Opinion ID: 474191
Heading Depth: 1
Heading Rank: 2

Heading: the propriety of preliminary injunctive relief

Text: 27 In Planned Parenthood League of Massachusetts v. Bellotti, 641 F.2d 1006 (1st Cir.1981), we listed four criteria that must be established to warrant preliminary injunctive relief. The court must find: (1) that plaintiff will suffer irreparable injury if the injunction is not granted; (2) that such injury outweighs any harm which granting injunctive relief would inflict on the defendant; (3) that plaintiff has exhibited a likelihood of success on the merits; and (4) that the public interest will not be adversely affected by the granting of the injunction. The decision to grant or deny a preliminary injunction is a matter for the discretion of the district court and is reversible only for an abuse of discretion. The district court's decision will be reversed, however, if it is found to have applied an improper legal standard in determining the likelihood of success on the merits or if it has misapplied the law to the particular facts in issue. Id. at 1009. 28 The district court here clearly articulated its reasons for finding that Teradyne had satisfied the prerequisites for injunctive relief. It held that Mostek's freedom to dispose of its assets created a substantial risk of irreparable harm to Teradyne, given that Mostek was in the process of winding down after selling the bulk of its assets, that it had failed to provide adequate assurances to alleviate Teradyne's concerns, and that it could at any time make itself judgment proof. Further, the court found that the affidavits submitted to it showed a likelihood that Teradyne would succeed on its contractual claims, and that the balance of hardships was in Teradyne's favor. The court dismissed Mostek's claims that the injunction would create a ripple effect whereby the creditors would rush to court seeking similar relief, noting that the injunction would have no precedential effect on other disputed claims, and that Mostek could pay undisputed claims and thereby avoid any possible ripple effect on them. Mostek disputes all of the district court's findings. For ease of review, we will examine the court's findings on each criterion for preliminary injunctive relief separately. As there is no suggestion that the public interest was adversely affected by the injunction, that criterion is not relevant here. 29
30 Mostek contends that preliminary injunctive relief restraining the transfer of assets may not be granted in cases where monetary damages are available except in extraordinary circumstances. The question raised here is whether injunctive relief restraining the transfer of assets can be granted when the district court finds that the defendant may be insolvent before a final judgment is entered and, if so, whether such a finding was warranted in the circumstances of this case. The Supreme Court has held that a preliminary injunction, designed to freeze the status quo and protect the damages remedy is an appropriate form of relief when it is shown that the defendant is likely to be insolvent at the time of judgment. Deckert v. Independence Shares Corporation, 311 U.S. 282, 61 S.Ct. 229, 85 L.Ed. 189 (1940). 31 The facts of that case are analogous to the present, although somewhat more complex. The petitioners in Deckert were the owners of savings certificates purchased from Capital Savings Plan, Inc., which then merged with Independence Shares Corporation (Independence). The certificates required the holders to make installment payments to the Pennsylvania Corporation for Insurances on Lives and Granting Annuities (Pennsylvania). Pennsylvania, after deducting certain fixed charges, used the balance of these installment payments to purchase Independence Trust shares for the benefit of the certificate holders. Independence Trust shares, issued by Pennsylvania, represented interests in a trust of common stock of forty-two American corporations, deposited by Independence with Pennsylvania. Pursuant to a trust agreement between Pennsylvania and Independence, Pennsylvania collected dividends and profits from the stocks and administered the trust. 32 The petitioners sued Pennsylvania, Independence, and two affiliated companies, alleging that Independence and its predecessor, Capital Savings Plan, were guilty of fraudulent misrepresentations. They alleged, further, that Independence was insolvent and threatened with many lawsuits, that its business was virtually at a standstill, that preferences to creditors were probable, and that Independence's assets were in danger of dissipation. In addition to other relief, the petitioners asked for an injunction restraining Pennsylvania from transferring or disposing of any of the assets of the corporations or of the trust. The district court granted the injunction, the court of appeals vacated it, and the Supreme Court reinstated it. The Court held that the legal remedy against Independence without recourse to the funds in the hands of Pennsylvania appeared inadequate in light of the allegations that Independence was insolvent and its funds in danger of depletion, and that the injunction was, therefore, a reasonable measure to preserve the status quo pending final determination of the questions raised by the bill. 311 U.S. at 290, 61 S.Ct. at 234. 