Woelffer v. Happy States of America, Inc.

• Decision Date: 07 August 1985
• Docket Number: No. 85 C 3301.,85 C 3301.
• Citation: 626 F. Supp. 499
• Parties: Michael T. WOELFFER, et al., Plaintiffs, v. HAPPY STATES OF AMERICA, INC., Defendant.
• Court: U.S. District Court — Northern District of Illinois

626 F. Supp. 499

Michael T. WOELFFER, et al., Plaintiffs, v. HAPPY STATES OF AMERICA, INC., Defendant.

No. 85 C 3301.

United States District Court, N.D. Illinois, E.D.

August 7, 1985.

COPYRIGHT MATERIAL OMITTED

Gary L. Starkman, Scott Hodes, Arvey, Hodes, Costello, Burman, Michael J. Hayes, Asst. Atty. Gen., Chicago, Ill., for plaintiffs.

John L. Alex, David Lesht, Lockwood, Alex, Fitzgibbon & Cummings, Chicago, Ill., for defendant.

MEMORANDUM OPINION AND ORDER

DECKER, District Judge.

The Illinois Department of Commerce and Community Affairs (DCCA), its director, Michael T. Woelffer (Woelffer), and a private advertising agency, Zechman & Associates, Advertising, Inc. (Zechman)¹, brought this declaratory judgment action against Happy States of America, Inc. (Happy States), a Virginia corporation. Plaintiffs seek a judicial declaration that 1) the State of Illinois' use of the slogan, "Illinois, you put me in a happy state," in its current tourism campaign does not violate the federal or state law rights of defendant and 2) the Eleventh Amendment bars any counterclaim asserted by defendant. Plaintiffs invoke the court's jurisdiction pursuant to 28 U.S.C. §§ 1331, 1332, 1338, 2201-02 (1982) and the Lanham Act, 15 U.S.C. §§ 1051-1127.

In response, Happy States filed an answer and counterclaim alleging copyright infringement under 17 U.S.C. § 501, false designation of origin or false description pursuant to 15 U.S.C. § 1125(a), and a variety of pendent state law claims. The counterclaim seeks declaratory relief, prospective injunctive relief, and attorney's fees and costs.²

The sole issue before the court is whether defendant's counterclaim must be dismissed as a matter of law on the basis of sovereign immunity.

I. Discussion

The Eleventh Amendment provides in pertinent part: "The Judicial power of the United States shall not be construed to extend to any suit, in law or equity, commenced or prosecuted against one of the United States by Citizens of another State...." In considering the application of this jurisdictional bar, the court must initially determine "whether a particular suit in fact is a suit against a State." Pennhurst State School & Hospital v. Halderman, 465 U.S. 89, 104 S.Ct. 900, 908, 79 L.Ed.2d 67 (1984).

In general, a suit brought against a state agency is proscribed by the Eleventh Amendment, regardless of the nature of the relief sought. Id.; Alabama v. Pugh, 438 U.S. 781, 782, 98 S.Ct. 3057, 3058, 57 L.Ed.2d 1114 (1978) (per curiam). Thus, the counterclaim against the DCCA, a state agency, is barred unless the State has waived its immunity.

In addition, the Eleventh Amendment bars a suit against state officials when the State is the real, substantial party in interest. Pennhurst, 104 S.Ct. at 908 (citations omitted). Such a suit is construed to be against the sovereign if "`the judgment sought would expend itself on the public treasury or domain, or interfere with the public administration,'" or if the effect of the judgment would be "`to restrain the Government from acting or to compel it to act.'" Id. at 908 n. 11 (quoting Dugan v. Rank, 372 U.S. 609, 620, 83 S.Ct. 999, 1006, 10 L.Ed.2d 15 (1963)).

With respect to the counterclaim asserted against Woelffer, the director of the DCCA, there can be little doubt that the State of Illinois is the real, substantial party in interest. Although the counterclaim seeks declaratory and injunctive relief, the judgment sought would restrain the State from acting and interfere with the public administration. Thus, the counterclaim against Woelffer is also barred by the Eleventh Amendment unless the State waived its immunity or otherwise consented to the suit.

For the purposes of exposition, the court will consider whether the state plaintiffs — the DCCA and Woelffer — waived their immunity before addressing the application, if any, of the Eleventh Amendment to Zechman, a private advertising agency.

A. Waiver of Immunity by the State Plaintiffs

1. Consent to Suit

As the Supreme Court recently reaffirmed, a state may waive its immunity and consent to suit in federal court. Atascadero State Hospital v. Scanlon, ___ U.S. ___, 105 S.Ct. 3142, 3145, 87 L.Ed.2d 171 (1985). For example, in Clark v. Barnard, 108 U.S. 436, 2 S.Ct. 878, 27 L.Ed. 780 (1883), the State of Rhode Island voluntarily appeared in a federal interpleader action and prosecuted a claim to the fund in controversy. The Supreme Court held that, by voluntarily submitting to the federal court's jurisdiction, the State "made itself a party to the litigation to the full extent required for its complete determination." Id. at 448, 2 S.Ct. at 883.

