Phil's Remedies Outline _Nichols_

INTRODUCTION I. Remedies Problems (handout assignment for 1st day of class) a. Problem One i. Damages ii. Injunction iii. Punitive Damages iv. Restitution b. Problem Two i. Try to get a declaratory judgment and attack the constitutionality of the statute (must have standing and must be timely) c. Problem Three i. Restitution – disgorgement ii. Damages - $15 iii. Tracing – set up a constructive trust as if Owner was the beneficial owner. II. General Principles a. Plaintiff is entitled to be made whole in the cheapest way possible. b. Categories of remedies i. Compensatory: designed to compensate plaintiff for harm already suffered; seeks to make the plaintiff whole and return the plaintiff to his original or rightful position ii. Preventative: coercive and declaratory; designed to prevent harm before it occurs, so that the issue of compensation never arises 1. Coercive: found in contempt if court is disobeyed a. Injunction; specific performance; writs 2. Declaratory: court authoritatively resolves a dispute about the parties‘ rights, but does not end in a direct order to defendant; prevents harm by resolving uncertainty iii. Restitutionary: designed to restore plaintiff all that the defendant gained at plaintiff‘s expense; seeks to deprive defendant of his profit iv. Punitive: seeks to punish defendant for wrongdoing v. Ancillary: designed to aid other remedies 1. Examples: costs, fees, contempt, execution, garnishment, receivership DAMAGES: RIGHTFUL POSITION I. Value as the Basic Measure of Rightful Position a. Issue: What does it take to place the plaintiff in his/her rightful position? b. U.S. v. Hatahley Page 1 of 46 i. Facts: U.S. Gov. rounds up horses and burros and sells them to glue factories. S. Ct. finds liability on part of the gov. and remands to determine damages. ii. Three Errors: Appellate court finds three errors in dist. court's judgment 1. Dist. ct. didn‘t consider the replacement cost of the animals a. Must prove market value plus cost to train 2. Damages awarded for loss of use were arbitrary and purely speculative. a. Plaintiffs must prove which sheep and goats were lost because of the loss of the horses and burros. 3. Dist ct. needs to consider each plaintiff individually when awarding damages for pain and suffering iii. Issue: how precise do you need to be when awarding damages? 1. Note that in some cases, there will always be a degree of speculation. iv. Note: this case was decided by a judge who must give a rationale for his decision. A jury, however, does not need to provide a reason for awarding the amount of damages. v. Review 1. Gist of the Case: This case illustrates basic principle of ―rightful position‖ and the need to get as much precision as possible 2. Corrective justice vs. law and economics rationale (efficient breach). a. Corrective Justice - the substantive objective has teeth; the law has a normative function b. Law and economics rationale - Less concern over the normative function of the law; efficient breach c. Substitutionary vs. specific damages i. Note: for injunctions there needs to be no adequate remedy at law (i.e., damages). Thus, substitutionary damages are generally the first option ii. Note: Damages remedy is a substitutionary notion (substitute specific performance for money) iii. Restitution iv. Specific Relief d. Value i. U.S. v. Fifty Acres of Land 1. Facts: US condemned the city of Duncanville‘s landfill; jury found that FMV was 225k and the cost of replacement was 723k; Dist. Ct. found a judgment for the FMV. 2. General rule: just compensation is measured by the FMV of the property at the time of taking 3. Exception: when market value has been too difficult to find, or when its application would result in manifest injustice to owner or public. 4. Issue: does this case fall w/in the exception? Page 2 of 46 5. Supreme Court’s decision a. Awarding the replacement cost would give Duncanville a windfall – increase in value, increase in quality. b. Rejects the discounting method applied by the Court of Appeals b/c this essentially will give you the same number as FMV. c. Rule: if you have an ascertainable FMV then that is what you go with. 6. Hypo: $250 painting is destroyed; painting is a family heirloom; plaintiff only gets the $250 FMV and not the value to the plaintiff. ii. Undercompensation problem (lemons) 1. Value to plaintiff vs. replacement cost a. Hypo: car with FMV of $1,000 but worth more to the owner of the car. iii. Replacing Component parts (note 11, p. 26) iv. Trinity Church 1. Facts: Church built from stone masonry; Hancock excavates nearby; ground settles and church cracks; Hancock found liable for the property damage of the Church 2. General Rule: Damages = diminution in market value a. Exception: “Special purpose property” – there is no market for historic churches, thus no ascertainable market value. 3. Is there damage at all? a. 29% to 65% b. What will church do with the $$? 4. If totally destroyed, how would we figure value? 5. Present value problems? v. Decatur Ag-Svcs. v. Young 1. Facts: Plaintiff wants value of crops at time of sale rather than value at time of harvest. 2. Rule for crops: value at time of harvest 3. Offsets? a. Offsets are reductions in the award 4. Cover/duty to mitigate? 5. General rule: damages are valued at time of loss, not at a later time when market value increases; D should not be charged for the risk inherent in holding onto property and speculating that it will rise in value. vi. Securities 1. Three approaches among jurisdictions (n. 3, p. 35) a. Minority: Value loss at time of wrong Page 3 of 46 b. Majority: Value loss at the highest value between the time of the wrong and the time of trial c. N.Y. and Federal: Value loss at the highest value between the time plaintiff learned of the loss and a reasonable time thereafter in which plaintiff could have replaced the securities. 2. Replevin: plaintiff gets the actual stuff back; this is a legal remedy, not an equity remedy. II. Reliance and Expectancy a. Neri v. Retail Marine i. Facts: Neri orders a boat from Retail and gives a deposit; Neri cancels his order; Retail sells the boat to another customer; Neri sues for the deposit; Retail counter sues under a lost volume theory (the could have sold two boats instead of one) 1. Three “interests” a. $4250 down b. $2579 profit c. $674 storage and upkeep costs 2. Neri wants the deposit; Retail wants lost profit and costs. ii. Holding: Plaintiff is entitled to the $4,250 [restitution] deposit less an offset to defendant in the amount of $3,253 (lost profits of $2,579 [expectancy] and incidental damages of $674 [reliance]). b. Distinguishing Between Reliance, Restitution, and Expectancy i. Restitution: seeks to place the defendant in the rightful position ii. Expectancy: rightful position had defendant not breached; benefit of the bargain; place plaintiff in the position had defendant not have breach/committed the tort/etc iii. Reliance: plaintiff relied on the defendant‘s promise; what position would plaintiff be in had the defendant never made a promise? c. Chatlos v. National Cash (K case) and Smith v. Bolles (tort case) i. Chatlos: D sells to P computer that fails to perform as promised; P gets to recover expectancy damages, i.e., the FMV of a computer that would do all the things D promised. ii. Smith: P buys shares at $1.50; stock turns out to be worthless; P sues claiming that stock would have been worth $10 if mining property was as represented by P; court gives P reliance damages only ($1.50 per share); damages do not include the expectancy of an unrealized speculation. iii. Majority of States: doesn‘t matter how you characterize a claim, you should still be able to get expectancy damages 1. Smith is a minority case; Fed follows Smith iv. Issues: Simply a contract/tort distinction? Or something else? Why do you get expectancy damages in K but not in tort? 1. State Courts: allow plaintiffs to recover expectancy damages whether they sue in fraud or in warranty. Page 4 of 46 v. Issue: Why (or why not) a recovery based on expectancy? 1. What was the expectancy in these cases? d. Distinction Between Tort and Contract i. Contract: Expectancy damages ARE recoverable 1. One is liable for breach of warranty even if his mistake is innocent and nonnegligent 2. P is seeking to recover an expectancy that is itself a product of D‘s promise—an expectancy that never would have existed but for D. ii. Tort: Expectancy damages are NOT recoverable (traditionally) 1. Fraud (tort) requires deliberate misrepresentation or reckless disregard of the truth 2. P‘s expectancy is not derived from D. P expected profits or wages from his own efforts, and D interfered to defeat that expectancy III. Consequential damages a. Buck v. Morrow – Categorization of Remedies i. General/Direct Damages: direct result of the breach; difference between K price and rental value of the pasture for the unexpired term. ii. Special damages: damages are recoverable if they are (1) incurred as a natural and proximate result of the breach, not directly from the breach itself; (2) foreseeable at the time of contracting; and (3) caused by the circumstances specific to the event 1. Federal Civil Rule 9(g): ―When items of special damage are claimed, they shall be specifically stated.‖ iii. UCC damages (2-715) 1. Consequential damages: losses resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise. 2. Incidental damages: cost of cover; reasonable expenses related to the breach iv. Traditional View: courts were traditionally more hostile towards special/consequential damages because they are more speculative, less certain, more remote, and more likely to have been avoidable if the plaintiff had been more diligent. b. Meinrath v. Singer i. Special rule for consequential loss of money: remedy for failure to pay money when due is limited to the principal plus damages in the form of interest at the prevailing rate. ii. Why? c. Texaco v. Pennzoil (tort case) i. Facts: Texaco tortuously interfered with contracts to purchase oil stock between Pennzoil and Getty ii. Action in tort or contract? 1. Does it matter? 2. Texaco argues for general damages measured by the difference between the market price of the stock and the contract price of the stock Page 5 of 46 3. Pennzoil wants consequential damages for the difference in the price at which it would have had the right to purchase oil from Getty and the cost to cover. 4. This is an example of getting the expectation cost of the K (the value of the oil, not just the stock) while suing under a tort theory. The damages are considered consequential and not general damages b/c Π lost the oil as a consequence of not getting the stock. iii. “Replacement cost model” 1. Yields 7.53B result 2. Too much? DAMAGES: LIMITATIONS I. Party-Specified Remedial Limitations a. Kearney & Trecker v. Master Engraving i. Facts: 1. M purchases a MM-180 from K&T for 167k 2. Purchase K included disclaimer releasing K&T from liability of consequential or incidental damages. 3. K also included a limited remedies clause limiting damages to repair/replacement or return/refund ii. Issue: Should we view the two clauses together or separate? iii. Holding 1. Rule: an exclusion of consequential damages in a contract is not invalidated when limited contractual remedies fail of their essential purpose. They are valid unless unconscionable. 2. Note: there is a split among jurisdictions with this rule. a. UCC § 2-719: If a remedy fails for its essential purpose then you can go elsewhere in the UCC to find a remedy b. Liquidated Damages i. Ashcraft & Gerel v. Coady 1. Facts: C, while working for A&G attempted to steal clients and sabotage the firm‘s computer database; employment K had a liquidated damages clause 2. Rule: liquidated/stipulated damages are OK as long as they are not a penalty 3. Liquidated Damages: reasonable estimate ahead of time of damages as a result of defendant‘s breach; liquidated damages are used when it is difficult to estimate damages. 