Hutch Remedies – Version F0.6
I.
What is a Remedy?
A. Definition – anything a court can do for a litigant who has been wronged
1. the wrong can be something that has already occurred or something that is about to
occur.
B. 2 Most Common Remedies
1. judgments that P’s are entitled to sums of money from D’s
2. orders to D’s to refrain from wrongful conduct or to undo its consequences
C. How do we distinguish remedies from substantive law classes?
1. Remedies add to the substantive law, as they correct for deviations - so remedies give
meaning to substantive rights
D. How do we classify remedies?
1. Compensatory – designed to compensate P for losses from D’s actions
a) Usually $$ - compensatory damages to make P as well off as if he was never wronged
b) These include substitutionary remedies – where money substitutes for the thing
that was lost.
2. Preventative – designed to prevent harm or loss before it occurs
a) Coercive remedies – includes injunctions (order for court to litigants to do or
refrain from doing specific things) – e.g. specific performance, writs of mandamus,
prohibition, habeas corpus
i. The direct order and potential for punishing disobedience distinguishes coercive
from declaratory remedies
b) Declaratory remedies – state rights of parties under substantive law, but do not
end in direct orders
i. Why do we categorize these as preventative? - understanding that once
declaratory judgment is set forth, litigants will comply
ii. Most important – declaratory judgment
iii. Other examples: bills to quiet title, and cancellation of instruments
3. Restitutionary – designed to restore to P all that D has gained at P’s expense
a) Sometimes restitutionary and compensatory damages are the same, but it can also
be far greater than damages
i. Can include unjust enrichment – e.g. someone taking your property and profiting
in a way that exceeds the value of what was taken – under remedies, you can
recover all those gains
b) Sometimes differs conceptually – focus on D’s gains
c) Sometimes differs practically – reverse transactions in kind, restoring possession of
specific property when it’s practical to do so
d) Administered through variety of devices – quasi-K, constructive trusts, equitable
liens, accounting for profits, rescission, and subrogation (courts see it as the same
thing, granting restitution)
4. Punitive – designed to punish where there’s not only negligence, but some other type of
bad behavior by wrongdoers
a) in equity, we gave prophylactic injunctions which award more to P’s than they would
be entitled to under legal principles, because of some type of bad behavior
b) e.g. criminal prosecutions
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c) There are also punitive damages
5. Ancillary – designed to give life to all remedies
a) e.g. went to court, got damages or injunction, but D doesn’t comply, ancillary
remedies come in to enforce remedies:
i. contempt –
ii. garnishment – court orders people who owe $$ to D to pay P instead
iii. execution – sheriff seizes D’s property, sells it, and uses proceeds to pay P
b) includes costs and attorney’s fees
c) receivership – court appoints 3rd party to manage assets pending litigation
E. Remedies are further divided into 2 more basic categories:
1. Substitutionary Remedies – P suffers harm, and receive cash payment – usually damages
a) Includes compensatory damages, attorney’s fees, restitution of $$ value of D’s gain
(based on fact finder’s valuation of loss) and punitive damages
b) Thus P who recovers damages, gets neither what he started with nor what he was
promised, instead gets defective goods and money to compensate for defects
2. Specific Remedies – get the specific thing you owned, aspire to prevent harm, or undo
it, rather than letting it happen and compensating for it
a) Includes specific performance of K’s, injunctions, restitution of specific property,
and restitution of specific sum of $$
F. Remedies are further classified as Legal or Equitable: distinction is important because
you only get a jury trial with legal remedies.
1. Legal
a) Damages are the quintessential legal remedy – generally compensatory and punitive
remedies are legal
i. These allow the Π to sieze property
b) Some of specialized coercive remedies, such as mandamus and habeas corpus are
legal
c) Most legal remedies are substitutionary with important exceptions
2. Equitable –
a) Injunctions and specific performance are the most important equitable remedies
i. These allow Π to coerce Δ’s behavior.
ii. For example - the irreparable injury rule – that there is no adequate relief at
law
(i) Preliminary injunctions – unless courts intervene, injury will occur
(ii) Money isn’t an adequate substitute – thus specific relief in equity will be
ordered to prevent harm from occurring - assuming it can be foreseen
b) Equity being courts of last resort – there are high standards for getting things like
injunctions as they are extraordinary remedies
c) Although once you get in there is more flexibility
II. Paying for Harm: Compensatory Damages
A. The Basic Principle: Restoring P to His Rightful Position – United States v. Hatahley
(10thCir.1958) (11) - Govt. agents rounded up P’s horses and burros and sold them to a glue
factory. In calculating damages, trial court place a fixed number on each animal without
differentiating condition, age, and sex of animals - P argued based on his theory that
animals were unique with special training, so market value was incalculable. In addition,
court found a total amount and divided it amongst P’s for Pain and suffering. SC held that
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the lower court’s calculations for the amount of damages and pain and suffering failed to
consider evidence of the availability of other animals were incorrect.
1. RULE - A damage award should be individualized and should take the plaintiff back to
the rightful position: to restore injured party as nearly as possible to the position they
would have been in had the wrong not occurred.
a) Right to sue for damages is limited to the time in which a prudent person would
replace this destroyed horses and burros – thus you have to mitigate damages when
possible
2. Applied Here - P’s were entitled:
a) to the market value, or replacement cost of horses and burros at the time of the
taking –
i. Must consider availability of like animals in the immediate vicinity and their value
ii. Must factor in a premium for training costs
iii. P’s must show proximate cause – show some facts as to why D’s were responsible
for harm
b) plus use value of animals during the period of time between the taking and the time
they could have replace the animals
c) to pain and suffering
i. award for pain and suffering must result from wrongful taking of P’s animals by
US agents
ii. and it must be treated on an individual manner, as it is unique to each person
3. note – there was a concern in this case with precision in terms of lower court’s measure
of damages
III.
INJUNCTIONS –
A. Defined - A court order that directs a party to engage in a particular course of conduct or
to refrain from engaging in a particular course of conduct
1. Tailoring Principle – tailor the remedy to the injury
a) Applied to both quantitative damages, and injunctions as well
2. Types:
a) Preliminary
b) TRO
c) Specific injunction
3. Non-compliance can lead to sanctions/contempt
4. P has to show that there is a harm that has occurred or is going to occur
5. Functions of injunctions (academic terms, don’t need to classify in ct)
a) Prevent harm
b) Repair harm that has already occurred
c) Restructure public institutions to bring them in compliance with statutory and
institutional norms
6. Injunctions are treated as unusual or extraordinary relief
a) They place a burden on the D
b) Could damage the reputation of D (see Humble Oil)
c) Issuing too many injunctions would dilute their force.
B. Preventing Harm – The Measure of Injunctive Relief (233)
1. Preventative Injunctions –
a) First step: we have to show ripeness
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b) Humble Oil & Refining Co. v. Harang (E.D.La 1966) (233) – Prior to discovery, Humble
tried to get a preliminary injunction from destroying evidence. Court denies
preliminary injunction.
i. RULE – an injunction should be issued only to prevent irreparable injury, thus P’s
must demonstrate or show sufficient evidence that harm is imminent (known as
the ripeness requirement: dispute has to progress to point where there is going
to be an injury), rather than just based on fears and apprehensions or to soothe
anxieties.
(i) once party seeking injunction shows potential for an irreparable injury, he
must then demonstrate that there is a real danger that acts to be enjoined
will occur, that there is no other remedy available, and that under the
circumstances, court should exercise its discretion to afford the unusual
relief provided by an injunction
ii. Applied Here –
(i) P’s affidavit wasn’t enough to establish imminent harm
iii. Notes
(i) Notion that you don’t issue injunctions to obey the law
c) Problems with Issuing Injunctions Right off the bat:
i. Injunctions are unusual or drastic remedies
ii. FRCP
iii. Courts have discretion (only unreasonable or decisions contrary to law will be
overturned – abuse of discretion standard)
iv. Here, it would’ve been too much, US v. Hatahley situation
d) Second Step: determine scope
e) Marshall v. Goodyear Tire & Rubber Co. (5th Cir.1977) (241) - Secretary of Labor
sued appellant Goodyear alleging violation of Age Discrimination in Employment Act
of 1967, for discharge of William Reed. District court issued a nationwide
injunction against further violations. Appellant argued that scope of injunction was
too broad. 5th Cir. agrees
i. RULE - Injunctions should be narrowly tailored to remedy the specific problem
ii. Applied Here –
(i) In terms of ripeness, no evidence that age discrimination is occurring on a
nationwide scale – no findings of a discriminatory company policy or practice
(ii) Lower court only dealt with isolated wrongdoing
iii. Notes
(i) After adjudicating a wrongdoing, its easier to get an injunction, but courts
will still not grant overbroad injunctions
(ii) there were 2 remedies in this case
1. $3,000 in back pay to Reed (compensatory, even though P is secretary of
Labor) (secretary could’ve sought reinstatement also, but didn’t do so)
2. injunction against future violations
a. sought to prevent violations that have not happened and may never
happen
b. scope of past violation determine scope of the remedy against future
violations
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f) Equitable Mootness – facts of case have progressed to a point where there’s no
potential of harm
i. Π has the burden of proving propensity and then Δ has the burden of showing
mootness.
ii. United States v. W.T. Grant Co. (1953) (247) – government brought suit against
Hancock and 3 companies that he served as director for, arguing that there was
an interlocking corporate directorate. Asks court to order interlocks
terminated and enjoin future violations by Hancock and corporate D’s. District
judge concluded that since Hancock had resigned from all 3 boards, there was no
threat that violations would reoccur. SC affirms
(i) RULES –
1. voluntary cessation of allegedly illegal conduct doesn’t deprive courts the
power to hear and determine a case,
a. D is free to return to his old ways and there is a public interest in
having the legality of a practice settled - combined, both militate
against a mootness conclusion
2. case may still be moot if D can demonstrate there is no reasonable
expectation that the wrong will be repeated
3. court’s power to grant injunctive relief survives discontinuance of illegal
conduct- but moving party must prove that there exists some cognizable
danger that relief is needed
(ii) Applied here:
1. government’s arguments showing an abuse of discretion: failure to resign
for 5 years until eve of litigation, refusal to concede his actions were
illegal, and failure to promise not to commit similar violations in the
future do not meet its burden
(iii) Notes
1. Mootness sufficient to end the case or controversy and deprive court of
jurisdiction (constitutional)
2. Likelihood of repetition so low that relief should be withheld as a matter
of discretion (equitable)
a. To decide this, courts will look at:
i. Expression of intent to comply
ii. Effectiveness of discontinuance
iii. Character of violations
b. And then the 9th Circuit has it’s own test – a much more complicated
test – it’s on pg. 250.
3. Holding in Grant, only goes to preventative relief
4. Claim for damages is never moot, never impossible to compensate for
past damages
g) Nicholson v. Connecticut Half-Way House, Inc. (Conn.1966) (252) – D wanted to set
up a half-way house in neighborhood. P’s, property owners in the neighborhood,
brought suit under nuisance law to enjoin its operation arguing that they were
fearful of a rise in criminal activity and decreases in property value. CT SC denies
injunction.
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i.
RULE - Plaintiffs must show with reasonable certainty that harm is likely to
happen to justify an injunction – injunctive relief is granted only under
demanding circumstances
ii. Applied here –
(i) P’s fears were unfounded and unreasonable - not enough proof to show with
reasonable certainty that harm would occur to justify an injunction – not
enough to substantiate property depreciation theory
iii. Notes –
(i) P’s relied on 2 cases, but court distinguished both
1. Brainard v. Town of West Hartford (253) – proposed use of a town dump
in a residential area was a known quantity whose hazards and evils as a
nuisance were discernible prior to its undertaking (smoke, litter, odors,
rats, vermin, fire dangers)
2. Jack v. Torrant (253) – funeral home would depress neighborhood
residents – constantly reminding them of death (still somewhat
speculative)
C. Reparative Injunctions (Repairing Harm) – courts can issue injunctions ordering D to do
something in order to correct harm that has already taken place or undo a transaction
1. Bell v. Southwell (5th Cir. 1967) (260) – GA election for Justice of the Peace…Bell was a
black candidate. Southwell, white candidate, won due to various acts of racial
intimidation and discrimination. Bell asks court to set aside election and order a new
one, and enjoin Southwell from taking office. Lower court while finding a clear
constitutional violation holds that it cannot issue an injunction to rectify a past wrong –
especially when there is no evidence to suggest that outcome will be different, as they
have to be forward looking. Ct. of Appeals reversed and remanded for an appropriate
order setting aside the election results and calling for a new election.
a) RULE - A court can issue an injunction to rectify a past action, even if it’s not
certain that the outcome will change – that if affirmative relief is essential, court
has the power and should employ it
i. Injunctions can be both forward and backward looking
b) Applied Here:
i. Court cannot justify relief just because of an assumed inability to demonstrate
that the outcome would have been different, everyone suffers from this
election
c) Note:
i. What about when D beats P to the punch and commits act that P wants to
enjoin? – Court can by mandatory injunction restore the statute quo. This is
Porter v. Lee on pg. 264
2. Forster v. Boss (8th Cir. 1996) (264) – P’s bought property on lake from D’s. D’s told
them they could get a boat permit, which turned out to be false as D’s had the only boat
permit allowed. In addition, D’s told P they would remove swim dock, which they didn’t.
