Seventh Circuit Court of Appeals. Opinion, Judge Sykes.
Excerpts - Opinion of US 7th Circuit Court of Appeals, Case No. 08-2306
http://www.fglaysher.com/bahaicensorship/US_7th_Circuit_Court_of_Appe...
No. 08-2306
31
Waffenschmidt v. MacKay, 763 F.2d 711, 718 (5th Cir. 1985)
(similar).
The district court read Zenith Radio more generally to
stand for the proposition that a non-party cannot be
personally bound by an injunction unless that non-party
has had an actual day in court in its own right. That s a
true statement, but the day in court at issue in Zenith
Radio refers to the nonparty s opportunity to contest
whether he acted in concert with a party contemnor or was
in privity and therefore bound by the injunction. If after
an appropriate hearing the court concludes that the
nonparty was in privity with the enjoined party, Zenith
Radio does not require relitigation of the underlying
controversy. (To the contrary, as we have noted, the
general rule is that contempt proceedings may not be used
to collaterally attack the injunction.) Merriam does not
hold, or even suggest, that a court may find a nonparty in
contempt without acquiring personal jurisdiction over him
and providing an opportunity to contest the grounds for
finding him bound by and in contempt of the injunction.
Merriam does not violate the rule in Zenith Radio.5
Finally, though we have few cases in this area, none
conflict with the approach taken in Merriam, and one
suggests substantial agreement. Reich v. Sea Sprite Boat Co.
held that the president and sole shareholder of Sea Sprite,
5
The proceedings in this case fully complied with Zenith Radio.
The respondents were served with process, and the court held
an evidentiary hearing offering them ample and complete
opportunity to contest whether they came within Rule 65(d)(2).
32
No. 08-2306
an enjoined corporation, was in contempt for diluting the
bound corporation s assets and thereafter establishing a
new company to evade the injunction. 50 F.3d 413. We
explained that the enjoined company s president, Robert
Smith, was obliged to secure Sea Sprite s compliance
[with the injunction]; instead he ensured its defiance. The
formation of [the new company] for the admitted purpose
of evading judgments against Sea Sprite was a further act
of contempt. Id. at 417. While the new company was
clearly a successor in interest to the bound corporation, our
reasoning suggests that contempt against the president and
sole shareholder was appropriate because he was legally
identified with Sea Sprite (in the sense that he completely
controlled it), personally participated in the injunction
proceedings, and directed the use of the new corporation
to violate the injunction. Id. ( A sale of Sea Sprite s assets
to an unrelated party would pose different, and potentially
difficult problems. . . . A shuffle between two corporations,
both wholly owned by Smith, cannot avoid the injunction.
(citation omitted)); see also Rockwell Graphic Sys., 91 F.3d at
922 (Eschbach, J., concurring) (stressing that the president
of an enjoined company finds no quarter in the fact that
[the company] is no longer in existence ). Merriam has
been cited with approval by one circuit, see Flowdata, 154
F.3d at 1352-53, and has not been expressly rejected
anywhere else.
Accordingly, it was a mistake to reject Merriam. A key
officer, employee, or shareholder of an enjoined corpora-
tion may be personally bound by the injunction after the
corporation dissolves if he is so closely identified in in-
terest and had a controlling role in the corporation and in
No. 08-2306
33
the underlying litigation that it is fair to conclude that he
had his day in court when the injunction was issued. The
Federal Circuit has identified the following factors that
may be pertinent to the Merriam inquiry: [T]he officer s
position and responsibilities in the enjoined corporation,
his participation in the litigation that preceded the entry of
the injunction, and the degree of similarity between his
activities in the old and new businesses. Id. at 1352
(explaining the Merriam test). It bears emphasizing that
due process requires an extremely close identification and
will be satisfied only when the nonparty key employee
against whom contempt sanctions are sought had substan-
tial discretion, control, and influence over the enjoined
organization both in general and with respect to its
participation in the underlying litigation and there is a
high degree of similarity between the activities of the old
organization and the new. See Merriam, 639 F.2d at 39
(finding analogy to piercing-the-corporate-veil doctrine
to be apt ).
D. Marangella, Schlatter, and the Provisional National
Council
Although it rejected Merriam, the district court s findings
are sufficiently detailed and supported by the record that
we can affirm the court s no-privity finding without a
remand. Of particular importance are the court s findings
regarding the dissimilarities between the Hereditary
Guardianship and the Provisional National Council, and
the break between Remey and his followers on the one
34
No. 08-2306
hand and Marangella, Schlatter, and their coreligionists on
the other. It is true that Marangella and Schlatter occupied
key positions in the Hereditary Guardianship, and both
participated in varying degrees in the underlying trade-
mark litigation. In other circumstances we might require
more detailed fact-finding regarding the precise role each
nonparty alleged contemnor played in the enjoined
organization and in the underlying injunction litigation.
