Court Opinion

ID: 8086
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:34:11+00
Date Added: 2024-06-11T15:03:51.767665
License: Public Domain

United States Court of Appeals,

                              Fifth Circuit.

                               No. 94-10997.

               TRAVELHOST, INC., Plaintiff-Appellee,

                                     v.

              Carl L. BLANDFORD, et al., Defendants,

      Karen Hoffman and Steve Bunyard, Non-party Appellants.

                              Nov. 15, 1995.

Appeal from the United States District Court for the Northern
District of Texas.

Before HIGGINBOTHAM and PARKER, Circuit Judges, and McBRYDE*,
District Judge.

      ROBERT M. PARKER, Circuit Judge:

      Non-parties    Karen    Hoffman       and   Steve    Bunyard    appeal   the

district court's order holding them in contempt.                     The district

court found that there was clear and convincing evidence that the

non-parties participated in a scheme with defendant Blandford to

violate an injunction order entered by the district court.                  Based

on a review of the evidence admitted against the non-parties, we

hold that the district court's finding was clearly erroneous and

reverse the order of the district court holding Karen Hoffman and

Steve Bunyard in contempt.

                               I. BACKGROUND

      In September 1992, Travelhost filed a complaint and request

for   injunction    against   Carl   Blandford       and    Richard     Browning.

      *
      District Judge of the Northern District of Texas, sitting
by designation.

                                        1
Browning    and    Blandford     had   been      associate         publishers   of   the

"Travelhost" magazine and distributed that magazine to hotels in

the   St.   Louis,    Missouri      metropolitan           area.      The    Travelhost

Associate Publisher Agreement contained a covenant not to compete

with Travelhost in the same market for a period of two years after

termination of the relationship.               Browning signed such a contract

in 1973.     Defendant Blandford succeeded to Browning's status as

associate publisher in 1983.               In 1992, Blandford defaulted on

certain payments to Travelhost and was terminated as an associate

publisher.         Upon   the    termination          of    his    relationship      with

Travelhost, Blandford began publishing and distributing "Passport",

a magazine very similar to "Travelhost".                      As the publisher of

"Passport",       Blandford     serviced       many    of    the    same    hotels   and

advertisers he had serviced as Travelhost's associate publisher.

      Travelhost     filed      suit   seeking        an    injunction      prohibiting

Blandford and Browning from publishing "Passport" or any similar

competitive magazine in the St. Louis metropolitan area for the

term of the covenant not to compete.                   In January 1993, after a

two-day     evidentiary         hearing,       the     district       court     granted

Travelhost's application for preliminary injunction.                          The court

ordered that Blandford, and any of his agents, or any person acting

in concert with him, until April 30, 1994, cease and refrain from

directly or indirectly: (1) distributing "Passport" or any similar

magazine in the St. Louis metropolitan area;                        (2) operating any

business that is similar to or competitive with Travelhost;                           (3)

causing or soliciting another to print "Passport";                         (4) printing

                                           2
"Passport";   (5) soliciting advertisement for "Passport";    and (6)

taking any action or making any representation that would lead

another to believe that Blandford was in any way connected with

Travelhost.

     Blandford appealed the district court's order and obtained a

stay of the injunction from this Court pending appeal.      Blandford

continued to publish and distribute "Passport" during the pendency

of the appeal.     On January 5, 1994, this Court affirmed the

preliminary injunction and vacated the stay order.

     On January 14, 1994, Blandford sold the assets of Passport

Magazine to the non-parties, Karen Hoffman and Steve Bunyard.     The

Asset Transfer Agreement expressly included all art work, client

lists, advertising contracts, invoices, stationary, files, and

advertising revenue from the date of the transfer forward.        The

agreement also stated that Hoffman and Bunyard had full knowledge

of the district court's preliminary injunction against Blandford,

and that the agreement did not include Blandford's assistance or

consulting in the operation of the magazine.   Bunyard and Hoffman

used the assets to publish "Passport" from February through June,

1994.

     When Travelhost learned of the transfer of assets, it sought

to modify the injunction to expressly include Bunyard and Hoffman.

The district court denied this motion on April 13, 1994.1    On April

     1
      The district court stated, however, that it was not
necessary to modify the injunction because it was already
sufficient to bind assignees of Blandford. We need not address
this aspect of the district court's ruling because Travelhost
concedes that the contempt order against Bunyard and Hoffman

                                 3
29, 1994, the district court extended the term of its injunction

order until November 10, 1994.     On July 14, 1994, Travelhost filed

a motion for contempt seeking compensatory damages and attorneys'

fees from defendant Blandford, and his wife and bookkeeper, Beverly

McIntyre, as well as Bunyard, Hoffman, and others.          The district

court held a four-day hearing on Travelhost's motion for contempt

beginning August 22, and on September 14, 1994 entered its contempt

order.

