Remedies Outline

Remedies Outline LEGAL REMEDIES 1. Rightful Position in Tort and Contract a. Goal: To put the plaintiff back in their rightful position. i. Tort Remedies: Look backward; try to put humpty dumpy back together again. ii. Contract: looks forward; tries to put the plaintiff in the position as if the contract had been fully performed. b. Why are we focused on the “rightful position”? (2 schools of thought) i. Corrective Justice (P. 17, n.5) – associated with a moral view trying to reach basic fairness between parties. ii. Economic Efficiency Analysis (17, n.6) – focused n saying that everything can be explained in law through economic efficiency. We should look for productive or useful behavior. Costly behavior should be discouraged and beneficial behavior should be rewarded. c. Types of Damages i. Compensatory Damages in Tort : Putting P is his rightful position 1. Methods: a. FMV – fair market value of chattel or property at the time of loss i. If property is taken by the government or a tortfeasor we will award FMV. ii. If property or a chattel is taken, we will award FMV. iii. If tortfeasor destroys property you are entitled the FMV not what it cost use to make chattel. iv. Cost to repair – we will allow D to pay which ever is less between FMV and cost to repair. v. For farm crops the damages are measured at the time of harvest. b. Diminution in Value -c. Loss of Use – cannot be general; must be specific to what their use was worth i. 3 ways to measure: 1. Cost of renting or replacement 2. Lost profits or earnings a. Used in business context where lost use leads to lost profits. Subject to rule of consequences. i. Must act reasonably to mitigate (i.e. I am driving my flower truck. Someone hits me. I have a duty to try and still deliver the flowers. If I cannot the damages could be the lost profits from the sale of the flowers.) 3. Interest on market value of the property d. Emotional Distress – No recovery for property loss ii. Compensatory Damages in Contract: Placing P in the position as if the K had been fully performed 1. Methods a. Reliance Interest ( Rest. § 347) -- Basically this is reliance damages incurred as a result of the K i. Allows recovery for out of pocket losses that were incurred in reliance of the K. 1. Includes expenditures made in preparation for performance or in performance. b. Expectancy Interest 1 – P recovers for loss of the benefit of the bargain 2 i. If the case involves tort and contract you can get expectancy damages. (usually cannot get expectancy damages in tort action). 3 ii. Lost Volume seller: if P had an unlimited number of chattels D is responsible for the lost profits; if the good was unique D would only be responsible for the difference between the K price and how much the good was sold for. c. Restitution Interest – puts the P in the position as if they K had never been entered in to. i. P gets to recover for gains or benefits received by D as a result of the K where D would be unjustly enriched. 4 iii. Consequential Damages 1. Contract a. General Damages – benefit of bargain. Value always determined at time of K; value of express promise i. Sales of Goods: 1. Buyer: Difference between contract price and the market price 2. Seller: Difference between K price and price of resale. ii. Other types: look at price or value for performance. b. Consequential Damages (UCC § 2-715) – special damages that the breaching party had reason to know would incur. Things that happen as a consequence of the initial loss. 1 Neri v. Retail Marine Corp. Facts: P agreed to buy a boat from D. D order boat from factory. Prior to picking the boat up P breeched. The agreed upon price was 12K. D was able to later sell the boat to another buyer. D incurred 675$ in storage costs as a result of P breech. D would not give back P deposit of 4K. the potential profit for D was 2579K. Trial Court awards P down payment back minus 3253$ (which is the lost profit and costs). Reasoning: Expectancy damages – D expected to make a 2500 profit. D was also a Lost Volume Seller. He had an unlimited supply of boats. Reliance Damages – This would be the 675$. Court added in this case reliance and expectancy costs. Restitution damages – focusing on what the D gained. P gets restitution because even with its expectancy and reliance damaged D is getting too good of deal. He gets his down payment back minus expectancy and reliance costs. 2 Chatlos Systems, Inc v. National Cash Register Corp. Facts: P bought a computer for several times what the computer was worth and D promised that it could due several times the worth for what he bought it for. D promised a 200$ dollar worth computer. P got a 6$ computer. Damages are what P promised. The correct measure of damages is the difference between the FMV of the goods accepted and the value they would have had if they had been warranted. This is a contract case. 3 Smith v. Bolles (minority) D sold stock to P for only a 1$ claiming that it would be worth 10$ a share. The stock was valueless. P argued that he should get compensated for the projected 10$ a share. Court held that this was wrong. You only get what you put in; in this case 1$ per share. This is a tort case where you are trying to put the P in the position before the tort. Majority: if the case involves tort and contract you can get expectancy damages. If a P’s lawyer finds breach of contract action where they claim fraud as well, they very often will because they will get damages including pain and suffering, punitive among expectancy and reliance. 4 See Nehri v. Retail Marine c. Incidental Damages – reasonably expenses related to the breech including commercial reasonably charges, expenses relating to recover or resale, etc. i. i.e. Having to store a boat. ii. Reasonable rejection or stopping of goods d. Special Damages – Contract context: economic loss caused by breeching in question. Proximately resulted but not always the immediate result. 5 i. These are damages that are not discussed by contemplated. 1. Usually lost profits will not be recoverable unless contemplated. 2. Included consequential and special damages. ii. UCC § 2-715 : sellers of goods are only liable for consequential damages they had reason to know of at the time of contracting. iii. The damages for withholding money is interest. e. Waiver of Consequential Damages 6 i. You can waive CD but there are limitations UCC 2-719 – says a fair quantum of remedies must be retained. You can limit CD in you K but you have to leave some remedies left. 2. Tort a. General Damages –this includes pain and suffering b. Special Damages – out of pocket expenses i. i.e. medical bills iv. Limits on the Basic Principal 1. Liquidated Damages – Damages provided as a set some in the contract. To be enforceable modernly they must be reasonable in light of: a. The anticipated actual loss caused by the breach i. Cannot have a K where actual damages would be 5K and you set LD at 500K. b. The difficulties of the proof of loss i. Rest. 2 nd of Contract § 356 c. Under UCC – The inconvenience or non-feasibility of obtaining an adequate remedy. 2. Liquidated Damages 5 Buck v. Morrow Facts: P contracted to lease a pasture for cattle from the D for 5 years. In the contract there was a provision that if the D sold the land after the 2nd year he would pay for P’s damages. D did sell. Both parties looked for a substitute pasture to no avail for some time. P was forced to put cattle in a community pasture for 5 months. He had to hire a worker for 1.50$ a day and lost several cattle. Trial Court held that the damages for the worker and lost cattle were not recoverable. S.C. reversed. Reasoning: General damages would be the difference between the costs of renting the first pasture between the costs of the second pasture. Special Damages: damages had to be the proximate cause of the breech. If they are closely enough connected then they are allowed. 6 Kearney v. Master -- Facts: D made a complex computer controlled machine tool. P was a sophisticated machine manufacture and purchased a tool from D. The K disclaimed all consequential damages. They did say they would repair and replace. P had many problems. D always repaired in a reasonable time but claimed it was P’s fault for bad usage. AT trial the jury was told it could award consequential damages and did. NJ S.C. rejected and reversed and said you cannot award consequential damages. Issue: Is the exclusion of consequential voidable when other remedies did not fulfill their purpose? Reasoning: You can waive CD but there are limitations UCC 2-719 – says a fair quantum of remedies must be retained. You can limit CD in you K but you have to leave some remedies left. So if the repair and replace provision as here fails what then? Court hold that exclusion of CD clause is still valid. They argue that there is a policy for being able to exclude consequential damages. Why – courts do not really like CD because they are speculative and damages can be very high. Courts want to create certainty. a. Common Law – LD clauses were enforceable if: i. Damages from breach were difficult to ascertain at the time of contracting and; ii. The amount was reasonable estimate of losses b. Modern (Rest § 356) – LD are allowed only if they are reasonable in estimate of actual loss. i. Overly burdensome amounts will be void duet to PP. ii. Requirements 1. Proof of loss and 2. Actual loss caused by breach. c. Limitations i. Cannot be overly burdensome ii. If the liquidated damages are to high they will be looked at as a penalty. 