Int'l Armor & Limo v. Moloney Coachbuilder

In the
United States Court of Appeals
For the Seventh Circuit

No. 01-1493

International Armor
& Limousine Company,

Plaintiff-Appellant,

v.

Moloney Coachbuilders, Inc.,

Defendant, Third-Party
Plaintiff-Appellee.

v.

Earle F. Moloney, et al.,

Third-Party Defendants-Appellants.

Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 98 C 5898--John A. Nordberg, Judge.

Argued October 24, 2001--Decided November 26, 2001

Before Harlington Wood, Jr., Coffey, and
Easterbrook, Circuit Judges.

Easterbrook, Circuit Judge. Earle F.
Moloney owes his fame and fortune to
success in the limousine, armored car,
and custom auto rebuilding business. In
1986 he sold his limousine assets,
together with the name "Moloney Coach
Builders", to Jacques Moore, who
incorporated Moloney Coachbuilders, Inc.,
to carry on the business. Earle agreed
not to compete for five years in the
stretch limousine business but reserved
the right to make armored limousines and
custom vehicles extended by less than 20
inches. Disputes ensued. Earle Moloney
contended that Moloney Coachbuilders had
acquired the right to use "Moloney Coach
Builders" as a corporate name but not as
a trademark for its products; Earle also
contended that he, rather than Moloney
Coachbuilders, retained the business’s
corporate history (such as the right to
say "in business since 1969" and to brag
about limousines made for heads of
state). Litigation ensued, a judge
resolved several issues on the pleadings,
see Moloney v. Centner, 727 F. Supp. 1232
(N.D. Ill. 1989), and the rest were
settled in 1990, with Moloney
Coachbuilders prevailing on all central
issues.

More disputes erupted after the no-
competition clause expired and Earle
reentered the armored stretch limousine
business. Advertisements for Earle’s new
firm, International Armor & Limousine
Company, carried phrases such as "The
world’s standard in extended limousines
was created by E.F. Moloney, the pioneer
in the stretch limousine industry" and "A
Moloney Owned Entity". After Moloney
Coachbuilders protested the use of the
Moloney name in connection with Earle’s
limousine business, International Armor
filed this suit, seeking a declaratory
judgment that use of these and similar
phrases does not violate sec.43 of the
Lanham Act, 15 U.S.C. sec.1125, by making
a confusingly false claim of origin.
Moloney Coachbuilders responded with a
counterclaim (plus a third-party claim
against Earle and two of his other firms)
contending that Earle’s use of his name
and corporate history in connection with
stretch limousines (armored or not)
violates the 1986 contract of sale, the
1990 settlement, and the Lanham Act. The
district court concluded that Earle
Moloney’s use of his name in connection
with any stretch limousine business
violates the 1990 settlement agreement.
Earle and his firms have appealed.

Our first question is whether they have
anything to appeal from. The judgment
entered by the district court provides:

IT IS HEREBY ORDERED AND ADJUDGED that
Enter memorandum Opinion and Order. For
the foregoing reasons, this court grants
the amended motion for attorneys [sic]
fees and orders Earle F. Moloney to pay
Moloney Coachbuilders, Inc. $70,521.84 in
fees and costs. The original motion is
denied as moot. This court also grants
the motion for a permanent injunction for
the reasons stated herein [sic: "and"
missing?] enjoins Eale [sic] F. Moloney,
International Armor & Limousine,
Limousine Werks, and Chicago Armor &
Limousine, their officers, agents,
servants, employees, attorneys and all
other persons in action [sic: active?]
concert or participation with them.
In addition to the multiple references to
other documents, which should not appear
in a judgment, see Reytblatt v. Denton,
812 F.2d 1042 (7th Cir. 1987), this
judgment dangles. Earle Moloney and firms
are enjoined, but from doing what? The
judgment does not say. This is the second
time the district court violated Fed. R.
Civ. P. 65(d) in the case; an earlier
"standstill order" never was reduced to
writing, a problem that the judge
acknowledged, 2000 WL 640883 (N.D. Ill.
Mar. 21, 2000). Complete failure to
specify the terms of a decision makes
appeal impossible; there is no order
adverse to the appellant, no possibility
of penalties for noncompliance, and thus
nothing to review. See Hispanics United
of DuPage County v. Addison, 248 F.3d 617
(7th Cir. 2001); Bates v. Johnson, 901
F.2d 1424 (7th Cir. 1990); Bethune Plaza,
Inc. v. Lumpkin, 863 F.2d 525 (7th Cir.
1988). But when the terms may be gleaned
from other sources, there is only a
violation of Rule 65, which is
correctable on appeal. See Chathas v.
Local 134 IBEW, 233 F.3d 508, 512-13 (7th
Cir. 2000); Metzl v. Leininger, 57 F.3d
618 (7th Cir. 1995). The district judge’s
memorandum order of February 20, 2001,
contains terms that the judge evidently
meant to be used as an injunction;
unfortunately the court as an institution
did not ensure that these were reflected
in a formal judgment. The result is
appealable--but it will not be necessary
to remand for compliance with Rule 65(d),
because now that our jurisdiction is
secure we hold that the district court
lacked subject-matter jurisdiction.

