author: WINTER, Circuit Judge.

text:
    Thomas F. KYHOS et al., Appellants, v. PERPETUAL SAVINGS AND LOAN ASSOCIATION, Appellee.
    No. 72-1607.
    United States Court of Appeals, Fourth Circuit.
    Argued Feb. 8, 1973.
    Decided June 18, 1973.

      Dillard C. Laughlin, Arlington, Va., (Phillips, Kendrick, Gearheart & Aylor, Arlington, Va., Samuel Scrivener, Jr., and Scrivener, Parker, Scrivener & Clarke, Washington, D. C., on brief), for appellants.
    George P. Blackburn, Jr., Springfield, Va. (John L. Scott and Scott, Blackburn & Clary, Springfield, Va., on brief), for appellee.
    Before WINTER and RUSSELL, Circuit Judges, and MURRAY, District Judge.
   WINTER, Circuit Judge.

Thomas F. Kyhos and others, shareholders of Perpetual Building Association (Perpetual Building), brought a class action on behalf of all shareholders against Perpetual Savings and Loan Association (Perpetual Savings) to restrain the latter from using the generic word “Perpetual” as part of its corporate name, and to obtain an accounting of profits with an award of damages for alleged wrongful appropriation of the trade name “Perpetual.” Perpetual Building and Perpetual Savings both carry on some business activities in the same portion of Virginia. Jurisdiction was founded on diversity of citizenship. The district court dismissed the complaint, first because it concluded that Perpetual Building’s name could not have acquired a secondary meaning in any part of Virginia, since applicable state law prohibited Perpetual Building from expanding its business into Virginia ; and, second, because Perpetual Building had not otherwise proved that its name had acquired a secondary meaning entitled to protection under Virginia law.

We disagree with the conclusion that Perpetual Building’s name could not, under state law, have acquired a secondary meaning in that portion of Virginia where Perpetual Savings conducted its operations. Nor do we think that the district court’s findings necessarily support its conclusion that Perpetual Building’s name had not acquired a secondary meaning which was entitled to protection under state law. We, therefore, vacate the order of dismissal and remand the case for further proceedings.

I.

Perpetual Building is a voluntary unincorporated association founded in the District of Columbia in 1881 with the name “Perpetual Building Association,” which it has used continuously in its business as a building and loan association since that date. It has a main office in Washington, branch offices in Washington, and branch offices in the Maryland counties adjacent to the District of Columbia. It has never had an office in Virginia.

Perpetual Building has a membership of approximately 200,000 investing and borrowing members. Approximately 13,393 reside in the Commonwealth of Virginia, including approximately 1,972 in Prince William County, Virginia. Its assets have increased from $27,000 in 1882 to in excess of $550,000,000 in 1970. Although not authorized to “do business” in Virginia under Virginia law, Perpetual Building has made loans to members residing in Virginia, secured by mortgages on Virginia real estate, totaling approximately $85,000,000. Many loans have been made to residents of Prince William County secured by mortgages on real estate in that county.

Perpetual Savings is an incorporated savings and loan association, formed on or about February 10, 1960, under the laws of the Commonwealth of Virginia, with the name “Prince William Savings and Loan Association.” It has two offices in Prince William- County, one of which is located in Woodbridge, Virginia, approximately 21 miles from the District of Columbia, and another in Manassas, Virginia, approximately 31.4 miles from the District of Columbia. Upon approval of appropriate Virginia regulatory authorities, Perpetual Savings would be entitled to open offices in other Virginia counties and cities and additional offices in Prince William County.

Perpetual Savings has never made loans secured by real estate outside the Commonwealth of Virginia, but it is authorized to do so if it so elects. Its business activities are devoted generally to serving the savings and loan needs of the residents of Prince William County, Virginia.

On January 1, 1970, Perpetual Savings changed its name from Prince William Savings and Loan Association to “Perpetual Savings and Loan Association.” The change of name was approved by the Virginia State Corporation Commission, the Federal Home Loan Bank Board, and the Federal Savings and Loan Insurance Corporation notwithstanding the protest and opposition of Perpetual Building. At the time of change of name, Perpetual Savings had assets of approximately $4,544,000; two years later its assets had doubled to $9,372,000.

Over the last ten years, Perpetual Building has expended for advertising approximately $2,825,000 — more than 40 times the amounts spent by Perpetual Savings for advertising. Perpetual Building advertises extensively on major radio and television network stations, the signals of which are received in (a) Washington, D. C., (b) Montgomery and Prince George’s Counties, Maryland, (c) Arlington, Fairfax, Prince William and Loudoun Counties, Virginia, and (d) the cities of Alexandria, Falls Church and Fairfax, and in all major daily newspapers circulating in that area. Perpetual Savings advertises primarily in newspapers and with radio stations located in and serving Prince William County.

II.

The conclusion of the district court that Perpetual Building’s name had not acquired a secondary meaning in that portion of Virginia in which Perpetual Savings carried on its operations was based upon its reading of Food Fair Stores, Inc. v. Lakeland Grocery Corp., 301 F.2d 156 (4 Cir. 1962). It construed Food Fair to hold implicitly that the reasonable prospect of expansion of a business into Virginia was “a prerequisite to acquiring a secondary meaning in Virginia . . ..” Since Virginia law prohibits Perpetual Building from “doing business” in Virginia, and since Perpetual Building disclaimed any intent to do business in Virginia in violation of Virginia law, it followed, in the view of the district court, that Food Fair barred Perpetual Building from relief.

We do not read Food Fair so to hold. In Food Fair — another diversity case where we were obliged to interpret and apply Virginia law — plaintiff, which operated a chain of retail grocery stores in various areas of the United States under the name “Food Fair,” sought to enjoin the defendant from using that name for two supermarkets in the Norfolk-Portsmouth area. Plaintiff, at the time that defendant first used the name, did not own or operate a store in that area although its name was generally well known and extensively advertised nationally.

The district court dismissed the suit because it concluded that the plaintiff had neither established that its name had acquired a secondary meaning in the area, nor that at the time the defendant opened its store, the area was within the region into which the trade of the plaintiff might reasonably be expected to extend in the natural expansion of its business. We reversed. We discussed the holding with regard to the extension of plaintiff’s business into the Norfolk-Portsmouth area, and said “it has been generally held that the owner of a trade name may enjoin infringement in territory to which his business has not yet extended . . . [Protection of trade name may be given if persons residing in the area with knowledge of the trade name are likely to be confused by an infringement.” Id. 162. We also discussed the existence or non-existence of good faith on the part of the second user as a critical element. Then we stated:

In the instant case we do not have to pass on the relevant weight of the testimony as to the elements which entered into the problem. The evidence of all the necessary elements at the time of the infringement were proved by substantial evidence. It was shown that the plaintiff’s business and trade name were known to a substantial number of persons in the Norfolk-Portsmouth area and that the probability of an expansion of the plaintiff’s business into the area existed and that the defendant deliberately and knowingly appropriated the plaintiff’s name for its own business . . Under this combination of cirdimstances we reach the conclusion that the plaintiff’s name was entitled to protection .

Id., 163.

We do not interpret the quoted portion of Food Fair, as did the district court, to hold that expansion into a territory is a prerequisite to the acquisition of a secondary meaning of one’s trade name in that territory. In Food Fair, the district court considered Hanover Star Milling Co. v. Medcalf, 240 U.S. 403, 36 S.Ct. 357, 60 L.Ed. 713 (1916) which held that an established trade name is entitled to protection not only in the area in which its owner renders services or sells goods, but also in areas to which the owner’s business activities may reasonably be expected to expand. It held, on the facts of Food Fair, that the Norfolk-Portsmouth market was beyond the reach of the probable expansion of plaintiff’s business. We were responding to this holding. In the exercise of diversity jurisdiction, we were applying Virginia law as expressed in Rosso & Mastracco, Inc. v. Giant Food Shopping Center, 200 Va. 159, 104 S.E. 2d 776 (1958). Rosso enunciated no Virginia rule that probable expansion is a condition precedent to relief. We, therefore, conclude that Food Fair does not establish any requirement under Virginia law that probable expansion is a prerequisite to acquiring a secondary meaning in an area in which actual business is not conducted.

Moreover, we are impressed by a certain artificiality in the assertion that Perpetual Building is not engaged in business in Virginia. Although Perpetual Building was neither “doing business” nor was it authorized to “do business” in Virginia in accordance with the Virginia statutes, the fact is that, lawfully, it had a substantial number of customers in Virginia, and particularly in Prince William County, and had made a number of loans secured by the pledge of real estate in those jurisdictions. We do not think that in the context of an alleged misappropriation of a trade name, we ought to be blinded to realities by the technical niceties of Virginia’s concept of a building and loan association’s “doing business.” The business of a building and loan association is to receive deposits and make loans. This, Perpetual Building was doing for residents and property owners of Prince William County and other parts of Virginia. .Under Virginia law, this was permitted; Perpetual Building could foreclose its liens and recover the obligations due it in the event of default. That Perpetual Building was not permitted to establish an office in Prince William County or elsewhere in Virginia might limit the extent of its business, but, with the availability of present day communications and travel, it can hardly be said to have eliminated it.

III.

