Injunctive Relief: Protecting the Availability of Funds to Satisfy a Future Monetary Judgment

Insurers considering whether to bring suit for restitution under the New Jersey Insurance Fraud Prevention Act, N.J.S.A. 17:33A-1 et seq., against suspected fraudulent claimants must deal with a problem confronting all potential plaintiffs: the likelihood that a favorable judgment against the claimant may never be collected.

While in some instances, the insurer may be able to obtain pretrial attachment of the claimants' assets, the grounds for obtaining attachment are limited to where the defendant resides or operates its business within New Jersey. See R. 4:60; N.J.S.A. 2A:26-1 to 16.

An alternative approach involves seeking equitable protection from the court to maintain the status quo by way of an injunction. Those seeking injunctive relief in such instances must demonstrate a likelihood of success on the merits of their claim, irreparable harm in the absence of such relief, and that the balance of the equities favors the granting of such relief. See Crowe v. DeGioia, 90 N.J. 126 (1982).

A customary tenet of equity jurisprudence states that irreparable harm will not be found to exist where there is an adequate legal remedy. However, where there is an equitable basis for jurisdiction and where a plaintiff demonstrates that a future money judgment will never be collected without equitable relief, courts have granted injunctions prohibiting defendants from dissipating or distributing certain assets. Since claims under the Fraud Act often involve situations where the defendant has demonstrated its untrustworthiness, courts may be concerned about the specter of leaving plaintiff with a hollow judgment.

In fact, New Jersey courts have issued injunctive relief to guard against the dissipation of assets in situations that did not warrant attachment. In providing such relief, the courts either determined that an uncollectible judgment constituted an inadequate legal remedy or relied upon the existence of an independent basis for the exertion of equity jurisdiction.

In Delaware River & Bay Authority v. York Hunter Construction, Inc., 344 N.J. Super. 361, 363 (Ch. Div. 2001), the plaintiff sought to enjoin defendant, a construction manager who contracted to supervise and pay subcontractors constructing a building, from dissipating funds in an account created for the primary purpose of paying the subcontractors. In addition to suing for conversion and breach of contract, the Authority also sought an order declaring the funds in the account to be held in trust. 344 N.J. Super. at 364. York Hunter did not dispute that it was using money from its current contracts to satisfy debts stemming from older contracts, but argued that no injunction could issue because the harm was purely economic and could be remedied by a money judgment. Ibid.

The court cited Crowe for the general standard governing the issuance of injunctive relief, but noted, “This statement of the necessary condition does not address the question of what constitutes an 'adequate' remedy at law or when harm is 'redressed adequately' by monetary damages. Specifically, it does not suggest whether an adequate remedy is provided by a money judgment which, when obtained, may be difficult or impossible to collect.” 344 N.J. Super. at 365. The court canvassed numerous decisions from various jurisdictions and noted that while some courts hold that irreparable harm is determined without reference to the ultimate collection of a money judgment, 344 N.J. Super. at 365 (citing Mary Dee's, Inc. v. Tartamella, 492 So.2d 815, 816 (Fla. 4th DCA 1986), Ashland Oil, Inc. v. Gleave, 540 F.Supp. 81, 86 (W.D.N.Y. 1982), Dacy v. Gors, 471 N.W.2d 576 (S.D. 1991)), others adopted the position that the entry of a judgment which cannot be enforced or collected is no remedy at all, let alone an adequate remedy. 344 N.J. Super. at 366 (citing Jay County Rural Elec. Membership. Corp. v. Wabash Valley Power Ass'n, 692 N.E.2d 905, 910 (Ind.Ct.App.), trans. den. 706 N.E.2d 167 (Ind. 1998), Central States, SE & SW Areas Pension Fund v. Jack Cole-Dixie Highway Co., 642 F.2d 1122 (8th Cir. 1981), Tri-State Generation & Transmission Ass'n v. Shoshone River Power, Inc., 805 F.2d 351, 355 (10th Cir. 1986), In re Ferdinand Marcos, 25 F.3d 1467 (9th Cir. 1994), Van Loan v. Van Loan, 895 P.2d 614 (Mont. 1995)).

