Tempco Elec. Heater Corp. v. Omega Engineering, Inc.

• Decision Date: 14 May 1987
• Docket Number: No. 85-3068,85-3068
• Citation: 2 USPQ2d 1930,819 F.2d 746
• Parties: TEMPCO ELECTRIC HEATER CORPORATION, Plaintiff-Appellant, v. OMEGA ENGINEERING, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 746

819 F.2d 746

2 U.S.P.Q.2d 1930

TEMPCO ELECTRIC HEATER CORPORATION, Plaintiff-Appellant, v. OMEGA ENGINEERING, INC., Defendant-Appellee.

No. 85-3068.

United States Court of Appeals,

Seventh Circuit.

Argued May 14, 1986.

Decided May 14, 1987.

Edward D. Gilhooly, Pigott, Gerstman & Gilhooly, Ltd., Chicago, Ill., for plaintiff-appellant.

W. James Cousins, Cousins & Sweigart, P.C., Stamford, Conn., for defendant-appellee.

Before CUMMINGS and RIPPLE, Circuit Judges, and ESCHBACH, Senior Circuit Judge.

ESCHBACH, Senior Circuit Judge.

This case requires us to determine whether the district court erred in dismissing a declaratory judgment action brought under 28 U.S.C. Sec. 2201 (1982) ¹ on discretionary grounds, because a trademark infringement action involving the same parties and issues was filed shortly after this action. We conclude he did not, and affirm.

I

Plaintiff, Tempco Electric Heater Corporation ("Tempco") is an Illinois corporation which manufactures electric heaters and accessories for them, including temperature control and measurement devices. It owns a federally registered trademark for its heaters, entitled "TEMPCO PLUS DESIGN," which includes the word "Tempco" and the greek letter omega " ". It has also used this mark, although without federal registration, for its temperature measurement and control devices, since the 1970's. Defendant, Omega Engineering, Inc. ("Omega"), a Delaware corporation with its principal place of business in Connecticut, manufactures temperature measurement and control devices and likewise has a federally registered trademark which uses the greek letter omega.

Believing Tempco's use of the omega symbol on temperature measurement and control devices to be an infringement of Omega's trademark, Omega's counsel, W. James Cousins, sent a letter to Tempco on April 8, 1985, demanding that Tempco cease the allegedly infringing use. In the letter, Cousins demanded a response within 10 days and threatened litigation if Tempco did not so respond. Eight days later, having received no response, Cousins sent another letter reiterating the demand, with the deadline appropriately shortened to 48 hours. The following day, Tempco's president, Fermin Adames, telephoned Cousins and told him of Tempco's longstanding use of the mark (Cousins' letter had implied that Tempco had recently begun using the mark on products that competed with Omega's). On the same day, Tempco's counsel, John Brezina, communicated Tempco's disinclination to comply with the demand to Cousins. That position was reiterated to Omega on April 22, 1985. On that same day, Cousins sent another letter to Tempco, stating that Tempco's position left Omega no alternative but to file an action to protect its interests. Tempco received the letter on May 2, 1985. That same day, it filed this declaratory judgment action. On May 6, 1985, Omega filed its infringement action in the District of Connecticut.

Omega moved to dismiss Tempco's action on the ground that the infringement action involved the same facts, parties and issues. The district court granted the motion. Tempco appeals.

II

It is well settled that the federal courts have discretion to decline to hear a declaratory judgment action, even though it is within their jurisdiction. Brillhart v. Excess Insurance Co. of America, 316 U.S. 491, 494, 62 S.Ct. 1173, 1175, 86 L.Ed. 162 (1942); International Harvester Co. v. Deere & Co., 623 F.2d 1207, 1217 (7th Cir.1980); Tamari v. Bache & Co., 565 F.2d 1194, 1199 (7th Cir.1977), cert. denied, 435 U.S. 905, 98 S.Ct. 1450, 55 L.Ed.2d 495 (1978); Sears, Roebuck & Co. v. American Mutual Liability Insurance Co., 372 F.2d 435, 438 (7th Cir.1967); American Automobile Insurance Co. v. Freundt, 103 F.2d 613, 619 (7th Cir.1939). Thus, Tempco's assertions that "an actual controversy existed" at the time the demand by Omega was made and refused are largely beside the point. All that means is that the district court had the power to hear the suit, under the declaratory judgment statute and Article III. The issue we must determine is whether that discretion which the district court retained to decline to hear Tempco's declaratory judgment suit was properly exercised in this case.

A

However, before we address the primary issue--whether the district court erred in dismissing the action on discretionary grounds--we must consider the subsidiary issue of the proper standard by which we review that decision. The parties are in sharp disagreement over that standard. Tempco insists that our determination is de novo and that we may substitute our own discretion for that of the district court; Omega, on the other hand, contends that we may only reverse the district court for abuse of discretion.

