Guzzetta v. Serv. Corp. of Westover Hills
| Decision Date | 09 November 2010 |
| Citation | 7 A.3d 467 |
| Parties | Robert GUZZETTA and Kathleen S. Guzzetta, Defendants Below, Appellants, v. SERVICE CORPORATION OF WESTOVER HILLS, Plaintiff Below, Appellee. |
| Court | Supreme Court of Delaware |
Court below: Court of Chancery of the State of Delaware, C.A. No. 2922.
Upon appeal from the Court of Chancery. REVERSED and REMANDED.
Thomas C. Marconi, Esquire (argued), and Paul E. Bilodeau, Esquire, of Losco & Marconi, P.A., Wilmington, Delaware, for Appellants.
Richard H. Cross, Jr., Esquire, (argued), Amy E. Evans, Esquire, and Ryan M. Ernst, Esquire, of Cross & Simon, LLC, Wilmington, Delaware, for Appellee.
Before STEELE, Chief Justice, BERGER and JACOBS, Justices.
In this appeal we consider whether the Court of Chancery abused its discretion in setting the amount of an injunction bond. A party that is wrongfully enjoined may recover damages resulting from the injunction, but that recovery is limited to the amount of the bond. Thus, in order to fully protect the enjoined party, the trial court should set the bond at a level likely to meet or exceed a reasonable estimate of potential damages. In this case, the trial court correctly rejected several items that appellants included in their list of potential damages. But the remaining items totaled more than twice the amount of the bond, and the trial court did not explain which of the remaining items were rejected, or why. Accordingly, we reverse.
In 2007 Robert and Kathleen S. Guzzetta purchased 907 Berkeley Road, a residential property located in Westover Hills, Wilmington, Delaware (the Property). At that time, the Guzzettas owned and lived in the adjoining property. They purchased the Property in order to create a grassy play area for their children. The Guzzettas intended to demolish the existing structures and re-landscape the Property. In May 2007, the Service Corporation of Westover Hills filed this action seeking a permanent injunction claiming that the demolition would violate a restrictive covenant in the Guzzettas' deed. The trial court entered a temporary restraining order, and then a preliminary injunction.
Shortly after being enjoined, the Guzzettas filed a motion, pursuant to Court of Chancery Rule 65(c), seeking security in the amount of $10,189.56, based on an itemized list of potential damages. After a telephonic hearing, the court required the Service Corporation to post security in the amount of $5,000. A Master tried the case, and issued a Draft Report on August 5, 2008. The Master concluded that the Service Corporation should not be granted a permanent injunction because the applicable deed restriction did not govern the planned demolition.
In September 2008, the Guzzettas filed a motion to increase the security from $5,000 to at least $79,146.94. The trial court agreed to increase the Service Corporation's bond to $10,000. The Master issued a Final Report in April 2009, and in December 2009, the Court of Chancery: 1) vacated the preliminary injunction; 2) denied the Service Corporation's application for a permanent injunction; 3) ordered the Service Corporation to reimburse the Guzzettas for fees and costs; and 4) awarded the Guzzettas $10,000 in damages. This appeal followed.
The only issue on appeal is whether the trial court abused its discretion in setting the amount of the injunction bond.1 Chancery Court Rule 65(c), providesthat a party seeking an injunction must give security "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...." The security, usually a bond, fixes the maximum amount that an enjoined party may recover.2 Damages are those proximately caused by the injunction, and must be proven by a preponderance of the evidence.3 But, damages are not fully ascertainable until the court vacates the injunction. 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. In Mead Johnson & Co. v. Abbott Laboratories, the Seventh Circuit Court of Appeals explained:
When setting the amount of security, district courts should err on the high side. If the district judge had set the bond at $50 million, as Abbott requested, this would not have entitled Abbott to that sum; Abbott still would have to prove its loss, converting the "soft" numbers to hard ones. An error in setting the bond too high thus is not serious.... Unfortunately, an error in the other direction produces irreparable injury, because the damages for an erroneous preliminary injunction cannot exceed the amount of the bond.4
The party seeking an injunction bond must support its application with "facts of record or ... some realistic as opposed to a yet-unproven legal theory from which damages could flow to the party enjoined." 5 The Guzzettas, in their motion to increase the bond, attached an itemized list of their potential damages. That list included, among other things, $8,123.63 for additional property and school taxes, $1,564 for insurance, $8,000 for increased demolition costs, $550 for increased landscape costs, and $8,500 for lost use of the Property. Those potential damages total almost $27,000. The other substantial items on the Guzzettas' list were $2,866.50 for a landscape architect, $1,532 for interest on damages, and $46,646.15 for the Guzzettas' time off from work.
The trial court decided that the Guzzettas "may be able to prove damages resulting from higher property taxes ... and higher insurance costs, as well as something for lost use of the property...." 6 The court rejected their claimed damages for landscaping and arborist costs because there was no showing that those costs were proximately caused by the injunction. It rejected the interest on damages claim because there was an insufficient showing of out-of-pocket damages. Finally, the trial court found no legal basis on...
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