Sweater Bee by Banff, Ltd. v. Manhattan Industries, Inc.

Citation754 F.2d 457
Decision Date06 February 1985
Docket NumberNo. 477,D,477
PartiesSWEATER BEE BY BANFF, LTD., Plaintiff-Appellant, v. MANHATTAN INDUSTRIES, INC. and Bayard Shirt Corporation, Defendants-Appellees, and Don Sophisticates, Inc. and Herbert Rounick, Defendants. ocket 84-7755.
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Dennis Grossman, New York City (Eileen King, Neil S. Kramer, New York City, of counsel), for plaintiff-appellant.

Thomas J. Sweeney, III, New York City (Cynthia A. Feigin, Davis, Markel, Dwyer & Edwards, Paul Fields, McAulay, Fields, Fisher, Goldstein & Nissen, New York City, of counsel), for defendants-appellees.

Before KAUFMAN, OAKES and NEWMAN, Circuit Judges.

OAKES, Circuit Judge:

Sweater Bee by Banff, Ltd. ("Sweater Bee"), and the Manhattan Industries, Inc., defendants ("Manhattan") have been in litigation over the trademark "Kimberly" on women's apparel practically since the day that the former owner of that mark formally abandoned it. The litigation first reached this court in Manhattan Industries, Inc. v. Sweater Bee by Banff, Ltd., 627 F.2d 628 (2d Cir.1980). There the court gave both sides the right to the use of the Kimberly mark, provided that the labels were sufficiently distinct so as to permit purchasers of high quality women's clothing to distinguish Manhattan's Kimberly goods from Sweater Bee's Kimberly goods. After remand, the parties entered into a consent order incorporated into a judgment of the United States District Court for the Southern District of New York, Vincent L. Broderick, Judge, (the "consent judgment"). Under the consent judgment, each of the parties obtained the right to use the Kimberly trademark or tradename in connection with the sale, distribution, and advertising of women's wearing apparel and all advertising material, brochures, labels, envelopes, business cards, and the like, but only when accompanied by a source reference, which "shall include the word 'by' immediately followed by the name, tradename or recognizable abbreviated name of the source," e.g., "Kimberly by Sweater Bee," "Kimberly by Manhattan." The consent judgment provided that "[a]ll disputes under or arising out of this judgment ... shall be resolved by an arbitration panel whose determination shall be final and binding." However, each party was nevertheless entitled to apply to the district court for the enforcement of any provision of the judgment as well as for the enforcement of any decision of an arbitration panel.

Alleging that Manhattan had procured its concurrent rights of ownership in the Kimberly trademark and tradename by perjury and fraud (which fraud became apparent after the prior appeal was determined), and that, notwithstanding the consent judgment On December 16, 1983, Sweater Bee filed a motion for a judgment of criminal contempt against Manhattan; for leave to file a second amended complaint that would add additional source-reference allegations, a claim for civil contempt, and a claim for RICO violations; and for partial summary judgment on the civil contempt claim. On December 30, 1983, Manhattan served its answer to the first amended complaint and raised certain counterclaims. The seventh defense of the answer was that Sweater Bee's claims relating to Manhattan's conduct subsequent to the completion of the prior trademark litigation could not be brought because the judgment provided for arbitration of "[a]ll disputes under or arising out of this judgment," making all alleged violations of the judgment subject to arbitration. In a letter to Judge Broderick dated January 20, 1984, Manhattan enclosed a notice of intent to arbitrate, pursuant to the consent judgment which followed on remand from Manhattan Industries, Inc. v. Sweater Bee by Banff, Ltd., supra, and to seek a stay pending arbitration of all source-reference claims made in the first amended complaint and the proposed second amended complaint. Manhattan subsequently filed a notice of cross-motion seeking arbitration and a stay pending arbitration on June 26, 1983.

