Wednesday, February 16, 2005
Ninth Circuit Rules En Banc:
Settlement Moots Appeal Despite Parties’ ‘Side Bet’ on Outcome
By DAVID WATSON, Staff Writer
The settlement of a dispute between L.L. Bean and a software vendor rendered an appeal moot despite a term of the settlement agreement calling for the vendor to pay the online retailer $10,000 if the district court’s ruling as to personal jurisdiction was affirmed, the Ninth U.S. Circuit Court of Appeals ruled yesterday.
Eight of the 11 judges who heard the case en banc agreed that the settlement left them with nothing to decide. Judge Diarmuid F. O’Scannlain, writing for the majority, called the term providing for a possible payment a “side bet” which was not enough to preserve a justiciable controversy.
The dispute between Bean and Gator.com involved Gator’s “digital wallet” program, which allowed users to automate the process of inputting credit card numbers and other personal information while shopping online. Bean objected to the fact that the program also produced “pop-up” advertising for Bean’s competitors when users visited the Bean Web site.
After Bean sent Gator cease and desist letters, the software vendor sought a declaration from the U.S. District Court for the Northern District of California that the advertising did not violate Bean’s trademark or other rights.
The district court ruled that Bean lacked sufficient contacts with California to justify personal jurisdiction, but that ruling was unanimously overturned by a three-judge panel in September of 2003. The Ninth Circuit judges voted to rehear the matter en banc, but after they heard arguments Bean and Gator reached a settlement.
The settlement called for Gator to permanently modify its software to eventually eliminate the offending ads, but also provided that Gator would pay Bean $10,000 “if the decision of the United States District Court—is affirmed, finally.”
O’Scannlain distinguished cases holding that a contingent monetary term of a settlement agreement is sufficient to preserve appellate jurisdiction. Those cases, he said, came in suits which involved claims for damages.
Gator’s action sought only declaratory relief, O’Scannlain said, which the court could no longer provide since no threat of injury existed.
“Because the parties’ settlement agreement has wholly eviscerated the dispute that prompted Gator to initiate this suit,” the judge wrote, “Gator’s request for declaratory relief no longer gives rise to a live case or controversy.”
The $10,000 term, he said, was a “mere vestige of the parties’ now extinguished dispute” which could not keep alive the issue of whether California could constitutionally exercise jurisdiction over the Maine-based retailer.
“Although the parties have negotiated a ‘side bet’ concerning our resolution of this appeal, that wager does not alter the fact that the personal jurisdiction issue is wholly divorced from any live case or controversy,” he declared.
Citing Hall v. Beals, 396 U.S. 45 (1969), the judge added:
“If we were to reach the merits of the personal jurisdiction issue that remains before us, we would run squarely afoul of the Supreme Court’s admonition ‘to avoid advisory opinions on abstract propositions of law.’”
Judge Wallace A. Tashima, joined by Judges Pamela Ann Rymer and M. Margaret McKeown, filed a concurring opinion in which he pointed out that if the $10,000 kept any issue alive it was only the issue of personal jurisdiction, not the question involving the pop-up ads that was at the core of the dispute. The personal jurisdiction question alone could not amount to a “case or controversy” within the meaning of Article III of the U.S. Constitution, Tashima said.
“The remaining ‘controversy’ of whether the California courts can assert personal jurisdiction over L.L. Bean will settle no dispute between the parties involving any of their primary rights,” Tashima wrote. “For it involves only the subsidiary, threshold issue of whether a California court has the power to adjudicate the parties’ dispute. But, under the settlement agreement, no dispute—-no case or controversy—-involving any of the parties’ primary rights remains.”
Judge William A. Fletcher, joined by Judges Susan P. Graber and Richard A. Paez, dissented.
“The parties continue to dispute whether a federal district court in California has personal jurisdiction over L.L. Bean,” Fletcher declared. “They have disputed this since the beginning of this litigation. Both parties had, and still have, an interest in our resolution of that dispute. Depending on how we resolve it, either Gator owes L.L. Bean $10,000 or it does not. Nothing more is required for our continuing jurisdiction.”
It was “immaterial for purposes of our jurisdiction that this suit initially took the form of a declaratory judgment suit by Gator rather than a coercive suit for damages and an injunction by L.L. Bean,” Fletcher argued. That circumstance, he said, merely reversed the positions of the parties and allowed Gator to litigate in a forum of its own choosing.
Had personal jurisdiction over Bean been found to exist, the retailer would have been procedurally forced to seek an injunction and damages as a compulsory counterclaim, in which case money, such as the $10,000 payment provided for in the settlement agreement, would have been at stake in the litigation, the dissenter reasoned.
“The $10,000 contingent payment is not a ‘side bet’ on our determination of the jurisdictional issue,” he wrote. “It is, instead, a contingent monetary recovery for L.L. Bean, to be added to the substantial recovery already received, if we hold that Gator improperly sued L.L. Bean in California. This contingent recovery approximates the court costs, and possibly attorneys’ fees, that Gator would owe if we affirmed the district court’s dismissal of its suit.”
Fletcher criticized Tashima for relying in his concurrence on what Fletcher described as the “newly formulated distinction between ‘primary rights’ and some other kind of rights.”
“[N]o such distinction exists in mootness law. As long as there is a bona fide legal dispute, with tangible consequences for the parties, there is a live controversy.”
Fletcher noted that the issue of whether an online retailer’s activities aimed at California are sufficient to support personal jurisdiction had been “fully and vigorously litigated” and that a draft en banc opinion had already been circulated.
“We have had every benefit the adversarial process has to offer,” he said. “If we find this appeal moot, we will not be frugally guarding the scarce resources of the federal courts. Rather, we will be wasting them in spectacular fashion.”
Resolving the dispute would serve the ends of judicial economy, since the “disarray” in the case law that led to the differing district court and panel decisions was “patent,” Fletcher added.
“It is not only the litigants in this case that would benefit from an en banc opinion in this appeal,” he argued. “All potential litigants in this circuit would benefit.”
The case is Gator.com v. L.L. Bean, Inc., 02-15035.
Copyright 2005, Metropolitan News Company