Broker Genius Inc. v. Seat Scouts LLC et al

Filing 386

MEMORANDUM OPINION & ORDER: Because defendants' appeal from the preliminary injunction is currently pending before the Second Circuit, this Court does not have jurisdiction to reduce the amount of the bond that secures the injunction. Additional ly, Rule 62(d) does not apply, because reducing the amount of the bond is not required to maintain the status quo. Broker Genius's motion to reduce the amount of the Rule 65(c) bond is therefore denied. SO ORDERED. (Signed by Judge Sidney H. Stein on 2/5/2019) (kv)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

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Broker Genius Inc.,
Plaintiff,

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-againstSeat Scouts LLC and Drew Gainor,
Defendant.

17-Cv-8627 (SHS)
MEMORANDUM OPINION &
ORDER

SIDNEY H. STEIN, U.S. District Judge.
Broker Genius Inc. is a technology company serving ticket brokers on the secondary
ticket market. Its product, AutoPricer V3 (" AutoPricer"), is a web application that enables
secondary-market ticket brokers to automatically price their inventory of tickets. Broker
Genius grants its customers a conditional license to use the AutoPricer application when
those customers agree to Broker Genius's Terms of Use. Defendant Drew Gainor, a former
Broker Genius customer, is the cofounder of defendant Seat Scouts LLC (collectively, "Seat
Scouts"), whose Command Center product competes with AutoPricer. Broker Genius has
sued Gainor and Seat Scouts, alleging that Gainor breached the Terms of Use when he used
the knowledge and information he gained while he was a Broker Genius customer to
develop Command Center.
One day after filing suit, Broker Genius moved for a preliminary injunction
enjoining Seat Scouts from offering its Command Center product to customers. (Doc. 4.)
After discovery proceedings and a five-day hearing, the Court granted that motion in May
2018, enjoining defendants from "using or providing or making available ... to any third
party the Command Center video, product, or services." Broker Genius v. Volpone, 313 F.
Supp. 3d 484,511 (S.D.N.Y. 2018). Seat Scouts appealed this order and several related
orders in this hotly contested litigation to the U.S. Court of Appeals for the Second Circuit.
(Doc. 210.) That appeal remains pending.
Following additional discovery proceedings and a ten-day jury trial, defendants
were found liable to Broker Genius for a total of $4.5 million for breach of contract and
unfair competition. After a judgment was entered in Broker Genius's favor, plaintiff moved
for a reduction in the amount of the $2 million bond that it had posted to secure the

preliminary injunction. (Doc. 354.) That motion is the subject of this Memorandum
Opinion.
Because Seat Scouts' appeal of the preliminary injunction is still pending and a
permanent injunction has not yet entered, this Court lacks jurisdiction to act on plaintiff's
motion. Furthermore, the limited circumstances in which a district court may alter a
preliminary injunction while an appeal is pending pursuant to Fed. R. Civ. P. 62(d) are not
present in this instance because reducing the amount of the bond is not necessary to
maintain the status quo.

I.

PARTIES' ARGUMENTS

Broker Genius urges that it is entitled to a reduction of its bond because "all
possibility of harm to the enjoined parties has passed, and there has been no determination
that Defendants were wrongfully restrained." (Doc. 354 at 1.) Broker Genius points out
that the purpose of a bond pursuant to Fed. R. Civ. P. 65(c) is "to cover any damages that
might result if it were later determined that plaintiff was not entitled to an injunction." Id.
(citations omitted). Since there has now been "a full and fair adjudication on the merits
concluding with a jury verdict that Defendants were not legally entitled to engage in the
proscribed activity," Broker Genius argues that its $2 million bond is no longer needed to
fulfill that purpose. Id.
Defendants respond that the Court lacks jurisdiction to reduce the bond because
their interlocutory appeal involves the amount of the bond. (Doc. 355 at 1.) Seat Scouts also
argues that Broker Genius's assertions that "all possibility of harm to the enjoined parties
has passed" and "there has been no determination that Defendants were wrongfully
restrained" are inaccurate because the issue of whether defendants were wrongfully
enjoined is currently pending before the Second Circuit and therefore has not been finally
determined. Id. at 2. For this reason, defendants urge that reducing the bond would merely
limit the available recourse below the amount already determined by the Court to be the
potential amount of harm to defendants. Id.
II. JURISDICTION

