Thermice Corporation v. Vistron Corporation, Standard Oil Chemical Company (Formerly Vistron Corporation)

BECKER, Circuit Judge,

dissenting.

I agree with the majority that what we have before us is an appealable order.1 At that point we part company. First, I believe that the judgment cannot stand because the original court order, on which the judgment before us depends, is too vague to form the basis of a contempt decree. Even if I am incorrect on this point, I believe that the judgment must be reversed because I disagree that the amended contract is unambiguous. In my view, a remand for fact finding is required. I also disagree with the majority’s alternative holding (contained in Part IV) for I do not believe that Vistron waived the right to put on evidence. Further, I believe that the district court’s conclusion that no evidentia-ry hearing could be meaningful derives from what is essentially the court’s findings of fact on a disputed matter rendered without a hearing.

I.

The subject of our review is a judgment of contempt. I believe that the court order on which the judgment is based is too vague to be the basis of a contempt decree.2 The order states:

[I]t is hereby ORDERED and DECREED that commencing at 12:01 a.m. on Monday, May 18, 1981, defendant Vistron Corporation, its agents, servants, employees and attorneys and all persons acting in concert with them, are hereby ENJOINED to specifically perform its contract with Thermice Corporation dated October 8, 1970, as amended January 1, 1977, to supply liquid and solid carbon dioxide to Thermice Corporation pursuant to the terms of said contract until the termination date set forth in the contract (December 30, 1990), or until said contract has been canceled or otherwise terminated in accordance with its provisions, or until further Order of this Court.

In my view, the order does not comply with Fed.R.Civ.Pro. 65(d), which states in relevant part:

Every order granting an injunction and every restraining order shall set forth the reasons for its issuance; shall be specific in terms; shall describe in reasonable detail, and not by reference to the complaint or other document, the act or acts sought to be restrained;....

The Supreme Court has not hesitated to vacate orders which do not comply with the strictures of this rule. In Schmidt v. Lessard, 414 U.S. 473, 94 S.Ct. 713, 38 L.Ed.2d 661 (1974), the Court said:

As we have emphasized in the past, the specificity provisions of Rule 65(d) are no mere technical requirements. The Rule was designed to prevent uncertainty and confusion on the part of those faced with injunctive orders, and to avoid the possible founding of a contempt citation on a decree too vague to be understood. Since an injunctive order prohibits conduct under threat of judicial punishment, basic fairness requires that those enjoined receive explicit notice of precisely what conduct is outlawed.”

Id. at 476, 94 S.Ct. at 715. See also International Longshoremen’s Association v. Philadelphia Marine Trade Association, 389 U.S. 64, 76, 88 S.Ct. 201, 208, 19 L.Ed.2d 236 (1967) (“The judicial contempt power is a potent weapon. When it is founded upon a decree too vague to be *255understood, it can be a deadly one.”). See generally 11 C. Wright & A. Miller, Federal Practice and Procedure § 2955 (Rule 65 should be enforced quite strictly). Moreover, applying Rule 65, this Court has held that conduct cannot be in contempt unless it was clearly prohibited. Ford v. Kammerer, 450 F.2d 279, 280 (3d Cir.1971). The language of Rule 65(d)

strongly suggests that prohibited conduct will not be implied from [injunctive] orders; that they are binding only to the extent they contain sufficient description of the prohibited or mandated acts. The long-standing, salutary rule in contempt cases is that ambiguities and omissions in orders redound to the benefit of the person charged with contempt.

Id. See also Quinter v. Volkswagen of America, 676 F.2d 969, 974 (3d Cir.1982) (contempt must be shown by “clear and convincing evidence, and where there is ground [to] doubt the wrongfulness of the conduct of the defendant, he should not be adjudged in contempt”) (quoting Fox v. Capitol Co., 96 F.2d 684, 686 (3d Cir.1938)).

I believe that the district court’s order violated Rule 65(d). The conduct prohibited in the original order was described entirely “by reference to ... [an]other document,” the contract, and was highly general. Furthermore, the order explicitly permits cancellation of the contract in accordance with the terms of the contract, and thus incorporates terms which, by their very nature, are a source of ambiguity and confusion for the parties. Where the meaning of an order is in substantial dispute, it comports neither with basic fairness nor with the strict requirements of Rule 65 to hold a party in contempt for a purported violation of such an order.

