of is morally culpable, or is actuated by evil and reprehensible motives, not only to punish the defendant but to deter him, as well as others who might otherwise be so prompted, from indulging in similar conduct in the future . . . ." Walker v. Sheldon, 10 N.Y.2d 401, 404-05, 179 N.E.2d 497, 498, 223 N.Y.S.2d 488, 490-91 (1961) (citations omitted). The Court went on to state that to warrant punitive damages in fraud and deceit actions, a defendant must exhibit "fraud aimed at the public generally," evincing a "high degree of moral turpitude," and demonstrating "such wanton dishonesty as to imply a criminal indifference to civil obligations." Id. at 405, 179 N.E.2d at 498, 223 N.Y.S.2d at 491.
More recently, the Court, citing Walker, established a two-part test to determine the propriety of awarding punitive damages in breach of contract cases: 1) the conduct constituting, accompanying, or associated with the breach of contract must be actionable as an independent tort for which compensatory damages are ordinarily available; and 2) the conduct must be sufficiently egregious under the Walker standard, i.e. egregious tortuous conduct aimed at the public in general, to warrant the additional imposition of exemplary damages. Rocanova, 83 N.Y.2d at 613, 612 N.Y.S.2d 339, 634 N.E.2d at 943-44, 612 N.Y.S.2d at 342-43.
At least one intermediate New York court in addition to Mandelblatt has recognized that, notwithstanding the statement in Walker and the subsequent holding of Rocanova, in some, limited circumstances punitive damages are appropriate in contract cases, even when the breach is not aimed at the public, if the actions "involve that degree of bad faith evincing a disingenuous or dishonest failure to carry out a contract." Aero Garage Corp. v. Hirschfeld, 185 A.D.2d 775, 777, 586 N.Y.S.2d 611, 613 (N.Y. App. Div.), leave to appeal denied, 81 N.Y.2d 701, 610 N.E.2d 388, 594 N.Y.S.2d 715 (1992); see also Williamson, Picket, Gross, Inc. v. Hirschfeld, 92 A.D.2d 289, 295, 460 N.Y.S.2d 36, 41 (1983); Roy Export Co. Establishment of Vaduz, Liechtenstein v. Columbia Broadcasting System, Inc., 672 F.2d 1095, 1106 (2d Cir. 1982) (citing Borkowski v. Borkowski, 39 N.Y.2d 982, 355 N.E.2d 287, 387 N.Y.S.2d 233 (1976) ("It is not essential . . . that punitive damages be allowed in a fraud case only where the acts have been aimed at the public generally.").
Similarly, seizing on the language from Aero Garage, our sister court in the Eastern District of New York, interpreting New York law, upheld a claim for punitive damages in a "private" contract dispute arising out of the breach of a series of contracts for the sale of eight cars. Hudson Motors Partnership v. Crest Leasing Enterprises, Inc., 845 F. Supp. 969 (E.D.N.Y. 1994). In that case, the court found the defendants' conduct sufficiently reprehensible to warrant imposing punitive damages for their intentional and willful breach of their contractual obligations by stopping payment on certain checks due under the contract; for their defiance of an order of the court by "spiriting away" a car that the court had ordered the marshal to seize; for their refusing to turn over the car even after they were made aware of the order; and for their moving to quash the order (and thus further frustrating plaintiff's contractual rights) on frivolous grounds. Id. at 978. While noting that the contractual breaches did not constitute public wrongs, the court rejected that requirement, holding that New York law allows for punitive damages in breach of contract cases any time the actions of the breaching party evidence such bad faith that the "twin aims of punitive damages"--punishment for egregious behavior and deterrence of similar future conduct--would be vindicated. Id. at 977; Walker, 10 N.Y.2d at 404-05, 179 N.E.2d at 498, 223 N.Y.S.2d at 490-91. Because defendants went beyond a willful breach of their contractual obligations and attempted to "thwart at every turn plaintiff's contractual rights," the court found punitive damages appropriate under the circumstances. Id. at 975.
Generally, this Court will look first to decisions of the New York Court of Appeals to ascertain and interpret controlling state law. Gonzalez v. Rutherford Corp., 881 F. Supp. 829, 834 (E.D.N.Y. 1995). Absent a ruling by that Court, we must "apply what [we] find to be the state law after giving 'proper regard' to the relevant rulings of other courts of the State." Commissioner of Internal Revenue v. Estate of Bosch, 387 U.S. 456, 465, 18 L. Ed. 2d 886, 87 S. Ct. 1776 (1967). When state decisional law is ambiguous or uncertain, however, we must endeavor to predict how the highest court of the state would resolve the uncertainty or ambiguity. U.S. East Telecommunications v. U.S. West Communications Services, Inc., 38 F.3d 1289, 1296 (2d Cir. 1994).
Although Rocanova did not specifically address Mandelblatt or Aero Garage, we are skeptical of their continued viability in light of the Court of Appeals' recent, specific endorsement of the "public wrong" requirement. See In re West 56th Street Assoc., 181 Bankr. 720, 725 (S.D.N.Y. 1995) (rejecting cases nullifying the "public wrong" requirement in light of Rocanova); Parke-Hayden, Inc. v. Loews Theatre Management Corp., 789 F. Supp. 1257, 1267-68 (S.D.N.Y. 1992) (rejecting cases nullifying the "public wrong" requirement even before the Court's pronouncement in Rocanova). We similarly question whether the "twin aims" test from Hudson Motors is an accurate representation of New York law. Ultimately, however, we need not decide these questions, because even apart from the "public wrong" requirement, plaintiff's conduct in the present action does not rise to the level of "moral culpability" or bad faith necessary to invoke punitive sanctions under any of these tests.
