Delaware Court Rejects Temporary Restraining Orders Against Alleged Libel

Even if permanent injunctions against speech that has been found to be libelous are constitutional, preliminary orders based on a mere finding that the speech is likely libelous -- or just might be libelous -- are generally unconstitutional.

American courts have, in recent decades, debated whether they can issue permanent injunctions against libel. Historically, the answer has baeen "no"; such injunctions, court had held in the past, are unconstitutional prior restraints. Civil damages liability for libel is permissible, assuming the plaintiff can prove that the statements are false and injure reputation, and (usually) that the defendant knew the statements were likely false, or (if the plaintiff is a private figure) was neglligent about that. Even criminal punishment for libel would be permissible in many such cases, in those states that retain criminal libel laws. But injunctions are forbidden. Some courts have recently reiterated this view.

But several state supreme courts have held that, once a court has found speech to be libelous—and especially once a jury has handed down a verdict so concluding—an injunction against repeating such speech (or an injunction ordering the takedown of the speech) is constitutionally permissible. Libel, these courts reason, is constitutionally unprotected speech that can lead to civil and criminal liability, and thus should be equally subject to injunctions. One of these courts (the Texas Supreme Court) has allowed only takedown injunctions and not injunctions against future speech.

What about preliminary injunctions or temporary restraining orders? They last for a limited time, unlike permanent injunctions—but they are also not based on a finding after a full trial that speech is libelous and therefore constitutionally unprotected. They are often satisfied with a mere showing of "likelihood of success on the merits," or even that a claim is merely "colorable," which in this context essentially means "non-frivolous." Mark Lemley and I have argued that such injunctions and orders are unconstitutional, precisely because they are issued prior to a full evaluation of the merits; and cited many cases that supported that view.

Yesterday's CapStack Nashville 3 LLC et al. v. MACC Venture Partners, decided by Vice-Chancellor Sam Glasscock III, one of the five members of the Delaware Court of Chancery, discusses this issue in some detail, and I think offers a very good analysis:

The road to a temporary restraining order ("TRO") is well-worn; it typically requires only that a movant show a non-frivolous claim of wrongdoing, and resulting threatened imminent irreparable harm, to trigger equity's solicitude. If a weighing of the equites then demonstrates that injunctive relief to maintain the status quo pending a final hearing is appropriate, Chancery will, typically, enter a TRO, limiting the freedom of action of the responding party.

Preventing harm is a public good, but it is not the only public good. In certain cases, other values trump maintenance of the status quo. In the Anglo-American judicial system, freedom of speech is a jealously guarded right. Historically, equity denied itself jurisdiction over restraints on speech, leaving determinations of the actionability of potentially slanderous speech to a jury of the speaker's peers at an action at law. Both the Delaware and Federal Constitutions have enshrined the right to speak, casting further doubt on the ability of Chancery to place prior restraints on speech, particularly before a determination of whether the speech is entitled to constitutional protection following a hearing on the merits. See, e.g., Hill v. Petrotech Res. Corp., 325 S.W.3d 302, 309 (Ky. 2010) (adopting "the modern rule that defamatory speech may be enjoined only after the trial court's final determination by a preponderance of the evidence that the speech at issue is, in fact, false, and only then upon the condition that the injunction be narrowly tailored to limit the prohibited speech to that which has been judicially determined to be false").

This TRO request illustrates this tension. Essentially, the movants contend that the respondents, the movants' business partners, have made false statements about the movants' conduct of the business, and threaten to make further such statements to investors and regulatory authorities, in an attempt to extort a business advantage. The respondents assert that the statements, and pending statements, are true. The movants' claims are colorable. For a number of reasons, however, I must decline to employ equity in prior restraint of the respondents' speech. I explain below….

