MODERN REMEDIES A. The Nature of Legal Damages: Purpose: To compensate, to restore, to put the plaintiff – so far as money can – where she would have been absent the defendant’s conduct Gavcus v. Potts 7th Circuit (1986) Issue: Should Gavcus be awarded damages stemming from the unauthorized removal of property, which include the cost of installing new locks and an alarm and attorney fees incurred in a prior action concerning the silver coins? NO Rule: Nominal compensatory damages can be awarded when no actual or substantial injury has been alleged or proved, since the law infers some damage from the unauthorized entry of land. Compensatory damages can be awarded for actual or substantial injury to realty. These latter damages are generally measured by the cost of restoring the property to its former condition or by the change in value before and after the trespass. Consequential damages can also be recovered for a trespass, since a trespasser is liable in damages for all injuries flowing from his trespass, which are the natural and proximate result of it. One such compensable result of a trespass is personal injury to the owner of the land. If a trespass causes mental distress, the trespasser is liable in damages for the mental distress and any resulting illness or physical harm. Reasoning: There was a failure of proof as to the nature, extent, and causation of any emotional distress, or cost of required treatment. There is no authority found that shows that the cost of an improvement to property intended to alleviate distress of that type would be properly allowable as damages. Further, the installation of locks and a burglar alarm was not a repair of physical damage, and the cost was not recoverable as compensation for injury to property. General/Direct/Compensatory Damages: Generally are those that are the consequences of and proximate result of the conduct of the defendant as to any typical plaintiff Special/Consequential Damages: Generally those that are peculiar to a particular plaintiff – plaintiff’s harms that would not occur regularly to others Dura Pharmaceuticals Inc. v. Broudo US Supreme Court (2005) Issue: To prove “loss causation" in a securities fraud case, is it sufficient to show that the price of the security on the date of purchase was inflated because of misrepresentation? NO Rule: The common law of deceit subjects a person who “fraudulently” makes a “misrepresentation” to liability “for pecuniary loss caused” to one who justifiably relies upon that misrepresentation. And the common law has long insisted that a plaintiff in such a case show not only that had he known the truth he would not have acted but also that he suffered actual economic loss. If “no injury is occasioned by the lie, it is not actionable: but if it be attended with a damage, it then becomes the subject of an action.” Recovery is allowed where, but only where, plaintiffs adequately allege and prove the traditional elements of causation and loss. Statute expressly imposes on plaintiffs “the burden of proving” that the defendant’s misrepresentations “caused the loss for which the plaintiff seeks to recover.” Reasoning: The Court held that an inflated purchase price did not by itself prove “loss causation.” At most, an inflated purchase price suggested that misrepresentation “touched upon” a later economic loss, but did not necessarily cause it. Damages are a substantive element of the plaintiff’s tort cause of action: no damage, no cause of action B. Proof of the Existence of Damages: “Certainty” of the Existence of Damages o Certainty Doctrine “Proof sufficient to establish a probability of loss in the minds of reasonable persons” Uncertainty of the Amount of Damages is not fatal to the cause of action o Court will allow approximations based on assumptions and projections Future Damages: o All of Nothing Rule (majority) Pollock v. Johns-Manville: created a 51% threshold (preponderance of the evidence)of proof necessary to obtain future damages If plaintiff cannot show that it is more probable than not that there will be future damages, that plaintiff may not recover any future damages – Except in sporting events Evaluate evidence as to amount of harm expected to be proximately caused o Lost Chance Approach (not favored by courts) When any future damages are possible, damages can be estimated by: Finding the maximum amount of potential damages Determining the probability of those damages Multiplying the two to determine the amount of damages The ease of determining damages depends upon whether the damages occurred in the past or are anticipated for the future o Past pecuniary damages o Future pecuniary damages o Non-pecuniary damages Youst v. Longo California Supreme Court (1987) Issue: Is a racehorse owner entitled to tort damages when the harness driver of another horse negligently or intentionally interferes with the owner’s horse during a race, thereby preventing the owner from the chance of winning a particular cash prize? NO Rule: A threshold causation requirement exists for maintaining a cause of action for the torts of negligent or intentional interference with prospective economic advantage, namely, proof that it is reasonably probable that the lost economic advantage would have been realized but for the defendant’s interference. Various possible situations may justify liability for interference with prospective economic benefits of a noncommercial character. Special mention is given to “[cases] in which the plaintiff is wrongfully deprived of the expectancy of winning a race or a contest, when he has had a substantial certainty or at least a high probability of success” Reasoning: It is a well-settled general tort principle that interference with the chance of winning a contest usually presents a situation too uncertain upon which to base tort liability. It seems clear that plaintiff’s complaint fails adequately to allege facts showing interference with a probable economic gain, i.e., that Bat Champ would have won, or at least a larger prize, if defendant hadn’t interfered. Once a defendant is liable for any of plaintiff’s physical harm, it is also liable for the plaintiff’s “genuine and serious” emotional distress from the harm or form the defendant’s conduct that caused that harm C. Proving the Amount of Damages: Lost Capacity to Earn Past pecuniary damage – lost earnings to date of trial o A plaintiff is entitled to recover the difference between what she did earn and what she probably would have earned “but for” the injury o What if plaintiff isn’t employed? Must prove the injury prevented seeking employment and that positions were available for persons such as plaintiff Future pecuniary damage – los of future earnings o A plaintiff is entitled to recover for the impairment of her future earnings and earning capacity measured by what she probably would have earned “but for” the injury o The amount in the present value Temporary disability: only the time of that disability Permanent Disability: only number of years until probably retirement Expert testimony brought in and trier of fact estimates it Court can determine many of plaintiff’s pecuniary damages that have accrued before trial with some confidence about their accuracy – lost wages, medical expenses, the value of damaged property, and expectancy and reliance damages for breach of contract Pecuniary damages which will accrue in the future, impaired earning capacity and future medical expenses in personal injury cases or lost future profits of a business, are more intractable Some compensatory damages are inherently uncertain. These include nonpecuniary damages, such as the plaintiff’s pain and suffering and mental anguish. The jury must translate the evidence into pecuniary form. To prove damages, the plaintiff must prove two (2) points: o (1) It must prove the fact of damages Evidence must give rise to a reasonable probability that the plaintiff suffered damage as result of a breach o (2) The Plaintiff must prove the amount of damages The level of persuasiveness requires to establish the fact of loss is generally higher than that required to establish the amount of a loss The amount of damages may be based upon approximations, if the fact of damages is established, and the approximations are based reasonable assumptions or projections 1. Plaintiff’s Lost Capacity to Earn: Washington v. American Community Stores Corp. Nebraska Supreme Court (1976) Issue: Did the evidence prove that Washington’s permanent disability would remain for life and eliminate his career as a wrestler, even when there was no evidence of his earnings at the time of the injury derived from his wrestling skills? YES Rule: The loss of earning capacity, as distinct from loss of wages, salary, or earnings, is a separate element of damage. A loss of past earnings is an item of special damage and must be specifically pleaded and proved. Impairment of earning capacity is an item of general damage and proof may be had under general allegations of injury and damage. Proof of an actual loss of earnings or wages is not essential to recovery for loss of earning capacity. Recovery for loss or diminution of the power to earn in the future is based upon such factors as the plaintiff's age, life expectancy, health, habits, occupation, talents, skill, experience, training, and industry. Specific evidence is unnecessary for the plaintiff to recover under a general allegation of damage. A homemaker, a student, an unemployed person, or a child who lacks income may also recover for lost capacity. Childs v. United States US District Court Georgia (1996) Issue: Should the court enter judgment for each plaintiff’s estate administrator for wrongful death damages? YES Rule: Future pecuniary damage – loss of future earnings – By someone who has died Tortfeasor, not the Plaintiff, should bear the burden of some uncertainty in the mount of damages A defendant who is responsible for the uncertainty of plaintiff’s proof of damages risks the worse case scenario Defendant risks in any scenario looking bigoted or making a personal attack Experience has shown that opposite opinions of persons professing the be experts may be obtained in any amount Ultimately the question may actually be whether the judge’s ultimate award is based on “intuition” or mere “conjecture” or just plain old fashioned “guess” 2. Pain and Suffering: Noneconomic or nonpecuniary damages Includes Hedonic damages o Loss of enjoyment of life or of life’s pleasures o If recovery of loss of enjoyment is appropriate, it is included in the award for pain and suffering (majority) Most jurisdictions seem to favor the majority position based on the probability that separating loss of enjoyment of life from pain and suffering would lead to a duplication of damages. A plaintiff is entitles to be compensated for past, present and future pain and discomfort caused by the injury The amount to be awarded us uniquely within the province of the trier of fact Amounts awarded by the trier of fact are subject to trial court “correction” Jury verdicts are subject to appellate review but only if the judgment “shocks the conscience” of the appellate court o “Golden Rule” judgment: asks jury to award damages based on what the jury would expect for suffering the injuries (not allowed) o “Per diem” argument: asks jury to award damages that they would regard as fair compensation for each day/hour of pain and then multiple that figure by time plaintiffs suffers – past, present and future (generally permitted) o “Capable of proof” argument: people are entitles to damages for their pain and suffering even if incapable of proof (not permitted) o Cautionary instructions by judge: (1) must be based on remaining life expectancy; (2) subject to the rule of avoidable consequences; (3) present value of future damages Justification: Compensation: Money awards do not make one whole or alleviate pain Substitutes: Plaintiff can use money from pain and suffering damages to purchase a substitute or a distraction Deterrence Litigation Finance: Generally understood, a plaintiff’s verdict for pain and suffering is a camouflaged attorney fees What is included in pain and suffering? The victims anguish and terror felt in the face of impending injury and death The victims tangible physiological pain at the time of injury and during recuperation The victims enduring loss of enjoyment of life as one who is denied the pleasured of normal personal and social activities because of his permanent physical impairment The immediate emotional distress and long term loss of love and companionship resulting form the injury or death of close family member Proof Plaintiff’s pain and suffering testimony, but risky since it is interested and potentially exaggerated A physician-expert can access the level of pain from the way plaintiff describes it Loth v. Truck-A-Way Corp. CA Court of Appeals (1998) Rule: A pain and suffering award may include compensation for the plaintiff’s loss of enjoyment of life. Loss of enjoyment of life, however, is only one component of a general damage award for pain and suffering. It is