Rather than adopt either of these positions, the court instead followed what it believed to be the law of Delaware as reflected in E.I. Du Pont de Nemours and Company v. HEM Research, Inc., 576 A.2d 635 (Del.Ch. 1989), that there must exist an independent basis for invoking equity jurisdiction before such an injunction could issue. 344 N.J. Super. at 367. In what may be classified as dicta, the court refused to issue an injunction solely because of the risk that money would not be available to satisfy a future judgment, noting that such a restraint would be “functionally equivalent” to an attachment. 344 N.J. Super. at 368. Nevertheless, the court issued an injunction restraining York Hunter from dissipating the account because an independent basis for equity jurisdiction existed since the action was “the substantive equivalent of an action seeking to compel the defendant to re-fund a trust improperly depleted.” 344 N.J. Super. at 369. The court noted, “Equity has always been charged with the preservation of the status quo and the management of assets committed to the care of a fiduciary and the fact that money is involved should not diminish that traditional jurisdiction.” Ibid.

In insurance fraud cases, rescission and restitution both arguably provide an independent equitable basis for the court's jurisdiction. Nearly every insurance policy in this state contains a provision providing for the rescission of the policy in the event a policyholder commits fraud in relation to a claim for benefits, and insurers may seek restitution from those who fraudulently obtain insurance benefits.

Hoxworth: Lack of Funds To Satisfy Future Monetary Judgment Constitutes Irreparable Harm

Even in the absence of an independent equitable basis, potential future damages remedies may still be protected by preliminary injunction. The Third Circuit recognized the propriety of using injunctions in this manner under certain circumstances in Hoxworth v. Blinder, Robinson & Company, 903 F.2d 186 (1990).

Here, the Third Circuit reviewed the propriety of what it labeled an “extremely broad” preliminary injunction against a securities dealer, Blinder, Robinson, its related nonparty corporate parent, Blinder Robinson International, and the principal shareholder of this parent company who was also a named defendant, Meyer Blinder. 903 F.2d at 189. The case involved three consolidated class actions alleging securities fraud and RICO violations arising from the shady penny stock selling practices of Blinder Robinson, practices which ultimately led to the firm's liquidation and Meyer Blinder's incarceration. Douglas Martin, Meyer Blinder, Penny Stock King, Dies at 82, New York Times, March 4, 2004.

Nearly 1 year after the filing of these complaints, plaintiffs sought a preliminary injunction freezing Blinder's personal assets and prohibiting Blinder, Robinson from transferring assets outside of the ordinary course of business without notice and leave of court. 903 F.2d at 191. In addition to producing evidence of the defendants' fraudulent securities practices, plaintiffs also introduced essentially uncontradicted evidence of the defendants' sagging financial fortunes, due largely to publicity surrounding the allegedly fraudulent practices at issue in the suit. 903 F.2d at 192-193. Based upon this evidence, the court determined that the defendant was unlikely to have sufficient assets to satisfy plaintiffs' potential future judgment against it. 903 F.2d at 193. In response, however, the court granted injunctive relief that the Third Circuit noted was “far broader in scope” than the relief requested by plaintiffs. Ibid. The court ordered the repatriation of funds transferred overseas by both Blinder and Blinder, Robinson and imposed significant restraints on the assets of both of these defendants as well as the nonparty parent corporation, Blinder International.

All of the enjoined parties appealed to the Third Circuit, arguing primarily that either the District Court lacked the authority to issue injunctions aimed at protecting future monetary damages, 903 F.2d at 194, or that the future unavailability of funds failed to constitute an irreparable harm necessary for the issuance of an injunction. 903 F.2d at 205.

The Third Circuit interpreted two U.S. Supreme Court cases, De Beers Consolidated Mines v. United States, 325 U.S. 212, 65 S.Ct. 1130, 89 L.Ed. 1566 (1945) and Deckert v. Independence Shares Corporation, 311 U.S. 282, 61 S.Ct. 229, 85 L.Ed. 189 (1940), in rejecting appellants' argument that courts lacked authority to issue injunctions to ensure the availability of funds to satisfy a future legal remedy. The court distinguished De Beers as a case in which future legal damages were not available, 903 F.2d at 195, and relied upon Deckert for the principal that a legal remedy against a party lacking funds would be inadequate. 903 F.2d at 196.

The court again cited Deckert as authority in refuting the appellants' claim that the possibility of an unsatisfied money judgment could not, as a matter of law, constitute an irreparable injury for purposes of issuing a preliminary injunction. 903 F.2d at 205. The Third Circuit upheld the district court's finding that Blinder, Robinson would be unable to satisfy a future money judgment, 903 F.2d at 206, but nevertheless vacated the injunction as to all appellants because the district court failed to determine whether the injunction was tailored to relate to the likely value of plaintiffs' expected judgment. 903 F.2d at 198.

