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denying a preliminary injunction and finding that "although Plaintiff arguably raises questions about [the defendant's] present financial condition, its assertions fall far short of establishing that [the defendant] is in `imminent' danger of becoming insolvent," even where the defendant's credit rating had been downgraded to "C + +" and the defendant had defaulted on $700 million of its notes and laid off 1,000 of its' 7,000 employees
Summary of this case from Centauri Shipping Ltd. v. Western Bulk Carriers KSOpinion
5:03-CV-620
June 25, 2003
MILES LAWLOR, ESQ., JOSEPH G. SHIELDS, ESQ., FERRARA, FIORENZA, LARRISON, BARRETT REITZ, P.C., East Syracuse, New York, Attorneys for Plaintiff.
ROBERT A. BARRER, ESQ., HISCOCK BARCLAY, LLP, Syracuse, New York, Attorneys for Defendant Lumbermens Mutual Casualty Company (sued as Kemper Insurance Company).
MEMORANDUM-DECISION AND ORDER
I. INTRODUCTION
Plaintiff originally filed its complaint and its amended complaint in state court. Plaintiff's amended complaint consists of three causes of action: (1) a declaration of the rights of the parties under the 2002 insurance policies, (2) a breach of the parties' Insurance Program Agreement, and (3) a preliminary injunction pending the outcome of arbitration. Plaintiff seeks no monetary damages in its amended complaint. Rather, it requests that the Court (1) declare the rights of the parties under the 2002 insurance policies; (2) declare the rights of the parties under the terms of the Insurance Program Agreement; (3) enjoin Defendants from applying any payments that Plaintiff made to Defendant Kemper with respect to the 2002 insurance policies toward insurance policies for prior years; (4) enjoin Defendants from attaching, calling or drawing down upon a letter of credit posted with Defendant Key Bank; and (5) award Plaintiff costs, disbursements and such other and further relief as the Court deems just and proper.
When Plaintiff filed its original complaint and amended complaint, it sought a Temporary Restraining Order. Justice Murphy granted this ex parte request as well as an Order to Show Cause for a preliminary injunction. Before the state court could hear oral argument on the Order to Show Cause, Defendant Kemper removed the action to this Court.
On May 20, 2003, Defendant Kemper filed a Notice of Removal under 28 U.S.C. § 1441, asserting that the Court had diversity jurisdiction over this matter pursuant to 28 U.S.C. § 1332. On May 29, 2003, Plaintiff requested that the Court extend the Temporary Restraining Order for an additional ten days. The Court granted this request. Plaintiff also informed the Court that it intended to file a motion to remand, and Defendant Kemper informed the Court that it was preparing a cross-motion. In light of these representations, the Court issued an Order scheduling a hearing on the outstanding Order to Show Cause seeking a preliminary injunction and the motion to remand.
Presently before the Court are three motions: (1) Plaintiff's motion to remand this action to state court, (2) Plaintiff's motion for a preliminary injunction, and (3) Defendant Kemper Insurance Company's ("Kemper") cross-motion to dissolve the Temporary Restraining Order. The Court heard oral argument in support of, and in opposition to, these motions on June 9, 2003. At that time, the Court issued an oral decision from the bench, denying Plaintiff's motion to remand this action to state court, denying Plaintiff's motion for a preliminary injunction, and denying Defendant Kemper's cross-motion to dissolve the Temporary Restraining Order as moot. The Court also advised the parties that it would issue a written decision explaining the bases for its rulings. The following constitutes the Court's written decision with respect to these motions.
Defendant Kemper has also cross-moved for an order transferring venue to the Southern District of New York or, in the alternative, an order staying this action pending the completion of the arbitration proceeding previously commenced in New York City. This motion is returnable on June 27, 2003.
II. DISCUSSION
A. Plaintiff's motion to remand
Plaintiff moves to have this matter remanded to state court on the ground that this Court does not have diversity jurisdiction over this action because, although there is complete diversity of citizenship among the parties, the amount in controversy does not exceed $75,000. To support its position, Plaintiff points to the fact that it neither claims any monetary damages nor does this action seek the recovery of any monetary amount. Rather, Plaintiff asserts that, if it were successful in this action, the only benefit it would enjoy would be the preservation of the status quo and the freezing of collateral contained in the letter of credit, which is solely under Defendant Key Bank's control, pending an arbitrator's resolution of its dispute with Defendant Kemper.
