USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 95-1677
WILLIAM E. DONOGHUE,
Plaintiff - Appellant,
v.
IBC USA (PUBLICATIONS), INC., ET AL.,
Defendants - Appellees.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Reginald C. Lindsay, U.S. District Judge]
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Before
Boudin, Circuit Judge,
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Bownes, Senior Circuit Judge,
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and Keeton,* District Judge.
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Michael Arthur Walsh, with whom James S. Shorris and Choate,
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Hall & Stewart were on brief for appellant.
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Steven S. Konowitz, with whom Konowitz & Greenberg was on
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brief for appellees.
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November 28, 1995
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* Of the District of Massachusetts, sitting by designation.
KEETON, District Judge. This is an appeal by William
KEETON, District Judge
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E. Donoghue ("Donoghue"), Plaintiff-Appellant, from a Preliminary
Injunction of limited scope. Donoghue asserts that the district
court erred in its interpretation of contract documents executed
by the parties and asks this court to expand relief to, or nearer
to, the full scope he requested in the district court. We
conclude that if the district court committed any error of law,
the error was harmless in relation to the issues before us in
this appeal. Also, we conclude that the district court did not
abuse its discretion in fashioning the limited scope of the
Preliminary Injunction entered. We therefore affirm the district
court's order.
To avoid uncertainty that might otherwise exist about
the effect of the district court's order (and our affirmance) on
further proceedings in this case, we explicitly state the bases
of our affirmance and explicitly note certain conclusions of the
district court upon which we do not rely. These conclusions
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relate to issues that are at least potentially mixed-legal-
factual issues that would be more appropriately decided, both in
the district court and on appeal, after the parties have had a
full opportunity for discovery and development of evidence
bearing upon the factual elements of the legal-factual mix. They
are open to de novo consideration in the district court during
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further proceedings there, as well as on appeal.
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I. Background Facts
I. Background Facts
A. Before July 1989
A. Before July 1989
Donoghue is an investment adviser well-known as an
expert on money markets and mutual funds. Acting individually
and through a number of corporate entities, he has marketed
advice for more than twenty years in books, newsletters, columns,
on-line services, and public appearances. One of his business
entities was The Donoghue Organization, Inc., a Massachusetts
corporation of which Donoghue was the sole stockholder. Its
flagship publication was Donoghue's MoneyLetter--a semi-monthly
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newsletter introduced by Donoghue in 1980. In 1986, Donoghue's
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MoneyLetter was voted "Best Financial Advisory Newsletter" by the
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Newsletter Association.
B. Documents Dated July 28, 1989
B. Documents Dated July 28, 1989
Simultaneously, two documents were executed. Though
signed by Donoghue in September 1989, these agreements were made
"as of" July 28, 1989. They were called the Stock Purchase
Agreement ("SPA") and the Personal Services and Non-Competition
Agreement ("PSA").
The Stock Purchase Agreement was signed by Donoghue as
sole shareholder of The Donoghue Organization, Inc. and Mary Ann
Bonomo as Vice President of IBC USA (Publications), Inc. ("IBC
USA"). Under the terms of the SPA, Defendant-Appellant IBC USA
purchased all 10,000 shares of Common Stock of The Donoghue
Organization, Inc. from Donoghue for $2,000,000.
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The Personal Services and Non-Competition Agreement was
also signed by Donoghue and Mary Ann Bonomo. Under the terms of
the PSA, Donoghue became a part-time employee of IBC USA,
agreeing to devote approximately one-third of his professional
time to editorial, promotional, and other activities mainly
involving the MoneyLetter publication. The initial term of the
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PSA was set at five years, with one five-year extension available
at the option of IBC USA.
A central subject of dispute in this litigation is the
scope and extent of the right of IBC USA and its new wholly owned
subsidiary, IBC/Donoghue, Inc., also a Defendant-Appellee, to use
Donoghue's name. The contractual rights of the Defendants-
Appellees are controlled by the SPA and the PSA.
A provision of the SPA declares:
The rights to use the name "William E.
Donoghue" and variations thereof have
always been the property of the Seller
[Donoghue], not the Company [The Donoghue
Organization, Inc.], and Buyer's [IBC
USA's] rights to the use of such name are
governed by the Personal Services
Agreement.
SPA cl. 3(m).
The PSA elaborates on the rights to use the name
"William E. Donoghue" stated above in the SPA. The relevant PSA
provision appeared as one long paragraph, reproduced here with
bracketed insertions and spacing that we have inserted to aid
reading.
Use of Employee's Name. In consideration
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of the payment of the amounts provided on
Exhibit 11 hereto [royalty payments of
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$1,000 per year plus a cost-of-living
adjustment in years 4 and 5], IBC/USA
shall have the right until July 29, 1994
to use the name William E. Donoghue and
variations thereof on or in connection
with any and all of the existing products
and services of IBC/USA or The Donoghue
Organization, Inc.
now bearing that name
and any other products and services of
IBC/USA or The Donoghue Organization,
Inc. developed hereafter during the term
of the Personal Services Agreement;
provided, however, that for products or
services developed after the date hereof
during the term of this Agreement,
IBC/USA shall obtain the approval of the
Employee to the use of the Employee's
name as aforesaid, and Employee agrees
that such approval shall not be
unreasonably withheld and shall be
granted for products and services unless
Employee reasonably explains that such
products or services would violate clause
8 [the non-competition clause] or would
not be consistent with the provisions of
Exhibit 12 [Donoghue's written investment
philosophy] or of a quality comparable to
that of other IBC/USA or affiliated
products or services then using
Employee's name.
