Legal Uncertainty, Economic Efficiency, and the Preliminary Injunction Doctrine

Abstract

In this Article, we consider preliminary injunctions from a radically different perspective than that articulated in judicial opinions and prior legal scholarship. By conventional accounts, when confronted with uncertain legal entitlements, courts should consider preliminary awards only if adequate compensatory remedies are unavailable. The trouble with this "compensatory" view is that it is unresponsive to the ex ante behavioral consequences of legal uncertainty. When rights are uncertain, parties appreciate the full benefits of their conduct, but they discount harm to others of this conduct by the likelihood that they possess a legal entitlement to so act. Hence, individual incentives to behave efficiently are distorted by uncertain legal entitlements. Preliminary injunctions correct this distortion by wielding a stick and providing a carrot for a defendant who would otherwise discount damages given some positive probability that she may not have to pay them. The powerful stick in this example is the in terrorem damages that defendant will be required to pay if an injunction is granted and she violates it. The carrot is the reimbursement of compliance costs if defendant prevails at the end of the litigation. These penalties and rewards come into play only if the plaintiff decides to pursue the injunction, which is to say that the preliminary injunction doctrine takes the conduct decision out of the hands of the biased defendant and places it in the hands of plaintiff who, by design, faces the proper marginal costs and benefits of the decision. Interestingly, although courts do not claim that they are promoting efficient behavior when granting preliminary injunctions, that characterization represents a good account for much of what courts are doing.