LAYNE-WESTERN COMPANY v. Fry

• Decision Date: 26 June 1959
• Docket Number: No. 10911.,10911.
• Citation: 174 F. Supp. 621
• Parties: LAYNE-WESTERN COMPANY, Plaintiff, v. Vene D. FRY, d/b/a Vene D. Fry Company, Defendant.
• Court: U.S. District Court — Western District of Missouri

174 F. Supp. 621

LAYNE-WESTERN COMPANY, Plaintiff, v. Vene D. FRY, d/b/a Vene D. Fry Company, Defendant.

No. 10911.

United States District Court W. D. Missouri, W. D.

June 26, 1959.

Caldwell, Eastin, Blackwell & Oliver, Kansas City, Mo., for plaintiff.

Watson, Ess, Marshall & Enggas, Kansas City, Mo., for defendant.

R. JASPER SMITH, District Judge.

This is an action for unfair competition in which plaintiff seeks to enjoin defendant from using the name "Layne" or "Layne & Bowler" in connection with the selling or servicing of vertical turbine pumps in the area of plaintiff's sales operations. Defendant, by counterclaim, seeks to enjoin plaintiff from issuing disparaging or defamatory statements concerning the product defendant sells. Both parties are in the business of selling and servicing vertical turbine pumps, plaintiff as the sales affiliate of Layne & Bowler, Inc., of Memphis, Tennessee, and defendant as a manufacturer's representative for Layne & Bowler Pump Company of Los Angeles, California. Neither party is engaged in manufacturing.

The primary progenitor of this dispute was an inventive man named Mahlon E. Layne. In 1902, after some experience as a well driller in the Middle West, he sold his business, and with an engineer named O. P. Woodburn, moved to Houston, Texas. There he met P. D. Bowler. These three men went into business, manufacturing and selling vertical turbine pumps and other associated equipment. In 1907 this business was incorporated as a Texas corporation under the name of Layne & Bowler Company. In 1908 or 1909 Bowler moved to California and started manufacturing and selling pumps and equipment in that area. The west coast enterprise was incorporated as a California corporation in 1912 with a corporate name of Layne & Bowler Corporation. Bowler was the predominant stockholder in this corporation with Layne owning a small interest.

In 1913 Layne & Bowler Company, the Texas corporation, opened a factory in Memphis, Tennessee. In 1916 Layne moved to California and purchased all of Bowler's interest in the west coast corporation. This made him holder of a majority interest in that organization, Layne & Bowler Corporation, as well as sole shareholder in Layne & Bowler Company. In the early 1920's the Layne & Bowler Company began to organize a group of affiliated corporations. These were sales organizations, each of which was designed to drill wells and to sell and service its pumps in a definite assigned territory. Each of these sales affiliates used the name "Layne" as part of its corporate name, followed by a geographical word designating the particular company's territory, such as "Layne-Texas", "Layne-Central" and "Layne-Western", plaintiff here. Layne-Western was incorporated in 1924. Since that date it has been a sales affiliate of the Layne & Bowler Company or its successors with its headquarters in Kansas City, Missouri.

In 1923 Mahlon Layne started to distribute his interests in two manufacturing corporations. He had three sons. It is not necessary here to delineate the complete history of property transfer and corporate reorganizations which took place over a twenty-five year period. Suffice it to say that the interest in the midwestern enterprise, Layne & Bowler Company, was passed in 1923 to his sons while the controlling interest in the west coast corporation, Layne & Bowler Corporation, was given in 1927 to a philanthropic foundation established in Layne's name. Since the time when Layne transferred substantially all his interest in Layne & Bowler Company to his sons, the two corporations have not been under single ownership or control.

As part of the gift to his sons a series of contracts were entered into between Layne, his sons, Layne & Bowler Company and Layne & Bowler Corporation. Among other things these arrangements contained provisions which allocated territory between the two corporations and provided for cross-licensing of existing and future patents. Layne & Bowler Corporation was allocated the territory of the Western states of California, Oregon, Washington, Nevada, Arizona and Utah. Later Idaho, New Mexico, and that part of the State of Texas lying west of the 103rd meridian were added. Layne & Bowler Company retained the remainder of the country as its exclusive territory. There were subsequent amendments to the original contract, largely caused by a rearrangement of interests among the sons. Other than as stated above, these did not affect the territorial distribution originally established. For present purposes it may be stated that the Layne & Bowler Company has been succeeded eventually, through reorganization, by Layne & Bowler, Incorporated, of Memphis, Tennessee. The two manufacturing companies, in their respective spheres, engaged in substantially the same business. Layne-Western, as a sales affiliate of the Memphis corporation, has operated pursuant to the agreements, and the states of Missouri and Kansas have always been a part of the exclusive territory assigned to it under the contract and subsequent amendments.

