We often cover preliminary injunctions on the pages of this blog because they are a powerful tool in the business divorce litigator’s toolbox: they force court action early in the case, they can protect rights that are difficult to monetize, and they set the tone for the litigation going forward. Requests for preliminary injunctions generally come early in the case, and they seek to impress upon the court the need for immediate action in order to maintain the status quo.
When a closely-held business threatens to reorganize its ownership to the exclusion of one owner, courts are receptive to requests for preliminary injunctions enjoining the restructuring until the ownership dispute can be sorted out in litigation. See this court’s enjoining dilution of an LLC member’s interest, or this court’s enjoining a freeze-out merger cancelling an owner’s shares.
Both of these cases featured, to some degree, a race between the parties. The company notified the owner that the dilution or freeze-out would occur on a certain date, and the owner scrambled to request a preliminary injunction enjoining that action before that effective date. While it can seem trivial, that race is critical. Because a preliminary injunction is designed to maintain the status quo, courts are far more likely to enjoin action before it happens than undo it after the fact. That’s the tough lesson that an LLC member facing termination of his membership status learned in Costello v Molloy et al., 73 Misc 3d 1206(A) [Sup Ct 2021].