According to the Legal Information Institute, a declaratory judgment is a binding judgment that a court issues to form a legal relationship between parties and the parties’ rights regarding a court matter. Prior to this declaration being issued, one party may send a cease and desist letter to the other party. If the recipient of the letter does not comply, the sender may seek a declaratory judgment before filing a lawsuit. However, there are other possibilities that do not involve such letters, which will be discussed shortly.
The key idea to remember is that a declaratory judgment is not appropriate when damages have already occurred. As a rule, states have jurisdiction over most matters that may warrant a declaratory judgment. However, there may be exceptions. Both state and federal courts outline provisions for when declaratory judgments may be necessary.
Courts typically only issue declaratory judgments when there is “actual controversy.” In federal court, the U.S. Code, Title 28, Section 2201 is one source that governs federal declaratory judgments. The other source is the Federal Rules of Civil Procedure, Rule 57. States have their own rules outlining when declaratory judgments may be used. Not all disputes, especially business-related disputes, can be resolved by a declaratory judgment. Courts think about the potential outcomes when they consider requests for declaratory judgments.
When a litigant requires direction from the court before taking a necessary action, and the court’s direction will help the litigant avoid insecurity or uncertainty, a declaratory judgment may be warranted. However, the situation still must be considered an actual controversy. If rights have been violated, and clear damages have already been suffered, a declaratory judgment is not ideal. An attorney may recommend a lawsuit for such a situation.
Any party can argue that a dispute is an actual controversy. However, not all disputes adequately present the need for a declaratory judgment. Even if the dispute presents clear grounds for a lawsuit, it may still not meet criteria for being an actual controversy. Since there are so many different facets to every dispute, it is difficult to provide a clear definition of what a court may consider an actual controversy. When disputes reach antagonistic claims with strong opposition on both sides, and there is an urgent matter that must be resolved, the court may recognize the development of a controversy. In such a situation, a court may consider issuing a declaratory judgment if one or both sides want to avoid violating the rights of the opposing side.
Entities often seek a declaratory judgment preemptively to avoid violating another party’s rights. For example, a party that is developing a product that it knows another competitor will file a patent infringement suit for, but is unsure if it will actually constitute infringement, may seek a declaratory judgment before releasing the product. In this way, the declaratory judgment effectively prevents an actual lawsuit by making a determination if infringement exists, and the party can use the decision to direct its choices.
Every case is considered individually. To determine if there is actual controversy, it is essential to work with an attorney who knows how to identify reasons for a declaratory judgment and how to articulate relevant facts to a court.
Think of a declaratory judgment like turning on car lights at night to see better instead of guessing and driving off the road, crashing into someone and having to deal with much bigger problems. If you suspect that an existing dispute or a potential dispute may lead to legal damages or infringement of another party’s rights, an attorney can help you determine if a declaratory judgment may be right for your situation. Also, an attorney can handle the legal paperwork to seek one if it is warranted for your situation.