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Rainbow School, Inc. v. Rainbow Early Education Holding LLC

United States Court of Appeals, Fourth Circuit

April 10, 2018

RAINBOW SCHOOL, INC., Plaintiff - Appellee,
v.
RAINBOW EARLY EDUCATION HOLDING LLC; REE SOUTHEAST, INC., Defendants - Appellants. RAINBOW SCHOOL, INC., Plaintiff - Appellee,
v.
RAINBOW EARLY EDUCATION HOLDING LLC; REE SOUTHEAST, INC., Defendants - Appellants.

          Appeals from the United States District Court for the Eastern District of North Carolina, at Raleigh. Terrence W. Boyle, District Judge. (5:14-cv-00482-BO)

          Argued: January 25, 2018

         ARGUED:

          Carl Moeller Newman, CRANFILL, SUMNER & HARTZOG, LLP, Raleigh, North Carolina, for Appellants.

          Susan Freya Olive, OLIVE & OLIVE, PA, Durham, North Carolina, for Appellee.

         ON BRIEF:

          Pankaj K. Shere, Jaye E. Bingham-Hinch, David G. Williams, CRANFILL, SUMNER & HARTZOG, LLP, Raleigh, North Carolina, for Appellants.

          David L. McKenzie, OLIVE & OLIVE, PA, Durham, North Carolina, for Appellee.

          Before GREGORY, Chief Judge, and NIEMEYER and AGEE, Circuit Judges.

          AGEE, CIRCUIT JUDGE

         After finding that Rainbow Early Education Holding LLC ("Early Education") had violated the terms of a consent judgment and permanent injunction, the district court held Early Education in contempt and awarded $60, 000 to Rainbow School, Inc. ("the School"), plus attorney's fees and costs. When the School moved for additional relief based on what it alleged to be continued and new violations of the injunction, the district court deferred a final determination and ordered Early Education to pay for an audit to assist in determining whether violations remained and could reasonably be cured. Early Education appeals both decisions. For the reasons set out below, we affirm the district court's finding of contempt and award of sanctions, and dismiss for lack of jurisdiction Early Education's appeal from the order requiring it to undergo an audit.

         I.

         A.

         The School has run a childcare facility-Rainbow School-in Fayetteville, North Carolina, for over twenty years. In addition to using the word "rainbow" in its name, the School uses rainbow imagery on its logo.

         Early Education operates approximately 100 childcare facilities in several states, including North Carolina.[1] In December 2014, Early Education opened a Fayetteville branch near the School. It operated under the name "Rainbow Child Care Center" ("the Fayetteville facility"), and, like the School, it also used rainbow imagery on its logo.

         Within a few weeks of the Fayetteville facility's opening, the School sued Early Education in the United States District Court for the Eastern District of North Carolina for common law trademark infringement; false advertising and false designation of origin in violation of the Lanham Act; and unfair and deceptive trade practices in violation of North Carolina law. Following discovery and the district court's issuance of a preliminary injunction against Early Education, the Parties entered into a settlement agreement. The district court entered a consent judgment and permanent injunction consistent with that agreement.

         Under the terms of the consent judgment, Early Education did "not contest entry of judgment . . . as though the allegations of trademark infringement had been proven at trial." J.A. 77. Early Education was enjoined from:

• "doing business as 'Rainbow Child Care Center' in the Fayetteville, North Carolina metropolitan area";
• "using the word 'Rainbow' in connection with their business in the Fayetteville metropolitan area, including but not limited to use by them of the word 'Rainbow' in connection with the provision of child care, preschool, before-school, afterschool, and summer camp services in the Fayetteville metropolitan area";
• "using the web address . . . www.rainbowccc.com/fayetteville2 [("prohibited /fayetteville2 address")] or any other web address or domain name using the word 'rainbow' in connection with any business or services offered by them in the Fayetteville metropolitan area";
• "using any rainbow design on any website or domain identifying or advertising any business or services offered by them in the Fayetteville, North Carolina metropolitan area, but this restriction . . . does not . . .restrict or prevent the use of the word 'rainbow' or a rainbow design on the general corporate website."

         J.A. 77-78. In addition, Early Education agreed to

redirect their new website with respect to any connection to the main corporate website for Rainbow Child Care Centers found at www.rainbowccc.com [by] creating a stand-alone web page for the [Fayetteville facility] and routing all links to www.rainbowccc.com through a forwarding page so that the word "rainbow" will not appear on the standalone web page for [the Fayetteville facility], even as a forwarding tag. . . . [A]nd there shall not be any links from [Early Education's] main corporate website to the stand-alone web page for [the Fayetteville facility].

         J.A. 78-79.

         In addition, the settlement agreement-though not the consent judgment- contained a liquidated damages clause setting out how the Parties would handle violations of the injunction. The Parties agreed that a material breach of the permanent injunction "could cause harm to" the School's business. J.A. 186. If the School believed Early Education was violating the injunction, the School was required to provide Early Education with written notice. Early Education, in turn, had ten days following receipt of the notice to cure the violation. If Early Education failed to cure the violation in that time, or if it had committed four violations within one year, the School could "seek a court order requiring compliance" with the injunction. J.A. 186. And if a court determined that Early Education had violated the injunction and not cured it, then Early Education would be "liable to [the School] for liquidated damages in the amount of $30, 000.00, ...


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