P’s brought suit for fraud and breach of K. Jury awarded $12,500 in compensatory
damages and $10,000 in punitive damages for the boat dock fraud, and another $2,500
in compensatory damages for the swim dock. P’s also got a permanent injunction
ordering D’s to remove swim dock, and another to have P’s issued a permit, and D’s
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revoked. D’s appeal, arguing that both P’s are getting a double recovery – injunction
gives P’s what they bargained for, damages are overkill. Ct. of Appeals agrees.
a) RULE - A P can be awarded damages and an injunction so long as there is not a
double recovery
b) Applied Here:
i. Either remedy here, damages or injunction, would cure the harm by bringing P
back to what he bargained for
ii. Court allows P to choose remedy – probably didn’t like D for fraud
iii. P’s get to keep punitive damages – as damages for delay are not a double
recovery
c) Notes
i. In this case, is there a way to lawfully receive damages? – argue damages based
on the delay, months of living there without having a boat dock and swim dock –
although this is probably why punitive damages were issued
ii. Distinction between preventative and reparative (since all injunctions are
preventative in a sense) is between preventing the wrongful act (racial
intimidation on election day, failing to deliver dock permit at closing), and
preventing some or all of the harmful consequences of that act (four years
under an illegally elected justice of the peace, living without a dock)
(i) thus reparative doesn’t literally undo past violations, rather it prevents some
of the harm from that past violation
(ii) according to Laycock – reparative injunction is thus appropriate when P will
suffer additional harm in the future, and when it is possible to prevent that
additional harm from happening
3. How much Harm Should Injunctions Prevent? How much harm should the injunction
undo?
a) Winston Research Corp. v. Minnesota Mining & Manufacturing Co. (9th Cir. 1965)
(271) – MMM developed an improved precision tape recorder and reproducer. MMM
sued for damages and an injunction arguing that the Winston machine was created
by former MMM employees. Dist. Ct. finds that technology was a trade secret, and
granted the injunction, but no damages, both sides appealed – MMM wanted a
permanent injunction.
i. RULES –
(i) Courts will not issue damages where P has not been damaged and D has not
been unjustly enriched
(ii) Appropriate Injunction period is that which competitors would require after
public disclosure to develop a competitive machine
ii. Applied Here –
(i) permanent injunction would’ve been inappropriate, as it would run counter to
the public interest in allowing technical employees to really use their
knowledge and skill in fostering research and development
1. 2 year injunction deprives Winston of any benefit it gained from unfair
advantage
(ii) no money damages as D’s didn’t sell anything, so no injury, evidence of
possible future profits were speculative
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1.
assuming damages were applicable, would’ve been restitution – losses
from sales and profits for D’s
2. damages would’ve been duplicative here, as injunction sets things right
iii. Notes
(i) Slipperiness of distinction between preventative and reparative injunctions:
1. If wrong is stealing trade secrets – injunction is reparative
2. If wrong is selling products manufactured from trade secrets – then
preventative
b) Bailey v. Proctor (1st Cir.1947) (276) – Voting control of mutual fund was held by
owners of $150,000 in stock, while holder of $6M in debentures provided most of
capital. Under scheme, debentures get a fixed rate of return, while stockholders
get additional profits. Moreover, stockholders only lose what they put in, while
debentures have less protections. Fund became insolvent, and voting stockholders
were caught in fraud and self-dealing. Dist. Ct. appointed receiver to take
possession and control of property and manage it under judicial supervision pending
litigation. Court ordered liquidation, but during proceedings Bailey’s bought out
original control group, made fund solvent again, and appealed arguing that since trust
was solvent, and since those responsible for fraud were no longer involved, the
reasons for receivership were eliminated, and the court no longer had power to
order liquidation.
i. RULES –
(i) Court of equity has inherent power (jurisdiction) to appoint a receiver to
liquidate a corporation or investment trust where fraud, mismanagement or
abuse of trust is present whether or not insolvency is likewise present
1. Solvency doesn’t terminate jurisdiction
2. Court must determine until it becomes satisfied that equity has been
done to those whose interests the court had been asked to protect
(ii) Liquidation, being a drastic remedy, will only be decreed in an extraordinary
case or where special and peculiar circumstances exist
ii. Applied Here
(i) trust was insolvent and there was a gross abuse of trust – justifying
jurisdiction
(ii) even after solvency, strong likelihood of similar events occurring again
(solvency was only due to risky, speculative investments)
1. moreover, existence of ICAct of 1940 shows how jacked this structure
is, and combined with other factors supports liquidation
iii. Notes:
(i) receivership is an equitable remedy
(ii) Is liquidation of the company putting P’s in more than a rightful position?
1. Maybe, but even though it is not legally required or necessary to restore
P’s, it is what is fair (see 281) – it was fair to require liquidation in the
absence of an acceptable reorganization
(iii) Prophylactic Remedy: Can also classify this remedy as a prophylactic
remedy – enacted to prevent the recurrence of fraud and insolvency – equity
doing equity as doing less or the minimum wouldn’t be enough
1. Settings where prophylactic injunctions often come up:
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a. Recurrence of harm likely
b. Bad faith D’s – don’t trust them, so just fix the mess
2. Conflicts with tailoring principle
D. Restructuring Public Institutions
1. Structural Injunction (289) – designed to restructure public institutions or private
organizations in order to bring them into compliance with the constitution or statutory
norms
a) Actually a series of injunctions, a complex judicial order, comprised of a series of
orders
b) Why Complex? – organizations affected are complex, orders have to be detailed to
repair harms and prevent further harm
c) The Scope of the Injunction When Issued – controlling principle in desegregation
cases was that the scope of the remedy was determined by the nature and extent
of the constitutional violation
i. E.g. It must be shown that racially discriminatory acts of the state or local
school districts, or of a single school district have been a substantial cause of
interdistrict segregation before boundaries of separate and autonomous school
districts may be set aside for cross-district remedies
d) Modern structural injunctions trace back to school desegregation cases
i. Brown II, said that Dist. Cts. had to fashion remedies to desegregate, and lower
court had to follow equitable principles
(i) De jure: legally mandated, intentional
(ii) De facto segregation
ii. what followed was Dist. Cts. supervising school districts and detailing what they
had to do to desegregate
iii. other examples of courts monitoring public agencies: public schools, prisons,
hospitals
e) 2 Approaches: Broad vs. Narrow
i. Liberal approach – equity seen as a broad thing (equity doing equity, fair –
Swann)
ii. Narrow approach – equity must be tailored to harms – guarding against equity
going too far - Milliken
f) Broad View – Swann v. Charlotte-Mecklenburg Bd. of Education (1971) – schools
districts maintained black and white district schools – got rid of de jure
discrimination, and instead relied on neutral practices in order to keep the system
segregated – locating schools in segregated neighborhoods, bussing students long
distances. SC upheld dist. cts. remedies.
i. RULE - The nature of the violation determines the scope of the equity and
courts have broad powers to fashion remedies that will assure a unitary school
system
ii. Applied Here
(i) Neutrally drawn attendance zones were not necessarily a sufficient remedy.
Lower court’s finding that that segregation was the intentional result of the
school system was reasonable given the disproportionate race percentages
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1.
Gerrymandering school districts, implementation of a bussing plan, and
the setting of a benchmark to determine if schools were integrated
enough was appropriate as neutrally drawn attendance zones were not a
sufficient remedy as court must “achieve the greatest possible degree
of actual desegregation”
iii. Notes:
(i) important for identifying the more flexible standard for fashioning
remedies
g) Narrow View – Milliken v. Bradley (1974) (291) – District Ct. that desegregation was
impossible, based on demographics of population and “white flight” to suburbs and
ordered the parties to submit proposals for a metropolitan desegregation plan by
consolidating the suburbs with the inner-city, and creating wedges much like in
Swann. SC reverses
i. RULE – Yes, the scope of the remedy is determined by the nature and extent of
the constitutional violation, but the remedy must then be narrowly tailored to
the harm
ii. Applied Here:
(i) P’s rightful position was desegregation within Detroit, thus the courts had no
power to involved the suburban districts unless the violation in Detroit had
caused segregation in the suburbs
1. The remedy must then be limited to the inner-city school system where
the disparate treatment occurred
iii. Notes:
(i) 2 ways to approach the “rightful position” in segregation cases
1. In the absence of the constitutional violation, what would the racial
composition of the schools look like? Look at benchmarks and
demographics
2. Or, courts try to remedy more intangible things, that may have resulted
from segregation – improvements in schools?
iv. Milliken II - The court prescribed all kinds of remedies to the problem. S.Ct.
found it had overstepped its boundaries because they were not narrowly tailored
h) Missouri v. Jenkins (1995) (294) – Substantive intradistrict violation, operating a
segregated school system, was found in the KCMSD. Dist. Ct. ordered major
remedies costing over $220M which ordered programs expanding educational
opportunities, ordered quality education programs, effective schools program.
Created a magnet school plan, and a long range capital improvement plan, salary
assistance program. Dist. Ct. focused on “desegregative attractiveness” couple with
“suburban comparability” arguing that it would remedy reduction in student
achievement and attract nonminority students not presently enrolled in the KCMSD.
Ct. of Appeals affirmed. SC reverses.
i. RULE – Desegregation remedy is “necessarily designed, as all remedies are, to
restore the victims of discriminatory conduct to the position they would have
occupied in the absence of such conduct.” - It is okay to remedy segregation by
improving schools if you can trace the inequality back to segregation but it is not
okay to compare inner-city schools to suburban schools
ii. Applied Here:
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i)
j)
(i) the remedy here is not tailored, the pursuit of “desegregative
attractiveness” is beyond the scope of the court’s broad remedial authority
1. clear that court isn’t just curing segregation, they’re making a really nice
school, thus becoming an inter-district remedy, as it’s trying to compete
with suburbs who are not part of the discrimination – court devised a
remedy to accomplish indirectly what it admittedly lacks the remedial
authority to mandate directly – the interdistrict transfer of students
2. remedying white-flight would only be in the court’s authority if it was
directly caused by the constitutional violation
(ii) moreover, local autonomy is an important goal – thus dist. court must strive
to restore authority to local and state officials – thus state and district are
entitled to a rather precise statement of their obligations – measure of
progress needs to be set
Hutto v. Finney (1978) (307) - Terrible conditions in Arkansas prisons. Dist. Ct.
found conditions unconstitutional but allowed prisons to self-correct. A Second
hearing was held, and while the court found some improvements, it was still
unconstitutional, again it allowed officials to devise their own plan for improving
conditions, but issued guidelines and ordered them to move as fast as funds were
available. More hearings were held later, and dist. court found that supervision was
no longer necessary. Ct. of Appeals reversed, and Dist ct. held a 4th hearing, in
which it found constitutional violations had not been cured, entered order limiting
number of men in one cell, and found that D’s acted in bad faith. Ct. of appeals
affirmed and Supreme Ct. affirmed
i. RULE - Courts are allowed to examine the situation as a whole when deciding if
something is unconstitutional and ordering a change
ii. Applied Here:
(i) while there is a strong deference toward penological interests, prisons here
acted in bad faith – years of non-compliance – thus setting tough standards
was appropriate
(ii) lack of compliance justified a prophylactic remedy – adjudicated wrongdoer,
bad faith on D’s, non-compliance for many years
iii. Notes:
(i) Why did Court allow D’s to fix things in the first place?
1. Efficiency – allow people implementing the policy to have a say
2. Easier to comply – know the limitations involved
3. Separation of powers argument – federalism – governmental D’s get more
opportunities to created their own remedies than anyone else
4. Takes a long time to tailor remedies
Lewis v. Casey (1996) (313) – class action by AZ prisoners arguing that inadequate
libraries prevented them from getting to court. Dist Ct. findings detailed only two
incidents, both involving inadequate assistance to illiterate prisoners, yet it entered
into an injunction regulating the details of law libraries in every prison in the
system. SC reversed injunction
i. RULE – Remedy must be limited to the inadequacy that produced the injury in
fact that P has established (nature of remedy is to be determined by the nature
and scope of the constitutional violation
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ii.
Applied Here:
(i) 2 instances were an inadequate basis for a conclusion of a systemwide
violation and imposition of systemwide relief
1. Findings revealed one case where a prison failed to provide special
services to prisoner who would have needed due to his illiteracy, to avoid
dismissal of case – which is quite different from this suit
2. Other instance involved a prisoner who while incarcerated had once been
unable to file a legal action
(ii) granting a remedy beyond what was necessary to provide relief to the 2
prisoners was impropert
(iii) moreover, dist. ct. didn’t defer to “penological interests” and failed to give
them chance to propose their own remedy
k) United States v. Virginia (1996) (318) – lower court and SC found VMI’s men-only
program unconstitutional, gave school the option to create a remedy – either become
a private school, fully integrate, or create an alternative program for women. State
chose to create VWIL. SC finds that VWIL fails as a remedy
i. RULE – a remedy for a constitutional violation must place the victims of
discrimination in the “position they would have occupied in the absence of
discrimination”
ii. Applied Here
(i) remedy didn’t match the violation – schools were distinctly different
1. different curriculum, different training methods (adversative vs.
cooperative), endowment, faculty – plus intangibles
iii. Rehnquist Concurrence – not about exclusion, but that no comparable institution
existed
l)
Modifying Injunctions – Rufo v. Inmates of Suffolk County Jail (1992) (328) –
inmates sued claiming pretrial detainees were held in unconstitutional conditions.
Court issued injunction enjoining Government D’s from (1)housing at the jail an
inmate awaiting a trial with another inmate, and after a later date (2) from housing
any inmates awaiting trial at all.
i. RULES
(i) A consent decree can be modified if events that were unforeseen at the
time it was made occur that make it inequitable to bind the parties – a
flexible approach that takes into account certain changes:
1. Changes that make compliance unworkable
2. Factual conditions make compliance onerous
3. Proves to be detrimental to public interest
4. Becomes illegal to comply, or likewise, laws change to make legal what
decree was designed to prevent
(ii) modification should not be granted where a party relies on events that
actually were anticipated a the time it entered into a decree
(iii) once moving party meets burden of establishing change in fact or law, Dist.
Court should determine whether proposed modification is suitably tailored
to the changed circumstances – thus 3 matters should be clear:
1. modification must not create or perpetuate a constitutional violation
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2. modification should not strive to rewrite a consent decree so that it
conforms to the constitutional floor
3. public interest and separation of powers requires court to defer to local
govt administrators
ii. Applied Here:
(i) change in fact: surge in inmate population
(ii) change in law: SC held that double cells were constitutional
(iii) The outcome depends on if the jail anticipated the growth, and whether D’s
though single celling of pretrial detainees was mandated by the constitution
m) The Rights of 3rd Parties – Hills v. Gautreaux (346) – Court of Appeals found that
HUD had violated 5th Amendment when it knowingly funded the CHA’s racially
discriminatory family public housing authority. After efforts to implement a
remedy within Chicago, Ct. of Appeals ordered HUD to develop a metropolitan
housing plan to develop public housing in desegregated neighborhoods. D’s argue
that remedy should only apply to Chicago. SC rejects this argument
i. RULE – Remedial powers to restructure the operation of local and state
governmental entities may be exercised “only on the basis of a constitutional
violation” and once that violation has been found, court is required to tailor “the
scope of the remedy” to fit the “nature and extent of the constitutional
violation.” - Thus, the remedy to segregation may extend to any area where the
state agency which was causing the segregation had authority
ii. Applied Here:
(i) unlike the suburban districts in Milliken, HUD has been found in violation of
the Constitution, and since CHA and HUD have authority to operate outside
Chicago city limits, its distinguishable from the D’s in Milliken
1. 3rd parties here are the local gov’ts and suburbs being coerced into
accepting housing, but supremes say that is not so because they have
comment power and whatnot.
(ii) separation of powers issues – here HUD can create a plan which doesn’t
abrogate power from local governments, and under act, HUD already had
authority over suburban and city housing
E. REASONS COURTS ARE HESITANT TO ISSUE INJUNCTIONS
1. Notion that injunctions impose a greater burden on the courts because they have to be
imposed over time rather than a one time payment of money
a) This isn’t always true
2. An injunction is a greater imposition on defendant’s liberty
3. Timing issue: The court has not yet decided if there is a breech. D is not an adjudicated
wrongdoer
4. Preservation of jury trial rights
5. Law and Economics
a) Let the wrongdoer go through with it and compensate P later
b) Maximizing profits for everyone
IV. CHOOSING REMEDIES (363)
A. Substitutionary or Specific Relief –
1. Notes: -
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a) categorizing remedies into 2 groups:
i. substitutionary relief is normally a sum of $$
ii. specific relief gives party a thing back or an injunction prevent loss in the first
place
b) damages vs. restitution – courts have created a host of doctrines determining what
P’s get, thus it’s not really P’s choice, but usually when its damages vs. restitution,
it’s P’s choice (right of election)
c) damages vs. injunction – P’s must satisfy irreparable injury rule
d) Irreparable Injury Rule: Courts will issue an injunction if damages will be inadequate
once the harm is done
e) adequacy
i. damages are adequate when they are calculable, when there
2. Irreplaceable Losses –
a) Pardee v. Camden Lumber Co. (W.Va.1911) (363) - P got an injunction to prevent D
from cutting down his trees. Appeals court overturned saying that P had to show
that D was insolvent and unable to pay damages to get an injunction. Court overruled.
i. RULE - an injunction is necessary when it is the only thing that will keep P in the
rightful position – court won’t grant equitable remedy if a legal remedy would be
adequate
ii. Applied Here:
(i) Saying that injunction only applies if D is insolvent is no good, this is
property, you have the right to control your property, and if you can
demonstrate uniqueness of the real property such that money damages would
be inadequate, then an injunction is ok
1. Timber has become a scarce resource, moreover, once timber is turned
into lumber, can’t be converted back to normal state
iii. Notes:
(i) Why do we have an irreparable injury rule?