not calculated as a separate award. There is no definite standard or method of calculation prescribed by law by which to fix reasonable compensation for pain and suffering. The jury must impartially determine pain and suffering damages based upon evidence specific to the plaintiff, as opposed to statistical data concerning the public at large. o The only person whose pain and suffering is relevant in calculating a general damage award is the plaintiff. o How others would feel if placed in the plaintiff’s position is irrelevant. It is improper, for example, for an attorney to ask jurors how much they would charge to undergo equivalent pain and suffering. This so-called “golden rule” argument is impermissible. o Per diem (or unit-of-time) argument is acceptable: jury told to figure out what the plaintiff’s damage per day/hour is worth and then multiply it by his lifetime Unless and until the Legislature devises a method for computing pain and suffering damages, a plaintiff may not supply, through expert testimony or otherwise, her own formula for computing such damages. o Just as no judge may give the jury a standard for determining pain and suffering damages, no expert may supply a formula for computing the value of life and, by extrapolation, the value of the loss of enjoyment of life. o That calculation, at present, must be left to the jury’s sound discretion Separate instructions on pain and suffering and loss of enjoyment of life are prohibited because they could mislead a jury to award double damages for the same injury. McDougald v. Garber, p. 80 NY Court of Appeals (1989) Issue: Is awareness of one’s condition relevant to a jury’s consideration of damages to award a victim for loss of enjoyment of life, and should these damages be considered as part of damages for pain and suffering? YES Rule: Damages are awarded to compensate the victim, not to punish the wrongdoer. The goal is to restore the injured party, as much as possible, to the position that would have been occupied had the wrong not occurred. Punitive damages are not allowed unless the guilty party strayed beyond mere negligence. Damages for nonpecuniary losses are among those that can be awarded as compensation to the victim. o This aspect of damages, however, stands on less certain ground than does an award for pecuniary damages. o Nonpecuniary losses are those damages awarded to compensate an injured person for the physical and emotional consequences of the injury, such as pain and suffering and the loss of the ability to engage in certain activities. o Pecuniary damages compensate the victim for the economic consequences of the injury, such as medical expenses, lost earnings and the cost of custodial care. Cognitive awareness is a prerequisite to recovery for loss of enjoyment of life. o In an award for pain and suffering, suffering need not be limited – it can easily encompass the frustration and anguish caused by the inability to participate in activities that once brought pleasure. o The jury may consider the effect of the injuries to Plaintiff’s capacity to lead a normal life. 3. Contract and Tort Damages Recognition that a tort or breach of contract can involve similar damages We have to wrestle with just how emote the ripple of damages from an act can be and whether there should be a cut-off imposed Tort: The duty is imposed by law The object of compensatory damages is to place the injured party in as good position as she occupied prior to the wrong o The tortfeasor is responsible for damages whether or not contemplated In analyzing a defendant’s future tort duty (imposed by law) we look to the time the defendant breached it tort duty o It is at that moment that the defendant could have taken the preventative measures A successful tort plaintiff usually recovers more than a contract plaintiff o Tort Special damages remoteness cutoff, proximate cause, is broader than the contract remote cutoff, contemplation o Tort plaintiff recovers emotional distress more readily than a contract plaintiff o Although punitive damages are available in tort, a contract plaintiff is almost always disqualified for them Contract: The duty is by agreement of the parties The object of compensatory damages is to place the injured party in as good a position as she would have been if the contract had been performed o The breaching party is responsible for what was agreed upon and contemplated by the parties In analyzing a defendant’s future contract duty (imposed by contract itself) we look to the time of the contract and what was agreed upon o Unless the breaching defendant knew of the future plaintiff’s risks at the time of the contract the defendant could never take preventative measures to prevent the harm Special damages for breach of contract are not recoverable unless they can fairly and reasonably be considered as arising naturally from the breach or as being within the contemplation of the parties, at the time the contract was made, as the probable result of the breach Distinctions between contract general damages and special damages o Court awards general damages to protect capital value, but the court will employ the contemplation remoteness test in contracts to deny recovery of lost business profits o The contemplation remoteness cutoff excludes plaintiff’s non-pecuniary loss, i.e., emotional distress o Fleming: the “grievous burden that would be imposed on human activity if the wrongdoers were held to answer for all the consequences of his default” is heavier when seeking special damages for breach of contract o Posner: a court may undercompensate a plaintiff to encourage people to take efforts to minimize loss and to create a level of precaution that minimizes social loses Evra Corp. v. Swiss Bank Corp. 7th Circuit (1982) Issue: Was Hyman-Michaels entitled to consequential (special) damages? NO Rule: Consequential (special) damages (in a contract) may not be awarded unless the defendant is put on notice of the special circumstances giving rise to them. The costs of the untoward consequence of a course of dealings should borne by that party who was able to avert the consequence at least cost and failed to do so. o Electronic payments are not so unusual as to automatically place a bank on notice of extraordinary consequences if such a transfer goes awry Reasoning: This was a contract base relationship, leading to a botch business transaction, instead of a tort for negligence. The culpable bank was an intermediary bank with which the originator did not deal. Swiss Bank did not have enough information to infer that if it lost a $27,000 payment order it would face liability in excess of $2 million. Further, Hayman, who was the originator of the funds transfer, was in the best position to evaluate the risk that a funds transfer will not be made on time and to manage that risk. Local Joint Executive Boards, Culinary Workers Union, Local No. 226 v. Stern Nevada Supreme Court (1982) Issue: Did trial court properly dismissed the employees’ complaint where they did not allege that respondents engaged in intentionally tortious conduct or caused them personal injury or property damage? YES Rule: Absent privity of contract or injury to person or property, a plaintiff may not recover for economic loss in negligence (tort) case even though proximately caused. Purely economic loss is recoverable in actions for tortious interference with contractual relations or prospective economic advantage, but the interference must be intentional. o Primary purpose of rule is to shield a defendant from unlimited liability for all of the economic consequences of a negligent act, particularly in a commercial or professional setting, and thus to keep the risk of liability reasonably calculated Reasoning: The foreseeability of economic loss, even when modified by other factors, is a standard that sweeps too broadly in a professional or commercial context, portending liability that is socially harmful in its potential scope and uncertainty. Other factors to consider: No proximate cause – too remote & speculative; Not foreseeable; No duty; and Appalling results – floodgate, Pandora’s box, etc J’aire Corp. v. Gregory California Supreme Court (1979) Issue: Was J’Aire’s loss reasonably foreseeable and closely connected with Gregory’s conduct? YES Rule: Recovery for negligent interference with prospective economic advantage is limited to instances where the risk of harm is foreseeable and is closely connected with defendant’s conduct, and where damages are not wholly speculative and the injury is not part of plaintiff’s ordinary business risk. Where the risk of harm, is foreseeable, an injury to the plaintiff’s economic interest should not go uncompensated merely because it was unaccompanied by an injury to his person or property (Minority Rule) Where a special relationship exists between the parties, a Plaintiff may recover for loss of expected economic advantage (Contract based). (Minority Rule) o Some factors to consider to see whether special relationship: (1) the extent to which the transaction was intended to affect the plaintiff; (2) the foreseeability of harm to the plaintiff; (3) the degree of certainty that the plaintiff suffered injury; (4) the closeness of the connection between the defendant’s conduct and the injury suffered; (5) the moral blame attached to the defendant’s conduct; and (6) the policy of preventing future harm. o These factors diminish the fears of excessive liability and fraudulent claims “by focusing judicial attention on the foreseeability of the injury and the nexus between the defendant’s conduct and the plaintiff’s injury. Reasoning: J’Aire’s lost of business injury stemmed directly from Gregory’s conduct and it was more readily foreseeable that any significant delay in completing the construction would adversely affect the business beyond the normal disruption associated with such construction. Rardin v. T&D Machine Handling, Inc. Seventh Circuit (1989) Issue: Can Rardin obtain consequential (special) damages from the delivery company, which damaged a printing press in disassembly, delivery and reassembly? NO Rule: Defendant is not liable for economic damages where it is not privy to the specific circumstances of Plaintiff, it did not deal directly with Plaintiff, Defendant knew nothing of Plaintiff, and had no method to understand Plaintiff’s potential losses without an intrusive investigation. Damages for purely economic loss cannot be recovered in tort cases. Reasoning: Here, T & D is in the business of dismantling and loading printing presses. It is not privy to the circumstances of the owners of those presses. It did not deal directly with the owner Rardin. On the other hand, Rardin could have taken measures to protect himself against the financial consequences of unexpected delay. There was little that T & D could do to shield itself from liability to Whitacre’s customer except be more careful and a finding of negligence alone should not expose a defendant to unlimited liability. D. Limitation on Damages Recovery: 1. Avoidable Consequences A personal injury tort plaintiff has a duty to minimize damages by taking the medical measures a reasonable person would have taken to alleviate or cure the condition A breach of contract plaintiff has the future to minimize damages by taking measures a reasonable person would have taken to minimize damages Williams and Robbins v. Bright New York Supreme Court (1997) Issue: Should Robbins’ failure to undergo recommended surgery due to her Jehovah’s Witness belief be taken into account to mitigate damages? YES Rule: A party who claims to have suffered damage by the tort of another is bound to use reasonable and proper efforts to make the damage as small as practicable, and if an injured party allows the damages to be unnecessarily enhanced, the incurred loss justly falls upon him. Jury instruction on the subject of damage mitigation refers to the actions of a reasonably prudent person and measures the duty to mitigate in accordance with that standard. A person refusing medical treatment (i.e. religious beliefs) must be permitted to present to the jury the basis for her refusal of medical treatment. Once such evidence is received, the court is called upon to instruct the jurors as to how such evidence should affect their deliberations. o “…such belief is a factor for you to consider, together with all the other evidence you have heard, in determining whether the plaintiff acted reasonably in caring for her injuries, keeping in mind, however, that the overriding test is whether the plaintiff acted as a reasonably prudent person, under all the circumstances confronting her.” The “eggshell skull” or “thin skull” doctrine “One who injures another takes the injured as she finds him” o Under this doctrine, the defendant has to pay for all injuries, even if a given plaintiff is more vulnerable to injury than others o Traditionally limited to a plaintiff's preexisting physical condition, mental illness or psychological disability. 