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Gregory v. Depte

filed as amended february 27 1990.: February 14, 1990.


On Appeal from the United States District Court for the Eastern District of Pennsylvania, Civil Action No. 88-7990-E.D. of Pa.

Becker, Cowen and Seitz, Circuit Judges.

Author: Seitz


SEITZ, Circuit Judge.

Plaintiff in the district court, Dick Gregory, appeals two sanctions imposed by the district court in its February 27, 1989, order finding him in contempt of its November 29, 1988, consent preliminary injunction.*fn1 The preliminary injunction applied to both plaintiff and defendants and required them to maintain the "status quo" that existed before this lawsuit with respect to a licensing agreement between the parties. The injunction did not further define "the status quo."

The background of this tortuous litigation is important. On January 7, 1987, plaintiff entered into a licensing agreement (the Agreement) with Correction Connection, Inc. (CCI) which granted CCI "an exclusive license throughout the United States . . . to market, distribute and sell" many of plaintiff's copyrighted products, including the diet mix involved in this case. CCI was authorized to sell the diet products through retail and/or multi-level marketing channels. In exchange, plaintiff received royalties from such sales. Under the terms of the Agreement, plaintiff reserved "all rights to distribute, sell and exploit the [diet product] through mail orders."

There was no definition of "mail orders" in the Agreement. Evidence in the record indicates that until the contempt hearing, plaintiff's mail order operation consisted almost exclusively of very small monthly sales directly to consumers. The only exception to this consumer-oriented mail order operation occurred sometime in the fall of 1988. During that fall, plaintiff's company began negotiations with one Sergio concerning a large mail order purchase program to be conducted through cable television stations. Plaintiff testified that the terms of this contract are that he is to supply Sergio with 700,000 cans of the diet product every six months, and Sergio is responsible for mailing the product monthly to consumer subscribers. Although plaintiff's testimony on this issue is somewhat vague, he implied that the Sergio contract has not yet been implemented.

On October 18, 1988, plaintiff filed a complaint in the district court seeking damages, injunctive relief and termination of the Agreement. The complaint alleged that CCI and several of its officers conspired to defraud plaintiff of his ownership interest in CCI, injured his business reputation and breached the Agreement by failing to pay him his contractual royalties. CCI and the individual defendants filed an Answer and Counterclaims, alleging that Gregory had, inter alia, failed to perform his own obligations under the Agreement.

After protracted legal skirmishing, but no recorded court action, the court approved a Stipulation and Proposed Order on November 29, 1988, presumably pending final decision. The Order, inter alia, required the parties "to maintain the status quo that existed before this lawsuit," enjoined them "from contacting any suppliers, distributors, agents, etc.," of the opposing side, and recited that the Agreement was to remain "in full force and effect."

On February 1, 1989, defendant CCI moved for contempt sanctions against plaintiff. It contended that Gregory had drop shipped large amounts of diet product to current and former CCI distributors in violation of the November 29 injunction. In addition, CCI alleged two other violations. First, CCI argued that plaintiff had violated the order by telling distributors that the CCI Agreement had been nullified and that they could now get their diet product directly from him. And, second, CCI contended that plaintiff had violated the Agreement by selling the diet product at retail through his Florida hotel.

The district court held contempt hearings and after taking evidence the court issued a contempt order and made certain factual findings. The order found Gregory in contempt for violating the November 29 injunction, as well as for violating what it found to be previous, non-record, judicial orders issued at an earlier status conference. We will treat the previous orders as irrelevant to the disposition of this appeal.

The district court found, in effect, that the status quo provision of the November 29, 1988, injunction barred plaintiff from making large shipments to consumers. It then found that plaintiff had violated this provision. It also found that plaintiff had contacted suppliers, etc., and had engaged in sales through retail channels in violation of the injunction.

As a sanction for the contempt, the court ordered that plaintiff's future sales be limited to "quantities no greater than two cans per customer per month to individual end-consumers for the purpose of personal consumption." It also imposed as a sanction a requirement that, for the period between November 2, 1988,*fn2 and February 27, 1989, plaintiff pay defendant $10 for each can sold over and above two cans per customer per month sold through regular mail order channels to individual end-consumers for the purpose of personal consumption. Finally, the court enjoined plaintiff and those acting in concert with him from engaging in any commercial contacts with former or present employees of CCI.

The plaintiff appealed the contempt order under both 28 U.S.C. §§ 1291 and 1292(a)(1) (No. 89-1260). He also appealed the order denying his motion for reconsideration (No. 89-1688).

We are met at the outset with the need to consider the nature of the contempt sanctions -- civil or criminal -- because of our resolution of this appeal.

We assume the correctness of the contempt finding, but not the sanctions, solely for the purpose of addressing the appealability issues presented.


We consider first whether the two-can sanction is appealable. Plaintiff contends that the sanction is a modification of the consent preliminary injunction of November 29, 1988, and thus is appealable under the "modifying" language of 28 U.S.C. § 1292 (a)(1). The short answer is that no motion to modify was made under F.R.Civ.P. 65 (governing the practice for seeking a preliminary injunction). On the contrary, the sole matter tried by the district court was the alleged contempt of the November 29, 1988 consent injunction. Thus, the appeal of the two-can sanction is not appealable as a modification of the prior injunction. Indeed, if it is treated as a modification it would impugn the provision in the $10.00 per can sanction to the extent that the sanction gives a two-can credit per month in calculating the amount owed by plaintiff.

On the other hand, we conclude that the two-can limitation was a permissive sanction based on the civil contempt finding because its purpose was to compel compliance with the court's earlier order. So viewed, it is essentially coercive rather than punitive. While the usual rule is that an interlocutory civil contempt is not appealable, United States Steel Corp. v. Fraternal Ass'n of Steel Haulers, 601 F.2d 1269, 1273 (3d Cir. 1979), the sanction in the form of the two-can limitation, in our view, amounts to an independent preliminary injunction and thus is appealable at this stage, 29 U.S.C. § 1292 (a) (1). We next determine whether the district court abused its discretion in imposing that injunction as a sanction.

Obviously our review is severely constrained lest, in reviewing the sanction, we violate the rule against appellate review of the civil contempt determination at this stage. Given the basis for the civil contempt finding and its objective, we cannot say that the imposition of the injunctive sanction constituted an abuse of ...

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