Logan'sRemedies

I II Introduction a The plaintiff has the right to be made whole, but only in the way that is cheapest for the defendant. b Remedies drive the substantive law. i If a remedy is given, it essentially says that the defendant was wrong and if one is not given, it says there was no substantive wrong. c Remedies may be legal or equitable. i Legal: jury trial. 1 A jury does not have to give reasons for its damages amount. 2 Example: damages ii Equitable: judge trial. 1 A judge has to write out reasons and rationales for its damage awards. 2 Example: injunctions a Damages have to be inappropriate in order for someone to get an injunction. d Remedies can either be substitutionary or specific i Damages are substitutionary ii Injunctions are specific. e There are three substantive bodies of law for recovery: i Tort ii Contract iii Restitution Damages a Rightful Position i Value as a Basic Measure 1 US v. Hatahley a Facts: Indians were using US owned land to raise their horses and burrows, which they used for food and transportation, until they were forced off the land by the US, and their animals were sent to a glue factory, in violation of a federal law requiring notice prior to taking of animals. b Reasoning: The appellate court identified three problems in the lower court’s decision: i $395 per animal was an arbitrary number. 1 The value of the animals should be measured by the market value of similar horses and burrows and if they are unique for some reason, the plaintiff needs to prove precisely how much their particular uniqueness (in this case, training) is worth. ii Their calculation for loss of value of the animals (an assumed half of the depletion in the amount of animals) was arbitrary because some where sold or lost for other purposes than the taking. 1 The plaintiffs have to show exactly how many animals were taken, sold, or died, for some other reason. a Note that plaintiff would have to move locations if the animals were dying in those lands for some particular reason. i This is the duty to mitigate. b Note that if there was a loss of crops due to the loss of animals, the c d e plaintiff would have to prove this as well to receive damages. 2 These are legitimate damages, but they have to be proven by the plaintiff. iii Pain and suffering damages (an equal division between the number of Indians) were arbitrary because each person suffered in different ways. 1 A lump sum will not work. 2 There has to be proof of pain and suffering from each individual person. Rule: the plaintiff is required to prove damages with as much precision as possible. i It does not have to be exact. 1 In cases where it is possible to be exact, as close as possible will be exact, and in cases where it is not possible to be exact, it will be as close as possible. Note: this case illustrates the basic principle of rightful position. i That is the position that the plaintiff would have occupied but for the defendant’s wrongful conduct. 1 There needs to be as much precision as possible when measuring those damages. a The plaintiff usually has to put on some evidence to be as close to exact as possible. Note: There are two schools of thought on damages: i Corrective justice: damages are given because the plaintiff has been wronged. 1 The plaintiff should be restored to his rightful position. a This is where the plaintiff would be if not for the defendants’ wrong. b This must be the actual middle. i Not a windfall. ii Not less than the plaintiff deserves. 2 This approach cares about the substantive obligation because it is wrong to violate it in some moral sense and the law somehow embodies the wrong. a The remedy exists because of the violation of that moral promise. ii Law and economics: damages are about efficient use of the system and allocation of resources. 1 This is also called efficient breach. a If someone is better off financially if they breach a contract, and pay damages because of it, they should do that. 2 We take money from the defendant for the purpose of encouraging proper behavior. a They take away the value, which encourages the government to bargain or negotiate. 3 The fact that money is going to the plaintiff is a secondary effect. Things are only wrong if they are less efficient. a It is about maximizing economic recourses and putting things to their highest use. i 2 3 4 5 US v. 50 Acres of Land a Facts: US condemned a landfill that was owned by the city so it could not be used anymore. This was a Fifth Amendment taking, so the city needed to be compensated. b Issue: was this a special use, and should there therefore be an exception to the general way of calculating the value? c Holding: no. d Reasoning: this is not a special use because there is a fairly robust market, so the plaintiff’s are entitled to the fair market value of what was taken. e Rule: just compensation is normally to be measured by “the market value of the property at the time of the taking contemporaneously paid in money.” i The court will not give damages to replace the property with something better than what was taken. ii It is not the value to the plaintiff that matters. f Note: the lower court argued that because the facility was an exceptionally nice one, value should be added. i But the Supreme Court ruled that the market should make the fair market value and the substitute facility the exact same amount and that looking at the difference and making adjustments would introduce more imprecision. Value to the plaintiff v. fair market value a If something is readily attainable, the measure will be the fair market value. i We will not consider how much something is worth to the plaintiff. Undercompensation and used goods a This may occur when something has a value far greater than the fair market value for that object generally would have. i Example: when a car is totaled, the amount someone may receive for it is far less than it will cost to replace it. 1 Insurance policies sometimes take account of replacement cost, but the general rule of compensation will give less than the replacement cost. ii Example: used goods that have been treated very well and are just like new. 1 People who are buying the used goods don’t know if they are really worth as much as is being charged. 2 Used goods are worth more to the original owner because he knows what has happened to them and that they are reliable. Component parts 6 7 If a court can, it will just require damages to replace the component part, but if it is not possible, and the entire thing has to be abandoned because of the damaged or lost component part, the defendant will have to cover the entire thing. i This is because the plaintiff is taken as he is found. Trinity Church v. John Hancock Mutual Life Insurance Co. a Facts: the church, which was built with brittle stones that cracked easily and didn’t settle evenly, got big cracks in it when an adjacent building tower was being built. The church still stood and was functional, but there was structural damage that couldn’t be repaired, but needed rebuilding to fix. b Rule: when there is no market value for something, the usual rule, that damages are diminution in market value, does not apply. i The court will provide replacement costs and will impose a test of reasonableness. 1 There is a point at which the court will say the damages are unreasonable. c Note: the concept of present value says that the damages need to be reduced such that the amount grows over time to be the appropriate amount at the point in time when the money is going to be used (when the church actually needs to be taken down). i The basic rule is that damages have to be calculated with reasonable certainty when these extreme future figures are included. d Note: if the church were completely destroyed, it would be valued at its replacement cost, because there is no fair market value. i This looks a lot like the value to the plaintiff as opposed to their rightful position. 1 Subjectivity does sometimes enter. e Rule: in the case of “special purpose property,” were market value does not afford a correct measure of indemnity, the reasonable cost of reproduction less depreciation is an appropriate measure of damages. Decatur County Ag-Services, Inc. v. Young a Facts: Decatur’s crops are sprayed negligently so he doesn’t get as much yield as he would have otherwise gotten. He puts the beans aside and sells them in the next season, when they are worth more. He then claims that he always holds on to his beans because he doesn’t want to sell at harvest time because they are worth less. b Reasoning: Decatur cannot use the value of the price that he normally would have received because it will be too speculative. i Although it is his practice to hold the beans in reserve, there is also a duty to mitigate. c Rule: the value of crops is to be determined at the time of the harvest. i Note: if the fair market value cannot be determined, the fair rental value of the land can be used. d Note: this holding doesn’t seem to put the plaintiff in his rightful position. e Note: the court also talks about offsets. a i These are reductions from whatever the award is. 1 There is an argument that Decatur didn’t have to do as much work harvesting and was able to do something else with his time, and earn more money. a But this is questionable because he didn’t know, before harvest, what the crops would yield, so he probably did the same amount of work. ii The typical rule is that offsetting should be done. 1 We typically have to offset whatever cost the plaintiff has avoided because of the wrong. 2 In contracts, this would be called “cost avoided.” Stocks a Stocks vary and fluctuate in price, so their value changes at any point in time, and there are three approaches, depending on the jurisdiction, on how to handle it: i Value the loss at the time of the wrong (loss). 1 This is the minority. ii The highest value between the time of loss and the time of trial (some set date) 1 If the stock goes up and then goes down, resolve the wrongs against the defendant, and choose the highest amount the stock was at, because that is the point at which the owner could have sold it. 2 This is the majority. iii The highest value between the time of the loss and some reasonable period of time. 1 This uses the second approach but there is a duty to mitigate. a A person cannot just hold onto the stocks forever. 2 This is used by New York and the Federal Courts. b Note that replevin is the legal remedy (not equitable) in which the plaintiff gets the actual stock back rather than having to worry about value. ii Reliance and Expectancy 1 Neri v. Retail Marine Corp. a Facts: the plaintiff ordered the boat, put money down as a deposit ($4000), got ill, and cancelled the order after it had already been made and delivered to the seller. Neri sued to get his deposit back and Marine Corp. counterclaimed because of the breach of contract. Neri argues that Retail sold the boat a short time afterward for the same price, so he doesn’t owe them anything for the breach. Retail says they had storage and upkeep costs and that they could have sold two boats had Neri not breeched. i This is the lost volume seller argument. 1 They argue that they have an unlimited supply, and therefore, lost the deal b This case illustrates the three interests: 8 2 i Expectancy (concerned with plaintiff) 1 This is the benefit of the bargain or the rightful position of the plaintiff (where the plaintiff would have been had the defendant not committed the wrongful act) a It is concerned most with profit. b Retail Marine wants their expectancy. i This is the profit they would have made had they been able to sell the second boat ($2579). ii Reliance (concerned with plaintiff) 1 This is the position the plaintiff would have been in had the defendant never made the promise. a Plaintiff doesn’t get the benefit of the profit they would have made. b Retail Marine wants their upkeep and storage money ($674). iii Restitution (concerned with defendant) 1 This puts the defendant back in the position he would have been in (where he should be). a This is because they have been unjustly enriched at the expense of the plaintiff. i It needs to be taken away from them and given back to the plaintiff (corrective justice). b Neri wants the deposit back ($4250) because it is unfair for Retail to keep his money as it is unjust enrichment. i It would knock Retail Marine back down. c Rule: restitution is the deposit less the expectancy plus reliance (4250 – 2579 + 674 = 997). i So $997 is the restitution. 1 But the UCC allows Retail Marine to keep some stuff for liquidated damages. a Liquidated damages are when there is a certain specified number that is a reasonable approximation of what would be the damages in the case of a breach. Smith v. Bolles a Facts: the plaintiff bought 4,000 shares of stock at $150 per share that he thought was actual stock, but really wasn’t. While the real stock would have been worth $10,000, this was worth nothing. b Holding: he is entitled to reliance damages (what he paid for the stock ($6,000)). c d e f Reasoning: the court limited the damages to reliance for a number of reasons: i In contract (as opposed to this case, which is in tort), damages will be the benefit of the bargain (expectation), because you known what you are getting into and we want people to have assurance that their promises are going to be kept or that they will get the value of that promise, but in tort, it will be limited to reliance. 1 This underscores what you have to think about when filing. a The substantive law matters, but the remedy matters as well, so there must be some concept of reliance and expectancy when filing. i It can dictate what type of remedy you will later get. ii It can dictate where you file as well because the majority of states says there is no distinction between tort and contract, and they allow expectancy recovery regardless of what theory someone brings. ii It is harder to give expectancy when the stock market is involved because it is not just the defendant that is in control of making it worth what it should be worth. 1 The stock market has some say in it too. iii There was some fraud in the inducement. Rule: in the case of deception or fraud in a contract, the defendant must make good the loss sustained by the plaintiff by responding in such damages as naturally and proximately resulted from the fraud; but this does not include expected fruits of an unrealized speculation. Note: there are a number of ways to compute damages when a shareholder has been defrauded in the case of stocks: i Purchase price minus the actual value at the time of purchase. ii Purchase price less the value at the date of discovery of the actual fraud. iii Purchase price less the price at which the stock is sold. 1 This works if it is sold at a loss. These are all fairly uncertain. Note: there is a distinction between tort and contract in fraud type cases. i Expectation damages are the norm for contracts. 1 That is the value of the promise as if it were fully performed. ii Rightful position is used in tort. 1 2 But the majority state rule (not federal) allows recovery of an expectancy, even in tort. a It shouldn’t matter whether it is a contract or a tort case. This case says that expectation damages should never be allowed in tort cases. iii Consequential Damages 1 These are damages that are a consequence of the breech. 2 There are two general questions that this topic embodies: a What can the plaintiff recover? i What should the plaintiff get? 1 In contract, how foreseeable do the damages have to be? 2 In tort, is there proximate cause? b What use is this jargon? i Is it helpful in answering the first set of questions? ii Can fair lines be drawn so we know what falls in what category? 3 Buck v. Morrow a Facts: Morrow rents a pasture to Buck, to graze his cattle, under a contract that says that if Morrow wants to sell the land prior to the contract’s end, he can do so, but must pay Buck consequential damages. Morrow terminated the lease early, Buck had to let his cattle run free, hire an extra farm hand to watch them, and he still lost 15 of them. b Rule: when a lease is terminated prematurely, special damages that naturally and proximately resulted from the sale of the land and termination of the lease that could reasonably have been supposed to have entered into the contemplation of the parties at the time of the contract are recoverable. i In contract, you can only get consequentials that are foreseeable. c Holding: the general damages for the rent increase can be recovered and the special damages of extra wages and lost cattle may be recovered, depending on whether appellant can prove that they were a natural and proximate result of the termination. i With general damages, we get the benefit of the bargain, expectancy damages, which is what the plaintiff lost due to the initial impact of defendant’s wrong. ii With special damages, which are caused by circumstances specific to the event, they must be foreseeable in contract law, or things that happen as a consequence of the wrong in tort law. 1 In tort law, the special damage needs to be proven to have flown from the consequence of the harm itself. d Note: These are special damages. i Reliance damages are special damages because they are a consequence of a breach that are incurred as a natural and proximate result of the breach. 1 They are consequences that logically flow from the breach. 4 5 In this case, they are close enough to the breach that they were foreseeable at the time of contracting. e Note: the FRCP requires that when items of special damages are claimed, they be specially stated. f Note: the UCC covers the sale of goods (any movable objects that are not property or money) and divides the special damages into incidental and consequential damages. i Incidental damages are the extra things that stem from the breach that are foreseeable at the time of contracting. 1 Example: cost of storage. ii Consequential damages are losses resulting from general or particular requirements or needs of which the breaching party at the time of contracting had reason to know, and cannot be reasonably prevented from cover. 1 They are things that are more debatable in terms of foreseeability. But both categories are really just consequential damages with differing levels of foreseeability. Meinrath v. Singer a Facts: there was payment for bonus compensation due under an agreement when there was a sale of controlling interest in another company. Meinrath claimed consequential damages because he needed the money to prop up his other business ventures. The consequential damages were more than the actual damages. b Rule: in the case of delayed payment, the only damages will be the money plus interest, with no other consequentials. i However, if there is a bad faith failure to give money, a court may decide to award consequential damages. 1 This is because it sounds more like a tort. a This is the where the tort/contract distinction would really matter. Texaco Inc. v. Pennzoil Co. a Facts: Pennzoil’s tortuously interfered with a stock/oil contract that Texaco had with Getty, in which Texaco would have been a 3/7 stock holder. i The general damages are the lost stocks. ii The special damages are the differences in the price of the oil that they had to spend and the price of oil they would have had to have spent under the contract. 1 This is 7.53 billion dollars. b Note: although the court discusses it at length, it wouldn’t really matter if this case were brought in tort or contract because they are foreseeable anyway, so would be recoverable under both contract and tort. c Holding: Texaco was awarded the special damages of 7.53 billion dollars. d Rule: special damages that are foreseeable will be recoverable in both contract and tort. a b Limitations i Party-specified/liquidated 1 Party specified damages are liquidated damages. 2 3 4 Stipulated damages are okay if they are liquidated damages. a They are liquidated damages if they are not a penalty. Whether stipulated damages are a cap is split in jurisdictions. a Some say that stipulated damages clauses are the only remedy. b Other courts read the two as independent and say that you can have other damages on top of stipulated damages. i It is simply a starting point. Kearney & Trecker v. Master Engraving Co. a Facts: K & T sold a computer to Master and in the contract there was a warranty limiting the remedies to no consequentials. The remedy was limited to repair and replacement of the defective part or product, or at the seller’s option, return of the product and a refund of the purchase price. The computer did not function the way K & T claimed it would. It was inoperable a lot of the time and they lost profits from customer orders because of it. K & T breached their duty to repair and replace. Master wants consequential damages despite the fact that they were excluded in the contract. b Reasoning: because the clauses in the contract are separate, the intention of the parties should be upheld. i Presumably Master wanted the machine more than the money they paid for the machine, so if the machine is not repaired, the next best remedy is to give them the money they paid for it, so that they can go buy another machine. 1 Note, however, that some courts would read the two clauses as dependent on each other and read them as having some kind of relationship. a This would lead to the conclusion that since K & T breached the first clause, it should not get the benefit of the second one. ii The court here gives the parties more freedom to contract. 1 It is a risk allocation device. 2 It lowers the price. a Master gets a better deal because K & T has not factored in extra damage expenses of consequential damages. c Holding: Master is limited to repair and replacement cost. d Note: contracts are binding because people have freedom to contract. i They have choices when they enter into the agreement. 1 If they want to exclude remedies, they can choose to do so. 2 So they should be enforced, absent unequal footing. a If there is unequal footing, the argument of unconscionability may be able to say that one of the parties had no bargaining power, and the contract should be void. 5 Procedural unconscionability (unfair bargaining) says that nobody would ever contract for this clause, because it has really left the party with no remedy. ii Substantive unconscionability says the nature of the contract is unfair. e Note: if there had been fraud in this contract (if K & T had known that it wasn’t going to be able to repair the computer), the court might have awarded the consequentials. f Note: there is an interplay between UCC 2-719 and 2-714. i 2-179 says that if a remedy fails on its essential purpose, “remedy may be had as provided in this act.” 1 You can have whatever remedy the UCC provides. 2 Consequential losses constitute a recoverable item of damages in the case of a breach, but they are excludable because they aren’t seen as dependent. a What is left is the breach of the warranty and the damages for that is the difference between the value of goods accepted and the value that would have been as warranted. ii 2-714 provides that you can have consequential damages. 1 If the remedy has failed of its essential purpose, you will override what the parties said. a But this is uncomfortable. g Note: UCC 2-302 deals with unconscionability. h Note: UCC 2-316 is a way to exclude all warranties. Ashcraft & Gerel v. Coady a Facts: Coady was a managing partner in a big law firm who sabotaged his employer and was fired. There was a liquidated damages provision. Coady wants money. b Note: generally, liquidated damages clauses provide the exact amount that will be required in the case of a breach. i It is a determination by the parties of what the damages will be in the case of a breach. ii A lot of times, a distinction will be made that they are stipulated damages. 1 The court will then, at the end of the day, determine if they are appropriate liquidated damages or an inappropriate penalty for breach. c Rule: liquidated damages clauses are okay but penalty clauses are not allowed. i 6 i The test is to see if the amount was reasonable at the time of contracting in light of the anticipated/actual loss and the difficulties of proving damages. ii Courts will investigate these clauses very closely and they test the reasonableness at the time of contracting and at the time of the breach (twice). d Holding: the liquidated damages clause is upheld because it doesn’t penalize Coady for leaving. i They are allowed since they had to fire him, and therefore didn’t have time to find and prepare a replacement, and lost money due to his absence. ii If he had simply resigned, the liquidated damages clause would be inappropriate because it would then be a penalty. 1 But this makes it seem like it really is a penalty because the firm’s damages would have been the same had he just resigned. a But the court holds it is not a penalty and allows the liquidated damages provision, probably based on the fact that he has culpability. i It is hard to distinguish whether something is being used as a penalty or not. e Note: there are a couple of rules with regard to liquidated damages: i There is supposed to be a reasonable estimate ahead of time of the damage that will be caused by the party’s breach. ii They are appropriate when damages are going to be difficult to figure out after the fact. iii Damages for breach can be liquidated, but if they don’t have a fair relationship to the actual damages caused by the breach, they are punitive. 1 If the liquidated damages are too big, and they look like a penalty, the court will strike them down. a So you have to find out a close estimate of actual damages and test them against what the liquidated damages clause is. i But that doesn’t make sense since the whole point of liquidated damages clauses is so that you don’t have to prove damages on the back end. Northern Illinois Gas Co. v. Energy Cooperative, Inc. a Facts: the liquidated damages clause provided for 13.5 million dollars but the jury awarded 300 million dollars because the 13.5 was too small. b Issue: whether the liquidated damages clause is the exclusive remedy. i Note: this issue only arises when liquidated damages are under actual damages. c Rule: if the contract doesn’t specify that the liquidated damages are the only (exclusive) remedy, the party can choose and get actual damages. i However, some courts hold that if there is a liquidated damages clause, it is the exclusive remedy. d Note: UCC 2-719 and 2-718 are in competition here, but the court says there is a difference between the two. i 2-719 deals with limitation of remedies and says that you can’t limit remedies unless you expressly say so. ii 2-718 deals with liquidation of damages. 1 It says that the buyer, despite his breach, can get restitution by the amount of which his payment exceeds: a Reasonable liquidated damages stipulated by the contract; or b Absent such stipulation, 20% of the value of the buyer’s total performance or $500, whichever is smaller. 2 This is all the court wants to talk about and it is exclusive. a They say that 2-719 does not apply to liquidated damages. i But there is a split on this issue. e Note: fire and burglar alarm companies want to have liquidated damages clauses. i Courts usually uphold these in minor amounts even though they know that if a house burns down or a burglar alarm fails, damages will be very large, because it is easier for a homeowner to insure against these kinds of losses. ii Avoidable Consequences 1 S.J. Groves & Sons v. Warner Co. a Facts: Groves was a subcontractor on the main contract to build a bridge. Warner was supplying concrete to Groves, but they couldn’t supply the concrete in the right amount of time. Groves chose not to use another supplier and just hoped that Warner would improve their services because they couldn’t be sure another supplier would be any better and they didn’t want to destroy their relationship with Warner. b Issue: whether Groves (the non-breaching party) had a duty to mitigate by getting concrete from somewhere else (another supplier). c Reasoning: since there was a choice, the person had the right to make whichever one he wanted, and he can’t be faulted for his decision. i Also, it may have been Warner’s duty to get the second supplier and supply to Groves through them. d Note: the burden is on the defendant to show that there was a failure of duty to mitigate. i They have to show that Groves made a wrong choice and had a true duty to cover. 