Marc J. Goldstein Arbitrator & Mediator NYC
June 16, 2010

Judicial Interim Measures in Aid of Arbitration: New York’s Muddled Landscape

New York’s arbitration statute, Article 75 of the New York Civil Practice Law and Rules (“CPLR”), addresses in section 7502(c) the circumstances in which a New York court may give a provisional measure in aid of arbitration.

Section 7502(c) is a particularly significant provision of state law in the world of international arbitration, given New York’s role as host to many international commercial arbitrations. The Federal Arbitration Act includes no sections concerning provisional relief, so when interim measures are sought in a New York court under CPLR 7502(c) there is no issue of federal law pre-emption.  Several years ago CPLR 7502 (c) was amended to make it expressly applicable in arbitrations based on agreements governed by the New York Convention. The Legislature made this change to overcome a New York Court of Appeals decision, at odds with federal decision, that had held that the New York Convention’s ouster of judicial jursidiction in an arbitrable matter included an ouster of jurisdiction to give provisional measures. Finally, when a proceeding is brought in federal court to obtain provisional relief in aid of arbitration, Federal Rule of Civil Procedure 64 provides that the relief shall be available under the conditions specified in the law of the state where the federal court is sitting.


Further, while CPLR 7502 (c) has no necessary application to a request for interim measures made to an international arbitral tribunal seated in New York, parties will often cite it as a source of applicable standards.


It is therefore quite useful to know what those standards are, and on this point there has been some longstanding uncertainty that has never been resolved by New York’s highest court, the New York Court of Appeals.


CPLR 7502 (c) states in relevant part that the court “may entertain an application for an order of attachment or a preliminary injunction in connection with an arbitration. . . but only upon the ground that the award to which the applicant may be entitled may be rendered ineffectual without such provisional relief.” The statute goes on to say that the CPLR articles concerning attachment (62) and preliminary injunctions (63) “shall apply to the application… except that the sole ground for the granting of the remedy shall be as stated above.”


Before 2000, several decisions in New York’s intermediate appellate court, the Appellate Division, interpreted section 7502 (c) to mean that in the context of a preliminary injunction in aid of arbitration, the traditional equitable criteria mentioned in CPLR Article 63 — likelihood of success on the merits, irreparable harm, and a balance of hardships tipping in favor of the movant — no longer apply and that the sole test for relief is whether the eventual award might be rendered ineffectual. In the attachment context, some New York courts held that the “rendered ineffectual” standard superseded the “grounds” for attachment enumerated in CPLR 6201 —  such as removal of assets from the state, or actual or threatened actions to defraud creditors or frustrate enforcement of a judgment. Other courts went further, and held that the “rendered ineffectual” standard also supplanted the other criteria in CPLR 6212 — that a cause of action exists, probable success on the merits, and that the amount demanded from the defendant exceeds all known counterclaims.


But in 2000 the US Second Circuit Court of Appeals in SG Cowen Securities Corp. v. Messih (224 F.3d 79) interpreted 7502 (c) more restrictively. The Court held that the language “may entertain an application…but only on the ground…..” should be read to mean that the threat that an award will be “rendered ineffectual” is a necessary but not sufficient condition for obtaining relief. The Court read the reference in 7502 (c) to CPLR Articles 62 and 63 to mean that the standards for obtaining relief that those Articles specify remain applicable and that the “sole ground for the granting of the remedy” language did not prevent a court from denying relief where other statutory requirements for relief such as probable success on the merits were not satisfied. Further, the Second Circuit examined the legislative history on 7502 (c) and found that its purpose was to clarify the courts’ power to grant relief rather than to broaden the availability of relief by excusing movants from showing probable success or irreparable harm. Finally, the Second Circuit observed that due process concerns would arise if provisional remedies interfering with property could be obtained without any showing relating to the merits and even if the hardships of the measures upon the enjoined party would be far greater than those suffered by the movant absent interim relief.


For the past decade, decisions in New York state courts have mainly found the SG Cowen case to be persuasive, and have followed it, holding that traditional equitable criteria for preliminary injunctions must be satisfied, and, in the attachment context, that 7502 (c) only obviates the need to show one of the “grounds” in 6201 — but that the CPLR 6212 criteria including probable success on the merits do apply. Federal decisions in the injunction context have followed SG Cowen. In the attachment context, a federal decision earlier this year reviewed the disparate case law, took note that the narrow holding of SG Cowen concerned only preliminary injunctions not orders of attachment, and did not find it necessary to decide whether a ground for attachment such as fruad or misconduct to frustrate creditors must be shown, because the movant could not meet the minimum “rendered ineffectual” threshhold. (Shah v. Commercial Bank, 2010 U.S. Dist. LEXIS 19717 (S.D.N.Y. Mar. 4, 2010)).


Under the current state of the law in New York, parties seeking judicial interim measures in aid of international arbitration here must be prepared to make a substantial evidentiary presentation by documents, affidavits and sometimes live testimony in order to obtain relief. This may for example involve live testimony and cross-examination of experts on foreign law, where foreign law governs the merits and the merits position depends on a contested legal premise. In this context, the courts’ deference to the arbitrator on matters touching upon the merits collides with entrenched principle that preliminary relief in general is “drastic” — and is viewed as such largely because the merits have not yet been fully explored. Therefore many judges are inclined, particularly if the matter appears to have large commercial significance, to make an accelerated and intensive inquiry into the merits in connection with preliminary relief. Absent clear statutory direction or a definitive ruling from the New York Court of Appeals that interprets CPLR 7502 (c) to limit inquiry into the merits, this disposition among judges is likely to remain prevalent in the arbitration interim relief context.


Arbitral tribunals seated in New York, intent on preserving their neutrality, may  prudently seek to avoid studying a judge’s decision on an interim measures application or the record made before the court. But the tribunal must know if provisional relief from a court has been granted, and so a tribunal mindful of New York law cannot help but infer that at least on a “first look” basis, a judge may well have found probable merit to the movant’s position on the merits.


One good solution for parties inclined toward a New York seat but not sanguine about this landscape for judicial interim measures is to use the ICDR’s emergency arbitrator process, the ICC’s pre-arbitral referee procedure, or comparable procedures provided institutionally or created specially by contract to address truly urgent requests that must be heard before the tribunal is constituted. Subject to the particulars of the applicable rules of arbitration, the emergency arbitrator selected will have considerable discretion in choosing applicable standards for provisional relief. And the emergency arbitrator is likely to be more persuadable than a New York state or federal judge to be guided by transnational arbitral norms concerning provisional measures that de-emphasize the merits and focus mainly on the extent of truly irreparable harm and the relative hardships and risks the parties bear with or without provisional relief.

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