The Grupo Mexicano Problem:
Defendants may dissipate assets, leaving you chasing a meaningless judgment. Your case – in essence at least – is a contract claim for money damages. Other claims might be asserted in your complaint, but there is no denying that there exists a valid contract governing the parties’ rights and obligations. The Supreme Court’s decision in Grupo Mexicano stands in your way.
The Supreme Court decided in Grupo Mexicano that a district court has no authority to issue a preliminary injunction preventing the defendants from disposing their assets pending adjudication of the plaintiffs’ contract claim for money damages.1 To the discerning court, Grupo Mexicano disposes of requests for injunctive relief in garden variety contract litigation.
But if your claims are not garden variety, or colored by fraud, you shouldn’t rule out the possibility of injunctive relief to freeze assets. The majority in Grupo Mexicano reserved the question of whether an injunction to protect a legal remedy would be appropriate in cases where the defendants engaged in fraudulent conduct.2
On this basis, courts of appeal of the First,3 Fifth,4 Sixth,5 Eighth,6 and Ninth Circuits7 hold that preliminary injunctions may be granted in On this basis, courts of appeal of the First,3 Fifth,4 Sixth,5 Eighth,6 and Ninth Circuits7 hold that preliminary injunctions may be granted in freezing cases involving fraud or equitable relief where a plaintiff can prove “a clear and close nexus to the assets sought to be enjoined.”8
Navigating Grupo Mexicano:
If you assert a request for injunctive relief in your contract suit, and couple it with an equitable claim without an accompanying fraud claim, you can’t be certain that it will survive Grupo Mexicano. Courts will look to the gist of the complaint to determine whether it sounds in equity or breach of contract.
For example, some courts hold that the plaintiff does not get the benefit of the equitable claim exception to Grupo Mexicano where “any equitable relief that [Plaintiff] may be entitled to obtain is contingent upon the success of its claim for money damages.”9 On the other hand, some courts have found that where a plaintiff asserts a claim for unjust enrichment, they have set forth a sufficient claim in equity to overcome Grupo Mexicano.10 This is an attractive option to some litigants, who choose to plead claims for unjust enrichment in the alternative to their claims for breach of contract.
But even in this circumstance, some courts still look for fraud. These courts recognize that unjust enrichment claims cannot survive where there is a valid contract, and that a plaintiff can only bring such claims together where there is evidence of “fraud, bad-faith, or illegality.”11 In this same vein, courts have specifically found that an asset-freeze injunction is appropriate where a fraudulent conveyance is involved.12 This leaves us with the following basic conclusions:
- A litigant with a basic, garden-variety contract claim is unlikely to obtain injunctive relief to prevent the disposing of assets.
- A litigant with contract and equitable claims is more likely to obtain injunctive relief to prevent the disposing of assets.
- A litigant with contract, equitable, and fraud claims is most likely to obtain injunctive relief to prevent the disposing of assets.
Recommendations for Litigators:
Focus on your pleadings. Dig deep into your facts before you file your contract claim, and do not neglect your equitable and fraud causes of action. Your concern to begin with was that the defendant is likely to dissipate assets ahead of judgment. Ask yourself and your client “why?” Is there something that leads you to believe that this person will try to evade a judgment? If the facts indicate that the elements of fraud may be met, add the fraud claim, and couple it with an unjust enrichment claim pled in the alternative.
Consult your client on the risks. Consult your client on the fees and costs associated with this strategy in light of your chances of success. Moving for injunctive relief is costly in terms of fees and requires considerable review and briefing. Depending on the nature and complexity of the financial information received, you may require an expert to assist you. Moreover, before issuing a temporary restraining order, the court may require your client to post a bond sufficient to pay costs and damages sustained by any wrongful enjoinment of property.13 The court has discretion to waive the bond requirement, but is not required to do so.14
Move for a temporary restraining order. You may move the court for a temporary restraining order, including an asset freeze, to temporarily preserve the status quo while you receive and analyze the information required to move for a preliminary injunction. The court will be demanding – looking to see whether the factors of F.R.C.P. 65 lean in favor of granting the temporary restraining order, and whether you have overcome Grupo Mexicano. The court will ask what you would like it to order, including a timeline on production of documents, a hearing date for a preliminary injunction, and any other key details. Be prepared to identify these issues in your motion. Don’t forget to ask the court to waive the bond requirement of F.R.C.P. 65(c).
Move for a preliminary injunction. Litigants will likely receive an initial 14-day deadline to move for a preliminary injunction before the temporary restraining order expires, which may be extended under some circumstances. In that time, the court will likely set a hearing to evaluate whether, in addition to the factors of F.R.C.P. 65, you have proven a nexus between your clients’ money and the monies that you are seeking to enjoin. Your focus should be proving that nexus.
Handle the case. If you’ve made it this far, and your preliminary injunction is granted, there is likely money that will be waiting for your client if you obtain a judgment in this case. You are hopefully left with some peace of mind that the litigation won’t be pointless and that your client can recover.
If you have any questions regarding obtaining injunctive relief in contract-fraud causes, or any other questions, please feel free to contact Chedid & Co.
This has been prepared for informational purposes only. It does not ontain legal advice or legal opinion and should not be relied upon for individual situations. Nothing herein creates an attorney-client relationship between the Reader and Chedid & Co. The information in this document is subject to change and the Reader should not rely on the statements in this document without first consulting legal counsel.
THIS IS AN ADVERTISEMENT