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U.S. Filter/JWI, Inc. v. J-Parts, LLC

United States District Court, W.D. Michigan, Southern Division

August 18, 2017

U.S. FILTER/JWI, INC., Plaintiff,
v.
J-PARTS, LLC, Defendants. EVOQUA WATER TECHNOLOGIES LLC, Plaintiff,
v.
M.W. WATERMARK, LLC, Defendants.

          OPINION

          ROBERT J. JONKER CHIEF UNITED STATES DISTRICT JUDGE

         In 2003, U.S. Filter/JWI, Inc. sued one of its competitors, J-Parts, LLC, and J-Parts' owner, Michael Gethin (File No. 5:03-CV-127). U.S. Filter claimed that Gethin and J-Parts had misused U.S. Filter's trademarks and proprietary information. J-Parts subsequently changed its name to M.W. Watermark, LLC, and the parties eventually settled the case. As part of the settlement, the parties agreed to the entry of a judgment and permanent injunction prohibiting Gethin and Watermark from using certain trademarks and proprietary information belonging to U.S. Filter. (See Final J. & Permanent Inj., No. 5:03-CV-127, ECF No. 24.)

         Thirteen years later, Evoqua Water Technologies LLC filed a new suit against Gethin and Watermark (File No. 1:16-CV-14), claiming that Evoqua is the successor-in-interest to U.S. Filter, and alleging that Watermark and Gethin were in violation of the permanent injunction. Among other things, Evoqua asked for civil contempt sanctions against Watermark and Gethin. The Court held a hearing in the new case and found that Watermark and Gethin had violated the terms of the injunction. As part of its civil contempt sanction, the Court directed Watermark and Gethin to pay Evoqua's reasonable attorney's fees for bringing the new lawsuit and its motion for sanctions. No party at the time questioned whether a proceeding for contempt properly belonged in a new case with a new party plaintiff, or whether a proceeding in the original action with the original plaintiff was necessary.

         Watermark subsequently asked the Court to modify or dissolve the permanent injunction, and Evoqua sought to substitute itself as the plaintiff in 5:03-CV-127. In response to Evoqua's motion, Watermark disputed Evoqua's contention that Evoqua is the successor-in-interest to U.S. Filter, an issue that it first raised in its answer to Evoqua's complaint but did not litigate in response to Evoqua's request for sanctions. The Court denied both motions without prejudice because it wanted to ensure that all interested parties were before the Court. The Court asked the parties to provide further briefing on whether Evoqua is, in fact, the successor-in-interest to U.S. Filter. After the parties did so, it became clear that Evoqua claims to be the successor-in-interest to U.S. Filter based on a series of corporate mergers and an assignment of assets.[1]

         The Court then asked the parties to brief the following questions: (1) whether the consent judgment is assignable; (2) whether the consent judgment was actually assigned; and (3) whether the contempt finding should be vacated if there was no effective assignment. The parties have filed their briefs in response to the Court's order. They have also filed motions asking the Court to seal certain portions of their briefs and exhibits thereto. (No. 5:03-CV-127, ECF Nos. 46, 51, 55.)

         Upon review, the Court finds that the consent judgment may not be enforced by Evoqua as an assignee of U.S. Filter. Consequently, the contempt finding in 1:16-CV-14 must be vacated because Evoqua lacks standing to enforce the injunction. In addition, the motions to seal will be granted in part and denied in part.

         I. Evoqua's Right to Enforce the Consent Judgment

         A party's ability to enforce a consent judgment raises an issue of standing. “[A] well-settled line of authority . . . establishes that a consent decree is not enforceable directly or in collateral proceedings by those who are not parties to it even though they were intended to be benefit[t]ed by it.” Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 750 (1975). Generally, “third parties, even intended third-party beneficiaries, lack standing to enforce their interpretations of agreed judgments.” Sanders v. Republic Servs. of Ky., LLC, 113 F. App'x 648, 650 (6th Cir. 2004).

