City and County of Denver v. Ameritrust Co. Nat. Ass'n, 90CA2164

• Decision Date: 16 January 1992
• Docket Number: No. 90CA2164,90CA2164
• Citation: 832 P.2d 1054
• Parties: CITY AND COUNTY OF DENVER, a municipal corporation, and the Denver Urban Renewal Authority, a body corporate and politic of the State of Colorado, Plaintiffs-Appellees, and Historic Denver, Inc., a Colorado non-profit corporation, Plaintiff-Intervenor-Appellee, v. AMERITRUST COMPANY NATIONAL ASSOCIATION, a national banking association organized under the laws of the United States, Defendant-Intervenor-Appellant. . I
• Court: Colorado Court of Appeals

Page 1054

832 P.2d 1054

CITY AND COUNTY OF DENVER, a municipal corporation, and the

Denver Urban Renewal Authority, a body corporate

and politic of the State of Colorado,

Plaintiffs-Appellees, and Historic Denver, Inc., a Colorado non-profit corporation, Plaintiff-Intervenor-Appellee, v. AMERITRUST COMPANY NATIONAL ASSOCIATION, a national banking

association organized under the laws of the United

States, Defendant-Intervenor-Appellant.

No. 90CA2164.

Colorado Court of Appeals,

Div. I.

Jan. 16, 1992.

Rehearing Denied Feb. 13, 1992.

Certiorari Denied July 13, 1992.

Office of City Atty., Patricia L. Wells, City Atty., Karen A. Aviles, Robert M. Kelly, Asst. City Attorneys, Denver, for plaintiffs-appellees.

Gibson, Dunn & Crutcher, George W. Bermant, Gregory J. Kerwin, Kevin M. Brady, Denver, for plaintiff-intervenor-appellee.

Baker & Hostetler, John B. Moorhead, Peter J. Korneffel, Jr., Timothy R. Beyer, Denver, for defendant-intervenor-appellant.

Opinion by Judge DAVIDSON.

Defendant, Ameritrust Company National Association (Ameritrust), appeals from the trial court's denial of its motion for costs and damages against plaintiffs, City and County of Denver (Denver), the Denver Urban Renewal Authority (DURA), and, by intervention, Historic Denver, Inc. (Historic Denver), for wrongful issuance of a temporary restraining order and a preliminary injunction. We affirm.

In September 1989, Denver and DURA filed a motion for a preliminary injunction seeking to enjoin certain entities not parties to this appeal and Ameritrust from demolishing the Central Bank West Building (building). The demolition was to be accomplished by December 28, 1989, as a condition of a complicated sale-lease back transaction between the defendants. According to the transaction, if the original owner declined to buy the building and met certain conditions, a surety company was obligated to pay $14.5 million to Ameritrust, the lending institution, under a Property Value Indemnity Bond and take title to the property. In 1988, the original owner opted to demolish the building rather than repurchase or renovate the bank building.

Subsequently, Denver and DURA, claiming that the building was protected from demolition under restrictive covenants within the city's Skyline Urban Renewal Plan and certain agreements between the parties, brought an action for declaratory judgment and for injunctive relief to enjoin defendants from demolishing the building until the legal questions could be determined.

On September 20, 1989, the trial court issued a temporary restraining order. On October 26, 1989, after permitting Historic Denver to intervene as a plaintiff, the court granted the plaintiffs' motion for preliminary injunction enjoining defendants from demolishing the building. At that time, the court ordered Historic Denver to post a $500 bond as security, but waived a security bond for Denver and DURA pursuant to C.R.C.P. 65(c).

The trial was held in April 1990. After the close of plaintiffs' case, the trial court ruled that the restrictive covenant relied on by the plaintiffs to prevent demolition was ambiguous and, thus, must be construed strictly against limitation on the use of property and in favor of its free and unrestricted use. Accordingly, it granted defendants' motion to dismiss pursuant to C.R.C.P. 41(b)(1). The court then issued a declaratory judgment in their favor and dissolved the preliminary injunction.

Thereafter, pursuant to C.R.C.P. 65(c) and 65.1, Ameritrust moved for recovery of costs and damages incurred as a result of the wrongful preliminary injunction. Specifically claiming its damages might reach $14.5 million, the amount of the Property Value Indemnity Bond that the surety company refused to pay, it asked the court to retain jurisdiction pending the outcome of a related federal action between Ameritrust and the surety. The trial court denied this motion.

In its order, the court assumed without deciding "that Ameritrust was 'wrongfully' enjoined and could establish damages" but nevertheless found that it "would be inequitable and oppressive to award Ameritrust costs and damages in this action." The court also denied Ameritrust's motion for reconsideration for the same reasons.