33 Several circuit courts have also recognized the propriety of injunctive relief in such circumstances. See Roland Machinery Co. v. Dresser Industries, Inc., 749 F.2d 380, 386 (7th Cir.1984) (the requirement that a plaintiff seeking a preliminary injunction show that an award of damages will be inadequate does not require a showing that damages will be wholly ineffectual, it is sufficient if damages will for some reason be seriously deficient as a remedy for the harm suffered, for example, because the defendant may become insolvent before a final judgment can be entered and collected); Productos Carnic, S.A. v. Central American Beef and Seafood Trading Co., 621 F.2d 683, 686 (5th Cir.1980) (even where plaintiff's remedy is limited to damages an injunction may issue to protect that remedy); Foltz v. U.S. News & World Report, 760 F.2d 1300, 1309 (D.C.Cir.1985) (a preliminary injunction enjoining distribution of cash from an employee profit-sharing plan, designed to freeze the status quo prior to a determination of liability and the extent of any damages, is not improper). 34 Having established that a preliminary injunction can be granted when it is necessary to protect the damages remedy, we turn to consider whether the record supports the district court's finding that such an injunction was necessary here. We believe that it does. Although Mostek realized assets far exceeding Teradyne's claims when the sale of its assets occurred, the record shows that those assets were being used to pay off creditors' claims and wind down expenses in what Mostek itself described as an orderly liquidation process. Further, the amount Mostek received for its assets was stated to be subject to a number of unspecified offsets and debits and no assurances were given that Mostek would be able to pay a Teradyne judgment.
35 We agree with the district court that the balance of hardships tips in Teradyne's favor. Mostek has not shown why the district court's suggestion that it pay off undisputed claims would not avoid the ripple effect it alleges the injunction here will cause amongst its creditors. Nor has Mostek responded to the district court's position that the injunction, here, would have little precedential value, and, therefore, little ripple effect on disputed claims. Mostek was unable to point to any evidence of concrete harm when asked to do so at oral argument and conceded that as of that time there had been no ripples. Moreover, Mostek has done nothing to alleviate the court's concern that it will prove unable to satisfy a judgment in favor of Teradyne; the number of its creditors and of claims outstanding remain unspecified and no concrete assurances have been given by Mostek that it will have liquid assets sufficient to satisfy a judgment against it. Under these circumstances, we affirm the district court's conclusion that the possible hardship to Teradyne of having a $3-4 million judgment prove worthless, outweighed the inchoate hardship to Mostek of having $4 million of its assets tied up in an interest bearing account pending judgment. 36
37 This criterion requires a detailed exposition of the facts. Before Mostek ceased operations in 1985, Teradyne supplied virtually all its laser systems and memory testers. Mostek always bought from Teradyne pursuant to the terms of a Quantity Purchase Agreement (QPA). Each agreement, provided inter alia, that Mostek would get price discounts on Teradyne equipment provided it ordered certain minimum quantities, and that Mostek would be liable for cancellation and rescheduling charges if it cancelled an order. The QPA also required Mostek to place all orders in writing. 38 The events leading up to the present action began on November 30, 1984, with a telephone order by Mostek for ten laser systems. Mostek, however, did not send the required written order until early January, 1985. By that time, there was no QPA in effect because the 1984 QPA had expired on December 6, 1984. Mostek had held off entering into a QPA for 1985 because it was experiencing financial difficulties and Teradyne had almost doubled the amount of equipment customers had to order to obtain a significant discount. Having revised its needs, Mostek reduced its January written order from ten laser systems to eight. Subsequently, on February 20, 1985, Mostek received a letter from Dick Chitowski, one of Teradyne's sales representatives, acknowledging receipt of the written order and enclosing a bill for cancellation charges for the two systems cancelled. Mostek disputed the validity of the charges and on March 20, 1985, Chitowski met with Jerome Harcharik (Harcharik), Mostek's chief purchasing agent, to try to resolve the matter. 39 The parties' characterization of what transpired at that meeting differ. Harcharik's affidavit states that Chitowski threatened that the systems ordered would be delivered on, what to Mostek was, an unacceptable schedule, if the cancellation charges issue was not resolved. According to Harcharik, Citowski insisted that Mostek enter into a QPA for 1985, and demanded, as consideration for Teradyne's waiving the cancellation charges, that Mostek place an order for twenty memory testers by April 1, so that Teradyne could book the order in its first quarter. Harcharik also stated that Chitowski told him Mostek could count its undelivered 1984 orders towards a 1985 QPA for discount purposes. 