Manhattan had in numerous respects violated the source-reference requirements of the consent judgment, Sweater Bee filed a complaint in federal district court on June 26, 1981, amended on March 24, 1982. The amended complaint alleged seventeen antitrust claims, four false-designation-of-origin claims under 15 U.S.C. Sec. 1125(a) (1982), two federal common law claims, several pendent state law claims, and a claim for conditional vacatur of certain findings of fact concerning Don Sophisticates 1 in the trademark action. On April 27, 1982, Manhattan filed a motion under Fed.R.Civ.P. 12(b)(6) to dismiss the amended complaint for failure to state a claim for relief, for failure to satisfy the pleading requirements of the Federal Rules of Civil Procedure, for plaintiff's lack of standing, and because the claims were barred by res judicata and Fed.R.Civ.P. 60(b). The motion to dismiss was denied by order dated October 18, 1982, in all respects except as to the following claims: Claims 22 and 23, which were based on federal common law; so much of Claim 25 as pleads an action in interference with contract; so much of Claim 26 as pleads an action in abuse of process; and all of Claim 28, which would have vacated certain findings of fact in the trademark action. Claims 5, 10, 15, 21, and so much of Claim 25 as pleads a cause of action in prima facie tort were voluntarily withdrawn by Sweater Bee, and the court dismissed them as well. The court denied Manhattan's motion for reargument of the denial of its motion to dismiss on December 1, 1983.

On August 23, 1984, the district court granted Manhattan's cross-motion in part, compelling arbitration and staying plaintiff's source-reference claims as alleged in Counts 16 through 20, 24, 25, and 27 of the proposed second amended complaint. The court held that Sweater Bee's civil contempt claim was more appropriately treated as an application under the previous action, Manhattan Industries, Inc. v. Sweater Bee by Banff, Ltd., supra, over which the court retained jurisdiction. Consequently, the court denied Sweater Bee's motions for leave to add the civil contempt claim to the proposed second amended complaint and for partial summary judgment as to liability for civil contempt. It placed Sweater Bee's motion for prompt trial of the charges of criminal contempt and for appointment of counsel to prosecute the charges of criminal contempt on suspense, and referred the issues relating to civil contempt to a master, each side to pay one-half the master's fees with the ultimate responsibility therefor to abide the event. Sweater Bee's motion to add RICO claims was denied, but its motion to add allegations of additional source-reference violations in the proposed second amended complaint was granted.

Only with the rather complex history of this multifaceted litigation thus outlined is it possible to state the primary question before this court on Sweater Bee's appeal: has Manhattan waived arbitration by its conduct in this litigation in seeking arbitration only after obtaining a ruling on its Rule 12(b)(6) motion to dismiss? We note parenthetically that neither party claims that the ruling that frames this issue is not appealable; we agree for reasons set out in the margin. 2 The other issue concerns whether the exercise of pendent appellate jurisdiction is appropriate in connection with the denial of Sweater Bee's motion to add civil contempt to the tort theories under which the source-reference allegations were being litigated, the denial of its motion for partial summary judgment as to liability for civil contempt, and the reference of the civil contempt claim to a master.

DISCUSSION

The principal issue on appeal involves waiver of arbitration by virtue of the Rule 12(b)(6) motion to dismiss. Sweater Bee claims that during the process of this litigation Manhattan has continued and expanded its source-reference contempts, by using an illegal telephone listing, an illegal lobby directory listing, shipping some 13,000 pieces of clothing apparel under the trademark Kimberly without the source reference, and omitting the source reference from trade show catalogs, invoices and purchase orders, much of which Sweater Bee claims to have discovered after filing the first amended complaint. The argument is that, while Manhattan eventually complied with the source-reference injunction, it was only after three years and litigation-gunpoint compliance. And, it is argued, for some two years Manhattan vigorously litigated issues going to the merits without mentioning or seeking arbitration or reference to a master. Manhattan is said now to benefit not only from the res judicata effect of the partial dismissal it obtained but also in having litigated the applicability of the Lanham Act, 15 U.S.C. Sec. 1125(a), several common law theories and punitive damages to the source-reference violations. Sweater Bee claims that two discovery motions, one of which was initiated by Manhattan, were also litigated, 3 resulting in Manhattan's production of approximately 6,000 pages of documents; and that Manhattan made at least five express representations on the record in the district court to the continued availability of a judicial forum upon which Sweater Bee "relied." The argument is that, by obtaining a judicial decision on the merits before seeking arbitration, a party is allowed two forums; a defendant failing to persuade a court that a plaintiff has not stated a claim on which relief can be granted would in effect be given a second chance in another forum. See Jones Motor Co. v. Chauffeurs, Local Union No. 633, 671 F.2d 38, 44 (1st Cir.) (waiver established as matter of law where defendant answers complaint, engages in considerable discovery, files motion for summary judgment, and waits until court decides sua sponte that matter should be referred to arbitration), cert. denied, 459 U.S. 943, 103...

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