State of Nevada v. LABR ( 2019 )

Case: 18-40246 Document: 00515020033 Page: 1 Date Filed: 07/02/2019
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 18-40246 FILED
July 2, 2019
Lyle W. Cayce
STATE OF TEXAS Clerk
Plaintiff - Appellee
CHIPOTLE MEXICAN GRILL, INCORPORATED; CHIPOTLE SERVICES,
L.L.C.,
Petitioners - Appellees
v.
UNITED STATES DEPARTMENT OF LABOR
Defendant
CARMEN ALVAREZ, and her Counsel,
Respondent - Appellant
Appeal from the United States District Court
for the Eastern District of Texas
Before JOLLY, DENNIS, and HIGGINSON, Circuit Judges.
JAMES L. DENNIS, Circuit Judge:
In November 2016, the United States District Court for the Eastern
District of Texas (the Texas federal court) enjoined the Department of Labor’s
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(DOL) proposed Fair Labor Standards Act (FLSA) Overtime Rule 1 and
specifically enjoined the DOL from implementing and enforcing that proposed
rule, pending further order of that court. The proposed Overtime Rule raised
the salary threshold of executive, administrative, or professional employees
exempted from the FLSA’s requirement that employers provide overtime pay.
In June 2017, Carmen Alvarez, a restaurant worker in New Jersey, sued her
former employer, Chipotle Mexican Grill, Inc. and Chipotle Services, L.L.C.
(Chipotle), in the United States District Court for the District of New Jersey
(the New Jersey federal court) for unpaid overtime pay, relying on the proposed
Overtime Rule. In her suit, Alvarez contended that, because Texas federal
court’s injunction did not stay the effective date of the proposed Overtime Rule,
the rule and its higher salary level for exempt employees became effective and
Alvarez, whose salary was below that level, was entitled to overtime pay as a
non-exempt employee.
One week after filing its answer in the New Jersey federal court,
Chipotle moved in the Texas federal court to hold Alvarez and her attorneys in
contempt. 2 After a hearing, the Texas federal court held Alvarez and her
counsel in contempt, reasoning that they were bound by the November 2016
injunction because they had acted in privity with the DOL and therefore their
lawsuit and allegations against Chipotle in the New Jersey federal court were
in violation of the injunction. The court also assessed attorneys’ fees against
them. Alvarez and her attorneys appealed.
The issue is whether the Texas federal court may hold Carmen Alvarez
and her lawyers in contempt for filing the FLSA lawsuit against Chipotle in
1 The Overtime Rule is also referred to as the Final Rule by the parties, and was
published in the Federal Register as follows: Defining and Delimiting the Exemptions for
Executive, Administrative, Professional, Outside Sales and Computer Employees, 81 Fed.
Reg. 32,391-01, 32,393 (May 23, 2016) (to be codified at 29 C.F.R. pt. 541).
2 Chipotle filed its answer in the New Jersey federal court on July 26, 2017 and its
motion for contempt in the Texas federal court on August 1, 2017.
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the New Jersey federal court and contending that she was entitled to overtime
pay according to the proposed Overtime Rule. We conclude that Texas federal
court did not have the authority under Rule 65(d) of the Federal Rules of Civil
Procedure to hold Alvarez and her attorneys in contempt, because Alvarez and
her attorneys did not act in privity with, and she was not adequately
represented by, the DOL in the injunction case; hence, the Texas federal court
lacked personal jurisdiction over Alvarez and her attorneys. Accordingly, we
reverse the judgment of the District Court, including the award of attorneys’
fees against Alvarez and her lawyers, and we render judgment in their favor.
I. BACKGROUND
A. The Nevada v. DOL Injunction
On November 22, 2016, in Nevada v. United States Dep’t of Labor, 218
F. Supp. 3d 520, 524–25 (E.D. Tex. 2016), the Texas federal court entered a
preliminary injunction against the DOL and its agents in favor of Nevada and
twenty other states, 3 enjoining the Overtime Rule and the DOL from enforcing
or implementing the rule. Specifically, the Overtime Rule proposed to
substantially expand the class of employees entitled to overtime pay by raising
the salary threshold by which executive, administrative, and professional
employees are exempted from the right to overtime pay under the FLSA.
