Why Courts Require Security

A court that has already demanded a strong showing of irreparable harm still asks the movant for money before it acts. Rule 65(c) states the condition: the court may issue a preliminary injunction or 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 rule measures the security by a single contingency, an order later found to have been a mistake, and the reason lies in what interim relief does to the party on the receiving end.

Temporary restraining orders and preliminary injunctions are interlocutory: they give expedited relief for a short term, to prevent irreversible losses before trial.² Because they come before a full trial, courts grant provisional remedies only when the judge believes, or at least assumes, that the remedy can be given back if trial shows it was not warranted, and only when a pressing reason supports them.³ That caution rests on an awareness of error. The potential for abuse and error in injunctive orders is usually very large, so courts and rules impose two special requirements before provisional injunctions issue. The plaintiff must show a comparatively high level of net irreparable harm, and the plaintiff must post a bond or other security to guarantee payment to the defendant for harms suffered if the injunction is erroneously issued.⁴ The harm showing screens out requests that do not deserve emergency treatment. The bond answers the risk that remains, because a request that clears the first hurdle can still prove wrong.

The bond therefore does two jobs. It gives a wrongly enjoined party a source of payment, and it puts a price on asking for emergency relief. The two subsections that follow take them in that order.

Compensating Wrongly Enjoined Parties

Rule 65(c) builds the compensation function into its own wording. The security is measured by the costs and damages that a party sustains if it is later found to have been wrongfully enjoined or restrained, so the bond answers one event: an interim order that proves a mistake.⁵ The fund exists before any loss is proven, and it matters most for losses that a final judgment cannot undo. A defendant barred for five months from selling a product line loses the profits of those months, and winning at trial does not bring the sales back. Only money can stand in for them.

Mistakes are a real possibility because of the way interim relief is produced. In Hoxworth v. Blinder, Robinson & Co. the court observed that an incorrect interlocutory order (one entered before final judgment) may harm the defendant, that a bond provides a fund to compensate incorrectly enjoined defendants, and that, because of attenuated procedure, an interlocutory order has a higher than usual chance of being wrong.⁶ Another court put the point more simply: a preliminary injunction is granted before a trial on the merits, so the possibility that it was incorrectly imposed is a reality.⁷ The bond is how the system pays for the cases in which acting early turns out to be wrong.

Without a bond, the enjoined party generally has nowhere to turn. The Supreme Court has observed that a party injured by an injunction later determined to be erroneous has no action for damages in the absence of a bond, and one court drew the conclusion that, with rare exceptions, a wrongfully enjoined defendant has recourse only against the bond.⁸ The security is therefore the main route to compensation, and it creates an exception to the general rule that litigants bear their own losses and expenses. Here the plaintiff, not the defendant, bears the cost of the court’s hasty decision.⁹

The fund also protects the enjoined party against the movant’s finances. A damages claim against the movant is worth only what the movant can pay, while the bond is a convenient repository of funds from which the enjoined party can collect actual damages without running the risk that the plaintiff is judgment-proof.¹⁰ What the fund pays are provable losses. The bond is not a form of liquidated damages, and the enjoined party must prove with specificity the actual losses the injunction caused, a burden the later section on recovery develops.¹¹

The compensation rationale raises a question about orders that seem to cost the defendant nothing. In Hoxworth, the district court’s holding rested on a determination that complying with the preliminary injunction raised no risk of harm to the defendants, and the appellate court held that determination clearly erroneous.¹² The order barred the overseas transfer of every last dime the defendants had on deposit in United States accounts without prior notice to the plaintiffs and court approval. It barred the disbursement of about $11 million from a bank account in the Eastern District of Pennsylvania without notice and approval. And it barred all defendants from transferring assets anywhere in the world outside the ordinary course of their businesses.¹³ An order that only holds assets in place can look costless, yet a restraint of that scale can harm the people it binds. Later sections return to when security may be excused or reduced.

Deterring Rash Applications

The same condition does a second job. The movant must arrange the security before the order issues and must answer for the restrained party’s costs and damages if the order proves mistaken, so the requirement puts a price on the act of asking.¹⁵ One court named this function directly: the bond requirement “deters rash applications for interlocutory orders; the bond premium and the chance of liability on it cause plaintiff to think carefully beforehand.”¹⁶ Compensation looks backward to a loss already suffered, while deterrence works forward on the decision whether to apply at all.

The price has two parts. The first is a cost paid at the outset: because the claimant must incur costs in posting the bond, the requirement checks the zealousness of plaintiffs in instituting litigation.¹⁷ The second is exposure. If the movant loses on the merits, the fund becomes available to pay the enjoined party’s provable losses, so a weak claim carries an expected cost that a strong claim does not. A movant confident of winning expects never to touch the bond, whereas a movant with doubts must weigh the chance that the fund will be spent.

The cost falls on the movant because the movant asked for the speed. The security guarantees that plaintiffs will compensate defendants for losses caused by the court’s hasty decision, and in doing so it departs from the general rule that litigation losses and expenses are borne by the parties themselves.¹⁸ Deterrence and compensation therefore draw on one mechanism: the fund that repays a wrongly restrained party is also the source of the movant’s exposure.

Deterrence here works through cost and exposure, not blame. The bond is not a form of liquidated damages; it is a source of funds for the payment of provable losses.¹⁹ Courts generally presume that damages are recoverable against the bond once the defendant shows it prevailed on the merits, and they do not require a showing that the movant acted in bad faith in seeking the order.²⁰ A movant who sought the order in good faith and then lost on the merits therefore stands exposed to that presumption. What makes an injunction wrongful, and what the enjoined party must then prove, are questions for the section on recovery on the bond.

The deterrent bites only on a movant who must give security. The last sentence of Rule 65(c) provides that the United States, its officers, and its agencies are not required to give security, so no price attaches to their applications.²¹ A state movant has no such text to rely on. In a case brought by the State of New Jersey to enforce a consumer-protection law, the court held that the State was not exempt from the bond requirement but that a large bond was not required, and it set the bond at $10,000 in light of the public interest the State was serving.²² The price of asking can thus be scaled within the “amount that the court considers proper,” and later sections take up when a court may reduce the security or excuse it altogether.²³