Robin Woods Inc. v. Woods

Opinions of the United
1994 Decisions States Court of Appeals
for the Third Circuit
7-6-1994
Woods, Inc. v. Woods, et al.
Precedential or Non-Precedential:
Docket 93-3314
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Recommended Citation
"Woods, Inc. v. Woods, et al." (1994). 1994 Decisions. Paper 73.
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
N0S. 93-3314 and 93-3333
ROBIN WOODS INC., a Pennsylvania Corporation
v.
ROBIN F. WOODS, an individual
ALEXANDER DOLL COMPANY, a New York corporation
PITTSBURGH SEED FUND
ROBIN F. WOODS and THE ALEXANDER DOLL COMPANY,
Appellants
On Appeal From the United States District Court
For the Western District of Pennsylvania
(D.C. Civil Action No. 91-02186)
Argued January 12, 1994
BEFORE: STAPLETON, COWEN and ALITO, Circuit Judges
(Opinion Filed July 6, 1994)
Bela A. Karlowitz
Robert X. Medonis (Argued)
Karlowitz & Cromer
Suite 800, USX Tower
Pittsburgh, PA 15219
Attorneys for Appellee
Gary A. Rosen (Argued)
Hangley, Connolly, Epstein, Chicco,
Foxman & Ewing
1515 Market Street
9th Floor
Philadelphia, PA 19102
Attorneys for Appellants
Robin F. Woods and
The Alexander Doll Company
OPINION OF THE COURT
STAPLETON, Circuit Judge:
The district court sanctioned appellants for violating
a preliminary injunction. Appellants dispute both the finding of
contempt and the appropriateness of the sanctions imposed. We
agree with the district court that appellants failed to comply
with the preliminary injunction, but we find that one of the
sanctions the district court imposed is inappropriate. We thus
will affirm in part and reverse in part.
I.
In 1983, Robin F. Woods ("Mrs. Woods") founded Robin
Woods, Inc. ("RWI"), a doll manufacturer. RWI's dolls were
popular and rapid growth ensued. Mrs. Woods obtained capital to
finance RWI's expansion by selling most of her holdings in RWI to
investors, among which was the Pittsburgh Seed Fund ("the Seed
Fund"). The Seed Fund required Mrs. Woods to enter into a
written employment agreement and a non-competition/non-disclosure
agreement with RWI, as well as to assign her copyrights to RWI.
Even though RWI's sales continued to increase
throughout the 1980s, the company never turned a profit. Unhappy
with RWI's financial performance, the Seed Fund in 1990
instructed its representatives on RWI's board to remove Mrs.
Woods from her management role but to continue to employ her as a
doll designer. Following Mrs. Woods' demotion, RWI's product
line was also altered and new distribution channels were created.
The Seed Fund's changes proved catastrophic, leading RWI to the
verge of bankruptcy. Mrs. Woods offered to return as CEO to try
to save RWI, but the Seed Fund rebuffed her. Mrs. Woods resigned
from RWI on December 6, 1991, to go to work for one of RWI's
competitors, the Alexander Doll Company ("Alexander").
RWI filed suit against Mrs. Woods and Alexander on
December 24, 1991, alleging Lanham Act violations, injury to
business reputation, breach of contract, breach of fiduciary
duty, tortious interference, breach of employment contract, and
unfair competition. RWI also sought a preliminary injunction to
bar Mrs. Woods from employment with Alexander or from using the
name "Robin Woods" in connection with the design, manufacture,
and sale of dolls.
After hearing four days of testimony, a magistrate
recommended that Mrs. Woods be enjoined from involvement in the
collectible doll industry. The district court's preliminary
injunction expanded the magistrate's restrictions on Mrs. Woods
by limiting use of her name:
1. Defendants [Mrs. Woods and Alexander]
. . . are enjoined from characterizing,
promoting or advertising either orally or in
writing, that any dolls manufactured by
Alexander Doll Company for which Robin F.
Woods provides any services
. . .
(g) are signed or otherwise
identified with Robin F. Woods.
. . .
5. Defendants . . . are enjoined from
designating or identifying any specific dolls
manufactured by any company, including but
not limited to Alexander Doll Company, for
which Robin F. Woods provided services.
. . .
8. Defendants . . . are enjoined from
identifying Robin F. Woods as having provided
any services for any dolls manufactured by
any company, including but not limited to the
Alexander Doll Company, such as on the
product, product tag, box, or in connection
with any advertising or promotion of the
dolls.