4. Penalty clauses disallowed a. Test: see if amount was reasonable at time of contracting in light of anticipated/actual loss and difficulties in proving damages. Page 6 of 46 5. Issue: When do liquidated damages go beyond actual damages and amount to a penalty? ii. N. Illinois Gas Co. v. Energy Coop. 1. Issues: What if the liquidated damages clause underestimates? Is it a cap? Is the liquidated damages clause an exclusive remedy? 2. Exclusive remedy? a. YES, if the parties expressly specify b. Maybe, even if parties don‘t specify (split) II. Avoidable Consequences a. S.J. Groves & Sons v. Warner Co. i. Facts: SJ was the contractor building a bridge; Warner was a sub who was to supply concrete; Warner failed to deliver on time; SJ couldn‘t find an alternative; DOT stops construction and Warner assures on-time delivery; TrapRock becomes certified but SJ stays with Warner. ii. Holding: 1. Using Trap Rock to supplement was only one of three reasonable alternatives to Groves (Groves could have substituted Trap Rock all together or continue to allow Warner to work (which it did choose)). 2. Warner also had the opportunity to mitigate (could have hired Trap Rock to supplement). 3. Thus, when both the plaintiff and defendant had equal opportunity to mitigate, defendant is in no position to contend that plaintiff failed to mitigate. 4. Holding: damages allowed even after july 12. iii. Duty to Mitigate: Plaintiff can choose not to mitigate but he cannot recover for losses he could have easily or reasonable avoided 1. Issue: Who has the burden of proving that mitigation should have occured? a. Defendant has the burden of proving that the plaintiff didn‘t mitigate or that his mitigation was unreasonable. b. Thus, there is a presumption that the plaintiff did make a good faith, reasonable effort to mitigate iv. Three rules from this case 1. Duty to Mitigate: (above) 2. Rule: Plaintiff who makes reasonable efforts to avoid losses but if he can‘t avoid losses, then he will be able to recover 3. Rule: A plaintiff can recover expenses they incur in finding a substitute v. Offsetting benefits: When ‘s tortious conduct results in an injury to π or her property, but that conduct also directly benefits π, the value of the benefit may be deducted from overall damages (applies more to Ks than torts; i.e. breach allows seller to make an otherwise impossible sale to someone else; or wages earned thru another job...). b. Collateral Source Rule Page 7 of 46 i. Exception to the offsetting benefits rule (i.e., you get some benefit after breach that offsets the damages) ii. Rule: Collateral sources are not going to be deducted from your remedy (i.e., insurance) iii. Rule: An injured plaintiff could receive compensation for injuries from an independent source (i.e., insurance) and is still entitled to recover damages from the defendant for the same losses that have been compensated by the collateral source iv. Danger of double recovery? 1. Generally insurance agreements will call for reimbursement of any damages received v. California: abolished the collateral source rule in medical malpractice cases III. Scope of liability a. Pruitt v. Allied Chemical Corp. i. Proximate cause rule: how far removed are you? How far should the remedy extend? ii. Facts: Allied polluted the Chesapeake Bay; fish sellers try to recover damages iii. General Rule: plaintiff‘s cannot recover for economic harm iv. ―Plaintiffs who purchase and marketed seafood from commercial fishermen suffered damages that are not legally cognizable, because insufficiently direct.‖ Only the fishermen who caught the fish were allowed to collect damages b/c their damages were sufficiently direct. v. Holding: court cut liability off at the water‘s edge vi. Economic Harm Principle: a negligent plaintiff who suffers no physical impact to his person or property cannot recover for other losses—so-called economic harm—unless it is coupled with a physical injury. IV. Other Limitations a. Certainty i. Issue: How certain must the plaintiff prove liability and proof of damages? ii. Rule: must prove damages with reasonable certainty b. Substantive Policy Goals DAMAGES: WHEN MONEY CAN’T MEASURE VALUE I. Personal Injuries and Death c. Debus v. Grand Union Stores i. Facts: D gets injured when pallet of boxes fell on her resulting in a 20% permanent disability. Jury awards damages of 346k ii. G argues: per diem damages argument was unduly prejudicial or ct should have given cautionary instructions to the jury iii. Trial ct Page 8 of 46 1. Closing arguments: plaintiff suggested that the jury think about the daily pain and suffering and then to determine what amount of damages would be appropriate; average daily figure was suggested; jury told to consider that figure only if helpful. iv. Issue: are per diem arguments for pain and suffering proper? (districts are split) 1. Majority: per diem arguments are only a suggestion, the jury is then entitled to draw inferences 2. Dissent: specific amounts should not be used; methodology is ok but specific figures are not. v. Issue: are lump sum arguments proper for pain and suffering? 1. Majority: counsel may suggest a total number and tell the jury how much is requested in the complaint 2. Minority: lump sum arguments disallowed vi. Golden Rule argument: how much would you (the juror) want if you suffered the injury? These arguments are forbidden. vii. Market value: How much would it cost to pay someone to suffer the injury? These arguments are forbidden. viii. Note: tort damages for pain and suffering are expected to bear some relation to economic damages. d. Wrongful Death i. Economic losses: medical expenses, funeral expenses, lost wages, lost inheritance, etc. ii. Non economic losses: pain and suffering, loss of consortium, loss of society, etc. iii. Survival statutes v. Death statutes 1. Survival Statutes: Survival statutes allow you to get around the common law rule that once you die, you can‘t bring an action. Survival statutes allow someone to bring a suit in the name of the decedent; permit continuation after death of the deceased's own cause of action for personal injuries; note: damage awards are subject to the claims of the decedent‘s creditors a. Economic losses: medical expenses, funeral expenses, etc. b. Non-economic losses: pain and suffering of the decedent. 2. Death Statutes: People who are left behind can bring a suit on their own behalf; allows damage actions on behalf of survivors to recover for injuries incurred by such persons as a result of the death of another a. Economic losses: lost wages of the decedent, lost of expected inheritances, monetary loss of services, etc. b. Non-economic losses: Loss of society; most jurisdictions say that you can‘t award for emotional distress (minority allows). II. Tort Reform a. Medical Malpractice “Cap” (2 approaches – Smith and Ethridge) i. Ethridge v. Med. Ctr. Hosp. Page 9 of 46 1. Facts: Plaintiff gets jury verdict for $5.5M in a medical malpractice suit; malpractice cap statute reduced the verdict to $750k 2. Appeals Court: legislature has the power to set a cap on damages ii. Smith v. Dept. of Insurance 1. Facts: Florida has a $450k cap on damages for non-economic losses 2. Arguments a. Smith argues that that statue denies the right to access to the courts b. Dept. argues that the legislature has not totally abolished a cause of action, it has only placed a cap 3. Holding: we are dealing with a constitutional right which may not be restricted simply because the legislature deems it rational to do so; there was no ―overpowering public necessity for the abolishment of such right.‖ iii. Modern “tort reform” efforts 1. Capping the remedy or reforming the cause of action? 2. Reform for what purpose? a. Who gets helped? Who gets harmed? 3. Is ―rightful position‖ meaningless in large tort cases? a. Or is it simply too expensive to adhere to? III. Dignitary and Constitutional Harms a. Carey v. Phiphus i. Facts: Phiphus gets suspended w/o recovering the joint or allowing Phiphus a chance to explain 1. P seeks a declaratory judgment, an injunction deleting the suspension from his record, and $3k in damages 2. P argues that damages under §1983 should be awarded whether or not any injury was caused by the deprivation. ii. Holding: In order to recover under § 1983, plaintiff must prove damages; court awards $1 in nominal damages. iii. Nominal damages 1. Do they actually provide a ―remedy‖ for a constitutional violation? 2. Are constitutional violations so worthless that if they are violated and you can‘t prove damages, then there is no remedy? iv. Rule: The denial of procedural due process is actionable for nominal damages without proof of actual injury, but substantial injuries should be awarded only to compensate actual injury, or in the case of exemplary or punitive damages, to deter or punish malicious deprivations of rights 1. π must prove actual damages in order to recover for a violation of a constitutional right. (this applies to both procedural and substantive due process); no ―presumption‖ of damages b. Note 6, p. 200 Page 10 of 46 i. Remedies are given in judgments, not opinions. Whatever a judge says in his opinion, the prevailing party must make sure that appropriate relief appears in the judgment. c. Levka v. City of Chicago i. Facts: plaintiff is subjected to a strip search; strip search was part of the police department‘s policy; jury awards $50k for emotional trauma but nothing for economic losses ii. Rule: you can recover damages for emotional distress in dignitary torts that have no actual damages b/c these torts are directed at preserving the interests of an individual.??? iii. Issue: how do we calculate damages for ―dignitary torts‖? iv. Remittitur / Additur: Does this verdict shock the conscious of the court? 1. Apparently enough for the court to reduce the verdict in half. 2. Court decides to reduce the verdict in remittitur b/c it shocked the conscious of the court v. Remittitur: court grants a new trial unless plaintiff remits part of the verdict; consistent w/ right to jury b/c P has a choice and b/c court can only remit down to the highest amount a jury could have awarded w/o triggering a remittitur (i.e., the highest amount that doesn‘t shock the conscious of the court) vi. Recovery for emotional distress 1. General K Rule: you can‘t get damages for emotional distress in contract 2. General Tort Rule: you can collect damages for emotional distress if in an intentional tort, not in negligence cases without some additional threshold showing (physical injury); Today, however, some states allow bystanders who see their loved one injured recover for emotional distress vii. Dignitary Torts 1. Examples: false imprisonment; malicious prosecution, intentional infliction of emotional distress, libel, slander, invasion of privacy, and batteries that are offensive but cause no physical harm 2. Valuation problems: as with pain and suffering cases, juries are given no more precise instruction than to do what is reasonable. DAMAGES: TIME AND THE VALUE OF MONEY I. Taxes and Interest a. Rule: Damages for physical injuries are not taxable (state or federal); non-physical damages generally are (i.e., economic torts or contract damages). b. Future Earnings i. Majority Rule – ―gross earnings approach‖: no reduction for taxes ii. Minority Rule – ―net earnings approach‖: taxes are deducted and the future income is determined at an after tax basis. c. Interest i. Prejudgment interest – interest earned from the date of injury to the date of the award; not intended to punish  but merely to compensate Π for being denied the opportunity to Page 11 of 46 invest and earn interest on the amount of damages (thus is not awarded on punitive damages) 1. Common law: prejudgment interest recoverable in K but not in tort 2. Modern law majority rule: by statute, allows prejudgment interest for both K and tort cases. 