The leading Virginia case on the subject of enjoining the use of the same or a similar trade name as a species of unfair competition is Rosso. See also Crump Co. v. J. L. Lindsay, Inc., 130 Va. 144, 107 S.E. 679 (1921). Rosso established as the Virginia rule that to constitute unfair competition in the use of a trade name, two elements must be present: (1) that plaintiff’s name has acquired a secondary meaning, and (2) that defendant has unfairly used plaintiff’s name, or one similar, to the prejudice of plaintiff’s interests.

In application of this doctrine, the district court found

(23) There exists some, but not a substantial amount of, confusion among customers and prospective customers in Virginia by reason of the resemblance between the name Perpetual Building and Perpetual Savings, although there is no evidence that there has been any financial detriment to either institution as a result of such confusion. In making this finding the Court has considered, but given only slight weight to the survey conducted by Data Unlimited.
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(25) A person of ordinary intelligence, using reasonable care and observation, ought not to confuse Perpetual Building Association with Perpetual Savings and Loan Association.

Taken at face value, these findings could be dispositive under the Virginia rule stated. But after making these findings, the district court substantially diluted them in the legal discussion of its Memorandum Opinion and Order. After holding, erroneously as we have concluded, that a prospect of expansion of plaintiff’s business into Prince William County was a prerequisite to acquiring a secondary meaning in the trade name used, the district court significantly said:

Under the circumstances here, confusion arising from the resemblance of the names, even from present or prospective customers, is not alone sufficient to support the evidence of a secondary meaning.

This statement, in our view, indicates that findings (23) and (25), and their legal impact, have been lessened by the district court’s erroneous view of the inability of Perpetual Building’s name to have a secondary meaning in Prince William County.

While we do not presently say that findings (23) and (25) are clearly erroneous, there was substantial evidence to show actual as well as potential prejudice. The poll conducted by Data Unlimited showed that 43.4% of those surveyed by telephone in Prince William County knew of a company with “Perpetual” in its name in the Washington, D. C. metropolitan area, and 12.7% gave the name of the company as Perpetual Building. Why the district court considered, but gave “only slight weight” to this survey was not stated by the district court. We do not consider it binding on the district court, but the absence of an assigned reason in the context of the erroneous basic premise raises considerable question.

Additionally, 11 customers or potential customers of Perpetual Building testified that they had been confused between Perpetual Building and Perpetual Savings and the president of Perpetual Building and eight of its other employees testified as to many instances of confusion of the two trade names by customers and potential customers since Perpetual Savings had changed its name. This testimony might not have been persuasive because of the factor of credibility which the district court was in a better position to judge than we; but again, in the context of the district court’s erroneous view of a basic premise, we think something less than a persuasive resolution of the facts has been made. In this connection, there may be significance in the fact that Perpetual Savings doubled its assets in the two years following its change of name — a matter as to which the district court made no findings.

To summarize: We think that, now that we have ruled that Perpetual Building’s name could have acquired a secondary meaning in Prince William County, the district court should determine if Perpetual Building’s name has acquired a secondary meaning in Prince William County, and if so, should re-examine its findings with regard to actual or potential confusion arising from the resemblance of the names. Accordingly, we vacate the order of dismissal and remand the case to the district court for further proceedings in accordance with the views expressed herein.

Vacated and remanded.

      . In arriving at this conclusion, the district court found that Perpetual Savings had not changed its name deliberately and knowingly to enable it to trade on Perpetual Building’s long established good name. In this respect, we cannot say that the district court’s finding of fact was clearly erroneous and we will not consider it further. We note, however, that the evidence on this issue was controverted. The corporate records of Perpetual Savings indicate that the name was changed because of “the strength and lasting quality associated with the word [Perpetual],” and the change was adopted after full discussion of the extensive advertising of Perpetual Building, so that there was full recognition of the presence and importance of Perpetual Building in the trading area. Upon the advice of counsel, the reason finally and publicly ascribed to the change of name was that Perpetual Savings intended to locate outside of Prince William County, yet the record shows that in the three years which have transpired, no such office has been established.

      . Code of Virginia (1973 Repl.Vol.), § 6.1-195.58 prohibits anyone other than a corporation chartered under the laws of Virginia from engaging “in the savings and loan association business in this State” and also prohibits a savings and loan association incorporated in Virginia from conducting its business “outside of this State.” The section, however, provides that “ . . . nothing in this chapter shall prevent any person from lending money on real estate or personal security or collateral . . ..” Code of Virginia (1973 Repl.Vol.) § 13.1-102.1 provides that “the investment by a foreign corporation in notes . . . other instruments secured by deeds of trust on property located in this State * * * the acquisition of such property at foreclosure sale, and the holding of title thereto for a reasonable time, while liquidating such investment, shall not be deemed transacting business in this State, provided the foreign corporation does not maintain an office or other place of business in this State, and provided, further, that the foreign corporation does not advertise for business in this State.”

      . Somewhat enigmatically Rosso adds:
      One who claims that a name used by him in connection with his business has acquired a secondary meaning has the burden of proof, and that burden is a substantial one, that is, must be sustained by a fair preponderance of evidence or by substantial evidence to show that the use of the trade name by another will result to the prejudice of the complainant, (emphasis added)

        Id., 104 S.E.2d 780. Thus Rosso suggests that secondary meaning may be established by proof of probable future prejudice, so that the two elements may be only one. See n. 4, infra.

      . The statement in Rosso that proof of probable future prejudice is proof of secondary meaning suggests the converse, i. e. that proof of secondary meaning may constitute proof of prejudice or at least give rise to a presumption of prejudice. In other jurisdictions it is held that once a secondary meaning of a trade name has been established, the likelihood of confusion is presumed and there is a burden on the secondary user to show that confusion is unlikely, Metropolitan Fed. S. & L. A. of New York v. East Brooklyn Sav. Bk., 319 F.Supp. 393, 397 (E.D.N.Y. 1970), or, as held in Norwich Pharmacal Company v. Sterling Drug., Inc., 271 F.2d 569, 571 (2d Cir. 1959), that once secondary meaning has been established, a plaintiff need further establish merely the likelihood of confusion to prevail.


source: Caselaw Access Project

author:
SPRECHER, Circuit Judge.
      SWYGERT, Chief Judge PELL, Circuit Judge

license: Public Domain

text:
    Dorothy GAUTREAUX et al., Plaintiffs-Appellees, v. CITY OF CHICAGO and Richard J. Daley, Defendants-Appellants, v. Fred B. ROTI et al., Members of the City Council of the City of Chicago, Defendants-Appellants, v. Edward R. VRDOLYAK, Defendant-Appellant, v. CHICAGO HOUSING AUTHORITY, Defendant-Appellant.
    Nos. 72-1409, 72-1410, 72-1485 and 72-1486.
    United States Court of Appeals, Seventh Circuit.
    Argued Jan. 12, 1973.
    Decided May 18, 1973.
    Swygert, Chief Judge, filed a concurring opinion.
    Pell, Circuit Judge, filed a dissenting opinion.
    Patrick W. O’Brien, Edward T. Joyce, Richard L. Curry, Corp. Counsel, William R. Quinlan, James R. Thompson, U. S. Atty., William T. Huyck, Chicago, Ill., for defendants-appellants.
    Alexander Polikoff, Alex Elson, Chicago, Ill., for plaintiffs-appellees.
    Before SWYGERT, Chief Judge, and PELL and SPRECHER, Circuit Judges.
   SPRECHER, Circuit Judge.

This chapter in a long unfinished story deals with the power and propriety of the district court’s implementation of prior judgments which were designed to alleviate racial discrimination in site selection and tenant assignment procedures in public housing, by restructuring the local decision-making process in order to bypass a discriminatory bottleneck in that process.

I

The facts of this case have been recited so often that a brief summary will suffice at this juncture. Black tenants in and applicants for public housing brought suit in 1966 against the Chicago Housing Authority (CHA) and others challenging the constitutionality of CHA’s site selection policy. Preliminary motions by the defendants to dismiss and for summary judgment were disposed of in 1967. D.C., 265 F.Supp. 582. Plaintiffs’ motion for summary judgment, on the other hand, was granted in 1969. D.C., 296 F.Supp. 907. That judgment was implemented later in the year by entry of an order which comprised a comprehensive plan for site selection. D.C., 304 F.Supp. 736. CHA submitted no sites for family dwelling units to the City Council of Chicago for approval and consequently the prior orders were further implemented in 1970 by a timetable and deadline order, which was affirmed by this court in Gautreaux v. Chicago Housing Authority, 436 F.2d 306 (7th Cir. 1970), cert. denied, 402 U. S. 922, 91 S.Ct. 1378, 28 L.Ed.2d 661 (1971).

The same plaintiffs, simultaneously with the filing of the CHA complaint in 1966, also filed another complaint against the Secretary of the Department of Housing and Urban Development (HUD) seeking declaratory and injunctive relief. The district court dismissed all four counts of the complaint but this Court reversed that judgment as to two counts, holding that HUD had violated the due process clause of the Fifth Amendment by assisting in carrying on a racially discriminatory public housing system in the Chicago area and entitling the plaintiffs to summary judgment. Gautreaux v. Romney, 448 F.2d 731 (7th Cir. 1971).