Upon notice given by IBC/USA to Employee
on or before July 29, 1993, and whether
or not the term of this Agreement is
otherwise extended pursuant to clause
2(b)[the five year extension option of
IBC USA], after July 29, 1994 and until
July 29, 1999, IBC/USA shall continue to
have the right so to use the name William
E. Donoghue and variations thereof, as
described above, subject to the protocol
set forth in Exhibit 12
and provided (i) that employee will have
a right to sit on the investment
committee and (ii) that IBC/USA shall pay
or cause to be paid to the Employee
royalties at the rate of five percent
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(5%) of gross revenues actually received,
net of refunds and cancellations,
from the sale during such period of
products and services including such name
in the name thereof.
. . . .
On January 2, 2000 (or January 2, 1995 if
IBC/USA fails to exercise the right to
continue to use the Donoghue name as
provided herein), IBC/USA agrees to
assign all of its residual rights, if
any, to use the name William E. Donoghue
or any variation thereof in any
registered or unregistered trademark, to
Employee, provided that an agreement for
continued use by IBC/USA has not been
concluded, but nothing herein shall be
deemed to grant any right, title or
interest, or any agreement to grant any
right, title or interest, to Employee in
or to any name or mark (registered or
unregistered) or portion thereof not
constituting the name William E. Donoghue
or a variation thereof.
PSA cl. 11. The dispute between the parties centers primarily
upon the interpretation of this clause and relevant statutes.
C. Developments Before Amendment of the PSA on July 21, 1994
C. Developments Before Amendment of the PSA on July 21, 1994
Notwithstanding the currently alleged deficiencies in
the clarity and specificity of the SPA and PSA, and in the
performance of each party under these agreements, the first five-
year term of the PSA passed relatively uneventfully. During this
term, IBC USA changed the corporate name of The Donoghue
Organization, Inc. to IBC/Donoghue, Inc.; Donoghue contributed
articles to Donoghue's MoneyLetter and performed various other
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duties under terms of the PSA.
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According to clause 2(b) of the PSA, IBC USA was
required to give notice to Donoghue one year before the last day
of the term of the PSA if IBC USA wished to exercise its option
to extend the term of the PSA for an additional five years. In
early July of 1993, before the one-year benchmark of July 28,
1993, IBC USA initiated discussions with Donoghue regarding the
possibility of amending the PSA before extending it for the
additional five-year term.
IBC USA proposed to restructure the compensation
provisions of the PSA, primarily to eliminate the 5% royalty that
would have first begun to accrue when the second five-year term
commenced. In return, IBC USA proposed to increase various
incentive payments to Donoghue, based on the number of telephone
inquiries generated by his columns, appearances, and books. The
record is unclear about how this proposal, or negotiations
relating to it, proceeded or whether any progress was made toward
amending the PSA.
In any event, on July 16, 1993, IBC USA gave formal
notice to Donoghue of its desire to exercise its options under
clauses 2(b) and 11 of the PSA to extend, for an additional five
years, to July 29, 1999, the term of (1) Donoghue's employment
and (2) the license to use his name.
D. Amendment of the PSA on July 21, 1994 and the Failure of
D. Amendment of the PSA on July 21, 1994 and the Failure of
Negotiations
Negotiations
Negotiations regarding an amendment of the PSA
continued as the first five-year term was coming to a close. On
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July 21, 1994, just before the end of the initial five-year term
of the PSA, the parties executed a modification of the agreement.
This modification extended for one month the time period in which
IBC USA could use Donoghue's name without paying the 5% royalty:
IBC/USA will continue to have the right to
use the name William E. Donoghue and
variations thereof on or in connection with
the existing products of IBC/USA without
payment of the stated 5% royalty until August
31, 1994.
App. at 00062. In return for this concession, IBC USA allowed
Donoghue to send his employees to IBC USA's weekly Donoghue's
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MoneyLetter Investment Committee meetings during the month of
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August, 1994.
This interim provision delaying the time when the 5%
royalty payments would begin to accrue was itself modified, with
Donoghue's consent. The commencing date when royalty payments
would begin was moved to October 31, 1994. Negotiations
regarding a permanent amendment to the PSA, however, were
unsuccessful. The parties never agreed to any further amendment
of the PSA.
As the final interim extension was about to end in
October, 1994, Defendants-Appellees removed Donoghue's surname
from Donoghue's MoneyLetter, making the new title simply
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MoneyLetter. The name of the corporate subsidiary remained
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IBC/Donoghue, Inc., however, and MoneyLetter continued to contain
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references to Donoghue and his name within the text of the
newsletter. For example, one section of the newsletter was
devoted to the "Donoghue Signal," a statistical measure of market
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performance. Also, MoneyLetter was labeled as "a service of
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IBC/Donoghue, Inc." on the bottom of the first page. William E.
Donoghue was listed in the masthead as "Founder & Contributing
Editor" of MoneyLetter.
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Defendants-Appellees now no longer publish anything
with the name "William E. Donoghue" appearing in the name of the
publication, but they do market publications in which the
corporate name IBC/Donoghue is used within the title. Examples
are IBC/Donoghue's Money Fund Average, IBC/Donoghue's Mutual
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Funds Almanac, and IBC/Donoghue's Money Fund Directory. IBC USA
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has not paid Donoghue any royalties (under either the $1,000-per-
year or the 5% provision) since October of 1994.
