                         NOTE: This disposition is nonprecedential.


   United States Court of Appeals for the Federal Circuit
                                          2008-1100


                                  SYSTEMS DIVISION, INC.,

                                                        Plaintiff-Appellee,

                                               v.

                        TEKNEK, LLC (by its Trustee, David Leibowitz),

                                                        Defendant-Appellant,

                                              and

                         SHEILA HAMILTON, JONATHAN KENNETT,
                              and TEKNEK HOLDINGS, LTD.,

                                                        Defendants.

      Edward F. O’Connor, O’Connor Christensen & McLaughlin, of Irvine, California,
argued for plaintiff-appellee.

         Steven B. Towbin, Shaw Gussis Fishman Glantz Wolfson & Towbin LLC, of Chicago,
Illinois, argued for defendant-appellant.

Appealed from: United States District Court for the Central District of California

Judge David O. Carter
                       NOTE: This disposition is nonprecedential.


United States Court of Appeals for the Federal Circuit

                                        2008-1100

                               SYSTEMS DIVISION, INC.,

                                                               Plaintiff-Appellee,

                                             v.

                     TEKNEK, LLC (by its Trustee, David Leibowitz),

                                                               Defendant-Appellant,

                                            and

                      SHEILA HAMILTON, JONATHAN KENNETT,
                           and TEKNEK HOLDINGS, LTD.,

                                                               Defendants.


Appeal from the United States District Court for the Central District of California in case
no. 00-CV-135, Judge David O. Carter.


                           ____________________________

                            DECIDED: October 29, 2008
                            ____________________________

Before MAYER, SCHALL, and MOORE, Circuit Judges.

PER CURIAM.

       Teknek, LLC, by the trustee of its bankruptcy estate, David Leibowitz, (Trustee)

appeals from an October 12, 2007 order of the United States District Court for the

Central District of California, No. SA CV 00-135 (the California Action), granting

Systems Division, Inc.’s (SDI) motion to hold Teknek Holdings, Ltd., Sheila Hamilton,

and Jonathan Kennett—the defendants in that case (collectively, Joined Defendants)—
in contempt, Docket No. 563 (Contempt Order). This appeal was originally consolidated

with No. 2008-1099, which was brought by the Joined Defendants.

      On February 29, 2008, SDI and the Joined Defendants settled in the California

Action and the district court vacated the Contempt Order in full and with prejudice.

California Action, Docket No. 595 (Stipulated Settlement).        SDI and the Joined

Defendants subsequently stipulated to the voluntary dismissal of the Joined Defendants’

appeal, which the Trustee opposed. The Trustee’s contention on appeal is that the

now-vacated Contempt Order adversely affects his interests and he asks this court to

vacate the order that the district court has itself already vacated. Because there is no

effectual relief that we can grant to the Trustee, we dismiss this appeal as moot.

Because the Trustee’s appeal to this court is frivolous, we impose sanctions under Rule

38 of the Federal Rules of Appellate Procedure and order the Trustee and his attorneys

to pay SDI’s attorney fees and costs due to this appeal.

                                    BACKGROUND

      This is the fourth appeal from the California Action. SDI instituted the California

Action by suing Teknek Electronics, Ltd. and Teknek, LLC (collectively, Original

Defendants) for infringement of three patents relating to “clean machines” in 2000.

Shortly after the California Action began, Hamilton and Kennett formed Teknek Holdings

in Scotland, and as the litigation progressed, Hamilton and Kennett transferred the

assets of the Original Defendants to Teknek Holdings, with no compensation in return. 1




      1
              Kennett and Hamilton are the sole owners and directors of Teknek
Electronics, Ltd. (a Scottish company), Teknek, LLC (an Illinois company), and Teknek
Holdings, Ltd. (a Scottish company).
2008-1100                                   2
      In July 2004, a jury in the California Action found in favor of SDI, resulting in a

total award of $3.7 million. SDI could not collect the judgment because, as a result of

the asset transfers, the Original Defendants were insolvent.           In 2005, Teknek

Electronics filed an insolvency petition in the United Kingdom, and Teknek, LLC filed a

Chapter 7 bankruptcy petition in Illinois. Over 99% of Teknek, LLC’s liabilities belong to

SDI as a now $4 million judgment creditor, including interest. On January 3, 2007, the

district court granted SDI’s motions to add the Joined Defendants to the 2004 judgment

on an alter ego theory, and we affirmed that ruling on October 26, 2007. Sys. Div., Inc.

v. Teknek Elecs., Ltd., 253 F. App’x 31 (Fed. Cir. 2007) (unpublished).

