Advancing The Cause
Making Injunctions Available to the Poor

by Douglas C. Erickson

Since the Arizona Supreme Court imposed a virtually mandatory pro bono publico requirement on every lawyer in the state,¹ should we not strive to make the legal system truly available and accessible to those who are unable to pay attorneys’ fees and court costs? In the Superior Court, the indigent may have filing fees waived in some cases.² In the Court of Appeals, an affidavit in lieu of bond may be filed to save poor appellants the $500 cost bond.³ Although these exceptions do advance the cause of making the judicial system available to indigents, there is no rule allowing issuance of a preliminary injunction in emergent circumstances without a bond being posted. Arizona rules require the posting of a bond to cover potential damages in all cases. Poor plaintiffs faced with immediate and irreparable consequences that can be prevented only by entry of a preliminary injunction, in Arizona, technically have no remedies. This article focuses on the need for making injunctions available notwithstanding a party’s lack of financial resources, and it discusses one common situation where restraining orders and preliminary injunctions are critical, but frequently unavailable.

A Common Scenario

In increasing numbers, poor plaintiffs are seeking professional legal assistance to save houses, which were encumbered under coercive or fraudulent circumstances, from foreclosure. Yet, to stop a trustee’s sale or other disposition under Rule 65, a homeowner, no matter how poor, must come up with a bond to protect the lender (or other purported interest-holders) or an injunction may not be issued.⁴ As a result, even if an impoverished homeowner has a legitimate defense to avoid foreclosure, the matter may not be decided before the house has been lost. To my own chagrin, this article was first drafted nearly eight years ago as my client faced an immediate trustee’s sale of her home based on a fraudulently obtained (and otherwise incompetent) deed of trust. The trial judge required a bond and, thus, it appeared that justice was out of reach.

On November 17, 1989, as pro bono counsel for Daisy Jones, we filed a complaint⁵ against a large institutional lender. The complaint recited that Daisy Jones, then 75 years old and widowed, was defrauded and coerced into signing a promissory note and deed of trust on her home of 46 years. The bad actor was her former son-in-law, William. Two years earlier, William had induced Daisy, by means of fraudulent representations and outright lies, to join with him in signing a promissory note and deed of trust on Daisy’s home, in favor of the lender. In addition to the fraud, because of various medical conditions, Daisy lacked the capacity to understand the documents she was asked to sign; i.e., she lacked the legal capacity to contract.⁶ Despite having reason to know of both the fraud and Daisy’s lack of capacity, and despite the loan officer’s actual belief that Daisy was being tricked by her former son-in-law, the lender made the loan in its usual course of business.⁷ William took the proceeds of the loan (approximately $35,000), and thereafter he refused to repay the borrowed money. Daisy received nothing.

The promissory note called for payments of $499 per month. Daisy subsisted exclusively on Social Security benefits of $386 per month and veterans’ benefits of $52 per month. Because of her limited income, Daisy was unable to make any of the payments required by the note. The lender promptly declared the note to be in default and eventually instituted foreclosure proceedings pursuant to the deed of trust.⁸

The lender noticed a trustee’s sale of Daisy’s home for November 2, 1989. Daisy’s niece, as her temporary guardian, brought suit against the lender to cancel the deed of trust and promissory note as to Daisy and to have those documents declared void ab initio. Count One of the (amended) complaint sought cancellation of the promissory note and deed of trust that were signed by Daisy and her former son-in-law on the basis of the fraud committed by William. The ground for the cancellation as to the lender was that it knew or should have known of the fraud. Count Two sought cancellation and a declaration that the deed of trust and promissory note were void because Daisy lacked the legal and mental capacity to enter into a binding contract.

A motion for temporary restraining order and a motion for order to show cause and for preliminary injunction were filed. On November 2, 1989, the trial court granted plaintiff’s motion for temporary restraining order. The court subsequently held a hearing on the issue of plaintiff’s request for a preliminary injunction.⁹ Pursuant to the court’s order,¹⁰ the parties briefed the issue of whether the court could waive the requirement for the plaintiff to post a bond to secure the injunction and the appropriate amount of the bond, if the requirement was not waived.

