The Original Brooklyn Water Bagel Co., Inc. v. Bersin Bagel Group, LLC , 817 F.3d 719 ( 2016 )

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 15-11748
________________________
D.C. Docket No. 9:10-cv-81106-KLR
THE ORIGINAL BROOKLYN WATER BAGEL CO., INC.,
a Florida corporation,
Defendant - Appellant,
versus
BERSIN BAGEL GROUP, LLC,
Interested Party - Appellee.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(March 25, 2016)
Before MARCUS, JORDAN, and BLACK, Circuit Judges.
MARCUS, Circuit Judge:
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At issue today is whether the district court erred by refusing to issue an order
to show cause why Bersin Bagel Group (“Bersin”) should not be cited for
contempt for prosecuting a series of state law claims in a Florida court after having
been enjoined from doing so by the federal court. This is the second trip this case
has taken to our Court. The first time we considered the matter, we concluded that
the Court lacked jurisdiction to entertain the appeal and, therefore, we declined to
rule on its merits. This time, now clothed with jurisdiction, we conclude that the
district court did not abuse its discretion by declining to enjoin Bersin from
prosecuting its case against Original Brooklyn Water Bagel (“OBWB”) in state
court. Nor did the district court err in declining to hold Bersin in contempt. The
limits Congress has imposed on federal courts through the Anti-Injunction Act
deprived the district court of the power to enjoin Bersin from prosecuting its state
court suit. Moreover, even if the district court had the power to issue such an
injunction, it would have been improper on the merits to bind Bersin to a
settlement release it had no part in negotiating and from which it obtained no
benefit. Thus, we affirm the judgment of the district court.
I.
Appellant OBWB is a Florida corporation and the parent company of
Brooklyn Water Bagel Franchise Co. (“BWB”), which franchises a quick-service
restaurant concept featuring the sale of bagels, coffee, bottled water, and related
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products. Steven M. Fassberg is OBWB’s and BWB’s CEO and former president. 1
Appellee Bersin is a Florida limited liability company that entered into a franchise
agreement with BWB in August 2010 to open a restaurant in Miami-Dade County.
Bersin alleges in its state court suit, among other things, that it suffered damages
from the deal because of many serious misrepresentations made by Fassberg and
his companies. However, OBWB argues that Bersin’s claims were released as part
of a settlement in a federal qui tam action involving allegedly false patent marking
by OBWB.
The qui tam action was commenced by Mamma Mia’s Trattoria, Inc.
(“Mamma Mia’s”), on behalf of itself and the United States in the United States
District Court for the Southern District of Florida. The suit alleged violations of 35
U.S.C. § 292, which at that time provided, inter alia:
(a) . . . Whoever marks upon, or affixes to, or uses in
advertising in connection with any unpatented article, the
word “patent” or any word or number importing that the
same is patented, for the purpose of deceiving the public
. . . [s]hall be fined not more than $500 for every such
offense.
(b) Any person may sue for the penalty, in which event
one-half shall go to the person suing and the other to the
use of the United States.
1
A more detailed recitation of the facts and procedural history may be found in the Court’s
earlier opinion in this matter. See Mamma Mia’s Trattoria, Inc. v. Original Brooklyn Water
Bagel Co., 768 F.3d 1320 (11th Cir. 2014).
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35 U.S.C. § 292 (2006). 2 Specifically, the suit asserted that OBWB falsely
claimed to possess patents to a water treatment process that would create water
identical to that used and sold in Brooklyn, New York. But, Mamma Mia’s said,
OBWB neither owned nor held such patents.
Mamma Mia’s, with the consent of the United States Department of Justice,
entered into a Settlement Agreement with OBWB. In it, OBWB agreed to make a
total payment of $10,000, half of which was to be paid to Mamma Mia’s and half
to the United States in accordance with 35 U.S.C. § 292(b). The district court
entered a Final Consent Judgment, finding that Mamma Mia’s had standing to
pursue and dispose of the claims on behalf of the United States and the general
public pursuant to 35 U.S.C. § 292. In dismissing the action, the district court also
ORDER[ED] and ADJUDGE[D] that any future
litigation alleging violations of 35 U.S.C. § 292 or any
other statute or law related to false marking or false
advertising, with regard to any past or existing product,
advertising regarding patented process, water treatment
system, technology, water, ice cubes, or “Cubsta
machine”, covered by this Stipulation of Dismissal, that
has been marked, manufactured, sold, distributed,
advertised or promoted by OBWB prior to entry of this
Final Judgment, is barred.
