This appeal presents the question of whether a defendant may recover costs and damages from security posted by a plaintiff in obtaining a temporary restraining order (“TRO”), even though the plaintiff later filed a notice of voluntary dismissal without prejudice, preventing a final adjudication on the merits. The U.S. District Court for the Southern District of New York (Furman, Judge) granted Plaintiff-Appellant U.S. D.I.D. Corp. (“D.I.D.”) a TRO against Defendant-Ap-pellee Windstream Communications, Inc. (“Windstream”). In doing so, the district court required D.I.D. to post security with the court clerk under Rule 65(c) of the Federal Rules of Civil Procedure (the “TRO security” or “Rule 65(c) security”).
We agree that a district court may grant recovery from a TRO security after the plaintiff files a notice of voluntary dismissal. We hold that recovery from a TRO security requires only a determination that the defendant was wrongfully restrained, and not necessarily a final adjudication on the merits. Because the district court never made this specific determination, we VACATE the judgment of the district court and REMAND for the district court to determine whether, and for what time period, Windstream was wrongfully restrained by the TRO, and to calculate the damages accordingly.
BACKGROUND
D.I.D. was, during the relevant time, a small, privately held business engaged in the resale of telecommunications services to “calling card” providers, “call centers,” and similar businesses. D.I.D. in turn purchased telecommunications services from PAETEC Communications, Inc. (“PAE-TEC”) under a long distance service calling agreement (the “Service Agreement” or the “Agreement”) entered into on May 5, 2011. The Agreement contained a “limitations of service” clause, which stated that D.I.D. “may not purchase services under this retail service agreement and resell services to end users.” J.A. 81. The Agreement also contained a termination provision, stating that “[a] party may terminate the Agreement on thirty (30) days’ written notice if the other party materially breaches the Agreement....” J.A. 80.
Windstream acquired PAETEC in late 2011. On March 27, 2012, Windstream informed D.I.D. that it had determined that D.I.D. was engaged in resale of Wind-stream’s services, in violation of the Agree-
On May 3, 2012, Windstream sent D.I.D. a termination notice. Windstream asserted that its differential pricing structure for retail customers and wholesalers was lawful, and that D.I.D. “specifically agreed to that distinction when [it] signed [its] retail contract.” J.A. 116. Windstream indicated that it interpreted D.I.D.’s most recent response “as an improper refusal to pay the increased rates” and that it would terminate D.I.D.’s services five days later, on May 8, 2012. Id. Windstream later agreed not to disconnect D.I.D.’s service before May 21, 2012.
On May 21, 2012, D.I.D. filed a complaint and a motion for a TRO against Windstream in the U.S. District Court for the Southern District of New York. The district court granted the TRO that day, enjoining Windstream from terminating service to D.I.D. In issuing the order, the district court required that D.I.D. deposit $314,672.80, an amount equal to twice the charges on Windstream’s most- recent monthly invoice, as security into the registry of the district court.
The district court held a hearing on May 23, 2012, which it continued until June 4, 2012. At the June 4 hearing, the district court determined that it would “allow Windstream to increase the rates to the wholesale rates effective June 1[ ]” until the hearing on D.I.D.’s motion for a preliminary injunction, scheduled for June 21, 2012. J.A. 629. Throughout the course of these hearings, the TRO remained in effect, and Windstream continued to provide telecommunications services to D.I.D.
At the June 21, 2012 hearing, the district court denied D.I.D.’s motion for a preliminary injunction and dissolved the TRO. The district court concluded that although D.I.D. had established irreparable harm at the time the TRO was first issued, any risk of such harm that remained on June 21 resulted from D.LD.’s failure to use the time when the TRO was in effect to obtain a new service provider. The district court further concluded that D.I.D. had failed to establish a likelihood of success on the merits of the underlying contractual dispute. The district court determined that D.I.D. was engaged in the resale of telecommunications services, and that this resale constituted a material breach of the Service Agreement. Finally, in response to D.I.D.’s contention that Windstream’s May 3 notice of termination was ineffective because it provided that services would be terminated on May 8, before the end of the Agreement’s thirty-day termination notice requirement, the district court concluded that this issue was moot. The district court reasoned that under New York law a termination notice that incorrectly identifies the termination
After issuing this ruling, the district court asked counsel for Windstream whether it objected to the return of the TRO security to D.I.D. Windstream’s counsel responded: “No objection, your Honor, considering you are dissolving the TRO.” J.A. 653. The district court also noted that Windstream had not filed an answer to D.I.D.’s complaint, even though Windstream’s answer was due that day. Windstream’s counsel requested an extension, and the district court granted an extension until 5 p.m. the following day, June 22, 2012.
