Remedies

Justice

Three theories of justice:

Normative

Identify a specific outcome as just - because we say so

Enough money to replace what was lost for compensation

Corrective Justice is another form of this category

Distributive - John Rawles

Purpose is to distribute resources equally, no justice exists until distribution is fair or equal

Procedural - H.L. Hart

DonÕt know right result or right distribution

Should have a fair process, then whatever the outcome is, itÕs just.

One Satisfaction Rule:

¹ is entitled to one recovery, which should be as full & complete as possible.

If ¹ is given more, itÕs excessive

Overview

The Question - What are your remedial choices and what is the scope?

A remedy is anything a court can do for a litigant who has been wronged or is about to be wronged.

Remedies give meaning to obligations imposed by the substantive law.

Five Families of Remedies

Compensatory Damages - sum of money designed to make plaintiff as well off as he would have been if he had never been wronged.

Theory - corrective justice/compensatory justice.

Substitutionary remedies: enough $ to go out into the marketplace and replace what ¹ lost.

- Look to ¹RP (plaintiff's rightful position)

If ¹ has been harmed, she is morally entitled to be put in the position she would have occupied before the harm. Anything less is unjust.

- $ restores ¹ to her Rightful Position.

assign dollar value to every item of harm. Itemize. If you cannot figure it out, give it to the jury.

Limiting Doctrines:

¥ offset benefits

¥ insurance

Equity = injunction: direct order from a court to litigants ordering them to do or to refrain from doing some specific thing. It's all about obedience.

Failure to obey is enforced by contempt - both and offense and a sanction.

Basically, it can be whatever it takes to make Æ obey.

- court may impose escalating punishments until Æ obeys

- court may impose fixed punishment for past disobedience

Equitable defenses

unclean hands, estoppel

Restitution - restores to ¹ all that Æ gained at ¹'s expense

both a claim/theory of liability and a remedy

look for unjust enrichment

this doctrine questions whether anything is more important than efficiency

Take from Æ whatever Æ made:

If Æ made a profit from ¹'s property, ¹ gets more from restitution than compensation.

Efficient breach remedied by this - could pay compensation and still make a profit; restitution is sometimes inefficient, but more fair.

Insolvent Æ, therefore judgement proof, ¹ suing in restitution gets first dibs before other creditors - this is a huge advantage.

Punitive Damages - $ awarded to punish and deter

Punishes egregious, despicable conduct (whatever the jury can be inflamed to think is despicable)

Not criminal because the state is not the ¹

Can add up to more than other choices

Congress has been lobbied to restrict punitive damages under excessive fine amendment (Amend 8)

- this fails because the remedy is not a fine

Declaratory Remedies - a normative statement of liability available by statute in every state, and by the Feds: the court says who is right and who is wrong

often not persuasive, no answer to the "so what" question; these are only effective for people who care and people who plan things

Irreparable Injury Rule

Equity will not act if there is an adequate remedy at law; equity will act only to prevent injury that is irreparable.

- an expression of preference, not choice

Laycock:

1) Whenever choice matters, you can find some traditional language to justify the equitable remedy. Because,

2) in our contemporary American merged (law & equity) legal system, what really affects choice are practical, contemporary concerns.

Other rules that express the preference for monetary relief:

Rule Against Prior Restraints: common in cases involving speech; speech will not be limited, pay $ for the wrong.

Equity will not enjoin a crime: fear of government by injunction; let juries enforce the criminal law.

Adequacy

Ask - what is the nature of this particular injury that might make this an inadequate remedy

Remedies are adequate if you can go into the marketplace and replace what was lost

- when goods are fungible and $ can replace them , damages are calculated to give ¹ what was lost

- but ¹ would rather have an injunction; Æ should go buy it and give it to ¹

Transaction costs borne by one who goes out into the marketplace and procure the goods

- traditional remedy shifts transaction costs onto the ¹ victim

Practitioner's Rules, not the traditional language

The Remedy must be complete, practical and as efficient as that which equity could provide

- if it is not, ¹ ought to have injunctive relief

Basically - ¹ is entitled to the most complete, practical, efficient remedy

For Analysis: Ask - is the compensatory damages remedy ÒadequateÓ? If so, it must be given; if not, equity is available.

Compensatory Damages

Ask Yourself: What do we value more than our theories of justice?

Question for compensatory damages: what do we value more than corrective justice?

Push rules and general principles for how serious we are about them.

There are many right answers - when reaching them, creativity is more important than knowledge.

Compensatory Damages are about restoring ¹RP

¥ Value as the measure of Rightful Position (property)

¥ Reliance or expectancy of Rightful Position (K)

¥ Limits on ¹RP: consequential or special damages (Æ arguments)

- Consequential or Special Damages generally unavailable

¥ Limiting Doctrines exist

¥ Typically routine formulas, with exceptions:

- integral part

- special purpose

* argue the non-routine

Arguments for restoring ¹RP

traditional: ¹ should not be made to suffer because of wrongdoing, and if we restore ¹ to his RP, he will not suffer. To do less would leave part of the harm un-remedied; to do more would confer a windfall gain.

economic: purpose of the law is to maximize the value of conflicting activities.

encourages profitable activity - can violate the law if you can pay for the damage it causes. The function of compensatory damages is to force law violators to take account of the harm they inflict.

Preference in the system:

general approaches are culturally biased in favor of the majority culture

Æ's argue the court to come back to the general rules

¹'s must be careful, respectful and creative

Determine Value of Loss:

¥ Replacement: We assess the value of something lost by the cost of replacing the exact thing lost in a functioning market.

Conception of value depends on the marketplace; "go and replace what was lost."

¥ Efficiency: Having given enough to replace the exact thing they lost, we assume they can spend it however they want.

The Goal = to make the wrongdoer consider their actions carefully and calculate the cost of the wrong-doing.

¥ Corrective Justice: The thing lost should be replaced because the goal is to restore the ¹ to their previous position.

¥ When value is the measure, courts generally focus on the value of what ¹ lost, not on the cost of repair or placement.

FORMULAS:

Substitutionary Remedies: replace the exact thing ¹ lost

Diminution: difference between value before and after that damage (because you still have the damaged property and can sell it)

Breach of warranty: difference between value as warranted/promised and as delivered

Breach of K to sell goods:

- property - difference between K price and market price of property promised

- benefit of bargain - what would have had if K had been performed as promised

Takings: pay for land, but not incidental, consequential or replacement damages

Crops: value of the crops at harvest

¹ is entitled to be made whole, but Æ is usually entitled to have ¹ made whole in the least expensive way.

Remedies Analysis Tip: Ask about alternatives. Start with the general rule and then explore the alternatives. There are a lot of ways to get to the right numbers; there are few wrong ones.

Robin Tidbit: When faced with property loss, start with the general rule and look to exceptions. Often different ways of conceptualizing will not always yield the same result.

United States v. Hatahley (10th, 1958, 11) The General Rule. Preference for losses measurable to the majority culture. Preference for less speculation and more general measures.

Facts: Government liable for damages for trespass; they rounded up and sold Navajo Indians' horses and burros that grazed on public lands without permits. District court awarded $186,000. Case remanded based on "wrong" method of valuing loss.

Horses and burro's actual worth $395.00 per animal

P&S $3500.00 per family

Consequential $28,000.00

Diminution in value $7950.00

App Ct Holding: The fundamental principle of damages is to restore the injured party as nearly as possible to the position she would have been in but for the wrong.

¹'s were entitled to:

- the market value, or replacement cost, of their horses and burros as of the time of taking plus;

- the use value of the animals during the interim between the taking and the time they, acting prudently, could have replaced the animals.

App Ct values efficiency more than corrective justice

¥ Replacement Value - how to figure it out? go to the livestock market

However, these horses are genetically distinct and you cannot establish a market price - they are traded by barter and $ cannot compensate for them

- App Ct wants the general rule applied

¥ General Rule for Pain and Suffering (P&S) - unless there is personal harm, P&S damages are not awarded

¥ Diminution - court said to use lost profits

Special Purpose Property:

- property of non-profits, charitable or religious organizations.