For reasons we will explain, however, we can dispense
with that here.
The district court concluded that the Provisional Na-
tional Council, which represents those who accept
Marangella as the Third Guardian, is substantially dissimi-
lar to the Hereditary Guardianship; the record supports
this conclusion. Although Marangella, Schlatter, and
other members of the Provisional National Council
were actively involved in the Hereditary Guardianship
in the 1960s, the record reflects that after the injunction
was issued and the Hereditary Guardianship dissolved, the
remnants of this dissident group scattered. After a two-
year period of dormancy, Marangella announced his own
Guardianship and broke with Remey on matters of succes-
sorship, doctrine, and governance. Schlatter followed him,
and a new religious organization was established, albeit
(eventually) operating in the same place and with some of
the same people as were involved in the Hereditary
Guardianship. The new group, in due course, took the
name Provisional National Council. The district court
specifically found that the vast weight of the record
evidence establishes that the [Provisional National Coun-
cil] was not formed for the purpose of escaping the con-
No. 08-2306
35
fines of the injunction. The court also found that its
membership numbering about 40 people did not in
fact encompass all of the same individuals that comprised
the [Hereditary Guardianship]. Based on these facts, the
court concluded that on a defining point of organizational
purpose, there existed a robust doctrinal divide between
the Hereditary Guardianship and the Provisional National
Council. The court also concluded that the latter was not
operating in effect as the former, nor did there other-
wise [exist] a substantial continuity between the two
groups.
These findings and conclusions are sufficient to defeat
any claim that Marangella, Schlatter, and the Provisional
National Council are legally identified with the Heredi-
tary Guardianship and therefore in privity with it and
bound by the 1966 injunction. This is so even assuming
Marangella and Schlatter could be considered key
officers or agents of the Hereditary Guardianship. The
doctrinal differences especially when combined with
the passage of time make it clear as a matter of law that
the Provisional National Council and its principals cannot
be considered legally identified with the Hereditary
Guardianship or Remey. To take note of these differences
is not to decide a religious dispute; the district court s
findings and conclusions do not transgress Presbyterian
Church. Accordingly, even when Merriam is taken
into account, the district court s no-privity conclusion as
to this group of alleged contemnors was correct.
31
Waffenschmidt v. MacKay, 763 F.2d 711, 718 (5th Cir. 1985)
(similar).
The district court read Zenith Radio more generally to
stand for the proposition that a non-party cannot be
personally bound by an injunction unless that non-party
has had an actual day in court in its own right. That s a
true statement, but the day in court at issue in Zenith
Radio refers to the nonparty s opportunity to contest
whether he acted in concert with a party contemnor or was
in privity and therefore bound by the injunction. If after
an appropriate hearing the court concludes that the
nonparty was in privity with the enjoined party, Zenith
Radio does not require relitigation of the underlying
controversy. (To the contrary, as we have noted, the
general rule is that contempt proceedings may not be used
to collaterally attack the injunction.) Merriam does not
hold, or even suggest, that a court may find a nonparty in
contempt without acquiring personal jurisdiction over him
and providing an opportunity to contest the grounds for
finding him bound by and in contempt of the injunction.
Merriam does not violate the rule in Zenith Radio.5
Finally, though we have few cases in this area, none
conflict with the approach taken in Merriam, and one
suggests substantial agreement. Reich v. Sea Sprite Boat Co.
held that the president and sole shareholder of Sea Sprite,
5
The proceedings in this case fully complied with Zenith Radio.
The respondents were served with process, and the court held
an evidentiary hearing offering them ample and complete
opportunity to contest whether they came within Rule 65(d)(2).
32
No. 08-2306
an enjoined corporation, was in contempt for diluting the
bound corporation s assets and thereafter establishing a
new company to evade the injunction. 50 F.3d 413. We
explained that the enjoined company s president, Robert
Smith, was obliged to secure Sea Sprite s compliance
[with the injunction]; instead he ensured its defiance. The
formation of [the new company] for the admitted purpose
of evading judgments against Sea Sprite was a further act
of contempt. Id. at 417. While the new company was
clearly a successor in interest to the bound corporation, our
reasoning suggests that contempt against the president and
sole shareholder was appropriate because he was legally
identified with Sea Sprite (in the sense that he completely
controlled it), personally participated in the injunction
proceedings, and directed the use of the new corporation
to violate the injunction. Id. ( A sale of Sea Sprite s assets
to an unrelated party would pose different, and potentially
difficult problems. . . . A shuffle between two corporations,
both wholly owned by Smith, cannot avoid the injunction.
