Mandatory Versus Discretionary Security

Mandatory Versus Discretionary Security

Rule 65(c) sends two signals in a single sentence, and they pull against each other. A court “may issue a preliminary injunction or a temporary restraining order only if the movant gives security in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained.”¹ The words “only if” make security a condition of issuance. The phrase “an amount that the court considers proper” gives the judge a judgment call. No court doubts that the judge sets the amount; the open question is whether the judge may also decide that no security is needed.

Discretion over the amount is hard to confine. The rule ties the sum to a purpose, paying the costs and damages of a party later found wrongfully enjoined or restrained, so a judge who sizes the security to the likely harm is applying the rule as written. Where the likely harm is small, the figure shrinks, and the step from a small sum to a nominal one, or to none, can look short. Courts divide over whether to take it. Some view exceptions to the bond requirement as extremely rare, while others, such as the Sixth Circuit, require only that the district court expressly address whether a bond is required and leave the decision to the trial judge.² Even courts that call the rule’s language mandatory sometimes keep discretion to waive security in exceptional circumstances.³

Security matters here because it is the fund from which a party wrongly restrained is repaid, so a judge who excuses it removes that fund in the case at hand.⁴ A rule with no room for excuse creates a different problem, because a movant with a strong claim and no money for a bond may go without the order the court found warranted.⁵ The strict view comes first because it tracks the text most closely. The discretionary view then shows how far a court may move from the text without abandoning it.

The Strict View

The strict view takes Rule 65(c) at its word. The court may issue interim relief “only if” the movant gives security, and the rule gives the court express authority over a single thing, the amount it “considers proper.”⁶ Authority over whether security exists at all would have to come from somewhere else, and the strict view finds no such source in the text. The amount clause describes the security that the condition already demands, so it cannot cancel the condition.

The Third Circuit states this position most fully. In Hoxworth v. Blinder, Robinson & Co. the court observed that the rule’s language, on its face, “admits no exceptions,” and it cited the Tenth Circuit’s statement in Atomic Oil Co. v. Bardahl Oil Co. that Rule 65(c) “states in mandatory language that the giving of security is an absolute condition precedent to the issuance of a preliminary injunction.”⁷ Given the rule’s text and policies, the court said, it has interpreted the bond requirement very strictly, and it knew of no Third Circuit case that had upheld a district court’s excuse of the requirement.⁸

The court then restated its settled position, quoting Frank’s GMC Truck Center, Inc. v. General Motors Corp. The amount of the bond is left to the court’s discretion, but “the posting requirement is much less discretionary.” The instances in which a bond may be omitted “are so rare that the requirement is almost mandatory.” And “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.”⁹

That formulation puts discretion at two levels and gives them unequal weight. Over the amount, the district judge keeps real freedom. Over the existence of security, the judge’s freedom is close to nothing, and an appellate court treats an omission as a legal error to be corrected rather than a judgment call to be respected. The dividing line is the defendant’s exposure: where the order creates a risk of monetary loss to the enjoined party, a failure to require a bond is reversible error.¹⁰ Federal practice more generally runs the same way. Courts follow the rule closely and require security, and some authority treats a missing bond as reversible error.¹¹ Most courts require the judge to decide the propriety of a bond when one is demanded, and they treat a refusal as reversible error unless there is no risk of monetary loss.¹²

Other courts concede that exceptions may exist but regard them as extremely rare, so the practical result matches the Third Circuit’s.¹³ The Tenth Circuit’s decision in Coquina Oil Corp. v. Transwestern Pipeline Co. marks the point where the strict view shades into the discretionary one. The court recognized that a trial court may find a bond unnecessary when proof of likely harm is absent, but it insisted that the trial court actually consider the question before relief issues.¹⁴ The next subsection takes up that approach, and a later section returns to the consequences of failing to address security.

Two reasons support reading the requirement this tightly. The text supplies the first: the rule already gives the court express authority over the amount, so nothing in it invites a second grant of discretion over whether security exists. Purpose supplies the second. The Third Circuit has explained that an incorrect interlocutory order may harm the defendant, that a bond provides a fund to compensate a defendant enjoined by mistake, and that, because of attenuated procedure, an interlocutory order has a higher than usual chance of being wrong.¹⁵ A judge asked to excuse security must therefore predict the defendant’s losses from the same abbreviated record that makes the order itself more error-prone, and if the prediction fails, the defendant has no bond to draw on.