3. Rate of Interest: ????? ii. Post-judgment interest – from date of award to date of payment; authorized by statute; ―legal rate‖ as specified in statute. 1. E.g., in CA: 10% simple interest per year on the principal. II. Present Value a. Jones v. Pfeifer i. Facts: Dist Ct. awards damages for future earnings and fails to account for present value; court states that inflation and interest offset each other ii. Interest Rate 1. ―Real Interest Rate‖ – interest rate less rate of inflation iii. Inflation 1. Cost of Living increases 2. Productivity increases iv. Total offset method: assumes that inflation and rate of return offset each other, therefore no discounting is needed. b. Problem 2-1, p. 228 c. Keys to present value i. Discount rate = (return on investment proceeds) minus (annual wage increase) 1. Investment proceeds = interest earned 2. Annual wage increase accounts for inflation/COLA increases and productivity gain ii. Then take the discount rate and go to the present value table and use the appropriate number of ―periods.‖ 1. Note: ―Negative discount rate‖ is not on the table. Use compound interest. d. Arguments i. Key is to get a bigger award for your client (or smaller award for the other guy). P wants to argue for: 1. More periods worked (e.g., later retirement age) 2. Higher annual wage increases (and/or higher inflation and more productivity gains) 3. Lower interest earned a. Will want to use a ―safer‖ investment e. Other issues (total offset, percentages, periodic payments …) Page 12 of 46 f. More on valuation i. 9/11 victim‘s compensation fund as an example of valuation issues 1. set amount of recovery for ―noneconomic losses‖ 2. minimum recoveries, but may be much higher depending on actuarial, inflation/productivity, and the PV calculations 3. Alternatively, a cause of action might lie in tort (but with liability caps imposed by Congress). INJUNCTIONS: THREE TYPES I. Generally a. Issues: How much injunction does plaintiff get? How do you put the plaintiff in the rightful position? b. Injunction: It directs the defendant to do something or to refrain from doing something; a court order c. Note: injunctions should only be given in extraordinary circumstances d. Three types of injunctions i. Preventative, Reparative, Structural II. Preventative Injunctions a. Ripeness - Humble Oil v. Harang i. Facts: Harang colluded with geologist formerly employed by plaintiff; plaintiff seeks a preliminary injunction to prevent Harang from destroying documents connected to the case. ii. ―When the party who seeks an injunction shows potential irreparable injury, he has established merely one essential condition for relief. He must demonstrate in addition that there is real danger that the acts to be enjoined will occur, that there is no other remedy available, and that, under these circumstances, the court should exercise its discretion to afford the unusual relief provided by its injunction.‖ iii. Rule: an injunction will only issue against real threats of injury or wrong (―ripeness‖) 1. How can we tell which circumstances are appropriate? 2. Is there a ―propensity‖ for the party to commit the act? 3. Has the party committed the act in the past? iv. Issue: Why should parties bring motions for injunctions even when they know that they will be denied? 1. In order to put the opposing party and the court on notice that you suspect that the defendant has the evidence. Opposing party is less likely to destroy the evidence because you have already called him out. v. Notes on Ripeness 1. Note: this is remedial ripeness, not constitutional ripeness a. Remedial ripeness goes to the fact that an event is imminent or planed (court still has the power to adjudicate but does not need to) Page 13 of 46 b. Constitutional ripeness: the court does not have the power to adjudicate b. Scope - Marshall v. Goodyear Tire i. Issue: How broad should the injunction be? (scope) 1. How specific should it be? ii. Facts: there was an isolated act where the employer fired an employee based on age. iii. Holding: nationwide injunction is too broad; nationwide or companywide injunction is appropriate only when the facts indicate a company policy or practice in violation of the statute. iv. Note: Generally, scope of past violation determines scope of remedy against future violations 1. No injunctions to ―obey the law‖ c. Mootness – U.S. v. W.T. Grant Co. i. Issue: does the court still have the power to issue an injunction? ii. Facts: defendant stopped allegedly illegal conduct; dist ct. holds that issue is moot and states that it does not have the power to issue the injunction iii. Holding: although issue was not moot, no abuse of discretion has been demonstrated in the trial court‘s refusal to award injunctive relief. iv. Constitutional vs. Remedial Mootness v. Note: Generally, scope of past violation determines scope of remedy against future violations 1. No injunctions to ―obey the law‖ vi. Rule: Voluntary cessation of allegedly illegal conduct does not deprive the tribunal of power to hear and determine the case; it does not make the case moot. However, the case may be moot if D can demonstrate that ―there is no reasonable expectation that the wrong will be repeated.‖ D has the burden to show there is no reasonable expectation the act will be repeated. If D meets the burden, the case is moot. d. Nicholson v. Conn. Half-way House i. Facts: plaintiffs seek an injunction to stop an anticipated nuisance cased by a proposed half-way house in the neighborhood ii. Holding: Injunction not appropriate b/c the fear is speculative and intangible, it is based on what may happen in the future; it is a subjective apprehension. iii. Issues 1. Can an injunction issue to prevent harm that is not yet started? (prophylactic injunctions) a. How certain must we be that the harm will occur? 2. If this injunction does not issue, what (if any) assurance does D have that P won‘t bring this action again later? e. Coercive relief at law i. A court may act at law (not in equity) to achieve some of the same results as an injunction Page 14 of 46 1. Mandamus – an order to a public official to perform a ministerial duty a. Duty must be clear and non discretionary 2. Prohibition – an order to an inferior court or quasi-judicial agency to prevent it from exceeding its jurisdiction or abusing its authority 3. Habeas Corpus – an order to a person holding another in custody, directing him to bring the prisoner to court and justify the prisoner‘s further detention 4. See p. 257-59 III. Reparative Injunctions a. Bell v. Southwell i. Facts: racial discrimination on the part of state in an election ii. Issue: Why is this not a moot issue? iii. Dist. Ct. wrongly assumes that all blacks would vote for the black candidate and no whites would vote for the black candidate. iv. Issues: 1. Does a court have power to overturn an election? 2. What kind of harm must be present for the court to exercise its power? a. Are there circumstances in which an injunction will not undo the situation? v. Note: A court has power to repair damage done through its injunctive power (mandatory, reparative) -- Even in election cases b. Forster v. Boss i. Facts: defendants failed to keep their promise of delivering a permit for the dock and failed to remove their swim dock; dist ct. awards both damages (for difference in FMV of land with permit and w/o permit) and an injunction ordering delivery of permit ii. Issue: Was there double-recovery? 1. If so, how could it have been avoided? iii. Holding: plaintiffs received not only damages for fraud and breach of contract, but also specific performance; plaintiff failed to show the value of the damages accrued when he didn‘t have the permit and the swim dock was connected; P‘s damages are only temporary once an injunction is issued ordering D to deliver the permit; P can‘t get double recovery (but may be able to recover for the delay if they can be proven) iv. Rule: can only recover one remedy for harm done 1. May have to elect damages or injunction v. Question: Why doesn‘t Laycock like the phrase ―reparative injunctions?‖ 1. In one sense you can‘t really fix the harm that was done. 2. Preventative, reparative, and structural injunctions all prevent future harmfurl effects of a past act. (see p. 269) IV. Reparative Injunctions – Scope of relief a. Winston Research Corp. v. 3M Page 15 of 46 i. Rule: An injunction should get P back as closely as possible to her rightful position ii. Holding: Court refused to issue a permanent injunction and instead issued a 2-year injunction which would be sufficient to deny Winston unjust enrichment and to protect Mincom from injury from the wrongful disclosure and use of its trade secrets. b. Bailey v. Proctor i. Power to “do equity” 1. The power of the court to ―do equity‖ 2. A court can do equity if it feels the need to ii. Facts: trust was structured in an inequitable manner such that the control group would reap the benefits of profits wile the debenture holders would bear the brunt of the risk. iii. Questions: 1. How much injunction do you give? 2. Does the court‘s decision infringe on the separation between the judicial and legislative branches? a. Congress said that any future trusts set up with this type of structure were outlawed. Here, the court dissolves an existing trust not outlawed by congress. c. Is there a better standard? d. Three standards (p. 288) i. Injunction should restore plaintiff as closely as possible to the rightful position (see Winston) ii. Injunction should restore plaintiff as closely as possible to the rightful position, subject to the constraint that the injunction should never make plaintiff better off than the rightful position. iii. Injunction should restore plaintiff as closely as possible to the rightful position, subject to the constraint that the injunction should never leave plaintiff worse off than the rightful position. (Bailey?) V. Structural Injunctions a. Definition: a long series of preventive and reparative injunctions in a single case presenting a complex fact situation; each individual order is part of the continuing attack on a larger problem. b. School Bussing Cases i. De jure segregation – unconstitutional; segregation deliberately cased by state authorities ii. De facto segregation – not unconstitutional; segregation from all other causes except the deliberate conduct of state authorities. iii. Swann 1. S. Ct. holds: Affirms dist. ct. but notes that neutrally drawn attendance zones were not necessarily a sufficient remedy. New schools might have been built in locations selected to maximize segregation iv. Milliken I Page 16 of 46 1. S. Ct. reverses: plaintiffs‘ rightful position was desegregation w/in Detroit, and the courts had no power to involve the suburban districts unless the violation in Detroit had caused segregation in the suburbs. v. Dayton I and Incremental Segregative Effect 1. S.C. Rule: remedy must be designed to redress violation, and only if there has been a systemwide impact may there be a systematic remedy. c. Prison Cases i. Hutto v. Finney 1. Issue: How closely must the injunctive relief be tied to past misconduct? Can it remedy/prevent future misconduct? 2. Facts: inmates were crammed into 8x10‘ cells; served 1,000 cal. per day; worked 10hrs./day, 6 days/week; jumbled mattresses together 3. Dist Ct.: concluded that conditions were unconstitutional and directed the dept. of correction to ―make a substantial start‖ on improving conditions; court found improvements but held that conditions were still unconstitutional but this time the court issued guidelines; dist. ct. finds that continuing supervision was no longer necessary 4. Appellate court: reversed dist. ct.