MODERN REMEDIES OUTLINE
I. COMPENSATORY DAMAGES
A. Basic principles/theory
a. Remedies as the litigator’s toolbox: overly simplistic?
b. Purposes and goals of the law – what it is trying to accomplish (individual justice, corrective justice, economic
incentives, etc.?)
c. Should remedies always just be an “afterthought” or are they instructive on substantive rights?
d. How do the disparate remedies come together in terms of common themes?
i. Conceptions of due process, how they are reflected in remedial scheme
1. From plaintiff’s perspective
2. Limits in terms of protecting DP rights of Ds in terms of what they are entitled to – what are
limits on the courts in terms of what they can take from Ds  from the wrongdoer’s
perspective
e. Remedies as a bridge between public law and private law
B. Restoring P to his rightful position
a. The stated goal of compensatory damages
b. Issues:
i. Precise calculation of compensatory damages
ii. The compensatory standard itself
Carey v. Piphus
Facts:
Analysis
P, HS student suspended on suspicion of possession of drugs. Principal suspended w/o
hearing/investigation, P sued for violation of procedural DP. Never established whether
student was properly suspended, but some reason to believe that the suspension was correct
 Substantive requirements of procedural DP (in terms of the suspension) are very low –
as a matter of con law this case is not that illustrative, but issue is how you value
violation of PDP
 Array of possible remedies: stems from nominal  compensatory  injunctive 
nominal  TRO
• What will the court contemplate in determining damages?
- Is there an inherent value in the deprivation of a constitutional right such that
you don’t have to prove a specific injury or loss in order to justify damages?
◦ “Presumed damages:” court calls it an oddity in tort law (defamation) 
virtual certainty of harm ( emotional distress) but difficult to prove
• Nominal damages: even though we need actual harm/injury for compensatory, it is
the case that you could get nominal damages of $1 – won’t please client in every
instance, but will vindicate his right
- Is this worthless to a client? In many instances the predicate for getting
punitive damages might include nominal damages as well (may turn out to be
very lucrative in the end)
• TRO: put the student back in school
 Is this worthless to a client? In many instances the predicate for getting punitive
damages might include nominal damages as well (may turn out to be very lucrative in
the end)
• Payment once harm has occurred
• Protection from imminent harm
Disposition
U.S. v. Hatahley
Facts:
Procedural history:
Agents of government came in against orders, took horses owned by P-Native Americans
and sold them to glue factory
Dispute between district court and appellate court over how we should evaluate the
damages
Modern Remedies F04, pp. 1
Analysis