While the CHA and HUD cases were resulting in determinations that both agencies were guilty of unconstitutional racial discrimination in public housing site selection, HUD was approving annual money grants to the City of Chicago under the Model Cities Program established by the Domonstration Cities and Metropolitan Development Act of 1966 (42 U.S.C. § 3301 ff.). The first year grant of $38 million was paid by HUD to Chicago but in 1971 the district court enjoined HUD from paying any second-year Model Cities Program money unless and until at least 700 dwelling units in white areas had received City Council approval. D.C., 332 F.Supp. 366. This order was reversed and remanded by this court with one judge dissenting. Gautreaux v. Romney, 457 F.2d 124 (7th Cir. 1972).

. On April 10, 1972, the district court found, among other things, that acquisition of sites by CHA is necessary to enable CHA to comply with the 1969 judgment order to increase the supply of dwelling units as rapidly as possible; that under state law (Ill.Rev.Stat. ch. 67%, § 9) CHA may not acquire sites without City Council approval; that there was no showing of any necessity or reason for the failure of the City Council to take any action since July 1, 1971 to approve any acquisitions of proposed sites, particularly in light of the evidence that many of the sites were suitable for the provision of dwelling units; and that such failure had had the effect of preventing CHA from complying with the 1969 judgment order and of preventing the Court from assuring that relief to which the plaintiffs were entitled was provided. The Court ordered that until further order the statute requiring City Council approval of CHA sites shall not be applicable to CHA’s actions taken for the purpose of providing dwelling units and directed CHA to proceed with appropriate steps to provide the 1500 dwelling units that were the subject of the District Court’s July 20, 1970 and subsequent orders. 342 F. Supp. 827.

Appeals were taken by the City, the Mayor, CHA and 39 of the 48 aldermanic defendants. Five of the nonappealing aldermanic defendants (Aldermen Cousins, Despres, Langford, Simpson and Singer) admitted all allegations of the supplemental complaint involved here, took the position in the court below that they “fully support the efforts being made by the plaintiffs” and unsuccessfully sought leave to file a brief on this appeal in support of the order entered below. Four others (Aldermen Hedlund, Hoellen, Lawlor and Simon) have likewise not appealed. In addition, Aider-man Holman, who is one of the appellants, while dissatisfied with the provisions of the 1969 judgment order, said,

“I would say that the Court enter an order that whether we have City Council approval or not, that we proceed .... The prayer to by-pass the City Council is one for the Court’s suggestion, and I do not quarrel with it . . . .”

HUD has not appealed. In its answer to the supplemental complaint HUD said:

“[HUD] suggests that the inclusion of the City of Chicago, Richard J. Daley, Mayor of the City of Chicago, and individual members of the City Council, as defendants herein, is appropriate to achieve just and equitable relief and urges this Court to enter such order or orders against the aforesaid defendants as this court deems just and equitable.”

The City, Mayor and appellant aider-men have contended (1) that it was improper to join them as parties-def end-ants for purposes of relief inasmuch as they have not been found to have violated any of plaintiffs’ rights nor have their objectives in the location of public housing been found to be unconstitutional; (2) that the City Council’s authority to approve public housing sites does not deny plaintiffs any relief to which they are entitled; and (3) that both the order appealed from and the original 1969 judgment constitute abuses of discretion because of the hardships they introduce.

CHA has contended that the order is an abuse of discretion because it “promises to do nothing but add to CHA’s already awesome burdens while contributing nothing to the complex problem of providing integrated public housing opportunities in the Chicago area.”

II

“Once a right and a violation have been shown, the scope of a district court’s equitable powers to remedy past wrongs is broad, for breadth and flexibility are inherent in equitable remedies.” Swann v. Charlotte-Mecklenburg Board of Education, 402 U.S. 1, 15, 91 S.Ct. 1267, 1276, 28 L.Ed.2d 554 (1971).

It has long been conclusively established in this case (1) that “plaintiffs, as present and future users of the system, have the right under the Fourteenth Amendment to have sites selected for public housing projects without regard to the racial composition of either the surrounding neighborhood or of the projects themselves,” 265 F.Supp. 582, 583; (2) that CHA had violated the Fourteenth Amendment by intentionally choosing sites for family public housing and adopting tenant assignment procedures for the purpose of maintaining existing patterns of residential separation of races, 296 F.Supp. 907, enforced by 304 F.Supp. 736, affirmed in 436 F.2d 306 (7th Cir. 1970), cert. denied, 402 U. S. 922, 91 S.Ct. 1378, 28 L.Ed.2d 661 (1971); and (3) that HUD had violated the due process clause of the Fifth Amendment by its knowing acquiescence in CHA’s discriminatory housing program. 448 F.2d 731 (7th Cir. 1971).

The rights and violations are firmly established and are far beyond appeal or dispute. What remains is the district court’s task “to correct, by a balancing of the individual and collective interests, the condition that offends the Constitution.” Swann v. Charlotte-Mecklenburg Board of Education, supra, 402 U.S. at 16, 91 S.Ct. at 1276. This has proved to be a Herculean task requiring both the wisdom of Solomon and the patience of Job. See Gautreaux v. Romney, 457 F. 2d 124 (7th Cir. 1972) (court’s opinion, 124-129, and dissent, 129-140).

As early as in his opinion of February 10, 1969, supporting an order of the same date, the district court found that:

“CHA follows an unvarying policy ‘based upon actual experience in submitting sites to the City Council for approval’ of informally clearing each site with the Alderman in whose Ward the site is located and eliminating each site opposed by an Aider-man.” 296 F.Supp. at 913.
The court further found (at 914):
“It is also true that there is no evidence that the Aldermen who vetoed White sites were necessarily motivated by racial animus when they followed a policy of keeping Negroes out of White neighborhoods. Most Aider-men apparently talked to their constituents and received unfavorable reactions before exercising their informal vetoes.
•X- -X* * * * *
“CHA finally contends that the impulse originating and sustaining the policy against choosing White sites came from the City Council. But by incorporating as an automatic step in its site selection procedure a practice which resulted in a racial veto before it performed its statutory function of formally presenting the sites to the City Council, CHA made those policies its own and deprived opponents of those policies of the opportunity for public debate. It is no defense that the City Council’s power to approve sites may as a matter of practical politics have compelled CHA to adopt the pre-clearance procedure which was known by CHA to incorporate a racial veto. . . . Although neither the City Council nor its members individually are parties to this suit, they will be bound by any order entered in this case against CHA of which they have actual notice. FRCP 65(d).”

There was no appeal from these findings and conclusions and they became final. A supplemental complaint was filed by the plaintiffs on February 2, 1972, naming the Mayor and members of the City Council as parties-defendant. Answers were filed by the defendants and a hearing was held on the supplemental complaint, commencing April 4, 1972.

No evidence was offered at the hearing by the defendants to explain why neither the Planning and Housing Committee nor the City Council itself had given any consideration to the available CHA sites since July 1, 1971. Alderman Kelley, the only alderman called as a witness by the City, said under cross-examination that he had not discussed that subject with his fellow aldermen. Alderman Holman, testifying in his own behalf, was asked on cross-examination for his opinion as to why the committee had taken no action on CHA sites since July 1, 1971. He said he could not give an opinion, but then added:

“I don’t think ^you could get, right now, an affirmative 26 votes [a majority of the council] to put that many housing units in white neighborhoods.”

Alderman Simon regretted that the Committee hearings did not continue and said that the Council did a “great disservice” by not continuing with them. HUD called the “refusal” to hold further hearings “a deliberate affront to this [the district] court,” and “totally contrary” to representations made by the City in the May 12, 1971 Letter of Intent signed by the City, CHA and HUD. See Gautreaux v. Romney, supra, 457 F. 2d at 132.

A witness for the City, who was an assistant commissioner of the City’s Department of Development and Planning (DDP), testified about an examination he and his staff had made of some (but not all) of the remaining CHA sites. Contrary to the City’s statement that all of these sites “were shown to be in violation of the Chicago Zoning Ordinance, or otherwise burdensome upon public services, including school attendance,” the evidence showed that the DDP staff found over 100 of them to be “suitable sites in the General Public Housing Area.” However, neither this nor any other information or recommendation concerning the remaining CHA proposed sites was submitted by the DDP to the Chicago Plan Commission, the agency to which the DDP normally made its recommendations. No explanation was given as to why that had not been done. At the conclusion of the hearing, on April 10, 1972, the order now appealed from was entered.

The order found that pursuant to prior order of the Court, CHA submitted on March 5, 1971 to the defendant members of the City Council proposed sites for not fewer than 1500 dwelling units; that since July 1, 1971, neither the City nor the Council has approved the acquisition of any property by CHA for dwelling units; that many of the sites for the 1500 units are suitable for dwelling units; and that such failure to conduct hearings and approve acquisition has the effect of preventing CHA from providing additional Dwelling Units in conformity with the Judgment Order, thereby denying relief to the plaintiffs to which they are entitled and frustrating and preventing the Court from assuring that such relief is provided.

