VOLVO TRADEMARK HOLDING v. AIS CONS. EQUIP

Full title: VOLVO TRADEMARK HOLDING AKTIEBOLAGET, a Swedish corporation; VOLVO…

Court: United States District Court, W.D. North Carolina, Asheville Division

Date published: Aug 21, 2001

CIVIL NO. 1:00CV238 (W.D.N.C. Aug. 21, 2001)

Opinion

CIVIL NO. 1:00CV238.

August 21, 2001

MEMORANDUM AND ORDER

LACY H. THORNBURG, U.S.D.J.

THIS MATTER is before the Court on the Defendants' timely filed objections to the Memorandum and Recommendation of United States Magistrate Judge Max O. Cogburn, Jr. Pursuant to standing orders of designation and 28 U.S.C. § 636, the undersigned referred the Defendants' motion to dismiss to the Magistrate Judge for a recommendation as to disposition. This Court has conducted a de novo review of the Recommendation and finds the Defendants' motion to dismiss should be denied and the Plaintiffs' motion for leave to amend their complaint should be granted. 28 U.S.C. § 636(b); Fed.R.Civ.P. 72 .

I. PROCEDURAL HISTORY

On October 10, 2000, Plaintiffs (collectively referred to as "Volvo") filed this action pursuant to 15 U.S.C. § 1121, et seq. (the Lanham Act) and 28 U.S.C. § 2201 seeking, among other relief, declaratory judgment against Defendants AIS Construction Equipment Corporation, CLM Equipment Company, Inc., Future Equipment Company, Inc., and Nueces Farm Center, Inc. ("original Defendants"). On November 27, 2000, the original Defendants moved to dismiss the action because Plaintiffs failed to state claim under the Lanham Act, thus depriving the Court of federal question jurisdiction, and failed to state a case or controversy under the declaratory judgment statute. On December 14, 2000, Plaintiffs, as a matter of course, filed a First Amended Complaint and on December 18, 2000, responded to the motion to dismiss.¹ The amended complaint added Clark Machinery Company (Clark) as a Defendant to the action. The original Defendants then moved to strike Plaintiffs' response to the motion to dismiss on the grounds that the time within which to respond to the First Amended Complaint had not yet expired. The next day, January 5, 2001, the original Defendants and Clark, all represented by the same attorneys, moved to dismiss the First Amended Complaint on the same grounds as previously raised. The Magistrate Judge entered an order striking Plaintiffs' first response to the motion to dismiss and gave them an additional period of time to respond to the second motion to dismiss.

1 Federal Rule of Civil Procedure 15(a) provides that a party may amend a pleading once "as a matter of course" prior to the service of a responsive pleading. A motion to dismiss does not qualify, as a responsive pleading for purposes of Rule 15(a). Domino Sugar Corp. v. Sugar Workers Local Union 392, 10 F.3d 1064, 1068 n. 1 (4^th Cir. 1993).

On March 19, 2001, Plaintiffs responded to the second motion and moved for leave to amend their complaint a second time. That amendment would delete Nueces Farm Center, Inc. (Nueces) as a party because it was the sole non-diverse Defendant and would clarify that jurisdiction was asserted on the basis of diversity as well as federal question jurisdiction.² Simultaneously, Plaintiffs filed a notice of dismissal pursuant to Fed.R.Civ.P. 41 of Defendant Nueces.³ The Magistrate Judge issued a Memorandum and Recommendation on April 6, 2001, in which he recommended that this notice of dismissal be stricken but that the motion to amend the First Amended Complaint be granted.

2 Both Volvo Construction and Nueces are Delaware corporations.

3 The Magistrate Judge pointed out that dismissal of one party to an action, rather than the action as a whole, should have been accomplished pursuant to Rule 15. As a result, Nueces remains a party to this action. Skinner v. First American Bank of Virginia, 64 F.3d 659 (table), 1995 WL 507264 (4^th Cir. 1995).

On June 6, 2001, Plaintiff Volvo Trademark Holding Aktiebolaget (Volvo Trademark) initiated a second action in this Court against Nueces. See Civil No. 1:01cv122. The allegations brought against Nueces are the same as those asserted against it in this action. Nueces' motion to dismiss or stay the action is presently pending before the Magistrate Judge who has scheduled oral argument.

Inexplicably, even before responsive pleadings have been filed and the initial pretrial conference has been held, this action has grown to encompass three files and seven accordion folders of pleadings.

