Opinion ID: 202766
Heading Depth: 2
Heading Rank: 1

Heading: The Legal Backdrop

Text: 31 We start our analysis with the basic law. The security was given, under Federal Rule of Civil Procedure 65(c), upon the issuance of a preliminary injunction which restrained Verizon from terminating service to GNAPs pending the appeal in GNAPs II. Rule 65(c) states: 32 No restraining order or preliminary injunction shall issue except upon the giving of security by the applicant, in such sum as the court deems proper, 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 or restrained. No such security shall be required of the United States or of an officer or agency thereof. 33 The provisions of Rule 65.1 apply to a surety upon a bond or undertaking under this rule. 34 The terms of Rule 65(c) do not, in so many words, explicitly discuss how dissolution of the injunction affects payment of the security. But the Rule does implicitly address this when it states that the security is held for payment of costs and damages suffered by a party who is found to have been wrongfully enjoined. See Coyne-Delany Co. v. Capital Dev. Bd., 717 F.2d 385, 390-91 (7th Cir.1983). The implication is that when a party has been wrongfully enjoined, it may collect some or all of the security. 35 Our understanding of Rule 65(c) is also informed by the fact that if a bond had been posted as the security, recovery would be governed by Rule 65.1. Rule 65.1 in turn provides a summary procedure for the enforcement of liability against a surety. See Fed.R.Civ.P. 65.1. Such enforcement may be done on motion, without the need for filing an independent action. Id. Although the terms of Rule 65.1 apply only to sureties, courts have applied that rule's procedures when imposing liability on a principal as well. See Coyne-Delany, 717 F.2d at 391. The key inference is that when an injunction does cause damages, the principal or the surety is normally . . . required to pay the damages, at least up to the limit of the bond. Id. 36 The operation of Rule 62 is also informative. 4 Rule 62 grants the district court power . . . [to] `protect an enforceable judgment,' which includes the power to protect the winner from any subsequent harm suffered through appellate delay. J. Perez & Cia., Inc. v. United States, 747 F.2d 813, 815 (1st Cir.1984) (quoting Redding & Co. v. Russwine Constr. Corp., 417 F.2d 721, 727 (D.C.Cir.1969)). Our situation is analogous to security issued under Rule 62, insofar as the preliminary injunction was issued to preserve the status quo, and GNAPs was required to post security pending appeal. 37 The Fifth Circuit, in Continuum Co. v. Incepts, Inc., 873 F.2d 801 (5th Cir.1989), has provided a generally accepted explanation of the purposes served by requiring security pending appeal pursuant to Rule 65(c): 38 (1) [I]t assures the enjoined party that it may readily collect damages from the funds posted or the surety provided in the event that it was wrongfully enjoined, without further litigation and without regard to the possible insolvency of the assured, and (2) it provides the plaintiff with notice of the maximum extent of its potential liability, since the amount of the bond is the limit of the damages the defendant can obtain for a wrongful injunction, . . . provided the plaintiff was acting in good faith. 39 Id. at 803 (footnote omitted) (omissions in original) (quoting Coyne-Delany, 717 F.2d at 391); see also Sprint Commc'ns Co. v. CAT Commc'ns Int'l, Inc., 335 F.3d 235, 240 n. 5 (3d Cir.2003); Note, Security for Interlocutory Injunctions Under Rule 65(c): Exceptions to the Rule Gone Awry, 46 Hastings L.J. 1863, 1866, 1870-71 (1995). The important points are that the security is generally destined for a wrongfully enjoined party, and also that the party seeking the injunction has had fair notice of the costs that are likely to be paid for the injunction's issuance. 5 40 These principles have important implications for the dispute before us. This court previously determined that an injunction was appropriate to preserve the status quo pending appeal, in light of GNAPs' argument that it would be forced out of business unless an injunction was entered. GNAPs made a business judgment that it was willing to incur the cost of a possibly wrongful injunction in order to take its appeal. Yet GNAPs now seeks to avoid payment of most of the security which had been entered to secure Verizon against the injunction. 41 Before explaining why GNAPs cannot avoid this payment, we clarify one more important point about the applicable law. What is at issue in this case is not security for the payment of damages on an ultimate judgment on the merits. Rather, we are concerned with security issued for interim harms suffered by an appellee, when the appellee has been enjoined in order to preserve the status quo pending appeal. As Justice Stevens explained in Edgar v. MITE Corp., 457 U.S. 624, 102 S.Ct. 2629, 73 L.Ed.2d 269 (1982): 42 Since a preliminary injunction may be granted on a mere probability of success on the merits, generally the moving party must demonstrate confidence in his legal position by posting bond in an amount sufficient to protect his adversary from loss in the event that future proceedings prove that the injunction issued wrongfully. The bond, in effect, is the moving party's warranty that the law will uphold the issuance of the injunction. 43 Id. at 649, 102 S.Ct. 2629 (Stevens, J., concurring in part and concurring in the judgment) (footnote omitted); see also Northeast Airlines, Inc. v. Nationwide Charters & Conventions, Inc., 413 F.2d 335, 338 (1st Cir.1969) (explaining that a security issued under Rule 65(c) protects against damages suffered by reason of the [wrongfulness] of [a] preliminary injunction). Both GNAPs and Verizon agree that the security in this case was designed to protect Verizon from the interim harms caused by the injunction. 6