Remedies Review Fall, 2005

I. Compensatory Damages

A. Problems of Valuation

(1) Damages to Property

Market value or diminution in market value is the traditional method of measuring loss in cases where property has been destroyed or damaged. Plaintiffs, however, often attempt to seek the cost of repairs or replacement cost where these measures are higher by arguing that justice requires the higher measure. While the traditional rule is that the plaintiff is entitled to the least costly way of being made whole, there are exceptions to this basic principle. For example, an alternative method of valuation will be used if there is no real market in goods or property of the kind damaged or destroyed. Compare United States v. Fifty Acres of Land (page 19) where there was an active market with Trinity Church v. John Hancock Mutual Life Insurance Co. (page 26) where there was no active market for special purpose property. Value is an objective concept and excludes fanciful or sentimental considerations. However, some aspects of particular property, such as its historical or aesthetic significance, do contribute to market value. Special valuation problems exist where property has fluctuating value (Decatur County Ag-Services, Inc. v. Young - page 33). Despite the fact that value is an objective concept, the parties will typically offer evidence of very different assessments of value with the plaintiff attempting to prove a higher value and the defendant attempting to prove a lower value.

(2) Breach of Contract

The traditional measure of damages in breach of contract cases is expectation damages which are designed to give the injured party the benefit of his or her contractual bargain. Such damages put the plaintiff in the position he or she would have been in had the contract been performed. These damages can include direct as well as incidental damages such as the costs of entering into a substitute transaction and consequential damages such as lost profits. There is some tendency to limit the availability of consequential damages despite the fact they are needed to make the plaintiff whole by finding them unduly speculative or unforeseeable, by finding the plaintiff has failed to mitigate, or by enforcing a contract clause limiting the availability of consequential damages. Alternative ways of measuring contract damages are reliance damages and restitutionary recovery. In breach of warranty cases, expectation damages are calculated by giving plaintiff the difference between the value of what the plaintiff was promised and what the plaintiff received. In some cases, as in Chatlos Systems, Inc. v. National Cash Register Corp (page 48), a court may be willing to find that the plaintiff was promised goods worth more than the contract price. However, other courts will view the contract price as a ceiling on value.

(3) Tort Damages

In tort cases, the traditional measure of damages is designed to restore the plaintiff to the position the plaintiff would have been in had the wrong not occurred. Despite this general rule, in cases involving torts in the context of business transactions, there is some tendency for courts to be willing to use the contract measure of the benefit of the bargain instead of the traditional tort measure of damages. The principal problems in applying the tort measure of damages arise where the category of harm is noneconomic harm such as pain and suffering damages awarded in personal injury actions and injuries to dignatory interests such as emotional distress damages available in a variety of contexts, but particularly where the wrong itself is an assault on one’s dignity such as in cases of libel, false imprisonment and malicious prosecution.

B. Limits on Recovery of Damages

1. Self-imposed limits by the parties agreeing in advance on a limitation on damages for economic losses.

This can occur, for example, in breach of warranty cases, where the agreement of the parties may limit available remedies to repair or replace and/or exclude consequential damages - see Kearney & Trecker Corp. v. Master Engraving Co. - page 74 (although such a clause may not be enforceable if, for example, it is unconscionable). Another example of a limitation on liability is found in Norfolk Southern Railway Co. v. Kirby, Pty Ltd. Self-imposed limits can also arise through the use of a liquidated damage clause - see Ashcraft & Gerel v. Coady - page 83. Such clauses will be enforceable unless they are viewed as a penalty. To avoid being considered an unenforceable penalty, the clause must be a reasonable estimate of anticipated damages or bear a reasonable relationship to actual damages. While liquidated damage clauses that significantly overcompensate will be unenforceable as a penalty, liquidated damage clauses that significantly undercompensate may well be enforceable - see Northern Illinois Gas Co. v. Energy Cooperative, Inc. - page 88.

2. Avoidable Consequences (mitigation of damages).

The plaintiff will be obligated to act reasonably under the circumstances to avoid damages. Where several courses of conduct are each reasonable under the circumstance, the plaintiff is free to select any of them. See S.J. Groves & Sons Co. v. Warner Co. - page 92. The degree to which the plaintiff is obligated to avoid damages my vary with whether the defendant’s wrongdoing was wilful or innocent. A court may also take into consideration, as in Groves & Sons, whether the defendant was in a position to avoid the damages to the plaintiff just as easily or even more easily than the plaintiff. This same idea, that avoiding adverse consequences should be the responsibility of the party who is able to avoid those consequences in the least costly way, can intersect with the concept of foreseeability and be equally applicable in tort and contract cases - see Evra Corp. v. Swiss Bank Corp. - page 119.