Issue 1: precise calculation of compensatory damages
• Appellate court: says DC pulled numbers out of the air; wants individualized
determination of damages
• Federal Tort Claims Act: no jury
- Raises questions: if a jury came back with a lump sum, it would be much
more difficult to scrutinize the award
• Why does it matter?
- Without precision, awards might be a windfall to some Ps while it would
stop short of restoring others
- Lends legitimacy to the system, even if it is indulging a fiction; it will get us
further in most cases than if we give up at the outset
Compensatory standard itself
Disposition
C. Value as measure of rightful position
a. “Common sense” concept
b. Easy cases: we measure value of what was lost or destroyed – the value required to put one back in rightful
position.
i. Calculations: value before damage and value after damage has taken place, price P paid or price P was
promised
ii. Problem: you need a well-functioning market in order to determine value
1. Is replacement cost the best way to determine value? The idea is that one can be given money to
replace the item based on price
U.S. v. Fifty Acres of Land (1984)
U.S. condemned landfill as part of flood control project. In order to replace the condemned
Facts:
landfill, the city acquired a new site, developed into larger, better facility.
Jury found that FMV of condemned property was $225K, and reasonable cost of substitute
Procedural history:
facility was $723K. District Court entered judgment for $225K.
Analysis:
Disposition:
Court of Appeals reversed/remanded, holding that city’s loss was the amount of money
reasonably spent to create a functionally equivalent facility
 Just compensation normally = market value of property at the time of the taking, unless
it is too hard to determine
• In this case: value readily ascertainable
 Fear of windfall – if new facility is superior and more valuable, any increase in quality
of the facility is a windfall
• Ct of App “solution”: discount for cost of substitute facility to account for its
superior quality  TOO ABSTRACT
• Objective measure
 When taking occurs, party is entitled to FMV of a property provided it is reasonably
ascertained, not the cost of buying a better replacement
Judgment of Ct of App = reversed
c.
Narrowness of takings clause and just compensation jurisprudence:
i. Definition of loss is less generous to victims that what we see in insurance markets
ii. Insurance: replacement value of goods, rather than used value
iii. Fifty Acres: has the city really been put back into its rightful position if it is only given the cheaper cost
of the original landfill?
Trinity Church v. John Hancock Mutual Life Insurance Co. (Mass. 1987)
Church was a national historic landmark, which was structurally damaged during the
Facts:
construction of neighboring property owner's building. The damage to church would have
required disassembly and reconstruction. Before church filed its action, neighboring
property owner's representative agreed to waive assertion of a statute of limitations defense.
Church filed its action three days before neighboring property owner's final waiver expired.
Plaintiff church filed an action against defendants, neighboring property owner and others,
Procedural history:
Modern Remedies F04, pp. 2
Analysis
Disposition
d.
for excavation-related damages. The Superior Court (Massachusetts) denied neighboring
property owner's motion for a directed verdict but directed verdicts for the other defendants.
The superior court also entered judgment for church against neighboring property owner.
Church and neighboring property owner appealed.
 Church was entitled to be compensated for the reasonable costs of restoring church to
the condition it was in prior to the excavation, as church's method of damage
assessment, based upon a percentage of reconstruction cost, was consistent with the
depreciated-cost-of-reconstruction standard applicable to special purpose property
cases
 Issue of present value:
• Should court reduce award of future damages to their present value? No – the fact
that repairs will not be done until some time in the future does not compel the
conclusion that Trinity is seeking recovery for future damages
• Damage has been done presently
• An injured party is not required to perform repairs in order to recover for
diminution in market value of its property
Affirmed.
Timing
i. Overwhelmingly courts find that used value of goods will be sufficient as opposed to full value of
replacement goods
ii. But, fixed rules for timing questions
1. Contract cases: determine value at date of breach
2. Property damage cases: value at time of wrong
Decatur Count Ag-Services, Inc. v. Young (Ind. 1981)
Y contracted w/Decatur in summer of 1976 to aerially apply insecticide to field. Spraying
Facts:
was done negligently and crop growth was retarded. Y harvested beans and stored them in
his own bind. Held beans for sale until after the planting period the following year, sold for
amount ranging from $8.86/bushel to $10.38/bushel. Storing until the next year was his
usual procedure.
Trial judge found that difference between potential/actual yield was 342 bushels, and that Y
Procedural history:
was entitled to $10/bushel for lost portion of the crop. Evidence introduced indicating
quality of crop prior to damage, quality of Y’s farmland, yield for comparable crops in the
locality.
Analysis
Disposition
Court of Appeals affirmed.
 Damages are computed at the time of harvest, when a market value first exists – to the
extent that P elected not to sell his harvest at the time when it was first marketable, he
was speculating that it would have greater market value at a later date
• Risk inherent in P’s speculation cannot be charged to D
• The lost beans could have been replaced from the market place at the time of
harvest
• Whatever the market value was at time of harvest = P’s damages
Reversed and remanded to redetermine damages.
D. Reliance & expectancy as measures of rightful position
a. What is the difference between reliance and expectancy in theory and practice?
Neri v. Retail Marine Corp. (NY 1972)
Ps contracted to purchase new boat of specific model from D; made deposit of $40 on the
Facts:
$12K boat. Later increased deposit to $4,250 in consideration of D’s dealer’s agreement to
arrange for immediate delivery from manufacturer, on basis of “firm sale,” rather than 4-6
weeks later.
6 days after signing contract, P’s lawyer sent D a letter rescinding K because P was about to
have surgery and wouldn’t be able to make payments. Boat had already been ordered and
delivered to D. D refused to issue refund.
Modern Remedies F04, pp. 3
Procedural history:
Analysis
Disposition
b.
P sued to have refund issued. D counterclaimed, alleging P’s breach of K. D won S/J.
Court has to assess damages.
*D sold the same boat 4 months later to another buyer for same price offered to Ps. Ps
argue that D’s loss on K was recouped, while D argues that but for P’s default, it would
have sold 2 boats and earned 2 profits instead of one. D proved profit, and costs for
storage, upkeep, etc. for period that the boat remained unsold.
 Governed by UCC
 How do reliance and expectancy damages diverge?
• Reliance: ability to cover costs that D expended thinking the sale would happen.
D had $674 for storage, upkeep, and finance charges of boat
• Expectancy: recovery of profit, which would have been $2579
 Applying UCC code: buyer is entitled to restitution, but recovery is offset to the extent
that seller establishes a right to recovery damages as well
Ps are entitled to restitution for deposit, less an offset to D for amount comprised of lost
profit and incidental damages
Why enforce expectancy damages?
i. Want to prevent parties from backing out of Ks
ii. Credit economy: as soon as you’ve made a promise, that has a present value to the parties; therefore,
even though you don’t expect the K to come to fruition until the future, there is a present value to the
parties so that they can rely on it and start organizing
iii. Theory of efficient breach: argument for enforcing expectancy damages
1. You can break K and make enough to compensate the expectancy loss of the other party in the
K and benefit as well
2. It would make sure that you weren’t going to break a K unless the profit was rather high
iv. Ks are more than economic exchanges and involve some sort of moral judgment, and we don’t want
people to break their promises
Chatlos Systems, Inc. v. National Cash Register (3rd Cir 1982) – EXPECTANCY DAMAGES IN CONTRACT
D-Seller made representations about computer system (in terms of capabilities). P was
Facts:
promised a $200K machine for $46K, which seemed like a great bargain.
Dist Ct found D liable for breach of warranty and consequential damages of $63K. D
Procedural history:
appealed, liability judgment was affirmed but court set aside award of consequential
damages, and remanded for recalculation of damages for breach of warranty.
Analysis
Disposition
Dissent
On remand, applied “benefit of the bargain” formula of NJ version of UCC statute,
determined damages of $201K. D appeals.
 P was not promised a specific computer model, but a system w/specified capabilities
 Correct measure of damages under NJ statute: difference between FMV of goods
accepted and the value they would have had if they had been as warranted
• Award may also include benefit of K price, which, for whatever reason quoted,
was particularly favorable for the customer
• Evidence of K price may be relevant to issue of FMV, but it is not controlling
Affirmed
 Focus of statute is upon “goods accepted,” not other hypothetical goods which may
perform equivalent functions – MV of goods delivered, not the value of the goods to a
particular purchaser or for a particular purpose
 Cannot permit MV based on systems wholly unrelated to the goods sold
 Buyer may not receive more than it bargained for – may not obtain the value of a
superior computer system which it did not purchase even though such a system can
perform all of the functions the inferior system was designed to serve
Smith v. Bolles (1889) – EXPECTANCY DAMAGES IN TORT
P agreed to buy 4K shares of mining stock from D, for $1.50/share. P alleged that D made
Facts:
false/fraudulent representations, that stock and mining property were worthless, but that D
had represented that shares would have been worth at least $10 each. Alleges that he
Modern Remedies F04, pp. 4
suffered $40K in damages.
 Trial court had instructed the jury that measure of recovery should be difference
between K price and FMV, if property had been as represented, or in the case that
property/stock is totally worthless, then its value is what it would have been worth if it
had been as represented by D/as may be shown in evidence
 Court: the question here is what P lost by being deceived into the purchase, not
what P might have gained
• Not expectancy – not a breach of K
• Gist of the action was that P was fraudulently induced by D to purchase stock on
faith of false/fraudulent reps
• If D did commit fraud, then he is liable for damages that proximately resulted
from the fraud
• Liability does not include expected fruits of unrealized speculation
Reversed and remanded.
Analysis
Disposition
c.
Distinction between tort and contract:
i. Expectancy damages recoverable only in contract
ii. Is the distinction tenable?
1. Argument: in K, you’re seeking to recover an expectancy that is itself a product of what D has
promised. In torts, this is not so. **However – this idea collapses when the tort is a fraud,
because when the tort is a fraud it seems that there is no difference between what one should
theoretically recover based on whether it was a claim based on K or torts
2. A lot of state law has collapsed the distinction when it comes to fraud: Ps can recover the value
of what they were promised regardless of whether they sue in fraud or K
iii. Locating the wrong: in K scenario, there is nothing wrong with promise but with the breach. But for the
breach, the K would have gone forward and P would have gotten expectancy. Whereas in tort, if you
locate the wrong and reverse the wrong then the measure of recovery would instead be as though there
were never any interaction between the parties
E. Consequential damages
Buck v. Morrow (Tex. Civ. App. 1893)
M leased pasture to Buck for term of 5 years, with provision that after the second year, if M
Facts:
was going to sell the land, he should compensate B for any/all losses occasioned by the
sale. It was understood that the land was being leased by B to graze cattle. After 2 years,
the land was sold and B was dispossessed.
Procedural history:
Analysis
a.
Alleged that he tried to find another pasture but couldn’t, so he had to graze on the
commons for 5 months, and he had to hire an extra hand ($1.50/day) to look after the cattle
there and round them all up. Also said that he used reasonable diligence in trying to keep
them from straying off, but 15 were lost (valued at $15/each). Also evidence of price for
pasturing the cattle in the pasture that was eventually procured.
Trial court said measure of damages = difference between K price and rental value of
pasture for the unexpired term.
 P may also recover as special damages such extra expense and damage, as are the
natural and proximate result of the breach
 Confining damages to difference in K price assumes that P can immediately go into the
market and obtain similar property
 Whatever special damage naturally/proximately resulted to P from sale of land and
termination of the lease – whatever may reasonably be supposed to have entered into
the contemplation of the parties at the time of the K – P should recover
• If P can prove the damages were foreseeable, he should recover
General vs. special damages:
i. Early cases:
1. General: defined as damages that necessarily result from the violation complained of, or
damage that the law implies or presumes
Modern Remedies F04, pp. 5
Special damages: damages that “proximately resulted, but do not always immediately result”
from violation complained of
3. To say that some damage always/necessarily resulted seemed fictional, and standards were
reformulated in terms of foreseeability and natural consequences, while retaining the overtones
of inevitability and necessity (embodied in the Restatement)
4. Ex.: pain and suffering – general, medical damages – special (idea is that P&S is so universally
foreseeable as to be general but that medical expenses are not)
ii. Consequential damages as more or less synonymous with special
iii. Alternative definition: special damages are ones that are reduced to a sum certain before trial – ex.
medical expenses, lost wages (while P&S are then general damages)
1. Flips the usual prejudices
2. Special damages = real, provable
3. General damages = suspect, speculative
iv. Alternative definition: general damages should refer to the value of what P lost from initial impact of
D’s wrongdoing (ex. value of property destroyed), whereas consequential damages should refer to
everything that happens to P as a consequence of this initial loss
v. Laycock: essentially, these distinctions do not make much sense
General hostility toward awarding consequential damages:
i. More remote, speculative, not easily foreseeable
ii. Perhaps P should have exercised more care
iii. How much should P have contemplated?
iv. Don’t want to let the scope get too big, or simple K cases will be extended to include far-flung claims for
damages (trials within trials)
2.
b.
Meinrath v. Singer Co. (SDNY 1980)
P-markets/distributes computers, etc. in Europe. Filed suit to recover payment of bonus
Facts:
compensation allegedly due under agreement of purchase and sale, entered into among him
and D.
Analysis
Claim for consequential damages, consisting of losses of invested capital suffered as result
of liquidation of companies in which he had an interest, and decline in net worth of another
company in which he had an interest, which he attributes to the losses suffered by the other
companies. Essence of the claim is that at the time D signed agreement (and even before),
it had a special awareness of the companies’ financial plight and their dire need for funds,
which created an obligation to make timely payments of bonus compensation.
 In essence P is trying to parlay D’s knowledge of his/companies’ financial predicament
into a claim that D was required to provide them w/necessary financial capital by
making prompt payment of all amounts due under the Agreement
• Agreement contains no such implicit/explicit undertakings
 D is not liable for consequential damages for failure of P’s other business ventures,
unrelated to the K
• Essential claim is for payment withheld although due – consequential damages
stemming from the claim are not compensable
• Where breach of K consists only of failure to pay money, remedy is limited to
principal owed plus damages in the form of interest
• Policy of having an easy and certain measure of damages (any exceptions are
where there was failure to provide a unique article); or else every K dispute would
become enormously complex, w/theories of unrealized profits/opportunities
v. Potential ex ante solution? P could insert punitive damages clause
vi. Counterarguments:
1. Williston: example of a transaction is when a seller may be ruined financially because buyer
refused to pay. This consequence is both proximate and natural
Modern Remedies F04, pp. 6
2.
Exception: suits against insurers for bad faith refusal to settle. P can sue not only for interest but
also for consequential damages, emotional distress, and punitive damages. Bad faith cases arise
under tort rather than K law
Texaco v. Pennzoil Co. (Tex. App. 1987)
Case involving Texaco’s tortuous interference w/K between Pennzoil and Getty entities. P
Facts:
and G had made a deal involving purchase of Getty Oil stock (each buying a portion),
providing for division of GO’s assets, if Getty Trust and Pennzoil were unable to agree on
restructuring of GO. Jury found that T knowingly interfered w/agreement, and Penn
suffered damages of $7.53 billion. T filed motion for remittitur.
 Tortious interference w/existing K: P is not limited to damages recoverable in K action,
Analysis
but entitled to damages allowed under more liberal rules of tort = pecuniary loss +
consequential damages for which interference is a legal cause
 Jury based award of damages on replacement cost model
• Because of T’s interference, P was deprived of right to acquire portion of G’s
reserves
• Cost to find equivalent reserves
• Damages = difference between cost of finding equivalent reserves, and cost of
acquiring G’s reserves
 Uncertainty in calculating damages is tolerated when difficulty is attributable to D’s
conduct
Remittitur denied.
Disposition
F.
Limitation of remedy clauses
a. Legitimate business purposes:
i. Price concession reason: if the buyer is agreeing on a limitation, it has been built into the price, and it
allows for more consumers to get more things at better prices
ii. Buyer’s level of care: will directly affect the condition of the good; if a particular good requires the
buyer to take special care (ex. upkeep, or if there is fire risk, then to make a good decision about where
to put the good), then it might be more efficient to say that the seller can limit the remedies, and that
might induce the buyer to exercise a higher degree of care
iii. Buyer’s insurance: risks might vary from customer to customer, but buyer is the one who is going to be
able to get the right amount of insurance (seller would have to tailor insurance to each individual
consumer)
iv. Transaction costs: idea that nothing is fail safe, so there will be a certain number of breakdowns.
Litigation in every single instance would raise transaction costs – system-wide, it is more efficient for
sellers to disclaim liability for consequential damages
b. Dangers of allowing them:
i. Incentive of seller to take care: if the seller is able to limit its liability, then there is the worry that it will
not bear the full costs of its mistakes, decreasing incentive to get it right
1. What might be mediating this kind of danger? Competitive pressure – if seller is making a
faulty product, buyers can go elsewhere
ii. Too easy to exaggerate in every situation to say that the buyer is the one who will have better
information that will allow him to take better care, get insurance, etc.
iii. Seller gets away with exploitation because of asymmetry of information
iv. Worry about abuse: unconscionability, where bargaining power is unequal, unsophisticated parties,
disparities in economic strength
Kreaney v. Trecker Corp. v. Master Engraving Co. (NJ 1987)
P purchased machine from D. Elements of limitation in sale agreement: K excluded
Facts:
consequential damages, limited liability to repair/replacement of the machine. Turned out
that machine malfunctioned all the time, inoperable for 25-50% of time. Testimony
introduced estimating lost profits on customer orders unfilled because of inoperability of
the machine.
Modern Remedies F04, pp. 7
Procedural history:
Analysis
Disposition
Court instructed jury that it could award consequential damages notwithstanding K
exclusion if it found that D failed to make the machine as warranted. J/P, Appellate Div
affirmed on the basis that jury verdict meant that limited remedy of repair/replacement had
failed of its essential purpose.
 Court talks about 2 broad principles that it is trying to reconcile in this case:
• Freedom of K between the parties – risk-allocation
• Minimum adequate remedy
• *Reconciling: idea that if there is total freedom of K, shouldn’t parties be able to
agree that there will be no minimum adequate remedy?
 Courts that have considered the validity of exclusion clause in context of R/R
warranty: two views
• Wholly integrated: failure of the limited remedy of R/R necessarily causes the
invalidation of the exclusion of consequential damages
• Independent: if warranty fails to fulfill its purpose, validity of exclusion depends
on specific circumstances and probable intention f the parties
- Court sides here: policy reason of ensuring stability of routine business
transactions, idea that for many sellers, immunity from CDs may be
indispensable to pricing structure
- Look to circumstances of transaction – exclusion can be inconsistent
w/intent and reasonable expectations of the parties: ex. if seller wrongfully
repudiates repair warranty
Reversed, remanded. Facts do not justify invalidation of exclusion, a risk allocation agreed
to by both parties (no contention that D did not make service calls when requested, D
testified that most problems were fault of P’s employees)
G. Liquidated damages
Ashcraft & Gerel v. Coady (D.C. Cir. 2001)
Coady was fired from the law firm because of misconduct; had to pay liquidated damages
Facts:
to the law firm. Trying to steal clients and get into firm computer system, conspired w/an
associate who he didn’t tell the firm had left. Managing partner in the Boston office. LD
clause: each year, the damages increased by $50,000, so that that when Coady left, it was
up to $400,000. Increasing damages justified to reflect C’s increasing value to the firm.
Partner testified that business lost as a result of his termination was $1-1.5M. Jury J/D, P
breached K and had to pay liquidated damages to the firm.
 Liquidated damages clause: for $400,000 – what does this approximate?
Analysis
• Loss of business? Probably not – opinion says that the firm lost about $1M-$1.5M
• Replacement costs? Sounds kind of high
• Damage to reputation that is hard to quantify?
• Costs of impending litigation?
 *Court is putting emphasis on desire to say that damages clause was to be
representative of true costs
• Points to the fact that the damages were to increase over time, as indicative of the
fact that the damages were not a penalty
• UCC §2-718 (Coady is a common-law case not involving sale of goods, but it’s
similar basic principle)
- Liquidated damages can’t be penalty
- On in amount which is reasonable in light of the anticipated or actual harm
caused by the breach
- Difficulties of proof of loss
- Inconvenience or nonfeasibility of otherwise obtaining an adequate remedy
 Court is trying so hard to make sense of it because the proper purpose of LD is to NOT
to have to prove the harm in a court of law and barring this, pure penalty clauses are
illegal
Affirmed.
Disposition
a.
Reasons not to enforce LDCs
i. Goal of K enforcement is compensation
Modern Remedies F04, pp. 8
b.
ii. Promote efficient breach (penalty clauses deter this by adding to the cost of breach above damage for
which one might have to compensate by taking the socially more productive deal)
iii. Danger of abuse/oppression
iv. Diasdado v. Diasdado (CA Court of Appeals case; handout): liquidated damages clause that was part of
a marriage settlement  court refuses to enforce as against public policy
Underliquidated damages clause
Northern IL Gas Co. v. Energy Cooperative, Inc. (Ill. App. Ct. 1984)
NIG promised to buy naptha from ECI over 10 year period, to convert into natural gas. US
Facts:
eased price controls on natural gas, because cheaper to buy from drillers and pipeline cos.
NIG stopped buying and ECI sued based on difference between K price and market price of
naptha, plus consequential damages.
Procedural history:
Analysis
Disposition
Court held that LDC gave non-breaching party the choice of recovering either actual or
liquidated damages. ECI chose actual and jury awarded $305M. NIG argues that LDC
provides exclusive measure of damages.
 ECI’s argument that because it did not make demand for LD, it has option of seeking
actual damages: if non-defaulting party does not wish to demand LD amount, he won’t
be forced to, but it doesn’t create the right to seek greater measure of damages than
those bargained for
 UCC §2-719: ECI says under this section, LDC dies not provide exclusive measure of
damages unless it is expressly agreed to be exclusive and is labeled as such
• Court: §2-719 governs limitations of remedies, §2-718 governs LDCs. An LDC is
not a limitation on a remedy, therefore is not subject to §2-719
Reverse court order striking liquidated damages defense.
H. Victims’ incentives
a. Cooter & Porat: “anti-insurance”
i. Anti-insurance for losses
1. Example: A is buying transmission from B
2. Normally: A buys, B warranties, but B can’t keep track of how A treats the transmission
3. Anti-insurance: add 3rd party, who buys B’s liability. If transmission breaks, then B will have
to pay 3rd party
4. Ideal situation: where parties’ level of effort/care is unverifiable, not directly observable
5. Versus insurance: insurance tends to spread risk, where as anti-insurance makes each party
liable for full risk; produces incentives for everyone to act to the best of their ability
a. Maximizes efficiency within the contract
b. Affects situations where buyer will be able to affect the risk that a product will
malfunction
ii. Anti-insurance for gains
1. Situations where there is a free-rider effect
2. Ex.: lawyers, where one has incentive to not work as hard
iii. Why aren’t liquidated damages sufficient?
1. Buyer has no incentive to help the seller with performance if he is going to get the damages in
any case
2. Ex.: construction contracts – when you are on the receiving end, there are a variety of things
that you can do (ex. making arrangements with other parties), to make sure that all
arrangements come to fruition, that could either assist builder in performance of contract, or
stymie him
iv. Victim reporting problem: if I stand to gain nothing, there is no incentive to report to the third party
(could combat this by instituting delayed compensation or a fee for reporting)
v. Critique:
Modern Remedies F04, pp. 9
How does the anti-insurer make a profit? Unclear how you would arrive at correct pricing –
unlike insurance, which has substantial data as to frequency/nature of accidents; don’t have this
level of pricing data and would lose $
2. Transaction costs
3. Might lead parties to take too much care? Then they wouldn’t derive the ideal amount of
benefit
4. Perhaps people already have their own incentives to exercise a certain amount of care? Ex.:
people aren’t looking to make their cars break – they buy them because they want to drive them
(this is questioning the economic incentives argument)
5. The rubric of cases they discuss is too small – they build on the assumption that the theory only
holds true in cases where the good is only a small percentage of someone’s wealth, but for a
$50 product? Then the transaction costs would be prohibitive
b. Scott & Triantis: embedded options
i. Compensation regime for breach of K is a relatively recent import from tort law; prior to this, a lot of the
different schemes we’ve seen w/regards to remedies for breach
ii. Propose that we move from compensatory model to viewing breach as purchasing a valuable option
iii. Thick-market: you can buy anything at anytime, full market – everyone has the same information
1. If you are a farmer and need corn in 6 months, contract to buy. Seller has a choice, can either
wait 6 months, or insure themselves and get their own contract for prevailing price. Remedy
should be market damages or no one will use this option (?)
2. Commercial contract specific performance will still work really well because it will provide
incentives for parties to negotiate options ahead of time
3. Merchant-consumer: authors are wary of potential abuse of consumers, should be protected by
getting a free option
4. Strong presumption against liquidated damages in the case law – seen as a signal that there was
unequal bargaining power. Authors say no, there is a very important risk that is being protected
here…fluctuation in valuation of services from buyer’s perspective
iv. Restaurant reservations, airplane tickets: not compensating for loss, but that the valuation of what has
been contracted for differs
v. Parties might rationally decide to go into these kinds of arrangements, so it doesn’t make sense that our
system sees liquidated damages as an alarm
vi. Very strongly rooted in freedom of K perspective
vii. Critique:
1. Article is premised on the notion that damages in general should be based on a model of
economic efficiency – ignores many other values: i.e., the breach of a K is a wrong; the fact that
the regime of compensatory damages has stayed around shows that it resonates with other
values
2. Instead of looking at breach ex-ante, what about ex-post? We expect to be compensated for a
loss – we aren’t think about how to allocate risks back and forth, but instead how are we going
to be made whole?
3. Not just a matter of sitting judges down and giving them a law and economics primer – still
must be a commitment to looking at breach as a wrong
Litigating PI and Death
1.
I.
Norfolk and Western RR v. Ayers (2003)
P developed asbestosis
Facts:
 Could damages be given for fear of developing cancer?
Analysis
• Yes, as long as P could prove that his fear was genuine and serious
• Asbestosis is a physical condition where about 10% of patients actually develop
cancer – this statistic led to a jurisdictional split
Modern Remedies F04, pp. 10
a.
b.
c.
d.
Insurance theory of pain and suffering damages
i. Argument that we should abolish P&S damages altogether
ii. So long as law allows you to recover for economic damages, that’s as far as it should go
iii. Looking at what people would pay if there was no tort compensation at all and individuals had to insure
against tortuous injury at their own expense
iv. If people would buy it on their own, perhaps it’s inefficient for the system to provide it
v. Why wouldn’t people want to buy the insurance?
1. Economic intuition: trying to equalize marginal utility of a dollar pre- and post-injury
2. You would prefer $5M today, as opposed to getting $5M when you are injured and the money
would be of less use, so you don’t want to spend the dollar now for the chance of getting a less
valuable dollar
vi. Critique:
1. Utility might actually be higher
2. Assumes valuation would be same for the victim pre- and post-injury: once you’re injured, the
utility curve changes completely
3. Might actually increase utility: ex. breaking your leg, so you can’t hike and play sports, but
maybe you needed something to slow your life down
4. You might need money more because once you’re injured, there are additional expenses and
services that you would want to purchase (ex. upgrade facilities in your home)
vii. Croley & Hanson:
1. Reject empirical claim that consumers do not insure against P&S
2. Ex: life insurance on children, accident insurance, uninsured motorist coverage, flight insurance
3. Another purpose: deterrence – if we aren’t taking full costs into consideration, we aren’t giving
parties the proper incentive to exercise care
Posner: statistical value of a life
i. Would look at premiums that were accepted to incur small elements of risk
ii. There is factoring in of statistical value of life: ex. administrative agencies
iii. Question: are we using the right calculations?
Bilateral risk
i. Ex.: driving
ii. Anyone could be either P or D on any given day
iii. Therefore, there should be joint incentive to limit damages
iv. But – medical malpractice: for the most part, it’s not the case that you are equally likely to be a P or D in
MM case
First generation statutory reform:
i. Cap on recovery is not revealed to the jury
ii. Jury deliberates, make ruling, and judge adjusts it accordingly
Etheridge v. Medical Center Hospitals
Wilson underwent surgery at hospital, surgery was negligent. W is now braindamaged,
Facts:
paralyzed, wheelchair-bound, cannot care for herself or children. At time of trail, had
expended more than $300K for treatment; will incur expenses for remainder of life, w/LE at
39.9 years.
Procedural history:
Analysis
Jury returned verdict for $2.75M, trial court applied statutory recovery limit and reduced
verdict to $750K. P appeals.
 P’s argument that cap denies right to trial by jury:
• Jury has fact-finding function; judge applies the law – trial court applies remedy’s
limitation only after jury has fulfilled its fact-finding function  remedy is a
matter of law
• Cap does not infringe upon the right of jury trial because section does not apply
until after jury has completed its assigned function in the process
Modern Remedies F04, pp. 11
•
Disposition
Jury trial guarantee does not secure rights that do not exist at common law – CL
has never recognized a right to full recovery in tort
 P’s argument that cap violates constitutional guarantee of DP: deprived of opportunity
to be hear, creating conclusive presumption that no P’s damages exceed $750K: court
says no – section merely affects parameters of remedy available after merits of claim
have been decided
Affirmed.
Smith v. Department of Insurance (Fla. 1987)
FL statute set $450K limit on noneconomic damages, defined as damages “to compensate
Facts:
for pain and suffering, inconvenience, physical impairment, mental anguish, disfigurement,
loss of capacity for enjoyment of life, and other nonpecuniary damages.” P argues that it is
a violation of FL constitutional right of access to the courts for redress of injury.
 Arbitrary cap, denies constitutional right of access to the courts, and right to jury trial
Analysis
• No constitutional redress of grievances if legislature makes a random cap
• No reason why legislature shouldn’t cap at $10 or $1, if it is merely a cap
• Dissent’s policy-based argument of ensuring affordable insurance coverage for all
as rational basis: fails to realize that we are dealing w/a constitutional right which
not be restricted simply because the legislature deems it rational to do so
• No evidence of “overpowering necessity” for abolishing the right, and no
alternative method of meeting the necessity can be shown
J/P
Disposition
e.
Per diem damage calculations
Debus v. Grand Union Stores (Vt. 1993)
P was injured when shopping at D’s store. Suffered injuries resulting in 20% permanent
Facts:
disability. Jury awarded P $350K in damages. P suggested that jury think about P’s injury
in terms of daily pain and suffering, then determine what amount would be appropriate
compensation for each day of suffering.
D appeals arguing that per diem arguments were unduly prejudicial and should have been
Procedural history:
disallowed by trial court.
 Circuit split w/regard to PD arguments:
Analysis
• Against: allows juries to calculate damages based on counsel’s argument and not
facts submitted in evidence, creates illusion of certainty regard to consistency,
duration, etc. of pain, jury will be too easily misled by P’s argument
• Allow: adequate safeguards exist in the adversarial system to overcome
objections; amounts must be reasonable or suffer attack from D’s counsel; juries
are allowed to draw inferences from evidence before them, and extent of damages
attributable to P&S are permissible inference
 Court: nothing inherently improper about per diem arguments if they are made under
ordinary supervision and control of trial court
• Jury can benefit by guidance offered by counsel as to how they can equate pain
with damages
• Do not need to be accompanied by specific instructions
Affirmed; no error.
Disposition
 Better approach is to permit counsel to argue the appropriateness of using a per diem
Dissent
calculation technique, but to prohibit any suggestion of specific monetary amounts
 Difficulty is that remarks regarding numbers/dollar amounts will appear to be
evidence, rather than just argument
i. Criticisms of per diem calculations:
1. Pain doesn’t work that way: calculating by day and multiplying out creates an illusion of
certainty
2. Pain is not uniform – individuals can adjust, may go down over time
3. Might lead to inflated judgment? $10/day can end up being more than $350,000 lump sum
4. Present discounting value problem
Modern Remedies F04, pp. 12
5.
f.
g.
h.
i.
j.
k.
Argument that only things in evidence can be used to calculate damages, and putting up
numbers isn’t correct
ii. Reponses to criticisms:
1. Juries always draw inferences – this is no different
2. Adversarial context: D’s counsel gets to put in their own damages number to counteract
3. Per diem argument is just a suggestion, not an instruction (ordinary supervision of the trial court
 to help jury distinguish between evidence and argument of counsel)
iii. What is the measuring stick? Can P put forward a lump sum?
1. Majority of jurisdictions allow it
2. Minority: NJ, PA
Statistical issues
i. Mean vs. median – writers sympathetic to Ps cite median verdicts, while those sympathetic to Ds cite
mean verdicts
ii. Medians better reflect the experience of most plaintiff; half of all Ps get less than the median
iii. Means reflect what insurers have to pay – possible for insurers to lose money while most Ps recover
little, if a minority of very large judgment exhausts the premiums collected
Split among state supreme courts over constitutionality of damage caps: captured by Etheridge versus Smith
i. Theories: Laycock – open court and jury trial claims have been the most successful theories
ii. Types of caps: caps on P&S are far more likely to be upheld than caps on total recovery
iii. Entire body of law has developed under state constitutions, immune to review by US SC – no serious
claims that damage caps on state-law claims violate federal constitution
Matter of perspective:
i. Legislators: have some view of the big picture, but don’t see individual cases and can’t legislate for them
ii. Jurors: see individual cases and have no view of big picture, no sense of comparable cases
iii. Only actors who have the whole perspective = judges
Valuing pain and suffering – 2 traditional theories
i. Corrective justice: P should receive full value of his injuries, so that he is placed as nearly as may be, in
the position he would have occupied if he had never been injured (*Fairness to P)
ii. Classical economic model: P should receive full value of his injuries, so that D will internalize the costs
and have the optimal incentive to avoid injuring others (*Incentives to D)
iii. Same result – damages should equal full value of harm to P?
iv. Problem: damage awards for P&S may well undercompensate victims seriously crippled by accidents,
and in death cases, even more so – most people would not voluntarily exchange comfort/lives for any
some of money
Measures of loss:
i. “Appropriate compensation”: little guidance to the jury
ii. “Make whole” measure: amount that juror would need if he was in P’s position – consistently disallowed
in court
iii. “Selling price” measure: amount that you the juror would demand to suffer these injuries (to accept in a
voluntary transactions)
iv. **Why aren’t these measures appropriate?
1. No robust market in pain/suffering
2. Values are relative: single mother would take money if it meant being able to support her
children
Damage scheduling:
i. Fixed matrix of value based on degree of harm (ex. workers’ compensation)
ii. Sample of past verdicts: paradigmatic injury scenarios; place the current case somewhere along the
metric
iii. Set specific caps on P&S, etc.; maybe have floors/ceiling that are flexible
1. Ex.: “carve-outs” for most severe injuries, egregious conduct
iv. Criticisms:
Modern Remedies F04, pp. 13
1.
2.
3.
4.
Law/fact debate? Violation of reexamination clause?
Would undercut reforms that provided for remedies for certain harms where there was no
compensatory element per se (ex. wrongful death)
Is it a false consistence? Argument that jury trials provide for an “individualized justice,” and
any damages assessed on aggregate basis takes away this due process right?
Using a prior jury verdict as a benchmark – doesn’t it contradict the reasoning that jury verdicts
are erratic and unpredictable?
l.
J.
Wrongful death
i. Brought on behalf of and for benefit of survivors
ii. Historically, statutory as opposed to commonlaw claims; traced back to 19 th century
1. Traditionally, protected only pecuniary interests; economic damages only
2. Not mental anguish/emotional distress
3. Almost all jurisdictions provide measure of compensation for financial support lost by death
(would require dependence relationship), funeral expenses
4. Led to very harsh results in certain cases: retired persons, young children, working adult w/no
dependents (“unproductive” members of society); housewives
iii. Courts came up w/variety of means to broaden recovery
1. “Services”: pecuniary value on services provided that aren’t valued in the market
(housekeeping, home repair, driving, etc.  guidance/training of children). Majority allows
2. “Society”: companionship, consortium
iv. Either broadened definition of pecuniary loss, or got rid of pecuniary loss restriction in statute
v. Could recovery for lost love/affection, but not mental anguish/grief – anomaly due to the fact that it was
a statutory claim
1. Minority: allow recovery for mental anguish/grief
a. Is it weird that you can get recovery for mental anguish/grief in
constitutional/dignitary harms but not for wrongful death?
b. Probably attributable to historical anomaly of statutory nature
Dignitary & constitutional harms
Levka v. City of Chicago (7th Cir. 1984)
P claims that as a result of being strip searched, she became a “prisoner in her own home.”
Facts:
Conflicting testimony as to whether she was actually able to leave the house or not, etc.
Jury awarded damages of $50,000, compensation for emotional trauma and distress,
mental/physical suffering, anguish, fear, humiliation, embarrassment. No damages for lost
earnings/earning capacity.
 SOR: to determine whether award is excessive, must defer to judgment of jury unless
Analysis
the award is “monstrously excessive” or “so large as to shock the conscience of the
court”
 Factor to consider: whether award is out of line compared to other awards in similar
cases
• Court takes inventory of unconstitutional strip search cases brought against city of
Chicago by women
• Cases where verdict was > $30,000 = aggravating circumstances were present
(cavity search, hostile matrons)
Because there were no aggravating circumstances present, award of $50,000 in this case is
Disposition
grossly excessive, must be reduced. Left with the distinct impression from all the evidence
that the jury was in fact assessing punitive rather than compensatory.
Remittitur of $25,000.
a.
Result of Carey + Levka
i. P must show actual, compensable harm
ii. Victim who is “strong” and is able to continue on with life isn’t going to get a high valuation of
measures (duty of D to take care – does Levka apply this to Ps, or is this going too far?)
Modern Remedies F04, pp. 14
b.
Comparative verdict review (Levka):
i. Unlike damage schedules, less informational demands
ii. 3 circuits and NY use this in many instances
iii. D’s counsel: can look up cases in databases; put in motion for new trial on remittitur
Memphis v. Stachura (1986)
P-teacher; showed sex ed films and pictures of his wife during her pregnancy. Parents
Facts:
showed up at meeting and argued that he should not be allowed to teach, and P was
suspended w/pay. Notified P that he was undergoing administrative evaluation; reinstated
the next fall after filing suit.
Jury was given instructions that it could award compensatory, punitives. Also, could award
Procedural history:
damages based on the value/importance of the constitutional right that was violated
(instructed that they could take into account the significance of the right, its place in
history, governmental system, etc.). SC granted cert on the question of whether Court of
App erred in affirming in light of the DC’s instructions regarding damages for violations of
constitutional rights.
 Under Carey, the abstract value of a constitutional right cannot form the basis of §1983
Analysis
damages – there, the issue was due process, which is a fundamental right, but court
nevertheless held that no compensatory award could be given for a violation of the
right w/o proof of actual injury
• Clarification: P tried to argue that because the right violated here was substantive
DP as opposed to procedural, it was different than Carey – court says no such
“two-tier” valuation
 Also tries to curb application of presumed damages
• PD are substitute for ordinary compensatory damages, not a supplement
• When P seeks compensation for injury that was likely to have occurred but
difficult to established, then PD are appropriate
• Here no rough substitute for CD was required, since jury was authorized to
compensate P for monetary/nonmonetary harms caused by D’s conduct
Reversed.
Disposition
K. Right to jury trial
a. Why fundamental?
i. Not related to number of trials (barely any cases actually reach trial)
ii. Not really due to “buffer” issue like in criminal (between D and judge)
iii. Historical distrust of authority?
1. Royal charters for colonies provided for juries
2. Bulwark against tyranny of king’s judges
b. 2 main clauses:
i. Preservation clause
ii. Reexamination clause
c. How do you identify an issue falling w/in 7th Am?
Chauffeurs Local No. 391 v. Terry (1990)
Ps sued employer for breach of collective bargaining agreement, sued union for breach of
Facts:
duty to fairly represent them in the grievance proceedings. District Ct held that Ps were
entitled to jury trial. Ct of App affirmed.
 To determine whether a particular action will resolve legal rights, court examines both
Analysis
nature of issues involved and the remedy sought
 1st: compare statutory action to 18th century action brought in courts of England prior to
merger of L&E
• More like action by trust beneficiary against trustee for B of FD? (E)
• Or, more like attorney malpractice? (L)
• Court: both L&E; line is not clear
 2nd: examine remedy sought and determine whether it is L/E in nature
• Court wants to rely on this prong in its analysis
• Remedy sought is legal – doesn’t have any of the attributes that must be present
Modern Remedies F04, pp. 15
Disposition
for court to characterize damages as equitable
- Not restitutionary
- Not incidental/intertwined w/injunctive relief
Remedy of backpay sought is legal in nature – considering both parts of 7th Am inquiry, Ps
are entitled to jury trial.
II. RESTITUTION
A. Restitution, generally:
a. Underacknowledged, often fuzzy usage
b. 2 categories:
i. Disgorgement: D’s consequential gain; honing in on D’s conscious wrongdoing, as opposed to looking
at P’s harm suffered
ii. Reversing transactions
c. When will restitution be attractive to P?
i. When there is no other cause of action; restitution as underlying substantive claim
1. Neri v. Retail Marine (pp. 565): P asserts that he conferred benefit on D, and though P did
breach, damages were less than amount of deposit
ii. Where D’s gain > P’s loss (want to bring suit seeking highest recovery possible)
iii. When P is not interested in damages, but in reversing a transaction
iv. Where D is insolvent (trying to get preference in bankruptcy proceeding)
d. Remedial constructs
i. Quasi-contract: implying promise to pay for a certain benefit
ii. Accounting for profits: imposing duty on one party to account for benefit
iii. Constructive trust: impose trust on some identifiable benefit
e. Issues:
i. What does it mean to say P can recover for D’s benefit?
ii. Why would we allow someone to recover something greater than her loss?
iii. How do we measure gain to D?
f. Are restitutionary damages a rejection of the economic view of the law?
i. Want to put resources into highest use
ii. Posner: encourage voluntary transactions; don’t bypass the market
g. Various consequences of D’s wrongful acts
i. D doesn’t profit, so P can only sue for damages
ii. P’s loss equal to D’s gain (ex. rental value): award for compensatory damages and restitution for unjust
enrichment would be the same
iii. D’s gain exceeds P’s loss: P should recover D’s profits; must decide why D should pay damages and
why P should be the one who receives them (criminalize, fine?)
B. Disgorging profits
a. Disgorgement: nearly always referring to award of profits that exceeds the market value of what was taken from P
(like Olwell)
b. Quasi-contract/unjust enrichment
Olwell v. Nye & Nissen Co. (Wash, 1946)
P owned egg-washing machine, was planning on having it in storage. D used P’s egg
Facts:
washer w/o P’s knowledge, for 3 years. P offered to sell machine to D for $600; D counter
offered $50, no sale went through, and P sued.
Trial court J/P in the amount of $10/week for period covered by SOL.
Procedural history:
 Saving in labor cost which D derived from its use of P’s machine constituted a benefit
Analysis
• While D benefited from use of machine, P thereby incurred a loss: very essence of
nature of property is the right to its exclusive use – without it, no beneficial right
remains
• Theory of UE is applicable in such a case
Modern Remedies F04, pp. 16
•
If D was consciously tortuous in acquiring the benefit, he is also deprived of any
profit derived from his subsequent dealing with it
Affirmed.
Disposition
c.
Unjust enrichment/ill-gotten gains
Maier Brewing Co. v. Fleischmann Distilling Corp. (9th Cir. 1968)
D began to brew cheap beer under trademark that P had for distilling whiskey. P’s
Facts:
trademark was well established w/consumers.
Dist Ct awarded damages by accounting of Ds’ profits accrued from the sale of beer under
Procedural history:
the name “Black & White.” Ds appeal, arguing that Ps showed no injury, no diversion of
sales, no palming off/fraudulent conduct.
 Issue: is accounting of profits the appropriate remedy? Under statute, P only has to
Analysis
prove D’s sales, D must prove all elements of cost/deduction claimed. In assessing
damages, court has discretion according to circumstances of the case
 Two view as to basis for awarding accounting of profits:
• Majority: accounting of profits by Ds as method of shifting BOP as to damages for
lost/potentially lost sales from P  D
• Minority: more recent trend – basis accounting on equitable concepts of restitution
and UE
- These courts have required competition between the parties
- Court: does not necessarily follow that just because there is no direct
competition, an accounting of profits can serve no reasonable end
 Legislative intent: making infringement and piracy unprofitable
• What is loss to P? Reputation
• Restitution measure as an accounting of ill-gotten gains
 Why not just injunction? Not enough of a deterrent, leads to “serial infringer”
 Competition:
• Where there is competition: accounting based on rationale of returning
diverted profits
• No competition: accounting based on UE rationale
Affirmed.
Disposition
d.
Constructive trusts and accounting for profits
i. Constructive trust: legal fiction; a remedy whereby assets are moved from the party currently using them
to the “true owner”
ii. Why not punitive damages? Too speculative: might be too high/low; either under- or over-deterrence of
disputed activity
Snepp v. U.S. (1980)
Facts:
Procedural history:
Analysis
D-Employee of CIA, signed contract that if he ever wrote anything, CIA would prescreen,
and not divulge classified information. Wrote a book, did not it to the CIA to preview.
Dist Ct found that P had breached his agreement by publishing without submitting it for
review. Enjoined future breaches of D’s agreement and imposed a constructive trust on D’s
profits.
Ct of App upheld injunction but held that the record did not support imposition of a
constructive trust, because D had a 1st Am right to publish unclassified information, and
government’s concession that the book did not divulge any classified intelligence. Limited
recovery to nominal damages and to possibility of punitives if government could prove
tortious conduct.
 Ct of App’s decision denies government an appropriate remedy for D’s wrong, leaving
no deterrence for breaches of security
 Constructive trust: protects both government and D from unwarranted risk – trust
remedy simply requires D to disgorge benefits of his faithlessness
 [*What has government been deprived of – right to screen? This seems just
procedural, more Carey-like (in which case only nominal damages are warranted)]
 Why not punitive damages?
Modern Remedies F04, pp. 17
Disposition
• Too speculative
• Would require government to divulge classified information at trial
Reverse Ct of App decision.
Products liability – restitution may not be available
i. Idea that manufacturer should have to disgorge savings from cutting safety costs (Olwell “savings”-type
calculation)
ii. Doctrinal obstacle: manufacturer’s profits do not seem to have been taken from consumers in any
obvious sense
iii. Often Ds are careless, but not conscious wrongdoer
iv. No cases raise the possibility
C. Rescission & the benefits requirement
a. Rescission, generally:
i. Rescission: cancels the transaction and reverses all benefits that have been exchanged pursuant to the
transaction
ii. As opposed to enforcing the transaction and awarding specific performance or expectancy damages
iii. Rightful position: conceived of differently – rather than speculating about what might have been, simply
undo the transaction and restore everyone to their original positions
b. P’s options:
i. P gets to choose whether to rescind or sue for damages: P might choose rescission because of its
simplicity (no need to litigate the value of anything) or because of personal preferences not reflected in
market values (ex. homebuyer that is more troubled by termites than the average person), or because she
has lost confidence in D and the transaction
ii. When values have changed: P can choose rescission if she would lose money from performance, or
choose expectancy if she would make money from the performance
iii. P cannot affirm the profitable parts of a K and rescind the losing parts – must rescind the entire K or
entirety of some identifiably separate exchange w/in the K
e.
Mutual Benefit Life Insurance Co. v. JMR Electronics Corp. (2d Cir. 1988)
JMR bought life insurance for its owner, but didn’t disclose that he was a smoker. Life
Facts:
insurance company therefore issued a policy at the non-smoker’s premium rate, but later
found out about the misrepresentation.
Trial court judge granted M’s motion for S/J, dismissed JMR’s counterclaim for proceeds
Procedural history:
of the policy, and ordered rescission of insurance policy and return of JMR’s premium
payments, w/interest.
 JMR argued that MBL should just pay out what a smoker would get
Analysis
• Court: no basis in law. Mutual was induced to issue non-smoker discounted
premium policy to JMR precisely as a result of misrepresentations. Maybe MBL
wouldn’t have issued the policy
• Materiality of misrepresentations: the inquiry is not made so that jury can rewrite
the terms of the insurance to conform to newly disclosed facts, but to make certain
that the risk insured was the risk covered by the policy agreed upon
• Public policy argument: awarding payment would reward those who make
misrepresentations; would have everything to gain and nothing to lose fro making
material misrepresentations
Affirmed.
Disposition
c.
Why allow rescission?
i. Pros
1. Deterrence-based: without rescission, people would have everything to gain and nothing to lose
by misrepresenting
2. We should resolve uncertainty against the wrongdoer: want to keep possibility open that MBL
wouldn’t have offered insurance policy at all
ii. Cons
Modern Remedies F04, pp. 18
d.
e.
f.
1. After-the-fact reallocation of risk
2. Is insurance company better equipped/suited to bear the risk?
3. Does this give MBL a windfall?
Viewed as a mild remedy:
i. Though, if property values changed drastically, it would be stronger
ii. Raises Q: should rescission be allowed as a matter of course, or only in certain categories?
1. Fraud
2. Duress
3. Substantial breach
4. Mistake (unilateral and not relied-upon; mutual mistake)
Limit: there needs to be a transaction that can actually be reversed: ex.: Enron – disaffected SH would have no
claim against Enron because they didn’t transact (merely bought off the exchange)
Securities fraud context: debate about what the laws mean
i. Ps can claim rescission, but subject to D’s right to prove that P’s losses were brought about by
something other than fraud
ii. Before, P did not have to show specific causation
Farash v. Sykes Datatronics, Inc. (NY 1983)
P claims: P and D entered into agreement for D to lease building owned by P. P was to
Facts:
make expedited renovation/modifications, but D never signed a K and never occupied the
building. P brought suit: (1) to enforce oral lease for term longer than one year, (2) recover
for value of work performed by P in reliance on statements by/at the request of D, (3) claim
that Ps contracted by exchanging promises (renovation in exchange for occupying building)
 1st and 3rd C/A: barred by SOF
Analysis
 2nd C/A: not barred by SOF because P is merely trying to recover for efforts that were
to his detriment and thereby placed him in a worse off position
• Seeks to recover for value of work performed by P in reliance on statements by
and at the request of D
• Just because D did not benefit, doesn’t invalidate the C/A
 Recovery should be permitted under a theory of quasi contract (K implied by law)
• Restatement: injured party who has not conferred a benefit may not obtain
restitution, but he/she may have an action in damages, including one for recovery
based on reliance
• Does not want to get tied up on semantics: doesn’t matter if it is called “acting in
reliance” or “restitution” – regardless, a promisee who partially performs at
promisor’s request should be allowed to recover fair/reasonable value of
performance tendered
P has C/A.
Disposition
 This is merely an end-run around the SOF
Dissent
• 2nd C/A is equivalent to the 3rd; therefore also barred by SOF
• Majority misconstrues the law because there is only recovery in circumstances of
breach
• P’s renovations were merely preparatory to performance of alleged oral contract,
that is unenforceable under SOF
d.
Problem of invalid K: what other options for recovery?
i. Promissory estoppel: where there is no contract (as in this case)
ii. Fictional benefit: if P performed, there is a benefit, even if D didn’t directly benefit
Is there an enforceable K?
Yes
No
Is there a non-fictional benefit?
Yes
P may sue on the K
P may sue in restitution
No
P may sue on the K
Farash (if recovery here is in
restitution, benefit requirement must
be either fictionalized or abandoned)
Modern Remedies F04, pp. 19
D. Restitution & contract: new frontiers or dead ends?
Boomer v. Muir (Cal. Ct. App. 1933) – LOSING K WHERE THE BENEFIT CANNOT BE RETURNED
M was general contractor, B was sub, on a K to build hydro plant. B was to build one dam
Facts:
for project, and M was to supply B w/materials/equipment. Delays and cost overruns from
the beginning, which each side blamed on the other. Finally, w/B’s dam 95% complete, he
abandoned the work.
Analysis
Disposition
K price: $333K
B: received $313K in progress payments, and would have been entitled to another $20K if
he finished the job.
B: spend $571K building as much as he did, not counting any waste that was his own fault.
Would have cost another $29K to finish the job, making a total construction cost of $600K.
 Here, B’s expectance was negative – if K was fully performed, he would have lost
$267K
 Court: B could rescind the K and sue for the value of the benefit he had conferred on M
– the value of a nearly finished dam, measured by the cost of building it
• “Boomer rule”: not looking to K price, but costs sunk so far
• Recovery: $258K, difference between what he had spent and what he had already
paid
 **Why should Muir have to pay $571K for a benefit he was promised for less than
$333K? Traditional contract law says that K price is supposed to account for risk, i.e.
K allocated to B the risk that the work might cost more than expected
• P seeking restitution rescinds the K and sues in quantum meruit, the common
count for value of services rendered  M cannot rely on K price because the K
has been rescinded
- **How helpful/fair is this?
Jury found Boomer’s withdrawal was justified by Muir’s material breach in failing to
deliver materials. B’s recovery = (amount spent) – (amount already paid) = $258K.
Earthinfo v. Hydrosphere Resource Consultants
H and E entered into series of Ks to develop software. H developed software and provided
Facts:
technical support, E produced manuals and packaging, handled marketing. E paid royalties
and consulting fees to H.
Procedural history:
Analysis
Disposition
H claimed royalties on a new product, derived from earlier products described in the K. E
denied that it owed any royalty on such products, and refused to pay any royalties accrued
after a certain date, even on the original products, until dispute was resolved.
Trial court held that E owed no royalties on derivative products, but that its refusal to pay
the royalties that it did owe was a substantial breach. Both sides sought to rescind Ks.
 E withholding royalties as leverage in the other dispute – was the conduct sufficiently
culpable to support disgorgement?
 Rescission and restitution
• Rescission was warranted: E’s breach was substantial, and damages would be
inadequate (due to nature of Ks and depth of disputes between parties); and
opinion of the court that the parties wouldn’t be able to just resume their
relationship in a productive manner
• Restitution on both sides – contract is being unmade, so restoration of benefits
received under the K should follow
- How much of D’s profits can P recover? Here, court has equitable discretion
– the more culpable D’s behavior, and more direct the connection between
profit/wrongdoing, more likely that P can recover all of D’s profits
- **Court seems to be importing into contract law the law of intentional torts
(supercompensatory measure)
- How much should D be allowed to keep/P be allowed to disgorge? Here, E
did contribute to profits with its packaging, marketing, etc. – that contribution
should be accounted for and withheld from disgorgement. Apportionment
based on value added by each party
Remanded for determination of value added, so that E only disgorges profits attributable to
Modern Remedies F04, pp. 20
H (recalculation of wrongful profits).
Glendale Federal Bank, FSB v. U.S. – what the book means on pp. 646-7 when it says that the trial court made the
mistake of counting the -$798M twice?
S&L crisis – government insurance funds did not have enough $ to pay off depositors in
Facts:
insolvent S&Ls/thrifts. Instead, began arranging for insolvent thrifts to be acquired by
healthy thrifts. To induce healthy thrifts to do this, made promises, including granting
special accounting treatment. If healthy acquired insolvent, it would get to add the
insolvent’s negative net worth as a “positive” asset on its balance sheet (“goodwill”
provision). Later statute banned inclusion of goodwill.
Procedural history:
Analysis
Disposition
P had positive net worth of $536M, acquired Broward, w/negative net worth of $798M. P
survived by instituting a number of drastic measures, also had to pay higher interest rates,
was on a list of “undercapitalized institutions.”
Trial court found reliance damages of $381M, mostly in extra interest P paid as a result of
impaired capital. Also awarded $528M in restitution – idea was that P had conferred a
benefit of $798M by assuming Broward’s liabilities (minus some fees, and $288M in
benefits to P, principally profits from B’s recovery). Government appealed, P crossappealed.
 P was not entitled to expectancy damages – problems of proof  when proof of ED
fails, law profits restitution as a fall-back position for the injured party
• P’s acquiring B did not result in government saving the dollar value of B’s net
obligations
• Problem illustrated by this case: granting restitution based on assumption that
non-breaching party is entitled to supposed gains received by breaching party,
when those gains are both speculative and indeterminate
- *Reliance damages provide firmer and more rational basis
Vacate trial court award of damages, remand for determination of total reliance damages to
which P may be entitled.
III. PUNITIVE DAMAGES
A. Overview
a. Purpose of PDs
i. Deterrence (query – is this the same as punishment? Posner argues that you can think about deterrence
as an aspect of punishment; there may be instances where you want to deter but not punish)
1. Damages awards are often substantial, and Ds in these proceedings are not afforded the same
procedural protections as in criminal cases - raises concerns about the manner (imprecise?) in
which PDs are administered
ii. Punish: further a state's legitimate interests in punishing unlawful conduct
iii. Incentive: prospect of punitive damages enables lawyers to take these cases, whereas they might not if
the prospect of recovering a lot wasn't apparent
iv. Posner’s economic rationale for PDs:
1. Damages are sometimes undercompensatory
2. Not all torts are detected: award of punitive damages serves the additional purpose of limiting
the defendant's ability to profit from its fraud by escaping detection and (private) prosecution
3. Criminal justice system is overloaded: PDs give us a civil alternative
b. Critique of PDs:
i. Creates windfall for P: we punish D, but that doesn't mean P should necessarily receive the benefit
ii. Potential for D's ill-gotten gains to differ from P's injuries; may be
overcompensatory in order to sufficiently deter
iii. In insurance, there is potential for damage award to drive up cost of premiums, which are passed on to
others (hence, controversy about whether punitive damages should be insurable; in most states they are
insurable)
Modern Remedies F04, pp. 21
iv. Standards are phrased ambiguously; juries don't know how to calculate damages  presents the problem
of giving proper notice to putative D; if standards are vague, there won’t be efficient deterrence (could
lead to overdeterrence; not knowing standard may lead D to be overly cautious)
v. Overkill/multiple punishments problem: D has possibility of huge awards give to each P who comes
forward
1. When court decides whether it will remit award it looks at whether there will be more Ps
coming forward in the future. There is debate about whether appellate courts can take judicial
notice of this if it wasn't introduced into evidence
2. D will want to bring in the award to show that it has already paid punitive damages, but also
wouldn’t want to bring in the award because this implies that D's conduct was deserving of
punishment
3. Dominant approach: possibility of additional awards is somehow considered in
setting/reviewing amount
4. GA: “first comer” statute – D only has to pay punitive damages once (raises problem of needing
to be the first P to bring suit)
5. Argument in favor of certifying class? Problematic in individual causation problems
vi. Taking into account D’s wealth: if goal is deterrence, can figure out what figure would deter (ex. what
percentage of total wealth?) – counterargument is that costs will end up getting passed on to consumers
anyhow
B. Common law and statutory
a. First arose in cases of dignitary torts
b. Main concern: insufficiency of compensatory damages to deter wrongful conduct
Grimshaw v. Ford Motor Co. (Cal. Ct. App. 1981)
P Grimshaw, a passenger in a Pinto, suffered burns when a car rear-ended the Pinto causing
Facts:
the car to erupt in flames. P was awarded $2,516,000 million in compensatory damages and
$125 million in punitives. P was required to remit all but $3.5 million of the punitive award
as a condition of the denial of D's motion for new trial.
 Instructions on malice, even assuming them to have been erroneous because the word
Analysis
"possible" was used instead of "probable," didn't constitute prejudicial error
 In deciding whether an award is excessive as a matter of law or so grossly
disproportionate as to raise the presumption of passion/prejudice:
• Degree of reprehensibility of D’s conduct: conduct of Ford management was
reprehensible in the extreme – conscious and callous disregard of public safety in
order to maximize corporate profits
• Wealth of D
• Amount of compensatory damages
• Amount which would serve as a deterrent effect on like conduct by D and others
who may be so inclined: points out that government regulations are inadequate
deterrents; PDs compensate for shortcomings
• Ratio of punitives to compensatory: 44 times – court found it excessive as a matter
of law, after taking into account all the other factors
Court affirmed the judgment, the conditional new trial order, and the order denying D's
Disposition
motion for judgment notwithstanding the verdict. Weighing factors in assessing PD award:
trial court reduction was within reason
c.
Cost-benefit analyses in products liability:
i. In Grimshaw, D knew how much it would cost to make the car safer, but disregarded it to make a higher
profit
ii. It is in society’s interest for companies to make these calculations, but PL cases demonstrate disincentive
for them to do so – they can be introduced into evidence and make the companies look bad if measures
were not adopted
iii. Difference in measures: P would not have paid $125M to suffer the damages. In theory, compensation
has the aim of putting P back in his rightful position (the “indifference curve”). But as soon as you enter
Modern Remedies F04, pp. 22
idea of serious injury and death,
you can argue that this is the wrong calculus
d. Instructing juries
i. What evidentiary standard should be used?
ii. Intent standard: malice, fraud, oppression, willful…: terms are not precise, but perhaps are not meant to
be – is this the best courts can do?
e. State immunity from punitive damages
i. Cannot get PDs from state
ii. Barnes v. Gorman: case under ADA, issue of whether punitive damages could be awarded against a
municipality. Majority rationale held that ADA enforcement was through Spending Clause (no program
that receives federal funds can discriminate). Government withholding of funds is a contractual situation
– because you cannot get punitive damages in a K, you cannot get them here
C. Punitive damages & constitutional overlay
Gore v. BMW
Facts:
Analysis
P bought BMW; bought it presuming it was new. Turned out that paint job was defective,
but BMW had policy that if value of car was decreased by less than certain percentage, they
would not disclose to purchaser, but market it as new. P took car to paint shop, where he
was told that the car had been repainted. Actual damages: $4,000; original amount of
punitive damages given by the jury: $4M. Calculation: average harm to value of the harm,
multiplied number of cars sold with this type of undisclosed defect (14 of them sold in AL).
Concern that there was evidence brought in based on nationwide conduct (extraterritorial
scope).
 SC sets out 3 guideposts:
• Degree of reprehensibility
- Most important indicia
- Type of harm: economic vs. physical harm
- Whether BMW made any false statements or concealed evidence – malice,
trickery and deceit: court finds no
- Repeated nature of the wrongful conduct: no indication that BMW persisted
in course of conduct after it had been adjudged unlawful on even one
occassion
- Financial vulnerability of the target
• Ratio of compensatory to punitive damages
- Whether there is a reasonable relationship between punitive damages award
and harm likely to result from D’s conduct, as well as the harm that actually
occurred
- Controversy: proportionality, but proportional to what?
- Compensatory to punitive = compensatory as the proxy for indicator of harm
- Here – ratio is “breathtaking” (though, no mathematical bright-line)
• Sanctions for comparable misconduct: in AL, violation = $2,000. Fact that the
multi-million dollar penalty prompted a change in policy sheds no light on
question of whether a lesser deterrent would have adequately protected interests of
AL consumers
Reversed and remanded.
Disposition
State Farm v. Campbell
Offer to settle equaled limit of insurance policy ($25K) – often, Ps will agree to settle at
Facts:
maximum settlement insurance policy, and D has every reason to accept, but insurance
company has interest in not automatically accepting every offer to settle at the maximum of
policy limitation (interests of insured and insurer are different). State Farm took it to trial,
where P was found totally liable, and judgment far exceeded the settlement offer/insurance
policy maximum. Bad faith failure to settle. But, ended up coming through and paying the
judgment. What is the harm? The 18 month period of uncertainty for Campbells, when
they were told they should “sell their house;” pain and suffering.
Original jury award: $145M in punitives, $2.6M in compensatory. Trial court remitted to
Procedural history:
$25M and $1M, respectively.
 Case was incorrectly used as a platform on which to expose/punish perceived
Analysis
Modern Remedies F04, pp. 23
Disposition
a.
b.
c.
deficiencies of SF’s operations throughout the country (national scheme to meet
corporate fiscal goals by capping payouts on claims company-wide), rather than
conduct directed at Ps specifically
 State does not have legitimate concern in imposing PDs to punish D for unlawful
activity outside that court’s jurisdictions
 Court declines to impose strict ratio of compensatory to punitives: but in practice, few
awards exceeding a single-digit ratio between punitive and compensatory
damages, to a significant degree, will satisfy due process
 Compensatory damages in this case were substantial – the harm was essentially the
economic harm in the 18 month period, the distress/humiliation suffered, which was all
compensated in compensatory damages (which courts says contain this punitive
element)
 Wealth of D cannot justify an otherwise unconstitutional damage award – D’s wealth
had little to do w/the actual harm suffered by Ps
 Civil penalties inquiry: relevant UT statute imposes a $10K fine; obviously dwarfed by
$145M punitive damages award
Reversed and remanded.
Constitutional “guideposts,” after Gore and State Farm
i. Ratio analysis:
1. Gore: no precise mathematical formula
2. State Farm: rarely ever is an award exceeding a single-digit ratio between P and C damages
constitutional
a. In instances where there is only a small amount of harm (compensatory damages), a
larger ratio to punitive damages may be appropriate (in dignitary torts); however,
where compensatory damage award is high, the punitive damage award should be
lower to comport w/due process
b. There might already be punitive elements in the compensatory award
ii. Sanctions for comparable misconduct for both civil and criminal fines
1. After Gore, every P came in and argued that the act in question could entail criminal charges,
and the “loss of liberty” entitled them to use a large value to calculate the sanction for
comparable misconduct
2. State Farm clamps down on this: true, if there are criminal penalties for Ds’ behavior, then that
has ramifications for reprehensibility analysis, but the idea that you can use criminal penalties
in determining dollar amounts doesn’t hold up because the civil defendant isn’t afforded the
same type of protections as criminal defendants
Relevant constitutional interest:
i. Is the DP analysis substantive or procedural? Should SC be allowed to invade the state sphere?
ii. Gore: substantive DP right comes up
iii. Guideposts as intended to provide putative Ds with some kind of notice – as to types of conduct that
would subject one to punitive damages, as well as severity of punitives
Scope of evidence: what is allowed to come in, after State Farm and Gore?
Mathias v. Accor (7th Cir., 2003)
Ps were guests in hotels owned by D. Rooms were infested w/bedbugs. Extermination
Facts:
service recommended that every room be sprayed, but motel refused. Rented out rooms
that were indicated not to be rented out until treated, failed to warn guests about the bugs.
Jury J/Ps, $186K punitive damages, $5K compensatory. D appeals.
Procedural history:
 Precepts that should govern awards;
Analysis
• Punitive damages should be proportional to the wrongfulness of the D’s actions
• Sanctions should be based on the wrong done rather than on the status of the D
• D should have reasonable notice of the sanction for unlawful acts, so that he can
make a rational determination of how to act; and so there have to be reasonably
clear standards for determining the amount of punitive damages for particular
wrongs
Modern Remedies F04, pp. 24

