There are some obvious parallels between pursuing a preliminary injunction and pursuing an immediate appeal based on an interlocutory order’s affecting your substantial rights.  To obtain a preliminary injunction, a party must show that it “is likely to sustain irreparable loss unless the injunction is issued” or that “issuance is necessary for protection of a plaintiff’s rights during the course of litigation.”  A.E.P. Indus., Inc. v. McClure, 308 N.C. 393 (1983).  To obtain immediate review of an interlocutory order based on the substantial rights doctrine, a party must show that the order would deprive it “of a substantial right which will be lost if the order is not reviewed before a final judgment is entered,” Cook v. Bankers Life & Cas. Co., 329 N.C. 488 (1991), and that deprivation would “potentially work injury” if not corrected right away, Goldston v. American Motors Corp., 326 N.C. 723 (1990).

In both scenarios, the party makes a similar argument:  I’m about to lose an important right, and I need judicial intervention now because the right will be irreparably lost if I have to wait until the end of the litigation.

What happens at the intersection of these doctrines, when a party attempts an interlocutory appeal of a preliminary injunction order?  Not all preliminary injunctions affect a substantial right, and therefore not all are immediately appealable.  In other words, a trial court might find that a plaintiff would suffer an irreparable loss if the injunction were not granted, but the Court of Appeals could find that the defendant would suffer no irreparable deprivation of rights if it had to wait for a final judgment before appealing.  For example, in a foreclosure dispute, a plaintiff might validly obtain a preliminary injunction enjoining foreclosure proceedings while the plaintiff’s fraud claims were litigated, because there is no way to “unbreak the egg” once real property has been foreclosed and sold to an innocent third party.  But the defendant in such a case suffers only delay caused by the inability to foreclosure during the litigation, and perhaps attendant money damages caused by that delay—hardly a substantial right that would be forever lost without an immediate appeal.  See Little v. Stogner, 140 N.C. App. 380 (2000) (dismissing defendant’s appeal because he could simply exercise his right to foreclosure upon resolution of the litigation, should he prevail).

On the other hand, some preliminary injunction orders—e.g., in non-competition and trade secret cases—often do affect substantial rights and are immediately appealable.  Our appellate courts have also repeatedly held that “the entry of a preliminary injunction precluding a state or local agency from enforcing the law affects a substantial right and is immediately appealable.”  Sandhill Amusements, Inc. v. Sheriff of Onslow Cnty., 762 S.E.2d 666 (N.C. Ct. App. 2014) (Ervin, J., dissenting), dissent adopted by — S.E.2d — (N.C. June 15, 2015).  This is true regardless of whether the injunction applies broadly to bar enforcement of a particular law statewide, or whether the injunction applies only to enforcement of the law as against the specific plaintiff in that lawsuit.  In short, law enforcement officials have a substantial interest in enforcing the law, and there is no way to make amends at the end of a litigation for any period of time in which those officials were forbidden from enforcing the law.

What happens, however, when law enforcement oversteps its bounds and tries to enforce a law beyond its proper scope of application?  Surely law enforcement officers do not have a substantial right to enforce the law in a way the legislature never intended, do they?

These are the wrong questions to ask, the Supreme Court of North Carolina told us last week in Sandhill Amusements.  By adopting then-Judge Ervin’s dissenting opinion from the Court of Appeals’ decision in the case, the Supreme Court teased apart the right to immediate appeal from the likelihood that such an appeal will ultimately prove successful.

In Sandhill Amusements, the trial court issued a preliminary injunction enjoining the law enforcement defendants from enforcing the video sweepstakes law against the plaintiff, a video sweepstakes vendor.  The law enforcement defendants sought an immediate appeal from the preliminary injunction order, arguing that their substantial rights of enforcing the law were being violated.  The Court of Appeals majority found one part of the injunction to go too far and found that it affected the defendants’ substantial rights.  But the Court of Appeals majority also found the balance of the preliminary injunction to be entirely appropriate, enjoining the defendants from enforcing the statute against the plaintiffs during the pendency of the lawsuit as a way of “preserving the status quo.”  Implicitly, the Court of Appeals majority considered the merits of the preliminary injunction order, analyzing whether the movant had a likelihood of success on the merits.  In short, the majority reasoned that since the injunction was modest in scope and appropriately entered, it did not affect the defendants’ substantial rights.

Then-Judge Ervin dissented at length, finding the majority opinion to have conflated two distinct steps in the analysis.  As then-Judge Ervin explained:  “[T]he extent to which this Court has jurisdiction to entertain an immediate appeal from an interlocutory order and the extent to which the trial court erred by entering the interlocutory order in question constitute two completely different issues that have little or no relation to each other in the preliminary injunction context.”

As I read the dissenting opinion, which is now the law as adopted by the Supreme Court, the proper analytical framework for an appellate court is:

1)         Assuming without deciding that the appellant’s appeal has merit, would the unavailability of an immediate appeal deprive the appellant of a substantial right and work injury if the preliminary injunction order is not corrected right away?

2)         If, and only if, the answer to the first question is yes, then the appellate court has jurisdiction under N.C. Gen. Stat. § 1-277(a) to consider whether the preliminary injunction order was proper, which includes an examination of the movant’s likelihood of success on the merits.

The dissenting opinion never expressly states that the first step in the analysis includes an assumption that the appellant’s appeal has merit, but I do not see any way to avoid that assumption.  Without it, it is difficult not to do what the Court of Appeals majority appeared to do: peek at the merits to see whether an appellant actually has a substantial right at stake in the appeal.

Here is an example:

Suppose a plaintiff-employer files a lawsuit seeking damages and an injunction preventing a departing employee from disclosing the plaintiff’s trade secrets.  The plaintiff does not have evidence of disclosure but believes the former employee’s executive-level position with her new employer means that she will “inevitably disclose” those trade secrets in the course of her duties.  North Carolina has not yet expressly recognized the so-called “inevitable disclosure” doctrine.  The trial court denies the plaintiff’s request for injunctive relief.  The plaintiff has a legitimate argument that its substantial rights would be implicated should it be required to wait until the end of the litigation to appeal.  See Analog Devices, Inc. v. Michalski, 157 N.C. App. 462, 465, 579 S.E.2d 449, 451 (2003).  After all, by then, the trade secrets would have been “inevitably disclosed,” on the plaintiff’s theory.  Would the Court of Appeals have jurisdiction over an immediate appeal by the plaintiff, or should the Court peek at the merits of the appeal and hold that a plaintiff can’t have a substantial right rooted in a principle of law that does not even exist in our State?

The Supreme Court’s decision in Sandhill Amusements would appear to answer that question:  the plaintiff’s right to immediate appeal should be analyzed independent of the fact that the plaintiff’s case hinges solely on its “good faith argument for the extension, modification, or reversal of existing law” to recognize the “inevitable disclosure” doctrine, N.C. R. Civ. P. 11(a). The reviewing court should assume that the plaintiff has a legitimate claim and a legitimate argument, analyze the jurisdictional question under the substantial rights case law, and only then consider whether the plaintiff was entitled to entry of a preliminary injunction and whether plaintiff is likely to succeed on the merits.

–Matt Leerberg


h/t Scottie Beth Forbes