1. Injunctions impose a greater burden on court as they have to be
enforced over time, as opposed to damages, which are a one time solution
a. although damages aren’t always quick, sometimes difficult to
calculate
2. injunctions impose a greater intrusion over D’s property – requires a
particular type of conduct, whereas damages allow D to proceed as long
as D is willing to bear costs
a. damages could be extremely burdensome – depending on assets
b. why are we concerned with D? the wrongdoer
3. sometimes timing is an issue, when preventing something, risk that
remedy is overkill
(ii) Laycock argues that irreparable injury rule is dead:
1. definition of adequacy for legal remedies: legal remedy is adequate only
if is as complete. Practical and efficient as the equitable remedy – thus,
always gives way to equitable relief as legal remedies almost never meet
adequacy standard
2. Although it has life at the preliminary stage – prelim injunction
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a.
but courts are afraid to enact preliminary injunctions – as facts
aren’t fully known, plus you don’t know who is right or wrong
b. law and economics theory- that we should be encouraging profitable
violations of the law, economic efficiency
b) Does the Δ have a choice of remedy? Brook v. James A. Cullimore & Co. (Okla. 1967)
(374) – whether in a replevin action (to recover specific piece of property),
defeated litigant can (1) retain property as his own against the will of the other
party (2) impose court to render $$ damages judgment and (3) tender $$ damages
i. RULE – In an action to recover a piece of property the wronged party (winner)
has a choice between the property or money, but defeated litigant may not
choose, he must relinquish property
ii. Notes
(i) Irreparable injury rule only applies to equitable claims – replevin is an action
at law
(ii) With an injunction there is contempt, with replevin the sheriff comes and
seizes the property.
c) Continental Airlines, Inc. v. Intra Brokers, Inc. (9th Cir.1994) (377) – Intra acquired
Continental’s discount coupons and sold them to travel agents, for resale to
customers. Continental sought injunctive and declaratory relief ordering Intra to
stop selling its coupons. District Court granted the injunction, 9th Cir. affirms.
i. RULE – Where there is in fact harm, the fact that it’s hard to calculate or
establish economic harm supports the proposition that damages would be
inadequate, thus equitable relief is better
ii. Applied Here:
(i) the effect on the revenue of the brokering of its coupons was hard to prove
and measure – here there was no evidence of economic harm, as there
could’ve been various results of brokering
(ii) however, there was damage to Continental’s power – control of its own
business – D’s are substituting their judgment for P’s as to whether to
distribute coupons
(iii) collectively – this situation calls for an injunction
d) Campbell Soup Co. v. Wentz (3d Cir. 1948) (383) – Campbell entered into K with
Wentz for all the Chantenay red cored carrots on his farm for a season for certain
price. The market price spiked and D’s didn’t want to sell. Campbell brought suit to
enjoin D’s from selling carrots to others and an order for specific performance
ordering D to comply with K. Trial court found that based on objective standards,
P’s hadn’t proven that goods were unique. 3d Cir. reverses to grant specific
performance
i. RULE - Specific performance is warranted when a legal remedy would be
inadequate – inadequacy of legal remedy is necessarily a matter to be
determined by an examination of the facts of each case
ii. Applied Here:
(i) On question of adequacy of legal remedy – appropriate for specific
performance
1. at time, goods were of special type and unavailable on open market
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2. P contracted for goods long in anticipation of needs, and built up general
reputation for its products of which uniform appearance was important
iii. Notes:
(i) Why did damages seem adequate? – ability to cover, market price was
calculable
(ii) Why did damages seem inadequate? – unique carrot, harm to reputation if
use different product, scarcity
(iii) Why give Campbell’s carrots they’re attaching a lower value to? (law and
economics) could be allowing Campbell to buy at lower price, and then decide
what to do – use or sell.
(iv) The Cover Principle – why not require SP just because I requested it? Fact
that party requested SP means K is important to them. Don’t ask them to
cover and accept damages, with SP, no danger of over or under compensation
– See UCC (387) – inability to cover is strong evidence of other proper
circumstances in which SP is appropriate
(v) Courts will often given specific performance for ordinary goods when:
1. there is a scarcity
2. time constraints
3. or the size of the order
a. all things that make the order nearly impossible to cover
e) Van Wagner Advertising Corp. v. S & M Enterprises (N.Y. 1986) (394) - Van Wagner
advertising leased wall of building facing midtown tunnel for billboards. He leased it
to Asch Advertising for 3 years starting March 1, 1982. Michaels, who leased the
property to Van Wagner, sold it to S&M earlier in 1982, and in August of 1982 sent
letter to Van Wagner canceling the lease as of Oct. 18. S&M’s cancellation of the
lease was breach of contract. S&M says money damages are adequate. Van Wagner
wants specific performance
i. RULES –
(i) SP is properly denied where damages are an adequate remedy and equitable
relief would impose a disproportionate burden on the D
1. equity shouldn’t itself work an inequity on D
(ii) Issue isn’t about uniqueness or substitution, rather the uncertainty of
valuing it
ii. Applied Here:
(i) Value of the unique qualities could be fixed with reasonable certainty and
without a high risk of undercompensating P
(ii) Moreover, SP would be inequitable to D as property was supposed to be
redeveloped
iii. Notes
(i) Undue hardship is a separate means of denying relief
(ii) Traditional rule that damages are never adequate remedies for the loss of
real estate
(iii) But right to use side of building for billboard is a moderate interest – but
location makes it a good example of proposition that every real estate parcel
is unique
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(iv) Cases exist which grant SP for K’s to sell used goods – new goods aren’t
adequate replacements
3. Burdens on D – Ariola v. Nigro (Ill. 1959) (401) – Neighbors fighting—defendants want
to add an addition to their home. They show proposed boundaries. Plaintiffs say it
encroaches on their property (notice given). Defendants say we’re doing this anyway and
ask plaintiffs to remove their drainage system which is on their property (actually
plaintiff’s have AP). Plaintiffs don’t remove the system. Defendants remove it and
install a terrible system that causes water build up and damage to the property.
Plaintiffs sue for injunction for defendants to take out bad system and put in new one.
Also want damages for the encroachment and damage to the property. Plaintiffs and
defendants appeal for circuit court order allowing plaintiffs damages for roof drainage
system removed by defendants, but denying plaintiffs’ request for mandatory injunction
to compel defendants to remove such portion of their building as encroaches on
plaintiff’s property and destroys their easement for rain gutters and downsprouts
a) RULE –
i. A D’s intentional wrongdoing may force Court to ignore burden to D
ii. Mandatory injunctions may be issued to protect the enjoyment of the easement
iii. One who trespasses or assumes control over the property of another without
authority is responsible for all consequences
b) Applied Here –
i. Defendants say that the encroachment is slight and removing the system would
be expensive and arduous…balancing the equities…huge process for one inch
encroachment on property. We get an injunction here anyway because the
encroachment was intentional—INTENTIONAL WRONGDOER. Consider that
defendants should have gotten declaratory judgment in this case before building
the drainage system
ii. Award P all damages resulting from D’s intentional trespass
c) Notes
i. Should there always be specific performance in residential property disputes? Boomer v. Atlantic Cement Co. (405): homeowners given compensation for their
homes so that plant could stay open (economic interests prevailed)
ii. This is an instance of balancing the equities
iii. Courts will look at:
(i) Undue burden on the Δ
(ii) Δ’s culpability
(iii) Relationship between the parties
(iv) Π’s diligence
iv. When a court denies the injunction because of undue hardship on the Δ, they
will usually award damages.
4. Burden on the Court - Co-Operative Insurance Society Ltd. v. Argyll Stores (Holdings)
Ltd. (1997) (411) – D’s decided to close Safeway supermarket in shopping center,
admitted breach of K and consented to order for damages, but Ct. of Appeal reversed
trial judge and ordered that K be specifically performed. This Court reverses
a) RULE – General practice is to not order specific performance for D to carry on a
business
b) Applied Here:
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i.
Public interest against requiring someone to operate a business at loss – undue
burden on D
ii. Burden on court to have to supervise performance for so many years
iii. waste of resources and prolongs the battle
iv. Damages brings litigation to an end
c) Notes
i. Problems with SP
(i) undue burden of having to pay for refurbishment of store
(ii) only means of enforcement is contempt of court procedure (quasi-criminal) –
which leads to expensive litigation on both sides
(iii) unjust enrichment to P
(iv) would have to tell D how to run his business
(v) inefficient (court would have to manage – review paperwork, schedules)
ii. Problem with Burden to Court analysis – courts do structural injunctions –
desegregations – but these are dealing with constitutional rights rather than K
issues
5. Reasons of Substantive or Procedural Policy
a) Willing v. Mazzocone (Pa. 1978) (421) – Crazy lady was protesting law firms saying
they stole money from her. It was untrue. She was insolvent so there was no way to
get money from her. Thus, lower court enjoined her from protesting, appeals court
said that violated her constitutional rights: can’t take her rights away since she is
insolvent.
i. RULE –
(i) Equity will not enjoin defamation
(ii) Insolvency of D doesn’t create situation where there is no adequate remedy
at law (thus allowing equity to step in)– in deciding whether a remedy is
adequate, it is the remedy itself, not the possible lack of success that is the
determining factor
ii. Applied here
(i) The fact that D is insolvent doesn’t justify injunction to infringe on right to
freedom of expression
iii. Notes:
(i) This case was decided on the substantive law – free speech issue
(ii) Concern here that if D was wealthy, damages would’ve been ok, but where D
is indigent, we’ll issue an injunction
(iii) Property Rights vs. Personal Rights
(iv) Arguments against right to trial, what takes away necessity for a jury? –
Facts are so obvious, you don’t need a jury
(v) Trend to allow prior restraints, as long as there is a prior adjudication of
wrongdoing
(vi) Allows prior restraints that are “time, manner and place” restriction rather
than content-based
(vii) Reputation Harms - is it always irreparable harm? Could harms be settled,
or do they require injunction
1. argue that these can be measured thus let’s calculate damages
2. depends on court, totality of circumstances
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b) American Broadcasting Cos. v. Wolf (N.Y. 1981) (435) – Personal Service K dispute –
Wolf employed with ABC, agreed to negotiate in good faith for extension of expiring
K. Wolf breached by signing with CBS without giving right of first refusal to ABC.
ABC sued for specific performance, and injunction against D going to CBS. Lower
court denies relief. Ct. of Appeals affirms
i. RULE –
(i) Courts generally will not issue specific performance on personal service K’s
(ii) However, if the service is unique or extraordinary, you can have “negative
enforcement” to prevent employee from delivering his unique good to a
competing company till the term of K is over
1. courts will still check reasonableness of anti-competitive clauses as
public policy encourages open competition
ii. Applied Here
(i) There was no prior existing agreement between Wolf and ABC here, it wasn’t
unique, ABC could’ve gotten another sportscaster, no showing of special
injuries
iii. Dissent – made 90 first right of refusal, should’ve at least enjoined Wolf for 90
days from working
iv. Notes
(i) Reasons for refusal to enforce personal service K’s through equity
1. burden to court to supervise performance
2. argument that this is involuntary servitude – forcing someone to do
something they don’t want to
(ii) sometimes damages can be so large as to act as more of a restraint on
liberty than specific performance
1. e.g. Lemat Corp v. Barry (438) – measure loss of bball star based on
decline in attendance
(iii) argument that sportscasters do in fact bring unique characteristics
(iv) how to calculate damages? – ratings analysis?
B. Preliminary or Permanent Relief
1. Los Angeles Memorial Coliseum Commission v. National Football League (9th Cir. 1980)
(440) – Raiders wanted to move to the LA Coliseum, NFL wanted to block the transfer
through §4.3 of the league’s Constitution and Bylaws. Dist. Ct. granted a preliminary
injunction prohibiting league from preventing the transfer. NFL appealed. 9th Cir.
Reverses
a) RULE - To get a preliminary injunction plaintiff has to show:
i. Likelihood of success on merits
ii. Possibility of irreparable injury to P if preliminary relief is granted
iii. Balance of hardships favoring P
iv. Advancement of public interest
b) Applied Here
i. P claimed loss of revenues, diminution of market value of their property, and loss
of substantial goodwill normally attached to a profitable enterprise
(i) Additionally, claimed that raiders were only team not committed to a long
term lease, and would have to enter into another long term lease if not
allowed to move to LA (trying to showing uniqueness and scarcity)
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ii.
No showing of irreparable injury - Court finds that P’s claims were all monetary
injuries, which could be sufficiently remedied by a damage award
iii. no showing that Raiders would indeed be forced to enter a long term
commitment in Oakland or that the coliseum would be unable to obtain another
transfer team or new franchise as a tenant
iv. no showing that loss of Raiders would put coliseum out of business, and there
were other college teams, USC and UCLA
v. have to balance NFL vs. LA Coliseum - didn’t do this, but concurring judge said
he would’ve dropped this case for failing to show irreparable injury
c) Note
i. eventually adjudicated case (routinely, irreparable injury rule vanishes), when
there is a finding of a wrongdoing, courts tend to grant injunctions, found that
rule violated antitrust laws
ii. basic function of preliminary injunction is to preserve the status quo
iii. Courts often find no irreparable injury in a hearing for preliminary injunction:
the risk must be sufficiently irreparable to override the risk of error.
(i) Balance of hardship different, too, because there is no adjudicated
wrongdoer at the preliminary stage. After Π wins, unless the hardship to
the Δ substantially outweighs benefit, and sometimes even then.
(ii) Unless you’re Posner, then you make a formula: P x Hp > (1 – P) x Hd
2. Lakeshore Hills, Inc. v. Adcox (Ill.App.Ct.1980) (447) - D challenged preliminary
injunction enjoining him from having bear on his property, based on covenant which
permitted residents to keep only household pets (although covenant didn’t define
household pets), later amended covenant to exclude bears.
a) Applied Here:
i. P has no adequate legal remedy, monetary damages won’t prevent harm that P
fears – although no definite irreparable injury, better to not risk harm
ii. Threat of harms outweighed inconvenience to D
iii. P is likely to prevail in seeking permanent injunction
iv. Granting injunction likely to protect public
v. Although it alters the status quo it puts P in the position they should be in
b) Notes
i. 2 ways to look at this case
(i) Changing status quo by removing bear
(ii) Returning status quo by removing bear
ii. Similar to funeral home case
iii. When you’re talking about the status quo when there is a continuous activity:
(i) Look at Rees v. Panhandle Eastern Pipe: it is the last peaceable uncontested
status quo.
3. Injunction Bonds: Coyne-Delany Co. v. Capital Development Board (7thCir.1983) (450) C-D suing under §1983, under color of law, arguing that they were deprived of their
property right without due process of law – sought TRO – wanted a 50K injunction bond,
but magistrate set 5k bond as he thought the process would be dealt with quickly.