E. Other Developments
E. Other Developments
The precipitating event for the current civil action,
however, was not the use of Donoghue's name in the name or text
of any newsletter or the nonpayment of royalties but rather the
use of Donoghue's name and likeness in promotional materials
advertising MoneyLetter.
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In December 1994, IBC USA sent a direct mail
advertisement for MoneyLetter to the general investing public and
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the professional investment community. The envelope in which
this mailing was sent featured a photograph of Donoghue
purportedly gesturing at advertisements of five large mutual fund
companies. Above the photograph was a statement in large type
and in quotation marks: "I'm sick and tired of investors getting
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ripped-off by ads like these!" There were similar statements in
smaller type below the photograph and on the back of the envelope
as well. The district court found that Donoghue had neither made
nor authorized any of the statements on the envelope. Donoghue
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v. IBC/USA (Publications), Inc., 886 F. Supp. 947, 951 (D. Mass.
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1995).
The district court also found that, "[w]hile [Donoghue]
had used strong language in the past to criticize techniques and
motives of financial planners and brokers, he had not previously
criticized mutual funds by name in the manner portrayed on the
envelope." Id. Inside the envelope was a letter, purportedly
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signed by Donoghue, that further criticized the advertisements of
such mutual fund companies as Value Line, Fidelity Investments,
Dreyfus Corporation, Berger Associates, Inc., and Scudder,
Stevens & Clark, Inc. The district court found that Donoghue had
not authorized this letter. Id.
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Donoghue received two written complaints regarding the
direct mail advertisement--from Berger Associates, Inc. and
Scudder, Stevens & Clark, Inc. App. at 00304-09. Moreover,
Value Line threatened litigation against Donoghue and has since
filed an action in federal court for the Southern District of New
York against IBC USA and IBC/Donoghue, Inc. claiming that it has
been injured by the "explicitly false," "deceptive," and
"misleading" statements in the direct mail campaign. App. at
00319.
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A Forbes magazine columnist's comment, published under
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the date April 24, 1995, publicly criticized Donoghue for the
statements attributed to him in this MoneyLetter promotional
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mailing and for continued promotion of the "Donoghue Signal" by
touting hypothetical results that would have been achieved had an
investor used the "Donoghue Signal" over a period commencing in
1980, even though the "Donoghue Signal" was first introduced in
1988. The columnist observed that use of such "back-tested"
results was inconsistent with the published views of Donoghue
himself.
Approximately two weeks after the publication of the
Forbes piece, on May 8, 1995, Donoghue commenced this civil
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action, claiming infringement of the trademark in his name under
the Lanham Act, 15 U.S.C. 1125 (Count I); improper use of his
name and photograph in violation of Mass. Gen. L. ch. 214, 3A
(Count II); trademark infringement under the common law (Count
III); breach of contract, including the obligation to pay
royalties (Count IV); and violation of Mass. Gen. L. ch. 93A
(Count V).
II. The District Court Decision
II. The District Court Decision
of Donoghue's Motion for Preliminary Injunction
of Donoghue's Motion for Preliminary Injunction
Based upon counts I and II, Donoghue filed on May 8,
1995, along with his complaint, a motion for a temporary
restraining order and a preliminary injunction. Donoghue asked
the court to enjoin the Defendants-Appellees from distributing
any newsletter, publication or promotional materials:
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upon which the name William E. Donoghue or
any variation thereof (including but not
limited to "Donoghue," the "Donoghue Signal,"
"IBC/Donoghue" or "IBC/Donoghue, Inc.")
appears, or upon which any picture of
plaintiff William E. Donoghue appears . . . .
App. at 00073. The only ways in which the Defendants-Appellees
would have been able to use Donoghue's name under this requested
injunction would have been as a by-line for an article actually
written by Donoghue or in the masthead of MoneyLetter with the
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title "Founder & Contributing Editor."
After a hearing on May 10, 1995, the district court
entered a temporary restraining order of a more limited scope
than Donoghue had requested. On May 26, 1995, after further
briefing by the parties, the district court granted Donoghue's
motion for a preliminary injunction. The Preliminary Injunction
fashioned by the district court, however, like the Temporary
Restraining Order that preceded it, was significantly narrower in
scope than Donoghue had requested.
Instead of granting a blanket prohibition on the use of
Donoghue's name, the district court focused on the alleged
harmful activity of the Defendants-Appellees. As a result, the
court required only that the Defendants-Appellees:
1. refrain from distributing to any customer
or potential customer or anyone else any
advertising or promotional materials or any
other material in which William E. Donoghue
is represented as criticizing or otherwise
commenting on any specific person or entity
and any other material which represents
William E. Donoghue as stating things which
are inconsistent with his views as stated in
his previously published material;
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2. refrain from distributing to any customer
or potential customer or anyone else material
which contains William E. Donoghue's
photograph, portrait or likeness, without the
plaintiff's express prior written consent;
3. refrain from distributing to any customer
or potential customer or anyone else any
material in which the name "William E.
Donoghue" or any variation thereof appears in
the title of the material, unless the
defendants pay the plaintiff royalties
pursuant to [clause] 11 of the Personal Sales
[sic] Agreement.
Donoghue v. IBC/USA (Publications), Inc., 886 F. Supp. at 955.
