Stop Them Now – They Are Killing Me!

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  • Until about a month ago (or, perhaps until this past September), had you asked us if a court would order a tenant to keep its store open and operating, we would have said, “Probably, not,” with an emphasis on the “Not.” We think a large majority of our colleagues would have agreed. That’s not to say that there couldn’t have been very special circumstances not included within our “Not,” but we would have thought those circumstances would need to have been unique in character. Today, after an Indiana court has (for now) barred a chain store retailer from closing 77 stores located in the aggrieved developer’s malls and a Washington state court has (for now) barred a (chain) supermarket from closing a single store, we’re far less sure. We aren’t going to dissect those two court orders today. That’s for next week, another holiday weekend. Today, we’ll just glaze eyes over with some legal background.

A long time ago, Corbin or Williston or someone of that stature, in his law review article, expressed the thought that inherent in every contract is the right of a party to breach that contract. Of course, doing so would expose the breaching party to paying “damages.” That means if a breaching party is willing to pay a compensatory sum to the party being harmed, that would be a perfectly fine trade-off under the law. This is generally the underpinning to the “efficient breach theory.” Basically, contract law does not involve punishment; it involves paying people what they would have “made” had the parties performed their promised obligations. There may be a “moral” basis behind keeping promises, but that’s not what courts care about.

Monetizing contract (leases, mortgages, etc.) breaches is almost always the exclusive remedy courts have to “satisfy” a harmed party. Sometimes, but not very often, a court will utilize a different remedy – it will order that a breaching or breach-threatening party to perform its obligations. In most parlances, that called ordering “specific performance.” [While this seems or feels like an “equitable” remedy, it is actually a remedy “at law.” The distinction between “at law” and “equitable” remedies used to be a lot clearer and a lot more important in years gone by, but that train has long left the station.] Getting a court to order that one party or the other actually perform a contractual obligation takes time. And, a lot of things can happen between when a party first makes its request in court and the court reaches a final decision. Yes, the legal process almost always takes a long, winding road to get to a destination.

What happens if during the legal process, things might happen that make the whole process worthless? When immediate, irreparable harm is being threatened by a party about to breach a contract or by one who “just” did so, there is a procedure to try to freeze the “status quo,” to maintain or restore the existing state of affairs. Different jurisdictions have different names for these stages, but generically they are a temporary restraining order (TRO), followed by a preliminary injunction order, and then followed by a permanent injunction. The permanent injunction could be an order of specific performance (read that: you must do what you contractually promised to do) or an order to stop doing (or to not do) what you were doing or threatening to do in the first place.

A temporary restraining order is a stop-gap measure available if the seeking party can persuade a judge that, absent the order, it will suffer immediate, irreparable injury. These can be sought without notifying the breaching or breach-threatening party, but is most often sought after giving the other party a very short notice. Whatever the timing might be, being only a stop-gap remedy, a court will set a near-time date for the parties to duke it out as to whether the restraining order (the remedy in it) should be extended by the issuance of a preliminary injunction. The time period between the issuance of a temporary restraining order and the hearing for a preliminary injunction will generally be short, long enough for the parties to gather basic facts and make basic arguments. There usually isn’t enough time for a full airing or arguments and issues.

A permanent injunction, if issued, follows a full trial where each disputant gets to present its entire case. That’s not the case for either a temporary restraining order or for a preliminary injunction. That’s because they are both designed to allow the parties to fully argue their positions without their dispute becoming moot. Both of those early-stage judicial actions are designed to avoid irreparable harm while still balancing the conflicting interests of the parties. A simple example is that if allowing a tenant to close its store in violation of its lease would irreparably harm the landlord, perhaps destroy the landlord’s business, and the tenant is only slightly disadvantaged by staying open until the full case can be presented, why not “preserve” the situation by ordering the store to remain open?

A courts’ decision to step in and freeze a situation is not unbound by standards. Classically, there are four things that must exist before a complaining party can get temporary or preliminary relief. First, it must show that it has no other adequate remedy at law and, absent relief, it will be irreparably harmed. Generally, that means if the complaining party could be reasonably made whole with a monetary judgment, it can’t get a restraining order or an injunction. That, alone, is not enough. So, second, the party against whom the order is sought can’t be more harmed than its antagonist. Courts are required to “balance” the effect of the requested order. They must ask, “Who will be more hurt”?

Of course, a court shouldn’t issue a requested order if it doesn’t look like the complaining, in the end, would win the case. That’s the third standard. Traditionally, that’s expressed as follows: without there being a “likelihood of success on the merits of the case,” you can’t (or should not be able to) get a preliminary injunction or a temporary restraining order.

Lastly, and more hazily, issuing these kinds of orders shouldn’t violate something called the “public interest.” This fourth standard is usually implicated only when the government is a party or intimately affected by the dispute, but in certain cases, even private disputes implicate this factor.

Readers, keep all of this in mind in preparation for next week’s blog posting when we will apply these principles to a couple of real world cases, ones directly impacting retail shopping centers.

[For those who haven’t had enough of the “damages” stuff, and have no personal life, take a look at some early postings about the law of “damages” in general. That can be done by clicking: HERE and HERE and HERE.]

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