3. Offsetting benefits.

If plaintiff avoids expenses as a result of the breach, those savings will be used as an offset against the plaintiff's losses.

4. Collateral source payments.

The traditional rule did not reduce plaintiff's recovery as a result of payment of losses by other sources such as medical insurance. Numbers of jurisdictions have limited the operation of the collateral source rule by statute.

5. Taxes.

Defendants may argue that recovery should be reduced to reflect the fact that the plaintiff might have had to pay taxes on income that a damage recovery is compensating for as, for example, in a case where recovery is available for future lost earnings and those earnings would have been subject to taxation - see Norfolk & Western Railway Co. v. Liepelt - page 201. A related issue about taxes is whether the jury should be given any information about the tax treatment of its damage award, particularly in a case where the award is tax exempt. Under the Internal Revenue Code, damages received “on account of physical injuries or physical sickness” are tax exempt. Most jurisdictions do not provide the jury with information about the tax treatment of monetary awards, but a minority do.

6. Limits on recovery for economic harm alone.

Courts use various doctrines such as causation, foreseeability and immediacy of harm to avoid limitless recovery in cases where a large number of people suffer economic harm from defendant's actions such as in Pruitt v. Allied Chemical Corp. - page 110. Similar uses of the doctrines of causation, foreseeability and avoidable consequences to limit recovery can be seen in cases in which the economic harm to the plaintiff is disproportionate to the gain defendant expected to make from the transaction - see Evra Corp. v. Swiss Bank Corp. - page 119 and Southwestern Bell Telephone Co. v. Norwood - page 126.

7. Reduction to present value.

Recovery may be reduced to reflect the time value of money. If the plaintiff is being compensated now for sums that, but for the wrongdoing, would have been paid to the plaintiff over time, the recovery will be reduced to present value. Present value computations calculate the interest earned on money paid now even though it is not actually “owed” until some time in the future and reduce the recovery accordingly.

8. Requirement that plaintiff prove damages with reasonable certainty.

Damages cannot be based on speculation alone, but the plaintiff is only required to prove damages with as much certainty as is reasonable under the circumstances - see Bigelow v. RKO Radio Pictures - page 129.

9. Policy Objectives.

In cases of damage claims arising under a particular statute, the court will limit recovery in order to make sure that the policy goals underlying the statute are enforced - see Brunswick Corp. v. Pueblo Bowl-O-Matic - page 138.

10. Refusal to award prejudgment interest.

While in many cases interest is awarded to the plaintiff on monetary awards starting from the time when the money was first owed, typically the time of the wrongdoing, prejudgment interest is not always available. At common law, prejudgment interest was not available unless the amount of damages were ascertainable at the time of the wrong. While this concept can be applied narrowly to only apply where damages are easily calculable, it can also be applied more broadly. When relief is available under a statute rather than a common law cause of action, the issue of the availability of prejudgment interest is a question of statutory interpretation.

C. Damages Where Value Cannot Be Measured In Dollars

Examples of this sort of recovery are damages for pain and suffering, loss of society, loss of consortium and emotional distress. In cases of noneconomic damages, judicial curbs may be used to prevent grossly excessive awards. Some examples of such curbs utilized by trial court judges are limits on closing arguments, exclusion of prejudicial evidence and remittitur. On appeal, the jury’s verdict can be reviewed to determine if it is grossly excessive and, if it is, remittitur can be employed although remittitur is more typically employed by trial judges. In reviewing for excessiveness, some courts in some categories of cases will examine damage amounts in similar cases as a method of determining the reasonableness of the jury’s verdict. See Levka v. City of Chicago - page 181- for an example of this comparative assessment. In addition, legislatures have enacted statutory restrictions that limit recovery.

In addition to cases where plaintiffs have suffered physical injuries and can recover for both economic and noneconomic damages such as pain and suffering, this category of damages can be crucial in several other kinds of cases:

(1) recovery for dignatory torts, such as assault, false imprisonment, malicious prosecution, intentional infliction of emotional distress, libel, slander, and invasion of privacy, in which recovery for emotional distress is available and may be the principal injury suffered; and

(2) recovery for deprivations of constitutional rights (as in Carey v. Piphus - page 193 - and Memphis Community School Dist. v. Stachura - page 198) where, in most cases, the plaintiff cannot recover for the abstract value of the right or based on presumed damages, but must prove actual loss.

