[*PG689]JUDICIAL DISCRETION AND THE “SUNK COSTS” STRATEGY OF GOVERNMENT AGENCIES

David E. Cole*

Abstract:  When a government agency, during the construction of a public works project, has violated a statute, a court may be hesitant to issue an injunction because of the potential “waste” of public funds that have already been spent. Knowing this, agencies may engage in a “sunk costs” strategy while a decision on enjoining the project is looming—continuing to invest money in the project, often at an increased rate, in order to gain advantage in the equitable balancing used to evaluate the necessity for an injunction. An increase in the amount of irrecoverable public funds invested in furtherance of a statutory violation may tilt the judge’s balancing in the agency’s favor. This Note addresses this sunk costs strategy and concludes that, in light of traditional equitable jurisprudence, the money spent by an agency to take advantage of this balancing cannot be included in the balancing process.

Thus, in the midst of the mud and at the heart of the fog, sits the Lord High Chancellor in his High Court of Chancery.1

Introduction

In 1933, Congress created the Tennessee Valley Authority (TVA) to further national defense and agricultural and industrial development by “improv[ing] navigation in the Tennessee River” and “control[ling] the destructive floodwaters in the Tennessee River and Mississippi River Basins.”2 To fulfill its mission, the TVA started building a network of dams throughout the Tennessee Valley river system.3 One of the last of these dams, a small non-power project, which the TVA [*PG690]proposed for regional development,4 came to national attention in 1978 in the case of TVA v. Hill,5 as the agency was fighting its way through one of a series of lawsuits aimed at blocking the completion of the project.6

As proposed, the Tellico Dam project would have far reaching social, economic, and ecological effects: the dam was to be built on the Cherokees’ most sacred religious site, the city of Chota; furthermore, the TVA would need to condemn hundreds of families’ generational farmland.7 Local opposition soon arose consisting of: the family farmers; the Eastern Band of Cherokees; biologists, who regarded the region as an important natural habitat for species; archeologists and historians, who wanted to protect the area’s cultural and historical significance; and sportsmen, who were concerned about the effects of the dam on fishing and hunting.8

As a successful suit under the National Environmental Policy Act (NEPA) halted work on the dam, forcing the TVA to prepare an environmental impact statement for the Tellico Dam project,9 the [*PG691]conflicting values of the local community and the agency became evident.10 On August 12, 1973, Dr. David Etnier, an ichthyologist from the University of Tennessee, discovered the snail darter, a small, threatened fish near the project site.11 Knowing that strong legislation was about to be passed by Congress regarding the protection of endangered species, Etnier commented, “[T]his is the fish that will stop Tellico Dam.”12

In December of 1973, the Endangered Species Act (ESA) was enacted, mandating that

[e]ach Federal agency shall, in consultation with and with the assistance of the Secretary [of the Interior], insure that any action authorized, funded, or carried out by such agency . . . is not likely to jeopardize the continued existence of any endangered species or threatened species or result in the destruction or adverse modification of habitat of such species which is determined . . . to be critical.13

The passage of the ESA breathed new life into the dam’s local opposition, who found that the newly discovered, endangered, three-inch fish now had the potential to block the Tellico Dam project.14 In 1974, a citizens group requested that the TVA comply with the new federal law.15 The TVA insisted that the ESA did not apply to the Tellico Dam project, and stated that “no court had ordered the agency to halt construction” yet.16

The citizens group petitioned the Department of the Interior to list the snail darter as endangered and designate its critical habitat as the waters near the Tellico Dam project.17 The TVA actively resisted both of these efforts; these two procedural requirements would allow [*PG692]the citizens group to invoke the ESA’s protection for the fish.18 The most obvious objectives of the TVA’s efforts failed: the snail darter was eventually listed as endangered,19 its critical habitat was designated near the Tellico Dam project,20 and plaintiffs were able to file suit seeking an injunction to halt the completion of the dam.21 With all of its efforts, the TVA achieved a less obvious objective—delay.22 As one of the plaintiffs in the Hill litigation observed:

The effect of TVA’s voluminous submissions, complaints, and objections, often filed at the end of the official comment periods . . . was to prolong the administrative process until November 1975 for the species listing and the [critical] habitat listing until April 1976. Even then the agency argued that the [Department of the] Interior actions were not effective until 30 days after publication.23

The importance of this delay to the TVA manifested itself in a dramatic change in atmosphere and a new sense of urgency at the Tellico Dam construction site as this drama of the snail darter unfolded.24 The TVA continued dam construction, despite the opinion of the Director of the Fish and Wildlife Service that “[t]he proposed impoundment of water behind the proposed Tellico Dam would result in total destruction of the snail darter’s habitat,”25 and despite the citizen group’s subsequent notification to the TVA that further work on the Tellico Dam project would violate the ESA.26 Also, the pace of the dam’s construction dramatically increased.27 In the seven years [*PG693]preceding Dr. Etnier’s discovery, the TVA had expended $35 million on the project.28 During the four years following this discovery, the TVA increased the rate of its investment in the project, spending an additional $67 million in that period.29

After a suit was brought to enjoin construction of the dam and its related earthworks, the district court refused to issue an injunction, despite finding that it was “highly probable” that the completion of the dam would “jeopardize the continued existence of the snail darter.”30 When the plaintiffs appealed to the Sixth Circuit, the TVA adopted a three-shift-a-day, six-day-a-week construction schedule, with crews working under floodlights through the night for several months.31 A statement overheard in a TVA meeting perfectly summarized the strategy that the TVA was employing, while the plaintiffs awaited review of the district court’s decision: “By the time Plater [the plaintiffs’ attorney] stands up to argue . . . there won’t be a tree standing in the reservoir area.”32

TVA’s strategy can be considered a “sunk costs” strategy, a breed of a fait accompli tactic.33 A fait accompli strategy involves mooting an issue so that the merits of an action are never addressed.34 Had the TVA rushed the Tellico Dam to completion before the snail darter could be officially listed as endangered and its critical habitat could be designated—or before an injunction to halt construction could be issued—a court would likely determine the issue to be moot.35

