Opinion ID: 3009507
Heading Depth: 3
Heading Rank: 2

Heading: The effect of Central Bank

Text: Generally, the applicability of common law doctrines in litigation under federal statutes depends on whether those principles advance the goals of the particular federal statute which plaintiffs allege has been violated. Petro-Tech, Inc. v. Western Co. of North America, 824 F.2d 1349, 1356 (3d Cir. 1987) (citing American Soc'y of Mechanical Eng'rs v. Hydrolevel Corp., 456 U.S. 556, 570, 102 S.Ct. 1935, 1944-45 (1982)); O'Neil v. Q.L.C.R.I., Inc., 750 F. Supp. 551, 555 (D.R.I. 1990). Of course, the days of a general federal common law have long since passed, see Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822 (1938), and courts should be wary about looking outside of the statute itself to expand the scope of liability, lest they accurately be accused of legislating from the bench. Cf. Stomper v. Amalgamated Transit Union, Local 241, 27 F.3d 316, 319 (7th Cir. 1994) (Once Congress has legislated, the common-law rules courts apply to fill interstices fall away.). Thus, when a statute is self-contained, the scope of our interpretation is constrained by the statutory language itself. See, e.g., Central Bank, ____ U.S. at ____, 114 S.Ct. at 1447. Nonetheless, when the importation of common law doctrines will advance the goals of the statute, courts may utilize the doctrines, provided the courts conform [the] implied remedies to the rules Congress devised for the remedies it authorized expressly. Stomper, 27 F.3d at 319. Winback implicitly argues that if we import the doctrines of agency and apparent authority into the statute, we would be violating this settled rule of construction and that we would be legislating in areas where Congress has failed to act. Therefore, Winback concludes, AT&T's argument more properly is made to Congress rather than to the courts.10 It relies for this 10 . It does not appear that Winback raised this argument before the district court. The district court noted that [Winback] and proposition on Central Bank, a recent Supreme Court case refusing to find parties liable for aiding and abetting the violation of a federal securities statute. In Central Bank, the Supreme Court considered whether section 10(b) of the Securities Exchange Act of 1934 (the Exchange Act), which has been held to create a private cause of action against parties who commit a manipulative or deceptive act in connection with the purchase of or sale of securities . . . extends as well to those who do not engage in the manipulative or deceptive practice but who aid and abet the violation. Id. at ____, 114 S.Ct. at 1443. Examining the language of the statute, as well as the Court's own tendency to construe narrowly the scope of conduct prohibited by the Exchange Act, the Court concluded that an action cannot be maintained for aiding and abetting securities fraud: [T]he statute prohibits only the making of a material misstatement (or omission) or the commission of a manipulative act [and this] proscription does not include giving aid to a person who commits a manipulative or deceptive act. Id. , 114 S.Ct. at 1148. (..continued) Inga do not dispute the applicability of the common law of agency. Winback, 851 F. Supp. at 624. On this appeal, however, Winback states that [i]t is the position of the defendants that the Lanham Act permits neither vicarious liability nor aiding and abetting liability. Appellee's brief at 34. It also writes: The statute covers only primary liability. It does not include vicarious liability, respondeat superior liability or aiding and abetting liability. The defendants have not been accused personally of violating the statute and cannot be held liable under it. This case is as simple as that. Id. at 37. At oral argument, Winback explicitly made this argument. AT&T does not contend that Winback waived this argument by failing to raise it before the district court. Thus, we address it on the merits. The language of Central Bank is undeniably broad, and the dissent warned that other mechanisms of common law secondary liability -- such as respondeat superior and other common-law agency principles -- may not survive the majority's construction of Section 10(b) of the Exchange Act. Id. at ____, 114 S.Ct. at 1460 n.12 (Stevens, J. dissenting). Nonetheless, we do not believe that the Court's restrictive reading of the Exchange Act impacts on the determination of the scope of liability under the Lanham Act. In Central Bank, the Supreme Court primarily was concerned with broadening the range of unlawful conduct beyond that specifically proscribed by the Act. As the Court framed the issue, aiding and abetting constituted a separate cause of action, and in order to find such liability, the Court would have to imply a private right of action under the statute beyond that which already had been implied. See id. at , 114 S.Ct. at 1447 (statutory text controls the definition of conduct covered by § 10(b) [and] 'the language of Section 10(b) does not in terms mention aiding and abetting.') (quoting Brief for Securities and Exchange Commission as Amicus Curiae at 8). Thus, the Court saw the case as involving another in a series of attempts by plaintiffs and the SEC to broaden the statute to prohibit conduct simply not covered by the actual statutory language. See, e.g., Chiarella v. United States, 445 U.S. 222, 235, 100 S.Ct. 1108, 1118 (1980) (When an allegation of fraud [under section 10(b)] is based upon nondisclosure, there can be no fraud absent a duty to speak); Santa Fe Indus., Inc. v. Green, 430 U.S. 462, 476, 97 S.Ct. 