Early in the day on June 22, before Windstream filed its answer, D.I.D. filed a notice of dismissal without prejudice under Rule 41 (a)(1)(A)(i) of the Federal Rules of Civil Procedure. Three days later, Wind-stream sent a letter to the district court requesting recovery from the TRO security. In the letter Windstream’s counsel acknowledged that he had not objected to the return of the TRO security at the June 21 hearing. He explained, however, that at the time of the hearing he was not aware that Windstream had just issued an invoice in the amount of $244,888.79 for services rendered between May 15, 2012 and June 14, 2012. Windstream requested that the district court direct the payment of that amount from the TRO security.
On January 7, 2013 the district court issued an opinion and order concluding that D.LD.’s voluntary dismissal established that Windstream was entitled to recover from the TRO security. See U.S. D.I.D. Corp. v. Windstream Commc’ns, Inc. (U.S.D.I.D. II),
DISCUSSION
D.I.D. raises four issues on appeal. First, D.I.D. argues that the district court lacked jurisdiction to order recovery from the TRO security because the district court’s order followed D.I.D.’s voluntary dismissal without prejudice. Second,
I. Jurisdiction to Order Recovery on the TRO Security
D.I.D. argues that the voluntary dismissal of its complaint deprived the district court of subject matter jurisdiction to award recovery from the TRO security. We review jurisdictional questions de novo. United States ex rel. Anti-Discrimination Ctr. of Metro N.Y., Inc. v. Westchester Cnty.,
Rule 41(a)(1) of the Federal Rules of Civil Procedure allows a plaintiff “one free dismissal.” Cooter & Gell v. Hartmarx Corp.,
“It is well established,” however, “that a federal court may consider collateral issues after an action is no longer pending.” Cooter & Gell,
Like the Rule 11 sanctions at issue in Cooter & Gell, a district court’s awarding recovery from a Rule 65(c) security following the voluntary dismissal of a complaint “is not a judgment on the merits of an action.”
Our conclusion is consistent with the policies underlying both Rule 41(a)(1) and Rule 65(c) of the Federal Rules of Civil
Just as “the harm triggering Rule ll’s concerns has already occurred” upon the mere filing of baseless papers “[e]ven if the careless litigant quickly dismisses the action,” id., a defendant may have already suffered harm while the TRO was in effect even if the TRO is subsequently dissolved. The Rule 65(c) security requirement is designed to “assure[] the [restrained] party that it may readily collect damages from the funds posted in the event that it was wrongfully [restrained], and that it may do so without further litigation and without regard to the possible insolvency of the plaintiff.” Nokia Corp. v. InterDigital, Inc.,
Determining whether a defendant is entitled to recover from a Rule 65(c) security following a plaintiffs voluntary dismissal is also consistent with the “expeditious, summary procedure” provided for by Federal Rule of Civil Procedure 65.1. 11A Wright & Miller § 2972. Rule 65.1 permits a wrongfully enjoined or restrained party, by motion and without filing an independent action, to collect against a non-party surety on a TRO or injunction bond. Where a plaintiff has voluntarily dismissed its suit before a final adjudication on the merits, the defendant’s recovery on the Rule 65(c) security would similarly be sought by motion and adjudicated in a summary proceeding.
Accordingly, the issue of whether the defendant may recover against a Rule 65(c) security is collateral to the merits of the plaintiffs underlying claims. Because it is collateral, the district court retains jurisdiction to award recovery against the Rule 65(c) security after the plaintiff has filed a notice of voluntary dismissal.
