Article

Note: In connection with a subtenancy of commercial office space, Kentshire Madison LLC (Subtenant) provided a USD 900,000 standby LC to KLG N.Y. LLC (Overtenant) as a security deposit. Subtenant vacated the premises. Overtenant had made several drawings on the standby. Subtenant sued Overtenant on a variety of grounds seeking various relief including enjoining Overtenant from drawing on the standby. The Supreme Court of New York, New York County, Edmead, J., denied the claim for injunctive relief.

The Judge listed the elements of a claim for injunctive relief including the likelihood of success, irreparable harm, and the balance of the equities, ruling that there was no allegation that damages could not be calculated or were not adequate, leading to irreparable harm. The Judge also observed that the amount of the standby was virtually depleted.

Legal Analysis:

Comment: While the result was appropriate, the Judge failed to refer to the relevant statute, UCC § 5-109 (Fraud and Forgery) and the requirement that there be a finding of material fraud which from an analytical perspective should precede an assessment of the equitable grounds for injunctive relief. Even had all these elements been present, an injunction should not have been granted without a finding that there was material fraud.

[TLA]

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