                                                                                                                           Opinions of the United
1994 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


7-6-1994

Woods, Inc. v. Woods, et al.
Precedential or Non-Precedential:

Docket 93-3314




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           UNITED STATES COURT OF APPEALS
               FOR THE THIRD CIRCUIT


              N0S. 93-3314 and 93-3333


          ROBIN WOODS INC., a Pennsylvania Corporation
                         v.

           ROBIN F. WOODS, an individual
  ALEXANDER DOLL COMPANY, a New York corporation
               PITTSBURGH SEED FUND

   ROBIN F. WOODS and THE ALEXANDER DOLL COMPANY,
                     Appellants



  On Appeal From the United States District Court
     For the Western District of Pennsylvania
          (D.C. Civil Action No. 91-02186)


               Argued January 12, 1994

BEFORE:   STAPLETON, COWEN and ALITO, Circuit Judges

            (Opinion Filed July 6, 1994)




                   Bela A. Karlowitz
                   Robert X. Medonis (Argued)
                   Karlowitz & Cromer
                   Suite 800, USX Tower
                   Pittsburgh, PA 15219

                   Attorneys for Appellee

                   Gary A. Rosen (Argued)
                   Hangley, Connolly, Epstein, Chicco,
                   Foxman & Ewing
                   1515 Market Street
                   9th Floor
                   Philadelphia, PA 19102

                   Attorneys for Appellants
                            Robin F. Woods and
                            The Alexander Doll Company



                       OPINION OF THE COURT




STAPLETON, Circuit Judge:

          The district court sanctioned appellants for violating

a preliminary injunction.    Appellants dispute both the finding of

contempt and the appropriateness of the sanctions imposed.        We

agree with the district court that appellants failed to comply

with the preliminary injunction, but we find that one of the

sanctions the district court imposed is inappropriate.      We thus

will affirm in part and reverse in part.



                                  I.

           In 1983, Robin F. Woods ("Mrs. Woods") founded Robin

Woods, Inc. ("RWI"), a doll manufacturer.      RWI's dolls were

popular and rapid growth ensued.       Mrs. Woods obtained capital to

finance RWI's expansion by selling most of her holdings in RWI to

investors, among which was the Pittsburgh Seed Fund ("the Seed

Fund").   The Seed Fund required Mrs. Woods to enter into a

written employment agreement and a non-competition/non-disclosure

agreement with RWI, as well as to assign her copyrights to RWI.

           Even though RWI's sales continued to increase

throughout the 1980s, the company never turned a profit.      Unhappy

with RWI's financial performance, the Seed Fund in 1990

instructed its representatives on RWI's board to remove Mrs.
Woods from her management role but to continue to employ her as a

doll designer.   Following Mrs. Woods' demotion, RWI's product

line was also altered and new distribution channels were created.

The Seed Fund's changes proved catastrophic, leading RWI to the

verge of bankruptcy.   Mrs. Woods offered to return as CEO to try

to save RWI, but the Seed Fund rebuffed her.   Mrs. Woods resigned

from RWI on December 6, 1991, to go to work for one of RWI's

competitors, the Alexander Doll Company ("Alexander").

          RWI filed suit against Mrs. Woods and Alexander on

December 24, 1991, alleging Lanham Act violations, injury to

business reputation, breach of contract, breach of fiduciary

duty, tortious interference, breach of employment contract, and

unfair competition.    RWI also sought a preliminary injunction to

bar Mrs. Woods from employment with Alexander or from using the

name "Robin Woods" in connection with the design, manufacture,

and sale of dolls.

          After hearing four days of testimony, a magistrate

recommended that Mrs. Woods be enjoined from involvement in the

collectible doll industry.   The district court's preliminary

injunction expanded the magistrate's restrictions on Mrs. Woods

by limiting use of her name:
          1. Defendants [Mrs. Woods and Alexander]
          . . . are enjoined from characterizing,
          promoting or advertising either orally or in
          writing, that any dolls manufactured by
          Alexander Doll Company for which Robin F.
          Woods provides any services
                              . . .
               (g) are signed or otherwise
               identified with Robin F. Woods.
                              . . .
          5. Defendants . . . are enjoined from
          designating or identifying any specific dolls
          manufactured by any company, including but
          not limited to Alexander Doll Company, for
          which Robin F. Woods provided services.
                              . . .
          8. Defendants . . . are enjoined from
          identifying Robin F. Woods as having provided
          any services for any dolls manufactured by
          any company, including but not limited to the
          Alexander Doll Company, such as on the
          product, product tag, box, or in connection
          with any advertising or promotion of the
          dolls.


