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Remedies: Heriot

REMEDIES – OUTLINE

CHAPTER 1 Hypo – Bad person steals baby’s $100 mutual fund money (crappy mutual fund). Person then uses money to win $1,000 gambling. What should the Plaintiff’s remedy be?

Competing Principles: Disgorgement or putting the defendant in his rightful position Gain to the defendant is usually not greater than the plaintiff’s loss (9 out of 10 cases) Compensating the Plaintiff - Restoring the plaintiff to their rightful position. i.e. returning $100 dollars 1. Hard Wrongs – Deterrence - in terms of legal policy – we’re certain that our goal is to Wipe Out these Wrongs. a. Restore plaintiff to their rightful position b. Disgorgement - Make sure there is no gain on the part of the defendant c. Classic case – breach of contract 2. Soft Wrongs – Focuses on solely compensating the plaintiff and not disgorging profits from the defendant a. Breach of Contract b. Design defect cases c. Not necessarily cause disgorgement 3. Economic View – Judge Posner – Economic View that profitable violations of law should be encouraged so long as violators compensate their victims. CB 1-37 NOTES Nature of Remedies – · remedies law is somewhere between Procedural and Substantive law Categories of Remedies

1. compensatory remedies 2. preventive remedies a. coercive remedies b. declaratory remedies 3. restitutionary remedies (equity) 4. punitive remedies 5. ancillary remedies 1. Compensatory Remedies – compensate plaintiffs for the harm they suffered most important is compensatory damages – sum of money aimed at making plaintiff as well off if he had never been wronged 2. Preventive Remedies – aimed to prevent harm before it happens, so that issue of compensation never arises – 2 forms a) coercive remedy – i.e. injunction – order from court to litigant ordering them to do or to refrain from doing some specific thing a. i.e. specific performance decree – perform a contract b) declaratory remedy – resolves disputes about parties’ rights; they resolve uncertainty about their rights before either side has been harmed a. declaratory judgments 3. Restitutionary remedies – take what defendant has gained at plaintiff’s expense and give it back i.e. Neighbor steals Owner’s $1000 in stock and sells it to make $1,200. Owner gets back $1,000 but what about the $200? 4. Punitive remedies – designed to punish wrongdoers; punitive civil remedies punitive damages – sometimes necessary to make it economically feasible for private plaintiffs to enforce important rights 5. Ancillary remedies – designed in aid of other remedies i.e. costs and attorneys’ fees, punishment for contempt receivership – extraordinary collection device after judgment – always ancillary to some other emedy TWO More Basic Categories for Remedies 1. Substitutionary Remedies – plaintiff suffers harm and receives a sum of money a. Most of Legal Remedies are substitutionary (exceptions) b. Damage remedies are substitutionary because they substitute dollars for what plaintiff lost. 2. Specific Remedies – injunctions, specific performance of contracts, restitution a. Most of equitable remedies are specific (exceptions)

CHAPTER 2 – Compensatory Damages – Paying for Harm 1. SECTION A. Basic Principle: Restoring Plaintiff to his Rightful Position “Rightful Position” Traditional argument – based on corrective justice Or Economic analysis – law encourages efficiency activity Or economic manipulation of incentives for potential defendants Corollary – One-satisfaction rule · Plaintiff is entitled to only one recovery for each item of damage (even though may be entitled on multiple legal theories against multiple defendants) *Tort Damages based on Returning the plaintiff to their rightful position had the tort never occurred. Tort Suits – no right to jury trials, judges need to give reasons United States v. Hatahley, 257 F.2d 920 (10th Cir. 1958) Facts Plaintiffs = 8 Navajo Indian families who lived on open range land owned by U.S. They had livestock grazing on the land. U.S. Gov. rounded up plaintiffs’ horses and burros and sold them to glue factory. Federal law required notice. Direct damages Valuing the horses and the burros that were lost Size, special skills, training, age, health Consequential damages Plaintiffs claim that they have fewer goats, sheep, cattle Less garden yields – because of lost animals Tribal ceremony – loss of attendance, missed in a reasonable way RULE Find out the actual damages incurred by each plaintiff. Each had different levels of economic damage as each had differently valued animals.

2. SECTION B. – VALUE as the Measure of the Rightful Position Hypo – Prof. Heriot has sentimental mickey mouse hat. She doesn’t remember who gave it to her. Someone negligently destroys it. Disney Co. does not make the hat anymore. Hat costs $9.99. What are the appropriate damages? All value is subjective. Market Value = amalgamation of people’s subjective values

Market Value is the solution for most cases. People’s unique subjective values are not used. Market value and not value to Plaintiff. United States v. Fifty Acres of Land 469 U.S. 24 (1984) – CB 19 US Gov took town’s landfill area (private property) for public use Just Compensation = Fair Market value of the land at the time of the taking unless market value is too difficult to determine Objective standard for valuation – expert testimony of FMV Value is the only measure of compensation – incidental and consequential losses are never compensated

Hypo – Prof.’s wrecked car. $3,000 fixed car, $2,000 wrecked Repair Cost - $500 fixes it Switch to Repair value from Market value? Courts will give the lower value.

Rule – Give the lower value. No windfalls awards. Look at Several Things O’Brien Bros. v. The Helen B. Moran (2d Cir. 1947) – CB 23 U.S. sunk a barge, and barges in this era could not be bought at any price. Market Value – Option 1 Repair Value - $43,000 – Not an option. Judge Learned Hand Replacement Value – Option 2 Capitalized Value of Income Stream – Option 3

“Plaintiff is entitled to be made whole in the least expensive way.” Lemon Effect – Buyers assume the worst about used goods so they pay low prices, so sellers get used low quality goods.

United States v. Ebinger (2d Cir. 1967) – courts award cost of replacing component parts of a larger whole. Trinity Church v. John Hancock Mutual Life Insurance Co. (Mass. 1987) – CB 26 Church is cracked -> “takedown” level of damages Assume the Defendant Negligently destroyed the Church. How to compensate the church? Market Value – budget church of same size (not style) for $1 million – General rule of diminution of market value does not apply to religious structure where no market for it. Repair Value – N/A Replacement value – almost impossible to attain 100%, $100 million Capitalized value of income stream – N/A Future damage (natural event or defendant) might push the Hancock damage to the “takedown” level of damages

RULE – Reasonable costs of Reconstructions or replacement are allowed as measure of damages where diminution of market value of property cannot be determined.

Mieske v. Bartell Drug Co. (Wash. 1979) – CB 33 Courts denied damages for sentimental or fanciful values that were to be awarded for lost wedding, family film (32 reels). Perhaps, use Reasonable Value for the lost unique items.

Decatur County AG-Services v. Young (Ind. 1981) Soybean Farmer – Agricultural Case – has crops damaged by defendant’s negligent spraying of pesticide Speculative award of damages.

1. Time of Injury 2. Time of Harvest – Court Picks* 3. Time of Intended Sale – Point of Sale can be much higher. RULE – measure of damages for partial destruction of growing crop is difference in crop’s value immediately before and after the injury with market value determined at the time of harvest

3. SECTION C. - RELIANCE AND EXPECTANCY as Measures of Rightful Position Know the Basics of Reliance and Expectation (Don’t Need to Know UCC part) Reliance damages are not the same as out of pocket costs Where would the defendant have invested his resources instead have the encounter never occurred. (contract) Expectation damages – easier to prove, Tort Law – you usually get reliance damages Expectation damages for fraud even though it is torts Reliance and Expectation damages are the same Doctrine of Proximate cause or Foreseeable Contracts – you usually get expectation damages Duty to Mitigate damages Hadley Case 2 arguments why expectation damages are calculable 1. purpose of the contract is to allocate the risk to the defendant (breaching party) in a way that expectation damages are not allowed i.e. insurance contract (policy) where paid no premium, even in the abstract theory world reliance damages for breach of contract – speculative in court of law (judging opportunity costs) Contract Damages = contract price – market price + consequential damages that defendant had reason to know about.

Neri v. Retail Marine Corp. (NY 1972) – CB 37 Reliance Damages - Storage costs

Expectation Damages – storage costs + entitlement to profits (if he could have made 2 sales) Rule – UCC – Seller of goods that rejected by breaching buyer may recover lost profits and incidental damages to put plaintiff in position he would have been without breach of contract. Typical Tort Case – reliance and expectation are the same thing

Smith v. Bolles (US 1889) – fraud cases treated under Tort law Expectation damages for fraud Not Modern Law – Think about Expectation and Reliance damages for fraud even though they are Tort. Contract Cases – Expectation Damages 3 categories 1. Actual Benefit conferred upon the breaching party a. Restaurant cooks meal; customer eats meal, then doesn’t want it. 2. Actual Reliance a. Restaurant cooked the meal, but customer says he/she doesn’t want it before eating it. 3. Purely Executory a. If neither , then no harm b. Atiyah concedes that there are some contracts (K) where there is some amount of allocated risk. 1. i.e. insurance policy Contract Cases Expectation Damages (1st Argument to think of) 1. Allocation of Risk 2. Fuller & Perdue – 1. plaintiff’s essential reliance = form of acts essential to enforcement of contract by him (i.e. partial performance) where defendant breaks contract a. all other reliance is incidental 2. reliance and expectation interests approach each other – depending on other similar opportunities to plaintiff 3. reliance = expectation interests where breach of contract -> loss of promised value + direct harm 2nd Arguments - Exceptions (Reliance Damages) Prof Note *!! Reliance and Out of Pocket Expenses are not the Same Thing! Put the Plaintiff in the same position had the contract never occur Chatlos Systems v. National Cash Register Corp (3d Cir. 1982) – CB 48 Facts – Plaintiff Chatlos contended that computer system it bought from National did not function as warranted.

Rules Breach of warranty – correct measure of damages is difference between the fair market value of goods accepted minus value they would have had if they had been as warranted. Contract price not necessarily = market value.

Smith v. Bolles (US 1889) Facts – Defendant Smith fraudulently said stock had great value and sold it to Plaintiff Bolles for $6k. P was originally awarded damages = fraud value of stock Value it according to either the Stock or Assets of the corporation If someone says assets of the company are worth 10x’s the value of the stock, then Caution.

Rule – The proper measure of damages for fraud in the sale of stock is the actual loss suffered due to the deception, not the purported value of the stock.



4. Section D. CONSEQUENTIAL DAMAGES Consequential damages are more speculative, remote and avoidable if plaintiff had been more diligent Issues – causation, foreseeability, remoteness Buck v. Murrow (TX 1893) D leased Buck land for his cattle. D sold land and P lost some cattle. Consequential damages. Limit damages that are too attenuated. Rule – Recovery for consequential damages reasonably anticipated by the parties for the breach of a lease of real property.

Prof. Heriot * Distinguish between General Damages (US v. Fifty-Acres Land) vs. Consequential Damages * General damages – determine value of particular piece of land. How do you do it? Look at Market Value of other similar properties. (not the replacement – may not be similar to the one lost) Meinrath v. Singer Co. (SDNY 1980) – CB 63 Inappropriate act was failure to pay a sum of money – caused plaintiff consequential damages – failure of his other businesses - not recoverable – too remote and speculative Ugly rule – Prof. Heriot Policy – court’s fear that trial on Meinrath’s consequential damage claim would dwarf the trial on the merits.

Rule – Creditor can recover only interest on late payment of money due and no consequential damages.

*Not really consequential damages case* Texaco v. Pennzoil (TX 1987) Facts – Pennzoil contracted to by 3/7 of Getty Oil stock but really wanted benefit of Getty’s 1 billion reserves of oil. Value it according to either the Stock or Assets of the corporation Important Fact – What is Pensoil Not Asking for? (this should tell you a lot) What is the last thing that Pensoil wants as a remedy? Texaco – wing remedies (no remedies argument because they wanted to present confidence and lack of liability) Risky, and Texaco lost Proving damages can be uncertain but tolerated when difficulty in calculating damages is attributable to the defendant’s conduct.

