, and Jeffrey McDuffee, enjoining Valcucine, its agents, attorneys, and all those acting on its behalf from (1) selling products offered for sale by Valcucine under the trademarks "Valcucine" and "New Art" dealerships which were established by AIM pursuant to a March 31, 1999 Exclusive Distributorship Agreement ("Distributorship Agreement"); (2) selling products to any person within the United States other than AIM; and (3) directing Valcucine to continue to fulfill and ship on a C.O.D. basis orders for products forwarded to it by AIM in accordance with the Distributorship Agreement. Papers were submitted by the parties in favor of, and in opposition to, plaintiffs' motion. On April 16-17, 2002, the Court held an evidentiary hearing regarding the issue of irreparable harm. For the following reasons, plaintiffs' application is granted. What follows sets forth the findings of fact and conclusions of law on which the decision to grant a preliminary injunction is based, as required by Rule 65 of the Federal Rules of Civil Procedure.
The parties had agreed to have the Court decide the instant motion solely on their written submissions. See Stipulation Waiving Evidentiary Hearing, March 19, 2002. However, after reviewing these submissions, the Court scheduled a hearing to consider more closely the element of irreparable harm, because the parties' submissions revealed disputed issues of fact regarding this issue. See Charette v. Town of Oyster Bay, 159 F.3d 749, 755 (2d Cir. 1998) ("An evidentiary hearing is not required when the relevant facts are either not in dispute or have been clearly demonstrated at prior stages of the case, or when the disputed facts are amenable to complete resolution on a paper record. However, the motion `should not be resolved on the basis of affidavits which evince disputed issues of fact.'") (internal citations omitted) (quoting Forts v. Ward, 566 F.2d 849, 851 (2d Cir. 1977)); Drywall Tapers Pointers of Greater New York, Local 1974 v. Local 530 of Operative Plasterers and Cement Masons Int'l Ass'n, 954 F.2d 69, 76-77 (2d Cir. 1992) (holding that an evidentiary hearing is not necessary in every motion for a preliminary injunction). Specifically, plaintiffs claim that because their business consists solely of the marketing of Valcucine products, if the preliminary injunction is not granted, "AIM's entire business will be eliminated." See Plaintiffs' Proposed Findings of Fact and Conclusions of Law ("Plaintiffs' Findings") at ¶¶ 8, 20. Defendants' submissions, however, claim that AIM will not lose its entire business if a preliminary injunction is granted, because "AIM acts as a distributor for other lines of products, including European furniture products, for at least 13 other companies." Defendant Valcucine's Conclusions of Law at ¶ 19.
I. Background
Plaintiffs bring this action for inter alia: (1) breach of contract; (2) breach of implied covenant of good faith; (3) fraud; (4) tortious interference with contractual and business relationships; (5) disparagement and injurious falsehood; and (6) unjust enrichment. The case was originally filed in state court, but was removed by defendants on February 21, 2002, one day before the state court was to hold a hearing regarding a temporary restraining order ("TRO").
The Complaint actually states ten claims against different groups of the defendants, but these claims only involve six different causes of action. See Complaint at ¶¶ 39-75.
Based on the parties' submissions and the hearing held by the Court, the Court accepts the proposed findings of fact set forth below. See Counihan v. Allstate Ins. Co., 194 F.3d 357, 363 (2d Cir. 1999) (noting that when a district judge does more than adopt a party's proposed findings, the findings issued by the district court represent the court's considered conclusions); Philbrook v. Ansonia Bd. of Educ., 925 F.2d 47 (2d Cir. 1991) (same) (citing Anderson v. City of Bessemer City, 470 U.S. 564, 572 (1985)).
Valcucine is an Italian company engaged in the manufacture of high-end kitchen cabinetry and furniture components sold in Europe and elsewhere.See Defendant Valcucine Proposed Findings of Fact ("Valcucine's Findings") at ¶ 15. AIM and Valcucine entered into the Distributorship Agreement on March 31, 1999, whereby AIM was appointed by Valcucine as the exclusive distributor of Valcucine Products in the United States. See Plaintiffs' Proposed Findings of Fact and Conclusions of Law ("Plaintiffs' Findings") at ¶ 4.
