OCTOBER TERM, 1998
Syllabus
GRUPO MEXICANO DE DESARROLLO, S. A., ET AL.
v.
ALLIANCE BOND FUND, INC., ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND
CIRCUIT
No. 98-231. Argued March 31, 1999-Decided June 17, 1999
Respondent investment funds purchased unsecured notes (Notes)
from petitioner Grupo Mexicano de Desarrollo, S. A. (GMD), a
Mexican holding company. Four GMD subsidiaries (also petitioners)
guaranteed the Notes. After GMD fell into financial trouble and
missed an interest payment on the Notes, respondents accelerated
the Notes' principal amount and filed suit for the amount due in
Federal District Court. Alleging that GMD was at risk of
insolvency, or already insolvent, that it was preferring its
Mexican creditors by its planned allocation to them of its most
valuable assets, and that these actions would frustrate any
judgment respondents could obtain, respondents requested a
preliminary injunction restraining petitioners from transferring
the assets. The court issued the preliminary injunction and ordered
respondents to post a $50,000 bond. The Second Circuit
affirmed.
Held:
1. This case has not been rendered moot by the District Court's
granting summary judgment to respondents on their contract claim
and converting the preliminary injunction into a permanent
injunction. Generally, the appeal of a preliminary injunction
becomes moot when the trial court enters a permanent injunction
because the former merges into the latter. Here, however,
petitioners' potential cause of action against the injunction bond
for wrongful injunction suffices to preserve the Court's
jurisdiction, since petitioners' argument that the District Court
lacked the power to restrain their use of assets pending a money
judgment is independent of their defense against the money judgment
on the merits. For the same reason, petitioners' failure to appeal
the conversion of the preliminary injunction into a permanent
injunction does not forfeit their claim on the bond. Pp.
313-318.
2. The District Court lacked the authority to issue a
preliminary injunction preventing petitioners from disposing of
their assets pending adjudication of respondents' contract claim
for money damages because such a remedy was historically
unavailable from a court of equity. Pp. 318-333.
309
(a) The federal courts have the equity jurisdiction that was
exercised by the English Court of Chancery at the time the
Constitution was adopted and the Judiciary Act of 1789 was enacted.
Pp. 318-319.
(b) The well-established general rule was that a judgment fixing
the debt was necessary before a court in equity would interfere
with the debtor's use of his property. See,
e. g., Pusey
&
Jones Co. v.
Hanssen, 261 U. S. 491, 497. It is
by no means clear that there are any exceptions to the general rule
relevant to this case, and the lower courts did not address this
point. The merger of law and equity did not change the rule, since
the merger did not alter substantive rights. The rule was regarded
as serving not merely the procedural end of assuring exhaustion of
legal remedies, but also the substantive end of giving the creditor
an interest in the property which equity could act upon. Pp.
319-324.
(c) The postmerger cases of
Deckert v.
Independence
Shares Corp., 311
U. S. 282,
United States v.
First Nat. City Bank,
379 U. S. 378,
and
De Beers Consolo Mines, Ltd. V.
United States,
325 U. S. 212,
are entirely consistent with the view that the preliminary
injunction in this case was beyond the District Court's equitable
power. Pp. 324-327.
(d) The English Court of Chancery did not provide a prejudgment
injunctive remedy until 1975, and the decision doing so has been
viewed by commentators as a dramatic departure from prior practice.
Enjoining the debtor's disposition of his property at the instance
of a nonjudgment creditor is incompatible with this Court's
traditionally cautious approach to equitable powers, which leaves
any substantial expansion of past practice to Congress. pp.
327-329.
(e) The various weighty considerations both for and against
creating the remedy at issue here should be resolved not in this
forum, but in Congress. Pp. 329-333.
143 F.3d
688, reversed and remanded.
SCALIA, J., delivered the opinion for a unanimous Court with
respect to Part II, and the opinion of the Court with respect to
Parts I, III, and IV, in which REHNQUIST, C. J., and O'CONNOR,
KENNEDY, and THOMAS, JJ., joined. GINSBURG, J., filed an opinion
concurring in part and dissenting in part, in which STEVENS,
SOUTER, and BREYER, JJ., joined,
post, p. 333.
Richard A. Mescon argued the cause for petitioners.
With him on the briefs were
Scott S.
Balber and
Peter Buscemi.
Drew S.
Days III argued the cause for
respondents. With him on the brief were
Kenneth W Irvin,
Dale C.
Christen-
310
sen, Jr., John
J. Galban, Jeremy G. Epstein, Stephen
J. Marzen, Meredith Kolsky Lewis, Andrew
J. Wertheim,
and Lisa T. Simpson.*
JUSTICE SCALIA delivered the opinion of the Court.
This case presents the question whether, in an action for money
damages, a United States District Court has the power to issue a
preliminary injunction preventing the defendant from transferring
assets in which no lien or equitable interest is claimed.
I
Petitioner Grupo Mexicano de Desarrollo, S. A. (GMD), is a
Mexican holding company. In February 1994, GMD issued $250 million
of 8.25% unsecured, guaranteed notes due in 2001 (Notes), which
ranked
pari passu in priority of payment with all of GMD's
other unsecured and unsubordinated debt. Interest payments were due
in February and August of every year. Four subsidiaries of GMD
(which are the remaining petitioners) guaranteed the Notes.
Respondents are investment funds which purchased approximately $75
million of the Notes.
Between 1990 and 1994, GMD was involved in a toll road
construction program sponsored by the Government of Mexico. In
order to elicit private financing, the Mexican Government granted
concessions to companies that would build and operate the system of
toll roads. GMD was both an investor in the concessionaries and
among the construction companies hired by the concessionaries to
build the toll
* Daniel W Krasner filed a brief for the Dominican
Republic urging reversal.
Briefs of amici curiae urging affirmance were filed for the
United States by Solicitor General Waxman, Acting Assistant
Attorney General Ogden, Deputy Solicitor General Kneedler, Edward
C. DuMont, Michael Jay Singer, and Peter
J. Smith; and for
the Securities Industry Association et al. by Richard A. Rosen and
Robert S. Smith.
311
roads. Problems in the Mexican economy resulted in severe losses
for the concessionaries, who were therefore unable to pay
contractors like GMD. In response to these problems, in 1997, the
Mexican Government announced the Toll Road Rescue Program, under
which it would issue guaranteed notes (Toll Road Notes) to the
concessionaries, in exchange for their ceding to the Government
ownership of the toll roads. The Toll Road Notes were to be used to
pay the bank debt of the concessionaries, and also to pay
outstanding receivables held by GMD and other contractors for
services rendered to the concessionaries (Toll Road Receivables).
In the fall of 1997, GMD announced that it expected to receive
approximately $309 million of Toll Road Notes under the
program.
Because of the downturn in the Mexican economy and the related
difficulties in the toll road program, by mid-1997 GMD was in
serious financial trouble. In addition to the Notes, GMD owed other
debts of about $450 million. GMD's 1997 Form 20-F, which was filed
with the Securities and Exchange Commission on June 30, 1997,
stated that GMD's current liabilities exceeded its current assets
and that there was "substantial doubt" whether it could continue as
a going concern. As a result of these financial problems, neither
GMD nor its subsidiaries (who had guaranteed payment) made the
August 1997 interest payment on the Notes.
Between August and December 1997, GMD attempted to negotiate a
restructuring of its debt with its creditors. On August 26, Reuters
reported that GMD was negotiating with the Mexican banks to reduce
its $256 million bank debt, and that it planned to deal with this
liability before negotiating with the investors owning the Notes.
On October 28, GMD publicly announced that it would place in trust
its right to receive $17 million of Toll Road Notes, to cover
employee compensation payments, and that it had transferred its
right to receive $100 million of Toll Road Notes to the Mexican
312
Government (apparently to pay back taxes). GMD also negotiated
with the holders of the Notes (including respondents) to
restructure that debt, but by December these negotiations had
failed.
