Apex Fountain Sales, Inc. v. Kleinfeld, 93-1943

• Decision Date: 29 June 1994
• Docket Number: No. 93-1943,93-1943
• Citation: 27 F.3d 931
• Court: U.S. Court of Appeals — Third Circuit
• Parties: APEX FOUNTAIN SALES, INC. v. Ernie KLEINFELD; Flo Aire, Inc.; Ralph Kearney, Jr.; Michael Kearney; Ralph Kearney & Son, Inc., Appellants.

Page 931

27 F.3d 931

29 Fed.R.Serv.3d 1081

APEX FOUNTAIN SALES, INC. v. Ernie KLEINFELD; Flo Aire, Inc.; Ralph Kearney, Jr. Michael Kearney; Ralph Kearney & Son, Inc., Appellants.

No. 93-1943.

United States Court of Appeals Third Circuit.

Argued March 2, 1994.

Decided June 29, 1994.

Robert J. Sugarman (Argued), Sugarman & Associates, Philadelphia, PA, for appellants.

Norman Perlberger (Argued), Jeffrey A. Cohen, Perlberger Law Associates, P.C., Bala Cynwyd, PA, Stephen E. Feldman, Kenneth S. Feldman, of counsel, for appellee.

Before: SLOVITER, Chief Judge, ALITO, Circuit Judge and PARELL, ^* District Judge

OPINION OF THE COURT

SLOVITER, Chief Judge.

The dispute between the parties to this appeal is no stranger to this court. See Apex Fountain Sales, Inc. v. Kleinfeld, 818 F.2d 1089 (3d Cir.1987) (Apex II ). This bitter business litigation shows no sign of abating, and it is likely that we will see it again since neither settlement nor proceedings akin to arbitration have reduced the animosity shown by the parties as well as their lawyers. In this appeal defendant-appellant Ralph G. Kearney & Son, Inc. appeals from a finding of contempt for violating a 1985 consent decree settling a suit initiated by appellee Apex Fountain Sales, Inc. claiming Kearney infringed Apex's trademarks in champagne fountains. We also have pending a related appeal from a permanent injunction involving the same parties but a different fountain. See Apex Fountain Sales, Inc. v. Kleinfeld, 30 F.3d 1484 (3d Cir.1994) (Apex IV ). While we are cognizant that the parties desire a resolution of this phase of this lengthy litigation, we must dismiss this appeal because the district court's contempt order is not yet final.

I. FACTS AND PROCEDURAL HISTORY

Apex Fountain Sales, Inc. manufactures champagne fountains, decorative devices containing a pump that are used for filling glasses of champagne or punch by means of a fountain arrangement. Apex used to purchase parts for its fountains from Ralph G. Kearney & Son, Inc. ¹ After a contract dispute between them, Kearney used the parts it manufactured for Apex to market its own, virtually identical, fountains. Apex sued Kearney in 1983 for infringement of its trademark and trade design under the Lanham Act, 15 U.S.C. Sec. 1125(a) (1988). The parties entered into a comprehensive settlement agreement which was incorporated into a consent decree entered by the district court on August 14, 1984.

The crucial portion of the consent decree for purposes of the contempt findings is paragraph seven, which provided:

Defendants will change their fountain design so that the fountains can no longer be identified as Apex Fountains and no longer use the Trademarks. Defendants will submit their new fountain designs for prior written approval to a panel consisting of Alvin Gruber, Ralph Kearney, Sr. and a third person to be chosen by the consent of Gruber and Kearney to decide on a majority basis whether the fountain designs meet the above standard and that decision will be binding on the parties.

App. at 13.

On January 4, 1985, Apex moved for contempt because Kearney was still selling the fountains it had promised not to sell. On January 24, 1986, the parties entered a stipulation settling Apex's contempt claim for $75,000, releasing "defendants from any and all liability resulting, directly or indirectly from the conduct alleged in the contempt Motion." App. at 41.

Meanwhile, because the parties could not agree on a third member for the design panel as contemplated by the consent decree, the court, on petition by Kearney, appointed a Philadelphia patent and trademark lawyer, Manny Pokotilow, as the third panelist. Apex appealed the order and we affirmed the court's decision. See Apex Fountain Sales, Inc. v. Kleinfeld, 800 F.2d 1130 (3d Cir.1986) (table) (Apex I ).

The Pokotilow panel convened in November 1985 to consider two fountain designs submitted by Kearney for approval, the Moselle and the Ameretta. Both fountains were rejected on December 18, 1985 because they were likely to be confused with Apex's. See Pokotilow I, App. at 34. However, the panel stated that if certain specific changes were made "the panel will consider these fountains not likely to be confused with those of the Plaintiff." App. at 48. The district court "accept[ed], adopt[ed] and confirm[ed]" this opinion on March 17, 1986. App. at 37.