7 1. Look for connection between LD/penalty and loss. If no connection exists or loss exists, it most likely is a penalty. a. Key: Is there a connection between the charge and the damages suffered. iii. UCC § 2-719 – If you have a LD in the K you are stuck with it. 1. You cannot sue for other damages. 3. Waiver a. You can waive consequential damages in a K but a fair quantum of remedies must be retained. If not remedies are allowed then the K is voidable.8 i. Commercial K almost always include these provisions 4. It is very difficult to waive your CD in tort cases. v. Limitations on Recovery of Damages 1. Avoidable Consequences a. Avoidable Consequences Rule (Duty to mitigate): P can only recover losses that they could not have avoided by making reasonable efforts to minimize the losses. i. All that is needed is a reasonable effort. 7 Farmers Export v. M/V George Paris (p.86, n.5) Facts: P owned grain elevator and had a LD with all ships that stayed past when they were asked to leave. The agreement said that once the 5K penalty began it would continue to run regardless of you excuse. D workers went on strike for 28 hours while the ship was in the elevator. P tried to charge D with a large penalty. D argued that this was a penalty and was punitive; does not have a sufficient close relationship to the action. Why do we care if it is a penalty 8 Kearney v. Master Facts: D made a complex computer controlled machine tool. P was a sophisticated machine manufacture and purchased a tool from D. The K disclaimed all consequential damages. They did say they would repair and replace. P had many problems. D always repaired in a reasonable time but claimed it was P’s fault for bad usage. AT trial the jury was told it could award consequential damages and did. NJ S.C. rejected and reversed and said you cannot award consequential damages. Issue: Is the exclusion of consequential voidable when other remedies did not fulfill their purpose? Reasoning: You can waive CD but there are limitations UCC 2-719 – says a fair quantum of remedies must be retained. You can limit CD in you K but you have to leave some remedies left. So if the repair and replace provision as here fails what then? Court hold that exclusion of CD clause is still valid. They argue that there is a policy for being able to exclude consequential damages. Why – courts do not really like CD because they are speculative and damages can be very high. Courts want to create certainty. ii. Look for reasonable way in non negligence tort and in K to mitigate. b. UCC impose duty in K, to try and substitute performance, buy or sell else where** c. If P makes expenditure to avoid loss he can also recover this from the D even if the attempt does not work. ** d. In contract actions P are not required to travel a long distance, take work outside their field or accept a job that is significantly inferior. e. AC comes after the harm is done (not during or before)* f. D bears the burden of showing that P did not try to mitigate. i. P must show his decision was reasonable under the circumstances. 9 g. Note: AC is something that occurs after the harm, not before or during the harm. 2. Off Setting Benefits Rule a. P damages are reduced to the extent that the receive a benefit from the D i. The fact that someone remarries is no admissible. ii. i.e. P sues D for lost wages. If P gets another job D damages are reduced because of the offsetting job. 1. Really try an search for some benefit to the P. 10 b. Collateral Source Exception -- A p who is injured by the D and received compensation for those damages by a third party not related to the D still gets damages from P. 11 3. Causation (Proximate Cause) a. We will only allow you to recover if there is cause in fact and proximate cause12 i. Cause in Fact 1. Usually use the ―but for test‖. S.J. Groves & Sons Co. v. Warner Co. Facts: P is a subcontractor. D was hired by P to supply concrete. He acts in bad faith by not delivering concrete and making promises they cannot keep. In the process of construction another concrete Co became certified and P could have switched over. P stuck with D. When P sued the D said you did not mitigate damages properly. They tried to use avoidable consequences rule to prevent P from collecting all of the damages. D tried to argue that they should have mitigated their damages. TC sided with D. AC said no. These were not avoidable consequences. Reasoning: Why did the court say they could get full damages when they could have gone with the other company? It was messy plan. Trap rock was also supplied by D. It is difficult to look in hind site to what was the best choice. As long as it is reasonable it is difficult to argue that they should have mitigated damages by taking another option. When there is uncertainty as to whether the P could have avoided consequences the D bears the burden of that uncertainty. In other words the doctrine of AC is treated as an affirmative defense. 10 i.e. Defamation case where P argued he lost his job but D argues he got more publicity for the notoriety and was abel to make money lecturing. 11 Helfend v. Southern CA Rapid Transit District Facts: P was injured by the operation of one of D’ buses. P had insurance and some of his medical bills were paid. D tried to argue that his damages should be off set because the P losses were covered. TC disallows the evidence on basis of CS rule. CA Supreme Court affirms. 12 Pruitt v. Allied Chemical Corp. Facts: D polluted the bay. P brought suit in tort because they were dependant upon the waters. There were several categories: fisherman, seafood dealers and restaurants, tackle shop owners and people who sell good to fish. All categories will loose money as a result of the pollution. The fight is over which group is to remote. The court holds that the people directly working in the waters and the tackle owners can recover. Reasoning: The court spends a lot of time on why you need to limit liability. Why? We do not want to open the floodgates of litigation. Note: Laycock suggests drawing the line at bankruptcy? Would not be very efficient because we would have a lot of bankruptcy. Key: There will be some limitation to foreseability. Argue for the policy analysis. 9 2. Substantial factor test ii. Proximate Cause 1. This is so different from cause in fact. It is purely a policy question. a. Does it make sense to impose liability this far. i. Cause in fact is purely scientific analysis. 2. We are saying that at some point even if there is a cause in fact, it is not good to extend liability beyond a certain point. 3. All you need is 1 CIF and 1 PC. 4. We do not want duplicative payments. b. Economic Harm Rule: P cannot recover for a purely economic harm in tort unless if P also suffers physical or psychological injury to person or property. c. Damage to Property itself i. 3 approaches: 1. There is no tort liability if the product causes only economic harm including harm to itself (Majority) a. i.e. I have a milk truck and there is something wrong. Truck breaks down. The defect only causes harm to the product. The general rule would be no economic harm associated with the truck. b. Rationale: Drown in a sea of tort. 2. Tort liability applies even if the harm is only to the product itself (minority) 3. Tort Liability applies where only harm to product itself BUT only if there is a significant danger of personal injury (minority) 4. Reasonable Certainty Requirement a. Courts require more certainty in consequential damage cases. i. Lost profits – most difficult to ascertain. 1. 2 approaches a. Time Comparison Approach: p shows evidence of what it make before the wrong and what it made after the wrong. i. D will try to rebut by showing other reasons why profit went down. b. Similar Entity Approach: comparable entity that did not suffer the tort and what its profits were. i. D will counter by trying to show other factors. ii. When damages cannot be proven with precision because of D wrong doing, juries are allowed to make a reasonable estimate of damages iii. New business: old rule was that you could calculate damages; new rule takes them on an ad hoc basis. 