Court Opinion

ID: 813603
Source: CourtListenerOpinion
Date Created: 2012-12-13 21:13:45+00
Date Added: 2024-06-11T18:00:49.090628
License: Public Domain

FILED
                                                                            DEC 13 2012
                         UNITED STATES COURT OF APPEALS
                                                                        MOLLY C. DWYER, CLERK
                                                                         U .S. C O U R T OF APPE ALS
                                   FOR THE NINTH CIRCUIT

LANGUAGE LINE SERVICES, INC., a               No. 11-17757
Delaware corporation,
                                              DC No. 5:10-cv-02605-JW
             Plaintiff-Appellee,
                                                ORDER GRANTING APPELLANT’S
     v.                                         MOTION FOR CLARIFICATION AND
                                                 AMENDING THE MEMORANDUM
LANGUAGE SERVICES ASSOCIATES,                            DISPOSITION
INC., a Pennsylvania corporation,

             Defendant-Appellant,

     and

WILLIAM SCHWARTZ; PATRICK
CURTIN, individuals,

           Defendants,

     v.

BRYAN LUCAS,

           Third-party-defendant-Appellee.

Before:      CALLAHAN and WATFORD, Circuit Judges, and SINGLETON,*
             Senior District Judge.

             Language Services Associates’ Motion for Clarification at Docket No.

      37 is GRANTED.

      *
             The Honorable James K. Singleton, Jr., Senior United States District
Judge for the District of Alaska, sitting by designation.
         The Memorandum Disposition filed on September 24, 2012, is amended as

follows: On page 2, footnote 2, which reads, “The notice of appeal states that LSA

also appealed Discovery Order No. 7 (order finding LSA in contempt), but LSA’s

opening brief did not address the contempt finding. LSA therefore waived the

contempt finding, and we do not address that issue. Dream Games of Ariz. v. PC

Onsite, 561 F.3d 983, 994-95 (9th Cir. 2009),” is deleted from the Memorandum

Disposition in its entirety.

         An Amended Memorandum Disposition will be filed concurrently with this

Order.

         No petitions for rehearing, rehearing en banc, or rehearing before the full

court are pending. No subsequent petitions for rehearing, rehearing en banc, or

rehearing before the full court may be filed.

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                                                                            FILED
                                                                             DEC 13 2012
                                   NOT FOR PUBLICATION
                                                                         MOLLY C. DWYER, CLERK
                                                                          U .S. C O U R T OF APPE ALS
                         UNITED STATES COURT OF APPEALS

                                   FOR THE NINTH CIRCUIT

LANGUAGE LINE SERVICES, INC., a                No. 11-17757
Delaware corporation,
                                               DC No. 5:10-cv-02605-JW
             Plaintiff-Appellee,
                                               AMENDED
     v.                                        MEMORANDUM*

LANGUAGE SERVICES ASSOCIATES,
INC., a Pennsylvania corporation,

             Defendant-Appellant,

     and

WILLIAM SCHWARTZ; PATRICK
CURTIN, individuals,

           Defendants,

     v.

BRYAN LUCAS,

           Third-party-defendant-Appellee.

                          Appeal from United States District Court
                           for the Northern District of California
                           James Ware, District Judge, Presiding

                           Argued and Submitted August 10, 2012
                                 San Francisco, California

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Before:      CALLAHAN and WATFORD, Circuit Judges, and SINGLETON,**
             Senior District Judge

      This trade secrets litigation involves a dispute between two competitors,

Language Services Associates (“LSA”) and Language Line Services (“Language

Line”).1 LSA appeals the district court’s order overruling its objections to the

Special Master’s (“Master’s”) denial of LSA’s motion to modify or vacate the

preliminary injunction. We affirm.

1.    Under 28 U.S.C. § 1292(a)(1), we have jurisdiction over appeals from

interlocutory orders “granting, continuing, modifying, refusing or dissolving

injunctions, or refusing to dissolve or modify injunctions.” See, e.g., Credit Suisse

First Boston Corp. v. Grunwald, 400 F.3d 1119, 1124 (9th Cir. 2005). We stated

in Grunwald, however, that an order denying a motion to modify or dissolve an

injunction is appealable only if the motion is based on a claim of changed

circumstances and raises new matter not considered at the time of the injunction.

