INTERNATIONAL CONTROLS v. Watsco, Inc.

• Decision Date: 23 May 1994
• Docket Number: Civ. A. No. 92-CV-1304 (FJS).
• Citation: 853 F. Supp. 585
• Parties: INTERNATIONAL CONTROLS AND MEASUREMENTS CORP., a New York Corporation, Plaintiff, v. WATSCO, INC. and Watsco Components, Inc., both Florida Corporations, Defendants. WATSCO, INC. and Watsco Components, Inc., both Florida Corporations, Counterclaimants, v. INTERNATIONAL CONTROLS AND MEASUREMENTS CORP., a New York Corporation, Counterdefendants.
• Court: U.S. District Court — Northern District of New York

853 F. Supp. 585

INTERNATIONAL CONTROLS AND MEASUREMENTS CORP., a New York Corporation, Plaintiff, v. WATSCO, INC. and Watsco Components, Inc., both Florida Corporations, Defendants.

WATSCO, INC. and Watsco Components, Inc., both Florida Corporations, Counterclaimants, v. INTERNATIONAL CONTROLS AND MEASUREMENTS CORP., a New York Corporation, Counterdefendants.

Civ. A. No. 92-CV-1304 (FJS).

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

May 23, 1994.

Harris, Beach & Wilcox (August E. Roehrig, of counsel), Syracuse, NY, for plaintiff and counterdefendant.

MacKenzie Smith Lewis Mitchell & Huggins (Arthur A. Chalenski, Jr., Peter D. Carmen, of counsel), Syracuse, NY, for defendants and counterclaimants.

DECISION AND ORDER

SCULLIN, District Judge:

INTRODUCTION

Plaintiff has brought this patent infringement action pursuant to 35 U.S.C. § 284, alleging that defendants have willfully infringed upon plaintiff's patent for an air conditioning device by, inter alia, marketing these infringing products. Defendants have denied infringement and have counterclaimed for damages arising out of plaintiff's alleged unfair competition and patent misuse as well as for a judicial declaration that the patent at issue is invalid.

On August 12, 1993, after Magistrate Di Bianco conducted an extensive hearing on plaintiff's motion for a preliminary injunction, the court approved Magistrate Di Bianco's report-recommendation and entered a preliminary injunction against both defendants. Paragraph 3 of that Order (the "marketing" paragraph) held that "Defendants are thus enjoined from marketing all models of the WATSCO EAC 511 series except for the Model 511 ADJ (to the extent that it is still used) and their WATSCO EAC-650-003-300-W, pending the outcome of the instant action". On January 24, 1994, plaintiff filed a motion to hold defendants in contempt of that Order, and specifically the "marketing" paragraph. The court heard oral argument on this motion on April 8, 1994 and reserved decision at that time. This order constitutes the decision of the court.

BACKGROUND

At issue in this dispute are "lock-out timers" (also known as time delay devices), which are used to prevent the compressor in an air conditioning system from prematurely restarting after the system has been shut off. Plaintiff ICM claims that it owns the exclusive right to manufacture, use and market lock-out timers embodying the invention described in United States Patent No. 4,991,049, entitled "Anti-Short-Cycle-Circuit", issued on February 5, 1991 to Andrew S. Kadah. Plaintiff alleges that it has acquired this exclusive right through its acquisition of the patent by agreement with the patent inventor, Mr. Kadah, and defendant Watsco Components's model EAC-511/4-300-W and EAC-650-003-300-W lock-out timers infringe on that patent.

Plaintiff ICM and defendant Watsco Components actively compete in the market for these devices. Defendant Watsco, Inc. is a "holding company", doing business solely through its subsidiaries, one of which is defendant Watsco Components. Watsco Components markets, sells and ships its own products as well as distributing them nationally through several distributors, the independence of one of which, Gemaire, plaintiff ICM challenges.

Like Watsco Components, Gemaire is substantially owned by Watsco, Inc. Watsco, Inc. owns 80% of Gemaire, although defendants assert that there is no interrelation of operation, management or employees between the two entities.

DISCUSSION

A. The Standard for Civil Contempt

Defendants deny that they intended to violate the injunction and cite to governing Second Circuit law holding that simply violating a court order does not expose a party to liability for civil contempt. That law directs that the court's contempt power may be invoked only when the following three conditions are met: (1) the order the party allegedly failed to comply with is clear and unambiguous; (2) the proof of noncompliance is clear and convincing; and (3) the party has not diligently attempted in a reasonable manner to comply with the Order. New York State Nat'l Org. for Women v. Terry, 886 F.2d 1339, 1351 (2d Cir.1989), cert. denied, 495 U.S. 947, 110 S.Ct. 2206, 109 L.Ed.2d 532 (1990).

