Remedies for Wrong Preliminary Injunctions: The Case for Disgorgement of Profits and Only Partial Liability for Harms
32 Pages Posted: 26 Dec 2007
Date Written: December 25, 2007
What kind of remedies should be available for those enjoined by a wrong preliminary injunction? Assuming that the remedy should be designed to minimize the irreparable harm from a wrong preliminary injunction, two considerations should be taken into account: first, from an ex-ante perspective, the remedy can increase the likelihood that a preliminary injunction is issued only when it is expected to induce irreparable social harms that are lower than those expected if it is not issued; second, from an ex-post perspective, the remedy can contribute to the minimization of the irreparable social harms inflicted when a preliminary injunction was issued. This Article demonstrates that these considerations lead to two central conclusions: (1) it is desirable to award the remedy of restitution, which requires the moving-party to disgorge the benefits obtained at the expense of the defendant by the wrong preliminary injunction; (2) it is unjustified to require the moving-party to compensate the defendant for all harms inflicted due to the wrong preliminary injunction.
The analysis also calls for a revision of the definition of irreparable harms. It shows that a deadweight-loss suffered by one party is socially irreparable even if this party's private loss can be cured by a remedy after trial. The available remedies - both when the plaintiff prevails and a preliminary injunction was not issued, and when a wrong preliminary injunction was issued but the defendant prevails - determine only what undeserved-wealth-transfers should be regarded as relevant irreparable social costs.
From a broader perspective, the analysis enriches our understanding of restitutionary remedies. In addition to internalizing positive benefits and deterring wrongful conducts, the remedy of disgorgement of profits can also serve to remove improper motives to engage in an overall socially desirable behavior. In the current context, establishing an expansive duty to disgorge profits derived from unsuccessful litigation can mitigate the threat of frivolous suits, without jeopardizing the main instrument available to encourage disputants to turn to the judicial system - the grant of immunity from tortious liability. The case of remedies for wrong preliminary injunctions can thus demonstrate that restitution can serve as a middle ground between the ideal, which drives us to confer rights and liberties, and reality, which forces us to be minded of their misuse.
Keywords: Preliminary injunctions, remedies, unjust enrichment
JEL Classification: K11, K41
Suggested Citation: Suggested Citation