Friday, December 3, 2010

Excerpts 16-20 - Opinion of US 7th Circuit Court of Appeals, Case No. 08-2306 Options

November 23, 2010 - 7th Circuit Court of Appeals rules against Haifan Baha'is of Wilmette, Illinois
Seventh Circuit Court of Appeals. Opinion, Judge Sykes.
Excerpts - Opinion of US 7th Circuit Court of Appeals, Case No. 08-2306

No. 08-2306
B. Standard of Review
We review the district court’s denial of contempt sanc-
tions for abuse of discretion. Autotech Techs. LP v. Integral
Research & Dev. Corp., 499 F.3d 737, 751 (7th Cir. 2007);
Stotler & Co. v. Able, 870 F.2d 1158 (7th Cir. 1989). A court
abuses its discretion when it bases its decision on a legal
error or on clearly erroneous factual findings. United States
v. Silva, 140 F.3d 1098, 1101 n.4 (7th Cir. 1998); In re L & S
Indus., Inc., 989 F.2d 929, 932 (7th Cir. 1993) (similar
standard of review for district court’s determination of
existence of privity); see Cooter & Gell v. Hartmarx Corp.,
496 U.S. 384, 401 (1990) (noting abuse-of-discretion stan-
dard of review is equivalent to clear-error standard of
review when reviewing a district court’s factual findings).
Factual findings are not clearly erroneous unless “ ’the
reviewing court on the entire evidence is left with the
definite and firm conviction that a mistake has been
committed.’ ” Anderson v. City of Bessemer City, 470 U.S. 564,
573 (1985) (quoting United States v. U.S. Gypsum Co., 333
U.S. 364, 394-95 (1948)).
As the proponent of the contempt motion, the National
Spiritual Assembly had the following burden:
To prevail on a request for a contempt finding, the
moving party must establish by clear and convincing
evidence that (1) a court order sets forth an unambigu-
ous command; (2) the alleged contemnor violated that
command; (3) the violation was significant, meaning
the alleged contemnor did not substantially comply
with the order; and (4) the alleged contemnor failed to
make a reasonable and diligent effort to comply.
No. 08-2306
S.E.C. v. Hyatt, 621 F.3d 687, 692 (7th Cir. 2010). In addition,
the National Spiritual Assembly had the burden of estab-
lishing that the alleged contemnors, nonparties to the 1966
injunction, are nonetheless bound by it. See Levin v. Tiber
Holding Corp., 277 F.3d 243, 250-51 (2d Cir. 2002) (applying
the clear-and-convincing standard to the question of a
nonparty’s liability for contempt).
C. Injunctions and Nonparties
This appeal raises the question of the proper reach of an
injunction—more specifically, the extent to which an
injunction binds persons who are not parties to the action
in which it is entered. “ ’It is a principle of general applica-
tion in Anglo-American jurisprudence that one is not
bound by a judgment in personam in a litigation in which he
is not designated as a party or to which he has not been
made a party by service of process.’ ” Taylor v. Sturgell, 553
U.S. 880, 884 (2008) (quoting Hansberry v. Lee, 311 U.S. 32,
40 (1940)); see also Richards v. Jefferson County, 517 U.S. 793,
798 (1996); Martin v. Wilks, 490 U.S. 755, 761 (1989); Zenith
Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 110
(1969). This principle is based on the “ ’deep-rooted historic
tradition that everyone should have his own day in
court.’ ” Taylor, 553 U.S. at 892-93 (quoting Richards, 517
U.S. at 798). It limits the extent to which a judgment is
given preclusive effect in a subsequent suit, see id. at 891-
95, and (more pertinent here) the extent to which an
injunction may be enforced against nonparties, see Zenith
Radio, 395 U.S. at 110-11; see also Lake Shore Asset Mgmt. Ltd.
v. Commodity Futures Trading Comm’n, 511 F.3d 762, 766-67
(7th Cir. 2007).
No. 08-2306
There are some well-established exceptions to the general
principle that an injunction binds only the parties. Rule
65(d) of the Federal Rules of Civil Procedure, which
governs injunctions and temporary restraining orders,
codifies both the general principle and its exceptions:
(2) Persons Bound. The order binds only the follow-
ing who receive actual notice of it by personal service
or otherwise:
(A) the parties;
(B) the parties’ officers, agents, servants, employ-
