Remedies Table of Contents I. INTRODUCTION TO REMEDIES ............................................................................................ 8 A.
Introduction to Remedies ................................................................................................. 8 1.
Forms of Remedies ....................................................................................................... 8
2.
Varying Policy Views:.................................................................................................. 8
B.
Theoretical Groundwork-may suggest the same thing but have different approaches .... 9 1.
Corrective Justice (sanction): ....................................................................................... 9
2.
Economic Theory (guidance): ...................................................................................... 9
3.
The Rightful Position Principle .................................................................................... 9
4.
The Role of Remedies .................................................................................................. 9
5.
Classifying Remedies ................................................................................................. 10
6.
Substitutionary and Specific Remedies ...................................................................... 10
7.
Legal and Equitable Remedies ................................................................................... 10
8.
The one-satisfaction rule ............................................................................................ 10
C.
THREE ISSUES TO ADDRESS FOR ALL REMEDY PROBLEMS!!!...................... 10 1.
When do you get that remedy (damages, restitution, injunction) ............................... 10
2.
What is the scope of the remedy available? ............................................................... 10
3.
Measurement/Valuation.............................................................................................. 10
II. Paying for Harm: Compensatory Damages .............................................................................. 11 A.
COMPENSATORY OVERVIEW ................................................................................. 11 1. Damages –function is to always compensate for the Π‘s loss, rightful position standard- you can get direct losses and consequential losses ............................................... 11 2.
Tort cases: ................................................................................................................... 12
3.
Wrongful Death-statutory ........................................................................................... 12
4.
Tort Reform Measures: ............................................................................................... 13
5.
Infringement & Anti-trust (Bigelow) ......................................................................... 13
6.
Dignitary Harm (Levka) ............................................................................................. 13
7.
Constitutional Harm (carey case) ............................................................................... 13
B.
COMPENSATORY DAMAGES EXPLAINED ........................................................... 13 1. US v. Hatahley (restoring plaintiff to his rightful position-market value + ―added value‖ stolen unique animals) ............................................................................................... 13 2.
Consequential damages: ............................................................................................. 15
3.
Petco case ................................................................................................................... 15
4.
Focus on loss of companionship (values of property) ................................................ 16
5.
Medlen v. Strickland (Texas Appellate court case recognized animals as companions) 17
6.
Value as the Measure of the Rightful Position ........................................................... 17
7.
Special Value-Specialty Property ............................................................................... 19
8.
Reliance & Expectancy as Measures of the Rightful Position ................................... 21
9.
Consequential Damages in Tort and Contract Cases.................................................. 23
C.
Limits on Damages by Parties ........................................................................................ 26 1.
D.
Restricting Recovery: ................................................................................................. 26 The Requirement of Reasonable Certainty .................................................................... 27
1.
Bigelow v. RKO (relying on juries for reasonable certainty): ................................... 27
2.
Successful Proof of Damages ..................................................................................... 27
3.
Requirement of Reasonable Certainty ........................................................................ 28
E.
Damages where Value Cannot be Measured in Dollars ................................................. 28 1.
Per Diem Arguments .................................................................................................. 28
2.
Pain and Suffering ...................................................................................................... 29
3.
Wrongful Death .......................................................................................................... 29
4.
WRONGFUL DEATH/SURVIVAL STATUTES ..................................................... 30
F. TORT REFORM: Is there a tort crisis???.......................................................................... 31 1. Since 1980 insurance rates have been sky-rocketing. There are 2 competing arguments for WHY there has been such huge increases in insurance rates: ....................... 31 2.
If there is a tort problem: What/Who are the culprits? ............................................... 32
3.
Remedies for September 11 Victims .......................................................................... 33
G.
Controversy over Tort Reform ....................................................................................... 33 1. Basic Remedial Position: Common proposals where most states have accepted at least some: ............................................................................................................................. 33 2.
Levels of Safety .......................................................................................................... 34
3. Arbino v. Johnson (statutorily imposed caps on noneconomic damages are not unconstitutional): .................................................................................................................. 34 4.
The Impact of Caps..................................................................................................... 35
5.
Valuing Pain and Suffering: ....................................................................................... 35
6.
The Value of Statistical Life:...................................................................................... 35
7.
Debates and Policy Arguments................................................................................... 36
H.
Dignitary and Constitutional Harms ............................................................................. 37 1.
General concept .......................................................................................................... 37
2. Levka v. City of Chicago (court can reduce jury award if ―shocks the conscience‖ but can‘t enlarge) ........................................................................................................................ 38 3.
Valuing Emotional Distress ........................................................................................ 39
4. Carey v. Piphus (absent proof of actual injury caused by a denial of procedural due process, only nominal damages may be awarded) ................................................................ 40 5.
Valuing Constitutional Rights .................................................................................... 41
III. PUNITIVE DAMAGES ......................................................................................................... 42 A.
PUNITIVE DAMAGES OVERVIEW .......................................................................... 42 1.
Purposes: to deter, to punish Δ, to provide incentives to enforcement....................... 42
2. Enforce: if Δ acted maliciously but wasn‘t that much compensatory damage but you need to provide more damages to deter Δ ............................................................................. 42 3.
How do juries come up with the numbers come up with the number? 7 factors: ...... 42
4.
Procedural violations- ................................................................................................. 42
5.
Substantive violations- ............................................................................................... 42
B.
Punitive Damages Explained ......................................................................................... 42 1.
The standard for punitive damages ............................................................................. 42
2.
Factors involved in punitive damages ........................................................................ 43
3. Exxon Shipping v. Baker (Common Law and Statutes)( intent element was in issueclassified it as heedful recklessness) ..................................................................................... 43 4. C.
Economic Rationale for Punitive Damages ................................................................ 44 The Constitution ............................................................................................................. 44
1. State Farm v. Campbell (punitive damages award of 145M where compensatory damages are 1M is excessive and violative of Due Process Clause of Constitution) ........... 44 2.
Constitutional Limits on Punitive Damages I............................................................. 46
IV. PREVENTING HARM: THE MEASURE OF INJUNCTIVE RELIEF ............................... 48 A.
OVERVIEW OF INJUNCTIONS ................................................................................. 48 1.
Preventive Injunctions-prevent future wrongful acts ................................................. 48
2. Reparative Injunctions –repair future harmful consequences of a past wrongful act (Winston/Bailey) ................................................................................................................... 48 3.
Substantive law: .......................................................................................................... 48
4.
Drafting Injunction-must give notice ......................................................................... 48
5.
When damage remedy is inadequate .......................................................................... 48
6.
When you typically don‘t get an injunction: .............................................................. 48
7.
Relationships to economics ........................................................................................ 48
8.
Advantages of specific relief ...................................................................................... 49
9.
Four factors (NRC Case-dolphins)(courts tend to do sliding scale) ........................... 49
10.
Status Quo................................................................................................................... 49
11.
Who should bear the risk of the Court erroneously granting the injunction .............. 49
B.
SCOPE OF INJUNCTIONS .......................................................................................... 49 1.
Scope of Injunctions to Prevent Wrongful Acts ......................................................... 49
2. Almurbati v. Bush (preventing wrongful acts) (in order to obtain injunctive relief Π must prove the potential injury is not remote and speculative) ............................................ 49 3.
Ripeness ...................................................................................................................... 50
4. Humble Oil v. Harang (necessity of injunction must be demonstrated clearly-fear doesn‘t count)........................................................................................................................ 50 5. Marshall v. Goodyear (Scope: can only issue company-wide injunction if based on company policy).................................................................................................................... 51 6. C.
Individual and Class Injunctions ................................................................................ 52 Preventing Lawful Acts that Might Have Consequences............................................... 52
1. Nicholson v. Connecticut(evidence must show that Δ‘s proposed use of property is unreasonable not because of fears) ....................................................................................... 52 2.
Ripeness and Uncertain Consequences ...................................................................... 53
3. Pepsico v. Redmond (in litigation involving trade secrets, a court may enjoin the actual or threatened misappropriation of trade secrets) ........................................................ 53 4. D.
Prophylactic Injunctions ............................................................................................. 54 Repairing the Consequences of Past Wrongful Conduct ............................................... 55
1.
Preventive Injunctions v. Reparative Injunctions ....................................................... 55
2.
Forster v. Boss (can‘t recover twice for the same injury) .......................................... 56
3.
Reparative Injunctions and Causation ........................................................................ 56
4.
Coordinating Multiple Remedies................................................................................ 56
5. Winston Research v. Minnesota Mining (unfair competition should be enjoined for time it would take to develop a similar product after public disclosure but doesn‘t give rise to a permanent injunction) .................................................................................................... 56 6. Bailey v. Proctor (once there is a violation that brings a case into the equity courtjudge has equitable discretion to go beyond the ―rightful position‖ approach) .................... 57 7.
Community Renewal Foundation v. Chicago(judge has reasonable discretion) ........ 57
V. CHOOSING REMEDIES ........................................................................................................ 59 A.
Substitutionary or Specific Relief .................................................................................. 59 1.
Substitution and Specific Relief ................................................................................. 59
2.
Damages or Injunction? .............................................................................................. 59
3.
When the Legal Remedy is Inadequate ...................................................................... 60
4.
Specific Performance of Contracts ............................................................................. 62
B.
Damages or Specific Relief ............................................................................................ 65 1. Whitlock v. Hilander Foods (court may issue injunction to builder to remove encroachment if Π can prove it was deliberate).................................................................... 65 2.
Undue Hardship .......................................................................................................... 65
3.
Economics of Undue Hardship ................................................................................... 66
4. Cooperative Insurance v. Argyll (a court may not order specific performance of covenant to maintain business when it would be financially detrimental to operate): ......... 67 C.
Preliminary Relief .......................................................................................................... 68 1.
Preliminary or Permanent Relief ................................................................................ 68
2.
Substantive.................................................................................................................. 68
VI. REMEDIES AND ANIMAL LAW........................................................................................ 74 A.
Approaching Animal Case-Remedies-Treated as Personal Property............................. 74 1.
Specific Relief ............................................................................................................ 74
2.
Compensatory Damages ............................................................................................. 74
3.
Economic Property Loss ............................................................................................. 74
4.
Consequential losses may include: ............................................................................. 74
5.
Noneconomic Property Loss ...................................................................................... 74
6. Types of Evidence that Could be Used to support an award of loss of companionship include: .................................................................................................................................. 74 7.
Direct Emotional Injury vs. Loss of Companionship ................................................. 75
VII. BENEFIT TO Δ AS THE MEASURE OF RELIEF: RESTITUTION ................................. 76 A.
RESTITUTION OVERVIEW........................................................................................ 76 1. Trying to prevent unjust enrichment of the Δ –when Δ benefits by wronging the Π at the Π‘s expense ..................................................................................................................... 76 2.
Mistake (Blue Cross) Innocent Δ but unfair to leave benefit ..................................... 76
3.
In contracts, if there is a contract, you are bound by the contract .............................. 76
4.
Measuring restitution: ................................................................................................. 76
5.
Apportioning profits gained by wrongdoers (Sheldon) .............................................. 76
6.
Rescission (numerous grounds): puts party in position before the contract was made 76
7.
constructive trusts ....................................................................................................... 77
8.
Tracing ........................................................................................................................ 77
9.
Equitable lien .............................................................................................................. 77
B.
Restitution from Innocent Defendants—and Some Who Are Treated as Innocent ....... 77 1.
Blue Cross v. Sauer (Restitution-Mistake) ................................................................. 77
2.
Restitution Explained ................................................................................................. 79
3.
Grounds for Restitution: ............................................................................................. 80
4.
Somerville v. Jacobs: .................................................................................................. 81
5.
Mistaken Improvers: ................................................................................................... 81
6.
Other Grounds for Restitution .................................................................................... 83
C.
Measuring Restitution from the Innocent—and More Restitutionary Causes of Action 84 1.
State v. ANW Seed Corp (Court Orders Later reversed) ........................................... 84
2.
Court Orders Later Reversed: ..................................................................................... 85
3. Unenforceable Contracts and Quantum Meruit (LEGAL restitutionary remedy NOT EQUITABLE): ...................................................................................................................... 86 D.
Recovering More Than the Plaintiff Lost ...................................................................... 89 1.
Olwell v. Nye (Egg machine-disgorging profits of conscious wrongdoers) .............. 89
2.
Recovering More than Plaintiff Lost I ........................................................................ 90
3.
The Causes of Action for Restitution Against Wrongdoers ....................................... 91
4.
Maier Brewing Co v. Fleishchmann Distilling Corp (beer and whiskey).: ................ 92
5.
Recovering More Than Plaintiff Lost II ..................................................................... 93
E.
Measuring the Profits ..................................................................................................... 93 1.
Sheldon v. Metro-Goldwyn (copyright play and movie): .......................................... 93
2.
Apportioning Profits ................................................................................................... 94
3.
Hamil v. GFI: .............................................................................................................. 94
4.
Receiving Consequential Indirect Profits: .................................................................. 95
5.
Calculating Profits: ..................................................................................................... 95
6.
Burden of Proof: ......................................................................................................... 95
F. Contracts ............................................................................................................................ 95 1.
Seven questions that may be encountered in contracts: ............................................. 95
2.
May v. Muroff (sold some of property after buyer purchased): ................................. 95
3.
Snepp Case: ................................................................................................................ 96
4.
Disgorging the Profits from Breach of Contract: ....................................................... 96
5.
Mobil Oil v. US (rescission): ...................................................................................... 96
6.
Rescission ................................................................................................................... 97
7.
Unilateral Mistake: no meeting of the minds ............................................................. 98
G.
H.
Constructive Trusts-Restitutionary Rights in Specific Property .................................... 99 1.
Constructive Trusts Accounting for Profits I: ............................................................ 99
2.
Paoloni v. Goldstein (): ............................................................................................... 99
3.
Constructive Trusts II & Restatement 3rd § 55 ........................................................ 100 Tracing the Property and Equitable Liens .................................................................... 101
1.
Constructive Trusts ................................................................................................... 101
2. Wrongfully converted funds may be traced into commingled accounts without precise identification: ...................................................................................................................... 101 3.
In re Erie Trust:......................................................................................................... 102
4.
Tracing Problems:..................................................................................................... 102
VIII. ANCILLARY REMEDIES................................................................................................ 105 A.
Overview ...................................................................................................................... 105 1.
Contempt .................................................................................................................. 105
2. Character of the sanction and the purpose of the sanction to determine whether criminal/civil (Bagwell) ...................................................................................................... 105 3.
Execution and Garnishment...................................................................................... 105
4.
Judgements ............................................................................................................... 105
B.
CONTEMPT-METHOD USED TO ENFORCE INJUNCTIVE RELIEF .................. 105 1. International Union, United Mine Workers v. Bagwell (strict interpretation of when sanctions fall into criminal category):................................................................................. 105 2.
Three Kinds of Contempt: ........................................................................................ 107
3.
Coercive Contempt: .................................................................................................. 107
C.
Collections.................................................................................................................... 107 1.
Credit Bureau v. Moninger: ...................................................................................... 107
2.
Execution—Relevant for Enforcing Money Judgments:.......................................... 108
3.
Dixie National Bank v. Chase: ................................................................................. 108
4.
Garnishment: ............................................................................................................ 108
D.
Attorneys Fees and Costs ............................................................................................. 108 1.
Rightful Position and Attorneys Fees ....................................................................... 108
2.
City of Riverside v. Rivera (Civil Rights Statutes provide for Attorneys Fees): ..... 108
3.
The American Rule: Deterrent to Filing a Lawsuit .................................................. 109
4.
One-Way Fee Shifting .............................................................................................. 109
5.
Calculating the Lodestar: .......................................................................................... 109
REMEDIES OUTLINE 2011 Schaffner FALL 2011
I. INTRODUCTION TO REMEDIES A. Introduction to Remedies 1. Forms of Remedies1 a) Compensatory damages: designed to make the Π whole. The theme is how do we define the Π‘s rightful position. How can a remedy place a Π in the position that they would have been in had they not been wronged. The Π‘s position but for the wrong is the most basic guide to compensatory damages. b) What kinds of special protections do we need when we use the civil system to punish people? c) Punitive damages are designed to punish and deter the wrongdoer d) Restitutionary Relief: the focus is on the Δ but it‘s not really about punishing the Δ. This is more about returning profits that the Δ received as a result of their wrongdoing. Question is what did the Δ gain as a result and then returning that gain. In most cases, the restitutionary relief is the same amount as compensatory damages since most cases don‘t involve gaining something. e) Injunctive Relief: Primary injunctions typically are coercive and/or preventive f) Ancillary Relief: When Δ doesn‘t pay up a judgment, ancillary relief can use the contempt power of the court when parties don‘t comply with court orders. Also can use garnishment orders to force Δ to pay. These are ancillary because it isn‘t the primary remedy, rather it‘s trying to enforce a remedy already issued so it becomes secondary. g) Specific relief: exactly what Π wants, they get. If Π can‘t get that ―thing‖ they can get a substitutionary relief in the form of money. 2. Varying Policy Views: a) Corrective justice view, remedies gives a meaning to the obligations imposed by the substantive law. Plaintiff should not be made to suffer because of wrongdoing, and if we restore Π to her rightful position, she will not suffer. To do less would leave part of the harm unremedied; to do more would confer a windfall gain.
1
This is a course on remedies so we won‘t focus on liability. We are summing the Δ is liable and determining what the remedies are.
(1) Corrective justice features the maintenance and restoration of the notional equality with which the parties enter the transaction. This equality consistes in persons‘ having what lawfully belongs to them. Injustice occurs when, relative to this baseline, one party realizes a gain and the other a corresponding loss. The law corrects this injustice when it re-establishes the initial equality by depriving one party of the gain and restoring it to the other party. The corrective justice understanding of damages lines up with the ―rightful position‖ standard, ideally, awarding a Π compensatory damages puts the Π back in the position she would have been in but for the Δ‘s wrong. b) Law and Economics/Efficiency Approach: The law itself does not demand anyone to do anything, neither party is bound to abide by the agreement they make, the contract just means that they have a choice to abide or breach and suffer the consequence of breaching the agreement. Parties have a right to make the efficient choice of whether or not to abide by contract. There is no moral component. The end result is pretty much the same, Π will still have a cause of action, but it‘s a different way of looking at what type of moral force the law has or doesn‘t have. This is an economic approach for remedies. *This really doesn‘t hold up in intentional torts areas because it is hard to agree that it is ok to intentionally harm someone as long as you are willing to pay the cost. B. Theoretical Groundwork-may suggest the same thing but have different approaches 1. Corrective Justice (sanction): a) moral commitment to not violate law/breach contract and remedy is your sanction for doing so b) Fairness: want Π to be compensated but don‘t want windfall 2. Economic Theory (guidance): a) No notion that substantive law requires you to do anything, it is just the essence of the substantive law and just provides guidance to determine whether to violate the law or not. b) Must accurately determine what the sanction is, need to determine level accurately otherwise Δ isn‘t making their determination on the right values c) Under either theory, the measurement is important 3. The Rightful Position Principle a) The position he rightfully would have come to but for Δ‘s wrong. b) In contract cases, the rightful position means accurately considering the gains that Π failed to realize because of a defendant‘s breach of contract. Thus in cases where a binding contract was made for a price under the market value, a breach by defendant means that Π could get the actual market value of that item 4. The Role of Remedies
5.
6.
7.
8.
a) The two most common remedies are judgments that plaintiffs are entitled to collect sums of money from defendants (damages) and orders to defendants to refrain from their wrongful conduct or to undo its consequences (injunctions). b) Remedies are substantive but they are distinct from the rest of the substantive law. c) Remedies law does not determine who owns the land; neither does it create the law‘s prohibitions of theft and trespass. But remedies law does determine the consequences of violating those prohibitions. d) Remedies determine: what the plaintiffs get, how much he gets, why he gets that instead of something more, or less, or entirely different. Classifying Remedies a) The important question is always which remedies are available and what do they offer, not where they fit in somebody‘s classification scheme. The most important categories of remedies are: compensatory remedies, preventive remedies (coercive and declaratory), restitutionary remedies, punitive remedies, and ancillary remedies. Substitutionary and Specific Remedies a) The most fundamental remedial choice is between substitutionary and specific remedies. With substitutionary remedies, Π suffers harm and receives a sum of money. Specific remedies seek to avoid this exchange. They aspire to prevent harm, or undo it. Legal and Equitable Remedies a) Remedies can also be classified as legal or equitable. Most of the older, more specialized declaratory remedies are equitable. Receiverships are equitable. Most legal remedies are substitutionary and most equitable remedies are specific. The one-satisfaction rule a) Plaintiff cannot recover the same item of damage more than once. If plaintiff settles with one defendant before trial, nonsettling defendants are entitled to some dispute, whether the settlement and the verdict cover the same damage or different damage.
C. THREE ISSUES TO ADDRESS FOR ALL REMEDY PROBLEMS!!! 1. When do you get that remedy (damages, restitution, injunction) a) This is often tied to what the claims are-tort? contract? 2. What is the scope of the remedy available? a) direct losses, consequential, disgorge profits v. restitution 3. Measurement/Valuation a) how do you determine what the actual award is
II.Paying for Harm: Compensatory Damages A. COMPENSATORY OVERVIEW 1. Damages –function is to always compensate for the Π’s loss, rightful position standard- you can get direct losses and consequential losses a) Consequential losses-income type of losses that result from direct loss (1) Hatahleygov should have foreseen that horses and burrows were used for different purposes; (2) Neriincidental expenses of storage, insurance, and maintenance of unsold boat) (3) Bucksale of land resulted in lost of 15 heads of cattle required extra hands to look after herd; expenses in trying to find another pasture (4) 4 Requirements for Consequential Damages (a) must be foreseeable (whether tort, contract, or property loss) Δ must have been able to have seen that loss that would have been caused by the primary/direct loss. (b) Must show causation: Hard to prove proximate cause, if it gets too remote, hard to prove causation (c) Certainty: ability to identify the loss (Bigelow-movie theater), if it is too speculative and you aren‘t able to id the loss or calculate it (d) Mitigation: must take reasonable efforts to replace direct loss b) Property cases: test is the lesser of the diminution of value or cost to repair, or if complete loss of property either fair market value or cost to repair/replace UNLESS there is no market for the property (special purpose)-in these cases you can get repair or replacement because no FMV; for animals you may be able to get utility or special value if you can show this value AND it is reasonable (1) Estimate the value at the time of the loss, EXCEPTION, when there is no market such as crops-so general rule is the time of harvest if the taking happened before that, or securities-fluctuating, this rule is the highest value between the time the Π learned of the loss and a reasonable time to replace OR the time of conversion (Schultz case). c) Contract cases: (1) You get expectancy damages, the position the Π would have occupied had the contract been performed (Neri Marineresponsible for the expectancy so had to pay the loss profit of the seller of the boat) (2) Calculate: difference between the value delivered and the value of the promise paid—the benefit of the bargain. When you can‘t prove this, you are limited to reliance which puts the Π in the position had the K never been made in the first place—which is basically out of pocket expenses.
(a) We compensate for expectancies to allow for reliance on contracts as a business matter. (3) UCC-(Kearney/K&T case)-generally provide for expectancy values. Limitations in contracts, limiting the nature of remedy allowed-will enforce limitation clauses unless they fail their essential purpose. If it does fail, Π can get all the remedies that would be available under K (4) Incidental-UCC § 2-715 definition (a) damages resulting from the seller‘s breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or breach d) Consequential Damages (1) Contracts usually limit consequential damages, this is enforceable unless unconscionable (2) UCC § 2-715(2): damages resulting from the seller‘s breach include: (a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and (b) injury to person or property proximately resulting from any breach of warranty. 2. Tort cases: a) Personal Injury: (1) Noneconomic Losses 5 kinds of losses (a) physical impairment (b) disfigurement (c) pain and suffering (d) loss of enjoyment (e) mental anguish (2) All will be compensated upon sufficient proof. (3) Lump sum approach vs. Per diem approach vs. Can‘t tell jury injury—most allow a lump sum number, few allow per diem argument. Can also use the golden rule(where no courts allow but every jury does it on their on during deliberations)— fairest/consistent way to do it may be to have statutory schedules where level of injury listed and corresponding numbers to guide jury 3. Wrongful Death-statutory a) Most damages provide for funeral expenses b) financial support that beneficiaries would have received c) services and society of decedent to the beneficiaries d) most states don‘t give grief damages or the value of the decedents life to himself because the idea is what is the loss of the people alive?
4.
5.
6.
