The Delaware Court of Chancery, relying on precedent, rejected a request for a TRO to enjoin future defamatory statements by one business partner against another, primarily because of constitutional principles prohibiting prior restraint of free speech rights protected by the First Amendment–especially in the procedural posture of a preliminary injunction or TRO, without a full trial on the merits. CapStack Nashville 3, LLC v. MACC Venture Partners, C.A. No. 2018-0552-SG (Del. Ch. Aug. 16, 2018).
In connection with the fallout between investors and managers of a joint venture for apartment complexes in Nashville, Tennessee–involving various Delaware entities that the court describes as “a rather baroque organizational structure”, one of the parties threatened to complain to the SEC and otherwise publicize allegations of fraud–which were denied. Although the word “extortion” was not used in the opinion, there was a threat to disseminate the allegations of fraud if certain conditions were not met by a short deadline. By the deadline, the party who was the object of the threatened defamation filed suit seeking a TRO to enjoin the defamation that was promised.
- The familiar prerequisites for a TRO were described: (i) colorable claim; (ii) likelihood of imminent, irreparable harm; and (iii) greater hardship will be suffered if the TRO is not granted. Irreparable harm is the sine qua non for this form of relief. See footnotes 37 and 38 (citing CBS Corp v. Nat’l Amusements, Inc., 2018 WL 2263385, at *3 (May 17, 2018), highlighted on these pages).
- The irreparable harm requirement was not easily met in this case because the threatened harm was the publication of libelous information that was already accessible to the public via SEC filings. Also, the filings describing the defamatory statements were included in court filings that were not filed under seal. Thus, further publication was not likely to cause irreparable harm.
- Issuing a TRO in this case would also run afoul of the maxim that equity will not enjoin a libel. See Organovo Holdings, Inc. v. Dimitrov, 162 A.3d 102 (Del. Ch. 2017), highlighted on these pages. Compare Doe v. Coupe, highlighted on these pages. (granting injunctive relief to enjoin unconstitutional use of ankle bracelets by the state.)
- The court discussed exceptions to the bar on the prior restraint of speech for “traditional trade libel”–accompanied by an independent tort supporting equitable relief. See footnotes 69 and 70 and accompanying text. Moreover, the court must first determine, typically after a developed factual record, whether or not any of the speech involved is “constitutionally protected.” Compare “tortious interference with business relations.” (cases cited and discussed in footnote 70.)
- The court also addressed the “qualified privilege” one has, depending on the state and the specific circumstances, to publish defamatory matter preliminary to, or in connection with, a judicial proceeding. The court cites to authorities that consider SEC investigations to be quasi-judicial proceedings. See footnotes 71 to 74 and accompanying text.