District judge then issued a preliminary injunction without changing injunction bond
amount. After case, 7th circuit overturned case relied on by C-D, so case was decided
incorrectly
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a) RULES –
i. Prevailing D is entitled to damages on injunction bond unless there is a good
reason for not requiring P to pay even when P brings suit in good faith – damages
are compensatory not punitive
(i) Reasons for not awarding damages
1. D failed to mitigate damages
2. P is indigent
3. Civil rights cases
4. Change in law: injunction was wrongfully issued because of new case law
5. Bond only covers a fraction of the loss
ii. Generally, only allow damages up to face value of bond
b) Applied Here
i. Change in law is legitimate consideration, but not grounds alone for denying
damages
ii. Bond only covers a fraction of the loss supports issuance of damages
iii. Here D failed to appeal interlocutory for an increase in the bond amount,
should’ve done so
c) Notes –
i. American rule: each party pays their litigation expenses generally, not
responsible for another party’s cost of litigation unless they are required to do
something through K, etc
(i) Court says that we’re not going to make party cover all the costs as these
are litigation costs which goes against the American rule
ii. In fed courts, the bond is discretionary. In determining how much (or if) of a
bond is required, courts will look at:
(i) Potential loss to the Δ
(ii) Financial hardship to the Π
(iii) Public importance of the rights being enforced.
iii. It is Δ’s responsibility to ask for the bond
iv. What triggers liability on the bond?
(i) Texas v. Camenisch says that the liability on the bond could not be equated
with whether the preliminary injunction had been properly issued – it’s based
on the ultimate disposition of the case.
v. What damages are covered by the bond?
(i) The damages must be caused by the wrongful prelim – not just caused by the
litigation
(ii) Federal courts disallow attorney’s fees, but some states allow them.
vi. Liability above the bond: most of the time, no. But there are generally 3
exceptions:
(i) Liability by statute in some states
(ii) Π who are clearly able to pay damages
(iii) Some independent ground for liability, like malicious prosecution.
4. Carroll v. President of Princess Anne (1968) (459) – White supremacist rally. City got an
injunction preventing them for 10 days then 10 months. The Supreme Ct ruled they
couldn’t have an ex parte hearing to take away a constitutional right without due process
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a) RULE - A Temporary Restraining Order (TRO) can be issued to prevent a rally but
it cannot be content based and it must be narrowly tailored
b) Notes –
i. TRO’s designed to prevent irreparable harm that will occur even before a
preliminary injunction hearing can be held
ii. They can be ex parte so they only last 10 days (even with notice there is still the
limitation)
iii. Preliminary injunctions require notice to the other party
(i) With TRO, you have to notify the other side after you get the TRO, since a
party isn’t bound by a TRO they don’t know about.
iv. A TRO cannot be appealed (unless the denial of the TRO decides the merits or
is the equivalent of a dismissal), a preliminary injunction can
5. Sampson v. Murray (1974) (464) - Employee sued because of her firing, asked for a
TRO. It went on indefinitely because the government refused to present her boss as a
witness. The Supreme ct would not have jurisdiction if it was a TRO because they are
not appealable, but they found that it was a preliminary injunction because of its
duration. SC strikes down injunction
a) RULE –
i. A TRO that goes on indefinitely can become a preliminary injunction
ii. Temporary loss of income, ultimately to be recovered, doesn’t usually constitute
irreparable injury – possibility that adequate compensatory or other corrective
relief will be available at a later date, in ordinary course of litigation, weigh
heavily against claim of irreparable harm
b) Applied Here
i. TRO which was longer than 10 days here, and given that an adversary hearing
has been held and given that the basis for issuing the order is strongly
challenged, classifying this as a TRO, would be unjustifiable
ii. Back pay act affording monetary relief for loss of earnings prevents this from
being an irreparable injury – legislative history suggests that it would be the
usual if not exclusive remedy
iii. Here loss of reputation could have been corrected by administrative
determination requiring agency to conform to regulations
c) Notes
i. SC says that government traditionally granted widest latitude in dispatch of its
own affairs
(i) Look at public policy and separation of powers
(ii) Traditional unwillingness to enforce personal service K’s
(iii) Consider the disruptive effect of injunction
ii. Right after Sampson, the Supremes decided Granny Goose. They held that Δs
were not in contempt of a TRO with notice, because it had expired ten days
after it’s issuance and before they violated it.
iii. Scope of hearing for TRO or preliminary injunction:
(i) Depends on the complexity and urgency of the case.
(ii) TROs are usually much shorter – findings of fact and law aren’t really
required
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(iii) Evidence admitted at a preliminary injunction hearing may be considered at
the trial of the case and need not be repeated.
V. PREVENTING HARM WITHOUT COERCION: DECLARATORY REMEDIES
A. Declaratory Judgments – A statement of the rights and the duties of the parties. Ct looks
to governing legal principle
1. General Principles
a) misleading as they are not really equitable remedies, on some level they serve the
same role as an injunction, to prevent harm, although they differ in that function in
very important ways –
i. there is no coercive function in declaratory judgments – announce things, but
don’t require specific performance
ii. as they have no coercive dimension, how is this any different from advisory
opinions, which federal courts cannot issue? Hmmm….
b) Nashville Chattanooga, & St. Louis Railway v. Wallace (1933) (511) – Appellant
brought to secure a judicial declaration that a state tax was invalid under the
commerce clause of the 14th Amendment. Decree for appellees was affirmed by
state SC. On appeal, SC rules for appellant.
i. RULE - There must be a case or controversy in order for a court to issue an
opinion. Case or controversy means that there are rights affected by someone’s
actions. No advisory opinions
(i) Concerned with substance not form
ii. Applied Here
(i) Looking at the nature of the proceedings which the statute authorizes
(rather than the legislative label), and the effect of the judgment rendered
upon the rights which appellants asserts:
1. the proceeding which terminated appellant’s decree was between
adverse parties, asserting valuable legal rights, which were threatened
with imminent invasion by appellees
iii. Note
(i) Declaratory judgments are not advisory opinions, more like a watered down
injunction, while courts have no coercive authority, they are still preventing
future harm
1. you don’t have to show irreparable injury to get a declaratory judgment.
(ii) issue of a scarecrow patent – where potential P’s assert claims without filing
suit
(iii) 2 things you can do to avoid it:
1. sue first for a declaratory judgment or file counterclaim for a
declaratory judgment
2. sue to enjoin a suit – but you must show irreparable injury
(iv) Young dilemma – the choice between forfeiting asserted constitutional
rights or risking penalties
1. If RR complied with rate law, forfeits constitutional rights – loss of
constitutional rights is nearly always an irreparable injury
2. If RR violates rate law but risks criminal penalties – penalties inflict
irreparable injury
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2. Declaratory Judgments, Injunctions, and Federalism
a) Going into next case, basic body of law is as follows –
(i) If a state prosecution is pending, D must present his federal defense in
state court
1. D cannot sue in federal court to enjoin either pending prosecution or any
threatened future prosecutions. Younger v. Harris (524)
(ii) However, if no state prosecution is pending, D can sue in Federal court to
have law declared unconstitutional because otherwise he would face the
Young dilemma of forfeiting his rights or risking further penalties. Steffel
v. Thompson (524)
(iii) Moreover, federal P may seek preliminary injunction to prevent enforcement
of state law during pendency of declaratory judgment action (dilemma of
forfeiting rights or incurring penalties shows irreparable injury)
b) Steffel v. Thompson (1974) (531) – Steffel and friend threatened with arrest and
prosecution for trespassing if they persisted in passing out antiwar leaflets in
shopping center. Steffel quit, while Becker continued and was prosecuted. Both
filed actions seeking injunction against enforcement and declaratory judgment that
criminal trespass statute was being applied in violation of 1st Amendment rights.
Dist. Ct. denied relief, 5th Cir. affirmed. SC reverses and remands
i. RULES –
(i) Still need actual controversy
(ii) Where state criminal prosecution begins before a federal suit, equity,
comity and federalism prevent federal courts from enjoining state
prosecution
(iii) Regardless of whether injunctive relieve may be appropriate, federal
declaratory relief is not precluded when no state prosecution is pending and
a federal P demonstrates a genuine threat of enforcement of a disputed
state criminal statute, whether an attack is made on the constitutionality of
the statute on its face or as applied
ii. Applied Here
(i) While P does not have to expose himself to actual arrest or prosecution,
must look at whether reduction in Vietnam has altered P’s desire to continue
handbilling remanded for determination
(ii) Choice between forfeiting asserted constitutional rights or risking penalties
is an irreparable injury
(iii) Friend’s arrest demonstrated imminent harm
iii. Note
(i) Arrested friend had to raise his defense in state court as he was criminally
prosecuted, can’t bring suit in federal court
c) Doran v. Salem Inn, Inc. (1975) (541) – Town passed ordinance forbidding topless
dancing. 3 P’s filed suit in federal court seeking declaratory judgment that
ordinance was unconstitutional and a TRO and preliminary injunction against its
enforcement. One P resumed, and was served with criminal summons, yet federal
court preliminarily enjoined enforcement of ordinance despite Younger, noting that
it would have been anomalous to grant relief to 2 P’s and not one. Ct. of Appeals
24
affirmed. SC grants relief to 2 P’s but reverses decision to grant relief to P being
prosecuted in state court.
i. RULES –
(i) The interest of avoiding conflicting outcomes in the litigation of similar
issues, must be subordinated to federalism in this area of law.
1. If a state prosecution is pending, D cannot sue in federal court to enjoin
either pending prosecution or any threatened future prosecutions.
Younger v. Harris (524)
2. Samuels bars declaratory relief to D being prosecuted in state court
(ii)
ii. Applied Here
(i) M&L (P being prosecuted) could’ve done like the other 2 P’s, and then it
wouldn’t have subjected itself to prosecution – thus M&L cannot sue for
injunction and cannot get declaratory relief here in this court
(ii) Other 2 P’s may obtain declaratory judgment upon a showing of entitlement
(iii) Moreover, dist court’s granting of a preliminary injunction was ok
B. Reformation - The language of the contract is changed so that it reflects what the parties
originally thought they were contracting for
1. Hand v. Dayton-Hudson (6th Cir. 1985) – Hand, an attorney working for Dayton, lost job
allegedly due to major restructuring. D agreed to pay $$, if Hand agreed to release
claims. D prepared a release for Hand to sign , Hand altered the release such that it
looked identical, but asserting that he was NOT releasing claims of age discrimination
and breach of K. Hand then filed suit in Dist. Ct. alleging age discrimination and breach
of K against D. Based on fraud, Dist Ct. reformed the release, and in light of it, granted
SJ for D.
a) RULE – general rule is that Reformation requires a mutual mistake of fact, rather
than a unilateral mistake, BUT where there is a mistake on one side due to fraud or
inequitable conduct on the other side, reformation is ok (see also Restatement 2d of
K’s §166 – if party’s assent is induced by other party’s fraudulent
misrepresentation…court may reform writing)
i. Finding that one person knew the K did not reflect the other person’s intent
must be supported by clear and convincing evidence
b) Applied Here –
i. Hand committed fraud by not informing D of changes in release, and while fraud
is usually an issue for the jury, here P admitted to misleading D, thus
reformation is appropriate.
ii. Moreover, although Hand never personally intended to release liability,
awareness of D’s understanding prevents any claim that there was no “meeting
of the minds.” Holbeck (557)
c) Notes on Reformation
i. Leaves release in effect as reformed, and Hand keeps $$, D has no liability
ii. Rescission would have forced Hand to return $$, and allow him to sue for age
discrimination and breach of K
iii. Remember – most mistakes of fact are either fraudulently induced or clerical,
but parties can correct these
25
VI. RESTITUTION – Benefit to D as the Measure of Relief
A. Introductory Notes
1. Claim for unjust enrichment is often available in cases of:
a) intentional tort or breach of fiduciary duty,
b) in cases of statutory torts such as infringement intellectual property,
c) and sometimes in suits for breach of K
2. New restatement of unjust enrichment – enrichment that is legally unjustified
a) Enrichment or gain that lacks an adequate legal basis – it results from a transfer
that the law treats as ineffective to work a conclusive alteration in ownership rights
b) Cardozo (568), benefit “received in such circumstances that the possessor will give
offense to equity and good conscience if permitted to retain it” – element of
morality and conscience
c) This means that the Π is still the equitable owner of the property.
3. Examples of Unjust Enrichment
a) Mistakes – receiving money or property by mistake is unjust enrichment
i. Overpay a bank for a debt, mistakenly convey property, mistakenly perform a
service
b) Actual or supposed K’s – under quantum meruit, party who performs partially can
recover benefits conferred even if statute of frauds or impossibility voids K
c) Judgments – money paid as a result of a judgment, which is subsequently reversed
must be refunded
d) Emergencies – parties who reasonably provide essential goods and services in an
emergency is excused from not securing promise to pay
e) Joint obligations – paying more than share of joint obligation entitles restitution
from other obligors
i. Roommates, one pays for the other’s share of the rent – actionable cause for
rent
f) Wrongful acts – if acquire benefit from someone through theft, conversion, fraud,
etc. liable in restitution
g) Examples of restitutionary labels
i. Rescission, equitable liens, indemnity, accounting of profits, constructive trust,
quasi-K
B. Disgorging Profits
1. The Basic Principle –
a) Olwell v. Nye & Nissen Co. (Wash. 1946) (569) – On 5/6/1940, P sold and
transferred his share in company to D, but retained egg washing machine. P stored
machine near D. D put machine into operation on 5/31/41, and used it once a week,
for 3 years. P offered to sell machine to D for $600 (half of original cost in 1929).
P brought suit to recover reasonable value of D’s use of machine. Trial Ct. entered
judgment for P of $10/week (D’s average savings per week from using machine) for
156 weeks (which were covered by SOL) or $1560 based on a suit in quasi-K, to
recover profits D received as a result of its wrongful use of the machine.
i. RULE – Where D tortfeasor benefits from his wrong, P may waive tort action
and bring suit in assumpsit for restitution – simply stated, P may elect to
disgorge D’s profits as a remedy for unjust enrichment.
26
(i) Restatement of Restitution §1 – person confers a benefit not only where he
adds property to another, but also where he saves the other from expense
or lost
(ii) But, must also show that P incurred a loss
ii. Applied Here
(i) D’s use was admittedly wrong, and without a claim of right, thus P had a right
to sue in tort or in assumpsit – entitled to measure of restoration which
accompanies remedy
(ii) Here there is a K for who owns machine, which gives rise to action for tort,
Quasi-K here is like a lease, and here D must pay $10/week – which is the
cost of labor without the machine
iii. Notes
(i) DISGORGEMENT – “if he was conscientiously tortious in acquiring the
benefit, he is also deprived of any profit derived from his subsequent
dealing with it
(ii) Quasi-K – K implied in law
(iii) Notion that defendant’s culpability decides whether he is liable for all
profits
1. Conscious wrongdoer liable for all the profits
2. Negligent, illegal but in good faith, will only be liable for the fair market
value of the thing.
(iv) Economic efficiency arguments against this case – D argues that P was
storing it, wouldn’t use it, didn’t even know D was using it for 3 year
(v) Why does P get to choose what he wants?