Mrs. Woods consulted counsel to determine what work she
could do at Alexander and still comply with the preliminary
injunction. Counsel told her that she could design play dolls
(but not collectible dolls) if she used a nom de plume (but not
her name). Mrs. Woods took the name Alice Darling and began to
create a new line of play dolls for Alexander called "Let's Play
Dolls."
An announcement of Mrs. Woods' new role was prepared
for distribution in doll industry magazines, letters to
retailers, and trade show posters. The announcement stated:
ALEXANDER DOLL COMPANY
is pleased to announce that
MRS. ROBIN F. WOODS*
[Photograph]
is exclusively associated with the
LET'S PLAY DOLLS
division of the Alexander Doll Company
and will be creating dolls
for play under the name
ALICE DARLING
*Mrs. Woods was formerly associated with
Robin Woods, Inc. (RWI). Mrs. Woods resigned
from RWI in December 1991. A federal court,
on February 7, 1992, preliminarily ruled that
RWI owns the trade name "Robin Woods" and
that Mrs. Woods may not use her name to
identify any dolls which she designs.
Accordingly, Mrs. Woods has assumed a new
trade name "Alice Darling" to identify the
dolls she designs for the Alexander Doll
Company.
RWI filed a motion for contempt sanctions, arguing that
the preliminary injunction forbade Mrs. Woods' involvement with
Alexander and Let's Play Dolls. After discovery and a four-day
hearing, the district court rejected most of RWI's contentions,
finding only one violation of the preliminary injunction:
dissemination of the Alice Darling announcement. The district
court awarded RWI $107,000 in damages, which reflected the time
and expense RWI's management incurred preparing for the contempt
proceeding. Attorneys' fees of $68,707.52 were also awarded.
Mrs. Woods and Alexander now appeal.
The district court had jurisdiction over RWI's claims
under 28 U.S.C. § 1338 and 28 U.S.C. § 1367. This court has
appellate jurisdiction pursuant to 28 U.S.C. § 1291. See United
States Steel Corp. v. Fraternal Ass'n of Steel Haulers, 601 F.2d
1269, 1272 (3d Cir. 1979).
II.
The district court found that Mrs. Woods and Alexander
did not respect the injunction in three ways. First,
"[d]efendants promoted and advertised that dolls manufactured by
Alexander were designed by Mrs. Woods by identifying 'Alice
Darling' as Mrs. Woods and as the designer of 'Let's Play
Dolls.'" Robin Woods, Inc. v. Woods, 815 F. Supp. 856, 868 (W.D.
Pa. 1992). This, the district court said, violated paragraph one
of the injunction which forbids "promoting or advertising . . .
dolls manufactured by Alexander . . . which . . . are . . .
identified with Robin F. Woods." Second, "[d]efendants, by their
promotional campaign, designated or identified specific dolls
manufactured by Alexander for which Mrs. Woods provided
services." Id. This, the district court said, violated
paragraph five of the injunction which forbids "designating or
identifying any specific dolls . . . for which Robin F. Woods
provided services." Third, "[d]efendants identified Mrs. Woods
as having provided services for the dolls of the 'Let's Play
Dolls' line . . . in . . . promotion of the doll." Id. This,
the district court said, violated paragraph eight of the
injunction which forbids defendants from "identifying Robin F.
Woods as having provided any services for any dolls manufactured
by . . . Alexander . . . in connection with . . . promotion of
the doll." Id.Mrs. Woods and Alexander attack the district court's
ruling, noting that civil contempt must be proved by clear and
convincing evidence; where there is ground to doubt the
wrongfulness of the conduct, they insist, there is no contempt.
They further claim that they acted in good faith, with the advice
of counsel, and without an intent to arrogate RWI's goodwill.
Finally, they contend that their use of "Robin Woods" was
arguably outside the scope of a vague injunction and consistent
with the purpose of the injunction and that this substantial
compliance with the injunction renders the finding of contempt
inappropriate. We find these arguments unpersuasive.
Contempt, as Mrs. Woods and Alexander correctly note,
must be proved by clear and convincing evidence:
The plaintiff has a heavy burden to show a
defendant guilty of civil contempt. It must
be done by "clear and convincing evidence,"
and where there is ground to doubt the
wrongfulness of the conduct, he should not be
adjudged in contempt.
