First-Citizens Bank & Trust Company of North Carolina v. Outsource Services Management
ORDER denying 23 Defendant's Motion to Stay; First-Citizens shall post a bond in the amount of $10,600,00.00 no later than 5:00 pm, central daylight time, on Friday, August 3, 2012, if such bond is not posted the preliminary injunction issued by Order dated July 27, 2012 22 shall be dissolved (Written Opinion). Signed by Judge Ann D. Montgomery on 08/0102012. (TLU)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
First-Citizens Bank & Trust Company
of North Carolina,
Civil No. 12-1734 ADM/FLN
Outsource Services Management,
d/b/a Presidium Asset Solutions,
John C. Ekman, Esq., and Daniel N. Sacco, Esq., Lindquist & Vennum PLLP, Minneapolis, MN,
on behalf of Plaintiff.
Jerome A. Miranowski, Esq., and Michael M. Krauss, Esq., Faegre Baker Daniels LLP,
Minneapolis, MN, on behalf of Defendant.
Paul L. Ratelle, Esq., Fabyanske Westra Hart & Thomson, PA, Minneapolis, MN, on behalf of
Plaintiff-Intervenor Arvest Bank.
This matter is before the undersigned United States District Judge for consideration of
Defendant Outsource Services Management’s (“OSM”) Expedited Motion for a Stay Pending
Appeal [Docket No. 23] and Supplemental Brief to Require Bond Before Preliminary Injunction
Becomes Effective [Docket No. 27]. By Order dated July 27, 2012 [Docket No. 22] (the
“Order”), Plaintiff First-Citizens Bank & Trust Company of North Carolina’s (“First-Citizens”)
Motion for Temporary Restraining Order [Docket No. 3] was granted and a preliminary
injunction against OSM was issued. OSM now moves to stay the Order and requests a bond
from First-Citizens as the security required by Rule 65(c) of the Federal Rules of Civil
A. Motion for a Stay Pending Appeal
The factual background of this matter is recited in the Court’s prior Order and is
incorporated here by reference. OSM avers it will appeal that Order and asks the Court for a
stay pending that appeal. The factors to consider in determining whether to stay an injunction
pending an appeal are:
(1) whether the stay applicant has made a strong showing that he is likely to succeed on
the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether
issuance of the stay will substantially injure the other parties interested in the proceeding;
and (4) where the public interest lies.
Hilton v. Brauskill, 481 U.S. 770, 776 (1987) (citations omitted). These factors are substantially
similar to those used in issuing preliminary injunctive relief in the first instance: (1) threat of
irreparable harm to the movant; (2) harm to other parties if the relief is granted; (3) probability
of movant’s success on the merits; and (4) effect on public interest. Dataphase Sys., Inc. v. C L
Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981). The Court has already weighted the equities in this
case and they favor preliminary relief.
The equities weigh in favor of a preliminary injunction because the equities favor the
status quo. OSM appears to suggest a stay, rather than an injunction, will maintain the status
quo. Mem. of Law in Supp. of OSM’s Expedited Mot. for a Stay Pending Appeal [Docket No.
25] 2 (citing Protect Our Water v. Flowers, 377 F. Supp. 2d 882, 882 (E.D. Cal. 2004)). The
status quo is the last uncontested status preceding the pending controversy. Lieving v. Cutter
Assocs., Inc., 2010 WL 428800, at *4 n.1 (D. Minn. Feb. 1, 2010) (citing Aoude v. Mobil Oil
Corp., 862 F.2d 890, 893 (1st Cir. 1988)). This controversy arose from the voting approval of
the proposed Agreement Regarding Loan. Prior to the vote regarding that proposal, the status
was that the loan at issue was approaching default with no valid work out agreement in place.
The injunction preserves that status quo. OSM avers the participant banks will be irreparably
harmed by the injunction. OSM avers each participant bank will be obliged to reclassify the
loan, evaluate write-offs, and increase their loan loss reserves. However, First-Citizens
previously argued that any default, including giving rise to a forbearance agreement, would lead
to the same results. OSM fails to identify how the participant banks will suffer a new harm in
this regard distinct from what they would suffer if the proposed Agreement Regarding Loan or
some less controversial forbearance agreement were negotiated. Unanimous consent is not
needed for a forbearance agreement that does not extend the maturity date of the loan or reschedule payments. Decl. of Michael Meyer in Supp. of Mot. for Temporary Restraining Order
[Docket No. 6] Ex. B § 3.5(c). OSM can even take certain action unilaterally. Id. § 3.1(a).
Therefore, it is not speculative to believe that some agreement could be reached that would
mitigate harms of delaying an ultimate decision regarding the loan while the rights of the parties
Finally, OSM argues it could not create a sufficient evidentiary record prior to the
issuance of a preliminary injunction rather than a temporary restraining order. However, OSM
never requested further briefing or an evidentiary hearing on this matter. The motion was fully
briefed by both sides, and the Court allowed lengthy oral argument. In fact, rather than asking
for additional time to submit further evidence, at the conclusion of oral argument OSM’s counsel
stressed the need for a speedy ruling.
