requests the bond be set in this amount.
A. The Bond Requirement
Fed R. Civ. P. 65(c) provides: "No restraining order or preliminary injunction shall issue except upon the giving of security by the applicant. . . ." Id. (emphasis added). On its face, Rule 65(c) "admits no exceptions" and, indeed, the Circuit has "interpreted the bond requirement very strictly." Hoxworth v. Blinder, Robinson & Co., 903 F.2d 186, 210 (3d Cir. 1990). The Circuit has stated:
Although the amount of the bond is left to the discretion of the court, the posting requirement is much less discretionary. While there are exceptions, the instances in which a bond may be required are so rare that the requirement is almost mandatory. We have previously held that absent circumstances where there is no risk of monetary loss to the defendant, the failure of a district court to require a successful applicant to post a bond constitutes reversible error.
Hoxworth, 903 F.2d at 210 (emphasis added); Frank's GMC Truck Center, Inc. v. General Motors Corp., 847 F.2d 100, 103 (3d Cir. 1988).
The Circuit has recognized that "important policies undergird a strict application of the bond requirement in most injunction granting contexts." Instant Air Freight Co. v. C.F. Air Freight, Inc., 882 F.2d 797, 805-06 n.9 (3d Cir. 1989); see also Hoxworth, 903 F.2d at 210. An incorrect interlocutory order "may harm the defendant and a bond provides a fund to use to compensate incorrectly enjoined defendants." Instant Air, 882 F.2d at 804; Hoxworth, 903 F.2d at 210. A bond also "deters rash applications for interlocutory orders; the bond premium and the chance of liability on it cause plaintiff to think carefully beforehand."
Instant Air, 882 F.2d at 804.
Such protection is important for two reasons. First, a defendant wrongfully enjoined has recourse only against the bond; there is no independent action for damages in the absence of a bond. W.R. Grace & Co. v. Local Union 759, etc., 461 U.S. 757, 770, 76 L. Ed. 2d 298, 103 S. Ct. 2177 n.14 (1983); Instant Air, 882 F.2d at 804; Frank's GMC, 847 F.2d at 103 n.5. Second, because of the "attenuated procedure" involved in an application for a preliminary injunction, "an interlocutory order has a higher than usual chance of being wrong." Instant Air, 882 F.2d at 804; see also Hoxworth, 903 F.2d at 210; Clark v. K-Mart, 979 F.2d 965 (3d Cir. 1992) ("preliminary injunction is customarily granted on the basis of procedures that are less formal and evidence that is less complete than in a trial on the merits").
Although the Circuit has recently adopted a narrow exception to the mandatory bond requirement, see Temple University, 941 F.2d at 219-20, prior to this decision "no Third Circuit case . . . had upheld a district court's excuse of the bond requirement." Hoxworth, 903 F.2d at 210. In fact, it had been expressly recognized that exceptions to the bond requirement, if they are to be drawn at all, should be drawn narrowly." Hoxworth, 903 F.2d at 210.
In Temple University, it was recognized that in limited types of cases "a strict reading of Rule 65(c) would be inappropriate." 941 F.2d at 219. Specifically, the court in Temple University explained:
First, at least in noncommercial cases, the court should consider the possible loss to the enjoined party together with the hardship that a bond requirement would impose on the applicant. . . .
Id. (quoting Crowley v. Furniture & Piano Movers, Furniture Store Drivers, etc., 679 F.2d 978, 1000 (1st Cir. 1982), rev'd on other grounds, 467 U.S. 526, 81 L. Ed. 2d 457, 104 S. Ct. 2557, reh'g denied, 468 U.S. 1224, 82 L. Ed. 2d 915, 105 S. Ct. 19 (1984)). Moreover, the court recognized "the special nature of suits to enforce important federal rights or 'public interests,' arising 'out of the comprehensive federal health and welfare statutes.'" Id. In such a case, the "district court should consider the impact that a bond requirement would have on enforcement of such a right, in order to prevent undue restriction of it." Id.
