Travelhost, Inc. v. Blandford ( 1995 )

United States Court of Appeals,
Fifth Circuit.
No. 94-10997.
TRAVELHOST, INC., Plaintiff-Appellee,
v.
Carl L. BLANDFORD, et al., Defendants,
Karen Hoffman and Steve Bunyard, Non-party Appellants.
Nov. 15, 1995.
Appeal from the United States District Court for the Northern
District of Texas.
Before HIGGINBOTHAM and PARKER, Circuit Judges, and McBRYDE*,
District Judge.
ROBERT M. PARKER, Circuit Judge:
Non-parties Karen Hoffman and Steve Bunyard appeal the
district court's order holding them in contempt. The district
court found that there was clear and convincing evidence that the
non-parties participated in a scheme with defendant Blandford to
violate an injunction order entered by the district court. Based
on a review of the evidence admitted against the non-parties, we
hold that the district court's finding was clearly erroneous and
reverse the order of the district court holding Karen Hoffman and
Steve Bunyard in contempt.
I. BACKGROUND
In September 1992, Travelhost filed a complaint and request
for injunction against Carl Blandford and Richard Browning.
*
District Judge of the Northern District of Texas, sitting
by designation.
1
Browning and Blandford had been associate publishers of the
"Travelhost" magazine and distributed that magazine to hotels in
the St. Louis, Missouri metropolitan area. The Travelhost
Associate Publisher Agreement contained a covenant not to compete
with Travelhost in the same market for a period of two years after
termination of the relationship. Browning signed such a contract
in 1973. Defendant Blandford succeeded to Browning's status as
associate publisher in 1983. In 1992, Blandford defaulted on
certain payments to Travelhost and was terminated as an associate
publisher. Upon the termination of his relationship with
Travelhost, Blandford began publishing and distributing "Passport",
a magazine very similar to "Travelhost". As the publisher of
"Passport", Blandford serviced many of the same hotels and
advertisers he had serviced as Travelhost's associate publisher.
Travelhost filed suit seeking an injunction prohibiting
Blandford and Browning from publishing "Passport" or any similar
competitive magazine in the St. Louis metropolitan area for the
term of the covenant not to compete. In January 1993, after a
two-day evidentiary hearing, the district court granted
Travelhost's application for preliminary injunction. The court
ordered that Blandford, and any of his agents, or any person acting
in concert with him, until April 30, 1994, cease and refrain from
directly or indirectly: (1) distributing "Passport" or any similar
magazine in the St. Louis metropolitan area; (2) operating any
business that is similar to or competitive with Travelhost; (3)
causing or soliciting another to print "Passport"; (4) printing
2
"Passport"; (5) soliciting advertisement for "Passport"; and (6)
taking any action or making any representation that would lead
another to believe that Blandford was in any way connected with
Travelhost.
Blandford appealed the district court's order and obtained a
stay of the injunction from this Court pending appeal. Blandford
continued to publish and distribute "Passport" during the pendency
of the appeal. On January 5, 1994, this Court affirmed the
preliminary injunction and vacated the stay order.
On January 14, 1994, Blandford sold the assets of Passport
Magazine to the non-parties, Karen Hoffman and Steve Bunyard. The
Asset Transfer Agreement expressly included all art work, client
lists, advertising contracts, invoices, stationary, files, and
advertising revenue from the date of the transfer forward. The
agreement also stated that Hoffman and Bunyard had full knowledge
of the district court's preliminary injunction against Blandford,
and that the agreement did not include Blandford's assistance or
consulting in the operation of the magazine. Bunyard and Hoffman
used the assets to publish "Passport" from February through June,
1994.
When Travelhost learned of the transfer of assets, it sought
to modify the injunction to expressly include Bunyard and Hoffman.
The district court denied this motion on April 13, 1994.1 On April
1
The district court stated, however, that it was not
necessary to modify the injunction because it was already
sufficient to bind assignees of Blandford. We need not address
this aspect of the district court's ruling because Travelhost
concedes that the contempt order against Bunyard and Hoffman
3
29, 1994, the district court extended the term of its injunction
order until November 10, 1994. On July 14, 1994, Travelhost filed
a motion for contempt seeking compensatory damages and attorneys'
fees from defendant Blandford, and his wife and bookkeeper, Beverly
McIntyre, as well as Bunyard, Hoffman, and others. The district
court held a four-day hearing on Travelhost's motion for contempt
beginning August 22, and on September 14, 1994 entered its contempt
order.
