Court Opinion

ID: 4845661
Source: CourtListenerOpinion
Date Created: 2021-08-23 18:01:00.460805+00
Date Added: 2024-06-11T08:11:40.261011
License: Public Domain

Case: 20-20388          Document: 00515989911              Page: 1      Date Filed: 08/23/2021

              United States Court of Appeals
                   for the Fifth Circuit
                                                                                   United States Court of Appeals
                                                                                            Fifth Circuit

                                                                                          FILED
                                                                                    August 23, 2021
                                         No. 20-20388                                Lyle W. Cayce
                                                                                          Clerk

   Document Operations, L.L.C.,

                                                                        Plaintiff—Appellee,

                                              versus

   AOS Legal Technologies, Incorporated,

                                                                    Defendant—Appellant.

                      Appeal from the United States District Court
                          for the Southern District of Texas
                               USDC No. 4:20-CV-1532

   Before Dennis and Engelhardt, Circuit Judges, and Hicks*, Chief
   District Judge.
   Per Curiam:*
          Defendant-Appellant AOS Legal Technologies, Inc. (“AOS Japan”)
   appeals the entry of a preliminary injunction and order granting expedited
   discovery. Following oral argument and a review of the record, we hold that

          *
              Chief Judge of the Western District of Louisiana, sitting by designation.
          *
            Pursuant to 5th Circuit Rule 47.5, the court has determined that this
   opinion should not be published and is not precedent except under the limited
   circumstances set forth in 5th Circuit Rule 47.5.4.
Case: 20-20388      Document: 00515989911          Page: 2    Date Filed: 08/23/2021

                                    No. 20-20388

   both must be VACATED, with the preliminary injunction issue
   REMANDED for proceedings consistent with Federal Rule of Civil
   Procedure 65(a)(1).
                                           I.
          In 2017, Plaintiff Document Operations, LLC (“Doc. Ops.”) entered
   into a licensing agreement by which AOS Japan would serve as the
   company’s exclusive representative and marketing provider in Japan for Doc.
   Ops.’ “Prpel” virtual data room technology. The licensing agreement
   mandated AOS Japan protect Doc. Ops.’ confidential information, and also
   prohibited AOS Japan from acting to “represent, promote, develop, or
   otherwise try to sell within [Japan] any lines of product that. . . compete with
   [Prpel].” Subsequent amendments to the licensing agreement designated
   AOS Korea Corp. (“AOS Korea”) as an additional sales location and
   exclusive provider/representative of Prpel in South Korea and extended the
   term of the license by twelve months.
          In August 2019, the licensing agreement was again extended by twelve
   months, and a new provision was added stating:
          Non-Exclusive. During the extended term, the license shall be non-
          exclusive and any provision in the Agreement that reflects an
          exclusive relationship shall be considered amended accordingly
          hereby.
   Shortly thereafter, Doc. Ops. learned that a competing product known as
   “AOS VDR” had been developed and would soon be marketed in the two
   Asian countries. Despite protests from AOS Japan that AOS Korea
   developed AOS VDR independently and without any infringement of Prpel,
   Doc. Ops. filed suit alleging violation of the Texas Uniform Trade Secrets
   Act, Tex. Bus. & Com. Code § 15.50 et seq., and for common law breach of

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   contract, fraudulent inducement, conversion, civil conspiracy, and breach of
   fiduciary duty.
          In both its initial and first amended complaints, Doc. Ops.’ prayers for
   relief included requests for a temporary restraining (TRO) order and a
   preliminary injunction. On May 8, 2020, Doc. Ops. filed a formal TRO
   motion and emailed a copy of the motion and its complaint to AOS Japan’s
   company representatives. Once a Zoom hearing was scheduled, Doc. Ops.
   contacted AOS Japan several times to inform them of its date. When the
   hearing commenced on May 27 without any acknowledgement from AOS
   Japan, the district court opted to reschedule the proceedings in order to
   ensure that AOS Japan was aware of its occurrence and had purposefully
   elected not to participate. A second Zoom hearing was set for June 18.
          During this three-week period between hearings, Doc. Ops. continued
   to attempt to communicate relevant dates and filings with AOS Japan, who
   had appointed Texas-based counsel. Among these communications was a
   copy of a letter from Doc. Ops. to the district court, which provided in
   relevant part:
          Should this Court grant Document Operations’ Motion for
          Temporary Restraining Order, Document Operations seeks to
          conduct limited expedited discovery to prepare for the subsequent
          preliminary injunction hearing.
   On the morning of the second Zoom proceeding, still without definitive
   confirmation that AOS Japan was voluntarily absent, the district court
   instructed its case manager to phone counsel to “give [him] one last chance
   to appear. . . if he so chooses.” On this phone call, AOS Japan’s counsel
   relayed that he was “not going to appear, not even going to get on the
   telephone call. . .” until his client was served with process in accordance with
   the Hague Convention.