On December 11, respondents accelerated the principal amount of
their Notes, and, on December 12, filed suit for the amount due in
the United States District Court for the Southern District of New
York (petitioners had consented to personal jurisdiction in that
forum). The complaint alleged that "GMD is at risk of insolvency,
if not insolvent already"; that GMD was dissipating its most
significant asset, the Toll Road Notes, and was preferring its
Mexican creditors by its planned allocation of Toll Road Notes to
the payment of their claims, and by its transfer to them of Toll
Road Receivables; and that these actions would "frustrate any
judgment" respondents could obtain. App. 29-30. Respondents sought
breach-of-contract damages of $80.9 million, and requested a
preliminary injunction restraining petitioners from transferring
the Toll Road Notes or Receivables. On that same day, the District
Court entered a temporary restraining order preventing petitioners
from transferring their right to receive the Toll Road Notes.
On December 23, the District Court entered an order in which it
found that "GMD is at risk of insolvency if not already insolvent";
that the Toll Road Notes were GMD's "only substantial asset"; that
GMD planned to use the Toll Road Notes "to satisfy its Mexican
creditors to the exclusion of [respondents] and other holders of
the Notes"; that "[i]n light of [petitioners'] financial condition
and dissipation of assets, any judgment [respondents] obtain in
this action will be frustrated"; that respondents had demonstrated
irreparable injury; and that it was "almost certain" that
respondents would succeed on the merits of their claim. App. to
Pet. for Cert. 25a-26a. It preliminarily enjoined petitioners "from
dissipating, disbursing, transferring, conveying, encumbering
313
or otherwise distributing or affecting any [petitioner's] right
to, interest in, title to or right to receive or retain, any of the
[Toll Road Notes]."
Id., at 26a. The court ordered
respondents to post a $50,000 bond.
The Second Circuit affirmed.
143 F.3d
688 (1998). We granted certiorari, 525 U. S. 1015 (1998).
II
Respondents contend that events subsequent to petitioners'
appeal of the preliminary injunction render this case moot. While
that appeal was pending in the Second Circuit, the case proceeded
in the District Court. Petitioners filed an answer and asserted
various counterclaims. On April 17, 1998, the District Court
granted summary judgment to respondents on their contract claim and
dismissed petitioners' counterclaims. The court ordered petitioners
to pay respondents $82,444,259 by assignment or transfer of Toll
Road Receivables or Toll Road Notes; the court also converted the
preliminary injunction into a permanent injunction pending such
assignment or transfer. Although petitioners initially appealed
both portions of this order to the Second Circuit, they later
abandoned their appeal from the permanent injunction. The appeal
from the payment order is still pending in the Second Circuit. The
same date the District Court entered judgment, respondents moved to
dismiss petitioners' first appeal-the one now before us-arguing
that the final judgment rendered the appeal moot. On May 4, the
Second Circuit denied the motion to dismiss and two days later
affirmed, as mentioned above, the District Court's grant of the
preliminary injunction.
Respondents argue that the issue of the propriety of the
preliminary injunction is moot because that injunction is now
merged into the permanent injunction. Petitioners contend that the
case is not moot because, if we hold that the District Court was
without power to issue the preliminary injunction,
314
then under Federal Rules of Civil Procedure 65(c) and 65.11 they
will have a claim against the injunction bond. They assert that the
injunction "interfered with GMD's efforts to restructure its debt
and substantially impaired GMD's ability to continue its operations
in the ordinary course of business." Brief for Petitioners 7.
Respondents concede that a party who has been wrongfully enjoined
has a claim on the bond, but they argue that although such a claim
might mean that the
case is not moot, it does not prevent
this
interlocutory appeal from becoming moot. In any event,
say respondents, because a claim for wrongful injunction requires
that the enjoined party win on the ultimate merits, petitioners
have forfeited any claim by failing to appeal the portion of the
District Court's judgment converting the preliminary injunction
into a permanent injunction.
Generally, an appeal from the grant of a preliminary injunction
becomes moot when the trial court enters a permanent injunction,
because the former merges into the latter. We have dismissed
appeals in such circumstances. See,
e. g.,
Smith v.
Illinois Bell Telephone Co., 270 U. S. 587, 588-589
(1926). We agree with petitioners, however, that their potential
cause of action against the injunction bond preserves our
jurisdiction over this appeal. Cf.
Liner v.
Jafco,
Inc., 375 U. S.
301, 305-306 (1964).
In the case of the usual preliminary injunction, the plaintiff
seeks to enjoin, pending the outcome of the litigation, action that
he claims is unlawful. If his lawsuit turns out to be
meritorious-if he is found to be entitled to the permanent
injunction that he seeks-even if the preliminary injunction was
wrongly issued (because at that stage of the
1 Rule 65(c) provides that an applicant for a preliminary
injunction must obtain security "for the payment of such costs and
damages as may be incurred or suffered by any party who is found to
have been wrongfully enjoined or restrained." Rule 65.1 states in
part that "[t]he surety's liability may be enforced on motion
without the necessity of an independent action."
315
litigation the plaintiff's prospects of winning were not
sufficiently clear, or the plaintiff was not suffering irreparable
injury) its issuance would in any event be harmless error. The
final injunction establishes that the defendant
should not have
been engaging in the conduct that was enjoined. Hence, it is
reasonable to regard the preliminary injunction as merging into the
final one: If the latter is valid, the former is, if not
procedurally correct, at least harmless. A quite different
situation obtains in the present case, where (according to
petitioners' claim) the substantive validity of the final
injunction does
not establish the substantive validity of
the preliminary one. For the latter was issued not to enjoin
unlawful conduct, but rather to
render
unlawful conduct that would otherwise be permissible, in order to
protect the anticipated judgment of the court; and it is the
essence of petitioners' claim that such an injunction can be issued
only after the judgment is rendered. If petitioners are correct,
they
have been harmed by issuance of the unauthorized
preliminary injunction-and hence
should be able to recover
on the
bond-even if the final injunction is proper. It would
make no sense, when this is the claim, to say that the preliminary
injunction merges into the final one.2
2We recognize that respondents alleged in their complaint that
the assignments of the rights to receive Toll Road Notes violated
the negative pledge clause of the note instrument and the provision
that the Notes ranked
pari passu with other debt, and
therefore that petitioners were not entitled to engage in the
restrained conduct. We do not, however, understand the District
Court to have made a finding-either in the preliminary injunction
order or in the final order-that petitioners' enjoined conduct was
unlawful. The mootness of petitioners' claim at the present stage
of the proceedings must be assessed on the basis of what that claim
is. As shown by the question on which we granted certiorari,
it is that the District Court wrongfully entered an order to
protect its judgment before the judgment was rendered. If, in fact,
petitioners had no right under the note instrument to take the
actions that were enjoined, that would presumably be a defense to
the action on the injunction bond. See,
e. g., Blumenthal v.
Merrill Lynch, Pierce, Fenner &
Smith, Inc., 910
F. 2d
1049,1054 (CA2 1990); Note, Recovery for Wrongful
Interlocutory Injunc-
316
We reject respondents' argument that the controversy over the
bond saves the "case" from mootness, but does not save the "issue"
of the validity of the preliminary injunction from mootness.
University of Texas v.
Camenisch, 451 U. S. 390 (1981),
upon which respondents principally rely, is inapposite. In that
case a deaf graduate student sued the University of Texas to obtain
an injunction requiring the school to pay for a sign-language
interpreter for his school work. The District Court granted a
preliminary injunction and required the student to post an
injunction bond. Pending appeal of that injunction, the university
paid for the interpreter, but the student graduated before the
Court of Appeals issued its decision. Nevertheless, the Court of
Appeals held that the appeal of the preliminary injunction was not
moot because the issue of who had to pay for the interpreter
remained. We reversed:
"The Court of Appeals correctly held that the case as a whole is
not moot, since, as that court noted, it remains to be decided who
should ultimately bear the cost of the interpreter. However, the
issue before the Court of Appeals was not who should pay for the
interpreter, but rather whether the District Court had abused its
discretion in issuing a preliminary injunction requiring the
University to pay for him. The two issues are significantly
different, since whether the preliminary injunction should have
issued depended on the balance of factors listed in [Fifth Circuit
precedent], while whether the University should ultimately bear the
cost of the interpreter depends on a final resolution of the merits
of Camenisch's case.
tions Under Rule 65(c), 99 Harv. L. Rev. 828, 836 (1986). But it
does not bear upon the mootness of petitioners' present claim.