         To determine whether a consent judgment can be enforced by an assignee of one of the parties, the Court looks to the language of the consent judgment itself. “A consent judgment is a hybrid of a contract and a judicial act.” Universal Settlements Int'l, Inv. v. Nat'l Viatical, Inc., 568 F. App'x 398, 404 (6th Cir. 2014) (citing Local No. 93, Int'l. Ass'n of Firefighters, AFL-CIO C.L.C. v. City of Cleveland, 478 U.S. 501, 519 (1986)). “It mirrors a contract in that it reflects ‘an agreement by the parties, ' and it is a judicial act because it ‘places the power and prestige of the court behind the compromise struck by the parties.'” Id. (quoting Williams v. Vukovich, 720 F.2d 909, 920 (6th Cir. 1983)). “As a judicial act, consent judgments must be ‘strictly construed to preserve the bargained for position of the parties.'” Id. (quoting Williams, 720 F.2d at 920).

Consent decrees are entered into by parties to a case after careful negotiation has produced agreement on their precise terms. The parties waive their right to litigate the issues involved in the case and thus save themselves the time, expense, and inevitable risk of litigation. Naturally, the agreement reached normally embodies a compromise; in exchange for the saving of cost and elimination of risk, the parties each give up something they might have won had they proceeded with the litigation. Thus the decree itself cannot be said to have a purpose; rather the parties have purposes, generally opposed to each other, and the resultant decree embodies as much of those opposing purposes as the respective parties have the bargaining power and skill to achieve. For these reasons, the scope of a consent decree must be discerned within its four corners, and not by reference to what might satisfy the purposes of one of the parties to it.

United States v. Armour & Co., 402 U.S. 673, 681 (1971) (emphasis added; footnote omitted); accord Shy v. Navistar Int'l Corp., 701 F.3d 523, 530 (6th Cir. 2012).

         The consent judgment in this case does not provide for enforcement by an assignee of U.S. Filter. It binds the “successors and assigns” of Watermark and Gethin (No. 5:03-CV-127, ECF No. 24, PageID.356), but includes no similar language pertaining to U.S. Filter. The judgment itself is in favor of only U.S. Filter, not its successors and assigns.

         In a similar case, the Federal Circuit held that an assignee of a party to a consent judgment could not enforce it because “nothing expressly set out in the consent judgment . . . extend[ed] [those enforcement] rights to any third party[.]” Thatcher v. Kohl's Dep't Stores, Inc., 397 F.3d 1370, 1375 (Fed. Cir. 2005). As in this case, the consent judgment in Thatcher resulted from the settlement of claims regarding the infringement of intellectual-property rights. Like Evoqua, the party seeking to enforce the consent judgment in Thatcher claimed to acquire those intellectual-property rights by assignment. Id. at 1373. And like the consent judgment in this case, the consent judgment in Thatcher enjoined the “successors-in-interest” of one party, but said nothing about whether successors-in-interest of the other party could enforce it. Id. at 1375. “This silence, ” the court held, “is the functional equivalent of the parties' express intent to exclude language of assignment.” Id. Likewise, this Court interprets the absence of any reference to the successors and assigns of U.S. Filter in the consent judgment, coupled with express language binding Watermark's successors and assigns, as precluding enforcement by Evoqua, an assignee of U.S. Filter. The enforcement rights of the consent judgment belong to U.S. Filter alone.

         Evoqua points to the settlement agreement between U.S. Filter and Watermark, which states that “[t]he terms of this Agreement shall be binding upon and inure to the benefit of the Parties and their respective heirs and assigns.” (Settlement Agreement, No. 1:16-CV-14, ECF No. 1-8, PageID.365.) However, “Agreement” is defined as “This Settlement Agreement and Mutual Release.” (Id.) It does not include the consent judgment itself. Indeed, the settlement agreement requires the parties to stipulate to entry of a judgment and permanent injunction “in the form attached to this Agreement, ” which necessarily means that the consent judgment is separate from the settlement agreement. (Id. at PageID.362 (emphasis added).) Moreover, the consent judgment does not refer to, or incorporate, the terms of the settlement agreement. Thus, unlike the settlement agreement, the consent judgment does ...


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