2. Collateral Source Rule Even if a source independent of the defendant “compensates” the plaintiff for the injury, the plaintiff may recover full damages from the defendant Another way of looking at it: (Majority) a defendant is not entitled to have his liability reduced on account of compensation paid to the plaintiff from “collateral” sources (Minority): Limits the rule to benefits for which plaintiff has actually paid – such as insurance. E.g., gratuitous salary from employer not recoverable Lagerstrom v. Myrtle Werth Hospital-Mayo Health Systems Wisconsin Supreme Court (2005) Issue: Did the circuit court erred in admitting evidence of collateral source payments in this medical malpractice action, in refusing to admit evidence of the estate’s potential obligation to reimburse Medicare, and in instructing the jury that it may, but need not, consider the collateral source payments in determining the reasonable value of the medical services rendered? YES Rule: “Collateral source rule” provides that damages awarded to an injured person may not be affected by the fact that the claimant received compensation from other sources, such as sick leave or insurance. Regardless of the method of financing the victim’s medical expenses, a tortfeasor’s liability is the reasonable value of the treatment rendered without limitation to the amounts actually paid by the victim. o In most cases the reasonable value of medical services is the actual expense, but in some cases it is not. But the test is the reasonable value, not the actual charge, and therefore there need be no actual charge. o It is not a controversial proposition that the recovery is for the value of the services, not for the expenditures actually made or the obligations incurred. Under the collateral source rule, the amount of damages awarded to a person injured because of another individual’s tortious conduct is not reduced when the injured party receives compensation from another source. Subrogation exists to ensure that the loss is ultimately placed upon the wrongdoer and to prevent the victim (the subrogor) from being unjustly enriched through a double recovery, namely recovering from both the paying party (the subrogee) and the tortfeasor. o An entity with a subrogation right can waive the right to subrogation in favor of reimbursement. Successful plaintiffs thus must sometimes reimburse sources of collateral payments out of tort recoveries. E. Enhancement and Adjustment of Compensatory Damages: 1. Prejudgment Interest Most states provide for pre-judgment interest by statute o California authorized recover form the time a debt if due if the right to recover is “certain or capable of being made certain by calculation” (meaning: “liquidated,” usually contract) The amount of interest is regulated by statute o California sets 10% as the rate of prejudgment interest 2. Punitive Damages Rule in Majority Jdx Punitive damages (also called exemplary damages, vindictive damages, or smart money) could be awarded without a showing of actual ill will, spite, or intent to injure Restatement (Second) of Torts: “Punitive damages may be awarded for conduct that it outrageous because of the defendant’s evil motive or his reckless indifference to the rights of others” Are punitive damages available for breach of contract? o Punitive damages may never be recovered in pure breach of contract suits o Available if there is an independent tort Tuttle v. Raymond, III Maine Supreme Court (1985) Rule: The doctrine of punitive damages serves the useful purposes of expressing society’s disapproval of intolerable conduct and deterring such conduct where no other remedy would suffice. For an award of punitive damages, plaintiff must present adequate proof that the defendant acted in a sufficiently culpable manner: o Court must then weigh all relevant aggravating and mitigating factors presented by the parties, including the egregiousness of the defendant's conduct, the ability of the defendant to pay such an award, and any criminal punishment imposed for the conduct in question; o After such consideration, an exemplary award is within the sound discretion of the fact finder. Punitive damages can be individualized to provide a deterrent that will be adequate for each case. o Such flexibility can ensure a sufficient award in the case of a rich defendant and avoid an overburdensome one where the defendant is not as wealthy. o Flexibility is also necessary to avoid situations where the potential benefits of wrongdoing could outweigh a known maximum liability. Punitive damages should be available based only upon a limited class of misconduct where deterrence is both paramount and likely to be achieved. o It is generally accepted that mere negligence cannot support an award of punitive damages Punitive damages are available based upon tortious conduct only if the defendant acted with malice o “Express” or “actual” malice: acting with ill will towards plaintiff; or o “Implied” malice: conduct so outrageous that malice can be implied even if the conduct is motivated by something other than ill will towards the plaintiff The proof requirement of “clear and convincing evidence” is appropriate for a claim for punitive damages BMV of North America, Inc. v. Gore US Supreme Court (1996) Issue: Was the $2 million punitive damages award to Gore for BMW’s nationwide conduct grossly excessive? YES Rule: Punitive damages may be imposed to further a State’s legitimate interests in punishing unlawful conduct and deterring its repetition. States have considerable flexibility to protect its citizens by prohibiting deceptive trade practices. State sovereignty, however, prevents states from imposing economic sanctions with the intent of changing the tortfeasors’ lawful conduct in other States. There are three “indicium” of the reasonableness of a punitive damage award: (1) the degree of reprehensibility of the defendant’s conduct; o Nonviolent crimes are less serious than violent crimes. o Trickery and deceit is more reprehensible than negligence. (2) the ration between the harm suffered and the punitive damage award; o There must be a reasonable relationship between the punitive damages award and the compensatory damages. (3) the difference between this remedy and criminal penalties authorized in comparable cases. o Substantial deference should be given to legislative judgments concerning appropriate sanctions for the conduct at issue. Reasoning: Alabama does not have the power to punish BMW for conduct that was lawful where it occurred and had no impact on Alabama. (the degree of reprehensibility) The harm BMW inflicted was purely economic in nature and there was no evidence BMW acted in bad faith. Due process requires two kinds of “adequate notice” for punitive damages: o Adequate notice to the tortfeasor the misconduct could subject him to punishments; and o Adequate notice of the severity of the penalty that might be imposed 3. Attorney Fees American Rule Both winning and losing litigants bear their own expenses, including attorney fees Not recoverable unless provided by statute or by contract between the parties English Rule Winner gets attorney fees Exceptions Contract: when a contract calls for the breaching party to pay the nonbreaching party’s fees Statute: Many statutes shift attorney fees one way, only to the prevailing plaintiff, which promotes compensation to the wining plaintiff without hampering access to court Judicially Created: o “Common fund” doctrine: litigant who recovers a common fund for the benefit of persons other than himself or his client is entitled to a reasonable attorney’s fees from the fund as a whole Private-attorney-general theory: one who litigates successfully and implements a strong public policy to request attorney fees, but the litigation does not create a “common fund” so the defendant pays plaintiff’s attorney’s fee o Bad faith-litigation: inherent power to sanction a litigant’s abusive, bad faith litigation misconduct by requiring the abuser to pay his opponent’s attorney o Defendant is charged with Plaintiff’s attorney fees when defendant’s breach of contract or tort leads plaintiff into litigation with a third party State Court: o In CA, plaintiffs can recover their attorney fees where litigants vindicated a public policy based on a constitutional theory Nilsen v. York County Maine US District Court (2005) Rule: In a class action the court may award reasonable attorney fees and nontaxable costs authorized by law. Where a settlement is a “common fund,” the common fund doctrine allows the court to award attorney fees from it. Courts have discretion to award fees from a common fund either on a percentage of the fund basis or by fashioning a lodestar o The percentage-of-funds method is the prevailing practice, because it allows courts to award fees from the fund in a manner that rewards counsel for success and penalizes it for failure o The lodestar approach (reasonable hours spent times reasonable hourly rates, subject to a multiplier or discount for special circumstances, plus reasonable disbursements) can be a check or validation of the appropriateness of the percentage-of-funds fee, but is not required. Tort Damages v. Contract Damages Goals of Compensatory Damages: Tort To place injured party in substantially as good position as she occupied prior tot the wrong Does foreseeability limit recovery? Certainty required? Causation required? Mental anguish damages recoverable? Punitive damages recoverable No Yes Yes Yes Yes Contract To place injured party in substantially as good as position as she would have been had contract been performed Yes Yes Yes No No EQUITABLE REMEDIES The Injunction Obtaining a Permanent Injunction Plaintiff must show: o It has suffered irreparable injury; o That remedies available at law, such as monetary damages are inadequate to compensate for that injury; o That considering that balance of hardships between the plaintiff and the defendant, a remedy in equity is warranted; and o That public interest would not be disserved by a permanent injunction A. Origins and Maxims: A judge may grant an injunction, which is an equitable remedy, to prevent a defendant’s future harm to plaintiff, to assure she, in fact, receives her substantive entitlement 1. Equity Acts in Personam Still true A judge commands the defendant’s conduct, enjoins the defendant to do or to forbear specified conduct, to execute the constructive trust by conveying to plaintiff, or to perform the contracts specifically Tabor & Co. v. McNall Illinois Appellate Court (1975) Rule: To justify equitable interposition it must be made to appear that an equitable right will otherwise be denied the party seeking relief. A party has the legal right to bring his action in any court which has jurisdiction of the subject matter and which can obtain jurisdiction of the parties. o The mere pendency of a suit in a sister state or in a court of the United States cannot be pleaded in abatement of a proceeding in a state court. o It is only where it clearly appears that the prosecution of an action in a foreign state will result in a fraud, gross wrong or oppression, that a court of equity will interfere with the general right of a party to press his action in any jurisdiction which he may see fit and in as many of them as he chooses and restrain him from the prosecution of such a suit. Matarese v. Calise Rhode Island Supreme Court (1973) Issue: Did the trial court have jurisdiction over Defendant’s person and, therefore, had power to order a conveyance even though the land was situated outside the territorial limits of the state? YES Rule: As a general principle of law, a court of equity may, under proper circumstances, order an individual over whom it has personal jurisdiction to execute a deed conveying an interest in real property situated outside the jurisdiction of the court. When the subject-matter of a suit in a court of equity is within another State or country, but the parties within the jurisdiction of the court, the suit may be maintained and remedies granted which may directly affect and operate upon the person of the defendant and not upon the subject-matter, although the subject-matter is referred to in the decree, and the defendant is ordered to do or refrain from certain acts toward it, and it is thus ultimately but indirectly affected by the relief granted. In such case the decree is not of itself legal title, nor does it transfer the legal title. It must be executed by the party, and obedience is compelled by proceedings in the nature of contempt, attachment or sequestration United States v. McNulty US District Court California (1978) Rule: Once personal jurisdiction over the taxpayer is acquired, the district court can order payment of the foreign assets for unpaid taxes. Only for the most compelling reasons should a court refuse relief to the government where a citizen of the United States keeps most of his assets in a foreign country and claims that they are immune from application to his income tax liability because of their situs in a foreign country. Such an order must be framed so as not to conflict with the internal law of the foreign state in which the act was to be performed. Reasoning: It is clear, then, that this court, by virtue of its jurisdiction over the defendant, has the power to order him to repatriate the assets located in the foreign bank. Moreover, there has been no indication, however, that the instant order will violate the banking laws of the Island of Jersey. 