ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Thursday, March 23, 2006

Does Pending Insolvency Justify Injunction in Contract Breach Case?

Michigan_flag_3 Is potential business insolvency an “irreparable harm” that will justify an injunction in a breach of contract case?  Yes, said the Michigan Court of Appeals in a recent 2-1 decision of first impression.  Bizarrely, the next case to raise the issue will also be one of first impression, since despite the fact that there is no other Michigan authority on the issue, the court for some reason issued the opinion as “unpublished” and state rules hold that it has no precedential value.  In the case, a per curiam two-judge majority held:

This Court has found no case law in Michigan that addresses whether a business’ potential insolvency is an injury that could equate with irreparable harm.  Although potential insolvency is a type of economic injury, unlike straight damages for breach of a contract or loss of business, the potential insolvency and bankruptcy of plaintiff’s business cannot be necessarily and easily measured and cannot be easily compensated at law.  The United States Court of Appeals for the Sixth Circuit has concluded that “impending loss or financial ruin” of a plaintiff’s business constitutes irreparable harm.  Performance Unlimited, Inc. v. Questar Publishers, Inc, 52 F.3d 1373, 1382 (CA 6 1995). The court noted that loss of business is the type of irreparable harm that an injunction serves to protect against, as further litigation would becoming “meaningless or hollow” without a preservation of the status quo.  Id.  The court recognized that generally a preliminary injunction is not appropriate when potential harm to the movant is financial.  However, the court found that “an exception exists where the potential economic loss is so great as to threaten the existence of the movant’s business.” Id. n2  If a plaintiff’s business becomes insolvent and ceases to exist, money damages cannot compensate the plaintiff and there is no adequate remedy at law.  A judgment for the plaintiff would be “meaningless or hollow” if the purpose of the suit was an attempt to stay in business and while the case was pending, the plaintiff ceased to exist as a viable business. Therefore, we agree with the analysis of the Sixth Circuit in Performance Unlimited and conclude that the potential insolvency of a business could constitute irreparable harm.

In dissent, Judge Stephen Borrello argued for the traditional rule that “because plaintiff has an adequate remedy by law,” no injunction should issue.  He also claimed that “the majority opinion opens a new venue for the financially disabled corporation - claim your competition could cause your company to file for bankruptcy and thereafter enjoin your competition from doing business.”  That would only happen, though, if someone were permitted to cite to this opinion, but they can't.

Northern Warehousing, Inc. v. State, 2006 Mich. App. LEXIS 593 (March 7, 2006).

[Frank Snyder]

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