2 3 Cover is finding a comparable substitute performance. ii The plaintiff, therefore, has the presumption of having done what is reasonable. 1 It is presumed that Groves did the right thing, was reasonable, and acted in good faith. a The defendant can rebut the presumption by showing a lack of good faith or the making of an unreasonable choice. i Any uncertainty will be resolved against the breaching party. ii The benefit of the doubt is given to the non-breaching party. e Rule: normally, plaintiff’s recovery will be limited by the amount of time or damages or losses he could have avoided. i A plaintiff who fails to make reasonable efforts to avoid losses can’t recover for losses that could have been avoided. 1 The debate is often regarding whether the substitution was reasonable and whether it was in good faith. ii A plaintiff who makes reasonable efforts to avoid losses, but can’t avoid them, can recover anyway. 1 This is because cover wasn’t possible or it wasn’t possible to further mitigation. a It gets them back to their rightful position. iii Costs incurred in finding a substitute performance are recoverable incidental damages. f Note: there are two different duties depending on the theory of recovery: i Contracts: duty to cover ii Tort: duty to mitigate Available substitutes a If someone turns down a comparable job it may be failure to mitigate. i This failure to mitigate would be offset against damage recovery because if someone mitigates and finds a substitute performance, it is an avoided benefit that is offset. The collateral source rule a This provides that an injured plaintiff who receives compensation for injures from an independent source (like insurance) is still entitled to recover damages from the defendant for the same damages that are being compensated by the independent source. i The reason for this rule is that public policy doesn’t want to discourage people from protecting themselves against loses. ii Critics say this is double recovery. 1 But the response is that insurance subrogation agreements require the plaintiff to reimburse the insurer for losses that the 1 defendant later covers, so the insurance company takes care of the double recovery itself. a Once the damage award against the defendant occurs, insurance is paid back. iii This is an exception to the offsetting benefits rule, which states that if, instead of working at a job someone had, they get a new job where they make more money, they have no damages except for the time they were unemployed. b California has abolished the collateral source rule in medical malpractice. i The defendant is allowed to present evidence about the plaintiff already having received money from insurance. iii Scope of Liability 1 Pruitt v. Allied Chemical Corp. a Facts: Allied hurt marine life through pollution. There are many plaintiffs involved, with an array of connections to the water. The plaintiff was liable, in some way, to all of these plaintiffs. b Holding: the plaintiffs have foreseeable damages, but some of the plaintiffs have limited recovery. c Rule: the proximate cause rule says that the scope of liability can be limited, even where there is liability, as a policy matter, when plaintiffs are too far removed from the actual harm. d Note: one of the ways we limit remedies is by having rules such as: i The proximate cause rule (the rule in this case). 1 This says that the defendant’s conduct was not the proximate cause. a There shouldn’t be any remedy for this because it is too far removed. i This is an intertwining of substantive and remedial law. ii The economic harm principle 1 This says that a plaintiff cannot recover in tort unless the plaintiff has suffered from physical injury. a It has to be coupled with some physical loss. i The policy is that we all suffer some losses, and we should buy insurance to compensate for them, but if someone hurts your person, there should be a remedy at law. iv Other 1 Certainty c The notion of this limitation is how certain a plaintiff must prove “but for cause” and how certain the proof of damages must be in order to recover. i Typically, the plaintiff has to prove with reasonable certainty that the defendant caused the harm and the amount of damages. 1 The defendant can rebut by saying there were no damages suffered. ii There is a balancing between the two extremes of not restoring the plaintiff to his rightful position or pulling random numbers out of the air. 2 Substantive policy goals a This is embedded in all the other limitations, but basically says that any remedial principle, no matter how settled, may have to be adapted or limited to apply to the context of a substantive violation. i An underlying policy will sometimes come into conflict with the damages policy that we want to enact. ii Examples: 1 Illegal aliens bringing claims under labor laws for unlawful discharge. a There must be a balancing of the policy concerns with labor law standards and illegal aliens laws. 2 We don’t give damages for breaking up a monopoly because we are more concerned about having free competition. When Money Can’t Measure Value i Personal Injuries and Death 1 Debus v. Grand Union Stores a Facts: a lady in the supermarket was knocked in the head by some goods that were piled too high on the shelf. She was injured 20% and it is going to last forever. She argues that damages should be calculated per diem. b Holding: the lower court did not err in allowing the per diem argument. c Rule: per diem arguments are allowed. d Note: there are many ways to argue for damages: i A per diem argument figures out the amount of suffering per day and multiples it by how many days someone is expected to live. 1 The attorney actually gives the per day number to the jury, which makes it seems smaller than it is by breaking it into days. a It is argued that once this number is planted in the jury’s mind, some of them are going to stick to it. b It is argued that once someone gives a per diem argument, it is presumed almost that the plaintiff has won. 2 Most courts, including California, allow per diem arguments. a 2 ii A lump sum argument is one number that the attorney asks for, and it is left up to the jury to decide the appropriate remedy. 1 It is argued that if it is up to the jury to decide, the attorneys shouldn’t even be allowed to suggest a number, and they should just decide based on the facts. 2 This is the most common damages argument. 3 The overwhelming majority of courts allow the lump sum argument (all except PA and NJ). a When courts don’t even allow the lump sum argument, the sort of jury, and where the suit is brought will have a huge impact on the damages that are awarded. i Remittitur mitigates this problem by giving the plaintiff the option between a new trial or a reduced award. 4 Note: the “make whole” instruction almost doubles the reasonable compensation argument, so the jury instructions really matter. iii The golden rule argument says “do onto others as you would have done to you.” 1 It basically asks how much that person would pay or how much they would want. 2 This is not allowed. iv The market value argument asks how much it would take in money to get someone to be disabled in this way. 1 This is not allowed. a This is because we are worried about monstrous verdicts. i At some point, it is too much because people have unfortunate things happen to them and there shouldn’t be recovery for everything. e Note: general damages in tort (pain and suffering) are expected to bare some relationship to special damages (economic damages). i So the economic damages are usually the bench mark and general damages should be about 3-5 times more than that. Wrongful death a It is very difficult to award for wrongful death. i That is why there is so much variance in the amount of awards. b c When awarding for wrongful death, it is important to break down exactly what is being awarded, such as: i Medical bills ii Loss of society iii Grief and emotion iv Loss to everyone else for someone being dead Whether they are recoverable varies based upon the jurisdiction. How to value wrongful death i Economic losses v. “non-economic” losses 1 Economic losses are special damages (hard losses) a Special damages flow as a consequence of the injury. i In tort, they include lost wages, medical expenses, property damages related to the wrong, or funeral expenses for wrongful death. b They are tangible. c Most states allow recovery for these. 2 Non-economic losses are general damages a These are things for which money is only a rough substitute. b This includes loss of reputation, pain and suffering, loss of consortium, etc. c These make people wary of the loss because there is a lack of certainty and they are difficult to calculate. d These are limited to 2-5 times the economic damages, but there is no hard and fast rule. ii Survival statutes v. death statutes 1 Survival statutes are a way to get around the common law rule that said that if someone died as a result of a tort, their cause of action died with them. a The statutes say that someone can bring an action in the name of the deceased. i Economic examples include losses for decedent’s medical expenses, decedents’ funeral expenses, and decedent’s lost wages between injury and death. ii Non-economic examples include if the person died and 2 suffered a lot of pain prior to death. Death statutes allow people who remain behind to bring suit on their own behalf (as those left behind). a The survivor can bring a cause of action in his own name. b Economic losses can be recovered as well, if, for example, a family suffers loss because of lost wages, loss of expected inheritance, monetary loss of value of services (maybe calculated out). c If someone just misses another person (loss of society), most jurisdictions won’t give emotional distress damages. i But most jurisdictions don’t distinguish these, or choose not to. ii In fact, a minority of jurisdictions allows for loss of society because of the difficulties juries have distinguishing. ii Tort Reform 1 Medical malpractice “cap” a Whether these will be allowed depends on the jurisdiction. b Etheridge v. Medical Center Hospitals i Facts: Etheridge underwent surgery and became paralyzed, confined to a wheelchair, and couldn’t take care of her kids. The jury said she should get $2,750,000 but the statute limited recovery to $750,000. The plaintiff argued that the statute was unconstitutional. ii Holding: the court is subject to the legislature, so there is a cap on damages, pursuant to the statute. iii Note: the right involved was to get to sue. 1 But the legislature said that you can’t bring “certain types of things” in tort law. a The legislature can define and rephrase the scope of the duty. iv Rule: a rule limiting the amount of recoverable damages in a medical malpractice suit does not violate the state or federal constitutions. c Smith v. Department of Insurance i Facts: Florida law limited damages for non-economic losses, defined as damages “to compensate for pain and suffering, inconvenience, physical impairment, mental anguish, disfigurement, loss of capacity for enjoyment of life, and other nonpecuniary damages.” The Florida Constitution provides that “the courts shall be open to every person for redress of an injury, and justice shall be administered without sale, denial or delay.” d e ii Holding: the pain and suffering cap is not allowed. iii Reasoning: a cap is not allowed when a constitutional right is involved and the Florida constitutional right, involving access to the courts, is this constitutional right. iv Rule: a cap is not allowed when it restricts a constitutional right. Modern tort reform efforts i The question is whether we should cap the remedy or reform the cause of action. 1 If the real problem is not that the awards are too large, but rather that the claims are scurrilous, we should not mess with the remedy for these types of claims, but disallow the claims themselves. a If the ways to get into court are limited, maybe less will be spent. 2 The question is who is actually helped and who is actually harmed. ii It seems that, in large tort cases, we may be ignoring the fact that damages are supposed to put plaintiff in his rightful position. 1 It is getting to expensive to adhere to rightful position. a The rightful position of a death could bankrupt the system. b Keeping society functioning is also a goal, and we have to hold it in intention as well. i Lesser things are computed in more forthright ways than major injuries are, but cutting off recovery in the worst injures does not seem right either. Medical malpractice insurance i In the 1980s, interest rates were sky high and there were not too many players in the medical malpractice insurance injuries industry, so companies would charge lower rates and then collect money from doctors and invest it at high interest rates. 1 The insurance company would make a lot of money. 2 Then, in the 1990s, the interest rates went up and the companies had too much money so they released some of the money to revenue (“release the revenue”). a This raised the bottom line, so other smaller companies saw this happen and got into the business, which made the interest rates go down again, so everyone invested and the big industry ended up being out of business. For a long period of time though, this was a lucrative business. ii Malpractice rates are high and it is difficult for doctors to stay in business. 1 There is a need to get rid of some of the frivolous claims, but we don’t want to affect the real claims. a The frivolous claims get thrown out, but usually only after a doctor spends a lot of money to get rid of them, and then ends up making medical malpractice rates go up. i That is why some argue that we should cap the claims that end up hurting the big claims. iii Suggestions for tort reform: 1 Limit the recovery for non-economic damages. 2 Abolish the collateral source rule. 3 Limit or abolish punitive damages 4 Provide that judgments be paid over the life of the victim, paying less to the plaintiffs who die sooner or have fewer medical bills than expected, but more to plaintiffs who live longer or have higher medical bills than expected. 5 Abolish joint and several liability, so that each defendant would be liable for a proportion of the judgment equal to his proportion of fault, and plaintiffs rather than codefendants would bear the losses attributed to insolvent defendants. 6 Let defendants recover attorneys’ fees from plaintiffs who file frivolous or unjustified claims. 7 Limit the rates charged in contingent fee agreements protecting plaintiffs from exploitation by their lawyers, but also making the plaintiff’s bar less willing to represent personal injury plaintiffs. 8 Shorten the statute of limitations or accelerate the point at which the statute begins to run. iv Note: the cap on pain and suffering is usually upheld. 1 But someone can get their entire medical bill paid. a However, there is a $200,000 cap in California. iii Dignitary and Constitutional Harms 1 Carey v. Piphus a Facts: a student was suspended for a few days because his principal thought he had marijuana. This was wrongful suspension because he didn’t have a hearing that he was i 2 supposed to have prior to suspension under § 1983, which says that every plaintiff whose rights are deprived by an official under state law is to get damages, and he didn’t get procedural due process. Carey proves the constitutional wrong but not the damages. Carey wants monetary damages for the days of school he missed and a TRO to get back into school and a declaratory judgment. i A TRO can cause someone to do something or stop doing something, and allows someone to continue their state of affairs until a full hearing is had. 1 It is an intermediate step that occurs prior to a preliminary injunction and an actual injunction, the latter which requires success on the merits. ii A declaratory judgment is when the court declares what the law is and discusses the parameter of the law. 1 The federal court issues a declaratory judgment saying that something is wrongful. b Issue: whether violations of constitutional rights have compensable value even if no damages stem from them. c Rule: nominal damages are available for a violation of constitutional rights. i Although with actual damages (both procedural and substantive), you have to prove damages that flow from the violation in order to get monetary damages because there is no presumption of damages, nominal damages only require proof of the violation itself. 1 A violation of procedural due process under § 1983 should be actionable for nominal damages without proof of actual injury. d Holding: the plaintiff is entitled to nominal damages of $1 and a declaration that his constitutional rights were violated and the injunction is allowed. e Note: judges have to issue an opinion and give a judgment stating the remedy in two separate documents. Levka v. City of Chicago a Facts: a lady was arrested and strip searched in violation of her constitutional rights. She didn’t get it as bad as some others had had it in the past because no men were watching and no cavity search occurred. However, she was very embarrassed, and says she is afraid to go out at night and that she can’t do her job of booking people. She has severe stress and humiliation. She went to a counselor once. b Issue: how to calculate damages for dignitary torts. i The plaintiff would have to prove the damages from the strip search as opposed to the arrest, because the arrest was not a violation, in order to recover. 1 This is the rule under Carey v. Piphus, because it requires that the plaintiff prove the damages from the constitutional violation in order to get monetary damages. c Reasoning: the court looks at other similar cases and determines that in more severe cases, plaintiffs got less money, so they determine that she receive too much at the lower court. d i This reasoning makes it seem like whoever sues first on a related issue gets to set the precedent, so she could have gotten more if this had occurred earlier. d Rule: in the case of dignitary torts, remittitur will not be imposed if reduction of the damage award from the lower court shocks the conscience. i But the court does have the power to knock the award down by remittitur if the award itself shocks the conscience. ii Courts can also add to an award by additur. e Note: recovery for emotional distress is generally not allowed for breach of contract, although it is allowed in tort. i Negligence. ii More than ½ the states even allow emotional distress for bystanders. Time and the Value of Money i Taxes and Interest 1 Taxes a There are no federal or state taxes on damages awards for personal injury damages (physical personal injury damages or wrongful death) i However, contract damages and non-physical injury tort damages may be taxed. b The Supreme Court said that the contingent fee portions of tort claims are gross income, so they are taxable. c There is a question about how to award damages for future income (salary)(earnings) if the income would have been taxed (when calculating the sum, should it be reduced ahead of time for taxes that the plaintiff will later pay?). i Majority (the gross earnings approach): do not reduce damages for future earnings by any tax amount. 1 Give the plaintiff the whole amount of money (lump sum). a The rationale is that we don’t know what the tax rate will be in the future or what the value of the dollar will be and the interest on the investments will be taxable anyway (the lump sum). 2 This is the before tax approach. ii Minority and federal court (the net earnings approach): reduce the award by the taxable amount. 1 This is the after tax approach. 2 With a lump sum, deduct the federal income tax from the lump sum. 2 Interest a Pre-judgment interest: interest earned from the time of injury to the time of the award. i Common law allowed for pre judgment interest in contract but not in tort because tort damages are not thought to be ascertainable at the time of the loss. ii Modern statutes and California allow pre judgment interest in both contract and torts. b There is a 10% pre-judgment interest in personal injury tort claims where a settlement is made. a This is based on the fact that the amount of recovery is ascertainable. Post-judgment interest: interest from the date of entry of the judgment to the date the judgment is satisfied. i This is recoverable on judgment for money damages. 1 Example: in California, 10% of simple interest per year on the principal is allowed. a You can get 10% per year on a simple interest (not compounded) basis. i Note: simple interest is the lump sum itself. 1 ii Present Value 1 This is the idea that one must think in advance about inflation. a An amount of money given today will buy more today than it will 20 years down the road. b But keep in mind that the person is going to put the money in the bank and it will earn interest, so be careful not to overcompensate either. c You have to know whether the interest rate will be higher or lower in the future and whether inflation will be higher or lower in the future so that you know how to argue for your client to get the most money. i To get the plaintiff as much money as possible, you want high inflation. 2 Jones v. Laughlin Steel Corp. v. Pfeifer a Facts: the plaintiff got a lump sum and the argument was that it didn’t take into account interest and inflation. The plaintiff would have worked 12 ½ more years. i Note: the defense will want fewer periods because that means fewer payments, but the plaintiff will want more periods. b Note: interest rate i “Real interest rate” 1 This is the interest rate, when taking into account both interest and inflation. a There will be inflation almost every year so putting money in a checking account that has no interest dating on it will cause you to fall behind every year. i So, money should be put in a baseline money market account because it gives a high enough interest rate to overcome the percentage of inflation rate, and increases the person’s buying power every year. b c Example: 3% interest and 2% inflation = 1% real interest. d Note: inflation i Cost of living expenses: how much it costs to live with the inflation rate 1 Salary would have to increase every year to keep up with the inflation rate and keep buying power the same. a If inflation is 2%, a salary would have to increase 2% to give a person the same buying power. ii Productivity increases: making more money when someone works longer because they become more valuable and efficient 1 The employee is more valuable so the employer does not want them to go so the salary increases through raises, bonuses, etc. a Note: the plaintiff will want a larger annual wage increase and the defense will want a lower one. Present value table i This tells how much wages have to be discounted. 1 Multiply the salary by the number in the table for the respective period, and then add up the numbers for the 12 periods (the 12 years in this case) and get what the award should be. a Start with period one and go up per period. ii Using the table 1 Look at the periods down the side, then the discount rate across the top and just start multiplying for the appropriate number of periods. a The arguments come up regarding what periods to use and what discount rates to use. b Discount rate: return on investment proceeds minus annual wage increase. i Investment proceeds: interest earned. ii Annual wage increase accounts for inflation/COLA increases and productivity gain. c Think about why the periods get paid by-weekly or monthly. d Note: negative discount rates are not on the table. i Use compound interest. iii Note: if a person is unionized, factor in bargaining increases. e f g Total offset method (basically used when atty’s don’t like to do math) i This assumes the effects of future inflation totally and exactly offset the interest rate. 1 Therefore, there is no discounting whatsoever. a This is not required to be used in federal court but federal law (and the Supreme Court) has said that you can use it. i It allows discount without inflation, but requires the discount rate to be based on an after tax safe investment rate (between 1% and 3%). ii So, if an attorney hates present value computation, this is a good method if it is good for the client. Periodic payments i These are payments not in a lump sum. 1 There will not need to be a discount given for present value. 2 There is some movement toward this. Compensation for 911 victims i They set the amount of recovery for “non economic losses” 1 This includes pain and suffering for the victim and the grief suffered. 2 This was hard to figure out. 3 There were issues about offsetting collateral sources. ii They set minimum recoveries but they used tables because they might have been much higher depending on actuarial, inflation/productivity, and present value calculations. iii Alternatively, a cause of action might life in tort (but with liability caps imposed by Congress). III Injunctions a An injunction is an order enforceable by the court and contempt of court, which directs the defendant to do something in particular or to refrain from doing something. b Injunctions are extraordinary relief for when damages are inadequate or there is irreparable injury. c Preventative i Humble Oil & Refining Co. v. Harang 1 Facts: Humble Oil was going to do some oil exploration, and one of its employees notified Harang, who bought the land ahead of time and raised the prices. Humble wants a preliminary injunction to ensure that Harang doesn’t destroy any documents related to the transactions while the action is pending. 2 Note: a preliminary injunction is issued before the case is heard on the merits. Holding: the court will not issue the injunction merely to allay the fears and apprehension or to sooth the anxieties of the parties. 4 Rule: in order for an injunction to be issued, the plaintiff must show: a The potential for irreparable injury i An injunction will issue only if there is a real threat of wrong or injury or harm. 1 This is called remedial ripeness. a It is the actual threat of injury being both planned and imminent (immediate). b It has to do with the notion that a court has power to hear claims, but may decide not to because it is not sure that it can really resolve the issue now. b A real danger that the acts to be enjoined will occur (propensity). i There has to be a likelihood of the act happening by some evidence. 1 A fear is not enough. 2 If Humble had shown either that Harang had destroyed documents in the past, or had destroyed one document (his one free document destruction) relating to these transactions, he might have gotten a preliminary injunction. c That there is no other remedy available d That under these circumstances, the court should exercise its discretion to afford the unusual relief provided by an injunction. 