The order included the following remedial provision:

“Until the further order of this Court the following provision of Section 9, Chapter 67½, Illinois Revised Statutes, to wit:
‘If the area of operation of a housing authority includes a city, village or incorporated town having a population in excess of 500,000 as determined by the last preceding Federal census, no real property or interest in real property shall be acquired in such municipality by the housing authority until such time as the housing authority has advised the governing body of such municipality of the description of the real property, or interest therein, proposed to be acquired, and the governing body of the municipality has approved the acquisition thereof by the housing authority’

shall not be applicable to CHA’s actions, including without limitation the acquisition of real property in the City of Chicago, taken for the purpose of providing Dwelling Units.”

The district court had undoubted power to suspend the operation of the state statute. “[S]tate policy must give way when it operates to hinder vindication of federal constitutional guarantees.” North Carolina State Board of Education v. Swann, 402 U.S. 43, 45, 91 S.Ct. 1284, 1286, 28 L.Ed.2d 586 (1971).

In its February 10, 1969 opinion, the district court concluded (296 F.Supp. at 912):

“No criterion, other than race, can plausibly explain the veto of over 99½% of the housing units located on the White sites which were initially selected on the basis of CHA’s expert judgment and at the same time the rejection of only 10% or so of the units on negro sites.”

Subsequently, of course, virtually no action was taken on any sites after the court fixed definite formulae for requiring at least 75% of dwelling units to be constructed in predominantly white areas.

The City Council by its earlier discriminatory action and later by its inaction has made itself a party to the discrimination “as a joint participant.” Burton v. Wilmington Parking Authority, 365 U.S. 715, 725, 81 S.Ct. 856, 6 L.Ed.2d 45 (1961). In Louisiana v. United States, 380 U.S. 145, 156, 85 S.Ct. 817, 823, 13 L.Ed.2d 709 (1965), the Supreme Court held that the “need to eradicate past evil effects and to prevent the continuation or repetition in the future of the discriminatory practices shown to be so deeply engrained in the [state] laws, policies, and traditions . . . completely justified the District Court” in suspending the operation of state constitutional provisions in 21 parishes until voter discrimination had been remedied. In Reitman v. Mulkey, 387 U.S. 369, 87 S.Ct. 1627, 18 L.Ed.2d 830 (1967), the Court approved the action of the Supreme Court of California in striking down a provision of the state constitution because it involved the state in racial discrimination in the housing market.

In Hunter v. Erickson, 393 U.S. 385, 386, 393, 89 S.Ct. 557, 558, 562, 21 L.Ed.2d 616 (1969), the Court held that “amending the city charter [of the City of Akron, Ohio] to prevent the city council from implementing any ordinance dealing with racial, religious or ancestral "discrimination in housing without the approval of the majority of the voters of Akron . . . discriminates against minorities, and constitutes a real, substantial, and invidious denial of the equal protection of the laws.”

In Kennedy Park Homes Ass’n v. City of Lackawanna, 436 F.2d 108 (2d Cir. 1970), cert. denied, 401 U.S. 1010, 91 S. Ct. 1256, 28 L.Ed.2d 546 (1971), the Court of Appeals, speaking through Mr. Justice Clark, sitting by designation, affirmed the district court’s judgment requiring the city to take all necessary steps to enable the plaintiff to proceed with its low income housing project where the city had previously declared a moratorium on new subdivisions.

In Hawkins v. Town of Shaw, 461 F. 2d 1171 (5th Cir. 1972), the Fifth Circuit sitting en banc in a case requiring the town to submit a plan for the court’s approval to cure the results of a long history of discrimination (437 F.2d 1286) said at 1172:

“In order to prevail in a case of this type it is not necessary to prove intent, motive or purpose to discriminate on the part of city officials. . ‘[W]e now firmly recognize that the arbitrary quality of thoughtlessness can be as disastrous and unfair to private rights and to public interest as the perversity of a willful scheme.’ ”

The action of the district court in the circumstances of this case was within the range of its discretion. The defendants rely upon James v. Valtierra, 402 U.S. 137, 91 S.Ct. 1331, 28 L.Ed.2d 678 (1971), where the Court held that the California procedure for mandatory referendums, which was not limited to proposals involving low-cost public housing, did not violate the Equal Protection Clause. There the Court held that “the record . . . would not support any claim that a law seemingly neutral on its face is in fact aimed at a racial minority.” 402 U.S. at 141, 91 S.Ct. at 1333. Here the record supports the trial court’s conclusion that only race can explain the defendants’ actions and subsequent inaction.

Upon this record, the defendants were properly made parties-defendant and the trial court did not abuse its discretion in fashioning a remedy. Inasmuch as that remedy facilitates CHA’s compliance with the 1969 judgment order, CHA’s burdens are eased rather than further laden.

The judgment order of April 10, 1972 is affirmed.

Affirmed.

SWYGERT, Chief Judge

(concurring).

Judge Sprecher holds the City Council to be a “joint participant” in active racial discrimination earlier practiced by the CHA. Like Judge Pell, I cannot agree. The trial judge made no finding of joint participation. He can hardly be blamed; the plaintiffs made no mention of active joint participation at trial, and the record contains little, if any, support for a finding of discrimination by the City Council. Nor may reliance be placed on the findings made by the trial judge before the Council was made a party to this suit by supplemental complaint. The Council was not in privity with CHA, and I do not understand plaintiffs so to contend. See Rule 65(d), F.R.Civ.P. Finally, the plaintiffs do not raise a theory of joint participation on this appeal. Their legal theory of liability requires no connection of the Council with CHA and no finding of active discrimination on the part of the Council. I concur for that reason.

It is today well established that the failure of a municipality to alleviate racial imbalance in housing may be as grievous a violation of the equal protection clause as is direct action by a public body to advance discrimination among the races. In both situations courts have saddled an offending party with the burden of demonstrating that a compelling governmental interest underlay the omission or commission, once a discriminatory effect thereof is shown inferentially or statistically by the complaining party.

In this case, the inaction of the City Council had the effect of denying to plaintiffs the relief granted them when the district court first heard the cause. The Council by its delay perpetuated a racially unbalanced distribution of public housing in the City of Chicago. And it did- so without apparent reason; the district judge found, and I agree, that the Council had shown no “supervening necessity ... or indeed [made] any showing of any necessity or reason at all” for its failure to pass on CHA site submittals. Not even a rational basis was advanced by the Council for its neglect, much less a compelling governmental interest. The Council is liable, then, for its delay. The only question remaining is one of remedy.

Other than his objection to Judge Sprecher’s finding of “active participant” status for the City Council, Judge Pell appears to object to the form of remedy granted by the district judge. He would prefer, I think, a mandate directing the City Council to pass upon CHA submittals rather than the extant order requiring CHA to ignore Ill.Rev. Stat., ch. 67½, § 9 (1971), termed the “easier route” by Judge Pell. In support, he notes that the City Council is concerned with and retains control of city-wide planning and the zoning power, as well as the authority to control CHA by withholding funds or by cooperative agreement. 42 U.S.C. §§ 1411(f), 1415(7) (1964). He points out, in addition, that the instant order might give pause to bond counsel, who approach the task of approving bond issues with “hypertechnieal scrutiny.”

I am not persuaded by these objections. The fact that the City Council retains considerable control over construction by CHA vitiates the argument advanced by the Council that it .is somehow deprived of its important discretion to locate public housing with due regard to factors such as population density, environmental control and the provision of public services. Though it may indeed be true that the order at issue “will solve no problems,” as the CHA contends, it is also possible that the City, by reason of the district court’s order, will move speedily in all areas to assure a balanced placement of badly needed public housing. In any event, the Council has not yet moved to limit the CHA by exercise of its powers under federal law, and no order directed to those functions would now be appropriate. As the progress of litigation in the school desegregation cases has taught, remedy of discriminatory conditions is necessarily a step-by-step proposition. That further injunctive relief may be needed in this matter at some later date is no reason to deny the relief presently sought. As to the supposed recalcitrance of bond counsel, I find this too speculative to justify a denial of relief at this time. If the problem turns out to be one of insurmountable magnitude, the district court retains jurisdiction to modify its decree.

PELL, Circuit Judge

(dissenting).

The majority opinion of this court affirms an order of the district court entered April 10, 1972, directing the Chicago Housing Authority to ignore a provision of the statutes of the State of Illinois which requires the approval, prior to CHA’s acquisition of real property, of “the governing body of the municipality” involved. I respectfully dissent.

My dissent in no way records disagreement with the underlying objective of the district court which obviously is to eliminate racial discrimination violative of the Constitution from the program of housing carried out under the CHA aegis. My thinking on the score is no different today than it was when I concurred in the majority opinion of this court in Gautreaux v. Chicago Housing Authority, 436 F.2d 306 (7th Cir. 1970), cert. denied, 402 U.S. 922, 91 S.Ct. 1378, 28 L.Ed.2d 661 (1971), (Gautreaux I). Likewise I do not intend to suggest any lack of sympathy for or understanding of the difficulties that have beset the district court’s continuing efforts to accomplish the stated objective.

