First Department Affirms Injunction Pending Arbitration Based, In Part, On Agreement Limiting Damages

On January 22, 2015, the First Department issued a decision in Matter of Rockwood Pigments NA, Inc. v. Elementis Chromium LP, 2015 NY Slip Op. 00612, affirming the grant of a preliminary injunction prohibiting the termination of a distributorship agreement pending arbitration of the parties' dispute.

This post focuses on one aspect of the Rockwood Pigments decision: the First Department's discussion of irreparable harm. One would think that damages from the termination of a commercial agreement could be compensated for with money damages. However, the First Department explained:

Petitioner also showed that it would suffer irreparable injury in the absence of preliminary injunctive relief. The distribution agreement prohibits the recovery of damages for lost profits on anticipated sales and for lost business damages due to diminished goodwill. Thus, absent preliminary relief, petitioner's ability to be made whole after a wrongful termination would be seriously jeopardized. Further, respondent's email "blast" to respondent's customer base threatened petitioner's business operations and its creditworthiness.

(Emphasis added). This decision could be used to argue that contractual terms limiting damages increase the likelihood of a court granting an injunction pending litigation. Further, because consequential damages generally are not available unless they were within the parties' contemplation when they signed the agreement, this decision could be applied even outside the context of an agreement limiting damages.