Opinion
05-23-1908
VULCAN DETINNING CO. v. AMERICAN CAN CO. et al.
Robert H. McCarter, Atty. Gen., for the motion. R. V. Lindabury, opposed.
Suit by the Vulcan Detinning Company against the American Can Company, and others. On motion for decree for an accounting. Granted.
See 70 N. J. Eq. 588, 62 Atl. 881, 67 Atl. 339.
Robert H. McCarter, Atty. Gen., for the motion. R. V. Lindabury, opposed.
HOWELL, V. C. The bill of complaint in this case alleges (paragraph 25) "that said defendants, Assmann and the American Can Company, have made and are making large profits in the operation of said detinning plants at Paulsboro and Joliet." The prayer inthat behalf is "that an accounting be made by the defendants, the American Can Company and Assmann, of all profits of said plants at Joliet and Paulsboro, and that said defendants be decreed to pay over to your orator all such profits." Neither the answer nor the supplemental answer contains any admission or any denial, general or specific, of this particular allegation; and, inasmuch as the charge in the bill concerns a matter that is clearly within the personal knowledge of the two defendants against whom the charge is made, their failure to reply to it must be taken as an admission of its truth, it was so held by Vice Chancellor Pitney in the case of Tate v. Field, 56 N. J. Eq. 35, 37 Atl. 440. He says: "There is a distinct charge in the bill of a matter within the personal knowledge of the defendants, and they are asked to answer, and in such case a failure to answer a distinct charge, within the knowledge of the defendants, is an admission of the truth of the allegation." In Lee v. Stiger (1879) 30 N. J. Eq. 610, Vice Chancellor Van Fleet, quoting from an earlier case, says: "A material and controlling fact, which is clearly and fully averred in the bill, and not denied or alluded to in the answer, must be taken as confessed." Jones v. Knauss (1879) 31 N. J. Eq. 609; Pinnell v. Boyd (1880) 33 N. J. Eq. 190.
A careful examination of the testimony reveals the fact that there is no evidence before the court from which it may be inferred that the defendants made any profits whatever in the operation of the plants at Paulsboro and Joliet. The question is not referred to in the opinion of the Vice Chancellor, nor was it argued in the Court of Appeals or decided by that court. In the opinion of Mr. Justice Garrison on the appeal in Vulcan Detaining Company v. American Can Company (N. J. Err. & App.) 67 Atl. 339, 346, 12 L. R. A. (N. S.) 102, it appears that the question of profits was reserved, and in the decree of this court, which was entered on the remittitur, it was ordered "that the complainant is entitled to the relief prayed for in the bill of complaint (excepting an accounting, which matter is hereby reserved), * * * and that nothing herein shall in any way limit the right of the complainant to apply, at any time, for such relief as it may be advised it is entitled to in connection with an accounting, * * * and that either party may have leave to apply herein at any time for further relief at the foot of this decree." The complainant has given notice of a motion for an order, "directing that the defendants account to the complainant for the profits they have made, and the damages the complainant has suffered by reason of the matters and things complained of in the bill of complaint."
Nothing can be better established than that the bill of complaint is the criterion of the decree, and especially is this true in a suit for an accounting. The jurisdiction of the court must appear on the face of the bill, and the extent to which the accounting is demanded must appear in the prayer, and the allegations of the bill must be broad enough to support the prayer. This is an elementary principle of equity pleading, and has been the subject of many adjudications in this state. Scott v. Gamble (1852) 9 N. J. Eq. 218; Crane v. Ely (1883) 37 N. J. Eq. 564; Bellingham v. Palmer (1895) 54 N. J. Eq. 136, 33 Atl. 199; De Bevoise v. H. & W. Co. (1904) 67 N. J. Eq. 472, 58 Atl. 91; Daab v. N. Y. Central Railroad (1905) 70 N. J. Eq. 489, 62 Atl. 449; Welch v. Arnett (1890) 46 N. J. Eq. 548, 22 Atl. 124. While most of these cases relate to the question of the jurisdiction of the court over the subject-matter of the accounting, yet they illustrate the principle, now announced, that the jurisdiction of the court and the extent of the relief prayed for must appear by the bill. Applying this rule to the case at bar, it will be perceived that no foundation has been laid in the pleadings for an accounting for damages, even though it should be conceded that damages might otherwise be recovered in this proceeeding, a point which necessarily remains undecided. There is no allegation in the bill that the complainant has suffered any damages as such, nor is there any prayer that any of the defendants shall account for damages, nor is there in the testimony any evidence which might beused as a basis for an accounting on this score, or even for amending the bill so as to include in it a claim for damages. I must therefore hold that the motion, so far as relates to unliquidated damages which the complainant may have suffered by reason of a violation of its rights, must be denied. The question of profits stands on an entirely different foundation. As has been seen, there is an allegation that the defendants, the American Can Company and Assmann, made and are making large profits out of the operation of the process in dispute, at the factories in Paulsboro and Joliet. And there is a prayer that these profits shall be accounted for by these two defendants. This allegation is admitted for the purposes of this suit, and I must hold it to be a fact of the same cogency as if it had been proved in the cause by uncontradicted testimony.