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          Following this brief recess, the district court granted Doc. Ops.’ TRO
   motion and its related request for expedited discovery. Although these were
   the only two matters set to be resolved at the hearing, the district court also
   issued a preliminary injunction against AOS Japan. Orders memorializing
   these three rulings were entered the next day.
                                          II.
          We review a grant of a preliminary injunction for an abuse of
   discretion. See Atchafalaya Basinkeeper v. United States Army Corps of
   Engineers, 894 F.3d 692, 696 (5th Cir. 2018). Federal Rule of Civil Procedure
   65(a)(1) provides: “[t]he court may issue a preliminary injunction only on
   notice to the adverse party.” Because Rule 65(a)(1) does not define the
   amount or type of notice required, “[t]he sufficiency of written and actual
   notice is a matter for the trial court’s discretion.” Corrigan Dispatch Co. v.
   Casa Guzman, S.A., 569 F.2d 300, 302 (5th Cir. 1978) (citing Plaquemines
   Parish School Bd. v. United States, 415 F.2d 817 (5th Cir. 1969)). However, the
   Supreme Court has held that sufficient notice under Rule 65(a) “implies a
   hearing in which the defendant is given a fair opportunity to oppose the
   application and to prepare for such opposition.” Granny Goose Foods, Inc. v.
   Brotherhood of Teamsters & Auto Truck Drivers, Local No. 70, 415 U.S. 423,
   434 n. 7 (1974). This contrasts with the more informal, sometimes same-day
   notice from which a TRO may issue. See id. “Compliance with Rule 65(a)(1)
   is mandatory,” and a preliminary injunction granted without adequate notice
   and an opportunity to oppose it should be vacated and remanded to the
   district court. Harris County, Tex. v. CarMax Auto Superstores, Inc., 177 F.3d
   306, 326 (5th Cir. 1999) (citing Parker v. Ryan, 960 F.2d 543, 544 (5th Cir.
   1992)).
          Due to their overlapping elements, TRO and preliminary injunction
   hearings are often conflated, and in some instances, a TRO hearing may

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   convert into one for a preliminary injunction. See e.g., CarMax, 177 F.3d 306;
   Dilworth v. Riner, 343 F.2d 226 (5th Cir. 1965). In order for this conversion
   to occur, however, the requirements of sufficient notice and an opportunity
   to meaningfully prepare and respond must still be satisfied. See id; Phillips v.
   Charles Schreiner Bank, 894 F.2d 127, 131 (5th Cir. 1990).
          AOS Japan certainly had notice that a preliminary injunction was
   looming, but it lacked sufficient notice that such relief would issue at the
   second TRO hearing. Doc. Ops.’ extensive and separately filed TRO motion
   stands in stark contrast to its brief reference of a preliminary injunction as a
   form of relief in its pleadings. Moreover, Doc. Ops.’ email letter to the
   district court—with AOS Japan copied—requesting expedited discovery in
   preparation for a future preliminary injunction hearing reveals that the
   movant itself did not anticipate a preliminary injunction to issue at this
   proceeding. While AOS Japan’s refusal to acknowledge and participate in
   events occurring in the district court may have factored into a lack of notice,
   the uncertainty surrounding whether service of process had been effectuated
   warrants the reasonable apprehension AOS Japan exhibited.
          Although this Court has recognized situations where TRO
   proceedings may convert into preliminary injunction hearings, the instant
   circumstances are distinguishable from the leading cases on the subject. In
   Dilworth, this Court held that after a full-scale hearing with five appellant and
   three appellee witnesses, the denial of a TRO was “in substance and result a
   hearing on and the denial of a preliminary injunction,” and thus was subject
   to appellate jurisdiction. 343 F.2d at 229. In CarMax, the construction of
   plaintiff’s TRO motion as a motion for preliminary injunction was similarly
   challenged under Rule 65(a)(1). 177 F.3d at 325. This Court rejected that
   challenge, finding the defendant was provided three business days’ notice of
   the hearing, never sought postponement of the hearing, filed a detailed
   opposition brief, presented three witnesses, and vigorously cross-examined

