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The familiar standard for a preliminary injunction places the burden on the movant to demonstrate: (1) a reasonable probability of success on the merits; (2) irreparable harm if the injunction is not granted; and (3) a balance of equities in favor of granting the relief. Because a preliminary injunction is an extraordinary remedy, such relief will not be granted where the remedy sought is excessive in relation to, or unnecessary to prevent, the injury threatened.
Plaintiff Benchmark Capital Partners IV, L.P. ("Benchmark") invested in the first two series of the Defendant Juniper Financial Corp.'s ("Juniper") preferred stock. When additional capital was required, Defendant Canadian Imperial Bank of Commerce ("CIBC") was an able and somewhat willing investor. As a result of that investment, Benchmark's holdings were relegated to the status of junior preferred stock and CIBC acquired a controlling interest in Juniper by virtue of ownership of senior preferred stock. Seeking more capital in order to satisfy regulators and business requirements, Juniper structured a merger and a sale of Series D Preferred Stock to CIBC. Juniper will not obtain approval for the act from the holders of the junior preferred stock, contending that the protective provisions did not give the junior preferred stockholders a vote on the plans. As the result of the sequence of events, the equity holdings of the junior preferred stockholders will be reduced from approximately 29% to 7%. Benchmark sought a preliminary injunction to stop the merger, asserting that the defendants, Juniper and the senior stockholders, engaged in conduct that would violate its fundamental right to vote on corporate actions, as provided in the certificate of incorporation.
Under the circumstances, was the plaintiff entitled to the injunctive relief sought?
The court noted that the familiar standard for a preliminary injunction placed the burden on the movant to demonstrate: (i) a reasonable probability of success on the merits, (ii) irreparable harm if the injunction was not granted, and (iii) a balance of equities in favor of granting the relief. In this case, the court noted that the harm to plaintiff was directly attributable to the differences between the new junior preferred stock, authorized through the merger, and the old junior preferred stock as evidenced by the planned post-merger capital structure of the company. However, since those consequences were the product of a merger, a corporate event which the drafters of the protective provision could have addressed, but did not, the court held that plaintiff has not demonstrated a reasonable probability of success on the merits of its claim. The court further held that plaintiff’s purported harm appeared to be of less significance because of the corporation’s current financial condition and the minimal liquidation value that the corporation would provide its junior preferred stockholders. Turning to a balancing of the equities or relative hardships, the court found that the inquiry weighed heavily in favor of the corporation. There was no question as to the corporation’s pressing need for capital, and plaintiff failed to challenge effectively the evidence of the corporation’s current critical need for additional capital, the lack of any alternate source for such funding, and the onerous consequences that failure to secure such capital will cause the corporation and its constituents. Accordingly, the court denied plaintiff’s motion for preliminary injunction.