author: COPENHAVER, District Judge.

text:
    BLACK DIAMOND GIRL SCOUT COUNCIL, INC., a non-profit West Virginia corporation, Plaintiff, v. ST. PAUL FIRE & MARINE INSURANCE COMPANY, a Minnesota corporation, Defendant.
    Civ. A. No. 84-2159.
    United States District Court, S.D. West Virginia, Charleston Division.
    July 18, 1985.
    Gerard R. Stowers, Charleston, W.Va., for plaintiff.
    Norman K. Fenstermaker, Huntington, W.Va., for defendant.
   MEMORANDUM ORDER

COPENHAVER, District Judge.

This matter is before the court upon the motion of the defendant, St. Paul Fire and Marine Insurance Company (hereinafter St. Paul), for joinder of certain parties as plaintiffs pursuant to Rule 19 of the Federal Rules of Civil Procedure, and upon the motion of plaintiff, Black Diamond Girl Scout Council, Inc. (hereinafter Black Diamond), for summary judgment and declaratory relief. Each motion will be dealt with in turn.

This action was removed to the United States District Court for the Southern District of West Virginia from the Circuit Court of Kanawha County, West Virginia, on April 19, 1984. Black Diamond seeks a declaratory judgment that St. Paul is obligated under the terms of its liability insurance contract with Black Diamond to provide legal defense and representation and to provide policy coverage for Black Diamond with respect to a civil action pending in the Circuit Court of Taylor County, West Virginia. In the Taylor County, action which is styled Helen M. Jones, Administratrix, et al. v. Black Diamond Girl Scout Council, et al., Jones sued Black Diamond and four others on account of the alleged wrongful death of a former Black Diamond employee.

JOINDER OF PARTIES

St. Paul has moved the court to enter an order joining as additional plaintiffs the parties in the Taylor County action. It is asserted that the parties who are sought to be joined are subject to jurisdiction and that service of process may be made upon them.

Rule 19 of the Federal Rules of Civil Procedure provides in pertinent part:

(a) Persons to be Joined if Feasible. A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in his absence complete relief cannot be accorded among those already parties, or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest. If he has not been so joined, the court shall order that he be made a party. If he should join as a plaintiff but refuses to do so, he may be made a defendant, or, in a proper case, an involuntary plaintiff. If the joined party objects to venue and his joinder would render the venue of the action improper, he shall be dismissed from the action.

St. Paul observes that upon a verdict for the plaintiff in the Taylor County action, the plaintiff may file a direct action against St. Paul upon nonpayment of judgment by Black Diamond. Similarly, St. Paul comments that if judgment is entered against both Black Diamond and any other of the defendants and judgment is paid by any other defendant, then that defendant has a right of contribution against Black Diamond. It is argued that the parties in the Taylor County action are necessary since they have claims which will be affected by declaration of the court in this action; that disposition of the action may impair or impede their ability to protect their interest, and that in their absence St. Paul will be subjected to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations. Finally, St. Paul claims that in the absence of the parties in the Taylor County action, complete relief cannot be accorded between St. Paul and Black Diamond.

As the commentators have discussed, “[tjhere is no precise formula for determining whether a particular nonparty must be joined under Rule 19(a). The decision has to be made in terms of the general policies of avoiding multiple litigation, providing the parties with complete and effective relief in a single action, and protecting the absent persons from the possible prejudicial effect of deciding the case without them.” 7 Wright & Miller, Federal Practice and Procedure: Civil § 1604 at 35 (1972 & Pocket Part 1985); see also, 3A Moore’s Federal Practice ¶ 19.01 — 1[1] (1985).

Black Diamond’s claim for declaratory relief simply seeks to establish St. Paul’s duties and obligations under an insurance contract to which only Black Diamond and St. Paul are parties. Thus, under Rule 19 standards, “complete relief [can] be accorded among those already parties.” The subject insurance contract has nothing to do with the rights and obligations of any of the parties to the Taylor County action. St. Paul’s arguments are purely hypothetical as the plaintiff in the Taylor County action has no judgment with which to bring any action against St. Paul as Black Diamond’s liability insurer, nor do Black Diamond’s co-defendants have any present right to proceed against St. Paul. Nor is there any way at this time to determine if plaintiff obtains a judgment against one or more of the co-defendants in the state court action whether all or any part of the liability would be assessed against Black Diamond under West Virginia’s comparative fault, comparative contribution rules. Indeed, complete relief can be accorded simply by the adjudication of St. Paul’s duties under the policy which requires neither the state court plaintiff or defendants. Furthermore, the potential interests of the parties in the state court action simply do not rise to the level of a protectible interest as required by Rule 19. See Hoosier Casualty Co. v. Fox, 102 F.Supp. 214 (N.D.Iowa 1952) (holding that an injured party in an underlying tort action was not a necessary party in an action by an insurer for declaratory judgment of nonliability where the injured person had not obtained judgment against the insured).

There is also no merit to St. Paul’s assertions that the plaintiff in the state court action directly, or any of the co-defendants, by subrogation or assignment will subject St. Paul to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations with respect to the insurance contract. The court will rule on two issues. First, it will be determined whether St. Paul has a duty to defend Black Diamond. The second issue is whether St. Paul is obligated to provide coverage under the terms of the policy. Once judgment is entered as to these issues, future relitigation of the issues will be barred under the doctrine of collateral estoppel. See e.g., Montana v. United States, 440 U.S. 147, 99 S.Ct. 970, 59 L.Ed.2d 210 (1979); Parklane Hosiery Co. v. Shore, 439 U.S. 322, 99 S.Ct. 645, 58 L.Ed.2d 552 (1979); Yarn Industries v. Krupp International, Inc., 736 F.2d 125 (4th Cir.1984).

Accordingly, the motion of St. Paul for joinder of additional parties must be denied.

SUMMARY JUDGMENT

Black Diamond has moved the court pursuant to Rule 56 of the Federal Rules of Civil Procedure for summary judgment declaring that St. Paul has a duty to prqvide a defense and to provide coverage under the Umbrella Excess Liability Policy entered into between Black Diamond and St. Paul.

The essential facts are not in dispute. On July 27, 1981, Stephanie J. Jones, while an employee of Black Diamond working at Camp Meadowlea and while acting within the scope of her employment, died as the result of electrocution while working about the camp’s swimming pool. Affidavit of Anne Ackenhusen. Black Diamond had two separate contracts of insurance in full force and effect on July 27, 1981. One policy was a Comprehensive General Liability Policy with New Hampshire Insurance Group. Id. at Exhibit C. The second policy was an Umbrella Excess Liability Policy numbered 562XB8171 with St. Paul. Id. at Exhibits A and B.

An action arising out of the electrocution was brought against Black Diamond and others by Helen M. Jones, Administratrix of the Estate of Stephanie J. Jones on July 25, 1983. Id. at Exhibit D. On August 18, 1983, New Hampshire Insurance Group informed Black Diamond by letter that upon a review of the policy, liability coverage did not apply because of exclusion “j” of the policy which specifically stated that “[t]his insurance does not apply to bodily injury to any employee of the insured arising out of and in the course of his employment by the insured.” Id. at Exhibit E. Black Diamond does not contest New Hampshire Insurance Group’s denial of coverage.

On August 22, 1983, Black Diamond received a letter from St. Paul denying coverage and defense. St. Paul remarked that its policy with Black Diamond would track the primary liability coverage afforded by New Hampshire Insurance Group who was denying coverage and defense. St. Paul additionally asserted as follows:

[The] policy provides no employer’s liability coverage and exclusion (a) stipulates as follows: “This policy shall not apply: (a) to any obligation for which the insured or any company as its insurer may be held liable under any workmen’s compensation, unemployment compensation or disability benefits law, or under any similar law____

Id. at Exhibit G.

St. Paul has since abandoned the argument that its policy tracks the New Hampshire policy and has conceded that the St. Paul policy sets out its own obligations to be determined strictly from the policy itself. The parties have also agreed that any issues of bad faith refusal to defend, as well as claims of waiver or estoppel that Black Diamond might have against St. Paul are not pending in the motion for summary judgment. Thus, what remains to be determined is whether the workmen’s compensation exclusion applies so that the St. Paul policy does not provide for defense or indemnity and, as raised in St. Paul’s answer and argued in its memorandum, whether the death of Stephanie Jones was either expected or intended rather than accidental or due to negligence and therefore not covered by the definition of occurrence in the St. Paul policy. In analysis, the court will follow the general rule that: “An insurance policy which requires construction must be construed liberally in favor of the insured.” Hensley v. Erie Ins. Co., 283 S.E.2d 227 (1981), quoting Polan v. Travelers Ins. Co., 156 W.Va. 250, 192 S.E.2d 481 (1972) (Syllabus Point 3).

A. WORKMEN’S COMPENSATION EXCLUSION

Black Diamond argues that the workmen’s compensation exclusion, quoted above and relied upon by St. Paul to deny coverage and defense, is not applicable to the circumstances involving Stephanie Jones. Black Diamond asserts that the cause of action in the Taylor County case is not an obligation for which Black Diamond may be held liable under any workmen’s compensation or similar laws.

St. Paul refers to the fact that Stephanie Jones was covered under workers’ compensation (Workers’ Compensation Act, W.Va. Code §§ 23-1-1 through 23-6-1 (1981 Replacement Vol. & Cum.Supp.1984)) and that fifteen hundred dollars was paid by the West Virginia Workers’ Compensation Fund for the death of Stephanie Jones. St. Paul argues that “since benefits were payable to the Estate of Stephanie Jones, and she actually did receive payment from the Workmen’s Compensation Fund, exclusion (a) of the St. Paul policy applies and thus the policy does not provide for defense or indemnity under the circumstances of this case.” St. Paul’s Memorandum at 7.