7.
e) objective factors: earning capacity, life expectancy, who the beneficiaries are and what they expected to get from them, what was the character of the decedent—how much services did society get from this person Tort Reform Measures: a) Substantive Reform b) Procedural-shortening SOL or letting Δs recover attorney fees when Π file frivolous claims c) Remedial-this usually is what gets cut, usually limits punitive damages, or provide that judgment be paid over the life of the victim d) Do these remedial changes affect our remedial goal of putting the Π in their rightful position Infringement & Anti-trust (Bigelow) a) problem with these is it‘s hard to know what the loss to the Π is so typically you have to see had there not been this behavior what would Π have made. Can use historical data and comparative data to determine what the loss to the Π is Dignitary Harm (Levka) a) Emotional injury but no physical injury b) Factors that court and jury considers in trying to award: c) what happened, how bad was it? d) how would a reasonable person responded e) how did the person act after the fact (case where woman said she couldn‘t walk but was found to have gone out to bars afterwards) f) what was the dignitary right that was violated and how serious was it g) how much was awarded in similar cases h) what was the Δ‘s motive/intent? Constitutional Harm (carey case) a) can be compensated for the injury that results from the violation itself if you can show that the violation actually caused the injury (he can be compensated for being suspended so long as he could show that he wouldn‘t have been suspended if he had hearing) b) can also be compensated for emotional distress if caused by lack of hearing c) Theme: constitutional rights don‘t have inherent value-cant just say right to hearing is worth 50K, these rights serve a purpose and you will be compensated if you were harmed by the violation of these rights.
B. COMPENSATORY DAMAGES EXPLAINED 1. US v. Hatahley (restoring plaintiff to his rightful position-market value + ―added value‖ stolen unique animals) a) Facts:
(1) The Government tortuously rounded up and sold farm animals owned by Hatahley and other Indians. The district court determined a set amount of damages for each animal and multiplied that amount by the number of animals lost by each plaintiff. It also arrived at a sum for mental distress and awarded each plaintiff an equal amount. The Government appealed contending the award was arbitrary. b) Holding: (1) Damages are calculated to place the aggrieved party in the position they would have been in had there been no injury, and in a specific, objective market-driven manner. (2) By making a blanket damage determination the court failed to consider the damages actually incurred by each plaintiff. Each had different levels of economic damage incurred as each had differently valued animals. Also each suffered a different level of mental distress. (3) Court said that there was a valid claim for emotional distress because of the government‘s actions in taking away the animals. There is a very close tie between emotional distress (compensatory) and punitive damages (not about compensation but about punishment and deterrence) where there is intentional infliction of emotional distress. (a) major difference between emotional distress and a claim for punitive damages is foreseeability. Court wants to deter people from behavior when it is foreseeable that actions will cause distress or harm. (4) Judgment: Reversed and remanded for new trial as to damages, with recommendation that trial judge recuses himself due to his "incensed and embittered" attitude towards the US Gov't. c) Analysis: (1) Court decided that using the standard market value and THEN adding the ―added value‖ was the proper method of going about assessing the value loss. So the court didn‘t feel comfortable with lower court‘s use of a ―specialized market‖ because it seemed too arbitrary. (2) Classifying Property: (a) Schaffner: Important to note that animals are classified as property. How we classify the loss goes directly to how we value the loss. From a compensatory standpoint you must ask: What is the standard valuation of property loss? (b) The value of a property loss is defined by market value or replacement cost (Fair Market Value=FMV) (i) Three levels of loss that Πs are seeking: (a) Direct (loss of the horses themselves)
(b) Consequential Market value (MV) or Replacement at the time of taking + Use Value of the Animals (not direct losses but are consequential losses) e.g. they used the horses for certain things like rounding up livestock, carrying things, etc. (i) Consequential damages take into account time and foreseeability, the question of causation is also raised. 2. Consequential damages: a) Monetary compensation that may be recovered in order to compensate for injuries or losses sustained as a result of damages that are not the direct or FOS result of the act of a party, but that nevertheless are the consequence of such act and which must be specifically pled and demonstrated 3. Petco case a) Facts: (1) Texas case, a dog owner brought an action against a Petco groomer for damages when her dog was killed after escaping from the pet groomer and running into traffic. The trial court entered a default judgment in favor of the owner and awarded damages. (2) Π calculated her estimated damages to be 280K 14years (time Licorice could be expected to live) multiplied by 20K (the amount of money she would take in another job that would require her to leave dog). (3) Schuster was also attempting to get intrinsic value for companionship; the intrinsic value is a unique function of the item itself. It‘s an inherent value, focused on the use to ―THIS‖ Π and their unique value or use of the property. b) The Court of Appeals: (1) held that the dog owner was not entitled to damages for mental anguish, absent pet store's ill-will, animus or desire to harm her personally. Moreover, the owner was not entitled to intrinsic value damages, lost wages, or counseling expenses. With regard to intrinsic value, the court observed that intrinsic value damages are recoverable only where the property is shown to have neither market value nor replacement value. The plaintiff did not meet this condition where she offered no proof at all regarding Licorice's market value, or whether Licorice had any such value, and she testified that the dog's replacement value was $500 c) Holding:
(1) Under Heiligmann, dogs are classified as personal property for damage purposes. Heiligmann identifies only two elements that can be awarded under the ―true rule‖ of damages for loss of a dog: 1) market value, if any, and 2) some special or pecuniary value to the owner, that may be ascertained by reference to the usefulness and services of the dog. ―Special or pecuniary value‖ of a dog to its owner refers solely to economic value derived from the dog‘s usefulness and services, not value attributed to companionship or other sentimental considerations. (a) Mental anguish damages are not recoverable for negligent property damage as a matter of law. Grossly negligent property damage can support a claim for mental anguish only where there is evidence of some ill-will, animus, or desire to harm the plaintiff personally. The trial court‘s award of mental anguish damages must be reversed. (b) Heiligmann‘s ―true rule‖ permitted recovery of a dog‘s special or pecuniary value ascertained solely by reference to the usefulness and services of the dog. (2) The court must reject Schuster‘s attempt to expand intrinsic value damages to embrace the subjective value that a dog‘s owner places on its companionship. Intrinsic value damages are recoverable only where the property is shown to have neither market value nor replacement value. (3) In order for exemplary damages to have been proper, Schuster would have had to shown by clear and convincing evidence that the harm that she suffered was caused by fraud or malice on the part of Petco. (4) Punitive or exemplary damages may be recovered against a corporation only if the grossly negligent act is the very act of the corporation itself. (5) Exemplary damages are not recoverable for a breach of contract, even one breached maliciously, as a matter of law. (6) The court says it can‘t recognize companionship. Intangible losses cannot be easily valued (7) Property loss + value (a) Fair Market Value (FMV) or Replacement Cost (lesser of the two) (AT THE TIME OF LOSS) (i) These two values are different because of: (a) market differences (b) Training and other ―added‖ value (Hataley) (c) Unique value to owner (d) Depreciation (e.g., cars always depreciate in value) 4. Focus on loss of companionship (values of property)
a) claim for conversion (can never get emotional distress damages on conversion claim-what I loss as a result of losing the property) b) breach of contract (usually you don‘t get emotional distress): courts can award compensatory damages in limited cases such as the negligent handling of a body c) Emotional distress: loss of emotional distress is more of a direct loss to the Π, (1) i.e., intentional infliction of emotion distress is also a direct loss 5. Medlen v. Strickland (Texas Appellate court case recognized animals as companions) a) Medlens' dog, Avery, escaped from their backyard and was picked up by animal control. Jeremy went to the animal shelter to retrieve Avery but did not have enough money with him to pay the fees. He was told that he could return for the dog on June 10, and a ―hold for owner‖ tag was placed on Avery's cage, notifying employees that the dog was not to be euthanized. On June 6, Strickland, a shelter employee, made a list of animals that would be euthanized the following day. She put Avery on the list, contrary to the ―hold for owner‖ tag. Avery was put down the next day b) Medlens sued Strickland, alleging that her negligence proximately caused Avery's death. They sued for Avery's ―sentimental or intrinsic value‖ because he had little or no market value and was irreplaceable. Strickland specially excepted to the Medlens' claim for intrinsic value damages on the grounds that such damages are not recoverable for the death of a dog. c) Issue: whether a party can recover intrinsic or sentimental damages for the loss of a dog. d) Holding: Because of the special position pets hold in their family, we see no reason why existing law should not be interpreted to allow recovery in the loss of a pet at least to the same extent as any other personal property. Cf. Bueckner, 886 S.W.2d at 377–78 (Andell, J., concurring) (―Society has long since moved beyond the untenable Cartesian view that animals are unfeeling automatons and, hence, mere property. The law should reflect society's recognition that animals are sentient and emotive beings that are capable of providing companionship to the humans with whom they live.‖). Dogs are unconditionally devoted to their owners. Today, we interpret timeworn supreme court law in light of subsequent supreme court law to acknowledge that the special value of ―man's best friend‖ should be protected. 6. Value as the Measure of the Rightful Position a) The general rule: General rule for measuring property damage is diminution in market value but is not a universal test because it does not always afford a correct measure of indemnity. b) In re September 11th Litigation (the ―lesser of two‖ rule-Replacement or Market Value)
(1) Facts: (a) WTCP purchased 99 year leases for four of the World Trade Center towers. They paid the NY Port Authority 491M at closing in July 2001 and would also pay rental payments to NY over 99 years valued at 2.8B. After 9/11, WTCP sued several airlines, security companies, and operator of Boston‘s Airport for negligence on the grounds that their actions contributed to the terrorists attackes. Sought 16B in replacement costs which represents would they expected to make in profit. (b) WTCP also had contractual obligation to the Port Authority to rebuild, restore, repair and replace the towers. (c) Plaintiffs also argued for loss of use of property referring to the ability to rent the property. (Consequential loss argument) (d) For this argument must show causation, mitigation (can‘t just sit without that loss forever, you have a duty to make efforts to lessen the loss so that you‘re only going to suffer from this loss for a limited period of time—a reasonable time would be the reasonable time it would take to rebuild), and foreseeability (2) Issue: (a) The Replacement Value and the Market Value were vastly different. There was a suggestion in the case that there was ―unique‖ market. Π‘s were using the values that they could have made through profits from renting the buildings (16B Replacement Value), however that was different from what they actually paid for that property (MV). (3) Holding: (a) Court rejected argument for 16.2B in damages—wasn‘t special or unique. (b) Court didn‘t allow the loss of use of property argument because they said that it was already built in to what the original 2.8B was because it represented the 99 year rental leasehold.
(i) Courts will generally give loss of use, not when there‘s a total destruction of the property, but when there is a diminution of value in the property because when there‘s a total loss of the property, you get the value of the property which includes everything. When you have diminished property you need more time before you can recoup your original loss. E.g., Hataley loss a lot of horses but still had some, here the entire building was destroyed. Court said the contractual obligation that they entered into which required them to rebuild the property they purchased in case of destruction was not the fault of the airlines. Can‘t hold airlines responsible for an unforeseeable contract. 7. Special Value-Specialty Property a) Exempt from the lesser of two rule: a property qualifies for this exception when it is unique, specially built for a specific purpose, and lacks a readily available resale market. Such properties typically include hospitals and churches. b) Reasonable costs of reconstruction or replacement are allowed as a measure of damages where the diminution of market value of property cannot be determined because there is no active market from which the market value may be determined. (1) The use that someone make of a property can factor into the value i.e. Aesthetic/Historic/Cultural. Other proofs of value may be used such as the cost of reproduction, less depreciation, or the cost of restoration or replacement. (2) These costs must meet a test of reasonableness, and the restoration must be necessary in light of the damage inflicted. (3) In certain situations, restoration might be uneconomical and improper if the expenses are disproportionate to the injury c) Trinity Church-(had two options replacement or restoration) (1) Facts (a) The walls of the church were already cracking but construction added additional damage to the church when foundation wasn‘t properly laid. (b) Trinity sought compensation for the structural damages and jury awarded 3.6M. (2) Holding (a) Court had to focus on the ―take-down theory.‖ The four year shift in deterioration was much higher than the already occurring gradual deterioration. The court used the 13% jump to determine the value of the loss.
(b) Court concluded that even though Trinity didn‘t have to immediately restore church, the award is appropriate because the remedy reasonably reflects the depreciation caused by the construction. (3) Justice O‘Connor (dissenting in part) didn‘t really find a loss because there was no change in the market value. (No diminution n market value) (a) No loss of use (members were still using the church) (b) no reduction in life expectancy (suggested that there was no proof of reduced life expectancy in property) (4) Schaffner suggests that the rapid decrease in deterioration went to this very point because the additional 13% deterioration would lead to the expected time the building would last. d) Fluctuating Value & Measuring at the time of the loss (1) When measuring market value, courts usually measure damages at the time of the loss. In cases involving items that fluctuate in value such as stocks or crops, courts sometimes show greater flexibility. (a) STOCKS: As to stocks the courts are split on approaches with many states resolving doubts against the Δ by awarding the highest value between the time of the wrong and the time of trial, the time of filing suit, or some similar date. (i) Schultz v. Commodities Trading (a) 2d Circuit held that the measure of damages for wrongful conversion of stock is either its value at time of conversion or its highest intermediate value between notice of conversion and reasonable time thereafter during which stock could have been replaced had that been desired, whichever is higher (b) CROPS: Growing crops are typically valued at the time of harvest-Decatur County v. Young (i) Facts (a) negligent crop sprayer destroyed nearly half of Π‘s soybeans. Π sold the surviving half in the spring, as he had always done, at $10.38 a bushel, but he recovered only $7.00 a bushel, the price at harvest time. (ii) Holding (a) The court thought that if he wanted to speculate in beans, he should have bought more when his crop failed. (b) This seemingly harsh rule gives Π a reasonable opportunity to replace
8. Reliance & Expectancy as Measures of the Rightful Position a) Summary of Reliance and Expectancy (1) Expectancy: (promised position (expected profit) – position after wrong = expectancy damages) (a) Contract law is about enforcing promises so the measure of damages aims to put you in the same position as if the breaching party had performed the contract (the rightful position in contracts cases). This expectancy damages measure requires comparing your position after the wrong to the promised position—the position you would have been in but for the defendant‘s breach. (2) Reliance: (position where Π started – position after wrong) (a) it is unusual for plaintiffs in contract cases to receive only reliance damages because they will be less than expectancy. It won‘t be the Π who asks for them, Δ will argue that Π should recover no more than reliance damages. Courts will award reliance damages when: (i) the non-breaching party has a problem with the substantive contract claim, such as lack of consideration or lack of a writing as required by the statute of frauds (ii) there are compelling public policy reasons to limit damages to a lesser amount (iii)the non-breaching party has trouble proving expectancy damages with reasonable certainty. b) UCC Rules (1) Under UCC § 2-718, a seller of goods rejected by a breaching buyer may recover lost profits and incidental damages. (2) § 2-708(1) When a buyer repudiates the contract or refuses to accept goods that conform to the contract, the seller can recover the difference between the contract price and the market price (3) § 2-706, The seller can also resell the goods and recover the difference between the contract price and the resale price (4) § 2-709, when buyer fails to pay for goods and keeps or loses, seller can bring an action to recover for the contract price + incidental damages. (5) § 2-710, incidental damages include cost of reselling, reshipping, or repackaging the rejected goods, less any expenses saved in consequence of the buyer‘s breach. (6) § 2-708(2), when damages under § 2-708(1) are inadequate to put the seller in as good a position as performance would have done, the seller can recover the expected profit + incidental damages – proceeds of resale (LOST VOLUME SELLER) (a) A nonbreaching party claiming to be a loss volume seller must establish three factors:
(i) that it possessed the capacity to make an additional sale (ii) that it would have been profitable for it to make an additional sale (iii)that it probably would have made an additional sale absent the buyer‘s breach. c) Neri v. Retail Marine (inadequate remedy allows for profit + incidentals): (1) Neri (P) paid a $4,250 deposit on the purchase of a $12,600 boat from Retail Marine (D). Neri repudiated the sale one week later due to an upcoming operation. Neri requested a refund of his deposit and D refused because the boat had already been delivered from the factory. P sued to recover his deposit and D filed a counterclaim for $4,250 for lost profits and expenses. D sold the boat four months later to a different customer for the same price. (2) Retail Marine proved that its expenses and expected profit was $3,250. The trial court entered summary judgment to Neri minus $500 pursuant to UCC 207-18 and Retail Marine appealed (3) Appellate court reversed explaining that UCC 2-708(2) provides that if UCC 2-708(1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit, including reasonable overhead, which the seller would have made from full performance plus incidental expenses and damages. (a) In this case the buyer‘s right to restitution and the seller‘s rights to offsets under UCC 2-718 were established on the motion for summary judgment. Neri is therefore entitled to restitution in the sum of $4,250 less $3,250 for lost profits and incidental expenses. d) Methods for Calculating a Sellers Damages (1) Nobs Chemical Koppers (in circumstances where the defendant-buyer can show that 2-708(1) will overcompensate the Π the remedy can be limited to what the lost profit was): (a) Nobs Chemical had contracted to sell 1,000 metric tons of a chemical to Koppers for $540,000. Nobs Chemical arranged to purchase 1,000 metric tons from its Brazilian supplier at $400 per ton and expected transportation costs of $45 per ton. (b) So this meant that the expected profit would be 95K (540K ((contract price)) – (400+45 x 100) (expenses) ) (c) After Koppers breached, Nobs Chemical lowered the quantity it had on order with its supplier from 4,000 metric tons to 3,000 metric tons, but lost a supplier discount of $25 per ton. At the time of the breach, the market value of the chemical dropped to $265 per metric ton.
(d) Nobs Chemical argued for the market rate formula recovery under the contract, claiming it was entitled to the difference between the contract price ($540,000) and the market price (between $220,400 and $264,480). It also claimed consequential damages owing to the loss of its $25 per ton discount for the remaining 3,000 tons on order. (e) On appeal, the Fifth Circuit rejected Nobs Chemical‘s argument, however, reasoning that since Nobs Chemical had never acquired the goods from its Brazilian supplier, an action for the purchase price on resale was unavailable. As to the claim for $75,000 in consequential damages for the loss of $25 per ton in discount on its remaining 3,000 tons on order, the Fifth Circuit ruled that ―[t]he code does not provide for the recovery of consequential damages by a seller.‖ (i) It reiterated that section 2-710 ―was intended to cover only those expenses contracted by the seller after breach and occasioned by such things as the seller‘s need to care for, and if necessary, dispose of, the goods in a commercially reasonable manner.‖ Ultimately, the Fifth Circuit cited to the Code‘s underlying philosophy ―‗that the aggrieved party may be put in as good a position as if the other party had fully performed,’‖ and affirmed the application of the profit formula. (ii) Applying that formula, Nobs Chemical would be awarded a total of $95,000 — the difference between the contract price ($540,000) and Nobs Chemical‘s costs ($445,000). 9. Consequential Damages in Tort and Contract Cases a) Defendant is liable to the plaintiff for all damages proximately caused by defendant‘s conduct, whether or not those damages are foreseeable. However, sometimes, proximate cause, the economic harm rule, or some other tort limitation allows defendants to escape liability for damage that they cause.(from a policy perspective allowing consequential damages in tort cases makes sense because the parties never entered into a voluntary transaction) b) The tort rule is not applied in contract cases because it would greatly increase the cost of contracting. In these cases can only recover consequential damages if they are sufficiently foreseeable. (1) When the only breach of contract is the nonpayment of money, the non-breaching party may not be able to recover for consequential damages. Instead, the non-breaching party may recover only the general damages (the unpaid money) plus interest at the prevailing legal rate of interest.
c) Buck v. Morrow (Consequentials are allowed if they were foreseeable to D at time of K) (1) Facts (a) Morrow leased pasture land to Buck for a 5 year term. The lease K included a clause providing that should Morrow sell after the 2nd year, Buck will be compensated for any losses occasioned by the loss. (b) The land was sold and Buck was dispossessed. He diligently tried to find another pasture, but found none until 5 months later. (c) Buck lost 15 heads of cattle each worth $15, required extra hands to look after his herd at a cost of $1.5/day. Buck also incurred other expenses in trying to find another pasture. (d) П sought to recover a total of $450. (2) Procedural: (a) Trial court excluded all evidence of Buck‘s damages as immaterial. Court said that measure of damage = difference, if any, between the K price and the rental value of the pasture for the unexpired term of the lease, thus held that no consequential damages were recoverable. (3) Appellate Court Holding (a) Buck should be able to recover consequential damages (or special damages) proximately caused by the breach. (b) Granting general damages only assumes that the tenant can immediately find a replacement and like property. Whatever special damage naturally and proximately resulted to appellant from the sale of the land and termination of the lease -- whatever may reasonably be supposed to have entered into the contemplation of the parties at the time of the contract -- he should recover (4) Expectancy (a) Cost differential between new pasture rental and contract rental for the remaining years of the contract. (5) General damages: (a) primary damages caused by the initial impact of the harm; measured by market value of asset. (6) Consequential or ―special‖ damages: (a) Secondary damages produced as a result of the primary damage. Often measured by income lost. (7) Incidental damages: (a) a subset of consequential damages used by the UCC to refer to damages that so naturally and unavoidably result from general damages that there‘s no foresight requirement for recovering them. (8) Limits on consequentials
(a) Courts were traditionally hostile to consequential damages because they were deemed speculative, uncertain, remote, and avoidable by a diligent P. So, the following rules limit them: (i) Duty to mitigate damages – P can‘t recover for damage that could reasonably have been avoided (ii) Offsetting benefits rule – expenses saved are deducted from damage award (iii)Proximate cause – P cannot recover for consequences that weren‘t foreseeable by D at time of K (b) NOTE: D liable for unusual consequences if he had actual notice that his breach would cause them (9) Holding (a) Appellate Court dispenses with GR that only general damages are allowed because consequential damages are proveable, where foreseeable, and because general damages alone would not put P in rightful position. d) Economic harm rule (1) P who suffered no physical impact to their person or property generally cannot recover for merely economic losses (in tort, not K) and e) Consequentials and the UCC (1) U.C.C. 1-106(1): (a) a) P should be put in position as though D had fully performed, but no consequential, special or penal damages are to be awarded unless specifically allowed under the U.C.C. or another rule of law. Paraphrasing Comment 1: "Compensatory damages are limited to compensation, not consequential or special damages." (b) This harsh rule is tempered by an allowance for consequentials under 2-715 (buyers) and 4-402 (bank customers). (2) Seller's Breaches: 2-712(2): (a) Buyer gets difference of cost of cover and K price plus incidental and consequential damages. 2-713(1): Buyer gets difference of Market price and K price plus incidental and consequential damages. (3) Buyer's Breaches: 2-706: (a) Seller recovers difference of K price and Market, OR 2708: Seller recovers difference between K price and resale plus incidentals.***None of these code sections mentions consequential damages, and in the view of many, they cannot be awarded. However, incidental damages are defined more broadly (see 2-710): "Commercially reasonable expenses resulting from the breach."
C. Limits on Damages by Parties 1. Restricting Recovery: a) The primary tools for restricting recovery of consequential damages are: (1) contractual limitations on remedies (2) rules about avoidable consequences, remoteness, and uncertainty b) Kearney & Trecker Crop v. Master Engraving (The Parties Power to Specify the Remedy- Parties can contractually limit remedies, but new remedy must be at least minimally adequate-they‘re valid unless unconscionable) (1) Facts (a) Master purchases a machine tool; the sale includes a K limitation on remedy and damages: seller is only liable for repair or replacement of the tool (―Repair and replace clause‖ is the most common K limitation on remedies). The machine malfunctions frequently throughout the first year of its life, and is never satisfactorily repaired. P claim that they bought the tool specifically because it was supposed to be reliable. D claim that P misused the tool and caused it to break. (2) Procedure (a) Jury found in favor of Master for 57K and the appellate division affirmed the verdict and interpreted it to mean that the limited remedy of repair and prelace had failed of its essential purpose (3) Holding (a) K did not fail of its essential purpose so clause limitation clause should be upheld (b) both parties were sophisticated businesses, there was no bad faith by D, therefore, risk allocation established by K remains – uphold damage limitation clause. c) Rules on limitation of remedy clauses (1) Freedom to K allows parties to K limit remedies (2) Two approaches: use conspicuous warning to limit substantive obligation (limit warranty to repair or replacement); or limit liability by disclaiming consequentials (note: no conspicuity rqmt. Here) (3) If K remedy fails of its essential purpose (if it unconscionably strips even minimum adequate remedies from P), UCC rack rules apply instead (a) How: (i) K clause that unconscionably modifies or limits remedies (b) Why:
(i) essence of sales K is that at least minimum adequate remedies must be available (4) Most courts hold that repair and replace fails of its essential purpose when repairs are ineffective or untimely (a) It‘s prima facie unconscionable to disclaim consequentials where personal injury is involved (b) Courts often focus on whether D acted in good or bad faith (5) Strategy (a) Even if there are no consequentials, P may be able to recover by proving damages based on difference between product value as warranted and value as delivered D. The Requirement of Reasonable Certainty 1. Bigelow v. RKO (relying on juries for reasonable certainty): a) Facts: (1) Bigelow contended that RKO engaged in a discriminatory system of film distribution. RKO contended that Bigelow could not show damages with sufficient certainty to recovery for violation of the Sherman Act. Jury awarded Bigelow damages which were trebled. Appellate court reversed. b) Holding (S. Ct.) (1) Majority states that case is about the ascertainment about the value, use the rule that you have to be fairly certain –The question is: What your profits would have been without the antitrust activity? Must also take into account other causes or factors that may have caused a decline in profits. (2) Court found that jury may make a just and reasonable estimate of damages based on the evidence presented, and its award need not be based on precise mathematical computations. 2. Successful Proof of Damages a) Brinks case: NY found out that Brinks‘ employees were stealing coins from meters. They hired another company and profits went up by 1M in the first 10 months. Brinks argued that others factors accounted for profits such as transit strikes, gas rationing ended, upward trend in collections, etc. NY presented expert who asserted that the profits had already taken those other factors into account so court upheld the jury‘s million-dollar verdict. b) Hypo: assume that theatres going out of business because they‘re unable to bring in customers major theater buys up the remaining theaters and keeps them running but in doing so they violate the Clayton act. Δ claims they suffered because they kept movie theater open, so if others had went out of business he would have made a lot of money. (1) Court could say they proved violation of Clayton Act but not violation of anti-trust injury. Must show that injury YOU suffered was due to the wrong you were trying to prevent.
