Matrix Group Ltd. v. Rawlings Sporting Goods Co.

United States Court of Appeals
For the First Circuit

No. 04-1321

MATRIX GROUP LIMITED, INC.,

Plaintiff, Appellant,

v.

RAWLINGS SPORTING GOODS COMPANY, INC.,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE

[Hon. D. Brock Hornby, U.S. District Judge]

Before

Torruella and Howard, Circuit Judges,
and Stearns,* District Judge.

Peter J. Brann, with whom Matthew P. Schaefer and Brann &
Isaacson were on brief, for appellant.
John W. Moticka, with whom Stinson Morrison Hecker LLP, was on
brief, for appellee.

August 6, 2004

*
Of the District of Massachusetts, sitting by designation.
 TORRUELLA, Circuit Judge. This appeal brings before us

the denial of a motion for a preliminary injunction under unusual

jurisdictional circumstances. At the same time the district court

denied plaintiff-appellant's motion for a preliminary injunction,

it granted defendant-appellee's motion to transfer the case to the

Eastern District of Missouri. Finding our jurisdiction over

plaintiff-appellant's motion proper, we affirm the district court's

denial of the preliminary injunction.

I. Background

Matrix Group Limited, Inc. ("Matrix"), has sold personal

and team equipment bags under an exclusive license with Rawlings

Sporting Goods Co., Inc. ("Rawlings"), since 1994. Under the

licensing agreement, Matrix pays Rawlings a royalty, based on

minimum annual sales, and Matrix is required to "use its best

efforts to foster and develop the [personal and team equipment

bags] and to maximize sales thereof." Rawlings promised that it

would "not now or during the term of this Agreement manufacture,

sell, distribute, advertize, or promote any personal or team

equipment bags that compete with Matrix's [personal and team

equipment bags]."

Matrix has met Rawlings's minimum sales targets every

year and increased sales for Rawlings-branded personal and team

equipment bags from $425,000, prior to the licensing agreement, to

more than $2.1 million in 2000. Since then, sales have declined

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steadily, to $1.46 million in 2001 and to just over $800,000 in

2002 and 2003.

In March 2003, K2, Inc., purchased Rawlings and, later

that year, also purchased Worth, Inc., a competitor of Rawlings's.

By the end of 2003, Rawlings began to implement K2's plan to

consolidate the Rawlings and Worth sales force into a single

organization. Rawlings began to market Worth brand equipment bags

that compete with the personal and team equipment bags produced and

sold by Matrix.

A series of negotiations between the parties considering

the dissolution of the licensing agreement failed to reach an

accord. After Rawlings officially announced the consolidation of

Rawlings and Worth in January 2004, Matrix filed suit in the

District Court of Maine on January 30, 2004, alleging breach of the

licensing agreement.1 Rawlings thereafter filed an action in the

District Court for the Eastern District of Missouri on February 2,

2004, alleging a reciprocal breach of the licensing agreement,

namely Matrix's failure to use "best efforts" to sell the personal

and team equipment bags.

1
Matrix is a Florida corporation with its principal place of
business in Safety Harbor, Florida. Rawlings is a Delaware
corporation with its principal place of business in Fenton,
Missouri. Matrix's breach of contract suit relies on the parties'
diversity of citizenship, which confers subject matter jurisdiction
on the district court. 28 U.S.C. § 1332.

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 On February 12, 2004, Rawlings filed a motion to transfer

the District Court of Maine action, instituted by Matrix, to the

Eastern District of Missouri, pursuant to 28 U.S.C. § 1404(a). On

February 17, 2004, Matrix filed a motion for a temporary

restraining order and a preliminary injunction in the District

Court of Maine to enjoin Rawlings from (1) wrongfully terminating

Matrix's exclusive license with Rawlings to sell the personal and

team equipment bags covered by the license, and (2) breaching its

contract with Matrix by selling equipment bags that compete with

the personal and team equipment bags produced and sold by Matrix

under the licensing agreement.

After hearing oral argument on both motions on the same

day, the district court ordered the transfer of the case and denied

Matrix's motion for injunctive relief. Matrix appeals from the

denial of the motion for a preliminary injunction.

II. Jurisdiction

Our jurisdiction to hear an interlocutory appeal from the

denial of a preliminary injunction is provided by 28 U.S.C. § 1292

(a)(1), which states in relevant part that "the courts of appeals

shall have jurisdiction of appeals from . . . [i]nterlocutory

orders of the district courts of the United States . . . refusing

. . . injunctions . . . ." Under 28 U.S.C. § 1294(1), "appeals

from reviewable decisions of the district and territorial courts

shall be taken to the courts of appeals . . . [f]rom a district

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court of the United States to the court of appeals for the circuit

embracing the district." Matrix's right of appeal under § 1292

(a)(1), therefore, can only be realized in the First Circuit, a

sensible result given this court's supervisory duty over the

district courts of our circuit. "As [Matrix] filed [its] appeal on

[February 27, 2004], before the papers were docketed in [Missouri],

this court had already acquired appellate jurisdiction before the

transfer was effective. Once jurisdiction is properly obtained by

the appellate court it is not terminated by the subsequent

completion of a section 1404 transfer." Lou v. Belzberg, 834 F.2d

730, 733 (9th Cir. 1987).

