Opinion
July 20, 1927.
RULE FOR PRELIMINARY INJUNCTION. The complainant is a corporation of the State of Alabama and the defendant is a corporation of Delaware. The complainant is licensed to do business in Delaware.
The complainant was incorporated pursuant to the general corporation laws of Alabama under the name "Heralds of Liberty." Its incorporation under that name was confirmed by Act of the General Assembly of Alabama approved February 12, 1901 (Acts 1900-01, p. 990). On October 5, 1925, in pursuance of an Act of Assembly of Alabama approved April 24, 1911 (Acts 1911, p. 700), after appropriate proceedings to that end, it changed its corporate name from "Heralds of Liberty" to the present one of Liberty Life Assurance Society.
The complainant began its business as a fraternal beneficial association at Huntsville, Ala., and in 1903 established executive offices in Philadelphia, Pa., at which place it continues to function and conduct its said business. At the present time the complainant is licensed to conduct and does conduct its business in the States of Alabama, Mississippi, Texas, Oklahoma, Arkansas, Georgia, Arizona, New Mexico, Delaware, New Jersey and Pennsylvania. As of December 31, 1926, it had a beneficial membership of 25,352 persons located in every State of the Union except New Hampshire, Vermont, Nevada, Idaho and Utah. Its total insurance then outstanding was $26,256,000, from which a premium income was derived in that year of $833,359.43 and a total income was received from all sources of $870,856.93. As of the same date its total assets aggregated $486,475.52 and its total liabilities, including reserves of $160,580.11, aggregated $192,120.11. On March 31, 1927, its total outstanding insurance in force had increased to $28,000,100.
The complainant functions through a system of lodges, among which are numerous grand lodges owing allegiance to, and subject to supervision and control by, the complainant as the supreme lodge. One of these grand lodges is called the McKinley Grand Lodge, located in Philadelphia. It solicits its members by an organized body of State and local deputies, who organize local grand lodges, install the officers thereof and qualify the candidates for membership therein. Local collectors are also employed in connection with the grand lodges to collect the periodical dues from the members and remit the same to the complainant. The total number of soliciting deputies and collectors exceeds three hundred.
Though the corporate name of the complainant has been changed, it nevertheless is still known to and by its members as well as the public generally as "Heralds of Liberty"; it daily receives many letters addressed to it and checks payable to it in that name; has more than two thousand beneficial certificates outstanding in that name; it maintains the name "Heralds of Liberty" in the telephone directory and in the city directory in Philadelphia where its executive offices are located; title to the Heralds of Liberty Building in Philadelphia remains in that name, as well as title to certain other property held by it in Sharon, Pa. The complainant still issues certificates of beneficial membership in the name of Heralds of Liberty.
For several years prior to December 9, 1911, the defendant Barrick was employed by the complainant as Supreme Deputy. As such officer he was in charge of all State and local deputies and it was his duty to visit such deputies and confer with, advise and instruct them in the performance of their work. On December 9, 1911, Barrick was elected to the office of Supreme Recorder of the complainant, which office he held until October 3, 1921, when, because of certain things which need not be detailed, he was excluded from said office. Barrick, in the performance of his duties as Supreme Deputy and afterwards as Supreme Recorder, became intimately acquainted with the names and addresses of the State and local deputies and collectors of the complainant, and had possession of its membership records and mailing lists, which he is charged with still retaining and using to the damage of the complainant.
On January 17, 1927, the defendant Barrick caused the defendant corporation to be organized under the General Corporation Law of this State. Not only is the original name of the complainant made the prominent feature in the corporate title of the defendant corporation, but the plan of organization of the complainant is likewise taken over by it. The certificate of incorporation of the defendant company provides inter alia, as follows:
"* * * The principal object of this corporation shall be; to unite in bonds of fraternity and benevolence, all acceptable persons of good moral character and sound bodily health, who believe in the existence of a Supreme Being; to educate and improve its members morally, socially and intellectually and to furnish protection and benefits to such of its members as may be entitled thereto, under the laws, rules and regulations of the order, for themselves, their wives, husbands, affianced wife or affianced husband, child or children, father, mother, sister, brother or other realtives or dependents, as the member may direct; and to protect and benefit its members in the event of loss by death, accident, sickness or other disability, old age or other causes, and to allow surrender values of its contracts or certificates to its members surrendering the same, and also to accumulate, maintain, apply or disburse among its members a reserve emergency or other fund, as may be provided by its laws, rules and regulations.
"Said corporation shall have a Supreme Body, to be known as the Supreme Lodge, or by some other name of the Order, particularly designed by its rules and regulations. Said Supreme Body shall have the power to collect from its members and from the members of subordinate bodies or lodges, moneys for the purpose of creating and maintaining a fund to be disbursed for the purpose herein set forth, the expenses incident to the business of the organization, and for the purpose set forth in its laws, rules and regulations.