The Third Circuit thus allowed for the issuance of an injunction to protect a future damages remedy, but noted that the availability of such relief was not necessarily “appropriate in a run-of-the-mill damages action,” and required that the tradition requirements for equitable relief be met by the moving party. 903 F.2d at 197.

Hoxworth As Applied in the District of New Jersey

Following Hoxworth, several New Jersey District Court decisions have considered defendants' duplicitous conduct in determining whether to issue an injunction to protect the availability of a future damages remedy. Andrews v. Holloway, No. 95 Civ. 1047, 1995 WL 875883 (D.N.J. Nov. 9, 1995) involved a partnership dispute brought by limited partners against the individual behind the corporation that acted as managing partner. After forming a partnership to invest in rare coins, the limited partners alleged serious improprieties and fraud against defendants and sought preliminary injunctive relief. The court determined that while the partnership assets decreased, the individual defendants enjoyed ” … an unexplained and substantial increase in personal real estate holdings.”

The court cited Hoxworth for the principle that, “In the unusual case, the probable future unsatisfiability of a likely money judgment can constitute irreparable harm.” The court thus concluded, “[I]f plaintiffs showed that they were likely to become entitled to the encumbered funds upon final judgment and that without the preliminary injunction, plaintiffs would probably be unable to recover those funds, they demonstrated a likelihood of success on the merits and irreparable injury and the District Court would act appropriately in granting preliminary injunctive relief to protect the funds from dissipation.”

In obvious recognition that the best available predictor of future behavior is past behavior, Judge Jerome B. Simandle determined that “defendant's past financial manipulations” demonstrated that “funds would be unavailable to satisfy a reasonably foreseeable judgment in plaintiffs' favor unless preliminary injunctive relief is granted.”

In Marsellis-Warner Corporation v. Rabens, 51 F.Supp.2d 508 (D.N.J. 1999), a paving and excavating contractor brought suit against several former employees from its South Jersey office. These former employees created their own company and allegedly diverted Marsellis-Warner's assets for work performed by and for this other entity, all the while fraudulently reporting back to the home office that the time and materials expended by the South Jersey office were for Marsellis-Warner projects. 51 F.Supp.2d at 514-515. The plaintiff sought both a writ of attachment against the real and personal property of defendants and an injunction preventing the dissipation of assets or the destruction of documents evidencing defendants' duplicitous conduct.

In support of their request for an injunction, plaintiff produced evidence demonstrating that defendants had already repeatedly engaged in acts of secreting, removing, and/or destroying potentially implicating business records. 51 F.Supp.2d at 529. The court noted that the defendants did not produce any evidence contesting the allegation that they had engaged in “financial manipulation” or the destruction of potentially incriminating records. 51 F.Supp.2d at 530. Citing Hoxworth, the court found that “the unsatisfiability of a money judgment can constitute irreparable injury.” 51 F.Supp.2d at 531 (citations omitted). Defendants argued that since they had all been fired by Marsellis-Warner, no threat of continuing harm existed. 51 F.Supp.2d at 531. The court rejected this argument, pointing instead to evidence on the record demonstrating the defendants' “untrustworthy” character, from which the court concluded, “[T]he past financial manipulation of the Defendants and the potential future depletion or dissipation of assets still in the possession of the Defendants create a real and substantial risk money damages may ultimately be unobtainable.” 51 F.Supp.2d at 532.

The court next considered plaintiff's request for an attachment. Under the rules governing federal courts, attachments are governed by the laws of the state in which the court is situated. Fed.R.Civ.P. 64. Pursuant to N.J.S.A. 4:60-5(a), writs of attachment may only issue where there is, in addition to a probability of success on the merits, a statutory basis for issuance of the writ and property located within the state. The court refused to undergo a detailed analysis of the propriety of issuing a writ, noting, “It appears a preliminary injunction effectively freezing the assets of the Defendants renders a writ of attachment redundant, and the relief afforded Marsellis-Warner duplicative.” 51 F.Supp.2d at 536.

