LexisNexis® CLE On-Demand features premium content from partners like American Law Institute Continuing Legal Education and Pozner & Dodd. Choose from a broad listing of topics suited for law firms, corporate legal departments, and government entities. Individual courses and subscriptions available.
Service Corporation of Westover Hills v.
Guzzetta, C.A. No. 2922-VCP (Del. Ch. July 21, 2011), read
The Delaware Supreme Court's remand decision in this case last year was
highlighted on this blog here.
The importance of this case is not dependent on most of the pedestrian facts
involved, so the reader is directed to the Supreme Court's decision for that
Why This Case is Important:
There are precious few Delaware decisions that amplify the basis for determining
the amount of a bond that is required for the issuance of injunctive relief
pursuant to Court of Chancery Rule 65(c), notwithstanding the frequency with
which injunctive relief is granted in Delaware's Court of Chancery. This is one
of those few amplifications. Before this decision, the Delaware Supreme Court
opinion that remanded this matter, (linked above), was the first definitive
Delaware ruling on the topic. Many of the citations in the Supreme Court's
opinion were to other jurisdictions. Due to the rarity of the extended Delaware
case law on this essential topic for any lawyer seeking a TRO or a preliminary
injunction, this decision belongs in the "tool box" of any litigator who
practices business litigation in Delaware.
Some procedural context is helpful to understand this
decision after remand from the Supreme Court. After a TRO was granted in this
case in May 2007, the defendants, who were the parties enjoined, moved for a
bond to be imposed pursuant to Rule 65(c), which was granted shortly afterwards
in the amount of $5,000. About a month later, in June 2007, after a hearing, a
preliminary injunction was ordered. More than a year later, in September 2008,
before a trial, the defendants moved to have the amount of the initial bond
increased. The amount of the bond was increased in October 2008 to $10,000. In
December 2009, the Court of Chancery issued an opinion, concurring with the
Master in Chancery's Final Report and finding that the plaintiff was not
entitled to a permanent injunction. Thereafter judgment was awarded to the
defendants in the amount of $10,000 (the amount of the increased bond), for
having been wrongfully enjoined. The defendants appealed that part of the
Chancery decision that limited the damage award to $10,000. On remand,
Delaware's High Court directed the Court of Chancery to explain why the bond
was raised from $5,000 to $10,000 and not higher.
Key Legal Principles Promulgated
Court of Chancery Rule 65(c) provides that: "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." The Court noted
in footnote 35 that this language is "virtually identical to that in Fed. R.
Civ. P. 65(c)."
Two criteria that the Court must consider when estimating
the appropriate amount of security to protect the enjoined party are: (1) the
purpose of the security is to protect a wrongfully enjoined party from
injunction-related damages; and (2) the need for estimated damages to be
credible. Other factors that the Court must consider include: (i) the guidance
that "'courts should err on the high side' by setting a bond at a level likely
to meet or exceed a reasonable estimate of potential damages; and (ii) an
enjoined party may only recover damages up to the amount of the injunction
Moreover, the Court observed that the security is only
intended to cover "those costs and damages directly sustained as the result of
an improvident issuance of the restraining order or preliminary injunction."
The Delaware Supreme Court's referenced opinion remanding
this case acknowledged that the trial court may need to conduct an evidentiary
hearing on estimated damages in connection with determining the appropriate
amount of the bond so that the trial court would be in a position to
"explain its rationale for setting a bond ...." In this case, the Supreme Court
commented that an explanation would have been helpful to explain why the amount
of the bond was set below the "... enjoined party's credible estimate of
The Chancery decision issued today addressed the
different interpretation that the parties advanced regarding exactly what the
Supreme Court meant in its remand ruling. The Court of Chancery instructed that
one party was: "conflat[ing] the setting of an injunction bond with the
determination of damages." Moreover, the courts are loathe to retroactively
increase the amount of injunction bonds. See footnote 40.
Another important principle on this topic that the Court
of Chancery explained is the following: "Because enjoined parties may recover
only against the bond itself, it serves 'generally to limit the applicant's
liability and inform the applicant of the price of a wrongful injunction.'"
The Court of Chancery in this decision increased the
amount of the injunction bond to over $26,000 and directed the parties to promptly
contact the Court to schedule an evidentiary hearing if they were not able to
agree on the amount of damages. If such a hearing were scheduled, the enjoined
party would be permitted to "proffer evidence of any legally cognizable damages
they actually suffered as a result of being enjoined, but the maximum amount
they may recover is the amount of the bond." See generally footnotes 57
and 58 (citing Emerald Partners v. Berlin, 1998 WL 474195 (Del. Ch. Aug.
3, 1998)). As I mentioned in the preface, the principles addressed in this case
have wide application that far exceed the facts (or meager amounts) involved in
Read more Delaware business
litigation case summaries and commentary on Delaware
Corporate and Commercial Litigation Blog, a blog hosted by Francis G.X.
Pileggi, of Eckert Seamans.
For more information about LexisNexis
products and solutions connect with us through our corporate site.