The district court held that Blandford, McIntyre, Bunyard, and
Hoffman were jointly and severally liable for Travelhost's damages
and attorneys' fees for a total liability of $164,074.08. The
district court specifically found that Bunyard and Hoffman
participated with Blandford in a scheme to violate the district
court's injunction. The district court also entered a judgment in
favor of Travelhost on the underlying action against Blandford.
Blandford and McIntyre did not appeal. Non-parties Bunyard and
Hoffman timely filed the instant appeal.
II. DISCUSSION
Courts possess the inherent authority to enforce their own
injunctive decrees. Waffenschmidt v. MacKay, 763 F.2d 711, 716
(5th Cir.1985), cert. denied, 474 U.S. 1056, 106 S. Ct. 794, 88
L. Ed. 2d 771 (1986). An injunction binds not only the parties
subject thereto, but also non-parties who act with the enjoined
party. Id. Rule 65(d) of the Federal Rules of Civil Procedure
could not be based solely on their status as Blandford's
assignees or as the purchasers of Passport Magazine's assets.
4
provides that 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." As we've recognized previously,
Rule 65(d)
is derived from the common-law 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. In essence
... defendants may not nullify a decree by carrying out
prohibited acts through aiders and abettors, although they
were not parties to the original proceeding.
Waffenschmidt, 763 F.2d at 717 (quoting Regal Knitwear Co. v.
National Labor Relations Board, 324 U.S. 9, 14, 65 S. Ct. 478, 481,
89 L. Ed. 661 (1945)).
"A party commits contempt when he violates a definite and
specific order of the court requiring him to perform or refrain
from performing a particular act or acts with knowledge of the
court's order." Securities and Exchange Commission v. First
Financial Group of Texas, Inc., 659 F.2d 660, 669 (5th Cir.1981).
In a civil contempt proceeding, the movant bears the burden of
establishing the elements of contempt by clear and convincing
evidence. Petroleos Mexicanos v. Crawford Enterprises, Inc., 826
F.2d 392, 401 (5th Cir.1987).
The clear and convincing evidence standard is higher than the
"preponderance of the evidence" standard, common in civil cases,
but not as high as "beyond a reasonable doubt." United States v.
Rizzo, 539 F.2d 458, 465 (5th Cir.1976). In the context of a
5
proceeding for disbarment of an attorney, we held that clear and
convincing evidence was "that weight of proof which "produces in
the mind of the trier of fact a firm belief or conviction as to the
truth of the allegations sought to be established, evidence so
clear, direct and weighty and convincing as to enable the fact
finder to come to a clear conviction, without hesitancy, of the
truth of the precise facts' of the case." In re Medrano, 956 F.2d
101, 102 (5th Cir.1992) (quoting Cruzan by Cruzan v. Director,
Missouri Dept. of Health, 497 U.S. 261, 285 n. 11, 110 S. Ct. 2841,
2855 n. 11, 111 L. Ed. 2d 224 (1990)). We are persuaded that the
same definition of clear and convincing evidence should apply in
the contempt context. We review an order of contempt for abuse of
discretion, and we review the district court's underlying fact
findings under the clearly erroneous standard of Federal Rule of
Civil Procedure 52(a). Federal Deposit Insurance Corporation v.
LeGrand, 43 F.3d 163, 166 (5th Cir.1995).
As a threshold matter, we address the non-parties' argument
that the civil contempt order in the present case is a coercive
order that is moot as a result of the final judgment entered in the
underlying case between Blandford and Travelhost. Civil contempt
can serve two purposes. It can be used to enforce compliance with
a court's order through coercion, or it can be used to compensate
a party who has suffered unnecessary injuries or costs because of
contemptuous conduct. Petroleos, 826 F.2d at 400. "If the civil
contempt proceeding is coercive in nature, the general rule is that
it is mooted when the proceeding out of which it arises is
6
terminated." Id. However, if the contempt order is compensatory
in nature, it is not mooted by termination of the underlying
action. Because the contempt order in the present case is intended
to compensate Travelhost for lost profits and attorneys' fees
resulting from the contemptuous conduct, it is clearly compensatory
in nature. Therefore, the argument that the contempt order is moot
must be rejected.
