Grupo Mexicano de Desarrollo v. Alliance Bond Fund - Opinion Announcement

Argument of Speaker

Mr. Speaker: The opinion of the Court in No. 98-231, Grupo Mexicano de Desarrollo versus Alliance Bond Fund Inc. will be announced by Justice Scalia.

Argument of Justice Scalia

Mr. Scalia: This case is here on certiorari to the United States Court Of Appeals for the Second Circuit.

The respondents are investment funds, who purchase unsecured notes from the petitioner Grupo Mexicano de Desarrollo.

Four of, what we call the GMD, four of GMD subsidiaries who are also petitioners guaranteed the Notes.

After GMD fell into financial trouble and missed an interest payment, respondents accelerated the principle of the notes and filed suit for the amount due in the Federal District Court in New York.

Alleging that GMD was at risk of insolvency, or indeed was 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 might ultimately obtain, respondents requested a preliminary injunction restraining petitioners from transferring the assets.

The District Court issued the preliminary injunction and ordered respondents to post a $50,000 bond.

The Second Circuit affirmed that action.

In an opinion filed with the Clerk today, we reverse the Second Circuit.

There is a threshold issue of mootness.

After GMD’s petition for certiorari was filed, the District Court granted summary judgment to respondents on their contract claim and converted the preliminary injunction into a final injunction.

As a general rule, “the appeal of a preliminary injunction becomes moot, when the Trial Court enters a permanent injunction”, it is said as a sort of legal shorthand that the former merges into the latter.

In the ordinary case, however, the basis for objecting to the preliminary injunction is essentially the same as the basis for objecting to the permanent one and that is the defendant is not liable and therefore should not be enjoined.

Here, however, the basis of attack is different, petitioners assert that even if it appeared likely that they owed the debt, the court had no power to enjoin their use of their own property until a money judgment was actually rendered and for that reason they assert, they were wrongfully deprived of their ability to use their property, which cause them harm, that can be assessed against the injunction part.

We think that argument is correct and that the case is therefore not moot.

On the merits of the matter we hold that 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.

We have long held that Federal Courts have the equity jurisdiction it was exercised by the English Court of Chancery at the time the Constitution was adopted and the Judiciary Act of 1789 was enacted.

It is well-established and uncontested here that a judgment fixing the debt was ordinarily necessary, before a Court in Equity would interfere with an alleged debtor’s use of its property.

That was the rule in the States and remained the rule in England until the Court of Chancery made what was regarded as a dramatic departure from prior practice in 1975.

The merger of law and equity did not change the rule, since the merger did not alter substantive rights and this a substantive matter, since 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.

The postmerger cases cited in support of the injunction are entirely consistent with the view that the preliminary injunction in this case was beyond the District Court’s equitable power.

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.

Accepting the argument of respondents and the dissent that equity's flexibility should be extended to recognize this remedy, which has been consistently rejected by Federal Courts would leave us open to Seldon’s famous criticism of equity, which went like this; “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 is the same thing with the Chancellor's conscience."

The opinion of the Court is unanimous as to Part II the mootness point, the Chief Justice and Justices is O’Conner, Kennedy, and Thomas have joined the opinion of the Court in full.

Justice Ginsburg has filed a dissenting opinion as to the proportions other than mootness in which Justices Stevens, Souter, and Breyer have joined.

Argument of Justice Ginsburg

Mr. Ginsburg: This is a case about the character and growth capacity of the equitable remedial authority of Federal Court.

In my view, the Court relies on an unjustifiably static conception of that authority and thereby exposes US lenders to risks lessened for lenders in other systems.

We have priced since our earliest decisions, the adaptable quality of federal equitable authority.

The remedy granted by the District Court in this case and approved by the Court of Appeals, I am persuaded was not beyond equity’s capacity.

The District Court faced uncontested evidence that the debtor GMD had defaulted on its contractual obligation to the creditor Alliance and had no plausible defense to the lawsuit.

GMD had agreed to treat its debt to Alliance on a par with all other unsecured, unsubordinated debt but GMD was in fact, disposing of its sold assets to Mexican creditors to the exclusion of Alliance.

GMD was disbursing that asset so rapidly that as since the interim relief granted by the District Court, Alliance could not have collected a penny on the multimillion dollar judgment it eventually obtained.

The District Court acted moderately it sought only to preserve the status quo for a span of less than four months, until the case could be fully and fairly adjudicated in a busy, but efficiently operated court.

The Court is still ready to modify its preliminary injunction if necessary to keep GMD in business.

The Court correctly reports that Equity Courts traditionally did not stop parties sued for an unsecured debt from disposing of assets, pending the litigation.

But, some 24 years ago the place where the tradition originated, inaugurated a new tradition one responsive to current conditions in the society that equity exists to serve.

Other common law jurisdictions have followed the lead of the English Courts, but for the United States this Court declares “old ways hold sway”.

The court made tradition on, which this Court relies, may have suited an age of slow moving capital and comparatively immobile wealth.

But, today’s the technology facilitates the near instantaneous transfer of assets here and abroad, enabling borrowers to escape meritorious claims in ways unimaginable to an 18th Century Chancellor.

An equity power capable of implementing the desegregation mandate of Brown v. Board of Education or superintending intricate programs of corporate divestiture is surely simple enough to encompass the modest interim remedy at state here.

Unless we disarm the District Courts, because authority to grant a provisional remedy could be abused, because District Judges have different shoe sizes.

Abuse in my judgment is unlikely, if we hold to the standards that ordinarily govern preliminary injunctive relief.

Those standards are that the plaintiff must show unlikelihood of success on the merits and irreparable injury absent in interim remedy.

Both of those showings were well made here.

Taking account of the office of equity, the facts of this case, and the moderate status quo preserving quality of the remedy, denial of interim relief, essential to an effective final judgment seems to me remarkably inequitable.