Court Denies Preliminary Injunction Because Plaintiffs Merely Sought Monetary Relief

In a Decision and Order, dated January 12, 2023, in Benefit St. Partners Realty Operating Partnership, L.P. v. Di Hao Zhang, Index No. 653238/2022, Justice Margaret A. Chan denied Plaintiff’s motion for a preliminary injunction and an attachment. As to the preliminary injunction, Justice Chan concluded that Plaintiffs had not established the identifiable proceeds exception to the general rule that there is no irreparable harm where the injury can be reduced to monetary damages. The Court explained:

As a general rule, a party seeking merely monetary relief is not entitled to a preliminary injunction since it has an adequate remedy at law (Amity Loans, 177 AD2d at 279). However, New York courts have recognized a limited exception to this rule where the monies at issue are identifiable proceeds that should be held for the party seeking injunctive relief (id:, see also AQ Asset, 111 AD3d at 259).

As defendants correctly point out, this exception applies narrowly only where there is a “specific, identifiable fund and an obligation to return or otherwise treat in a particular manner the specific fund in question” (Manufacturers Hanover Trust Co. v Chemical Bank, 160 AD2d 113, 124 [1st Dept 1990]). In both cases upon which plaintiffs rely -- AQ Asset Mgt. LLC and Amity Loans, Inc. -- the exception was applied because the monies at issue are “identifiable proceeds that are supposed to be held for the party seeking injunctive relief” (AQ Asset, 111 AD3d at 259 [the funds are “clearly identifiable” proceeds of the sale that were held in escrow]; Amity Loans, 177 AD2d at 279 [the funds are “specifically and unequivocally assigned and transferred” to be held in trust for the party seeking injunctive relief]).

In contrast, the monies at issue here are not subject to the narrow exception such that would warrant a grant of injunctive relief. The nearly $5 million funds were not specifically segregated to be held in any trust or escrow for plaintiffs; rather, they were sent to Zhang's personal account for purchasing cryptocurrency and were in fact transferred out from Zhang's account into VirgoCX days after his receipt of the monies (see NYSCEF # 24 – Ex B, Zhang's bank records). Moreover, the monies were not clearly identifiable proceeds since they were comingled multiple times: plaintiffs first sent $21,906,500 million to EPI, the Bhais' personal account then received an almost identical amount (i.e., $21,908,500) on the following day, and then three months later, the Bhais sent, by at least four wire transfers, a total of $4,909,260 to Zhang's personal account.

Thus, even if the nearly $5 million funds could be traced to the loan proceeds fraudulently obtained from plaintiffs, the monies are not clearly identifiable funds that defendants or the non-parties were supposed to return or specifically held for plaintiffs (Seeking Valhalla Trust v Deane, 2018 NY Slip Op 31920[U] [Sup Ct, NY County 2018] [drawing a distinction between “funds that can be identified” and “identifiable funds that carry with them some requirement to be treated in a certain manner” and holding that while the latter are subject to the exception, no authority has been shown to support that the former give rise to irreparable harm]; see also AQ Asset, 111 AD3d at 259; ALP, Inc. v Moskowitz, 2021 WL 840013, *7 [Sup Ct, NY County, Mar. 4, 2021] [preliminary relief granted in part as to monies specifically held in escrow for plaintiff, but not with respect to the other funds that have been dissipated and were not supposed to be held for plaintiff]; Zhiye Intl., Inc v George Park, 2010 WL 1169656 [Sup Ct, NY County, Mar. 17, 2010]). Accordingly, since plaintiffs have not demonstrated irreparable injury, their motion for preliminary injunction is denied.

The case demonstrates the high burden a party seeking a preliminary injunction must show to meet the irreparable harm requirement and mere monetary damages generally do not meet that threshold. The attorneys at Schlam Stone & Dolan frequently litigate preliminary injunction motions. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning preliminary injunctions.