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In fashioning this Preliminary Injunction, the district court
properly considered (1) the likelihood of Donoghue's success on
the merits; (2) whether Donoghue would suffer irreparable injury
if the injunction were not granted; (3) the injury to Defendants-
Appellees from granting the injunction; and (4) whether the
public interest would be adversely affected by the injunction.
See Keds Corp. v. Renee Intern. Trading Corp., 888 F.2d 215, 220
___ __________ ___________________________
(1st Cir. 1989).
We conclude that the order of the district court was
proper in the circumstances of this case. Some of the supporting
findings and conclusions of the district court in arriving at
this order, however, were possibly erroneous and, in our view,
they were prematurely decided, as explained below.
III. Contract Interpretation Issues
III. Contract Interpretation Issues
A. Introduction
A. Introduction
When a court looks to the words of a document to
consider the meaning of those words in the context of the
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agreement, the search is for manifested meaning, not a privately
held belief or intent of one party, not communicated to other
parties to the bargain. See Rose-Derry Corp. v. Procter &
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Schwartz, Inc., 193 N.E. 50, 52 (Mass. 1934). Moreover, if the
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parties execute two or more documents, with a manifested intent
that the documents together express their entire agreement, a
court reads the documents together, rather than construing each
as if it stood alone. FDIC v. Singh, 977 F.2d 18, 21 (1st Cir.
____ _____
1992).
In this case, the initial agreement was expressed in
the two documents dated July 28, 1989. By their own terms they
manifest an understanding that together they completely express
one integrated agreement. For example, clause 2 of the SPA
reads:
Other Agreements. Simultaneously with the
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Closing Seller and Buyer shall enter into a
Personal Services and Non-Competition
Agreement substantially in the form attached
as Exhibit 2 (the "Personal Services
Agreement").
App. at 00026. Also, as previously noted, clause 3(m) of the SPA
explicitly states that the rights to use Donoghue's name are
governed by the PSA. Accordingly, we read the two documents
together, as we understand the district court to have done as
well, when searching for manifested meaning relevant to any
existing dispute between the parties.
B. The District Court's Interpretation of the Royalty Provisions
B. The District Court's Interpretation of the Royalty Provisions
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The statements of the district court explaining its
order for entry of the Preliminary Injunction are subject to
being interpreted as including several distinct and potentially
significant rulings as a matter of law, all made as part of the
court's reasoned decision to grant the Preliminary Injunction in
the precise terms fashioned.
We discuss these rulings separately as well as
together. We have chosen the order in which we discuss them for
convenience only; we explicitly do not imply that this order of
consideration is compelled by precedent or logic. Indeed, we
conclude that the several rulings are interrelated in ways that
make it appropriate for a court to consider all of them before
deciding any. Our separation of the district court's combined
determination into four parts and our designation of those parts
as "First Ruling," "Second Ruling," "Third Ruling," and "Fourth
Ruling" are our formulations made only to facilitate reference.
Moreover, the phrasing of these four rulings is ours,
not that of the litigants. We have chosen this phrasing to
express what we understand to be the substantive content of the
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determinations of the district court, explicit and implicit.
Each of the parties to this appeal has chosen somewhat different
phrasings, which we find to be ambiguous. Examples include the
contrasting statements of the parties about whether the district
court ruled that a use of Donoghue's name was: (1) permissible
without regard to whether the use would result in a royalty
obligation, or (2) permissible only on condition that royalties
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be paid, or (3) permissible only on condition that the user
explicitly acknowledge a royalty obligation (without, however,
stating the precise conditions that would determine the fact and
the amount of the royalty obligation).
We have chosen this course of stating our reading of
the meaning of the district court's rulings, including reasonable
inferences about implicit assumptions as well as explicit
declarations, because the scope of this court's authority and
responsibility is not limited to choosing one or the other of
partisan descriptions of the district court's reasoning. We
examine that reasoning from the perspective of impartial
appellate review, and not through partisan lenses.
First Ruling. The district court ruled that the
First Ruling.
agreement of the parties was unambiguous--not only with respect
to the scope and extent of the rights of Defendants-Appellees to
use the name of William E. Donoghue but also with respect to the
amount of royalties they would have to pay as a result.
Second Ruling. The district court ruled that the
Second Ruling.
agreement unambiguously meant that Defendants-Appellees were free
to remove Donoghue's name from the name of a product and continue
to use Donoghue's name within the text of the product and in
materials marketing the product.
Third Ruling. The district court ruled that the
Third Ruling.
agreement unambiguously meant that, when exercising their rights
under the Second Ruling, Defendants-Appellees would incur no
obligation to pay any royalties during the second five-year term.
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Fourth Ruling. The district court implicitly ruled
Fourth Ruling
that the agreement authorized Defendants-Appellees to use
Donoghue's name in the corporate title of the wholly-owned
subsidiary, IBC/Donoghue, Inc.
In reaching the Second and Third rulings, the district
court included, as steps of reasoning, the following
interpretation of clause 11 of the PSA:
[Clause] 11 only requires the IBC/USA to
pay the plaintiff royalties for use of the
plaintiff's name on revenues received "from
the sale . . . of products or services
including such name in the name thereof."
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(Emphasis added.) The plain language of this
provision does not require the payment of
royalties for use of the plaintiff's name in
connection with the defendants' products, as
long as the plaintiff's name does not appear
in "the name" of the products. The
plaintiff's argument that it was his
understanding that he was entitled to
royalties for all uses of his name does not
alter the plain meaning of [clause] 11. "As
a general principle, a court considers
extrinsic evidence to discern intent only
when a contract term is ambiguous."