     The district court held that Blandford, McIntyre, Bunyard, and

Hoffman were jointly and severally liable for Travelhost's damages

and attorneys' fees for a total liability of $164,074.08.            The

district    court   specifically   found   that   Bunyard   and   Hoffman

participated with Blandford in a scheme to violate the district

court's injunction.    The district court also entered a judgment in

favor of Travelhost on the underlying action against Blandford.

Blandford and McIntyre did not appeal.        Non-parties Bunyard and

Hoffman timely filed the instant appeal.

                            II. DISCUSSION

         Courts possess the inherent authority to enforce their own

injunctive decrees.     Waffenschmidt v. MacKay, 763 F.2d 711, 716

(5th Cir.1985), cert. denied, 474 U.S. 1056, 106 S. Ct. 794, 88
L. Ed. 2d 771 (1986).      An injunction binds not only the parties

subject thereto, but also non-parties who act with the enjoined

party.     Id.   Rule 65(d) of the Federal Rules of Civil Procedure

could not be based solely on their status as Blandford's
assignees or as the purchasers of Passport Magazine's assets.

                                    4
provides that an injunction "is binding only upon the parties to

the   action,    their    officers,   agents,   servants,    employees,   and

attorneys,      and   upon   those    persons     in   active   concert    or

participation with them who receive actual notice of the order by

personal service or otherwise."            As we've recognized previously,

Rule 65(d)

      is derived from the common-law doctrine that a decree of
      injunction not only binds the parties defendant but also those
      identified with them in interest, in "privity" with them,
      represented by them or subject to their control. In essence
      ... defendants may not nullify a decree by carrying out
      prohibited acts through aiders and abettors, although they
      were not parties to the original proceeding.

Waffenschmidt, 763 F.2d at 717 (quoting Regal Knitwear Co. v.

National Labor Relations Board, 324 U.S. 9, 14, 65 S. Ct. 478, 481,

89 L. Ed. 661 (1945)).

       "A party commits contempt when he violates a definite and

specific order of the court requiring him to perform or refrain

from performing a particular act or acts with knowledge of the

court's order."          Securities and Exchange Commission v. First

Financial Group of Texas, Inc., 659 F.2d 660, 669 (5th Cir.1981).

In a civil contempt proceeding, the movant bears the burden of

establishing the elements of contempt by clear and convincing

evidence.    Petroleos Mexicanos v. Crawford Enterprises, Inc., 826
F.2d 392, 401 (5th Cir.1987).

       The clear and convincing evidence standard is higher than the

"preponderance of the evidence" standard, common in civil cases,

but not as high as "beyond a reasonable doubt."             United States v.

Rizzo, 539 F.2d 458, 465 (5th Cir.1976).               In the context of a

                                       5
proceeding for disbarment of an attorney, we held that clear and

convincing evidence was "that weight of proof which "produces in

the mind of the trier of fact a firm belief or conviction as to the

truth of the allegations sought to be established, evidence so

clear, direct and weighty and convincing as to enable the fact

finder to come to a clear conviction, without hesitancy, of the

truth of the precise facts' of the case."    In re Medrano, 956 F.2d
101, 102 (5th Cir.1992) (quoting Cruzan by Cruzan v. Director,

Missouri Dept. of Health, 497 U.S. 261, 285 n. 11, 110 S. Ct. 2841,

2855 n. 11, 111 L. Ed. 2d 224 (1990)).      We are persuaded that the

same definition of clear and convincing evidence should apply in

the contempt context.    We review an order of contempt for abuse of

discretion, and we review the district court's underlying fact

findings under the clearly erroneous standard of Federal Rule of

Civil Procedure 52(a).     Federal Deposit Insurance Corporation v.

LeGrand, 43 F.3d 163, 166 (5th Cir.1995).

      As a threshold matter, we address the non-parties' argument

that the civil contempt order in the present case is a coercive

order that is moot as a result of the final judgment entered in the

underlying case between Blandford and Travelhost.       Civil contempt

can serve two purposes.    It can be used to enforce compliance with

a court's order through coercion, or it can be used to compensate

a party who has suffered unnecessary injuries or costs because of

contemptuous conduct.     Petroleos, 826 F.2d at 400.    "If the civil

contempt proceeding is coercive in nature, the general rule is that

it is mooted when the proceeding out of which it arises is

                                   6
terminated."     Id.   However, if the contempt order is compensatory

in nature, it is not mooted by termination of the underlying

action. Because the contempt order in the present case is intended

to compensate Travelhost for lost profits and attorneys' fees

resulting from the contemptuous conduct, it is clearly compensatory

in nature. Therefore, the argument that the contempt order is moot

must be rejected.

