American Games, Inc. v. Trade Products, Inc., 97-35275

• Decision Date: 28 April 1998
• Docket Number: No. 97-35275,97-35275
• Citation: 142 F.3d 1164
• Parties: , 98 Cal. Daily Op. Serv. 3138, 98 Daily Journal D.A.R. 4357 AMERICAN GAMES, INC., Intervenor-Appellant, v. TRADE PRODUCTS, INC., Plaintiff-Appellee, and Stuart Entertainment, Inc., Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1164

142 F.3d 1164

46 U.S.P.Q.2d 1628, 98 Cal. Daily Op. Serv. 3138,

98 Daily Journal D.A.R. 4357

AMERICAN GAMES, INC., Intervenor-Appellant, v. TRADE PRODUCTS, INC., Plaintiff-Appellee and Stuart Entertainment, Inc., Defendant-Appellee.

No. 97-35275.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 2, 1997.

Decided April 28, 1998.

Gregory A. Castanias, Thomas M. Fisher, Jones, Day, Reavis & Pogue, Washington, DC, for intervenor-appellant.

William S. Strong, Eileen Hagerty, Kotin, Crabtree & Strong, Boston, MA, for defendant-appellee.

William J. Bender, Skellinger, Bender, Mathias & Bender, Seattle, WA, for plaintiff-appellee.

Appeal from the United States District Court for the Western District of Washington; Carolyn R. Dimmick, District Judge, Presiding. D.C. No. CV-94-01440-CRD.

Before: REAVLEY, ^* BOOCHEVER, and KLEINFELD, Circuit Judges.

BOOCHEVER, Circuit Judge:

This appeal by an intervenor involves a district court decision to vacate a judgment after the controversy between the original parties was mooted by an asset sale that effectively merged the two companies. The district court determined that the intervenor had standing, but that the merger was motivated by legitimate business reasons only incidental to the mooted case. The court concluded that the equities favored vacatur. We affirm.

I. Facts and Procedural History

Stuart Entertainment ("Stuart") holds copyrights on several bingo card series. Stuart sued Trade Products, Inc. in a Washington federal district court for allegedly infringing its bingo card copyrights. On a summary judgment motion the district court ruled that the bingo card series were not copyrightable. Stuart appealed.

Meanwhile, in an Iowa federal district court, Stuart sued a third company, American Games, Inc., for alleged infringement of copyrights to a similar bingo card series. American Games defeated Stuart's motion for a preliminary injunction in that case by pointing to the Washington court's earlier judgment, which allegedly persuaded the Iowa district court that Stuart could not show probable success upon a trial on the merits. American Games began monitoring the progress of the Trade Products suit in Washington.

While the Trade Products case was pending on appeal, Stuart learned that a deal to sell Trade Products to a Canadian company had fallen through and the owners of Trade Products were seeking a new buyer. Stuart and Trade Products entered into negotiations, during which they sought and obtained postponement of oral argument in the pending appeal. The two companies reached an agreement whereby Stuart acquired Trade Products' assets for $37 million and Trade Products' three shareholders became directors of Stuart. As a result of that merger, the parties' interests were no longer adverse, and the case on appeal became moot. The parties requested dismissal of the appeal and vacation of the district court judgment. This court dismissed the appeal and remanded to the district court "for the purpose of considering the motion for vacatur" and to decide whether to permit American Games to intervene to oppose that motion.

On remand, the district court permitted American Games to intervene. Stuart argued that vacatur was appropriate under the rule of United States v. Munsingwear, Inc., 340 U.S. 36, 71 S.Ct. 104, 95 L.Ed. 36 (1950), because the case was mooted by the "happenstance" of the merger. The district court disagreed because the Supreme Court described "happenstance" as circumstances unattributable to the parties, whereas the merger was the work of the parties. Nor did the district court apply the rule of U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership, 513 U.S. 18, 115 S.Ct. 386, 130 L.Ed.2d 233 (1994), that cases mooted by settlement should be vacated only in "exceptional circumstances." Based on testimony by the principals of Stuart and Trade Products, the district court determined that the merger was motivated by legitimate business reasons only incidental to the mooted case, and not for the purpose of settling the case. The court decided that this case "falls somewhere between Bonner Mall (mootness by settlement) and Munsingwear (mootness by happenstance)." Then, following Dilley v. Gunn, 64 F.3d 1365 (9th Cir.1995), a Ninth Circuit case involving a roughly analogous situation and decided after Bonner Mall, the court performed an equitable balancing of the hardships and the public interests at stake, which it concluded weighed in favor of vacatur. The district court issued the vacatur order, and American Games appealed.

