United States District Court, D. Arizona
JAMES A. TEILBORG, Senior District Judge.
Pending before the Court is Counterclaimant Tri City National Bank's ("TCNB") Renewed Motion to Exonerate the Bond ("Motion to Exonerate"). (Doc. 176). Plaintiffs filed an Opposition to TCNB's Motion to Exonerate and a Countermotion to Exonerate the Bond to Plaintiffs ("Countermotion"). (Doc. 179). The Motions are fully-briefed ( see Docs. 176, 179) and the Court held oral arguments on June 26, 2014. For the following reasons, the Court denies TCNB's Motion to Exonerate (Doc. 176) and grants Plaintiffs' Countermotion (Doc. 179).
In September 2008, Plaintiffs signed a promissory note and deed of trust (collectively, the "Note") securing their single, one-family dwelling on less than 2.5 acres ("Property") with Bank of Elmwood ("BOE") as the Lender. (Doc. 10-1 at 12). The deed of trust secured a promissory note of just over $1, 800, 000. ( Id. ). In July 2009, Plaintiffs filed this lawsuit seeking to have the Note voided for fraud. ( See Doc. 22 at 3).
On October 8, 2009, Plaintiffs obtained a preliminary injunction from the Maricopa County Superior Court ("Superior Court") barring BOE from foreclosing on the Note. ( Id. at 4). Pursuant to Rule 65(e), Ariz. R. Civ. P., the Superior Court ordered Plaintiffs to post a cash bond as security in the amount of $165, 000.00 to maintain the preliminary injunction. (Doc. 176-1 at 3). The Superior Court calculated this bond amount by adding the mortgage payments due at the time (11 months at $9, 100.00 per month) and "an additional four months into the future plus costs of $28, 500.00." ( Id. ). The Superior Court also noted that "[a]ny award of attorney's fees will abide trial on the merits of this case." ( Id. at 4). Plaintiffs posted the bond in full. (Doc. 176 at 2).
On October 23, 2009, the State of Wisconsin Department of Financial Institutions closed BOE and caused the Federal Deposit Insurance Corporation ("FDIC") to be appointed as the receiver. (Doc. 12 at 2). That same day, the FDIC sold all of BOE's assets to TCNB, including Plaintiffs' Note. ( Id. ). In May 2010, TCNB intervened in this matter. ( Id.; Doc. 10-3 at 4).
In June 2010, the Superior Court granted TCNB's motion to modify the preliminary injunction and increased the bond proceeds by $103, 330.00. (Doc. 176-1 at 7). To calculate the increase in bond proceeds, the Superior Court added additional payments on the note at $9, 100.00 per month from April 1, 2010 through December 31, 2010 and property taxes due of $21, 430.00. ( Id. ). Plaintiffs posted this additional amount raising the total bond proceeds to $268, 330.00 (collectively, the "Bond"). (Doc. 176 at 2).
On July 7, 2010, the Superior Court granted the FDIC's motion to be substituted in place of BOE for counts one through ten and count twelve of Plaintiffs' First Amended Complaint. (Doc. 12 at 3). On August 5, 2010, the FDIC removed the suit to this Court. ( Id. ). On October 13, 2010, because all claims against the FDIC must be addressed in an administrative proceeding, Plaintiffs agreed to dismiss the FDIC. (Doc. 12-1 at 10). On December 7, 2010, the Court remanded the case back to the Superior Court. (Doc. 12 at 4). At that time, the Superior Court granted TCNB's motion to modify the preliminary injunction by increasing the bond amount by $81, 670.00 in order to cover mortgage payments that would be due through July 31, 2011 in addition to an amount for TCNB's ongoing attorneys' fees. (Doc. 176-1 at 11). Plaintiffs failed to post the bond amount by the required date. (Doc. 179 at 2). As a result, the current Bond proceeds total $268, 330.00 in compliance with the initial two Superior Court Orders (collectively, the "Orders"). (Doc. 183 at 2).
In Superior Court, on June 22, 2011, Plaintiffs filed a motion to amend the complaint seeking, among other things, to add TCNB as a defendant to claims previously dismissed against the FDIC. ( See Doc. 10-3). On July 22, 2011, the FDIC filed a motion to intervene arguing that Plaintiffs could only assert those claims against the FDIC. ( Id. ). On October 5, 2011, the Superior Court granted the FDIC's motion to intervene and, on October 20, 2011, the FDIC removed the case to this Court for the second time, now asserting original federal jurisdiction under 12 U.S.C. §1819(b)(2)(A). ( See id. ).
On April 4, 2012, the Court granted TCNB's motion to dissolve the preliminary injunction because of Plaintiffs' failure to post the security required by the Superior Court's third order. ( See Doc. 48). However, the Court declined to release the Bond to TCNB. ( Id. at 6). At that time, the Court could not conclude that TCNB had been wrongfully enjoined because TCNB purchased the loan with the injunction already in place and no decision had been reached on the merits as to whether BOE or TCNB ever had the right to conduct a trustee's sale. ( Id. ).
On October 25, 2012, TCNB held the trustee's sale for the Property in which TCNB submitted a "credit bid" of $1, 900, 000.00 and became the legal owner of the Property. ( See Doc. 179-1). TCNB's successful credit bid extinguished Plaintiffs' debt under the Note. (Doc. 180 at 3). On December 14, 2012, the Court dismissed all claims against TCNB and dismissed TCNB as a Defendant. ( See Doc. 122). TCNB now asks the Court to exonerate the Bond posted by Plaintiffs and distribute the Bond's proceeds to TCNB. (Doc. 176). Plaintiffs conversely ask the Court to deny TCNB's Motion to Exonerate and instead exonerate the Bond posted by Plaintiffs and distribute the Bond's proceeds to Plaintiffs. (Doc. 179).
II. LEGAL STANDARD
When a court issues a preliminary injunction, the court must also require that the movant post a bond that can be used "to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained." Fed.R.Civ.P. 65(c); accord Ariz. R. Civ. P. 65(e). A wrongfully-enjoined party is presumptively entitled to recovery on the injunction bond. Nintendo of Am., Inc. v. Lewis Galoob Toys, Inc., 16 F.3d 1032, 1036 (9th Cir. 1994). "A party is wrongfully enjoined when it had the right all along to do what it was enjoined from doing." Sionix Corp. v. Moorehead, 299 F.Supp.2d 1082, 1086 (S.D. Cal. 2003) (citing Nintendo, 16 F.3d at 1036). While damages as a result of a wrongful injunction of a trustee's sale are assumed, a defendant is only entitled to recover ...