The non-parties also argue that the district court erred in
finding that there was clear and convincing evidence that they
participated in a scheme with Blandford to violate the court's
injunction. There is no dispute in this case that the district
court's injunction against Blandford was in effect at the time of
the allegedly contemptuous conduct. Nor is there any dispute that
the district court's injunction was sufficient to enjoin persons
"in active concert or participation with" Blandford in activity in
violation of the injunction. In addition, the non-parties concede,
as they must, that they had notice of the injunction against
Blandford prohibiting him from continuing in the publication of the
magazine at the time of the Asset Transfer Agreement.2 However, to
prevail on its motion to hold non-parties Bunyard and Hoffman in
contempt, Travelhost also had to establish by clear and convincing
evidence that Bunyard and Hoffman did indeed act in concert with or
2
The Asset Transfer Agreement signed by Blandford, Bunyard,
and Hoffman on January 14, 1994 stated "[t]hat the Second Party
[Bunyard and Hoffman] has full knowledge of the preliminary
injunction granted by the United States District Court for the
North District of Texas (Dallas Division) effective and relating
to the First Party [Blandford] until April 30, 1994."
7
participate with Blandford in a scheme to allow Blandford to
continue to publish Passport Magazine in violation of the
injunction. The district court held that Travelhost met this
burden. We disagree.
Travelhost contends that the district court's findings of
fact regarding Bunyard and Hoffman are supported by evidence of the
non-parties' acts in helping Blandford circumvent the district
court's injunction through a "sham" sale of Passport Magazine's
assets. Travelhost boldly argues that the fact that Bunyard and
Hoffman purchased the assets of Passport Magazine and continued its
publication even though they had notice that Blandford was enjoined
from doing so is sufficient evidence of the alleged scheme.
Travelhost also emphasizes the similarity of the magazine published
by Bunyard and Hoffman and the magazine published by Blandford.
However, these facts evidence nothing violative of the district
court's injunction.
The district court's injunction, and the covenant not to
compete on which it was based, prohibited only Carl Blandford, and
persons acting with him, from publishing "Passport" or a similar
competitive magazine. The injunction did not prohibit Blandford
from selling assets he owned. In addition, it did not, and could
not, prohibit other persons from publishing "Passport" unless they
were persons acting with Blandford within the meaning of Rule
65(d). Evidence that Bunyard and Hoffman published "Passport"
after January 14, 1994, therefore, means nothing without evidence
that it was done in participation with Blandford.
8
Similarly, Travelhost argues that the non-parties' use of art
boards, advertising contracts, and distribution lists provided by
Blandford establishes that they were participating with him in
circumventing the injunction. However, the record reflects that
these items were assets transferred pursuant to the Asset Transfer
Agreement. Use of such assets, even in the publication of a
competitive magazine, by persons not participating with Blandford
could not be in violation of a valid injunction entered by the
district court. Thus, purchase and use of these assets means
nothing by itself, and the relevant inquiry remains: whether there
was evidence that Bunyard and Hoffman were participating with
Blandford in the publication of Passport Magazine.
The non-parties contend that the purchase of Passport
Magazine's assets from Blandford was an arms-length transaction,
and that they in no way attempted to aid Blandford in circumventing
the district court's injunction. Hoffman testified that sometime
in early summer 1993 Blandford asked her in passing if she knew
anyone who might be interested in buying Passport Magazine. She
testified that she did not, and expressed no interest in buying it
herself because she was working too many hours and wasn't in a
financial position to do it. Hoffman testified that sometime later
Blandford mentioned that he was talking to a couple of people about
purchasing Passport Magazine.
Blandford testified that he spoke to other people about
Passport before he approached Bunyard and Hoffman. Blandford
testified that he talked to a person named Richard Harris about
9
buying Passport, but could not sell to him because Harris needed
help in operating the publication, something Blandford could not
offer under the district court's injunction. Blandford testified
that he approached Bunyard because he had an outstanding trade
balance with Bunyard and hoped to apply the assets of Passport to
that balance. Blandford testified that he first approached Bunyard
about purchasing Passport in December 1993.
Bunyard testified that when he was approached by Blandford he
spoke to Hoffman about the purchase because he thought it would
work well with her barter business. The record also reflects that
Hoffman had publishing experience. They agreed that Bunyard would
provide the necessary financial support and Hoffman would handle
the magazine's daily operations. Both Bunyard and Hoffman admit
candidly that before purchasing the assets of Passport Magazine,
Blandford advised them that he was prohibited by court order from
publishing Passport Magazine.