5. Substantive Policy Limitations a. Generally: In rare cases we will decide that awarding damages in inconsistent with the policy behind the law being enforced. 13 i. Even if damages are otherwise appropriate courts will not allow damages. vi. Valuing Personal Injury 1. Per Diem Arguments a. P lawyer will argue to try and persuade the jury to think in terms of increments. b. Pro i. Gives jury a frame of reference ii. Jury usually not accustomed to dealing with large numbers. c. Con i. Speculative ii. Give an illusion of certainty in an area that is objective. iii. Misleading. iv. Tolerance from pain increases all the time. d. If the amount is ridiculously high, you could loose credibility. e. The D can loose low numbers also. f. Jurisdictions are split whether they will allow them. g. CA says you can tell the jury a number in pain and suffering even though it might be abstract and arbitrary. i. Not evidence but argument. To high it could work against you. h. Golden rule Argument: Do unto others as they would do to you --- Can’t use it. i. Cost to hire someone to suffer the injury argument i. What could you pay someone to take on the injury. ii. Can’t use this argument 2. Wrongful death a. Involves whole set of rules set up by statute. b. Survival i. Deceased victim’s claim. 1. basically become accident in the estate. 2. Action does not even have to relate to death. ii. You get decedent’s own pain and suffering before they died iii. Decedents lost wages before death (not life expectancy) iv. Medical expenses and funeral expenses v. If decedent settles claim before death, that eliminates both his estates survival action and his relatives wrongful death action. c. Wrongful death 13 Brunswick Corp. v. Pueblo Bowl Facts: D was a bowling supplies company. D owned several bowling lanes in a city. Other bowling lanes went under. D bought them. P sued them because they were a big company and alleged they were violating antitrust laws. The trial court awarded P treble damages because the acquisition by D caused P to loose money. Decision/Reasoning: What was important in this case was that the court held that even though the D’s activity violated the act according to the letter of the law, it did not violate the policy behind the law. If D had never purchased the lanes and let them go under, P would have been the monopoly. So in effect D was preventing a monopoly. If the damages are deleterious to the law then courts will not enforce i. Action brought by decedents close relatives against causer of the death. ii. Governed by statute iii. Los of expected Financial support iv. Loss of inheritance 1. It is very speculative v. Monetary value of companionship or consortium 1. Majority: Yes vi. Emotional distress in a majority d. Taxes, Time and the Value of Money i. Interest – Should D have to pay P interest? 1. Prejudgment Interest a. Interest that is before the judgment occurs. The rule is that it is recoverable for money damages that are ascertainable or certain by calculation. At common law this meant that prejudgment interest was not available for tort cases but it was in contract. Tort was too speculative. b. Modern approach – Many jurisdictions allow prejudgment interest even in tort cases but many do not. If you are in a tort it will depend on jurisdiction (in CA it is as discretion of jury). If jurisdictions do not allow interest, it gives D incentives to delay. 2. Pos-judgment Interest a. Is recoverable because it is ascertainable. This is the interest that accrues form the date of the judgment until the date that they pay. Jurisdictions have different rules on how it is computed. 3. Simple Interest v. Compound interest a. Do not allow compound interest. ii. Taxes 1. Traditional rule: tort damages are not taxable 2. Modern approach: only personal physical injuries or physical sickness is exempted (emotional distress is not included) a. Punitive damages are taxable 3. Lost Earning a. Majority: award earning before taxes i. Policy – it is difficult to calculate taxes. b. Minority: award earning after taxes i. Exception: If you have a wrongful death case where P/D are seeking decedents future lost earnings then use the majority approach. 4. Non injury and K damages are taxable e. Determining Present Value i. 3 approaches to balancing inflation: 1. Total Off-Set Approach – assumes inflation will off set future value and calls it a wash. Courts that this approach still factor in individual and productivity raises so they still adjust upward. 2. Real Interest Rate Approach – S.C. endorsed but not required. We do not try and predict future interest rates but rather courts look backward and reason that overtime tend to out pace inflation by a little bit (usually by about 1%-3%). The discount rate would be this 1-3%. 3. Balancing Approach (Blackletter Law) – Attempts to find future inflation and interest rates after which you would balance the interests out. f. Punitive Damages i. What do we need for PD? 1. Intentional harm or; 2. Reckless, willful and wanton misconduct ii. Approaches by Jurisdiction: 1. Flat Cap 2. Make a cap at a multiple of compensatory damages 3. Language that the jurors are given 4. Put clear and convincing language needed 5. D’s wealth is considered in determining appropriate amount to award. 6. Vicarious Liability a. Some say it must be a senior official. 7. Actual Harm a. Many states require that for there to be punitive there has to be compensatory damages. i. Battery resulting physical harm, but must show psychiatric harm ii. Must be sufficient relationships between harm and the amount of punitive damages. iii. 3 Guideposts14: 1. 1) The Degree of reprehensibility of D’s conduct. a. Most important. b. Physical injury is generally regarded as more reprehensible. c. Repeat offender should be punished more than the first time offender d. Deliberate false statements are worse than mistakes 2. 2) Look at the disparity between the harm suffered by the P and the PD award. a. Court does not want to get a set range but seem to do it anyway. Higher than 9 times is rarely constitutional. The size of the compensatory award seems to be increasingly related to the multiplier. 3. 3) Differences between the damages award in this case compared w/ PD in similar cases. 14 BWM v. Gore Facts: After purchasing a new vehicle from an authorized Alabama BMW dealership, Ira Gore, Jr. discovered that his new vehicle had been repainted. He sued BMW's American distributor (BMW), alleging that it committed fraud by failing to inform him that his car had been repainted. The Alabama Circuit Court entered judgment, following a jury verdict, awarding Gore $4,000 in compensatory damages and $4 million in punitive damages. On appeal from the trial judge's denial of BMW's post-trial petition to set aside the punitive damages as 'grossly excessive,' the Alabama Supreme Court ruled that the punitive damages were not so excessive as to violate BMW's Fourteenth Amendment right to due process. Due to a jury calculation error, however, the Alabama Supreme Court reduced Gore's punitive damage award to $2 million. BMW appealed to the Supreme Court Decision: Yes. In a 5-to-4 decision, the Court held that while a state may impose punitive damages to further its interest in deterring unlawful conduct, the Fourteenth Amendment's due process clause prohibits states from imposing grossly excessive punishments on tort-feasors. In the present case, the punitive damage's excessive nature is indicated by the 500 to 1 ratio between the jury's punitive and actual damage awards, the relatively insignificant amount of damage, and the lack of statutory fines that remotely parallel the present award's magnitude. BMW's due process rights were also violated because it could not have possibly anticipated, nor did it receive fair notice, that it might face such a severe punishment iv. Punitive Damages in Contract Actions 15 1. Generally: not punitive damages for contract actions 2. Exceptions: a. Fraud i. A K entered into with no intent to perform from the beginning. ii. This does not exist where a D enters into a K with intentions to perform but later changes that position b. Conversion i. i.e. I hold on to a car belonging to you based on breech of K c. Tortuous Interference with K i. Knowledge of substantial consequences will satisfy d. Bad Faith Breech i. Purest type of K action that turns into Tort because all you are saying is that the party that has breeched is acting in bad faith. ii. Courts restrict this very intensely. It has to be a breech of an insurance contract and it has to be a first party claim. 