The cause of action asserted by the Estate of Stephanie Jones in the Taylor County suit is one commonly referred to in West Virginia as a Mandolidis claim. In Mandolidis v. Elkins Industries, Inc., 161 W.Va. 695, 246 S.E.2d 907 (1978), the West Virginia Supreme Court of Appeals held that under the Workmen’s Compensation Act, employers are subject to common-law tort actions for damages or for wrongful death where the employer commits an intentional tort or engages in willful, wanton and reckless misconduct. Mandolidis, 246 S.E.2d at 914. As noted in the Mandolidis opinion, West Virginia enacted its workers’ compensation scheme in 1913 because of public dissatisfaction with the common law tort system whereby as a result of the defenses of contributory negligence, assumption of risk, and the fellow servant rule, workers injured in industrial accidents received compensatory damages in only a very small number of cases. Mandolidis, 246 S.E.2d at 910-11. The workers’ compensation scheme, as conceived and established, was essentially a no-fault system in that it provided recovery to employees injured in work-related accidents regardless of fault, Mandolidis, 246 S.E.2d at 911. As part of the trade-off for recovery, employers were granted immunity from suit by employees for damages based on work-related injuries. W.Va.Code § 23-2-6 (1981 Replacement Vol. & Cum.Supp.1984). The legislation established an exception to the protection provided by the statutory immunity from suit where injury or death resulted from the deliberate intention of the employer. W.Va.Code § 23-4-2 (1981 Replacement Vol. & Cum.Supp.1984). In Mandolidis, the court interpreted the deliberate intent language to mean that an employer loses immunity from common law actions where the “employer’s conduct constitutes an intentional tort or wilful, wanton, and reckless misconduct.” Mandolidis, 246 S.E.2d at 914.

The Taylor County suit brought by the Estate of Stephanie J. Jones alleges in part that the death of Jones was a direct and proximate result of the “willful, wanton and reckless misconduct of the Black Diamond Girl Scout Council.” Complaint at § 13. It was further alleged that Black Diamond acted with a “conscious, subjective and deliberately formed intention to electrocute Stephanie J. Jones.” Complaint at ¶ 15.

It is plain that whether Stephanie J. Jones was an employee covered under workers’ compensation and whether fifteen hundred dollars was paid for funeral expenses is not decisive. The central question is whether the Taylor County action arose outside of the West Virginia workers’ compensation scheme, or is an obligation imposed by virtue of the Workers’ Compensation Act such that St. Paul may properly deny coverage. West Virginia Code section 23-4-2 provides in pertinent part:

If injury or death result to any employee from the deliberate intention of his employer to produce such injury or death, the employee, the widow, widower, child or dependent of the employee shall have the privilege to take under the chapter, and shall also have cause of action against the employer, as if this chapter had not been enacted, for any excess of damages over the amount received or receivable under this chapter.

W.Va.Code § 23-4-2 (1981 Replacement Vol. & Cum.Supp.1984).

The language of West Virginia Code section 23-4-2 providing that an employee shall have a “cause of action against the employer as if this chapter had not been enacted,” and the cause of action is for “any excess of damages over the amount received or receivable under this chapter,” together with Mandolidis and its progeny, removes any immunity to a common law tort action by an employee. The claim of the Estate of Stephanie J. Jones is one for wrongful death which is not barred by the Workers’ Compensation Act and which arises outside of the Act. Reliance by St. Paul upon the workmen’s compensation exclusion is not well-founded.

Thus, the Mandolidis claim of the Estate of Stephanie J. Jones is a common law tort claim not barred by the West Virginia Workers’ Compensation Act and which arises outside of and not by virtue of the West Virginia Workers’ Compensation Act such that the St. Paul Policy exclusion is not applicable.

B. OCCURRENCE

St. Paul has also asserted that coverage was denied because of the definition of the term occurrence in the policy with Black Diamond. The policy provides as follows:

I. COVERAGE

The Company will indemnify the Insured for all sums which the Insured shall become legally obligated to pay as damages, all as more fully defined by the term “ultimate net loss” on account of: 1. Personal Injuries ... to which this Policy applies caused by an occurrence.

9. OCCURRENCE

The term “Occurrence” means (1) with respect to subsection (a) of the definition of personal injuries and with respect to property damage, an event, including injurious exposure to conditions, which results during this policy period in such personal injury, or property damage neither expected nor intended from the standpoint of the Insured____

St. Paul essentially argues that given that the Taylor County action is a Mandolidis -type claim, the underlying tort is an intentional tort such that it is excluded from coverage by the policy language “neither expected nor intended from the standpoint of the insured.” See pages 9 through 12 for the background of Mandolidis.

In determining the insuror’s duty to provide coverage and to defend an action against an insured, the court must look to the allegations of the pleadings in the action against the insured. Babcock & Wilcox Co. v. Parsons Corp., 430 F.2d 531 (8th Cir.1970). A review of the allegations against Black Diamond in the Taylor County action reveals the following in Count I of the complaint:

(10) The Black Diamond Girl Scout Council knew or should have known the dangers attendant to the use of such defective and dangerous electrical system and equipment and therefore had a subjective realization that bodily injury could occur from its use.
(11) Irrespective of this subjective realization, the Black Diamond Girl Scout Council negligently, carelessly, indifferently, knowingly and willfully failed to provide a safe workplace for Stephanie J. Jones ____
(13) The death of Stephanie J. Jones was a direct and proximate result of the willful, wanton and reckless misconduct of the Black Diamond Girl Scout Council.

In Count II of the Taylor County action are the following allegations:

(15) The Black Diamond Girl Scout Council acted with a conscious, subjective and deliberately formed intention to electrocute Stephanie J. Jones.
(19) ... Black Diamond Girl Scout Council ... exposed Stephanie J. Jones to said unsafe working conditions intentionally; and that as a result of this exposure, Stephanie J. Jones was electrocuted.

Black Diamond argues that Mandolidis permits a cause of action for torts which are something less than specifically intended and that because Count I of the complaint in the Taylor County action does not allege specific intent but rather alleges willful, wanton and reckless misconduct, the exclusion does not apply and St. Paul is obligated to defend Black Diamond. Black Diamond contends that the policy exclusion clause is only applicable in cases where a specific intent to injure is alleged. St. Paul’s responsive approach is not to argue that something less than specific intent is required under the policy, but rather to argue, upon the authority of Mandolidis and its progeny, that the Taylor County action is in fact one that alleges a specific intent to cause injury. Thus, the court is obligated to undertake an analysis of Mandolidis.

The opinion of the West Virginia Supreme Court of Appeals in Mandolidis indicates that it permits a cause of action for torts which are something less than specifically intended. Significantly, the court held that an employer acts with “deliberate intent to produce an injury or death” and thereby loses his immunity from common law actions brought by employees whenever the employer’s conduct constitutes an “intentional tort or wilful, wanton and reckless misconduct.” Mandolidis, 246 S.E.2d at 914 (emphasis added.) In order to remove the immunity bar, the employer’s conduct must be “undertaken with a knowledge and an appreciation of the high degree of risk of physical harm to another created thereby.” Mandolidis, 246 S.E.2d at 914. Evidence of prior deaths or injuries and the knowledge of the existence and contents of federal and state safety laws and regulations is admissible to establish an employer’s subjective knowledge of the risk of harm. Mandolidis, 246 S.E.2d at 914 n. 10.

In defining deliberate intention within the meaning of the workers’ compensation legislation, the court drew heavily upon three earlier opinions. The question of deliberate intention was first addressed in Collins v. Dravo Contracting Co., 114 W.Va. 229, 171 S.E. 757 (1933). In Collins, it was recognized that an employer could deliberately intend to cause injury or death by an act of omission and that accordingly a wrongful death action may be brought. The action was remanded for trial on the theory of deliberate intent to injure or kill. It was noted that the omission must be one with a “design” to injure or kill the employee. Collins, 114 W.Va. at 234-35, 171 S.E. at 759. The Mandolidis opinion noted that the Collins court had refused to accept the interpretation of the statute urged by the employer which would have required a specific intent to injure or kill. Mandolidis, 246 S.E.2d at 913.

Less than a year after the Collins decision, the court attempted to define the deliberate intention requirement. In Maynard v. Island Creek Coal Co., 115 W.Va. 244, 175 S.E. 70 (1934), the court held that an employer could lose his statutory immunity from suit if the reasonable anticipated, natural and probable consequences of the employer’s conduct would be death or serious injury to the employer. Maynard, 115 W.Va. at 253, 175 S.E. at 72. The Maynard court observed:

Gross negligence is not tantamount to “deliberate intention” to inflict injury. It may be that the carelessness, indifference and negligence of an employer may be so wanton as to warrant a judicial determination that his ulterior intent was to inflict injury. But in the very nature of things, a showing which would warrant such finding would have to be clear and forceful in high degree.

Maynard, 115 W.Va. at 253, 175 S.E. at 72. The Mandolidis court read the Maynard opinion as not concluding that a showing of specific intent to injure or kill was required to avoid the immunity bar. Mandolidis, 246 S.E.2d at 912.

The court also reviewed Allen v. Raleigh-Wyoming Mining Co., 117 W.Va. 631, 186 S.E. 612 (1936), wherein the judgment for the plaintiff was set aside in an action arising out of a situation resulting in injuries to the plaintiff while riding at the front of a trip of empty coal cars in defendant’s mine when struck by a wooden trapdoor hung across the tracks. The Allen court held that an employee may not recover damages for personal injury from an employer protected by workers’ compensation laws absent a showing of the employer’s specific intent to injure him. Allen, 117 W.Va. at 636-37, 186 S.E. at 614. The Allen construction of deliberate intent was subsequently adhered to in Eisenaugle v. Booth, 159 W.Va. 779, 226 S.E.2d 259, 261 (1976), and Brewer v. Appalachian Constructors, Inc., 135 W.Va. 739, 748-50, 65 S.E.2d 87, 93-94 (1951).

The Mandolidis court found that Allen was inconsistent with Maynard and Collins and expressly overruled Allen. Mandolidis, 246 S.E.2d at 913. The court determined that both Collins and Maynard had rejected, as a prerequisite for common law recovery, the requirement that the employee prove his employer’s specific intent to injure him. Mandolidis, 246 S.E. at 912-13.

It is observed that the jurisdictions from which West Virginia modeled its workers’ compensation scheme, including the limited employer immunity provision, have held that the provision requires proof of specific intent before immunity is lost. See, Higley v. Weyerhaeuser Co., 13 Wash.App. 269, 534 P.2d 596 (1975); Caline v. Maede, 239 Ore. 239, 396 P.2d 694 (1964). See also, Mandolidis, 246 S.E.2d at 913. The overruled Allen opinion relied on cases so interpreting the Washington and Oregon legislation. The Mandolidis court noted the Washington and Oregon cases with disapproval. Mandolidis, 246 S.E.2d at 913.

