Next Level Communications LP v. DSC Communications Corp.

Revised July 9, 1999
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 98-40682
_____________________
NEXT LEVEL COMMUNICATIONS LP; KK MANAGER LLC; GENERAL INSTRUMENT
CORPORATION, formerly known as Next Level Systems Incorporated;
SPENCER TRASK & COMPANY INCORPORATED,
Plaintiffs-Appellees,
v.
DSC COMMUNICATIONS CORPORATION; DSC TECHNOLOGIES CORPORATION,
Defendants-Appellants.
_________________________________________________________________
Appeal from the United States District Court
for the Eastern District of Texas
_________________________________________________________________
June 21, 1999
Before KING, Chief Judge, and REYNALDO G. GARZA and JOLLY,
Circuit Judges.
KING, Chief Judge:
Defendants-appellants DSC Communications Corporation and DSC
Technologies Corporation appeal from a May 14, 1998 order of the
district court issuing a preliminary injunction that prevents
them from pursuing an action filed in Delaware state court on
March 5, 1998. Because we conclude that the district court’s
preliminary injunction is proper under the relitigation exception
to the Anti-Injunction Act, 28 U.S.C. § 2283, we affirm.
I. FACTUAL AND PROCEDURAL HISTORY
Defendants-appellants DSC Communications Corporation and DSC
Technologies Corporation (collectively, DSC) design and
manufacture telecommunications equipment, including a broadband
access product referred to as Switched Digital Video (SDV). Two
of its former employees, Thomas Eames and Peter Keeler, were
responsible for designing and marketing the SDV technology for
DSC. In 1994, while still employed by DSC, Eames and Keeler
created a company, Next Level Communications Corporation (Next
Level I), to develop an SDV product to compete with DSC. In July
1994, they resigned from DSC, taking six DSC employees with them.
In 1995, General Instrument Corporation (General Instrument I)
acquired Next Level I.
In April 1995, DSC filed suit against Next Level I, Eames,
and Keeler in Texas state court. The defendants removed the
action to the United States District Court for the Eastern
District of Texas (the First Federal Action). See DSC
Communications Corp. v. Next Level Communications, No. 4:95cv96
(E.D. Tex. filed Apr. 1995). In March 1996, a three-week jury
trial ensued.
The jury ultimately found that Eames and Keeler had breached
their contractual obligations to DSC; that, as fiduciaries of
DSC, they had diverted a corporate opportunity for the benefit of
themselves and Next Level I; and that Eames, Keeler, and Next
Level I had misappropriated DSC’s trade secrets. DSC claimed
2
damages based on its future lost profits.1 The jury awarded
actual and punitive damages of $369,200,000.
Thereafter, in April 1996, DSC moved for entry of judgment
for all actual and punitive damages awarded by the jury and
requested a permanent injunction prohibiting Next Level I, Eames,
and Keeler from further disclosing or transferring the stolen DSC
trade secrets. Finding that the legal theories upon which the
jury had awarded damages overlapped, the district court ordered
DSC to choose between the damages for breach of contract,
diversion of corporate opportunity, and misappropriation of trade
secrets. DSC elected the actual and punitive damages associated
with the diversion of corporate opportunity finding. In a June
11, 1996 order, the district court denied DSC’s request for a
permanent injunction, reasoning that DSC had already been
compensated for the future harm DSC sought to enjoin.
Accordingly, on June 11, 1996, the district court entered
judgment for DSC in the amount of $136,732,000.2
1
DSC’s expert had calculated DSC’s future lost profits by
assuming that Next Level I would get to market first with its SDV
system and then “computing DSC’s expected market share and
profits that they would have achieved in the absence of
Defendants’ wrongful conduct and subtracting DSC’s expected
market share and profits after Defendants’ wrongful conduct.”
2
The June 11, 1996 judgment contained a temporary
injunction to prevent Eames, Keeler, and Next Level I from
disclosing or transferring DSC’s trade secrets except in the
ordinary course of business until they satisfied the judgment.
Because the district court had denied DSC’s request for a
permanent injunction in its June 11, 1996 order, the June 11,
1996 judgment did not contain a permanent injunction, nor any
3
Dissatisfied with the district court’s failure to include a
permanent injunction as part of the judgment, DSC filed an
expedited motion on June 13, 1996, seeking to modify the judgment
to include a limited permanent injunction. The district court
denied this motion the same day, again reasoning that an
injunction would provide DSC with a duplicate recovery.
On July 3, 1996, DSC filed an “Emergency Motion for
Injunction Pending Appeal,” seeking an injunction to prohibit
Next Level I from using, transferring, or disclosing DSC’s trade
secrets during the appeal. On July 9, 1996, the district court
denied DSC’s emergency motion, reasoning that DSC’s claim that it
was entitled to an injunction in addition to the monetary damages
already awarded had a low probability of success on appeal.
