SCFC ILC, Inc. v. Visa USA, Inc.

• Citation: 936 F.2d 1096
• Decision Date: 18 June 1991
• Docket Number: No. 91-4042,91-4042
• Parties: 1991-1 Trade Cases 69,465 SCFC ILC, INC., dba MountainWest Financial, Inc., Plaintiff-Appellee, v. VISA USA, INC., Defendant-Appellant. American Bankers Association; Independent Bankers Association of America; Colorado Bankers Association; Utah Bankers Association; California Bankers Association; Resolution Trust Corporation; Amici Curiae, Bankcard Holders of America; the American Financial Services Association; Amici Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1096

936 F.2d 1096

1991-1 Trade Cases 69,465

SCFC ILC, INC., dba MountainWest Financial, Inc., Plaintiff-Appellee, v. VISA USA, INC., Defendant-Appellant American Bankers Association; Independent Bankers Association of America; Colorado Bankers Association; Utah Bankers Association; California Bankers Association Resolution Trust Corporation; Amici Curiae Bankcard Holders of America; the American Financial Services Association; Amici Curiae.

No. 91-4042.

United States Court of Appeals Tenth Circuit.

June 18, 1991.

Stephen V. Bomse of Heller, Ehrman, White & McAuliffe, San Francisco, Cal. (M. Laurence Popofsky, Jessica S. Pers, and Joshua R. Floum of Heller, Ehrman, White & McAuliffe, San Francisco, Cal., and Dale A. Kimball and Clark Waddoups of Kimball, Parr, Waddoups, Brown & Gee, Salt Lake City, Utah assisting with the briefs), for defendant-appellant.

William H. Pratt of Kirkland & Ellis, Chicago, Ill. (Richard W. Giauque and Gary F. Bendinger of Giauque, Crockett & Bendinger, Salt Lake City, Utah, and James D. Sonda, Randall A. Hack, James H. Gale, and Leonard A. Gail of Kirkland & Ellis, Elwood Holstein, Jr., Herndon, Virginia, and Mark Wallach of Wallach, Turkish, and Wallach, New York City, on the brief, for amicus curiae, Bankcard Holders of America.

Chicago, Ill. assisting with the briefs), for plaintiff-appellee.

Frank M. Salinger and Robert E. McKew, Washington, D.C., on the brief, for amicus curiae, American Financial Services Ass'n.

Leonard J. Rubin of Bracewell & Patterson, Washington D.C., Jac K. Sperling and Craig A. Umbaugh of Fairfield & Woods, Denver, Colo., on the brief, for amici curiae, Independent Bankers Ass'n, American Bankers Ass'n, Colorado Bankers Ass'n, Utah Bankers Ass'n, and California Bankers Ass'n.

Alfred J.T. Byrne, General Counsel, Dorthy L. Nichols, Associate Gen. Counsel, Ann S. Cuross and Richard T. Aboussie, Asst. Gen. Counsel, Colleen B. Bombardier, Sr. Counsel, and Lawrence H. Richmond, Counsel, Washington, D.C. on the brief, for amicus curiae, Resolution Trust Corp.

Before HOLLOWAY, Chief Circuit Judge, and EBEL, and BRIGHT, ^* Circuit Judges.

EBEL, Circuit Judge.

The issue on appeal is whether the district court erred in granting a preliminary injunction that would require the appellant to approve the manufacture and delivery of a large number of charge cards to the appellee, which intends to solicit in excess of one million potential customers to use the charge cards. Where a requested preliminary injunction will alter the status quo, the movant must show that on balance, the traditional four factors weigh heavily and compellingly in favor of granting the injunction. Because the district court below erroneously determined that the preliminary injunction requested by the appellee would not alter the status quo, it failed to require the movant to meet this heavy burden. Upon reviewing the record below, we determine that the movant did not meet the burden required of it, and that, therefore, the preliminary injunction imposed by the district court was improper. We REVERSE.

FACTS

In mid-1989, Sears, through its wholly-owned subsidiary, Greenwood Trust Corporation (the issuer of the Discover Card), applied to Visa, U.S.A. ("Visa") to become a Visa member. Visa denied Sears' application. Immediately thereafter, the Board of Directors of Visa enacted several amendments to the Visa by-laws and operating regulations specifically precluding Sears or any of its subsidiaries from issuing Visa cards. ¹

On May 25, 1990, SCFC ILC, Inc. ("SCFC"), another wholly-owned subsidiary of Sears, acquired MountainWest Savings & Loan, a small Utah savings & loan, from the Resolution Trust Corporation ("RTC"). As a result of its purchase of MountainWest, Sears acquired a small Visa program which had been operated by the former MountainWest for the benefit of the local depositors. ²

In June of 1990, following the SCFC takeover, Visa requested MountainWest to reapply for Visa membership pursuant to MountainWest's membership in Visa to launch its very aggressive Prime Option credit card program, Visa refused to approve the card order.

