Interim measures and civil litigation.
In the following study Professor Peter Westberg explores what he believes is a distortion in the use and effect of interim measures in Sweden (what are called pretrial or interlocutory orders in the United States). Professor Westberg concludes that the use of interim measures in Sweden, often granted by Swedish courts after what he characterizes as a "cursory" review, which in many cases is "devoid of meaning," has the unintended effect of substituting for full-scale civil litigation. He claims that this phenomenon is "remarkably similar throughout the part of the world influenced by western culture."
Professor Westberg's study of the real-life impact of interim measures in Sweden touches issues that are hardly alien to U. S. courts and lawyers. Equity orders are granted at the outset of litigation only when there is a perceived emergency demanding a court's action in order to preserve its ability to fashion an effective final remedy after trial on the merits. The inherent conflict with traditional attitudes about civil litigation in the United States is pivotal in the procedural and substantive doctrine surrounding such interim measures. Early rebellious colonists of the United States brought a hostility to equity and an antipathy to coercive measures. The United States' libertarian, frontier mentality, and deep distrust of chancery courts as autocratic, imperious, and undemocratic, (1) combined with the steadfast commitment to a citizen's right to have his or her day in court, makes the practice of granting relief after only an abbreviated or truncated procedure both truly extraordinary and reason for hesitation and skepticism. The bedrock credo of the U. S. civil litigation system holds that decisions not forged in the fires of full and fair adversarial proceedings are suspect and more likely to be wrong and unjust.
Professor Westberg's study of Swedish decisions leads him to conclude that parties are often able to achieve their real objective through the back door of interim relief, making further civil litigation superfluous. The inference is that this is "gaming" the system-reaching one's ultimate destination without successfully completing the arduous trek through the adversarial system and a full-blown trial on the merits. His concerns about "the tension between certainty and speed" and the elevation of "good 'process economy' [to] ... a higher status" are, he claims, essentially universal. Thus, they raise interesting questions about the attitude of U. S. courts toward granting pretrial orders. Are the rules and procedures for granting interlocutory relief in the United States better at avoiding this phenomenon than those in Sweden? If Professor Westberg's conclusions are correct and interim measures do work to shortcut and marginalize civil litigation, is that a bad thing?
To illustrate his thesis, Professor Westberg discusses a case that is dramatic in every sense: at the last minute, a Swedish court enjoins a theater company's presentation of a play upon application of the playwright's heirs and copyright holders. The interim order was granted with immediate effect and was valid indefinitely until final judgment in the case could be rendered. The court was convinced the movant would suffer substantial and irreparable harm if the play were performed before the merits of the case were fully adjudicated. To enforce its order the court stipulated a substantial financial penalty to be paid by the theater company in the event of noncompliance--in contrast to the threat of coercive civil or punitive criminal contempt, as would be the case in the United States.
Professor Westberg concludes that this case gave the copyright holders all the relief they sought without requiring them to prevail in a full trial on the merits. He laments that the interim injunction coerced an extravagant settlement payment by the theater company to the copyright holder, despite its claim that months earlier it had reached an oral agreement with the copyright holders giving it the right to perform the play. Westberg argues that the theater company was denied its day in court and, therefore, never had the opportunity to prove that production would not have violated the copyright because of the alleged prior deal. He concludes that the interim order was essentially equal to a final disposition of the case and a substitute for civil litigation.
I will later consider how this case would have been decided by a U. S. court and offer comments on Professor Westberg's observations about its final outcome and its real effect as a substitute for civil litigation. First, however, I turn to a brief review of the standards for granting interim relief in Sweden as described by Professor Westberg and then to a comparison of such standards with those generally applied by courts in the United States.
In Sections V and VII, Professor Westberg reviews and analyzes the standards applied by Swedish courts in considering whether to grant interim relief. Westberg explains that these are principally statutory, with the dearth of relevant published cases resulting in uncertain development of the law. Thus, trial judges lack clear and consistent guidelines to rely on when deciding whether exceptional measures are needed to secure enforcement of a future judgment (i.e., a seizure or other provisional order to preserve the status quo during the ensuing litigation). Professor Westberg comments that this lack of development of the law through supreme court cases makes it impossible for lower courts to "discern ... a greater theory on what conduct of the defendant ... would count as a sabotage measure" and, therefore, prohibit interim relief.