‘s decision to withdraw its supervisory jurisdiction 5. Dist. ct.: finally orders the dept. of correction to cure the violations 6. Supreme Court a. Issue on appeal: petitioner appeals the 30-day limit on punitive isolation b. Holding: Court has no right to tell the state that it can‘t impose a 30 day limitation c. Dissent: ―The sole effect of the provision is to grant future offenders against prison discipline greater benefits than the Constitution requires; it does nothing to remedy the plight of past victims of conditions which may well have been unconstitutional.‖ i. Rehnquist’s argument: Didn‘t the court just say in Milikin I/Dayton I that rightful position is the proper remedy? Shouldn‘t the remedy be tied to the violation? d. Question: How did Stevens define the constitutional violation? i. The conditions generally, taken as a whole. ii. Lewis v. Casey 1. Question: Is this something other than Humble Oil and Goodyear revisited? 2. Scalia’s Majority Opinion: two violations does not show a systemwide violation that mandates a systemwide injunction; the courts should remedy past or imminent violations, the political branch should ensure that future violations do not occur 3. Does this case kill the Bailey case? a. No, but you may need a more specific case? Page 17 of 46 iii. Issue: When, if ever, is rightful position not the appropriate remedy? 1. One can at least make the argument that rightful position is always the correct remedy, although it may be difficult to apply at times. 2. When is rightful position not correct? a. When there is something more on the plate. See Hutto iv. United States v. Virginia 1. Facts: VMI men only program was unconstitutional; state opens up a women‘s facility but not on the same par as the men-only institution 2. Holding: If excluding women is the harm, then including women is the only remedy. 3. Note: Rightful position used to give more relief than dissent wants a. Usually we‘ve seen rightful position as a lesser injunctive position than Bailey VI. Modification of Injunctions a. Modification appropriate if: facts have unforeseeably changed such that compliance with the injunction is onerous or when the injunction is unworkable due to unforeseen circumstances or when enforcement would be detrimental to the public. b. Injunctions and the right to third parties – note that injunctions sometimes dramatically affect the rights of third parties INJUNCTIONS: ELEMENTS I. Generally a. Injunction Elements i. Substantive case ii. Irreparable harm iii. Balance of hardships iv. Public policy b. Preliminary injunctive relief i. Same elements as normal injunctions but you must prove substantial likelihood ii. Look to local jurisdiction case law for the standard of likelihood II. Irreparable harm/inadequate remedy at law a. Usual rule: Injunctive relief is only available if damages aren‘t sufficient b. Pardee v. Camden Lumber i. Facts: plaintiff wants to enjoin defendant from cutting down his trees ii. Issues: Why aren‘t legal remedies adequate here? Can‘t defendant just pay the plaintiff damages? 1. Is it really true that all real property is unique? Page 18 of 46 iii. Test: specific performance unless damages will be an exact good substitute. 1. Is that the test? iv. Inadequate remedy at law = irreparable injury v. Black letter law: you must show something more than just economic damages in order to get an injunction. 1. Unique items – long term contracts 2. Propensity for defendant to continue the violation 3. Measurement difficulties 4. Insolvent defendant c. Brook v. Cullimore i. Replevin (and trover) 1. Replevin – a legal method of specific performance 2. Trover – money judgment in lieu of possession ii. Facts: defendant seeks to elect his own remedy and pay damages instead of specific performance. iii. Issues: Why didn‘t the plaintiff have to show irreparable injury here? Is it just because he sued under replevin? iv. How is replevin different from injunction? 1. The sheriff is the one who recovers the property in replevin d. Adequate remedy at law i. Continental Airlines v. Intra Brokers, Inc. 1. Facts: continental issues coupons and sells them to Intra who then sells them to customers. Later, Continental decides to enforce the no sale clause printed on the coupons. 2. Rule: A party is entitled to equitable relief of injunction when economic damages would be difficult and expensive to prove 3. No financial damages are shown, so what‘s the harm? 4. Harm to control? ii. Campbell Soup v. Wentz 1. Facts: Pursuant to contract, Wentz was to sell all their carrots grown on a certain parcel of land to Campbell for a set price 2. Are all carrots the same? 3. *Efficient breach of contract a. Does economic analysis add anything to determining whether/when to issue an injunction? 4. Note: the choice between specific performance and damages is a choice between two ways of giving plaintiff its expectancy—between the expected carrots and the expected value of the carrots. Based on this theory, efficient breaches should be rare. Page 19 of 46 5. Campbell, however, runs into a problem because they had a liquidated damages clause in the K. 6. Putting aside the liquidated damages clause, why should specific performance be granted in this case? iii. Van Wagner 1. Issue: *An irreparable injury case or an undue burden case? a. Language of irreparable injury may really be part of the balancing the equities test … 2. Facts: Billboard is leased; building is sold; new owner cancels lease 3. Held: no specific performance for leases 4. Question: Why no specific performance? 5. Rule: Specific performance is not generally available to commercial leases. Uniqueness in the sense of physical difference does not itself dictate the propriety of equitable relief. A distinction between physical difference and economic interchangeability must be drawn a. Note that this is not the law in most other jurisdictions; courts generally call leases real property and grant specific performance. 6. Questions a. Besides the loss from the cancellation of the lease, should plaintiff be able to recover damages for loss in business as a result of the loss of advertising? What about certainty b. Would it matter if this was a sale and not a lease? c. What about the defaulting party‘s intended use of the land – a residential development. Court‘s argument – keeping the billboard is not worth halting the development d. Is this really an irreparable injury case? III. Undue Burden/Balance of Hardships a. Ariola v. Nigro i. Very expensive for defendant to move the wall now 1. ―undue burden‖ to move it, they argue a. Note: ―undue burden = ―balancing of the equities‖ = ―balancing of the hardships.‖ ii. Rule: a willful wrongdoer can‘t come to the court and ask it to do equity; note that this rule is not hard and fast. 1. Normally courts will looks to whether there is an inadequate remedy at law for Π, but also whether it‘s a big burden on  to comply with an injunction/equitable relief. But the courts will not conduct the traditional balancing of equities in deciding whether an injunction should issue correct a harm/injury when that harm/injury is found to be intentional iii. *“Intentional” wrongdoing overrides burden concerns Page 20 of 46 1. Cf. Boomer (note case) iv. Was this really intentional? v. Laches b. Examples of undue hardship at law i. Peavyhouse – court grants only depreciation in property value rather than the actual cost to restore the land. c. CIS v. Argyll Stores i. Facts: Argyll decides to close down its Safeway store resulting in a breach of their covenant to keep their store open; Argyll consents to damages; lower court orders specific performance ii. Issues: 1. Will a court order a business to stay open? a. Generally not 2. Difficulties of managing the injunction a. Contempt power b. Breadth or narrowness of the injunction 3. Relative position of parties a. Don‘t give P more than rightful position (p. 415) b. Don‘t want to harm D by forcing more $$ lost iii. Balancing: how badly do the plaintiffs need the injunction vs. the burden on the court and the defendant in enforcing/abiding by the injunction. iv. Note: 1. *Court will usually not order a business to stay open 2. *―Burden‖ analysis assesses the burden on the court as well as the burden on the defendant IV. Policy Concerns a. Willing v. Mazzocone i. Facts: woman protests in front of law firm offices alleging that they stole money from her; attorneys seek an injunction; court finds that woman is plainly wrong about her allegations; superior court grants injunction because the woman was indigent ii. Holding: injunction should be denied because it violates free speech rights; the exercise of the constitutional right to freely express one‘s opinion should not be conditioned upon the economic status of the individual asserting that right. iii. *Prior restraints disallowed 1. But is that in conflict with presumption of damages in defamation actions? iv. *Insolvency of D as a rationale 1. When coupled with something else? v. *Multiplicity of lawsuits Page 21 of 46 1. May not be worth it to keep suing a defendant for damages every time they do wrong vi. *Trial by jury vii. Note: this case demonstrates that at times there are public policy concerns (in this case, free speech) that are so important that a court will not do equity viii. Is there any remedy in this case? Is there any way to fix the problem w/o an injunction? b. ABC v. Wolf i. *Personal services contracts ii. Facts: Sportscaster Wolf agreed to negotiate with ABC in good faith and not to accept a competing offer in the first 90 days after March 4; Wolf signs with CBS on February 4; ABC wants specific performance and an injunction to prevent Wolf from working for CBS iii. *Two clauses: (1) Negotiation (in good faith); (2) Right of first refusal iv. Generally, when faced with an employee who provides unique services, courts will not force someone to work for another but they will grant injunctions not to work for other competitors; i.e., a negative injunction or a covenant not to compete INJUNCTIONS: PRELIMINARY INJUNCTIONS, BONDS, AND TROS I. Preliminary injunctive relief a. Same elements as normal injunctions but you must prove substantial likelihood b. Look to local jurisdiction case law for the standard of likelihood c. LA Coliseum Commission v. NFL i. Facts: Coliseum seeks to enjoin NFL from applying a rule that prevents the Raiders from moving to LA ii. *4 “Elements” for Plaintiff 1. These are on a continuum; not strict ―elements‖ (more of one, less of another is OK) a. Note: 9th Cir. characterizes the test more than one way … iii. 4 “Elements” for preliminary injunction 1. Strong likelihood of success on the merits 2. The possibility of irreparable injury to plaintiff if the preliminary relief is not granted 3. A balance of hardships favoring the plaintiff, and 4. Advancement of the public interest (in certain cases) iv. *Is the balancing test reducible to an economic equation? 1. Posner‘s equation on p. 446 Page 22 of 46 a. Issue injunction only in cases where the probability of harm to the plaintiff is really big and you think that more than likely you are going to get it right … b. Grant Injunction only if: P X Hp > (1 - P) X Hd c. Where P = probability that denial would be error (i.e., that P will win at trial; Hp = harm to plaintiff if denied; Hd = harm to defendant if injunction is granted v. Note: preliminary injunctions address the possible injury that may occur between the time of the PI and the final adjudication (after the final adjudication, you can get a permanent injunction). d. Elections Cases i. SW Voter Educ. Project v. Shelley (9th Cir.; recall election) 1. *Use of differing stds. for plaintiff. 