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Mitchell Stein: California Attorney General Responds Against Mitchell Stein Suit in Mass Joinder Action

17 Dec

California Attorney General Responds Against Mitchell Stein Suit in Mass Joinder Action

The California Attorney General has responded to the suit filed by Mitchell Stein, Esq. that he filed against people as an extension of the California mass joinder raids, see an article on a similar suit here. This suit by Stein was filed in several states, including Florida, California, and New York.

The response by the California Attorney General’s office rebuts some of the allegations made. The response states:

Mitchell Stein, and his law firm were sued last month by the California Attorney General and a temporary restraining order was issued to “freeze personal assets held in Stein’s name and place them under the control of a court-appointed receiver.” The court granted the motion, “finding absent such relief, Stein was likely to continue violating the law and to dissipate ill-gotten gains that rightfully belonged to the victims.”

The State of California action against Mitchell Stein alleged “involvement in a widespread mortgage-fraud scheme by which they used false and misleading representations and an illegal running-and-capping scheme to introduce homeowners into joining so-called “mass joinder” lawsuits against their mortgage lenders.”

“The California Attorney General’s complaint alleges that the Mass-Joinder Defendants bilked homeowners out of millions of dollars by the use of deceptive mailers, brochures, and websites, and numerous false and misleading representations.”

One of the points I read from commenters often in respond to the California AG action and raids is that the AG is trying to stop legal actions against the banks. The AG response address this is when it says, “The California Attorney’s complaint expressly takes no position on the underlying merits of the mass-joinder lawsuits filed by Stein, but instead relates solely to the means by which Stein and other Mass Joinder Defendants marketed the suits.”

Apparently the reason Stein filed this action on the bankruptcy court in Florida is due to his ongoing bankruptcy case he filed March 13, 2009, just one day after he filed his first mass joinder lawsuit against Bank of America.

Stein’s Chapter 11 bankruptcy was confirmed on February 7, 2011 and allowed payments to creditors lasting eight years.

On August 19, 2011, two days after the California State Bar assumed jurisdiction over Stein’s law practice, Stein filed an adversary proceeding against the California Attorney General asking for “at least $10 million in damages for purportedly violating the automatic stay.” The action filing by Stein wanted to prevent the California Attorney General from its enforcement action.

Three days later Mitchel Stein filed another effort with the bankruptcy court in Florida to prevent the turnover of all property stein zed from Stein. On August 26, 2022 the Florida Court denied Stein’s motion after finding Stein had “no likelihood of success on the merits.”

At the hearing Stein “raised the issue of a Mercedes Benz AMG SL55 Roadster which Stein represented he owns pursuant to a compromise approved by the bankruptcy court. The Court then prevented the state court receiver from taking his Mercedes. – Source

California Attorney General Responds Against Mitchell Stein Suit in Mass Joinder Action Mitchell Stein Mass Joinder  real estate related debt articles

A Mercedes Benz AMG SL55 Roadster.

If Greece fails

14 May

Here are a few things:

  • Every bank in Greece will instantly go insolvent.
  • The Greek government will nationalise every bank in Greece.
  • The Greek government will forbid withdrawals from Greek banks.
  • To prevent Greek depositors from rioting on the streets, Argentina-2002-style (when the Argentinian president had to flee by helicopter from the roof of the presidential palace to evade a mob of such depositors), the Greek government will declare a curfew, perhaps even general martial law.
  • Greece will redenominate all its debts into “New Drachmas” or whatever it calls the new currency (this is a classic ploy of countries defaulting)
  • The New Drachma will devalue by some 30-70 per cent (probably around 50 per cent, though perhaps more), effectively defaulting 0n 50 per cent or more of all Greek euro-denominated debts.
  • The Irish will, within a few days, walk away from the debts of its banking system.
  • The Portuguese government will wait to see whether there is chaos in Greece before deciding whether to default in turn.
  • A number of French and German banks will make sufficient losses that they no longer meet regulatory capital adequacy requirements.
  • The European Central Bank will become insolvent, given its very high exposure to Greek government debt, and to Greek banking sector and Irish banking sector debt.
  • The French and German governments will meet to decide whether (a) to recapitalise the ECB, or (b) to allow the ECB to print money to restore its solvency. (Because the ECB has relatively little foreign currency-denominated exposure, it could in principle print its way out, but this is forbidden by its founding charter.  On the other hand, the EU Treaty explicitly, and in terms, forbids the form of bailouts used for Greece, Portugal and Ireland, but a little thing like their being blatantly illegal hasn’t prevented that from happening, so it’s not intrinsically obvious that its being illegal for the ECB to print its way out will prove much of a hurdle.)
  • They will recapitalise, and recapitalise their own banks, but declare an end to all bailouts.
  • There will be carnage in the market for Spanish banking sector bonds, as bondholders anticipate imposed debt-equity swaps.
  • This assumption will prove justified, as the Spaniards choose to over-ride the structure of current bond contracts in the Spanish banking sector, recapitalising a number of banks via debt-equity swaps.
  • Bondholders will take the Spanish Banking Sector to the European Court of Human Rights (and probably other courts, also), claiming violations of property rights. These cases won’t be heard for years. By the time they are finally heard, no-one will care.
  • Attention will turn to the British banks. Then we shall see…

Another warning about loan modification scams issued

2 Apr

By Nancy McCarthy
Staff Writer

When Los Angeles lawyer Luis Rodriguez responded to a summons-like mailer soliciting him to join other homeowners in a lawsuit against the Bank of America, he was told he qualified to be a plaintiff and had only to “donate” $6,000 to sign up. Rodriguez, a deputy public defender and member of the State Bar Board of Governors, was told the bank had misled consumers, but “high caliber” lawyers would handle the case. Be patient, he was told; these cases take a year or two to resolve. And, he was promised, he would receive some money.

The solicitation came to Rodriguez’ home and although he once had a BofA loan and had refinanced, the bank was no longer involved. But he apparently was a target of the latest marketing effort to attract homeowners who, unlike Rodriguez, are facing foreclosure. (Rodriguez did not join the suit.) The California Department of Real Estate issued a consumer alert last month warning mortgage holders to beware of such solicitations by lawsuit marketers who request upfront fees to file “mass joinder” or class action lawsuits with promises of extraordinary home mortgage relief.

The marketing materials variously claim a class action lawsuit may already have been filed and a homeowner can join as a plaintiff and can stop paying the lender, the lawsuit will help modify a home loan, or filing a lawsuit will stop the homeowner’s payment obligation and foreclosure. One Internet advertisement claims, “. . . at the very least, damages could be awarded that would reduce the principal balance of the note on your home to 80 percent of market value and give you a 2 percent interest rate for the life of the loan.”

The marketing materials “always seem to suggest with hyperbole that the result an individual homeowner can get is everything from a cash settlement to reduction in the loan or what they call an equity strip, which means they get the home free and clear,” said Wayne Bell, DRE chief counsel.

Such claims, he added, are “often overblown and exaggerated. But people are desperate for some kind of hope, and this gives them the hope.”

The “mass joinder” and class action solicitations are the latest in a long list of ways to deal with the housing foreclosure crisis that began in 2009. The Department of Real Estate issued consumer alerts and fraud warnings early on about loan modification scams, in which lawyers took fees upfront but then did none of the promised work to help clients avoid foreclosure. In October 2009, Senate Bill 94 became law in California, prohibiting lawyers from collecting upfront fees in loan modification or mortgage forbearance matters.

Scammers quickly followed up with schemes related to short sale transactions, forensic loan audits, false and misleading claims of special expertise and credentials related to home loan relief services, and other real estate and mortgage relief swindles. In January, the Federal Trade Commission also banned advance fees but carved out an exception for lawyers who meet certain conditions. For the most part, however, SB 94 trumps the FTC ban and prohibits lawyers from collecting advance fees for loan modification work.

The newest claims, usually made via direct mailers and the Internet, offer both legitimate-sounding litigation services and promises of extraordinary remedies, all “with the goal of taking and getting some of your money,” Bell said.

The State Bar, which created a loan modification task force in 2008 to handle a groundswell of client complaints about lawyers who commit misconduct in that area, is starting to receive complaints about lawyers who offer to add clients to a class action lawsuit. Each client generally pays a non-refundable fee, anywhere from $3,000 to $9,000, to be added as a plaintiff. Bar investigator Tom Layton said he believes thousands of people have been solicited and signed up, and he estimated bogus foreclosure litigation operations may have collected between $10 million and $15 million. It is unclear whether lawyers are engaging in marketing, doing legal work or sharing fees with non-lawyers.

An Internet search of terms like “foreclosure defense,” “mortgage litigation” and “mass joinder” produces no shortage of results, including an invitation to join a lawsuit against the Bank of America that claims 1,200 plaintiffs. Bell provided a flyer from an operation claiming to represent a “nationwide group of attorneys” that explained that distressed homeowners have three options when considering whether to hire a lawyer – start making payments on your home, move out and either pay rent or a new mortgage or hire a lawyer.

“By hiring an attorney,” the flyer says, “you not only get the immediate protection and assistance you need to prevent you (sic) lender from taking your home but you also have a chance of getting a much lower payment, lower principal balance and in some cases elimination of the mortgage altogether.”

Another site advises simply, “Sue Your Mortgage Lender.” It talks about “[a] secret conspiracy that transpired among a vast network of blood-thirsty financiers. . .” and asserts that “[b]ankers along with loan officers were utilizing bribery and kickback strategies to sway real estate appraisers. . .”

The site includes a 16-page retainer agreement with a fee based on the value of the consumer’s property value. The smallest retainer fee is $4,000.

A solicitation circulating in the Hispanic community in Los Angeles offers “for $10,000 we can get you your home for free.”

Bell urges consumers to be skeptical about marketing pitches and to carefully vet lawyers and examine claims that lawsuits can protect homeowners from foreclosure. He explains that litigation can be expensive and protracted and there are no guarantees with respect to the outcome.

“Mortgage rescue frauds are extremely good at selling false hope to consumers with regard to home loans,” Bell warns. “The scammers continue to adapt and to modify their schemes as soon as their last ones became ineffective.”


18 Mar
Deutsch: Logo der Deutsche Bank

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Archive for April, 2011

Lynn E. Szymoniak, Esq., April 23, 2011

Download this Article as a PDF.

On April 13, 2011, the Permanent Subcommittee on Investigations of the U.S. Senate released a report titled “Wall Street and The Financial Crisis: Anatomy of a Financial Collapse.”

Section VI of the Report, pages 318 to 639, is titled “Investment Bank Abuses: Case Study of Goldman Sachs and Deutsche Bank.” Part B of this section, pages 330 to 375, focuses on Deutsche Bank and is titled “Running the CDO Machine: Case Study of Deutsche Bank.”

The Deutsche Bank case study section is divided into the following areas:

(1) Subcommittee Investigation and Findings of Fact

(2) Deutsche Bank Background

(3) Deutsche Bank’s $5 Billion Short

(a) Lippmann’s Negative View of Mortgage Related Assets

(b) Building And Cashing In the $5 Billion Short

(4) The “CDO Machine” (5) Gemstone

(a) Background on Gemstone

(b) Gemstone Asset Selection

(c) Gemstone Risks and Poor Quality Assets

(d) Gemstone Sales Effort

(e) Gemstone Losses

(6) Other Deutsche Bank CDOs

(7) Analysis

The Analysis Section, pages 374 – 375, states the following clear condemnation of Deutsche Bank’s practices:

Deutsche Bank was the fourth largest issuer of CDOs in the United States. It continued to issue CDOs after mortgages began losing money at record rates, investor interest waned, and its most senior CDO trader concluded that the mortgage market in general and the specific RMBS securities being included in the bank’s own CDOs were going to lose value. Mr. Lippmann derided specific RMBS securities and advised his clients to short them, at the same time his desk was allowing the very same securities to be included or referenced in Gemstone 7, a CDO that the bank was assembling for sale to its clients. In fact, the bank was selling some assets that Mr. Lippmann believed contained “crap.” While the Gemstone CDO was constructed and marketed by the bank’s CDO Desk, which is separate from the trading desk controlled by Mr. Lippmann, both desks knew of Mr. Lippmann’s negative views. The bank managed to sell $700 million in Gemstone 7 securities which then failed within months, leaving the bank’s clients with worthless investments.