Central to the holding in Temple University was the fact that no threat of loss to the defendant was presented by issuing the requested injunction. In Temple University, an injunction was issued against the Pennsylvania Department of Welfare (the "PDW"), requiring the PDW to make continued reimbursement payments to Sacred Heart Hospital ("Sacred Heart") for its inpatient treatment of Medicaid patients. Id. at 216-19. The dispute arose because the PDW recalculated the reimbursement rates which it was obligated to expend under the Federal Medicaid Program, Title XIX of the Social Security Act, 42 U.S.C. § 21396 et seq., and reduced payments to certain hospitals. Temple University, 941 F.2d at 205-06. The court determined that issuing the injunction and requiring payment to Sacred Heart posed "virtually no risk" to the PDW "because of the probability that the hospital would be entitled to as much or more monies pursuant to the PDW's Medicaid Assistance Program." Id. at 219. PDW could simply "recoup any overpayment of funds by withholding future payments to Sacred Heart." Id. at 219-20. This concern for potential loss to the enjoined party permeates much of the Circuit's jurisprudence with regard to the bond posting requirement in preliminary injunction cases. In System Operations, Inc. v. Scientific Games Dev. Corp., 555 F.2d 1131 (3d Cir. 1977), for instance, the court vacated an injunction issued by the District Court without a bond which restricted defendants in their efforts to procure new instant lottery ticket contracts. Id. at 1145. The Systems Operations court recognized that "the potential for monetary loss is indeed substantial" and stated the rule that "in these circumstances, a district court commits reversible error when it fails to require the posting of a security bond by the successful applicant for a preliminary injunction." Id.
This concern was later expressed in Frank's GMC, 847 F.2d at 103, in which the court again vacated an injunction granted without a bond. In Frank's GMC, the injunction required defendant General Motors Corporation ("GM") to continue supplying parts and warranty administration to plaintiff Frank's GMC. Id. at 103. The court stated:
We have held that absent circumstances where there is no risk of monetary loss to the defendant, the failure of a district court to require a successful applicant to post a bond constitutes reversible error. Here, there was evidence in the record indicating that GM would incur substantial costs in complying with the terms of the injunction. Indeed, the district court recognized that "although harm would occur to GM if the preliminary injunction was continued and not stayed or dissolved . . . it is not irreparable, and pales in significance to the potential loss of Plaintiff."
Given the clear possibility that GM could be forced to incur costs with no way to seek restitution if Frank's GMC does not prevail, it was error for the court below to deny GM's request for a bond.
Id. at 103 (emphasis added) (citations omitted).
Again, in Instant Air, 882 F.2d at 803-05, the court distinguished cases in which "the injunction poses no risk of monetary harm to the defendant" and vacated a preliminary injunction for failure by the District Court to require the movant to post a bond. Id. at 803-04 & n.8. The court held that, because the injunction required defendant C.F. Air Freight ("C.F.") to keep open a terminal it intended to close, "clearly C.F. may suffer monetary loss" and "the district court erred in issuing the preliminary injunction without requiring Instant [Air] to post a bond."
Id. at 803-05 & n.8.
Finally, in Hoxworth, 903 F.2d at 209-11, the Circuit again found reversible error and vacated a preliminary injunction for failure by the district court to require a bond. Id. In the process, the Hoxworth court commented on its prior jurisprudence:
System's Operation. . . did not recognize an exception to rule 65(c). Systems Operations involved a case in which the defendant faced the potential for substantial monetary losses from compliance with the injunction. In that context, we held that "a district court commits reversible error when it fails to require posting of a security bond by the successful applicant for a preliminary injunction," and we expressly reserved the question "whether a court may dispense with the posting of a bond in a case where the irt may dispense with the postingnjunction raises no risk of monetary harm to the defendants." At most, therefore, Frank's GMC Truck and System's Operations excuse the posting of a bond when complying with the preliminary injunction raises no risk of monetary harm to the defendant.
Id. at 210 (citation omitted).