Seat Scouts contends that the Second Circuit has exclusive jurisdiction over the issue
of the amount of the Rule 65( c) bond because the Court's order altering the amount of the
bond is currently on appeal. Seat Scouts is correct.
A. Legal standard.
The U.S. Supreme Court has held that "the filing of a notice of appeal is an event of
jurisdictional significance-it confers jurisdiction on the court of appeals and divests the
district court of its control over those aspects of the case involved in the appeal." Griggs v.
Provident Consumer Disc. Co., 459 U.S. 56, 58 (1982). However, an exception to this rule
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occurs when the appeal is from an order granting or denying a preliminary injunction.
Under those circumstances, "the filing of a notice of appeal only divests the district court of
jurisdiction respecting the questions raised and decided in the order that is on appeal."
New York State Nat. Org.for Women v. Terry, 886 F.2d 1339, 1350 (2d Cir. 1989); see Compania
Espanola de Petroleos, S.A. v. Nereus Shipping, S.A., 527 F.2d 966, 972 (2d Cir. 1975), abrogated
on other grounds by Gov't of United Kingdom of Great Britain & N. Ireland, Through United
Kingdom Def Procuremant Office, Ministry of Def v. Boeing Co., 998 F.2d 68, 71 (2d Cir. 1993);
Motorola Credit Corp. v. Uzan, 388 F.3d 39, 53 (2d Cir. 2015).
In other words, the matter may proceed in district court on the merits while the
appeal is pending. New York State Nat. Org.for Women, 886 F.2d at 1350. It is for this reason
that "the district court retains jurisdiction to issue a permanent injunction during an appeal
from an order granting or denying a preliminary injunction." United States v. Zedner, 555
F.3d 68, 83 (2d Cir. 2008). If the district court issues a permanent injunction to replace the
preliminary injunction, the appeal of the preliminary injunction is rendered moot. Grupo
Mexicano de Desarrollo S.A. v . All. Bond Fund, Inc., 527 U.S. 308, 314 (1999) ("Generally, an
appeal from the grant of a preliminary injunction becomes moot when the trial court enters
a permanent injunction, because the former merges into the latter."); Hedges v. Obama, 724
F.3d 170, 188 n.113 (2d Cir. 2013); Webb v . GAF Corp., 78 F.3d 53, 56 (2d Cir. 1996); Town of
West Hartford v. Operation Rescue, 991 F.2d 1039, 1043 (2d Cir. 1993); New York State Nat. Org.
for Women, 886 F.2d at 1350.

B. The amount of security posted by Broker Genius is a "question raised and
decided in the order that is on appeal" and therefore the Court does not have
jurisdiction to reduce the amount of security.
Because the Court has not yet issued a permanent injunction, 1 defendants' interlocutory
appeal of the preliminary injunction is not moot and the Court remains divested of
jurisdiction over "the questions raised and decided in the order that is on appeal." New
York State Nat. Org.for Women, 886 F.2d at 1350. The question, therefore, is whether the
appropriate amount of the bond is a question "raised and decided in the order that is on
appeal." Id.
Defendants' notice of appeal, filed August 24, 2018 pursuant to 28 U.S.C. § 1292, states
that defendants are appealing from (1) the Court's May 11, 2018 order granting Broker
Genius's motion for a preliminary injunction and setting the amount of security; (2) the
Court's August 3, 2018 order, and (3) the Court's August 24, 2018 order increasing the
amount of the security. (Doc. 210.)

At the conclusion of the trial of this action on January 17, 2019, the Court stated that it intends to enter a
permanent injunction against defendants. (Trial tr. 1593:19-20, Doc. 377.) The parties are currently
submitting briefs on the appropriate parameters of a permanent injunction.