This case history raises several concerns. The first is that Deutsche Bank allowed the inclusion of Gemstone 7 assets which its most senior CDO trader was asked to review and saw as likely to lose value. Second, the bank sold poor quality assets from its own inventory to the CDO. Third, the bank aggressively marketed the CDO securities to clients despite the negative views of its most senior CDO trader, falling values, and the deteriorating market. Fourth, the bank failed to inform potential investors of Mr. Lippmann’s negative views of the underlying assets and its inability to sell over a third of Gemstone’s securities. Each of these issues focuses on the poor quality of the financial product that Deutsche Bank helped assemble and sell. Still another concern raised by this case history is the fact that the bank made large proprietary investments in the mortgage market that resulted in multi- billion-dollar losses – losses that, in this instance, did not require taxpayer relief but, due to their size, could have caused material damage to both U.S. investors and the U.S. economy.

“Mr. Lippmann” in the above summary refers to Greg Lippmann, Deutsche Bank’s top global CDO trader. Regarding Mr. Lippman, the Senate report finds the following (on page 330):

By the middle of 2006, Mr. Lippmann repeatedly warned and advised his Deutsche Bank colleagues and some of his clients seeking to buy short positions about the poor quality of the assets underlying many CDOs. He described some of those assets as “crap” and “pigs,” and predicted the assets and the CDO securities would lose value.

At one point, Mr. Lippmann was asked to buy a specific CDO security and responded that it “rarely trades,” but he “would take it and try to dupe someone” into buying it. He also at times referred to the industry’s ongoing CDO marketing efforts as a “CDO machine” or “ponzi scheme.”

“Gemstone” in the above summary refers to a CDO that the Subcommittee chose to examine in detail called Gemstone CDO VII Ltd. (Gemstone 7). The Subcommittee report states the following (on page 331) regarding Gemstone 7:

In October 2006, Deutsche Bank began assisting in the gathering of assets for Gemstone 7, which issued its securities in March 2007. It was the last in a series of CDOs sponsored by HBK Capital Management (HBK), a large hedge fund which acted as the collateral manager for the CDO. Deutsche Bank made $4.7 million in fees from the deal, while HBK was slated to receive $3.3 million. It was not the last CDO issued by Deutsche Bank. Even after Gemstone 7 was issued in March of 2007, Deutsche Bank issued 9 additional CDOs.

Gemstone 7 was a hybrid CDO containing or referencing a variety of high risk, subprime RMBS securities initially valued at $1.1 billion when issued. Deutsche Bank’s head global trader, Mr. Lippmann, recognized that these RMBS securities were high risk and likely to lose value, but did not object to their inclusion in Gemstone 7. Deutsche Bank, the sole placement agent, marketed the initial offering of Gemstone 7 in the first quarter of 2007. Its top tranches received AAA ratings from Standard & Poor’s and Moody’s, despite signs that the CDO market was failing and the CDO itself contained many poor quality assets.

Nearly a third of Gemstone’s assets consisted of high risk subprime loans originated by Fremont, Long Beach, and New Century, three lenders known at the time within the financial industry for issuing poor quality loans and RMBS securities. Although HBK directed the selection of assets for Gemstone 7, Mr. Lippmann’s CDO Trading Desk was involved in the process and did not object to including certain RMBS securities in Gemstone 7, even though Mr. Lippmann was simultaneously referring to them as “crap” or “pigs.” Mr. Lippmann was also at the same time advising some of his clients to short some of those same RMBS securities. In addition, Deutsche Bank sold five RMBS securities directly from its inventory to Gemstone 7, several of which were also contemporaneously disparaged by Mr. Lippmann.

Footnote #1325 on paqe 347 shows the disdain for the products the traders were selling was widespread among the traders, as a trader sends a parody of a rap song to his boss at Deutsche:

Mr. Lippmann’s negative views were shared by his traders. In an email originally sent by one of the traders on his desk, Rocky Kurita, the CDO business is set to a song, “CDO Oh Baby,” by VanillaIce with the following lyrics: “Yo vip let’s kick it! CDO oh baby, CDO oh baby. All right, stop, collaborate and listen. Spreads are wide with a technical invasion. Home Eq Subs were trading so tightly. Until Hedge Funds BotProtection daily and nightly. Will they stop? Yo I don’t know. Turn up the Arb and let’s go. To the extreme Macro Funds do damage like a vandal. Now, BBs are trading with a new handle. Print, even if the housing bubble looms. There are never ends to real estate booms. If there is a problem, yo, we’ll solve it. Check out the spreads while my structurer revolves it. CDO oh baby, CDO oh baby.” 11/8/2005 email from Jordan Milman to Greg Lippmann, DBSI_PSI_EMAIL00686597-601 (forwarding an 11/8/2005 email from Rocky Kurita at Deutsche Bank).

Ameriquest Mortgage Securities, Inc. (AMSI) loans were part of the Deutsche Bank warehouse inventory that were included in Gemstone 7. On page 362 of the report, the Subcommittee finds that Mr. Lippmann was also very disdainful of the Ameriquest loans, but that he bought them to sell to investors:

On April 6, 2006, Mr. Lippmann called AMSI 2005-R7 M8 a “crap name.” In a June 16, 2006 email, Mr. Lippmann called AMSI generally a “weakish name.” On December 12, 2006, Gemstone 7 purchased $5 million of another RMBS, AMSI 2005- R11 M10, with no objection from the Lippmann trading desk. (footnotes omitted)

The Report has very many examples of Mr. Lippman and his colleagues and traders sending emails to each other wherein they repeatedly refer to loans and securities as “absolute pigs” and “generally horrible” and “crap” as Deutsche Bank was buying these very loans and securities to sell to investors. “Doesn’t this deal blow?” Lippman asks one of his traders (page 361), as they forge ahead with the deal.

The Subcommittee Report records in painful, exhaustive detail the building and collapse of mortgage securitization and in particular the role of two of the largest entities, Deutsche Bank and Goldman Sachs, in causing investors to lose billions while they reaped the largest profits in the history of their companies.

The Subcommittee Report focused on the financial collapse and Wall Street. The aftermath of that financial collapse was widespread unemployment and foreclosures.

If the Subcommittee had extended its investigation, it would have found that the trusts with the loans from the four mortgage companies identified as “crap” by Deutsche Bank’s traders became the top foreclosure litigants in the country as Deutsche Bank itself became known as “America’s Foreclosure King.”

When Deutsche Bank, as trustee, foreclosed, it was no more honest with courts and foreclosure defendants than it had been with investors. To prove to courts and homeowners that the trusts owned the mortgages in foreclosure actions, Deutsche Bank most often relied on documents produced by Lender Processing Services (“LPS”) to create mortgage assignments to the trusts when the mortgages had been originated by Ameriquest, Fremont, Long Beach and New Century.

LPS employees signed thousands of mortgage assignments as if they were officers of Ameriquest, Fremont, Long Beach and New Century.

Both the Alpharetta, Georgia and the Mendota Heights, Minnestoa offices of LPS produced these Assignments.

On these Assignments, the dates that the trusts acquired the mortgages are falsely stated.

These false Assignments were prepared from 2007 to at least February, 2010. When LPS stopped producing the Assignments, employees of other mortgage servicing companies continued these practices.

The Deutsche Bank trusts needed these Assignments because they failed to get Mortgage Assignments from the loan originators to the trusts – even though Deutsche Bank promised investors and the SEC they would get these mortgage assignments.

On tens of thousands of these LPS produced Assignments, the mortgage servicer is identified as American Home Mortgage Servicing. On the documents produced by LPS subsidiary Docx in Alpharetta, the servicer is identified in a box in the upper left-hand corner as “AHMA” or “AHCIT.”

AHMA is an abbreviation for American Home Mortgage Acquisition, the company that became American Home Mortgage Servicing in Coppell, Texas. American Home Mortgage Acquisition, owned by billionaire investor Wilbur Ross, (the “King of Bankruptcy”) purchased the $45.3 mortgage servicing business of bankrupt American Home Mortgage in September, 2007.

AHCIT is an abbreviation for American Home Citigroup. In February, 2009, Citigroup sold its servicing rights on 185,000 loans to American Home Mortgage Servicing (AHMSI) for $1.5 billion. Citigroup was one of the primary servicers of the Ameriquest loans.

Only a few courts have recognized that the LPS assignments were fraudulent and forged, even after former employees of Docx admitted on a segment of CBS “60 Minutes” to forging over 4,000 documents each day for several years.

No criminal charges have been filed against Deutsche Bank, Lender Processing Services or American Home Mortgage Servicing and all three of these corporations continue to pursue forecloses in courts throughout the United States using fraudulent mortgage assignments to trusts created by Deutsche Bank and sold to investors as the bank was shorting these same investments.

Wrongful Foreclosure

16 Mar
Wells Fargo Advisors

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Successful cases

Success is dependent on the goals of the plaintiff. The objective of gaining title to land free of any liens is rarely achieved, and has not been achieved in California. However, California debtors have used the action to remain in their homes for years after defaulting. (Ghervescu v. Wells Fargo Home Mortg., Inc., 2005 WL 6559918 (Dissolving preliminary injunction restraining trustee from delivering deed to winning purchaser at trustee’s sale).)


A wrongful foreclosure action alleges an “illegal, fraudulent or willfully oppressive sale of property under a power of sale contained in a mortgage or deed of trust.” (Munger v. Moore (1970) 11 Cal.App.3d. 1.) These actions work best when brought prior to the non-judicial foreclosure sale. To prevent the sale, the plaintiff must apply for an injunction and convince a judge that they are entitled to the injunction and that without it they will suffer irreparable harm. (Cal Code Civ. Pro § 526.) If the injunction is successful, the debtor can stay in the home for the duration of the lawsuit.

In Ghervescu v. Wells Fargo Home Mortg., Inc. (Cal. Ct. App., Nov. 16, 2010, E048925) 2010 WL 4621734, a borrower used the above procedural strategy to keep his house for over eight years after his default on the loan. After default, Ghervescu arranged a forbearance agreement with his lender, and some time shortly thereafter applied for a loan modification causing confusion with the lender. The lender failed to put the foreclosure proceedings on hold, and Ghervescu failed to make his payments on time.. The bank did not follow up on the pending application, and held a trustee’s sale prior to promised date of sale. Ghervescu quickly filed for a preliminary injunction to restrain the trustee from delivering the deed to the winning purchaser of the house at the trustee’s sale. The granted injunction prevented the foreclosure sale from constituting the final adjudication of the borrower’s rights. (See Smith v. Allen (1968) 68 Cal.2d 93, 96.)  He lost at trial, and his motion to amend complaint and denied. The case bounced around through three trials and two appeals, finally ending in judgment for the bank.

Foreclosure in California

16 Mar



Many Californians in default on their mortgage and facing foreclosure have filed quiet title and wrongful foreclosure actions. What is a quiet title action against a lender, and are plaintiffs successful in California?

BRIEF ANSWER:                                                                                                         

            A quiet title action in California to determine the owner of property does not generally allow a mortgage borrower in default on their payments to claim title to the land free of liens. However, the action when combined with a wrongful foreclosure claim is often successful in extending the amount of time a defaulted borrower can remain in the house. While in essence, this is simply prolonging the inevitable, it can give a borrower a temporary feeling of control over their own destiny.


Quiet Title Actions as a Defense to Foreclosure

A cause of action to quiet title seeks to determine adverse claims to real or personal property. (Cal. Code Civ. § 760.020.) The action is commonly commenced by homeowners when a lender wrongfully forecloses on their property. My research has not found a favorable California decision quieting title in a mortgage borrower challenging foreclosure. The filing of quiet title actions only prolongs the amount of time a borrower can remain in a house after defaulting.

Theory behind the current suits

The UCC governs negotiable instruments such as mortgages, and it defines a loan as a transferable, signed document that promises to pay the bearer a sum of money at a future date or on demand. Most mortgages are made by investment banks, who then package many similar loans into a mortgage backed security and sell the securities. To convert the mortgages into stocks, each mortgage note must be destroyed. A mortgage and a stock certificate cannot exist at the same time. This creates a gap in the chain of title, and theoretically making the loan invalid. As a result, homeowners can fight foreclosure through a quiet title action and receive clear title. The current trend to argue a break in chain of title is weak, because a “plaintiff may recover only upon the strength of his or her own title, however, and not upon the weakness of the defendant’s title.” (Ernie v. Trinity Lutheran Church (1959) 51 Cal.2d 702, 706.)

