American Hospital Supply Corp. v. Hospital Products Ltd. – Case Brief
American Hospital Supply Corp. v. Hospital Products Ltd., 780 F.2d 589 (7th Cir. 1986).
Facts: Hospital Products (D) was a manufacturer of reusable surgical stapling systems. D entered into a three year contract with American Hospital Supply (P), whereby P would serve as D’s exclusive distributor in the U.S. The contract was for three years initially, but provided for automatic renewals for up to ten successive one-year periods, unless P notified D that it wanted to terminate the contract at least 90 days before the three years were up (or any successive one-year period for which the contract had been renewed).
Toward the end of the initial three year period, on the last day on which notice of termination could be given to avoid automatic renewal, D asked P whether it intended to renew and P affirmed renewal. The next day D informed P that it was going to treat the agreement as if it had been terminated and P sued. P was granted a preliminary injunction to compel D to continue to perform under the contract. D filed for bankruptcy and appealed.
Issue: What is the proper test for determining whether a preliminary injunction is appropriate?
Holding and Rule: A preliminary injunction is proper only if P*HP > (1-P)*HD, or in other words, only if the harm to the plaintiff of denying the injunction outweighs the harm to the defendant of mistakenly granting the injunction. P=chance of P winning, HP = potential harm to P if denied, HD=potential harm to D if granted.
In deciding whether to grant an injunction, a judge is to choose the course of action that minimizes the cost of an incorrect decision. To reverse a preliminary injunction there must be a strong conviction that the judge exceeded the permissible bounds of judgment in granting the injunction.
The court perceived a threat of substantial irreparable harm to P a high probability of being unable to recover from an insolvent defendant. The court saw an increased harm to D from the injunction via an increased risk of bankruptcy, but that harm was offset by the $5 million bond that P posted. The court was persuaded that D broke the contract, implying that there was a high probability that P would win the case.
Disposition: Affirmed.
Dissent (Swygert): A quantitative approach may be useful in determining negligence in tort cases, but it has limited value in determining whether a preliminary injunction should issue. A judge’s judgment in an injunction proceeding must be flexible and discretionary within the bounds of the now settled four prong test.