1. A first party claim is the person who is insured. e. Negligence* i. This does not happen very often. He was reluctant to even list it. INJUNCTIONS 1. Preventative Injunctions a. Generally: trying to prevent a future event from happening i. Done at trial and pretrial stage b. 3 Requirements i. Irreparable harm 1. Another way of saying the legal remedy has to be inadequate. ii. D’s potential conduct is unlawful 1. Requires substantive analysis of the law that you are dealing with. 16 iii. D intends to do the unlawful act 1. Humble Oil V. haring (p.233) 2. Offer proof of imminent threat. We will not enjoin someone for doing something because someone else is afraid. They actually have to be going to do the act. a. 3 ways to establish D is going to do act: i. If the party has clearly stated he has intended to do unlawful act ii. D has done these unlawful acts in the past iii. D has taken action towards actually going through with the illegal action 15 16 Nicholson v. Halfway House – D purchased house on street for halfway house. P, the neighbors did not want the house located on their block and attempted to get an injunction calling the use a nuisance. Trial Court agreed but the S.C. reversed. The problem the court found that with substantive law P had not shown it was a nuisance the building was not yet operational. It was properly zoned so the only way to get nuisance is by their operation. 1. i.e. Buying the barrel to burn the leaves. c. Ripeness Requirement (2): i. Constitutional Ripeness: Must have current dispute between two adverse parties. Cannot be an advisory opinion ii. Remedial Ripeness: harm must be immediate. 1. if there is no likelihood of harm court will not issue injunction. d. Scope of Preventative Injunctions i. Injunction only granted enough to prevent the harm 1. See. Marshal v. Goodyear Tire (p. 241) e. Mootness (is it too late?) i. 2 types: 1. Remedial -- This is where the D has claimed to have stopped the illegal activity. a. The question that always comes up is do you believe the D. 2. Constitutional -- Applies when dispute has ended or P issue has been resolved. When this happen federal courts no longer have authority to solve the case ii. 3 factors for deciding when mootness applies: 1. Whether D expressed intent to comply with the law is made in good faith 2. Whether the voluntary stopping of the conduct is effective 3. Whether the character of the past violations was willful. 2. Reparative Injunctions a. Generally: We are trying to repair something that has been done but ALSO will have future negative effects. b. Issues: i. Practicality – Can the court draft a remedy that will provide relief without unreasonable costs or consequences. 17 1. Key: Can we put humpty dumpty back together again? 2. If remedy would not change outcome, RI will most likely not be used. 3. This was probably on a sliding scale of practicability. a. Would they set aside a presidential election? ii. Scope -- What is an appropriate scope of an injcution or how broad should it be? What should the D be required to do? 18 1. Note: Pay attention to the wording a. i.e. If D was sued for stealing TS it would be a reparative injunction. If they were sued for selling a product based on their stolen TS it would be a preventative injunction. 17 Bell v. Southwell -- Georgia election for local justice of the peace. During the election there was a litany of wrongs corresponding with racism. The court ruled that even if all the people who did not get to vote as a block the P would not have won. The court holds that it was not too impracticable to set aside the vote. 18 Winston Research v. Minn. Mining Manufacturing Co. -- Facts: D developed a similar machine to P. D stole trade secret. Court said that when P showed its invention that the TS would have been reveled. They basically had rights to get a jump on the market. P sought a permanent injunction from the former employees who started Winston. D argues that since there was public disclosure no injunction should be allowed. The D.C. is looking at this as a reparative injunction because D stole TS. How do you put 3m back together again? D.C splits the baby by giving a 2 year injunction, 9 th circuit affirms. How can this be a permanent injunction? Permanent can mean forever but it can also be a final decision or there will not be a change to it. Injunction was designed to give back P’s jump on the market. 3. Permanent Injunction a. Generally: Available only when not legal remedy will work. Awarded after trial b. Elements i. Substantive Merit – P must prove prima facie case under relevant law ii. Irrepable Harm – Legal remedies are inadequate 19 1. Types of Irrepable Harm Cases: a. Unique items: i. Trespass to land; Free speech; Land Sale Ks; sale of heirlooms; sale of fungible goods in times of shortage when P cannot find a replacement 20 b. Reheated Acts that require multiple lawsuits: Damages are not adequate because O would have to sue repeatedly i. Repeated trespass; frivolous lawsuits c. Insolvency of D i. Cannot pay damages so he would otherwise be judgment proof. d. Measurement difficulties i. Common situation where irreparable harm exists and damages may be ascertainable but are speculative iii. Balance of Equities – both parties conduct is measured in relation to one another 1. Rule: if cts label D’s misconduct as intentional then they are likely to not balance the equities21 a. Even if D is not acting like a jerk this is the case. 2. Note: Must look act factors. Jerk test is only o factor in balancing the equity 22 19 Brook v. James a Cullimore -- Facts: Brook barrows 8K and uses a chattel as security. Brook defaults. P brings Replevin which is a legal action t get a chattel back. Cullimore says chattels is worth 2500.00. Cullimore says that he does not want to money he wants to chattel, showing that he think the chattel is worth more. He demand performance under Replevin. Because it is a legal remedy rather than an equitable remedy we do not have an irrepable harm requirement. Key to the case: There is a diffenrce between legal and equitable remedy cases. If we were to imagine it was in equity could there have been irrepable harm form C’s perspective. Looks like it. 20 Pardee v. Camden Lumber Co. Facts: P is sued to enjoin D form cutting lumber on P land. D claims that money damages is sufficient. S.C. says injunction is appropriate. Courts are hesitant to enforce the irrepable harm rule in permanent injunction cases. 21 ** Arriola v Nigro -- Not a specific performance case. Undue burden issues don’t always come in specific performance cases. D build a house right up against Ps house. It extended an inch or 2 onto the Ps property, P had pipes on to Ds property but D had easement on them through them on adverse possession. D wanted to tear down the piping asked P to pay half but P refused. D places a tar paper and puts over the gap between the 2 houses to prevent water getting into there. This was trespassing. Water seeps between the walls and causes rotting on the Ps walls. P wanted injunction to get D to take one inch off of their house so that it doesn’t encroach onto their land. P doesn’t just want damages for the trespass but also an injunction. Trial ct refuses to grant injunction. Il SC reverses, grants injunction and damages. Awarding an injunction and damages is not uncommon. Just because one equitable remedy does not stop them from seeking a legal remedy. Balancing the equities – ct here refuses to balance equities because the D acted intentionally to trespass. Rule: if cts label D’s misconduct as intentional then they are likely to not balance the equities. This is fine but intentional misconduct is a very loose term. There are lots of situations where cts may label misconduct intentional but others don’t. If someone is acting intentionally but not jerk like the ct may still label it intentional misconduct. If P gets the injunction what might have happened between the parties? Probably settled for larger amount, Ds would rather pay the Ps more money than tear down the building and pay the cost of rebuilding it. The injunction gives the P an incredibly powerful financial tool.. One of the reasons of why cts are reluctant to grant an injunction due to undue burden. 