Originally from Dispute Resolution Journal

EMPLOYMENT

Injunction in Aid of Arbitration

The 2nd Circuit held that a New York statute permitting the court to decide an application for a preliminary injunction in aid of arbitration, “but only upon the ground that the award to which the applicant may be entitled may be rendered ineffectual without such provisional relief,” permits the judge to consider traditional equitable standards for the issuance of an injunction.

This case grew out of a “non-compete” clause in an employment agreement, which prohibited Robert Messih from working for any competitor of SG Cowen Securities during the term. The contract required arbitration in California, granted Cowen the right to injunctive relief against a breach, and selected New York law to govern its interpretation and application.

Messih resigned as managing director of Cowen’s San Francisco office eight months into the term and went to work for a competitor in California. Cowen sued in a New York court seeking a temporary injunction in aid of arbitration under § 7502(c) of the New York Civil Practice Law and Rules (CPLR), and served Messih and his employer with notice of intent to arbitrate.

The court issued an ex parte temporary restraining order (TRO) enjoining Messih from working for a Cowen competitor, but upon removal to federal court, the district court dissolved the TRO and denied the motion for a preliminary injunction. The district court concluded that an injunction under § 7502 required analysis under traditional equitable criteria, including a likelihood of success on the merits, danger of irreparable harm and a balancing of equities. It found that Cowen could not demonstrate a likelihood of success on the merits because the non-compete clause was unenforceable under both California law (which had greater contact with the dispute) and New York law. It also found no showing of irreparable harm.