On July 15, 1996, DSC filed a motion for injunction pending
appeal in this court, seeking an order enjoining Next Level I
from using, transferring, or disclosing the trade secrets it had
wrongfully obtained. On July 24, 1996, we denied DSC’s motion
for an injunction pending appeal, but expedited the appeal sua
sponte.
On appeal, DSC asked this court to affirm the judgment for
usurpation of corporate opportunity, requested an additional $101
million in damages for trade secret misappropriation, and
requested an injunction prohibiting the transfer or disclosure of
reference to one.
4
DSC’s trade secrets. On February 28, 1997, we ruled that the
district court had not relied on clearly erroneous factual
findings or erroneous conclusions of law in denying DSC’s
injunction request and thus had not abused its discretion in
refusing to grant a permanent injunction. See DSC Communications
Corp. v. Next Level Communications, 107 F.3d 322, 328 (5th Cir.
1997). We also determined that the award for usurpation of
corporate opportunity could not stand, and remanded the case for
entry of judgment on the claim for misappropriation of trade
secrets. See id. at 326, 331.
In July 1997, before the district court had entered final
judgment after the appeal, General Instrument I, the parent
corporation of Next Level I, divided its business into three
separate publicly-held corporations. Next Level I was acquired
by one of these three corporations, Next Level Systems, Inc.
(Systems). On July 15, 1997, DSC filed a “Motion for Show Cause
Order” in the district court, arguing that the transaction
violated the limited temporary injunction, contained in the
district court’s June 11, 1996 final judgment, that prohibited a
disclosure or transfer of DSC’s trade secrets, other than in the
ordinary course of business, until the judgment was satisfied.
Next Level I filed a response, arguing that the trade secrets
were still owned by the same corporate entity, Next Level I, and
that the only difference was that Next Level I had become a
subsidiary of a different company, Systems. The district court
5
concluded, in an order dated July 22, 1997, that the spin-off
transaction did not violate the injunction.
On October 28, 1997, the district court entered a new final
judgment in the total amount of $137,732,000 for the actual and
punitive damages associated with the jury finding of
misappropriation of trade secrets. The October 28, 1997 final
judgment, like the June 11, 1996 final judgment, contained an
interim injunction that was to remain in effect until the
judgment had been fully satisfied. Next Level I satisfied the
judgment on November 6, 1997 by paying $140,691,717.81. A
satisfaction of the judgment was filed with the court on November
7, 1997, and the interim injunction was dissolved.
In January 1998, Systems decided to spin off the entire
business of its wholly-owned subsidiary, Next Level I. Systems
transferred the business as a whole, including its technology,
management, and workforce, to Next Level Communications, L.P.
(Next Level II), one of four plaintiffs-appellees in this action,
in exchange for an eighty-nine percent limited partnership
interest in Next Level II. Another plaintiff-appellee, Spencer
Trask & Co. (Trask), created plaintiff-appellee KK Manager L.L.C.
(KK Manager). KK Manager acquired the other eleven percent
ownership interest in Next Level II in exchange for an investment
of $10,000,000, and became operating general partner of Next
Level II. Systems then changed its name back to General
6
Instrument (General Instrument II). General Instrument II is the
final plaintiff-appellee in this action.
On March 5, 1998, DSC filed a complaint in the Superior
Court of the State of Delaware naming as defendants Next Level
II, KK Manager, General Instrument II, and Trask,3 and asserting
claims based on misappropriation of trade secrets (the Delaware
Action). Specifically, DSC alleged that General Instrument II
(formerly Systems) improperly disclosed trade secrets when it
conveyed the SDV technology from Next Level I to Next Level II,
that Next Level II and KK Manager misappropriated DSC’s trade
secrets, and that Trask conspired to misappropriate DSC’s trade
secrets. As to Next Level II and KK Manager, DSC requested an
award of unjust enrichment damages. As to General Instrument II,
DSC sought the imposition of a constructive trust and an order
requiring the disgorgement to DSC of the consideration General
Instrument II received for its alleged improper transfer of DSC’s
trade secrets to Next Level II and KK Manager. Finally, through
its civil conspiracy claim, DSC sought to make Trask jointly and
severally liable for any unjust enrichment and disgorgement
damages owed by the other defendants.
On April 2, 1998, the Delaware defendants returned as
plaintiffs to the district court below, the same court that had
presided over the First Federal Action, to request a preliminary
3
These four entities, plaintiffs-appellees in this suit,
will be referred to as the Delaware defendants or as plaintiffs.
7
and permanent injunction to prevent DSC from prosecuting the
Delaware Action. Jurisdiction was premised on the All Writs Act,
28 U.S.C. § 1651(a), and the relitigation exception to the Anti-
Injunction Act, 28 U.S.C. § 2283.
