Granting a preliminary injunction in aid of arbitration to a party seeking to avoid premature sale of his stock, a New York court found that failing to grant the preliminary injunction would render an arbitration award ineffective.

In Witham v. VFinance Investments, Inc., No. 603378/07, 2007 WL 4244698 (N.Y. Sup. Nov. 21, 2007), Witham filed an arbitration claim against brokerage firm VFinance, Thompson, NFS, and Cucchia, alleging they fraudulently induced him to margin his AquaCell stock and make a loan to Somerset.

Witham sought a preliminary injunction in aid of arbitration pursuant to New York law. Specifically, he requested that the court enjoin VFinance from selling or disposing of the stock in his account, arguing that without the injunction any relief obtained in arbitration would be fruitless. In opposing the motion, VFinance argued that Witham failed to meet the standard for obtaining a preliminary injunction.

Articulating a four-part test for determining whether a court should grant a preliminary injunction in aid of arbitration, the Court granted Witham's injunction request. The factors the Court considered were (1) whether failing to grant injunctive relief would render the award ineffective, (2) likelihood of success on the merits, (3) danger of irreparable harm to the party seeking an injunction if the Court denied preliminary relief, and (4) a balance of the equities in favor of the party seeking an injunction.

The Court found that without the injunction, the relief obtained in arbitration would be ineffective because Witham would lose the right to control his stock and the company by voting the shares and not regain it with an arbitration award in his favor. Further, the Court found Witham made a prima facie showing that he would prevail on the merits. Moreover, Witham would experience irreparable harm if VFinance sold his stock, as he would lose money if the share price increased. Finally, the Court found that Witham simply sought to maintain the status quo.