Wake Forest Law Review

By Ali Fenno

On February 21, 2017, the Fourth Circuit issued a published opinion in the civil case of vonRosenberg v. Lawrence. In vonRosenberg, the Fourth Circuit addressed whether the district court abused its discretion by staying a federal proceeding until the conclusion of a similar state action involving different parties and claims. After examining the abstention standard from Colorado River Water Conservation District v. United States, the Fourth Circuit vacated the abstention order and remanded the case back to the district court, holding that the district court abused its discretion by abstaining in favor of state court proceedings that were not parallel to the federal court proceedings.

Facts

Both this federal proceeding and the related state proceeding concerned whether the Diocese of South Carolina (the “Diocese”) dissociated itself from the Protestant Episcopal Church in the United States (the “Episcopal Church”). Bishop vonRosenberg, the federal plaintiff-appellant, claims that the Episcopal Church appointed him as Bishop of the Diocese after removing Bishop Lawrence, the federal defendant-appellee, from the position. But Bishop Lawrence contends that the Episcopal Church could not have removed him because the Diocese of South Carolina had dissociated from the Episcopal Church and acted independently of the organization. Thus, each party claimed to be the Bishop of the Episcopal Church in South Carolina.

State Claim

Litigation over the dissociation matter first began when the Diocese filed suit against the Episcopal Church in a South Carolina state court, claiming that the Diocese had dissociated from the Episcopal Church and sought “resolution of their real and personal property rights.” The Episcopal Church then counterclaimed for trademark infringement and dilution under the Lanham Act. It also requested that Bishop Lawrence and others be added as counterclaim defendants, but the state trial court denied the request in September 2013.

The state court issued its final order on February 3, 2015. It held that the Diocese had validly dissociated from the Episcopal Church and owned the property at issue, and permanently enjoined the Episcopal Church from using the Diocese’s marks. The Episcopal Church appealed, and the South Carolina Supreme Court heard oral arguments on September 23, 2013. No opinion from the state supreme court has yet been issued.

Federal Claim

Bishop vonRosenberg filed this federal action on March, 13, 2013, seeking declaratory-injunctive relief against Bishop Lawrence. He claimed that Bishop Lawrence violated the Lanham Act by falsely advertising himself as the Bishop of the Diocese. But the district court abstained the proceeding in favor of the state court proceedings in August 2013. The court reasoned that it had broad authority to decline jurisdiction on cases seeking declaratory relief. On appeal, the Fourth Circuit vacated the abstention order on the grounds that the district court had applied the wrong abstention standard; the district court should have applied the standard for actions involving both declaratory and non-declaratory relief from Colorado River Water Conservation District v. United States. The Fourth Circuit remanded the case so this correct standard could be applied.

On remand, the district court again abstained in favor of the state proceedings, and Bishop vonRosenberg appealed.

Failure to Meet the “Exceptional Circumstances” Abstention Standard

The Fourth Circuit began its analysis by establishing that Colorado River is a narrow standard; it requires that abstention of jurisdiction be justified by “exceptional circumstances.” The Fourth Circuit identified the first step in this “exceptional circumstances” test to be a determination of whether the state and federal cases are parallel. It listed three guiding principles for this determination: (1) the federal and state parties should have more in common than merely the litigation of substantially similar issues; (2) the parties themselves should be nearly identical; and (3) despite overlapping of facts, there must not be serious doubt that the state action would not resolve all the claims. The Fourth Circuit then noted that even if the if the factual circumstances are sufficiently parallel, Colorado River requires that a handful of procedural factors be balanced before abstaining.

In applying these principles to this case, the Court first observed that the parties in the two cases are not the same. Neither Bishop Lawrence nor Bishop vonRosenberg were parties to the state action. Furthermore, the two courts were not litigating the same claims. The state court looked only at the Episcopal Church’s false advertising claim, not that of Bishop vonRosenberg. Thus, because the state and federal cases involved different parties and different claims, the cases were not parallel as required by Colorado River‘s “exceptional circumstances” standard.