Both parties cite cases of this circuit as authority for their positions. However, we conclude that the weight of authority in this circuit supports the position that we should exercise our own discretion in reviewing the district court's decision. Additionally, we conclude that this is the better reasoned approach.

Unfortunately, this circuit and, indeed, the Courts of Appeal in general have failed to adopt a consistent approach to review district court decisions declining, on discretionary grounds, to entertain suits seeking declaratory judgments. For example, in Tamari, we initially noted that "[t]he appellate court may substitute its own judgment for that of the trial court if the trial court's exercise of that discretion is considered erroneous." 565 F.2d at 1199 (citations omitted). However, when we actually reviewed the exercise of discretion, we stated and applied a different standard:

'Generally, an appellate court may set aside a trial court's exercise of discretion only if the exercise of such discretion could be said to be arbitrary ... [D]iscretion is abused only where no reasonable man would take the view adopted by the trial court. If reasonable men could differ as to the propriety of the action taken by the trial court, then it cannot be said that the trial court abused its discretion.' (citations omitted)

565 F.2d at 1203 (quoting Beshear v. Weinszapfel, 474 F.2d 127, 134 (7th Cir.1973) (alterations in original).

In International Harvester, however, we returned to the more exacting standard of review, expressly noting that "[a] court of appeals, in deciding whether discretion should be exercised to decline or accept jurisdiction in a particular case, does not defer to the judgment of the district court; the court of appeals must exercise its own sound discretion as to the propriety of the grant or denial of a declaratory judgment." 623 F.2d at 1217 (citations omitted). Cases prior to Tamari had likewise applied this standard. See National Health Federation v. Weinberger, 518 F.2d 711, 712 (7th Cir.1975); Cunningham Brothers v. Bail, 407 F.2d 1165, 1169 n. 9 (7th Cir.), cert. denied, 395 U.S. 959, 89 S.Ct. 2100, 23 L.Ed.2d 745 (1969); Sears, Roebuck and Co., 372 F.2d at 438. The other circuits are, to put it mildly, divided over the issue. Compare Broadview Chemical Corp. v. Loctite Corp., 417 F.2d 998, 1000 n. 3 (2d Cir.1969) (appellate court may substitute its judgment), cert. denied, 397 U.S. 1064, 90 S.Ct. 1502, 25 L.Ed.2d 686 (1970) with Mission Insurance Co. v. Puritan Fashions Corp., 706 F.2d 599, 601 n. 2 (5th Cir.1983) (suggesting that abuse of discretion standard is more consistent with institutional role of appellate courts and declining to follow International Harvester ). Some courts have adopted an intermediate standard. See Exxon Corp. v. FTC, 588 F.2d 895, 900 (3d Cir.1978) (in reviewing discretionary denial of declaratory relief, the court would "not reverse merely because we would decide differently," but would give the decision 'closer scrutiny than normally given on an 'abuse of discretion' review"). Some draw a dichotomy between the grant of specific declaratory relief and the denial of any relief. ² See Interdynamics, Inc. v. Firma Wolf, 698 F.2d 157, 167 & nn. 9-10 (3d Cir.1982); Penthouse International Limited v. Barnes, 792 F.2d 943 (9th Cir.1986). The commentators uniformly endorse a de novo standard. See 10A C. Wright, A. Miller & M. Kane, Federal Practice and Procedure Sec. 2759 (2d ed. 1983 & Supp.1986); 6A J. Moore, Moore's Federal Practice p 57.08 (2d ed. 1982); H. Friendly, Indiscretion about Discretion, 31 Emory L. J. 734, 778-79 (1982).

Despite the wealth of discussion of the issue, we find that few of the above authorities advance any reasons for choosing one standard over the other. ³ Moore comes closest to giving a reason for adoption of a de novo standard, noting that "This view of the appellate court's power ... permits greater uniformity than would otherwise be possible. Thus Professor Borchard is able to say that this is 'discretion hardened by experience into rule.' " Moore, p 57.08 at 57-36 to 57-37 (quoting Borchard, Declaratory Judgments 293 (2d ed. 1941)). We find in this observation the kernel of an additional reason, apart from the preponderance of our own prior case law, for adoption of a de novo standard to our review of the district court's decision whether to proceed vel non with a declaratory judgment action.

Litigation of this type is extremely time-consuming and wasteful. There is no outstanding factor in this case which points to trial of this action in either Illinois or Connecticut. Such will inevitably be the case in actions such as this where the owner of a trademark is in one location, and an alleged infringer is at some distance. Because the two actions are both in federal district courts, there are no concerns of comity or federalism which might enter the picture where a declaratory judgment action is pursued in federal court and a coercive remedy is pursued in state court. Cf. Brillhart, 316 U.S. at 495, 62 S.Ct. at 1175 ("Interference with the orderly and comprehensive disposition of a state court litigation should be avoided."). While we do not mean to...