EQUITY'S ATROPHY.

• Author: Kull, Andrew
• Position: The Nature of the Federal Equity Power

The plainest evidence for the modern "triumph of equity" can be found in the daily newspapers. The scene is set in the federal courts. Litigation that makes the news usually involves someone asking a court to interfere directly, by means of injunction, in the operations of government.

The centrality of injunctive relief to addressing some particular concerns of federal courts has long been recognized. Reaffirming the discretionary character of any grant of injunction, the Supreme Court has noted that

[t]he essence of equity jurisdiction has been the power of the Chancellor to do equity and to mould each decree to the necessities of the particular case. Flexibility rather than rigidity has distinguished it. The qualities of mercy and practicality have made-equity the instrument for nice adjustment and reconciliation between the public interest and private needs as well as between competing private claims. (1) Indeed, "[w]hen federal law is at issue and 'the public interest is involved,' a federal court's 'equitable powers assume an even broader and more flexible character than when only a private controversy is at stake."' (2) When modern commentators refer to the significance of equity, the remedy in view is almost always the injunction. In his 1976 article about the expanding "public law model" of litigation, Abram Chayes described what he called "[t]he Triumph of Equity" exclusively in terms of injunctive relief. (3) Even Samuel Bray, arguing that we must preserve the separateness of equitable remedies in order to safeguard the "equity system" as a whole, comes close sometimes to describing those remedies as if they consisted solely of injunctions. (4)

The scope of this aspect of federal equity power has meanwhile been extended far beyond what could once have been imagined, as traditional limits on injunctive relief progressively fell away. Chancellors formerly disavowed interference by injunction except to protect interests in property, as opposed to "personal rights." (5) Equity jurisdiction to protect political rights was likewise out of the question. As late as Colegrove v. Green (1946), the Court refused to entertain a challenge to the malapportionment of Illinois congressional districts "because due regard for the effective working of our Government [has] revealed this issue to be of a peculiarly political nature and therefore not meet for judicial determination.... Courts ought not to enter this political thicket." (6) The recent discovery of the ability to issue "national" injunctions assures that the grant or denial of injunctions will continue to appear, to many observers, to be the most important business of the federal courts. (7)

If this all-important feature of the system--the judicial power to tell people what to do--is taken as its proper measure, the federal equity jurisdiction is plainly thriving as never before. What has virtually disappeared, by contrast, is equity's substantive contribution. An injunction orders compliance with rules established elsewhere: possibly by common law, increasingly by statute and regulation. While the extent of lawmaking power involved in the judicial interpretation of these codified requirements is unmistakable, it is a different thing from announcing and enforcing an independent rule. By contrast, the most characteristic function of traditional equity was what it did on its own authority. This was the power to modify and correct applicable legal rules, suitable as the first-order resolution of the general run of cases, so as to do better justice between particular parties in particular circumstances. (8) The fact that law might dictate one resolution (in most cases) and equity another (in some) was not a source of uncertainty or surprise so long as lawyers understood they were dealing with a hybrid system, and that a resort to the equity side was natural and predictable when a first-order legal outcome would be manifestly unfair. The instances of unfairness likely to trigger this intervention were limited, recurrent, and easily recognized. Most of them could be found within the lawyers' jingle according to which "[t]hree things are to be judged in Court of Conscience: Covin, Accident, and breach of confidence" (9)--plus the various forms of undue advantage-taking we now tend to call opportunism.

