Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-08-56296/USCOURTS-ca9-08-56296-0/pdf.json

Parties Involved:
KBC Bank N.V.
Appellee
KXD Technology, Inc.

U.S. Philips Corporation
Appellant

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

U.S. PHILIPS CORPORATION, a 

Delaware corporation,

Plaintiff-Appellant,

No. 08-56296

v.

D.C. No. KBC BANK N.V.,  2:05-cv-08953- Movant-Appellee, R-PLA

and OPINION

KXD TECHNOLOGY, INC., a

California corporation,

Defendant. 

Appeal from the United States District Court

for the Central District of California

Manuel L. Real, District Judge, Presiding

Argued and Submitted

November 2, 2009—Pasadena, California

Filed January 12, 2010

Before: Ronald M. Gould and Carlos T. Bea, Circuit Judges,

and Donald W. Molloy* District Judge.

Opinion by Judge Gould

*The Honorable Donald W. Molloy, United States District Judge for the

District of Montana, sitting by designation. 

925

Case: 08-56296 01/12/2010 ID: 7191245 DktEntry: 27-1 Page: 1 of 8
COUNSEL

Sean A. O’Keefe (argued), O’Keefe & Associates Law Corporation, P.C., Newport Beach, California; Robert W. Pitts,

Law Office of Robert W. Pitts, Irvine, California, for

plaintiff-appellant U.S. Philips Corporation.

James M. Andriola (argued), Reed Smith LLP, New York,

New York; Tony L. Richardson, Reed Smith LLP, Los Angeles, California, for intervenor-appellee KBC Bank N.V.

OPINION

GOULD, Circuit Judge:

Appellant U.S. Philips (“Philips”) appeals the district

court’s April 28, 2008 order granting non-party AppelleeIntervenor KBC Bank’s motion to modify a preliminary

injunction freezing the assets of the underlying defendants.

We vacate the modification order and remand on an open

record for any further proceedings in the district court consistent with this opinion.

I

The present appeal derives from a patent infringement

action filed in 2005 in the United States District Court for the

U.S. PHILIPS v. KBC BANK N.V. 927

Case: 08-56296 01/12/2010 ID: 7191245 DktEntry: 27-1 Page: 2 of 8
Central District of California by Philips against KXD Technology and its affiliates (the “KXD Defendants”). On July 31,

2007, the district court found that the KXD Defendants were

“in the process of liquidating and concealing their assets,” and

granted Philips a temporary restraining order (“TRO”) freezing the KXD Defendants’ assets. The terms of the TRO prohibited the KXD Defendants and “all persons in active

institutions, brokerages, or others in possession or control of

their assets” from “directly or indirectly transferring . . . , concealing, secreting, distributing, disposing of, shipping in any

way or otherwise hiding assets and making [assets] unavailable to [Philips].” In accordance with the Federal Rules of

Civil Procedure, Philips deposited a $50,000 surety bond with

the Clerk of Court as a condition for entry of the TRO. See

Fed. R. Civ. P. 65(c). 

On September 17, 2007, the district court entered a preliminary injunction incorporating the terms of the asset-freeze

TRO. However, on the same date—September 17, 2007—the

district court also entered a default judgment against all KXD

Defendants. The default judgment imposed a permanent

injunction prohibiting the KXD Defendants from infringing

Philips’s patents and awarded Philips treble compensatory

damages in the amount of $87,765,249. The default judgment

did not, however, incorporate the terms of the TRO or preliminary injunction, and it did not impose an ongoing asset freeze

on the KXD Defendants. Why the district court entered a preliminary injunction on the same day that it entered a default

judgment is unclear, and although the district court ordered

the $50,000 bond returned to Philips, the district court did not

state its unequivocal intent to dissolve the preliminary injunction.

The KXD Defendants kept accounts in the Singapore and

United States branches of Appellee-Intervenor KBC Bank.

Between August 1, 2007, and October 26, 2007—after the

TRO had been entered—a series of funds transfers were made

into those accounts. In total, approximately $2.6 million in

928 U.S. PHILIPS v. KBC BANK N.V.

Case: 08-56296 01/12/2010 ID: 7191245 DktEntry: 27-1 Page: 3 of 8
funds were transferred. Some of these transfers may have violated the terms of the TRO, but we cannot be certain, because

Philips has never sought relief in the district court to enforce

the terms of the TRO.1

KBC Bank contends that, despite the TRO, preliminary

injunction, and default judgment entered against the KXD

Defendants, KBC Bank’s contractual and equitable rights,

triggered by possession of the $2.6 million in funds, entitle it

to “set off” the $2.6 million in funds against $2.86 million in

debts owed to KBC Bank by the KXD Defendants. KBC

Bank’s alleged contractual setoff right stems from a 2006

agreement between KBC Bank and certain KXD Defendants.