II. Standard of Review

This court reviews a district court's grant of vacatur for abuse of discretion. National Union Fire Ins. Co. v. Seafirst Corp., 891 F.2d 762, 765 (9th Cir.1989).

III. Analysis

A. Intervenor's Standing to Appeal District Court's Vacatur

Stuart questions whether American Games has standing to pursue this appeal because its intervention was granted by the district court merely "[i]n the interest of full discussion of the issues." "[A]n intervenor's right to continue a suit in the absence of the party on whose side intervention was permitted is contingent upon a showing by the intervenor that he fulfills the requirements of Art. III." Diamond v. Charles, 476 U.S. 54, 68, 106 S.Ct. 1697, 1706, 90 L.Ed.2d 48 (1986).

"Article III of the Constitution limits the power of federal courts to deciding 'cases' and 'controversies,' " id. at 61, 106 S.Ct.at 1703, and requires " 'the party who invokes the court's authority to show that he personally has suffered some actual or threatened injury ... and that the injury fairly can be traced to the challenged action and is likely to be redressed by a favorable decision.' " Id. at 70, 106 S.Ct. at 1708 (quoting Valley Forge Christian College v. Americans United for Separation of Church and State, Inc., 454 U.S. 464, 472, 102 S.Ct. 752, 758, 70 L.Ed.2d 700 (1982)) (internal citations and quotations omitted); see Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 2136, 119 L.Ed.2d 351 (1992).

American Games is the defendant in an Iowa lawsuit brought by Stuart which raises the same or similar copyright issues presented in this case. American Games stands to benefit directly from the preclusive effect of the district court's decision on those issues if that court's vacatur decision is reversed. The actual or threatened injury to American Games is the loss of the preclusive force of the district court's decision. That loss is traceable to the district court's vacatur order, and is redressable by favorable action on appeal should this court decide to reverse that vacatur order, restoring the decision. Thus, American Games satisfies the constitutionally required minima for standing in an Article III court.

B. Standard for Vacatur

Stuart claims that the district court erred in employing an equitable balancing test to determine whether to vacate its own unreviewed judgment, mooted by voluntary action of the parties, rather than applying Bonner Mall's "exceptional circumstances" test.

The intervenor and the parties agree that an appellate court should not vacate a district court decision mooted while pending on appeal unless it was mooted either by "happenstance," United States v. Munsingwear, 340 U.S. 36, 40, 71 S.Ct. 104, 107, 95 L.Ed. 36 (1950), or, if mooted by settlement, there exist "exceptional circumstances" to justify vacatur. U.S. Bancorp v. Bonner Mall, 513 U.S. 18, 29, 115 S.Ct. 386, 393-94, 130 L.Ed.2d 233 (1994). However, the intervenor and the parties dispute whether the Bonner Mall "exceptional circumstances" test applies when, as here, a district court vacates its own decision after an appellate court remands for the trial court to decide whether a motion for vacatur should be granted.

In Bonner Mall, the Supreme Court fashioned a rule to guide its own decisions whether to vacate lower court judgments, and then announced that "it is appropriate to discuss the relevance of our holding to motions at the court of appeals level for vacatur of district-court judgments." 513 U.S. at 28, 115 S.Ct. at 393. The Court extended to the appellate courts the holding of the case, that "mootness by reason of settlement does not justify vacatur of a judgment under review " except in "exceptional circumstances." Id. at 29, 115 S.Ct. at 393 (emphasis added). The Supreme Court then closed its discussion by stating:

Of course even in the absence of, or before considering the existence of, extraordinary circumstances, a court of appeals presented with a request for vacatur of a district-court judgment may remand the case with instructions that the district court consider the request, which it may do pursuant to Federal Rule of Civil Procedure 60(b).

Id. The proper interpretation of that sentence lies at the heart of this dispute. If the Bonner Mall "exceptional circumstances" rule does govern district courts' vacatur decisions, the district court in this case applied the wrong legal standard. ¹ If, on the other hand, the district court need only balance the equities, as contemplated by F.R.C.P. Rule 60(b)(5), it did not err.

Rule 60(b) provides in relevant part:

On motion and upon such terms as are just, the court may relieve a party or a party's legal representative from a final judgment, order, or proceeding for the following reasons: ... (5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation of the judgment.

Rule 60 provides the basis for a district courts' vacation of judgments when the equities so demand, but it does not establish what substantive standards should be employed. The advisory committee notes to the 1946 amendments include the following commentary: "It should be noted that Rule...