5 Note: although the injunction was not issued here, the defendant will probably be less likely to destroy documents because he knows the court and the plaintiff are on to him. 6 Note: remedial and constitutional ripeness are two different things. a Constitutional ripeness deals with the court being powerless to hear claims that don’t satisfy the “case or controversy” requirement. i If the issue is constitutional ripeness, a court may not get involved because it believes it is unable to as a jurisdictional matter. b Remedial ripeness focuses on whether there is a specific dispute between adverse parties. i If there is no dispute, then there is no case for the court to decide. ii If there is a dispute, but no likelihood of immediate harm then the court can decide the case, but may be limited to declaratory relief, or declaratory relief coupled with a permanent injunction. iii If there is both a dispute and the likelihood of immediate harm, then the court has the authority to issue an immediate preventative injunction. ii Marshall v. Goodyear Tire & Rubber 1 Issue: how big should the scope of the injunction be? 2 Facts: a person was discharged from Goodyear due to his age and the department of labor brought a suit on his behalf against Goodyear, requesting an injunction that says that Goodyear cannot discriminate 3 against people on the basis of age. The trial court issued the injunction on a nationwide basis based on the secretary of labor’s argument that if it happened once, it could happen again. 3 Rule: the scope of the past violation determines the scope of the remedy against future violations (the injunction). 4 Holding: the injunction must be issued only on a local basis. 5 Note: an injunction to obey the law is not allowed because if it is written that broadly, the underlying legal standard really has no purpose. a It will just be subject to contempt of court instead of the punishment for the violation. i However, this does happen sometimes if a defendant has a propensity to disobey the law. 1 This presents issues of narrowing it enough but encompassing enough conduct at the same time. 6 Note: a permanent injunction does not last forever, rather is called permanent because it is final. 7 Note: if Goodyear had fired the person who had done the firing, the case may have been considered moot, and no injunction would have been needed. iii U.S. v. W.T. Grant Co. 1 Facts: a corporate director of 6 companies is in violation of the rules against directing in competing companies. He resigns from three of them and argues that the case is moot because he isn’t on the boards anymore. 2 Rule: a case is moot if the defendant can demonstrate that there is no reasonable expectation that a wrong will be repeated. 3 Rule: a party doesn’t necessarily remove a case from the court simply by stopping the conduct when the lawsuit is filed. a It is not constitutionally moot. b It is remedially moot. i This means that once they hear the case and determine it, it won’t be done again. 4 Rule: if there is a cognizable danger, more than a mere possibility of a wrong occurring, the court can issue the injunction. 5 Note: a violation of an election campaign law may be moot when the election is over. iv Nicholson v. Connecticut Half-Way House, Inc. 1 Issue: whether an injunction can be issued to prevent a harm that hasn’t started yet, and if so, how certain the harm needs to be and what type of evidence is needed for proof. 2 Facts: a neighborhood doesn’t want a half-way house to move in because they claim it will be a nuisance and that their property values will drop. They want a prophylactic injunction (take precautions against something and take care of it ahead of time, before the problem arises). 3 Holding: the court does not issue the injunction. 4 Rule: if it is not certain that the harm is going to occur (it is not legally cognizable), an injunction will not be issued based on speculative fears. a The court wants more than this irrationality to issue an injunction. i This has to do with ripeness. 5 Reasoning: it is possible that the running of the half-way house can occur in a reasonable way that is not a nuisance, so the dangers are not really tangible with the exception of the property value. d Note: courts are reluctant to issue injunctions to prevent harm that has not yet started. 7 Note: the defendant, just based on the fact that this lawsuit was filed, would be concerned that he was buying himself into a lawsuit, so he would want to get a declaratory judgment stating exactly what a “nuisance” would be so that he could prevent it from occurring in the future. v Coercive relief at law 1 When there is no adequate relief at law, instead of issuing an injunction (which is equitable), the court may act at law to achieve some of the same results as an injunction through a writ: a Mandamus i This is an order to a public official to perform a ministerial duty. 1 An individual cannot get this. 2 It must be against someone in his or her capacity or position. 3 It has to be clear and non-discretionary. b Prohibition i This is an order from an appellate court or a superior court to a lower court to prevent it from exceeding its jurisdiction or exercising its authority in an unlawful way. 1 It is like an interlocutory appeal. c Habeas corpus i This is an order to a person that is holding someone in custody that says to bring the person to court and justify their detention. 1 This arises in the criminal context, often. Reparative i This is when the defendant has to fix whatever wrong has was done. ii This deals with the court having the power to do equity, and exercising discretion when necessary. 1 But this competes with the fact that an injunction should get the plaintiff back to his rightful position. iii Bell v. Southwell 1 Facts: there was a racially charged election two years ago for the justice of the peace in a small town in Georgia, in which some African Americans were not allowed to vote. Even if all of the votes were included, the same candidate that was appointed would have won. 2 Note: this case is not moot because the harm couldn’t have been shown ahead of time, and the court has to have some way to give relief. 3 Note: this case is ripe because the rights of those who could not vote were violated and could be violated again. 4 Rule: the court has the power to fix a past wrong (go back and fix things that have happened). a Note: a court cannot undo all harms, but it can undo some in hopes of preventing the same kinds of things happening in the future. i This happens a lot in election cases. 5 Holding: an injunction for a new election is issued. iv Forster v. Boss 1 Facts: Forster was told by Boss, that he would be able to get a dock on the property he was buying from him, but Boss actually already had the license for the dock on that property, making Forester unable to get one. Three years later, the court below awarded Forester the permit by 6 taking it away from Boss and also gave Forester damages (measured by what the property would have cost with and without the dock). 2 Holding: this was double compensation because he gets the dock and compensation for the wrong. 3 Rule: although undoing harm by way of injunction is allowed, double damages are not allowed. a An injunction and damages cannot be compensating for the same part of an injury. 4 Note: it would have been okay if he were compensated for the loss of the dock going forward (with either an injunction or damages) and damages for the time that he did not have the dock, because those are two separate pieces of the relief sought, but they would only give an injunction with no damages because the only damages requested were duplicative of the injunctive relief. a Plaintiff’s attorney failed to ask for fair rental value covering that period of time before he received the dock. v Winston Research Corp. v. Minnesota Mining and Manufacturing Co. 1 Issue: whether an injunction should get the plaintiff back to her rightful position. 2 Facts: two employees left Mincon with trade secrets and Mincon got a permanent injunction for two years (based on a reasonable time for other companies to figure out how the machine worked and how to make the item once it was out on the market) to stop them from using the trade secrets at the new company that they started. Still, it took the former employees only 14 months to develop the machine that took Minco 4 years to develop. 3 Holding: Winston cannot start selling until the point where other companies would have had time to react to Mincon’s machine. 4 Rule: You cannot have two remedies for the same piece of wrong, but if the injunction cannot restore the plaintiff to her rightful position, whatever damages can be proved, can be awarded, in addition to the injunction. a Consider the purpose of each remedy. 5 Notes: Mincon also wanted money, which the court would not award because it was too speculative and violated the certainty principle. a If Winston had wrongfully sold some machines, there could have been restitution. 6 Note: Mincon also wanted damages for lost time due to loss of the employees, but the court would not award them because it would be double recovery. 7 Rule: an injunction should cover the same period of time during which the wrong occurred. vi Bailey v. Proctor 1 Facts: venture holders who wanted fixed income put their money (a $6,000,000 note) into a company and got guaranteed return on their money (fixed income) at a lower rate. They had no control over the company. However, the owners, who had the control, hadn’t put much money in ($150,000), were at a lower risk, and had very little to lose, and a potential tremendous gain. Congress does not like this business structure because the venture holders don’t know about their risk, but they allow ones that already exist to stand. 2 Holding: the court liquidates (dissolves) the structure, although Congress says it is okay to let it stand. a The court thought by putting the investors in their rightful position, they were doing equity. 3 4 i But arguably, their rightful position would be in another risky business venture with better management. 1 But this doesn’t really put the plaintiffs back in their rightful position because it not only changes the past, but changes the future. 2 They could have left a receiver in charge, judicially micro-managed, or banned certain risk taking behavior. a This would have been a narrower injunction. Rule: a court can do equity by granting relief even when it is not required to do so. Note: there are three positions to which a court can adhere: a Restore the plaintiff to his rightful position. i This focuses on the plaintiff and the defendant. 1 They both share the risks of error and the court tries to eliminate them on both sides. b Restore the plaintiff as closely as possible to the rightful position subject to constraints. [never leave Π better off] i If necessary to err on one side, harm the plaintiff. ii Nichols says this isn’t really viable c Restore the plaintiff as closely as possible to the rightful position, but the plaintiff shall never be in less than the rightful position. [never leave Π worse off] i This seems to be what the court did here. ii The question is how much worse off. e Structural i These deal with the nature of how to order things together. ii School segregation 1 Judges intervened by issuing injunctions and then had to enforce them through court monitoring. a Courts sometimes had to take control of the school systems for long periods of time. 2 There are two types of segregation: a De facto segregation is not unlawful, so if houses are divided by skin color as a result of preference, and not government involvement, it is not unlawful. i The court does not have to intervene and fix it even if it results in school segregation. b De jure segregation, which is segregation by law, is when the court has to intervene and fix it. i This is when a law or an enforcement by the government make the school segregation occur. 3 There were a series of holdings by the Supreme Court on this issue: a In Swan, the district court provided separate systems and bussed kids long distances to put them in segregated schools by dividing things up and drawing wedged shaped attendance zones, to bring some minority, outside kids into the white schools. i The Court held that drawn attendance zones were not a sufficient remedy, necessarily, because the “greatest possible degree of desegregation,” that the lower court wanted, was not the rightful position. 1 It was a complete equitable and roving injunction that goes beyond the substantive b c d violation and fixes some of the lingering harms. In Miliken I, there is gerrymandering, and the district court redrew lines in the suburban districts outside of Detroit to fix segregation of Detroit schools. i The Supreme Court says the district court went too far. 1 They can only fix the Detroit schools, because the rightful position would be to fix Detroit only. a But the effects of segregation don’t stop at an arbitrary city line, and under Swan, they should have been able to go outside the boundaries. In Miliken II, the district court orders ongoing remedies on remand, and gives extra aids in the classrooms for the students. i The Supreme Court says it is okay because it does relate to the harm because it deals with the lesser opportunities. In Dayton, the district court found segregation at the local level and did a citywide redistricting. i The Supreme Court said it was too big of a remedy. 1 When violations are found, the district court must determine the incremental segregative effect, and only if there is a system wide impact, can there by a system wide remedy. iii Hutto v. Finney 1 Issue: how closely an injunction must be tied to past conduct. 2 Facts: prison inmates were kept together in a very small cell indefinitely, where mattresses were thrown in which had diseases, and the men were getting sick. In addition, the men were not fed properly, were overly worked, and the room was dirty. When this was first brought to the court’s attention, it seemed that there was some improvement, so they just told the department of corrections to fix it because they didn’t want to micromanage. Then the appellate court forced the court to make some demands. So, six years after the case was brought, the district court said to fix the conditions, but didn’t give specifics other than a limit on how long the people could be put in confinement (30 days), how many people at once, and what they were fed. 3 Holding: the district court has no right to mandate a specific number of days of isolation because it is too arbitrary (it is not even clear that this is what was unconstitutional) and it doesn’t restore the plaintiffs to their rightful position. 4 Rule: an injunction should restore a plaintiff to his rightful position (or as best as possible), unless there is some wrongdoing, in which case, a court will be less likely to feel constrained by this standard. a There is a notion that if there is a tie, things will be resolved against the wrongdoer. i This goes back to the court’s ability to do equity. iv Lewis v. Casey 1 Facts: there are violations against two separate plaintiffs of insufficient access to the court system because prison libraries were insufficient. The court ordered an overhaul of all law libraries in the entire system. 2 Holding: this injunction was too broad in scope, and must be limited to the two instances here. f Note: this was a class action and the plaintiffs argued that they could put up more evidence of wider spanning violations. a The court rejects this and says that the two instances of violations they gave weren’t that strong anyway. 4 Note: the court uses language that makes it seem like we should have no prophylactic injunctions at all. a They say that the harm needs to be imminent or past. b They say they don’t have power to do things on an ongoing basis. 5 Rule: the injunction must be tied or anchored to harm. v U.S. v. Virginia 1 Facts: VMI has an all male institute with great hazing and programs. Females want the same training and the benefits that the degree will bring them but they are not allowed to participate. Virginia sets up an alternative institution but it is not equivalent because it doesn’t have the same perks and it is not the same institution. 2 Holding: the court uses the rightful position standard to affirmatively enforce integration of VMI. a Note that here, rightful position is being used to get more than the rightful position, whereas in the past, it has been used to get them less. 3 Rule: in cases where rightful position for injunctions makes sense, we can have as much precision as possible and get to that point, but in other cases, where there is not as much precision, we can at least use that rightful position standard to come as close as possible (an aspirational goal against which to test). 4 Note: in this case it really matters how the violation is defined. a If it is the categorical exclusion from VMI, nothing short of letting them in is going to cure it. b If it is the lack of a comparable institution for women, a comparable women’s institution would cure it. vi The rights of third parties 1 Note that sometimes, when an injunction is issued, it will negatively affect third parties, who should not be affected. Injunction Elements i Injunction elements aren’t really elements in that you have to have all of them in order to get an injunction. 1 It is more like a continuum, where the bigger the harm the less you have to show of an element, or where the bigger the public policy considerations, the less of something else. ii Substantive Violation 1 For an injunction to be issued, there must first be a substantive harm. a For preliminary injunctions, there only has to be a likelihood of success on the merits. b The extent of that harm is fleshed out in the rest of the elements. iii Irreparable Harm/No Remedy at Law 1 When there is no adequate remedy at law, it literally means that the law courts cannot help. a An inadequate remedy at law qualifies as irreparable injury. 2 When there is irreparable injury, there should be extraordinary relief. 3 This is usually not really a separate element because it has merged into the balancing of the hardships. a The question has become how hard if will be on the defendant if the injunction is issued versus how hard it will be the plaintiff if it is not issued (irreparable injury). 3 4 Pardee v. Camden Lumber Co. a Facts: the plaintiff wants to enjoin the defendant lumber company from coming onto his land and cutting down his trees. b Note: the plaintiff couldn’t be compensated with money because the trees, which really have no value, are a valuable commodity, they will take a number of years to grow back, and real property is inherently unique. c Rule: there will be specific performance unless damages are an equally good substitute. i Legal damages are an adequate remedy only if they can be used to replace the very thing that was lost. 1 The court requires that the substitute be exact in order for the injunction not to be issued. 2 This makes specific performance seem likely. ii Compensation in damages is adequate in all of those instances in which the property that is injured or destroyed may be substantially replaced with the money recovered as its value. iii On the other hand, personal property possesses a value peculiar to its owner, or as it is generally expressed, has a price of affection, and equity will vindicate and uphold the right to possession thereof and immunity from injury by the exercise of its extraordinary powers. d Rule: An inadequate remedy at law is sufficient to show irreparable injury. e Rule: Damages are not an equally good substitute for cutting down trees. i A clear case of trespass by the cutting of timber should always be enjoined. f Note: an economist would say that damages would never be inadequate because if the value changes, it can just be recalibrated. g Note: under the economic breach theory, things should be moved to their more valued uses. i This is the law. 1 However, it doesn’t apply in this case because under contract, a promise is either a promise to perform or pay damages. a There was no contract here. h Rule: you have to show something more than economic damages to get an injunction, or show that something is unique. i There must be some additional injury. 1 Here, the taking of the trees is considered to be more than economic damage. ii Unique items may help show irreparable injury: 1 Free speech 2 Heirlooms 3 Unique art 4 Sale of fungible goods at a time of shortage 5 Stocks in a publicly trade corporation 5 6 7 Long term contracts, repeated offenses (propensity problems that require multiple lawsuits) 7 Measurement difficulties 8 An insolvent defendant (so they can’t give money damages) iii However, if you really need an injunction, there may be other ways to get it than irreparable injury. Brook v. James A. Cullimore & Co. a Facts: the plaintiff secured a note with a chattel mortgage (if the defendant’ doesn’t pay, he will give the plaintiff property) and the defendant didn’t pay. Instead of giving him the chattel, the defendant elected to pay him what he hadn’t paid. The plaintiff sued in replevin (a legal method of specific performance, allowed by statute in every state), which means that he wants the property that he is owed and owns to actually be returned. b Rule: if a return of property is possible, it must be returned, and the defendant cannot elect his own remedial measure to get around an injunction. i If anyone gets to choose, it will be the plaintiff. c Note: the court doesn’t care about showing uniqueness of the chattel or irreparable injury in this case, so it makes the irreparable harm requirement questionable. d Note: Replevin is enforced by the plaintiff going to the sheriff with a judgment, and the sheriff actually going to the defendant and getting the property. i The prevailing party has more of a role and the court is more involved directly. ii Some states threaten contempt, which makes it more similar to an injunction. e Rule: when suing in replevin, irreparable injury does not need to be shown. Continental Airlines, Inc. v. Intra Brokers, Inc. a Facts: Intra got Continental’s airline coupons and was selling them to other brokers. At first, Continental said it was okay, but then they changed its mind and Intra wouldn’t stop. Continental wants an injunction to stop the selling of the discount coupons to other parties such as travel agents. b Holding: there was irreparable harm because Continental had a lack of control and because financial damages were too hard to prove. c Rule: irreparable injury does not need to be shown for an injunction to be issued if damages are too hard to prove. Campbell Soup Co. v. Wentz a Facts: Campbell entered into a contract with Wentz to buy all of their output of a certain type of carrot, at a $30. The carrots would have cost $90 on the market, so Wentz breached and sold them to someone else, so the carrots are already gone and used, but Campbell wants specific performance. b Holding: specific performance should be granted because Campbell’s needs to have a steady supply of these carrots. c Note: when doing an economic analysis, the choice between specific performance and damages (between the expected item, and the expected value of the item) should be the same. i So efficient breaches should be rare. 6 ii However, in this case, it is not the same because of a liquidated damages clause. d Note: scholars say that courts should issue injunctions when it is economically beneficial to do so. i Otherwise, they should provide damages. e Note: in a bilateral monopoly, the problem is that there are only two parties bargaining, they can’t threaten to go elsewhere, so they just leave and harden their bargaining stance. i They know if they give in once, they will have to give in again. ii They think more in the long term about their bargaining stances. f Note: there is an argument that if the market is functioning, the resources are going to be sold to the party who values them the most, no matter what the courts does (injunction or damages). i But transactions costs are inherent and they can’t be calculated ahead of time. 1 So the economic analysis is worthless. a So courts have really rejected this view. i There is talk of efficient breach and economics, but this test has not been adopted. g Note: an opportunistic breach is a breach to make money. i There is really no distinction between this and the efficient breach, which puts something to a higher valued use. 8 Limitations on injunctions a Practicability b Affirmative defenses i These say that even though there should be an injunction, there is some other reason why it should not be issued in the specific case. c First Amendment problems i Prior restraints iv Balance of Hardships 1 Undue burden is a balancing of the equities/hardships. a The burden on the defendant will be balanced against the benefit to the plaintiff gained by the granting of an injunction. b The burden on the plaintiff will be balanced against the benefit to the defendant if the injunction is not granted. 2 Van Wagner Advertising Corp. v. S & M Enterprises a Facts: plaintiff leased a billboard outside of the Midtown Tunnel that a lot of people see every day. He then subleased to someone else who was going to use it for advertising. The lessor breached the lease. The plaintiff wants specific performance of the contract b Holding: the court will not grant specific performance. c Reasoning: damages are an adequate remedy and equitable relief would cause a disproportionate burden on the landlord, who wants to sell the land because he is preventing the use of a mixed use residential building. 3 i The court sees this as more than an efficient breach (in which he is just doing it to make money), although even though it is selling property for consolidation, it is still to make money. d Rule: there will be no specific performance for a breach of real estate property lease contract in New York. i This is the minority rule. 1 In most jurisdictions, property is considered unique and specific performance will be granted for it. e Note: the court here says that it is not uniqueness that matters, but rather, how the property is valued. i They say the value is based on the cost of getting other billboard space, taking into account: 1 The amount of people that see the billboard. 2 How long they see it while driving. f Note: the sublessee wants lost profits (damages that naturally flow from the breach). i This would be the extra revenue that the business would have had because of the billboard, which is hard to ascertain. g Note: this case is supposed to be an irreparable injury case, but irreparable injury focuses on the injury to the plaintiff, and here, there is no difference to the plaintiff depending upon what the defendant does with the billboard later down the road. i The plaintiff doesn’t care what the reason for the breach is. 1 If it is just an irreparable injury case, it shouldn’t matter what the defendant does with it. a All that matters is that the plaintiff doesn’t have it. ii So, maybe this is an undue burden case, or an exception to the rule case that says that advertising is not as big of a deal as real property, especially when coupled with what a proper purpose by the defendant on the backside. 1 So perhaps if there is some component of irreparable injury, and you couple these factors together, damages will be fine. a But this seems to violate the specific performance rules regarding irreparable injury. i The undue burden piece is what changes things. Ariola v. Nigro a Facts: the plaintiffs had notified the defendant that they were encroaching plaintiff’s property by 2 inches, but the defendants built anyway, complaining that the plaintiff’s gutters were in their way. The plaintiffs called a surveyor who said that defendants were over the property line, but the defendants tore down the plaintiff’s gutter system, saying they would build a good gutter system if the plaintiff’s would split the cost. The plaintiff’s wouldn’t, so the defendants built a cheaper model, causing mold and decay. The lower court 4 awarded plaintiffs damages in the amount that it would cost to make a drainage system like the one that was in place before the defendant’s tore it down. b Holding: the plaintiffs need more than damages in the amount of the old gutter system. i The defendants must tear the wall of their house down, move it back two inches, and then rebuild. c Reasoning: they justify this drastic remedy because of the intentional act of the defendants. d Rule: undue burden concerns might be outweighed if there is an intentional wrongdoing. i A willful wrongdoer cannot expect the court to do equity on his behalf. 