2. Inadequate Legal Remedy, Irreparable Injury Still true Few legal rubrics can vie in frequency of use with the maxim that equity will not grant specific relief – injunction or specific performance of contracts – when there exits any adequate remedy at law 3. Equity Cannot Protect Personal, Political or Religious Rights No longer true Now courts regularly issue injunctions to prevent defendants from interfering with plaintiff’s personal and political and constitutional rights 4. Equity Lacks Jurisdiction to Enjoin Criminal Prosecution Half-true Actually they do – but generally don’t intervene absent “very specific circumstances” Norcisa v. Board of Selectmen Massachusetts Supreme Court (1975) Rule: Courts with general equity powers have the power to restrain criminal prosecutions. The “general rule” is that criminal prosecutions are not to be enjoined, but there is an exception to this comprehensive statement. Jurisdiction in equity to restrain the institution of prosecutions under unconstitutional or void statutes or local ordinances has been upheld by the court when property rights would be injured irreparably, and when other elements necessary to support cognizance by equity are present. It does not interfere in the enforcement of penal statutes even though invalid unless there be exceptional circumstances and a clear showing that an injunction is urgently necessary to afford adequate protection to rights of property so as to circumvent great and irreparable injury until the validity of the particular penal statute is sustained. Equity will protect personal rights by injunction upon the same conditions upon which it will protect property rights by injunction. In general, these conditions are, o  that unless relief is granted a substantial right of the plaintiff will be impaired to a material degree; o  that the remedy at law is inadequate; and o  that injunctive relief can be applied with practical success and without imposing an impossible burden on the court or bringing its processes into disrepute. Injunctive relief may be granted prohibiting the authorities from enforcing a penal statute found to be unconstitutional A federal court should not enjoin a state prosecution except upon a ‘showing of bad faith, harassment, or any other unusual circumstance that would call for equitable relief” 5. Equity Lacks Jurisdiction to Enjoin a Crime Generally true except for a public nuisance The criminal statute must be an in-adequate remedy at law Government can deal with anti-social conduct o A criminal statute o A tort o An injunction People Ex Rel. Gallo v. Acuna California Supreme Court (1997) Issue: Did the injunction reach no further than the United States Constitution allowed, meaning that it was properly used to abate gang-related criminal activity as a public nuisance? YES Rule: Civil courts have no criminal jurisdiction. Something more than the threatened commission of an offense against the laws of the land is necessary to call into exercise the injunctive powers of the court. There must be some interference, actual or threatened, with property or rights but when such interferences appear the jurisdiction of a court of equity arises, and is not destroyed by the fact that they are accompanied by or are themselves violations of the criminal law. It is not the criminality of the act that gives jurisdiction in equity, but the deprivation of personal and property rights interfered with, injured, destroyed, or taken away by the unlawful act. Acts or conduct which qualify as public nuisances are enjoinable as civil wrongs or prosecutable as criminal misdemeanors, a characteristic that derives not from their status as independent crimes, but from their inherent tendency to injure or interfere with the community's exercise and enjoyment of rights common to the public. Reasoning: The court held that defendants’ association was not entitled to protection under U.S. Const. amend. I, because the gang was not formed for the purpose of engaging in protected speech or religious activities. The court held that the trial court’s preliminary decree was not overbroad, because it was addressed to identifiable parties and to specific circumstances, and the enjoined acts were particularly described. The court held that the California’s STEP Act was not the exclusive means of enjoining defendants, because other legal remedies were not precluded by STEP. The conduct enjoined met the statutory definition of a public nuisance. 6. Equity will not Enjoin a Libel Generally true Injunction is precluded by free speech considerations – constitutional argument Damages generally will suffice Reputation is not a “property” right o However, commercial disparaging statements are probably related to property An exception exists for a “strong and clear showing of harm” Another exception is where defamatory expression is merely a part of other enjoinable conduct The last exception is where the purpose is to prevent repetition of statements previously found to have been defamatory by the trial court Tory v Cochran US Supreme Court (2005) Issue: Is the judge’s injunction that someone stop making defaming statements about a public figure, even after that figure’s death, overbroad? YES Rule: Prior restraints on speech and publication are the most serious and the least tolerable infringement on 1st Amendment rights. A prior restraint should not sweep any more broadly than necessary. An order issued in the area of 1st Amendment rights must be precise and narrowly tailored to achieve the pin-pointed objective of the needs of the case. Reasoning: The Court held that Cochran’s death diminished the grounds for the judge’s order and that the order therefore amounted to an overly broad prior restraint on speech, which laced plausible justification. The majority implicitly rejects that a public figure plaintiff cannot enjoin a defendant’s defamation B. Injunction Procedure Interlocutory Relief Preliminary Injunction TRO (Temporary Restraining Order) o A judge may issue a temporary restraining order with no adversary hearing at all; such an order is called an ex part In considering whether to grant this type of relief, a court will generally consider 4 factors: o Whether in the absence of a preliminary injunction the plaintiff will suffer irreparable injury before the judge can decide the merits; o Balancing or comparing the relative hardships; o The plaintiff’s probability of success on the merits; and o The public interest. Roe v. Crawford Missouri District Court (2005) Issue: Should the court grant plaintiff’s preliminary injunction requiring defendants to transport her to a local health care provider for the purpose of providing medial services to terminate pregnancy? YES Rule: It is well settled law that a plaintiff’s application for preliminary injunctive relief involves the court’s examination of the following four factors: (1) the threat of irreparable harm to the movant; (2) the state of the balance between this harm and the injury that granting the injunction will inflict on other parties; (3) the probability that movant will succeed on the merits; and (4) the public interest. The Modified or “sliding-scale” standard: A plaintiff who makes a less strong showing of likelihood of success on the merits must make a strong showing that the balance of irreparable injury favors her On the other hand, a plaintiff who makes a strong showing that she is likely to succeed on the merits need not make such a strong showing that the balance of harms favors her The Injunction Bond If the preliminary injunction turns out to be incorrect, the judge may compel plaintiff to repair defendant’s reparable harm Usually the applicant must give some type of security, for the payment of such costs and damages as may be incurred or suffered by any party who is found to be wrongfully enjoined or restrained o Bond is waived when a plaintiff is indigent or asserts a constitutional right o When plaintiff showed an extraordinarily high likelihood of success on the merits a judge may waive bond Feltner v. Columbia Pictures Television US Supreme Court (1998) Rule: The 7th Amendment provides that in suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved. “Suits at common law” refers not merely to suits, which the common law recognized among its old and settled proceedings, but to suits in which legal rights were to be ascertained and determined, in contradistinction to those where equitable rights alone were recognized, and equitable remedies were administered. The 7th Amendment thus applies not only to common-law causes of action, but also to actions brought to enforce statutory rights that are analogous to common-law causes of action ordinarily decided in English law courts in the late 18th century, as opposed to those customarily heard by courts of equity or admiralty. o To determine whether a statutory action is more analogous to cases tried in courts of law than to suits tried in courts of equity or admiralty, a court examines both the nature of the statutory action and the remedy sought. The “general rule” is that monetary relief is legal, and an award of statutory damages may serve purposes traditionally associated with legal relief, such as compensation and punishment. o Nor is a monetary remedy rendered equitable simply because it is not fixed or readily calculable from a fixed formula. o And there is historical evidence that cases involving discretionary monetary relief were tried before juries. C. Clean Hands Usually confined to inequitable (unethical, immoral) conduct by the Plaintiff – directly related to the subject of the litigation Applies even if conduct has not injured anyone Application of the maxim is discretionary Generally NOT a bar to recovery at law Green v. Higgins Kansas Supreme Court (1975) Rule: The clean hands doctrine is based upon the maxim of equity that he who comes into equity must come with clean hands. The clean hands doctrine in substance provides that no person can obtain affirmative relief in equity with respect to a transaction in which he is, himself, guilty of inequitable conduct. Conduct that will amount to unclean hands is conduct which the court regards as inequitable. The clean hands maxim is not a binding rule, but is to be applied in the sound discretion of the court. The application of the clean hands doctrine is subject to certain limitations. Conduct which will render a party’s hands unclean so as to deny him access to a court of equity must be willful conduct which is fraudulent, illegal or unconscionable. The objectionable misconduct must bear an immediate relation to the subject-matter of the suit and in some measure affect the equitable relations subsisting between the parties to the litigation and arising out of the transaction. The misconduct which may justify a denial of equitable relief must be related misconduct rather than collateral misconduct arising outside the specific transaction which is the subject-matter of the litigation before the court. Under the doctrine of unclean hands, a court may refuse its relief to the plaintiff though the defendant himself participates in the misconduct, not because it is a privilege of such a defendant, but because the court refuses to lend its aid to either party to such a transaction. The maxim applies, even though the misconduct of the plaintiff does not injure anyone and even though the defendant himself is a participant in the misconduct. D. Laches: Usually refers to an unreasonable delay in initiating or pursuing an equitable claim, during which the defendant has changes his position and thus unnecessary detriment would be imposed if the suit were allowed to continue Stone v. Williams, (Stone I) 2nd Circuit (1989) Rule: Laches asks whether the plaintiff in asserting her rights was guilty of unreasonable delay that prejudiced the defendants. The answer to this question is to be drawn from the equitable circumstances peculiar to each case. Although laches promotes many of the same goals as a statute of limitations, the doctrine is more flexible and requires an assessment of the facts of each case--it is the reasonableness of the delay rather than the number of years that elapse which is the focus of inquiry. Where plaintiff has not slept on her rights, but has been prevented from asserting them based, for example, on justified ignorance of the facts constituting a cause of action, personal disability, or because of ongoing settlement negotiations, the delay is reasonable and the equitable defense of laches will not bar an action. Laches is not imposed as a bar to suit simply because a plaintiff's delay is found unexcused; it must also be determined whether the defendants have been prejudiced as a result of that delay. o Although an evaluation of prejudice is another subject