Doctor's Assoc. v. Reinert & Duree

• Court: U.S. Court of Appeals — Second Circuit
• Writing for the Court: LEVAL
• Citation: Doctor's Assoc. v. Reinert & Duree, 191 F.3d 297 (2nd Cir. 1998)
• Decision Date: 01 August 1998
• Docket Number: Docket No. 98-9156
• Parties: (2nd Cir. 1999) DOCTOR'S ASSOCIATES, INC., Plaintiff-Appellee, v. REINERT & DUREE, P.C., DAVID M. DUREE, WILLIAM HARGETT, MARY HARGETT, RICHARD BELLON, DANIEL WOLF, PATRICIA BATCHMAN, BARBARA WINGO, PAMELA DUTTON BAKER, TONY MAJCHER, LAURENT BASSE, FLORENCE BASSE, ANUPAL CHEEMA, RAKESH BHATNAGAR, BIPIN DESARI, DENNIS DUVAL, KATHLEEN DUVAL, SRIDHAR DRONAVALLI, JIM HOBSON, WILLIAM HAFEY HYLE, GEORGE MEDINA, LEE MILLER, SONJA MILLER, JEFF MOE, KYONG SUN MUN, RUTH REED, PHIL REED, NANAK SINGH, LORITA WHITNEY, JOHN F. DEE, CAROL J. DEE, DAN KEATING, KEVIN BOOK, TIM CZARKOWSKI, CARY CZARKOWSKI, KATHY NICHOLAS, SAYED QASIM, CHERYL LENART, CHARLES DIPRIMA, STEVEN DIPRIMA, THOMAS P. VERRI, ROBERT LEONARD, MICHAEL LEONARD, ANASTASIOS KALLOPOULOS, JAGJIT S. SAHOTA, HARMINDER KALIRAI, SUMAN GREWAL, HOWARD BREZNER, ROCHELLE BREZNER, DAVID T. LATIMER, LESTER C. BOWERS, JUDITH A. BOWERS, DENNIS DESPAIN, TERRY DESPAIN, TIM SPOHR, CHERYL E. SPOHR, MICHAEL BENES, CHARLES MANSFIELD SMITH, III and MATTHEW SMITH, Movants-Appellants, DAVID HOLLINGSWORTH, JACK ARKIS, D. LINNETTE BONHOTEL, EARL CHILDERS, KEITH CHILDERS, GEORGE COOKSEY, JANE COOKSEY, JEFFREY FARR, PAMELA FARR, RODRIGO GONZALEZ, MARIA GONZALEZ, ROBERT HODER, JACQUELYN HODER, PREET KIRAN JOHAL, EDWARD MADGETT, PAMELA MADGETT, WILLIAM MCCUSKER, MARIE MCCUSKER, ASHOK PATEL, RITA PATEL, CRAIG SIPIORA, NANCY SIPIORA, KARL SPIELVOGEL and BRADLEY WESTON, Defendants

Page 297

191 F.3d 297 (2nd Cir. 1999)

DOCTOR'S ASSOCIATES, INC., Plaintiff-Appellee, v. REINERT & DUREE, P.C., DAVID M. DUREE, WILLIAM HARGETT, MARY HARGETT, RICHARD BELLON, DANIEL WOLF, PATRICIA BATCHMAN, BARBARA WINGO, PAMELA DUTTON BAKER, TONY MAJCHER, LAURENT BASSE, FLORENCE BASSE, ANUPAL CHEEMA, RAKESH BHATNAGAR, BIPIN DESARI, DENNIS DUVAL, KATHLEEN DUVAL, SRIDHAR DRONAVALLI, JIM HOBSON, WILLIAM HAFEY HYLE, GEORGE MEDINA, LEE MILLER, SONJA MILLER, JEFF MOE, KYONG SUN MUN, RUTH REED, PHIL REED, NANAK SINGH, LORITA WHITNEY, JOHN F. DEE, CAROL J. DEE, DAN KEATING, KEVIN BOOK, TIM CZARKOWSKI, CARY CZARKOWSKI, KATHY NICHOLAS, SAYED QASIM, CHERYL LENART, CHARLES DIPRIMA, STEVEN DIPRIMA, THOMAS P. VERRI, ROBERT LEONARD, MICHAEL LEONARD, ANASTASIOS KALLOPOULOS, JAGJIT S. SAHOTA, HARMINDER KALIRAI, SUMAN GREWAL, HOWARD BREZNER, ROCHELLE BREZNER, DAVID T. LATIMER, LESTER C. BOWERS, JUDITH A. BOWERS, DENNIS DESPAIN, TERRY DESPAIN, TIM SPOHR, CHERYL E. SPOHR, MICHAEL BENES, CHARLES MANSFIELD SMITH, III and MATTHEW SMITH, Movants-Appellants, DAVID HOLLINGSWORTH, JACK ARKIS, D. LINNETTE BONHOTEL, EARL CHILDERS, KEITH CHILDERS, GEORGE COOKSEY, JANE COOKSEY, JEFFREY FARR, PAMELA FARR, RODRIGO GONZALEZ, MARIA GONZALEZ, ROBERT HODER, JACQUELYN HODER, PREET KIRAN JOHAL, EDWARD MADGETT, PAMELA