Rule – Tortious interference with contract, plaintiff is entitled to pecuniary loss of the benefit as entitled to under contract, as well as consequential and punitive damages.

Hypo – If a Bank says customer can pick up $1 million a certain day and customer can’t pick it up, then Courts are much more willing to award consequential damages.



5. Section E. Limitations on Remedies Restrictions on Consequential Damages 1) contractual limitations on remedies 2) rules about avoidable consequences, scope of liability, and uncertainty *Parties power to Specify the Remedy – SPLIT of AUTHORITY among courts* Kearney & Trecker v. Master Engraving 527 A.2d 429 Facts – Computer Machine tool malfunctioned 25%-50% of time. Defendant Kearney had warranty provision disclaiming liability for consequential damages and Plaintiff Master’s Remedy is limited to repair, replace, or Money back at Seller’s discretion Was it the aim of the parties in the contract, to make repair/replacement as the only remedy available? Unclear in this case (interpretation) Policies – Freedom of contract vs. minimum adequate remedies

Rule – A consequential damages disclaimer in warranty is not invalidated by the failure of a limited remedy provision unless it is unconscionable.

When is it appropriate for a seller to ask for a contract that limits consequential damages?

1. Buyer is in Better Position to Control the Risk a. Buyer thinks they can treat the product better through some control. 2. Buyer is in Better Position to Prevent the Consequentials from being High (exercising Due Care) a. Appropriate where the Risks of the consequentials is upon the Buyer. Liquidated Damages Liquidated Damages No room for arguing unreasonableness. Duty to Mitigate Damages on part of plaintiff. Incentive for both parties to try to save themselves some money. breaching party will pay certain amount per day and nothing else everyday the breaching party will do things faster, then damages will be less What are the best cases/circumstances to Get Liquidated Damages? 1. Uncertain cases that deal with stock values 2. Emotional damages – person paying twice the cost for bus tickets to Rose Bowl Game – liquidated damages suited well 3. Double Responsibility Hypo – Prof. Heriot wants to start shoe store by Labor Day. (she wants to open on this date) Special grand opening (celebrities, customers, gala), but everything has to be ready exactly on time. 1 supplier can’t get stuff in by that deadline. Mitigation of Damages Doctrine – avoidable consequences – Prof. Heriot should not have scheduled gala so tightly. Unreasonable. Risky assumption for the supplier. Liquidated damages quite useful. Ashcraft v. Coady (D.C. Cir. 2001) 244 F.3d 948 CB 84 – Damages for breach may be liquidated in the agreement only if reasonable either at the time the agreement was entered into or reasonable in terms of what actually happened. The law firm messed up the formula in calculating Cody’s bonus. (material breach) Cody can walk away from the contract. (material breach – right to refuse to perform) Cody’s Breach - Cody didn’t leave the law firm, but sabotaged database, stole clients. $400,000 – reasonable estimate of material breach damages

Rule – Liquidated damages provision reflecting a partner’s increased value and triggered only by a material breach is valid and enforceable. Liquidated damages are only enforceable if they are not a penalty, and whether they are reasonable in light of the anticipated damages, or they are reasonable estimate of the actual damages

Northern Illinois Gas Co. v. Energy Cooperative, Inc. (Ill. App. Ct. 1984) Facts Northern had contract to buy naphtha from ECI to make natural gas but stopped. No contract provision saying that liquidated damages was the exclusive remedy. What was the purpose of the liquidated damages clause? Shift the risks from the seller to the buyer. Unconscionable? Rules

CB 89 – UCC §2-179 – If you want a remedy to be exclusive, then you must explicitly say so in the contract. A mutually agreed upon liquidated damages clause provides the exclusive measure of damages in the event of default.

Under-Liquidated Damage Clauses The question is whether the liquidated damage clause is exclusive. Can ECI sue for actual damages in addition to liquidated damages? Note 6 - CB 91 Liquidated damages set very low as nominal sum – clauses generally upheld. Fire and burglar alarm companies are not generally liable for losses covered by insurance. Burglar Alarm company and Department Store Buyer. “In case the alarm is defective, then damages are set at $50.”

Avoidable Consequences, Offsetting Benefits, and Collateral Sources CB 92 Similar to Duty to Mitigate “torts” “contracts” Avoidable consequences – affirmative defense with defendant’s burden of proof *Exception to the “Return Plaintiff” to Rightful Position Doctrine S.J. Groves & Sons Co. v. Warner Co. (3d Cir. 1978) – CB 92 “Where both plaintiff and defendant have equal opportunity to reduce the damages, the defendant is in no position to contend that the plaintiff failed to mitigate.”

Plaintiff Groves can’t be penalized for choosing an available means of mitigation-staying over other options by defendant’s suggestion. Look at reasonableness of Plaintiff’s and Defendant’s actions

Rule – Buyer may choose any one of several available methods of mitigating damages to recover consequential damages for the seller’s breach. Hypo – Tort Case – automobile is banged up. Plaintiff who was going to sue for damages to his vehicle, doesn’t have the money to repair the car. Car goes into storage. Damages increase for storage fees daily. Should defendant have gone and got the car out of storage?

Offsetting Benefits – CB 101 Restatement (Second) of Torts – takes account only of benefits “to the interest of the plaintiff that was harmed.” Offsetting Benefits Rule – is closely related to the avoidable consequences rule – benefit conferred = opportunity that plaintiff must take advantage of if she wishes to be fully compensated. Hypo – if you patient goes to get certain procedure, but surgeon removes something else too to prevent pain and suffering later. Defense – Surgeon can say that pain and suffering up front prevented it later to the patient. Hypo – False story in newspaper saying Prof. Heriot was a murderer. She sues for being fired from USD and losing her job and income. If Prof. Heriot writes a book about this ordeal, and she makes $1 million. This is an offsetting benefit.

COLLATERAL SOURCE RULE – Exception Applied Everywhere Still – Traditional Common-Law Rule. much criticism though – double recovery If the victim receives damages from some 3rd party source – i.e. insurance company, then plaintiff will still get full recovery from the defendant. Plaintiff can donate money from 3rd party or not; this is between the plaintiff and the charity. Award of damages from defendant is not affected. – exception to offsetting benefits rule *Bad Explanation by the CA Supreme Court of Reasons for the Collateral Source Rule Helfend v. Southern California Rapid Transit District (Cal. 1970) – CB 103 Collateral source rule 4 Reasons that the CA Supreme Court gives for the CS rule: Most of which are bad. All about Compensation and not about deterrence. Real Reason for Collateral Source Rule: Deterrence Policy

Rule – The collateral source rule – prohibits the intro of evidence of compensation paid to plaintiff by a 3 rd party independent source (insurance) to reduce defendant’s liability.

Torts Example Hypo - Taxi lets passenger out of cab and runs over rider. Ambulance takes away severely injured person to the hospital. Doctors operate and rider dies 1 week later. 3 Causes of Action 1. Wrongful Death (Negligence) – damages from after death a. Relatives as specified by statutes (plaintiffs) 2. Loss of Consortium (Negligence) – Moment of Impact -> Death a. Spouse’s cause of action 3. Survival Acts (Negligence) a. Any cause of action for the injuries during victim’s lifetime. b. Plaintiff – estate, will takers,

Subrogation Clauses – let insurer assert plaintiff’s claim against the wrongdoer or get reimbursed from plaintiff’s recovery Contract Law - Duty to Mitigate Tort Law - Doctrine of Avoidable Consequences Scope of Liability Pruitt v. Allied Chemical Corp. (E.D. Va. 1981) – CB 110 Facts – Defendant Allied polluted waterways and wildlife. Rules Recovery may be obtained for damages promixately caused by the defendant’s negligence, but reasonable Need to place limit on liability for foreseeable injury. Traditional Common Law – hard to apply in this case because water property laws different Hypo – Suppose some company dumps chemicals onto a field of land somewhere and wipes out wheat in South Dakota. 1. Who gets hurt? Wheat farmers in the area affected, Distributors of wheat, Farmer’s relatives, children, Common Law Traditional Rule – Nobody on this lists collects remedies except for the “wheat farmer” – who was actually affected. (impacted) Common Law didn’t provide a remedy for the rest of the listed persons. 2. Act of Compensation – Causes Ripple Effect Economic Harm Rule – plaintiffs who don’t suffer physical harm to his person or property can’t recover for – economic harm/other losses. Hadley v. Baxendale (1854) – consequential damages will not be awarded unless the defendant was put on notice of the special circmstances CB 117 People Express Airlines, Inc. v. Consolidated Rail Corp. (NJ 1985) New Jersey rejected the economic harm rule “identity of the plaintiff must be foreseeable” Airline terminal had to evacuate because of nearby railroad tank car spill. Contractual Overtones Evra Corp. v. Swiss Bank Corp. (7th Cir. 1982) – CB 119 Swiss Bank was supposed to transfer money to Evra (P). Asking for Consequential Damages. Cancellation of the valuable shipping contract was an avoidable consequence by (P) Hyman-Michael. (P) was best able to avoid and foresee the risk. Banks did not know. Court treats this as Contract case first. Based their opinion on Hatahley Case. Not clear if any contract at all. Swiss bank was not put on notice- CB 121 Different opinion if under Tort Law? Unclear

Rule – Plaintiff cannot recover consequential damages when such were consequences of defendant’s negligence which were Avoidable by the plaintiff. Southwestern Bell Telephone Co. v. Norwood (Ark. 1948) – CB 126 Minority of Hatahley Case. CB 127 – Notice and implicit agreement to undertake the risk Had the emergency phone call been put through timely, then the house would have been saved. How do we know when a company tacitly agrees to be bound by consequentials? Size of Fees

Rules – A telephone company is not liable for special damages for failure to connect a person to fire department if it had no notice of the circumstances out of which the damages might arise. No foreseeability. Dissent – Monopoly telephone service has duty of reasonable care.

*The Certainty Requirement Bigelow v. RKO Radio Pictures (US 1946) – CB 129 Antitrust case Bieglow (P) sued RKO (D) and others contending they discriminated film distribution to certain movie theaters in violation of Sherman Antitrust Act. Issue – certainty of damage awards

Rule – A jury may make a just and reasonable estimate of damages based upon the evidence presented, and its award doesn’t need to be based on precise calculations. Dissent – Justice Frankfurter – In the absence of proof of actual injury, no violation of the Sherman Act can be found. Note 5 CB 137 Brink’s Inc. v. City of New York (2d Cir. 1983) Hard to determine how much the Brink’s employees stole from parking meters. 1 million dollar increase in 10 months after replacing Brink’s Inc. Check the difference in amount coins. Many variables – NYC did what it could, and court upheld jury verdict 1 million

Substantive Policy Goals Brunswick Corp. v. Pueblo Bowl-O-Mat (US 1977) - CB 138 Facts – Pueblo (P) sued Brunswick (D) because D had acquired bowling centers in violation of federal antitrust laws. (P) contended that it was damaged by amount of profit it would have realized if the acquired bowling centers were to close down instead.

Rule – Antitrust relief is not available in every case in which a large corporation takes over smaller businesses and causes readjustments in the market share of other participants. Policy – Antitrust laws were enacted for the protection of Competition – not competitors. Policy against anticompetitive effect. Shape remedies to further substantive policy goals. SECTION F. 6. Damages where Value cannot Reasonably Be Measured in Dollars 1. Personal Injuries and Death Hard to Value Pain and Physical Suffering 18th Century didn’t provide damages for pain and suffering Controversial Deterrence Policy – Punitive Damages Recovery Pain and Suffering Juries are all over the place with awards. Debus v. Grand Union Stores, 159 Vt. 537 (Vt. 1993) Facts – Debus (P) was injured in a store owned by Grand Union Stores (D) when a palette of boxes fell on her. (P) suggested daily pain and suffering award according to life expectancy - $346k.

