MEMO TO:
Alexsei Demo US
RESEARCH ID:
#400053944c8da7
JURISDICTION:
State
STATE/FORUM:
California, United States of America
ANSWERED ON:
December 23, 2021
CLASSIFICATION:
Remedies

Issue:

May a party seeking a preliminary injunction be exempted from the requirement to pay a bond in Cal. Civ. Proc. Code § 529 if they are impecunious?

Facts:

Plaintiff is the owner of a plot of land in the mountains where he has built three "off-grid" cabins. He lives in one of the cabins and rents the others out on AirBnB. He lives an off-grid lifestyle and the rental income from these cabins is his sole source of income. The only access to the plaintiff's land is over a dirt road that runs through land that used to be owned by the person who sold the plaintiff the land in the first place. The seller granted the plaintiff an easement over the road, however, the new owner of the land has threatened to block and close the road. The plaintiff is seeking a preliminary injunction enjoining the new owners from closing the road but has very little liquid income with which to pay a bond.

Conclusion:

Compliance with the bond requirement in Cal. Civ. Proc. Code § 529 is typically a necessary condition to obtain a valid preliminary injunction.

There are certain statutory exemptions from the bond requirement. Cal. Civ. Proc. Code § 995.240 codifies the common law power of a trial court to waive a bond based on an applicant's indigence and inability to obtain sufficient sureties. (Conover v. Hall, Cal. Civ. Proc. Code § 995.240)

Some factual showing of the plaintiff's indigence is necessary to obviate the injunction bond. In exercising its discretion, the court should consider all factors it deems relevant, including but not limited to the character of the action or proceeding, the nature of the beneficiary, whether public or private, and the potential harm to the beneficiary if the provision for the bond is waived.  (Cal. Civ. Proc. Code § 995.240, Conover v. Hall, Beaudreau v. Superior Court)

A plaintiff is not necessarily indigent because it is extremely difficult for them to obtain a bond or because it would require considerable financial sacrifice. (Markley v. Superior Court)

In Conover v. Hall, the record facts supported the plaintiffs' indigence because they were welfare recipients and none had a monthly income of more than $540.

On the other hand, in Fushan Li v. Dep't of Indus. Relations the party had not established indigence under Cal. Civ. Proc. Code § 995.240 because he had not proffered any evidence concerning the ownership of his home, which was necessary for the court to assess his financial condition. Further, the evidence that was before the court showed that there was significant equity in the home. 

Law:

Compliance with the undertaking or bond requirement of Cal. Civ. Proc. Code § 529 is typically a necessary condition to obtain a valid preliminary injunction. Subdivision (a) of the statute provides:

(a) On granting an injunction, the court or judge must require an undertaking on the part of the applicant to the effect that the applicant will pay to the party enjoined any damages, not exceeding an amount to be specified, the party may sustain by reason of the injunction, if the court finally decides that the applicant was not entitled to the injunction. Within five days after the service of the injunction, the person enjoined may object to the undertaking.

If the court determines that the applicant's undertaking is insufficient and a sufficient undertaking is not filed within the time required by statute, the order granting the injunction must be dissolved.

There are certain statutory exemptions from the bond requirement. Cal. Civ. Proc. Code § 995.240 codifies the common law power of a trial court to waive a bond based on an applicant's indigence and inability to obtain sufficient sureties. In exercising its discretion, the court should consider all factors it deems relevant, including but not limited to the character of the action or proceeding, the nature of the beneficiary, whether public or private, and the potential harm to the beneficiary if the provision for the bond is waived:

The court may, in its discretion, waive a provision for a bond in an action or proceeding and make such orders as may be appropriate as if the bond were given, if the court determines that the principal is unable to give the bond because the principal is indigent and is unable to obtain sufficient sureties, whether personal or admitted surety insurers. In exercising its discretion the court shall take into consideration all factors it deems relevant, including but not limited to the character of the action or proceeding, the nature of the beneficiary, whether public or private, and the potential harm to the beneficiary if the provision for the bond is waived.