                its interpretation of Visa By-law Sec. 2.08. 3   MountainWest filled out the forms as requested, but because it was taking the position that the "Visa membership asset" had not been transferred, it printed at the top of the forms, "updating existing membership information."    MountainWest did not at that time notify Visa that it was owned by a subsidiary of Sears, SCFC.  On January 8, 1991, Visa's suspicions were aroused when it was notified that MountainWest had ordered 1.5 million Visa cards.  The size of the order alone was sufficient to trigger an investigation by Visa because MountainWest, prior to being acquired by SCFC, had issued only 5,800 Visa cards to its account holders.  MountainWest requested that the cards be printed with a "Prime Option" logo, which is a registered trademark of Dean Witter, a Sears' subsidiary.  Once Visa realized that MountainWest was indirectly owned by Sears, and that Sears was attempting to use
                

MountainWest filed suit in the United States District Court for the District of Utah raising federal and state antitrust and state unfair trade practice claims. Shortly after filing the lawsuit, MountainWest moved for a preliminary injunction to force Visa to approve the manufacture and delivery of the 1.5 million cards ordered by MountainWest. The district court granted the preliminary injunction. 763 F.Supp. 1094. Visa appealed to this court and requested that we stay the injunction pending our resolution of the issues. We granted Visa's request for a stay.

DISCUSSION

We must determine whether the district court erred in granting MountainWest's motion for a preliminary injunction. We will not set aside a preliminary injunction "[u]nless the district court abuses its discretion, commits an error of law, or is clearly erroneous in its preliminary factual findings...." Hartford House, Ltd. v. Hallmark Cards, 846 F.2d 1268, 1270 (10th Cir.1988), cert. denied, 488 U.S. 908, 109 S.Ct. 260, 102 L.Ed.2d 248 (1988). We will set aside a preliminary injunction if the district court applied the wrong standard when deciding to grant the preliminary injunction motion. See Zepeda v. United States I.N.S., 753 F.2d 719, 724-25 (9th Cir.1983).

In order to obtain preliminary injunctive relief, the moving party must establish:

(1) substantial likelihood that the movant will eventually prevail on the merits; (2) a showing that the movant will suffer irreparable injury unless the injunction issues; (3) proof that the threatened injury to the movant outweighs whatever damage the proposed injunction may cause the opposing party; and (4) a showing that the injunction, if issued, would not be adverse to the public interest.

Otero Savings and Loan Ass'n, 665 F.2d 275, 278 (10th Cir.1981) (citations and quotations omitted). As a preliminary injunction is an extraordinary remedy, see GTE Corp. v. Williams, 731 F.2d 676, 678 (10th Cir.1984), the right to relief must be clear and unequivocal. See Penn v. San Juan Hosp., 528 F.2d 1181, 1185 (10th Cir.1975); Matzke v. Block, 542 F.Supp. 1107, 1112-13 (D.Kan.1982). See generally 11 C. Wright & A. Miller, Federal Practice and Procedure Sec. 2948, at 428-29 & nn. 19-21 (1973 & Supp.1991) ("It frequently is observed that a preliminary injunction is an extraordinary and drastic remedy, one that should not be granted unless the movant, by a clear showing, carries the burden of persuasion." (footnotes omitted)).

In addition, the following types of preliminary injunctions are disfavored and they require that the movant satisfy an even heavier burden of showing that the four factors listed above weigh heavily and compellingly in movant's favor before such an injunction may be issued: (1) a preliminary injunction that disturbs the status quo; (2) a preliminary injunction that is mandatory as opposed to prohibitory; and (3) a preliminary injunction that affords the movant substantially all the relief he may recover at the conclusion of a full trial on the merits.

A preliminary injunction that alters the status quo goes beyond the traditional purpose for preliminary injunctions, which is only to preserve the status quo until a trial on the merits may be had. See Otero Savings and Loan Association, 665 F.2d at 277; Penn, 528 F.2d at 1185. See generally Federal Practice & Procedure Sec. 2948, at 463-64. Mandatory injunctions are more burdensome than prohibitory injunctions because they affirmatively require the nonmovant to act in a particular way, and as a result they place the issuing court in a position where it may have to provide ongoing supervision to assure that the nonmovant is abiding by the injunction. See Note, 78 Harv.L.Rev. 994, 1062-63 (1965). Finally, a preliminary injunction that awards the movant substantially all the relief he may be entitled to if he succeeds on the merits is similar to the "Sentence first--Verdict Afterwards" type of procedure parodied in Alice in Wonderland, ⁴ which is an anathema to our system of jurisprudence. Thus, in order to prevail on a motion for preliminary injunction where the requested injunction falls into one or more of these three categories, the movant must show that on balance, the four factors weigh heavily and compellingly in his favor. See, e.g., GTE Corp., 731 F.2d at 679 ("The burden on the party seeking a preliminary injunction is especially heavy when the relief sought would in effect grant plaintiff a substantial part of the relief it would obtain after a trial on the merits."); Citizens Concerned for the Separation of Church and State v. City and County of Denver, 628 F.2d 1289, 1299 (10th Cir.1980), cert. denied, 452 U.S. 963, 101 S.Ct. 3114, 69 L.Ed.2d 975 (1981) (requiring a showing of compelling circumstances to justify the imposition of preliminary injunctive relief that was mandatory and which disturbed the status quo); ⁵ ...