Document Operations v. AOS Leg Tech

Case: 20-20388 Document: 00515989911 Page: 1 Date Filed: 08/23/2021
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
FILED
August 23, 2021
No. 20-20388 Lyle W. Cayce
Clerk
Document Operations, L.L.C.,
Plaintiff—Appellee,
versus
AOS Legal Technologies, Incorporated,
Defendant—Appellant.
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:20-CV-1532
Before Dennis and Engelhardt, Circuit Judges, and Hicks*, Chief
District Judge.
Per Curiam:*
Defendant-Appellant AOS Legal Technologies, Inc. (“AOS Japan”)
appeals the entry of a preliminary injunction and order granting expedited
discovery. Following oral argument and a review of the record, we hold that
*
Chief Judge of the Western District of Louisiana, sitting by designation.
*
Pursuant to 5th Circuit Rule 47.5, the court has determined that this
opinion should not be published and is not precedent except under the limited
circumstances set forth in 5th Circuit Rule 47.5.4.
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both must be VACATED, with the preliminary injunction issue
REMANDED for proceedings consistent with Federal Rule of Civil
Procedure 65(a)(1).
I.
In 2017, Plaintiff Document Operations, LLC (“Doc. Ops.”) entered
into a licensing agreement by which AOS Japan would serve as the
company’s exclusive representative and marketing provider in Japan for Doc.
Ops.’ “Prpel” virtual data room technology. The licensing agreement
mandated AOS Japan protect Doc. Ops.’ confidential information, and also
prohibited AOS Japan from acting to “represent, promote, develop, or
otherwise try to sell within [Japan] any lines of product that. . . compete with
[Prpel].” Subsequent amendments to the licensing agreement designated
AOS Korea Corp. (“AOS Korea”) as an additional sales location and
exclusive provider/representative of Prpel in South Korea and extended the
term of the license by twelve months.
In August 2019, the licensing agreement was again extended by twelve
months, and a new provision was added stating:
Non-Exclusive. During the extended term, the license shall be non-
exclusive and any provision in the Agreement that reflects an
exclusive relationship shall be considered amended accordingly
hereby.
Shortly thereafter, Doc. Ops. learned that a competing product known as
“AOS VDR” had been developed and would soon be marketed in the two
Asian countries. Despite protests from AOS Japan that AOS Korea
developed AOS VDR independently and without any infringement of Prpel,
Doc. Ops. filed suit alleging violation of the Texas Uniform Trade Secrets
Act, Tex. Bus. & Com. Code § 15.50 et seq., and for common law breach of
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contract, fraudulent inducement, conversion, civil conspiracy, and breach of
fiduciary duty.
In both its initial and first amended complaints, Doc. Ops.’ prayers for
relief included requests for a temporary restraining (TRO) order and a
preliminary injunction. On May 8, 2020, Doc. Ops. filed a formal TRO
motion and emailed a copy of the motion and its complaint to AOS Japan’s
company representatives. Once a Zoom hearing was scheduled, Doc. Ops.
contacted AOS Japan several times to inform them of its date. When the
hearing commenced on May 27 without any acknowledgement from AOS
Japan, the district court opted to reschedule the proceedings in order to
ensure that AOS Japan was aware of its occurrence and had purposefully
elected not to participate. A second Zoom hearing was set for June 18.
During this three-week period between hearings, Doc. Ops. continued
to attempt to communicate relevant dates and filings with AOS Japan, who
had appointed Texas-based counsel. Among these communications was a
copy of a letter from Doc. Ops. to the district court, which provided in
relevant part:
Should this Court grant Document Operations’ Motion for
Temporary Restraining Order, Document Operations seeks to
conduct limited expedited discovery to prepare for the subsequent
preliminary injunction hearing.
On the morning of the second Zoom proceeding, still without definitive
confirmation that AOS Japan was voluntarily absent, the district court
instructed its case manager to phone counsel to “give [him] one last chance
to appear. . . if he so chooses.” On this phone call, AOS Japan’s counsel
relayed that he was “not going to appear, not even going to get on the
telephone call. . .” until his client was served with process in accordance with
the Hague Convention.