      While the 2007 appeal was pending, SDI continued its efforts to collect the

judgment in the California Action. On April 6, 2007, SDI moved to hold the Joined

Defendants in contempt and asked the California court to issue an order with multiple

types of sanctions.    The Joined Defendants then agreed to satisfy the underlying

judgment in the case plus interest, and the district court continued the hearing on the

contempt motions to give the parties time to negotiate the details of the settlement.

During that interval, the Trustee sought and obtained a preliminary injunction from the

bankruptcy court purporting to bar SDI from collecting judgment in the California Action.

Levey (in re Teknek, LLC) v. Sys. Div. Inc., No. 05-27545, 07-ap-0583 (Bankr. N.D. Ill.

June 26, 2008) (Docket No. 13) (PI Order).

      On October 12, 2007, the California court found the Joined Defendants and

Teknek Holdings in contempt for various failures to appear for a judgment debtor

examination.   Contempt Order at 22-23.      The Contempt Order enjoined the Joined

Defendants and the Original Defendants from carrying out business in the United



2008-1100                                    3
States, and enjoined the same parties from transferring or disposing of their assets. Id.

at 22.

         The combination of the PI Order and the Contempt Order created a stalemate,

and despite having won its judgment, SDI was unable to collect. Although it is not

immediately apparent why it matters whether SDI collects straight from the Joined

Defendants or through the bankruptcy estate, it does substantially affect SDI’s ability to

collect the judgment to which it is entitled. Had the Joined Defendants paid the $4

million to the bankruptcy estate, the Trustee would have taken approximately 25% ($1

million) as his contingent fee and then paid the remainder to SDI as a judgment creditor.

SDI would then only recover $3 million of its $4 million judgment.

         The Trustee’s plan to divert SDI’s judgment through the bankruptcy estate was

derailed when, on December 21, 2007, the Northern District of Illinois vacated the

bankruptcy PI Order. Teknek, LLC (in re Teknek, LLC) v. Sys. Div. Inc., No. 07 C 5229,

2007 U.S. Dist. LEXIS 94038 (N.D. Ill. Dec. 21, 2007) (NDI Decision). This permitted

the Joined Defendants and SDI to settle directly, which they did. On February 29, 2008,

the district court in the California Action recognized the satisfaction of SDI’s judgment—

including all pre- and post-judgment interest—entered the Stipulated Settlement, and

vacated the Contempt Order in full and with prejudice. Stipulated Settlement at 2-3.

         The Trustee then appealed the NDI Decision to the U.S. Court of Appeals for the

Seventh Circuit, which heard oral argument on September 23, 2008 and appealed the

vacated Contempt Order from the settled California action to us.




2008-1100                                   4
                                       DISCUSSION

                                              I.

       We do not have jurisdiction to hear this appeal, as the issues raised are moot. “If

an event occurs while a case is pending on appeal that makes it impossible for the court

to grant ‘any effectual relief whatever’ to a prevailing party, the appeal must be

dismissed as moot.” Nasatka v. Delta Sci. Corp., 58 F.3d 1578, 1580 (Fed. Cir. 1995)

(quoting Church of Scientology v. United States, 506 U.S. 9, 12 (1992)); see Calderon

v. Moore, 518 U.S. 149, 150 (1996) (“It is true, of course, that mootness can arise at

any stage of litigation; that federal courts may not give opinions upon moot questions or

abstract propositions; and that an appeal should therefore be dismissed as moot when,

by virtue of an intervening event, a court of appeals cannot grant any effectual relief

whatever in favor of the appellant.” (citations omitted)).

       As we explained in Nasatka, “[t]he test for mootness is whether the relief sought

would, if granted, make a difference to the legal interests of the parties (as distinct from

their psyches, which might remain deeply engaged with the merits of the litigation).” 58

F.3d at 1580-81 (citing Air Line Pilots Ass'n Int'l v. UAL Corp., 897 F.2d 1394, 1396 (7th

Cir. 1990)). “In deciding whether this appeal must be dismissed as moot, we examine

whether the decision of any disputed issue ‘continues to be justified by a sufficient

prospect that the decision will have an impact on the parties.’” Id. at 1581 (quoting

Flagstaff Med. Ctr., Inc. v. Sullivan, 962 F.2d 879, 884 (9th Cir. 1992)).

