College Sav. Bank v. Florida Prepaid Postsecondary Educ. Expense Bd., 97-5055

• Decision Date: 05 December 1997
• Docket Number: 97-5086,No. 97-5055,Nos. 97-5055,U,No. 97-5086,97-5055,s. 97-5055
• Parties: 1997-2 Trade Cases P 71,987, 45 U.S.P.Q.2d 1001 COLLEGE SAVINGS BANK, Appellant innited States of America, Intervenor-Plaintiff in D.C., v. FLORIDA PREPAID POSTSECONDARY EDUCATION EXPENSE BOARD. COLLEGE SAVINGS BANK, United States of America, Intervenor-Plaintiff in D.C., v. FLORIDA PREPAID POSTSECONDARY EDUCATION EXPENSE BOARD, United States of America, Appellant in
• Court: U.S. Court of Appeals — Third Circuit

Page 353

131 F.3d 353

1997-2 Trade Cases P 71,987, 45 U.S.P.Q.2d 1001

COLLEGE SAVINGS BANK, Appellant in No. 97-5055, United States of America, Intervenor-Plaintiff in D.C., v. FLORIDA PREPAID POSTSECONDARY EDUCATION EXPENSE BOARD.

COLLEGE SAVINGS BANK, United States of America, Intervenor-Plaintiff in D.C., v. FLORIDA PREPAID POSTSECONDARY EDUCATION EXPENSE BOARD,

United States of America, Appellant in No. 97-5086.

Nos. 97-5055, 97-5086.

United States Court of Appeals Third Circuit.

Argued Oct. 20, 1997.

Decided Dec. 5, 1997.

David C. Todd (argued), Deborah M. Lodge, Patton Boggs, L.L.P., Washington, DC, Arnold B. Calmann Saiber, Schlesinger, Satz & Goldstein, Newark, NJ, for Appellant College Savings Bank.

Frank W. Hunger, Assistant Attorney General, Faith S. Hochberg, United States Attorney, Mark B. Stern, Michael E. Robinson (argued), Department of Justice, Washington, DC, for Intervenor-Appellant.

William B. Mallin (argued), Lewis F. Gould, Jr., Joseph M. Ramirez, Anne E. Hendricks, Eckert Seamans Cherin & Mellott, LLC, Pittsburgh, PA, Louis F. Hubener, Assistant Attorney General of Florida, Tallahassee, FL, for Appellee.

Gerald P. Dodson, Emily A. Evans, Arnold, White & Durkee, Menlo Park, CA, Richard L. Stanley Arnold, White & Durkee, Houston, TX, P. Martin Simpson, Jr., The University of California Office of Technology Transfer, Alameda, CA, for Amicus Curiae Regents of The University of California.

Before: MANSMANN, GREENBERG, and ALARCON, ^* Circuit Judges.

OPINION OF THE COURT

GREENBERG, Circuit Judge.

I. INTRODUCTION

College Savings Bank ("CSB") and the United States appeal from a final judgment entered in the district court on December 16, 1996, dismissing an unfair competition claim CSB brought against Florida Prepaid Postsecondary Education Expense Board ("Florida Prepaid") under the Lanham Act. See 15 U.S.C. § 1051 et seq. They assert that the district court had jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1338(a). We have jurisdiction to review the judgment of the district court pursuant to 28 U.S.C. § 1291, and we exercise plenary review. See Alston v. Redman, 34 F.3d 1237, 1242 (3d Cir.1994).

II. FACTUAL AND PROCEDURAL HISTORY

CSB is a New Jersey chartered, FDIC-member bank. Since 1987, it has been selling CollegeSure(R) CDs which are deposit contracts designed to provide sufficient funds to cover future costs of college education. CSB administers these deposit contracts in accordance with a patented methodology. See College Sav. Bank v. Florida Prepaid Postsecondary Educ. Expense Bd., 948 F.Supp. 400, 401 n. 1 (D.N.J.1996). The State of Florida created the appellee Florida Prepaid to market and sell tuition prepayment programs designed to provide sufficient funds to cover future college expenses. See Fla. Stat. ch. 240.551 (1997). In conjunction with the sale of its accounts, Florida Prepaid publishes brochures and issues annual reports. Thus, CSB and Florida Prepaid compete in selling this type of college savings account.

CSB first brought an action in the district court against Florida Prepaid on November 7, 1994, alleging that Florida Prepaid had infringed its patent. CSB subsequently brought another action in the same court on August 25, 1995, against Florida Prepaid alleging that it had violated section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). ¹ CSB claimed in the second action that Florida Prepaid made misstatements about Florida Prepaid's tuition savings plans in its brochures and annual reports which constituted unfair competition. We deal only with the second action and thus our further references are to that case.

Florida Prepaid answered the complaint and filed a counterclaim on November 8, 1995, alleging defamation, product disparagement, and trade libel based on statements made by Peter Roberts, president of CSB. CSB moved to dismiss the counterclaim on February 9, 1996, and the district court granted that motion on March 22, 1996.

