J. A. Preston Corp. v. Fabrication Enterprises, Inc.

—Order reversed, on the law, without costs, and motion denied. Memorandum: In spite of language in Margolies v Encounter, Inc. (42 NY2d 475) which, taken literally, might lead to a contrary result, we conclude that a plaintiff who has been granted a [998] preliminary injunction is not entitled to an order discharging the undertaking solely because he has been successful on the appeal from the order granting the preliminary injunction. In Margolies (supra, p 477), the court held "that the purpose and function of an undertaking given by a plaintiff pursuant to the provisions of CPLR 6312 (subd [b]), prior to the granting of a preliminary injunction, is to reimburse the defendant for damages sustained if it is later finally determined that the preliminary injunction was erroneously granted.” There, the preliminary injunction was vacated on appeal and later the action was discontinued. The Court of Appeals held that defendant was entitled to resort to the undertaking for its damages even though the action did not proceed to final judgment. The result was fair and proper since the defendant had been damaged by the issuance of a preliminary injunction which, as finally determined, plaintiffs should not have been granted. Until the action is finally determined or discontinued, however, any motion to discharge the bond is premature. "In many, even most, instances the entitlement to the preliminary injunction will parallel the plaintiff’s right to a permanent injunction or to other relief he seeks in the main action” (Margolies v Encounter, Inc., supra, p 479). "Findings and judgment in favor of the defendant, after hearing the cause on the merits, constitute, ordinarily, a final decision that plaintiff was not entitled to an injunction pendente lite, as well as an adjudication that he has no cause of action for a permanent injunction; although to have such effect the disposition of the case must be based on insufficiency of the cause stated or shown” (12 Carmody-Wait 2d, NY Prac § 78:122, at 328 [2d ed 1966]; see also, Dooley v Anton, 14 AD2d 60, appeal dismissed 12 NY2d 878). Although a preliminary injunction may be justified based on the showing made on the motion, further consideration after a full trial on the merits may prove that plaintiff was not entitled to the injunction. Thus, when the action is not discontinued, the affirmance on appeal of the preliminary order should not be considered to be the final determination. Defendant should be entitled to the benefit of the undertaking until the question is "finally determined” (CPLR 6312 [b]) after a trial. The decision of the Judicial Hearing Officer, although it may seem to be supported by the language, but not the result, in Margolies (supra), is unjust. Preliminary injunctions are commonly granted to preserve the status quo even though the plaintiff’s right to ultimate relief has not been proven. A [999] preliminary injunction may be justified in the first instance, but after it is ultimately determined that the plaintiff has no cause of action, the defendant should be entitled to recompense for any damages he sustained by being enjoined from doing what he had a right to do. The holding is unjust also because it unfairly penalizes a defendant who unsuccessfully appeals from an order granting a preliminary injunction. Had defendants not appealed the order granting the preliminary injunction, plaintiffs would not have been entitled to a discharge of the bond until the final outcome of the action, and if the action were resolved against plaintiffs on the merits, defendants would have been entitled to resort to the undertaking to recover their damages. This result is not inconsistent with the result in Margolies (supra). In both cases, defendants should be compensated for damages they sustained by reason of being enjoined when they had a right to act. Moreover, both results carry out the legislative intent. It is unreasonable to believe that the Legislature, in enacting CPLR 6312 (b), intended to indemnify a defendant only for damages resulting from the improvident actions of a court in erroneously granting a preliminary injunction, and not also for damages resulting from a preliminary injunction providently granted in the first instance, but finally proven to be unwarranted. All concur, except Callahan, J. P., and Doerr, J., who dissent and vote to affirm, in the following memorandum.