B. The Alvarez v. Chipotle Action (The New Jersey Action)
In June 2017, six months after the district court’s preliminary injunction
in Nevada v. DOL, Carmen Alvarez, through her lawyers (together with
Alvarez, Respondents), filed a lawsuit against Chipotle, her former employer,
3 The injunction, in relevant part, read as follows:
[T]he Department’s Final Rule described at 81 Fed. Reg. 32,391
is hereby enjoined. Specifically, Defendants are enjoined from
implementing and enforcing the following regulations as
amended by 81 Fed. Reg. 32,391; 29 C.F.R. §§ 541.100, 541.200,
541.204, 541.300, 541.400, 541.600, 541.602, 541.604, 541.605,
and 541.607 pending further order of this Court.
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in New Jersey federal court alleging Chipotle violated the Overtime Rule by
classifying Alvarez as exempt despite her weekly salary falling below the
revised higher threshold. Alvarez’s pleadings acknowledged that the DOL had
been enjoined from enforcing or implementing the Overtime Rule, but
contended that, because the district court in Nevada v. DOL had not stayed
the Overtime Rule’s effective date under the Administrative Procedure Act, the
rule itself had taken effect on December 1, 2016. Chipotle answered that, in
its view, the Nevada v. DOL order prevented the Overtime Rule from ever
becoming effective in any way. 4 The New Jersey action has been stayed
pending disposition of this appeal. 5
C. The Present Contempt Proceeding by Chipotle Against
Alvarez and Her Counsel
On August 1, 2017, Chipotle filed a motion against Respondents in the
Texas federal court in the Nevada v. DOL action, asking that court to hold
them in contempt for violating the injunction issued in that case. 6 Other than
filing an answer in the New Jersey action, Chipotle did not further engage in
that litigation. 7 Chipotle contended in its contempt motion that Alvarez was
bound by the injunction because the DOL had adequately represented her
interests in that litigation, making her its privy, and that the court should hold
her and her lawyers in contempt for alleging and invoking the Overtime Rule
in the New Jersey action. Respondents argued that the Texas federal court
lacked personal jurisdiction over them; that the Nevada v. DOL injunction did
not bind them under Rule 65(d) of the Federal Rules of Civil Procedure because
4 Answer and Affirmative and Other Defenses, Alvarez v. Chipotle Mex. Grill, Inc., et
al., No. 2:17-cv-4095 (D.N.J. July 26, 2017), ECF No. 5.
5 Order Granting Stay, No. 2:17-cv-4095 (D.N.J. May 8, 2018), ECF No. 37.
6 At the time of Alvarez’s New Jersey action and Chipotle’s contempt motion, the
Texas federal court had not yet entered a final judgment in the Nevada v. DOL litigation. It
did so later in August 2017, declaring the Overtime Rule “invalid.”
7 See Answer ¶¶ 22-23, Alvarez v. Chipotle, No. 2:17-cv-4095 (D.N.J. July 26, 2017),
ECF No. 5.
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they were not in privity with the DOL or otherwise subject to the terms of Rule
65(d); and that the terms of the injunction did not foreclose the filing of private
FLSA lawsuits. Respondents submitted uncontradicted declarations attesting
that they had not in any way participated, coordinated, or acted in concert with
the federal defendants in the Nevada v. DOL case.
On March 19, 2018, the district court granted Chipotle’s motion and held
Respondents in contempt. In its opinion, the district court rejected
Respondents’ argument that it lacked personal jurisdiction over them. It
concluded that Alvarez was bound by the injunction in privity with the DOL
because the DOL represents the interests of employees like Alvarez; that its
injunction was “wholly unambiguous” in proscribing the filing of private
lawsuits alleging or invoking the Overtime Rule; and that, although Chipotle’s
service of process on Respondents was imperfect, Respondents had not proven
they were prejudiced thereby. The court ordered that Respondents pay
Chipotle’s attorneys’ fees for the contempt proceeding. 8 Respondents timely
appealed, 9 contending that the Texas federal court’s injunction did not bind
them in any way.
