Hulburt Oil & Grease Co. v. Hulburt Oil & Grease Co., 15590.

• Decision Date: 19 December 1966
• Docket Number: No. 15590.,15590.
• Parties: HULBURT OIL & GREASE COMPANY, a Pennsylvania corporation, Plaintiff-Appellee, v. HULBURT OIL & GREASE COMPANY, an Illinois corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

371 F.2d 251 (1966)

HULBURT OIL & GREASE COMPANY, a Pennsylvania corporation, Plaintiff-Appellee, v. HULBURT OIL & GREASE COMPANY, an Illinois corporation, Defendant-Appellant.

No. 15590.

United States Court of Appeals Seventh Circuit.

December 19, 1966.

Bayard M. Graf, Philadelphia, Pa., Donald W. Garlinger, Chicago, Ill., J. Willison Smith, Jr., Philadelphia, Pa., for defendant-appellant, Hinshaw, Culbertson, Moelmann, & Hoban, Chicago, Ill., of counsel.

Norman A. Miller, John R. Caffrey, Chicago, Ill., Fred C. Aldridge, Jr., Philadelphia, Pa., Jacob T. Pincus, Chicago, Ill., for plaintiff-appellee, Clausen, Hirsh, Miller & Gorman, Chicago, Ill., Stradley, Ronon, Stevens & Young, Philadelphia, Pa., of counsel.

Before KNOCH, SWYGERT and FAIRCHILD, Circuit Judges.

SWYGERT, Circuit Judge.

The Hulburt Oil and Grease Company, a Pennsylvania corporation, brought this diversity action for unfair competition against the defendant, an Illinois corporation, to determine the defendant's right to use the name "Hulburt Oil and Grease Company" in Illinois. The defendant appeals from a judgment of the district court directing the defendant to change its corporate name, permanently enjoining the defendant from using a name so similar to the plaintiff's name that confusion is likely to result, and awarding compensatory damages to the plaintiff in the amount of $35,562.91 and punitive damages of one dollar.¹ The principal question is whether the plaintiff is barred from maintaining this action by Ill.Rev.Stat. ch. 32, § 157.125 (1965) as a foreign corporation transacting business in Illinois without a certificate of authority.

The facts found by the district court, sitting without a jury, are attacked generally by the defendant as unsupported conclusions and are challenged specifically in a few instances as contrary to the evidence. Our review of the record exposes none of these findings as clearly erroneous and it will not be necessary to discuss any of them extensively.

The plaintiff corporation was organized in Pennsylvania in 1910 as "C. Hulburt & Company," succeeding to a business which dates back to 1861. It has been engaged in the manufacture and sale of lubricating oils and similar products under the name "Hulburt Oil and Grease Company" since 1918. During this time the plaintiff has expended substantial sums of money promoting its corporate and trade name in several states including Illinois, and its name has become well known and of considerable value. The plaintiff has been doing business in Illinois for many years, although until just prior to this lawsuit it did not attempt to qualify under the Illinois Business Corporation Act as a foreign corporation authorized to transact business within the state. In 1963, the plaintiff acquired and began operating a plant in Benton, Illinois.

John R. Michael became a minority stockholder and the general manager of the plaintiff in 1920. In his capacity as general manager, a director, and the holder of a variety of corporate offices, he effectively ran the company for many years. In 1955 his son David succeeded him as general manager, but John R. Michael remained in the company's employment by virtue of certain consulting agreements and retained substantial influence in its everyday affairs.

On several occasions during his tenure with the plaintiff, including at least one occasion while he was the plaintiff's general manager and again in 1963 when the plaintiff purchased its Benton plant, John R. Michael was informed of the necessity of qualifying the corporation to do business in Illinois. Although his position was such that it became his duty to take the necessary action to protect the plaintiff's interests, Michael did nothing.

Early in 1964, for reasons which are not relevant here, a general misunderstanding arose between John and David Michael and the majority stockholders of the plaintiff, Anna and W. Stuart Emmons. On April 9, 1964, following heated negotiations, the Michaels,² the Emmonses, and the plaintiff entered into a settlement agreement. The agreement envisioned the sale of the Michaels' stock to the plaintiff, and the further execution of a settlement contract providing for the termination of the Michaels' employment with the plaintiff and a general release of all claims among the parties. The sale of stock was consummated and the settlement contract executed on May 7, 1964. The settlement contract, among other things, terminated the most recent consulting agreement under which John R. Michael had been employed, contained the general release called for in the settlement agreement, and provided that the Michaels were free to compete with the Emmonses and the plaintiff "in any lawful manner in their sole discretion deemed appropriate."