II. DEFENDANTS' OBJECTIONS

The Magistrate Judge found that Plaintiffs' had stated a claim under the Lanham Act and there was an actual case or controversy. Thus, he recommended denial of the Defendants' motion to dismiss. In their original filing, Defendants conceded that Plaintiffs asserted diversity jurisdiction, but argued that this Court should abstain in favor of AIS Construction Equipment Corp. v. Volvo Construction Equipment North America, Inc. et. al., Civil Action No. 4:01cv166, an action pending in the federal court in Arkansas between these same parties. They also objected to the recommendation that there is an actual case or controversy and argued that Plaintiffs failed to state a claim under the Lanham Act. In a supplemental filing, Defendants do not concede diversity jurisdiction and argue that Plaintiffs' motion to amend should be denied. Defendants also construe the Magistrate Judge's Recommendation as including a finding that there is no federal question jurisdiction.⁴ In yet a third set of objections, Defendants renew all the grounds raised originally before the Magistrate Judge, including lack of diversity jurisdiction.⁵

4 In Supplemental Objections filed May 9, 2001, defense counsel wrote, "It was only because the original complaint filed in this Court so clearly lacked federal question jurisdiction (see Recommendation of Magistrate Judge Cogburn). . . ." The undersigned has found no such recommendation by the Magistrate Judge.

5 The Court finds Plaintiffs' argument that these latter submissions are outside the ten day period for the filing of objections to be well-taken. However, in the interest of finality, all issues are addressed.

III. THE MOTION TO AMEND THE COMPLAINT

The Plaintiffs openly acknowledge the reason for amendment is to create diversity jurisdiction. Defendants cry foul, claiming such is not allowed.

Defendant[s] first argue that because Plaintiffs['] original complaint, . . . lacked complete diversity of citizenship, inasmuch as Plaintiff[s] named [Nueces]-a nondiverse party-as a defendant, the district court lacked subject matter jurisdiction over the complaint and should have dismissed the case. Defendant[s] claim that Plaintiff[s] did not cure this jurisdictional defect by amending its complaint and dropping [Nueces] from the suit because jurisdiction is determined at the time the case is initially commenced and may not be created by dropping an indispensable party. Although [the Court] agree[s] that a party may not create diversity by dropping a nondiverse and indispensable party, . . . it is appropriate to drop a nondiverse and dispensable party from litigation in order to achieve diversity.

Soberay Mach. Equip. Co. v. MRF Ltd., Inc., 181 F.3d 759, 763 (6^th Cir. 1999); accord, Banca Del Sempione v. Provident Bank of Maryland, 85 F.3d 615 (table), 1996 WL 181483 (4^th Cir. 1996) (citing Caperton v. Beatrice Pocahontas Coal Co., 585 F.2d 683 (4^th Cir. 1978)). Defendants have not argued, and could not in good faith, that Nueces is an indispensable party. Therefore, the Plaintiffs' motion for leave to amend is hereby granted and the Court finds that diversity jurisdiction is established.

II. DEFENDANTS' MOTION TO DISMISS

A. The standard of review.

Despite the voluminous pleadings filed to date, the issues for resolution on the motion to dismiss are straightforward; i.e., does this Court have federal question jurisdiction, and is there an actual case or controversy between the parties. Plaintiffs' complaint seeks declaratory relief pursuant to 28 U.S.C. § 2201 and injunctive relief pursuant to the Lanham Act.

The well-pleaded complaint rule requires that federal question jurisdiction not exist unless a federal question appears on the face of a plaintiffs'] properly pleaded complaint. The well-pleaded complaint rule operates no differently when the jurisdictional issue is whether a district court possesses subject matter jurisdiction of a declaratory judgment action purporting to raise a federal question. One does need to understand, however, that in a declaratory judgment action, the federal right litigated may belong to the declaratory judgment defendant rather than the declaratory judgment plaintiff. Thus, if the declaratory judgment plaintiff is not alleging an affirmative claim arising under federal law against the declaratory judgment defendant, the proper jurisdictional question is whether the complaint alleges a claim arising under federal law that the declaratory judgment defendant could affirmatively bring against the declaratory judgment plaintiff. If the answer to this question is yes, federal question jurisdiction exists.

Columbia Gas Transmission Corp. v. Drain, 237 F.3d 366, 370 (4^th Cir. 2001) (citations omitted).

In addition, the plaintiff has the burden of proving subject matter jurisdiction when a defendant challenges it pursuant to Fed.R.Civ.P. 12(b)(1). Evans v. B.F. Perkins Co., 166 F.3d 642, 646 (4^th Cir. 1999). Such a motion should be granted only if the material jurisdictional facts are not in dispute and the defendant is entitled to prevail as a matter of law. Id.