"The business and prudential concerns of the corporation shall be managed and its property controlled by the following officers, under such laws, rules, and regulations as may hereafter be legally adopted, viz: A Past Supreme Commander, a Supreme Commander, a Supreme Master, a Supreme Recorder, a Supreme Treasurer, a Supreme Medical Director, a Supreme Chaplain, a Supreme Guide, a Supreme Warden and a Supreme Sentinel.
"The said laws, rules and regulations shall be first approved by a board to be known as the Supreme Council, which shall be composed of not less than three and not more than nine members, and said officers shall be elected as herein provided. The officers, except the Supreme Recorder, Supreme Treasurer and Supreme Medical Director, shall be elected by a viva voce vote of all delegates present at a meeting of said membership. The directors hereinafter named shall constitute the Supreme Council and by the Supreme Council the following officers shall be elected, viz. Supreme Recorder, Supreme Treasurer and Supreme Medical Director."
This is almost an exact replica of the language describing the objects and purposes of the complainant as disclosed by its own act of incorporation.
Having organized the defendant corporation, Barrick became its Supreme Recorder. He caused to be printed three letters or alleged extracts from letters, in one of which the complainant was stated to have had its license to do business in Pennsylvania revoked, in another that the complainant was not permitted to do business in New Jersey and in a third certain things of a derogatory character were stated or strongly insinuated which, if believed, would greatly prejudice the complainant in the estimation of any persons reading the same.
The complainant did suffer a revocation of its Pennsylvania license on January 17, 1927, but the same was restored on March 9, 1927. Yet the defendant continued after said last mentioned date to circulate the letter stating the revocation of the Pennsylvania license. It was not true, as stated in one of the letters, that the complainant was not permitted to do business in New Jersey. As to the contents of the third letter, the complainant denies as false and libelous the derogatory statements and innuendoes contained therein.
Having procured the printing of said letter, the defendant is charged by the complainant with having transmitted printed copies thereof through the mails to the complainant's members and to its State and local deputies and collectors together with literature of the defendant advertising its own merits and soliciting membership therein. The defendant, Barrick, admits that he mailed printed copies of the letters to the extent at least of furnishing in good faith the information contained therein to any one having a legitimate interest in the matters therein referred to.
The defendant company represents in its printed literature that it has organized a grand lodge in the city of Philadelphia known as the McKinley Grand Lodge, a duplication of the name of the complainant's grand lodge in that city.
The complainant charges that by use of the name of Heralds of Liberty, the name of the McKinley Grand Lodge, and the circulation of the letters and literature aforesaid the defendant company not only seeks to appropriate to itself the business advantage of the name Heralds of Liberty which by reason of the complainant's efforts and expenditures has acquired a distinct value in the field of fraternal insurance, but as well by means of a campaign of defamation to cause the complainant's members, etc., to abandon all connection with it and to prevent new members from affiliating with it.
The complainant further charges and the defendants admit that the defendants have copied from the complainant's official publication a list of death claims and joint life claims paid aggregating $21,000, which list the defendants have printed and are circulating among the complainant's members and falsely representing that the corporation defendant has paid them.
The corporate defendant admits circulating such a list of claims paid but denies representing that it was the paying insurer. It asserts that the list was published and circulated only as a means of demonstrating how the plan under which the defendant operates, works out in practice, without reference to the experience of any particular society as having been the payer of the claims listed. The names of the claimants and their addresses were however given. The plan under which said claims matured was described at the head of the list as "copyrighted and owned exclusively by the Heralds of Liberty of Delaware." The corporate defendant contends that it is the copyrighted owner of said plan and that the complainant has no right in law to use the same.
The cause came on to be heard upon a rule for a preliminary injunction restraining the defendants, etc., from circulating printed copies of the alleged defamatory letters above referred to, from dupliciting the members of the complainant to become members of the defendant corporation, and from using the corporate title of Heralds of Liberty of Delaware, Inc."
James I. Boyce, and with him, George J. Edwards, Jr., of the Philadelphia, Pa., Bar, for complainant.
George W. Lilly, for defendants.
General right, conferred by General Corporation Law, § 5, par. 1 ( Revised Code 1915, § 1919) to choose any corporate name not otherwise appropriated by domestic corporation, is subject to equitable considerations of justice and fair dealing, and court of equity should protect party aggrevied by choice of name for manifest purpose of pirating its goodwill and trade-name.
That right to use corporate name emanates from State's sovereignty, as under General Corporation Law, § 5, par. 1 ( Revised Code 1915, § 1919), cannot legalize a wrong, such as pirating of another corporation's goodwill and trade-name by choice of name.