22 Boomer -- D built a cement plant where it would pollute the local residents property. The residents seek an injunction to stop the cement plant, the plant costs $45M, provides jobs and was the backbone of the community. Ct does not grant injunction and decides to balance the equities. What if the cement plant’s act of polluting was jerk like? What if the plant could have paid for filtering systems iv. Practicality v. *Affirmative Defenses – These include: 1. Laches 2. Unclean hands 3. Estoppel and Waiver 4. Unconscionability 5. Undue Hardship 4. Specific Performance (equitable remedy) a. Generally: type of injunction used in K cases. b. Damages is the normal remedy for breach however courts will order specific performance if three conditions exist: i. Substantive merits 1. They did something wrong according to the law. There has to be a breach of contract. ii. Irreparable harm 1. You have to show that there is not an adequate remedy at law OR in other words, damages cannot be award accurately or practically. a. Rule: If 1) Shortages 2) Time constraints; or 3) The sheer size of the K make it difficult or impossible to cover, specific performance may be appropriate even in cases where in the object of the K is not otherwise unique.23 b. Where replacement is difficult a majority of courts award SP (minority do not) i. Note: even in cases where damages are used to cover there is an argument that they are undercompensatory. iii. Must be Practical 1. Balance Equities a. Two Concerns: i. P and D – need to look at burden on P and D 1. i.e. we will not make D stay in lease when they would be a loosing business for 17 years (pay damages instead) 24 ii. Court b. If courts rule that D’s conduct is intentional they are likely not to balance the equity. but chose to save some money and not install the filtering system? Would ct balance equities? No, when we are in equity we are very fact specific, the jerk like misconduct is only a variable among other factors like economic impact. 23 Campbell Soup v. Wentz Facts: P contacted with D for a certain amount of carrots for 30$ per ton. They were special red carrots that P used in their soups which was uniform with past recipes and shipments. The market price went up to 90$ and D told P he would not sell his carrots to P based on their contract price. P bought carrots from someone else for a higher price. Issue: Is D entitled to damages or can he get an injunction to enforce the K even though damages are ascertainable? Decision or Analysis: This was an example of efficient breach. P needed the carrots for uniformity purposes with his business. Rule: If 1) Shortages 2) Time constraints; or 3) The sheer size of the K make it difficult or impossible to cover, specific performance may be appropriate even in cases where in the object of the K is not otherwise unique. 24 Co-operative Insurance Society V Argyll Stores -- D has 17 years remaining w/ the P. D wants to close store because it was losing money, P is upset because D is an anchor tenant (big fish) and a lot of the smaller shops business comes from the D’s customers. P sends a letter to D offering to renegotiate terms, the person who the letter was sent was fired. P wants specific performance. Ct says no. 2. Rule: Cts will not issue an injunction where supervising it would be unduly complex.25 a. If it is a constitutional claim, court are more willing to take on more i. i.e. Court taking over school district to desegregate it. iv. Affirmative Defenses 1. Laches 2. Unconcionability c. Personal Service Contract i. Generally: courts do not like to enforce these. 1. General Rule: Courts will not enforce personal service K’s. 26 ii. Factors they look at: 1. Duration – how long are they forbidden to do whatever 2. Location – where are they prohibited from doing whatever from a. Note: the more narrow the more likely they are to be enforced. iii. Notes: 1. they are usually not enforced because they are based on employment K for which damages can be contemplated. 2. Usually will employ negative injunction if person provides unique services to competitor at same time. 5. Preliminary Injunctions a. Generally: Two types – P.I. and Temporary restraining order (TRO). TRO are the first stage of the preliminary injunction process. They are a lot faster. i. Why— 1. it takes time to trial; damage could be done during that time ii. Policy: We want to preserve the status quo! 1. Key: Cannot use preliminary injunctions to change the status quo. 27 b. Preliminary Injunction Factors (TRO test is the same but looked at with higher burden): i. Strong likelihood of success of the merits 1. This is not an issue in permanent injunctions because you have to succeed to get the injunction. ii. Possibility of irreparable harm to the P if the injunction is not granted 25 Northern Delaware Industrial Development v EW Bliss – D enters into a K for 20.5M worth of modernizing plant. P wanted ct to get D to add 300 workers for a night shift under terms of K. D said he couldn’t that many workers. Ct denies request for specific performance. Rule: Cts will not issue an injunction where supervising it would be unduly complex. Undue burden on the ct. Ct would have check that workers hired and 2 shifts a day. Ct says that is too complex and so just awards damages. 26 American Broadcasting v. Wolf -- Facts: D was a colorful sportscaster for ABC. He had a contract that said at the end of his contract he would not pursue offers from other networks and if offered and matching offer he would remain at ABC. D went to CBS and breached his personal service K. P or ABC sought specific performance. Decision/Analysis: Courts are typically hesitant to enjoin services but they are more willing to enjoin a person from working for a particular entity. There are factors they want to see for narrow construction: 1) location and 2) duration. Courts want a short time and a narrow area. 27 Lakeshore Hills v. Adcox -- Rule: With preliminary injunctions they will only preserve the statuts quo. D lives in a home owners association and he has a pet in his backyard. The P wants to make him get rid of his pet. It is not just any pet it is a big black bear. P originally had a rule that they could only have household pet. D said that he was a household pet. SO P amended the rule to bar bears, lions, snakes, etc. The bear had been declawed and defanged. P sought injunction to remove bear. A preliminary injunction cannot change the status quo. This court says that it rejects the rule because bears should not be around people. So if they did not want to change status quo they could not remove the bear. No injunction. 1. Must be pre-trial harm irrepable harm 2. If harm done is irrepable already then we just wait until trial. iii. Balancing the hardships favors the P 1. There will be more harm done to the P if not granted rather than more harm done to D if granted. 2. We are only worried about pretrial hardships not permenanent hardships a. Permanent injunctions might say you are in the wrong but permanent hardship is too strong. This is not the case for preliminary injunctions. iv. Advancement of public interest c. Bonding i. If you want a TRO or Preliminary Injunction courts will often require a bond ii. Why – Courts can require or D can request a bond so that if the TRO is granted and it is ruled P was in the wrong, D can recover for his damages. 1. Majority: If there is a bond damages are limited to the bond amount. 2. Minority: you can go beyond that bond to seek damages for an erroneous TRO. d. Notice i. Notice must be given to the adverse party for a TRO hearing. ii. You need to reasonably try. 1. If you reasonably try and do not succeed then the court may waive this requirement. e. Time Limits (Rule 65) i. TRO with or without time limits may only last 10 days. 1. If it goes longer than 10 days the TRO is an injunction and appealable a. TROs are not appealable. b. Preliminary Injunctions are appealable f. Process i. TRO are very informal ii. Preliminary injunctions hearing can last for days. iii. TROs are not appealable but Preliminary injunctions are. iv. TRO must state reason for being granted v. P has a high burden of proof. 6. Notes on Injunctions a. Collateral Bar Rule: Injunction must be obeyed even if is unconstitutional. b. Remember when we are talking about injunctions if you violate, the court has the power of contempt; i. This power does not exist for declatory judgments 7. Declatory Judgments a. Generally: There are kinds of lawsuits where it is helpful or the court to make a declaration about a point of law or a fact in a case. The try and clear up uncertainty to parties rights i. Not power of contempt of court ii. 3 Major Categories 1. Challenging a statutes validity 2. Challenging the validity of a patent 3. Validity of a insurance contract b. You need: c. d. e. f. i. Ripeness ii. Mootness28 You do not need: i. Irrepable harm If you challenge the validity of an action and your insurance company hire a defense counsel for you and the insurance company wins, they can seek damages for the cost of the lawyer fees. Language: if you are enjoined from doing something it is an injunction. If something is unconstitutional it is dec relief. If someone disobeys dec relief they have res judicata. They then can seek an injunction. RESTITUTION 1. Generally: Provides D with unjust enrichment of P. The benefit of the award is given in money damages or specific property. a. If P’s gain outweighs D’s harm. b. Focus is on D’s gain not P’s loss. 2. When do P seek restitution? a. When there is no other cause of action (Neri Marine) b. Where D’s gains exceed P’s benefit (lawyers miss this a lot) c. Where D’s insolvent and P can get a performance by seeking restitution of specific property that used to be hers. 3. 