1 It is questionable, however, whether this has a standard of intentional, reckless, negligent, purposeful, etc. ii In doing an undue burden analysis, the courts let other things sneak into the equation, such as culpability. 1 Sometimes “intentional wrongdoing” overrides burden concerns. e Note: there was a laches argument here, regarding the rain gutters. i Laches is when the defendant knows something is going on but he doesn’t do anything about it before the harm is caused, so he is barred from brining suit regarding it. 1 An equitable claim, at some point, cannot be asserted, because the plaintiff has waited too long, and it is unfair to the defendant. ii The plaintiffs weren’t barred by their delay in asserting their easement for those rain gutters because laches is not just about waiting too long, but also about the prejudice to the defendant. 1 The court concludes that the defendant wasn’t prejudiced by the plaintiff waiting. f Note: under tort, the plaintiffs would get the lesser of restoration or lost value. g Note: if the plaintiffs would have just been granted damages here, it would have been calculated based upon the amount of land taken, which would have been about $1.61. i This probably only would have occurred if they had no idea they were trespassing. Co-Operative Insurance Society Ltd. v. Argyll Stores (Holdings) Ltd. a Facts: Argyll leased a commercial space from CIS in which it had a Safeway supermarket. They decided to close because they were losing money, which was a breach of their lease, requiring that they would keep the store open for usual hours of business. The landlord wants their rent from the term of the lease. b Holding: the court will not order specific performance. c Reasoning: it would be financially detrimental to Safeway to keep Safeway open. i The court ignores the fact that CIS will lose money and less people will come to its other stores in the absence of the Safeway. 5 ii They say that the burden on Safeway is really high because they have already stripped down and dismantled the store. 1 If an injunction were granted for them to stay open, they would have to incur start-up costs all over again. iii The court is also unwilling to issue an injunction here because it would be difficult to enforce. 1 The court would have to monitor the way that Safeway ran its store. d Rule: in determining if there should be specific performance, a balancing must be done between the burden on the plaintiff, the burden on the defendant, and the long-term burden on the court. e Note: a court will generally not order a business to stay open. f Note: Safeway actually did find another grocery sublettor, which it was supposed to do in its contract, so the case was actually moot. g Note: there is no hard and fast rule against court supervision. i Although they are opposed to it, if there is a real public interest, a court probably will issue the long term, overseeing injunction and supervise. ii Most courts really just consider the burdens on the plaintiff and defendant. Willing v. Mazzocone a Issue: whether prior restraints are an equivocal right or can be bounded in some cases. b Facts: a woman was demonstrating outside of a court house with a sandwich board, claiming that a law firm stole her money. The attorneys had sought an injunction to stop her from further demonstrating. She is blatantly wrong about the money she is owed. The superior court enjoined her from further demonstrating. c Holding: she can continue demonstrating because she has a right of free speech. i The court doesn’t care if she is stating a falsehood because the first amendment is just too important. d Rule: the right of free speech is not conditioned upon the monetary worth of an individual and whether damages could actually be collected or whether damages would actually matter to the person, but in deciding whether a remedy is adequate, it is the remedy itself, and not its possible lack of success that is the determining factor. e Rule: prior restraints are a public policy reason to refrain from issuing an injunction. f Note: the lower court based its binding of prior restraints on the fact that the defendant was indigent, so the lawyers couldn’t have sued her for money damages. i So insolvency of the defendant is a strong factor that goes toward there being irreparable injury. g Note: by failing to issue the injunction, the court here actually gives the defendant more free speech rights than the average person, because anyone else would have to pay damages for what she is doing and would have an incentive to stop, but she doesn’t. h i Really rich people and really poor people won’t care if damages are issued against them because the former can pay forever and the latter won’t really have to pay. 1 So it seems like they get more free speech rights than monetarily average people. Note: there are many factors that weigh in favor of irreparable injury here, like the fact that the law firm has to continuously go after her for this behavior (multiplicity of lawsuits), and they don’t have control over their brokerage, and the fact that money damages wouldn’t be certain (due to insolvency of the defendant). i However the first amendment seems to outweigh all of these things here. ii Plus the trial by jury factor goes in favor of not issuing an injunction. v Public Policy 1 This deals with the interest of the public. 2 American Broadcasting Cos. v. Wolf a Facts: Wolf agreed to negotiate in good faith for an extension of his employment contract with ABC and to not accept a competing offer. There was a negotiation in good faith clause and a right of first refusal clause that lasted for 90 days following March 4. He signed a contract with CBS before that date without giving ABC the offer. ABC wants Wolf to work for them or to enjoin Wolf from working for CBS. i Note: he isn’t technically in breach of the right of first refusal because March 4 hasn’t even happened yet. b Holding: the court will not require indentured servitude because of the public policy considerations. c Note: ABC wouldn’t really want to make Wolf work for them anyway because he probably wouldn’t do a good job. i But they still don’t want him to work for a competitor. d Rule: a court will generally enjoin someone for working for a competitor. i This negative injunction/non-compete, will be limited as narrowly as possible. 1 It won’t be granted if it denies someone the right to make a living. 2 It will be limited to the time of the contract. ii This is because it is really difficult to compensate with money the damages that occur because of the competition. iii It starts to lean toward irreparable injury. iv In addition, there may be moral culpability issues. e Note: this was a personal services contract, and that is why the issue of indentured servitude arose. i In other types of contracts, when workers are hired to do something, it is not such a problem because it doesn’t tell a particular person to do something. ii In most contracts, if the defendant promises to perform services, the plaintiff can just cover (get someone else to do the job). 1 They aren’t enforced specifically because they aren’t unique. Los Angeles Memorial Coliseum Commission v. National Football League a Facts: L.A. Coliseum was trying to prevent the NFL from preventing the Raiders from being transferred to L.A. They applied for an injunction, which was granted by the lower court. b Holding: no injunction can be issued c Reasoning: there was no showing of irreparable harm. i The only damages that were claimed were economic. ii They are not convinced by the balancing of the hardships because the NFL not wanting to transfer the team is denying voting power to the members. d Note: this is a preliminary injunction, which means that no party has been adjudicated the wrongdoer yet, so the court will be less willing to get involved. i The court will ask if there will be some irreparable injury between the time of the preliminary injunction ruling and the time of the final judgment. e Rule: the four elements for a preliminary injunction are on a continuum and they are not strict elements. i If there is more than one and less of another, it is okay. vi The election cases 1 Southwest Voter Registration Education Project v. Shelley a Facts: there were punch card ballots used in minority communities that had serious errors for over and under votes. There was less chance of these people having their votes counted than people in other counties. They brought a disparate impact/race claim that they have as much right to vote as everyone else and that they aren’t getting equal protection. b Rule: A preliminary injunction will be issued in the 9th Circuit if there is: i A likelihood of success on the merits and a possibility of irreparable injury 1 A speculative possibility is not enough. ii Serious questions going to the merits were raised and the balance of the hardships tips sharply in their favor. The weaker one prong is, the stronger it has to be proved on the other side. c Holding: the court will not enjoin the election d Reasoning: the state has spent a lot of money, the candidates have spent a lot of money, and they were all set up for the election. i The court considers the interests of the plaintiffs to be a speculative possibility. 1 Although the lesser chance of their votes being counted is a fact, whether this will impact the results of the election is a speculative possibility. e Note: this case shows that he court may not do anything to stop the election ahead of time, but it may do something later. 2 Siegel v. Lepore 3 g Facts: Republicans are claiming that democrats are asking, under state recount laws, to recount particular counties that all are heavily democratic counties. The republicans argue that they will find more votes on the democratic side in this manual recount because of the selective choosing, which violates the rights of the rest of them. They say that they would have asked for recounts in republican areas if they knew that they could, but since they didn’t, it shouldn’t be allowed because it violates federal constitutional principles. The 11th Circuit issued a stay for them to keep counting until the Supreme Court makes a decision in Bush v. Gore. b Rule: in determining whether a recount in an election should be enjoined by preliminary injunction, there are four elements : i A strong likelihood of success on the merits. ii The possibility of irreparable injury iii A balance of the hardships favoring the plaintiff iv Advancement of the public interest in certain cases. c Holding: the recount can continue and any damages that arise can be fixed later. d Reasoning: the plaintiffs have no threat of continuing irreparable harm because it looks like their candidates are going to win anyway. i It is speculative whether the recount will have an impact on who wins. ii The voters aren’t suffering serious harm because nobody was denied a right to vote, and nobody’s ballot was rejected. e Rule: a violation of constitutional rights does not always constitute irreparable harm. i If the result wouldn’t have changed because of the violation, it may not constitute irreparable harm. f Note: although this case also shows that the court may not do anything to stop the election ahead of time, but it may do something later, it will probably say it is moot after the fact because someone has already won, or they will fix it for the next time instead. i They will rarely go back after the fact (after the election), because they don’t want to get involved. 3 Note: courts are very reluctant to intervene after the election has happened. a Bush v. Gore was rare in that the court got involved in a way that potentially changed the outcome after the fact. i The court did not change the vote, but just kept the status quo. ii The Court acknowledges that there are constitutional problems with the recount that demand a remedy, but there is disagreement about the remedy. Preliminary Injunctions i These are not final, so there are issues regarding what degree the substantive case has to be proved. 1 There has to be a likelihood of success on the merits. a Sometimes it has to be a strong likelihood of success. i The standard changes depending on the jurisdiction. ii Lakeshore Hills, Inc. v. Adcox a h Facts: despite a covenant on the property that said that condo owners could not have bears as pets, Adcox had one. The covenant was on the property when he purchased it, but it did not contain the word “bear” until during his ownership. The bear was a safe fifth generate captive and was double caged. 2 Note: although injunctions are usually supposed to keep things at the status quo, the granting of the preliminary injunction here altered the status quo, which was having a bear as a neighbor. a The court says that this is not an inviolable rule because the status quo is not concrete anyway. i It says it is better to use the four part test that the status quo test. 3 Holding: a preliminary injunction is issued to remove the bear from the property. 4 Rule: the four part test for the granting of a preliminary injunction is: a Irreparable injury b Threat of harm c Inconvenience of the defendant d Likelihood of prevailing in a permanent injunction. 5 Rule: even in the absence of irreparable injury, a court may grant a preliminary injunction if the three other facts exist, like in this case. 6 Note: this was a good case for a preliminary injunction because the court knows they have to get the bear out and money will not suffice because a bear can’t be quantified and payment will not remove the bear, and it is clear that the plaintiff will prevail at trial. Injunction Bonds i An injunction bond is money reserved for any damages or fees incurred or obtained in the restraining order. 1 The plaintiff gets a TRO and the court orders that the plaintiff put up a certain amount of money to make sure that they are correct in getting the TRO. a This is usually done through an insurance company. i It is called a surety. 1 Someone guarantees that they will pay for you, then you have to pay them back in full b If the party is wrong in getting the TRO, and they cause harm to the defendant, the defendant will be compensated for some of their harm caused by that wrongful injunction, using the bond money. ii FRCP 65(c) says that no restraining order or preliminary injunction shall issue except upon the giving of security by the applicant in such amount as the court deems proper. 1 This says it is mandatory at both the TRO and preliminary injunction stages, but courts sometimes waive it. a In fact, however, it is discretionary, because if it were really mandatory, a lot of plaintiffs wouldn’t be able to ask for an injunction. i However, once a bond it posted, liability on that bond is mandatory, providing that the defendant proves that damages were suffered. 1 Note that there are not punitive damages, but are only compensatory. ii However, if it turns out that nothing was wrong with the preliminary injunction or TRO, the plaintiff will not have to pay. 1 i iii The majority of courts say that the injunction bond is the maximum liability of the plaintiff for a wrongly issued injunction. 1 So, essentially, it is argued, ahead of time, what the damages will be if the injunction is wrongfully issued. 2 However, if 4 or 5 states, the plaintiff’s liability is unlimited. a They can be liable for more than they actually paid in the bond. iv They can be used to cover specific periods of time. v The amount of a bond is determined by: 1 The potential loss to the defendant over the window of time that bond will cover 2 The hardship to the plaintiff, and 3 The public interest vi There are two types of injunction issuing errors that can happen: 1 Erroneous denial of an injunction a This is when the court should have issued the preliminary injunction. i The plaintiff will have a damages remedy to cover the window of time. 1 This does not deal with injunction bonds. 2 Erroneous grant of a preliminary injunction a This is when the defendant suffers harm because the injunction has been issued, and they really haven’t done anything wrong. i They don’t have a cause of action against the plaintiff because the plaintiff was entitled to bring suit. 1 But if it is the plaintiff’s fault for brining a substantively invalid claim, they should pay the harm through the window. vii If the defendant doesn’t ask for an injunction bond, he is still enjoined, and cannot ask for it later. viii The reason that injunction bonds are used is to reduce the risk of error and the hardship of the defendant during that period (the wrongful loss). ix Coyne-Delany Co. v. Capital Development Bond 1 Facts: Coyne-Delany was supposed to distribute valves for Capital’s project, under contract, but the valves were faulty twice, so Capital’s board opened up bidding again, requiring whoever placed the highest bid to not use Coyne Delany valves. 2 Holding: Coyne-Delany got a TRO and an injunction bond for $5,000, that is used solely for the window of time between the TRO and the preliminary injunction. 3 Rule: an injunction bond for a TRO will cover the time between the TRO and the preliminary injunction. TROs i These are usually issued when there isn’t enough time to file the paper and get a preliminary injunction. ii TROs are not immediately appealable. 1 So even if the TRO is wrongful, one must abide by it (unlike preliminary injunctions, which are appealable), or they will be held in contempt. a However, FRCP 65(b) says there is one method of getting a TRO reheard. i On 2 days notice to the party who obtained the TRO without notice, or on shorter notice, the adverse party can show up to contest it and get it dissolved. Otherwise you have to wait and obey it until the preliminary injunction hearing, where it can be determined if the TRO was wrongful. a So TROs without notice can last no more than 10 days and once the notice s served, the court must hear an objection within 2 days. iii The punishment for a violation of a TRO is contempt of court. iv Carroll v. President of Princess Anne 1 Facts: A white supremacy group was holding a rally and planned on coming back the next day, so the citizens of the town enjoined them from doing so. The injunction was first for 10 days and then extended to 10 months, and it prevented “civil disturbances.” In order to enforce it, the court issued a TRO, which meant that if the group violated it, they would be in contempt. The citizens want this TRO issued ex parte. a Ex parte means that the other side is give no notice of the fact that they are going to be enjoined. b This case basically constitutionalizes Rule 65 [FRCP] 2 Rule: an ex parte TRO can only be issued in two sets of circumstances: a When the defendant cannot be found for a hearing but can be found to be served the TRO. i This is because the TRO is not effective against the defendant until he has notice. 1 It is not fair to subject someone to contempt without their knowledge of that danger. b When the plaintiff is really afraid that there will be violence against him for trying to get the TRO. i This can occur when the defendant is going to do the very act that the person is seeking to get enjoined. 3 Note: if a party is available to be served with the TRO, it is likely that they also could have been found to come to court, so ex parte TROs are rarely acceptable. 4 Rule: if notice can be given of the issuance of a TRO, it must be given. a The court should at least be given an opportunity to argue why the TRO should not be issued. 5 Rule: ex parte TROs have a 10 day limit. a Note that this is already codified in FRCP 65, but Maryland is just constitutionalizing federal law here. i It is really just an advisory opinion, just telling the lower courts that FRCP 65 is an important doctrine and that it should be enforced. 6 Rule: FRCP 65(b) says that a TRO may be granted without written or oral notice only if: a it clearly appears (in an affidavit by the attorney) that immediate and irreparable harm, loss or damage, will result before the adverse party can be heard at opposition, and b the applicant’s attorney asserts the efforts that have been made to give notice and that notice should not be required. 7 Holding: because the plaintiffs in this case did not follow the procedure of Rule 65(b), the TRO cannot be granted ex parte. v Sampson v. Murray 1 Facts: a probationary employee was fired with a letter that said she wasn’t accepting direction from her supervisor. She believes she is entitled to a higher set of procedures because she was fired for things that happened in the past. She filed for a TRO so that she could keep her job while arguing that she should not be fired. The district court 1 2 3 4 5 6 granted the TRO, but during the hearing, the court requested to hear from one of the company’s supervisors who was not in on her firing, and the government refused to produce him. They basically test the authority of the court to see if it can actually make them produce this person. So the judge granted the TRO, saying that the plaintiff would otherwise suffer irreparable injury. The TRO lasts a long time (as it is not ex parte). Holding: The Supreme Court holds that the TRO has gone on too long, so it needed to be treated as a preliminary injunction, and they convert it to such. Reasoning: the Supreme Court wants to have at least some control over district court judges. a There is no textual basis for this decision, but the argument is that because it was not limited in time, at all, except by whenever the government produces the witness, it was not “temporary” in terms of a TRO. Note: the dissent said that a TRO is not appealable except under extraordinary damages, and they say this case did not raise to that level. Rule: TRO’s are not appealable. a But it was argued that keeping this person in employment is irreparable harm to the government. i But the dissent says she is going to have lost wages. 1 Plus, the stigma on her record and her inability to find a new job make it more likely that damages will not be an effective remedy later down the road. a The dissent thinks this sound like irreparable injury. b The dissent argues that there was no hearing to begin with, so it is not fair to treat this as a preliminary injunction. i These types of hearings are usually in depth. ii For a preliminary injunction, facts have to be stated specifically under FRCP 52, because they last longer, and it gives the court reasons for its decision in the case of an appeal. 1 A TRO, on the other hand, happens so quickly, which is part of the reason it is not appealable. Rule: if a TRO is issued for an indefinite period of time, contingent upon some action, three things can happen: a The action can occur to stop the TRO. b The party can move the district court to change its order, and call it a preliminary injunction, and then argue that there needs to be a more formal hearing, or that it needs to be certified for appeal. c Disobey the injunction, and get a contempt hearing. d Note: there would be another option in the case of a preliminary injunction: issuing a stay on an injunction. i This involves going to the court that issued the injunction and getting a stay pending appeal, so that the status quo will be left as it is until it can be heard. 1 This starts at the trial court level, with the judge who issued the injunction. a Most likely, they will deny it, in which case you can petition a stay 7 8 of that until they decide whether it is proper or not. ii This cannot be done with a TRO. Rule: in the case of a contested TRO, if it is less than 10 days, there is no problem, but if it is more than 10 days, there are three options: a Violate it, because it expires. b Appeal it and treat it like a preliminary injunction on appeal. c Go back to the district court and ask them to fix it, so that you can appeal something that is real, where there are actual findings of fact. Note: to get a TRO, the four part injunction test collapses, and asks whether there was such a risk of harm, that it can’t be remedied later, and it can’t wait until the preliminary injunction hearing. a All of the injunction elements are presumably present, by the analysis sort of collapses. IV Declaratory Relief a Generally i These are different in name and form, but the same in function, as injunctions. (Both are meant to prevent future harm) 1 These look like preventative injunctions. a A preventative injunction tries to resolve the dispute between the parties and get the facts on the issue. ii A declaratory judgment issues to resolve uncertainty between the parties, thereby preventing the harm that would ensue if the parties had to operate under the uncertainty. 1 Insurers, for example, often seek declaratory judgments because they want to the know the scope of a policy so they can know if an event is excluded from the insurance policy or not. iii Nashville, Chattanooga, & St. Louis Railway v. Wallace 1 Facts: the plaintiff wants a declaratory judgment saying that a gas storage tax is unconstitutional. He doesn’t want to just ignore the tax now and then later defend himself because he doesn’t want to break the law or have the stigma of being a tax avoider. 2 Note: to get an injunction he would have to go through the balancing test, show irreparable injury, and substantive wrong, and the public interest in favor of granting the injunction, which would be more difficult than getting a declaratory judgment. 3 Note: the Supreme Court considers whether there is a case or controversy and says it is dismissible. a They say that they can issue a substantive holding on this, and declare the rights. i This is a constitutional issue and the advisory opinion stems from whether it is a ripe dispute. 4 Rule: to get a declaratory judgment, the following must be shown: a Substantive issue i There has to be a real propensity for the thing that is in dispute to occur. 1 This would make the case ripe. b Ripeness i Ripeness, however, is not as strict under declaratory judgment as it is under injunctions. No irreparable injury is needed. 5 Note: ignoring a declaratory judgment does not subject a party to contempt of court. a The remedy is to go to court and get an injunction. b i If this occurs, the court will not even need to hear the case, because the adjudication on the merits has already occurred. 1 So, it is best, in some cases, to seek a declaratory judgment first, and then if it is disobeyed, seek the injunction, which will at that point, be easier to prove. a However, in some cases, the harm needs to be prevented immediately, and sometimes there is really nothing to declare when there is a lack of certainty on the merits (trees and halfway house, respectively). iv The Uniform Declaratory Judgment Act 1 This statute confers jurisdiction on courts to declare rights of parties. a Any person whose rights are in question or is uncertain about their rights can petition. b The issue must be ripe. 2 A declaratory judgment can be coupled with other relief. 3 The reason there is a statute covering this is because declaratory judgments didn’t exist at law at one time. a So it gives race judicata. i The person will have their rights in hand and know what they are. v Cardinal Chemical Co. v. Morton International, Inc. 1 Facts: both sides to this dispute are uncertain about the validity of the patent. The owner of the patent filed an infringement suit against Cardinal but Cardinal is arguing that the patents weren’t valid and he wants a declaratory judgment saying so. If they aren’t valid, the infringement suit cannot be brought. The defendant says he is facing continuing threats of patent lawsuits and the plaintiff says the validity of his patent is in question. 2 Rule: the reason we have declaratory judgments is to resolve disputes in cases where rights are legitimately in question and both parties need a determination of what the rights are. 3 Note: besides intellectual property, declaratory judgments are needed often in the insurance and governmental agency context. 