In 1997, Plaintiffs, three foreign banks, purchased debentures issued by Defendant Rossiyskiy Kredit Bank and guaranteed by Defendant Rossiyskiy Kredit Securities PV. The value of the debentures totalled approximately $200 million. After the Russian economic crisis in 1998, Defendant became financially distressed and defaulted on an interest payment. When Plaintiffs exercised the right to accelerate payment of principal and interest due on the bonds, Defendants proceeded into complete default.

Plaintiffs brought an action against Defendants seeking full monetary recovery of principal and interest due on the debentures. The first two causes of action related to recovery on the bonds while a third cause of action alleged breach of fiduciary duty by the insolvent Defendants. Plaintiffs also moved for an order of a temporary injunction against the further transfer of assets by Defendants. The New York Supreme Court granted both remedies and the Appellate Division affirmed, granting leave to appeal the certified question issuing a preliminary injunction.

The Court of Appeals reversed. Relying upon Campbell v. Ernest, 64 Hun. 188 (N.Y. 1892), and traditional principles of equity, the court stated that an unsecured creditor seeking purely monetary damages is not entitled to freeze a debtor's assets prior to judgment. The court construed C.P.L.R. § 6301 to confine the issuance of preliminary injunctions to claims which do not seek money payments alone. The Court of Appeals therefore rejected Plaintiffs' contention that the allegation of breach of fiduciary duty distinguished this case from those confined solely to monetary recovery. The court also rejected the argument that public policy demanded a departure from the traditional rule denying injunctive relief to similarly situated plaintiffs.

Whether a court can grant a preliminary injunction preventing a debtor defendant from dissipating its assets while a money damages claim by the creditor is pending.

No. There is an established doctrine that a creditor cannot interfere with a debtor's property in an action for a money judgment until after the creditor obtains a final decision giving him claim to the property.

State of the Law Before Credit Agricole Indosuez

Campbell v. Ernest, 64 Hun. 188 (N.Y. 1892), held that general creditors do not have the right to impede a debtor from transferring assets that would allegedly affect any future judgment. The Campbell court held that the statute authorizing injunctive relief (at the time section 604(2) of the Code of Civil Procedure) did not apply in a situation when the plaintiff creditor was only seeking a money judgment. The modern equivalent of 604(2), C.P.L.R. § 6301, allows for injunctive relief when a defendant threatens or performs an act that violates the plaintiff's rights. A general creditor seeking injunctive relief to protect money interests alone has no such right.

The U.S. Supreme Court held in Grupo Mexicano de Desarrollo S.A. v. Alliance Bond Fund, Inc., 119 S.Ct. 1961 (1999) that prior to judgment, a district court lacks the power to issue a preliminary injunction preventing the debtor defendant from transferring or using the assets that would presumably be used to satisfy a judgment for the plaintiff creditor. The Court held that Federal Rule of Civil Procedure 65 embodied the principles of equity jurisdiction The legislature alone holds the power to increase the district court's authority to issue preliminary injunctions that would essentially freeze the defendant debtor's assets.

Effect of Credit Agricole Indosuez on Current Law

Resisting Plaintiffs' urge for judicial innovation, the Court emphasized that C.P.L.R. § 6301 was not intended as a departure from the longstanding equity principle that a creditor who has not yet obtained a money judgment has no right to restrain the debtor's use or transfer of assets. The Court declined to make preliminary injunctive relief available in such circumstances because its increased use could disrupt the carefully balanced rights among debtors and creditors.

The Court explained not only why the longstanding equity principle should apply in this case, but why Plaintiffs' main argument (that it did not apply in this case) failed. Plaintiffs' main argument was that C.P.L.R. § 6301 authorized a preliminary injunction in this case because they were seeking a permanent injunction for the breach of fiduciary duty in addition to the money demand. The Court found, however, that Plaintiffs' third cause of action for permanent equitable relief was purely incidental to the primary monetary relief sought under their two causes of action on the debts.

Unanswered Questions

When is a claim for equitable relief not incidental under C.P.L.R. 6301?

Should the legislature expand and liberalize the available remedies under C.P.L.R. 6301?

Survey of the Law in Other Jurisdictions

Other jurisdictions have also held that an unsecured creditor must attain a judgment before it is entitled to an equitable remedy to enforce its claim.  In Grower Services Corporation v. Brown, 561 N.E.2d 1294, 1296 (Ill. App. 1990), the Appellate Court of Illinois, Third District, summarized the Illinois view: ¿The theory of taking away the control of a person°s property by means of an injunction for the purpose of anticipating a judgment which may or may not thereafter be obtained by a litigant is abhorrent to the principles of equitable jurisdiction.î  Similar to the Credit Agricole court, the court in Grower Services Corporation held that an exception to the rule existed where the funds which are the subject of the injunction are also the subject of the dispute.

Florida courts have also held that where a party seeks injunctive relief on the basis that the opposing party may dissipate bank assets, a judgment for money damages is adequate and injunctive relief is improper, notwithstanding the possibility that the plaintiff will be unable to collect a money judgment.  See Lopez-Ortiz v. Centrust Savings Bank, 546 So. 2d 1126 (Fla. App. 1989).

In Lane v. Baker, 601 S.W.2d 143, 145 (Tex. App. 1980),  the Court of Civil Appeals of Texas also held that a general creditor who asserted unsecured claims not reduced to judgment could not enjoin a debtor from disposing of his or her property.