Whether or not KBC Bank has an equitable right of setoff

depends on what jurisdiction’s banking laws govern the

deposited funds.

Philips, on the other hand, insists that the TRO, preliminary

injunction, and default judgment entitle Philips to the $2.6

million, and that this entitlement is not subordinated to KBC

Bank’s asserted contractual and equitable setoff rights. 

On March 31, 2008, KBC Bank intervened in the underlying lawsuit between Philips and the KXD Defendants, moving

to modify the district court’s September 17, 2007 preliminary

injunction to permit the bank to exercise its setoff rights

regarding the $2.6 million in sequestered funds. The district

court granted KBC Bank’s motion.2 Philips appealed, and we

have jurisdiction over the interlocutory modification order

pursuant to 28 U.S.C. § 1292(a)(1). 

On appeal, KBC Bank argues that Philips’s appeal is moot

because the TRO and preliminary injunction automatically

1KBC Bank asserts that it has presently sequestered the $2.6 million in

funds. Philips has not indicated disagreement with that assertion. 

2Philips sought reconsideration of the modification order before the district court, and its motion for reconsideration was denied. 

U.S. PHILIPS v. KBC BANK N.V. 929

Case: 08-56296 01/12/2010 ID: 7191245 DktEntry: 27-1 Page: 4 of 8
terminated on September 17, 2007, when the default judgment

was entered. Alternatively, KBC Bank argues that the district

court did not abuse its discretion in modifying the TRO and

preliminary injunction because KBC Bank’s equitable and

contractual setoff rights are superior to any rights Philips—a

mere judgment creditor—could acquire to the $2.6 million in

funds. Philips argues that the preliminary injunction remains

in effect, and that in any event, the district court’s modification order was an inequitable nunc pro tunc modification of

the TRO and preliminary injunction that improperly vitiated

whatever rights Philips acquired under those orders.

II

We review the decision to modify a preliminary injunction

for abuse of discretion. Taylor v. Westly, 525 F.3d 1288, 1289

(9th Cir. 2008) (per curiam). A district court “necessarily

abuses its discretion when it bases its decision on an erroneous legal standard,” and therefore issues of law underlying the

modification order are reviewed de novo. Cmty. House, Inc.

v. City of Boise, 490 F.3d 1041, 1057 (9th Cir. 2007). 

[1] Much argument on both sides of this case mistakenly

assumes that the preliminary injunction was extant when

modified. We restate the controlling rule governing the lifespan of a preliminary injunction: A preliminary injunction

imposed according to the procedures outlined in Federal Rule

of Civil Procedure 65 dissolves ipso facto when a final judgment is entered in the cause. See Sweeney v. Hanley, 126 F.

97, 99 (9th Cir. 1903); see also United States ex rel. Bergen

v. Lawrence, 848 F.2d 1502, 1512 (10th Cir. 1988) (“With the

entry of the final judgment, the life of the preliminary injunction came to an end, and it no longer had a binding effect on

any one. The preliminary injunction was by its very nature

interlocutory, tentative and impermanent.” (quoting Madison

Square Garden Boxing, Inc. v. Shavers, 562 F.2d 141, 144 (2d

Cir. 1977))); Fundicao Tupy S.A. v. United States, 841 F.2d

1101, 1103 (Fed. Cir. 1988) (“[A]lthough a preliminary

930 U.S. PHILIPS v. KBC BANK N.V.

Case: 08-56296 01/12/2010 ID: 7191245 DktEntry: 27-1 Page: 5 of 8
injunction is usually not subject to a fixed time limitation, it

is ipso facto dissolved by a dismissal of the complaint or the

entry of a final decree in the cause.”) (internal quotation

marks omitted); Cypress Barn, Inc. v. W. Elec. Co., 812 F.2d

1363, 1364 (11th Cir. 1987); 11A Charles Alan Wright,

Arthur R. Miller & Mary K. Kane, Federal Practice and Procedure § 2947 (2005). This principle stems from the very purpose of a preliminary injunction, which is to preserve the

status quo and the rights of the parties until a final judgment

issues in the cause. See Univ. of Tex. v. Camenisch, 451 U.S.

390, 395 (1981) (“The purpose of a preliminary injunction is

merely to preserve the relative positions of the parties until a

trial on the merits can be held.”); Sierra On-Line, Inc. v.

Phoenix Software, Inc., 739 F.2d 1415, 1422 (9th Cir. 1984)

(“A preliminary injunction . . . is not a preliminary adjudication on the merits but rather a device for preserving the status

quo and preventing the irreparable loss of rights before judgment.”). 