A promissory note is usually secured by a deed of trust in the real property. The trust names the security owner as the beneficiary and a loan servicer as the trustee. A trust is a form of ownership in which the legal title of a property is vested in a trustee, who has equitable duties to hold and manage it for the benefit of the beneficiaries. (Restatement of Trusts, Second, §2 (1959).) The trustee under a valid trust deed has exclusive control over the trust property. Usually, the lender records a deed of trust with the county to secure the loan to the debtor. The deeds identify the trustee, and most often identify Mortgage Electronic Registration Systems (MERS) as the nominal beneficiary.

Challenges to MERS

MERS is a company created by the banking industry to bypass recording statutes and filing fees. MERS records who currently owns the notes on a mortgage. A foreclosure may be brought in the name of MERS, and the trustee may act on behalf of MERS to effectuate a non-judicial foreclosure. MERS may also directly initiate a foreclosure proceeding, and California’s “statutory scheme (§§ 2924–2924k) does not provide for a preemptive suit challenging standing.” (Robinson v. Countrywide Home Loans, Inc., (2011) 199 Cal. App. 4th 42, 46.)

The MERS system of foreclosure has been upheld in California based upon two rationales. First, courts have held that MERS, acting as the agent of the beneficial owner, does not need to prove authorization by the beneficiary to foreclose. (Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 55-56.) Second, contract law legitimizes the system, because recent deeds of trust require that the borrower agree that MERS can proceed with foreclosure in the event of default. (Id. at 1157.)

Procedural Requirements for Plaintiffs

California mortgagors must file in the Superior Court, which has the authority to grant the equitable relief of quieting title in an individual. (Cal. Code Civ. §760.040.) Once a party has filed the action, they must file a notice of pendency with the office of the county recorder. (Id. §762.010(b).) This notice puts all other parties who are claiming the party on notice that the plaintiff is claiming the land as his, and stops any transfers of the property during the lawsuit.

To survive a demurer, A plaintiff must file a verified complaint that includes: (1) A legal description and street address of the subject real property; (2) The title of plaintiff as to which determination is sought and the basis of the title; (3) The adverse claims to the title of the plaintiff against which a determination is sought; (4) The date as of which the determination is sought; and (5) A prayer for the determination of the title of the plaintiff against the adverse claims. It is highly likely that a claim merely alleging that the plaintiff has an interest in the land will not make it past a demurer. (See Mangindin v. Washington Mut. Bank, 637 F. Supp. 2d 700, 712 (N.D. Cal. 2009) (Dismissing claim merely alleging plaintiff had an interest in land foreclosed upon by bank).)

Tender Rule

A plaintiff seeking to quiet title in the face of a foreclosure must allege tender, which is “an unconditional offeror an offer of performance of their obligations under the Note, made in good faith, with the ability and willingness to perform.” The “Tender Rule” is derived from several cases involving disputes between junior and senior lienholders. (See Arnolds Mgmt. Corp. v. Eishen (1984) 158 Cal. App. 3d 575, 580; FPCI RE-HAB 01 v. E & G Investments, Ltd. (1989) 207 Cal.App.3d 1018, 1022.)

The policy behind the rule is that it would be a useless act to set aside a foreclosure sale based upon a procedural defect when a mortgage borrower cannot redeem the property in absence of that defect. (Karlsen v. American Sav. & Loan Assn. (1971) 15 Cal.App.3d 112, 118.) Some courts interpret the Tender Rule to only require that the mortgage borrower tender delinquent pre-foreclosure payments prior to any claim of quiet title. (Id. at 117; Ghervescu v. Wells Fargo Home Mortg., Inc., 2005 WL 6559918.)

Recently, defendants have successfully demurred to plaintiff’s complaints for quiet title for failure to allege valid tender. (Vasquez v. OneWest Bank, FSB (Cal. Ct. App., Nov. 4, 2011, B225624) 2011 WL 5248294; Dupree v. Merrill Lynch Mortg. Lending, Inc. (Cal. Ct. App., Oct. 24, 2011, B225150) 2011 WL 5142051 (Affirming demurrer and denial of leave to amend complaint).)

8 Feb

Serving California only 909-890-9192 & 925-957-9797

Top Justice officials connected to mortgage banks

U.S. Attorney General Eric Holder (R) chats with Assistant Attorney General in the criminal division of the Justice Department Lanny Breuer before their testimony on the second day of the Financial Crisis Inquiry Commission hearing on Capitol Hill in Washington January 14, 2010.     REUTERS/Jason Reed

By Scot J. Paltrow

Fri Jan 20, 2012 9:31am EST

(Reuters) – U.S. Attorney General Eric Holder and Lanny Breuer, head of the Justice Department’s criminal division, were partners for years at a Washington law firm that represented a Who’s Who of big banks and other companies at the center of alleged foreclosure fraud, a Reuters inquiry shows.

The firm, Covington & Burling, is one of Washington’s biggest white shoe law firms. Law professors and other federal ethics experts said that federal conflict of interest rules required Holder and Breuer to recuse themselves from any Justice Department decisions relating to law firm clients they personally had done work for.

Both the Justice Department and Covington declined to say if either official had personally worked on matters for the big mortgage industry clients. Justice Department spokeswoman Tracy Schmaler said Holder and Breuer had…

View original post 1,187 more words

7 Feb

California’s Proposition 64 Imposed Important Reforms to Section 17200 and Section 17500 Claims

30 Sep

California’s Unfair Competition Law (“UCL”), Business & Professions Code Sec. 17200, was designed to protect competitors and consumers from illegal, fraudulent, and “unfair” business practices, and Business & Professions Code Sec. 17500 prohibits false advertising.

Until 2004, however, individuals or groups that never suffered any loss or harm could sue on behalf of the “general public” without satisfying traditional class action requirements. Additionally, the statute’s pleading requirements and standards of proof were very liberal and allowed recovery, sometimes on representative basis, upon a determination that the challenged conduct was “unfair” or “likely to deceive a reasonable consumer,” without any proof of actual injury. The lack of formal class action requirements also meant that UCL judgments bound only the named plaintiff and not the “general public” they purported to represent, raising the very real prospect of repeat liability for the same conduct.

California’s voters responded to these problems by passing Proposition 64 in November 2004, implementing important procedural changes to Section 17200 and Section 17500, benefiting large and small businesses that do business in California. Proposition 64 now requires that plaintiff show he or she has suffered an actual injury and has lost money or property as a result of such unfair competition. Proposition 64 also cross-references California’s class action statute, which means that all representative actions under Section 17200 or Section 17500 must meet regular class action requirements.

The first major issue confronted by California courts after Proposition 64 passed was whether its new requirements applied to UCL cases already pending when the initiative passed. The California Supreme Court issued two opinions on July 24, 2006, Californians For Disability Rights, 39 Cal. 4th 223 (2006), and Branick v. Downey Savings & Loan Assoc., 39 Cal. 4th 235 (2006), resolving this issue in favor of applying Proposition 64 to all cases already on file when the initiative took effect (on November 2004).

Next, the California Supreme Court issued In re Tobacco II, 41 Cal. 4th 1257 (2007) regarding the impact of Proposition 64 on UCL claims filed on behalf of a putative class in a case involving the propriety of certifying a UCL class action for Californians who claimed tobacco company advertising regarding terms like “lights” and “low tar” was misleading about health hazards and addictiveness. The decision has received a fair amount of criticism as subverting Proposition 64’s goal of limiting the UCL, as the Supreme Court in In re Tobacco II confined Proposition 64’s standing requirements to named class representatives only.

At the same time, the case affirmed the broad discretion trial courts have to deny class certification, and it did not purport to alter or change the substantive elements required to prove a UCL claim. The In re Tobacco II majority also recognized that the right to restitution under section 17200 depends on whether any money or property “may have been acquired” as a result of the alleged misrepresentation, and other cases confirm that even under the UCL, restitution can only return to a person those measurable amounts which are wrongfully taken by means of an unfair business practice.

Although providing some guidance, In re Tobacco II did not resolve all questions about Proposition 64 and the new UCL requirements, and UCL cases continue to present novel issues that are heavily litigated.

Use Of The CLRA As An Alternative To UCL and False Advertising Claims

Because Proposition 64 was a significant step toward leveling the UCL playing field, some plaintiffs’ attorneys have turned to another California statute, the Consumer Legal Remedies Act (“CLRA”), California Civil Code Section 1750 et. seq. This statute raises problems of its own.

The self-declared purpose of the CLRA, enacted in 1970, is to “protect consumers against unfair and deceptive business practices and to provide efficient and economical procedures to secure such protection.” Cal. Civ. Code § 1760.

Unlike the UCL, the CLRA contains no general broad proscription against “unfair” or “deceptive” practices. Instead, the CLRA lists 23 activities as “unlawful” – from “advertising goods or services with intent not to sell them as advertised” to “inserting an unconscionable provision in [a] contract” to “representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities which they do not have.” When a prohibited activity takes place during a “transaction” involving the sale or lease of goods or services to a “consumer,” CLRA liability may result. Cal. Civ. Code § 1770(a).

Only individual consumers can sue under the CLRA, although they may bring a class action “if the unlawful method, act, or practice has caused damage to other consumers similarly situated.” Cal. Civ. Code § 1781(a). Unfortunately, at least one court has interpreted this provision as requiring “mandatory” class certification if a plaintiff can establish the requisite conditions, such as the impracticability of bringing all members of the class before the court, commonality, typicality, and adequacy of representation. Hogya v. Super. Ct., 75 Cal. App. 3d 122, 140 (1977).

In addition, the CLRA contains some unique procedural devices. First, the plaintiff must notify a defendant of the alleged Section 1770 violations thirty or more days before the filing of a CLRA complaint. See Cal. Civ. Code § 1782. The 30-day letter is required as a condition precedent to maintaining an action for damages under the CLRA. Cal. Civ. Code § 1782(b).

Second, the CLRA prohibits courts from granting a motion for summary judgment, although it does provide a process by which a defendant can make a motion that the given action has no merit. Cal. Civ. Code § 1781(c)(3).

The remedies available under the CLRA also differ from those allowed under the UCL. The CLRA allows for actual damages, punitive damages, injunctive relief, restitution, ancillary relief (“any other relief that the court deems proper”) — and attorney’s fees. Cal. Civ. Code §1780(a)(1)-(5). In order to obtain actual damages, however, a CLRA plaintiff must prove loss causation. See Wilens v. TD Waterhouse Group, Inc., 120 Cal. App. 4th 746, 754 (2003) (“Relief under the CLRA is specifically limited to those who suffer damages, making causation a necessary element of proof”).

Before Prop. 64 was enacted, few plaintiffs asserted CLRA claims because the UCL provided so much flexibility and so many advantages. Since Prop. 64 helped level the UCL playing field, it appears there has been an increase in the number of CLRA claims asserted.

But the CLRA remains more limited than the pre-Proposition 64 version of the UCL. In January 2009, the California Supreme Court issued an important CLRA decision, Meyer v. Sprint Spectrum L.P., 45 Cal. 4th 634 (2009) unanimously affirming judgment for Sprint and concluding that a CLRA plaintiff lacks standing “without some allegation that he or she has been damaged by an alleged unlawful practice.” Sprint was represented in the California Supreme Court by Reed Smith’s own Ray Cardozo and Dennis Maio..

Meyer began in early 2004 with allegations, on behalf of the general public, that Sprint violated the UCL by including mandatory binding arbitration and other provisions in its customer service agreements. After Proposition 64, the original plaintiff (who was not a Sprint customer) was replaced by new named plaintiffs, and CLRA and declaratory relief causes of action were added. Sprint challenged the amended complaint because even the new plaintiffs had not alleged that the contract provisions had been enforced against them, and they also did not allege that they were personally damaged by the provisions. Although plaintiffs argued that the CLRA imposed no damage requirement whatsoever, the court concluded that California’s Legislature had “set a low but nonetheless palpabale threshold of damage.” It also noted that with statutes like the UCL and CLRA, “any rule that would expand the ability of individuals to bring lawsuits has costs as well as benefits.” There is little to say other than that Meyer is a sound and well-reasoned decision that provides important and clear guidance for future CLRA claims.