Pursuant to 28 U.S.C. § 1441(a), "any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending." 28 U.S.C. § 1441(a). District courts "have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between — (1) citizens of different States[.]" 28 U.S.C. § 1332(a).
When a plaintiff challenges the defendant's removal of an action from a state court to a federal district court, the defendant must prove that there is a "`reasonable probability'" that the claim exceeds $75,000. Stott v. Revere Transducers, Inc., 993 F. Supp. 125, 126 (N.D.N.Y. 1998) (quotation omitted); see also Mehlenbacher v. Akzo Nobel Salt, Inc., 216 F.3d 291, 296 (2d Cir. 2000) (citations omitted); Bernard v. Gerber Food Prods. Co., 938 F. Supp. 218, 220 (S.D.N.Y. 1996) (citation omitted). Even an action that seeks only equitable relief may be removed if "the value of the right at issue, or the extent of the injury to be prevented" exceeds $75,000. Hambell v. Alphagraphics Franchising Inc., 779 F. Supp. 910, 912 (E.D.Mich. 1991) (citation omitted). Similarly, if an action seeks to compel arbitration, removal is appropriate if "`the possible award resulting from the desired arbitration [exceeds $75,000], since the petition to compel arbitration is only the initial step in a litigation which seeks as its goal a judgment affirming the award.'" Doctor's Assocs., Inc. v. Hamilton, 150 F.3d 157, 160 (2d Cir. 1998) (quotation and other citations omitted).
Although Plaintiff's complaint clearly seeks only declaratory and injunctive relief, Defendant Kemper's demand for arbitration asserts five claims and seeks "an award to be granted in its favor in an amount to be determined at the hearing, but not less than $2,728,947.88." See Declaration of Robert A. Barrer, dated May 29, 2003, Dkt. No. 8, at Exhibit "A" at 7. In addition, Defendant Kemper's notice of removal states that "[t]he matter in controversy exceeds the sum of $75,000, exclusive of interest and costs, in that plaintiff alleges a breach of contract, has temporarily restrained $4 million, seeks injunctive relief to restrain $4 million, and other wrongs." See Defendant Kemper's Notice of Removal at ¶ 13.
Moreover, although the present case is not technically an action to compel arbitration, there is no dispute that the parties' disagreement is subject to arbitration or that Defendant Kemper commenced an arbitration proceeding prior to Plaintiff filing this action. Thus, the case law addressing situations in which a plaintiff seeks to compel arbitration is applicable. Consistent with such case law in this Circuit and others, the Court must look to the "`possible award resulting from the desired arbitration'" to determine the amount in controversy. See Doctor's Assocs., 150 F.3d at 160 (quotation omitted).
In light of the fact that the amount at issue in the underlying arbitration is well in excess of $75,000 and that Plaintiff seeks to enjoin Defendant Kemper from drawing down a $4 million letter of credit, the Court concludes that the amount in controversy exceeds $75,000 and, therefore, this Court has subject matter jurisdiction over this action pursuant to § 1332(a). Accordingly, the Court denies Plaintiff's motion to remand this matter to state court.
B. Plaintiff's motion for a preliminary injunction
"To justify the issuance of preliminary injunctive relief, a party must ordinarily show that it will suffer irreparable harm and either a likelihood of success on the merits or sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly in the movant's favor." Brenntag Int'l Chems., Inc. v. Bank of India, 175 F.3d 245, 249 (2d Cir. 1999) (citation omitted) (emphasis added).
