Original Great American Chocolate Chip Cookie Co., Inc. v. River Valley Cookies, Ltd.

• Citation: 970 F.2d 273
• Decision Date: 04 September 1992
• Docket Number: No. 91-3312,91-3312
• Parties: , 23 U.S.P.Q.2d 1602 The ORIGINAL GREAT AMERICAN CHOCOLATE CHIP COOKIE COMPANY, INCORPORATED, Plaintiff-Appellant, v. RIVER VALLEY COOKIES, LIMITED, Robert M. SIGEL, Paula Sigel, et al., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 273

970 F.2d 273

23 Fed.R.Serv.3d 263, 23 U.S.P.Q.2d 1602

The ORIGINAL GREAT AMERICAN CHOCOLATE CHIP COOKIE COMPANY INCORPORATED, Plaintiff-Appellant, v. RIVER VALLEY COOKIES, LIMITED, Robert M. SIGEL, Paula Sigel et al., Defendants-Appellees.

No. 91-3312.

United States Court of Appeals Seventh Circuit.

Argued May 1, 1992.

Decided July 20, 1992.

Rehearing and Rehearing En Banc

Denied Sept. 4, 1992.

Rene A. Torrado, Jr., Karen L. Pszanka-Layng, Charlotte M. Gibberman, Vedder, Price, Kaufman & Kammholz, Chicago, Ill., John T. Marshall (argued), Carol E. Kirby, Powell, Goldstein, Frazer & Murphy, Atlanta, Ga., for plaintiff-appellant.

Robert Boehm, Konstantinos Armiros (argued), Gary I. Blackman, Boehm & Pearlstein, Chicago, Ill., for defendants-appellees.

Before CUDAHY, POSNER, and EASTERBROOK, Circuit Judges.

POSNER, Circuit Judge.

This case arises from a squabble between a franchisor that we shall call the "Cookie Company" and the Sigels, who had a franchise to operate a Cookie Company store in a shopping mall in Aurora, Illinois. The company terminated the Sigels' franchise but they continued to sell cookies under the company's trademark, using batter purchased elsewhere after their supply of Cookie Company batter ran out. So the company sued them (and their corporate entity) to enjoin their violating the Trademark Act, 15 U.S.C. §§ 1051 et seq., and moved for a preliminary injunction. The Sigels counterclaimed, charging that their franchise had been terminated in violation both of the franchise agreement and of the Illinois Franchise Disclosure Act, Ill.Rev.Stat. ch. 121 1/2, p 1719, and moving for a preliminary injunction directing the Cookie Company to restore their franchise. (Both parties had additional grounds for their motions, but these need not be discussed.) The district court granted the Sigels' motion and denied that of the Cookie Company, 773 F.S. 1123 (N.D.Ill.1991), which appeals under 28 U.S.C. § 1292(a)(1).

There is a question about our jurisdiction, characteristically unremarked by the parties. Rule 65(d) of the Federal Rules of Civil Procedure requires that "every order granting an injunction ... shall describe in reasonable detail, and not by reference to the complaint or other document, the act or acts sought to be restrained." The magistrate judge recommended that the district judge grant the Sigels' motion for a preliminary injunction, and he obliged. The magistrate judge's opinion contains no actual injunction order, however, and the judgment order entered at the direction of the district judge states in its entirety: "The Court adopts and incorporates Magistrate Judge Bucklo's Report and Recommendation pursuant to 28 U.S.C., SECTION 636(b)(1) as Appendix A to this Order." So there was no injunction order but merely an incorporation by reference of the draft of an injunction contained in the Sigels' motion. This fell far short of compliance with Rule 65(d). Schmidt v. Lessard, 414 U.S. 473, 94 S.Ct. 713, 38 L.Ed.2d 661 (1974) (per curiam).

A violation of Rule 65(d), as we explained in Chicago & North Western Transportation Co. v. Railway Labor Executives' Association, 908 F.2d 144, 149-50 (7th Cir.1990), does not deprive the appellate court of jurisdiction but can have jurisdictional consequences. An injunction that does not comply with the rule may not place the person "enjoined" under any legal obligation, in which event he would lack the tangible stake in seeking to vacate it that Article III of the Constitution requires in any proceeding sought to be maintained in any federal court, including a court of appeals. An injunction that has no binding force at all simply cannot be appealed. Bates v. Johnson, 901 F.2d 1424, 1428 (7th Cir.1990).

