Western Water Management, Inc. v. Brown

• Court: Court of Appeals for the Fifth Circuit
• Decided: December 15, 1994
• Docket: 93-01936
• Status: Published

Opinion

United States Court of Appeals,

Fifth Circuit.

No. 93-1936.

WESTERN WATER MANAGEMENT, INC., Plaintiff-Appellee,

v.

Charles P. BROWN, et al., Defendants-Appellants.

Dec. 15, 1994.

Appeal from the United States District Court for the Northern District of Texas.

Before POLITZ, Chief Judge, GOLDBERG and DUHÉ, Circuit Judges.

DUHÉ, Circuit Judge:

After having been enjoined from manufacturing certain

products, Defendants were found to be in contempt of that

injunction. After another finding of contempt and a modification

of the injunction, Defendants ask this Court to vacate the modified

injunction and both contempt orders or to vacate and remand for a

more specific injunctive order. For the following reasons, we

affirm the contempt orders, vacate the modification to the

injunction, reinstate the Amended Injunction, and remand.

I. BACKGROUND

Western Water Management originally sued Chem Craft

Corporation and its officers, Charles Brown, Richard Hornack, and

J.B. Rivers, alleging a conspiracy to steal Western's formulas for

manufacturing water treatment products. Western proved that

Defendants used formulas misappropriated from Western to make and

sell waste treatment products under the Chem Craft name. The court

issued a permanent injunction requiring Defendants to surrender all

1 copies of Western's formulas (introduced at trial as "Exhibit 58")

and prohibiting Defendants from using or modifying Western's

formulas to manufacture any products. As amended and affirmed by

this Court, the injunction (the "Amended Injunction") provides as

follows:

IT IS, THEREFORE ORDERED that Defendants ... be and the same hereby are ordered to return to Western Water Management any and all copies of (1) Plaintiff's Trial Exhibit 58, the listing of Western Water Management, Inc.'s chemical product formulations, (2) Western Water formula No. 9715, and (3) any and all copies made therefrom....

... [Defendants] are directed forthwith to desist and refrain from disclosing the contents of Plaintiff's Trial Exhibit 58, the Western Water Management chemical product formulations, or Western Water formula No. 9715 to any individuals or entities ...;

... [Defendants] are restrained and enjoined from utilizing the formulations contained on Plaintiff's trial Exhibit 58, or Western Water formula No. 9715, or their modifications of those formulations, in Defendants' trade or business. This Order shall not preclude Defendants from utilizing formulations based upon or derived from other sources, or from selling single ingredient products or dilutions of single ingredient products, unless those dilutions are derived from Trial Exhibit 58.

7 R. at 1558-59.

Defendants formed a new entity known as Clearwater Industries,

which began selling products formulated in violation of the Amended

Injunction. Plaintiff moved for enforcement of the Amended

Injunction and for contempt. A magistrate judge found that

Clearwater was incorporated in an effort to hide Defendants'

continuing contemptuous formulation and sales of water-treatment

products, found Defendants in contempt, and recommended an order

for production of business documents showing Defendants' sales

revenues to determine the propriety of further monetary sanctions.

2 The court adopted the magistrate judge's recommendation in May

1992. Defendants moved for relief from and now appeal the May 1992

finding of contempt.

In August 1992 Western filed a second motion for contempt

alleging Defendants' continued use of proprietary formulas and

failure to produce documents. In September 1993 the court granted

Western's second motion for contempt, denied Defendants' motion for

relief from the first contempt order, and sua sponte modified the

Amended Injunction (the "Modification"). The Modification deleted

that portion of the injunction which stated,

This Order shall not preclude Defendants from utilizing formulations based upon or derived from other sources, or from selling single ingredient products or dilutions of single ingredient products, unless those dilutions are derived from Trial Exhibit 58.

11 R. 2737. From this September 1993 order and the May 1992

contempt order, Defendants appeal.1

II. CONTEMPT FINDINGS

A. Specificity of the Injunction

Defendants first complain that the findings of contempt are

erroneous because the Amended Injunction is unenforceable. The

collateral attack on an injunction during contempt proceedings is

1 Though a contempt decision is not final and appealable until the appropriate sanction for contempt has been ordered, Petroleos Mexicanos v. Crawford Enterprises, Inc., 826 F.2d 392, 398 (5th Cir.1987), the modification of the injunction which is independently appealable makes the contempt order appealable as well. 28 U.S.C. § 1292(a)(1) (jurisdiction over interlocutory order modifying injunction); Mercury Motor Express, Inc. v. Brinke, 475 F.2d 1086, 1091 (5th Cir.1973) (court with interlocutory jurisdiction over injunctive order may decide other aspects of the order).

3 prohibited if earlier review of the injunction was available. See

United States v. Ryan, 402 U.S. 530, 532 n. 4, 91 S.Ct. 1580, 1582

n. 4, 29 L.Ed.2d 85 (1971); see also NLRB v. Union Nacional de

Trabajadores, 611 F.2d 926, 928 n. 1 (1st Cir.1979).

In their previous appeal, Defendants argued that the Amended

Injunction improperly imposed "an overbroad blanket prohibition"

against their use of Western's product formulas. Defendants claim

that despite their previous attack on the Amended Injunction via

appeal, they may now in these contempt proceedings collaterally

attack the Amended Injunction as vague or overbroad.2 We disagree.

We see no reason to reopen consideration of the issue.3

B. The First Contempt Order

In the first contempt order the court found that Defendants

failed to return all copies of Western's formulas and made formulas

copied from Western in violation of the injunction. Defendants

moved for relief from this contempt order under Rule 60(b)(5) on

the basis of equitable reformation. Rule 60(b)(5) authorizes

relief from a final judgment or order when "it is no longer

equitable that the judgment should have prospective application."