- not generally an active market from which the diminution in market value may be determined

¥ replacement or restoration costs have also been allowed as a measure of damages in other contexts where diminution in market value is unavailable or unsatisfactory as a measure of damages

¥ where expenditures to restore or to replace to pre-damage condition are used as the measure of damages

Integral Part Rule:

- ¹ entitled to replacement cost of integral part of the structure that will be abandoned if the part is not replaced

- no depreciation/discount; you get the value of the new part

- not overcompensation because you must buy it to continue

- alternative is to abandon a more valuable structure

Used Consumer Goods: unsettled, no functioning market

cars are commodities, family Bible's are not

Jalopy Hypo: can the student find an exception to the general rule?

"Lemon Effect" of used consumer goods:

cannot command same market price as replacement

people assume the worst and will not pay

no functioning market place exists

so - need a remedy that is more compensatory

but - puts ¹ in better position than if had sold it before the accident

Income Earning Property:

Helen B. Moran (2d, 1947, 23) Exception: Income Earning Property

lost barge

General Rule: If a total loss, get diminished value or replacement, whichever is less

However, if have these two elements, can ask for an alternate figure that may be a lot more than other remedies

- there was no replacement market in this case

- income earning property was lost

Alternatives = cost of repair or value of barge at time of collision

¹ showed they were entitled to:

¥ capitalized net earnings:

- lost income stream from income earning properties

- multiply by remaining useful life

- present value phenomena - if get it all at once, can earn interest.

- be sure to divide capital earning by interest rate.

¥ open market value; but this did not exist here

¥ repair; which costs more than the value because it was totalled

Æ had job of arguing why ¹ showings were not appropriate

government wanted to pay for the repair

United States v. Fifty Acres of Land (US, 1984, 19) Special Purpose Property

landfill takings case

General Rule in Takings: ¹ gets value of what was lost

Alternatives to general rule, departures from substitutionary justice

Special Purpose Property: subject to special rules.

- entitled to replacement measure or

- cost of repair

not quite a windfall, but is something more than ¹RP (they get more years of use out of the property once replaced/repaired than they may have had)

Trinity Church (Mass., 1989, 26) Special Purpose Property

historic landmark with active congregation

to repair - take apart and rebuild; unless repaired, will suffer great depreciation in the future

General Rule of measuring property damages:

diminution in market value

they get cost of repair; reasonable and necessary

argue one should depreciate

General Discussion of K Remedies (ad nauseam) "A Broken Promise"; what does it mean to return ¹ to her Rightful Position

Measure of ¹RP in K cases:

¥ Expectancy: same position would have occupied if promise had been performed

Benefit of the Bargain

¹ gets $ value of position she would have occupied

Value = value of performance

preference for efficiency and normative values

¥ Reliance: same position ¹ occupied before promise was made

Value = whatever ¹ put forth, out of pocket

generally smaller than expectancy; only used where cannot prove expectancy

¥ Restitution: return ¹ to position Æ now occupies

consider when Æ greatly benefitted by wrongdoing

Unjust Enrichment

General Rule: ¹RP = expectancy

¹ will seek whichever yields the most $

ask for reliance when you cannot prove expectancy

Law & Economics (note 6, 47) Posner

expectancy is the most efficient

true measure of what people value is their expectation

Law should encourage efficiency because resources will be put the their best use

Breach is efficient if you can pay compensation and still make profit

normative argument (notes 4&5, 45-7)

Law protects expectancies because promises are sacred, not optional

this gives true effect to a broken promise

deterrent because will remedy ¹ as if Æ did not break promise

expectancy is unjustified, try Reliance (note 2, 44-5) Atiyah

society is moving away from executory K's and allows people to change their minds (airline and hotel reservations, for example); we are no longer protecting expectancies

Tort v. K - Remedies law tries to keep these separate

Tort damages are nebulous and larger than K damages

we want to avoid nebulousness in business; keep K damages down

Expectancy damages are only recoverable in K, not Tort

Reliance available in Tort

general damages in Tort are P&S

Reliance v. Expectancy

Texaco v. Pennzoil (Tex. App., 1987, 68)

view Getty as a wealthy bride

Pennzoil = suitor no. 1

Texaco = suitor no. 2

P thinks G has agreed to wed

One week later, G shows up on the arm of T

they merge

P feels aggrieved and sues T for tortious interference with K

treat this as a Tort or a K case?

in Tort, Reliance is the preferred measure, not expectancy

Æ wants reliance because reliance is usually the smaller measure

P's attorney argued K case, expectancy, and how to measure expectancy

Tort imbedded in commercial bargain is entitled to K remedies

expected oil: go to geological marketplace and find/produce barrels of oil

billions of $$'s

stock to represent the barrels of oil

mere millions of $$'s

T ignored the Remedies case because they acted like they could not lose

BIG MISTAKE - jury thought they could, and did. $10BIL worth.

Neri v. Retail Marine (NY, 1972, 37) lost volume seller

boat sale and return case

Facts:

K price = $12, 587.40

deposit = $4250.00

Neri breaches and asks for deposit back

Marine had boat when Neri repudiated

4 months late Marine sells boat to another for K price

Marine argues lost profit b/c breach = $2579.00 plus expenses = $674.00

1) Neri, the ¹ and wrongdoer, sues for refund under UCC: buyers right to refund ¤ 2-718

buyer entitled to restitution of amount by which payment exceeds:

liquidated damages, if they exist in the K, or

20% value of buyer's total performance or $500, whichever is less

subject to offset: pay seller's damage out of refund

2) Marine claimed $3253.00 damages - lost profit and incidental

Court reversed CtApp and awarded:

¹ entitled to [$4250.00 minus $500 = $3750] less offset to Æ in amount of $3253.

This was because they considered UCC ¤ 2-708 and the lower courts did not:

Therefore, Seller (S) entitled to its "profit (including reasonable overhead) . . . together with any incidental damages . . . , due allowance for coasts reasonably incurred and due credit for payments or proceeds of resale."

Question: what do we mean by "Rightful Position"?

position ¹ would have occupied if she had never made the K? (reliance)

Retail Marine's expenses

position ¹ would have occupied had K been performed? (expectancy)

Retail Marine's lost profits

or restore Æ to position Æ occupied before K? (restitution)

Neri's deposit

Chatlos Systems v. NCR Corp. (US, 1982, 48) Warranty

cash register case

sales price = $46,020.00

"performs like system worth $207,826.50". Warranted for this amount.

value as delivered = $6,000.00

Remedy = breach of warranty: value of goods as warranted ($207,826.50) minus value as delivered ($6,000.00) equals $201,826.50.

Generally, ¹ gets expectancy. But, here, this cannot be a reasonable expectation.

FMV should be price paid? Limits expectancy to K price.

- However, will not reverse lower court unless factual determinations are clearly erroneous - and they weren't. So the enormous judgment stands.

Consequential, or Special, Damages

General Rule: not recoverable unless foreseeable

general damages = those that almost always accompany the theory of liability pled. General damage formulas and idea of corrective justice should meet in routine cases.

tort = P&S

K = lost benefit of the bargain

Assume you can go out into the marketplace and replace what was lost

Special Damages: When you need to go beyond the general damage formulas in order to reach corrective justice.

Consequential Damages: - Non-Routine

QUESTION; Who should bear the cost of non-routine damages?

Certain damages could, but not always, occur "proximately related to the theory of liability"

tort = medical expenses

K = incidental expenses

FORESEEABILITY - Collin thinks this line of reasoning is a game to avoid the question of whether itÕs ÒfairÓ to compensate for specific kinds of damage.

Characterization as one or the other serves a purpose:

consequential subjected to more scrutiny/proof

general are pretty much assumed

¥ Courts like to exclude consequential damages

Hadley v. Baxendale General Rule

General damages arise naturally. Other damages are not recoverable unless the loss was reasonably to be supposed to be within the contemplation of the parties at the time of the contract.

No compensation is allowed for unusual situations unless the parties thought about it at the time.

Question to ponder: The burden of the loss of anything unusual is put on the plaintiff. IS THIS A FAIR ALLOCATION OF RISK?

Buck v. Morrow followed Hadley

Facts: landlord/tenant case. Tenant pleaded general and special damages for breach of lease.

Lease: Pasture lease, $125/yr for 5 yrs. Provision to allow landlord to sell after two years. Duty to compensate for any and all losses occasioned by the sale.

Losses Claimed: $225 for an extra hand to round them up after forced to let them loose on the commons, lost 15 @ $15/head, and new pasture was more expensive.