Kearney altered the fountains to comply with the panel's suggestions, but also modified the fountains in two other respects which Apex claimed made them more similar. Kearney then marketed the two designs and the Grand Chablis (another fountain design), exhibiting them at the Chicago Trade Fair in May 1986. Apex sought to hold Kearney in contempt for failing to get these fountains pre-approved by the panel. The district court appointed the panel as a board of special masters and referred the issue to them. In September 1986, acting in this capacity, the panel reviewed the fountains. In effect its ruling recommended against contempt because it found that: (1) its earlier decision in Pokotilow I authorized Kearney to market fountains which complied with the panel's recommendations without having them reviewed by the panel; (2) the two additional modifications were immaterial; and (3) the Grand Chablis did not violate the consent decree. See Pokotilow II, App. at 49, 52, 56. The district court adopted and confirmed this opinion on October 10, 1986 and found "that the proposed ... designs submitted to the Panel ... and displayed at the exhibit in Chicago, Illinois are in conformity with the Order of this Court dated March 17, 1986." App. at 58. Apex appealed.

Our opinion on appeal dealt with three separate issues. First, we held that the statement in Pokotilow I that certain changes would bring the fountains submitted into compliance was "mere dicta," Apex II, 818 F.2d at 1095, and thus we declined to overturn the district court's approval of Pokotilow I despite our concerns that such language was contrary to the consent decree. Second, we held that the district court erred in referring the contempt proceeding to a panel of special masters. See id. at 1096-97. Finally, we rejected the holding of the panel in Pokotilow II that "no approval was necessary so long as Kearney complied with the suggestions" in Pokotilow I. We held that the panel recommendations "could not exempt Kearney from the obligation to submit new designs to the panel before exhibiting them." Id. at 1097-98. We concluded that "[b]ecause it exhibited new fountains without the prior approval of the panel, Kearney would appear to be in contempt of the consent decree. There may be defenses to the contempt charge, however, and this issue has not been properly presented either to the district court or to this court." Id. at 1098. We directed that "[o]n remand, the district court should hold a hearing to determine if Kearney is in contempt, and if so, to determine the appropriate sanction." Id.

After this decision, Kearney continued to market the fountains approved by Pokotilow II without any changes. Apex petitioned for contempt in September 1987 and again in August 1988, and although the district court scheduled hearings on at least two occasions, it never completed them. Then a newly constituted design panel, Karl L. Spivak presiding, met in July 1989 to consider whether three fountains, the Moselle, the Ameretta and the Grand Chablis, violated the consent decree. In its October 6, 1989 decision, the panel rejected the Moselle and approved the Ameretta and Grand Chablis. See Spivak I, App. at 84. In a second hearing, Apex sought reconsideration of the approval of the Ameretta and Grand Chablis, and Kearney sought approval of a modified Moselle. The design panel rejected Apex's position, and approved all three fountains, the Ameretta, Grand Chablis, and the modified Moselle, in July 1990. See Spivak II, App. at 88.

Responding to a fifth motion for contempt filed in July 1992, the district court held two days of hearings in May 1993 regarding Apex's pending contempt motions. ² The first witness at the hearing was Apex's accountant who testified about its losses in fountain sales. During cross-examination, the court secured the agreement of the parties that an independent accountant would audit the books of both companies. The remainder of the hearing consisted of viewing the fountains and hearing testimony from the principals of Kearney and Apex. After receiving proposed findings of fact and conclusions of law, the district court entered a contempt order against Kearney on July 7, 1993. It concluded that

Apex has demonstrated by clear and convincing evidence that Kearney knowingly failed to comply with the requirements of the ... consent decree in the following respects:

a. It violated, ab initio, the provisions of p 7 of the parties' agreement by failing to submit its Moselle and Ameretta designs for prior design panel approval.

b. It exhibited the Grand Chablis fountain at the Chicago trade show which was never shown to the Pokotilow panel.

c. Kearney continued to market the never approved original Moselle model along with the approved modified Moselle.

App. at 104-05.

The court recognized that the remedy for civil contempt must either insure compliance or compensate for past violations. To insure compliance, it ordered Kearney to turn over the equipment used to manufacture the infringing articles to the United States Marshall for destruction. To grant compensation, it ordered Kearney and Apex to submit to an audit by "a certified public accountant who shall, using standard accepted accounting principles, determine the net profit which would have been realized by Apex Fountain Sales, Inc. utilizing Kearney gross sales figures of infringing fountains," App. at 108, which would then be entered as a judgment in favor of Apex. App. at 109. "Infringing fountains" was defined to include the Moselle and Ameretta "from the date...