Taussig v. Wellington Fund, Inc.

• Decision Date: 23 January 1963
• Docket Number: No. 13702-13705.,13702-13705.
• Parties: Ralph J. TAUSSIG and Sally G. Taussig, His Wife, as Tenants by the Entireties v. WELLINGTON FUND, INC., Wellington Equity Fund, Inc., the Wellington Company, and Wellington Company, Ltd., Delaware Corporations. Wellington Equity Fund, Inc., the Wellington Company, Wellington Company, Ltd., Appellants in 13,702, Wellington Fund, Inc., Appellant in 13,703, Ralph J. Taussig and Sally G. Taussig, His Wife, as Tenants by the Entireties, Appellants in 13,704 and 13,705.
• Court: U.S. Court of Appeals — Third Circuit

313 F.2d 472 (1963)

Ralph J. TAUSSIG and Sally G. Taussig, His Wife, as Tenants by the Entireties v. WELLINGTON FUND, INC., Wellington Equity Fund, Inc., the Wellington Company, and Wellington Company, Ltd., Delaware Corporations.

Wellington Equity Fund, Inc., the Wellington Company, Wellington Company, Ltd., Appellants in 13,702, Wellington Fund, Inc., Appellant in 13,703, Ralph J. Taussig and Sally G. Taussig, His Wife, as Tenants by the Entireties, Appellants in 13,704 and 13,705.

Nos. 13702-13705.

United States Court of Appeals Third Circuit.

Submitted July 23, 1962.

Decided January 23, 1963.

Richard F. Corroon, Wilmington, Del. (Berl Potter & Anderson, Wilmington, Del., on the brief), for appellant Wellington Fund, Inc., in No. 13703 only.

Daniel Mungall, Jr., Philadelphia, Pa. (Stradley, Ronon, Stevens & Young, Philadelphia, Pa., on the brief), for appellants in Nos. 13702 & 13703 and for appellees in Nos. 13704 and 13705.

Edwin P. Rome, Philadelphia, Pa. (Blank, Rudenko, Klaus & Rome, Philadelphia, Pa., Morris Relson, William F. Dudine, Jr., Darby & Darby, New York City, Morris L. Weisberg, Philadelphia, Pa., Floyd H. Crews, Harvey W. Mortimer, New York City, William E. Taylor, Jr., Wilmington, Del., on the brief), for Ralph J. Taussig and Sally G. Taussig, appellants in Nos. 13704 and 13705; and appellees in Nos. 13702 and 13703.

Peter A. Dammann, Gen. Counsel, David Ferber and Walter P. North, Assoc. Gen. Counsels, George P. Michaely, Jr., Sp. Counsel, Donald R. Jolliffe, Atty., Securities and Exchange Commission, Washington, D. C., on the brief for amicus curiae.

Before KALODNER, HASTIE and SMITH, Circuit Judges.

HASTIE, Circuit Judge.

In this stockholders' derivative suit the district court decided that the adoption and use of the name "Wellington" by Wellington Equity Fund, an openend, diversified, management investment company, constituted unfair competition in relation to Wellington Fund, Inc., a similar enterprise which had become well and favorably known as a large, active and successful mutual fund long before the 1958 organization of Wellington Equity Fund as a new investment company.

The plaintiffs are stockholders of Wellington Fund, Inc., and sue in the interest of that corporation and its stockholders, although the corporation itself is formally designated as a defendant. The other defendants, against whom relief is sought, are the above mentioned Wellington Equity Fund and two related enterprises. Defendant Wellington Co., Ltd., is the investment adviser of Wellington Equity Fund. Defendant Wellington Co. is sued as distributor of both Wellington Fund and Wellington Equity Fund, and as investment adviser of Wellington Fund.¹ All of the defendants are Delaware corporations.

The complaint charged that the adoption and use of the name "Wellington" by Wellington Equity Fund constituted both an actionable violation of federal rights derived from the Investment Company Act of 1940, 54 Stat. 789, 15 U. S.C. § 80a-1 et seq., and a violation of the common law² of unfair competition. The same relief, an injunction and monetary recovery, was sought under both the statutory claim and the common-law claim.

Diversity of citizenship not having been established, the district court found in the complaint an assertion of federal question jurisdiction, adequate under the doctrine of pendent jurisdiction to permit the consideration of the common-law claim as well. Relief was then granted solely upon the common-law claim. 187 F.Supp. 179, 220. More particularly, Wellington Equity Fund was enjoined from using the name "Wellington", and the advisory and distributing corporations were enjoined from using that name with reference to any investment company other than Wellington Fund. The prayer of the plaintiffs for damages and an accounting was denied. Wellington Equity Fund and the two associated corporations have appealed from the granting of injunctive relief. The plaintiffs have appealed from the denial of damages and an accounting.

Jurisdiction is our first concern. The alleged violation of the common law of unfair competition, standing alone, would not have been within federal jurisdiction. But here, the coupling of this basis of recovery with a contention that the conduct of the defendants also violated federal statutes is said to bring the alleged violation of state law within the so-called pendent jurisdiction of a federal court.