Tenant's Rightful Position: property to lease for the unexpired term

General Damages =

¥ FMV of pasture for unexpired term (minus) what he would have paid for his existing lease for the unexpired term = Compensation

¥ Might need to reduce to present value

Consequential or Special = compensate for extra hand and lost cattle?

Court says yes, itÕs enough that the landlord understood how hard it would be on the tenant to push him out of the lease.

¥ Framed as General Damages

Hadley Perspective: if the parties had anticipated that there would be a shortage of pasture? Or that heÕd have to graze on the open range? That heÕd have to pay more?

Who should bear the loss? It might depend on more facts, on whoÕs the better loss avoider.

Example of when you cannot get consequential damages:

Lost money

an additional general damage for failure to pay money is interest.

Virtually never get consequential or special damages, like failed business ventures.

DoesnÕt matter what the parties knew or could foresee because it is easily ascertainable

General Rule: You get enough money to go back into the market to replace what you lost. For money, itÕs a very fungible market to replace or ÒcoverÓ for what you lost = the very amount of money plus interest - not money you could have generated in stock purchase, for example.

¥ Any departure invites too much speculation, $ investments are too hard to predict and too easy to look back and see what happened.

¥ potential spiral of loss - lots of unusual circumstances that nobody would have been able to calculate the risk of loss.

QUESTION - What if ¹ canÕt cover before judgment? Ask for special ruling, doesnÕt happen often, but if you can show special facts, might work.

Statutory and Common-law limitations on Compensation to ¹Õs RP

K limits on damages (Contract provisions which limit compensation)

Liquidated damages Clause - specifies in advance sums payable as damages for a breach

Reasons for liquidated damages:

Avoid expensive litigation

Account for frequently occurrences (like hurricanes) which cause breach

Overliquidated - sum specified is overcompensatory, indicates that its a penalty (economic duress) not compensation, and one party is using it as a threat. IT WONÕT BE ENFORCED

- If liquidated damages clause is reasonable approximation of the either the anticipated or actual damages, it will be enforced.

- Ease of calculation of damages. The more difficult it is to prove the damages, the more reasonable an estimated liquidated damages clause will look.

Underliquidated - Could be used as an alternative to a warranty. Product is cheap and damages could be huge (like burglar alarm)

- When people agree to an under compensatory liquidated damages clause think they have other remedies. K often contains a clause limiting remedy to the liquidated damages.

- Issue: should court rewrite the K? UCC ¤2-719 says yes, puts a floor under parties for remedies. ¤2-718 is all you get though, has to be unconscionable.

Limitation of Remedies Clause Limits ¹'s remedial choices.

UCC Response

¥ Do the remedies available under the clause Òfail of their essential purposeÓ

¥ If they do, full range of traditional remedial options becomes available because of UCC commitment to provide at least minimum adequate remedies even if parties have agreed to impose more risk of loss on one party.

ISSUES:

- Exclusion of consequential damages; do we revive consequential damages as well when we conclude that the remedy provided fails of itÕs essential purpose? YES, but minority of states that say if something else in K to provide remedy, then canÕt have c.d.

- Should court get involved in rewriting contracts. Presently do if itÕs to provide minimal adequate remedies and avoid inequities.

Avoidable consequences doctrine (Collin thinks calling it duty to mitigate is misleading) If the plaintiff is in a position to avoid losses, they should do so.

Rule: Æ need not pay for avoidable (by ¹) consequences of wrongdoing. If Æ can show avoidability, then damages will be offset by the amount avoidable.

¥ ¹ is required to use reasonable diligence to avoid damages from wrongdoing.

¥ ¹ is only required to choose between reasonable courses of conduct. Æ canÕt complain that ¹Õs choice was wrong as long as it was reasonable

Examples:

- Wrongful discharge cases - does ¹ need to leave the geographic region, change profession in order to mitigate damages, or take an inferior job? NO. Personal injury- lose weight, undergo corrective surgery? NO

- Financial inability to mitigate - spending money in order to mitigate damages? If ¹ unable, wonÕt be held liable for losses that could have been avoided if they had mitigated.

SUMMARY; Groves - ¹ cannot recover for damages incurred when there were reasonable alternatives available and they did not take them.

Offsetting benefits rule If ¹ has received benefits because of the wrongdoing, they must be deducted from the damages.

Example: $ value of benefits for full performance reduced by savings on ¹Õs part for not having to perform.

Collateral source rule - if injured party receives compensation from a source wholly independent of the tortfeaser, such a payment should not be deducted from the damages which the ¹ would ordinarily receive from the tortfeaser.

¥ Have to refund benefits to insurance company if you receive benefits from another source. Good section in Remedies book.

¥ Reasons for RULE:

- DonÕt want to discourage people from buying insurance, which is loss avoiding behavior.

- Not a double recovery out of the pocket of the Æ, itÕs due to a separate K based on foresight of the ¹.

PROXIMATE CAUSE: Limiting Compensation

Traditional proximate cause black letter rule is not very helpful in predicting what damages will be compensated. Mainly labels for courts to use that donÕt mean much:

Compensated losses v. Uncompensated losses

Direct Indirect

Proximate Remote

Foreseeable Unforeseeable

Question: Why are some losses compensated and some not?

¥ Not every case has a Proximate Cause problem

¥ Only an issue when wrongful act has potentially unlimited constellation of consequences.

¥ Becoming a more common problem as our economy becomes more commercial - Collateral claims, third parties and consequential damages makes commercialism unstable, hard to predict costs of behavior.

¥ K doctrines are deliberately undercompensatory in order to secure another goals such as commercial expansion and growth.

¥ Tort damages - present the most potential for proximate cause problems. Too many categories of plaintiffÕs with potential damages from harm. Can be almost infinite, See Pruitt, p 114

Social policy approaches judges use to justify invoking the proximate cause limitation:

Bankruptcy (fear of this motivates courts. Is bankruptcy court the forum in which some of these fights should be fought?). Courts will limit damage to avoid bankruptcy.

If a company declares bankruptcy, then the tort might be washed out, if that doesnÕt happen, the amount of money left over will be divided among ALL the creditors. Structured settlement is a good alternative.

Best loss avoider (which party was best able to avoid the loss/pay for the loss). Limits damages if ¹ was the best loss avoider.

Learned Hand (social utility) Cost of accident> Cost of prevention = cut off for damages.

Efficiency; important to pay the full cost of doing wrongdoing. Accurate and most efficient use of resources.

Pruitt v. Allied Chemical Corp. (E.D.Va., 1981, 110)

Allied dumped Kepone in the sewage system after they knew how dangerous it was and were told to stop producing it. Criminal charges were successful and Æ paid large fines for violation of environmental laws.

Perceived Need to Limit Liability: Social utility. But efficiency is a good argument to bring everybody.

Economic harm rule - tort ¹ may not recover damages unless they sustain physical injury to person or property. If applied here nobody would recover because the only physical injury was to the seafood, which was not owned until caught and it dies before it was caught. Judge refused to apply this rule.

Alternate Approaches:

Direct - Fish--->anyone who gets wet, A, G, H, I. Not likely to have insurance or have any alternative to fish from the bay.

Foreseeable - Everyone in the picture was foreseeable, doesnÕt help much in eliminating anyone

Proximate - Just a label that says they will be compensated.

Holding: CLASSES A, G, H & I can recover. No other classes are able to recover. They are indirect losses, even though they are foreseeable and not remote.

Rationale: Only people right on the water get to recover. If they bought their fish, they donÕt get anything.

Tax Issues

IRC 61 - Gross Income means all income from whatever source derived

IRC 104(a)(2) - Gross Income does not include any damage sums received Òon account of injuries or sicknessÓ

Implications of 104:

¹ is overcompensated because that sum in any other form could have been taxed

¹ is put in a better position than would have occupied

Congress - policy position, tax benefit

Interest

General Rule:

Prejudgment interest will only be awarded when damages are ascertainable before trial, they are reducible to a sum certain before trial.

- K cases can pass this test

- Prejudgment interest is rarely available

Post judgement interest - preserves ¹RP in light of the marketplace; otherwise Æ is taking an interest free loan from the ¹

- Almost always available

- if ¹, make sure your judgment is entered by the county clerk so interest can start accruing immediately.