In reviewing a request for relief under Rule 60(b)(5), "We are not

framing a decree. We are asking ourselves whether anything has

2 Fed.R.Civ.P. 65(d) provides, "Every order granting an injunction ... shall be specific in its terms; [and] shall describe in reasonable detail, and not by reference to the complaint or other document, the act or acts sought to be restrained." 3 See Union Nacional de Trabajadores, 611 F.2d at 928 n. 1 (allowing no exception to the rule against collateral attacks where the injunction has already been appealed).

4 happened that will justify us now in changing a decree." United

States v. Swift & Co., 286 U.S. 106, 119, 52 S.Ct. 460, 464, 76

L.Ed. 999 (1932). Defendants have not met their burden of

establishing this equitable ground for relief. See id. ("The

inquiry ... is whether the changes are so important that dangers,

once substantial, have become attenuated to a shadow."); see also

11 Charles A. Wright & Arthur R. Miller, Federal Practice and

Procedure § 2863 (1973) ("It is clear that a strong showing is

required before an injunction or other prospective judgment will be

modified.").

C. The Second Contempt Order

Defendants contend that the second contempt order is based on

clearly erroneous findings or evidentiary errors. The court found,

contrary to Defendants' evidence at the second contempt hearing,

that certain formulas originated with Plaintiff rather than other

competitors in the industry. Defendants first complain of the

district judge's remark that Defendants did not argue before the

magistrate judge that formulas were derived from other sources.

The court considered the failure to present the argument earlier

only in making its credibility determination, not in refusing to

admit evidence. See Sept. 1993 contempt order, 11 R. 2727. Using

a belated assertion in making credibility determinations is not an

improper evidentiary ruling.

Defendants also assert error in the court's consideration of

rebuttal evidence of other sources, namely, Plaintiff's belatedly

submitted affidavits. After an evidentiary hearing, the court gave

5 the parties the opportunity to make "further written submission" to

the court, and Western's affidavits from the competitors (attesting

that Defendants' use of their formulas was not permitted) followed.

These affidavits were cumulative to impeach the credibility of

Defendants' evidence suggesting new sources of formulas.

Considering that the affidavits were both cumulative and

uncontroverted, the court's consideration of the affidavits was not

an abuse of discretion. See Hoffman ex rel NLRB v. Beer Drivers &

Salesmen's Local Union No. 888, 536 F.2d 1268, 1277 (9th Cir.1976)

(uncontroverted affidavits may be treated as true).

Defendants also contend that the court clearly erred in

finding Defendants' noncompliance with the order to surrender

documents and in finding that they wrongfully used formula numbers

CC 1105 and CC 6190. These issues were decided as a matter of fact

by the court, and Defendants have not demonstrated that such

findings are clearly erroneous.

III. MODIFICATION OF THE AMENDED INJUNCTION

Defendants also complain of the district court's sua sponte

modification of the Amended Injunction, tightening restrictions on

Defendants' actions without prior notice. Although a district

court retains jurisdiction to modify an injunction to the

defendants' detriment under certain circumstances,4 we find no

authority allowing such a modification to be made without notice.

4 E.g., Exxon Corp. v. Texas Motor Exchange of Houston, Inc., 628 F.2d 500, 503 (5th Cir.1980) (recognizing that an injunction may be modified to impose more stringent requirements on the defendant when the original purposes of the injunction are not being fulfilled in any material respect).

6 Rule 65 provides stringent notice requirements for issuance of

injunctive relief.5

Though Defendants had requested relief from the injunction,

they were not on notice of the modification imposed on the court's

own motion. Not having notice of any broader scope of the hearing

than the notice they sent and Plaintiff's notice on the second

contempt motion, "they were therefore unprepared and not on notice

to oppose the [modified] injunction issued at that hearing."

Williams v. McKeithen, 939 F.2d 1100, 1005 (5th Cir.1991) (vacating

court's sua sponte issuance of second order injoining defendants at

hearing held on notice of defendants' motion to vacate first

injunction because of lack of notice of the court's intended

action); see also Spangler v. Pasadena City Bd. of Educ., 537 F.2d

1031, 1036 n. 8 (9th Cir.1976) (Wallace, J., dissenting) ("[E]ven

if the district court had power to modify the injunction sua

sponte, it could not do so without providing prior notice."). We

hold that the district court abused its discretion in modifying the

5 See Fed.R.Civ.P. 65(a) (forbidding issuance of preliminary injunction without notice) and (b) (allowing for issuance of temporary restraining order without notice only under exceptional circumstances); see also Parker v. Ryan, 960 F.2d 543, 544 n. 1 (5th Cir.1992) (recognizing that Rule 65(a)'s notice requirement is constitutionally required).

Notice requirements for permanent injunctions are also stringent. See Nationwide Amusements, Inc. v. Nattin, 452 F.2d 651, 652 (5th Cir.1971) (requiring notice of court's consolidation pursuant to Rule 65(a)(2) of the trial of permanent injunction with the hearing of preliminary injunction); Puerto Rican Farm Workers ex rel. Vidal v. Eatmon, 427 F.2d 210, 210-11 (5th Cir.1970) (same); see also United States v. Crusco, 464 F.2d 1060, 1062-63 (3d Cir.1972) (holding that permanent injunction is not available without notice to the adverse party).

7 Amended Injunction, because the Modification was not preceded by

appropriate notice and an opportunity for hearing.

The Modification to the Amended Injunction is vacated, and the

Amended Injunction reinstated. The contempt orders are in all

other respects affirmed. The matter is remanded for such further

proceedings as necessary on the modification after due notice.

AFFIRMED IN PART; VACATED IN PART; Amended Injunction

REINSTATED; REMANDED.