Ameritrust appeals, basing its various contentions of error on the security requirements mandated by C.R.C.P. 65(c). That rule provides:

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 is found to have been wrongfully enjoined or restrained. No such security shall be required of the state or of any county or municipal corporation of this state or of any officer or agency thereof acting in official capacity.

I.

Ameritrust contends that under C.R.C.P. 65(c) plaintiffs are liable for damages caused by the wrongful preliminary injunction. We do not agree.

A.

C.R.C.P. 65(c) imposes two conditions on an enjoined defendant seeking to recover damages on a bond: First, the injunction must have been "wrongful," and second, the defendant must have suffered damages as a result of the issuance of the injunction. See Wick v. Pueblo West Metropolitan District, 789 P.2d 457 (Colo.App.1989). Here, because the trial court "assumed that Ameritrust was 'wrongfully' enjoined and could establish damages," these conditions are satisfied. At issue, therefore, is what discretion, if any, the trial court has to refuse damages on a bond if both these conditions are met.

Because Colorado has no authority on this precise question, we look to jurisdictions which, in interpreting similar rules, have addressed this issue. We note that, as relevant here, C.R.C.P. 65(c) is identical to Fed.R.Civ.P. 65(c).

The great majority of courts which have ruled on this issue have adopted a so-called "judicial discretion" standard in which the trial court has discretion in deciding whether to award damages on the bond. See Alabama ex rel. Siegelman v. United States Environmental Protection Agency, 925 F.2d 385 (11th Cir.1991). Although there are two other standards--the automatic damages and the malicious prosecution standards, see Cappaert Enterprises v. Citizens & Southern International Bank, 564 F.Supp. 214 (E.D.La.1983), relatively few jurisdictions follow these, and we are persuaded that the judicial discretion standard is most consistent with the plain language of the rule.

By its terms, C.R.C.P. 65(c) requires that an applicant give a bond, but it does not expressly order the court to pay that bond to a prevailing defendant. As we read the rule, the security is merely to ensure that an applicant is able to pay damages in the event that a court so requires.

In deciding to adopt this judicial discretion standard, we must also consider what limits are on that discretion. Although some courts view the trial court as having almost unlimited discretion to deny damages, see H & R Block, Inc. v. McCaslin, 541 F.2d 1098 (5th Cir.1976); Page Communications Engineers, Inc. v. Froehlke, 475 F.2d 994 (D.C.Cir.1973), most others construe the pertinent rule as implying a preference for awarding damages. See Alabama ex rel. Siegelman v. United States Environmental Protection Agency, supra; Coyne-Delaney Co. v. Capital Development Board, 717 F.2d 385 (7th Cir.1983).

Under this principle of preference, a trial court presumes that a prevailing defendant is entitled to damages on the injunction bond, unless there is good reason for not requiring such payment in the particular case. Coyne-Delaney Co. v. Capital Development Board, supra. This "good reason" standard is the one we now adopt. As the Coyne-Delaney court stated: "Not only is it implied by the text of Rule 65(c) but it makes the law more predictable and discourages the seeking of preliminary injunctions on flimsy (though not necessarily frivolous) grounds."

B.

The trial court applied this standard in denying Ameritrust's motion for costs and damages. Although Ameritrust does not argue that this was inappropriate, it contends that the trial court looked at the wrong factors in determining that "good reason" existed. We do not agree.

1.

In its brief to this court, Ameritrust appears to argue that a determination of "good reason" must be based exclusively on three factors set forth by the Coyne-Delaney court--resources of the parties, defendant's mitigation of damages, and outcome of the underlying suit--and that the trial court here erred by considering other factors. We do not read that decision so restrictively. In fact the Coyne-Delaney court itself specified those factors only as examples of legitimate grounds for a trial court to consider in determining whether "good reason" exists to deny damages.

Nonetheless, the trial court's discretion is somewhat circumscribed as to the factors it can consider. If, as here, a rule "prescribe[s] a course of action ... the [trial] court's discretion is more limited than it would be if the rule were nondirective." Coyne-Delaney Co. v. Capital Development Board, supra. See Friendly, Indiscretion about Discretion, 31 Emory L.J. 747 (1982).

Therefore, when an appellate court reviews a trial court's determination of "good reason," the standard of review regarding which factors the trial court has used is akin to review by "the standard of simple error used in reviewing decisions of questions of law." Coyne-Delaney Co. v. Capital Development Board, supra. We review the trial court's order accordingly.

2.

The trial court's order, in pertinent part, stated:

A prevailing defendant is generally entitled to costs and damages incurred as a result of having been wrongfully enjoined unless there is good reason not to require plaintiff to pay in a particular case. [Coyne-Delaney ] One good reason not to award such damages is where it would be oppressive and inequitable to do so. [Page Communications ] In this...