Remedies a short course

19 Sep


Thomas Jefferson School of Law

Summer 2002

Prof. Berenson

Utilizing Modern Remedies by Weaver, Strachan, Partlett, Lively, and Lawrence

Joseph M. Burello


A. Introduction

– The study of judicial civil remedies is about what lawyers and courts can actually do to help someone who has been, or is about to be, wronged.

B. Classifications of Remedies

1. Substitutionary versus Specific Remedies

– Substitutionary remedies occur when P receives money as a substitute for the right which was violated.

– Specific remedies operate to restore to P the exact item or state of being of which she was wrongfully deprived.

– Specific and substitutionary relief are not necessarily alternatives; it is often necessary to award both specific and substitutionary relief in order to make P completely whole.

2. The Four Major Remedial Categories: Damages Remedies, Coercive Remedies, Declaratory Remedies, and Restitutionary Remedies

a. Damages Remedies

– Damages are substitutionary remedies. The primary forms are compensatory damages and punitive damages. Other forms include nominal, statutory and liquidated damages. See page 3 for descriptions of each form.

b. Coercive Remedies

– Coercive remedies are specific remedies and are capable of being enforced through the court�s contempt power. Coercive remedies are the most effective and powerful remedies wielded by the courts today.

– The primary forms of coercive remedies are injunction and specific performance. When the court orders to do something it is a mandatory injunction. When it orders someone to refrain it is a prohibitory injunction.

– The goal or purpose of coercive remedies is to prevent irreparable harm before it occurs.

c. Declaratory Remedies

– Declaratory relief is neither substitutionary nor specific, in that no court order or directive results from the action.

– The goal or purpose of declaratory relief is simply to provide an authorative pronouncement regarding the rights, obligations or legal relationship of the parties.

d. Restitutionary Remedies

– The primary specific forms are constructive trust, equitable subrogation, rescission and reformation, accounting for profits, ejectment and replevin. The primary substitutionary forms are equitable lien and quasi contract.

– The goal and purpose of restitutionary remedies is to prevent defendant�s unjust enrichment, by making defendant give back that which defendant wrongfully or unjustly gained at plaintiff�s expense.

3. Legal versus Equitable Remedies

– The distinction between the two still makes a difference in five contexts. See page 7.

4. Provisional versus Final Remedies

– Provisional injunctive relief, in the form of a preliminary injunction or temporary restraining order, can provide critical protection pending trial on the merits to a plaintiff who makes a very strong showing of the need for such extraordinary relief.

– Obviously, they can only be justified in exigent circumstances to prevent irreparable harm from occurring before the merits of who�s right and who�s wrong can be adjudicated.

C. Enforcement of Remedies

– All a money judgment really gives a victor is an adjudication of liability entered into the official record. Nothing happens, unless P takes further action.

– Coercive remedies are�in personam� commands which, if not obeyed, can subject D to contempt penalties such as stiff fines or jail, until she obeys the court�s commands.

– Courts also use the contempt power against lawyers, litigants and witnesses to protect dignity and order in the courtroom.

D. Choice of Remedies

– One reason why good lawyers always think, early on, about rights and remedies is that in the vast majority of cases there are alternative claims, legal theories and remedies available � some of which are inconsistent with each other or could become unavailable if the putative P is not carefully advised.


A. A Historical Perspective

1. The merger of law courts and equity courts did not eliminate the use of equitable remedies or the limitations and conditions applicable top those remedies.

2. Over time, as equity courts heard more petitions, they began to develop �rules� or �maxims�governing equitable relief.

a. He who comes into equity must come with clean hands;

b. He who seeks equity must do equity;

c. Equity is a court of conscience;

d. Equity does not suffer a wrong to go without a remedy;

e. Equity abhors a forfeiture;

f. Equity regards as done that which ought to be done;

g. Equity delights to do justice and not by halves;

h. Equitable relief is not available to one who has an adequate remedy at law;

i. Equitable relief is discretionary;

j. Equity aids the vigilant, not those who slumber on their rights;

k. Equity regards substance rather than form;

l. Equity acts in personam;

m. Equity is equality;

n. Equity follows the law;

o. Equity will not aid a volunteer;

p. Where the equities are equal, the law will prevail;

q. Equity imputes an intent to fulfill an obligation;

r. Where the equities are equal, the first in time will prevail.

B. The Development of Equity in the United States

1. With merger, most jurisdictions have abolished distinctions between legal and equitable actions. Rule 2 of the Federal Rules of Civil Procedure is illustrative providing that�there shall be one cause of action known as the �civil action.��

C. Equitable Remedies Today

1. Standards for the Availability of Equitable Relief

a. Conscience and Equity

a. Equitable remedies are only available when �equity� and �conscience� demand them. Court�s use the maxims as well as their own sense of morality.

b. Equitable Remedies Are Granted In Personam

a. When a court renders an�in personam� judgment, it orders the defendant to do, or refrain from doing, some act. A defendant who refuses to comply can be held in contempt and subjected to prison or fine.

c. Inadequacy of Legal Remedy/Irreparable Harm

a. Equitable relief is not available except when plaintiff�s legal remedy is inadequate. This principle is also known as the �irreparable harm� requirement.

b. CASE: Fortner v. Wilson, (1950). Fortner�s rule was codified in Uniform Commercial Code, � 2-716: �specific performance may be decreed where the goods are unique or in other proper circumstances.�

c. CASE: Schiller v. Miller, (1993). Injunctions may not be granted for the retention of personal property unless it is found to be unique or otherwise peculiar, and unless the plaintiff demonstrates that there is no adequate remedy at law.

d. There is no general rule for determining when harm is or is not irreparable, in some circumstances equitable relief is so routinely granted that categories of inadequacy have emerged. The basic categories are:

i. Inability to restore or buy a substitute with money. This category is comprised primarily of property which is unique or unduly difficult to replace with an equivalent or important personal interest or civil rights.

ii. Absence of other remedy.

iii. Damages are too difficult to estimate.

iv. Problems with collecting a money judgment.

v. Multiple judicial proceedings will be necessary.

vi. Other procedural or practical difficulties with legal remedies (e.g., pre-trial delay, jurisdictional problems, immunity rules, etc.).

d. Equitable Relief is Discretionary

a. A court may deny equitable relief even though plaintiff�s legal remedy is inadequate.

b. CASE: Georg v. Animal Defense League, (1950). Even though the presence of the proposed animal shelter may result in some annoyance to appellants, their remedy is not by way of injunction but they are relegated to an action for damages.

c. CASE: Grossman v. Wegman�s Food Markets, Inc., (1973). Contracts which require the performance of varied and continuous acts will not, as a general rule, be enforced by courts of equity, because the execution of the decree would require such constant superintendence as to make judicial control a matter of extreme difficulty.

D. Equitable Defenses

1. Unclean Hands Doctrine

a. The �unclean hands�doctrine states that �he who comes to equity must come with clean hands.�Equity will deny relief to a plaintiff who comes with �unclean hands.�

b. CASE: Sheridan v. Sheridan, (1990). No one shall be allowed to benefit by his own wrongdoing, nor enrich himself as a result of his own criminal acts.

c. CASE: Seagirt Realty Corp. v. Chazanof, (1963). Exception to unclean hands. The clean hands doctrine only applies when the plaintiff has acted unjustly in the very transaction of which he complains.

d. CASE: American University v. Wood, (1920). A court of equity is a court of conscience, and will exercise its extraordinary powers only to enforce the requirements of conscience. It is no part of its function to aid a litigant in the promotion of a fraud upon the public.

e. �Unclean hands,�includes all misconduct and wrongdoing that is sufficiently related to the plaintiff�s claim. Almost any conduct considered to be unfair, unethical or improper � including, of course, the illegal � can be raised as a bar against equitable relief.

2. Unconscionability

a. Since equity developed as a �court of conscience,� courts feel free to deny equitable relief on the grounds of conscience.

b. CASE: Campbell Soup Co. v. Wentz, (1948). The contract involved is too hard a bargain and too one-sided an agreement to entitle the plaintiff to relief in a court of conscience.

3. Laches

a. Laches is any unreasonable delay by the plaintiff in instituting or prosecuting an action under circumstances where the delay causes prejudice to the defendant.

b. CASE: Stone v. Williams, (1989). Plaintiff in asserting her rights was guilty of unreasonable delay that prejudiced the defendant because there was no excuse for the delay in filing suit and evidence was lost.

c. CASE: City of Eustis v. Firster, (1959). The test of laches is whether there has been a delay which has resulted in the injury, embarrassment, or disadvantage of any person, but particularly the persons against whom relief is sought.

d. CASE: Nahn v. Soffer, (1991). In determining whether the doctrine of laches applies in a particular case, an examination is made of the �length of delay, the reasons therefor, how the delay affected the other party, and the overall fairness in permitting the assertion of the claim.�

4. Estoppel

a. Estoppel is a doctrine that can be used both offensively and defensively.

b. CASE: Feinberg v. Pfeiffer Company, (1959). A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promise and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.

c. CASE: O�Sullivan v. Bergenty, (1990). Any claim of estoppel is predicated on proof of two essential elements: the party against whom estoppel is claimed must do or say something calculated or intended to induce another party to believe that certain facts exist and to act on that belief; and the other party must change its position in reliance on those facts, thereby incurring some injury.

E. The Right to Trial by Jury

1. CASE: Dairy Queen, Inc. v. Wood, (1962). Where both legal and equitable issues are presented in a single case, only under the most imperative circumstances, circumstances which in view of the flexible procedures of the Federal Rules we cannot now anticipate, can the right to a jury trial of legal issues be lost through prior determination of equitable claims.

2. CASE: Ross v. Bernhard, (1970). The right to jury trial attaches to those issues in derivative actions as to which the corporation, if it had been suing in its own right, would have been entitled to a jury.

3. CASE: C & K Engineering Contractors v. Amber Steel Company, Inc., (1978). Because plaintiff�s suit for damages for breach of contract was based entirely upon the equitable doctrine of promissory estoppel, the gist of the action must be deemed equitable in nature and, under well established principles, neither party was entitled to a jury trial as a matter of right.

III. Enforcement of Equitable Decrees

A. Contempt Defined

1. �Contempt� is broadly defined as an offense against the dignity of a court.

2. CASE: In re Little, (1972). The vehemence of the language used in court is not alone the measure of the power to punish for contempt. The fires which it kindles must constitute an imminent, not merely a likely, threat to the administration of justice. The danger must not be remote or even probable; it must immediately imperil.

B. Civil v. Criminal

1. Civil and Criminal Contempt Distinguished

a. CASE: United States v. Professional Air Traffic Controllers Organization, (1982). The purpose of a criminal contempt proceeding is the vindication of the court�s authority by punishment through the fine or imprisonment of the contemnor for his past conduct. Civil contempt proceedings are for the purpose of coercing compliance with the orders of the court and/or to compensate complainant for losses sustained by defendant�s noncompliance. A definite fine which is neither compensatory, nor conditioned on future violations of the court order is punitive and can be imposed only in criminal contempt proceedings.

b. CASE: Yates v. United States, (1957). When a witness is jailed for civil contempt, it is inappropriate to hold the witness in jail after the grand jury�s term ends. Since the witness can no longer purge the contempt, no coercive reason remains for keeping the witness in jail. However, the judge may hold the witness in criminal contempt, and impose a punishment for a continued refusal to testify.

c. CASE: Bagwell v. International Union, (1992). The punishment, whether fine or imprisonment, is deemed to be criminal if it is determinate and unconditional, and such penalties �may not be imposed on someone who has not been afforded the protections that the Constitution requires of such criminal proceedings.� The punishment is deemed to be civil if it is conditional, and a defendant can avoid such a penalty by compliance with a court�s order. Civil contempt sanctions are either compensatory or coercive. Compensatory, civil contempt sanctions compensate a plaintiff for losses sustained because a defendant disobeyed a court�s order. Coercive, civil contempt sanctions are imposed to compel a recalcitrant defendant to comply with a court�s order.

