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National Spiritual Assembly of the Baha'is of the United States of American Under the Hereditary Guardianship, Inc. v. National Spiritual Assembly of the Baha'is of the United States of America

April 23, 2008

THE NATIONAL SPIRITUAL ASSEMBLY OF THE BAHA'IS OF THE UNITED STATES OF AMERICAN UNDER THE HEREDITARY GUARDIANSHIP, INC., COUNTER-DEFENDANT,
v.
NATIONAL SPIRITUAL ASSEMBLY OF THE BAHA'IS OF THE UNITED STATES OF AMERICA, INC., DEFENDANT.



The opinion of the court was delivered by: Amy J. St. Eve, District Court Judge

MEMORANDUM OPINION AND ORDER

Currently before the Court is the question of whether the National Spiritual Assembly of the Baha'is of the United States (the "NSA") has established that certain non-party individuals and entities -- (1) Franklin D. Schlatter, (2) Joel B. Marangella, (3) the Provisional National Baha'i Council ("PNBC"), (4) the Second International Baha'i Council (d/b/a Baha'is Under the Provisions of the Covenant) ("SIBC"), and (5) the Baha'i Publishers Under the Provisions of the Covenant ("BPUPC") (collectively, the "Alleged Contemnors") -- should be held in contempt for violating a permanent injunction judgment entered in this matter on June 28, 1966. (R. 1-1, NSA's Motion for Rule to Show Cause at 1.) After granting the parties the opportunity to conduct discovery, (R. 26-1, Order of Feb. 2, 2007; R. 42-1, Order of Mar. 22, 2007), and after concluding that material issues of fact precluded summary disposition, (R. 61-1, Order of Aug. 8, 2007; R. 64-1, Order of Aug. 16, 2007 (clarifying the holding of the Order of August 8, 2007)), the Court held an evidentiary hearing to determine whether the Alleged Contemnors are in privity with the party originally bound by the injunction. Based on the evidence adduced at that hearing and the parties' written submissions, the Court finds, for the reasons below, that none of the Alleged Contemnors is in contempt.

BACKGROUND

I. Procedural Posture

On November 3, 2006, the NSA filed a motion for rule to show cause why the Alleged Contemnors should not be held in civil contempt for violating a preliminary injunction judgment entered on June 28, 1966. (R. 1-1, NSA's Motion for Rule to Show Cause.) The underlying case involved two parties: (1) The National Spiritual Assembly of the Baha'is of the United States Under the Hereditary Guardianship, Inc. (the "NSA-UHG" or "UHG"), as plaintiff to the action, and (2) the NSA, as defendant. (Id., Ex. A at 1.) The judgment resolved the NSA's counterclaim against the NSA-UHG, "a counterclaim based upon asserted unfair competition, trademark infringement, dilution of the distinctive quality of [NSA's] trademarks and trade names, and likelihood of injury to the business reputation of [the NSA]." (Id., Ex. A at 1-2 (further noting that the Court had dismissed the NSA-UHG's complaint); R. 88-1, NSA Proposed Findings at ¶26 (noting that the NSA-UHG filed the original complaint in the case against the NSA, claiming to represent the true Baha'i Faith, and further claiming ownership of the Baha'i House of Worship in Wilmette, Illinois and all other Baha'i funds, properties and bequests).) In 1966, the court found in favor of the NSA and entered the following order:

IT IS HEREBY ORDERED, ADJUDGED AND DECREED that counter-defendant, The National Spiritual Assembly of the Baha'is of the United States of America Under the Hereditary Guardianship, Inc., its officers, agents, servants, employees, attorneys, and all persons in active concert or participation with them, including affiliated Local Spiritual Assemblies, groups, and individuals, or any of them, be and they are hereby enjoined from using in their activities the designations "National Spiritual Assembly of the Baha'is of the United States of America Under the Hereditary Guardianship, Inc.," "Baha'i News Bureau," "Baha'i Round Robin," "Baha'i," trademark representations of the Baha'i House of Worship, the Arabic design "The Greatest Name" and any other designation which by colorable imitation or otherwise is likely to be mistaken for or confused with the counterclaimant's name or marks as indicated above or is likely to create the erroneous impression that counter-defendant's religious activities, publications or doctrines originate with counterclaimant, and from otherwise competing unfairly with counterclaimant or infringing counterclaimant's rights.

