Something That You Might Not Have Known About Injunctions

I had always thought that you need to post a bond in order to obtain an injunction, both in federal and state court.  It turns out that I was wrong.

The federal rule seems to require a bond.  It says:

(c) Security. The court may issue a preliminary injunction or a temporary restraining order 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. The United States, its officers, and its agencies are not required to give security.

FRCP 65(c).

The state rule is even stronger on the apparent need for security.  it says:

(c) Security. - No restraining order or preliminary injunction shall issue except upon the giving of security by the applicant, in such sum as the judge 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 State of North Carolina or of any county or municipality thereof, or any officer or agency thereof acting in an official capacity, but damages may be awarded against such party in accord with this rule. In suits between spouses relating to support, alimony, custody of children, separation, divorce from bed and board, and absolute divorce no such security shall be required of the plaintiff spouse as a condition precedent to the issuing of a temporary restraining order or preliminary injunction enjoining the defendant spouse from interfering with, threatening, or in any way molesting the plaintiff spouse during pendency of the suit, until further order of the court, but damages may be awarded against such party in accord with this rule.

NCRCP 65(c).

Given the seeming clarity of those Rules, I was surprised to learn, from Judge Bledsoe's opinion earlier this month in Bolier & Co., LLC v. Decca Furniture (USA), Inc., 2015 NCBC 52 that a federal judge or a state judge is free to issue an injunction without any requirement for a bond.

The Bolier case had been designated to the Business Court in 2012.  It was then removed to federal court, where Judge Vorhees (of the W.D.N.C.) entered a preliminary injunction without any requirement for a bond against the Plaintiff.  The case was remanded back to the Business Court in September 2014.

The Plaintiff argued to the Business Court that the federal injunction should be dissolved because it did not require a bond.  Judge Bledsoe rejected that argument, holding:

[t]he law is clear that a federal district court has broad discretion to set a bond amount as the court sees fit and may waive a security requirement altogether as Judge Vorhees did here.  Pashby v. Delia, 709 F.3d 307, 332 (4th Cir. 2013)(citation omitted); see also Aoude v. Mobil Oil Corp., 862 F.2d 890, 896 (1st Cir. 1988)("posting of a bond is not a jurisdictional prerequisite to the validity of a preliminary injunction"); Clarkson Co, v. Shaheen, 544 F.2d 624, 632 (2nd Cir. 1976)("[B]ecause, under Fed. R. Civ. P. 65, the amount of any bond to be given upon the issuance of a preliminary injunction rests within the sound discretion of the trial court, the district court may dispense with the filing of a bond." (citations omitted).

Op. ¶39.  Moreover, the Court said that North Carolina law is to the same effect.  The NC Court of Appeals has held that:

'[t]he trial court has power not only to set the amount of security but to dispense with any security requirement whatsoever where the restraint will do the [party] no material damage, and where the applicant for equitable relief has considerable assets and is able to respond in damages if [the party] does suffer damages by reason of a wrongful injunction.

Op. ¶39 (quoting Stevens v. Henry, 121 N.C. App. 150, 154, 464 S.E.2d 704, 707 (1995)(alterations and quotations omitted)(quoting Keith v. Day, 60 N.C. App. 559, 562, 299 S.E.2d 296, 298(1983)).

The NC COA, in an acknowledgement of the Rule's apparently mandatory language, said in a 1983 decision that it  " is more subtle than one would expect from words so apparently unambiguous."  It went on, in Keith v. Day, to hold that the "... as the court deems proper" language of the rule means that there are some instances when it is proper for no security to be required of a party seeking injunctive relief." 60 N.C. App. at 562, 299 S.E.2d at 299.

I wouldn't read Judge Bledsoe's Opinion to say that the party obtaining an injunction in the Business Court is unlikely to have to post a bond.  A bond of at least some amount is going to be appropriate in most cases.

 

Preliminary Injunction Reinstating Contract Ordered By Business Court

It's not every day that you see a "mandatory injunction,"  In fact, Judge Jolly said last Friday that such an injunction was "rare and generally disfavored as an interlocutory remedy," in Bayer Cropscience LP v. Chemtura Corp., 2012 NCBC 40. Op. 22.  But that didn't stop the Judge from entering an injunction that most of us would think of as mandatory: an injunction ordering Defendant Chemtura to reinstate its contract with the Plaintiff Bayer and resume its exclusive arrangement to sell a seed treatment called Ipconazole to Bayer. 

Injunctions are normally "prohibitory."  They prohibit the defendant from taking a particular action. If an injunction is "mandatory," it requires the defendant to take a specific action. 

So was this injunction mandatory?  No, not according to Judge Jolly.

The difference to Judge Jolly between the two types of injunction lay in the status quo between the parties, the state of affairs which an injunction is designed to preserve during litigation.  Chemtura said that it had already terminated the contract so the status quo at the time of the lawsuit was that no agreement existed.  The Judge rejected this argument, rolling the clock back a bit.  He said the status quo was not the "circumstances existing at the moment suit was filed," but rather "the last peaceable uncontested status that existed before the dispute arose."  Op. 24.  The "peaceable uncontested status" was the four years that the contract had been in place, and the Court said it should remain so.

