Appeal from the United States District Court for the District of New Jersey (D.C. Civil No. 89-1660).
Mansmann, Scirica and Seitz, Circuit Judges.
We here examine a preliminary injunction which restrained C.F. Air Freight, Inc. ("C.F.") from terminating its air freight handling contract with Instant Air Freight Company ("Instant"). Because our independent examination of the record reveals that Instant has not established the irreparable injury necessary for the issuance of a preliminary injunction and because the bond requirement of the Federal Rules of Civil Procedure 65(c) has not been met, we will reverse and remand with instructions to vacate the preliminary injunction.
Instant, a New Jersey corporation, was formed in 1971 and since that date has provided air freight handling services to C.F., a Delaware corporation. The most recent contract between the two parties, entered into on March 2, 1987, covers a four-year period ending March 2, 1991.
On April 7, 1989, C.F. merged with Emery Air Freight Corp. ("Emery"), a Delaware corporation.*fn1 By letter dated April 11, 1989, C.F. notified Instant that effective April 17, 1989, C.F. would be closing their Elizabeth, New Jersey terminal through which the freight handled by Instant had been routed. C.F. offered, pursuant to paragraph EIGHTH of their contract, to pay Instant the sum of $220,000 in liquidated damages.*fn2
On April 14, 1989, Instant filed a complaint seeking injunctive relief. On that same day Judge Murray G. Simon of the New Jersey Superior Court entered an order temporarily enjoining C.F. from terminating the agreement with Instant and from "utilizing the services of any person or entity other than plaintiff in contravention of the aforesaid agreement." On April 17, 1989, the Superior Court of New Jersey, Judge Harry A. Margolis, found C.F. in violation of the temporary restraining order and entered an order in aid of litigant's rights. On April 18 C.F. removed the case to the United States District Court for the District of New Jersey, citing diversity of citizenship of the parties. On April 20, 1989, after hearing oral arguments on the respective applications of the parties, the district court granted Instant's request to convert the state court temporary restraining order into a preliminary injunction. The court also imposed sanctions and fees against C.F. for its continuing violation of the two prior state court orders.
The district court initially found that Instant was likely to succeed on the merits and also determined that Instant would suffer irreparable harm if the agreement was terminated. Since eighty percent of Instant's business is devoted to servicing C.F., Instant "will lose the main portion of its business, many if not all of its employees, and its goodwill and reputation in the industry. Without an uninterrupted continuance of the agreement, the business undoubtedly will be forced to shutdown or significantly curtail its operation."
The district court rejected C.F.'s contention that Instant's losses would be compensable by money damages. "The long term relationship between the parties, the justifiable reliance by plaintiff on the continuance of that business, its historical availability to serve the defendant over all of these years and the priority given to defendant's business, and the difficulty in valuing the goodwill and, in particular, the right of first refusal under the agreement, make money damages an inadequate remedy." The court found that in balancing the harm which would be suffered by Instant against the harm that a preliminary injunction would cause to C.F. the balance favored the issuance of a preliminary injunction since the adverse effects on C.F. had "been brought about by the voluntary action of the defendant."*fn3
With regard to the bond requirement under Fed.R.Civ.P. 65(c) the district court denied C.F.'s request for a bond and adopted Instant's proposal that C.F. retain the $220,000 in damages which C.F. acknowledged it owed to Instant.
The district court stated:
What I will do is deny the bond now without prejudice. If you can establish that you are actually sustaining damages, you can come back and you will have some numbers, actual expense, and then if you can satisfy me that your potential losses exceed what is being withheld under the contract, then at that time, we will all know much more about what is happening in the real world and I will certainly reconsider. So I will deny the application for the bond without prejudice, with the understanding that you will have the opportunity to satisfy me that your potential damages exceed the amount that you will be holding now as security.
The court further stated that "in my mind it would take some period of time to use up the $220,000."
Since this is an appeal of a preliminary injunction issued by the district court, we have jurisdiction pursuant to 28 U.S.C. § 1292(a).
In reviewing the district court's grant or denial of a preliminary injunction, we must determine whether the court abused its discretion, committed error in applying the law, or made a clear mistake in considering the proof. Frank's GMC Truck Center, Inc. v. G.M.C., 847 F.2d 100, 101 (3d Cir. 1988).
We utilize a federal standard in examining requests to federal courts for preliminary injunctions. As we stated in System Operations, Inc. v. Scientific Games Dev. Corp., 555 F.2d 1131 (3d Cir. 1977), "[although] the right upon which this cause of action is based is state-created, Rule 65(a) of the Federal Rules of Civil Procedure contemplates a federal standard as governing requests addressed to federal courts for preliminary injunctions."*fn4 Id. at 1141.
We have often recognized that the grant of injunctive relief is an "extraordinary remedy, which should be granted only in limited circumstances." Frank's ...