2. Note: this case lists the 4 elements as an alternative rule 3. Test: A PI is appropriate where plaintiffs demonstrate either (1) a likelihood of success on the merits and the possibility of irreparable injury; or (2) that serious questions going to the merits were raised and the balance of hardships tips sharply in their favor. 4. Note that these tests operate on a continuum principle: the less certain the dist. ct. is of the likelihood of success on the merits, the more plaintiffs must convince the dist. ct. that the public interest and balance of hardships tip in their favor 5. Equal protection argument: different voting methods that are applied in different areas discriminate against voters located in different jurisdictions. 6. Majority holding: ―At this time [the use of a punch card system and the possible denial of the right to vote] is merely a speculative possibility ….‖ ii. Siegel v. LePore (11th Cir.; 2000 Presidential election) iii. *Can not having a vote counted be irreparable injury? 1. *If Tjoflat‘s dissent is wrong on this point, is the law simply the same as in Carey v. Phiphus (re constitutional wrongs generally)? 2. *But when can you show damage? a. Only for a losing candidate? Only if you can actually show that your particular vote wasn‘t counted? (Isn‘t that hard with anonymous voting?) b. Should this analysis change any in light of the fact that courts are so reluctant to intervene after an election is over? i. Should that make courts more willing to issue an injunction in advance? (But see 9th Cir. opinion). II. Preliminary Injunctions; Bonds a. Lakeshore v. Adcox i. Facts: defendant kept a bear in a neighborhood; covenant allows only ―household pets‖; covenant is later amended (after defendant moves to neighbor) to specifically prohibit bears Page 23 of 46 ii. Holding: damages are no remedy; threat to safety outweighs inconvenience to defendant; injunction is designed to protect the public; plaintiff is likely to prevail at the final injunction stage iii. *Status Quo 1. Note that this injunction altered the status quo iv. Note that Posner‘s formula does not work well in this case b/c it is difficult to quantify the fear of the neighbors b. Coyne-Delany v. Capital Development Board i. Facts: Capital used Coyne as its valve supplier; valves malfunction twice; Capital opens up bids only for bidders using Coyne‘s main competitor; Coyne seeks a TRO and gets it; court requires a $5k bond; court grants preliminary injunction but refused to raise the bond amount. ii. Plaintiff’s claim: Coyne had the property right to place a bid, of which it was deprived w/o due process of law iii. Court holding: a bidder has no property right to be allowed to bid iv. B/c injunction was wrong, Capital seeks $56k in damages v. *When are injunctions bonds appropriate? 1. When can/should they be waived? 2. Is the requirement to post a bond mandatory or discretionary? a. It should be discretionary b/c if you require a bond, then you are cutting out a lot of plaintiffs who cannot pay. However, in actual practice it seems that bonds are mandatory 3. If the bond is posted, is liability on that bond mandatory or discretionary? a. Rule seems to be that it is mandatory if damages are proven b. Note: damages paid out in the bond are only for compensatory damages, not punitive damages 4. If the bond is posted, does it set the maximum limit on liability? a. Majority rule: yes, it is the max limit vi. Two kinds of errors 1. Court fails to issue a preliminary injunction, but then rightfully issues a permanent injunction a. Plaintiff has damages claim for damages incurred between the PI stage and the final injunction stage 2. Court wrongfully issues a PI a. Plaintiff is liable for compensatory damages but only up to the amount of the bond (majority of jurisdictions). vii. Note: b/c it is discretionary, it is the defendant‘s responsibility to ask for an injunction bond III. TROs a. Carroll v. President of Princess Anne Page 24 of 46 i. Facts: white supremacist group held a rally in front of courthouse; city and county obtain a restraining order; no notice given to group and no effort to communicate; trial takes place and injunction is granted; court of appeal overturns 10-month injunction but affirms the TRO ii. Holding: TRO was set aside b/c there was no notice given to petitioners and w/o any effort to invite or permit their participation in the proceedings 1. ―a system of prior restraints of expression [carries] … a heavy presumption against its constitutional validity.‖ 2. No adversary proceeding in which the parties may participate iii. Rule: ex parte TROs have a 10-day limit (fed rule of civ pro 65) 1. When, under rule 65, can you do it ex parte? 2. What are the restrictions? … see p. 462-63 iv. What would have happened if this case came up through federal court? 1. Same thing: Fed Rule 65 would have placed a 10-day cap and there was no notice 2. Thus, Carroll constitutionalizes Maryland state law in order to hand down an advisory opinion that tells the lower courts that this is an important doctrine and to enforce it as such (even though this is not technically an enforceable case on federal law) b. Sampson v. Murray i. Facts: dist. ct. grants TRO to enjoin employer from firing respondent; respondent claims that employer didn‘t follow proper procedure in firing her; appellate ct affirms ii. Holding: 1. TRO was indefinite and thus the Court treats it as a preliminary injunction iii. Note: 10-day rule applies only to ex parte TROs. Statute doesn‘t place a limit on contested TROs. 1. Issue: how long can a contested TRO last? iv. TROs and PIs 1. TROs, even when contested, are issued very quickly (an hour or less) while PI hearings can last for multiple days v. Why aren’t TROs appealable? 1. They are issued so quickly that there are no findings of fact or law that are reviewable vi. Granny Goose Case (n. 2, p. 470) 1. Suggests that you can either appeal the TRO or you can violate it 2. However, this case has been confined to its facts to try to limit it and make sense of it vii. Notes on this case 1. In order to not force the government to keep this employee, the Court states that there is no irreparable injury. However, the dissent makes the valid point that she in fact does have an irreparable injury (reputation tarnished, more likely that she Page 25 of 46 will not have income to pay creditors, etc.). Majority simply thinks that she is a bad employee on the merits. viii. 3 Possible options 1. If a contested TRO is less than 10 days, then it is ok 2. Granny Goose: you can violate the contested TRO if more than 10 days b/c it expires (probably not good case law) 3. Sampson: you can appeal a TRO if you can convert it into a PI ix. Issue: when does a TRO convert to a PI? 1. Very little guidance on this issue c. Stays i. You want the court to stay the injunction until the appeal process has run its course DECLARATORY RELIEF I. Declaratory Judgments Generally a. Similarity to preventative injunctions b. Nashville Railway v. Wallace i. Facts: appellant wants a declaratory judgment that the gas tax is unconstitutional ii. Issue: is there a case or controversy? iii. What do you have to prove in order to get a declaratory judgment? 1. Must prove your substantive case 2. Must show ripeness (i.e., real adversarial proceeding) 3. Note: no irreparable injury required iv. Note: declaratory judgment must be ripe but may have lesser standard for that than injunction v. Difference between injunction and declaratory judgment 1. Injunction: stop collecting tax 2. DJ: this tax is unconstitutional and, thus, unenforceable c. Uniform Declaratory Judgment Act. i. Note: declaratory judgments were created by statute ii. Statute embodies the elements iii. Seeks to fill in the gaps that are in legal and equitable remedies d. Cardinal Chemical i. Facts: uncertainty as to validity of patent; cardinal denies infringement and conunterclaims to get a DJ that patents are invalid ii. DJ can be used in context where govt. is not the defendant Page 26 of 46 iii. This case is another example of where the parties are both uncertain about an issue and need the court to resolve. This is why we have DJs iv. Insurance context: Insurance company needs to get a declaration of rights II. Quiet Title a. Newman Machine Co. v. Newman i. Facts: newman gifts shares to his kids with him as trustee; he sells shares (both his own and the trustee shares) back to corporation; newman‘s lawyers claim that he was defrauded in the sale; corporation sues to quiet title to the shares (i.e., to get court to declare their rights) ii. Why didn‘t newman sue? 1. B/c he has a weak case iii. Issue: can you get an action to quite title for personal property? iv. *Different Remedies 1. Legal remedies for real estate v. legal remedies for personality. v. There is no legal remedy for the corporation because they are in possession of the stock vi. *Equitable remedies for real estate (see notes after case) 1. sue to remove the cloud of title on your property vii. *Equitable remedies for either kind of property (see notes) viii. *Statutory remedies ix. This case illustrates that there are legal/equitable/ statutory remedies that you use to get DJ relief depending on your case and jurisdiction x. Note: declaratory relief is one of a set of restitutionary remedies. III. Reformation a. Hand v. Dayton-Hudson i. Facts: Hand intentionally changes K to make it look identical but changes a few key clauses; Ct. finds Hand guilty of fraud ii. Hand’s argument is that the court cannot reform the K 1. Reformation seeks to re-write the K in order to declare that the K means X even if it says Y. 2. Hand argues that he never agreed to waive his rights; there was no meeting of the minds iii. *Reformation v. Rescission 1. Hand wants rescission so that he can sue iv. Holding 1. The defrauded party can choose either reformation or rescission b. Other Declaratory Remedies at law i. Issue: if you bring a § 1983 civil rights claim and get a nominal judgment of $1, can you collect atty fees? Page 27 of 46 1. The S. Ct. hints that you can‘t 2. Solution: try to also get a DJ. Then you may be able to collect atty fees ii. Quo Warranto 1. determine right to hold public office or corporate franchise RESTITUTION: GENERALLY AND DISGORGING PROFITS I. Restitution (unjust enrichment) Generally a. Note: Both a substantive theory and a remedial theory (we‘ll focus on the latter). b. *4 Categories of cases where restitution is attractive i. *When there‘s no other cause of action (Neri) ii. *When defendant‘s gain exceeds plaintiff‘s loss (Olwell) iii. *When plaintiff wants to reverse the transaction rather than let it stand and measure either his loss or defendant‘s gain iv. *When defendant is insolvent and plaintiff can get a preference by seeking restitution of specific property that used to belong to plaintiff c. Note: Nichols likes to put Δ back in his rightful position because that doesn't appear punitive because we're just putting them back where they started from d. See examples under note 4, p. 566 i. These make up most restitution cases ii. Note: With restitution, we're normally talking about unjust enrichment or something that is not legally justified (transfer of money that I'm not legally entitled to or tortious action like copyright infringement). Or officious intermeddler iii. 6 examples 1. Mistake: D is enriched by mistake 2. Actual or supposed Ks: when K becomes unenforceable (due to SOF, etc.) and D is enriched 3. Judgments: when money is paid and judgment is subsequently reversed or vacated 4. Emergencies: 5. Joint obligations and the like: when one pays more than share of a joint obligation 6. Wrongful act: when D acquires benefit from P through unlawful act (theft, fraud, extortion, breach of fid. duty, etc.) II. Disgorging Profits a. Quasi-Contract - Olwell v. Nye & Nissan i. Issue: when can you recover more than what you lost? ii. *How do we measure damages? 1. *fair rental value of machine? Page 28 of 46 2. *Gain by defendant‘s use of the machine? 