Factors Etc., Inc. v. Pro Arts, Inc.

• Decision Date: 14 April 1983
• Docket Number: No. 77 Civ. 4704 (CHT).,77 Civ. 4704 (CHT).
• Citation: 562 F. Supp. 304
• Parties: FACTORS ETC., INC. and Boxcar Enterprises, Inc., Plaintiffs, v. PRO ARTS, INC. and Stop and Shop Companies, Inc., Defendants.
• Court: U.S. District Court — Southern District of New York

562 F. Supp. 304

FACTORS ETC., INC. and Boxcar Enterprises, Inc., Plaintiffs, v. PRO ARTS, INC. and Stop and Shop Companies, Inc., Defendants.

No. 77 Civ. 4704 (CHT).

United States District Court, S.D. New York.

April 14, 1983.

Golenbock & Barell, New York City, for plaintiffs; Michael C. Silberberg, Geri S. Krauss, New York City, of counsel.

Schulman, Berlin & Davis, P.C., New York City, for defendants; William J. Davis, New York City, of counsel.

OPINION

TENNEY, District Judge.

Defendants Pro Arts, Inc. and Stop and Shop Companies, Inc. move this Court to vacate the stay of this action imposed on May 11, 1982, 541 F.Supp. 231, to enter summary judgment dismissing plaintiffs' complaint, and to award damages for wrongful injunction. For the reasons discussed below, the stay is vacated and defendants' motion for summary judgment is granted. The matter is referred to Magistrate Kent Sinclair for a determination of the damages to which defendants are entitled.

Background

Briefly stated, the facts of this case, which are set forth in greater detail in the earlier opinions of this Court, are as follows. Factors Etc., Inc. and Boxcar Enterprises, Inc. brought this action charging defendants with infringing their exclusive right to exploit Elvis Presley's name and likeness. The Court entered a preliminary injunction, 444 F.Supp. 288 (S.D.N.Y.1977), and the Second Circuit affirmed, 579 F.2d 215 (2d Cir.1978), cert. denied, 440 U.S. 908, 99 S.Ct. 1215, 59 L.Ed.2d 455 (1979) ("Factors I"). Subsequently, this Court entered summary judgment in favor of plaintiffs and issued a permanent injunction prohibiting defendants from marketing Presley memorabilia, 496 F.Supp. 1090 (S.D.N.Y.1980). This time, however, the Second Circuit reversed, 652 F.2d 278 (2d Cir.1981), cert. denied, 456 U.S. 927, 102 S.Ct. 1973, 72 L.Ed.2d 442 (1982) ("Factors II"). The court held that Tennessee law applies to this action, and under Tennessee law—as enunciated by the Sixth Circuit in Memphis Development Foundation v. Factors Etc., Inc., 616 F.2d 956 (6th Cir.), cert. denied, 449 U.S. 953, 101 S.Ct. 358, 66 L.Ed.2d 217 (1980)—there is no descendible right to publicity.

Defendants then moved for summary judgment and for damages for wrongful injunction. Plaintiffs cross-moved for summary judgment, or alternatively, for a stay of this action. In support of their motion, plaintiffs cited Commerce Union Bank v. Coors of the Cumberland, Inc., 7 Media L.Rptr. 2204 (Tenn.Ch.1981), a recent opinion of the Tennessee Chancery Court holding that a descendible right to publicity exists under Tennessee law. This Court stayed the action to permit plaintiffs to petition the Second Circuit to recall its mandate and to rehear the case on the basis of Commerce Union Bank.

The Second Circuit has since denied plaintiffs' petition for rehearing, 701 F.2d 11 (1983). The court concluded that it was unnecessary to consider the effect of Commerce Union Bank on its earlier decision in light of a second Tennessee Chancery Court decision, Lancaster v. Factors etc., Inc., 9 Media L.Rptr. 1109 (Tenn.Ch.1982), holding that Tennessee does not recognize a descendible right to publicity. Accordingly, defendants now move to vacate the stay and renew their motions for summary judgment and for damages for wrongful injunction.

In light of the Second Circuit's refusal to recall its mandate, plaintiffs do not oppose vacating the stay or entry of summary judgment in defendants' favor. They do, however, object strenuously to any assessment of damages for wrongful injunction, on two grounds. First, plaintiffs claim that the Court's discharge of the injunction bond,¹ together with defendants' failure to challenge the discharge of the bond on appeal, extinguished this Court's jurisdiction to award damages for wrongful injunction. Second, they argue that the Court has discretion to deny damages for wrongful injunction, and that the peculiar facts of this case warrant such a denial.

Defendants, on the other hand, argue that when the Second Circuit reversed this Court's judgment, it reversed the discharge of the bond, one of the provisions of that judgment. Thus, they maintain that the Court has jurisdiction to award damages for wrongful injunction. Moreover, defendants contend that because Factors, as a result of the injunction, has had a "virtual monopoly" over the market for Elvis Presley memorabilia for some years, denying them damages for wrongful injunction would be "grossly inequitable." Memorandum of Points and Authorities in Support of Defendants' Motions for Summary Judgment and an Assessment of Damages Against the Plaintiffs and in Opposition to the Plaintiffs' Motion for Summary Judgment, at 22.

