Mallard Creek Industries, Inc. v. Morgan

• Decision Date: 15 July 1997
• Docket Number: No. B095547,B095547
• Citation: 56 Cal.App.4th 426,65 Cal.Rptr.2d 461
• Court: California Court of Appeals Court of Appeals
• Parties: , 97 Cal. Daily Op. Serv. 5649, 97 Daily Journal D.A.R. 9099 MALLARD CREEK INDUSTRIES, INC., Plaintiff and Appellant, v. Gary MORGAN et al., Defendants and Respondents.

Page 461

65 Cal.Rptr.2d 461

56 Cal.App.4th 426, 97 Cal. Daily Op. Serv. 5649,

97 Daily Journal D.A.R. 9099

MALLARD CREEK INDUSTRIES, INC., Plaintiff and Appellant, v. Gary MORGAN et al., Defendants and Respondents.

No. B095547.

Court of Appeal, Second District, Division 7, California.

July 15, 1997.

[56 Cal.App.4th 429] Joel F. Tamraz, Santa Monica, for Plaintiff and Appellant.

Anderson, McPharlin & Conners, Eric A. Schnieder and John J. Immordino, Los Angeles, for Defendants and Respondents.

JOHNSON, Associate Justice.

This is an action for trademark infringement and unfair business practices. Appellant, Mallard Creek Industries, Inc. (Mallard Creek), sought an injunction to prevent respondents, Gary Morgan and Gary Morgan, Inc., d.b.a., Mallard Creek Distributors (collectively Mallard Creek Distributors), from using the former's name and logo to sell bagged wood shavings. Mallard Creek Distributors claimed it had permission to use Mallard Creek's name and logo and had done so for over ten years without objection. Mallard Creek Distributors relied on Business and Professions Code section 14342 which prevents actions for infringement of a registered trademark against anyone who has adopted and lawfully used the same or confusingly similar mark in the manufacture or sale of the same or similar goods from a date prior to the complaining party's registration of the trade or service mark. Mallard Creek Distributors also claimed it had permission to use Mallard Creek's name and logo without limitation.

The trial court found Mallard Creek Distributors had "used" Mallard Creek's name and trademark with its permission for years prior to Mallard Creek's registration of its logo with the California Secretary of State. It therefore found the defense of Business and Professions Code section 14342 applied We conclude the defense of Business and Professions Code section 14342 does not apply to a distributor who had the manufacturer/owner's permission to "use" its name and trademark for the sole purpose of distributing the manufacturer/owner's products. We conclude permission for this type of "use" is not the "use" envisioned by the statute nor the type of "use" generally protected by trademark and unfair business practice law. We therefore further conclude the trial court erred as a matter of law in interpreting this provision and reverse the summary judgment in favor of Mallard Creek Distributors.

and granted summary judgment in favor of Mallard Creek Distributors.

FACTS AND PROCEEDINGS BELOW

Mallard Creek produces baled wood shavings. Mallard Creek filed its articles of incorporation in the early 1980's. At the time Steve Morgan, respondent Gary Morgan's brother, owned 50 percent of the shares.

Mallard Creek sells its wood shavings for use as mulch or stable bedding material. It packages its wood shavings in plastic bags containing several cubic feet of material. On the exterior of the bags is the Mallard Creek name and address in Rocklin, California. Rocklin is located just outside Sacramento. Mallard Creek's plastic bags are also emblazoned with its logo consisting of two ducks flying off from a marsh. Mallard Creek sells its wood shavings through feed stores throughout the state.

In 1982, Gary Morgan became Mallard Creek's distributor in southern California. For this purpose he used the corporate entity Gary Morgan, Inc. as the business entity operating under the fictitious business name Mallard Creek Distributors. As Mallard Creek's distributor, Gary Morgan distributed Mallard Creek's baled wood shavings bearing the Mallard Creek name and logo. With Mallard Creek's express permission, Gary Morgan also promoted Mallard Creek's wood shavings using its name and logo. He used Mallard Creek letterhead in his correspondence. He prepared ads using Mallard Creek's name, address and logo.

In 1989 Steve Morgan, Gary Morgan's brother, acquired ownership of 100 percent of the outstanding shares of Mallard Creek. In 1990 Steve Morgan sold his interest in Mallard Creek to Carl E. Hass. Mr. Hass continues to operate Mallard Creek from its location in Rocklin, California.

On April 3, 1992, Mallard Creek obtained a Certificate of Registration of Trademark from the Secretary of State of California for its logo of a pair of ducks flying off a marsh.

In December 1992, Mallard Creek learned Mallard Creek Distributors was filling and selling its own plastic bags of wood shavings. The plastic bags were of the same type and color Mallard Creek used. The plastic bags bore the name "Mallard Creek Distributors" and used the Mallard Creek logo of a pair of ducks flying off a marsh. Mallard Creek Distributors sold its wood shavings through feed stores in direct competition with Mallard Creek.

