Nacm-New Eng., Inc. v. Nat'l Ass'n of Credit Mgmt., Inc. , 927 F.3d 1 ( 2019 )

United States Court of Appeals
For the First Circuit
No. 18-1960
NACM-NEW ENGLAND, INC.,
d/b/a BUSINESS CREDIT INTELLIGENCE,
Plaintiff, Appellee,
v.
NATIONAL ASSOCIATION OF CREDIT MANAGMENT, INC.,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Timothy S. Hillman, U.S. District Judge]
Before
Lynch, Lipez, and Barron,
Circuit Judges.
Michael J. Lambert, with whom Sheehan, Phinney, Bass & Green,
P.A. was on brief, for appellant.
Jack K. Merrill, with whom KSR Law was on brief, for appellee.
June 11, 2019
BARRON, Circuit Judge. This appeal arises out of a
breach of contract suit between a national trade association of
credit professionals, National Association of Credit Management,
Inc. ("NACM"), and one of its regional affiliates, NACM-New
England, Inc., which does business under the name Business Credit
Intelligence ("BCI"). NACM appeals from the District Court's
September 24, 2018 order granting injunctive and declaratory
relief to BCI. We affirm in part, vacate in part, and remand in
part the order of injunctive relief. We vacate and remand the
declaratory judgment.
I.
The following facts were found by the District Court and
are not in dispute on appeal. NACM is a national trade association
of commercial credit professionals that provides services, such as
educational programs and legislative advocacy, to a series of
regional "Affiliates." BCI is one of those Affiliates. Under the
contract at issue, it has exclusive rights to provide credit
services as a NACM Affiliate in the New England area.
Affiliates have customers, called "members," to whom
they provide "core services." These include access to credit
information, education on credit issues, and collection services.
Members of Affiliates are also members of NACM. NACM also provides
education and professional certification coursework to members.
- 2 -
Each Affiliate signs an identical contract with NACM.
This appeal arises out of NACM's termination of the 2011 version
of this agreement ("2011 Agreement") between BCI and NACM.
The 2011 Agreement provides, among other things, that
NACM will provide services to Affiliates on certain terms and that
NACM will not "disclose the specific membership list, or portions
thereof, of any Affiliate to any person or entity" that provides
"core services." The 2011 Agreement permits either NACM or the
Affiliate to terminate the agreement "for cause upon 90 days
written notice to the other."
The 2011 Agreement was automatically renewed on October
28, 2016. Thus, it would remain in effect until October 28, 2021
if not terminated for "cause." On May 12, 2017, however, NACM
sent the Chief Operating Officers of the Affiliates ("Affiliate
COOs") a new agreement to be discussed at a meeting of the NACM
Board of Directors in June of 2017 and at a meeting of the Affiliate
COOs that same month.
Following those meetings, on June 14, 2017, Jon Flora,
a member of the NACM Board, informed BCI that the NACM Board had
approved a new Affiliate agreement. NACM circulated the new
agreement to Affiliate COOs on July 13, 2017, and informed them
that the NACM Board had "voted to simultaneously terminate all
NACM Affiliated Association Agreements . . . and adopt the new
NACM Affiliation Agreement . . . on August 18[, 2017] at 12 noon
- 3 -
ET." Affiliates were required to return signed versions of the
new agreement by that time "in order to maintain . . . Affiliate
status." BCI was not happy with the new agreement's terms and
refused to sign, thus risking disaffiliation upon termination of
the 2011 Agreement.
On August 21, 2017, NACM's President, Robin Schauseil,
emailed BCI. She informed BCI that seventeen of the twenty-two
Affiliates had signed the 2017 Agreement and thus that there was
"now a super majority of support for the 2017 Agreement." In that
email, Schauseil indicated that the 2011 Agreement would terminate
effective November 17, 2017, pursuant to Article IV, Section 4.D
of the 2011 Agreement. That section provides that the agreement
may be "terminated . . . for cause upon 90 days written notice."