On May 8, 1998, the district court conducted a hearing on
the application for a preliminary injunction. The court signed
an order granting the preliminary injunction on May 14, 1998. In
its order, the district court concluded that the “Delaware
Lawsuit is based on an alleged transfer of DSC’s trade secrets
that falls within the categories of potential future acts for
which DSC has already received full compensation in the Federal
Lawsuit,” that under the district court’s rulings in the First
Federal Action, DSC would not be entitled to recover additional
damages stemming from the transfer alleged in the Delaware
Action, and that a preliminary injunction barring prosecution of
the Delaware Action was therefore appropriate. The district
court reached this conclusion based on its “particular knowledge
and familiarity with the complex damages theory on which DSC
recovered its future lost profit damages and with the arguments
asserted by DSC in its effort to obtain additional permanent
injunctive relief from future transfers or disclosures.” DSC
filed its timely notice of appeal on June 1, 1998 and this appeal
followed.
II. STANDARD OF REVIEW
8
Although generally the grant of a preliminary injunction is
reviewed for abuse of discretion, our review is de novo because
the application of the relitigation exception is an issue of law.
See Texas Commerce Bank Nat’l Assoc. v. State of Florida, 138
F.3d 179, 181 (5th Cir. 1998) (applying de novo review to legal
conclusions underlying denial of preliminary injunction under
relitigation exception); accord Transouth Fin. Corp. v. Bell, 149
F.3d 1292, 1294 (11th Cir. 1998); Prudential Ins. Co. v. Doe, 140
F.3d 785, 788 (8th Cir. 1998); Quackenbush v. Allstate Ins. Co.,
121 F.3d 1372, 1377 (9th Cir. 1997). If the district court is
incorrect in its legal conclusion that the relitigation exception
applies, it is barred by the Anti-Injunction Act from issuing an
injunction. See 28 U.S.C. § 2283; Atlantic Coast Line R.R. v.
Brotherhood of Locomotive Eng’rs, 398 U.S. 281, 286 (1970)
(stating that Anti-Injunction Act is absolute bar to issuance of
injunction unless one of three exceptions applies).
III. DISCUSSION
The Anti-Injunction Act prohibits a federal court from
granting an injunction to stay proceedings in a state court
“except as expressly authorized by an Act of Congress, or where
necessary in aid of its jurisdiction, or to protect or effectuate
its judgments.” 28 U.S.C. § 2283. These exceptions are narrowly
construed. See Chick Kam Choo v. Exxon Corp., 486 U.S. 140, 146
(1988); Atlantic Coast Line, 398 U.S. at 287.
9
The exception allowing an injunction to “protect or
effectuate” a federal court judgment is commonly referred to as
the relitigation exception. It “was designed to permit a federal
court to prevent state litigation of an issue that previously was
presented to and decided by the federal court” and “is founded in
the well-recognized concepts of res judicata and collateral
estoppel.” Choo, 486 U.S. at 147. “[A]n essential prerequisite
for applying the relitigation exception is that the claims or
issues which the federal injunction insulates from litigation in
state proceedings actually have been decided by the federal
court.” Id. at 148. In order to decide whether the relitigation
exception applies in this case, this court must assess the
“precise state of the record” in the First Federal Action to
determine what was actually decided. Id.
[A] complainant must make a strong and unequivocal showing
of relitigation of the same issue to avoid the bar of
section 2283, and [i]f we err, all is not lost. A state
court is as well qualified as a federal court to protect a
litigant by the doctrines of res judicata and collateral
estoppel.
Texas Employers’ Ins. Ass’n v. Jackson, 862 F.2d 491, 501 n.13
(5th Cir. 1988) (en banc) (internal quotation marks omitted).
Both parties agree that res judicata is inapplicable to the
case before us. Thus, only if collateral estoppel principles
apply is the district court’s injunction barring the Delaware
Action proper under the relitigation exception. Although Texas
state law governed the First Federal Action, “federal law
10
determines the judgment’s preclusive effect.” Recoveredge L.P.
v. Pentecost, 44 F.3d 1284, 1290 & n.11 (5th Cir. 1995).
Collateral estoppel “‘is limited to matters distinctly put
in issue, litigated, and determined in the former action.’”
Brister v. A.W.I., Inc., 946 F.2d 350, 354 (5th Cir. 1991)
(quoting Diplomat Elec., Inc. v. Westinghouse Elec. Supply Co.,
430 F.2d 38, 45 (5th Cir. 1970)). This court has determined that
collateral estoppel encompasses three elements: “(1) the issue
at stake must be identical to the one involved in the prior
action; (2) the issue must have been actually litigated in the
prior action; and (3) the determination of the issue in the prior
action must have been a necessary part of the judgment in that
earlier action.” Recoveredge, 44 F.3d at 1290; see Southmark
Corp. v. Coopers & Lybrand (In re Southmark Corp.), 163 F.3d 925,
932 (5th Cir. 1999), petition for cert. filed, 67 U.S.L.W. 3643
(U.S. Apr. 12, 1999); Meza v. General Battery Corp., 908 F.2d
1262, 1273 (5th Cir. 1990). Moreover, the legal standard used to
assess the issue must be the same in both proceedings. See
Recoveredge, 44 F.3d at 1291. However, the actual claims and the
subject matter of each suit may differ. See id. Finally,
“[u]nlike claim preclusion, the doctrine of issue preclusion may
not always require complete identity of the parties.” Meza, 908
F.2d at 1273.