Florida Prepaid filed motions to dismiss CSB's complaint on April 26, 1996, alleging that the recent Supreme Court decision of Seminole Tribe of Fla. v. Florida, 517 U.S. 44, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996), which confined Congress' authority to abrogate a state's Eleventh Amendment immunity from a suit in a federal court to the enforcement section of the Fourteenth Amendment, deprived the district court of jurisdiction. Florida Prepaid claimed that: (1) in the light of Seminole Tribe, the Trademark Remedy Clarification Act of 1992, Pub.L. No. 102-542, 106 Stat. 3567 (1992) ("TRCA"), which abrogated the states' Eleventh Amendment immunity under the Lanham Act, was unconstitutional, because the abrogation was not a proper exercise of Congress' Fourteenth Amendment enforcement powers; and (2) Seminole Tribe implicitly overruled the Parden doctrine, which allows for the constructive waiver of Eleventh Amendment immunity by a state engaging in an activity after Congress subjected it to suit arising from the activity. See Parden v. Terminal Ry. of Ala. State Docks Dep't, 377 U.S. 184, 84 S.Ct. 1207, 12 L.Ed.2d 233 (1964). The United States intervened on August 2, 1996, to defend the constitutionality of the Lanham Act's application to the states and thus does not take a position on CSB's other arguments.

With regard to the Lanham Act claim, the district court found that, after Seminole Tribe, the TRCA, as applied to the present case, was an unconstitutional attempt to abrogate the states' Eleventh Amendment immunity. The court concluded that inasmuch as this case does not involve a protected property interest, the enactment of the TRCA could not be a proper exercise of Congress' powers under section five, the enforcement section, of the Fourteenth Amendment. See College Sav. Bank, 948 F.Supp. at 426-27. The district court further held on two separate grounds that the Parden doctrine of constructive waiver did not permit CSB to sue Florida Prepaid in federal court. First, the district court found that the constructive waiver doctrine did not apply because Florida Prepaid was engaging in a core government function. See id. at 418. Second, the district court determined that the Supreme Court's decision in Seminole Tribe implicitly overruled the Parden doctrine of constructive waiver. See id. at 420. Therefore, on either of these grounds, the district court held that Parden did not permit CSB's suit against Florida Prepaid in federal court. Finally, the district court rejected CSB's contention that Florida Prepaid had waived its immunity through its appearance in the litigation. See id. at 414. Thus, the district court granted Florida Prepaid's motion to dismiss the Lanham Act claim on December 13, 1996.

CSB appealed from the dismissal of the Lanham Act claim to this court. ² We will affirm the district court's holding that the TRCA is an unconstitutional exercise of Congress' Fourteenth Amendment powers as applied to the present case, but we express no opinion on whether Seminole overruled Parden, because we hold that even if the Parden waiver doctrine is still viable, it does not apply to Florida Prepaid. Finally, we hold that Florida Prepaid did not waive its Eleventh Amendment immunity through its appearance in this litigation.

III. DISCUSSION

A. The Eleventh Amendment

The Eleventh Amendment provides:

The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.

The Supreme Court has interpreted the amendment to prevent suits against unconsenting states in federal court. See Seminole Tribe of Fla. v. Florida, at ----, 116 S.Ct. at 1122. Because Florida Prepaid is an arm of the State of Florida, see College Sav. Bank, 948 F.Supp. at 413, the Eleventh Amendment is a potential bar to CSB's suit against Florida Prepaid. However, this protection available to states under the Eleventh Amendment can be circumvented if Congress properly abrogates the immunity, see Seminole Tribe, at ----, 116 S.Ct. at 1123, or if a state waives its immunity and consents to suit in federal court. See Welch v. Texas Dep't of Highways and Pub. Transp., 483 U.S. 468, 473-74, 107 S.Ct. 2941, 2946, 97 L.Ed.2d 389 (1987). CSB contends that there has been both abrogation and waiver in this case. We will consider each of these arguments in turn.

B. The TRCA's Abrogation of Eleventh Amendment Immunity

One of the main purposes of section 43 of the Lanham Act is to protect persons engaged in interstate commerce against unfair competition caused by false or misleading representations or advertising about goods, services, or commercial activities. See 15 U.S.C. § 1125(a)(1). Congress amended the Act in 1992 when it enacted the TRCA to clarify its intent to abrogate the Eleventh Amendment immunity of states in actions under the Lanham Act. See 15 U.S.C. § 1125(a). Congress passed the TRCA in response to Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 246, 105 S.Ct. 3142, 3149, 87 L.Ed.2d 171 (1985), which required Congress to give an explicit and unambiguous statement in a statute to manifest an intent to abrogate the states' immunity under the Eleventh Amendment. See S.Rep. No. 102-280, at 4-7 (1992), reprinted in 1992 U.S.C.C.A.N. 3087, 3090-93. By enacting the TRCA, Congress intended to place states on an equal footing with commercial competitors. See id. at 3093, 3095. Inasmuch as Florida Prepaid is an arm of the State of Florida, the TRCA by its terms, if valid, would abrogate Florida Prepaid's Eleventh Amendment immunity. See College Sav. Bank, 948 F.Supp. at 413. However, Florida Prepaid argues that the Seminole Tribe decision limiting the scope of Congress' powers to abrogate a state's Eleventh Amendment immunity renders the TRCA unconstitutional as applied in this case. We agree with this contention.

1. The Seminole Tribe Decision

In Seminole Tribe, the Court set forth a...