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Electronic Laboratory Supply Co. v. Cullen

August 17, 1992

ELECTRONIC LABORATORY SUPPLY COMPANY, INC. AND JACK SNYDERMAN, APPELLANTS
v.
RAYMOND T. CULLEN, RONALD B. HAUBEN, AND JOSEPH WOLFSON



On Appeal from the United States District Court for the Eastern District of Pennsylvania. (Civ. No. 88-04494)

Before: Hutchinson, Cowen and Weis, Circuit Judges

Author: Cowen

Opinion OF THE COURT

COWEN, Circuit Judge.

Plaintiff-appellants Electronic Laboratory Supply Co. ("ELSCO") and Jack Snyderman appeal the grant of summary judgment dismissing their claims under section 34(d)(11) of the Lanham Trademark Act, codified as amended at 15 U.S.C. § 1116(d)(11) (1988). The defendant-appellees are three attorneys who allegedly obtained a wrongful ex parte seizure of appellants' goods. At issue in this appeal is (1) whether an attorney can be a defendant under section 1116(d)(11), which provides a cause of action for wrongful seizure against the "applicant" for an ex parte seizure order; and (2) whether there is aiding and abetting liability under section 1116(d)(11). We conclude that the answer to both questions is no and will affirm the grant of summary judgment.

I.

On appeal of a grant of summary judgment, we must view all facts and all inferences in the light most favorable to the nonmoving party, in this case the plaintiff-appellants. Clement v. Consolidated Rail Corp., 963 F.2d 599, 600 (3d Cir. 1992). ELSCO and Snyderman filed the instant law suit to recover damages suffered through an ex parte seizure of their inventory and records, which occurred during a prior, related lawsuit between ELSCO and Motorola, Inc. ("Motorola"). Motorola was represented in that action by defendant Raymond Cullen, a partner in the Philadelphia law firm of Morgan, Lewis & Bockius, and by defendants Ronald Hauben and Joseph Wolfson, present or former associates of that firm.

ELSCO is in the business of purchasing scrap electronic parts from manufacturers and smelting them to retrieve the precious and semi-precious metals which they contain. ELSCO makes bullion bars of those metals and sells them to refining companies. Jack Snyderman is the president of ELSCO.

Motorola is one of the world's largest manufacturers and sellers of electronic equipment and components, including various integrated circuits, discrete semiconductors, and microprocessor units. These items are collectively known as "semiconductor devices." For a variety of reasons, including manufacturing defects and expiration of shelf life, certain Motorola semiconductors do not meet the company's quality control standards and are considered scrap material. In order to protect its reputation and intellectual property rights, Motorola requires the prompt destruction of all of its scrap material to ensure that only high quality semiconductors are sold under the Motorola trade name. Motorola has contracted with over thirty-five different smelting companies worldwide to destroy its scrap material.

From 1980 to 1988, ELSCO contracted with Motorola to purchase Motorola scrap material, remove it from Motorola's facilities, destroy it, and furnish Motorola with certificates of destruction within thirty days of receipt of the material. A few of the semiconductors purchased by ELSCO had the Motorola logo stamped on them. Early in 1988, Motorola discovered that some of its scrap semiconductors were being sold in Hong Kong without the company's authorization. After conducting an investigation, Motorola suspected that ELSCO was the source of those devices. In February of 1988, Claude Wheeler, Motorola's Corporate Manager of Precious Metals Controls, contacted Snyderman and requested his permission to visit ELSCO and conduct an audit of the scrap material purchased from Motorola. Snyderman agreed. On February 25, 1988, Wheeler visited ELSCO and took inventory of the Motorola scrap material. He was given full access to ELSCO's premises and to its books and records. One day later, Wheeler described the results of his audit in an inter-office memorandum, in which he compared the amount of scrap material sold to ELSCO with the amounts of scrap which ELSCO had smelted or still had on its premises. The scrap material sold to ELSCO fell roughly into two categories: copper scrap and steel scrap. Wheeler concluded that ELSCO accounted for 98.05% of the copper scrap and 98.7% of the steel scrap received from Motorola. Wheeler also reported that Charles Rawls, a former ELSCO employee, was fired for theft.

Motorola was not satisfied. On March 9, 1988, Michael Katalinic and Robert Lewis, two Motorola internal security employees, made an unannounced visit to ELSCO to verify the information in Wheeler's audit. Snyderman fully cooperated with them, giving them access to the warehouses containing the Motorola scrap material. None of that material had been moved, concealed, or disturbed since the Wheeler audit. Katalinic and Lewis did not reweigh any of the scrap material.