          Mrs. Woods consulted counsel to determine what work she

could do at Alexander and still comply with the preliminary

injunction.    Counsel told her that she could design play dolls

(but not collectible dolls) if she used a nom de plume (but not
her name).    Mrs. Woods took the name Alice Darling and began to

create a new line of play dolls for Alexander called "Let's Play

Dolls."

          An announcement of Mrs. Woods' new role was prepared

for distribution in doll industry magazines, letters to

retailers, and trade show posters. The announcement stated:
                       ALEXANDER DOLL COMPANY
                   is pleased to announce that
                        MRS. ROBIN F. WOODS*
                             [Photograph]
                is exclusively associated with the
                          LET'S PLAY DOLLS
             division of the Alexander Doll Company
                    and will be creating dolls
                      for play under the name
                            ALICE DARLING

             *Mrs. Woods was formerly associated with
             Robin Woods, Inc. (RWI). Mrs. Woods resigned
             from RWI in December 1991. A federal court,
             on February 7, 1992, preliminarily ruled that
             RWI owns the trade name "Robin Woods" and
          that Mrs. Woods may not use her name to
          identify any dolls which she designs.
          Accordingly, Mrs. Woods has assumed a new
          trade name "Alice Darling" to identify the
          dolls she designs for the Alexander Doll
          Company.



          RWI filed a motion for contempt sanctions, arguing that

the preliminary injunction forbade Mrs. Woods' involvement with

Alexander and Let's Play Dolls.   After discovery and a four-day

hearing, the district court rejected most of RWI's contentions,

finding only one violation of the preliminary injunction:

dissemination of the Alice Darling announcement.    The district

court awarded RWI $107,000 in damages, which reflected the time

and expense RWI's management incurred preparing for the contempt

proceeding.   Attorneys' fees of $68,707.52 were also awarded.

Mrs. Woods and Alexander now appeal.

          The district court had jurisdiction over RWI's claims

under 28 U.S.C. § 1338 and 28 U.S.C. § 1367.    This court has

appellate jurisdiction pursuant to 28 U.S.C. § 1291.      See United
States Steel Corp. v. Fraternal Ass'n of Steel Haulers, 601 F.2d

1269, 1272 (3d Cir. 1979).



                               II.

          The district court found that Mrs. Woods and Alexander

did not respect the injunction in three ways.    First,

"[d]efendants promoted and advertised that dolls manufactured by

Alexander were designed by Mrs. Woods by identifying 'Alice

Darling' as Mrs. Woods and as the designer of 'Let's Play
Dolls.'"   Robin Woods, Inc. v. Woods, 815 F. Supp. 856, 868 (W.D.

Pa. 1992).   This, the district court said, violated paragraph one

of the injunction which forbids "promoting or advertising . . .

dolls manufactured by Alexander . . . which . . . are . . .

identified with Robin F. Woods."   Second, "[d]efendants, by their

promotional campaign, designated or identified specific dolls

manufactured by Alexander for which Mrs. Woods provided

services."   Id.   This, the district court said, violated

paragraph five of the injunction which forbids "designating or

identifying any specific dolls . . . for which Robin F. Woods

provided services."   Third, "[d]efendants identified Mrs. Woods

as having provided services for the dolls of the 'Let's Play

Dolls' line . . . in . . . promotion of the doll."   Id.     This,

the district court said, violated paragraph eight of the

injunction which forbids defendants from "identifying Robin F.

Woods as having provided any services for any dolls manufactured

by . . . Alexander . . . in connection with . . . promotion of

the doll."   Id.

           Mrs. Woods and Alexander attack the district court's

ruling, noting that civil contempt must be proved by clear and

convincing evidence; where there is ground to doubt the

wrongfulness of the conduct, they insist, there is no contempt.

They further claim that they acted in good faith, with the advice

of counsel, and without an intent to arrogate RWI's goodwill.

Finally, they contend that their use of "Robin Woods" was

arguably outside the scope of a vague injunction and consistent

with the purpose of the injunction and that this substantial
compliance with the injunction renders the finding of contempt

inappropriate.   We find these arguments unpersuasive.

          Contempt, as Mrs. Woods and Alexander correctly note,

must be proved by clear and convincing evidence:
          The plaintiff has a heavy burden to show a
          defendant guilty of civil contempt. It must
          be done by "clear and convincing evidence,"
          and where there is ground to doubt the
          wrongfulness of the conduct, he should not be
          adjudged in contempt.


