Stanfield v. Osborne Industries, Inc.

• Decision Date: 12 December 1997
• Docket Number: No. 77721,77721
• Parties: Phillip W. STANFIELD, Appellant, v. OSBORNE INDUSTRIES, INC., Stanley M. Thibault, and Ronald Thibault, Appellees.
• Court: Kansas Supreme Court

Page 602

949 P.2d 602

263 Kan. 388

Phillip W. STANFIELD, Appellant, v. OSBORNE INDUSTRIES, INC., Stanley M. Thibault, and Ronald Thibault, Appellees.

No. 77721.

Supreme Court of Kansas.

Dec. 12, 1997.

Syllabus by the Court

1. Whether the doctrine of issue preclusion or claim preclusion applies in a certain situation is a question of law. An appellate court may analyze the question using unlimited de novo review.

2. State courts are bound to apply federal law in determining the preclusive effect of a federal court decision on issues of federal law.

3. The federal courts have traditionally adhered to the related doctrines of res judicata and collateral estoppel. Under res judicata (or claim preclusion), a final judgment on the merits of an action precludes the parties or their privies from relitigating claims that were or could have been raised in that action. Under collateral estoppel, once a court has decided an issue of fact or law necessary to its judgment, that decision may preclude relitigation of the same issue in a suit on a different cause of action involving a party to the first case.

4. The general rule of res judicata (or claim preclusion) applies to repetitious suits involving the same cause of action. It rests upon considerations of economy of judicial time and public policy favoring the establishment of certainty in legal relations. The rule provides that when a court of competent jurisdiction has entered a final judgment on the merits of a cause of action, the parties to the suit and their privies are thereafter bound not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose.

5. In general, the term "claim" or "cause of action," for claim preclusion purposes, connotes a natural grouping or common nucleus of operative facts. Among the factors relevant to determine whether the facts are so woven together as to constitute a single claim are their relatedness in time, space, origin, or motivation, and whether, taken together, they form a convenient unit for trial purposes. Though no single factor is determinative, the relevance of trial convenience makes it appropriate to ask how far the witnesses or proofs in the second action would tend to overlap the witnesses or proofs relevant to the first. If there is a substantial overlap, the second action should ordinarily be held to be precluded.

6. In the more complicated case, where one act causes a number of harms to, or invades a number of different interests of the same person, there is still but one transaction; a judgment based on the act usually prevents the person from maintaining another action for any of the harms not sued for in the first action.

7. Under the doctrine of claim preclusion, a legal theory does not need to be determined by a prior court to be precluded in a later action if the later action arises out of the same claim which the prior court decided.

Dorsey L. Baker, of Lubbock, Texas, argued the cause, and Don W. Noah, of Noah & Harrison, P.A., of Beloit, was with him on the briefs for appellant.

Timothy B. Mustaine, of Foulston & Siefkin, L.L.P., of Wichita, argued the cause, and James D. Oliver, of the same firm, was with him on the brief for appellees.

ABBOTT, Justice:

The plaintiff, Phillip W. Stanfield, appeals from the trial court's granting summary judgment against him and in favor of the defendants, Osborne Industries, Inc., Stanley M. Thibault, and Ronald Thibault, based on the doctrines of issue preclusion (collateral estoppel) and claim preclusion (res judicata).

In the early 1970s, the plaintiff invented several products, including an electrically heated farrowing pad for use in the hog industry. The plaintiff consulted local businessmen in Osborne, Kansas, about his product ideas. In 1973, the businessmen formed and incorporated defendant Osborne Industries, Inc. (OII) to manufacture the heating pads and other products. OII hired defendant Stanley Thibault as president of the company. OII also hired the plaintiff about this same time. The plaintiff and OII entered into a written agreement, permitting OII to manufacture the plaintiff's farrowing pad in exchange for a royalty of the sales (1973 technology agreement).

In the early 1970s, OII manufactured farrowing pads for another company, Moorman Manufacturing Company, and labeled the pads with Moorman's name. However, OII also manufactured and sold on its own account, with the plaintiff's acquiescence, some farrowing pads labeled with the name "Stanfield."

