Delaware Corporate Law Update

Updates on Delaware Corporate Law by Evan O. Williford, Esq., Delaware Corporate Litigation Attorney.

Supreme Court Sets Standard For Preliminary Injunction Security

One of the practicalities of a motion for preliminary injunction is that the party enjoined may request the other side provide security for damages resulting from the injunction should it later be determined to have been wrongfully granted.  The standard governing such a request has, however, rarely been the subject of a written opinion in Delaware.  A recent opinion from the Supreme Court,  Guzzetta v. Service Corporation of Westover Hills, No. 34, 2010 (Del. Nov. 9, 2010) (attached), sheds some light on this subject.

Court of Chancery Rule 65(c) requires a party seeking an injunction to provide security “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.”   (Security typically takes the form of a bond, often costing only a small portion of its face amount).   In Guzzetta, the Court had granted a bond ultimately in the amount of $10,000, rejecting defendants’ request for a significantly higher one.  The Court ultimately determined the injunction to have been wrongfully granted and awarded defendants the amount of the bond.

The amount of the security sets the ceiling for damages the enjoined party may recover should the trial court ultimately rule in that party’s favor.  Thus, Guzzetta states that the trial court should “err on the high side” and set bond in an amount “likely to meet or exceed a reasonable estimate of potential damages.”  The Court noted, however, that the party seeking the bond must support its application with “facts of record or . . . some realistic as opposed to a yet-unproven legal theory from which damages could flow to the party enjoined.”  The Court held that, “If necessary,” the trial court could hold an evidentiary hearing to determine whether there was “some credible basis” for the estimated damages.

In applying that standard to the case at bar the Court affirmed the trial court’s rejection of certain items of possible damage as without merit.  The trial court had not explained, however, why it had rejected other items totaling more than twice the amount of the bond granted.  The Court thus reversed and remanded for further proceedings in light of its opinion.

Advertisements

Filed under: Delaware Supreme Court, Preliminary Injunction, Security

Pages

Disclaimer

Delaware Corporate Law Update solely reflect the views of Evan Williford of The Williford Firm, LLP. Its purpose is to provide general information concerning Delaware law; no representation is made about the accuracy of any information contained herein, and it may or may not be updated to reflect subsequent relevant events. This website is not intended to provide legal advice. It does not form any attorney-client relationship and it is not a substitute for one.