Following the filing of memoranda, the trial court granted a preliminary injunction after finding that there was a strong likelihood that the plaintiff would prevail on the merits at trial and that Daisy would suffer irreparable injury if the injunction was not issued. However, the court conditioned the injunction on the posting of a bond to be paid in the amount of $450 per month during the pendency of the action. Due to Daisy’s low income, she could not make payments on the bond as required. Her niece agreed to assist Daisy with the bond temporarily, but was unable to make anything more than the first few installments. Under such circumstances, the injunction would have been ineffective as a method for preserving the status quo. Fortunately for Daisy, with the coincidence of some media attention, the lender agreed to abandon its claim to her house.

By granting the injunction, the trial court recognized the merit and strong evidence of Daisy’s case. By imposing a bond, however, the court, in effect, denied the injunction that it found to be justified. Daisy could not meet the bond requirements as set forth by the trial court. Therefore, because she was indigent, the status quo could not be preserved. Under such a rule, justice will be perpetually denied as a matter of course whenever indigents need an injunction pending final adjudication of their claims.

The Scenario Repeats Itself

Fast-forward eight years: As hard as the circumstances were to believe in the case of Daisy Jones, nearly eight years later, three cases with the same potential dilemma came through the door. In each case, the plaintiffs were elderly women who survived on government assistance; their sole valuable asset was a home in South Phoenix. Evidence showed that a local bail bond company had either forged their signatures on quit claim deeds or tricked them into signing the deeds to obtain bonds ranging from $200 to $27,400 to secure the release of one of their relatives. In all three cases, the relative eventually self-surrendered, and all bonds were exonerated, except the $200 bond, which was forfeited. The bail bond company nevertheless recorded the quit claim deeds, then allowed the plaintiffs to pay the property taxes and mortgage for nearly ten years. Out of the blue, the houses were "sold" and the women, two of whom do not read, received eviction notices. They were ordered out of the homes that they believed to be their own for 25 to nearly 50 years. When they filed suit, once again the bond was an issue.¹¹

State of the Law

Failing to waive the bond requirement of Rule 65(e) for an indigent party who has made the necessary showing to secure the issuance of a preliminary injunction is contrary to common sense and persuasive federal authority requiring a waiver under such circumstances. However, there is no Arizona precedent for waiving the bond requirement. The current law in Arizona sends a clear message to indigent plaintiffs that they cannot afford to participate in the system responsible for determining and enforcing justice.

Although Rule 65(e) mandates that "[n]o restraining order or preliminary injunction shall issue except upon the giving of security by the applicant," under federal law, a bond is not required where the applicant is an indigent. The federal courts mostly agree that to impose such a requirement would effectively preclude the poor from protecting their interests and preserving the status quo until their claims can be heard. Such a result is neither the intent nor effect of Rule 65(e).¹² Arizona appellate courts apparently have not addressed this issue, but federal case law provides persuasive authority.

Although the requirements of Rule 65(c) are phrased in mandatory terms, it is settled that the security requirement should not function to bar poor people from obtaining judicial redress. Requiring the plaintiffs to post a bond that would provide security to the Artery defendants would stifle the purpose of the Fair Housing Act since these plaintiffs would be precluded from obtaining judicial review of the Artery defendants’ actions until after the irreparable injury would already have occurred, and the status quo could in all likelihood never be restored...To require the plaintiffs in this case to post anything more than a nominal bond would effectively deny them the relief to which they may be entitled.¹³