The case of the Clark Thread Company v. William Clark Company (1897) 55 N. J. Eq. 658, 37 Atl. 599, was a bill filed to enjoin the defendant from using certain trade-marks, alleged to be the property of the complainant, which had been unlawfully used by the defendant, and also for an accounting for profits. The twenty-sixth paragraph of the bill in that case alleges: "And your orator further shows that it cannot, with certainty, state the exact amount of profits diverted to itself by said defendant, by reason of the fraudulent acts complained of, and which in equity belong to your orator, but believes the same to be in excess of the sum of $100,000, and so charges the fact to be, and prays that the said defendant may true and full disclosuremake as to the same, and may be decreed to account therefor in fall, and otherwise to respond in damages as may appear to be equitable." The prayer of the bill was for an injunction; and "second, that said defendant may be required to pay over to your orator all such gains and profits from the aforesaid unlawful acts." Vice Chancellor Reed, before whom the case was heard in this court, says in his opinion: "A decree for an accounting could go only if it appeared that there was something for which the defendant was liable to render an account. If the court is satisfied that nothing is due to the complainant from the defendant, no further proceedings will be permitted, and the bill will be dismissed." He advised a decree enjoining the defendant from the use of the trade-marks in question, and directed an accounting for "profits" in accordance with the prayer of the bill. A decree was accordingly made, which provided for the issuing of an injunction as prayed by the bill, and also directed an accounting for "profits" giving the master more or less specific instructions for ascertaining the amount of profits with which the defendant should be charged. It will be observed that the opinion does not show that the complainant suffered any damages beyond the loss of profits, an account of which was directed to be taken. In the Court of Errors and Appeals, 56 N. J. Eq. 789, 40 Atl. 686, the decree was varied, Mr. Justice Dixon writing the opinion. He says: "Its [the defendant's] responsibility to the complainant should be confined to such profits as were diverted from the complainant, and such damages as the complainant otherwise sustained." The decree entered on the remittitur provided for the injunction, and directed that it be referred to a master, to state an account of the number of packages of thread, to which the simulated label had been attached, which the defendant had sold during a period named, and also an account of all the profits and gains realized therefrom, and made by the defendant in violation of the rights of the complainant, * * * that have been diverted from the complainant, * * * and that, upon the coming in of the report and the confirmation thereof, the defendant pay to the complainant the amount of such profits and gains so found to have been diverted from said complainant, and made and realized as aforesaid, together with the costs of this suit."
The prayer that the defendant might respond in damages as might appear to be equitable could not be made the basis of a decree for damages, because there was no specific allegation of damage in the bill. There was therefore in that case no lawful demand for compensation for damages which the complainant may have suffered, nor was there any decree directing the ascertainment thereof. Before leaving the report of this case, it may be well to say that it is authority for holding that the defendant was answerable for profits which it had unlawfully diverted from the complainant.
It is said, on behalf of the defendants, that they cannot be called to an accounting, because no fraudulent intent by them to use the complainant's process has been shown, and many cases are cited on their brief in which that doctrine has been held. The question is a much mooted one, and it can hardly be said that the weight of authority has settled in either direction; but conceding, for the purposes of this case, that there can be no accounting, except in cases of "fraudulent intent," yet I think the case before me shows such a degree of knowledge, on the part of the defendants, that they were using a secret process which belonged to somebody else, that a fraudulent intent may be inferred, and indeed, that is just what the Court of Appeals did infer. The opinion of that court specially charges the defendant Assmann, not only with knowledge, but also with a fraudulent intention, and goes so far as to charge the other defendant, the Can Company, with a degree of knowledge sufficient to be a foundation for an imputation of bad faith. I quote: "This being so as to the defendant Assmann, the complainant contends that the same facts and the same equitable doctrine require that the same relief be decreed against the defendant corporation, for whom Assmann was acting when he did the acts that constitute his breach of trust with the complainant. This contention is undoubtedly correct, if the defendant corporation knew or had notice that Assmann held the secret of the complainant's process in a confidential or trust capacity; for in that case it became itself a trustee for the complainant, at least to the extent of being enjoined from using the process or making publication of it. It is all but impossible to avoid the conclusion that the directors of the American Can Company had actual knowledge of sufficient facts to constitute such notice. The community of interest in the tin scrap trade, the sudden cessation of the wholesale exportation of such scrap, the new domestic market, opened for it by the establishment of the complainant's plants, the fact that the complainant alone, in this country, was able successfully to treat the scrap, and the personal knowledge of the actual facts by some of the leading spirits in the organization of the defendant company, almost compel the conclusion that the history of the complainant's process, and of Assmann's connection with it; were known to the management of the American Can Company when it ventured its capital in the enterprise engineered by its president. It is all but impossible to demonstrate, by direct proof, that a corporation has knowledge, apart from the knowledge possessed by the agencies through which its functions are performed; hence the mere fact that the complainant is unable to adduce any corporate resolution of the defendants expressly assertingits knowledge of the complainant's secret and of Assmann's connection therewith does not prevent our reaching the conclusion that the defendants had such knowledge, if such is the inference to which the testimony, by irresistible weight of probability tends."
