When attorneys stride into court to argue the merits of a request for a preliminary injunction, they are usually focused on arguing the merits of the plaintiff’s claims. Convincing the judge that the plaintiff either does or does not have a likelihood of succeeding on the merits is obviously important. However, frequently the main battleground at the hearing will be the irreparable harm element, particularly in business cases involving economic harm to an enterprise.
Counsel for the defendant may in fact decide to tell the judge that while his or her client believes that the plaintiff’s claims lack merit, the court does not have to consider that issue because the plaintiff has a remedy in damages for economic injury. In fact, it is essentially hornbook law that injunctive relief should not be granted if the plaintiff can only show economic injury.
Counsel for plaintiff can then find herself reduced to arguing that the defendant’s unlawful conduct has greatly diminished the goodwill of the plaintiff’s business in an unquantifiable degree. Defendant’s counsel will then likely reply that this is a just a smokescreen to divert the court’s attention from the obvious fact that any harm to the plaintiff is quantifiable and that at trial, the plaintiff would use a CPA or a business valuation expert to quantify its damages, including to the business’s goodwill. If the court is inclined to deny injunctive relief, it may find that counter-argument to be persuasive.
What if counsel for plaintiff can credibly argue that her client’s claim is for economic damages arising from the destruction of all or most of the client’s business? It would seem that the plaintiff still could not obtain injunctive relief because it has a remedy in damages. However, there is case law holding that there is an exception to that rule where the potential economic loss is so great as to threaten the existence of the movant’s business. The Michigan Court of Appeals so held in Northern Warehousing Inc. v. State of Michigan, 2006 Mich App LEXIS 593 (March 7, 2006), reversed on other grounds 2006 Mich LEXIS 996 (May 24, 2006). The Northern Warehousing Court also focused on whether the plaintiff’s business is threatened with insolvency.
The question then becomes what kind of showing does the plaintiff have to make to demonstrate for purposes of obtaining injunctive relief that the defendant’s unlawful conduct threatens its solvency? Must its liabilities since the defendant’s bad acts started exceed its assets? Must it show that its revenues have declined by well over 50%? In Performance Unlimited v. Questar Publishers, 52 F.3d 1373 (CA 6 1995), the Sixth Circuit found irreparable harm when 60% or more of the plaintiff’s gross revenues depended on the defendant’s business that the latter had cut off by terminating a contract. However, in Cumberland Heights Foundation, Inc. v. Magellan Behavioral Health, Inc., 2010 U.S. Dist. LEXIS 93738 (M.D. Tenn., September 7, 2010), a case that cited Northern Warehousing, a 45% loss of revenues as a result of the defendant’s termination of a contract was deemed to be sufficient to demonstrate irreparable injury. Indeed, the Northern Warehousing Court said that a 42% decrease in the plaintiff’s gross revenues, coupled with liabilities exceeding its assets, as a result of the defendant’s termination of a contract sufficed for a showing of irreparable harm.
The bottom line is that the bottom line is relevant to the irreparable harm requirement, even if the damages caused by the defendant’s conduct can be quantified.
To learn more about the irreparable harm element for injunctive relief, please contact Ken Neuman at [email protected].