(R. 1-1, NSA's Motion for Rule to Show Cause, Ex. A at 24-25.) The NSA-UHG did not appeal the granting of the permanent injunction, (R. 86-2, SIBC/BPUPC Proposed Findings at ¶13; R. 87-1, PNBC Proposed Findings at ¶¶23, 24; R. 88-1, NSA Proposed Findings at ¶5 (indicating that, in early August 1966, Mason Remey instructed the NSA-UHG to withdraw from any action for reconsideration or appeal or other action "regardless of consequences")), and, on December 22, 1966, the NSA-UHG dissolved and ceased all activities. (R. 86-2, SIBC/BPUPC Proposed Findings at ¶29; R. 87-1, PNBC Proposed Findings at ¶¶25, 26.)

In the current proceedings, the NSA contends that the Alleged Contemnors are violating the injunction "through Web publications that utilize marks that are colorable imitations of, or are otherwise likely to be confused with, the NSA's marks." (R. 1-1, NSA's Motion for Rule to Show Cause at 6.) Even though the injunction does not specifically identify the Alleged Contemnors, the NSA argues that the Alleged Contemnors are in privity with the party to the injunction and, thus, are equally bound by it. (Id. at 7-13.)

II. The Parties

A. The NSA-UHG

The NSA-UHG was a not-for-profit corporation organized under the laws of New Mexico on March 17, 1964. (R. 88-1, NSA Proposed Findings at ¶23; R. 86-2, SIBC/BPUPC Proposed Findings at ¶4.) As stated in its Articles of Incorporation, the NSA-UHG's purpose was "to provide an administrative structure for all the believers in the Baha'i World Faith located in the U.S.A." (R. 132-2, NSA-UHG Art. of Inc. at ¶2.)*fn1 The NSA-UHG served as "the coordinating body for an affiliation of individuals, groups and local spiritual assemblies with [Mason] Remey at their head." (R. 88-1, NSA Proposed Findings at ¶30.) Nine "Members" -- essentially an elected board of directors -- governed the NSA-UHG. (R. 86-2, SIBC/BPUPC Proposed Findings at ¶14.) As noted above, the NSA-UHG dissolved shortly after the 1966 injunction at the direction of Mason Remey.

B. Joel B. Marangella

Joel B. Marangella served as the President of the Second International Baha'i Council,*fn2 an entity that Mason Remey created and designated as "a body having international jurisdiction over persons throughout the world who were loyal [] Mason Remey." (R. 87-1, PNBC Proposed Findings at ¶30; see also Hr'g Tr. at 122:25-123:1 (indicating that Mason Remey created the Second International Baha'i Council so that he "could work through Joel Marangella . . . as a liaison").) Although Mr. Marangella did not serve as a Member of the NSA-UHG, he actively participated in that organization and in the underlying litigation. (R. 88-1, NSA Proposed Findings at ¶¶33, 34 (indicating also that Mr. Marangella so acted "only on behalf of Charles Mason Remey and at his direction").) On November 12, 1969, Mr. Marangella proclaimed himself to be the Third Guardian of the Baha'i Faith (R. 87-1, PNBC Proposed Findings at ¶51; R. 132-20, Marangella Letter dated Nov. 12, 1969), and thereafter organized the Orthodox Baha'i Faith and certain related entities, including the Provisional National Baha'i Council (R. 87-1, PNBC Proposed Findings at ¶¶61, 66, 67).

C. Franklin Schlatter

Franklin Schlatter was a founding member and officer of the NSA-UHG and was actively involved with the activities of the NSA-UHG prior to and at the time of the issuance of the injunction. (R. 88-1, NSA Proposed Findings at ¶¶44, 45.) Mr. Schlatter served on the NSA-UHG board that voted to sue the NSA in 1964. (R. 88-1, NSA Proposed Findings at ¶47.) Mr. Schlatter also served as PNBC's Secretary from 1978 through 2001 (id. at ¶61), and, in 1997, Mr. Marangella appointed Mr. Schlatter as a "Hand of the Cause of God." (R. 88-1, NSA Proposed Findings at ¶¶48, 49 (asserting that, as a "Hand of the Cause of God," Mr. Schlatter assists, and acts on behalf of, Mr. Marangella).)

