Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-89-03069/USCOURTS-ca10-89-03069-0/pdf.json

Parties Involved:
Equifax Services, Inc.
Appellee
Steven A. Hitz
Appellant

Document Text:

P.UB?iI--SH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

EQUIFAX SERVICES, INC., d/b/a EQUIFAX ) 

COMMERCIAL SPECIALISTS f/k/a WHITE & ) 

WHITE INSPECTION AND AUDIT SERVICE, INC.,) 

) 

Plaintiff-Appellee, ) 

·) 

v. ) 

) 

STEVEN A. HITZ, ) 

) 

Defendant-Appellant. ) 

. FILED 

Uoitcd States Coun of Appeals 

Tenth Cirruit 

JUN 4 1990 --~ 

AOBERT L. HOECKER 

· Clerk . _, 

No. 89-3069 

Appeal from the United States District Court 

for the District of Kansas 

(D.C. No. 89-2047-S) 

Robert Vogel (Kris Arnold on the brief) of Evans & Mullinix, 

Kansas City, Kansas, for Defendant-Appellant. 

w. Robert King of Morris & Larson, Overland Park, Kansas, for 

Plaintiff-Appellee. 

Before LOGAN, BARRETT, and EBEL, Circuit Judges. 

LOGAN, Circuit Judge. 

Appellate Case: 89-3069 Document: 01019855163 Date Filed: 06/04/1990 Page: 1 
In this diversity action, defendant.Steven A. Hitz appeals 

under 28 u.s.c. § 1292(a) from a-preliminar.y in.junction issued in 

,...,f.avor "Of· plaintiff~· Elquifa=x-Serv-ices, ·Tnc. (-Equi-fax) ,.-. ,prohibiting 

Hitz from violating covenants not to compete with his former 

employer, White & White Inspection and Audit Service, Inc. (White 

& White), plaintiff's predecessor. Defendant also challenges the 

district court's exercise of personal jurisdiction over him, the 

amount of the bond the court required plaintiff to post, and the 

denial of defendant's motion to transfer venue. We affirm. 

White & White was a Missouri corporation, with its principal 

offices in Kansas, which provided survey and audit services for 

insurance companies. Defendant was employed by White & White as a 

branch manager in southern California over the course of several 

years. In 1988, purchasers of the stock of White & White merged 

the corporation with Equifax, a Georgia corporation. Equifax 

conducts the former business of White & White through Equifax 

Commercial Specialists, an unincorporated division with its 

principal offices in Kansas. Stating that he objected to the 

merger, defendant resigned to become the president and a director 

of Golden Coast Investigative Services, a competing 

organized shortly before defendant's resignation. 

wife owns ninety-five percent of Golden Coast • 

enterprise 

Defendant's 

.. ,, ... ., ... Equi.fax,,._br.ought .. suit-.. i-n.a .Kansas state court for damages and 

injunctive relief, alleging that defendant was violating covenants 

in his employment contract with White & White prohibiting him from 

competing in California, either alone or in concert with other 

former White & White personnel, for a period of two years after 

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Appellate Case: 89-3069 Document: 01019855163 Date Filed: 06/04/1990 Page: 2 
his departure, and prohibiting him .. from using confidential 

information obtained as a White & White .employee. Defendant 

•removed· ·the-" case· ·

0 -to·· ·. the· United· St-at-es,-Di·st·rict Court for the 

District of Kansas, where the district court, after a hearing, 

granted Equifax a preliminary injunction that prohibited defendant 

from violating the restrictive covenants in his employment 

contract, required Equifax to post only a $10,000 bond, and denied 

defendant's motion for a transfer of venue to the Central District 

of California. Defendant challenges each of these actions on 

appeal, as well as the district court's exercise of personal 

jurisdiction over him. 

I 

After the hearing on the preliminary injuction, the district 

court made findings of fact from which it concluded that it had 

personal jurisdiction over defendant. The material facts are not 

in dispute, therefore, we review the district court's conclusion 

de nova. See Rambo v. American Southern Ins. Co., 839 F.2d 1415, 

1417 (10th Cir. 1988). 