of focus in laches analysis, it is integrally related to the inquiry regarding delay. o Where there is no excuse for delay, defendants need show little prejudice; a weak excuse for delay may, on the other hand, suffice to defeat a laches defense if no prejudice has been shown. E. Contempt: Direct: recalcitrant or unseemly conduct that occurs in the courtroom Indirect: consists of a defendant’s disobedient of an injunction outside the courtroom CIVIL Civil v. Criminal Contempt Purpose Secure the benefits of equity decree for the plaintiff Nature of imprisonment as remedy Defendant incarcerated until for contempt affirmative act required by court is performed CRIMINAL Vindicate authority of court by punishing past disobedience Defendant is incarcerated for fixed term Nature of fine as remedy for Defendant generally pay fine to Defendant generally pays fine to the contempt plaintiff court What orders support contempt? To be enforceable, equity decrees must be formulated with sufficient specificity to apprise the enjoined party of the obligations imposed by the decree HK Porter Co. v. National Friction Products 7th Circuit (1977) Rule: Before either the compensatory or coercive aspects of a court’s civil contempt power can be brought into play first, there must have been disobedience of an operative command capable of “enforcement,” and second, that command, if it is in substance an injunction, must comply with Fed. R. Civ. P. 65(d). A party may incur a legal duty by entering into a settlement agreement, and a court may, pursuant to that agreement, incorporate the terms of the party’s obligation in its judgment; but to furnish support for a contempt order the judgment must set forth in specific detail an unequivocal command. Fed. R. Civ. P. 65(d) requires that an injunction shall describe in reasonable detail, and not by reference to the complaint or other document, the act or acts sought to be restrained. The failure of the equity court to spell out in a decree's text the specific obligations resting upon the defeated litigant is fatal to any contempt proceeding. The defendants ought to be informed as accurately as the case permits what they are forbidden to do. When the question of contempt is raised, just as it is inadequate if the decree has merely referred to a statute, even though the statute clearly created the legal obligation which warranted the decree, so it is not enough for enforcement by contempt proceedings if the decree merely referred to a contract, even though the contract clearly created the legal obligation which warranted the decree. Reasoning: The parties cannot commit the judge to contempt enforcement. The judge must go through procedural injunction steps. Must apply the inadequacy prerequisite. Make findings of fact and conclusions of law. State reasons to issue Playboy Enterprises v Chuckleberry Publishing New York District Court (1996) Rule: A contempt order is warranted only where the moving party establishes by clear and convincing evidence that the alleged contemnor violated the district court’s edict. The purpose of holding a party in civil contempt is to enforce compliance with an order of the court or to compensate for losses or damages. A court has the power to hold a party in civil contempt when: (1) there is a clear and unambiguous court order; (2) there is clear and convincing proof of noncompliance; and (3) the party has not attempted to comply in a reasonably diligent manner. o A clear and unambiguous order is one specific and definite enough to apprise those within its scope of the conduct that is being proscribed. The alleged contemnor must be able to ascertain from the four corners of the order precisely what acts are forbidden. o Failure to comply with the court order need not be willful. International Union, United Mine Workers of America v. Bagwell US Supreme Court (1994) Rule: Whether a contempt is civil or criminal turns on the character and purpose of the sanction involved. Thus, a contempt sanction is considered civil if it is remedial, and for the benefit of the complainant. But if it is for criminal contempt the sentence is punitive, to vindicate the authority of the court. Reasoning: The Supreme Court unanimously held that they had been intended to punish the union, not merely to maintain order or respect for the judiciary, and that the union was therefore entitled to the heightened protections of a criminal proceeding, such as a jury trial. An order requiring a person to do something can be enforced through civil contempt o Incarceration for an indefinite period until the performance of a specified act is coercive civil contempt which cannot continue if the contemnor is unable to comply and lacks the ability to purge himself Moss v Superior Court, Ortiz, Real Party in Interest California Supreme Court (1998) Issue: May contempt sanctions be imposed on a child support obligor, without a present ability to pay support, who willfully refuses to seek employment that would allow the ability to pay support? YES Rule: Burden of Proof: Preponderance of the evidence by he contemnor, since they have the superior access to the evidence to prove why they should be held in contempt. 1. Collateral Bar: A defendant cannot violate an injunction and argue to defend criminal contempt that the injunction is erroneous The ONLY argument that contemnor can make is the injunction is void Ex Parte Purvis Alabama Supreme Court (1980) Issue: Can Purvis challenge, by petition of writ of habeous corpus, the constitutional validity of the trial court’s TRO when Purvis failed to try to have the order dissolved or modified before violating it? NO Rule: The parties subject to the order must obey an order issued by a court with jurisdiction over the subject matter until it is reversed by orderly and proper proceedings even though the order may be constitutionally defective or invalid. Court orders may be disregarded in certain rare cases where compliance with the court order would cause irreparable injury and appellate vindication would not have its ordinary consequences of totally repairing the error. If an injunction is transparently invalid, or only has a frivolous pretense to validity, its validity may be challenged in a contempt proceeding. People v. Conrad California Court of Appeal (1997) Issue: Does acting “in concert” with enjoined parties require more than simply knowing of the injunction and acting in ways the parties are enjoined from acting? YES Rule: Injunctions are not effective against the world at large. Enjoined parties may not play jurisdictional shell games. They may not nullify an injunctive decree by carrying out prohibited acts with or through nonparties to the original proceeding. Any such nonparty who knowingly violates the terms of an injunction is subject to the contempt powers of the court. o However, in addition to knowledge of the injunction, some actual relationship with an enjoined party is required to bring a nonparty actor within the injunction’s scope. o An enjoined party, in other words, has to be demonstrably implicated in the nonparty’s contemptuous activity. o Mere “mutuality of purpose” is not enough. A nonparty to an injunction is subject to the contempt power of the court when, with knowledge of the injunction, the nonparty violates its terms with or for those who are restrained. Reasoning: While knowledge is required, it is not alone enough to make a contemner of an independent actor. The evidence showed only a single interaction between defendants and an enjoined person, i.e., one defendant motioning to one enjoined person to leave the vicinity of the demonstration. Only parties and privies are bound by an equitable decree Non parties acting independently and for themselves are not bound UNJUST ENRICHMENT Restitution is a free-standing legal subject with legal and equitable branches o Legal restitution is named quasi-contract o Equitable restitution features the constructive trust The substantive basis for restitution is Defendant’s unjust enrichment o Defendant has a benefit that is not fair, just or equitable to retain The remedy is accomplished by either o Restoration of specific property wrongfully withheld o Awarding to the injured party a sum of money measured by the value of benefits defendant received Kistler v. Stoddard Arkansas Court of Appeal (1985) Issue: Did the doctrine of unjust enrichment require that Shannon reimburse Stoddard for his costs in planting the wheat? YES Rule: Restitution is freestanding bodies of law separate from contract and property. The doctrine of unjust enrichment is an equitable one, providing that one party should not be allowed to benefit at the expense of another because of an innocent mistake or unintentional error. Reasoning: Stoddard was unaware at time of planting that the land was being sold. He was justified in planting crop before renewal since he justifiably relied on the past practices of the parties for 20 years. Stoddard’s restitution was the cost to plant the wheat. Patureau-Miran v Boudier Standard is enrichment of the defendant as a result of impoverishment of the plaintiff Kossian v. American National Insurance Co. California Appeals Court (1967) Issue: Can one party be indemnified (covered) twice for the same loss, once in labor and materials and again in money, to the detriment (forfeiture) of the party who furnished the labor and materials? NO Rule: Where a person is entitled to restitution from another because the other, without tortious conduct, has received a benefit, the measure of recovery for the benefit thus received is the value of what was received. Reasoning: American’s unjust benefit was the insurance company’s payment. Restitution is a separate body of substantive la where a plaintiff without a contract or property interest may recover. Knaus v Dennler Illinois Appellate court (1988) Issue: Did the defendants voluntarily accept the benefit as required to establish unjust enrichment? NO Rule: Recovery under an unjust enrichment theory requires a showing that the defendant has voluntarily accepted a benefit which it would be inequitable for him to retain without payment since the law implies a promise to pay compensation when value of services are knowingly accepted. Reasoning: The court held that the neighbors did not voluntarily accept a benefit, as required to establish unjust enrichment, because they went ahead with the excavation absent an agreement with the neighbors. The benefit was conferred in the face of opposition and disinterest, it appears to fall into the category of “officiously” or “gratuitously” conferred benefit. A. Legal Restitution: Quasi-Contracts Campbell v. Tennessee Valley Authority 5th Circuit (1969) Rule: The measure of recovery on the principle of quantum meruit is the reasonable value of the work performed, less the amount of compensation, whether in money or otherwise, already received. Quantum meruit is ambiguous; it may mean o (1) that there is a contract “implied in fact” to pay the reasonable value of the services, or o (2) that, to prevent unjust enrichment, the claimant may recover on a quasi contract (an “as if” contract) for that reasonable value. o It has been suggested that the latter is a rule-of-thumb measure of damages adopted in quasi contract cases where the actual unjust enrichment or benefit to the defendant is too difficult to prove Maglica v. Maglica CA Court of Appeal (1998) Issue: Could an unmarried spouse recover under quantum meruit? YES Rule: The legal test for recovery in quantum meruit is not the value of the benefit, but value of the services (assuming, of course, that the services were beneficial to the recipient in the first place). Recovery in quantum meruit does not require a contract. The underlying idea behind quantum meruit is the law’s distaste for unjust enrichment. o If one has received a benefit which one may not justly retain, one should restore the aggrieved party to his former position by return of the thing or its equivalent in money. It is one thing to require that the defendant be benefited by services, it is quite another to measure the reasonable value of those services by the value by which the defendant was “benefited” as a result of them. o Contract price and the reasonable value of services rendered are two separate things; sometimes the reasonable value of services exceeds a contract price. Unlike the “quasi-contractual” quantum meruit theory which operates without an actual agreement of the parties, an implied-in-fact contract entails an actual contract, but one manifested in conduct rather than expressed in words. B. Equitable Restitution: 1. The Constructive Trust The constructive trust has been referred to as “fraud rectifying” trust o It is usually found when there is some sort of fiduciary duty or fraud which deprived the plaintiff or property o It is imposed by law without regard to the intention of the parties Analogous to the quasi-contract in that both are imposed by law to compel the restoration of unjust gains Accomplished by imposing a duty on the defendant to transfer property to the plaintiff o