Seeking a similar result, those using a sunk costs strategy seek to taint a court’s views toward its remedial powers. In the case of Tellico Dam, partial completion of the dam did this quite effectively, even as the courts were addressing a statutory violation. Such a strategy places [*PG694]the court in the precarious position of issuing an injunction to stop a costly, nearly completed, federal works project.36 Defendants using a sunk costs strategy depend on the money spent in violation of a statute or the common law to skew the court’s equitable calculus, called the “balancing of the utilities,” in the defendant’s favor as the court determines the appropriateness of an injunction.37

This sunk costs strategy was not new at the time of Hill, and it can be a particularly destructive strategy, undermining environmental statutes and regulations.38 Public agencies find value in this strategy where “much time, effort, and money h[ave] already been invested in a proposal. . . . [P]ublic agencies . . . argue—when challenged—that huge sums of money have already been invested and that public opposition . . . comes too late.”39 By the time a judge can decide whether [*PG695]an injunction should be issued, she or he must grapple with the difficult issue of the potential “waste” of public funds, and, as a result, the traditional equitable balancing tests tend to be tilted in favor of the project’s completion. In such cases, judges are mindful of the public nature of their roles, knowing that “[t]heir peers on the bench, their clerks, counsel, law professors, and politicians in the other branches of government all scrutinize” their decrees.40

In the Tellico Dam litigation, the Sixth Circuit eventually ordered an injunction preventing the immediate completion of the Tellico Dam.41 On appeal to the United States Supreme Court, the injunction was upheld,42 but not without the caricature of little-fish-versus-big-dam pervading the American consciousness and raising judicial concerns about the air of the ridiculous.43

[*PG696] After the Tellico Dam controversy, Congress attempted to rectify this sunk costs phenomenon by amending the ESA to prohibit federal agencies from making “any irreversible or irretrievable commitment of any resources” to agency actions or projects that have “the effect of foreclosing the formulation or implementation of any reasonable and prudent alternatives” before interagency consultation.44 This provision may effectively remove the amount of money spent in violation of the ESA, or sunk costs, from factoring into the equitable balance.45

This Note will examine the traditional concerns of a court sitting in equity, and how courts have addressed this sunk costs strategy when contemplating the issuance of a permanent injunction46 in the face of a statutory violation. The Note will not address situations where the equitable discretion of the courts has been explicitly altered by statute,47 but rather, it will examine what role, if any, sunk costs should play in the granting of an injunction when a government agency has violated the law. Part I discusses the historical development of the injunction and courts of equity. Part II concerns the origin of the balancing of the utilities doctrine. The application of this doctrine to situations involving private defendants and violations of private or public law is explored in Part III. The special circumstance involving a defendant-agency and the balancing of the utilities doctrine is discussed in Part IV.

I.  A Short History of Equity Jurisprudence

An injunction is an equitable remedy employed for the protection of the integrity of established rights from prospective harm.48 In the courts of the United States, equitable remedies do not necessarily derive from a statutory grant of power to the courts, but rather “[t]he essence of a court’s equity power lies in its inherent capacity to adjust remedies in a feasible and practical way to eliminate the conditions or [*PG697]redress the injuries caused by unlawful action.”49 As a general principle, the scope of the courts’ equitable powers cannot be denied or limited without a clear and valid legislative directive.50 Outside such legislative shackling, the courts look to the traditional principles of equity jurisprudence.51

An American judge sitting in equity has strong ties to the early political philosophy of the Greeks, the procedures of the Roman Empire’s legal system, and the traditions of the English courts of chancery.52 Therefore, a brief examination of the development of equity jurisdiction and the use of injunctions is helpful to create a basis for the discussion of current doctrines and concerns of the courts of equity in the United States.

A.  The Greek Concept of Epieikeia

Although there were ancient cultures that had addressed the problems of law and governance well before the Greeks, the Greek philosophers were among the first to record a true analysis of the associations between law, justice, and the individual.53 The surviving philosophical writings from the period between 420 and 320 b.c. have had an impact on the legal systems of both the Roman and English empires, and they form the basis of a European classical education.54 It is therefore appropriate to use the ancient Greeks as a starting point.

A concern for relieving the individual from the rigors of the law—the Greek concept of epieikeia, or equity—can be clearly discerned from the works of Plato and Aristotle. In Plato’s last work, The Laws, he identifies the dilemma that results from a government’s [*PG698]need to pass general legislation and a court’s need to apply these laws to individual cases.55 Through a dialogue between Cleinias and an Athenian, Plato notes that when a law is violated, the circumstances surrounding each individual case may “differ in a thousand and one different ways.”56 Observing the impossibility of legislating to address all variations of transgression, he concludes that “some details ought to be left to the courts,” so that the court may assign fines or punishments according to its “discretion.”57

Later, in Nicomachean Ethics, Aristotle, once a member of Plato’s famous Academy, elaborates on this notion of judicial discretion and further develops the idea of equity:

Hence whenever the law makes a universal rule, but in this particular case what happens violates the . . . universal rule, here the legislator falls short, and has made an error by making an unconditional rule. Then it is correct to rectify the deficiency; this is what the legislator would have said himself if he had been present there, and what he would have prescribed, had he known, in his legislation.

. . . And this is the nature of what is decent—rectification of law in so far as the universality of law makes it deficient.58

In The Politics, Aristotle clarifies the concept of equity and qualifies it as being subordinate to the law.59 He argues that where the law is clearly applicable to the given circumstances of a case, “it is the law’s rule and decisions that will be best”—superior to the decisions of any citizen.60 Reliance on the decision of a human being is appropriate only in cases where the law is inadequate.61 Equity, although permeating Greek political philosophy, was not recognized by the Athenian legal system, which was bound by the strict letter of the law.62

[*PG699]B.  The Roman Concept of Aequitas and the Early Budding of the Injunction

In the Roman Empire, the Greek concept of equity was slowly incorporated into the Roman legal system.63 The roots of the modern day injunction—the prętorian interdict—can be traced to this period as well.64

1.  The Jus Prętor

Although Greek, specifically Aristotelian, philosophies had a strong influence on many aspects of Roman law, the Greek concept of equity and what the Romans called aequitas were tied together in the person of the prętor in the Roman civil law system.65 The prętor was an elected official who controlled access to the Roman legal system.66 Parties would initiate litigation by contacting the prętor, who would define the basic issues in a case, write them down in a simple formula, and then demand answers to the questions from the judge whom the parties had chosen.67