2
In 2011, Congress amended the false marking statute so that “[o]nly the United States may sue
for the penalty authorized by this subsection,” 35 U.S.C. § 292(a) (2012), except “[a] person who
has suffered a competitive injury as a result of a violation of this section may file a civil action in
a district court of the United States for recovery of damages adequate to compensate for the
injury,” id. § 292(b). See Leahy-Smith America Invents Act, Pub. L. No. 112-29, § 16(b)(1-2),
125 Stat. 284, 329 (2011).
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A year after entry of the Final Consent Judgment, Bersin sued Fassberg and
BWB in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade
County, alleging that Bersin had been induced into investing more than $350,000
in a BWB franchise through fraud and misrepresentations, some of which
concerned OBWB’s advertising of patented technology. The complaint broadly
claimed that Fassberg made a series of promises and representations that he
ultimately did not fulfill. Bersin asserted three state law causes of action: (1) fraud
in the inducement; (2) negligent misrepresentation and omission; and (3) violation
of the Florida Deceptive and Unfair Trade Practices Act (FDUTPA), Fla. Stat.
§§ 501.201-.213. Of the three, only the last made direct mention of the patent
issue, although the issue could be read as a component in the other counts.
In order to defeat Bersin’s claims, OBWB moved the federal district court in
the qui tam action to bar Bersin from prosecuting those claims in state court. The
district court agreed and entered an Enforcement Order granting OBWB’s motion.
It concluded that Bersin was “asserting barred claims” in the state court action
because “the main underlying basis for all of these claims [is] false marking and
advertising, which [was] released and barred by the Settlement Agreement and
Final Consent Judgment.” As a result, Bersin was enjoined from pursuing each of
its state claims. 3
3
In its Enforcement Order, the district court
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In Round One, we determined that the Court had no jurisdiction to entertain
the appeal and, therefore, dismissed the case. Original Brooklyn Water Bagel Co.,
768 F.3d at 1324. Specifically, we concluded that “enforcement of a permanent
injunction is not final unless it holds a party in contempt of court or imposes a
sanction for violating the injunction” -- neither of which was present. Id. at 1325-
26 (emphasis omitted). Since we found ourselves without jurisdiction to entertain
the appeal, we “pass[ed] no judgment on whether the district court acted within its
broad equitable authority in issuing so sweeping an injunction[] [and said] nothing
about the enforceability or indeed about the advisability of the injunction entered
by the district court.” Id. at 1330.
On remand, the district court reconsidered its earlier decision. After
conducting a hearing on the matter, the trial court vacated the injunction and lifted
the order enjoining Bersin from pursuing its state court claims. OBWB
nevertheless moved the district court for an order to show cause why Bersin should
not be held in contempt for failing to comply with the now-vacated injunction. Not
ORDER[ED] AND ADJUDGE[D] that the motion to enforce final consent judgment of
dismissal with prejudice . . . is GRANTED. The causes of action in [Bersin’s state suit]
that relate to patents and product advertising, including all the materials and statements
made prior to March 28, 2011 are ENJOINED. This injunction includes each of the three
counts in the Bersin Bagels Litigation:
a. Count I—fraud in the inducement;
b. Count II—negligent misrepresentation and omission;
c. Count III—violation of FDUTPA.
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surprisingly, the district court denied the motion, observing that it had vacated the
federal injunction that had formed the basis for barring Bersin from prosecuting its
state law claims in state court.
II.
OBWB now appeals from the district court’s denial of its motion for an
order to show cause. We have jurisdiction over such denials and review them for
an abuse of discretion. Thomas v. Blue Cross & Blue Shield Ass’n, 594 F.3d 814,
818, 821 (11th Cir. 2010). Moreover, the grant or denial of injunctive relief is
likewise reviewed only for an abuse of discretion. Klay v. United Healthgroup,
Inc., 376 F.3d 1092, 1096 (11th Cir. 2004). “A district court abuses its discretion
if it applies an incorrect legal standard, follows improper procedures in making the
determination, or makes findings of fact that are clearly erroneous.” Martin v.