This case stems from a joint venture to invest in and manage three apartment complexes in Nashville, Tennessee…. [Plaintiffs claim Defendants acted incompetently and deceptively in various ways.] The Plaintiffs complained to the Defendants about this alleged misconduct. According to the Plaintiffs, the Defendants struck back, via a letter they sent on July 2, 2018, to counsel for Plaintiffs [David] Blatt and NH Cohen Capital LLC …. The letter accused Blatt of misconduct, including making several misrepresentations about his experience and qualifications …. The letter ended with a demand that [Plaintiffs] Blatt and CapStack withdraw as a manager and member of [a management company for thr project]…. [In a later letter,] Defendants also stated that they intended to "notify investors of the facts and circumstances relating to the [controversy]." The Defendants then said, "We believe that investors, and the [Securities and Exchange Commission ("SEC")], would be most comfortable with the situation if David Blatt returned the funds taken at closing and he were no longer involved in the management of the investment." …

The Plaintiffs interpret [this] letter as threatening to disclose the allegations about Blatt to investors and the SEC unless the Plaintiffs withdrew from the joint venture. According to the Plaintiffs, the statements about Blatt in the July letters are false. In any event, as a result of the letters, Blatt resigned as a registered broker with NH Cohen ….

Instead of acceding to the Defendants' demands, the Plaintiffs commenced this action on July 27. Their Complaint asserts nine claims, including fraud, breach of contract, breach of fiduciary duty, tortious interference with contract, and defamation and/or trade libel. The same day the Complaint was filed, the Plaintiffs moved for a TRO under Court of Chancery Rule 65(b). The Plaintiffs seek an order "temporarily enjoining Defendants and their respective partners, officers, agents, servants, employees, and those persons in active concert or participation with them, from making defamatory and libelous statements about Plaintiffs to the SEC, investors in [the project] … , or any other third parties." The Defendants oppose the request; I heard argument on the TRO on August 15.

A TRO "may be issued when the movant demonstrates that: '[1] it has a colorable claim, [2] faces a likelihood of imminent, irreparable harm if relief is not granted, and [3] will suffer greater hardships if the TRO is not granted than the defendants would if the relief were granted.'" "Of the three factors, irreparable harm is the most important; it is the sine qua non for this form of relief." "The purpose of a temporary restraining order is to preserve the status quo to enable the plaintiff to adequately … prepare his case and demonstrate his entitlement to ultimate relief."

Here, the Plaintiffs seek a TRO enjoining the Defendants' speech…. That request must be denied for several reasons….

First, the Plaintiffs have failed to establish that irreparable harm will likely result absent a TRO. The filings in this case are a matter of public record; none of the parties' papers have been filed under seal. Indeed, the Plaintiffs themselves attached to the Complaint the letters that contain the purportedly defamatory material. As a result, the allegedly false information the Defendants intend to convey to the SEC and other investors is already accessible to the public. It is unlikely, then, that further dissemination of this publicly available information would work irreparable harm on the Plaintiffs. Moreover, the Defendants represented at oral argument that NH Cohen, which received the July letters, has already disclosed the supposedly defamatory allegations to the Financial Industry Regulatory Authority. The Defendants also represented that, as a result of this disclosure, the SEC already has or will initiate an investigation into the allegations. These developments cast further doubt on the efficacy of Plaintiffs' attempt to demonstrate that future speech threatens irreparable harm.

Second, the Plaintiffs' request runs afoul of the "traditional maxim that equity will not enjoin a libel." This rule traces back to equity's traditional refusal "to exercise jurisdiction over a claim for defamation based on a prayer for injunctive relief." The rule now rests on additional considerations, primarily "the importance afforded to the constitutional protections of speech." Regardless of the rationale supporting the rule, "[t]he upshot is the same: a court of equity generally cannot issue an injunction in a defamation case."

The principle that equity will not enjoin a libel has special force in the context of pretrial requests for injunctive relief. Some American jurisdictions "have endorsed permanently enjoining a defendant from repeating speech found defamatory in an adversarial proceeding." Under this exception to the traditional rule, "once a judge or jury has made a final determination that the speech at issue is defamatory, the speech determined to be false may be enjoined."