Since it is in equity – it is a personal order against the defendant to act The constructive trust comes into existence when the court orders it Requirements for the imposition of the constructive trust: o Defendant has legal title to the specific property o Retention of the property by the defendant would result in unjust enrichment o The remedy at law is inadequate Advantages of the constructive trust over other remedies: o o o Permits plaintiff to recover specific property Plaintiff has the advantage of increase in value Plaintiff may take advantage of the equitable doctrine of tracing If the defendant invested the asset and the property has gained value – the plaintiff can capture the appreciation Simonds v. Simonds NY Court of Appeals (1978) Issue: Should the provision entitle the first wife to impress a constructive trust on proceeds of insurance policies subsequently issued, despite the husband’s failure to name her as the beneficiary on any substitute policies once the original life insurance policies had lapsed? YES Rule: When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee. Thus, a constructive trust is an equitable remedy. The constructive trustee is not compelled to convey the property because he is a constructive trustee; it is because he can be compelled to convey it that he is a constructive trustee. A constructive trust will be erected whenever necessary to satisfy the demands of justice. The purpose of the constructive trust is prevention of unjust enrichment. o Unjust enrichment does not require the performance of any wrongful act by the one enriched, since innocent parties may frequently be unjustly enriched. o What is required, generally, is that a party hold property under such circumstances that in equity and good conscience he ought not to retain it. o A bona fide purchaser of property upon which a constructive trust would otherwise be imposed takes free of the constructive trust, but a gratuitous donee, however innocent, does not. A court of equity in decreeing a constructive trust is bound by no unyielding formula. The equity of the transaction must shape the measure of relief. Reasoning: The court held that under the common law the first wife’s equitable interest attached to the substituted insurance policies. The court ruled that the second wife was unjustly enriched and that unjust enrichment did not require the performance of any wrongful act. 2. Tracing Generally, before the Chancellor will force a constructive trust: Trace it from the plaintiff to the defendant o Tracing: Where a person by the consciously wrongful disposition of the property of another acquires other property, the person whose property is so used is entitled to the property so acquired A plaintiff must show Defendant’s enrichment-benefit o Note: restitution equivalent to a plaintiffs injury is defendant’s unjust enrichment o SOME courts would add that defendant’s enrichment must be a the expense of plaintiff That it is unjust for the defendant to retain it C. Defenses to Restitution Affirmative defenses unique to restitution A defendant can negate either enrichment or unjustness Laches can come into play Defendant changed position in reliance Sale to a bona fide purchaser Or there can be a showing that the benefit conferred on a defendant was due to a gift or a volunteer of a benefit RESTITUTION IN TRANSACTIONS A. Election of Remedies: A court may attempt to avoid duplication by requiring the plaintiff to make an “election” o When plaintiff has alternative theories of recovery for one violation of her rights, she may plead and prove both, but she may not recover on both o It is a borderland between contract and restitution When a plaintiff “chooses” a remedy, i.e. contract-tort damages The plaintiff simultaneously disqualifies itself for another remedy, i.e. rescission-restitution The doctrine of election of remedies is an application of the doctrine of estoppel The purpose of the doctrine is to prevent duplicative recovery for the same wrong by requiring a party to elect between legally coexistent and inconsistent remedies Buyer Alternative Remedies Buyer could choose between: o Tort contract damages Buyer can affirm contract keep consideration received, and sue breaching seller for tort or contract damages, or o Rescission-restitution Buyer disaffirms or rescinds contract, restores consideration to seller, and seeks restitution of money consideration the seller received Affirmation of Contracts Damages: o Out of Pocket Rule: Generally, difference between what plaintiff paid and the actual value of what the plaintiff received This is actually based on the premise that the action is one of tort and that the purpose of tort damages is to indemnify for loss o Benefit of the bargain rule: Generally the difference between the actual value of what is received and the value it would have had if it had been as represented This is actually based on the premise that the action one of contract which satisfies the plaintiff’s expectation interest “Make-good” rule Generally what it costs to make the property conform to the seller’s representations Rescission of the Contract Remember – the remedy is restitution The elements to plead and prove a cause of action for deceit: o Misrepresentation of fact by the Defendant o No Scienter required o Materiality – ONLY if innocent misrepresentation Must prove that the misrepresentation was one likely to induce action b reasonable persons If intentional misrepresentation, need NOT be materiality o Actual reliance o Injury Legal remedies after rescission for fraud o After disaffirmance and tender is made, the defendant is now in position of retaining benefits unjustly o Depending on circumstance, plaintiff may seek: replevin; conversion; quasi-contract Equitable Remedies after rescission for fraud o As always – it must first be shown that the remedy at law (damages) is inadequate Oftentimes shown by a defendant who is insolvent Or when a deed of trust must be cancelled or executed and only equity courts can grant that relief o Depending on circumstances, the plaintiff may seek: An accounting In land sale contracts The consideration paid with interest plus expenditures for improvement and to maintain the property, insurance and taxes, incidentals Mechanics of Rescission Rescission at Law o Predicated on theory that plaintiff has already disaffirmed contract o Notice and offer to restore o Notice and offer to restore must be prompt after discovery of fraud Usually only an issue if the delay prejudices defendant o Tender back need not be made when Property has been worthless Plaintiff is not required to restore money Property is disposed of prior to discovery of fraud Rescission in Equity o Notice and tender not required Policies involved in Election Prevent breaching seller’s prejudice Estoppel-waiver-laches policies o Buyers conduct may prejudice seller, who can rely on promise Prevent buyer’s duplicative recovery o Cannot recover both expectancy damages and rescission-restitution Anti-speculation Res judicata – preclusion policies Gannett Co. v. Register Publishing Co. Connecticut District Court (1977) Rule: An injured party has the option to rescind a contract induced by fraud. But the right does not persist indefinitely. The law is very clear that the right to rescind for fraud must be exercised within a reasonable time after the injured party learns of the wrong. If the injured party neglects to notify the other party promptly of his intention to rescind, or if he accepts benefits under the contract and thereby affirms it, he loses his right to rescind. Exercise of acts of ownership over the subject matter of the contract will validate the transaction and terminate the power of avoidance, regardless of whether the other party has suffered any prejudice. The injured party must offer to restore the status quo ante by tendering what he has received in substantially as good condition as when it was transferred to him. o B. Unconscionability UCC § 2-302(1): Unconscionable Contract or Clause. “If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.” There is no right to a jury trial on the issue of Unconscionability Judge has great discretion in finding a solution Procedural Unconscionability Defendant’s unconscionable or overreaching conduct before the parties form the contract o That is defendant’s misconduct extrinsic to but inducing the plaintiff to assent to the contract Includes defendant’s practices that resemble deceit, misrepresentation, non-disclosure, duress, undue influence, sharp practice, fiduciary breaches, contract breaches, etc. Substantive Unconscionability A contract itself is unconscionable, either because of its intrinsic unfairness or internally unfair terms Includes intrinsically harsh, lop-sided bargains Remedial Unconscionability Some unfair contract clauses like confession of judgment, restricted remedies for breach of warranty, forfeiture clauses and acceleration clauses are invocable only upon default Discover Bank v. Superior Court California Supreme Court (2005) Issue: Was an arbitration agreement with a class-action waiver unenforceable on the grounds of unconscionability? YES Rule: The doctrine of unconscionability has both a procedural and a substantive element, the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results. The procedural element of an unconscionable contract generally takes the form of a contract of adhesion, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it. Substantively unconscionable terms may take various forms, but may generally be described as unfairly one-sided. BREACHED SALES AGREEMENTS A. Buyer’s Remedies Damage Remedies Expectancy damages o The purpose of expectancy damages is to give the buyer the money equivalent of the breached contract profits potential Often called the benefit-of-the bargain damages o There are general damages: losses that the law expects any person to encounter from a particular breach o There is no need to prove an actual loss o Court generally use market – or objective – value calculations to compute a plaintiff’s general damages Special damages o Losses that are unique or peculiar to the particular plaintiff o They must be Realized – proved – not remote Restitution damages o Found where buyer’s performance of a breached contract benefits the seller, unjustly enriching seller o The measured is consider the out-of-pocket measure There damages restore a defrauded byer to the pre-transaction financial position This measure is bottomed in tort compensation: The value the buyer paid les the value the buyer received equals out-ofpocket general damages o Out-of-pocket is an undesirable damages measure for a buyer who made a good bargain Reliance damages o Loos to “reliance loss” which is comprised of buyer’s expenses related to preparing for the breaching seller to perform the breached contract Found where buyer’ performance of a breached contract benefited the seller, unjustly enriching the seller o This is a “spent cost” that is wasted by the seller’s breach Liquidated damages o Parties agree in advance to a stipulated sum for damages Liquidated damages commonly accompany earnest money in land contracts Non-damage Remedies Declaratory judgment o This is a contract plaintiff’s remedy o A party to a contract may ask court for a declaratory judgment that the contract has or has not been breached Generally facilities allowing parties to resolve contract disputes prior to breach Specific performance o This is a buyer’s most important remedy o This gives the non-breaching byer the breaching seller’s performance in fact o Here, obtaining the property maybe more valuable to the non-breaching buyer than expectancy damages 1. Specific Performance McCarthy v. Tobin Massachusetts Supreme Court (1999) Issue: Even if a Purchase and Sale Agreement is never signed, can the buyer, McCarthy, seek specific performance? YES Rule: If the parties to a contract have agreed upon all material terms, it may be inferred that the purpose of a final document, which the parties agreed to execute, is to serve as a polished memorandum of an already binding contract. A judge generally has considerable discretion with respect to granting specific performance, but it is usually granted in disputes involving the conveyance of land. o Real property is unique and money damages will often be inadequate to redress a deprivation of an interest in land. Reasoning: The court found a preprinted offer to purchase agreement binding even though the form contained a provision, which required the execution by a certain date of the Purchase and Sale Agreement. Tobin signed an offer to purchase, but before the purchase and sale agreement was signed (during its negotiation), he received a higher offer, accepted that offer and refused to sign the negotiated purchase and sale agreement. B. Buyer’s Damages for Seller’s Breach 1. Tort v. Contract In the common law system, in general: Property law defines what we own Contract law tells us how to exchange it o Contract law aims to facilitate exchange by fulfilling our bargained expectancies Tort la tells