Opinion
01 Civ. 10193
December 4, 2001
MEMORANDUM OPINION AND ORDER
BACKGROUND
According to the complaint in this diversity action, defendant Equitable and plaintiff Scherer entered into a Disability Income Insurance Policy contract in 1987 (the "Policy"). In 1994, plaintiff alleges that she became "totally disabled" within the meaning of the Policy and filed a claim thereunder. Equitable paid Scherer benefits under the Policy from sometime after the claim until May 11, 1996, and from September 12, 1996 (retroactive to May 11) until April 2, 1997. After Equitable ceased payments and delivered to Scherer its final refusal to pay under the Policy in March of 1998, Scherer brought suit for breach of contract in New York state court. That case went to trial before a jury which rendered a verdict against plaintiff on April 30, 2001. Plaintiff's appeal of that judgment is pending. Meanwhile, Scherer filed a new claim of total disability under the Policy on August 31, 2001. Equitable has not yet processed that claim, in part because it contends that plaintiff owes it $7,075.25 in unpaid premiums from September 1999 to the present. On November 1, 2001, Equitable informed plaintiff by letter that it would cancel the policy if the outstanding premiums were not paid by November 19, 2001.
In response, plaintiff brought this action claiming breach of contract and seeking a declaration that she is disabled under the Policy, that Equitable is therefore required to waive the premiums and that plaintiff is entitled to receive disability benefits. Subject matter jurisdiction is alleged on the basis of diversity of citizenship. Plaintiff requests an award of future disability benefits for the term of her life expectancy as well as punitive damages. Plaintiff also seeks a preliminary injunction preventing defendant from requiring payment of premiums and from canceling the Policy pending an adjudication on the merits of this case. On November 19, plaintiff brought an Order to Show Cause before this Court seeking an expedited hearing on her request for a preliminary injunction and a temporary restraining order ("TRO") enjoining defendant from canceling the policy pending the hearing. This Court signed the Order to Show Cause setting a hearing for November 29 and issuing a TRO pending resolution of the request for injunctive relief.
On November 28, two days after the opposition was due, defendant filed a brief opposing the Order to Show Cause. Defendant's arguments are two-fold: (1) this Court lacks subject matter jurisdiction because plaintiff cannot meet the threshold $75,000 amount in controversy requirement under the diversity statute, 28 U.S.C. § 1332 (a); and (2) in any event plaintiff is not entitled to injunctive relief because she cannot demonstrate the requisite threat of irreparable harm since her alleged injuries are fully redressible by monetary damages. At the hearing, the Court heard argument on the irreparable harm question but postponed argument on the jurisdictional issue in order to afford the plaintiff an opportunity to respond to defendant's opposition papers. In the course of the parties' arguments it became clear that the parties also needed additional time to brief the question of irreparable harm. The parties' letter briefs on this issue were submitted on December 3, 2001. Upon consideration of the parties' submissions and oral arguments, this Opinion resolves the preliminary injunction request. Further briefing will be permitted on the question of subject matter jurisdiction as set forth at the end of this Opinion.
IRREPARABLE HARM
The touchstone of the availability of injunctive relief is the applicant's demonstration of irreparable harm in the absence of the injunction. Indeed, the requirement of irreparable harm is "the single most important prerequisite" for the extraordinary relief of a preliminary injunction. Rodriguez v. DeBuono, 175 F.3d 227, 234 (2d Cir. 1999) (internal quotation marks omitted). It is equally settled that irreparable harm does not exist when the applicant may be compensated for her alleged injuries by monetary damages. The Second Circuit has instructed that:
A monetary loss will not suffice unless the movant provides evidence of damage that cannot be rectified by financial compensation. Such evidence might include, for example, proof that the monetary loss will probably force the party into bankruptcy. In such a situation, there is more than the risk of mere monetary loss. But, when a party can be fully compensated for financial loss by a money judgment, there is simply no compelling reason why the extraordinary equitable remedy of a preliminary injunction should be granted.Borey v. National Union Fire Ins. Co., 934 F.2d 30, 34 (2d Cir. 1991) (citations and internal quotation marks omitted). Accord First Eagle Sogen Funds, Inc. v. Bank for Int'l Settlements, 252 F.3d 604, 607 (2d Cir. 2001) (concluding that petitioner did not face irreparable harm because any injury suffered by petitioner "can be adequately redressed by monetary damages").