The problem is simple: This is a
contract dispute, and although the stakes
may exceed $75,000 all litigants
arecitizens of Illinois. The contracts of
1986 and 1990 are about trademarks, so a
claim under the Lanham Act may be
derivative of the rights conferred.
Whichever side owns the marks may use
them, and whichever side does not own
them is at risk under the Lanham Act as
well as the law of contract. Many federal
statutes create property rights that may
become the subject of ownership disputes:
copyright law, patent law, trademark law,
and a score of licensing systems. Any
fight about ownership could be
recharacterized as a claim for redress
under federal law. For example, if A
sells a patent to B, and A then practices
the invention without B’s consent, a suit
alleging patent infringement may conceal
a dispositive contract issue (A may
defend the infringement action by saying
that the contract is invalid). If the
outcome of a suit nominally under federal
law depends entirely on the state law of
contracts, does the dispute come within
the federal-question jurisdiction of 28
U.S.C. sec.1331, which applies to "all
civil actions arising under the
Constitution, laws, or treaties of the
United States" (emphasis added)?

Osborn v. Bank of the United States, 22
U.S. (9 Wheat.) 738, 822-28 (1824), gives
"arising under" in Article III of the
Constitution the broadest possible
meaning, extending the grant to every
case in which federal law furnishes a
necessary ingredient of the claim even if
this role is distantly related to the
parties’ dispute. Our case arises under
the trademark laws in Osborn’s sense. But
the Supreme Court has long given a
narrower meaning to "arising under" in
statutes defining the jurisdiction of the
district courts. See, e.g., Merrell Dow
Pharmaceuticals, Inc. v. Thompson, 478
U.S. 804 (1986); Franchise Tax Board v.
Construction Laborers Vacation Trust, 463
U.S. 1 (1983); Shulthis v. McDougal, 225
U.S. 561, 569 (1912). In Merrell Dow, for
example, the plaintiff’s success depended
on a favorable interpretation of federal
drug-safety laws; but the Court observed
that state law supplied the right to
recover damages for torts and held that
the presence of a federal issue in a
claim that depended on state law did not
make the claim one "arising under"
federal law.

Professor Mishkin’s appraisal remains
apt: A suit comes within federal
jurisdiction under sec.1331 when a
substan-tial claim is founded directly on
federal law. See Paul J. Mishkin, The
Federal "Question" in the District
Courts, 53 Colum. L. Rev. 157, 160-65
(1953). That leaves much play in the
joints: What is "substantial," and how
"direct" is direct enough? But it is a
more comprehensive and nuanced approach
than Justice Holmes’s statement that a
"suit arises under the law that creates
the cause of action." American Well Works
Co. v. Layne & Bowler Co., 241 U.S. 257,
260 (1916). Many other opinions discuss
the limitations of that approach, and we
add that under the Federal Rules of Civil
Procedure the concept of "cause of
action" as Holmes used it--a reference to
a code-pleading regime in which law was
essential to the plaintiff’s complaint--
has vanished from federal law and been
replaced by notice pleading, which need
not specify a source of law. See
Bartholet v. Reishauer A.G. (Zurich), 953
F.2d 1073 (7th Cir. 1992); Bennett v.
Schmidt, 153 F.3d 516 (7th Cir. 1998).
Under the Federal Rules, courts rather
than parties decide which rules of law
govern the disputes. This changes the
focus of the "arising under" jurisdiction
from the contents of the complaint to the
attributes of a successful claim. This is
why decisions such as Merrell Dow hold
that complaints forcefully stating
federal ingredients do not necessarily
arise under federal law, and why
Franchise Tax Board observes that "artful
pleading" in an effort to create a
federal issue that is not really there,
or avoid one that is essential, no longer
succeeds. Although the well-pleaded-
complaint doctrine of Gully v. First
National Bank, 299 U.S. 109 (1936),
establishes that the federal element must
be part of the plaintiff’s claim (as
opposed to a defense), it does not mean
that the plaintiff may maneuver a case
into or out of federal court at will by
including or omitting federal aspects. In
our notice-pleading regime (adopted two
years after Gully) the district court
looks past the surface allegations to
make its own assessment of what law the
claim arises under.