40 Teradyne denies that any undue pressure was put on Mostek at the March 20 meeting to enter into a QPA for 1985, though it concedes that its usual practice was to negotiate for new orders or equivalent value in lieu of pursuing cancellation charges. Indeed, Teradyne's treasurer, Stuart Ossatin (Ossatin) stated in his affidavit that Teradyne informed Mostek shortly before the date scheduled for delivery of the eight laser systems, that it could not deliver at the quoted price unless a 1985 QPA was signed. According to Ossatin, Teradyne's policy required that a QPA be in place at the time of shipment in order for the discount to go into effect. 41 Whatever the reasons or pressures exerted, shortly after the March 20 meeting, on March 26, 1985, Mostek did agree to enter into a QPA for 1985 and to place an order for twenty memory systems in the first quarter. The agreement provided for a retroactive effective date of December 8, 1984. As was the case under the previous QPAs, Mostek was required to choose the level of discount it wanted, the actual amount of discount then being determined according to the quantity and dollar amount of the sales made. Mostek opted for the highest level of discount available, an 11% discount based on orders exceeding $7,000,000. Mostek was also required, under Sec. 8 of the QPA, to select a cancellation option from alternative schedules of cancellation and rescheduling charges set forth in Schedule E attached thereto. The Schedule E form contained a line on which customers were required to indicate and initial their elected alternative and also stated that the alternative selected would be applicable unless the customer's purchase order specified a different alternative which would then be applicable to such order. One of the Schedule E alternatives was typed in on the line provided for customer selection when the 1985 QPA was executed. Contrary to its practice in executing the previous QPAs, Mostek failed to initial the selection this time. 42 Mostek's argument on the merits breaks down into two broad claims: (1) the U.C.C. argument, that Mostek is not liable for cancellation and rescheduling charges because the cancelled orders were governed by the terms of Mostek's purchase orders, which, according to Mostek, allowed for cancellation at will; and (2) that the 1985 QPA, and the order for the twenty memory testers, were void because they were entered into as a result of economic duress imposed on Mostek by Teradyne.
43 Mostek claims that the 1985 QPA was not a contract, that it was merely a quotation of prices and a solicitation of offers, and that any contractual claim by Teradyne must, therefore, be based on the purchase orders. The purchase orders stated that they were offers to purchase goods at stated prices and delivery dates, and expressly limited acceptance to the terms of the offer. The termination portion of the orders stated that Mostek might cancel at any time. Relying on Sec. 2-207(2) of the U.C.C. and this court's interpretation of that provision in Rotolith, Ltd. v. F.P. Bartlett & Co., Inc., 297 F.2d 497 (1st Cir.1962), Mostek contends that Teradyne could not materially alter Mostek's offered terms by imposing a cancellation provision. 44 Section 2-207 of the U.C.C. provides that an expression of acceptance or written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those agreed upon, unless acceptance is expressly made conditional upon assent to the additional or different terms. Section 2-207(2) provides that the additional terms are to be construed as proposals for additions to the contract and, between merchants, become part of the contract unless, inter alia, the offer expressly limits acceptance to the terms of the offer. 8 Mostek cites Roto-Lith as authority for the proposition that the additional terms, i.e., the cancellation provisions, in Teradyne's acceptance of Mostek's offer could not become part of the contract because they materially altered Mostek's offered terms. In Rotolith, we held that under Sec. 2-207, a response which states a condition materially altering the obligation solely to the disadvantage of the offeror is an acceptance expressly conditional on assent to the additional terms. 297 F.2d at 500. 45 In the alternative, Mostek argues that even if the terms of the QPA governed the orders, the cancellation provision would be unenforceable because Mostek did not initial a cancellation selection as required by Schedule E of the QPA. Mostek relies on the fact that Schedule E provided that the alternative selected would apply unless the customer's purchase order stated otherwise. Mostek claims that it initialed a cancellation selection in all the previous QPA and, therefore, that its failure to do so in the 1985 QPA, indicates a clear intention to make the terms of the purchase order apply. Finally, Mostek relies on its course of dealing with Teradyne in the past as indicating that there was no intention to have cancellation charges apply, claiming that it frequently cancelled orders in the past without having any such charges assessed against