In Construction Drilling, Inc. v. Chusid, 63 F.Supp. 2d 509, 510-511 (D.N.J. 1999), plaintiffs sued various defendants alleged to have created a fictitious financial institution, the Caribbean Bank, licensed by a fictitious sovereign, the Dominion of Melchizedek, for the purposes of defrauding plaintiffs. The court granted plaintiffs both an attachment of defendants real and personal property and an injunction prohibiting defendants from disposing of these assets, and the defendants moved to vacate this order. 63 F.Supp.2d at 511-512.

Defendants argued against the injunction on the basis that plaintiffs could not demonstrate irreparable injury. The court rejected this argument, and, citing Hoxworth, instead concluded that a movant can demonstrate irreparable injury by “showing a likelihood that a money judgment will otherwise go unsatisfied.” 63 F.Supp.2d at 513. It further noted, citing Elliott v. Kiesewetter, 98 F.3d. 47, 58, that such relief was particularly warranted where the party subject to the injunction had demonstrated a history of fraud relating to plaintiff's assets, and that defendant made no factual showing that it could satisfy a money judgment in the absence of restraints. 63 F.Supp.2d at 513.

Claims arising under the Fraud Act often present the type of “unusual” situation arguably warranting this form of injunctive relief. While the likelihood of success will always turn on individual circumstances, all cases arising under this Act will normally involve allegations that a defendant has acted in a systematically untrustworthy manner, often over a considerable period of time. Such conduct may convince the court that a given defendant is simply untrustworthy, thus raising the presumption that unencumbered assets will be dissipated or secreted before they can be used to satisfy plaintiff's likely future judgment.

Furthermore, those asserting a claim under the Fraud Act may satisfy the balancing test by noting that the fight against such fraud reflects the statutorily expressed strong public policy of this state. This is important, as the balancing of the equities between the insurer and the allegedly fraudulent claimant alone will normally favor the claimant. While the insurer will likely remain solvent regardless of whether a final judgment is ever collected, an injunction restraining the dissipation of funds could potentially cripple a small business or medical practitioner. However, when the public policy against insurance fraud is considered as part of this balancing, courts may likely determine that the protection of New Jersey ratepayers outweighs the harm that will befall these allegedly fraudulent parties.

Conclusion

Insurers filing suit under the Fraud Act should consider, in situations where the untrustworthiness of the defendants can be easily demonstrated to the court, whether to seek a preliminary injunction to ensure the adequacy of a restitution remedy.

Insurers considering whether to bring suit for restitution under the New Jersey Insurance Fraud Prevention Act, N.J.S.A. 17:33A-1 et seq. , against suspected fraudulent claimants must deal with a problem confronting all potential plaintiffs: the likelihood that a favorable judgment against the claimant may never be collected.

While in some instances, the insurer may be able to obtain pretrial attachment of the claimants' assets, the grounds for obtaining attachment are limited to where the defendant resides or operates its business within New Jersey. See R. 4:60; N.J.S.A. 2A:26-1 to 16.

An alternative approach involves seeking equitable protection from the court to maintain the status quo by way of an injunction. Those seeking injunctive relief in such instances must demonstrate a likelihood of success on the merits of their claim, irreparable harm in the absence of such relief, and that the balance of the equities favors the granting of such relief. See Crowe v. DeGioia , 90 N.J. 126 (1982).

A customary tenet of equity jurisprudence states that irreparable harm will not be found to exist where there is an adequate legal remedy. However, where there is an equitable basis for jurisdiction and where a plaintiff demonstrates that a future money judgment will never be collected without equitable relief, courts have granted injunctions prohibiting defendants from dissipating or distributing certain assets. Since claims under the Fraud Act often involve situations where the defendant has demonstrated its untrustworthiness, courts may be concerned about the specter of leaving plaintiff with a hollow judgment.

In fact, New Jersey courts have issued injunctive relief to guard against the dissipation of assets in situations that did not warrant attachment. In providing such relief, the courts either determined that an uncollectible judgment constituted an inadequate legal remedy or relied upon the existence of an independent basis for the exertion of equity jurisdiction.

In Delaware River & Bay Authority v. York Hunter Construction, Inc., 344 N.J. Super. 361, 363 (Ch. Div. 2001), the plaintiff sought to enjoin defendant, a construction manager who contracted to supervise and pay subcontractors constructing a building, from dissipating funds in an account created for the primary purpose of paying the subcontractors. In addition to suing for conversion and breach of contract, the Authority also sought an order declaring the funds in the account to be held in trust. 344 N.J. Super. at 364. York Hunter did not dispute that it was using money from its current contracts to satisfy debts stemming from older contracts, but argued that no injunction could issue because the harm was purely economic and could be remedied by a money judgment. Ibid.