II. STANDARD OF REVIEW
We review a district court’s contempt determination for abuse of
discretion. See Piggly Wiggly Clarksville, Inc. v. Mrs. Baird’s Bakeries, 177
F.3d 380, 382 (5th Cir. 1999). Thus, “[t]he district court’s underlying findings
of fact are reviewed for clear error and its underlying conclusions of law
reviewed de novo.” Am. Airlines, Inc. v. Allied Pilots Ass’n, 228 F.3d 574, 578
(5th Cir. 2000). The district court’s ultimate finding that privity existed
8 The district court refused to limit the contempt finding to senior attorneys with
decisionmaking authority but imposed it on junior attorneys and local counsel as well.
9 As to nonparties, a contempt order constitutes a final order for purposes of appellate
jurisdiction. See S. Ry. Co. v. Lanham, 403 F.2d 119, 124 (5th Cir. 1968) (“[A]n adjudication
of civil contempt is final and appealable as to a non-party who would be unable to appeal
from the final decision on the merits”).
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between Respondents and the DOL is a legal conclusion that we review de
novo. See Drummond Co. v. Dist. 20, United Mine Workers of Am., 598 F.2d
381, 385 (5th Cir. 1979) (“While the district court’s findings of facts . . . will be
reviewed under the clearly erroneous standard, the interpretation of the scope
of the injunctive orders is a question of law to be determined by the
independent judgment of this Court.”). Similarly, we review legal conclusions
surrounding a determination of personal jurisdiction de novo, while reviewing
underlying factual findings for clear error. See In re Chinese-Manufactured
Drywall Products Liab. Litig., 753 F.3d 521, 528–29 (5th Cir. 2014).
III. DISCUSSION
A. The District Court Erred in Concluding that Respondents
Acted in Privity with the DOL
We consider here the proper reach of an injunction—specifically, the
extent to which an injunction can bind individuals who are not parties to the
action in which the injunction is entered. “‘It is a principle of general
application . . . that one is not bound by a judgment in personam in a litigation
in which he is not designated as a party or to which he has not been made a
party by service of process.’” Taylor v. Sturgell, 553 U.S. 880, 884 (2008)
(quoting Hansberry v. Lee, 311 U.S. 32, 40 (1940)); Zenith Radio Corp. v.
Hazeltine Research, Inc., 395 U.S. 100, 110 (1969) (“It is elementary that one
is not bound by a judgment in personam resulting from litigation in which he
is not designated as a party or to which he has not been made a party by service
of process.”); see also Freeman v. Lester Coggins Trucking, Inc., 771 F.2d 860,
865–66 (5th Cir. 1985) (“An underlying principle is that ‘[i]t is a violation of
due process for a judgment [in a prior suit] to be binding on a litigant who was
not a party or a privy and therefore has never had an opportunity to be heard.’”
(quoting Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322, 327 n.7 (1979))).
This principle derives from the “‘deep-rooted historic tradition that everyone
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should have his own day in court.’” Taylor, 553 U.S. at 892–93 (quoting
Richards v. Jefferson Cty., 517 U.S. 793, 798 (1996)). The central exception to
this principle limiting the effect of judgments to parties is where nonparties
have actual notice of an injunction and aid and abet or act in concert with a
named defendant or as the defendant’s privy in violating the injunction. See
WRIGHT, MILLER & KANE, 11A FED. PRAC. & PROC. CIV. § 2956, at 384–85 (3d
ed. 2013); see also Richards, 517 U.S. at 798 (“Of course, these principles do
not always require one to have been a party to a judgment in order to be bound
by it. Most notably, there is an exception when it can be said that there is
‘privity’ between a party to the second case and a party who is bound by an
earlier judgment.”); Nat’l Spiritual Assembly of Baha’is of U.S. Under
Hereditary Guardianship, Inc. v. Nat’l Spiritual Assembly of Baha’is of U.S.,
Inc., 628 F.3d 837, 847 (7th Cir. 2010).
