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EMONS INDUSTRIES, INC. v. LIBERTY MUT. INS. CO.

November 7, 1990

EMONS INDUSTRIES, INC., PLAINTIFF
v.
LIBERTY MUTUAL INSURANCE COMPANY, DEFENDANT.



The opinion of the court was delivered by: Leisure, District Judge:

ORDER & OPINION

This is an action for declaratory and injunctive relief, and for monetary damages, arising from defendant Liberty Mutual Insurance Company's ("Liberty") alleged breaches of its contractual and fiduciary duties owed to its insured, Emons Industries, Inc. ("Emons"). Emons now comes before the Court on a motion for a preliminary injunction enjoining Liberty from interfering in any way with the attorney-client relationship between Emons and its counsel, Anderson, Kill, Olick & Oshinsky ("the Anderson Firm"), and enjoining Liberty from withholding certain indemnification and attorneys' fees payments due Emons.

BACKGROUND

Emons is a New York corporation primarily engaged in the boxcar leasing business. As the corporate successor to a number of pharmaceutical companies, Emons has been sued in numerous product liability cases arising out of the sale by those companies of diethylstilbestrol ("DES"). Liberty is a Massachusetts mutual insurance company and is Emons's insurer with respect to DES lawsuits pursuant to comprehensive general liability insurance policies ("the Policies") issued by Liberty to Emons and its corporate predecessors between 1945 and 1970.

In 1975, Emons was first sued in a DES-related lawsuit. Emons notified Liberty, and requested that Liberty defend Emons in the suit and indemnify Emons if Emons were found liable. Liberty refused the defense and coverage requests and Emons thereafter retained on its own behalf the firm of Greenberg, Irwin, Pellman & Slade ("the Greenberg Firm") to represent Emons in both the burgeoning number of DES lawsuits, as well as in a suit against Liberty seeking coverage under the Policies ("the Coverage Action").

In 1978, Emons and Liberty reached an interim settlement of the Coverage Action ("the Interim Settlement"), which provided that Liberty pay for Emons's costs in defending against the DES cases. Emons apparently continued to control its defense of the DES cases through counsel chosen by Emons. Through 1980, Emons was represented by the Greenberg Firm, which then split its membership and Emons's counsel became the firm of Slade, Pellman & Biehl. In 1982, Slade, Pellman & Biehl became Slade & Pellman. These firms successively represented Emons in the DES cases, with Liberty, pursuant to the Interim Settlement, paying all of Emons's defense costs. At the same time, these successive firm entities represented Emons in the Coverage Action against Liberty.

In 1988, Emons (represented by Slade & Pellman) and Liberty reached a final settlement of the Coverage Action ("the Settlement Agreement"), pursuant to which Liberty agreed to continue paying Emons's DES defense costs and to pay indemnification to Emons subject to per claim and aggregate limits, as well as limits on coverage of so-called "third generation claims."*fn1 In 1989, Slade & Pellman became Slade, Moross, Rahl, Glatzer & Stamm ("Slade Moross").

On April 13, 1990, Jeffrey L. Glatzer, Esq. ("Glatzer"), a Slade Moross partner, informed Liberty DES Claims Examiner Jerry Clark ("Clark") that Slade Moross would be merging with the Anderson Firm. Clark indicated that he did not believe Liberty would object to the Anderson Firm defending the DES cases. The parties dispute whether during this conversation Glatzer informed Clark that the Anderson Firm represented interests adversarial to Liberty in certain unrelated coverage actions. On May 1, 1990, Slade Moross merged into the Anderson Firm, the Slade Moross attorneys involved in representing Emons prior to the merger continuing in that capacity as members of the Anderson Firm. On the same day as the merger, Liberty informed Glatzer that it would not agree to the Anderson Firm continuing in the role of DES counsel, in which role Slade Moross and its predecessor firms had served. Liberty stated that its basis for objecting was the Anderson Firm's involvement in unrelated coverage actions against Liberty.