4 Note: declaratory judgments can be used when one party is concerned that another party is going to sue them, and they want to get the tactical advantage as the plaintiff. a However, this may look like forum shopping, because if this person gets into federal court, he deprives the other party who would have filed the lawsuit from choosing the forum. i This is because a well pleaded complaint confers federal jurisdiction but a federal defense does not. 1 But when it comes down to it, federal concerns should not, and do not, really affect the ability of someone to bring a declaratory judgment action. Quiet Title i Newman Machine Co. v. Newman 1 Facts: the defendant owned the majority of stock in the plaintiff’s corporation. He had two classes of shares. The majority were owned for himself and the rest he owned at trustee for his children. He sold the stock back to the corporation but he doesn’t think that he was paid 2 3 4 5 c 6 Reformation i Reformation is a declaratory suit in which it is declared that the contract means something else than what was written. 1 This occurs when the contract is just written down wrong, and both parties had agreed on something else than what was just poorly drafted. ii Hand v. Dayton-Hudson 1 Facts: the plaintiff got fired and the defendant offered to pay him some money if he agreed to release them from any claims that he may have against them. At first the plaintiff said no, but then he went and made an identical document, in which he didn’t agree to release all claims, but made it seem like he did. He concealed this fact and the parties signed it. 2 Holding: the court allowed the contract to be reformed. 3 Reasoning: even though it wasn’t a mistake of fact, because he knowingly committed fraud, the contract can be reformed. 4 Rule: a contract that one party believes to be something different, because of fraudulent acts on behalf of the other party, is not binding, and can be reformed. 5 Note: this is not the usual application of reformation because the parties never agreed on the same terms. the correct amount of money and he wants a declaratory judgment saying that he is entitled to the shares that he held as a trustee. He thinks he has an obligation to bring the suit for these shares because of his fiduciary duty as a trustee. The corporation, on the other hand, wants it declared that Mr. Newman has no claim on these shares and that he can’t sue them. Basically there is a pending threat of the lawsuit and who the rightful owner of the shares is is unknown, and therefore, the corporation cannot sell the shares. Note: Mr. Newman did not sue for two years in this case, despite his numerous threats, because he knows he does not have a strong case. a He knows that the longer he drags this out, the more likely he is to get a cash settlement from the company, because they will eventually just want him to go away. Note: ownership claims regarding personal property, such as stock, raise question of quiet title. a However, the court says this is not real property, so they don’t know what to do with it. i He can’t sue at law because it is not a possession. ii He can’t sue in replevin because there is nothing he physically wants back. iii Legal remedies for personalty and real estate will not work. 1 When someone claims they own your property, it puts cloud on the title if they have a competing piece of paper. a Legally, not having the piece of paper will remove cloud, but equitably, that doesn’t help. b So the declaratory judgment act fills in the gaps. Rule: a bill of quiet title does not apply to personal property. a There are equitable and statutory remedies that function to declare relief of the parties. Note: depending on the jurisdiction, old forms of action might be needed to get under the statute to be granted a declaratory judgment. Holding: V The company thought they were agreeing to their own terms when they were really agreeing to Mr. Hand’s. i So, Hand thinks the contract should be rescinded (undone), instead of reformed. 1 If they had rescinded the contract, he would have to give the money back, but he would be able to bring a suit against the company that he has warranted against. 6 Rule: the election between reformation and rescission is in the hand of the defrauded party. a Reformation and rescission are other forms of declaratory relief. iii Other declaratory remedies at law 1 Nominal damages a The person wins one dollar. i The Supreme Court says that a although a prevailing party in a civil rights case usually gets attorney’s fees, if just nominal damages are awarded, this does not apply. 1 That is why it is smart to bring a declaratory judgment as well, because with that substantive declaration that you are the prevailing party, it may be easier to tack on the attorney’s fees. 2 Specialized writ at law a This determines the right of someone to hold office. i It illustrates that there is a package of things that all function with declaratory relief. 1 If someone needs a declaration that they can use res judicata, there are various ways to get it. a But the declaratory judgment is the easiest way to go. Restitution a Generally i Restitution is both a substantive theory of liability (unjust enrichment) and a method of measuring a remedy on the bank end. 1 The latter is our focus, although the former cannot be ignored. ii This is one of the three theories of liability in the civil realm (other than contracts and torts). 1 However, in addition to being a general theory, restitution can also be used as a theory of liability under tort or contract. iii There are four categories of cases where restitution is attractive: 1 When there is no other cause of action available a This is when there is no contract and no tort, so the person has to bring an unjust enrichment action. i This is like in Neri v. Retail Marine, in which he wanted his deposit back based on unjust enrichment because if the defendant got to keep it, he would be unjustly enriched at his expense. 1 No other cause of action was available to recover that. 2 When the defendant’s gain exceed the plaintiff’s loss a This involves electing to sue in restitution. b Sometimes the plaintiff will be allowed to disgorge the profits of the defendant. a i In this type of case, ask whether through constructive trust or equitable line, the plaintiff will be allowed to recover more than he lost. c This can be considered in terms of putting the defendant back in his rightful position because he has done something wrong (more than negligence). i If there are consequential gains, the defendant has to be knocked down and the gains must go to the plaintiff. 3 When the plaintiff wants to reverse the transaction rather than let it stand and measure either his loss or the defendant’s gain a This is rescission 4 When the defendant is insolvent and the plaintiff can get a preference by seeking restitution of specific property that used to belong to the plaintiff. a This is a way that the plaintiff can get in line ahead of other creditors. i This deals with tracing. iv The key to restitution is that it occurs when there is unjust enrichment. 1 The New Restatement says unjust enrichment is “enrichment that is not legally justified.” a A transfer of money (even in excess of the expected amount) pursuant to a valid contract is not unjust although it is enrichment. b A payment for a valid debt or a gift of cash is not unjust. c Mistaken transfers of money are unjust. d Officious intermeddlers are unjustly enriched when paid. i There is no contract and no claim. 1 Contract formation cannot be bypassed. 2 There are six categories where unjust enrichment often occurs: a Mistake i Example: the banker credits someone’s account twice or erroneously gives someone too much money. 1 They have to give one of the credits back. b Actual or supposed contracts i This is if there is a contract and a problem under it and it fails for some reason. 1 If the goods and services have been conferred under this valid contract, they must be measured by restitution, which will be the value of the services gained (the unjust enrichment). c Judgments i This is when a money judgment is collected and then the judgment is appealed and reversed. 1 The person must give the money back. d Emergency i This is when one who renders essential goods or services, acts like there is a quasi-contract because the other person couldn’t have contracted at that moment. e Joint obligations i For example: someone pays all of the tort damages when they are not the only one liable. 1 Someone else may have an obligation to pay their share. b Wrongful acts i Theft ii Breach of fiduciary duty iii Conversion iv Fraud v Extortion vi Sometimes this will give rise to the plaintiff getting restitution based on what the defendant gained rather than what the plaintiff himself lost, even if the defendant gained more than the plaintiff lost. v Although restitution damages may seem punitive, they are not. Disgorging Profits (category 2 of restitution) i This is when the defendant’s gain exceeds the plaintiff’s loss and the court will force the defendant to disgorge those profits to the plaintiff. ii Whereas with damages, the goal is to put the plaintiff back in his rightful position, in restitution, when talking about disgorgement, ask how to put the defendant in his rightful position. 1 Things are taken away from the defendant, and it doesn’t really matter whether they go to the plaintiff. a Just put the defendant back down to where he started from. iii Money not spent on safety 1 A defendant who fails to spend extra money on safety because its bean counters find it unprofitable to do so, will not be forced to disgorge profits to the injury victim unless there is more than negligence or just a public policy decision. a The only way would be through punitive damages if it had amounted to recklessness or something more. iv Quasi-Contract 1 This is a way for the court to extract profits from the defendant, by creating a fictional contract. 2 This is not an equitable remedy, so it may be used to force a jury trial somehow. 3 Olwell v. Nye & Nissen Co. a Facts: The plaintiff sold the defendant his egg company, but failed to take with him the egg washing machine. The machine was clearly not part of the sale. The defendant, however, had a man shortage and used the machine without the plaintiff’s knowledge, and increased his profits by doing so. When the plaintiff found out, he tried to sell it to the defendant but they couldn’t agree on a price. The defendant wrongfully used the plaintiff’s machine. The plaintiff sues for restitution. b Holding: the plaintiff is entitled to restitution damages based on defendant’s increase in productivity, which are more than normal damages, even though there were no losses. c Reasoning: the defendant was unjustly enriched through the wrongful use of the machine. d Note: opportunistic breaches are not just intentional, but intentional in the fact that they take advantage of the other party. i This is more extreme than an efficient breach. 1 Opportunistic breaches intentionally bypass the market for a better market elsewhere. a The defendant should have just called and asked to use the machine. f Rule: when someone is a conscious wrongdoer (does an opportunistic breach, for example), damages may be measured by their (the defendant’s) gain instead of by the plaintiff’s loss, in the form of restitution. i The defendant cannot complain if they have to pay more than damages, because they have profits from the unjust enrichment. f Note: in a normal analysis, we would consider the plaintiff’s damages to determine damages. i This would be the depreciation of the egg washing machine or the fair market value of what he could have been making on the machine at the time it was being used, or the permanent conversion value (in replevin). g Note: there are questions to ask when determining if restitution should be awarded: i What are the plaintiff’s damages? ii Why should the plaintiff get more than that? iii When should the plaintiff get more than that? iv How do we measure by the defendant’s gain instead of by the plaintiff’s loss? 1 Rental value that the defendant did not pay or the total savings to the defendant. h Note: the reason the court allows the plaintiff to recover more than he lost is because it doesn’t want to make civil wrongs profitable. i This seems to be in direct conflict with the efficient breach theory. i Note: in this case, the court goes beyond the plaintiff’s rightful position because of the culpability of the defendant, and creates a legal fiction that a contract existed, even though one actually didn’t. i Note, however, that not every quasi-contract allows the plaintiff to recover more than he actually lost. 1 It only occurs in specific cases, depending on the wrongdoing of the defendant. v Accounting for profits 1 This is the second fiction that allows the court to extract profits from the defendant. 2 This is an equitable remedy, so no jury trial is necessary, and irreparable harm must be shown. a Insolvency constitutes irreparable harm. 3 Majer Brewing v. Fleischmann Distilling Corp. a Facts: the plaintiff makes black and white label scotch, and the defendant infringed the trademark by making black and white label beer, which is sold at Ralph’s. This is intentional trademark infringement, as the defendants used the label because it benefited them to build off of plaintiff’s good will. However, there is no competition, because the defendants are making whiskey, as opposed to beer. The only thing is that consumers may think they are both the same company, when in fact, they are not. b Holding: an accounting for profits was imposed. i This means that whatever money the defendant receives after paying expenses is the profit, and it e gets taken from the defendant and goes to the plaintiff. 1 There is usually a question regard to whether the will get net profits or gross profits. c Rule: in an intentional infringement case, the plaintiff can get an accounting for profits. d Note: if these damages were being measured in a regular way, there would be measurement difficulties, so the court might allow damages for good will. i However, the decline in the good name of the label is hard to prove, so no diversion of sales could be quantified. e Note: the purpose of the statute here is to make infringement unprofitable and deter. i But plaintiffs should also have control of their own property. f Note: if this were just negligent infringement (the whiskey people didn’t know about the beer company), they still shouldn’t benefit from their mistake, but it would be unduly harsh to grant a harsh accounting for profits. i Innocent infringers will not be punished to this extreme, so an accounting for profits will not be imposed. g Note: the more conscious the wrongdoing, the more likely the court is to impose an accounting for profits based on gross profits. i The less culpability, the more likely the profits will be based upon net profits. h Note: what the whiskey company did in this case is the same as bypassing contract formation, because they could have bought a license from the beer company to use their label. vi Constructive trust 1 This is the third fiction that allows the court to extract profits from the defendant. 2 A constructive trust comes on the heels of an accounting for profits. 3 A constructive trust is a pretend trust that allows tracing of the proceeds and knocks the wrongdoer back to where he started from. 4 This is an equitable remedy, so no jury trial is necessary, and irreparable harm must be shown. a Insolvency constitutes irreparable harm. 5 The difference between constructive trusts and accounting for profits is that a constructive trust allows tracing and accounting just gets money. 6 This is a way for courts to get control over things they wish to control, and to impose fiduciary duties on the trustee. a The assets are traced through and the plaintiff is given preference in front of other creditors. b The trustee is considered to have had something in trust for the plaintiff. 7 Snepp v. United States a Facts: Snepp, who worked for the CIA, broke a contact he had with them by failing to submit stuff for pre-publication review. He wrote a book about supposed secrets of the CIA without getting their approval, but he didn’t disclose any confidential information. Note: if Snepp had sought approval he probably would have gotten it, so he really didn’t get any more profits than he would have had he not breached. i If he had gotten profits before the time it would have taken for him to get approval, however, that might have been restitution, but that was not the case here. 1 So it seems strange that a constructive trust was imposed. a It seems to be that it was because he broke the rules. c Holding: a constructive trust is imposed. i All profits from the book go back to the government. 1 It is as if it isn’t Snepp’s book at all. d Rule: when there is a breach of a fiduciary duty, restitution, in the form of a constructive trust can be imposed. e Note: there is a starting point of profit and a stopping point at disgorgement. i Anything below that point would be punitive. f Note: disgorgement of profits supposedly doesn’t exist for breach of contract. i However, the court here calls it a breach of a duty, and therefore re-spins it as not being a direct contract action. 1 So there are exceptions to the rule that disgorgement is generally not allowed for breach of contract. a Contracts for the sale of land b Trade secrets and other intellectual property. i But this may depend on whether there was a fiduciary duty. c Covenants not to compete d “Skimped performance” i This is when the defendant withholds some of what he promised without significant value. vii Measuring profits/apportionment 1 The question is how much the defendant will be forced to give back to the plaintiff in order to put the defendant back where he started, by taking away his gain. 2 Sheldon v. Metro-Goldwyn Pictures Corp. a Facts: Sheldon had a play and MGM came out with a picture based upon it. Sheldon sued MGM for infringement and the court found infringement and MGM was enjoined from showing the film and they directed the district court to have an accounting for profits. The district court awarded all of the net profits made by MGM, which was all of the money that MGM made on the picture after it paid is expenses, because there was a willful infringement. MGM argues that there are many other factors that go into making a movie other than just the story and had they not used plaintiff’s play, they would have used their own. MGM should have gotten the rights to make the picture but they didn’t, and the plaintiff argues that b 3 they couldn’t have made the movie at all without the plaintiff’s play. b Note: the purpose behind disgorgement here is to make sure that MGM isn’t enriched. i They shouldn’t gain wrongly, at the expense of the plaintiff. 1 We want to take away from the defendant the advantage that they stole. c Rule: in determining how to return the defendant to his rightful position, through disgorgement, there does not need to be complete certainty. i There just needs to be a reasonable approximation. d Rule: experts can be used to determine the actual profits from infringement. e Holding: the plaintiff can disgorge 20% of the defendant’s profits. i This is not a hard and fast amount for infringement. 1 It is just what the court determines here. a This case apportions things generally, using gross and net profits as a starting point. b The plaintiff only gets the amount the defendant has gained at the plaintiff’s expense. i Things are pulled out and accounted for that do not fall into this category. ii If we err though, we err on the behalf of the plaintiff. f Note: the experts that estimated the value of the story line as a chunk of the profits didn’t come out as high as 20%< and Sheldon didn’t even put on evidence in this regard, but the court gives this amount because it wants to award any possible problems against the wrongdoer. g Note: courts vary on how they apportion profits. i Some follow the Snepp ruling, and give it all back to the plaintiff, and others use this type of system. h Note: the defendant bears the burden of showing apportionment. i He needs to show that there are other factors contributing to his profits. 1 When this is not possible with some certainty, the court will not apportion and the defendant will just have to deal with that. Hamil America v. GFI a Facts: fabric was sold to JC Penney that was infringing. It could be determined exactly how many pieces of the fabric were sold. Hamil is suing the manufacturer of the fabric and JC Penny. b Issue: whether overhead expenses can be included in the profits that a plaintiff disgorges from a defendant. i Overhead expenses are the constant (fixed) expenses that a business has for running. 1 The other kinds of costs are variable costs. c d a They change and are not constant. Rule: in determining whether overhead, in addition to variable costs, should be removed from profits before disgorgement, there is a two part process: i There has to be a nexus 1 The defendant must show overhead expense categories that are actually implicated by the production of the infringing product. a Those that don’t have a sufficient nexus will not be deductible overhead costs. b Those that do have a sufficient nexus will be deductible. c Those that have somewhat of a nexus may be partially deductible. ii Fairly allocate 1 The plaintiff has to show the gross revenue, but the defendant (infringer) has the burden of lessening that amount. a The infringer will argue for a large allocation method because more overhead expenses will be taken out. i The court wants to make sure that the plaintiff does get recovery, so at some point, it will not like overhead deductions if they seem too extreme. 2 There must be a fair, accurate, and practical method of allocating the implicated overhead to the infringement. a The infringer has the burden of “offering a fair and acceptable formula for allocating a given portion of overhead to the particular infringing items in issue. b The reasonableness of the proffered overhead allocation formula is a question of fact in all cases. 3 Some ways a court might fairly allocate: a Percentage of total production costs b Percentage of total products c Percentage of total dollar sales Note that variable expenses have already been taken out to get to net, and the defendant wants to take out some overhead costs, which can only be done if this test is met. This two step process must be applied with particular rigor in the case of willful infringement Note: the statute says that the purpose is deterrence, notwithstanding the culpability of the defendants. i So it is irrelevant that GFI is the most culpable because they stole it on purpose and that JC penny probably didn’t even know they were infringing. e f g Note: uncertainties will be resolved against the infringer. Note: courts are not set on how to apportion. i There is room for a lot of persuasive argument. ii It depends on the jurisdiction and how the facts of a case are spun. Note: this is the approach of the 2nd circuit court. i However, courts are split on the issue of overhead. 1 The 9th Circuit says that if a wrongdoing is really bad, it will not take out overhead at all. a So there will be two categories of disgorgement: i Only conscious wrongdoers have to disgorge at all. ii The more the wrongdoing, the more one will have to disgorge (the more the court will err against him). 4 c Conscious wrongdoers don’t get any credit for taxes paid on profits. i It will not be pulled out of their overall number. 1 When they pay a damage award to the plaintiff, they will be able to deduct it on their income taxes as well, and it washes out. Rescission (category 3 of restitution) i This is when the plaintiff seeks to undo the transaction and measure the damages either by his losses or the defendant’s gain. ii Recession deals with things that have not been acted upon yet in a contract. 1 Before acting, a party goes to court seeking a declaration that they don’t have to do anything under the contract because the promises made are invalid or void for some reason. iii Mutual Benefit Life Ins. Co. v. JMR Electronics Corp. 1 Facts: Mutual Benefit wants to get out of the life insurance contract because the executive lied in his application and said that he wasn’t a smoker, and then died. They probably would have insured him even if he was a smoker, but there would have been a higher premium. There is a statute that says that if there is a material representation in a contract, it can be voided. If there is a misrepresentation that induces the plaintiff’s assent, even if it is not an intentional lie, the contract can be voided. Mutual Benefit wants rescission, but JMR wants reformation (to pay the difference between the smoker and non-smoker premiums, retroactively) because they claim the misrepresentation was not material. 2 Rule: a misrepresentation is material if one party would have made a different decision and they know the information. 3 Note: rescission would make it like this contract never existed, and the president would be considered uninsured. a Mutual would have to refund policy payments but they wouldn’t have to make the payment on his death. 4 Rule: when deciding between reformation and rescission, whichever can afford more precision should be chosen. Taxes a iv v vi vii Rescission is more precise here because to reform, a court would have to make up an agreement and force Mutual to say what they would have done had they known the facts. i Note: reformation changes the contract to what the parties originally wanted, but here there was never any agreement on the smoker policy. 1 This would require a lot of estimates by the jury. 5 Note: rescission may be allowed when: a Someone sits on their rights i Laches b Other situations i As an after the fact reallocation of risk. 1 This avoids speculation at the other side’s expense. a This does not apply here because Mutual contests right away and within the allotted time. 6 Note: rescission is not a fiction because it really does reverse something. 7 Holding: because of the misrepresentation by the plaintiff, the court grants rescission. 8 Rule: it s the plaintiff’s choice whether to sue in damages or restitution. a When suing in restitution, someone is suing for the reasonable value of the services conferred, so he will get more than he would from damages. There are five categories of cases in which rescission and restitution will be allowed: 1 Cases of fraud 2 Substantial breach of contract 3 Mutual mistake of fact 4 Unilateral mistakes that are not relied on 5 Duress Non-divisibility 1 Rescission requires rescission of the entire contract, unless it is divisible. a A person cannot affirm one part of the contract and rescind another party. Courts do not generally require irreparable injury in order to grant rescission. Farash v. Sykes 1 Facts: the parties were trying to enter into a contract in which the defendant would lease a building from the plaintiff. Based solely upon oral agreement, the plaintiff modified the building a lot in expectation that the defendant would move in. There was some discussion, but never a binding legal promise. The plaintiff wants money back from doing all of the modifications. The defendant argues that the statute of frauds should apply. 2 Holding: the plaintiff wins in this case and is given the amount that he would have been in had he not had the conversation with the defendant. a The court calls this restitution, but restitution brings the defendant back down to his rightful position and assumes that the defendant benefited. i The defendant did not benefit here. b This sounds like reliance damages. i But it isn’t reliance because there was no contract. 