“Rule 65(d) of the Federal Rules of Civil Procedure, which governs
injunctions and temporary restraining orders, codifies both the general
principle and its exceptions.” Nat’l Spiritual Assembly of Baha’is, 628 F.3d at
847; see Regal Knitwear Co. v. N.L.R.B., 324 U.S. 9, 14 (1945) (noting that Rule
65(d) “is derived from the commonlaw doctrine that a decree of injunction not
only binds the parties defendant but also those identified with them in interest,
in privity with them, represented by them or subject to their control” (internal
quotation omitted)); 11A FED. PRAC. & PROC. CIV. § 2956, at 382 (“Rule 65(d)(2)
does not really add or detract from the range of persons that were bound by a
decree under basic equity practice and due-process principles applied on the
equity side of the federal courts prior to 1938.”).
Rule 65(d)(2) provides that an injunction “binds only the following who
receive actual notice of it by personal service or otherwise: (A) the parties; (B)
the parties’ officers, agents, servants, employees, and attorneys; and (C) other
persons who are in active concert or participation with anyone described in
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Rule 65(d)(2)(A) or (B).” FED. R. CIV. P. 65(d)(2). The portion of the rule stating
its only significant exception, subpart (C), contemplates two categories of
persons who may be bound by an injunction. See 11A FED. PRAC. & PROC. CIV.
§ 2956, at 384–85. First, “a nonparty may be held in contempt if he aids or
abets an enjoined party in violating an injunction”; second, “an injunction may
be enforced against a nonparty in ‘privity’ with an enjoined party.” Nat’l
Spiritual Assembly of Baha’is, 628 F.3d at 848–49; 11A FED. PRAC. & PROC.
CIV. § 2956, at 384–85 (citing, inter alia, Am. Airlines, Inc. v. Allied Pilots
Ass’n, 53 F. Supp. 2d 909 (N.D. Tex. 1999), aff’d, 228 F.3d 574 (5th Cir. 2000)).
For privity, “[f]ederal courts have deemed” three “types of relationships
‘sufficiently close’ to justify preclusion”: (1) “a non-party who has succeeded to
a party’s interest in property,” (2) “a non-party who controlled the original
suit,” and (3) “a non-party whose interests were represented adequately by a
party in the original suit.” Sw. Airlines Co. v. Tex. Int’l Airlines, Inc., 546 F.2d
84, 95 (5th Cir. 1977). As to the third type, adequate representation does not
exist where a nonparty is merely interested in the same issue or same set of
facts, “or because the issue being litigated is one that might affect their
interests by providing a judicial precedent that would be applied in a
subsequent action.” 11A FED. PRAC. & PROC. CIV. § 2956, at 390 (citing Int’l
Bhd. of Teamsters v. Keystone Freight Lines, 123 F.2d 326 (10th Cir. 1941);
Baltz v. The Fair, 178 F. Supp. 691, 693 (N.D. Ill. 1959), aff’d, 279 F.2d 899
(7th Cir. 1960)). “Similarly, the mere fact that a person has committed the
enjoined act does not necessarily mean that the injunction should be enforced
against that person.” 11A FED. PRAC. & PROC. CIV. § 2956, at 390. Ultimately,
a determination that privity exists “represents a legal conclusion that the
relationship between the one who is a party on the record and the non-party is
sufficiently close.” Sw. Airlines, 546 F.2d at 95; Freeman, 771 F.2d at 864; see
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also Nat’l Spiritual Assembly of Baha’is, 628 F.3d at 849 (noting same in the
context of enforcing an injunction).
Here, the first two subparts of Rule 65(d)(2), as well as the “aiding and
abetting” theory, are undisputedly inapplicable. Respondents are clearly not
parties to the Nevada v. DOL case; nor are they any “parties’ officers, agents,
servants, employees, and attorneys.” FED. R. CIV. P. 65(d)(2)(A)–(B).
