November 27, 2021

Volume XI, Number 331

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November 24, 2021

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No Service, No Notice

Addressing the notice requirements of Fed. R. of Civ. Pro. 65(a)(1), the US Court of Appeals for the Fifth Circuit vacated a preliminary injunction, finding that the aggrieved party did not have sufficient notice of the possibility of a preliminary injunction. Document Operations, L.L.C.v. AOS Legal Tech., Inc., Case No. 20-20388 (5th Cir. Aug. 23, 2021) (Per Curiam) (unpublished).

In 2017, Doc. Ops. entered into a licensing agreement by which AOS Japan would serve as the company’s exclusive representative and marketing provider in Japan for its virtual data room technology. Later, Doc. Ops. learned that a competing product known as AOS VDR had been developed by AOS Korea and would soon be marketed in the two Asian countries. Despite protests from AOS Japan that AOS Korea developed AOS VDR independently, Doc. Ops. filed suit alleging violation of the Texas Uniform Trade Secrets Act and for common law breach of contract, fraudulent inducement, conversion, civil conspiracy and breach of fiduciary duty.

The licensing agreement mandated that AOS Japan protect Doc. Ops.’ confidential information and also prohibited AOS Japan from acting to “represent, promote, develop, or otherwise try to sell within [Japan] any lines of product that. . . compete with [the technology].” Doc. Ops. sought a temporary restraining order (TRO) as well as preliminary injunction and filed and emailed copies of the complaint and TRO motion to AOS representatives. Once a Zoom hearing was scheduled, Doc. Ops. again contacted AOS to inform it of the hearing date. When AOS failed to appear at the hearing, the district court chose to reschedule the hearing three weeks later in order to ensure that AOS was aware of the hearing.

During this three-week interval, Doc. Ops. continued to communicate relevant dates and filings with AOS, which had appointed Texas-based counsel. One of these communications included a letter from Doc. Ops. to the district court stating that if the district court granted its TRO motion, Doc. Ops. would seek to conduct limited expedited discovery to prepare for a subsequent preliminary injunction. AOS failed to appear at the second hearing, stating that it would not appear until served with process. Subsequently, the district court not only granted the TRO motion and the related request for expedited discovery but also issued a preliminary injunction against AOS. AOS appealed both the preliminary injunction and the order granting expedited discovery.

The Fifth Circuit first explained that Rule 65 requires sufficient notice for a preliminary injunction, which the Supreme Court of the United States has interpreted as implying a hearing where the defendant is given a fair opportunity to oppose the preliminary injunction. The Court contrasted the notice requirement for preliminary injunctions from the more informal notice requirement for TROs. While TRO hearings are sometimes converted into preliminary injunction hearings, this conversion has two requirements: Sufficient notice and an opportunity to meaningfully prepare and respond.

The Fifth Circuit found that while AOS certainly had notice that a preliminary injunction was looming, it lacked sufficient notice that this relief would be issued at the second TRO hearing because the only two matters set to be resolved were the TRO motion and the request for expedited discovery. The Court also noted that Doc. Ops.’ letter to the district court showed that even Doc. Ops. did not anticipate the issuance of a preliminary injunction at the hearing. While the Court acknowledged that AOS’s refusal to participate in the litigation may have factored into its lack of notice, the “uncertainty surrounding whether service of process had been effectuated warrant[ed] the reasonable apprehension AOS Japan exhibited.”

The Fifth Circuit distinguished AOS’s position from other situations where TRO proceedings were converted into preliminary injunction hearings. In those other situations, either the relevant facts were undisputed and the defendants had already provided comprehensive memoranda detailing the injunction issue, or the defendants had filed opposition briefs, presented witnesses and engaged in cross-examination. In contrast, the Court found that AOS never participated in the TRO hearing and the district court knew why. At most, AOS expected a TRO to be issued and instead received notice of an indefinite injunction.

Accordingly, the Court vacated and remanded the preliminary injunction, finding the district court’s interpretation of AOS’s silence as a factual concession on the injunction issue as unreasonable.

Himanshu Patel contributed to this article.

© 2021 McDermott Will & EmeryNational Law Review, Volume XI, Number 245
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