And as to the manner in which the Can Company became acquainted with the facts, the following paragraph from the Court of Appeals opinion is equally explicit: "The testimony admits of no other rational conclusion than that the detinning plants that thus came into existence, in competition with the complainant's, are employing the process, originally purchased by the complainant, which Assmann has undertaken to safeguard in its interest. That this result was brought about by a breach of confidence upon Assmann's part toward his original associates, both as regards the use of the process itself, and the enticement of the former employés of the complainant into his scheme, is also the only legitimate inference that can be drawn from the proofs. That in both of these respects he was acting directly on behalf of the defendant corporation, of which he was both president and agent, follows as a necessary deduction." These are express findings of facts, which are directly in issue on the pending motion. They are binding on this court, and cannot be reviewed or varied. They satisfy the most stringent rule that has been adopted by any court on the subject in hand, and under either view of the law justify a decree for an accounting for the profits which have been unlawfully diverted from the complainant by the operation of the two specified plants.
In the Clark Thread Company Case, above cited, Vice Chancellor Reed says: "It may be remarked that the property right which a party has in a trade-mark is of the same quality as a copyright or the right to a patent, and the remedies accorded to the owner of these kinds of property are, except as they may be controlled by statutory regulations, analogous." I take it that the right in question in this case is of the same character, and that the remedies which are applicable to trade-mark, copyright and patent cases are applicable to the class of cases to which the present litigation belongs, excluding from consideration, of course, any statutory provisions concerning these remedies. In the case of the Goodyear Rubber patent (Providence Rubber Company v. Goodyear, 9 Wall. [U. S.] 788, 19 L. Ed. 566) the Circuit Court decreed that the appellant was liable "for all the profits made in violation of the rights of the complainants under the patent aforesaid, by the respondents, by the manufacture, use or sale of any of the articles named in said bill." The Supreme Court held that this wording of the decree was in accordance with the rule in equity cases, established by that court in the case of Livingston v. Woodworth, 15 How. (U. S.) 546, 14 L. Ed. 809, and Dean v. Mason, 20 How. (U. S.) 198, 15 L. Ed. 876. The same rule was repeated in Root v. Lake Shore Railway, 105 U. S. 189, 26 L. Ed. 975. This last-cited case collects all the authorities to date (1881) on the subject of ascertaining profits.
The defendant maintains that the complainant is estopped from demanding an accounting, by reason of the long delay that the complainant permitted to ensue before making the claim which it now urges. I do not think that the delay was sufficient to support the defense of laches. It appears by the evidence that the complainant did not know of the establishment of the defendants' plants until the spring or summer of 1903. When (his knowledge came to the complainant, the defendants had already expended their money, and the delay until September of that year in filing the bill is not shown by the evidence to have been at all to the defendants' prejudice. I do not think, therefore, that the cases cited in defendants' brief on this question are in point. Besides, I do not think it lies in the mouth of the defendants to cry laches, in the face of the act that it was appropriating a right which it knew belonged to some one else. One who sets up an equity or an equitable defense must himself have a clear conscience.
The defendants likewise urge that no accounting should be decreed against it, for the reason that the right which it has violated is a right which does not belong to the complainant, or, in other words, that there can be no accounting to the complainant for the reason that the complainant has no title to the property or right out of which any profits may have come. I do not understand that the question of title was heard or could have been heard in this case. It is true that there was an assertion that the invention of the process in dispute was made by one Goldschmidt, but he is not a party to the suit, nor was there any litigation appropriate to the decision of the question of title now raised by defendants' brief. I therefore think that this objection ought not to prevail.
There will be an order for an accounting according to these views.