(citation omitted)); see also Rockwell Graphic Sys., 91 F.3d at
922 (Eschbach, J., concurring) (stressing that the president
of an enjoined company finds no quarter in the fact that
[the company] is no longer in existence ). Merriam has
been cited with approval by one circuit, see Flowdata, 154
F.3d at 1352-53, and has not been expressly rejected
anywhere else.
Accordingly, it was a mistake to reject Merriam. A key
officer, employee, or shareholder of an enjoined corpora-
tion may be personally bound by the injunction after the
corporation dissolves if he is so closely identified in in-
terest and had a controlling role in the corporation and in
No. 08-2306
33
the underlying litigation that it is fair to conclude that he
had his day in court when the injunction was issued. The
Federal Circuit has identified the following factors that
may be pertinent to the Merriam inquiry: [T]he officer s
position and responsibilities in the enjoined corporation,
his participation in the litigation that preceded the entry of
the injunction, and the degree of similarity between his
activities in the old and new businesses. Id. at 1352
(explaining the Merriam test). It bears emphasizing that
due process requires an extremely close identification and
will be satisfied only when the nonparty key employee
against whom contempt sanctions are sought had substan-
tial discretion, control, and influence over the enjoined
organization both in general and with respect to its
participation in the underlying litigation and there is a
high degree of similarity between the activities of the old
organization and the new. See Merriam, 639 F.2d at 39
(finding analogy to piercing-the-corporate-veil doctrine
to be apt ).
D. Marangella, Schlatter, and the Provisional National
Council
Although it rejected Merriam, the district court s findings
are sufficiently detailed and supported by the record that
we can affirm the court s no-privity finding without a
remand. Of particular importance are the court s findings
regarding the dissimilarities between the Hereditary
Guardianship and the Provisional National Council, and
the break between Remey and his followers on the one
34
No. 08-2306
hand and Marangella, Schlatter, and their coreligionists on
the other. It is true that Marangella and Schlatter occupied
key positions in the Hereditary Guardianship, and both
participated in varying degrees in the underlying trade-
mark litigation. In other circumstances we might require
more detailed fact-finding regarding the precise role each
nonparty alleged contemnor played in the enjoined
organization and in the underlying injunction litigation.
For reasons we will explain, however, we can dispense
with that here.
The district court concluded that the Provisional Na-
tional Council, which represents those who accept
Marangella as the Third Guardian, is substantially dissimi-
lar to the Hereditary Guardianship; the record supports
this conclusion. Although Marangella, Schlatter, and
other members of the Provisional National Council
were actively involved in the Hereditary Guardianship
in the 1960s, the record reflects that after the injunction
was issued and the Hereditary Guardianship dissolved, the
remnants of this dissident group scattered. After a two-
year period of dormancy, Marangella announced his own
Guardianship and broke with Remey on matters of succes-
sorship, doctrine, and governance. Schlatter followed him,
and a new religious organization was established, albeit
(eventually) operating in the same place and with some of
the same people as were involved in the Hereditary
Guardianship. The new group, in due course, took the
name Provisional National Council. The district court
specifically found that the vast weight of the record
evidence establishes that the [Provisional National Coun-
cil] was not formed for the purpose of escaping the con-
No. 08-2306
35
fines of the injunction. The court also found that its
membership numbering about 40 people did not in
fact encompass all of the same individuals that comprised
the [Hereditary Guardianship]. Based on these facts, the
court concluded that on a defining point of organizational
purpose, there existed a robust doctrinal divide between
the Hereditary Guardianship and the Provisional National
Council. The court also concluded that the latter was not
operating in effect as the former, nor did there other-
wise [exist] a substantial continuity between the two
groups.
These findings and conclusions are sufficient to defeat
any claim that Marangella, Schlatter, and the Provisional
National Council are legally identified with the Heredi-
tary Guardianship and therefore in privity with it and
bound by the 1966 injunction. This is so even assuming
Marangella and Schlatter could be considered key
officers or agents of the Hereditary Guardianship. The
doctrinal differences especially when combined with
the passage of time make it clear as a matter of law that
the Provisional National Council and its principals cannot
be considered legally identified with the Hereditary
Guardianship or Remey. To take note of these differences
is not to decide a religious dispute; the district court s
findings and conclusions do not transgress Presbyterian
Church. Accordingly, even when Merriam is taken
into account, the district court s no-privity conclusion as
to this group of alleged contemnors was correct.
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