2. Civil Contempt Damages

a. CASE: Time-Share Systems, Inc. v. Schmidt, (1986). If any actual loss or injury to a party in an action or special proceeding, prejudicial to his right therein, in caused by such contempt, the court or officer, in addition to the fine or imprisonment imposed therefore, may order the person guilty of the contempt to pay the party aggrieved a sum of money sufficient to indemnify him and satisfy his costs and expenses, including a reasonable attorney�s fee incurred in the prosecution of such contempt. Indemnity must be based on proof of damages actually suffered or it cannot be sustained.

b. CASE: Vermont Women�s Health Center v. Operation Rescue, (1992). When imposed as a coercive sanction, the fine must be purgeable � that is, capable of being avoided by defendants through adherence to the court�s order. Further, the situation must be such that it is easy to gauge the compliance or noncompliance with an order. The fine will be due only upon a further violation of the injunction by one of the class of persons to which it is directed, with service or actual notice of its provisions.

C. Procedural Requirements

1. CASE: In re Yengo, (1980). When the contempt is in the presence of the court, the judge may act summarily without notice or order to show good cause. On other occasions, the proceedings shall be on notice and on an order for arrest or an order to show cause. Supreme Court�s dual test for summary contempt powers: (1) the act or omission must occur in the presence of the court so that no further evidence need be adduced for the judge to certify to the observation of the contumacious behavior and (2) the act must impact adversely on the authority of the court.

2. CASE: Bloom v. Illinois, (1968). Criminal contempt is a crime to which the jury trial provisions of the Constitution apply.

3. CASE: Illinois v. Allen, (1970). There are three constitutionally valid ways to handle an unruly defendant: (1) bind and gag him, thereby keeping him present; (2) cite him for contempt; (3) take him out of the courtroom until he promises to conduct himself properly.

D. The Duty to Obey: Collateral Challenges

1. CASE: United States v. United Mine Workers of America, (1947). An order issued by a court with jurisdiction over the subject matter and person must be obeyed by the parties until it is reversed by orderly and proper proceedings. (Collateral Bar Rule) Violations of an order are punishable as criminal contempt even though the order is set aside on appeal, or though the basic action has become moot.

2. CASE: Walker v. City of Birmingham, (1967). Order cannot be disobeyed even if Constitutionally invalid. (Collateral Bar Rule)

3. CASE: In re Providence Journal Company, (1986). There is an exception to the Collateral Bar Rule for court orders that are transparently invalid. Still, as a general rule, if the court reviewing the order finds the order to have any pretense to validity at the time it was issued, the reviewing court should enforce the collateral bar rule.

IV. Injunctions

A. Nature and Purpose of Injunctive Relief

1. Courts use injunctions to order litigants to engage in, or refrain from engaging in, an act. Sometimes injunctions are classified as being either mandatory or prohibitory: an injunction which compels an act is referred to as mandatory, while one which forbids an act is a prohibitory injunction.

2. Any in personam order which is enforceable by contempt is in fact an injunction.

B. Standards for Issuance of Injunctive Relief

– Some injunctions are permanent in nature: they are issued after a determination of the merits of a lawsuit and are designed to apply prospectively and permanently unless modified or dissolved.

– Other injunctions are temporary in nature including the temporary restraining order (TRO) and the preliminary injunction (a.k.a. temporary injunction).

o A preliminary injunction is issued at the beginning of litigation and is designed to prevent irreparable harm from occurring during the pendency of a suit (i.e., before the merits can be decided).

o A TRO can be issued ex parte and is designed to maintain the status quo until a hearing can be held on whether to grant a preliminary injunction.

1. Requirements for Provisional Relief

a. In order to obtain either a TRO or a preliminary injunction, a plaintiff must show that immediate and irreparable injury will result absent the injunction.

a. When a preliminary injunction is sought, plaintiff must show that this injury will occur during the pendency of the lawsuit.

b. When a TRO is sought, plaintiff must show that it will occur before a hearing can be heard on whether to grant a preliminary injunction.

b. CASE: Hughes v. Cristofane, (1980). In order to obtain relief by a temporary restraining order under Rule 65 of the Federal Rules, the plaintiffs must show:

i. That unless the restraining order issues, they will suffer irreparable harm;

ii. That the hardship they will suffer absent the order outweighs any hardship the defendants would suffer if the order were to issue;

iii. That they are likely to succeed on the merits of their claims;

iv. That the issuance of the order will cause no substantial harm to the public; and

v. That they have no adequate remedy at law.

c. CASE: Washington Capitols Basketball Club, Inc. v. Barry, (1969). The purpose of the preliminary injunction is to maintain the status quo between the litigants pending final determination of the case. In order for plaintiff to succeed in its motion for a preliminary injunction, it is fundamental that it show at least first, a reasonable probability of success in the main action and second, that irreparable damage would result from a denial of the motion.

d. CASE: American Hospital Supply Corporation v. Hospital Products, LTD., (1986). A district judge asked to decide whether to grant or deny a preliminary injunction must choose the course of action that will minimize the costs of being mistaken.

2. Hearing Requirement

a. In general, judicial orders should only be issued after a contested hearing. The TRO is unique because it can be granted ex parte.

b. CASE: In re Vuitton et Fils S.A., (1979). A temporary restraining order may be granted without written or oral notice to the adverse party or his attorney only if (1) it clearly appears from specific facts shown by affidavit or by the verified complaint that immediate and irreparable injury, loss, or damage will result to the applicant before the adverse party or his attorney can be heard in opposition, and (2) the applicant�s attorney certifies to the court in writing the efforts, if any, which have been made to give the notice and the reasons supporting his claim that notice should not be required.

c. CASE: American Can Company v. Mansukhani, (1984). Ex parte temporary restraining orders should be restricted to serving their underlying purpose of preserving the status quo and preventing irreparable harm just so long as is necessary to hold a hearing, and no longer.

3. Persons Bound

a. A TRO or preliminary injunction is binding only upon the parties to the action, their officers, agents, servants, employees, and attorneys, and upon those persons in active concert or participation with them who receive actual notice of the order by personal service or otherwise.

b. CASE: Alemite MFG. Corp. v. Staff, (1930). The only occasion when a person not a party may be punished is when they either abet the defendant, or are legally identified with him.

c. CASE: State University of New York v. Denton, (1970). Persons who are not connected in any way with the parties to the action, are not restrained by the order of the court.

d. CASE: United States v. Hall, (1972). WHAT IS THE RULE HERE????

e. CASE: Golden State Bottling Co., Inc. v. NLRB, (1973). A bona fide purchaser, acquiring, with knowledge that the wrong remains unremedied, the employing enterprise which was the locus of the unfair labor practice, may be considered in privity with its predecessor.

4. Notice Requirement

a. A TRO or preliminary injunction is binding only on those who receive actual notice of the order by personal service or otherwise.

b. CASE: The Cape May & Schellinger�s Landing R.R. Co. v. Johnson, (1882). Where the charge is that the defendant has willfully contemned the authority of the court, all that need be shown is that he knew of the existence of the order at the time he violated it. Notice, to be sufficient, need possess but two requisites � first, it must proceed from a source entitled to credit; and second, it must inform the defendant clearly and plainly from what act he must abstain.

c. CASE: Midland Steel Products Co. v. International Union, United Automobile, Aerospace and Agricultural Implement Workers of America, Local 486, (1991). Criminal contempt must be proven beyond a reasonable doubt. Proof of the elements of criminal contempt may be established by circumstantial evidence.

d. CASE: Vermont Women�s Health Center v. Operation Rescue, (1992). Plaintiffs must show that defendants acted in concert or participation with named parties, that the order was specific and unambiguous, and that they violated the order with actual knowledge of its mandate.

5. Bond Requirement

a. One who obtains a preliminary injunction or a TRO must usually post security to protect the defendant against loss.

b. CASE: Coyne-Delany Co., Inc. v. Capital Development Board, (1983). �A prevailing defendant is entitled to damages on the injunction bond unless there is good reason for not requiring the plaintiff to pay in the particular case. A good reason for not awarding such damages would be that the defendant had failed to mitigate damages.

c. CASE: Smith v. Coronado Foothills Estates Homeowners Ass�n, Inc., (1977). The majority holds that recovery for wrongful injunction is limited to the amount of the bond unless malicious prosecution is shown. A minority allows for damages in excess of the bond amount when the bond amount is patently inadequate.

d. CASE: Continuum Co., Inc. v. Incepts, Inc., (1989). If a defendant might suffer damages in excess of the bond amount, the bond amount may be increased if it doesn�t impose an undue hardship on the plaintiff.

6. Stays

a. One who believes that a TRO or preliminary injunction was improperly granted can seek relief from the court that issued the order if done within 2 days.

b. If the trial court refuses the relief, the party against whom the relief was granted can seek a stay from an appellate court.

c. CASE: Sierra Club v. United States Army Corps of Engineers, (1984). A court may modify a final or preliminary injunction only where conditions have so changed as to make such relief equitable, i.e., a significant change in the law or facts.

d. CASE: Washington Metropolitan Area Transit Commission v. Holiday Tours, Inc., (1977). Criteria regarding stays: (1) Has the petitioner made a strong showing that it is likely to prevail on the merits of its appeal? (2) Has the petitioner shown that without such relief, it will be irreparably injured? (3) Would the issuance of a stay substantially harm other parties interested in the proceedings? (4) Where lies the public interest? �A court may exercise its discretion to grant a stay if the movant has made a substantial case on the merits.

C. Framing the Injunction

1. Every order granting an injunction and every restraining order shall set forth the reasons for its issuance; shall be specific in terms; shall describe in reasonable detail, and not by reference to the complaint or other document, the act or acts sought to be restrained.

2. CASE: Murray v. Lawson, (1994). Injunctions are supposed to be specific in terms; and describe in reasonable detail the act or acts sought to be restrained.

3. CASE: Peggy Lawton Kitchens, Inc. v. Hogan, (1989). To constitute civil contempt, there must be a clear and undoubted disobedience of a clear and unequivocal command.

4. CASE: Madsen v. Women�s Health Center, Inc., (1994). When evaluating a content-neutral injunction, we think that our standard time, place, manner analysis is not sufficiently rigorous. We must ask instead whether the challenged provisions of the injunction burdens no more speech than necessary to serve a significant government interest.

D. Experimental and Conditional Injunctions

– In some cases, courts are moved by the balance of equities to enter partial (experimental) injunctions or conditional injunctions.

1. CASE: Boomer v. Atlantic Cement Company, (1970). When the granting of an injunction would place an undue hardship on a defendant industry as a whole, the court should grant the injunction on condition of the payment of permanent damages to plaintiffs which would compensate them for the total economic loss to their property present and future caused by defendant�s operations.

2. CASE: Spur Industries, Inc. v. Del E. Webb Development Co., (1972). Conditional injunctions allow courts to consider the following remedial options: 1) deny all relief (defendant wins); 2) grant an injunction permanently abating the nuisance (plaintiff wins); award Boomer-style injunctive relief, but award plaintiff damages (partial win for each side); and award Spur-style injunctive relief, but only if plaintiff pays for the cost of abatement (a win for both sides?).

E. Permanent Injunctions

– CASE: Garcia v. Sanchez, (1989). For removal of trees as a nuisance, the damage must encompass more than just damage to plaintiff�s plant life in order for an injunction to be ordered.

1. Decrees Affecting Third Parties

a. CASE: Hills v. Gautreaux, (1976). In the event of a Constitutional violation all reasonable methods are available to formulate an effective remedy, and every effort should be made by a federal court to employ those methods to achieve the greatest possible degree of relief, taking into account the practicalities of the situation.

b. CASE: General Building Contractors Association, Inc. v. Pennsylvania, (1982). Remedial powers of the federal courts can only be exercised on the basis of a violation of the law and can extend no further than required by the nature and the extent of that violation.

2. Modification

– On motion, and in such terms as are just, the court may relieve a party from a final judgment for the following reasons: it is no longer equitable that the judgment should have prospective application.

a. CASE: Ladner v. Siegel, (1930). The modification of a decree in a preventative injunction is inherent in the court which granted it, and may be made, (a) if, in its discretion judicially exercised, it believes the ends of justice would be served by a modification, and (b) where the law, common or statutory, has changed, been modified or extended, and (c) where there is a change in the controlling facts on which the injunction rested.

b. CASE: Board of Education v. Dowell, (1991). Compliance with an injunction may sometimes be enough to have the injunction terminated if the compliance was enough to allow the injunction to dissolved (look at the purpose of the injunction and the current effects after compliance).

c. CASE: Rufo v. Inmates of the Suffolk County Jail, (1992). A party seeking modification of a consent decree must establish that a significant change in facts or law warrants the revision of the decree and that the proposed modification is suitably tailored to the changed circumstance.

