296 F.3d 200 (3rd Cir. 2002), 00-2713, Island Insteel Systems, Inc. v. Waters

Docket Nº:00-2713.
Citation:296 F.3d 200
Party Name:ISLAND INSTEEL SYSTEMS, INC.; Island Insteel Construction, Inc.; Peter W. Clark; The Peter W. Clark Family Trust; Alan R. Feuerstein, Appellants, v. Darrin WATERS; Tammy Waters; Tammy Most; Panels, Inc.: Concrete Panels Construction, Inc.; Pool Villas Condominium Association, an Unincorporated Association under the Laws of the United States Virgin
Case Date:July 17, 2002
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit
 
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296 F.3d 200 (3rd Cir. 2002)

ISLAND INSTEEL SYSTEMS, INC.; Island Insteel Construction, Inc.; Peter W. Clark; The Peter W. Clark Family Trust; Alan R. Feuerstein, Appellants,

v.

Darrin WATERS; Tammy Waters; Tammy Most; Panels, Inc.: Concrete Panels Construction, Inc.; Pool Villas Condominium Association, an Unincorporated Association under the Laws of the United States Virgin Islands; unknown Defendants A through Z.

No. 00-2713.

United States Court of Appeals, Third Circuit

July 17, 2002

Argued Dec. 3, 2001.

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Alan R. Feuerstein (argued), Feuerstein & Smith, LLP, Buffalo, NY, for appellants.

James M. Derr (argued), St. Thomas, VI, Danielle C. Comeaux, Hodge & Francois, Charlotte Amalie, St. Thomas, United States Virgin Islands, for appellees.

Before: BECKER, Chief Judge, NYGAARD and COWEN, Circuit Judges.

OPINION

BECKER, Chief Judge.

In this Lanham Act trademark infringement action, plaintiffs appeal from an order of the District Court of the Virgin Islands granting defendants' motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). Plaintiffs allege that defendants' unauthorized use of their "Insteel" trade name, which refers to a panel system of building construction, violates § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). The District Court held that it was clear from the complaint that plaintiffs' claims are subject to the two-year statute of limitations governing actions for fraud under Virgin Islands law and that their filing of an earlier identical action in the United States District Court for the District of Puerto Rico, which was dismissed for lack of personal jurisdiction, did not equitably toll the statute of limitations. Since the complaint in this case was not filed within the two-year limitations period, the District Court dismissed plaintiffs' claims as time-barred.

This appeal presents two main questions. First, we must determine the appropriate limitations period for these trademark infringement claims under § 43(a) of the Lanham Act. Second, we must determine whether filing suit in a court that lacks personal jurisdiction may equitably toll the statute of limitations if plaintiffs refile the lawsuit in a court that has jurisdiction. Both parties agree that because the Lanham Act lacks a statute of limitations, we must borrow a statute of limitations from Virgin Islands law. Plaintiffs submit that the most appropriate statute of limitations under Virgin Islands law is the catch-all six-year statute of limitations for "[a]n action upon a liability created by statute" that does not fall within any

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of the specifically enumerated limitations periods. 5 V.I.C. § 31(3)(B). Defendants respond that the cause of action under Virgin Islands law most analogous to plaintiffs' trademark infringement claims is either an action for common law fraud or an action for deceptive trade practices in violation of 12A V.I.C. § 101, both of which are subject to a two-year limitations period.

Because plaintiffs have failed to identify a specific statutory cause of action under Virgin Islands law that is analogous to their Lanham Act claim and is subject to the catch-all six-year limitations period for actions upon a liability created by a statute that lacks a statute of limitations, we decline to apply the six-year statute of limitations. That conclusion relegates us to a choice between an action for fraud and an action for deceptive trade practices, both subject to a two-year statute of limitations under Virgin Islands law. But we still must decide which cause of action more closely resembles plaintiffs' claims since the statute of limitations for fraud begins running on the date plaintiffs discovered the fraud, whereas the statute of limitations for deceptive trade practices begins running on the date the actionable conduct occurred.

We hold that the cause of action under Virgin Islands law most analogous to a claim for trademark infringement under § 43(a) of the Lanham Act is the cause of action for deceptive trade practices in violation of 12A V.I.C. § 101. Like a trademark infringement action under § 43(a), but unlike an action for common law fraud, an action for deceptive trade practices does not require proof of scienter. Moreover, while a common law fraud claim requires a plaintiff to prove actual reliance, an action for deceptive trade practices simply requires proof that the practice at issue has the "tendency or effect of deceiving or misleading consumers," which more closely resembles the "likelihood of confusion" element that is the touchstone of a § 43(a) claim. Accordingly, plaintiffs' claims in this case are subject to a two-year statute of limitations, which began running on the occurrence of the actionable conduct.

