The District Court in the long-running international litigation involving Chevron exonerated (meaning vacated it) the preliminary injunction bond filed in connection with the preliminary injunction entered by the District Court but then reversed by the Second Circuit.  We have posted on this litigation many times (e.g., here).

The decision addresses several issues of interest to international litigators or other practitioners.

First, the District Court stated:  The purpose of a preliminary injunction bond ‘is to guarantee payment of costs and damages sustained by a party who is wrongfully enjoined or restrained”.   

Second, however, the Court ruled that “the proceeds from such a bond may not be applied to compensate for attorney’s fees”.  Counsel for the defendants had not submitted any claim for damages against the bond.  Nor could they have done so, finds the Court.  The preliminary injunction entered by the Court barred the defendants from enforcing or attempting to enforce the Ecuadorian judgment.  But that Judgment was not enforceable in any event throughout the entire period that the injunction was in effect.  Said the Court:  “The preliminary injunction therefore could not have delayed any enforcement actions or caused any injury to the defendants for which they are able to recover”.

Third, the Court followed the Ninth Circuit in stating that “if a bond is posted, liability is limited by the terms of the bond or the order of the court that required the posting”.   There was no basis for submitting claims for attorneys’ fees under the bond in the circumstances here, and the District Court therfore extinquished the bond.

Finally, as part of the Court’s consideration of the motion, the Court observed that the defendants’ lawyers had “patently” engaged in forum shopping by coming to the District Court in the Second Circuit, which has “held that even proven damages may be disallowed for a good reason such as, but not limited to, unreasonableness for the failure to mitigate damages”.