3. Statutory Injunctions: The Effect of Legislation on Equity

a. CASE: Weinberger v. Romero-Barcelo, (1982). In determining whether statutes allow injunctive relief that violates a statute, the question becomes one of statutory construction and legislative intent.

F. The Limits of Equity

1. CASE: Lynch v. UHlenhopp, (1956). �Religion Rearing Case� A court will strike portions of an injunction, thus making them unenforceable, if they are vague or uncertain. In this case, the mother was to raise the child in the Catholic religion. Rearing the child in a religion is to vague a concept to enforce.

V. Injunctions in Context

A. Injunctions Against Criminal Activity

– In general, courts have been reluctant to enjoin the commission of future crimes.

1. CASE: State v. Samuels Company, Inc., (1973). A repeated violation of a statute may receive equitable relief, not because the acts are in violation of the statute, but because they constitute in fact a nuisance.

2. CASE: Goose v. Commonwealth, (1947). If the statutory violation can be construed as a nuisance, a court of equity can grant appropriate relief.

B. Injunctions Against Litigation

1. State Court Injunctions Against Foreign State Litigation

– Assuming that a state court can obtain personal jurisdiction over the parties, a state court may have the power to order parties not to proceed with foreign litigation (enjoin them from).

a. CASE: James v. Grand Trunk Western Railroad Company, (1958). Courts generally recognize foreign court�s efforts to prevent litigation in the native court as an impediment to their jurisdiction and are free to disregard the foreign state.

b. CASE: Vanneck v. Vanneck, (1980). At least where the claim of a sister state is colorable, the court must heed the statutory command to defer adjudicating the dispute and communicate with the foreign court.

2. State Court Injunctions Against Federal Litigation

a. CASE: Donovan v. City of Dallas, (1964). Generally, state and federal courts should not interfere with or try to restrain each other�s proceedings. An exception has been made in cases where a court has custody of property, that is, proceedings in rem or quasi in rem. Here the court has no power to restrain federal-court proceedings.

3. Federal Court Injunctions Against State Litigation

a. CASE: Younger v. Harris, (1971). A court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments. Even irreparable injury is insufficient unless it is both great and immediate.

b. CASE: Mitchum v. Foster, (1972). In order to qualify under the �expressly authorized� exception to the anti-injunction statute, the test is whether an Act of Congress, clearly creating a federal right or remedy enforceable in a federal court of equity, could be given its intended scope only by the stay of a state court proceeding.

4. Injunctions Against Officials

– These structural injunctions are designed to eliminate past violations and regulate the way a school, prison, or police department functions in the future.

a. CASE: Rizzo v. Goode, (1976). Must show that there is immediate and irreparable harm that the officials are conducting, not just those activities of persons under the officials.

b. CASE: Hutto v. Finney, (1978). Here the officials themselves were conducting the irreparable harm via non-compliance with an earlier injunction. Therefore, it was enforced against them.

c. CASE: Missouri v. Jenkins, (1995). Federal judges cannot make the fundamentally political decisions as to which priorities are to receive funds and staff, which educational goals are to be sought, and which values are to be taught.

C. Extra-territorial Decrees

1. Decrees Affecting Land

a. CASE: Deschenes v. Tallman, (1928). A court cannot convey title to land located in a foreign jurisdiction. A court of equity, having authority to act upon the person, may indirectly act upon real estate in another state, through the instrumentality of the authority over the person.

b. CASE: Burnley v. Stevenson, (1873). Courts cannot enforce the performance of foreign decrees by compelling the conveyance through its process of attachment; but when pleaded in our courts as a cause of action, or as a ground of defense, it must be regarded as conclusive of all the rights and equities which were adjudicated and settled therein.

c. CASE: The Salton Sea Cases, (1909). A court of equity can never compel a defendant to do anything which is not capable of being physically done within the territorial jurisdiction of the court. Effects of the defendant�s acts felt within the territorial jurisdiction suffice.

2. Decrees Affecting Personal Property

a. CASE: Madden v. Rosseter, (1921). Personal property may be managed with the help of the federal government and other states.

D. Injunctions Against Defamation

1. CASE: Near v. State of Minnesota, (1931). A greater evil is committed by placing prior restraints on a publication that that of the publication. The appropriate punishment should take place after such abuses of the publication.

2. CASE: Kramer v. Thompson, (1991). The courts will not enjoin a retraction of libelous claims.

E. Privacy

1. CASE: Eastwood v. Superior Court, (1983). Any person who knowingly uses another�s name, photograph, or likeness, in any manner, for purposes of advertising products, merchandise, goods, or services, or for purposes of solicitation of purchases of products without such person�s prior consent shall be liable for any damages sustained by the person injured as a result thereof.

2. CASE: Galella v. Onassis, (1972). The Constitution creates a �right to be left alone.� The law of privacy comprises four distinct kinds of invasion (1) commercial appropriation of one�s name or likeness, (2) intrusion, (3) public disclosure of private facts and (4) publicity which places the plaintiff in a false light in the public eye.

F. National Security

1. CASE: New York Times Company v. United States, (1971). Prior restraint may only arise when the nation is at war, during which times no one would question but that a government might prtevent actual obstruction to its recruiting service or the publication of the sailing dates of transports or the number and location of troops.

G. Leafleting

1. CASE: Organization for a Better Austin v. Keefe, (1971). Any prior restraint on expression comes to the court with a heavy presumption against its constitutional validity. A prior restraint on peaceful leafleting is unconstitutional.

H. Injunctions Against Obscenity

1. CASE: Times Film Corporation v. City of Chicago, (1961). The liberty of speech is not absolute. Submission to a licensing board of a film prior to exhibition is valid.

2. CASE: Freedman v. State of Maryland, (1965). Submission of a film to a censor is only valid if 1) the burden of proving that film is unprotected expression rests on the censor and 2) the manner in which it is administered cannot lend an effect of finality to the censor�s determination whether a film constitutes protected expression.

I. Admission Cases

1. CASE: Falcone v. Middlesex County Medical Society, (1961). Generally, courts will not interfere with membership associations, however, here there was an association that is viewed as �an economic necessity� which advanced the public welfare. Therefore, a properly qualified applicant could not be denied membership.

2. CASE: Blatt v. University of Southern California, (1970). Here there was no indication that the association was one of economic necessity and thus plaintiff was properly not admitted.

J. Expulsion

1. CASE: Board of Curators of the University of Missouri v. Horowitz, (1978). To be entitled to the Due Process protections of the 14th Amendment (notice and opportunity to be heard) it must be shown that you were deprived of either a liberty or a property interest.

2. CASE: Tedeschi v. Wagner College, (1980). Guidelines and rules conditioning the membership to an association must be observed, but the violator is still entitled to review by a board if the rule calls for one.

VI. Restitution

A. General Principles

– The purpose of restitution is simply to prevent a defendant from retaining benefits unjustly derived from plaintiff (�unjust enrichment�).

1. CASE: Beacon Homes, Inc. v. Holt, (1966). Even though a reasonable mistake of fact resulted in a house being built on another�s property, the owner of the property must pay the amount by which the value of the property was increased.

2. CASE: Stewart v. Wright, (1906). If defendants are more culpable than plaintiffs then defendant�s unjust enrichment may be recovered.

3. CASE: Western Coach Corporation v. Roscoe. (1982). A person who without mistake, coercion or request has unconditionally conferred a benefit upon another is not entitled to restitution, except where the benefit was conferred under circumstances making such action necessary for the protection of the interests of the other or of third persons.

B. Measuring the Enrichment

1. CASE: Frambach v. Dunihue, (1982). A court of equity may give restitution to a plaintiff and prevent the unjust enrichment of a defendant by imposing a constructive trust or by imposing an equitable lien upon the property in favor of the plaintiff. However, where the plaintiff makes improvements upon the land of another under circumstances which entitle him to restitution, he is entitled only to an equitable lien upon the land and he cannot charge the owner of the land as constructive trustee and compel the owner to transfer the land to him.

2. CASE: Bron v. Weintraub, (1964). Can�t figure out the rule here.

3. CASE: Iacomini v. Liberty Mutual Insurance Company, (1985). An equitable lien may be imposed to prevent unjust enrichment in an owner whose property was improved, for the increased value of the property. Measured by defendant�s gain.

C. Special Restitutionary Remedies

1. The Constructive Trust

a. CASE: Sieger v. Sieger, (1925). Constructive trusts arise by operation of law, without any reference to any actual or supposed intention of creating a trust, and frequently directly contrary to such intention.

b. CASE: Fletcher v. Nemitz, (1966). A constructive trust is one that arises by operation of law against one who, by fraud, actual or constructive, by duress or abuse of confidence, by commission of wrong, or by any form of unconscionable conduct, artifice, concealment, or questionable means, or who in any way against equity and good conscience, either has obtained or holds the legal right to property which he ought not, in equity and good conscience, to hold and enjoy.

2. Equitable Lien

a. CASE: Leyden v. Citicorp Industrial Park, (1989). An equitable lien is a creature of equity, is based on the equitable doctrine of unjust enrichment, and is the right to have a fund or specific property applied to the payment of a particular debt. A person has notice of a constructive trust or equitable lien on a property when he knows them, or should have known them thru reasonable inquiry.

b. CASE: Jones v. Sacramento Savings and Loan Association, (1967). A general doctrine of equity permits imposition of an equitable lien where the claimant�s expenditure has benefited another�s property under circumstances entitling the claimant to restitution.

c. CASE: Rolfe v. Varley, (1993). Where debts or claims against property are paid in good faith by another on the express or implied request of the owner of the property, the one so paying is entitled to an equitable lien on the property for his reimbursement. However, a person is not entitled to such a lien if he voluntarily pays the debts of another without such other�s request.

3. Special Advantages of Constructive Trusts and Equitable Liens

a. Tracing

a. CASE: G & M Motor Company v. Thompson, (1977). Where the wrongdoer mingles wrongfully and rightfully acquired funds, owner of wrongfully acquired funds is entitled to share proportionately in acquired property to the extent of his involuntary contribution.

b. CASE: In re Allen, (1986). Neither an equitable lien nor a constructive trust is available against a bona fide purchaser for value. They can extend to 3rd parties if the 3rdparty is not a bona fide purchaser.

c. CASE: Mattson v. Commercial Credit Business Loans, Inc., (1986). Tracing doctrine operates against innocent transferees who receive no legal title and transferees who are not bona fide purchasers and receive legal but not equitable title. An innocent purchaser is one who has no reasonable grounds to suspect that the person from whom he buys an article did not have good title.

b. Priority Over Other Creditors

a. CASE: In re Radke, (1980). A person defrauded is allowed a preferred claim over general creditors.

b. CASE: Cunningham v. Brown, (1924). Constructive trusts and equitable liens get precedence over unsecured creditors who can go after what is left.

c. Circumvention of Debtor Exemptions

a. CASE: Palm Beach Savings & Loan Association, F.S.A. v. Fishbein, (1993). Can�t force the sale of a property unless through mortgage or government tax lien.

d. Subrogation

a. CASE: Wilson v. Todd, (1940). Subrogation is the substitution of another person in the place of a creditor, so that the person in whose favor it is exercised succeeds to the right of the creditor in relation to the debt.

b. CASE: Banton v. Hackney, (1989). Where property of one person is used in discharging an obligation owed by another or a lien upon the property of another, under such circumstances that the other would be unjustly enriched by the retention of the benefit thus conferred, the former is entitled to be subrogated to the position of the oblige or lien-holder.

VII. Declaratory Judgments

A. Generally

1. The basic purpose of declaratory judgment is to determine rights, obligations or status.

2. A declaratory judgment does not act coercively.

3. Declaratory judgments primary purpose is to eliminate uncertainty.

B. Case or Controversy

1. Declaratory judgments operate only in �a case of actual controversy.� There is no exemption from requirements of standing, subprinciples of mootness and ripeness and the prohibition against collusive actions or advisory opinions.

2. CASE: Aetna Life Insurance Co. v. Haworth, (1937). The controversy must be definite and concrete, touching the legal relations of parties having adverse legal interests.