3. *something else? iii. When can you recover amount of defendant’s gain? iv. Holding: Court allows plaintiff to ―waive the tort‖ and sue under restitution v. 4 questions (use on exam) 1. What are P‘s damages? 2. Why should P get more than damages? 3. When should P get more? 4. If we measure by D‘s gain, how do we measure that amount? a. Total savings or rental value? vi. Court wants to award large, restitutionary award in unjust enrichment of $10/week that Δ gained 1. Measures it with Δ's gain in productivity by wrongfully using the egg washing machine vii. Here, we're going to let π get more than they lost. Why? 1. Efficient breach? 2. We don't like it though when you're consciously, willfully disregarding a contract. a. Looks like opportunistic behavior: entering K with no intention of ever doing it b. Looks more like fraud viii. Quasi-contract comes up here: "as if there were a contract" = contract implied in law 1. Can proceed under tort law with quasi-contract - if there had been a contract, how would we award damages? ix. Here, Δ acted wrongfully by bypassing contract formation in the first place so we don't want him to benefit from that wrongful action. x. Damage has already occurred. Remedy? 1. Damages in tort 2. Punitives in tort 3. Constructive trust to allow us to trace the proceeds of the items at issue a. Legal fiction xi. "Quasi-Contract"" 1. Way court goes back and says we'll pretend there's a contract because Δ has been bad enough ("enough conscious wrongdoing") so we'll allow π to recover more than he lost b. Accounting for Profits - Maier Brewing Co. v. Fleischmann Distilling Corp. i. Facts: π makes B&W label scotch, but Δ made B&W label beer. Court said π‘s trademark was deliberately infringed, that there was no direct competition between the 2 Page 29 of 46 products but consumers might believe that beer and scotch were produced by the same company. Court ordered accounting of profits ii. "Accounting for Profits" 1. What's left from gross proceeds of sale of the infringed product after overhead of that infringed product, but no deduction for general overhead expenses 2. Lanham Act - court can do accounting and then require disgorgement of profits in infringement and piracy cases iii. When should we award more than π has lost iv. You can buy a license to use another's name without using their trademark. c. Constructive Trust - Snepp v. United States: i. Facts: US sued former CIA agent who published book about activities in Vietnam without getting prepublication approval from CIA ii. Restitution and the First Amendment iii. Introduction to constructive trust 1. Differences from Accounting for Profits? 2. From Quasi-Contract? iv. Court didn't like the fact that he didn't get prepublication approval even though the book didn't contain any confidential or classified information. v. What did π gain by breaching the contract? 1. Nothing 2. But court will take away all his profits 3. There could have been confidential information involved so we're going to punish Snepp. vi. Assume that there is no classified information. Breach of fiduciary duty by not going through US with book before publication. 1. Violation of his legal trust bestowed by his position in the CIA 2. Higher obligation of taking care of people below him vii. Court seems to be saying that by not getting US to sign off on his book, it was never his book to start with so he doesn't get to have the profits. viii. A fiduciary has certain obligations. 1. Way to get restitution: legal fiction, argument to make to court, how court can package something: says court can act like this person is holding trust for someone else's benefit - whatever trustee does is for benefit of someone else. He was writing book for benefit of Government. So we can impose constructive trust on profits. ix. Accounting for profits is just a constructive trust minus the legal fiction of it 1. Works better in some areas than others d. *Measuring the profits / Apportionment i. Sheldon v. MGM Page 30 of 46 1. Facts: MGM uses Sheldon‘s play as a basis to make a movie and makes $587k 2. Holding: Court affirms the fixing of Sheldon‘s share of the net profits at one-fifth 3. *Apportionment (Factors of production) 4. Issue: What about deterrence? Shouldn‘t we award plaintiff all the net proceeds in order to deter further infringements? 5. Note: MGM presented experts that valued Sheldon‘s share of profits at 5 to 12 percent; Court affirms 20% desiring to give Sheldon the benefit of every doubt 6. Note: if we are going to err, err on the side of the plaintiff ii. Hamil America v. GFI 1. Facts: GFI used a fabric print of Hammil‘s 2. Issue: what expenses should be deducted from gross profits?; how much money should Hammil get? 3. Rule: Infringer‘s profits are calculated as the gross sales of infringing goods minus the cost that the infringer proves are attributable to the production and sale of those goods. 4. Issue: what costs are attributable to the production and sale of the infringing goods? 5. *Should overhead (fixed costs) be excluded from the disgorgement amount? 6. *Two step test (from Sheldon) - (1) Find a sufficient nexus for a category and (2) fairly allocate the overhead a. First step: determine what overhead expense categories are actually implicated by the production of the infringing product i. Rule: must show a sufficient nexus between a category of overhead and the production or sale of the infringing product b. Second step: Arrive at a fair, accurate, and practical method of allocating the implicated overhead to the infringement 7. Federal Tax Rule: Conscious wrongdoers don‘t get any credit for payment of taxes on profits that they disgorge a. Note: state practice vary 8. Note: Hamil is not a majority; rule varies among states III. Review of Restitution a. 4 kinds of cases i. When there‘s not other C of A (e.g., Neri) ii. When D‘s gain exceeds P‘s loss (Olwell, Maier Brewing, Snepp) iii. When P want to reverse the transaction rather than let it stand and measure either his loss or D‘s gain (Mutual Benefit Life) iv. When D is insolvent and P can get a preference by seeking restitution of specific property that used to belong to P. (Hicks; in re N. Am. Coin; in re Erie trust) b. Disgorgement: When to give P more than she lost? Page 31 of 46 i. That is, when do we force D to disgorge profits (thereby putting D back in her rightful position)? ii. Three fictions as subcategories of disgorgement a. Note: no hard and fast rule of when you apply each one; they just may be more appealing to a judge depending on the case b. Note: the latter two are equitable remedies (no jury) 2. Olwell – “Quasi-contract” a. Don‘t have to prove irreparable harm b. Courts may want to use this fiction because it doesn‘t look like an equitable remedy and thus force a jury trial. 3. Maier – “Accounting for Profits” a. Equitable remedy, thus no jury trial necessary; because it is equitable you must show irreparable harm b. Only amounts to a money judgment, don‘t get a preference in bankruptcy. 4. Snepp – “Constructive Trust” a. Equitable remedy, thus no jury trial necessary; because it is equitable you must show irreparable harm b. Difference from an accounting for profits: Constructive trust allows you to trace assets through and give you a preference in bankruptcy iii. Note: there is no good reason to choose one of these legal fictions over the other; they just seem to fit specific facts better than others. c. *CT and Acct for profits compared d. *Notes on irreparable injury, $$ not spent on safety, and disgorging in breach of K. RESTITUTION: RESCISSION I. II. Rescission: Plaintiff seeking to undo the transaction and measure damages by either P‘s loss or D‘s gain. Mutual Benefit Life Ins. Co. v. JMR a. Facts: JMR executive marks that he wasn‘t a smoker on his life ins policy; executive dies and Mutual has to pay the 250k; Mutual refuses alleging that it should be able to rescind the K b/c of the misrepresentation on the ins K. b. *P has a choice: Sue for damages or elect rescission and restitution i. Mutual chooses the latter ii. Note: on losing contracts you can often get more under a restitution cause of action c. Rule: even an innocent misrepresentation, if material, is sufficient to allow a party to avoid the K or defeat recovery thereunder. i. Def of materiality: a misrepresentation is ―material‖ if knowledge by the insurer of the facts misrepresented would have led to a refusal by the insurer to make such a contract. Page 32 of 46 d. JMR claims that Mutual would have insured the executive regardless of whether they knew he was smoker e. Holding: rescission is allowed; mutual doesn‘t have to pay i. ―That Mutual might not have refused the risk on any terms had it known the undisclosed facts is irrelevant.‖ ii. ―… a contrary result would reward the practice of misrepresenting facts [giving the] applicant everything to gain and nothing to lose.‖ f. *When should rescission and restitution be allowed? i. Some examples on n.9, p. 625 1. Fraud 2. Substantial breach of K 3. Mutual mistake of fact 4. Unilateral mistake 5. Duress III. Restitution and Contract a. Farash v. Sykes Datatronics, Inc. i. Facts: P and D entered into an oral K that D would lease P‘s building subject to P making renovations and modifications; P sues to enforce the oral lease and to recover the value of the work performed by P in reliance. 1. *P seeking to sue ―off‖ the contract – but no valid K ii. Holding: oral lease unenforceable b/c it violates the statute of frauds; reliance claim is enforceable. 1. D claims that he never received a benefit 2. Court holds that ―receipt‖ is a legal concept a. ―If what the P has done is part of the agreed exchange, it is deemed to be ‗received‘ by the defendant.‖ 3. *Court calls it restitution, but awards the equivalent of reliance damages iii. D’s argument: how can you get a reliance interest (an on the contract claim) when there is no valid K? iv. Question: *But can you have rescission and restitution if there is not a valid K? v. *Restitution: is there really a ―benefit‖ requirement? vi. Dissent: P must demonstrate that D was unjustly enriched by his efforts vii. Note 5, p. 634 1. ―The Farash majority is clear that it wants to compensate reliance and it says the explanation doesn‘t matter. That‘s a rule that New York lawyers can live with …‖ viii. See Table 6-1, p. 634 Enforceable K Page 33 of 46 Non-enforceable K Actual benefit Fictional benefit P may sue on K P may sue on K P may sue in restitution Farash ix. Question: *Is this reliance damages parading under a different name? x. What does this case do for us?: The interplay between K and restitution is a bit more complex then we want it to be; in these kinds of cases, the courts are a bit unsettled, they don‘t know exactly what to do. b. *Notes on election of remedies, p. 637 i. *Beware as a practitioner, don‘t commit malpractice ii. General rule: Plaintiff can select alternate theories for recovery; they can sue on or off the K RESTITUTION: CONSTRUCTIVE TRUSTS AND PREFERENCES I. Preferences and Tracing Generally a. Hicks v. Clayton i. Facts: Hicks sued Clayton (their former lawyer) for rescission, restitution, and constructive trust with respect to real property called Costebelle; Clayton swindled the Hicks out of Costebelle in exchange for worthless stock and his unsecured promissory note; Clayton fails to pay on his note and so Hicks is unable to pay the bank; IRS levies a lien on Costebelle for unpaid property taxes that Clayton should have paid; trial court denies rescission and restitution claims (equitable remedies) and instead awards money damages. ii. Appeals Court 1. Money damages (legal remedy) is inadequate because Clayton is insolvent; Hicks have the right to elect the kind of relief they seek; the Hicks should be returned to the position in which they stood before the execution of the original agreement. iii. *What to do when D is insolvent? iv. Basic premise of this case: trying to get our hands on the notion of constructive trust 1. D got property through wrongdoing so we will pretend like he is the trustee of the property and the Ps are the beneficiaries 2. Hypo: suppose D sold the property and invested the proceeds into securities a. Trace the money; look at it as if D invested the proceeds for the benefit of P; theory is that the money has always been P‘s, and D was acting as trustee. 