Litigation: Don’t Dismiss Injunctive Relief  

Inside Counsel
12.23.10

Seeking injunctive relief can be a daunting task. Most attorneys are familiar with the four-factor test that courts apply when ruling on a request for injunctive relief. In the District of Columbia, as in most jurisdictions, “[t]he movant must show a substantial likelihood of success on the merits, and that irreparable harm would flow from the denial of an injunction. In addition, the trial judge must consider the inconvenience that an injunction would cause the opposing party, and must weigh the public interest as well.” [Quaker Action Group v. Hickel, 421 F.2d 1111, 1116 (D.C. Cir. 1969).]

One factor that often presents problems for parties involved in business disputes is the “irreparable harm” factor. Normally, monetary injury does not meet the criteria for irreparable harm because money is fungible and usually can be recovered from the person or entity purportedly liable to the plaintiff. However, Justice Scalia recently clarified that some financial losses do qualify as irreparable harm. “Normally the mere payment of money is not considered irreparable … but that is because money can usually be recovered from the person to whom it is paid. If expenditures cannot be recouped, the resulting loss may be irreparable.” [Philip Morris USA Inc. v. Scott, 177 L. Ed. 2d 1040, 1043 (U.S. 2010) (citation omitted).] In Philip Morris, several tobacco companies requested a stay of the judgment of a Louisiana state court until the Supreme Court acted on a petition for a writ of certiorari. [Id. at 1041.] The requirements for such a stay are similar to those for an injunction and include a showing of irreparable harm. Regarding the irreparable harm factor, Justice Scalia explained that “a substantial portion of the” judgment would be “irrevocably expended” through the creation of a smoking cessation program if the Court failed to enter a stay. [Id. at 1043]. Thus, because the funds could not be recovered through any action at law, the potential loss of money constituted irreparable harm.

Another category of financial loss that might rise to the level of irreparable harm involves breaches of exclusivity or noncompete agreements. The general lesson attorneys should take from cases analyzing this issue is that “while irreparable harm is frequently found upon the breach of an exclusivity provision, that finding does not rest solely on the breach of the agreement and the resulting loss of exclusivity rights.” [Dominion Video Satellite, Inc. v. Echostar Satellite Corp., 356 F.3d 1256, 1262 (10th Cir. 2004).] Instead, irreparable harm findings in such situations “are based on such factors as the difficulty in calculating damages, the loss of a unique product, and existence of intangible harms such as loss of goodwill or competitive market position.” [Id.] Despite the fundamentally monetary nature of such damages, courts have found irreparable harm when calculation of any of these potential harms becomes sufficiently difficult.

A monetary loss can also qualify as irreparable harm when a plaintiff brings an action against a “judgment-proof” defendant. For example, the Court of Appeals for the 7th Circuit held that an employee who left a company for a competitor could be enjoined from divulging any trade secrets—despite the fact that the damages from any such act could be calculated—because there were no assurances that the plaintiff could actually collect the reward. [Lakeview Tech., Inc. v. Robinson, 446 F.3d 655, 657-58 (7th Cir. 2006).] Nothing in the record of the case indicated that the departing employee “would be good for ‘very large’ damages.” Id. at 657.] Given that neither the employee nor his new employer offered to provide a bond or sureties to the Court while discovery commenced in the case, the Court of Appeals vacated the district court’s denial of injunctive relief. Id. at 658.]

In sum, attorneys representing aggrieved parties should not rule out moving for injunctive relief even if the alleged harm is monetary in nature. In several situations, courts have held that a party facing only a financial risk might still be able to demonstrate the “irreparable harm” necessary to obtain a preliminary injunction.

This article appeared in the December 23, 2010 edition of Inside Counsel.

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