Professor Westberg implies that the defendant theater company in his illustrative case did not have the opportunity to present its side of the case before the emergency injunction was issued. Like in the United States, when such an acute need for interim relief is required to avoid a danger in delay or the sabotaging of the court's ultimate ability to adjudicate, it may be granted either ex parte or after a hearing at which the defendant is given the opportunity to contest the application. (2) The United States approach to interlocutory orders includes procedural and substantive rules designed to at least partly temper the negative impact of a mistaken order. Rule 65 of the Federal Rules of Civil Procedure specifically limits the granting of temporary restraining orders--either ex parte or on the basis of a truncated hearing--in several important ways. (3) Unlike Westberg's illustrative case, in which the interim order had indefinite validity until the case was fully adjudicated, under Rule 65(b) of the Federal Rules of Civil Procedure temporary restraining orders expire in ten days, by which time an abbreviated adversarial hearing on a preliminary injunction must be scheduled. Furthermore, Rule 65(b) requires that if the temporary restraining order is obtained without notice to the adverse party, that party may apply to the court, upon two days' notice to the opposing party, for dissolution or modification of the order. (4)
In Sweden, Westberg explains that "in principle" an applicant for interim relief must provide security for the damages that the defendant may incur. If the defendant does not contest the adequacy of that security, the court may not do so. In contrast, Rule 65(c) of the Federal Rules of Civil Procedure (replicated in most state court systems) requires, as a condition of granting a restraining order or preliminary injunction, the posting of security, usually in the form of a bond "in such sum as the court deems proper" against damages that the defendant may suffer as a result of having to comply with a preliminary order--later determined to have been issued in error. (5) Unless the applicant is indigent or is a public interest related nonprofit organization, judges do not dispense with the posting of a bond or other form of acceptable security. (6) In the copyright case, Professor Westberg reports that the plaintiff copyright holders guaranteed an amount that was later determined to be inadequate, which resulted in the injunction being quashed. Later the court reinstated the order, declaring that the amount of security indicated by the court of appeals was adequate and the plaintiff quickly complied. The U. S. requirement that an applicant provide adequate security not only appears to give significant protection to U. S. defendants not guaranteed by Swedish procedure, but also is likely to encourage U. S. applicants to think twice before applying for interim relief and to exercise caution when assessing the likelihood of the party's ultimate success on the merits.
Qualifying his observations about this lack of judicially developed clarity in Sweden, Professor Westberg describes a series of relevant case developments. One, which is familiar in U. S. cases, he labels "the requirement of proportionality," states that "the damages that the applicant stands to suffer (if the application is not granted) shall be greater and more serious than the damages that the defendant risks suffering (if the interim measure is granted)." Professor Westberg also identifies a "prognostic test," or what courts in the United States refer to as an assessment of "the likelihood of success on the merits."
Professor Westberg voices concern that in performing the prognostic test courts may place too great an emphasis on declaring the substantive merits during the preliminary stages of a case. The consequence, he fears, is that based on the strength and superficial "certainty" of that prediction, parties tend to consider the interim order to be dispositive. Any prognostication in the absence of full adjudication is potentially misleading. It can send false signals to the parties and cause one or the other to abandon meritorious positions and, possibly, the litigation itself. Such prognostications are, he claims, inconsistent with two basic principles: (1) courts should not form an opinion on substantive issues before presentation of the whole case, and (2) a party should not be subject to judicial enforcement before a final decision. He argues that at the preliminary stage, in cases other than those in which the pretrial relief aims only at maintaining the status quo to preserve the court's ability to render final judgment, courts should only determine if there are reasonable grounds for the moving party's substantive claim and should be transparently tentative in any outcome predictions.
Professor Westberg believes the unresolved enigma is how high the bar should be set in the assessment of the substantive merits of plaintiffs' cases. A low standard requiring the court to find only reasonable grounds for the substantive claim will be less likely to tempt the parties to view the interim relief as a final judgment, causing them to abandon the litigation. Conversely, an easily met predictive test makes a defendant subject to a potentially erroneous order, violating another fundamental principle of the judicial system. The same debate exists regarding the recipe for the blending of, and the relative weight given to, the prognostic test, which assesses each party's likelihood of success on the merits, and the proportionality test, which balances the potential harms. This debate emerges in U. S. state and federal cases in which courts attempt to nail down consistent standards for granting or denying pretrial orders. The tests that have emerged from this debate are discussed below.
