A business can seek an injunction to enforce a non-compete agreement before a lawsuit is completed if the business is suffering losses due to the violation of a non-compete agreement. There are different legal standards for issuance of a temporary injunction, depending on whether the lawsuit and motion occur in federal or state court. The federal legal standard (1) a substantial likelihood of success on the merits; (2) irreparable injury without the injunction; (3) the threatened injury to the movant outweighs whatever damage the proposed injunction may cause the opposing party; and (4) if issued, the injunction would not be adverse to the public interest. Bloedorn v. Grub, 631 F.3d 1218 (11th Cir. 2011). “Because preliminary injunctions are an extraordinary remedy, this relief is appropriate only if the movant clearly establishes the burden of persuasion on each element.” Nuvasive, Inc. v. Leduff, 2019 WL 5962658 (M.D. Fla. 2019). In addition, however, the party who obtains the injunction is required to post a bond. Posting a bond can be expensive and may impact damages. As a result, it should be considered when seeking or opposing an injunction. Peter Mavrick is a Fort lauderdale non-compete attorney and business litigation attorney who has substantial experience with non-compete litigation, including injunction proceedings.
When seeking an injunction in federal court, a bond must be posted pursuant to Federal Rule of Civil Procedure 65(c). The purpose of posting a bond is to redress costs and damages suffered by any party that is wrongfully enjoined. Although the court has some discretion as to the amount of the bond to be posted, the amount should be enough to cover costs and damages that the enjoined party may suffer.
As an example, in North American Products Corporation v. Moore, 196 F. Supp. 2d 1217 (M.D. Fla. 2002), the District Court for the Middle District of Florida determined that an injunction should be imposed against a former employee of North American Products Corporation and Tru-Cut, a corporation the former employee started after leaving North American Products Corporation. The former employee proceeded to compete against North American Products Corporation in violation of a non-compete agreement. After finding that North American Products Corporation met the requirements for imposition of an injunction, the District Court held that a bond had to be posted. To determine the amount of the bond, an evidentiary hearing was requiredThe District Court looked to the yearly revenues being earned by Tru-Cut and ordered North American Products Corporation to post a bond that would at least satisfy Tru-Cut’s annual projected revenue. The Court set the bond at $500,000.
The requirement for imposing a bond in Florida state court is similar and is set forth in Florida Rule of Civil Procedure 1.610(b). Rule 1.610(b) states that “[n]o temporary injunction shall be entered unless a bond is given by the movant in an amount the court deems proper, conditioned for the payment of costs and damages sustained by the adverse party if the party is wrongfully enjoined.” Under Florida law, the bond is intended to pay any damages incurred by the party against whom the injunction is entered in the event the injunction turns out to have been wrongfully entered. In determining the proper amount of bond, the Florida state court, like a federal court, will have to consider evidence presented at a hearing to determine the amount of the bond. The amount of bond can be based on whatever damages the enjoined party is likely to suffer, such as lost profits, but it must have a clear basis in the evidence. The amount of the bond “should reflect the court’s determination of the foreseeable damages for a wrongful injunction.” Advantage Digital Systems, Inc. v. Digital Imaging Services, Inc., 870 So. 2d 111 (Fla. 2d DCA 2004). As a result, it can be based on lost revenue or any other loss that the enjoined party would suffer as a result of the injunction.
The Florida Supreme Court has held that the amount of the injunction bond serves as a cap on damages that are later assessed at a trial. Parker v. Tampa Two, Inc. v. Somerset Dev. Corp., 544 So. 2d 1018 (Fla. 1989). This legal principle is generally followed in federal court, but it should be noted that this is not a hard and fast rule. Damages may exceed the amount of the bond if the injunction was obtained maliciously or in bad faith or if the there was no opportunity for the enjoined party to participate in an evidentiary hearing and the enjoined party “expeditiously” tried to exhaust available remedies. Meridian Trust Co. v. Batista, 2018 WL 4777572 (S.D. Fla. 2018).
Thus, the evidentiary hearing to determine the amount of a bond to be posted for an injunction is a critically important hearing that will impact not only the rights of the parties in the near and distant future, but also the amount of damages that may be awarded at a trial concerning the non-compete agreement.
Peter Mavrick is a Fort Lauderdale non-compete lawyer and business litigation lawyer. This article does not serve as a substitute for legal advice tailored to a particular situation.