Rule – Per diem damage arguments are not overly prejudicial and should be allowed. Both attorneys will mention a number which the jury could make higher or lower. Split Authority 50/50 among states – whether per diem argument is allowed or not. Sometimes courts instruct verdicts to be discounted to present value. Wrongful Death Cases – Recovery for funeral expenses, financial support, loss of inheritance, loss of society, pain and suffering, loss of companionship, loss Courts allow recovery for emotional distress in context of constitutional and dignitary torts, but not for death of a loved one. (monstrous verdicts fear?) Extraordinary variations in valuation of human lives across cases and states. Etheridge v. Medical Center Hospitals (VA 1989) – CB 162 Facts – Wilson (P) underwent surgery at (D) hospital for jawbone. (P) was negligently injured. VA put cap on damages to $750,000. VA court upholds the statute putting a cap on damages.

Rule – Statutory limitations on the amount of recovery for medical malpractice are constitutional. Reasoning – Unless a statute restricts a fundamental right, the rational basis test is appropriate. The VA statue has a reasonable relation to a legitimate public purpose. Smith v. Department of Insurance (FLA 1987) – CB 168 Facts – Florida enacted Tort Reform Act which limited damages for non-economic losses to $450,000. Smith (P) sought judgment declaring §59 unconstitutional.

Rule – A statutory limitation on damages for noneconomic losses violates the Florida Constitution. Right to redress injuries is a constitutional right, need to show public necessity. Affordable insurance coverage not shown to be a public necessity. 2. Dignitary and Constitutional Harms *Dignitary Torts – assault, false imprisonment, intentional emotional distress, libel Levka v. City of Chicago (7th Cir. 1984) – CB 181 Facts – Chicago PD subject woman to strip search. Jury award $50k for mental anguish, humiliation, etc. CB 184 – II. “In reviewing a jury verdict … to determine whether it is excessive, we must defer to the judgment of the jury unless the award is “monstrously excessive” or “so large as to shock the conscience of the court.” Options Either order new trial on damages or accept a lower damages number. $50,000 award “grossly excessive”

Rule – A court may exercise its discretion in reducing a jury verdict when the evidence indicated the verdict is grossly excessive. Prof. Heriot – Misapplication of the standard. This result was fine. Wishes there were better mechanisms for juries to be aware of other damage awards from other juries. Lawyers do have access to this information – what juries are finding on damages in cases. Remittitur – procedure where trial and appellate judges reduce jury verdicts If damages verdict is unreasonably low, then only remedy is a new trial Most plaintiffs accept remittiturs rather than the risk and expense of a new trial Emotional Distress Recovery ED is recoverable in intentional tort, but not in negligence tort without some additional threshold showing. i.e. ED must be diagnosable or objective physical manisfestations, zone of danger Carey v. Piphus (US 1978) – CB 193 Piphus had a procedural right to a hearing before being suspended from school. Rule – Absent proof of actual injury caused by a denial of procedural due process, only nominal damages may be awarded without proof of actual injury. $1. Remedies? Compensate Piphus for the schooling that he lost – take market value of private schooling for the number of days. Might be inappropriate. No factual finding on guilt or innocence Case Remanded to trial court to determine if suspension was for good cause, then no injury can be found and no damages awarded.

CB 200 Note 5 Laje v. R.E. Thomason General Hospital (5th Cir. 1982) Discharged Dr. Laje got damages $20,000 for mental anguish and emotional distress for not getting a hearing before being discharged. 42 USC §1983 – Attorneys win large fees if they win these cases.

7. Taxes, Time, and the Value of Money – CB 201 Norfolk & Western Railway Co. v. Liepelt (US 1980) (P) fireman killed through negligence of his employer Norfolk (D). Jury awarded too much $775,000 because they thought it would be taxed.

Rule – It is error for a trial judge to refuse to admit evidence of the nontaxability of jury awards or to instruct the jury thereof. Jury awards are nontaxable. Policy Jury doesn’t have to add any extra “padding” amount for the plaintiff because of taxes. What if Jury didn’t say what damages were for lost wages and what was pain and suffering? Difficulty for the IRS if the jury hasn’t identified which element the damages are for. IRS – they gave up and decided not to tax any of the damages resulting from physical injury awards. Emotional distress and punitive damages are now taxable. PRESENT VALUE money up front is worth lot more than the same amount in future times. CB 1142 – Present Value Table Lump Sum Rule – Jury is going to be asked to boil damages down to a single lump sum. Not later, but now. *Now is Better than Later. City of Milwaukee v. Cement Division, National Gypsum Co. (US 1995) Plaintiff wants damages for sunken ship EM Ford where city breached duty by assigning a dangerous slip known to be unsafe in heavy winds or storms. Rules - A genuine dispute over liability does not justify a court’s departure from the general rule that prejudgment interest should be awarded in maritime cases. Common Law Rule – prejudgment interest is available only when the sum owed was liquidated (or made certain) – i.e. damages for injured/destroyed property. Difficult to get Pre-Judgment Interest. Different than Admiralty Rules A good faith dispute over liability and existence of mutual fault do not qualify as “exceptional” circumstances justifying the denial of prejudgment interest. Modern Economic Reality – traditional rules gave defendants substantial incentive to delay when damages were large and interest rates were high. *Calculating Present Value of a lump sum award for future damages. Jones & Laughlin Steel Corp. V. Pfeifer (US 1983) – CB 216 Plaintiff injured on the job for Jones (D). District court kept award same and said it was bound by PA state law that held future inflation = future interest (offsetting). Pfeifer (P) appealed. Question of how much money he would make in the future? Lump sum amount to put him in rightful position had the injury never occurred.

Rule – Federal courts may choose the manner in which to discount the present value of future earnings and are not bound by a rule of state law. Formula – Plaintiff’s future losses should be discounted to present value at compound interest rates. 1/(1+i)^n Courts – are split on who bears the burden of introducing evidence of an appropriate interest rate and method of discount. 3 Categories that Work 1. Assume Inflation = 0% / Use a discount rate that also assumes inflation is 0% · (Real Rate of interest = 1% - 3%) 2. Try to Predict Inflation Rates and adjust wages accordingly/use a discount rate that also tries to approximate inflation – look at actual market rates. 3. Offset Methods – inflation rate realistically does not offset discount rate Need experts to testify on 1) prevailing wage rates in the industry 2) Inflation rate – investment that we would expect plaintiff to invest Caveat – must account for inflation only once Factors to Consider 1. Cost of Living Increases (rate of inflation) Speculation by experts 2. Increases due to individual experience (going up) A little easier to predict (guides in industry to show increase in pay levels) 3. Increases due to Real Growth in Wages (both industry wide and economy wide) 2% increases economy wide

CHAPTER 3 – Preventing Harm: Injunctions – CB 233 Equity Trumps Law 1. 2. 3. 4.

Equity courts are not more fair than law courts. Not entirely true that Equity courts only use injunctions while Law courts use damages. Equity courts are much more discretionary to their approach? Not totally true. Equity Courts – the Judge was the trier of fact – no juries a. Common Law courts – usually juries decide

Know the histories to understand the difference between Equity and Law Courts. Certain Rules Changed when Equity and Law Court combined. Irreparable Harm Rule – equity courts could not issue an injunction unless it could be shown that money damages could not do “justice”.

3 Kinds of Injunctions 1. Preventive Injunction 2. Reparative Injunction – where the harm has already occurred, and now we’re trying to repair that harm 3. Structural Injunction – desegregation orders, prison litigation – attempts to restructure institutions that systematically violate the law Injunction – Federal Rule of Civil Procedure 65(d) – must be specific in terms, reasonable detail, reasons for its issuance Contempt Power of courts – enforces injunctions, criminal offense Civil contempt – remedial proceeding (plaintiff prosecutes) Coercive civil contempt – court imposes conditional penalties Ripeness Rule before an injunction will issue, there must be a ripe threat of injury (substantial certainty that harm will occur) equity cases and damages cases purpose – make sure the courts have the full record and facts Requirements – 1) moving must prove some real likelihood that wrong will occur 2) If the wrong does occur, then will it harm the moving party? Law Side of Injunction Writ of Mandamus – subject to laws, court is issuing an order to someone in their official capacity compel performance of official duty to do a task according to operation of law Writs of Prohibition – order to prevent exceeding of jurisdiction or authority ordering lower courts to do something Habeas Corpus – order to a person holding another in custody to bring the prisoner to court and justify the prisoner’s further detention 1. PREVENTIVE INJUNCTIONS Humble Oil & Refining v. Harang (E.D. La. 1966) – CB 233 Plaintiff Humble Oil sought preliminary injunction to prevent defendant Harang from destroying documents Court’s Contempt power to enforce injunctions Case-by-Case motto No evidence was introduced to show likelihood of document destruction. (imminent threat)

Rule – A preliminary injunction will not issue absent a substantial likelihood of irreparable harm. Note 5 – CB 236 Tennessee Code – automatic injunction for divorce cases – keep the status quo with records, insurance policy, between parties that might move things Scope of the Injunction = Scope of past violation Marshall v. Goodyear Tire & Rubber Co. (5th Cir. 1977) – CB 241 Facts - Goodyear is already an adjudicated wrongdoer for wrongful discrimination. Person Reed was discharged because of age by Goodyear (D). US Dept. of Labor sued on behalf. District Court issued nationwide injunction barring such practices.

Rule – The scope of injunctive relief should not be broader than the evidence warranting it. Injunctive relief is a drastic remedy – it should only be granted to remedy a problem at issue in suit before a court. No nationwide policy of age discrimination here. Individual and Class Injunctions Injunction against a defendant only with respect to his actions with plaintiff at court and not the entire class. Exception – putative class – motorcycle riders using helmets. *Mootness - Cessation of illegal activity does not render injunction against it moot U.S. v. W.T. Grant Co. (US 1953) – CB 247 Facts - (D) Hancock was director of competing retail giants. Government brought injunction against such activity. Hancock resigned, and government still pursued injunction – contending danger of future violations.

Rule – For a permanent injunction to issue, there must be some cognizable danger of recurrent violations. No evidence here was shown that violation would recur. *Prof. Heriot’s most interesting case Occasion where Ripeness Rule – focused on the record being “incomplete” “Nuisance” Nicholson v. Connecticut Half-Way House (Conn. 1966) – CB 252 Facts – Conn Half-way House bought a large home and planned to use it for paroled felons. Neighbors worried about crime.

Holding Need more of a record (until they build the half-way house) in order to decide to grant an injunction. Rule – Equity will not grant injunctive relief where land use is reasonable and the plaintiff is alleging the fear of future actions as its grounds for injunctive relief. The fear of future events or actions does not constitute irreparable injury for which equity will grant an injunction. Brainard v. Town of West Hartford (Conn. 1954) – different because proposed town dump in a residential area – court is already familiar with unreasonableness. Note 1 – CB 253 – Similar Case – Jack v. Torrant – court held any funeral home would be nuisance no matter how it was run Strategy – Bring a motion for an injunction even if you know the court will deny it because their reasons will be stated on the record. 2. REPARATIVE INJUNCTIONS – CB 260 Does not literally undo the past violation; rather, it prevents some of the harm from that violation Reparative Injunctions should 1. The injunction should restore plaintiff as closely as possible to the rightful position. (risk divided between parties) 2. The injunction should restore plaintiff as closely as possible to the rightful position, subject to the constraint that the injunction should never make plaintiff better off than the rightful position. (risk entirely on plaintiff) – precludes prophylactic relief 3. The injunction should restore plaintiff as closely as possible to the rightful position, subject to the constraint that the injunction should never leave plaintiff worse off than the rightful position. (risk entirely on defendant) These principles place the risks on the plaintiff, defendant, or on neither of them. Burden on the Plaintiff – Civil Lawsuits *Court can order an Injunction Repairing the harm of a past violation Bell v. Southwell (5th Cir. 1967) Facts – Bell (P) was black candidate who alleged racial discrimination in election was systemic.

