Fourth Circuit vacates district court’s injunctive relief ruling due to FRCP misapplication

In Wudi Industrial (Shanghai) Co Ltd v Wong (22-1495; -1662; 4th Cir; 5 June 2023), the US Court of Appeals for the Fourth Circuit vacated and remanded a district court ruling, finding that the lower court failed to properly apply the Federal Rules of Civil Procedure (FRCP) in granting injunctive relief. 

The dissent argued that the district court simply entered a permissible order enforcing a settlement agreement between the parties.

FRCP requirements for injunctive relief

The FRCP outlines the necessary criteria and steps for courts to grant injunctive relief.

FRCP 52(a)(2) requires courts to state the findings and conclusions that support their actions. FRCP 65(d) outlines that courts must declare the reasons why the injunction was issued, state the injunction’s terms specifically or describe the restrained/required act(s) in detail.

Per the Supreme Court’s eBay test, a party seeking injunctive relief must demonstrate that:

• it has suffered an irreparable injury;
• the legal remedies (eg, monetary damages) are inadequate to compensate for that injury;
• considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and
• the public interest would not be disserved by an injunction.

District court sides with GT Omega Racing

The plaintiff, Wudi Industrial, competes with Wai L Wong and his business entity GT Omega Racing (collectively, GTOR) in marketing video-gaming chairs and other products.

GTOR challenged Wudi’s GTRACING trademark registration in a cancellation proceeding at the TTAB, alleging that the mark encroached on GTOR’s earlier use of GT OMEGA RACING. The board ruled in favour of GTOR, and Wudi initiated a first appeal at the district court.

The parties subsequently entered into a concurrent use agreement that assigned Wudi the right to use the GTRACING word mark in all global markets – except within a European carve-out of 53 named countries – in exchange for a $4.5 million payment to GTOR. Under the agreement, Wudi was barred from purchasing ad words from search engines and shopping sites or using social media platforms to promote GTRACING in the specified European countries.

In May 2022, GTOR filed a motion for enforcement in the district court, alleging breach because some of Wudi’s marketing and promotional content in the European carve-out contained the GTRACING mark.

The court granted the motion and issued a first order. Under threat of contempt for noncompliance, Wudi was ordered to cease impermissible conduct and take down all posts accessible in the European carve-out containing GTRACING within seven days. In June 2022, the court issued a second order stating that the first order was a grant of specific performance, not a preliminary injunction. Wudi appealed both orders.

Wudi’s successful Fourth Circuit appeals

The Fourth Circuit vacated and remanded both of the district court’s orders because of procedural errors amounting to abuses of discretion, despite the dissent’s argument that the orders merely enforced the parties’ agreement.

It ruled that the first order constituted a preliminary injunction, which was later made permanent by the second order, because “if it walks like a duck, quacks like a duck, and looks like a duck, then it’s a duck”.

The Fourth Circuit concluded that the first order possessed all of the necessary attributes and thus qualified as an injunction order; it contained “clear enforceable directives” and threatened Wudi with contempt for noncompliance. It also used the phrase “immediately cease” with regard to specific conduct and directed Wudi to comply with those commands within seven days. Lastly, the federal court also concluded that the district court was required to ensure that the party seeking injunctive relief made the requisite showing under the relevant legal precedent governing injunctions.

Finding that the first order was a preliminary injunction rendered permanent by the second, the Fourth Circuit concluded that the district court made procedural errors that amounted to discretional abuses. The federal court explained that the lower court violated FRCP 52 and 65 because it did not:

• “state the findings and conclusions that support its action”;
• “state the reasons why [the preliminary injunction] was issued”;
•  “state [the injunction’s] terms specifically”; or
• “describe in reasonable detail . . . the act or acts restrained.”

The court, therefore, vacated and remanded for further proceedings.

Fourth Circuit judge dissents

Judge Allison Jones Rushing dissented, arguing that the district court’s order was summary enforcement of a settlement agreement and was therefore permitted under Fourth Circuit law.

She argued that a party seeking enforcement of a settlement agreement did not need to follow the tests for seeking preliminary or permanent injunctive relief. She also contended that the district court did not need to follow FRCP 52 because the district court’s order did not follow “an action tried on facts without a jury”, or grant or refuse an “interlocutory injunction” under the court’s precedent on summary enforcement proceedings. Finally, she claimed that the district court satisfied Rule 65 by finding that Wudi breached the settlement agreement by using forbidden marks in the European carve-out.