Court Opinion

ID: 9638106
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:33:35.23908+00
Date Added: 2024-06-11T18:10:03.281712
License: Public Domain

On Rehearing.
Before BIGGS, MARIS, CLARK, JONES, and GOODRICH, Circuit Judges.
BIGGS, Circuit Judge.
We think that it is unnecessary upon rehearing to discuss at length the conclusion of the learned trial judge that the complaint as drawn fails to state a cause of action under the Sherman or Clayton Acts, 15 U.S.C.A. §§ 1-7, 15 and historical note, 15 U.S.C.A. § 12 et seq. In our first opinion we concurred in this view and we see no reason now to change our conclusion. As to the question of whether or not the plaintiffs have set forth a cause of action sounding in unfair competition, we shall deal later in this opinion. In our original opinion we decided that in Delaware a cause of action for trade libel or disparagement of goods might be maintained without regard to the existence or non-existence of civil conspiracy or unfair competition. Having some doubt as to the correctness of our decision on this point, we ordered rehearing. We shall endeavor to dispose of all the issues which we deem pertinent to the case at bar but we shall devote the first part of this opinion to the question of whether a “pure” trade libel, that is to say a trade libel without any element of unfair competition or civil conspiracy or other aid to equitable jurisdiction, may be enjoined.
The pleadings in the case are set out fully in the opinion of the court below. See D. C., 34 F.Supp. 450. It will be necessary to read that opinion in order to understand what we are about to say for we shall recapitulate the facts only to a limited degree.
In paragraph 23 of the complaint the plaintiffs allege that in pursuance of a conspiracy the defendants and others have made and will continue to make false and unfair statements inter alia with respect to the word “mahogany” and to the phrase “Philippine mahogany”; that these statements were made with the intention of disparaging the plaintiffs and their merchandise and bringing them into disrepute, thereby decreasing the plaintiffs’ business and increasing the business of the defendants. These allegations are amplified by a bill of particulars setting up more than a score of ways in which it is alleged that the defendants have libeled the plaintiffs’ woods. The items of the bill of particulars are set up in full in the opinion of the court below and we need not repeat them. The whole of the libel can be summed up by saying that the plaintiffs allege that the defendants tell the trade and the public that the woods the plaintiffs sell are not mahogany at all and that a dealer who sells Philippine woods as mahogany is unethical.
The plaintiffs seek an injunction to prohibit these alleged libels. The defendants have moved to dismiss the complaint. Since the commencement of the suit at bar there has been pending before the Federal Trade Commission the question of whether or not the term “Philippine mahogany” as used by the plaintiffs is deceptive. If the Commission holds that the use of the term is deceptive the Commission may prohibit the plaintiffs from using it. See Federal Trade Commission Act, § 5, 15 U.S.C.A. § 45. The plaintiffs could not then maintain their action in any court. They could seek review of the order of the Commission in the manner prescribed by Section 5(c) of the Federal Trade Commission Act, 15 U.S.C.A. § 45(c). These facts were referred to in the opinion of the court below and were touched on in our original opinion. It is not necessary to go into greater detail here.
The defendants allege that the suit at bar cannot be maintained because the law of Delaware will not authorize the enjoining of a continuing libel. It is upon this point that the defendants place their greatest reliance. The defendants contend that the rule of Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487 applies in the case at bar. It does so far as concerns substantive law, but we think it preferable to discuss the application of the rule of that case to the facts at bar at a later stage of this opinion. The rule enunciated by the Supreme Court in Klaxon Co. v. Stentor Electric Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477, must be discussed first. That ruling is to the effect that in diversity of citizenship cases, and the case at bar is a diversity case in view of the fact that the complaint states no cause of action arising under the anti-trust laws of the United *233States, a federal court must follow the rule of conflicts of the state in which it sits. The conflict-of-laws rule of Delaware is that in the case of torts substantive rights are governed by the law of the jurisdiction where the wrong occurs. Skillman v. Conner, 8 W.W.Harr. 402, 193 A. 563. The Delaware rule is the usual rule applied in most of the states. See Restatement of Conflict of Laws, Introductory Note immediately before Section 584 and Sections 378, 379; Goodrich, Conflict of Laws, 2d Ed., Sec. 77; and 3 Beale, Conflict of Laws, Sec. 584.1. But the complaint is silent as to where the alleged libels took place. From paragraphs 18 and 19 of the plaintiffs’ bill of particulars it appears that Mahogany Association, Inc., a New York membership corporation, published the libel. Where it did so is not stated. We cannot deem these omissions to be matters-of great consequence at this stage of the case for a right of action for trade libel is granted almost universally to the owner