It is plain, then, that the Mandolidis court eliminated the requirement that in order to avoid the immunity bar, an employee must allege and establish that the employer acted, either by. commission or omission, with a specific intent to injure or kill the employee. This conclusion is in keeping with express language defining “deliberate intention” as contained in postMandolidis workers’ compensation legislation enacted in 1983 which distinguishes specific intent injuries from those resulting from wilful, wanton and reckless misconduct. The 1983 amendment to the deliberate intention provision provided as follows:

(2) The immunity from suit provided under this section and under section six-a [§ 23-2-6a], article two of this chapter, may be lost only if the employer or person against whom liability is asserted acted with “deliberate intention.” This requirement may be satisfied only if:
(i) It is proved that such employer or person against whom liability is asserted acted with a consciously, subjectively and deliberately formed intention to produce the specific result of injury or death to an employee. This standard requires a showing of an actual, specific intent and may not be satisfied by allegation or proof of (A) conduct which produces a result that was not specifically intended; (B) conduct which constitutes negligence, no matter how gross or aggravated; or (C) willful, wanton or reckless misconduct; or
(ii) The trier of fact determines, either through specific findings of fact made by the court in a trial without a jury, or through special interrogatories to the jury in a jury trial, that all of the following facts are proven:
(A) That a specific unsafe working condition existed in the workplace which presented a high degree of risk and a strong probability of serious injury or death;
(B) That the employer had a subjective realization and an appreciation of the existence of such specific unsafe working condition and of the high degree of risk and the strong probability of serious injury or death presented by such specific unsafe working condition;
(C) That such specific unsafe working condition was a violation of a state or federal safety statute, rule or regulation, whether cited or not, or of a commonly accepted and well-known safety standard within the industry or business of such employer, which statute, rule, regulation or standard was specifically applicable to the particular work and working condition involved, as contrasted with a statute, rule, regulation or standard generally requiring safe workplaces, equipment or working conditions;
(D) That notwithstanding the existence of the facts set forth in subparagraphs (A) through (C) hereof, such employer nevertheless thereafter exposed an employee to such specific unsafe working condition intentionally; and
(E) That such employee so exposed suffered serious injury or death as a direct and proximate result of such specific unsafe working condition.

W.Va.Code § 23-4-2 (1984 Cum.Supp.) (emphasis added).

The reasoning of Mandolidis is such that a “specific intent” to injure or kill is not necessary for an employer to lose immunity and, therefore, be subjected to a common law cause of action. Count one of the Taylor County action alleges that Black Diamond negligently, carelessly, indifferently, knowingly and willfully failed to provide a safe workplace for Stephanie Jones and that her death was the direct and proximate result of Black Diamond’s willful, wanton and reckless misconduct. That by no means alleges that the resulting death of Stephanie Jones was an occurrence “expected or intended” by Black Diamond. The term “expected or intended” as used in the St. Paul policy implies specific intent and is not the equivalent of the lesser Mandolidis standard of wilful, wanton and reckless misconduct found in one who has a subjective realization and appreciation of the high degree of risk of physical harm created by his conduct, unaccompanied by specific intent.

The conclusion that coverage exists under the policy in the present case is fostered by the general rule that: “An insurance policy which requires construction must be construed liberally in favor of the insured.” Hensley, 382 S.E.2d at 229, quoting, Polan v. Travelers Ins. Co., 156 W.Va. 250, 192 S.E.2d 481 (1972), and citing, Broy v. Inland Mutual Ins. Co., 160 W.Va. 138, 233 S.E.2d 131 (1977); Thompson v. State Automobile Ins. Co., 122 W.Va. 551, 11 S.E.2d 849 (1940). The general rule is an “acknowledgement that the insurance policy is prepared by the company and therefore, the average policyholder has not opportunity to influence the policy language.” Hensley, 382 F.2d at 229. Moreover, in order to exclude coverage for Mandolidis actions, an insurance company merely has to exclude bodily injury to any employee of the insured arising out of and in the course of his employment as was done in the New Hampshire Insurance Group policy with Black Diamond.

The Estate of Stephanie J. Jones does not allege specific intent against Black Diamond in count one of the Taylor County action. Thus, based upon the pleadings, the occurrence was covered under the Umbrella Excess Liability Policy between Black Diamond and St. Paul.

CONCLUSION

It is ORDERED that the motion of Black Diamond Girl Scout Council, Inc., for summary judgment and declaratory relief be, and it hereby is, granted. Accordingly, St. Paul is obligated under the insurance policy to provide a defense of Black Diamond in the civil action pending in the Circuit Court of Taylor County, West Virginia, and is obligated to afford Black Diamond liability coverage for the incident of July 27, 1981, as provided by the terms and provisions of the insurance policy.

Finally, it is noted that in the complaint Black Diamond raised the issue of bad faith refusal to provide legal representation and to afford coverage. This matter was not addressed in the memoranda of law on the summary judgment motion. In an effort to bring this action to a conclusion, it is ORDERED that motions in the nature of summary judgment, together with memoranda of law, affidavits and exhibits in support thereof, shall be filed on or before August 5, 1985; responses, together with memoranda of law, affidavits and exhibits in support thereof, shall be filed on or before August 16, 1985; and replies, if any, shall be filed on or before August 23, 1985.

      . In 1983, the compensation legislation was amended so that references to workers’ compensation were substituted for references to workmen’s compensation throughout the section.

      . Cf. Federal Rice Drug Co. v. Queen Ins. Co., 463 F.2d 626 (3d Cir.1972). (Action involved a virtually identical exclusion. A former employee of Federal Rice committed suicide in the insured’s place of business. The death was alleged to be the result of intentional, willful, wanton and/or negligent conduct and the employer was sued. The applicable Pennsylvania workmen's compensation statute applied only to accidents. The death was held not to be the result of an accident, although it arose out of employment. Thus, since the complaint of the decedent’s estate alleged an intentional or a negligent tort falling outside the coverage of the Pennsylvania Workmen’s Compensation Act, the policy afforded coverage.)

      . It appears that the West Virginia Legislature acquiesced in the Allen court's construction of the requirement of specific intent to injure or kill as indicated by subsequent amendment and reenactment of the legislation without altering the deliberate intention provision. D. Flannery, J. Beeson, M. Bradley, R. Goddard, “The Expanding Role of the West Virginia Supreme Court of Appeals in the Review of Workmen’s Compensation Appeals,” 81 W.Va.L.Rev. 1, 11 (1978). Notably a number of bills failed which would have exposed employers to common law liability upon a showing of willful, wanton or reckless misconduct, or gross negligence or which would have created a presumption of deliberate intent to injure against the employer upon a showing that the employee’s injury or death was caused by the employer’s violation of a safety statute or regulation. 81 W.Va.L.Rev. at 11-12. Indeed, it has been commented that Mandolidis creates an employee's common law cause of action for a constructive intent to injure or kill. 81 W.Va.L.Rev. at 14.

      . Cf. Hensley v. Erie Ins. Co., 283 S.E.2d 227 (W.Va.1981), wherein the distinction between an intentional wrong and one based on "gross, reckless or wanton negligence" in West Virginia is dealt with. The court stated, in an action wherein a plaintiff sued the defendant’s insuranee company for punitive damages, that such right exists when the insurance company”s policy has only excluded damages caused by the insured’s intentional wrong and the insured was found to have committed an act of gross, reckless or wanton negligence.


source: Caselaw Access Project

author: TASHIMA, District Judge.

license: Public Domain

text:
    SHILEY, INC., etc., Plaintiff, v. BENTLEY LABORATORIES, INC., etc., Defendant. BENTLEY LABORATORIES, INC., etc., Counter-Claimant, v. SHILEY, INC., etc., Counter-Defendant.
    No. CV 81-3262 AWT.
    United States District Court, C.D. California.
    July 25, 1985.
    John E. Kidd, Giddon D. Stern, Pennie & Edmonds, New York City, Don W. Martens, Darrell L. Olson, Knobbe, Martens, Olson & Bear, Newport Beach, Cal., for plaintiff.
    Roy E. Hofer, Gary M. Ropski, Mark J. Buonaiuto, Willian, Brinks, Olds, Hofer, Gilson & Lione Ltd., Chicago, Ill., Coe A. Bloomberg, Allan W. Jansen, Lyon & Lyon, Los Angeles, Cal., for defendant.
   MEMORANDUM ORDER RE CONTEMPT

TASHIMA, District Judge.

After trial, a Judgment and Permanent Injunction was entered against defendant on February 5, 1985 (the “Injunction”). The Injunction permanently enjoined defendant from further infringing the “patent claims in suit,” as that term was defined therein. The Court has been informed by counsel that defendant’s attempts to have the Court of Appeals stay the Injunction pending determination of the appeal have, thus far, been denied. On March 13, 1985, an order amending judgment and permanent injunction (the “Amended Judgment”) was entered on the post-judgment motion of defendant. The Amended Judgment dismisses defendant’s counterclaims on the patent claims in suit “on the merits,” but “the remainder of defendant’s counterclaim is dismissed without prejudice as being moot____”

Plaintiff has moved that defendant be held in civil contempt for violating the Injunction. Defendant has been manufacturing and marketing a BIO series of bubble blood oxygenators (the “BIO”). The BIO differs structurally from the BOS series (held after trial to infringe the patent claims in suit) in two respects: (1) the heat exchanger tubing of the BIO has a series of discrete, individual annular ribs (a “bellows” configuration), whereas the BOS tubing (and patent claim) has a continuous helical rib; and (2) the cylindrical chamber of the BIO which contains the helically coiled heat exchanger tubing does not, unlike the BOS, have a cylindrical tube or column inside the helically wound heat exchanger tube.

Two differences in operation are observable as a result of these two structural changes. First, in the BIO, because of the bellows configuration of the heat exchanger tube, the blood that flows downward between the tube and the outer shell is not as restricted and its flow not as impeded as with use of a helically ribbed, helically wound heat exchanger tube. Second, because there is no central column within the heat exchanger coil of the BIO, the blood which flows inward from the top of the device (inside the coil) is not restricted or impeded at all in its downward flow. Since, unlike the BOS, there is no closely proximate interior wall to the chamber containing the heat exchanger coil, it is an accurate observation that the blood which flows inward cascades downward without restriction or impedence in flow, except for evacuation from the cylindrical chamber of blood which preceded it.

Plaintiff contends that these changes in hardware and operation are “merely slight or only colorable.” It contends either literal infringement by the BIO or infringement under the doctrine of equivalents. Defendant, on the other hand, contends non-infringement and that plaintiff’s bellows claims are invalid because of anticipation by the prior art.

