Opinion ID: 217162
Heading Depth: 2
Heading Rank: 1

Heading: Presumption in Favor of Recovery

Text: We first consider the question of whether a wrongfully enjoined party is entitled to a presumption in favor of recovery against a bond posted pursuant to Rule 65(c), a question of first impression in this Circuit. As a preliminary matter, we note that a district court's decision to grant or deny recovery against an injunction bond is, generally stated, reviewed for abuse of discretion. However, because we hold that wrongfully enjoined parties are entitled to a presumption in favor of recovery against the bond for provable damages, the court's discretion should be exercised in a manner consistent with this presumption. See Coyne-Delany Co., Inc. v. Capital Dev. Bd. of Ill., 717 F.2d 385, 392 (7th Cir.1983). The resulting standard amounts to stricter review along the sliding scale of the abuse [of discretion] standard. Global NAPs, Inc. v. Verizon New Eng., Inc., 489 F.3d 13, 23 (1st Cir.2007); see also 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 than it would be if the rules were nondirective.). We conclude that a presumption in favor of recovery is warranted for several reasons. Rule 65(c)'s bond requirement serves a number of functions. It assures the enjoined party that it may readily collect damages from the funds posted in the event that it was wrongfully enjoined, and that it may do so without further litigation and without regard to the possible insolvency of the plaintiff. See Continuum Co., Inc. v. Incepts, Inc., 873 F.2d 801, 803 (5th Cir.1989). In addition, the bond provides the plaintiff with notice of the maximum extent of its potential liability. See id. ; see also Alliance Bond Fund, Inc. v. Grupo Mexicano De Desarrollo, S.A., 190 F.3d 16, 20 (2d Cir.1999) ([T]he applicant for the injunction consents to liability up to the amount of the bond, as the price for the injunction. (quoting Blumenthal v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 910 F.2d 1049, 1054) (2d Cir.1990) (alterations omitted)). As this Court has previously explained: Th[e injunction bond] rule has its origin in early equity practice. The chancellor had limited authority to award damages directly, but had broad discretion to frame orders granting injunctions. The practice grew up of conditioning the grant of a preliminary injunction on a plaintiff's agreement to post a bond to cover any damages that might result if it were later determined that plaintiff was not entitled to an injunction. Commerce Tankers Corp. v. Nat'l Mar. Union of Am., AFL-CIO, 553 F.2d 793, 800 (2d Cir.1977) (citation omitted); accord Blumenthal, 910 F.2d at 1054-55 (2d Cir. 1990). Justice Stevens explained the underlying purpose of injunction bonds in Edgar v. MITE Corp. : 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. 457 U.S. 624, 649, 102 S.Ct. 2629, 73 L.Ed.2d 269 (1982) (Stevens, J., concurring in part and concurring in the judgment); see also Global NAPs, 489 F.3d at 21 ([The party seeking an injunction] made a business judgment that it was willing to incur the `cost' of a possibly wrongful injunction in order to take its appeal.); Sprint Commc'ns Co. L.P. v. CAT Commc'ns Int'l, Inc., 335 F.3d 235, 240 (3d Cir.2003) (The [injunction] bond can . . . be seen as a contract in which the court and the applicant `agree' to the bond amount as the `price' of a wrongful injunction. (quoting Instant Air Freight Co. v. C.F. Air Freight, Inc., 882 F.2d 797, 805 n. 9 (3d Cir.1989) (alterations omitted))). Because all of this authority teaches that claims against injunction bonds can and should be expected when injunctions are found to be wrongful, we believe that a rebuttable presumption in favor of recovery constitutes a correct approach to Rule 65(c). The existence of such a presumption is strongly implied by the text of Rule 65(c), which permits a court to issue a preliminary injunction only if the movant gives security in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained.  Fed.R.Civ.P. 65(c) (emphasis added). The drafters' choice of words indicates that where a bond is posted, it serves as security for the costs and damages incurred by the wrongfully restrained party. If they intended that district courts would have unfettered discretion as to how to handle costs associated with a wrongfully obtained injunction, certainly Rule 65(c) would have been worded differently. As Judge Posner concluded in Coyne-Delany, the text of Rule 65(c) suggests that [t]he draftsmen must have intended that when . . . damages were incurred[,] the plaintiff . . . would normally be required to pay the damages, at least up to the limit of the bond. 717 F.2d at 391 (citation omitted); see also Global NAPs, 489 F.3d at 23 ([T]he preference for recovery of security granted under Rule 65(c) . . . [is] `implied by the text of Rule 65(c).' (quoting Coyne-Delany, 717 F.2d at 392)). Other circuits that have explicitly addressed the question of whether a presumption in favor of recovery applies have answered it in the affirmative. See Global NAPs, 489 F.3d at 23 ([W]e 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.); Nintendo of Am., Inc. v. Lewis Galoob Toys, Inc., 16 F.3d 1032, 1036 (9th Cir.1994) ([W]e join what appears to be the majority and hold there is a rebuttable presumption that a wrongfully enjoined party is entitled to have the bond executed and recover provable damages up to the amount of the bond.); Nat'l Kidney Patients Ass'n v. Sullivan, 958 F.2d 1127, 1134 (D.C.Cir.1992) ([A] defendant injured by a wrongfully issued preliminary injunction is presumptively entitled to recovery on the injunction bond.); Coyne-Delany, 717 F.2d at 392 (In deciding whether to withhold costs or injunction damages . . . the district court [is] to be guided by the implicit presumption in Rule[ ] . . . 65(c) in favor of awarding them. . . .); accord Ala. ex rel. Siegelman v. U.S. Envtl. Prot. Agency, 925 F.2d 385, 390 (11th Cir.1991) (applying the CoyneDelany view of discretion under Rule 65(c)). [1] We now join this majority. Although we hold that a wrongfully enjoined party is entitled to a presumption in favor of recovery, that party is not automatically entitled to the damages sought. The presumption applies to provable damages. Global NAPs, 489 F.3d at 23; Nintendo, 16 F.3d at 1036. Thus, the wrongfully enjoined party must first demonstrate that the damages sought were proximately caused by the wrongful injunction. See Blumenthal, 910 F.2d at 1056 ([Wrongfully enjoined parties] are entitled to damages as may be shown to have been proximately caused by the injunction, up to the amount of the bond. (citation omitted)); see also Nintendo, 16 F.3d at 1038 (requiring that party seeking recovery establish[] with reasonable certainty that it was damaged by the issuance of the injunction (emphasis added)). The wrongfully enjoined party must also properly substantiate the damages sought. However, the party's proof of damages d[oes] not need to be to a mathematical certainty. Global NAPs, 489 F.3d at 24. Once the party seeking recovery adequately establishes its damages, it is entitled to a presumption in favor of recovery. Applying this presumption, the district court must have a good reason to deny recovery against the bond. Id. at 23; Milan Exp., Inc. v. Averitt Exp., Inc., 254 F.3d 966, 981 (11th Cir.2001). The burden of demonstrating that recovery should be denied is on the party opposing recovery. Good reasons to deny recovery of all or a portion of the alleged damages would be that the damages sought were unreasonable in amount or that a party failed to mitigate them. See Coyne-Delany, 717 F.2d at 392; see also Intercapital Debt Trading Ltd. v. Cantor Fitzgerald Inc., No. 94 CIV 9275, 1996 WL 167820, at  1-2 (S.D.N.Y. Apr.10, 1996) (`[A] good reason for not awarding damages against [a] Fed.R.Civ.P. 65(c) security would be that the defendant had failed to mitigate damages.' (quoting Coyne-Delany, 717 F.2d at 392) (alterations omitted)).