Bunyard, a successful businessman, testified that he had no
interest in purchasing Blandford's business in its entirety because
he did not want to get tangled-up in any liabilities Blandford
might have incurred. Thus, Blandford testified, he was interested
only in a purchase of assets. Bunyard, Hoffman, and Blandford all
testified that the first purchase agreement Blandford drafted was
not signed because it included a provision for the assumption of
printing liabilities Blandford had incurred. The transaction was
consummated only after Blandford drafted an asset transfer
agreement that did not include that provision. Bunyard, Hoffman,
10
and Blandford also testified that the consideration for the
transfer was forgiveness of $9300.00 in debt to Bunyard and
$1000.00 in trade credits from a company owned by Hoffman.
Blandford testified that under the agreement, he sold Bunyard
and Hoffman the assets of Passport Magazine, including the art
work, art boards, client lists, distribution lists, advertising
contracts, pre-printed invoices, computer billing software, and
stationary. He also testified that he offered no training or
support to Bunyard and Hoffman in the transfer because he was
restrained by the district court's injunction. Blandford, Bunyard,
and Hoffman each testified that following the transfer of assets on
January 14, 1994, Blandford had no involvement in the publication
of the magazine.
Travelhost argues, however, that Blandford continued to be
involved in the operation of Passport Magazine, directly and
indirectly, even after the sale of assets to Bunyard and Hoffman.
This contention, if supported in the record, would be sufficient to
support the district court's finding that the non-parties were
participating with the defendant in a scheme to circumvent the
injunction.
In support of its position, Travelhost argues first that
Bunyard and Hoffman continued to use Blandford's address for the
business after January 1994, and that they did not attempt to
change the business address until April 29, 1994 after the district
court extended the injunction. In support of this argument,
Travelhost points to invoices introduced in evidence. During Karen
11
Hoffman's testimony, Travelhost introduced invoices which Hoffman
had provided to Travelhost at her deposition. Hoffman testified
that these documents were copies of the statements she sent to
advertisers. She admitted that Blandford's business address was
imprinted on them, but testified that correct address labels were
placed on the copies sent to advertisers. In addition, Hoffman
testified, envelopes with the correct return address were provided
to advertisers with their statements. There was no need, according
to Hoffman, to place correct address labels on the copies of the
pre-printed invoices retained for her internal files.3
Travelhost also points to copies of the return portion of
certain invoices returned to Passport Magazine with payment for
advertising.4 Travelhost claims that these documents are
significant because they show that Hoffman was using address labels
to correct the business address only after the district court
extended the injunction on April 29, 1994. However, at most, these
documents show that Hoffman was somewhat inconsistent in using
address labels on the return portion of the invoices sent to
advertisers. An invoice dated April 30, 1994, to Hal Lowrie
Enterprises reflects a correct address label; invoices of the same
date to Executive Salon and L.G.T. Advertising do not. Invoices
dated May 31, 1994 to Executive Salon and L.G.T. Advertising
reflect correct address labels; an invoice of the same date to Hal
3
The district court noted this testimony and admitted these
invoices, Supp.Rec., Pl.Ex. 9, for all purposes except to show
the return address used for billings.
4
Supp.Rec., Pl.Ex. 16.
12
Lowrie Enterprises does not.
Travelhost also emphasizes the fact that after the transfer of
assets, Blandford continued to receive mail and remittances for
Passport Magazine at his address. Hoffman admitted that some mail
continued to go to Blandford's address, but testified that
Blandford always delivered such mail to her. Blandford testified
also that he received mail at his address after the transfer of
assets. This was a result, Blandford testified, of certain
advertisers failing to correct the mailing address for Passport
Magazine in their computers. Blandford explained that the checks
he received were computer generated checks that were sent in
window-type envelopes. Indeed, the documents introduced by
Travelhost show that a check to Passport Magazine from Hal Lowrie
Enterprises dated May 17, 1994 was printed with Blandford's address
even though the portion of the invoice returned with the payment
reflected the new business address.5 It was Blandford's testimony
that the misdirected checks were turned over to Karen Hoffman.