1292, 1302 (1977) (statute does not prohibit a breach of fiduciary duty by majority stockholders, without any deception, misrepresentation, or nondisclosure because such an act is not manipulative or deceptive conduct); Ernst & Ernst v. Hochfelder, 425 U.S. 185, 201, 96 S.Ct. 1375, 1384-85 (1976) (refusing to expand scope of liability under section 10(b) of Securities Exchange Act beyond knowing or intentional misconduct). Once again, the Court simply refused to expand the scope of conduct prohibited by the statute. Central Bank, ____ U.S. at ____, 114 S.Ct. at 1453. The Supreme Court's wariness therefore rested on the nature of aiding and abetting liability itself. And in fact, aiding and abetting liability is not a well-settled mechanism for imposing civil liability. Rather, [a]iding and abetting liability traditionally applies to criminal offenses, see Electronic Lab. Supply Co., 977 F.2d at 805; Petro-Tech, 824 F.2d at 1356. While it has been borrowed in certain civil contexts, [p]recedent, except in the securities area, is largely confined to isolated acts of adolescents in rural society. Halberstam v. Welch, 705 F.2d 472, 489 (D.C. Cir. 1983) (also quoted in Central Bank, ____ U.S. at ____, 114 S.Ct. at 1450). This is because aiding and abetting liability, with its focus on the defendant's substantial and knowing assistance to the commission of a tort, rests by definition upon acts that encourage a tort rather than acts constituting the tort. See, e.g., Halberstam, 705 F.2d at 481-86 (canvassing aiding and abetting tort cases). By definition then, the act rendered unlawful under an aiding and abetting theory is different than the act rendered unlawful by the underlying tort. By contrast, courts imposing liability on agency theories are not expanding the category of affirmative conduct proscribed by the relevant statute; rather, they are deciding on whose shoulders to place responsibility for conduct indisputably proscribed by the relevant statute. The principal is held liable not because it committed some wrongdoing outside the purview of the statute which assisted the wrongdoing prohibited by the statute, but because its status merits responsibility for the tortious actions of its agent. Cf. Petro-Tech, Inc., 824 F.2d at 1356-58 (discussing aiding and abetting and vicarious liability separately).11 Indeed, in some instances, liability cannot be imposed without reference to agency principles -- a corporation can only act through its agents, and therefore only can be bound through application of agency principles. 11 . Prosser and Keeton have this to say in a discussion of the basis for vicarious liability: Since B himself has been free from all fault, when he is held liable to C it is in one sense a form of strict liability. In another it is not. The foundation of the action is still negligence, or other fault, on the part of A; and all that the law has done is to broaden the liability for that fault by imposing it upon an additional, albeit innocent, defendant. It is still an action for negligence, and the ordinary rules of negligence liability are still applied to it. W. Page Keeton, Prosser & Keeton on Torts, § 69 at 499 (5th ed. 1984) (hereinafter Prosser & Keeton on Torts). In the context of cases like this one, the status of the defendant is of one who has authorized another to conclude contracts with third parties and who directly profits from those contracts. Moreover, unlike aiding and abetting liability, which in the federal system largely has been confined to securities fraud, agency doctrine, including the theory of apparent authority, has long been a part of the federal system. As long ago as 1928, the Supreme Court applied as a matter of federal common law general principles of agency law. In so doing, it held that few doctrines of the law are more firmly established or more in harmony with accepted notions of social policy than that of the liability of the principal without fault of his own. Gleason v. Seaboard Air Line Ry. Co., 278 U.S. 349, 356, 49 S.Ct. 161, 162-63 (1929). More recently, in American Soc'y of Mechanical Eng'rs, Inc. v. Hydrolevel Corp., the Supreme Court began its analysis of whether apparent authority applies in the antitrust context with the premise that [t]he apparent authority theory has long been the settled rule in the federal system. Hydrolevel, 456 U.S. at 567, 102 S.Ct. at 1943 (citing Ricketts v. Pennsylvania R.R. Co., 153 F.2d 757, 759 (2d Cir. 1946)).12 12 . The Court stated: In a wide variety of areas, the federal courts . . . have imposed liability upon principals for the misdeeds of agents acting with apparent authority. See, e.g., Dark v. United States, 641 F.2d 805 (9th Cir. 1981) (federal tax liability); National Acceptance Co. v. Coal Producers Assn., 604 F.2d 540 (7th Cir. 1979) (common-law fraud); Holloway v. Howerdd, 536 F.2d 690 (6th Cir. 1976) (federal securities fraud); United States v. Sanchez, 521 F.2d 244 (5th Cir. 1975) (bail bond fraud), cert. denied, 429 U.S. 817, 97 S.Ct. 59 (1976); Kerbs v. Fall River Industries, Inc., 502 F.2d 731 (10th Cir. 1974) (federal securities fraud); Gilmore v. In Hydrolevel, the Supreme Court followed the approach of the Restatement (Second) of Agency, and held that a principal is liable for an agent's misrepresentations that cause pecuniary loss to a third party, when the agent acts within the scope of his apparent authority. Id. at 566, 102 S.Ct. at 1942 (citing Restatement (Second) of Agency §§ 249, 262 (1957); Rutherford v. Rideout Bank, 80 P.2d 978 (Cal. 1938)). More recently, following earlier precedents, we have