Although there appears not to be any controlling case lav/, the parties agree that the applicable standard on this motion is “whether the new product alleged to be a contempt is ‘merely colorably different’ from the product previously conceded to infringe.” Interdynamics, Inc. v. Firma Wolf, 653 F.2d 93, 98 (3d Cir.), cert. denied, 454 U.S. 1092, 102 S.Ct. 658, 70 L.Ed.2d 631 (1981) (citations omitted). See also, e.g., American Foundry & Mfg. Co. v. Josam Mfg. Co., 79 F.2d 116, 117 (8th Cir.1935). “In a civil contempt proceeding, the contempt must be proved by clear and convincing evidence.” Vertex Distrib., Inc. v. Falcon Foam Plastics, Inc., 689 F.2d 885 (9th Cir.1982) (trademark infringement claim applying “well-settled law”). Although it is not clear precisely to what finding the clear and convincing standard applies, I am unable to find by clear and convincing evidence that the differences between the BIO and BOS are “merely colorable” and no more. I, therefore, conclude that defendant is not guilty of contempt.

This conclusion also is supported by another consideration. At one point in the underlying litigation, plaintiff’s bellows claims were in issue. Immediately prior to trial plaintiff withdrew its bellows claims from litigation, i.e., withdrew its contention that defendant was infringing those claims. On that basis, defendant’s counterclaim seeking declaratory relief that the bellows claims were invalid were dismissed by the Court as moot. Thus, the Amended Judg-. ment dismisses those counterclaims as moot, without prejudice. When the Court, on September 11, 1984 dismissed the bellows invalidity counterclaim it stated: “Plaintiff is not claiming infringement on that basis today, so I think your request for declaratory relief is moot.” Plaintiff then, or at no time during that dialogue, made any statement which would have disabused the Court and defendant of any mistaken impression that it was reserving to litigate another day infringement of the bellows claim or by a bellows configuration device. In this procedural posture it would be inequitable to, in effect, try infringement/validity of the bellows claim on a summary basis in a contempt action. Cf. Shelcore, Inc. v. Durham Indus., Inc., 745 F.2d 621, 624 (Fed.Cir.1984) (plaintiff cannot unilaterally remove validity issue raised by counterclaim).

IT IS ORDERED that plaintiff’s motion to hold defendant in contempt for violation of the injunction is DENIED.


author: PAINE, District Judge.

text:
    BONAVENTURE ASSOCIATES, a Partnership consisting of Herbert Sadkin, Trustee, Marfer Corporation, a Florida Corporation, Mortgage Company of America, U.S.A. a Florida Corporation, and East Bon West Real Estate, Inc., a Florida Corporation, Plaintiff, v. The FLYER PUBLISHING CORPORATION, a Florida Corporation, Defendant.
    No. 83-6516-Civ.
    United States District Court, S.D. Florida.
    July 26, 1985.
    Maurice Garcia, Hollywood, Fla., for plaintiff.
    Charles Papy, Jr., Coral Gables, Fla., for defendant.
   PAINE, District Judge.

This cause is before the Court on plaintiff’s motion for partial summary judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c). (DE 10); and the parties’ cross-motions for summary judgment (DE 23, 30 and 35). The Court has considered all filings pertinent to these motions.

FACTS

Plaintiff, BONAVENTURE ASSOCIATES, et al., (hereinafter Bonaventure), is a general partnership organized and existing in accordance with the laws of Florida engaged in providing real estate management and related services throughout Florida and the United States. Plaintiff is the legal owner of the service mark “Bonaventure,” registration number 964,851 registered on July 24, 1985.

ORDER

Defendant is a corporation organized and operating under the laws of Florida. Defendant publishes weekly a newspaper-type advertising flyer called “The Flyer” which boasts 330,000 direct mail copies per issue. It carries classified advertising.

Plaintiff and defendant have both submitted exhibits to the Court showing the use of plaintiffs service mark of which plaintiff complains. Plaintiff publishes a newsletter called “Bonaventure” utilizing marks under registration numbers 1,025,-384 or 1,025,401 or both.

Count I of plaintiffs complaint alleges that the defendant has wrongfully appropriated the full form and substance of its registered marks, which has resulted or which will result in a liklihood of confusion in the mind of the public.

In Count II, plaintiff alleges that the term “Bonaventure” per se, and its logo, have obtained a secondary meaning in the eyes of its customers and of other consumers, and that the defendant is attempting to pass-off its services to the public as those of the plaintiff, thereby deceiving the public and exploiting the plaintiffs accumulated goodwill associated with plaintiffs name.

Count III of the complaint alleges that the continued use by defendant of plaintiffs registered marks will blur plaintiffs service mark identification and will tarnish affirmative associations plaintiffs marks have come to convey. Further, plaintiff alleges continued use of its registered marks by the defendant may cause plaintiffs registered marks to enter the public domain.

The defendant asserts 15 U.S.C. § 1115(b)(4) as a defense.

Congress has effected legislation concerning trademarks, (United States Trademark Act of July 5, 1946, as amended, namely 15 U.S.C. §§ 1115-8). It is the alleged violation of this act, also known as the Lanham Act, which is at the center of this dispute. Congress passed the Act realizing the importance of stimulating competition and of protecting consumers.

The ultimate inquiry in most actions for false designation of origin, as with actions for trademark infringement, is whether there exists a ‘likelihood that an appreciable number of ordinary prudent purchasers [will] be misled, or indeed simply confused, as to the source of the goods in question.’ Mushroom Makers, Inc. v. R.G. Barry Corp., 580 F.2d 44, 47, (2d Cir.1978), cert. denied, 439 U.S. 1116, 99 S.Ct. 1022, 59 L.Ed.2d 75 (1979). (footnote omitted).

Thompson Medical Co., Inc. v. Pfiezer, 753 F.2d 208 (2d Cir.1985).

Bonaventure undoubtedly has a right not to have its registered trademark used by another in such a way as to cause confusion in the consuming public’s minds or in a way which allows another to benefit from the registrant's goodwill of reputation. The relevant inquiry, then, is whether there is any likelihood that an appreciable number of prudent purchasers is likely to be misled or confused as to the source of defendant’s publication. John H. Harland Co. v. Clarke Checks, Inc., 711 F.2d 966 (11th Cir.1983); Continental Motors Corp. v. Continental Aviation Corp., 375 F.2d 857 (5th Cir.1967); See also, Universal City Studios, Inc. v. Nintendo Co., Ltd., 746 F.2d 112 (2d Cir.1984), and Restatement of Torts §§ 728, 729 (1938). Factors the Court considers in determining the likelihood of confusion are “the type of trademark, the similarity of the design, the similarity of the product, the identity of retail outlets and purchasers, the similarity of advertising media used, defendant’s intent, and actual confusion.” John H. Harland Co., 711 F.2d at 972, 973. (citations omitted).

Defendant’s Use of Plaintiff’s Registered Mark

A. Type of Trademark

Plaintiff must have acquired a strong mark (as opposed to a weak mark) — one which has a distinctive quality or has acquired a secondary meaning which is capable of dilution (in order to receive protection), Allied Maintenance Corp. v. Allied Mechanical Trades, Inc., 42 N.Y.2d 538, 545, 399 N.Y.S.2d 628, 369 N.E.2d 1162 (1977). Universal City Studios Inc., supra, 746 F.2d at 120. Plaintiff directs the Court’s attention to the fact that it recently prevailed in another trademark infringement case over the service mark “Bonaventure,” citing Bonaventure Associates v. Westin Hotel Co., 218 U.S.P.Q. 537 (T.T.A. B.1983). Other than alleging that the plaintiff has infringed the mark of another entity and attempting to argue that the term “Bonaventure” is descriptive of a geographic area, defendant does not dispute the strength of plaintiff’s mark.

The decision of the Trademark Trial and Appeal Board is dispositive of the validity and ownership of the mark “Bonaventure.” Defendant’s argument that plaintiff’s mark is descriptive of a geographic area is inapposite here. Only where a geographic area has an identifiable name, and then an entity attempts to adopt that geographic name as a service mark, will the mark be deemed weak. Continental Motors Corp., 375 F.2d at 861. Here, any association this geographic portion of unincorporated Broward County has with the name “Bonaventure” is a direct result of the actions of the plaintiff and its predecessors. There seems little doubt that the mark “Bonaventure” is a strong mark for the purposes of this case.

B. Similarity of Design

Plaintiff’s logo is pictured below.

Defendant has used plaintiff’s registered mark in the typeset and size shown below:

It was published above its own name on the masthead of its publication printed as shown below:

Plaintiff’s name also appeared on the obverse side of defendant’s publication above the space for the addressee’s name.

When viewed as a whole, taking into account appearance, sound, and meaning of the marks and the manner in which they are respectively used, the Court cannot say that the stylistic design used by the defendant is so similar to plaintiffs as to be confusing. John H. Harland Co., 711 F.2d at 975-6.

C. Similarity of the Products

The defendants distribute a publication which consists mainly of classified advertising directed at certain geographic areas. Plaintiff is engaged in the providing of real estate management and related land services, development and recreational facilities. However, plaintiff does publish a newsletter format item under its name “Bonaventure.” Even though both parties are involved in publishing, the Court does not find that the publications or other services provided by the respective parties are of the same type or are so similar as to cause confusion.

D. Identity of Retail Outlets and Purchasers

Since both plaintiffs and defendant’s publications are directed to appeal to the interests and needs of the persons and/or businesses located within plaintiff’s developments, the “customers” of each are virtually identical. This is true even though plaintiff’s publication might also be distributed to persons outside Broward County, or even the State of Florida or the United States.

E. The similarity of Advertising Media Used

Since the type of products offered by the parties is dissimilar, this factor of similarity of advertising media used is not applicable.

F. Defendant’s Intent

In a Trademark Infringement case, a defendant’s impermissible animus to benefit from another’s mark can be determinative of his incurring liability. Id. at 977. Other than plaintiff’s bare allegations, there is no evidence to support a finding that the defendant either intended to benefit from, or actually did benefit from, the use of plaintiff’s service mark in an impermissible way. From the materials before the Court, it seems plain that the defendant was using the term “Bonaventure” to aid its readers and advertisers by denoting that the publication’s contents was tailored to the readers in a particular geographical area. Such is a fair use of another’s mark. See, Sony Corporation of America v. Universal City Studios, 464 U.S. 417, 434, 104 S.Ct. 774, 784, 78 L.Ed.2d 574 (1984).

G. Actual Confusion

Plaintiff has not adduced any evidence from which the Court might find there was any actual confusion, even though this is not necessary for finding the likelihood of confusion. John H. Harland Co., 711. F.2d at 978 (citations omitted).