Federal case law on this issue is quite clear. "[I]ndigents, suing individually or as class plaintiffs, ordinarily should not be required to post a bond under Rule 65(c)." Bass v. Richardson, 338 F. Supp. 478, 490 (S.D.N.Y. 1971). "Under appropriate circumstances bond may be excused, notwithstanding the literal language of Rule 65(c). [citation omitted] Indigence is such a circumstance." Wayne Chem., Inc. v. Columbus Agency Serv. Corp., 567 F.2d 692, 701 (7th Cir. 1977). See also DiDomenico v. Employers Cooperative Industry Trust, 676 F. Supp. 903, 909 (N.D. Ind. 1987); Walker v. Pierce, 665 F. Supp. 831 (N.D. Cal. 1987); Smith v. Board of Election Commissioners for the City of Chicago, 591 F. Supp. 70, 72 (N.D. Ill. 1984). Wright and Miller describe some federal authority mandating the posting of a bond, but they conclude that in the case of indigents, the Bass rule is correct.¹⁴

The Ninth Circuit excuses indigents from posting a bond in order to secure a preliminary injunction. "Where...suit is brought on behalf of poor persons, preliminary injunctive relief may be granted with no payment of security whatever." Toussaint v. Rushen, 553 F. Supp. 1365, 1383 (N.D. Cal. 1983) (citations omitted), aff’d in part, vacated in part, 722 F.2d 1490 (9th Cir. 1984). The reasoning of the federal courts in allowing an exception to the bond requirement is clear, reasonable, and sound. To interpret the language of Rule 65 literally would exclude a very large class of lower socioeconomic plaintiffs from the protection of the judicial system. In many cases, to enforce the bond requirement would effectively force poor plaintiffs to suffer immediate and irreparable harm, being left only with the option of pursuing meaningless judgments after the fact.

Arizona appellate courts have not addressed waiver of the bond requirement for indigent parties. In Bruce Church v. Superior Court,¹⁵ the Arizona Court of Appeals showed leniency and flexibility with respect to the requirement of a supersedeas bond on appeal, however. It should be noted that the supersedeas bond issue is entirely different than the injunction bond issue. When an injunction bond is being considered, the plaintiff has already demonstrated either a likelihood of success on the merits or serious questions requiring litigation. The danger of unnecessary damages to the opposing party is minimized because the plaintiff has already shown that the case has substantial merit. In addition, the court typically has found that the opposing party’s potential damages are not as great as the moving party’s potential damages. When a supersedeas bond is being considered, however, the party that must post the bond has already lost on the merits. Therefore, the danger of avoidable damages to the opposing party, who already has prevailed, is much greater.

The opinion in Bruce Church sheds some light on the court’s general interpretation of and attitude toward the supersedeas bond rule that may be useful in the context of a preliminary injunction bond. The court first recognized that the rule and its application are usually strict. "Normally a supersedeas bond should be posted in an amount which secures the total judgment together with an amount which reasonably covers costs, interest and any damages which might be attributed to the stay..."¹⁶ Nevertheless, the Court of Appeals allowed the trial court to exercise its discretion.

The judgment creditor is entitled to secured protection of his judgment during the appeal process even when the judgment debtor is put to a hardship in providing security. [citation omitted]

Normally a supersedeas bond should be posted in an amount which secures the total judgment together with an amount which reasonably covers costs, interest and any damages which might be attributed to the stay pending appeal. [citation omitted]

However, we feel, as do the federal authorities, that the rule and the inherent discretion and power of the trial court allows for flexibility in the determination of the nature and extent of the security required to stay the execution of the judgment pending appeal. [citation omitted]

If the trial court finds that the existence of extraordinary facts and circumstances call for departure from the usual cash bond, it may certainly pursue this avenue.¹⁷

Additionally, there is an exception on cost bonds. The Arizona Rules of Civil Appellate Procedure expressly provide an alternative to posting cost bonds by allowing parties to file affidavits in lieu of bond. Rule 10(c), Arizona Rules of Civil Appellate Procedure. Thus, it is recognized that exceptions to the rules should be allowed in order that poor parties may pursue their claims and protect their rights in some contexts. Only by following the rationale and rulings of the federal courts with respect to waiving preliminary injunction bonds can Arizona courts truly advance the objective of giving indigents equal access to the judicial system.¹⁸

Without an express provision waiving the bond requirement of Rule 65(e), where an indigent person makes a showing that he or she is otherwise entitled to a preliminary injunction, poor plaintiffs may be forever barred from invoking the power of the courts to prevent irreparable injuries. Because attorneys are encouraged, if not compelled, to make their services open to the poorer segment of our communities, the courts and legislature should make the mechanisms of justice equally available.