Schauseil further explained that "[d]uring the 90-day termination
period, NACM will work towards ensuring that members . . . have
access to NACM products, services and benefits after November
17th." In anticipation of the termination of the 2011 Agreement
with BCI, NACM awarded BCI's territory to NACM Connect, the
Affiliate for the Chicago area.
On November 8, 2017, BCI filed a complaint in
Massachusetts state court against NACM. The complaint alleged,
among other things, breach of contract. The case was removed a
week later to the United States District Court for the District of
- 4 -
Massachusetts on the basis of diversity jurisdiction. See 28
U.S.C. § 1332.
The same day that the case was removed, BCI filed an
emergency motion for a preliminary injunction and a hearing on
that motion. BCI sought an injunction to require NACM to continue
to abide by the terms of the 2011 Agreement, which it claimed that
NACM had breached. NACM filed its opposition to that motion the
following day.
On November 17, 2017 -- the date NACM intended to
terminate the 2011 Agreement -- the District Court granted BCI's
request for a preliminary injunction, after a hearing, and
scheduled a "hearing on BCI's request for permanent injunctive
relief" for December 5, 2017. This hearing was continued multiple
times and then canceled after NACM filed an answer. NACM's answer
included a demand for a jury trial.
A hearing was then set on the docket and was referred to
as a "preliminary injunction" hearing in that docket entry. That
hearing, in later docket entries, was referred to as a "Hearing on
[Docket Entry] 21 Motion for Order re: Prior Preliminary
Injunction."
BCI's "Motion for Order re: Prior Preliminary
Injunction" asked the District Court to address what BCI argued
was NACM's failure to follow the terms of the preliminary
- 5 -
injunction. The hearing on that motion took place over four
days -- specifically, April 17-19, 2018, and May 8, 2018.
On September 24, 2018, the District Court entered an
order granting an injunction and a declaratory judgment to BCI.
That injunction, in relevant part, ordered that the 2011 Agreement
remained in effect and required NACM to "continue to honor all its
obligations thereunder, including its obligation not to share
BCI's membership list with any entity that provides core
services."1 The District Court declared, "as a matter of law, that
NACM did not properly terminate the 2011 Agreement and, therefore,
did not have 'cause' to terminate BCI's affiliation agreement on
November 17, 2017." NACM timely appealed.
II.
We start with NACM's challenge to the District Court's
order of injunctive relief. NACM contends that "[t]he text of the
actual Order indicates the District Court issued a permanent
injunction" because "there was no qualification [that the
injunction] was limited to the pendency of the litigation." From
that premise, NACM argues that the District Court committed legal
error by analyzing the case under the preliminary injunction
1
The injunction does also prohibit NACM from "interfering
with the business relationship between BCI" and another entity
called United TranzActions, LLC, but NACM does not attack that
portion of the injunction. Accordingly, we need not address that
aspect of the injunction.
- 6 -
standard, which requires only a showing of likelihood of success
on the merits rather than actual success. Compare eBay, Inc. v.
MercExchange, L.L.C., 547 U.S. 388, 391 (2006) (setting forth the
standard for a permanent injunction), with Voice of the Arab World,
Inc. v. MDTV Med. News Now, Inc., 645 F.3d 26, 32 (1st Cir. 2011)
(same for a preliminary injunction).
Our review of a District Court's entry of an injunction
is for abuse of discretion. Am. Bd. of Psychiatry & Neurology,
Inc. v. Johnson-Powell, 129 F.3d 1, 2-3 (1st Cir. 1997). But,
here, the question at issue necessarily turns on the proper
construction of the District Court's order, which presents a
question of law that we review de novo. See Highmark Inc. v.
Allcare Health Mgmt. Sys., Inc., 572 U.S. 559, 563 (2014)
("[D]ecisions on questions of law are reviewable de novo . . . ."
(internal quotation marks omitted)).