Quinter v. Volkswagen of America, 676 F.2d 969, 974 (3d Cir.

1982) (quoting Fox v. Capital Co., 96 F.2d 684, 686 (3d Cir.
1938)).   In this case, however, there is no ground to doubt the

wrongfulness of the conduct -- the injunction forbade

identification of Mrs. Woods with Alexander's dolls in

promotional materials and the Alice Darling announcement made

such an identification.

          Contrary to Mrs. Woods' and Alexander's assertions,

good faith is not a defense to civil contempt.   We recently held

in Harley-Davidson, Inc. v. Morris, 19 F.3d 142, 148-49 (3d Cir.

1994), that "willfulness is not a necessary element of civil

contempt," and, accordingly, that "evidence . . . regarding . . .

good faith does not bar the conclusion . . . that [the defendant]

acted in contempt."

          Contemnors, as Mrs. Woods and Alexander correctly note,

are sometimes excused when they violate vague court orders: there

is a "longstanding salutary rule in contempt cases that

ambiguities and omissions in orders redound to the benefit of the

person charged with the contempt."   Eavenson, Auchmuty &
Greenwald v. Holtzman, 775 F.2d 535, 544 (3d Cir. 1985).    This

well established principle does not aid the appellants here,

however.   While we too perceive some vagueness in paragraph 5 of

the injunction, the prohibitions that paragraphs 1 and 8 were

intended to impose seem crystal clear to us.   As paragraph 8 puts

it:   "Defendants . . . are enjoined from identifying Robin F.

Woods as having provided any services for any dolls manufactured

by . . . Alexander Doll Company . . . in connection with any

. . . promotion of the dolls."

           Some courts, as Mrs. Woods and Alexander correctly

note, have recognized a substantial compliance defense to

contempt citations:
          [S]ubstantial compliance with a court order
          is a defense to an action for civil contempt.
          . . . If a violating party has taken 'all
          reasonable steps' to comply with the court
          order, technical or inadvertent violations of
          the order will not support a finding of civil
          contempt.


General Signal Corp. v. Donallco, Inc., 787 F.2d 1376, 1379 (9th
Cir. 1986).   Even if this court were to recognize substantial

compliance as a defense to contempt, however, it would not apply

to Mrs. Woods and Alexander.   Although Mrs. Woods and Alexander

acted in good faith and on the advice of counsel, see Robin

Woods, Inc. 815 F. Supp. at 875, their violation was not

technical or inadvertent -- they consciously chose to associate

Mrs. Woods with dolls that Alexander would manufacture.    The

district court's contempt citation thus must stand.
                               III.

           Mrs. Woods and Alexander dispute the sanctions that the

district court imposed on them, maintaining that it was an abuse

of discretion to award RWI $68,505.72 in attorneys' fees and

$107,000 in damages for the time and expense that RWI's

management incurred in preparing for the contempt proceeding.

"The standard of our review of a district court sanction for

civil contempt is whether the district court abused its wide

discretion in fashioning a remedy."    Delaware Valley Citizens'

Council v. Pennsylvania, 678 F.2d 470, 478 (3d Cir. 1982), cert.

denied, 459 U.S. 969 (1982).



                                A.

          RWI sought attorneys' fees of $104,062.53 plus an

expert witness fee of $11,976.00.     The district court awarded

only $68,707.52, because "plaintiff was largely unsuccessful on

its motion for contempt, sanctions, and attorneys' fees."    Mrs.

Woods and Alexander maintain that attorneys' fees cannot be

awarded to RWI because their conduct, even if contumacious, was

not willful -- they acted in good faith on the advice of counsel

without intent to harm RWI.

          Sanctions for civil contempt serve two purposes:     "to

coerce the defendant into compliance with the court's order and

to compensate for losses sustained by the disobedience."

McDonald's Corp. v. Victory Investments, 727 F.2d 82, 87 (3d Cir.
1984).   Compensatory awards seek to ensure that the innocent

party receives the benefit of the injunction:
          the Court will be guided by the principle
          that sanctions imposed after a finding of
          civil contempt to remedy past noncompliance
          with a decree are not to vindicate the
          court's authority but to make reparation to
          the injured party and restore the parties to
          the position they would have held had the
          injunction been obeyed.


Hudson Transit Lines, Inc. v. Freund, 509 F. Supp. 1172, 1178
(E.D.N.Y. 1981).

