Doud v. Hodge, Civ. A. No. 53 C 2322.

• Decision Date: 12 June 1956
• Docket Number: Civ. A. No. 53 C 2322.
• Citation: 146 F. Supp. 887
• Parties: George W. DOUD, Donald Q. McDonald, and J. Wesley Carlson, doing business as Bondified Systems, and Eugene Derrick, Plaintiffs, v. Orville HODGE, Auditor of Public Accounts of the State of Illinois (Lloyd Morey), Latham Castle, Attorney General of the State of Illinois, and John Gutknecht, State's Attorney of Cook County, Illinois, Defendants.
• Court: U.S. District Court — Northern District of Illinois

146 F. Supp. 887

George W. DOUD, Donald Q. McDonald, and J. Wesley Carlson, doing business as Bondified Systems, and Eugene Derrick, Plaintiffs, v. Orville HODGE, Auditor of Public Accounts of the State of Illinois (Lloyd Morey), Latham Castle, Attorney General of the State of Illinois, and John Gutknecht, State's Attorney of Cook County, Illinois, Defendants.

Civ. A. No. 53 C 2322.

United States District Court N. D. Illinois, E. D.

June 12, 1956.

John J. Yowell, Leonard Bosgraf, Harold B. MacKenzie, Chicago, Ill., for plaintiffs.

Latham Castle, Atty. Gen. of Illinois, John Gutknecht, State's Atty. of Cook County, Ill., Chicago, Ill., for defendants. William C. Wines, Raymond S. Sarnow, Asst. Attys. Gen. of Illinois, Clarence W. Beatty, Jr., Asst. State's Atty. of Cook County, Ill., Chicago, Ill., of counsel.

Hirsch E. Soble, Chicago, Ill., amicus curiae.

Before SCHNACKENBERG, Circuit Judge, and LA BUY and HOFFMAN, District Judges.

HOFFMAN, District Judge.

The plaintiffs, George W. Doud, Donald Q. McDonald and J. Wesley Carlson, a partnership doing business as Bondified Systems, and Eugene Derrick, agent of said partnership, seek to enjoin the defendants from enforcing the provisions of the Illinois Community Currency Exchange Act (Ill.Rev.Stat.1955, c. 16½, §§ 30-56.3) against them on the ground that it violates the Fourteenth Amendment to the federal constitution in that it discriminates unlawfully against them and in favor of the American Express Company. The defendants are the Auditor of Public Accounts of the State of Illinois, the Attorney General of the State of Illinois, and the State's Attorney of Cook County, Illinois.

After all of the evidence was heard, this court, pursuant to a memorandum of February 4, 1955, 127 F.Supp. 853, dismissed the complaint for want of jurisdiction. Brief findings of fact and conclusions of law were entered on February 9, 1955. Our order dismissing the complaint was reversed by the Supreme Court, 350 U.S. 485, 76 S.Ct. 491, March 26, 1956, which remanded the case to us. Having considered the evidence and the briefs previously filed by the parties, we are ready to determine whether or not the plaintiffs are entitled to the relief they seek.

The Illinois Community Currency Exchange Act establishes a system of regulation of currency exchanges throughout the state and requires among other things, a license, the payment of fees, bonds, insurance, annual reports, etc. The provisions of the Act apply to all community currency exchanges as that term is defined in § 31 of the Act. It is in the definition of a currency exchange, however, that the alleged discriminatory provision appears. Section 31 provides:

"`Community currency exchange' means any person, firm, association, partnership or corporation, * * * engaged at a fixed and permanent place of business, in the business or service of, and providing facilities for, cashing checks, drafts, money orders or any other evidences of money acceptable to such community currency exchange, for a fee or service charge or other consideration, or engaged in the business of selling or issuing money orders under his or their or its name, or any other money orders (other than United States Post Office money orders, American Express Company money orders, Postal Telegraph Company money orders, or Western Union Telegraph Company money orders), or engaged in both such businesses, or engaged in performing any one or more of the foregoing services." (Emphasis added.)