AIM's business consists almost exclusively of the distribution of Valcucine Products. See Plaintiffs' Findings at ¶ 8. Following execution of the Distributorship Agreement, plaintiffs undertook, at their expense, to promote actively the sale of Valcucine Products within the United States. See Plaintiffs' Findings at ¶ 9. By September 2001, plaintiffs successfully negotiated agreements with five dealers to sell, through AIM, Valcucine's products in the United States. These dealerships are located in New York City; Chicago; Dania, Florida; Los Angeles; and San Juan, Puerto Rico. See Plaintiffs' Findings at ¶ 11.
AIM has sold some Axia and Lema kitchen products to its Valcucine dealers, but these sales represented less than 10%, and perhaps as low as 1% of AIM's total sales. See Transcript of Hearing on Irreparable Harm, April 16, 2002, at 38, lines 8-16.
In addition, plaintiffs successfully met the financial goals set out by defendants in the Distributorship Agreement. The Distributorship Agreement required plaintiffs to generate sales of Valcucine products of at least $200,000 for the first year of the agreement, $400,000 for the second year, and called for plaintiffs to make cumulative sales of $1,800,000 over the first three years. See Plaintiffs' Findings at ¶ 13; Distributorship Agreement at Article 6, attached as Exhibit (Ex.) B to the Affirmation of May Orenstein, affirmed February 21, 2002 (Orenstein Aff. I). The agreement required plaintiffs to make at least $880,000 of sales in the fourth year of the agreement. See Plaintiffs' Findings at ¶ 13. Plaintiffs met these goals for each year the agreement was in effect, and AIM had revenues of approximately $500,000 in 2000, and $1,000,000 in 2001. See Plaintiffs' Findings at ¶ 14; Plaintiffs' Proposed Supplemental Findings of Fact and Conclusions of Law ("Plaintiffs' Findings II") at ¶ 2.
The parties were in the third year of the contract when the actions giving rise to the instant suit took place. See Plaintiffs' Findings at ¶¶ 4, 14.
In order to establish this chain of dealerships and to enhance sales, AIM's principals, Izzy Ashkenazy and Moshe Aviv, devoted all of their professional efforts to the enterprise. See Plaintiffs' Findings at ¶ 15. In addition, plaintiffs spent considerable sums of money as a part of their effort to market Valcucine products in the United States. ATM claims to have: (1) spent more than $200,000, to participate in two trade shows at the Merchandise Mart in Chicago and one show at the Javits Center in New York; (2) advanced more than $260,000 to dealers to pay for construction, displays, showroom signage related to the establishment of the Valcucine dealerships in the United States; (3) negotiated lease obligations in excess of $1.1 million; (4) spent more than $270,000 for travel and entertainment expenses to meet with prospective dealers and negotiate the terms of the dealership agreements; (5) spent in excess of $400,000 for payroll and overhead in connection with running AIM; and (6) spent more than $230,000 for legal and accounting fees to establish contractual relationships with dealers, negotiate leases, and in order to facilitate the establishment of the new dealerships, including procedures for the fulfillment of orders. See Plaintiffs' Findings at ¶ 16.
However, by letter dated October 24, 2001, Valcucine purported to terminate its Distributorship Agreement with plaintiffs, as of February 28, 2002, expressing dissatisfaction with the plaintiffs' efforts. See Plaintiff's Findings at 18. Plaintiffs allege, however, that the Distributorship Agreement was terminable only for cause, and that defendants had no cause in order to terminate the agreement. See Orenstein Aff. I at ¶ 6.
On January 10, 2002, plaintiffs filed the instant case in New York Supreme Court, alleging a scheme by which the defendants seek to misappropriate the good will and the network of five dealerships built by plaintiffs pursuant to the Distributorship. See Orenstein Aff. I at ¶ 7. Following commencement of the action, by letter dated January 17, 2002, Valcucine purported to terminate the Distributorship immediately.See Orenstein Aff. I at ¶ 8. On February 7, 2002, pursuant to an arbitration clause in the Distributorship, Valcucine filed a request for arbitration to the Secretariat of the International Court of Arbitration, seeking, among other things, declaration that Valcucine validly terminated the Distributorship. See Orenstein Aff. I at ¶ 10. On February 21, 2002, Valcucine removed the state court action to this Court on the basis of the Federal Arbitration Act. See Valcucine's Findings at ¶ 11; 9 U.S.C. § 201 et seq.