it. 46 Teradyne counters that Sec. 2-207 does not apply on the ground that this case does not involve a situation where the offer and acceptance contain inconsistent terms. Teradyne contends that the 1985 QPA was not an acceptance of Mostek's purchase order offer, but rather, that it superseded the terms of the purchase order as a new independent contract or a modification of the old, pursuant to Sec. 2-209 U.C.C. 9 Teradyne points to the fact that the QPA was made retroactively effective to allow discounts to be applied to the earlier placed orders, and claims that, in essence, it agreed to allow the discounts to apply retroactively in consideration of Mostek's agreeing to the terms of the QPA. Teradyne contends further that it would still be entitled to recover even if the QPA was deemed not to supersede the purchase order terms, on the ground of repudiation. 47 Teradyne does not address the significance of Mostek's failing to initial a cancellation selection, other than to point out that the provision for cancellation charges was conspicuously included in Sec. 8 of the QPA which incorporated Schedule E by reference. It denies, however, that Mostek was ever allowed to cancel at will in the past. According to Teradyne, Mostek avoided paying cancellation charges in the past because it negotiated new orders with Teradyne in lieu of paying such charges, a course not open to it once it decided to wind down and eventually sell out. 48 After examining the contentions of both sides, we conclude that the trial court did not abuse its discretion in holding that Teradyne had a reasonable likelihood of success on the merits. Mostek makes no attempt to explain how the retroactivity of the 1985 QPA squares with its argument that Sec. 2-207 of the U.C.C. applies. Its argument that it is not bound to pay cancellation charges because it did not initial a cancellation selection is also tenuous. Teradyne typed in a cancellation selection on the Schedule E form and thus clearly indicated its intention to assess such charges. It is not clear that this obligation should be deemed waived merely because the form was not initialed in the manner specified. Moreover, there is force in Teradyne's argument that it could recover for repudiation, even if not pursuant to the cancellation provisions, on the grounds of its plausible assertions that it incurred loss as a result of Mostek's cancellations because it had already commenced production on the orders.
49 Mostek's alternative argument on the merits, that the 1985 QPA and the order for the twenty memory testers are void for duress, amounts to a broad assertion that Teradyne took advantage of Mostek's weak financial condition and used its position, as Mostek's only source of supply, to force Mostek to sign the QPA and to place the new order. Mostek also points to the pressure exerted on it by Chitowski, back in February 1985, to pay cancellation charges for cancelling two of the laser systems previously ordered by telephone. Teradyne now concedes that these charges were not due because cancellation charges were only assessable against written purchase orders. 50 Mostek's allegations of undue pressure exerted on it by Teradyne are rebutted to some extent by Teradyne's account of the facts which indicates that Mostek entered the 1985 QPA voluntarily in order to obtain discounts on its 1984 orders and that it ordered the twenty memory testers of its own accord. But, even if the facts were as Mostek alleges, it is not clear that it has made out a prima facie case of economic duress. 51 It is well established that not all economic pressure constitutes duress, see Automatic Radio Mfg. Co. v. Hazeltine Research, Inc., 176 F.2d 799, 804 (1st Cir.1949), aff'd, 339 U.S. 827, 70 S.Ct. 894, 94 L.Ed.2d 1312 (1950). The elements of duress under Massachusetts law, which both sides rely on in their briefs, are clearly set out in International Underwater Contractors, Inc. v. New England Telephone and Telegraph Co., 8 Mass.App. 340, 393 N.E.2d 968 (1979). The court there held that a party alleging economic duress must show: (1) that it involuntarily accepted the terms of the other side; (2) that circumstances permitted no other alternative; and (3) that said circumstances were the result of coercive acts of the opposite party. 393 N.E.2d at 970. The court stressed that [m]erely taking advantage of another's financial difficulty is not duress, that the person alleging financial difficulty must allege that it was contributed to or caused by the one accused of coercion, and the assertion of duress must be proved by evidence that the duress resulted from defendant's wrongful and oppressive conduct and not by plaintiff's necessities. Id. (quoting Williston, Contracts Sec. 1617 at 708, W.R. Grimshaw Co. v. Nevil C. Withrow Co., 248 F.2d 896, 904 (8th Cir.), cert. denied, 356 U.S. 912, 78 S.Ct. 669, 2 L.Ed.2d 585 (1958)). There is no indication here that Teradyne caused or contributed to Mostek's financial difficulties. Indeed, Mostek itself concedes that its difficulties came about as a result of a downturn in the semiconductor industry. Accordingly, we see no abuse of discretion in the trial court's conclusion that Teradyne had shown a likelihood of success on the merits. 52 Affirmed.