Since this case was docketed in the Eastern District of

Missouri on March 25, 2004, though, our power to enforce a reversal

of the district court's denial of the preliminary injunction --

should that be our judgment -- takes an unusual cast. We cannot

order the Eastern District of Missouri, embraced by the Eighth

Circuit, to enter a preliminary injunction. We can, however, order

the District Court of Maine to request that the Eastern District of

Missouri return the case file so that the District Court of Maine

may enter a preliminary injunction.2 Cf. In re Warrick, 70 F.3d

2
Such an order would interfere with the proceeding of the action
in the transferee district. We typically lack jurisdiction over
§ 1404 transfers. See Codex Corp. v. Milgo Elec. Corp., 553 F.2d
735, 737 (1st Cir. 1977) ("Ordinarily, no appeal can be taken from
district court orders on transfers between districts pursuant to 28
U.S.C. § 1404(a) . . . . Although mandamus may be available in such
cases, it will be granted, or even considered, only in 'really

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736, 740 (2d Cir. 1995) ("This Court's need to protect its

jurisdiction justifies the rule that when the transferred case has

been docketed in the transferee court despite the petitioner's

diligence, this Court can order a district court in this circuit to

request the transferee court to return the case.") (ellipses,

quotation marks, brackets, and citations omitted).

Suffice it to say that transferring a case outside the

circuit while an interlocutory appeal is pending should be

disfavored. The preferred procedure is for § 1404 transfer orders

to be stayed when issued until any available interlocutory appeals

arising from the case are resolved by this court or by expiration

of the notice of appeal period.3 In that manner, we would retain

unmediated authority to enforce all judgments that can result from

review. In the event, for example, that we should reverse the

denial of a preliminary injunction and order an injunction issued

by the district court, the stayed transfer order would safeguard

the protection against "irreparable injury" that federal courts as

courts of equity may provide. Fed. R. Civ. P. 1, 65.

extraordinary situations.'") (quoting In re Josephson, 218 F.2d
174, 183 (1st Cir. 1954)).
3
While the district court did not stay the transfer order, it did
retain the docket in Maine. The case was physically transferred
upon this court's March 18, 2004 order granting Matrix's motion for
expedited appeal and directing the district court to transfer the
file forthwith. On March 24, 2004, the Eastern District of
Missouri entered the case onto its docket.

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 Neither Matrix nor Rawlings has called into doubt our

jurisdiction to hear this appeal. Under the circumstances,

however, we have deemed it appropriate to identify the difficulties

of this peculiar procedural posture with a view to protecting our

appellate jurisdiction and ensuring litigants in our district

courts the benefits of 28 U.S.C. § 1292(a)(1). See Bachowski v.

Usery, 545 F.2d 363, 367 (3d Cir. 1976) (Though appeals were only

permitted from final orders in the nineteenth century, "Congress

began to realize . . . that rigid application of the final judgment

rule in all cases might inflict irreparable harm upon litigants in

certain instances, and might actually have the effect of

unnecessarily prolonging the litigation."). We now turn to the

merits of Matrix's appeal.

III. Merits

The district court stated, following Matrix's briefing,

that two actions provoked the motion for preliminary injunction:

"One is the sale of the competing bags by the Rawlings sales

personnel, the other is the termination of the exclusive license."

The court correctly identified the four factors to be balanced in

deciding such motions: (1) irreparable injury to the plaintiff; (2)

balancing of harms to the defendant; (3) likelihood of success on

the merits; and (4) the public interest, if any. See Rosario-Urdaz

v. Rivera-Hernández, 350 F.3d 219, 221 (1st Cir. 2003). It found

that the public interest prong exerted negligible weight and that

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the harms to the defendant were minimal. Those findings are

neither questioned nor emphasized by the parties.

The district court concluded that Matrix had "a very

strong case on both issues" supporting its likelihood of success on

the merits. Despite the balance favoring Matrix on these three

prongs, the district court determined that "the plaintiff fails

. . . in getting injunctive relief from me because of the

irreparable injury hurdle."

This is a classic damage case with a
damage remedy, and damages can be assessed
both in terms of the sale of the competing
bags. There is a history here in terms of the
sales that have taken place, and it is not
difficult testimony to acquire in terms of
projecting that into the future by way of
damages with or without expert economists to
help.
It's perhaps slightly more difficult on
the termination. . . . I am satisfied that
ultimately, the plaintiff can recover the
damages that the defendant is causing to the
plaintiff's sales and income, that it will be
possible to look back in time and to project
forward in time to determine the impact of the
wrongful termination if that's what it's
concluded to be, and of the competing line if
the sale of the competing line violates the
agreement.

