Opinion ID: 1390576
Heading Depth: 3
Heading Rank: 3

Heading: The specific performance order

Text: Winget has also raised a number of arguments related to the propriety of specific performance as a remedy for JPMorgan's alleged injury, and he challenges the scope of the district court's order. In particular, he claims that (1) JPMorgan failed to properly plead irreparable harm and clean hands, (2) JPMorgan has not shown that Winget has the authority to produce the financial records requested for inspection, and (3) the specific-performance order is improper because it entangles the district court in the supervision of the inspection process and is unnecessary because Winget can satisfy his obligations under the agreement through the payment of $50 million. Winget asserts that Michigan law is settled that specific performance of a contract requires the plaintiff to allege and prove that it will suffer irreparable harm from a breach such that damages are not an adequate remedy. Because JPMorgan failed to plead irreparable harm, Winget argues, specific performance cannot be granted. This argument, however, misstates the elements of specific performance under Michigan law. An inadequate remedy at law, not irreparable harm, is what must be alleged and proven in a claim for specific performance. Laker v. Soverinsky, 318 Mich. 100, 27 N.W.2d 600, 601 (1947) (Specific performance will not be decreed where there is an adequate remedy at law.). Although one of the cases cited by Winget, Barbers Local 552 v. Sealy, 368 Mich. 585, 118 N.W.2d 837, 839 (1962), uses the term irreparable harm, it uses the term as synonymous with the more commonplace inadequate remedy at law. See Lamar v. Detroit Apartments Corp., 237 Mich. 206, 211 N.W. 643, 645 (1927) (explaining that specific performance rests on the incompleteness or inadequacy of the remedy at law as applied to the contract sought to be specifically enforced under the facts shown). JPMorgan's Complaint in this case states that [s]pecific performance is appropriate and necessary. The Agent will lack an adequate remedy at law if Winget, through his control of P.I.M. and Venco, engages in a liquidation, divestment, sale of assets, or any other course of action or dealing that results in a material diminution of the value of the foreign subsidiaries owned by P.I.M. and Venco. In addition, allegations of misconduct and financial manipulation made in numerous lawsuits currently pending against Winget raise concern as to whether Winget remains in compliance with the covenants referred to in ¶ 29 above. Only through inspection of the records and assets that form the basis of the pledged shares' value can the Agent verify the value of its collateral and ensure that Winget has not violated the covenants contained in the Guaranty or otherwise compromised the pledged collateral and will not do so in the future. In his Answer, Winget's complete response to the above paragraph is: Denied as untrue. Winget once again argues that the district court improperly applied the standard for judgment on the pleadings with respect to JPMorgan's assertion and Winget's blanket denial. According to Winget, the district court erred when it ignor[ed] Winget's denial [and] made the factual finding that specific performance was the `only way' for the Agent to enforce its `audit rights.' Winget has again misapprehended the proper analysis under Rule 12(c). The issue of whether JPMorgan has an adequate remedy at law that would make specific performance inappropriate is a legal conclusion, not a factual determination. The facts underlying JPMorgan's request for specific performance are generally undisputed. Section 11(d) of the Winget Guaranty contains a number of negative covenants that restrict the actions that can be taken by P.I.M. and Venco during the existence of the Winget Guaranty. JPMorgan is also granted inspection rights in § 11(d) in order to ensure proper compliance with the covenants. By its letter dated September 21, 2005, JPMorgan sought to exercise its right of inspection. Winget refused the request. These basic facts are alleged in the Complaint and are not refuted. Winget attempts to argue that JPMorgan's letter does not closely track the language of the inspection provisions, but does not elaborate as to how exactly the letter and the provisions differ. In all material respects, we find that the letter properly tracks the language of the inspection provisions. The presence of the negative covenants applicable to Winget's collateral, along with JPMorgan's letter and Winget's response, support the conclusion that specific performance was proper in order to ensure that JPMorgan can properly evaluate the condition of the pledged P.I.M. and Venco stock and ensure compliance with the negative covenants. In the alternative, Winget argues that any possible harm to JPMorgan arising from a breach of the Guaranty can be remedied through an award of monetary damages. But the only plausible remedy for Winget's failure to allow inspection is to order such inspection. The inspection rights are essential to permit enforcement of the negative covenants listed in § 11(d) of the Winget Guaranty. These covenants govern the collateral pledged by Winget, in the form of guaranties by P.I.M. and Venco, and restrict the actions that can be taken with respect to those entities. Thus, contrary to Winget's assertion that the sole right of [JPMorgan] under those documents is to enforce its security interest and apply the proceeds to satisfaction of the Guaranteed Obligations, JPMorgan has an explicit right to inspect the financial records of Winget and the companies he controls in order to ensure that there is sufficient collateral to satisfy Winget's debt if JPMorgan needs to enforce its security interest at a later time. We therefore conclude that JPMorgan lacks an adequate remedy at law to enforce its inspection rights under the Winget Guaranty. Winget also asserts that specific performance is inappropriate because JPMorgan has failed to demonstrate its clean hands in seeking specific performance. In support of this argument, Winget cites to Rust v. Conrad, 47 Mich. 449, 11 N.W. 265, 267 (1882), which states that equitable relief is unavailable [i]f the contract is unequal; if he has bought land at a price which is wholly inadequate; if he has