(2) Must show that the type of damage you suffered is the type they are trying to protect against, must show what the certainty of the value of the damage. 3. Requirement of Reasonable Certainty a) Resolving Uncertainty Against the Wrongdoer, but Requiring Reasonable Certainty (1) There is a requirement that damages be sufficiently certain to be recoverable, but where the reason for uncertainty is the act of one party, the issue is resolved in the other party‘s favor. This holds true in Bigelow where the discriminatory enterprise caused the uncertainty. b) Reasonable Certainty in Contract/Tort (1) Torts: In a torts case, the amount of proof the courts require vary depending upon whether the plaintiff seeks economic or noneconomic damages. If a Π seeks damages for lost wages and medical expenses, courts will insist upon proof of expenses for past loss and expert testimony regarding future costs and valuation based upon evidence of market rates. (a) To the extent that Π seeks recovery for pain and suffering or emotional distress, courts don‘t require any certainty regarding the AMOUNT of damages, but the jury must still be reasonably certain that the Π suffered these kinds of damages to allow recovery of noneconomic damages at all. Courts sometimes lower the amount under a ―shock the conscience standard‖ or other rules that limits the amount of noneconomic damages. (2) Contracts: In contract cases, courts are more demanding in terms of proof. Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty. E. Damages where Value Cannot be Measured in Dollars 1. Per Diem Arguments a) Plaintiffs lawyers often ask juries to think of pain in terms of relatively small periods of time—how much would compensate the Π for one day/week/hour of this pain? These arguments tend to result in larger awards for pain than would result from considering the entire period as a whole. Roughly half of courts allow per diem arguments unless the argument lacks foundation in the evidence since there is no market for pain, no evidentiary basis is possible. b) Debus v. Grand Union Stores (per diem argument allowed) (Personal Injuries and Death) (1) Debus was injured in a store owned by Grand Union when boxes fell on her. During closing arguments her counsel asked jury to consider the injury in terms of daily pain. Jury awarded 346K.
(2) Grand Union appealed saying that per diem argument was overly prejudicial. (3) Court said that per diem damage arguments should be allowed if they are made under the ordinary supervision and control of the court while noting that Plaintiffs don‘t have carte blanche to department from a reasonable view of the evidence. 2. Pain and Suffering a) Golden Rule (1) Another approach to pain and suffering which asks jurors how much they would want if they had suffered plaintiff‘s injuries. This argument has been consistently disallowed. b) Market Value (1) Argument that jurors should give the market value of the injuries or the amount it would cost to hire someone to suffer these injuries. No state permits that argument. c) Loss of Capacity to Enjoy Life (1) If Π is comatose or otherwise incapable of feeling pain, most court award substantial damages, either as part of pain and suffering or separately under the label ―loss of capacity to enjoy life.‖ 3. Wrongful Death a) Defendants often pay more damages when they injure someone than when death results. b) All jurisdictions provide funeral expenses and some measurement of compensation for the financial support that decedent would have provided to dependents. Compensation for such services began with household chores and homemaking; it now usually includes the nurture, training, education, and guidance that children would have received from their parents or spouse would have received from the other. c) Smaller majority allows dependants to recover for loss of society which may include love, affection, care, attention, companionship, comfort, and protection. d) Lives without value: (1) Three classes of persons whose deaths caused little recoverable damage: children, retired persons, and adults without dependants. They provide no financial support to others. e) Loss of inheritance: (1) If decedent‘s earnings are large enough to accumulate a surplus beyond what would be spent on self and dependents, that surplus cannot be recovered as a loss of support, but it may be recoverable as loss of inheritance. f) Compensation for Grief: (1) Supreme Court says that distress is a personal injury familiar to the law, but we do not compensate for grief and emotional distress in wrongful death cases. Recovery for emotional distress in constitutional dignitary torts is allowed however.
4. WRONGFUL DEATH/SURVIVAL STATUTES a) Under common law rules: (1) If tortfeasor died, then victim‘s cause of action terminated (2) If tort victim died, cause of action terminated (3) Thus tortfeasor off scot-free if victim died b) Wrongful Death v. Survival statutes: WHY should dependents have a claim for wrongful death of another? (1) Who are the persons with standing to bring these claims? (a) See MD statute c) What constitutes ―pecuniary loss‖–what types of damages are available? (1) FUNERAL expenses–Reliance damage (2) FINANCIAL SUPPORT decedent would have provided to dependent (3) For many years focused principally on financial support but this left recovery for children, retired persons, and adults w/o dependents with little recovery. d) Economic reality: (1) Financial effect on parents of Death of a child? (2) Financial bonanza (do not have to pay for child for rest of life) yet many states forced jurors to ignore real loss and swear that it is a financial loss. (3) This drove courts to include society and intangible services in ―pecuniary‖ loss. (a) 3 SERVICES (nurture, training, education, guidance) (4) How to Value? (5) Cost to purchase? (6) Value benefit–increase in future earnings, less risk of social ills? e) SOCIETY (love, affection, care, protection, companionship, i.e. positive benefits) (1) How Value (a) Nature of relationship while alive? (Note 9) (b) GRIEF, mental anguish, emotional distress or other negative experiences resulting from death (Note 2) f) Why allow compensation for loss of positive emotion but not for experience of negative emotion–seems backwards? (1) Because of hybrid nature: the grief is direct loss to beneficiary as compared to derivative of decedent? (2) Will eventually die so will suffer grief anyway? Timing? g) Loss of inheritance (Note 4) (1) Too speculative–Assumptions: would save, die before exhausting savings, and (2) leaving inheritance to Ps. (a) Value–Rate of saving, investment growth, withdrawals h) Value of decedent‘s life to himself
(1) Most obvious loss–so why not allow? Cannot compensate DECEDENT i) HYBRID P: Beneficiaries on behalf of decedent: D‘s value of life to j) himself–Solely decedent k) Should courts allow evidence of decedent‘s bad character? (1) Depends on relevance– (a) Not reliable source of financial support (b) Moral guidance had little value (c) No real comfort, companionship, love (d) No grief (e) Value of his life l) How do you explain the large discrepancies in the verdicts depicted in the tables? (144-47) (1) Death of Children : $251K (Arbitration)/$500K (jury) – $ 15M/$268M (incl. Puni) (2) Death of Adults: $200K – $65M (a) –Doubts about liability (b) –Law differs some (c) –Earning capacity (d) –Life expectancy (e) –Beneficiaries (Number and Who) (f) –Death especially painful (g) –Ds especially culpable (h) –Credibility of attorneys (i) –Character of decedent (j) – Decedent‘s ―fault‖ (k) –Nature of decedents‘ relationship with beneficiaries m) SHOULD the D‘s conduct, culpability affect this? (1) NOT punitive–compensatory! n) What about damages for wrongful conception? Scope of liability for pharmaceutical company that mispackaged birth control pills--should they be held responsible for the cost to raise an unwanted child or limited to the costs of the birth/conception? (1) Public policy–Not an injury to have a healthy child BUT THIS P clearly does not want a child. (2) Costs would put company out of business many potential Ps and cost to raise child HUGE! (3) P had other alternatives–abortion or adoption? F. TORT REFORM: Is there a tort crisis??? 1. Since 1980 insurance rates have been sky-rocketing. There are 2 competing arguments for WHY there has been such huge increases in insurance rates: a) Tort crisis created large premiums versus Sharp decline in interest rates insurance comp not able to make money off of investments.
b) How do the two sides play games with the stats to suggest there is one or there is not one? (1) Ds and Insurers focus on med mal and prod liability caseload increases AND Mean verdicts (high stakes) (2) Ps focus on average small cases showing little change over time in caseloads AND Median verdicts (all) c) Mean and median reflect such different outcomes because: (1) A few large verdicts can affect mean because averaged into total but do not affect (2) Median because only a few in the high range. (a) Example–$1,000, $10,000, $1M (b) Mean = $337,000 (better reflect what insurers pay) (c) Median = $10,000 (better reflect what Ps get) d) Insurers can lose money while most Ps recover little. 2. If there is a tort problem: What/Who are the culprits? a) Judges out of control (1) Expand liability: strict liability, eliminating immunities, comparative neg.? (2) Relied on coast-spreading effect of insurance! b) Juries out of control (1) awarding excessive Js and/or inconsistent Js Because of prejudice against deep-pocket and/or difficult quantifying c) Attorneys out of control (1) filing too many suits, suits are frivolous? d) The system had relied on judicial oversight to prevent unreasonable damage awards but (1) states have found this inadequate and have sought alternatives. Note the type of reforms considered: e) Substantive : (1) Shorter SOL (2) Abolish joint & several liability f) Procedural: (1) Penalty on Ps for frivolous suits (2) Periodic Payment over life of victim rather than Lump Sum (3) Limit rates charged in contingent fee arrangements g) Remedial: (1) Eliminate collateral source rule (CSR) (2) Limit/abolish punitive damages (3) Limit/abolish noneconomic damages h) Do these target the culprits? (1) Judges (Substantive)/Juries(Remedial)/Attorneys (Procedural) i) Do these serve the corrective justice and/or economic goals? (1) Remedial alternatives: Are caps on noneconomic compensatory damages consistent with theory? (2) Justice: NO–Not reflective of fault or causation and only the severely injured affected.
(3) Inconsistent with jury system. (4) Deterrence: NO: Problem is that accurate valuation is impossible thus do not know what is the right level of deterrence. Caps merely set ARBITRARY limits and most affect activities that are MOST injurious–decreasing deterrence! (5) Compensation: NO: Problem is that accurate valuation is impossible thus do not know j) What is the right amount to compensate? Caps merely set ARBITRARY limits and only affect MORE severely injured Ps! 3. Remedies for September 11 Victims a) Administrative remedy funded by the federal government. Total damages were capped at the amount of the defendant‘s liability insurance. b) Most suits settled but an opinion rejected as excessive four settlements that ranged from 5.5 million to 8 million for ―modest‖ wage earners. c) Pain and Suffering and Emotional Distress (1) Special master awarded 250K for noneconomic loss of each decedent, plus 100K for the noneconomic loss of each spouse and each dependent of a decedent. d) Collateral Sources (1) Special Master decided not to count contributions from private donors, so 401(k) plans, and the large special tax exemptions enacted for victims would not be treated as collateral sources. e) Net Awards (1) ranged from 250K minimum to 7.1M f) De facto cap (1) Special master denied putting any cap on awards but he also indicated reluctance to give full weight to extremely high incomes. g) Personal injury awards (1) Personal injury awards ranged from $500 to 8.6M h) Lessons learned (1) Results of process show that the large variations in wrongful death awards do not result merely from the vagaries of juries, and that choices about the collateral-source rule may have different average consequences at different income levels. (2) The process suggests that it is possible to calculate damages with a sophisticated schedule, to process large numbers of claims quickly and efficiently, and to distribute substantial sums in compensation. G. Controversy over Tort Reform 1. Basic Remedial Position: Common proposals where most states have accepted at least some: a) Limit recovery for ―noneconomic damages‖ REMEDIAL b) to limit or abolish the collateral source rule REMEDIAL c) to limit or abolish punitive damages REMEDIAL
d) to provide that judgments be paid over the life of the victim REMEDIAL e) to limit or abolish join and several liability SUBSTANTIVE f) to let defendants recover attorneys‘ fees from plaintiffs who file frivolous claims or simply unsuccessful claims PROCEDURAL g) to limit the rates charged in contingent fee agreements PROCEDURAL h) to shorten statutes of limitations or accelerate the point at which the statute begins to run SUBSTANTIVE 2. Levels of Safety a) Three Distinct Standards in direct safety regulation: (1) Cost justified (or cost benefit) regulation puts a dollar value on deaths and injuries and then seeks to minimize the sum of safety costs and accident costs. (2) Feasibility regulation as in the Clean Air Act and OSHA aspires to prevent as many injuries as possible without shutting down the industry or pricing its products beyond the means of ordinary Americans. This does not assume any particular value of a human life. It will require greater expenditures per lives saved in some industries than in others, depending on what safety expenditures each industry can absorb. (3) Safe-level regulation, as in the Food Quality Protection Act, aspires to prevent all significant risk of serious injury. b) The cost justified: Feasibility (OSHA example-they try to prevent as many injuries as possible but want to also ensure that they don‘t want to price the product down in the market—e.g., try to get a safe car without jacking up price) (1) e.g., Food Quality Protection Act, aspires to prevent all significant risk of serious injury. The feasible level of safety doesn‘t assume any particular value of a human life. It will require greater expenditures per lives saved. c) Most economists oppose feasibility analysis because it is standardless; how much loss of technology or production is too much is left to a judgment call with no formal standard. Cost benefit analysis seems more precise, but only because it hides the judgment call in the artificially precise values place on life and health. 3. Arbino v. Johnson (statutorily imposed caps on noneconomic damages are not unconstitutional): a) Facts: Arbino suffered blood clots and other side effects allegedly caused by her use of Johnson and Johnson birth control patch. b) Issue: Whether Ohio‘s statutorily imposed cap on noneconomic damages which limits greater of $250K or 3 times the economic damages up to a maximum $350K per person or $500K per single occurrence is unconstitutional under Ohio Const. c) Ohio Sup. Court said no:
(1) Meets due process standard for rational basis because it doesn‘t prevent Π from having a day in court, or seeking remedy, doesn‘t prohibit right to jury, doesn‘t alter jury findings, doesn‘t restrict any fundamental right, statute allows for full recovery of economic damages, punitive damages, and limitless noneconomic damages for catastrophic injuries, doesn‘t violate equal protection because its facially neutral and doesn‘t impinge the rights of any suspect class. (2) Rational basis says that you have to have (1) a statute that is (2) rationally related to a legitimate government goal or purpose (a) Ohio‘s reasoning was that it reduced the uncertainty associated with the existing tort system and the negative consequence resulting from it. The distinctions the legislature drew in refusing to limit certain injuries were rational and based on the conclusion that catastrophic injuries offer more concrete evidence of noneconomic damages and thus calculation of those damages poses a lesser risk of being tainted by improper external consideration. (b) Since the Statute caps it and not the judge, it‘s a matter of law, not facts. (by definition if something is in the statute, it‘s a matter of law) d) Dissent says court is looking at punitive damages 4. The Impact of Caps (1) Plaintiffs with low incomes are disproportionately affected because their damages based on lost income are relatively small, and noneconomic damages are a large proportion of their recovery. (2) A review of actual cases confirmed that caps take large sums from a few people, disproportionately children and most of them severely injured since a child will have trouble proving what her adult income would have been; but she also will have many more expected years of pain and suffering. 5. Valuing Pain and Suffering: a) The corrective justice model says that Π should receive the full value of his injuries, so that he is placed, as nearly as may be, in the position he would have occupied if he had never been injured. The classical economic model also says that Π should receive the full value of his injuries, so that defendants have the optimal incentive to avoid injuring others. One model focuses on fairness to Π, the other on incentives to Δ , but both yield the same conclusion—damages should equal the full value of the harm to Π. b) The corrective justice model also backs away from the wrongful death problem. The doctrinal answer is to award some partial measure of loss to survivors in death cases, wholly ignoring the value of decedent‘s life to herself, and to award ―reasonable compensation‖ for pain and suffering. 6. The Value of Statistical Life:
a) Examples of Cases that show different perspective in trying to determine what the amount should be and the factor that goes into it and how much the Δs conduct should be considered b) Law and economic scholars infer the value of life (and presumably of serious injury) from the premiums that people charge to incur very small risks of death or injury. But these risk premiums are distorted by bargaining power and the lack thereof, by workers‘ and consumers‘ lack of access to good information about risk levels, and by cognitive difficulties in assessing such information when it is available. c) Posner and others argue that valuations produced in this way would yield the right level of deterrence, encouraging potential defendants to take precautions equivalent to those potential plaintiffs would be willing to pay for themselves. d) The Insurance Theory: (1) Insurance theorists would abandon any concept of rightful position or make-whole relief. The would ask what insurance coverage potential tort victims would buy if they were rational and if there were no tort compensation at all and they had to insure against tortuous injury at their own expense. (2) This eliminates the possibility of infinite damages by limiting payments to what the class of potential victims would fund out of their own pockets. This limitation is sometimes said to reflect reality because sellers of goods and services will attempt to recoup damage payments in their prices. 7. Debates and Policy Arguments a) Economic effects: (1) First, the costs of litigation and compensation payouts raise the cost of insurance. Because most tort claims will be paid from the pockets of insurance, and because the public generally pays into insurance schemes of all kinds, tort reform proponents assert that reducing tort litigation and payouts will benefit everyone who pays for insurance. (2) Secondly, and related to insurance, since US doesn‘t have national health care, the costs of the tort system, and in particular medical malpractice suits, may raise the costs of health care. The difficulty in this area is to distinguish between public and private health care providers. In the United States, it is easier for victims of medical malpractice to seek compensation through the tort system. Study after study shows that costs associated with malpractice lawsuits make up 1% to 2% of the nation's $2.5 trillion annual health-care bill and that tort reform would barely make a dent in the total."
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(3) Third, there is an argument that tort liability could stunt innovation. This argument usually comes in connection with product liability, which is strict liability, subject to a "state of science" defence. If a product is faulty, and injures somebody who has come across it (whether they are the buyer or not) then the manufacturer will be responsible for compensating the victim regardless of whether it can be shown that the manufacturer was at fault. The standard is lower in other injury cases, so that a victim would have to prove that a tortfeasor had been negligent. It can be argued that strict liability deters innovation, because manufacturers could be reluctant to test out new products for fear that they could be subjecting themselves to massive tort claims. Limits on noneconomic damages (1) Other tort reform proposals, some of which have been enacted in various states, include placing limits on noneconomic damages and collecting lawsuit claim data from malpractice insurance companies and courts in order to assess any connection between malpractice settlements and premium rates. Reduction in the statute of limitations of action (1) A different reform is not to limit the amount of legitimate recovery, but to reduce the time to sue. Punitive awards and juries (1) In the United States, though rarely awarded in tort cases, punitive damages are available, and are sometimes quite staggering when awarded. (2) It is argued by some that extraordinary damage awards in the United States are a result of the jury system. Juries are unseasoned with a daily exposure to tragic accidents in tort litigation. When confronted with their first case they may be shocked and outraged, which inspires a willingness to teach the wrongdoer (through a big damages award) that "tort does not pay". Awards for pain and suffering (1) Tort compensation easily applies to property damage, where the replacement value is a market price (plus interest), but it is difficult to quantify the injuries to a person's body and mind. There is no market for severed legs or sanity of mind, and so there is no price which a court can readily apply in compensation for the wrong. Some courts have developed scales of damages awards, benchmarks for compensation, which relate to the severity of the injury.
H. Dignitary and Constitutional Harms 1. General concept a) Punitive Damages in Disguise with Dignitary Harms
(1) Dignitary torts include: assault, false imprisonment, malicious prosecution, intentional infliction of emotional distress, libel, slander, invasion of privacy, and batteries that are offensive but do no physical harm. (2) Dignitary torts present valuation problems comparable to those of pain and suffering, juries are simply given the instruction to do what is reasonable. 2. Levka v. City of Chicago (court can reduce jury award if ―shocks the conscience‖ but can’t enlarge) a) Facts (1) Had policy that they subjected everyone who was arrested to strip searches. Courts had already decided that strip searches were unconstitutional based on 14th amendment equal protection and 4th amendment right to be free from unreasonable searches. (2) Levka had been subjected to strip search which included a visual inspection (3) she filed a Constitutional claim, seeking remedy for emotional, embarrassment, fear… (4) Levka asserted that since the search, she feared going out at night, had loss money due to her job which required her to be out at night, and also sought psychiatric help on one occasion b) Procedure (1) Jury awards $50K but court says that it shocks the conscience and remands the case, the Π has the choice to either accept 25K or have new trial. c) Holding (1) Since the jury denied the Πs claim for loss of wages, the court reasoned that the award was based solely on punitive damages. (2) Court also referred to other similar cases where women were subjected to more intrusive searches including instances where prison matrons debased the arrestee, forced them to perform inappropriate acts, and performed cavity searches. In cases similar to Πs the jury awards were much less, and in the most extreme case, the court reasoned that the conduct of the prison matrons warranted the higher jury award. Here, there was no assertion of misconduct on behalf of prison officials. (3) The Court also considered the fact that Πs evidence of not going out and receiving less wages as a result of the search was largely rebutted by witnesses, additionally the court noted that one isolated visit to the psych was inconsistent with Πs contention that she was suffering from severe and continuing trauma. d) Objective Test Used: Can look at what Δ did and see how much a reasonable Π should have responded to what the Δ did. This goes to determining whether someone was really injured. How bad was it? e) Principle: An award may be set aside or reduced it is out of line with a clear trend of awards of lesser amounts. Remittitur
(1) Court must defer to judgment of the jury unless the award is monstrously excessive or so large as to shock the conscience of the court. 3. Valuing Emotional Distress a) To recover in tort for either economic loss or emotional distress, a Π must show something more than negligence: intentional tort; negligence plus physical impact, or negligence plus some other factor: (1) Objective Manifestations: emotional distress that shows objective manifestations such as a nervous breakdown, PTSD, severe anxiety reaction (a) Courts will sometimes allow recovery for negligently inflected emotion distress if it is diagnosable and medically significant and suffered by a direct victim of negligence (i) E.g., Δ crossed median crashing car into truck, the truck driver ran to the car and found a 2 year old girl dead, he suffered PTSD and couldn‘t return to work for 4 months. His distress was significant and medically diagnosable and he was a direct victim of the accident. Court upheld his claim for NIED against the driver of the car who was the little girl‘s father. b) Severity: Requirement that the emotional distress be severe or substantial. In negligence, courts often require medically demonstrable emotional distress. Some courts accept solely Πs testimony, but other courts require more corroborating evidence of physical symptoms, medical or psychological treatment, or testimony from others who observed the Π. c) Fear of Disease: Π must prove that his alleged fear is genuine and serious. (1) Πs with asbestosis suffered physical injury and can therefore sue for associated emotional distress including the fear of later contracting cancer, provided that Π must prove that his alleged fear is genuine and serious. (2) Some courts have held that it is error not to instruct jury on the genuine and serious issue and that in absence of any alternative from Π or the court, it is error to refuse the instructions proffered by Δ. d) In Contract: Emotional distress is generally not compensable in contract but most courts treat bad faith breach of an insurance contract as a tort. This opens up the door to emotional distress and punitive damages. (1) Other contracts do not fall under this rule, in Erlich v. Menezes: court reversed an award for emotional distress in a suit by homeowners against their builder. The builder‘s gross negligence resulted in their.
