Max's Seafood Cafe, ex rel. Lou-Ann, Inc. v. Quinteros

Citations: 176 F.3d 669; 1999 WL 294718Docket: No. 98-5287

Court: Court of Appeals for the Third Circuit; May 5, 1999; Federal Appellate Court

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Max Quinteros and Jack-Mack Seafood, LLC, are appealing a District Court order that found them in civil contempt for breaching a consent order related to trademark infringement. Quinteros argues that he should not be held accountable for violations committed by Frank Miraglia, while Jack-Mack contends it should not be liable since it was not established during the alleged violations. The background reveals that Quinteros sold his restaurant, Max's Seafood Cafe, and subsequently entered a consent order in 1990 prohibiting him from using the name "Max" or any similar designations in a competing restaurant. After various ownership changes, Quinteros began working at Frank Miraglia's establishment and was later involved in its purchase through Jack-Mack in 1997. Lou-Ann, the entity that originally owned Max's Seafood Cafe, filed for contempt, accusing Quinteros of violating the consent order by claiming to be "the original Max" and by advertising the new restaurant with the name "Max" more prominently than "Quinteros." The District Court's hearing focused on these allegations, including claims that Jack-Mack aided in these violations, although specific acts of aiding and abetting were not detailed.

Testimony was taken from witnesses including Max Quinteros, Frank Miraglia, and Louis Del Broceo, leading to a District Court decision on December 18, 1997, which found that the print advertisements did not breach the consent order. The court deemed Quinteros's oral communications as 'unclear and imprecise' and noted that no witnesses testified that such communications occurred post-August 1996, barring contempt allegations against Quinteros under the doctrine of laches. However, the court established that Frank Miraglia referred to Quinteros as the 'original Max' approximately 25 times, but it was not conclusively shown that Quinteros identified himself in that manner. Despite this, Quinteros was held liable for Miraglia's statements due to their shared profit structure and Quinteros's influence over Miraglia, who continued to introduce Quinteros as the 'original Max' despite being instructed not to. Consequently, Quinteros was found in contempt for his inadequate efforts to ensure compliance with the order. The court also found Jack-Mack in contempt without detailing the reasoning. Remedies included mandated advertisements stating 'not affiliated with Max’s Seafood Cafe,' fines for both Quinteros and Jack-Mack, and an award of attorney’s fees to Lou-Ann, pending a fee petition. Quinteros and Jack-Mack objected to the fee petition and sought reconsideration, arguing against their liability based on Miraglia's violations and Jack-Mack's formation date. The District Court denied the motion for reconsideration, concluding the movants did not meet the standard for such relief. They subsequently appealed, assigning four errors: the contempt finding based on Miraglia's statements, Jack-Mack’s contempt despite its non-existence during the violations, the applicability of laches, and the denial of attorney’s fees. The first issue is subject to plenary review.

The court addresses the review standards for the District Court's denial of a reconsideration motion, noting that such denials are generally reviewed for abuse of discretion, while issues of law are reviewed de novo and factual findings are assessed for clear error. The case involves Quinteros, who contests a contempt finding based on violations of a consent order, arguing that the violations were solely attributable to his associate, Miraglia. The consent order does not impose an obligation on Quinteros to ensure Miraglia's compliance; it only prohibits violations by Quinteros and those legally associated with him. The court emphasizes that liability for contempt must be based on actions demonstrating aiding and abetting or imputation, rather than mere business association.

The District Court's rationale for holding Quinteros in contempt relies on his business relationship with Miraglia, suggesting that shared profits could imply liability. However, the court finds no legal authority supporting this notion and highlights that Quinteros was not found to have instigated or endorsed Miraglia's violations. In fact, evidence indicates Quinteros urged Miraglia to comply with the order. Consequently, the court concludes that Quinteros’s mere association with Miraglia does not establish contempt liability without evidence of aiding or abetting. The court also notes that the order enjoins not only Quinteros but also those "in active concert and participation" with him, but reiterates that such participation must be substantiated by conduct beyond business association.

The District Court, in its reconsideration of a motion, clarified that its decision did not rely on establishing a partnership between Quinteros and Miraglia. It acknowledged Miraglia's sole ownership and Quinteros's unsuccessful attempt to be recognized as a partner, indicating that the court did not need to explore different business organization distinctions. The phrase "in active concert or participation" included in the consent order does not imply Quinteros's liability for Miraglia’s statements, as it pertains solely to who can be bound by an injunction under Federal Rules of Civil Procedure. The court emphasized that it cannot enjoin non-parties broadly and that a finding of "active concert or participation" would only indicate that Miraglia could be bound by an injunction, not establish vicarious liability.