Rule – A federal court can retrospectively void a state election in which the election process and practices violated the constitutional rights of voters because of race. There was no effective relief available before the election. What else could they have asked for that they could have gotten? An injunction – since they have done this in the past, now they are prohibited in the future from having 3 voting booths based on race and gender.

Note 5 CB 200 Laje v. R.E. Thomason General Hospital (5th Cir. 1982) Parallel case to Bell and Carrey “Duplicative Recovery – Election of Remedies Doctrine” Forster v. Boss (8th Cir. 1996) – CB 264 Facts – Forsters (P) were granted a Double recovery – permanent injunction and damages. Sale of lake-front property without boat-dock permit.

Rule – Where two remedies would make a plaintiff whole, the defendant must choose whether it wants to receive compensatory damages or an injunction. Okay for a court to award an Injunction + punitive damages. *Permanent injunction not appropriate – temporary injunction 2 years Winston Research Corp. v. Minnesota Mining (9th Cir. 1965) – CB 271 Facts – Winston (D) developed tape recorder, whose employees were defected from (P) Mincom which tried to enjoin sales of (D)’s tape recorder.

Rule – Unfair competition should be enjoined for the amount of time it would take to develop a similar product after public disclosure. Prevent unjust enrichment and protect trade secrets. Permanent injunction would go against public policy of allowing research and development by these companies. “What is Plaintiff’s rightful position?” Bailey v. Proctor (1st Cir. 1947) – CB 276 Facts - Aldred Investment Trust was “abuse in capital structure of the trust is in its uneven and misleading distribution of risk and reward.” - Stockholders get too much – this before Investment Company Act of 1940. When continuation of an enterprise appears to threaten investors, then liquidation may be ordered.

Rule - Court of equity has inherent power to liquidate an investment rust where fraud, mismanagement or abuse of trust is present – regardless if insolvency is likewise present – to protect investors. Prophylactic Injunctive Remedy – Bailey Case, abortion clinic protesting, etc. Providing remedy to prevent the recurrence of fraud and insolvency. Risk of future violation can justify an injunction against legitimate conduct that is not violating anything. (Beyond Plaintiff’s rightful position)

3. STRUCTURAL INJUNCTIONS proximate cause - damages must be direct and foreseeable Must the court focus on the actual wrong and correct that and only that, or fashion a remedy to some small degree overshoots the actual wrong? In an honest effort to ensure that the underlying wrong is remedied in a way that is reasonably efficient judicially. Rightful position is indeterminate standard for structural injunctions. Judge can over-enforce your right, or under-enforce it

1. Scope of Structural Injunctions School Desegregation Cases De jure segregation – deliberately caused by state authorities (Constitutional violation De facto segregation – from all other causes except from state conduct Swann v. Charlotte-Mecklenburg BOE (US 1971) – CB 290 Facts - Segregation of white and black students in separate school systems. Prof. Heriot – inner city had blacks and outskirts of city had whites Pie Shaped Districting. What would Charlotte have looked like had there never been segregation? The court is trying to control the “consequential damages” from the violation of segregation. Rule - “school boards must ‘ achieve the greatest possible degree of actual desegregation.’” – CB 290

Milliken v. Bradley (US 1974) – CB 291 Justice Rehnquist – somewhat wrong – rightful position problem Holding – Plaintiff’s rightful position was desegregation within Detroit, not involve the suburban districts. Milliken II – Detroit-only busing plan Dayton BOE v. Brinkman (US 1977) Incremental segregated effected – citywide busing remedy vacated because remedy exceeded the scope of the violation. Chain of presumptions.

Missouri v. Jenkins (US 1995) – CB 294 Facts – Missouri (D) said it achieved partial unitary status with schools and desegregation decree. No constitutional violation – remedy beyond scope and nature of the violation.

Rule – Federal court decrees exceed appropriate limits if they are aimed at eliminating a condition that does not violate the Constitution or does not flow from such a violation. Precedent – Swan, Milliken, and Dayton Cases Multi-Dimensionality Hutto v. Finney (U.S. 1978) – CB 307 Facts – Arkansas state prison – “punitive” isolation – small cells, inadequate grue food. District court put 30-day limit on length of confinement. Arkansas appealed.

Rule – A court may place limits on certain types of punishments which are not per se unconstitutional. – Justice Stevens Dissent – Justice Rehnquist – against prophylactic orders - this decision inconsistent with Milliken II – no account of 3 rd consideration – “interests of state and local authorities in managing their own affairs consistent with Constitution.” Hypocritical – Justice Rehnquist 20 years later approved prophylactic measure against abortion protesters who violated less restrictive injunctions in the past. Schenck v. Pro-Choice (US 1997).

Lewis v. Casey (US 1996) – CB 313 Facts – Arizona state prisoners filed action saying law libraries not enough access to courts. Only 2 violations to prisoners. District court issued highly detailed injunction against whole prison system. Single wrong is not enough to reform an entire institution. Only systemwide impact can there be systemwide remedy.

Rule – The nature of the remedy is to be determined by the nature and scope of the constitutional violation. *Remedy must match the Constitutional violation United States v. Virginia (US 1996) – CB 318 Facts - Ginsburg (majority) and Justice Rehnquist disagree VMI – military academy for men, but no similar program to women. VA wanted to create separate VWIL to remedy equal protection violation. Rehnquist – the wrong here is that they are offering this education to men and not offering “comparable” education to women.

Rule – Remedial decrees must be shaped to place persons who are unconstitutionally denied an opportunity or advantage in the position they would have occupied absent the discrimination.

2. Modifying Injunctions Injunction is modifiable for significant change in law when the precedents on which it is based are undermined or eroded. *Flexible modification standard in Institutional reform cases Rufo v. Inmates of Suffolk County Jail (US 1992) – CB 328 Facts – Jail was too small after planned decree was passed. Double-bunking beds request to change consent decree was rejected. Sheriff did not meet high Swift standard.

Swift v. Tyson (US 1842) – Harsh standard to modify a decree “Nothing less than a grievous wrong evoked by new and unforeseen circumstances should lead us to change what was decreed after years of litigation with the consent of all concerned.” - CB 329 U.S. v. Swift (US 1932) - High standard -> became flexible now (*closer to Rule 60(b)(5) than it is to Swift) Rufo Rule – “under the flexible standard we adopt today a party seeking modification of a consent decree must establish that a significant change in facts or law warrants revisions of the decree and that the proposed modification is suitably tailored to the changed circumstances.” – CB 335

3. Rights of Third Parties Hills v. Gautreaux (U.S. 1976) – CB 346 Facts – HUD subsidized segregated public housing in Chicago. Court of Appeals entered order to subsidize desegregated housing encompassing an area outside Chicago.

Rule – A court may order a housing authority to correct segregation it has facilitated over an area outside the locality in question. Remedial plan cannot include non-violating local authorities (Milliken 1). HUD was in violation and can be coerced to take remedial action affecting 3rd parties to whom a court cannot dictate. Jenkins – 2 adjudicated wrongdoers – Kansas City, Missouri school district and the state of Missouri Not wrongdoers – suburban school districts Order – doesn’t directly coerce suburban school districts, but it does indirectly affect the resources available to the SSD.

Hard to Justify Jenkins based on the Milliken Case – it is not quite clear how 3rd parties have to be integrated into this scheme. General Building Contractors Association v. Pennsylvania (US 1982) – CB 353 Facts – union of engineers had contract with local employers to only hire through local unions. District court issued injunction and assessed costs against union and certain non-discriminating employers.

Rule – A party not violating antidiscrimination laws may not be assessed a share of the costs of implementing a decree remedying the discrimination of others. A remedy that includes Non-discriminating employers exceeds scope of the violation. Minor Ancillary Remedies can be issued against innocent 3rd parties.

CHAPTER 4 – Choosing Remedies – CB 363 A. SUBSTITUTIONARY or SPECIFIC RELIEF

EQUITY vs. LAW (Hornbook) Equity will not act if there is an adequate remedy at law, or equity will act only to prevent injury that is irreparable at law. Injunctions might impose a greater burden on the court than damages? Timing – preventive (resolve issue before harm) vs. compensatory litigation (resolve at leisure after harm is done) Economic purists do not care about unfairness in their results – i.e. profitable violations of law should be encouraged if violator compensates his victims. Specific relief - should be denied when transaction costs are high. (bilateral monopoly) Equity – injunctions are the standard remedy for harm to intangible rights Equity courts had no juries traditionally. Law - Damage remedy preserves right to jury trial. Preventive, structural, and reparative injunctions – apply the same lessons as to Damages. 1. over all goal to put plaintiff in his/her rightful position – had the wrong never occurred 2. don’t lose sight of the same doctrines to limit the rightful position goal in damages and injunctions (economic, duty to mitigate, burden of proof) a. ripeness – new concept b. Nicholson Case – illustrated different options for injunctions c. Harang – timing case 1. Irreplaceable Losses

Historically – Irreparable Harm Rule Turf battle – jurisdictional issue between law and equity courts Seems not to be doing very much work – everything seems to be getting passed the irreparable harm rule Laycock – outside the realm of preliminary relief (where the Irreparable harm rule is very much alive) – a court will give reasons other than irreparable harm.

Irreparable Harm Rule Support Reasons: 1. Judicial Economy – a lot of work to administer an injunction · This reason cuts both ways. The damage remedy could be the thing that causes courts trouble. U.S. v. Hatahley. · Fairly complicated damage remedy. 2. Preservation of a Defendant’s right to a Jury Trial · No traditional right to a jury trial on the equity side · Plaintiffs are most interested in having a jury trial. 3. Issues Should Not Be Decided Prematurely · Applies to preliminary injunctions and temporary restraining orders Against it – definition of legal remedy being adequate Be able to argue the Irreparable Harm Rule alive or dead in a given case. *Irreparable Harm Standard - Equity appropriate in land cases. Pardee v. Camden Lumber Co., 70 W. Va. 68 (W. Va. 1911) CB 363 Legal remedy was inadequate, so equity intervened. Rules If plaintiff can’t buy with cash and substantially replace what was lost (cutting down of his trees), then irreparable harm is proven. · An injunction against the cutting of another’s property is appropriate. Plaintiff couldn’t take the cash and make trees appear on his land. The court doesn’t require the plaintiff to buy “other land with trees on it” *REPLEVIN legal case - Irreparable Harm Rule does not apply BROOK v. CULLIMORE & CO., 1967 OK 251 (Okla. 1967) – CB 374 Facts – Brook (D) borrowed money from Cullimore (P) and defaulted on it. (D) gave (P) security interest in certain property $25k. Brook(D) offered cash to (P), but Cullimore(P) wanted property.

Irreparable harm rule does not apply to replevin. Replevin – Legal Remedy - somebody takes plaintiff’s property, and plaintiff gets tort action to get it back at common law Rule – A successful litigant in replevin action has a right to the subject property, rather than cash. * Injunction okay when damages too hard to measure Continental Airlines, Inc. v. Intra Brokers, 24 F.3d 1099 (9th Cir. 1994) Facts of case – Continental could not measure economic harm of Intra (D) selling its discount coupons still. Court stretched reasoning – Plaintiff’s harm was to its Power to control its discounting financial policies.

Rule – A party is entitled to equitable relief of injunction when economic damages would be difficult and expensive to prove.

Specific Performance – type of injunction ordering affirmative action *Unconscionable contract – no specific performance issued Campbell Soup Co. v. Wentz, 172 F.2d 80 (3d Cir. 1948) – CB 383 Facts – Wentz (D) contract to sell red core carrots to Campbell(P) for $30/ton. Market price of carrots rose to $90 / ton. Wentz sold to another instead. Campbell(P) sued for specific performance of its contract with Wentz(D). Trial court dismissed the suit. Affirmed because Campbell(P) had too burdensome provisions in contract.