4. Carey v. Piphus (absent proof of actual injury caused by a denial of procedural due process, only nominal damages may be awarded) a) Facts: (1) High school principal believed that he saw Piphus with a marijuana cigarette judging by the shape and smell. Without recovering the cigarette or giving him a chance to explain, he suspended him for 20 days in violation of the Due Process Clause. Π sued under 42 USC § 1983 alleging that his 14th Amendment rights had been violated. The district court found that it had been denied but declined to award damages since he hadn‘t submitted evidence to prove damages. (2) 7th Cir. held that district court should have heard evidence regarding the damages suffered but said that compensatory damages wouldn‘t be recoverable if school could show that he would have been suspended even if a proper hearing had been held. Also held that even if just cause was found, he would be entitled to recover substantial non-punitive damages merely because of the denial of his due process even if no proof was submitted. b) Three separate injuries that may flow from deprivation of due process (1) Injury from suspension itself: loss of education because he lost 8 days of school (everyone agrees that this loss is compensable) (a) In order to get this, MUST show that if he had a hearing, he wouldn‘t have been suspended. (2) Emotional distress: from loss of hearing itself/lack of ―due process‖ (people should feel that they are being treated justly and fairly) (a) Must tie the injury to the distress-so must show that the loss of the hearing CAUSED the emotional distress. Need proof but that‘s hard to do here, he could have been distressed just from the suspension and not from the loss of the hearings. c) Loss of the Right: right to be heard (the right itself has inherent value) d) Holding (1) S. Ct. agreed that damages for deprivation of the substantive right can only be awarded where actual injury is evidenced in the record. Court then stated that if school shows that suspension was for good cause, no injury can be found to have flowed from the denial of a hearing and therefore no damages are to be awarded. (2) Court said absent proof of actual injury, caused by a denial of procedural due process, only nominal damages may be awarded. (3) Court differentiated this case from the doctrine of presumed damages in the common law of defamation per se saying that is ―an oddity of tort law, for it allow recovery of purportedly compensatory damages without evidence of actual loss.‖
(4) Court explained that defamation doctrine has been defended on the grounds that those forms of defamation that are actionable per se are virtually certain to cause serious injury to reputation, and that this kind of injury is extremely difficult to prove. (a) Statements that are defamatory per se by their very nature are likely to cause mental and emotional distress, as well as injury to reputation 5. Valuing Constitutional Rights a) While Carey was initially confined to procedural due process case, the S. Ct. held in Memphis Comm. School v. Stachura, that Carey applies to substantive rights. (1) Inn Stachura, a teacher was discharged and claimed violations of his rights to free speech and procedural due process, and both claims were submitted to the jury. (2) The judge told jury that it was within their discretion to place a value on the constitutional right that was denied. The jury subsequently awarded Π 275K in compensatory and 46K in punitive. This was reversed by S.Ct because it found that it was a non-substantive constitutional right and there was no intrinsic value. (3) Loss of a right to vote: a possible exception where court can award presumed damages for a non-monetary harm that cannot be easily quantified. b) Remedies are granted in judgments not opinions. Whatever a judge says in his opinion, the prevailing party must make sure that appropriate relief appears in the judgment. c) Substantive Due Process Test: all law must have a legitimate purpose rational basis test
III. PUNITIVE DAMAGES A. PUNITIVE DAMAGES OVERVIEW 1. Purposes: to deter, to punish Δ, to provide incentives to enforcement a) why do we need punitive damages: torts go undetected, underenforced, or undercompensated b) criminal law system may not be adequate so we allow for it in civil context—may be hard to police 2. Enforce: if Δ acted maliciously but wasn’t that much compensatory damage but you need to provide more damages to deter Δ a) You can only get punitive damages when you‘ve proven that Δ is guilty of oppression, fraud, express or implied malice (conscious disregard of an unjustifiably substantial risk of significant harm to the Π and/or the public-e.g., auto cases not intending harm but recklessness may make it fall under this category) 3. How do juries come up with the numbers come up with the number? 7 factors: a) degree of reprehensibility of Δ b) Δ‘s wealth (to deter Δ need to know how much ) c) actual or likely harm (compensatory damages) d) profitability of conduct e) analogous civil/criminal fines f) awards in similar cases cases g) At what point in time does an award of punitive damages violate due process? 4. Procedural violationsa) so long as there is meaningful jury instructions and opportunity for appellate review, procedural due process is met 5. Substantive violationsa) violated if punitive damages are grossly excessive because that means they are arbitrary and have given insufficient notice to Δ. b) BMW v. Gore: Three guideposts used to determine whether sub.due process violated: (1) degree of reprehensibility (in deciding you can look at what other potential Πs were injured by same conduct but you cant specifically calculate damage based on that-could‘ve been lawful in other state) (2) Ration to compensatory damages: most of the time it must be under 10, need to be a single digit ration unless there is very small economic compensatory damages are the injury is hard to detect. The lower the compensatory damages, the more you need punitive damages. (3) Analogous civil fines (shouldn‘t consider criminal fines) B. Punitive Damages Explained 1. The standard for punitive damages
a) varies in name but basically you must show that Δ has engaged in conduct that has an intentional component but not an express intentional component. b) Contracts and Punitive Damages: punitive damages are NOT awarded for breach of contract. However, if an independent tort is committed in a contractual setting, punitive damages may be awarded for the tort. 2. Factors involved in punitive damages a) Degree of reprehensibility (how bad was the behavior) [unheedful recklesscallous recklessfor profit malicious intent] b) actual or likely harm c) profitability of conduct (goes to restitutionary argumentsets the floor on how much to start with in punitive damages) d) analogous civil/criminal fines (we anticipate that these fines won‘t be imposed through the government since the gov lacks resources to enforce most laws and regulations) (this goes to the notice issue as well, Δs have notice as to what civil/criminal fines would be but this could cut either way) e) awards in comparable cases f) potential for ? liability g) Δ‘s wealth (can look at this to see how much it would take for the Δ to feel punishment) h) damage the defendant might have caused (p.238 note 1(c))-I just added this i) All the costs of litigation should be included, so as to encourage plaintiffs to bring wrongdoers to trial. j) If there have been other civil actions against the same defendant, based on the same conduct, this should be taken into account in mitigation of the punitive damages award 3. Exxon Shipping v. Baker (Common Law and Statutes)( intent element was in issue-classified it as heedful recklessness) a) Facts (1) Captain of major oil ship was drunk and had a history of being an alcoholic when he crashed the ship causing a massive spill of crude oil. Exxon paid 2.1B in clean up efforts, a 25M criminal fine, and 100M in criminal restitution. Lawsuit bought by fisherman ended in jury award for 5B in punitive damages. b) Procedural (1) 9th circuit reduced on constitutional grounds twice, but each time the district judge reinstituted similar punitive awards. On third appeal 9th Cir. reduced punitive damages to 2.5B. Exxon appealed. c) S. Ct. Holding: (1) Court found that this was a special case because it involved federal maritime law. It held that in such cases, the ratio of punitive damages shall be 1:1. (SEEMS TO SAY FOR OTHER CASES ANY RATIO OVER 9:1 WOULD BE EXCESSIVE FOR PUNITIVE DAMAGES)
(2) Court says placing quantified limits on punitive damages is the better method to provide predictability. (3) Other Justices held that caps on punitive damages should be reserved to the legislature not courts. d) Constitutional Cases (1) 8th Amendment only applies to fines payable to the government (2) Due process argument: S. Ct. initially refused to hold that a punitive damage award just by the nature of its size could violate due process. (a) Honda case: so long as you have a meaningful jury instruction that provides limits to the jury, and meaningful judicial review for excessiveness then punitive award is constitutional. (b) Scalia and Thomas still agree with this view. (They dissent on all of the substantive due process case) 4. Economic Rationale for Punitive Damages a) Judge Posner sets out the economic rationale for punitive damages in Kemezy v. Peters: (1) Emphasized that damages are sometimes under compensatory, that not all torts are detected, and that the criminal justice system is overloaded. (2) Carried to its logical conclusion, economic analysis suggests that reprehensibility is irrelevant, and that underdetterence is all that matters. Even a morally innocent tortfeasor should be subject to punitive damages equal to the inverse of his chances of escaping liability. b) Vicarious liability: the employer is liable for punitives if any employee acting within the course and scope of his employment did something deserving of punitive. c) Immune defendants: punitive damages are unavailable against municipalities and unions in civil rights suits; the rationale is that the vicarious nature of liability would be a burden to fall on innocent taxpayers and union members. C. The Constitution 1. State Farm v. Campbell (punitive damages award of 145M where compensatory damages are 1M is excessive and violative of Due Process Clause of Constitution) a) Facts
(1) State Farm insured Campbell who caused an accident leading to the death of one person, and another permanently disabled. State farm contested liability, declined to settle for the 50k policy limit, ignored its own investigators‘ advice, and took the case to trial, assuring Campbell that he had no liability for the accident, that State Farm would represent his interests, and that he did not need separate counsel. (2) Jury found Campbell liable and returned judgment for over 185K (3xs over policy limit). (3) Campbell sued State Farm for bad faith refusal to settle, fraud, and IIED. Jury awarded Campbell 2.6M in compensatory damages and 145M in punitive damages which was later reduced to 1M and 25M respectively b) Holding (1) Supreme Court reinstated jury award and State Farm challenged the award as an excessive award violative of the Constitution‘s Due Process Clause. (2) SCOTUS: Says that punitive damages award of 145M where full compensatory damages are 1M is excessive and violative of the Due Process Clause. (3) Compensatory Damages are intended to redress a Π‘s concrete loss, while punitive damages are aimed at the different purposes of deterrence and retribution. (4) The due process clause prohibits the imposition of grossly excessive or arbitrary punishments on a tortfeasor. (5) When a punitive award is excessive, it serves no legitimate purpose and constitutes an arbitrary deprivation of property, which is heightened when the jury is presented with evidence having little bearing on the amount that should be awarded. (6) It should be presumed that a Π has been made whole by compensatory damages, so punitive damages should be awarded only if the Δ‘s culpability is so reprehensible to warrant the imposition of further sanctions to achieve punishment or deterrence. c) Courts reviewing punitive damages must consider three factors: (1) The degree of reprehensibility (In State Farm, SCOTUS says that this was the most important indicator of a punitive damage award‘s reasonableness). (2) Was the harm physical rather than economic? (3) Did the tortious conduct evince an indifference to or reckless disregard for the health or safety of others? (4) Did the conduct involve repeated actions or was it an isolated incident? (5) Did the harm result from intentional malice, trickery, or deceit—for profit? Or was it a mere accident—unheedful/reckless disregard?
(6) Was there a vulnerable target (financially vulnerable?) (unsophisticated?) d) Court says that State Farm‘s handling of the claims was condemnable, but a more modest punishment could have satisfied the State‘s legitimate objectives. Court said that case was really used as a platform to expose, and punish, the perceived deficiencies of State Farm‘s Operations throughout the country, but a state cannot punish a Δ for conduct that may have been lawful where it occurred, nor does a state have a legitimate concern in imposing punitive damages to punish a Δ for unlawful acts committed outside of its jurisdiction. e) Court says that conduct outside of state may be probative as to the Δ‘s culpability BUT it must have a nexus to the specific harm suffered by Π f) Due Process does not permit Courts to adjudicate the merits of other parties‘ hypothetical claims under the guise of the reprehensibility analysis—punishment on these bases creates the possibility of multiple punitive damages awards for the same conduct, because nonparties are not normally bound by another Πs judgment. g) In State Farm, there was scant evidence of repeated misconduct of the sort that injured Campbell, since Campbell didn‘t show conduct similar to that which harmed him, the only relevant conduct to the reprehensibility analysis is that which actually harmed Campbell. h) Ratio Punitive/Actual or Potential Harm (1) Court says there is no bright line BUT, if it‘s greater than single digits (e.g., 10:1) than the punitive damages are likely excessive. Court relies on notice on what the Δ can expect to pay. (2) Court says that ratios greater than single digits may comport with due process where a particularly egregious act has resulted in only a small economic damages. Higher ratio might be necessary where the injury is hard to detect or the monetary value of noneconomic harm might have been difficult to determine. (3) When compensatory damages are substantial, then a lesser ratio perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee. i) Awareness of Civil Penalties (1) Court says that they should really focus on civil penalties rather than criminal penalties (although it has bearing on seriousness of conduct) because criminal penalties have no bearing on the actual dollar limit for imposing criminal penalties. The civil process should look at the civil penalties. j) On remand, they suggest it should be 1:1 k) Ginsburg dissent: Says that she doesn‘t think this court should step in and find legislative conduct unconstitutional. 2. Constitutional Limits on Punitive Damages I a) Phillip Morris v. Williams (a jury may not use punitive damages to punish a defendant directly for harm the defendant caused to other nonparties to the litigation):
(1) Facts (a) Williams Died of lung cancer after smoking for 40 years. After a verdict for William‘s estate, the jury awarded 21K in economic damages, 800K in noneconomic damages, and 79.5M in punitive damages. (b) Oregon Supreme Court upheld on the grounds that Phillip Morris‘ conduct was reprehensible. Phillip Morris appealed: (2) Question was (a) how to properly instruct the jury based on repeated conduct and in state conduct; and whether jury could use punitive damages to punish Δ directly for harm caused to nonparties to the litigation. (3) Holding (a) Procedures for determining the amount of punitive damages must pass constitutional muster. A Δ threatened during a trial with a charge of conduct that allegedly harmed nonparties has no opportunity to defend himself from those charges. A trial as to one Π will not answer the question as to whether the Δ‘s conduct harmed others not a party to the litigation. (b) This raises due process concerns of risk of arbitrariness, uncertainty and lack of notice for Δs. However, evidence of harm to nonparties can be considered by jury but should not be used to directly link reprehensibility b) Recidivism statutes taking into account a criminal Δ‘s other misconduct do not impose an additional penalty for the earlier crimes but instead a stiffened penalty the latest crime, which is considered to be an aggravated offense because a repetitive one.
IV. PREVENTING HARM: THE MEASURE OF INJUNCTIVE RELIEF A. OVERVIEW OF INJUNCTIONS 1. Preventive Injunctions-prevent future wrongful acts a) Ripeness is always an issue-Π has to show an imminent threat of harm (Almurbati/Nicholson-uncertain consequences) b) Scope of injunctions: any past violations (goodyear case) are indicative of what the likely future violations will be. c) Voluntary cessation-Δ says they wont do it again, an injunction is still ripe if Π can show some cognizable danger but must be more than a mere possiblility (1) bonafide intent to comply (2) effectiveness of the discontinuance itself (3) character of the past violations 2. Reparative Injunctions –repair future harmful consequences of a past wrongful act (Winston/Bailey) (1) Stick to Π‘s rightful position (Winston) (2) Court says he has equitable discretion to do right thing and terminated the whole securities (Bailey) (3) Idea is how tight the means must be to effect the end, how (4) very often you end up with prophylactic injunction/when the court is aiming to put Π in rightful position but has to use a means that is a little more to make sure Π is not going to be harmed (Pepsico) 3. Substantive law: a) the nature of the right and the nature of the violation (right to exclude) b) the right you have under certain laws dictates what scope should be 4. Drafting Injunction-must give notice (1) Should be more specific in what discreet acts the Δ should or shouldn‘t engage in 5. When damage remedy is inadequate (1) when damage calculation is difficult –no market, shortage of goods, unique goods, special market, or substantial consequential damages (2) potential for continuing harm (3) nature of legal harm suggest you have a right to the injunction (Continental-right to set own coupon policy) 6. When you typically don’t get an injunction: a) when there is undue hardship on the Δ (whitlock) b) look at the Δ‘s culpability (1) Exception: even if the burden far exceeds, if Δ was intentional wrongdoer, he will still be stuck with injunction c) when burden on court is too great to enforce injunction (Argyll) 7. Relationships to economics a) Even economic people think injunctions are good because they promote voluntary market transactions
b) Only time when you shouldn‘t do that is when the transaction costs to obtain a voluntary transaction is too high—no other market to go to. But these are the times when court will not grant injunction (Boomer) 8. Advantages of specific relief a) avoid erroneous jury decisions b) attorneys fees smaller c) promotes voluntary transactions d) if you are asking for an injunction will likely get one unless it will be an undue burden. e) Preliminary Injunction 9. Four factors (NRC Case-dolphins)(courts tend to do sliding scale) a) The Π‘s likelihood of success on the merits of the underlying claim; b) the likelihood of irreparable harm to the Π c) the harm to the Δ caused by the injunction d) the public‘s interest, if any, in the subject of the litigation 10. Status Quo a) Courts use this method if it is consistent with maintaining status quo 11. Who should bear the risk of the Court erroneously granting the injunction a) Π can be compensated with money if erroneously denied b) Δ doesn‘t really have a mechanism for being compensated for injunction erroneously granted. That‘s why R65(c) calls for bond to allocate the risks. c) whether bond was waivable (can set at 0 if you think its right) (1) if Π can afford (2) potential loss (3) harm to Π (4) likelihood of success (5) trigger for liability-time of final judgment and if it is triggered, the Π is liable to the Δ for the damages incurred up to the amount of the bond. Δ has to prove these damages B. SCOPE OF INJUNCTIONS 1. Scope of Injunctions to Prevent Wrongful Acts a) Injunction: One function of injunctions is to individuate the law‘s command, specifying its application to a particular Δ in a particular situation. A realist probability of violation – at least a propensity to violate the law –is generally held prerequisite to such individuation. b) A specific and effective injunction must give Δ adequate notice and be tailored in a manner that it can be enforced. 2. Almurbati v. Bush (preventing wrongful acts) (in order to obtain injunctive relief Π must prove the potential injury is not remote and speculative) a) Facts:
(1) 6 Bahraini nationals were classified as enemy combatants and held at Guantanamo Bay, they filed a petition for habeas corpus seeking their release. Later filed motion for a preliminary injunction forbidding the government to transfer them out of Guantanamo without 30 days notice to the court and counsel. (2) Πs feared that a transfer to another country would lead to greater torture, rape, and possible death b) Holding (1) Court says that Bahraini nationals failed to show that their threatened harm wasn‘t remote and speculative. (a) Must show that there is a substantial certainty that the event to cause harm will occur and that Π is in imminent threat of harm (doesn‘t really relate to time, just need to show in FOS future it will probably happen) (b) The longer the potential delay of the event, the harder it is to show that it will actually take place at all. (c) The injunction itself would have required them to give 30 days notice but the law didn‘t require it—this is problematic because the nature of the injunction goes beyond what the Π requires to protect them c) Prophylactic nature of the injunction (a preventive measure) (1) The injunction requested in Almurbati would have done more than forbid rendition to countries that torture, it would have forbidden any transfer without 30 days notice giving plaintiffs an opportunity to seek to enjoin the specific transfer. The injunction requested would have interfered with the government‘s lawful discretion. d) Criminal coercion for contempt (set amount of days or set fine) vs. Civil Coercion for contempt (keys in the pocket you have the power to get yourself out—per day fine/prison) 3. Ripeness a) Unripe cases may ripen. It is sometimes said that the threatened harm must be imminent, or even immediate. That is only true in the sense that a threat of long-delayed harm is likely to be contingent and speculative. b) But where it is possible to say with substantial certainty that harm will occur eventually, and the facts are sufficiently developed for reliable decision, a suit to enjoin that harm is ripe even if the harm is not imminent. c) Automatic Injunctions and Ripeness Rule for Legislatures? (1) When legislature sees some act happen before, it may be ripe from a legislative perspective which allows them to institutionalize an injunction against a certain act on behalf of BOTH parties. 4. Humble Oil v. Harang (necessity of injunction must be demonstrated clearly-fear doesn’t count)
a) D entered into conspiracy with P‘s employee, who had access to information belonging to P. Employee would tell D about P‘s proposed operations/acquisitions so that D could then beat P to it, then would have his agent/broker offer to sell leases/farmouts to P or others. D acquired huge profits, gained royalty interests. D used a corporation to conceal his role in the transactions. b) P sought injunction barring D from destroying documents relating to transactions entered into by D or D‘s corporation, that allegedly reflect his connection with P‘s ex-employee. c) Court held that necessity of injunction must be demonstrated clearly – cannot be issued just to allay parties‘ fears – must be issued only to prevent irreparable injury (1) P could be irreparably injured, but that‘s true in every situation where proof of claim rests on documentary evidence. If that was the test, then there would be injunctions in every case where one party has control of important docs (2) Party seeking injunction must establish 1) potential irreparable injury, plus 2) real danger that the acts to be enjoined will occur, that there is no other remedy available, and that under the circumstances the court should exercise discretion to afford unusual relief (3) No proof of imminent threat here (4) Doesn‘t matter that it would not place hardship to D (i.e. he‘d be doing what he has to do anyway) 5. Marshall v. Goodyear (Scope: can only issue company-wide injunction if based on company policy) a) Facts: D (Goodyear) discharged Mr. Reed, the Department of Labor sued Goodyear on behalf of Mr. Reed who they alleged was discharged as a result of age discrimination. P (Sec. of Labor) sought to enjoin further violations and recover Reed‘s lost wages. b) Procedure: District Court found violation alleged and granted the relief, including nationwide injunction against further violations. c) Argument by Δ: D primarily takes issue with the scope of the injunction; claims that the single violation found by court involved only the actions of one store manager, and doesn‘t warrant such broad injunctive relief. d) Court reasoning: Equal Pay Act, FLSA, and ADEA cases all establish that nationwide/companywide injunction is only appropriate when facts indicate company policy or practice in violation of the statutesuch a policy was not present in this case. Case was remanded. e) Rule: The scope of past violations tends to demonstrate the likelihood of future violations. f) Scope of injunction: (1) Should bigger companies be more insulated from companywide injunctions (i.e. need more injunctions because they have, for example, more branches?)
(2) FRCP 65(d): concerns injunctions against violating law – says the order has to be specific and not just reference the complaint or the law that forbids the enjoined act (can‘t just tell D: ―obey the law‖) But, the ―obey the law‖-type clauses are common. Every order granting an injunction and every restraining order must: (a) state the reason why it issued; (b) state its terms specifically; and (c) describe in reasonable detail—and not by referring to the complaint or other document—the act or acts restrained or required. (3) Intellectual Property Examples (a) Trademark infringement requires that the consumer is confused by the trademark, so court held that an extra limitation on ―other products‖ was unnecessary when it comes to products completely unrelated to the current trademark. If the court approved the injunction it would be making otherwise legal conduct illegal. 6. Individual and Class Injunctions a) Most courts reason that Δ will voluntarily comply with the court‘s adjudication with respect to all persons similarly situated, but others reason that the court can issue an injunction that expressly protects all persons similarly situated even without a class certification. b) SCOTUS says that class action is an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only and that class certification saves resources by permitting an issue potentially affecting every class member to be litigated in an economical fashion under Rule 23. C. Preventing Lawful Acts that Might Have Consequences 1. Nicholson v. Connecticut(evidence must show that Δ’s proposed use of property is unreasonable not because of fears) a) Facts: (1) Ps were property owners on block; D purchased one of the homes in the block to use as a halfway house for parolees from CT prison. (2) Πs factual grounds offered in support: depreciative effect on land values, fears that residents will commit crimes in the neighborhood b) Procedure: (1) Trial court enjoined as a nuisance before it went into operation. Δ appealed. c) Appellate Court: Test for nuisance: evidence must show that D‘s proposed use of property is unreasonable
(1) Court says the present fear rests on pure supposition – speculative and intangible fear; no evidence offered/alleged to prove any specific acts/pattern of behavior that would warrant drastic injunctive relief—IR may be granted only under demanding circumstances. (2) No court of equity should ever grant injunction merely because of the fears or apprehensions of the party applying for it. (3) Restraining the action of an individual or a corporation by injunction is an extraordinary power, always to be exercised with caution, never without the most satisfactory reasons. (4) Testimony of fear, apprehension, and possibilities is not sufficient to establish any injury. (5) Court also found that depreciated property values, when caused by subjective apprehensions are not grounds for an injunction. (6) Where the proposed use has known qualities so that a court may conclude that the use is unreasonable, an injunction may be issued: (a) A town dump in a residential area was a known quantity whose attributes as a nuisance could be readily adjudged prior to the undertaking. (b) Operation of an embalming and undertaking establishment in a residential district 2. Ripeness and Uncertain Consequences a) Development of a halfway house in Nicholson must proceed subject to the risk of damage liability and the risk that operation will be enjoined if court later concludes that a nuisance has been created. b) This is an incentive to careful operation, but even skillful and well intentioned defendants may not be able to prevent a nuisance. 3. Pepsico v. Redmond (in litigation involving trade secrets, a court may enjoin the actual or threatened misappropriation of trade secrets) a) Facts (1) Redmond (Δ ) worked for Pepsi for 10 years rising to general manager of the business unit in CA. He signed a confidentiality agreement with Pepsi that stated he wouldn‘t disclose confidential information. He later accepted an offer from Quaker, a Pepsi competitor. b) Procedure (1) Pepsi sought an order enjoining Redmond from taking the position at Quaker and to prevent him from disclosing trade secrets. Pepsi submitted evidence that Redmond had knowledge of Pepsi‘s strategic plans to manufacture, price, distribute, and market sport drinks that competed directly with Quaker‘s Gatorade line of sport drinks. (2) District court allowed the motion, enjoining Redmond from taking the position until May 1995 (6 months) and ordering him to never reveal Pepsi‘s trade secrets.