In defining punitive damage standard in the fraud context, the Court of Appeals has indicated that a breaching party must evince "such wanton dishonesty as to imply a criminal indifference to civil obligations." Walker, 10 N.Y.2d at 405, 179 N.E.2d at 498, 223 N.Y.S.2d at 491. Here, plaintiff has merely denied that it is breaching its contractual obligations and admitted that it is using and promoting a printing process other than that of defendants. A willful breach of contract does not warrant the imposition of punitive damages, however. Philips v. Republic Ins. Co., 108 A.D.2d 845, 846, 485 N.Y.S.2d 566, 567-68 (N.Y. App. Div.), aff'd, 65 N.Y.2d 1000, 484 N.E.2d 664, 494 N.Y.S.2d 301 (1985). Unlike Hudson, plaintiff has not attempted to "thwart at every turn [defendants'] contractual rights." Hudson Motors, 845 F. Supp. at 975. Nor have they attempted to circumvent the authority of this Court to adjudicate their contractual rights and duties. In fact, plaintiff, not defendants, first invoked the jurisdiction of this Court, seeking a declaration that it was not in violation of its contractual duties. On the facts of this case, plaintiff has not exhibited the moral culpability alluded to Mandelblatt and found necessary to impose punitive damages in Aero Garage and Hudson Motors. Therefore, defendants' prayer for punitive damages on their third counterclaim is hereby dismissed.
C. INJUNCTIVE RELIEF
Finally, plaintiff moves to dismiss defendants' last counterclaim which seeks to enjoin plaintiff permanently from using the Markolor process. Plaintiff argues that because defendants fail to supply a legal basis for seeking an injunction, they have failed to state a claim on which the relief they seek can be granted. Fed. R. Civ. P. 12(b)(6). We agree.
There is no "injunctive" cause of action under New York or federal law. Instead, defendants must allege some wrongful conduct on the part of plaintiff for which their requested injunction is an appropriate remedy. Moreover, they must allege that they will suffer irreparable harm because of the conduct, e.g., that they have no adequate remedy at law, and that the balance of equities weighs in their favor. Travellers Int'l AG v. Trans World Airlines, Inc., 722 F. Supp. 1087, 1096 (S.D.N.Y. 1989).
Reading their complaint broadly, as we must under the Federal Rules, Fed. R. Civ. P. 8(f), the wrongful conduct on which defendants hinge their plea for injunctive relief appears to be plaintiff's alleged past and continuing breaches of the Agreement. In their fifth counterclaim, defendants incorporate by reference essentially all of their allegations under their first through fourth counterclaims. As we held above, these allegations make out claims for breaching the licensing agreement by refusing to permit an accounting, by failing to pay royalties, and by failing to use their best efforts to use and promote the Markolor process.
This "wrongful conduct" is insufficient to sustain defendants' requested injunctive relief for at least two reasons. First, defendants fail to establish that they will suffer irreparable harm by demonstrating the inadequacy of money damages. On the other hand, clearly money damages would fully compensate defendants for plaintiff's past failures to pay royalties, and, quite possibly, for plaintiff's alleged failure to use its best efforts to market the Markolor process. Absent a demonstration that these damages are inadequate, injunctive relief is inappropriate in this breach of contract action. O'Neill v. Poitras, 158 A.D.2d 928, 928, 551 N.Y.S.2d 92, 93 (N.Y. App. Div. 1990).
Second, even assuming that money damages are inadequate due to the prospect of future unquantifiable harm, the injunction, permanently preventing plaintiff from using the Markolor process, is not tailored to remedy any irreparable harm stemming from the alleged wrongful conduct--breaching the Agreement. Instead, the injunction as requested would enjoin enforcement of the Agreement altogether, revoking the exclusive license to promote and use the Markolor process in addition to preventing plaintiff from otherwise using it in the future. Absent the Agreement, however, defendants make no allegation that plaintiff's use of the process constitutes wrongful conduct from which they will suffer irreparable injury. A permanent injunction is not a form of punishment, but an equitable remedy designed to alleviate a specific, prospective harm for which money damages will not compensate an injured plaintiff. See Flaum v. Birnbaum, 115 A.D.2d 1004, 1005, 497 N.Y.S.2d 567, 569 (N.Y. App. Div. 1985).
Despite these noted infirmities, we are not convinced that defendants can plead no set of facts which would warrant the imposition of the requested injunction. For instance, if defendants assert that they can legally terminate the licensing agreement and that the '241 patent owned by Mark I would then prevent plaintiff from using the Markolor process, provided the other conditions discussed above are met, an injunction against RHD's use of the process may be appropriate relief. See, e.g., 35 U.S.C. § 283. On a motion to dismiss under Rule 12(b)(6), however, we must look only at the four corners of the complaint. Kramer v. Time Warner Inc., 937 F.2d 767, 773 (2d Cir. 1991). Therefore, because the complaint itself gives no basis for granting an injunction we must dismiss defendants' fifth counterclaim as improperly pled. In light of our belief that defendants might possibly be entitled to an injunction given the appropriate allegations, however, we will grant defendants leave to amend their answer within thirty days of the date of this opinion and order to allege a claim on which injunctive relief may be based.
For the reasons stated above, the defendants' following counterclaims are dismissed: (1) the fourth counterclaim; (2) the third counterclaim to the extent that it alleges a claim for fraud growing out of a breach of contract, and to the extent that it seeks punitive and exemplary damages; and (3) the fifth counterclaim. Defendants are given leave to amend their answer within thirty days of the date of this opinion and order to allege their due performance under the Agreement in their second and third counterclaims and to replead their counterclaim seeking injunctive relief if they can properly allege facts establishing a legal basis for that remedy.
Dated: July 28, 1995
New York, New York
William C. Conner
Sr. United States District Judge