## Facts

- A homeowners association sought to enforce subdivision deed restrictions against Beulah V. Smith and alleged it would be irreparably harmed if she continued building her residence in violation of the restrictions.
- The trial court issued an ex parte temporary restraining order (TRO) halting construction and required a $10 bond as security under Arizona Rule of Civil Procedure 65(e).
- Smith was later heard on an order to show cause; the court dissolved the TRO and determined a preliminary injunction would not issue.
- Smith asserted she suffered damages from the TRO (including delay-related losses and increased construction costs) and counterclaimed for wrongful injunction.
- The trial court, and then the court of appeals, ruled Smith’s damages were limited to the $10 bond amount.
- The Arizona Supreme Court granted review limited to whether wrongful-injunction damages may exceed the Rule 65(e) bond.

## Issues

1. Whether damages for a wrongful TRO may exceed the amount of the security posted under Arizona Rule of Civil Procedure 65(e).

## Decision

- The Arizona Supreme Court reversed.
- The Court held that a wrongfully enjoined party’s recovery is not capped by the bond amount posted under Rule 65(e).
- The case was remanded to allow Smith to pursue proof of actual damages beyond the $10 bond.

## Legal Principles

- Arizona Rule of Civil Procedure 65(e) requires security to protect an enjoined party, but the rule does not expressly limit recoverable damages to the amount of the bond.
- The injunction bond functions as a source of security to assure some recovery, not as a ceiling on the applicant’s liability for damages caused by a wrongful injunction.
- When an injunction is wrongfully issued—particularly an ex parte TRO—the restrained party may recover full actual damages proven, even if the court initially set only nominal security.
- Arizona declined to follow the common federal approach that typically treats the bond as the maximum measure of wrongful-injunction damages.

## Conclusion

The Arizona Supreme Court held that damages for a wrongful injunction are not limited to the amount of the Rule 65(e) bond and remanded for proceedings permitting recovery of proven actual damages exceeding the nominal security.


Smith v. Coronado Foothills Estates Homeowners Ass'n, Inc., 117 Ariz. 171, 571 P.2d 668 (Ariz. 1977)