c) Holding: 7th Cir. affirmed (1) Trade secret law protects standards of commercial morality but shouldn‘t be used to prevent employees from pursuing livelihoods. (2) Alleged harm isn‘t actual misappropriation of secrets but rather the threatened misappropriation thereof. (3) A Π may prove a claim of threatened misappropriation by successfully demonstrating that the employee will inevitably rely upon the trade secrets while in his new position. (4) Pepsi successfully demonstrated that the employee would inevitably rely upon the trade secrets while in his new position: he had knowledge of plans to price, distribute, and market new sport drinks. This would allow Quaker armed unfairly with that knowledge to anticipate Pepsi‘s strategic marketing moves. There was also evidence that Redmond was not forthright with Pepsi as to his dealings with Quaker. 4. Prophylactic Injunctions a) Request for a court to prohibit something altogether to eliminate the risk that it will be harmful b) Nuisance cases: (1) The fact that it will be a nuisance if so used must be made clearly to appear, beyond all ground of fair questioning (―reasonable certainty‖). (a) Franklinton v. Open Shelter: Court held that there was insufficient evidence to require the trial court to find that the operation of homeless shelter would necessarily constitute a nuisance at the new location merely because it did constitute a nuisance at a former location. Court relied on the hiring of a new director and operational changes in light of the earlier bad experience. (b) Grant v. Lone Oak: Court enjoined continued use of rifle range at request of neighbors in nearby residences, despite the Δ‘s showing that there had never been an injury in 50 years of operation. Court found harm to Π‘s short of injury: they were afraid, they didn‘t let their children play outside, and they didn‘t use parts of their property. c) The inevitable disclosure theory: (1) This theory is generally construed narrowly and require strong evidence. A principle argument against the theory sounds more in substantive law than in remedies. d) Lawful Acts for Unlawful Purpose (1) Decrees often suppress a lawful device when it is used to carry out an unlawful purpose. In such instances, the court is obliged not only to suppress the unlawful practice but to take such reasonable action as is calculated to preclude the revival of the illegal practice. e) Culpability
(1) The more egregious the violation, the greater the fears of further defiance or evasion, and the greater the desire for prophylactic injunctions that give a margin of safety to plaintiffs and the court. f) Notices, monitoring, and programs to prevent violations: (1) A common prophylactic injunction orders defendants to create programs to prevent recurring violations. Another common prophylactic provision is monitoring of defendant‘s compliance with the injunction. Δ may be ordered to make periodic reports to the court or to Π, or even to seek advance approval of future conduct. g) Prophylaxis and the rightful position (1) The injunctions aim must be the plaintiff‘s rightful position, but to achieve that aim its terms may impose conditions on the defendant that require actions going beyond the plaintiff‘s rightful position…The injunctions terms may have to go beyond the plaintiff‘s rightful position to avoid falling short of that position. h) Preliminary Injunction: A judicial mandate issued to require or restrain a party from certain conduct; used to preserve a trial‘s subject matter or to prevent threatened injury (1) Four factors to assess for preliminary injunction: (a) The Π‘s likelihood of success on the merits of the underlying claim; (b) the likelihood of irreparable harm to the Π (c) the harm to the Δ caused by the injunction (d) the public‘s interest, if any, in the subject of the litigation. (2) factors to take into account on whether an injunction should be granted (a) Enforceability of the injunction (is there a way of determining compliance?) (b) notice (c) Practical (d) Δ‘s burden D. Repairing the Consequences of Past Wrongful Conduct 1. Preventive Injunctions v. Reparative Injunctions a) Preventive injunctions are to prevent future acts b) Reparative injunctions are to prevent harm from past acts (1) Issues that arise in reparative injunctions vs. preventive injunctions (2) Ripeness is not an issue because the ―illegal act‖ has already happened (3) In reparative injunctions you may have had some harm because of the delay but you KNOW there will be harm because the act has already taken issue
(4) Causation: sometimes there is a causation problem in demonstrating what the scope of the injunction should be in reparative injunctions because there may have been other factors that added to or caused the harm. c) Scope of the injunction itself: with preventive injunction you are basing the scope on what you think the threatened violation is (what is the illegal act that is going to occur?) vs. reparative injunction where you base the scope off of what has already occurred. d) Timing: for preventive injunction you usually need it NOW, with reparative injunctions, timing is not as big of an issue. e) Preventive Relief at Law: Includes damages, mandamus, prohibition, certiorari, habeas corpus f) Availability: practicality—can you actually ―fix‖ the consequences of the past harmful act with an injunction? 2. Forster v. Boss (can’t recover twice for the same injury) a) Forsters were granted a permanent injunction and compensatory damages due to the Bosses‘ fraud when they sold them lakefront property without a boat dock permit, the Bosses appealed. b) Court says a defendant must choose whether it wants to receive compensatory damages or an injunction. Since the injunction made the Forsters whole by granting them their boat dock permit and a swim dock, they could not also recover damages for the same loss. (1) But the award of punitive damages was not duplicative, court reduced damages award to $1 to enable Forsters to get punitive damages. 3. Reparative Injunctions and Causation a) Reparative injunctions do not raise ripeness issues because the wrongful act has already occurred. But they may raise issues of causation, or remoteness. Were all the harms plaintiff complains of actually caused by defendant‘s wrongful act? And how far should the defendant be required to go in eliminating every vestige of the harm she caused? 4. Coordinating Multiple Remedies a) The court and to some extent the Π have a choice: where it is possible to prevent harm by injunction, the court can prevent it, or let it happen and compensate for it. For each element of harm, the rightful position requires that the court do one or the other, but not both. Just as there can be no double recovery in damages, there can be no double recovery in injunctions, or in a combination of damages and injunctions. 5. Winston Research v. Minnesota Mining (unfair competition should be enjoined for time it would take to develop a similar product after public disclosure but doesn’t give rise to a permanent injunction) a) Minnesota Mining developed a certain tape recorder. Prior to the recorder‘s marketing, Winston Corp had been formed by several former employees of MM. When the intention of Winston to market a similar recorder became known, MM brought an action to enjoin sales of the recorder.
b) MM wanted a permanent injunction so they appealed, Winston didn‘t think the injunction was appropriate so they appealed. c) The trial court issued an injunction preventing Winston from marketing the recorder for two years, which in the court‘s estimation was the time necessary for a competitor to develop a similar system after public disclosure. d) Issue: Whether enjoining unfair competition should extend to the time that it would take to develop a similar product after public disclosure e) 9th Cir. says that unfair competition should be enjoined for the amount of time it would take to develop a similar product after public disclosure. An injunction of this nature should prevent unjust enrichment and protect trade secrets, but no more. Here a permanent injunction would go beyond the goal in that Winston would be denied the fruits of what normal research and development would produce. An injunction should not serve to chill the creation of new technologies so the time limited injunction was appropriated. 6. Bailey v. Proctor (once there is a violation that brings a case into the equity court-judge has equitable discretion to go beyond the ―rightful position‖ approach) a) Facts: mutual fund that was deemed to be an abusive structure, the stock holder held 150K worth of stock and had the sole voting control of the stock, they realized all of the speculative gains of the stock, venture capitalist were fixed income investors and the greatest return that they could get was 6%. So people with the least interest had the most to gain, but the people who invested the most and had a large interest (venture holders) were unable to reap equitable profit. b) Judge decided to liquidate c) Two ways to look at this case: (1) Reparative Injunction: Preventing future harm based on past illegal conduct (a) In Bailey, judge really isn‘t trying to gauge the rightful position because that would result in keeping the fund how it was before the illegal conduct (b) Winston case was a clear example of reparative injunction—trade secret was already out and there was no opportunity to engage in future wrongful conduct—court tried to scope the relief to meeting the rightful position of both parties (2) Preventive Injunction: Trying to prevent future illegal conduct (a) In Bailey, in order to prevent future conduct, a prophylactic injunction was ordered (goes beyond what is necessary) which is designed to assure that it won‘t happen in the future. So wrongful conduct could never happen again because there would no longer be this mutual fund. 7. Community Renewal Foundation v. Chicago(judge has reasonable discretion)
a) The two traditions in Winston and Bailey can be thought of as poles on a continuum describing the extent of the trial judge‘s discretion. Community Renewal is somewhere in the middle: (1) The case presented a constitutional challenge to a statute and court decree authorizing repair of buildings found to be in violation of building codes. The repairs were to be financed by borrowing money and giving a mortgage that would have priority over earlier mortgages. One of the challenges to the decree was that the repairs authorized were more than were necessary to correct the violations. (2) The court rejected the argument: (a) Court says that it was the intent of the legislature to be that deteriorated buildings be returned to economic life and acceptable usefulness. (b) The court should be given reasonable discretion to determine the repairs necessary to restore the buildings for acceptable use within the legislative design. There is no evidence that the rehabilitation here proposed exceeds that necessary to return the building to economic life and usefulness. b) Approaching Preventive Injunction problems: (1) When looking at the preventive injunction, determine what the scope should be, need to look at the past prior acts and ask if there is a risk of future violation.
V. CHOOSING REMEDIES A. Substitutionary or Specific Relief 1. Substitution and Specific Relief a) In order to get injunctive relief, must show that the legal remedy is inadequate or you will suffer irreparable injury 2. Damages or Injunction? a) Policy Rationales (1) Law and Economics people embrace the notion of injunctions because supports the theory of bargaining. Don‘t want people going outside the market without first negotiating with Π (a) Exception: Economists do not embrace injunctions where there is a bilateral monopoly because transaction costs are so high. In these cases there is no market so not much room to bargain so they want damages. (2) Courts (a) Alternatively, courts will grant damages over injunctions when enforcing the injunction would be very burdensome on the courts (b) Additionally, courts are more likely to grant injunctions when transaction costs are high because there is no market which makes it hard to calculate damages. –e.g., in nuisance cases, its easier for court to enjoin Δ from polluting rather than determine what the damages will be for each Π. b) Pardee v. Camden (Irreplaceable losses-where the legal remedy is inadequate, equity will intervene) (1) Facts (a) trespass case, the Π sued to enjoin Δ from cutting trees (2) Procedure (a) Lower Court didn‘t think that cutting the trees was a form of irreparable injury so didn‘t think injunction would be appropriate. (3) Holding (a) W.Va Sup. Court says an injunction against the felling of trees on another‘s property is appropriate. Timber cut is plainly not the same thing as a standing tree. (b) Money damages will not restore the appearance of the land. (c) When the destruction of something is not amenable to replacement, equity will intervene. (d) Tree is considered real property case because whatever is growing on the land is deemed to be real property.
(e) cant buy other trees that are of the age and style of the land, the right to exclude theme, damages aren‘t a disincentive for the Δ to stop engaging in wrongful conduct so when you have an opportunity for multiple ongoing infringement—it is cause for an injunction 3. When the Legal Remedy is Inadequate a) If the Δ is insolvent, then your legal remedy is inadequate b) can also be inadequate if there is no market like heirlooms or if it has special value to the Π c) Modern Justifications for the Inadequate Legal Remedy Rule: A rule designed to preserve the jurisdictional boundaries between two courts that have long been merged should die unless it serves some modern purpose. (1) Burden on the Court: It is sometimes said that injunctions impose a greater burden on the court, because they have to be enforced over time. A damage judgment results in a one-time transfer of money, after which the court‘s involvement is over. Burdens on the court are obvious in the structural injunction cases, although measuring and collecting damages in those cases might be even more difficult. (2) Defendant‘s Liberty: Greater intrusion on defendants liberty interests when you require that they act (3) the right to a jury trial—if Π is able to seek equitable remedies too easily it could infringe upon this right (4) Jury Trial: Right to jury trial at law but not equity The irreparable injury rule protects the right to jury trial; (5) Timing: timing is probably the most important practical reason why plaintiffs seek damages more often than injunctions. Many harms happen irreversibly before any court can prevent them. (6) Economic View: the view that profitable violations of law should sometimes be encourage if the violator compensates his victims (a) Preference for voluntary transactions: if we ask a jury to decide the value of the ―timber‖ we introduce a risk of error. The jury will be told to award the market value of the timer; the possibility that the landowner personally values the timber at more than its market value is too speculative for the jury to consider, even if she refused to sell at the market price. (b) Transaction costs: when the cost of negotiating a voluntary transaction would be high, Judge Posner would deny the injunction and leave victims to their damage remedy. (c) To summarize the economic view: where transaction costs are high, the usual remedy should be damages; where transaction costs are low, the usual remedy should be injunction.
d) Brook v. James (a successful litigant in a replevin action has a right to the subject property, rather than cash): (1) Facts (a) Brook borrowed 8K from Cullimore. Brook gave Cullimore a security interest in certain property valued at around 2,500. Brook defaulted on the note, and Cullimore brought an action to obtain possession of the property. Brook offered cash equivalent to the value of the property. Cullimore refused desiring the property. The court ordered Brook to deliver the property, and Brook appealed. (2) Holding (a) Court says a successful litigant in a replevin action (action to recover personal property wrongfully taken) has a right to the subject property, rather than cash. A replevin action is at common law an action to recover property, not money. Statutes have modified replevin to allow for damages if the property is not available, but this is at the option of the plaintiff not the defendant. Since Cullimore was successful, it had a right to demand the property itself not a cash equivalent. e) Replevin and Ejectment (1) Under replevin (personal property) action don‘t have to show that there has been harm (Brook case) but for ejectment (real property)—can go through the courts of law for these claims (a) need to consider the difficulty in enforcing …how burdensome will it be on the court? how serious is the burden on the court? if fairly simple injunction telling Δ to refrain from conduct vs. telling Δ to act in a certain way and managing…..-burden on the court is a rationale for not issuing an injunction, same with difficulty with calculating damages and issuing an injunction f) Continental Airlines v. Intra Brokers (party is entitled to equitable relief of injunction when economic damages would be difficult and expensive to prove-party also has right to enforce their own coupon policies): (1) Intra acquired travel discount coupons published by Continental and sold them to travel agents for resale to their customers. The coupons contained a clause prohibiting sale of coupon, though Continental stated it would not enforce the clause. When Continental decided to later enforce the clause, Intra didn‘t comply with the new policy. Neither side presented evidence of harm or benefit to Continental on Intra‘s refusal to comply. (2) Court said that while Continental did not demonstrate any economic harm, the hardship it would have to undertake to prove damages is considered in deciding whether to grant an injunction.
(3) The possible immeasurability of the harm does not mean Continental was not harmed. The difficulty of establishing the amount of economic harm supports the proposition that damages would be an inadequate remedy. The harm here was to Continental‘s right to control its own discounting policies. (4) Courts discussion of the importance of the legal right that the airlines have to make their own business judgmentsinherent right is similar to Pardee case, essence of property right is the right to exclude and without an injunctive relief you‘re right to exclude is nil) 4. Specific Performance of Contracts a) Campbell Soup v. Wentz (uniqueness/irreplacability of the subject matter of a contract will often make damages inadequate): (1) Facts (a) Campbell had contract to buy carrots from Winston at $30/ton but Winston breached the contract and sold carrots to 3rd party who then sold it to Campbell for 90 per ton (2) Holding (a) Court said the legal remedy is inadequate because it was a unique product and it was important to Π, AND there was a scarcity of the product so specific performance is appropriate (b) Scarcity of the market meaning the inability to ―Cover‖ (c) K=Expectancy (d) Specific performance would give them the carrots, while damages would give them 60 per ton (e) there is considerable authority showing liberality in granting equitable relief b) Specific Performance on Contracts (1) Specific performance decree is a specialized form of injunction, an order to defendant to perform his contract. It typically requires affirmative conduct. c) Efficient Breach: (1) The efficient breach means that the Δ can breach the contract and sell it to somebody else and pay the balance to the Π (2) UCC (a) The UCC codifies that you get specific performance under a contract if the goods are unique or in other proper circumstances (3) Specific Performance Appropriate when; remedy is inadequate, or there will be an undue hardship on the Δ (a) Courts uses many different factors in determining whether remedy is adequate or inadequate (4) Basic efficient breach argument is: (a) Δ is seller of product, they can sell product for a higher price than the contract price
(b) If they sell it at the higher price plus Δ pays Π compensatory damages, and as a result Δ still makes a profit, then an efficient breach has occurred. (5) Posner‘s ―Efficient Breach‖ theory: (a) want to keep damages for breach predictable, and limited to the other party‘s expectations, so that resources are allocated for highest & best use, and negotiation and transaction costs are minimized. If party gets a better opportunity, we want him to determine that on his own, breach the conflicting, lower-value K, enter the high-value K, and simply pay damages to 1st party to put him where he expected to be. (6) Generally, ―fault‖ and ―morals‖ don‘t come into contract law. (but see good faith requirements, used in determining whether breach is ―material‖ – Jacob & Youngs) (7) Contract law and Efficient Breaches (a) K LAW DOES NOT PUNISH PEOPLE FOR BREACHING! This is shows that breaches are not necessarily moral promises. Unlike torts, punitive damages are unavailable in Ks. However, you can turn a K claim into a tort claim by finding fraud or misrepresentation! You can usually try to find one of these if there is some element of knowledge. (b) But all K law offers is compensatory damages – what it cost you. Also, if breaches were sacrosanct moral promises, specific performance would be the normal K remedy (rather than the ―extraordinary‖ one). But we don‘t reward parties for breaching Ks – breaches are only encouraged when it would be an ―efficient breach‖ (when it‘s in everyone’s interest for a party to breach) (c) K law allows parties to breach Ks SO LONG AS THEY ARE WILLING TO PAY FOR THE DAMAGES THAT THE BREACH COSTS. (i) If A offers to sell B a car for $1,000, but C wants to pay $2,000, then the law wants A to sell to C even though he had a K with B. This is because B can easily find another car for $1,000. A will just have to pay the damages; he won‘t be punished. (ii) Additionally, B will have an affirmative ―duty to mitigate‖ damages! B has to go find himself another “equivalent” car! (8) If a promisor breaks his promise merely to take advantage of someone shouldn‘t …efficient breach isn‘t suppose to be for Δ but from society d) Specific Performance Where Cover is Possible
e) Van Wagner v. S&M (point at which breach of contract will be redressable by specific performance si not based on inherent physical uniqueness of the property but, in the uncertainty in valuing it): (1) Facts: The plaintiff leased space on a building to put up a billboard in a very desirable location. The building was bought by the defendant, who terminated the lease. The plaintiff sued for specific performance and damages. (2) Issue: Shall the plaintiff receive monetary damages or specific performance? (3) Rule: Specific performance is a possible remedy in cases involving real property or unique items. (4) Analysis: The court says that the contract was not made over real property per se, but rather over a commercial lease. The leased property was found by the trial court to be unique, but this court holds that this isn‘t sufficient to allow the remedy of specific performance. (a) Unique nature of the subject matter of the contract (b) with Campbell part of the issue was the red carrots and its uniqueness and difficulty to get on market (c) with Pardee court found that real property is by definition unique (d) Economic Interchangeability-the ability to measure what the loss is (e) Campbell-couldn‘t find red carrots elsewhere (f) Pardee-can‘t buy that specific tree elsewhere (difficult to replace tree) (g) Here (Van Wagner), court found Π‘s loss could be replaced economicallyVan Wagner didn‘t have sign up, just had a lease (h) Another component of the court’s reasoning: Could have been looking at the hardship on the defendant, so this would be an undue burden on the Δ. Had there not been renovation, the hardship would not have been so severe. (i) Conclusion: The court held that the plaintiff was entitled to money damages but not specific performance because plaintiff‘s legal remedy was adequate and specific performance would impose undue hardship f) Personal Service Contracts: (1) Courts will not order specific performance of an employee‘s promise to work. Other promises in an employment contract—to preserve trade secrets or not to compete against the employer –are subject to sometimes stringent review for reasonableness, but if held reasonable, they can generally be specifically enforced.
B. Damages or Specific Relief 1. Whitlock v. Hilander Foods (court may issue injunction to builder to remove encroachment if Π can prove it was deliberate) a) Facts (1) Δ was a store owner trying to extend store, received permission from neighboring store owner to have workers on his property to install extension. Π later realized that extension crossed over to his property and notified Δ and offered to lease it to Δ who agreed to pay. No payment was ever made and Π revoked the lease until the issue of payment was resolved. b) Procedure (1) Π sued for an injunction ordering that the footings be removed from his property. The trial judge granted SJ for Δ holding that the encroachment wasn‘t intentional and that the complaint was barred by laches c) Holding (1) Trial court must balance the hardship to the Δ against the benefit to the Π in deciding whether to remove an offending structure. However if the encroachment is intentional, a court doesn‘t need to conduct any balancing. (2) The trial court said encroachment was intentional, but appellate court said that this was a genuine issue of fact (3) Sometime the Δ to raise an undue burden argument even in certain intentional breach cases (Van Wagner) –Opportunistic breach v. Efficient breach (Posner) (a) The efficient breach is a public efficiency (b) The opportunistic breach the Δ is simply trying to make a profit for himself. (4) Concern for these types of cases is incentivizing Δs to encroach. People will intentionally encroach, that‘s why the intent is taking into account before balancing. (5) laches is the equitable equivalent of statute of limitations (when is it too late to file a lawsuit? No bright line rule) 2. Undue Hardship a) Boomer v. Atlantic (when hardship is great, equitable remedy may not be available) (1) Despite using the best available technology, defendant‘s cement plant was pouring dust on the homes of seven plaintiffs. The court held that the plant was a nusance but it refused to enjoin operation of the plant because the defendant had invested 45M and employed over 300 workers at the plant. Instead it gave plaintiffs damages for the reduced value of their homes. b) Peevyhouse v. Garland Coal & Mining Co (undue hardship recognized in damage cases where cost to complete construction Ks is grossly disproproationate to the lost value) (1) Facts:
(a) Peevyhouses (Ps) leased some property to Garland (D) to do some strip mining and pay P royalties; in return, they would restore the property back to the condition it was in the beginning. D refused to restore the Ps‘ property back to normal after extracting coal because it would cost more than the restored property was worth; everything else about the K was done, but D conceded that it did not do the restorative work. D wanted to just give them enough money to cover the difference in what their land was worth before and how much it is worth now (b) The cost to restore the property was $29,000, but the farm was only worth like $3,000; Ps sued for $25,000, but was only awarded $5,000. (2) Holding: (a) If a K is fully performed, but provides for certain remedial work in the end that has not been performed, the measure of damages is ordinarily the reasonable cost of performance of the work (―cost-to-complete‖ measure of damages) (b) However, where the K provision breached is incidental to the main purpose, and where the economic benefit to the non-breaching party is grossly disproportionate to the cost of performance, the damages are limited to the diminution in value resulting to the premies because of nonperformance (―diminution-in-value‖ measure of damages) (c) Here, the diminution in value was only $300, so the award was reduced from $5,000 to $300. 3. Economics of Undue Hardship a) If a wrong is too expensive to correct, defendant can pay damages instead. b) It is not enough for defendant to show that the injunction costs him a little more than it saves plaintiff; the injunction must impose hardship greatly disproportionate to the benefits. c) The law and economics scholars envision people deliberately deciding to violate rights and pay damages, but the courts allow the undue hardship defense only to defendants who acted in good faith. d) Spur Industries v. Del E. Webb-bargaining power and injunctions/burden on the court) (court grants injunction on condition that plaintiff compensate defendant) e) Facts (1) Π wanted an injunction to shut feedlot down, had manure smells and was a nuisance but it was there before the homeowners f) Holding
(1) If Court enjoined the feed lot bargaining would be shut down, but if it denied the injunction than the homeowners would have to pay the feedlot to shut down. So court imposed an interesting injunction where it granted the injunction on the condition that the plaintiffs pay the cost of relocating the feed lot. g) Judge couldn‘t just grant damages for the removal/relocation of the feedlot because the plaintiffs didn‘t commit any wrongdoing and they were the ones seeking the injunction, so judge had to craft an injunction tailored to this case. This way the judge protected both interests (feedlot owners couldn‘t force plaintiffs to pay more than a reasonable fee to move and plaintiffs couldn‘t force feedlot owners to move without paying for it). 4. Cooperative Insurance v. Argyll (a court may not order specific performance of covenant to maintain business when it would be financially detrimental to operate): a) Facts (1) Π had a contract with Argyll Stores to keep store open during business hours, Argyll stores was losing money to keep store open so broke contract and closed store. Π sued for specific performance to force Argyll stores to remain open. b) Holding (1) Court says that court can‘t order specific performance even though Argyll breached the lease, it is not in the public interest to require the company to carry on a business at a loss if there is another way to satisfy Co-operative‘s expectations, here damages was an adequate remedy. c) Burdens (1) Burden on Δ if forced to operated from 1998-2014, but it makes it even harder to calculate damages to Π since the time is so far out. Even still, the burden on Δ to remain open losing money was deemed greater than calculating the damages. (2) Court‘s burden: Court would have to manage and supervise whether store remained in compliance with specific performance. Constant supervision would be required. d) Minnesota Twins (Court can order injunction when specific performance isn‘t too burdensome on Δ and equity favors it): (1) Metropolitan Sports v. Minnesota Twins were ordered to play their home games at the metro dome even though the franchise was threatened to be terminated. The court granted the injunction forcing them to stay for the season and play the games. (2) Difference from Argyll case, if team left, this would have affected the whole area—equitable considerations to the community. Also the contract was only for a season whereas Argyll store had a contract for over 16 years, so the burden on the court wasn‘t as great. Also, the team was still in place, still in the area, where the Argyll store had completely shut down and removed all fixtures.
e) Carrying on an Activity and Achieving a Result (1) In City Stores v. Ammerman: (a) Structural Injunction Cases (Brown v. Board, Injunctions related to busing, prison reform, school desegregation…) (b) Fairly common use of the injunction that can get the court into difficult enforcement questions. (c) Courts are more willing to assume more burden in structural injunction cases because it involves major public interest issues and typically the rights invoked are constitutional rights. $$ value is applied to inherent rights so no damages can be given so injunctions and specific performance are a proper forms of relief. C. Preliminary Relief 1. Preliminary or Permanent Relief a) Π seeks a preliminary injunction to enjoin Δ to prevent behavior before there is actually a trial on the merits. b) Four factor test for deciding whether the preliminary injunction should issue: (1) Look to the likelihood of Π‘s success on the merits (2) Look at the likelihood of irreparable injury for Π (3) Balance the hardships that favors the Π (4) Consider the public interests and which way it falls in terms of the injunction c) The Leubsdorf-Posner Equation: (1) Grant the preliminary injunction if but only if the harm to the Π if the injunction is denied, multiplied by the probability that the denial would be an error (that the Π will win at trial), exceeds the harm to the Δ if the injunction is granted, multiplied by the probability that granting the injunction would be an error. That probability is simply one minus the probability that the Π will win at trial; for if the Π has a 40 percent chance of winning for example, the Δ must have a 60 percent chance of winning. d) Different courts approach the 4 factor test differently. Some say you must meet each factor, but many courts look at it as a balancing test giving more weight to certain factors over others. 2. Substantive a) Winter v. NRDC (preliminary injunction may only be issued where the Π demonstrates a likelihood of irreparable harm and not just the possibility of harm): (1) Facts (a) NRDC wanted the Navy to complete an environmental impact form on its use of Active sonar on its submarines. They claimed that this equipment was possibly harming marine life.