The starting point of any comparison of Swedish and U. S. criteria for the granting of interim orders is the traditional Anglo-American commitment to the extraordinary and always discretionary system of equity. Any equitable order, especially one granted after an abbreviated process that deprives a defendant of the full adversarial opportunity to be heard, may be granted under only the most compelling circumstances and can always be denied at the discretion of the court. The court must be convinced that the applicant has established a high likelihood of success on the merits and the existence of irreversible injury during the interim pretrial period if the order is not granted. The court must also perform a balancing function, comparing the potential irreparable injury to the applicant if the relief is not granted and the trial on the merits subsequently vindicates the applicant's case, with the injury that the adverse party could suffer in the pretrial period if that party ultimately prevails in the trial on the merits, as elaborated below. Especially when asked to issue an order ex parte, courts proceed with caution and an acute awareness that they are at least partly in the dark about the underlying merits of the case. It is possible, therefore, that it may be more difficult to convince a U. S. court to grant interim relief than a Swedish court, particularly if the order is mandatory rather than prohibitory. This preserves the status quo, allowing a trial on the merits and giving the court the ability to fashion an effective remedy. This mandatory-prohibitory distinction is frequently made in U. S. cases and is yet another reason for prudent trial judges to proceed slowly. (7)
A traditional standard for determining whether a temporary restraining order should be granted focuses on four criteria: (1) the presence of irreparable harm; (2) the question of the likelihood of success on the merits, like Professor Westberg's description of a prognostic test; (3) a balance of the equities, similar to Sweden's proportionality test; and (4) a consideration of the public interest. (8) Most federal circuits have transitioned to an "alternative" standard, which also requires: (1) a showing by the applicant of irreparable harm, (2) a balancing of injury in the event that an erroneous order tips towards the applicant, and (3) that no public interest will be jeopardized by the interim relief. (9) The alternative test departs from the traditional one here. If the above three elements have been met, the moving party need only raise questions going to the merits or show that there is doubt about the final outcome. (10)
The standards for preliminary injunctions in the United States are similar to those applied to the granting of temporary restraining orders. These tests vary among the federal circuits. Most apply some version of a "sliding scale test," that requires a showing of "no adequate remedy at law" and irreparable harm if the preliminary injunction is not granted. (11) The sliding scale test requires that the court consider the potential for irreparable harm to the defendant from the injunction which cannot be fully compensated by a defendant ultimately prevailing on the merits or by damages secured by the injunction bond or other form of security required by Rule 65(c) of the Federal Rules of Civil Procedure. The plaintiff must also show some likelihood of succeeding on the merits. The greater the court considers that likelihood to be, the less emphasis is placed on balancing the hardships that will result to either party as a result of the erroneous granting or denying of the preliminary injunction. Correspondingly, the more the balance of hardship and potential injury tips in favor of the plaintiff, the lower the burden on the plaintiff to establish that it is likely it would prevail on the merits is lower. In some instances the plaintiff is only required to show that serious questions are raised. (12)
In Section VIII, the final section of his study in which he proposes certain reforms, Professor Westberg examines several versions of a sliding scale model. These versions differ in the relative weight given to the prognostic and the proportionality tests. He suggests that greater desirable flexibility could be achieved by an approach that would hold that the "weaker support an applicant has for his substantive claim, the greater preponderance of factors in the applicant's favor is required in the risk determination [balance of hardships] for granting the application (and vice versa)." Another formulation of a sliding scale test would be to eliminate the proportionality analysis when the moving party has either a very strong or a very weak likelihood of succeeding on the merits. These approaches are similar to the versions of the alternate test and the sliding scale tests that have developed in U. S. federal circuits. Both tests de-emphasize the need for a court to try to predict the final outcome and both tests also aim to avoid premature decision making. Westberg claims that such reform would not only give judges a greater measure of discretion, but it would also allow judges "to offer guidance to the litigants--in formal as well as substantive issues" and could "limit the room for digressive and time-consuming manners of litigation."
I return now to a closer consideration of the case Professor Westberg uses to illustrate the problem he perceives. I will suggest an alternative conception of the real effect of this case. First, I will argue that the same preliminary order would have been properly granted by a U. S. court.
With respect to the threshold question of irreparable harm, U. S. courts recognize a broad presumption that such harm exists if a prima facie case of copyright infringement is established. (13) Recognizing the grant of exclusive rights to copyright owners secured by the Copyright Act, U. S. courts also recognize a presumption regarding the difficulty of ascertaining damages for copyright infringement. (14) In balancing interests, U. S. courts consistently tip in favor of the copyright owner and the preservation of the copyright. (15) Professor Westberg indicates that in Sweden copyright holders enjoy similar preferential treatment: "in cases concerning infringement of copyrights, a proportionality test should not be performed if the civil claim is manifest or speaks in favor of the applicant." Finally, while it might be argued that there is a public interest in the production of a play, it is axiomatic that such an interest is outweighed by the public interest in protecting a copyright and the integrity of the copyright system itself trumps the other. (16) I conclude, therefore, that the combination of these factors would convince a U. S. court applying either the traditional test, the alternative test, or the sliding scale test to issue a temporary restraining order.
