ELR Citation: ELR 20228
No(s). 94-CV-0400E(H) (W.D.N.Y. Aug 16, 1994)

The court refuses to issue a preliminary injunction that would effectively freeze the assets of the liquidation trustees of a Delaware company that allegedly disposed of hazardous wastes at a New York landfill. After New York sued under state law and the Comprehensive Environmental Response, Compensation, and Liability Act to recover costs for cleaning up the landfill, the trustees filed a petition in the Delaware Court of Chancery seeking approval of a payment under a settlement agreement in a separate suit. The state then sought a preliminary injunction that would set aside trust assets for the state's claims pursuant to a plan for the equitable distribution of the assets, and would prevent the trustees from expending trust assets until they provide the state with discovery regarding the trust's current assets and expenditures. The court first addresses the state's claim that Delaware law and the settlement in the other case require the trustees to distribute the trust assets ratably to contingent claimants such as the state, and that no payment should be made under that settlement, or in any other action, until the trustees devise a distribution plan. The court holds that the Delaware law claims are premature because Delaware is the proper forum in which to resolve the question, and the trustees have petitioned the Delaware court to do so. Also, the trustees have represented that they will expend minimal or no funds to settle the other suit before the question is resolved.

The court next holds that the state has failed to establish an applicable exception to the general federal rule of equity that a court may not reach a defendant's assets unrelated to the underlying litigation and freeze them so that they may be preserved to satisfy a potential money judgment. Although injunctions are appropriate to grant intermediate relief of the same character as that which may be granted finally, the intermediate relief the state seeks—freezing the company's assets—is not of the same character, because the final legal relief sought—a money judgment—is legal. Also, none of the other exceptions where a court may preliminarily freeze assets to ensure satisfaction of a money judgment are applicable here. The state is not seeking to preserve a specific fund or res whose ownership is contested and which would be the subject of the provisions of any final decree in the cause. Nor are there any allegations either of fraud or of attempts to transfer assets out of the jurisdiction. The court next holds that even if an exception to the general rule were warranted, the state has failed to show that the purported irreparable harm—the trustees' alleged inability to satisfy a money judgment—is actual and imminent. Given that there are five other named defendants in this case and that the trustees' insurers may indemnify them for the settlement in the other action, it is speculation that the trustees' assets will fall short of their liabilities. Further, the trustees have assured the court that they will not expend more than minimal assets before the final disposition of the Delaware case and that they will comply with any order of that court, including one mandating the very relief the state seeks.

Counsel for Plaintiffs
Robert G. Gordon, Ass't Attorney General
Attorney General's Office
120 Broadway, 25th Fl., New York NY 10271
(212) 416-8519

Counsel for Defendants
Richard G. Leland
Rosenman & Colin
575 Madison Ave., New York NY 10022
(212) 940-8800