Kalodner, Van Dusen and Aldisert, Circuit Judges.
VAN DUSEN, Circuit Judge.
These are appeals by the Postmaster General and Local Postmasters (hereinafter sometimes referred to as the Post Office) from orders dismissing as moot suits asking for permanent injunctions against them. The preliminary injunctions were conditioned on the posting of a bond by the plaintiffs to cover damages incurred during the pendency of the injunction. The Post Office claims it is entitled to the bond and, since recovery is dependent on a final judgment on its behalf on the merits of the applications for final injunctions, that the present suits are not moot and should be allowed to go forward to trial. This court's jurisdiction is based on the Administrative Procedure Act, 5 U.S.C. § 500 et seq. (1964) and 28 U.S.C. § 1339 (1964).
On June 29, 1968, the Postmaster General published in the Federal Register a notice of proposed rulemaking dealing with the manner in which volume users eligible for the preferential fourth class rates*fn1 present material for mailing. 33 Fed.Reg. 9554 (1968). This action was taken pursuant to section 108(e) of the Postal Revenue and Salary Act, 39 U.S.C. § 4554(e) (Supp. V, 1964), which provides that, in order to benefit from the special fourth class rates, those who mail in quantities of a thousand or more must do so in the manner prescribed by the Postmaster General.*fn2 After evaluating the views and recommendations submitted in response to the notice, the Postmaster General, on August 9, 1968, promulgated Postal Regulation 135.2(a) (6) to take effect in two stages. 33 Fed.Reg. 11359 (1968). During the first stage, commencing October 1, 1968, mailers would be required to sort and sack identical pieces mailed in quantities of 1000 or more daily, in accordance with the first three digits of the ZIP code. During the second stage, effective January 15, 1969, mailers who presented 1000 or more pieces in a single day would be required to include the full ZIP code on all pieces, both identical and non-identical, to sort and sack identical pieces by three-digit ZIP code areas, and to sort and sack non-identical pieces according to the state of destination.*fn3 Upon being notified by a number of mailers that they would be unable to comply by October 1, 1968, with the requirements becoming effective on that date, the Post Office announced that it would "enter into an agreement to perform on a reimbursable basis separating and sacking services necessary for compliance with the regulation for a period of 60 days * * *" 33 Fed.Reg. 14725 (1968).*fn4
Appellees mail books for publishing houses, book stores, book wholesalers, schools, and libraries. Along with other bulk shippers of fourth-class material, they brought suits in various district courts seeking injunctive and declaratory relief against Postal Regulation 135.2(a) (6). Appellees' complaints generally included allegations that the promulgation of the postal regulation (1) exceeded the scope of the authority conferred on the Postmaster General by 39 U.S.C. § 4554(e) (Supp. V, 1964), (2) was arbitrary and capricious, (3) was adopted without observance of procedures required by law, (4) was contrary to plaintiffs' constitutional rights, privileges, and immunities, and (5) was unsupported by "substantial evidence for its necessity." All appellees sought injunctive relief against the second phase of the regulation. Appellee American Book-Stratford Press also sought relief against the first phase of the regulation. Preliminary injunctions were granted in the cases now before us, conditioned on the posting of security in amounts such as to insure the payment of "such costs and damages as may be incurred or suffered by [the Post Office] if found to have been wrongfully enjoined or restrained."*fn5 Security was posted pursuant to Rule 65(c) of the Federal Rules of Civil Procedure, which contains language substantially the same as that quoted.*fn6 The costs were associated with the sorting and sacking of appellees' mailings. In response to a Notice of Motion, the Judicial Panel on Multidistrict Litigation, on April 3, 1969, transferred 17 cases to the District Court for the District of New Jersey in time for pre-trial discovery.*fn7 In January 1969, the Post Office moved for dismissal of the complaints or for summary judgment. No action on this motion was taken. Subsequently, after meetings with the mailers, the Post Office announced a new rulemaking, with revised proposals designed to amend the challenged regulation.*fn8
On October 16, 1969, the Post Office promulgated a new regulation which became effective on January 1, 1970. 34 Fed.Reg. 16542 (1969). The new provisions, which were not objected to by appellees, amended the regulation previously adopted to the extent that they imposed no duty upon the mailers to sort and sack non-identical pieces. However, the new regulation imposed the more stringent requirement that identical pieces shipped in mailings of 5000 or more be sorted and sacked in accordance with the full five digits of the ZIP code. Otherwise the regulations were similar. The new regulation became effective January 1, 1970. 34 Fed.Reg. 16542 (1969). Prior to the implementation of the amended proposals, the Post Office Department moved for an increase in the security furnished in seven of the pliance were outstripping the amounts cases, claiming that actual costs of comof the bonds. The district court finally denied the motions in November 1969 on the ground that the suits were moot. The court stated:
"I frankly can't see any basis, Mr. Alworth -- I am sorry -- for granting the government's motion to increase the amount of the bonds, in a situation as nebulous as this, absolutely nebulous. We have a new Regulation. The old one is gone. The book people are phasing in to conform to the new Regulation."*fn9
The United States District Court for the District of New Jersey ordered, upon the motion of the Government and the agreement of the mailers, that the preliminary injunctions be modified "to the extent that the plaintiffs and defendant are permitted to take such action as is necessary to comply with Amended Regulation 135.2(a) (6). * * *" Then, on January 26, 1970, the Government moved for the entry of an order vacating all restraints which remained in effect as to the Post Office. On March 3, 1970, the district court ordered that all restraints then in effect be vacated.
Subsequently the plaintiffs moved for an order dismissing the actions without prejudice and without costs, and discharging the bonds. The Post Office Department opposed a dismissal of the actions until damages were assessed against the plaintiffs, but the court ordered that the actions be dismissed without prejudice and without costs, and that the bonds be vacated and discharged.*fn10 The district court noted the "general principle that there can be no recovery of damages caused by a preliminary injunction unless final judgment is in favor of the party that has been enjoined" and said (N.T. 124a-125a):
"The cases are moot. The subject matter of those cases is gone. The old Regulation was challenged. The status quo was maintained until such time as there could be a hearing on the merits. A hearing on the merits never came about because the parties got together and worked out a new Regulation.
"In the absence of any proof, or even a suggestion of proof, that the injunctions were wrongfully issued, or that the defendants were wrongfully restrained, the motions for dismissal of the complaints will be granted and the bonds discharged."
The court entered orders to this effect. The Government appeals from these orders, as well as the orders denying the ...