I cannot conceive, however, that the due processes of the law should be abrogated by virtue of either commendable objective or difficulty of attainment. This court has in effect recognized this principle in one phase of the present litigation by reversing an order of the district court enjoining HUD from dispensing essentially nonrelated federal funds unless the city complied with certain stated conditions, the admitted purpose of which was to compel the city to approve CHA housing sites. Gautreaux v. Romney, 457 F.2d 124 (7th Cir. 1972). (Gautreaux III). This decision followed the mandate of this court in Gautreaux II (Gautreaux v. Romney, 448 F.2d 731 (7th Cir. 1971)) in which this court found violations of plaintiffs’ rights in federal and city programs for low-income public housing as made available to low-income families in Chicago. It is to be noted that Senior Judge Duffy was the author of all three of the Gautreaux opinions and that Chief Judge Swygert concurred in both II and III.

Subsequent to the issuance of the opinion in Gautreaux III, the district court entered its order of April 10, 1972, here under challenge.

It is with some regret that I conclude the district court has again pursued an improperly oblique course to realize the goal originally established by its order of February 10, 1969, Gautreaux v. Chicago Housing Authority, 296 F.Supp. 907 (N.D.Ill.1969), which order was affirmed in Gautreaux I. At the time of the issuance of that order by the district court neither the City of Chicago nor any of its officials was a party to the suit. Nevertheless, the district court after so observing, stated, “they will be bound by any order entered in this case against CHA of which they have actual notice. FRCP 65(d).” 296 F.Supp. at 914.

Rule 65(d), however, quite explicitly states that injunctive orders shall be binding upon the “parties to the action, their officers, agents, servants, employees, and attorneys, and upon those persons in active concert or participation with them who receive actual notice of the order by personal service or otherwise.” At that time, there was no record establishment of active concert or participation which would catch Chicago or its officials in the binding effect net. Indeed, the court observed that there was no evidence that the aldermen who vetoed white sites were necessarily motivated by racial animus when they followed a policy of keeping Negroes out of white neighborhoods. 296 F.Supp. at 914. The status of evidentiary proof of active concert or participation on the part of the city or its officials remains unchanged although they have now been made parties to the action. While their having been made parites could clearly subject them to the binding effect of an order, no order has been entered against the City of Chicago, its mayor, or any of its aldermen, all of whom were made parties by the supplemental complaint filed by the plaintiffs on February 1, 1972. In the supplemental complaint the plaintiffs did not charge the City defendants with a violation of their constitutional rights. It has not been asserted that said defendants’ objectives in considering the location of public housing have been other than constitutional. No evidence was offered indicating that the City defendants have been in “active concert or participation” with other defendants who may have been found to violate rights claimed by the plaintiffs.

Nevertheless, the April 19, 1972 order takes the direction of mandating CHA to ignore the following provision of Ill.Rev.Stat.1971, ch. 67½, § 9:

“If the area of operation of a housing authority includes a city, village or incorporated town having a population in excess of 500,000 as determined by the last preceding Federal census, no real property or interest in real property shall be acquired in such municipality by the housing authority until such time as the housing authority has advised the governing body of such municipality of the description of the real property, or interest therein proposed to be acquired, and the governing body of the municipality has approved the acquisition thereof by the housing authority.”

The quoted portion of Section 9 is merely one paragraph of the Housing and Redevelopment Act of the State of Illinois which deals with the acquisition of property and gives the Housing Authority the power of eminent domain. The legislature of Illinois has decreed that in cities having a population in excess of 500,000, consent must be obtained from the governing body of the municipality. This condition precedent to the exercise of the power of eminent domain is now ordered to be ignored by the Chicago Housing Authority.

If this were a case in which it was demonstrated that the portion of the statute was unconstitutional on its face, which is not even suggested as far as I can see, or in which the statute was proven to be unconstitutionally applied, the situation might now be different. These issues, however, are not confronted or apparently considered in the court’s April 1972 order.

It is obvious, of course, that the present path is far easier than would be the route of establishing unconstitutional application. The City Council, a legislative body, is concerned not simply with the operation of a public housing program, but it is also concerned, or should be concerned, with city-wide planning and zoning, with population density and environmental control, and with the provision of public services and the maintenance of a real estate tax basis adequate to support such services. These issues are troublesome and complex but in my opinion afford no excuse for taking the easier route of ordering CHA just to ignore the necessity of complying with the statute.

There is also no confrontation with the matter of financing the purchase of real estate, even if CHA did purport to exercise its eminent domain power without compliance with its enabling statute. The district court seems to be in essence saying go ahead and condemn irrespective of whether funds are available. Yet, 42 U.S.C. § 1411(f) provides for a contribution by the state as a condition of a capital grant as follows:

“No capital grant pursuant to this section shall be made for any low-rent-housing or slum-clearance project unless the public housing agency receiving such capital grant shall also receive, from the State, political subdivision thereof, or otherwise, a contribution for such project (in the form of cash, land, or the value, capitalized at the going Federal rate of interest, of community facilities or services for which a charge is usually made, or tax remissions or tax exemptions) in an amount not less than 20 per centum of its development or acquisition cost.”

Also, the district court order appears to ignore completely the federal statutory requirement for a cooperative agreement with the governing body of the locality involved. 42 U.S.C. § 1415(7).

Although suggested by HUD in the court below, there is a complete disregard of the fact that financing is done by bonds. It needs no citation of authority to recognize that bonds disapproved by counsel will not sell and funds will not be raised. It is equally a matter of common knowledge that bond counsel traditionally approach approval of bond issues with what could be termed a hypertechnical scrutiny.

If the City authorities are in active concert and participation in implementing housing on an unconstitutional basis, then it appears to me that issue should be faced squarely and the accompanying problems should be the subject of scrutiny.

I recognize that the district court deemed itself to be engaged in a remedial process but it applied that remedial process by indirection to new parties without a sufficient foundation in the record. As Mr. Chief Justice Burger stated in Swann v. Charlotte-Meeklenburg Board of Education, 402 U.S. 1, 16, 91 S.Ct. 1267, 1276, 28 L.Ed.2d 554 (1971):

“In seeking to define even in broad and general terms how far this remedial power extends it is important to remember that judicial powers may be exercised only on the basis of a constitutional violation.”

Here it appears to me that the judicial power of legislative excision is being exercised without the necessary foundation of a constitutional violation by the parties immediately affected.

I have the uncomfortable feeling on this record that because of the tribulations, which should not be minimized, of this litigation, the zeal of the plaintiffs and perhaps the frustrations which the district court has felt in the particular conurbation context in not being able to accomplish a commendable objective, this case has now been transformed from one involving unconstitutional implementation of the Federal Low-Rent Housing Act into a case of claimed unconstitutional deprivation of low-cost housing. However, absent constitutional mandate, the assurance of adequate housing is a legislative not a judicial function. Lindsey v. Normet, 405 U.S. 56, 74, 92 S.Ct. 862, 31 L.Ed.2d 36 (1972). The City Council of Chicago is a legislative body and it has the ultimate determination as to whether it should provide low-cost housing. It is only when it proceeds with low-cost housing in an unconstitutional manner that there should be judicial interference. Thus far there has been no judicial determination that the City is embarked upon such a course of interference. Without such a determination, the court should not order the legislative function of the City Council to be ignored.

Accordingly, I would reverse the order of the district court.

      . Inasmuch as the statute involved is not of state-wide application but relates solely to the affairs of one county in the state, it was not necessary to convene a three-judge court pursuant to 28 U.S.C. § 2281. Moody v. Mowers, 387 U.S. 97, 101-102, 87 S.Ct. 1544, 18 L.Ed.2d 643 (1967). None of the parties has raised this issue.

      . See also Crow v. Brown, 332 F.Supp. 382 (N.D.Ga.1971), affirmed, 457 F.2cl 788 (5th Gir. 1972) (county enjoined from interfering with public housing by refusing building permits) ; Dailey v. City of Lawton, 425 F.2d 1037 (10th Cir. 1970) (city enjoined from denying building permits for construction of low-income housing).

      . See generally, Murasky, “James v. Valtierra : Housing Discrimination by Referendum ?,” 39 U. of Chi.L.Rev. 115 (1971) ; Reach, “The Application of the Equal Protection Clause to Referendum-Made Law: James v. Valtierra,” 1972 U. of Ill. L.Forum 408 (1972).

      . See Recent Cases, Gautreaux v. Romney, 86 Harv.L.Rev. 427, 437-38 (1972).

      . Banks v. Perk, 341 F.Supp. 1175, 1182 (N.D.Ohio 1972) ; Sisters of Prov. v. City of Evanston, 335 F.Supp. 396, 403-405 (N.D.Ill.1971) ; Kennedy Park Homes Ass’n v. City of Lackawanna, 318 F.Supp. 669, 696-697 (W.D.N.Y.1970), aff’d 436 F.2d 108 (2d Cir. 1970) ; see Crow v. Brown, 332 F.Supp. 382, 390-391 (N.D. Ga.1971), aff’d 457 F.2d 788 (5th Cir. 1972) ; of Davis v. School District, City of Pontiac, Inc., 309 F.Supp. 734, 741-742 (E.D.Mich.1970).

      . Grow v. Brown, 332 F.Supp. 382, 391 (N.D.Ga.1971), aff’d 457 F.2d 788 (5th Cir. 1972) ; Kennedy Park Homes Ass’n v. City of Lackawanna, 436 F.2d 108, 114 (2d Cir. 1970) ; of Banks v. Perk, 341 F.Supp. 1175 (N.D.Ohio 1971) ; Gautreaux v. Chicago Housing Authority, 296 F.Supp. 907 (N.D.Ill.1969).

