Monroe Division, Litton Business Systems, Inc. v. De Bari, 76-1354
| Decision Date | 26 September 1977 |
| Docket Number | No. 76-1354,76-1354 |
| Citation | 562 F.2d 30 |
| Parties | MONROE DIVISION, LITTON BUSINESS SYSTEMS, INC., Plaintiff-Appellee, v. Frank A. DE BARI, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Carl Esbeck, Albuquerque, N. M. (Rodey, Dickason, Sloan, Akin & Robb, P. A. and John P. Eastham, Albuquerque, N. M., on the brief), for plaintiff-appellee.
Richard J. Rubin, Santa Fe, N. M. (Northern New Mexico Legal Services, Inc., on the briefs), for defendant-appellant.
Before SETH, BREITENSTEIN and McWILLIAMS, Circuit Judges.
This is a proceeding to recover damages allegedly resulting from an overly broad preliminary injunction. The district court, after entering a narrower permanent injunction, denied damages. We reverse.
Defendant-appellant De Bari was employed by plaintiff-appellee, Monroe Division, Litton Business Systems, Inc., as assistant branch manager of its Santa Fe, New Mexico, office. His employment was terminated on June 27, 1975. Monroe sued to enforce a provision of the employment contract which prohibited the employee from competing against the employer for one year after contract termination, and sought injunctive relief.
Monroe is a division of Litton Industries, Inc., a conglomerate. It is concerned with the production and marketing of adding machines, calculators and similar devices. Other Litton divisions are engaged in a variety of fields involving business systems and equipment, defense and marine systems, industrial systems and equipment, and professional services and equipment.
After an evidentiary hearing, the court on July 22 issued a preliminary injunction barring defendant from competing with "the Company or its parent or any affiliate or subsidiary of the Company or its parent." The injunctive order did not require, and the plaintiff did not post, the security required by Rule 65(c), F.R.Civ.P. The case was set for trial on October 6 and was continued on the motion of defendant. On October 14, defendant moved for the posting of security. Monroe opposed the motion. It relied on Continental Oil Co. v. Frontier Refining Co., 10 Cir., 338 F.2d 780, 782-783, and argued that security need not be posted by a corporation which has sufficient assets to assure its ability to pay damages. On October 22, the court denied the motion for security, saying that it would be inequitable to require security on a preliminary injunction "which, but for defendant's motion for continuance, would have reached a final decision on the merits." On December 23, after trial on the merits, the court found that defendant had had no contact with Litton subsidiaries other than Monroe, permanently enjoined defendant from competing with Monroe, and deleted the broader restriction of competition with any Litton enterprise.
Defendant then moved "to enforce liability on the wrongful preliminary injunction," and filed a supporting memorandum of points and authorities. The memorandum referred to an affidavit of plaintiff, previously filed, in which he stated loss of income. It also asserts the right to recover on the theory of restitution and unjust enrichment arising from business opportunities made possible by the wrongful restraint on defendant's activities. The motion for enforcement contained a request for a hearing. The court denied the motion without a hearing. This appeal is from the denial of the motion.
Monroe argues that, absent a security bond, there is no liability for damages or restitution because of a wrongful injunction unless the circumstances give rise to a claim for malicious prosecution. Rule 65(c), F.R.Civ.P., provides that no "preliminary injunction shall issue except upon the giving of security by the applicant" for the payment of damages that may be suffered by a party wrongfully enjoined. Rule 65.1 provides that liability may be enforced on motion without an independent action. Monroe's reliance on cases such as Meyers v. Block, 120 U.S. 206, 211, 7 S.Ct. 525, 30 L.Ed. 642, and Russell v. Farley, 105 U.S. 433, 438, 26 L.Ed. 1060, which antedated the Federal Rules of Civil Procedure, is misplaced. We questioned the continued viability of Russell v. Farley in Atomic Oil Co. of Oklahoma, Inc. v. Bardahl Oil Company, 10 Cir., 419 F.2d 1097, 1100-1101, cert. denied 397 U.S. 1063, 90 S.Ct. 1500, 25 L.Ed.2d 685. We pointed out that Rule 65(c) creates a cause of action for costs and damages incurred by an enjoined party by reason of a wrongful injunction. Ibid. at 1101. The rule controls and negates the concept that recovery may only be based on malicious prosecution.
In Continental Oil Company v. Frontier Refining Company, 10 Cir., 338 F.2d 780, 782-783, we held that the security requirement of Rule 65 gave the trial judge a discretion to dispense with a security bond when the applicant for the injunction had "considerable assets" and was "able to respond in damages." Monroe argues that without the posting of security, there may be no recovery of damages or restitution from the applicant for the injunction even though the preliminary injunction was modified to make it less restrictive. Implicit in our decision in Atomic Oil is recognition that Rule 65 mandates security for the protection of the...
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