A 

In a diversity case such as this one, the district court's 

exercise of personal jurisdiction must comport with the standards 

of both the forum state's long-arm statute and the United States 

-·-- '"'"""Const1t.u-tion .•.. , .. Id~-, a.t.,1416; ... see. Fed •. R •.. C.iv. P... 4(e). Here, these 

inquiries are essentially the same, because "[t]he Kansas long arm 

statute [Kan. Stat. Ann. § 60-308(b)] is liberally construed to 

assert personal jurisdiction over nonresident defendants to the 

full extent permitted by the due process clause of the Fourteenth 

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Appellate Case: 89-3069 Document: 01019855163 Date Filed: 06/04/1990 Page: 3 
·,·Amendment to the U .s. Constitution." Volt Del ta Resources, Inc. 

v. Devine, 241 Kan. 775, 740 P.2d 1089, 10.9.2 .. (l._987). 

For ,.pu.rposes.., . .,,of. ... per.sonal. jurisdiction, ,." . .the constit.ut.ional 

touchstone remains whether the defendant purposefully established 

'minimum contacts' in the forum State," Burger King Corp. v. 

Rudzewicz, 471 U.S. 462, 474 (1985) (quoting International Shoe 

Co. v. Washington, 326 U.S. 310, 316 (1945)), and "the defendant's 

conduct and connection with the forum State are such that he 

should reasonably anticipate being haled into court there," id. 

(quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 

(1980)). When specific jurisdiction1 is based upon a contractual 

disput~, we must evaluate "prior negotiations and contemplated 

future consequences, along with the terms of the contract and the 

parties' actual course of dealing ••• in determining whether the 

defendant purposefully established minimum contacts with the 

forum." Id. at 479. "(P]arties who 'reach out beyond one state 

and create continuing relationships and obligations with citizens 

of another state' are subject to regulation and sanctions in the 

other State for the consequences of their activities." Id. at 473 

(quoting Travelers Health Ass'n v. Virginia, 339 U.S. 643, 647 

(1950)). And if a defendant's actions cause foreseeable injuries 

in another state, it is, "at the very least, presumptively 

_.xeasonable for [the defendant] to be called to account there for 

such injuries." Id. at 480. 

1 This is a case of specific jurisdiction because this litigation 

arises out of or is related to the defendant's contacts with his 

Kansas employer. See Helicopteros Nacionales de Colombia, S.A. v. 

Hall, 466 U.S. 408, 414 & n.8 (1984). 

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Appellate Case: 89-3069 Document: 01019855163 Date Filed: 06/04/1990 Page: 4 
-Defendant's .. contacts · wi·th Kansas arise mainly from· the fact 

that he was employed by a corporation. with. its principal offices 

· - . ·--"·="· ·•- in""0&ansas .• 2-N !I'he·-,di-s-br-ict:..-,.court.7 ._. ,.in a.,,;br-ief analysis, .. concluded 

that jurisdiction over defendant is proper because "defendant 

chose to be employed by a corporation with its principal place of 

business in Kansas." IR. tab 18, at 6. Because a contract with 

an out-of-state party cannot alone justify personal jurisdiction 

in the foreign state, Burger King, 471 U.S. at 478, this statement 

is too sweeping. But we believe that the nature of defendant's 

relationship with his Kansas employer supports the district 

court's exercise of personal jurisdiction over defendant in Kansas 

in this dispute arising out of that relationship. 

Although defendant worked solely in southern California, as a 

branch manager in charge of White & White offices there, his only 

direct supervision came from White & White employees in Kansas. 

Defendant had regular contact with White & White employees in 

Kansas, both by telephone, mail, and through electronic data 

communications. Defendant's customers were invoiced from and made 

payment directly to White & White in Kansas. Defendant and his 

personnel were paid directly by White & White from Kansas, and 

2 For diversity purposes, this makes White & White a citizen of 

Kansas. 28 u.s.c. § 1332(c). We recognize that White & White has 

merged into Equifax and now operates as an unincorporated division 

with. its principal c5ffices in Kansas. See Brunswick Corp. v. 

Jones, 784 F.2d 271, 275 n.3 (7th Cir. 1986) (for diversity 

purposes,· unincorporated division's citizenship is same as 

corporation of which it is a part). There is still diversity, of 

course, because Equifax is a Georgia corporation. And for 

purposes of personal jurisdiction, we attach no significance to 

the mere change in corporate form. Hitz's contacts with Kansas 

and Kansas' interests in this dispute are essentially unchanged by 

the merger. 