Thus, the relevant questions for our determination are what
the district court in the First Federal Action actually decided,
11
whether that issue is identical to the relevant issue in the
Delaware Action, and whether the issue formed a necessary part of
the judgment in the First Federal Action.4
Plaintiffs argue that the district court in the First
Federal Action denied DSC a permanent injunction that would have
prevented the future transfer or disclosure of DSC’s trade
secrets on the ground that the future lost profits damages
awarded in the final judgment were adequate compensation for any
such future transfer or disclosure. Plaintiffs contend that in
the Delaware Action DSC is seeking to relitigate whether it is
entitled to additional damages beyond those already recovered in
the First Federal Action. Because the district court in the
First Federal Action decided that the damages awarded in that
suit compensated DSC fully, including for any harm stemming from
future transfers to third parties, according to plaintiffs
collateral estoppel bars the Delaware Action. After a careful
review of the record, we agree with plaintiffs.
A. The Issue in the First Federal Action
In its April 1996 post-verdict “Motion for Judgment,” DSC
argued that an injunction was necessary to prevent the disclosure
or transfer of DSC’s trade secrets “to any third party” because
4
Neither side raises an argument with respect to the
second element of collateral estoppel—namely, whether the issue
was “actually litigated” in the earlier action. Recoveredge, 44
F.3d at 1290. The fulfillment of this requirement obviously
depends on how the issue is defined. As we demonstrate below,
this element is not at issue in this lawsuit.
12
Next Level I “may attempt to cause the DSC Trade Secrets to pass
into the public domain by wrongfully disclosing them to third
parties, including without limitation . . . [Next Level I’s]
parent company, General Instrument Corporation (“GI”), or any
other entity owned in whole or in part by GI.” This is exactly
what transpired in January 1998 when the business of Next Level I
was transferred to Next Level II.
In its April 19, 1996 reply brief, DSC further explained its
request for a permanent injunction as follows:
DSC suffered severe damages as a result of Defendants’
deliberate illegal conduct for which DSC should be awarded
monetary damages. These monetary damages were awarded to
compensate DSC for only one type of damage—future lost
profits. Unless this Court enjoins Defendants as requested
in DSC’s Motion for Judgment, DSC will suffer further damage
for which the damage award does not compensate DSC and for
which the harm to DSC will be irreparable.
DSC’s damages for Defendants’ misappropriation
partially compensate DSC for the unfair advantage that
Defendants have received by using DSC’s trade secrets.
Because of this unfair advantage, [Next Level I] will get
its product to market faster than it otherwise would have,
allowing [Next Level I] to capture a greater market share
than it otherwise would have and will cause DSC to suffer
future lost profits. DSC may suffer further harm, however,
unless this Court enjoins Defendants as requested by DSC.
. . . .
[T]here are two main purposes of an injunction: (1)
preventing unjust enrichment of the defendant and (2)
preventing further harm to the plaintiff.
. . . .
The damages awarded by the jury compensate DSC for the
profits that DSC will lose as a result of [Next Level I’s]
use of DSC’s trade secrets. Those damages in no way
compensate DSC for the harm that would result if Defendants
13
caused DSC’s trade secrets to enter into the public domain
so that any of DSC’s competitors were free to use them. If
Defendants are not enjoined as DSC requests,5 they could
potentially destroy all value of DSC’s trade secrets through
public disclosure and thereby allow more of DSC’s
competitors to benefit from DSC’s technology.
DSC requests an injunction preventing disclosure to
avoid such irreparable harm. The requested relief comports
with the second purpose of trade secret injunctions:
preventing further harm to DSC. The requested relief would
prevent [Next Level I] from destroying the value of DSC’s
trade secrets through disclosure to others.
As the above excerpts demonstrate, DSC premised its request
for injunctive relief on DSC’s belief that the damages already
awarded did not fully compensate it for the future harm that
would result from a transfer of the trade secrets. The district
court nevertheless denied DSC’s request for a permanent
injunction to prevent the future disclosure or transfer of the
stolen trade secrets. In its June 11, 1996 order, the district
court reasoned that DSC had already been “made whole” by the
damages award and stated that:
Since the jury has found, and the Court has upheld the
findings, that DSC has suffered future lost profits, DSC is
not entitled to an injunction against the Defendants. . . .
DSC premised a large portion of its damages claims on Next
Level developing a FTTC/SDV system which competes with DSC’s
SDV system. DSC has successfully recovered monetary damages
for that future injury and has been “made whole” for those
5
The injunction DSC requested in its “Motion for Judgment”
consisted of “a permanent injunction preventing Eames, Keeler, or
[Next Level I] from disclosing or transferring to any third party
the six trade secrets identified at trial” and “an assignment to
DSC . . . of all patent applications.” Thus, the district court
was clearly aware that the relief DSC was seeking included an
injunction to prevent the future transfer or disclosure of DSC’s
trade secrets.
