Metro-Goldwyn-Meyer v. 007 Products

• Court: Court of Appeals for the First Circuit
• Decided: July 7, 1999
• Docket: 98-2160
• Status: Published

Opinion

USCA1 Opinion

                    UNITED STATES COURT OF APPEALS

                         FOR THE FIRST CIRCUIT


No. 98-2160



                METRO-GOLDWYN MAYER, INC., DANJAQ, INC.

                      AND EON PRODUCTIONS, LTD.,



                         Plaintiff-Appellees,



                                  v.



                      007 SAFETY PRODUCTS, INC.,



                         Defendant, Appellant.


APPEAL FROM THE UNITED STATES DISTRICT COURT



                   FOR THE DISTRICT OF MASSACHUSETTS



               [Hon. Nancy Gertner, U.S. District Judge]


Before



                        Torruella, Chief Judge,



                      Cyr, Senior Circuit Judge,



                  and Pollak, Senior District Judge.


Philip X. Murray for appellant.

     Nicholas C. Theodorou, with whom John A. Shope, Sarah Cooleybeck

and Foley, Hoag & Eliot, LLP were on brief for appellees.


July 7, 1999

                                             

          CYR, Senior Circuit Judge.  Defendant 007 Safety

Products, Inc. ("Safety Products") appeals a district court order

which enjoined Safety Products and related parties from violating

a settlement agreement with the alleged owners of the trademarks

"James Bond" and "007."  We affirm.

                                I

                            BACKGROUND

          Safety Products, which manufactured and sold such

products as tear gas and pepper spray, was founded by Ronald

Pasqualino in 1990.  Ronald designed product packaging which

included a logo depicting the numerals "007" superimposed on a

spray can ("007 spray can logo"). In 1994, Angelo Pasqualino,

Ronald's brother, became a partner in Safety Products.  As Safety

Products was virtually insolvent, Angelo personally invested

$150,000, and incorporated the company, designating himself as

president, and himself and his wife, Patricia, as the only

corporate officers, directors, and shareholders.  Patricia took no

part in operating the business, nor did the corporation convene

directors meetings, issue corporate shares, or declare dividends.

          In return for his services, including his solicitation of

business accounts, Ronald received $300 per week.  Safety Products

deducted these payments on its tax returns as salary expense. 

Ronald also applied for a trademark on the 007 spray can logo.  The

trademark application was actively opposed by plaintiff-appellee

Danjaq, Inc., which itself claimed the trademark for the James Bond

"007" can logo.

          In April 1996, Danjaq, Inc., Metro-Goldwyn-Mayer, Inc.,

Eon Productions, Ltd., and MAC B, Inc. (collectively:  "Danjaq")

brought suit in federal district court, claiming that Safety

Products' 007 spray can logo infringed their registered trademarks. 

The district court declined Danjaq's request for preliminary

injunctive relief in July 1996.  Rather than take an interlocutory

appeal, Danjaq elected to enter into a settlement agreement with

Safety Products, which prescribed, inter alia, that:  (1) Danjaq

pay Safety Products $150,000; (2) Safety Products be permitted to

continue to use "007" in its corporate name, but be prohibited from

using "007," "James Bond," or the associated logos in its product

packaging or advertising; (3) Safety Products file   or "ensure

that Ronald Pasqualino, and or . . .  any other appropriate person

. . .    . . . file the appropriate documents necessary to abandon"

the pending trademark application for the 007 spray can logo; and

(4) the parties "take all reasonable steps  . . . to persuade the

district court to vacate [its July 1996 order denying Danjaq a

preliminary injunction]" and refrain from interim release and

publication of its July 1996 order. Ronald Pasqualino was not

mentioned in the Agreement, which was executed by Angelo as

president of Safety Products.

          Danjaq promptly remitted the $150,000 to Safety Products,

which wired $50,000 to a bank account controlled by Ronald,

designating it in the company books as "Ronnie's share" of the

settlement proceeds.  On June 23, 1997, Ronald withdrew his

trademark application.  The district court in turn vacated its

earlier July 1996 order denying preliminary injunctive relief to

Danjaq.