[2] Here, Philips was awarded a default judgment against

all defendants in the underlying action on September 17,

2007. The preliminary injunction against the KXD Defendants dissolved at that time. For that reason, it seems to us

incorrect to entertain argument about whether the district

court’s subsequent modification order was permissible. At the

time the district court entered that order, there was no preliminary injunction to be modified.

However, we reject KBC Bank’s argument that the dissolution of the preliminary injunction renders moot this appeal.

The district court entered an order modifying the preliminary

injunction at KBC Bank’s behest. That modification order is

still in effect. However, a modification order entered after a

preliminary injunction has dissolved is void ab initio, because

at that time there was no preliminary injunction to be modified. A district court cannot prospectively modify an injunction that is not in effect, nor may a district court modify a

preliminary injunction nunc pro tunc retroactively to expand

U.S. PHILIPS v. KBC BANK N.V. 931

Case: 08-56296 01/12/2010 ID: 7191245 DktEntry: 27-1 Page: 6 of 8
or vitiate rights the parties have already accrued under an

injunction. See Singh v. Mukasey, 533 F.3d 1103, 1110 (9th

Cir. 2008) (“[T]he power [of a nunc pro tunc order] is a limited one, and may be used only where necessary to correct a

clear mistake and prevent injustice. It does not imply the ability to alter the substance of that which actually transpired or

to backdate events to serve some other purpose.” (quoting

United States v. Sumner, 266 F.3d 1005, 1009-10 (9th Cir.

2000))); Cypress Barn, 812 F.2d at 1364 (“The failure of a

court to act, or its incorrect action, can never authorize a nunc

pro tunc entry. If a court does not render judgment or renders

one which is imperfect or improper, it has no power to remedy any of these errors or omissions by treating them as clerical misprisions.”); Crosby v. Mills, 413 F.2d 1273, 1277 (10th

Cir. 1969) (“An order may be entered nunc pro tunc to make

the record speak the truth but it cannot supply an order which

in fact was not previously made.”). 

[3] If the preliminary injunction is dissolved, then a modification of that preliminary injunction cannot stand, because it

was entered in error. The district court’s modification order

was not entered until April 28, 2008, after the preliminary

injunction had dissolved because of the entry of final judgment. The modification order is therefore void, and we vacate

it.3

[4] Congress empowers us to “remand the cause and direct

the entry of such appropriate judgment, decree, or order, or

require such further proceedings to be had as may be just

under the circumstances.” 28 U.S.C. § 2106. Both parties

have an apparent claim to the $2.6 million in funds: Philips

3Our holding does not affect Philips’s continuing ability to seek damages, through contempt proceedings, for any violations of the TRO and

preliminary injunction that may have occurred while those orders were in

effect. If any time limit for seeking such relief creates a barrier to a claim

by Philips, Philips may seek equitable tolling of any applicable limitations

period. Because that issue is not before us now, we express no view on

it.

932 U.S. PHILIPS v. KBC BANK N.V.

Case: 08-56296 01/12/2010 ID: 7191245 DktEntry: 27-1 Page: 7 of 8
as a judgment creditor, and KBC Bank as a lender. Despite

the parties’ entreaties, we decline to determine whose claim

is superior at this time, because material issues of fact remain

unanswered.4 Cf. Gemco Latinoamérica, Inc. v. Seiko Time

Corp., 61 F.3d 94, 101 (1st Cir. 1995) (concluding that there

was no way to determine whether a bank’s claim to funds was

superior to the petitioner’s claim “short of a remand, extensive further briefing and probably further fact-finding”). The

question whether Philips has a right as a judgment creditor

that is superior to rights of the KBC Bank to funds that originated from the KXD Defendants cannot be resolved until factual disputes are resolved at an evidentiary hearing. That

evidentiary hearing must arise in the course of a proceeding

brought by the parties to adjudicate explicitly their claims to

the funds. Such a proceeding is not now before us. 

III

[5] Because the temporary restraining order and preliminary injunction dissolved when the default judgment issued,

the district court’s subsequent modification order is void ab

initio and we vacate it. We remand on an open record for further proceedings in the district court not inconsistent with this

opinion. 

VACATED and REMANDED.

4These issues include: (1) when KBC Bank first had notice of the TRO,

(2) whether Philips has properly executed its judgment in regard to the

funds, (3) what jurisdiction the funds were transferred from, (4) what

jurisdiction the funds were transferred to, (5) who transferred the funds,

(6) which defendant’s account received the funds, (7) the respective rights

of the KXD Defendants to funds deposited in the KBC Bank accounts in

question, and (8) possibly other facts we do not list here, but that the parties or the district court may view as relevant on remand. 

U.S. PHILIPS v. KBC BANK N.V. 933

Case: 08-56296 01/12/2010 ID: 7191245 DktEntry: 27-1 Page: 8 of 8