- Post judgement interest rate is not the market rate, but the legal rate set by state statute.

Legal Rate has recently been far below the market rate.

Lower rate gives Æ a good reason to Òborrow money from the ¹Ó - delay paying because itÕs cheap interest.

- No compounding of interest on judgments with two exceptions

Established course of conduct between ¹ and Æ

Federal judgements may allow compounding interest by statute

- Rule of 72Õs

Method of determining the # of years to compound in order to double amount

sum/72=# years to double the principle

- Jury Information - Traditional rule

- Juries will not receive information (instructions or evidence) regarding taxability of awards received by a ¹.

- Juries may not be informed that interest on money invested by ¹ is taxable under IRC 61

Taxable Earnings In Federal Case

Leopold case - federal juries must only consider after tax earnings

Discounting to Present Value

General Rule: When a lump sum is awarded for future earnings most courtÕs will discount to present value

This principle can warp the theory of compensatory damages

Principle behind discounting -

¥ if ¹ is compensated for lost wages w/o reducing/discounting to present value, ¹ is being overcompensated.

¥ Can presently earn interest on money ¹ wouldnÕt have had until the future.

¥ some believe that any lump sum award (even for pain and suffering) should be discounted to itÕs present value.

Discounting Process - Reducing the lump sum by the amount of interest it could earn.

Present value calculation table - CB 1086.

The higher a sum could be expected to earn, the more deeply that sum needs to be discounted.

Interest rates are very significant in the discounting formula - see page 222.

Discounting presumes an inflationary economy

Alternative: Have Æ make periodic payments to ¹.

Jones V. Laughlin Steel (Cb 213) formula for discounting (note 2, 221)

Æ argue that lost wages should be diminished by state and federal income taxes

should only consider after tax wages and benefits

EQUITY

Overview

Principle remedy in Equity is the Injunction

Injunction = order from court to Æ personally

negative = preventive; not to do something

affirmative = reparative; to do something

Law courts had special writs of power to command behavior. 3 survive today:

mandamus - court to another court or public or corporate official

to perform official ministerial duty

Limits:

not available against private individual

duty must be clear and non-discretionary

not available if ¹ has other remedy

prohibition - court to inferior court and the parties

not to exceed jurisdiction or abuse authority

important for prosecution; a substitute for interlocutory appeals

habeas corpus - court order to someone who is holding someone else

to produce the body; bring the person before the court and justify custody

use - obtain review of criminal conviction and child custody

3 Types of Injunction

Preventive = prevent harm to ¹ by forbidding future wrongdoing before it occurs

keeps ¹ in RP. If successful, ¹ will never experience harm

substitutes threat of contempt for other consequences, like compensation

better at keeping ¹ in RP

worse for Æ because as long as have option to pay, can choose unlawful action

Reparative = order Æ to undo wrongdoing that has occurred

both like and unlike compensation

like: address wrongdoing that has occurred

unlike: not trying to assess $ value of ¹ harm; makes Æ undo wrong

may require $, but that is not the order

avoid future harmful consequences to ¹ from past wrongdoing

can also get compensation

one prospective, one retrospective

Æ argument = reparative injunction only addresses those harms that cannot be paid for - that is what compensation is for.

Structural = combines above in order to reform an institution or organization

comes mainly form anti-trust cases

used in public education and prisons

Injunctions require obedience, disobedience is punishable by contempt

Irreparable Injury Rule = may have none of these orders unless remedy at law is inadequate

injunctions are least preferred remedy of the law

if there is any reason to subordinate the remedy/injunction, it will be subordinated

Enforced by Contempt

distinct tactical advantage; the "big hammer" behind equity

refers to act of and sanction for disobedience

Direct - disobedience in courtroom or in judge's presence

may be punished summarily

due process waived by contemnor

Indirect - disobedience out of presence of judge

entitled to notice and hearing, at top of docket

hearing = order to show cause why Æ should not be held in contempt; Æ provides reasons

no jury

3 "flavors" of contempt:

Criminal - willful intentional violation of court order

no collateral attack on that judgement

collateral bar rule = even if underlying rule is unconstitutional, you must obey it until it has gone through a process to overturn it in the orderly course of judicial review

punishment = fixed sentence or fine

Civil - ¹ prosecutes this remedial proceeding herself

sanctions look like compensation: attorneys fees

usually no trial

Civil/Coercive - penalties are civil, but may include imprisonment

punishment = fine/imprisonment conditional upon obedience

Æ holds keys to own prison

Judges are to use the least possible power that is effective

Preventive Injunctions

Orders Æ not to do act in future; Æ conduct still inchoate (like criminal attempt)

risk: may intervene in Æ conduct that is lawful

to avoid: be sure claim is ripe (sufficiently real to allow law to intercede) for the remedy

Scope:

Marshall v. Goodyear (5th, 1977, 236)

General Principle: appropriate breadth of order must be determined by reference to the wrongdoing

order of ADEA compliance to entire chain too broad

- one person's actions cast bad light on entire company and placed them under threat of contempt, not just ordinary remedy for Act violation; this is not acceptable

- but good tactical move for ¹: do not have to file new suit, just have to get past show cause hearing and get to be at top of docket

NLRB v. Express Publishing (US, 1941, 239) Standard Doctrinal Answer

"A federal court has broad power to restrain acts which are of the same type or class as unlawful acts which the court has found to have been committed or whose commission in the future, unless enjoined, may fairly be anticipated from the defendant's conduct in the past." (emphasis added)

Determined by reference to the wrongdoing found or threatened

Shifts focus from ¹ position to Æ wrong

Ripeness:

Limit on/requirement in preventive injunctions

Since against future conduct, must restrain realistic threat of harm

Standard:

¥ real or substantial threat ¹ will be harmed in the future

can be eventual, even if not imminent - as long as show substantial certainty harm will occur and facts are sufficiently developed for a reliable decision (note 13, 236)

¥ potential is not enough, ¹ must show sufficiently realistic threat

¹ himself must be threatened with injury

Ripeness limits reach of equity and power of courts in equity. Because remedy is tailored by chancellor, scope is left largely to discretion of judge. We need some check on this. Ripeness is it.

Humble Oil v. Harang  (E.D.La, 1966, 229) [injunction denied]

facts:

¹ wants Æ ordered not to destroy documents in conspiracy case

there are many consequences for destroying documents, but the available remedies will not help ¹ much if the documents have been destroyed

affidavit produced based on belief wrongdoing will occur

"irresistible temptation" - by issuing the injunction, court says this is not a trustworthy Æ incapable of adhering to the right decision and resist temptation

may affect Æ reputation

gives ¹ significant tactical advantage

slippery slope - every ¹ will seek preventive injunction for discovery issues and substitute equity for civil procedure

¹ must show:

potential irreparable injury

real danger the acts to be enjoined will occur

there is no other remedy available

under these circumstances, the court should exercise its discretion

3 reasons for ripeness, require sufficient threat to ¹:

protect Æ potentially lawful conduct

protect Æ reputation for integrity

limit power of equity court to define/control punishment for law violations

City of LA v. Lyons (US, 1983, 236) LAPD chokehold

¹ sought injunction against Æ to stop chokehold practice

- however, ¹ must show future injury to ¹ personally

- should be able to draft injunction broadly enough to include a class of people similarly situated to him, but he still has to show it would happen to him

No injunction because unripe.

Nicholson v. Connecticut Half-way House  (Conn., 1966, 246)

anticipatory nuisance; preventive injunction against the nuisance

if land use is sufficiently dangerous/disruptive, it may be a nuisance and court may order its operation stopped

no injunctions allowed for fear and apprehension; the necessity for the injunction must be demonstrated clearly

must be reasonable certain, not merely possible

Æ has interest in reputation

if harm does occur, the law can take care of it

¹ argues Æ house will lower property value

court says this is not enough; besides, there is not enough evidence the house will have a predictable effect.

There are no fixed attributes, like with dump and mortuary cases

Termination/Mootness

When should an injunction end? without a date, they go on forever.