Furthermore, although they had notice of the injunction, as demonstrated by
the references in the complaint in the New Jersey action, it is uncontested that
Respondents did not aid and abet, or otherwise assist or act in concert with,
the DOL or any of the its agents to violate the injunction. In holding
Respondents in contempt, the district court relied on the concept of adequate
representation, holding that the DOL adequately represented Alvarez’s
interests in the Nevada v. DOL litigation. However, the district court’s
assessment that the DOL adequately represented Alvarez’s interests was
mistaken. We have held that privity by virtue of adequate representation
requires “the existence of an express or implied legal relationship in which
parties to the first suit are accountable to non-parties who file a subsequent
suit raising identical issues,” Pollard v. Cockrell, 578 F.2d 1002, 1008 (5th Cir.
1978), and that “a showing of parallel interests” alone is insufficient, Freeman,
771 F.2d at 864; see also Benson & Ford, Inc. v. Wanda Petroleum Co., 833 F.2d
1172, 1175 (5th Cir. 1987). There is no evidence of such an express or implied
legal relationship between Alvarez and the DOL here.
In erroneously finding Respondents in privity with the DOL, the district
court relied exclusively on this court’s preclusion decision in Southwest Airlines
Co. v. Texas International Airlines, Inc., 546 F.2d 84 (5th Cir. 1977). However,
the holding of preclusion in Southwest Airlines is inapposite here. The
Southwest Airlines litigation began when the Cities of Dallas and Fort Worth
and the Dallas/Fort Worth Regional Airport Board (the DFW Airport Board)
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filed a federal declaratory judgment action to exclude Southwest, an intrastate
airline carrier, from using Love Field in Dallas, under a bond ordinance calling
for the phase-out of commercial air service at that airport. See Southwest
Airlines, 546 F.2d at 87. Southwest counterclaimed for a declaratory judgment
of its right to remain at Love Field. Id. The district court declared that the
cities and the DFW Airport Board could not lawfully exclude Southwest from
using Love Field. Id. at 88. The Fifth Circuit affirmed. Id. (citing City of
Dallas v. Sw. Airlines Co., 494 F.2d 773, 776–77 (5th Cir. 1974)). Several
interstate airlines next filed claims in Texas state court seeking to compel
Southwest to cease using Love Field. Id. At Southwest’s behest, the federal
district court then preliminarily enjoined the state suit, thereby precluding the
cities, the DFW Airport Board and the interstate airlines from relitigating in
state court or in any other court, Southwest’s right of access to Love Field. Id.
at 89.
In affirming the district court’s order enjoining the state suit, this court
held that the interstate airline plaintiffs were in privity with the governmental
entities—the cities of Dallas and Fort Worth, and the DFW Airport Board—in
the prior federal suit for preclusion purposes because the “legal interests of the
carriers do not differ from those of [the government entities] in [the earlier
lawsuit]” and thus “they received adequate representation in the earlier
litigation and should be bound by the judgment.” Id. at 100. This court was
careful to note that the government entities adequately represented the
plaintiff carriers’ interests in this later litigation only because of certain
specific facts: (1) the carriers “d[id] not claim a breach of legal duty by
Southwest, apart from the alleged violation of the general duty to obey valid
ordinances,” (2) “the carriers request[ed] the same remedy denied the
[government entities], namely the enforcement of the phase-out provision of
the ordinance to exclude Southwest from Love Field,” and (3) “the ordinance
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does not establish a statutory scheme looking toward private enforcement of
its requirements.” Id. at 100; see also WRIGHT, MILLER & COOPER, 18A FED.
PRAC. & PROC. JURIS. § 4458.1 (3d ed. 2017), at 573–74 (in discussing
Southwest, identifying these three considerations as the support for the basic
conclusion of no private legal wrong, and therefore preclusion through privity).
The district court was in error in concluding that Southwest supports a
finding of privity between Respondents and the DOL. Alvarez’s FLSA action
in New Jersey relies on far more than a “general duty to obey valid ordinances”
as those at issue in the interstate airlines’ lawsuit in Southwest, see 546 F.2d
at 100. The FLSA imposes a legal duty on every employer to pay overtime to
non-exempt employees and, unlike the phase-out ordinance at issue in
Southwest, explicitly establishes a private right of action to enforce that duty.