(2) Procedure (a) The lower court granted the injunction and circuit court affirmed The Navy appealed (b) Navy challenged the provision that said that had to shut down sub whenever a marine mammal was spotted within a certain amount of yards. The Π said that it wasn‘t a big deal because it‘s a relatively rare occurrence; Navy said one shut down would lead to days of starting it back up and cost lots of money. (3) Analysis of the 4 factors: (a) Look to the likelihood of Π‘s success on the merits (the probability that the Π will succeed on the merits)—It was almost certain that the Π would win on the merits—as a matter of law they did not comply with EPA (b) Look at the likelihood of irreparable injury for Π —key aspect of decision because likelihood means that there is a good probability that you will be irreparably injured, court said that there was only a POSSIBILITY of irreparability which was not enough—Court says that an injunction would be an extraordinary remedy—typical language used when they don‘t want to grant an injunction but have no strong reasons. Court said that even if the Sonar causes deaths to marine mammals, the Navy asserts Πs have failed to offer evidence of species level harm (c) Balance the hardships that favors the Π (with a permanent injunction it‘s a defense on the part of the Δ that it is an undue burden—for a preliminary injunction it‘s a different sort of standard----?) (d) Consider the public interests and which way it falls in terms of the injunction (4) Discussion (a) Think about the nature of the legal violation, what‘s the legal claim and how does that affect the nature of the injunction you can get. Navy just failed to file a report so is there a basis for a court to prevent them from operating a sonar.—The ultimate claim is that the Navy must prepare an EIS not that it must cease the training, so no basis to enjoin the training. (b) Public interest played a large role in this decision. b) Preserving the Status Quo
(1) Courts commonly say that preliminary injunctions are designed to preserve the status quo. Which has been said to mean ―the last actual peaceable uncontested‖ status quo. A peaceable and uncontested status quo is unlikely to be inflicting irreparable injury on anybody. But whenever the status quo and the four-part test point in different directions, taking the status quo test seriously leads the court to increase the risk of legally unjustified irreparable injury. (2) Lakeshore Yogi Bear Case: (a) Facts (i) 5th generation captive bear kept in a residential home in a cage within a cage—some residents were fearful of injury (b) Four factor analysis (i) No adequate remedy at law (ii) Probability of success on the merits is pretty high due to the covenant (iii)even if the risk of irreparable harm is low—if the harm itself would be relatively high that is taken into consideration (iv) public interest was to not have a wild animal in the back yard (v) the threatened injury to harm will be immediate, certain and great if the injunction is denied while the loss or inconvenience to the opposing party will be comparatively small and insignificant if it is granted; a reasonable likelihood of prevailing on the merits of the case (3) Surveying the Cases (a) In Lakeshore, the court acknowledged that it was changing the status quo because it thought the bear was dangerous. (b) In Rees v. Panhandle, in which the pipeline company was clearing trees and brush to widen its right of way on Ree‘s land, and Rees was objecting. The trial court thought the status quo was the company at work. The appellate court thought the status quo was some of the trees were still standing. Both courts enjoined Rees from interfering; the appellate court said that safety concerns justified a preliminary injunction and changed the status quo. (c) In Providence Journal, the court thought that enjoining publication of private information didn‘t preserve the status quo of privacy, but rather disrupted the status quo of continuous publication.
(d) Critics of using status quo say that it is a lousy guide to minimizing the risk of erroneous irreparable injury and because the concept is so manipulable, it is expensive to litigate. c) Whether a Temporary Restraining Order should be Issued (TRO) (1) Fast type of relief available, similar to preliminary injunction but FRCP 65(B) provides that: (a) a temporary restraining order may be granted without written or oral notice to the adverse party or that party‘s attorney only if (i) it clearly appears from specific facts shown by affidavit or by the verified complaint that immediate and reparable injury, loss, or damage will result to the applicant before the adverse party or that party‘s attorney can be heard in opposition, AND (ii) the applicant‘s attorney certifies to the court in writing the efforts, if any which have been made to give notice and the reasons supporting the claim that notice should be required. (b) Appealability: (i) a court‘s refusal to modify a temporary restraining order might be appealable as an interlocutory order under 28 USC 1292(b) which grants discretions to courts of appeal to review orders involving a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation (c) Duration (i) TRO w/o notice expires after 10 days d) Whether a preliminary injunction should be issued (1) If the court gets it wrong and denies the injunction, the Π can recoup their costs of a wrongfully denied injunction while in a wrongful grant the Δ cant recoup from Π so we require that the Π post a bond when the seek a preliminary injunction so there is a pot of money available if the injunction is wrongfully enjoined. The disparity of the effect of a wrongful grant vs. a wrongful denial explains the need for the bond. (a) Coyne-Delaney v. Capital (prevailing defendant is entitled to damages on an injunction bond unless good reason for not awarding damages exists-rare):
(i) Facts: Π sued under a theory that they were being denied a property right of being able to bid on project. Δ denied them a chance to bid because they were unpleased with their past products. (ii) The TRO was granted for 1 week and judge required Π to post a 5K bond. The next week another judge granted the preliminary injunction and retained the bond at 5K. The court thought there was no need to increase the amount of the bond even though the prior judge said that 5K would be enough to get him through the preliminary bond. The presumption is that the longer time that you would be enjoining the activity the greater damage that would be incurred. So judge should have increased the bond. ―Court said he didn‘t need to increase the bond because he was sure that it would prevail on the merits.‖ (iii)Holding: The precedent was reversed by the S.Ct of the state which said that the right to bid did not rise to the level of a property right. By that time, the Δ moved for damages, and trial court denied all damages saying that it was brought in good faith. (iv) The appellate court said that the trial court‘s refusal to grant damages was problematic because Rule 65(c) did not give court discretion to deny damages in such a case because purpose of bond is to pay for damages if you are wrongfully enjoined. This is the default unless there is a really good reason to depart from this standard. Court says 65(c) only gives trial court discretion in cases such as where Δ fails to mitigate damages and they have thus contributed to the damaged incurred. (v) Trial court can waive the posting of a bond completely only if the court believes that there wouldn‘t be any damage to the Δ but most of the time the Δ will suffer some damage. (vi) Courts have since interpreted the rule that they can choose not to issue a bond if they do not believe it‘s necessary. In deciding on whether to waive the bond the court considers: whether the Π can afford to post it all (vii) How courts determine whether injunction was wrongfully enjoined:
(a) In Coyne it wasn‘t really a question, the decision is made at the time of a final merits decision, so if they find the Δ not liable, it was wrongfully enjoined. As a policy matter this makes since, because if you can‘t get a permanent injunction afterwards, wouldn‘t have been proper to have one issued before. (b) The damages in excess of the bond: (i) In Coyne the bond was for 5K, but the Δ proved damages of 56K. – if Π is liable on grounds of malicious prosecution, then they will have to pay additional amount of bond, or some state statutes grant Δ right to get more beyond the beyond, court‘s also occasionally waive the bond if the Π is plainly able to pay the bond and in these cases they are liable for an unlimited amount of damages, but in ordinary cases, the Δ cannot recoup in excess of the bond. (c) In federal court, no attorneys fees are allowed. (d) Does rule 65(c) have an ultimate affect on the court‘s decision as to whether to grant an injunction at all? It may seem to give an incentive to issue an injunction that may harm the Δ but in reality court‘s probably don‘t take this into account.
VI. REMEDIES AND ANIMAL LAW A. Approaching Animal Case-Remedies-Treated as Personal Property 1. Specific Relief a) Available in cases of contract to purchase animal, return of an animal stolen or lost, and recovered by another, or judicial order to prevent the killing of an animal. 2. Compensatory Damages a) Loss to Animal: Animal doesn‘t have standing to recover loss for pain and suffering b) Loss to Owner: 3. Economic Property Loss a) owner may recover FMV or some special or pecuniary value to the owner that is determined by the usefulness and services of the dog b) If the animal is injured the recovery is the difference between the FMV before and after the harm OR the costs to repair (such as vet expenses). Usually want the vet expenses because FMV will not give you much compensation. Also awarding economic losses will deter those who are negligent with other persons animals. 4. Consequential losses may include: a) reimbursement for training, microchipping, or other similar expensesPetco (recovered FMV + training costs, and microchipping) 5. Noneconomic Property Loss a) Courts usually don‘t grant noneconomic costs however some courts have began to recognize the loss of companionship because it is the intrinsic value to the owner b) Owner can often recover lost utility from the property but must demonstrate the utility and the value of it. Utility could be loss of companionship but few courts recognize this right now. 6. Types of Evidence that Could be Used to support an award of loss of companionship include: a) statistics/studies of animal/human bond b) benefit of bond (alleviates boredom, isolation, helps patients recuperate, reduces stress, anxiety, depression) c) Evidence of the money that owner has invested in the animal (food, clothing, shelter, etc.) d) Economic Consequential Loss e) Consequential damages are limited when too remote, speculative, or avoidable f) Noneconomic Personal Loss to Owner g) Some states allow recover for IIED or NIED must show: h) Δ‘s outrageous behavior i) intent to cause emotional distress to owner j) owner‘s severe emotional suffering k) the owner in proximity to witness the outrageous conduct l) and for NIED, physical harm to owner
m) Most of these cases fail due to the inability to show outrageous conduct. 7. Direct Emotional Injury vs. Loss of Companionship a) It is important to distinguish the direct emotional injury (Δ directly harmed Π in causing the owners emotional injury);from b) the loss of companionship in these cases (arises from the Δ destroying the owner‘s property, the pet, and from the owner‘s utility loss of that property-the companionship)
VII.BENEFIT TO Δ AS THE MEASURE OF RELIEF: RESTITUTION A. RESTITUTION OVERVIEW 1. Trying to prevent unjust enrichment of the Δ –when Δ benefits by wronging the Π at the Π’s expense a) Focus is on the Δ‘s gain, not the Π‘s loss b) Claim for unjust enrichment when a benefit has been conferred upon the Δ by the Π with the expectation of payment, the Δ has knowledge of benefit, and if we allow Δ to retain benefit, under the circumstances, it would be unfair to the Π. 2. Mistake (Blue Cross) Innocent Δ but unfair to leave benefit a) Exception: Δ changed position b) Voluntary uncertainty is not mistake c) Equity and good conscience 3. In contracts, if there is a contract, you are bound by the contract a) Quasi Contracts b) Emergencies c) Paid Judgments that have been reversed d) As remedial choice plaintiff may have cause of action but may choose to elect a restitutionary remedy (Olwell) 4. Measuring restitution: a) look to the gain to the Δ (Anderson, AWC) was it the value of the services or the increased value of the car after the services? different ways to calculate gain to Δ b) when you have conscious wrongdoers, then you have disgorgement of profits such as fraud-because Δ deliberately bypassed the market (Olwell) 5. Apportioning profits gained by wrongdoers (Sheldon) a) two levels: figure out what the profits are, (2) Π has the burden of showing the gross receipts from the product, and the Δ has the burden of identifying the expenses to arrive at what the actual profits are—overhead expenses-must determine which of those expenses can be attributed to the infringing product. Then Δ has to determine a fair formula (Hamil-could be based number of products, % of sale of that infringing products, etc.) b) Once you have total profits then you ask how many was because of infringement and how much was due to other factors? c) percent attributable to wrong (e.g., savings of expense-how much would have paid someone to write screenplay) (1) Hypo: you can even get consequential damages from infringement-Vegas show and hotel 6. Rescission (numerous grounds): puts party in position before the contract was made a) grounds: fraud, mutual mistake, unilateral mistake not relied upon, undue influence, duress, and substantial breach that defeats the purpose of the contract b) must cancel contract and reverse all that was exchanged and put everyone back in the position before contract
7. constructive trusts a) fraud or bread of fiduciary duty, must be able to trace money to an identifiable asset and the purchase of that asset with the money that was taken. b) Idea is Δ never owned that property so it‘s really your property; simplifies measurement, gives you preference over other creditors 8. Tracing a) Direct tracing-when all stolen assets placed into one thing-presumption is always against Δ. 9. Equitable lien a) need to have an identifiable asset, used to improve the asset, it gives you a preference over other creditors. B. Restitution from Innocent Defendants—and Some Who Are Treated as Innocent 1. Blue Cross v. Sauer (Restitution-Mistake) a) Facts: (1) Sauer was admitted to the hospital didn‘t have insurance card with him and gave his address, the wrong individual‘s insurance came up and Blue Cross accidentally sent 66 separate checks to William Sauer totaling 22K. (2) The checks were being sent to his father‘s company and some were deposited to his account (3) When Blue Cross realized the error, they sent a demand letter to Sauer who didn‘t comply. b) Precise Claim that Blue Cross brought: (1) ―money had and received‖ –term of art (I sent the money to you by mistake). This is a form of quasi contract. (a) Also includes money paid upon consideration which happens to fail; or for money got through imposition, (expressed or implied;) or extortion; or oppression; or an undue advantage taken of the plaintiff‘s situation, contrary to the laws made for the protection of persons under those circumstances. (2) Grounds for unjust enrichment was mistake (3) Plaintiffs didn‘t want a jury c) Defendant‘s Argument: (1) Defendants wanted a jury and argued case should be transferred to the law division saying that Plaintiffs weren‘t entitled to constructive trusts, just restitution because the claim ―money had and received‖ was a writ had in a court of law. (2) Attempted to argue in the alternative that plaintiff couldn‘t get the ―money had and received‖ because there was a change in circumstance/position:
(a) Must show that you relied on that money and used it for something else and would be significantly prejudiced if ordered to return. Defendant had problem with this argument because it was clear that they weren‘t supposed to receive this money in the first place so couldn‘t have relied on it. All 3 Δs knew that someone else had a claim to the checks. Notice requires only knowledge of facts sufficient to make it reasonable to conduct a further inquiry that would have revealed the truth. (b) A recipient who uses a mistaken payment to make a losing investment may have changed position, while one who merely repays a preexisting debt has not, because there is a loss in the first case but not in the second. d) Holding: (1) Court says that even if the mistake was due to lack of care, it does not prevent Π from seeking a claim for unjust enrichment. e) Analysis: (1) Plaintiff‘s somewhat negligence and Δ‘s somewhat culpability did not really factor into this decision. (2) If Π brought a suit for conversion against the father, the remedy they would be seeking would be damages—so you would look at what the loss is and the Δ would have to compensate for loss. Since they are seeking the unjust enrichment claim, the remedy that they are seeking is restitution—plaintiffs wanted a constructive trust upon the funds. f) Constructive Trust is a special form of restitution: (1) It is purely an equitable remedy which means that there is no jury. Specific terms for claims become important for jury trial and determining whether it would go to a court of law or equity. (a) Problem with plaintiffs request for constructive trusts is that you need an identifiable specific property or identifiable dollars within a particular account which they could not point to since defendants had spent some or all of the money. Blue Cross sought no such thing, it sought a simple money judgment in restitution to be collected from defendant‘s general assets. g) Difference between damages and restitution in this case: (1) Damages would be 22K, but for restitution you have to look to the amount actually received. Since checks were being sent to son for his benefit he would be liable for the full 22K but father and company would only be liable for the amount they actually received. h) Rule: (1) The key is keeping a focus on WHAT IS THE UNJUST ENRICHMENT/WHAT DID THE Δ GAIN??? Don‘t focus on the loss.
(2) A payor who pays money to another by mistake is entitled to restitution from the unjustly enriched payee even when both the payor and the payee share in the underlying mistake. i) Blue Cross Aftermath: (1) After trial court denies right to jury and finding for Blue Cross, a new trial was granted with the condition that they should have a trial. On appeal court said that they couldn‘t get a constructive trust can only get restitution so they should have had a jury in the first trial. But then court determined that there was no reason for jury because there was no disputed facts for jury to determine so it should have been a directed verdict for plaintiff. 2. Restitution Explained a) Unjust enrichment generally describe the benefits that defendant has received and also the cause of action to recover those benefits. b) Restitution may mean either the cause of action or the remedy. (1) Restitutionary Remedies are generally based on unjust enrichment, ―restitution‖ is also applied to some older contract remedies that predate the modern usage and the association with unjust enrichment. Restitution is a synonym for restoration. (2) Restitution should be thought of as a way to make plaintiff whole or restore a previous status quo. (3) Measuring Restitution: (a) Rest. 3rd says that interest should run against an innocent recipient from the date she had notice of plaintiff‘s rights. (b) Where a Δ is entitled by a money payment, the primary measure of restitution is the resulting increase in the defendant‘s net assets, e.g., payment of 1K will increase net assets by 1K (i) Exceptions: (ii) Mistaken payment of another’s obligation (a) City mistakenly assess Neighbor for the taxes of another owner‘s property. Neighbor pays 5K to city. Owner proves taxes should have been 4K = Neighbor has restitution claim against City for 5K and for Neighbor for 1K (since that was the amount that City overcharged). (b) Buckett v. Jante: Neighbor paid owner‘s taxes for 25 years and Owner defended on the ground that he also paid the taxes because the City double billed, and that his land had been over assessed.
(i) On the double-billing recovery theory, only the City is unjustly enriched; Owner has no enrichment at all. 3. Grounds for Restitution: a) Grounds for a claim of Restitution (1) Paying money that you don‘t owe (2) Paying more than you owe (overpaying) (a) If you paid aware of the uncertainty—the law assumes that you took the risk (voluntary payment rule) b) Mistake is a large source of restitution litigation and a general right to recover benefits conferred by mistakes is given. c) For a restitution plaintiff claiming mistake, it is best to have been totally clueless. If a person is aware of some uncertainty and pays anyway, she‘s not making a mistake; she‘s knowingly taking a risk or settling a dispute. (1) If two parties settle their dispute without perfect knowledge of all the facts, the typical situation in most settlements is that neither side can later claim mistake when some new fact is discovered. d) Equity and Good Conscience: Unjust enrichment is defined in broad discretion to courts and greater flexibility to deal with unique cases involving existing rules and changing social norms: (1) E.g., In cases of long term married couples whose finances may be entangled as those of married couples, but who are not protected by family law and who rarely have a contract, courts may deny any recovery as a way of encouraging marriage, but once that policy is abandoned, unjust enrichment is a more honest and workable explanation of recovery than straining to find oral or implied contracts. e) Preference for Contract: (1) Restitution is generally unavailable to a claimant who should have made a contract with the recipient but failed to do so. Thus, one who has an enforceable contract is bound by the contract‘s terms. Today‘s court would require plaintiff to sue on his contract. But, if you have non-binding contract, but you‘ve partially performed under the contract then you have a quasi contract claim and can sue for restitution. f) No forced Exchanges: There is a strong presumption against forcing an innocent defendant to pay for benefits she never requested and might not want. (1) However, in an emergency if Δ acts in a way to help you, person may be bound to pay for the enrichment. g) Joint Obligations ??? (1) Contribution (tort) (2) Indemnity (contract)
(3) Subrogation (insurance context—paying money received back to insurance company if you get two recoveries for the same injury) (4) Cooperatives (plaintiff that jointly owns property with other people) 4. Somerville v. Jacobs: a) Facts: (1) Somervilles erected a warehouse on lot 47 thinking it was lot 46 which was their lot. After the building was completely erected, the mistake was realized. The value of the lot without the erection was 2K. b) Issue: (1) Where a person innocently and mistakenly builds improvements on the land of another, who lacks knowledge of the mistake until after completion may the innocent party have restitution in order to prevent the unjust enrichment to the landowner? c) Holding: (1) Court gave the Δ two options: keep building and pay the plaintiffs the increased value for the property and retain it OR received 2K from plaintiffs which was the actual value of the property before the warehouse was erected. (2) Majority thought the plaintiffs were innocent because the relied on the surveyor. (3) Dissents problem with the alternatives was that it was similar to private eminent domain. d) Rule: (1) Where a person innocently and mistakenly builds improvements on the land of another, who lacks knowledge of the mistake until after completion, in order to prevent the unjust enrichment of the landowner, the innocent party may have restitution. 5. Mistaken Improvers: a) Most modern courts have held as in Somerville that the statutes do not preclude a common law or equitable claim in restitution in cases outside the scope of the statute, and most courts are now willing to grant such a remedy. b) Distinguishing improvements from Encroachment: (1) In encroachment cases, there is no unjust enrichment. If the footings of a building extend a few inches over the property line, as in Hilander foods, there is no benefit to the neighboring landowner. The footings are useless to the neighbor, and the only issue is whether the encroacher must remove the footings or pay for the right to keep them where they are. c) Forced Exchanges:
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(1) When a removal is not possible, the general principle against forced exchanges come under great pressure. The loss to plaintiff and the corresponding benefit to Δ are often so large that is has seemed intolerable to refuse any remedy but court must also weigh plaintiffs autonomy when deciding whether to grant or deny relief. Problems with forced exchanges: (1) Δ may not have the resources to pay for the increased value in order to retain property (2) Autonomydon‘t want (3) Valuation cost of building/fair market value of building (have to go by FMV because that reflects the actual value of the property—not what the plaintiff paid to build or how much they spent) The buy-sell remedy (unique judicial response): (1) The court sets the values on the land and the building and then the innocent landowner gets to choose whether to buy the building or sell the land. He gets a choice of which forced exchange to accept but in actuality this is a forced exchange. Gaps between cost and value: (1) Often in these cases, the improvements are not worth what it costs to build them. The benefits will be valued at what they cost or what they are worth, whichever is less. But, where the defendant is not innocent, the benefits will be valued for the cost or value whichever is greater. Comparative Fault (1) The Improver: (a) Where the remedy requires a forced exchange, courts are more interested in just how careless the mistaken improver was. (b) The cases are fact intensive, but in general, a plaintiff who builds despite actual notice that she might be making a mistake will not recover; a plaintiff who only has constructive notice—such a finding in land records that she neglected to check—will not be barred on the ground that the mistake was her fault. (2) The Owner: (a) Hard bargaining and insisting on their property rights is not a legal wrong. It is sometimes hard to tell whether the owner is cynically taking advantage or genuinely attached to the property. (3) Knowing Misconduct: (a) The improver who knows he is building on someone else‘s land will get no remedy. An innocent improver will get a much more generous remedy against an owner who knows what is happening and says nothing hoping got get a free warehouse.