courts how injuries are compensated o Aims to restore our losses So, given the fact that contract law fulfills our bargained expectations, and tort law restores our losses Sometimes we and the court need to choose between the two Selman v. Shirley Oregon Supreme Court (1939) Issue: Can a party that is defrauded by misrepresentation recover “the benefit of the bargain?” YES Rule: Under the general rule as to damages, the injured party is entitled to recover such damages as result directly and proximately from the fraud, which include those which were actually or presumptively within the contemplation of the parties when the fraud was committed. All damages are recoverable, which naturally flow from the tortious act of the defendant with reasonable certainty. The loss of the benefits of the bargain is one of the elements of damages, which the defendant must be held to have contemplated as the natural and proximate result of his conduct, and for which he is, therefore, answerable. In cases involving sales, leases or other like contracts, where it appears that there is a fraudulently false representation of quantity, quality, price of title the measure of damages is the difference in value between that which is actual and that which was represented to exist. To facilitate its application the proximate result rule is often subdivided into four auxiliary rules: o (1) A defrauded party is entitled to all out-of-pocket losses; o (2) He is entitled to the benefit of his bargain; o (3) If the property was falsely represented as improved with or containing some items which are not there, he is entitled to the cost of installing them; and o (4) He is entitled to all consequential damages. o These are merely subdivisions of the main rule, and are employed by the courts according to the facts and demands of the various cases. Reasoning: The court applied the proximate result rule to determine the appropriate amount of damages, noting that the proximate result rule employed both the out-of-pocket loss rule and the benefit-of-the-bargain rule in a flexible manner. The court also noted that the proximate result and the natural consequences of the fraud were determined from the point of view of the victims, as they contemplated their purchase. Benefit of the bargain rule is used here, which is a contract rule, but here it is applied to tort fraud damages o Out of pocket (remember bottomed in tort) treats the seller better for committing a tort instead of a breach of contract o Tort-contract distinctions should not prevent a court from compensating a plaintiff dully under the basic damages rule Rule: Damages compensate proximate loss o The flexibility approach is adopted – the court will chose the measure best suited for the circumstance – either out-of-pocket or benefit-of-the-bargain o Here buyers recover benefit of the bargain fraud damages of $1900 Damages measured by: Out of pocket loss (payments made plus reliance expenditures) OR Benefit of the bargain (the difference between contract price and market value of land on date set for performance) Consequential damages (in some jdx) if they were foreseeable Remedies for seller’s breach of executory land sale contracts Damages Specific performance Restitution (rescind contract and seek restitution of benefits conferred) When there is a total breach of a contract: Damages based on market value less contract price 2. Expectancy Damages v. Rescission-Restitution Horton v. O’Rourke Florida Appeals Court (1975) Issue: Is specific performance appropriate for the purchasers? Rule: In the absence of bad faith, the damages recoverable for breach by the vendor of an executory contract to convey title to real estate are the purchase money paid by the purchaser together with interest and expenses of investigating title. Decision: No, but pecuniary damages is sufficient. 3. Measuring the Buyer’s Expectancy Wilson v. Hays Texas Appeals Court (1976) Rule: Cover (Buyer’s Procurement of Substitute Goods) – After a breach the buyer may ‘cover’ by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller. The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages, but less expenses saved in consequence of the seller’s breach. Failure of the buyer to effect cover within this section does not bar him from any other remedy. Buyer’s Damages for Non-Delivery or Repudiation – the measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages, but less expenses saved in consequence of the seller's breach." Texpar Energy, Inc. v. Murphy Oil USA, Inc. 7th Circuit (1995) Rule: A measure of the buyer’s damages for nondelivery or repudiation is the difference between the market price at the time when the buyer learned of the breach and the contract price. Reasoning: The court held that the buyers remedy was difference between the market price at the time of breach and the price for the asphalt in the contract. Buyer was not limited to the benefit of the bargain measure. The court also found the concept of “cover” was not applicable. Purchaser’s contract with seller did not constitute cover by buyer because buyer was not involved in the contract between seller and purchaser. Wolf v. Cohen District of Columbia Appeals Court (1967) Rule: The measure of damages for breach of a contract of sale is the difference between the contract price and the fair market value of the property. Decision: Court found that damages was zero, since the market value on date of breach was $1 million and the contract price was also $1 million. Lost Business Profits – consider: ‘Certainty” of the Existence of Damages o Generally damages must be proven with certainty and not left to speculation o “Proof sufficient to establish a probability of loss in the minds of reasonable persons” Uncertainty of Amount of Damages is not fatal to the cause of action o Damages may still be recoverable since the trier of fact can make determination of the amount Grossman Holdings LTD. V. Hourihan Florida Supreme Court (1982) Issue: Was the proper measure of damages the difference in value as of the date of delivery between the house respondents contracted for and the house that petitioner built? YES Rule: For a breach by one who has contracted to construct a specified product, the other party can get judgment for compensatory damages for all unavoidable harm that the builder had reason to foresee when the contract was made, less such part of the contract price as has not been paid and is not still payable. For defective or unfinished construction the party can get judgment for either: o the reasonable cost of construction and completion in accordance with the contract, if this is possible and does not involve unreasonable economic waste; or o the difference between the value that the product contracted for would have had and the value of the performance that has been received by the plaintiff, if construction and completion in accordance with the contract would involve unreasonable economic waste. Reasoning: The court found that, while reconstruction of the house would result in economic waste, the trial court erred when it refused to consider a damage award and the appellate court erred in its determination of the measure of damages. Oloffson v. Coomer Illinois Appellate Court (1973) Rule: When a party repudiates a contract, the aggrieved party can then, for a commercially reasonable time, await performance by the repudiating party or resort to any remedy for breach, even though he has notified the repudiating party that he will await the latter’s performance and has urged retraction. The words “for a commercially reasonable time” must be read relatively to the obligation of good faith. o The UCC imposes upon the parties the obligation to deal with each other in good faith regardless of whether they are merchants. o The Sales Article of the UCC specifically defines good faith, in the case of a merchant, as honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade. 4. Buyer’s Special Damages: Lost Business Profits AM/PM Franchise Association v. Atlantic Richfield Company Pennsylvania Supreme Court (1990) Issue: Did the plaintiff mini-mart owners allege sufficient facts to sustain a cause of action when they averred that the gasoline they purchased from defendant gasoline supplier under an exclusive contract was not in conformance with the warranties made and resulted in their suffering economic losses? YES Rule: Where a buyer in the business of reselling goods can prove that a breach by the seller has caused him to lose profitable resales, the buyer’s lost profits constitute a form of consequential damages. Consequential damages are generally understood to be other damages which naturally and proximately flow from the breach In addition to general damages, there are three types of lost profit recoverable as consequential damages that may flow from a breach of warranty: (1) loss of primary profits; (2) loss of secondary profits; and (3) a loss of good will damages or prospective damages, as they are sometimes termed. o Lost primary profits are the difference between what the buyer would have earned from reselling the goods in question had there been no breach and what was earned after the breach occurred. o Good will damages refer to profits lost on future sales rather than on sales of the defective goods themselves. 5. The New Business “Rule” Mindgames, Inc. v. Western Publishing Company, Inc. 7th Circuit (2000) Rule: The “new business rule” provides that, as a matter of law, a new or unestablished business cannot recover lost profits because absent a history of past profits, future profits are too uncertain, contingent, and speculative. It merely restates and emphasizes the evidentiary requirement that a new business, like an existing business, must prove profits with reasonable certainty It has been abandoned in most states that once followed it The strict application of the rule could encourage tortious behavior or the breaking of contracts by those dealing with new businesses Instead of a strict bar on such claims, many courts now hold that, regardless of whether a business is new or is established, lost profits can be recovered if it is possible to show by competent evidence and with reasonable certainty that profits would have been made and the amount of those profits. 6. Emotional Distress and Tort-Contract Interlude Erlich v. Menezes California Supreme Court (1999) Rule: Outside the insurance context, a tortious breach of contract may be found when (1) the breach is accompanied by a traditional common law tort, such as fraud or conversion; (2) the means used to breach the contract are tortious, involving deceit or undue coercion or; (3) one party intentionally breaches the contract intending or knowing that such a breach will cause severe, unmitigable harm in the form of mental anguish, personal hardship, or substantial consequential damages. The fact that emotional distress damages may be awarded in some circumstances does not mean they are available in every case in which there is an independent cause of action founded upon negligence A preexisting contractual relationship, without more, will not support a recovery for mental suffering where the defendant's tortious conduct has resulted only in economic injury to the plaintiff Unless the defendant has assumed a duty to plaintiff in which the emotional condition of the plaintiff is an object, recovery is available only if the emotional distress arises out of the defendant's breach of some other legal duty and the emotional distress is proximately caused by breach of the independent duty. o Even then, with rare exceptions, a breach of the duty must threaten physical injury, not simply damage to property or financial interests. Emotional distress damages in connection with property damages are not compensable. 