In Wudi Industrial (Shanghai) Co., Ltd. v. Wai Wong, No. 22-1495 (4th Cir. June 5, 2023), a 2-1 panel of the Fourth Circuit holds that the district court procedurally erred when it ordered a party to a settlement to “immediately cease” certain conduct prohibited by their agreement, holding that the judge was obliged to enter findings of fact and conclusions of law in support of the order under Fed. R. Civ. P. 52 and 65.
“This litigation arises out of a contentious trademark dispute between Wudi and GTOR, which are Asian-centered business entities that compete in the marketing of video gaming chairs and other products. In March 2017, Wudi obtained from the United States Patent and Trademark Office (‘USPTO’) a registration for the stylized word mark ‘GTRACING.’ For its part, GTOR claimed that it already owned an earlier use of a similar word mark — that is, ‘GT OMEGA RACING’ — and challenged Wudi’s registration of the ‘GTRACING’ word mark in cancellation proceedings before a USPTO component called the Trademark Trial and Appeals Board (the ‘Board’). In June 2020, the Board ruled in favor of GTOR, concluding that Wudi’s use of the ‘GTRACING’ word mark encroached on GTOR’s earlier use of its own ‘GT OMEGA RACING’ word mark.”
Wudi commenced a civil action in the district court in August 2020, pursuant to 15 U.S.C. § 1071(b)(1), “specifying that a dissatisfied party in a trademark dispute may a file civil action in a district court, ‘unless appeal has been taken to [the] United States Court of Appeals for the Federal Circuit’.” The parties settled the district court litigation, agreeing that Wudi – in exchange for a $4.5 million payout – would retain the right to use “GTRACING” except in Europe (the “European Carve Out”).
But before final judgment was entered in the case, GTOR accused Wudi of intruding on their European markets and moved before the district court to enforce the agreement. “On April 29, 2022, the district court granted GTOR’s motion to enforce the Agreement and — instead of entering the stipulated final judgment — ordered Wudi to ‘immediately cease’ certain conduct” on pain of contempt. This order included a ban on “making further posts on its proprietary social media platforms that are accessible in the European Carve Out” and “direct[ing] all entities and individuals with whom [it] has a business relationship to take down all posts, whenever made, on social media platforms that are accessible in the European Carve Out.”The order gave Wudi a deadline of seven days to comply. The order (the First Order) did not include findings of fact, conclusions of law, or any reference to the four equitable factors for entering a preliminary injunction.
Wudi appealed the Fourth Circuit, which remanded in an unpublished order to obtain clarity about whether the First Order constituted an injunction that would give in appellate jurisdiction under 28 U.S.C. § 1292(a)(1). The district court held that the First Order did not constitute a preliminary injunction and was instead an order of specific performance under Virginia law (the Second Order). It then entered a final judgment that mooted the appellate jurisdiction issue.
The Fourth Circuit – in a consolidated appeal of both orders – vacates and remands. The panel majority holds that the district court erred by not following Federal Rules of Civil Procedure 52(a)(2) (which provides that, “[i]n granting or refusing an interlocutory injunction,” a district court must “state the findings and conclusions that support its action”) and 65(d) (which requires among other things that the order “state the reasons why it issued”). “In addition to complying with the applicable Rules of Civil Procedure, and because injunctive relief is a ‘drastic and extraordinary remedy’ to be utilized sparingly, the district court is duty bound to ensure that the party seeking injunctive relief has made the requisite showings” of the four equitable factors specified by eBay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006) (irreparable injury, inadequacy of legal relief, balance of hardships, and public interest).
The panel majority, following other circuits’ authority, holds that the essence of an injunction is that “(1) the order must describe the specific conduct required in detail; and (2) the order must provide a deadline to act.” They hold that “[i]n the circumstances presented, we agree with Wudi that the First Order constitutes a preliminary injunction. And that preliminary injunction was thereafter made a permanent injunction by entry of the Second Order. In reaching that conclusion, we assess the text of the First Order itself and simply ‘adhere to the time-tested adage: if it walks like a duck, quacks like a duck, and looks like a duck, then it’s a duck.’”
“[W]e emphasize that the First Order possesses all of the necessary attributes and thus qualifies as an injunction order. That is, the First Order contains ‘clear, enforceable directives’ and threatens Wudi with contempt for noncompliance . . . . It repeatedly uses the phrase ‘immediately cease’ with respect to specific conduct, and it directs Wudi to comply with those commands ‘within seven days’ . . . . And the First Order is both mandatory and prohibitory — it requires Wudi ‘to abide by an agreement,’ . . . . yet it also prohibits Wudi from engaging in a broad range of conduct (some of which is arguably outside the Agreement’s scope). We therefore readily conclude that, ‘however [the First Order] might be characterized’ by the district court, it is — factually and legally — ‘an order granting an injunction.’”
While the district court and GTOR argued that the First Order was simply one of specific performance of a contract, “we doubt that the First Order actually ‘compels the performance of a contract in the precise terms agreed upon’ by the parties . . . . But if we were to assume that the First Order is merely a grant of specific performance, GTOR’s position suffers from a crucial and fatal infirmity: ‘[i]f there is a factual dispute over . . . [an] agreement’s terms, the district court may not enforce a settlement agreement summarily.’” The district court would, among other things, have been obliged to conduct an evidentiary hearing to resolve various factual disputes.
Declining to resolve the merits of the dispute, the panel majority remands the case to the district court with a mandate to enter the appropriate findings and language required by Fed. R. Civ. P. 52 and 65.
Dissenting, Judge Rushing would have affirmed the order on the procedural issues and proceeded to the merits. The dissent takes particular aim at imposing the four-factor eBay test on a contract enforcement action. “Requiring a district court to undertake a separate [preliminary injunction] analysis before enforcing a settlement agreement gives the court authority to supersede the parties’ intentions as expressed in their agreement, such as by reweighing the balance of equities between the parties. And when it comes to the final enforcement of a settlement agreement, the majority’s approach weakens the stability and finality that settlement offers because it allows a party with buyer’s remorse to rely on eBay’s second factor to undermine a settlement agreement whenever it concludes paying damages would be more palatable than keeping its end of the original bargain. The majority fails to grapple with these potential consequences.”
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