Disposition
This is much more similar to a dignitary harm to the extent that the compensatory
damages might be pretty low, whereas egregious nature of the conduct might be very
high (like the “spitting the in face” case, as opposed to an oil spill)
 D filed motion in limine to exclude evidence concerning the issue of bedbugs in the
other rooms in the motel – court refused to grant the motion
 Would have been helpful if parties had presented evidence of statutory penalties for
offense, but lack thereof does not invalidate the award
 Award of PDs was not excessive, although court acknowledges that the final amount
chosen by the jury was arbitrary
Affirmed.
Wealth of D: in Mathias, Posner says that it is relevant, but more in terms of P’s ability to bring a case, get his
day in court (here, two individual Ps were facing a comparatively wealthier D who had a bunch of resources to
put behind its defense and keep people from suing (refers to motions filed, etc. as “frivolous))
e. Reexamination clause:
i. Cooper Industries: when punitive damages are ruled as being unconstitutionally excessive, federal courts
are reviewing jury awards de novo
1. Argument that was made that punitive damages might be different from compensatory damages
– not “facts” in the same way that CD are, that they involve moral considerations, etc., such that
there is no idea that federal court is getting in the way of jury fact-finding
2. Issue of whether it was just a matter of federal procedure, or if it would apply in state courts –
for the latter, it would have to be a constitutional rule
a. State courts: interpret as a constitutional rule, so they are engaged in looking at them
de novo when they are ruled as constitutionally excessive
b. Move from common law to constitutional argument: makes a different for standard of
review (abuse of discretion vs. de novo standard  makes a difference!)
c. Changes balance between judges and juries, as well as appellate vs. trial court
d. Ginsburg: brings this out in dissent – in Cooper Industries, is upset that PD award is
less of a fact than pain and suffering, and the idea that appellate courts can now step in
and instead of simply offering up remittitur, now can just remit awards and not give
the option of a new trial
D. Split-recovery schemes:
a. Various state approaches:
i. GA: only applies to products liability cases; after deduction of attorney’s fees and costs of litigation,
75% of PD recovery goes into state treasury. Only one PD award per PL act/omission
ii. AK: 50% of PD award must be placed in state’s general fund
iii. IL: trial court has discretion to apportion PD award between P, P’s attorney, and IL Dept of Human
Services
iv. IN: 75% of PD award must be put into violent crime victims compensation fund
v. IA: jury answers special interrogatories – if it finds that D’s conduct was specifically directed at P, P
gets 100% of PD recovery. If not, then 75% goes to state civil reparations trust fund
vi. MS: P receives 50% of PD award after attorney’s fees, remaining 50% goes to tort victims’
compensation fund, with 26% of that going to legal services for low-income persons fund
vii. OR: 40% of PDs go to prevailing party
viii. UT: after deduction of fees, 50% of awards in excess of $20K go to state general fund
ix. CA: 75% of PD recovery goes to state “general fund,” also has a single recovery limitation
1. Why is this part of a split-recovery bill? Is there any reason for them to go hand in hand
2. If this is a revenue raising scheme, you want it to be once to get the largest award (possibly)
3. Pitched as something that will raise revenue – potentially in conflict with the idea of tort
reforms as trying to “rein in” excessive jury verdicts?
b. 2 approaches to attorney’s fees
i. Taken from total award, before state takes its share
d.
Modern Remedies F04, pp. 25
c.
d.
ii. Taken from amount left over after state takes its share
iii. *CA scheme: attorneys get normal contingency fee (from P’s 25%), plus 25% of 75% put into public
trust  essentially collects from the entirety of the award (attempt to bypass the taking issue – recovery
is split from the outset; that way, P technically never had a “right” to the portion allocated to the public
trust)
Difficulty of knowing how much money will be collected
i. Punitive damages aren’t wholly predictable – remittitur, appeals, etc., award vs. how much has actually
been paid out
ii. Hard to make it part of budgetary process as short-term budgetary enhancement, when lawsuits have an
unpredictable timeline
iii. Picking up punitive damages as “final judgments” – but, litigation is just the tip of the iceberg 
settlement before trial (knowing that you will only get a portion of your punitive damages; settle to “cut
out” the state from the picture); also between jury verdict and end of the appeals process
1. Secret settlements
2. Settlements for similar dollar amounts but, it matters to the D that it’s not labeled “punitive”
(for reasons of reputation, etc.)
3. Collusive/“sham” settlements: first-comer advantage, Ds have an interest in having a relatively
benign case be the first (might work with plaintiff’s counsel)
Informing the jury
i. Perhaps shouldn’t be informed because juror who knows that $ will go to the state, then he might feel
more inclined to inflate the judgment (that it will benefit him, as long as jury is going to punish the
company anyway…)
ii. Any states that have considered the issue have prohibited telling the juries
Dardinger v. Blue Cross (Ohio 2002)
P-decedent suffered from cancer; had great success using a certain kind of treatment, but
Facts:
after approving several rounds of treatment, D ended up denying coverage for it, and
although she eventually decided to actually pay for the treatment, by then it was too late.
Trial court J/P, $49M in PDs.
Procedural history:
 Punitive damages review:
Analysis
• Under Supreme Court jurisprudence: no reduction needed
• OH state common law: excessiveness violation
- Looking at past awards – want the award to be high because the court feels
like the wrong is particularly reprehensible, but looks to prior verdicts, and
decides that punitive damages should be double the highest award
 Condition on the remittitur: $20M would go to cancer research foundation
Remittitur; $20M goes to cancer research foundation.
Disposition
 Might be good policy, but any state that has considered it has left it to the legislature
Dissent
E. Courts’ remedial authority – critique of Dardinger
a. No right for court to do so
b. Should be left up to the legislature, not proper for the courts
c. Makes the judge a quasi-head of foundation; too arbitrary for judge to decide – no institutional checks on judge’s
power to allocate the money (should it be sent to the jury, or should we require briefing by the parties?)
d. Ps are blindsided by this allocation – no notice that such a scheme will be put into place; no chance to brief the
issue
F. Punitive damages in contract
a. In addition to statutory civil fines
b. Traditional rule: no punitive damages in contract
Modern Remedies F04, pp. 26
c.
d.
Looking at a case w/an independent tort, why have the independent tort requirement? Does it work out as a
practical matter? Smattering of data shows that it seems punitive damages can often work their way into
contracts
Distinction between torts and contracts: source of duty
i. Tort: by law
ii. Contract: by contract, express or implied
iii. Nature of remedy sought by P
iv. *When does a contract case get pushed into tort territory? Formosa – emphasis on when D decided not
to perform – intent at the time representations were made
Formosa Plastics Corp. v. Presidio Engineers & Contractors, Inc. (Tx. 1998)
Formosa was engaged in a large-scale, $1.5B construction expansion project, with $600K
Facts:
bid for a contract. Presidio received invitation to bid on part of the project, which was
accompanied by certain representations about the foundation job (90 day completion
schedule). Project ended up taking 8 months to complete; Presidio incurred substantial
costs.
 Breach:
Analysis
• Presidio wasn’t able to schedule concrete delivery when it was supposed to be able
to
• Formosa scheduled mutually exclusive contractors to be in the same place at the
same time
 Tort: fraudulent misrepresentation
• Presidio was to be able to set its own schedule and Formosa was to deliver on
target
• Project was to be completed in 90 days
• Presidio alleged that Formosa enticed contractors to make low bids by making
misrepresentations in the bid package regarding scheduling, delivery of materials,
responsibility for delay damages (Formosa indeed admitted that it had secretly set
up its own delivery schedule in order to save money)
 Independent tort rule: **Note, pp. 764: Formosa holds that there must be an
independent tort, and there must be tort damages, but the damages need not be
independent from the damages caused by the breach
• “Legal duty not to fraudulently procure a contract is separate and independent
from the duties established by the contract itself”  tort damages are not
precluded simply because a fraudulent representation causes only economic loss
 Contract case gets pushed into tort territory: based on Formosa’s intent at time
representations were made
• Seemed to be a calculated effort, scheming – employees testify to substantiate the
idea that it was not the case that Formosa made the contract and then decided not
to perform
• Profit motive: Formosa made the representations in order to induce Presidio to
enter into the contract at a low bid price (Formosa was going to be responsible for
things within its control, but Presidio was supposed to be in responsible for factors
outside control of the parties. Formosa knew that there were going to be delays,
and use its superior bargaining power to make Ps finish the work or else go away
and settle for some low amount)
Affirmed (Presidio chose higher tort recovery, $700K, court affirmed jury finding of fraud
Disposition
and $10M damage award).
e.
What is the purpose being served, if you don’t have to have additional damages for a claim in tort? Don’t want
“repackaged contract claims”
i. What would be a better rule for when we want to apply torts?
ii. Above cases use the “independent tort requirement”
iii. Look at distinction between opportunistic breach and efficient breach? Sounds good in theory, but
difficult in practice (and would juries actually treat them differently?)
iv. Difficult to tell at what point D decided not to perform its obligations under the K
Modern Remedies F04, pp. 27
v. Hold firm to the rule of no punitive damages in Ks, but realizing that you will encounter torts and
contracts together, strictly construe the independence rule?
vi. Tort damages serving as hook for bad faith contract claims?
G. Statutory damages and civil penalties
a. Civil penalties payable to the government: 3 categories
i. Criminal prosecution in disguise: argument is that this should trigger criminal procedural protections
1. Almost a null set
2. If legislature calls something a civil fine, will not decide that this is a criminal prosecution and
give D attendant rights (Supreme Court has been pretty clear)
b. Not a criminal prosecution, but it is punishment: might trigger some kind of procedural protections
i. For a while, seemed to implicate the double jeopardy clause (though very narrowly defined, if not
discarded)
ii. Excessive fines clause implicated: goes back to discussion of applicability of the clause to civil penalties
assessed between private parties – not applicable, but court left question in situation where funds were
going to the state
c. Not a criminal prosecution/punishment, but solely remedial: ordinary civil procedure/administrative schemes
seem to suffice
i. “Remedial” can be defined in a number of ways: preventative, enforcement costs…etc.
d. Notes/issues:
i. Penalties seriously undermine protections of criminal procedure – substantial fines are imposed w/o
them
ii. Court generally upholds such penalties on the ground that they are remedial, not punitive
iii. Court’s current position seems to be that civil penalties are civil and remedial because Congress says so
iv. Court seems to have given up on the civil/criminal line, but has imposed modest limits on the size of
civil fines under the Excessive Fines clause
v. Double-jeopardy cases: where D’s claim is that the civil penalty is punishment for purposes of the DJ
Clause, so government cannot impose a second punishment in a criminal prosecution
e. Statutory damages collected by private parties
i. Private litigants recovering statutory damages
ii. Ex. “Truth in lending act”, copyright infringement, Privacy Act
iii. Area in which statutory damages are proliferating – we need to have a sense as to whether they are
punishment, remedial in purpose; up for grabs whether the whole apparatus of State Farm or BMW
should apply in situations where statutory penalty seems too large
f. How do you argue that statutory damages are different from punitive damages?
i. Ex.: litigant who is able to get damages for every day
ii. Notice: there is arguably a lot more notice that you will incur a fine
1. Arguably, doesn’t bring in same due process claims as a result
2. Counterargument: yes, you may know that you will be fined, but do you know that it could be a
huge amount?
iii. If statute is well-drafted, then you might be able to more effectively structure the limits of the fine –
legislature can set caps, for example
g. Why have statutory damages to begin with?
i. Areas in which harm/damages are difficult to quantify
ii. Enforcement incentive to give to private litigants – private attorneys’ general role
IV. INJUNCTIONS
A. Injunctions vs. damages
a. Courts are more wary of injunctive relief – why?
i. Monitoring problem: burden on the court
Modern Remedies F04, pp. 28
ii. Timing of intervention: injunction is preventive (ex ante); concern that there might be a huge cost
imposed on D if you are granting injunctions based on too little evidence, to some extent speculative
iii. Larger intrusion on D’s interests – restraint on action, burden on liberty
iv. Right to jury trial for cases at law, but not at equity: therefore, when remedies are substitutable, granting
injunctive relief as a way to bypass jury trial might be problematic possibility
B. Economic analysis of injunction vs. damages – property rules vs. liability rules
a. Property rule: injunctive relief
b. Liability rule: damage relief
c. Which do we favor for specific rights? Depends on the transaction costs involved
i. Property rules:
1. If transaction costs are low, you want to force people into voluntary market transactions with
one another (property rule) – everything would be protected and the costs would be more
accurate when they are a result of bargaining (as opposed to jury-determined damages)
2. Where transaction costs are high: if parties can’t come together and bargain after the fact, court
must be very sure that it gives this entitlement to the right party
a. Danger that it will go to the low-value user
b. Injunctions are very strong protection – sort of the “final word,” and if transaction
costs are high and parties can’t/won’t come together, then they are stuck
ii. Liability rules: forgo the ideal of parties coming together, but at least you will avoid the possibility of
allocating right to the low-value user
d. When will transaction costs be high?
i. Bilateral monopoly: when only one party has the good, or when only one party desires the good
ii. When there are many parties involved (especially when there are many parties on one side) – collective
action problems, hold out, etc…
iii. Efficient breach theory is based on premise that transaction costs will be high – don’t want to have
injunctive relief getting in the way or efficient violations
iv. Our conception of transaction costs is critical – too easy to say that economists favor property or liability
rules
e. More radical theory: “Remedies and the Psychology of Ownership”
i. Authors tested idea that there is an endowment effect – when you are endowed with something, you start
to value it more
ii. Once I own something, I don’t want to give it up – selling price will be higher than price that I would
offer to buy the same thing
iii. Does this explain things fully?
iv. What is the impact of our conception of property on our conceptions of remedies
v. We should live in a world where everything is governed by liability rules because that would encourage
voluntary transactions and trade
C. Substitution/specific relief
a. Irreplaceable losses/irreparable injury rule – question: what makes a legal remedy inadequate?
i. Definition
1. Equity will not act if there is an adequate remedy at law
2. Equity will act only to prevent injury that is irreparable at law
ii. Typical application: if money damages would be adequate, then injury is not irreparable
iii. Laycock: “Death of the IIR”  issue of “adequacy”
1. Legal remedy is adequate only if it is as complete, practical, and efficient as the equitable
remedy (prevailing definition); legal remedy almost never meets this standard
2. Once the definition was in place, IIR did not embody much preference for legal remedies
3. Courts do not deny specific relief merely because they judge the legal remedy adequate – IIR
almost never bars specific relief, because substitutionary measures are almost never adequate
4. At the stage of permanent relief, any litigant w/a plausible need for specific relief can satisfy the
irreparable injury rule
Modern Remedies F04, pp. 29
Pardee v. Camden Lumber Co. (W. Va. 1911)
P sued to enjoin D from cutting down timber on P’s land.
Facts:
 Injunction dissolved; P appeals.
Procedural history:
 Issue: evaluating the available remedies – are they sufficient to vindicate the right
Analysis:
of an owner of property to keep it in the condition he desires?
 Legal remedies inadequate in this case because it would allow someone to cut down
someone else’s timber as long as he could pay the damages
 Damages as compensation is adequate in all instances in which property that is
injured/destroyed may be substantially replaced w/money recovered as its value
 If personal property has a value peculiar to its owner, or “price of affection,” equity
Disposition:
will vindicate and uphold the right to possession (ex. trees intact vs. lumber –
totally different kinds of property). Clear case of trespass by cutting of timber
should always be enjoined.
Notes:
 Unambiguous choice between issuing an injunction or requiring damages if
trees are cut
 Demonstrates that the irreparable injury rule is limited
 Timber was thought of as something, though connected to the land, wasn’t seem as
akin to property in terms of having a uniqueness value
 Court doesn’t seriously entertain that it would be equivalent to allow the trees to be
cut down and then bring a suit in law for money damages
 When is money an adequate remedy? We are now in this territory, as opposed to
just asking “when can you bring an action in law?” It’s the more relevant question
to modern litigation (not so much the law/equity distinction)
Continental Airlines, Inc. v. Intra Brokers, Inc. (9th Cir. 1994)
Continental published coupon books w/no-sale provision, but told Intra that it wouldn’t
Facts:
enforce it. Later changed position and told Intra, which refused to comply. No evidence of
harm/benefit as a result, also no evidence of expenses by Intra in reliance on old policy.
Procedural history: District court granted S/J to Continental; permanent injunction against Intra not to sell
coupons.
 Did Continental have an adequate legal remedy? Continental said yes, losses from
Analysis:
passengers’ use of coupons sold
 Very hard to determine whether C was harmed. Economic analysis, accounting
might be necessarily – but doesn’t mean that Continental was not harmed
 Difficulty and expense of establishing economic harm supports argument that
damages would be inadequate remedy  cuts in favor of equitable relief
 Continental is entitled to make business decisions – loss was of power over
business
Injunction affirmed.
Disposition:
 What is the entitlement that is being protected? Right to control one’s business
Notes:
 This is not exactly what was meant by the traditional irreparable injury rule – could
Continental go and do something totally foolish, but still have its control protected?
 Holding on to some semblance of irreparable damages rule by saying that it’s
difficult to determine the money amount
Campbell Soup Co. v. Wentz (3d Cir. 1948)
Campbell contracted w/Wentz to buy carrots at specified price. Once K came due, market
Facts:
price had shot up; Wentz sold to someone else, who resold the carrots on open market,
Campbell was a purchaser. Suspected that middleman was selling contract carrots, sought
injunction and specific performance of K.
Procedural history: Trial court denied equitable relief, on ground that P had failed to establish that carrots are
unique goods.
 Equitable relief is proper
Analysis:
 Campbell had contracted well in advance, anticipating that it would need the
carrots, had a reputation that was built in part upon uniform appearance
Reversed.
Disposition:
 Defendants: could have breached, sold, paid damages, and still come out on top
Notes:
 Liquidated damages clause: suggests that parties had in mind that there might be a
Modern Remedies F04, pp. 30