317
"This, then, is simply another instance in which one issue in a
case has become moot, but the case as a whole remains alive because
other issues have not become moot .... Because the only issue
presently before usthe correctness of the decision to grant a
preliminary injunction-is moot, the judgment of the Court of
Appeals must be vacated and the case must be remanded to the
District Court for trial on the merits." Id., at 393-394
(citations omitted).
Camenisch is simply an application of the same principle
which underlies the rule that a preliminary injunction ordinarily
merges into the final injunction. Since the preliminary injunction
no longer had any effect (the student had graduated), and since the
substantive issue governing the propriety of what had been paid
under the preliminary injunction (as opposed to the procedural
issue of whether the injunction should have issued when it did) was
the same issue underlying the merits claim, there was no sense in
trying the preliminary injunction question separately. In the
present case, however, petitioners' basis for arguing that the
preliminary injunction was wrongfully issued-which is that the
District Court lacked the power to restrain their use of assets
pending a money judgment-is independent of respondents' claim on
the merits-which is that petitioners breached the note instrument
by failing to make the August 1997 interest payment. The resolution
of the merits is immaterial to the validity of petitioners'
potential claim on the bond. Cf.
American Can Co. v.
Mansukhani, 742 F.2d
314,
320-321 (CA7 1984);
Stacey G. v.
Pasadena
Independent Sch. Dist., 695 F.2d
949, 955
(CA5 1983).
For the same reason, petitioners' failure to appeal the
permanent injunction does not forfeit their claim that the
preliminary injunction was wrongful. Petitioners do not contest the
District Court's power to issue a permanent injunction after
rendering a money judgment against them,
318
but they do contest its power to issue a
preliminary
injunction, and they do so on a ground that has nothing to do with
the validity of the permanent injunction. And again for the same
reason, we reject respondents' argument that petitioners have no
wrongful injunction claim because they lost the case on the
merits.
III
We turn, then, to the merits question whether the District Court
had authority to issue the preliminary injunction in this case
pursuant to Federal Rule of Civil Procedure 65.3 The Judiciary Act
of 1789 conferred on the federal courts jurisdiction over "all
suits ... in equity." § 11, 1 Stat. 78. We have long held that
"[t]he 'jurisdiction' thus conferred ... is an authority to
administer in equity suits the principles of the system of judicial
remedies which had been devised and was being administered by the
English Court of Chancery at the time of the separation of the two
countries."
Atlas Life Ins. Co. v.
W 1.
Southern,
Inc., 306 U. S.
563, 568 (1939). See also,
e. g., Stainback v.
Mo
Hock Ke Lok Po, 336 U. S. 368, 382, n. 26
(1949);
Guaranty Trust Co. v.
York, 326 U. S. 99, 105
(1945);
Gordon v.
Washington, 295 U. S. 30, 36 (1935).
"Substantially, then, the equity jurisdiction of the federal courts
is the jurisdiction in equity exercised by the High Court of
Chancery in England at the time of the adoption of the Constitution
and the enactment of the original Judiciary Act, 1789 (1 Stat.
73)." A. Dobie, Handbook of Federal Jurisdiction and Procedure 660
(1928). "[T]he substantive prerequisites for obtaining an equitable
remedy as
3 Although this is a diversity case, respondents' complaint
sought the injunction pursuant to Rule 65, and the Second Circuit's
decision was based on that rule and on federal equity principles.
Petitioners argue for the first time before this Court that under
Erie R. Co. v.
Tompkins, 304 U. S. 64 (1938), the
availability of this injunction under Rule 65 should be determined
by the law of the forum State (in this case New York). Because this
argument was neither raised nor considered below, we decline to
consider it.
319
well as the general availability of injunctive relief are not
altered by [Rule 65] and depend on traditional principles of equity
jurisdiction." 11A C. Wright, A. Miller, & M. Kane, Federal
Practice and Procedure § 2941, p. 31 (2d ed. 1995). We must ask,
therefore, whether the relief respondents requested here was
traditionally accorded by courts of equity.
A
Respondents do not even argue this point. The United States as
amicus curiae, however, contends that the preliminary
injunction issued in this case is analogous to the relief obtained
in the equitable action known as a "creditor's bill." This remedy
was used (among other purposes) to permit a judgment creditor to
discover the debtor's assets, to reach equitable interests not
subject to execution at law, and to set aside fraudulent
conveyances. See 1 D. Dobbs, Law of Remedies § 2.8(1), pp. 191-192
(2d ed. 1993); 4 S. Symons, Pomeroy's Equity Jurisprudence § 1415,
pp. 1065-1066 (5th ed. 1941); 1 G. Glenn, Fraudulent Conveyances
and Preferences § 26, p. 51 (rev. ed. 1940). It was well
established, however, that, as a general rule, a creditor's bill
could be brought only by a creditor who had already obtained a
judgment establishing the debt. See,
e. g., Pusey &
Jones Co. v.
Hanssen, 261 U. S. 491, 497
(1923);
Hollins v.
Brierfield Coal &
Iron
Co., 150 U. S.
371, 378-379 (1893);
Cates v.
Allen, 149 U. S. 451, 457
(1893);
National Tube Works Co. v.
Ballou, 146 U. S. 517, 523-524
(1892);
Scott v.
Neely, 140 U. S. 106, 113
(1891);
Smith v.
Railroad Co., 99 U. S. 398, 401 (1879);
Adler v.
Fenton, 24 How. 407, 411-413 (1861); see
also 4 Symons,
supra, at 1067; 1 Glenn,
supra, § 9,
at 11; F. Wait, Fraudulent Conveyances and Creditors' Bills § 73,
pp. 110111 (1884). The rule requiring a judgment was a product, not
just of the procedural requirement that remedies at law had to be
exhausted before equitable remedies could be pursued, but also of
the substantive rule that a general creditor (one without a
judgment) had no cognizable interest, either
320
at law or in equity, in the property of his debtor, and
therefore could not interfere with the debtor's use of that
property. As stated by Chancellor Kent: "The reason of the rule
seems to be, that until the creditor has established his title, he
has no right to interfere, and it would lead to an unnecessary,
and, perhaps, a fruitless and oppressive interruption of the
exercise of the debtor's rights."
Wiggins v.
Armstrong, 2 Johns. Ch. 144, 145-146 (N. Y. 1816). See also,
e. g., Guaranty Trust Co., supra, at 106-107, n. 3;
Pusey &
Jones Co., supra, at 497;
Cates,
supra, at 457;
Adler, supra, at 411-413;
Shufeldt
v.
Boehm, 96 Ill. 560, 564 (1880); 1 Glenn,
supra, §
9, at 11; Wait,
supra, § 52, at 81, § 73, at 113.
The United States asserts that there were exceptions to the
general rule requiring a judgment. The existence and scope of these
exceptions is by no means clear.4 Cf. G. Glenn, The Rights and
Remedies of Creditors Respecting Their Debtor's Property §§ 21-24,
pp. 18-21 (1915). Although the United States says that some of them
"might have been relevant in a case like this one," Brief for
United States as
Amicus Curiae 11, it chooses not to resolve
(or argue definitively) whether any particular one would have been,
id., at 12.5 For their part, as noted above, respondents
4 For example, some courts said that insolvency was an
exception, but others disagreed. See,
e. g., Annot.,
Of the Demands Which Will Support a Creditor's Bill, 66 American
State Reports 271, 285 (1899) (cases are "in almost hopeless
conflict"). This Court has concluded that that particular exception
does not exist. See,
e. g., Pusey &
Jones Co. v.
Hanssen, 261 U. S. 491, 495-497 (1923);
Hollins v.
Brierfield Coal &
Iron Co., 150 U. S. 371, 385-386
(1893);
Smith v.
Railroad Co., 99 U. S. 398, 400-401
(1879).