1. Laycock right that irreparable injury rule is gone, especially when it
comes to restitution, as P has right of election
2. Important calculation to think about, what remedy gets the most money
3. Very few court engage in irreparable injury because they always find it
(vi) it seems that the value of restitution is what D gained rather than what P
lost, this seems to go against rightful position doctrine
1. P is restored by putting D in its rightful position
(vii) Look at which measure of recovery will give you the greatest recovery
(viii)
Edwards v. Lee’s Administrator (Ky.1936) - D found an entrance to a
cave on his land and turned it into a tourist attraction. The cave went under
P’s land but P could not access it. Ct awarded P part of the profits
1. Notes that even though restitution generally measure the recovery
based on what D gained, we will also see restitution resembling a
damages award that measure recovery based on the market value
2. see this in innocent, negligent situations, unintentional wrongdoer
3. court will try to relax the windfall to the P, as innocent parties shouldn’t
be required to relinquish all profits (relaxed standard for innocent
wrongdoer)
(ix) by “waiving the tort” and using the quasi-K, the Π may get a longer statute
of limitations becuase the court will be looking at contract law.
b) Maier Brewing Co. v. Fleischmann Distilling Corp. (9th Cir.1968) (579) - P had a
trademark for Black and White scotch whiskey, D began brewing a cheap beer under
27
the Black and White label, and distributed the beer exclusively through certain
grocer. Lower court found that D deliberately infringed on trademark, that there
was no competition between the 2 products, but that consumers might think that
the beer and the scotch were produced by the same company, and awarded an
accounting by D’s of their profits ($34,912 from D, and $29,849 from grocer). D
appealed. 9th Cir. awarded profits
i. RULES – concept of unjust enrichment, utilized subject to the principles of
equity will be applied to trademark infringement – remembering that the
trademark infringement must remain unprofitable
(i) Where there is infringement, but no direct competition, accounting of
profits based on unjust enrichment rationale is appropriate– such an
approach would remove motive for infringement, thus deterring future
infringement
(ii) Where infringement is “knowingly, willfully and deliberately” done,
accounting of profits is appropriate
(iii) Where infringement is entirely innocent, an injunction would be appropriate
ii. Applied here
(i) D’s knowingly, willfully and deliberately infringed on P’s trademark, thus
accounting of profits was appropriate
(ii) Moreover profits from grocer was appropriate – dollar amount of recover in
accounting for profits under unjust enrichment rationale has no relation to
the damages sustained by the P
iii. Notes
(i) How would it measure market value damages? - Licensing scheme, etc
(ii) Opportunity to discuss damages vs. restitution
1. P wanted accounting of profits (restitutionary label) for unjust
enrichment and for D’s to turn over profits
2. D argued that there is no competition, thus no diversion of sales from P’s
, thus no showing of injury
c) Snepp v. United States (1980) (585) - Snepp violated a K with the government and
published a book based on his experiences as a CIA agent, without their approval.
He had pledged not to divulge classified information and not to publish without
prepublication clearance. Govt. brought suit to enforce agreement, seeking a
declaration that Snepp had breach the K, an injunction requiring Snepp to submit
future writings for prepublication review, and an order imposing a constructive trust
for the Government’s benefit on all profits that Snepp might earn from publishing
the book in violation of his fiduciary obligations to the CIA. Dist. Ct. found that
Snepp had “willfully, deliberately, and surreptitiously” breached his position of trust
and the agreement by publishing his book without approval. Found that Snepp
deliberately misled CIA into believing that he would get approval, and that
publishing the book caused the US irreparable harm and loss. Dist. ct. enjoined
future breaches of the agreement and imposed a constructive trust on Snepp’s
profits. Ct. of Appeals affirmed injunction, but struck down constructive trust. SC
reverses and order that constructive trust be reinstated.
i. RULE - A court may order disgorgement where P has suffered an irreparable
injury. It may also order it where D is an intentional wrongdoer
28
ii.
Applied here:
(i) Irreparable harm was done through Snepp’s failure to submit his material
for prepublication review – possibility of compromising information and other
agents
(ii) it would’ve been speculative to calculate damages, the trial could’ve revealed
sensitive information, and thus difficult to quantify damages
(iii) constructive trust protects both govt, and agent from unwarranted risks –
conforming relief to the dimension of the wrong:
1. if agent publishes in violation of his fiduciary and K obligation, trust
remedy simply requires him to disgorge the benefits of his faithlessness
a. tailored to deter those who would place sensitive information at risk
– and it only reaches funds attributable to the breach
iii. Dissent
(i) Argues that this is not a trustee relationship, this is a K issue
(ii) Here dissent would have not awarded a constructive trust based on the
finding that damages could remedy breach of K
(iii) D did wrong (breaching K), but he publishes same information that would’ve
been published had he not breached K, so at the end of the day, would’ve had
this book, thus can there be unjust enrichment?
1. counter - Irreparable injury rule alone – constructive trust –that the
process, even if it didn’t violate anything, goes against the public policy in
national security
d) Three important things about a constructive trust:
i. It is a legal fiction
ii. Can be used to trace the proceeds through a series of transactions
iii. When Δ is insolvent, allows Π to reach assets in the hands of a third party
e) Better than accounting for profits without constructive trust, because with just the
apportioning the Π only ends up with a money judgement – they get NO
preferential treatment!!
f) Disgorgement for breach of K is very rare, there is a discussion of this on pgs 60002.
i. When it is allowed, it’s usually as a corollary to the right of specific
performance.
2. Measuring the Profits
a) Apportionment: Separating the profit from the wrongdoing from the profits from
lawful activity
b) Sheldon v. Metro-Goldwyn Pictures Corp. (1940) (603) – Petitioners allege
infringement of their play by respondent’s motion picture, and sought an injunction
and an accounting of profits. Ct of appeals found and enjoined the infringement and
directed an accounting. Dist Ct. awarded petitioners all net profits made by
respondents ($587,604.37). Ct. of Appeals reversed and held that there should be
apportionment and fixed P’s share at 1/5th of profits.
i. RULE – under equity, the purpose is to provide compensation for wrongful acts,
not to impose a penalty by giving to the copyright proprietor profits not
attributable to the infringement – in such circumstances, APPORTIONMENT is
29
appropriate and only a reasonable approximation is needed (demonstrated by
expert testimony)
(i) Only when the copyrighted portions are so intermingled with the rest of the
pirated work, then entire profits should be given to the P. See Callaghan v.
Myers (activities were so blended that it was impossible to separate out the
works – D had to live with consequences)
1. e.g. recipes in a cookbook
2. legal reporter
ii. Applied Here
(i) Testimony showed that talent and popularity of the stars generally
constitutes the main drawing power of the picture
1. also picture didn’t bear name of copyrighted play – plus artistic
conceptions, supervision directed
(ii) confronted with injustice of giving all profits, court entitled to avail itself to
experience of best qualified to form a judgment
iii. Notes
(i) Sheldon is often applied to music cases – CD’s are distinguished from
cookbooks
1. manner in which they are marketed
(ii) usually 2 types of fights
1. Revenue fights – while we made some revenue from infringement, we also
made revenue from things we legally did
2. Cost fights – because profits equal revenue-costs, D’s want costs to be
high
(iii) There are too ways of look at the apportionment of profits:
1. Pro rata method: when you have to figure out the relative importance of
the infringing product. The infringing product is generally a separate
entity. (Sheldon)
2. Actual profits method: looks at all the revenues and expenses
attributable to the infringing product (Hamil).
(iv) Federal rule is that the conscious wrongdoer gets no credit for income taxes
paid on disgorged profits.
c) Hamil America, Inc. v. GFI (2dCir.1999) (611) – GFI copied Hamil’s pattern and sold
garments to JC Penney, which sold the garments in its retail stores. Hamil won at
trial and District court held that D GFI couldn’t deduct overhead costs (fixed costs
of manufacturing product itself – yarn, labor, electricity, rent). Hamil appeals
arguing that Dist. Ct. erred in excluding allocation of overhead expenses in
calculating its profits. 2d Cir. agrees and remands for a determination of what
overhead costs went towards the infringement
i. RULE - Equity calls for compensation due to wrongful acts – thus overhead
which doesn’t assist in the production of the infringement should not be
credited to the infringer, and that which does, should be a question of fact in all
cases
(i) 2 step procedure for deducting overhead from infringer’s profits
1. determine what overhead expense categories (rent, business,
entertainment, personnel and PR) are actually implicated by the
30
production of the infringing product and that there is a sufficient nexus
between a category of overhead and the production or sale of the
infringing product
a. Note that for an intentional infringer the burden becomes a “strong”
nexus rather than a sufficient nexus
2. arrive at a fair, accurate, and practical method for allocating the
implicated overhead to the infringement
a. infringer has burden of offering a fair and acceptable formula for
this calculation
ii. Applied Here:
(i) District court should have allowed for a calculation for which overhead
expenses could have been deducted
iii. Notes
(i) P’s argued lost profits from shared customers – too speculative, Double
profits, we don’t know what additional customer you would’ve had
C. Restitution and K
1. The Basics
a) Mutual Benefit Life Insurance Co. v. JMR Electronics Corp. (2dCir.1988) (621) – JMR
applied for a life insurance policy for its president at the non-smoker’s discounted
premium rate – when asked questions about smoking, Pres. said he didn’t smoke, thus
P issued policy at non-smoker’s rate. After pres. died, P discovered that pres had
lied, and brought action to declare this policy void. Dist. judge, ruled on SJ for P.
JMR appeals from a judgment ordering rescission of a life insurance policy issued by
P, and dismissing JMR’s counterclaim for policy's proceeds
i. RULE –
(i) Rescission is available in the event of
1. fraudulent material misrepresentation,
2. innocent or negligent misrepresentations,
3. substantial breech,
4. mutual mistake of fact,
5. duress etc
(ii) Misrepresentation is material if knowledge by insurer of the facts
misrepresented, would have led to a refusal by the insurer to make such K
ii. Applied Here –
(i) P was induced to issue the non-smoker discounted policy directly as a result
of President’s misrepresentations
iii. Notes
(i) E.g. in common law – Cherry v. Crispin (623) – sellers fraudulently concealed
fact that house was infested with termites – P’s get back what they
exchanged, and D’s get back what they exchanged (restoration for both
sides) – situation with no disgorgement
(ii) Restitution and K’s
1. Issue of “restoration” vs. “restitution”
a. Or to disgorge or not to disgorge
31
b. Trend is to give P back only restoration rather than restitution
(breach of K isn’t that bad) – breach didn’t really cause profits, D’s
efforts resulted in profits
(iii) Modern trend is to treat recission as equitable, but it is also available at law.
b) What Restitution Really Is - Farash v. Sykes Datatronics, Inc. (N.Y.1983) (629) –
P and D entered into agreement whereby P renovated building thinking D would lease
it for 3 years. D did not. No written K. P brought suit on 3 grounds: (1) to enforce
oral K longer than a year (barred by SOF), (2) that parties contracted to enter into
a K (also barred by SOF), and (3) seeking to recover value of work performed (under
a reliance theory).
i. RULE –
(i) Restitution is based on the gain to D’s.
(ii) Where D’s don’t benefit, P may still recover where he has conferred a
Fictional Benefit – that P’s can recover in quantum meruit, measured by P’s
expenditures made in preparation for performance or in performance
ii. Applied Here
(i) P made improvements based on D’s request, and thus has a cause of action to
recover the fair and reasonable value of the performance rendered,
regardless of the enforceability of the original agreement
iii. Notes
(i) Similar Theories:
1. detrimental reliance – need a real K
2. promissory estoppel – cannot be pled if promise itself is something that
should’ve been written down – cannot be used to go around SOF
3. quasi-K – award is based on services rendered – quantum meruit
(ii) argument that equity calls for fictional benefit analysis where P has started
performing
(iii) look at totality of circumstances when stretching equity
(iv) Table on 634
Is there an enforceable contract?
Yes
No
Is there a non-fictional benefit?
Yes
No
Π may sue on the K
Π may sue on the K
Π may sue in restitution
Farash situation
iv. Notes
(i) Issue of restoration vs. restitution (disgorgement)
1. here, why not restitution?
a. Public policy – billion dollars in interest – against the federal
government
b. Hutch’s theory – when court’s don’t issue disgorgement – many times
there is an overriding public policy
c. Apportioning profits – restitution in K is more about restoration not
about disgorgement- that any gains to D is partially due to the
breach, and partially due to D’s efforts – that if P transfers value to
32
D, and D breaches, you can apportion that transferred value back to
P (restoration), while the rest stays with D, as it was earned on D’s
initiative
i. Thus D’s profits consist of 2 things, that which P gave him, and
that which he earned
(ii) Where benefits cannot be returned – losing K’s – Boomer v. Muir – Boomer
was to build a dam fro $333,000, received $313,000 in progress payments,
stopped the job due to Muir’s material breach – would’ve been entitled to
another $20,000 if he had finished. Boomer spent $571,000, and it would’ve
cost another $29,000 to finish.
1. Damages = $258,000 (while his expectancy was negative $267,000,
court said he could rescind K, and sue for value of the benefit
conferred, thus equal to difference between what he spent and what he
had already been paid)
D. Tracing the Benefit: Restitution and Insolvency
1. Defined – mechanism for “reaching” the benefit that D has realized based on his
wrongdoing –
a) can reach this benefit even:
i. if its in the hands of a 3rd party or
ii. if it has been converted into another form or
iii. if creditors of the D are trying to acquire this asset – priority schemes
(i) anytime there’s an insolvency, states create priority schemes to show who
collects first
(ii) thus tracing rules with respect to these schemes allow P to have a favorable
position in these schemes - Gives P priority over unsecured creditors
b) Tracing Requirements:
i. Identifiable property
ii. Claim of restitution
c) exceptions
i. “Bona-fide” purchaser for value – one who purchases in good faith (i.e. no
knowledge of the dispute surrounding the property), and gives adequate
consideration
(i) Tracing rules don’t work against BFPV’s
2. Hicks v. Clayton (Cal.Ct.App. 1977) – C was H’s lawyer. He swindled H’s about of
property in exchange for worthless stocks and unsecured promissory note. C didn’t pay
on note, thus H’s were unable to pay their mortgages. H brought suit against for
rescission, restitution, and constructive trust with respect to property. Mortgages
were 13 months in arrears, and IRS filed a lien on property for C’s unpaid taxes. Trial
court found C guilty of fraud and gross abuse of fiduciary duty, but denied rescission,
restitution, and constructive trust – awarded only $$ damages. CalCt.App.reverses
a) RULE – denial or acceptance of equitable relief in a case authorizing equity
intervention depends upon the adequacy, completeness of the remedy at law
i. Where remedies both legal and equitable are available, P’s have the right of
election – judicial discretion to grant relief becomes judicial duty to grant it
under some circumstances, and the grace which equity brings then becomes a
matter of right
33
b) Applied Here
i. Damages are inadequate:
(i) Uncollectible (irreparable injury rule)
(ii) Property had enormous tax lien – thus creditors would take it
(iii) Moreover, damages doesn’t protect against the 3 mortgages they owe
ii. Thus restitution should’ve been awarded
c) Notes
i. How is this tracing? – benefit was still in the hands of D, and in the same form
(home), therefore, the house is no longer available to D’s creditors
ii. Equitable Ownership Rule – where in bankruptcy, property is now P’s (because
it’s been traced), so D’s creditors can’t take it
(i) Here, wrinkle is the IRS lien
iii. Conversely, in this case a damage award would’ve made P just another creditor
(no priority) – but now P owns house under equitable ownership rule – thus
becoming a secured creditor with priority over other creditors
3. In re North American Coin & Currency, LTD. (9th Cir.1985) (662) – NAC bought and sold
metals, went into dire financial straits, and in order to prevent company collapse,
principles created a special trust account in which they put all incoming revenue for that
week so that if after the directors and stockholders meeting, the BOD voted to keep
the company alive, the money would go to filling the new orders, and if the company went
under, the customers could be repaid. P’s were group of customers who had done
business with NAC that week, and when company went under, P’s sued to place the
account in constructive trust for them hoping to avoid having to get in line if the
account was deemed part of the company’s assets. Bankruptcy court and Dist. Ct.