MADGETT, WILLIAM MCCUSKER, MARIE MCCUSKER, ASHOK PATEL, RITA PATEL, CRAIG SIPIORA, NANCY SIPIORA, KARL SPIELVOGEL and BRADLEY WESTON, Defendants.

Docket No. 98-9156

August Term, 1998

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

Argued: May 5, 1999

Decided: August 12, 1999

Appeal from a preliminary injunction entered by the United States District Court for the District of Connecticut (Dorsey, J.) barring nonparty franchisees from litigating specified claims against the franchisor in state court or from being represented by specified attorneys in suits against the franchisor. The Court of Appeals (Leval, J.) vacates the challenged portions of the injunction.

DAVID M. DUREE, Reinert & Duree, P.C., St. Louis, MO (Nicholas Wocl, Tooher & Wocl, L.L.C., Stamford, CT, On the Brief), for Movants-Appellants.

EDWARD WOOD DUNHAM, Wiggin & Dana, New Haven, CT, for Plaintiff-Appellee.

Before: McLAUGHLIN, LEVAL and MICHEL^* Circuit Judge.

LEVAL, Circuit Judge:

Fifty-seven franchisees of the Subway sandwich chain, who are not parties to any action in the district court, and their attorneys, David M. Duree and Reinert & Duree ("Duree"), appeal from a preliminary injunction entered upon the motion of the chain's franchisor, Doctor's Associates, Inc. ("DAI"), by the United States District Court for the District of Connecticut (Peter C. Dorsey, Judge). Notwithstanding that the franchisees were not parties, the district court enjoined them from pursuing claims against DAI in state court and from being represented by Duree in actions against DAI. We conclude that the challenged portions of the injunction exceeded the scope of the district court's discretion.

BACKGROUND

This is the tenth time that a dispute between DAI and Subway franchisees represented by Duree has come before this court. In previous suits, the district court has granted the relief sought by DAI, and we have usually affirmed.¹ Although this case shares a factual core with the prior suits, it differs in dispositive respects.

Each relevant Subway franchisee and DAI have executed a franchise agreement that requires the parties to arbitrate claims arising under the agreement. ² Displeased with the relationship, franchisees represented by Duree have repeatedly filed suits against DAI in various state courts. In response, DAI has served these parties with written demands for arbitration, pursuant to the franchise agreement. See, e.g., Distajo II, 107 F.3d at 128, 132; Jabush, 89 F.3d at 110-11.

In prior cases, when the franchisees refused to arbitrate, DAI responded by commencing actions to compel arbitration against them in federal district court in Connecticut, pursuant to the Federal Arbitration Act, 9 U.S.C. §4.³ DAI named its adversaries as parties, and served them with process. See Fed. R. Civ. P. 4. The court had subject-matter jurisdiction under 28 U.S.C. § 1332 because DAI is a citizen of Florida and the franchisees it sued are not. The court had personal jurisdiction over the franchisees because each of them had agreed to arbitrate in Connecticut. See Stuart, 85 F.3d at 979. In response to DAI's actions, the franchisees made an array of arguments, including lack of federal jurisdiction and unenforceability of the arbitration clause on various grounds.

In these past cases, the district court compelled arbitration and enjoined the party-defendants who had been served with process from prosecuting their disputes in the state courts. In several instances, the court's injunction was directed not only against the defendant franchisees, but also against "their agents, representatives, attorneys, and any one acting on their behalf." E.g., Distajo, 944 F. Supp. at 1010. Except in a few instances resulting in reversals on res judicata grounds, see Distajo I, 66 F.3d at 458, either the franchisees declined to appeal, or we eventually affirmed the orders compelling arbitration and the injunctions. See, e.g., Distajo II, 107 F.3d at 135-36; Stuart, 85 F.3d at 977, 985.