          Based on this understanding of the functions served by

sanctions for civil contempt, we reject the notion that a finding

of willfulness is a prerequisite to an award of attorneys' fees

against the violator of an injunction.     As the Court of Appeals

for the Fifth Circuit explained in Cook v. Ochsner Found. Hosp.,

559 F.2d 270, 272 (5th Cir. 1977):
          It matters not whether the disobedience is
          willful[;] the cost of bringing the violation
          to the attention of the court is part of the
          damages suffered by the prevailing party and
          those costs would reduce any benefits gained
          by the prevailing party from the court's
          violated order. Because damages assessed in
          civil contempt cases are oftentimes
          compensatory (instead of coercive) the mental
          state of the violator should not determine
          the level of compensation due.

          Only with an award of attorneys' fees can RWI be

restored to the position it would have occupied had Mrs. Woods

and Alexander complied with the district court's injunction.

Accordingly, accepting both the district court's findings

regarding good faith and advice of counsel and the appellants'

assertion that they intended no harm to RWI, we find no basis for

disturbing the award of attorneys' fees.
                                 B.

            The district court ordered Mrs. Woods and Alexander to

pay RWI $107,000 as compensation for "management's time and

expense in preparing for the contempt litigation."   Robin Woods,

Inc., 815 F. Supp. at 875.    The court explained its decision in

this way:    "A successful party proving contempt is entitled to

recover, by way of civil fine, the expense of investigating the

violation of the order [and] preparing for and conducting the

contempt proceeding, in addition to attorneys' fees."    Id.

            The $107,000 figure was based solely on the following

testimony from RWI executive David Lamont:
               Q. You said you spent some management
          time preparing for this hearing . . . . .
          Before coming here did you examin[e] the
          company's books and records to determine how
          much time was expended in preparing for this
          hearing today for the sanctions?
               A. Yes, I did.
                              . . .
               Q. Let's go to how much time. You said
          you studied the time and you are familiar
          with the cost of your time. Is that correct?
               A. Sure. . . . I look at my payroll
          records, sure.
               Q. You are the chief financial officer
          of the company. Is that correct?
               A. Yes.
               Q. Now, can you tell this court how
          much money was expended by the Robin Woods
          Company on management time, in-house
          management time, in preparing for the
          sanctions hearing today?
                              . . .
               A. Through the spring and summer, I
          kept track of the rough proportions of time
          that each of my key people were spending
          preparing for this case. I tracked it on a
          month-by-month basis, and through October it
          adds up to about $107,000.
          Just as attorneys' fee awards are "remedial and

designed to compensate complainants for losses incurred as a

result of the contemnors' violations," Roe v. Operation Rescue,

919 F.2d 857, 869 (3d Cir. 1990), so too are awards to cover the

other expenses involved in demonstrating violations.    NLRB v.

Local 825, Int'l Union of Operating Eng'rs, AFL-CIO, 430 F.2d

1225, 1229 (3d Cir. 1970), cert. denied, 401 U.S. 976 (1971).

Thus, there can be no doubt that the district court had the

authority to order Mrs. Woods and Alexander to compensate RWI for

the time and expense its management incurred in enforcing the

district court's injunction.

          Turning to the amount of the award, we note that the

district court enjoys wide, but not unlimited, discretion in

fashioning appropriate compensatory sanctions:
          The framing of sanctions for civil contempt
          is committed to the sound discretion of the
          trial court. . . . But this discretion is
          not unlimited. Compensatory sanctions . . .
          must not exceed the actual loss suffered by
          the party that was wronged.


Elkin v. Fauver, 969 F.2d 48, 52 (3d Cir. 1992), cert. denied,

113 S. Ct. 473 (1992).

          We believe the district court in this case stepped over

the line that separates acceptable and unacceptable exercises of

discretion.   It reduced its award of counsel fees to reflect

RWI's limited success and then, without explanation, proceeded to

award all of the other expenses incurred by RWI in connection

with its contempt motion.   For this reason, on the basis of the

record, the award of other expenses without an adjustment for the
limited degree of RWI's success can only be characterized as

arbitrary and we have no choice but to vacate it.1



                               IV.

          We will reverse the judgment of the district court and

remand with instructions to enter an order finding appellants in

contempt and awarding attorneys' fees of $68,707.52.   We leave to

the discretion of the district court whether to reopen the record

and give further consideration to the application for expenses.




1
Because we thus find the award of expenses arbitrary, and
because Mr. Lamont's testimony provides no basis for allocating
expenses between successful and unsuccessful contentions, it is
unnecessary for us to reach the issue of whether that testimony,
given its conclusory nature, would otherwise provide sufficient
support for an award. We regard that issue as a very close one
and express no opinion on it.