3 Rule: restitution can be awarded in a way that seems like reliance, even without a contract, and without a benefit. a d Note: the court wanted to compensate the reliance on the oral contract. i They say, “That is a rule that New York lawyers can live with.” 1 So this is the New York rule, regardless of what the theory is. b Note: if there is an enforceable contract and a non-fictional benefit, the plaintiff can sue on the contract, and if there is not an enforceable contract, but there is a non-fictional benefit, the plaintiff can sue in restitution as a substantive measure of recovery. i But this case basically says that you can get restitution when there is no enforceable contract and no benefit. 1 But it is really reliance because the court wants to award reliance damages but it is precluded by the notion of the statute of frauds, so it calls it restitution, despite the benefit requirement. c So this case basically makes the interplay of contract and restitution more complex than it previously was. i The court sort of does rescission, talks about restitution, and gives a reliance measure of recovery. 1 The courts don’t know what to do in these types of cases. 4 Note: make sure not to cut a client off from a theory of recovery. a The general rule is that a plaintiff can select alternative theories of recovery, and choose at the back end. i Make sure to pursue all avenues, or you, as the attorney, may be liable for the amount they get less than what they could have. 5 Note: the plaintiff here wanted to sue “off” the contract, but there was no valid contract. Constructive trusts and preferences (category 4 of restitution) i There are two elements to constructive trusts: 1 Identifiable property a This is property that you can show has been converted, or the property itself. i It means that you can still plausibly claim that the item is yours. b The fiction is that through tracing, you can claim the item as your own property. 2 Wrongdoing a There has to be a real wrongdoing. i Just showing the identifiable property isn’t enough. ii Fraud or something else has to be shown. ii When a plaintiff gets a preference under a constructive trust, he is preferred against ordinary creditors, state receivers, trustees in bankruptcies, and maybe tax liens. iii Tracing generally 1 This almost always occurs in category 4 restitution cases (when the defendant is insolvent), but can also apply in category 2 (where the defendant’s gain exceeds the plaintiff’s loss). 2 Hicks v. Clayton a Facts: Costabelle is a plantation. The lawyer, Clayton, takes it in exchange for stock and an unsecured promissory note (an a IOU that says that he will pay them, or can be sued if he doesn’t pay). A promissory note is usually of legal value, but here it is of no value because Clayton is insolvent. Clayton didn’t make payments on the note, and the plaintiffs continued to make payments to savings and loan. They were in arrears and the IRS filed a lien on Costabelle for Clayton’s unpaid taxes. The Hicks wanted to rescind the contract that they originally made because all they can really get back is the property because the defendant has no money. i If the court grants rescission, they will get the ownership of the property back, and have to give the defendant back his promissory note and any payments he had made on that note. The trial court does not give rescission because they say that the Claytons should sue for legal relief instead of equity if it is available. 3 Rule: the plaintiff can elect whether to sue for damages or in equity. 4 Holding: the plaintiffs can sue in equity, for rescission and get a constructive trust. a However, there are still mortgage payments that need to be made and tax liens are on the property, and there is a Homestead Exemption in Texas that says that when someone is in bankruptcy they get to keep the house. 5 Rule: when a defendant obtains property through fraud and wrongdoing, a constructive trust may be imposed to pretend like the defendant was a trustee of the property, so it can be given back to the plaintiff. 6 Note: by imposing the constructive trust, the plaintiffs jump in line ahead of everyone else. 7 Note: If Clayton had sold the property and then, with the proceeds, invested in a non-interest bearing certificate of deposit, tracing would be used to get the certificate of deposit, on the theory that Clayton was a trustee, selling the property for the Hicks and getting the certificate of deposit for them, because it always belonged to them. iv In Re North American Coin & Currency, Ltd. 1 Facts: North American Coin was in financial trouble. They had two options. They could keep operating for another week in hopes of getting financing, or they could disaffiliate (essentially declare bankruptcy). The company met on 9-12 and decided to continue to sell precious metals for the week, until 9-17. During that week they opened a special trust account and put the proceeds from that week’s transactions into it, in order to protect the customers. After that week, they ended up getting no financing, and going into bankruptcy. The purchasers want their money back. 2 Holding: the court will not award the plaintiffs their money back from the special trust. a They cannot jump over the other creditors that are in line before them. 3 Reasoning: there is a difference between actual fraud and negligence. 4 Rule: there are two requirements for a constructive trusts: a Identifiable property b Wrongdoing i It is not wrongful to be insolvent or to be bankrupt. Note: the defendants did not make a representation or lie to the plaintiffs, but it could be argued that they misrepresented. a However, a person can’t really run a business while telling their customers that they are in the red. b But they didn’t really know they were going out of business. 6 Note: if a bank asks for information and the defendant lies, it is fraud, but if the bank doesn’t ask the right questions, and therefore, doesn’t get the right information, it is not fraud, and it is the bank’s fault. a The bank will have to get in line with the rest of the creditors. i But a bank is different that the creditors in this situation. v In Re Erie Trust Co. 1 Facts: Erie Trust took money from an estate ($25,000) and put it in the general cash fund of the company. The trustee wanted to get the money out but the funds had been commingled with the other funds of the company. Erie Trust has wrongfully taken the money. The plaintiffs want to impose a constructive trust on the fund. The lower court couldn’t figure out which funds belonged to who. The mortgages have turned into real property. The mortgage didn’t get paid, and there was a foreclosure. 2 Rule: when you see commingle funds, first ask whether you can do direct tracing. a If not, consider the fictions: i The defendant spends his own money first 1 When money flows out of the account, more of it comes out in the defendant’s account first. 2 If it is a bad investment, you don’t have to use this. 3 You get to look back with the benefit of hindsight. ii The defendant invests the plaintiff’s money first. iii The lowest intermediate balance rule 1 Deposits are treated factually, not fictionally. a That is when they actually come in. b You can have a claim on all of the money, but not a preference on more than you have in the previous transaction. c It drops down to the lowest point in between. 2 When the money is gone, nothing is left, and the pool can be expanded to how big the fund is, in this case, which is all cash on hand. a Everyone else who was making real deposits that are not wrongful had their money spent first. 5 Whatever is left, take the lowest balance of that fund, and that is the most the plaintiff can take. iv The plaintiff can use tracing rules to her benefit. 1 It can sometimes be used proportionally. 2 If one rule doesn’t work for the plaintiff, she can use another one. a However, the rules can’t be overridden. 3 Note: the plaintiff can usually not get more than she lost if the defendant is insolvent. 4 Note: the mortgages that have turned into real property can be found by direct tracing. a If you can say that some portion of money that was in a bank account got loaned out for a mortgage, that is direct tracing. 5 Note: fraud victims have greater rights than other creditors. a This is because other creditors accepted the risk of insolvency, but the victim of fraud did not. i It is almost replevin because they want their particular thing back. ii If there are a lot of victims of fraud, the ones who can specifically identify the item of their fraud get it back. 1 Those who cannot, can’t get it back and then fall into the category of the general creditors. 6 Commingled fund problems vi Tracing via third parties 1 Rogers v. Rogers a Facts: the husband had a life insurance policy that was going to go to his wife, for $15,000. They got divorced and entered into a separation agreement, agreeing to maintain the first life insurance policy on the first wife. The husband then changed jobs, and got remarried, and a second insurance policy. He let the first one lapse. The second policy was also worth $15,000, and the second wife was named as a beneficiary. The employer was paying the premiums. The first wife is suing the second wife to get a constructive trust on the new life insurance policy. The wife is not going after the husband, or the estate, but rather, a third party, the second wife. b Reasoning: the court looks at the equities of the situation and says that the first wife’s equity is stronger than the second’s. i The court basically benefits the first wife to the detriment of the second, in order to uphold the first policy because it seems that the husband was a wrongdoer. 1 The court seems result oriented. a But they say that the second wife was on notice of the first wife’s policy, so her claim was less equitable. i But the court really imputes that i c d e f knowledge to her and they say she was a donee (although she was arguably a party to a contract with her husband). ii She was not a bona fide purchaser. Note: the court says this case is about direct tracing, but it seems that once the first insurance policy lapses, it is no longer direct because the first insurance policy is not used to get to the second policy. Rule: one cannot trace into the hands of a third party if the third party is a bond fide purchaser. i A bona fide purchaser is someone who buys for full value without notice. ii A bona fide purchaser can cut off tracing (the plaintiff’s preference), and trump the plaintiff. 1 They take full value without notice. Note: general creditors who don’t take an interest in any specific asset are not good faith purchasers even if they rely. Note: property that rightfully belongs to a bankrupt estate cannot be transferred. i Property cannot be transferred with the intent to hinder a creditor’s collection of it. 1 Fraudulent transfers are sort of restitutionary in nature. vii Equitable liens 1 Robinson v. Robinson a Facts: Ann is the ex-wife of Wiley. They built a house on land that belonged to Earl and Alex, the in-laws. They put a lot of time and effort into it. The in-laws never stopped them from building, but never asked for it to be built either. Anne is suing Earl and Alex because she and Wiley are getting divorced and she believes she has a claim to half of the house. b Note: the question is whether Ann is closer to an intermeddler or someone who has an expectation of receiving value (living in the house). c Holding: the court invoked an equitable lien i An equitable lien is a fixed amount that freezes in time, to which the plaintiff is entitled. d Note: an equitable lien is fictional, and it allows Ann to have a real claim on the property, and a preference on it in front of other creditors. i There are rules, however, on whether and how fast she can force the sale. 1 It usually depends on the amount of wrongdoing. a If the wrongdoing is not too bad, the person cannot sell the property without paying first, but in this case they want Ann to get paid and buy the lien off, or sell the property. e Note: the court cannot impose a constructive trust because they couldn’t say that Anne was the owner of the land. f g h i i A constructive trust says that the plaintiff is the owner, so it gives the plaintiff title. 1 The plaintiff actually owns the thing. a On the other hand, an equitable lien is shy of that. i It is a security interest. ii It still allows the plaintiff to jump in front of theory lien holders, but you have to foreclose on that interest and then collect money. iii Equitable liens make the most sense when you can’t say that someone owns the property, but they have an interest in it. ii However, they were uncomfortable with not giving Ann anything or making her get in line with other creditors, because she had a real stake in the house itself. 1 She didn’t have an ownership stake, but she did have equity in it. iii A constructive trust would require that the in-laws buy Anne out or that she keep it. 1 So an equitable lien is a bit better here. Rule: when an equitable lien is imposed, the plaintiff can force a sale of the property if she wants to. i But some courts say that with equitable liens, a sale cannot be forced. Note: Ann was a “mistaken improver,” which is similar to the notion of an officious intermeddler. i Generally in this situation, a sale cannot be forced upon the parents, but if the parents made some encouragement and didn’t stop them, it doesn’t seem like too much imposition to make them pay. 1 The parents have to pay the reasonable value, rather than the objective or subjective value because it is the restitution measure of recovery and they are suing in restitution. a That is generally what is done. Note: the new Restatement, which is not out yet, says that a mistaken improver has a claim to restitution whether or not the owner knew the improver was building. i The only way it won’t give the claim in restitution is if it forces an exchange or there is undue prejudice. Note: usually someone will ask for an equitable lien plus a restitutionary money judgment because he will want to get a damage award (cash award) in the total amount he lost. i If you can trace and get a preference for some of that, it is great, but there is still a remaining claim. 1 You want to get a judgment in hand, because then at least you get in line somewhere in the bankruptcy proceeding. 2 3 Note: a plaintiff can choose between an equitable lien and constructive trust. i If property goes up in value, the plaintiff should chose a constructive trust, especially if the defendant is insolvent, because he may be able to get more. ii If the property has lost money, it is better to get an equitable lien because he may be able to get the loss somewhere. Subrogation a This is substitution. i An insurance is often subrogated to your rights. Contribution and indemnity a These involve tortfeasors. i If they are both wrong a little bit, one party pays off the plaintiff and then the rest fight among themselves and they sue for indemnity and contribution. j VI Punitive damages a The more wrongdoing there is, the more likely the plaintiff will get punitive damages. b If the defendant is insolvent, it is less likely that the plaintiff will get more than he lost. c These are awarded when compensatory damages aren’t enough. d Punitive damages are only allowed in tort cases and product defect cases. e Punitive damages are only allowed if there is bad conduct on the part of the defendant. i Courts require things like malice, recklessness, and conscious disregard. f Punitive damages only come into play when deterrence is really needed. g Common law i There are factors in determining whether punitive damages will be awarded: 1 Reprehensibility of the conduct 2 The ratio of compensatory damages to punitive damages 3 The conduct 4 When deterrence is needed 5 The defendant’s wealth a This factors into deterrence as well, because it may take more or less to deter a certain person depending on how much money they have. ii Grimshaw v. Ford Motor Co. 1 Facts: Ford marketed a car that was really inexpensive, cutting a lot of corners in making them and marketing them as being economical. The problem was that the car wasn’t safe. They were not in violation of the regulations, but there were in violation of the proposed regulations. The engineers did a cost benefit analysis and determined that it would cost more to make the improvements to all the cars than it would to defend lawsuits from the possible injuries. 2 Holding: punitive damages are awarded. 3 Reasoning: this type of recklessness qualifies as malice (imputed) because we don’t want companies making this type of decision, so they have to pay punitive damages. 4 Note: the court basically forces Ford to change the way it does math, and to make the car cost more money. 5 Note: Ford argues that this extra money that they didn’t put in to cars helps the economy and makes everyone else better off. a But the court disagrees because they want to deter Ford’s conduct. 6 Rule: you have to come up with real numbers on the back end, but at the front end you can’t use speculative numbers in doing math, or you will be susceptible to punitive damages. h Note: the punitive damages here basically tell Ford that they can calculate however they want, but it will deter them from doing so this way in the future. 8 Note: how a wrongdoing is defined makes a lot of difference in terms of how punitive damages will be awarded. a Here, the reprehensibility is key. 9 Rule: the courts will compensate the plaintiff for more than she has lost, considering the factors: a Reprehensibility b Wealth of the defendant c Amount of compensatory damages (proportionality) d Amount needed to deter 10 Note: some other factors to consider under the common law scheme in determining whether punitive damages should be awarded include: a State interest (in backing the plaintiff against the defendant) b Profitability of the conduct (to the defendant) c Civil penalties d Procedure (the type of procedure that was afforded to the defendant) i Example: jury instructions Constitutional i The Supreme Court originally gets its foot into the punitive damages door by saying that there are due process concerns with big punitive damage awards. 1 It wants to make sure that juries impose punitive damages fairly across the board and that it can tell the juries exactly what to take into account. a So it approves a 7 factor test and says that judicial review can only be used when punitive damages are grossly excessive. i So states start creating their own factor tests. 2 Later, the Court approves a really big damages award, and says that punitive and actual damages are not disproportionate if the defendant may cause the damages, even if they didn’t occur. 3 Later, the Court reversed an award and said that common law judges can review punitive damages awards as a part of procedural due process. ii In BMW v. Gore, the court gave three factors for lower courts to consider in awarding punitive damages: 1 Reprehensibility 2 The ratio a It must be single digits in most cases, although no blanket statement was made by the Court. 3 Civil and criminal penalties a The lower the penalties, the smaller the state interest, perhaps. The only thing that is new here is that the Supreme Court has the oversight ability and they are going to exercise it, and they leave out wealth of the defendant and the need for deterrence. iii By creating these three factors, the Supreme Court doesn’t want to replace common law. 1 It just wants to complement it. a Maybe the state can impose more procedures if it likes. b Maybe the Constitutional law is just the outer limits. iv State Farm Mutual Automobile Insurance Co. v. Campbell 1 Facts: State Farm told the plaintiff not to settle his case. They wanted to go to trial and told him that he wouldn’t have to pay anything. However, the plaintiff lost at trial, so he sued State Farm. He also sued for fraud and intentional infliction of emotional distress. The amounts awarded for this plaintiff in particular get reduced because there were 7 2 3 4 5 6 possible other victims (so the total amount was still the same in terms of what State Farm had to pay), and then the Utah Supreme Court wants to reinstate the previous punitive damages amount. The punitives were 145 times the amount of the damages. Holding: the punitive damages award cannot stand. Reasoning: the punitive damages amount was not reasonable or proportionate to the wrong that was committed. a The court does not care about the nationwide conduct. i They only care about the wrongs committed in Utah. 1 They don’t say that out of state acts can never be considered, but they say that there must be a nexus and each state should make its own judgment. a It is a federalism concern. i The court says to focus on what is wrongful on this case, and use the evidence in Utah to show the nationwide practice. Note: the Supreme Court makes it clear here that they don’t like the wealth of the defendant factor from the common law test. a So lower courts are still unclear on whether to use it. Rule: a single digit ratio in terms of compensatory and punitives is okay. a But this is not a bright line rule, because if you really want to deter, sometimes it will have to be a bigger ratio. i And sometimes, no punitives are needed at all, in order to deter. Rule: use the factors to determine if punitive damages should be awarded, and then in its oversight capacity, the Supreme Court will use the three factors to determine if the lower court has gone out of bounds: a Reprehensibility b The ratio c Civil and criminal penalties Some courts say that both sets of factors have to be satisfied, and some say that they intersect and overlap. Litigators, therefore, have to satisfy common law factors and constitutional factors to make sure they won’t get reviewed. i Contracts i The general rule is that punitive damages are not allowed in contracts (breach of contract cases). 1 But there are a number of exceptions. ii Formosa Plastics Corp. USA v. Presidio Engineers & Contractors, Inc. 1 Facts: Presidio is the contractor and Formosa is expanding their plant. They invite Presidio to bid, but when they do so, Formosa fraudulently induces them and Presidio isn’t aware of some of Formosa’s conditions. Formosa wanted the project done in 90 days, but Presidio knows it is not possible, so they bid 120 days. The contract says that time is of the essence, so if they do not get it completed within 120 days, Presidio is responsible. It does take longer than 120 days and Formosa is damaged but Presidio does not want to pay because the contract was impossible to complete within the terms because they were lied to about delivery schedules and they were prohibited from working on certain days because of the presence of other contactors on the sight, and they were forced to buy their goods from Formosa itself, which caused a delay. 2 3 4 5 6 7 8 Formosa lied to Presidio prior to the formation of the contract, but not during the 120 days. Presidio sues in tort and in contract. Holding: punitive damages are allowed. Reasoning: the contract itself was not the problem, but rather, the intent behind inducing them to contract, a There was an independent tort. i The fraud is related to the actual contract, but not so closely that the two can’t be separated. ii The remedy and the loss related specifically to the contract, but in terms of where the duty arises, the duty was to negotiate in good faith, and when there is fraud, that duty is not being fulfilled. 1 So, the duty is not purely contractual. Rule: if there is a tort independent of a contract claim, punitives can be awarded in contract (suing “off” the contract). a If someone makes promises that they don’t intend to keep in a contract, they are lying, misrepresenting and fraudulent, which is a tort, and the contract and the tort can be separated and punitive damages can be awarded. i However, if both the ability to benefit and the fraud occur after the contract has been formed, punitive damages will not be allowed, because at some point, the defendant did plan on following through properly, so there is no independent tort. 1 If Formosa had acted badly during the term of the contract, rather than before it, there probably would not have been an independent tort. b An independent tort claim can be brought when there is fraudulent misrepresentation. Note: some other reasons are that a court may award punitives “off the contract” include: a Bad faith breach of contract. b Tortuous interference with a contract c Negligence d Recklessness i Gross negligence The rule that punitives are not allowed in contract has been undermined because so many attorneys use these things to find an independent tort. Rule: there are three factors to distinguish whether a party can sue in contract or tort: a Where the duty arises b The type of remedy sought c The type of loss that was suffered Note: there is a difference between superior knowledge and concealed knowledge. a With superior knowledge, there are probably ways that the plaintiff can find out the facts, and there will probably not be a breach of the duty to negotiate in good faith. b With concealed knowledge, the plaintiff is unaware of something that he couldn’t possibly figure out, so this will be a breach of that duty. Note: since a lot of things seem to amount to independent torts, we have sort of undermined the security of entering contracts. a The damages on the back end may be bigger than planned. i So people have to raise the cost of entering into contracts. iii Statutory recoveries 1 A lot of statutes impose penalties and minimum recoveries to incentivize plaintiffs to sue. a These are antitrust things and the fair labor standards act. i They don’t work very well. b The point is that punitives don’t just come from common law, but also statutes and are still punitives in the sense that they deter. iv Civil penalties payable to the government 1 These are not thought of as punishment, but rather as remedial, because we don’t want them to look like criminal penalties. Ancillary remedies a These are remedies in aid of other remedies. b Enforcing the judgment i Contempt 1 Contempt is what someone gets when they violate an injunction or consent decree (a category of injunction in which the parties voluntarily join in, but the court oversees) or a money judgment. a When an injunction is violated, the plaintiff goes to court and gets a contempt order. i He has to ask the court to issue a show cause order, 1 The court sees if what the person describes is a violation of the injunction, and if so, it sends something to the defendant and orders him to show cause why they shouldn’t be held in contempt. 2 There are three categories of contempt: a Criminal contempt i The court will appoint a prosecutor to enforce this. ii There has to be a willful (not accidental) violation of the injunction. 1 There is a heightened standard of willfulness for a violation. iii The purpose is punishment. iv There is usually a fixed fine or fixed jail time for a past violation. 1 Fines are payable to the government. a The fee goes to the state (not the plaintiff). v The collateral bar rule does not apply,. 1 If the judge issues an unconstitutional injunction, you still have to comply with it. a If you don’t comply, you can be held in criminal contempt, even if it is later determined to be unconstitutional. vi You get all the strictures and structures of a criminal proceeding. 1 The contempt has to be proven beyond a reasonable doubt. 2 The contempt has to be proven in a jury trial if it is not a petty offense. b Compensatory civil contempt VII c i This is when the plaintiff has incurred damages so the defendant has to pay for them. 1 The plaintiff got the injunction in the first place because there was going to be irreparable harm, and now the irreparable harm has been suffered. a It may be measured by what the plaintiff lost or what the defendant gained. ii This compensates the plaintiff for harm that the plaintiff suffered because the defendant violated the injunction. 