The prętors, by framing the issues submitted to the judges, had enormous power over the legal process, and began to use this power to inject concepts of aequitas into the Roman civil law system.68 The resulting Jus Prętorium, or prętorian law, was comprised of amorphous equitable concepts. It was concerned with the overall fairness of the result and was based on laws common to humankind, which originate from a preexisting state of nature.69

This idea of aequitas had been phrased in several ways: good faith, fairness, and “honest dealing as between honest people.”70 Assessing the practical application of aequitas by the prętors, Papinian explained, “[P]rętorian law is that which in the public interest the prętors have [*PG700]introduced in aid or supplementation or correction of the [civil law].”71 Indeed, prętorian law was considered the “living voice of the [civil law].”72 Roman aequitas, by allowing the prętor to frame the issues of a dispute with the aim of correcting the perceived harshness of the civil law, dramatically expanded the powers of the prętor.73 Notice, however, that these concerns of the prętor were injected into the liability stage of litigation. As will be discussed infra, once liability or rights were established by the Roman judge, the prętor’s next function was simply that of enforcement.

2.  The Interdict

In addition to his increased discretion, the prętor could issue interdicts, if they were required, as a remedial or enforcement tool.74 Similar to the modern use of injunctions by English and American courts, “[i]nterdicts were . . . forms and formulations of words whereby the prętor directed or forbade that something be done.”75 Interdicts were of three forms: exhibitory, restoratory, and prohibitory.76 By the exhibitory interdict, the prętor compelled the production of some thing or person.77 In issuing a restoratory interdict, the [*PG701]prętor commanded that a person’s possession of an object be restored.78 By way of a prohibitory interdict, certain actions were forbidden.79 The prohibitory interdicts were the most common of the three, and they are closely related to injunctions issued by modern English and American courts.80

Here, at the remedy stage of the litigation, after the judges had determined the rights of the parties following the prętor’s formula, the Roman prętor was required to issue some form of remedy when necessary to ensure that established rights would be protected.81

C.  English Courts of Chancery and Equity

Traces of the Roman legal system were, for the most part, wiped clean from the memories of the English when the Roman occupation of England ended in 410 a.d. After the Norman Conquest of England in 1066, as the English common law system was taking shape, there was a dramatic resurgence in Roman civil law and Emperor Justinian’s Corpus Juris.82 Roman manuscripts had made their way over to England in the twelfth century, and Englishmen started going to continental Europe for their education, mainly to Bologna, where there was an intense study of the discovered Roman legal texts.83 By the latter half of the twelfth century, civil law was being taught at Oxford.84 Also, Vacarius had begun his teaching of the civil law in England, and published his Liber Pauperum, a legal text consisting of excerpts from the Digest and the Institutes for those who could not afford the full texts.85 Roman Law so permeated English legal thinking that the two early English treatises in English common law, Glanville and Bracton, [*PG702]both pay homage to or incorporate the Roman texts.86 In a vain effort to put an end to the invasion of Roman civil law into the English common law system, King Stephen expelled Vacarius from England, and, in a letter to the Mayor of London, ordered the prohibition of the teaching of the civil law in London.87

These desperate actions by King Stephen may have slowed Roman influence on the common law courts, but it did not stop the ecclesiastics from teaching civil law and canon law, which is intimately tied to the civil law, in their schools and monasteries.88

Drawing heavily from the Roman Corpus Juris and from Scripture, Gratian, a possible teacher and monk in Bologna, completed his Decretum, a codification and harmonization of the canon laws.89 Published in 1140, the Decretum became the standard text used by the Roman Catholic Church for teaching canon law.90 This influence of Roman law would be most prominent in the English chancery courts.

1.  Roman Influence on the Court of Chancery’s Determination of Liability

The development of the English chancellors and English equity jurisprudence parallels that of the Roman prętor and prętorian law. Similar to the Roman prętor, the position of the Lord Chancellor of the High Court of Chancery originated as a ministerial position under [*PG703]the king, which only later became vested with true judicial duties.91 In the beginning of English equity jurisprudence, the chancellor acted, essentially, as the “secretary” of the king, issuing writs that allowed a petitioner to bring suit before the king’s courts: the courts of the King’s Bench, the Common Pleas, and the Exchequer.92 The chancellor would send the petitioner to one of the three courts where the petitioner’s claim could be properly addressed.93 In some cases, where the suit did not properly fall under the jurisdiction of the other courts, the chancellor himself would have jurisdiction to grant relief to the petitioner.94 In addition, petitions to the king or the King’s Council for royal grace or favor were soon delegated to the chancellor first for administration, and then for final decision.95

In the beginning, the chancellor was always an ecclesiastic because not many other people were capable of administering a position that demanded such a high level of literacy.96 As a result, the ecclesiastic chancellor was almost always well versed in Roman civil law as well as the Roman-influenced canon law, but he often had only the most superficial knowledge of English common law.97 Consequently, principles of the Roman civil law and canon law would often be used to resolve cases that were brought before the chancellor.98

[*PG704] Further extension of the chancellor’s jurisdiction resulted from the fact that the ecclesiastic chancellor was regarded as the “keeper of the king’s conscience”—the king being the “fountain of justice.”99 As such, the chancellor’s jurisdiction, in addition to jurisdiction over those tasks delegated to him, was extraordinary, eventually extending to all matters of conscience.100 Borrowing from civil and canon law, the chancellor, concerned about the overall fairness of a result, would assert jurisdiction over a case and rectified the failures of the common law courts to recognize a right, to enforce a right, or to grant relief where a “petitioner was unable to obtain redress owing to the position or powerful connections of his adversary.”101

The chancellor exercising his equitable jurisdiction, not bound by precedent or formal rules, looked to the particulars of a case; as the prętor did with the civil law, the chancellor relieved the rigors of the otherwise inflexible common law.102 Seeing that the chancery’s power emanated from the “king’s conscience” and that conscience was what should guide decisions, Lord Bacon commented:

A judge ought to prepare his way to a just sentence, as God useth to prepare his way, by raising valleys and taking down hills: so when there appeareth on either side an high hand, violent prosecution, cunning advantages taken, combination, power, great counsel, then is the virtue of a judge seen, to make inequality equal, that he may plant his judgment as upon an even ground.103