       In Nasatka, we reviewed a district court’s dismissal without prejudice of

Nasatka’s patent infringement claim against Delta Scientific Corp. (Delta) for failure to

conduct an adequate pre-filing investigation pursuant to Rule 11 of the Federal Rules of



2008-1100                                     5
Civil Procedure. Prior to the filing of Nasatka’s appeal, on May 12, 1994, the district

court granted Delta’s motion for Rule 11 sanctions. Later, after the filing of the appeal,

on July 5, 1994, the district court granted Nasatka’s motion for reconsideration,

rescinding the Rule 11 sanctions and finding that Nasatka had indeed conducted an

adequate pre-filing investigation. Although the court reconsidered the adequacy of the

investigation, the dismissal without prejudice remained in effect. Nasatka persisted in

his appeal of the dismissal order despite the fact that he was free to refile his complaint.

       We dismissed Nasatka’s appeal as moot because a decision in his favor “could

not afford him any relief more meaningful than that which Nasatka can obtain by simply

refilling his complaint.” Nasatka, 58 F.3d at 1581. Nasatka argued that “a ruling by this

court that the pre-filing investigation as originally presented to the district court was

adequate would benefit [his] legal interests in future proceedings in this case.”        Id.

Nasatka was concerned that Delta could use the district court’s dismissal against him in

its motion for fees and costs pursuant to 35 U.S.C. § 285, and it sought a holding that

the evidence he “originally presented to the district court in response to Delta’s motion

to dismiss demonstrated an adequate prefiling investigation for purposes of Rule 11.”

Id. We held that “the only relief which Nasatka seeks on appeal, has no bearing on

Nasatka’s right to proceed with this litigation or any sanction, it can make no difference

to his legal interest.” Id.

       Just as in Nasatka, there is no effectual relief that we can grant to the Trustee in

this case. The district court entered the Stipulated Settlement, while this appeal was

pending and more than seven months prior to oral argument.               In the Stipulated

Settlement, the district court vacated the Contempt Order—now on appeal—in full and



2008-1100                                    6
with prejudice. SDI argues that because of the Stipulated Settlement, this appeal must

be dismissed as moot. We agree.

       According to the Trustee, the Contempt Order aggrieves him because it

“effectively enjoins the Trustee from administering assets of the Debtor’s Estate by

preventing the Trustee from collecting the Estate’s claims from those persons and

entities named in the injunction provisions of the [Contempt Order], including the [Joined

Defendants].” Appellant’s Br. 7. In other words, the Trustee believes that the Contempt

Order prevented him from completing his settlement with the Joined Defendants

because the Contempt Order enjoined Teknek Holdings from transferring the $4 million

to the bankruptcy estate. The Trustee also believes that the Contempt Order “appears

to have unduly influenced the [Northern District of Illinois], particularly with regard to” the

factual and procedural background of the California Action. Appellant’s Reply Br. 10.

       The Trustee asks us to either vacate the already vacated Contempt Order, or to

modify the vacated Contempt Order to “exclude the Trustee from its injunctive

provisions” 2 and “delete all references to misrepresentations and fabrications of fact.”

As best as we can determine, the Trustee wants us to first vacate the Stipulated

Settlement, presumably reviving the now-vacated Contempt Order, and then revacate

the Contempt Order.




       2
               The parties dispute the scope of the Contempt Order. The order first lists
Teknek, LLC among the parties enjoined, but then appears to except Teknek, LLC in a
footnote. The footnote states that although the district court believes that it should issue
an injunction against the Trustee because of his attempts in bankruptcy court to
interfere with SDI’s recovery, the court nonetheless “recognizes the impropriety of
interfering with the bankruptcy court’s proceedings.” Contempt Order at 22 n.12. The
scope of the injunction arguably has some bearing on the question of standing, but is
not relevant to the issue of whether the appeal is moot, therefore, we do not address it.
2008-1100                                     7
      By doing so, the Trustee believes that we would be granting them the relief of

vacating the Contempt Order for the correct reason. Oral Arg. 14:00-14:09, available at

http://oralarguments.cafc.uscourts.gov/mp3/2008-1100.mp3 (“[The Contempt Order]

wasn’t vacated because it was wrong; it wasn’t vacated because it was improper; it was

vacated because it fulfilled its purpose.”).   By vacating the Contempt Order for the

correct reason, the Trustee argues, the Seventh Circuit will find the contents of the

Contempt Order less compelling. Oral Arg. at 7:45-7:57 (“Even though the [Contempt

Order] is vacated, [SDI is] using it in the Seventh Circuit—wholesale relying on it—to

convince the Seventh Circuit that [the NDI Decision] was correct.”). Thus, the Trustee

concludes, even though “the Seventh Circuit certainly will deal with the consequences

of the settlement, what we want to do your honor is prevent [the Contempt Order] from

being used against us.” Oral Arg. at 7:20-7:36.