See 29 U.S.C. §§ 207, 216(b); see also Benson & Ford, Inc., 833 F.2d at 1175–
76 (distinguishing Southwest by noting that “[o]ur holding rested on the
proposition that private parties cannot relitigate to enforce an ordinance after
the public body fails in its attempt to enforce the same ordinance,” whereas the
plaintiff in Benson & Ford “[did] not seek to relitigate [another party’s] rights”).
Importantly, in Southwest, this court expressly endorsed the proposition
that government actors would not be in privity with private litigants under
Title VII, a federal employment statute that, similar to the FLSA, authorizes
both government litigation and private actions. See 546 F.2d at 98 (citing
Rodriguez v. E. Tex. Motor Freight, 505 F.2d 40 (5th Cir. 1977), vacated on
other grounds sub nom. E. Tex. Motor Freight Sys. Inc. v. Rodriguez, 431 U.S.
395 (1977); Williamson v. Bethlehem Steel Corp., 468 F.2d 1201 (2d Cir. 1972)).
In doing so, this court noted that “litigation by a government agency will not
preclude a private party from vindicating a wrong that arises from related facts
but generates a distinct, individual cause of action.” Southwest, 546 F.2d at
98. Such actions, like Alvarez’s FLSA lawsuit, are “for violation of distinct
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legal duties owed individual employees,” rather than “for violation of legal
duties owed the public.” Id.
More generally, Chipotle’s theory that the DOL represents every
worker’s legal interests through its enforcement of the FLSA so as to bind every
worker in the United States to an injunction where the DOL is the only bound
party lacks authoritative support. Although, as the district court noted, the
FLSA concerns itself with “the general welfare of employees employed in
certain industries engaged in American commerce,” Congress’s statement of
such a policy does not create a legal nexus or the kind of close identity of
interests between a party to litigation and a nonparty required to amount to
privity. Instead, as in Title VII discrimination suits, Alvarez’s New Jersey
action “claim[s] remedies distinct from the relief imposed in the government
litigation” and complains of a “violation of distinct legal duties owed individual
employees.” Southwest, 546 F.2d at 98–99 (citing Rodriguez, 505 F.2d 40;
Williamson, 468 F.2d 1201). 10
Because Respondents were not in privity with the DOL and not
otherwise bound by the injunction, the district court erred in granting
Chipotle’s motion for contempt. 11
10 We intimate no view whatever on the merits of Alvarez’s contentions in the New
Jersey action, as those contentions are before the New Jersey federal court rather than this
court.
11 As the district court correctly noted, this court has held that “[t]he movant in a civil
contempt proceeding bears the burden of establishing by clear and convincing evidence: (1)
that a court order was in effect; (2) that the order required certain conduct by the respondent;
and (3) that the respondent failed to comply with the court’s order.” Petroleos Mexicanos v.
Crawford Enters., 826 F.2d 392, 401 (5th Cir. 1987). However, because we disagree with the
district court’s conclusion that the Alvarez and her lawyers acted in privity with the DOL or
were represented by the DOL so as to be bound by the district court’s injunction, application
of that standard is pretermitted here. Likewise, the district court’s ruling on whether process
was properly served on Respondents is pretermitted.
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B. The District Court Lacked Personal Jurisdiction Over
Respondents
Because the district court’s contempt order exceeded the bounds of Rule
65(d), its exercise of jurisdiction over Respondents was also improper. 12 The
district court did not find that minimum contacts supported its exercise of
jurisdiction over Respondents, and instead relied exclusively on the principle
expressed in Waffenschmidt v. McKay, 763 F.2d 711, 714 (5th Cir. 1985), that
“[n]onparties who reside outside the territorial jurisdiction of a district court
may be subject to that court’s jurisdiction if, with actual notice of the court’s
order, they actively aid and abet a party in violating that order.” As we have
concluded, Respondents did not aid and abet the DOL or participate in the
Nevada v. DOL injunction litigation in any manner. Thus, there was no basis
for the district court’s exercise of personal jurisdiction over Respondents.
***
For these reasons, the judgment of the district court is REVERSED, and
judgment is RENDERED in favor of Respondents.
12Because we reverse the district court’s contempt order on the basis of Rule 65(d)
and lack of personal jurisdiction, we also reverse the district court’s award of attorneys’ fees
to Chipotle.
13