1 It may be capped at the amount of plaintiff’s loss, or it may be measured by what the defendant gained. a They will have to disgorge and give it to the plaintiff. iii The plaintiff brings this action. iv The standard is clear and convincing evidence. v No jury trial is required. vi 10 states reject this type of contempt, including California. 1 This means that you just bring a damages action for the defendant violating the injunction and causing the plaintiff harm. a This lowers the plaintiff’s burden of proof to the preponderance of evidence standard. vii The only sanction is compensation (cash). 1 There will be no join time. 2 It is compensatory. viii The collateral bar rule does not apply. 1 This is because civil compensatory injunctions are for the plaintiff’s benefit. a The plaintiff would just have to give cash back or not collect to begin with. Coercive civil contempt i The point is to coerce (force) future compliance by the defendant. 1 This is because the defendant has violated the injunction once, and you are worried that they will do it again. 2 You give the defendant conditional sanctions. ii This has sanctions by jail time or money. 1 The sanctions must be conditional. iii These tend to be enforced by the plaintiff’s lawyer because it is civil in nature. iv Usually the defendant holds the keys to the jailhouse door or to stopping the fines. 1 As soon as they obey the court, it is done. v The fines are payable to the state, to the extent fines are paid. 1 This is because the purpose is not to benefit the plaintiff, but to make the defendant pay. 3 vi The size of the fines is measured by the wealth of the contemptor. International Union, Union Mine Western v. Bagwell a Facts: there was an injunction to enjoin a union from conducting strike related activities involving ingress and egress into a facility and throwing things at people. There were 72 violent violations of the injunction. The court threatened a fine if they did not stop, and they did not stop, so the lower court entered fines for $64,000,000 ($52,000,000 to the local governments where the violations occurred and $12,000,000 to the countries, the big companies) by looking at each violation and allocating a price to it. The plaintiff settled on the amount owed to the union providing that they promises to stop, but the city is not willing to let their money go. This fine was imposed by a judge who was the fact finder (instead of a jury). b Note: the phase in which they threatened a fine should already have deterred the union, and this stage is just the stage of enforcement. i That is why it looks like punishment. 1 The court thinks the union has some level of persuasive control over its members. a The problem in the case of unions is that it is unclear how much control they have over their members. i You can’t sue the individuals because it is unclear who is doing the wrongful acts. c Rule: in coercive contempt, the defendant holds the key. i He can get out of jail if he complies. ii He can stop paying if he complies. d Note: the three steps towards contempt are: i The injunction ii A violation with a threat of violation punishment. iii Another violation and fines or punishment imposed. 1 This looks like punishment for what they did at step 2. a It only makes sense to do that because otherwise, there would be no coercive effect at all. i But here the defendant is paying the state, which is strange because in civil compensatory contempt, the plaintiff is paid, so it looks like a sort of hybrid. e Note: the $52,000,000 is supposed to be coercive. i It is supposed to go to the state, because the court’s authority is being disrespected. f Rule: coercive contempt is fine in simple cases, but when the fines are really large and the case is complex and there is some type of intent, it may raise above the level of coercive, and criminal procedure may be required (a jury trial). g Note: the fact that the judge was the same person throughout the case (deciding the merits, issuing the injunction, threatening punishment, and then providing punishment), is troublesome. i However, this is done in tort law. 1 However, the jury does damages and there is a lighter burden of proof. h Note: when thinking about coercive civil contempt, take into account how much money the defendant has. 4 Contempt statute a There is a federal statute on contempt. i Occasionally, there is a federal statute on point or maybe a state statute that delineates the boundaries of contempt. 1 But generally it is in the general power of the court. ii Collection 1 Drafting injunctions a An injunction should be framed in a way that is most sure to prevent contempt or problems arising in the future. i This is because you haven’t really won anything unless the injunction is enforceable. b Concerns when drafting an injunction: i Scope 1 It must go far enough for the plaintiff. 2 It must not go too far for the defendant. ii Length 1 If it is too short, it may be too broad because there are no details. 2 If it is too long there may be too many details. iii To whom it applies 1 It must define the people who must comply with it sufficiently. a Affiliates or just the one that violated? iv Compliance with Rule 65(d) 1 65(d) says that every order granting an injunction and every restraining order shall set for the reasons for its issuance, shall be specific in terms, shall describe in reasonable detail, and not be reference to the complaint or other document, the act or acts seeking to be restrained. v It cannot be an “obey the law” injunction. vi The qualifying terms must be adequately defined. vii Detail and specificity 1 It shouldn’t be too detailed or specific. a It may be too difficult to obey. b You don’t want the defendant to easily say that he didn’t disobey it because his behavior was outside the specifics. 2 It should be detailed enough to obey. 2 3 4 The list of prohibited activities should be exclusive. b There is value in defining some terms. viii The injunction should say exactly what the person who is being enjoined did wrong. ix The injunction should fix the problem that occurred in the past, in addition to preventing it from happening in the future to other people. Appealing injunctions a If a client is concerned that he is going to be taken to court for contempt because an injunction is too broad, he has the option of appealing. i But it costs money to do so and the attorney has to draft an order. Although injunctions are sometimes just a judge or attorney’s way of rephrasing the statute, they do make it easy to show a court that a defendant has flat out violated something. a There is really no ambiguity if it is drafted properly because the defendant knew what he was supposed to do. Execution a Credit Bureau, Inc. v. Moninger i Issue: once you get your money judgment, how you cash in. ii Facts: the debtor had bought a truck with money that the bank had loaned him. The bank reached an agreement with the debtor to renew a security agreement. The bank should have put their name on the title and then they would have had a security interest, but they failed to do so. The bureau obtained a default judgment against the debtor and they want to execute on their judgment lien. The bank does not want that to happen. So there is a fight because the Bureau and the bank. The sheriff executes the lien by putting his hand on the pickup truck and executing the lien. However, he doesn’t actually take the truck. 1 Note: a security interest gives notice to everyone that the bank has interest in the truck and that their place in line, if the debtor defaults, is first priority. iii Holding: the levy here was proper. 1 The Credit Bureau moves in front of the bank in line and all of the money needed to satisfy the Credit bureau gets paid first, and then everything left goes to the second person in line. iv Reasoning: the levy happened before the security interest of the bank was perfected, so the bank does not get to be first in line. v Note: if there had been a third person who wanted money, he would have had to have sued the debtor, gotten his own damage judgment, and gone to the sheriff to levy on another thing that the debtor owned. 1 He would have to get the judgment, then he would have an outstanding judgment, and a vi vii viii ix x then he would try to collect the typical procedure when a security interest is not acknowledged). Note: in bankruptcy, if you have a security interest, you become a general creditor, so if you come after someone who declares bankruptcy, you no longer have a security against them. 1 If you are lucky you can get a lien on a piece of property that that person owns. Note: the mechanics of execution: 1 Get the judgment 2 Get it transferred into a writ of execution. 3 Go to the sheriff with that writ. 4 The sheriff will do something for you. a But he will not do anything unless you tell him what to get. i He will not do the work for you. ii You have to track the stuff down yourself. b The problem is that you have to hope that the sheriff executes properly. Rule: the sheriff does not have to take possession of the property in order to levy on it (execute properly). 1 The majority of states however, say that the sheriff must take possession. 2 This case is the minority of jurisdictions. a A verbal execution will usually not be good enough. Note: collection proceeds go in this order: 1 Pay the sheriff 2 Pay liens on the property a Pay the security interest first b Then tax liens c Then landlord liens d Etc. 3 There may be some residual to other parties. Note: exemption says that debtors are not to be left without the needs of sustenance. 1 Sometimes people are allowed to keep furs, and homes (under the homestead exemption), and other things. a It varies from state to state. 5 Garnishment a Dixie National Bank v. Chase i Facts: Chase had a writ of garnishment against Gore (because Gore owed him money and he didn’t pay), so he was trying to get information from the bank about money. There was a report that one account had $30,000 in it, but the bank failed to report another account with $13,000. The bank argues that they shouldn’t be bothered with the lawsuit between Chase and Gore. ii iii iv v vi vii viii A writ of garnishment says “tell us what this person has, and pay the plaintiff from that money.” Note: to get a writ of garnishment, you must: 1 Figure out who to garnish 2 Ask the person who owes the money where his assets are 3 Get the court’s permission under the relevant state statute 4 Get the writ of garnishment Note: often there becomes an independent cause of action with the person or party that is supposed to answer the writ (the bank here). 1 However the third party has concerns that if they pay the wrong person, they will be liable, so some statutes protect them. a However, if the third party wrongly pays, the person who owes the money can sue the person who received it, under the theory of unjust enrichment. Holding: the bank has to pay Chase itself. Reasoning: the bank did not answer completely enough. 1 The statute wants a more complete answer from the bank, on a policy issue, even though they have to go to a lot of trouble. Rule: if the bank does not do the right amount of work to get to the right answer when there is a writ of garnishment, they will be responsible. 1 However, a lot of states say that the bank would not just be liable for the money that passed through the account, but for the entire amount of the judgment. a If the bank is wrong, the bank that fails to answer it all, and just ignores the garnishment, is liable for the entire judgment. i So even though they would probably not be entirely liable if they at least tried to comply with the writ, the legislature could conceivably impose the full amount of the debt on the bank, to entice the bank to take the writ of garnishment seriously. Note: if the bank, after paying Chase, wants to sue Gore, they would have to prove a substantive lawsuit, and go through more steps and litigation, so it is unlikely to happen. Note: some states, such as New York, do writs of garnishment electronically. 1 The person who is collecting sends out mass emails to the banks to check against their own records, so it is much easier for the banks to comply with the garnishment. a If they comply with the garnishment, and do it properly, according to this scheme, they will probably not be subject to liability. i This is all put into statute. ix Note: the bank can’t conceptually give all the money from the account, because Gore should still have some money in exemptions. 1 He has to be able to buy food and stuff like that. 6 Attachment a This is levy or garnishment before the judgment, used to preserve assets. b This involves trying to get the money ahead of time, instead of waiting until after, and encountering trouble and hassle of getting a writ or executing. c It is basically a preliminary injunction that freezes the assets. i It makes it so that the person can’t control, dispose of, or do anything with their assets, prior to even being adjudged a wrongdoer. d Attachments are governed more by statute than common law. i The statutes vary by state. e The requirements for attachments are: i The defendant is likely to dispose of assets 1 It has to be a pretty good showing, because the defendant is going to be deprived of his assets. ii With the intent of defrauding. f In New York you can get an attachment when you show propensity (intent of defrauding) plus the likelihood of disposing of property. g There are protections put in place, such as a posting of a bond of attachment. i The bond is usually not a cap, although the bond in injunctions usually is. ii The bond is really mandatory, whereas with injunctions, it is supposed to be mandatory, but is really discretionary. h City of New York v. Citisource i Facts: The defendants are convicted of trying to bribe the city involving parking violations. They were trying to influence municipal contracts. The defendants were asking about money in their accounts, and trying to see whether they can take the money out, even though there are attachments against them. They are trying to liquidate a number of their accounts. ii Holding: Citisource can attach this property. iii Reasoning: their interest in liquidating came right at the point when they discovered they owed money. 1 i It seems like the defendants are trying to get rid of money. 2 However, the court said that Citisource only raised an inference that the defendants were going to dispose of the money and the defendants had the burden of production. a They had to give an affidavit telling why they were not acting in bad faith. i They didn’t do that here, so the court allowed the attachment. ii The attachment is attached until the time the affidavit arises. iii The court lifts the attachment after it attaches, providing the defendants submit an affidavit that convinces the court they are not going to dispose of the property. iv Note: in determining if there should be attachment, ask: 1 Do they have any money? 2 Will they have any money on the back end? 3 Do I need to attach something now because the party has the propensity to run away with it? v Note: the defendant isn’t really trying to dispose of the property here. 1 He is just trying to cash out his bond. a It seems like it is just the timing that makes him fraudulent. vi Note: some courts find the fact that attachment takes away the defendants property before he is adjudged guilty to be problematic, so they provide minimal protections. 1 They don’t want people to just be able to sue and then run away with assets, so they require a showing of propensity, and there are sometimes bonds. 2 The federal rules says to look at the state statute to see what is required. a The New York state statute requires that the plaintiff show that the defendant has or has begun to dispose of property with the intent of avoiding payment on the backend (which is why there is attachment here). Freeze orders 1 j k i These are like trying to get an injunction ahead of time. 1 They say “do what you want, but don’t sell that land.” a This might just be a way around the attachment statute. i It doesn’t create a lien on the property like attachment does. ii Whereas attachment starts priority of assets as of the date of the prejudgment attachment (so if they end up going into bankruptcy, you are already into your 90 day window), freeze orders are just enforceable by contempt of court (because they are just injunctions, whereas an attachment is a property interest). 2 You can also get an injunction to prevent someone from using their assets in a particular way, in the form of a freeze order. Receiverships i These allow you to kick out senior management, put your own person in, and let the business be an ongoing concern while you are litigating, so that there are assets left at the end of the day. 1 It is a sophisticated form of attachment if it happens ahead of time. a But receiverships can also happen after the fact. i Receivers are put in place until the situation is secured. Injunctions to leave the jurisdiction i There are types of injunctions that tell people to not leave the jurisdiction. 1 These are difficult to enforce because if they leave the jurisdiction, there are treaty issues. c Litigation expenses i Attorneys fees 1 City of Riverside v. Rivera a Facts: The city violated the plaintiffs’ civil rights by abusing them when breaking up a party. The City thinks that the attorneys charged too much because there was $245,000 in fees and only $33,000 in the damages judgment (punitives and compensatory together), and the attorneys were inexperienced. b Rule: § 1988 allows the prevailing party to collect reasonable attorney’s fees for a civil rights action. c Holding: the entire amount of attorney’s fees is reasonable. d e f g h i Note: the city argues that the attorney’s fees should be capped at the contingent fee, while the dissent argued that it should be caped at $33,000. i The dissent says that the attorneys are charging money in violation of the lodestar principle. ii The dissent says that the fees are too much when compared to the amount of recovery. 1 They say this ratio could never be right because it means that the attorneys did a bad job. a This seems unreasonable though, especially in the case of a corporation who is willing to pay a lot of money, and not receive a lot back, just to prove a point. Note: if Rivera had gotten an injunction or a declaratory judgment against the City’s behavior, it would have been a stronger case, because they actually would have won the case. i But they did get the judgment, and that may be a win in itself because of the stigma it places on the city. 1 Plus they enforced their rights. Note: most experienced lawyers wouldn’t have taken this case because they would know that their fees would be really high. Rule: the American Rule is that each party pays their own way in litigation, but one-way fee shifting is allowed. i If a contract provides fees for only one party, if they win, then they will allow it. ii One- way fee shifting says that if the plaintiff’s win, then get attorney’s fees, but if the defendant wins, the plaintiff’s don’t pay his attorney’s fees. Rule: the lodestar principle says that attorneys fees are the reasonable number of hours time a reasonable hourly rate, considering: i The time and labor required; ii The novelty and difficulty of questions; iii The skill requisite to perform the legal service properly; iv The preclusion of employment by the attorney due to acceptance of the case; v The customary fee; vi Whether the fee is fixed or contingent; vii Time limitations imposed by the client or the circumstances; viii The amount involved and the results obtained; ix The experience, reputation, and ability of the attorneys; x The “undesirability” of the case; xi The nature and length of the professional relationship with the client; and xii Awards in similar cases. Also consider that the reason that Congress says that attorney’s fees should be awarded, which is that they care about the policy of these kinds of claims. Rule: the burden of showing that fees are reasonable is on the attorney, who has to submit something to the court. j k l m i They more information the better, so keep good records, especially if you do civil rights litigation. 1 As long as an effort is made and substantive things are there, the court will be less likely to find the fees unreasonable. a If some information is privileged, strike it out later. 2 Ask for help if necessary, because you will make up the money in the end. Rule: you can collect more attorneys’ fees than you do in the judgment. i Note, however that this does not place the plaintiff in the rightful position because he doesn’t get the injunction. 1 But the American rule doesn’t do it that way because: a The court must be unjustly encouraged to vindicate rights. b There is a substantial burden for judicial administration. The America Rule seems to be that you are a prevailing party on any claim you win and any other related claims on which you spend time, because we don’t want to discourage people from litigating. ii This is the case especially if you are vindicating a public right. Note: there are statutory exceptions to the American rule: i Bad faith litigation ii Contract 1 One-way fee shifting iii Family law cases iv Collateral litigation v Common fund Often the American rule only holds true in big tort actions, which is why a lot of personal injury torts are on a contingency fee basis. Note: two-way fee shifting is just that the losing party will pay the other party’s attorney’s fees. i California says that even if there is a one way fee shifting agreement, it will be interpreted as two-way. Note: don’t get fees and costs mixed up. i Costs are the filing fees. 1 They are just the little amounts of money along the way for procedure. 2 FRCP 54(d) says the losing party shall pay costs. a They shall be allowed as a matter of course unless the court directs otherwise. i If the losing party is truly impoverished, the court may say they don’t have to pay costs. ii Fees are attorney’s fees. VIII Remedial (equitable) defenses a Most of the time these are defenses, and they can rarely be used as an offensive tool. b This is when there is a legitimate substantive claim, but we are going to cut off your remedy for some reason. c Unclean hands and in peri delicto i These say that if you are an equal wrongdoer, you can’t come to the court for help. 1 Unclean hands is more common than in peri delicto. 2 In pari delicto is the legal version of unclean hands. ii There is a two part test: 1 The plaintiff has to be at least equally at fault. a Sometimes more at fault. 2 There has to be some other public policy reason for using this defense. iii Pinter v. Dahl 1 Facts: they were selling unsecured securities and the deal was shady because they are supposed to be registered under SEC rules. There is a question of whether there should be relief based on this. Dahl sues Pinter because they had a contract in which Dahl invested $310,000, and they drilled wells for oil, and the wells turned out to be worthless, saying that Pinter cannot keep his money because the securities were not registered. He got his friends to enter contracts too. Pinter uses unclean hands as a defense, saying that Dahl was involved in this bad unregistered act, so he should not be able to sue Pinter. 2 Rule: there are two remedial defenses dealing with the bad acts of the plaintiff: a Unclean hands says that “he who comes to equity must not come to it with unclean hands.” i You can’t ask a judge to make things right and give an equitable result, if you a bad actor. ii This is an equitable remedy. iii This is a broader remedy than in pari delicto. b In pari delico means “equal fault.” i This rides along unclean hands, as the legal companion. ii This is narrower than unclean hands and doesn’t apply to as much. 3 Holding: the case is remanded, to determine how at fault Dahl is. a They can’t tell whether he qualifies as being at equal fault. i They know that Pinter is at fault, but they want to see how close Dahl’s fault is to Pinter’s to determine if it will apply unclean hands. ii The Supreme Court wants to see if Dahl is more of a promoter or an investor. 1 A promoter is someone who is really involved in the workings of the transactions. 2 An investor is someone who just gives the money. a It is not an investor’s responsibility to make sure the securities are registered. 4 Note: if Pinter cannot claim the defense, and we say that Dahl does not have unclean hands (is not at equal fault), Dahl can rescind the transaction and get his money back. a Then Pinter would lose a lot of money because he would have to give back the invested money, and the transaction would have been unsuccessful anyway. d i He would bear the entire risk of drilling the well. 1 Pinter argues that he shouldn’t bear this whole risk because Dahl was also involved. b But if this were the determination, it wouldn’t stop Dahl from doing something like this in the future. i But if the defense is allowed, it wouldn’t stop Pinter from doing something like this in the future. 5 Note: some contracts are void against public policy (like if someone has a contract to sell marijuana, or in the patent law context). a The court doesn’t want to get involved in these types of cases because one party is just at fault as the other. i However, there is some inequity in letting a person walk away with money and not deliver goods that they promise to deliver. 1 So unclean hands is almost the same as an unenforceable contract. b The court doesn’t want to be an arbiter between fraudulent parties. i Sometimes they just say that they both did wrong, so everything is okay, and everything they do after is okay as well, because they are both bad actors. 1 That is not what we want the law to say, but the law wants to stay out of it. 6 Rule: for unclean hands to be used as a defense, the plaintiff must be equally at fault, and there has to be some public policy reason to support the application of the defense. Unconscionability i Unconscionability used to only apply in equity, but now it has been codified as a legal defense too. ii Unconscionability only applies to contracts. 1 It doesn’t work in tort and it won’t work in restitution. a Tort uses things like undue burden. i This means you don’t have to specifically perform the injunction to do the thing because there is an undue burden in doing it, even though you are substantively wrong. ii This is an equitable defense. b Fraud is a legal or equitable defense, and it is an independent tort. i It can also be a defense but it is more important as a substantive claim. c Undue hardship is another defense. d Frustration/impracticability is another defense. i These are equitable or legal iii This is codified in the civil code and in the UCC. 1 So it applies in equity always, and often at law. a In equity (specific performance), it is either given or not (there is no widdling away), so unconscionability arises as a defense and says, “this doesn’t look fair to me.” i It says, “The defendant is in breach but the plaintiff is not entitled to a remedy because the contract was enforceable.” Unconscionability changes the way that the system works on the back end and denies relief completely. b In legal action (normal damage actions), there are two ways to trim down an amount of money damages in contract law: i Say that something was not foreseeable, or it wasn’t provided with a reasonable certainty, or ii The expectancy wasn’t provided at all, but just reliance. In these instances, because there is something wrong going on in the transaction that is unconscionable (unfair or one sided), some of the damages that the plaintiff was requesting will be taken out. iv Unconscionability was raised in Campbell because Campbell didn’t want to sue at law because it would be bound to the liquidated damages remedy, and it wanted specific performance (the price it would have paid for the carrots had the contract not been breached). 