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INTERLINK INT. FIN SER. v. BLOCK

May 15, 2001

INTERLINK INTERNATIONAL FINANCIAL SERVICES, INC., D/B/A EPAYLINK, PLAINTIFF,
V.
MICHAEL BLOCK, DEFENDANT.



The opinion of the court was delivered by: Haight, Senior District Judge:

MEMORANDUM OPINION AND ORDER

In this action based upon a criminal statute prohibiting "fraud and related activity in connection with computers," 18 U.S.C. § 1030, as to which § 1030(g) creates a private right of action, defendant moves the Court for an increase in the amount of the security previously given by plaintiff pursuant to Rule 65(c), Fed. R. Civ. P., to obtain a temporary restraining order ("TRO").

The exigencies of time preclude a detailed statement of the facts. For present purposes it is sufficient to say that on April 26, 2001, the Court on plaintiffs application signed an ex parte Order to Show Cause containing a TRO and required plaintiff to furnish security in the amount of $5,000. At a hearing on April 30, 2001, at which both parties were represented by counsel, the Court directed that the amount of security posted by plaintiff be increased to $100,000. Plaintiff, ostensibly encountering some financial difficulty in complying, had not yet furnished security in that amount when defendant brought on the present motion for an order directing plaintiff to furnish security in an amount greater than $100,000. The Court conducted an evidentiary hearing on May 7, 8 and 9, 2001, and heard oral arguments of counsel on May 9 and May 10. This Memorandum Opinion decides defendant's motion.

I.

Rule 65(c) provides in pertinent part:

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.

"The purpose of requiring security prior to issuance of an injunction or a temporary restraining order is to guarantee payment of costs and damages incurred by a party who is wrongfully enjoined or restrained." 13 Moore's Federal Practice (3d. ed. 1997) (hereinafter Moore) at 65-94.1. "The sum posted in a bond is determinative of the limit that may be recovered by a wrongfully restrained party; in the absence of proof that the movant sought to enjoin with malicious intent and without probable cause, recovery by a party later found to have been wrongfully enjoined will be limited to that amount." Id. at 65-94. "The risk created by the rule limiting recovery to the amount of the bond is that an enjoined party may be unable to obtain adequate redress." Little Tor Auto Center v. Exxon Company USA, 822 F. Supp. 141, 144 (S.D.N.Y. 1993).

The provision in Rule 65(c) that security shall be given "in such sum as the court deems proper" indicates that "the district court is vested with wide discretion in the matter of security," Ferguson v. Tabah, 288 F.2d 665, 675 (2d Cir. 1961). A district court may dispense with the posting of security entirely where parties sought to be enjoined or restrained "have not shown that they will likely suffer harm absent the posting of a bond," Doctor's Associates Inc. v. Stuart, 85 F.3d 975, 985 (2d Cir. 1996); Ferguson, 288 F.2d at 675 ("it has been held proper for the court to require no bond where there has been no proof of likelihood of harm"); see also International Controls Corp. v. Vesco, 490 F.2d 1334, 1356 (2d Cir. 1974) ("the district court may dispense with security where there has been no proof of likelihood of harm to the party enjoined."); 11 A Wright-Miller-Kane, Federal Practice and Procedure (2d ed. 1995) (hereinafter Wright) at 293 ("the court may dispense with security altogether if he grant of an injunction carries no risk of monetary loss to the defendant.").

The district court need not order security in respect of asserted economic damages that are "speculative at best," Inflight Newspapers Inc. v. Magazines In-Flight LLC, 990 F. Supp. 119, 140 (E.D.N Y 1997); See also CVI/Beta Ventures Inc. v. Custom Optical Frames Inc., 893 F. Supp. 508, 525 (D.Md. 1995) ("Claims based upon speculation or conjecture, including claims for a business contemplated but not yet established, will not support an award of damages on the [Rule 65(c)] bond."), aff'd., 92 F.3d 1203 (4th Cir. 1996) (table).

Security furnished under Rule 65(c) will not include any damages "for claims against the party who instituted the action other than those directly attributable to the improvidently issued injunction." 11A Wright at 292; CVI/Beta, 893 F. Supp. at 525 ("Moreover, damages claimed under an injunction bond must arise from the operation of the injunction itself, not from damages caused by the suit independently of the injunction.").

II.

Applying these principles to the case at bar, defendant Block has shown neither a likelihood nor a risk of economic harm resulting from his compliance with the restraints imposed by the first decretal paragraph of the TRO. The purpose of those restraints is to prevent Block from interfering with or meddling in Interlink's business operations and Interlink's relations with its clients. Block's professed concern that these restraints preclude him from trying to market the software program he developed to potential users is based upon a fanciful and overbroad reading of the TRO's language.

Alternatively, Block has made no effort, and has laid no preparatory plans, to engage in such marketing. Block testified at the hearing that his business objective for the foreseeable future is to continue working full time for the Sporn Group, Inc.; and there is no suggestion in the record that the Sporn Group is interested in Block's software program. Accordingly the ...


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