14
damages. An injunction which prevents Next Level from
performing any act for which DSC has already been
compensated would afford DSC a duplicative remedy.
The district court’s conclusion must be read in light of the
arguments presented to it by the parties. See Atlantic Coast
Line, 398 U.S. at 292 (concluding that proper interpretation of
ambiguous passage can be reached “only when it is considered in
light of the arguments presented to the District Court”).
Because DSC requested an injunction to prevent the future
transfer or disclosure of its trade secrets and because the
request was premised on the inadequacy of the damages award to
compensate DSC for future transfers or disclosures, the district
court’s conclusion that an injunction would be a duplicative
remedy and that DSC had been “made whole” by the damages award
can only refer to this request. Thus, it is clear that the
district court decided that the judgment already compensated DSC
for future transfers to third parties.
This conclusion is confirmed by DSC’s later filings. In
DSC’s expedited motion of June 13, 1996, DSC warned the district
court that without a permanent injunction Next Level I “will be
permitted to pay the Judgment and then disclose DSC’s trade
secrets to third parties and thereby inflict further damage upon
DSC for which it is not compensated by the Judgment.” DSC
further argued that without an injunction
Defendants are free to pay the Judgment and then disclose
all of DSC’s trade secrets to third parties. Such disclosure
would effectively destroy the value of DSC’s trade secrets
15
and might allow other competitors to use them in their
products.
. . . .
Modifying the Judgment to include this limited
permanent injunction would not be duplicative of any other
relief the Judgment affords DSC or any other relief DSC
sought in this action. Neither the damages awarded to DSC
by the jury for the Defendants’ misappropriation of DSC’s
trade secrets nor the damages awarded to DSC by the jury and
by the Court for usurpation of corporate opportunity
compensate DSC for the harm DSC will suffer if its trade
secrets are disclosed to third parties by the Defendants.
To avoid such irreparable harm, DSC requests a limited
permanent injunction against disclosing or transferring
DSC’s trade secrets. The requested relief would prevent
Defendants from destroying the value of DSC’s trade secrets
through disclosure to others and would impose no hardship on
Defendants.
After considering these arguments, the district court again
refused to grant DSC’s request for an injunction. According to
the district court’s June 13, 1996 order, “DSC contends that
‘[Next Level I] should not be allowed to destroy the value of
DSC’s trade secrets after paying the Judgment.’ These claims
were resolved when the Court ruled upon DSC’s Motion for
Judgment.” This indicates that the district court believed that
it previously had considered DSC’s claim that a transfer to third
parties would destroy the value of DSC’s trade secrets when, in
ruling on DSC’s “Motion for Judgment,” it denied DSC injunctive
relief on the ground that the judgment already compensated DSC
for that harm. The district court further stated in its June
13, 1996 order:
16
DSC obtained monetary damages for the future damages arising
from Defendants’ malicious usurpation of DSC’s corporate
opportunity. As DSC’s own expert testified, these damages
were predicated upon Defendants possessing and actively
implementing DSC’s trade secrets. Having recovered monetary
damages for Defendants’ future possession and use of these
trade secrets, DSC now attempts to prevent Defendants from
performing the very acts for which DSC has been “made
whole.” The Court’s judgment in this case does not “vest[]
ownership of DSC’s trade secrets in [Next Level I],” . . .
and does not approve of the manner in which the trade
secrets were acquired and are being used. The Court will
not, however, award DSC a duplicate recovery when DSC has
recovered the damages awarded by the judgment.
Because this statement responds to DSC’s only request in its
June 13, 1996 expedited motion—the request for a “limited
permanent injunction against disclosing or transferring DSC’s
trade secrets”—it is clear that the district court decided that
Next Level I’s “future possession and use” of DSC’s trade
secrets, for which the district court found that the judgment
fully compensated DSC, permitted transfers to third parties.
DSC next filed its July 3, 1996 “Emergency Motion for
Injunction Pending Appeal,” requesting an injunction for the
duration of the appellate process. In this motion, DSC
recognized that the district court previously had found that the
judgment allowed Next Level I to use DSC’s trade secrets, stating
that “the Court has concluded (incorrectly in DSC’s view) that
the judgment gives DSC damages for ‘possession and use of DSC’s
trade secrets’” (citing the district court’s June 13, 1996
order). DSC went on to insist, however, that the damages award
did not compensate it for the harm that would result if Next
17
Level I transferred DSC’s trade secrets to a third party: “The
damages awarded in the judgment, however, are for future lost
profits on SDV and Litespan sales, not for damages due to the
destruction in the value of DSC’s trade secrets if they are
disclosed or transferred to a third party.”