5 Some cases suggested that there was an exception where the
debt was admitted or confessed, at least if the creditor possessed
an interest in the debtor's property. See,
e. g., Scott v.
Neely, 140 U.
S. 106, 113 (1891);
D. A. Tompkins Co. v.
Catawba
Mills, 82 F.7d
0, 783 (CCSC 1897). Even if the latter condition is overlooked,
it is by no means clear that the action here would qualify.
Petitioners' answer (filed after the preliminary injunction had
issued) denied knowledge or information sufficient to form a belief
(which is the equivalent of a denial, see Federal Rule of Civil
Procedure 8(b)) as to respondents' allegations that petitioners
were currently in-
321
do not discuss creditor's bills at all. Particularly in the
absence of any discussion of this point by the lower courts, we are
not inclined to speculate upon the existence or applicability to
this case of any exceptions, and follow the wellestablished general
rule that a judgment establishing the debt was necessary before a
court of equity would interfere with the debtor's use of his
property.
JUSTICE GINSBURG concedes that federal equity courts have
traditionally rejected the type of provisional relief granted in
this case. See
post, at 338 (opinion concurring in part and
dissenting in part). She invokes, however, "the grand aims of
equity," and asserts a general power to grant relief whenever legal
remedies are not "practical and efficient," unless there is a
statute to the contrary.
Post, at 342 (internal quotation
marks omitted). This expansive view of equity must be rejected.
Joseph Story's famous treatise reflects what we consider the proper
rule, both with regard to the general role of equity in our
"government of laws, not of men," and with regard to its
application in the very case before us:
"Mr. Justice Blackstone has taken considerable pains to refute
this doctrine. 'It is said,' he remarks, 'that it is the business
of a Court of Equity, in England, to abate the rigor of the common
law. But no such power is contended for. Hard was the case of bond
creditors, whose debtor devised away his real estate .... But a
Court of Equity can give no relief .... ' And illustrations of the
same character may be found in every state of the Union .... In
many [States], if not in all, a debtor may prefer one creditor to
another, in discharging his debts, whose assets are wholly
insufficient to pay all the
debted to respondents in the amount of $80.9 million, and that
petitioners breached their agreements under the Notes and the
related guarantee; and denied respondents' allegations that all
conditions precedent to suit had occurred, been waived, or
otherwise been satisfied, and that respondents had suffered damages
of $80.9 million.
322
debts." 1 Commentaries on Equity Jurisprudence § 12, pp. 14-15
(1836).
See also
infra, at 332-333. We do not question the
proposition that equity is flexible; but in the federal system, at
least, that flexibility is confined within the broad boundaries of
traditional equitable relief. To accord a type of relief that has
never been available before-and especially (as here) a type of
relief that has been specifically disclaimed by longstanding
judicial precedent-is to invoke a "default rule,"
post, at
342, not of flexibility but of omnipotence. When there are indeed
new conditions that might call for a wrenching departure from past
practice, Congress is in a much better position than we both to
perceive them and to design the appropriate remedy. Despite JUSTICE
GINSBURG'S allusion to the "increasing complexities of modern
business relations,"
post, at 337 (internal quotation marks
omitted), and to the bygone "age of slow-moving capital and
comparatively immobile wealth,"
post, at 338, we suspect
there is absolutely nothing new about debtors' trying to avoid
paying their debts, or seeking to favor some creditors over
others-or even about their seeking to achieve these ends through
"sophisticated ... strategies,"
ibid. The law of fraudulent
conveyances and bankruptcy was developed to prevent such conduct;
an equitable power to restrict a debtor's use of his unencumbered
property before judgment was not.
Respondents argue (supported by the United States) that the
merger of law and equity changed the rule that a general creditor
could not interfere with the debtor's use of his property. But the
merger did not alter substantive rights. "Notwithstanding the
fusion of law and equity by the Rules of Civil Procedure, the
substantive principles of Courts of Chancery remain unaffected."
Stainback, 336 U. S., at 382, n. 26. Even in the absence of
historical support, we would not be inclined to believe that it is
merely a question of procedure whether a person's unencumbered
assets can be
323
frozen by general-creditor claimants before their claims have
been vindicated by judgment. It seems to us that question goes to
the substantive rights of all property owners. In any event it
appears, as we have observed, that the rule requiring a judgment
was historically regarded as serving, not merely the procedural end
of assuring exhaustion of legal remedies (which the merger of law
and equity could render irrelevant), but also the substantive end
of giving the creditor an interest in the property which equity
could then act upon. See
supra, at 319-320.6
We note that none of the parties or
amici specifically
raised the applicability to this case of Federal Rule of Civil
Procedure 18(b), which states:
"Whenever a claim is one heretofore cognizable only after
another claim has been prosecuted to a conclusion, the two claims
may be joined in a single action; but the court shall grant relief
in that action only in accordance with the relative substantive
rights of the parties. In particular, a plaintiff may state a claim
for money and a claim to have set aside a conveyance fraudulent as
to that plaintiff, without first having obtained a judgment
establishing the claim for money."
6 As we stated in
Adler v.
Fenton, 24 How. 407,
411-412 (1861): '''Our laws determine with accuracy the time and
manner in which the property of a debtor ceases to be subject to
his disposition, and becomes subject to the rights of his creditor.
A creditor acquires a lien upon the lands of his debtor by a
judgment; and upon the personal goods of the debtor, by the
delivery of an execution to the sheriff. It is only by these liens
that a creditor has any vested or specific right in the property of
his debtor. Before these liens are acquired, the debtor has full
dominion over his property; he may convert one species of property
into another, and he may alienate to a purchaser. The rights of the
debtor, and those of a creditor, are thus defined by positive
rules; and the points at which the power of the debtor ceases, and
the right of the creditor commences, are clearly established. These
regulations cannot be contravened or varied by any interposition of
equity'" (quoting
Moran v.
Dawes, 1 Hopk. Ch. 365,
367 (N. Y. 1825)).
324
Because the Rule was neither mentioned by the lower courts nor
briefed by the parties, we decline to consider its application to
the present case. We note, however, that it says nothing about
preliminary relief, and specifically reserves substantive rights
(as did the Rules Enabling Act, see 28 U. S. C. § 2072(b)).7
B
Respondents contend that two of our postmerger cases support the
District Court's order "in principle." Brief for Respondents 22. We
find both of these cases entirely consistent with the view that the
preliminary injunction in this case was beyond the equitable
authority of the District Court.
In
Deckert v.
Independence Shares Corp., 311 U. S. 282 (1940),
purchasers of certificates that entitled the holders to invest in a
trust of common stocks sued the company that sold the certificates
and the company administering the trust, and related officers and
affiliates, under the Securities Act of 1933, alleging that the
sale was fraudulent. They further alleged that the company that
sold the certificates was insolvent, that it was likely to make
preferential payments to certain creditors, and that its assets
were in danger of dissipation. They sought the appointment of a
receiver and an injunction restraining the company administering
the trust from transferring any assets of the corporations or of
the trust. The District Court preliminarily enjoined the company
from transferring a fixed sum.
Id., at 285-286.
7 Several States have adopted the Uniform Fraudulent Conveyance
Act (or its successor the Uniform Fraudulent Transfers Act), which
has been interpreted as conferring on a nonjudgment creditor the
right to bring a fraudulent conveyance claim. See generally P.
Alces, Law of Fraudulent Transactions ~ 5.04[3], p. 5-116 (1989).
Insofar as Rule 18(b) applies to such an action, the state statute
eliminating the need for a judgment may have altered the common-law
rule that a general contract creditor has no interest in his
debtor's property. Because this case does not involve a claim of
fraudulent conveyance, we express no opinion on the point.
325
After deciding that the Securities Act permitted equitable
relief, we concluded that the bill stated a cause of action for the
equitable remedies of rescission of the contracts and restitution
of the consideration paid,
id., at 287-288, and that the
preliminary injunction "was a reasonable measure to preserve the
status quo pending final determination of the questions raised by
the bill,"
id., at 290.
Deckert is not on point here
because, as the Court took pains to explain, "the bill state[d] a
cause [of action] for equitable relief."
Id., at 288.