Long before the Supreme Court adopted
the artful-pleading doctrine and
permitted district courts to look behind
the surface of a complaint, Judge
Friendly concluded in T.B. Harms Co. v.
Eliscu, 339 F.2d 823 (2d Cir. 1964), that
a dispute about the ownership of a
copyright does not arise under federal
law, even though the dispute could not
exist but for the property right created
by copyright, a federal ingredient that
would have been enough under Osborn’s
expansive understanding. That conclusion
holds sway among the federal appellate
courts, and we have not only adopted it
for copyright disputes, see Spearman v.
Exxon Coal USA, Inc., 16 F.3d 722 (7th
Cir. 1994) (dictum); Saturday Evening
Post Co. v. Rumbleseat Press, Inc., 816
F.2d 1191, 1194-95 (7th Cir. 1987)
(dictum), but also extended it to
disputes about ownership of patents. See
Kennedy v. Wright, 851 F.2d 963 (7th Cir.
1988). We have intimated that it is
equally applicable to disputes about the
ownership of trademarks. Country Mutual
Insurance Co. v. American Farm Bureau
Federation, 876 F.2d 599, 601 (7th Cir.
1989). Two other circuits have square
holdings on that point. Each adopted
Eliscu’s approach for trademark ownership
disputes. See Gibraltar, P.R., Inc. v.
Otoki Group, Inc., 104 F.3d 616 (4th Cir.
1997); Postal Instant Press v. Clark, 741
F.2d 256 (9th Cir. 1984). Because in this
case the only serious dispute is how the
contracts of 1986 and 1990 allocate
ownership rights in the Moloney name and
business history (as applied to stretch
limousines), the same principle leads to
the conclusion that there is no federal
jurisdiction. The dispute arises under
the law of contracts; any trademark
claims are entirely derivative of the
contract issues. The decision of the
district court, and the parties’ briefs
in this court, are all about contract;
trademark receives scarcely a sidelong
glance, and the Lanham Act played no role
in the disposition.

In a supplemental brief filed after oral
argument, Moloney Coachbuilders attempted
to distinguish Eliscu as a case dealing
with a "pure" ownership dispute; the com
plaint did not charge the defendant with
infringement. The dispute concerned the
allocation of royalties, not the
lawfulness of any given copy or
performance. One could say the same of
Gibraltar, which concerned arbitration of
an ownership dispute--though not of
Postal Instant Press, which began with a
charge of trademark infringement by a
franchisee that stayed in business after
the contract ended. Here the case began
with a request for a declaratory judgment
of non-infringement and continued with a
counterclaim seeking damages for
trademark infringement. Both the
complaint and the counterclaim satisfy
the approach of American Well--still used
as an inclusive, though not an exclusive,
definition--that the "suit arises under
the law that creates the cause of
action." Contract issues are defenses and
cannot undermine jurisdiction established
by the complaint, the argument concludes.
If this is so then Postal Instant Press
is wrongly decided and we must create a
conflict among the circuits. But that
decision is not a blunder; Postal Instant
Press applies the artful-pleading
doctrine (though without naming it), and
sensibly so.

Suppose that the claim in Eliscu had
been cast slightly differently: Instead
of demanding royalties according to (his
interpretation of) the contract, the
author of the lyrics could have argued
that, because he was not being paid, the
sale of the sheet music infringed his
copyright. Turning the telescope around
in this way should not be a means to
create federal jurisdiction, when the
real dispute is unaffected. Yet this is
all that our parties have done. Instead
of relying on the contract claims
directly, they have tried to frame
trademark issues that immediately vanish,
a coat of water-soluble paint that washes
away to reveal the contract dispute
underneath. That disappearing-ink trick
does not create federal jurisdiction; it
simply defines artful pleading.
International Armor might as well have
requested a declaratory judgment that its
advertising does not violate the
antitrust laws or erisa.