The district court obviously disagreed with DSC’s assessment
of the scope of the judgment because, in its July 10, 1996 order,
it once again denied DSC’s request for an injunction pending
appeal, stating that “DSC’s claims of DSC’s entitlement to an
injunction as well as monetary future damages . . . have a low
probability of success upon appeal.”6
6
In light of DSC’s repeated requests for an injunction to
prevent the transfer or disclosure of its trade secrets, we
reject DSC’s argument that the district court denied its
requested injunction on the ground that DSC had been made whole
only for the future damages associated with Next Level I
developing an SDV system that competes with DSC’s system, instead
of on the ground that DSC had been compensated for any future
damages associated with the transfer of SDV technology to third
parties. This argument ignores completely the context of the
district court’s rulings, which arose solely in response to DSC’s
requests for an injunction to prevent transfer or disclosure of
its trade secrets. The district court’s finding that DSC had
been made whole must be read in light of these requests, and thus
DSC is incorrect that the district court “ruled only that DSC had
been ‘made whole’ with respect to [DSC’s] claim for lost
profits.”
We also reject DSC’s alternate argument that the district
court considered only the potential harm that would result if
DSC’s trade secrets were disseminated to the public at large,
causing them to become completely valueless because many others
could then develop competing systems. The record makes clear
that the district court considered the harm that would flow from
any potential transfer. In any event, if the only potential harm
considered by the district court was the harm flowing from a
dissemination of the trade secrets to the public at large, and
yet the district court still repeatedly held that the judgment
18
DSC pressed its arguments for an injunction further. In its
motion for an injunction pending appeal filed in this court on
July 15, 1996, DSC argued that it was entitled to both monetary
damages and injunctive relief because monetary damages “in no way
compensate DSC for the harm that would result if [Next Level I]
caused DSC’s trade secrets to enter into the public domain so
that any of DSC’s other competitors were free to use them”
(emphasis omitted). This court denied DSC’s motion for an
injunction pending appeal.
In its appellate brief, DSC again argued that it was
entitled to a limited permanent injunction in addition to
monetary damages to prevent the transfer or disclosure of its
trade secrets:
The trade secret damages would compensate DSC for its lost
profits on SDV product sales due to the unfair competitive
advantage enjoyed by Next Level because of its ability to
use DSC’s trade secrets, but in no way would compensate DSC
for the harm that would result if Defendants caused DSC’s
trade secrets to enter into the public domain so that any of
DSC’s other competitors were free to use them.
. . . .
If Defendants are not enjoined as DSC requests, they
could potentially destroy all remaining value of DSC’s trade
secrets through public disclosure, thereby allowing other
competitors to benefit from DSC’s technology.
fully compensated DSC, then, a fortiori, the district court also
held that the judgment compensated DSC for the harm that would
flow from the transfer of DSC’s trade secrets to just one other
party.
19
(emphasis omitted). DSC alternatively requested an injunction to
prevent Next Level I from using DSC’s trade secrets at all: “A
trade secret use injunction would prevent Next Level from being
unjustly enriched by its use of the property it wrongfully took
from DSC.”
This court rejected DSC’s arguments and affirmed the
district court’s refusal to grant either type of injunction.7 We
concluded that the district court “did not rely on clearly
erroneous factual findings or an erroneous conclusion of law.”
DSC Communications Corp., 107 F.3d at 328. Thus, in denying DSC
both forms of injunctive relief, we, by necessity, passed on the
question of whether the district court had incorrectly concluded
that DSC was entitled to no further relief beyond the judgment
and concluded that the district court had not erred.8
Based on the foregoing, it is clear that the district court
decided that DSC had been made whole by the damages award and
that future transfers would not entitle DSC to any relief in
addition to what it had already received. Furthermore, this
7
Before this court, DSC had requested “either a limited
injunction in combination with monetary damages or a total
injunction prohibiting Next Level from using the trade secrets
the jury found it misappropriated.” DSC Communications Corp.,
107 F.3d at 328.
8
Thus, the requirement found in Hicks v. Quaker Oats Co.,
662 F.2d 1158, 1168 (5th Cir. Unit A Dec. 1981), “that if a
judgment is appealed, collateral estoppel only works as to those
issues specifically passed upon by the appellate court,” has been
satisfied.
20
court agreed that the district court had not made clearly
erroneous factual findings or erroneous conclusions of law, and
therefore affirmed the district court’s refusal to grant
permanent injunctive relief. See id.
B. The Issue in the Delaware Action
The issue in the First Federal Action—litigated vigorously
by DSC, decided by the district court, and affirmed by this
court—is the same as the issue that DSC seeks to litigate in
Delaware court, namely, DSC’s entitlement to additional relief
beyond the damages it recovered in the First Federal Action for
any transfer of DSC’s trade secrets occurring after the judgment
in the First Federal Action. In its Delaware complaint, DSC
contends that it is entitled to recover damages for the transfer
of DSC’s trade secrets by General Instrument II to Next Level II.
The district court concluded, and this court found no error in
the conclusion, that the judgment in the First Federal Action
fully compensated DSC and that DSC was not entitled to relief
beyond that afforded by the judgment for the future transfer of
its trade secrets.