I need not decide whether this Court may enjoin speech that has been adjudged defamatory after a full trial on the merits. Assuming such an injunction would be within the jurisdiction and power of equity, that is not the situation before me. Instead, the Plaintiffs ask me to temporarily enjoin future speech based solely on a finding that the Complaint pleads a colorable claim for defamation or trade libel. Colorability, in the TRO context, requires only that the claim not be frivolous; if a plaintiff pleads a non-frivolous claim of wrongful conduct and shows a threat of resulting imminent irreparable harm, a TRO may issue. A finding that the plaintiff's claim is likely to prevail is not required. In my view, to enjoin speech upon such a showing would amount to an unconstitutional prior restraint.

When an injunction against speech is entered before a full trial on the merits, "it is almost always treated as an unconstitutional prior restraint." [Text from footnote moved: [See] Balboa Island Vill. Inn, Inc. v. Lemen (Cal. 2007) ("[P]reventing a person from speaking or publishing something that, allegedly, would constitute a libel if spoken or published is far different from issuing a posttrial injunction after a statement that already has been uttered has been found to constitute defamation. Prohibiting a person from making a statement or publishing a writing before that statement is spoken or the writing is published is far different from prohibiting a defendant from repeating a statement or republishing a writing that has been determined at trial to be defamatory and, thus, unlawful. This distinction is hardly novel.").] The reason is straightforward: while such an injunction is in force, it "restrain[s] even speech that may ultimately prove to be protected." [Text from footnote moved: See Pittsburgh Press Co. v. Pittsburgh Comm'n on Human Relations (1973) ("The special vice of a prior restraint is that communication will be suppressed, either directly or by inducing excessive caution in the speaker, before an adequate determination that it is unprotected by the First Amendment.").]

Likewise, "since preliminary injunctions are often easier to get than final determinations on the merits and are granted based on less evidence and less deliberation, the danger that the court will get it wrong and mistakenly restrict protected speech is even greater." Thus, "[i]n all but the most exceptional circumstances, an injunction restricting speech pending final resolution of constitutional concerns is impermissible." This rationale applies with equal force to First Amendment protections as well as the protections of speech and press found in the Delaware Constitution. Indeed, the Delaware Constitution appears to explicitly prohibit prior restraints, providing that "any citizen may print on any subject, being responsible for the abuse of that liberty."

Here, it is unclear whether the speech the Defendants propose to engage in is constitutionally unprotected defamation. At oral argument, the Defendants vigorously disputed the Plaintiffs' contention that their threat, or promise, to speak was intended as coercive or retaliatory, or their words false. The record in this case is sparse, and neither side has taken any discovery. Again, the standard for evaluating the Plaintiffs' claims at this stage—colorability—is exceedingly easy to satisfy; it requires only that a plaintiff state "a non-frivolous cause of action."

Thus, it may turn out that, contrary to the allegations in the Complaint, the accusations against Blatt are true, and that the Defendants did not use those accusations to extort concessions from the Plaintiffs. In that case, a TRO enjoining the Defendants from repeating the allegations about Blatt to other parties would have the effect of forbidding the Defendants from engaging in constitutionally protected speech. The rule against speech restraints prior to a merits determination is designed to address precisely this situation. Accordingly, even if the Plaintiffs could state a colorable claim for defamation and demonstrate a likelihood of imminent, irreparable harm, they would not be entitled to the TRO they seek….

Finally, I note an additional consideration. At oral argument, it appeared that a primary concern of the Plaintiffs is to prevent the Defendants from making the purportedly defamatory allegations to the SEC…. Although I need not decide the question here, I assume that the Defendants are at least conditionally privileged to reveal these allegations to the SEC….[T]he possibility that the statements the Defendants wish to make to the SEC are privileged weighs against entry of the TRO….