rejected this claim
a) RULE – For a Constructive Trust, you have to show that title to the property was
obtained through fraud, misrepresentation, duress, etc. which makes it
unconscionable for the holder to retain legal title and enjoy its interests
i. E.g. a claim where restitution would’ve been the solution
b) Applied here
i. Evidence doesn’t establish fraud, no affirmative misrepresentations – and
evidence indicates good faith as they created the special account due to the
uncertainties, and didn’t pay debts with funds
c) Notes
i. Public policy argument – that there’s on reason why these particular creditors
should get their money first
(i) Point of bankruptcy code is to treat all unsecured creditors equally, and to
give secured creditors priority
ii. For constructive trust, you need 2 things:
(i) Identifiable property, and
(ii) Some sort of fraud, misrepresentation, or another ground for unjust
enrichment
4. Tracing Fictions
a) D withdraws its own $$, and preserves P’s $$:
i. If D adds $$ to account, it’s not necessarily P’s – instead, P’s get the lowest
intermediate value
34
b) D invests P’s $$:
i. E.g. buys securities, property – assumption is that they are investing P’s $$ thus, while under real terms, you can’t link it – under the tracing fiction, you can
ii. However, investments prior to conversion do not go to P – thus fiction goes
chronological
(i) Also, Π can only claim a portion of the investment that is equal to what the
lowest intermediate balance was before the investment.
iii. How about if the investment makes more $$ - P gets equitable lien rather than a
constructive trust
c) D deposits P’s $$ - fiction that $$ stays in account - NAC
d) P’s property is identifiable as it changes form
5. In re Erie Trust Co. (Pa. 1937) (665) – Erie Trust, as the executor of decedent’s estate
took funds improperly from the estate. The trust becomes insolvent, and secretary of
banking takes possession as receiver. The beneficiaries of the Decedent’s estate
brought suit seeking priority in distribution for the amount taken.
a) RULE – Where improperly converted assets of a trust estate are traced into a fund
for distribution, a preference has always been allowed on the theory that such
assets have never become part of those of the trustee, but at all times have
remained the property of the trust beneficiary – thus trustee’s general creditors
are not entitled to such assets
b) Applied Here
i. Applying fictions – they were able to trace up to $25,000 and they got an
equitable lien on the property which the bank acquired after conversion
occurred
c) Notes
i. Normally, under restitution- all you need is unjust enrichment, while D didn’t do
anything wrong, it would be wrong to give $$ to D
(i) With Insolvency, i.e. bankruptcy – courts want to see fraud,
misrepresentation, conversion or duress
ii. Damages v. Equitable lien – fixed amounts/ constructive trusts
(i) If you are in restitution and you are getting a fixed amount, to be
technically accurate it’s an equitable lien
(ii) If it’s a variable amount, so that the price of the asset goes down and up,
then it’s a constructive trust
(iii) Many cases just say restitution, or constructive trust, but …
(iv) Equitable lien is a specified amount, of the conversion or money due to fraud
(unjust enrichment for D), and in many cases, especially outside of the
bankruptcy context, this will be the same as damages
6. Rogers v. Rogers (N.Y.1984) (684) - Man divorced 1st wife. Part of the settlement was
that she would remain the beneficiary of his life insurance policy. He got a new policy
made 2nd wife the beneficiary. 1st wife claims it is hers.
a) RULE – A person who possesses equity in an asset is entitled to restitution of that
asset by a subsequent holder who paid no value, even that latter person didn’t know
of the predecessor’s equitable interest.
35
i.
Moreover, generally, equitable interests must be traced to identifiable property,
but equity allows relaxation of tracing rules to mitigate any harsh consequences
from legal rules
b) Applied here
i. Because policy lapsed, no identifiable property in a true sense, but court looked
at spirit of agreement, and broadly found that gist behind decree created
interest which would survive employment changes, thus identifiable property,
allowed for restitution
c) Notes
i. Would case have had a different outcome if facts were more sympathetic to
2nd wife? 2nd wife was destitute? Would court have stretched equity such
that outcome benefited 2nd wife?
ii. BFPV Rule, does it apply in this case? Should 2nd wives be considered under this
rule?
(i) The only way to do this is to consider marriage to have some kind of
consideration, but that commonly happens in family law, particularly
marriage, that each party had contributions: economic, etc., such that
valuations occur and property is divided
(ii) This wasn’t raised in this case, but something to think about, although
normally courts don’t do so
(iii) Instead they were a gratuitous beneficiary, but that’s what BFPV rule is all
about, so don’t be seduced by innocence, you also need adequate
consideration…if you don’t pay for something, and you receive gift, then you
are not a BFPV and tracing rules can work against you
7. Fraudulent Conveyance Law (or fraudulent transfers) – involves a situation where a party
transfers an asset without adequate consideration or the purpose of the transfer is to
prevent creditors from getting it. See note 1 (689)
a) 2 settings
i. when its reasonable that debtor will become insolvent or
ii. anytime someone transfers property at any terms with an actual intent to hinder
creditors
b) E.g. ACLI Government Securities, Inc. v. Rhoades (689) – attorney conveyed a large
tract of land to his sister the day before a large judgment was entered against him
c) Cases can be reached either through fraudulent transfer or constructive trust law
i. Some differences
(i) Fraudulent transfer doesn’t apply to cases with adequate consideration
(ii) Doesn’t reach gifts or sales for inadequate value unless it was foreseeable
that debtor would become insolvent
(iii) Does not require P to trace specific property lost
(iv) Can only recover amount lost
8. Robinson v. Robinson (Ill.App.Ct.1981) (690) - Couple married in 1966, lived off husband’s
salary and saved wife’s to build home. 1969, asked parents who consented to build home
on the Johnson Road property. Saved $4,000, borrowed $18,000 from local bank as
construction loan, and when they completed home, a regular mortgage was placed on the
property for security as they were going to own the land (this is important as a fact for
the court to determine who to believe) – the note was renewed on yearly basis and
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monthly payments reduced debt to $15,000. Constructed house in 1969 and moved in
in 1970, and after occupied, additional improvements in the amount of $5,000 were
made (carpets, drapes, etc.). All parties knew home was theirs and treated it as such,
they did all landscaping, repaired it, maintained it, made all loan payments, and treated
interest as deduction on tax returns, insured house, had the only keys and never paid or
were asked rent for it – thus facts treat it as if everyone believed home belonged to
kids. One connection parents had on it was that it was included on farm tax bill since lot
was not subdivided, thus parents paid real estate tax bill which husband in exchange
worked additional time for parents on farm. No written agreement as to a transfer of
title to the property. Marital discord arose in 1977, and husband moved to parent’s
home
a) Wife brought action to obtain dissolution of marriage from husband and against his
parents to establish her rights in property owned by them (Johnson Road property).
Trial court entered judgment for dissolution of marriage finding that both parties
were self-supporting, in good health, and have sufficient income and assets that
neither was entitled to maintenance. Further determined that each had ½ interest in
house constructed on the land owned by both parents, Earl and Alice. Valued house
and improvements at $71,000 and determined that there was a construction loan for
the house amounting to $15,000 and that value of the lot upon which house was
constructed was $12,000
i. Judgment provided 2 dispositions of the property by 2 alternate methods to be
determined by both parties:
(i) cash out - house and lot be sold, sale expenses paid, construction loan paid,
parents be paid value of land (indication that court didn’t believe that
daughter was entitled to land), and then remaining proceeds split between
wife and husband – moreover lien imposed on husband’s behalf in an amount
equal to the court’s determination for child-support, attorney’s fees and her
one-half interest in husband’s retirement pension fund
(ii) alternatively, provided that if parents didn’t want to sell house, they had to
pay wife $28,000, which represented her ½ interest in the house, and pay
the bank $7,500 representing ½ the amount due on the construction loan and
husband was then required to hold wife harmless and indemnify her as to any
liability on the other $7,500 due – also included lien on husband’s ½ interest
in house for child-support, attorney’s fees, and pension fund
ii. trial court found that it would unjustly enrich parents to gain house without
compensation
iii. both parties rejected both alternatives
b) RULES
i. Generally under “mistaken improver” doctrine, improver cannot collect, but the
exception is where it would be unjust for D to hold onto benefit, i.e. D had
knowledge that improvements were going on
c) Applied Here
i. Ann’s improvements were done with the knowledge, cooperation and approval of
parents
ii. interest to Ann in the Johnson Road Property was an equitable lien: the right to
have property subjected in a court of equity to payment of a claim
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d)
e)
f)
g)
iii. Home is why there is tracing, court is trying to find out where marital property
is in order to calculate division
Issue #2 – How much should the equitable lien be worth?
i. Parents argued for the subjective value, but court rejects and takes the
increase in value to the property or the objective value of the costs of
improvement ( both are market approaches)
ii. Generally, courts take lesser of 2 values, as there is a general reluctance to
impose too much of a burden on the property owner
iii. Distinguishing equitable lien and constructive trust:
(i) Equitable lien is a fixed amount
(ii) Constructive trust is a property interest
iv. Thus how do we know that what Court gave Ann was an equitable lien?
(i) In both cases, she got a fixed amount
(ii) Whereas a constructive trust would’ve given her half the house, and that
value could go up and down depending on appreciation or depreciation of
house
v. Restitution here allows them to force parents to sell the house in order to get
paid, but it could not be done with damages
Holding #3
i. trial court was erroneous in placing a lien on ½ of the property for Ann’s
attorney’s fees, child support and pension plan
ii. Reasoning – equitable lien is a remedy not a property right, cannot impose lien on
an equitable lien
iii. husband disclaimed his interest in the house
iv. thus equitable lien is not a real lien, it’s created by the court, thus the only way
you can get it is to claim the half interest in the home, Ann does it here, but her
husband didn’t, so you can’t attach a lien onto the equitable lien which hasn’t
been claimed, it’s a remedy not a property interest
Fraudulent conveyance? Is court being too formalistic?
i. By disclaiming his interest in property to which he was entitled to, it was in
effect a fraudulent conveyance
ii. See 699, Bankruptcy Code and how it treats
iii. Argument that in order to find an interest for wife, its implied that husband
had an equitable interest
Notes
i. person who has been unjustly enriched at the expense of another is required to
make restitution to the other
(i) person is unjustly enriched if:
1. he has received a benefit
2. if the retention of the benefit would be unjust
ii. person receives restitution when he is restored to the position he formerly
occupied either by return of something he formerly had or by the receipt of its
equivalent in money
iii. while constructive trust would treat Ann as an owner, entitled to share of any
appreciation until her interest is sold, and expose her to risk of depreciation –
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equitable lien treats her as a lienholder, entitled to a specific dollar recovery
without regard to further changes in value
(i) When the property is worth less than what you are owed, you get a money
judgment then an equitable lien on traceable property to cover the
judgment.
iv. Mistake improver cases are the rare instances where the Δ gets to choose the
remedy.
VII.
REMEDIAL DEFENSES –
A. Notes
1. Defenses that a defendant will use to bar recovery by the plaintiff regardless of the
merits of the case.
2. Available in law and in equity (except laches, only in equity)
B. Unclean Hands / In Pari Delicto - Rules regarding in pari delicto- raised to bar recovery
by P, when P has engaged in wrongdoing as well – argument that P has done something wrong
as well, thus he can’t recover
1. Pinter v. Dahl (1988) (960) - Pinter agreed to locate and acquire oil leases, to drill wells
on the leases, and to operate the leases on behalf of Dahl. Dahl invested $310,000 and
induced 11 friends to invest $7,500 each. Wells were worthless, D sued P under
securities act seeking rescission on grounds that investments never were registered
with SEC.
a) RULE –
i. In pari delicto defense available where:
(i) as a direct result of his own actions, the P bears at least substantially equal
responsibility for the violations he seeks to redress, and
1. careful – sometimes people make mistakes with this rule, P’s wrongdoing
must somehow relate to the harm at the heart of the issue
(ii) preclusion of suit would not significantly interfere with the effective
enforcement of the securities laws and protection of the investing public
1. 2nd prong – generally stated, would preclusion of the suit interfere with
general public policy concerns? – these defenses are created in equity,
thus public policy is usually involved
b) Applied Here
i. Supreme Court says application of Bateman Eichler was too narrow
(i) By allowing this suit to occur, you’re furthering a wrong, allowing P’s to
engage in wrongdoing, which will harm the public as well
(ii) Court didn’t make a conclusion, but remanded ordering the lower court to
look at what extent the P was involved in the wrongdoing as a promoter or an
investor
c) Notes –
i. in pari delicto is available at law in suits for damages – unclean hands based on
equity
ii. See Note 6 (965), court denied relief because of unclean hands, both parties
were allowed to continue deceiving the public, does this make public policy
sense? – putting unclean hands over consumers
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iii. Note 8 (966), courts will not serve as a referee in an accounting between
coconspirators – James v. DuBreuil, court not wanting to get in the way of a
fight between shady and unlawful parties
iv. Another nuance – Note 9, P’s behavior must be directed towards D – Beelman v.
Beelman – P and husband fraudulently convey property to brother in law, husband
dies, brother doesn’t give back, court nevertheless, imposed a constructive
trust, as the fraud was directed towards the IRS, not the D
v. See note 15, Makela v. Roach – doesn’t divorce trigger some fraud going on here?