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   four of its adversary’s witnesses. See id. at 326. Finally, in Kaepa this Court
   held that Rule 65(a)’s requirements were satisfied without a formal hearing
   when the district court did not rely on any disputed facts and both parties had
   presented comprehensive memoranda in support of their positions on the
   injunction issue. See Kaepa, Inc. v. Achilles Corp., 76 F.3d 624, 628 (5th Cir.
   1996). The Court further reasoned, “[i]f no factual dispute is involved,
   however, no oral hearing is required; under such circumstances the parties
   need only be given ‘ample opportunity to present their respective views of
   the legal issues involved.’” Id.
           In each of these cases, the non-movant participated in proceedings to
   a degree that allowed the district court to determine whether a preliminary
   injunction was appropriate. In contrast, AOS Japan did not participate
   whatsoever in the June 18 TRO hearing because of service of process
   concerns. The district court was aware of this reason for absence.
   Consequently, any interpretation of AOS Japan’s silence as a factual
   concession on the injunction issue was unreasonable. On the date of this
   hearing, AOS Japan expected at most a 14-day TRO to issue without
   prejudice to the future opportunity to contest a potential preliminary
   injunction. Instead, AOS Japan received notice of an indefinite injunction via
   the district court’s order the following day. This action violated Rule
   65(a)(1)’s notice requirement and mandates the preliminary injunction be
   VACATED and REMANDED. 1 See Phillips, 894 F.2d at 131.

           1
            Because revisiting injunctive relief on remand will involve adversarial
   evidentiary proceedings, we decline to offer guidance as to the substantive terms of any
   future preliminary injunction.

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                                          III.
          We review a district court’s discovery rulings for an abuse of
   discretion. See Miller v. Sam Houston State Univ., 986 F.3d 880, 891 (5th Cir.
   2021). Generally, broad discretion is afforded to the district court when
   deciding discovery matters, and we reverse “only if [the decision] affected a
   party’s substantial rights.” N. Cypress Med. Ctr. Operating Co. v. Aetna Life
   Ins. Co., 898 F.3d 461, 476 (5th Cir. 2018). Substantial rights are affected if
   the district court’s decision was “arbitrary or clearly unreasonable.” Fielding
   v. Hubert Burda Media, Inc., 415 F.3d 419, 428 (5th Cir. 2005).
                                              A.
          We must first determine whether we have jurisdiction to review the
   district court’s expedited discovery order. Pendent appellate jurisdiction is
   proper only in rare and unique circumstances and must be in the interest of
   judicial economy. See Byrum v. Landreth, 566 F.3d 442, 449 (5th Cir. 2009).
   It is present where (1) the pendent decision is “inextricably intertwined”
   with the decision over which the appellate court otherwise has jurisdiction,
   and (2) review of the former is necessary to ensure meaningful review of the
   latter. See Swint v. Chambers Cty. Comm’n, 514 U.S. 35, 51 (1995). This Court
   has found pendent jurisdiction may be proper where (1) the court will decide
   some issue in the properly brought interlocutory appeal that necessarily
   disposes of the pendent claim, (2) addressing the pendent claim will further
   the purpose of immediate review of the interlocutory claim, (3) the pendent
   claim would otherwise be unreviewable, or (4) the claims involve precisely
   the same facts and elements. See Escobar v. Montee, 895 F.3d 387, 392-93 (5th
   Cir. 2018).
          Similarly, the collateral order doctrine permits review of “a small class
   of collateral rulings that, although they do not end the litigation, are
   appropriately deemed ‘final.’” Mohawk Indus. v. Carpenter, 558 U.S. 100, 106

