General Car & Truck Leasing System, Inc. v. Lane & Waterman

• Decision Date: 18 December 1996
• Docket Number: No. 95-898,95-898
• Citation: 557 N.W.2d 274
• Parties: GENERAL CAR & TRUCK LEASING SYSTEM, INC., Appellant, v. LANE & WATERMAN, Appellee.
• Court: Iowa Supreme Court

Page 274

557 N.W.2d 274

GENERAL CAR & TRUCK LEASING SYSTEM, INC., Appellant, v. LANE & WATERMAN, Appellee.

No. 95-898.

Supreme Court of Iowa.

Dec. 18, 1996.

Rehearing Denied Jan. 23, 1997.

W. Ward Reynoldson of Reynoldson, Van Werden, Kimes, Reynoldson, Lloyd & Cheers, L.L.P., Osceola, Michael T. Hannafan and Cory A. Johnson of Michael T. Hannafan & Associates, Ltd., Chicago, Illinois, and G. Trent Marquis of Klockau, McCarthy, Ellison & Marquis, Rock Island, Illinois, for appellant.

H. Richard Smith and David Swinton of Ahlers, Cooney, Dorweiler, Haynie, Smith & Allbee, P.C., Des Moines, for appellee.

Considered by McGIVERIN, C.J., and HARRIS, NEUMAN, ANDREASEN, and TERNUS, JJ.

TERNUS, Justice.

Plaintiff, General Car & Truck Leasing System, Inc., sought the assistance of defendant, Lane & Waterman, in applying for and renewing the registration of its service mark. This registration was later canceled due to misrepresentations made in supporting affidavits signed by General Car officers. General Car brought this legal malpractice action to recover consequential damages, claiming the untrue statements in the affidavits were made at the direction of Lane & Waterman. The district court granted Lane & Waterman's motion for summary judgment, relying on two defenses: (1) General Car's action was not filed within the applicable statute of limitations; and (2) General Car's misrepresentations invoked the doctrine of in pari delicto, thereby barring recovery by General Car. These issues are before us on General Car's appeal, together with two discovery rulings involving the production of attorney/client materials. Because we conclude General Car and Lane & Waterman acted in pari delicto in perpetrating a fraud on the Patent and Trademark Office, we affirm.

I. Scope of Review.

We review a summary judgment ruling for error. Gerst v. Marshall, 549 N.W.2d 810, 811 (Iowa 1996). The district court correctly enters summary judgment when the record shows "no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." Iowa R. Civ. P. 237(c). Thus, on review, we examine the record before the district court to decide whether any material fact is in dispute, and if not, whether the district court correctly applied the law. Benavides v. J.C. Penney Life Ins. Co., 539 N.W.2d 352, 354 (Iowa 1995). In considering the record, we view the facts in the light most favorable to the party opposing the motion for summary judgment. Gerst, 549 N.W.2d at 812.

II. Background Facts and Proceedings.

The record before the district court, when viewed in the light most favorable to General Car, shows the following facts. General Car is an Iowa corporation in the business of leasing automobiles, trucks and other motor vehicles. Lane & Waterman served as General Car's outside counsel from 1971 until the spring of 1993. This case involves legal services rendered by Lane & Waterman attorneys to General Car in connection with its registration of a service mark in 1977 and its renewal of that mark in 1985.

A. Registration of mark. In 1977, Gene Ehlers, president of General Car, asked C.D. Waterman, Jr. (Waterman), of Lane & Waterman, how General Car could protect its name and logos, "GENERAL" and "GL." Waterman suggested General Car obtain a federal registration of these service marks; General Car hired Lane & Waterman to do so. Only the events surrounding the "GENERAL" mark are at issue here.

Waterman contacted a trademark attorney in Virginia, Harold L. Stowell, to assist with the registration. In response to a request for information from Stowell, Gene Ehlers wrote to Waterman in June 1977, listing General Car's "operations as presently envisioned." This listing included leasing of automobiles trucks, tractors, trailers, aircraft and boats. In fact, General Car had never leased aircraft or boats and Gene Ehlers informed Waterman of this fact. Waterman told Gene Ehlers General Car could register its mark for use with any or all services within a particular classification.

Stowell drafted an application to register the "GENERAL" service mark, based in part on the June 1977 letter from Gene Ehlers. The application was supported by an affidavit, also prepared by Stowell. The affidavit, signed by Gene Ehlers, stated:

General [Car] has adopted and is using the servicemark shown in the accompanying drawing for: Leasing of Automobiles, Trucks, Tractors, Trailers, Aircraft, and Boats, and Agricultural, Industrial and Commercial equipment and Machinery....