The court cited Crowe for the general standard governing the issuance of injunctive relief, but noted, “This statement of the necessary condition does not address the question of what constitutes an 'adequate' remedy at law or when harm is 'redressed adequately' by monetary damages. Specifically, it does not suggest whether an adequate remedy is provided by a money judgment which, when obtained, may be difficult or impossible to collect.” 344 N.J. Super. at 365. The court canvassed numerous decisions from various jurisdictions and noted that while some courts hold that irreparable harm is determined without reference to the ultimate collection of a money judgment, 344 N.J. Super. at 365 (citing Mary Dee's, Inc. v. Tartamella , 492 So.2d 815, 816 (Fla. 4th DCA 1986), Ashland Oil, Inc. v. Gleave , 540 F.Supp. 81, 86 (W.D.N.Y. 1982), Dacy v. Gors , 471 N.W.2d 576 (S.D. 1991)), others adopted the position that the entry of a judgment which cannot be enforced or collected is no remedy at all, let alone an adequate remedy. 344 N.J. Super. at 366 (citing Jay County Rural Elec. Membership. Corp. v. Wabash Valley Power Ass'n , 692 N.E.2d 905, 910 (Ind.Ct.App.), trans. den . 706 N.E.2d 167 (Ind. 1998), Central States, SE & SW Areas Pension Fund v. Jack Cole-Dixie Highway Co. , 642 F.2d 1122 (8th Cir. 1981), Tri-State Generation & Transmission Ass'n v. Shoshone River Power, Inc., 805 F.2d 351, 355 (10th Cir. 1986), In re Ferdinand Marcos , 25 F.3d 1467 (9th Cir. 1994), Van Loan v. Van Loan , 895 P.2d 614 (Mont. 1995)).

Rather than adopt either of these positions, the court instead followed what it believed to be the law of Delaware as reflected in E.I. Du Pont de Nemours and Company v. HEM Research, Inc., 576 A.2d 635 (Del.Ch. 1989), that there must exist an independent basis for invoking equity jurisdiction before such an injunction could issue. 344 N.J. Super. at 367. In what may be classified as dicta, the court refused to issue an injunction solely because of the risk that money would not be available to satisfy a future judgment, noting that such a restraint would be “functionally equivalent” to an attachment. 344 N.J. Super. at 368. Nevertheless, the court issued an injunction restraining York Hunter from dissipating the account because an independent basis for equity jurisdiction existed since the action was “the substantive equivalent of an action seeking to compel the defendant to re-fund a trust improperly depleted.” 344 N.J. Super. at 369. The court noted, “Equity has always been charged with the preservation of the status quo and the management of assets committed to the care of a fiduciary and the fact that money is involved should not diminish that traditional jurisdiction.” Ibid.

In insurance fraud cases, rescission and restitution both arguably provide an independent equitable basis for the court's jurisdiction. Nearly every insurance policy in this state contains a provision providing for the rescission of the policy in the event a policyholder commits fraud in relation to a claim for benefits, and insurers may seek restitution from those who fraudulently obtain insurance benefits.

Hoxworth: Lack of Funds To Satisfy Future Monetary Judgment Constitutes Irreparable Harm

Even in the absence of an independent equitable basis, potential future damages remedies may still be protected by preliminary injunction. The Third Circuit recognized the propriety of using injunctions in this manner under certain circumstances in Hoxworth v. Blinder, Robinson & Company , 903 F.2d 186 (1990).

Here, the Third Circuit reviewed the propriety of what it labeled an “extremely broad” preliminary injunction against a securities dealer, Blinder, Robinson, its related nonparty corporate parent, Blinder Robinson International, and the principal shareholder of this parent company who was also a named defendant, Meyer Blinder. 903 F.2d at 189. The case involved three consolidated class actions alleging securities fraud and RICO violations arising from the shady penny stock selling practices of Blinder Robinson, practices which ultimately led to the firm's liquidation and Meyer Blinder's incarceration. Douglas Martin, Meyer Blinder, Penny Stock King, Dies at 82, New York Times, March 4, 2004.