Rule – Even with a legal contract entitling both parties to legal relief, equity will not provide specific relief to any party who has driven too hard a bargain or obtained too onesided an agreement. CB 386 – List of cases – Campbell case was not a fluke. Note 4 (b) – Eastern Airlines, Inc. v. Gulf Oil Corp. (SD Fla 1975) – Most striking example of the “efficient-breach” theory not at work. Consequential damages to Eastern Airlines and their customers. Lack of oil – chaos and irreparable harm would ensue if this contract were breached.

Balancing the Equities – “undue hardship” vs. benefit to plaintiff The injunction must impose hardship greatly disproportionate to the benefits if yes undue hardship, then no injunction and plaintiff gets damages instead. Economics – undue hardship rule – if a wrong is too expensive to correct (injunction), then defendant can pay damages instead. Culpability exception – intentional wrongdoing by defendent *Efficient Breach of Contract Van Wagner Advertising Corp v. S&M Enterprises (NY 1986) – CB 394 Facts - S&M bought a building and wanted to build 1 big project S&M cancelled Van Wagner’s lease - constituted a breach of contract. Plaintiff wants to be the last hold-out and extort more money from S&M. (unlikely that plaintiff really likes the billboard lease that much)

Reasoning “unique qualities” of the demised space could be fixed with reasonable certainty without high risk of under compensating the injured tenant. Specific performance should be denied to Van Wagner(P) because it would have an inequitable effect of undue hardship to S&M(D). Rule – Point of breach of contract that is addressable by specific performance lies not in physical uniqueness of a property but in the uncertainty of valuing it. 2. Burdens on Defendant or the Court *Intentional encroachment – Then No balancing of equity- relief vs. undue hardship Ariola v. Nigro, 16 Ill. 2d 46 (Ill. 1959) – CB 401 Facts – Nigro(D) built on his land and laid concrete flush against Ariola(P)’s building. (P) notified (D) but building continued. (P) wanted injunction to remove the encroaching structure. Not a typical case – Ariola warned Nigro about building the house. Injunction should have issued. Rule – No traditional balancing of equities in deciding for an injunction to remove encroachment on land where the encroachment was found intentional. *Deliberate wrong-doer – denied specific relief to plaintiff – grossly disproportionate Peevyhouse v. Garland Coal & Mining (OK 1962) – coal company promised to restore land but it would cost $29,000 and plaintiff’s benefit was only $300 increase value. *Specific performance more likely when Public Interest is involved *public interest here = timely burden on court to supervise the specific performance CIS v. Argyll Stores (Safeway) – CB 411 Facts – Argyll(D) leased space for supermarket from (P). Argyll wanted to close the store for poor performance. (P) wanted the store open for the rest of the lease. Single best option for Safeway was to close down that grocery store entirely. Public interest to not have business carry a loss, and instead award damages.

Rule – A court can’t order specific performance of a covenant to maintain business hours when lessee believes it would be financially detrimental to keep it open. CB 419 – Judicial Economy for the Court Note 5 *No specific performance Corp. v. E.W. Bliss Co. (Del. Ch. 1968) – CB 419 Court didn’t want to order specific performance, “for fear of being sucked into supervising the whole job” Court didn’t want involvement. Note 6 City Stores Co. v. Ammerman (D.D.C. 1967) Defendant builders of shopping mall – sued by plaintiff department store Does the court want to tell the developer to build a certain store for the plaintiff? High chance that they will not satisfy plaintiff’s standard. More litigation – court decides to keep watchdog over this. Rarer case.

3. Reasons of Substantive or Procedural Policy *minority view *PA says damage remedy at law is adequate even if it can never be collected. Willing v. Mazzocone (PA 1978) – CB 421 Facts - 2 person law firm where ex-client Helen Willing who protests outside the law firm More going on here than irreparable harm First Amendment issue – Does Helen Willing have the right to protest that law firm stole $25 from her? No, Libel is not protected speech. She can be ordered to pay damages – action for defamation, regardless that Willing is insolvent, she can’t pay damages. No constitutional right to libel – CB 423

Rule – A court may not enjoin defamatory speech. The propriety of equitable relief or remedies at law does not depend on a party’s insolvency. Mazzocone v. Willing (PA 1976) Rule – Defamation may be enjoined. Public officials have higher standard to get past the First Amendment objections to an injunction against defamation Collateral Bar Rule – an injunction that forbids protected speech must be obeyed; the unconstitutionality of the injunction is not a defense to a prosecution for contempt (bars collateral attacks on injunctions) Multiplicity of Suits – legal remedy inadequate because plaintiff would have to repeatedly sue as defendant repeated the libel *Courts rarely compel specific performance of employment contracts ABC v. Wolf (N.Y. 1981) – CB 435 Facts - Breach of contract – negotiation clause – required defendant to negotiate in good faith with ABC before leaving for another job.

Policy – 13th Amendment – prohibition of involuntary servitude General judicial disfavor of anticompetitive covenants contained in employment contracts. Public policy favoring free, robust, and uninhibited competition Rule – With terminated personal service contract, equitable relief (specific performance) is available only when a danger of unfair competition or other tortuous conduct exists. (trade secret leaks)

B. Preliminary or Permanent Relief – CB 440 Temporary Restraining Orders (TRO) – usually last 1 or 2 days Designed to prevent irreparable harm even before preliminary injunctions FRCP 65 - If TRO without notice lasts longer than 10 days, then it is really a Preliminary injunction and therefore appealable. Preliminary Injunctions – require a hearing in a court room and are appeal-able 1) likelihood of success on merits, 2) irreparable harm, and 3) balance of hardships 4) advancement of the public interest *Preliminary Injunction Case – preserve the status quo LA Memorial Coliseum Commission v. NFL (9th Cir. 1980) – CB 440 Facts - NFL (D) rule – Commission(P) sough injunction preventing NFL from using rule 4.3. (P) unable to show any potential loss other than money.

Rule – An injunction will not issue unless the petitioning party can demonstrate irreparable harm and that the equities favor the injunction. CB 446 – Judge Posner’s Formula – Grant the preliminary injunction if but only if P(denial error) x Hp(harm to plaintiff) > (1 – Pdenial error) x Harm to the defendant. *Preliminary injunction can change the status quo – minority view Lakeshore Hills, Inc. v. Adcox (Ill. App. Ct. 1980) – CB 447 Facts – Lakeshore(P) had housing development with policy of no animals. Adcox(D) had an adult bear. Trial court issued preliminary injunction. Better off thinking in terms of LA Coliseum case or Posner Formula. What is the harm to plaintiff if the preliminary injunction doesn’t issue? Rule – A preliminary injunction may be framed so as to change the status quo. Preliminary injunctions usually preserve the status quo. *Injunction bond – deterrent to plaintiffs – bond is discretionary requirement Coyne-Delany Co. v. Capital Development Board (7th Cir. 1983) – CB 450 Facts – Coyne(P) delivered crappy valves to Capital (D) which sought other bids to get the valves. Injunction granted to (P) which put up $5k bond; it was later reversed. (D) wanted damages to be paid from the bond.

Rule – A prevailing defendant is entitled to damages on an injunction bond unless good reason for not awarding damages existed. A court shouldn’t fail to award damages to (D) merely because (P)’s failing action was filed in good faith. *TRO requires notice so a hearing can be had – First Amendment Carroll v. President of Princess Anne (US 1968) – CB 459 Facts – white supremacists had rally, and town Princess Anne(P) got an ex parte TRO prohibiting next day rally. No notice was given.

What do you do if TRO was granted against your client without notice? If defendant client was in unknown parts, then harmless error for defendant not to find out about TRO. Rules – In the absence of a showing of impossibility, ex parte abridgements of First Amendment rights without notice are improper. FRCP 65 – TRO – notice must be given or affidavit explaining reasons for lack of notice. *TRO > 10 days without notice = really Preliminary Injunction – FRCP 65 Sampson v. Murray (US 1974) – CB 464 Facts – Murray (P) was employed by Gov(D). Gov terminated her, and (P) sought injunction forcing Gov to rehire her – it was issued. Reversed ultimately.

Rule – A preliminary injunction is not proper in a wrongful discharge suit. Wrongful termination leads to lost income which is compensable at law. (not irreparable).

C. Prospective or Retrospective Relief – CB 477 1. Suits Against Officers in Their Official Capacities Government consents to suits for contract damages usually in Court of Claims. 11th Amendment – out of state person cannot sue another state Forget about federal question jurisdiction *Eleventh Amendment & immunity of states against lawsuits by citizens Edelman v. Jordan (US 1974) Facts - Sovereign Immunity for States, Meant to protect the state coffers. Jordan (P) was owed welfare payments by (D) Illinois. Injunction granted to make (D) pay up out of state treasury.

Rule – A federal court cannot fashion an equitable remedy compelling a state to make payments out of its treasury, either in a legal or equitable action. CB 489 - Ex parte Young (US 1908) Fiction – You are suing only the officer and not the state; you must first allege that you are suing the officer in his official capacity. - Get around the 11th Amendment Can’t sue the State, but you can sue the state officer who is violating federal law. What kind of Remedy can you get? Order federal officer to comply with federal law in the future Essentially ordering that state to comply with federal law Damages? Where’s the money going to come from? State coffers – clear that the Ex parte Young solution is not really great. Violation of 11 th Amendment Not a distinction between law and equity. Distinction between Prospective and Retrospective relief. Can’t order a federal officer to pay for the past. Only Prospective relief. Specific performance is not available now

2. Sue Officers in their Personal Capacities Officials – Retrospective Damages – right to judgment against individual’s funds Qualified or Absolute Immunity - Legislators and judges are absolutely immune *Suit against officers in their personal capacities Harlow v. Fitzgerald (US 1982) – CB 493 Facts – Fitzgerald (P) blew whistle at Air Force for questionable weapons procurement practices. (P) sued Harlow (D) White House aide for firing him. (D) claimed absolute immunity.

Rule – Presidential aides have only a qualified immunity from suit for acts done in their official capacities. US Supreme Court has held that qualified immunity would be defeated if 1) an official ‘knew or reasonably should have known that the action he took within his sphere of official responsibility would violate the constitutional rights of the plaintiff 2) or if he took the action with the malicious intention to cause a deprivation of constitutional rights or other injury.”

CHAPTER 5 Preventing Harm without Coercion: Declaratory Remedies

1. Declaratory Judgments - New – 20 th century statutory Declaration of the rights of the litigants –DJ requirement - party has burden of establishing the existence of an actual case or controversy. Declaratory judgment – you don’t need to show irreparable injury. Existence of another adequate remedy does not preclude DJ in cases where appropriate. Nominal Damages are essentially declaratory judgments, Bill of quiet title Resolves underlying dispute – rarely used today Uniform Act – DJ may be denied if it doesn’t rid of uncertainty or controversy DJ’s can be converted into an injunction – after which violation you can then get “contempt” order – standard “proper and necessary” *Declaratory Judgments can issue when actual controversy exists. Nashville, Chattanooga Railway v. Wallace (US 1933) – CB 511 Facts – Tennessee (D) instituted gasoline storage tax. (P) brought action for judicial declaration that tax was unconstitutional burden on interstate commerce. No additional legal or equitable relief was requested. US Supreme Court affirmed that this tax was not unconstitutional burden on interstate commerce.

Rule – Federal courts can issue declaratory judgments when an actual controversy exists. *Declaratory judgment requires actual case or controversy - i.e. threat of infringe suit Cardinal Chemical Co. v. Morton International (US 1993) – CB 517 Facts – Morton(P) owned two patents on chemical compounds. (P) sued Cardinal (D) had infringed patents. (D) counterclaimed for declaratory judgment that the patents were invalid. Trial granted declaratory judgment that patents were invalid, but court of appeals vacated on mootness grounds.

