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Derma Pen, LLC v. 4Everyoung Ltd.

United States District Court, D. Utah, Central Division

June 7, 2017

DERMA PEN, LLC, Plaintiff,
v.
4EVERYOUNG LIMITED, BIOSOFT AUST PTY LTD d/b/a DERMAPENWORLD, EQUIPMED INTERNATIONAL PTY LTD d/b/a DERMAPENWORLD, and STENE MARSHALL d/b/a DERMAPENWORLD, Defendant.

          MEMORANDUM DECISION AND ORDER DENYING • [946] MOTION TO VACATE CONTEMPT ORDERS • [1014] MOTION FOR RELEASE OF $130, 00.00 BOND • [1024] MOTION TO INTERVENE

          DAVID NUFFER, DISTRICT JUDGE

         On May 9, 2017, Findings of Fact and Conclusions of Law; Order Granting [938, 943, 952, 944, 945, 1015, and 1017] Motions, Finding Moot [651 and 706] Motions; and Final Judgment Awarding Damages, Injunctive Relief, and Attorney's Fees and Costs (Findings of Fact and Conclusions of Law) was entered under seal.[1] This left the following motions unresolved:

• Motion and Supporting Memorandum to Vacate Contempt Orders (Motion to Vacate Contempt Orders).[2] In this motion, Third Party Defendant Michael Anderer moves to vacate certain contempt orders. Defendants oppose this motion.[3] Anderer replies in support of the motion.[4]
• Motion for Release of $130, 000.00 [sic] Bond.[5] In this motion, Anderer moves for release of the $140, 000.00 bond defendants posted as security for the preliminary injunction. This motion was unopposed by the defendants.
• Motion to Invervene [sic] and Enforce Attorney's Lien and Judgment (Motion to Intervene).[6] In this motion, third-party Magleby Cataxinos & Greenwood (MCG) moves for leave to intervene in this action and to enforce an attorney's lien and judgment. Anderer and Derma Pen, LLC (collectively “Derma Pen”) oppose the motion.[7] MCG replies in support of the motion.[8]

         For the reasons stated below, all three motions are DENIED.

         Table of Contents

         Background ..................................................................................................................................... 3

         Discussion ....................................................................................................................................... 5

         1. The $140, 000 held as injunction bonds will not be released to Anderer as further sanctions to Defendants or because the injunctions were wrongfully entered. . ..... 5

         a. Further sanctions are not warranted. . .......................................................... 5

         b. Derma Pen and Anderer were not wrongfully enjoined. . ........................... 6

         2. The contempt orders will not be vacated. . .............................................................. 9

         3. MCG may not intervene at this time. . ................................................................... 10

         Order ........................................................................................................................................... 12

         BACKGROUND[9]

         Defendants were granted a temporary restraining order that prevented Derma Pen and any of its affiliates from transferring the trademark and domain name.[10] As security for this restraining order, defendants had to “post security in the amount of $10, 000.”[11] Later 4EverYoung was granted a temporary restraining order that forbade “Michael E. Anderer, his agents, servants, employees, and attorneys, and those acting in concert with them” from transferring or selling the “trademark and domain name to anyone other than 4EverYoung.”[12]4EverYoung was required to file “an additional bond in the amount of $10, 000” as security.[13]And finally, Defendants were granted a preliminary injunction that similarly prevented any sale or transfer of the intellectual property.[14] As security for this injunction, 4EverYoung was required to “post $120, 000 additional security.”[15]

         Anderer was later found to be in civil contempt of the TRO Against Derma Pen for his conduct performed on Derma Pen's behalf.[16] Anderer was ordered to pay Defendants' related attorneys' fees of $39, 149.00.[17] Instead of being required to “immediately pay funds to” Defendants, Anderer was allowed to “post a cash bond in the amount of the attorneys' fees award of $39, 149.00”[18]

         Anderer was also found to be in civil contempt of the Preliminary Injunction Against Michael E. Anderer.[19] In connection with this finding, Anderer was ordered to pay Defendants' related attorneys' fees of $10, 988.38.[20] Instead of being required to “immediately pay funds to” Defendants, Anderer was allowed to “post a cash bond in the amount of the attorneys' fees award of $10, 988.38.”[21]

         All told, $190, 137.38 is currently held in the court's registry.[22]Defendants stopped paying their attorneys.[23] After many warnings, all Defendants' counterclaims, some of which were against Anderer, were stricken and dismissed (Sanction Order), [24]and the Preliminary Injunction Against Michael E. Anderer was vacated.[25]

         Eventually, a certificate of default was entered against Defendants.[26] And default judgment was recently entered with detailed findings of fact and conclusions of law.[27]

         DISCUSSION

         1. The $140, 000 held as injunction bonds will not be released to Anderer as further sanctions to Defendants or because the injunctions were wrongfully entered.

         Anderer argues that the $140, 000.00 in injunction bonds should be released to him (a) because it would further sanction Defendants for failing to defend[28] or (b) because the TROs and preliminary injunctions were wrongfully entered.[29]

         a. Further sanctions are not warranted.

         Anderer argues that because Defendants “fail[ed] to appear or appoint counsel”[30] and because the defendants “acted in bad faith, vexatiously and wantonly throughout the course of the litigation, ”[31] they should be further sanctioned under Federal Rule of Civil Procedure 16(f)(1).