"The principal objects of the suit are rescission of the Savings
Plan contracts and restitution of the consideration paid .... That
a suit to rescind a contract induced by fraud and to recover the
consideration paid may be maintained in equity, at least where
there are circumstances making the legal remedy inadequate, is well
established." Id., at 289.
The preliminary relief available in a suit seeking equitable
relief has nothing to do with the preliminary relief available in a
creditor's bill seeking equitable assistance in the collection of a
legal debt.
In the second case relied on by respondents,
United
States v.
First Nat. City Bank, 379 U. S. 378 (1965), the
United States, in its suit to enforce a tax assessment and tax
lien, requested a preliminary injunction preventing a third-party
bank from transferring any of the taxpayer's assets which were held
in a foreign branch office of the bank.
Id., at 379380.
Relying on a statute giving district courts the power to grant
injunctions "'necessary or appropriate for the enforcement of the
internal revenue laws,'"
id., at 380 (quoting former 26 U.
S. C. § 7402(a) (1964 ed.)), we concluded that the temporary
injunction was "appropriate to prevent further dissipation of
assets," 379 U. S., at 385. We stated that if a district court
could not issue such an injunction, foreign taxpayers could avoid
their tax obligations.
326
First National is distinguishable from the present case
on a number of grounds. First, of course, it involved not the
Court's general equitable powers under the Judiciary Act of 1789,
but its powers under the statute authorizing issuance of tax
injunctions.8 Second,
First National relied in part on the
doctrine that courts of equity will "'go much farther both to give
and withhold relief in furtherance of the public interest than they
are accustomed to go when only private interests are involved,'"
id., at 383 (quoting
Virginian R. Co. v.
Railway
Employees, 300 U.
S. 515, 552 (1937)). And finally, although the Court did not
rely on this fact, the creditor (the Government) asserted an
equitable lien on the property, see 379 U. S., at 379-380, which
presents a different case from that of the unsecured general
creditor.
That
Deckert and
First National should not be read
as establishing the principle relied on by respondents is strongly
suggested by
De Beers Consolo Mines, Ltd. v.
United
States, 325 U. S.
212 (1945). In that case the United States brought suit against
several corporations seeking equitable relief against alleged
antitrust violations. The United States also sought a preliminary
injunction restraining the defendants from removing their assets
from this country pending adjudication of the merits. We concluded
that the injunction was beyond the power of the District Court. We
stated that "[a] preliminary injunction is always appropriate to
grant intermediate relief of the same character as that which may
be granted finally," but that the injunction in that case dealt
"with a matter lying wholly out-
8 Although the United States suggests that there is statutory
support for the present injunction in the All Writs Act, 28 U. S.
C. § 1651, Brief for United States as
Amicus Curiae 18, we
have said that the power conferred by the predecessor of that
provision is defined by "what is the usage, and what are the
principles of equity applicable in such a case."
De Beers
Consolo Mines, Ltd. V.
United States, 325 U. S. 212, 219
(1945). That is the very inquiry in which we have engaged.
327
side the issues in the suit."
Id., at 220. We pointed out
that "Federal and State courts appear consistently to have refused
relief of the nature here sought,"
id., at 221, and we
concluded:
"To sustain the challenged order would create a precedent of
sweeping effect. This suit, as we have said, is not to be
distinguished from any other suit in equity. What applies to it
applies to all such. Every suitor who resorts to chancery for any
sort of relief by injunction may, on a mere statement of belief
that the defendant can easily make away with or transport his money
or goods, impose an injunction on him, indefinite in duration,
disabling him to use so much of his funds or property as the court
deems necessary for security or compliance with its possible
decree. And, if so, it is difficult to see why a plaintiff in any
action for a personal judgment in tort or contract may not, also,
apply to the chancellor for a so-called injunction sequestrating
his opponent's assets pending recovery and satisfaction of a
judgment in such a law action. No relief of this character has been
thought justified in the long history of equity jurisprudence."
I d., at 222-223.
The statements in the last two sentences, though dictum,
confirms that the relief sought by respondents does not have a
basis in the traditional powers of equity courts.
C
As further support for the proposition that the relief accorded
here was unknown to traditional equity practice, it is instructive
that the English Court of Chancery, from which the First Congress
borrowed in conferring equitable powers on the federal courts, did
not provide an injunctive remedy such as this until 1975. In that
year, the Court of Appeal decided
Mareva Compania Naviera S.
A. v.
International
328
Bulkcarriers S.
A., 2 Lloyd's Rep. 509.9
Mareva, although acknowledging that the prior case of
Lister &
Co. v.
Stubbs, [1890] 45 Ch. D. 1
(C. A.), said that a court has no power to protect a
creditor before he gets judgment,10 relied on a statute giving
courts the authority to grant an interlocutory injunction "'in all
cases in which it shall appear to the court to be just or
convenient,'" 2 Lloyd's Rep., at 510 (quoting Judicature Act of
1925, Law Reports 1925 (2), 15 & 16 Geo. V, ch. 49, § 45). It
held (in the words of Lord Denning) that "[i]f it appears that the
debt is due and owing-and there is a danger that the debtor may
dispose of his assets so as to defeat it before judgment-the Court
has jurisdiction in a proper case to grant an interlocutory
judgment so as to prevent him
[sic] disposing of those
assets." 2 Lloyd's Rep., at 510. The
Mareva injunction has
now been confirmed by statute. See Supreme Court Act of 1981, § 37,
11 Halsbury's Statutes 966, 1001 (1991 reissue).
Commentators have emphasized that the adoption of
Mareva
injunctions was a dramatic departure from prior practice.
"Before 1975 the courts would not grant an injunction to
restrain a defendant from disposing of his assets pen-
9 Apparently the first
"Mareva" injunction was actually
issued in
Nippon Yusen Kaisha v.
Karageorgis, [1975]
2 Lloyd's Rep. 137
(C. A.), in which Lord Denning recognized
the prior practice of not granting such injunctions, but stated
that "the time has come when we should revise our practice."
Id., at 138; see also Hetherington, Introduction to the
Mareva Injunction, in Mareva Injunctions 1, n. 1 (M. Hetherington
ed. 1983). For whatever reason,
Mareva has gotten the credit
(or blame), and we follow the tradition of leaving
Nippon
Yusen in the shadows.
10 In
Lister &
Co. v.
Stubbs, 45 Ch.
D., at 1, 13, the Court of Appeal held that an injunction
restraining the defendant's use of assets could not be issued. Lord
Justice Cotton stated: "I know of no case where, because it was
highly probable that if the action were brought to a hearing the
plaintiff could establish that a debt was due to him from the
defendant, the defendant has been ordered to give security until
that has been established by the judgment or decree."
329
dente lite merely because the plaintiff feared that by the time
he obtained judgment the defendant would have no assets against
which execution could be levied. Applications for such injunctions
were consistently refused in the English Commercial Court as
elsewhere. They were thought to be so clearly beyond the powers of
the court as to be 'wholly unarguable.'" Hetherington, supra
n. 9, at 3.
See also Wasserman, Equity Renewed: Preliminary Injunctions to
Secure Potential Money Judgments, 67 Wash. L. Rev. 257, 337 (1992)
(stating that
Mareva "revolutionized English practice"). The
Mareva injunction has been recognized as a powerful tool for
general creditors; indeed, it has been called the "nuclear weapo[n]
of the law." R. Ough & w. Flenley, The Mareva Injunction and
Anton Piller Order:
Practice and Precedents xi (2d ed. 1993).
The parties debate whether
Mareva was based on statutory
authority or on inherent equitable power. See Brief for Petitioners
17, n. 8; Brief for Respondents 35-36. Regardless of the answer to
this question, it is indisputable that the English courts of equity
did not actually
exercise this power until 1975, and that
federal courts in this country have traditionally applied the
principle that courts of equity will not, as a general matter,
interfere with the debtor's disposition of his property at the
instance of a nonjudgment creditor. We think it incompatible with
our traditionally cautious approach to equitable powers, which
leaves any substantial expansion of past practice to Congress, to
decree the elimination of this significant protection for
debtors.