Rule – Courts can’t refrain from deciding a counterclaim for declaratory judgment regarding the validity of a patent in infringement cases. The Desire to avoid threat of infringement action is sufficient to establish a controversy under Declaratory Judgment Act – so no mootness even if infringement action is dismissed. Tactical Advantage and Declaratory Judgments – CB 526 Courts Do not Permit Declaratory Judgments where: 1. If a court allows a potential defendant to bring an action, then this would be an easy way to get away from jury trials. 2. Where the potential defendant wants to choose the venue/forum 3. Where the plaintiff has a weak case and is not likely to sue, but in meantime – evidence is lost, or plaintiff is trying to avoid statute of limitation. *Declaratory Relief against State Statute – Federal plaintiff must beat state prosecutor to the courthouse. Steffel v. Thompson (US 1974) – CB 531 Facts – Steffel (P) was threatened with prosecution by criminal trespass law for handing out antiwar leaflets on private property. (P) filed action for injunctive and declaratory relief against the statute.

Rule – Federal declaratory relief may be given when threat of enforcement of a disputed state criminal statutes exists. Declaratory relief is not coercive (no threat of contempt). *watch ripeness – i.e. federal courts only decide actual controversies, no advisory opinions. Ex parte YOUNG Dilemma – choice between foreiting asserted constitutional rights or risking penalties is irreparable injury. Younger v. Harris (US 1971) Doctrine – restriction bars almost any form of federal relief that would directly or indirectly interfere with a pending state judicial proceeding. Federalism concerns. Ripeness – must show real threat of prosecution before getting declaratory relief *3 plaintiffs – M&L barred from d.relief/injunction because of Younger doctrine Doran v. Salem Inn. (US 1975) – CB 541 Facts – Town (D) passed ordinance forbidding topless dancing. M&L restaurant (P) + 2 others filed suit to invalidate ordinance. While other 2 restaurants stopped, M&L continued nude dancing and was criminally summoned under state ordinance.

Rule - A party cannot evade Younger restrictions on federal injunctions against state criminal actions by joining parties (other 2 restaurants) not affected by the restrictions.

2. B. Quiet Title, Cancellation, Rescission, *Okay for action to quiet title to personalty (equity besides for realty) Newman Machine Co. v. Newman (N.C. 1969) – CB 546 Facts – Newman (D) owned shares in Newman Co. (P), and sought to rescind sales transaction to (P). (P) sought quiet title to shares. (D) claimed quiet title only to realty.

Rule – An action to quiet title to personalty may be brought. As legal remedies appear inadequate, a quiet title action is proper. (equity – declares ownership) Declaratory Judgment Act does not apply to this case.

3. C. REFORMATION Reformation – contract stays in effect with modifications Restitutionary like because it deprives defendant of unjust enrichment Rescission – reverses the transaction – Dayton gets $38k back and Hand can sue. *Contract Reformation – for Fraud - Not Typical Case Hand v. Dayton-Hudson (6th Cir. 1985) – CB 554 Facts – Hand(P) was bad ex-attorney for law firm Dayton-Hudson(D). Hand was fired and (D) drafted a release agreement. Hand(P) rewrote the release identically but hid a provision that (P) could still sue for breach of contract. (P) tricked (D) into signing the new release and paying $38k. (P) then sued (D). Dayton tried to reform the release.

Rule – Reformation is allowed despite the lack of a mutual mistake if there is fraud by the other party. General Rule was parties responsible for signed contracts, and reformation available only where mutual mistake of fact. Exception for Fraud.

CHAPTER 6 RESTITUTION Benefit to Defendant as the Measure of Relief – CB 565 (*putting defendant in his/her rightful position*) Restitution – measure of remedy is what defendant gained (profits/FMV) defendant’s culpability Unjust Enrichment – 3 varieties Torts – plaintiff can elect damage remedy or restitution remedy Contract is unenforceable but the defendant has gained Mistaken payment of money – no underlying tort – error on part of defendant, no agreement between the parties SOFT WRONGS – torts claims – Judge Learned Hand Formula – Defendant pays for plaintiff’s loss. HARD WRONGS – Property Rules – we don’t care what level of harm you impose, we just don’t want you to engage in this conduct Disgorgement - focuses on the gain to the defendant but which considers consequential gain.

A. DISGORGING PROFITS *The Basic Principle – Simple Case – Hard Wrong – Disgorge Gain Olwell v. NYE & Nissen Co. (Wash. 1946) – CB 569 Facts – Olwell (P) had egg washing machine which Nye (D) used. (P) offered to sell to (D) but was refused.

Rule – Where defendant tortfeasor has benefited by his wrong, the plaintiff can waive the tort and bring an action for restitution (defendant’s profits + plaintiff’s loss) · Restitution via (savings of expense) wages of labor saved – defendant would have had to hire more labor CB 572 – Note 5 Edwards v. Lee’s Administrator (Ky. 1936) · Court awarded plaintiffs - Profits attributable to the defendant’s use of Plaintiff’s 1/3 of the cave. CB 576 – Note 15 *Strict Tort Liability Damages or Restitution ? Vincent v. Lake Erie Transportation Co. (Minn. 1910) · Plaintiff has dock. Defendant keeps his boat tied to the dock to save it from the severe storm. · $500 damage to plaintiff’s dock. - By-passing the market made sense *Deterring Deliberate Infringement – Courts decide Degree of Culpability Maier Brewing Co. v. Fleischmann Distilling Corp. (9th Cir. 1968) – CB 579 Facts – Fleischmann(P) had “Black & White” trademark for its scotch whiskey. Maier (D) deliberately used the trademark for its beer and infringed.

Rule – In trademark infringement, plaintiff may recover defendant’s profits even if defendant was not in direct competition with nor diverting trade from plaintiff. Equitable concepts – restitution and unjust enrichment. All profits * - court picks this because it is the easiest option Defendant’s burden of accounting for profits CONSTRUCTIVE TRUST – QUASI-CONTRACT Not really a trust – courts create it to move assets to person who is rightfully entitled to them. Trustee is liable for all her profits. Important remedies ramifications – advantages when defendants are insolvent Constructive trust can reach assets in the hands of third parties Irreparable harm rule ignored – damages are unmeasurable and inadequate Involve serious wrong-doing or fraud “Quasi-Contract” – (Olwell Case) behaving as if it is a contract involves the first 3 measures below usually 1. market rentals for a similar machine # 2. market rental that would have been in this particular case # 3. Value of labor saved * # Constructive Trust – usually goes towards the higher end of the measures 4. Profits attributable to this particular wrong 5. All Profits – made on eggs *Constructive Trust is a proper means to disgorge all profits - Unjust Enrichment Snepp v. United States (US 1980) – CB 585 Facts – Snepp (D) was an ex-CIA employee who agreed to submit any book he wrote to the CIA first to check for secrets. (P)Government sued to get profits from (D). District court issued injunction and constructive trust. Court said punitive damages too speculative, and so granted equitable relief.

Rule – A constructive trust is a proper manner of disgorging the profits of one who abuses a confidential position. Snepp was in a position of trust and harmed CIA, so profits derived there-from rightfully belong to the trustor. *Measuring the Profits in Proportion to Infringed Usage Sheldon v. Metro-Goldwyn Pictures (US 1940) – CB 603 Facts – Sheldon (P) sued Metro-Goldwyn(D) – because MGM had motion picture that used and infringed (P)’s copyrighted play. The play did not account for 100% of the films’ profits, because star power, etc.

Rule – A court may apportion profits in a copyright infringement suit based upon the actual use of copyrighted material in the making of all the revenue. Court is trying to consider 4) Profits attributable to the particular wrong. “reasonable approximation” requirement Red Flag – if profits far in excess of market value of thing taken (play), ask whether profits came from some other factor of defendant’s work. *Defendant’s accounting of profits – minus – allocable expenses Hamil America, Inc. v. GFI (2d Cir. 1999) – CB 611 Facts – Hamil (P) had floral fabric pattern which (D) sold. (P) successfully sued (D) to recover damages and profits. (D) sought to reduce its profits by deducting expenses.

Rule – A liable defendant for willful copyright infringement may exclude an allocation of general overhead expenses in calculating its profits on the infringed product. Defendant’s burden to 1) demonstrate sufficient nexus between expense and sale of unlawful goods and 2) proposing fair & acceptable formula for allocation

Section B. – Restitution and Contract Rescission and Restitution – puts each party in the position before the contract – available for fraud, mutual mistake, duress, material misrepresentation. Supposed to avoid questions of damage valuations, must be based on substantial grounds *otherwise damages adequate remedy Sue for breach of contract or rescission of contract Statute of Limitations – limits it *courts don’t discuss irreparable injury rule *Rescission of Contract - Straight forward Mutual Benefit Life Insurance Co. v. JMR Electronics Corp (2d Cir. 1988) – CB 621 Facts – JMR (D) got $250k life insurance policy for its president Gaon whom said he was a non-smoker. Mutual (P) issued policy. (D) died and (P) discovered he smoked a lot. Mutual got rescission of insurance contract with return of JMR’s premiums

Rule – Insurers can get rescission under any insurance policy where the applicant made material misrepresentation as to their medical history. *Quasi-Contract – Defendant need not receive benefit but merely (P)’s performance Farash v. Sykes Datatronics, Inc. (N.Y. 1983) – CB 629 Facts - No gain in this case. Farash (P) and Sykes (D) had oral agreement where (D) would lease (P)’s building. (P) was to remodel it to fit (D)’s needs. (D) later refused to lease. Farash (P) sued to recover the remodeling expenses.

Rule – A party can recover for expenditures made in reliance on the promise of another, even though the promisor received no benefit from the expenditures. *Rough fit for Restitution’s benefit req, use Promissory Estoppel *If benefit conferred intangible/speculative then no restitution -> reliance damages Glendale Federal Bank, FSB v. United States (Fed. Cir. 2001) – CB 639 Facts – Gov (D) induced Glendale (P) to acquire an insolvent savings and loan Broward. Gov promised (P) it would treat insolvent Broward as supervisory goodwill asset. Congress banned this later. District court awarded $798 million.

Rule – A non-breaching party to a contract should not be entitled to restitution when the gains of the breaching party are speculative and indeterminate. Restitution not appropriate here because no real benefit conferred to Gov (D). Reliance damages instead for Glendale (P) for losses actually sustained. EarthINFO, Inc. v. Hydrosphere Resource Consultants, Inc. (CO 1995) – CB 652 Facts – Earthinfo (D) had contract with Hydrosphere (P) to develop CD-ROM products using (P)’s software. (D) stopped paying royalties and (P) got trial court to rescind contract and order (D) to disgorge profits.

Rule - If defendant had intentional wrongdoing, recovery of profits maybe granted to non-breaching party, but an apportionment must limit the plaintiff to the profits attributable to his share. Controversy – restitution/disgorgement remedy chosen over easier expectation remedy (law of contracts – damages) Disgorgement of consequential gains from plaintiff’s performance of the contract that leads to a different and far more controversial remedy. Contract Damages – plaintiff’s Expectation interest – where would plaintiff have been if contract performed – can’t be too speculative Reliance interest – put plaintiff back in position as if contract never occurred Equitable Equivalents Specific performance – injunction Rescission – (equal to restitution and reliance), avoids valuations equitable counterpart of the Reliance interest equitable counterpart to the defendant focused Restitution remedies

REMEDIES OUTLINE - POST MIDTERM MATERIAL Disgorgement of consequential gains from plaintiff’s performance of the contract that leads to a different and far more controversial remedy.