Æ wants termination, ¹ wants continuation for tactical reasons

Æ free to begin again

¹ keeps tactical advantage, the hovering "hammer"

US v. W.T. Grant Co. (US, 1953, 242) antitrust case

General Principle - party moving to terminate must show:

there exists no danger of recurrent violation

heavy burden

court must consider effectiveness of discontinuance

court must consider character of past violation

voluntary cessation - a common source of mootness; variation on ripeness

¹'s win more of these than they do ripeness because past violations hurt Æ's credibility

Reparative Injunctions

Court orders to Æ to undo harm the wrongdoing has caused and/or take positive steps to avoid future harm

- the distinction between these and preventive injunctions is that of preventing some or all of the harmful consequences of an act and preventing the wrongful act itself.

- past violation is the best proof that the threat of future violations is "ripe"

Issue = Question of how much can/should a court order Æ to do/undo.

This turns on: how much ¹ harm results from Æ wrongdoing

3 possible standards to determine scope of remedy:

1 - harm; the traditional "doing equity" standard - this is broad

¥ once have jurisdiction, may proceed to completely repair the harm

2 - wrongdoing; tailoring principle - this is narrow

¥ tailor the injunction to the specific harm, not whole universe

3 - ¹RP; rightful position - in between

Laycock's Principle (258):

preventable harm limit

look to facts and circumstances to determine whether future harm can in fact be prevented

if not - Æ ought to pay compensatory damages for future injuries

damages alone can compensate for harm suffered prior to the court's order and for future harm that cannot be prevented, such as pain and suffering from a lingering injury.

if so - then can seek injunction. Think about the preventable character of the harm. Remember to look to the scope.

¹ can receive both and not have double recovery

Bell v. Southwell (5th, 1967, 253) extreme case. racial intimidation at election. this gives us a sense of the power of a court.

harm:  illegally elected official

remedy: legal election

the conduct was clearly illegal and ¹ sought an order enjoining Æ from taking office - a reparative remedy (a preventive injunction would have suffered from ripeness problems)

The court considered: the gross, spectacular, completely indefensible nature of this state-imposed, state-enforced racial discrimination and the absence of an effective judicial remedy prior to the holding of the election

Winston v. MN Mining and Manufacturing Co. (9th, 1965, 261) tape recorder

wrongdoing: employees breach of faith

remedy: 1) deny unjust enrichment, 2) protect Æ from wrongful disclosure/use of trade secrets

this puts Æ in position would have been had trade secrets not been stolen

Bailey v. Proctor (1st, 1947, 266) mutual fund

jurisdiction based on unfair capital structure, insolvency and potential for recurrence of fraud - once had jurisdiction, did not lose it; power just changed

Characterize the wrong not as fraud, but the entire structure of the investment. That makes the scope okay.

Structural Injunctions

Combination of both reparative and preventive relief with the goal or objective of reorganizing an institution.

- Most have been public institutions, but can be private corporations like Bailey. - Divestiture - reorganizes a private organization.

Requirement/Standard:

Only done when organization is Òserving up regular constitutional failures and violationÓ

- Sometimes it seems like state organizations (like prisons and mental institutions) want to be sued because they get on the side of the ¹ at remedy stage. They are trying to use the courtÕs power to get around political pressure (or lack of it), and get an order to make politically unfeasible changes.

Scope: Who can make who do what? Where does money come from? What can you force any group to do?

Swann (US, 1971, 277) broad desegregation case.

Scope - "The nature of the violation determines the scope of the remedyÓ

Wrongdoing characterized very broadly

Took de facto segregation into consideration when determining cause of de jure segregation

Case is basically overshooting ¹Õs rightful position to achieve a complete remedy

Milliken I (US, 1974, 284) Other extreme. Remedy must be narrowly tailored to address only the wrong.

used the same wording as Swann, but characterized wrongdoing narrowly; identified wrongdoer as district, not state

Milliken II (US, 1977, 291) in the future, Federal injunctive remedies had to be limited in three ways

1) related to the offending constitutional condition(tailoring),

2) designed as nearly as possible to restore ¹ to their rightful position,

3) Take into account interests of state and local authorities in managing local affairs.

Losing Federal Arguments (in dissent, might be worth a try)- when what is at stake is a federal constitutional right, local authorities ought not be deferred to. Interests of ¹s living in unconstitutional condition should over-ride interests of local authorities.

Missouri v. Jenkins  (US, 1990, 300)

¥ scope of injunctive remedy

¥ when to terminate injunction

¥ power of federal court (in equity) to fund remedy

Hutto (US, 1978, 294) interdependent wrongs and conditions collectively created unconstitutional confinement. So remedy was justified in correcting each interdependent conditions even though individually each would not have been a violation. Synergistic effect taken into account.

* RehnquistÕs dissent - Milliken II supposed to stop this; look to each wrong independently.

Lewis v. Casey (US, 1996, SS 21) Might cut off the end run in Hutto. Supp p.21. Inadequate law libraries - 2 incidents of violations proven

¥ District Court ordered all state prison law libraries for non-English speakers and fix acoustical problems.

¥ Supreme court cited Milliken II. Souter and OÕConnerÕs concurrence - aggregated, discrete violations do not add up to a system wide wrong. CanÕt justify the relief given by District Court.

¥ Does this eviscerate Hutto? Violations must not be isolated and episodic. Two might be enough if clear danger of future violation.

Prison Litigation Reform Statute (SS, 25, note 4)

¥ No relief extending further than violation in regard to particular ¹ or ¹s. Narrowly drawn and least intrusive means necessary.

Implications- At the outset of the case you MUST think of how you characterize the wrong.

Why are court limiting the spectrum of structural injunctions?

- Time Changing an institution takes time, illustrated by desegregation cases.

Resistance You will encounter it.

- Organizations tend to develop a culture of their own, and develop ways to reinforce the values of that culture. In order to change you must figure out a way to reach into the beliefs and change them in order for change to be effective.

- separation of powers and federalism issues.

Collin:

- amount of resistance and fear public injunctions have generated, along with possibility of armed confrontation have scared of a large class of ¹s and judges.

- Possibility of legislation to outlaw structural injunctions.

- Could legislation get rid of equity completely? Collin says it could happen. Happened in labor dispute cases (canÕt have equitable remedies).

Specific Performance In Contract - itÕs an equitable remedy

Trend toward awarding specific performance more freely

Decree - injunction to do what was required in the K

Not a preferred remedy b/c of irreparable injury rule, damages preferred.

When specific performance is awarded, possibility of efficient breach is eliminated

Campbell Soup V. Wentz (3d, 1948, 363)

Facts: K btwn farmers and Campbells for all carrots to be grown on their 15 acre farm.

Market price was $90/ton, K price $30/ton.

Liquidated damage clause limited damages to $50/acre=$750

actual damages=$8,250 profit=efficient breach.

Arguments to give specific performance:

1) Shortage in the market (but damages are not difficult to calculate)

2) CanÕt replace the carrots with the damages they were entitled to.

Specific Performance =$90/ton=expectancy (position would have been in if contract had been fulfilled).

Holding: Could have had specific performance based on the uniqueness of the goods, but the K was unconscionable.

Background on transaction costs

- Transaction costs - absorb time and risk involved in ÒcoveringÓ. Specific performance shifts these costs to the breacher.

- Issue: Should transaction costs be figured in when determining whether to provide specific performance?

Thompson V. Commonwealth (Va., 1955, 372)

Facts: K for vote counting machines. Trial court ordered specific performance to the Æ to Òprepare, build, construct, and deliverÓ the machines.

Monopoly: Does Thomson have a monopoly? Yes, nobody else makes the machines.

- If $ damages are awarded, ¹ would need to find someone to make the machines without the plans! Big risks assumed by ¹.

Holding: Court wonÕt make ¹ assume transaction costs, and orders specific performance, Æ must do it themselves or cause someone else to do it. Shifts cost of wrongdoing onto the Æ.

- McNeal - agrees with this outcome because all transaction costs placed on the wrongdoer. If it was an efficient breach, Thompson will know!

Undue hardship rule: Damages preferred when the affect of equity would be disproportionately harmful on the Æ when compared to the benefit to the ¹.

1. Explicit requirement to weigh costs and benefits.

2. Invitation to the Court to make a judgement about the relative value of the rights of each party. Can get uneven results

Van Wagner Advertising Corp V. S&M Enterprises (NY, 1986, 375)

K for unique, prime billboard space for 3 years and option for 7 more. Æ buys and plans to demolish building and breaks the lease.

Traditional argument - real estate is unique and protected by injunctions.