3. Bankruptcy and tracing: who takes preference? a. Theory: the money was always the plaintiff‘s, it was just held in constructive trust by the defendant b. In re N. American Coin Page 34 of 46 i. Facts: NAC principals are faced with two options: dissolution or operate one more week in anticipation of a meeting of directors and stockholders; principals set up a trust account to place all receipts of new transactions during the week; plaintiffs sue for the money that is in the trust account. ii. Holding: no finding of fraud; we have identifiable property but no wrongdoing; they didn‘t really know whether or not they were going to dissolve iii. Rule: there must be identifiable property AND wrongdoing in order to impose a constructive trust iv. *Two elements of constructive trust 1. Identifiable property (Hicks v. Clayton); and 2. Wrongdoing (N. Am. Coin) v. Q: What‘s different about a defendant who has committed wrongdoing? vi. Note: according to this court, there must be more than concealment of insolvency 1. See n.5, p. 671 c. In re Erie Trust i. Facts: cash was taken from the estate of the decedent and given to Erie Trust Co., proceeds that the court held Erie was not entitled to; funds are commingled in the Erie trust ii. Issue: how can you trace the money when it is commingled? iii. Q: *What is a ―fund‖ for purpose of lowest intermediate balance (LIB) rule? iv. General direct tracing rule: must identify the trust res by tracing it into some specific funds or assets of the bank v. LIB Rule: the beneficiary is entitled to the lowest balance to which the commingled fund at any time became depleted, such minimal residue being considered sufficiently identified as constitution the trust fund. 1. Legal fiction: trustee is spending all the other money first; thus the money held in the constructive trust is left as the residual vi. Q: *Can fraud victims get in line ahead of other creditors? 1. *How far ahead? How much ahead? d. Q: *What does it mean for P to have a ―preference‖ under a CT? Preferred to whom? (e.g., Hicks) e. *Tracing Rules (mostly fictions) i. *Constructive Trust – Identifiable property and wrongdoing ii. *Commingling 1. *D spends own $$ first 2. *D invests P‘s $$ first 3. *Commingled funds present more problems than direct tracing (Erie Trust) iii. *Lowest intermediate balance rule 1. *Deposits are treated factually, not fictionally Page 35 of 46 2. Note: if D places his own money into the account and makes the account balance higher than the LIB, this will not be considered P‘s money even if the LIB is lower than P‘s original amount of money. Although the amount over the LIB is not considered P‘s, he still may have a claim on that money, but not a preference. iv. *P can use tracing rules to her benefit 1. See hypo under 6-3 v. *Can P get more than she lost if D is insolvent? 1. Usually the answer is no. P usually must get in line with other creditors 2. If D is solvent, then you can trace to your heart‘s content. f. Tracing i. Note 4, p. 670 1. Why do victims of fraud have a preference over other creditors? a. Fraud victims didn‘t assume the risk of default ii. Tracing Problems p. 682-83 1. Problem 6-1 a. Because of direct tracing, Mom gets $3,000 or its equivalent; Mom has a constructive trust claim on the Apple stock; no commingling here, so direct tracing only; Mom is out $3k; note that Mom still can go to court and get a money judgment for the $3k she is out, but also note that she doesn‘t have a preference on this money judgment b. Hypo: assume that the Apple stock went up to $9k. Courts don‘t want to give Mom a windfall. She will get her $6k back and the $3k will go to the other creditors 2. Problem 6-2 (number reflect cash in account) a. S = 10k; M = 3k b. S = 0k; M = 1k c. S = 4k; M = 1k d. S = 4k; M = 6k e. S = 2k; M = 0k (Mom owns ¾ of the casino stock) f. S = 0k; M = 0k (M still owns ¾ of stock) g. M owns $9k worth of stock but her claim is going to be capped off at $8k because this is her actual loss 3. Problem 6-3 a. b. S = 10k; M = 6k c. S = 10; M = 0 (presumption is that plaintiff‘s money is invested first; M owns 6k in stock) d. S = 2k; M = 0 e. Mom‘s stock is now worth $3k Page 36 of 46 i. Hypo: M can elect to assume that S invested 2/3 of her money in the stock leaving her with $2k of cash; S spends his remaining $8k; M‘s stock drops to $2k in value and she still has $2k in cash for a total of $4k ii. Question: how can you characterize it so that M will get the most amount of money II. Tracing and 3rd Parties a. Rogers v. Rogers i. Facts: Pursuant to a separation agreement, Husband promises to name Wife and Kids as beneficiaries to 15k in life insurance; H lets policy lapse and gets a new policy worth 15k but names his new wife as beneficiary; H dies and new Wife collects insurance proceeds; W sues in restitution for the 15k ii. Holding: the court relaxes the tracing requirement because the 1st wife‘s equity argument is stronger than 2nd wife‘s equity argument iii. Q: *When may P trace assets into the hands of 3rd parties? 1. *Bona fide purchasers (BFPs) trump P a. Here, the court characterizes wife 2 as a donee and not as a BFP iv. Q: *Why relax the tracing rules here? v. Notes 1. For discussion of BFPs see n. 5, p. 687-88 2. Fraudulent transfers: see notes p. 689 b. Fraudulent Transfer Law i. Fraudulent transfers include: when an insolvent debtor gives away property or sells for less than reasonable equivalent value; when there is actual intent to hinder creditors ii. Recovery: creditors can undo a fraudulent transfer and recover the property from the 3rd party iii. Limits: doesn‘t cover gifts or sales for inadequate value unless at time of transfer, it was foreseeable that D would become insolvent; creditors can only recover the amount of their loss (CT allows them to claim more valuable assets acquired with their property) iv. Advantages: doesn‘t require P to trace specific property she lost, she can get a $$ judgment III. Equitable Liens a. Robinson v. Robinson i. Facts: Ann and Wylie build house on in-laws land; ii. Issue: does Ann have a claim on the house? If so, why? iii. Note: in-laws never asked for the house to be built but they never prohibited the house from being built. iv. Q: *Why favor Ann instead of the in-laws? v. *“Mistaken improvers” vi. *Compare equitable liens with constructive trusts Page 37 of 46 1. *Why would you want one over the other? 2. *Why/when would a court award one over the other? 3. Equitable lien is a security interest; you must foreclose on that interest and then collect money. A constructive trust means that you actually own something. a. In this case, we can‘t say that Ann actually owns something but she does have an interest in something 4. Equitable lien: simply for the value of your loss (if property value goes down, you may still be able to collect the value of your loss); constructive trust: an interest in the actual property or money (if property value goes up, you benefit) PUNITIVE REMEDIES I. Punitive Remedies: Common Law a. Issue: why, how much, and when can plaintiff recover more than her loss. b. Grimshaw v. Ford i. Facts: Ford produced the Pinto with a faulty design that it failed to correct. ii. Q: *Why compensate P more than she lost in compensatory damages? iii. Q: *When to do so? 1. *Factors to weigh … iv. *Common law factors (p. 725) 1. Reprehensibility, wealth of D, amount of compensatory damages (proportionality), amount needed to deter 2. Maybe others: (state interest, profitability of the conduct, civil penalties, procedure (e.g., jury instructions)) II. Punitive Remedies: Constitutional Limits a. State Farm v. Campbell i. *Predecessors (Haslip, TXO, BMW v. Gore) ii. *“Guideposts” 1. Q: *What does this mean for a federal court to review state punitive awards? 2. 3 Guideposts from BMW a. Reprehensibility b. Ratio between compensatory and punitive damages (limit seems to be at single digits, i.e., 1:9) c. Civil and criminal penalties iii. How does the Court get involved?: procedurally through due process arguments iv. Facts: jury awards $2.6 in compensatory and $145 in punitive damages; trial court reduces to $1 and $25 million; Utah supreme court reinstates the $125 million. v. Majority holding: punitive damages were reduced because a State does not have a legitimate concern in imposing punitive damages to punish a defendant for unlawful acts Page 38 of 46 committed outside of the State‘s jurisdiction; must be a nexus between the out of state conduct and the in state injury vi. What about the factors in the state case? 1. On exam, use both the S. Ct. factors/constitutional concerns and the state factors b. Q: *How do the con law limits interact with the common law limits? III. Punitive Damages: Contract a. *General rule: punitive damages not allowed for breach of contract b. Formosa Plastics i. *“Independent Tort” requirement ii. Facts: Formosa intentionally misrepresented the schedule of their construction project; Presidio submitted a bid based on the representations of Formosa; project ended up having substantial delays; Presidio incurred extra costs due to the delays. iii. Issue: why is this not a simple breach of contract claim and, thus, unavailable for punitive damages? 1. Formosa was fraudulent in making intentional misrepresentations prior to the making of the K iv. Q: Court says you need an independent tort. What is an independent tort? 1. How independent is this fraud here in this case? 2. Why is this tort not too closely related? 3. Court says that this is sufficiently independent in order to allow the plaintiff to pick between tort and contract. v. Basic rule from this case: if you make representations prior to contracting that you know you can‘t keep and you know that you will breach, this can give rise to a separate tort cause of action and may be subject to punitive damages. 1. Note: there is no fraud claim if the parties do not enter into a K. So how is this an independent tort? vi. Note: You may be able to get punitives if you sue off the contract and find an independent tort to sue under. vii. Here the court looks at the source of duty and source of remedy viii. Q: *So can you have punitive damages in contractual relationships, but not in contract actions? 1. Which contractual relationships are fair game for punitives, then? ix. Note: In order to get punitives, look for other alternative theories to sue under: tortuous interference with K, conversion, etc. 1. Note: you must also prove that there was an intentional fraud. ANCILLARY REMEDIES I. Enforcing the Judgment: Contempt Page 39 of 46 a. Ancillary remedies: the batch of remedies that help join with other general remedies. b. Q: If other parties violates injunction, how do you get a contempt order? i. Ask court to give you a show cause order. This forces the other party an opportunity to give reason for its violation of the injunction c. Three kinds of contempt: i. Criminal contempt: 1. must prove that they are in contempt beyond a reasonable doubt 2. right to jury if more than a petty offense (6 months or more sentence) 3. must have willful violation of an injunction 4. fines are payable to the government 5. purpose is to punish wrongdoer for past violations 6. Fixed fines or jail times? 