While plaintiffs concede that the allegedly unlawful conduct occurred more than two years before the date they filed this suit, invoking the doctrine of equitable tolling, they submit that even under this statute of limitations their suit is not time-barred since they filed an identical action in the District of Puerto Rico within the two-year limitations period. That suit was dismissed for lack of personal jurisdiction. Defendants respond that because the first action was dismissed for lack of personal jurisdiction, the District Court properly held that the filing of that action did not equitably toll the statute of limitations. Whether filing suit in a court that lacks personal jurisdiction over a defendant may equitably toll the statute of limitations presents us with a question of first impression under Virgin Islands law. Because: (1) there is no statute on point; (2) the American Law Institute Restatements of the Law are silent on the issue, see 1 V.I.C. § 4; and (3) there is a split of authority among those courts that have addressed the question under the common law of other states, we must select the rule that we believe to be better and more consistent with Virgin Islands jurisprudence and policy. See Polius v. Clark Equip. Co., 802 F.2d 75, 77 (3d Cir. 1986).

We hold that under Virgin Islands law, the statute of limitations for a second action may be equitably tolled by the filing of an earlier action dismissed for lack of personal jurisdiction if: (1) the first action gave the defendant timely notice of plaintiffs claim; (2) the lapse of time between

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the first and second actions will not prejudice the defendant; and (3) the plaintiff prosecuted the first action in good faith and diligently filed the second action. This doctrine of equitable tolling preserves the protections that statutes of limitations are intended to afford to defendants. At the same time, it avoids the unfairness to plaintiffs that would occur if plaintiffs who diligently but mistakenly prosecute their claims in a court that lacks personal jurisdiction find their claims time-barred when they refile in a proper jurisdiction.

Application of this equitable tolling doctrine, like most equitable doctrines, is committed to the discretion of the district court in the first instance. Moreover, how the issue should be resolved in this case is far from clear. Therefore, we will vacate the order of the District Court and remand the case to the District Court to determine whether the plaintiffs satisfy the elements of this equitable tolling doctrine.

I.

Plaintiffs are Island Insteel Systems, Inc., Island Insteel Construction, Inc., and individual shareholders of those corporations, who allege that defendants unlawfully used the "Insteel" trade name. The defendants are Panels, Inc., Concrete Panels Construction, Inc., and their individual officers and shareholders, who were also officers and shareholders of the plaintiff corporations. In May 1994, the individual plaintiffs and individual defendants, then in business together, formed the plaintiff corporations to market in the U.S. Virgin Islands and the Caribbean the "Insteel" panel system of building construction distributed by Insteel Construction Systems. Inc., of Brunswick, Georgia ("Insteel Georgia"), which is not a party to this suit.

In September of 1995, Hurricane Marilyn devastated the Virgin Islands, causing severe property destruction. Homes constructed using the "Insteel" panel system, however, withstood the hurricane with little damage. Due to the "Insteel" buildings' survival of the hurricane, the plaintiff corporations were able to secure more than $500,000 worth of building contracts in St. Thomas and elsewhere. Plaintiffs were unable to begin work on these contracts until they obtained approval of their construction system under the new building code adopted by the U.S. Virgin Islands in response to the severity of damage caused by the hurricane. The delay in plaintiffs' construction pending their approval caused a backlog of construction work, so that by early 1996, the plaintiff corporations' work calendars were completely full.

Plaintiffs allege that in January 1996, the individual defendants formed the defendant corporations, and, unbeknownst to plaintiffs, began to use the Insteel trade name to promote the business of the defendant corporations. On November 17, 1997, having learned of this usage, plaintiffs filed a complaint against defendants in the District Court for the District of Puerto Rico alleging that defendants' unauthorized use of the Insteel trade name violated § 43(a) of the Lanham Act. In an order docketed on October 30, 1998, that court dismissed the complaint for lack of personal jurisdiction. On January 28, 1999, plaintiffs refiled their action in the District Court of the Virgin Islands.

The District Court granted defendants' 12(b)(6) motion to dismiss plaintiffs' claims as time-barred under the two-year...

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