Coyne-Delany Co. v. Capital Development Board
717 F.2d 385 (1983)
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Rule of Law:
A party that is found to have been wrongfully enjoined is presumptively entitled to damages on the injunction bond. A district court's discretion to deny damages is limited and must be based on objective factors beyond the plaintiff's good faith in bringing the suit.
Facts:
- The Illinois Capital Development Board (Board) contracted with Naal Plumbing & Heating Co. for a plumbing replacement project at Stateville prison.
- Naal subcontracted with Coyne-Delany Company to supply flush valves for the project.
- The initial Coyne-Delany valves malfunctioned upon installation.
- Redesigned valves subsequently supplied by Coyne-Delany also malfunctioned.
- For the second phase of the project, the Board designated Sloan Company, a competitor, as the sole-source valve supplier in the bidding specifications.
- The Board received bids for the second phase of the project and was scheduled to open them on May 9, 1979.
Procedural Posture:
- Coyne-Delany sued the Capital Development Board in the U.S. District Court, alleging a civil rights violation.
- The district court granted Coyne-Delany a temporary restraining order and required a $5,000 bond.
- The district court then issued a preliminary injunction against the Board, keeping the bond at $5,000.
- The Board, as appellant, appealed the grant of the preliminary injunction to the U.S. Court of Appeals for the Seventh Circuit.
- The Seventh Circuit reversed the preliminary injunction, holding Coyne-Delany had no valid claim.
- On remand, the Board moved the district court for an award of damages and costs against the injunction bond.
- The district court denied the Board's motion for both damages and costs.
- The Board, as appellant, appealed the district court's denial of damages and costs to the U.S. Court of Appeals for the Seventh Circuit.
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Issue:
Does a district court have broad discretion to deny damages to a wrongfully enjoined party under Federal Rule of Civil Procedure 65(c) merely because the plaintiff filed the lawsuit in good faith and the suit was not frivolous?
Opinions:
Majority - Posner, Circuit Judge
No. Federal Rule of Civil Procedure 65(c) creates a presumption, or a 'principle of preference,' in favor of awarding damages to a wrongfully enjoined party, and a court must have a good reason for departing from this principle. The plaintiff's good faith in filing the suit is not a sufficient reason to overcome this presumption, as the purpose of an injunction bond is compensatory, not punitive. The standard for awarding attorney's fees, which requires bad faith, is inapplicable here. Instead, a court should consider objective factors such as the resources of the parties, the defendant’s efforts to mitigate damages, and the outcome of the underlying suit. While a subsequent change in the controlling law is a legitimate factor for consideration, it does not automatically justify denying all damages. Furthermore, absent bad faith, a defendant's recovery is limited to the amount of the injunction bond.
Analysis:
This decision significantly narrows the scope of judicial discretion in awarding damages on an injunction bond under FRCP 65(c). By rejecting the 'good faith' standard and establishing a 'principle of preference,' the court creates a more predictable rule that presumptively favors the wrongfully enjoined defendant. This discourages parties from seeking preliminary injunctions on flimsy grounds, as they can no longer rely on their good faith to escape liability on the bond if they ultimately lose. The ruling also reinforces that a defendant's remedy for a wrongful injunction is almost always capped at the bond amount, highlighting the critical importance for defendants to argue for a sufficiently high bond at the outset of litigation.