A fraternal society is as much entitled to be protected in its trade-name as an ordinary trading, mercantile, or manufacturing concern.
Domestic fraternal benefit company, choosing name, "Heralds of Liberty of Delaware, Inc.," in imitation of name "Heralds of Liberty," by which like foreign company was familiarly known, copying latter's charter almost literally, organizing grand lodge with same name in same city, and circulating list of claims paid by latter company and unfair and untrue statements concerning it, held to have chosen name for unlawful purpose of unfairly competing with, and wrongfully profiting at expense of, such foreign corporation, so as to authorize preliminary injunction.
THE CHANCELLOR. In passing upon the motion for a preliminary injunction, I shall dismiss from consideration all suggestions of a right on the part of the defendant corporation based on the alleged ownership by it of a copyright of the so-called plan under which the two corporations here involved operate. The complainant contends that the so-called plan is not lawfully the subject of copyright. The defendants insist that it is. Let the controversy upon the question of law involved upon that point be as it may, it yet does not appear clearly from the affidavits exactly what the nature and extent of the defendant corporation's copyright is. There is some sort of copyright which the defendants control, but the affidavits fail to disclose its character.
Nor need we concern ourselves with the law dealing with the cavalry of two corporations to use two corporate titles which are identical or so similar as not to be distinguishable, for the present corporate designation of the two corporations here involved are entirely dissimilar, the one being Liberty Life Assurance Society and the other The Heralds of Liberty of Delaware, Inc.
The real question which the motion presents is whether the defendant corporation is entitled to reap advantage from the name Heralds of Liberty at the expense of the complainant which first used that name as its corporate designation and which, it is claimed, by the expenditure of its effort and money gave to the name a distinct value in the field of its circulation, a value which the complainant under its new name never intended to relinquish and which it still seeks to realize upon by continued use of the name.
Paragraph 1 of section 5 of the General Corporation Law of this State ( Revised Code 1915, § 1919), under which the defendant corporation was created, provides that the name of the corporation proposed to be created "shall be such as to distinguish it from any other corporation engaged in the same business, or promoting or carrying on the same objects or purposes in this State."
The defendants contend that by virtue of this provision of the law, it is permissible for any proposed corporation to select any name it may choose not otherwise appropriated by a Delaware corporation and that no one may successfully challenge in the courts of this jurisdiction the choice thus made by the incorporators. While this is generally true, yet the general right thus conferred by the law to choose a corporate name ad libitum must be held to be subject to those considerations of justice and fair dealing which it is the special province of equity to promote and protect. If by the choice of a name for a corporation it is the manifest purpose of its incorporators to pirate the goodwill and trade-name of another, a court of equity ought, when appealed to, afford its protection to the aggrieved party.
The fact that the right to use the corporate name emanates from the State's sovereignty, cannot have the effect of legalizing a wrong. The defendant corporation was created under general law and in that respect is similar to the corporation which was involved in the case of Peck Brother Co. v. Peck Bros. Co., 113 F. 291, 62 L.R.A. 81. In that case the Court of Appeals, in replying to the contention that it is not competent for a foreign corporation to attack the right of a domestic corporation to use a corporate name because of the sovereign nature of the source from which the right springs, used the following language:
"In a certain limited sense the sovereignty of the state had conferred the name. There is, however, in the term 'sovereignty,' no magic to conjure by. It can confer upon individuals no right to perpetrate wrong. Nor do we think that the sovereignty of the state of Illinois sought to do that. It has a general law of incorporation, by which any body of men combining for the purpose of business may incorporate under any name they may select. The name is not imposed by the law, but is chosen by the incorporators. With that selection the sovereignty of the state has nothing to do. The act of sovereignty allowing incorporation is permissive, not mandatory. It sanctions the act of incorporation under the name and for the business proposed, if that name and that business be otherwise lawful. The sovereign by the act of incorporation adjudges neither the legality of the business proposed, nor of the name assumed. That is matter for judicial determination by a court having jurisdiction of the subject when the legality of the business or of the name is called in question. If one may not use the name imposed upon him in invitum so that it shall work wrong to another, by what token may he become incorporated under a name selected by himself to effect like wrong? And how is the sovereignty of a great state impunged by the denial to incorporators of a right to perpetrate such a wrong? Is it possible that a sovereignty of a state can be thus invoked to perpetrate a fraud? If it may be, then indeed will that sovereignty stand for oppression, and not for justice."
These views so cogently expressed I accept for my guidance here. See also the language of Judge Bradford of the United States District Court, for the District of Delaware, in Philadelphia Trust, etc., Co. v. Philadelphia Trust Co., ( C.C.) 123 F. 534, 540.