The plaintiffs, who sell "Bondified" Post Card Checks and Money Orders under a license from Checks, Inc.,¹ a Minnesota corporation which owns the registered trade mark, contend, and the evidence sustains, that they operate their business in substantially the same manner as that of the American Express Company — i. e., they confine their operations to selling and issuing money orders, and this business is conducted through authorized agents,² located principally in retail establishments such as drug and grocery stores. Yet the plaintiffs are unable to operate lawfully under the Act since § 38 prohibits a currency exchange from being conducted as a part of another business and even if they could overcome this obstacle, they would be required to obtain a separate license for each agency and to pay the numerous license and inspection fees for each outlet. American Express, on the other hand, is relieved of all these burdens.

The defendants have raised several preliminary matters in addition to the point previously dealt with by this court and the Supreme Court. Defendants claim that the plaintiffs may not invoke the equitable powers of this court because they have not come into equity with clean hands. For this they rely on two matters: (1) On the partnership money order forms the word "Licensed" appears at the bottom of the form in small letters opposite the word "Bonded". This is said to amount to a fraud on the public by implying that plaintiffs are licensed under the Illinois Currency Exchange Act. (2) The operation by the partnership under a license from Checks, Inc., is said itself to constitute a fraud because no license of a trade mark may be made unless accompanied by a transfer of the business.

The defense of unclean hands could be summarily disposed of by reference to a similar charge made in Toomer v. Witsell, 1948, 334 U.S. 385, 68 S.Ct. 1156, 92 L.Ed. 1460. The Supreme Court noted that some of the plaintiffs had previously been convicted of violations of the statutes whose validity they attacked.

"The District Court held that this previous misconduct, not having any relation to the constitutionality of the challenged statutes, did not call for application of the clean hands maxim. We agree." 334 U.S. at page 393, 68 S.Ct. at page 1160; and see opinion of the District Court E.D.S.C.1947, 73 F.Supp. 371, 374.

Since the defendants vigorously urge this point, we will go beyond the short answer. While the use of the word "Licensed" might appear ambiguous to us, no evidence was introduced to show that the public is enticed into purchasing Bondified Money Orders by reason of their belief that the plaintiffs hold a license under the Currency Exchange Act. Moreover, we were persuaded by the plaintiffs' sincerity in explaining that they intended the expression to refer to a license from Checks, Inc., to handle Bondified Money Orders. This conduct is clearly not of such a nature as to bar the plaintiffs from relief.

With respect to the license of the trade mark "Bondified" from Checks, Inc., defendants contend that the attempt to license the use of a trade mark without a concurrent transfer of the business itself was ineffective and a fraud. Even if it is assumed that the same principles apply to service marks as to ordinary trade marks, a license may be made of a mark other than as an incident of a transfer of business so long as the agreement is not merely a "naked" license agreement. E. I. du Pont de Nemours & Co. v. Celanese Corp. of America, 1948, 167 F. 2d 484, 35 C.C.P.A., Patents, 1061, 3 A.L.R.2d 1213 (decided without benefit of the liberalizing provisions of the Lanham Act). In that case the court approved an agreement under which the licensor established certain standards for the licensee to follow in making the product under the assigned trade mark. A trade mark license is valid if it provides for "supervisory control of the product or services". Arthur Murray, Inc., v. Horst, D.C.D. Mass.1953, 110 F.Supp. 678, 679. The "Operator Contract" (Pl. Ex. 5) between Checks, Inc., and Bondified Systems, Inc., through which the plaintiffs are authorized to deal in Bondified checks and money orders, contains numerous controls and standards which Bondified Systems and its agencies must meet and is much more than a "naked" license agreement.

The plaintiffs have, we believe, sufficiently demonstrated the imminence of irreparable injury, entitling them to injunctive relief. See Toomer v. Witsell, 1948, 334 U.S. 385, 391-392, 68 S.Ct. 1156, 92 L.Ed. 1460. While the defendants allege that their threats to enforce the Act were general and call attention to the fact that they have taken no legal action against the plaintiffs,³ they concede that plaintif...