Quinter v. Volkswagen of America, 676 F.2d 969, 974 (3d Cir.
1982) (quoting Fox v. Capital Co., 96 F.2d 684, 686 (3d Cir.
1938)). In this case, however, there is no ground to doubt the
wrongfulness of the conduct -- the injunction forbade
identification of Mrs. Woods with Alexander's dolls in
promotional materials and the Alice Darling announcement made
such an identification.
Contrary to Mrs. Woods' and Alexander's assertions,
good faith is not a defense to civil contempt. We recently held
in Harley-Davidson, Inc. v. Morris, 19 F.3d 142, 148-49 (3d Cir.
1994), that "willfulness is not a necessary element of civil
contempt," and, accordingly, that "evidence . . . regarding . . .
good faith does not bar the conclusion . . . that [the defendant]
acted in contempt."
Contemnors, as Mrs. Woods and Alexander correctly note,
are sometimes excused when they violate vague court orders: there
is a "longstanding salutary rule in contempt cases that
ambiguities and omissions in orders redound to the benefit of the
person charged with the contempt." Eavenson, Auchmuty &
Greenwald v. Holtzman, 775 F.2d 535, 544 (3d Cir. 1985). This
well established principle does not aid the appellants here,
however. While we too perceive some vagueness in paragraph 5 of
the injunction, the prohibitions that paragraphs 1 and 8 were
intended to impose seem crystal clear to us. As paragraph 8 puts
it: "Defendants . . . are enjoined from identifying Robin F.
Woods as having provided any services for any dolls manufactured
by . . . Alexander Doll Company . . . in connection with any
. . . promotion of the dolls."
Some courts, as Mrs. Woods and Alexander correctly
note, have recognized a substantial compliance defense to
contempt citations:
[S]ubstantial compliance with a court order
is a defense to an action for civil contempt.
. . . If a violating party has taken 'all
reasonable steps' to comply with the court
order, technical or inadvertent violations of
the order will not support a finding of civil
contempt.
General Signal Corp. v. Donallco, Inc., 787 F.2d 1376, 1379 (9th
Cir. 1986). Even if this court were to recognize substantial
compliance as a defense to contempt, however, it would not apply
to Mrs. Woods and Alexander. Although Mrs. Woods and Alexander
acted in good faith and on the advice of counsel, see Robin
Woods, Inc. 815 F. Supp. at 875, their violation was not
technical or inadvertent -- they consciously chose to associate
Mrs. Woods with dolls that Alexander would manufacture. The
district court's contempt citation thus must stand.
III.
Mrs. Woods and Alexander dispute the sanctions that the
district court imposed on them, maintaining that it was an abuse
of discretion to award RWI $68,505.72 in attorneys' fees and
$107,000 in damages for the time and expense that RWI's
management incurred in preparing for the contempt proceeding.
"The standard of our review of a district court sanction for
civil contempt is whether the district court abused its wide
discretion in fashioning a remedy." Delaware Valley Citizens'
Council v. Pennsylvania, 678 F.2d 470, 478 (3d Cir. 1982), cert.
denied, 459 U.S. 969 (1982).
A.
RWI sought attorneys' fees of $104,062.53 plus an
expert witness fee of $11,976.00. The district court awarded
only $68,707.52, because "plaintiff was largely unsuccessful on
its motion for contempt, sanctions, and attorneys' fees." Mrs.
Woods and Alexander maintain that attorneys' fees cannot be
awarded to RWI because their conduct, even if contumacious, was
not willful -- they acted in good faith on the advice of counsel
without intent to harm RWI.
Sanctions for civil contempt serve two purposes: "to
coerce the defendant into compliance with the court's order and
to compensate for losses sustained by the disobedience."
McDonald's Corp. v. Victory Investments, 727 F.2d 82, 87 (3d Cir.
1984). Compensatory awards seek to ensure that the innocent
party receives the benefit of the injunction:
the Court will be guided by the principle
that sanctions imposed after a finding of
civil contempt to remedy past noncompliance
with a decree are not to vindicate the
court's authority but to make reparation to
the injured party and restore the parties to
the position they would have held had the
injunction been obeyed.
Hudson Transit Lines, Inc. v. Freund, 509 F. Supp. 1172, 1178
(E.D.N.Y. 1981).