or vendor of the goods when he has suffered injury. We know of no jurisdiction in the United States in which trade libel or disparagement of goods will not create a cause of action. We think that in the absence of allegations as to the place or places where the acts complained of occurred, the court below would have been entitled to assume that these operative facts took place within the State of Delaware. As to substantive rights the cases are clear that the rules of substantive law to be applied in a federal equity court in a diversity case are those which would be applied in a state court sitting in the same state. This is a logical and indeed necessary extension of the principle of Erie R. Co. v. Tompkins, supra. See Ruhlin v. New York Life Ins. Co., 304 U.S. 202, 205, 58 S.Ct. 860, 82 L.Ed. 1290; New York Life Ins. Co. v. Jackson, 304 U.S. 261, 58 S.Ct. 871, 82 L.Ed. 1329, and Rosenthal v. New York Life Insurance Co., 304 U.S. 263, 58 S.Ct. 874, 82 L.Ed. 1330. Nothing contained in Russell v. Todd, 309 U.S. 280, 60 S.Ct. 527, 84 L.Ed. 754, or in West v. American T. & T. Co., 311 U.S. 223, 61 S.Ct. 179, 85 L.Ed. 139, 132 A.L.R. 956, indicates the contrary.
There is no doubt that the substantive law of Delaware gives the person who has received legal injury a right of action for trade libel or disparagement of goods. The question which we must decide therefore may be stated as follows: What is the remedy which may be granted in the District Court of Delaware ? In Sprague v. Ticonic Bank, 307 U.S. 161, 164, 165, 59 S. Ct. 777, 779, 83 L.Ed. 1184, the Supreme Court by Mr. Justice Frankfurter, held, following earlier decisions, including Payne v. Hook, 7 Wall. 425, 430, 19 L.Ed. 260, that “The suits ‘in equity’ of which these courts [of federal equity jurisdiction] were given ‘cognizance’ ever since the First Judiciary Act, 1 Stat. 73, constituted that body of remedies, procedures and practices which theretofore had been evolved in the English Court of Chancery, subject, of course, to modifications by Congress, e.g., Michaelson v. United States, 266 U.S. 42, 45 S.Ct. 18, 69 L.Ed. 162, 35 A.L.R. 451.” We think that this must be deemed to be an. indication from the Supreme Court that in so far as equitable remedies are concerned federal courts are to grant them in accordance with their own rules which have been developed out of the English Chancery practice. The words of Mr. Justice Frankfurter in the Ticonic Bank case are a plain indication that the rule enunciated in Payne v. Hook, supra, 7 Wall, page 430, 19 L.Ed. 260, “The equity jurisdiction conferred on the Federal Courts is the same that the High Court of Chancery in England possesses; is subject to neither limitation or restraint by State legislation, and is uniform throughout the different States of the Union”, is the law so far at least as the granting of equitable remedies is concerned. The rule of Erie R. Co. v. Tompkins being determinative of substantive rights, there is still preserved to the federal courts a uniform basis for granting equitable remedies in cases in which substantive rights have arisen under state law.
Little help upon the specific subject of enjoining “pure” trade libels can be gotten from the law of England as it was at the time of the severance of the Colonies from the mother country. We use the word “pure” in connection with trade libels to describe those types of trade libels which are committed under circumstances which will not serve as the basis of some well-established form of equitable relief. This is discussed more fully at a later point in this opinion. There is, however, a single applicable case on the subject of enjoining a trade libel decided by the Circuit Court, District of Delaware. In Edison v. Thomas A. Edison, Jr., Chemical Company, 128 F. 957, decided by Judge Bradford in 1904, Thomas A. Edison brought a bill against the Thomas A. Edison, Jr., Chemical *234Company alleging that the company was selling Wizard Ink Tablets and MagnoElectric Vitalizers by the fraudulent use of the name Edison. The bill stated that the company was deceiving the public and injuring the complainant’s reputation as an inventor by passing-off ink tablets and vitalizers as the complainant’s inventions, he being in nowise connected with their manufacture and sale, the articles being worthless. The complainant sought an injunction. In his opinion Judge Bradford stated, 128 F. at page 963, “The case now in hand, being one merely of libel or defamation of business reputation unaccompanied by threats, intimidation or coercion, or by any direct attack upon property or conduct of business, or by any direct or indirect creation of liability on the part of the complainant, is not within the equitable jurisdiction of this court. While the decisions are somewhat inharmonious, I am satisfied by an overwhelming weight of authority that this court has no jurisdiction to enjoin the publication of a mere libel or slander, and, consequently, no authority to grant the relief prayed.” Judge Bradford then cited a number of cases including Marlin Firearms Co. v. Shields, 171 N.Y. 384, 64 N.E. 163, 59 L.R.A. 310, and stated that he found nothing in Lewin v. Welsbach Light Company, C.C., 81 F. 904, inconsistent with his conclusion.