7. Collateral Bar Rule Applies: if the judge issues an unconstitutional injunction, you still must comply. If you don‘t comply, you can be held in criminal contempt; you must respect the authority of the court. 8. Prosecutor brings the action ii. Compensatory civil contempt 1. Compensating the plaintiff for harm that plaintiff incurred by defendant‘s breach of the injunction or forcing disgorgement to the plaintiff if defendant gained by breaching the injunction 2. Purpose: to provide the plaintiff with compensation 3. Standard: clear and convincing evidence 4. No right to a jury trial 5. Note: CA rejects compensatory civil contempt; thus you have to bring a damages action for the harm that was incurred by defendant‘s breach 6. Only sanction is for cash, no jail time 7. Collateral bar rule does not apply 8. Civil plaintiff gets to pursue the action iii. Coercive civil contempt 1. Point is to force future compliance by the defendant 2. Sanctions: by jail time or by money 3. Sanctions must be conditional (i.e., D holds the keys) 4. Issue: when does coercive civil contempt turn into criminal contempt 5. Tends to be enforced by plaintiff‘s lawyer (if not it tends to look like criminal contempt) 6. Fines are payable to the government b/c it is viewed as a violation of the court‘s authority (trying to make defendant obey not trying to compensate the plaintiff) 7. Amount of fines: take into account the wealth of the defendant Page 40 of 46 d. Int’l Union, UMW v. Bagwell i. Facts: injunction prohibited union from conducting protests while on strike; court found 72 violations of the injunction and levied $64 million in fines, $12 million of which was payable to the companies with remaining $52 million payable to the commonwealth; union and companies settle and agreed to vacate the contempt fines and jointly moved to dismiss the case ii. Supreme court of Virginia: refused to vacate $52 million in fines stating that they were intended to coerce compliance and could be avoided through obedience. iii. Issue: are the contempt fines coercive civil or criminal sanctions and thus entitled to full criminal process (i.e., jury trial)? iv. Holding 1. These fines are more akin to fixed, determinate, retrospective criminal fines which petitioners had no opportunity to purge once imposed. 2. Petitioners were entitled to a criminal jury trial. v. Note: these fines were payable to the commonwealth, not the plaintiffs vi. Key to coercive civil contempt orders: defendant ―holds the keys‖ to freeing himself from jail or from the fines II. Enforcing the Judgment: Collection a. *How do you satisfy a judgment? i. *That is, how do you get $$ for your client? b. Credit Bureau v. Moninger i. Facts: Bank failed to perfect its security interest before Bureau made a valid levy; court held that the levy was valid and therefore Bureau had priority ii. *Execution and “levying” on property 1. *Note: most states require as much actual possession as possible; this is a minority case iii. *Priority and Exemptions c. Mechanics of execution i. Steps 1. Get a judgment 2. Get a writ of execution 3. Take the writ to the sheriff and tell him when and where defendant has assets that may be levied. a. Majority: must do something to take actual possession of the truck (size it, place a boot on the car, etc.). ii. Order of proceeds of sheriff’s sale 1. Pay sheriff for services 2. Pay creditors that have priority (via liens, etc.) d. Garnishment: Dixie Nat’l Bank v. Chase Page 41 of 46 i. Facts: Bank garnished one bank account but failed to take the same action with reference to the omitted bank account. ii. *Garnishment 1. *Get the right account iii. Gist: This case illustrates that the garnishee can incur double liability or worse if it ignores or mishandles the garnishment. In many states, a garnishee who fails to answer at all becomes liable for the entire judgment against the judgment debtor—$48k in Dixie Bank (even if the bank, for example, does not have that much money in the debtor‘s account) e. Attachment i. City of New York v. Citisource 1. Standard: *State standards vary, but most require P to show D disposing of property with wrongful intent 2. *Cf. preliminary injunctions and bonds 3. Definition: Attachment generally refers to a levy or garnishment before judgment. 4. Facts: defendants are found guilty of bribery under RICO laws; one defendant inquires about withdrawing money from his bank, the other attempted to transfer treasury bills to himself. 5. Rule: Under §6201(3), the plaintiff must show that defendant has or is about to dispose of property with the intent to defraud creditors or frustrate the enforcement of a judgment 6. Note: State standards vary, but most require D to show D disposing of property with wrongful intent ii. Other devices 1. Freeze orders a. Get an injunction that says that D can‘t sell or dispose of property b. An attachment is actually a lien that says that you actually have a property interest in the property so that you may be protected if they go into bankruptcy c. Freeze orders are judge made 2. Receivership a. Third party comes in and runs the company in order to ensure that there is still money left III. Attorney’s Fees/Litigation Expenses a. City of Riverside v. Rivera i. *“Lodestar” 1. *Number of hours reasonably expended times reasonable hourly rate ii. §1988 allows for reasonable attorney‘s fees iii. Q: Are these fees reasonable? Page 42 of 46 1. 33k judgment, 276k in fees iv. *“American Rule” 1. Cf. one-way fee shifting (D pays P‘s fees if P wins but not the other way around) a. Is that a better option some (all?) of the time? v. Q: Are you a prevailing party if you win only 1 out of 10 claims? 1. Can you collect fees with respect to only the one claim you won on? a. Rule seems to be that you can collect on all related claims, even if you don‘t win on all of them. vi. Exceptions to the American rule 1. See p. 913 vii. Note: don‘t get costs and fees confused. Costs are thing such as filing fees; fees are those associated with attorney‘s billing hours. 1. Fed. Rule 54(d) – loosing party shall pay costs REMEDIAL DEFENSES I. In pari delicto and unclean hands a. Legal and equitable defenses b. IPD – legal; unclean hands – equity (has bled into law at times) c. Pinter v. Dahl i. Facts: D sues P for rescission b/c P failed to register securities under ‘33 Act; P claims on in pari delicto defense alleging that D was also at fault ii. In pari delicto – in law only 1. Companion to unclean hands 2. IPD can apply in a legal action; unclean hands only in an equitable action iii. Q: Does IPD interfere with the effective enforcement of the securities laws and protection of the investing public? iv. Q: If both parties are engaged in illegal activity and IPD precludes an action by P, doesn‘t D get a windfall? 1. Yes, IPD lets things fall where they may v. Note: unclean hands is more common and applied much more broadly II. Unconscionability and Equitable K Defenses a. Armendariz i. Substantive and procedural aspects – must have both for court to refuse to enforce ii. Balancing iii. Procedural Element: focuses on oppression or surprise due to unequal bargaining power iv. Substantive Element: focuses on overly harsh or one-sided results Page 43 of 46 b. Cf. fraud (legal or equitable) c. Note: Unconscionability is an equitable defense (but has leaked into legal actions) d. Other defenses i. Undue Burden (equitable) ii. Frustration/impracticability (legal or equitable) III. Estoppel and Waiver a. Legal or equitable defenses b. Geddes v. Mill Creek Country Club i. Facts: too many golf balls ii. Estoppel Elements: act, reliance, injury, (and sometimes knowledge of the same) c. USFG v. Bimco i. Waiver: intentional relinquishment of a known legal right 1. How intentional must it be? Must there be reliance? ii. Q: Are waiver and estoppel two sides of the same coin? IV. Laches a. NAACP v. NAACP LDF i. Facts: NAACP created LDF for tax purposes and let LDF use the NAACP letters; over the years, NAACP and LDF begin to separate into two separate entities; NAACP asks LDF to stop using ―NAACP‖; from ‘66 to ‘78, NAACP doesn‘t do anything ii. Delay in bringing an action 1. was it ―unreasonable‖? 2. How long is too long? iii. Note: In some cases, laches applies even if P is unaware of their claim (cf. w/ statute of limitation) 1. Why: we want to limit prejudice of D a. Loss of evidence b. Loss of witness c. Reliance on the fact that P doesn‘t bring suit (note that this looks like estoppel) iv. What kind of prejudice is necessary? 1. Reliance (always?)? 2. Will other kinds suffice? v. Laches – equitable defense only 1. How does it intersect with SOL? vi. Laches Definition: unreasonable delay resulting in prejudice to D 1. How does laches intersect with statutes of limitations? Page 44 of 46 a. SOLs apply to cases that are legislatively created; laches will also apply to that same case under an equity theory b. Laches is the equivalent of SOL in equity cases vii. Relationship of laches/estoppel/waiver 1. Laches – time is emphasized 2. Estoppel – looks more like reliance; focuses on conduct that is misleading 3. Waiver emphasizes intentional conduct; intentionally giving up rights viii. SOL is a legal defense (generally). Laches is an equitable defense 1. Note: if case is both legal and equitable SOL can cut off claim before laches applies V. Statutes of Limitations a. Legal or equitable b. Q: Why have such cut and dry rules? i. Don‘t they cut off some legitimate claims? ii. When does the SOL begin to run? c. Obrien v. Eli Lilly i. “Discovery Rule” (subset of fraudulent concealment) ii. Facts: daughter has cancer; sees article about DES; finds out her mom took DES while pregnant with her; drug company claims that her SOL has run; P reads article in ‘76 and doesn‘t bring claim until ‗79 iii. D argues that she had all the facts in ‘76 and didn‘t learn anything new in the interim iv. Equitable tolling: when should the SOL run? v. Issue: when did P know or should have known about her claim? 1. P is held to the diligence standard of a reasonable person vi. Note: SOL won‘t begin to run on a claim until P reaches 18 years of age (SOLs don‘t run on minors) d. Knaysi v. Robins i. Fraudulent concealment 1. Must prove all elements of discovery rule as well as concealment 2. ―I would have discovered it except for the fact that the defendant concealed it from me.‖ ii. Issue: did the defendant fraudulently conceal that the product was dangerous? e. Continuing Harm vs. Continuing Violation i. Continuing Violation: SOL resets at each violation ii. Continuing Harm: when there is a continuing harm coming from a single violation, the SOL runs from the time of that single violation Page 45 of 46 EQUITY VS. LAW I. Right to Jury Trial a. 7th Amendment: ―In suits at CL, where the value of controversy shall exceed $20, the right of jury trial shall be preserved ….‖ i. What does preserved mean: court must look to history in order to determine what is equity and what is legal b. See handout: categories of legal and equitable remedies c. Chauffeurs Local No. 391 v. Terry i. Facts: 1. Two Fold Test: (1) look to the nature of the action and (2) look at the nature of the remedy 2. Holding: majority finds the first issue in equipoise and moves on to the next part of the test; they find that because the remedy was for back pay, it was a legal remedy and therefore the respondents are entitled to a jury trial ii. Q: Why does the law/equity distinction matter anymore? 1. State courts; jury trial; available defenses (and sometimes claims) d. Mixed Cases i. Beacon/Dairy Queen/Ross: when law and equity are mixed, a party cannot deprive another party of his right to a jury simply by bringing the equity portion first. e. Agency Actions i. Atlas Roofing: agency actions are just that, they are not trials. Therefore, there is no right to a jury trial. Note: you can‘t just characterize a case as an agency action to avoid a jury trial Page 46 of 46