      . Finding H, Gautreaux v. City of Chicago, (N.D.Ill., April 10, 1972).

      . Cases such as Grow or Kennedy Park Homes, note 2, supra, differ factually in that the acts and omissions of the enjoined governmental entity were the direct cause of racially imbalanced housing conditions. As I have noted, the same cannot be said of the City Council on the record as it stands. If this is a distinction, however, it is one far too subtle to make a difference. The CHA is guilty of creating the imbalance; the City Council is guilty of maintaining it without justification and in derogation of a court decree aimed at rectifying the problem.

      . Finding G, Gautreaux v. City of Chicago, (N.D.Ill., April 10, 1972).


author: WILLIAM E. MILLER, Circuit Judge.

text:
    Regina Lee AZAR et al., Plaintiffs-Appellants, v. James R. CONLEY et al., Defendants-Appellees.
    No. 72-2135.
    United States Court of Appeals, Sixth Circuit.
    June 11, 1973.
    Richard A. Ruppert, Rocky River, Ohio, for plaintiffs-appellants.
    William R. Baird, Director of Law, City of Akron, Joyce J. George, Asst. Director of Law, James R. Hinton, William E. Bachtel, Michael K. Bailes, Akron, Ohio, for defendants-appellees.
    Before MILLER and KENT, Circuit Judges, and O’SULLIVAN, Senior Circuit Judge.

       Judge Kent participated in the decision in this death on May 28,1973. case and concurred in this opinion prior to his

   WILLIAM E. MILLER, Circuit Judge.

This civil rights action is before the Court for the second time. In the first appeal, Azar v. Conley, 456 F.2d 1382 (6th Cir. 1972), in discussing the allegations of the plaintiffs’ complaint, which alleged violations of 42 U.S.C. §§ 1983, 1985(3) and 1986, this Court stated:

On May 10, 1970, eight members of the Azar family filed a nineteen-page complaint naming twenty-seven defendants in addition to “John Doe and Richard Doe, Unknown Members of the Police Department of the City of Akron, Ohio.” The Azars sought certain injunctive relief in addition to damages totaling $4,650,000. The allegations of the complaint depict a sordid tale of severe harassment and intimidation of the Azar family and of inaction and cover-up on the part of the police and other public officials of Akron. The central character in this alleged story is James R. Conley, the next door neighbor of the Azars and a member of the Akron police force. Other defendants include his wife, Anna Conley; his brother Patrick Conley (also an Akron policeman); a friend, Dale Wolf; members of the Akron police department, including the chief of police and two majors; and other public officials of Akron, including the mayor of Akron, its city eouncilmen, certain other department heads and two judges of the Municipal Court of Akron, 456 F.2d at 1384.

The district court dismissed the original complaint on various grounds which this Court, in large measure, found erroneous. It was concluded, however, that the lower court was correct in dismissing the action against defendants Vanberg and Roulhac, two judges of the Municipal Court of the City of Akron, Ohio. We also held that the district court was not in error in dismissing the § 1983 claim (count two of the original complaint) against defendant Dale Wolf but that the pleading was sufficient to state a claim against this defendant under § 1985(3). We also determined that Count Three of the original complaint failed to state a § 1983 claim against defendants James R. Conley, Anna S. Conley and Patrick Conley (since this count was based upon alleged slanderous remarks not actionable under § 1983 and since the remarks were not alleged to have been made “under color of state law”/), although these same allegations could and should be considered against these defendants in connection with the § 1985(3) claim. In all other respects, as is clearly and distinctly set forth in our previous opinion, we found the complaint to be adequate.

In the last part of the opinion we dealt with the trial court’s dismissal pursuant to Rule 8(e)(1) of the Federal Rules of Civil Procedure of plaintiffs’ remaining § 1983 claim against defendant James R. Conley. We characterized the plaintiffs’ complaint as “something less than a model of conciseness” but determined that it was not such as to occasion dismissal. The opinion reinstated “considerable portions” of the plaintiffs’ complaint, vacated the district court judgment and remanded the cause “for further proceedings and the entry of further orders not inconsistent with this opinion.” 456 F.2d at 1391.

Following the remand of the case the district court ordered the plaintiffs to file an amended complaint “reflective of the ruling of the Court of Appeals.” Referring to the original complaint which had been considered by us on the first appeal, the district court in its March 17, 1973 order, stated:

In the Court’s opinion the present complaint is not appropriate for the continuation of the action pursuant to the ruling of the Court of Appeals. With the Court of Appeals having partially affirmed and partially reversed this Court’s findings as to specific defendants and the plaintiffs’ rights of actions under the various Civil Rights Acts, the complaint is not reflective of the basis upon which the Court of Appeals held the plaintiffs are entitled to proceed.

In conclusion the district court urged the plaintiffs to exercise greater restraint in further pleading “so that [such pleading] may not be ‘certainly something less than a model of conciseness.’ ”

In response to the lower court’s order the plaintiffs filed an amended and supplemental complaint. This complaint contained almost the identical language and form, with several exceptions, as the plaintiffs’ original complaint. The plaintiffs deleted the § 1983 claim against defendants Vanberg and Roulhac but retained Counts Two and Three of the original complaint, which they now urge on this appeal are cognizable under the court’s pendent jurisdiction. The amended and supplemental complaint also added several new parties defendant and contained several new allegations concerning events occurring subsequent to the filing of the original complaint.

The district court, in an order filed on September 13, 1972, dismissed the amended and supplemental complaint but without prejudice to the filing of an amended complaint. The lower court’s order stated in part:

In the Court’s opinion, the present pleading [the amended and supplemental complaint] does not afford a proper foundation upon which this action can go forward. It continues the separate causes of action which the Court of Appeals found to be improper. More importantly, the first cause of action does not define the claims on behalf of the several plaintiffs as they relate to the multiple defendants. In the circumstances of this case wherein certain claims may be actionable under Section 1985(3) but not under Section 1983 or Section 1986, the defendants cannot toe expected to respond to an ambiguous complaint. The defendants are entitled to know whether it is contended that they are part of a conspiracy or whether they are charged with a substantive violation of law. The Court also believes that the complaint is deficient in the intermingling of the claims of all plaintiffs.
While this Court is bound to follow the ruling of the Court of Appeals in this case, the Court does not believe that such ruling requires the thirty-six defendants to respond to a- complaint which does not tell them what they are charged with. In the Court’s opinion, a proper complaint must set forth the claims for relief on behalf of each of the plaintiffs individually in such a manner so that each defendant is informed as to the alleged constitutionally protected right of such plaintiff that has been invaded and the provision of the law which affords such plaintiff a right of relief against such defendant. Stated in another manner, each defendant is entitled to know whether he is alleged to be liable as a part of the conspiracy or whether he is charged with a substantive violation, and whose rights he is alleged to have infringed.

We are initially faced with the issue of whether the district court’s order dismissing the plaintiffs’ amended and supplemental complaint, without prejudice to further amend, is an appealable final order within the meaning of 28 U.S.C. § 1291. That statute states: “The courts of appeals shall have jurisdiction of appeals from all final decisions of the district courts of the United States.

There is a considerable body of case law, which appears to us to be well-founded, distinguishing between a judgment which dismisses the action and therefore is a final judgment and one that only dismisses the complaint without dismissing the action. The latter is not appealable if the complaint may be saved by amendment. As the Ninth Circuit stated in Ruby v. Secretary of United States Navy, 365 F.2d 385, 387 (9th Cir. 1966):

An order which dismisses a complaint without expressly dismissing the action is not, except under special circumstances, an appealable order. Richardson v. United States, 9 Cir., 336 F.2d 265, 266; Marshall v. Sawyer, 9 Cir., 301 F.2d 639, 643; Javor v. Brown, 9 Cir., 295 F.2d 60, 61. The special circumstances which will permit this court to regard such an order as final and appealable must be such as to make it clear that the court determined that the action could not be saved by any amendment of the complaint which the plaintiff could reasonably be expected to make, thereby entitling plaintiff to assume that he had no choice but to stand on his complaint.

See Jung v. K. & D. Mining Co., Inc., 356 U.S. 335, 78 S.Ct. 764, 2 L.Ed.2d 806 (1958); Grantham v. McGraw-Edison Co., 444 F.2d 210 (7th Cir. 1971); Kozemchak v. Urkrainian Orthodox Church of America, 443 F.2d 401 (2d Cir. 1971); Firchau v. Diamond National Corporation, 345 F.2d 269 (9th Cir. 1965); 2A Moore’s Federal Practice j[ 12.14, at 2338 (2d ed. 1972); 9 Moore’s Federal Practice ¶ 110.13 [1], at 152-153 (2d ed. 1972).

On this basis no appealable order exists since the district court dismissed the amended and supplemental complaint without prejudice to amend further. It is clear that the plaintiffs’ pleading may be saved by proper amendment.

Accordingly the appeal must be dismissed since this Court is without jurisdiction to consider it.

      . Azar v. Conley, 456 F.2d 1382, 1391 (6th Cir. 1972).

