Practical Insights for Business Owners
Posted: April 12, 2016 / Categories Injunctions Attachments and Other Preliminary Remedies, Client Q & A
Client Q&A: I have a legal emergency! What can you do right now?
I have a legal emergency! What can you do right now?
The wheels of justice can move slowly. Complex commercial cases can take years to resolve, even if the court and the parties do not delay. Sometimes, "justice delayed is justice denied," and you need a court's help immediately to prevent imminent (or already occurring) serious harm. Is there anything that can be done?
There are things a court will do immediately, before it makes a final decision, to stop continuing harm and maintain the status quo. In appropriate circumstances, it will order a party not to do (or, in limited circumstances, to do) a particular act. This is called an injunction. A court also can take control of property (attachment) or appoint a neutral third party (a receiver) to take control of a business or property. We discuss each remedy below.
The key thing these remedies have in common is that, in order to be entitled to one, you have to show that you are being harmed in a way that an award of damages at the end of the case will not adequately remedy. Thus, they are not always available. But when the criteria for obtaining these remedies are met, they can protect your rights--right now--in effective ways.
When it grants an injunction, a court orders a party not to take (or to take) a particular action. For example, a court might enjoin employees who are alleged to have breached non-compete agreements or are alleged to have stolen trade secrets from opening a competing business.
The criteria a court will consider in deciding your application for an injunction include whether you are likely to succeed on the merits of your claim; whether, if the injunction is not granted, you will suffer harm that cannot adequately be remedied by an award of money; and whether the balance of the equities is in your favor.
The first criterion is straightforward. You do not have to prove at the beginning of the case that you will certainly win; if you could do that, the case would be over. But you have to show that you have a valid claim based on the facts you allege, supported by some evidence, even if it is just an affidavit from you.
Whether the harm you will suffer cannot be remedied by a money award at the end of the lawsuit (called "irreparable harm") can, unfortunately, be a vague concept. In theory, almost anything can be compensated for by a monetary award. But courts recognize that some harms are particularly difficult to fix by an award of damages. For example, if your employees take your customer lists, open a competing business and drive you out of business, there is no practical way, at the end of the case, for the court to put you back in business. On the other hand, if you are suing a customer for not paying for goods you sold to them (or services you provided to them), a court generally will not see that harm as irreparable, even if you could show that the lack of payment is hurting your business, because it ultimately is only about the recovery of a calculable sum of money.
The balance of the equities criterion rarely becomes decisive. It basically means that the court will consider the fairness of issuing the injunction. If you can show that you are likely to succeed on the merits and will suffer irreparable harm, likely the balance of the equities is in your favor as well. However, there could be situations where, for example, you meet those criteria but it would inflict significant harm on the defendant to be enjoined. Or, conversely, if your claim is not strong, but the unfairness of a situation to you is palpable, the balance of the equities criterion might tip things in your favor.
Courts are very reluctant to grant injunctions that order your opponent to take affirmative action, rather than refrain from taking action (thus maintaining the status quo). To obtain such an injunction--called a mandatory injunction--a court will require stronger proof of your likelihood of success on your claim.
Obtaining an Injunction
To obtain an injunction at the beginning of a lawsuit (a "preliminary injunction"), you have to make a request to the court (a "motion") with notice to your opponent. The motion will have to include factual affidavits and legal argument showing why you are entitled to the injunction. Your opponent will have an opportunity to respond. If necessary, the court will hold an evidentiary hearing, including taking testimony from witnesses, before deciding the motion.
Importantly, if a court grants an injunction, it must order the moving party to provide an "undertaking" to compensate the enjoined party from any damages it suffers as a result of the injunction if it ultimately is determined that it was not entitled to it. Normally, the undertaking is a bond that you have to purchase from a bonding company. The amount of the bond is often the subject of sharp dispute. For tactical reasons, your opponent may seek a very high undertaking; if the amount of the undertaking is high enough, you might not be able to pay for the bond. In our experience, courts are often sensitive to this issue and order undertakings that are not prohibitively expensive.
If you need an immediate court order even before the hearing an a preliminary injunction can take place, you can seek a "temporary restraining order" (TRO), which may be granted or denied based upon the judge's brief review of the motion papers and a very short argument. Sometimes, there is good reason to worry that, if you give your opponent advance notice that you are seeking a TRO, it will take preemptive action making the TRO moot when it is granted. In these situations, you can seek a TRO "ex parte" (that is, without notice to the other side) - but you need a good reason to offer the court as to why such notice was not given. In any event, a TRO is, as the name implies, temporary. Once it is granted, you have to give your opponent notice of the order, and then the regular preliminary injunction process will play out.
When a court orders the attachment of a defendant's property, it seizes and holds the asset pending the decision of a case. An attachment can be directed at any property, including bank accounts. An attachment is a drastic remedy, but courts can order it in cases where you are seeking money damages, the defendant is out of state (or is in the state but you cannot find it to serve it despite diligent efforts) or you can show that the defendant is moving assets out of the state to hide the property, defraud creditors or otherwise make it hard for you to collect.
In extraordinary situations, you can seek to have a temporary receiver appointed to take control of property or a business during the pendency of litigation. A receivership requires the same proof as an injunction, plus a showing that "there is danger that the property will be removed from the state, or lost, materially injured or destroyed." Put differently, a court will not take control of property or a business just because there is a dispute over it. But, if you can show, for example, that your opponent is looting a business, driving it out of business, a court might appoint a neutral third party--a receiver--to run the business while it hears the dispute.
Notice of Pendency
A notice of pendency--which relates to real property--is different from the other remedies discussed above. It is simple to obtain: you simply file a notice with the court in which a lawsuit relating to the ownership, possession, use or enjoyment of real property is pending. The scope of the notice is limited. It serves merely to put the public on notice of the dispute. However, it can be a powerful tool in litigation relating to real estate because it makes it difficult for someone to sell or encumber the property.
Making and defending motions for preliminary remedies is a regular part of our business. If you face a situation where you need immediate, temporary relief such as discussed above, please feel free to contact us to discuss it.