C. Tracing Defendant’s Benefit: RESTITUTION AND INSOLVENCY Constructive Trusts – Makes a difference in defendant bankruptcy cases: 2 requirements 1) Victim’s ability to identify his/her property taken 2)theft (misappropriation), fraud, or mistake · Equity’s remedy when one party is unjustly enriched - restitution Strongest Remedy – Choice of Constructive trust and equitable lien – If traceable property is worth less than she lost, (P) will seek money judgment for full loss and an equitable lien on the traceable property. General Bankruptcy Rule – 1 st Government gets its share 2 nd senior creditors get priority Exception – Defrauded parties can prove which funds were theirs. Rescission/constructive trust award – (P) gets a higher priority against other creditors than in an award of money damages. Hypo – Thief steals Prof.’s wallet and takes money and puts in his bank account. The thief declares bankruptcy. That money does not become part of his bankrupt estate; no other creditors have rights to it before the Prof. Whatever is purchased with Prof.’s money, belongs to the professor. Theft, mistake give rise to constructive trusts. *Free Choice of Remedies – adequacy of legal remedies vs. equitable remedies Hicks v. Clayton (CA 1977) – CB 659 (D)Clayton was lawyer for (P). (D) swindled certain real property in exchange for worthless stocks and notes; he failed to pay the notes, and (P) was unable to pay off his own loan on the property. (P) sued for rescission of conveyance. Trial court awarded damages- not equitable remedies. (D) was insolvent. Rule – Equitable relief should be granted when damages will prove inadequate. Court – If the Hicks can show that they were the victims of theft, fraud, or mistake, and if they can trace the assets, it’s theirs. *Opposite Hicks Case

In Re North American Coin & Currency (9 th Cir. 1985) – CB 662 (P)Customers who placed orders Sept 13-17. (D)NAC created special trust account for $600k received from (P). (D) filed for bankruptcy, and (P) tried to claim constructive trust over the $600k. general creditors Rule – Constructive trusts will not be given effect over federal bankruptcy proceedings unless there has been actual fraud. (D) committed no fraud – no equitable basis to distinguish the customers by order dates

*Tracing of Trust Funds: liberalized standards In Re Erie Trust Co. (PA 1937) – CB 665 Erie Trust Co. converted funds from Gingrich trust. He died, and beneficiaries had a receiver that tried to get the funds from bankrupt Erie. Trial court refused to give preference to receiver over general creditors because the funds were commingled in various deposit accounts and not traceable. Rule - Wrongfully converted funds may be traced into commingled accounts without precise identification. Restatements of Trusts §202 approach - Beneficiary is entitled to a proportionate share of remaining trust funds and withdrawn funds. Court treated all the cash accounts as “one” account.

TRACING RULES 1) Strong presumption – that the bad guy spends his own money first When withdrawals from bad guy’s account – it is his money. Money Left over is the victim’s money 2) Wrongdoer Invests (P)’s money first. When money is spent and invested – the victim can choose the money invested. 3) Lowest intermediate balance rule – if account balance drops below (P)’s money deposited, then the lowest balance the account ever reaches = limit on (P)’s claim. When money is dissipated and then replenished by thief’s earnings – it is treated as his money. 4) Direction exchanges – don’t require additional fictions – i.e. real estate sold and money used to buy stock *Figure out the Best Range of Investments for the Victim – Higher Yield *Prof. questions this case – Restitution – Constructive Trust Rogers v. Rogers (NY 1984) – CB 684 1 st Wife and children of man is promised $15k life insurance policy in separation agreement. Man changes companies and insurance policies (still $15k); he remarries 2 nd wife Judith who got “unjustly enriched.” 1 st wife sues 2 nd wife for insurance proceeds via constructive trust. Rule – Constructive trust arises when a person holding property would be unjustly enriched by it. The result is right but not out of traditional reasoning. Court assumes that the life insurance policy is a piece of property. Life insurance right was somehow converted into cash that then was used to buy the 2 nd policy. (weak argument)

*Difference Between Constructive Trust and Equitable Lien – Mistaken Improvers’ Choice Robinson v. Robinson (Ill. 1981) – CB 690 Ann(P) and Wylie(D) built a house on (D)’s parents’ farm land. Common Law Rule – If your mistake, then no remedy unless the real property owner knew and let it go. Equitable Lean = money judgment/value of that improvement at the moment the court makes judgment. Remedy for a debt; attaches to a specific property Rule – A land owner permitting another to make improvements on his property is liable for the value thereof.

SUBROGATION – CONTRIBUTION – INDEMNITY 1. 2. 3. 4.

claim must be paid in full (i.e. ANB must pay all of subrogor’s damages) Subrogee (ANB) must pay a claim for which a third party is primarily liable Subrogor (Investor) must have a right assertable against the third party No Volunteers – Subrogee must have had a legal duty to have indemnified subrogor. Alternative to the Collateral Source Rule – (P) can recover from insurer and tortfeasor

*Distinction between Subrogation and Indemnity – Subrogation is an equitable procedure allowing one who indemnifies another to proceed against another when normally it would be an outsider to the transaction. If defendants are joint and severally liable, then appropriate remedy is indemnity or contribution Contribution – partial indemnification – if 2 or more parties are jointly liable for the same obligation, and 1 pays more than his share, he is entitled to contribution from the others, so that each pays his share American National Bank & Trust Co. v. Weyerhaeuser Co. (7 th Cir. 1982) American National Bank is an agent of the Investment Board (Principal), takes care of the trust fund and has stock in Weyerhaeuser which offered to buy back 3.5 million. Subrogor (Investment Board) -> Subrogee (ANB) Board tells Agent ANB to sell but never consummated. Rule – An Agent who buys stock from a principal due to the negligence of a 3 rd party has standing to sue that 3 rd party. Classic Subrogation – insurer pays damages to insured, and subrogation gives the insurer the right to sue the party who damaged the insured.

VOLUNTEERS - Note 2 – Armco, Inc. v. Southern Rock (5 th Cir. 1983) Court says no subrogation because you’re a volunteer. Armco made sewer pipes and city had another contractor install them (faulty job that caused leaks). Armco was consciously ignorant (not mistake) of whether it owed the money, but volunteered to pay for the repairs.

1) Replevin & Ejectment – restore to plaintiff the property lost · (P) has a choice to sue for the goods or for their value · Constitutional – Fuentes v. Shevin (US 1972) – before seizure of property – due process required some kind of hearing 2) Trover (Conversion) – this property was converted to the use of the defendant with no intent to give it back (action for damages) – value at the time it was taken *Conscious Wrong Doer here – Tort Conversion of a Chattel – (P) waives tort and sues in assumpsit Welch v. Kosasky (MA 1987) – CB 713 (P)Welch had 12 lots of antique silver stolen. (D) later bought 11 lots which he knew or should have known were stolen. (P) recovered the silver at a dealer, but (D)’s alterations resulted in $22,000 lost value. Rule – Rightful owners may recover converted property and its estimated appreciated value if subsequent alterations have damaged the property. (i.e. Estimated value $25k – Current Value at Return $3k)

CHAPTER 7 – PUNITIVE REMEDIES – CB 719

A. PUNITIVE DAMAGES

Punitive damages are meant to compensate those things which the common law doesn’t. Punitive damages always exceed > the plaintiff’s loss. Policy of Deterrence – Rejection of Economic View on Accident law. Class Actions – no real argument for punitive damages ½ states follow Grimshaw – managerial employees implicated in conduct ½ states apply respondeat superior rules to punitives – employer liable Civil Rights suits – punitives unavailable against municipalities Constitutional attacks on statutory caps on punitive damages modestly successful De novo standard of review – federal procedural rule Measuring Punitive Damages – some courts say punitives must be in a reasonable ratio to compensatory damages, or no punitives without at least some compensatory – exception if equitable relief instead

Kennedy Case

1. 2. 3. 4. 5. 6. 7.

Whether sanction involves on affirmative disability or restraint Whether it has historically been regarded as a punishment Whether it comes into play only upon a finding of scienter. Whether it’s operation will promote the traditional aims of punishment, retribution and deterrence Whether the behavior to which it applies is already a crime (*it’s impossible to draft codes to list each and every crime) Whether an alternative purpose to which it may rationally be connected is assignable for it. – Argue that it may be compensatory. Whether they appear excessive in relation to that alternative purpose

*(D)’s conscious disregard of probability that conduct will result in injury to others Grimshaw v. Ford Motor Co. (CA 1981) – CB 719 (D) Ford decide to ignore inexpensive safety improvements and sell the Pinto to the public. (P)was burned when car blew up in flames. Punitive Damages awarded. Rule – A company’s decision to expose the public to serious danger when inexpensive alternatives exist is a legitimate basis for punitive damages. “Conscious disregard of possible results” – Malice defined broadly. Punitive damages awarded where malice is found Determining whether Punitive Damages is Excessive – Shocking disproportion – Product of Passion or Prejudice? 1)wealth of defendant, 2) amount of compensatory damages, 3) proper deterrence amount

*US Supreme Court steps into State Appellate Review of a Punitive Damage Verdict BMW, Inc. v. Gore (US 1996) –Degree of (D)’s reprehensibility of conduct Jury had assessed very high punitive damages $4 million. (P)Gore bought BMW and found out (D) had policy not to disclose minor damage on new cars. BMW Standard – not very illustrative – punitive damages vary among jurisdictions. States use statutes – to put limitations/caps on punitive damages, and different standards “clear and convincing evidence” BMW’s conduct was not indifferent to or reckless disregard for health and safety of others. Court’s 3 guideposts – 1)degree of reprehensibility of (D)’s conduct 2)Ration of PD award to actual harm inflicted on (P) 3)Sanctions for comparable misconductRule – Punitive damage awards must be reasonable in light of the reprehensibility of (D)’s conduct and the ratio to the compensatory amount. Remand - $50,000 for punitive damages

CHAPTER 8 – ANCILLARY REMEDIES – CB 775 Ancillary remedies help implement some other remedy – i.e. preliminary injunctions are ancillary to the permanent remedy. 1) Enforcing judgments and 2) Recovering Attorney’s Fees

A. ENFORCING COERCIVE ORDERS: THE CONTEMPT POWER

3 basic kinds of use of the Contempt Power (Equity - No Jury)

1. Compensatory Contempt (Civil) – CA does not have this, (P) prosecutes an action for (damages, restitution) – inadequate damages -> injunction (violated) -> contempt damages – no jury trail 2. Coercive Contempt (Civil) – actor (P) sanctions (fines, jail) are avoidable through obedience · Coerce (D) to comply or penalty will be bigger – size of fine – consider (D)’s wealth

3. Criminal Contempt (Punitive) – punish (D) for an act that already occurred, requires intent · Procedural safeguard– scienter “willful” requires prior notice of sanctions and prohibited conduct · Criminal fines can be imposed without a jury trial up to an undefined limit (i.e. $52 million) Collateral Bar Rule – (D) cannot challenge the validity of an injunction when in a prosecution for criminal contempt of that injunction. Walker Case (US 1967) Bars collateral attacks on validity of injunctions Not applicable to civil contempt. No CBR to statutes. Exceptions – No CBR if no procedure for appeal, No Jurisdiction, Injunction Transparently Invalid or frivolous pretense to validity (Walker US) (1 st Cir) *Retrospective Criminal Contempt Fines – Jury Trial needed for huge fine awards. International Union, United Mine Workers v. Bagwell (US 1994) – CB 776 (D)United M Workers had 72 violations of (P)’s injunction against unlawful strike activities. 7 contempt hearings without a jury trial. (P) wanted $52 million in unpaid contempt fines from (D). Rule – Contempt fines for these violations of the injunction constituted criminal sanctions entitling (D) to a jury trial. Nature of the injunction – even though the court announced the fines before their violation, does not mean the fines were “civil in nature”. Fines here = retrospective criminal fines – out of court violations Anyanwu v. Anyanwu (NJ 2001) – CB 784 (D) Husband was incarcerated after failing to comply with court order to produce his 2 children in Nigeria. (D) said it was not possible for him to comply. (D) has burden to prove inability to comply. Rule – (D) cannot be held in civil contempt when jail for that purpose has lost its coercive power. (D) unable to comply with the court order. (D)’s refusal to comply does not transform coercive to punitive order *Split in Circuits – 5 th Cir says an actual existing order must be disobeyed for contempt to exist Griffin v. Country School Board (4 th Cir. 1966) – CB 802 (D)School Board – made tuition grants to segregated private schools. Court order to stop, and trial whether previous year disbursements could still be made. Before appeals court could issue decisions, (D) paid the money and had reason to believe of court prohibition. Rule – Certain matter that is removed from a court’s jurisdiction constitutes contempt. (D) = civil contempt Dissent – 18 USC §401 – limits contempt to disobedience of existing lawful court orders. US Supreme Court – Merrimack and Lamb cases – court gets mad – contempt for non-existing orders

B. THE COLLATERAL BAR RULE – CB 812

*Collateral Bar Rule – an injunction cannot be attacked in prosecution for criminal contempt Walker v. City of Birmingham (US 1967) – CB 812 (P)City obtained ex parte TRO prohibiting marches. (D) Walker disobeyed and had contempt citation. (D) claimed the order was unconstitutional and not binding. Rule – Disobedience of a court order is punishable by contempt even if the order is unconstitutional. Judicial order must be obeyed until reversed. Proper solution is to attack the order on appeal. Dissent – No greater weight for bad order than bad statute which can be disobeyed and attacked.

