                                                                          FILED
                                                              United States Court of Appeals
                                         PUBLISH                      Tenth Circuit

                      UNITED STATES COURT OF APPEALS                  January 4, 2017

                                                                    Elisabeth A. Shumaker
                             FOR THE TENTH CIRCUIT                      Clerk of Court
                         _________________________________

FRONT RANGE EQUINE RESCUE; THE
HUMANE SOCIETY OF THE UNITED
STATES; MARIN HUMANE SOCIETY;
HORSES FOR LIFE FOUNDATION;
RETURN TO FREEDOM; RAMONA
CORDOVA; KRYSTLE SMITH; CASSIE
GROSS; DEBORAH TRAHAN;
BARBARA SINK; CHIEF DAVID BALD
EAGLE; CHIEF ARVOL LOOKING
HORSE; TANYA LITTLEWOLF;
ROXANNE TALLTREE-DOUGLAS;
FOUNDATION TO PROTECT NEW
MEXICO WILDLIFE; SANDY
SCHAEFER,
                                                      No. 16-2054
      Plaintiffs - Appellees,

and

STATE OF NEW MEXICO,

      Intervenor Plaintiff - Appellee,

v.

TOM VILSACK, Secretary, United States
Department of Agriculture; ELIZABETH
A. HAGEN, Under Secretary for Food
Safety, United States Department of
Agriculture; ALFRED A. ALMANZA,
Administrator, Food Safety and Inspection
Services, United States Department of
Agriculture,

      Defendants,
RESPONSIBLE TRANSPORTATION,
LLC; CONFEDERATED TRIBES AND
BANDS OF THE YAKAMA NATION;
RAINS NATURAL MEATS;
CHEVALINE, LLC; INTERNATIONAL
EQUINE BUSINESS ASSOCIATION;
NEW MEXICO CATTLEGROWERS’
ASSOCIATION; SOUTH DAKOTA
STOCKGROWERS ASSOCIATION;
RANCHERS-CATTLEMEN ACTION
LEGAL FUND UNITED
STOCKGROWERS OF AMERICA;
MARCY BRITTON; BILL WOOD; JAN
WOOD; LEROY WETZ; SHIRLEY
WETZ; DOUG JOHNSON; JUDY
JOHNSON; KUJYUKURI, LTD; UNITED
HORSEMEN; SCENIC VIEW RANCH,

      Intervenors Defendants,

and

VALLEY MEAT COMPANY, LLC,

      Intervenor Defendant - Appellant.
                       _________________________________

                    Appeal from the United States District Court
                          for the District of New Mexico
                       (D.C. No. 1:13-CV-00639-MCA-KK)
                      _________________________________

A. Blair Dunn (Dori E. Richards with her on the briefs), Western Agriculture, Resource
and Business Advocates, LLP, Albuquerque, New Mexico for Intervenor Defendant-
Appellant.

Adam Diederich, Schiff Hardin, LLP, Chicago, Illinois (Bruce A. Wagman, Schiff
Hardin LLP, San Francisco, California; Samuel C. Wolf, Jones, Snead, Wertheim &
Clifford, P.A, Santa Fe, New Mexico, and Ari Biernoff, Office of the Attorney General,
Santa Fe, New Mexico, with him on the briefs) for Plaintiffs-Appellees and Intervenor
Plaintiff-Appellee.
                         _________________________________


                                           2
Before HOLMES, MATHESON, and McHUGH, Circuit Judges.
                 _________________________________

McHUGH, Circuit Judge.
                    _________________________________


        Valley Meat Company, LLC appeals the district court’s denial of its motion to

collect on an injunction bond. Exercising jurisdiction under 28 U.S.C. § 1291, we

affirm.

                                I.   BACKGROUND

        The Food Safety Inspection Service (FSIS), a branch of the United States

Department of Agriculture (USDA), is responsible for inspecting equine

slaughterhouses, and a grant of inspection is required for the commercial slaughter of

horses, mules, and other equines for human consumption. 21 U.S.C. § 603(a).