The text of the order of injunctive relief explains that
it is "based on [the District Court]'s finding that NACM is
required to continue to perform its obligations under the 2011
agreement during the pendency of any dispute between the parties."
That temporal limitation is most naturally read to apply to the
remainder of the order, as that language is immediately followed
by "[i]t is hereby ordered that . . ." and the specific terms of
the order -- namely, that NACM must comply with the 2011 Agreement.
- 7 -
So understood, the application of the preliminary
injunction standard is less evidence of the District Court's error
in selecting the proper standard for assessing whether to issue an
injunction than of the District Court's intention to issue only a
preliminary injunction. We therefore conclude that the District
Court did not abuse its discretion in applying the preliminary
injunction standard, because the injunction that it issued was a
preliminary injunction.
NACM next contends that, even if the District Court
issued a preliminary -- rather than a permanent -- injunction, the
District Court still erred. NACM contends that the District Court
did so by failing to find sufficient evidence of irreparable harm
to support the injunction. See Winter v. Nat. Res. Def. Council,
Inc., 555 U.S. 7, 20 (2008) (holding that a party seeking a
preliminary injunction "must establish [1] that he is likely to
succeed on the merits, [2] that he is likely to suffer irreparable
harm in the absence of preliminary relief, [3] that the balance of
equities tips in his favor, and [4] that an injunction is in the
public interest"). Our review of the District Court's irreparable
harm finding is for abuse of discretion. See Johnson-Powell, 129
F.3d at 2-3.
The general rule in our Circuit is that "traditional
economic damages can be remedied by compensatory awards, and thus
do not rise to the level of being irreparable." Vacquería Tres
- 8 -
Monjitas, Inc. v. Irizarry, 587 F.3d 464, 485 (1st Cir. 2009)
(citing P.R. Hosp. Supply, Inc. v. Bos. Sci. Corp., 426 F.3d 503,
507 (1st Cir. 2005)). Injunctive relief is permissible, however,
"where the potential economic loss is so great as to threaten the
existence of the movant's business." Id. (quoting Performance
Unlimited, Inc. v. Questar Publishers, Inc., 52 F.3d 1373, 1382
(6th Cir. 1995)).
As an initial matter, NACM argues that the District
Court's analysis and explanation of the irreparable harm factor
was so deficient as to constitute an abuse of discretion. But,
the District Court, after hearing testimony from both parties,
found "that BCI ha[d] demonstrated a serious risk of irreparable
harm in the absence of an injunction." Moreover, the record shows
that the District Court, after hearing nearly four days of
testimony, concluded that "[d]isclosure of [BCI's] membership list
to NACM Connect would" -- and thus not merely that such disclosure
could -- "be devastating." (emphasis added). The District Court
also found that BCI faced a "real threat of harm" from the
disclosure, Matos ex rel. Matos v. Clinton Sch. Dist., 367 F.3d
68, 73 (1st Cir. 2004), and the District Court did so after finding
that, upon NACM's disclosure of lists of BCI members that are
protected by the 2011 agreement to NACM Connect, BCI's competitor
would have "all necessary information at its disposal to poach
BCI's clients"; that NACM Connect has previously taken customers
- 9 -
away from BCI; that BCI operates on a "break even basis"; and that
"a significant loss of members, . . . about 20%, could cause BCI
to become insolvent" following testimony from BCI that "if we lost
20% of our members, we will be out of business."
Thus, at least with respect to the finding of irreparable
harm that would flow from disclosure, we are able to discern what
factors were weighed and "the [D]istrict [C]ourt's thought
process[.]" Coutin v. Young & Rubicam P.R., Inc., 124 F.3d 331,
337 (1st Cir. 1997). We thus see no abuse of discretion based on
a failure to make the basis for the finding known.
NACM also contends that the finding of irreparable harm
was based on nothing "more than conjecture, surmise, or a party's
unsubstantiated fears of what the future may have in store."