(Emphasis added.) Immediately above Gene Ehlers's signature was the following declaration:

all statements made herein of his knowledge are true and that all statements made on information and belief are believed to be true; and further, that these statements were made with the knowledge that willful false statements and the like so made are punishable by fine or imprisonment, or both, under section 1001 of Title 18 of the United States code and that such willful false statements may jeopardize the validity of the application or document or any registration resulting therefrom.

The record reflects that while the application to register the "GENERAL" mark was pending, Stowell communicated directly with Michael Ehlers, General Car's vice-president and general counsel. During one of these conversations, Stowell learned General Car had never leased farm implements. Accordingly, Stowell and Michael Ehlers agreed that the application should be amended to remove agricultural equipment; this amendment was made in 1979. The federal registration for the "GENERAL" mark was subsequently issued in April 1980 for use with "leasing automobiles, trucks, tractors, trailers, aircraft and boats."

B. Renewal of mark. In order to maintain or continue the federal registration of a service mark, an affidavit of use must be filed between the fifth and sixth year of registration. See 15 U.S.C. § 1058. An affidavit of incontestability may be filed at the same time. Id. § 1065. The two affidavits can be combined into a single sections 8 and 15 affidavit.

In mid-1984, Waterman assigned Dana Craig, a partner with Lane & Waterman, to handle the preparation and filing of the sections 8 and 15 affidavits for the "GENERAL" and "GL" marks. Craig prepared the affidavit for the "GL" mark first; it stated the mark was in use "for all the services stated in the registration." These services included leasing aircraft and boats. Craig sent the affidavit to Michael Ehlers for signing.

After reviewing the affidavit, Michael Ehlers expressed concern that the affidavit stated General Car leased aircraft and boats, when in fact it did not. Craig told Michael Ehlers that "[Michael's] concern was misp[laced], that it was not anything of great consequence, that it was descriptive of a particular class or category, and that [he] should not be concerned by the particular language that was in the affidavit." Craig confirmed this advice in a later letter, stating

As I discussed with you today, I originally prepared the affidavit to state that the mark is in continued use for all services stated in the registration. However, you have advised that General [Car] does not provide leasing services in connection with some of the items for which the original registration was obtained. Despite this fact, we have decided to submit the application as prepared to the Patent and Trademark Commissioner's office, with the understanding that the examiner may ask us for additional [advertising] specimens, at which time we may have to amend or refile the affidavit.

Michael Ehlers signed the affidavit and Craig filed it with the Patent and Trademark Office (PTO).

A similar affidavit had to be filed in the spring of 1985 to maintain the registration of the "GENERAL" mark. Craig prepared the required affidavit in which he stated the mark "has been in continuous use in interstate commerce for five consecutive years from the date of registration to the present, on all the services stated in the registration." Michael Ehlers called Craig to confirm Craig's earlier advice and then signed the affidavit. Craig filed the affidavit with the PTO.

Michael Ehlers and Craig believed General Car could obtain a registration covering an entire class of services based on General Car's rendering of some services within the class. On the other hand, both men knew the representation made in the affidavit concerning General Car's use of the mark in leasing aircraft and boats was false.

C. Cancellation proceeding. A petition to cancel the federal registration of General Car's "GENERAL" mark was filed in an administrative proceeding with the PTO in April 1985 by General Rent-A-Car (GRAC), a Florida-based rental car company. ¹ In an amendment to its petition, GRAC alleged the registration should be canceled because General Car had fraudulently obtained and maintained the mark based on misrepresentations it had leased boats and aircraft. In May, 1988, the PTO's Trademark Trial and Appeal Board (TTAB) ruled the mark should be canceled based on the false statements concerning use made in the affidavit supporting the original application and in the sections 8 and 15 affidavit.

General Car appealed this decision to the federal district court for the Southern District of Florida. Upon the court's de novo review, it affirmed the cancellation of the mark. General Car & Truck Leasing Sys., Inc. v. General Rent-A-Car, 17 U.S.P.Q.2d (BNA) 1398, 1401, 1990 WL 359368 (S.D.Fla.1990). The court found both Gene Ehlers and Michael Ehlers knew when they signed the affidavits that General Car had never leased aircraft or boats as represented in the affidavits. Id. at 1399-400. The court also found these representations material in that General Car's initial registration and the maintenance of its registration would have been denied had the PTO known the extent of General Car's actual use of the mark. Id. at 1400. The federal district court...