D. The PNBC

The PNBC is the governing administrative body over those persons residing in the United States who recognize Mr. Marangella as the Third Guardian of the Baha'i Faith. (R. 87-1, PNBC Proposed Findings at ¶70; see also Hr'g Tr. at 197:15-18 (M. Meyer testimony: "The National Bureau was established principally as a center, a focal point for those believers who had decided that Joel Marangella was the Third Guardian. It had no administrative duties. It was a service organization.").) Before changing its official name, the PNBC first was the National Bureau and then the Mother Baha'i Council. (Id. at ¶54.) At Mr. Marangella's instruction, the National Bureau (formed in the Spring of 1970) transferred its powers to the Mother Baha'i Council on May 23, 1978. (NSA Hr'g Ex. TX64; R. 88-1, NSA Proposed Findings at ¶55.) The Mother Baha'i Council thereafter changed its name to the PNBC, again at Mr. Marangella's request. (R. 88-1, NSA Proposed Findings at ¶55; see also id. at ¶¶56-57 (Mr. Schlatter admitting that he participated in the formation of the Mother Baha'i Council), 61 (indicating that Mr. Schlatter served as Secretary for the National Bureau), 62 (indicating that Mr. Schlatter's home address was also the mailing address and corporate address for the PNBC).) Mr. Marangella appoints all of the PNBC's board members (id. at ¶58), and he also has reviewed and approved all decisions made or actions taken relating to the activities and affairs of PNBC and its predecessors. (Id. at ¶59; see also id. at ¶54 (asserting that Mr. Marangella appointed all National Bureau board members and officers, as well).)

E. The BPUPC

The BPUPC is a publishing trust formed by Dr. Leland Jensen (id. at ¶91), a signatory to the incorporation papers for the NSA-UHG who served as an NSA-UHG Member from April 1963 to May 1964. (Id. at ¶¶80, 82.) Dr. Jensen formed this organization in 1969 (R. 86-2, SIBC/BPUPC Proposed Findings at ¶37), and, in 1987, the BPUPC incorporated in Montana as a corporation without members. (Id. at ¶¶42, 43.) The BPUPC publishes "books and pamphlets on Dr. Jensen's interpretation of and beliefs surrounding the Baha'i Faith under the provisions of the Covenant." (Id. at ¶39.)

F. The SIBC

Dr. Jensen established the SIBC in 1991 (R. 88-1, NSA Proposed Findings at ¶93), and incorporated that organization two years later. (Id. at ¶95.) Dr. Jensen was not a director, officer, or Member of the SIBC, but he did appoint the directors of the SIBC. (R. 86-2, SIBC/BPUPC Proposed Findings at ¶61.) The SIBC handles "the administrative responsibilities related to the Baha'i faith for all Baha'is Under the Provisions of the Covenant, and SIBC's main responsibility is to give guidance to anybody who requests it." (Id. at ¶51.)

ANALYSIS

I. Conclusions of Law

A. Civil Contempt

As an order of a court, an injunction is enforceable through civil contempt proceedings. See Spallone v. United States, 493 U.S. 265, 276, 110 S.Ct. 625, 633, 107 L.Ed. 2d 644 (1990) (it is an "axiom that 'courts have inherent power to enforce compliance with their lawful orders through civil contempt'" (quoting Shillitani v. United States, 384 U.S. 364, 370, 86 S.Ct. 1531, 16 L.Ed. 2d 622 (1966))); S.E.C. v. Homa, 514 F.3d 661, 674 (7th Cir. 2008) (a "court whose order was defied must enforce the injunction through the contempt power because contempt is, in essence, an affront to the court that issues the order"). And because "civil contempt proceedings are part of the action from which they stem," Rockwell Graphic Sys., Inc. v. DEV Indus., Inc., 91 F.3d 914, 920 (7th Cir. 1996), "a contempt proceeding does not open to reconsideration the legal or factual basis of the order alleged to have been disobeyed and thus become a retrial of the original controversy." United States v. Rylander, 460 U.S. 752, 756-57, 103 S.Ct. 1548, 1552, 75 L. Ed 2d 521 (1983) ("The procedure to enforce a court's order commanding or forbidding an act should not be so inconclusive as to foster experimentation with disobedience.") (quoting Maggio v. Zeitz, 333 U.S. 56, 69, 68 S.Ct. 401, 408, 92 L.Ed. 476 (1948)). "To win a motion for civil contempt, a party must prove by clear and convincing evidence that the opposing party violated a court order,"*fn3 Goluba v. School Dist. of Ripon, 45 F.3d 1035, 1037 (7th Cir. 1995) (internal quotation omitted)); Autotech Tech. LP v. Integral Research & Dev. Corp., 499 F.3d 737, 751 (7th Cir. 2007), but "ordinarily" there need not be proof that the violation was "willful," Stotler & Co. v. Able, 870 F.2d 1158, 1163 (7th Cir. 1989), at least insofar as contempt proceedings relate to a party named in and directly bound by an injunction. See Howard Johnson Co. v. Khimani, 892 F.2d 1512, 1516 (11th Cir. 1990) ("[T]he focus of the court's inquiry in civil contempt proceedings is not on the subjective beliefs or intent of the alleged contemnors in complying with the order, but whether in fact their conduct complied with the order at issue."); cf. New York State Nat'l Org. for Women v. Terry, 961 F.2d 390, 397 (2d Cir. 1992) (rejecting the argument that the alleged contemnors were not "in active concert or participation" with defendants, as required by Rule 65(d), because their actions "were independently motivated" by their "political, social and moral positions . . .": "We have no reason to doubt this representation, but it is unavailing as an escape hatch from Rule 65(d). The rule is directed to the actuality of concert or participation, without regard to the motives that prompt the concert or participation."). A "district court has considerable latitude in how it goes about enforcing its own decrees in a contempt proceeding." Rockwell Graphic Sys., 91 F.3d at 920.

