Commercial Division Judge Reaffirms “Most Critical” Element for Injunctive Relief: Irreparable Harm

January 19, 2020

Most litigators know that a preliminary injunction is a “drastic remedy” which is not “routinely granted.”  Reading these words on paper, however, does not adequately convey the high threshold that a party must meet when seeking this extraordinary relief.  Seeking an injunction – especially in the Commercial Division – is usually an uphill battle for most practitioners, since satisfaction of the tripartite test for injunctive relief requires a showing of “irreparable harm” – that is, imminent harm that is not compensable by money damages alone.

The Commercial Division has once again reaffirmed that irreparable harm is the “most critical” prong of the tripartite test for injunctive relief.  In CGI Technologies and Solutions, Inc. v New York State Office of Mental Health (2019 NY Slip Op 52129[U] [Sup Ct, Albany County Dec. 31, 2019] [Platkin, J.]), plaintiff CGI Technologies and Solutions, Inc. (“CGI”) and the New York State Office of Mental Health (“OMH”) entered into a contract (the “Contract”) whereby CGI agreed to upgrade and replace OMH’s Electronic Medical Record (“EMR”) System for $51 million.  Although OMH initially sought to procure “off-the-shelf software” (i.e., ready-made software), it ultimately required, and CGI developed, a highly-customized system tailored to OMH’s unique needs.

Several months into the project, however, OMH suspended the Contract, citing delays allegedly caused by CGI.   At the time, OMH claimed the suspension was intended as a “pause” and assured CGI the project would restart.  During this “pause,” CGI granted OMH access to, and OMH downloaded, CGI’s intellectual property.  Ultimately, the parties were unable to resolve their issues, and OMH terminated the Contract.

CGI thereafter filed a claim against OMH in the New York State Court of Claims seeking declaratory relief and $35 million in damages.  After the Court of Claims declined to exercise subject matter jurisdiction over CGI’s declaratory judgment claims, CGI commenced an action in Supreme Court seeking declaratory and Article 78 relief.  Several of CGI’s claims for money damages are still pending in the Court of Claims.

CGI then moved in the Supreme Court, by Notice of Motion, for a preliminary injunction: (i) restraining OMH from continuing to use CGI’s proprietary software and intellectual property (“IP”) until it was paid in full, (ii) restraining OMH from altering, modifying or allowing third parties to access CGI’s software and IP, and (iii) compelling OMH to return the software and IP.

The Albany County Commercial Division (Platkin, J.) engaged in an extensive preliminary injunction analysis, ultimately concluding that CGI had failed to sufficiently demonstrate imminent and irreparable harm.  As an initial matter, the Court held that CGI had an adequate remedy at law in light of its pending Court of Claims action for money damages against OMH.

The Court also concluded that CGI had only demonstrated the possibility of irreparable harm – not that it was imminent and likely. CGI had not established that its intellectual property was likely to be lost to business competitors by reason of OMH allowing CGI’s former subcontractor continued access to the custom work.  The Court also rejected CGI’s argument that its former subcontractor, who later contracted with OMH, became CGI’s “competitor.”  In the Court’s view, CGI had failed to demonstrate that it had lost, or was likely to lose, business opportunities to third-parties.

By contrast, the Court found that a preliminary injunction restraining OMH from continuing to use or maintain the EMR system would irreparably harm OMH and the patients who receive care and treatment in OMH facilities.  The Court held that OMH’s continued use of the EMR software was necessary to (i) ensuring safe use of prescription medicines, (ii) allowing prescriptions to be filled electronically, and as required by New York State law, (iii) facilitating regulatory compliance, and (iv) ensuring that OMH clinicians have ready access to its patients’ medical records.  The Court concluded that it would be inappropriate “for a court to enter a preliminary injunction restraining a State agency from using critically important software for months or even years while the parties’ financial disputes are being adjudicated.”

So when is harm “irreparable”?  Unfortunately, there is no magic formula to demonstrating irreparable harm. Each case is different, so whether or not a party can demonstrate irreparable injury is inherently a fact specific determination.  Although no list can be all inclusive, the following cases illustrate situations where courts have found irreparable injury:

• cases involving unique goods (Shagalov v Edelman, 161 AD3d 455 [1st Dept 2018]);
• loss of goodwill (IHH Management (Maryland) LLC v West 44^th Street Hotel, LLC, 163 AD3d 413 [1st Dept 2018]);
• threat of destruction of property (Randisi v Mira Gardens, Inc., 272 AD2d 387 [2d Dept 2000]);
• sales lost due to customer confusion (Apple Air Conditioning & Appliance Service, Inc. v Apple Home Heating Corp., 164 AD3d 460 [2d Dept 2018]);
• the threatened loss of management and control of a closely-held corporation (Casita, LP v Maplewood Equity Partners (Offshore) Ltd., 60 AD3d 488 [1st Dept 2009]);
• the threatened sale of property uniquely suited to a particular business enterprise (AJMRT, LLC v Kern, 154 AD3d 1288 [4th Dept 2017]);
• a threat to one’s creditworthiness (Zaharatos v Zaharatos, 47 Misc 3d 1222[A], 2015 NY Slip Op 09274 [2d Dept 2015]);
• being stripped of voting power and decision-making rights, including the right to vote on a potential merger (Spivak v Bertrand, 147 AD3d 650 [1st Dept 2017]); and
• harm caused by a nuisance such as second-hand smoke (Bd. of Managers of 400 Cent. Park West Condominium v Henriquez-Berman, 2017 WL 244808 [Sup Ct, NY County Jan. 17, 2017] [Bannon, J.]).

The Takeaway:  Whether a party will be irreparably harmed is a very fact intensive determination and each case is different.  But, there are a few things a practitioner can do to improve his or her argument for irreparable harm.

• Know your client’s business.  In addition to being familiar with the law, counsel should have a detailed understanding of his or her client’s business and the industry in which it operates. Counsel should understand the nuances of the business so that he or she can persuasively argue that, absent a preliminary injunction, the client will suffer harm that is not compensable by money damages.
• Do not delay in seeking relief (and move by Order to Show Cause).  Even if there is only a short delay, counsel should be prepared to explain why the motion, which should be filed by Order to Show Cause, was not filed sooner (see Barbes Restaurant Inc. v ASRR Suzer 218 LLC, 140 AD3d 430 [1st Dept 2016] [court found irreparable harm, even where the plaintiff waited more than five months after receiving a demolition notice to seek injunctive relief, since plaintiff offered a compelling explanation as to why it did not move sooner]; but see Hakim v James, 2017 WL 958399 [Sup Ct, NY County Mar. 13, 2017] [court found no irreparable harm where plaintiffs offered no explanation for why they waited more than a year to obtain injunctive relief]).
• Think twice about your claim for money damages.  Of course you should include a claim for money damages if it is warranted, but keep in mind that a request for money damages may undercut a claim of irreparable harm (Mar v Liquid Management Partners, LLC, 62 AD3d 762 [2d Dept 2009]).