B. Bond Requirement
With respect to OSM’s Supplemental Brief to Require Bond Before Preliminary
Injunction Becomes Effective, the parties did not raise the issue of a bond during the initial
proceedings. However, Rule 65(c) does require that the “court may issue a preliminary
injunction or temporary restraining order only if the movant gives security 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.” Fed. R. Civ. P. 65(c) (emphasis added).
OSM avers the damages of being wrongfully enjoined will be the loss of the benefits of
the proposed Agreement Regarding Loan. Specifically, OSM cites the loss of the proposed $12
million August 1, 2012 payment (approximately $1.4 million of which would be distributed to
First-Citizens), loss of the guaranty of the Confederated Tribes, loss of the increased interest
rate, loss of quarterly payments of principal, loss of new financial covenants, and loss of the
proposed shortened amortization period. To compensate these losses, OSM requests a bond
between $12 million and $53.67 million. If OSM has been wrongfully enjoined, the future
damages are uncertain. If OSM ultimately prevails after only a few months of litigation, and
then enters into an agreement with nearly identical terms to Agreement Regarding Loan, OSM
and the participant banks have only lost the time-value of payment under the proposed
agreement. If, on the other hand, the borrower reneges on the agreement (and would not have
done so anyhow), the benefit of the entire agreement would be lost. There has been no reason
proffered that the latter possibility is greater than the former. These vagaries render a precise
figure difficult to determine. Nonetheless, an appropriate bond in these circumstances is
$10,600,000.00 (the approximate amount the participant banks other than First-Citizens would
have received on August 1 but for the injunction).
Having determined the amount of the bond, the Court now turns to an issue implicit in
OSM’s request. OSM appears to take the position that the Order is not effective until the bond is
actually posted. Indeed, the law in some jurisdictions holds that the posting of a bond is a
condition precedent to the issuance of a preliminary injunction. See Atomic Oil Co. of Okla. v.
Bardahl Oil Co., 419 F.2d 1097, 1100 (10th Cir. 1969) (“Rule 65(c) states in mandatory
language that the giving of security is an absolute condition precedent to the issuance of a
preliminary injunction.”); United States v. Associated Air Transp., Inc., 256 F.2d 857, 861 (5th
Cir. 1958) (“[U]ntil the bonds were filed, the order by its own terms was conditional and without
operative effect . . . .”). However, other jurisdictions are not so stringent, allowing injunctions to
be effective so long as the issue of requiring a bond is eventually considered. See IDG USA,
LLC v. Schupp, 416 Fed App’x 86, 89 (2d Cir. 2011) (“[W]e reject [Defendant’s] argument that
the district court’s preliminary injunction is somehow invalid because the court failed to require
[Plaintiff] to post a bond until after [Defendant] specifically requested one almost a month after
the preliminary injunction first issued.”); Aoude, 862 F.2d at 896 (“[P]osting of a bond is not a
jurisdictional prerequisite to the validity of a preliminary injunction . . . .”).
This Court’s binding appellate body, the U.S. Court of Appeals for the Eighth Circuit has
not weighed in on the issue. Rather, Eighth Circuit precedent only requires that the issue be
considered. See Rathmann Grp. v. Tanenbaum, 889 F.2d 787, 789 (8th Cir. 1989) (holding it is
an abuse of discretion for trial court not to consider question of bond securing preliminary
injunction). Under the circumstances here, the Court will adopt what it deems the wiser rule and
hold the injunction is effective notwithstanding the failure to set a bond in the Order granting
injunctive relief. Given the equitable nature of injunctions, the temporary relief at issue, and the
necessarily fast pace of these proceedings, strict adherence would be unjust when neither party
previously raised the issue, none has expressed doubts as to the ability of First-Citizens to
procure the bond, and damages secured by the bond, if any, would not be awarded until well
after the bond would be posted. Therefore, First-Citizens is required to post a bond in the
amount of $10,600,00.00 no later than 5:00 pm, central daylight time, on Friday, August 3, 2012.
Based upon all the files, records, and proceedings herein, IT IS HEREBY ORDERED
1. Expedited Motion for a Stay Pending Appeal [Docket No. 23] is DENIED;
2. First-Citizens shall post a bond in the amount of $10,600,00.00 no later than 5:00 pm,
central daylight time, on Friday, August 3, 2012, if such bond is not posted the preliminary
injunction issued by Order dated July 27, 2012 [Docket No. 22] shall be dissolved.
BY THE COURT:
s/Ann D. Montgomery
ANN D. MONTGOMERY
U.S. DISTRICT JUDGE
Dated: August 1, 2012.
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