As discussed above, in contrast to the unlimited duration of the order issued by the Swedish court, Rule 65 of the Federal Rules of Civil Procedure would limit the duration of the order and, if issued ex parte, require that a hearing be scheduled as soon as possible. Rule 65(b) also provides the additional safeguard against error by giving the theater company the opportunity to appear before the court and argue for dissolution or modification of the order. Under Rule 65(c), the copyright holder would have been required to provide security in an amount set by the court, unlike in the actual case in which the applicant initially provided only such security as it thought adequate.
Another difference between Swedish and U. S. procedure that is relevant to Professor Westberg's contention that the court's order essentially resolved the dispute in favor of the plaintiffs and made further litigation unnecessary, is the mechanism for enforcement of that order. The starting point for the inevitable settlement negotiation that took place following the issuance of the injunction must have been the amount of the fine set by the court for violation of the injunction. In the United States, no enforcement mechanism is proscribed prospectively. Instead, the court will find a party in contempt for failing to comply. Ironically, the Swedish approach of setting the fine for noncompliance in advance can be seen as influencing the inevitable subsequent negotiation. By putting the first settlement offer on the table and thereby imposing the court's valuation of the right involved, the Swedish approach more directly influences the negotiation than the U. S. enforcement mechanism of contempt. Putting a price tag on noncompliance can be viewed as imposing limitations on exactly the sort of party-centric exploitation of interim orders that concerns Professor Westberg. U. S. courts, aware that defendants will often purchase their way out of the order, have been sensitive to how an order will influence those negotiations. Decisions have shown respect for private ordering through agreement, as opposed to the supplanting of parties' control of their affairs by less informed judicial imposition. (17)
Perhaps, the interim relief that Professor Westberg's illustrative copyright case is not properly understood as a substitute for civil litigation. Another construction is to see the interim order as a proxy for failed negotiations. Westberg tells us that "only ... details remained to be settled, viz the amount of compensation." This left what was hardly a minor gap in the final contract the parties contemplated and is a reliable indication that no final agreement had actually been reached. At the very least, it was risky for the theater company to invest in this project before formally and unambiguously securing the right to stage the play. It had failed to achieve final agreement through negotiation. By forcing the parties to return to the bargaining table while simultaneously respecting the special treatment customarily given to copyrights, the court's order is consistent with the regime of privacy, which is the foundation of commerce in a market-based, free enterprise system.
Westberg notes this effect in Section III of his study in his discussion of "party-based instrumentalism, which can take the shape of egoism," later characterizing this as "a procedure ... used for purposes other than those intended." A more positive conception is that it is a productive, even if unintended, incentive if the failure of private parties to agree voluntarily is rectified by the court's issuance of the order, essentially forcing the parties back to the bargaining table and ultimately allowing the curtain to go up and the show to go on. As a practical matter, this can be seen as court mandated negotiation--with a heavy thumb on the copyright holders' side of the scale, reflecting the broad presumption discussed above that irreparable harm exists even if there is no more than a preliminary case of infringement. To Professor Westberg's complaint that "[i]nterim measures are meant to support litigation; they are not designed to encourage settlements ... [or] meant to be used as means to bring pressure on the defendant," one might reply, "why not, what is wrong with returning decision making to the parties at an earlier stage of conflict?" Private ordering should be preferred to judge-made imposition or judge-controlled resolution. Ultimately, the parties know best and the promoting of private dispute resolution by pointing the gun of an injunction at the defendant as an alternative to costly and slow litigation is a worthy result--always, of course, as long as the order has not put the wrong party in the negotiating driver's seat.
Professor Westberg acknowledges that protection of an exclusive right such as a copyright demands quick and early action. "This right can be so diluted in value that the applicant would not be served by the relief that a subsequent injunction could give. There are, for all purposes, no copyrights left to protect." Nevertheless, he is correct in his concern that such reasoning, if used to justify the promiscuous granting of interim measures without carefully discriminating the nature of party interests at stake or focusing on the need of the court to preserve the status quo pending full trial, can threaten to derail the ability of the adversarial civil litigation system to achieve just and fair outcomes.
(1.) See Anti-Injunction Statute, Ch. 22, 1 Stat. 334 (1793) (illustrating historical mistrust of equity and early effort to limit equity's reach).
