The size of an injunction bond is not a common topic in appellate cases. Accordingly, a recent decision by the Indiana Appellate Court reversing the trial court’s setting of an injunction bond at only $100 in a non-compete case is noteworthy.
In Donald Moss v. Progressive Design Apparel, Inc., the Indiana Appellate Court affirmed a preliminary injunction which restricted a salesman’s ability to call upon customers of his former employer or disclose confidential information. As part of the trial court’s order granting injunctive relief, the trial court found that the enjoined salesman’s foreseeable loss in commissions due to the injunction “might be $60,000, less what he would have in the way of earnings from the extra ten to fifteen hours a week he would have by not selling” to one of his former employer’s customers. Nevertheless, the trial court only required the former employer to post a $100 injunction bond, which the Appellate Court held was insufficient.
In reaching this conclusion, the Appellate Court pointed to the applicable Indiana rule of civil procedure, which provides that “[n]o restraining order or preliminary injunction shall issue except upon the giving of security by the applicant, in such sum as the court deems proper, 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 or restrained.” (emphasis added). (Note: Federal Rule of Civil Procedure 65(c) similarly provides that “[t]he 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.” In contrast, in some states, such as Illinois, bond is not mandatory.)
The Appellate Court explained that while the setting of an injunction bond “is a discretionary function of the trial court and is reversible only for an abuse of that discretion,” setting bond at only $100 when the estimated damages (should the injunction later be found to have been wrongfully issued) were so much higher, was an abuse of discretion. Accordingly, the Appellate Court reversed the trial court on that issue and remanded the case to the trial court for “determination of a proper bond.”
Amidst the furious activity that generally accompanies non-compete litigation, the size of an injunction bond is frequently given little or no thought until the issue arises at the end of an injunction hearing. Nevertheless, as the Appellate Court noted in the Progressive Design Apparel case, in many litigation forums, the setting of an appropriate bond is a procedural requirement that cannot be ignored. Both sides should therefore be prepared to address the issue and any strategic significance it may have.