Of course, if reference to the matters adjudicated in the prior case could clarify any ambiguities in the order, the injunction might withstand scrutiny. See, e.g., In re Arthur Treacher’s Franchisee Litigation, 689 F.2d 1150, 1156-67 (3d Cir.1982) (using examination of prior court’s opinion to find clarity in somewhat generally phrased order). However, it cannot be disputed that the matter at issue in this case, namely the meaning of the 1977 amendment, was not at issue in the prior case. See Transcript of Hearing on Motion for Entry of Contempt of Judgment, App. at 66a, (comments by the district court) (“The effect of the amendment” is “a question raised for the first time”).

In sum, I do not believe that the district court’s May 15, 1981 order spoke with sufficient clarity to justify the extraordinary remedy of a contempt citation. I therefore believe that the district court’s judgment, which is a finding of contempt, cannot stand, hence, I would reverse.

II.

Even if the district court’s injunction had not run afoul of the salutary requirements of Rule 65, the contempt judgment still could not stand, at least without further proceedings in the district court. I find the terms of the contract ambiguous, as they are susceptible to more than one reasonable interpretation, and therefore the parties should be allowed to submit extrinsic evidence to support their respective interpretations. Z & L Lumber Co. v. Nordquist, 348 Pa. Super. 580, 502 A.2d 697, 700 (1985). I believe that the agreement is ambiguous on its face, as I find Vistron’s interpretation to be a plausible one. However, even if the majority is correct that no ambiguity can be found on the face of the agreement, Pennsylvania law clearly requires a district court to look to any proffered extrinsic evidence to determine whether such ambiguity exists. Z & L Lumber Co., 502 A.2d at 700; Mellon Bank, N.A. v. Aetna Business. Credit, Inc., 619 F.2d 1001, 1010-13 (3d Cir.1980).

A.

I do not deny that the majority’s interpretation of the amendment is a reasonable one. I claim only that another plausible interpretation exists, rendering the agreement ambiguous.

As a means of avoiding Yistron’s right to cancel during the period 1981 through 1990, Thermice has fashioned, and the majority has adopted, the argument that the 1977 amendment did not alter the “addi*256tional” term but that it both added a new “additional” ten year term running from January 1, 1981 through December 30, 1990, and preserved the original “additional” five year period, so that the 1970 contract became a twenty-five year agreement that would remain in effect through December 30, 1995. Under the majority’s interpretation, therefore, the contract period extends until 1995 — a ten year non-cancellable period beginning in 1981, and a five year “option” period beginning in 1991.

The majority, seizing upon the clause in the 1977 amendment providing that the period of the original contract should be extended for an additional ten years, has convinced itself that Vistron’s proposed construction must be wrong because:

Under Vistron’s construction of the contract, the ten year “option period” is substituted for the five year “option period”; nothing is being extended for an additional ten years. Indeed, under Vistron’s proffered construction of the contract, the “option period” would have been extended for an additional five years only (i.e. an additional five years beyond the original five years).

Maj. op. at 253 (emphasis in original). The majority has ignored, however, the impact of the very next clause of the contract: “The period ... shall be extended ... so that the period will continue until December SO, 1990_” (Emphasis added.) I find two flaws in the majority’s approach.

First, the majority glosses over the ambiguity of the term “period.” The language in the 1977 amendment specifically refers to the “period” of the contract. The majority apparently assumes that “period” refers only to the initial ten year term. Yet this ignores the fact that Paragraph 4 of the original agreement is itself entitled “Period.” Thus the term could reasonably be read to encompass the entire time period defined in Paragraph 4, both the original initial ten year term and the “additional” five year term. The 1977 amendment would thus modify the entire period of the contract so that the contract would expire at all events on December 30,1990, and the original “additional” five year term (i.e., the “option” period beginning January 1, 1981) would be replaced with a new “additional” ten year term. And it is during this “additional” term that either party may cancel with six months notice.

Second, the majority’s argument is at odds with the language of the 1977 amendment, for the amendment refers only to extant terms, and its language purports to define and change the length of the entire contract period — which would of necessity result in modification of the original additional five year term.

In sum, it is certainly (at the very least) plausible to interpret the net result of the amendment to be a term of contract which expires no later than December 30, 1990. Notably, this comports with the language of the amendment itself. Had the parties intended to extend the contract for an additional five year option period after the ten year binding period, as the majority would have us believe, it seems unlikely they would have declared that “the period will continue until December 30, 1990,” when they could easily have said “1995.”

Thus a reading of the amendment standing alone leads me to the conclusion that its wording is ambiguous, and cannot properly be understood without the aid of extrinsic evidence. Hence, even if the injunction were not so unclear as to violate Rule 65,1 would reverse and remand for an evidentia-ry hearing to resolve the dispute about the contract term and the cancellation rights.

B.