Emotional distress damages may be unavailable in particular kinds of cases where no physical injury or illness exists. In these cases, courts are concerned with the unreliability of proof of emotional injuries with no accompanying physical injury and fear opening the floodgates to a large number of cases that will impose excessive costs on the defendant.

II. Punitive Damages

Punitive damages (money damages beyond compensation) are based on the moral offensiveness of the defendant's conduct. Factors considered in calculating the amount of such damages include (1) the nature of the defendant's conduct, (2) the defendant's net worth, and (3) the amount of compensatory damages. Various techniques are used to curb the excessiveness of punitive damages including the use of remittitur by trial court judges, statutory curbs on the amount of such damages and the circumstances in which they are available, and the willingness of appellate courts to overturn such damages on the ground of excessiveness. In several recent Supreme Court cases including BMW, Inc. v. Gore - page 741, the Court has struck down punitive damage awards as violative of due process. In such cases, the Court looks at the degree of reprehensibility of the defendant’s conduct, the ratio of the punitive damages to the actual harm inflicted (no more than 10 to 1 in the typical case), and the amount that can be imposed in civil and criminal penalties to determine if the amount of the punitive damages violates due process or not.

III. Injunctive Relief

An injunction is the most commonly awarded equitable remedy. It is a flexible remedy in the form of a court order directed to the defendant and can be structured in various ways to accomplish a wide array of objectives. These include ordering the defendant to refrain from taking specific actions that would be wrongful or ordering the defendant to take particular actions to either avoid wrongdoing or correct wrongdoing that has already occurred. Injunctive relief is available at the discretion of the court in appropriate circumstances and if the remedy at law is inadequate.

Injunctions can be used to prevent harm that has not yet occurred, but the court will make sure that the case is ripe for adjudication by making certain that the event the injunction seeks to prevent will occur in the absence of an injunction and by assuring itself that if the event occurred, its occurrence would be wrongful. See Humble Oil & Refining Co. v. Harang - page 233. At the other end of the time continuum, an injunction will not be granted if the request for injunctive relief is moot. Mootness can occur if an injunction is no longer necessary to prevent harm or if it would no longer be effective to prevent harm because the feared harm has already occurred and cannot be undone. However, if mootness is created by the voluntary cessation of the conduct sought to be enjoined, a court may decide that the request for an injunction is not moot because there is a danger of reoccurrence of the conduct. See United States v. W.T. Grant Co. - page 247. Injunctions can also be used to repair harm that has already been done. The scope of an injunction must be no greater than the scope of the proven wrongful conduct. See Marshall v. Goodyear Tire & Rubber Co. - page 241. Under FRCP 65 (d) an injunction needs to include the reasons for its issuance and, in reasonably specific detail, the acts to be sought or restrained.

A. Permanent Injunctions (Final Relief on the Merits)

An injunction is the most common form of equitable relief awarded as a form of final relief on the merits (in lieu of damages or in addition to damages and/or other remedies) in the form of a court order ordering the defendant to do or refrain from doing something and enforceable by the court's contempt power. In contract cases, injunctive relief is called specific performance, but the requirements for obtaining such relief are the same as in other cases of injunctive relief. A court may be willing to grant injunctive relief if the plaintiff wins the case on the merits and shows that the remedy at law is inadequate. Arguments for demonstrating the inadequacy of the remedy at law include:

(1) Money will not allow the plaintiff to engage in a substitute transaction which will restore plaintiff to the pre-wrong position. This will occur where the property at issue is unique or otherwise unavailable in the marketplace due to scarcity or other circumstance;

(2) Complete relief will require a multiplicity of lawsuits;

(3) Damages can't be calculated with reasonable certainty; and

(4) Damages will be uncollectible because the defendant is insolvent or immune from liability for damages.

