Risk of Judicial Error & Preliminary Relief

1. Risk of Judicial Error & Preliminary Relief • 2 kinds of risk of error re preliminary injunction: • Risk that preliminary injunction will be erroneously denied – hurts P • P can sue for damages for harm done while D was not enjoined (i.e., during the period w/out preliminary relief and until permanent injunction issues • Risk that preliminary injunction will be erroneously granted – hurts D • D has no damages remedy for the harm done while the preliminary injunction was wrongfully in place – P hasn’t done anything wrong so D has no cause of action • How can we protect D from harm of being wrongfully enjoined?

2. The Bond Requirement & Preliminary Relief • Because of the possibility that preliminary injunction or TRO will be erroneously issued, jurisdictions have BOND requirements: • FRCP 65 – “The court may issue a preliminary injunction or TRO only if the movant gives security in an amount the court considers proper to pay costs and damages sustained by any party found to have been wrongfully enjoined or restrained.” • MRCP 92.02 - P shall post a bond sufficient to secure the amount of “money, damages and costs that shall be adjudged if the injunction or temporary restraining order shall be dissolved.”

3. Is Setting the Bond Discretionary or Mandatory – what courts actually do: • Federal – discretionary (despite seemingly mandatory language) • Common reasons to waive bond: • Plaintiff’s indigency (probably alone enough but not clear) • Public interest/public rights at issue • D’s potential loss is small • Inadvertant waiver – D is supposed to raise the bond issue – if D doesn’t and the court fails to require then provisional relief is binding even if no bond • Missouri • Bond is a jurisdictional prerequisite – P’s burden to make sure is set • Preliminary injunction/TRO are void if bond is not posted • BUT courts can set bond at a nominal amount • Same reasons as “waiver” above for setting bond at nominal amount

4. When is D “wrongfully enjoined” so as to trigger P’s liability under the bond? • Conventional Wisdom: • When D is subject to a preliminary injunction but then prevails on the merits at trial, she has been wrongfully enjoined. • Note FRCP & MRCP essentially get you to the same result here (injunctions are generally dissolved when D prevails) • What if D (as in Coyne-Delayney) prevails on the merits at trial due to a change in the substantive law while the preliminary injunction was in place – is it fair to allow D to recover on the bond? • NO - some courts say that “prevailing on the merits” is limited to factual determinations and error re facts – changes in the law are unforeseeable and not the kind of judicial error that the bond is designed to protect against. • YES – Some courts allow recovery with changes in the law. Law is not static. Everyone knows that it can change and D can get hurt by such changes.

5. “Wrongfully Enjoined” cont’d • In a trademark infringement case the court issues a preliminary injunction enjoining D from selling his product in 30 states. At trial, the court determines that infringement occurred in only 3 states and narrows the injunction. Has defendant been wrongfully enjoined? • Yes – classic case of D being wrongfully enjoined in at least 27 states. • P instigates a lawsuit and obtains a preliminary injunction. The lawsuit is later dismissed with prejudice due to P’s failure to prosecute and the injunction is dissolved. Has defendant been wrongfully enjoined? • Probably – nobody substantively prevailed on the merits but most courts would consider it highly inequitable to let P walk away without compensating D in this type of situation – especially given the dismissal with prejudice. • P files lawsuit and obtains preliminary injunction. The lawsuit is later dismissed because P & D have settled. Has D been wrongfully enjoined? • Probably not – Here there is a VOLUNTARY dismissal after negotiated settlement. P&D had an opportunity to negotiate bond liability so most courts would not enforce the bond.

6. If a preliminary injunction is wrongfully issued, can a court nevertheless refuse to enforce a bond that has already been set? • Rarely. There must be a very good reason for the court to refuse to enforce a bond once it has already been set. • Why? If a court can refuse to set a bond (federal) or set it at a nominal amount (Missouri) – why can’t it refuse to enforce it? • Concerns about D’s reliance on bond and possible judicial bias • For what reason can a court refuse to enforce a bond? • Change in the substantive law (much like in Coyne-Delayney) • D’s failure to mitigate damages • It is not a sufficient reason to refuse to enforce the bond that P acted in good faith when bringing the lawsuit – bond is designed to protect D against judicial error regardless of P’s lack of malice

7. Does the bond amount limit P’s liability for the wrongfully issued injunction? • General Rule – bond amount is the limit of P’s liability • Why? Bond is a compromise between P&D’s interests -- alleviates D’s harm from risk of error but also allows P to know ahead of time what liability is. • BUT: • Some other law may provide for independent liability of P aside from the bond • Some statutes provide greater recovery than the bond amount

8. What damages can D recover on the bond? • D can recover only those actual losses stemming from the wrongful granting of the preliminary injunction/TRO. • Can’t recover damages caused by the litigation generally • What are the kinds of damages caused by the wrongful granting of provisional relief that D can recover? • e.g., lost profits if operation of business wrongfully enjoined • e.g., maybe atty’s fees related to dissolving the temporary injunction or setting the bond amount (depending upon the jurisdiction) • recover as damages (not as fees) • unlikely to recover any attorneys fees in federal court