Kyhos v. Perpetual Savings and Loan Association

• Decision Date: 18 June 1973
• Docket Number: No. 72-1607.,72-1607.
• Citation: 480 F.2d 204
• Parties: Thomas F. KYHOS et al., Appellants, v. PERPETUAL SAVINGS AND LOAN ASSOCIATION, Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

480 F.2d 204 (1973)

Thomas F. KYHOS et al., Appellants, v. PERPETUAL SAVINGS AND LOAN ASSOCIATION, Appellee.

No. 72-1607.

United States Court of Appeals, Fourth Circuit.

Argued February 8, 1973.

Decided June 18, 1973.

Dillard C. Laughlin, Arlington, Va., (Phillips, Kendrick, Gearheart & Aylor, Arlington, Va., Samuel Scrivener, Jr., and Scrivener, Parker, Scrivener & Clarke, Washington, D. C., on brief), for appellants.

George P. Blackburn, Jr., Springfield, Va. (John L. Scott and Scott, Blackburn & Clary, Springfield, Va., on brief), for appellee.

Before WINTER and RUSSELL, Circuit Judges, and MURRAY, District Judge.

WINTER, Circuit Judge.

Thomas F. Kyhos and others, shareholders of Perpetual Building Association (Perpetual Building), brought a class action on behalf of all shareholders against Perpetual Savings and Loan Association (Perpetual Savings) to restrain the latter from using the generic word "Perpetual" as part of its corporate name, and to obtain an accounting of profits with an award of damages for alleged wrongful appropriation of the trade name "Perpetual." Perpetual Building and Perpetual Savings both carry on some business activities in the same portion of Virginia. Jurisdiction was founded on diversity of citizenship. The district court dismissed the complaint, first because it concluded that Perpetual Building's name could not have acquired a secondary meaning in any part of Virginia, since applicable state law prohibited Perpetual Building from expanding its business into Virginia; and, second, because Perpetual Building had not otherwise proved that its name had acquired a secondary meaning entitled to protection under Virginia law.¹

We disagree with the conclusion that Perpetual Building's name could not, under state law, have acquired a secondary meaning in that portion of Virginia where Perpetual Savings conducted its operations. Nor do we think that the district court's findings necessarily support its conclusion that Perpetual Building's name had not acquired a secondary meaning which was entitled to protection under state law. We, therefore, vacate the order of dismissal and remand the case for further proceedings.

I.

Perpetual Building is a voluntary unincorporated association founded in the District of Columbia in 1881 with the name "Perpetual Building Association," which it has used continuously in its business as a building and loan association since that date. It has a main office in Washington, branch offices in Washington, and branch offices in the Maryland counties adjacent to the District of Columbia. It has never had an office in Virginia.

Perpetual Building has a membership of approximately 200,000 investing and borrowing members. Approximately 13,393 reside in the Commonwealth of Virginia, including approximately 1,972 in Prince William County, Virginia. Its assets have increased from $27,000 in 1882 to in excess of $550,000,000 in 1970. Although not authorized to "do business" in Virginia under Virginia law,² Perpetual Building has made loans to members residing in Virginia, secured by mortgages on Virginia real estate, totaling approximately $85,000,000. Many loans have been made to residents of Prince William County secured by mortgages on real estate in that county.

Perpetual Savings is an incorporated savings and loan association, formed on or about February 10, 1960, under the laws of the Commonwealth of Virginia, with the name "Prince William Savings and Loan Association." It has two offices in Prince William County, one of which is located in Woodbridge, Virginia, approximately 21 miles from the District of Columbia, and another in Manassas, Virginia, approximately 31.4 miles from the District of Columbia. Upon approval of appropriate Virginia regulatory authorities, Perpetual Savings would be entitled to open offices in other Virginia counties and cities and additional offices in Prince William County.

Perpetual Savings has never made loans secured by real estate outside the Commonwealth of Virginia, but it is authorized to do so if it so elects. Its business activities are devoted generally to serving the savings and loan needs of the residents of Prince William County, Virginia.