B. The factual background.

Based on the standard of review, the undersigned must begin with the language of the complaint. Plaintiff Volvo Construction Equipment North America, Inc. (Volvo Construction) manufactures and sells construction equipment, including motor graders. Second Amended Complaint, at ¶¶ 14-15. In January 1998, Plaintiff Champion Road Machinery Limited (Champion) was acquired by Volvo Construction Equipment N.V., which is not a party to this action, but which is a subsidiary of Volvo Construction's ultimate parent company, Aktiebolaget Volvo (AB Volvo).⁶ Id., at ¶¶ 13-14. Until January 2001, Plaintiff Champion manufactured and sold motor graders under the CHAMPION trademark. Id., at ¶¶ 14-15, 22.

6 However, Volvo Construction Equipment N.V. actually supervises the activities of the Volvo Construction Equipment Group of which both Champion and Volvo Construction are members.

Plaintiff Volvo Trademark owns, manages and enforces the portfolio of VOLVO trademarks for commercial equipment on behalf of AB Volvo. Id., at ¶ 13. Thus, in connection with trademarks, the equipment now manufactured by Champion falls under the supervision of Volvo Trademark. Id., at ¶¶ 13-14.

Prior to its acquisition, Champion had entered into Champion Dealer Agreements which granted licenses to the CHAMPION trademark and allowed the sale of Champion equipment. Id., at ¶¶ 16-17. The Defendants in this action had such agreements with Champion. Id . However, Volvo Construction, as agent for Champion, terminated those agreements when it determined that the equipment manufactured by Champion would no longer carry the CHAMPION trademark but would instead be branded with the VOLVO trademark. Id., at ¶ 16. Defendants contend that, pursuant to the dealership agreements, Champion remains liable to provide them with "Champion's Motor Graders, whatever that term means." Defendants' Reply in Support of their Objections to Findings of Fact, Conclusions of Law and Recommendation, at 4. Volvo seeks a declaration that it is not required to sell VOLVO marked graders to the former Champion dealers who are not Volvo trademark licensees. And, among other relief, it seeks a declaration that these dealers may not use the VOLVO mark on goods distributed by them.

C. Federal question jurisdiction.

Defendants argue that this case presents nothing more than a contract dispute over the termination of the dealership agreements.⁷ They readily admit they cannot sell VOLVO marked products without a licensing agreement; thus, they argue, no infringement has occurred, the Lanham Act is not implicated and no federal question exists. However, Defendants also claim that Champion, now owned by AB Volvo, remains liable to furnish them with Champion motor graders, "whatever that term means." And, Plaintiffs acknowledge that initially the motor graders manufactured by Champion and on which the VOLVO mark will now be placed are indistinguishable from the Champion motor graders. "Effective January 2, 2001, Champion Road no longer manufactures motor graders under the CHAMPION Trademark. Rather, effective January 1, 2001, Champion Road only manufactures motor graders under the VOLVO Marks for supply to Volvo Construction and the other members of the Volvo Construction Equipment Group." Second Amended Complaint, at ¶ 54.

7 Prior to or at approximately the same time as this action was filed, each of the Defendants' dealership agreements was terminated by Volvo Construction on behalf of Champion.

Title 15, United States Code, § 1121(a) provides that the "district . . . courts of the United States shall have original jurisdiction . . . of all actions arising under [the Lanham] Act, without regard to the amount in controversy or to diversity or lack of diversity of the citizenship of the parties." Title 28, United States Code, § 1338(a) provides that "district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to . . . trademarks." In the most recent complaint, Plaintiffs allege that Volvo Construction and Champion have already been sued twice in connection with the termination of the dealership agreements. In addition, numerous letters threatening suit have been received from terminated dealers, including the named Defendants. Defendant Clark has insisted that it be allowed to sell VOLVO marked motor graders and actually ordered the same. And, Plaintiffs allege Defendants and potential defendants have repeatedly described themselves in both litigation and correspondence threatening the same as Volvo/Champion dealers. Thus, Plaintiffs seek a declaration that its marks may not be used on equipment not authorized to be so identified, that the former Champion dealers are not licensed to use VOLVO marks, to distribute VOLVO equipment or to represent themselves as Volvo dealers and that Volvo is under no obligation to license the VOLVO marks to the former Champion dealers.