In January 1993, Mallard Creek wrote Mallard Creek Distributors a letter requesting it cease and desist selling its own bagged wood shavings using the Mallard Creek logo and confusingly similar name. Mallard Creek Distributors refused.

In October 1994, Mallard Creek brought suit against Mallard Creek Distributors and others. Its complaint alleged causes of action for trademark infringement and unfair competition. Mallard Creek sought an injunction and requested damages of over $1 million. The next month Gary Morgan renamed his business and stopped using Mallard Creek's logo.

After conducting some preliminary discovery, Mallard Creek Distributors moved for summary judgment. Mallard Creek Distributors argued it had used the Mallard Creek name and logo since 1982 with Mallard Creek's express permission. It argued that because Mallard Creek did not register its logo with the Secretary of State until 1992, Business and Professions Code section 14342 constituted a complete defense to the action. It pointed out this section provides a registered service or trademark may not be enforced against someone who has lawfully The trial court found as a matter of fact Steve Morgan gave his brother Gary Morgan permission to use the Mallard Creek name to operate his distributorship business in southern California. The court noted Mallard Creek Distributors had used the name and logo prior to its registration by Mallard Creek. Thus, the court granted Mallard Creek Distributors' request for summary judgment, persuaded by the argument that in this context Business and Professions Code section 14342 constituted a defense to the entire action.

used the mark in a same or similar business from a date prior to its registration. ¹

Mallard Creek appeals from the ensuing judgment of dismissal.

DISCUSSION

I. STANDARD OF REVIEW OF A SUMMARY JUDGMENT.

"California Code of Civil Procedure section 437c requires the trial court to grant summary judgment in a case if no triable issue exists as to a material fact, and if the papers submitted on the motion entitle the moving party to judgment as a matter of law. Summary judgment proceedings may, as they did here, also raise questions of law.

"... The moving party's affidavits are strictly construed by the trial court, and the opponent's affidavits are liberally construed; doubts about the propriety of granting the motion are resolved by denying summary judgment, due to the drastic nature of the procedure. (Stationers Corp. v. Dun & Bradstreet, Inc. (1965) 62 Cal.2d 412, 417, 42 Cal.Rptr. 449, 398 P.2d 785.) 'Where as in the case at bar, a defendant seeks summary judgment, his declarations and evidence must either establish a complete defense to plaintiff's action or demonstrate an absence of an essential element of plaintiff's case. If defendant establishes the foregoing, and the plaintiff's declaration in reply does not show that there is a triable issue of fact with respect to that defense or that an essential element exists, the summary judgment should be granted. [Citation.]' (Italics in text; Dolquist v. City of Bellflower (1987) 196 Cal.App.3d 261, 266, 241 Cal.Rptr. 706.)

"These general principles also apply to an appellate court's review of a summary judgment ruling, except that an appellate court examines the facts presented to the trial judge on a summary judgment motion and independently determines their effect as a matter of law. (Bonus-Bilt, Inc. v. United Grocers, Ltd. (1982) 136 Cal.App.3d 429, 442, 186 Cal.Rptr. 357.) We also conduct independent review of the trial court's determination of questions of law. We are not bound by the trial court's stated reasons, if any, supporting its ruling; we review the ruling, not its rationale. (Barnett v. Delta Lines, Inc. (1982) 137 Cal.App.3d 674, 682, 187 Cal.Rptr. 219.)" (Stratton v. First Nat. Life Ins. Co. (1989) 210 Cal.App.3d 1071, 1083, 258 Cal.Rptr. 721.)

We review the ruling of the trial court with these standards in mind.

II. MALLARD CREEK'S ALLEGATIONS AND EVIDENCE ESTABLISHED PRIMA FACIE CASES OF TRADEMARK INFRINGEMENT AND UNFAIR COMPETITION.

Mallard Creek filed its articles of incorporation with the name "Mallard Creek Industries, Inc." in the early 1980's and has used the name continuously thereafter. Because it was the first to use the name "Mallard Creek" it is entitled to a presumption of ownership. Business and Professions Code section 14400 states ² that "[a]ny person who has first adopted and used a trade name, whether within or beyond the limits of this State, is its original owner."

Under section 14415 the first entity filing articles of incorporation (or if a foreign corporation, obtaining a certificate of qualification), and continuing to engage in that trade or business is entitled to a rebuttable presumption the corporation has the exclusive right to use the name set forth in the articles or certificate as well as any confusingly similar name. A similar presumption arises under section 14411 upon filing a fictitious business name statement. Section 14416 provides that as between competing claimants under sections 14411 and 14415, the first to file and use the name shall be entitled to the presumption. Once ownership is...