On January 1, 1970, Perpetual Savings changed its name from Prince William Savings and Loan Association to "Perpetual Savings and Loan Association." The change of name was approved by the Virginia State Corporation Commission, the Federal Home Loan Bank Board, and the Federal Savings and Loan Insurance Corporation notwithstanding the protest and opposition of Perpetual Building. At the time of change of name, Perpetual Savings had assets of approximately $4,544,000; two years later its assets had doubled to $9,372,000.

Over the last ten years, Perpetual Building has expended for advertising approximately $2,825,000 — more than 40 times the amounts spent by Perpetual Savings for advertising. Perpetual Building advertises extensively on major radio and television network stations, the signals of which are received in (a) Washington, D. C., (b) Montgomery and Prince George's Counties, Maryland, (c) Arlington, Fairfax, Prince William and Loudoun Counties, Virginia, and (d) the cities of Alexandria, Falls Church and Fairfax, and in all major daily newspapers circulating in that area. Perpetual Savings advertises primarily in newspapers and with radio stations located in and serving Prince William County.

II.

The conclusion of the district court that Perpetual Building's name had not acquired a secondary meaning in that portion of Virginia in which Perpetual Savings carried on its operations was based upon its reading of Food Fair Stores, Inc. v. Lakeland Grocery Corp., 301 F.2d 156 (4 Cir. 1962). It construed Food Fair to hold implicitly that the reasonable prospect of expansion of a business into Virginia was "a prerequisite to acquiring a secondary meaning in Virginia . . .." Since Virginia law prohibits Perpetual Building from "doing business" in Virginia, and since Perpetual Building disclaimed any intent to do business in Virginia in violation of Virginia law, it followed, in the view of the district court, that Food Fair barred Perpetual Building from relief.

We do not read Food Fair so to hold. In Food Fair — another diversity case where we were obliged to interpret and apply Virginia law — plaintiff, which operated a chain of retail grocery stores in various areas of the United States under the name "Food Fair," sought to enjoin the defendant from using that name for two supermarkets in the Norfolk-Portsmouth area. Plaintiff, at the time that defendant first used the name, did not own or operate a store in that area although its name was generally well known and extensively advertised nationally.

The district court dismissed the suit because it concluded that the plaintiff had neither established that its name had acquired a secondary meaning in the area, nor that at the time the defendant opened its store, the area was within the region into which the trade of the plaintiff might reasonably be expected to extend in the natural expansion of its business. We reversed. We discussed the holding with regard to the extension of plaintiff's business into the Norfolk-Portsmouth area, and said "it has been generally held that the owner of a trade name may enjoin infringement in territory to which his business has not yet extended . . . Protection of trade name may be given if persons residing in the area with knowledge of the trade name are likely to be confused by an infringement." Id. 162. We also discussed the existence or non-existence of good faith on the part of the second user as a critical element. Then we stated:

In the instant case we do not have to pass on the relevant weight of the testimony as to the elements which entered into the problem. The evidence of all the necessary elements at the time of the infringement were proved by substantial evidence. It was shown that the plaintiff\'s business and trade name were known to a substantial number of persons in the Norfolk-Portsmouth area and that the probability of an expansion of the plaintiff\'s business into the area existed and that the defendant deliberately and knowingly appropriated the plaintiff\'s name for its own business . . .. Under this combination of circumstances we reach the conclusion that the plaintiff\'s name was entitled to protection . . . .

Id., 163.

We do not interpret the quoted portion of Food Fair, as did the district court, to hold that expansion into a territory is a prerequisite to the acquisition of a secondary meaning of one's trade name in that territory. In Food Fair, the district court considered Hanover Star Milling Co. v. Medcalf, 240 U.S. 403, 36 S.Ct. 357, 60 L.Ed. 713 (1916) which held that an established trade name is entitled to protection not only in the area in which its owner renders services or sells goods, but also in areas to which the owner's business activities may reasonably be expected to expand. It held, on the facts of Food Fair, that the Norfolk-Portsmouth market was beyond the reach of the probable expansion of plaintiff's business. We were responding to this holding. In the exercise of diversity jurisdiction, we were applying Virginia...