3. CASE: United Public Workers of America v. Mitchell, (1947). Courts will not issue advisory opinions through declaratory judgments.

C. Jurisdiction

1. Absence of personal or subject matter jurisdiction is fatal to declaratory judgments.

2. CASE: Skelly Oil Co. v. Phillips Petroleum Co., (1950). Jurisdiction means the kinds of issues which give right of entrance to federal courts (diversity, federal question).

D. Standards of Review

1. Adequacy of Remedy

a. Unlike injunctions, declaratory judgments generally are not conditioned upon the inadequacy of remedial alternatives. Although inadequacy of other remedies is not a prerequisite for a declaratory judgment, courts properly exercise their discretion in denying such relief if convinced that it would be less effective than another methodology or is unnecessary.

b. CASE: Community for Creative Non-Violence v. Hess, (1984). Sound discretion withholds a declaratory judgment where it appears that a challenged continuing practice is, at the moment adjudication is sought, undergoing significant modifications so that its ultimate form cannot be confidently predicted.

c. CASE: Provident Tradesmens Bank & Trust Co. v. Patterson, (1968). A federal district court should, in the exercise of discretion, decline to exercise diversity jurisdiction over a declaratory judgment action raising issues of state law when those same issues are being presented contemporaneously to state courts.

d. CASE: Katzenbach v. McClung, (1964). In cases where the state criminal prosecution was begun prior to the federal suit, the same equitable principles relevant to the propriety of an injunction must be taken into consideration by federal district courts in determining whether to issue a declaratory judgment, and that where an injunction would be impermissible under these principles, declaratory relief should ordinarily be denied as well.

e. CASE: Wilton v. Seven Falls Co., (1995). The propriety of declaratory relief in a particular case will depend upon a circumspect sense of its fitness informed by the teachings and experience concerning the functions and extent of federal judicial power.

2. Judicial Discretion

a. The UDJA explicitly authorizes courts to refuse a declaratory judgment or decree when such judgment or decree would not terminate the uncertainty or controversy giving rise to the proceeding. Other factors may include the availability of more effective relief, existence of another action that will resolve the issue more comprehensively, tactical maneuvering calculated to harass, delay or achieve res judicata, procedural fencing, an inadequately developed record and demands of federalism.

b. CASE: National Wildlife Federation v. United States, (1980). Among the factors to be considered in deciding whether to grant declaratory relief in a particular case is the public interest vel non in resolving the controversy.

E. Declaratory Judgments in Context

1. Written Instruments

a. A contract may be construed by a declaratory judgment either before or after there has been a breach thereof.

b. CASE: Federal Kemper Insurance Company v. Rauscher, (1986). This was a dispute over the terms of coverage of an insurance policy. Once the case in controversy requirement and diversity jurisdiction were established, the court concluded that it could issue a declaratory judgment.

2. Intellectual Property]

a. CASE: Treemond Co. v. Schering Corporation, (1941). An �actual controversy� does not exist until the patentee makes some claim that his patent is being infringed.

3. Constitutional Claims

a. Although not statutorily prohibited, federal courts have been reluctant top resolve constitutional controversies by means of declaratory judgments. Such reticence is driven by the judiciary�s generally professed inclination to avoid constitutional controversies whenever possible.

b. CASE: Penthouse International, LTD. v. Meese, (1991). Where it is uncertain that declaratory relief will benefit the party alleging injury, the court will normally refrain from exercising its equitable powers. This is especially true where the court can avoid the premature adjudication of constitutional issues.

F. The Effect of Declaratory Judgments

1. Declaratory judgments, like any final judgment entered by a court bind the parties. Although a declaration of rights, obligations or status effectively may resolve a controversy, both the UDJA and FDJA provide for further relief to the extent necessary and proper. Both federal and state law establishes that a request for declaratory relief does not preclude other remedies, essential to a full resolution of the controversy, even if coercive in nature.


A. General Damage Principles

1. Monetary Compensation

a. The primary objective of contract damages law is to provide monetary compensation that will place an aggrieved party in the same position that would have been realized had the breaching party fully performed. Contract damages are premised on compensation of the aggrieved party rather than compulsion of the breaching party.

b. CASE: Peevyhouse v. Garland Coal & Mining Company, (1962). In building and construction contracts, the owner is entitled to the money which will permit him to complete, unless the cost of completion is grossly and unfairly out of proportion to the good to be attained. When that is true, the measure is the difference in value.

2. The Expectation Interest

a. The expectation interest is protected by awarding the benefit of the bargain, or �profit,� that would have been realized through performance.

b. CASE: Vitex Manufacturing Corporation, LTD. v. Caribtex Corporation, (1967). In a claim for lost profits, overhead should be treated as a part of gross profits and recoverable as damages, and should not be considered as part of the seller�s costs.

3. Other Protected Interests

a. Reliance Interest

1. The reliance interest seeks to place the aggrieved party in as good a position as would have been realized had the contract not been created. This is good when the aggrieved party changed his or her position on reliance of the contract.

2. CASE: Security Stove & Mfg. Co. v. American Ry. Express Co., (1932). Where a party is aware of peculiar circumstances under which the contract is made, which will result in an unusual loss by the other party, the breaching party is responsible for the real damage sustained from the non-performance.

b. Restitution Interest

1. Restitution interest seeks to restore to the aggrieved party any benefit that he or she has conferred upon the breaching party. It is not generally preferred by plaintiffs because it is limited to the amount that the plaintiff has conferred upon defendant.

2. CASE: Campbell v. Tennessee Valley Authority, (1969). To protect a party�s restitution interest, damages can be measured: 1) by the reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimant�s position, or 2) the extent to which the other party�s property has been increased in value or his other interests advanced. Restitution is not available when the breach gives rise to only a claim for partial damages.

4. Other Loss and the Applicable Limitations

– In addition to the benefit of the bargain, an aggrieved party is entitled to recover any other loss that was caused by the other party�s breach of contract. The availability of any recovery for expectancy damages is subject to the traditional limitations of avaiodability, foreseeability, and certainty.

a. Avoidability

1. The aggrieved party cannot recover damages for any loss that he or she could have reasonably avoided.

2. CASE: Oloffson v. Coomer, (1973). When defendant has materially breached the contract, the aggrieved party can 1) for a commercially reasonable time await performance by the repudiating party; or 2) resort to any remedy for breach.

b. Foreseeability

1. CASE: Sun Maid Raisin Growers of California v. Victor Packing Co., (1983). If a breaching party knew or should have known that the breach would have resulted in consequential damages of plaintiff, the breaching party is responsible for those damages. Knowledge or reason to know can be established by the ordinary course of business practice, or by special circumstances beyond the ordinary course of business. The aggrieved party must still cover in order to minimize losses.

5. Certainty

a. Any element of loss that cannot be proven with a reasonable degree of certainty cannot be recovered; but other elements (general damages) can still be recovered.

b. CASE: Handi Caddy, Inc. v. American Home Products Corporation, (1977). There are three general principles which the courts apply to determine when lost profits will be allowed as compensation: 1) in both tort and contract actions, lost profits will be allowed only if their loss is proved with a reasonable degree of certainty, 2) in both contract and tort actions, lost profits will be allowed only if the court is satisfied that the wrongful act of the defendant caused the lost profits, and 3) in contract actions, lost profits will be allowed only if the profits were reasonably within the contemplation of the defaulting party at the time the contract was entered into.

6. Liquidated Damages

a. Subject to certain limitations, the law generally permits parties to a contract to agree on the amount or the manner in which damages may be recovered for a breach.

b. Contract remedies are intended to be compensatory in nature, not punitive. Thus, the validity of a liquidated damages clause may be challenged on the theory that it constitutes a penalty.

c. CASE: Greenbach Bros., Inc. v. Alfred E. Burns, (1966). For a liquidated damages amount to be upheld, the amount agreed upon must represent the result of a reasonable endeavor by the parties to estimate a fair average compensation for any loss that may be sustained. The damages amount must also be difficult to ascertain.

B. Contracts In Context

1. Sales of Goods

– Contracts for sale of goods retain the basic common-law measure of expectation damages, but incorporate some additional measures.

a. Buyers� Damages

1. Cover

i. The preferred damage measure awards the buyer the difference between the cost of cover and the contract price together with any incidental or consequential damages, but less expenses saved in consequence of the seller�s breach.

ii. CASE: Huntington Beach Union High School Dist. v. Continental Information Systems Corp., (1980). The test of proper cover is whether at the time and place the buyer acted in good faith and in a reasonable manner, and it is immaterial that hindsight may later prove that the method of cover used was not the cheapest or most effective. Consequential damages resulting from the seller�s breach include any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise.

2. Damages for Breach of Warranty

i. CASE: Chatlos Systems, Inc. v. National Cash Register Corporation, (1982). The correct measure of damages is the difference between the FMV of the goods accepted and the value they would have had if they had been as warranted. Award of that sum is not confined to instances where there has been an increase in value between date of ordering and date of delivery.

ii. CASE: Nelson v. Logan Motor Sales, Inc., (1988). A common method for establishing the difference in value between the goods as warranted and as delivered is to prove the cost to repair the deficient aspects of the goods.

3. Consequential Damages

i. CASE: Erdman v. Johnson Brothers Radio and Television Co., Inc., (1970). In order to get consequential damages it must be shown that there was 1) a breach of a contract that 2) proximately caused the injury complained of.

b. Sellers� Damages

1. Resale

i. CASE: Coast Trading Company v. Cudahy Company, (1979). Under this formula, if the seller resells in good faith and in a commercially reasonable manner he is entitled to recover the difference between the resale price and the contract price together with any incidental damages allowed under the provisions, but less expenses saved in consequence of the buyer�s breach.

2. Lost Profits

i. CASE: R.E. Davis Chemical Corporation v. Diasonics, Inc., (1987). A volume seller can recoup lost profits that are an extension from buyer�s non-acceptance.

3. Action for Price

i. CASE: Integrated Circuits Unlimited v. E.F. Johnson Company, (1989). When the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages, the price: 1) of goods accepted or conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the buyer; and 2) of goods identified to the contract if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing.

4. Limitation on Specific Restitution

i. A seller who sells goods to a buyer on credit generally does not have the right to repossess the goods if the buyer does not pay for them. If the buyer misrepresented his credit or is insolvent, the seller may reclaim the goods if done with notice and within 10 days of the receipt.

ii. Only unique items warrant specific restitution.

2. Executory Land Sale Contracts

a. A variety of remedies are available when a contract for the sale of land is breached including specific performance and damages.

b. The standard contract measure of damages applies, namely the difference between the contract price stated in the contract and the market value of the real property on the date of the breach.

c. CASE: Kramer v. Mobley, (1949). Where the seller under an executory contract for the sale of personal property breaches his contract by failing to deliver the property, the measure of damages is the difference, if any, between the contract price and the market value of the property either at the time of the breach or at the time fixed for delivery. However, if the seller is not guilty of bad faith or fraud in the sales failure then the buyer may recover any consideration he has paid, with interest, and any legitimate expenses he has incurred, but he can recover nothing for the loss of his bargain.

3. Construction Contracts

a. Alternatives to Lost Value

1. If the breach results in defective or unfinished construction and the loss in value to the injured party is not proved with sufficient certainty, he may recover damages based on: 1) the diminution in the market price of the property caused by the breach, or 2) the reasonable cost of completing performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him.

2. CASE: Prier v. Refrigeration Engineering Company, (1968). For defective or unfinished construction the injured party can get judgment for�1) the reasonable cost of construction and completion in accordance with the contract, if this is possible and does not involve unreasonable economic waste.

3. CASE: Jacob & Youngs, Inc. v. Kent, (1921). �The Pipe Case� In this case, the measure of the allowance is not the cost of replacement, which would be great, but the difference in value, which would be either nominal or nothing. A property owner should not be relegated to this measure unless the contractor has substantially performed.

b. Losing Contracts

1. CASE: Kehoe v. Rutherford, (1893). As an alternative to the measure of damages based on the expectation interest, the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the breaching party can prove the injured party would have suffered even if the contract had been performed. This is a good measure when the cost of complete performance would exceed the compensation promised by the breaching party.

c. Delays

1. CASE: W.G. Cornell Company of Washington, D.C. v. Ceramic Coating Company, Inc., (1980). When the other party delays in performance of a contract, the aggrieved party can recover the fair rental value of either the equipment or the property that is idle as a result of the delay.