Valcucine's Notice of Removal alleged that because the governing agreement between plaintiffs and Valcucine provides for arbitration and is concerned with interstate commerce, the action is governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, as adopted in Title 9 United States Code Sections 201 et seq.See Valcucine's Notice of Removal, February 21, 2002, at ¶ 3. Thus, the Court has federal question jurisdiction. See 28 U.S.C. § 1331.
On February 22, 2002, this Court granted plaintiffs request for a TRO, enjoining Valcucine, its agents, attorneys and all those acting on its behalf from (1) selling products offered for sale by Valcucine under the trademarks "Valcucine" and "New Art" dealerships which were established by AIM pursuant to the Distributorship Agreement ("Distributorship Agreement"); (2) selling products to any person within the United States other than AIM; and (3) directing Valcucine to continue to fulfill and ship on a C.O.D. basis orders for products forwarded to it by AIM in accordance with the Distributorship Agreement. See AIM Int'l Trading LLC v. Valcucine S.p.A., No. 02 Civ. 1363, 2002 WL 265159 (S.D.N.Y. Feb. 22, 2002). On March 4, 2002, the parties stipulated to an extension of the TRO through March 18, 2002. The parties subsequently stipulated to extend the TRO through the pendency of the current motion. See Stipulation Waiving Evidentiary Hearing, March 19, 2002. Plaintiffs now seek the above described preliminary injunction during the pendency of the arbitration proceedings.
II. Discussion
It is well established that in order to obtain a preliminary injunction, the movant must show: (a) irreparable harm and (b) either (1) likelihood of success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief. See e.g., Sweeney v. Bane, 996 F.2d 1384, 1388 (2d Cir. 1993); Jackson Dairy, Inc. v. H.P. Hood Sons, Inc., 596 F.2d 70, 72 (2d Cir. 1979). Whether injunctive relief should issue or not "rests in the sound discretion of the district court which, absent abuse of discretion, will not be disturbed on appeal." Reuters Ltd. v. United Press Int'l. Inc., 903 F.2d 904, 907 (2d Cir. 1990) (quoting Thornburgh v. American Coll. of Obstetricians and Gynecologists, 476 U.S. 747, 755 (1986)).
A. Irreparable Harm
Irreparable harm is "the single most important prerequisite for the issuance of a preliminary injunction." Reuters Ltd. v. United Press Int'l, Inc., 903 F.2d 904, 907 (2d Cir. 1990) (quoting Bell Howell: Mamiya Co. v. Masel Co. Corp., 719 F.2d 42, 45 (2d Cir. 1983)). Irreparable harm is an "injury for which a monetary award cannot be adequate compensation." Javaraj v. Scappini, 66 F.3d 36, 39 (2d Cir. 1995) (citing Jackson Dairy, Inc. v. H.P. Hood Sons, Inc., 596 F.2d 70, 72 (2d Cir. 1979)). Further, "[i]rreparable harm must be shown by the moving party to be imminent, not remote or speculative." Reuters, 903 F.2d at 907 (citing Tucker Anthony Realty Corp. v. Schlesinger, 888 F.2d 969, 972 (2d Cir. 1989)). The movant is required to establish not a mere possibilility of irreparable harm, but that it is " likely to suffer irreparable harm if equitable relief is denied." Trading Corp. v. Tray-Wrap, Inc., 917 F.2d 75, 79 (2d Cir. 1990) (emphasis in original). "Likelihood sets, of course, a higher standard than `possibility.'" Id.