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   (2009) (citing Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 545-46
   (1949)). A qualifying interlocutory decision must (1) be conclusive, (2)
   resolve important questions separate from the merits, and (3) be effectively
   unreviewable on appeal from final judgment. See Mohawk, 558 U.S. at 605.
   Due to the healthy respect for the virtues of the final judgment rule, the
   justification for immediate appeal must be quite strong, with the decisive
   consideration being whether delaying review until final judgment “would
   imperil a substantial public interest” or “some particular value of a high
   order.” Will v. Hallock, 546 U.S. 345, 352-53 (2006).
          Either jurisdictional theory provides this Court with the power to
   review the district court’s expedited discovery order. First, pendent
   jurisdiction may be exercised over the discovery order because of its ties to
   the preliminary injunction. In addition to the factual similarities informing
   each, Doc. Ops.’ central basis for expedited discovery was to aid in
   preparation for a future preliminary injunction hearing. The district court’s
   order cited this letter request. The discovery order itself provides significant
   support for AOS Japan’s reasonable belief that a future hearing would be held
   regarding a potential injunction, and consequently, reveals the lack of notice
   it possessed at the time of the TRO hearing. The close connection between
   the interlocutory preliminary injunction and the pendent expedited discovery
   order permit the exercise of this form of jurisdiction.
          As for the collateral order doctrine, AOS Japan’s principal ground for
   invalidation of the discovery order rests upon its rights as a Japanese
   defendant under the United States-Japan Consular Convention of 1964
   (“Consular Convention” or “Treaty”). The assertion of these Treaty rights
   transforms the dispute from that over a standard pre-trial discovery order to
   one involving the rights of foreign defendants in American courts. Viewed as
   such, review of the discovery order in light of the Consular Convention
   “finally determine[s] claims of right separable from, and collateral to, rights

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   asserted in the action, too important to be denied review and too independent
   of the cause itself to require that appellate consideration be deferred until the
   whole case is adjudicated.” Cohen, 337 U.S. at 546. Finally, this order would
   be effectively unreviewable following a final judgment, as AOS Japan would
   be forced to relinquish its Treaty rights and participate in discovery.
                                               B.
          Turning now to the merits, the expedited discovery order must be
   vacated on two grounds. First, the order clearly ran afoul of the Consular
   Convention. The Treaty sets forth a complex set of rules governing the taking
   of depositions of Japanese defendants. See Consular Convention and
   Protocol, Mar. 22, 1963, U.S.-Japan, art. 17(1)(e)(ii); Murata Mfg. Co., Ltd.
   v. Bel Fuse, Inc., 242 F.R.D. 470, 472 n.2 (E.D. Ill. May 2, 2007). Notably,
   these procedures mandate that depositions taken in Japan of Japanese
   defendants must occur on U.S. consulate premises with a consular official
   presiding, and all participants are required to obtain a deposition visa. See id.
   Further, the U.S. Department of State’s website explicitly notes that video
   conferencing is not available. 2
          In contravention of the Treaty, the district court ordered that AOS
   Japan’s corporate representatives be deposed via Zoom within ten business
   days of the date of its order or by July 1, 2020. The terms of the order thus
   evidence that no consideration was paid to the Consular Convention and the
   ensuing rights afforded to Japanese defendants. Accordingly, the expedited
   discovery order cannot stand.
          Second, the order lacked good cause to issue. Under Federal Rule of
   Civil Procedure 26(d), “[a] party may not seek discovery from any source

          2
           https://jp.usembassy.gov/depositions-in-
   japan/?_ga=2.36004384.1664203238.1621530152-579272842.1621530152.

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   before the parties have conferred as required by Rule 26(f), except in a
   proceeding exempted from initial disclosure under Rule 26(a)(1)(B), or when
   authorized by these rules, by stipulation, or by court order.” In the Southern
   District of Texas—where this case originated—courts employ a good cause
   standard to determine when to exercise their authority to order expedited
   discovery. See Dallas Buyers Club, LLC v. Ripple, No. H-14339, 2015 WL
   1346217 at *1 (S.D. Tex. Mar. 23, 2015).
          The district court’s expedited discovery order found good cause
   existed “[f]or the reasons detailed in counsel’s June 13, 2020 letter and in
   this court’s order granting Plaintiff’s Motion for Temporary Restraining
   Order.” As discussed, this letter justified the need for expedited discovery to
   prepare for a future preliminary injunction hearing. The letter’s stated
   purpose was “to adduce evidence bearing directly on its right to a preliminary
   injunction.” When the district court issued a preliminary injunction
   simultaneously with this discovery order, good cause for expedited discovery
   ceased to exist. For both of these reasons, the district court’s order must be
   VACATED.
                                          IV.
          For the reasons assigned herein, the district court’s entry of a
   preliminary injunction is hereby VACATED and REMANDED. Further,
   the district court’s expedited discovery order is hereby VACATED.

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