MAI Basic Four, Inc. v. Basis, Inc.

• Decision Date: 24 April 1992
• Docket Number: No. 90-2077,90-2077
• Parties: MAI BASIC FOUR, INC., a Delaware corporation, Plaintiff-Appellant, v. BASIS, INC., a New Mexico corporation; Thomas A. Olson; Scott Amspoker; and Russell B. Kepler, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 978

962 F.2d 978

23 U.S.P.Q.2d 1275

MAI BASIC FOUR, INC., a Delaware corporation, Plaintiff-Appellant, v. BASIS, INC., a New Mexico corporation; Thomas A. Olson Scott Amspoker; and Russell B. Kepler Defendants-Appellees.

No. 90-2077.

United States Court of Appeals Tenth Circuit.

April 24, 1992.

Boyd N. Boland, Holme Roberts & Owen, Denver, Colo. (John R. Webb, Holme Roberts & Owen, Denver, Colo., and Lorna M. Wiggins, Sutin, Thayer & Browne, Albuquerque, N.M., with him, on the brief), for plaintiff-appellant.

Gregory D. Huffaker, Jr., The Poole Law Firm, Albuquerque, N.M. (Robert W. Harris and Anthony L. Romo, The Poole Law Firm, Albuquerque, N.M., with him, on the brief), for defendants-appellees.

Before HOLLOWAY, ALDISERT ^*, and EBEL, Circuit Judges.

HOLLOWAY, Circuit Judge.

Plaintiff-appellant MAI Basic Four, Inc. ("MAI") brought this diversity suit in the district court against defendant-appellee Basis, Inc. and defendants-appellees Olson, Amspoker and Kepler (collectively "Basis"). This appeal is from a preliminary injunction for the defendants granted in that suit.

I

MAI, a computer hardware and software manufacturer, alleged that defendants, through their software company, Basis, Inc., are unlawfully producing software products called BB ^x and Comm 72 which are "clones" of one produced by MAI called BB/M. The individual defendants are all former employees of MAI who were terminated when MAI discontinued operations in Albuquerque, New Mexico. The defendants subsequently formed Basis, Inc. Plaintiff MAI brought this action against defendants, individually, and against the Basis corporation.

MAI's complaint averred that the defendants committed breaches of employment related agreements with MAI ¹; breach of the duty of loyalty; theft of MAI trade secrets; unfair competition; interference with contractual relations; and civil conspiracy. In its Answer, Basis denied the allegations and averred several counterclaims.

Prior to trial, Basis moved for a preliminary injunction restraining MAI "from threatening, filing or prosecuting vexatious and oppressive suits against third-party resellers of software products of Basis, pending the final hearing and determination of this action." I R.Doc. 213 at 1. ² After a hearing and extensive findings of fact, the district court issued a preliminary injunction barring MAI during the pendency of the diversity proceedings from "threatening, filing, or prosecuting lawsuits in any federal court against third party resellers of Basis software products based upon any claims that their marketing of Basis software violates any alleged rights of MAI." I R.Doc. 292 at 14. ³ MAI brought the instant appeal from the preliminary injunction.

Following oral argument Basis moved to dismiss this appeal, relying on the recent decision in Hershey Foods Corp. v. Hershey Creamery Co., 945 F.2d 1272 (3d Cir.1991). Under Hershey, Basis argues that this is not a proper appeal of an interlocutory decision granting an injunction as authorized by 28 U.S.C. § 1292(a)(1).

This opinion will address first the motion to dismiss, which we deny, and will then treat the merits of the appeal. The contentions of MAI to be considered are principally that: (1) this appeal does come within the provisions of 28 U.S.C. § 1292(a)(1) for appeal of interlocutory decisions granting injunctions; (2) the district court erred in issuing its broad injunction prohibiting MAI from filing and prosecuting actions in any federal court against third parties and asserting new claims; (3) the district court applied the wrong legal standard in issuing such a broad injunctive order in the absence of extreme circumstances and a strong showing that the disadvantages of the injunction were clearly outweighed by its necessity; (4) the district court's conclusion that MAI engaged in a pattern of vexatious and oppressive conduct is clearly erroneous; and (5) the district judge erred in admitting evidence of statements made during settlement negotiations, in violation of Fed.R.Evid. 408.

II

We consider first our appellate jurisdiction which is challenged by the motion of Basis to dismiss the appeal. Basis argues that the preliminary injunction in question is not an appealable interlocutory decision within the provisions of 28 U.S.C. § 1292(a)(1). We disagree.

Section 1292(a) provides in part that "the courts of appeals shall have jurisdiction of appeals from: (1) Interlocutory orders of the district courts ... granting, continuing, modifying, refusing or dissolving injunctions, or refusing to dissolve or modify injunctions, except where direct review may be had in the Supreme Court[.]" Thus, by the plain terms of § 1292(a), interlocutory orders granting "injunctions" are appealable. Nevertheless, Basis argues here that under the Third Circuit's Hershey opinion, the present order is not an "injunction" within the meaning of § 1292(a).

