Contract Terms Satisfies Irreparable Harm Requirement for Injunction

AM General Holdings LLC v. The Renco Group, Inc., C.A. No. 7639-VCN (Del. Ch. Dec. 21, 2012).

Why this Case is Noteworthy

This case serves as a reminder that parties can agree by contract, and the Court will recognize, a provision that stipulates to irreparable harm in the event of an alleged breach, which will satisfy at least one of the prerequisites for obtaining injunctive relief.

Brief Overview

The claims in these consolidated cases related to allegations of breach of contract, breach of fiduciary duty and related claims in connection with diversion of profits and improper and excessive management fees, as well as a motion for a mandatory injunction requiring the disbursement of certain funds, pursuant to the agreements of the parties.

The most noteworthy aspect of this decision is the treatment and analysis of the prerequisites for injunctive relief.

The relief requested included specific performance to force the payment of money allegedly required under the agreement.  This, of course, is relief that can be satisfied by money damages, and therefore would not typically satisfy the requirements for injunctive relief.  However, by agreement, the parties provided that neither would object to the request for specific performance or injunctive relief if a suit for breach of the agreement were brought.

Irreparable Harm by Agreement

The Court at page 11 performed an analysis of the irreparable harm requirement, and at page 13 explained why that prerequisite will be satisfied if the parties provide in their agreement that one is “entitled to specific performance or other injunctive relief”–even if they do not use the magic words “irreparable harm.”

Irreparable Harm from “Deprivation of (Interference with) Corporate Governance Process”

In addition, the Court found that there was a separate basis for irreparable harm based on the alleged “deprivation of corporate governance process” which in this case related to the right in the parties’ agreement for a review of books and records before a distribution was made, almost in the context of an appraisal to determine available funds, and the deprivation of, or interference, with, that right.  See page 15 and footnote 63.

Bond Requirement for Injunctive Relief

This decision also includes a helpful discussion of the bond requirement which is a prerequisite for the issuance of an injunction pursuant to Court of Chancery Rule 65(c).  See footnotes 75 through 77 and related text.