      . Id. We reinstated all portions of the plaintiffs’ complaint except 1) the claims against defendants Vanberg and Roulhac; '2) Count Two of the original complaint insofar as it alleged a 42 U.S.C. § 1983 claim against defendant Dale Wolf; and 3) Count Three of the original complaint insofar as it attempted to make allegations of slander actionable under 42 U.S.C. § 1983. In the latter two instances we determined that the allegations in Counts Two and Three should be construed as allegations in support of the 42 U.S.C. § 1985(3) claims against the named defendants. The other language of the original complaint was left intact and reinstated in full.

      . The district court’s order of March 17, 1972, contemplated, as is more fully reflected in its subsequent order of September 13, 1972, a rather extensive reorganization of the plaintiffs’ original complaint. This was certainly reasonable in light of the number of plaintiffs and defendants involved in the action. However, the actual wording or language of the original complaint, with three exceptions, (Supra note 2) was reinstated by this Court in Azar v. Conley, 456 F.2d 1382, 1391 (6th Cir. 1972). Therefore, except to the extent necessary to effectuate this reorganization our previous decision is controlling.

      . We note the other avenues available in the future to narrow the issues in this case short of the more drastic step of dismissal. Although poor pleading cannot be condoned, Rules 12(e) and (f) of the Federal Rules of Civil Procedure contemplate an expeditious method of removing extraneous matters to more clearly define the issues. Also pretrial conferences and the various discovery techniques may limit the issues.


author: Levin H. CAMPBELL, Circuit Judge.

text:
    AMERICAN EUTECTIC WELDING ALLOYS SALES CO., INC., et al., Plaintiffs-Appellants, v. Pablo Garcia RODRIGUEZ, Defendant-Appellee.
    No. 73-1048.
    United States Court of Appeals, First Circuit.
    Submitted April 30, 1973.
    Decided June 11, 1973.

      Paul H. Blaustein, Sandoe, Hapgood & Calimafde, New York City, Guillermo A. Nigaglioni and Nigaglioni & Palou, Santurce, P.R., on brief, for appellants.
    Before COFFIN, Chief Judge, Mc-ENTEE and CAMPBELL, Circuit Judges.
   Levin H. CAMPBELL, Circuit Judge.

Plaintiffs appeal from the district court’s refusal to issue a preliminary injunction forbidding defendant, a former employee,

from soliciting orders from the same customers Garcia solicited for plaintiff for selling welding products directly competitive with those he sold for plaintiff, for a period of two years from August 13, 1971, the date of termination of Garcia’s employment with plaintiffs.

We reverse, for the reasons set forth below.

Plaintiffs filed an amended complaint on February 4, 1972 alleging that they are corporations engaged in the production and marketing of welding and soldering alloys and related products; that Garcia was hired on September 14, 1966, after entering into an employment contract in which he agreed that for a two-year period following termination of the agreement he would not work for any competitor in the same territory he covered for American Eutectic, during the last two years of his employment and within a 50 mile radius thereof; and that he agreed to maintain Eutectic’s “customer lists and identifications” and other business secrets confidential.

Plaintiffs originally prayed for injunctive relief prohibiting Garcia from disclosing confidential customer information, from calling upon Eutectic’s customers, and from employment in competition with plaintiffs for a period of two years from the date he left Eutectic. However, on April 27, 1972, plaintiffs moved for summary judgment, limited to the narrower issue of enjoining Garcia from soliciting customers as set forth above. The defendant opposed the motion on its merits and moved to dismiss the complaint. The matter was submitted on a record consisting of the pleadings, affidavits, depositions, and live testimony at a hearing held May 31, 1972. The district court, 353 F.Supp. 850, rendered its decision some seven months later, denying “plaintiffs’ motion for summary judgment requesting a preliminary or permanent injunction” and also denying “defendant’s motion for summary judgment requesting a dismissal.” The plaintiffs appealed under 28 U.S.C. §• 1292(a) from “the Order denying Preliminary Injunction.”

The defendant, Garcia, was hired by Eutectic on September 14, 1966 as a salesman of welding materials. He was by then an experienced salesman, having worked in 1961 for Sears, Roebuck at Santurce selling household appliances, then for a Mr. Otero as a razor salesman, and finally for E. Leon & Company as a salesman of building materials. After a three-week training period at Eutectic’s New York office, he returned to Puerto Rico and began selling Eutectic’s products in the Northeast area.

Garcia was given a number of “customer cards” containing the names of Eutectic customers and additional data such as whom to contact, what the customer had previously ordered, and what the customer’s special needs were. In the course of his employment, Garcia made periodic calls upon Eutectic customers to sell the company’s welding products and to consult with and advise customers on welding problems. In this manner, he gained an intimate knowledge of the customer’s needs and specialized requirements.

In 1968 Garcia was promoted to District Supervisor. He was then responsible for Eutectic’s sales throughout Puerto Rico. He supervised two other salesmen, to whom he distributed all his customer cards except the most lucrative 20%; these he continued to service personally. In January 1971, Garcia became Regional Manager. Although his duties remained essentially what they had been as District Supervisor, Garcia was the highest-ranking Eutectic employee in Puerto Rico, with three salesmen under him.

On August 13, 1971, Garcia resigned from Eutectic to join a competitor, Anibal L. Arsuaga, Inc. As an ALA welding salesman, he now calls upon a substantial number of former Eutectic customers and undersells his former employer. Although Eutectic’s sales in Puerto Rico had not declined eight months after Garcia began working for ALA, plaintiffs fear that Eutectic’s sales will decline in the future because Garcia will take more and more of his former customers to ALA; Eutectic is exposed to a loss of customer goodwill due to Garcia’s defection; and confidential data such as Eutectic’s pricing policies will be used to benefit the competition.

The party challenging a denial of a preliminary injunction “must show either a clear error of law or an abuse of discretion by the district court in denying the injunction.” Automatic Radio Mfg. Co. v. Ford Motor Company, 390 F.2d 113, 115 (1st Cir. 1968), cert. denied 391 U.S. 914, 88 S.Ct. 1807, 20 L. Ed.2d 653 (1968). Appellants have, in our judgment, made such a showing.

The terms of the contract provide that it is to be governed by the law of New York. Under New York law, as under the law generally prevailing in the United States, a restrictive employment covenant is enforceable to the extent reasonable, and “[W] ill generally be found to be reasonable where it simply protects the legitimate interests of the employer, imposes no undue hardship on the employee, and is not injurious to the public.” Solari Industries, Inc. v. Malady, 55 N.J. 571, 264 A.2d 53, 56 (1970).

The instant case presents a near-classic situation for enforcement. See Restatement of Agency, 2d § 396, Illustration 1, p. 224; Service Systems Corp. v. Harris, supra. Defendant salesman, having obtained an intimate knowledge of Eutectic’s customers and their needs in the course of his employment, is exploiting his knowledge for the benefit of a competitor in violation of contract. Limited in duration, the restriction sought to be enforced would not prevent him from using his skills as a salesman, except to the narrow extent needed to protect Eutectic from obviously unfair competition. Whether the full range of restrictions in the contract are reasonable need not concern us. The only issue is the reasonableness of the requested injunction; even an overly-broad covenant is enforceable to the limited extent reasonable. Karpinski v. Ingrasci, supra; Premier Industrial Corporation v. Texas Industrial Fastener Company, supra; Solari Industries, Inc. v. Malady, supra.

The only aspect of the court’s opinion requiring more extended consideration is its ruling that, although New York law is otherwise applicable, the public policy of the forum, as expressed in Article II § 16 of the Constitution of Puerto Rico, precludes relief.

Puerto Rico is not bound by the policies of other jurisdictions, and we give great weight to the district court’s interpretation of its constitution. But we discover no facial inconsistency between the language of Article II § 16 and the narrow relief here sought.

Plaintiffs merely ask that for a limited time Garcia not solicit orders for competing products from the same customers he solicited while working for them. It was through his employment with Eutectic that Garcia became familiar not only with its customers but with its prices and products, and was thus placed in a particularly advantageous position both to undersell Eutectic and woo its customers.

We are unaware of any Puerto Rico authority construing the constitutional “right of every employee to choose his occupation freely and to resign therefrom” as guaranteeing to employees a right to disregard employment contracts prohibiting misuse for a limited period of time of customer contacts obtained during former employment. By way of analogy, the even more sweeping language of the First Amendment to the United States Constitution is not thought to confer a right to publish a book copyrighted by another. One might suppose that Article II § 16 of the Constitution of Puerto Rico merely enunciates a principle analogous to the common law rule set forth in Wilson v. Clarke, 470 F.2d 1218, 1221 (1st Cir. 1972):

Bargains between employers and employees which place restrictions upon an employee’s exercise of a gainful occupation after leaving the employer are, and were at common law considered to be, void as in restraint of trade. Restatement of Contracts, §§ 513-515. Sherman v. Pfefferkorn, et al., 241 Mass. 468, 474, 135 N.E. 568, 570 (1922). Exceptions are made, however, if the restriction is reasonable, “and not wider than is necessary for the protection to which the employer is entitled . . ..”

