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Louis W. Epstein Family Partnership v. Kmart Corp.

argued: January 12, 1994.

ROBIN WOODS INC., A PENNSYLVANIA CORPORATION
v.
ROBIN F. WOODS, AN INDIVIDUAL ALEXANDER DOLL COMPANY, A NEW YORK CORPORATION PITTSBURGH SEED FUND , ROBIN F. WOODS AND THE ALEXANDER DOLL COMPANY, APPELLANTS



On Appeal From the United States District Court For the Western District of Pennsylvania. (D.C. Civil Action No. 91-02186).

Before: Stapleton, Cowen and Alito, Circuit Judges.

Author: Stapleton

Opinion OF THE COURT

STAPLETON, Circuit Judge:

The district court sanctioned appellants for violating a preliminary injunction. Appellants dispute both the finding of contempt and the appropriateness of the sanctions imposed. We agree with the district court that appellants failed to comply with the preliminary injunction, but we find that one of the sanctions the district court imposed is inappropriate. We thus will affirm in part and reverse in part.

I.

In 1983, Robin F. Woods ("Mrs. Woods") founded Robin Woods, Inc. ("RWI"), a doll manufacturer. RWI's dolls were popular and rapid growth ensued. Mrs. Woods obtained capital to finance RWI's expansion by selling most of her holdings in RWI to investors, among which was the Pittsburgh Seed Fund ("the Seed Fund"). The Seed Fund required Mrs. Woods to enter into a written employment agreement and a non-competition/non-disclosure agreement with RWI, as well as to assign her copyrights to RWI.

Even though RWI's sales continued to increase throughout the 1980s, the company never turned a profit. Unhappy with RWI's financial performance, the Seed Fund in 1990 instructed its representatives on RWI's board to remove Mrs. Woods from her management role but to continue to employ her as a doll designer. Following Mrs. Woods' demotion, RWI's product line was also altered and new distribution channels were created. The Seed Fund's changes proved catastrophic, leading RWI to the verge of bankruptcy. Mrs. Woods offered to return as CEO to try to save RWI, but the Seed Fund rebuffed her. Mrs. Woods resigned from RWI on December 6, 1991, to go to work for one of RWI's competitors, the Alexander Doll Company ("Alexander").

RWI filed suit against Mrs. Woods and Alexander on December 24, 1991, alleging Lanham Act violations, injury to business reputation, breach of contract, breach of fiduciary duty, tortious interference, breach of employment contract, and unfair competition. RWI also sought a preliminary injunction to bar Mrs. Woods from employment with Alexander or from using the name "Robin Woods" in connection with the design, manufacture, and sale of dolls.

After hearing four days of testimony, a magistrate recommended that Mrs. Woods be enjoined from involvement in the collectible doll industry. The district court's preliminary injunction expanded the magistrate's restrictions on Mrs. Woods by limiting use of her name:

1. Defendants [Mrs. Woods and Alexander] . . . are enjoined from characterizing, promoting or advertising either orally or in writing, that any dolls manufactured by Alexander Doll Company for which Robin F. Woods provides any services

(g) are signed or otherwise identified with Robin F. Woods.

5. Defendants . . . are enjoined from designating or identifying any specific dolls manufactured by any company, including but not limited to Alexander Doll Company, for which Robin F. Woods provided services.

8. Defendants . . . are enjoined from identifying Robin F. Woods as having provided any services for any dolls manufactured by any company, including but not limited to the Alexander Doll Company, such as on the product, product tag, box, or in connection with any advertising or promotion of the dolls.

Mrs. Woods consulted counsel to determine what work she could do at Alexander and still comply with the preliminary injunction. Counsel told her that she could design play dolls (but not collectible dolls) if she used a nom de plume (but not her name). Mrs. Woods took the name Alice Darling and began to create a new line of play dolls for Alexander called "Let's Play Dolls."

An announcement of Mrs. Woods' new role was prepared for distribution in doll industry magazines, letters to retailers, and trade show posters. The announcement stated:

ALEXANDER DOLL COMPANY

is pleased to announce that

MRS. ROBIN F. ...


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