Those litigators who need to know the finer points of how the amount for a requisite bond is determined for purposes of obtaining an injunction, must read the recent Delaware Court of Chancery opinion in Applied Energetics, Inc. v. Farley, C.A. No. 2018-0489-TMR (Del. Ch. Aug. 14, 2018).
Noteworthy Aspects of this Decision:
· There are relatively few Delaware decisions that explore the nuances and minutiae of how the amount of a bond is determined. A bond is the form of security typically needed to obtain either a preliminary injunction or a TRO pursuant to Rule 65(c).
· Injunctive relief in this case was expressed via a Stipulated Status Quo Order that was entered on July 20, 2018, but the amount of the bond was formally articulated on August 14, 2018, when this decision came down.
· Court of Chancery Rule 65(c) provides that: “No 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 was found to have been wrongfully enjoined or restrained.”
· Among the very few decisions thoroughly analyzing the bond requirement for injunctive relief includes the Delaware Supreme Court decision in Guzzetta v. Serv. Corp. of Westover Hills, 7 A.3d 467, 470 (Del. 2010), which was highlighted on these pages, and explained the requirement of a bond for injunctive relief, as follows: “The security, usually a bond, fixes the maximum amount that an enjoined party may recover . . . . Because actual damages are uncertain, and because a wrongfully enjoined party has no recourse other than the security, the court should ‘err on the high side’ in setting the bond.” Id. Delaware’s High Court in that decision also instructed that the amount of the bond is a matter of discretion, but there must be “a credible basis for the estimated damages.” Id. at 471. See generally, Guzzetta post-remand decision by the Court of Chancery increasing the amount of the bond in the Guzzetta case after the Supreme Court’s ruling.
· The Court in the instant Applied Energetics, Inc. v. Farley case found problems with the estimate of damages by both parties and, in essence, engaged in an abbreviated analysis of the appropriate measure of potential damages based on the claims in the case, and determined that a bond in the amount of: “$200,446.52 was required to be posted within five days of the entry of the order that provided for the injunctive relief.”