Any doubt we might have whether Puerto Rico has adopted this “rule of reason” is resolved by the case of Oliver Exterminating Services Corp. v. Felix Garcia Franco, (Superior Court of Puerto Rico, San Juan Part, Civil 63-5032, decided January 27, 1965), writ of revision denied by the Supreme Court of Puerto Rico, April 12, 1965 in case R-65-37.

In Oliver, the employee held a university degree in civil engineering, and had taken graduate courses relating to the control of insects and rodents. After nineteen years with the Health Department as a sanitary engineer, he left government service and obtained employment as the general manager of an exterminating firm. He was in constant touch with the firm’s clients, and utilized liis contacts at the Health Department to the advantage of his firm. After an unsuccessful attempt to buy out his employer, he attempted to recruit some of his fellow-workers to staff a new, competitive firm which he was planning to organize. He subsequently became President of this new corporation.

As soon as Garcia presented his resignation, he contacted numerous clients of his former employer, informing them that he was now actually offering his services to Puerto Rico Exterminating Co., Inc., asking them to cancel their old contracts and. sign new contracts with the firm for which he was working. Many of these clients showed themselves to be receptive to Garcia’s insinuations, cancelled their old contracts and became clients of the new corporation. Also, one of the employees of Exterminating Services of Puerto Rico, Inc. abandoned his employer and followed Garcia to the new organization.

In upholding a restrictive clause in the employment agreement forbidding the employee from directly or indirectly approaching the firm’s clients to sell them services related to extermination and from working in any form of the extermination business in Puerto Rico or the Virgin Islands, Judge Moreda stated:

As a general rule, these clauses are valid if same prove to be reasonable. Reasonable as far as the employer, with regard to the employee and with respect to the public in general.

Judge Moreda listed some 46 factors which might be considered in deciding if an employment restriction were reasonable. Examining these factors and applying them to the undisputed facts of the present case, we conclude that the restrictions sought to be enforced are reasonable.

The relief sought is limited to what is reasonably necessary for the protection of Eutectic’s legitimate business interests. Although Garcia’s employment contract forbade him from working for any firm which dealt in competitive products, the requested preliminary injunction would merely prevent him from soliciting welding orders competitive with Eutectic’s product line from customers he had called on for Eutectic. Garcia could solicit others, or since ALA deals in many other product lines, Garcia could continue to work for ALA selling non-welding materials. As a further alternative, with his extensive sales experience he could work as a salesman for another concern. As Judge Moreda observed in Oliver:

Though he may suffer some inconveniences, there is no founded fear that we may be condemning him to hunger and misery and the danger does not exist that he would become a social burden.
We similarly believe that the plaintiffs have proven that if the injunction is not conceded their business would suffer irreparable damage upon revealing that the defendant has tried and is continuously trying to take their clients, having been successful in various occasions.

It is immaterial that the defendant was not shown to have “divulged trade secrets or confidential information,” or that he was “privy to any confidential data” (other than its customers cards and lists). No showing of such wider harm, nor of executive-suite intrigue, was needed to warrant the injunction sought, preventing Garcia, for a relatively short time, from using his knowledge of Eutectic’s customers to Eutectic’s disadvantage. Eutectic does not have to submit to irreparable harm before it can obtain preventive relief.

This proceeding was brought on February 4, 1972. It was taken under advisement by the district court on June 15, 1972. For reasons unclear no opinion on the issue of preliminary relief was rendered until January of 1973. If plaintiffs are to win anything but a phyrric victory, they must receive relief without further delay. We remand with instructions to issue a preliminary injunction forthwith.

Not later than one month after the date of this opinion, the district court shall hold a further hearing and shall determine whether or not, under all the circumstances, the continuation of injunctive relief beyond August 13, 1973 is warranted under principles stated in Premier Industrial Corporation v. Texas Industrial Fastener Company, 450 F.2d 444, 448 (5th Cir. 1971).

Reversed and remanded for proceedings consistent herewith.

      . The relevant clauses of the. agreement are as follows:
      “7. It is our firm company policy that the following provisions constitute a part of your employment agreement: a) As certain confidential information regarding our products and working methods has been and/or will be furnished to you, you expressly covenant that you will keep inviolate and never, during and after your employment with us, directly or indirectly, use against the interests of our Company, or for yourself (except while you are in our employ and solely in pursuit of your activities as our employee), disclose, communicate, divulge or furnish to any other person, firm or corporation, any confidential information or business secrets relating to our Company and our parent or affiliated companies, the conduct of our or their operations and working methods, the materials, processes, plans, designs, models, apparatus, equipment, names of our or their suppliers and formulas used in our or their manufacturing operations and experimental investigations, any commercial or technical information including our customers’ requirements, improvements or things of which you may have gained knowledge, or discovered, invented or perfected while in our employ, or that of our parent or affiliated companies, or within six months after the termination of your employment, or any ideas or processes of manufacture of any product or article sold or distributed by us which may be eommunicated to you or which you may learn by virtue of your activities under this agreement.
      c) As we and our parent and affiliated companies manufacture and/or sell under a variety of trademarks a specialized line of welding materials and products and a specialized line of equipment for use in welding and in connection therewith have developed special formulations' and equipment and utilize a specialized technique of sales and service concerning which you will, during your employment with us, receive training and access to confidential information, you agree that you will not, anywhere in the territory or territories in which you worked in our employ within two years prior to the termination of this agreement and within a radius of fifty miles from any such territory or territories, without the prior consent of our Company, signed by our President or one of our Vice-Presidents, during and for a period of two years after your employment with us ceases, enter the employ of or render any services to any person, firm, partnership or corporation dealing in materials, products or equipment or a line of materials, products or equipment which compete with any of the materials, products or equipment which we and/or our parent or any of our affiliated companies market, or engage in any competing business on your account or become interested therein as a director, principal, representative, employee or any other relationship or capacity.”

      . The district court properly ruled against the defendant’s contention that it lacked jurisdiction because the amount in controversy did not exceed $10,000. 28 U.S.C. § 1332(a).

      . ALA sells many other products in addition to welding materials; “copper prod-ducts, tubes, copper fittings, safety equipment, firefighting equipment general plumbing supplies, great variety of lines.” Garcia stated that he was being trained in all these product lines, although presently he is devoting nearly 100% of his time to selling welding materials.

      . There was evidence that Eutectic’s welding products were relatively expensive, and .that consequently one of their greatest problems was underselling by the competition.

      . See Universal Electric Corp. v. Golden Shield Corp., 316 F.2d 568 (1st Cir. 1963) (construing the law of New York) ; Karpinski v. Ingrasci, 28 N.Y.2d 45, 320 N.Y.S.2d 1, 268 N.E.2d 751 (1971) ; Service Systems Corp. v. Harris 41 A.D. 2d 20, 341 N.Y.S.2d 702 (1973) ; Purchasing Associates, Inc. v. Weitz, 13 N.Y. 2d 267, 246 N.Y.S.2d 600, 196 N.E.2d 245 (1963) ; Premier Industrial Corporation v. Texas Industrial Fastener Company, 450 F.2d 444 (5th Cir. 1971) (construing Ohio law) ; Arthur Murray Dance Studios of Cleveland v. Witter, 62 Ohio Law Abst. 17, 105 N.E.2d 685 (Court of Common Pleas, Cuyahoga County 1952) (containing an exhaustive review of the authorities and relied upon by the Superior Court of Puerto Rico in Oliver Exterminating Services Corp. v. Felix Garcia Franco, infra; Briggs v. Butler, 140 Ohio St. 499, 45 N.E.2d 757 (1942) (relied on by the Oliver court) ; Award Incentives, Inc. v. Van Rooyen, 263 F.2d 173 (3rd Cir. 1959) (cnostruing New York law) ; Avallone v. Elizabeth Arden Sales Corp., 344 Mass. 556, 183 N.E.2d 496 (1962) ; 14 Williston on Contracts, 3 ed. Jaeger, § 1636; Restatement of Contracts §§ 513-516, particularly § 516 (f) (1932) ; Restatement of Agency 2d § 396, Illustration 1, p. 224 (1958) ; Annot. 41 A.L.R.2d 1 (1955) and cases cited therein; Annot. 43 A.L.R.2d 94, particularly § 25 (1955) ; Blake, Employee Agreements Not To Compete, 73 Harv.L.Rev. 625 (1960).

      . “The right of every employee to choose his occupation freely and to resign therefrom is recognized, as is his right to equal pay for equal work, to a reasonable minimum salary, to protection against risk to health or person in his work or employment and to an ordinary workday which shall not exceed eight hours.”

      . The constitutional issue was raised by the employer in its argument to the Supreme Court of Puerto Rico.

      . In stating that he “could solicit others” we refer merely to the scope of the requested injunction. There is no occasion for us to decide whether the contract was reasonable and enforceable insofar as it might be read to prevent Garcia from working for ALA at all.

      . As the Appellate Division stated in Service Systems Corp. v. Harris, 41 A.D. 2d 20, 24, 341 N.Y.S.2d 702, 705 (1973) :
      “Customer relationship is a very important factor in determining whether the covenant will be supported by the courts. An employer has sufficient interest in retaining present customers to support an employee covenant where the employee’s relationship with the customers is such that there is a substantial risk that the employee may be able to divert all or part of the business.”