          On August 13, 1997, Danjaq informed the court of the

settlement.  The court conditionally dismissed the case, subject to

its reopening in the event the settlement was not consummated

within sixty days.  Five weeks later, however, Ronald filed an

application with the United States Patent and Trademark Office

("Trademark Office") to reinstate his trademark application.  In

addition, he threatened to publish the vacated July 1996 order on

the Internet unless Danjaq paid him money over and above the

$150,000 already paid to Safety Products.

          On October 9, 1997, Danjaq moved to set aside the

conditional dismissal entered by the district court on August 13,

and to enforce the Settlement Agreement.  Meanwhile, the Trademark

Office denied the pending application to reinstate the trademark

application withdrawn by Ronald Pasqualino on June 23.

          At the district court hearing on Danjaq's motion to set

aside the conditional dismissal entered on August 13, Danjaq

contended that Ronald   though neither a named party nor a

signatory to the Settlement Agreement   was so "legally identified"

with Safety Products as to have become contractually bound as its

agent, see Fed. R. Civ. P. 65(d); infra Section II.C.  Following

extensive discovery on this issue, the district court permanently

enjoined Safety Products, and others in active concert with it

(including Ronald Pasqualino), from further attempts to reinstate

the withdrawn trademark application or to publish the vacated July

1996 order on the Internet.  In due course, Safety Products

appealed.

                                II

                            DISCUSSION

     A.   Subject Matter Jurisdiction



          Safety Products first contends that the district court

lacked subject matter jurisdiction to enter final judgment and

issue the injunction.  It relies on the principle that federal

district courts normally lack either the authority to impose a

subsequent condition on a dismissal entered with prejudice based on

a stipulation of dismissal with prejudice pursuant to Fed. R. Civ.

P. 41(a)(1)(ii) ("[A]n action may be dismissed by the plaintiff

without order of court . . . by filing a stipulation of dismissal

signed by all parties who have appeared in the action."), or the

jurisdiction to reopen a dismissed case to enforce a settlement. 

See Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 378

(1994); cf. Fed. R. Civ. P. 41(a)(2) (providing that, "[e]xcept as

provided in [Rule 41(a)(1)], an action shall not be dismissed at

the plaintiff's instance save upon order of the court and upon such

terms and conditions as the court deems proper").  Even though

Danjaq and Safety Products filed no such stipulation of dismissal

with prejudice, Safety Products contends that the district court

nonetheless lost jurisdiction because Danjaq breached its

settlement agreement by failing to file the stipulation.  See supra

Section I.  We do not agree.

          First, Kokkonen terminates jurisdiction only after the

Rule 41(a)(1)(ii) stipulation has been filed.  Thus, Danjaq's

failure to file the required stipulation is dispositive.  

          Second, the Court also explained in Kokkonen that even

after the parties file a Rule 41(a)(1)(ii) stipulation the district

court retains the power to enforce the settlement agreement

provided the dismissal order expressly incorporates the settlement

agreement, or expressly preserves jurisdiction over the settlement

agreement.  See Kokkonen, 511 U.S. at 381-82 ("Even when, as

occurred here, the dismissal is pursuant to Rule 41(a)(1)(ii)

(which does not by its terms empower a district court to attach

conditions to the parties' stipulation of dismissal) we think the

court is authorized to embody the settlement contract in its

dismissal order (or, what has the same effect, retain jurisdiction

over the settlement contract) if the parties agree."); Pratt v.

Philbrook, 109 F.3d 18, 21 n.5 (1st Cir. 1997).  

          The Settlement Agreement in the instant case clearly did

not preclude retention of jurisdiction by the district court.  Cf.