B. Non-Parties and Contempt

Because the Alleged Contemnors were not parties to the original litigation, the critical inquiry here is the extent to which the injunction binds the conduct of non-parties. As a general rule, "a court may not enter an injunction against a person who has not been made a party to the case before it." See Additive Controls & Measurement Sys., Inc. v. Flowdata, Inc., 96 F.3d 1390, 1394 (Fed. Cir. 1996). As Judge Learned Hand describes the purpose and effect of this general rule:

[N]o court can make a decree which will bind any one but a party; a court of equity is as much so limited as a court of law; it cannot lawfully enjoin the world at large, no matter how broadly it words its decree. If it assumes to do so, the decree is pro tanto brutum fulmen, and the persons enjoined are free to ignore it. It is not vested with sovereign powers to declare conduct unlawful; its jurisdiction is limited to those over whom it gets personal service, and who therefore can have their day in court.

Alemite Mfg. Corp. v. Staff, 42 F.2d 832, 832-33 (2d Cir. 1930) (Hand, J.), cited with approval in Rockwell Graphic Sys., 91 F.3d at 919. Put differently, "[c]courts do not write legislation for members of the public at large; they frame decrees and judgments binding on the parties before them." Additive Controls, 96 F.3d at 1394.

Yet there are certain exceptions to this principle, as Rule 65 itself suggests. Indeed, every order granting an injunction not only is binding upon the parties to the action, but also upon "their officers, agents, servants, employees, and attorneys . . . who receive actual notice of the order by personal service or otherwise." Fed. R. Civ. P. 65(d);*fn4 see also Rockwell Graphic Sys., 91 F.3d at 919 (the last clause of Rule 65(d) is derived from the common law rule). For example, consistent with Rule 65, an injunction against a corporation binds that corporation's acting officers (even if not personally named in the injunction) because such an entity "as an incorporeal abstraction" acts only through its agents. See Reich v. Sea Sprite Boat Co., 50 F.3d 413, 417 (7th Cir. 1995).

An injunction also may bind those in "active concert or participation" with the party named in the injunction. Fed. R. Civ. P. 65(d) (an injunction is binding "upon those persons in active concert or participation with them who receive actual notice of the order by personal service or otherwise");*fn5 see, e.g., Alemite, 42 F.2d at 832 ("[A] person who knowingly assists a defendant in violating an injunction subjects himself to civil as well as criminal proceedings for contempt. This is well settled law."). "The interpretation of 'active concert or participation' has engendered two lines of cases in which parties not named in an injunction are bound thereby:"

First, an injunction may bind nonparties who are successors in interest to parties named in the injunction with respect to the subject matter of the injunction. Golden State Bottling Co., Inc. v. NLRB, 414 U.S. 168, 179-80, 94 S.Ct. 414, 422-23, 38 L.Ed. 2d 388 (1973); Herrlein v. Kanakis, 526 F.2d 252, 253-54 (7th Cir. 1975); Brunswick Corp. v. Chrysler Corp., 408 F.2d 335, 339 (7th Cir. 1969). Second, parties otherwise without an injunction's coverage may subject themselves to its proscriptions should they aid or abet the named parties in a concerted attempt to subvert those proscriptions. Regal Knitwear, 324 U.S. at 14, 65 S.Ct. at 481; Chase Nat'l Bank v. City of Norwalk, 291 U.S. 431, 436-37, 54 S.Ct. 475, 477 (1934); Alemite Mfg. Corp. v. Staff, 42 F.2d 832, 832-33 (2d Cir. 1930) . . . . These rules may also apply in somewhat hybrid fashion in a case where a successor corporation is formed essentially for the purpose of carrying on the enjoined activity. Cf. Panther Pumps & Equip. v. Hydrocraft, Inc., 566 F.2d 8, 24-25 (7th Cir. 1977), cert. denied, 435 U.S. 1013, 98 S.Ct. 1887, 56 L.Ed. 2d 395 (1978).

