FUNimation Entertainment v. SC Films International, Inc., et al

Filing 56

REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE re 47 Amended MOTION to Expedite filed by FUNimation Entertainment. Signed by Magistrate Judge Don D. Bush on 11/5/2013. (baf, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION
FUNIMATION ENTERTAINMENT,
Plaintiff,
v.
SC FILMS INTERNATIONAL, INC.,
MATTHEW JOYNES, and NICHOLAS
LYON,
Defendants.

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Case No. 4:13-cv-329

REPORT AND RECOMMENDATION OF UNITED STATES
MAGISTRATE JUDGE
Now before the Court is Plaintiff’s Amended Emergency Motion to Enforce Preliminary
Injunction and for Civil Contempt and Request for an Expedited Hearing (Dkt. 47) and
Defendant’s Response (Dkt. 50). The Court recommends that Plaintiff’s Amended Emergency
Motion to Enforce Preliminary Injunction and for Civil Contempt (Dkt. 47) be DENIED without
prejudice to refiling.
BACKGROUND
On September 13, 2013, after conducting a hearing, this Court issued a Report and
Recommendation (Dkt. 36) recommending that Plaintiff’s Motion for Preliminary Injunction
(Dkt. 19) be granted and Defendant’s Motion to Dismiss (Dkt. 12) be denied, and that the parties
be compelled to arbitration as sought by the Plaintiff’s Original Petition. Defendants filed
objections to the report (Dkts. 39, 40) on September 30, 2013. Plaintiff filed a response to the
objections on October 11, 2013 (Dkt. 41). The district court adopted the Report and
Recommendation in full on October 24, 2013 (Dkt. 42).
On October 28, 2013, Defendants filed a Motion for Clarification (Dkt. 43), alleging that
a dispute has arisen between the parties over whether certain conduct violates the Order. Plaintiff

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responded with an Amended Emergency Motion to Enforce Preliminary Injunction (Dkt. 47).
The parties filed responses to the respective motions (Dkts. 50, 51). This Court granted
Plaintiff’s motion for an expedited hearing on its Amended Emergency Motion to Enforce
Preliminary Injunction (Dkt. 47) and held a hearing on November 1, 2013. The Court notified the
parties in advance that the hearing would address Plaintiff’s allegations of civil contempt and any
violations or misconduct constituting civil or criminal contempt would be referred to the United
States District Judge for hearing, sanctions and punishment. See Dkt. 49.
LEGAL STANDARD
“The movant in a civil contempt proceeding bears the burden of establishing by clear and
convincing evidence: (1) that a court order was in effect; (2) that the order required certain
conduct by the respondent; and (3) that the respondent failed to comply with the court’s order.” 1
“After the movant has shown a prima facie case, the respondent can defend against it by showing
a present inability to comply with the subpoena or order.” 2 “A party commits contempt when he
violates a definite and specific order of the court requiring him to perform or refrain from
performing a particular act or acts with knowledge of the court’s order.” 3 “Civil contempt can
serve two different purposes. On one hand, civil contempt is used to enforce, through
coerciveness, compliance with a court’s order. On the other hand, civil contempt can be used to
compensate a party who has suffered unnecessary injuries or costs because of the contemptuous
conduct.” 4

1

Petroleos Mexicanos v. Crawford Enters., Inc., 826 F.2d 392, 401 (5th Cir. 1987).
Id.
3
SEC v. First Fin. Grp. of Tex., Inc.., 659 F.2d 660, 669 (5th Cir. 1981).
4
Petroleos, 826 F.2d at 400.
2

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ANALYSIS
The Court first notes that Defendants have filed a Motion for Clarification of the district
court’s order adopting this Court’s recommendation and that Defendants have filed a notice of
appeal. This Court does not address the merits of the Motion for Clarification. But despite the
notice of appeal, the district court retains jurisdiction to enforce its previous order because
Defendants have not sought a stay of the injunction or posted a supersedeas bond relative
thereto. 5 Because this case has been referred to this Court pursuant to a standing order of the
district court, 6 this Court has jurisdiction to hear evidence and argument related to Plaintiff’s
Motion for Contempt and to make a report and recommendation to the United States District
Court presiding over the matter.
Plaintiff alleges that Defendants have violated the preliminary injunction issued by the
district court. First, Plaintiff alleges that Defendant Nicholas Lyon is making his own version of
“Bullet” in violation of the injunction prohibiting Defendants from making, providing, or
distributing a version of the film. Defendants respond that Defendant Lyon has a contractual
right to complete a director’s cut of the film and that Defendants are unclear whether the
preliminary injunction prohibits Defendant Lyon from fulfilling his rights and obligations under
the terms of the contracts in dispute. However, during this Court’s November 1, 2013 hearing on
this matter, and in their filings, Defendants represented to the court that Defendant Lyon has
completed his director’s cut of the film and that the film had been submitted to and reviewed by
Plaintiff without objection. 7 Plaintiff also asserts that Defendants are violating the preliminary
5