Hester Indus., Inc. v. Tyson Foods, Inc., 160 F.3d 911, 913, 916

(2d Cir. 1998) (finding no jurisdiction where settlement agreement

prohibited entry of any judgment or injunction against either

party).  Quite the contrary, the dismissal order entered by the

district court expressly retained jurisdiction over the settlement

agreement for sixty days, and Safety Products neither objected nor

insisted on its right to an unconditional Rule 41(a)(1)(ii)

dismissal.  Cf. Gardiner v. A.H. Robins Co., 747 F.2d 1180, 1189-90

(8th Cir. 1984) (finding no jurisdiction where parties to

stipulated dismissal neither knew about or agreed to retention of

jurisdiction).

     B.   Scope of Injunction

          Safety Products next contends that the district court

abused its discretion by enjoining Safety Products from further

efforts to reinstate its withdrawn trademark application and from

threatening to publish the vacated July 1996 preliminary injunction

order on the Internet.  See A.W. Chesterton Co. v. Chesterton, 128

F.3d 1, 5 (1st Cir. 1997) (appellate court reviews grants of

permanent injunctive relief for abuse of discretion); see also

Fed. R. Civ. P. 65.

               1.   Trademark Abandonment

          The district court determined that Safety Products

violated the settlement agreement provision requiring it to abandon

the 007 spray can trademark application.  See Agreement  4(g).  It

held that "[a] withdrawal followed by a 'withdrawal of a

withdrawal' is obviously not [an] effective abandonment."  Safety

Products responds that it did not breach the settlement agreement

since the Trademark Office determined that its attempt to withdraw

the abandonment was ineffectual.

          Danjaq counters that the reinstatement application filed

by Safety Products remained pending before the Trademark Office at

the time Danjaq filed its motion to enforce the settlement, and,

therefore, Danjaq was entitled to prospective injunctive relief. 

Be that as it may, by the time the district court permanently

enjoined Safety Products, the Trademark Office had ruled that

Safety Products could not withdraw its June 23 abandonment.

          Normally, courts may not enjoin conduct if "(1) it can be

said with assurance that 'there is no reasonable expectation  . .

.' that the alleged violation will recur, and (2) interim relief or

events have completely and irrevocably eradicated the effects of

the alleged violation."  County of Los Angeles v. Davis, 440 U.S.

625, 631 (1979) (citations omitted).  Danjaq argues, however, that

since Ronald Pasqualino had on one occasion filed a motion for

reconsideration of the Trademark Office's decision to deny his

reinstatement application, "there is no indication that he would

have stopped requesting 'reconsideration' in the absence of the

District Court's injunction."  

          "The burden of demonstrating mootness is a 'heavy one,'" 

id. (citation omitted), and it fell to Safety Products to

demonstrate that its past attempts to reinstate the trademark

application likely would not recur.  Safety Products, which filed

no reply brief on appeal, has not attempted to meet its burden. 

That is, it does not contend   let alone attempt to prove   that

Trademark Office procedures precluded it from filing either

successive motions to reconsider or successive motions to set aside

its June 1997 abandonment on grounds not raised previously.  Given

Ronald Pasqualino's prior conduct, we cannot conclude that Danjaq's 

concerns about being brought before the Trademark Office again

absent injunctive relief were unfounded.

               2.   Preliminary Injunction Order

          Safety Products next contends that the Settlement

Agreement did not prevent it from disseminating the July 1996

preliminary injunction over the Internet, but instead mandated only

that it join with Danjaq in persuading the district court to vacate

the July 1996 order, and refrain from publishing the order "in any

official reporter or in any other medium, including but not limited

to the LEXIS and Westlaw electronic databases." See Agreement  4(c)

(emphasis added).  Since it cooperated in getting the district court

to vacate the order and halt its interim publication, Safety

Products argues that Ronald Pasqualino's dissemination of the

vacated order on the Internet would not have breached the literal

terms of the Settlement Agreement.