shortage in the goods; also, that there might be incidental damages that are not
easily quantifiable
Do we want to encourage profitable breaches in times of shortage or market
failures?
D might have wanted to try and force Campbells into negotiation?
Long term contracts with different variables, requiring efforts and inputs on both
sides – efficient breach might be attractive, not only limited to sales situations
Van Wagner Advertising Corp. v. S&M Enterprises (NY 1946)
P had lease for advertising space on building; P built a sign and leased it to another
Facts:
company. D cancelled the lease w/P – breached contract.
Procedural history: Trial court denied specific performance; awarded money damages. P argues for SP, D says
that money damages are adequate but amount was improper.
 P’s argument that space was “unique” in terms of location for specific advertising –
Analysis:
“uniqueness” is not a magic door to SP
 Difference between physical difference and economic interchangeability
 Point at which breach is redressable by SP doesn’t lie in inherent physical
uniqueness, but in uncertainty of valuing it
 “Difficulty of proving damages w/reasonable certainty”
 Value of commercial billboard space is not speculative
 Granting SP in this case would also harm D disproportionately compared to how
much it would benefit P
Affirmed SP part of verdict, adjusted damages through expiration of P’s lease.
Disposition:
 Why are damages adequate here?
Notes:
 The location is arguably unique – big captive audience of people stuck in traffic
 Equitable relief would impose disproportionate burden on the defaulting landlord
 What is the issue? Hardship on D is a separate issue from whether damages are
adequate – added consideration, or it the case that courts aren’t thinking about
whether you could feasibly get damages relief, substitutability on the market, or is
there something going on…that we want to give stronger protection to a particular
entitlement or good…or is there another substantive policy consideration (i.e. here,
undue hardship on a D)
b.
Burdens on D or the court
i. Undue hardship/balancing the equities: embodiment of economic approach to law – if a wrong is too
expensive to correct, then D can pay damages instead
1. High transaction costs
2. Bilateral monopoly
3. Not enough for D to show that the injunction costs him a little more than it saves P – must
impose hardship greatly disproportionate to the benefits
4. Defense is unavailable if D’s conduct is too culpable
Ariola v. Nigro (Ill. 1959)
Ds were putting an addition onto their house. Ps allege that Ds encroached onto Ps’
Facts:
property. Ps had a drainage system that encroached onto D’s property, but it was ruled that
they had an easement by AP. Ds put up a drainage system w/o Ps’ knowledge, ended up
causing rotting and damage.
Procedural history: Trial court awarded Ps damages only for installation of drainage system as good as one
destroyed by Ds, denied damages for injury/deterioration of their building.
 Remedy of mandatory injunction: where encroachment was intentional, courts have
Analysis:
refused to balance the equities, and have issued MI w/o regard to relative
convenience/hardship involved
 Mandatory injunction can also be granted in order to protect an easement
 Trial court’s determination that Ps’ claim re: easement was barred by laches was
w/o merit
 Ds were consistently on notice that they would be encroaching
Reversed and remanded; directions to grant the mandatory injunction, and award all
Disposition:
damages resulting directly from defendants’ intentional trespass
Modern Remedies F04, pp. 31
Notes:



What could be recovered here?
• Value of land taken
• Under intentional trespass, liability for all the damage done (trial court limited
damage award to replacement of drainage system)
• Are damages an adequate remedy in this case?
- Intentional trespass
- Idea is that injunction would lead to further negotiation by the parties
Coase theorem: initial allocation of rights doesn’t matter because parties will get
together and reach a bargain that will be most efficient use of the resource
• Assumption: low transaction costs
*Farnsworth study: picked cases where transaction costs were very low, but actually,
not much negotiation after judge’s decision  how do you explain this?
• Acrimony built up in encroachment/nuisance cases; parties are in such a state over
everything that even if it is in their interest to negotiate, they don’t feel inclined to
bargain
• “Endowment effect” might be at work here; people less likely to negotiate
inunctions (property right as non-fungible), while they will negotiate damages
while cases are on appeal
Co-operative Insurance Society Ltd. v. Argyll Stores (Holdings) Ltd. (HL 1997)
Safeway decided that number of stores were not longer profitable, so decided to close them.
Facts:
It was a breach of covenant in their lease, which contained positive obligation to keep the
premises open for retail trade during usual hours of business.
Procedural history: Lower court assessed damages; Court of Appeal reversed, ordering that the covenant be
specifically peformed.
 Issue: should the store be ordered to continue operating as at a loss?
Analysis:
Restore order of trial judge
Disposition:
 Issue of supervision
Notes:
• Undue hardship on the court; unduly complex for the court to supervise
 Punishment for contempt: court calls it quasi-criminal
• As a result, court feels the need to “tread lightly” in awarding the injunction
 Why would you want an injunction in this case?
• Other stores – Safeway drew people into the shopping center
• At least wanted a transition; displeased with the decision to simply breach and pack
up/close store
• Court discusses concern that forcing the business to stay when it doesn’t want to
will discourage it from running the store properly, and it’s not the court’s role to
make sure that this happens
ii. What will sway a court w/respect to granting damage/injunctive relief? Take-away point of Ariola and
Argyll
1. Whether money damages are adequate
2. Undue hardship, either for D or court
3. Looking into character/content of D’s action, either at level of intent, or presence of misconduct
in some respect
a. Ex.: Ariola, where D intentionally encroached on P’s property
b. Does this mean that injunction should be granted?
c. What are advantages to giving injunctive relief in this situation? Don’t have to put a
number on the infraction; give the power to the individual property owner – protecting
that entitlement to land at a higher level than simple punitive damages (jury/courtdetermined amount)
4. Courts take on more burdens in terms of supervision where stakes are high enough and legal
remedies are shown to be weak enough – look at case and contrast damages with injunctive
relief
a. What’s a stake/what’s the nature of the entitlement? Ariola case = property right;
Argyll = contract right
Modern Remedies F04, pp. 32
b.
c.
Explains why injunctive relief was granted in Ariola even though it was an
encroachment of several inches – seems irrational, but the stakes might be perceived as
being higher because it is a property right
Substantive or procedural policy reasons
Willing v. Mazzocone (Pa. 1978)
D wore sandwich board and demonstrated in front of Ps’ law office, believed that Ps had
Facts:
defrauded her. Ps filed suit in equity seeking to enjoin her.
Procedural history: Trial court granted injunction, Superior Ct. essentially affirmed (modified the order).
 Free speech issue
Analysis:
 Not permissible to enjoin someone from speaking/protesting, even if that speech is
false
 Fact that D is indigent doesn’t matter – doesn’t mean that there is no adequate
remedy at law
 In deciding whether a remedy is adequate, it is the remedy itself, not its possible
lack of success, that is determining factor
Reversed
Disposition:
 Is a legal remedy as complete/practical/efficient as an equitable remedy in this case?
Notes:
Why is it that damages are not enough?
• Trial court: D was indigent
• Hard to prove the monetary effect of libel
• Possibility of repeat conduct
• *One thing that you can get w/injunction is wide remedial coverage, and into the
future
• Irreparable harm might not mean serious harm, but could tell us that there is the
problem of repeat conduct where there would only be a small damages award each
time, and which would not be worth it to litigate on each occurrence
 Court reverses granting of injunction because injunctions are often preventative, prior
restraint  difference between damages and injunction in this situation
• Damages: punish individuals for statements made, damages caused
• Injunction: prior restraint, future speech of D is restrained (regardless of the fact
that statement has found to be false on the merits)
d.
Cochran v. Tory:
i. Johnny Cochran case where SC has just granted cert. Cochran had been representing Tory in LA policy
shoot-out case; became disaffected w/Cochran’s representation. Tory sent letter saying that if Cochran
paid $10M, he would go public; after publicity of OJ trial, resurfaced making demands again. Tory
mobilized a bunch of people (not other Cochran clients), transported them, gave them food, had them
protest saying Cochran was a crook. Cochran sued for defamation – court issued injunction saying that
Tory and anyone associated w/him could not picket. CA Appeals court affirmed. Issue: whether
permanent injunction in a libel action against an admitted public figure violates first amendment
ii. Rule: “equity will not enjoin a libel”
American Broadcasting Cos. V. Wolf (NY 1981)
D was a sportscaster for P; agreed to negotiate for extension when his K ran up, also agreed
Facts:
to a right-of-first refusal clause, but then signed a K w/CBS. P sued, seeking SP for right-offirst refusal clause and injunction against D broadcasting for CBS.
Procedural history: Ct. of Appeals held that D had violated negotiation clause, but not right-of-first-refusal
clause because he signed w/CBS before beginning of 90 day period.
 Courts generally refuse to order individual to perform a K for personal services
Analysis:
(difficulties of supervising)
 Exceptions: where there is an existing K, and services are unique or extraordinary
 General judicial disfavor of anticompetitive covenants in employment Ks (public
policy favoring full and robust competition)
 ABC’s request: must fail
 No existing agreement between parties; already expired
 In this situation, injunction would unduly interfere w/individual’s livelihood, inhibit
Modern Remedies F04, pp. 33