In the present case, Scherer contends that if an injunction does not issue she will be irreparably harmed by the cancellation of the Policy. According to Scherer, the harm lies in the supposition that even if she eventually prevails on the merits, once the Policy has lapsed she will have no contract under which to recover. Plaintiff argues that the Court should therefore grant a " Yellowstone-type" injunction to prevent the Policy from lapsing pending determination of her claim that the premiums are not owed. Plaintiff's reference is to a category of injunctions spawned by the New York Court of Appeals case of First National Stores, Inc. v. Yellowstone Shopping Center, Inc., 21 N.Y.2d 630, 290 N.Y.S.2d 721 (1968). In Yellowstone, the Court of Appeals addressed a controversy between a commercial tenant and landlord over the tenant's alleged default under the lease by failing to install a sprinkler system on the premises. On the last day of the default cure period established by the lease, the tenant filed a declaratory judgment action but failed to obtain a temporary restraining order preventing the landlord's termination of the lease. The Court of Appeals held that in the absence of a temporary restraining order, the landlord was permitted to terminate the lease and evict the tenant even though adjudication over whether or not the tenant had in fact defaulted was pending. Later courts, in an effort to avoid what befell the plaintiff in Yellowstone, have granted injunctions where lease forfeiture would otherwise result without a showing of the traditional preliminary injunction prerequisites. See, e.g., Post v. 120 East End Avenue Corp., 62 N.Y.2d 19, 25-26, 475 N.Y.S.2d 821 (1984).
The New York Court of Appeals has recently refined the contours of the so-called Yellowstone injunction, labeling it as a feature of"commercial landlord-tenant law in New York State" and noting that "[t]hese injunctions have become commonplace, with courts granting them routinely to avoid forfeiture of the tenant's substantial interest in the leasehold premises. Yellowstone gave rise to a creative remedy for tenants when confronted with a tangible threat of lease termination." Graubard Mollen Horowitz Pomeranz Shapiro v. 600 Third Avenue Associates, 93 N.Y.2d 508, 514, 693 N.Y.S.2d 91, 94 (1999) (citation omitted). According to the Court of Appeals, " Yellowstone injunctions historically have been used to protect tenants from eviction . . . ." 93 N.Y.2d at 515, 693 N.Y.S. 2d at 95. Indeed, the Court described the purpose of such an injunction as follows:
A Yellowstone injunction maintains the status quo so that a commercial tenant, when confronted by a threat of termination of its lease, may protect its investment in the leasehold by obtaining a stay tolling the cure period so that upon an adverse determination on the merits the tenant may cure the default and avoid a forfeiture.Id.
The Graubard Mollen Court's implicit recognition that the Yellowstone injunction has been confined to the narrow and specialized arena of landlord-tenant law has been echoed by the Second Circuit. See Metropolitan Life Ins. Co. v. RJR Nabisco, Inc., 906 F.2d 884 (2d Cir. 1990). In RJR Nabisco, the most recent Second Circuit opinion to have considered the Yellowstone injunction, the court reviewed then — District Judge Walker's grant of an injunction to an indenture issuer which tolled the cure provisions in the indenture to prevent acceleration of payments pending litigation over the existence of a default. In the lower court, Judge Walker considered whether the Yellowstone injunction was appropriate in the context of an indenture agreement, recognizing that:
[f]or all practical purposes, Yellowstone injunctions have been exclusively limited to the landlord-tenant context. But the animating principle of such equitable relief need not be so limited and restricted. The same concerns that motivate courts to grant a Yellowstone injunction are present here. Just as the law does not favor forfeiture of a leasehold, so too should the law frown upon significant and potentially unnecessary defaults where a party has expressly bargained for a grace period during which time it can remedy inadvertent or intentional breaches of its obligations — so long as that party has a substantial and good faith basis for believing that no breach has occurred.Metropolitan Life Ins. Co. v. RJR Nabisco, Inc., 716 F. Supp. 1526, 1531 (S.D.N.Y. 1989) (citation omitted). Taking this view, Judge Walker granted the injunction. He found that irreparable harm was present because in the absence of a stay RJR Nabisco would be forced to unfairly choose between its good faith defense to the alleged default and its right to cure.
