Grupo Mexicano de Desarrollo, S. A. v. Alliance Bond Fund, Inc.

PETITIONER: Grupo Mexicano de Desarrollo, S. A.
RESPONDENT: Alliance Bond Fund, Inc.
LOCATION: Kimberley Thompson's Apartment

DOCKET NO.: 98-231
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Second Circuit

CITATION: 527 US 308 (1999)
ARGUED: Mar 31, 1999
DECIDED: Jun 17, 1999

ADVOCATES:
Drew S. Days, III - Argued the cause for the respondents
Richard A. Mescon - Argued the cause for the petitioners

Facts of the case

Alliance Bond Fund, Inc., an investment fund, purchased approximately $75 million in unsecured notes (Notes) from Grupo Mexicano de Desarrollo, S. A., (GMD) a Mexican holding company involved in a tool road construction program sponsored by the Government of Mexico. Four GMD subsidiaries guaranteed the Notes. After GMD fell into financial trouble and missed an interest payment on the Notes, Alliance accelerated the Notes' principal amount and filed suit for the amount due in Federal District Court. Alliance requested a preliminary injunction restraining GMD from transferring its assets 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 that Alliance could obtain. Alliance sought monetary damages and no lien or equitable interest was claimed. The District Court issued the preliminary injunction and ordered GMD to post a $50,000 bond. The Court of Appeals affirmed.

Question

Does the District Court, in an action for monetary damages, have the authority to issue a preliminary injunction preventing the defendant from transferring assets in which no lien or equitable interest is claimed?

Media for Grupo Mexicano de Desarrollo, S. A. v. Alliance Bond Fund, Inc.

Audio Transcription for Oral Argument - March 31, 1999 in Grupo Mexicano de Desarrollo, S. A. v. Alliance Bond Fund, Inc.

Audio Transcription for Opinion Announcement - June 17, 1999 in Grupo Mexicano de Desarrollo, S. A. v. Alliance Bond Fund, Inc.

William H. Rehnquist:

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

Antonin 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.