The plaintiffs in Conover v. Hall, 11 Cal.3d 842, 114 Cal.Rptr. 642, 523 P.2d 682 (Cal. 1974) sought and received a preliminary injunction against state official defendants enjoining the implementation of a state child welfare provision that allegedly conflicted with a federal statute. The plaintiffs were not required to post an adequate undertaking. The California Supreme Court decided that the trial court did not violate Cal. Civ. Proc. Code § 529 because, under proper circumstances, California courts have the power to waive bond requirements intended to protect an adversary's financial interest (at 850-851):

In a long series of cases commencing with Martin v. Superior Court (1917) 176 Cal. 289, 168 P. 135, our court has explained that, despite the apparent mandatory character of a variety of statutes calling for the[11 Cal.3d 851] payment of litigation fees, California courts retain a common law authority to dispense with such fees in the case of poor litigants. (See, e.g., Ferguson v. Keays (1971) 4 Cal.3d 649, 94 Cal.Rptr. 398, 484 P.2d 70; Isrin v. Superior Court (1965) 63 Cal.2d 153, 45 Cal.Rptr. 320, 403 P.2d 728; Majors v. Superior Court of Alameda Co. (1919) 181 Cal. 270, 184 P. 18.) The instant case differs from these prior decisions in a significant respect, however, for the 'injunction bond' required by section 529 is not simply a fee exacted by the state for the use of its court system, but instead is a form of security intended to protect an adversary party from potential injury. The initial question must, therefore, be whether, in appropriate circumstances, a trial court has authority to suspend such protection afforded by statute to litigating parties generally.

Although no California Supreme Court decision has yet passed on this issue, several Court of Appeal decisions have addressed the question and all have concluded that under proper circumstances California courts do have the power to dispense with bond requirements intended to protect an adversary's financial interest. In County of Sutter v. Superior Court (1966) 244 Cal.App.2d 770, 53 Cal.Rptr. 424, the seminal decision of this line of cases, the court followed the Martin decision's lead and examined the early English precedents to determine whether such authority existed at common law. After a thorough review of the historical material, the County of Sutter

Page 648

[523 P.2d 688] court concluded that 'the common-law power embraced waiver of security for costs as well as suspension of fees.' (244 Cal.App.2d at p. 774, 53 Cal.Rptr. at p. 427.) Accordingly, the Court of Appeal held that notwithstanding the language of Government Code section 947, a trial court did have authority to waive a bond requirement intended to secure the defendant county's costs of suit.

In Bank of America v. Superior Court (1967) 255 Cal.App.2d 575, 63 Cal.Rptr. 366, the court applied the reasoning of the County of Sutter decision to section 1030 of the Code of Civil Procedure, and held that the trial court properly waived the security for costs requirement embodied by that section. And in Roberts v. Superior Court (1968) 264 Cal.App.2d 235, 70 Cal.Rptr. 226, the court relied on the earlier County of Sutter and Bank of America decisions in permitting a poor litigant to file an appeal without obtaining an appeal bond required under section 985.5 of the Code of Civil Procedure.

The Supreme Court concluded that the trial court did not abuse its discretion in dispensing with the bond requirement because the record facts supported the plaintiffs' indigence. The plaintiffs were welfare recipients and none had a monthly income of more than $540 (at 852-853):

Although the superior court in the instant case apparently did not conduct any formal inquiry into the total assets of the plaintiffs, the court could reasonably conclude from the facts before it that plaintiffs were 'poor' and could not afford to post an injunction bond to cover the state's potential damages. The pleadings establish, of course, that all plaintiffs are currently welfare recipients; although all have some earned income, none has a gross monthly income of more than $540. In view of these meagre resources, plaintiffs obviously could not afford to post the significant undertaking that would be necessary to cover the substantial costs resulting from the application of the preliminary injunction over the entire statewide welfare program. 7 On the facts of this case, we

Page 649

[523 P.2d 689] cannot say that [11 Cal.3d 853] the trial court abused its common law discretion in permitting a preliminary injunction to issue without an undertaking. (See Ferguson v. Keays (1971) 4 Cal.3d 649, 658 & fn. 8, 94 Cal.Rptr. 398, 484 P.2d 70.)

In Beaudreau v. Superior Court, 14 Cal.3d 448, 121 Cal.Rptr. 585, 535 P.2d 713 (Cal. 1975), the California Supreme Court reiterated that some factual showing of the plaintiff's indigence is necessary to obviate the injunction bond (at footnote 8):

8 In Conover v. Hall, Supra, 11 Cal.3d at pp. 850--853, 114 Cal.Rptr. 642, 523 P.2d 682, we held that a court granting an injunction had the discretion to relieve the plaintiff upon the ground of indigency from the requirement of an injunction bond under section 529 of the Code of Civil Procedure despite the fact that the plaintiff did not proceed formally in forma pauperis and that the court did not conduct a formal inquiry into the plaintiff's assets where it could reasonably conclude from the facts before it that the plaintiff was poor and could not afford to post the bond.

