Case Title: Guzzetta v. Service Corporation of Westover Hills

Citation: 

Docket Number: 34, 2010

State: delaware

Court: Delaware Supreme Court

Date: 2010-11-09T00:00:00Z

Document:
IN THE SUPREME COURT OF THE STATE OF DELAWARE
ROBERT GUZZETTA and
§
KATHLEEN S. GUZZETTA
§
No. 34, 2010
§
Defendants Below,
§
Court below:
Appellants,
§
Court of Chancery of 
 
§
the State of Delaware
v.
§
§
 
SERVICE CORPORATION OF  
§
C.A. No. 2922
WESTOVER HILLS,
§
§
Plaintiff Below,
§
Appellee.
§
Submitted:  September 1, 2010
Decided:  November 9, 2010
Before STEELE, Chief Justice, BERGER and JACOBS, Justices.
Upon appeal from the Court of Chancery.  REVERSED and REMANDED.
Thomas C. Marconi., Esquire (argued), and Paul E. Bilodeau, Esquire, of Losco &
Marconi, P.A., Wilmington, Delaware for Appellants.
Richard H. Cross, Jr., Esquire, (argued), Amy E. Evans, Esquire and Ryan M. Ernst,
Esquire, of Cross & Simon, LLC, Wilmington, Delaware for Appellee.
BERGER, Justice:
In this appeal we consider whether the Court of Chancery abused its discretion
in setting the amount of an injunction bond.  A party that is wrongfully enjoined  may
recover damages resulting from the injunction, but that recovery is limited to the
amount of the bond.  Thus, in order to fully protect the enjoined party, the trial court
should set the bond at a level likely to meet or exceed a reasonable estimate of
potential damages.  In this case, the trial court correctly rejected several items that
appellants included in their list of potential damages.  But the remaining items totaled
more than twice the amount of the bond, and the trial court did not explain which of
the remaining items were rejected, or why.  Accordingly, we reverse.
Factual and Procedural Background
In 2007 Robert and Kathleen S. Guzzetta purchased 907 Berkeley Road, a
residential property located in Westover Hills, Wilmington, Delaware (the Property). 
At that time, the Guzzettas owned and lived in the adjoining property.  They
purchased the Property in order to create a grassy play area for their children.  The
Guzzettas intended to demolish the existing structures and re-landscape the Property. 
In May 2007, the Service Corporation of Westover Hills filed this action seeking a
permanent injunction claiming that the demolition would violate a restrictive
covenant in the Guzzettas’ deed.  The trial court entered a temporary restraining
order, and then a preliminary injunction.
2
Shortly after being enjoined, the Guzzettas filed a motion, pursuant to Court
of Chancery Rule 65 (c), seeking security in the amount of $10,189.56, based on an
itemized list of potential damages.  After a telephonic hearing, the court required the
Service Corporation to post security in the amount of $5,000.  A Master tried the
case, and issued a Draft Report on August 5, 2008.  The Master concluded that the
Service Corporation should not be granted a permanent injunction because the
applicable deed restriction did not govern the planned demolition.
In September 2008, the Guzzettas filed a motion to increase the security from
$5,000 to at least $79,146.94.  The trial court agreed to increase the Service
Corporation’s bond to $10,000.  The Master issued a Final Report in April 2009, and
in December 2009, the Court of Chancery:  1) vacated the preliminary injunction;
2) denied the Service Corporation’s application for a permanent injunction;
3) ordered the Service Corporation to reimburse the Gazzettas for fees and costs; and
4) awarded the Gazzettas $10,000 in damages.  This appeal followed.
Discussion
The only issue on appeal is whether the trial court abused its discretion in
setting the amount of the injunction bond.1  Chancery Court Rule 65 (c), provides that
1The Service Corporation argues that, because the Guzzettas’ Notice of Appeal failed to identify the 
Orders setting the amount of the injunction bond, their claim is barred under Supreme Court Rule
7(c).  The Notice of Appeal stated that the Guzzettas were appealing the trial court’s decision to limit
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a party seeking an injunction must give security “for the payment of such costs and
damages as may be incurred or suffered by any party who is found to have been
wrongfully enjoined . . . .”  The security, usually a bond, fixes the maximum amount
that an enjoined party may recover.2  Damages are those proximately caused by the
injunction, and must be proven by a preponderance of the evidence.3  But, damages
are not fully ascertainable until the court vacates the injunction.  Because actual
damages are uncertain, and because a wrongfully enjoined party has no recourse other
than the security, the court should “err on the high side” in setting the bond.  In Mead
Johnson & Co. v. Abbott Laboratories, the Seventh Circuit Court of Appeals
explained:
When setting the amount of security, district courts should