He said that Bayer was seeking in substance to prohibit Chemtura from terminating the contract, and that the injunction was therefore prohibitory.  He said that ruling otherwise "would create an incentive for a party to breach an existing contract before the other party can seek injunctive relief in an effort to alter the status quo and the nature of the injunctive relief sought (i.e., mandatory relief rather than prohibitory relief)."  Op. 24.

The other valuable piece of this opinion was in the Court's ruling on irreparable harm.  Chemtura said that any harm to Bayer could be compensated by money damages after trial, but Bayer said its harm would be irreparable because it would lose "customer goodwill, market share, and its competitive position in the marketplace," which were not determinable by money damages.

Judge Jolly agreed, relying on North Carolina federal court rulings that harms such as the loss of "customer goodwill" and "competitive positions, including threatened loss of market share and threatened loss of existing and potential customers" are types of injuries that satisfy the irreparable harm requirement.  Op. 42.

The Court set the amount of the bond to be posted by Bayer as a condition of the injunction at $3 milllion pending further submissions from the parties.

There's A New Standard For Injunctive Relief In The Fourth Circuit (In Other Words, Blackwelder Is Dead)

If you've practiced in federal court in North Carolina for any period of time -- or anywhere in the Fourth Circuit for that matter -- you are familiar with the case of Blackwelder Furniture Co. of Statesville v. Seilig Manufacturing Co., 550 F.2d 189 (4th Cir. 1977), which set out the standard for the grant of a preliminary injunction. 

You would never write a brief asking for or opposing injunctive relief in federal court in the Fourth Circuit without mentioning Blackwelder.  It was a standard, a touchstone.

Well, the Blackwelder era is now over.  The Fourth Circuit decided today The Real Truth About Obama, Inc. v. Federal Election Commission, in which it ruled that Blackwelder stood in "fatal tension" with a 2008 Supreme Court decision, and held that "the Blackwelder balance-of-hardship test may no longer be applied in granting or denying preliminary injunctions in the Fourth Circuit."

The Supreme Court decision is Winter v. Natural Resources Defense Council, Inc., 129 S.Ct. 365, 374-76 (2008).  Judge Niemeyer, writing for the Fourth Circuit, held that in Winter "the Supreme Court articulated clearly what must be shown to obtain a preliminary injunction . . . the plaintiff must establish '[1] that he is likely to succeed on the merits, [2] that he is likely to suffer irreparable harm in the absence of preliminary relief, [3] that the balance of equities tips in his favor, and [4] that an injunction is in the public interest.'"

The Winter articulation is the new standard in the Fourth Circuit.  Here's a chart showing the points of "fatal tension" between Blackwelder and Winter, and how the test for injunctive relief has changed:

 

The Supreme Court In Winter
The Fourth Circuit In (Now Overruled) Blackwelder
Plaintiff "must make a clear showing that it will likely succeed on the merits at trial." Likelihood of success was to be considered "only after a balancing of hardships [was] conducted and then only under the relaxed standard of showing that 'grave or serious questions are presented."
Plaintiff must "make a clear showing that it is likely to be irreparably harmed absent preliminary relief." Court was to "balance the irreparable harm to the respective parties, requiring only that the harm to the plaintiff outweigh the harm to the defendant."  In some cases, only a possibility of irreparable injury was required.
 Courts are required to "pay particular regard for the public consequences in employing the extraordinary remedy of injunction." Did not require extensive consideration of the public interest, although it was always required to be considered.
Each of the four injunction requirements must be met. Allowed the requirements "to be conditionally redefined as other requirements are more fully satisfied," and allowed a "flexible interplay."

 

The Real Truth About Obama case involved the constitutionality of Federal Election Commission regulations of political advertising.  Plaintiff sought an injunction against their enforcement, which was denied by the District Court.  The Fourth Circuit affirmed, finding that the Plaintiff had not made a "clear showing that it [was] likely to succeed at trial on the merits."  One of the concerns articulated by the District Court was that enjoining the regulations "would create a 'wild west' of electioneering fundraising and communications."

Mitchell, Brewer, Richards, Adams, Burge & Boughman, PLLC v. Brewer, April 8, 2008 (Jolly)(unpublished)

The Court denied the entry of a preliminary injunction in a case involving the dissolution of a law firm.  The injunction would have prevented the defendants from distributing to themselves the proceeds from contingent fees cases in which the plaintiffs claimed an interest. 

The Court held that "[t]he Plaintiffs have not made a convincing showing that they either are likely to sustain irreparable loss unless the injunction is issued, or that such relief is necessary for the protection of their rights during the course of litigation.  Plaintiffs' contentions in this regard are implausible.  Their claim for an accounting will not be affected by the issuance or denial of the injunction sought; and their claims for money damages are adequately provided for at law, and are weak grounds for the issuance of an injunction."

Full Opinion

Brief In Support Of Motion For Preliminary Injunction

Brief In Opposition To Motion For Preliminary Injunction