Conclusion

The Fourth Circuit concluded that the state and federal proceedings failed to meet Colorado River’s “exceptional circumstances” standard because, as they involved different parties and different claims, they could not be considered parallel cases. Accordingly, it vacated the abstention order and remanded the case back to the district court.

9-11-14 Letter to Southeast Toyota Finance

By Sarah Walton

On June 18, 2015, the Fourth Circuit issued a published opinion in the civil case of Design Resources, Inc. v. Leather Industries of America. The court held that Defendants’ statements about leather products were not false or misleading descriptions of fact, and therefore did not meet the standard for false advertising.

Origins of the Dispute

Plaintiff Design Resources, Inc. (“DRI”) produces furniture coverings and sells them to furniture manufacturers. DRI created a product known as “NextLeather®” (“NextLeather”), which consisted of 61% polyurethane, 22% poly/cotton, and 17% leather. DRI subsequently reached out to Dr. Nicholas Cory (“Cory”), a leather chemist and director of a laboratory owned by Leather Industries of America (“LIA”). DRI sought Cory’s opinion on whether it could market its product as “leather.” Cory told DRI that its product could not be marketed as leather, but suggested that it could market the product as “bonded leather” instead. DRI adopted Cory’s suggestion and marketed its product as bonded leather. In anticipation of the Spring High Point Furniture Market, DRI sold samples of NextLeather to various furniture manufacturers. A few weeks before the High Point event, Ashley Furniture (“Ashley”) ran an advertisement (“Ashley Advertisement”) in a trade magazine that read, “Is It REALLY LEATHER? … Some upholstery suppliers are using leather scraps that are mis-represented as leather …. Know What You Are Buying[.]” Several months later, Cory was quoted in two articles (“Cory’s Statements”), published one week apart, in which he stated that (1) referring to bonded leather products as “leather” was an outright deception, and (2) bonded leather products had the potential to confuse customers because the term did “not represent [the product’s] true nature.”

The District Court Grants Summary Judgment for Cory and Ashley

In February 2010, DRI filed a complaint against LIA, Cory, Ashley, and Todd Wanek, Ashley’s president, asserting false advertising claims under the Lanham Act and violations of North Carolina and Washington law. DRI moved for partial summary judgment and Ashley and LIA filed cross-motions for summary judgment. The district court granted Defendants’ motions and reasoned that (1) the Ashley Advertisement and Cory’s first statement were true, and (2) Cory’s second statement was an opinion, rather than a description of fact.

The Lanham Act

A plaintiff who alleges a violation of the Lanham Act must prove that (1) the defendant made a false or misleading description of fact; (2) the misrepresentation was material; (3) the misrepresentation actually deceived or had the potential to deceive; (4) the defendant placed the false statement into interstate commerce; and (5) the plaintiff was injured or is likely to be injured as a result of the misrepresentation.

DRI Failed to Prove that Defendants’ Descriptions Were False or Misleading Descriptions of Fact

The Fourth Circuit focused on the false or misleading element. For the Ashley Advertisement, the court reasoned that DRI could not prove that it was false or misleading because the advertisement only targeted products wrongly marketed as leather. As a result, the court concluded that customers would not be able to make inferences about DRI’s product because it was properly marketed as bonded leather.

For Cory’s Statements, the Fourth Circuit reasoned that Cory’s first statement was true because referring to bonded leather products as “leather” was misleading. The Fourth Circuit also concluded that Cory’s second statement about the confusing nature of the term “bonded leather” was not a fact, but rather an opinion. The court reasoned that Cory hypothesized that “bonded leather” could potentially confuse customers, but his hypothesis had no basis in fact. As a result, the court held that DRI could not succeed on the first element of the Lanham Act.

The Fourth Circuit Affirms the District Court’s Grant of Summary Judgment

Because DRI could not prove that the advertisements and statements at issue were false or misleading descriptions of fact, the court concluded that DRI could not succeed on its false advertising claim. Accordingly, the Fourth Circuit affirmed the district court’s grant of summary judgment to Cory and Ashley.