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Following this brief recess, the district court granted Doc. Ops.’ TRO
motion and its related request for expedited discovery. Although these were
the only two matters set to be resolved at the hearing, the district court also
issued a preliminary injunction against AOS Japan. Orders memorializing
these three rulings were entered the next day.
II.
We review a grant of a preliminary injunction for an abuse of
discretion. See Atchafalaya Basinkeeper v. United States Army Corps of
Engineers, 894 F.3d 692, 696 (5th Cir. 2018). Federal Rule of Civil Procedure
65(a)(1) provides: “[t]he court may issue a preliminary injunction only on
notice to the adverse party.” Because Rule 65(a)(1) does not define the
amount or type of notice required, “[t]he sufficiency of written and actual
notice is a matter for the trial court’s discretion.” Corrigan Dispatch Co. v.
Casa Guzman, S.A., 569 F.2d 300, 302 (5th Cir. 1978) (citing Plaquemines
Parish School Bd. v. United States, 415 F.2d 817 (5th Cir. 1969)). However, the
Supreme Court has held that sufficient notice under Rule 65(a) “implies a
hearing in which the defendant is given a fair opportunity to oppose the
application and to prepare for such opposition.” Granny Goose Foods, Inc. v.
Brotherhood of Teamsters & Auto Truck Drivers, Local No. 70, 415 U.S. 423,
434 n. 7 (1974). This contrasts with the more informal, sometimes same-day
notice from which a TRO may issue. See id. “Compliance with Rule 65(a)(1)
is mandatory,” and a preliminary injunction granted without adequate notice
and an opportunity to oppose it should be vacated and remanded to the
district court. Harris County, Tex. v. CarMax Auto Superstores, Inc., 177 F.3d
306, 326 (5th Cir. 1999) (citing Parker v. Ryan, 960 F.2d 543, 544 (5th Cir.
1992)).
Due to their overlapping elements, TRO and preliminary injunction
hearings are often conflated, and in some instances, a TRO hearing may
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convert into one for a preliminary injunction. See e.g., CarMax, 177 F.3d 306;
Dilworth v. Riner, 343 F.2d 226 (5th Cir. 1965). In order for this conversion
to occur, however, the requirements of sufficient notice and an opportunity
to meaningfully prepare and respond must still be satisfied. See id; Phillips v.
Charles Schreiner Bank, 894 F.2d 127, 131 (5th Cir. 1990).
AOS Japan certainly had notice that a preliminary injunction was
looming, but it lacked sufficient notice that such relief would issue at the
second TRO hearing. Doc. Ops.’ extensive and separately filed TRO motion
stands in stark contrast to its brief reference of a preliminary injunction as a
form of relief in its pleadings. Moreover, Doc. Ops.’ email letter to the
district court—with AOS Japan copied—requesting expedited discovery in
preparation for a future preliminary injunction hearing reveals that the
movant itself did not anticipate a preliminary injunction to issue at this
proceeding. While AOS Japan’s refusal to acknowledge and participate in
events occurring in the district court may have factored into a lack of notice,
the uncertainty surrounding whether service of process had been effectuated
warrants the reasonable apprehension AOS Japan exhibited.
Although this Court has recognized situations where TRO
proceedings may convert into preliminary injunction hearings, the instant
circumstances are distinguishable from the leading cases on the subject. In
Dilworth, this Court held that after a full-scale hearing with five appellant and
three appellee witnesses, the denial of a TRO was “in substance and result a
hearing on and the denial of a preliminary injunction,” and thus was subject
to appellate jurisdiction. 343 F.2d at 229. In CarMax, the construction of
plaintiff’s TRO motion as a motion for preliminary injunction was similarly
challenged under Rule 65(a)(1). 177 F.3d at 325. This Court rejected that
challenge, finding the defendant was provided three business days’ notice of
the hearing, never sought postponement of the hearing, filed a detailed
opposition brief, presented three witnesses, and vigorously cross-examined
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four of its adversary’s witnesses. See id. at 326. Finally, in Kaepa this Court
held that Rule 65(a)’s requirements were satisfied without a formal hearing
when the district court did not rely on any disputed facts and both parties had
presented comprehensive memoranda in support of their positions on the
injunction issue. See Kaepa, Inc. v. Achilles Corp., 76 F.3d 624, 628 (5th Cir.