Title 15 U.S.C. § 1115(b)(4) states in pertinent part:

(b) If the right to use the registered mark has become incontestable under section 1065 of this title, the registration shall be conclusive evidence of the registrant’s exclusive right to use the registered mark in commerce on or in connection with the goods or services specified in the affidavit filed under the provisions of said section 1065 subject to any conditions or limitations stated therein except when one of the following defenses of defects is established: ...
(4) That the use of name, term, of device chargfed to be an infringement is a use, otherwise than as a trade or service mark, of the party’s individual name in his own business, or of the individual name in his own business, or of the individual name of anyone in privity with such party, or of a term or device which is .descriptive of and used fairly and in good faith only to describe to users the goods or services of such party, or their geographic origin; ... (emphasis added).

It seems plain to the Court that although defendant used plaintiff’s service mark, it was a use “otherwise than as a trade or service mark____used fairly and in good faith to describe to [advertisers and readers its] goods and services____” Id., not an attempt to “pass-off” its services to the public as plaintiff’s, or to exploit accumulated goodwill associated with the plaintiff’s name. This conclusion is further borne out by the fact that the information column on the second page of the defendant’s publication (pictured below) contains no reference at all to the plaintiff’s service mark.

Having reviewed the submissions of the parties, it is

ORDERED and ADJUDGED that plaintiff’s motion for judgment on the pleadings is denied; that defendant’s motion for summary judgment is granted; that plaintiff’s cross motion for summary judgment is denied. Further, costs will be assessed against plaintiff upon submission of the appropriate bill of costs to the Clerk of the Court. The Clerk of the Court is directed to enter final judgment against plaintiff in accord with the terms of this order. A bill of costs on the form obtainable from the Clerk of the Court shall be submitted by defendant within 15 days from the date of this order.


author: WARREN, District Judge.

text:
    AMERICAN CAN COMPANY, Plaintiff, v. Ishwar MANSUKHANI, d/b/a Brand Associates, and Ruth Brand, d/b/a Brand Associates, and Brand M, Inc., Defendants. Ishwar MANSUKHANI, Ruth Mansukhani a/k/a Ruth Brand, and Brand M, Inc., Plaintiffs, v. AMERICAN CAN COMPANY, and American Technologies, Inc., Defendants.
    Nos. 81-C-1372, 84-C-454.
    United States District Court, E.D. Wisconsin.
    Aug. 15, 1985.
    Andrew O. Riteris, Michael, Best & Friedrich, Milwaukee, Wis., for Mansukhanis.

      Bruce O’Neill, Fox, Carpenter, O’Neill & Shannon, Milwaukee, Wis., for American Technologies.
    George H. Solveson, Andrus, Sceales, Starke & Sawall, Milwaukee, Wis., Douglas W. Wyatt, Thomas A. O’Rourke, Wyatt, Gerber, Shoup, Scobey & Badie, and Robert J. Woolsey, Griggs, Baldwin & Baldwin, New York City, for American Can.
   DECISION AND ORDER

WARREN, District Judge.

Two matters remain unresolved in Case Number 81-C-1372. First, the plaintiff has filed what is entitled a “Renewed Motion for a Supplemental Injunction,” requesting that the Court permanently enjoin the defendants from manufacturing and selling jet inks numbered SK-2914 and SK-2916. Second, the defendants have filed a motion under Rule 65.1, Federal Rules of Civil Procedure, seeking $800,000.00 from Federal Insurance Company as damages allegedly incurred by the defendants due to the wrongful issuance of a temporary restraining order and preliminary injunction in the summer of 1983. The Court will grant the plaintiff’s request for the supplemental injunction and will hold defendants’ Rule 65.1 motion in abeyance pending an evidentiary hearing on that matter. In addition, the Court will lift the stay of discovery in Case Number 84-C-454.

The plaintiff’s motion for a supplemental injunction arises out of an ex parte temporary restraining order issued by the Court on July 26, 1983, and a preliminary injunction issued on August 16, 1983. The restraining order enjoined the defendants from selling

jet inks of any type, including defendants’ SK-2914 and SK-2916 jet inks, to any of plaintiff’s customers, previously serviced by Mansukhani when he was employed by plaintiff or its predecessors, including the customers Anheuser-Busch Company and Beverage Products, Inc.

Order of July 26, 1983. The preliminary injunction enjoined the defendants from selling jet inks numbered SK-2914 and SK-2916, and was coupled with a permanent injunction which enjoined the defendants

from selling those commercial jet inks developed while defendant Mansukhani was employed by plaintiff's predecessor to the companies or individuals for whom those inks were specifically developed, or to any other companies or individuals. The set of inks so enjoined from sale by defendants includes but is not limited to those numbered R-453, P-473, and BK-493.

Order of August 16, 1983, at 6. As security for the restraining order and preliminary injunction, the plaintiff posted two bonds totalling $800,000.00, for which Federal Insurance Company was the surety.

The defendants successfully appealed the orders granting the TRO and the preliminary injunction, and the matter was remanded to this Court for further proceedings. American Can Company v. Mansukhani, 742 F.2d 314, 333-334 (7th Cir. 1984). The Court of Appeals reversed the temporary restraining order because it found no valid reason for the issuance of ex parte relief and because it believed that the procedural requirements of Rule 65(b), Federal Rules of Civil Procedure, had not been complied with. Id. at 321. The Court of Appeals reversed the preliminary injunction order because this Court had applied the functional or practical similarity standard in comparing plaintiff’s protected trade secrets with defendants’ ink formulas. That standard was applied for the purpose of determining plaintiff’s likelihood of success on the merits. The Court of Appeals stated that the standard applied was incorrect because it expanded the original, narrow limits placed on the plaintiff’s trade secrets by prohibiting the manufacture and sale of jet inks that were “compositionally similar” to the plaintiff’s trade secrets instead of those that were “substantially derived” from the protected formulas. Id. at 326-327. The Court of Appeals also held that the use of the improper standard resulted in the issuance of a preliminary injunction which was too vague, and thus not in compliance with Rule 65(d). Id. at 326.

The Court of Appeals never addressed the merits of this case, such as whether defendants’ inks SK-2914 and SK-2916 violated plaintiff’s trade secrets. Nor did the Court of Appeals decide that injunctive relief could not have been obtained by the plaintiff; in fact, the Court specifically stated that it was not deciding “that the district court could never have enjoined defendants from producing and selling the inks challenged here.” Id. at 331. At the conclusion of its decision, the Court of Appeals ordered that the case be remanded to this Court for further proceedings, and that “any injunctive relief should be consistent with this opinion.” Id. at 334.

A problem which has recurred throughout the unfortunate history of this case has been the difficulty of fashioning injunctions which protect the plaintiff’s trade secrets without precluding the defendants from using their own expertise in combination with public information to produce new jet inks. While the need for requiring specific, detailed injunctions is not in doubt, it is equally clear that semantic differences can serve as grist for sophistic arguments that nothing but an injunction containing one or more particular terms will suffice as notice to a party of what he is constrained by law from doing. The chimerical nature of such an argument is particularly apparent in this case where the defendants surely know, in their own minds, whether they are developing new formulas or using the plaintiff’s trade secrets.

Presently, however, the Court is not being asked to enjoin any present or prospective conduct other than the defendants’ production and sale of jet inks numbered SK-2914 and SK-2916. In order to do so, the Court must find that these inks are substantially derived from plaintiff’s protected trade secrets. To that effect, the Court has requested and received further briefing from the parties on the question of derivation.

Based upon these briefs and the exhibits attached to them, as well as all of the other relevant documents on file in this case, the Court is convinced and hereby finds that the defendants’ jet inks numbered SK-2914 and SK-2916 were substantially derived from plaintiff’s protected trade formulas. In reaching this decision, the Court was particularly impressed by (1) the fact that the defendants were able to “develop” their inks in a few hours, as opposed to the years it took the plaintiff to research and test its formulas; (2) the testimony of plaintiff’s expert David Fell with respect to his analysis of defendants’ and plaintiff’s inks; (3) a comparison of the formulas and infrared spectra of plaintiff’s and defendants’ inks; and (4) plaintiff’s Exhibit 32, which shows in defendant Mansukhani’s own handwriting how he derived the formula for SK-2914 from plaintiff’s protected formula P-473. Based on this evidence, as well as other testimony heard and exhibits reviewed by the Court throughout the lengthy history of this case, the Court is convinced beyond a doubt that defendants’ jet inks numbered SK-2914 and SK-2916 were not the product of their own innovation, but were instead substantially derived from plaintiff's trade secrets.

Accordingly, the Court hereby permanently enjoins the defendants from producing and/or selling their jet inks numbered SK-2914 and SK-2916.

The Court will conduct a brief scheduling conference at 9:30 a.m. on Tuesday, October 1, 1985, in Room 390 of the Federal Building, 517 East Wisconsin Avenue, Milwaukee, Wisconsin, for the purpose of setting discovery deadlines and determining a date for a hearing on defendants’ Rule 65.1 motion.

In addition, since the only matter left pending in Case Number 81-C-1372 is the Rule 65.1 motion, the Court hereby lifts the stay of discovery it had imposed in Case Number 84-C-454. The scheduling conference referred to above will also serve as an opportunity to establish deadlines in that case.


author: CARL B. RUBIN, Chief Judge.

text:
    Irving ROGER, Plaintiff, v. LEHMAN BROTHERS KUHN LOEB, INC., Defendant.
    Civ. No. C-1-83-2012.
    United States District Court, S.D. Ohio, W.D.
    Aug. 21, 1985.

      James B. Helmer, Cincinnati, Ohio, for plaintiff.
    Charles Koob, Simpson Thacher & Bartlett, New York City, for defendant.
   ORDER

CARL B. RUBIN, Chief Judge.

This matter is before the Court on Plaintiff’s Motion for Partial Summary Judgment (doc. no. 48) and Defendant’s Cross Motion for Partial Summary Judgment (doc. no. 54) regarding Count III of the Amended Complaint (doc. no. 40).

These motions require a decision whether under Ohio’s Blue Sky Law, O.R.C. § 1707 et seq. (1985), certain securities were exempt from registration requirements and, if so, whether Plaintiff must tender back these securities to Defendant in order to entitle Plaintiff to the right of recission.