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Appellate Case: 89-3069 Document: 01019855163 Date Filed: 06/04/1990 Page: 5 
that - company's Kansas off ice reimbursed .. expenses for ... defendant' s 

offices and provided those offices with.necessary materials and 

·.,,.,:supplies. ·='··icDefiendant arlsow1negoti-ated" ,the·, terms·~of his employment 

contract directly with White & White's president, a contract which 

paid him $120,000 to $140,000 per year over his last two years of 

employment. 

There were no intermediaries between defendant and his 

employer in Kansas. Cf. Corporate Investment Business Brokers v. 

Melcher, 824 F.2d 786, 789 n.4 (9th Cir. 1987) (lack of 

intermediary between resident franchisor and nonresident 

franchisee supported jurisdiction over franchisee). Indeed, 

defendant admitted at the hearing that he knew that any disputes 

regarding his employment contract would originate in Kansas. R. 

Supp. 1, at 52. See also FMC Corp. v. Varanos, 892 F.2d 1308, 

1313-14 (7th Cir. 1990) (jurisdiction over nonresident employee in 

suit by resident employer); Union Carbide Corp. v. UGI Corp., 731 

F.2d 1186, 1190 (5th Cir. 1984) (same); Inter-Collegiate Press, 

Inc. v. Myers, 519 F. Supp. 765, 768-69 (D. Kan. 1981) (same; 

defendant employee "dealt directly with the home office rather 

than through a regional supervisor"); cf. Pittsburgh Terminal 

Corp. v. Mid Allegheny Corp., 831 F.2d 522, 526-29 (4th Cir. 1987) 

(jurisdiction over nonresident director in shareholder derivative 

--· ·- . , suit;..-on,.beha-lf ,of.,,J!-esident .. corpora,tion).; T.M. Hylwa, M.D., Inc. v. 

Palka, 823 F.2d 310, 314-15 (9th Cir. 1987) (jurisdiction over 

nonresident accountant in suit by resident client). 

Defendant's only significant physical presence in Kansas in 

connection with his employment was to attend a training session 

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Appellate Case: 89-3069 Document: 01019855163 Date Filed: 06/04/1990 Page: 6 
when he was:still an independent contractor working for Wtlite & 

White, and when he was summoned .. to.,White.& White's Kansas offices 

employment duties were carried out exclusively in California, 

however, cannot defeat ju.risdiction. See Burger Kirig, 471 U.S. at 

476. "[T]he relationship among the defendant, the forum, and the 

litigation •.. [is] the central concern of the inquiry into 

personal jurisdiction." Shaffer v. Heitner, 433 U.S. 186, 204 

(1977). The underlying dispute arises from defendant's 

relationship with his employer, and that relationship was a 

California-Kansas one. Cf. Melcher, 824 F.2d at 789-90 

(nonresident defendant-franchisee's forum related activity was its 

relationship with the resident plaintiff-franchisor). Defendant's 

two trips to Kansas merely reinforce the interstate character of 

that relationship. And the fact that defendant's employment 

contract provided it would be governed by Kansas law also 

reinforces defendant's "deliberate affiliation ·with the forum 

State and the reasonable forseeability of possible litigation 

there." Burger King, 471 U.S. at 482. 

Defendant's brief alleges that jurisdiction cannot be 

predicated upon his contractual relationship with his employer 

because of White & White's "overweening bargaining power," citing 

... "' .. Bur.ger . King, .. 471 .u.s .. ,_._,at .. .486 ......... B.ut .. defendant'.s ... claim of 

overweening bargaining power is not supported by the record. 

Defendant was a highly compensated management employee. That his 

attempted negotiptions on his employment contract were fruitless 

does not mean that his free will was overcome. See id. at 484-85. 

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-. ·"Absent . compelling- . :consider at-ions, a . defendant who has 

purposefully derived commercial.benefit .fr.om his ... affiliations in a 

··"""· ,,.f.or-um · may--not- ,,def ea-trt_... jur-isdict-ion.,"tJ.her,e, .. ,simpl-y,.,.,~,because of his 

adversary's greater net wealth." Id. at 483 n.25 (citation 

omitted). 