The learned judge did not discuss the provisions of Section 5 of Article I of the Constitution of Delaware of 1897 which provides, “The press shall be free to every citizen who undertakes to examine the official conduct of men acting in a public capacity; and any citizen may print on any subject, being responsible for the abuse of that liberty.” The defendants rely strongly upon this constitutional provision. We cannot doubt that Judge Bradford was aware of the words of Section 5 for he was a member of the Convention that drew up that Constitution and he took a leading part in its deliberations. The substance of Section 5 of Article I has been in every Constitution of Delaware since that State ratified the Constitution of the United States. See Section 5, Article I of the Constitutions of 1831 and of 1792. Judge Bradford was a strong constitutionalist. Since he made no reference to Section 5 of Article I of the Constitution of Delaware we think that he must have deemed it to be inapplicable.1 We agree with his conclusion in view of the distinction hereinafter discussed, between trade libels and those personal defamations to which the constitutional provision was in fact directed.
It is interesting and pertinent to note how the courts of chancery have handled questions of trade libel. In an article, “Unfair Competition by False Statements or Disparagement” in 19 Cornell Law Quarterly, pp. 63, 64, Mr. Nims quotes with approval from an article by Dean Roscoe Pound, “Equitable Relief Against Defamation and Injuries to Personality”, 29 H.L. R. 640 et seq., as follows, p. 668: “Looking back over these cases of injury to person or property by writing and publishing, we see that the English Courts now deal with them as with any other torts; that in England the subject has had the *235very same development as equity jurisdiction over trespass, over disturbance of easements, and over nuisance. We also see that American Courts are moving in the same direction, reaching such cases indirectly by laying hold of some admitted head of equity jurisdiction and tacking thereto what is in substance concurrent jurisdiction over legal injuries through publication. In some of the cases this is so obviously but a matter of pleading that we may be confident some strong court presently will take the direct course and will be followed therein. Most of the cases that grant relief speak strongly of the injustice that must result from denial of jurisdiction in these cases. In substance the traditional doctrine puts anyone’s business at the mercy of any insolvent, malicious defamer who has sufficient imagination to lay out a skillful campaign of extortion. So long as denial of relief in such cases rests on no stronger basis than authority our courts are sure to find a way out.”
Mr. Nims goes on to say, “In the sixteen years since this [Dean Pound’s article] was written apparently no ‘strong court’ has been willing to ‘take the direct course’, but some of our courts have further cleared the way for an outright declaration that defamation or disparagement of a competitor’s goods is unfair competition and a proper subject of injunctive relief.” He then cites the so-called “So-Bos-So” case, Allen Manufacturing Co. v. Smith, 224 App. Div. 187, 190, 229 N.Y.S. 692, 696, 4th Dept. 1928. In this case the alleged existence of passing-off and trade-mark infringement was rejected by the court which none the less enjoined the false disparagement of the plaintiff’s product. The court noted that actions for unfair competition are not confined to the passing-off cases and distinguished the leading New York cases upon the ground that they were not cases of unfair competition but suits against the publishers of libels. This decision was a decided step from Marlin Firearms Co. v. Shields, 171 N.Y. 384, 64 N.E. 163, 59 L.R.A. 310. Mr. Nims also refers to the case of Robert E. Hicks Corporation v. National Salesmen’s Training Association, 19 F.2d 963, in which the Circuit Court of Appeals for the Seventh Circuit, while expressly acknowledging the rule that a trade libel could not be enjoined in and of itself, did say by way of dictum that an injunction might issue to prevent the furtherance of a conspiracy to induce a breach of contract. Allen Manufacturing Co. v. Smith, supra, and Old Investors & Traders Corporation v. Jenkins, 133 Misc. 213, 232 N.Y.S. 245, also are cited in the Nims article, but neither of these cases directly overrules the earlier decisions though in the case last cited a non-competing publishei was enjoined from publishing a trade libel. The Old Investors & Traders Corporation case does support the plaintiffs’ position. It is the only case which we have been able to find where the enjoining of a trade libel was not fastened on some well-established hook of equitable relief.
But the phrase “pure trade libel” has been called a misnomer which has resulted in ascribing to this tort the legal attributes of libel and slander, particularly the inherent characteristics of defamation, and in the consequent application of the dogma that a court of equity will not enjoin a continuing libel or slander.2
There is a clear line of demarcation between the two torts which is often overlooked. The first is concerned with interests of personality, the other with interests in property. 3 Thus, the Restatement classifies libel and slander as “Defamation”, “Invasions of Interest in Reputation”, and trade libels as “Disparagement”, “Invasions of Interests in the Vendibility of Property by Disparagement.”4 A judicial consciousness of this distinction and the consequent attendant differences in legal incidents5 would avoid the “confusion” “it *236[trade libel] has lead to” and “The application of false analogies. Or more specifically the failure to realize that the action for disparagement of property has a place of its own in the law; and is not a mere branch, or special variety, of the action for defamation of personal reputation or of the action for deceit.”6