Plaintiff maintains that it will suffer irreparable harm if the Court does not issue an injunction pending the completion of arbitration on the grounds that Defendant Kemper is facing imminent insolvency. To support its claim, Plaintiff points to the fact that AM Best has downgraded Defendant Kemper's strength from B (fair) to C++ (marginal). See Affidavit of James Gouchie, sworn to June 5, 2003, Dkt. No. 22, at Exhibit "F." In addition, Plaintiff notes that Defendant Kemper has defaulted on $700 million of its notes and that, although Defendant Kemper had offered to buy these notes back at only 10 cents on the dollar, on May 20, 2003, it terminated that offer. As a result, Fitch Ratings downgraded its rating of the notes to "C" from "D." See id. at Exhibit "G." Plaintiff also believes that the Illinois Department of Insurance is investigating Defendant Kemper's financial stability and has denied Defendant Kemper's request to make interest payments on its notes due in June and July 2003. See id. at Exhibit "F." Finally, Plaintiff notes that Defendant Kemper has substantially reduced its workforce by laying off 1,000 of its 7,000 employees. See id. at Exhibit "H." Based upon these allegations, Plaintiff asserts that, if the Court does not issue an injunction, there is a strong likelihood that, if Plaintiff prevails in the arbitration, the collateral will have dissipated and it will be impossible to implement the arbitrator's award.
Of the two elements necessary to warrant a preliminary injunction, irreparable harm is the more important. See Subaru Distribs. Corp. v. Subaru of Am., Inc., 47 F. Supp.2d 451, 460-61 (S.D.N.Y. 1999) (citation and quotation omitted). Without a showing of such harm, a court will not grant injunctive relief. See id. To establish irreparable harm, a plaintiff must establish an actual and imminent injury, rather than one that is merely remote or speculative. See id. at 461 (quotation omitted). Moreover, as a general rule, monetary injury does not amount to irreparable harm. See Fluor Daniel Argentina, Inc. v. ANZ Bank, 13 F. Supp.2d 562, 564 (S.D.N.Y. 1998) (quotations omitted); Brenntag Int'l Chems., 175 F.3d at 249 (citation omitted) (stating that generally "because monetary injury can be estimated and compensated, the likelihood of such injury usually does not constitute irreparable harm"). There is, however, a narrow exception to this general rule where the defendant may become insolvent and its assets would be dissipated. See Brenntag Int'l Chems., 175 F.3d at 250 (citations omitted). However, to take advantage of this exception, the party moving for injunctive relief cannot rely upon "`conclusory assertions of [a] defendant['] financial weakness [to] demonstrate a likelihood of such harm, . . .'" Fluor Daniel Argentina, 13 F. Supp.2d at 564 (internal quotations omitted). Rather, it must establish that the party it is seeking to enjoin is imminently in danger of insolvency. See, e.g., Tucker Anthony Realty Corp. v. Schlesinger, 888 F.2d 969, 975 (2d Cir. 1989); Castle Creek Tech. Partners, LLC v. Cellpoint Inc., No. 02 Civ. 6662, 2002 WL 31958696, *3 (S.D.N.Y. Dec. 9, 2002).
Although Plaintiff arguably raises questions about Defendant Kemper's present financial condition, its assertions fall far short of establishing that Defendant Kemper is in "imminent" danger of becoming insolvent. Absent such proof, Plaintiff cannot establish that this case presents an exception to the general rule that preliminary injunctive relief is not available where the potential harm is strictly monetary. Thus, despite Plaintiff's assertions to the contrary, the Court finds that Plaintiff has not established that it will suffer irreparable harm if the Court does not grant it injunctive relief. Accordingly, the Court denies Plaintiff's motion for a preliminary injunction.
Since the Court concludes that Plaintiff has not met the "irreparable harm" prong of the injunction standard, it need not address the second prong of this standard.
As the Court noted at oral argument on June 9, 2003, since it was denying Plaintiff's motion for a preliminary injunction and had already extended the Temporary Restraining Order for an additional ten days, the Temporary Restraining Order dissolved of its own accord on June 9, 2003. Therefore, the Court denies Defendant Kemper's motion to dissolve the Temporary Restraining Order as moot.
III. CONCLUSION
After carefully reviewing the file in this matter, the parties' submissions and oral arguments, and the applicable law, and for the reasons stated herein and at oral argument, the Court herebyORDERS that Plaintiff's motion to remand this action to state court is DENIED; and the Court further
ORDERS that Plaintiff's motion for a preliminary injunction is DENIED; and the Court further
ORDERS that Defendant Kemper's cross-motion to dissolve the Temporary Restraining Order is DENIED as moot.
IT IS SO ORDERED.