Coastal Corp. v. Texas Eastern Corp.

• Decision Date: 29 March 1989
• Docket Number: No. 89-2065,89-2065
• Citation: 869 F.2d 817
• Parties: , Fed. Sec. L. Rep. P 94,379, 13 Fed.R.Serv.3d 1438 The COASTAL CORPORATION, A Delaware Corporation, and Colorado Interstate Corporation, A Delaware Corporation, Plaintiffs-Appellees, v. TEXAS EASTERN CORPORATION, A Delaware Corporation, I. David Bufkin, Dennis R. Hendrix and Henry H. King, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 817

869 F.2d 817

57 USLW 2626, Fed. Sec. L. Rep. P 94,379,

13 Fed.R.Serv.3d 1438

The COASTAL CORPORATION, A Delaware Corporation, and

Colorado Interstate Corporation, A Delaware

Corporation, Plaintiffs-Appellees, v. TEXAS EASTERN CORPORATION, A Delaware Corporation, I. David

Bufkin, Dennis R. Hendrix and Henry H. King,

Defendants-Appellants.

No. 89-2065.

United States Court of Appeals, Fifth Circuit.

March 29, 1989.

Charles Alan Wright, Austin, Tex., Ewing Werlein, Jr., Charles W. Schwartz, Vinson & Elkins, Houston, Tex., for defendants-appellants.

John L. Jeffers, G. Irvin Terrell, Baker & Botts, Houston, Tex., for plaintiffs-appellees.

Appeal from the United States District Court For the Southern District of Texas.

Before GARZA, JOLLY and JONES, Circuit Judges.

EDITH H. JONES, Circuit Judge:

An injunction procured by material misrepresentation may not be sustained. The circumstances in this case demonstrate that Coastal has not sought equitable relief with clean hands. We therefore vacate the district court's injunction against the commencement of parallel litigation in any other court.

I.

On Friday, January 13, 1989, Coastal's management tentatively decided to embark on a hostile tender offer at $42 per share for Texas Eastern. Coastal immediately engaged the services of Skadden, Arps, Slate, Meagher & Flom to assist with legal strategy. Coastal, through its counsel Skadden Arps, filed a complaint against Texas Eastern in Delaware Chancery court at 5:04 p.m. the same day. The complaint was filed "under seal," allegedly to protect Coastal from premature leaks of the impending offer. That day, Coastal also retained the law firm of Baker & Botts. Baker & Botts was aware of the Delaware filing.

On Saturday, January 14, Coastal's board met, discussed and approved the tender offer. The next day Coastal filed the instant complaint in federal district court, seeking to enjoin Texas Eastern from raising any legal challenges to Coastal's tender offer outside the Southern District of Texas. Coastal also sought to enjoin Texas Eastern from implementing its Shareholder Rights Plan ("poison pill") or invoking the protection of 8 Del.Code Sec. 203. Finally, Coastal sought a declaratory judgment that each one of Texas Eastern's anticipated defenses to the tender offer was invalid. ¹ It is significant that injunctive and declaratory relief were the only remedies sought by Coastal, because neither of these remedies may be automatically granted by a federal court. The judicial basis for such remedies is narrow, as comports with the demands of equity and--where state proceedings of some kind are possible--federalism.

Coastal requested a temporary restraining order against Texas Eastern the night of Sunday January 15. The district court granted this request ex parte, and, after hearing arguments of counsel the next day (no evidence was offered), extended its initial order as a preliminary injunction against the instigation by either party of litigation relating to the tender offer without leave of the district court. During the colloquy on Monday, the court asked counsel for Coastal whether any litigation was pending elsewhere between the parties; counsel flatly denied that any such litigation existed.

Coastal's counsel did not reveal that the "secret complaint" had been filed in Delaware to secure that forum for adjudication of Texas Eastern's poison pill and other state law defenses. The omission is alleged to be both inadvertent and irrelevant--inadvertent because of the highly dubious contention that counsel misunderstood the district court's question; and irrelevant because Coastal's president had already made a command decision to drop the "secret suit" as soon as possible in favor of litigating in a Texas federal court.

The "secret complaint" was indeed dismissed unilaterally by Coastal at 8:34 a.m. on Tuesday, without notification to Texas Eastern that it existed and after Coastal had procured an injunction suitable to its purpose from the federal district court. The filing was revealed during document discovery several weeks later, when, according to Texas Eastern, the "secret complaint" The district court granted its preliminary injunction in favor of Coastal on January 16, 1989. Texas Eastern subsequently filed an appeal of the order with this court. We granted an expedited appeal and heard arguments in this case on February 6, 1989. The case was initially briefed and argued by Coastal as if no "secret complaint" had ever existed. While this appeal was before us, both we and the district court were informed by Texas Eastern of the just-disclosed Delaware complaint. On February 20, 1989 the district court sua sponte dissolved the preliminary injunction.

was discovered shuffled among Coastal documents dated in 1983.

