Quill Co., Inc. v. A.T. Cross Co., 82-55-A

• Decision Date: 25 May 1984
• Docket Number: No. 82-55-A,82-55-A
• Citation: 477 A.2d 939
• Parties: The QUILL COMPANY, INC. v. A.T. CROSS COMPANY. ppeal.
• Court: Rhode Island Supreme Court

Page 939

477 A.2d 939

The QUILL COMPANY, INC. v. A.T. CROSS COMPANY.

No. 82-55-Appeal.

Supreme Court of Rhode Island.

May 25, 1984.

James K. Edwards, Edwards & Angell, Providence, for plaintiff.

Michael P. DeFanti, Hinckley & Allen, Providence, for defendant.

OPINION

MURRAY, Justice.

This case is before the court upon the joint motion of both parties to certify their dispute to us from the Superior Court pursuant to G.L.1956 (1969 Reenactment) § 9-24-25. It involves a question of first impression in this jurisdiction--whether a nonbreaching party to a covenant not to sue may recover as damages for breach of that covenant litigation expenses that it has incurred in defending against a claim brought in breach of said covenant? Our review of the relevant authorities convinces us that such damages should be recoverable in certain circumstances, although we consider this case an inappropriate one in which to apply such a rule. The facts pertinent to this appeal have been stipulated to by the parties and are set out below.

1. The plaintiff, The Quill Company, Inc. (hereinafter Second Quill), is a Rhode Island corporation with its principal place of business in Providence, Rhode Island. It is, and has been since its incorporation, a wholly owned subsidiary of T & T Manufacturing Company (hereinafter T & T), also a Rhode Island corporation with its principal place of business in Providence, Rhode Island.

2. The defendant, A.T. Cross Company (hereinafter Cross), is a Rhode Island corporation with its principal place of business in Lincoln, Rhode Island.

3. In October 1965 Cross brought an action in the United States District Court for the District of Rhode Island (C.A. No. 3563), alleging infringement of its trademark registration No. 543,934 and unfair competition by the manufacture and sale of mechanical pens and pencils by a Rhode Island corporation named The Quill Company (hereinafter First Quill). First Quill denied the validity of said trademark registration, the infringement thereof, and unfair competition.

4. After completion of discovery in said action (hereinafter the Cross-First Quill Action) and as of November 29, 1967, Cross, believing that First Quill was about to go out of business (which in fact did occur) and that further sales would simply be liquidation of inventory, entered into an agreement (hereinafter the Settlement Agreement) with First Quill. Cross did not communicate to First Quill its belief that First Quill was going out of business nor did Cross incorporate that understanding as a condition of its covenant not to sue.

5. The settlement agreement provides in part as follows:

"WHEREAS, the parties desire to settle all claims involved in said Civil Action on the terms herein set forth.

"NOW, THEREFORE, in consideration of the premises [sic] and of the covenants and agreements herein contained, the parties have agreed as follows:

1. QUILL hereby agrees not to manufacture or sell any writing instrument which has an exterior appearance closer to the exterior appearance of the CROSS pen and pencil attached hereto as Exhibits A and B than the exterior appearance of the QUILL pen and pencil attached hereto as Exhibits C, D, and F, so long as the said CROSS trademark is respected by the trade and said trademark registrations remain in full force and effect.

2. CROSS agrees that it will not sue QUILL for unfair competition, infringement of said trademark or infringement of said trademark registrations unless QUILL breaches the agreement of paragraph 1.

3. CROSS hereby releases QUILL and its customers from all debts, complaints, demands and causes of action whatsoever such as have arisen by reasons of or in any manner grown out of the facts alleged in said Civil Action prior to the date of this agreement.

4. The parties agree that forthwith after the execution of this agreement said Civil Action shall be terminated by a Consent Judgment dismissing it without prejudice and without any award of damages or costs to either party.

5. This agreement shall be deemed to constitute a contract made under the laws of the State of Rhode Island and for all purposes shall be construed in accordance with the laws of such State.

6. This agreement shall be binding upon and inure to the benefit of each party, its successors in business and assigns."

No discussions took place between First Quill and Cross regarding the availability of damages or attorney's fees in the event Cross thereafter instituted suit.

6. An order dismissing the Cross-First Quill action without prejudice was entered by said United States District Court on December 18, 1967, by agreement of the parties.