IV
The parties and
amici discuss various arguments for and
against creating the preliminary injunctive remedy at issue in this
case. The United States suggests that the factors supporting such a
remedy include
330
"simplicity and uniformity of procedure; preservation of the
court's ability to render a judgment that will prove enforceable;
prevention of inequitable conduct on the part of defendants;
avoiding disparities between defendants that have assets within the
jurisdiction (which would be subject to pre-judgment attachment 'at
law') and those that do not; avoiding the necessity for plaintiffs
to locate a forum in which the defendant has substantial assets;
and, in an age of easy global mobility of capital, preserving the
attractiveness of the United States as a center for financial
transactions." Brief for United States as Amicus Curiae
16.
But there are weighty considerations on the other side as well,
the most significant of which is the historical principle that
before judgment (or its equivalent) an unsecured creditor has no
rights at law or in equity in the property of his debtor. As one
treatise writer explained:
"A rule of procedure which allowed any prowling creditor, before
his claim was definitely established by judgment, and without
reference to the character of his demand, to file a bill to
discover assets, or to impeach transfers, or interfere with the
business affairs of the alleged debtor, would manifestly be
susceptible of the grossest abuse. A more powerful weapon of
oppression could not be placed at the disposal of unscrupulous
litigants." Wait, Fraudulent Conveyances § 73, at 110-111.
The requirement that the creditor obtain a prior judgment is a
fundamental protection in debtor-creditor law-rendered all the more
important in our federal system by the debtor's right to a jury
trial on the legal claim. There are other factors which likewise
give us pause: The remedy sought here could render Federal Rule of
Civil Procedure 64, which authorizes use of state prejudgment
remedies, a virtual irrelevance. Why go through the trouble of
complying with local
331
attachment and garnishment statutes when this all-purpose
prejudgment injunction is available? More importantly, by adding,
through judicial fiat, a new and powerful weapon to the creditor's
arsenal, the new rule could radically alter the balance between
debtor's and creditor's rights which has been developed over
centuries through many lawsincluding those relating to bankruptcy,
fraudulent conveyances, and preferences. Because any rational
creditor would want to protect his investment, such a remedy might
induce creditors to engage in a "race to the courthouse" in cases
involving insolvent or near-insolvent debtors, which might prove
financially fatal to the struggling debtor. (In this case, we might
observe, the respondents did not represent all of the holders of
the Notes; they were an active few who sought to benefit at the
expense of the other noteholders as well as GMD's other creditorsY)
It is significant that, in England, use of the
Mareva
injunction has expanded rapidly. "Since 1975, the English courts
have awarded
Mareva injunctions to freeze assets in an
ever-increasing set of circumstances both within and beyond the
commercial setting to an ever-expanding number of plaintiffs."
Wasserman,
supra, at 339. As early as 1984, one observer
stated that "[t]here are now a steady flow of such applications to
our Courts which have been estimated to exceed one thou-
llJUSTICE GINSBURG suggests that respondents acted to benefit
all of GMD's creditors. See
post, at 341, n. 6. But
respondents' complaint sought the full amount they were allegedly
owed, despite their contention that petitioners could not pay all
their creditors. It is not clear that the "trust in compliance with
Mexican law" that respondents proposed as a possible preliminary
remedy,
ibid., was to be for the benefit of all creditors,
rather than respondents alone-but that remedy was in any event
denied, which did not deter respondents from seeking a simple
freeze on assets to satisfy their anticipated judgment. There is
nothing whatever wrong with respondents' pursuing their own
interests. Indeed, the fact that it is entirely proper and entirely
predictable is the very premise of the point we are making: that
this new remedy will promote unregulated competition among the
creditors of a struggling debtor.
332
sand per month." Shenton, Attachments and Other Interim Court
Remedies in Support of Arbitration, 1984 Int'l Bus. Law. 101,
104.
We do not decide which side has the better of these arguments.
We set them forth only to demonstrate that resolving them in this
forum is incompatible with the democratic and self-deprecating
judgment we have long since made: that the equitable powers
conferred by the Judiciary Act of 1789 did not include the power to
create remedies previously unknown to equity jurisprudence. Even
when sitting as a court in equity, we have no authority to craft a
"nuclear weapon" of the law like the one advocated here. Joseph
Story made the point many years ago:
"If, indeed, a Court of Equity in England did possess the
unbounded jurisdiction, which has been thus generally ascribed to
it, of correcting, controlling, moderating, and even superceding
the law, and of enforcing all the rights, as well as charities,
arising from natural law and justice, and of freeing itself from
all regard to former rules and precedents, it would be the most
gigantic in its sway, and the most formidable instrument of
arbitrary power, that could well be devised. It would literally
place the whole rights and property of the community under the
arbitrary will of the Judge, acting, if you please, arbitrio
boni judicis, and it may be, ex aequo et bono, according
to his own notions and conscience; but still acting with a despotic
and sovereign authority. A Court of Chancery might then well
deserve the spirited rebuke of Seldon; 'For law we have a measure,
and know what to trust to-Equity is according to the conscience of
him, that is Chancellor; and as that is larger, or narrower, so is
Equity. 'T is all one, as if they should make the standard for the
measure the Chancellor's foot. What an uncertain measure would this
be? One Chancellor has a long foot; another a short foot; a third
an indifferent foot. It
333
is the same thing with the Chancellor's conscience.'" 1
Commentaries on Equity Jurisprudence § 19, at 21.
The debate concerning this formidable power over debtors should
be conducted and resolved where such issues belong in our
democracy: in the Congress.
***
Because such a remedy was historically unavailable from a court
of equity, we hold that the District Court had no authority to
issue a preliminary injunction preventing petitioners from
disposing of their assets pending adjudication of respondents'
contract claim for money damages. We reverse the judgment of the
Second Circuit and remand the case for further proceedings
consistent with this opinion.
It is so ordered.
JUSTICE GINSBURG, with whom JUSTICE STEVENS, JusTICE SOUTER, and
JUSTICE BREYER join, concurring in part and dissenting in part.
I
Uncontested evidence presented to the District Court at the
preliminary injunction hearing showed that petitioner Grupo
Mexicano de Desarrollo, S. A. (GMD), had defaulted on its
contractual obligations to respondents, a group of GMD note holders
(Alliance), see App. to Pet. for Cert. 24a, 31a, that Alliance had
satisfied all conditions precedent to its breach of contract claim,
see
id., at 25a, and that GMD had no plausible defense on
the merits, see
id., at 25a, 36a. Alliance also demonstrated
that GMD had undertaken to treat Alliance's claims on the same
footing as all other unsecured, unsubordinated debt, see
id., at 24a, but that GMD was in fact satisfying Mexican
creditors to the exclusion of Alliance,
id., at 26a.
Furthermore, unchallenged evidence indicated that GMD was so
rapidly disbursing its sole remaining asset that, absent
provisional action by the District Court, Alli-
334
Opinion of GINSBURG, J.
ance would have been unable to collect on the money judgment for
which it qualified. See
id., at 26a, 32a.1
Had it been possible for the District Judge to set up "a
pie-powder court ... on the instant and on the spot,"
Parks
v.
Boston, 32 Mass. 198, 208 (1834) (Shaw, C. J.), the judge
could have moved without pause from evidence taking to entry of
final judgment for Alliance, including an order prohibiting GMD
from transferring assets necessary to satisfy the judgment. Lacking
any such device for instant adjudication, the judge employed a
preliminary injunction "to preserve the relative positions of the
parties until a trial on the merits [could] be held."
University
of Texas v.
Camenisch,
451 U. S. 390, 395
(1981). The order enjoined GMD from distributing assets likely to
be necessary to satisfy the judgment in the instant case, but gave
Alliance no security interest in GMD's assets, nor any preference
relative to GMD's other creditors. Moreover, the injunction
expressly reserved to GMD the option of commencing proceedings
under the bankruptcy laws of Mexico or the United States. App. to
Pet. for Cert. 27a. In addition, the District Judge recorded his
readiness to modify the interim order if necessary to keep GMD in
business. See
id., at 53a. The preliminary injunction thus
constrained GMD only to the extent essential to the subsequent
entry of an effective judgment.