II. Equitable Estoppel and Waiver
D.I.D. also asserts that Wind-stream is either equitably estopped from asserting or has waived its claim for damages from the TRO security because Wind-stream’s attorney stated at the June 21 hearing that he had “[n]o objection” to the release of the TRO security. J.A. 653. Where the facts are undisputed, a determination regarding waiver and estoppel is a question of law, reviewed de novo. See Jarvis v. Ford Motor Co.,
The district court rejected D.I.D.’s equitable estoppel and waiver arguments, the
A Equitable Estoppel
Equitable estoppel precludes a person from regaining property or its value where that person “makes a definite misrepresentation of fact to another person having reason to believe that the other will rely upon it” and “the other in reliance upon the misrepresentation ... so change[s] his position that it would be unju'st to deprive him of that which he thus acquired.” Heckler v. Cmty. Health Servs. of Crawford Cnty., Inc.,
We conclude later in this opinion that a recovery on Rule 65(c) security turns on a determination that the defendant was wrongfully restrained. Because Wind-stream’s ability to recover on the TRO security did not depend on D.I.D.’s voluntary dismissal, and because D.I.D. does not identify any other actions that it took in reliance on Windstream’s counsel’s representations during the brief, four-day period between the June 21 hearing and Wind-stream’s request for costs and damages from the TRO security, we find that D.I.D. failed to establish detrimental reliance.
B. Waiver
Waiver is the “intentional relinquishment of a known right.” Hamilton v. Atlas Turner, Inc.,
We have little difficulty rejecting D.I.D.’s waiver argument. Although Windstream did indicate that it had “[n]o objection” to the release of the TRO security during the June 21 hearing, this brief colloquy included no mention of Wind-stream’s right to recover damages from the TRO security before it was released. The remarks of Windstream’s counsel, then, evince no conscious or unequivocal choice to forgo recovery from the TRO security. On the contrary, there is no reason to doubt counsel’s representation that his remarks reflected his unawareness that Windstream had issued an invoice for services rendered during the time the TRO was in effect, and that this invoice had not been paid. Waiver “is an equitable doctrine based upon fairness and justice,” which we use “to avoid a result where parties have conducted themselves in such a way as to make that result
III. Determining Recovery on Rule 65(c) Security Following a Voluntary Dismissal Without Prejudice
Rule 65(c) of the Federal Rules of Civil Procedure allows for recovery on posted security where the party has “been wrongfully enjoined or restrained.” Citing our decision in Blumenthal v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
A. Whether Determining Wrongful Restraint Requires a Final Adjudication on the Merits
The Supreme Court has held that whether a party has “been wrongfully enjoined or restrained” is not always coextensive with a final adjudication on the merits. See Grupo Mexicano de Desarrol-lo, S.A. v. Alliance Bond Fund, Inc.,
The investment funds brought suit in the U.S. District Court for the Southern District of New York to recover on their unsecured notes following GMD’s default. Id. at 312,
The Supreme Court agreed that the preliminary injunction should not have been issued, even though the plaintiffs prevailed on the merits. The Court explained that, in the usual case, the final injunction es
Just as an injunction may have been improperly issued even though the plaintiff ultimately prevails on the merits, a defendant may have been properly enjoined even though the plaintiff ultimately loses on the merits. Several, circuits have held, for instance, that, where a plaintiff acquires temporary relief to enforce an arbitration-grievance procedure required under a collective bargaining agreement, the defendant may not necessarily recover from the Rule 65(c) security even though it ultimately prevails in the arbitration process. See Newspaper & Periodical Drivers’ & Helpers’ Union, Local 921 v. S.F. Newspaper Agency,
Although resolving the propriety of temporary relief can be distinct from the final adjudication on the merits, as in Grupo Mexicano, in the usual case the wrongfulness inquiry “generally ... must be resolved by a trial on the merits.” Univ. of Tex. v. Camenisch,
Our decision in Blumenthal is illustrative. There, the district court issued a preliminary injunction prohibiting the two plaintiffs, former Merrill Lynch brokers, from soliciting the firm’s clients using its
That a trial on the merits is usually required to determine whether the defendant was entitled to engage in the conduct that was enjoined is true irrespective of whether the defendant seeks recovery on security posted to secure a TRO or a preliminary injunction. In both situations it is only upon full presentation of the parties’ evidence that it may typically be determined whether the defendant should have been restrained or enjoined. But the need for a final adjudication on the merits does not apply where, as here, a plaintiff has voluntarily dismissed its suit following the order for temporary relief. By voluntarily dismissing its suit, the plaintiff has, in effect, abandoned its right to “a full opportunity to present [its] case[ ] [or] of a final judicial decision based on the actual merits of the controversy.” Camenisch,
This holding resolves the district court’s well-founded concerns over the potential abuse of TROs in this context. If a final adjudication on the merits is necessary to award recovery on a TRO security, “[a] plaintiff who voluntarily dismisses an action after a [TRO] has been issued reaps the benefit of the [TRO] and, at the same time, deprives the defendant of an opportunity to establish that the [TRO] ought not to have been granted.” U.S. D.I.D. II,