Douglas Erickson is a member of Maynard Murray Cronin & O’Sullivan, P.L.C. He practices commercial litigation.

ENDNOTES:

1. ER 6.1, Rule 42, Rules of the Supreme Court of Arizona.
2. See, e.g., A.R.S. § 25-311.01 (fees in context of marital dissolution); Browning v. Corbett, 153 Ariz. 74, 77, 734 P.2d 1030, 1033 (Ct. App. 1986).
3. See Rule 10(c), Arizona Rules of Civil Appellate Procedure.
4. Rule 65(e) provides, in part:
No restraining order or preliminary injunction shall issue except upon the giving of security by the applicant, in such sum as the court deems proper, for the payment of such costs and damages as may be incurred or suffered by any party who is found to have been wrongfully enjoined or restrained.
Rule 65, Arizona Rules of Civil Procedure.
5. Cause No. CV 89-30486. "Daisy Jones" is not the woman’s true name.
6. See Pass v. Stephens, 22 Ariz. 461, 198 P. 712, 715 (1921); Hendricks v. Simper, 24 Ariz. App. 415, 539 P.2d 529 (1975).
7. Minute entry dated January 29, 1990.
8. With the assistance of her niece, Daisy contacted the Arizona Senior Citizen Law Project, which referred Daisy to volunteer counsel. A civil action was commenced against the son-in-law on the theories of promissory estoppel, fraud, breach of fiduciary duty, and racketeering. The court entered a default judgment against him in the amount of $37,818.21 on August 8, 1989. The judgment could not be enforced, however, because his whereabouts were not known.
9. The hearing was held on December 22 and 27, 1989, and January 5 and 12, 1990.
10. Reflected in its minute entry dated January 12, 1990.
11. Fortunately, the trial judge in each of these three cases agreed that to impose a bond would foreclose any meaningful remedy.
12. Rule 65(e), Arizona Rules of Civil Procedure, is identical to Rule 65(c), Federal Rules of Civil Procedure.
13. Brown v. Artery Org., Inc., 691 F. Supp. 1459, 1462 (D.D.C. 1987) (emphasis added).
14. 11 C. Wright & A. Miller, Federal Practice and Procedure: Civil § 2954, p. 528 (1973).
15. Bruce Church v. Superior Court, 160 Ariz. 514, 774 P.2d 818 (Ct. App. 1989).
16. Bruce Church, 160 Ariz. at 517, 774 P.2d at 821.
17. Bruce Church, 160 Ariz. at 517, 774 P.2d at 821 (emphasis added).
18. One existing case is also worthy of consideration on this issue. The case is not controlling, however. Bayham v. Funk, 3 Ariz. App. 220, 413 P.2d 279 (1966), is distinguishable from most indigent injunction bond cases. First, Bayham did not present the Court of Appeals with the ultimate dilemma of either waiving the bond requirement or denying a poor person the protection and benefits of the judicial system. This potential denial of justice is the crucial factor that compels the federal courts to recognize the exception to the bond requirement. Because Bayham v. Funk did not involve an indigent plaintiff, it cannot be controlling. The same distinction would render other Arizona cases that discuss the bond issue unpersuasive. Second, the case is not persuasive because the Court of Appeals was not faced with the issue of exceptions to the bond requirement. The only issue before the Court of Appeals was whether monies deposited with the court clerk for a completely unrelated purpose could serve as a bond under Rule 65(e).