Almost exactly one year ago, we wrote about the go-to line of New York case law for business divorce litigants hoping to secure injunctions: a substantial and ever growing body of authority holding that involuntary loss or deprivation of equity ownership, management, or control rights in a closely-held business typically qualifies as “irreparable” harm, for which money damages are insufficient and injunctive relief appropriate (see e.g. Yemini v Goldberg, 60 AD3d 935 [2d Dept 2009] [“because control and management . . . were at stake, money damages were not sufficient. Thus, the defendants established the element of irreparable injury”] [citation omitted]).
A far less frequently invoked line of case law originating not from business divorce law, but the law of lottery, holds that an injunction movant may demonstrate “irreparable” harm where a “substantial amount of money may be dissipated or otherwise unavailable for recovery” without an injunction (Ma v Lien, 198 AD2d 186 [1st Dept 1993]).
Albany County Commercial Division Justice Richard Platkin relied upon both lines of case law in a recent decision resolving a closely-held business owner’s injunction application over her co-owner’s sale of a solar power business and dissemination of the sale proceeds.
Burt v Jerez (2024 NY Slip Op 51613(U) [Sup Ct, Albany County Nov. 20, 2024]), is a fascinating example of how commercial judges resolve sharply conflicting factual accounts in injunction motion papers.
Burt features not one, but two rarities: a full-blown evidentiary hearing complete with post-trial briefing; and a thorough, exceptionally thoughtful, written Decision and Order chock full of legal analysis and credibility determinations.
In a world where injunction motions more and more often seem to get resolved in a transcript with little or no value to anyone but those involved in the case itself, Burt is a delightful breath of fresh air.
The Business Enterprise
Ariel Burt (“Burt”), a Swiss national, and Lluis Torrent Jerez (“Jerez”), a Hong Kong national, are entrepreneurs in the field of international energy and solar power. Allegedly over lunch at a Japanese restaurant in London, they agreed to form a venture to develop solar power plants in the United States, including upstate New York. The enterprise consisted of multiple entities and steps.
First, in January 2020, Jerez formed a Delaware limited liability company called Atlas Renewables LLC (“Atlas”). Under Atlas’s operating agreement, Jerez was the entity’s sole member.
Second, in March 2020, Burt and Jerez formed a Bermuda corporation called Forsythe Ltd. (“Forsythe”) with a shareholders’ agreement providing equal 50/50 ownership.
Third, in June 2020, Burt and Jerez entered into a Cooperation Agreement providing that the “parent company in Bermuda named ‘Forsythe’” owned “50/50” by Burt and Jerez “will hold 100% of all of the US companies, entities and assets,” including “the Delaware company ‘Atlas Renewables.’”
Fourth, in September 2020, Jerez executed a Membership Interest Transfer Agreement (the “MITA”) transferring to Forsythe all of Jerez’s membership interests in Atlas for $1,000. As a result of this transfer, according to the MITA, Forsythe concluded the transaction owning 100% of the membership interests in Atlas, and Burt and Jerez each owning 50% of the shares of stock of Forsythe.
The Conflicting Stories
From there, the parties’ accounts sharply diverged.
According to Burt’s complaint and injunction affidavits (here and here), in the months after she and Jerez entered into the Cooperation Agreement, Jerez represented to Burt and third parties in a series of emails that Atlas was “100% owned by an overseas entity,” Forsythe; that Forsythe “holds 100% of the membership interests” in Atlas; and that Atlas is a “100% subsidiary of Forsythe.”
Jerez told a very different story. According to his affidavit, the MITA specified a closing date for the transfer of Jerez’s membership interests in Atlas to Forsythe of September 10, 2020. Jerez wrote that “just three days after the MITA was signed by me,” Jerez “received a phone call from Burt, stating that she was not, after all, in a position to invest any funds into Atlas, and so could not go through with the closing.”
Jerez wrote that he was “disappointed by this news, but had no choice but to agree to the arrangement” because he had “no desire to hand over 50 percent of Atlas to someone not in a position to invest her fair share into the company.” “At the end of the phone call,” Jerez alleged, “it was agreed and understood that, at least for the time being, the MITA, and the transfer contemplated therein, was void.”
In July 2023, shortly before Atlas closed on a multi-million-dollar sale of an upstate solar power plant project, Jerez began to hold himself out as the “sole member” of Atlas.
When Burt confronted Jerez, according to the complaint, Jerez “took the position, for the first time in the nearly three years since he had executed the MITA on behalf of both himself and Forsythe, that the MITA was not and had never been effective” because Forsythe never delivered to Jerez the $1,000 purchase price set forth in the MITA.
In contrast, according to Jerez, Burt never claimed Forsythe actually owned Atlas’s membership interests until she learned Atlas was on the verge of a lucrative transaction.
The Injunction Motion
In June 2024, apparently after Burt learned in pre-trial disclosure that Atlas previously closed on a sale to an entity called Onyx Development Group LLC (“Onyx”), Burt moved by Order to Show Cause for a preliminary injunction
- “prohibiting” Jerez “from effectuating any further sales or transfers of the assets of Atlas . . . without the written consent and approval of Forsythe”; and
- “requiring” Jerez “to deposit” with the Court “the proceeds of any such sales or transfers, including . . . the sale he has already effectuated with non-party Onyx. . . to be held during the pendency of this litigation.”