The chancellor’s jurisdiction expanded over time, and by the fourteenth century the High Court of Chancery came into being, owing its existence, at least in part, to the inflexibility and restricted jurisdiction of the common law courts, and the deficiencies inherent in the strict application of the common law.104 Additionally, the common law courts refused to embrace the concept of equity.105

The chancellor’s discretionary power to assert jurisdiction over cases previously decided by common law courts and grant relief in the [*PG705]name of equity was viewed by some critics as eviscerating English statutory and common law.106 In response, Christopher St. German offered a much-needed justification in the form of a dialogue between a doctor of divinity and a student of the common law—the influential Doctor and Student.107 His theory was based on canon law and the familiar Roman concept of aequitas.108 St. German’s doctor of divinity argued, with respect to equity’s treatment of statutes, that equity

considers all of the particular circumstances of the deed and is tempered with the sweetness of mercy. And equity must always be observed in every rule of man and in every general rule thereof, and knew he well that said thus. Laws covet to be ruled by equity . . . . It is not possible to make any general rule of law but that it should fail in some case. And therefore makers of law take heed to such things as may often come, and not to every particular case, for they could not though they would, and therefore to follow the words of the law is in some cases both against justice and the common wealth: wherefore in some cases it is good and even necessary to leave the words of the law, and to follow that which reason and justice require, and to that equity is ordained, that is to say temper and mitigate the rigor of the law.109

[*PG706]Equity, St. German asserted, did not abrogate statutory law; rather it merely voiced implied exceptions to the law for particular circumstances, supplied by the law of God and by reason, the background against which legislators enact general laws.110

Although the chancellors would insist that they were not undermining the common law courts, the fact that the laws of England were ultimately subject to the discretion and “conscience” of the chancellor continued to be criticized.111 John Selden argued by analogy that if the conscience of the chancellor is the measure of equity, then it would be too unpredictable a measure to be a basis for any law, for as the length of the chancellor’s foot differs from chancellor to chancellor, so does a chancellor’s conscience.112 With the English chancellor, as with the Roman prętor, the only restrictions on the exercise of the court’s discretion were found in the chancellor’s early training in civil law and in the restraints of professional opinion.113 The fact that precedent did not bind future decisions of the chancellor exacerbated concerns about the discretionary nature of the chancellor’s powers.114

[*PG707] The English chancellors made an attempt to alleviate these concerns in the 1600s by establishing rules of the chancery courts.115 Richard Francis furthered this effort by summarizing the absolute rules of equity in 1726.116 He performed a survey of the cases in the High Court of Chancery and published his Maxims of Equity, outlining the fourteen important tenets of equity jurisprudence—the canons of equity jurisprudence.117 As equity jurisprudence developed, the reasoning behind cases slowly became uniform, and chancellors started to be guided by precedent, forming specific equitable doctrines and defenses.118 This movement towards regularity and predictability came to fruition in the 1700s, as the English chancellors consistently used precedent and doctrinal rules, including Francis’s “maxims,” in place of the former ad hoc approach.119

The uniformity of equity jurisprudence led to the publication of a case reporter and treatises. A collection of equity case law was made available in 1732 as Equity Cases Abridged; and in 1737 Henry Ballow offered the first comprehensive equity treatise, A Treatise of Equity, and noted the desire for stability in equity jurisprudence, stating, “[I]t is dangerous to extend the authority of this court further than the practice of former times.”120 In 1741, Viner, after whom the Vinerian Chair [*PG708]at Oxford University is named, began publishing his collection of reports, the General Abridgment of Law and Equity.121

This rush toward uniformity and predictability in equity jurisprudence had the effect of severely binding the chancellor’s previously limitless discretion.122 In the beginning of the nineteenth century, Lord Eldon sought to further limit the chancellor’s discretion, commenting in Gee v. Pritchard:

The doctrines of [the courts of chancery] . . . ought to be as well settled and made uniform almost as those of common law, laying down fixed principles, but taking care that they are applied according to the circumstances of each case. I cannot agree that the doctrines of this court are to be changed with every succeeding judge. Nothing would inflict or give me greater pain in quitting this place than the recollection that I had done anything to justify the reproach that the equity of this court varies like the chancellor’s foot.123

This was a dramatic change in equity jurisprudence, transitioning from an ever-changing practice based in the almost absolute discretion of the chancellor and the loose guidance of the civil and canon law, to what became a “controlled, constrained science of equity, ancillary to common-law.”124

The chancellor’s discretion was so tempered by formalizing the equitable doctrines that in 1758 Blackstone observed that an equity court and a common law court both interpreted statutes according to the same principles of reason and justice, and that the unlimited discretion that had previously been characteristic of courts of equity “hath totally been disclaimed by their successors.”125 Some well-settled [*PG709]doctrines of equity were incorporated into the English common law and were used in common law courts.126 Blackstone observed that the courts of equity had become “governed by established rules, and bound by precedents, from which they do not depart . . . . [A]ll these . . . are plainly rules of positive law.”127

By 1788, Alexander Hamilton, justifying the grant of equity jurisdiction to the federal courts in the United States Constitution, noted: “It is true that [in courts of equity] the principles by which that relief is governed are now reduced to a regular system.”128 He also espoused a concept of equity similar to St. German’s philosophy: the equity court must not operate outside of the law, but must uphold the spirit of the law while applying the legislature’s implied exceptions.129

Joseph Story concurred, in his 1836 equity treatise, with the idea that equity must follow the law and cannot take a contrary position where the law has clearly spoken.130 He further noted that it is the role of equity “to defend the law from crafty evasions, delusions, and mere subtleties, invented and contrived to evade and elude the Common Law, whereby such as have undoubted right are made remediless . . . . Equity does not destroy the law, not create it, but assists it.”131

[*PG710]2.  Roman Influence on the Court of Chancery’s Remedies

Once the chancellor, following the settled equitable doctrines and the canons of equity, decided the case, and the liabilities and rights of the parties were settled, he would construct a remedy.132 If a plaintiff established a cognizable right, then the chancellor ensured it was protected, and he was bound, “to grant every kind of remedy necessary to its complete establishment, protection, and enforcement according to its essential nature.”133 Due to the early influence of the ecclesiastic chancellors, the remedial power of the chancellor was largely derived from the powers of the Roman prętor.134 If equity’s most extreme remedy—the injunction—was required, then the chancellor would issue the injunction, just as the Roman prętor would have issued a prohibitive interdict if needed to protect established rights of the parties.135

Note, however, that an equitable remedy, such as an injunction, would be issued as a matter of course in order to protect established rights; there was no further determination of the need to withhold an equitable remedy, as chancellors were bound to protect the rights that were established in the liability stage, in the ensuing remedy stage of the litigation.136 Equitable doctrines and the canons were applied in the liability stage of litigation, which determined the rights of the party to seek relief from the chancery court; equitable doctrines were also applied with respect to the other party in the resolution of the dispute.

