Often times, parties to a contract will state that a breach thereof will constitute irreparable harm, which will provide the harmed party with the automatic right to obtain an injunction. The recent decision of AM General Holdings LLC v. The Renco Group Inc., C.A. Nos. 7639-VCN and 7668-VCN (Del. Ch. Dec. 29, 2015) calls this assumption into serious question.
In AM General Holdings, Vice Chancellor Noble found that while such a contractual provision may constitute evidence of irreparable harm, the moving party seeking an injunction must still satisfy to the Court that such irreparable harm exists. As stated by the Court:
Parties sometimes, as Renco and M&F did here, agree that contractual failures are to be deemed to impose the risk of irreparable harm. Such an understanding can be helpful when the question of irreparable harm is a close one. Parties, however, cannot in advance agree to assure themselves (and thereby impair the Court’s exercise of its well-established discretionary role in the context of assessing the reasonableness of interim injunctive relief) the benefit of expedited judicial review through the use of a simple contractual stipulation that a breach of that contract would constitute irreparable harm.
Despite the contractual agreement that a breach would constitute irreparable harm, the Court declined to grant movant’s motion for a preliminary injunction given that the irreparable harm standard had not been met. Parties must independently satisfy this standard in order to obtain an injunction.
If you would like to speak to a litigator in Fox Rothschild’s Delaware office, please reach out to Sid Liebesman (302) 622-4237 or Seth Niederman (302) 622-4238.