Disposition:
free competition, where there is no injury to employer other than loss of
competitive edge
 Not saying that ABC wasn’t damaged – can sue for monetary damages if
appropriate
Big issue: 13th Amendment; prohibitions on involuntary servitude, slavery, etc…
• Societal aversion to forcing people to stay in contract
D. Reparative injunctions
Bell v. Southwell (5th Cir. 1967)
Election to fill vacancy for Justice of the Peace; one black female candidate (P-Bell), along
Facts:
w/five white male candidates, including declared winner D-Southwell. If all qualified blacks
who didn’t vote had been added to combined vote of Southwell’s opponents, result couldn’t
have been changed.
Procedural history:
Analysis:
Disposition:
a.
Allegations: voting lists and booths were segregated according to race, also allegations of
voter intimidation.
Ps requested that Court declare that D was not the legally elected JoP, that he be enjoined
from taking office, and new election be called. Trial court characterized practices as
unconstitutional, but held that federal court was powerless/should not exercise power to set
aside a state election, and that there was no way to tell whether the result would have been
different in absence of discrimination – therefore, no harm or injury was shown by the
complainants.
 Court has expressly recognized the power of a federal court to void a state election
– Hamer v. Campbell
 Not blacks alone who suffered, but body politic as a whole; trial court assumed that
all white voters would vote for white candidates, and same for blacks
 Georgia authorities insistence that relief was properly denied b/c injunction was
requested after election was over – no such rule; there was no effective relief
available before the election
 Disenfranchised voters tried to engage in self-help, but to avail; and the suit was
filed within a few days of election results
 Reversed and remanded for entry of order setting aside the election and requiring
the calling of a special election
No rule precluding the use of injunction to ameliorate the harm of past violations (despite any special rules
governing elections)
Forster v. Boss (8th Cir. 1996)
Arose out of sale of property. P = buyers, D = sellers. When Ds agreed to sell property to
Facts:
Ps, they represented that Ps could obtain permit for boat dock, but Ds didn’t know that they
had a permit of their own that made it impossible for Ps to get a permit. Ds didn’t contest
fraud in this regard. Jury awarded compensatory/punitive damages.
Procedural history:
Analysis:
Disposition:
Ds also promised that they would remove their swim dock and didn’t. Jury awarded
compensatory damages for breach of K.
Issue on appeal: damages were not the only relief given to Ps – they also got permanent
injunction ordering Ds to remove their swim dock, and got their boat-dock permit after all.
 Ds argue that injunction has made Ps whole – they have their swim dock and boat
dock permit; therefore, they got the property w/exactly the characteristics that Ds
promised them after all…granting damages too  double recovery?
 Ps are better off then if there had been no fraud/breach in the first place
 Possible that Ps suffered some kind of damages because they had to wait 3 years for
complete fulfillment of terms of sale – but, case wasn’t tried on this theory, no
evidence to show how these damages could be calculated
 Ps argue for distinction between right not to be defrauded and “littoral rights”
appurtenant to property – in abstract it makes sense, but still doesn’t justify double
recovery
 Case must be remanded, where it will be up to Ps to elect what remedy they want –
Modern Remedies F04, pp. 34



Notes:



b.
compensatory or injunction. But they should be allowed to keep the $10,000 award
because Ds’ conduct was abusive. If it is necessary under Missouri law for
compensatory damages to be awarded in order to support punitives, then District
Court must award Ps compensatory damages of $1 on their fraud claim.
Kornmann, concurring: Ps have already elected a remedy – they sought and
received an injunction, and the resulting dock permit. Would have DC determine if
Ps elected a remedy, and that Ps are not allowed to receive and retain the dock
permit as well as the $12,250.
Pretty clear in this instance that there was double recovery
Punitive damages: how do you argue for punitives in addition to compensatory
and/or injunction? Ways in which a court can figure out the “harm” done even if it
is not awarded in compensatory damages (ex.: using a “virtual” compensatory
damage amount, if compensatory damages had been awarded rather than the
injunction, or just determine a value of harm)
Injunctive: property-like protection
Damages: contract-like protection
Punitives: almost criminal-like protection
Laycock, Injunctions and the IIR
i. Fiss’s analysis: practical differences between various uses of injunctions
1. Preventative: prevents a future harmful act
2. Reparative: prevents the future harmful effects of a past act
3. Structural: long series of preventative/reparative injunctions in a single case presenting a
complex fact situation – each individual order is part of a continuing attack on a larger problem
(ex. school desegregation)
ii. *Laycock: Fiss makes too much of his categories  all do the same thing, serving the classic role of the
injunction of preventing future harm
1. Distinction that Fiss is missing: ignores the difference between avoiding harm altogether and
compensating for harm actually suffered
2. Can create confusion in litigation
iii. Laycock’s argument:
1. Reparative injunction is only appropriate when P will suffer additional harm in the future
(damages can be awarded too – let the harm happen, but compensate  but, reverse is not
always true; sometimes you need damages to compensate)
2. Overlapping purposes served by reparative injunctions and damages remain quite distinct
Winston Research Corp. v. Minnesota Mining & Manuf. Co. (9th Cir. 1965)
Division of MMMC developed improved precision tape recorder/reproducer. Later,
Facts:
Winston developed similar machine. M alleged that W machine was developed by former
M employees, using confidential info that they had acquired. Sued for damages and
injunction.
Procedural history: District Ct. found that employees based W’s development program on same approach as
they used in developing M’s machine. Found that the approach was not a trade secret of M.
Particular embodiment of the general concepts in M machine was a trade secret, and
employees had used them improperly in developing the W machine.
Analysis:
Granted injunction against disclosing any trade secrets for 2 years after judgment, but denied
damages. Both sides appealed  M says injunction should have been longer/permanent.
 Dist. Ct. premised its decision on determination that trade secrets would have been
fully disclosed shortly – record supports this finding
 Shellmar rule versus Conmar rule – W’s argument would bar any injunction at all
once there is public disclosure, and M’s argument would require injunction in
perpetuity regardless; DC verdict was compromise
 DC’s approach was sound
 Public policy argument: permanent injunction would subvert public interest in
allowing technical employees to make full use of their knowledge/skill in fostering
R&D, while no injunction at all would leave faithless employee unpunished
Modern Remedies F04, pp. 35

Disposition:
Notes:
Appropriate injunctive period is that which competitors would require after
public disclosure to develop a competitive machine
 Damages issue: DC was right not to award – since W didn’t sell any of its
machines, there was no profit to be disgorged, and evidence as to future profits was
highly speculative at best
 Two-year injunction deprived W of any benefit it might have gained from
advantages and shielded M from any potential harm from W’s competition
Affirmed.
 Nothing illegal about reverse-engineering after product is out for sale
 W comes in before the four years elapse and takes about 14 months to get product
to possible sale
 Permanent injunction: contrast with preliminary injunction – entered into as part of
the judgment, but does not mean that it is perpetual
 Perpetual injunction: goes on forever; M wanted it, and that would mean that W is
forever banned
 Court rejects extremes, comes up w/2 year injunction compromise: trade secrets are
not perpetually protected; once on the market competitors could develop the
product by RE
Bailey v. Proctor (1st Cir. 1947)
Mutual fund; organized into debenture trust. Abusive capital structure – uneven and
Facts:
misleading distribution of risk and reward. If Trust performs badly, stockholders bear much
less risk than debenture holders, but if it performs well, then stockholders get all of the
speculative profit. SH thus have incentive to take risks w/debenture holders’ money. Trust
became insolvent, and control group was caught in fraud/self-dealing. Receiver appointed at
requested of SEC. Bailey’s group bought out original control group and made the Trust
solvent again.
Procedural history: DC ordered receiver to liquidate the trust. Bailey appealed, arguing that Trust was no longer
insolvent, and those responsible for fraud were no longer associated w/the Trust. Also
argued that court had no power to order liquidation in any event.
 Court of equity has inherent power to appoint receiver to liquidate
Analysis:
corporation/investment trust where fraud/mismanagement/abuse is present,
regardless of whether there is insolvency
 Issue: whether court loses the power once there is intervening solvency and switchout of offending parties
 Solvency is not sufficient to defeat court’s jurisdiction
 The main problem here isn’t the personal honesty/integrity of Bailey and their
management, but the structure of the trust itself
 The structure is the evil – court wasn’t convinced that similar meltdown couldn’t
happen again
 May be fair/equitable to require liquidation of the company in the absence of an
acceptable plan of reorganization
 Affirmed, remanded.
Disposition:
 Motivation of Congress: wrote the statute to protect investors because they might
Notes:
not realize that they are trading above-market interest rate for participation in a very
risky investment
 If there is already a statute in place, what is the court here trying to compensate for?
Court invokes court of equity’s inherent power where there is
fraud/mismanagement in trust situations
 Did Congress automatically say that presently-existing capital structures must be
liquidated?  Grandfather Clause; those that are presently existing don’t have to
immediately liquidate
 Is the Court showing its disagreement with Congress on this question, in essence
saying that there can’t be a Grandfather Clause for this type of capital structure?
 Propensity for D to do harm – raises different kinds of issues?
 Not very clear what Court is acting on
E. Preventative injunctions
a. Preventative, not compensation for harm already suffered
Modern Remedies F04, pp. 36
b.
Definition: court order, enforceable by sanctions for contempt of court, directing D to do/refrain from doing some
particular thing
c. Ripeness rule: before injunction is issued, there must be a ripe threat of injury ; P must show that he personally
will be harmed by it
d. Contempt:
i. Civil contempt: remedial proceeding, P prosecutes it himself; court grants compensation for any harm
suffered as a result of D’s violation of injunction
ii. Coercive civil contempt: court imposes conditional penalties to coerce D into obedience
Humble Oil & Refining Co. v. Harang (E.D. La. 1966)
D entered into conspiracy with P’s employee, who had access to information belonging to P.
Facts:
Employee would tell D about P’s proposed operations/acquisitions so that D could then beat
P to it, then would have his agent/broker offer to sell leases/farmouts to P or others. D
acquired huge profits, gained royalty interests. D used a corporation to conceal his role in
the transactions.
Procedural history: P sought injunction barring D from destroying documents relating to transactions entered
into by D or D’s corporation, that allegedly reflect his connection with P’s ex-employee.
 Necessity of injunction must be demonstrated clearly – cannot be issued just to
Analysis:
allay parties’ fears – must be issued only to prevent irreparable injury
 P could be irreparably injured, but that’s true in every situation where proof of
claim rests on documentary evidence. If that was the test, then there would be
injunctions in every case where one party has control of important docs
 Party seeking injunction must establish 1) potential irreparable injury, plus 2) real
danger that the acts to be enjoined will occur, that there is no other remedy
available, and that under the circumstances the court should exercise discretion to
afford unusual relief
 No proof of imminent threat here
 Doesn’t matter that it would not place hardship to D (i.e. he’d be doing what he has
to do anyway)
 Injunction denied
Disposition:
Marshall v. Goodyear Tire & Rubber Co. (5th Cir. 1977)
D discharged Mr. Reed, P (Sec. of Labor) sought to enjoin further violations and recover
Facts:
Reed’s lost wages.
Procedural history: District Court found violation alleged and granted the relief, including nationwide injunction
against further violations.
Analysis:
Disposition:
e.
D primarily takes issue with the scope of the injunction; claims that the single violation
found by court involved only the actions of one store manager, and doesn’t warrant such
broad injunctive relief.
 Equal Pay Act, FLSA, and ADEA cases all establish that nationwide/companywide
injunction is only appropriate when facts indicate company policy or practice in
violation of the statute
 Not present in this case
Remand for further consideration of scope
Scope of injunction:
i. Should bigger companies be more insulated from company-wide injunctions (i.e. need more injunctions
because they have, for example, more branches?)
ii. FRCP 65(d): concerns injunctions against violating law – says the order has to be specific and not just
reference the complaint or the law that forbids the enjoined act (can’t just tell D: “obey the law”)
iii. But, the “obey the law”-type clauses are common
U.S. v. W.T. Grant Co. (1953)
Interlocking corporate directorates; Hancock served as director on Ds’ three corporate
Facts:
boards. After complaints were filed under §8 of the Clayton Act, H resigned from some of
the boards.
Procedural history: Ds moved to dismiss actions as moot. District judge granted MSJ, concluding that there was
Modern Remedies F04, pp. 37
Analysis:
Disposition:
Dissent (Douglas,
Black)
not the slightest threat that Ds will attempt any future activity in violation of §8 if they have
violated it already.
 Issue: is the matter moot because D resigned?
 D is free to return to his old ways
 Also, there is a public interest in having the legality of practices settled
 To say that the case is moot means that D is entitled to dismissal as a matter of right
– courts have refused to grant Ds such a powerful weapon against public law
enforcement
 *But, case may be moot if D can demonstrate that there is no reasonable
expectation that the wrong will be repeated – heavy burden!
 There must be some cognizable danger of recurrent violation, more than mere
possibility, to keep the case alive
Although the actions were not moot, no abuse of discretion has been demonstrated in trial
court’s refusal to grant injunctive relief. Affirmed.
 Relevant issues haven’t been considered; DC ruling should not be entitled to
presumption of validity because it disposed of the case based on mootness, which
the court now concedes was erroneous
 We are concerned with the proclivity of indulging in the practice of interlocking
directorates
Nicholson v. Connecticut Half-way House, Inc. (Conn. 1966)
Ps were property owners on block; D purchased one of the homes in the block to use as a
Facts:
halfway house for parolees from CT prison.
Procedural history: Trial court enjoined as a nuisance before it went into operation. Ds appeal.
 Test for nuisance: evidence must show that D’s proposed use of property is
Analysis:
unreasonable
 Factual grounds offered in support: depreciative effect on land values, fears that
residents will commit crimes in the neighborhood
 Present fear rests on pure supposition – speculative and intangible fear; no evidence
offered/alleged to prove any specific acts/pattern of behavior that would warrant
drastic injunctive relief
 IR maybe granted only under demanding circumstances
 Insufficient showing; reverse trial court.
Disposition:
F.
Preliminary injunctions
LA Memorial Coliseum Commission v. National Football League (9th Cir. 1980)
Facts:
Procedural history: District Court granted preliminary injunction prohibiting NFL from invoking §4.3 of
League’s Constitution/Bylaws to prevent transfer of NFL franchise to LA.
Analysis:
 Traditional equitable criteria for granting preliminary injunction: (1) strong
likelihood of success on the merits, (2) possibility of irreparable injury to P if
PI is not granted, (3) balance of hardships favoring P, (4) advancement of
public interest (in certain cases)
 Circuit: moving party can meet burden by demonstrating either (1) combination of
probable success on merits & possibility of irreparable injury or (2) that serious
questions are raised and balance of hardships tips sharply in its favor
 Court: no irreparable injury  Coliseum alleged lost revenues due to failure to
acquire NFL team – monetary injury is not normally considered irreparable
(compensable by damage award)
 Trial court did not find balance of harms favoring P – insufficient
Reversed
Disposition:
 What is Coliseum’s strongest possible claim of irreparable injury? No way to
Notes:
purchase an NFL team with money, so if they lose the chance to get the Oakland
Raiders, then there is no way they can be later compensated for the damages that
would be caused
 Intangibles argument – e.g. something about the Raiders, and practical argument
(above) that Coliseum couldn’t get another team
 What is different about the realm of preliminary injunction such that the injury is
Modern Remedies F04, pp. 38





irreparable? Problem is at this point (at stage of PI), you don’t know whether it is
going to be a viable legal claim on the merits
Court has to balance idea of potential irreparable injury to P w/the risk of error –
the idea of PI both substantively and procedurally is going to hinge a lot on this risk
of error
Divide out the harm that can still be prevented after trial as distinct from harm that
will be suffered or inevitable before trial/hearing on the merits  timing elements;
courts will worry a lot about it at PI stage
Then, apply the usual irreparable injury kind of concept – assess things like severity
of the harm and various factors
(1) Likelihood of success on the merits
(2) Possibility of irreparability injury to P if PI is not granted: strong view that if
you are going to be talking about lost revenues/profits is that it isn’t going to fit the
bill (ex. have other sports teams, use them as predictor, calculate damages from
there)
Lakeshore Hills, Inc. v. Adcox (Ill. App. Ct. 1980)
P sued to have D remove a pet black bear from his property in the subdivision. Section of
Facts:
restrictive covenants was amended to exclude bears one year after D moved in.
Procedural history: Trial judge ruled that bear’s presence violated covenant provision, granted PI, finding that
potentially dangerous situation existed.
 Goes through 4 elements, all come out in favor of P
Analysis:
Affirmed grant of injunction.
Disposition:
 Issue of altering the status quo: injunction here altered it, but that doesn’t require
Notes:
reversal. Doesn’t add anything to the 4-element analysis
Coyne-Delany Co. v. Capital Development Board
P got contract to replace plumbing fixtures in state prison. Valves malfunctioned even after
Facts:
replacement. When D announced bidding specifications for 2nd phase of project, it required
all bidders to use P’s main competitor. P sued Board under CRA of 1871, obtained TRO
against Board’s opening bids. State asked that P be ordered to post $50K bond because
TRO was causing delay that could be very costly.
Procedural history:
Analysis:
Disposition:
Notes:
Judge required bond of $5K only.
Court reversed grant of preliminary injunction because the decision giving P a claim was
reversed. P moved DC to award damages for wrongfully issued PI. Judge refused to award.
 Rule 65(c) essentially tells the court to order applicant to pay wrongfully enjoined
party’s damages
 Most cases hold that prevailing D is entitled to damages on injunction bond unless
there is a good reason for not requiring P to pay in the particular case – court agrees
with this majority approach
 Judge must have a good reason for departing: ex. that D failed to mitigate damages,
that P is indigent
 One factor: intermediate state appellate court decisions are reversed with some
frequency – legitimate consideration, especially where prevailing party is a state
agency that benefited from a change in the law of its state
Remand for judge to consider/weigh all relevant factors.
 Who bears risk of error at PI stage?
 Worried about potential harm to D; P shouldn’t have to fully compensate D for
wrongfully issued injunction, because it wasn’t P’s wrongdoing, unless we think
that P was wrong to bring the suit in the first place (not as likely)
 Injunction bond: compromise – require the posting of a bond, set in advance
(requires ex ante anticipatory calculation of what the potential harm/risk should be);
most states, only liable for the amount of the bond
 Likely effect on litigation (especially plaintiff): certain individuals who won’t be
able to put up the money might be discouraged from bringing the suit (ex. civil
rights Ps, employees, though judge has some discretion)
Carroll v. President of Princess Anne (1968)
Modern Remedies F04, pp. 39
Facts:
Procedural history:
Analysis:
Disposition:
Notes:
Ds = white supremacist organization; held public assembly near courthouse steps.
Authorities did not attempt to interfere w/rally. Only a few police were present. Made racist
speeches on a public address system. Said it would continue the next day.
Residents of city and county applied for and obtained a RO from court. Ex parte – no notice
given to Ds; MD procedure provides for it. Restrained rallies/meetings for 10 days.
Another injunction was issued after 10 days, extending restraint for 10 months.
MD Court of Appeals affirmed 10 day order, but reversed 10 month order on the ground that
period of time was unreasonable and it was arbitrary to assume the clear/present danger of
civil disturbance/riot would persist for 10 months.
 1st Am issue: procedure provides for ex parte issuance, but not where there is no
showing that it is impossible to serve/notify opposing parties and give them an
opportunity to participate
 Presumption against prior restraints of expression
 No justification in this case for not notifying Ds
 Importance of adversary proceeding w/both parties participating
 Order must be narrow – tailored as precisely as possible to exact needs of case
Reversed.
 No reason/explanation as to why there was no notice – under FRCP 65, TRO would
be reversed
 Case constitutionalizes the rule that was inherent in FRCP 65, and rule that was in
place in most states because they had state law equivalents – holding isn’t really
momentous
 TROs aren’t appealable – only way court reaches a decision on this is because it’s
piggybacked on the question of the permanent injunction
 Why might litigants dispense with notice?
 Substantive standard: 4 part test seems to collapse into one question – is the free
speech resulting in an irreparable danger that must be precluded before notice can
be given?
Sampson v. Murray (1974)
P was probationary employee employee w/GSA, advised in writing by Acting Commissioner
Facts:
that she would be discharged. She filed action seeking to temporarily enjoin dismissal
pending pursuit of administrative appeal.
Procedural history: District Court granted TRO, and after adversary hearing, extended order in favor of P until
Acting Commissioner testified about reasons for P’s dismissal. Divided Court of Appeals
affirmed.
 Issue: whether more limited procedural requirements applicable to probationary
Analysis:
employees were satisfied by Ds in this case
 Usually can be dismissed by notifying in writing as to reasons for discharge, but
more elaborate procedures are specified for terminating employee for conditions
arising before appointment


Disposition:
 TROs w/o notice only last for 10 days. Rule 65 doesn’t define preliminary
Notes:
injunction or TRO
 Rule that TROs are not appealable: judge-made rule
 Here, TRO was issued w/notice, lasted longer than 10 days
 Substantive standard: Court takes strong form saying that lost pay isn’t irreparable
injury because it can be recovered later