Between fiscal years 2006 and 2011, Congress prohibited the use of funds for

inspection, thereby preventing commercial equine slaughter. In fiscal year 2012,

Congress lifted the ban on funding and FSIS received several applications for

inspection. The agency issued grants of inspection to two commercial equine

slaughter facilities: Valley Meat Company, LLC and Responsible Transportation,

LLC.1

        In response, Front Range Equine Rescue, the Humane Society of the United

States, and several other individuals and organizations (collectively, “Front Range”)

sued officials of the USDA (“Federal Defendants”), seeking a declaration that grants

        1
        A third facility, Rains Natural Meats, applied for inspection, but FSIS was
not able to issue a grant of inspection before the initiation of this lawsuit.
                                           3
of inspection generally violated the National Environmental Policy Act and

requesting that the court set aside the specific grants of inspection to Valley Meat and

Responsible Transportation. Front Range also moved to enjoin the Federal

Defendants from authorizing equine slaughter during the pendency of the claims.

Subsequently, Valley Meat and Responsible Transportation each filed motions to

intervene, which the district court granted.2

      The district court then granted Front Range’s motion for a temporary

restraining order (TRO), prohibiting the Federal Defendants from sending inspectors

to the equine slaughterhouses of, or otherwise providing equine inspection services

to, Valley Meat and Responsible Transportation. The court additionally sua sponte

enjoined Valley Meat and Responsible Transportation from engaging in commercial

equine slaughter. Finally, the court ordered Front Range to post injunction bonds of

$435,000 for Valley Meat and $60,000 for Responsible Transportation, “for the time

period August 5, 2013 through September 1, 2013.” Twelve days later, Front Range

filed a motion to modify the TRO, an objection to the order requiring it to post an

injunction bond, and a request for expedited review. Front Range claimed the

injunction against Valley Meat and Responsible Transportation was invalid because

Front Range had sued and sought relief from only the Federal Defendants. Without

waiving this objection, Front Range posted the bond as ordered. Valley Meat opposed

Front Range’s motion, arguing that it should be restrained and Front Range should be



      2
          Rains Natural Meats also intervened, but was not subject to the TRO.
                                            4
required to post the bond because an injunction against the Federal Defendants

effectively also enjoins its operations.

      The district court never ruled on Front Range’s motion, but on November 1,

2013, it denied Front Range’s request for a permanent injunction and dismissed the

action. Front Range immediately appealed the decision to this court. In order to

provide adequate time to consider the merits, we temporarily enjoined the Federal

Defendants from sending inspectors but did not enjoin Valley Meat or Responsible

Transportation.

      We subsequently dismissed the appeal as moot in Front Range Equine Rescue

v. Vilsack, 782 F.3d 565 (10th Cir. 2015) [hereinafter Front Range I]. We first

concluded the appeal was moot because Congress resumed its funding prohibition for

equine inspections beginning in 2014, making it once again unlawful to engage in

commercial equine slaughter for human consumption. Id. at 568. And second, we

noted that while the appeal was pending, Valley Meat “decided to abandon all plans

to slaughter equines and asked FSIS to withdraw its grant of inspection.” Id.

      Upon concluding that the matter was moot, we vacated the district court’s

order denying a permanent injunction, “based on the underlying equitable principle

that a party should not have to bear the consequences of an adverse ruling when

frustrated by the vagaries of the circumstances.” Id. at 571 (alterations and internal

quotation marks omitted). And the “vagaries of the circumstances” we identified here

were unilateral actions taken by Valley Meat and Congress, not any actions taken by

Front Range.