recognized respondeat superior liability under Title VII of the Civil Rights Act of 1964. Spain v. Gallegos, 26 F.3d 439, 450 (3d Cir. 1994). See also Karibian v. Columbia Univ., 14 F.3d 773, 780 (2d Cir.) (an employer is liable for the discriminatorily abusive work environment created by a supervisor if the supervisor uses his actual or apparent authority to further the harassment, or if he was otherwise aided in accomplishing the harassment by the existence of the agency relationship), cert. denied, ____ U.S. ____, 114 S.Ct. 2693 (1994). And [f]ederal courts have routinely applied [respondeat superior] principles in fair housing cases and held principals liable for the discriminatory acts of their agents. City of Chicago v. Matchmaker Real Estate Sales Center, Inc., 982 F.2d 1086, 1096 (7th Cir. 1992), cert. denied, ____ U.S. ____, 113 S.Ct. 2961 (1993); see also Northside Realty Assocs. Inc. v. (..continued) Constitution Life Ins. Co., 502 F.2d 1344 (10th Cir. 1974) (common-law fraud). Hydrolevel, 456 U.S. at 568, 102 S.Ct. at 1943. United States, 605 F.2d 1348, 1353-54 (5th Cir. 1979). Thus, Central Bank's discussion of aiding and abetting should not be transplanted into the more settled realm of agency law.13 But beyond this, it is quite clear under Central Bank's reasoning, the Supreme Court was concerned with the Exchange Act itself under which the private right of action already had been judicially implied. Accordingly, we think that the Court did not intend to overrule settled constructions of other statutes that relied on common law doctrines to determine the scope of liability. See Central Bank, ____ U.S. at ____, 114 S.Ct. at 1444 (we pa[y] close attention to the statutory text in defining the scope of conduct prohibited by § 10(b)). Thus, in contrast to the Court's restrictive reading of the Exchange Act, the Court has endorsed and applied a theory of secondary liability for trademark infringement that comes very close to aiding and abetting. The Court first enunciated the rule over 70 years ago, prior to the enactment of the Lanham Act, when the Court was concerned with constructing and enforcing a common law of unfair competition. William R. Warner & Co. v. Eli Lilly & Co., 265 13 . Winback also relies on Monell v. Dep't of Social Servs. of City of New York, 436 U.S. 658, 98 S.Ct. 2018 (1978), which held that a municipality could not be held liable under 42 U.S.C. § 1983 under a theory of respondeat superior liability. That case is clearly inapposite. There, the Court relied not just on the language of the statute, but the scheme of causation that must be proven in order to hold a party liable. Moreover, the Court relied heavily on the legislative history and the fact that creation of a federal law of respondeat superior would have raised all the constitutional problems associated with the obligation to keep the peace, an obligation Congress chose not to impose because it thought imposition of such an obligation unconstitutional. Id. at 693, 98 S.Ct. at 2037. U.S. 526, 44 S.Ct. 615 (1924). In that case, the Court held that a manufacturer of a pharmaceutical product could in certain instances be held liable for acts of infringement by distributors and retailers of the product. Relying on the general proposition that [o]ne who induces another to commit a fraud and furnishes the means of consummating it is equally guilty and liable for the injury, id. at 530-31, 44 S.Ct. at 617 (citing Hostetter Co. v. Brueggeman-Reinert Distilling Co., 46 Fed. 188, 189 (C.C.D. Mo. 1891)), the Court reached what it saw as a self-evident conclusion: an entity is liable for trademark infringement if it contributes to the infringement. The theory of contributory infringement, as it came to be called, survived into the statutory era. As the Supreme Court explained in a case involving section 32 of the Lanham Act: [L]iability for trademark infringement can extend beyond those who actually mislabel goods with the mark of another. Even if a manufacturer does not directly control others in the chain of distribution, it can be held responsible for their infringing activities under certain circumstances. Thus, if a manufacturer or distributor intentionally induces another to infringe a trademark, or if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement, the manufacturer or distributor is contributorily responsible for any harm done as a result of the deceit. Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 854, 102 S.Ct. 2182, 2188 (1982). The two elements for contributory infringement are thus summed up as (1) supply of a product, and (2) knowledge of direct infringement. Fonovisa, Inc. v. Cherry Auction, Inc., 847 F. Supp. 1492, 1498 (E.D. Cal. 1994). Of course, there is no reason why the doctrine should be confined in application to manufacturers, and indeed, other courts have expanded it beyond that particular origin. See, e.g., Mini Maid Servs. Co. v. Maid Brigade Sys., Inc., 967 F.2d 1516, 1522 (11th Cir. 1992) (doctrine could hold franchisor liable for infringing actions of its franchisee when franchisor explicitly or implicitly encouraged the trademark violations); Hard Rock Cafe Licensing Corp. v. Concession Servs., Inc., 955 F.2d 1143, 1149 (7th Cir. 1992) (landlord of flea market could be liable for its tenant's sale of an infringing product where the landlord is found to have been wilfully blind to the infringing acts); but see Fonovisa, 847 F. Supp. at 1498 (refusing to apply doctrine of contributory infringement to impose liability on third parties who have never had a traditional role in enforcing the Lanham Act).14