(2.) See Fed.R.Civ.P. 65(b).
(3.) See id.
(4.) See id.
(5.) Fed.R.Civ.P. 65(c).
(6.) See, e.g., Am. Hosp. Supply Corp. v. Hosp. Products Ltd., 780 F.2d 589, 597 (7th Cir. 1986) (holding security mandatory but court may exercise discretion in determining amount); Frank's GMC Truck Ctr., Inc. v. Gen. Motors Corp., 847 F.2d 100, 103 (3d Cir. 1988) (while "[A]mount of the bond is left to the discretion of the court, the posting requirement is much less discretionary."); Borough of Palmyra Bd. of Educ. v. F.C., 2 F. Supp. 2d 637, 646 (D.N.J. 1998) (holding that bond requirement may be waived in certain situations where it would impose hardship on applicant); Heather K. v. City of Mallard, 887 F. Supp. 1249, 1268 (N.D. Iowa 1995) (holding that exception for indigent plaintiffs may be made to bond requirement of Rule 65(c)).
(7.) See Velez v. Prudential Health Care Plan of New York, Inc., 943 F. Supp. 332, 338 (S.D.N.Y. 1996) (court attempts to articulate distinction between mandatory and prohibitory injunctions, recognizing that higher standard applies when injunction is "mandatory [and] will alter rather than maintain the status quo"); SCFC ILC, Inc. v. Visa USA, Inc., 936 F.2d 1096, 1102 (10th Cir. 1991) (order altering status quo overruled as abuse of discretion).
(8.) See Morgan Stanley DW, Inc. v. Frisby, 163 F. Supp. 2d 1371, 1374 (N.D. Ga. 2001).
(9.) See City of Chanute v. Kansas Gas and Elec. Co., 754 F.2d 310, 314 (10th Cir. 1985) (stating the "Tenth Circuit has adopted a modified interpretation of the 'likelihood of success requirement.'"). It is enough for plaintiff to raise "serious, substantial, difficult and doubtful questions." See id.
(10.) See Flying Cross Check, L.L.C. v. Cent. Hockey League, Inc., 153 F. Supp. 2d 1253, 1260 (D. Kan. 2001) (plaintiff required only to raise questions going to merits that are serious, substantial, difficult and doubtful to be fair basis for "more deliberate investigation").
(11.) See Save Our Sonoran, Inc. v. Flowers, 381 F.3d 905, 912 (9th Cir. 2004) (sliding scale test has had major developments in Seventh and Ninth Circuits); Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380, 387 (7th Cir. 1984) (Posner, C.J.) (holding that "more likely the plaintiff is to win, the less heavily must the balance of harm weigh in his favor; the less likely he is to win, the more need it weigh in his favor.").
(12.) See Omega Satellite Prod. Co. v. City of Indianapolis, 694 F.2d 119, 123 (7th Cir. 1982) (holding that preliminary injunction should be granted if "[T]he harm to the plaintiff from denial of the preliminary injunction would be very great and the harm to defendant from granting it very small ... even if the defendant has a better chance of prevailing on the merits than the plaintiff, provided plaintiff's chances are better than negligible.").
(13.) See Sun Microsystems, Inc. v. Microsoft Corp., 188 F.3d 1115, 1121 (9th Cir. 1999) ("Federal copyright law presumes irreparable harm from the infringement of a copyright.").
(14.) See Klitzner Indus., Inc., v. H.K. James & Co., Inc., 535 F. Supp. 1249, 1259 (E.D. Pa. 1982) ("Since Congress has elected to grant exclusive right to the owner of a copyright in a protected work, it is virtually axiomatic and the public interest can only be served by upholding copyright protections.").
(15.) See Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240, 1255 (3d Cir. 1983) (holding that even without presumption of irreparable harm, balance of hardship analysis would permit "knowing infringer ... [to] construct its business around its infringement," and to jeopardize copyright holder's investment and competitive position).
(16.) See Klitzner Indus., Inc., 535 F. Supp. at 1259; Apple Computer, Inc., 714 F.2d at 1255.
(17.) See Walgreen Co. v. Sara Creek Property Co., B.V., 966 F.2d 273, 274 (7th Cir. 1992) (Posner, C.J.) (showing awareness of reality of post-order negotiation between parties and preference for party settlement of economic matters).
Richard M. Perlmutter, Professor of Law, Suffolk University Law School.
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|Author:||Perlmutter, Richard M.|
|Publication:||Suffolk Transnational Law Review|
|Date:||Dec 22, 2007|
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