          Safety Products' interpretation of the Settlement

Agreement strikes us as high octane sophistry.  First, although 

4(c) literally addresses only the district court's publication of

the vacated order, as a whole  4(c) evinces a reasonable

expectation on the part of Danjaq that Safety Products was to take

good faith measures to ensure that the order was not published in

any of the enumerated media.  Second, in  16, Safety Products

agreed that "the Terms of this Agreement (including, but not limited

to, the matters enumerated in paragraph 4 above), shall remain

confidential, and shall not be disclosed to any person or entity.

. . . In the event any person should inquire of any of the parties

concerning the action or products' claims, the party of whom the

inquiry is made may say that the matter has been fully and finally

resolved, but shall not say any more."  Thus, the confidentiality

clause expressly precluded not only disclosure of the terms in  4,

but any "matters" enumerated in  4, thereby plainly encompassing

the text of the vacated order.  Contracts include an implied

covenant that all parties shall perform their contractual

obligations in good faith.  See James L. Miniter Ins. Agency, Inc.

v. Ohio Indemnity Co., 112 F.3d 1240, 1249 (1st Cir. 1997).  Safety

Products reasonably cannot claim that its only obligation was to

persuade the district court not to publish the vacated order on the

Internet, but that Safety Products itself remained free to do so. 

     C.   "Legal Identification"

          Federal Rule of Civil Procedure 65(d) provides that an

order granting an injunction "is binding only upon the parties to

the action, their officers, agents, servants, employees, and

attorneys, and upon those persons in active concert or participation

with them who receive actual notice of the order by personal service

or otherwise."  See G. & C. Merriam Co. v. Webster Dictionary Co.,

639 F.2d 29, 36 (1st Cir. 1980) ("'[D]efendants may not nullify a

decree by carrying out prohibited acts through aiders and abettors,

although they were not parties to the original proceeding.'")

(citation omitted).  Safety Products argues that the district court

erred in finding that Ronald Pasqualino was "legally identified"

with Safety Products, and therefore personally bound by the

settlement agreement.

          The "legal identification" test focuses on whether Ronald

Pasqualino's participation in Safety Products was sufficiently

significant to make him a de facto participant in the Settlement

Agreement.  See id. at 37-38.  Safety Products acknowledges that the

factual finding of "legal identification" may not be disturbed

unless clearly erroneous.  See id. at 38. There is ample record

support.

          Ronald co-founded Safety Products.  Safety Products'

attorney referred to Ronald as its co-"owner."  Ronald designed the

007 spray can logo, and applied for the trademark. See id.

("Advertisements designed, written, and placed by [the legally

identified person] precipitated the injunction.").  During the

period from 1994-97, Ronald received more than $10,000 in

compensation for services performed for Safety Products, which

amount was deducted by Safety Products on its tax returns as a

business expense.  Angelo Pasqualino consulted Ronald during the

settlement negotiations with Danjaq, and sent him copies of the

Agreement and related documents for review.  See Project B.A.S.I.C.

v. Kemp, 947 F.2d 11, 20 (1st Cir. 1991) (noting that Merriam test

is satisfied where the legally identified person "enjoyed

substantial control . . .  decisionmaking with respect to

[defendant's] litigation position"). Safety Products paid Ronald

$50,000 ("Ronnie's share") from the $150,000 it received from Danjaq

under the Settlement Agreement.  See id. ("The record supports an

inference that [the legally identified person's] responsibilities

were substantial, as was his expectation of remuneration if the

venture was successful.").

          Safety Products neither contends that the district court

findings lack record support nor that the above-cited evidence is

immaterial to the "legal identification" inquiry.  Rather, it

catalogs snippets of evidence which might conceivably support a

contrary finding.  Since the district court was the factfinder,

however, and none of the catalogued evidence conclusively

established that Ronald was not "legally identified" with Safety

Products, we will not disturb its factual finding.  Ramos v. Davis

& Geck, Inc., 167 F.3d 727, 733 (1st Cir. 1999) ("'[W]here there are

two permissible views of the evidence, the factfinder's choice

between them cannot be clearly erroneous.'") (citation omitted).

          Affirmed; costs to appellees.