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

Heading: The Probability of Irreparable Harm to Teradyne and the Inadequacy of Legal Remedies

Text: 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.