Opinion ID: 853418
Heading Depth: 2
Heading Rank: 1

Heading: The Remedy for a Wrongful Preliminary Injunction Is Contractual in Nature

Text: Many states, either by statute or by rule of court, provide that a bond must be posted as a prerequisite to obtaining a preliminary injunction. Similarly, Federal Rule of Civil Procedure 65(C) provides for the issuance of security as a precondition to the grant of a preliminary injunction by a federal court. Indiana Trial Rule 65(C), like the trial rules of many other states, is modeled on the federal rule. Essentially, for the privilege of obtaining the expedited and, by definition, preliminary relief of a preliminary injunction, the plaintiff offers security in an amount that will adequately compensate the defendant if it is later determined that the interim relief was improperly granted. The enjoined party is a third-party beneficiary of the bond, which is a contract between the issuer and the party seeking the injunction. Accordingly, if recovery is sought on the injunction bond, it is essentially a contract claim. Curtis 1000, Inc. v. Youngblade, 878 F.Supp. 1224, 1277-78 (N.D.Iowa 1995) (citing Note, Recovery for Wrongful Interlocutory Injunctions Under Rule 65(C), 99 Harv.L.Rev. 828, 832-33 (1986)); In re Estate of Prichard, 169 Mich.App. 140, 425 N.W.2d 744, 748 (1988). The federal rule is that a defendant wrongfully enjoined has no cause of action in the absence of a bond. W.R. Grace & Co. v. Local 759, 461 U.S. 757, 770 n. 14, 103 S.Ct. 2177, 76 L.Ed.2d 298 (1983). For the most part, the same has been true under state law as well. Note, Interlocutory Injunctions and the Injunction Bond, 73 Harv.L.Rev. 333, 343-44 (1959). The view of a claim for wrongful injunction as essentially contractual in nature is consistent with that result. If a party who has obtained an ultimately vacated injunction has committed a tort, the enjoined party would have a claim with or without a bond to secure payment. In addition, in many jurisdictions, and in Indiana until 1976, [1] the amount of recovery is generally limited to the amount of the bond. Coyne-Delany Co. v. Capital Dev. Bd., 717 F.2d 385, 393-94 (7th Cir.1983); State v. Zahourek, 935 P.2d 74, 77 (Colo.Ct.App.1996), aff'd, 956 P.2d 556 (Colo.1998) (generally, no recovery is allowed unless the wrongfully enjoined party has a claim for malicious prosecution, restitution, or unjust enrichment). The sum of this appears to be that in the vast majority of jurisdictions recovery by a wrongfully enjoined party is viewed as fulfilling an undertaking by the party seeking the relief to compensate for a wrongful injunction, not as compensating for a tort. In Indiana, the law is less clear because our case law, like that of a few other states, allows both an action on the injunction bond as well as an action for damages beyond the amount of the bond. See generally 42 Am.Jur.2d Injunctions § 346 (2000). This is provided by statute in some jurisdictions. E.g., Ill.Comp.Stat. 110/11-110 (1984). Indiana has permitted recovery beyond the amount of the bond without any statutory basis other than Trial Rule 65(C). National Sanitary Supply Co. v. Wright, 644 N.E.2d 903, 905 (Ind.Ct. App.1994), trans. denied; Howard D. Johnson Co. v. Parkside Dev. Corp., 169 Ind.App. 379, 389, 348 N.E.2d 656, 663 (1976). And in Indiana, a wrongfully enjoined party may recover actual damages even if no security was demanded. Wright, 644 N.E.2d at 905. The sum of this is that a claim for wrongful enjoinment has a long history in Indiana, but has never been explicitly characterized as either a tort or a contract claim.