Fear Alone Won’t Get You An Injunction

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With apologies for being absent for a week, ponder this question when you embark on a fight with the officers and directors of the energy company you own a part of: How does your subjective fear of harm factor into your right to injunctive relief? Not much, according to a Texas court in Schmidt, L.P., L.L.C. v. Richardson.

Disgruntled shareholders of Sun River Energy, Inc. feared that certain officers and directors, having issued themselves notes secured by mortgages on minerals owned by the corporation, and having not been paid, would foreclose on the properties, thereby depriving the remaining shareholders of their value in the corporation. The notes were for unpaid salaries, and the allegation was that the notes and mortgages were a scheme to fraudulently transfer the company’s assets to those certain officers and directors.

The plaintiffs obtained an injunction in the trial court. The court of appeals reversed on the basis that the threat of irreparable harm that a plaintiff must prove for a injunctive relief must be imminent.

At issue was a provision typical in many mortgages: If the mortgagee “deems … himself insecure and in good faith believes that the prospect of payment . . . is impaired . . .” he may foreclose. According to the court, because the six month period for repayment of the notes had long past, the remedy for insecurity resulting from a good faith belief in the “prospect” for payment was no longer relevant. By that language, the mortgages could not at the moment of the appeal create an “imminent” threat of injury. The language did not apply to the parties’ current situation. 

The court relied on a Texas Supreme Court opinion that “fear or apprehension of the possibility of injury” is different from actual injury. Fear and apprehension would not support injunctive relief and does not establish imminent harm. The basis must be more objective.

A factor that likely influenced the court was the defendants’ statements that they had not decided whether or not they would foreclose on the notes. One wonders if the court believed that the defendants would be crazy to foreclose after that statement under oath and incur the wrath of the trial court who, you will remember, granted the injunction in the first place.

Takeaway

What you have here is shareholders not playing well together. This reminds me of the aphorism: Your company agreements and other contractual obligations are no better than the character of the people with whom you are dealing. No disparagement of either side is intended: In this case, as in many, you can’t tell who are the good guys and who aren’t.

Lawyer Practice Tip

Lawyers for the plaintiff: If your injunction order doesn’t say the threat is “imminent”, you will lose in this court of appeal.