ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA (D.C. Civil No. 66-479)
BEFORE: ADAMS, GIBBONS, and WEIS, Circuit Judges:
Edward B. Dunlap appeals from a district court order finding him in civil contempt of a consent decree and awarding Randustrial Corporation $1,500 in compensatory damages as well as $5,000 for attorneys' fees incurred in prosecuting the contempt. Randustrial Corp. v. Dunlap, 595 F. Supp. 873 (W.D.Pa. 1984). Dunlap contends that the district court erred in holding him in contempt and that even if that ruling was correct the court erred in calculating damages. In any event, he asserts that attorneys' fees should not have been awarded for a contempt of court that was not willful. Randustrial cross-appeals, contending that the district court abused its discretion in failing to award the entire $15,038.08 claimed as an attorney fee. We will affirm in Dunlap's appeal but will vacate and remand the fee award.
Dunlap was formerly employed by Ranco Industrial Products Corporation, now Randustrial. While an employee, he entered into a sales representative agreement providing that he would not compete with Randustrial for a period equivalent to the time he was employed by the firm, but not to exceed three years.
In 1965, Dunlap left Randustrial and entered into a competing business. Randustrial sued in the United States District Court for the Western District of Pennsylvania to enjoin Dunlap from breaching the sales representative agreement and from engaging in unfair competition. That suit was resolved by a consent decree, providing in relevant part that Dunlap is permanently enjoined from
"inducing or attempting to induce, either directly or indirectly, any present or former employee or employees of Ranco to break his, her or their contracts with Ranco, or to induce, direct or employ said person in violation of his, her or their contracts with Ranco, to solicit customers or attempt to solicit customers of Ranco, or to act as sales agents or brokers or advisors or consultants to Dunlap, . . . or to induce, employ or direct any such persons to divulge to Dunlap . . . or any other persons any confidential information of Ranco, including customer lists, sales methods, and inquiries from customers."
Some years after entry of the consent decree, Dunlap formed Northern Chemical Company, whose name was later changed to Consolidated Enterprises, Inc. About twenty percent of Consolidated's business is competitive with that of Randustrial.
In 1983, Thomas Zeller, the national sales manager for Randustrial, approached Dunlap about possible employment with Consolidated. At the time, Zeller was under an employment contract with Randustrial that provided: "During the period described in Paragraph (c) of this Section 7.2, Sales Representative will not sell for, be employed by, be a representative of or be associated with, directly or indirectly, any person, firm, or entity manufacturing, distributing, selling, advertising or otherwise dealing in products competitive with Randustrial." Randustrial, 595 F. Supp. at 876.
In addition to this general negative post-employment covenant, the contract prohibited Zeller from being associated directly or indirectly with any firm employing Dunlap for three years after the termination of his employment. Zeller showed this contract to Dunlap. Notwithstanding the restrictive provisions of both the Zeller-Randustrial contract and the consent decree, Dunlap decided to arrange employment for Zeller.
Two weeks after Zeller terminated his relationship with Randustrial, Dunlap caused Consolidated to form a wholly-owned subsidiary, Union Rubber Company, and Zeller became its president. Union's products were competitive with those of Randustrial. In addition, Consolidated performed Union's clerical functions and sent out its orders and invoices. Zeller was instructed not to sell in the five states in which he recently has represented Randustrial and was specifically directed not to sell to any customers with whom he had done business on behalf of Randustrial. Nevertheless, Union made twelve sales to former Randustrial customers.
Zeller's efforts prompted Randustrial to sue Zeller in the Ohio state court for breach of the Zeller-Randustrial employment contract. IN the course of that litigation, Randustrial learned of Zeller's relationship with Dunlap. Randustrial promptly filed this contempt proceeding in federal court, alleging violation of the consent decree.
In defense, Dunlap asked the district court to modify the consent decree. After an evidentiary hearing, the court refused Dunlap's request and held him in civil contempt. In denying the motion to modify the consent decree, the district court held that Dunlap had failed to show such exceptional circumstances as would warrant relief from a judgment under Fed. R. Civ. P. 60(b). See, e.g., Philadelphia Welfare Rights Org. v. Shapp, 602 F.2d 1114, 1119 (3d Cir. 1979); United States Steel Corp. v. Fraternal Ass'n of Steel ...