In Markley v. Superior Court, 5 Cal.App.4th 738, 7 Cal.Rptr.2d 328 (Cal. Ct. App. 1992) ("Markley"), the California Court of Appeal for the Fourth District had occasion to comment on the contours of Cal. Civ. Proc. Code § 995.240 and noted that the statute, properly construed, did not apply to the nonindigent plaintiff in the case. Markley did not involve a preliminary injunction. However, the plaintiff was ordered to post a $2 million bond in connection with real property litigation, and he did not have $2 million in liquid assets. The trial court allowed the plaintiff to encumber real property instead of posting a $2 million bond. The Court of Appeal decided that the trial court exceeded its powers. While it may have been extremely difficult for the plaintiff to obtain a bond and doing so would require considerable financial sacrifice, he was not indigent and therefore not entitled to lenience (at 748-749):

As described above, Samuels presented evidence to the trial court which would support a finding that it would be extremely difficult for him to obtain a bond, and that to do so might require a considerable financial sacrifice. 11 Samuels observes that section 995.240 permits the court in any case to "waive" a statutory provision for a bond and make "such orders as may be appropriate as if the bond were given, if the court determines that the principal is unable to give the bond because the principal is indigent and unable to obtain sufficient sureties...." 12 Although Samuels cannot claim to be indigent, and therefore does not fall within the express scope of the statute, he argues that this provision merely reflects the common-law power of the court to waive bond where equity requires. (See Conover v. Hall (1974) 11 Cal.3d 842, 851-52, 114 Cal.Rptr. 642, 523 P.2d 682 [injunction bond]; Martin v. Superior Court (1917) 176 Cal. 289, 296-97, 168 P. 135, and Ferguson v. Keays (1971) 4 Cal.3d 649, 654, 94 Cal.Rptr. 398, 484 P.2d 70 [filing and litigation fees]; see also Gov.Code § 68511.3, governing proceedings in forma pauperis.) 13

Although Samuels relies on Conover v. Hall and Ferguson v. Keays, supra, as support for the principle that courts have the power to dispense with undertaking requirements such as that involved here where the result would be, in Samuels' words, "insolvency, forfeiture of the case, or other inequitable result," we cannot read the cases so broadly. The authority to permit a [5 Cal.App.4th 749] litigant to proceed in forma pauperis was "intended to guarantee that no citizen shall be denied an opportunity to commence, prosecute, or defend an action" on account of poverty. (Adkins v. E.I. Du Pont de Nemours & Co. (1948) 335 U.S. 331, 339, 69 S.Ct. 85, 89, 93 L.Ed. 43.) While a litigant need not render himself absolutely destitute before being entitled to the protections of the common law or statutory procedures (Adkins, supra, at p. 342, 69 S.Ct. at p. 90), we do not think that these remedial practices can be extended to cure mere inconveniences or hardships, in the absence of statutory authority. Strict adherence to the bonding requirements does not work a forfeiture here; at worst, Samuels may be compelled to lose the benefit provided by the lis pendens--i.e., the strong probability that a subject property will not be conveyed or encumbered pending final resolution of the

Page 335

attendant lawsuit--but he will not be compelled to abandon his suit for damages. Thus, we cannot equate Samuels with an indigent entitled to lenience either under section 995.240 or the common law.

In Fushan Li v. Dep't of Indus. Relations, 53 Cal.App.5th 877, 266 Cal.Rptr.3d 657 (Cal. Ct. App. 2020), the Court of Appeal for the Second District agreed with the trial court that a party had not established indigence under Cal. Civ. Proc. Code § 995.240 because he had not proffered any evidence concerning the ownership of his home, which was necessary for the court to assess his financial condition. Further, the evidence that was before the court showed that there was significant equity in the home (at 886-887):

Despite multiple opportunities to establish indigency and clear instructions from the trial court, Li never proffered the evidence concerning ownership of his home that the court requested so it could assess his financial condition. To the contrary, the details Li did provide concerning the transfer of the property to a trust of which his children were the trustees and then back to his wife were inconsistent with the timeline of events and failed to establish a logical explanation for the transactions.

[266 Cal.Rptr.3d 664]

The trial court's finding the transfers appeared designed to remove Li's name from the title was a reasonable inference from the evidence in the record. Similarly, the evidence before the court supported its findings there existed significant equity in the home, Li had a community property interest in the home, and Li's wife could be expected to post her share of the equity for any bond. (See

[53 Cal.App.5th 887]

Cardinal Care ManagementLLC v. Afable (2020) 47 Cal.App.5th 1011, 1020, 261 Cal.Rptr.3d 353 ["[i]t is no abuse of discretion to deny relief from an undertaking where, as here, a litigant made only a ‘weak and incomplete showing of indigency’ "].)

