Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., , commonly called Grupo Mexicano, was a United States Supreme Court case in which the court struck down—as beyond the equitable remedies authorized by Congress—a preliminary injunction used to freeze the assets of the defendants pending a final judgment.
The Supreme Court stated that the equitable remedies authorized by the Judiciary Act of 1789 are limited to remedies that were available in courts of equity at that time, particularly from the Lord Chancellor in the English Court of Chancery. Because Congress had not created a new asset-freezing remedy, and because such an injunction was not traditionally available from the Court of Chancery, the Supreme Court held that it was not available in U.S. courts.
The dissenting justices agreed that this type of injunction was not traditionally available in 1789 but argued that equitable remedies can evolve with new circumstances, and that the modern ease of international transfer of assets justified this novel use of a preliminary injunction.
Background
Legal background
The main issue was whether U.S. federal courts had authority to issue a type of order, known in Commonwealth countries as a Mareva injunction (or, in plainer language, a freezing order), which prohibits a defendant in a civil case from transferring assets likely needed to pay for a later final judgment.Haines at 458–59. This kind of injunction originated in the English Court of Appeal in the 1975 case of Mareva Compania Naviera S.A. v. International Bulkcarriers S.A., which had departed from earlier practice denying asset-freezing injunctions.Burbank at 1304.
In the United States, prejudgment attachment has long served a similar function. A writ of attachment allows a court to seize a defendant's property before trial. As originally used in England, attachment was limited to coercing a defendant to appear in court. In the United States, however, the property is seized instead for eventual use to satisfy a final judgment. Hence, the decision in Mareva arose from a perceived gap in English law, whereas attachment had mostly already filled that gap in American law.Burbank at 1329.
However, freezing injunctions and attachment are not identical in effect. Because injunctions act on persons rather than on property,Collins at 265, 277–78. a Mareva injunction can prohibit a defendant from transferring assets regardless of where those assets are located.Collins at 271, 278–79. The court needs to have jurisdiction over the defendant and not necessarily over the defendant's property.Collins at 277. In contrast, New York's attachment statute only allowed seizure of property located in the state.Burbank at 1300 n. 47.
Factual background
In 1994, Grupo Mexicano de Desarrollo (GMD), a company involved in the construction of public works in Mexico and Latin America, took out loans of $250 million from institutional investors.Burbank at 1297. At the time, GMD was heavily invested in a toll-roads program of the Mexican government. The loan agreement included a provision requiring GMD to give the loans equal footing with its other unsecured debt.Burbank at 1297–98; Maloy at 646. It also included a forum-selection clause that allowed claims for breach of contract to be filed in New York.Burbank at 1298.
The toll-road investments turned out to be much less profitable than expected. By 1997, GMD was at risk of being unable to repay its debts. It failed to make required interest payments on the loan agreement and reported a net worth of negative $214 million. And while restructuring its debt, GMD had been giving priority to its creditors in Mexico, including the Mexican government and GMD's former employees.Burbank at 1298; Maloy at 646.
District court
Alliance Bond Fund, Inc., a group of investors who were owed $75.8 million of the $250 million loans, sued GMD for breach of contract, seeking money damages of $80.9 million for the accelerated principal plus interest. Alliance also sought a temporary restraining order and preliminary injunction prohibiting GMD from assigning some of its assets (called the "toll road notes") to other creditors until there was a final judgment in the case.Burbank at 1299.
Alliance filed the case in the Southern District of New York – the federal district court in Manhattan. Since the dispute was against a foreign defendant, the federal courts had subject-matter jurisdiction based on diversity of citizenship.Resnik at 234.
Alliance and GMD both agreed that New York law did not allow an asset-freezing preliminary injunction like the one Alliance sought.Resnik at 235. Instead, Alliance argued that an injunction was proper under the Federal Rules of Civil Procedure.Burbank at 1312.
The district judge, John S. Martin Jr., granted the temporary restraining order on the same day that the case was filed.Maloy at 647. On December 23, after a pair of hearings,Maloy at 648. Judge Martin granted a preliminary injunction, finding that Alliance "would almost certainly succeed on their breach of contract claims against GMD" and that "without the injunction they faced an irreparable injury since GMD's financial condition and dissipation of assets would frustrate any judgment recovered".Burbank at 1299 (quoting Alliance Bond Fund, Inc. v. Grupo Mexicano de Desarrollo, S.A., 143 F.3d 688, 698 (2d Cir. 1998)). The district court's order is unpublished. He also ordered Alliance to post a $50,000 bond in order to obtain the injunction.
On April 17, 1998, Judge Martin granted summary judgment in favor of Alliance, awarding $82.5 million in damages. He also issued an order to GMD to transfer or assign the toll road notes to Alliance (known as the "turnover order") and converted the preliminary injunction into a permanent one, which would end after those notes had been turned over to Alliance.Maloy at 649.
GMD did not contest the money judgment. However, it appealed the preliminary injunction as going beyond permitted federal injunctive relief and appealed the turnover order as not authorized by New York law.Maloy at 649–50.
