Smith v. Coronado Foothills Estates Homeowners Ass'n, Inc.
117 Ariz. 184, 571 P.2d 681 (1977)
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Rule of Law:
A party who is found to have been wrongfully enjoined may recover actual damages proximately resulting from the injunction against the party who obtained it, and recovery is not limited to the amount of the security bond.
Facts:
- Mrs. Beulah Smith was in the process of constructing her home.
- The Coronado Foothills Estates Homeowners Association (Association) believed Smith's construction violated community deed restrictions.
- The Association sought to halt Smith's construction project.
- As a result of the Association's legal action, Smith was forced to stop building her residence for a period of time.
Procedural Posture:
- Coronado Foothills Estates Homeowners Association filed a complaint for a permanent injunction against Mrs. Beulah Smith in the trial court.
- The Association obtained an ex parte temporary restraining order (TRO), and the court set the security bond at $10.
- After a hearing, the trial court dissolved the TRO and subsequently determined that a preliminary injunction could not be issued.
- Smith filed a counterclaim against the Association to recover damages for the wrongful injunction.
- The trial court ruled that Smith's recovery for damages was limited to the $10 bond amount.
- Smith appealed to the Court of Appeals, which affirmed the trial court's decision, holding that recovery was limited to the bond amount.
- Smith then filed a petition for review to the Supreme Court of Arizona.
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Issue:
Does Rule 65(e) of the Arizona Rules of Civil Procedure limit the recovery of damages for a wrongful injunction to the amount of the security bond posted by the applicant?
Opinions:
Majority - Cameron, Chief Justice
No. A party's recovery for damages resulting from a wrongful injunction is not limited to the amount of the security bond. While the majority of jurisdictions limit recovery to the bond amount absent a showing of malicious prosecution, this court adopts the minority view as the better rule. The majority rule is unjust because temporary restraining orders are often granted ex parte, with the court relying on the plaintiff's representations to set a bond amount that may be wholly inadequate. Allowing the party who caused the injury to effectively limit their own liability is unfair. Therefore, the party who wrongfully obtains an injunction is liable for the actual damages caused, while the liability of the surety remains limited to the face value of the bond.
Analysis:
This decision places Arizona in the minority of jurisdictions by rejecting the widely held rule that limits damages for a wrongful injunction to the amount of the security bond. By allowing recovery for actual damages against the principal, the court shifts the financial risk of an improvidently granted injunction from the defendant to the plaintiff. This holding creates a significant deterrent for parties considering seeking ex parte injunctive relief, as their potential liability is no longer capped at a potentially nominal bond amount. The ruling prioritizes making the wrongfully enjoined party whole over protecting the party who initiated the erroneous legal action.
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