Defendant's primary argument for lack of jurisdiction is that 

none of his contacts with Kansas were purposeful, because they 

were required by his employer. But when forum contacts are a 

natural result of a contractual relationship, it indicates 

purposeful affiliation with the forum through an interstate 

contractual relationship. See Burger King, 471 U.S. at 479-81; 

FMC, 892 F.2d at 1313-14; Cutco Indus., Inc. v. Naughton, 806 F.2d 

361, 368 (2d Cir. 1986). 

B 

"Once it has been decided that a defendant purposefully 

established minimum contacts within the forum State, these 

contacts may be considered in light of other factors to determine 

whether the assertion of personal jurisdiction would comport with 

'fair play and substantial justice.'" Burger King, 471 U.S. at 

476 (quoting International Shoe, 326 U.S. at 320); see Asahi Metal 

Indus. Co. v. Superior Court, 480 U.S. 102, 113-16 (1987). But 

"where a defendant who purposefully has directed his activities at 

.~forum , ... r:,es-ident-s,,,._;.seek-s to .. defea.t .. ..,jur.isdiction, .he mus.t .. present a 

compelling case that the presence of some other considerations 

would render jurisdiction unreasonable." 

477. In this regard, we will consider 

Burger King, 471 U.S. at 

"'the burden on the 

defendant, ' 'the forum State's interest in adjudicating the 

-aAppellate Case: 89-3069 Document: 01019855163 Date Filed: 06/04/1990 Page: 8 
.. . dispute,' 'the plaintiff's .. interest. in' obtaining. convenient· and 

effective relief,' 'the interstate. judiciaL system.' s interest in 

"'''···0btain.ing,.the,.most,,.eff .. ici.e,nt .. -lieso1ut,i0n,,of ..... con,t.,r.over.si.es, ' .. and the 

'shared interest of the several States in furthering fundamental 

substantive social policies.'" 

Volkswagen, 444 U.S. at 292). 

Id. (quoting World-Wide 

Defendant's assertion that litigation in Kansas is overly 

burdensome has already been considered and rejected by the 

district court's denial of defendant's motion to transfer venue. 

See Burger King, 471 U.S. at 483-84. And the state of Kansas has 

"a legitimate interest in holding [defendant] answerable on a 

claim related to" his contacts with that state. Keeton v. Hustler 

Magazine, Inc., 465 U.S. 770, 776 (1984). 

" [ T ]he process of resolving potentially conflicting 

'fundamental social policies' can usually be accommodated through 

choice-of-law rules rather than through outright preclusion of 

jurisdiction in one forum." Burger King, 471 U.S. at 483 n.26 

(citation omitted). As we discuss below, the Kansas choice of law 

rules applicable in this case appear to be mechanical, not 

balancing the policies of the interested states. Nevertheless, 

the parties themselves have agreed upon the proper balance between 

the competing state policies by choosing Kansas law to govern 

·- ... their .. c.ontract. 

II 

There are four prerequisites for the grant of a preliminary 

injunction: 

"(l) substantial likelihood that the movant will 

eventually prevail on the merits; (2) a showing that the 

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movant .will suffer ,_irreparable ··· injury. unless the 

injunction issues; (3) proof that the threatened injury 

to the movant out.weighs ... whateve.r damage the proposed 

injunction may cause the opposing party; and (4) a .. •k· ,showing ... that ... the--.i-njunc,tion, .. if .. issued, .. ,would.,not be 

adverse to the public interest." 

Lundgrin v. Claytor, 619 F.2d 61, 63 (10th Cir. 1980). We will 

reverse the district court's grant of a preliminary injunction 

only for abuse of discretion. Id. 

A 

On the issue of likelihood of success on the merits, 

defendant argues that the district court erred in applying Kansas 

law to determine the validity of the covenant not to compete. 

Defendant contends that the covenant is unenforceable in 

California by virtue of Cal. Bus. & Prof. Code S 16600; he argues 

that the district court should have disregarded the contractual 

choice of Kansas law and applied California law because, as the 

emloyee's state of residence and performance under the contract, 

California has a materially greater interest in applying its law 

to invalidate the covenant not to compete, citing Restatement 

(Second) of Conflict of Laws S 187(2)(b) (1971 & Supp. 1989). 