1996). The Court further reasoned, “[i]f no factual dispute is involved,
however, no oral hearing is required; under such circumstances the parties
need only be given ‘ample opportunity to present their respective views of
the legal issues involved.’” Id.In each of these cases, the non-movant participated in proceedings to
a degree that allowed the district court to determine whether a preliminary
injunction was appropriate. In contrast, AOS Japan did not participate
whatsoever in the June 18 TRO hearing because of service of process
concerns. The district court was aware of this reason for absence.
Consequently, any interpretation of AOS Japan’s silence as a factual
concession on the injunction issue was unreasonable. On the date of this
hearing, AOS Japan expected at most a 14-day TRO to issue without
prejudice to the future opportunity to contest a potential preliminary
injunction. Instead, AOS Japan received notice of an indefinite injunction via
the district court’s order the following day. This action violated Rule
65(a)(1)’s notice requirement and mandates the preliminary injunction be
VACATED and REMANDED. 1 See Phillips, 894 F.2d at 131.
1
Because revisiting injunctive relief on remand will involve adversarial
evidentiary proceedings, we decline to offer guidance as to the substantive terms of any
future preliminary injunction.
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III.
We review a district court’s discovery rulings for an abuse of
discretion. See Miller v. Sam Houston State Univ., 986 F.3d 880, 891 (5th Cir.
2021). Generally, broad discretion is afforded to the district court when
deciding discovery matters, and we reverse “only if [the decision] affected a
party’s substantial rights.” N. Cypress Med. Ctr. Operating Co. v. Aetna Life
Ins. Co., 898 F.3d 461, 476 (5th Cir. 2018). Substantial rights are affected if
the district court’s decision was “arbitrary or clearly unreasonable.” Fielding
v. Hubert Burda Media, Inc., 415 F.3d 419, 428 (5th Cir. 2005).
A.
We must first determine whether we have jurisdiction to review the
district court’s expedited discovery order. Pendent appellate jurisdiction is
proper only in rare and unique circumstances and must be in the interest of
judicial economy. See Byrum v. Landreth, 566 F.3d 442, 449 (5th Cir. 2009).
It is present where (1) the pendent decision is “inextricably intertwined”
with the decision over which the appellate court otherwise has jurisdiction,
and (2) review of the former is necessary to ensure meaningful review of the
latter. See Swint v. Chambers Cty. Comm’n, 514 U.S. 35, 51 (1995). This Court
has found pendent jurisdiction may be proper where (1) the court will decide
some issue in the properly brought interlocutory appeal that necessarily
disposes of the pendent claim, (2) addressing the pendent claim will further
the purpose of immediate review of the interlocutory claim, (3) the pendent
claim would otherwise be unreviewable, or (4) the claims involve precisely
the same facts and elements. See Escobar v. Montee, 895 F.3d 387, 392-93 (5th
Cir. 2018).
Similarly, the collateral order doctrine permits review of “a small class
of collateral rulings that, although they do not end the litigation, are
appropriately deemed ‘final.’” Mohawk Indus. v. Carpenter, 558 U.S. 100, 106
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(2009) (citing Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 545-46
(1949)). A qualifying interlocutory decision must (1) be conclusive, (2)
resolve important questions separate from the merits, and (3) be effectively
unreviewable on appeal from final judgment. See Mohawk, 558 U.S. at 605.
Due to the healthy respect for the virtues of the final judgment rule, the
justification for immediate appeal must be quite strong, with the decisive
consideration being whether delaying review until final judgment “would
imperil a substantial public interest” or “some particular value of a high
order.” Will v. Hallock, 546 U.S. 345, 352-53 (2006).