Although a defective permanent injunction might be recharacterized as a declaratory judgment in order to preserve appellate jurisdiction, that route is not open here because we have a preliminary injunction and there is no appellate jurisdiction over preliminary declaratory judgments--assuming there is such a creature. Courts occasionally use the term as shorthand for the fact that a declaratory judgment is often a prelude to a request for coercive remedies. E.g., Preferred Risk Ins. Co. v. Gill, 30 Ohio St.3d 108, 112, 507 N.E.2d 1118, 1122 (1987). That irrelevant usage to one side, one case denies that there is such a thing as a preliminary declaratory judgment, Sigel v. Salisbury, 379 F.Supp. 317, 324 (W.D.Pa.1974), while other cases affirm its existence. In re MCorp, 101 B.R. 483, 485 (S.D.Tex.1989), vacated on other grounds under the name MCorp Financial, Inc. v. Board of Governors, 900 F.2d 852 (5th Cir.1990), aff'd and rev'd, --- U.S. ----, 112 S.Ct. 459, 116 L.Ed.2d 358 (1991); In re Public Service Co., 108 B.R. 854, 867 (Bankr.N.H.1989); Pletz v. Secretary of State, 125 Mich.App. 335, 372, 336 N.W.2d 789, 807 (1983). But the essential point is that no counterpart to 28 U.S.C. § 1292(a)(1) authorizes an appeal from a nonfinal declaratory judgment.

The acid test of whether a purported injunction is appealable is whether it is in sufficient though not exact compliance with Rule 65(d) that a violation could be punished by contempt or some other sanction. The test is satisfied. After the district judge entered his order adopting the magistrate judge's recommendation, the Cookie Company successfully moved for an order requiring the corporate defendant to post a $10,000 injunction bond. By making that motion the company acknowledged that it was enjoined; and it would be estopped to deny this should the Sigels, having posted the injunction bond, later move to enforce the injunction.

Moreover, the order granting the motion to require the posting of a bond states, "Parties to comply with contract," and terse as this command is we think it placed the company under a legal obligation enforceable by contempt or other sanctions should it violate the terms of the franchise agreement while the preliminary injunction was in force. The case is like Schmidt v. Lessard, supra, where the Supreme Court held that the district court's violation of Rule 65(d) had not deprived the Court of appellate jurisdiction. The judge had merely entered a judgment "in accordance with the Opinion," and the opinion had merely told the defendants "not to enforce 'the present Wisconsin scheme' [for involuntary commitment] against those in the appellees' class." 414 U.S. at 475-76, 94 S.Ct. at 715. It was a scandalously inadequate form of injunction. But it was not a nullity and it was therefore appealable.

The doctrine of pendent appellate jurisdiction furnishes an alternative ground for our appellate jurisdiction. Asset Allocation & Management Co. v. Western Employers Ins. Co., 892 F.2d 566, 569 (7th Cir.1989); Patterson v. Portch, 853 F.2d 1399, 1403 (7th Cir.1988). The denial of the Cookie Company's motion for a preliminary injunction was unquestionably appealable under 28 U.S.C. § 1292(a)(1), and the grant of the Sigels' motion was the mirror image of that ruling.

We turn to the merits. In defense of their injunction the Sigels point out correctly that they didn't have to show that they would in fact prevail at trial--only that they had a sufficient likelihood of prevailing to warrant the issuance of an order that would avert the irreparable harm with which the termination of the franchise threatened them. The greater that harm, and the less the irreparable harm to the Cookie Company if the injunction were denied, the less of a showing the Sigels had to make that they had the better case on the merits. Diginet, Inc. v. Western Union ATS, Inc., 958 F.2d 1388, 1393 (7th Cir.1992), and cases cited there. So we ought to consider first whether the balance of irreparable harms is as one-sided in the Sigels' favor as the district court believed.

The Sigels used borrowed money to invest $125,000 to $130,000 in fixtures and other improvements. If the preliminary injunction is dissolved they will have to cease operating the store as a Cookie Company franchise and we may assume with them that their income from the store will as a result drop to zero. The Cookie Company has offered to let them assign the franchise, for a consideration that presumably would enable the Sigels to recover most, perhaps all, of their investment--or more, for that matter. But they claim not to have sufficient other income to make the payments required to service the loan until the assignment is complete, and they fear that in the interim the loan will be called and they will lose their home and the other assets that they pledged--two houses, and a retirement fund, of Mrs. Sigel's father--as collateral for it.

This is a wobbly footing for a finding of irreparable harm. The Cookie Company gave the Sigels an opportunity to assign the franchise back in August 1990, and again in October of that year (the suit was not brought until February 1991). They have only themselves to blame if they dallied in taking up either offer. Moreover, foreclosures are not instantaneous, so even if it takes the Sigels a while to find an assignee it is unlikely that they will lose the collateral for the loan in the interim.

To be balanced against this dubious showing of irreparable harm to the Sigels is the real though unquantified harm to the Cookie Company of being forced to continue doing business with a franchisee who not only committed rampant violations of the franchise agreement but also infringed the franchisor's trademarks. It is irreparable harm. The company cannot eliminate it by obtaining an award of damages from the Sigels, because no one supposes them capable of paying substantial damages. The harm may well exceed that of the Sigels should the injunction be vacated, unless some special weight ought to be given to the fact that their personal as distinct from merely business assets are in jeopardy, an issue not discussed by the district court. This omission makes it difficult for us to...