Part 3: Specific Performance

The question of whether or not ORT was likely to succeed on the merits of its claims against HRS and McChesney, the fourth and final element necessary for the granting of a preliminary injunction, proved to be the most difficult question for the court.

Was ORT likely to prevail on is claim of specific performance of the land contract? HRS, unsurprisingly, argued that ORT was not likely to succeed on the merits, and therefore the preliminary injunction should not have been granted by the circuit, and should be vacated by the appellate court.

Its first argument was that the mortgage taken by Agri-Source was superior to the right of ORT to purchase the land, and therefore ORT would not be able to exercise its right of specific performance because doing so would destroy the rights of a superior note-holder in the property. The Appellate Court was decidedly cool to this line of reasoning. In terms of establishing this element for a preliminary injunction, it is not necessary to show that a party would actually prevail on a claim, just that it had raised a fair question regarding its claim that it might be able to succeed.

The court then explained that, as an equitable remedy, specific performance is designed to enable courts to reach just and equitable outcomes, and issues such as breaches of fiduciary duty, and the doctrines of merger and unclean hands could affect such a ruling. Based on the facts in evidence,  McChesney’s attempts to hinder the deal to serve his own interests raised enough questions such that it was proper for the circuit court to issue the injunction, and thereby preserve the status quo until the process of litigation had shed more light on the matter.

The final HRs arguments will be discussed in the next part.

Part 2: Rights, Harms and Remedies

In its ruling on HRS’s appeal, the Third District Appellate Court first established that their standard of review was whether or not the circuit had abused its discretion in granting the preliminary injunction. As long as aprima facie case for a preliminary injunction had been properly laid out by the moving party, then the circuit court was within its discretion to grant the injunction.

Both sides conceded that ORT had made a contract with Agri-Sources for the acquisition of the 8-acre parcel, so the Court quickly concluded that there was an ascertainable right.

The second factor was whether or not ORT would suffer an irreparable harm absent the injunction. ORT’s argument to the circuit court had been that the particular parcel of land being fought over was essential to the continued sustainability of its business, because its proximity to both the Mississippi River and a railroad spur. Simultaneously, the court also discussed the third element, that there was no adequate remedy at law.

HRS argued that while the parcel of land was well-suited to be used by ORT’s fertilizer business, an award of money damages, should ORT prevail in its claims, would be adequate in this case to compensate ORT for any damages they might have occurred.

The Appellate court quickly swept aside those arguments. First, it noted, this was an action involving a piece of real property, and money damages, a legal remedy, are not adequate in those cases. Because each piece of real property is unique and distinct from all others, simply giving an owner money damages instead of the property itself is not an adequate remedy. A contract for a piece of real property is not a contract for land, it is a contract for a very specific piece of land and, as a result, there is no way to substitute for the uniqueness of that particular parcel.

HRS also challenged the assertion that ORT would be irreparably harmed if the preliminary injunction were not granted. This argument was substantially stronger than its challenge to the adequacy of the remedy at law, as it would turn on the facts presented by ORT, rather than well-established precedent, but the court once again rejected HRS’s main contentions. In moving for the preliminary injunction, ORT had shown that without the parcel of land, it would likely lose most of their business and, in fact, the process of litigation had already scared off one of its business partners, bringing before the court the cancelled contract that had represented over 10% of its business. The court also recognized that even if money damages were later given to ORT after the fact, it would not be able to repair the damage to ORT’s good will among the community nor its competitive position in the fertilizer market. As a result, the Appellate Court ruled that both the second and third elements for the issuing of a preliminary injunction had been met. The last issue - likelihood of success on the merits – will be considered in the next part.

Interesting Discussion of Preliminary Injunction Mechanics and Elements

The 3rd District Illinois Appellate Court recently published a decision in the Happy R Securities, LLC v. Agri-Sources, LLC that was full of interesting discussions on the mechanics and elements of preliminary injunctions.

The origin of this case is rather tortuous. In 2007, Kurt McChesney and Mage Farms, LLC, a company he owned with his mother, formed another corporation: Agri-Sources, LLC. The purpose of this company was the selling of agricultural products from a 20-acre parcel in Gladstone, and it later purchased the parcel outright from another one of McChesney’s holding companies.

Around the same time, McChesney also created Oquawka River Terminal, LLC, a fertilizer company, based on an 8-acre section of the parcel. He himself owned 25%, while his business partners, Rousonelos, Butler, Job and Ryan, held the remaining 75%. ORT began to make a series of leases that allowed it to expand its business, including the use of a nearby dock on the Mississippi River, as well as a railroad spur and two buildings on the parcel. These leases were essential to the continued business of ORT, because its proximity to both the river and a railroad. Without them, ORT claimed, would be hard-pressed to carry on.

Business was good enough, though, for ORT to contemplate expansion, and it asked for a small business loan for that purpose. ORT claimed to have reorganized itself as a manager-managed LLC in order to comply with FSBI’s demand that Jobe not be a party to the loan.

ORT then agreed to purchase their 8-acre parcel outright from Agri-Sources. Because there were a number of liens and judgments on the property, the process protracted.  But ORT deposited 10% of the purchase price with a title company. In response, McChesney had his attorney send ORT a letter that he, in his capacity of part-owner of ORT, objected to the closing.