4 Major Areas of Substitutive law of Restitution a. Cases where D acquires benefit through unlawful act such as theft. b. Cases where P conferred a benefit on D pursuant to an actual supposed K. i. Neri is an example. c. Cases where P confers a benefit by mistake i. For example you mistakenly pay the bank money that you do not owe. d. Cases where P confers a benefit in an emergency 29 i. For example if you go into the hospital when they are unconscious and they do work and afterward seek money or restitution. This is conferring a benefit without a K. 4. Rules: a. Courts will not apply restitution is something if is gratuitous or by volunteer i. Equity so show factors. 28 Cardinal Chemical v. Morton International -- Case: this is a patent case. P owns 2 patents used in chemical compound. P sued D for infringement. D denied infringement and sought dec relief that the patent was invalid. They claim that the patent is invalid because it does not explain patent in enough detail. While this case was pending, P sued two others for patent infringement. There was two categories of issues: was there infringement and was there a patent. Court says that there was not infringement. The federal circuit reverses dec. judgment because they had a rule that if there was no infringement they could not decide whether the patent was valid. Issue: Is it moot to find whether a patent is valid if it has already been decided that there was no infringement. Both parties in this case want declatory relief. The P wants the federal circuit to make a definitive ruling on the validity of the patent. The D also want DJ that the patent is not valid. 29 Vincent v. Lake Eary -- Classic private necessity case for affirmative defenses to torts. A guy docks his boat up to P dock and then a storm comes and it is clear that the boat is going to smash against the dock and damage the dock. P asked D to untie boat and he did not, thus damaging the dock. Court gave 500 in damage. What would restitution have been? The benefit conferred on the D from the tort is that he did not loose his boat. Why no restitution in this case? There is an issue of necessity or private necessity. b. General Assumpsit – under this the P had conferred a benefit and the D implied to pay. i. This can be plead in law. c. UCC 2-718 – Cases involving deposits i. Faulty buyer is entitled to his deposit that exceeds actual or liquidated damages. ii. A defaulting buyer entitled to restitution that it excess reasonable liquidated damages or actual damages. If there is both you take which ever is less. d. If D’s gain exceeds the benefit conferred P can go after that amount i. For example: If X uses something of Y without him knowing, restitution would ask what did X or how much he was unjustly enriched. 30 e. Private or public necessity could defeat a claim for restitution. 5. Some Legal Fictions Associated with restitution a. Quasi-Contact i. Interprets an implied promise to pay for a benefit 1. i.e. Olwell Case where D used machine of P. Ct. imposed quasi K that D agreed to pay P for the use of the machine. ii. Money judgment based upon benefit to D. b. Accounting for Profits i. Law implies a duty on D to account for his profits earned from P benefit.31 ii. If we were focused on damages verses restitution they would have to show that they actually did loose profits. 1. i.e. Show that I lost this amount of money or lost profits 2. Accounting is the vehicle for determining how much the D gained. c. Constructive Trusts i. Court imposes a trust on the identifiable benefit of the D and says that they are constructively holding that in trust 32 (Mostly used in property) 1. One thing this protects is when the D is insolvent. This is making a claim on the benefits D would receive from a third party. Or when it is a chattel it involves returning the good. ii. 4 things you will usually see for a constructive trust: 1. A confidential or fiduciary relationship a. look for facts that that est. relationship i. usually involved in family disputes where there are more FD. 2. A promise (maybe implied) 3. A transfer of property in reliance on the promise 30 Olwell v. Nye Nissen Co. -- Case: P sold a C to D which had a egg washing machine that D was supposed to store for him. D started using the machine without P knowledge. A discussion immediately began or a fight. P offered to sell the machine, D counters with 50$ offer. Trial court looked at this as restitution and says 10$ a day would be the cost for use. The end up with 1560$ in damages. 31 Maier Brewing Co. v. Fleischmann Distilling Corp. -- P distilled and distributed black and white scotch. The D began brewing a cheap beer under the WB label. P sues for trademark infringement. There is a problem because P is afraid that people will associate D’s product with his. The Ct. awards an accounting for profits from selling the beer. 32 Snepp v. CIA -- D worked for CIA and as part of his employment he agreed not to publish any information that was classified. D published a book. P said that he breached his K and sought an injunction seeking to get him to show them any further writing before publication. They also seek a constructive trust for all profits. D argues that the agreement is void because it is a restraint on free speech. S.C. gets trust and injunction. a. Not needed in every case. 4. Unjust enrichment 6. Restitution Apportionment a. Generally: We are trying to decide what we are going to do if D gets a benefit or gains and part of that gain is because of the bad thing that he did but it is also partially not the wrongful conduct. b. This will come up when we have multiple sources of value attributed to the D. c. This is most frequently a problem in intellectual property and rescission cases. d. Jurisdictions take two approaches i. 1)No Apportionment 1. if a court says no we might look at profits and all profits go to P 2. Mayer Brewing C a. Black and White Whiskey case. ii. 2) Yes Apportionment 1. We will ask what part of the book belonged to P and what belonged to D 2. If the court is going to do apportionment the court will say we will try because otherwise there would be a windfall for the P. e. Steps to Apportionment (factors but not rules) i. 1) Feasibility 1. How difficult is it to apportion. If it is clear courts are more likely to do it. If it is a mess courts will not necessarily say they won’t but it is a factor. ii. 2) D’s Culpability 1. Jerk principal – courts sometimes. Bigger jerk the less likely you are to get apportionment. f. 3 Approaches to apportionment of profits i. Cost of hiring someone to perform same service ii. Proportion of sales attributable to the misappropriation iii. Factors of production (pro rata) 1. Placing a dollar amount to each part of production. g. Defenses i. Damages can be reduced if people are not likely to be misled or confused. h. Overhead Costs i. Two step process 1. Step 1:What is the over head that can be attached to the given item. 2. Step 2: Make the infringer establish a fair and practical formula to show what the allocation of overhead should be. ii. There are some differences on how jurisdictions approach this. 1. Under 2nd Circuit, they say that if it is willful, the above 2 step analysis should be done with ―particular rigor‖. 2. 9th says that overhead may be reduced where it not willful 3. 8th will not allow reduction of overhead. RECESSION AND BENEFIT 1. Generally: (In equity) Restores to each party what they gave to the other party as part performance of transaction a. The goal is to make the K as if had never been entered into. 33 b. Focus is not on giving back D’s gain it is on unwinding the K. 2. Several Grounds for Recession a. Fraud i. Majority: Does not matter if fraud was willful or not ii. Minority: Needs to be willful or at least negligent. b. Substantial Breach of K i. Rule: for recession Breach must be so substantial that it would defeat the entire purpose of the K. ii. UCC § 2-711 --- Only allows breach if it goes to the whole of the entire K c. Mutual Mistake of Fact i. Mistake has to be significant enough to defeat the purpose of the K. 1. If person gets both risks and rearwards of K it cannot be rescinded. 34 d. Unilateral Mistake of fact known by one side. i. Courts can rescind where one party makes a material mistake where the other side knows of the mistake. 