                                           5
      Valley Meat and Responsible Transportation then filed a motion in the district

court to recover the injunction bond. A magistrate judge recommended that the

motion be denied, and the district court adopted the magistrate’s recommendation in

full. Valley Meat now appeals the denial of damages on the injunction bond.3

                                  II.   DISCUSSION

      As a prerequisite to the issuance of a preliminary injunction, Federal Rule of

Civil Procedure 65(c) requires the moving party to post a security bond “to pay the

costs and damages sustained by any party found to have been wrongfully enjoined or

restrained.” Fed. R. Civ. P. 65(c). We review a district court’s decision to grant or

deny damages on a bond for abuse of discretion, which occurs when the court “(1)

enters ‘an arbitrary, capricious, whimsical, or manifestly unreasonable judgment’ or

(2) applies the wrong legal standard.” Sprint Nextel Corp. v. Middle Man, Inc., 822

F.3d 524, 535 (10th Cir. 2016) (citation omitted).

      Here the parties dispute what the correct legal standard is. Front Range cites

Tenth Circuit precedent, which holds that “the decision whether to award damages,

and the extent thereof, is in the discretion of the district court and is based upon

considerations of equity and justice.” Kansas ex rel. Stephan v. Adams, 705 F.2d

1267, 1269 (10th Cir. 1983); see also Sierra Club v. Hodel, 848 F.2d 1068, 1097

(10th Cir. 1988); Monroe Div., Litton Bus. Sys., Inc. v. De Bari, 562 F.2d 30, 33

(10th Cir. 1977) (“Equity comes into play in determining whether there may be

recovery and the amount thereof.”); Robson v. R & R Fur Co., 1993 WL 34680, at *2

      3
          Responsible Transportation does not join in the appeal.
                                            6
(10th Cir. Feb. 8, 1993) (unpublished) (“Following a determination that damages

were suffered, the district court exercises its equity powers in deciding whether to

award damages against the bond and in what amount.”).

       Valley Meat cites to cases from other circuits that it contends apply a different

standard of review for denial of recovery under a bond posted under Rule 65(c). See

Coyne-Delany Co. v. Capital Dev. Bd. of State of Ill., 717 F.2d 385, 391 (7th Cir.

1983) (“[A] prevailing defendant is entitled to damages on the injunction bond unless

there is a good reason for not requiring the plaintiff to pay in the particular case.”);

Nat’l Kidney Patients Ass’n v. Sullivan, 958 F.2d 1127, 1134 (D.C. Cir. 1992) (“The

preference for allowance of damages is a solid one; it justifies disallowance only

where there is good reason.”).

       However, neither the parties nor the district court relied on our earlier

precedent in Atomic Oil Co. of Okl. v. Bardahl Oil Co.,4 which severely constricts the

scope of a district court’s discretion to deny recovery to a wrongfully enjoined party.

419 F.2d 1097 (10th Cir. 1969). There, a panel of this court noted that “the discretion

of the trial court to refuse to award damages on an injunction bond in an appropriate

case has been largely circumscribed since the existence of Rule 65(c) and its

predecessor.” 419 F.3d at 1100. We further explained:

       The manifest purpose of Rule 65(c), evidenced by its plain language,
       strongly contraindicates the proposition that the court which issues an
       injunction should have the power to foreclose recovery on the injunction
       bond, when such recovery devolves upon the substantive correctness of

       4
        Valley Meat mentions this case in its Opening Brief, but does so for an
unrelated proposition.
                                            7
      the determinations of the very same court. Rule 65(c) states in
      mandatory language that the giving of security is an absolute condition
      precedent to the issuance of a preliminary injunction. It imports no
      discretion to the trial court to mitigate or nullify that undertaking after
      the injunction has issued.

Id. at 1100–01 (emphasis added). The limits on a district court’s discretion under

Atomic Oil appear to conflict with the broad discretion to award or deny damages

“based upon considerations of equity and justice” outlined in Stephan. And in this

circuit, “we are obligated to follow the earlier panel decision over the later one.”

Hiller v. Okla. ex rel. Used Motor Vehicle & Parts Comm’n, 327 F.3d 1247, 1251

(10th Cir. 2003). Therefore, where there is a finding that a defendant has been

wrongfully enjoined, there is a presumption of recovery and the district court’s

discretion to deny damages is limited.