Nearly 1 year after the filing of these complaints, plaintiffs sought a preliminary injunction freezing Blinder's personal assets and prohibiting Blinder, Robinson from transferring assets outside of the ordinary course of business without notice and leave of court. 903 F.2d at 191. In addition to producing evidence of the defendants' fraudulent securities practices, plaintiffs also introduced essentially uncontradicted evidence of the defendants' sagging financial fortunes, due largely to publicity surrounding the allegedly fraudulent practices at issue in the suit. 903 F.2d at 192-193. Based upon this evidence, the court determined that the defendant was unlikely to have sufficient assets to satisfy plaintiffs' potential future judgment against it. 903 F.2d at 193. In response, however, the court granted injunctive relief that the Third Circuit noted was “far broader in scope” than the relief requested by plaintiffs. Ibid. The court ordered the repatriation of funds transferred overseas by both Blinder and Blinder, Robinson and imposed significant restraints on the assets of both of these defendants as well as the nonparty parent corporation, Blinder International.

All of the enjoined parties appealed to the Third Circuit, arguing primarily that either the District Court lacked the authority to issue injunctions aimed at protecting future monetary damages, 903 F.2d at 194, or that the future unavailability of funds failed to constitute an irreparable harm necessary for the issuance of an injunction. 903 F.2d at 205.

The Third Circuit interpreted two U.S. Supreme Court cases, De Beers Consolidated Mines v. United States , 325 U.S. 212, 65 S.Ct. 1130, 89 L.Ed. 1566 (1945) and Deckert v. Independence Shares Corporation , 311 U.S. 282, 61 S.Ct. 229, 85 L.Ed. 189 (1940), in rejecting appellants' argument that courts lacked authority to issue injunctions to ensure the availability of funds to satisfy a future legal remedy. The court distinguished De Beers as a case in which future legal damages were not available, 903 F.2d at 195, and relied upon Deckert for the principal that a legal remedy against a party lacking funds would be inadequate. 903 F.2d at 196.

The court again cited Deckert as authority in refuting the appellants' claim that the possibility of an unsatisfied money judgment could not, as a matter of law, constitute an irreparable injury for purposes of issuing a preliminary injunction. 903 F.2d at 205. The Third Circuit upheld the district court's finding that Blinder, Robinson would be unable to satisfy a future money judgment, 903 F.2d at 206, but nevertheless vacated the injunction as to all appellants because the district court failed to determine whether the injunction was tailored to relate to the likely value of plaintiffs' expected judgment. 903 F.2d at 198.

The Third Circuit thus allowed for the issuance of an injunction to protect a future damages remedy, but noted that the availability of such relief was not necessarily “appropriate in a run-of-the-mill damages action,” and required that the tradition requirements for equitable relief be met by the moving party. 903 F.2d at 197.

Hoxworth As Applied in the District of New Jersey

Following Hoxworth, several New Jersey District Court decisions have considered defendants' duplicitous conduct in determining whether to issue an injunction to protect the availability of a future damages remedy. Andrews v. Holloway, No. 95 Civ. 1047, 1995 WL 875883 (D.N.J. Nov. 9, 1995) involved a partnership dispute brought by limited partners against the individual behind the corporation that acted as managing partner. After forming a partnership to invest in rare coins, the limited partners alleged serious improprieties and fraud against defendants and sought preliminary injunctive relief. The court determined that while the partnership assets decreased, the individual defendants enjoyed ” … an unexplained and substantial increase in personal real estate holdings.”

The court cited Hoxworth for the principle that, “In the unusual case, the probable future unsatisfiability of a likely money judgment can constitute irreparable harm.” The court thus concluded, “[I]f plaintiffs showed that they were likely to become entitled to the encumbered funds upon final judgment and that without the preliminary injunction, plaintiffs would probably be unable to recover those funds, they demonstrated a likelihood of success on the merits and irreparable injury and the District Court would act appropriately in granting preliminary injunctive relief to protect the funds from dissipation.”

In obvious recognition that the best available predictor of future behavior is past behavior, Judge Jerome B. Simandle determined that “defendant's past financial manipulations” demonstrated that “funds would be unavailable to satisfy a reasonably foreseeable judgment in plaintiffs' favor unless preliminary injunctive relief is granted.”

In Marsellis-Warner Corporation v. Rabens , 51 F.Supp.2d 508 (D.N.J. 1999), a paving and excavating contractor brought suit against several former employees from its South Jersey office. These former employees created their own company and allegedly diverted Marsellis-Warner's assets for work performed by and for this other entity, all the while fraudulently reporting back to the home office that the time and materials expended by the South Jersey office were for Marsellis-Warner projects. 51 F.Supp.2d at 514-515. The plaintiff sought both a writ of attachment against the real and personal property of defendants and an injunction preventing the dissipation of assets or the destruction of documents evidencing defendants' duplicitous conduct.