2. CASE: Lorch, Inc. v. Bessemer Mall Shopping Center, Inc., (1975). When a landlord prevents a tenant from going out of business, the landlords actions amount to an unreasonable delay even if the terms were specified in the lease. This is based on the complexity and supervision involved in enforcing the business to stay open.

3. CASE: Northern Delaware Industrial Development Corp. v. E.W. Bliss Co., (1968). Specific performance of adding more workers to cure a delay will not be enforced because of the complexity and supervision involved in enforcement.

4. Employment Contracts

a. CASE: Sullivan v. David City Bank, (1967). For a wrongful discharge, the plaintiff cannot recover �wages� for services constructively performed. He can recover only damages for the breach of the contract of employment. The employee may recover his full damages even where the action is tried before the expiration of the term of the employment.

b. CASE: Mr. Eddie, Inc. v. Ginsberg, (1968). An employee who has been wrongfully discharged before the termination of his contract of employment must endeavor to reduce the loss or damage by seeking other employment. He may, however, recover the reasonable costs expended in seeking that other employment. Generally, an employee is not required to accept a position that is different or inferior to the position under the contract, and the employee is not required to leave the same geographic area for a substitute.

c. Covenants not to Compete Unless there exists special circumstances warranting protection, a business activity has no protectable interest in its employees leaving and working elsewhere. Must show no adequate remedy at law and that irreparable harm would result.

d. Suits by Employees Agreements to perform a personal service will not be specifically enforced in favor of the employer. One situation in which the courts will order an employer to reinstate an employee is when the employee has been discharged in violation of civil rights laws or free speech.


A. General Principles

1. Types of Damages

a. Compensatory Damages designed to place plaintiffs in the same position they would have been in had the wrongful interference not occurred.

b. Consequential (�Special�) Damages may be awarded to more fully compensate the victim of wrongdoing.

c. Nominal Damagesawarded in order to vindicate a right.

d. Supercompensatory Damages awarded in the form of punitive or exemplary damages.

2. Requirement of Certainty

a. CASE: James Mastandrea v. Chicago Park District, (1994). A loss need not be proven with absolute certainty, but speculation, remote or uncertain amounts are improper.

b. CASE: Bigelow v. RKO Radio Pictures, Inc., (1946). Juries are allowed to act upon reasonable and inferential, as well as direct and positive proof in computing estimates of damages.

B. Interference With Real Property Interests

– Interference with real property interests may be litigated on a number of theories including trespass, private and public nuisance, and negligence. The measure of damages remain the same.

1. Compensatory Damages

a. CASE: Stevinson v. Deffenbaugh Indus., Inc., (1993). A nuisance is temporary if it may be abated, and it is permanent if abatement is impracticable or impossible. Damages for a permanent nuisance are measured by the difference in the land�s market value immediately before and after the injury. Damages for temporary nuisance are the decrease in rental or usable value of the property as well as any special costs (repair, loss of use, etc.).

b. CASE: Terra-Products v. Kraft Gen. Foods, Inc., (1995). In the context of environmental contamination of land, although deemed a temporary nuisance, a party should be entitled to recover as damages any proven reduction in the fair market value of real property remaining after remediation.

c. CASE: State of Ohio v. United States Department of the Interior, (1989). In environmental restoration cases subject to CERCLA, the correct measure of damages is restoration costs because natural resources are not fungible goods.

d. CASE: Scantlin v. City of Pevely, (1987). There is no requirement that loss of use damages be specifically pled.

e. CASE: Dodd Properties (Kent) v. Canterbury City Council, (1980). If an award is given to cover future repairs, the award should be discounted to its present value.

f. CASE: Coty v. Ramsey Assocs., (1988). As a general rule, the mere unsightliness of a thing, without more, does not render it a nuisance, however, when malice or spite were the motivation, nuisance liability attaches. The purpose of punitive damages are to punish those culpable. In order to award punitive damages, plaintiff must demonstrate actual malice on part of the defendant.

g. CASE: Riblet v. Spokane-Portland Cement Co., (1954). In an action for damages for maintaining a nuisance, recovery may be had for inconvenience, physical discomfort, and illness to the occupant of the property resulting from the nuisance. This is so even though damages for property value or rental value are awarded.

2. Consequential Damages

a. CASE: Lunda v. Matthews, (1980). Distinct from or in addition to damages compensating plaintiffs for the diminution in property value as a result of a nuisance, it is proper to award consequential damages for discomfort, annoyance, inconvenience and personal injury. Consequential damages are also recoverable in an action for trespass.

b. CASE: Davey Compressor Co. v. City of Delray Beach, (1993). In tort cases, plaintiff may recover all damages which are natural, proximate, probable or direct consequence of the act, but do not include remote consequences. Abatement costs are allowed.

C. Interference With Personal Property Interests

– If the trespass causes harm to the chattel, the trespasser is liable for all damges proximately caused by the act. In conversion or trover the basis of the tort is the conversion of the plaintiff�s property to the defendant�s own use (forced sale). Plaintiff can then receive its full value.

1. CASE: Paccar Fin. Corp. v. Howard, (1993). The theory of trover (�conversion�) was that the defendant, by �converting� a chattel to his own use, appropriated the plaintiff�s rights, for which he was required to make compensation.

2. CASE: Ehman v. Libralter Plastics, Inc., (1994). The value of the chattel converted is the FMV of the item at the time of conversion plus interest. If there is no regular market value for the item, the measure is the value of the property to the owner at the time of the conversion plus interest.

3. CASE: Goodpasture, Inc. v. M/V Pollux, (1982). Damages in a conversion action should compensate for the loss actually sustained as a result of the tortfeasor�s wrong, and a plaintiff may generally recover the reasonable market value of the goods converted, as of the time and place of conversion.

4. CASE: Caballero v. Anselmo, (1991). Damages recoverable for the conversion of property are limited to the value of the property at the time of the conversion. However, an exception applies to property of fluctuating value, such as shares of stock; the measure of damages for conversion of stock certificates is the cost of replacement within a reasonable period after the discovery of the conversion, regardless of when the conversion may have occurred.

5. CASE: Broadwater v. Old Republic Sur., (1993). The New York Rule: Sets the measure of damages as the highest market price of the stock between the date of the conversion and a reasonable time following notice of the conversion. The reasonable time requirement varies with the particular facts and circumstances of each case.

6. CASE: Badillo v. Hill, (1990). The span of time for loss of use damages is limited to the period of time reasonably necessary to procure parts and make repairs and the amount should not exceed the amount of the greater injury of total destruction.

D. Tortious Interference With Economic Interests

– Tort law has powerful remedial weapons, not available in breach of contract cases.

1. CASE: Hinkle v. Rockville Motor Co., (1971). The �Flexibility Approach� in fraud and negligene cases: 1) If the defrauded party is content with the recovery of only the amount that he actually lost, his damages will be measured under that rule; 2) if the fraudulent representation also amounted to a warranty, recovery may be had for loss of the bargain because a fraud accompanied by a broken promise should cost the wrongdoer as much as the later alone; 3) where the circumstances disclosed by the proof are so vague as to cast virtually no light upon the value of the property had it conformed to the representations, the court will award damages equal only to the loss sustained; and 4) where the damages under the benefit-of-the-bargain rule are proved with sufficient certainty, that rule will be employed.

2. CASE: Texaco, Inc. v. Pennzoil, Co., (1987). One who is liable to another for interference with a contract is liable for damages for: 1) the pecuniary loss of the benefits of the contract; and 2) consequential losses for which the interference is a legal cause. Because this suit was brought in tort and not in contract the measure of damages was the pecuniary loss of the benefits it would have been entitled to under the contract. Moreover, punitive damages are recoverable in tort actions where there exists ingredients of malice, fraud, oppression, insult, wanton or reckless disregard of plaintiff�s rights, or other circumstances of aggravation. The exemplary damages must be reasonable (look to surrounding factors, the wrong, defendant�s conduct, public policy, etc.).

E. Punitive Damages

1. CASE: BMW of North America, Inc. v. Gore, (1996). The Due Process Clause of the 14th Amendment prohibits a state from imposing a grossly excessive punishment on a tortfeasor. Grossly excessive damages can be determined by looking at the degree of reprehensibility of the act, the disparity between the harm or potential harm and the amount of the award, and sanctions for comparable conduct.


A. General Principles

1. CASE: Seffert v. Los Angeles Transit Lines, (1961). For an appellate court to overturn trial court damages, the verdict must be so out of line with reason that it shocks the conscience and necessarily implies that the verdict must have been the result of passion and prejudice.

2. CASE: Sharman v. Evans, (1977). The appropriate criterion for damages must be that such expenses that plaintiff may reasonably incur should be recoverable from the defendant. Double compensation is to be avoided.

B. Economic Losses

1. Earning Capacity

a. CASE: Jones & Laughlin Steel Corp. v. Pfeifer, (1983). An award for impaired earning capacity is intended to compensate the worker for the diminution in the stream of income he would have earned; including fringe benefits. The award should be calculated pertaining to after-tax wages. Work related costs (uniforms, etc.) should be deducted from the award. Also, the award should be discounted by the discount rate which is based on the rate of interest that would be earned on the best and safest investments.

2. Collateral Benefits

a. CASE: Helfend v. Southern California Rapid Transit District, (1970). The collateral source rule allows plaintiff to receive benefits from an insurance policy andthe award from defendant. This is because the tortfeasor should not garner benefits of the victim�s providence of buying insurance.

C. Non-economic Losses

1. CASE: McDougald v. Garber, (1989). Some degree of cognitive awareness is a prerequisite to recovery for loss of enjoyment of life.

D. Loss of Consortium

1. CASE: Belcher v. Goins, (1990). �Parental consortium� refers to the relationship between parent and child and is the right of the child to the intangible benefits of the companionship, comfort, guidance, affection, and the aid of the parent. Courts are split on this, but the modern trend is to allow recovery for this to minors and handicapped children who rely on the parents for care.

2. CASE: Whittlesey v. Miller, (1978). Marital consortium concerns the loss of society and services of the spouse and includes impairment for sexual intercourse. Either spouse has a cause of action for loss of consortium with the other spouse as a result on injury caused to the other spouse by a third party tortfeasor�s negligence.

E. Mitigation

1. CASE: Baker v. Morrison, (1992). The mitigation theory requires the consideration of the doctrine of avoidable consequences and whether the plaintiff should have anticipated the defendant�s negligence before the accident occurred. Comparative negligence is now the rule in most jurisdictions. Comparative negligence decreases the award by the percentage of negligence attributed to the plaintiff. Proximate cause of plaintiff�s negligence is required.

F. Punitive Damages

1. CASE: Sturm, Ruger & Co., Inc. v. Day, (1979). In order to recover punitive damages, the plaintiff must show the wrongdoer�s action were done with malice or bad motives or a reckless indifference to the interests of another. They are meant to punish and deter. The amount must bear some resemblance to the proportion of actual damages.

G. Torts and Damages at the Frontier

1. CASE: Sterling v. Velsicol Chemical Corporation, (1988). In order to collect damages for environmental contamination, plaintiff must show that the defendant actually caused the contamination and that the contamination resulted in, or will likely result in, the medical injuries. Mental anguish damages will be awarded only where such distress is foreseeable or is a natural consequence of, or reasonably expected to flow from, the present injury.

2. CASE: Marciniak v. Lundborg, (1990). Damages caused by a negligently performed sterilization practice may be recovered until the child reaches age of majority and benefits of having that child may not be deducted from that award.

H. Wrongful Death

1. CASE: Green v. Bittner, (1980). For the loss of a child, damages should not be limited to the pecuniary loss of the child (chores, etc.) and should extend to the loss of companionship as they grow older.

2. CASE: DeLong v. County of Erie, (1982). What is the rule here?

3. CASE: Lamm v. Lorbacher, (1952). The plaintiff in a wrongful death action may recover such damages as are a fair and just compensation for the pecuniary injury resulting from such death.

4. CASE: Murphy v. Martin Oil Co.� (1974). An action for conscience pain and suffering prior to death is recoverable as a separate action, and in addition, to the wrongful death action.