What do you need to know about an Injunction Bond?

An Injunction Bond is a type of Surety Bond that provides a guarantee to the defendant against any damages he or she may sustain should the court dismiss the plaintiff’s lawsuit. It also protects the defendant from being unlawfully accused.

An Injunction Bond instructs the plaintiff to indemnify a defendant against foreseeable damage he or she may sustain as a result of the injunction, especially if the court later rules that the injunction wrongfully restrained the defendant. If this happens, the defendant has the right to file a lawsuit against the plaintiff.

The court may order an injunction against a defendant at the request of a plaintiff to prevent the former from performing any action that could be detrimental to the interest of the plaintiff. It is also intended to preserve the evidence linked to the lawsuit.

However, the plaintiff must present proof before a judge that an injunction is necessary to prevent irreparable damage. Usually, a preliminary injunction is issued at the beginning of a lawsuit to refrain from the defendant’s action during the litigation. The injunction could be ordered as a permanent injunction which mandates the defendant to stop all actions that are deemed detrimental permanently.

 

What is the process for obtaining an Injunction Bond from a Surety Company?

Here are the documents that we typically require to finalize an Injunction Bond:

1) Copy of the Motion / Complaint
2) Copy of Court Order that approves the Injunction
3) Completed Application
4) Financial Statement may be needed (if the client is attempting to get approved without collateral)
5) If collateral is required, then a signed Collateral Agreement.

Once we have received all documents, usually we can have the bond finalized within 24 hours (exceptions apply).

Important note:  Many Injunction bonds require that collateral, in the full amount of the bond, be pledged.  This collateral is held in our collateral account until the bond is exonerated.

 

Injunction Bond Required To Seek Preliminary Injunction

As a general rule, a court will require a plaintiff to obtain an Injunction Bond before being granted its motion to seek a preliminary injunction. Some requirements set under court rules may stop an injunction from being implemented if the plaintiff fails to post the required bond. An illegally issued Injunction Bond could leave a defendant without sufficient legal remedy for any damages.

However, even if the court has set the Injunction Bond, any party to the injunction has the right to question the sufficiency of the bond. Because this type of bond is intended to protect against possible damages, any volunteered evidence may be considered as speculative. Any party must only present proof that the damage is “reasonably foreseeable” to justify the posting of a bond. In Abba Rubber Co. v. Seaquist (1991) 235 Cal, the court said that a preliminary injunction might allow the defendant to “recover that portion of his attorney’s fees attributable to defending against those causes of action on which the issuance of the preliminary injunction had been based.”

With the possibility that the court might impose a high Injunction Bond, a plaintiff should carefully ponder if it wants to enforce the preliminary injunction in the first place. Even if the plaintiff is financially capable of paying a high bond, he or she is still exposed to shifting fee and might face other liability that is otherwise should not be existent.

To be sure, both the plaintiff and the defendant should pay close attention to the amount of bond the court set when ordering a preliminary injunction. Most often, bonding requirement fails to take into consideration that the bond’s primary function is to protect the interest of an enjoined party. Sometimes this results to the court denying the motion for preliminary injunction.

 

Parties Involved in an Injunction Bond

In an Injunction Bond, the plaintiff is the Principal, while court is the Obligee. The bonding firm that issues the bond is the Surety.

However, a permanent injunction does not require any bond. The form of this type of bond normally varies because sureties and lawyers always negotiate the terms in each case. Injunction bonds are one of the most common bonds posted by plaintiffs.

A majority of plaintiffs’ bond, especially those held in connection with the prejudgment seizure of property, are voluntary bonds. These kinds of bonds are secondary to the litigation amongst the parties, and the plaintiff is not required to instigate a prejudgment seizure action to pursue a claim.

However, an Injunction Bond obtained by a plaintiff is aimed at protecting his or her rights and interests. This bond is an involuntary bond, a term that is usually reserved to describe defendants’ bond. Since an Injunction Bond is involuntary sureties and underwriters are compelled to apply the same considerations when writing defendants’ bonds.

A preliminary or permanent injunction will have a profound impact on rights that involve considerable values. An illegal or improper injunction could result in significant damage. It is imperative for sureties to carefully evaluate the company’s potential liability before writing this type of bond by requesting a request a copy of the injunction and the full facts of the case.