(b) In cases of innocent defendants they have done nothing wrong, but for wrongful defendants there are 3 categories: (i) The basic wrongdoer (someone who just engages in misconduct—which is defined broadly meaning that they interfere with claimants interests that is tortuous and leads to liability) (ii) The unreasonable wrongdoer (more at fault— reckless) (iii)The conscious wrongdoers (notion that you‘re not only guilty of misconduct but you acted with notice of the underlying wrong—almost the intention to behave in a wrongful way) (iv) Damage awards go up as you go from basic wrongdoer to conscious wrongdoer h) Relative Hardship: (1) The hardships at issue are not just a matter of money. The uses of the land and the parties‘ attachment to it can also matter. A forced exchange of raw land held for investment (e.g., empty land unlikely to induce significant hardship). 6. Other Grounds for Restitution a) Emergencies: (1) One who reasonably provides essential goods or services in an emergency is excused form not securing a promise to pay in advance, and so may sue for unjust enrichment. Law presumes Δ would‘ve wanted emergency assistance. b) Saving Life: (1) The benefit in these cases is measured by the market value of the treatment, whether or not successful, and not by the value of the life saved or the pain and suffering avoided. c) Saving Property: (1) If one intervenes in an emergency to protect property, the value of the benefit is the value of the services or the value of the property damage avoided, whichever is less. The benefit to a property owner of saving his property cannot be more than the value of his property. d) Performing another‘s duty to a third party: (1) People who use their own money to pay a family to pay a family member‘s bills during that person‘s final illness, or who pay the funeral expenses , sometimes have to sue ungrateful representatives of the estate in restitution to get reimbursed. (a) E.g., Schmidt v. Mutual Hospital:
(i) Sick pregnant woman and husband refused to seek medical treatment. Was forced by Sheriff to go to hospital, husband emphatically told hospital they didn‘t want to be there and had no insurance and would not pay. Court held that the wife could refuse treatment for herself, but not for baby, a were obligated to pay. Given the emphatic refusals to agree to pay for treatment, there could be no real contract, either express or implied. The liability was in restitution for the reasonable value of the services. e) Joint Ownership of Property: (1) An co-owner who pays necessary expenditures for property has a claim in unjust enrichment for the others‘ proportionate share. But she has no similar claim for discretionary improvements to the property. This is the principle of no forced exchanges; the coowners might not have wanted the improvements. f) Not Neighbors: (1) There is no such claim when work on plaintiff‘s own property confers benefits on a neighbor even where the cooperation would be the norm. C. Measuring Restitution from the Innocent—and More Restitutionary Causes of Action 1. State v. ANW Seed Corp (Court Orders Later reversed) a) A default judgment was entered and defendant‘s attorney resigned. Δ appealed but didn‘t execute a supersedous bond (money that you put up to delay the collection of the judgment by making Δ put money in place just in case he loses appeal). If you don‘t put the bond up then Π can obtain a writ of execution ordering the Δ to pay the judgment. So Π in this case sought a writ of execution which seized some of Δ‘s property and sold at auction for 16K. b) 6 months later the Δ won appeal and filed for restitution to get his property back. Claim: Money paid pursued to order of a court (for exam purposes not necessary to know name of writs—can call it restitution or quasi contract, etc.) c) Need to look at the benefit incurred-Δ wants his property but since it was sold to 3rd party who purchased in good faith for proper value is rightful owner of property. So Δ then asked for the value of the property received AND loss income resulting from the seized property. Wanted loss income because he loss income from farm being taken away/crops. d) Court said you don‘t get consequential loss because focus in on defendant‘s gains not plaintiff‘s losses. So if Δ never gains, it is irrelevant to restitution. Can‘t throw damage element into restitution.
e) The trial court estimated the fair market value at 57.6K but it was sold for 16.5K, since the defendant only received 16.5K plaintiff can only get that. (1) Also for policy reasons this was an innocent defendant—when judgment issued they simply enforced it and received the money through auction, wouldn‘t be fair to make them pay more than they received. (2) This is also fair because plaintiff had opportunity to post supersedious bond and failed to do so. If court allowed plaintiff to receive the FMV then the purpose of the supersdedious bond would be nullified. f) If unjust enrichment is based on mistake you can‘t pay based on uncertainty, so if paying in the face of uncertainty of appeal—it‘s viewed differently. Should have obtained the bond to protect his interests. g) Rule: When a judgment creditor executes on an unsuperseded judgment that is later reversed on appeal, having collected money in good faith and upon a proper sale of the property seized prior to reversal, the judgment debtor is entitled to restitution as measured by the judgment creditor‘s recovery of proceeds from the underlying sale. 2. Court Orders Later Reversed: a) The Cause of Action: (1) Money paid or collected pursuant to the order of a court or administrative agency, subsequently vacated or reversed, must be refunded. Profits earned under the protection of an injunction later reversed are also subject to restitution. b) Voluntary payments: (1) A judgment debtor who forgoes any appeals and pays the judgment is bound by that choice. But, when a judgment debtor pays and simultaneously appeals, it is plain that the payment is not intended to be a final resolution of the dispute. c) Compulsion: (1) No one would pay a judgment pending appeal apart from coercive effects of the judgment. The judgment debtor typically wants to prevent the seizure of her property, or sometimes to stop the accrual of interest. Anyone with enough money to pay the judgment could post a supersedeas bond instead and the bond is a safer choice because the judgment creditor might dissipate the money so that the later judgment in restitution can never be collected. (2) Any payment made in response to a judgment is treated as a payment made under compulsion. d) Restitution and Damages Again: (1) Execution sales (auctions) rarely bring a fair price; lots of value is lost in the process, and someone must bear that loss. The buyer at the auction is protected so it is too late to retrieve the goods. So recovery is limited to the enrichment.
e) Formulating a general rule: If Δ committed a tort he is liable in damages, not just restitution. If he is innocent, he is liable only in restitution, even if Π‘s damages are much greater. 3. Unenforceable Contracts and Quantum Meruit (LEGAL restitutionary remedy NOT EQUITABLE): a) Anderson v. Schwegel: (1) Facts: (a) Anderson (car owner) asked a garage owner to restore and repair his vintage car. The parties agreed upon a price for the work, albeit each with a different understanding of the services to be performed. The work proceeded and, with the car owner‘s approval, the cost increased. Upon completion of the restoration, the car owner refused to pay the increase in the cost of the services rendered. Anderson thought total was supposed to be 6K (b) Most states have statutes regarding the ability to get a lien on the property for the amount of work you are doing. So worker has lien on car until Anderson pays for it. (2) Claim: (a) Anderson sues to get his car back.—Breach of contract claim (3) Issue: (a) Misunderstanding of contract—Anderson thought it was 6K flat, worker intended HIS work to be 6K which didn‘t include cost of third parties and parts. (b) How much should Schwegel have to pay to get his car back? 6K or 9.8K? (4) Analysis for Measurement: (a) Need to look at Anderson‘s benefit which would seem to be the increased value of the car after Schwegal‘s work. (b) Ways to measure increased value of car: (i) How much work did you put into it—if you spent 9.8 to improve the car that‘s how much it would be (ii) If you just focus on the car—you have to get an appraisal of the car before the work was done, and then an appraisal after the work, and then look at difference. (5) Holding: (a) The measure of restitution in a quasi-contractual matter: (i) Where services have been rendered for the mistaken improvement of property and when such services were requested and agreed to by the property, is the reasonable value of the services conferred.
(b) No Contract Existed (i) When you have a misunderstanding—there is no meeting of the minds and therefore—No CONTRACT (ii) Since there is no contract, there is no legal claim for damages so need to file an equitable claim for quasi contract (aka quantum meruit)—thought you had contract but you didn‘t so you make one up. (c) Notice (i) The fact that Schwegal forwarded the invoice that showed more than 6K that could‘ve changed the ultimate decision—it showed that Anderson had NOTICE that fee would be greater than 6K before all the work had been done and didn‘t say anything. So Anderson appears more at fault than Schwegal since Anderson didn‘t say anything. (6) 3 Scenarios: (a) What if problem was void for statute of frauds—for contracts that are voided, the agreed price is preferred. (b) What if Schwegal worked on wrong car and improved Anderson‘s car by mistake—roles are reversed and Schwegal is more at fault so it would be the lower of the two but still must show that he‘s responsible for paying for the unjust enrichment. (c) Neri case—put down payment that was in excess and went into hospital—restitution case-had an enforceable contract where Π partially performed and then breaches. So breaching party has claim for unjust enrichment because their partial performance is in excess of what the nonbreaching party damages are for breach of contract. b) Measuring Restitution from Innocent Defendants: (1) Unenforceable contract? Or not Contract at all: (a) Performance of a supposed contract that turns out to be unenforceable for some reason is a commercially important source of restitution claims. A contract may be unenforceable under the statute of frauds or for indefinites, or discharged for impossibility or frustration. The contract maybe be illegal. One of the parties contracting might have lacked legal capacity. (2) Enforceable Contracts:
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(6)
(a) A plaintiff who is compelled to do more than the contract requires can recover for the extra work if she performs under protests. And a plaintiff who partly performs and then breaches is generally entitled to credit for what he paid of for the value of work performed, including a claim in restitution if the value of what he has done without pay exceeds the damages he has caused by his breach. Here, there is an enforceable contract, but the party in breach has no claim on that contract, her claim would be in restitution. (b) A contract implied in fact is a real contract inferred from the parties‘ words or actions but often lacking a price term any more specific than a reasonable price or the market price. (c) A contract implied in law is a quasi contract where the attempt to make a real contract failed, and no real contract can be implied in fact, because there was no real agreement on the price, either expressed or implied. So the claim cannot be in contract, it can only be in restitution.— Anderson Quantum meruit: (a) The phrase means ―as much as he has deserved,‖ and that amount is typically measured by market value. Quantum meruit is a measure of contract damages when there is an enforceable contract without a specific price term; it is a measure of restitution when there is no enforceable contract. Restitution for Services: (a) Services are unique because they can‘t be given back. If the contract is illegal, the courts must take care not to undermine the reasons why the contract is illegal. (b) A person who did not participate in the failed transaction is obviously differently situation than one who participated and asked for, or acquiesced in, performance of services (Anderson). (i) In the case of Anderson, it matters that he requested the work because it eases the problem of forced exchange, we know at least this is something he wanted, but we don‘t know if he would have wanted it if he had known it would cost $9,800. The Role of Request: (a) Requesting the work without knowing the price is proceeding in the face of uncertainty; requesting the work when you believe without doubt that it will cost 6K is a mistake. Measurement of Enrichment:
(a) There are 5 potential measures of restitution for benefits conferred in a form other than money: (i) Conscious wrongdoers Measure of Enrichment: (a) Conscious wrongdoers are liable for the net profit attributable to the underlying wrong. This includes use value of the property taken, proceeds from the sale or exchange of the property taken, and consequential gains. (ii) Innocent Defendants Measures of Enrichment: (a) the cost to plaintiff: sounds like plaintiff‘s damages, not defendant‘s gain but often the cost of services and materials provided is roughly equivialent to the value of the benefit conferred, and the cost of the services and materials provided is susceptible to proof at trial, whereas the value conferred is not. (b) the market value: would be applied to cases of emergency intervention to save life or health (c) an agreed price: if the contract is unenforceable because of some formal defect (statute of frauds) the price term is a good measure of value (d) or the value in advancing the purposes of the defendant: demonstrable value to the recipient, given what we know about the recipient‘s situation. Sometimes it is clear that a benefit with substantial market value is worth little or nothing to the recipient. D. Recovering More Than the Plaintiff Lost 1. Olwell v. Nye (Egg machine-disgorging profits of conscious wrongdoers) a) Δ borrowed egg washing machine and used it in his egg packing business without knowledge and consent of plaintiff once per week for three years. Π discovers this and offered to sell machine for $600 (half of its original cost from when they originally bought it). Δ thought that was way too much and offered to buy for $50. The original cost of the machine was $1200. b) Π sues Δ and has three potential options for suit-for all three it‘s a choice of the remedy for the plaintiff to pick: (1) He could bring suit for replevin (if he wants the egg washing machine back)—he doesn‘t want the machine back
(2) He also could have brought a tort action for conversion (once you have a wrongful Δ you almost always have a tort action against them)—as a practical matter would get $0 but under the exclusive use notion you have a right to have property and not use it—so at the very least he lost his exclusive use (a) To measure value would have to assess what a typical market value be if there was a contract to use the machine during these times—what would a reasonable person pay for it? You can look at the rental value by assessing other egg washing machines and calculate that over the time he used it; could also look at the value of the machine itself if he would have sold it—so under the sell value Δ would keep machine. amount would have been between $50-$600. (3) He decides to go for unjust enrichment claim under a quasi contract theory (equitable claim) (a) Court calculates the defendants gain by using amount of money saved by not having to hire people to wash by hand. So estimated labor costs and the savings which was estimated to be $10/week multiplied the number of weeks that they used it (156 weeks). Total: 1,560 (reason why Π went for unjust enrichment because you get the most under this claim) c) Causation: taking the egg machine didn‘t cause the benefit, USING it did. This led to a profit that he received off of the machine. So always need to assess the cause of the benefit. d) From an economist standpoint; would make since to use a machine that Π was not using but still want to encourage voluntary transactions or else people would never make contracts allowing people to bypass the market. So even under their theory Δ would have to pay $1,560 ($1200 would be deterrent to keep Δ from committing same tortuous conduct). e) Disgorge all profits that Δ‘s received at the expense of the Π, may seem like a windfall to Π but it is irrelevant to look at what plaintiff gets in unjust enrichment—so will almost always go for unjust enrichment when the Δ profits more than the Π‘s damages because you get more. (1) would be different if there was an oral agreement (innocent Δ ); used wrong machine (mistake) (2) Equities are completely different when you have a conscious wrongdoer f) Rule: Where a wrongdoer is consciously tortuous in acquiring a benefit at the expense of the injured party, the injured party may recover not only his actual losses but the tortfeasor‘s profits as well. 2. Recovering More than Plaintiff Lost I a) Punitive? (1) Restitution is not meant to be punitive but it feels punitive in some cases.
(2) The law in seeking an adequate remedy for the wrong has been forced to adopt profits received, rather than damages sustained, as a basis of recovery. The reason is that a wrongdoer shall not be permitted to make a profit from his own wrong. b) Tort Claims v. Quasi Contract Claims: (1) Always remember that the Statute of Limitations for tort claims are a lot shorter than quasi contract statute of limitations c) Law and Economics: The economic preference for voluntary transactions helps explain restitution in economic terms. Defendants committing intentional torts should have negotiated a license and should be deterred from infringing. d) Wrongful Acts with no Benefit: (1) Many wrongful acts do not benefit the wrongdoer. A reckless driver may inflict great damage, but he does not profit by his wrong, and his victim can sue only for damages. e) Bilateral monopoly: this is a situation where plaintiff and defendant have no one to deal with but each other. This greatest risk in these situations are high transaction costs—that deals will fall through even though both sides would have benefitted. This law was really committed to making sure resources are moved to their most valuable use—it makes restitution a hard solution to argue. Alternatively, where transaction costs are truly low, theories of corrective justice and theories of economic efficiency can both explain a wide range of restitution cases. f) Disgorgement: Always refers to an award of profits that exceeds the market value of what was taken from plaintiff (1) Defendant‘s Enrichment must always be at plaintiff‘s expense—without that requirement, any human on the planet could sue for defendant‘s enrichment. (2) This requirement is easily satisfied when a plaintiff can show that defendant used its property to earn profits. 3. The Causes of Action for Restitution Against Wrongdoers a) Wrongdoers: (1) Misconduct: mean an interference with the claimant‘s legally protected interests that is tortuous or otherwise wrongful and that leads to liability in restitution. This includes: (a) Fraud (b) Opportunistic Breach of Contract (c) Trespass and Conversion (d) Infringement of IP b) Conscious wrongdoers and defaulting fiduciaries: (1) A conscious wrongdoer is a person guilty of misconduct who acts with notice of the underlying wrong. Notice requires only reason to inquire further. Disgorgement of net profits is available against a conscious wrongdoer and a defaulting fiduciary without regard to notice or fault.
c) Intermediate Category where action is not illegal but actors are substantially responsible for their own enrichment: (1) Recipient is at fault if she was more negligent than the restitution plaintiff, if she breached an enforceable or unenforceable contract, if she innocently or negligently misrepresented something if she unreasonably failed to avoid receiving the unjust enrichment despite notice and opportunity, or if she acted reprehensibly or in bad faith, and this fault is a principal cause of the transaction by which she was enriched. 4. Maier Brewing Co v. Fleishchmann Distilling Corp (beer and whiskey).: a) Π distributed ―black and white‖ whiskey under their label which was trademarked. Δ sold similar product and called it black and white. Π sued Δ for infringement. Court ordered an injunction and awarded $34,912 (defendant‘s profits) and $29,849 (from grocery store profits that sold the beer) b) There wasn‘t much discussion on damages because there was a lack of competition (two different products beer and whiskey) (if you cant prove that people weren‘t buying whiskey because of Δ then you have $0 in lost sales)—DIRECT DAMAGES c) Reputation/Goodwill (had to prove that people purchasing the beer that they thought it was the manufacturer of the whiskey and purchased based on Π‘s reputation)—INDIRECT DAMAGES(this is very hard to prove that reputation was harmed because it‘s very speculative and hard to measure) d) Exclusive Use (Π has a right to exclusive use of its trademark)—in injunction case this is used as reasoning to issue injunctions and for restitution cases this is used to give profits. e) Court said you get all the profits from the use of the trademark OR fair market value—similar to a royalty to use the trademark If This Is Greater Than The Profits That The Δ Received From The Sell Of Their Beer.— doesn‘t matter if some people bought the beer because they liked it because that would be too hard to determine. (1) When you have competition and only two competitors you can look at loss profits and assume that the infringer caused that, but this is hard to connect when there is no competition between the parties. f) Statute changes the burden between Π and Δ, saying that Π only has to show the sales that Δ made and it‘s up to Δ to show the costs in the production that you can take away from the profit. g) Even though there were two defendants the plaintiff is able to recover from both because its restitution and the focus is solely on the GAIN so doesn‘t matter how many people are involved can go after all of them and get their profits. –this is why plaintiffs select restitution awards in these situations rather than damages because it isn‘t deemed to be a windfall because the focus is on the gain.
h) Rule: In an infringement action under the Lanham Trademark Act, the plaintiff may, if successful, recover defendant‘s profits even if the defendant was not in direct competition with, and therefore not diverting any trade from, plaintiff. 5. Recovering More Than Plaintiff Lost II a) Remedies for IP: (1) Trademark: infringers are liable for all their profits, but the court has discretion to award more or less than that. (2) Copyright: infringers are liable for all damages plus all profits not taken into account in computing the actual damages. (3) Patent: infringers are liable only for damages, in no event less than reasonable royalty. But the court may award up to three times the actual damages (like punitive). (4) Trade secrets: allows both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss. (5) Reasonable royalty and other measures of market value: this is the market value of a license to use intellectual property b) Jury Trial: There would seem to be a right to jury trial in accounting for profits in federal courts and states that follow the federal rule, but accounting for profits ends in an ordinary money judgment so some courts allow jury trials. (1) Accountings against express trustees and other fiduciaries are generally tried without juries because they are in equity. E. Measuring the Profits 1. Sheldon v. Metro-Goldwyn (copyright play and movie): a) MGM produced a movie that was based on Δ‘s play b) Trial court granted petitioners all the net profits made by respondents form their showings of the movie, amounting of $587,604.37. c) The appellate court reduced this award d) S. Ct. Analysis: (1) The court looked to the copyright statute to determine whether to disgorge all profits or a portion. The statute says that you should get the damages and all profits that Δ has made from such infringement. This is to prevent unjust enrichment—not trying to punish the Δ just want to make sure you remove all profits. The policy is because the Δ mixed legitimate activity with the illegitimate activity you want to parse that out. (2) Court finds the story line is just part of what goes into making a movie. So need to figure out how much use of the story line contributed to entire profit. Appellate court awards Π 20% of the net profit.
(3) Court finds that performers, producer, director, are other components that contributed to MGM‘s profit. There was a need to identify the infringing elements in order to determine the proper apportionment. e) Rule: A court may apportion profits in a suit for copyright infringement based upon the actual use of the copyrighted material in the production of the revenue. 2. Apportioning Profits a) The problem of apportionment: There are multiple calculation issues in these cases. There is more than one way to apportion, and the method used often depends on what evidence is available. When no evidence is offered sometimes courts are unwilling to make estimates without expert guidance. b) Apportionment by Sales: Supreme Court held that Δ need not account for profits from sales to consumers who were not confused by the mislabeling. But Δ bore the burden of proving how many such consumers there were. The Court recognized that this burden is as often as not impossible to sustain. 3. Hamil v. GFI: a) Facts: GFI copied Hamil‘s copyrighted floral fabric pattern and manufactured which was sold by JC Penney. The Δs were found to have deliberately copied and infringed Π‘s copyright. b) Issue: The court said 100% of profits made off sale of that fabric was because they infringed the copyright because people purchased that solely because of the pattern. This is different from Sheldon where people went to see movie because stars and production, etc. c) Two step approach in judging the deduction of overhead expenses from an infringers profits. This approach must be applied with particular rigor in the case of willful infringement. (1) The infringer must demonstrate a sufficient nexus between each expense claimed and the sale of the infringed goods. The court should not provide a deduction of overhead expenses to willful infringers unless each category is directly and validly connected to the sale and production of the finished product (in Sheldon had to figure out what portion of profit came from actors, producers, etc.—How many tickets sold for that movie) (in Hamil, Π has to show gross sales from the infringing product.) (2) Next, the infringer must propose a fair and acceptable formula for allocating a portion of overhead expenses to the infringed items (in cases, issues were which of the cost the Δ actually pays out and how much you can contribute to the particular infringing pattern or movie. (rent, heat, employees etc.) d) Another way to determine the amount is to determine how much you would have paid for someone to write the screenplay. Could use information based on screenwriters pay and time.
e) Rule: A defendant found liable for willful copyright infringement may exclude an allocation of general overhead expenses in calculating its profits on the infringed product. 4. Receiving Consequential Indirect Profits: a) Δ released statement to its stockholders that ―their hotel and gaming operations continue to be materially enhanced by the popularity of the hotel‘s entertainment including Hallelujah Hollywood‖ which came from Π‘s musical show. Court gave Π‘s profits from the show, hotel, and casino. 5. Calculating Profits: a) The courts may apply such tests of causation and remoteness, may make such allocation, may recognize such credits or deductions, and may assign such evidentiary burdens, as reason and fairness dictate, consistent with the object of restitution. Restatement Third § 51 b) Taxes: The federal rule is that conscious wrongdoers cannot deduce the taxes paid on the profits they disgorge. Reasoning is that defendant will get a tax deduction when it pays the judgment; a deduction in calculating the judgment would be double counting for taxes. (1) There is a circuit split as to the treatment of income taxes in calculating the profits of nonwillful infringers. 6. Burden of Proof: a) Defendant has the burden of proving its costs. Plaintiff at least has the burden of showing gross receipts from the infringing product, not gross receipts from the whole enterprise. F. Contracts 1. Seven questions that may be encountered in contracts: a) Was there an agreement? b) Is there a reason the agreement shouldn‘t be enforced c) Looking at the fact pattern did each person do what she agreed to do? d) Is there any excuse for not doing what you agreed to do (these are based on facts occurring after the time the agreement is entered into that may excuse the other person from performing e.g.: (1) improper performance which excuses only if it rises to the level of material/substantial breach) (a) material breach is limited to common law contracts (2) anticipatory repudiation: when one of the two contracting parties unambiguously indicates that he is unable or unwilling to perform, this is indicated before time to perform-this would excuse your nonperformance but it must be an unambiguous indication 2. May v. Muroff (sold some of property after buyer purchased): a) Seller improperly sold fill from the land in question to a third party for 240K. The purchaser alleges that it is owed the 240K received from seller. The difference in the cost of the land before and after sell was $122K (the proper assessment of damages is the difference between the value of the land before and after the injury).
