On March 10, 2009, the Honorable Christopher S. Sontchi of the United States Bankruptcy Court for the District of Delaware issued a decision addressing the standard for preliminary injunctive relief in bankruptcy. This post will look at the substantive and procedural issues considered by the Court in Broadstripe LLC v. National Cable Television Cooperative (In re Broadstripe). Specifically, when is injunctive relief appropriate in a bankruptcy proceeding and how does a party go about seeking injunctive relief under the Federal Rules of Bankruptcy Procedure?
Broadstripe filed for bankruptcy in Delaware on January 2, 2009. In July of 2000, eight years prior to filing for bankruptcy, Broadstripe joined the National Cable Television Cooperative ("NCTC") whereby NCTC agreed to negotiate master programming agreements for Broadstripe. Under the programming agreements, Broadstripe paid NCTC the licensing fees for programming services and NCTC distributed the funds paid by Broadstripe to various programmers (such as Fox, Disney, etc.). In the months leading up to bankruptcy, Broadstripe failed to pay NCTC over $3.4 million in licensing fees. However, after filing for bankruptcy Broadstripe paid NCTC all licensing fees incurred from the petition date forward.
Two weeks after filing for bankruptcy, Broadstripe filed an adversary proceeding with the Bankruptcy Court against NCTC. The adversary proceeding included a Motion for Declaratory and Injunctive Relief against NCTC. One day after the commencement of the adversary proceeding, the Court granted a temporary injunction barring NCTC from excluding Broadstripe from participating in new and existing programming agreements. One month later, the Court conducted a two day evidentiary hearing on the Motion. Less than three weeks after the evidentiary hearing, the Court issued its Findings of Fact and Conclusions of Law.
Requirements for Injunctive Relief in Bankruptcy
The Court began its analysis by recognizing that Federal Rule of Bankruptcy Procedure 7065 grants bankruptcy courts with equitable power to issue temporary restraining orders and preliminary injunctions. Parties seeking either form of relief must demonstrate (i) a reasonable likelihood of success on the merits; (ii) a likelihood that it will suffer irreparable harm if the requested relief is denied; (iii) that the nonmoving party will not suffer even greater harm if the injunction is granted; and (iv) that public interest favors granting such relief. See Kos Pharm., Inc. v. Andrx Corp., 369 F.3d 700, 708 (3d Cir. 2004).
The Court next cited the Third Circuit’s decision in GlaxoSmithKline Consumer Healthcare, L.P. v. Merix Pharm. Corp., 197 Fed. Appx. 120, 124 (3d Cir. 2006)(holding that in deciding whether to issue an injunction, the court must balance the probabilities of ultimate success at the final hearing against the consequences of immediate irreparable injury). Under GlaxoSmithKline, courts must conduct a "delicate balancing" wherein the factors considered by the court are given the appropriate weight. Id.
Applying these standards, the Court in Broadstripe found that the Debtors were likely to prevail on both counts in its complaint. The Court next looked at whether Broadstripe established the likelihood of irreparable harm were the injunctive relief requested denied. Broadstripe satisfied this part of the standard by demonstrating that without the continuation of the NCTC agreements, Broadstripe would be unable to continue providing cable, internet and phone services. Without granting injunctive relief, the Court found that "Broadstripe could be irreparably harmed."
After considering the likelihood of success and the harm to Broadstripe, the Court considered the harm to NCTC. Here, the Court found that NCTC would not be harmed by allowing Broadstripe to continue participating in the programming agreements. The Court recognized that NCTC had a claim against Broadstripe for nonpayment totaling $3.4 million. However, such harm was "fixed as of the Petition Date and can neither be lessened nor worsened by the approval (or denial) of the injunctive relief requested herein."
Finally, as to the last prong of the analysis – public policy, the Court cited the Supreme Court’s decision, NLRB v. Bildisco & Bildisco, for its finding that "the fundamental purpose of reorganization is to prevent a debtor from going into liquidation, with an attendant loss of jobs and possible misuse of economic resources." 104 S.Ct. 1188, 1197 (1984). Recognizing that to deny the injunctive relief would cause injury to both Debtors’ business and its customers, the Court in Broadstripe easily found that the public policy component of the analysis was satisfied.
Injunctive relief is sometimes viewed as an extraordinary remedy. Even so, such relief may be appropriate if it furthers the intent of the Bankruptcy Code. The Court in Broadstripe cited a First Circuit decision, Engine Specialties, Inc. v. Bombardier Ltd. for its finding that "an injunction is proper to prevent the threatened extinction of a business." 454 F.2d 527 (1st Cir. 1972). When seeking injunctive relief in bankruptcy, movants should keep this idea in mind – will the injunction further the intent behind reorganization. Those movants who can make such a showing may be more successful in obtaining injunctive relief.