D.  American Courts of Chancery and Equity

In the American judicial system, equity jurisprudence took the form of that formulated and practiced by the High Court of Chancery in England.137 American courts, when addressing questions of equitable relief, look to equity’s historical development in the English courts [*PG711]for guidance.138 The United States inherited this jurisprudence, and these prudential concerns and equitable doctrines guide courts in their exercise of equitable jurisdiction today.139

1.  Equity in the Colonies and the Early States

In the eighteenth century, the organization of the courts of equity was rather uneven across the several American Colonies.140 Some Colonies had separate courts of equity; some simply removed the distinction between common law and equity courts; and in some Colonies the governor and the governor’s council acted as the court of chancery.141 In those Colonies that had separate courts of equity, the administration of these courts was dictated by the English, creating a close association between equity jurisdiction and the executive power of the King of England, and English colonial policy.142

After the Colonies secured their independence from England, the principles of the English chancery courts continued to form the basis of equity jurisprudence in the courts of the several States, and these principles eventually became fairly uniform across the country.143 As it stands, equity jurisprudence in America is much closer to that of England than the common-law approaches of the two nations.144 As Justice Joseph Story noted, “Equity Jurisprudence, in its main streams, flows from the same sources [in America], that it does in England, and admits of an almost universal application in its principles.”145

[*PG712]2.  Equity in the Federal Courts

The United States federal courts’ inheritance of English equitable doctrines is apparent by their affirmative recognition of these doctrines.146 The Constitution extends to the federal judiciary jurisdiction over “all Cases, in Law and Equity, arising under [the] Constitution, the Laws of the United States, and Treaties . . . .”147 The Framers understood this grant to include the settled equity doctrines as developed by the English chancery courts, to be applied in cases where the common law produced an unsatisfactory result.148 Equity was viewed as the defender or protector of the general law from cunning parties who might defeat the spirit of the law by taking advantage of its technicalities.149

Reinforcing the source and binding power of traditional equitable principles, the Supreme Court has recognized that the federal courts were given “an authority to administer in equity suits the principles of the system of judicial remedies which had been devised and was being administered by the English chancery court at the time of the separation of the two countries.”150 For this reason, district courts do not have any authority in granting remedies that were historically unavailable to a court of equity,151 and even after the fusion of law and equity by the Federal Rules of Civil Procedure in 1938, “the substantive principles of Courts of Chancery remain[ed] unaffected.”152

It appears that federal courts exercising their equitable jurisdiction would use the same equitable doctrines as the English chancery courts to determine liability or the rights of the parties in a dispute, [*PG713]the area where the judge’s discretion had been tempered.153 As the English chancellors and the Roman prętors before them, the American judge sitting in equity was bound to protect the parties’ rights, using existing equitable remedies, as determined in the liability stage of the litigation.154 As with the English chancery courts, in the remedies stage of the litigation there was no further determination of the need for withholding an equitable remedy.155

II.  Injunctions and the Balancing of the Utilities

Before issuing an injunction, the most oppressive of equitable remedies, the American courts required that a plaintiff overcome several doctrinal hurdles that have English roots.156 Although courts were bound to protect a party’s determined rights, in order to obtain the protection of an injunction, a party had to demonstrate that such a remedy was necessary to protect her or his rights by showing: (1) that the party would suffer irreparable harm if an injunction was not granted;157 and (2) legal remedies were inadequate.158 If these requirements were satisfied, then the courts tailored a remedy to protect the determined rights of the parties.159 Apparently, it was not until the beginning of the Industrial Revolution, however, that further judicial discretion was injected into the remedy stage of litigation—allowing a court to leave a determined right to go unprotected by a court of equity.160 This new discretion took the form of the equitable doctrine referred to as the “balancing of the utilities.”

[*PG714]A.  Revival of Discretion, the Industrial Revolution,
and a Critical Extension of Dicta

In modern American courts, once a plaintiff has succeeded on the merits of the case, and has proved irreparable injury and the inadequacy of legal remedies, the judge performs a modified pro forma cost-benefit analysis of the rights of the parties, called the “balancing of the utilities,” before issuing an injunction.161 “[T]he court ‘balances the conveniences of the parties and possible injuries to them according as they may be affected by the granting or withholding of the injunction.’”162 This doctrine allows the court to take into account the totality of the circumstances so that the burden of the injunction on the defendant is not disproportionate compared with the benefits to the plaintiff of granting the injunction, or the burden on the plaintiff if an injunction is not granted.163 The balancing of the utilities doctrine also weighs the public interest concerns in the issuance or denial of the injunction.164 The doctrine appears to have first taken root in the English case of St. Helen’s Smelting Co. v. Tipping.165

1.  St. Helen’s Smelting Co.

The 1865 English case of St. Helen’s Smelting Co. v. Tipping concerned a common law nuisance, and is considered the point at which the balancing of the utilities doctrine first appeared.166 The important stage of the St. Helen’s Smelting litigation was the appeal to the House [*PG715]of Lords.167 The case was a common law nuisance action brought by the proprietor of an estate whose “hedges, trees, shrubs, fruit, and herbage,” as well as cattle, were damaged by the noxious fumes emitted by a new copper smelting plant.168 The question in the case was not whether an injunction should issue, but whether the trial judge gave the jury proper instructions for common law nuisance—instructions that resulted in the defendant being held liable for monetary damages.169