         Rule 16(f)(1) states that “[o]n motion or on its own, the court may issue any just orders ... if a party or its attorney . . . (A) fails to appear at a scheduling or other pretrial conference; (B) is substantially unprepared to participate-or does not participate in good faith-in the conference; or (C) fails to obey a scheduling or other pretrial order.”

         Based on Rule 16(f)(1), Defendants counterclaims were stricken and dismissed;[32] the preliminary injunction based on those claims was vacated;[33] rights created or confirmed by any of the earlier decisions on motions for summary judgment were nullified and made void;[34] and Defendants Answer was stricken.[35]

         Rule 16(f)(1) has done enough. These sanctions entered under Rule 16(f)(1) were previously determined to be the appropriate means for redressing Defendants' failure to appear or appoint counsel. Anderer fails to establish a sufficient basis for reconsideration of the prior determination as to the proper sanction for Defendants' conduct. And Anderer fails to establish additional conduct on the part of Defendants to warrant further sanctions. Therefore, further sanctions are not warranted.[36]

         b. Derma Pen and Anderer were not wrongfully enjoined.

         Anderer's argument that the injunctions were wrongfully entered relies on a series of inferences: “4EverYoung's failure to appear or appoint counsel supports an inference that 4EverYoung never intended to prosecute its claim for specific performance to final resolution, never intended to purchase the Trademark or Domain name, and did not have the requisite funds to do so in any event.”[37] In short, Anderer argues that these inferences demonstrate that “at the time of issuance of the” injunctions, Defendants were not “likely to succeed on the merits.”[38]

         Federal Rule of Civil Procedure 65(c) states that “[t]he court may issue a preliminary injunction or a temporary restraining order only if the movant gives security in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained.” “To prevail in an action to recover on an injunction bond, the [movant] must prove that the injunction was wrongful and that he did have the right to engage in the enterprises enjoined.”[39] “A Party has been wrongfully enjoined under Fed.R.Civ.P. 65(c) if it is ultimately found that the enjoined party had at all times the right to do the enjoined act.”[40] “[W]hether a party has been wrongfully enjoined or restrained is not always coextensive with a final adjudication on the merits.”[41] “[W]here there is a finding that a defendant has been wrongfully enjoined, there is a presumption of recovery and the district court's discretion to deny damages is limited.”[42]

         To date, there has been no order or finding that Derma Pen and Anderer were wrongfully enjoined. The Sanction Order, which vacated the preliminary injunction against Anderer, did not vacate the preliminary injunction on the merits and it did not vacate the preliminary injunction nunc pro tunc. It was only vacated because of Defendants' failure to appoint counsel.[43] The Findings of Fact and Conclusions of Law do not suggest otherwise. Indeed, they explicitly state that

Because 4EverYoung failed to reasonably participate in proceedings to establish the DERMAPEN Marks' value as required by the Sales Distribution Agreement and this Court's orders, any rights that 4EverYoung may have had to purchase the DERMAPEN Marks or Domain Name terminated in the course of the current litigation.[44]

         It does not say that Defendants' rights never existed or that Defendants' rights terminated prior to issuance of the injunctions. Defendants' rights terminated after they repeatedly failed to pay their attorneys and failed to participate in proceedings. No sooner.

         Anderer has not demonstrated that the injunctions were wrongfully issued. And his numerous inferences are no substitute. First, as Defendants correctly point out[45] and Anderer acknowledges, [46] the injunctions were issued to protect “an option to purchase the Trademark or Domain Name.”[47] They were not protecting an obligation on Defendants to purchase the Trademark or Domain Name. Inferring that Defendants would be incapable of actually buying the intellectual property because of their inability to pay their attorneys is not the only reasonable inference. Second, even if that inference had force, it still would have no bearing on determining whether the injunctions were properly issued at the time of issuance. Just because it is cloudy today does not mean it was cloudy yesterday or that it will be cloudy tomorrow. Clouds come and go. At the time the injunctions were issued, Defendants may have been financially capable and ready to purchase the Trademark and Domain Name. There have been no findings to the contrary. And even if days after the injunctions were entered-but before entry of the Sanction Order and Findings of Fact and Conclusions of Law-Defendants were incapable of paying their attorneys, there is nothing to suggest Defendants could not find well-funded investors to quickly right course and eventually buy the Trademark and Domain Name. Bottom line, Defendants' inability to pay and retain attorneys was a proper basis for the Sanction Order and for entering default judgment, but it does not bespeak wrongful enjoinment.

         Finally, even though Derma Pen and related parties ultimately prevailed on default judgment, that does not necessarily mean they were wrongfully enjoined. The injunctions were entered to prevent Derma Pen and Anderer from selling the Trademark and Domain Name at that time to any party other than defendants.[48] At the time the injunctions were entered, Defendants had an option to buy the Trademark or Domain Name.[49] There has been no finding to the contrary. That option “terminated in the course of the current litigation.”[50] It would be different if it were ultimately determined that the defendants never had an option to purchase.

         Therefore, Derma Pen and Anderer have not shown they were wrongfully enjoined. Derma Pen and Anderer did not “at all times [have] the right to do the enjoined act.”[51] As detailed in the order below, it is appropriate that the $140, 000.00 be released back to Defendants.

         2. The contempt orders ...


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