Indigency is an essential element of any decision to grant relief from a bond requirement under Code of Civil Procedure section 995.240. Absent proof of Li's indigency, the trial court did not abuse its discretion in denying his motion to waive the bond required by Labor Code section 1197.1, subdivision (c)(3).

In Smith v. Adventist Health System/West, 182 Cal.App.4th 729, 106 Cal.Rptr.3d 318 (Cal. Ct. App. 2010) ("Smith"), the Court of Appeal for the Fifth District held that the bond requirement can be waived or forfeited by the intended beneficiary. The plaintiff argued in his motion for preliminary injunction papers that any injunction bond was "unnecessary." In their opposition, the defendants did not address the bond issue. The trial court ordered issuance of the preliminary injunction and no bond posting. On appeal, the defendants claimed that the trial court violated Cal. Civ. Proc. Code § 529 by not requiring a bond. The Court of Appeal approved the trial court's decision because the defendants had waived or forfeited the bond requirement (at 740):

Civil Code section 3513 provides: "Any one may waive the advantage of a law intended solely for his benefit." (See also Bickel v. City of Piedmont, supra, 16 Cal.4th at p. 1049, fn. 4 [taking note of "the established rule that rights conferred by statute may be waived unless specific statutory provisions prohibit waiver"].) Adventist Health has cited no statutory provision that prohibits waiver or forfeiture of the bond requirement of section 529.

In fact, the Bond and Undertaking Law, which relates to bonds and undertakings posted during the course of litigation,8 includes three provisions that reinforce the view that the requirement of an injunction bond can be waived. Section 995.230 provides that "[t]he beneficiary of a bond given in an action or proceeding may in writing consent to the bond in an amount less than the amount required by statute or may waive the bond." Another so-called waiver is addressed in section 995.240, which states that a court has the discretion to "waive" a provision for a bond in an action where the principal is indigent.9 Article 9 of the Bond and Undertaking Law (§ 995.910 et seq.) addresses the topic of "objections to a bond given in an action or proceeding" (§ 995.910). Section 995.930 addresses the form, procedure, and timing of objections as well as the waiver of objections. "If no objection is made within the time required by statute, the beneficiary is deemed to have waived all objections . . ." unless good cause is shown for the delay in objecting. (§ 995.930, subd. (c).)

In Smith, the trial court explicitly ordered no bond to be posted. The Court of Appeal was thus able to infer that the trial court fulfilled its duty under Cal. Civ. Proc. Code § 529 by determining that the bond requirement had been waived or forfeited (at 744):

(3) The California Supreme Court has stated that it is the duty of the court granting a preliminary injunction to require a bond in accordance with section 529. (Neumann, supra, 146 Cal. at p. 32; but see City of Los Angeles v. Superior Court, supra, 15 Cal.2d 16.) Here, the superior court's order stated: "No bond is ordered to be posted by [Smith]."

The duty to require an injunction bond does not apply in all cases. No such duty exists where a statutory exception applies (§ 529, subd. (b)) or where the bond requirement has been waived or forfeited (e.g.City of Los Angeles v. Superior Court, supra, 15 Cal.2d at p. 23 [court deemed injunction bond requirement waived]).

In this case, we conclude the superior court fulfilled its duty by addressing the bond requirement and stating no bond was ordered posted. We infer, from the superior court's statement, that it determined the requirement had been waived or forfeited.

Authorities:
Cal. Civ. Proc. Code § 529
Cal. Civ. Proc. Code § 995.240
Conover v. Hall, 11 Cal.3d 842, 114 Cal.Rptr. 642, 523 P.2d 682 (Cal. 1974)
Beaudreau v. Superior Court, 14 Cal.3d 448, 121 Cal.Rptr. 585, 535 P.2d 713 (Cal. 1975)
Markley v. Superior Court, 5 Cal.App.4th 738, 7 Cal.Rptr.2d 328 (Cal. Ct. App. 1992)
Fushan Li v. Dep't of Indus. Relations, 53 Cal.App.5th 877, 266 Cal.Rptr.3d 657 (Cal. Ct. App. 2020)
Smith v. Adventist Health System/West, 182 Cal.App.4th 729, 106 Cal.Rptr.3d 318 (Cal. Ct. App. 2010)