The Court nevertheless disapproves the provisional relief
ordered by the District Court, holding that a preliminary
injunction freezing assets is beyond the equitable authority of the
federal courts. I would not so disarm the district
1 GMD did not seek Second Circuit review of the District Court's
fact findings on irreparable harm or of that court's determination
that Alliance almost certainly would prevail on the merits. See
Brief for Petitioners 7. Nor does GMD cast any doubt on those
matters here. Instead, GMD forthrightly concedes that had the
District Court declined to issue the preliminary injunction, GMD
would have had no assets available to satisfy the money judgment
that Alliance ultimately obtained. See Tr. of Oral Arg.8-9.
335
courts. As I comprehend the courts' authority, injunctions of
this kind, entered in the circumstances presented here, are within
federal equity jurisdiction. Satisfied that the injunction issued
in this case meets the exacting standards for preliminary equitable
relief, I would affirm the judgment of the Second Circuit.2
II
The Judiciary Act of 1789 gave the lower federal courts
jurisdiction over "all suits ... in equity." § 11, 1 Stat. 78. We
have consistently interpreted this jurisdictional grant to confer
on the district courts "authority to administer ... the principles
of the system of judicial remedies which had been devised and was
being administered" by the English High Court of Chancery at the
time of the founding.
Atlas Life Ins. Co. v.
W 1.
Southern, Inc., 306 U. S. 563, 568
(1939).
As I see it, the preliminary injunction ordered by the District
Court was consistent with these principles. We long ago recognized
that district courts properly exercise their equitable jurisdiction
where "the remedy in equity could alone furnish relief, and ... the
ends of justice requir[e] the injunction to be issued."
Watson v.
Sutherland, 5 Wall. 74, 79 (1867).
Particularly, district courts enjoy the "historic federal judicial
discretion to preserve the situation [through provisional relief]
pending the outcome of a case lodged in court." 11A C. Wright, A.
Miller, & M. Kane, Federal Practice and Procedure § 2943, p. 79
(2d ed. 1995). The District Court acted in this case in careful
accord with these prescriptions, issuing the preliminary injunction
only upon well-supported findings that Alliance had "[no] adequate
remedy at law," would be "frustrated" in its ability to recover a
judgment absent interim injunctive relief, and was
2 I agree, for the reasons JUSTICE SCALIA states, see
ante, at 313-318, that the case is not moot; accordingly, I
join Part II of the Court's opinion.
336
Opinion of GINSBURG, J.
"almost certain" to prevail on the merits. App. to Pet. for
Cert.26a.3
The Court holds the District Court's preliminary freeze order
impermissible principally because injunctions of this kind were not
"traditionally accorded by courts of equity" at the time the
Constitution was adopted.
Ante, at 319; see
ante, at
333. In my view, the Court relies on an unjustifiably static
conception of equity jurisdiction. From the beginning, we have
defined the scope of federal equity in relation to the
principles of equity existing at the separation of this
country from England, see,
e. g., Payne v.
Hook, 7
Wall. 425, 430 (1869);
Gordon v.
Washington, 295 U. S. 30, 36 (1935);
we have never limited federal equity jurisdiction to the specific
practices and remedies of the pre-Revolutionary Chancellor.
Since our earliest cases, we have valued the adaptable character
of federal equitable power. See
Seymour v.
Freer, 8
Wall. 202, 218 (1869) ("[A] court of equity ha[s] unquestionable
authority to apply its flexible and comprehensive jurisdiction in
such manner as might be necessary to the right administration of
justice between the parties.");
Hecht Co. v.
Bowles,
321 U. S. 321,
329 (1944) ("Flexibility rather than rigidity has distinguished
[federal equity jurisdiction]."). We have also recognized that
equity must evolve over time, "in order to meet the requirements of
every case, and to satisfy the needs of a progressive social
condition in which new primary rights and duties are constantly
arising and new kinds of wrongs are constantly committed."
Union
Pacific R. Co. v.
Chicago, R. 1. &
P. R. Co.,
163 U. S.
564,
3 We have on three occasions considered the availability of a
preliminary injunction to freeze assets pending litigation, see
Deckert v.
Independence Shares Corp., 311 U. S. 282 (1940);
De Beers Consolo Mines, Ltd. V.
United States,
325 U. S. 212
(1945);
United States V.
First Nat. City Bank,
379 U. S. 378
(1965). As the Court recognizes, see
ante, at 324-327, these
cases involved factual and legal circumstances markedly different
from those presented in this case and thus do not rule out or in
the provisional remedy at issue here.
337
601 (1896) (internal quotation marks omitted); see also 1 S.
Symons, Pomeroy's Equity Jurisprudence § 67, p. 89 (5th ed. 1941)
(the "American system of equity is preserved and maintained ... to
render the national jurisprudence as a whole adequate to the social
needs .... [I]t possesses an inherent capacity of expansion, so as
to keep abreast of each succeeding generation and age."). A dynamic
equity jurisprudence is of special importance in the commercial law
context. As we observed more than a century ago: "It must not be
forgotten that in the increasing complexities of modern business
relations equitable remedies have necessarily and steadily been
expanded, and no inflexible rule has been permitted to circumscribe
them."
Union Pacific R. Co., 163 U. S., at 600-601. On this
understanding of equity's character, we have upheld diverse
injunctions that would have been beyond the contemplation of the
18th-century Chancellor.4
Compared to many contemporary adaptations of equitable remedies,
the preliminary injunction Alliance sought in this case was a
modest measure. In operation, moreover, the preliminary injunction
to freeze assets
pendente lite may be a less heavy-handed
remedy than prejudgment attachment,
4 In a series of cases implementing the desegregation mandate of
Brown v.
Board of Education, 347 U. S. 483 (1954), for
example, we recognized the need for district courts to draw on
their equitable jurisdiction to supervise various aspects of local
school administration. See
Freeman v.
Pitts, 503 U.
S. 467, 491-492 (1992) (describing responsibility shouldered by
district courts, "in a manner consistent with the purposes and
objectives of [their] equitable power," first, to structure and
supervise desegregation decrees, then, as school districts achieved
compliance, to relinquish control at a measured pace). Similarly,
courts enforcing the antitrust laws have superintended intricate
programs of corporate dissolution or divestiture. See
United
States v.
E. I. du Pont de Nemours &
Co.,
366 U. S. 316,
328331, and nn. 9-13 (1961) (cataloging cases); cf.
United
States v.
American Tel. &
Tel. Co., 552 F.
Supp. 131 (DC 1982), aff'd
sub nom. Maryland v.
United
States, 460 U.
S. 1001 (1983) (approving consent decree that set in train
lengthy judicial oversight of divestiture of telephone
monopoly).
338
Opinion of GINSBURG, J.
which deprives the defendant of possession and use of the seized
property. See Wasserman, Equity Renewed: Preliminary Injunctions to
Secure Potential Money Judgments, 67 Wash. L. Rev. 257, 281-282,
323-324 (1992). Taking account of the office of equity, the facts
of this case, and the moderate, status quo preserving provisional
remedy, I am persuaded that the District Court acted
appropriately.5
I do not question that equity courts traditionally have not
issued preliminary injunctions stopping a party sued for an
unsecured debt from disposing of assets pending adjudication. (As
the Court recognizes, however, see
ante, at 319321, the
historical availability of prejudgment freeze injunctions in the
context of creditors' bills remains cloudy.) But it is one thing to
recognize that equity courts typically did not provide this relief,
quite another to conclude that, therefore, the remedy was beyond
equity's capacity. I would not draw such a conclusion.
Chancery may have refused to issue injunctions of this sort
simply because they were not needed to secure a just result in an
age of slow-moving capital and comparatively immobile wealth. By
turning away cases that the law courts could deal with adequately,
the Chancellor acted to reduce the tension inevitable when justice
was divided between two discrete systems. See Wasserman,
supra, at 319. But as the facts of this case so plainly
show, for creditors situated as Alliance is, the remedy at law is
worthless absent the provisional relief in equity's arsenal.