Massachusetts Mun. Wholesale Elec. Co. v.
_________________________________________
Danvers, 577 N.E.2d 283, 289 (Mass. 1991),
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citing Merrimack Valley Nat'l Bank v. Baird,
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363 N.E.2d 688 (Mass. 1977). See also FDIC
________ ____
v. Singh, 977 F.2d 18, 24 (1st Cir. 1992).
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Because [clause] 11 is not ambiguous, this
court will not consider extrinsic evidence of
the parties' understanding.
Donoghue v. IBC/USA (Publications) Inc., 886 F. Supp. 947, 951-52
________ ___________________________
(D. Mass. 1995).
Donoghue contended that this interpretation was in
conflict with both the PSA and the interim amendment to the PSA
executed July 21, 1994. In the next paragraph of its Memorandum,
however, the district court rejected the contention that the
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July 21, 1994 amendment was inconsistent with the court's reading
of the agreement.
The plaintiff claims that [clause] 11 was
changed by an amendment to the Personal
Services Agreement, dated July 21, 1994.
That amendment allowed IBC/USA to "continue
to have the right to use the name William E.
Donoghue and variations thereof on or in
connection with the existing products of
IBC/USA without payment of the stated 5%
royalty until August 31, 1994." The
plaintiff claims that this amendment implies
that the 5% royalty was required to be paid
on use of the plaintiff's name even if the
name did not appear in the title of the
defendants' publications. Otherwise, argues
the plaintiff, there would have been no
reason to include the phrase "in connection
with the existing products." The court does
not agree with the plaintiff's analysis. The
language of the amendment tracks the language
of [clause] 11, which permitted IBC/USA to
"use the name William E. Donoghue and
variations thereof on or in connection with
any and all of the existing products and
services of IBC/USA." The amendment's
addition, "without payment of the stated 5%
_________
royalty" clearly refers to the royalty
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provision of [clause] 11. Rather than change
the circumstances giving rise to the right to
receive a royalty, the amendment only forgave
the payment of royalties which would
otherwise have been due under paragraph 11,
i.e., royalties flowing from the sale of
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products in which the plaintiff's name
appears in the name. IBC/USA's right to use
the name as before continued. The royalty
obligation was suspended for the period
stated.
Id. at 952 (emphasis in original). Because IBC USA had removed
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Donoghue's name from the title of MoneyLetter, the district court
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concluded that Donoghue was not entitled to any royalties even
though his name was being used in the text of MoneyLetter through
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reference to such things as the "Donoghue Signal."
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On the other hand, the district court also concluded
that the use of the corporate name IBC/Donoghue in the title of
various publications (IBC/Donoghue's Money Fund Average,
______________________________________
IBC/Donoghue's Mutual Funds Almanac and IBC/Donoghue Money Fund
____________________________________ _______________________
Directory) was an invalid use of Donoghue's name under the PSA
_________
unless royalties were paid. This "unless" clause implies that
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the district court made what we have designated as its Fourth
Ruling--Defendants-Appellees were authorized by the agreement to
use Donoghue's name in the corporate title of the wholly-owned
subsidiary, IBC/Donoghue, Inc. Were this not so, the court would
have needed to determine the appropriate measure of damages for
breach of an obligation not to use Donoghue's name in a corporate
title rather than declaring, as it did in the passage quoted
immediately below, that Defendants-Appellees could not escape the
obligation (or "requirement") of paying royalties if they used
Donoghue's name in this way and other conditions for a royalty
obligation were satisfied:
The fact that the plaintiff's name is now
part of the corporate name of the entity that
was sold to IBC/USA does not permit the
defendants to escape the Personal Services
Agreement's requirement of the payment of
royalties for use of the plaintiff's name in
the title of the defendants' publications.
The plaintiff is thus likely to prevail in
establishing that the use of his name in the
titles of these publications without the
payment of compensation constitutes
unauthorized use in contravention of [clause]
11.
Id. at 953.
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C. Procedures for Resolving Disputes Over the Meaning of an
C. Procedures for Resolving Disputes Over the Meaning of an
Agreement
Agreement
How is a court to proceed when confronted with disputes
between parties about the meaning of an agreement they made?
Does it matter that all parties assert that the agreement is
unambiguous, even though they seek very different rulings about
what the agreement unambiguously means?
In our description of an appropriate procedure for
working out an answer to these questions in this case, we need
not and do not purport to decide that the method we describe here
is appropriate for all cases. We do determine that this method
is appropriate for our review of the four rulings of the district
court we have identified above.
In reaching its First, Second, and Third rulings, the
district court excluded all consideration of extrinsic evidence.
In support of this decision, the court cited "the parol evidence
rule" as described in the following maxim. "As a general
principle, a court considers extrinsic evidence to discern intent
only when a contract term is ambiguous." Donoghue v. IBC/USA
________ _______
(Publications) Inc., 886 F. Supp. at 952 (quoting Massachusetts
___________________ _______ _____________
Mun. Wholesale Elec. Co. v. Danvers, 577 N.E.2d 283, 289 (Mass.
________________________ _______
1991)). Although the maxim is acceptable as a statement of
"general principle," proceeding on the assumption that no
exception applies to the case at hand may lead to error, as the
case now before us illustrates.