The Second Circuit has found irreparable harm where a distributee is threatened with loss of their business by the termination of an agreement with a licensor or distributor. See Tom Doherty Assocs., Inc. v. Saban Entm't, Inc., 60 F.3d 27, 37 (2d Cir. 1995); Roso-Lino Beverage Distribs., Inc. v. Coca-Cola Bottling Co., 749 F.2d 124, 127 (2d Cir. 1984); Semmes Motors, Inc. v. Ford Motor Co., 429 F.2d 1197, 1205 (2d Cir. 1970). In Roso-Lino, the Second Circuit preliminarily enjoined Coca-Cola from terminating plaintiff as a distributor pending arbitration. 749 F.2d at 127. The Court explained the basis of its decision as follows:
The loss of Roso-Lino's distributorship, an ongoing business representing many years of effort and the livelihood of its husband and wife owners, constitutes irreparable harm. What plaintiff stands to lose cannot be fully compensated by subsequent monetary damages. It is equally clear that the equities tip decidedly in favor of Roso-Lino. It is unlikely that Coca-Cola will suffer greatly if the eleven-year relationship is continued for a short while. The two owners of Roso-Lino, on the other hand, stand to lose their business forever. Because the equities tip (rather heavily) in favor of granting a preliminary injunction, Roso-Lino need demonstrate only "serious questions going to the merits", rather than "likelihood of success on the merits." That there are serious questions is clear from the parties' conflicting stories of the reasons had for ending Roso-Lino's distributorship; therefore, the test for a preliminary injunction is met.Id. at 125-26 (internal citations omitted).
In the instant case, the factual circumstances, as well as the balance of equities, are clearly analogous to those described by the Roso-Lino Court. Plaintiffs' business is based almost exclusively on the distribution of Valcucine products in the United States, and the business will be destroyed if it is not allowed to continue this relationship.See Affirmation of Izzy Ashkenazy, affirmed February 21, 2002 ("Ashkenazy Aff. I"), at ¶¶ 7, 9; Orenstein Aff. at ¶ 15. In their three-year relationship with Valcucine, plaintiffs have created a network of distributors for the sale of Valcucine products. If the plaintiffs' application for a preliminary injunction is not granted, that network of relationships may be destroyed, and plaintiffs themselves will have no products to sell. Monetary damages cannot fully compensate the plaintiffs for what they stand to lose their business. See Roso-Lino, 749 F.2d at 125-26; Semmes Motors, 429 F.2d at 1205; see also Givenchy S.A. v. William Stuart Indus., No. 85 Civ. 9911, 1986 WL 3358, at *5-6 (S.D.N.Y. 1986) (Leisure, J.) (enjoining termination of licensee's rights pending arbitration of dispute as to licensor's right to terminate).
Defendants argue that plaintiffs will not be irreparably harmed, because AIM has other lines of distribution. Defendants argue that Kitchen Design Works ("KDW"), another company owned entirely by Izzy Ashkenazy, is effectively part of AIM, and that the business done by KDW offers plaintiffs' alternative lines of kitchen and home furnishings to sell. See Defendants' Joint Post Hearing Memorandum ("Defs' Joint Memo") at 1-2, 7-15. Although there are significant links between AIM and KDW, the Court finds this argument unconvincing.
AIM and KDW are both based out of Izzy Ashkenazy's basement in Lawrence, New York. See Transcript of Hearing on Irreparable Harm, April 16, 2002 ("Hearing Tr."), at 14-15. Izzy Ashkenazy owns 67% of AIM, and Ashkenazy's nephew, plaintiff Moshe Aviv, own 33% of AIM, while Ashkenazy owns 100% of KDW. See Defendants' Post Hearing Proposed Findings of Fact and Conclusion of Law ("Defs.' Findings II") at ¶¶ 4, 6. Both Aviv and his wife, Ana Sternberg, have performed work for AIM and KDW. See id. at ¶¶ 7, 8. KDW has been involved in the import and sale of several home furnishing product lines, including Alberta, Caligari, Axia, Lema and Arte Bagno, as well as kitchen furnishing product lines produced by Comprex, Half Penny, and Antares. See id. at ¶ 47. KDW had revenues of $200,000 in 2000, and $800,000 in 2001. See id.