Automobili Lamborghini Exclusive, Inc., 307 F.3d 1332, 1336 (11th Cir. 2002)
(internal quotation marks omitted). “A district court may also abuse its discretion
by applying the law in an unreasonable or incorrect manner.” Klay, 376 F.3d at
1096.
A.
The district court did not abuse its discretion. Having properly vacated its
injunction barring Bersin from pursuing its state law claims, there was no basis to
cite Bersin for contempt. Indeed, far from applying an incorrect legal standard or
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applying the law in an unreasonable manner, the district court correctly declined to
exercise equitable authority it did not have.
OBWB claims, however, that the district court had the power to enjoin
Bersin from pursuing its state court claims under the All Writs Act. We disagree.
The All Writs Act allows the federal courts to “issue all writs necessary or
appropriate in aid of their respective jurisdictions and agreeable to the usages and
principles of law.” 28 U.S.C. § 1651(a). This enables the federal courts to
“safeguard not only ongoing proceedings, but potential future proceedings, as well
as already-issued orders and judgments.” Klay, 376 F.3d at 1099 (footnotes
omitted). Thus, for example, a federal court may issue an order necessary to
interpret and enforce a settlement agreement over which the court has retained
jurisdiction or enjoin separate litigation of issues resolved by a class action. In re
Managed Care, 756 F.3d 1222, 1233 (11th Cir. 2014); Henson v. Ciba-Geigy
Corp., 261 F.3d 1065, 1068 (11th Cir. 2001). The authority granted by the All
Writs Act, however, is cabined by the Anti-Injunction Act. Burr & Forman v.
Blair, 470 F.3d 1019, 1027 (11th Cir. 2006). The Anti-Injunction Act explicitly
bars a federal court from enjoining “proceedings in a State court except as
expressly authorized by Act of Congress, or where necessary in aid of its
jurisdiction, or to protect or effectuate its judgments.” 28 U.S.C. § 2283. An
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injunction halting a state court proceeding is proper only if it qualifies for one of
the Anti-Injunction Act’s exceptions. Burr & Forman, 470 F.3d at 1028.
The Anti-Injunction Act’s “core message is one of respect for state courts.”
Smith v. Bayer Corp., 131 S. Ct. 2368, 2375 (2011). In light of this concern for
federalism, we are obliged to construe the Act’s exceptions narrowly. Id.; Burr &
Forman, 470 F.3d at 1028. Thus, a federal court may enjoin state court
proceedings “only if preclusion is clear beyond peradventure.” Smith, 131 S. Ct. at
2376. “An injunction under the relitigation exception is appropriate where the
state law claims would be precluded by the doctrine of res judicata.” Burr &
Forman, 470 F.3d at 1029-30. “Any doubt regarding whether the requirements of
res judicata have been met will be resolved against interference with the state court
proceeding.” Id. at 1030.
When determining whether res judicata applies, federal courts look to the
law of the state in which they sit. NAACP v. Hunt, 891 F.2d 1555, 1560 (11th Cir.
1990). In Florida, for “res judicata to apply, there must be four identities: (1)
identity of thing sued for, (2) identity of cause of action, (3) identity of persons and
parties to the action, and (4) identity of quality or capacity of persons for or against
whom the claim is made.” Hicks v. Hoagland, 953 So. 2d 695, 698 (Fla. Dist. Ct.
App. 2007) (internal quotation marks omitted). Where a case has been settled, the
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principles of res judicata apply to the matters specified in the settlement agreement.
Norfolk S. Corp. v. Chevron, U.S.A., Inc., 371 F.3d 1285, 1288 (11th Cir. 2004).
The district court originally enjoined three claims in the Bersin litigation:
fraud in the inducement, negligent misrepresentation and omission, and violation
of FDUTPA. Notably, res judicata does not apply to these claims -- and thus the
relitigation exception is inapposite -- because neither the parties nor the issues
involved are the same as those resolved in the false marking settlement. That the
parties are different is self-evident. Bersin was not part of the earlier suit or its
settlement and, thus, is not bound by the judgment in that suit under the established
rules of preclusion. See Smith, 131 S. Ct. at 2379.