A claim might arise under federal law
even though all dispositive issues depend
on state law if the remedies differ.
Suppose that Illinois would give Moloney
Coachbuilders actual damages, plus an
injunction, if Earle Moloney broke his
promises, but that federal law would
provide treble damages if the broken
promise amounted to misappropriation of
Moloney Coachbuilders’ trademark. Then
breach of contract under state law would
set up a genuine, distinctive federal
claim. But the parties’ supplemental
briefs do not contend that the Lanham Act
affords any remedy that is unavailable
under the state law of contract, or makes
that remedy easier to obtain, or in this
case serves any role other than as a
veneer laid over the state-law core.
International Armor’s complaint alerts
the district court to the contractual
foundation, and the counterclaim rubs it
in; it describes the 1990 agreement in
para.3, even before it identifies the
parties to the case! We therefore treat
this ownership dispute as what it is, a
claim arising under the state law of
contracts.
 Seeking a way to keep this case in
federal court, the parties have
identified a second potential source of
jurisdiction: If sec.1331 is unavailable,
they contend, the court still had
supplemental jurisdiction to enforce the
1990 agreement. Kokkonen v. Guardian Life
Insurance Co., 511 U.S. 375 (1994), holds
that a settlement of a suit arising under
federal law normally is a contract that
can be enforced in federal court only if
there is an independent source of
jurisdiction, such as diversity of
citizenship. But Kokkonen adds that, if a
court retains jurisdiction to enforce the
terms of a settlement, then ancillary
jurisdiction may be available. 511 U.S.
at 380-81. The terminating order in the
earlier suit (No. 88 C 6564) provides,
among other things: "The Court shall
maintain jurisdiction of this matter for
the purpose of enforcing the Mutual
Settlement and General Release
Agreement."

One problem with this line of argument
is that neither International Armor’s
complaint nor Moloney Coachbuilders’
counterclaim invoked the jurisdiction
retained in 88 C 6564. International
Armor filed a brand new suit, and Moloney
Coachbuilders filed a counterclaim in
that suit rather than seeking relief from
the original judge. The 1988 suit was
assigned to Judge Aspen, this 1998 suit
to Judge Nordberg. Moloney Coachbuilders
asked Judge Nordberg to transfer the new
proceedings to Judge Aspen so that they
could be resolved as ancillary to the
1988 suit. That motion was denied.
Although it is the court rather than the
judge that retains jurisdiction, the
court as an institution did not do what
was necessary to show that the
jurisdiction retained in 1990 was being
exercised.

A second, and deeper, problem is that
even a request filed directly under the
1988 case would not have been sufficient-
-for that case, too, was outside federal
jurisdiction, and for the same reason the
current suit does not arise under federal
law. The 1988 suit was a poorly disguised
request for interpretation of the 1986
contract, plus a defamation claim
explicitly under state law. The district
court’s published opinion in that case
steps through one state-law theory after
another: defamation, tortious
interference with contract, and unfair
competition. The court observed that
Earle Moloney had alleged trademark
infringement but also made it clear that
the only dispute was whether the 1986
agreement had transferred to Moloney
Coachbuilders, the new corporation, the
Moloney Coach Builders trademark (with its
distinctive script) that Earle Moloney
had registered years earlier. 727 F.
Supp. at 1238-40. Just as in the current
suit, then, the trademark claim was a
veneer for a contract dispute, and for
the reasons we have already given did not
arise under federal law. The district
court in 1990 could "retain" no more
jurisdiction than it had--which is to
say, none.

Neither the court nor the parties can be
happy when lengthy litigation comes to
naught, but enforcing the limits of
federal jurisdiction is essential lest
clever lawyers be able to transfer suits
at will to federal court. These litigious
parties may be unwilling to give up; the
long-running nature of this dispute does
not augur well for peaceful resolution.
But Earle Moloney should consider, before
he renews hostilities in state court, the
possibility that the district judge’s
thoughtful and well-reasoned opinions in
this case will be persuasive with the
state judges.

The judgment of the district court is
vacated, and the case is remanded with
instructions to dismiss for lack of
subject-matter jurisdiction.