      Here, the district court based its decision to deny Valley Meat’s motion to

collect on three independent grounds: (1) there was never a finding that Valley Meat

was wrongfully enjoined, nor did Valley Meat request such a finding; (2) Front

Range never sued Valley Meat nor asked for it to be enjoined, rather the court

restrained Valley Meat sua sponte; and (3) it would be inequitable to award damages

where Front Range raised legitimate environmental concerns and litigated in good

faith. Although the district court’s analysis goes beyond that sanctioned by Atomic

Oil, we affirm because Atomic Oil’s presumption in favor of damages does not apply

where there was never a finding of wrongful enjoinment.




                                            8
        A. There Is No Finding that Valley Meat Was Wrongfully Enjoined

      Valley Meat argues it was wrongfully enjoined, and that even though this court

vacated the district court’s denial of a permanent injunction, “a district court must

retain jurisdiction to award costs and damages from a bond despite the vitiating of the

underlying suit.” In Atomic Oil Co. of Oklahoma v. Bardahl Oil Co., we recognized a

defendant’s right to recover damages on an injunction bond. 419 F.2d 1097, 1101

(10th Cir. 1969). But a prerequisite to recovery is a finding that the defendant was

wrongfully enjoined. See Fed. R. Civ. P. 65(c) (explaining the purpose of the bond is

“to pay the costs and damages sustained by any party found to have been wrongfully

enjoined”); Robson, 1993 WL 34680, at *2 (“[T]o prevail in an action to recover on

[an] injunction bond, [the defendant] must prove that the injunction was wrongful

and that he did have the right to engage in the enterprises enjoined.”).

      On appeal, Valley Meat argues it was wrongfully enjoined because it was a

“prevailing party” after the district court denied a permanent injunction. But there has

never been a ruling that Valley Meat was wrongfully enjoined. Although the district

court denied a permanent injunction, we vacated that order. We did so after

concluding the appeal was moot both because Valley Meat had withdrawn its

application for inspection and because Congress had defunded FSIS equine

inspections, thereby again prohibiting commercial equine slaughter in the United

States. The purpose of vacating the order was to preclude it “from spawning any legal

consequences,” Rio Grande Silvery Minnow v. Bureau of Reclamation, 601 F.3d

1096, 1132 (10th Cir. 2010). We accordingly reject Valley Meat’s suggestion that the

                                           9
district court’s order denying a permanent injunction can be relied upon to show

wrongful enjoinment.

      Valley Meat has also failed to point us to any place in the record where it

sought a determination, from either the district court or this court, that it had been

wrongfully restrained. Valley Meat instead focuses on the damages it claims to have

sustained from the injunction, to argue the district court improperly denied recovery.

Valley Meat contends that “[i]ssuance of the bond to compensate for [Valley Meat’s]

damages is a collateral matter which the District Court continued to have jurisdiction

to resolve.” And it points to the district court’s finding at the bond hearing that

Valley Meat would “suffer harm and injury by virtue of the temporary restraining

order . . . . The amount of these damages and losses are ascertainable.” Even if

Valley Meat did suffer damages as a result of the TRO,5 it cannot recover against the

bond unless it first shows wrongful enjoinment. As discussed, it has failed to do so.

      Accordingly, the district court did not abuse its discretion in denying recovery

against the injunction bond because there was never a ruling that Valley Meat was

wrongfully enjoined. This conclusion alone is enough to affirm the district court’s

decision.




      5
        The district court found that while Valley Meat “failed to profit from [its]
investment in a controversial, high-risk, and ultimately evanescent business during
the few months when it may otherwise have been permitted, the record is unclear
regarding whether the Court’s TRO alone was responsible for this situation. . . . The
record is also unclear regarding whether Valley Meat’s . . . lost profits, even if
proximately caused by the TRO, were as high as predicted.”
                                           10
                               III.   CONCLUSION

      The district court did not abuse its discretion in concluding that Valley Meat

could not collect damages where there had been no finding that it was wrongfully

enjoined. We therefore AFFIRM the district court’s denial of Valley Meat’s motion

to recover damages against the injunction bond.




                                         11