In the Second Amended Complaint, Plaintiffs allege that former Champion dealers are representing themselves as Volvo dealers or licensees. This falls within the ambit of the Lanham Act. The New Kayak Pool Corp. v. R P Pools, Inc., 246 F.3d 183 (2^nd Cir. 2001) (involving suit against defendant who was not an authorized dealer of the plaintiff's products); American Honda Motor Co., Inc. v. Two Wheel Corp., 918 F.2d 1060 (2^nd Cir. 1990) (involving a former authorized dealer); Bernina of America, Inc. v. Fashion Fabric Int'l, Inc., 2001 WL 128164 (N.D. III. 2001) (confusion as to whether a defendant represents itself as an authorized dealer states a claim under the Lanham Act). When a former licensee or dealer continues to use a mark after its license has been revoked, a compelling case is presented because of the danger that the consuming public will believe the defendant is still an authorized representative of the mark holder. Church of Scientology Int'l v. Elmira Mission, 794 F.2d 38 (2^nd Cir. 1986).

Moreover, not all trademark cases involving a contract issue devolve into common law claims depriving the court of federal question jurisdiction. "As long as the complaint asks for a remedy expressly provided by the [Lanham] Act, the suit fits squarely" into federal question jurisdiction. Arthur Young Co. v. City of Richmond, 895 F.2d 967, 969 (4^th Cir. 1990). "If the owner of a federal trademark registration who is a licensor alleges that the licensee has merely breached the license, there is no federal jurisdiction. But if the licensor also alleges infringement by the licensee on the ground that the license has already been terminated, then there is federal jurisdiction." 5 McCarthy on Trademarks, § 32:4 . Thus, for purposes of withstanding a motion to dismiss, Plaintiffs have sufficiently alleged federal question jurisdiction.

D. Actual case or controversy.

In addition, the complaint states a claim under the declaratory judgment statute. As previously noted, even "if the declaratory judgment plaintiff is not alleging an affirmative claim arising under federal law against the declaratory judgment defendant, the proper jurisdictional question is whether the complaint alleges a claim arising under federal law that the declaratory judgment defendant could affirmatively bring against the declaratory judgment plaintiff. If the answer to this question is yes, federal question jurisdiction exists." Columbia Gas Transmission Corp., supra. Here, the Defendants affirmatively assert they are entitled to motor graders under either the CHAMPION or VOLVO mark by claiming that they are entitled to a continued supply of Champion motor graders, "whatever that term means." The clear implication is that the term now means Volvo motor graders. Defendants have already begun litigation against the Plaintiffs in other courts based on breach of contract. Defendants could sue Plaintiffs here and Plaintiffs would have a federal defense, i.e., they cannot provide Defendants with Volvo products without violating the Lanham Act.

Moreover, Plaintiffs allege in the complaint that Defendants have already represented themselves as Volvo dealers. An "actual case or controversy" has been stated. Starter Corp. v. Converse, Inc., 84 F.3d 592, 596 (2^nd Cir. 1996); Windsurfing Int'l, Inc. v. AMF, Inc., 828 F.2d 755, 757 (Fed. Cir. 1987); Energy Recovery, Inc. v. Hauge, 133 F. Supp.2d 814, 819 (E.D. Va. 2000).

Finally, Defendants vehemently contended that the Arkansas action should go forward while this one is dismissed or stayed. On June 20, 2001, Chief U.S. District Court Judge Susan Wright for the Eastern District of Arkansas, administratively terminated AIS Construction Equipment Corp. v. Volvo Construction Equipment North America, Inc. et. al., Civil Action No. 4:01cv166, in deference to this action and noted that in the event the Defendants' motion to dismiss in this action were to be denied, she would transfer that action to this District. Thus, the request that this Court abstain has been rendered moot.⁸

8 Plaintiffs' brought this to the attention of the Court in a supplemental pleading. Having argued for abstention, Defendants' failure to likewise advise the undersigned is disingenuous.

IV. ORDER

IT IS, THEREFORE, ORDERED that the Plaintiffs' motion for leave to amend the First Amended Complaint is hereby GRANTED, and the Second Amended Complaint, filed March 19, 2001, is deemed appropriately filed as of that date.

IT IS FURTHER ORDERED that the Defendants file answer or otherwise plead to Plaintiffs' Second Amended Complaint within 15 days of service of this Order.

IT IS FURTHER ORDERED that the Magistrate Judge's recommendation that Plaintiffs' Voluntary Dismissal of Nueces Farm Center, Inc., be stricken is SUSTAINED, and such dismissal is hereby STRICKEN; that Defendant remains a party to this action.

IT IS FURTHER ORDERED that the Defendants' motion to dismiss is hereby DENIED.