One exception to the general principle is that a court
may consider parol and extrinsic evidence for the very purpose of
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deciding whether the documentary expression of the contract is
ambiguous. As this court has said once before:
In determining whether an ambiguity exists,
_____________________________
as a matter of law, the [trier] may consider
parol and extrinsic evidence. If the [trier]
determines that the contract in question
contains no ambiguity, then no extrinsic or
parol evidence is [to be considered by] the
trier of fact . . . .
Boston Edison Co. v. F.E.R.C., 856 F.2d 361, 367 n.3 (1st Cir.
__________________ ________
1988)(quoting Sunstream Jet Express, Inc. v. Int'l Air Service
_______ _____________________________ __________________
Co., 734 F.2d 1258, 1268 (7th Cir. 1984))(emphasis added).
___
A second exception to the general principle flows from
the recognition that ambiguity is not an all-or-nothing
characteristic of any set of words and phrases. An agreement may
be ambiguous in one respect and clear in another. The legal
consequences that flow from a determination of ambiguity in one
respect do not automatically apply to a dispute over another
matter as to which the agreement is clear.
In other words, a party claiming to benefit from
clarity of an agreement in relation to one kind of potential
dispute about meaning must show that there is an actual dispute
between the parties about the meaning of the agreement as to
which the asserted clear provision is relevant. Clarity about
some hypothetical issue not in dispute is irrelevant.
Conversely, a party claiming to benefit from ambiguity (for
example, by being allowed to proffer extrinsic evidence
supporting its interpretation) must show ambiguity in the meaning
of the agreement with respect to the very issue in dispute.
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Demonstration of ambiguity in some respect not material to any
existing dispute serves no useful purpose.
Because ambiguity in relation to some hypothetical
dispute that has not arisen as an existing controversy is
immaterial, a court's determination regarding any ambiguity that
will make a difference in outcome must be made with sensitivity
to what are the existing genuine disputes between the parties
(real and not merely hypothetical controversies). Only by having
this understanding can a court begin to consider with precision
and particularity the alternative meanings proposed by the
disputing parties.
Thus, if either or both of the parties proposes that
extrinsic evidence should be received and considered by the court
or by the finder of facts (the jury in a jury trial or the judge
as finder of facts in a nonjury proceeding), concrete proffers of
the proposed extrinsic evidence are important aids to the court's
performing its function of determining both whether there is a
material ambiguity in the language of the agreement and whether,
________
for that reason or for some other reason, extrinsic evidence is
admissible and sufficient to present a genuine dispute to be
resolved by a finder of facts. It will sometimes be virtually
impossible for a court to determine with confidence whether a
contract is ambiguous in a material respect or whether extrinsic
evidence should be admitted unless the court first knows what is
the proffered extrinsic evidence, and what is the alleged
ambiguity it allegedly addresses.
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Although, at first glance, a court's proceeding in this
way may seem to subvert the "general principle" and the parol
evidence rule itself, closer examination discloses that
proceeding in this way facilitates decisions consistent with the
principle, the rule itself, and their underlying policy
foundations. A key point is that courts consider contentions
regarding ambiguity or lack of ambiguity not in the abstract and
not in relation to hypothetical disputes that a vivid imagination
may conceive but instead in relation to concrete disputes about
the meaning of an agreement as applied to an existing
controversy. Often the existing controversy arises from a turn
of events that was not foreseen and addressed by the parties in
their negotiations.
When invoking a standard of materiality of any
demonstrated ambiguity and reviewing proffered extrinsic evidence
to determine whether that standard of materiality has been met, a
court is proceeding in a way compatible both with Massachusetts
law and with the views of distinguished commentators on the law
of contracts. The Supreme Judicial Court of Massachusetts has
held that "[a contract] is to be read in the light of the
circumstances of its execution, which may enable the court to see
that its words are really ambiguous." Robert Indus. v. Spence,
_____________ ______
291 N.E.2d 407, 409 (Mass. 1973). In another case, the Supreme
Judicial Court affirmed the judgment of a trial court, observing
that "[t]he judge quite properly heard evidence to aid in the
construction of the agreement, even before he decided whether the
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agreement was ambiguous." Cullinet Software, Inc. v. McCormack &
_______________________ ___________
Dodge Corp., 511 N.E.2d 1101, 1102 (Mass. 1987).
___________
These Massachusetts decisions comport with the views of
Professors Corbin and Farnsworth. "The writing can not prove its
own completeness and accuracy . . . . The evidence that the
[parol evidence] rule seems to exclude must sometimes be heard
and weighed before it can be excluded by the rule." Arthur L.
Corbin, Corbin on Contracts 582 at 448-50 (1960), quoted in, E.
___________________ ______ __
Allan Farnsworth, Contracts 7.3 at 474 (2d ed. 1990).
_________
D. Unresolved Issues Regarding Ambiguity and Potentially
D. Unresolved Issues Regarding Ambiguity and Potentially
Admissible Extrinsic Evidence in This Case.
Admissible Extrinsic Evidence in This Case.
The manifested meaning of the agreement of the parties,
as interpreted by the district court in the passages from its
Memorandum of Findings of Fact and Conclusions of Law quoted in
Part III.B above, satisfied none of the parties to this case.
Donoghue had sought to bar the Defendants-Appellees from using
his name at all without permission and payment of the 5% royalty.
The Defendants-Appellees, on the other hand, contended that they
were licensed to use Donoghue's name freely in any manner they
chose, as part of the official name of the wholly-owned corporate
subsidiary as well as in publications. They also contended that
they would incur royalty obligations only if variations of
"William E. Donoghue" (argued as including only "William
Donoghue, Bill Donoghue, Will Donoghue, Billy Donoghue, etc."