Either jurisdictional theory provides this Court with the power to
review the district court’s expedited discovery order. First, pendent
jurisdiction may be exercised over the discovery order because of its ties to
the preliminary injunction. In addition to the factual similarities informing
each, Doc. Ops.’ central basis for expedited discovery was to aid in
preparation for a future preliminary injunction hearing. The district court’s
order cited this letter request. The discovery order itself provides significant
support for AOS Japan’s reasonable belief that a future hearing would be held
regarding a potential injunction, and consequently, reveals the lack of notice
it possessed at the time of the TRO hearing. The close connection between
the interlocutory preliminary injunction and the pendent expedited discovery
order permit the exercise of this form of jurisdiction.
As for the collateral order doctrine, AOS Japan’s principal ground for
invalidation of the discovery order rests upon its rights as a Japanese
defendant under the United States-Japan Consular Convention of 1964
(“Consular Convention” or “Treaty”). The assertion of these Treaty rights
transforms the dispute from that over a standard pre-trial discovery order to
one involving the rights of foreign defendants in American courts. Viewed as
such, review of the discovery order in light of the Consular Convention
“finally determine[s] claims of right separable from, and collateral to, rights
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asserted in the action, too important to be denied review and too independent
of the cause itself to require that appellate consideration be deferred until the
whole case is adjudicated.” Cohen, 337 U.S. at 546. Finally, this order would
be effectively unreviewable following a final judgment, as AOS Japan would
be forced to relinquish its Treaty rights and participate in discovery.
B.
Turning now to the merits, the expedited discovery order must be
vacated on two grounds. First, the order clearly ran afoul of the Consular
Convention. The Treaty sets forth a complex set of rules governing the taking
of depositions of Japanese defendants. See Consular Convention and
Protocol, Mar. 22, 1963, U.S.-Japan, art. 17(1)(e)(ii); Murata Mfg. Co., Ltd.
v. Bel Fuse, Inc., 242 F.R.D. 470, 472 n.2 (E.D. Ill. May 2, 2007). Notably,
these procedures mandate that depositions taken in Japan of Japanese
defendants must occur on U.S. consulate premises with a consular official
presiding, and all participants are required to obtain a deposition visa. See id.Further, the U.S. Department of State’s website explicitly notes that video
conferencing is not available. 2
In contravention of the Treaty, the district court ordered that AOS
Japan’s corporate representatives be deposed via Zoom within ten business
days of the date of its order or by July 1, 2020. The terms of the order thus
evidence that no consideration was paid to the Consular Convention and the
ensuing rights afforded to Japanese defendants. Accordingly, the expedited
discovery order cannot stand.
Second, the order lacked good cause to issue. Under Federal Rule of
Civil Procedure 26(d), “[a] party may not seek discovery from any source
2
https://jp.usembassy.gov/depositions-in-
japan/?_ga=2.36004384.1664203238.1621530152-579272842.1621530152.
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before the parties have conferred as required by Rule 26(f), except in a
proceeding exempted from initial disclosure under Rule 26(a)(1)(B), or when
authorized by these rules, by stipulation, or by court order.” In the Southern
District of Texas—where this case originated—courts employ a good cause
standard to determine when to exercise their authority to order expedited
discovery. See Dallas Buyers Club, LLC v. Ripple, No. H-14339, 2015 WL
1346217 at *1 (S.D. Tex. Mar. 23, 2015).
The district court’s expedited discovery order found good cause
existed “[f]or the reasons detailed in counsel’s June 13, 2020 letter and in
this court’s order granting Plaintiff’s Motion for Temporary Restraining
Order.” As discussed, this letter justified the need for expedited discovery to
prepare for a future preliminary injunction hearing. The letter’s stated
purpose was “to adduce evidence bearing directly on its right to a preliminary
injunction.” When the district court issued a preliminary injunction
simultaneously with this discovery order, good cause for expedited discovery
ceased to exist. For both of these reasons, the district court’s order must be
VACATED.
IV.
For the reasons assigned herein, the district court’s entry of a
preliminary injunction is hereby VACATED and REMANDED. Further,
the district court’s expedited discovery order is hereby VACATED.
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