G. Structural injunctions: school desegregation and institutional reform
a. Main distinction between approaches to scope of injunctive relief:
i. Rightful position: Winston
ii. Equitable-discretion: more flexible, free-wheeling notion of doing complete equity – Bailey
b. Issue of judicial activism: what are the proper limits?
c. Scope of injunction when issued: school desegregation cases
i. Distinction between de jure and de facto:
Modern Remedies F04, pp. 40
1.
ii.
iii.
iv.
v.
De jure: by law; deliberately caused by state authorities. Violates the Constitution and must be
remedied
2. De facto: segregation from all other causes except deliberate conduct of state authorities. Does
not violate Constitution
Swann v. Charlotte-Mecklenburg Bd. of Education: neutrally drawn attendance zones would not achieve
truly nondiscriminatory assignment of children to school. Presumption against schools that are
substantially disproportionate in racial composition. District Court has broad power to fashion a remedy
that will assure a unitary school system – must achieve greatest possible degree of actual desegregation.
Led to generation of busing to desegregate
1. Fair amount of rightful position rhetoric – but, used in expansionary manner, has an equitable
discretion result; thus can say it’s more like Bailey
2. Sometimes held out as a case in which courts got over substantive barriers on the liability side
through the remedial end
Milliken I: scope of the remedy is determined by the nature and extent of the constitutional violation. If
segregation occurred in Detroit school system only, remedy must be limited to that; reversed District
Court order to have surrounding suburban districts made parties
1. Not willing to expand remedial powers, on theory that ‘rightful position’ should be thought of
in terms of the Detroit SD itself
2. Stating strong commitment to rightful position standard, but as if court’s meaning of rightful
position has changed slightly (example in the Winston paradigm) – no more widespread arguing
about doing equity to alleviate all the effects of segregation
Milliken II: court affirmed educational-quality remedies (ex. remedial training); some argued that this
exceeded the scope, but injunction had a consequential damages feel to it
Dayton Bd. of Education v. Brinkman: only if there has been a systemwide impact may there be a
systemwide remedy
1. Incremental segregated effect
2. How can we measure what the consequences/effects once we define the violation – what would
things look like absent de jure segregation? The difference between the two is the incremental
segregated effect
3. Court does not want to reach beyond effects that are directly related to the instance of the
violation
Missouri v. Jenkins (1995)
P-school board & parents alleged D-state/surrounding school districts had
Facts/procedural
caused/perpetuated system of racial segregation of schools in Kansas City metropolitan area.
history:
KC SD was realigned as nominal defendant and certified as class, present/future SD
students. Brought cross-claim against state for failure to eliminate vestiges of dual-school
system.
Trial: found that state and KC SD were liable for violation because they operated a
segregated school system. Dist Ct issued remedial order, goal of eliminating vestiges of
state imposed segregation; ordered range of quality education programs for all students.
Analysis:
Dist Ct approved magnet school plan. Adopted an extensive long-range capital
improvements plan  over $540M, combined w/other costs (ex. salary assistance), annual
cost per pupil in KC SD far exceeds other schools in the state.
 Here, there is no interdistrict violation – proper response by the DC would therefore
have been to eliminate to the extent practicable the vestiges of prior de jure
segregation w/in the SD
 Constitution is not violated by racial imbalance in the schools, without more
 Interdistrict goal is beyond the scope of the intradistrict violation identified by the
Dist Ct
 Dist Ct has created the magnet district in order to serve the interdistrict goal of
attracting nonminority students from surrounding school districts and redistributing
Modern Remedies F04, pp. 41
Disposition:
Thomas,
concurring:
Dissenting
(Stevens, Ginsburg,
Breyer, Souter)
Notes:
U.S. v. Virginia
Facts:
Analysis:
Concurring
(Rehnquist)
Notes:
them within the KC SD – pursuing “desegregative attractiveness” is beyond school
of broad remedial authority
 Need local autonomy for schools: “vital national tradition,” restore state and local
authorities to control of school system
Judgment of Court of Appeals is reversed
 Continuing “racial isolation” of schools after de jure segregation has ended may
well reflect voluntary housing choices or other private decisions
 Dist Ct has no basis in any real finding of intentional government action
 Racial isolation itself is not a harm; only state-enforced segregation is
 Structural injunction infringes on State’s discretionary authority over its own
program and budgets
 Separation of powers and federalism as two clear restraints on use of equity power
 DC was incorrect to retain jurisdiction over implementation/modification of
remedial decree – should have terminated its involvement after issuing its remedy
 Whenever possible, courts should implement/devise unified remedies in single
degrees; judiciary shouldn’t be injected into day-to-day management of institutions
and local policies
 Failed to target equitable remedies in the case specifically to cure the harm suffered
by victims – raising test scores of an entire district is not sufficiently tailored to
restoring victims to position they would occupy absent discrimination
 Test scores are relevant to the extent that they can help determine whether the
programs have cured a deficiency in student achievement
 Salary increases can be justified as important element in remedying reduction in
systemwide student achievement resulting from segregation in KCSD (w/o them,
qualified employees would leave)
 No contradiction between finding of no interdistrict segregative effect and findings
about white flight
 Majority misreads Milliken I, improperly expanding limitations on permissible
remedies for prior segregation
 Majority’s test: but for the segregation, would the students be going to school
together?
 Dissent’s approach: whether Ds have shown right to relief from the injunction –
taking this view, slight burden shifting  seem to have a much easier time tying
things like “white flight” to violation (not important whether this is a direct result of
the actual instances of de jure segregation); wider scope to remedial power
 If this is necessary in Kansas City, why not everywhere? Is there any idea about
where this remedy ends?
VMI case – issue is sufficiency of the Women’s Institute
 Violation in this case: categorical exclusion of women from extraordinary
educational opportunity afforded men
 VA didn’t eliminate policy – left it untouched
 Schools not comparable
 Rightful position
 Remedy doesn’t offer any cure for opportunities/advantages withheld from women
who want a VMI education and can make the grade – doesn’t match the
constitutional violation
 Violation is not the exclusion of women, but the maintenance of an all-men’s
school w/o providing any institution for women
 Remedy shouldn’t necessarily require admission of women to VMI or creation of a
VMI clone for women
 Sufficient remedy for two institutions offering same quality of education and same
overall caliber
 What is the standard? Are we restoring Ps to rightful position to the same extent as
when we are discussing damages, or is there an alternative articulation?
• Proponents of broad equitable remedial discretion have not yet succeeded in
articulating a separate type of standard
• Seems as though there is more controversy in this regard when it comes to
injunctions rather than damages – why? Because the decisions here are being made
Modern Remedies F04, pp. 42
by judges, not juries
- Courts also retain jurisdiction (though Thomas suggests that courts just make
narrow injunctions and get out of the business of ongoing jurisdiction and
supervision)
- Judge is going to have to articulate reasons and standard; juries don’t have to,
and keeps further scrutiny out of the decisions
d.
Prison cases
Hutto v. Finney
Facts:
Procedural history:
At issue: punitive isolation – number of prisoners held for indeterminate period of time in
empty, windowless cells, receive <1,000 calories per day
District Ct. found conditions unconstitutional, as violating 8 th and 14th Am. Instead of
fashioning a detailed remedy of its own, DC directed the Dept. of Corrections to start
improving conditions and filing reports on progress – when progress was unsatisfactory,
given a 2nd chance. Later found substantial improvements, removed its supervisory
jurisdiction.
Court of Appeals reversed DC decision to withdraw supervisory jurisdiction. DC held
another set of hearings, finding that conditions had seriously deteriorated.
Court concluded that constitutional violations had not been cured – entered order that placed
limits on number of men/cell, required that each have a bunk, discontinuation of poor diet,
30 days max isolation sentence. Court of Appeals affirmed.
Analysis:
Disposition:
Dissent (Rehnquist)
Notes
Lewis v. Casey
Facts:
Procedural history:
Analysis:
Ds appeal portion of order that mandates 30 day maximum isolation sentence, arguing that
DC thus held that indeterminate sentences always constitute C/U punishment.
 DC didn’t consider the length of sentence in a vacuum
 DC had given Department repeated opportunities to remedy; based on the history of
the litigation, court was justified in entering a comprehensive order to insure against
the risk of inadequate compliance
 Interdependence of the conditions producing the overall violation – the 30 day limit
will help correct the conditions
Affirmed
 The majority decision doesn’t comply w/Milliken II
 Court doesn’t find that confinement under the conditions described becomes
unconstitutional on the 31st day – needs other justifications, otherwise its just a
prophylactic order
 Not remedial – doesn’t restore victims
 Distinguishes between prison and school systems: students can receive special
instruction in later grades
 Need to let state and local authorities manage their own affairs
 Court’s intervention in this area – how can it be characterized? More narrowly-tailored
fact-specific remedy that the court is getting at: court has authority to address each
element contributing to the violation
• “Interdependence of the conditions producing the violation”
Class action by AZ prisoners complaining that inadequate law libraries and legal assistance
in state prisons interfered w/their right of access to the court under Bounds.
District Court made findings w/respect to two incidences of Bounds violation, both
involving illiterate prisoners, but entered an injunction regulating details of law libraries in
every prison in the system.
 Doctrine of standing – role of courts to provide relief to claimants who have/will
imminently suffer actual harm
 Not the role of courts to shape institutions of government
 Remedy must be limited by the wrong
 Actual injury to only one P: failure of prison to provide special services that he
would have needed, in light of his illiteracy, to avoid dismissal of his case
Modern Remedies F04, pp. 43


Concurring
(Souter, Ginsburg)
Notes


Another P was “unable to file a legal action”
Two instances are patently inadequate basis for conclusion of systemwide
violation/imposition of systemwide relief
 DC failed to give sufficient substantial deference to legitimate penological interests
asserted by prison authorities
 Failed to give authorities sufficient opportunity to propose their own remedy
 Too intrusive
 Trial itself was overreaching – abuse of discretion for DC to aggregate the discrete
problems in individual prisons and treat them as if they prevailed throughout the
system
In some respects, on the question of scope of the remedy, court is basically unanimous –
not sufficient to justify system-wide relief
• Doesn’t matter whether it is brought as a class action – still looking to specific
instances of harm
• Concern raised over the appropriateness of prophylactic remedies: do the harms
suggest that harms are widespread or will be unless the court intervenes?
• Similar to Humble Oil – court won’t issue injunction against destroying evidence in
a case; same logic  question of whether you want to issue such a dramatic
remedies
Real fight: is there imminent harm in this area?
• Is the concurrence in this case reconcilable with the dissent in Jenkins? How does
the prison situation relate to school desegregation?
- Is it easier to isolate discrete violations of the law here? Could argue that the
school segregation issue is more multifaceted, more dynamics at work. But, in
Hutto, there is the idea of “interdependence of the conditions producing the
violation”
• How might the remedies in the school context be different from the prison context?
Rehnquist in Hutto says that school context is different because students can have
their positions improved, ex. be given special instruction – some kind of reparative
element
- Is this possible in the prison context: could be forward looking, and affect
prisoners going forward, but …?? Majority’s concern?
H. Modifying injunctions
Rufo v. Inmates of Suffolk County Jail
P-inmates sued city/county/state officials claiming that they were being held under
Facts:
unconstitutional conditions while they had not yet been convicted of the crimes charged
against them
Procedural history: 1973 – Court held that conditions violated C; permanently enjoined Ds from housing
inmates awaiting trial together in the same cell.
1977 – problems of Charles St. Jail still unresolved; DC ordered Ds to renovate another
existing facility as a substitute detention center. Ct of Appeals agreed, ordered that CSJ be
closed unless plan was presented to create a constitutionally adequate facility for pretrial
detainees
Court entered into formal consent decree regarding jail design, but construction was delayed
and in the meantime population exceeded estimates. Ds were ordered to build a larger jail.
DC granted a request for modification to increase new prison’s capacity. DC refused to
grant a subsequent request to allow double bunking. Held that separate cell for each
detainee has always been important element of relief sought in the litigation.
Analysis:
Court of Appeals affirmed.
 Sheriff moved for modification on the basis of FRCP 60(b)
 Important to be able to modify decrees, especially w/upsurge in institutional reform
litigation since Brown
 FACT: modification of consent decree may be warranted when changed factual
conditions make compliance w/the decree substantially more onerous; unforeseen
obstacles or enforcement of decree would be detrimental to the public interest
Modern Remedies F04, pp. 44






Disposition:
On remand, DC should consider whether the upsurge in inmate population was
foreseen by Ds
LAW: consent decree must be modified if one/more of obligations placed on parties
has become impermissible under federal law. May also be warranted when
statutory/decisional law has changed to make legal what the decree was designed to
prevent
Bell: double-celling is not always unconstitutional, but it didn’t cast doubt on
legality of single-celling, and Ds were aware that Bell was pending when the signed
the decree but nonetheless agreed to build single celled jail
Can’t allow clarifications in the law to open doors to relitigation of every affected
consent decree – would undermine finality of result
Clarification would support modification if parties had based their agreement on
misunderstanding of governing law; on remand, Ds could try and establish that they
misunderstood
Once moving party has met its burden, Court should determine whether proposed
modification is suitably tailored to changed circumstance
Swift’s “grievous wrong” standard does not apply to requests to modify consent decrees
stemming from institutional reform litigation.
Adopt flexible standard, under which party seeking modification must establish that a
significant change in facts/law warrants revision of the decree and that proposed
modification is suitably tailored to changed circumstances
Dissenting
(Stevens,
Blackmun)
Notes
Notes
Vacate and remand
 D’s reliance on Bell is misplaced; relied on that authority when he sought
permission to double cell. Increase in population should have been apparent,
reasonably foreseeable to continue
 Ds’ history of noncompliance provides added reason for insisting that they honor
their most recent commitments
 Public interest in finality of court decrees
 Particularly important to apply strict standard when considering modification
requests that undermine the central purpose of the consent decree itself
 Don’t want to frustrate the legitimate expectations of parties or core remedial goals
of decree
 Would affirm
 Rufo is clear that D can consent to provisions that go beyond P’s rightful position,
and that is cannot relitigate the minimum constitutional remedy on a subsequent
motion to modify
 School desegregation cases: Dowell – court held that decrees are not intended to
operate in perpetuity. Proper standard for modification: whether Board had
complied in good faith w/desegregation decree, whether vestiges of past
discrimination had been eliminated to the extent practicable
 What will the issue be on remand?
• Change in facts: whether the number of inmates changed
- Part of the question: foreseeability
• Change in the law: parties’ understanding of constitutional standard at the time
(Bell v. Wolfish) – decision was pending at the time the decree was issued
 What is the scope of judicial power in this situation, and how can it be that it can
enforce an injunction that goes beyond what the Constitution requires?
• Consent decrees are different to the extent that there is a strong contractual aspect
to them – parties are trying to work out the best for both sides  argument that
Court should give weight to parties’ decisions, letting parties determine their own
relief
• Stevens: court, stepping back and looking at where the parties are at that point,
aren’t necessarily going to know all the tradeoffs that they made (did they give
something up to get something in addition to the constitutional minimum?)
• What is the justification for the extension of judicial power? Dependent on the idea
of agreement of the parties. Interesting, because absent that, you might have a court
that would want to carefully tailor the remedy, to be more like the integrated
Modern Remedies F04, pp. 45

I.
segregative effect in the school cases
PLRA: much more of a wholesale undoing of some of these widespread consent decrees
and also litigated decrees that have been entered
• Eliminates prophylactic aspects
• Forbids consent decrees that grant relief that is more generous than the least
restrictive means of eliminating violations of the Constitution
• Also, Ds can repeatedly move to vacate – two years after decree is entered and
annually thereafter; each motion requires Ps to prove once again that the decree is
still the minimum relief needed to eliminate an ongoing violation of the
Constitution
• Generation of decrees litigated/negotiated before judges more inclined to intervene
can now be relitigated before judges much less inclined to intervene, w/o any need
to show a change in either fact or law
Injunctions and 3rd party rights
Hills v. Gautreaux (1976)
Issue: racial segregation in public housing operated by Chicago Housing Authority. After
Facts:
prolonged efforts to implement a remedy w/in Chicago, Ct of Appeal ordered consideration
of a metropolitan plan.
 Issue does HUD have the authority to take remedial action outside city limits of
Analysis:
Chicago?
 Distinction between HUD and SDs in Milliken is that HUD has been found to have
violated the Constitution
 Unlike in Milliken, judicial order directing relief beyond Chicago boundaries will
not necessarily entail coercion of uninvolved governmental units, because both
CHA and HUD have authority to operate outside city limits
 Relevant geographic area is Chicago housing market, not city limits
 Does order against HUD impermissibly interfere w/local governments/suburban
housing authorities not implicated in HUD’s unconstitutional conduct? No –
HUD’s statutory powers grant it sufficient powers; order would have same effect

Disposition:
 Interpretation of Milliken to bar
Notes:
 Court starts out quoting Milliken – “once a constitutional violation is found, a federal
court is required to tailor ‘the scope of the remedy’ to fit ‘the nature and extent of the
constitutional violation’”  narrowly tailored approach
• Later, quotes Swann, saying “once a right and violation have been shown, the scope
of a district court’s equitable power to remedy past wrongs is broad, for breadth and
flexibility are inherent in equitable remedies”
• *Seems to have 2 different perspectives
 Culpability issue: HUD was found to have violated the Constitution; as opposed to SD
cases, where SDs weren’t “doing something wrong”
• Court is consistent in saying that it’s not about a balancing of hardships, but an
inherent limitation on the remedial power of the federal courts – then tie it quite
specifically that you need to have a wrongdoer
 Geographic issue – is this case consistent w/Jenkins? Difficult to claim that but for the
wrong, you necessarily
 Affect on 3rd parties: court says that there will be no effect on 3rd parties that would be
any different from if HUD had made this decision, by using its statutory powers to
provide alternatives to racially segregated public housing system
• No violation of rights of suburban government
• Where is the line between full remediation and coercion of innocent 3 rd parties?
General Building Contractors Assn. v. PA (1982)
Terms of agreement: Union was to maintain lists of operating engineers, classified according
Facts:
to recent experience. Signatory employers were contractually obligated to hire only from
those lists, and workers affiliated w/the Union were barred from seeking work w/them
except through the Union referral. One of means of gaining access to lists was
apprenticeship program establish by Union office and trade associations. Body of trustees –
Modern Remedies F04, pp. 46
Procedural history:
appointed by Union and trade associations.
Ps – PA and class of racial minorities who are skilled/seek work in construction industry in
PA and DE. Sued under variety of federal statutes protecting civil rights. At issue: racial
discrimination in operation of exclusive hiring hall in union office, and industry employees
doing business w/in Union jurisdiction.
District Court found that hiring hall system was neutral on its face but had discriminatory
practices, creating substantial racial disparities. Found that Ps failed to prove that
associations or contractors were aware of discrimination, and failed to show intent to
discriminate by employers are a class.
Analysis:
Disposition:
Notes:
a.
But, held that employers/TA violated statutes and could be ordered to help provide a
remedy. Ct of Appeals affirmed. Ds appeal.
 Issue: whether party not subject to liability for violating the law may nonetheless be
assessed proportionate share of costs of implementing a decree to assure
nondiscriminatory practices on part of another party which was properly enjoined


 Why are the employers considered the “innocent 3 rd party?”
• Court says that they had no way to know of the discriminatory nature of the lists
created by unions because the just followed the unions’ orders and used the lists.
When viewed as a class, employers weren’t aware of the discrimination. But it
would be difficult to prove that every single employer knew of it
• Employers might have violated Title VII but employees would have had to exhaust
administrative remedies
 Given “innocence” of employers, court is unanimous on the point that such parties can
only have smaller, ancillary burdens placed on them – cannot be assessed proportionate
share of burden
Combining Court’s stated rules w/factual results of cases, law seems to be that innocent 3 rd parties can be affected
substantially, but not to the point of being restructured, by orders to defendants who violated the law. Innocent
third parties may also be subjected to minor and ancillary orders themselves
i. Schoolchildren who are involuntarily reassigned under the remedy approved in Milliken, or the taxpayers
in Jenkins
1. School children: effect would be substantial. Very likely that it would be restructuring
2. Taxpayers: argument that it is unlikely to be restructuring
ii. Statewide education officials who did not participate in local segregation but can be helpful in devising
remedies: officials could be held to a reporting requirement in the sense that they probably already hold
these duties. Assuming there was no restructuring necessary (ex. reallocation of resources), then they
should participate in remedies
iii. Title company holding assets beneficially owned by one of the defendants: burdening company might
burden others, whose assets are also being held
iv. Developers engaged in construction pursuant to an allegedly illegal permit, where wrongdoing is
charged only against the officials who issued the permit: developer is acting legally under an illegal
permit – would probably be affected substantially
v. Sheriff in suit to enjoin an eviction, where real parties in interest are L/T, and the sheriff is routinely
executing a writ: sheriff appears to just be doing his job and following an order to execute a writ
V. ATTORNEYS’ FEES – MAIN TENSION IS BETWEEN TWO COMPETING CHARACTERIZATIONS OF FEE SHIFTING (P’S
RIGHTFUL POSITION VS. INCENTIVE-BASED)
A. The American Rule
a. If P has to pay his attorneys fees, then isn’t he undercompensated – he hasn’t been “restored” to the position that
he would have occupied but for the wrong
b. American law: recovery of attorneys’ fees is an ancillary matter; separate from the merits
Modern Remedies F04, pp. 47
Motivations: fear of deterring litigation – if you had pay your opponent’s legal fees, Ps wouldn’t litigate
Other countries: losers pay some/all of winners’ fees in every industrial democracy except for US and Japan
Exceptions to the American Rule:
i. Statutory exceptions
ii. Bad faith litigation
iii. Contempt-of-court
iv. Contract: contractual provisions for reasonable attorney’s fees
v. Family law: common to award fees in divorce
vi. Collateral litigation
vii. Private attorney general exception: for private litigants who enforce public policy (state claims only)
viii. Common fund: when case creates common fund in which others will share
B. Fee shifting statutes
a. One-way fee shifting:
i. Award attorney’s fees to prevailing Ps but not to prevailing Ds – more and more statutes providing for
some variation of this solution
ii. Making Ps whole w/o discouraging them from suing
iii. Most common and valuable when it enables Ps of modest means to pursue claims w/modest stakes
iv. Litigant’s financial resources: obviously relevant to how much he will be deterred by the risk of liability
for the other side’s attorney’s fees – repeat player like Sears can spread the occasional attorney’s fee
over many cases, whereas others are in court one/few times, and risk of paying Sears’ fees is all-ornothing
b. Two-way fee shifting
i. If either P or D prevails, other side will have to pay their attorney’s fees
ii. Advocated by tort reformers and other classes of repeat litigants
iii. Idea is to deter weak claims
iv. At least it will incentivize Ps to bring cases where otherwise their damage recoveries would not suffice –
give fuller recovery in the rightful position sense
c.
d.
e.
City of Riverside v. Rivera (1986)
P-respondents sued city, Chief of police, 30 police officers, for alleged violations of 1 st, 4th,
Facts:
14th Am rights, when cops used excessive force in breaking up a party that was found not to
have created a disturbance.
Procedural history: Ps were awarded $33,350 in compensatory & punitive damages (won on some counts but
not others). Ps also sought attorney’s fees and costs under §1988 – Dist Ct awarded
$245,000. Ds appealed. Ct of App affirmed.
 ISSUE: whether award of attorney’s fees under 42 U.S.C. §1988 is per se
Analysis:
“unreasonable” if it exceeds the amount of damages recovered in the underlying civil
rights action
 “American Rule”: absent express statutory authorization to the contrary, each party to a
lawsuit ordinarily shall bear its own attorney’s fees (Alyeska)
• 42 U.S.C. §1988 – response to Alyeska: authorized district courts to award
reasonable attorney’s fees to prevailing parties in specified civil rights litigation
- Johnson: identifies 12 factors to be considered in calculating reasonable
attorney’s fees (time/labor required, novelty/difficulty of questions, skill
requisite to perform legal service properly, preclusion of employment by
attorney due to acceptance of case, customary fee, whether fee is
fixed/contingent, time limitations imposed by client/circumstances, amount
involved and results obtained, experience/rep/ability of attorneys,
“undesirability” of the case, nature and length of professional relationship
w/client, awards in similar cases)
Hensley: reasonable fee = (number of hours reasonably expended) x
(reasonable hourly rate)  “lodestar,” with adjustability of lodestar depending
on certain considerations
 Reject proposition that fee awards should necessarily be proportionate to the amount of
damages
Modern Remedies F04, pp. 48
•
Disposition:
Dissent: (Burger)
Dissent (Rehnquist,
Burger, White,
O’Connor)
c.
Civil rights action for damages is not just any private tort suit that only benefits the
plaintiffs – Ps are seeking to vindicate important civil/constitutional rights that
cannot be valued
• Successful civil rights litigants are often securing important social benefits that are
not reflected in nominal/small damages awards
• Congressional intent: fees should not be reduced because the rights involved may
be nonpecuniary in nature; Senate Report specifically approves substantial fee
awards in cases where Ps sought no monetary damages  fees not meant to be
conditioned upon/proportionate to award of money damages
• Issue of attracting competent counsel: §1988 enacted to enable Ps to enforce civil
rights laws even where amount of damages at stake would not otherwise make it
feasible for them to do so
Affirmed
 Takes issue with hourly rates, says that the attorneys were not nearly experienced
enough to command those fees
 Finding that attorneys “reasonably” spent 1,900 hours to recover $33,350 is clearly
erroneous
 Awards of reasonable attorney’s fee means a fee that would have been deemed
reasonable if billed to affluent Ps by their own attorneys
 The very “reasonableness” of the hours expended by P’s attorney necessarily will
depend to a large extent on the amount that may reasonably be expected to be recovered
if P prevails
 Civil rights nature of the case: this case doesn’t share any “special aspects” of certain
CR litigation
How to measure reasonable compensation standard
i. Full compensation at reasonable market rate
ii. 2 basic methods
1. Lodestar = (number of hours reasonably expended) x (reasonable hourly rate)
a. Practically, how does a court make the calculation?
b. Contemporaneous time records: there will be fighting over the details – ex. did the
lawyer keep time as she was going?
c. Courts don’t feel like scrutinizing time sheets is a good use of their time
d. Vicious cycle: attorneys know that courts will make rough estimates, and go in with
this in mind (might lead them to record time in a somewhat inflationary manner)
e. Criticisms/problems: diverges incentives for attorney and client; attorneys have
interest in running up the clock, when it is not in client’s interest – ex. keep working at
it rather than settle for an amount that client would be satisfied with
f. Blum and progeny: factors should be considered in calculating the hourly rate itself,
not as a fee multiplier after the fact
g. Blum also held that fee awards should be based in market rates, even if lawyers work
at less than market rates
h. Litigation about fee awards for time spent in administrative proceedings/preliminaries
before trial: federal rule is that such time counts only if the proceeding was a
mandatory prerequisite to the statutory claim for which fees are authorized (exhausting
administrative remedies)
2. Proportionality: percentage of recovery (or, contingent fee basis, although percentages can
differ)
a. Criticisms/problems: injunctive relief – how to value it?
iii. Rivera: disagreement as to how much incentive is needed for appropriate claims to be brought forward
1. Brennan:
a. 3rd-party social benefit of the “private attorney general;” §1988 was meant to provide
an incentive for this kind of action
Modern Remedies F04, pp. 49
b.
Defendants could run up the hours and Ps would not be able to keep up without award
of fees granted by §1988
2. Rehnquist/Burger: concern is not so much with Ds running up the hours, but with plaintiffs
d. Prevailing party-requirement
i. What about a partially prevailing party?
ii. Hensley: unrelated claims should be treated as separate lawsuits, w/fees only for hours spent on
successful claims – but how do you separate them out? Ex.: did Ps in Rivera actually have 256 claims,
or one claim w/a lot of factual detail?
iii. What about cases in which Ps trigger voluntary reform? Court refused to award fees – w/o an
enforceable judgment on the merits, either litigated or a consent decree, P is simply not a “prevailing
party” eligible for fees (4 dissenters thought P also prevails when D surrenders before judgment)
iv. Settlement is enough, but case law is unclear as to whether settlement has to be embodied in a consent
decree
1. Supreme Court in Buchanan: seemed to require that it has to be embodied in a consent decree
2. 9th Circuit: enforceable settlement agreement will suffice and support a fee award
3. More common view: court needs to at least retain jurisdiction over the settlement, so that even
if it is not embodied in a consent decree, it can still supervise
4. Roberson v. Guliani – 2nd Cir case
v. Preliminary injunction? Circuit split  9th Cir: successful P is a prevailing party, vs. 4 th Cir
C. Common fund cases
a. Common fund rule:
i. Lump sum recovery that D pays, that will include undifferentiated amount that goes both to P(s) and
attorneys
ii. Don’t need fee-shifting statute
iii. A special case of restitution: lawyer/litigant who paid the lawyer has conferred substantial benefit on all
the others, and would be unjustly enriched if they were allowed to retain the benefit w/o paying the costs
of producing it
iv. Or are P and lawyer “volunteers,” with the rest just incidental beneficiaries?
v. Why is this controversial?
1. Implying that you are conferring a benefit on other individuals, where that can probably be
disputed (ex. securities litigation – when P prevails, they get money from corporation, and some
may object to this because this would lower stock prices)
2. “Coupon” cases (where “settlement” is, ex. a discount on another of D’s products): plaintiff
class receives a non-cash benefit, and really it just benefits the defendant, so when attorneys go
and claim huge fees, it seems ludicrous
b. Contingency enhancements:
i. Risk of nonpayment
ii. City of Burlington v. Dague: SC flatly rejected contingency enhancements; disguised as a way of paying
L for cases he lost, not paying L for risks of accepting cases he won
iii. But market rates for fees payable on in the even of success are 50-100% higher than noncontingent –
doesn’t this make Dague a departure from Court’s emphasis on market rates?
iv. Federal courts have decided that Dague doesn’t apply in common fund cases
In re Synthroid Marketing Litigation (7th Cir. 2001)
Class action over medication.
Facts:
Procedural history: Court approved 2nd proposed settlement, and awarded attorney’s fees from common funds
(for consumer class and insurance company class) at a level significantly below what
lawyers had requested. Had asked for 29% of consumer’s recovery and 22% of insurance
fund.
District Ct held that objections were insubstantial, litigation was fairly complex but short,
risk of nonpayment was moderate, and class counsel devoted a fair amount of time to the
Modern Remedies F04, pp. 50
case, but not a great amount compared to the size of the settlement. Followed approach of
other jurisdictions, concluding that fees in the range of 6-10% and even lower are common
in megafund cases ($75M-$200M +); larger fees in these context constitute a windfall.
Analysis:
Disposition:
Notes:
c.
d.
Awarded 10% from each fund.
 7th Cir. case law: in common-fund cases, courts must do their best to award counsel the
market price for legal services, in light of risk of nonpayment and normal rate of
compensation in the market at the time
 No reason to have these numerical cutoffs
• Leads to incoherent results: ex. aggregate fees would be the same for $40M and
$132M settlement
• No lawyer would ever negotiate a settlement of more than $74M and less than
$225M
 On remand, Dist Ct must estimate terms of the K that private Ps would have negotiated
w/their lawyers, had bargaining occurred at the outset of the case (when there was still a
risk of loss) – must look at it ex ante
• Guides:
- Actual agreements: (?)
- Data from securities suits where large investors have chosen to hire counsel up
front
- Class-counsel auctions, where judges have entertained bids from different
attorneys seeking the right to represent a class
Vacated in part, remanded.
 Big recovery that is out there as part of settlement – Ps counsel, representing each of the
classes, wants fees approved
 Megafund rule: other jurisdictions: 6-10% cap on megafunds (above $75M)
• Court rejects megafund idea and calls it insane because then no attorney would
negotiate above the cap
 Alternative: must do an ex ante terms of K that private Ps would have negotiated w/their
lawyers
• Criticism: not “one market”/generalizable benchmark out there
• Ex.: public interest kind of cases – is there a “market value?”
• Easterbrook’s response: “chopped salad” list of factors w/o rule of decision
 What are some of the things that should be looked to on remand? See above
Competing approaches to calculating fee awards in common fund rules: again, between lodestar and percentage
of recovery
i. SC: lodestar in federal fee-shifting cases
ii. Each circuit in common fund cases and each state in all cases has had to choose
iii. Percentage of recovery has no relation to the work required – may produce fees that are absurdly small
or large
iv. Synthroid: views ex ante approach as a way to avoid both problems of lodestar and arbitrariness of
picking percentage of recovery after the fact
1. Auctions have their own problems: what if there are too few bidders? Complexity of bids in
high-recovery cases, severing of the attorney-client relationship
Class-counsel auctions (cited to in Synthroid)
i. Firms submit “bids,” but also make predictions on what can be accomplished in terms of recovery, will
have to substantiate that with what they’ve gotten in previous cases
ii. Judge isn’t to pick the lowest bid, but the “best” bid
iii. Drawback to always having these auctions: severs the attorney-client relationship because clients aren’t
allowed to choose their representation
1. Attenuated concern in the class action context, but there is still the concern when it comes to the
lead plaintiff
2. A real market enthusiast could say that it’s not even a true market, because it’s essentially a
simulation, therefore not a true market signal
3. Practical concern: adds in a substantial upfront delay
Modern Remedies F04, pp. 51
e.
Amendments to FRCP Rule 23
i. 23(g): asks court to consider factors that go to the ability of the counsel seeking to represent the class –
interests of the class; gives judges broader authority
ii. Judges do have authorization to get involved w/respect to ex ante fee agreements in auction-type setups
D. Fee awards and ethical considerations
Evans v. Jeff D. (1986)
Ps – handicapped children; Ds – governor and other public officials. Complaint alleged
Facts:
deficiencies in education and health services provided. Complaint sought injunctive relief
and costs/attorney’s fees, no damages.
Procedural history: One week before trial, Ds presented Ps w/new settlement proposal, offered virtually all the
injunctive relief sought in the complaint. But the offer also included provision for waiver by
Ps of any claim to fees or costs. Parties conditioned waiver on approval by the District
Court. Johnson, Ps’ “next friend” (?) filed motion requesting DC to approve the settlement
except for the provision.
DC approved settlement and denied the motion
Analysis:
Disposition:
Dissenting
(Brennan,
Marshall,
Blackmun)
Class discussion
a.
Ct of App invalidated the fee waiver, left rest of the settlement standing. Rational – when
attorney’s fees are negotiated as part of a class action settlement, conflict frequently exists
between class lawyers’ interest in compensation and class members’ interest in relief
 Rule 23(e) (requiring court approval of any settlement of a class action) does not give
the court power to modify a proposed consent decree and order its acceptance over
either party’s objection
• Question – did DC have a duty to reject the proposed settlement?
• Johnson: ethical duty was to serve his clients loyally – no duty to seek a statutory
fee award; because the proposal to settle the merits was more favorable than the
probable outcome of the trial, Johnson’s decision to recommend acceptance was
consistent w/ethical standards
 ISSUE: whether Fees Act requires DC to disapprove a stipulation seeking to settle a
civil rights class action under R23 when the offered relief equals/exceeds probable
outcome at trial, but is expressly conditioned on waiver of statutory eligibility for
attorney’s fees
• A general ban against negotiated waivers of attorney’s fees in exchange for
settlement on the merits would impede vindication of civil rights, by reducing the
attractiveness of settlement
 ISSUE: did DC abuse its discretion in this case by approving a settlement which
included a complete fee waiver?
• No
Judgment of Ct of App is reversed.
 Decision will make it more difficult for civil rights Ps to obtain legal assistance
 Congressional intent: authorized fee awards in order to encourage private actions, that in
the long run provide effective public enforcement of the law
• Provide economic incentives for lawyers to represent “private attorneys general” to
protect the public interest
• Not just “another remedy”
• PROPER ISSUE: whether permitting negotiated fee waivers is consistent
w/Congress’ goal of attracting competent counsel, not whether they are inconsistent
with the availability of fees as remedy for individual plaintiff
 Once fee waivers are permitted, Ds will seek them as a matter of course, since it is a
logical way to minimize liability – this would have the opposite effect of what Congress
wanted, so waivers should be prohibited
 Judicial policy favoring settlement cannot possibly take precedence over express
congressional policy to create incentives for lawyers to devote time to civil rights cases
 Parties can negotiate the fee – Ds liability is not totally uncertain, risk is not that great –
power incentives still remain for Ds to seek settlement
 Would permit simultaneous negotiations of fees and merit claims