App. at 00683) were used in the title of a publication.
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The proffered interpretations of the parties are at
polar extremes; the district court's interpretation, though at
neither pole, is closer to Donoghue's proposed interpretation.
These possible interpretations do not exhaust the list
of plausible possibilities, however. We add one more to
illustrate the point, making clear, however, that we are not
making any ruling as to the correct interpretation at this time
and do not mean our illustrative suggestion to be given any more
or different consideration in further proceedings than that given
to other plausible interpretations of the documentary
manifestations of the agreement of the parties.
The possible interpretation we suggest is that
Defendants-Appellees were not free to change only the title of a
product and nothing more, then continue to use Donoghue's name as
before in the text of the product, or packaging, or promotional
materials, and thereby escape the royalty obligation they would
have had if Donoghue's name had remained in the title. This
possible turn of events was not explicitly addressed in the text
of either the SPA or the PSA.
In thinking about whether there was in the transaction
as a whole an implicit answer for each turn of events that has
occurred, one may consider what most likely would have happened
if a negotiator had explicitly called attention to such a
possibility during negotiations. For example, suppose a
negotiator for the parties now designated as Defendants-Appellees
had stated during negotiations that they understood the proposed
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agreement to be that they would no longer have any royalty
obligation if they just deleted the Donoghue name from the title
of the product and continued to use the Donoghue name within the
text of the product and in advertizing the product. Unless one
can reasonably say it is likely this statement of an
understanding not previously expressed would have been accepted
and negotiations would have proceeded unruffled, the reasoning of
the district court about what the parties' agreement in this case
unambiguously means is unpersuasive.
Of even greater moment in relation to the existing
controversy between the parties in this case is that a reader of
the full text of the two documents executed by the parties might
reasonably conclude that the parties had not explicitly addressed
another possible turn of events that later did occur -- that IBC
USA would decide to create a wholly-owned subsidiary and use
"Donoghue" in its corporate name. Suppose IBC USA, during
negotiations, had openly stated that it would interpret the two
documents together, as then drafted, to grant it the right to use
"Donoghue" in a new corporate entity's name (and to do so without
any royalty obligation as long as IBC USA and its subsidiary did
not include "Donoghue" in the name of a product). Is it
reasonable to believe that such a statement would have been
accepted by Donoghue, without incident, so negotiations would
then have proceeded unruffled?
We believe that it is more appropriate at this time not
___
to determine whether the agreement is ambiguous in any material
________
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respect, not to determine whether or not extrinsic evidence about
___
the manifested meaning may be received, and not to make any final
___
resolution of the dispute between the parties about the
manifested meaning of the agreement. Those matters are better
left to decision after the district court has before it proffers
of proposed extrinsic evidence that might be admissible and might
bear upon the final decision about meaning in some respect that
is material to an existing controversy and not merely to some
hypothetical dispute. The district court can then make the
decision with the benefit of a precise focus on proffers of
extrinsic evidence proposed for admissibility and consideration.
Also, the court will have more assurance that the case is being
decided on the merits and in a way consistent with the objectives
underlying the parol evidence rule and the general principle
regarding use of extrinsic evidence in determining the meaning of
an integrated agreement.
Thus, our affirmance of the district court's order does
not imply approval of the court's reasoning that the PSA is
unambiguous and what it means as to the rights of Defendants-
Appellees to use Donoghue's name and as to their obligation to
pay royalties (previously designated as Ruling One, Ruling Two,
Ruling Three, and Ruling Four). We conclude that the issues
regarding the scope of the right to use Donoghue's name and the
rights to royalties should not have been decided before the
parties had a reasonable opportunity to develop the factual
record more fully. We explicitly do not make any rulings as to
___
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the alleged ambiguity of the contract on any material issue or as
to whether extrinsic evidence may appropriately be received.
Those decisions must be made, in the first instance, in the
district court, after opportunity for the parties to proffer
whatever extrinsic evidence they rely upon to support their
various contentions.
IV. Support for the Preliminary Injunction
IV. Support for the Preliminary Injunction
on the Terms Stated
on the Terms Stated
A. Conduct Enjoined
A. Conduct Enjoined
Notwithstanding our determination that some of the
conclusions reached by the district court were premature, we
affirm the Preliminary Injunction as entered. We do so because
there is ample support elsewhere in the record for the
Preliminary Injunction as fashioned by the district court.
The Preliminary Injunction prevents the Defendants-
Appellees from (1) distributing materials in which Donoghue is
represented as criticizing a specific person or entity or stating
things inconsistent with his published views; (2) distributing
materials with Donoghue's photograph or likeness without his
prior written consent; and (3) using Donoghue's name in the title
of a publication unless royalty payments are made. These
prohibitions are not very onerous, and the findings of fact and
conclusions of law of the district court, apart from those we
have determined to be premature, amply support granting the
Preliminary Injunction to the extent allowed.
