Corporate

Chancery Denies Request for Status Quo Order; Defendant Not Impecunious Enough to Satisfy Irreparable Harm Test

Sagarra Inversiones, S.L. v. Cementos Portland Valderrivas, S.A., No. 6179-VCN (Del.Ch. July 7, 2011), read letter ruling here.

Issue Addressed

When is the poor financial condition of a defendant "poor enough" to satisfy the irreparable harm requirement for injunctive relief based on the argument that the defendant would not be able to satisfy a money judgment (if one were eventually secured).

Background

This Delaware Court of Chancery decision involved the request for a status quo order (in essence, a preliminary injunction) to stop installment payments in connection with the challenged sale of a company. The argument was that the sale was tainted and should be rescinded or money damages awarded. The reason for the request for injunctive relief was based on the argument that the defendant was in such dire financial straits that money damages would not be adequate relief to the extent that the defendant would not have the abililty to pay them if and when granted at the end of the normal timetable for a trial to be held in the context of routine corporate litigation.

Analysis

The request for a status quo order is subject to the prerequisites for seeking a preliminary injunction. One of those familar prerequisites is that irreparable harm be evident. In some instances this element can be satisfied if a defendant would be unable to pay a money judgment in the event one would be granted (and if there is a reasonable likelihood that one would be granted), and when rescission is not available. See footnotes 9 and 10.

The facts of this case demonstrated substantial debt, financial distress and breach of the defendant's financial covenants with its lenders, but the Court found that there was no evidence of imminent insolvency, and therefore, the Court determined that there was an inadequate demonstration of irreparable injury because money or rescissory damages would likely suffice to remedy the claims if the plaintiff prevailed on the mer

Read more Delaware business litigation case summaries and commentary on Delaware Corporate and Commercial Litigation Blog, a blog hosted by Francis G.X. Pileggi, of Eckert Seamans.

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