The holding of the House of Lords seems to support the previous rule of nuisance—one must use his or her property so as not to injure the property of his neighbor.170 The House of Lords found that the trial judge had given a proper jury instruction and refused to grant a new trial.171 The cryptic dicta of two of the appellate judges’ opinions, however, established the balancing of the utilities doctrine.172

Lord Westbury noted that there is a “difference between an action brought for a nuisance upon the ground that the alleged nuisance produces material injury to the property, and an action brought for a nuisance on the ground that the thing alleged to be a nuisance is productive of sensible personal discomfort.”173 Lord Cranworth added:

“You must look at it not with a view to the question whether, abstractly, that quantity of smoke was a nuisance, but whether it was a nuisance to a person in the town” . . .  [B]ecause, if it only added in an infinitesimal degree to the quality of smoke, . . . the state of the [already polluted] town rendered it altogether impossible to call that an actionable nuisance.174

Out of these dicta, in the United States and in England, St. Helen’s Smelting has come to stand for the proposition that the common law nuisance doctrine was subject to a balancing of the utilities.175 Soon after the House of Lords affirmed the St. Helen’s Smelting [*PG716]judgment for monetary damages, the proprietor of the estate learned that the copper smelter had plans on expanding its operations.176 He sought relief in equity, and he was found to be “entitled . . . to an injunction to protect his rights which had been thus ascertained at law.”177 This result indicates that the balancing of the utilities doctrine was first seen by the English courts as a new equitable doctrine used for the determination of the liability or the rights of the parties, not for the determination of the need for a remedy to protect those rights.178 The amount of discretion that such a utilitarian doctrine could offer, however, may have made it attractive to a judge sitting as chancellor searching for a fair resolution to a dispute.

Eventually the balancing of the utilities doctrine found its way into the remedy stage of litigation in cases where a common law nuisance was actually found to exist.179 In 1868, the Pennsylvania Supreme Court, in the Appeal of Richards, was the first American court to uphold the denial of an injunction in the face of a proven nuisance.180 The case involved an owner of a cotton factory who wanted to enjoin an owner of an ironworks from burning coal because of the damage from the emitted noxious fumes.181 The lower court, reasoning along the lines of the actual holding of St. Helen’s Smelting, did not find a nuisance to exist due to the questionable and de minimus nature of the plaintiff’s damages.182 On appeal the plaintiff cited St. Helen’s Smelting for the proposition that the defendant had no right to pollute [*PG717]so as to have a detrimental effect on neighboring property.183 The Pennsylvania Supreme Court, however, agreed that there was a nuisance, but denied an injunction after balancing the utilities in the remedy stage of the litigation, stating: “[C]oal, we think . . . is necessary in the manufacture of iron, such as the business of the defendants require, and whose fabrics the public require.”184

2.  Reaction to Equity’s Formalism

Modern courts have accepted the balancing of the utilities doctrine and have extended it beyond common law nuisance actions to cases involving violations of statutes and regulations.185 This doctrine allows for greater judicial discretion in the remedy stage of litigation, as opposed to the liability stage that is guided by well-settled equitable doctrines. It appears to be a reaction to the reduced discretion in the liability stage found in equity jurisprudence.186

The infusion of discretion into the remedy stage of litigation by the balancing of the utilities doctrine would appear to have injected the concept of the court’s conscience into the remedy stage, a problem of possible unbounded discretion akin to that experienced and criticized when equity was in its youth.187 As equity originally sought to alleviate the rigors of the common law, this balancing approach acts as a check to prevent abuse of the rigors of the settled equitable doctrines by plaintiffs.188 One state intermediate appellate court acknowledged the prophylactic nature of this doctrine stating:

[*PG718]This [balancing of the utilities] is . . . the judicial recognition of a circumstance in which one party uses a legal right to gain purchase of an equitable club to be used as a weapon of oppression rather than in defense of a right. It is a contradiction of terms to adhere to a rule which requires a court of equity to act oppressively or inequitably and by rote rather than through reason.189

If this is true, is it also true that this newfound discretion in the remedy stage can reject the underlying goals of equity jurisprudence or the long established equitable canons and doctrines? Further study into the nature of the balancing of the utilities should remember the admonition of then-Chief Justice Cardozo of the New York Court of Appeals: “In the award of equitable remedies there is often an element of discretion, but never a discretion that is absolute or arbitrary. In equity, as at law, there are signposts for the traveler. ‘Discretion . . . must be regulated upon grounds that will make it judicial.’”190

III.  Balancing of the Utilities and Sunk Costs

Since the introduction of the balancing of the utilities doctrine, what does a court of equity do when it has been determined that a defendant has violated a statute? What is balanced? What of sunk costs? What “signposts” are there to help guide the judge through her or his decisionmaking?

It appears that the contours of the balancing of the utilities doctrine result from the nurturing of a historic equitable canon, “where the equity is equal, the law must prevail” (the Canon), which was applied in the remedy stage of litigation. The Canon is concerned with the “innocence” of a party’s action and the diligence of the parties.191 It seems that it would embrace the balancing of the utilities doctrine, whereas it notes that the equities, and the utilities, of the parties are capable of being unequal.192 This proposition, however, ignores the fact that the Canon is concerned with the innocence of the parties’ ac[*PG719]tions and the diligence in prosecution of the parties.193 Describing the policies underlying this canon, Joseph Story writes, “Equity is equal between persons, who have been equally innocent, and equally diligent.”194

It may be helpful to look at the application of the Canon to disputes concerning private actors. As will be shown, by using the balancing of the utilities doctrine, a private defendant may not seek shelter from the court’s power of injunctive relief if the defendant has willfully and knowingly proceeded in violation of private law.195 Courts, implicitly incorporating the Canon into the remedy stage of litigation, have also accepted this reasoning where it comes to willful and knowing violations of public law by private parties.196 This reasoning should sound the death knell for any advantage in the balancing of the utilities that a private defendant may seek from an aggressive sunk costs strategy, provided that the plaintiff has not run afoul of any of the other settled canons or maxims of equity.197