In the meantime, during the last week of April 1964, while still in the plaintiff's employ, John R. Michael prompted his attorney to seek the assistance of the C-T Corporation System in "determining" whether the name "Hulburt Oil and Grease Company" was available for incorporation in a number of states, including Illinois. On May 4, 1964, the name was reserved in Illinois. Subsequently, on May 21, 1964, two weeks after the execution of the settlement contract, John R. Michael caused the incorporation of the defendant and became its sole shareholder. His actions in reserving the defendant's name and incorporating the defendant were taken clandestinely and without the knowledge of the plaintiff. The district court found that he acted maliciously and intentionally to prevent the plaintiff from qualifying to do business as a foreign corporation in Illinois and to take the plaintiff's name for himself.

In June 1964 the officers of the plaintiff learned that the plaintiff was not qualified in Illinois and applied to the Secretary of State for a certificate of authority. The application was rejected solely by reason of the existence of the defendant. This suit followed.

The defendant's principal contention is that the law of Illinois prohibits the plaintiff from maintaining this action. The plaintiff has admittedly been doing business in Illinois for many years with out a certificate of authority and has been unable to obtain one because of the incorporation of the defendant.³ Ill.Rev. Stat. ch. 32, § 157.125 (1965) provides in part:

No foreign corporation transacting business in this state without a certificate of authority shall be permitted to maintain an action at law or in equity in any court of this State, until such corporation shall have obtained a certificate of authority. * * *

Although the Illinois courts have enforced the predecessor of this provision in other contexts, e. g., Indiana Harbor Belt R. R. v. Green, 289 Ill. 81, 124 N.E. 298 (1919); J. Walter Thompson Co. v. Whitehed, 185 Ill. 454, 56 N.E. 1106 (1900), no Illinois decisions appear to have considered the statute in relation to the question presented by the facts in this case. The defendant argues that the statute is conclusive and that the unavailability of any remedy to the plaintiff is the result of the plaintiff's illegal activity in Illinois. He relies upon Hazelton Boiler Co. v. Hazelton Tripod Boiler Co., 142 Ill. 494, 30 N.E. 339 (1892), and a statement by this court in General Industries Co. v. 20 Wacker Drive Bldg. Corp., 156 F.2d 474 (7th Cir.), cert. denied, 329 U.S. 792, 67 S.Ct. 370, 91 L.Ed. 678 (1946), to support his view, even though neither of these cases was concerned with the statute quoted.

The defendant's reliance upon Hazelton is misplaced. In that case the Illinois Supreme Court, without referring to any statute, asserted the legally unsound proposition that a foreign corporation (present in Illinois "only by a species of legal sufferance") could not contest the right of a domestic corporation to the corporate name given to the domestic corporation by the state, because in "bestowing" a name upon a domestic corporation Illinois was exercising its "sovereignty" and stating its "public policy." Hazelton Boiler Co. v. Hazelton Tripod Boiler Co., 142 Ill. at 505, 30 N.E. 339. Insofar as Hazelton stands for this proposition, it has been uniformly rejected. E. g., Radio Shack Corp. v. Radio Shack, Inc., 180 F.2d 200 (7th Cir. 1950); Peck Bros. v. Peck Bros., 113 F. 291 (7th Cir.), cert. denied, 187 U.S. 643, 23 S.Ct. 843, 47 L.Ed. 346 (1902); Metropolitan Opera Ass'n v. Metropolitan Opera Ass'n, 81 F.Supp. 127 (N.D.Ill.1948); United States Light & Heating Co. of Maine v. United States Light & Heating Co. of New York, 181 F. 182 (S.D.N.Y.1910).

It can no longer be argued that in allowing incorporation under its laws, a state thereby intends to license the commission of what would otherwise be a tortious act. In other words, a state does not pass upon the legality of a corporate name by merely permitting incorporation under that name.⁴ The "sovereignty" and "public policy" rationale of Hazelton was implicitly rejected in International Comm. of YWCA v. YWCA, 194 Ill. 194, 62 N.E. 551 (1901), when the Illinois Supreme Court approved the issuance of an injunction restraining a domestic corporation from using the name under which it was incorporated.

While Illinois manifestly has not determined the legality of the defendant's use of the name "Hulburt Oil and Grease Company" by permitting the defendant to incorporate, this is not to say that Illinois may not close its courts to suits by foreign corporations which have been doing business in Illinois contrary to state law. This court recognized that Illinois has the power to do so in the General Industries case when we stated:

The State of Illinois may deny to a foreign corporation the right to sue in its courts to enjoin a domestic corporation from using a name similar to that of the foreign corporation where such foreign corporation has not complied with the statute of Illinois which permits such corporation to do business in the State. General Industries v. 20 Wacker Drive

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