The question therefore is whether the use of the name Heralds of Liberty by one of the defendants constitutes an unfair encroachment upon the complainant's business. That a fraternal society is as much entitled to be protected in its "trade-name" as is an ordinary trading, mercantile or manufacturing concern cannot be questioned. Courts have afforded relief to the one as readily though naturally not so frequently as to the other. Modern Woodmen of America v. Hatfield, et al., ( D.C.) 199 F. 270; Knights of Maccabees of the World v. Searle, et al., 75 Neb. 285, 106 N.W. 448; Internat'l. Com. of Y.W.C.A. v. Y.W.C.A. of Chicago, 194 Ill. 194, 62 N.E. 551, 56 L.R.A. 888; Daughters of Isabella No. 1 v. National Order of D.A., 83 Conn. 679, 78 A. 333, Ann. Cas. 1912A, 822.
In Phila. Trust, etc., Co. v. Phila. Trust Co., supra, Judge Bradford had before him a case which, though the business of the complainant was different in character from that of the complainant here, called for expressions of opinion which are equally applicable here. In that case the complainant, a Pennsylvania corporation, was originally incorporated under the name of "The Philadelphia Trust, Safe Deposit and Insurance Company of the City of Philadelphia." Its name was later changed to "the Philadelphia Trust, Safe Deposit and Insurance Company." The complainant was generally known and commonly called, however, "The Philadelphia Trust Company" or "Philadelphia Trust Company." It received mail in that name and checks were drawn to it in that name. The defendant in the case became incorporated in Delaware under the name "Philadelphia Trust Company." Its articles of incorporation were similar as to objects and powers to those of the complainant. Inasmuch as the use by the defendant of the name selected by it, the name by which the complainant was known, would be calculated to produce confusion in the business of the two corporations, mislead the public as to the identity of the corporation intended to be dealt with and also produce unfair competition in business, a preliminary injunction was issued against the use of its corporate name by the defendant. Among other things of applicable relevancy here, Judge Bradford used this language:
"While a corporation generally, if not invariably, is confined to the use of its corporate name in judicial proceedings and its transactions of business, it may by usage be generally and commonly called to the public by a different name."
Turning to the facts of the instant case, it appears clear beyond doubt that the complainant has for a long time been known as "The Heralds of Liberty." For twenty-four years that was its exact corporate name. Since 1925, when its old name was changed to the present one, it has nevertheless been generally known as the Heralds of Liberty, has many certificates outstanding in that name, still issues certificates in that name, houses its Philadelphia executive offices in a building bearing that name, lists itself in the telephone and city directories in that name, receives checks to its order in that name and much correspondence is addressed to it in that name.
The defendant company was organized to engage in the same business as the complainant is engaged in. It has imitated the name by which the complainant is familiarly known. It has gone further. It has copied for its charter the charter of the complainant almost in haec litera and faithfully borrowed from the complainant its scheme of organization and its classes of officers and the exact nomenclature descriptive of each. It has furthermore entered the city of Philadelphia and organized a grand lodge to which it has given the same identical name as is possessed by the complainant's McKinley Grand Lodge located in that city. While generally speaking the circulation of the list of paid claims referred to in the statement of facts for the purpose of illustrating how the plan works out under which death and joint claims are matured, cannot be objectionable if done in such way as not to mislead the public into thinking that such claims were paid under the defendant corporation's management rather than by the complainant ( Hazelton Boiler Co. v. Tripod Boiler Co., 142 Ill. 494, 30 N.E. 339), yet if such list contains names and addresses of the complainant's members who received payment of the claims, it is apparent that harm may be done to the complainant's business thereby; for an inquiry addressed to such claimants might and doubtless would elicit the response, "Yes, the Heralds of Liberty paid the claim as asserted." Thus the defendant corporation might very easily appropriate to itself the goodwill which belonged to the complainant by reason of the favorable showing of results in the matter of claims and their payment by the complainant. In conjunction with such activities as the foregoing, which in themselves are sufficient to convince me that the defendant corporation was organized for the purpose of parasitically attaching itself to the goodwill which inheres in the complainant's alias, the Heralds of Liberty, the defendant company through its officers appears to have been actively engaged at the same time in an attempt to detach the complainant from what advantage it may enjoy from the name Heralds of Liberty by circulating unfair, and in some respects untrue, statements and innuendoes, which in the degree of their circulation approach, if they do not amount to, systematic propaganda.
The choice of its name by the incorporators of the defendant company appears to have been for the unlawful purpose of unfairly competing with the complainant in its business, and of wrongly profiting at its expense.
On the present showing a preliminary injunction will issue as prayed, except that the clause designed to prohibit the solicitation of the complainant's members to become members of the defendant corporation will be so phrased as to leave the defendant upon change of name and without any of the other unfair methods hereinbefore mentioned, free to seek to do business with all persons it may choose regardless of their membership in the complaining society.
Let an order be prepared accordingly.