In 2011, FSBI filed a foreclosure action against the parcel. McChesney, as it turned out, owed over $3 million dollars to FSBI, and the bank had grown weary of attempting to clear the liens on the property, choosing to go for the more dramatic remedy instead.

At this point, there was a dispute between the ORT owners over McChesney’s status with the company. McChesney claimed that the other owners had ejected him from the company, and that he no longer owned any share of ORT. The others claimed that McChesney maintained an 18% share he had at the time, and therefore owed his fiduciary duties to the company.

Believing himself to no longer be part of ORT, McChesney negotiated with the bank an agreement whereby the mortgage rights to the parcel would be assigned to Happy R Securities (HRS), a new corporation he had created for this purpose; the foreclosure proceedings against his former partners in ORT continued.

After counter-suing McChesney and HRS for specific performance of the delivery of the 8-acre parcel, as well as alleging that McChesney had breached his fiduciary duty, ORT then filed for a preliminary injunction to stop the foreclosure of the parcel.

The circuit court found that:

  1. ORT had a clearly ascertainable right to complete the transaction to acquire the 8 acre parcel of land.
  2. ORT had no adequate remedy at law, as this was a case involving real property, and therefore money damages would not be adequate.
  3. ORT would suffer irreparable harm without the injunction.
  4. ORT’s continued existence depended on owning that specific piece of land, because of its proximity to the railroad and river.
  5. ORT  was likely to succeed on its claims for specific performance and breach of fiduciary duty.

Because ORT had established all of these elements, the circuit court issued the injunction. HRS then appealed. Our next part will consider this appeal.

 

Part Two: Ramifications of the Federal Circuit's opinion: Going beyond Apple

At least in the electronics industry context, Apple demonstrates that the federal circuit might be stricter in requiring incredibly strong similarities between the primary reference and claimed design, while finding seemingly minor differences to be sufficient in precluding a reference from being a primary one. Part of the reason for this strict reading of the obviousness standard could be that the court perceives such “minor” differences as being indicative of the argument that the primary reference and design patent share the same design concept (instead of sharing basically the same visual appearance). Under this argument, the similarities between the primary reference and the design patent arise from the fact that they have the same design concept, but the differences prove that the similarities are limited to those inherent to any device sharing that same concept. Sharing the same concept is NOT the equivalent of sharing basically the same visual appearance, and the obviousness standard demands that the primary reference do the latter. This interpretation arises from a portion of the federal circuit’s opinion, in which the court declared, “the district court’s error was to view the various designs from too high a level of abstraction. Rather than looking to the ‘general concept’ of a tablet, the district court should have focused on the distinctive ‘visual appearances’ of the reference and claimed design.” 

 
Extrapolating from this quote, it appears that the federal circuit believes the similarities between the Fidler tablet and the D’889 tablet to be a consequence of the fact that both are tablet devices (tablet devices being a design concept). But the differences, deemed substantial ones by the federal circuit and minor ones by some industry bloggers, limit the Fidler table to only sharing the same design concept, not sharing basically the same visual concept.
 
If the district court had been viewing the designs in this matter from too high of a level of abstraction (thinking of the designs common to the product category in general, as opposed to designs of the two specific devices), then the federal circuit is viewing the designs from a very low (and very specific) level of abstraction. What does this mean? What does this signify for the electronics industry? Defendants who are seeking to defeat a preliminary injunction motion on grounds of anticipation/obviousness of a design patent face an uphill battle. It seems as though they will need a primary reference with virtually minimal differences from the design patent at issue. Similarities between the two will need to be more than the similarities that ANY device in the category would have. In general, it seems as though defeating an injunction on grounds of obviousness of a design patent will be very difficult to accomplish.  Defendants should strive to defeat the motion by presenting strong evidence of non-infringement, no likelihood of irreparable harm, balance of harms supports defendant and public interest favors not granting an injunction.
 
Please see the previous post: Part One: Ramifications of the Federal Circuit’s Opinion: Going Beyond Apple for more on this topic. For more on emergency business litigation, click here or call 312-223-1699 to speak with one of our Chicago law firm attorneys.
 
**SOURCES**
Apple, Inc. v. Samsung Elec. Co., Ltd., U.S. Court of Federal Appeals, May 14, 2012
Ryan Alley, “Apple v. Samsung- Design Prosecution Lessons,” Intellectual Property Law: Building Assets from Ideas, 2012-05-21, http://alleylegal.com/2012/05/apple-v-samsung-design-prosecution-lessons/
Sarah Burstein, “Apple v. Samsung,” PatentlyO: The Nation’s Leading Patent Blog, 2012-05-18, http://www.patentlyo.com/patent/2012/05/guest-post-by-sarah-burstein-apple-v-samsung.html
Rebecca Tushnet, “Brand Dilution as a Design Patent Theory of Harm,” Rebecca Tushnet’s 43(B)log, 2912-05-16, http://tushnet.blogspot.com/2012/05/brand-dilution-as-design-patent-theory.html