Preliminary Injunction Granted Restraining Defendant's Assets When Those Assets Were Subject to Perfected Security Interest

On June 12, 2023, Justice Margaret Chan of the New York County Commercial Division issued a decision in White Oak Commercial Finance, LLC v. EIA Inc., 2023 NY Slip Op 31973(U), granting a preliminary injunction restraining a defendant's assets (other than for "reasonable living expenses") and holding that the plaintiff satisfied the irreparable-harm requirement because it was a secured creditor and had a lien on the defendant's assets, explaining:

Typically, a "general creditor has no legally recognized interest in or right to interfere with the use of the unencumbered property of a debtor prior to obtaining judgment" (Credit Agricole, 94 NY2d at 549 [quoting CPLR 6301]). As a result, "the acts of the debtor in disposing of assets will not have 'produce[d] [cognizable] injury to the plaintiff and thus will not support a temporary injunction" (id.). In such cases, "[Plaintiff's] remedy II, if [plaintiff] can establish such conduct by [defendant] [**11] convincingly, is an order of attachment under CPLR 6201 [3], not an injunction under [*21] Article 63" (id. at 548, quoting Siegel, NY Prac § 327 at 498 [3d ea.

That said, a secured creditor does have a legally recognized interest in preventing dissipation of encumbered property prior to obtaining judgment (see e.g. Winchester Glob. Tr. Co. v Donovan, 58 AD3d 833, 834, 873 N.Y.S.2d 130 [2d Dept 2009] [holding that injunctive relief was properly granted as the uncontrolled disposition of assets "would threaten to render ineffectual any judgment which the plaintiff might obtain" in an action by a secured party to set aside allegedly fraudulent conveyances made "in derogation of the plaintiffs perfected security interest"]; Goldman Sachs Bank USA v Schreiber, 2022 N.Y. Misc. LEXIS 422, 2022 WL 60650 at *3 [Sup Ct, NY County 2022] [granting preliminary injunction enjoining the transfer of assets where plaintiff, a secured creditor, sought to prevent a dissipation of collateral, and the sale of such assets in direct contravention of agreements would cause irreparable harm by taking away the value of the collateral]).

White Oak has made a sufficient showing of irreparable harm. To start, White Oak has established that it is a secured creditor. As reflected in the Dean Affidavit and its accompanying exhibits (as well as the Amended Complaint and its accompanying exhibits), White Oak extended a $10 million revolving secured line of credit to Borrowers under the Credit Agreement. Borrowers, [*22] in turn, granted White Oak a first lien and security interest in the Collateral, and the security interest was perfected by the filing of UCC financing statements (id. § 4.1; NYSCEF # 47). The security interest was then guaranteed by various individual and corporate guarantors (including Matthew) (NYSCEF ## 51, 52).

There is likewise support in the record that White Oak's collateral is at risk of further dissipation and may not otherwise be collectable from the Orents. Neither Matthew nor AnDreea dispute that the outstanding indebtedness due to White Oak under the Credit Agreement and related guarantees totals $9,720,546.09 (Am. Compl. ¶ 77). And White Oak has alleged several instances of Matthew and/or AnDreea disbursing or accepting funds, directly or indirectly, that were otherwise owed to White Oak under the Credit Agreement and guaranteed and/or pledged by Matthew, in some cases purportedly due to the Orents' ongoing financial struggles (Am. Compl. ¶¶ 86-87, 90-92; Matthew Unfreeze Aff. ¶¶ 26, 28, 32-33). These alleged facts, coupled with other relevant factors reflected in the parties' submissions, reflect conduct that threatens to render ineffectual any judgment which the plaintiff [*23] might obtain herein.

. . .

Although a preliminary injunction is warranted against the Orents, the court is mindful that Matthew and AnDreea stand in vastly different positions vis-a-vis White Oak's claims in this action. Accordingly, the scope of the preliminary injunction will be as follows: (1) Matthew is enjoined and restrained from using, [**13] transferring, selling, pledging, assigning, or disposing of any of his property, as well as any identifiable proceeds, to any person, corporation, or entity other than White Oak, and from permitting such assets to become subject to a security interest or lien other than in favor of White Oak; and (2) AnDreea is enjoined and restrained from using, transferring, selling, pledging, assigning, or disposing of any property jointly owned, held, or controlled with Matthew (e.g., funds contained in the Joint [*26] Account), as well as any identifiable proceeds, to any person, corporation, or entity other] than White Oak, and from permitting such assets to become subject to a security interest or lien other than in favor of White Oak.12 In all events, the Orents should be permitted to access reasonable living expenses and White Oak is directed to continue working in good faith with the Orents to determine that amount.

A plaintiff seeking a preliminary injunction must show that it will suffer irreparable harm absent the injunction. Generally, an unsecured creditor is not entitled to restrain a defendant's assets in anticipation of a later judgment. But as this case shows, a secured creditor does have the ability to restrain assets, including money, that is subject to a perfected security interest. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions about irreparable harm in the context of a motion for a preliminary injunction.