We review the district court's determination for an abuse of

discretion. Rosario-Urdaz, 350 F.3d at 221.

Matrix wishes to get leverage from the district court's

favorable view of its case on the merits, citing Ross-Simons of

Warwick, Inc. v. Baccarat, Inc., 102 F.3d 12, 16 (1st Cir. 1996),

for the proposition that "[l]ikelihood of success is the main

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bearing wall of the four-factor framework." But the granting of an

injunction is an exercise of equity, and the presence of a weak

link in the movant's chain would forestall our reversing the

district court's denial under the abuse of discretion standard.

Therefore, we concentrate on the district court's finding that a

damages remedy would prove adequate to compensate Matrix for any

injury. See Rosario-Urdaz, 350 F.3d at 222 ("Where a plaintiff

stands to suffer a substantial injury that cannot be adequately

compensated by an end-of-case award of money damages, irreparable

injury exists.").

The district court analyzed the irreparability prong in

two stages, tracking Matrix's allegations of Rawlings's breaches;

we will do the same.

A. Breach of Non-Compete Clause

The first breach alleged -- and the one that motivated

Matrix's complaint -- involves Rawlings's participation in the sale

of Worth's equipment bags and the concomitant breach of the non-

compete clause of the licensing agreement. This activity,

according to Matrix, injures (1) the value of the exclusive license

and (2) its good will and retail relationships. Matrix marshals

case law supporting the propriety of an injunction to redress a

contractual injury such as its asserted loss in the value of the

licensing agreement. E.g., Walgreen Co. v. Sara Creek Property

Co., B.V., 966 F.2d 273, 279 (7th Cir. 1992) ("[I]njunctions to

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enforce exclusivity clauses are quite likely to be justifiable by

just the considerations present here -- damages are difficult to

estimate with any accuracy and the injunction is a one-shot remedy

requiring no continuing judicial involvement."). Such authority is

insufficient under the procedural posture of this case in which the

district court denied rather than awarded the injunction. The

district court explicitly addressed the means through which a jury

might reach an informed judgment as to the quantum of Matrix's

loss, and "[i]t is well settled that the jury is given a good deal

of freedom in estimating damages against a defendant who created

the risk of uncertainty as to damages by its own wrongdoing."

Ocean Spray Cranberries, Inc. v. PepsiCo, Inc., 160 F.3d 58, 63

(1st Cir. 1998). We are satisfied that the district court

exercised sound discretion in denying the injunction as to this

claim of injury for want of irreparable injury.

It is more difficult to determine whether money damages

are ascertainable with regard to any injury to Matrix's good will

and relationships with its distributors caused by violation of the

non-compete agreement. The district court did not address this

point directly in its oral decision. Nevertheless, we find this

particular claim of irreparable injury too speculative and

unsubstantiated to warrant disturbing the district court's judgment

denying an injunction. See In re Rare Coin Galleries of America,

Inc., 862 F.2d 896, 902 (1st Cir. 1988) ("Speculation or

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unsubstantiated fears of what may happen in the future cannot

provide the basis for a preliminary injunction."). In its motion

for the preliminary injunction, Matrix supports the irreparability

of the injury as follows:

Rawlings's actions could severely and
irreparably harm Matrix's standing with
retailers. Rawlings's decision to have its
own sales force market competing bags may, by
itself, harm Matrix's reputation. Retailers
will view the Rawlings and Worth products --
now marketed together by the Rawlings sales
force -- as a single product line, and any
problems with quality, delivery, etc., related
to the Worth Bags are likely to damage Matrix
by association. (Emphasis added).

Later in the motion, Matrix argues that

In the short term, the sale of Worth bags by
the Rawlings sales force will dilute the
Rawlings sales force's efforts to sell
Rawlings equipment bags, and will cannibalize
Matrix's Rawlings brand equipment bag sales to
a degree that will be very difficult to
measure . . . .

These speculations regarding Matrix's fear of a possible injury

beyond the loss of sales do not make a prima facie case for a

preliminary injunction to stem damages to its reputation and good

will owing to Rawlings's breach of the non-compete clause. Matrix

did make a strong case that its business would suffer in terms of

lost sales, and the district court judged that such losses could be

redressed through money damages. This judgment fell within the

court's discretion.

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B. Breach through Termination of the Licensing Agreement

The second breach alleged by Matrix was Rawlings's

termination of the licensing agreement. The district court was

certainly correct that a damages remedy was adequate to redress

wrongful termination. After all, in the months leading up to the

parties' falling out, a buy-out of the license was discussed. Such

a sale would put a price on the value of the license to Matrix.

The district court, in essence, adjudged that a jury too could put

a price on the license, equipped with pertinent expert testimony

and historical sales figures. Again, the district court did not

abuse its discretion in denying an injunction to stem the damages

following from Rawlings's alleged unilateral termination of the

licensing agreement.

IV. Conclusion

Because we find no abuse of discretion by the district

court, the denial of Matrix's motion for a preliminary injunction

is affirmed.

Affirmed.

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