Opinion ID: 513300
Heading Depth: 1
Heading Rank: 3

Heading: Dismissal on the Merits Following a Preliminary

Text: Injunction Hearing 16 Following expedited discovery and a four-day hearing on the motion for a preliminary injunction, the district court dismissed counts I and VI of H & W's complaint, the breach of contract and attempted monopolization claims. 687 F.Supp. at 277. The court did not formally consolidate the preliminary injunction hearing with a trial on the merits under Fed.R.Civ.P. 65(a)(2). Neither party had notice that the court would rule on the merits following the preliminary injunction hearing. 17 Rule 65(a)(2) permits a trial court to order that the trial on the merits be advanced and consolidated with a hearing on an application for a preliminary injunction. Although no formal order of consolidation is required, it is well-settled that there must be some notice to the parties that the trial court will rule on the merits following the preliminary injunction proceeding. Hollis v. Itawamba County Loans, 657 F.2d 746, 749 (5th Cir. Unit A 1981); Warehouse Groceries Management, Inc. v. Sav-U-Warehouse Groceries, Inc., 624 F.2d 655, 657-58 (5th Cir.1980); Nationwide Amusements, Inc. v. Nattin, 452 F.2d 651 (5th Cir.1971). 18 The notice requirement arises because ordinarily a preliminary injunction hearing does not provide a complete adjudication of the merits of the case. Indeed, the Supreme Court stresses that the preliminary injunction proceedings are generally less formal and the evidence is less complete because a party is not required to prove his case in full. Thus, it is generally inappropriate for a federal court at a preliminary injunction stage to give a final judgment on the merits. University of Texas v. Camenisch, 451 U.S. 390, 395, 101 S.Ct. 1830, 1834, 68 L.Ed.2d 175 (1981). 19 Formosa recognizes the general rule and does not dispute that neither party had notice that the trial court would dispose of the case on the merits after the preliminary injunction proceeding. Formosa nevertheless contends that the court's action was proper.
20 First, Formosa argues that the district court has unquestionable authority to grant final relief whenever the evidence demonstrates that a party's claim is without merit, even in the context of a preliminary injunction hearing. Formosa relies on Standard Oil Company of Texas v. Lopeno Gas Co., 240 F.2d 504, (5th Cir.1957), where this Court stated that 21 [i]t is settled beyond controversy that if, at the hearing on an application for preliminary injunction, the evidence shows clearly that the plaintiff has not stated a claim upon which relief can be granted and cannot state such a claim, the court should dismiss the plaintiff's complaint. That long established practice is akin to the more modern practice of granting a summary judgment when there is no genuine issue of material fact. 22 240 F.2d at 510 (citations omitted). Formosa is incorrect in concluding that the quoted language in Lopeno Gas validates the district court's action in this case. 4 23 Lopeno Gas is distinguishable from the present case because it presented no material issues of fact; the dispute center[ed] entirely about the validity and construction of a written contract. 240 F.2d at 509-10. In contrast, the district court here weighed the evidence presented in the preliminary injunction hearing, made determinations regarding credibility of the witnesses, and then resolved issues of material fact. After deciding the fact issues, the court concluded that Formosa was entitled to judgment on counts I and VI as a matter of law. Although the court employed the language of a summary judgment determination, its decision does not comport with the court's reasoning in Lopeno Gas or with standard summary judgment procedures. 24 Moreover, there is little support for Formosa's argument that a summary judgment ruling is appropriate following a preliminary injunction hearing without notice to the parties that a decision on the merits will occur. 5 Other courts and leading commentators question this practice. Communications Maintenance, Inc. v. Motorola, Inc., 761 F.2d 1202, 1205 (7th Cir.1985); Progress Development Corporation v. Mitchell, 286 F.2d 222, 232-34 (7th Cir.1961); C. Wright and A. Miller, 11 Federal Practice and Procedure: Civil Sec. 2950 at 492-493 (1973). The primary objection is that the court is rendering sua sponte summary judgment without providing notice or conducting a summary judgment hearing as required by Fed.R.Civ.P. 56. In addition, the issues which are considered in the preliminary injunction hearing are entirely different from the focus of a summary judgment adjudication. Thus, it is a risky approach to assume that the often incomplete evidence adduced at a preliminary injunction hearing is sufficient to determine whether a claimant is entitled to judgment as a matter of law. Communications Maintenance, 761 F.2d at 1205.
25 As a second ground for upholding the district court's dismissal, Formosa argues that H & W has failed to demonstrate prejudice due to the lack of notice that the court would rule on the merits following the preliminary injunction proceeding. A party who does not receive proper notice is entitled to a further hearing on the merits unless the failure to afford notice has no prejudicial effect on the consideration of its claim. Wohlfahrt v. Memorial Medical Center, 658 F.2d 416, 418 (5th Cir. Unit A 1981); Eli Lilly & Company v. Generix Drug Sales, Inc., 460 F.2d 1096, 1106 (5th Cir.1972). 26 To determine whether H & W was prejudiced by the lack of notice that the court would dispose of its claims on the merits, we must look to the record and determine whether H & W was afforded a full and complete hearing on the dismissed claims. The fact that H & W had the opportunity to present some evidence on the underlying merits of the case is not enough. Indeed, we held in Nationwide Amusements that a district court erred in dismissing a suit on the merits after a preliminary injunction hearing without notice to the parties even when a number of witnesses appeared ... [and] the case was developed in some detail, [and] the issues presented by the motion for preliminary injunction are similar if not the same as those raised for final determination. 452 F.2d at 652. 27 There is ample evidence which establishes that H & W was not provided its full day in court at the preliminary injunction hearing. Instead, the time allowed for discovery and the time allotted for the hearing itself precluded an adequate exploration of H & W's breach of contract and attempted monopolization claims. 28 The parties had conducted discovery for only six weeks before these counts were dismissed by the district court. 6 The transcript at the hearing indicates that the parties were pressured to present their case as briefly as possible, focusing on the factors relevant to the preliminary injunction determination. The transcript also shows that H & W's counsel explicitly informed the court that he was not prepared to present the attempted monopolization claim in full at the preliminary injunction hearing. 7 29 Perhaps most significantly, H & W had filed a demand for jury trial prior to the preliminary injunction proceeding. Fed.R.Civ.P. 65(a)(2) explicitly states that the provisions allowing consolidation of a preliminary injunction hearing with a hearing on the merits shall be so construed and applied as to save to the parties any rights they may have to trial by jury. This Court has held that a hearing on a preliminary injunction may be consolidated with a hearing on the merits provided the right to trial by jury is preserved. Bowles v. Bennett, 629 F.2d 1092, 1094 (5th Cir.1980). 30 In dismissing H & W's breach of contract and attempted monopolization claims, the district court conclusively resolved factual issues at the preliminary injunction stage--issues which otherwise would have been decided by a jury. This action by the district court clearly was prejudicial to the party claiming lack of notice when it had filed a demand for jury trial. See Bowles, 629 F.2d at 1094-95; Eli Lilly, 460 F.2d at 1107. 31 We conclude that the district court improperly dismissed H & W's breach of contract and attempted monopolization claims without notice that a ruling on the merits would occur, and that H & W was prejudiced by this lack of notice. Accordingly, we must reverse the dismissal of counts I and VI of the complaint.