Charlesbank Equity Fund II, Ltd. v. Blinds To Go, Inc., 370 F.3d
151, 162 (1st Cir. 2004). But, our review is for abuse of
discretion, and the supportable findings that the District Court
made concerning BCI's precarious financial state and the prospect
of poaching that would follow from the violation of NACM's
obligations with respect to disclosure suffice to refute this
ground of objection with respect to the finding of irreparable
harm concerning disclosure.
Insofar as NACM means to argue that the District Court's
finding of irreparable harm is not sustainable because the record
shows that BCI's membership list is not "confidential and
- 10 -
protectable," we disagree. To support the contention, NACM points
only to the compilation of conference attendance lists that include
members and non-members and to its own provision of BCI's
membership list to companies like UPS for purposes of member
discounts. That evidence, however, does not concern the
disclosure of a complete membership list to a direct competitor in
a manner that facilitates poaching.
NACM also contends that, absent a finding that NACM's
"bare-bones" list of BCI's members constitutes "the specific
membership list, or portions thereof, of any Affiliate" within the
meaning of the 2011 Agreement, the District Court "could not have
determined BCI succeeded (or was likely to succeed) on the merits
of its claim that NACM's provision of its own list to a replacement
Affiliate violated the 2011 Agreement and should be enjoined."
And, NACM contends, the District Court made no such finding.
But, the District Court found that BCI was likely to
succeed on its breach of contract claim not because of any
disclosure that NACM had made prior to the termination of the 2011
Agreement but because BCI was likely to succeed in showing that
NACM breached that agreement by failing to terminate the agreement
"for cause." And, insofar as NACM believes the scope of the
injunction is unclear as to which lists it covers, we note that
the relevant portion of the District Court's injunction is, by its
terms, coextensive with the 2011 Agreement's non-disclosure
- 11 -
provision, which prohibits NACM from disclosing "the specific
membership list, or portions thereof, of any affiliate." In any
event, NACM may seek -- as BCI rightly points out -- clarification
from the District Court to the extent it is not clear as to the
scope of the injunction concerning disclosure.
There does remain NACM's challenge to the portion of the
District Court's injunction that orders that the 2011 Agreement
"remain in place" and that NACM "continue to honor all its
obligations thereunder." NACM contends that the District Court
did not make the requisite finding that irreparable harm would
occur if NACM were not required to honor its obligations -- other
than its obligation not to disclose certain membership
lists -- under the 2011 Agreement. NACM argues that, for this
reason, the injunction is overbroad.
Here, we agree with NACM that the record shows -- as
BCI's counsel candidly acknowledged at oral argument -- that the
District Court did not make any such finding of irreparable harm.
Thus, we conclude that the District Court abused its discretion
when it ordered as part of the injunctive relief that the 2011
Agreement "remain in place and [that the parties must] continue to
operate in accordance with its terms and NACM shall continue to
honor all its obligations thereunder." See Tamko Roofing Prods.,
Inc. v. Ideal Roofing Co., 282 F.3d 23, 40 (1st Cir. 2002)
("[I]njunctive relief should be no more burdensome to the defendant
- 12 -
than necessary to provide complete relief to plaintiffs and courts
must closely tailor injunctions to the harm that they address."
(alteration in original)(internal quotation marks and citations
omitted)). We therefore vacate and remand the portion of the
injunction that requires NACM to abide by any terms of the 2011
Agreement other than those prohibiting disclosure of "the specific
membership list, or portions thereof" of BCI to any person or
entity providing "core services."
III.
We turn next to the various challenges that NACM makes
to the declaratory relief that the District Court ordered. The
District Court entered a declaratory judgment in favor of BCI after
finding, "as a matter of law, that NACM did not properly terminate
the 2011 Agreement and, therefore, did not have 'cause' to
terminate BCI's affiliation agreement on November 17, 2017."