Decision on this jurisdictional point is simplified in this case by the fact that the relief sought is the same on both legal grounds. Moreover, this case does not involve the often vexatious question whether the factual basis for federal statutory relief is substantially different from the factual basis of the asserted common-law right or, as the issue is often stated, whether the suit presents a single cause of action. Here, it is clear that essentially the same facts are relevant whatever the liability-creating law may be. The one issue requiring discussion is whether the asserted federal statutory claim is substantial enough to justify the adjudication of the coupled common-law claim. In other words, the debatable matter is whether federal question jurisdiction is established as a basis for ancillary jurisdiction.

The leading cases on pendent jurisdiction hold that an actual right to relief under some federal statute need not be established to justify adjudication of the merits of a coupled common-law claim. Hurn v. Oursler, 1933, 289 U.S. 238, 53 S.Ct. 586, 77 L.Ed. 1148; Armstrong Paint & Varnish Works v. Nu-Enamel Corp., 1938, 305 U.S. 315, 59 S.Ct. 191, 83 L.Ed. 195. The common-law claim must be dismissed only if the coupled federal contention is "plainly unsubstantial either because obviously without merit, or `because its unsoundness so clearly results from the previous decisions of this court as to foreclose the subject and leave no room for the inference that the questions sought to be raised can be the subject of controversy.'" Levering & Garrigues Co. v. Morrin, 1933, 289 U.S. 103, 105-106, 53 S.Ct. 549, 550, 77 L.Ed. 1062. See also Bell v. Hood, 1946, 327 U.S. 678, 681-683, 66 S.Ct. 773, 90 L.Ed. 939.

Thus, we must consider whether such "unsubstantiality" characterizes the claim that the use of the name "Wellington" by Wellington Equity Fund violates a federal right derived from the Investment Company Act of 1940. In the court below the starting point for this inquiry was Section 35(d) of the statute, 54 Stat. 840, 15 U.S.C. § 80a-34(d), which provides:

"It shall be unlawful for any registered investment company hereafter to adopt as a part of the name or title of such company * * * any word or words which the Commission finds and by order declares to be deceptive or misleading. The Commission is authorized to bring an action in the proper district court of the United States or United States court of any Territory or other place subject to the jurisdiction of the United States alleging that the name or title of any registered investment company, or of any security which it has issued, is materially deceptive or misleading."

Under this section a district court would have jurisdiction to adjudicate a claim by the Securities and Exchange Commission that the use by one openend, diversified, management investment company of an identifying part of the name of another should be enjoined in order to avoid harm resulting from the confusion of investors as to the identity of either fund or the investment opportunity it offers to the general public. But this is just the beginning of the reasoning required to establish federal question jurisdiction over the present private civil suit. The plaintiffs must argue that once the federal statute has made it legally wrong for an investment company to adopt a name that is materially deceptive or misleading, it is within the authority of a federal court to provide a civil remedy to anyone aggrieved by that wrong, even though the special remedy Congress has provided for the wrong is of a different character. It is arguable on the one hand that in this situation it should be implied that the remedy provided by Congress is exclusive, as has been done with reference to the National Labor Relations Act. Cf. Amalgamated Util. Workers v. Consolidated Edison Co., 1940, 309 U.S. 261, 60 S.Ct. 561, 84 L.Ed. 738. On the other hand, it is arguable, as has been held in certain cases under the Securities Exchange Act of 1934, that a court may properly afford civil relief to a person injured by deceptive conduct which Congress has declared unlawful, even in the absence of an express provision for such a remedy. Cf. Baird v. Franklin, 2d Cir., 1944, 141 F.2d 238, 244-245, cert. denied 323 U.S. 737, 65 S.Ct. 38, 89 L. Ed. 591; Note, 1948, 61 Harv.L.Rev. 858.

More generally, it is frequently held that a breach of statutory duty which causes injury to one of the class that the statute serves to protect affords by implication a sufficient basis for a private civil suit by the injured party. Texas & Pac. Ry. v. Rigsby, 1916, 241 U.S. 33, 36 S.Ct. 482, 60 L.Ed. 874; Tunstall v. Brotherhood of Locomotive Firemen, 1944, 323 U.S. 210, 65 S.Ct. 235, 89 L.Ed. 187. 2 Restatement, Torts § 286. To apply that doctrine here would require a conclusion that section 35(d) is legislation for the protection, not only of those contemplating investment, but also of investors and investment companies already in the field. Nothing has been pointed out in the legislative history of the Investment Company Act of 1940 which bears upon this point, and it may reasonably be doubted whether Congress adverted to it. However, congressional contemplation of implied private rights of action may be suggested by a provision of section 44 of the Act, 54 Stat. 844, 15 U.S.C. § 80a-43, giving the district courts jurisdiction "of all suits in equity and actions at law brought to enforce any liability or duty created by, or to enjoin any violation of" the Act. No...