B. Whether Windstream Was Wrongfully Restrained
Windstream argues that, even if the district court erred in reasoning that D.I.D.’s notice of voluntary dismissal established the wrongfulness of the TRO, the district court’s denial of D.I.D.’s motion for a preliminary injunction and dissolution of the TRO establishes that Windstream was wrongfully restrained. This argument has some merit. When a plaintiff files a voluntary dismissal under Rule 41(a)(1), the district court’s denial of the plaintiffs motion for a preliminary injunction may establish that the TRO should not have been granted and the defendant was wrongfully restrained by a preceding TRO. Cf. Middlewest Motor Freight Bureau v. United States,
Yet, just as “the substantive validity of the final injunction does not [always] establish the substantive validity of the preliminary one,” Grupo Mexicano,
After a district court has granted a TRO, the burden remains on the plaintiff “to show that [it is] entitled to a preliminary injunction.” Granny Goose Foods, Inc. v. Bhd. of Teamsters & Auto Truck Drivers Local No. 70 of Alameda Cnty.,
The effect of the thirty-day notice of termination provision in the parties’ contract here illustrates the complexities of this analysis. When the TRO was first issued, it performed two functions. First, the TRO prevented Windstream from terminating service based on D.I.D.’s refusal to pay the higher rates that Windstream had imposed on D.I.D. Second, the TRO prevented Windstream from cutting off service before June 3, the last day of the Service Agreement’s thirty-day termination notice period.
The district court effectively rejected the first basis for the TRO when it found, at the June 21, 2012 prehminary injunction hearing, that D.I.D. had failed to establish a likelihood of success on the merits of the underlying contractual dispute about D.I.D.’s resale of Windstream’s services. That determination, however, does not establish that Windstream was wrongfully restrained for the period up until June 3 when the TRO arguably functioned to enforce the thirty-day termination notice clause. The district court declined to address D.LD.’s contention that Wind-stream’s May 3 notice of termination violated the termination notice clause, concluding that the issue had become moot because, at the time of the hearing, thirty days had passed since the notice of termination.
The district court’s finding that D.I.D. was unlikely to prevail on the merits of its underlying contractual claim is irrelevant, however, to the validity of the TRO in enforcing the termination notice provision. Such a provision provides a window of time during which a business may locate a different service provider, thereby preventing disruption in the business’s operations that could result in “an irreparable loss of customer goodwill.” Eastman Kodak Co. v. Collins Ink Corp.,
Although the enforcement of the thirty-day termination notice provision may have been an appropriate basis for the initial issuance of the TRO, whether Windstream may recover from the TRO security for unpaid charges for that period requires a different analysis. A wrongfully restrained defendant may recover against a TRO security “to cover the costs and damages incurred as a result of complying with a wrongful [TRO].” Nokia Corp.,
The distinction is significant because of the implications that recovery from Rule 65(c) security has for other creditors of the plaintiff. Because the security requirement enables the defendant to recover costs and damages “without regard to the possible insolvency of the” plaintiff, it effectively gives the defendant priority over the plaintiffs other creditors. Continuum Co. v. Incepts, Inc.,
The district court’s award of recovery on the TRO security included damages for Windstream during the thirty-day notice period. As a result, we also remand for the purpose of revisiting that portion of the award.
IV. Calculating Recovery on the Rule 65(c) Security
For its final argument, D.I.D. contends that it was improper for the district court to calculate damages on the TRO security based on the “invoiced rates and charges.” D.I.D. asserts that Wind-stream should not be permitted to recover “a windfall profit” for services that Wind-stream would not have provided in the absence of the TRO. Under D.I.D.’s approach, the district court would base its damages calculation not on the amount that Windstream charged, but rather on the actual cost to Windstream of providing such services. We review an award of damages on Rule 65(c) security for abuse of discretion, which encompasses de novo review for legal issues and clear error review for factual findings. See Nokia Corp.,
Rule 65(c) does not define the “damages” that are recoverable from Rule 65(c) security. A number of courts and commentators, however, have indicated that restitution can provide an appropriate measure of damages. See Middlewest,
We agree that where a defendant is wrongfully restrained by being compelled to provide services that it was not legally required to provide, the district court may employ a restitutionary measure to calculate damages recoverable against the Rule 65(c) security. “The restitutionary goal is to prevent unjust enrichment of [one party] by making him give up what he wrongfully obtained from [another party].” 1 Dan B. Dobbs, Dobbs Law of Remedies § 1.1 (2d ed.1993). Accordingly, a restitu-tionary approach bases damages on the “objective or market value” of the benefit unjustly acquired by the plaintiff under the wrongful TRO, rather than the value of the loss sustained by the defendant. Id. § 4.1(1). Several considerations lead us to conclude that a restitutionary approach to damages calculation will normally be appropriate where a plaintiff acquires a wrongful TRO that compels the defendant to provide the plaintiff with services.
