Space Ventures Breach of Confidentiality Appeal
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Alan Shawn FEINSTEIN, Plaintiff, Appellee,
v.
SPACE VENTURES, INC., Defendant, Appellant.
No. 92-1939.
United States Court of Appeals,
First Circuit.
Heard Dec. 10, 1992.
Decided March 29, 1993.
Argued by Elizabeth Colt with whom Jeffrey S. Michaelson and
Michaelson and Michaelson and Joel W. Mohrman and McGlinchey
Stafford Lang were on brief, for defendant, appellant.
Argued by Mark B. Morse, for plaintiff, appellee.
Before TORRUELLA, Circuit Judge, BOWNES, Senior Circuit Judge,
and STAHL, Circuit Judge.
STAHL, Circuit Judge.
In this appeal, defendant-appellant Space Ventures, Inc. ("SVI" or "defendant")
challenges the entry of a preliminary injunction against it and in favor of
plaintiff-appellee Alan Shawn Feinstein ("Feinstein" or "plaintiff"). 1 Finding
that the district court erred in determining that plaintiff demonstrated a
likelihood of success on the merits of his claim, we vacate and remand.
I.
BACKGROUND
2
On April 8, 1992, plaintiff, a marketer of collectibles, initiated this litigation by
filing a four count complaint against defendant SVI, a manufacturer and
distributor of trading cards. Counts I and II asserted that defendant had
converted certain of plaintiff's goods and had breached a duty of confidentiality
owed to plaintiff. Counts III and IV stated that defendant had breached a
contract entered into by the parties on September 4, 1991. On April 28, 1992,
plaintiff amended his complaint to include a fifth count for unfair competition.2
3
The present appeal concerns only plaintiff's Count II, which is entitled "Breach
of Confidentiality." In relevant part, Count II states:
4 On or about January 23, 1991, and divers times thereafter, defendant held goods
8.
consisting of a series of trading cards known as the Moon-Mars cards. Said cards
had been purchased from defendant by plaintiff and were being held in trust for
distribution by defendant; as a bailee.
5 Defendant was obligated to ship the Moon-Mars cards to plaintiff's customers in
9.
accordance with the instructions of plaintiff....
6 While acting as a bailee, defendant received confidential information from
15.
plaintiff concerning plaintiff's customers.
7 Defendant had a duty not to divulge said information or use the information for
16.
its own benefit.
8 Defendant indicated to plaintiff that it has no intention of recognizing its duty,
17.
and has caused plaintiff to have reasonable grounds to believe that defendant will
breach its duty and shall actively solicit plaintiff's customers.... Defendant's principal
officer has, in subsequent conversations to plaintiff, orally evidenced his intent to
solicit plaintiff's customers.
9 Plaintiff will be irreparably harmed if defendant solicits his customers in that the
18.
confidentiality of his customer list will be permanently and irretrievably impaired.
10 As a further result, plaintiff will sustain an irreparable loss to his business
19.
reputation for which there is no adequate remedy at law.
11
Count II concludes with a request for damages and a preliminary and
permanent injunction directing defendant (1) to refrain from soliciting
plaintiff's customers, (2) to refrain from using plaintiff's customer list, (3) to
refrain from selling or distributing plaintiff's customer list, (4) to return
plaintiff's customer list, and (5) to provide an account of plaintiff's customers
solicited by defendant.
12
On July 2, 1992, the district court held a hearing on the injunctive relief
requested in plaintiff's Count II. At this hearing, plaintiff proceeded as if the
duty of confidentiality referenced in Count II was contract-based. More
specifically, plaintiff testified that defendant was about to breach an oral
agreement between the parties that defendant would not use plaintiff's customer
list and would keep the list confidential.3 Although it is not entirely clear, it
seems that the district court also operated under this assumption. In the portion
of its ruling which comes closest to addressing (1) whether defendant had a
duty not to use the list and to keep the list confidential and (2) how any such
duty arose, the district court stated:
13
[T]he uncontradicted evidence primarily in the form of testimony from Mr.
Feinstein was that the[re] were discussions between him and Mr. White
[President of SVI] relating to the confidentiality of these lists and he entered
into [the contract under which plaintiff had provided defendant with his
customer list] with the express understanding that these lists would be held in
confidence and he received assurances to that [e]ffect from Mr. White.