In April 1974, OII hired defendant Ronald Thibault, Stanley's brother, to work for the company part-time. Ronald designed a full line of farrowing pads, using a different type of material than the plaintiff's pads. In April 1975, OII hired Ronald full-time as vice president of the company. Ronald believed that OII was too dependent on Moorman, so Ronald developed a plan for OII to create its own separate markets, reputation, and identity. Ronald also concluded that, as a part of OII's move toward independence, it needed to develop and use its own trademark. Plaintiff threatened to cause a walkout of OII employees if the company adopted a trademark that did not use the word "Stanfield." In July 1975, plaintiff and OII executed a second written agreement that gave OII the right to use the word "Stanfield" on its products, even those that were not invented by the plaintiff (1975 trademark agreement). OII designed two trademarks, with at least one of them utilizing the word "Stanfield," and began using them.

In September 1975, the plaintiff quit his employment with OII due to illness and dissatisfaction with the way things were being run. Since 1975, the plaintiff's only relationship with OII has involved the lawsuits he has filed against the company.

In February 1976, the plaintiff's application for a patent on the farrowing pad was initially rejected, and the patent application rejection became final on March 31, 1978. In December 1976, after paying over $45,000 in royalties under the 1973 technology agreement, OII stopped paying the plaintiff royalties on the sale of the farrowing pads. In 1977, plaintiff filed suit against OII in Osborne County District Court to recover his unpaid and future royalties. OII claimed that it had substantially changed the design of the pad which it marketed to such an extent that no further royalties were due. The jury rejected OII's defense and rendered a verdict in favor of the plaintiff. The jury decided that OII's newly designed pad was not substantially different from the original pad designed by the plaintiff. The Court of Appeals affirmed the jury verdict. Stanfield v. Osborne Industries, Inc., 7 Kan.App.2d 416, 643 P.2d 1115 (1982). This court agreed with the jury's determination that OII had not substantially changed the design of the farrowing pad. Nevertheless, this court reversed the judgment in favor of plaintiff for a different reason. This court held that the plaintiff was not entitled to collect royalties under the 1973 technology agreement once the plaintiff's patent application for his farrowing pad had been denied. Thus, this court only allowed the plaintiff to collect royalties for the period prior to the "ultimate rejection" of his patent application on March 31, 1978. Stanfield v. Osborne Industries, Inc., 232 Kan. 197, 198, 203, 654 P.2d 917 (1982).

In March 1977, OII applied to register the "Stanfield" mark it had designed as a trademark, pursuant to the 1975 trademark agreement. In OII's application, Stanley Thibault stated that to the best of his knowledge no one else had the right to use the mark in commerce. The mark was registered with the United States Patent and Trademark Office in 1978. The trademark included the plaintiff's personal name. In 1983, after OII had used the "Stanfield" trademark for 5 years and expended approximately $400,000 on advertising and travel expenses to promote the "Stanfield" trademark, OII filed a declaration under the Lanham Act in an attempt to gain "incontestable" trademark status. See 15 U.S.C. § 1065 (1994). OII asserts that the plaintiff knew OII had registered the "Stanfield" trademark and claimed sole ownership of it. According to OII, the plaintiff became aware of these facts in 1979 or 1980 when they were revealed during the discovery proceedings of the plaintiff's first lawsuit against OII.

In 1990, the plaintiff asked OII to terminate the unlicensed use of the "Stanfield" trademark. According to the plaintiff, he owned common-law trademark rights in the surname "Stanfield," and the 1975 trademark agreement was a limited license agreement which only granted OII the right to use the "Stanfield" mark for 15 years. When the 15 years expired in 1990, the plaintiff asked OII to stop using the mark, but OII refused. Consequently, in early 1992, the plaintiff filed an action in the federal district court of Kansas to terminate the unauthorized use of his name and trademark rights. Filed under federal question jurisdiction, the petition alleged two federal Lanham Act claims and a state law claim utilizing supplemental jurisdiction. Specifically, the plaintiff's federal action included the following three counts: Count I, a claim under the Lanham Act for false description and false association or sponsorship because OII continued to use the "Stanfield" trademark on its products after expiration of the trademark license (see 15 U.S.C. § 1125[a] [1994] ); Count II, a claim under the Lanham Act for fraudulent registration of the "Stanfield" trademark by the defendants (see 15 U.S.C. § 1120 [1994] ); and Count III, a claim for slander, disparagement, and misappropriation of the plaintiff's personal name due to the defendants' continued use of the Stanfield name upon expiration of the trademark license.

In response, the defendants filed a motion for summary judgment on the...