American Plan Corp. v. State Loan & Finance Corp.

• Citation: 365 F.2d 635
• Decision Date: 07 September 1966
• Docket Number: No. 15797.,15797.
• Parties: The AMERICAN PLAN CORPORATION, Appellant, v. STATE LOAN & FINANCE CORPORATION.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

365 F.2d 635 (1966)

The AMERICAN PLAN CORPORATION, Appellant, v. STATE LOAN & FINANCE CORPORATION.

No. 15797.

United States Court of Appeals Third Circuit.

Argued May 19, 1966.

Decided September 7, 1966.

Rehearing Denied October 4, 1966.

Leo H. Hirsch, Jr., New York City (Berl, Potter & Anderson, Wilmington, Del., on the brief), for appellant.

Howard L. Williams, Wilmington, Del. (Robert M. High, Morris, James, Hitchens & Williams, Wilmington, Del., on the brief), for appellee.

Before STALEY, Chief Judge, and McLAUGHLIN and SMITH, Circuit Judges.

OPINION OF THE COURT

STALEY, Chief Judge.

This appeal requires us to decide whether, under the law of Delaware, the appellant's corporate name is of such a character as to prevent the appellee's subsidiaries from adopting corporate names identical or similar to it.

The appellant, American Plan Corporation, is a service organization; it provides insurance coverage on chattels which are being purchased on installment contracts. Though appellant is not itself an insurance company, it places insurance for the benefit of the holders of commercial paper through a number of different carriers. The characteristic which appears to make appellant unique is that it offers to banks, lending institutions, and other holders of commercial paper a comprehensive plan of insurance to guaranty the security value of the chattels which are being financed through the particular institution.

Appellant incorporated in 1947 and adopted its present name in 1948. Although it services only about two hundred institutions, the American Plan Corporation has solicited or conducted business in virtually every state. It advertises in trade journals and solicits business by mail. Much of its business comes to it on the recommendation of others.

The appellee, State Loan & Finance Corporation, is a parent corporation which conducts its business through more than five hundred subsidiaries in thirty different states. These subsidiaries are engaged primarily in the small loan business. Beginning in 1958 and becoming more prevalent in the 1960's, these subsidiaries began to use the words "American Plan Corporation" as corporate names or as part of their corporate names.¹ There are presently more than 140 of these subsidiaries employing the words "American Plan Corporation" in their titles, the most common being the American Plan Corporation of a particular city.²

The appellant commenced this action in the district court. It seeks to permanently enjoin³ the appellee from the use of "American Plan Corporation" in the conduct of its business and in the corporate names of its subsidiaries. The case proceeded to trial; and after the plaintiff had concluded its proof, the defendant moved under Rule 41(b) to dismiss the case on the grounds that plaintiff had established no right to relief. The court granted defendant's motion and in an oral opinion stated that plaintiff had failed to prove that its name had acquired a "secondary meaning" and that there had been no showing of likelihood of confusion, both of which were essential to its case. This appeal followed.

Jurisdiction exists in this case by virtue of diversity of citizenship. The conflicts rules to be applied are those of the forum state, Delaware. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). The parties agree that in the absence of proof that the law is different in the states where the torts occurred, Delaware courts will apply Delaware law. See Federal Glass Co. v. Federal Glass Co., Inc., 104 F.Supp. 692, 693-694 (D. Del., 1952), citing E. I. duPont de Nemours & Co. v. DuPont Safety Razor Corp., 32 Del.Ch. 156, 82 A.2d 384 (1951).

We note at the outset that there has been a considerable difference of opinion between the parties as to whether Delaware law is similar to the general law of unfair competition and, in particular, the common law of trade-name infringement. Our examination of the cases cited by the parties and our own independent research have failed to reveal any significant dissimilarity between the Delaware cases and the general law as formulated by the state and federal courts. The Delaware courts have themselves been cognizant of a limited body of Delaware law in this area, E. I. duPont de Nemours & Co. v. DuPont Safety Razor Corp., 32 Del.Ch. at 159, 82 A.2d at 386, and have shown no hesitancy to look to the law of other jurisdictions. Cf., Coca-Cola Co. v. Nehi Corp., 27 Del.Ch. 318, 36 A.2d 156 (1944). The District Court of Delaware, which has decided many cases in this area, has remarked that "a canvass of the Delaware decisions reveals that the local courts apply the universal principles governing the law of unfair competition," Taussig v. Wellington Fund, Inc., 187 F.Supp. 179, 193 (D.C., 1960), and we have agreed, aff'd, 313 F.2d 472, 474 at n. 2 (3 Cir., 1962), cert. denied, 374 U.S. 806, 83 S.Ct. 1693, 10 L.Ed.2d 1031 (1963).