ees, and attorneys; and
(C) other persons who are in active concert or
participation with anyone described in Rule
65(d)(2)(A) or (B).
F ED. R. C IV. P. 65(d)(2).3
By its terms, Rule 65(d) makes injunctions binding on the
parties to the underlying action and their “officers, agents,
servants, employees, and attorneys,” even if those “offi-
cers, agents,” etc., are not named as parties to the litigation.
F ED. R. C IV. P. 65(d)(2)(B). This is based on the idea that
“[a]n order issued to a corporation is identical to an order
issued to its officers, for incorporeal abstractions act
through agents.” Reich, 50 F.3d at 417; see also Wilson v.
We quote from the current version of Rule 65(d)(2), which was
amended in 2007. The amended rule contains “no substantive
difference” from its predecessor. Lake Shore Asset Mgmt. Ltd. v.
Commodity Futures Trading Comm’n, 511 F.3d 762, 767 (7th Cir.
No. 08-2306
United States, 221 U.S. 361, 376 (1911) (“A command to the
corporation is in effect a command to those who are
officially responsible for the conduct of its affairs.”);
Additive Controls & Measurement Sys., Inc. v. Flowdata, Inc.,
154 F.3d 1345, 1351 (Fed. Cir. 1998) (“Rule 65(d) specifically
names ‘officers’ of a defendant as among those who are
bound by an injunction, and there is a substantial body of
case law in support of that proposition.”). As such, officers,
employees, and other agents of an enjoined party must
obey the injunction—even though they are not named
parties—when they act in their official capacities. See New
York ex rel. Vacco v. Operation Rescue Nat’l, 80 F.3d 64, 70 (2d
Cir. 1996) (“An injunction issued against a corporation or
association binds the agents of that organization to the
extent they are acting on behalf of the organization. . . .
Generally, persons who cease to act in one of the desig-
nated capacities are no longer bound by the decree.”
(citation omitted)).
This aspect of the rule is not implicated in this case.
Although the individual defendants might have qualified
as “officers” or “agents” of the Hereditary Guardianship
in June of 1966 when the injunction was entered, after
the organization was dissolved in December of that year,
they obviously no longer held that status. They cannot,
in other words, act in their official capacities to cause
the Hereditary Guardianship to violate the injunction.
As to other nonparties who might properly be bound by
an injunction, the Supreme Court has explained that Rule
65(d)(2) is
No. 08-2306
derived from the commonlaw doctrine that a decree of
injunction not only binds the parties defendant but also
those identified with them in interest, in “privity” with
them, represented by them or subject to their control.
In essence it is that defendants may not nullify a decree
by carrying out prohibited acts through aiders and
abettors, although they were not parties to the original
Regal Knitwear Co. v. N.L.R.B., 324 U.S. 9, 14 (1945). Broadly
speaking, both the rule and the common-law doctrine
contemplate two categories of nonparties potentially
bound by an injunction. One includes nonparties acting in
concert with a bound party; many cases hold that a
nonparty may be held in contempt if he aids or abets an
enjoined party in violating an injunction. Id.; Chase Nat’l
Bank v. City of Norwalk, Ohio, 291 U.S. 431, 436 (1934);
S.E.C. v. Homa, 514 F.3d 661, 673-77 (7th Cir. 2008); Rockwell
Graphic Sys., Inc. v. DEV Indus., Inc., 91 F.3d 914, 919
(7th Cir. 1996). This principle is codified in subsection
(2)(C) of the rule, which provides that nonparties “who are
in active concert or participation with” a bound party are
themselves bound and may be liable for aiding and
abetting the party’s contempt. See F ED . R. C IV .
P. 65(d)(2)(C). This category of nonparty contempt liability
is also not at issue here.
The other category is captured under the general rubric
of “privity.” It is generally accepted that an injunction may
be enforced against a nonparty in “privity” with an
enjoined party. E.g., Golden State Bottling Co. v. N.L.R.B., 414
U.S. 168, 179-80 (1973); Regal Knitwear, 324 U.S. at 14;

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