The opinion of the court was delivered by: SCHEINDLIN
SHIRA A. SCHEINDLIN, U.S.D.J.:
On September 29, 1997, plaintiff Lentjes Bischoff GmbH ("Bischoff") filed an Order to Show Cause pursuant to Rules 30, 34 and 65 of the Federal Rules of Civil Procedure for expedited discovery and a preliminary injunction requiring defendant Joy Environmental Technologies, Inc. ("Joy") to provide it with a letter of credit in the amount of $ 10.7 million to replace a letter of credit in the same amount set to expire on October 31, 1997. For the reasons stated below, plaintiff's motions are denied.
The following facts are undisputed, except as otherwise indicated. Bischoff is a German company specializing in environmental engineering. Joy is a Pennsylvania corporation that manufactures industrial air pollution and ash handling equipment. In 1991, Bischoff and Joy formed a consortium to bid for a contract with the Taiwan Power Company (TPC) to build a desulfurization system ("the system") for a power plant in Taiwan. Acting as "Consortium Leader," Bischoff submitted a bid and was awarded the contract (the "TPC contract") in July, 1992. See Declaration of Dieter Gobel (Bischoff procurement manager) ("Gobel Dec.") at PP 4-6; Memorandum of Law of Defendant Joy Technologies, Inc. in Opposition to Plaintiff Lentjes Bischoff GmbH's Request for an Injunction ("Def's Brief") at 6-7.
The TPC contract provides that in specified circumstances, TPC can assess liquidated damages against Bischoff. Most importantly, in the event of a severe failure in the performance of the system, Bischoff could be liable to TPC for liquidated damages of $ 155 million, the entire value of the contract. See Gobel Dec. at PP 6, 7; Def's Brief at 7, 11. TPC can also assess liquidated damages of $ 155,000 per day (up to $ 7.7 million) for inexcusable delay in completion of the system. See TPC contract at §§ 8.2, 8.3. The existence and amount of the performance-related damages are linked to a series of tests that are to be performed on various components of the system. Because of construction delays, the system is not yet complete, and none of the tests have been performed. See Gobel Dec. at PP 26-28; Def's Brief at 14.
The TPC contract also required Bischoff to provide TPC with a performance bond for 10% of the total contract price that will be valid for twenty-seven months after the system is operational. See TPC contract at § 5.1; Gobel Dec. at PP 29-30. To meet this requirement, Bischoff provided TPC with a standby letter of credit in the amount of $ 15.5 million. See Gobel Dec. at 30.
In December, 1992, Bischoff and Joy executed an agreement to govern their relationship during and after the construction period (the Bischoff/Joy contract). See Gobel Dec. at 6-7; Def's Brief at 7, 11. Under the terms of this contract, Bischoff is responsible for approximately 29% of the TPC contract and Joy is responsible for the remaining 71%. Bischoff/Joy contract at § 1. Further, each party is assigned "all technical, commercial, financial, fiscal and legal risks" incident to its individual performance, including the risk of liability for liquidated damages assessed by TPC for inadequate performance. See id. at §§ 3.1, 7.3. The cost of any such damages are borne by the party at fault up to 10% of that party's proportionate stake in the contract; beyond this limit, damages are to be shared proportionally. See id.
On the subject of the performance bond, the Bischoff/Joy contract notes that "Joy has provided Bischoff with a letter of credit for US $ 10,700,000 which shall be governed by the terms stated therein with respect to drawing and the costs of which shall be borne by Joy . . . . The value of the Joy provided letter of credit will be reduced to US $ 5,000,000 after initial operation of the [system] . . . ." Bischoff/Joy contract at § 3.6. The letter of credit referred to in this section was issued by Bankers Trust Company on August 26, 1992, approximately three months prior to the execution of the Bischoff/Joy contract. In a paragraph of the letter discussing its duration, it states that "in any event, the maturity date of this letter of credit shall not be extended beyond October 31, 1997." Joy Letter of Credit at 2.
Construction of the system did not progress smoothly, and relations between the parties began to deteriorate. One point of conflict was the issue of whether Joy could allow its letter of credit to expire by its terms on October 31, 1997, or whether § 3.6 of the Bischoff/Joy contract requires the letter to be extended or replaced until Bischoff's potential liability to TPC expires. This issue is an important one, according to Bischoff, because Joy has been reduced in recent months to a heavily-indebted shell company. Without the letter of credit, Bischoff argues, Joy will have no way of satisfying any judgment that may be levied against it. Joy half-heartedly denies that it is in dire financial straits; its sole director admits, however, that it currently has a net worth of negative $ 31 million. See Deposition of Edmund Freeman at 57:25-58:8.
On January 30, 1997, Joy initiated a currently pending arbitration before the International Court of Arbitration in Zurich, Switzerland, alleging that Bischoff had failed to meet various performance requirements under the TPC contract, and had thereby caused Joy financial injury. Joy seeks $ 11.4 million in damages and a declaration that Bischoff is responsible for any liquidated damages that may be assessed by TPC. See Joy Request for Arbitration at §§ 5.1, 5.3. Bischoff counterclaimed in the arbitration, demanding that Joy renew its letter of credit and pay damages of approximately $ 1.6 million. See Def's Brief at 4. Out of concern that the arbitrators would not reach the issue of Joy's renewal of the letter of credit until after its expiration, Bischoff began this action on September 29, 1997.
II. Legal Standard for Granting a Preliminary Injunction
Generally, a preliminary injunction is appropriate when the moving party can show that it is threatened with irreparable injury and either 1) a probability of success on the merits or 2) sufficiently serious questions going to the merits of the claims to make them a fair ground of litigation, and a balance of hardships tipping decidedly in the movant's favor. See Time Warner Cable Co. v. Bloomberg L.P., 118 F.3d 917, 923 (2d Cir. 1997). However, "where an injunction is mandatory -- that is, where its terms would alter, rather than preserve, the status quo by mandating some positive act, the moving party must . . . show clearly that he or she is entitled to relief or that extreme or very serious damage will result from a denial of the injunction." Phillip v. Fairfield Univ., 118 F.3d 131, 133 (2d Cir. 1997) (citations and internal quotes omitted).
Generally, an irreparable injury "is one that cannot be redressed through a monetary award." JSG Trading Corp. v. Tray-Wrap, Inc., 917 F.2d 75, 79 (2d Cir. 1990). Therefore, courts should avoid issuing preliminary injunctions in cases where money damages would be adequate compensation. See id. However, an exception to this rule exists when it is shown that satisfaction of a money judgment will be impossible ...