First, a restitutionary approach to damages calculation prevents an inequitable benefit transfer to a party that acquires the wrongful TRO. The market value of services typically exceeds the cost of providing them, because the market value includes the provider’s profit margin. Hence, if a defendant that is compelled to provide services under a TRO could recover only the costs that it incurred, the plaintiff would receive a discount not enjoyed by the defendant’s other customers. A restitutionary award, therefore, prevents a plaintiff from being able to use a wrongful TRO to compel a defendant to provide the plaintiff with terms and prices not available to other customers. Cf. Kansas ex rel. Stephan v. Adams,
Second, a restitutionary approach in these circumstances will normally be more administrable than an approach based on the costs to the defendant. The market value of services can usually be readily determined. By contrast, to determine the cost that a defendant incurs in providing services, a district court may have to resolve difficult factual questions, likely necessitating extensive discovery. We think it unwise to require such a burdensome inquiry to resolve the collateral issue of recovery from a TRO security.
Finally, a restitutionary approach to damages calculations accords with the function of Rule 65(c) security. Rule 65(c) security can “be viewed as a contract in which the court and plaintiff ‘agree’ to the [security] amount as the ‘price’ of a wrongful injunction.” Continuum Co.,
We believe that the district court’s approach in this case, in basing its damages calculation on the rates that Windstream charged for services rather than the cost of providing services, is consistent with a restitutionary approach to damages calculation. We identify, however, two issues that we believe must be addressed on remand should the district court determine that Windstream was wrongfully restrained.
First, the district court allowed Windstream to recover damages for the period from June 1, 2012 to June 21, 2012 based on the “wholesale” rates. Although Windstream described the “wholesale” rates as “standard,” JA. 86, the district court did not determine that these rates reflected the market value of Wind-stream’s services.
Second, the district court must determine the amount of damages that may be recovered from the TRO security. In particular, the district court must determine whether the provision of services by Wind-stream during the thirty-day termination notice period may result in damages recoverable from the TRO security.
CONCLUSION
For the foregoing reasons, we VACATE the order of the district court. We REMAND the case to the district court to: 1) determine whether and for which portions of the time when the TRO was in effect Windstream was wrongfully restrained; 2) determine what rates are justified as a measure of restitutionary damages; and 3) recalculate the damages recoverable from the TRO security. .
Notes
. Rule 65(c) employs the term "security,” which includes bonds. Typically, bonds securing a TRO are posted by a surety, while “security” includes amounts deposited directly by the plaintiff into the court, as occurred here. As discussed below in the text, Rule 65.1 of the Federal Rules of Civil Procedure provides for an expedited procedure against sureties for-such bonds.
. A TRO cannot exceed fourteen days unless the district court, "for good cause,” extends it for another period of no more than fourteen days; a TRO lasting longer than twenty-eight days requires that the adverse party consent, as apparently occurred here. Fed.R.Civ.P. 65(b)(2).
. The district court’s opinion and order vacated its earlier July 13, 2012 opinion and order granting in part Windstream’s request for recovery from the TRO security. See U.S. D.I.D. Corp. v. Windstream Commc’ns, Inc. (U.S.D.I.D. I), No. 12 Civ. 4023,
. See Belfer v. Minko, No. 05 CV 2473,
. The district court required Windstream to file a supplemental declaration providing support for its claim for damages on the security. However, that declaration did not demonstrate that the indicated rates reflected their market value.
. The district court awarded damages for services provided from May 21 to June 1 based on the "interim” rates that Windstream imposed via its March 27 letter. If the district court concludes that, notwithstanding the thirty-day termination notice period provided for in the Agreement, recovery from the TRO bond is appropriate beginning May 21, it will also need to evaluate the appropriate rates for May 21 to June 1.