A diversity court must apply the choice-of-law rules of the 

forum state, Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 

496 (1941), including the forum state's rule as to whether a 

contractual choice-of-law provision is enforceable, see Interfirst 

Bank Clifton v. Fernandez, 853 F.2d 292, 294 (5th Cir. 1988). In 

a case in which there was no contractual choice-of-law clause, the 

Kansas Supreme Court refused to follow the Second Restatement's 

balancing of the competing policies of interested states and opted 

to adhere to the lex loci contractus rule when it reflected Kansas 

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public .. policy. SL Paul Surplus· Lines··:Ins. co·;_-v. International 

Playtex, Inc., 245 Kan. 258~ 777 P.2d 1259, 1267~]0 (1989}, cert. 

- -, ... , .,denied,,;_;.1,10 Sr-Ct.,,7,58 .. (.,l,9.!rn.) ;-- see.,."also.,.Missou.z;.L.. Pac., R.R. Co. v. 

Kansas Gas & Elec. Co., 862 F.2d 796, 798 n.l (10th Cir. 1988). 

Although we could find no Kansas cases on point, we believe the 

Kansas courts would likewise refuse to weigh any conflict between 

Kansas' and California's laws and policies, if indeed there is 

conflict between them, 3 and would apply Kansas law in this 

litigation as agreed to by the parties in their contract. 

Although the covenant at issue covers a broad geographic 

region, Equifax apparently is not attempting to enforce it to .the 

full extent of its language. In similar circumstances, the Kansas 

Supreme Court has upheld the right to enforce an overly broad 

covenant to the extent reasonably necessary to carry out the 

protective intent of the parties. Foltz v. Struxness, 168 Kan. 

714, 215 P.2d 133, 137-38 (1950). We think it likely would do so 

in the circumst~nces before us. 

Defendant challenges Equifax' likelihood of success on the 

merits on a second ground. Defendant's employment contract with 

White & White provided that "[t]he duties and obligations of the 

[defendant] under this agreement shall inure [to] the benefit of 

the successors and assigns of White & White." I R. tab 15, 

_ ...exhibit- .A, .. _ -,at ~--- 11 10_(.f >-·- Nonetheless, defendant argues that 

3 It is not clear that California law would invalidate the 

restrictive covenants at issue, insofar as enforcement is 

attempted here. See discussions of California law in Medtronic, 

Inc. v. Gibbons, 684 F.2d 565, 568 (8th Cir. 1982); and 

Hollingsworth Solderless Terminal Co. v. Turley, 622 F.2d 1324, 

1329-40 (9th Cir. 1980). 

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Equifa.x cannot .. enforce the covenant not to compete, as White & 

White's successor, because personal service. contracts are not 

.. , ·· ~- ·--assignable·.- - "'Tl:lis· ·a··r-gume-nb..,.is- -flawed,,because- i-t.;,,a.ssumes,·.a contract 

is only assignable in tote. A contract consists of a bundle of 

rights and duties, and whether rights are assignable or duties 

delegable depends on the particular rights and duties at issue. 

See generally Restatement (Second) of Contracts§ 316 comment c 

(1981). Although an employee's duty to perform under an 

employment contract generally is not delegable, see id. § 318(2) & 

comment c, illustration 5, the right to enforce a covenant not to 

compete generally is assignable in connection with the. sale of a 

business, see id. S 317 comment d, illustration 6. In the case of 

a merger, as here, the surviving corporation automatically 

succeeds to the rights of the merged corporations to enforce 

employees' covenants not to compete. See generally Alexander & 

Alexander, Inc. v. Koelz, 722 S.W.2d 311, 313 (Mo. Ct. App. 1986); 

6 w. Fletcher, Fletcher Cyclopedia of the Law of Private 

Corporations S 2579.3, at 739 {J. Reinholtz & M. Wasiunec rev. ed. 

1989). 

B 

Defendant next argues that the district court erred in 

concluding that Equifax was being irreparably harmed, that the 

.. -·=~-- , ~, ..... ,on-1.y. ,ha-rm. Equ.ifax. .. proffered. was .a .loss of. customers, and that this 

is readily compensable through money damages. There is language 

in a recent Kansas Court of Appeals case, Wichita Wire, Inc. v. 