The law in this Circuit is clear -- when a risk of financial harm exists for the party to be enjoined, the posting of a security bond is required. Id.; Instant Air, 882 F.2d at 803-05 & n.8; Frank's GMC, 847 F.2d at 103; System Operations, 555 F.2d at 1145-46. This principle was not changed in Temple University. The court in Temple Univer"narrowly drawn" circumstances in which waiver of a bond requirement would be permissible, a district court must still "consider the possible loss to the enjoined party." 941 F.2d at 219-20. Indeed, a central point of the analysis in Temple University concerned the absence of any risk of loss to the defendant because of its ability to recoup any overpayment of funds caused by the injunction. Id.
In this case, Primerica will be exposed to significant economic loss should it be enjoined from making the proposed changes in the Plan. Primerica will be required to bear the financial burden for maintaining the medical and life insurance coverage at the present levels for all Plaintiffs in the class. As indicated below, see infra at p.31, such an injunction would cause Primerica to expend over $ 1.7 million between now and the anticipated time of trial in April 1993. In all likelihood, by the time the appellate process runs its course, Primerica will have expended more than $ 7,000,000 as a result of the injunction.
Unlike Temple University, this is not a case in which Primerica can easily recoup or set off any expenditures made because of a wrongly-issued injunction. Primerica cannot practically pursue the various class members in hundreds, if not thousands, of individual lawsuits around the country.
Nor does it appear Primerica could offset its losses against the pension benefits received by some Plaintiffs; such pension benefits are likely protected by the anti-alienation provision of ERISA. See 29 U.S.C. § 1056(d)(1) ("Each pension plan shall provide that benefits provided under the plan may not be assigned or alienated."). As provided by 29 U.S.C. § 1056(d)(2), any assignment of pension benefits would have to be voluntary and revocable. See id. Thus, there is no guarantee that an attempt to offset loss against pension benefits would be sufficient to cover Primerica's loss or that Plaintiffs would concede to offsetting without further litigation.
Plaintiffs' arguments against the requirement of a bond are without merit. For instance, Plaintiffs argue that "it is well settled in the various circuits that the requirement of a bond may be waived where the inability to post a bond would deprive the applicant of injunctive relief." Plaintiffs Bond Brief at 2. The Third Circuit has expressly rejected this position and has stated that the prohibitive effect of a bond is not sufficient for dispensing with the bond requirement:
It is true that a bond may create a barrier to the granting of a preliminary injunction. The barrier fulfills one of the purposes of the bond requirement. . . . The bond grows out of the idea that because of the attenuated procedure, an interlocutory order has a higher than usual chance of being wrong. . . . A bond deters rash applications for interlocutory orders by causing . . . plaintiff to think carefully beforehand.
Instant Air, 882 F.2d at 804 (rejecting argument that bond requirement should be waived because plaintiff could not afford to post it); see also Hoxworth, 903 F.2d at 186 (stating that "chilling effect" of bond "cannot justify excusing bond requirement")
Plaintiffs cite Temple University and cases from other Circuits for the proposition that the indigence of plaintiffs is a sufficient reason for excusing the bond requirement. See Plaintiffs Bond Brief at 2-3 (citing Wayne Chemical, Inc. v. Columbus Agency Service Corp., 567 F.2d 692, 701 (7th Cir. 1977); Doe v. Perales, 782 F.2d 201, 206 (W.D.N.Y. 1991); Governing Council of Pinoleville Indian Community v. Mendocino County, 684 F. Supp. 1042, 1047 (N.D.Cal. 1988); Toussaint v. Rushen, 553 F. Supp. 1365, 1383 (N.D.Cal. 1983), aff'd in part and rev'd in part sub nom., Toussaint v. Yockey, 722 F.2d 1490 (9th Cir. 1984)). This proposition is neither the law in this Circuit nor does it accurately characterize the holding in Temple University.
The Circuit has not held that indigence alone is a sufficient ground for waiving the bond requirement in granting a preliminary injunction. In fact, the court implicitly rejected such a broad position in Hoxworth when it stated:
Commentators have suggested excusing the bond requirement "when plaintiff is indigent or is suing in the public interest." See Note, Recovery for wrongful Interlocutory Injunctions Under Rule 65(c), 99 Harv.L.Rev. 828, 833 (1986). We believe that these exceptions, if they are to be drawn narrowly.
