BMK attorneys Edward Kutchin, Kerry Northup and Matthew Dunn secured a preliminary injunction on behalf of the firm’s clients, two former directors of an India-based subsidiary of a Delaware corporation headquartered in Massachusetts.
The former directors had been appointed to their director positions by the Massachusetts-based parent corporation. When the India-based subsidiary failed, the Indian government sought to hold the two former directors personally liable for its failure to pay taxes. The parent corporation, a publicly held company in some financial difficulty which had entered into an agreement to sell the company, sought to avoid their indemnification obligation and as a result BMK filed suit on behalf of their clients in Superior Court seeking indemnification from the parent entity and a preliminary injunction to freeze a portion of the sale proceeds sufficient to cover the indemnification obligation. The defendant removed the case to the U.S. District Court for the District of Massachusetts asserting federal question jurisdiction arising out of certain tax treaties to which the United States and India are party.
After a hearing before Chief Judge Patti Saris, BMK successfully obtained a preliminary injunction preventing the parent corporation from selling and dissipating its assets until and unless $1.7 million was placed in escrow. BMK successfully established the existence of the four factors that were necessary for the district court to issue a preliminary injunction – (l) the plaintiff’s likelihood of success on the merits; (2) the potential for irreparable harm in the absence of an injunction; (3) whether issuing an injunction will burden the plaintiffs; and (4) the effect, if any, on the public interest. Accordingly, the District Court allowed the motion and required the parent corporation to deposit approximately $1.7 Million, an amount sufficient to satisfy all of the clients’ potential tax liability, into court during the pendency of the lawsuit. Without the benefit of this Order, the two directors would have been unable to recover on their indemnification claims and would have been left alone to deal with over a million dollars of potential tax liability.