However, it is clear that AIM and KDW sell their products to almost entirely different outlets. AIM markets Valcucine products with a high-end purchaser in mind. See Tr. at 8, 96-97. As Izzy Ashkenazy explained, "I think the Valcucine product is very unique from [sic] technology point of view." Id. at 8. Indeed, defendant Brian Jevremov acknowledged the quality of Valcucine products, and suggested that a trained eye would not mistake it for other lines of kitchen furnishings. "Even though it's true that [sic] Valcucine product is very carefully designed and executed and has many components to it, to the uneducated eye it could be very easily misinterpreted for another product that looks similar on the outside." Tr. at 60, lines 13-16. ATM has sold only some Axia and Lema products to its Valcucine dealers, and these sales represented less than 10%, and perhaps as little as 1%, of ATM's total sales. See Tr. at 38, lines 8-16.
The weight of the testimony also indicates that Valcucine offers a relatively unique product. In addition to offering a cutting edge product from a technological standpoint, AIM employee Ana Sternberg explained that Valcucine is a "green," or environmentally conscious company. See Tr. at 8, 60, 96-97. "They use recycled materials. They support the Rain Forest. They calculate every year what usage of wood they have in their product and they replant it in different ways. There's no product like that that I know of in the market." Tr. at 97, lines 4-8. These features are especially relevant because many of the customers who patronize the Valcucine dealerships in the United States are architects or designers.See Tr. at 66 (explaining that about 50% of IBI's clients are architects or designers). Architects and designers are the sort of sophisticated customer that would not mistake Valcucine for a similar looking, but less well-designed product, and who are more likely to be conscious of Valcucine's environmentally friendly practices. See Tr. at 60 (noting that an uneducated eye could mistake another kitchen furnishing product line for Valcucine).
Therefore, the Court concludes that KDW and AIM are different businesses, and that any business offered by KDW does not give plaintiffs a viable alternative line of distribution to replace the relatively unique Valcucine product. See Tom Doherty Assocs., 60 F.3d at 37 ("We have also found irreparable harm in the loss of a relatively unique product."); Reuters Ltd., 903 F.2d at 907-09 ("[T]erminating the delivery of a unique product to a distributor whose customers expect and rely on the distributor for a continuous supply of that product almost inevitably creates irreparable damage to the good will of the distributor."). Further, even if KDW and ATM are viewed as one entity, the loss of the Valcucine line would irreparably harm plaintiffs because Valcucine sales represent approximately 55% of the combined sales of AIM and KDW in 2001. See Plaintiffs' Findings II at ¶ 2 (noting that AIM had approximately $1,000,000 in revenue for 2001); Defs' Findings II at ¶ 47 (noting that KDW had $800,000 in revenue for 2001); Two Wheel Corp. v. American Honda Corp., 506 F. Supp. 806, 813 (E.D.N.Y.), aff'd, 633 F.2d 206 (2d Cir. 1980) (50% of plaintiffs revenues generated by sales of the defendant's products); Jacobson Co. v. Armstrong Cork Co., 416 F. Supp. 564, 570 (S.D.N.Y. 1976) (Weinfeld, J.), aff'd, 548 F.2d 438 (2d Cir. 1977) (the defendant's products constituted almost 80% of the plaintiffs sales); Interphoto Corp. v. Minolta Corp., 295 F. Supp. 711, 724 n. 8 (S.D.N.Y.), aff'd, 417 F.2d 621 (2d Cir. 1969) (40% of plaintiffs sales of Japanese goods were of defendant's products).
Thus, for the foregoing reasons, the Court finds that plaintiffs have shown irreparable harm.
B. Serious Questions Going to the Merits
Plaintiffs also raise serious questions going to the merits of the litigation making them a fair ground for litigation and demonstrate a balance of hardships tipping decidedly toward plaintiffs. See Sweeney, 996 F.2d at 1388; Jackson Dairy, Inc., 596 F.2d at 72. Both plaintiffs and Valcucine concede that Italian law governs the instant contract dispute. See Plaintiffs' Findings at ¶ 23 n. 3; Defendant Valcucine's Proposed Conclusions of Law ("Valcucine's Conclusions of Law") at ¶¶ 10-14. Plaintiffs and defendants disagree, however, as to what reasons, if any, Valcucine had for terminating their relationship with plaintiffs, and the validity of these various reasons under Italian law.See Plaintiffs' Findings at ¶¶ 17-19, 23-25; Valcucine's Findings at ¶¶ 43-62; Valcucine's Conclusions of Law at ¶¶ 10-14. These conflicting accounts regarding the reasons for ending the distributorship raise serious questions going to the merits of the litigation making them a fair ground for litigation. See Roso-Lino, 749 F.2d at 126.
