Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc. Brief

Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc. et al.
Supreme Court of the United States, 1999.
527 U.S. 308, 119 S.Ct. 1961, 144 l.Ed.2d 319

Facts: Petitioner Grupo Mexicano de Desarrollo, S. A. (GMD) is a Mexican holding company. In 1994, GMD issued $250 million, which ranked equally with all of GMD’s other unsecured and unsubordinated debt. Respondents are investment funds which purchased approximately $75 million of the Notes. Between 1990 and 1994, GMD was involved in a toll road construction program sponsored by the Government of Mexico. Problems in the Mexican economy resulted in severe for companies like GMD. In response to these problems, in 1997, the Mexican Government announced the Toll Road Rescue Program, under which it would issue guaranteed notes (Toll Road Notes), in exchange for giving the Government ownership of the toll roads. The Toll Road Notes were to be used to pay the bank debt of companies such as GMD. In the fall of 1997, GMD announced that it expected to receive approximately $309 million of Toll Road Notes under the program. In addition to the Notes, GMD owed other debts of about $450 million and was in precarious financial condition. In late 1997 GMD designated $17 million in Toll Road Notes for employee compensation and $100 million in Toll Road Notes to the Government of Mexico for taxes. Respondents accelerated the principal amount of their notes and filed suit claiming that GMD was dissipating its most significant asset, the Toll Road Notes, and preferred its Mexican creditors by its planned allocation of Toll Road Notes to the payment of their claims. The District Court preliminarily enjoined the petitioners “from dissipating, disbursing, transferring, conveying, encumbering or otherwise distributing or affecting any [petitioner’s] right to, interest in, title to or right to receive or retain any of the [Toll Road Notes].” The Second Circuit affirmed and the Supreme Court granted certiorari.

Issue: Whether, in an action for money damages, a United States District Court has the power to issue a preliminary injunction preventing the defendant from transferring assets in which no lien or equitable interest is claimed.

Holding: No.

The Judiciary Act of 1789 conferred on the federal courts jurisdiction over “all suits . . . in equity.” The court has long held that “[t]he ‘jurisdiction’ thus conferred . . . is 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 Court of Chancery at the time of the separation of the two countries.” The United States as amicus curiae, however, contended that the preliminary injunction issued in this case was analogous to the relief obtained in the equitable action known as a “creditor’s bill.” This remedy was used (among other purposes) to permit a judgment creditor to discover the debtor’s assets, to reach equitable interests not subject to execution at law, and to set aside fraudulent conveyances. It is well established, however, that, as a general rule, a creditor’s bill could be brought only by a creditor who had already obtained a judgment establishing the debt. The requirement that the creditor obtain a prior judgment is a fundamental protection in debtor-creditor law–rendered all the more important in our federal system by the debtor’s right to a jury trial on the legal claim. Because such a remedy was historically unavailable from a court of equity, the court held that the District Court had no authority to issue a preliminary injunction preventing petitioners from disposing of their assets pending adjudication of respondents’ contract claim for money damages. The court reversed the judgment of the Second Circuit and remanded the case for further proceedings consistent with this opinion.

Dissent: (J. Ginsburg) Justice Ginsberg noted a number of ways in which GMD had violated several of the loan covenants made with the respondents and speculated that given an actually trial the judge would have issued a similar injunction immediately. Further, she stated that the court had never limited federal equity jurisdiction “to the specific practices and remedies of the pre-Revolutionary Chancellor.” “Chancery may have refused to issue injunctions of this sort simply because they were not needed to secure a just result in the age of slow moving capital and comparatively immobile wealth.”

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