This appeal arises from an order issued by the district court in three consolidated cases - Hollingsworth, Jabush, and Sharma. In Doctor's Assocs., Inc. v. Hollingsworth ("Hollingsworth"), DAI filed a petition to compel arbitration and enjoin state court litigation against 31 Subway franchisees who had filed an as-yet uncertified class action against DAI executives in state court in Madison County, Illinois. See Hollingsworth, 949 F. Supp. at 79-80. The 31 franchisees named in Hollingsworth were residents of states other than Florida. DAI did not name three additional Illinois plaintiffs who were Florida residents, presumably because their inclusion would have destroyed diversity. See id. The district court compelled arbitration and enjoined prosecution of the Illinois action. The injunction was directed against "[d]efendant-franchisees, their agents, attorneys, servants and employees, and all other persons in active concert or participation with them, including the Florida franchisees and any unnamed class action plaintiffs." Id. at 86. We summarily affirmed.

In Doctor's Assocs., Inc. v. Jabush ("Jabush"), DAI had previously commenced arbitration of its own claims against ten franchisees. The complaint in the district court petitioned to compel those ten franchisees to participate in that arbitration. In matters consolidated with Jabush, DAI named two franchisees which had sued DAI in a Maryland court, seeking to compel them to arbitrate and to enjoin their Maryland litigation. The district court granted DAI's applications to compel arbitration, and enjoined the Maryland litigation by the two franchisees, their "agents, attorneys, servants and employees, and all other persons in active concert and participation with them."

In Doctor's Assocs., Inc. v. Sharma ("Sharma"), DAI petitioned to compel arbitration and enjoin litigation by nine franchisees who had sued DAI in a California court. The court compelled arbitration and enjoined litigation by the franchisees "and/or businesses they own or control."

On June 25, 1998, after the injunctions in Hollingsworth, Sharma, and Jabush had been entered, DAI filed a motion to hold Duree in contempt and sanction him because he was representing plaintiffs in two further lawsuits against DAI in Madison County, Illinois. Both these lawsuits purported to be class actions on behalf of all Subway franchisees (with an insignificant exception that is not relevant here). In Hargett v. Doctor's Assocs., Inc. ("Hargett"), thirty-seven of the forty initial party-plaintiffs were also defendants in the Hollingsworth, Jabush, and Sharma suits who had been enjoined from prosecuting those actions. In Wolf v. Doctor's Assocs., Inc. ("Wolf"), all fifty-four party-plaintiffs were litigating against DAI for the first time. Their suit stated some of the same claims made by other franchisees in Hollingsworth.

Because of the contempt motion directed at him, Duree moved in Hargett for voluntary dismissal on behalf of the thirty-seven plaintiffs who were also defendants in the Hollingsworth, Jabush, and Sharma federal actions. Once these plaintiffs' claims had been dismissed, none of the remaining plaintiffs in either Wolf or Hargett was a party to any of the three federal court actions.

On July 15, 1998 the district court heard the motion for contempt and sanctions in the three federal actions. Judge Dorsey expressed substantial uncertainty as to whether Duree had violated any existing order by litigating the Hargett and Wolf actions. Stating that those actions should be stopped, however, the court instructed counsel for DAI to submit a draft injunction barring the Hargett and Wolf plaintiffs - and apparently also all franchisees - from litigating the claims raised in those suits.

On July 20, 1998, DAI submitted a proposed order barring the named plaintiffs in Hargett and Wolf, as well as "unnamed class action plaintiffs," from prosecuting those state court actions or any of the claims asserted in those actions. The proposed order would also have barred franchisees represented by Duree and his firm from suing DAI in connection with the franchise agreements without leave of the court. The proposed order contained a finding that Duree's litigation was "not only vexatious to DAI, but an abuse of the legal system."

After the circulation of the draft injunction, on July 21, 1998, the district court entered a series of brief preliminary injunctions, not based on DAI's submission, barring "all named and unnamed class action plaintiffs in the Hollingsworth, Hargett, and Wolf lawsuits currently pending in Madison County [hereinafter collectively the "Madison County lawsuits"] . . . from...