Monday, April 17, 2017

Grange grudge: court orders disclaimer to resolve confusing corporate status

National Grange of the Order of Patrons of Husbandry v. California State Grange, 2016 WL 8730678,  No. 16-201 (E.D. Cal. Sept. 23, 2016)

As relevant here, plaintiffs sued the California Guild and Robert McFarland for false advertisement and unfair competition under the Lanham Act, and moved for a preliminary injunction.  “The National Grange is a nonprofit fraternal organization founded in 1867 to promote the interests of rural America and agriculture.”  The California State Grange was created as its California affiliate in 1873 and elected McFarland as its leader in 2009.  After disputes arose, the National Grange revoked the California State Grange’s membership and the two sides disaffiliated in 2013.The disaffiliated chapter, led by McFarland, continued as a separate entity under the California corporate charter filed in 1946, while the National Grange chartered a new California State Grange in 2014.

Defendants continued to represent themselves publically as the California State Grange, but in 2015 the court granted the National Grange summary judgment on its trademark infringement and false advertisement and unfair competition claims. The court permanently enjoined the disaffiliated entity from using the word “Grange,” but declined to extend that prohibition to include similar words because the National Grange did not expressly seek such relief in its initial complaint. Those rulings are pending on appeal in the Ninth Circuit [ed.: where they may languish for a long time].

In April 2016, the court granted the National Grange’s motion for post-judgment injunctive relief, ordering that the disaffiliated entity

[R]emove the word “Grange” from all corporate registrations and other documents filed with any federal, state, or local government ... [R]emove the word “Grange” from all public telephone and business directory listings, on the internet or otherwise, ... [Refrain] from: (a) conducting business using the name “Grange,” …; (b) using “Grange” in any domain name or email address …; and (c) referencing their past affiliation with plaintiff or any other entity whose name contains the word “Grange,” including representing themselves to be the former California State Grange; successor to the California State Grange; or formerly known as, trading as, or doing business as the California State Grange....

The disaffiliated entity changed its corporate name to the “California Guild,” but continued to refer to itself as “CSG” and “[f]ormerly the California State Grange.”

In this proceeding, the National Grange sought a lot more relief, including a prohibition on “referencing the history and goodwill of the California State Grange” and surrender of all physical and intellectual property of the California State Grange (the physical property also being subject to a California state proceeding).

Defendants “continued to advertise that ‘cities and townships have grown up around our rural halls’; that the the [sic] Defendant’s organization has ‘lobbyists in Sacramento and boasts a long history of successful legislative advocacy’; that the Defendants’ organization was the first organization to support and promote women as equal voting members’ [sic]; and that ‘[i]n these uncertain times our members find comfort and security by returning to our roots and reaffirming principles and goals set by the founders 140 years ago.’ ” The National Grange argued that “only the California State Grange can claim the 140 years’ [sic] of history and goodwill associated with the organization.” The court noted that defendants apparently found a way around the injunction “by taking credit for the California State Grange’s history and achievements without referencing it by name.”

Without discussing Dastar, the court stated that “[t]he Lanham Act prohibits uncredited references to another entity’s history and achievements.”  However, the court noted another loophole: the California Guild remains incorporated under the same corporate papers that the California State Grange formerly existed under.  Thus, defendants were “technically correct when they refer to the California Guild as an organization that has existed for ‘decades’ and around which ‘cities and townships have grown up.’” Though the National Grange maintained that this was nonetheless deceptive, the court found that its “hands were tied with respect to claims to history and achievements accrued post-incorporation”  because such claims weren’t false or misleading but true, although “claims to history and achievements accrued prior to 1946 are undeniably false.”  The court wasn’t ignoring reality or gamesmanship; it was recognizing that, “for some reason, plaintiffs have not taken effective action in the three years after the parties disaffiliated to prevent defendants from occupying the California State Grange’s corporate charter. The court cannot step in to save plaintiffs here.” Thus, the court would only enjoin defendants from referencing history and achievements accrued by the California State Grange prior to its incorporation.  Irreparable injury existed because “further uncredited references to their history may permanently dilute their brand in California.”

The National Grange also challenged defendants’ allegedly false claims that local chapters must ‘disaffiliate’ with the California Guild in order to join [the California State Grange]” and that the local chapters “are ‘no longer nonprofit, must pay taxes, cannot accept tax deductible donations, or receive various grants.’ ” But the National Grange didn’t show falsity for those statements.  Any acts defendants engaged in while purporting to act in the official capacity would violate the existing order; they were allowed to solicit new guild members and officers in their own capacity.  The court denied the National Grange’s request to enjoin “performance of Grange rituals” as vague and overly broad.  “While performance of similar functions can contribute to a violation of the Lanham Act, plaintiffs’ request encompasses legitimate commercial activities such as soliciting new members and providing services to farm communities.”

The National Grange’s request for delivery of all business records, physical property, and intellectual property also went beyond the false advertising claims at issue here.  There was no evidence that defendants’ alleged use of business records and mailing lists constituted false advertising. Using the “proprietary mailing lists of the California State Grange ... albeit under different names” to contact Grange members with proper identification was “not, in itself, false advertisement.” Use of website logos, images, and backgrounds that are nearly identical to the National Grance could cause actionable confusion, but the National Grange’s request for relief was too broad. 

The court declined to evict defendants from the buildings alleged to belong to the California State Grange, but it did agree that, given defendants’ other deceptive tactics (referring to themselves as an organization “created in 1873,” “provid[ing] 160 years of service,” and “oldest agricultural organization in California”), their use of the National Grange’s buildings and former telephone numbers “would serve to further create a false impression among the public that they are affiliated with or successors to the California State Grange.” Eviction was a drastic measure for a preliminary injunction;  at this stage, a further disclaimer would suffice. However, it was reasonable to require defendants to cease using the old phone numbers.

As for that disclaimer: though the court would allow defendants from to claim credit for the history and achievements of the corporate entity formerly named the California State Grange from 1946 to 2013, “unless the public is notified that defendants are not in fact the California State Grange there would be a strong probability of confusion.”  Thus, all communications discussing the history or achievements of the corporate entity formerly named the California State Grange required a prominent disclaimer: “NOT AFFILIATED WITH THE CALIFORNIA STATE GRANGE.” Defendants were already using a mealy-mouthed disclaimer, “not affiliated with ... the Grange of the State of California’s Patrons of Husbandry Chartered.” The National Grange argued that this name was “unknown to the California Granges.” Without specifically ruling on that argument, the court saw no harm in making the disclaimer clearer.

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