Trial court (upheld) gave damages instead of specific performance even though it was unique.

- Can know what damages are with reasonable certainty.

- Cost of injunction to Æ is too high, Òundue hardship ruleÓ which is independent reason to prefer damages

Ariola V. Nigro (11th, 1959, 381)

Facts: Neighbor trespassed on easement to build house up against ¹Õs house. Water damage to ¹Õs wall.

- ¹ requested mandatory injunction (court granted it) - issued to protect intentional encroachment of an easement. Cited old cases where trespass of easement is intentional, injunction is mandatory, and court wonÕt consider hardship rule.

- Culpability is taken into account, itÕs not just negligence or mistake in question.

Result: Point of these injunctions is to get people to talk and get some kind of agreement - p 389. What happened after injunction issued? Sat down and discussed cost of fixing?

- Injunction gives non-trespasser some power, but also the right to be unreasonable. But damages allows the Æ to be the unreasonable one with the most power.

Undue hardship rule application? Does court have to balance the equities in a mandatory injunction? Doing this would give the neighbor a private right of imminent domain.

Boomer V. Atlantic Cement (NY, 1970, 386)

Would not enjoin nuisance from dust poured on homes. Undue hardship to Æ. Issued injunction to pay damages. Gives ¹ a little better position, since payment would be enforced by contempt. It involved a policy judgment as to what the most beneficial use of valuable resources is.

Peaveyhouse (OK, 1962, 391)

Example of undue hardship? ¹Õs could have asked for specific performance, and Æs could have raised undue hardship because comparative benefit was much smaller than cost of restoration of land. ¹Õs wanted cost of restoration - court equated that with specific performance. Court awarded diminished value.

- UNDUE HARDSHIP IS VERY POTENT DEFENSE.

ROBIN: These approaches to undue hardship may be underinclusive or undervaluing of important aspects of the case. Thin mask for a much more complicated issue. DonÕt understand what this means, figure it out.

Tactical Point: This rule is very sensitive to intentional actions and culpability.

Contempt

Background

Both an offense and a sanction

When a court issues an order, disobedience is an offense called contempt.

Sanctions for that offense are also called contempt.

¥ For purposes of this class, Collin is talking about sanctions when she uses the term

Direct - disobedience that occurs in the judges presence. Court may move to consider sanction immediately and summarily punish (no need to take fact finding, listen to defenses).

Indirect - Disobedience outside the judgeÕs presence. Requires some kind of factfinding as to the occupance of the offense before the court can impose sanctions.

Factfinding - called Òorder to show causeÓ = OSC. It is really a hearing at which the contemnor has opportunity to show why they should NOT be held in contempt

jury entitlement - none if sanction is civil. BUT - If itÕs criminal contempt, then offender is entitled to all criminal protections (even if direct contempt).

Process

Issuance of injunction; Court issues order (and itÕs disobeyed)

Imposition of contempt sanctions (show cause - only for indirect contempt, for direct the sanction is summary)

Collection - if judge imposes fines

Categories: Court has choice of three flavors of sanction, can use any combination of the three.

civil sanction intended to compensate for harm that came from disobedience.

civil sanction intended to coerce future obedience -

criminal sanction; punishment which is determinate and retrospective.

Must comply with due process requirements for criminal punishment.

Also must prove mens rea and actus rea and guilt beyond a reasonable doubt.

Even in summary contempt, must have a neutral fact finder and an offended court is not the one to do it.

Traditional characterization- Difference btw 3 areas, Bagwell IA

1. Criminal -

a. Retrospective

b. must prove mens rea,

c. proof beyond reasonable doubt

d. Double jeopardy applies, (so canÕt be held guilty and punished for both contempt and crime prohibited in injunction)

e. all other criminal protections.

f. Fines are payable to the government.

2. Civil coercive -

a. Designed to compel future compliance, if so no need for criminal protections.

b. Fining or confining party until compliance (Fed statute limits confinement to 18 months).

c. Can also be a fixed fine or confinement if Æ can purge contempt by obedience.

3. Adjustable Fines can be either criminal or civil.

a. Civil if they either coerce the contemnor or compensates the victim for losses

b. If fine isnÕt compensatory, itÕs only civil if contemnor is afforded opportunity to purge.

4. Fixed fines or imprisonment can be either criminal or coercive.

i. Key is whether contemnor can avoid it by coming into compliance

ii. Civil should be prospective. Purpose is to coerce future conduct, obtain obedience in the future by making Æ uncomfortable enough to comply. But itÕs difficult to tell the difference between coercion and deterrence

Hicks - Procedural requirements depend on which kind of contempt is being imposed.That depends on the purpose of the sanction and the relief itself

Bagwell (US, 1994, 95) union case

Procedure

a. Order issued

b. Contempt Hearing, sanction, imposition of sanctions, fines which were retrospective and prospective. Found in contempt for more than 400 violations.

i. Each hearing held as civil proceeding. Required proof beyond a reasonable doubt but didnÕt allow a jury trial.

ii. Court called the fines owed to the state and local govt civil coercive and refused to vacate them after the underlying dispute had been settled.

c. Supreme Court found that the sanctions were such that the Æs were entitled to criminal protections.

i. Arguments for union that fines were criminal

(1) Flat, not entirely retrospective

(2) Payable to state and local govt. If civil you would expect victim to get fine(GinsburgÕs concurrence).

(3) Not intentions of judge, but actual character of sanction

ii. Robin note: Coercion and deterrence look the same in some ways. What makeÕs criminal law a deterrent? Just because they were announced in advance didnÕt make them coercive and civil.

Two tests to determine what kind of contempt it is:

a. Character and purpose - not the judgeÕs intentions or motivations, depends entirely on the form of the sanctions themselves.

b. Key To Bagwell For indirect contempts of complex injunctions, a jury trial might be necessary regardless of the form.

NOTE: Diver, p 728. Courts shouldnÕt be using contempt very much anyway. Award attorneyÕs fees or use other weapons, like striking claims, imposing receiver, default judgments, etc. If you overuse contempt itÕs not going to be taken seriously anymore.

Yonkers p 724 Important limitations on contempt sanctions. DonÕt wrestle with pigs, youÕll just get dirty and they like it.

Facts:

a. Segregation of public housing, Yonkers city counsel signed a consent decree then resisted implementing it. Refuse to enact drafted ordinance based on it. Judge jailed the city councilmen and fined the city

b. With contempt fines the city would have been bankrupt between the third and fourth week.

Alternative - What other way could the judge have gone about it? Could he have written the ordinance into an injunction?

Supreme Court -

a. If use contempt, should have used a different kind, not against the councilmen personally. Personal sanctions are much more intrusive.

b. Least possible power necessary to achieve the goal. began a trend toward limiting coercion by statute. Robin thinks wrongheaded, but seems necessary because of judges who donÕt follow theory of Òleast possible powerÓ.

Justification: Why do judges need this kind of power?

¥ Courts must be Òvested with the power to impose silence, respect and decorum in their presenceÓ andÒInsulate themselves and officers from insults of pollutionÓ. Bagwell

IN OTHER WORDS - they have to be able to impose sanctions or nobody would pay any attention to court orders.

Defenses to contempt sanction:

1. Æ does not have the present ability to comply. Often an issue of proof.

2. No longer a need for coercion.

Limitations on the Court:

Limitation On Confinement:

Morgan v. Foratage

FACTS: Wife alleged child abuse, never proved it. Refuse to produce the child and she was imprisoned for 25 months. Lost her practice and was eventually release.

Federal act: limits the term of coercive imprisonment to 18 months. 18 USC 1826

BUT: Catena v. Seidel, DISSENT: If you are too willing to let people out you are undercutting the effectiveness and people will hold out.

Limitation on Defense

Collateral Bar Rule: In a prosecution for criminal contempt, the courts underlying order cannot be attacked even if itÕs wrong or later reversed or unconstitutional. The only question is whether the defendant violated the order.

Walker V. Birmingham

FACTS: Æs ordered to obey parade ordinance. DidnÕt make any attempt to challenge the ordinance itself. Challenged the constitutionality of the parade ordinance as a defense to disobeying the charge of criminal contempt.

RULE justification is on p 751 -

Hint in the language - If Æs had tried to challenge the order in a legal fashion and been met with delay or frustration, they might have been able to raise the defense.