obtained the assent of the other party to unreasonable provisions; if there are any indications of overreaching or unfairness on his part, the court will refuse to entertain his case, and turn him over to the usual remedies. Thus, one who seeks the aid of equity must come in with clean hands. Rose v. National Auction Group, Inc., 466 Mich. 453, 646 N.W.2d 455, 463 (2002) (quoting Stachnik v. Winkel, 394 Mich. 375, 230 N.W.2d 529, 532 (1975)). Winget included specific allegations of unclean hands in both his Answer and in his amended Counterclaim. In his Answer, Winget baldly asserts that Plaintiff's claims are barred based on unclean hands. The allegations of unclean hands in his amended Counterclaim relate to JPMorgan's actions during the bankruptcy of Venture. As such, these allegations cannot be said to be willful act[s] concerning the cause of action presently before the court. Stachnik, 230 N.W.2d at 534 (quoting Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806, 815, 65 S.Ct. 993, 89 L.Ed. 1381 (1945)). Winget argues that the district court erred in ignoring these allegations in granting judgment on the pleadings, but we conclude that Winget has not actually raised the issue of unclean hands with respect to the specific performance of the inspection rights of the Winget Guaranty. Another argument briefly raised by Winget is that JPMorgan has not alleged that Winget has any legal right to any of the financial information belonging to P.I.M. and Venco. We find this argument meritless, if not disingenuous. Although Winget is correct in asserting that § 11(d) provides that he will cause certain information to be produced, there is no requirement that JPMorgan prove that Winget can actually produce the information. Winget entered into an agreement wherein he promised to cause the production of the requested information from entities that are explicitly referred to as Guarantor Controlled Companies. The language of the contract speaks for itself. Winget cannot avoid the promise he made by arguing that before receiving judgment on the pleadings, JPMorgan is required to prove that Winget can actually deliver on that promise. Winget further contends that the order entered by the district court impermissibly involves the court in supervision of the inspection process. Under Michigan law, [s]pecific performance will not be decreed where enforcement of the decree would require continuous judicial supervision. Edidin v. Detroit Econ. Growth Corp., 134 Mich.App. 655, 352 N.W.2d 288, 291 (Mich.Ct.App.1984). But the inspection requested by JPMorgan and ordered by the district court does not involve continuous judicial supervision of the kind disfavored by the Michigan courts. For example, Michigan courts have refused to order specific performance of a long-term joint commercial venture, id., or the continued performance of laundry services throughout the term of a lease and its renewal, Laker v. Soverinsky, 318 Mich. 100, 27 N.W.2d 600, 601 (Mich.1947). But the inspection in the instant case is more analogous to the limited discovery process commonly undertaken in the district courts. In the cases cited by Winget, moreover, the trial court determined that its own resources would not be taxed by the relief requested. Similarly, the district court here is in the best position to determine whether it can properly supervise the inspection of the records it has ordered. An order has already been entered outlining the procedure for production and inspection of the records. The district court has also entered a protective order designed to alleviate Winget's concerns about the misuse of confidential financial data. After carefully reviewing these orders, we conclude that they do not impermissibly embroil the district court in the kind of continuous judicial supervision disfavored by the Michigan courts. Finally, Winget argues that the district court's order is vain because Winget can release the pledged P.I.M. and Venco stock at any time through the payment of $50 million for each pledge. The Michigan Supreme Court has stated that specific performance should not be granted where one of the parties might nullify its action through the exercise of a discretion which the contract or the law invests him with. Rust, 11 N.W. at 267. This standard has been explained as follows: In such situations it is obvious, of course, that there are corresponding benefits under the contract flowing from the first party to the second and from the second party to the first, which are parallel, continuous, contemporaneous and co-extensive and that, hence, termination of the contract by either party at any particular time would leave both in substantially status quo ante, thus resulting in no substantial injustice to either party. Plastray Corp. v. Cole, 324 Mich. 433, 37 N.W.2d 162, 166 (Mich.1949). The party seeking specific performance in Plastray had provided a large initial capital outlay in anticipation of a future benefit. In consequence, termination at any time by defendant might not leave the parties in status quo ante and refusal to grant specific performance would, accordingly, work a hardship and result in an injustice. Id. On the other hand, this court has found specific performance inappropriate when the party requesting specific performance may, through the exercise of discretion, terminate the contract. Lowe's Home Ctrs., Inc. v. LL & 127, LLC, 147 Fed.Appx. 516, 524 (6th Cir.2005) (holding that the district court did not abuse its discretion in denying the plaintiff's request for specific performance where the agreement [the plaintiff] is seeking to enforce vests [the plaintiff] with the discretion to avoid performing under certain circumstances). JPMorgan requested the order of specific performance but, unlike the plaintiff in Lowe's, it does not have the discretion to avoid performing under the Guaranty. Id. Rather, the present case is more analogous to Plastray. 37 N.W.2d at 166. JPMorgan provided a significant initial capital outlay in anticipation of future repayment by Winget. Moreover, Winget's exercise of his partial buyout option by paying $50 million per pledge might not leave the parties in status quo ante. See id. In order to not work a hardship . . . result[ing] in an injustice, we conclude that the specific-performance order is not vain. See id.