In support of their request for an injunction, plaintiff produced evidence demonstrating that defendants had already repeatedly engaged in acts of secreting, removing, and/or destroying potentially implicating business records. 51 F.Supp.2d at 529. The court noted that the defendants did not produce any evidence contesting the allegation that they had engaged in “financial manipulation” or the destruction of potentially incriminating records. 51 F.Supp.2d at 530. Citing Hoxworth, the court found that “the unsatisfiability of a money judgment can constitute irreparable injury.” 51 F.Supp.2d at 531 (citations omitted). Defendants argued that since they had all been fired by Marsellis-Warner, no threat of continuing harm existed. 51 F.Supp.2d at 531. The court rejected this argument, pointing instead to evidence on the record demonstrating the defendants' “untrustworthy” character, from which the court concluded, “[T]he past financial manipulation of the Defendants and the potential future depletion or dissipation of assets still in the possession of the Defendants create a real and substantial risk money damages may ultimately be unobtainable.” 51 F.Supp.2d at 532.

The court next considered plaintiff's request for an attachment. Under the rules governing federal courts, attachments are governed by the laws of the state in which the court is situated. Fed.R.Civ.P. 64. Pursuant to N.J.S.A. 4:60-5(a), writs of attachment may only issue where there is, in addition to a probability of success on the merits, a statutory basis for issuance of the writ and property located within the state. The court refused to undergo a detailed analysis of the propriety of issuing a writ, noting, “It appears a preliminary injunction effectively freezing the assets of the Defendants renders a writ of attachment redundant, and the relief afforded Marsellis-Warner duplicative.” 51 F.Supp.2d at 536.

In Construction Drilling, Inc. v. Chusid, 63 F.Supp. 2d 509, 510-511 (D.N.J. 1999), plaintiffs sued various defendants alleged to have created a fictitious financial institution, the Caribbean Bank, licensed by a fictitious sovereign, the Dominion of Melchizedek, for the purposes of defrauding plaintiffs. The court granted plaintiffs both an attachment of defendants real and personal property and an injunction prohibiting defendants from disposing of these assets, and the defendants moved to vacate this order. 63 F.Supp.2d at 511-512.

Defendants argued against the injunction on the basis that plaintiffs could not demonstrate irreparable injury. The court rejected this argument, and, citing Hoxworth, instead concluded that a movant can demonstrate irreparable injury by “showing a likelihood that a money judgment will otherwise go unsatisfied.” 63 F.Supp.2d at 513. It further noted, citing Elliott v. Kiesewetter , 98 F.3d. 47, 58, that such relief was particularly warranted where the party subject to the injunction had demonstrated a history of fraud relating to plaintiff's assets, and that defendant made no factual showing that it could satisfy a money judgment in the absence of restraints. 63 F.Supp.2d at 513.

Claims arising under the Fraud Act often present the type of “unusual” situation arguably warranting this form of injunctive relief. While the likelihood of success will always turn on individual circumstances, all cases arising under this Act will normally involve allegations that a defendant has acted in a systematically untrustworthy manner, often over a considerable period of time. Such conduct may convince the court that a given defendant is simply untrustworthy, thus raising the presumption that unencumbered assets will be dissipated or secreted before they can be used to satisfy plaintiff's likely future judgment.

Furthermore, those asserting a claim under the Fraud Act may satisfy the balancing test by noting that the fight against such fraud reflects the statutorily expressed strong public policy of this state. This is important, as the balancing of the equities between the insurer and the allegedly fraudulent claimant alone will normally favor the claimant. While the insurer will likely remain solvent regardless of whether a final judgment is ever collected, an injunction restraining the dissipation of funds could potentially cripple a small business or medical practitioner. However, when the public policy against insurance fraud is considered as part of this balancing, courts may likely determine that the protection of New Jersey ratepayers outweighs the harm that will befall these allegedly fraudulent parties.

Conclusion

Insurers filing suit under the Fraud Act should consider, in situations where the untrustworthiness of the defendants can be easily demonstrated to the court, whether to seek a preliminary injunction to ensure the adequacy of a restitution remedy.