Two Exceptions

¥ Court without jurisdiction, canÕt issue binding orders. But it must be bizarre, Òtraveling so far outside itÕs orbit that itÕs not acting as a court at allÓ

¥ Order is transparently invalid or is a frivolous pretense. - In re Province Journal.

Contempt of an anticipated injunction:

¥ strand of cases of which Griffen is the leading example. May use mandatory injunction to restore status quo ante, where defendant with notice completes an act sought to be enjoined. Notes on p 742

RULE: If there is no outstanding command itÕs not contempt. Injunction must be in writing, so if not, no contempt. Griffen is a wrinkle in the rule because the Æ made the court really mad. Based on the CourtÕs inherent power to punish bad faith litigation. COLLIN - there are lots of ways to punish bad faith litigation.

Choosing Remedies:

Traditional Irreparable Injury Rule; ÒEquity will act if there is no adequate remedy at lawÓ or Òequity will act only when the injury is irreparableÓ

¥ Practical reasons to prefer $ damages

- to preserve opportunity for efficient breach

¥ Practical reasons to prefer equity

- $ isnÕt a substitute

- damages are difficult to measure

Ian McNeal (note 7 ?)- almost never such a thing as efficient breach if you put the transaction costs onto the wrongdoer. Inadequacies in the system are what result in efficient breach. Would almost always end up saying $ is inadequate.

Question: does it make sense to allow the wrongdoer to do the harm and pay for it later?

Justifications:

1) ongoing supervision, one time transfer of $ is less burdensome to courts

2) to give Æ freedom

- some breaches are efficient, more good than harm comes from them

- pay compensation damages and still make a profit

Efficiency Law and Economics (note, 355)

Choice of Remedies should reflect thinking about what remedy promotes a bargained for transfer of resources.

not theft, stealing, trespass

Robin note:  Remember - this is a pro-development statement; resources should be transferred. Bargaining is good, hmmm . . . .

Why Bargain?

It lets you know the real value of goods/resources

- what a willing buyer would pay a willing seller

Goods are going to their most profitable use.

Efficient choice rule:

High transaction costs (due to a shortage): usual remedy = damages

Low transaction costs (fungible goods): usual remedy = equity/injunction

¥ this preference stands the traditional rule on its head

- important to understand why this promotes bargained for transactions

contention - this encourages negotiation and the movement of goods to their most beneficial use.

Pardee v. Camden Lumber Co.  (W.Va., 1911, 345)

Æ wants to cut ¹ trees

Æ is solvent - able to pay damage judgment

¹ brings suit - asks for preventative injunction

(maintains ¹RP)

holding: is ripe, injunction permitted. Trespass to cut trees will always be enjoined.

1) ¹ must show title to land, trespass or threat of trespass, inadequacy of legal remedies

inadequacy proved - standing timber is part of real estate, which is unique, so trees are unique

also - shortage

Traditional Language - $ adequate for damages

assumption: $ buys timber, so go out into the market place and replace

Why this does not work here - ¹ does not want the timber, ¹ wants the trees!

- this is a whole ecosystem that grew up here

- intangible personal right - to wander in your trees

Brook v. James A. Cullimore & Co. (OK, 1967, 360)

replevin, legal remedy (irreparable injury not required): order to produce/deliver the very thing, property, not $ or a substitute

because it is a legal remedy, court issues a judgment, then ¹ presents the order to the sheriff to go get the thing

- injunction could do the same thing, but enforceable by contempt

contempt statutes specify ¹ can choose enforcement mechanism: contempt or order or replevin

Preliminary Relief

It Is Injunctive Relief And Subject To A Very Strict Irreparable Injury Rule

Traditional Four Part Test

1) Likelihood Of Success On Merits

2) Potential For Irreparable Injury Before Trial On The Merits

3) Balance Of Hardships From Imposition Of Relief Is Favorable To ¸

4) Public Interest In Favor Of Relief

Balancing Tests

1) Probability of success on the merits + Irreparable injury to ¹ and minimal tip in balance of hardships that favors ¹.

2) ¹ claim raised serious questions + balance of hardships tips sharply in favor of ¹.

Similarities: All require balancing hardship, and all require ¹ to show at least minimally that they will be more benefitted by relief than Æ will be harmed by it.

¥Laycock - Only time there is a preference for preliminary injunction is when it will preserve the status quo. Is this the right situation to maintain before you reach trial on the merits.

CASES:

Lakeshores v. Babcock Should status quo of Yogi the pet bear being at home be maintained? If so, then injunction to move him should be denied. Moving him is not the status quo.

¥ ¹ must prove

1) Reasonable likelihood of success on merits - Æ must prove Yogi did not pre-existed amendments, ¹ must show that Yogi didnÕt ever fit into household pets category.

2) ¹ must show potential for irreparable harm. Is fear enough under ripeness test?

3) Balance of hardships - Move Yogi, pay for new place temporarily until trial. Cost to ¹ if denied - fear for safety, if they win they have to post a bond to pay for his hardship.

4) Public interest - private dispute? Minimization and nonencouragement of exotic animal ownership.

LA Coliseum p 416

FACTS: Raiders case. Wanted to move to LA, NFL was trying to stop them. Raiders said veto over move was violation of anti-trust laws. (Won on merits)Coliseum wants the NFL rule enjoined, to stop them from using the rule to prevent move.

Court goes through balancing test

Issued injunction

Probability of success on merits

Irreparable injury

9th circuit reversed

Injury to NFL if injunction issued - Raiders could go to LA, loss of money

If not issued - harm to ¹ is loss of money

So case is about money - so remedy at law is perfectly accurate, so shouldnÕt even talk about injunction.

Injunction Bonds

If court grants preliminary relief and that relief is later reversed, who should be liable to Æ for any harm caused by erroneous preliminary relief.

- Most states require the ¹ to post a preliminary bond to reimburse the Æ for harm if the injunction is erroneous. KNOW LOCAL RULES

Majority rule - if itÕs wrong, Æ may recover against the bond and only against the bond and for the amount of the bond.

Remedies, Fall 1997

Professor Robin Morris Collin

Table of Contents

Justice 1

Three theories of justice 1

Normative 1

Distributive 1

Procedural 1

One Satisfaction Rule 1

Overview 1

Five Families of Remedies 1

Compensatory Damages 1

Equity 2

Restitution 2

Punitive Damages 3

Declaratory Remedies 3

Irreparable Injury Rule 3

Other rules that express the preference for monetary relief 3

Rule Against Prior Restraints 3

Equity will not enjoin a crime 4

Adequacy 4

Practitioner's Rules, not the traditional language 4

Compensatory Damages 4

Compensatory Damages are about restoring ¹RP 4

Arguments for restoring ¹RP 5

traditional 5

economic 5

Preference in the system 5

Determine Value of Loss 5

FORMULAS 6

Substitutionary Remedies 6

Diminution 6

Breach of warranty 6

Breach of K to sell goods 6

Takings 6

Crops 6

United States v. Hatahley (10th, 1958, 11) The General Rule. 6

Special Purpose Property 7

Integral Part Rule 7

Used Consumer Goods 8

Income Earning Property 8

United States v. Fifty Acres of Land (US, 1984, 19) Special Purpose Property 9

Trinity Church (Mass., 1989, 26) Special Purpose Property 9

General Discussion of K Remedies 9

Measure of ¹RP in K cases 9

General Rule: ¹RP = expectancy 10

Law & Economics 10

normative argument 10

Tort v. K 10

Reliance v. Expectancy 11

Texaco v. Pennzoil 11

Neri v. Retail Marine (NY, 1972, 37) lost volume seller 11

Chatlos Systems v. NCR Corp. (US, 1982, 48) Warranty 12

Consequential, or Special, Damages 13

General Rule 13

Special Damages 13

Consequential Damages 13

Hadley v. Baxendale General Rule 14

Buck v. Morrow followed Hadley 14

Lost money 15

Statutory and Common-law limitations on Compensation to ¹Õs RP 15

K limits on damages 15

Liquidated damages Clause 15

Overliquidated 16

Underliquidated 16

Limitation of Remedies Clause 16

Avoidable consequences doctrine 17

Rule 17

Offsetting benefits rule 17

PROXIMATE CAUSE: Limiting Compensation 18

Social policy approaches judges use to justify invoking the proximate cause limitation 18