1 The difference between the contract price and the market value would have been the same thing as specific performance, but Campbell couldn’t sue at law. a The court said it was unconscionable. i Campbells could not enforce the contract via specific performance because of unconscionability. 1 They had to drop down to the remedy at law and get the liquidated damages. a So unconscionability helped in this case and it was easy for the judge to latch onto because it was a sort of intermediate position that made it more appealing. i So unconscionability may be a means to allow some more play in these specific performance kinds of cases. v Armendariz v. Fountain Health Pschare Services, Inc. 1 Note: this case deals with the contours of substantive unconscionability and spells out procedural unconscionability. 2 Facts: there is a one way arbitration clause that the employer had put in place such that they could get arbitration when it benefited them, and court when it benefited them. This is an adhesion contract because one party didn’t have an opportunity to negotiate. 3 Note: a party possibly could have gotten out of this through the reasonable expectations doctrine. 4 Note: there are two aspects of unconscionability that must exist for something to be unconscionable: a Procedural i This is often thought of as unfair surprise. b Substantive i This is an unfair or one-sided result. The more of one, the less of the other there needs to be. 5 Rule: unconscionability can be used to look at the substance of a contract and say there is a material breach by the defendant. a Normally this gives rise to remedy for either specific performance or damages. i If seeking substantive performance, you are saying there is a substantive breach. 1 That means there has to be a decision. e Unconscionability allows you to not give that remedy even if there was a substantive violation. ii If seeking damages, they don’t have to be awarded, so your client isn’t lost even if substantive violation is found against him. 6 Note: examples of unconscionability: a Impracticable contracts b One sided arbitration clauses Estoppel and waiver i Wavier and estoppel go in hand in hand and both are equitable and legal. ii Estoppel 1 Estoppel requires: a An act i It can just be a representation of some sort ii It can be words, conduct, or silence. iii There usually has to be an assertion of facts. b Reliance on that act c Injury d Sometimes knowledge of that injury iii Waiver 1 Waiver precludes the defendant (usually) from changing his position. 2 Waiver has the same elements as estoppel but is more of an intentional relinquishment of a known right: a An act i The act must be intentionally giving up (relinquishing) some known legal right. 1 There is more intentional conduct than in estoppel. b Reliance on that act i This is implied here. 1 It is not important whether someone relied, but rather that the person acted in a way contradictory to what they have previously represented or are arguing. 2 If you give something up on purpose it is automatic reliance. c Injury d Sometimes knowledge of that injury iv Geddes v. Mill Creek Country Club, Inc. 1 Facts: the club was redoing the fairway because of complaints from Geddes about not being able to see the course, and they asked him for input on the design. He gave them permission to put it where they put it, and then golf balls starting coming on his property a lot (5 a day (2,000 over 2 years)). There was an 8 foot fence and trees, taller than the fence, and a 40 foot rough, and a 300 yard fairway that was angled away from his house. He sued for trespass. 2 Rule: after you waive a right, you cannot assert it after the fact. 3 Holding: the plaintiffs were estopped from bringing the claim and cannot sue the golf course. 4 Reasoning: everyone knows something about golf, and therefore, the plaintiffs should have known that this many balls would come on their property. 5 Note: although the lower court and the appellate court determined that the course was not a nuisance, and focused on the fact that the injunction was too big and burdensome on the golf course, this court a said nothing about the undue burden, and just said that the appellate court made no findings regarding estoppel. a That is allowed because the appellee can order any ground and the appellate court can affirm on any ground. i Here, the logical ground on which to affirm is estoppel. ii However, appellate courts must reverse on the specific errors that are brought to their attention (not on any grounds). 1 They must be preserved. 6 Note: it doesn’t matter how the act here was characterized, because it is clear that they should be estopped. a That is why it is sometimes called equitable estoppel. b In this case it was an agreement (with an implicit statement that the plaintiff wouldn’t sue the defendant). i But the defendant obviously relied on it and would obviously be injured if the plaintiff was not estopped, and the plaintiff knew that the defendant would be injured if he wasn’t estopped. 1 Reliance seems to be doing all the work in this case because the court keeps saying that the plaintiff had to be smart enough to know about these golf balls. a Plus, the injury is so big that if they don’t estop the plaintiff, the defendant would have to restructure the entire golf course, and lose premiums on other houses in the complex. 7 Rule: in order for there to be estoppel, the plaintiff must misrepresent or conceal. a That is the Illinois rule. b The plaintiff didn’t conceal or misrepresent in the classic sense, but it is contrary to what they are doing in fact. i There isn’t necessarily a bad actor, but if you had to pick, the golf course is less at fault in this case. 1 That is why it is sometimes phrased like that. 8 Rule: estoppel can be a misrepresentation even that is made in good faith. a If someone says something and the defendant relies on it to their detriment, and the plaintiff knows the defendant is going to rely on it, he is going to be estopped. 9 Note: there are many types of estoppel: a Promissory estoppel b Estoppel in procedural action v United States Fidelity & Guarantee v. BImco Iron & Metal Corp. 1 Facts: some thieves break into a factory and rip out the electrical system and steal it. A dispute arises with regard to the insurance company and what they will indemnify. There had been a non-waiver agreement executed, and the insurance company relied on it not to cover the electrical system. But after the proofs failed to be timely filed, the insurance company covered the destruction of the door, but not the electrical system. 2 Holding: agreeing to cover part of the destruction was a waiver of the non-waiver agreement. 3 Rule: waiver does not require reliance by the plaintiff. f a It is implied. b That is what most formulations say. 4 Note: the waiver here seemed sort of incidental (not completely intentional), but it was directly contradictory to the non-waiver agreement. a That is enough for waiver. 5 Rule: an act that is directly contradictory to a known right is enough of an act for waiver. 6 Note: the more reliance, the more it looks like estoppel, and the less reliance, and the more intention the conduct, the more it looks like waiver. a They both have the same effect though, of disallowing the party to press forward. 7 Note: waiver comes up a lot in appeals, criminal procedure, and remedies. 8 Note: the more central something is to a transaction, the more intentionally it has to be relinquished, in order for there to be waiver. a The more peripheral the item, however, the more easily it can be waived. Laches and limitations i Laches 1 Laches is another cousin of estoppel and waiver. 2 Laches is an equitable remedy only. 3 Laches will be used to prevent the plaintiff from recovering in the case of an unreasonable delay by the plaintiff that results in prejudice to the defendant. 4 This doesn’t apply in a lot of cases, but it is still talked about. ii Statutes of limitation 1 With statutes of limitations, we don’t care if it is a valid claim or not because we are concerned about clogging up the courts. a At some point, the plaintiff shouldn’t be able to bring his claim anymore. i The old equities court said the same thing. 2 Statutes of limitation vary a lot based on state law and the type of claim you are bringing. 3 Statutes of limitation apply to both legal and equitable claims. 4 Attorneys can use statutes of limitations to their advantage. a They try to frame things in more than one way so that they can get the longest statute of limitations possible. 5 There are some cases in which it is questionable whether the statute of limitations is cutting off legitimate claims. a The statute of limitations doesn’t start to run before someone even knows they have a lawsuit to bring. iii NAACP v. NAACP LDF 1 Facts: the NAACP created a separate organization to be a legal part of the association. There was something about tax deduction so they separated for tax purposes. They let the LDFP keep their initials. Later, the LDF became independent. At that point, they still had the initials. Then, tensions arose, and the NAACP voted to ask the LDF to take away the initials, but the LDF refused. The NAACP conceded. Then the NAACP wanted to take away he initials because there was a limited amount of fund raising dollars. The NAACP thinks that the LDF is piggybacking on their name and good will. The NAACP doesn’t force them to do anything or to relinquish the initials for 12 years. The LDF had a disclaimer on their stationary and everything. Then, in 1978, they again asked LDF to get rid of the initials. LDF refused. In 1979, they finally revoked. Then in 1982, the NAACP brought suit. 2 Note: in the meantime, many LDFs arose, and lopping off the NAACP portion would make this LDF look like other LDFs. 3 Holding: the NAACP is prevented by laches from bringing this claim. 4 Reasoning: 13 years is too long to wait. 5 Rule: whether a delay is reasonable must be considered in light of the prejudice to the defendant and the knowledge by the plaintiff of the defendant’s reliance. a This is not the rule in every jurisdiction. iv Rule: when determining if to apply laches, consider: 1 Whether the delay was unreasonable. 2 Then figure out the prejudice to the defendant and ask why the plaintiff sat on his rights. a Consider: i The prejudice to the defendant 1 There should be some kind of reliance by the defendant. a But that is not always required. 2 If there is not reliance by the defendant, there should be: a Lost evidence b Fluctuating value of the thing in dispute (because it is not fair to let the plaintiff gain value by waiting). c Dead witnesses ii The knowledge by the plaintiff of the defendant’s prejudice 1 Why the plaintiff sat on his rights. The less hurt the defendant, the less prejudicial the delay, the less harm to the defendant (it is an inverse relationship). 3 Note: if there had been discussions, or settlement discussion going on during these 13 years, the delay may not have been unreasonable. a There would be more sympathy for the plaintiff who was actually trying to do something about this. i But this sympathy wouldn’t extend for too many years. 4 Note: often the plaintiff doesn’t bring the claim early enough because he doesn’t know he has a claim or the lawyer takes too long to file a claim. a In the later situation, the court will not be sympathetic. b In the former case, the court still might cut the plaintiff off because it is concerned about the defendant. i It is too bad that the plaintiff doesn’t know about the claims, but at some point, the court has to let the defendant go their own way. 1 Here, it wouldn’t be fair that the defendant had used the name so long and built up so much good will, with reliance. a It would harm the defendant to let a case be brought even if the plaintiff was unaware of it before. b Plus, the defendant would be harmed because witnesses could possibly have died by then. 5 Note: there is a relationship between laches, estoppel, and waiver. 6 The reliance in laches makes it seem like estoppel. i They are distinct, but not completely. 1 Laches is most concerned about the length of time. a That is connected to the prejudice of the defendant, but the focus is on the length of time. 2 Estoppel is more concerned with reliance. ii Waiver is more about what the defendant did or said intentionally and firmly. 1 Then secondarily, look at the reliance of the other party. Sometimes these doctrines can be linked together, but one usually fits better than others. Note: the concurrency doctrine addresses a category of cases that can be brought either legally or equitably. a It says that if a legislature gives a statute of limitations for a certain type of case, whether the case is brought at law, it is governed by the statute of limitations. i If someone brings a tort claim with a legal remedy only, the statute of limitations will apply only. 1 Laches doesn’t apply because laches is an equitable doctrine. ii If someone brings the contract claim for specific performance, in equity, the courts have said the legislatures have meant for the statute of limitations to apply, but so will laches. 1 So laches can cut things off sooner than the statute of limitations. a So the only reason to invoke laches in this type of case is if it happens earlier than the statute of limitations. b But once the statute of limitations is done, it doesn’t matter about laches, because you only get as long as the statute of limitations. iii The only time where it is laches only is when there is a cause of action that doesn’t have a statute of limitations (probably because it is only ever brought in equity). 1 It is the equivalent, in those cases, of a statute of limitations. a It cuts off the substantive rights if there is damage and harm and a substantive violation. i It cuts off claims that even look valid, but the farther you get away from the claim, the harder is to know if it is valid because witnesses are dying and evidence is being lost, so statutes of a limitations help with these problems. 7 Note: laches may matter in ballot litigation where there is some strong wrongful act that is governed by a statute of limitations. a You want to seek an injunction to prevent a wrong from happening at the ballot box. i If you could have brought the claim ahead of time, but you don’t and you seek a reparative injunction after the fact instead, the defendant could raise a laches defense. 1 There is still a viable claim, but laches might say that the claim was brought too late and there is too much prejudice to the public and the defendant. a However, remember that beforehand, there may have been ripeness issues. 8 Note: there is a difference between continuing violations and continuing harm. a Continuing violations include things like pay discrimination. i Every paycheck that comes in is a new violation and the statute of limitations will not stop a claim because of that. b Continuing harm is something that continues for years because of one isolated incident. i The statute of limitations will start running from the single incident of harm. v O’Brien v. Eli Lilly 1 Facts: a girl got cancer when she was 14 and had a lot of surgeries. Her mother and doctor did not tell her that she had cancer. She waited three years, and then, when reading a Newsweek article, realized there was a drug that caused her type of cancer. She asked her mom if she had taken the drug. The mom said no. Two years later, she asked her doctor if she had cancer. She was 19 at this point. He told her yes, but that he wasn’t sure it was because of the drug. She asked her mom again if she had taken it, and she finally admitted it. She sued Eli Lilly, the drug manufacturer. The statute of limitations was two years, so Eli Lilly says she is barred from bringing her claim. 2 Rule: the discovery rule says that the statute of limitations begins to run when the plaintiff knows or should have known of the claim. a The test turns on whether the objective reasonable person in the plaintiff’s shoes would have known there was a claim. b The plaintiff has a duty of due diligence to find out. 3 Holding: she is barred from brining her claim. 4 Reasoning: the statute of limitations started running when she read the magazine, even though she didn’t discover her claim until later, because she should have exercised more diligence to find out whether her mom had used the drug. 5 Note: the attorney should have shown that in the interim, between the reading, and finding out, she was learning new things about DES and its relationship to her type of cancer. a The more things she learns about it, the later date she can get. b The attorney should have put an expert up that showed how a 19 year old would respond to finding out that she had cancer. 6 Note: there does have to be some point at which Eli Lilly can move on. a This puts a duty of due diligence on the plaintiff. i We don’t’ require that she read medical magazines, but she does have to seek out some information. 1 She can’t turn a blind eye. 7 Note: statutes of limitations cannot start running before a plaintiff turns 18 (the age of majority). 8 Note: there are issues with regard to repressed memory, and when those victims should have known they had a claim. a We have to balance the purpose of cutting off viable claims to protect defendants to let things move forward with fairness to the plaintiff. i This is difficult in sexual abuse case because sometimes things don’t come to the surface until much later. vi Knaysi v. Robins 1 Facts: the makers of the Dalkon shield knew that their product had caused some spontaneous abortions but didn’t make an announcement about it. They actually made an announcement that it was safe. 2 Rule: fraudulent concealment can cut off the discovery rule if all of the elements of it are shown, (the claim didn’t accrue because you didn’t know and shouldn’t have known), plus that the defendant concealed the claim. a So, you still have the duty of due diligence, but you just show that it would have been ineffective because of the fraudulent concealment. b The plaintiff has the burden of showing that the defendant fraudulently concealed something, and that the discovery rule should therefore, not apply. c The plaintiff also has to prove that the concealment is what caused their lack of knowledge, and therefore, that they didn’t sue in time for the statute of limitations. 3 Rule: in order to have fraudulent concealment, a party has to make affirmative misstatements. a That is the law in New York. i But saying that the product was safe doesn’t really seem like an affirmative misrepresentation in a regular fraud case, because every manufacturer will say their product is fine. 1 There is no legal duty to tell someone they have a cause of action. a The person has a duty to find out on their own through reasonable diligence. i That is modified if the defendant says something to the plaintiff to make them think they don’t need to sue. ii The firmness of this statement varies by jurisdiction, but it seems like this case went a little far because there was not really an affirmative misstatement. 4 5 6 7 8 9 Note: you may not get the benefit of the discovery rule and you may have to prove a little bit more by using fraudulent concealment. a If the legislature steps in and requires fraudulent concealment in order to have a statute of limitations tolled, you shouldn’t get the benefit of the discovery rule because it is easier to show. i The legislature can therefore cut off some of your other options. Note: the court looked at whether the defendant had knowledge that the product was dangerous and failed to reveal the dangers. Note: the dissent doesn’t think the plaintiff has met the burden because if it is based on an actual misrepresentation, the plaintiff has to prove that they justifiably relied on the misrepresentation. a They say the defendant didn’t conceal anything because they said that the device was fine to use, even when pregnant. i That statement turned out to be wrong, because the product causes septic abortion and sterility. Note: the discovery rule and equitable tolling are used to get around the statute of limitations. a They argue that their claim should still be considered, despite the fact that they brought it late. Note: fraudulent concealment goes to the defendant concealing from plaintiff into regarding the relationship between plaintiff’s injury and the causative effect of the defendant towards that injury a The defendant is basically concealing from the plaintiff that the plaintiff has a cause of action. Note: although a finding of fraudulent concealment generally tolls the running of the statute of limitations, it could also be reasonable for the raising of a laches defense or estoppel if the defendant alleges that the plaintiff has waited too long. IX Equity versus law a The most important distinction is whether you have the right to a jury trial. i But it also comes into play with regard to the types of defenses you can bring and how to characterize your claim. b The Seventh Amendment and a lot of cases say that you get a right to jury trial in some cases. i The Seventh Amendment says that “in common law suits, where the value in controversy shall exceed $20, the right of jury trial will be preserved.” 1 The court looks to history to see the distinction in law and equity before the courts merged to ascertain whether it is a suit at common law, or in equity (in which case you won’t get a jury trial). a It looks back to 1791, when there were dual court systems. i There is now only one form of action: the civil action and legal and equitable claims are brought the same. 1 Prior to this, the plaintiff would have to choose whether to file in law for money or in equity for an injunction or specific performance. a After 1938, we can file more than one type of relief in the same case. c California’s constitution preserves the right to a jury trial. i It looks back to 1850. d The Supreme Court says that a jury trial governs a lot of things, so there are a lot of causes of action that look equitable, but get cast as legal. i There are also mixed claims of law and equity. e When that happens, try the legal claims first, to a jury, and the court can decide the equitable claims, but is bound by the jury’s fact finding. Equitable v. legal remedies i Contracts 1 Money damages a Legal b Jury trial 2 Specific performance a Equitable b No jury 3 Rescission a Equitable b No jury 4 Reformation a Equitable b No jury ii Torts 1 Money damages a Legal b Jury trial 2 Injunction a Equitable b No jury iii Personal property 1 Money damages (trover) a Legal b Jury trial 2 Possession (replevin) a Legal b Jury trial iv Real property 1 Money damages a Legal b Jury trial 2 Possession (ejectment) a Legal b Jury v Restitution 1 Money (quasi contract) a Legal b Jury trial 2 Constructive trust a Equitable b No jury 3 Equitable lien a Equitable b No jury 4 Profits from fraud a Equitable b No jury 5 Disgorgement (e.g., improper profits) a Equitable b No jury 6 Restitution with rescission a Equitable b No jury 1 f g h How a remedy is going to be classified gets more difficult when there are breaches of duties and shareholder derivative suits, new procedures, like administrative agencies are, and hybrid things. Some states still keep the courts separate, so when that is the case, you have to file in the right court, or they will bounce you out. Chauffeurs Local No. 391 v. Terry i Facts: the plaintiff truck drivers are suing the union regarding seniority rules that have been violated because new members came in from a different plant and the old members were getting fired. The plaintiff was suing the union for breach of a fiduciary duty of fair representation. They also sued the employer for back pay and reinstatement, but the employer is gone because they were bankrupt. The truck drivers want a jury trial because they think they will get more money, but the defendant argues that a breach of fiduciary duty is equitable. ii Note: plaintiffs usually want jury trials. iii Rule: to determine if something should receive a jury trial, consider: 1 The nature of the action (the claim being brought) 2 The nature of the remedy Although the court says there is a two pronged test, if either prong seems legal, there will be a right to a jury trial, so the only time there will be no right to a jury trial is really if neither of the prongs are equitable. iv Reasoning: the nature of the action here is a breach of a duty, which comes from a trust concept, which arose at equity to fill up holes in the law that the law couldn’t deal with. 1 However, the defendant argues that it can be recharacterized as an attorney malpractice claim because of the duties that are owed to clients and union members alike. a A claim brought against an attorney for breach of duties to his client would be legal. i The court does not agree, and says it is more like a trust claim. v Holding: even though it is more like a trust claim, because they are seeking money, it is a legal remedy, and the right to jury trial is preserved. vi Note: if the employer were still involved here, perhaps the dissent would be convinced that it was legal because there would be an action for breach of the collective bargaining agreement in addition to the one for breach of the duty of fair representation. vii Note: Congress said that with regard to Title VII, equitable relief includes “such affirmative action as may be appropriate which includes reinstatement with or without back pay and any other equitable relief the court deems appropriate.” 1 Many courts said that back pay in Title VII was equitable, and that therefore, other forms of back pay were equitable. a But the court here does not, because it does not seem to be a principle that can be drawn across the board. viii Note: if someone doesn’t want a jury trial, they don’t have to have it. 1 It is a right to be preserved, not forced. 2 But either party can elect to get it if it is a legal claim. a Most often it is the “little guy” who wants the jury trial because they think they will get a bigger recovery (despite research to the contrary). ix Note: A plaintiff can’t file a declaratory judgment action to preempt a lawsuit coming against him, and then say it is equitable because of the declaratory judgment to prevent a jury trial. 1 That is getting around the system by using developments in the law. x Note: if the plaintiff files an equitable claim and then the defendant brings a counter claim that is legal, one of the parties can demand a jury trial, and the jury issues will be tried first. X Something cannot be recharacterized as equitable if there is a party with a legal claim to bring. 2 If there is a mixed case of law and equity (hybrid), the judge usually bifurcates and then the jury determines the facts for the legal claims and those facts are used by the judge, who applies them to the equitable claims. xi Note: a substantive legal claim, even if brought in an equitable procedure (like class action or shareholder derivative suits), still gets a jury trial. 1 This is a consequence of the merger of law and equity and a recognition that with mixed procedures, we have to do mixed things. xii Note: state courts are sometimes more reluctant to send everything to a jury. xiii Note: when there are specialized tribunals, such as administrative agencies, the Supreme Court has said that agency actions are simply agency actions and they don’t invoke the Seventh Amendment. 1 Agencies can make determinations with regard to their own regulations, providing it affects a public, and not a private right. Wrap Up a The three big tools for attorneys: i Damages ii Injunctions iii Restitution b There are also miscellaneous things that cut off remedies. c The types of remedies we have studied i Compensatory remedies 1 Damages ii Coercive remedies 1 Injunctions iii Declaratory remedies 1 Declaratory judgments iv Restitutionary remedies 1 Constructive trusts, etc. v Punitive remedies vi Ancillary remedies d Think about the nature of the remedies i Legal v. equitable ii Substitutionary v. specific 1