The primary issue before us is whether the district court was correct in holding that Delaware law required the plaintiff to prove that its name had acquired a "secondary meaning." We conclude that it erred. We read the Delaware cases as holding that a plaintiff in a trade-name infringement — unfair competition case must show (1) either that its name is capable of exclusive appropriation or that its name, though not capable of exclusive appropriation, has acquired a "secondary meaning" and (2) that the name appropriated by the defendant is of such similarity to that of plaintiff that plaintiff's customers or potential customers are likely to confuse the two, United States Plywood Co., Inc. v. United Plywood Corp., 19 Del.Ch. 27, 161 A. 913 (1932); American Radio Stores, Inc. v. American Radio & Television Stores Corp., 17 Del.Ch. 127, 150 A. 180 (1930); Standard Oilshares, Inc. v. Standard Oil Group, Inc., 17 Del.Ch. 113, 150 A. 174 (1930); Delaware Charter Co. v. Delaware Charter Service Co., 16 Del.Ch. 246, 144 A. 659 (1929); Drugs Consolidated, Inc. v. Drug, Inc., 16 Del.Ch. 240, 144 A. 656 (1929).

For public policy reasons, words which are purely descriptive or purely geographical have been held to be non-exclusive. Absent a showing of secondary meaning, no action for unfair competition may be maintained. American Radio Stores, supra; Standard Oilshares, supra;⁴ see also annots., 66 A.L.R. 948, 957-958 (1930), and 115 A.L.R. 1241, 1244 (1938). Where, however, the words are arbitrary or fanciful and could be descriptive of anything, they are not descriptive at all, and the prior user is entitled to the exclusive use thereof. Hamilton-Brown Shoe Co. v. Wolf Bros. & Co., 240 U.S. 251, 257, 36 S.Ct. 269, 60 L.Ed. 629 (1916). Stated another way: "Rights in names of corporations which are made up of fanciful non-descriptive names are based on priority of use and as between two similar corporate names, not personal or descriptive in character, the one coming into existence last must give way to the prior one." 1 Nims, Unfair Competition and Trade-Marks § 92 at 279 (4th ed.).

Thus, the question of whether proof of secondary meaning is necessary resolves itself into the determination of whether the name "American Plan Corporation" is geographical or descriptive or fanciful or arbitrary. The specific issue before us has already been decided by the Delaware courts. In American Radio Stores, Inc. v. American Radio & Television Stores Corp., supra, the Court of Chancery stated:

"* * * The words `radio\' and `stores,\' * * * are purely descriptive and, when used by the complainant, have attached to them no meaning of a secondary nature. But when the word `American\' is used in conjunction with them, a distinguishing mark is introduced and the complainant is entitled to be protected in its use of that distinctive feature of its name." 17 Del.Ch. at 131, 150 A. at 183.

Similar results in the use of the term "American" were reached in Hamilton-Brown Shoe Co. v. Wolf Bros. & Co., supra ("American Girl" shoes), and Dennison Mfg. Co. v. Thomas Mfg. Co., 94 F. 651, 653 (D.Del., 1899) ("American Express" sealing wax). With regard to our earlier statement that Delaware follows the general law, it should be noted that the American Radio case goes even further than the general law in holding that an exclusive right may be established in a name which is a combination of the words "American" and the goods in which plaintiff deals. Compare Shaver v. Heller & Merz Co., 108 F. 821 (C.C.A. 8, 1901). With these precedents before us, we are compelled to conclude that appellant has an exclusive right to the use of the words "American Plan Corporation" and that proof of secondary meaning is unnecessary. Compare American Products Co. v. American Products Co., 42 F....