But then she looks innocent, because they put the $75,000 into her daughter’s
account, of whom the lawyer was one of her creditors – that sounds
innocent…question is who is more culpable in this situation
C. Unconscionability and the Equitable K defenses – classic equitable defense, many common
law cases use it for specific performance, but also in cases of law and equity – basic
premise: equity will not enforce an unfair bargain
1. Armendariz v. Foundation Health Psychcare Services, Inc. (Cal.2000) (969) – P’s sued
employer D, for sexual harassment and being terminated based on their sexual
orientation. D invoked a K clause requiring arbitration. The K limited remedies to wages
from date of discharge to date of the arbitration award – precluded reinstatement or
injunctive relief, attorney’s fees or lost pay after the award date
a) RULEi. 2 step analysis for determining whether K is unconscionable:
(i) Is there a K of adhesion – means that one party has to adhere to the terms
of K or reject it altogether –
(ii) if there is, then determine whether other factors are present to render it
unenforceable, generally there are 2 judicially imposed limitations on the
enforcement of adhesion K’s or provision:
1. a K or provision that doesn’t fall within the reasonable expectation of
the weaker party will not be enforced
2. K or provision will not be enforced if it is unduly oppressive or
unconscionable
ii. Once court finds term is unconscionable, it has 2 options
(i) sever or strike terms
(ii) refuse to enforce the entire K
b) Applied here
i. Unconscionable
(i) We have a K of adhesion – low level employees
(ii) While public policy favors arbitration, here it is unconscionable because the
arbitration requirement was unilateral, only employees had to abide by the
terms
1. Waiver or right to jury trial
2. Limited discovery
3. Limited judicial review
4. Arbitration limits size of award employee is likely to get – while imposing
no restriction on employer
5. Doesn’t require employer to arbitrate
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(iii) The court notes the ceiling here, that arbitration requirement in an adhesive
context lacks basic fairness and mutuality - There has to be a “modicum of
bilaterality”
c) Notes
i. Procedural and Substantive
(i) Process side goes to test 1st part – is there an uneven bargaining position
(ii) Substantive looks to the content of the K – part 2
ii. If the term can be isolated and stricken, it will do so, but if the unconscionable
terms permeate the entire K, then it will not enforce the K – thus look at to
what extent the unconscionable provisions permeate the document…
iii. One way that superior parties can escape being struck down with K’s of adhesion
– while a lot of companies get in trouble for fine print, i.e. language on the back
of sale receipts (people don’t read fine print) – one way to escape a finding of
unconscionability is to make things really clear which goes to the REASONABLE
Expectation of parties
2. Estoppel and Waiver
a) Estoppel - Doctrine that emerges out of equity
i. Geddes v. Mill Creek Country Club, Inc. (Ill.2001) (978) - P’s property was
adjacent to golf course, prior to construction of golf course, P’s objected but
conceded to allow a fairway to be adjacent to their property. D’s changed plan
accordingly. Parties signed an agreement providing for an eight-foot fence along
the property line, and a landscape border along the fence, not bicycle path along
any border of P’s property, and no houses within 100 ft. of P’s property. P’s
collected 2,128 balls on their property during 1996-1997 – and claimed to have
abandoned use of significant portions of their property. P’s alleged intentional
trespass and intentional nuisance because D’s caused and allowed golf balls to
invade P’s property
(i) RULE –
1. To establish equitable estoppel, party claiming must demonstrate that
a. the other person misrepresented or concealed material facts
b. the other person knew at the time he or she made the
representations were untrue
c. the party claiming estoppel did not know that the representations
were untrue when they were made and when they were acted upon
d. the other person intended or reasonably expected that the party
claiming estoppel would act upon the representations
e. the party claiming estoppel reasonably relied upon the
representations in good faith to his detriment
f. the party claiming estoppel would be prejudiced by his reliance on
the representations if the other person is permitted to deny the
truth thereof
(ii) Applied here
1. by their conduct induced or encouraged D’s to design and build the 5th
hole, for P’s to assert these claims now would be inequitable and damage
D’s
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a.
record clearly shows that P’s knowingly agreed to placement of
fairway
b. Court says its common sense that golf balls don’t always go straight,
and that is evidenced by the fence
2. Problems here are with the agreement:
a. Conduct by P which induced reliance
b. Judicial knowledge situation, judicial notice that golf balls don’t make
it into holes, if there was some leeway or relief to P
c. Probably a lot of weight to economic harm (prejudice to D’s)
d. P’s should not have just acquiesced, they had a duty to check into
what was going on…
(iii) Notes
1. Regarding the first two: the representation need not be fraudulent in
the strict legal sense or done with an intent to mislead or deceive –
although fraud is an essential element, it is sufficient that a fraudulent
or unjust effect results from allowing another person to raise a claim
inconsistent with his or her former declarations
a. estoppel may arise from silence as well as words
b. party claiming estoppel has the burden of proving bit by clear and
unequivocal evidence
2. While equitable estoppel is closely related to fraud (all frauds give rise
to estoppels and may be relied on defensively), even good faith
representations that become untrue because of changing circumstances
can create estoppel. People v. Kinion (984)
3. Is there consideration in this K? which is why this is in equity…
4. Traditional estoppel rule is that the government cannot be estopped Federal Crop Insurance Corp. v. Merrill (986)
a. However, in Georgia-Pacific (985, note 8), the rare exception,
allowed estoppel. – focusing on economic harm
i. Court held that government was acting in a proprietary role
(private concern), so not in a government capacity (exclusively)
ii. Argument that only government can buy land to make a national
forest
iii. Court here is trying to soften the blow of a no estoppel against
the government rule
b) Waiver
i. United States Fidelity & Guaranty Co. v. Bimco Iron & Metal Corp.
(Tex.1971)(989) - Burglars broke into P’s building. D, the insurer, offered to pay
only for damages done to the door where burglars broke in. P’s failed to timely
file proof of loss, and the non-waiver agreement which provided “that any action
taken by the company, in investigating said accident shall not operate in any way
as a waiver, or invalidate any of the conditions of the said policy, was executed.
However, D’s claim adjuster for D contacted P and said that company would pay
for loss from damage to the door from burglary
(i) RULE - Waiver may be effective after expiration of the time for
performance of a condition has expired, if the condition which is asserted to
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have been waived is not a material part of the agreed equivalent of the
obligor’s promise and its non-performance doesn’t materially affect the value
received by the obligor
1. Unlike estoppel, Waiver is unilateral – it need not be founded on a new
agreement, nor be supported by a consideration nor based on estoppel
2. No need for consideration or detrimental reliance
(ii) Applied here
1. D waived his rights
a. D never denied liability on grounds of late filing of proofs, and had
conferences with P and through him obtained estimates on building
b. Moreover, D’s actions were not part of the investigation, and conduct
was not consistent with a possible defense of non-filing of proofs
loss
(iii) Notes
1. Cannot waive a constitutional right
2. Argument that company only waived right to covering door
a. Waiver is for contractual defense, once they waive that, P can assert
coverage, and then debate goes to what policy covers…
3. What can parties do to protect themselves?
a. put waivers in writing in K
b. look at UCC §2-209 – if a K says it can only be modified in writing,
then it can only be modified in writing (992, note 7)
4. Can government waive their rights?
a. Yes, note 1, only if official who waived rights had authority to do so
D. Timing Issues - Once the courts find Laches or SOL, whatever the merits of the case are,
doesn’t matter, case is barred – equity prevents parties from asserting stale claims
1. Laches – only works for equitable remedies
a) National Association for the Advancement of Colored People v. N.A.A.C.P. Legal
Defense & Educational Fund, Inc. (D.C. Cir. 1985) (995) – BOD for association voted
to create LDF in 1936 to raise money and from 1940-57, LDF served as its
subsidiary. 1957, both agreed to LDF’s independence. 1979 – association registered
revoked permission to use NAACP initials, and registered its name with the Patent
and trademark office. 1982, BOD instituted suit and dist ct. instituted an injunction
banning LDF from using the initials and prohibited LDF from referring to its former
affiliation for 2 years
i. RULE – Doctrine of Laches – bars relief to those who delay the assertion of
their claims for an unreasonable time
(i) 3 affirmative requirements to claiming laches
1. substantial delay by a P prior to filing suit
2. P’s awareness that the disputed trademark was being infringed, and
3. reliance interest resulting from D’s continued development of goodwill
during this period of delay
(ii) courts also look for factors that may negate the invocation of laches by
excusing the delay
1. ongoing negotiations
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2. conscious fraud or bad faith by D
(iii) laches may bar injunctive relief when D has established a substantial
reliance interest – investing substantial labor and capital that builds the
trademark’s goodwill
(iv) MERE DELAY IS NOT ENOUGH
ii. Applied here
(i) requirements for laches satisfied by facts of this case
1. association delayed for almost 13 years before resuming negotiations
a. by failing to give clear notice of exclusive claim to NAACP initials,
association failed to reserve its rights
b. invited reliance by D’s – investment
2. association had knowledge of LDF’s alleged infringement
3. Association’s conduct gave LDF reasonable justification to rely on
association’s inaction, and to invest resources based on this reliance
a. Moreover, no negotiations from 1966-1978 to justify delay
iii. Notes
(i) Laches founded on the notion that equity aids the vigilant and not those who
sleep on their rights
(ii) Several aims served by laches
1. P’s encouraged to file suits when courts are in the best position to
resolve disputes
2. as claims become stale, pertinent evidence gets lost, equitable
boundaries blur, as D’s invest capital and labor into claimed property, and
P’s gain the unfair advantage of hindsight while D’s suffer disadvantages
based on uncertain future outcomes
(iii) in determining whether laches apply, Most courts look for:
1. unreasonable delay
2. prejudice to D by now allowing suit
a. 2 ways that D’s suffer from prejudice
i. Litigation
ii. Economic –
(iv) How is this similar to estoppel?
1. Similar element of reliance as the unreasonable delay induces reliance –
moreover, the activity or conduct on behalf of the plaintiff, lulls the D
into a complacency
(v) See note 4 (1001) – Hutchinson v. Pfeil – witnesses died, so obvious loss of
evidence
1. Contrasted with New Jersey v. New York – where the only witnesses
were old maps and pure questions of law, thus delay did not prejudice any
party
(vi) Requirement of reliance or harm to D emphasized close link between laches
and estoppel – emphasis in laches is delay, estoppel is misleading
1. Differences between the two is blurry when D is misled by P’s silence
(vii) 3 forms of prejudice
1. Detrimental reliance
2. Lost evidence
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3. Where P tries to claim property after D has borne burden or risk of
developing property often right after some unusual period of risk of
developing the property, often right after some unusual period of risk
has passed
(viii)
Another element of laches is Unreasonable delay
(ix) P didn’t know she has a claim – common source of delay
2. Statutes of Limitations - SOL applies in both law and equity
a) 3 major issues with SOL
i. Continuing violation
ii. Discovery rule
iii. Fraudulent concealment
b) CONTINUING VIOLATION - A wrong committed by a D. The cause of action
accrues when the wrongdoing occurs but there are points on the way to filing where
the wrong doing happens over and over again - Each new wrongdoing creates a new
statute of limitations period
i. Klehr v. A.O. Smith Corp. (1997) – P’s bought silo in 1974 which they used for
storing cattle feed. They allege that they bought it in reliance on D’s
misrepresentations. P’s brought suit 20 years after buying silo. P’s claimed that
D’s had covered up their fraud preventing them from knowing it was
malfunctioning, through dealer misrepresentations, ads, that they didn’t know
until 1991, that silo was shietty.
(i) RULE - The “Continuing Violation” Rule – can only recover for damages
within the period of limitations and which occur as a result of the most
recent violation
1. Continuing violation
2. Continuing harm
3. Nexus
(ii) Applied here
1. strikes down 3d Circuit’s rule (last predicate act rule)
a. it would allow P’s to wait and “sleep on their rights,” to accumulate
damages and bring suit only after “memories of witnesses have faded
or evidence is lost”
2. SOL was 4 years
3. Court could not find any new fresh act of wrongdoing other than the
initial fraud (one-time event), and SOL barred suit on that cause of
action
(iii) Notes
1. Tolling Principle – even if act occurred way back when, SOL doesn’t start
until you could’ve realized the harm due to D’s conduct (which we’ll see in
the next case)
2. In some instances, you can argue that there is a duty to repair and
failure to do so is a continuing violation
c) DISCOVERY RULE – involves a one-time event, where the wrong occurs, but due to
the peculiar nature of the case, you don’t discover the wrong till later, and thus the
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SOL is tolled until the period at which the P has knowledge of the facts necessary
to make out a cause of action
i. O’Brien v. Eli Lilly & Co. (3d Cir.1982) (1013) – P suing manufacturers of DES
which her mother took to prevent miscarriages, but which caused her to develop
cancer. 1971, P unknowingly had cancer and a radical hysterectomy was
performed on her. Her parents asked the doctors not to tell P that the tumor
was malignant - at that time, doctors asked P’s mother if she had ever taken
DES. 2/1976 – P reads Newsweek article and confronts mom in 4/1976, but her
mother denies taking DES. 1979, more articles came out and P asked her
mother again, and then contacted doctors in 12/79, who confirm her suspicions,
and she files suit against DES manufacturers
(i) RULE –
1. Based on “reasonableness,” the cause of action begins to accrue when P
knows or should have known of:
a. the injury,
b. the operative cause of the injury and
c. the link between the two.
2. Actual knowledge is not the trigger, SOL begins “from the time P,
through the exercise of due diligence, should have learned” the facts
and their relationship
(ii) Applied here
1. 1976, P learned of the tumor (injury),
2. when she read the article and spoke with her doctor, through due
diligence, she could have discovered the alleged operative cause of the
injury and the causal relationship between the two (the injury and the
cause)
(iii) Higginbotham’s dissent – imposing an unrealistic burden on a 19 year old girl,
that she should’ve discovered that DES was the cause of her cancer, in spite
of her mother’s lies
1. argument that reasonable person standard should take factors such as
age, mother’s answers into consideration
(iv) Notes
1. there were problems with the market theory applied here, P didn’t know
who was at fault thus she sued the manufacturers – court probably took
this into consideration
2. lack of knowledge of the law isn’t a defense
3. SOL runs when D discovers claim, not when he discovers evidence to
prove it – e.g. Vaught v. Showa Denko (1021) (SOL begins when she heard
new story not from positive diagnosis 3 years later)
4. some states have statutes of repose (1022) which trump discovery rule
exceptions by placing absolute time limits which bar claims completely
after a certain period
d) Fraudulent Concealment – Knaysi v. A.H. Robins Co. (11th Cir. 1982) (1024) – Ms.
Knaysi became pregnant after using Dalkon Shield, suffered a spontaneous septic
abortion. Alleged that Robins was aware from test results that the effectiveness
of the device in preventing pregnancy was lower than advertised and from both
46
tests and reports from physicians, that spontaneous septic abortions often occurred
in connection with its use. District Court ruled in Robins’ favor on motion for
summary judgment
i. RULE –D’s are estopped from claiming a SOL’s defense due to representations or
conduct which have induced a party to postpone bringing suit on a known cause
of action, or from fraudulent concealment of an action which was unknown to the
party
ii. Applied here
(i) If looking at using device as the event that caused harm, then claims are
time-barred, but P’s claims are based on fraud – D’s concealed the
effectiveness and safety of the device
(ii) Facts if allege could estop Robins from pleading SOL – reversed for to
decide issues of fact
1. D had control and superior, or exclusive, knowledge of facts necessary
for the P to make out a cause of action
2. the D by affirmative misstatements concealed these essential facts
from P’s
iii. Dissent (Tjoflat) – burden of proof for equitable estoppel reply to SOL claim is
on the P
(i) nothing in record that suggests that physician believed what brochure said
or relied on it in any way, that it lured the physician, and in turn appellants
into a state of inaction vs. Robins
(ii) Under NY law, equitable estoppel must proceed on one of 2 theories:
1. requires Knaysis to prove that Robins made an actual misrepresentation
to Knaysis or to physician that Robins intended would induce Knaysis to
believe that the septic abortion could not have been caused by the
Dalkon shield
2. that they or the physician acting for them, justifiably relied on that
misrepresentation; and that their reliance on the misrepresentation was
the reason that Knaysis didn’t file a timely suit against Robins
a. No link between the alleged misrepresentation and the Knaysis
failure to bring this suit within the limitations period
iv. Notes
(i) Fraudulent concealment comes about in situations where the wrongdoing is
concealed by the D
1. Case doesn’t really discuss this in terms of concealment, it talks about it
in terms of estoppel
2. Party can be estopped from asserting the SOL – some courts treat
Fraudulent concealments as a subset of equitable estoppel (P’s rely to
their detriment on the claims of the D’s and are induced into a position
of inaction in terms of bringing suit)
3. Differences between equitable estoppel and fraudulent concealment
a. FD – D conceals the wrong, so you don’t have the information to make
out a cause of action
b. EE – D does something to lull you into not suing
4. What other things/activities look like this?
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a. Duress – threaten P with harm if he sues
b. Bad faith negotiations – negotiating just to pass time, and magically,
when SOL passes, halt negotiations, and claim that suit is time
barred – 100’s of cases that say that D’s are estopped from claiming
SOL
c. Bad faith promises to pay compensation
VIII. Right To Jury Trial
A. Chaffeurs v. No. 391 v. Terry (1990) (1990) – P’s were truck drivers transferred to
employer’s terminal. P got into dispute with previous truck drivers who were laid off from
that terminal over seniority rules. Both groups shared the same union, and union took
original driver’s side in grievance proceedings and P’s were laid off. P’s brought suit against
their union for breach of duty to fairly represent them during the grievance proceedings.
