Opinion ID: 460128
Heading Depth: 1
Heading Rank: 2

Heading: The district court's inherent equitable powers.

Text: 22 The FTC alternatively argues that the district court should have exercised its discretionary equitable powers to grant ancillary relief appurtenant to the ultimate remedies of recission and restitution. In this case the FTC seeks an order enjoining Evans from (1) pursuing or initiating foreclosures, (2) transferring consumer finance agreements to third parties without attaching a notice preserving consumer claims, and (3) selling corporate assets in excess of fifty million dollars unless fifteen percent of the proceeds are escrowed to protect consumers which bring actions against Evans. 23 Courts have inherent equitable powers to grant ancillary relief, other than a preliminary injunction restraining future violations of the law, when there is no likelihood of recurrence. SEC v. Wencke, 622 F.2d 1363, 1368-69 (9th Cir.1980); SEC v. Penn Central, Co., 425 F.Supp. 593, 598-99 (E.D.Pa.1976). See also SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082, 1100 (2d Cir.1972); SEC v. Texas Gulf Sulphur Co., 446 F.2d 1301, 1306-08 (2d Cir.), cert. denied, 404 U.S. 1005, 92 S.Ct. 561, 30 L.Ed.2d 558 (1971). The power to grant a preliminary injunction, which freezes assets when circumstances require, is among these inherent equitable powers. FTC v. U.S. Oil & Gas Corp., 748 F.2d 1431 (11th Cir.1984) (per curiam); USACO Coal Co. v. Carbomin Energy, Inc., 689 F.2d 94, 98-100 (6th Cir.1982); FTC v. H.N. Singer, Inc., 668 F.2d 1107, 1112 (9th Cir.1982); International Controls Corp. v. Vesco, 490 F.2d 1334, 1347-48, (2d Cir.), cert. denied, 417 U.S. 932, 94 S.Ct. 2644, 41 L.Ed.2d 236 (1974). 24 In determining whether to grant a preliminary injunction which freezes assets against a potential recovery, we apply the standard test used in this circuit to evaluate claims for preliminary injunctive relief. Under the first part of this test, the movant must show 1) irreparable injury, 2) probable success on the merits, 3) a balance of hardships that tips in the movant's favor, and 4) that a preliminary injunction is in the public interest. Martin v. International Olympic Committee, 740 F.2d 670, 674-75 (Fed.Cir.1974). Alternatively, a court may issue an injunction if the moving party demonstrates either a combination of probable success on the merits and irreparable injury or that serious questions are raised and the balance of hardships tips in his favor. Id. at 675. 25 Because we find that the balance of hardships does not tip in the FTC's favor and that there is not a strong showing of irreparable injury, the FTC cannot pass the first test and fails in a requisite element of each prong of the alternative test. 26 The potential for irreparable harm in this case is limited. We find no evidence that Evans is, or is likely to, secret away assets before relief can be effectuated. Moreover, Evans' status as a debtor in Chapter 11 limits its ability to transfer assets to the disadvantage of potential judgment creditors. 27 The balance of hardships favors Evans. If the FTC's ancillary relief were granted, Evans would be required to maintain and pay taxes on several hundred homes during the pendency of the FTC's permanent injunction action, and the marketability of Evans' consumer financing notes would be impaired at a time when interest rates place these mortgages at what Evans avers may be their maximum worth. On the other hand, in the absence of ancillary relief, Evans' customers may still obtain relief through state actions tailored to the specific misrepresentations alleged in their individual cases. 28 In light of the serious harm which ancillary relief could cause to Evans' precarious financial position, the availability of private actions, and the lack of evidence that Evans' assets will be insufficient to satisfy potential judgments absent ancillary relief, we hold that the district court did not abuse its discretion in declining to exercise its inherent equitable powers. 29