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According to a federal district court in Alabama, courts are permitted to grant injunctive relief in an action stayed pending arbitration, but the court must find a threat of irreparable harm before granting the injunction.
In Drago v. Holiday Isle, L.L.C., Civ. No. 07-0430-KD-B, 2007 WL 2683675 (S.D. Ala. Sept. 7, 2007), Drago and Holiday entered into an agreement for the purchase of a condominium. Later, Drago rescinded the agreement, a rescission that Holiday did not honor. Drago field a complaint with the Court, seeking an order that Holiday honor the rescission. Holiday instead moved to stay the proceedings and compel arbitration of the dispute in accordance with their contract, which the Court granted.
During the arbitration process, Drago made a motion with the Court for immediate injunctive relief, asking the Court for an order restraining Holiday from calling in a letter of credit for the condominium project. Holiday opposed the motion, claiming (1) that the court lacked jurisdiction to do so during the pending arbitration and (2) that the injunction was not necessary in this instance.
The Court agreed with Drago that it retained limited jurisdiction during a matter stayed pending arbitration, a view shared by a majority of federal courts considering the question. The Court observed that this view was in harmony with Eleventh Circuit precedent granting courts the jurisdiction “to grant equitable relief in a case subject to arbitration.”
However, the Court found that although it was empowered to grant an injunction in this case, the injunction was not necessary. Equitable relief in such a situation, according to the Court, is only appropriate “where an arbitral award could not return the parties substantially to the status quo.” Equating this with the concept of “irreparable harm,” the Court found no such harm alleged. Drago claimed that they would be harmed by damage to their credit score and by the possibility of not being able to collect damages from Holiday should Drago prevail in arbitration, but the Court stated that these allegations were speculative and not sufficient to warrant an injunction.
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