I. FACTS

The background facts in this matter are not disputed. In a series of transactions between September 26, 1980 and August 6, 1981 Defendant, Lehman Brothers Kuhn Loeb, Inc., (Lehman) sold Plaintiff, Irving Roger (Roger), 33,850 shares of Consolidated Cinola Mines, Ltd. (Cinola) from its own account. In a single transaction on October 20, 1980 Lehman, while acting as a participant in the underwriting group, sold Roger 3,000 shares of Brooks Fashion Stores, Inc. (Brooks). Neither the Cinola nor the Brooks shares were registered with the Ohio Division of Securities. However, in 1980 and 1981 Cinola was listed in Moody’s OTC Industrial Manual (Moody’s). The listings included inter alia, the names of Cinola’s officers and directors, and balance sheets for each of the preceding three years, but omitted any profit and loss statements for the company. Brooks was likewise listed in Moody’s in 1980 and 1981. Those listings included the names of Brooks’s officers and directors, current balance sheets and current profit and loss statements.

Both the Cinola stock and the Brooks stock were kept in a margin account that Roger maintained with Lehman. On January 28, 1981, as advised by Lehman, Roger directed that the 3,000 Brooks shares be sold from his account. Lehman itself purchased those shares, crediting Roger’s account with their value. On January 20, 1982 and on April 1, 1982 Lehman sold to itself all 33,850 shares of Cinola stock in Roger’s account to satisfy a margin call. Thus, Roger does not now own any Brooks or Cinola stock. At the present time Cinola is still a viable company, but Brooks has since been merged into another company and, therefore, has ceased to exist as a separate entity.

II. PARTIAL SUMMARY JUDGMENT

Roger contends that the sale of the Cinola and Brooks stock was not exempt from registration and that, therefore, Lehman violated O.R.C. § 1707.44 which prohibits the sale of unregistered nonexempt securities. Roger seeks rescission of these transactions pursuant to O.R.C. § 1707.43. In its Cross Motion for Partial Summary Judgment, Lehman contends that the transactions in Cinola and Brooks’ stock were exempt under the “securities manual exemption” provision, O.R.C. § 1707.-03(M)(3)(a). Furthermore, Lehman contends that Roger is not entitled to rescission under § 1707.43 because Roger no longer owns the Cinola or Brooks shares and cannot, therefore, tender them to the Defendant.

A. Cinola Shares

In his Motion for Partial Summary Judgment Roger contends that Lehman violated O.R.C. § 1707.44. O.R.C. § 1707.44 provides in part:

(C) No person shall knowingly and intentionally sell, cause to be sold, or offer for sale, any security which comes under any of the following descriptions:
(1) Is not exempt under section 1707.-02 of the Revised Code, nor the subject matter of one of the transactions exempted in sections 1707.03, 1707.04, and 1707.34 of the Revised Code, has not been registered by description, coordination, or qualification, and is not the subject matter of a transaction that has been registered by description.

While it is undisputed that the Cinola shares were not registered, exempt from registration under O.R.C. § 1707.02, nor subject to one of the transactional exemptions in O.R.C. §§ 1707.04 and 1707.34, Lehman claims that the sale of Cinola shares was exempt under O.R.C. § 1707.-03(M)(3)(a), the so-called “securities manual exemption”. Section 1707.03(M)(3)(a) provides:

(M) A sale by a licensed dealer, acting either as principal or as an agent, of securities issued and outstanding before such sale, is exempt, unless such sale is one or more of the following:
(3) Securities which within one year were purchased outside this state or within one year were transported into this state, where such dealer has knowledge, or reasonable cause to believe, before the sale of such securities, that within one year they were purchased outside this state or within one year were transported into this state; but such a sale of securities is exempt if any of the following occur:
(a) A recognized securities manual contains the names of the issuer’s officers and directors, a balance sheet of the issuer as of a date within eighteen months, and a profit and loss statement for either the fiscal year preceding that date or the most recent year of operations.

Lehman acknowledges that the transactions in Cinola stock fall under § 1707.-03(M)(3). Lehman is a licensed dealer which sold issued and outstanding Cinola stock from its own account to Roger. In addition, Cinola is a Canadian corporation and Lehman had reason to know that the shares had been purchased within one year outside Ohio, or within one year had been transferred into Ohio. Therefore, the sale of Cinola stock was not exempt unless it fell under part (a), the securities manual exemption.

As already indicated, Cinola was listed in a recognized securities manual (Moody’s) during the time in which the subject transactions took place. Section 1707.03(M)(3)(a) requires that a listing contain four specific items of information before a transaction in the issuer’s securities is exempted. The Cinola listings did contain the first three required items, (1) the names of Cinola’s officers, (2) the names of Cinola’s directors, and (3) balance sheets from the preceding three years were included in each listing. Lehman admits that the listings did not include the fourth item required, profit and loss statements.

Lehman contends that in 1980 and 1981 Cinola was a mining company in its developmental stages and had no operating profits which would form the basis for a profit and loss statement. Further, Lehman argues § 1707.03(M)(3)(a) should be construed to mean that if a company has not realized any income from any of its operations, then it has no current operations within the meaning of the statute and the statute must be read to call for a profit and loss statement for the most recent year of operations if any. Thus, according to Lehman, Cinola’s listing in Moody’s complies with the requirements of Ohio’s securities manual exemption. Alternatively, Lehman suggests that the information supplied in Cinola’s listing comports with the spirit of the manual exemption and provides potential investors with sufficient financial data to make an informed decision in Cinola’s stock.

The Court does not agree. O.R.C. § 1707.44(C)(1) prohibits the sale of unregistered non-exempt securities. The Supreme Court of Ohio has stated that the purpose behind § 1707.44(C)(1) “is to prevent those persons willing to market worthless or unnecessarily risky securities from soliciting the purchasing public without first subjecting themselves and their securities to reasonable licensing and registration requirements designed to protect the public from its own stupidity, gullibility and avariciousness.” Bronaugh v. R & E Dredging Co., 16 Ohio St.2d 35, 40, 242 N.E.2d 572, 576 (1968). Moreover, the Ohio Securities Division itself in an Interpretive Opinion has directed that “the literal language [of § 1707.03(M)(3)(a) ] should be applied here in requiring a balance sheet no less than eighteen months old and a profit and loss statement for either a fiscal year or the most recent year of operations.” CCH Blue Sky Law Reporter paragraph 45710, page 40608 (Ohio Securities Bulletin November, 1973) (emphasis supplied).

In light of the Ohio Supreme Court's pronouncement, we find that the securities manual exemption provisions of O.R.C. § 1707.03(M)(3)(a) must be read to afford the investor the greatest possible protection. A literal interpretation of the statute, as supported by the Ohio Securities Division, effectuates that purpose. Profit and loss statements must be included in the Moody’s listing for the transactions to fall within the securities manual exemption. It is not enough, as Lehman contends, to say that there were no operating profits and therefore no profit and loss statement was required. It is not immediately apparent from Moody’s listings that Cinola was in developmental stages only. That this information was available in the Annual Reports of Cinola is not relevant because the Annual Reports were not included in Moody’s.

The burden of proving entitlement to an exemption under the Ohio securities laws is on the party claiming that exemption. State v. Frost, 57 Ohio St.2d 121, 387 N.E.2d 235 (1979). Lehman has failed to meet that burden. Therefore, we hold that the sale of Cinola stock by Lehman to Roger was not exempt under § 1707.-03(M)(3)(a) and was sold in violation of § 1707.44(C)(1).

B. Brooks Stock

Lehman also claims an exemption under § 1707.03(M)(3)(a) for the sale of 3000 shares of Brooks to Roger. However, securities sold by a dealer participating in an underwriting group are not eligible for the securities manual exemption. O.R.C. § 1707.03(M)(1) provides:

(M) A sale by a licensed dealer, acting either as principal or as agent, of securities issued and outstanding before such sale, is exempt, unless such sale is one or more of the following:
(1) Securities constituting the whole or a part of an unsold allotment to or subscription by a dealer as an underwriter or other participant in the distribution of such securities by the issuer, whether such distribution is direct or through an underwriter, provided that where the issuer is such by reason of owning one-fourth or more of such securities, such dealer has knowledge of such fact or reasonable cause to believe such fact.

(Emphasis added.)

Because Lehman acted as an underwriter for Brooks shares, (Plaintiff’s Exhibit II), the transaction between Lehman and Roger falls under part (1) of the statute and Lehman is precluded from claiming an exemption under any part of § 1707.03(M). See CCH Blue Sky Law Reporter paragraph 45710 page 40608 (Ohio Securities Bulletin November, 1973) (noting that if any of the circumstances described in parts (1), (2) and (3) exist, an exemption under (M) does not exist).

Therefore, because Lehman has failed to establish the availability of an exemption under O.R.C. § 1707.44(C)(1), the sale to Roger of 3000 shares of Brooks was executed in violation of O.R.C. § 1707.44(C)(1).

C. The Remedy

Ohio law provides that the purchaser of unregistered securities sold in violation of § 1707.44(C)(1) may rescind the sale and recover the purchase price. O.R.C. § 1707.43; Mazza v. Kozel, 591 F.Supp. 432 (N.D.Ohio 1984); Bronough v. R & E Dredging, supra. Section 1707.43 provides in relevant part:

Every sale or contract for sale made in violation of Chapter 1707 of the Revised Code, is voidable at the election of the purchaser. The person making such sale or contract for sale, and every person who has participated in or aids the seller in any way in making such sale or contract for sale, are jointly and severally liable to such purchaser, in an action at law in any court of competent jurisdiction, upon tender to the seller in person or in open court of the securities sold or of the contract made, for the full amount paid by such purchaser and for all taxable court costs, unless the court determines that the violation did not materially affect the protection contemplated by the violated provision.

To recover under § 1707.43, Plaintiff must establish that there has been a sale of a security in violation of the securities chapter, and that the violation materially affects the protection contemplated by the violated provision. Mazza v. Kozel, supra at 435; Martin v. Steubner, 485 F.Supp. 88, 97 (S.D.Ohio 1979), aff'd 652 F.2d 652 (6th Cir.), cert. den. 454 U.S. 1148, 102 S.Ct. 1013, 71 L.Ed.2d 302 (1981).

As has already been established, Lehman sold Roger shares of Cinola and Brooks in violation of § 1707.44(C)(1). The Ohio Supreme Court has held that failure to comply with O.R.C. § 1707.44(C)(1) materially affects the protection contemplated by that provision and entitles a purchaser of unregistered securities to the relief provided under O.R.C. § 1707.43. Pencheff v. Adams, 5 Ohio St.3d 153, 449 N.E.2d 1277 (1983); Bronough v. R & E Dredging, supra. Consequently, the transactions involving the sale of Cinola and Brooks stock to Roger are voidable at Roger’s election. O.R.C. § 1707.43.