1. Make sure the other party knows of the mistake. e. Duress i. If one party gets the other party to agree through duress they can rescind the contract. 3. Notes: a. If a K has been partially performed each party must return the benefit they received from the K. i. i.e. If I have delivered ½ of the widgets to you, you need to give back those widgets in order to rescind. b. If the benefit cannot be returned, the litigant who cannot return has to pay for it. You get money value. c. Key: to receive restitution both sides have to receive a benefit (If not try for reliance) 35 SUBROGATION 1. Generally: This is substituting one person for another person under equity. This is another form of restitution. 2. 4 Requirements a. The claim or debt must be paid in full. b. A third party rather than the subrogee, must be primarily responsible for paying the debt. 33 Mutual Benefit v. JMR -- D was a company that had purchased life insurance for its president. They did not tell P, the insurance company, that he was an avid smoker. D lied on insurance company by saying that he was not a smoker. When president died, P refused to pay. P sought rescission of the policy. D is claiming that they should adjust the policy to what they would have charged. The court orders the K rescinded. NOTE: if this was fraud action the remedy would be damages. This would likely mean that it would be the difference between the two policies. P wanted recession. 34 Hypo; suppose large rural piece of land that is sold as is. But both the buyer and the seller is not suitable for a septic tank which makes the value a lot lower. Later it is found that both parties are mistaken, making the value much higher. Should seller be able to rescind K. No. Buyer got both risks and benefits of bargain 35 Farash v. Sykes Datatronics, Inc. -- P claimed that he and D had entered into K where D would lease building on weed by P where by P would make renovations. P performed but D id not move into building. P sued to recover value of performance. Causes of action based on oral K barred by statutes of frauds for K over one year. P can recover for quasi K for value of work performed for reliance on D statements. Restatement requires that an injured party who has not retained a benefit can’t use restitution. There is not a benefit in this case because D never moved in. However, even though restitution is not available he can sue for reliance damages. c. Subrogor’s claim against the D must be enforceable had it brought the claim itself in the absence of the subrogee’s payment d. The party seeking subrogation must not have acted as a volunteer in paying the claim of the subroger. 3. Why Use Subrogation a. You can get a lien priority over other creditors. b. If you just sued for damages directly you could just be put in line. i. If quais K is awarded P does not have the priority c. For Mortgages i. If there is fraud, the victim can step right into the shoes and have priority 36 OTHER TERMS 1. Replevin a. Generally – legal cause of action for the physical return of a chattel plus damages. It usually is an alternative to conversion in which D may keep the chattle but pay for the damages. b. If you are seeking Replevin, P can get the following things: i. return of the chattel ii. dim in value iii. damages for loss of use iv. consequential damages in recovering the chattel 2. Ejectment: a. Generally: action for the recovery of land and leads to a judgment for the return of wrongfully taken land. This is a permanent removal from property. Options for two things: i. Damages for the use of land during wrongfully possessed period ii. Restitution for the value of the lands use 3. Unlawful detainor: a. Generally: usually used where there is not much in dispute but rather if someone is allowed to be in it at a certain time. i. This happens for example when you stay passed the time paid in an apartment ii. This is a method to discourage violence. iii. If serious dispute as to ownership you go through ejectment. CONTEMPT 1. Generally: ancillary remedy to help the judge enforce a different remedy. Contempt has the power of the state or power of police behind it. 2. Different Types of Contempt a. Criminal Contempt: this is a punishment for a violation of the court’s order. Looking backward. You did something bad and now you will be punished. This is prosecuted by the state the same way any other criminal action is prosecuted. The D gets all the procedural protections he would in any other criminal trial (burden , jury trial , etc.) i. Can’t have two crimes for same misconduct. Cannot get for example assault for throwing a rock and criminal contempt. 36 Hypos: G has a mortgage on his home. S is the lender. G fraudulently obtains money from M and uses it to pay off mortgage. What interest if any does mary ann have on the home. If she can show fraud she should be able to step right into the shoes as the mortgagee. Subrogation will allow her to step in the shoes. Mary Ann would be senior to any junior leinor. ii. It is unconstitutional to sentence for more than 6 months in jail or more than 500.00 (it must have a jury trial) iii. Collateral bar 1. D cannot challenge validity of injunction 2. Cannot argue that contempt charge is unconstitutional. a. Only option is to appeal injunction to higher court but you still have to obey injunction. iv. Any fines payable are made to the government; not the victim b. Compensatory Civil Contempt: This is backward looking and tries to compensate P for damages of D for disobeying the order i. Even though it is compensatory it can be based on D’s profits or P’s losses. ii. Most jurisdictions do not require a jury trial. For this reason CA and other states, reject this order. iii. No collateral bar rule so D can challenge validity of order is wrong. iv. No jail time is available v. No right to jury trial vi. Prosecuted by P’s lawyer rather than the state. vii. Damages go to P c. Civil Coercive Contempt: The court wants to make you do something. It looks forward i. Hold you in contempt to get you comply with court order. ii. This is prosecuted by the P’s lawyer not the state. This is unlike criminal contempt where the judge initiates. A party in this type can get the ball rolling. iii. Court issues injunction; court threatens penalties; if violated court enforces penalties. 1. 3rd court imposes the penalties iv. Court can use jail. 1. 18 months is maximum time for jail 2. fees or fines are made to state v. Collateral Bar rule  does not apply so the D can challenge underline injunction or the underlying law. 1. i.e. If I was forced to provide X info and I was held in contempt, I can argue at my contempt hearing that the injunction was wrong. vi. Inability to comply with court’s order is a defense. vii. A judge can say that even though I can’t use civil coercive contempt he can still use criminal contempt. This is KEY. viii. Sanctions must cease when compliance occurs or when coercive effect stops. ix. Unlike criminal contempt there does not need to be willful violation. It can be an accident. x. Look for nature of coercion 1. if it is a fine per day it looks coersive but if it is one fine it could be a punishment. d. Defenses i. No ability to comply ii. It does not have a coercive effect iii. It is a punishment EQUITABLE DEFENSES 1. Unconscionability (contractual equity) a. Thinsg to look for i. One sides contract ii. Adhesion contract with Parties with unequal bargaining power iii. Unfair terms iv. UCC 3-302: Cts will refuse to enforce unconscionable Ks or Ks w/ unconscionable terms, so legal and equitable remedies aren’t available 2. In Pari Delecto (legal or equity) a. Available in equity and actions at law. b. This is like unclean hands except both parties are have unclean hands. 3. Unclean Hands (equity) a. 4 Rules with Unclean Hands i. P’s conduct must be directly related to the litigation for the defense to apply ii. The misconduct must be directed toward the D for the defense to apply. 1. If there is a fraud directed toward the D, courts are less likely to enforce this restriction. iii. It is not required that the misconduct actually harmed the D. iv. The defense may not apply if P’s misconduct is significantly less serious that D’s conduct. 4. Equitable Estoppel (legal or equity) a. Generally: Protects against the consequence of harmful reliance. This is broadly applied with equitable fairness. Used in legal an equity cases. b. Elements (loose factual analysis) i. 1) Act involving knowing representation of material facts 1. Fraud or intent to deceive is not necessary. 2. Intent to conceal is enough 3. Portray yourself in one position and the later taking another is also enough ii. 2) Reasonable reliance by the other party iii. 3) Injury 1. if they were not estopped from making their claim D would suffer injury iv. 4) Actors knowledge of reliance c. Government Cases i. Traditional Rule is the government cannot be estopped. 