A.  Willful and Knowing Violations in Suits Involving
Private Parties and Private Law

Once a violation of a law is found in litigation between private parties, then a court will proceed to fashion a remedy. The balancing of the equities is not performed where a private defendant willfully and knowingly violates private law—for example, easements and covenants.198 “The benefit of the doctrine of balancing the equities . . . is reserved for the innocent defendant.”199 When the defendant’s [*PG720]violation is deliberate, and is a willful and intentional act, equity may require that an injunction issue. In such a circumstance, no attention is paid to the “relative inconveniences or hardships that may result” from the granting of an injunction, because a willful and knowing violation of a law can hardly be termed “innocent.”200 Without allowing the counterbalance of the defendant’s sunk costs, the plaintiff prevails and an injunction will issue.201 The public interest concerns in this category of cases are usually not raised, because violations of private law usually do not impact the public interest.202

Without the advantage of the sunk costs in the balancing of the utilities, judicial results have been unapologetically harsh to the defendant, often requiring complete removal of structures or the restoration of property.203 The Canon circumscribing the inherent discretion of the balancing of the utilities doctrine has taken form in a series of cases where a defendant willfully and knowingly built structures that encroached onto a neighboring property,204 frustrated an easement,205 or violated a covenant on a deed.206

In a case often cited to illustrate the application of the Canon, Stewart v. Finkelstone, the Massachusetts Supreme Judicial Court upheld an injunction requiring the removal of a completed building constructed by the defendant in willful and knowing violation of a deed restriction addressing the character and extent of structures on the property.207 The court admonished the defendant’s action, stating that it was a deliberate attempt to override the restriction.208 In upholding the injunction, the court acknowledged that its result was drastic, but that “it ought not be withheld merely for the reason that it will cause pecuniary loss.”209 The defendant “took his chances with [*PG721]eyes open to the results that might ensue.”210 The court went on to state, in one of the most cited comments in this area of law, “Entrenchment behind considerable expenditures of money cannot shield premeditated efforts to evade or circumscribe legal obligations from the salutary remedies of equity.”211

The plaintiff’s rights will be enforced irrespective of the degree of actual property or monetary damage that the plaintiff would suffer if the private law creating the right were not enforced.212 Relief is not withheld because the damage to the plaintiff is unsubstantial or even nonexistent.213 “[I]t is not a question of damage, but the mere circumstance of the breach of [a private law right] affords sufficient ground for the Court to interfere by injunction.”214

In Professor Van Hecke’s survey of injunctions that were issued or denied concerning the removal or remodeling of structures erected in violation of the law, he noted that the courts “unanimously refused to put relative hardship into the reckoning in cases where the defendant had acted willfully . . . and the hardship likely to result to the defendant if [an] injunction were granted was of his own making.”215 As between two private parties in a dispute concerning private law, the defendant is not allowed to offer a counterweight in this equitable balance.216

B.  Willful and Knowing Violations in Suits Involving
Private Parties and Public Law

As equity jurisprudence evolved, the Canon was applied to facts involving the grant of an injunction where a private party defendant willfully and knowingly violated a public law.217 This is true for violations involving public law such as federal statutes218 or local zoning [*PG722]ordinances.219 These cases hardly mention the public interest for it is presumed that the legislative mandate indicates where the public interest lies.

In the case of McCavic v. DeLuca, a court was forced to grapple with a willful and intentional violation of a city zoning ordinance that dictated the existence of a fifteen-foot setback line on a lot.220 The court, citing the private law case of Stewart v. Finkelstone,221 applied the Canon to a public law and private actor context. It denied the possible protection of balancing, where the sunk costs surely would have tilted in the defendant’s favor, because the offending structure was, in fact, completed.222 The court upheld an injunction ordering the removal of the portion of the building—a considerable portion that was seven feet over the setback line.223 In doing so the court noted: “If there is any hardship caused by the enforcement of the ordinance, it has been brought about entirely by defendant’s stubborn insistence upon proceeding, in violation of the ordinance . . . .”224

In United States v. Marine Shale Processors,225 the Fifth Circuit, considering the Canon as an exception to the balancing of the utilities doctrine, affirmed the issuance of an injunction. This was due to the district court’s finding that the defendant willfully and voluntarily violated the Clean Air Act; this effectively foreclosed the use of equitable balancing to the defendant.226

IV.  Extending the Equitable Canon of Innocence and Diligence to Agencies and the Public Law:
A Guide for Judges and Environmental Litigants

Although this Canon appears readily applicable to most scenarios involving willful and voluntary violations of some form of public or private law, courts appear to be hesitant to ignore the amount of public money that has already been spent when the willful and voluntary [*PG723]violator is a government actor.227 In this scenario, the balancing of the utilities between the parties appears to be nonsensical and is not performed.228 Thus, the judicial determination is reduced to a balancing of public interests229: the public interest in the government agency spending public money in violation of the law, and the public interest in having the government act according to the law.230

A.  Extension to an Agency’s Willful and Knowing Violation of a Public Law

In the TVA v. Hill litigation, the Sixth Circuit Court of Appeals insisted that economic expenditures and realities of the TVA’s Tellico Dam project231 did not grant it a license to rewrite a statute and allow a government agency to operate counter to a statute, no matter how desirable the agency’s project may have appeared.232 The Sixth Circuit decided that it was an abuse of discretion on the part of the district court not to issue an injunction, and that the court could not allow a clear violation of federal law to continue.233 The court refused the in[*PG724]vitation to “legislate” an exemption to the ESA for the Tellico Dam, and it directed the district court to issue a permanent injunction arresting all activities incident to the Tellico Dam project.234 The court additionally stated: “This injunction shall remain in effect until Congress, by appropriate legislation, exempts Tellico from compliance with the Act or the snail darter has been deleted from the list of endangered species or its critical habitat materially redefined.”235

The Sixth Circuit, believing that it could not engage in a balancing of the utilities after finding a statutory violation, may have assumed that if it were allowed naked discretion under the balancing of the utilities doctrine, the analysis of the utilities concerning the Tellico Dam project may favor the denial of injunctive relief.236 In recognition of the Canon, the court added that the character of the defendant’s action could have been considered.237

When the United States Supreme Court affirmed the Sixth Circuit’s decision, it did so on different grounds.238 The Court clung to the explicit language of the ESA, holding that it stripped the court of its traditional discretion, which it otherwise would exercise when deciding to grant an injunction.239 The Court also insisted that where a court’s equity jurisdiction is not circumscribed by the legislature, equitable remedies, including injunctions, are discretionary240—reasoning contrary to the implication of the Sixth Circuit’s ruling that there is no discretion when a court faces a clear statutory violation.241 In so doing, the Supreme Court implied that the decision to issue an injunction would otherwise be subject to traditional equitable concerns and judicial discretion, but the Court did not imply that this discretion was completely unbridled.242