II.

Coastal first challenges our jurisdiction to consider the propriety of the preliminary injunction, because the district court's subsequent dissolution of the injunction moots the issue before us. In response, Texas Eastern contends that the district court lacked jurisdiction to dissolve its injunction once the issue of its validity has been appealed. Coastal's claim is not frivolous, and we must first determine whether we can thread our way through an imposing thicket of jurisdictional thorns.

The law of this circuit, standing alone, does not completely remove us from the bramblebushes. As a general rule, a notice of appeal ousts the district court of jurisdiction over the judgment or order appealed. U.S. v. Hitchmon, 587 F.2d 1357 (5th Cir.1979); accord Henry v. Independent American Savings Ass'n, 857 F.2d 995 (5th Cir.1988). Thus it may be that the district court lacked jurisdiction to dissolve its injunction, once appealed, without leave of this court. Our circuit has not, however, specifically addressed the scope of the district court's jurisdiction over its injunction while it is on appeal.

The concurring opinion in Hitchmon noted the exception to this rule which would allow a district judge to retain jurisdiction for purposes of granting or modifying an injunction subsequent to the filing of an appeal of the injunction. U.S. v. Hitchmon, 587 F.2d at 1362 (Higginbotham, J. concurring) (citing 9 J. Moore, Moore's Federal Practice Sec. 203.11 (1974)). In fact, Fed.R.Civ.P. 62(c) does allow the district court some limited injunctive powers during the pendency of an appeal. Our task is to define the boundaries of this power.

Nor does Fed.R.Civ.P. 62 speak clearly to the district court's continuing jurisdiction. Rule 62(c) provides in pertinent part:

(c) Injunction Pending Appeal. When an appeal is taken from an interlocutory or final judgment granting, dissolving, or denying an injunction, the court in its discretion may suspend, modify, restore, or grant an injunction during the pendency of the appeal upon such terms as to bond or otherwise as it considers proper for the security of the rights of the adverse party.

The rule authorizes the suspension, modification, restoration or grant of injunction, not the dissolution of an injunction already granted. Arguably, the term "modify" might be seen as encompassing a dissolution. Yet if that were the case, the terms "suspend" and "restore" would be superfluous. The omission of "dissolutions" appears to indicate a limit on the district court's power to modify an injunction pending appeal, where the effect of its order would be to oust the appellate court's jurisdiction. The use of the word "suspend" rather than "dissolve" in this portion of the Rule further suggests that the district court's power does not extend so far. The drafters were obviously aware of the distinction between a suspension and a dissolution, as they had spoken to dissolutions just one line before.

Several circuits have held, or at least strongly implied, that the district court may not alter the injunction once an appeal has been filed except to maintain the status quo of the parties pending the appeal. Flynt Distributing Co., Inc. v. Harvey, 734 F.2d 1389, 1392 n. 1 (9th Cir.1984); Lewis v. Tobacco Worker's Internat'l Union, 577 F.2d 1135 (4th Cir.1978); Ideal Toy Corp. v. Sayco Doll Corp., 302 F.2d 623 (2nd Cir.1962).

Under the Second Circuit's Sayco doctrine, once the injunction has been appealed the district court lacks jurisdiction "to tamper in any way with the order then on interlocutory appeal other than to issue orders designed to preserve the status quo of the case as it sat before the court of appeals." For example, a district court cannot generally accept new evidence or arguments on the injunction while the validity of the injunction is on appeal. State of New York v. Nuclear Reg. Com'n., 550 F.2d 745, 758 (2nd Cir.1977). Sayco itself involved a motion to vacate an injunction based on new evidence brought before the district court while the validity of the injunction was on appeal. The Sayco doctrine does not provide the clearest guidance to district courts, however, because the doctrine itself appears to recognize an exception for cases in which the "[district] judge is satisfied that his order was erroneous." Sayco, 302 F.2d at 625. If, however, the general rule in Sayco is to have any substance, this exception must be read to restrict modifications to those which stop short of dissolving the injunction or those which do not, in any event, alter the status of the case as it rests before the court of appeals.

The common sense appeal of Sayco was recently demonstrated in International Ass'n of Machinists v. Eastern Airlines, 847 F.2d 1014 (2nd Cir.1988). That case presented the inverse scenario. The federal district court denied the injunction, and its decision was appealed. While on appeal, the district court granted the injunction based on new facts which had come to light. The Second Circuit held that it maintained jurisdiction over the appeal and that the district court lacked authority to exercise injunctive power which would alter the...