Assuming that the plaintiffs here have pleaded nothing more than an action for disparagement of goods, that is to say, a “pure” trade libel, and although under certain circumstances such a libel may also constitute a defamation of the owner,7 so as to bar equitable relief, that obstacle does not confront us in the case at bar. The need for granting equitable relief in cases like the present, where there are involved genuine proprietary interests of great social and commercial significance to the parties affected, is urgent. Dean Pound’s characterization of the evils to be avoided is convincing proof of this, as are the numerous cases where such relief was sought. In the latter instances, injustice often has been avoided, as we have indicated, by casting for and hooking onto a remote but allegedly independent basis for equitable relief.8
In the case at bar we are not required to depart from severely criticized precedent. The District Court found that there was no competition between the woods of the plaintiffs and those of the defendants and that therefore there could be no competition. We think that the learned District Judge took too narrow a view of this question and that actually the woods of the plaintiffs and those of the defendants are in competition. The issue of unfair competition was not clearly disposed of in our first opinion. We conclude now that the allegations of the complaint viewed in the light of Rule 8 of the Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c, are sufficient to support a charge of unfair competition committed pursuant to the joint acts of the defendants and others. The courts of the United States have granted the remedy of an injunction under such circumstances. Gompers v. Buck’s Stove & Range Co., 221 U.S. 418, 436, 437, 31 S.Ct. 492, 55 L.Ed. 797, 34 L.R.A.,N.S., 874; American Malting Co. v. Keitel, 2 Cir., 209 F. 351, 357, 358; Gerosa et al. v. Apco Mfg. Co., 1 Cir., 299 F. 19, 26; Emack v. Kane, C.C., 34 F. 46, 50; Nims, The Law of Unfair Competition and Trade Marks, 3d Ed., 1929, Section 263, et seq. Cf. Procter & Gamble Co. v. J. L. Prescott Co., 3 Cir., 102 F.2d 773. Except for a technical defect in the pleading the plaintiffs in the case at bar have stated a cause of action which is the basis for the equitable relief sought by them.
We will discuss that technical defect now. The defendants assert that the court below was without jurisdiction of the controversy because the jurisdictional amount was not properly alleged in the complaint. The complaint alleges that “the matter in controversy exceeds, exclusive of interest and costs, the sum of $3,-000 * * * It does not allege that each of the three plaintiffs incurred damages in that sum. There is nothing in the complaint which indicates that it is a true class action. It is obviously a spurious class suit. See Rule 23(a) (3) of the Federal Rules of Civil Procedure. While the plaintiffs can join in one suit they may not aggregate their claims in order to arrive at the jurisdictional amount. The claim of each plaintiff is separate and distinct. See Pinel v. Pinel, 240 U.S. 594, 36 S.Ct. 416, 60 L.Ed. 817; Lion Bonding & Surety Co. v. Karatz, 262 U.S. 77, 43 S.Ct. 480, 67 L.Ed. 871; Independence Shares Corporation v. Deckert, 3 Cir., 108 F.2d 51, 53, reversed on other grounds 311 U.S. 282, 61 S.Ct. 229, 85 L.Ed. 189. It follows that since no cause of action is stated under the antitrust laws of the United States, the jurisdictional allegations in the complaint are insufficient and the complaint as drawn must be dismissed unless timely and proper amendment be made in accordance with Rule 15(a). It should be stated, however, that so far as the record before us shows, this question of the sufficiency of allegations as to jurisdictional amount was not raised in the court below and was not raised in this court until argument upon rehearing. This makes no difference. The question of jurisdiction is always open. It has been raised before us on the argument on *237rehearing. This court, however, could consider the question upon its own motion. Without the necessary jurisdictional allegations, the complaint cannot be maintained. See Mitchell v. Maurer, 293 U.S. 237, 244, 55 S.Ct. 162, 79 L.Ed. 338.
We have considered carefully the motion of the plaintiffs to strike certain sentences from our original opinion and substitute other words in their place. The reasons why the Federal Trade Commission reopened the controversy between these parties are best known to the Commission and not to ourselves. The motion will be denied.
The plaintiffs’ motion to strike out the document entitled “Relevant Portions of Record in the ‘Philippine Mahogany1 Case” will be granted for this document was not before the District Court. We will not strike out those portions of the defendants’ brief which deal with this document. Briefs are not part of the record.
The judgment of the court below is reversed and the cause is remanded with the direction to the court below to allow the plaintiffs a reasonable opportunity for amendment of the complaint in accordance with the provisions of Rule 15(a) of the Federal Rules of Civil Procedure.
Circuit Judge CLARK took no part in the decision in this case on rehearing.

