The point of this post is to explore, briefly, whether injunctive relief is warranted in chapter 11 cases for harm that may arise if deadlines can not be met that arise from self -created emergencies? Indeed, can a debtor be deemed to have the “clean hands” typically required for equitable relief if it has fouled up a business so badly that it will fail with so little money that it will be unable to pay even 1 cent per dollar of tort claims against it?
These questions of course are posed in the light of the recent Chrysler situation where the debtor and Fiat cited deadlines they had agreed to as the basis for obtaining rapid injunctive relief. Certainly there are some situations in which a deadline actually may be real, and perhaps Chrysler was such a case. But certainly there also is room to question self-imposed deadlines and/or the genuineness of alleged harms said to arise from agreed dates for agreed actions. In some bankruptcy cases, courts have rejected self-created deadlines as a basis for preliminary or permanent injunctive relief. This issue arose, for example, in an asbestos bankruptcy, In re Federal-Mogul Global, Inc., No. 01-10578 (D.N.J.). There, bankruptcy Judge Raymond T. Lyons was called on to consider a request for a preliminary injunction to block the litigation of underlying asbestos cases against a non-debtor. According to the debtor, a preliminary injunction was critical because the debtor had made a deal that required the injunction by a date certain as a condition of the contract.
Ultimately, Judge Lyons held that injunctive relief was inappropriate because the situation involved essentially a self-created emergency. The path that took Judge Lyon to that result is presented in a January 20, 2006 hearing transcript available here. The debtors opened the hearing on their motion by arguing that a preliminary injunction could be issued under section 105 of the Code in order to protect the possibility of later entering a section 524(g) injunction to enjoin a host of underlying asbestos cases. See Tr. at 87. Various counsel for asbestos plaintiffs’ lawyers, on the other hand, opposed the injunction, arguing that their clients should not be deprived of their underlying tort trials. The lawyers making this argument included lawyers representing asbestos plaintiffs’ firms SimmonsCooper; Seitz Van Ogtrop & Green; Levy Phillips & Konigsberg; David Lipman and Gebhardt & Smith. One of the plaintiffs’ lawyers, Mr. Ruckdeschol of the David Lipman law firm in Florida, explicitly argued that the injunction should be denied because it was “an emergency of the creation of the drafters of the term sheet.” Tr. at 115.
Ultimately, Judge Lyons accepted that argument, among others, and denied the request for injunctive relief. In ruling, Judge Lyons memorably referred to a self-created emergency depicted in the movie Blazing Saddles:
“Let me focus first of all upon irreparable harm. And one of the opponents here has characterized this as a self created irreparable harm. And this really reminds me of the scene from the movie Blazing Saddles where the sheriff played by Clevon Little is being hassled by a crowd and he’s being threatened with physical violence. And he pulls out a gun and he holds it to his head. And he says, stand back or I’ll shoot the sheriff. The debtor in this case has agreed to a deal in which they’ve undertaken to get a preliminary injunction and the other party to the deal has said, if I don’t get this preliminary injunction I’m going to withdraw from the deal. This to me is a totally self created scenario for irreparable harm. “
It seems to me pretty hard to argue with the logic of Judge Lyons.