Id. Thus, we may review the denial of LSA’s motion only if the motion, in

substance, “is based on new circumstances that have arisen after the district court

granted the injunction.” Id.

      **
             The Honorable James K. Singleton, Jr., Senior United States District
Judge for the District of Alaska, sitting by designation.
      1
              The parties are familiar with the facts, and we repeat them here only
as necessary to explain our decision.

                                          2
      LSA claims that the Evolver Report proves it never had the September 2009

Report (2009 Report), and that this change in circumstances allows us to review

the denial of its motion to modify or vacate the injunction. Although LSA’s

interpretation of the Evolver Report is problematic, the report does provide

forensic evidence of the extent of Language Line’s confidential information on

LSA’s and its employees’ computers. This new information, not known to the

district court at the time it issued the preliminary injunction, satisfies the Grunwald

test and allows us to review LSA’s motion.

2.    We review for abuse of discretion the “district court’s decision denying the

motion to modify or dissolve the preliminary injunction,” Grunwald, 400 F.3d at

1126 n.7, “a district court’s decision regarding a preliminary injunction,” Walczack

v. EPL Prolong, Inc., 198 F.3d 724, 730 (9th Cir. 1999), and the “district court’s

determination as to the amount and appropriateness of the security required by

Rule 65(c).” Johnson v. Couturier, 572 F.3d 1067, 1086 (9th Cir. 2009). A

district court “abuses its discretion when it bases its decision on an erroneous legal

standard or on clearly erroneous findings of fact.” Id. at 1078-79. We therefore

review de novo “any underlying issues of law.” Grunwald, 400 F.3d at 1126 n.7.

3.    LSA argues that the Evolver Report proves it never had the 2009 Report,

and that changed circumstances warrant at least modifying the injunction to cover

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only the information found on LSA’s computers. “A district court has inherent

authority to modify a preliminary injunction in consideration of new facts.” A&M

Records, Inc. v. Napster, 284 F.3d 1091, 1098 (9th Cir. 2002). However, the

Evolver Report’s ultimate conclusion was that LSA still had Language Line’s

intellectual property on its computers. LSA concedes that the forensic imaging of

its computers found sublists containing information on 441 companies that

matched the 2009 Report, and that the 2009 Report was found on a thumb drive

associated with Schwartz’s laptop. Accordingly, the Evolver Report does not

support modifying or vacating the preliminary injunction.

4.    LSA next argues that even if Curtin and Schwartz had access to the full 2009

Report, the Evolver Report proves LSA does not have it now, and therefore the

injunction must be modified or vacated. Again, this is based on a questionable

interpretation of the Evolver Report. Moreover, LSA has admitted that Schwartz

and Curtin took and distributed Language Line’s confidential information to LSA

employees who then used it to solicit Language Line’s customers. The Master and

the district court could have reasonably concluded that LSA’s repeated violations

of the injunction undercut LSA’s claim that it could no longer use the 2009 Report

to harm Language Line.

                                         4
5.    LSA next contends that the injunction should be modified to include only

over-the-phone translation services (“OPI”). The Master noted and the district

court agreed that this would effectively allow LSA to “have a foot in the door

provided by those lists, the very conduct the Injunction seeks to prevent.” LSA

argues that the Master’s conclusion “is only applicable if LSA were going to try

and sell OPI services in violation of the injunction,” but that “such sales would be

very easy to detect and police and would not happen.” Nonetheless, in light of

LSA’s multiple violations of the injunction, the district court did not abuse its

discretion in refusing to modify the injunction to include only OPI services.

6.    LSA next claims that the injunction should be modified to exclude

customers involved in third-party Group Purchasing Organization (“GPO”)

agreements. According to LSA, under a GPO agreement, vendors get “the benefit

of pre-negotiated pricing by a third-party,” and when “those negotiations happen,

vendors” such as LSA “have no idea who might ultimately sign up to take

advantage of the pre-negotiated pricing and terms.” Thus, LSA contends that

having Language Line’s list of customers with pricing data “is irrelevant as there

are not individual negotiations with members of a GPO.”

      Although LSA’s assertions have some weight, the Master noted that LSA

had not presented evidence as to why GPOs should be treated differently under the

                                           5
existing injunction, and that without specific evidence subject to cross-examination

there was no reason to modify the injunction. On this record, we cannot find that

the district court abused its discretion in not modifying the preliminary injunction

to exclude GPOs. However, this matter may be ripe for reconsideration in further

proceedings in the district court.