Despite this broad statement, federal courts have consistently held that a state plaintiff does not waive its sovereign immunity with respect to all plausible counterclaims. To be cognizable, a counterclaim must 1) arise from the same event underlying the state's action and 2) be asserted "defensively, by way of recoupment, for the purpose of defeating or diminishing the State's recovery, but not for the purpose of obtaining an affirmative judgment against the State." Georgia Department of Human Resources v. Bell, 528 F.Supp. 17, 26 (N.D.Ga.1981) (quoting Burgess v. M/V Tamano, 382 F.Supp. 351, 356 n. 6 (D.Maine 1974)); see Department of Transportation v. American Commercial Lines, Inc., 350 F.Supp. 835, 837-38 (N.D. Ill.1972); cf. In re Greenstreet, Inc., 209 F.2d 660, 664 (7th Cir.1954). Indeed, this court has sustained a counterclaim seeking money damages against a state agency in an amount less than its claim. Department of Transportation, 350 F.Supp. at 838.

By initiating this litigation and invoking the court's jurisdiction, the DCCA and Woelffer have made a "voluntary submission" to the court's jurisdiction. Clark, 108 U.S. at 447, 2 S.Ct. at 882. Furthermore, the complaint and counterclaim involve a single underlying occurrence — the use of a slogan in the state's tourism campaign. If the counterclaim were dismissed in its entirety, the state plaintiffs would be "in the enviable position of `heads we win, tails you lose.'" Department of Transportation, 350 F.Supp. at 837. Thus, the court concludes that the DCCA and Woelffer have at least partly waived their immunity in this case.

The parties sharply dispute, however, the extent of the waiver. The complaint only seeks declaratory relief. It is clear that the court has jurisdiction over the declaratory portion of the counterclaim, which largely mirrors the complaint.³ The question becomes whether the injunctive relief requested in the counterclaim would constitute an impermissible affirmative judgment against the State.⁴

One federal court has held that a state governmental unit that files a declaratory judgment action does not thereby consent to being sued by a counterclaim. Board of Regents v. Dawes, 370 F.Supp. 1190, 1191 (D.Neb.1974). Because the counterclaim sought monetary damages, the court reasoned that it was not intended for recoupment or set-off. Id.; see also Bell, 528 F.Supp. at 26 (counterclaim for money damages barred by Eleventh Amendment because State's complaint did not seek monetary damages).

It is true that declaratory and injunctive relief are both considered prospective relief. See, e.g., Toledo, Peoria & Western Railroad v. Illinois, 744 F.2d 1296, 1299 n. 1 (7th Cir.1984), cert. denied, ___ U.S. ___, 105 S.Ct. 1751, 84 L.Ed.2d 815 (1985). It is also true that a successful injunctive counterclaim would defeat a declaratory complaint. Nevertheless, like monetary damages, injunctive relief goes much further. In this case, for instance, it would restrain the state plaintiffs from using the slogan that is at the heart of the State of Illinois' current tourism campaign. Such prospective injunctive relief is more intrusive than money damages. Cf. Atascadero, 105 S.Ct. at 3155 (Brennan, J., dissenting); Pennhurst, 104 S.Ct. at 915, n. 25; Edelman v. Jordan, 415 U.S. 651, 667, 94 S.Ct. 1347, 1357, 39 L.Ed.2d 662 (1974); id. at 680-84, 94 S.Ct. at 1364-66 (Douglas, J., dissenting); see also Jensen v. State Board of Tax Commissioners, 763 F.2d 272, 277 (7th Cir.1985). Moreover, as the Supreme Court has recently stressed, the State's consent to such an impact on its sovereignty must be unequivocally expressed. Atascadero, 105 S.Ct. at 3147; Pennhurst, 104 S.Ct. at 907.

Thus, in comparison to declaratory relief, the type of injunctive relief requested by Happy States is not sufficiently equivalent to a recoupment or set-off to fall within the narrow exception to sovereign immunity recognized by the courts. Rather, the injunctive relief sought is more like the affirmative relief prohibited in Dawes and Bell. Consequently, although this is a close question, the court concludes that the state plaintiffs did not waive their sovereign immunity with respect to the injunctive portion of the counterclaim by filing their declaratory complaint.

Although the parties have not addressed the issue, the same reasoning applies to defendant's request for attorney's fees and costs, which, by definition, are not in the nature of a recoupment or set-off. A recoupment or set-off consists of valid counter causes of action or mutual debts that offset one another. See, e.g., Department of Transportation, 350 F.Supp. at 837; Black's Law Dictionary 1146, 1230 (rev. 5th ed. 1979). On the other hand, an award of attorney's fees in this case would be an extraordinary remedy available only to a prevailing party, see 17 U.S.C. § 505, or only if this were an "exceptional" case involving fraud or bad faith. See 15 U.S.C. § 1117. Thus, even though the state plaintiffs have pleaded a like request in their complaint, an award of attorney's fees or costs in favor of defendant would constitute an impermissible affirmative judgment under the circumstances of this case.

2. Congressional Abrogation of Immunity

Defendant next maintains that Congress abrogated the sovereign immunity of the state plainti...