Lenox, 11 Kan. App. 2d 459, 726 P.2d 287, 291-92 (Ct. App. 1986), 

in which there was no noncompete agreement, suggesting that a loss 

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.. of, established business is··.·insufficient to establish .. irreparable 

harm. We are not fully satisfied~~hat the Kansas Supreme Court 

.. - .,;,'.c; .. ..W<DU-1-d,s.;,ca.pply ... '' t-ha t.c r,u,le ... :i,n,·Aac-Case, ,1-ike. the. one ... ,b.e,f or e•c.US. . In any 

event, the doctrine of Erie R.R. Co. v. Tompkins, 304 U.S. 64 

(1938), does not apply to preliminary injunction standards, 11 

C. Wright & A. Miller, Federal Practice and Procedure§ 2943, at 

390 (1973), and we believe that whether money damages will 

constitute an adequate remedy requires consideration of the 

difficulty of proving damages with any reasonable degree of 

certainty. Restatement (Second) of Contracts§ 360(a) & comment 

b, at 172 ("The breach of a covenant not to compete may cause the 

loss of customers of an unascertainable number or im~ortance."); 

see also Foundry Servs., Inc. v. Beneflux Corp., 206 F.2d 214, 216 

(2d Cir. 1953) (L. Hand, J., concurring). The district court 

credited testimony that "the insurance investigation business is 

based on personal contacts and a knowledge of the special needs 

and requirements of customers," IR. tab 18, at 11, a fact which 

complicates any damage estimate, see Medtronic, Inc. v. Gibbons, 

684 F.2d 565, 566, 569 (8th Cir. 1982). The district court found 

irreparable harm based upon "evidence suggest[ing] that it is 

impossible to precisely calculate the amount of damage [plaintiff] 

will suffer," IR. tab 18, at 12. This finding is not clearly 

er r.oneous. .. . o•, 

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C 

The defendant makes furthe.r ... challenges. to the district 

,,,o;·c:ourt'1°s·, ... assessment., oE, ,the-,recquisite, e,lements. for, ··.a .. ·preliminary 

injunction and the evidence bearing upon them, but our review of 

the record reveals no abuse of discretion. Therefore, we affirm 

the grant of the preliminary injunction. 

III 

Defendant contends that the district court abused its 

discretion in requiring Equifax to post only $10,000 in security 

under Fed. R. Civ. P. 65(c). The rule requires a bond to secure 

damages from a wrongful injunction only "in such sum as the court 

deems proper," id., therefore, "the trial judge has wide 

discretion in the matter of requiring security," Continental Oil 

Co. v. Frontier Refining Co., 338 F.2d 780, 782 (10th Cir. 1964). 

At the hearing on the preliminary injunction, defendant presented 

no evidence on the extent to which he would be harmed by an 

injunction. Therefore, we will not speculate that $10,000 is 

insufficient. 

IV 

Finally, defendant challenges the district court's failure to 

grant his motion for a transfer of venue to the United States 

District Court for the Central District of California. "It is 

. ., ,,,~,...,.,. entirely. settled,..that .,an .... order .... granting .... or. denying a . motion to 

transfer under 28 u.s.C.A. § 1404(a) is interlocutory and not 

immediately appealable under 28 U.S.C.A. § 1291." 15 C. Wright, 

A. Miller & E. Cooper, Federal Practice and Procedure§ 3855, at 

472 & n.l (2d ed. 1986 & Supp. 1990) (citing cases). Even if we 

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· have.discretion to review such an order in the·course of a. review 

of a preliminary injunction, see,_.~,. NoxelLCorp. v. Firehouse 

... ,,,,No ...... 1 Ba,r ..... a~Que, .• Res·.taur:ant, .. ,760· F.c.. 2d 312, 314':"!15 ..• (D. C. ,Cir. 1985),. 

we see no compelling reasons to do so in this case, see Howard 

Elec. & Mechanical Co. v. Frank Briscoe Co., 754 F.2d 847, 850-51 

(9th Cir. 1985). 

AFFIRMED. 

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