Atomic Oil Co. of Oklahoma, Inc. v. Bardahl Oil Company

• Decision Date: 04 February 1970
• Docket Number: No. 10175.,10175.
• Citation: 419 F.2d 1097
• Parties: ATOMIC OIL COMPANY OF OKLAHOMA, INC., an Oklahoma corporation, and Frank Sweetin and Nadine Sweetin, his wife, Appellants, v. BARDAHL OIL COMPANY, a Missouri corporation; Bardahl Manufacturing Corporation, a Washington corporation; and Bardahl International Corporation, a Washington corporation, Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

419 F.2d 1097 (1969)

ATOMIC OIL COMPANY OF OKLAHOMA, INC., an Oklahoma corporation, and Frank Sweetin and Nadine Sweetin, his wife, Appellants, v. BARDAHL OIL COMPANY, a Missouri corporation; Bardahl Manufacturing Corporation, a Washington corporation; and Bardahl International Corporation, a Washington corporation, Appellees.

No. 10175.

United States Court of Appeals Tenth Circuit.

December 30, 1969.

Rehearing Denied February 4, 1970.

Lawrence A. Johnson, of Farmer, Woolsey, Flippo & Bailey, Tulsa, Okl., for appellants.

Robert O. Beresford, Seattle, Wash. (Beresford & Booth, Seattle, Wash., and Rheam & Noss, Tulsa, Okl., were on the brief), for appellees.

Before MURRAH, Chief Judge, PICKETT, Senior Circuit Judge, and LEWIS, Circuit Judge.

LEWIS, Circuit Judge.

Although this case presents many facets of argument, the basic appellate issue presented is whether a bond given as a condition precedent to the issuance of a temporary injunction under Fed.R. Civ.P. 65(c)¹ is supplemented or supplanted by a second bond issued as a premise to a permanent injunction in view of an ultimate appellate determination that the moving party, here Atomic, was entitled to no injunctive relief on the merits. The trial court allowed recovery to appellees, the various Bardahl corporations (Bardahl), to the full amount of both such bonds. We affirm, holding, among other things, that a temporary injunction may be wrongfully issued although its issuance may not have been improvident as an abusive exercise of the trial court's discretion.

The relevant facts may be summarized. In August of 1963, Atomic instituted suit in the United States District Court for the Northern District of Oklahoma against Bardahl based on an alleged trademark infringement by the latter corporation. The basis of the cause of action was the alleged illegality of Bardahl's marketing of a product called "Savoil" in light of Atomic's trademark of a similar product called "Savmotor." Atomic sought to recover damages and to permanently enjoin all future sales of "Savoil" under that trademark. The district court granted the prayer for a preliminary injunction which was operative in the 30 states in which both products were marketed and, as required by Fed.R.Civ.P. 65(c), ordered the plaintiff to post a $50,000 security bond. The court's order stated:

* * * The Plaintiff shall undertake and file in the Office of the Clerk of this Court a good and sufficient bond in the amount of $50,000.00 conditioned for payment of damages to the Defendants if it be determined by this Court or any other court of jurisdiction reviewing this Order, that said Temporary Injunction has been improperly granted and issued.

Atomic assigned a $50,000 savings account to the clerk of the court as security to satisfy this bond.² After the case was heard at trial in May 1964 the court granted a permanent injunction which enjoined the sale of the Bardahl product in three states, Texas, Oklahoma and Missouri. This injunction commanded the issuance of a new bond in the amount of $25,000³ and required further that

* * * the $50,000 bond or undertaking in the sum of $50,000.00 heretofore posted by the Plaintiff as a condition precedent to the granting of the preliminary injunction herein be dissolved and the Court Clerk of the United States District Court for the Northern District of Oklahoma, Noble Hood, is hereby ordered and directed to return to Frank Sweetin and Nadyne Sweetin, * * * the passbook to Savings Account #XXXXX of the Farmers & Merchants State Bank, Tulsa, Oklahoma, and the Court further declares that the assignment of said passbook to the said $50,000.00 Savings Account is hereby set aside, discharged and held for naught.

Both parties appealed to this court from the judgment and order granting the permanent injunction, Atomic asserting that it should have been awarded damages and Bardahl contesting the legal propriety of the issuance of the injunctive relief. In Bardahl Oil Co. v. Atomic Oil Co. of Oklahoma, 10 Cir., 351 F.2d 148, we reversed the judgment of the district court; the granting of injunctive relief was held to be based on a "clearly erroneous" finding.⁴ Bardahl then initiated a collateral, independent action in the same federal district court, the result of which gave birth to the present appeal. Bardahl sought recovery on both of the bonds for the "costs and damages" which it incurred as a result of the erroneous issuance of the injunctions. The damages allegedly suffered were substantially greater than the aggregate amount of the injunctive bonds. Judgment was entered in favor of Bardahl for $75,000, the full amount of the two bonds and this appeal by Atomic followed.