14
So based on all those things, it's not difficult at all for the Court to determine
that ... Mr. Feinstein has a very good chance of succeeding in proving that the
list is his property, that it was confidential and that the [d]efendant has no right
to use it.4
15
The district court also found that plaintiff would suffer immediate and
irreparable harm if the injunction were not granted, that such harm outweighed
any harm to defendant, and that the public interest would not be adversely
affected by providing plaintiff with the relief requested. See id. Therefore, the
district court entered an injunction forbidding defendant from using plaintiff's
customer list. This appeal followed.
II.
DISCUSSION
16
On appeal, defendant argues, inter alia, that the district court erred in ruling that
plaintiff had demonstrated a likelihood of success on the merits of his Count II
claim. After carefully reviewing the record, we are constrained to agree.
17
It is settled that " 'we scrutinize a district court's decision to grant or deny a
preliminary injunction under a relatively deferential glass.' " Id. (quoting
Independent Oil & Chem. Workers of Quincy, Inc. v. Procter & Gamble Mfg.
Co., 864 F.2d 927, 929 (1st Cir.1988)). Thus, unless the district court has made
a mistake of law or abused its discretion, we will not disturb its ruling. See id.
However, " '[a]pplication of an improper legal standard in determining the
likelihood of success on the merits or misapplication of the law to particular
facts is an abuse of discretion.' " In re Rare Coin Galleries of America, Inc., 862
F.2d 896, 900 (1st Cir.1988) (quoting Planned Parenthood League v. Bellotti,
641 F.2d 1006, 1009 (1st Cir.1981)).
18
In this instance, the district court applied an improper legal standard in
determining that plaintiff had demonstrated a likelihood of success on the
merits of his breach of confidentiality claim. The record indicates that the
district court assumed that plaintiff's Count II claim was based upon an oral
contract between plaintiff and defendant. The problem with this, though, is that
Count II does not sound in contract.5 As we read it, Count II attempts to set
forth a claim for breach of a common law duty not to divulge or use
"confidential" information.6 Thus, the district court's ruling that plaintiff is
likely to succeed on his Count II claim, made as it was without reference to
common law confidentiality principles, was an abuse of its discretion.
Accordingly, the court's entry of the preliminary injunction in favor of plaintiff,
which is anchored upon this faulty ruling, must be set aside.7 III.
CONCLUSION
19
For the reasons stated above, the preliminary injunction entered in favor of
plaintiff on his breach of confidentiality claim is vacated.8 This action is
remanded to the district court for further proceedings consistent with this
opinion.
20
Vacated and remanded.
As an initial matter, we note that plaintiff challenges our jurisdiction to hear
this appeal. In so doing, he relies upon authority indicating that an interlocutory
order which has the incidental effect of denying injunctive relief can only be
appealed under 28 U.S.C. 1292(a)(1) where the order will have a " 'serious,
perhaps irreparable, consequence' " and where it "can be 'effectively
challenged' only by an immediate appeal." See Stringfellow v. Concerned
Neighbors in Action, 480 U.S. 370, 379, 107 S.Ct. 1177, 1183, 94 L.Ed.2d 389
(1987) (quoting Carson v. American Brands, Inc., 450 U.S. 79, 84, 101 S.Ct.
993, 997, 67 L.Ed.2d 59 (1981)). Such authority is inapposite here, however,
where the order at issue clearly and directly granted a preliminary injunction
after a hearing on plaintiff's request therefor. Accordingly, because 28 U.S.C.
1292(a)(1) grants us jurisdiction over "interlocutory orders of the district courts
... granting ... injunctions," we find that we have jurisdiction over this appeal
Defendant subsequently counterclaimed for breach of contract
During the course of the hearing, plaintiff also introduced affidavits from
Beverly S. Vale and Edward P. Walton tending to support plaintiff's claim that
he and defendant had an oral agreement, and that the duty at issue in Count II
arose from this agreement
The district court made these findings in the course of considering, as it must
before issuing a preliminary injunction, whether plaintiff was likely to succeed
on the merits of his claim. See, e.g., Narragansett Indian Tribe v. Guilbert, 934
F.2d 4, 5 (1st Cir.1991)
Nothing in Count II even remotely suggests that the duty of confidentiality
arises from an explicit contractual provision
In so stating, we do not decide whether Count II, in its current incarnation, is
sufficient to state such a claim
Because we find that the district court abused its discretion in determining that
plaintiff was likely to succeed on the merits of his breach of confidentiality
claim, we vacate and remand without considering defendants' other challenges
to the district court's injunction order
Of course, defendant should in no way construe our dissolution of the
injunction as an endorsement of its argument that it is entitled to use plaintiff's
customer list
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