1. Government functions usually can’t; if it is proprietary then it is more likely. 37 2. If the government has to right a check, most likely won’t be EE. 38 37 U.S. v. Georgia Pacific (n.1, p.983) -- D’s predecor entered into K with government. Under the K some of the D land would be added to the national forest service in exchange for fire service. There is an agreement to give land after trees are taken off in exchange for fire service. Gov later retracts the land and did not give fire service. D later came along and planted new trees as an investment. Government sees nice trees and then wants the land back. But after the D had invested they wanted to enforce the earlier agreement. D asserts EE. P is arguing that the initial retraction is not valid on a technicality. Court says EE applies. 38 Office of Personal Management v. Richmond (n.4, p. 987) -- R is a welder working for Navy. He got impaired eyesight from the work and he goes on disability. He having trouble making ends meet so he gets a part time job as a bus driver. His taking this extra job did not diminish is disability check right away. In 1986 he gets an opportunity to get overtime and make more money. He checks to see if this overtime would cause him to loose disability payments. Office says he would not unless he did something for two years. That was a mistake. The real rule is only one year. He takes the job and looses his disability for six months. He stops the work and tries to rectify the wrong. He wants the government to pay for the loss of disability payments under a theory of equitable estoppel. The S.C. says no estoppel in this situation because it was based on pure policy. Court makes a rule that there is no equitable estoppel requiring payments from treasury. 3. Affirmative misconduct rather than passive misconduct could also give rise to EE. 5. Waiver (legal or equity) a. Generally: intentional voluntary and understanding relinquishment of a known right b. Notes i. A defense and claim can also be waived ii. More likely to find waiver when D’s conduct is more reprehensible. iii. Sometimes you will find waiver where there is no wrong doing at all 1. i.e. If you fail to waive affirmative defense in a answering a complaint this is a waiver of those defenses not raised. c. Differences between EE and Waiver i. Waiver the focus is on the actor ii. EE the focus is on the party’s reliance iii. Waiver does not require reliance iv. EE does require reliance 1. Reliance focus on the party who receives the representation 6. Statute of Limitations (legal or equity) a. Generally: Statutory periods of time when civil actions must be commenced. b. Policy: i. Evidence gets lost, witness die or forget ii. Gives D a peace of mind. iii. The more reprehensible the conduct the longer the SOL. c. Key Terms: i. Commencement: the beginning of a lawsuit 1. When does the claim begin to exist 2. Two major approaches: a. 1) When the lawsuit is filed b. 2) Commences at time it was served ii. Accrual of Claims: the beginning of the lawsuit. 1. Refers to time when P first has the right to file a lawsuit. 2. SOL starts to run when the claim accrues. iii. Running of the Statute: Refers to the statutory period of time for bringing a claim. 1. Runs until tolled. a. Some say day of service and others say day of filing. iv. Tolling: this is stopping the running of the SOL either temporary or permanently 1. Reasons for stopping – a. Filing a complaint b. D not being a resident of the state c. If a P is a minor or insane d. If P is in prison v. Discovery and Reasonable Diligence: this is used to ascertain the accrual date when it is not clear like the DES case. The key is ―do you know enough that you know that you have a claim or should do further research?‖ 1. Two things that P would need to know for statute of limitations to run: 1) That she was injured; 2) Identity of the D. a. i.e. This comes up a lot in surgery cases. If a sponge gets lost during surgery 2. The rule is when they should have known, not when they actually did know. 3. Tolls is some jurisdiction (trend) 4. There is Tolling Due to fraudulent concealment in every jurisdiction a. This can lead to punitive damages. b. If a jurisdiction using the discover rule they do not need to toll for fraud 7. Laches (only in equity) a. Generally: Laches focuses on the delay. Used in equity (substitute for SOL). Not used in legal cases. b. Two elements i. 1) Unreasonable delay by the P ii. 2) Prejudice caused to the D c. When a suit is subject to SOL, laches is irrelevant unless it bars the claim before SOL expires. d. The longer the delay, the less prejudice needs to be shown. e. 3 common types of prejudice i. Detrimental reliance by D ii. Lost evidence of witnesses iii. Fluctuating values f. Common reasons for delay i. Pursuit of other remedies ii. Not knowing about the claim iii. Procrastinating Substantive Right and Remedy SOL Applies Laches Applies Right with legal remedy only (i.e. Yes No tort damages for personal injury) Rt w/ both Legal and Equitable (i.e. Yes and p seeks L remedy No land sale K and P seeks money damages for breech) Rt w/ both Legal and Equitable (i.e. Yes and P seeks equitable remedy yes land sale K and P seeks specific performance) Right w/ E remedy only (i.e. P no Yes seeks an constructive trust against assets of trustee) Note: You can still use laches when during SOL by showing it would be appropriate to apply laches before the expiration of the SOL. TRACING 1. Big Advantage – you get in front of other creditors. 2. Rules a. So long as P can show direct exchange, that is, that subsequent property was exchanged for P’s property, P can trace to the subsequent property and obtain a constructive trust (or obtain security in the property through an equitable lien) b. Victim of fraud of misappropriation who can identify their property are preferred over all other unsecured creditors 39 i. Policy: Other creditors accept the risk on insolvency when they credit but you do not accept such risk when something is stolen from you. c. Money placed in a specific bank account or similar account is still eligible to be considered identifiable even though the bank doesn’t keep the money physically separate from other accounts. i. Comingled – must be in same account. 40 d. Regarding commingled money, the wrongdoer spends his own money first i. Only works for fraud or misappropriation (not breach of K) e. P can claim the lowest intermediate balance between successive deposits and withdrawals from a commingled account. 41 f. The wrongdoer invests the victim’s money first. i. If the victim’s money is used to purchase an asset, P can claim the asset as opposed to lowest intermediate balance. 42 ii. Cannot claim investments that were made before P’s money was placed into account iii. If a creditor ha s a claim on investment, if P takes, creditor looses because it was never D’s to begin with (constructive trust). iv. When different fictions are available (i.e. LIB or Invest) P can take at his election. g. P’s right to trace is cut off by the sale of the property to a bonafide good faith purchaser (BFP) who purchases without notice of the wrongdoing and pays full price for the property. i. BFP – someone who purchases for full price without knowledge of wrongdoing. ii. P could get money resulting for sale to BFP h. IF D takes money from several sources and then applies for bankruptcy to keep their money out of such proceedings the victims must: i. Be able to trace their own property separately or; ii. Establish that they will all be treated equally outside of bankruptcy (pr rata portion). 1. If they cannot meet these their property will be included in bankruptcy state. i. If allowed to trace, P may elect to use either a constructive trust or an equitable lien to remedy the wrongdoing. i. EE is for specific amount of money ii. CT gives title to thing itself. 39 Suppose thief pic pockets you at bankruptcy court and sign the paper work before you can catch him. Since you are a victim of misappropriation you can get the court to say that he was holding it in constructive trust. 40 If D has 10K CD and steals money from P and buys another CD for 10K. Cashes the second one out and buys vacation, there has not been a commingling account. Not CT. 41 D opens up an account for 10K. D adds 10K fraudulently obtained from P. Takes 12 of the 20K for vacation. Later deposits another 5k for a total of 13K. Where is P in regards to a CT? He gets the 8K. 42 If D had 10K that was his, 10K that he stole from P. Bought 8K ring and 7K trip he has 5K left over. P could get ring or the 5K left over money.