On March 23, 1988, Motorola filed a complaint against ELSCO and Snyderman in the United States District Court for the Eastern District of Pennsylvania (Civ. No. 88-2452), alleging trademark infringement under the Lanham Act, 15 U.S.C. §§ 1114(a) and 1125, patent infringement, RICO, breach of contract, and various common law torts. Accompanying the complaint was Motorola's application for an ex parte order for seizure of the Motorola semiconductor devices and various records in ELSCO's possession, pursuant to 15 U.S.C. § 1116(d)(11) and Pennsylvania replevin rules. One of the affidavits supporting the application was that of former ELSCO employee Charles Rawls, who claimed that during his employment in ELSCO's warehouse, ELSCO clandestinely resold 75-80% of the Motorola scrap material and concealed its activities from Motorola inspectors.

The complaint and the application for ex parte seizure were prepared by attorneys Cullen, Hauben, and Wolfson. During the ex parte proceeding, these attorneys never informed the district court of the following facts: that only 27 days earlier, Motorola performed the audit which accounted for over 98% of the scrap material that it sold to ELSCO, a Conclusion obviously inconsistent with the statement in Rawls' affidavit that ELSCO resold 75-80% of that material; that Rawls was a disgruntled former employee of ELSCO who was fired for stealing scrap material; that Motorola paid Rawls $700 for his time in preparing his affidavit; that ELSCO and Snyderman cooperated fully with the Wheeler audit and the surprise inspection by Katalinic and Lewis, occurring within four weeks of the law suit, and gave them access to whatever ELSCO premises, books, and records they wished to see; and that ELSCO and Snyderman never moved or secreted any scrap material during this period, though they knew of Motorola's investigation.

On March 23, 1988, the district court granted the ex parte seizure order. On March 24, the court granted the motion of Morgan, Lewis & Bockius to be appointed substitute custodian of the seized goods. On March 25, the seizure was carried out. Approximately fifteen persons, including two federal marshals, attorney Hauben, and various Motorola and moving van company employees, entered ELSCO's headquarters in Philadelphia. They seized most of ELSCO's inventory, consisting of hundreds of thousands of pounds of scrap material, and many business records. These items were held for several months in private storage facilities in New Jersey. The ex parte seizure caused serious injury to ELSCO's business.

On June 7, 1988, ELSCO filed a complaint against Motorola and its attorneys in the United States District Court for the Eastern District of Pennsylvania (Civ. No. 88-4494), alleging wrongful seizure under the Lanham Act, 15 U.S.C. § 1116(d)(11), antitrust violations, RICO, Rule 11 violations, and various common law torts. The two lawsuits were consolidated. On July 3, 1990, the district court granted summary judgment in favor of ELSCO in the first lawsuit, Civ. No. 88-2452, dismissing Motorola's trademark infringement claims under the Lanham Act. Motorola and ELSCO afterward reached a settlement. The district court signed stipulations and orders of dismissal on May 8, 1991, dismissing Motorola's suit against ELSCO (Civ. No. 88-2542) in its entirety, and dismissing ELSCO's suit against Motorola (Civ. No. 88-4494). ELSCO's claims against the defendant attorneys Cullen, Hauben, and Wolfson were preserved.

The defendants moved for summary judgment on the grounds that attorneys are not proper defendants under 15 U.S.C. § 1116(d)(11), which only creates a cause of action against the "applicant" for an ex parte seizure order. The district court granted their motion on December 30, 1991. Electronic Lab. Supply Co. v. Cullen, 782 F. Supp. 1016 (E.D. Pa. 1991). ELSCO moved for reconsideration on the grounds that defendants could be liable as aiders and abettors. The district court denied their motion on February 11, 1992. Electronic Lab. Supply Co. v. Motorola, Inc., 785 F. Supp. 67 (E.D. Pa. 1992). This appeal followed.

The district court had jurisdiction over this action under 28 U.S.C. § 1331 (1988). We have jurisdiction over the appeal from a final order of the district court under 28 U.S.C. § 1291 (1988). The issues on appeal are whether an attorney is an "applicant" under 15 U.S.C. § 1116(d)(11) and whether there is aiding and abetting liability under § 1116(d)(11). These are purely questions of statutory construction, and our standard of review therefore is plenary. Ballay v. Legg Mason Wood Walker, Inc., 925 F.2d 682, 684 (3d Cir.), cert. denied, U.S. , 112 S. Ct. 79, 116 L. Ed. 2d 52 (1991); United States v. Barel, 939 F.2d 26, 31 (3d Cir. 1991).

II.

The Lanham Trademark Act ("the Act"), as amended in 1984, authorizes a district court to grant an ex parte order for the seizure of items involved in the unlawful use of a counterfeit mark, including goods, counterfeit marks, the means of making such marks, and records. 15 U.S.C. § 1116(d)(1)(A) (1988). In light of the extraordinary nature of this remedy, the statute creates a cause of action for wrongful seizure:

A person who suffers damage by reason of a wrongful seizure under this subsection has a cause of action against the applicant for the order under which such seizure was made, and shall be entitled to recover such relief as may be appropriate, including damages for lost profits, cost of materials, loss of good will, and punitive damages in instances where the seizure was sought in bad faith, ...


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