NACM first challenges the District Court's "cause"
ruling by asserting that the record fails to support the District
Court's findings regarding the process that NACM used to replace
the 2011 Agreement. But, in doing so, NACM takes issue with the
District Court's credibility determinations and factual findings
without supplying an adequate basis for us to reject them. See
United States v. 15 Bosworth St., 236 F.3d 50, 53-54 (1st Cir.
2001) (explaining the deferential standard of review of bench
trials).
- 13 -
Moreover, the District Court did not ultimately base its
conclusion that NACM lacked "cause" to terminate the 2011 Agreement
on the findings that it made about the nature of the overall
process that NACM used to attempt to replace that agreement with
a new one. Rather, the District Court based that conclusion on a
more particular finding: that NACM had failed to provide BCI with
the kind of notice of its intention to do so that the 2011 Agreement
required NACM to provide. Yet, insofar as NACM takes on that
finding by the District Court, NACM merely sets forth a possible
construction of a series of emails between NACM and BCI that the
District Court reasonably construed differently. See id. at 53.
Separately, NACM does contend that the District Court
erred in its ruling as to "cause," because it evaluated whether
NACM had "cause" to terminate the agreement without properly
applying Maryland law, which, NACM contends, controls under the
2011 Agreement's choice of law provision. In fact, NACM notes,
the District Court failed to cite to any Maryland law in reaching
its conclusion that the termination was not for "cause," as the
District Court cited only to Massachusetts cases that applied
Massachusetts law.
But, even if NACM were right to contend the District
Court did commit this "legal error," we then would merely be
required to vacate and remand the declaratory judgment so that
findings could be made by a proper factfinder under the proper
- 14 -
legal standard. Yet, NACM separately contends that the District
Court erred in entering the declaratory judgment because it did so
without submitting BCI's breach of contract claim to a jury,
thereby depriving NACM of its right under the Seventh Amendment of
the Federal Constitution to a have a jury make the requisite
factual findings. Accordingly, we may proceed straight to the
Seventh Amendment issue, given that we agree with NACM on that
score.
The Seventh Amendment provides:
In Suits at common law, where the value
in controversy shall exceed twenty
dollars, the right of trial by jury shall
be preserved, and no fact tried by a
jury, shall be otherwise re-examined in
any Court of the United States, than
according to the rules of the common law.
U.S. Const. amend. VII. An order of declaratory relief on a claim
for breach of contract is "essentially legal [in] nature." Simler
v. Conner, 372 U.S. 221, 223 (1963) (per curiam). Thus, by
entering the declaratory judgment on the breach of contract claim
without a jury trial, the District Court violated NACM's Seventh
Amendment rights. Id. Moreover, NACM was prejudiced thereby,
for, as BCI's counsel acknowledged at oral argument, the District
Court did not itself find -- let alone supportably so -- that no
reasonable jury could find for NACM on the breach of contract
claim. See Fed. R. Civ. P. 50(a)(1).
- 15 -
BCI does contend that "NACM cannot now create a
constitutional issue by insinuating . . . that it didn't know the
merits of BCI's contract claim would be at issue in a permanent
injunction hearing that by definition focuses on those merits."
But, at oral argument, counsel for BCI, who was also counsel at
the hearing in question, conceded that BCI was not sure at the
start of that hearing whether it would be for a permanent or a
preliminary injunction. And, NACM, at the start of that hearing,
did object to having a "trial on the merits" -- insofar as that
was the purpose of the hearing -- on the basis that it had demanded
a jury trial.2 Accordingly, pursuant to the Seventh Amendment, we
vacate and remand the entry of the declaratory judgment on BCI's
breach of contract claim.
IV.
The September 24, 2018 order of the District Court
granting injunctive and declaratory relief to BCI is vacated in
part and affirmed in part, and the matter is remanded for further
proceedings consistent with this opinion. Each party shall bear
its own costs.
2 NACM also contends that the entry of the declaratory
judgment violated its procedural due process rights. But, we need
not reach this contention, as we vacate the entry of the
declaratory judgment on Seventh Amendment grounds.
- 16 -