Colonial Penn Group, Inc. v. Colonial Deposit Co., 87-1254

• Decision Date: 14 September 1987
• Docket Number: No. 87-1254,87-1254
• Citation: 834 F.2d 229
• Parties: COLONIAL PENN GROUP, INC., and Bay Loan and Investment Bank, Plaintiffs, Appellants, v. COLONIAL DEPOSIT COMPANY, Defendant, Appellee. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 229

834 F.2d 229

5 U.S.P.Q.2d 1096

COLONIAL PENN GROUP, INC., and Bay Loan and Investment Bank, Plaintiffs, Appellants, v. COLONIAL DEPOSIT COMPANY, Defendant, Appellee.

No. 87-1254.

United States Court of Appeals, First Circuit.

Heard Sept. 14, 1987.

Decided Dec. 2, 1987.

William R. Grimm with whom Gerald J. Petros and Hinckley, Allen, Tobin & Silverstein, Providence, R.I., were on brief, for plaintiffs, appellants.

John E. Bulman with whom James E. Purcell and Tillinghast, Collins & Graham, Providence, R.I., were on brief for defendnat, appellee.

Before COFFIN, ALDRICH and TORRUELLA, Circuit Judges.

COFFIN, Circuit Judge.

Colonial Penn Group, Inc. and Bay Loan and Investment Bank appeal from a judgment of the United States District Court for the District of Rhode Island. The district court dismissed their complaint on the grounds that it lacked jurisdiction to entertain the action, and in the alternative, that abstention was appropriate in the event that jurisdiction was proper, 654 F.Supp. 1247. We agree that the district court lacked jurisdiction, and therefore affirm.

I.

Appellant Colonial Penn Group, Inc. is a Delaware corporation headquartered in Philadelphia. It provides various financial and related services throughout the United States, including banking, insurance underwriting and marketing. The company has continuously used the service marks "C.P." and "Colonial Penn" in its nationwide business since at least 1967. The marks appear on stationery, advertisements, office forms, and various other official documents and papers. Colonial Penn Group, Inc. registered its "C.P." mark for insurance underwriting with the United States Patent Office in 1969, and its "Colonial Penn" mark in 1985.

The company provides its services through a number of wholly-owned corporate subsidiaries. Appellant Bay Loan and Investment Bank is a subsidiary of Colonial Penn Group, Inc. located in Rhode Island. Bay Loan has adopted the "C.P." and "Colonial Penn" marks in its banking services throughout the United States.

Appellee Colonial Deposit Company ("Deposit") was chartered in Rhode Island as a loan and investment bank in 1976. Deposit offers its banking services in New England under the trade name "Colonial Deposit Company."

On April 10, 1986, Deposit filed a complaint in the Providence County Superior Court, naming Bay Loan and "Colonial Penn Insurance" as defendants. The state action did not originally name Colonial Penn Group, Inc. as a defendant. The state complaint alleged that state common law trade name protection existed for the "Colonial Deposit Company" mark as utilized in the banking business in Rhode Island, and that the defendants' use of the "Colonial Penn" mark constituted both an unfair method of competition under Rhode Island common law and an infringement of the "Colonial Deposit Company" mark. The complaint requested that the state court enjoin the defendants from utilizing the "Colonial Penn" mark "in any of its dealings with the general public as a loan and investment bank."

On May 23, 1986, the state defendants answered Deposit's complaint, asserting the affirmative defense of a prior federal right to the use of "Colonial Penn" in Rhode Island. The parties thereafter stipulated to expedited discovery, and the state court scheduled June 26, 1986 as the date for a hearing on a preliminary injunction. Interrogatory answers and production requests were exchanged, and some depositions took place.

On May 30, 1986, one week after Bay Loan had filed its answer in state court, Colonial Penn Group, Inc. and Bay Loan (hereinafter collectively referred to as "Colonial Penn") filed the present action in federal court in Rhode Island. Colonial Penn brought this action for relief under the Declaratory Judgment Act, 28 U.S.C. Sec. 2201. Jurisdiction was alleged under section 39 of the Trademark Act of July 5, 1946 (the Lanham Act), as amended, 15 U.S.C. Sec. 1121, and under 28 U.S.C. Secs. 1338 and 1391.

The pertinent allegations of Colonial Penn's federal complaint are: that Colonial Deposit had "claimed" that the "Colonial Penn" service mark would cause a likelihood of confusion as to services of Colonial Deposit, and would infringe Deposit's own mark (p 22); that Colonial Penn's marks did not infringe on the term "Colonial Deposit Company" (p 23); that Colonial Penn's use of its marks in Rhode Island predated the use of any mark of Colonial Deposit (p 24); that the "actual controversy" between the parties is that Colonial Deposit "claims" that its rights in its tradename were infringed by use of the "Colonial Penn" mark, whereas Colonial Penn asserts that its marks do not so infringe any rights of Colonial Deposit (p 25); and that Colonial Deposit's "claims" represent a threat to Colonial Penn's use of its federally registered marks (p 26).

