Matrix Essentials, Inc. v. Quality King Distributors, Inc.
Docket: No. 07-5562-cv
Court: Court of Appeals for the Second Circuit; April 15, 2009; Federal Appellate Court
Matrix Essentials, Inc. (L’Oreal) appeals the United States District Court for the Eastern District of New York's judgment, which granted the Appellees' Rule 60(b) motion to terminate a consent decree and permanent injunction. The court also dismissed L’Oreal’s claims regarding past violations of the injunction. The appeals court reviews decisions on Rule 60(b) motions and civil contempt for abuse of discretion, which occurs if the district court makes an error of law or a clearly erroneous factual finding, or if the decision falls outside permissible ranges.
L’Oreal argues the district court made a clearly erroneous factual finding regarding diversion of Matrix products, asserting it incorrectly assumed that salons were not involved in diversion, despite evidence of distributor involvement. However, the appeals court finds no implicit finding against salons in the district court's opinion. Even if such a finding existed and was erroneous, it was deemed harmless, as the main reasons for vacating the decree were not centered on this issue. These reasons included the legality of Quality King’s actions and the impact of the injunction on market competition.
Additionally, L’Oreal contends the district court improperly suggested that it could vacate the decree based on a "significant change in circumstances," citing a standard from Rufo v. Inmates of Suffolk County Jail. L’Oreal argues that for injunctions not involving significant public rights, a higher standard of "clear showing of grievous wrong" is necessary, referencing United States v. Swift, Co.
Rufo may apply to this case as it involves significant public rights, particularly in trademark law, which indirectly protects the buying public. The marketing of cheaper items aims to confuse consumers, and an enforced injunction could exclude a major competitor from the Matrix products market, potentially raising prices at discount retailers and affecting public competition interests. The argument that this case does not impact beyond the parties involved is rejected. L’Oreal's claim regarding limitations on Rufo's application is waived because it was not clearly articulated in the opening brief. Arguments not presented in the opening brief are generally considered waived, regardless of their prior discussion in lower courts. Both parties agree that the outcome would remain unchanged regardless of the applicable standard, allowing the Rufo issue to be reserved for future consideration. A remand is necessary for the district court to review L’Oreal’s evidence of damages, as the court initially decided to vacate the injunction without addressing the potential for retroactive vacatur. Generally, injunctions must be followed until officially overturned, with noncompliance subject to contempt sanctions.
A district court may retroactively terminate an injunction under certain circumstances, as noted in Still’s Pharmacy, Inc. v. Cuomo, but such action is not common and requires justification. In this case, the court interprets the district court’s order as a prospective vacatur and remands the case to determine damages for any violations of the injunction that occurred while it was effective. L’Oreal requested reassignment to a different judge on remand, but the court found that adverse rulings alone do not typically question a judge's impartiality, referencing Chen v. Chen Qualified Settlement Fund. The district judge's critical remarks regarding L’Oreal’s presentation do not warrant reassignment. All other arguments presented by L’Oreal in the appeal were deemed without merit. Consequently, the district court's judgment is partially affirmed and partially vacated, with the case remanded for further proceedings. L’Oreal USA and related entities acquired Matrix in 2000, and the contempt proceeding leading to this appeal was initiated by L’Oreal.