Lehman contends that Roger is precluded from obtaining relief under § 1707.43 because he is unable to tender the Cinola and Brooks shares to Lehman as called for in the statute. As already noted, Roger no longer owns the Cinola or Brooks stock because Lehman bought these shares back from Roger prior to this action. Moreover, since Brooks no longer exists as a separate entity, Roger is precluded from purchasing substitute shares in order to meet the tender provision.

Absent a definitive ruling by the state high court on a specific question of state law, a federal district court applying state law must exercise the court’s best judgment as to how the state high court would hold if confronted with the facts in question. Bagwell v. Canal Insurance Co., 663 F.2d 710 (6th Cir.1981).

The Ohio Supreme Court has not yet addressed the specific issue of whether tender is required under § 1707.43 where the purchaser no longer owns the securities in question, having resold them to the seller prior to suit. However, the Ohio Supreme Court has consistently held in favor of the investor to promote the remedial intent behind Chapter 1707. See, e.g., Bronough v. R & E Dredging Co., supra. “Any contrary determination would undermine the most fundamental purpose of the statute — protection of the public from the sale of unregistered securities.” Pencheff v. Adams, supra, 5 Ohio St.3d at 154, 449 N.E.2d at 1278.

“The [Ohio] Securities Act is remedial in nature and should be interpreted to provide the protection it is intended to give.” Miller v. Griffith, 196 N.E.2d 154, 156 (Colum. Cty.Common Pleas 1961). O.R.C. § 1707.-43 has been interpreted to protect both the buyer and the seller — by permitting “the purchaser to rescind the transaction, it puts the parties in the position they were in before the contract was entered into. Martin v. Steubner, supra at 101 (emphasis added). An Ohio appeals court in Crane v. Courtright, 2 Ohio App.2d 125, 206 N.E.2d 913 (1964), ruling in favor of the investor, refused to require tender to the individual seller as a condition precedent to suit, but instead, accepted tender in open court. In so holding, the Crane court recognized: “the purpose of tender before suit is to insure restitution to the defendant. It is merely one means of affording such protection to the defendant.” Id. at 128, 206 N.E.2d at 915 (emphasis added).

Lehman argues that the Crane decision requires a tender, in any event, of the original shares. Since the plaintiff in Crane still possessed the original shares, the issue of tender in the event that the original shares were unavailable was not addressed. It is significant, however, that the Crane court construed the statute liberally to rule in favor of the injured invester. Id. Further, though § 1707.43 is not punitive in nature, Martin, supra at 101, it is meant to create “an additional strong incentive for securities sellers to comply with the registration laws.” Bell v. Le-Ge, Inc., Slip Opinion No. 48497 January 24, 1985 (8th Dist.Ohio Ct.App.).

Consistent with the purposes of § 1707.43 stated in Martin, Crane, and Bell, we hold that formal tender of the Ciñóla and Brooks shares at this time is not a prerequisite to rescission under § 1707.-43. The parties can be restored to the positions they were in before the transactions took place by other means. Lehman has already received the securities back from Roger and has paid Roger the value of the shares at the time it repurchased them. All that remains to effectuate the purpose of the statute is for Lehman to pay Roger the difference between the original sale price of the stock paid by Roger to Lehman, and the price for which Lehman subsequently repurchased the stock from Roger.

D. Procedural Defects

Lehman also contends that Roger has waived his claims with respect to the trades in Brooks stock by virtue of a statement made by Plaintiffs counsel at a deposition of Roger. (See Defendant’s Exhibit 3). Lehman claims that Roger’s counsel limited the complaint by stipulation to shares of E.R.G., Ciñóla, and Pharmacare.

This objection is not well-taken for several reasons. First, the subject deposition was taken before Roger was aware of violations in the Brooks transaction; second, Roger subsequently amended his complaint and provided supplemental answers to Lehman’s interrogatories indicating that it also considered the sale of Brooks shares to be in violation of Ohio’s Blue Sky Laws; third, Counsel’s response in the deposition was specifically limited in time; and fourth, Lehman has not been prejudiced in its ability to prepare its case in respect to the Brooks claims. Lehman has had ample time to conduct discovery on these claims. The purpose of Rule 15, Fed.R.Civ.P. for amended and supplemental pleadings is to provide maximum opportunity for each claim to be decided on its merits rather than on procedural technicalities. McHenry v. Ford Motor Co., 269 F.2d 18 (6th Cir.1959). Therefore, the Court holds that Roger has not waived his right to pursue his claims regarding transactions in Brooks stock.

III. CONCLUSION

For the reasons stated above, Defendant Lehman’s sale of 3000 shares of Brooks and 33,850 shares of Cinola to Roger violated O.R.C. § 1707.44(C)(1). Because of this violation, Roger is entitled to rescind these transactions and be restored to his original position. To accomplish this purpose formal tender of the subject shares is not necessary. Lehman is directed to pay Roger the difference between the original price of the stock bought by Roger and the price for which Lehman subsequently repurchased the shares.

In addition, the procedural objection asserted by Lehman is not well taken and Roger is not barred from pursuing his claims regarding the transactions in Brooks stock.

IT IS SO ORDERED.


author: DOWD, District Judge.

text:
    FAIRWAY DEVELOPMENT COMPANY, Plaintiff, v. TITLE INSURANCE COMPANY OF MINNESOTA, Defendant.
    No. C84-2570A.
    United States District Court, N.D. Ohio, E.D.
    Aug. 26, 1985.
    Lee Rosenthal, Wm. J. Ross, Canton, Ohio, for plaintiff.
    Frederick M. Lombardi and James D. Kraus, Buckingham, Doolittle & Burroughs, Akron, Ohio, for defendant.
   MEMORANDUM OPINION

DOWD, District Judge.

Before the Court are the motions of the plaintiff, Fairway Development Company, and the defendant, Title Insurance Company of Minnesota, for summary judgment. Both parties have filed memoranda in opposition to the opposing party’s motion. The Court heard the oral arguments of counsel on both motions on July 29, 1985. For the reasons which follow, the motion of the plaintiff is denied and the motion of the defendant is granted.

Plaintiff filed this action against the defendant alleging breach of contract under a title guarantee insurance policy. Plaintiff avers that under that policy, “defendant agreed to insure plaintiff against any loss sustained by it by reason of any defects, liens or encumbrances in the title of the insured to [the real property in question].” Plaintiff avers that defendant failed to reference on the exception sheet to the title policy issued by the defendant an easement granted in favor of The East Ohio Gas Company for the purpose of maintaining a gas line over the property in question. Plaintiff claims that the easement “is a defect and encumbrance in plaintiff’s title to the Property.” Plaintiff avers that it gave notice to the defendant of the existence of the defect and encumbrance in the title to the property, and made a demand upon the defendant for payment of damages which it sustained as a result thereof. Plaintiff avers that defendant failed to pay plaintiff for losses sustained as a result of the defendant’s material breach of the contract in question, and that defendant’s “breaches and failure to pay ... were done in bad faith, with malice and in reckless disregard with the terms of the insurance policy,” Plaintiff seeks compensatory and punitive damages, plus interest, costs, and any other relief the Court deems proper.

Defendant has filed an answer in response to plaintiff’s complaint, admitting that it issued the title guarantee in question and that it received a letter from plaintiff’s counsel regarding the alleged existence of a high pressure East Ohio gas line. Defendant denies the remainder of plaintiff’s allegations. The defendant further avers as follows:

(1) The Plaintiff’s Complaint fails to state a claim upon which relief can be granted.
(2) Plaintiff has waived its claims against the Defendant.
(3) Plaintiff was negligent which negligence [sic] proximately caused or contributed to its alleged damage.
(4) Plaintiff assumed the risk of the damages alleged in its Complaint.
(5) Plaintiff is guilty of laches and is estopped from bringing the within action against the Defendant.
(6) Plaintiff’s claims are barred by virtue of the applicable statute of limitations.

The Court addresses the defendant’s motion before the plaintiff’s motion, since the defendant’s motion raises issues which precede a substantive analysis of plaintiff’s breach of contract claim, the primary issue addressed in the plaintiff’s motion.

Defendant seeks summary judgment on plaintiff’s complaint on two grounds. First, defendant asserts that it is liable under the title guaranty policy in question only to the named party guaranteed. Defendant asserts that it originally guaranteed a general partnership, which it refers to as Fairway Development I, consisting of three partners: Thomas M. Bernabei, James V. Serra, Jr., and Howard J. Wenger. Defendant states that each of these three men contributed to the partnership’s capital and shared in the partnership’s profits and losses equally. Defendant argues that Fairway Development I commenced on October 15, 1979 and terminated on May 20, 1981, when two partners in Fairway Development I, Bernabei and Serra, sold and transferred their respective undivided one-third interests in the partnership to the remaining partner, Wenger, and a third-party purchaser, James E. Valentine. Defendant argues that a new partnership resulted from this sale, called Fairway Development II. Defendant concludes that it cannot be held liable to the plaintiff since it is not in privity with the plaintiff as the named party guaranteed. Defendant argues that the named party guaranteed was Fairway Development I, a partnership which dissolved in 1981 upon formation of Fairway Development II, and that its liability does not extend to Fairway Development II.

Stating the second basis for its motion, defendant argues that if the Court finds that the plaintiff is the party guaranteed under the contract, that plaintiff’s failure to timely notify the defendant of a claim or defect bars it from recovering. Defendant further argues that if plaintiff is permitted to recover at all, its recovery should be limited to the face amount of the title guarantee, $382,900, and that plaintiff should be precluded from recovering punitive damages since plaintiff has not demonstrated that defendant acted with actual malice.

In response to defendant’s argument that the plaintiff is not the party guaranteed under the title guaranty issued by the defendant, the plaintiff argues that under Ohio Rev.Code § 1775.26(A), the transfer of Bernabei and Serra of their partnership interests was not in itself sufficient to dissolve the partnership. Plaintiff states that in the instant case, the facts are clear that there was an intent between the partners of what defendant calls Fairway Development I and II to continue the operation of the Fairway Development Company following the sale by Bernabei and Serra of their interests to Wenger and Valentine without dissolving the partnership. Plaintiff states that in deciding this case, the Court’s focus should be upon the intent of the parties. Lastly, plaintiff argues that Fairway Development II has continued to carry on the stated purpose of Fairway Development I, which is really just an expansion of the purpose set forth in the partnership agreement for Fairway Development I, the acquisition and development of real estate.

As to the question of timely notice, plaintiff argues that it gave notice to the defendant and commenced suit within one year from the date it discovered the easement in question.

Discussion and Law

It is a fundamental principle of law that any change in the personnel of a partnership will result in its dissolution. See Commissioner v. Shapiro, 125 F.2d. 532, 535 (6th Cir.1942). The Court must thus determine whether the general rule has been modified by statute.