Bankruptcy 18

Best loss avoider 18

Learned Hand (social utility) 19

Pruitt v. Allied Chemical Corp. 19

Economic harm rule 19

Tax Issues 19

Interest 20

Prejudgment interest 20

Post judgement interest 20

Discounting to Present Value 21

Discounting Process 21

Alternative 21

EQUITY 21

Overview 21

Principle remedy in Equity is the Injunction 21

special writs of power to command behavior 22

mandamus 22

prohibition 22

habeas corpus 22

3 Types of Injunction 22

Preventive 22

Reparative 22

Structural 23

Irreparable Injury Rule 23

Enforced by Contempt 23

Direct 23

Indirect 23

3 "flavors" of contempt 23

Criminal 23

Civil 23

Civil/Coercive 24

Preventive Injunctions 24

Scope 24

Marshall v. Goodyear 24

NLRB v. Express Publishing 24

Ripeness 24

Standard 25

Humble Oil v. Harang 25

3 reasons for ripeness 25

City of LA v. Lyons 26

Nicholson v. Connecticut Half-way House 26

Termination/Mootness 26

US v. W.T. Grant Co. 26

Reparative Injunctions 27

3 possible standards to determine scope of remedy 27

harm 27

wrongdoing 27

¹RP 27

Laycock's Principle 27

Bell v. Southwell 27

Winston v. MN Mining and Manufacturing Co. 28

Bailey v. Proctor 28

Structural Injunctions 28

Requirement/Standard 28

Scope 29

Swann 29

Milliken I 29

Milliken II 29

Missouri v. Jenkins 29

Hutto 30

Lewis v. Casey 30

Prison Litigation Reform Statute 30

Why are court limiting the spectrum of structural injunctions 30

Time 30

Resistance 30

Specific Performance In Contract 31

Campbell Soup V. Wentz 31

Background on transaction costs 31

Thompson V. Commonwealth 31

Undue hardship rule 32

Van Wagner Advertising Corp V. S&M Enterprises 32

Ariola V. Nigro 32

Boomer V. Atlantic Cement 33

Peaveyhouse 33

Contempt 33

Background 33

Direct 34

Indirect 34

Process 34

Categories 34

civil sanction intended to compensate 34

civil sanction intended to coerce future obedience 34

criminal sanction 35

Traditional characterization 35

Bagwell 36

Two tests 36

Yonkers 37

Justification 37

Defenses to contempt sanction 37

Limitations on the Court 38

Limitation On Confinement 38

Limitation on Defense 38

Collateral Bar Rule 38

Two Exceptions 38

Contempt of an anticipated injunction 39

Choosing Remedies 39

Traditional Irreparable Injury Rule 39

Reasons to deny injunctions 40

Reasons in favor of equity 40

Efficiency Law and Economics 40

Why Bargain? 40

Efficient choice rule 41

Pardee v. Camden Lumber Co. 41

Brook v. James A. Cullimore & Co. 41

Preliminary Relief 42

Traditional Four Part Test 42

Balancing Tests 42

Laycock 42

Yogi 42

LA Coliseum 43

Injunction Bonds 43

Justice:

Three theories:

Normative

Distributive

Procedural

One Satisfaction Rule

Irreparable Injury Rule

Traditional language

Equity will not act if there is an adequate remedy at law; equity will act only to prevent injury that is irreparable.

RobinÕs language

remedy = complete, practical, efficient

Analysis: turns on adequacy

Test for adequacy: Remedies are adequate if you can go into the marketplace and replace what was lost

Two other rules that express the preference for montary damage:

rule against prior restraints

equity never available for crimes

1st - ask if compensatory relief is adequate

Compensatory Damages

General Rules: Remedies are designed to return ¹ to RP

Property - value is the measure of loss

Replacement: you get what it takes to go into functioning market to replace exact thing lost; this is diminution in value

Takings: land value

Crops: harvest value

Contract - expectancy is the measure of loss

Expectancy: position ¹ would have been in had K been performed

Claims:

Breach of Warranty: difference b/w delivered and promised value

Breach of K to sell goods: difference b/w K price and

Exceptions

Property:

special purpose - get cost of repair if not generally a functioning market

integral part - no depreciation if alternative is abandoning more valuable property

used consumer goods - unsettled; no real alternative in compensation: propose equity b/c no functioning marketplace

income earning property - lost income stream if no replacement market

Contract: get these when cannot prove expectancy

reliance - position ¹ was in before the promise was made

lost volume - get when a lost volume seller

Expansions

Consequential/special damages: non-routine damages available only when foreseeable

Limitations

liquidated damages

limitation of remedies

avoidable consequences

offsetting benefits

proximate cause

p&s exception for tax purposes (Æ argument)

discounting to present value

2d - if compensation is adequate, award damages; if not, continue with equity analysis

Equity

Three Types Of Injunctions:

Preventive: Order not to do act in the future

Ripeness: Limitation on equity

- Real or substantial threat that ¹ will be harmed

- Potential harm is not enough

- Irresistible temptation; says the Æ will not be able to refrain from unlawful behavior

- Anticipatory nuisance

- Three reasons for requiring ripeness

Scope:

- General principal from Marshall: appropriate breadth of order must be determined by reference to the wrongdoing

Termination/Mootness:

- Heavey burden, must show no danger of recurrent violation

- Voluntary cessation might not be enough. Need to replace bad behavior with affirmative change

Reparative: Court order to undo harm the wrongdoer has caused, and/or take positive steps to avoid future harm.

Distinction:

Reparative - trying to prevent consequences

Preventive - preventing the wrongful act itself

Preventable:

LaycockÕs principle: must be able to show that future harm is at least partly preventable to get an injunction

Scope:

Harm

Wrongdoing

¹Õs rightful position

Structural Combination of both reparative and preventive relief with the goal or objective of reorganizing an institution.

Initial Hurdle - Can only be granted when organization is Òserving up regular constitutional failures and violationsÓ.

Scope: Will depend entirely on how wrongdoing is characterized. Nature of the violation determines the scope of the remedy

1. Broad; Swann

2. Narrow - Milliken I

3. Intermediate - Milliken II, three part test

Limiting factors:

Time

Resistance

Example: Prison Reform Litigation

No relief extending further than violation in regard to particular ¹ or ¹s. Narrowly drawn and least intrusive means necessary.

Specific Performance: Decree - injunction to do what was required in the K

¥ When specific performance is awarded, possibility of efficient breach is eliminated

Usually awarded for:

Unique goods or services - like real estate

Shortage in the marketplace/ Monopoly

Transaction Costs

Issue: Should transaction costs be figured in when determining whether to provide specific performance?

Defense: Undue Hardship

Damages are preferred when the affect of equity would be disproportionately harmful on the Æ when compared to the benefit to the ¹.

3d - did Æ obey? If so, stop. If not, continue with contempt analysis

Contempt = Remedy For Disobeyed Injunction:

Direct

Indirect

Process

Categories

Civil Compensatory: fines paid to ¹ by Æ

Civil Coercive: ÒÆ holds the keysÓ, can be imprisonment

Criminal:

Tests for categorizing (from Bagwell)

1. Character and purpose

2. Nature of proceeding - indirect contempt of complex injunctions, a jury trial might be necessary regardless of the form.

Defenses

Inability to comply

No need for Coercion

Limitations:

on Defense

Collateral Bar Rule: In a prosecution for criminal contempt, the courts underlying order cannot be attacked even if itÕs wrong or later reversed or unconstitutional. The only question is whether the defendant violated the order.

on Court

Limitation on Confinement: 18 USC 1826; limits the term of coercive imprisonment to 18 months.

Anticipated Injunction: RULE: If there is no outstanding command itÕs not contempt.

Choosing Remedies

Reasons for choosing equity v. Reasons for choosing compensation

SEE CHART

Preliminary Relief:

Traditional Four Part test

1) Likelihood of success on merits

2) Potential for irreparable injury before trial on the merits

3) Balance of hardships from imposition of relief is favorable to ¹

4) Public interest in favor of relief

Balancing Tests

1) Probability of success on the merits + Irreparable injury to ¹ and minimal tip in balance of hardships that favors ¹.

2) ¹ claim raised serious questions + balance of hardships tips sharply in favor of ¹.

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