In July 2024, Justice Platkin ruled that because of the “sharp factual conflicts presented by the parties’ affidavits,” the Court was “scheduling an in-person evidentiary hearing” just two weeks later.
After some unsuccessful efforts to settle, the Court heard two days of testimony, deeming the parties’ injunction affidavits their direct testimony under Rule 32-a of the Commercial Division Rules, accepting post-trial briefs from both sides (available here and here).
Questions of Fact Do Not Necessarily Preclude Injunctive Relief
Justice Platkin began his analysis with an important principle: “The existence of a question of fact does not prevent a party from establishing a likelihood of success on the merits; success need not be a certainty to obtain a preliminary injunction” (Petry v Gillon, 199 AD3d 1277 [3d Dept 2021]). This rule of law became outcome determinative of Burt’s motion.
Likelihood of Success
On the element of likelihood of success, Justice Platkin found issues of fact all over the place, but largely resolved those issues of fact with credibility determinations favoring Burt and disfavoring Jerez.
For four reasons, the Court wrote that it “finds reason to be skeptical” of Jerez’s “defense” that the parties “agreed to ‘void’ the MITA.”
First, Jerez’s rationale for Burt “agreeing to ‘void’” the MITA was “not wholly convincing” because the MITA “did not itself impose any financial obligation” for Burt or Forsythe to invest funds with Atlas. Instead, “Forsythe’s only obligation” under the MITA “was to pay defendant $1,000, a relatively nominal sum for which funds were available.”
Second, the trial evidence showed that Jerez went through “considerable efforts to obtain back-dated notarization of the MITA in the weeks following its execution,” behavior which “would make little sense if it had been voided on September 7, 2020.”
Third, “there is little, if any, evidence to corroborate [Jerez]’s claim of an oral agreement to ‘void’ the MITA . . . . The alleged agreement is referenced in only one document: the minutes of a ‘special meeting of the Members of Atlas’ held on September 11, 2020, at which only defendant was present . . . . However, there is no evidence that these minutes were circulated to plaintiff or anyone else prior to this litigation.”
The Court wrote that it was “troubled by the absence of any corroborating documentation, apart from the uncirculated minutes of a meeting that defendant had with himself,” especially for a self-described “careful businessperson who is concerned about conducting his affairs with the requisite formality and proper documentation.”
Fourth, Justice Platkin found that Jerez “has not adequately explained his representations that Forsythe was the 100% owner of Atlas or his actions referable to that ownership,” discrediting Jerez’s explanation that he was just “trying to protect [Burt] by keeping private the voiding of the MITA.” “The problem for [Jerez],” wrote the Court, “is that he repeatedly misrepresented the ownership of Atlas. Sometimes he claimed to be the 100% owner of Atlas; at other times, he represented that Forsythe was the 100% owner.”
Tying the evidence together, the Court concluded:
Ultimately, the Court is unable to reconcile the conflicting, and sometimes incredible, testimony of the parties based on the motion record, which was compiled at an early stage of the litigation with the benefit of only limited written discovery and with only the parties as witnesses. Nonetheless, the Court finds that plaintiff’s testimony more closely aligns with the pertinent documentary evidence, including the parties’ signed writings, and that the documentary evidence should be given primacy at this juncture.
Irreparable Harm
Turning to the element of irreparable harm, Justice Platkin issued a split decision, ruling:
The Court is satisfied that a preliminary injunction restraining defendant from effectuating any further sales or transfers of the assets of Atlas without the consent of Forsythe is necessary to avert imminent and irreparable harm to Forsythe’s right to participate directly in the ownership and control of Atlas and plaintiff’s right to participate indirectly through her interest in Forsythe.
Presumably based upon the principle that courts will not enjoin a “fait accompli,” Justice Platkin declined to order escrowing of Atlas’s sale proceedings:
[P]laintiff has failed to demonstrate that a preliminary injunction requiring defendant to escrow the proceeds of the completed Onyx sale is necessary to avert imminent and irreparable harm. The decision to move forward with the Onyx sale was made more than one year ago, and the sale proceeds already have been disbursed . . . .
Balance of the Equities
On the element of the balancing of the equities, Justice Platkin wrote that the “balance of equities tips in favor of plaintiff and issuance of a preliminary injunction,” but “the equities do not favor a preliminary injunction being misused to limit Atlas’s access to needed funds or to hamper its successful operations.”
“Accordingly,” wrote the Court, Forsythe’s consent to a proposed sale or transfer of Atlas assets shall not be unreasonably withheld.”
Commentary
Burt is illustrative of an important legal principle governing injunctions in business divorce cases: an injunction movant is not required to prove likelihood of success on the merits with absolute certainty.
Conflicting evidence, even on central issues, will not necessarily preclude the court from granting injunctive relief, so long as the evidence predominates in favor of the movant.
But sometimes, one too many fact issues will result in denial of the motion altogether, even without a hearing, if they “subvert the plaintiff’s likelihood of success on the merits to such a degree that it cannot be said that the plaintiff established a clear right to relief” (Kenner v Balkany, 219 AD3d 1504 [2d Dept 2023] [quotations and ellipses omitted]).
In the end, injunctions are all about courts seeking to do equity. This means injunction courts have immense discretion. Some busy judges reading injunction motion papers raising sharp factual disputes will lean towards denying the motion altogether. Others, like Justice Platkin, who are willing to take the time and effort to try to determine in an evidentiary hearing which side is more likely telling the truth, may take a more nuanced approach.
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