Factors which may influence a court to refuse to award injunctive relief, despite the fact that the plaintiff wins the case and the injury is irreparable, include:

(1) Difficulties of court supervision of the injunction;

(2) Reluctance to enforce personal service contracts (although there are exceptions to this policy such as if the employee is unique, the court may grant an injunction ordering the defendant not to work for anyone else and under statutes like the Age Discrimination in Employment Act which provide for the remedy of reinstatement of a wrongfully discharged employee);

(3) Inequitable behavior on the part of the plaintiff who seeks the injunctive relief;

(4) Undue hardship to the defendant against whom the injunction would issue. The degree of hardship would have to be fairly severe to cause a court to refuse to issue an injunction once the plaintiff wins and shows inadequacy of the legal remedy; and

(5) In cases where important First Amendment rights are at stake, such as in libel actions, the courts usually will not grant injunctions against speech. Intellectual property cases are the exception to this rule.

B. Preliminary Injunctions

Injunctions can also be granted at the outset of the litigation to preserve the rights of the parties during the pendency of the litigation. Preliminary injunctions can be obtained traditionally by showing (1) a likelihood of success on the merits, (2) the possibility of irreparable injury if preliminary relief is not granted, (3) the balance of hardships favoring the party requesting the relief and (4) in appropriate cases, the advancement of the public interest. Many jurisdictions, like the Ninth Circuit - see Los Angeles Memorial Coliseum Commission v. National Football League - page 440, have modified the traditional requirements and require either (1) likelihood of success on the merits, (2) irreparable injury and (3) a slight tip of the balance of hardships in favor of the party requesting the preliminary injunction or (1) the case raises serious questions on the merits, (2) irreparable injury and (3) the balance of hardships tips strongly in favor of the party requesting the preliminary injunction. Typically, preliminary injunctions are granted to preserve the status quo during the pendency of the litigation although disagreements can arise as to what the status quo is or was. It is usually defined as the last peaceable, uncontested status quo. Since the risk of an erroneous grant of a preliminary injunction is of concern to the court, courts use a heightened standard for determining irreparable injury (or inadequacy of the remedy at law) in cases where a preliminary injunction is sought as compared to cases where permanent injunctive relief is sought. An erroneous grant would occur, for example, if the court granted a preliminary injunction to the plaintiff based on a conclusion that the plaintiff was likely to win the case on the merits, but the plaintiff eventually lost the case on the merits. This concern with the potential risk of error also explains the focus on the balance of hardships in which the court balances the harm to the party seeking the preliminary injunctive relief if it isn’t granted to the harm to the party opposing the preliminary injunctive relief if it is granted.

IV. Restitution or the law of unjust enrichment is both a body of substantive law as well as a variety of remedial devices. As a damage remedy, in restitution, the court measures damages by the amount of defendant's unjust gain and not by the amount of the plaintiff's loss. There may, of course, be issues about how to measure that gain (Olwell v. Nye & Nessen Co. - page 569) or how to apportion the defendant's gain (Sheldon v. Metro-Goldwyn Pictures Corp. - page 603). Restitutionary relief is attractive to the plaintiff in a number of different circumstances including cases where restitution provides the only substantive theory of recovery, where the defendant’s gain exceeds the plaintiff’s loss, where the burden of proof on the plaintiff to prove entitlement to restitutionary recovery makes it easier for the plaintiff to prove the amount of damages than in cases where the plaintiff is seeking to measure relief by the plaintiff’s loss, and where the defendant is insolvent and restitution provides a mechanism for arguing that the property in the hands of the defendant belongs to the plaintiff and is not available to the defendant’s creditors. There are a variety of remedies available to achieve restitution in addition to money damages measured by the defendant’s gain such as an accounting for profits or a constructive trust. In cases where defendant makes profits by wrongdoing, the court may award the plaintiff all the profits or may apportion the profits to reflect the percentage that were the product of the wrong. The plaintiff’s burden in such cases is only to prove the amount of the defendant’s income attributable to the wrongdoing. The burden then shifts to the defendant to prove the expenses incurred to produce those sales (gross income minus expenses equals profits) as well as to to prove that not all of the profits are attributable to the wrongdoing. The defendant must demonstrate a fair basis of division of the profits to convince a court to apportion the profits instead of awarding all of the defendant’s profits to the plaintiff.

V. Declaratory Judgments - another form of final relief on the merits. This statutory remedy did not exist at common law. Since it is not an equitable remedy, although it is similar in some ways to an injunction, there is no requirement that the remedy at law be inadequate. This noncoercive remedy asks the court to declare the rights of the parties or their legal status when the judgment will clarify or settle the legal relations at issue and terminate or afford relief from legal uncertainty. To obtain this form of relief, there must be an actual dispute between the parties that is ripe for resolution. The often used test asks whether there is a substantial controversy between parties having adverse legal interests of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.