err on the high side.  If the district judge had set the bond at $50
million, as Abbott requested, this would not have entitled Abbott
to that sum; Abbott still would have to prove its loss, converting
the “soft” numbers to hard ones.  An error in setting the bond too
high thus is not serious . . . .  Unfortunately, an error in the other
direction produces irreparable injury, because the damages for an
their damage award.  The Memorandum Opinion, identified in the Notice of Appeal, reviewed the
court’s earlier Orders setting the amount of the bond.  We are satisfied that the Notice of Appeal
gave adequate notice of the issue being appealed.  Cf. Bellanca Corp. v. Bellanca, 164 A.2d 589
(Del. 1960).
2Coyne-Delaney Co., Inc. v. Capital Development Bd. of Illinois, 717 F.2d 385,393 (7th Cir. 1983).
3Emerald Partners v. Berlin, 726 A.2d 1215, 1226 (Del.1999).
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erroneous preliminary injunction cannot exceed the amount of the
bond.4
The party seeking an injunction bond must support its application with “facts 
of record or . . . some realistic as opposed to a yet-unproven legal theory from which
damages could flow to the party enjoined.”5  The Guzzettas, in their motion to
increase the bond, attached an itemized list of their potential damages.  That list
included, among other things, $8,123.63 for additional property and school taxes,
$1,564 for insurance, $8,000 for increased demolition costs, $550 for increased
landscape costs, and $8,500 for lost use of the Property.  Those potential damages
total almost $27,000.  The other substantial items on the Guzzettas’ list were
$2,866.50 for a landscape architect, $1,532 for interest on damages, and $46,646.15
for the Guzzettas’ time off from work.
The trial court decided that the Guzzettas “may be able to prove damages
resulting from higher property taxes . . . and higher insurance costs, as well as
something for lost use of the property . . . .”6  The court rejected their claimed
damages for landscaping and arborist costs because there was no showing that those
4201 F.3d 883, 888 (7th Cir. 2000).
5Petty v. Penntech Papers, Inc., 1975 WL 7481 at *1 (Del. Ch.).
6Service Corporation of Westover Hills v. Guzzetta, C.A. No. 2922-VCP, Order at 2-3 (October 30,
2008).
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costs were proximately caused by the injunction.  It rejected the interest on damages
claim because there was an insufficient showing of out-of-pocket damages.  Finally,
the trial court found no legal basis on which to claim damages based on the time spent
litigating this matter.  Without further reference to the amounts in the Guzzettas’
motion, the court increased the bond from $5,000 to $10,000.
We agree with the trial court’s reasons for rejecting the categories of potential
damages noted above.  On appeal, the Guzzettas specifically address only the
$46,646.15 in damages for lost time from work.  They cite Emerald Partners v.
Berlin7 as authority that such damages can be compensated under Rule 65 (c).  That
case is inapposite.  In Emerald Partners, the enjoined party recovered the value of the
senior executives’ time spent dealing with the effects of having a merger enjoined. 
Here, there was nothing that the Guzzettas had to do but wait for the injunction to be
lifted.  In short, the Guzzettas have presented no legal theory under which their lost
earnings would be protected by an injunction bond.
Even after excising the rejected categories of damages from the calculation,
however, the trial court’s decision to set the bond at $10,000 remains problematic. 
We recognize that a decision fixing the amount of a bond is a matter of discretion, but
that discretion must be exercised in a manner consistent with the purpose of an
71998 WL 474195 (Del. Ch.).
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injunction bond – to protect a party that is wrongfully enjoined.  It should be
remembered that the bond does not entitle the enjoined party to any damages, and the
cost of a bond typically is a very small fraction of its face value.8  If necessary, the
trial court could conduct an evidentiary hearing to satisfy itself that there is some
credible basis for the estimated damages.  Having done so, a proper exercise of
discretion would then require that the court explain its rationale for setting a bond at
an amount well below the enjoined party’s credible estimate of potential damages. 
The trial court did not provide such an explanation, and it does not appear from the
record that the Guzzettas’ remaining estimated damages are unreasonable.
Conclusion
Based on the foregoing, the Court of Chancery’s award of $10,000 in damages
is reversed, and this matter is remanded for further action in accordance with this
decision.  Jurisdiction is not retained.     
   
8Mead Johnson & Co. v. Abbott Laboratories, 201 F.2d at 888.
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