Rockwell Graphic Sys., 91 F.3d at 919-20. In other words, an injunction not only binds the parties identified in the injunction but also those in "privity" with them. Regal Knitwear Co. v. Nat'l Labor Relations Bd., 324 U.S. 9, 14, 65 S.Ct. 478, 481, 89 L.Ed. 661 (1945).*fn6 "These constructions of the 'active concert or participation' language of Rule 65(d) recognize that the objectives of an injunction may be thwarted by the conduct of parties not specifically named in its text." Rockwell Graphic Sys., 91 F.3d at 920.

II. Application To The Court's Findings of Fact

Applying the above-stated principles here, none of the Alleged Contemnors is in privity with the bound entity, and thus none has violated the injunction. In rendering this finding, the Court has carefully and deliberately weighed all of the evidence adduced at the hearing and otherwise submitted by the parties. The Court closely assessed the demeanor of each testifying witness, including his or her body language, tone of voice, facial expressions, mannerisms, and other factors indicative of credibility.

A. Mr. Schlatter, Mr. Marangella, and the PNBC Are Not In Contempt

The NSA asserts various theories of privity regarding this group of Alleged Contemnors. The Court will begin its analysis with Mr. Schlatter, but, as shown below, the same analysis applies to Mr. Marangella, and the PNBC. The NSA argues that Mr. Schlatter is bound by the injunction because he was a founder, incorporator, and officer of the NSA-UHG, and was an active member of the NSA-UHG's litigation committee that oversaw the original litigation. (See R. 133-1, NSA Br. at 2-3.) As the NSA sees things, Mr. Schlatter is bound because "the legal effect of an injunction does not end with the dissolution of the enjoined entity. Rather, an injunction 'survives the dissolution of the corporate defendant' and remains enforceable against persons who are bound by the injunction including the corporation's former officers, agents, employees, and those in active concert or participation with them." (R. 133-1, NSA Post-Trial Br. at 17 (emphasis added).)

1. The NSA's Legal Theory Is Overbroad

Certain of the NSA's legal assertions are not controversial. It is true that officers and directors of an enjoined corporation (or any other incorporeal organization) are bound as acting agents of that entity. See Reich, 50 F.3d at 417 ("An order issued to a corporation is identical to an order issued to its officers, for incorporeal abstractions act through agents. A command to the corporation is in effect a command to those who are officially responsible for its affairs." (internal quotation omitted)). As discussed above, it is also true that an injunction survives the dissolution of a corporation when a bound corporation transfers its liabilities to a bona fide successor-in-interest, see Golden State Bottling, 414 U.S. at 179-80, 94 S.Ct. at 422-23, or when a successor corporation is formed for the purpose of avoiding the effects of an injunction, Rockwell Graphic Sys., 91 F.3d at 919-20. What the NSA's cited authority leaves unanswered, however, is whether former officers and directors of a dissolved entity continue to be bound if they later act on behalf of an entity that is not being employed as a means to avoid the injunction.*fn7 Put differently, are they forever bound, though not originally named as parties, solely by virtue of once being an officer or director of a bound entity?

In its proposed conclusions of law, the NSA asserts that Walling v. James V. Reuter, Inc., 321 U.S. 671, 64 S.Ct. 826, 88 L.Ed. 1001 (1944) supports this proposition. It does not. In that case, the Supreme Court held that an injunction is "enforcible [sic] by contempt proceedings against the corporation, its agents and officers and those individuals associated with it in the conduct of its business, but it may also, in appropriate circumstances, be enforced against those to whom the business may have been transferred, whether as a means of evading the judgment or for other reasons. The vitality of the judgment in such a case survives the dissolution of the corporate defendant." Id. at 674, 64 S.Ct. at 828. These propositions are merely the same non-controversial propositions mentioned in the previous paragraph, or, more accurately, the "hybrid" application identified in Rockwell Graphic Sys. See 91 F.3d at 919-20. The Walling court, that is, found only that "a family business" could not "successfully avoid[] all responsibility for compliance with the judgment entered against the family corporation, by the simple expedient of dissolving it and continuing the business under the individual control of members of the family." Id. The ...


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