The resolution of this case is governed by the law of the forum state, Ohio. Ohio has adopted the Uniform Partnership Law, modeled after the Uniform Partnership Act enacted by the National Conference of Commissioners on Uniform State Laws in 1914. Ohio follows the common law aggregate theory of partnership, under which a partnership is regarded as the sum of the persons who comprise the partnership, versus the legal entity theory of partnership, under which the corporation, like a partnership, is regarded as an entity in itself. See Battista v. Lebanon Trotting Assoc., 538 F.2d 111 (6th Cir.1976); Smith v. Pinkerton, 2 O.L.A. 618 (1st Dist.1924); McMillen v. Industrial Commission, 13 Ohio App. 310 (7th Dist.1920). See also E.I. Du Pont De Nemours Powder Co. v. Jones Bros., 200 F. 638, 641 (S.D.Ohio 1912), citing Byers v. Schlupe, 51 Ohio St. 300, 314, 38 N.E. 117 (1894); Church Budget Envelope Co. v. Budget Press, 2 Ohio Op.2d 158, 136 N.E.2d 101 (10th Dist.1955). Three sections of the Ohio Uniform Partnership Law are particularly applicable to this case, and are set forth in relevant part, as follows:

§ 1775.26 Effect of conveyance of interest of a partner.
(A) A conveyance by a partner of his interest in the partnership does not of itself dissolve the partnership, nor,' as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in accordance with his contract the profits to which the assigning partner would otherwise be entitled.
(B) In case of a dissolution of the partnership, the assignee is entitled to receive his assignor’s interest and may require an account from the date only of the last account agreed to by all the partners.
§ 1777.03 New certificate on change in membership.
On every change of the members of a partnership transacting business in this state under a fictitious name or under a designation that does not show the names of the persons interested as partners in the business, except in the case of ... a domestic or foreign limited partnership that is formed under or subject to Chapter 1782. of the Revised Code, a new certificate shall be filed for record with the county recorder as required by section 1777.02 of the Revised Code on the formation of such partnership; but ... [i]n the case of a domestic or foreign limited partnership, it is sufficient if an amendment to the certificate or application specified in section 1777.02 of the Revised Code is filed only when there is a change in the name of one or more of the general partners of such a limited partnership.
§ 1775.28 Dissolution distinguished from winding up of affairs.
The dissolution of a partnership is the change in the relation of the partners caused by any partner’s ceasing to be associated in the carrying on as distinguished from the winding up of the business.

There is a dearth of case law to assist the Court in applying these sections of the Ohio Uniform Partnership Law to the case at bar. The Court’s review of the applicable statutory law supports a finding that the common law rule that “a dissolution occurs and a new partnership is formed whenever a partner retires or a new partner is admitted,” see Shunk v. Shunk Manufacturing Co., 86 Ohio App. 467, 476, 93 N.E.2d 321 (3rd Dist.1949), citing Snyder Manufacturing Co. v Snyder, 54 Ohio St. 86, 43 N.E. 325 (1896), survives the enactment of the Ohio Uniform Partnership Law.

Under Ohio Rev.Code § 1777.03, where members of a general partnership change, the partnership must file a new certificate of partnership, unlike a limited partnership, which simply may amend its certificate of partnership. The fact that the Uniform Partnership Law makes this distinction supports a finding that the authors of the Uniform Partnership Act recognized that a change of the members of a general partnership in fact changes the original partnership and creates a new partnership requiring a new certificate, as opposed to an amendment to the original certificate.

Likewise, Ohio Rev.Code § 1775.28 provides that any change in the relation of the partners will dissolve a partnership. Under Ohio Rev.Code §§ 1775.30, the bankruptcy, expulsion, or death of a partner causes the dissolution of a partnership. Also, under Ohio Rev.Code § 1775.31, a court may decree a dissolution of a partnership when a partner is declared a lunatic in a judicial proceeding, shown to be of unsound mind, or in any other way becomes incapable of performing his part of the partnership contract. Further, the terms of Uniform Partnership Act § 41(1), which is mirrored by Ohio Rev.Code § 1775.40(A), provide that:

When any new partner is admitted into an existing partnership, or when any partner retires and assigns ... his rights in partnership property to two or more of the partners, or to one or more of the partners, and one or more third persons, if the business is continued with liquidation of the partnership affairs, creditors of the first or dissolved partnership are also creditors of the partnership so continuing the business.

This section seems to assume that a dissolution occurs upon the admission of a new partner or the retirement of an old partner. The official comment to § 41(1) notes that: “It is universally admitted that any change in membership dissolves a partnership, and creates a new partnership. This section, as drafted, does not alter that rule.”

These sections above discussed all support an application of the common law rule articulated in Shunk, and a finding that when Fairway Development II was formed, Fairway Development I dissolved, and a new partnership was formed. Defendant, however, argues that the language of Ohio Rev.Code § 1775.26(A) cannot be reconciled with this analysis.

The terms of Ohio Rev.Code § 1775.26 permit a partner to assign his interest to another and allow the assignee to receive the assigning partner’s interest in the partnership upon dissolution, but limit the assignee from taking part in the management of partnership affairs. However, under Ohio Rev.Code § 1775.23, a partner’s property rights consist of “his rights in specific partnership property, his interest in the partnership, and his right to participate in the management.” A “partner’s interest” is defined in Ohio Rev.Code § 1775.25 as “his share of the profits and surplus, and the same is personal property.” A partner’s interest is thus a subset of a partner’s entire partnership rights.

Ohio Rev.Code § 1775.26 mirrors § 27 of the Uniform Partnership Act. The official comment to Section 27 of the Uniform Partnership Act points to early case law stating:

These authorities on the whole state that the mere assignment dissolves the partnership. Many such assignments, however, are merely by way of collateral security for a loan, the assigning partner in no wise intending to end the partnership relation. If he neglects his personal relation, the other partners may dissolve the partnership under section 31 of this act. But the mere fact of assignment without more should not be said in all cases to be an act of dissolution. The change in the existing law follows a similar change of the English law embodied in section 31 of the English Partnership Act.

[Emphasis added.]

These sections indicate that the provision of Ohio Rev.Code § 1775.26 that a partner may convey his interest without dissolving the partnership enables a partner to transfer some, and not all, of his partnership rights without transferring management rights and without dissolving the partnership. See In re Decker, 295 F.Supp. 501 (Dist.Va.1969), aff'd sub nom. B.B. Woodson v. Gilmer, 420 F.2d 378 (4th Cir.1970), cert. denied, 399 U.S. 928, 90 S.Ct. 2244, 26 L.Ed.2d 795 (1970). Ohio Rev.Code § 1775.26 is thus not dispositive of the instant case where not one but two partners have transferred not just their interest in the partnership, i.e., their respective shares of profits and surplus, but their entire respective bundles of partnership rights. See Agreement of Sale (buyers agree to purchase “all right, title and interest” of the sellers). The Court’s conclusion accords with the aggregate theory of partnership, which, applied to this case, recognizes Fairway Development I not as an entity in itself, but as a partnership made up of three members, Bernabei, Serra, and Wenger. That partnership ceased when the membership of the partnership changed.

Plaintiff’s argument that Ohio Rev.Code § 1775.26 should be given a contrary interpretation and lead the Court to conclude that the partnership herein referred to as Fairway Development II was merely a continuation of the partnership herein referred to as Fairway Development I, and not a new and separate partnership, would require an interpretation of § 1777.03 in isolation from the rest of Ohio’s Uniform Partnership Law. Such an interpretation is contrary to law. The provisions of the Uniform Partnership Act are to be construed as a whole. See In re Decker, supra.

The Court finds that the law as applicable to the facts of this case supports a finding that the named party guaranteed in the contract in question is not the plaintiff, and that the plaintiff is a new partnership which followed the termination of Fairway Development I. The fact that Fairway Development II filed an amended partnership certificate upon the transfer by Bernabei and Serra of their rights, title, and interest in Fairway Development I to Wenger and Valentine, instead of a new partnership certificate as required by law, is insignificant. Plaintiff concedes that when Fairway Development II was formed, a new partnership agreement was required under the terms of Ohio Rev.Code § 1777.03. Plaintiff states that the fact that it filed an amended partnership certificate, notwithstanding the fact that it is not in compliance with law, indicates its intent to continue the original Fairway Development partnership. However, in the section entitled “Recital” of the partnership agreement between Wenger and Valentine, the partners of Fairway Development Company recognize that they are forming and creating a new general partnership, versus continuing Fairway Development I. In Article 3 of the same agreement, under the section entitled “Term”, Valentine and Wenger address the commencement of the partnership, and state that it “shall commence upon the execution of this Agreement (emphasis).” Further, the terms of the partnership agreement broadened and changed the terms of the original agreement. See e.g., Article 2, “Purpose of the Partnership”, Article 8, “Management of Partnership Affairs”, Article 9, “Restrictions on Transfers”, and Article 10, “Default”. Also, both partnership agreements provide that the partners are to own the partnership in equal shares, although an equal division of the partnership interests of Bernabei and Serra between Wenger and Valentine under the agreement of sale would have left Wenger owning a two-thirds interest in the partnership, and Valentine owning a one-third interest in the partnership.

Additionally the Court notes, as an aside, that Fairway Development II filed income tax returns for the years of 1981, 1982, and 1983 in the name of Fairway Development II.

The Court finds it unnecessary to address the defendant’s argument as to lack of notice when, for the reasons above stated, the Court finds that the provisions of the Ohio Uniform Partnership Law, together with the facts of this case, indicate that when Serra and Bernabei transferred their interests to Wenger and Valentine, the partnership known as Fairway Development I dissolved, and the partnership known as Fairway Development II, consisting of members Valentine and Wenger, was formed. Fairway Development I, being a separate entity from Fairway Development II, the current plaintiff, the Court holds that the terms of the title guaranty extended only to the named party guaranteed, that party being Fairway Development I, and that Fairway Development II therefore has no standing to sue the defendant for breach of the contract in question. Defendant’s motion for summary judgment is therefore granted.

The plaintiff has filed a motion for summary judgment on grounds that no genuine issues of material fact remain for trial as to the defendant’s breach of contract of title insurance which it allegedly entered into with the plaintiff herein. The Court having reviewed the plaintiff’s motion, and finding it to be subsumed within the Court's disposition of the defendant’s motion for summary judgment, the plaintiff’s motion for summary judgment is hereby denied.

IT IS SO ORDERED.