Further, the Court concludes that the balance of equities tips firmly in plaintiffs' favor — if the status quo is not preserved, their business will be eliminated. See Roso-Lino, 749 F.2d at 126; see also Buffalo Courier-Express, Inc. v. Buffalo Evening News, Inc., 601 F.2d 48, 58 (2d Cir. 1979) (holding that the risk that the party seeking the preliminary injunction will have its business destroyed pendente lite demonstrates a balance of hardships in favor of the moving party). Defendants on the other hand, have not convinced the Court that they will be harmed by the continuation of their relationship with plaintiffs during the pendency of the ongoing arbitration. See Roso-Lino, 749 F.2d at 126 ("It is unlikely that Coca-Cola will suffer greatly if the eleven year relationship is continued for a short while."); Semmes Motors, 429 F.2d at 1205 ("As against this, the hardship to Ford in continuing the Semmes dealership pendente lite was relatively small.") (emphasis added). Valcucine argues that if plaintiffs are allowed to continue their relationship with Valcucine, they will damage Valcucine's reputation and sales in the United States. See Valcucine's Memorandum of Law in Opposition to a Preliminary Injunction ("Valcucine's Preliminary Injunction Memo"), at 11. This argument is unconvincing, as plaintiffs have developed the significant level of sale's made by Valcucine in the United States. Indeed, Valcucine's sales in the United States are now approximately $1,000,000 a year. See Plaintiffs' Findings II ¶ 2; see also Valcucine's Preliminary Injunction Memo at 11 (estimating Valcucine's sales in the United States as $800,000). Further, because the sale of Valcucine products is AIM's primary business, plaintiffs have a vested financial interest in promoting such sales, rather than damaging them.
C. Amount of Bond
Having determined that a preliminary injunction should issue, the Court turns to the amount of the bond that plaintiffs must post. Rule 65(c) of the Federal Rules of Civil Procedure provides in pertinent part:
No restraining order or preliminary injunction shall issue except upon the giving of security by the applicant, in such sum as the court deems proper, for the payment of such costs and damages as may be incurred or suffered by any party who is found to have been wrongfully enjoined or restrained.
"The purpose of requiring security prior to issuance of an injunction or a temporary restraining order is to guarantee payment of costs and damages incurred by a party who is wrongfully enjoined or restrained."Interlink Int'l Fin. Servs., Inc. v. Block, 145 F. Supp.2d 312, 314 (S.D.N.Y. 2001) (quoting 13 Moore's Federal Practice at 65-94.1 (3d. ed. 1997)). Generally, the amount of the bond posted is the limit that a wrongfully restrained party may recover. See id. Thus, in determining the amount of the bond, the court should attempt to limit the possibility that a restrained party that ultimately proves successful on the merits is not able to obtain adequate relief. "The risk created by the rule limiting recovery to the amount of the bond is that an enjoined party may be unable to obtain adequate redress." Little Tor Auto Center v. Exxon Co. USA, 822 F. Supp. 141, 144 (S.D.N.Y. 1993 see Blumenthal v. Merrill Lynch, Pierce, Fenner Smith, Inc., 910 F.2d 1049, 1056 (2d Cir. 1990) ("Plaintiffs are entitled to damages as may be shown to have been proximately caused by the injunction, up to the amount of the bond.") (citations omitted).
In an exception to this general rule, courts have found that an enjoined party may recover an amount greater than the bond posted where the enjoined party shows that the movant sought the restraining order maliciously, and without probable cause. See Interlink, 145 F. Supp.2d at 314 (quoting 13 Moore's Federal Practice at 65-94.1 (3d. ed. 1997)).