Discussion

The "injunction bond rule" provides that in the absence of a bond, a party may not recover for damages sustained by a wrongfully issued injunction, unless the suit was brought maliciously and without probable cause. See Commerce Tankers Corp. v. National Maritime Union, 553 F.2d 793, 800 (2d Cir.1977), cert. denied, 434 U.S. 923, 98 S.Ct. 400, 54 L.Ed.2d 280 (1977); 7 Pt. 2 J. Moore & J. Lucas, Moore's Federal Practice ¶ 65.101, at 65-98 to -99 (2d ed. 1982). Plaintiffs argue, citing Buddy Systems, Inc. v. Exer-Genie, Inc., 545 F.2d 1164 (9th Cir. 1976), cert. denied, 431 U.S. 903, 97 S.Ct. 1694, 52 L.Ed.2d 387 (1977), that the rule precludes an award of damages in this action because this Court discharged the bond required by the preliminary injunction and defendants did not specifically raise the discharge of the bond on appeal.

Buddy Systems was an "action on a bond" pursuant to 28 U.S.C. § 1352 to recover damages for wrongful injunction. In an earlier suit, the district court entered a preliminary injunction against Buddy Systems, requiring Exer-Genie to post a $100,000 bond. After trial, the court entered a permanent injunction in favor of Exer-Genie and exonerated the bond. When the district court's judgment was reversed on appeal, Buddy Systems filed suit to recover damages for wrongful injunction and was awarded $35,000. The Ninth Circuit reversed the damage award, holding that the district court had no jurisdiction in an action on a bond where the bond had previously been exonerated. The court rejected the argument that the exoneration was implicitly reversed by its reversal of the permanent injunction. 545 F.2d at 1169 n. 10, and faulted Buddy Systems for failing to raise the alleged wrongful exoneration on appeal. Id. at 1169.

Buddy Systems is not the only case that has addressed this issue, however. The Tenth Circuit reached a different conclusion in Atomic Oil Co. v. Bardahl Oil Co., 419 F.2d 1097 (10th Cir.1969), cert. denied, 397 U.S. 1063, 90 S.Ct. 1500, 25 L.Ed.2d 685 (1970), a decision rejected by the Buddy Systems court. 545 F.2d at 1169. Like Buddy Systems, Atomic Oil was an action to recover damages for wrongful injunction. In an earlier action, the district court had entered a preliminary injunction in favor of Atomic Oil, ordering it to post a $50,000 bond. After trial, the court granted a permanent injunction, discharged the $50,000 bond, and ordered Atomic Oil to post a $25,000 bond. Both parties appealed, and the Tenth Circuit reversed, concluding that the injunction was based on a clearly erroneous finding. 419 F.2d at 1099-1100. In a separate action, Bardahl sought recovery on both bonds, and the district court entered judgment for $75,000. On appeal, Atomic Oil argued that recovery on the first bond was precluded by its discharge. The Tenth Circuit affirmed the district court, stating that the enjoining court's order discharging the bond "was plainly not a negation of damages under the bond." Id. at 1101. The Tenth Circuit concluded that its previous holding necessarily determined that the temporary injunction had been improperly granted and served to activate the conditions of both bonds. Id. at 1103. See also Universal Athletic Sales Co. v. American Gym, 480 F.Supp. 408 (W.D.Pa.1979).

Both Atomic Oil and Buddy Systems can be distinguished from the instant case, however; both were independent actions on the bond rather than motions for the recovery of damages made to the enjoining court in the context of the original action.² As the Buddy Systems court noted, the bond itself was the only basis for jurisdiction in the case before the court.³ 545 F.2d at 1166.

In Arkadelphia Milling Co. v. St. Louis Southwestern Ry., 249 U.S. 134, 39 S.Ct. 237, 63 L.Ed. 517 (1919), the Supreme Court discussed the power of the enjoining court to award damages for wrongful injunction under a bond that it had discharged. The Court posited, but found it unnecessary to decide the question whether reversal of the main provisions of a final decree that has the effect of discharging a bond is an implicit reversal of the discharge. Id. at 143-44, 39 S.Ct. at 241-242. The Court concluded that because the lower court had explicitly retained jurisdiction for the purpose of making further orders as might be necessary, and the Supreme Court's earlier mandate permitted further proceedings, defendants' failure to appeal from the enjoining court's action in discharging the bonds did not prevent an assessment of damages under the bonds. Id. at 144, 39 S.Ct. at 241.

Thus, regardless of whether the Second Circuit's mandate reversed the discharge of the bond—and arguably it did, since it reversed the entire judgment without distinguishing among its provisions— Arkadelphia provides support for the conclusion that this Court may properly award damages. This Court entered the permanent injunction and discharged the bond in an Interlocutory Judgment entered August 27, 1980. In that judgment this Court, like the court in Arkadelphia, retained jurisdiction for the purpose of making any further orders necessary and proper in this action. Although the Second Circuit's mandate did not expressly authorize further proceedings —authorization that was, admittedly, significant...