Dist. Ct. held that P’s were entitled to a jury trial, and ct. of app. affirmed.
1. RULE – 7th Amendment provides that “[in] Suits at common law, where the value in
controversy shall exceed twenty dollars, the right of trial by jury shall be preserved.”
a) 2-step process to determine whether action involve legal rights
i. Compare statutory action to 18th Cent. Action brought in England before merger
of courts of law and equity
ii. Examine the remedy sought and determine whether it is legal or equitable in
nature
b) 7th amendment is construed to mean that only common law claims are entitled to
jury trials
2. Applied here
a) Union argues that
i. duty of fair representation action is similar to a suit brought to vacate an
arbitration award as respondents seek to set aside results of the grievance
process – and that such an action was considered equitable
(i) Court finds that grievance committed never dealt with the issue of fair
representation – only dealt with whether employer violated CBA
ii. respondents duty of fair representation action is like an action by a trust
beneficiary against a trustee for breach of fiduciary duty – which should be in
courts of equity
(i) court finds this argument more persuasive as a trustee has the exclusive
authority to sue 3rd parties who injure beneficiaries’ interest in the trust,
including any legal claim the trustee holds in trust for beneficiaries
b) While D’s malpractice analogy is less convincing than trust analogy, trust analogy is
not persuasive to characterize claim as wholly equitable
i. respondent’s action against union thus encompasses both equitable and legal
issues
ii. however, since the remedy respondent’s seek has none of the attributes that
must be present before we will find an exception to the general rule and
characterize damages as equitable, court finds that remedy sought is legal
c) Mere fact that you’re dealing with $$, doesn’t characterize this as legal
i. D’s look at title VII and say that court found that court has labeled backpay
under title vii as equitable
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ii.
Court says that congress specifically labeled backpay as equitable in the title vii
setting, but here they didn’t
iii. Moreover, court has noted that backpay sought from employers in title vii would
be restitutionary, contrast to damages sought here
d) court’s characterize damages as equitable where they are restitutionary – such as in
“actions for disgorgement of improper profits.”
i. backpay sought is money they would’ve received had grievances been process
properly
e) court’s may find that a monetary award “incidental to or intertwined with injunctive
relief” is equitable
i. respondents only seek money damages here – not applicable
f) Thus remedy of backpay sought in action for duty of fair representation is legal in
nature, thus entitled to jury by trial –thus affirmed.
3. Notes
a) What happens when you look for mixed claims – legal and equitable issues?
i. Try legal issues first and then equity claims
b) Sometimes, even though its just equitable relief – and there’s so much fact finding
that judge will appoint an advisory jury to take into consideration the facts of the
case
IX. Ancillary Remedies - help implement some other remedy
A. Notes
1. Why do we need help enforcing primary remedies?
a) Recalcitrant parties
B. Contempt
1. Notes
a) One of the reasons courts are reluctant to issue injunctions is because they carry
the weight of contempt behind them – and contempt proliferates litigation – may
invite parties to litigate – procedural requirements that have to occur before
contempt comes into play
b) Contempt also restricts liberty – while the injunction already does so, there are
potentially huge $$ judgments, possibility of imprisonment
c) Working categories of contempt:
i. criminal – punishes violations
ii. coercive civil – compels compliance, vindicates court’s authority
iii. compensatory civil – designed to compensate party for injuries to lack of
compliance for injunction
2. Distinguishing between Criminal and Civil Contempt - International Union, United Mine
Workers v. Bagwell (1994) (776) - Union and company had a protracted labor dispute
over unfair labor practices.Trial court entered injunction which prohibited union and its
members from obstructing ingress and egress to company facilities, throwing objects at
and physically threatening company employees, placing tire-damaging “jackrocks” on the
road used by company vehicles and picketing with more than a specified number of
people at designated sites. During contempt hearing, trial court found that petitioners
had committed 72 violations of the injunction . After fining the union $642,000 for
disobedience, it announced that it would fine the union $100,000 for any future violent
infraction and $20,000 for non-violent infractions. 7 subsequent contempt hearings,
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found union in contempt for more than 400 separate violations. Each hearing was a civil
proceeding before a trial judge, and parties conducted discovery, introduced evidence,
and witnesses. Trial court required that contumacious acts be proven beyond a
reasonable doubt, but did not afford union a jury trial. Court levied over $64,000,000
in fines against union, and ordered approximately $12,000,000 to companies. During
appeals, both sides settled the dispute, agreed to vacate the fines, and jointly moved to
dismiss the case. Trial court granted motion to dismiss, vacated the $12,000,000 but
refused to vacate the remaining $52,000,000 as the fines were coercive, civil fines.
Court of appeals of VA reversed and vacated the fines, Supreme Court of VA reversed,
finding that the fines were indeed civil and coercive and properly imposed in civil
proceedings.
a) RULE – In order to distinguish between civil and criminal contempt, you have to look
at nature and character of order rather than the stated intent
b) Applied here
i. Parties Arguments:
(i) P’s argue that because injunctions primarily prohibited certain conduct
rather than mandated affirmative acts – the sanctions were criminal
(ii) R’s argue that because the trial court established a prospective fine
schedule that the union could avoid through compliance – the sanctions were
civil
ii. Court says that its all semantics – you could say “thou shall not strike” or you
could say “thou shall continue working” – you could use prohibitory or positive
language
iii. Thus looking at the character of the order
(i) had the court levied fines after finding the union guilty of contempt, the
fines would’ve been punitive –and thus criminal
(ii) however, just the fact that these were prospective doesn’t make them civil
1. even though there was prospective notice, this was not a per diem
situation (pay us a $1000/day until you comply)
2. it was fixed, determinative, and retrospective
3. criminal as once the fine was imposed, you couldn’t get rid of it
(iii) Other Considerations to convince court that fines were criminal
1. conduct occurred outside of court’s presence and didn’t implicate court’s
ability to maintain order and adjudicate proceedings before it
2. union’s contumacy didn’t involve simple affirmative acts, trial court levied
fines for a crazy complex injunction
3. fines were serious: $52 million dollars
iv. Disinterested fact-finding and even-handed adjudication were essential thus P’s
were entitled to criminal jury trial
c) Ginsburg concurrence - reasons why these contempt proceedings are criminal rather
than civil:
i. any fine is conditional upon compliance or non-compliance before imposition –
simply because you can avoid the penalty doesn’t make it criminal or civil
ii. refusal to vacate fines is characteristic of criminal proceedings – with no
parties, it is implausible to invoke justification for benefiting the complainant –
the case was settled thus it looked like criminal (even if a person says he doesn’t
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want to prosecute a claim, the government can still continue with the claim –
analogous to criminal)
d) Notes
i. In determining whether its civil or criminal - rather than basing the distinction
between the nature of D’s act, the distinction is in the proceeding, not in the
contempt
ii. the only difference that relates to D’s act is the required state of mind – even
inadvertent violations of the injunction are civil contempt, but only willful
violations are criminal contempt
iii. Remember - 2 Types of Civil Contempt
(i) Compensatory – D violated injunction that causes harm to P
(ii) Coercive – monetary fine, or imprisonment, which forces compliance with
court’s order
iv. In Bagwell – Court tried to distinguish between contempt – based on ability to
purge or avoid the penalty
(i) Court found it criminal as once the fine was imposed, you couldn’t get rid of
it
(ii) Questions about the issue, D had the opportunity to avoid the fine, as court
laid out fine schedule, and they went ahead and violated order
(iii) Think about all distinguishing factors in Bagwell
1. These were enormous judgments – size is important
2. Number and complexity of violations –wasn’t 2 or 3 violations, it was 400
– something you’d want a jury to decide rather than one person (complex
fact finding mission)
3. Whether there is a per diem situation
(iv) Look at all these things rather than just one factor – also go to the
concurrence (Ginsburg – parties tried to settle out, and they wouldn’t allow
for it, which happens many times and courts allow it)
v. Another way to get around this – Abortion Protest Case – Congress passed
statute regulating protests at abortion clinics – violations can be remedied
through standard remedies law including equity – many cases issue injunction
(organization cannot protest in certain ways) – Terry situation – seems to be
similar to Bagwell, but court got around it by saying – I’m going to penalize you
for this violation, but if you stop after 60 days, I’ll give you an opportunity to
purge – 2d Cir. said this was enough to get around Bagwell – the fact that the
penalty was announced along with a window to get rid of it was enough – although
it raises issues that the court is being too soft
(i) looking at the alternative – having to have a criminal jury trial – then for
judicial efficiency’s sake, this is the better option
vi. One thing you could do, is require the party to make an affidavit saying that
they are going to comply – if they fail, you might be able to get them on
sanctions (submitting document in bad faith)
vii. Other crap
(i) D’s wealth is relevant to the analysis
(ii) Imprisonment is a very common remedy – often per diem “I’m going to
imprison you until you promise to comply”
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(iii) There are alternatives to comply – in bagwell, acts of violence could’ve been
prosecuted criminally – interestingly, if it had been prosecuted, max penalty
would’ve been a lot less (which makes argument that size of remedy
compared to the criminal penalty – warrants the treatment as criminal and
thus necessitating jury trial)
(iv) Courts’ tendency – don’t like to put rank and file folks in jail, when dealing
with large organizations – exception – teacher’s strike: put teachers into jail
viii. Collateral Bar Rule – you can’t challenge constitutionality of a statute – says you
have to attack an injunction directly
(i) Only operates in the criminal context – in a civil context, you can (785 note
3)
(ii) Particularly you see this in compensatory civil contempt
C. “Perpetual” Contempt – incarceration period lasts for an extremely long time
1. Party ordered to do something by court, and they refuse
2. Comes up for witness to testify, and they refuse – subpoena to produce something, and
they don’t
3. Here, it involved order for party to produce child - Anyanwu v. Anyanwu
(N.J.Super.Ct.App.Div. 2001) (794) – court incarcerated husband for failing to produce
kids – party who is incarcerated under contempt order can file a motion for release – he
argued that he had made best interests to produce the child, but he couldn’t
(impossibility argument) – thus he couldn’t comply – ct of appeals ordered trial on this
issue, where he testified that his father wouldn’t turn over children, and that Nigerian
courts wouldn’t allow it. Ct of appeals, said that impossibility argument was no good.
2001 – D moved for release again providing 2 documents: (1)letter from vice-consul in
American embassy – that they could not find the child, that the wife go to Nigeria and
negotiate directly and (2) a letter from a Nigerian civil rights org. – arguing that D was
helplessly caught between 2 govts., and that the 2 extended families were now
responsible for the child
a) RULE - Standard for releasing party in perpetual contempt – whether there is a
substantial likelihood that continued incarceration would accomplish the purpose
of causing the person confined to comply with the order on which confinement is
based - translated – whether there is a substantial likelihood that continued
incarceration will not achieve compliance
i. Refusal to comply is in itself insufficient to find that commitment has lost
coercive power
ii. Court bases rulings on the facts – that parties have reached a stalemate – so a
fact-specific analysis – things are getting worse and worse, thus incarceration
would not make things any better
b) Notes
i. If the incarceration continues – even under circumstances where compliance is
not going to happen, then this is becoming criminal (you’re holding them for
failing to comply rather than coercing them to comply)
ii. Court bases rulings on the facts – that parties have reached a stalemate – so a
fact-specific analysis – things are getting worse and worse, thus incarceration
would not make things any better
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iii. Thus in order to make these determinations, you have to look at age and health,
etc.
iv. In applying standard – you have to make an individualized determination based on
the particularized facts
D. Contempt and “Anticipated” Injunctions - How can someone be found in contempt when
there’s no issue?
1. Griffin v. County School Board (4thCir.1966) (802) – Brown preceded this case, and
blatant measures were taken to get around Brown. The school district closed all the
public schools, and then handed out vouchers to white students to go to private schools.
SC in 1964 authorized Dist. cts. to order schools to open – dist.ct. issued order
compelling opening of schools, and the county reappropriated funds to schools to open.
4th cir. wasn’t in session, and chief judge tries to get D to stipulate that no tuition
grants would be paid pending the appeal, but the board wouldn’t make the stipulation,
and they then distributed $180,000 – dist. court notes the amount of effort that the
board put in to getting the vouchers out before the court could rule on the appeal.
a) RULE - If you take the subject matter of the jurisdiction away from the court, and
make it impossible for the court to decide an issue, then those actions can
constitute contempt – even in the absence of a standing injunction or court order
b) Applied Here
i. Ct. of Appeals then is faced with issue of whether the issuance of vouchers
constituted contempt – when there was no standing injunction
(i) Court finds that this was contempt - there was a potential decree, that if
the appeal was granted, they would’ve been forbidden from issuing the
vouchers
c) Dissent
i. courts have inherent power to punish contempt (federal) – but due to the
contempt statute, there is a limitation on the court’s power to find parties in
contempt – only can do so to the extent the statute allows for
ii. Can’t be an anticipated decree or injunction – by arguing that the SC is different
from the lower federal courts (dist. ct., ct. of appeals) – that the SC gets its
power from the Constitution while the lower courts are created by Congress so
it has to adhere to Congressional statutory limitations
iii. anticipated decree? – section 3 doesn’t include anticipated decrees…
iv. also cites timber cutting case, and says it wasn’t contempt
d) Notes
i. ACTUALLY - all courts have the same contempt power
ii. Could this be criminal contempt? Shouldn’t they have had a trial? – although this
was prior to Bagwell
iii. What were other possible alternatives?
(i) Reparative injunction
(ii) Restitution – families have to give up money, then tracing would apply
1. BFPV applies? No as neither school or parents qualify – they all knew
what was going on, so you could argue that tracing applies
(iii) Sanctions? – courts have statutory authority to sanction parties for abusive
litigation practices – its even easier when it’s the lawyer acting – as it’s the
court official
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1.
Chambers v. NASCO (810), Kleiner v. First National Bank (810), Hanshaw
Enterprises (810)
iv. Ashcraft v. Conoco (811) – reporter held in contempt for looking at a sealed
document – court of appeals said that contempt was no good as the decree
wasn’t signed so it wasn’t a decree – neither sided cited Griffin – raises question
of whether you need a decree or not
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