7. Reliance Recovery Wartzman v. Hightower Productions, LTD. Maryland Appeals Court (1983) Rule: Profits lost due to a breach of contract are recoverable. Where anticipated profits are too speculative to be determined, monies spent in part performance, in preparation for or in reliance on the contract are recoverable. Recovery for breach of contract based upon reliance interest is not without limitation. If it can be shown that full performance would have resulted in a net loss, the plaintiff cannot escape the consequences of a bad bargain by falling back on his reliance interest. o Where the breach has prevented an anticipated gain and made proof of loss difficult to ascertain, the injured party has a right to damages based upon his reliance interest, including expenditures made in preparation for performance, or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed. The breaching party is authorized to prove any loss that the injured party would have suffered had the contract been performed. A promisee may recover his outlay in preparation for the performance of a contract, subject to the privilege of the promisor to reduce it by as much as he can show that the promisee would have lost if the contract had been performed. A contracting party is expected to take account of only those risks that are foreseeable at the time he makes the contract and is not liable in the event of breach for loss that he did not at the time of contracting have reason to foresee as a probable result of such a breach. The very nature of reliance damages is that future gain cannot be measured with any reasonable degree of reliability. B. Seller’s Remedies If buyer breached, seller will consider these basic remedies: Specific performance: o Equitable remedy available to a buyer in a land sale contract o While available to a seller not as easy to obtain Damages: o Sellers expectancy damages may be either: Contract price less market value; or Contract price less resale price Liquidates Damages: o Forfeiting buyer’s earnest money is the most common situation Restitution 1. Specific Performance Centex Homes Corp v. Boag New Jersey Superior Court (1974) Issue: Does the equitable remedy of specific performance lie for the enforcement of a contract for the sale of a condominium apartment? Rule: Specific performance should be confined to those special instances where a vendor of real estate will otherwise suffer an economic injury for which his damage remedy at law will not be adequate or where other equitable considerations require that relief. Physical uniqueness is insufficient to establish the inadequacy of the remedy, if damages are susceptive of calculation Mutuality of remedy is not the basis for granting or denying specific performance. o The test is whether the obligations of the contract are mutual and not whether each is entitled to precisely the same remedy in the event of a breach. Seller bargains for money, while buyer bargains for land Decision: No, specific performance is not available, but liquidated damages of $525 are. 2. Seller’s Expectancy (and other) Damages Jagger Brothers v. Technical Textile Co. Pennsylvania Supreme Court (1964) Issue: What is the correct measure of damages? The contract price less market value. Rule: The measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages provided, but less expenses saved in consequence of the buyer's breach. For a breach of contract for the sale of personal chattel, yet to be manufactured, the vendor is entitled to recover the difference between the selling price and the market value at the time and place of delivery. Sprague v. Sumitomo Forestry Company, Limited Washington Supreme Court (1985) Issue: Is the 14-month delay commercially reasonable? YES Rule: UCC 2-706(1): the seller may resell the goods concerned for the undelivered balance thereof. Where the resale is made in good faith and in a commercially reasonable manner the seller may recover the difference between the resale price and the contract price together with any incidental damages allowed, but less expenses saved in consequence of the buyer's breach. These damages are the difference between the contract price and the market price at the time and place when performance should have been made by the buyer. The actual resale price of the property is evidence of market value the date of breach – but is not conclusive Reasoning: The seller was in the business of selling bulldozers and was aware that the market for bulldozers declined after the buyer breached the sale, so that a delay of 14 months had little probative value as to the indication of market price at the time of the breach. The buyer was aware that the seller was trying to resell the bulldozer. Sprague v. Sumitomo Forestry Company, Limited Washington Supreme Court (1985) Rule: Seller need not elect between UCC 2-706 (resale and recovery) and 2-708 (recovery of the difference between the contract price and the market price) choosing one does not eliminate the other. Resale price of goods (under UCC 2-706) may be considered as appropriate evidence of the market value (under UCC 2-708) 3. The Seller’s Profits R.E. Davis Chemical Corp. v. Diasonics, Inc. 7th Circuit (1987) Rule: There are two measures of damages in UCC 2-708, (1) is contract price less market price and (2) is profits. UCC 2-708(2) should only be applied when the former measure of damages (contract price less market price) is inadequate to put the seller in as good a position as performance of the contract would have done UCC 2-708(2) allows for recovery for lost volume sellers, the fact that the sale is indeed lost volume needs to be established. o A lost volume seller may recover for lost profits if it can prove not only that it had both the capacity to make the sale on the contract and to the resale buyer but also that it would have been profitable to make both sales. o Condition for recovery of lost profits in lost-volume seller cases: (1) Person who bought the resold item would have been solicited by seller had there been no breach by the buyer and resale; (2) Seller’s solicitation of X would have been successful; and (3) Seller could have performed that additional contract with X. Reasoning: However, a seller may elect to proceed under UCC 2-708(2), which permits a lost volume seller, defined as one that has a predictable and finite number of customers and that has the capacity either to sell to all new buyers or to make the one additional sale represented by the resale after the breach and such additional sale is profitable, to recover its lost profit on the sale. 4. Liquidated Damages Generally, stipulated damages upon breach of an agreement are upheld if the amount to be paid bears a reasonable relationship to the anticipated loss o If a liquidated damage clause is enforceable, it is controlling and actual damage need not be proved When is it enforceable? If a contested clause providing for definite pre-agreed damages is intended by the parties to operate in lieu of performance, it will be deemed a liquidated damages clause and may be enforced by the courts If such a clause is intended to operate as a means to compel performance, it will be deemed a penalty and will not be enforced Where the court has sustained a liquidated damages clause the measure of damages for a breach will be the sum in the clause, no more, no less If the clause is rejected as being a penalty, the recovery is limited to actual damages proven 5. Seller’s Restitution If the buyer breaches after full performance by the seller, the seller’s remedy is damages and NOT restitution If the buyer breached after part performance by the seller o The seller can treat this as a material breach which excuses further performance by the seller o And then the seller can seek restitution from the buyer for the reasonable value of any benefit already conferred upon the buyer BREACH OF EMPLOYMENT AGREEMENTS “At Will” Employment Contract If the parties employment agreement lacks specified duration, then either the employer or the employee may terminate it “at will,” at any time, for any reason Neither can maintain an actin for breach of contract Plaintiff cannot “rely” on an offer of, or employment under, an at-will arrangement o Cannot maintain ancillary and relate substantive theories of intentional fraud, negligent fraud, promissory estoppel, restitutionunjust enrichment, and prima facie tort Exceptions Employees working under contract Tenure and rights due to civil service or collective bargaining contracts Employee handbook may have contractual clauses Under state and federal civil rights, an employer cannot terminate an employee for a forbidden reason like race, gender, religion, age, and, often, sexual orientation A judge may recoil from the unfairness of an employer firing employee for a bad reason, such as reporting illegal hazardous waste dump to the authorities Tort or Statutory Remedies An employee-plaintiff will seek a tort or statutory remedy to open the door for possible reinstatement or an injunction, punitive damages, emotional distress damages, and attorney fees A. Employer’s Remedies – Injunction Beverly Glen Music, Inc. v. Warner Communications, Inc. CA Appeals Court (1986) Issue: Can one who breaks a personal services employment contract be enjoined from performing the same services for a rival? Rule: It is a familiar rule that a contract to render personal services cannot be specifically enforced. An unwilling employee cannot be compelled to continue to provide services to his employer either by ordering specific performance of his contract, or by injunction. To do so runs afoul the Constitution’s prohibition against involuntary servitude. While they cannot directly enforce an affirmative promise, they can enforce the negative promise implied therein o It is possible to prevent him from employing his talents anywhere else. Decision: No. Although other states allow this it is not the case in California. Reasoning: Beverly Glen’s effort, of course, was different, as it sought to enjoin not the breaching employee but instead a rival employer. The court held that the only thing that would be accomplished by this was to preclude the singer from earning a living, and that was a harsh remedy, which state law, had already precluded. That being so, an injunction should not issue against defendant. B. Employer’s Remedies – Damages Roth v. Speck DC Court of Appeals (1956) Issue: What the plaintiff was entitled to recover damages that represented the costs of obtaining suitable replacement labor that was required by defendant’s breach? YES Rule: The measure of damages for breach of an employment contract by an employee is the cost of obtaining other service equivalent to that promised and not performed. Compensation for additional consequential injury may be recovered if at the time the contract was made the employee had reason to foresee that such injury would result from his breach. Lost Profits May be recovered in an employee breach of contract case if the employer can show that the parties had reason to believe that losses would result from breach C. Employee’s Remedies – Specific Performance Common Law Rule When an employer breaches an employment or personal service contract, a court will refuse to order specific performance to enforce the contract Thurston v. Box Elder County (Utah 1995) Reinstatement may be considered as a remedy by a trial court when fashioning a remedy for breach of an employment contract When a trial court determines that under the circumstances of a particular case, an award of damages would be so inadequate as to warrant equitable relief, a court may consider reinstatement as a remedy Discharge Violates of Constitution or Statute Court will typically reinstate employee Usually occurs in violation of state of federal civil right acts D. Employee’s Remedies – Damages Dixie Glass Co. v. Pollak Texas Court of Civil Appeals (1960) Issue: Is the employee plaintiff entitled to damages beyond the date of trial? YES Rule: Where an employer wrongfully breaches a contract of employment prior to the time it has been completely performed, a cause of action for damages for breach of contract immediately arises in favor of the employee and he is entitled, if he elects, to recover his damages for the full term for which he was employed. He is not limited to damages proven only to the date of trial where trial is before the expiration of the term of employment. (Majority View) The measure of damages is the present cash value of the contract to him, if it had not been breached, less any amounts that he should in the exercise of reasonable diligence be able to earn through other employment. The duty is on the employee to use reasonable diligence to obtain other employment and thus minimize his damage. The maximum recovery would be the present value of the contract if it should be fully performed and in the exercise of reasonable diligence the employee could not obtain other employment. Minority view: Anticipatory damages may not be recovered but recovery is limited to damages suffered to the date of trial E. Employee’s Avoidable Consequences Parker v. Twentieth Century-Fox Film Corp. CA Supreme Court (1970) Issue: Did plaintiff deliberately fail to mitigate damages by unreasonably refusing to accept the offer of substitute employment? NO Rule: The general rule is that the measure of recovery by a wrongfully discharged employee is the amount of salary agreed upon for the period of service, less the amount which the employer affirmatively proves the employee has earned or with reasonable effort might have earned from other employment. However, before projected earnings from other employment opportunities not sought or accepted by the discharged employee can be applied in mitigation, the employer must show that the other employment was comparable, or substantially similar, to that of which the employee has been deprived; the employee’s rejection of or failure to seek other available employment of a different or inferior kind may not be resorted to in order to mitigate damages. Reasoning: It is clear that the trial court correctly ruled that plaintiff’s failure to accept defendant’s tendered substitute employment could not be applied in mitigation of damages because the offer of the “Big Country” lead was of employment both different and inferior, and that no factual dispute was presented on that issue.