 It is interesting to note that the Court of Chancery of Delaware has not construed the constitutional provision as the defendants would have us construe it. The case of Liberty Life Assurance Society v. Heralds of Liberty, 15 Del. Ch. 309, 138 A. 634, is typical. In this case Liberty Life Assurance Society filed its bill to prevent the pirating of its former name. The Chancellor stated, page 378 of 15 Del.Ch., page 638 of 138 A., “The choice of its [the complainant’s] named by the incorporators of the defendant company appears to have been for the unlawful purpose of unfairly competing with the complainant in its business, and of wrongfully profiting at its expense.” The injunction was granted to prevent unfair competition, viz., the use of a name by the defendant.
In Sellers v. McCormick, 19 Del.Ch. 238, 165 A. 569, the Court of Chancery protected both trade name and good will. Sellers was the receiver for McCormick Bros. Upon the discharge of the partners by the receiver they began to compete with him. They announced the opening of a “New home of McCormick Transportation Company” and thanked “Our old customers for their continued patronage.” Under a literal construction uf Section 5 of Article I of the Delaware Constitution, such publications by the McCormicks could not have been enjoined. The Chancellor, however, had no hesitancy in issuing an injunction for the protection of the receiver and creditors. Freedom of publication at this point gave way to protection of property. The Sellers case was decided in 1933. See also American Radio Stores, Inc., v. American Radio & Television Stores Corp., 17 Del.Ch. 127, 150 A. 180.

 Prosser, Handbook of the Law of Torts (1941) pp. 1036-1040, p. 1037: “Because of the unfortunate association with ‘slander,’ a supposed analogy to defamation has hung over the tort like a fog, concealing its real character, and has had great influence upon its development. The plaintiff’s title or property seems to have been regarded as somehow personified, and so defamed. One important consequence has been that many courts have applied to disparagement the rule that equity in the interests of freedom of speech, will not enjoin the publication of libel or slander.” See, also, Jeremiah Smith’s illuminating discussion, “Disparagement of Property” (1913) 13 Col.L.Rev. 13, 121, pp. 127-132.

 Smith, supra at p. 127; Prosser, supra at p. 1040. ’

 3 Restatement, Torts (1938) chs. 24 and 28; § 573, comment g.

 The differences in the two torts are *236listed in: Smith, supra, pp. 127-132, Prosser, supra, 10-11, 1042. 3 Restatement, Torts (1938) p. 323.

 Smith, supra, pp. 13, 14.

 Prosser, supra, 1038; 3 Restatement, Torts (1938) § 573, comment g.

 Prosser, supra 1038 and note 3. Pound, Equitable Relief Against Defamation and Injuries to Personality, supra, p. 668.