Although Travelhost contends that certain monies were retained by
Blandford as a result of this "scheme", there is no evidence in the
record that supports this contention.
Travelhost also argues that Beverly McIntyre's efforts in
transferring the computer billing program to Hoffman's computer
after January 1994 evidence Blandford's continued involvement in
the operations of the magazine. Hoffman admitted that McIntyre had
assisted her in loading Passport Magazine's computer billing
5
Supp.Rec., Pl.Ex. 16.
13
software onto her computer. Hoffman and McIntyre both testified
that they believed the computer program to be one of the assets
transferred under the Asset Transfer Agreement. McIntyre,
Blandford's wife, testified that she had handled the billing for
Blandford's Passport Magazine. She testified that because she was
the only person familiar with the billing program, she was the only
person able to assist Hoffman. McIntyre also testified that
because of difficulty in making the program work on Hoffman's
computer, she assisted Hoffman with the program in February, March,
and April. McIntyre also admitted to reprinting the January
billing for Hoffman so that Hoffman would have copies of the most
recent records.
McIntyre testified that her assistance was done merely as a
favor to Karen Hoffman, and not because of any obligation or
agreement. Blandford testified that he was not aware of the
problems Hoffman was having with the computer billing program or
his wife's efforts in transferring the program. Her assistance, he
testified, was not at his direction. Hoffman and McIntyre both
testified that McIntyre was not involved in the operations of
Passport Magazine after January 14, 1994 other than her assistance
with the computer billing software.
The testimony of Blandford, McIntyre, Bunyard, and Hoffman
regarding these circumstances consistently reflects an arms-length
transaction and a legitimate transfer of assets rather than the
conspiracy Travelhost alleges. Travelhost points out, correctly,
that the district court was free to disbelieve or discredit this
14
testimony.6 We recognize the deference appropriate in review of a
district court's credibility determination. Fed.R.Civ.P. 52(a).
However, disbelief of a witness's testimony is not sufficient to
carry a plaintiff's burden or support the district court's finding
to the contrary. Waffenschmidt, 763 F.2d at 724 (citing Nishikawa
v. Dulles, 356 U.S. 129, 137, 78 S. Ct. 612, 617, 2 L. Ed. 2d 659
(1958)). The plaintiff "must still prove that [the nonparty]
respondents aided or abetted [Blandford] through clear and
convincing evidence." Id.
The only other evidence Travelhost cites is the deposition
testimony of Constance McCord. McCord was an employee of Carl
Blandford from December 1992 to August 1993. McCord testified that
while she worked for Blandford, he told her about the injunction
and told her to conduct business as usual. She also testified that
Blandford indicated to her that there might come a time when
someone else would have to be the acting head of Passport Magazine,
but that he would still be involved. The only evidence in the
record regarding Blandford's discussions with Bunyard and Hoffman
is that Blandford did not approach them about purchasing Passport
Magazine until December of 1993, months after Constance McCord left
his employ. McCord's testimony, although certainly relevant on the
question of Blandford's intentions in early 1993, offers very
little support of the district court's finding regarding the
actions of Bunyard and Hoffman.
6
In fact, the district court expressly discredited
Blandford's testimony because it found him not to be a credible
witness.
15
Finally, Travelhost contends that the lack of evidence that
Blandford was ever paid the consideration recited in the Asset
Transfer Agreement shows that the agreement was a sham. Travelhost
does not manage to establish that there was in fact no
consideration; it argues merely that there is no proof any
consideration was actually paid. This argument cannot prevail
because it attempts to place the burden of producing such evidence
on the non-parties. It was Travelhost's burden in seeking a
contempt order to introduce any evidence it wanted to make a part
of the record. It cannot now rely on a lack of evidence to support
the district court's order.
We are aware that in reviewing for clear error, we are to
construe the evidence in a light most favorable to upholding the
district court's finding. Waffenschmidt, 763 F.2d at 714.
However, viewed even in that deferential light, the evidence of
record cannot adequately support the order of contempt against
appellants. Therefore, we hold that the finding of the district
court that Travelhost showed by clear and convincing evidence that
Bunyard and Hoffman participated with Carl Blandford in a scheme to
violate the district court's injunction is clearly erroneous.
III. CONCLUSION
For the reasons given above, the order of the district court
holding the non-parties Karen Hoffman and Steven Bunyard in
contempt is REVERSED.
16