Lou-Ann's argument likening Quinteros's liability to that of a union for members' unlawful actions was rejected. The court noted that doctrines in federal labor law do not necessarily apply in other contexts, as they involve specific policy judgments and statutory limitations. Furthermore, it highlighted that the Supreme Court had previously disagreed with the court's rulings in the cases cited by Lou-Ann, asserting that unions cannot be compelled to prevent unauthorized strikes without a clear obligation under common law principles. Consequently, the principles proposed by Lou-Ann were deemed inapplicable for establishing liability in this case.

Guidance is sought from case law regarding vicarious liability for contemptuous conduct in business associations. In **Wilson v. United States**, the Supreme Court held that corporate officers are responsible for the corporation's compliance with legal orders, and failure to act can result in contempt charges against them. Similarly, in **Colonial Williamsburg Foundation v. Kittinger Co.**, the Fourth Circuit upheld a contempt ruling against Kittinger's president for not ensuring compliance with a consent judgment, noting his lack of action despite being aware of the order. 

In contrast, the current case lacks evidence that Quinteros held similar responsibilities for Frank’s Place. The District Court was hesitant to classify Quinteros as a partner, and it did not determine a partnership existed. Unlike the CEO in Colonial Williamsburg, who was found to have disregarded the court order, Quinteros not only read the injunction but also instructed Miraglia to cease referring to him in a misleading manner. Therefore, there is no basis for establishing an agency relationship that would make Quinteros liable. 

Finally, the argument that Quinteros should be held in contempt for not demonstrating good faith efforts to comply is rejected, as the precedent cited from **Harris v. City of Philadelphia** is not relevant to this case.

The District Court found the City of Philadelphia in contempt for failing to produce documents as mandated by a consent decree, as confirmed by the Harris case. The court noted that while a defendant can avoid contempt if they took all reasonable steps to comply, the City did not demonstrate an inability to comply or provide good cause for its failure. In contrast, Quinteros could not be held in contempt for Miraglia's violations because the consent order did not impose an obligation on Quinteros to prevent such violations. Efforts made by Quinteros to stop Miraglia were not mandated by the court, and the burden of showing compliance does not fall on alleged contemnors unless they claim adherence to the order is impossible, which was not applicable here. 

Additionally, Jack-Mack argued it should not be held in contempt for Miraglia's statements as it was not in existence at the time those statements were made. The District Court acknowledged the contemptuous acts occurred before Jack-Mack's incorporation in February 1997, and after Quinteros acquired the restaurant, Miraglia ceased his contemptuous behavior. There was no evidence linking Jack-Mack to Miraglia's actions to justify liability. Lou-Ann contended that the court need not consider Jack-Mack's incorporation date since it was raised during the motion for reconsideration. However, the court maintained that the reconsideration motion aimed to address legal or factual errors, and Jack-Mack's incorporation date was relevant to its defense. A judgment can be amended based on new evidence or to correct errors to prevent injustice, as established in precedents.

The District Court denied Jack-Mack's motion for reconsideration, concluding there was no change in controlling law or newly discovered evidence. It did not address whether holding Jack-Mack in contempt constituted a clear error of law or resulted in manifest injustice. Jack-Mack's defense, concerning its incorporation date being after Miraglia's last contumacious acts, was deemed fundamental and warranted consideration, as reconsideration serves to highlight manifest errors of fact or law. Jack-Mack's absence of its incorporation certificate at the contempt hearing was rationalized by the lack of evidence against it, as Lou-Ann bore the burden to prove contempt. The court was aware that Jack-Mack had not been involved with the restaurant until after Miraglia's departure. Lou-Ann's attempt to introduce a 'successor liability' theory on appeal, which was not presented in the District Court, was rejected due to the absence of a comprehensive record and findings of fact necessary for such a claim. Lou-Ann's vague assertions regarding Jack-Mack’s status as a successor lacked sufficient legal grounding and did not demonstrate an ongoing violation or connection to Miraglia's actions, which the District Court found absent in Jack-Mack's conduct.

Jack-Mack, a limited liability company owned by Max Quinteros and his wife, purchased a restaurant from Miraglia, who previously operated it as a sole proprietorship. The District Court acknowledged Miraglia's sole ownership and found that the only violations related to Miraglia's statements were discrete actions that ceased nearly a year before Jack-Mack's acquisition of the business. Lou-Ann argued for a contempt judgment against Jack-Mack based on successorship principles, attempting to hold them accountable for Miraglia's past violations, but this was not aligned with the type of ongoing violations relevant in similar cases. The court determined that Jack-Mack demonstrated a clear legal and factual error in the District Court's order and that the refusal to reconsider based on Jack-Mack’s incorporation date was an improper exercise of discretion. The judgment of contempt against Quinteros and Jack-Mack was reversed, and the issue of attorney fees awarded to Lou-Ann was also nullified. The consent order stipulates that the successful party in enforcement actions is entitled to counsel fees, leading to a remand for further proceedings regarding this issue. The District Court had previously declined to find Miraglia in contempt due to concerns about his representation, and this decision was not appealed.