*3rd Party Rights and Liability United States v. Hall (5 th Cir. 1973) – CB 828 Court order to desegregate + ex parte order enjoining all persons from disrupting implementation of plan. Anyone with notice of the order and violates it would be sanctioned for contempt. Black Front Hall (D) violated the order and disrupted high school. Court made controversial analysis to in rem injunctions. Rule – A court has power to enforce an injunctive order against a nonparty with contempt powers if it is necessary to effectuate a binding adjudication between the other parties before the court. FRCP 65(d) does not restrict the inherent power of a court to protect its ability to render a binding judgment between parties. Other Theories – Binding 3 rd Parties – persons in active concert, successors to public office, if a successor entity is created for the purpose of evading an injunction, courts will hold the successor in contempt, in rem injunctions – bankruptcy petitions, Injunction against a state binds its citizens (with respect to public rights) – Washington Fishing Assn Case (US 1979)

CHAPTER 9 –REMEDIAL DEFENSES – CB 959 Historically equitable defenses – Clearly available to (D) – estoppel, waiver, unconscionability “Unclean hands” and “Laches” – traditionally available if (P) seeks equitable relief (legal sub as well)

A. UNCLEAN HANDS DOCTRINE AND IN PARI DELICTO

“unclean hands” doctrine– Equitable defense – focus is on the plaintiff (both parties need not be guilty of the same conduct) – requires at least some connection between conduct and the lawsuit – judicial relief should be denied to wrongdoers (P) as way to deter illegality. “in pari delicto” – Law suits for damages. Parties are guilty of the same wrongful act/conduct. Traditionally the Defense is limited to situations where (P) “bears at least substantially equal responsibility for the violations he seeks to redress and culpability out of same act, and 2) does not interfere with underlying statutory policies. Now, it is applied to deter wrongdoers. *Unclean Hands and In Pari Delicto – legal suits Pinter v. Dahl (US 1988) – Pinter(D) was oil/gas producer who had (P) invest $310k in dry wells. (P) had other purchasers invest money in the venture. (D) sold interests without registering under Securities Act. (P) sued for rescission. (D) tried in pari delicto defense but court ruled for (P). (P) merely had knowledge, no cooperation with (D) Rule – (D) can only use “in pari delicto” when (P) is an active and voluntary participant in the unlawful activity that is the subject of the suit. (P) needed to be a promoter, not merely an Investor. Note3 - Precision Instrument Manufacturing v. Automotive Maint Machinery Co. (US 1945) “unclean hands” case because conduct that the plaintiff is responsible (failure to disclose (D)’s perjury) is not the same conduct as lawsuit against (D’s infringement). (P) invents wrench; (D) perjures PTO application saying it was first. (D) settles with (P) and assigns patent. (P) doesn’t disclose perjury to PTO. Note 6 Worden v. California Fig Syrup Co. (US 1903) “unclean hands case” – public harm continues - both parties’ syrup were not from CA and not from figs. Both engaged in fraud upon consumer –– lawsuit didn’t stop them from selling to consumers. Note – Best Unclean Hands Case - Highwaymen’s Case (1725) – persons would find drunk people with money – coordinate robbery and split the proceeds. The person stealing didn’t split the profits, and the scoper (D) sued for accounting. Not “in pari delicto” - No Remedies for criminal contracts.

B. UNCONSCIONABILITY AND THE EQUITABLE CONTRACT DEFENSES

19 th Century of “unconscionability” only applied in Equity – law judges stretched a little with unconscionable contracts – damages can be fudged/minimized (deny specific performance). Equity judges can’t budge. Unconscionability – most courts require 2 elements in different degrees: 1) Procedural – oppression or surprise by unequal bargaining relationship between parties 2) Substantive – overly harsh/one-sided results Armendariz v. Foundation Health Psychcare Services, Inc. (CA 2000) CB 969 (P) two female supervisors sued for sexual harassment and unlawful termination. (D) invoked a contract clause requiring arbitration of the (P)’s claims but not if (D) had claims. Rule – Employment contracts of adhesion are unconscionable if they require arbitration of an employee’s claims but not those of the employer. (no reasonable justification for 1 sidedness based on business reality)

C. EQUITTABLE ESTOPPEL AND WAIVER – Both Ends of a Continuum

“equitable estoppel” – an act or statement inconsistent with the right later asserted combined with reasonable detrimental reliance, fraud or fraudulent/unjust effects is essential – detrimental reliance by party A upon an act or statement by party B that is inconsistent with a right later asserted by party B. 1)Res judicata (estoppel by judgement) 2)promissory estoppel (relying on (D)’s promise) 3)judicial estoppel “waiver” – intentional relinquishment of a known right or intentional conduct that is inconsistent with claiming that right – waiver is essentially unilateral Geddes v. Mill Creek Country Club, Inc. (Ill. 2001) – CB 978 (P) Geddes had business next to (D)Club’s golf course. (P) was consulted on placement of golf fairway and supported the project before country planning committee. (P) later sued for trespass and nuisance when 2,128 golf balls invaded his property. Rule – If a person’s statements and conduct leads a party to undertake an action he otherwise would not, that person is equitably estopped from asserting rights that would have existed but for statements/conduct. Note 8. United States v. Georgia-Pacific Co. (9 th Cir. 1970) – government led private owners to believe it had abandoned contract to forest land title. Choice of remedies: reinstate K if gov paid G/P’s reliance Government cannot be estopped by a (P) seeking public funds Office PM v. Richmond (US 1990) Notes Schweiker v. Hansen (US 1981) – Hansen lost 11 months social security due to erroneous field representative advice. Court reversed that Gov was estopped to refuse the benefits. INS v. Miranda (US 1982) Miranda divorce.Court reversed holding that Gov was estopped to refuse visa because of INS delay. Waiver – Some courts say the Government can waive its rights only if the official who waived had authority. United States Fidelity Co. v. Bimco Iron & Metal Corp. (TX 1971) Bimco (P) held insurance policy from USF (D) covering property damage but not theft. (P)’s building was damaged and stolen property. (D) contended it was responsible for property damage only. (P) claimed (D) waived the late filing defense by admitting liability for property damage. (D) did not intentionally waiver. Rule – Effective waiver of an affirmative right must be a clear/intentional act. Absent actual or implied intent, no waiver has occurred. Different than Estoppel – imposed preclusion of the exercise of a right.

D. LACHES AND STATUTE OF LIMITATIONS – CB 995

Laches – equitable doctrine that requires 1) unreasonable delay (awareness, could be very short compared to SOL) AND 2) some kind of prejudice to the opposing party (detrimental reliance, loss of evidence –i.e. witnesses no longer available) Defendant has to prove. Equity should only aid the vigilant. Purpose of laches – to resolve disputes before pertinent evidence is lost. Factors Negating Laches – 1)ongoing negotiations and 2) conscious fraud or bad faith by (D) Statutes of Limitations – litigated more often than “laches” cases. SOL – limitation period begins when the cause of action accrues – when the plaintiff can bring a cause of action – applies in equity and law Concurrency Doctrine – makes SOL applicable to equitable as well as legal remedies. Laches - equity bar Federal Claims – SOL – reference to analogous state SOL Ways in which SOL can become more Standard Like and Less Rule like

1. SOL Period starts when Cause of Action Accrues – unavoidable issue 2. Tolling of SOL (some courts allow this) – done for things like: infancy – (SOL does not tick against an injured child, first they have to make it to adulthood)– insanity – jail potential (D) out of jurisdix 3. Continuing Wrong – 1)violation continues 2) harm must continue 3) violation causes the harm i.e. defendant marching sheep across plaintiff neighbor’s land – injunction for future trespasses - Damages for past trespasses that occurred in the past 3 years (if SOL = 3)

4. Discovery Rules – do not confuse with Rules Against Fraudulent Concealment - broader 5. Other jurisdictions pass Statutes of Repose – absolute max limit – sometimes bars claims outright

SOL

LACHES

Rights of Legal Remedy Only

YES

NO

Rights of Both Legal and Equity





(P) Seeks Legal Remedy

YES

(P) Seeks Equitable Remedy

YES NO

NO YES YES

Rights with Equitable Remedy

*Laches Defense Case – 1)substantial delay by (P) 2) (P) awareness of infringement 3)reliance by (D) NAACP v. NAACP Legal Defense/Educational Fund (D.C. 1985) – CB 995 NAACP (P) created LDF (D) which later became independent. (P) registered NAACP as trademark and sued (D) which said suit should be barred by laches. (P) delayed 12 years after (D) invested in mark. (D) wins. Rule – Laches bars a suit where a substantial delay by (P) prejudices (D) to invest labor/resources in mark. *Statute of Limitations – Continuing-Violation Doctrine (weak (P) argument) Klehr v. A.O. Smith Corp. (US 1997) (D) Smith said silo limited oxygen to prevent mold in feed stored. (P) Klehr found mold and sued under RICO. Predicate Act Rule – improperly extends SOL. Continuing Violation – each new act recommences SOL (P) must prove each new act caused the harm over and above the earlier acts. Based on Antitrust Law. Rule – SOL does not begin to run anew on a claim based on the date of (D)’s last predicate act. *Discovery Rules Tolls the SOL until (P) knows enough facts. DR do not apply to all SOL. O’Brien v. Eli Lilly & Co. (3d Cir. 1982) (P)O’Brien was told she had cancer 1971. 1950’s (P)’s mother took DES. Causal Link discovery in 1976. (P) filed suit in 1979. She missed SOL which was 2 years. Rule – In Personal Injury, SOL period begins to run at the time (P) finds out injury, operative cause of the injury, and causative relationship between the injury and (D)’s operative conduct. (objective) *Fraudulent Concealment – equitable estoppel to SOL – (D) conceals existence of cause of action Knaysi v. A.H. Robins Co. (11 TH Cir. 1982) Knaysi (P) sued (D) where company knew of dangers with Dalkon Shield and intentionally suppressed such information. (P) miscarried twin fetuses. Justifiable reliance on (D)’s misrepresentations. Rule – Equitable estoppel is sufficient to bar the SOL when (D) fraudulently conceals action/conduct unknown to (P). (D) induces (P) to forbear suing on a known cause of action, (D) may be estopped - SOL