Opinion ID: 202766
Heading Depth: 2
Heading Rank: 2

Heading: The District Court's Compliance

Text: 44 With these background principles of law clarified, we consider the parties' areas of contention. GNAPs presents three categories of arguments. First, GNAPs argues that the district court made no finding, as required by Rule 65(c), that Verizon was wrongfully enjoined. Second, GNAPs argues that Verizon has not shown its entitlement to the full security. Third, GNAPs asserts it was entitled to an evidentiary hearing to contest Verizon's claimed damages.
45 On the first point, GNAPs' basic proposition is that under Rule 65(c), an injunction cannot be wrongful unless it is shown that issuance of the injunction was an abuse of discretion at the time it was issued. Almost every other circuit to have considered this issue has rejected GNAPs' interpretation. See Sprint, 335 F.3d at 242 n. 9; 7 Nintendo of Am., Inc. v. Lewis Galoob Toys, Inc., 16 F.3d 1032, 1036 & n. 4 (9th Cir.1994); Blumenthal v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 910 F.2d 1049, 1054 (2d Cir.1990); Atomic Oil Co. of Okla. v. Bardahl Oil Co., 419 F.2d 1097, 1099 (10th Cir.1969); cf. Coyne-Delany, 717 F.2d at 389-93 (implicitly rejecting GNAPs' argument, although indicating that certain considerations may nonetheless justify withholding some or all of a security from a wrongfully enjoined party). But see H & R Block, Inc. v. McCaslin, 541 F.2d 1098, 1099-1100 (5th Cir.1976) (per curiam). This court has not construed the term before. 46 We now adopt the majority position, and we hold that under Rule 65(c), a party is wrongfully enjoined when it had a right all along to do what it was enjoined from doing. See Nintendo, 16 F.3d at 1036; see also Slidell, Inc. v. Millennium Inorganic Chems., Inc., 460 F.3d 1047, 1059 (8th Cir.2006); Blumenthal, 910 F.2d at 1054. 47 Applying that rule to this case is quite simple. The issue of whether Verizon was wrongfully enjoined was determined when we issued our opinion in GNAPs II and rejected GNAPs' arguments on the merits of its position. We then vacated the injunction because Verizon was entitled, and had been entitled all along, to cut off services to GNAPs.
48 GNAPs' second point is that Verizon presented insufficient evidence of its entitlement to the full security. We disagree and think it helpful to split this point into two smaller issues: whether Verizon had established it was entitled to provable damages, and whether Verizon had in fact proved the amount of damages it suffered. 49 On the first issue, while there is a split of authority, we adopt the majority rule that there is a rebuttable presumption that a wrongfully enjoined party is entitled to have the security executed so as to recover provable damages up to the amount of the security. See Milan Express, Inc. v. Averitt Express, Inc., 254 F.3d 966, 981 (11th Cir.2001); Nintendo, 16 F.3d at 1036-37; Nat'l Kidney Patients Ass'n v. Sullivan, 958 F.2d 1127, 1134-35 (D.C.Cir.1992); Coyne-Delany, 717 F.2d at 391-92. But see H & R Block, 541 F.2d at 1099-1100. Under this presumption, a district court must have a good reason to depart from the preference for recovery of security granted under Rule 65(c). Coyne-Delany, 717 F.2d at 391-92. 50 As Judge Posner put it in Coyne-Delany, not only is this rule implied by the text of Rule 65(c)[,] but it makes the law more predictable and discourages the seeking of preliminary injunctions on flimsy (though not necessarily frivolous) grounds. Id. at 392. And as several circuits have pointed out, there are ancillary benefits to adoption of the presumption. See Nintendo, 16 F.3d at 1037; Nat'l Kidney, 958 F.2d at 1134-35; see also Note, Recovery for Wrongful Interlocutory Injunctions Under Rule 65(c), 99 Harv. L.Rev. 828, 838 n. 36 (1986); Note, Interlocutory Injunctions and the Injunction Bond, 73 Harv. L.Rev. 333, 342 (1959). 51 Applying this presumption requires slightly more explanation. Earlier, this court avoided stating a standard of appellate review of the district court's release of the security. It is often said, sometimes loosely, that appellate review of this release is for abuse of discretion. See, e.g., Milan Express, 254 F.3d at 981; Nat'l Kidney, 958 F.2d at 1135. But since we have adopted a presumption, that presumption in turn affects how we apply the abuse of discretion standard. This amounts to stricter review along the sliding scale of the abuse standard. See Coyne-Delany, 717 F.2d at 392 (When rules prescribe a course of action as the norm but allow the district court to deviate from it, the court's discretion is more limited . . . . The judge must have a good reason for departing from [the presumption of recovery] in a particular case.). 52 Here, the district court correctly concluded that it had no good reason to refrain from releasing the security to Verizon so long as Verizon could prove the damages it suffered. Perhaps if there had been a demonstration that Verizon had failed to mitigate its damages, GNAPs would have had a stronger case that Verizon was not entitled to all of the damages it had suffered. See id. at 392. But no such showing was made here. There was no abuse of discretion. 8 53 That brings us to the second question, whether Verizon in fact adequately proved its damages. We note that the issue of the amount of appropriate security was litigated when the district court set the amount. 9 That previously determined amount was the amount which the court released — not more, not less. Of course, Verizon was still required to establish that the predicted harm was the actual harm. But that proof did not need not to be to a mathematical certainty. See Nintendo, 16 F.3d at 1039. From our point of view, not requiring mathematical exactitude has the benefit of keeping both parties honest and focused in the initial setting of the security. This will minimize later gamesmanship. 54 Indeed, the district court was entitled to take into account GNAPs' earlier representation that it was willing to post additional security in the sum of $16,676,313 (for a total of almost $18 million) to satisfy any harm to Verizon from issuance of the injunction. True, GNAPs did not flatly concede that Verizon's damages from an injunction would reach that level. But the fact that GNAPs so readily accepted this security level, and the implicit billing rate that it reflected, stands in stark contrast to GNAPs' current claim that Verizon used an incorrect rate and that GNAPs actually accrued less than $600,000 in charges during the injunction period. 55 Further, Verizon did file an affidavit with the district court and it provided evidence that the actual harm from issuance of the injunction was greater than the secured sum. That affidavit asserted that between February 23, 2005 (the billing date which Verizon cited in its March 17, 2005 letter threatening to terminate service), and April 18, 2006 (the date that this court dissolved the preliminary injunction), GNAPs had accrued over $24.7 million in access charges. 10 Of course, this time period exceeded by several months the period when the injunction was actually in force (a period that began, as a practical matter, on May 12, 2005). Yet a simple calculation shows that even after excluding the non-injunction days from this amount, it is likely that Verizon's damages still exceeded the security amount of $16 million. 11 GNAPs chose not to provide evidence to counter Verizon's affidavit when it filed its opposition in the district court. It instead decided to wait until its motion for reconsideration to contest Verizon's evidence. We will not relieve GNAPs of its tactical choice.
56 GNAPs' next argument is that the district court was required, as a matter of due process, to have held an evidentiary hearing on the amount of Verizon's damages. But against the background that we have discussed, GNAPs' claim rings hollow. The district court had a sufficient basis in the evidence to determine that issuance of the injunction had caused at least $16 million in harm. GNAPs had an opportunity to respond to Verizon's affidavits, and it even attempted a partial response on May 5 — albeit one that failed to put forth any evidence to counter Verizon's submissions. 12 57