The explicitly dissenting and corrective function of equity has become so unfamiliar that it is worth recalling a simple illustration. Every modern instance of estoppel--promissory or otherwise--is an illustration of equity's refusal to accept a legal outcome and of its power to change it. The defendant who has made a gratuitous promise is not liable at law because he received no consideration, but the promise will be enforced (in equity) as necessary to protect reliance. The defendant who (without promising anything) has allowed his neighbor to cross his land to build a house on an adjoining lot, otherwise inaccessible, retains unimpaired legal title--but he will be precluded from asserting his legal right to exclude the neighbor, so long as justice requires that the neighbor have access. Of course, the familiar estoppel cases make perfect examples of the way important equity doctrines have come to be incorporated within our general law: thus contract law now protects "reliance," property law recognizes an "easement by estoppel." Douglas Laycock is partly correct when he argues that "substantive equity is now fully integrated into our substantive law, with or without continued consciousness of its equitable origins." (10) In the examples he offers, equity's substantive modification of legal rules has indeed triumphed--but its triumph has made it invisible. What has been largely forgotten, in consequence, is equity's residual power of intervention to correct unjust legal outcomes. Lawyers who no longer see (and recognize) instances of equitable intervention to adjust legal outcomes will no longer believe that judges have that power--at which point the judges will no longer have it.

Current U.S. law sees numerous decisions from which a once-predictable, traditional equitable corrective has simply disappeared. The salient cases are those in which, until recently--recent history for this purpose comprising just one or two generations of lawyers and judges--equitable intervention would have been at least highly likely: because the unmodified legal outcome diverges so plainly from equity and good conscience, and because an established equitable response was part of what everybody knew. The idea that equity in U.S. law has been losing some previous degree of vitality is so venerable that it can scarcely be debatable at this point," and in the present discussion it will be treated as self-evident. Rather the object will be to consider briefly some illustrations, and some possible explanations, of the current equity deficit.

The nature of the deficit will be apparent from a handful of examples. The cases are selected for purposes of demonstration, not as a representative assortment: the object is to offer unmistakable illustrations, not a survey. The problem cases are all commercial in character--a fact that suggests one part of the explanation--and their difficulties seem to stem from the same general sources. These obstacles to the exercise of traditional equity are interrelated and overlapping, to the point that it will be somewhat artificial to distinguish them. Still they may be classified for convenience as (1) simple ignorance; (2) a loss of trust in the ability of judges to exercise the necessary discretion; and (3) an explicit preference for form over substance in the attitudes of commercial lawyers.

1. IGNORANCE

   For half a century, students have been going through U.S. law schools without hearing anything said about equity--other than the assurance that references to "equity" in the older cases, having become obsolete, can be safely ignored. (1)-' This lack of introduction has reduced professional awareness of basic equity doctrines, and the consequences--now that the same law students are on the bench--are visible in judicial decisions. Some cases in which equitable intervention would once have been almost a matter of course are decided with no apparent recognition that such a response is even possible. Decisions that do acknowledge--though declining to adopt--the possibility of an equitable approach appear oblivious to the extent of the authority supporting the traditional intervention; while the concerns that were its accepted justification have entirely disappeared from view. Either way, the result is what Pomeroy summarized as "the ignoring, forgetting, or suppression of equitable notions." (13)

   XL/Datacomp, Inc. v. Wilson (In re Omegas Group, Inc.) (14) makes a revealing illustration of the latter sort of case. This was the notorious decision in which the Sixth Circuit declared that "[constructive trusts are anathema to the equities of bankruptcy since they take from the estate, and thus directly from competing creditors, not from the offending debtor." (15) The adverse claimant in this bankruptcy case was asserting that certain funds had been obtained from it by the fraud of the debtor; "constructive trust" entered the discussion because this was the remedy the claimant sought. (16) A court familiar with the operation of the equitable remedy might easily have denied it here. Evidence of fraud was wafer-thin, the claimant's hands were not overly clean, and there was no indication that the claimant could trace any property into the hands of the bankruptcy trustee. Instead of disposing of the claim on these matter-of-fact grounds, the Sixth Circuit chose this occasion to declare that the traditional remedy of constructive trust had no application in bankruptcy at all.

   The court's famous line about "anathema" revealed at once its ignorance of the real "equities of bankruptcy." Equity's conception of the problem at hand has always been that...