 

Do I need collateral for an Injunction Bond?

Collateral is often required for Injunction bonds.  Underwriters will usually look the size of the bond as well as the client's financial ability to pay the bond if they don't prevail in the lawsuit.

Examples of Preliminary Injunction

Case 1:

Grace and Steve have been living in a small town in Colorado where they built a lovely home and planted beautiful pine trees that provide shades from the sun. However, a new neighbor moved in after buying the adjacent property. The new neighbors told Grace and Steve they are planning to expand their drive, but the renovation will involve the destruction of a fence and the uprooting of several large pine trees that have grown partially on both properties. Grace and Steve then sought court actions and filed a civil injunction to refrain the neighbors from removing the trees.

Should Grace and Steve wait until a judge sets a trial date for their petition, the neighbor could have initiated the renovation and damage the oak trees. In this situation, the judge would be hard pressed to order compensation should it later rules for the couple.

A timely issuance of a preliminary injunction will prevent damage to the trees and the petition by requiring the neighbor to stop the expansion of their driveway until the court makes a final ruling on the matter.

Case 2:

Sunshine Beer is running a successful beer brewery business and is enjoying a virtual monopoly of the beer market in Iowa. However, an enterprising businessman decided that it is time for Sunshine Beer to have a competition and have a slice of the pie.

But Sunshine Beer has established a solid foothold in the local market, and it would be tough to compete with it head-on. The businessman decided to use the name “Sunny Beer” and use a logo and company slogan very similar to that of Sunshine Beer.

Sunshine Beer then went to court to stop its business competitor, Sunny Beer, from marketing a product of product using a name or slogan to which the plaintiff claims exclusive rights. Sunshine Beer mu post a preliminary Injunction Bond upon the filing of the lawsuit to demand that Sunny Beer stops all its action and to use its name, slogan or logo.

 

Example of Permanent Injunction

Gerry was terminated as a food technologist at one of the most famous global restaurant chains. Being privy to the secret recipes, ingredients and manufacturing process of the restaurants’ food products, Gerry threatened to disclose these secrets to the public. The company quickly files for an injunction to stop Gerry from making any public disclosures of the restaurants’ trade secrets. The restaurant told the court that disclosure of sensitive company information could cause serious permanent damage to the survival of the restaurant chain. In this situation, the court will likely issue a preliminary injunction to order Gerry from making any public disclosure of company secrets.

The company can ask the court to issue a permanent injunction against Gerry only after a hearing has been held. The restaurant chain must show proof to the court of Gerry’s knowledge of company secrets that could cause harm. Once the court issues a permanent injunction, Gerry will be permanently prohibited from publicly discussing such information. If Gerry fails to comply with the court’s order, he may face both civil and criminal charges.

 

How Much Does an Injunction Bond Cost?

Rule 65(c) of the Federal Rules of Civil Procedure states that a plaintiff applying for a preliminary injunction must post an Injunction Bond “in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained.” But in reality, the plaintiff will only pay a portion of the actual costs incurred and damages suffered by the defendant as a result of the wrongfully issued preliminary injunction.
In California, state laws required the amount of the bond to sufficiently cover damages and costs that a defendant “may sustain” if the final decision of the court is that an injunction is not proper.  (Cal. Civ. Proc. Code Sec. 529(a)).

If you want a professional quote on an Injunction Bond, Surety Bond Authority is your one-stop source for all your bonding requirements. If you require an Injunction bond, please feel free to call us at 800-333-7800 and our competent and friendly staff will give you a fast and free quote.

Surety Bond Authority prides itself on our team of dedicated professional who are always ready to guide and assist you in all your bonding needs. We will also try to explain and simplify the process involved in obtaining an Injunction Bond or all your other surety needs. Please allow us to help you get the bonds that you need.

 

About Surety Bond Authority:

Surety Bond Authority was founded by its CEO Greg Rynerson, who has more than 25 years of experience in surety bonds and insurance industries. During his professional career, Greg has written bonds at the state and federal level for his satisfied clients.

As a full-service surety bond company, Surety Bond Authority claims a solid reputation and is built on a foundation of integrity. Surety Bond Authority offers excellent customer service at affordable rates.

Learn more about Injunction Bonds by watching the video below.

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