Moreover, increasingly sophisticated foreign-haven judgment
proofing strategies, coupled with technology that permits the
nearly instan-
5 The Court suggests that a "debtor's right to a jury trial on
[a] legal claim" counsels against the exercise of equity power
here.
Ante, at 330. But the decision to award provisional
relief-whether equitable or legal
always rests with the
judge. Moreover, the merits of any legal claim will be resolved by
a jury, if there is any material issue of fact for trial, and
findings made at the preliminary stage do not bind the jury. See
Wasserman, 67 Wash. L. Rev., at 322-323.
339
taneous transfer of assets abroad, suggests that defendants may
succeed in avoiding meritorious claims in ways unimaginable before
the merger of law and equity. See LoPucki, The Death of Liability,
106 Yale L. J. 1, 32-38 (1996). I am not ready to say a responsible
Chancellor today would deny Alliance relief on the ground that
prior case law is unsupportive.
The development of
Mareva injunctions in England after
1975 supports the view of the lower courts in this case, a view to
which I adhere. As the Court observes, see
ante, at 327-329,
preliminary asset-freeze injunctions have been available in English
courts since the 1975 Court of Appeal decision in
Mareva
Compania Naviera S.
A. v.
International
Bulkcarriers S.
A., 2 Lloyd's Rep. 509. Although the
cases reveal some uncertainty regarding
Mareva's
jurisdictional basis, the better-reasoned and more recent decisions
ground
Mareva in equity's traditional power to remedy the
"abuse" of legal process by defendants and the "injustice" that
would result from defendants "making themselves judgment-proof" by
disposing of their assets during the pendency of litigation.
Iraqi Ministry of Defence v.
Arcepey Shipping Co., 1
All E. R. 480, 484-487 (1979) (citations omitted); see
Hetherington, Introduction to the Mareva Injunction, in Mareva
Injunctions 1, 10-13, and n. 95, 20 (M. Hetherington ed. 1983)
(explaining the doctrinal basis of this jurisdictional theory and
citing cases adopting it). That grounding, in my judgment, is
secure.
III A
The Court worries that permitting preliminary injunctions to
freeze assets would allow creditors, "'on a mere statement of
belief that the defendant can easily make away with or transport
his money or goods, [to] impose an injunction on him, indefinite in
duration, disabling him to use so much of his funds or property as
the court deems necessary for secu-
340
Opinion of GINSBURG, J.
rity or compliance with its possible decree.'"
Ante, at
327 (quoting
De Beers Consolo Mines, Ltd. v.
United
States, 325 U. S. 212, 222 (1945)). Given the strong showings a
creditor would be required to make to gain the provisional remedy,
and the safeguards on which the debtor could insist, I agree with
the Second Circuit "that this 'parade of horribles' [would] not
come to pass."
143 F.3d
688, 696 (1998).
Under standards governing preliminary injunctive relief
generally, a plaintiff must show a likelihood of success on the
merits and irreparable injury in the absence of an injunction. See
Doran v.
Salem Inn, Inc., 422 U. S. 922, 931
(1975). Plaintiffs with questionable claims would not meet the
likelihood of success criterion. See llA Wright, Miller, &
Kane, Federal Practice and Procedure § 2948.3, at 184-188 (as a
general rule, plaintiff seeking preliminary injunction must
demonstrate a reasonable probability of success). The irreparable
injury requirement would not be met by unsubstantiated allegations
that a defendant may dissipate assets. See
id., § 2948.1, at
153 ("Speculative injury is not sufficient."); see also Wasserman,
67 Wash. L. Rev., at 286-305 (discussing application of traditional
preliminary injunction requirements to provisional asset-freeze
requests). As the Court of Appeals recognized, provisional freeze
orders would be appropriate in damages actions only upon a finding
that, without the freeze, "the movant would be unable to collect [a
money] judgment." 143 F. 3d, at 697. The preliminary asset-freeze
order, in short, would rank and operate as an extraordinary
remedy.
Federal Rule of Civil Procedure 65(c), moreover, requires a
preliminary injunction applicant to post a bond "in such sum as the
court deems proper, for the payment of such costs and damages as
may be incurred or suffered by any party who is found to have been
wrongfully enjoined." As an essential condition for a preliminary
freeze order, a district court could demand sufficient security to
ensure a remedy for wrongly enjoined defendants. Furthermore, it
would be
341
incumbent on a district court to "match the scope of its
injunction to the most probable size of the likely judgment,"
thereby sparing the defendant from undue hardship. See
Hoxworth v.
Blinder, Robinson &
Co.,
903 F.2d
186, 199
(CA3 1990); cf. App. to Pet. for Cert. 53a
(District Court expressed readiness to modify the preliminary
injunction if necessary to GMD's continuance in business).
The protections in place guard against any routine or arbitrary
imposition of a preliminary freeze order designed to stop the
dissipation of assets that would render a court's judgment
worthless. Cf.
ante, at 327, 332-333. The case we face
should be paradigmatic. There was no question that GMD's debt to
Alliance was due and owing. And the short span-less than four
months-between preliminary injunction and summary judgment shows
that the temporary restraint on GMD did not linger beyond the time
necessary for a fair and final adjudication in a busy but
efficiently operated court. Absent immediate judicial action,
Alliance would have been left with a multimillion dollar judgment
on which it could collect not a penny.6 In my view, the District
Court properly invoked its equitable power to avoid that manifestly
unjust result and to protect its ability to render an enforceable
final judgment.
At the hearing on the preliminary injunction, the District Judge
asked: "We have got a case where there is no defense
6 Before the District Court, Alliance frankly acknowledged the
existence of other, unrepresented creditors. While acting to
protect its own interest, Alliance asked the District Court to
fashion relief that "does not just directly benefit us, but
benefits ... the whole class of creditors" by creating "an even
playing field" among creditors. App. to Pet. for Cert. 46a; see
also
id., at 45a (Alliance suggests that District Court
direct GMD to set up a trust in compliance with Mexican law in
order to oversee distributions to creditors). The Court supplies no
reason to think that Alliance should have abandoned its rock-solid
claim just because other creditors, for whatever reason, failed to
bring suit. But cf.
ante, at 331 ("respondents did not
represent all of the holders of the Notes; they were an active few
who sought to benefit at the expense of the other
[creditors]").
342
Opinion of GINSBURG, J.
presented, why shouldn't I be able to provide [Alliance] with
[injunctive] relief?" App. to Pet. for Cert. 34a. Why, the District
Judge asked, should GMD be allowed "to use the process of the court
to delay entry of a judgment as to which there is no defense? Why
is that equitable?"
Id., at 36a. The Court gives no
satisfactory answer.
B
Contrary to the Court's suggestion, see
ante, at 332,
this case involves no judicial usurpation of Congress' authority.
Congress, of course, can instruct the federal courts to issue
preliminary injunctions freezing assets pending final judgment, or
instruct them not to, and the courts must heed Congress' command.
See
Guaranty Trust Co. v.
York, 326 U. S. 99, 105 (1945)
("Congressional curtailment of equity powers must be respected.").
Indeed, Congress has restricted the equity jurisdiction of federal
courts in a variety of contexts. See
Yakus v.
United
States, 321 U. S.
414, 442, n. 8 (1944) (cataloging statutes regulating federal
equity power).
The Legislature, however, has said nothing about preliminary
freeze orders. The relevant question, therefore, is whether, absent
congressional direction, the general equitable powers of the
federal courts permit relief of the kind fashioned by the District
Court. I would find the default rule in the grand aims of equity.
Where, as here, legal remedies are not "practical and efficient,"
Payne, 7 Wall., at 431, the federal courts must rely on
their "flexible jurisdiction in equity ... to protect all rights
and do justice to all concerned,"
Rubber Co. v.
Goodyear, 9 Wall. 788, 807 (1870). No countervailing
precedent or principle holds the federal courts powerless to
prevent a defendant from dissipating assets, to the destruction of
a plaintiff's claim, during the course of judicial proceedings.
Accordingly, I would affirm the judgment of the Court of Appeals
and uphold the District Court's preliminary injunction.
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