Farmhand, Inc. v. Anel Eng’g Indus., Inc., 693 F.2d 1140, 1146 (5th Cir. 1982); see also FED.
R. APP. P. 8(a)(1)(C) (“A party must ordinarily move first in the district court for . . . an order
suspending, modifying, restoring, or granting an injunction while an appeal is pending.”).
6
Referral Order RS-72 Civil Actions Assigned to Judge Richard A. Schell.
7
See Dkt. 50 at 5 (representing that Lyon completed his director’s cut and delivered it to
FUNimation “thirty days ago”).
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injunction by planning to screen Defendant Lyon’s director’s cut of the film at the American
Film Market (AFM). Defendants represent to the Court that up until a few days ago, FUNimation
and Defendants were working together to screen the film at AFM, but that FUNimation’s version
of the film was not ready.
Next, Plaintiff alleges that Defendants have resisted participating in the arbitration of this
matter and have engaged in dilatory tactics to prevent the arbitration from proceeding. Plaintiff
puts forth as evidence to support its assertion Defendants’ Motion to Stay filed in the arbitration
on October 23, 2013. One of the bases for Defendants’ motion to stay was that the district court
had not yet ruled on Plaintiff’s motion for a preliminary injunction and petition to compel
arbitration and therefore the parties had not yet been compelled to arbitrate. The district court
issued its order on the preliminary injunction and petition compelling arbitration on October 24,
2013. Consequently, Plaintiff requested that Defendants withdraw their motion to stay the
arbitration, and Defendants refused. Defendants responded that Plaintiff can oppose the motion
to stay by filing a response to the motion with the arbitrator. Plaintiff also asserts that
Defendants’ motion to stay the arbitration contains a misrepresentation of the United States
District Court for the Central District of California’s ruling on FUNimation’s motion to dismiss
in Defendant Lyon’s second-filed litigation. Defendant counters that Plaintiff misrepresented the
content of the motion to stay to this Court. The parties were compelled to arbitrate this matter as
of October 24, 2013. Therefore, this Court ordered Defendants to withdraw the motion to stay
the arbitration, and Defendants complied. See Dkt. 54.
Plaintiff further alleges that Defendant Lyon has violated the injunction and order
compelling the parties to arbitration by continuing to pursue his second-filed litigation in the
United States District Court for the Central District of California. Plaintiff seeks an order holding

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Defendants in contempt and for sanctions in the form of reimbursement for the fees Plaintiff has
incurred in preparing this motion and any other filings in this action, in the arbitration forum, or
in the California action necessary to enforce compliance with the preliminary injunction and
order compelling arbitration in this case. The district court’s order in this matter did not
specifically enjoin Defendant Lyon from continuing to pursue litigation in the United States
District Court for the Central District of California, and therefore the Court cannot find that
Defendant Lyon is in contempt because he did not dismiss the litigation. However, the Court
ordered the Defendants to notify the United States District Court of the Central District of
California that Defendants have been compelled to arbitration in this matter, and Defendants
complied. See Dkt. 55.
Plaintiff also argues that Defendants have interfered with the Operating Agreement by
misdirecting funds received from international distribution of the film away from Bullet LLC in
violation of the preliminary injunction. Defendants argue that no funds have been received from
international distribution and therefore no funds have been misdirected. Plaintiff asks the Court
to issue an order “instructing SC Films how to comply with the Operating Agreement.”
Determination of the parties’ respective rights and responsibilities under the contractual
agreements relating to “Bullet” are for the arbitrator to decide in the first instance. Other than the
arbitration provision itself, the preliminary injunction and order compelling arbitration did
nothing to alter or adjudicate the parties’ rights under the Operating Agreement and therefore
cannot be used by the Court to “instruct” the parties on how to comply with the Operating
Agreement. If there are additional or newly arisen matters that need to be addressed by the
district court, the parties can set forth such in a precise motion for relief.

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Parties and counsel for both sides dispute the accuracy of the statements they are each
alleged to have made and accuse the other side of mischaracterizing the events in question. The
Court finds the allegations against all counsel troublesome. The Court is disturbed and dismayed
by the conduct of all counsel and parties in this case and by the antics in the pleadings of both
sides and finds that the behavior involved approaches the boundary of contemptible conduct. The
attorneys are reminded of their ethical obligations of candor to the Court and their obligation to
treat each other with professional courtesy. EASTERN DIST. TEX. R. AT-3. Lawyers who decline
to adhere to these standards need not practice in this District. The Court will not tolerate
unethical conduct. In addition to possible sanctions to the parties and their counsel, any further
conduct which the Court finds unprofessional will result in the offending counsel facing referral
to disciplinary proceedings as well as referral to the active Article III Judges of this District for a
hearing on whether that lawyer should be disbarred from practicing in this District. EASTERN
DIST. TEX. R. AT-2. However, given the lapses in judgment on both sides, the Court will give the
parties and counsel a chance to live up to their obligations before recommending sanctions.
RECOMMENDATION
The Court recommends that Plaintiff’s Motion Amended Emergency Motion to Enforce
Preliminary Injunction and for Civil Contempt (Dkt. 47) be DENIED without prejudice to
refiling. The district court has ordered all parties to arbitration in this matter and the parties have
been instructed to proceed to arbitration immediately and without delay.
Within fourteen (14) days after service of the magistrate judge’s report, any party may
serve and file written objections to the findings and recommendations of the magistrate judge.
28 U.S.C. § 636(b)(1)(C).

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Failure to file written objections to the proposed findings and recommendations

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contained in this report within fourteen days after service shall bar an aggrieved party from de
novo review by the district court of the proposed findings and recommendations and from
appellate review of factual findings accepted or adopted by the district court except on grounds
of plain error or manifest injustice. 8

SIGNED this 5th day of November, 2013.
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____________________________________
DON D. BUSH
UNITED STATES MAGISTRATE JUDGE

8

Thomas v. Arn, 474 U.S. 140, 148 (1985); Rodriguez v. Bowen, 857 F.2d 275, 276-77 (5th Cir.
1988).
7