Court of appeal
The preliminary injunction was unanimously affirmed by a panel of the U.S. Court of Appeals for the Second Circuit. Judge Joseph M. McLaughlin wrote the panel opinion, joined by Pierre N. Leval and Milton Pollack (a district judge of the Southern District of New York sitting by designation).Alliance Bond Fund, Inc. v. Grupo Mexicano de Desarrollo, S.A., 143 F.3d 688, 698, 690, 690 n. * (2d Cir. 1998).
Supreme Court briefing
The Solicitor General, Seth P. Waxman, filed an amicus brief for the United States in support of the respondents.Burbank at 1301–02. Waxman argued that the appealed preliminary injunction was analogous to the traditional equitable remedy of a creditor's bill. He acknowledged that a creditor's bill was traditionally unavailable to creditor without a final judgment but said that an exception might apply – without pointing to any applicable exception. Rather, he said that "any such [historical] debate is an arid one."Brief for the United States at 14, Grupo Mexicano (No. 98-231); see Burbank at 1311 n. 123.
Two other amicus briefs were filed.Grenig at 313. The Dominican Republic argued that the Second Circuit's decision intruded on other countries' sovereignty over property within their jurisdiction. The Securities Industry Association and Emerging Markets Traders Association argued that comity with foreign countries is an issue for a court to consider in deciding whether to grant an injunction, but does not limit the court's power.
Opinion of the Court
Justice Scalia delivered the majority opinion. In part I, he stated the facts of the case.Maloy at 655. In part II, which was joined by all nine justices, he concluded that the case was not moot.Maloy at 655, 655 n. 95.
In part III, the majority concluded that the district court did not have authority to issue the challenged preliminary injunction. The majority indicated that the Judiciary Act of 1789's grant of equity jurisdiction was limited by the bounds of equity as practiced around that time in the English Court of Chancery.Bray at 1010; Resnik at 234–35; Maloy at 655. The majority rejected the argument of the United States government in its amicus brief that the injunction was analogous to the equitable action for a creditor's bill, since that was generally only available after a final judgment. It rejected the dissent's view that equity was flexible enough to grant preliminary asset-freezing injunction that had not previously been available:
We do not question the proposition that equity is flexible; but in the federal system, at least, that flexibility is confined within the broad boundaries of traditional equitable relief. To accord a type of relief that has never been available before – and especially (as here) a type of relief that has been specifically disclaimed by longstanding judicial precedent – is to invoke a "default rule," [...] not of flexibility but of omnipotence.Grupo Mexicano, 527 U.S. at 322; Conley at 117–18.
In part IV, the majority noted some policy arguments for and against Mareva injunctions but declined to take a side, saying that it should be left to Congress to consider.
In closing, the majority quoted an excerpt from Justice Joseph Story's treatise on equity, which in turn quoted the famousSmith at 1057 n. 15. criticism of equity by the English jurist John Selden:
"If, indeed, a Court of Equity in England did possess the unbounded jurisdiction, which has been thus generally ascribed to it, of correcting, controlling, moderating, and even superseding the law, and of enforcing all the rights, as well as charities, arising from natural law and justice, and of freeing itself from all regard to former rules and precedents, it would be the most gigantic in its sway, and the most formidable instrument of arbitrary power, that could well be devised. [...] A Court of Chancery might then well deserve the spirited rebuke of Seldon; 'For law we have a measure, and know what to trust to—Equity is according to the conscience of him, that is Chancellor; and as that is larger, or narrower, so is Equity. 'T is all one, as if they should make the standard for the measure the Chancellor's foot. What an uncertain measure would this be? One Chancellor has a long foot; another a short foot; a third an indifferent foot. It is the same thing with the Chancellor's conscience.'" 1 Commentaries on Equity Jurisprudence § 19, at 21.Grupo Mexicano, 527 U.S. at 332.
And ended by saying: "Because such a remedy was historically unavailable from a court of equity, we hold that the District Court had no authority to issue a preliminary injunction preventing petitioners from disposing of their assets pending adjudication of respondents' contract claim for money damages."Grupo Mexicano, 527 U.S. at 333; Maloy at 657.
Dissent in part
Justice Ginsburg wrote the dissenting opinion, joined by Justices Stevens, Souter, and Breyer.Maloy at 645 n. 32. They concurred only in the portion of the majority opinion holding that the case was not moot.Maloy at 655 n. 95; Burbank at 1301.
Ginsburg was concerned that the majority's tradition-based test in Grupo Mexicano would cut back at constitutional remedies as expanded in the 20th century.Fallon at 1327.
Ginsburg delivered an oral dissent,Savitt at 631. one of the 19 cases in which she did so during her time on the Supreme Court.Venter at 384–85. In her dissent, she wrote:
In my view, the Court relies on an unjustifiably static conception of equity jurisdiction. From the beginning, we have defined the scope of federal equity in relation to the principles of equity existing at the separation of this country from England [...]; we have never limited federal equity jurisdiction to the specific practices and remedies of the pre-Revolutionary Chancellor.Grupo Mexicano, 527 U.S. at 336 (Ginsburg, J., dissenting); see Conley at 118.