Based on this understanding of the functions served by
sanctions for civil contempt, we reject the notion that a finding
of willfulness is a prerequisite to an award of attorneys' fees
against the violator of an injunction. As the Court of Appeals
for the Fifth Circuit explained in Cook v. Ochsner Found. Hosp.,
559 F.2d 270, 272 (5th Cir. 1977):
It matters not whether the disobedience is
willful[;] the cost of bringing the violation
to the attention of the court is part of the
damages suffered by the prevailing party and
those costs would reduce any benefits gained
by the prevailing party from the court's
violated order. Because damages assessed in
civil contempt cases are oftentimes
compensatory (instead of coercive) the mental
state of the violator should not determine
the level of compensation due.
Only with an award of attorneys' fees can RWI be
restored to the position it would have occupied had Mrs. Woods
and Alexander complied with the district court's injunction.
Accordingly, accepting both the district court's findings
regarding good faith and advice of counsel and the appellants'
assertion that they intended no harm to RWI, we find no basis for
disturbing the award of attorneys' fees.
B.
The district court ordered Mrs. Woods and Alexander to
pay RWI $107,000 as compensation for "management's time and
expense in preparing for the contempt litigation." Robin Woods,
Inc., 815 F. Supp. at 875. The court explained its decision in
this way: "A successful party proving contempt is entitled to
recover, by way of civil fine, the expense of investigating the
violation of the order [and] preparing for and conducting the
contempt proceeding, in addition to attorneys' fees." Id.The $107,000 figure was based solely on the following
testimony from RWI executive David Lamont:
Q. You said you spent some management
time preparing for this hearing . . . . .
Before coming here did you examin[e] the
company's books and records to determine how
much time was expended in preparing for this
hearing today for the sanctions?
A. Yes, I did.
. . .
Q. Let's go to how much time. You said
you studied the time and you are familiar
with the cost of your time. Is that correct?
A. Sure. . . . I look at my payroll
records, sure.
Q. You are the chief financial officer
of the company. Is that correct?
A. Yes.
Q. Now, can you tell this court how
much money was expended by the Robin Woods
Company on management time, in-house
management time, in preparing for the
sanctions hearing today?
. . .
A. Through the spring and summer, I
kept track of the rough proportions of time
that each of my key people were spending
preparing for this case. I tracked it on a
month-by-month basis, and through October it
adds up to about $107,000.
Just as attorneys' fee awards are "remedial and
designed to compensate complainants for losses incurred as a
result of the contemnors' violations," Roe v. Operation Rescue,
919 F.2d 857, 869 (3d Cir. 1990), so too are awards to cover the
other expenses involved in demonstrating violations. NLRB v.
Local 825, Int'l Union of Operating Eng'rs, AFL-CIO, 430 F.2d
1225, 1229 (3d Cir. 1970), cert. denied, 401 U.S. 976 (1971).
Thus, there can be no doubt that the district court had the
authority to order Mrs. Woods and Alexander to compensate RWI for
the time and expense its management incurred in enforcing the
district court's injunction.
Turning to the amount of the award, we note that the
district court enjoys wide, but not unlimited, discretion in
fashioning appropriate compensatory sanctions:
The framing of sanctions for civil contempt
is committed to the sound discretion of the
trial court. . . . But this discretion is
not unlimited. Compensatory sanctions . . .
must not exceed the actual loss suffered by
the party that was wronged.
Elkin v. Fauver, 969 F.2d 48, 52 (3d Cir. 1992), cert. denied,
113 S. Ct. 473 (1992).
We believe the district court in this case stepped over
the line that separates acceptable and unacceptable exercises of
discretion. It reduced its award of counsel fees to reflect
RWI's limited success and then, without explanation, proceeded to
award all of the other expenses incurred by RWI in connection
with its contempt motion. For this reason, on the basis of the
record, the award of other expenses without an adjustment for the
limited degree of RWI's success can only be characterized as
arbitrary and we have no choice but to vacate it.1
IV.
We will reverse the judgment of the district court and
remand with instructions to enter an order finding appellants in
contempt and awarding attorneys' fees of $68,707.52. We leave to
the discretion of the district court whether to reopen the record
and give further consideration to the application for expenses.
1
Because we thus find the award of expenses arbitrary, and
because Mr. Lamont's testimony provides no basis for allocating
expenses between successful and unsuccessful contentions, it is
unnecessary for us to reach the issue of whether that testimony,
given its conclusory nature, would otherwise provide sufficient
support for an award. We regard that issue as a very close one
and express no opinion on it.