         The non-parties also argue that the district court erred in

finding that there was clear and convincing evidence that they

participated in a scheme with Blandford to violate the court's

injunction.     There is no dispute in this case that the district

court's injunction against Blandford was in effect at the time of

the allegedly contemptuous conduct.     Nor is there any dispute that

the district court's injunction was sufficient to enjoin persons

"in active concert or participation with" Blandford in activity in

violation of the injunction. In addition, the non-parties concede,

as they must, that they had notice of the injunction against

Blandford prohibiting him from continuing in the publication of the

magazine at the time of the Asset Transfer Agreement.2    However, to

prevail on its motion to hold non-parties Bunyard and Hoffman in

contempt, Travelhost also had to establish by clear and convincing

evidence that Bunyard and Hoffman did indeed act in concert with or

     2
      The Asset Transfer Agreement signed by Blandford, Bunyard,
and Hoffman on January 14, 1994 stated "[t]hat the Second Party
[Bunyard and Hoffman] has full knowledge of the preliminary
injunction granted by the United States District Court for the
North District of Texas (Dallas Division) effective and relating
to the First Party [Blandford] until April 30, 1994."

                                    7
participate with Blandford in a scheme to allow Blandford to

continue    to    publish     Passport       Magazine        in   violation   of   the

injunction.       The district court held that Travelhost met this

burden.    We disagree.

         Travelhost contends that the district court's findings of

fact regarding Bunyard and Hoffman are supported by evidence of the

non-parties' acts in helping Blandford circumvent the district

court's injunction through a "sham" sale of Passport Magazine's

assets.    Travelhost boldly argues that the fact that Bunyard and

Hoffman purchased the assets of Passport Magazine and continued its

publication even though they had notice that Blandford was enjoined

from doing       so   is   sufficient    evidence       of    the   alleged   scheme.

Travelhost also emphasizes the similarity of the magazine published

by Bunyard and Hoffman and the magazine published by Blandford.

However, these facts evidence nothing violative of the district

court's injunction.

     The district court's injunction, and the covenant not to

compete on which it was based, prohibited only Carl Blandford, and

persons acting with him, from publishing "Passport" or a similar

competitive magazine.         The injunction did not prohibit Blandford

from selling assets he owned.           In addition, it did not, and could

not, prohibit other persons from publishing "Passport" unless they

were persons acting with Blandford within the meaning of Rule

65(d).     Evidence that Bunyard and Hoffman published "Passport"

after January 14, 1994, therefore, means nothing without evidence

that it was done in participation with Blandford.

                                         8
     Similarly, Travelhost argues that the non-parties' use of art

boards, advertising contracts, and distribution lists provided by

Blandford establishes that they were participating with him in

circumventing the injunction.      However, the record reflects that

these items were assets transferred pursuant to the Asset Transfer

Agreement.   Use of such assets, even in the publication of a

competitive magazine, by persons not participating with Blandford

could not be in violation of a valid injunction entered by the

district court.    Thus, purchase and use of these assets means

nothing by itself, and the relevant inquiry remains: whether there

was evidence that Bunyard and Hoffman were participating with

Blandford in the publication of Passport Magazine.

     The   non-parties   contend   that    the   purchase   of   Passport

Magazine's assets from Blandford was an arms-length transaction,

and that they in no way attempted to aid Blandford in circumventing

the district court's injunction.       Hoffman testified that sometime

in early summer 1993 Blandford asked her in passing if she knew

anyone who might be interested in buying Passport Magazine.           She

testified that she did not, and expressed no interest in buying it

herself because she was working too many hours and wasn't in a

financial position to do it. Hoffman testified that sometime later

Blandford mentioned that he was talking to a couple of people about

purchasing Passport Magazine.

     Blandford testified that he spoke to other people about

Passport before he approached Bunyard and Hoffman.               Blandford

testified that he talked to a person named Richard Harris about

                                   9
buying Passport, but could not sell to him because Harris needed

help in operating the publication, something Blandford could not

offer under the district court's injunction.        Blandford testified

that he approached Bunyard because he had an outstanding trade

balance with Bunyard and hoped to apply the assets of Passport to

that balance. Blandford testified that he first approached Bunyard

about purchasing Passport in December 1993.