Evans: good decision?
Modern Remedies F04, pp. 52
b.
c.
i. Narrow reading: DC is not going to be required to reject a settlement that requires a fee waiver
ii. Argument against: dissent’s argument that majority’s decision will make it harder for civil rights Ps to
secure counsel
1. As distinguished from “putting P in his/her rightful position” – looking at attorney’s fees as part
of the make whole relief as part of damages
2. Looking at legislative history: when Congress was setting up the statute specifically to have fee
shifting, the incentive-based reasoning was at the core
3. Private attorneys-like general role being played
4. Public enforcement of these civil rights – in the public interest
5. Seems to subordinate lawyer’s legitimate interest to client’s legitimate interest
6. Unjust enrichment? Client gets all benefits but does not have to pay for their conferral
iii. Defending majority decision:
1. This will vindicate civil rights cases
2. Parties could contract for the fee – but, what if P only gets injunction or other non-monetary
damages and cannot pay?
3. What, if anything, might be a limitation on abilities to contract beforehand w/clients? Client
can’t effectively limit its discretion to settle and delegate that to attorney, because there is a
strong strain of ethics rules that says client is the one who decides whether to settle
iv. Staten v. Boeing Co.: 9th Cir. decision
1. 9th Cir rejected class settlement that P and D negotiated, and negotiated fee on basis of common
fund settlement (class action for race-based employment discrimination)
2. $6.5M in cash to class, plus injunctive relief, which parties decided they would put a value on.
Not actual measures, but intent – precatory, put value of $3M, plus $4M to class counsel.
Adding up the amount = putative common fund
3. Argued that the $4M represented 28% of common fund, and wrote out settlement agreement,
took it to the court (court has to approve settlements under 23(e))
4. Court held that it was permissible for counsel to simultaneously negotiate for class recovery and
their fees (citing Evans)
a. But, after negotiating in the common fund area for the total sum, attorneys must
petition the court
b. Attorneys can’t determine what percentage they will get – fear of collusion among
class counsel
c. Title VII and racial discrimination statutes provided for fee-shifting, but parties went
another route, and as a result presented no data regarding lodestar factor
Solutions?
i. Doesn’t seem like there are very many good solutions among courts or academic observers to guard
against these abuses – relying on honest attorneys sensitizing themselves to the problem? Or, strictly
enforce these ethical rules, and that will be the way to solve the problem
ii. Common fund area: even more scope for abuse there – not much has been done to figure out serious
solutions
iii. More judicial review – dissent in Evans, and 9th Cir in Staten (very convinced that simultaneous
negotiation was okay, but not for parties to agree amongst themselves how much attorneys would be
paid); relying on equitable discretion of the court (harkening back to restitutionary idea)
Reverse auction situation
i. Parties can bring class-actions against product manufacturer on nation-wide basis, both in federal court
and state courts
ii. AL case: problem is that there is an incentive for D to look to settle on nation-wide basis and get out as
cheaply as possible
iii. One legislative solution proposed: to say that all state cases could be involuntarily consolidated in
federal court and decided there, so that there is no gamesplaying
Modern Remedies F04, pp. 53
iv. Mention that VT SC tried to get involved: VT Ps wanted to collaterally attack settlement reached in AL
court, on grounds that they were not fully and adequately represented in AL settlement (under Rule 23) –
Ps prevailed
1. What happens now, after everything has settled, attorneys have been paid
2. Ds might be on the line for an additional amount
v. **Important and big questions in the law that have not been fully worked through
VI. CLASS ACTION REMEDIES
A. Class actions, generally:
Holland v. Steele (N.D. Georgia, 1981)
Civil rights action, court is considering P’s motion for class certification. P seeks to have
Facts:
certified as a class all persons who are or will be detained in the Dade County Jail in
Trenton, Georgia.
 Class actions are governed by FRCP Rule 23: prerequisites
Analysis
• The class is so numerous that joinder of all members is impracticable  MET
- Must be some evidence or a reasonable estimate of the number of purported
class members
- Proper focus is not on numbers alone, but on whether joinder of all members
is practicable in view of the numerosity of the class and all other factors
(smaller classes are okay where individuals are unidentifiable at time of
certification – ex. prison populations, class will include present and future
members)
• There are questions of law or fact common to the class  MET
- Common factual questions as to acts, omissions, and policies of the defendant
in denying access to counsel to the inmates of the jail
- Common question of law raised by the P as to whether the practices of the D
constitutes a violation of the rights afforded under the 6 th/14th Am of the
United States Constitution, GA state constitution
- Doesn’t require that all fact situations be similar – question of whether types
of facts/evidence are typical of the class
• The claims or defenses of the representative parties are typical of the claims or
defenses of the class  MET
- Focus here is on the claim of the representative party, not the class as a whole
- "Typicality" is met when a "class representative (is) part of the class and
"possess(es) the same interest and suffer(s) the same injury' as the class
members" – doesn’t have to be identical
• The representative parties will fairly and adequately protect the interests of the
class  MET
- Two critical factors: (1) Representative must have common interests with the
unnamed members of the class; and (2) It must appear that the representative
will vigorously prosecute the interests of the class through qualified counsel
• Once the requirements of subsection (a) are met, the Court must also find that the
party opposing the class has acted or refused to act on grounds generally
applicable to the class, thereby making appropriate final injunctive relief or
corresponding declaratory relief with respect to the class as a whole
- Rule 23(b)(2) was intended primarily to facilitate civil rights class actions,
where the class representatives typically sought broad injunctive or
declaratory relief against discriminatory practices (here, P seeks I/D relief,
which would benefit the whole class)
- D’s argument that there is a distinction between detainees and sentencees and
therefore sentencees are not properly a part of P class: this case deals with
access to counsel, which attaches to D/S alike, present no obstacle to
certification
P’s motion to certify granted
Disposition
B. Fluid class remedies
Modern Remedies F04, pp. 54
Eisen v. Carlisle & Jacquelin (2d Cir. 1973) – Eisen III
Antitrust suit for treble damages. Ds handled odd-lot transactions on NYSE (lot of less
Facts:
than 100 shares). P alleged that Ds had monopolized odd-lot trading and fixed
commissions at an excessive level. P sued on behalf of class of people who traded odd lots
on the NYSE.
District judge initially denied class certification, on grounds that P was unwilling to pay for
Procedural history:
class members to be notified, and that P’s claim was so small compared to total claims of
the class that he could not adequately represent the class and individual questions would
probably predominate over common questions.
Eisen I: Ct of App: “death knell doctrine” = because P claimed only $70 in individual
damages, it was economically impossible for the case to proceed on his behalf individually.
SC later overturned “death knell.”
Eisen II: opinion on whether the case should proceed as class action – rejected emphasis on
ratio between P’s claim and claim of the class, and though notice might be a problem, the
court could hold hearings to determine whether it could devise some practical means to
decide the case on a class basis.
On remand, DC concluded that case could proceed on behalf of all people who had
bought/sold an odd lot between 5/1962 and 6/1966. Ds appeal.
 6M members of the class; 2.25M can be easily identified; reside in every state of US
and most foreign countries. Damages are now estimated at $120M
 Action was “hopelessly unmanageable” – J. Tyler resorted to “fluid recovery” to try
and salvage it
• FR  Court basically thinks it can’t work in this case
• As a class action this case is unmanageable
 Even if amended Rule 23 could be read to permit this procedure, the courts would have
to reject it as an unconstitutional violation of the requirement of DP
As a class action, the case is dismissed w/o prejudiced to continuance of claims asserted as
P’s alleged individual rights against Ds.
Analysis
Disposition
a.
b.
c.
d.
How it works: don’t contact all possible class members – determine huge recovery, pay that into the
court, which later decides how to compensate potential Ps w/that money (advantage: one of the main
requirements of class action under (b)(3) for money damages: must notify all potential Ps – fluid
recovery would relieve this burden on P)
How can you just have a damages determination? Substitute “class as a whole,” then send out as much
notice as practicable to biggest claimants, have trial on the merits for those who have been notified, then
figure out how to notify the rest in a way that will get as many class members as possible
Eisen I: disapproved of fluid class recovery
i. FCR: procedural innovation; to avoid expense of processing individual claims, DC planned to
order Ds to reduce their commissions below the competitive level until all illegal overcharges
had been refunded by discounting
ii. Court recognized that discounts would not necessarily go to class members who had paid the
overcharges, and that there would be no relationship between any class member’s earlier
damage and subsequent discount
iii. Court nonetheless thought that some of the class members who had paid overcharges would
benefit from subsequent discounts, or that in any event, class that received the discounts would
be similar to class that paid the overcharges
iv. Generally not an issue anymore, after the 2nd Circuit’s swift rejection
Consumer context (as opposed to mass tort context): why can you move away from the model of
individuated damages?
i. Practical idea that D has records
ii. This is an overcharge case: therefore there is a set amount; each person is affected in the same
quantitative way, as opposed to tort context, where harm can vary
iii. More going to be an issue with distribution of damages as opposed to calculation
Modern Remedies F04, pp. 55
e.
f.
g.
h.
i.
j.
Is Eisen license to steal, so long as D does so in small amounts?
i. Possible answer (Laycock):it’s not a problem to begin with – it’s a waste of resources to spend
$10 on a $3.90 claim, period
ii. Does it follow that small wrongs should go unremedied? Even from purely economic
perspective, the balance of cost-benefit must also consider the additional violations that would
result from a policy of not pursuing small violations
iii. Justice may have an intrinsic value
iv. J. Friendly’s suggested response to the Eisen problem: we don’t care about Eisen’s $70, but we
do care about not creating a license to steal; therefore, solution is injunction against further
violations, w/fees for P’s attorney, and if necessary, civil fines collected by the government to
recover the profits of past wrongdoing
1. Class members would not have to be notified
2. What about DP clause? A few cases require notice in class actions for injunctions,
vast majority does not
Is the holding in Eisen mandated/compelled by Rule 23? Look to Rule 23(b)(3): matters that are
pertinent to the finding as to whether you can have a class action: even the drafters explicitly
contemplated that a remedy might be denied in certain instances where it is in impractical  could be
said to be consistent w/holding in Eisen
Flipside – any alternatives for Ps who are in a similar situation?
i. Theoretically possible for Ps to come forward individually, but when you are dealing w/small
damage amounts, practically unfeasible
ii. State consumer fraud statutes
iii. Injunction: under Rule 23(b)(2)
iv. Press AG to impose civil fines
Worry w/respect to class actions in those types of cases is that Ds would welcome those types of cases
because they would like to be able to settle once and for all, buy “global peace” and get closure (brings
up concerns over collusion; Ds getting together w/plaintiffs’ counsel)
Is the era of FR behind us?
i. Some circuits have embraced the idea of FR– early DC circuit case; allowed concept of FR
such that they would collect the money from the transit authority to compensate for the
overcharges, and use those funds to keep the prices down (would arguably benefit previous
users, but would benefit new users as well)
ii. Statutes: CA allows for disgorgement of ill-gotten gains w/a FR mechanism
iii. SC unanimously affirmed Eisen: held that Rule 23 required P to pay for individual notice to all
identifiable class members, and forbade mini-hearing by district court. Did not reach fluid class
recovery issue
Unclaimed funds: recurring issue
i. Fund is usually created by settlement
ii. Notices sent to all class members who can be found, inviting them to file claims, but many can’t
be found and others don’t respond – what do you do w/the leftover money?
1. Spend it for benefit of the class, or a closely related class
2. Expenditures that benefit people like the class or serve some interest related to the
theory of the class action
3. Just do some unrelated public good chosen by class counsel or D
4. Cy pres: ‘as near,’ trust doctrine for directing trust assets to beneficiary or purpose as
near as possible to settlor’s intent, if it is no longer possible to serve the original
beneficiary or purpose. Case law is all over the map in terms of how near it has to be;
controversial in the settlement context, haven’t been very many inroads
5. Escheat: give money to the government: general rule is that unclaimed property
escheats to state where property is located or where owner is last known to have
resided
Modern Remedies F04, pp. 56
C. Class actions, injunctions and third parties
a. Affirmative action as a fluid class remedy
i. Argument in AA can be made that the “cost” (especially w/respect to hiring requirements)
would fall on new non-minority applicants
ii. Only forcing wrongdoers to pay for the wrong? Doesn’t explain AA – leaves a question mark
as to what we mean when we talk about individualization or remedy
iii. AA allowed for a certain break in the linkage, because there is the idea that we are talking about
class-based harm, that we are much more resistant to applying in other contexts
iv. Numerical goals/quotas as remedy for employment discrimination – employers who
discriminated against earlier minority job applicants were ordered to prefer future minority job
applicants  isn’t this FCR disapproved in Eisen?
v. Reasons given for “race-conscious class relief” were substantially the same as those given for
FCR in other contexts: impractical to identify individual victims
1. Why is it okay in this context?
2. Or, does this mean we should rethink Eisen?
3. Can the courts create an exception for discrimination cases? Others?
b. Notes on partially identifiable victims
i. Hameed: presents problem – Ps are identifiable in the sense that we know they were rejected
and that discriminatory selection criteria were used, but not identifiable in the sense that we
know they would have been admitted to the apprentice program but for the discrimination
1. Don’t know what criteria union would have used if it had not used the illegal criteria
2. Possible remedy: pro rata back pay: determine how much the group of discrimination
victims would have earned but for discrimination. Then all class members who had a
chance to be selected share in that award
ii. Toxic tort cases: often involve a class of Ps who were exposed to pollutant and have disease
that is caused by the pollutant but also have other causes – often nearly certain that many of the
Ps would not have gotten the disease but for D’s pollution, but it can be impossible to tell which
one
c. Third parties
Martin v. Wilks (1989)
Facts:
Procedural history:
White firefighters sued city and county’s personnel board claiming that they were passed up
for promotion in favor of less qualified black firefighters. They claimed that the City and
the Board were making promotion decisions on the basis of race in reliance on certain
consent decrees, and that these decisions constituted impermissible racial discrimination in
violation of the Constitution and federal statutes.
DC: white firefighters were precluded from challenging employment decisions taken
pursuant to the decrees, even though they had not been parties to the proceedings in which
the decrees were entered. That litigation had resulted in decrees providing for extensive
remedial schemes including hiring goals and goals for promotions of blacks within the fire
department.
White firefighters moved to intervene in the fairness proceedings, and later filed for
injunction against enforcement of consent decrees. Both rejected, and later affirmed on
appeal.
Different group of white firefighters (current Ps) brought suit alleging violation of rights in
employment decisions. District Ct denied motions, holding that promotion of blacks was
required by consent decrees – city was not guilty of illegal racial discrimination because
they had to promote blacks.
11th Cir reversed holding that white firefighters were not parties/privies to consent decrees,
therefore independent claims of discrimination were not precluded. SC granted cert.
Modern Remedies F04, pp. 57
Analysis
Principle of Anglo-American law: one is not bound by a judgment in personam in a
litigation in which he is not designated as a party or to which he has not been made a party
by service of process  everybody should have his day in court
Court doesn’t agree that this is an impermissible collateral attack (it was argued that they
had an opportunity for timely intervention but didn’t do it)
Disposition
Dissent (Stevens,
Brennan, Marshall,
Blackmun)
Joinder, rather than knowledge of the lawsuit and opportunity to intervene, is the method by
which potential parties are subjected to jurisdiction of the court – better to place burden on
litigating party to bring in other parties, rather than putting duty on other parties to
intervene when the acquire knowledge of the lawsuit
Affirm 11th Cir holding.
The fact that one of the effects of a decree is to curtail the job opportunities of nonparties
does not mean that the nonparties have been deprived of legal rights or that they have
standing to appeal from that decree without becoming parties
D. Settlement class actions
Ortiz v. Fibreboard (1999)
D-insurance company, involved in waves of asbestos litigation; fought on two fronts: 1)
Facts:
settling w/victims, and 2) litigation w/insurance company for funds to pay its tort claimants.
While the insurance litigation was going on, D started issuing deferred settlement
obligations to Ps who came forward.
D, insurance company, and Ps’ lawyers got together to try and put together a “global
settlement (GSA)” Agreed on a $1.525B settlement, both insurance companies would pay
in court-determined proportion. Ps’ counsel also insisted on “Trilateral Settlement
Agreement” as a hedge against the possibility that the GSA would fail – insurers would
pay $2B to D to defend against all the claims if the GSA didn’t win court approval.
Procedural history:
Analysis
New group of Ps sought class certification, with only right being that to sue D upon
development of asbestos-related injury in the future, on basis of shared necessity to obtain
insurance funds sufficient for compensation.
DC granted provisional certification. But as part of the GSA, claimants seeking
compensation would have to settle with a trust established to process and pay class member
claims, provided for ADR in case negotiations failed. DC approved the settlement.
On appeal, 5th Cir affirmed as to class certification and adequacy of settlement. Court
approved certification on “limited fund” rationale, based on threat to the ability of other
members of the class to receive full payment for their injuries from D’s limited assets.
After court decided Alchem, 5th Cir had to reconsider, but affirmed. SC granted cert.
 Limited fund class action characteristics: justified with reference to a "fund" with a
definitely ascertained limit, all of which would be distributed to satisfy all those with
liquidated claims based on a common theory of liability, by an equitable, pro rata
distribution
• Court cautions against a liberal application of Rule 23(b)(1)(B), under
- Rules Enabling Act (tension between the limited fund class action's pro rata
distribution in equity and the state law rights of individual tort victims at law)
- 7th Am: certification of a mandatory class followed by settlement of its action
for money damages obviously implicates the Seventh Amendment jury trial
rights of absent class members
- Due process of principle of not binding parties to in personam litigation to
which they are not made a party (everyone should have his own day in court)
- **General tension between representative suits and “day in court” principle
 In settlement-only class actions the procedural protections built into the Rule to
protect the rights of absent class members during litigation are never invoked in an
adversarial setting
• Special attention needs to be paid to justifications given for certifying settlementonly class
Modern Remedies F04, pp. 58
•
Disposition
Dissent (J. Breyer)
Notes
DC/Ct of App “uncritically” adopted figures agreed upon by the parties in defining
the limits of the fund and demonstrating its inadequacy; instead of undertaking
independent evaluation of potential insurance funds, just accepted the $2B
Trilateral Agreement figure as maximum that the insurance companies could be
required to pay to tort victims
• Issue of equity among members of the class:
- Did not include Ps who settled w/D with a reservation of rights to sue (ex.
upon development of asbestos-related injury)
- Fairness of the distribution of the fund among class members: settlement was
deficient
◦ Class divided into holders of present and future claims requires division
into homogenous sub-classes under Rule 23(c)(4)(B), with separate
representation to eliminate conflicting interests of counsel (they have
different interests – presently injured want money now, whereas
exposure-only victims just want a fund for the future)
◦ Class included those exposed to Fibreboard's asbestos products both
before and after 1959: policy w/one insurance co. expired in 1959,
therefore this class had more valuable claims and therefore disparate
interests w/other members of class
• Fund was too small: D was essentially allowed to retain its entire net worth
Reversed and remanded.
 Huge scale of asbestos litigation: trying these cases would have immense transaction
costs
 Asbestos case: tort litigation, case suited to the courts and not the legislature. It is a
problem of scale, and when the legislature doesn’t do anything about it, then judges
can/should aggressively search for ways to avoid delay and denial of justice (and here,
district courts may take advantage of experience that appellate courts do not have)
 Alternative to class-action settlement is not a fair opportunity for each potential
plaintiff to have his or her own day in court: high litigation costs, long delays,
limitation on amount of resources available for payment might mean that Ps don’t
actually have a realistic alternative
 Conditions are satisfied
• Inadequacy: valuation came about as a result of arms-length bargaining between D
and insurance companies
• Equitable treatment: dividing into subclasses has to be balanced against the
wisdom of letting in additional counsel
• Whole of inadequate fund to be devoted to overwhelming claims: basic purpose is
substantial satisfaction of claims, not literal – the rule can be relaxed somewhat
 Could you ever certify a mandatory settlement class under Rule 23(B)(1)(b) torts case
 Whether punitive damages can be distinguishable from this framework
 What happened:
• Money that is coming into the fund: Fibreboard is going to have to contribute
$10M to the fund, but all but $500,000 is going to come from other insurance
proceeds
• Settlement: F, Continental, and Pacific are going to establish this trust of money,
process and pay asbestos wrongful death and PI claims out of it
• What is at stake: F and its insurers are trying to buy “global peace;” trying to
settle, once and for all: pending claims and all future claims
- In the backgrounds: separate litigation, F against its insurers for what their
exposure is – whether or not insurers are going to be on the line for this
- Settlement amount that F has with its insurers is contingent on these
proceedings, how much insurance companies are on the hook for
 Rule 23: requirements under 23(a) – numerosity, common questions of law and fact,
typicality, and adequate representation
• 23(b), and you can bring under b-1, b-2, b-3
• b-3: each individual can decide whether to opt out of the class  obviously they
don’t want this because they want the settlement to be mandatory, if people are
allowed to opt out then “global peace” is not possible
• b-2: declaratory/injunctive relief class action
• b-1:  (B)(1)(b); idea of a limited fund
Modern Remedies F04, pp. 59
-