Hoxworth shows how the rule operates. The preliminary injunction there barred the overseas transfer of every last dime the defendants held in United States accounts without prior notice to the plaintiffs and court approval. It barred disbursement of about $11 million from a bank account in the Eastern District of Pennsylvania on the same terms. And it barred all defendants from moving any assets anywhere in the world outside the ordinary course of their businesses.¹⁶ The Third Circuit held that, to the extent the district court had found that compliance posed no risk of harm to the defendants, that determination was clearly erroneous.¹⁷ Restraints that reach this far into a defendant’s money plainly carry a risk of monetary loss, which is the loss a bond exists to repay.

The narrow exception is narrower than it first appears. In Curtis 1000, Inc. v. Youngblade (Curtis 1000), the court described the Third Circuit’s rule this way: the bond requirement drops only if the injunction “raises no risk of monetary harm to the defendant,” and even where the plaintiffs are indigent, a careful weighing of the equities must precede any waiver.¹⁸ In Temple University v. White, the fact that the bond requirement effectively deprived indigent plaintiffs of a preliminary injunction did not work a sufficient hardship, because the underlying litigation could still resolve the underlying issue.¹⁹

The contrast with the asset freeze in Hoxworth lies in the defendant’s exposure, and the movant’s circumstances do not supply the exception. The strict view asks whether complying with the order could cost the enjoined party money. If it could, the judge may adjust the amount but may not omit security, and an order that issues without any is open to reversal. An order that merely holds assets in place can look costless, and Hoxworth shows that the appearance is often wrong, so a finding of no monetary risk deserves skepticism.

The community organization from the opening hypothetical shows the same logic. Its inability to afford a bond is not the question under the strict view. The question is whether the order would expose the defendant to monetary loss. If it would, the court must still require security, and if it would not, the court must still weigh the equities before waiving it.²⁰

The Discretionary View

The discretionary view builds on the rule’s second signal, the “amount that the court considers proper,” and extends the judge’s judgment to the prior question whether security is needed at all.²² It attaches one condition: the judge must take up that question before relief issues. Freedom to decide and a duty to consider travel together here, and the duty keeps this approach tied to the rule’s text.

The Sixth Circuit’s version is the simplest to state. Some courts, as Curtis 1000 describes them, require only that the district court expressly address whether a bond is required as security for a preliminary injunction, and leave the decision whether to require one in the particular case to the trial judge’s discretion.²³ The Sixth Circuit decisions it cites for that rule are USACO Coal Co. v. Carbomin Energy, Inc. and Roth v. Bank of the Commonwealth.²⁴ The rule has two parts of unequal weight. The duty to address the question is fixed, and only the answer is left to the judge.

The Tenth Circuit reaches a similar position by a different path. In Coquina Oil Corp. v. Transwestern Pipeline Co. the court recalled its earlier holding in Continental that a trial court may, in the exercise of discretion, determine that a bond is unnecessary “if there is an absence of proof showing a likelihood of harm.”²⁵ That holding, the court explained, implies that the trial court will comply with Rule 65(c) by at least giving consideration to whether the circumstances of a particular case justify the unusual practice of leaving the enjoined party bereft of security. Until the court gives that consideration, it has not completed the task Rule 65 mandates.²⁶

The consequence shows in what the court refused to do. The appellees asked it to avoid dismissal by presuming that the district court had decided a bond was unnecessary, and the court declined the invitation. A trial court’s decision to waive a Rule 65(c) bond is reviewed for abuse of discretion, and that test cannot be applied without specific findings.²⁷ A decision that has been reasoned and recorded gives a reviewing court something to examine, while a silent record gives it nothing, and an appellate court cannot treat silence as a considered judgment. Consideration also forces the judge to ask what the restrained party stands to lose, which is the question the bond exists to answer. Most courts likewise require a decision on the propriety of a bond when one is demanded and do not allow the demand to be ignored.²⁸

The hypothetical and Coquina end differently because of the judge’s engagement with the question, not because of the amount of security. In both, the injunction issues without a bond. In Coquina the record held no specific findings, so there was nothing to review. In the hypothetical the judge ruled and explained, so the exercise of discretion is on the record. An injunction granted with no bond therefore raises two questions. Did the judge expressly consider security? And what does the jurisdiction’s rule allow the judge to conclude? Under the strict view the second turns on whether the order exposes the defendant to monetary loss, as Hoxworth illustrates. Under the discretionary view it turns on whether the judge exercised reasoned discretion.

The two views differ over how much freedom a judge has once the security question is squarely before the court, and they agree that it must be squarely before it. The prevailing federal approach still follows Rule 65(c) closely and requires security. Courts that acknowledge the rule’s mandatory terms may nonetheless keep discretion to waive security in exceptional circumstances, such as indigent plaintiffs, injunctions that expose the restrained party to no compensable monetary loss, and cases where the cost of a bond would effectively prevent enforcement of important public-interest rights.²⁹ The next section takes up those circumstances.