On appeal, the Second Circuit categorically rejected this reasoning. It found first that by issuing the injunction the district court had improperly rewritten the indenture to provide for a longer cure period than bargained for. It then declared improper the district court's extension of the Yellowstone injunction beyond the confines of landlord-tenant law. As the court explained:
Though this reconstruction may have been the `practical' resolution sought by the district court, it was not authorized by any body of applicable law. To the extent that the court relied on the real estate law of New York, that reliance was misplaced. We have found no indication that the state courts of New York have granted stays tolling cure-period type provisions except in landlord-tenant matters, where, because of the unique nature of real estate, the absence of a stay would result in forfeiture. See, e.g., Post v. 120 East End Avenue Corp., 62 N.Y.2d 19, 475 N.Y.S.2d 821, 464 N.E.2d 125 (1984); First National Stores, Inc. v. Yellowstone Shopping Center, Inc., 21 N.Y.2d 630, 290 N.Y.S.2d 721, 237 N.E.2d 868 (1968). We do not agree with the district court's extension of this line of cases to standard form indentures, such as those used here.906 F.2d at 890 (emphasis added) (citation omitted).
The RJR Nabisco court explicitly eschewed the use of Yellowstone injunctions outside the commercial real estate context, and the Second Circuit has not re-examined the application of Yellowstone in any subsequent case. The last words on this issue from both the New York Court of Appeals in Graubard Mollen and the Second Circuit in RJR Nabisco makes evident that the underlying basis for Scherer's argument that she is entitled to a preliminary injunction is not countenanced outside of the landlord-tenant arena. Plaintiff cannot point to, and this Court's independent research has not found, any New York case that has extended the reach of the Yellowstone injunction outside of the real estate context. All the New York cases of which this Court is aware that have authorized such an injunction have done so only to prevent forfeiture of a commercial real estate lease and it is accordingly not available here.
Plaintiff cites Tunnell Publishing Co., Inc. v. Straus Comm., Inc., 565 N.Y.S.2d 572 (3d Dep't 1991), as an example of a New York court's application of Yellowstone in a non-real estate case. That reference is misguided. In Tunnell, the court denied the defendant creditors' summary judgment motion seeking acceleration of a promissory note. The court found that issues of fact, including the possible inconsequentiality of the alleged breach, prevented summary judgment. The court was not asked to, and therefore did not, grant a Yellowstone injunction tolling a cure period. In fact, although the court made one reference to the Yellowstone case, it was to support the proposition that "[a]greements for the acceleration of the entire debt upon the default of the obligor are often enforced in accordance with their terms," a very different proposition than the one for which Tunnell is cited by plaintiff.
In any event, even if the Yellowstone injunction were available in the circumstances of this case in New York courts, it is difficult to see how that might help plaintiff here given that federal law controls the issuance of preliminary injunctions even in this diversity case. See, e.g., Niagra Mohawk Power Corp. v. Graver Tank Mfg. Co., 470 F. Supp. 1308, 1312 (N.D.N Y 1979). Plaintiff has cited to no similar exception to the normal preliminary injunction rules in federal jurisprudence.
Nonetheless, even if a Yellowstone injunction were applicable to the circumstances of this case, plaintiff has not shown that the Hobson's choice underlying the need for such an injunction exists here. Yellowstone injunctions are issued to prevent the irretrievable forfeiture of a lease and the consequent eviction of the tenant despite the fact that the propriety of the lease's termination is being adjudicated. Once the lease is forfeited because the tenant failed to cure a default, New York courts have made clear that the lease can never be revived. See, e.g., Yellowstone. But plaintiff has identified no such result here. Plaintiff has not offered any authority to show that if an insurance contract lapses for a reason that is the subject of adjudication between the parties, it cannot be reinstated if it turns out to have been wrongly terminated. Even if Equitable cancels the Policy because plaintiff has not paid the premiums, the Court is aware of no authority that would prevent it from requiring defendant to reinstate the Policy and pay benefits under it if plaintiff is ultimately successful on the merits. Thus, unlike the lease cases where the ability to cure during a specified period is forever lost without an injunction, nothing is lost here if the Policy lapses — plaintiff can be fully compensated by money damages for her injuries if she ultimately prevails. That being the case, plaintiff has not shown the requisite irreparable harm and therefore no injunction will issue.
CONCLUSION
Plaintiff's request for a preliminary injunction is denied. The parties are directed to brief the issue of subject matter jurisdiction as follows.
The Court deems the subject matter jurisdiction section of defendant's brief in opposition to plaintiff's Order to Show Cause a motion to dismiss for lack of subject matter jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1). Plaintiff is directed to file a response in opposition to that motion on or before December 14, 2001. Defendant is directed to file any papers in reply on or before December 21, 2001.
IT IS SO ORDERED.