a.
Historical example: piece of land that you will distribute, or trust that needs to
be distributed
- Reason for doing this is that if you let the first individual come forward and
take his full share, then you will eventually run out  giving out the 1st award
will impede others’ claims being satisfied
- *Court: takes root of analysis looking at the history under (B)(1)(b)  comes
up w/historical examples and tries to glean what the court calls the “defining
characteristics” of a limited fund
(B)(1)(b) limited fund analysis
• Insufficiency of funds
• Whole fund is dedicated to claims at issue
• Claimants are treated equitably among themselves:
Arguments on both sides: majority/dissent differ on whether requirements are met
• Controversy: total liability and total assets of the fund
- We don’t know how much total liability is: varying exposure, and issue of
present/future claimants
- Question here is whether the upper limit of the fund could be set by the parties
themselves, or it has to be set externally? Worried about collusion between
Ps’ counsel and D
◦ Dissent isn’t worried about this: interests of F and insurance companies
are actually adversarial – no fear of collusion here, and add in that that
what you have to do to value that is that litigation is pending, and in this
situation parties come together and discount against the risk of losing
• Whole fund is dedicated to claims at issue:
- Majority says it won’t decide whether D has to put itself into insolvency.
They are hesitant about saying that the only way you will have a limited fund
is if D forces itself into bankruptcy. Hinges more on the fact that in this case
there are so many other problems that it doesn’t have to reach the conclusion
• Claimants are treated equitably amongst themselves: two concerns  how many
people are coming to the table, and once they’re there, what do the slices look
like?
- Here, there are subclasses:
◦ Pre- and post-1959 claims with some of the claims much more valuable
◦ Presently injured and future possible injuries
◦ Inventory claims that are part of the fund and those outside the fund

**Problem that the attorney handling the pending (current injury
claims, the ones valued at twice as much) was also handling the
Global Settlement Agreement and pending claims were dependent on
this

Breyer’s response (dissent): DC made numerous findings of fact as
to competency of the attorney and fairness hearing under Rule 23(e)
- Dissent:
◦ Decides that this is getting into the legal merits. Also takes a very
practical view – at some point there has to be limits on the “subclassing”
Possible constitutional concerns in Ortiz
i. 7th Amendment issue: forcing individuals to be part of a class, precluding their opt-out rights,
thus violating their right to a jury trial?
1. Recall remittitur analysis about whether or not you can invade jury determination
ii. Due process: “day in court” ideal
1. Majority perspective: don’t want your rights adjudicated unless you are fairly
represented
2. No opportunity to opt out
3. Related to Martin v. Wilkes – court cites Martin in discussing this ideal
a. Issue: collateral attack on a previously agreed to consent decree
b. Disagreement: where is the responsibility – for party sitting on the sideline to
intervene, or for parties in the litigation to join parties
Modern Remedies F04, pp. 60
If what is meant by the “day in court” ideal is just hinging on adequacy of
representation, then the issue of Martin is totally analogous (that legal rights
are eviscerated if they are precluding from filing suit based on consent
decree)
d. *Distinction: adequacy of representation is covered by Rule 23(a), but the
question in Martin v. Wilkes has to do with protection of rights of people who
aren’t in the class
4. Broader disagreement in terms of judiciary’s role in procedural innovations: can courts
be the party effectuating “global peace?”
a. Dissent’s response – illuminating a different view of litigation: judges have to
work “aggressively within the existing framework.” Need to think about how
the courts can actually use Rule 23 in what the majority calls “adventurous;”
dissent feels like the court should do just that, or else parties won’t have their
day in court
i. Broader dispute about the purpose of class actions: majority’s point
is that Rule 23 text and history has to be narrowly construed. Taking
this analytical framework, you will not be encouraging procedural
innovations
E. Class actions and civil penalties
a. Statutory fines and punitive damages
b. Issues:
i. How to conceptualize damages – fines and penalties are often used interchangeable
ii. Whether various categories of damages are insurable
iii. What is at stake in terms of certifying as (B)(2) or (B)(3) class
c. Parker:
i. Background:
1. P is seeking punitive, actual, statutory damages, attorney’s fees, injunctive/declaratory
relief
2. Violation is for selling personal information to 3rd parties by cable company (no
explicit disclosure/consent); subjected company to statutory fine
3. What is the twist? P wants to certify a class, which could potentially reach up to 12
million subscribers, and statutory fine was for $1,000 per violation (doesn’t address
cap in class action context)  essentially this class would bankrupt the company, and
it couldn’t have been what the statute intended
4. Possible private attorney’s general motivation: $1,000 enables individual who might
not otherwise have incentive to bring the suit to bring the action; also, the fact that it is
not reflective of actual damages supports this
ii. (B)(2) class issue:
1. Arises here, and a lot in Title VII employment claims
a. There is injunctive/declaratory relief, but Title VII has a remedy of back pay
as well
b. Predominantly declaratory relief but you want to seek money damages as well
– can you bring this as a (B)(2) class?
i. 5th Cir (Alison): issue is whether monetary damages are incidental 
monetary relief predominates over equitable relief "unless it is
incidental to requested injunctive or declaratory relief"
ii. 2nd Cir (Robinson): ad hoc analysis of relative importance of
remedies sought, given circumstances and facts of the case
iii. Court: money damages are not incidental, because they apply to the
entire claim
iii. What is at stake for Ps and court’s perspective
c.
Modern Remedies F04, pp. 61
iv. Can we bring statutory fine jurisprudence into punitive damages case?
1. Majority hints that BMW v. Gore could be imported into this context
2. Lawrys (on appeal to 4th Cir): copyright infringement case. $19M in statutory
damages, though dispute as to actual damages. In copyright, part of the reasoning
behind statutory damages is the theory that damages are very difficult to measure.
Court found that Gore guideposts did not apply
a. Compensatory damages are very difficult to measure in this area, so statutory
damages here are remedial as opposed to punitive, so reasoning that got Court
involved in BMW in the first place doesn’t apply here
b. Difference between restraining jury awards versus a statute that the
legislature has crafted
3. Concerns: how would you apply BMW’s guideposts anyway? Also, difficulty of
separating compensatory from punitive damages award (legislature just sets up the
$1,000 fine)
v. Newman’s “third way”: certify as (B)(2) and limited statutory damages
1. Why should we bring in novel theory of Supreme Court excessiveness review if it’s
not necessary?
2. Congress needs to think about what happens when statutory fines interact with class
actions
3. Is the approach reconcilable with the statute? Newman concedes that it isn’t – perhaps
it’s just up to Congress to clean up its own mess
Parker v. Time Warner (2nd Cir. 2003)
Ps subscribed to cable service, brought action alleging violation of Cable Act and state
Facts:
consumer protection laws, for disclosing personal information to 3 rd parties and not clearly
informing them of such disclosure, as required by the Act. Sought monetary relief
(statutory, actual, punitive damages, attorney’s fees), declaratory/injunctive relief.
Magistrate judge recommended that DC grant in part D’s motion to deny class certification
Procedural history:
on the ground that P’s monetary claim predominated over claim for injunctive relief, and on
the general basis that class action was not the superior means of adjudicating the matter.
DC judge entered order adopting recommendations to limit class certification to
injunctive/declaratory claims under Rule 23(b)(2) and deny class certification under
23(b)(3), on the grounds that bulk of damages sought by P were not incidental to the
injunctive relief requested.
F. SOR: abuse of discretion, but appellate court is less deferential when DC has
Analysis
denied class status than when it has certified, so conclusions of law that
informed the denial are reviewed de novo
G. Denial under 23(b)(2): rule provides that action may be maintained as a class
action if, in addition to the threshold requirements of numerosity,
commonality, typicality, and adequacy of representation, "the party opposing
the class has acted or refused to act on grounds generally applicable to the
class, thereby making appropriate final injunctive relief or corresponding
declaratory relief with respect to the class as a whole."
a. Predominance issue: court cites 2nd Cir decision in Robinson
i. Ad hoc approach: requires DC to have detailed info about
the circumstances surrounding the certification issue, have a
certification hearing before ruling on the issue (need class
discovery so that DC can get this info)
H. Denial under 23(b)(3): rule provides that certification is appropriate where
"questions of law or fact common to the members of the class predominate
over any questions affecting only individual members, and that a class action
is superior to other available methods for the fair and efficient adjudication of
the controversy."
a. Court’s conclusions were assumptions, rather than findings of fact
b. Need class discovery before you can rule on the superiority of class
certification
Modern Remedies F04, pp. 62
c.
Concerns: due process, size of the award relative to harm suffered,
manageability of the class action
Vacated and remanded.
Disposition
d.
e.
Amar/Reis (I)
i. Issue: are large civil fines for minor violations unconstitutional?
ii. CA statute: Labor Code Private Attorneys General Act of 2004
1. Provides for private right of action for any alleged Labor Code violation
2. For violations where there is no specific statutory penalty, law imposes new penalties
of $100 per employee per pay period for initial violation and $200 for each subsequent
3. Money is distributed: 25% to Ps, with remainder being divided up, 50% to state
treasury and 25% to fund educating employees/employers about rights/responsibilities
under the labor code
4. Employer w/1000 employees: fine for one-year non-compliance could be up to $3
million
a. If this was a punitive damage, it would clearly be ruled unconstitutional
b. No cap on maximum fine
iii. Legal inquiry: punitive or remedial?
1. Statutes like CA legislation are not geared toward reasonable damages estimates 
punitive
2. Loosely tied, if at all, to any actual harm to employees because they apply to technical
violations that cause no actual harm
a. Draws parallel to liquidated damages law
b. Not good-faith ex ante estimates
3. Don’t compensate government for a loss (ex. if government incurred costs enforcing
the statute)
a. Don’t involve government action at all – by nature, as private attorney’s
general suits
4. Applying Supreme Court “guideposts” of Gore
a. Reprehensibility: the statute leaves no discretion for making this sort of
judgment
b. Ratio: whatever the ratio, a $3M fine for statutory violation that causes little
if any harm would probably fail the constitutional standard
c. Relative severity of other penalties that can be imposed for D’s conduct – this
prong is less clear
i. If you were to bring a lawsuit for this kind of violation, it probably
wouldn’t get very far
ii. What happens when there are no other sanctions for the violations in
question? Could argue that this is why you need statutes like this…
iii. But, comparing the statute to sanctions for other employer
misconduct for which there is sanction
Amar/Reis (II)
i. 8th Am Excessive Fines clause:
1. Issue of whether the whole fine has to go to the government in order to trigger the
clause
a. Looking to split-recovery schemes for guidance:
i. Some courts look to destination of the funds: ex. when it goes to
state’s general fund, state’s interest is substantial enough to trigger
the clause
ii. Others look to government’s role in obtaining the award: some
courts have held that clause is not implicated where suit is brought
Modern Remedies F04, pp. 63
I.
by private Ps as opposed to government, or where judgment is
imposed by jury rather than government agency
b. When is the clause violated?
i. Austin: doesn’t have to be criminal, but it does have to be a fine, and
a payment has to be punitive at least in part to be a fine (i.e. not
compensatory/remedial)
ii. Is it excessive? Usually SC has just remanded that question to the
lower courts, but there is notion of proportionality in terms of what
is being punished
f. State constitutional provisions
i. Hale v. Morgan: CA SC relied on federal and state constitutional due process analysis to strike
unfairly oppressive civil fines
1. CA court considered fine against landlord who used deprivation of utilities in an
attempt to evict tenant – the fine was $100/day, and even though the rent in question
was <$800, the fine was $17,300
2. Court found penalty unconstitutional because the duration was potentially unlimited,
no discretion was permitted the trier of fact, penalty was more severe than those
imposed for more serious transgressions by Ls against Ts, and could create windfall
for an experienced T against an unknowing L
3. This probably gives room for state constitutional attack on the CA Labor Code Private
AG’s Act
Class actions and punitive damages
In re Simon II (E.D. NY 2002)
Large-scale tobacco litigation
Facts:
Punitive damages non-opt-out class under Rule 23(b)(1)(B), of U.S. residents who
smoke/smoked Ds’ cigarettes and were diagnosed w/a variety of illnesses. Excludes those
who have obtained judgments/settlements against Ds, against whom Ds have obtained
judgments, people who are members of another tobacco certified class, persons who should
have first reasonably realized they had the disease prior to 4/9/1993, and persons whose
diagnoses or reasonable basis for knowledge predates their use of tobacco.
Analysis
Class it not seeking compensatory damages.
 General requirements for class certification under Rule 23(a)
• Numerosity – satisfied: members of class are believed to number in the millions;
makes joinder of all class members impracticable
• Commonality – satisfied: numerous common questions of law and fact exist (ex.
harm caused by tobacco, extent of Ds’ knowledge of tobacco hard, extent of Ds’
alleged cover-up, conspiracy, etc.)
- Class is not seeking compensatory relief – therefore, individual
determinations of fact are largely unnecessary, and common questions of
law/fact strongly predominate over any individual questions which may need
to be resolved
- Alchem – distinguishable: it involved a settlement class and the court was
applying “heightened” scrutiny to issues of commonality. Also, involved
proposed class under Rule 23(b)(3), which requires that common issues
predominate, not just that commonality exist
- In the interest of maintaining commonality, Ps have excluded both
secondhand smoke and “future harm” parties – no need for subclassing for
these groups, so the common issues shared by members of present class aren’t
“watered down”
• Typicality
- Ps’ claims are typical of class members they represent – similar legal and
factual assertions regarding Ds’ behavior and cause of their smoking, failing
to quit and cause of diseases
Modern Remedies F04, pp. 64
-



Different diseases do not have any substantial bearing on typicality for
purposes of the trial
• Adequacy of representation
- Alchem & Ortiz – distinguishable: named Ps do not have any apparent conflict
w/class members
◦ Nature of class is litigation, not settlement: in settlement-only class
actions, procedural protections built into the Rule to protect rights of
absent class members during the litigation are never invoked in an
adversarial setting
◦ Instant case: litigation class, therefore, will be subjected to full rigor of
the adversarial process
◦ No conflicts of interest that were a concern in Ortiz: there, Ps’ attorneys
who negotiated settlement also represented other claimants, whose
payments depended on the success of the settlement

Gave class counsel incentive to reach any argument in the global
settlement negotiations that they thought might survive a Rule 23(e)
fairness hearing, rather than best possible arrangement for the
substantially unidentified global settlement class
◦ Also on conflicts between future harmed parties and presently injured
parties, like in Alchem and Ortiz (where focus for presently injured was a
generous immediate payment; which was in opposition to interest of
future harm Ps in ensuring an ample, inflation-protected fund for the
future)
◦ Class does not suffer from Ortiz problem of two sets of claimants w/pre1959, fully insured exposure versus post-1959 exposure that was only
covered by the assets of the company then being rapidly depleted

Class members might have claims of different values, but those
differences are normal in large class action; do not require division
into subclasses
◦ Alchem and Ortiz concern about not trapping class individuals who
might have done better if they remained w/in traditional court litigation –
this case, particularly because it relates to punitive rather than
compensatory damages, does not present that conflict
Limited punishment under Rule 23(b)(1)
• Limited punishment theory class is appropriate – if the action is successful, Ds
might be forced to pay a huge sum, but this payment will limit liability for future
awards
• Punitive damages will be capped – therefore, Ps are forced to draw any damages
from a limited fund of resources
- Creates potential first-in-time problem
- In these situations, Rule 23(b)(1) action is appropriate
• Spate of recent cases awarding punitive damages against tobacco manufacturers
Court-ordered distribution: good in this case, especially because of the flaws in state
AGs’ settlements w/tobacco companies – gave states hundreds of billions, but it is
being spent in a variety of ways, mostly not having to do w/alleviating harm caused by
tobacco
Jury trial by stages
• Sectionalization is authorized under FRCP Rule 42(b)
• 7th Am limitation: Reexamination Clause does not present a problem w/respect to
separation before the same jury; only prevents different juries from deciding the
same issue
• 3 stages:
- (1) Before a jury, to make class-wide determination of fraud/conspiracy
claims and estimated total compensatory claims. Compensatory awards, if
any, for individual class representatives will be determined. If jury finds no
F/C, no need for a 2nd stage
- (2) Same jury will determine whether Ds engaged in conduct warranting
punitives. If jury finds that Ds didn’t, then no need for a third stage
- (3) Used to present evidence of amount of harm suffered by the class to the
same jury
• Jury will be asked to consider punitive damages for all harm caused by Ds’ fraud
Modern Remedies F04, pp. 65
Disposition
Class discussion:
Class certified.
 Why didn’t Ps try to certify a compensatory damages class?
• Opt-out problem: under (b)(3), Ps can opt out. If the idea behind this suit is that
Ds can buy their “global peace,” then it lies in opposition to this goal. Getting a
(B)(1)(b) w/mandatory non-opt-out will allow Ds to get everything settled
- Court calls this a “window of opportunity” for a variety of reasons: SOL
(window closing for the presently injured), and allegedly less difficulty going
forward because there has been more full disclosure (tobacco companies are
admitting that they lied, etc.)
• Would require too much individual consideration; not well suited to class action
(would need too many subclasses):
- Idea that individual compensatory damages need to be determined on an
individual basis, and this is contrasted with punitive damages
 What is the theory of a (B)(1)(b) class?
• Limited punishment theory: stems from both BMW v. Gore and State Farm –
through the federal excessiveness review of punitive damages, there is some DP
limit on the amount that the tobacco companies can be punished
• Limited punishment theory essentially provides the justification for certifying
under (B)(1)(b) – that way we don’t have to worry about opt-out problems. But it
probably only works that well for punitive damages because only PDs have these
constitutional limits (that’s why no compensatory damages sought here)
• [Tobacco company argument] Ortiz seemed to indicate that innovation in class
action context is more appropriate under (B)(3), where there are op-out procedures
rather than in the mandatory class case
• Why don’t Ds want punitive damage class certified in order to buy global peace
(differs from Ds in Exxon-Valdez) – feel that they would have greater success in
individual suits; that many of the individual claims have no merit and they would
be able to successfully defend
 3 stage trial process:
• Theory: idea of “virtual compensatory class” – that you can put this forward in the
aggregate, to look at all this evidence to find the total amount of the harm
 How, if at all, is this situation distinguishable from Ortiz?
 How does BMW/State Farm, on punitive damages side, come into play?
• What about ratio of compensatory to punitives, when the compensatory damages
here are “virtual”? Argument –key is actually to think of ratio of punitive
damages to harm (not to compensatory damages) – and compensatory damages
determination serves as a proxy for harm
• Multiple punishments: danger of multiple punishments – by having a single nonopt-out clause, we will prevent this problem (State Farm can be read broadly to
preclude multiple punitive damages)
 Relating this to Hatahle? Could argue that Hatahle is tied more specifically to
compensatory damages – compensating P. Here, the focus is on D
 Idea of “entitlement”: State Farm – Ps have no “right”/entitlement to punitive
damages; the idea is deterrence/entitlement to society-type logic, then what’s the harm
of the “late comer” problem? How is the adjudication of one individual’s case going to
impair the rights of another (which is the driving concern besides Ortiz)?
 Not allowing the class to go forward: allowing individual cases to proceed might lead
to exhaustion of tobacco company’s resources, and leave many people who are part of
this presently certified class w/o any ability to recover damages
 Does possibility of cy pres relief vitiate part of Ortiz limited fund theory that requires
that fund be completely devoted to the class and paid pro rata?
 Punitive damages as categorically distinct from compensatory when looking at it vis-àvis right to jury trial/7th amendment rights: Cooper Industries – can do de novo review
of punitive damages, and the justification was that punitives have a “moral” element as
opposed to the more “factual” nature of compensatory, so they are not being
“redetermined” on appeal (Ginsberg had a sharp dissent, that it’s kind of a crazy
distinction to draw)
Modern Remedies F04, pp. 66
Modern Remedies F04, pp. 67