      The Trustee’s appeal is moot because none of the remedies he requests grants

him any effectual relief or makes any difference to his legal interest. The Contempt

Order—indeed the entire California Action—has been dismissed in full and with

prejudice. Whatever the injunctive effect of the Contempt Order might have been, that

question is moot because the Contempt Order has no effect now. If it ever presented a

barrier to negotiations between the Trustee and the Joined Defendants, it certainly does

not now that it stands vacated. Any modification or duplicative vacatur of the Contempt

Order can have no effect on the California Action. Thus, vacating the Contempt Order,

or modifying the Contempt Order’s injunctive effect provides no effectual relief to the

Trustee.




2008-1100                                  8
       As did Nasatka, the Trustee here wishes us to opine on the merits of a district

court conclusion that no longer affects his legal interest. Nasatka asked us to hold that

certain evidence relied upon by the district court was sufficient to constitute an adequate

prefiling investigation—but such a determination would have had no impact on Nasatka.

In essence, Nasatka wanted us to vacate the district court’s determination for “the right

reason”—the Trustee’s argument is the same here. And as here, Nasatka argued that

such a holding would beneficially impact a tangentially related legal proceeding. The

Trustee’s argument must fail just as Nasatka’s did.

       The vacatur or modification of the Contempt Order would not have any effect on

the Trustee’s legal interests with regard to the proceedings in the Seventh Circuit. We

will not revisit the factual determinations underlying the Contempt Order, which were

previously affirmed in this court. Sys. Div., Inc., 253 F. App’x 31. Even assuming that

there are “misrepresentations and fabrications of fact” in the Contempt Order, these

alleged errors are only relevant to the proceedings in the Seventh Circuit, and the

appropriate amount of weight given to factual findings recited in a vacated contempt

order is a question relevant to those proceedings and to be answered by the Seventh

Circuit.

       Finally, the Trustee argues that we should couple our dismissal of his appeal with

an explicit vacatur of the Contempt Order in accordance with United States v.

Munsingwear, Inc., 340 U.S. 36 (1950).          In relevant part, the Supreme Court in

Munsingwear noted that:

       [t]he established practice of the Court in dealing with a civil case from a
       court in the federal system which has become moot while on its way here
       or pending our decision on the merits is to reverse or vacate the judgment
       below and remand with a direction to dismiss. That was said in Duke

2008-1100                                   9
       Power Co. v. Greenwood County, 299 U.S. 259, 267, to be “the duty of
       the appellate court.” That procedure clears the path for future relitigation
       of the issues between the parties and eliminates a judgment, review of
       which was prevented through happenstance. When that procedure is
       followed, the rights of all parties are preserved; none is prejudiced by a
       decision which in the statutory scheme was only preliminary.

Munsingwear, 340 U.S. at 41.

       The Supreme Court emphasized that the Munsingwear decision does not create

an inflexible rule. Rather, “from the beginning we have disposed of moot cases in the

manner most consonant to justice in view of the nature and character of the conditions

which have caused the case to become moot.” U.S. Bancorp Mortgage Co. v. Bonner

Mall P’ship, 513 U.S. 18, 24 (1994). The Munsingwear vacatur is not appropriate here

because the Trustee does not suggest that it desires further relitigation in the California

Action.   Nor does his suggested remedy eliminate a judgment in accordance with

Munsingwear because the Contempt Order has already been vacated. Nor are the

Trustee’s rights in any way prejudiced by the now-vacated Contempt Order, the alleged

effect of which is doubtful, and in any event is properly determined by the Seventh

Circuit. Accordingly, we hold that this appeal is moot and must be dismissed for lack of

jurisdiction.

                                            II.

A. This Appeal is Frivolous

       Rule 38 of the Federal Rules of Appellate Procedure provides that “[i]f a court of

appeals determines that an appeal is frivolous, it may, after a separately filed motion or

notice from the court and reasonable opportunity to respond, award just damages and

single or double costs to the appellee.” The Trustee’s appeal is frivolous because he

persisted even when the appeal became incontrovertibly moot upon the issuance of the

2008-1100                                   10
Stipulated Settlement. See Nasatka, 58 F.3d at 1582 (“By seeking to litigate to its

appellate conclusion an obviously moot issue, Nasatka has clearly argued a frivolous

appeal.” (citing Munson v. Antisdel, 982 F.2d 360, 361 (9th Cir. 1992) (dismissing

appeal as moot and sanctioning appellant’s attorney under Fed. R. App. P. 38))).