903 F.2d at 211 n.32 (emphasis added).
In Temple University, moreover, the Circuit drew the lines it referred to Hoxworth. Rather than automatically waiving the bond requirement when plaintiffs are indigent, the court determined that the court should balance the "equities of potential hardships to the parties." 941 F.2d at 219-20. Thus, under Temple University, a district court must consider both "the possible loss to the enjoined party [and] the hardship that a bond requirement would impose on the applicant." Id. Significantly, Plaintiffs do not address the potential hardship to Primerica should an injunction wrongly issue.
Finally, Plaintiffs argue that the posting of a bond "would effectively deny the Plaintiffs ability to pursue their claims." Plaintiffs Bond Brief at 3 (citing Temple University, 941 F.2d at 220; California ex rel. Van de Kamp v. Tahoe Regional Planning Agency, 766 F.2d 1319, 1325 (9th Cir. 1985)). This argument fails because, even if the bond requirement precludes pursuit of a preliminary injunction, the same issue underlies the litigation in general -- namely, whether Primerica may unilaterally change Plaintiffs' retirement benefits. Thus, regardless of the outcome of the preliminary injunction motion, this issue will still be decided at trial.
Moreover, as discussed above, the "chilling" effect of a bond cannot, by itself, justify waiving the bond requirement.
Hoxworth, 903 F.2d at 186; Instant Air, 882 F.2d at 804.
In light of both the strict posture assumed by the Third Circuit in enforcing the bond requirement under Fed. R. Civ. P. 65(c) and the significant and unrecoverable loss that Primerica will suffer if an injunction is wrongly granted, a bond is required in this case. As discussed, on at least four occasions the Circuit has vacated preliminary injunctions granted without a bond requirement on the ground that the defendant would suffer unrecoverable financial loss as a result of the injunction. Because the potential for unrecoverable loss is both present and significant in this case, the balance of hardships and the relevant case law require a bond should a preliminary injunction be granted.
B. Amount of the Bond
The amount of a bond is within the discretion of the court. Hoxworth, 903 F.2d at 210; Frank's GMC, 847 F.2d at 103. Rule 65(c) states that the bond "may be in such a sum as the court deems proper." Id. In keeping with the policies of reimbursement and protection which underlie the bond requirement, Rule 65(c) also provides that the bond is "for the payment of costs and damages as may be incurred or suffered" by party wrongfully restrained. Fed. R. Civ. P. 65(c) (emphasis added); Hoxworth, 903 F.2d at 210-11; Instant Air, 882 F.2d at 804.
As indicated by Primerica's calculations, see supra n.16, the potential financial damage to be incurred by Primerica is significant. Even if a bond were required only to cover the costs of an injunction between now and a trial in April, a bond in the amount of $ 1,718,560 ($ 429,640 per month x four months) would be required. Moreover, it appears Primerica's contention that appellate review would take approximately one year and, therefore, that the total time period in which the injunction would be in effect would be eighteen months, is correct.
The cost to Primerica for maintaining its present level of retirement benefits for these eighteen months would be $ 7,733,514 ($ 429,640 per month x eighteen months).
Plaintiffs' argument that the bond amount should be nominal is not persuasive. Plaintiffs Bond Brief at 3-5. While the court in Temple University recognized that, in an appropriate case, a nominal bond could be posted, see 941 F.2d at 220 n.28, this is not such a case. Where a defendant wrongfully enjoined would suffer significant economic harm, posting of a nominal bond would defeat the very purposes of the bond requirement. Such a result belies both the language and spirit of Rule 65, see Fed. R. Civ. P. 65(c) (bond is "for the payment of costs and damages as may be incurred or suffered" by party wrongfully restrained), and is not supported by the case law in this Circuit.
Hoxworth, 903 F.2d at 210; Instant Air, 882 F.2d at 803-05 & n.8; Frank's GMC, 847 F.2d at 103 (emphasis added); System Operations, 555 F.2d at 1145-46. Cf. Clark, slip op. at 10-11.
For the reasons set forth above, Plaintiffs would be required to post a bond of at least $ 7,733,514 should the motion for a preliminary injunction be granted.
Dated: 7 January 1993