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In its May 11, 2018 order granting the preliminary injunction, the Court set the
amount of security to be posted by Broker Genius pursuant to Fed. R. Civ. P. 65(c) at
$100,000. Broker Genius v. Volpone, 313 F. Supp. 3d 484,511 (S.D.N.Y. 2018). Defendants
then moved to increase the amount of that bond. (Doc. 123.) The Court granted that
motion and increased the amount of security to $2 million in order to more properly secure
defendants in an order dated August 24, 2018. (Doc. 209.) It is therefore clear that the
amount of security was one of the questions raised and decided in the August 24 order.
While defendants' appeal to the Second Circuit of this Court's orders granting a
preliminary injunction and increasing the amount of the bond is pending, this Court does
not have jurisdiction to change the amount of the bond.

III. FED. R. CIV. P. 62(d)
A. Legal standard.
Rule 62(d) regulates a district court's power to alter an injunction notwithstanding the
fact that it is the subject of a pending appeal. That rule states: "While an appeal is pending
from an interlocutory order ... that grants . .. an injunction, the court may suspend,
modify, restore, or grant an injunction on terms for bond or other terms that secure the
opposing party's rights." Fed. R. Civ. P. 62(d). 2
This provision has been interpreted narrowly by the Second Circuit to permit district
courts to "grant only such relief as may be necessary to preserve the status quo pending an
appeal." Int 'l Ass 'n of Machinists & Aerospace Workers, AFL-CIO v. E. Air Lines, Inc., 847 F.2d
1014, 1018 (2d Cir. 1988); Carolina Shipping Ltd. v. Renaissance Ins. Group Ltd., 2009 WL
256001 at *1 (S.D.N.Y. Feb. 3, 2009). "[M]aintaining the status quo means that a controversy
will still exist once the appeal is heard, [so] any action on the district court's part which has
the effect of divesting the court of appeals of its jurisdiction over the matter, by eliminating
the controversy prior to the hearing of the appeal, is inappropriate." 12 Moore's Federal
Practice § 62.06 (2018).
B. Rule 62(d) does not permit the Court to reduce the amount of the bond because it
is not necessary to preserve the status quo.
Broker Genius has not provided any evidence that reducing the amount of the bond is
necessary to preserve the status quo pending the determination by the Second Circuit of
defendants' appeal. Rather, Broker Genius requests that the bond be reduced because "all
possibility of harm to the enjoined parties has passed, and there has been no determination

Prior to the 2018 amendments to Fed. R. Civ. P. 62, the text that currently comprises subdivision (d) of
the rule was located at subdivision (c). The Advisory Committee notes state that the 2018 amendments
"reorganized" the subdivisions but "[t]here is no change in meaning." Fed. R. Civ. P. 62 advisory
committee's notes to 2018 amendments.

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that Defendants were wrongfully restrained." (Doc. 354.) While it is true that this Court
has made no determination that Seat Scouts was wrongfully restrained, that issue is no
longer before this Court; rather, the Second Circuit has jurisdiction to decide whether the
preliminary injunction was properly issued, at least until a permanent injunction is issued.
See, e.g., Grupo Mexicano de Desarrollo S.A., 527 U.S. at 314; Hedges v . Obama, 724 F.3d at 188
n.113. Because the reduction of the bond is not necessary to preserve the status quo
pending appeal, Rule 62(d) does not sanction such an alteration of the preliminary
injunction at this time.

IV. CONCLUSION
Because defendants' appeal from the preliminary injunction is currently pending
before the Second Circuit, this Court does not have jurisdiction to reduce the amount of the
bond that secures the injunction. Additionally, Rule 62(d) does not apply, because reducing
the amount of the bond is not required to maintain the status quo. Broker Genius's motion
to reduce the amount of the Rule 65( c) bond is therefore denied.

Dated: New York, New York
February 5, 2019
SO ORDERED:

Sidney

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