     Bunyard testified that when he was approached by Blandford he

spoke to Hoffman about the purchase because he thought it would

work well with her barter business.      The record also reflects that

Hoffman had publishing experience.       They agreed that Bunyard would

provide the necessary financial support and Hoffman would handle

the magazine's daily operations.       Both Bunyard and Hoffman admit

candidly that before purchasing the assets of Passport Magazine,

Blandford advised them that he was prohibited by court order from

publishing Passport Magazine.

     Bunyard, a successful businessman, testified that he had no

interest in purchasing Blandford's business in its entirety because

he did not want to get tangled-up in any liabilities Blandford

might have incurred.   Thus, Blandford testified, he was interested

only in a purchase of assets.    Bunyard, Hoffman, and Blandford all

testified that the first purchase agreement Blandford drafted was

not signed because it included a provision for the assumption of

printing liabilities Blandford had incurred.        The transaction was

consummated   only   after   Blandford    drafted   an   asset   transfer

agreement that did not include that provision.       Bunyard, Hoffman,

                                  10
and   Blandford    also   testified    that   the     consideration   for    the

transfer was      forgiveness   of    $9300.00   in    debt   to   Bunyard   and

$1000.00 in trade credits from a company owned by Hoffman.

      Blandford testified that under the agreement, he sold Bunyard

and Hoffman the assets of Passport Magazine, including the art

work, art boards, client lists, distribution lists, advertising

contracts, pre-printed invoices, computer billing software, and

stationary.       He also testified that he offered no training or

support to Bunyard and Hoffman in the transfer because he was

restrained by the district court's injunction. Blandford, Bunyard,

and Hoffman each testified that following the transfer of assets on

January 14, 1994, Blandford had no involvement in the publication

of the magazine.

      Travelhost argues, however, that Blandford continued to be

involved in the operation of Passport Magazine, directly and

indirectly, even after the sale of assets to Bunyard and Hoffman.

This contention, if supported in the record, would be sufficient to

support the district court's finding that the non-parties were

participating with the defendant in a scheme to circumvent the

injunction.

      In support of its position, Travelhost argues first that

Bunyard and Hoffman continued to use Blandford's address for the

business after January 1994, and that they did not attempt to

change the business address until April 29, 1994 after the district

court extended the injunction.             In support of this argument,

Travelhost points to invoices introduced in evidence. During Karen

                                      11
Hoffman's testimony, Travelhost introduced invoices which Hoffman

had provided to Travelhost at her deposition.      Hoffman testified

that these documents were copies of the statements she sent to

advertisers.    She admitted that Blandford's business address was

imprinted on them, but testified that correct address labels were

placed on the copies sent to advertisers.       In addition, Hoffman

testified, envelopes with the correct return address were provided

to advertisers with their statements. There was no need, according

to Hoffman, to place correct address labels on the copies of the

pre-printed invoices retained for her internal files.3

     Travelhost also points to copies of the return portion of

certain invoices returned to Passport Magazine with payment for

advertising.4     Travelhost   claims   that   these   documents   are

significant because they show that Hoffman was using address labels

to correct the business address only after the district court

extended the injunction on April 29, 1994. However, at most, these

documents show that Hoffman was somewhat inconsistent in using

address labels on the return portion of the invoices sent to

advertisers.    An invoice dated April 30, 1994, to Hal Lowrie

Enterprises reflects a correct address label; invoices of the same

date to Executive Salon and L.G.T. Advertising do not.       Invoices

dated May 31, 1994 to Executive Salon and L.G.T. Advertising

reflect correct address labels;   an invoice of the same date to Hal

     3
      The district court noted this testimony and admitted these
invoices, Supp.Rec., Pl.Ex. 9, for all purposes except to show
the return address used for billings.
     4
      Supp.Rec., Pl.Ex. 16.

                                  12
Lowrie Enterprises does not.

     Travelhost also emphasizes the fact that after the transfer of

assets, Blandford continued to receive mail and remittances for

Passport Magazine at his address.               Hoffman admitted that some mail

continued    to    go   to       Blandford's    address,   but    testified   that

Blandford always delivered such mail to her.               Blandford testified

also that he received mail at his address after the transfer of

assets.     This     was     a   result,   Blandford    testified,     of   certain

advertisers failing to correct the mailing address for Passport

Magazine in their computers.            Blandford explained that the checks

he received were computer generated checks that were sent in

window-type       envelopes.         Indeed,    the   documents    introduced   by

Travelhost show that a check to Passport Magazine from Hal Lowrie

Enterprises dated May 17, 1994 was printed with Blandford's address

even though the portion of the invoice returned with the payment

reflected the new business address.5              It was Blandford's testimony

that the misdirected checks were turned over to Karen Hoffman.