C. The Issue was Necessary to the Judgment
The conclusion that DSC was already compensated fully by the
judgment and was not entitled to additional relief for future
transfers of its trade secrets was a necessary part of the
district court’s decision to deny DSC’s request to include
21
permanent injunctive relief as part of the final judgment.
Because the final judgment contained an interim injunction only,
it is clear that an integral part of the final judgment was the
district court’s denial of the request for permanent injunctive
relief.9 In order for the district court to conclude that DSC
was not entitled to a permanent injunction to prevent the
transfer of DSC’s trade secrets to third parties, it was
necessary for the district court to decide whether such an
injunction would constitute an improper double recovery. The
district court’s conclusion that DSC was already fully
compensated by the judgment for future transfers to third parties
was thus necessary to its denial of the permanent injunction and
necessary to the judgment. We therefore conclude that all the
requirements of collateral estoppel are met and that the Delaware
Action is barred.
D. DSC’s Arguments
9
We reject DSC’s argument that the denial of permanent
injunctive relief was not necessary to the district court’s final
judgment because the final judgment did not mention the denial of
permanent injunctive relief. DSC itself has previously
recognized that the final judgment did in fact deny it the
permanent injunctive relief that it had requested despite the
fact that the denial of injunctive relief did not appear in the
final judgment. DSC characterized the judgment in its July 3,
1996 “Emergency Motion for Injunction Pending Appeal” as follows:
“The judgment awards DSC’s damages only for the Defendants’
usurpation of a corporate opportunity that belonged to DSC.
Although the judgment incorporates the April 10, 1996 [temporary]
[i]njunction, it denies both permanent injunctive relief and
adequate protection of DSC’s trade secrets pending appeal.”
(Emphasis added).
22
DSC argues strenuously that collateral estoppel does not bar
the Delaware Action. First, DSC argues that the facts are
different in each case because, in Delaware, DSC has sued
different defendants, three of whom did not exist during the
First Federal Action, for a new and different tort that occurred
after the First Federal Action concluded. Specifically, DSC
argues that the First Federal Action was premised on Eames,
Keeler, and Next Level I’s 1994 misappropriation of trade
secrets, and included a claim for lost profits damages only,
whereas the Delaware action is premised on the misappropriation
of trade secrets that occurred after the conclusion of the First
Federal Action when General Instrument II transferred DSC’s trade
secrets to Next Level II in January 1998 and states an entirely
different claim for relief, requesting only unjust enrichment and
disgorgement damages.
These distinctions, while perhaps meaningful for purposes of
res judicata, are irrelevant to the application of collateral
estoppel. It does not matter that the claims in each suit are
different, or that the subject matter of each suit is different,
so long as the issue litigated in each suit is identical. See
Recoveredge, 44 F.3d at 1291 (“Collateral estoppel will apply in
a second proceeding that involves separate claims if the claims
involve the same issue . . . and the subject matter of the suits
may be different as long as the requirements for collateral
estoppel are met.”); RESTATEMENT (SECOND) OF JUDGMENTS § 27 (1982)
23
(“When an issue of fact or law is actually litigated and
determined by a valid and final judgment, and the determination
is essential to the judgment, the determination is conclusive in
a subsequent action between the parties, whether on the same or a
different claim.”) (emphasis added). Nor is it significant that
DSC is suing different defendants in Delaware than it sued in the
First Federal Action because there need not be complete identity
of parties for collateral estoppel to apply. See Meza, 908 F.2d
at 1273; see also Royal Ins. Co. v. Quinn-L Capital Corp., 960
F.2d 1286, 1289, 1291, 1297 (5th Cir. 1992) (applying collateral
estoppel principles in upholding injunction under relitigation
exception even though parties enjoined in second action were not
identical to those in first action that was deemed to have
preclusive effect).10
10
In contrast to the factual circumstances of Royal
Insurance, in the case at bar, the party against whom the
district court has issued an injunction barring future
prosecution of a state court action, DSC, is in fact a party both
to the state court action to be enjoined and to the earlier
action, making the application of collateral estoppel less
troubling because DSC itself previously litigated the issue.
Moreover, despite the fact that the Delaware defendants were not
parties to the First Federal Action, DSC itself is seeking to use
the district court’s judgment in the First Federal Action to
collaterally estop the Delaware defendants from challenging the
fact that the trade secrets at issue were stolen from DSC. In
DSC’s complaint filed in Delaware court, DSC states: “The
judgment in the Texas case operates as collateral estoppel (issue
preclusion) not just as to the defendants in the Texas case, but
also their privies and successors in interest, including the
defendants in this action.”
24
Second, DSC argues that collateral estoppel is inapplicable
because a different legal standard applies in Delaware: The
Delaware Action will be governed by Delaware law, which includes
the Uniform Trade Secrets Act, whereas Texas law, which does not
include the Uniform Trade Secrets Act, governed the First Federal
Action. However, that the Uniform Trade Secrets Act applies in
Delaware will not change the standard necessary to determine the
relevant issue in Delaware—whether DSC is entitled to relief for
the January 1998 transfer of its trade secrets in addition to the
damages it already recovered in the First Federal Action.