District courts in the Second Circuit are vested with wide discretion in determining the amount of the bond that the moving party must post.See Doctor's Assocs., Inc. v. Stuart, 85 F.3d 975, 985 (2d Cir. 1996);Ferguson v. Tabah, 288 F.2d 665, 675 (2d Cir. 1961). Indeed, in cases where the non-movant has not shown a likelihood of harm, the district court may properly set no bond. See Doctor's Assocs., 85 F.3d at 985;Ferguson, 228 F.2d at 675; see also Pharmaceutical Soc'y of New York, Inc. v. New York State Dep't of Social Servs., 50 F.3d 1168, 1174 (2d Cir. 1995) ("Although [Rule 65(c)] speaks in mandatory terms, an exception to the bond requirement has been crafted for, inter alia, cases involving the enforcement of `public interests' arising out of comprehensive federal health and welfare statutes.") (citations omitted).
In the instant action, defendant Valcucine argues that if forced to continue its relationship with plaintiffs, Valcucine will lose all of its business in the United States. Valcucine posits that its business in the United States constitutes about $800,000 per year, and seeks a bond in that amount. See Memorandum of Law in Support of Valcucine's Request for a Bond at 1. Further, Valcucine argues that such a significant bond is necessary, because if it prevails at arbitration against plaintiffs, Valcucine fears that plaintiffs will be unable to pay the damages awarded. See id. at 2.
AIM, whose business consists almost exclusively of the sale of Valcucine products, asserts that it had approximately $1,000,000 in sales in 2001. See Plaintiffs' Findings II ¶ 2.
First, it is of no moment to this Court in calculating an appropriate bond that Valcucine fears that plaintiffs will be unable to pay damages if Valcucine prevails at arbitration. "The only damages recoverable from an injunction bond are those arising from the operation of the injunction itself and not from damages occasioned by the suit independently of the injunction." Medafrican Line S.p.A. v. American West African Freight Conference, 654 F. Supp. 155, 156 (S.D.N.Y. 1987) (citingLever Bros. Co. v. International Chemical Workers Union, 554 F.2d 115, 120 (4th Cir. 1976)). Indeed, although the Second Circuit has not specifically opined on this issue, the Fourth Circuit as well as district courts within the Second Circuit have found that injunction bonds are not determined on the potential outcome of the merits at arbitration. See Lever Bros. Co., 554 F.2d at 120; Cuyahoga Wrecking Corp. v. Laborers Int'l Union of North America, Local Union 210, No 85 Civ. 416E, 1986 WL 397, at *1 (W.D.N.Y. Nov. 7, 1986).
of course, if Valcucine prevails in arbitration, this would provide evidence that Valcucine was wrongfully enjoined, and therefore should recover under the bond. See, e.g., Blumenthal, 910 F.2d at 1054-55 ("A party has been `wrongfully enjoined' under Fed.R.Civ.P. 65(c) if it is ultimately found that the enjoined party had at all times the right to do the enjoined act. . . . In light of the ultimate decision on the merits by the arbitrators, it turned out that Merrill Lynch was not entitled to the injunction it received and that Blumenthal and Fein had at all times the right to do business with their Merrill Lynch clients.")
Second, it is unlikely that plaintiffs would eliminate Valcucine's business in the United States, because, as discussed previously, plaintiffs are responsible for the creation of the significant sales made by Valcucine in the United States. Further, because the sale of Valcucine products is AIM's primary business, plaintiffs have a vested financial interest in promoting such sales, rather than damaging them.
Therefore, because the Court finds little chance of harm to defendants from the issuance of the instant preliminary injunction, the bond is set at $50,000. See Maryland Cas. Co. v. Realty Advisory Bd. on Labor Relations, 107 F.3d 979, 985 (2d Cir. 1997) (ruling that it is not an abuse of discretion to require no bond where the non-movant has not shown a likelihood of harm); Doctor's Assocs., 85 F.3d at 985 (holding that where a non-movant has not shown a likelihood of harm, the district court may, in its discretion, set no bond); Ferguson, 228 F.2d at 675 (same).
III. Conclusion
For the foregoing reasons, plaintiffs' application for a preliminary injunction is hereby GRANTED. Plaintiffs are directed to post a bond of $50,000.