In 1947 all the remaining stock of the Layne & Bowler Corporation of California was sold to persons outside the original families, and since that time there has been no community of interests between the Memphis and Los Angeles corporations. In 1954 the name of the Los Angeles corporation was changed from Layne & Bowler Corporation to Layne & Bowler Pump Company.

As a result of the contracts executed in 1923 with respect to cross-licensing of patents and division of territory, the pump manufacturing business at Memphis and the pump manufacturing business at Los Angeles were bound not to compete. They were confined to their respective territories, and in general these agreements were observed until 1948. After 1948, the territory and cross-licensing agreements were considered by the parties as having been terminated. No claim is made that they are in existence with valid effect at the present time.

In September, 1955, defendant became manufacturer's representative at Kansas City for Layne & Bowler Pump Company. This was the first time since plaintiff was organized that the Los Angeles corporation had had a sales representative in the area. Defendant's territory varies depending upon the type of pump sold, but it includes parts of Missouri and Kansas. In addition, defendant is paid commissions for certain engineering assistance to Kansas City consulting engineers on their projects involving vertical turbine pumps wherever located in the United States.

Plaintiff, in the course of its business as an affiliate, sells vertical turbine pumps purchased from the Memphis corporation and distributes the pumps in connection with contracts under which plaintiff is required to drill wells and supply pumps. In the course of its business of selling and distributing pumps, it does not act as agent for the Memphis corporation.

In general, vertical turbine pumps are sold for municipal water supply, irrigation and miscellaneous industrial purposes not confined to the supply and pumping of water. During the time defendant has represented the Los Angeles corporation, plaintiff's sales in defendant's basic territory can be statistically broken down according to use, with municipal sales approximately forty-five per cent, industrial sales approximately forty-five per cent, and irrigation sales approximately ten per cent.

Pumps of the character manufactured by both the Memphis corporation and the Los Angeles corporation are not considered stock items, but are assembled upon receipt of a particular order secured by plaintiff or by defendant. Quite frequently, particularly in the case of pumps for municipal or industrial use, the judgment of professional engineers is involved. Cities frequently employ consulting engineers who prepare specifications for pumps required, and in some instances industrial users do also. In cases where a consulting engineer is not employed the cities' or the industries' own engineering departments may prepare specifications. In some instances both cities and industries purchase pumps or service without the use of professional engineers. In irrigation purchases, the use of consulting engineers is not frequent.

Specifications ordinarily do not require pumps of any particular manufacturer, although the specifications may name two or three manufacturers, adding the words "or approved equal." Normally the specifications will refer in considerable detail to the kind, design and quality of the pumps and the performance required.

Beginning at the time of its organization in 1924, plaintiff has established a profitable business which enjoys a good reputation and a valuable goodwill within its territory. In connection with the extensive advertising, promotion and sale of its pumps, plaintiff has at all times used the names "Layne" and "Layne & Bowler", as well as its corporate name, "Layne-Western Company." As a result, those names have acquired a secondary meaning, which links them to the high quality of pumps and pump service offered by plaintiff and to the wide-spread and favorable reputation of plaintiff's business. The evidence is quite clear that in plaintiff's trade territory the names "Layne" and "Layne & Bowler" identify plaintiff and the pumps which plaintiff sells, and are an integral part of plaintiff's business.

Until 1955, the California company had no representative in plaintiff's area of operations. Plaintiff during the entire period of its existence was the only vendor of a pump in its trade territory with which the words "Layne & Bowler" were in any way associated. Since that time defendant has engaged in the business of offering for sale, for the California company, its vertical turbine pumps. In so doing he has advised prospective customers that his pumps are manufactured by Layne & Bowler Pump Company, and has disseminated advertising literature and catalogs on which the name of Layne & Bowler Pump...