Taken together, the opinions of the Sixth Circuit and the Supreme Court outline the analysis required where a government agency has willfully and knowingly violated a statute, and is attempting to use a sunk costs strategy to influence any balancing that a court may undertake.243 After deciding that a statute has been violated, a [*PG725]court must determine whether the statute leaves the court with any discretion in fashioning a remedy, or whether the statute requires or precludes an injunctive remedy.244 Next, the balancing of the utilities is performed subject to the Canon—a court’s consideration of the character of the defendant’s action.245

Thus, where a government agency has acted willfully and knowingly, expending funds in furtherance of a statutory violation, those funds are subject to the same treatment as situations involving private party defendants; a court will exclude such funds from its calculus.246 If the court is to adopt the Greek, Roman, and High Court of Chancery vision of equity as a measure of fairness to be used “to defend the law from crafty evasions, delusions, and mere subtleties, invented and contrived to evade and elude the Common Law, whereby such as have undoubted right are made remediless,”247 then it is reasonable that the Canon be explicitly extended to govern the balancing of the utilities doctrine, in the form of an exception or otherwise. But, how does a judge decide when an agency’s violation is willful and knowing?

B.  The Trigger: When Is an Agency Violation of the Public Law Willful and Knowing?

To decide at what point a government agency’s actions become a willful and knowing violation of a statute, it is helpful to discern the rationale behind the triggering mechanisms used for this determination in the parent body of law—litigation involving only private parties. In private party litigation, the finding of a defendant’s willful and knowing violation of a private or public law turns on the existence of the defendant’s actual or constructive knowledge of the violation.248 The most common examples include the defendant’s actual or constructive knowledge of restrictions on his or her deed,249 protests by private persons who had standing to enforce such restrictions,250 pro[*PG726]tests by government officials,251 threats of lawsuits,252 or the actual bringing of a suit.253

Once the willful and knowing nature of the defendant’s action is found, none of these cases draws a bright line between the legitimate sunk costs expended by accident or innocent mistake, and the costs that were incurred in furtherance of a possible violation.254 Such a distinction is unnecessary because landowners are unlikely to be caught in mid-construction by a new private law covenant without at least constructive knowledge of its existence. It is also unlikely that a landowner would face the consequences of a sudden downzoning of her or his property if the construction had already been issued a building permit.255 This is true for the permitting of other private party activities as well.256

The application of the Canon, which some courts label the willful and knowing exception, to the balancing of the equities doctrine did not need to accommodate scenarios in which a defendant actively, willfully, and knowingly violated a private or public law enacted mid-construction.257 This is especially true where legislation is passed at some point in time after the defendant government agency begins a [*PG727]project.258 A sorting out and a separate accounting of such pre- and post-notification expenses are necessary.259

In such cases, a judge could apply the indicators that courts use when evaluating whether private conduct is willful and knowing.260 But, in the special case of an agency-defendant, it is established that such a defendant must comply with both the most current state of statutory law, including the Administrative Procedure Act (APA),261 with an eye to the demands of traditional equity jurisprudence. One of the tenets of equity jurisprudence holds: “There is an equity to keep [government agencies] within the strict limits of their statutory powers, and prevent them from deviating in the smallest degree from the terms prescribed by the statute which gives them authority.”262 As traditional equity jurisprudence pertains to the specific case of TVA’s Tellico Dam, it has been observed that government agencies that “have the power to take land and construct public works are not amenable to the jurisdiction of a court of equity if they keep within the line of their powers . . . [but] if they exceed their authority . . . the courts will interfere.”263 Because government agencies have a duty to comply with the current state of applicable laws—unless otherwise granted a statutory exemption—the court must hold such agencies to a high standard when discerning their willful and knowing actions.264

The duty to comply with a statute may be said to begin when the agency gains actual knowledge of its violative conduct, or with some other form of notification, either from another governmental entity, or from a private party. However, the duty to comply apparently begins with the enactment of the statute that the agency is actively violating.265 As in cases involving private parties, a court must find a willful and knowing violation of a statute and ignore the money expended in an agency’s sunk costs strategy.266 Non-recoverable expenditures that were incurred before the enactment of the statute may surely enter [*PG728]into the balance of the utilities.267 If this is true, then a court may also look to the other deceptive behavior surrounding an agency project—sudden increases in expenditures as a lawsuit is looming—and use these actions, according to the Canon, to discount such expenditures and remove the sunk costs weapon from an agency’s arsenal.

Conclusion

The sunk costs strategy of government agencies has the potential to cripple the enforcement of environmental statutes and regulations. If agencies are allowed to spend money in furtherance of their statutory violations, and count those expenditures in the balancing of the utilities doctrine, then they are rewarded for their illegal efforts, and government may be able to avoid accountability, and worse, avoid its own laws.

From its beginning, equity has been concerned about the fairness of a dispute’s resolution, by taking into account the particular circumstances of the dispute. Equity has also addressed the protection of rights as determined by the court; however, this basic principle of equity has been tempered by the injection of seemingly wild discretion into the remedy stage of litigation through the adoption of the balancing of the utilities. Although it is a fairly new doctrine, judges sitting in equity have, either implicitly or explicitly, carried over other principles of equity, namely the canon stating that, “where the equity is equal, the law must prevail.” This canon, dealing with the innocence of the parties’ actions, guides judges and prevents what an otherwise naked pro forma, cost-benefit analysis may yield alone. In private litigation, courts look to the innocence of the parties’ actions; determine that a willful and knowing violation of the law is not innocent; and have refused to allow the defendant’s money spent in furtherance of the violation to be weighed in any equitable balance.

This logic should be extended to the actions of government agencies as well, whether termed as an exception to the balancing of the utilities doctrine, or stated as the canon itself. Then, when confronted with the uncomfortable position of deciding whether to issue an injunction to stop construction on a multi-million dollar public works project a court can simply state, “In balancing the utilities, we refuse to assign any weight to the money that the Executive Branch has spent in furtherance of its willful statutory violation.”

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