Although, as DSC points out, Delaware law allows recovery for
both actual loss and unjust enrichment, it only allows recovery
for “unjust enrichment . . . that is not taken into account in
computing actual loss.” DEL. CODE ANN. tit. 6, § 2003. Thus,
like Texas law, Delaware law does not allow plaintiffs to recover
twice for the same injury. If the Delaware Action is allowed to
proceed, the Delaware court would have to decide whether the
damages DSC requested there are duplicative of the damages DSC
already recovered. This is exactly the legal standard that
applied when the district court in the First Federal Action
decided that DSC’s requested injunctive relief would constitute
an improper double recovery. Thus, the legal standard used by
the district court in the First Federal Action, in deciding that
DSC was not entitled to permanent injunctive relief to prevent
the transfer of DSC’s trade secrets to third parties, is the same
25
as the standard the Delaware court would have to use to determine
whether DSC is entitled to damages for the January 1998 transfer
of DSC’s trade secrets—namely, whether the earlier judgment
provides a complete recovery or whether the January 1998 transfer
would justify additional relief. This determination will hinge
on an examination of the scope of the judgment, an issue already
decided conclusively by the district court in the First Federal
Action.
DSC next argues that because, in the First Federal Action,
the issue was decided in the context of a request for injunctive
relief and because this court reviewed the district court’s
denial of a permanent injunction only for abuse of discretion,
the same legal standards will not apply in Delaware, where the
trial court will have to make the determination of whether the
unjust enrichment damages claimed by DSC are duplicative of the
damages awarded in the First Federal Action without reference to
the standards governing equitable relief or to an abuse of
discretion standard. While it is true, as DSC states, that
“[o]ne might . . . easily fail to obtain an injunction and yet be
entitled later to recover damages at law,” Kelliher v. Stone &
Webster, Inc., 75 F.2d 331, 333 (5th Cir. 1935), it was not the
particular standard of review that prevented DSC from obtaining
its injunction, either here or in the district court, but the
district court’s conclusion, which we agreed was not in error,
that the judgment already compensated DSC for the harm it sought
26
to enjoin. Although the district court decided the issue in the
First Federal Action in the context of a request for a permanent
injunction, the district court ultimately did not decide that DSC
was not entitled to an injunction because injunctions are drastic
remedies or because there were adequate legal remedies that DSC
could seek elsewhere. Instead, as outlined above, the district
court denied the injunction specifically because DSC had already
obtained compensation for the harm DSC sought to enjoin. This
court, in affirming the district court’s denial of injunctive
relief, concluded that the district court had not made clearly
erroneous factual findings or erroneous conclusions of law. The
issue to be decided in Delaware will be the same, and thus it is
irrelevant that the issue was decided in the First Federal Action
in the context of a request for injunctive relief or that we
reviewed the district court’s conclusions for abuse of
discretion.
Finally, to bolster its argument that collateral estoppel
does not bar the Delaware Action, DSC points to several cases in
which courts denied injunctive relief in one suit, but later
allowed a second suit for monetary damages when the conduct that
the plaintiffs sought to enjoin in the first suit actually
transpired. See Lawlor v. National Screen Serv. Corp., 349 U.S.
322 (1955); Kelliher v. Stone & Webster, Inc., 75 F.2d 331 (5th
Cir. 1935); June v. George C. Peterson Co., 155 F.2d 963 (7th
Cir. 1946). These cases are all distinguishable because not one
27
involves a court’s denial of an injunction on the ground that the
movant had already been compensated for the conduct the movant
sought to enjoin. These cases stand for the unremarkable
proposition that the failure to get an injunction in one suit
does not prevent an action for damages when the conduct initially
sought to be prevented happens. None of the cases involves a
denial of an injunction on the ground that the damages awarded
already compensated the movant for the future harm that later
transpired.
E. Summary
DSC pressed the district court in the First Federal Action
to decide DSC’s entitlement to relief for the future transfer of
its trade secrets. We need not (and do not) here decide whether
the many judges who addressed that issue in the First Federal
Action reached the correct result. It is enough to say that the
issue was conclusively determined in that action. We conclude
that DSC is collaterally estopped from arguing in Delaware court
that the January 1998 transfer of DSC’s trade secrets from Next
Level I to Next Level II caused it additional injuries for which
it is entitled to seek monetary compensation. Because it is
clear that collateral estoppel bars the relitigation of this
issue, it would be unjust to allow the Delaware Action to
proceed, which would force the parties to bear the costs of
litigation in Delaware. Thus, we hold that the relitigation
28
exception to the Anti-Injunction Act applies, and therefore
affirm the district court’s preliminary injunction.
IV. CONCLUSION
For the foregoing reasons, we AFFIRM the district court’s
grant of the requested preliminary injunction.
29