Moreover, the causes of action involved in Bersin’s state court suit differ
markedly from those raised in the qui tam action brought by Mamma Mia’s, thus
also defeating the required identity of claims. Mamma Mia’s initially alleged a
violation of 35 U.S.C. § 292, which applies if a party “marks upon, or affixes to, or
uses in advertising in connection with any unpatented article, the word ‘patent’ or
any word or number importing that the same is patented, for the purpose of
deceiving the public.” Bersin, in contrast, does not allege any violations of 35
U.S.C. § 292 or any other statute or law related to false marking or false
advertising. Indeed, the first two counts of the state court complaint do not make
explicit reference to the alleged patent violations at all, instead focusing broadly on
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a long list of allegedly false promises Fassbender made in enticing Bersin’s
investment. Totally apart from the patents issue, Bersin’s complaint alleges that,
contrary to Fassbender’s promises, OBWB failed to market or advertise the new
franchise location, hire competent employees or staff (even hiring managers with
criminal records), ensure that the location was properly stocked with food and
water bottles, hire plumbers to fix broken pipes and toilets, account for food waste,
and provide beneficial relationships to vendors, among other alleged wrongdoing.
The mention of patents comes primarily from Bersin’s allegations that OBWB
deceived it through false claims to hold patented technology, which made it more
attractive for an investing franchisee. Taken as a whole, these allegations are very
different from a false marking claim brought pursuant to § 292. Unlike a § 292
claim, Bersin is not suing because OBWB committed acts to deceive the public;
Bersin complains that OBWB defrauded it directly through personal
misrepresentations.
To be sure, false patent claims form a part of Bersin’s FDUTPA claim. Still,
there is not the strict identity of causes of action necessary to satisfy res judicata.
Though some of the issues in the claims may be the same, Bersin brings a different
cause of action, for a different harm, and seeks different relief. Unlike Mamma
Mia’s, Bersin is suing not to enforce a federal statute, but to redress injury it
directly suffered from OBWB’s numerous alleged misrepresentations. OBWB has
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failed to make a “strong and unequivocal showing of relitigation” as required by
the Anti-Injunction Act. At best, OBWB has highlighted an issue to be decided by
the state court. It has not made the showing required before a federal court may
enjoin a party from prosecuting a state court claim.
The district court lacked the power to enjoin Bersin from proceeding with its
claims in the state court action in the first place. Thus, the district court did not
abuse its discretion when it vacated the injunction. Indeed, the true abuse of
discretion would have been to enforce an injunction through its contempt power
when it lacked the authority to enter injunctive relief at all.
B.
But, even if we were to assume that the district court had the power to enjoin
Bersin from prosecuting its state law claims in Florida’s circuit court, the entry of
an injunction still would have been inappropriate. In originally entering injunctive
relief against Bersin, the district judge found that the claims were barred by the
Consent Judgment it had entered in the Mamma Mia’s litigation. As an initial
matter, it is unclear whether the Consent Judgment’s language even encompasses
the claims that Bersin raised in the state court. The Consent Judgment barred “any
future litigation alleging violations of 35 U.S.C. § 292 or any other statute or law
related to false marking or false advertising” against OBWB based on its claims of
patent ownership. But Bersin has not alleged a claim related to false marking or
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false advertising under § 292. Nor does the broad catch-all language of the
Consent Judgment cleanly apply to the fraud claims that Bersin has raised. To the
extent that Bersin’s false patent claims figure into the broader lawsuit, they form
only part of a much broader pattern of allegedly false and fraudulent statements.
That these false statements relate to the (non)ownership of patents is incidental to
the essential action. We are unpersuaded by OBWB’s suggestion that a claim for
fraud in the inducement under Florida common law constitutes litigation alleging a
violation of a federal statute related to false marking or false advertising.
Passing over whether the Consent Judgment’s language was broad enough to
encompass Bersin’s claims, there still would be no basis to bind Bersin to an
agreement entered into by entirely separate parties in an entirely separate case. “A
court’s judgment binds only the parties to a suit, subject to a handful of discrete
and limited exceptions.” Smith, 131 S. Ct. at 2379; accord Steans v. Combined
Ins. Co. of Am., 148 F.3d 1266, 1270-71 (11th Cir. 1998). Among those
exceptions, none of which apply here, are where a non-party actually participated
and exercised some degree of control in the prior litigation, or in certain in rem
property actions that may bind “the whole world.” Wright & Miller, Federal
Practice & Procedure, §§ 4449, 4451 (2d ed.). OBWB contends that Bersin is
bound by the judgment entered in the Mamma Mia’s case. But OBWB offers no
authority in support of the proposition that two parties can bind an unrelated third
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party to a settlement agreement no matter how broad the language the parties chose
to employ. It defies both logic and common sense to suggest as a general matter
that a defendant settling one case may bind all future plaintiffs to an agreement
they had no part in negotiating and from which they derived no benefit. Even the
settlements of class action suits bind only the members of that class -- they do not
affect individuals who opt out of or were otherwise not included in the class.