7. On November 1, 1969, Cross filed an application for trademark registration for certain of its pen styles. A manufacturer of pens and pencils, T & T, opposed the application. Its opposition was dismissed on April 27, 1973, by the Trademark Trial and Appeal Board upholding the validity of the Cross registration.

8. In March of 1972, while the opposition was pending, T & T arranged for First Quill to assign to T & T its rights under the settlement agreement between First Quill and Cross.

9. In the First Quill-T & T assignment, First Quill agreed not to resume the manufacture and sale of pens or pencils having appearances like or similar to the appearance of said exhibits C, D, and F pens and pencils and to change its corporate name to omit the word "Quill" therefrom.

10. On September 21, 1972, T & T incorporated Second Quill as a wholly owned subsidiary; on September 28, 1972, T & T executed an assignment of its rights under the 1967 settlement agreement to Second Quill. Second Quill began manufacturing pens and pencils. T & T ceased manufacturing complete pens and pencils in 1970.

11. In 1973 T & T brought an action (hereinafter the T & T-Cross action) against Cross in the United States District Court for the District of Rhode Island (C.A. 5267), in which T & T appealed from the decision of the Trademark Trial and Appeal Board of the United States Patent and Trademark Office upholding Cross's application to register as a trademark a silver-colored top for its writing instruments.

12. On or about August 21, 1974, in the T & T-Cross action, T & T filed Plaintiff's First Request for Admissions, attached to which were specimens of the writing instruments that have been manufactured and sold by Second Quill since on or shortly after September 28, 1972, and requested that Cross admit (a ) that they did not infringe on any of Cross's rights, including without limitation, Cross's U.S. trademark registration Nos. 543,934; 827,167; and 920,723; or Cross's claimed trademark shown and described in Cross's application serial No. 344,222, filed on or about November 21, 1969; and (b ) that the manufacture and sale thereof by Second Quill did not constitute unfair competition with Cross.

13. The appearance of the Second Quill writing instruments that were attached to said Plaintiff's First Request for Admissions was substantially similar to that of the writing instruments attached as exhibits C, D, and F to the settlement agreement.

14. By its responses to said Plaintiff's First Request for Admissions, Cross asserted that said writing instruments attached to Plaintiff's First Request for Admissions did infringe on Cross's trademarks and did constitute unfair competition with Cross.

15. Second Quill then, with permission of the court, intervened in the T & T-Cross action and filed its Second Intervener's Complaint, in which it (a ) asserted, among other things, that the writing instruments manufactured and sold by it since September 28, 1972, as assignee of First Quill's rights under the settlement agreement, are like or similar to the writing instruments attached as exhibits C, D, and F to the settlement agreement and that Cross is estopped from asserting that Second Quill has infringed on any of Cross's purported trademarks or has engaged in unfair competition with Cross by the manufacture and sale of such writing instruments, and (b ) demanded judgment, among other things that its manufacture and sale of such writing instruments do not infringe any of Cross's purported trademarks or constitute unfair competition.

16. By its answer and counterclaim to said Second Intervener's Complaint filed April 7, 1975, Cross (a ) admitted that it had entered into a written agreement with First Quill on November 29, 1967, "for the terms and legal effect of which, this [c]ourt is respectfully referred to the document," (b ) denied Second Quill's averments with respect to estoppel, and (c ) sought (i) an injunction against Second Quill's manufacture and sale of the writing instruments that Second Quill was then manufacturing and selling as aforesaid and (ii) an accounting, on the grounds of both unfair competition and trademark infringement.

17. Following trial before the Honorable Raymond J. Pettine, Chief Judge of the United States District Court for the District of Rhode Island, sitting without a jury, the court held that (1) the Cross trademark was valid, (2) First Quill's writing instruments infringed on the Cross trademark, but (3) Cross was estopped from suing Second Quill for infringement for manufacturing similar writing instruments by virtue of the settlement agreement between Cross and First Quill which had been assigned to Second Quill. The court's opinion may be found in T & T Manufacturing Co. v. A.T. Cross Co., 449 F.Supp. 813 (D.R.I.1978), and is incorporated herein by reference, along with the court's judgment.

18. Cross appealed from the District Court's judgment to the United States Court of Appeals for the First Circuit, which, on November 29, 1978, affirmed said judgment.

19. On February 26, 1979, Cross filed a petition for certiorari with the Supreme Court of the United States for review of the judgment of the Court of Appeals. On April 16, 1979, said petition was denied.

20. Second Quill has reasonably incurred...