       On February 20, 2008, SDI filed a motion to dismiss this appeal. On March 7,

2008, in reply to the Trustee’s opposition to the motion to dismiss, SDI noted the

Stipulated Settlement.     The Trustee understood the importance of the Stipulated

Settlement, but opposed dismissal.       In his motion for leave to file a supplemental

exhibit, the Trustee acknowledged the Stipulated Settlement and argued that it cannot

moot the appeal. By an order issued on April 1, 2008, we dismissed SDI’s motion and

advised it to make its arguments in its brief, pursuant to Federal Circuit Rule 27(f).

       On September 24, 2008, two weeks prior to oral argument, we advised the

parties to be prepared to discuss whether the appeal is frivolous due to lack of

jurisdiction.   At that point, the Trustee should have reconsidered his arguments,

especially in light of our established practices:

       WARNING AGAINST FILING OR PROCEEDING WITH A FRIVOLOUS
       APPEAL OR PETITION. The court’s early decision in Asberry v. United
       States, 692 F.2d 1378 (Fed. Cir. 1982), established the policy of enforcing
       [Rule 38] vigorously. Since then, many precedential opinions have
       included sanctions under the rule. Damages, double costs, and attorney
       fees, singly or in varying combinations, have been imposed on counsel,
       parties, and pro se petitioners for pursuing frivolous appeals.

Federal Circuit Practice Note to Fed. R. App. P. 38. Nonetheless, at oral argument,

counsel for the Trustee offered no new arguments and was unfamiliar with our

precedent on frivolousness, including the obviously relevant Nasatka. Such a careless

response to our notification pursuant to Rule 38 further militates toward our holding of



2008-1100                                    11
frivolousness because “a party whose case has been challenged as frivolous is

expected to respond or to request dismissal of the case.” Federal Circuit Practice Note

to Fed. R. App. P. 38; see Abbs v. Principi, 237 F.3d 1342, 1351 (Fed. Cir. 2001)

(“Appellants likewise failed at oral argument to show cause why sanctions should not be

imposed. Even worse, appellants simply reiterated the baseless arguments made in

their briefs.”).

B. Sanctions Are Warranted

        The Trustee failed to articulate any reasonable basis for the appeal other than

the hope of a contingency fee recovery. We thus order that sanctions be imposed on

the Trustee and on his attorneys, jointly and severally. To this end, we award for the

maintenance of so frivolous an appeal the payment—by the Trustee and his attorneys

personally to SDI—of the reasonable costs and attorneys’ fees incurred in defending

this appeal before this court after February 29, 2008, the date the California district

court entered the Stipulated Settlement and vacated the Contempt Order. We impose

these sanctions bearing in mind the rationale articulated in Finch v. Hughes Aircraft Co.:

        Appellate courts must consider the importance of conserving scarce
        judicial resources. A frivolous appeal imposes costs not only upon the
        party forced to defend it, but also upon the public whose taxes supporting
        this court and its staff are wasted on frivolous appeals. . . . The diversion
        of resources in our considering a frivolous appeal, on the possibility that a
        nonfrivolous contention might have been found lurking, delays access to
        the court by deserving litigants. . . . Sanctions under Rule 38 thus perform
        two vital functions: They compensate the prevailing party for the expense
        of having to defend a wholly meritless appeal, and by deterring frivolity,
        they preserve the appellate calendar for cases truly worthy of
        consideration.




2008-1100                                    12
926 F.2d 1574, 1578 (Fed. Cir. 1991) (citations omitted). The Trustee has dragged SDI

through this appeal at great expense to both SDI and the judicial system with no

prospect of a benefit to his legal interest; we must deter such behavior.

                                     CONCLUSION

      Because we conclude that there is no effectual relief that we can grant to the

Trustee, we dismiss this appeal as moot. Because the Trustee’s appeal to this court is

frivolous, we impose sanctions and order the Trustee and his attorneys, jointly and

severally, to pay SDI’s attorney fees and costs expended due to this appeal after

February 29, 2008.

                         DISMISSED—SANCTIONS IMPOSED

                                         COSTS

      Costs to be paid by the Trustee and his attorneys.




2008-1100                                   13