Nonetheless, OBWB argues that Bersin can be bound by a settlement
agreement it had no part in negotiating because Mamma Mia’s brought a qui tam
action on behalf of itself and the United States. OBWB cites a series of district
court opinions -- mostly unpublished -- in support of its view that only one party
may bring a claim under the false marking statute. See San Francisco Tech., Inc.
v. Graphic Packaging Int’l, Inc., 798 F. Supp. 2d 1333 (N.D. Ga. 2011);
Eaglewood Consulting, LLC v. Graphic Packaging Int’l, Inc., No. 1:10-CV-03467-
RWS, 2011 WL 2489944 (N.D. Ga. June 20, 2011); Simonian v. Irwin Indus. Tool
Co., No. 10-1260, 2011 WL 147717 (N.D. Ill. Jan. 18, 2011); Simonian v. Quigley
Corp., No. 10C1259, 2010 WL 2837180 (N.D. Ill. July 19, 2010). This argument
is unavailable here both because Bersin has not brought a claim under the false
marking statute and because the settlement of a qui tam suit could only bar the
filing of a subsequent qui tam suit. Barring successive qui tam actions is
appropriate because such actions implicate special concerns. In a qui tam action, a
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private party (the relator) acts as a partial assignee of the United States and brings
suit based on an injury in fact suffered by the government. Stalley ex rel. U.S. v.
Orlando Reg’l Healthcare Sys., Inc., 524 F.3d 1229, 1233 (11th Cir. 2008). Even
though a private party controls the litigation, the United States is the real party in
interest. United States v. R&F Properties of Lake Cty., Inc., 433 F.3d 1349, 1359
(11th Cir. 2005). It makes sense then for a qui tam settlement to bar a subsequent
qui tam suit against the same defendant even though it is raised by a different
relator. While the party controlling the litigation may have changed, the real party
in interest -- the United States -- remains the same. Allowing successive qui tam
suits for the same infraction would afford the government the option of bringing
multiple suits against a single instance of actionable conduct.
Notably, that is not what we have in this case. Bersin is not bringing a qui
tam action on behalf of the United States. Rather, it has sued on its own behalf in
state court pursuant to state law to recover for injuries it sustained directly as a
result of OBWB’s actions. None of the concerns implicated by allowing
successive qui tam actions are present here.
Nor, finally, does the law of the case doctrine require the district court to
enforce its earlier injunction. OBWB argues that this Court had previously
determined that the Consent Judgment barred patent-related allegations, which, in
turn, bound the district court to adhere to that ruling. OBWB misapprehends our
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prior ruling. “Under the law of the case doctrine, the findings of fact and
conclusions of law by an appellate court are generally binding in all subsequent
proceedings in the same case in the trial court or on a later appeal.” This That And
The Other Gift And Tobacco, Inc. v. Cobb Cty., Ga., 439 F.3d 1275, 1283 (11th
Cir. 2006) (internal quotation marks omitted). The doctrine applies to issues
decided explicitly and by necessary implication. Luckey v. Miller, 929 F.2d 618,
621 (11th Cir. 1991). It does not reach issues that could have been but were not
decided in the appellate court’s opinion. Id.
Our earlier ruling in this case determined that we lacked jurisdiction to
entertain the appeal in the first place. We explicitly declared that we passed “no
judgment on whether the district court acted within its broad equitable authority in
issuing so sweeping an injunction. We [said] nothing about the enforceability or
indeed about the advisability of the injunction entered by the district court.”
Original Brooklyn Water Bagel Co., 768 F.3d at 1330. Far from determining the
merits of the issue presented today, we did not rule on the matter precisely because
we lacked the power to opine about the merits. Thus, there was no law of the case
on the merits for the district court to follow. The law of the case doctrine,
therefore, did not bind the district court to uphold its earlier injunction and the
court did not abuse its discretion by lifting that injunction.
AFFIRMED.
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