b) Court said the breach was deliberate and Δ shouldn‘t be permitted to profit by his own wrong and enjoy a windfall profit of $117K. Purchaser is entitled to the fruits of this wrongfully received windfall so should receive 240K not 117K. c) You can get rescission for material, substantial breaches of contract.— Would removing 25 acres be deemed enough to qualify as a substantial enough breach? d) If you can prove an inadequate remedy at law is also when you can get specific performance (e.g., Campbell Soup) (1) The specific performance Explanation: A buyer of real estate is entitled to specific performance. If suit is filed in time, buyer can compel a conveyance before seller could remove the fill. Then, if he wanted, he could have sold the fill for 240K e) Rule: A consciously wrongful breach of contract by the seller of real property entitles the purchaser to disgorgement of the seller‘s illegally obtained profit. 3. Snepp Case: a) Facts: Man who worked for CIA wrote a book but didn‘t pass it through their review group, but they couldn‘t prove that it disclosed anything problematic but since he failed to go through the process. The review process was their only way of verifying that sensitive information doesn‘t get disclosed. b) Holding: Court disgorged all profits because secret info was made public which is something that can‘t be adequately remedied. c) DisgorgementThe deliberate breach that results in profit to the wrongful party and the damages are inadequate at law. d) Generally, you don‘t get punitive damages for breach of contract (may be some exceptions but Schaffner not sure). 4. Disgorging the Profits from Breach of Contract: a) A breach has to be profitable or the question of disgorgement does not arise. Profitable breach is designed straightforwardly as a breach leading to gains, net of potential liability in contract damages, greater than the breaching party could have earned by performance. § 39 b) Efficient Breach: The economic justification for disgorgement of profits is that it forces defendants to buy what they want in voluntary transactions. c) The Assumption of No Disgorgement: The law has not generally viewed breach of contract as sufficiently wrongful to support disgorgement. If disgorgement is to be available in contract, you would have to distinguish consciously wrongful breaches from breaches that were unintentional, unavoidable, negligent, arguably justified and so on… 5. Mobil Oil v. US (rescission):
a) Government made certain promises to Mobil giving them the rights to explore or develop oil off coast of N.C. told them that they would give them certain opportunities to get the proper permits to do the exploration but they still had to comply with the legal statutory requirements. Mobil paid 156M for these rights to explore. In the meantime Congress enacted a statute that precluded Government from entering into such contracts and as a result the government breached the contract. b) Mobil wants rescission—they want their $156M back. c) The government argued that Mobil was never really damaged because they could have never met the requirements under the existing law/contract but court says this is irrelevant. d) Court says that it was a total breach and as a result it was a substantial breach which is the grounds for rescission. Court doesn‘t care whether Π is really damaged or not. Once you rescind the contract, you‘re not relying on it anymore so the fact that Π can‘t prove damages doesn‘t matter. So it was best choice for Π to seek rescission instead of damages here. (Classic example of using rescission over damages—when you realize that you entered into a really bad contract). e) Rescission is deemed as being a minimal remedy—putting everyone back in original position prior to K. f) Rule: If a party to a contract substantially impairs the value of the contract thereby repudiating said contract, it must refund all monies paid thus far by the other party to the contract regardless of whether the underlying contract would or would not have proved beneficial to the aggrieved party. 6. Rescission a) Rightful Position: Instead of speculating about what might have been, simply undo the transaction and restore everyone to their original position. b) P‘s options when contract breached: (1) P gets to choose whether to rescind or sue for damages: P might choose rescission because of its simplicity (no need to litigate the value of anything) or because of personal preferences not reflected in market values (ex. homebuyer that is more troubled by termites than the average person (a) Cherry v. Crispin (sellers fraudulently concealed the fact that their house was infested with termites. Buyers attempted to rescind when they discovered the termites a few days after moving in. Damages were measurable as the cost of extermination and repair plus any residual reduction in the value of the house. With rescission, plaintiffs got all their money back and defendants go the house back. Each side had to pay in cash for incidental benefits that could not be returned: rent for the time plaintiffs lived in the house and the cost of paint and other minor improvements plaintiffs added to the house)), or because she has lost confidence in D and the transaction
(2) When values have changed: P can choose rescission if she would lose money from performance, or choose expectancy if she would make money from the performance (3) P cannot affirm the profitable parts of a K and rescind the losing parts – must rescind the entire K or entirety of some identifiably separate exchange w/in the K 7. Unilateral Mistake: no meeting of the minds a) Love (no reasonable realiance): Π offers to settle for 210K Δ rejects and says 215K, but really meant 115K. Since Π knew that Δ didn‘t really mean 215, they can‘t really show reliance on that number. b) Mutual mistake of fact: no meeting of the minds c) As with breach, mistake must go to basic assumptions and defeat the purpose of the contract. d) Lesher v. Strid: buyer successfully rescinded a purchase of land where both sides mistakenly believed that the land included water rights sufficient to irrigate four acres. e) Speculating at defendant‘s expense: (1) Baumel v. Rosen (demand rescission promptly!): plaintiffs were fraudulently induced to sell stock too cheap, suspected fraud almost immediately, but waited through 3 years of dramatic price increases to seek rescission. –court says if property is of a kind that fluctuates in value, plaintiffs who want rescission must demand it promptly after learning of their grounds f) Boomer v. Muir (LOSING K WHERE THE BENEFIT CANNOT BE RETURNED-not looking to K price, but costs sunk so far: (1) Facts: (a) M was general contractor; B was sub, on a K to build hydro plant. B was to build one dam for project, and M was to supply B w/materials/equipment. Delays and cost overruns from the beginning, which each side blamed on the other. Finally, w/B‘s dam 95% complete, he abandoned the work. (b) K price: $333K (c) B: received $313K in progress payments, and would have been entitled to another $20K if he finished the job. (d) B: spend $571K building as much as he did, not counting any waste that was his own fault. Would have cost another $29K to finish the job, making a total construction cost of $600K. (2) Analysis: (a) Here, B‘s expectance was negative – if K was fully performed, he would have lost $267K (b) Court: B could rescind the K and sue for the value of the benefit he had conferred on M – the value of a nearly finished dam, measured by the cost of building it
(c) ―Recovery: $258K, difference between what he had spent and what he had already paid (d) **Why should Muir have to pay $571K for a benefit he was promised for less than $333K? Traditional contract law says that K price is supposed to account for risk, i.e. K allocated to B the risk that the work might cost more than expected (e) P seeking restitution rescinds the K and sues in quantum meruit, the common count for value of services rendered M cannot rely on K price because the K has been rescinded. (f) Rule: One of the key aspects of rescission is that you are no longer bound by contract so no need to look at any aspect of the previous contract once it is rescinded. G. Constructive Trusts-Restitutionary Rights in Specific Property 1. Constructive Trusts Accounting for Profits I: a) Constructive trust: legal fiction; a remedy whereby assets are moved from the party currently using them to the ―true owner.‖ Trust is imposed on some identifiable benefit. b) Why not punitive damages? Too speculative: might be too high/low; either under- or over-deterrence of disputed activity 2. Paoloni v. Goldstein (): a) Doggett frequently acquired money from sales of viatical settlement, claim was he defrauded Πs of 137K through these fraudulent sales. This money was placed in the Iglesias family trust. He took the 137K from the Πs placed it in trust, and the trust then used the money to purchase a condo in Florida. Doggett then took residence in the condo. Π find out and sue b) Π sue in restitution seeking restitution in constructive trusts and accounting in profits. c) Question is whether they have a right to have a constructive trust on the condo. d) Other options they could have took: (1) Sue for damages—the damages would have been the 137K (2) Can Sue in restitution because of the fraud which is a claim that you can seek restitution—not allow the Δ to benefit from their wrongdoing. (other grounds for restitution--mistake). (3) Could have sought restitution and disgorgement of full profits—in this case they would receive a judgment which is the benefit plus profit.
(4) Here they are suing under restitution but instead of seeking a judgment he is seeking a constructive trust on the condo. Once you get a constructive trust, you are seen as the legal owner instead of a creditor seeking a judgment. Don‘t have to compete against other creditors. This protects the judgments because it gives you the judgment/asset. Makes it really simple because you don‘t have to calculate the judgment. He is able to get the constructive trust because that money was directly used to BUY the condo. So the money was wrongfully and fully used to purchase the property. e) If the money was used to refurbish his own condo, you can‘t get a trust, you can get an equitable lien. In this case you have a right to make him sell the condo in order to get your money back. This gives you a preference over someone else who just has a judgment over this person. But if you didn‘t get the money, you would still have to execute on the lien, and have them sell it. f) Equitable Liens: (1) Court also granted an equitable lien in addition to the constructive trust, this guarantees the party for a certain amount of money. In cases where a constructive trust has been devalued and is less than the amount owed, an equitable lien ensures that the plaintiff receives at least the amount originally taken. (2) In Paoloni, if the condo went down in value to 130K the equitable lien will allow plaintiff to execute on other property to satisfy the additional 7K. g) Requirements of Fraud or Unjust Enrichment for Constructive Trust: (1) The imposition of a constructive trust is unwarranted when there is no evidence of fraud or unjust enrichment and when the constructive trust sought is lottery earnings untraceable to the unpaid child support owed to the party seeking imposition of the constructive trust. –Ruffin v. Ruffin (a) Wife filed for divorce, court ordered husband to pay child and spousal support. Husband missed two payments and subsequently won the lottery. Wife argued that he used child support payments to purchase winning lottery tickets. (b) Wife argued that the lottery winnings were subject to a constructive trust for the benefit of her and the parties‘ children. (c) The trial court found no evidence of fraud or unjust enrichment warranting imposition of a constructive trust on the husband‘s winnings. The wife appealed. (d) Rule: Appellate court says that the constructive trust is unwarranted when there is no evidence of fraud or unjust enrichment and when the res of the constructive trust sought is lottery earnings untraceable to the unpaid child support owed. 3. Constructive Trusts II & Restatement 3rd § 55
a) It makes constructive available in any case in which defendant is unjustly enriched by the acquisition of legal title to specifically identifiable property at the expense of the claimant or in violation of the claimant‘s rights. If defendant has acquired possession but not title, the remedy is replevin (can only get specific personal property back), or ejectment (specific restitution for real property) and not constructive trust. H. Tracing the Property and Equitable Liens 1. Constructive Trusts a) Where a person wrongfully disposes of property of another knowing that the disposition is wrongful and acquires in exchange other property, the other is entitled at his option either (a) a constructive trust of the property so acquired, or (b) an equitable lien upon it to secure his claim for reimbursement from the wrongdoer. Restatement of Restitution § 202 2. Wrongfully converted funds may be traced into commingled accounts without precise identification: a) The law lets the Π engage in whatever fictions yield the best result for her, determined with perfect hindsight. This is a key point: when a Π uses a constructive trust for tracing in the case of commingled assets, the plaintiff gets to use two fictions to identify the most advantageous means of tracing: (1) The wrongdoer spends his own money first on bad investments (2) The wrongdoer spends the plaintiffs money first on good investments. b) The fictions have their limits: The plaintiff can never trace more than that which originated from the lowest intermediate balance in the account. (1) The lowest intermediate balance rule provides that if the balance in the account ever drops below the amount of plaintiffs‘ money deposited in the account, the lowest balance the account ever reaches is a limit on the plaintiffs‘ claim to the account. (2) That is if at some point the balance drops to $10, plaintiffs had at most $10 in the account, and subsequent deposits of the banks‘s own money cannot change that. Instead of applying the presumption step by step to every transaction in the account, it is usually enough to look for the lowest intermediate balance. (a) Intermediate in the lowest intermediate balance rule can refer to two pairs of events: between the last deposit of plaintiffs‘ money and the adjudication, or between two deposits of plaintiffs‘ money. If the balance drops to $10, and $100 stolen from plaintiff is added to the account, plaintiff can claim to have $110 in the account. c) Tracing and Innocent Defendants: Tracing against an innocent defendant is limited by the rules for measuring disgorgement, so that tracing cannot increase plaintiff‘s recovery beyond the limits set out in § 50.
d) Tracing and Multiple Scenarios: If plaintiff has several ways of tracing, must choose only one. Can‘t trace to all paths: to do so would violate the fictions that one is tracing the assets. E.g., Hilda stole care from Ike, sold to Karen who knew it was stolen for 25K, gave 10K to Jake who already had 1K in his bank account and then later removed $100, then Hilda used the remaining 15K to go on shopping spree. Result: (1) Ike can sue Karen and get the car back; OR (2) Sue Jack for 10K and then Hilda for 15K in restitution= 25K (3) But can‘t do both options!!! Can‘t get car and 25K 3. In re Erie Trust: a) Facts: Erie Trust converted certain funds belonging to Gingrich. Upon Gingrich‘s death, a receiver attempted to recover the funds from the estate of Erie, which had gone bankrupt. b) Trial Court: Finding that the funds had been commingled in various deposit accounts and that the receiver could not trace which specific funds went to which specific account, the trial court refused to give the receiver preference over general creditors. c) Appellate Court said that wrongfully converted funds may be traced into commingled accounts without precise identification. Given the complexities of modern banking, the burden of precise identification of funds in commingled accounts would be virtually impossible to meet. It is sufficient that the accounts which the funds have been deposited be identified. Once this is done, the presumption arises that all withdrawals are of other funds, and the converted funds remain in various accounts. This is the presumption that should have been applied. d) Analysis: The basic rule in bankruptcy is the government gets its share, senior creditors get priority. (1) An exception exists where as here, defrauded parties can prove which funds were theirs. In this instance, the court assumes that the bankrupt never had the property so the victims leapfrog over the general creditors. e) Concept of cash level: can‘t claim a constructive trust on later money that comes into the account that wasn‘t yours 4. Tracing Problems: a) Scum manages a trust fund for his aged mother. At the beginning, the trust contains the following assets: (1) 100 shares of Microsoft worth $30 per share (30K) (2) 100 shares of Exxon Mobil worth $50 per share (50K) (3) 100 shares of Walmart worth $60 per share (60K) b) Scum has 10K of his own cash in a separate checking account. Scum encounters financial difficulties and begins to embezzle from his mother‘s account. He eventually files for bankruptcy. There are many creditors so a damage judgment for the amount embezzled will not be worth much. In each problem, each transaction occurs on a separate day in the order listed. Identify the assets on which his mother can impose a constructive trust. Disregard brokerage commissions.
(1) Problem 8-1 (a) Scum sells 100 shares of Walmart from his mother‘s account, receiving 6K in cash. (b) He takes the cash to another broker and buys 300 shares of General Electric at $20 (c) General Electric drops to $10, so the shares are now worth 3K (d) There is still 10K in Scum‘s personal checking account (e) Mom gets: a constructive trust on the GE shares and also get an equitable lien for 6K to satisfy the remaining 3K—but she doesn‘t get a preference over other creditors for money in his own account. (2) Problem 8-2 (a) Scum sells 100 shares of Microsoft from his mother‘s account, receiving 3K in cash. He deposits the money in his checking account, raising the balance to 13K (b) He withdraws 12K from the checking account and flies to Vegas and loses the entire 12K. This leaves 1K in the account (c) He receives a 4K legal fee and deposits that money in the checking account, raising the balance to 5K. (can‘t add this money to mom‘s share so she remains at 1K) (d) He sells 100 shares of Exxon Mobil from his mother‘s account receiving 5K in cash. He deposits the money in the checking account, raising the balance to 10K. –clear that these are mom‘s shares so this money (5K) goes into mom‘s account so she goes up to 6K and he stays at 4K (e) He writes an 8K check on the checking account buying 1,000 shares of Casino stock at $8. This leaves 2K in the account. –mom can only claim 6K as part of the intermediate level theory, so she can claim 6 of the 8K. –so she can put a constructive trust of 6/8 of the casino shares (f) He loses the remaining 2K in the account in a poker game (g) Casino rises to $12 so the 1,000 shares are now worth 12,000.—this is good for mom because through the constructive trust, she owns 6/8ths of this which is 9K. (3) Problem 8-3 (a) Scum sells 100 shares of Walmart from his mother‘s account receiving 6K in cash. He deposits the money in his checking account, raising the balance to 16K. (b) He writes a check for 6K on his own account, buying 300 shares of GE at $20. This leaves 10K in the account. (this constitutes commingling) (c) He loses 8K in a poker game and pays with money from his checking account. This leaves 2K in the account.
(d) GE drops to $10, so the 100 shares are now worth 3K. (mom would have an opportunity to have a constructive trust on the 2K if she worked it different and said that some of her money went to GE and the rest went elsewhere—so we want her to get 4K from GE so she‘s is left with the 2K remaining). So she has a constructive trust on the 2K and 2/3 of GE which is 2K.
VIII. ANCILLARY REMEDIES A. Overview 1. Contempt a) Three factors courts take into account in deciding at what point the order becomes criminal (1) direct v. indirect (2) timing-how immediate is the need (3) the order itself-is it complex or simple 2. Character of the sanction and the purpose of the sanction to determine whether criminal/civil (Bagwell) a) How much is it, did the look to compensate Π or was it a set amountfixed and paying after violation b) who gets the money c) who is prosecuting it 3. Execution and Garnishment a) two primary methods of enforcing judgments 4. Judgements a) A judgment is an important step toward what plaintiff wants, but it is not what he wants. The judgment must be enforced. b) Contempt is the enforcement mechanism for equitable orders. The use of contempt to enforce equitable decrees is fundamentally different in nature from the enforcement of judgments issued by courts sitting at law. c) Whereas the failure to pay a judgment at law can result in executing against the property of the defendant, the disobedience of an equity order can result in the incarceration of the defendant. d) The failure to pay a judgment at law will not result in the loss of personal freedom; if the defendant has no assets to pay the judgment, then there are no consequences because the person is said to be judgment proof. In contrast one has an obligation to obey orders issued by a court sitting in equity. An equitable order is personal and the defendant may be fined, jailed, or civilly liable for the failure to obey. B. CONTEMPT-METHOD USED TO ENFORCE INJUNCTIVE RELIEF 1. International Union, United Mine Workers v. Bagwell (strict interpretation of when sanctions fall into criminal category): a) Union had a labor dispute with mining companies over unfair labor practices. The companies sued for an injunction to prevent the Union from conducting unlawful strike related activities. The court entered the injunction and subsequently found that the Union had committed 72 violations of it. In 7 contempt hearings without right to jury trial over the next six months, the court found the Union in contempt for over 400 separate violations. Court order 52M in unpaid contempt fines from the Union.
b) Court of Appeals reversed and ordered fines to be vacated VA Sup. Ct. resintated fines concluding that because the court‘s prospective fine schedule was designed to coerce compliance with the injunction and the Union could have avoided the fines through obedience, the fines were civil and coercive and properly imposed in civil proceedings. The Union appealed to SCOTUS. c) Indirect/Direct Contempt (both apply on to criminal): (1) Direct Contempt: Court has more of a need to enforce/sanction Δ to what they should or shouldn‘t be doing. This type is typically within the court where parties are literally before the court. Court needs to have control over its own courtroom. (2) Indirect Contempt: parties are outside courtroom doors and court‘s order addresses conduct outside of the court. Court can control certain aspects of litigation outside courtroom such as discovery—R. 37 gives court wide range of power when parties don‘t comply.—Bagwell action involved indirect contempt which mean that there was less need. d) Timing: Immediateness of the threat and need for sanction is also taken into consideration when assessing a contempt order. e) Nature of Order: Does it distinguish between ascertainable act? Or is it a complex type of order? As you move from discreet to more complex, the Δ requires more protection. So you would tend to find the sanctioning of more complex orders to favor a criminal level of protection. Notice to Δ is important but more difficult to distinguish in complex order. It is also easier for court to find a violation in complex orders. (1) Three Factors taken into account in assessing the character of the order: (a) Who is the one prosecuting (i) Typically sovereign in criminal and plaintiff in compensatory and sovereign in coercive (b) Who is being paid (i) Sovereign in criminal, party in civil, and sovereign in coercive (c) What is the amount of the fine (i) Criminal fines are ―fixed,‖ civil tends to be fixed but amount focused on the damage to the plaintiff, coercive tends to be indefinite f) Rule: S. Ct. said that the contempt fines for widespread, ongoing, out of court violations of a complex injunction constitute criminal sanctions entitling the penalized party to a jury trial. Due process requires that criminal laws provide prior notice both of the conduct to be prohibited and the sanction to be imposed. The sanctions in this case were deemed to be analogous to fixed, retrospective criminal fines. The fines assessed were serious, and thus disinterested fact-finding was essential (due process, beyond reasonable doubt standard, double jeopardy clause, collateral bar rule, etc.). Thus, the Union was entitled to jury trial. Reversed.
(1) Scalia says just because our views of due process have changed over time, this is no reason to change the law, courts are trying to use contempt power in a way that haven‘t used before. 2. Three Kinds of Contempt: a) Criminal contempt: criminal punishment for a past offense; it isn‘t conditional on future compliance. It may be imposed only after a full jury trial. b) Civil Contempt: is prosecuted in the name of the plaintiff and largely controlled by the plaintiff. He initiates it with a motion, and up to a point he can abandon it or settle it. c) Compensatory Civil Contempt: Before an injunction is issued the court decides that damages would be an inadequate remedy. When the injunction is violated, it awards compensation after all. 3. Coercive Contempt: a) Coercive contempt depends on a conditional penalty; defendant is coerced to comply because the penalty will be bigger if he doesn‘t. Go to jail until you comply, or pay a fine for each day of noncompliance. C. Collections 1. Credit Bureau v. Moninger: a) Facts: Moninger owed Credit Bureau money and they obtained a judgment against him for $1,518 on 10/20/77. On 5/16/78 Moninger used his Ford pickup and feeder pigs as collateral to Bank for a prior note for $2,144. The new renewed note was to be secured by a security agreement but it wasn‘t entered into at that time. On 6/27/78, at the request of the bureau, a writ of execution was issued on its judgment in the amount of $1,338—the remaining balance due. b) Deputy sheriff found no existing lien on vehichle so he went to serve Moninger with writ and grabbed hold of the vehicle and stated ―I execute on the pickup for the County of Custer.‖ He didn‘t take possession or keys. c) On 6/10/78, the Bank learned of what happened and executed a security agreement on the vehicle. On 7/13/78, the vehicle was auctioned off for $2,050. d) Bank said that they had superior right over the vehicle and that when Moninger told Sheriff about the agreement with the Bank that was giving the Bureau notice of a security agreement, Bureau contends that actions of deputy sheriff amounted to a valid levy e) Court held that a valid levy did occur before the Bank had perfected its security interest in the chattel. It wasn‘t necessary for sheriff to take physical possession of vehicle. (most states require effective control) f) Rule: Notice by a debtor to a sheriff when the sheriff is proceeding to attach a levy upon property is not notice to the creditor for whom the levy is made. (1) Policy: Part of the rationale behind needing a proper levy is notice to third party debtors.
2. Execution—Relevant for Enforcing Money Judgments: a) The basic priority rule is first in time, first in right, but there are exceptions, and much depends on the identity of the competing claimant. b) When you have a judgment the first thing you have to do is find nonexempt assets. If non-exempt asset is in debtor‘s possession, you use the writ of execution to execute on the money judgment. If in third party possession, you have to use the garnishment technique. c) You can find the non-exempt assets through post-discovery procedure which asks defendant about assets. d) Exemptions: (1) All states exempt some property from execution but there is enormous variation in the generosity of state exemptions. (2) The original rationale of exemptions was to ensure that debt collection did not leave debtors without means of subsistence. 3. Dixie National Bank v. Chase: a) Chase received a final judgment against Gor for 48K and filed a writ of garnishment directed to Dixie National Bank to file an answer stating whether they were indebed to Gore at the time of the writ. Dixie first stated that there was only one account with $32 but he really had another account for 13K. They later amended their answer but only after Gore had withdrawn nearly all of the money. b) Chase sued Dixie and trial court awarded him 13K c) Holding: Court says that garnishees are liable to garnisher creditors for all debts that the garnishee owes to the debtor at the time a writ of garnishment is filed. So judgment was affirmed. 4. Garnishment: a) Typically, garnishees are banks or employers. The garnishee is permitted to defend this type of suit based upon the fact that it did not owe the debtor but cannot litigate the underlying judgment which the garnishee won. In some states, a garnishee who fails to answer a writ may be liable for the entire amount of judgment, regardless of its actual liability to the debtor. b) Garnishee: A party against who a garnishment has been ordered; party holding the property of a judgment creditor who is directed to hold the property until a court determination of the proper disposition thereof. c) Garnishment: Satisfaction of a debt by deducting payments directly from the debtor‘s wages before the wages are paid to him by his employer; due process requires that the debtor be first given notice and an opportunity to be heard. D. Attorneys Fees and Costs 1. Rightful Position and Attorneys Fees a) Takes away from plaintiffs award and give to attorney so really they may not be placed in their rightful position. 2. City of Riverside v. Rivera (Civil Rights Statutes provide for Attorneys Fees):
a) Rivera and others sued City of Riverside who broke into their home without a search warrant and used unnecessary physical force. Jury awarded Rivera and others 66K for their constitutional claims. Rivera also sought attorneys fees under the § 1988 of the Civil Rights Attorneys Fees Awards Act which authorizes attorneys fees to prevailing parties in civil rights actions. b) Procedure (1) 17 officers won but about 36 lost. (2) The trial court awarded Rivera‘s attorney‘s 245K based upon 1,946 hours of work. Riverside appealed award of attorneys fees arguing that it was not proportionate to the amount of damages. (3) Court says that attorneys fees in civil rights actions are not required to be proportionate to the amount of damages. Congress didn‘t intend for it to be proportionate to the amount of damages recovered. (4) Two step process: (a) what constitutes a reasonable fee(doesn‘t matter if high end lawyer or public defender, focus is on reasonable going rate) (lodestar-need proof of hours spent and what those hours went to) (b) c) If statute on its face looks like a two way statute, the S. Ct. has interpreted them to be one-way fee shifting unless brought under bad faith. d) Test: If you have success on any significant issue in litigation you can get fees—plaintiffs are said to have substantially prevailed, but courts have discretion to issue. 3. The American Rule: Deterrent to Filing a Lawsuit a) The rule that attorney‘s fees are not recoverable, unless expressly provided by law or pursuant to contract. Disincentive to injured parties to file lawsuits unless they are highly certain they will win. 4. One-Way Fee Shifting a) It is easy enough to make plaintiffs whole without discouraging them from suing. The solution is to award attorneys‘ fees to prevailing plaintiffs but not to prevailing defendants. Some statutes explicitly authorize fees only to prevailing plaintiffs. b) Justification is that prevailing plaintiffs vindicate federal policy and losing defendants are adjudicated wrongdoers. Also want to incentivize attorneys to bring these suits. c) But prevailing defendants don‘t get anything because they protect only their own purse, and losing plaintiffs didn‘t do anything wrong. Unless the claim was brought in bad faith or frivolous—Rule 11 sanction can also be used. 5. Calculating the Lodestar: a) A reasonable fee is determined by multiplying the number of hours reasonably spent by a reasonably hourly rate.