The movant must prove each of these three elements by clear and convincing evidence. Schmitz v. St. Regis Paper Co., 758 F.Supp. 922, 925 (S.D.N.Y.1991) (Broderick, J.). Clear and convincing evidence is a quantum of proof lying at an intermediate point between the "preponderance of the evidence" standard appropriate to most civil cases and the "beyond a reasonable doubt" standard employed in criminal prosecutions. Addington v. Texas, 441 U.S. 418, 423-25, 99 S.Ct. 1804, 1808-09, 60 L.Ed.2d 323 (1979). Although not capable of precise definition, clear and convincing evidence has been "described as evidence which produces in the mind of the trier of fact an abiding conviction that the truth of a factual contention is `highly probable.'" Buildex, Inc. v. Kason Indus., Inc., 849 F.2d 1461, 1463 (Fed.Cir.1988) quoting Colorado v. New Mexico, 467 U.S. 310, 316, 104 S.Ct. 2433, 2437, 81 L.Ed.2d 247 (1983), reh'g denied, 468 U.S. 1224, 105 S.Ct. 19, 82 L.Ed.2d 915 (1984). In applying the Second Circuit's contempt calculus, some courts have considered "whether the defendant has `displayed an evident sense of non-urgency bordering on indifference.'" Id. at 927, quoting Aspira Of New York v. Board of Educ. Of The City of New York, 423 F.Supp. 647, 654 (S.D.N.Y.1976). See also Equal Employment Opportunity Comm. v. Local 580, Int'l Ass'n Of Bridge, Structural And Ornamental Ironworkers, Joint Apprentice-Journeyman Educ. Fund, 925 F.2d 588, 594 (2d Cir.1991); Wojnarowicz v. American Family Ass'n., 772 F.Supp. 201, 202 (S.D.N.Y.1991) (The court "finds no `willfulness' on the part of defendants and concludes that the mailings were mistakes from which no malevolence may be presumed."); E.I. DuPont De Nemours & Co. v. Schnur & Cohan, Inc., 85 Civ. 7844, 2 U.S.P.Q.2d 1772, 1986 WL 15723 at *3 (S.D.N.Y. November 10, 1986) ("Brenner's actions, therefore, amount to either a deliberate violation of the preliminary injunction, or at the very least, deliberate indifference to its terms."). But see Canterbury Belts Ltd. v. Lane Walker Rudkin, Ltd., 869 F.2d 34, 39 (2d Cir.1989) ("The district court concluded that ... no showing of intentional violations had been made. This determination is not clearly erroneous, and we accordingly do not disturb it. We note, however, that sanctions for civil contempt can be imposed without a showing of willfulness.")

B. Plaintiff's Allegations of Contempt

Plaintiff claims that defendants are in contempt of the court's August 12, 1993 Order through the commission of the following acts:

1. On November 30, 1993, plaintiff ICM's Florida manufacturing representative, Henry LeBlanc purchased an enjoined WATSCO Model EAC-511 from Gemaire, whose clerk informed LeBlanc that he had "plenty of the Watsco EAC-511 Series time delay units in stock." LeBlanc Aff. at ¶ 8.

2. On September 23, 1993, Watsco Components shipped an enjoined EAC-650 to its customer, Locke Supply.

3. On October 13, 1993, Watsco Components shipped fifty enjoined EAC-650 units "on consignment" to a distributor, E.S. Gallagher and received payment on November 26, 1993, when E.S. Gallagher sold the units.¹

C. Defendants' Claim of Good Faith

Defendants admit most of the essential facts, but supplement the record to place these incidents in a different context. In addition, they offer general evidence of their alleged good faith efforts to comply with the court's Order. First, they offer the uncontroverted affidavit of Watsco Components's president, Neal Fischer, who avers that he personally instructed the eight person sales staff to cease marketing the enjoined EAC-511 and EAC-650 lock-out timers after he received notice of the court's Order on September 3, 1993.

Second, they offer the uncontroverted affidavit of Martin Katz, Watsco Components's controller, who avers that his examination of the relevant sales records shows that from August 1993 to February 1994, Watsco Components sold 2,754,000 products or units. This would indicate that the alleged violations constituted less than 0.01% of Watsco's total sales by unit. However, it is unclear how many of those sales were attributable to the enjoined units or how many units of the enjoined devices were sold in the same period prior to the entry of the August 12 Order.

D. Defendants' Specific Explanations

Specifically, defendants offer the following explanations for the alleged violations to demonstrate their alleged good faith attempts to comply with the Order.

1. The Gemaire Sale

a. Agency

Although Gemaire is not named in the injunction Order, it is still subject to the restrictions named in that Order if it is either (a) an agent of Watsco, Inc. or (b) is "in active concert or participation with it" and Gemaire "received actual notice of the order by personal service or otherwise." Fed. R.Civ.P. 65(d). Thus, the threshold inquiry in examining this transaction is whether Gemaire can be considered an agent of Watsco, Inc.² Plaintiff advances its agency argument by relying on two uncontroverted facts and one factual contention. First, it observes that defendant Watsco, Inc. owns eighty per cent of the stock of Gemaire. Second, plaintiff attaches a copy of Watsco, Inc.'s 1992 Annual Report to show that its financial statement is consolidated to incorporate the finances of its subsidiaries. Third, it contends that Watsco, Inc. exercises sufficient control over the operations of Gemaire to establish a principal-agent relationship.

To show the extent of Watsco Inc.'s alleged control over Gemaire, the plaintiff offers excerpts from the deposition of Albert Nahmad, Watsco, Inc.'s president and a director of Gemaire. At pages 37 and 38 of his deposition, Nahmad testified that he had input on the operations of distribution...