Atomic first contends that recovery on the preliminary bond is precluded by the second order of the first trial court which established a permanent injunction and set aside the undertaking required as a condition of the preliminary injunction. Claiming comfort from the indisputable premise that the Federal Rules of Civil Procedure are not substantive rules and do not, therefore, mandate a change in federal case law, appellant cites the rule contained in Russell v. Farley, 105 U.S. 433, 26 L.Ed. 1060, as dispositive of the issue. The cited case holds that, when the security posted to satisfy a bond is no longer equitably required, the court which ordered the bond must have the power to release it and, having so done, no appellate jurisdiction exists to assess damages resulting from the litigation after the trial court refuses to do so. Therefore, the appellant reasons, the release of the $50,000 security in the instant case constituted a determination by that court that Bardahl was not equitably entitled to costs and damages under the preliminary bond. Claim is further made that this action was within the discretion of the trial court and cannot be upset either upon review or in an ancillary proceeding to enforce the liability established by the bond.

The rule set out in Russell v. Farley has been reiterated subsequent to the enactment of the Federal Rules of Civil Procedure,⁵ even though the discretion of the trial court to refuse to award damages on an injunction bond in an appropriate case has been largely circumscribed since the existence of Rule 65(c) and its predecessor, 28 U.S.C. § 382.⁶ Moreover, since the holding of Russell v. Farley was expressly predicated upon the absence of an applicable court rule or statute,⁷ the presence of Rule 65(c) would seem to cast great doubt upon the continued viability of the Russell v. Farley rule in cases arising under the Federal Rules of Civil Procedure. The manifest purpose of Rule 65 (c), evidenced by its plain language, strongly contraindicates the proposition that the court which issues an injunction should have the power to foreclose recovery on the injunction bond, when such recovery devolves upon the substantive correctness of the determinations of the very same court. Rule 65(c) states in mandatory language that the giving of security is an absolute condition precedent to the issuance of a preliminary injunction. It imports no discretion to the trial court to mitigate or nullify that undertaking after the injunction has issued. It is obvious that to superimpose such a caveat on the rule would inevitably dilute the otherwise imperative application of the conditions set out in Rule 65(c), and would counteract against the interests meant to be protected by the rule. As the Supreme Court has stated, "the award of an interlocutory injunction by courts of equity has never been regarded as strictly a matter of right, even though irreparable injury may otherwise result to the plaintiff. * * * The court will avoid * * * injury so far as may be, by attaching conditions to the award * * *." Yakus v. United States, 321 U.S. 414, 440, 64 S.Ct. 660, 674, 88 L.Ed. 834. "It is the duty of a court of equity granting injunctive relief to do so upon conditions that will protect all * * * whose interests the injunction may affect." Inland Steel Co. v. United States, 306 U.S. 153, 157, 59 S.Ct. 415, 417, 83 L.Ed. 557.

Even in the absence of Rule 65 (c), Russell v. Farley could not be successfully applied to resolve the issue in this case. The court which issued the injunction in the first proceeding sought by its order only to dissolve the bond and release the security. At that point in the chronology of this litigation, neither party had raised the issue of damages on the injunction bond, nor does the order issued by the court reveal that it sought to adjudicate this issue on its own. The appellee states in its brief that it felt "the better alternative" would be to bring an independent action on the bonds, rather than raise the issue by motion at that stage in the proceedings.⁸ The order of the injunction court releasing the security was plainly not a negation of damages under the bond. Russell v. Farley is therefore inapplicable: It held only that the trial court has discretion to refuse to assess damages by mitigating the terms of the bond. This rule is of no moment where, as here, the trial court has taken no action with respect to the liability established by the bond. Absent such a determination by the trial court, the potential liability created by the issuance of the preliminary injunction and the concomitant undertaking of the party seeking the injunction were extant at the time the enjoined party commenced its independent action for recovery. Accordingly, we must reject the appellant's contention that the injunction court's release of the security similarly released the appellant from its liability. Rule 65(c) creates a cause of action for the "costs and damages" incurred by the enjoined party should it later be determined that that party was "wrongfully enjoined or restrained," and the release of a money amount deposited to facilitate, and to establish the limits of, recovery cannot be held to foreclose the rights upon which that recovery is...