The district court itself recognized, at least implicitly, that a failure even to look at extrinsic evidence creates the danger that the court’s interpretation could run counter to the intent of the parties. The district court quoted our decision in Mellon Bank, in which we held that “external indi-cia of the parties’ intent other than written words are useful, and probably indispensable, in interpreting contract terms.” 619 F.2d at 1010. Thus the district court attempted to ground its finding of non-ambiguity on the extrinsic evidence that it deemed relevant, in addition to its reading of the document on its face.

*257The district court relied on Vistron’s conduct during the original litigation in 1981 and 1982, after the disputed amendment had taken effect, in which Vistron attempted to cancel the contract for cause, without reference to its purported right to cancel with six months notice for any reason at all. The court reasoned that since Vistron did not contend at that time that it had this absolute right of cancellation, it could not then have believed that such a right existed.3 The court viewed this conduct as “evidence of the understanding of the parties” that the right to cancel was not continued by the amendment to 1990.

While such evidence is most certainly relevant, since it is in sharp conflict with the representations and contentions of Vis-tron, it also clearly represents an exercise in fact finding by the district court, without a hearing. I believe that fact finding is required in this case, see Kroblin Refrigerated Xpress v. Pitterich, 805 F.2d 96, 101 (3d Cir.1986) (court must look to extrinsic evidence to determine whether an agreement is ambiguous); Mellon Bank, 619 F.2d at 1011-12, but I do not understand how such findings can be made without the aid of an evidentiary hearing. In Mellon Bank we made clear the importance of providing such a hearing to develop evidence of the parties’ intentions, whenever a “reasonable alternative interpretation is suggested.” Id. at 1011. Vistron was prepared to present testimony and evidence relating to its understanding of the amendment. The district court improperly denied Vistron this opportunity.

I concede that in the face of the district court’s declaration that no evidentiary hearing was necessary Vistron made no formal objection to the lack of hearing. Yet Vistron in a series of memoranda and submissions vigorously maintained its intention to adduce evidence of intent. I thus do not read the transcript as evidencing a waiver of that very substantial right.

Moreover, it makes no sense to me to find a waiver here. Essentially, the parties are arguing over the meaning of a contract term. One side argues it clearly means blue. The other side argues it clearly means red. Since, as I have explained, neither color clearly stands out, the district court is supposed to receive evidence to determine what the contract really means. The court should not simply make up its mind on the basis of first or previous impressions. I doubt that a party must formally request fact finding to preserve the argument made repeatedly in its papers and in open court that the contract either favors that party or at least is ambiguous and requires fact finding. Such a situation is distinct from one in which a party actually refuses a fact finding opportunity offered by the judge.4

III.

In conclusion, I would reverse outright or reverse and remand to the district court for any of three alternative reasons. First, I would vacate the finding of contempt because of the insufficiently clear notice provided by the original injunction. Second, I would hold the amendment to be ambiguous, and thus remand for factfind-ing to aid in its interpretation. Finally, even if the amendment is not ambiguous on its face, I would remand for an evidentiary *258hearing on whether a reasonable alternative interpretation exists. I respectfully dissent.

. I agree that appellate jurisdiction is controlled by Interdynamics v. Wolf, 698 F.2d 157 (3d Cir.1983) for I believe that the district court here resolved an uncertain obligation, and that the failure to permit immediate appeal would require Vistron actually to cause an injury in order to gain appellate review, a situation which does not benefit anyone. Unlike most contempt orders without sanction, the order involved here has a continuing impact. Furthermore, Vistron having been told explicitly by the district court what it cannot do (according to the district court, a second time), the failure to abide by that order could possibly justify criminal contempt, and it would be unfair to force Vistron to incur that risk to obtain review.

. This matter was clearly raised in the district court. See App. at 70-71a.

. The court also relied on wording in its own memorandum opinion from the prior litigation, describing the "termination date” as December 20, 1990. I fail to see how dicta from the prior opinion can be helpful since the issue in the instant case was concededly not addressed by the district court in the first litigation. See supra at 255. Moreover, if relevant at all, I find the language in the district court’s prior opinion, and the same language in the injunction itself, to directly contradict the district court’s and the majority’s holding that the contract actually extends to 1995.

. Indeed, without such a hearing, the following result obtains. The district court holds that a contract clearly favors A and not B. Before the court and on appeal, the parties each take the position, and only the position, that the contract clearly favors each of them and is unambiguous. If we accepted the majority’s requirement, we would accept the notion that we could not adopt a middle ground in the situation hypothesized by holding that the contract favored neither party clearly. Even where a contract was ambiguous, we would have to assume that it was not, and decide whom the contract more likely supported.