On July 25, 1990, Liberty informed Emons that Liberty was assigning defense of the DES cases to another firm, Jacobson & Triggs, and that, if Emons refused to cooperate in the transfer of counsel, Liberty would no longer defend Emons in the DES cases, nor would it indemnify Emons under the Settlement Agreement or the Policies. On August 2, 1990, Emons brought suit against Liberty, Jacobson & Triggs and John F. Triggs, Esq. ("Triggs") in New York Supreme Court, County of New York, seeking a declaration of rights and a permanent injunction enjoining Liberty from interfering with Emons's attorney-client relationship with the Anderson Firm. Emons also sought monetary damages, including any unpaid defense or indemnity payments ("Coverage Payments") due Emons since May 1, 1990.

On August 13, 1990, Justice Ira Gammerman granted a request by Emons for a temporary restraining order preventing Liberty from interfering with Emons's relationship with the Anderson Firm, but refused to enjoin Liberty from withholding Coverage Payments pending a hearing on Emons's pending motion for a preliminary injunction. The case was subsequently removed to this Court, and, pursuant to a stipulation entered into between Emons on the one hand, and Jacobson & Triggs and Triggs ("the Triggs defendants") on the other, Emons's claims against the Triggs defendants were dismissed with prejudice on October 3, 1990. On October 4, 1990, the Court denied Liberty's motion to dismiss the Anderson Firm from representing Emons in this action. On October 9 and October 10, 1990, hearings were held on Emons's motion for a preliminary injunction. That latter motion is now before the Court.

DISCUSSION

"A party seeking a preliminary injunction must demonstrate that it is likely to suffer possible irreparable harm if the requested relief is not granted and `either (1) a likelihood of success on the merits of its case or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly in its favor.'" Citibank v. Nyland (CF8), Ltd., 839 F.2d 93, 97 (2d Cir. 1988) (quoting Coca-Cola Co. v. Tropicana Products, Inc., 690 F.2d 312, 314-15 (2d Cir. 1982)); see also Tucker Anthony Realty Corp. v. Schlesinger, 888 F.2d 969, 972 (2d Cir. 1989); Consolidated Gold Fields, PLC v. Minorco, S.A., 871 F.2d 252, 256 (2d Cir. 1989). The Court thus turns to analyze whether Emons has met these requirements.

1) Irreparable Harm

The Second Circuit has repeatedly stressed the importance of a showing of irreparable harm by a party moving for a preliminary injunction. "[I]nequitable conduct alone cannot justify the entry of a preliminary injunction. The linchpin of such interim relief is that threatened irreparable harm will be prevented by that injunction." Buckingham Corp. v. Karp, 762 F.2d 257, 262 (2d Cir. 1985). "`"Perhaps the single most important prerequisite for the issuance of a preliminary injunction is a demonstration that if it is not granted the applicant is likely to suffer irreparable harm before a decision on the merits can be rendered."'" Citibank, N.A. v. Citytrust, 756 F.2d 273, 275 (2d Cir. 1985) (quoting Bell & Howell: Mamiya Co. v. Masel Supply Corp., 719 F.2d 42, 45 (2d Cir. 1983) (quoting 11 C. Wright & A. Miller, Federal Practice and Procedure § 2948 at 431 (1973) (footnote omitted))).

"Irreparable injury" has been defined by the Second Circuit as "one that cannot be redressed through a monetary award. Where money damages are adequate compensation a preliminary injunction should not issue." JSG Trading Corp. v. Tray-Wrap Inc., 917 F.2d 75, 79 (2d Cir. 1990). Therefore, the irreparable harm alleged "must be one requiring a remedy of more than mere monetary damages. A monetary loss will not suffice unless the movant provides evidence of damage that cannot be rectified by financial compensation." Tucker Anthony, supra, 888 F.2d at 975; see also Loveridge v. Pendleton Woolen Mills, Inc., 788 F.2d 914, 917-18 (2d. Cir. 1986); Jackson Dairy, Inc. v. HP. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir. 1979). In addition, a plaintiff seeking to establish irreparable injury "must ...


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