Although Travelhost contends that certain monies were retained by

Blandford as a result of this "scheme", there is no evidence in the

record that supports this contention.

     Travelhost also argues that Beverly McIntyre's efforts in

transferring the computer billing program to Hoffman's computer

after January 1994 evidence Blandford's continued involvement in

the operations of the magazine. Hoffman admitted that McIntyre had

assisted    her    in   loading      Passport     Magazine's     computer   billing

     5
      Supp.Rec., Pl.Ex. 16.

                                           13
software onto her computer.     Hoffman and McIntyre both testified

that they believed the computer program to be one of the assets

transferred   under   the   Asset   Transfer   Agreement.   McIntyre,

Blandford's wife, testified that she had handled the billing for

Blandford's Passport Magazine.      She testified that because she was

the only person familiar with the billing program, she was the only

person able to assist Hoffman.           McIntyre also testified that

because of difficulty in making the program work on Hoffman's

computer, she assisted Hoffman with the program in February, March,

and April.    McIntyre also admitted to reprinting the January

billing for Hoffman so that Hoffman would have copies of the most

recent records.

     McIntyre testified that her assistance was done merely as a

favor to Karen Hoffman, and not because of any obligation or

agreement.    Blandford testified that he was not aware of the

problems Hoffman was having with the computer billing program or

his wife's efforts in transferring the program. Her assistance, he

testified, was not at his direction.        Hoffman and McIntyre both

testified that McIntyre was not involved in the operations of

Passport Magazine after January 14, 1994 other than her assistance

with the computer billing software.

      The testimony of Blandford, McIntyre, Bunyard, and Hoffman

regarding these circumstances consistently reflects an arms-length

transaction and a legitimate transfer of assets rather than the

conspiracy Travelhost alleges.      Travelhost points out, correctly,

that the district court was free to disbelieve or discredit this

                                    14
testimony.6    We recognize the deference appropriate in review of a

district court's credibility determination.            Fed.R.Civ.P. 52(a).

However, disbelief of a witness's testimony is not sufficient to

carry a plaintiff's burden or support the district court's finding

to the contrary.    Waffenschmidt, 763 F.2d at 724 (citing Nishikawa

v. Dulles, 356 U.S. 129, 137, 78 S. Ct. 612, 617, 2 L. Ed. 2d 659

(1958)).      The plaintiff "must still prove that [the nonparty]

respondents     aided   or    abetted    [Blandford]   through   clear   and

convincing evidence."        Id.

     The only other evidence Travelhost cites is the deposition

testimony of Constance McCord.            McCord was an employee of Carl

Blandford from December 1992 to August 1993. McCord testified that

while she worked for Blandford, he told her about the injunction

and told her to conduct business as usual.        She also testified that

Blandford indicated to her that there might come a time when

someone else would have to be the acting head of Passport Magazine,

but that he would still be involved.            The only evidence in the

record regarding Blandford's discussions with Bunyard and Hoffman

is that Blandford did not approach them about purchasing Passport

Magazine until December of 1993, months after Constance McCord left

his employ. McCord's testimony, although certainly relevant on the

question of Blandford's intentions in early 1993, offers very

little support of the district court's finding regarding the

actions of Bunyard and Hoffman.

     6
      In fact, the district court expressly discredited
Blandford's testimony because it found him not to be a credible
witness.

                                        15
        Finally, Travelhost contends that the lack of evidence that

Blandford was ever paid the consideration recited in the Asset

Transfer Agreement shows that the agreement was a sham. Travelhost

does    not    manage    to   establish       that   there    was     in   fact    no

consideration;          it argues merely that there is no proof any

consideration was actually paid.               This argument cannot prevail

because it attempts to place the burden of producing such evidence

on the non-parties.           It was Travelhost's burden in seeking a

contempt order to introduce any evidence it wanted to make a part

of the record.     It cannot now rely on a lack of evidence to support

the district court's order.

        We are aware that in reviewing for clear error, we are to

construe the evidence in a light most favorable to upholding the

district      court's    finding.    Waffenschmidt, 763 F.2d   at     714.

However, viewed even in that deferential light, the evidence of

record cannot adequately support the order of contempt against

appellants.      Therefore, we hold that the finding of the district

court that Travelhost showed by clear and convincing evidence that

Bunyard and Hoffman participated with Carl Blandford in a scheme to

violate the district court's injunction is clearly erroneous.

                               III. CONCLUSION

       For the reasons given above, the order of the district court

holding    the   non-parties     Karen    Hoffman     and    Steven    Bunyard     in

contempt is REVERSED.

                                         16