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First, the district court found that Donoghue is a
nationally known investment advisor who has a reputation as an
expert in mutual and money market funds. As a result, the court
concluded that Donoghue's name was worthy of trademark protection
under the Lanham Act, 15 U.S.C. 1125(a). Specifically citing
this court's decision in Boston Beer Co. v. Slesar Bros. Brewing
_______________ ____________________
Co., 9 F.3d 175 (1st Cir. 1993), the district court concluded
___
that Donoghue's name had acquired "secondary meaning." And,
because "[t]he likelihood of confusion in the public's mind
occasioned by an unauthorized use of the plaintiff's name by the
defendants is clear . . . any unauthorized use of the plaintiff's
name by the defendants would constitute an infringement of the
plaintiff's trademark in his name." Donoghue v. IBC/USA
________ _______
(Publications) Inc., 886 F. Supp. at 953. Thus, Donoghue was
___________________
likely to prevail on Count I of his complaint.
Second, the district court found that the statements
attributed to Donoghue in the December 1994 direct mailing were
not consistent with his previous writings and his investment
philosophy. Id. As there was a specific consistency requirement
__
in Exhibit 12 to the PSA, App. at 00057, such attributed
statements were unauthorized. Thus, the district court concluded
that Donoghue was likely to prevail on his breach of contract
claim (Count IV).
Third, the district court concluded that Donoghue was
likely to prevail on his claim that the Defendants-Appellees used
his name and photograph in a manner that violated Mass. Gen. L.
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ch. 214 3A (Count II). The section of the statute quoted by
the district court reads:
Any person whose name, portrait or picture is
used within the commonwealth for advertising
purposes or for the purposes of trade without
his written consent may bring a civil action
in the superior court against the person so
using his name, portrait or picture, to
prevent and restrain the use thereof . . . .
Mass. Gen. L. ch. 214 3A. The court found that "[w]hile the
plaintiff previously authorized the defendants' use of his
picture, it is clear that he does not do so now." Donoghue v.
________
IBC/USA (Publications), Inc., 886 F. Supp. at 954. Thus,
______________________________
Donoghue was likely to prevail on Count II.
Finally, the district court rejected Defendants-
Appellees' affirmative defense that Donoghue had "unclean hands."
Under the precedent of this circuit, a district court has wide
discretion in deciding whether to bar recovery based upon a
plaintiff's alleged "unclean hands." K Mart Corp. v. Oriental
_____________ ________
Plaza, Inc., 875 F.2d 907, 912 (1st Cir. 1989)(citing Codex Corp.
___________ ______ ___________
v. Milgro Elec. Corp., 717 F.2d 622, 633 (1st Cir. 1983), cert.
__________________ _____
denied, 446 U.S. 931 (1984)). Given the record before us, we
______
cannot say that the district court's finding regarding
Defendants-Appellees' unclean hands defense was clearly
erroneous.
Thus, there is ample support in the record for a
Preliminary Injunction as entered in this case. Although we have
determined that a few of the rulings made by the district court
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were premature, these rulings, if error either on the merits or
because prematurely decided, were only harmless error.
B. Rejection of Other Injunctive Relief
B. Rejection of Other Injunctive Relief
Plaintiff-Appellant Donoghue has appealed the order of
the district court because he had requested a more sweeping
preliminary injunction than the one granted. We conclude,
however, that just as there is ample support in the record for
the relief ordered in the Preliminary Injunction, so also are
there sound reasons for not ordering relief of greater scope.
Donoghue contends that the Defendants-Appellees are not
allowed to use his name even in the text of publications and in
promotional materials; his motion for a preliminary injunction
requested that the district court so order. App. at 00072-73.
Donoghue admits, however, that Defendants-Appellees are permitted
to use his name in the title of publications as long as they pay
him the required 5% royalty. He also admits that Defendants-
Appellees are permitted to use his name in the text of a
publication if his name is also in the title of that publication.
Thus, Donoghue's argument for greater injunctive relief
than that granted can be seen as an argument that Defendants-
Appellees are not permitted to use his name in the text of a
product unless his name appears in the title of that product as
well. And because any use of his name in the title of a
publication requires a royalty payment, Donoghue is thus arguing
that any authorized use of his name in the text of a publication
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requires a royalty payment. The harm, then, that Donoghue is
seeking to prevent by his request for a more sweeping preliminary
injunction is primarily, if not entirely, delayed receipt of
royalty payments--a kind of harm ordinarily redressed by an award
of monetary damages. "But an entitlement to money damages,
without more, rarely constitutes an adequate basis for injunctive
relief." CMM Cable Rep., Inc. v. Ocean Coast Properties, Inc.,
_____________________ _____________________________
48 F.3d 618, 622 (1st Cir. 1995).
We conclude that the district court did not make any
error of law or clearly erroneous finding of fact, and did not
abuse its discretion in determining that Donoghue has not shown
that irreparable harm will result from a failure to enter a
preliminary injunction as broad as he seeks. The district court
supportably determined that if an entitlement to money damages
accrues during the pendency of this litigation, a monetary award
at the conclusion of the case will be an adequate remedy.
V. Conclusion
V. Conclusion
For the reasons explained in Parts I-III, we conclude
that the record before the district court when it ordered the
Preliminary Injunction and now before us is insufficient for us
to determine whether the four rulings identified in Part III.B
were erroneous as a matter of law. Therefore, we explicitly do
not rely on these rulings in reaching our decision. We also
determine, however, for the reasons stated in Part IV, that the
order for entry of the Preliminary Injunction on the terms stated
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was adequately supported by other findings and conclusions of the
district court. That being so, we conclude that the errors of
law, if any, in the four rulings identified were harmless in
relation to the issues before us in this appeal.
The district court's order for entry of the Preliminary
Injunction is
AFFIRMED.
AFFIRMED
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