A proper examination of Hershey first requires a brief review of the law developed on § 1292(a) appeals. Broadly speaking, two strands of analyses have developed under § 1292(a). The first strand holds that certain orders are so clearly "injunctions" within the meaning of the statute that no further inquiry is necessary. Thus, in Baltimore Contractors v. Bodinger, 348 U.S. 176, 182, 75 S.Ct. 249, 253, 99 L.Ed. 233 (1955), overruled on other grounds, Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 108 S.Ct. 1133, 99 L.Ed.2d 296 (1988), the Supreme Court observed that "[t]he appealability of routine interlocutory injunctive orders raise[s] few questions." Following this approach, we have held that "an interlocutory order expressly granting or denying injunctive relief fits squarely within the plain language of section 1292(a)(1)." Tri-State Generation & Transmission Assoc. v. Shoshone River Power, Inc., 874 F.2d 1346, 1351 (10th Cir.1989).

Since Bodinger, the courts of appeals have generally adopted a per se rule for dealing with orders like the instant one, holding that "[a]n order that prohibits a party from pursuing litigation in another court is unquestionably an injunction for purposes of interlocutory appeal under 28 U.S.C.A. § 1292(a)(1)." See 16 Wright, Miller, Cooper & Gressman, Federal Practice and Procedure, § 3923, at 48 (1977) (citing cases); see also United States v. Dorgan, 522 F.2d 969, 971 n. 1 (8th Cir.1975) (citing cases). ⁴ Thus, a straightforward application of this analysis to the instant facts would defeat Basis' motion to dismiss this appeal. The preliminary injunction on appeal not only prohibits the filing of other actions in any federal court; it also prohibits threatening to file such actions.

A second line of analysis, however, places greater emphasis on the "final judgment" rule and requires a more in-depth inquiry. In this connection, the Supreme Court has counseled that § 1292(a) "creates an exception from the long-established policy against piecemeal litigation" and this narrow exception is "keyed to the 'need to permit litigants to effectually challenge interlocutory orders of serious, perhaps irreparable, consequence.' " Gardner v. Westinghouse Broadcasting Co., 437 U.S. 478, 480, 98 S.Ct. 2451, 2453, 57 L.Ed.2d 364 (1978) (quoting Bodinger, 348 U.S. at 181, 75 S.Ct. at 252). As the Court noted earlier in Switzerland Cheese Ass'n v. E. Horne's Market, Inc., 385 U.S. 23, 25, 87 S.Ct. 193, 195, 17 L.Ed.2d 23 (1966), "[o]rders that in no way touch on the merits of the claim but only relate to pretrial procedures are not in our view 'interlocutory' within the meaning of § 1292(a)(1)." Recently, this court has held that to sustain appellate jurisdiction, appellants must usually satisfy the three-part test of Carson v. American Brands, Inc., 450 U.S. 79, 101 S.Ct. 993, 67 L.Ed.2d 59 (1981): "1) the interlocutory order must have the practical effect of denying an injunction; 2) the order must have irreparable consequences; and 3) the order must be one that can be effectively challenged only by immediate appeal." United States v. Colorado, 937 F.2d 505, 507 (10th Cir.1991) (applying Carson ).

Of note, however, is the distinction drawn in this court's Tri-State Generation case between the two strands of analysis. The former strand applies to orders ruling on express motions for injunctive relief, whereas the latter applies only to orders that have "the practical effect" of granting or refusing an injunction. See id. at 1351. Thus, where an express grant or denial of an injunction is involved, Tri-State Generation holds that Carson and its progeny are "inapposite[.]" Id. Moreover, Basis does not argue that Carson applies here or that MAI's appeal would fail the Carson test. Indeed, Basis does not rely on Carson in its motion to dismiss. Rather, Basis asks that this court reject Tri-State Generation 's framework because it says that recent authority in the Third Circuit, Hershey, which construes the language of § 1292(a) in a new light, presents the proper analysis. ⁵

Defendant Basis' motion to dismiss this appeal relies almost exclusively on the Third Circuit's Hershey opinion. In Hershey, a long-standing feud between Hershey Foods Corporation and Hershey Creamery erupted over which firm was entitled to use the "HERSHEY'S" trademark. In 1966, Hershey Creamery brought a federal suit against Hershey Foods in the Southern District of New York, which eventually resulted in a consent judgment. In 1990, however, Hershey Foods brought its own lawsuit against Hershey Creamery in federal court in the Middle District of Pennsylvania, seeking to enjoin Hershey Creamery from using the trademark in a recent expansion into the frozen yogurt market. Hershey Creamery immediately filed a motion in the federal district court in New York for an order construing and enforcing the consent judgment in the 1966 suit. In response, Hershey Foods moved for an order in the Pennsylvania federal court to halt Hershey Creamery's action in New York. The federal court in...