7.    LSA next claims that even if at one time it had the 2009 Report, the

information on the report is now stale. The Master found that LSA’s argument is

supported only by its Chief Operating Officer’s declaration, and without discovery

on the issue this argument does not support modification of the injunction. Given

the deferential nature of our review, we find that the district court did not abuse its

discretion in refusing to modify the injunction.

8.    When the district court addressed the injunction originally, it considered

only Language Line’s likelihood of success on the merits and its risk of irreparable

harm without the injunction, despite the Supreme Court’s holding in Winter v.

Natural Res. Defense Council, 555 U.S. 7, 20 (2008), which held that when a

district court considers granting an injunction, it must consider not only the

likelihood of (1) success on the merits and (2) irreparable harm without an

injunction, but also (3) the balance of equities and (4) the public interest.

However, the district court’s failure to discuss all four elements from Winter was

                                           6
harmless error. See Johnson, 572 F.3d at 1084-85 (noting that the district court

failed to consider the element of irreparable harm, but affirming because the record

supported a finding of likelihood of irreparable harm). Here, the record supports

determinations that the balance of hardships tips in favor of Language Line, and

that the injunction is in the public interest. LSA is not entitled to any relief based

on the district court’s failure to consider all four parts of the Winter test.

9.      LSA incorrectly argues that Federal Rule of Civil Procedure 65(c) requires

the posting of a bond. Despite the mandatory language of Rule 65(c), district

courts retain “discretion as to the amount of security required, if any.” Id. at 1086

(internal quotation marks and citation omitted). Here, LSA made three requests for

a bond: (1) when the court issued the injunction; (2) in its motion for

reconsideration; and (3) in the amount of $50,000,000 in its motion to modify or

vacate the injunction. The Master rejected this evidence in support of a bond as

“speculative [and] conclusory,” and the district court rejected it “because the court

ha[d] already denied the request on several occasions.” Given the lack of objective

evidence of damages and the deferential nature of the abuse of discretion standard,

we affirm the district court’s decision to deny LSA’s request for a $50,000,000

bond.

                                            7
       However, we note that the district court failed to articulate its reasons for

denying LSA’s request for a bond. We have held that despite the “seemingly

mandatory language” of Rule 65(c), a district court has discretion as to the amount

of security required. Johnson, 572 F.3d at 1086. “We review for abuse of

discretion a district court’s determination as to the amount and appropriateness of

the security required by Rule 65(c).” Id. Absent a clear statement by the district

court concerning its reasons for requiring or not requiring a bond, we may not be

able to discern the district court’s reasons for its action. In the future, the district

court’s orders granting injunctive relief should include explanations for its exercise

of discretion under Rule 65(c).

       Finally, we express concerns with two aspects of this case. First, the district

court erroneously applied a clear error standard of review to the Master’s findings

of fact and conclusions of law instead of conducting de novo review. Fed. R. Civ.

P. 53(f)(3), (4). Second, it has been almost a year since the district court denied

LSA’s motion to modify or vacate the preliminary injunction and more than two

years since the issuance of the injunction. Preliminary injunctions are ambulatory

remedies, designed for “preserving the status quo and preventing the irreparable

loss of rights before judgment.” Sierra On-Line, Inc. v. Phoenix Software, Inc.,739

F.2d 1415, 1422 (9th Cir. 1984). Preserving the status quo implicitly recognizes

                                             8
that the parties’ rights may change over time, and it does not justify indefinitely

extending a preliminary injunction. See, e.g., Sprint Communications Co. L.P. v.

CAT Communications Intern., Inc., 335 F.3d 235, 242 (3d Cir. 2003).

      As noted, the information in the 2009 Report, which served as the basis for

the preliminary injunction, is now over three years old. Judge Ware has retired,

and counsel at oral argument indicated that the case is now without district or

magistrate judge oversight, further complicating matters. Should LSA move for

modification of the injunction, the district court must conduct de novo review of

any findings of fact and conclusions of law made by the Master and should

consider whether changed circumstances support modifications of the preliminary

injunction, particularly on such issues as its application to GPOs.

      The denial of LSA’s motion to modify or vacate is AFFIRMED.

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