Of particular importance to our resolution are Penn's prayers for relief, which we reproduce in relevant part verbatim:

WHEREFORE, plaintiffs pray that this Court will declare the rights and legal relations of the parties in respect of the controversy set forth above and to that end demand that this Court adjudge and decree:

A. That plaintiffs have the right to advertise, offer for sale, and sell banking services under the CP and Colonial Penn service marks either alone or with other words or design elements.

B. That the advertising, offering for sale and sale by plaintiffs of banking and other services under such service marks does not infringe any rights of defendant in and to the tradename "Colonial Deposit Company," is not likely to cause confusion or mistake, and is not a false designation of origin or a false representation.

C. That plaintiffs' rights to use the service marks CP and Colonial Penn have priority over defendant's interest in the tradename "Colonial Deposit Company."

D. That defendant be permanently enjoined from charging plaintiffs with a violation of defendant's rights by reason of plaintiffs' advertising, offering for sale or sale of banking and other services under such service marks.

E. That defendant be permanently enjoined from interfering in any manner with plaintiffs' exercise of their right and privilege to advertise, offer for sale or sell banking and other services under such service marks.

Colonial Deposit subsequently amended its state court complaint to replace "Colonial Penn Insurance" with Colonial Penn Group, Inc. as a named defendant. Colonial Penn removed the state action to federal court, and Deposit moved for a remand. The district court remanded the state action; that decision is not on appeal here. Deposit also moved to dismiss the federal action on the abstention grounds established in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976).

The district court decided sua sponte that it lacked jurisdiction to consider the federal complaint. It also held, in the alternative, that even if jurisdiction could be entertained, federal abstention was appropriate pursuant to the teachings of Colorado River and its progeny. The district court entered judgment for Deposit and Colonial Penn appealed.

II.

The district court treated this case as a declaratory judgment action. Although Colonial Penn insists that this does not accurately describe their complaint, we think that it does. See Sections IIIB, IIIC, infra.

Federal jurisdiction does not lie simply because relief is requested under the federal Declaratory Judgment Act. " '[T]he operation of the Declaratory Judgment Act is procedural only.' Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240 [57 S.Ct. 461, 463, 81 L.Ed. (1937) ]. Congress enlarged the range of remedies available in the federal courts but did not extend their jurisdiction." Skelly Oil v. Phillips Petroleum Co., 339 U.S. 667, 70 S.Ct. 876, 94 L.Ed. 1194 (1950). The Act merely expands the relief available through litigation; it does not affect parties' substantive rights. See Franchise Tax Board of California v. Construction Laborers Vacation Trust for Southern California, 463 U.S. 1, 15-17, 103 S.Ct. 2841, 2849-50, 77 L.Ed.2d 420 (1983).

A corollary to this principle is that " 'if, but for the availability of the declaratory judgment procedure, the federal claim would arise only as a defense to a state created action, jurisdiction is lacking.' " Franchise Tax Board, 463 U.S. at 16, 103 S.Ct. at 2849 (quoting 10A C. Wright, A Miller, & M. Kane,Federal Practice and Procedure Sec. 2767, at 744-45 (2d ed. 1983)).

In the typical case of this sort, where the declaratory judgment action is brought as an anticipatory defense to an expected state "enforcement" (or "coercive") action, this circuit has adopted the rule set forth in the following Supreme Court dictum:

Where the complaint in an action for declaratory judgment seeks in essence to assert a defense to an impending or threatened state court action, it is the character of the threatened action, and not of the defense, which will determine whether there is federal-question jurisdiction in the District Court. If the cause of action, which the declaratory defendant threatens to assert, does not itself involve a claim under federal law, it is doubtful if a federal court may entertain an action for a declaratory judgment establishing a defense to that claim. This [jurisdiction] is dubious even though the declaratory complaint sets forth a claim of federal right, if that right is in reality in the nature of a defense to a threatened action.

Public Service Commission v. Wycoff Co., 344 U.S. 237, 248, 73 S.Ct. 236, 242, 97 L.Ed. 291 (1952) (emphasis supplied). See Greenfield and Montague Transportation Area v. Donovan, 758 F.2d 22, 26-27 (1st Cir.1985) (adopting Wycoff dictum). The Supreme Court also seems to have adopted the Wycoff rule as an established tenet. Franchise Tax Board, 463 U.S. at 16 & n. 14, 103 S.Ct. at 2849 & n. 14.

In the instant case, appellants' claim of federal right is...