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1999 Term, Number 8/November 29, 1999

The Supreme Court granted certiorari today in one case of potential interest to the business community. Amicus briefs in support of the petitioners are due on January 14, 1999, and amicus briefs in support of the respondents are due on February 16 (because February 13 is a Saturday and February 15 a Court holiday). Any questions about this case should be directed to Alan Untereiner (202-778-0656) or Donald Falk (202-778-0174) in our Washington office.

District Court's Power to Issue Preliminary Injunction Against Transfer of Assets Action for Monetary Relief Assets Located Abroad and Unrelated to Damages Claims. A federal district court may issue a preliminary injunction freezing assets when the assets are the subject matter of a pending equitable action. See Fed. R. Civ. P. 65. The Supreme Court granted certiorari in Alliance Bond Fund, Inc. v. Grupo Mexicano de Desarrollo, S.A., No. 98-231, to decide whether a district court may freeze assets in an action solely for monetary relief, where the assets are located abroad and are unrelated to the damages claims advanced in the lawsuit.

Grupo Mexicano de Desarrollo, S.A. ("GMD") participated in a Mexican government program that granted toll road concessions to companies that arranged private financing of intercity highway construction. In February 1994, GMD offered and sold $250 million of 8.25% notes due in 2001. Eleven investment funds in the United States ("Investors") purchased $75 million of the notes. In August 1997, GMD defaulted on the Investors' notes. The Mexican government offered a bailout by promising GMD $309 million in government-guaranteed Toll Road Notes in return for eventual government ownership of the toll roads. GMD planned to assign all but $5.5 million of the Notes to creditors other than the Investors.

The Investors filed suit in the Southern District of New York seeking monetary damages for breach of contract and a preliminary injunction restraining GMD from assigning or otherwise transferring the Toll Road Notes. The district court preliminarily enjoined GMD from transferring the Notes, and the Second Circuit affirmed. 143 F.3d 688 (1998). The court of appeals observed that the Investors' right to recover a monetary judgment would be defeated if GMD were able to transfer its Toll Road Notes assets. The Second Circuit also was "impressed by England's successful twenty-year history of issuing 'Mareva injunctions' under circumstances substantially similar to those present on appeal." Id. at 696. Accordingly, the court held that a preliminary injunction was authorized under a district court's "general equitable power to ensure the preservation of an adequate remedy." Id. at 694.

The Second Circuit expressly noted a circuit split on this issue. The First, Third, Fourth, Sixth, Seventh, Eighth and Ninth Circuits have all held that a district court can enjoin a defendant's assets in an action for monetary relief. The Fifth, Tenth and Eleventh Circuits have reached a contrary conclusion. The Second Circuit's decision arguably is in tension with De Beers Consol. Mines, Ltd. v. United States, 325 U.S. 212 (1945), which rejected the proposition that "[e]very suitor who resorts to chancery for any sort of relief by injunction may, on mere statement of belief that the defendant can easily transport his money or goods, impose an injunction on him, indefinite in duration, disabling him to use so much of his funds or property as the court deems necessary for security or compliance with its possible decree." Id. at 222.

This case is of importance to institutional investors and other potential creditors of international and domestic firms. Under the minority view, financially troubled corporations can easily evade claims for monetary relief by transferring all assets prior to final judgment. Institutional investors and other businesses that deal with financially vulnerable foreign and domestic companies may wish to be heard.

This Mayer, Brown, Rowe & Maw Supreme Court Docket Report provides information and comments on legal issues and developments of interest to our clients and friends. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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