Beauty Time Inc v. VU Skin Sys Inc ( 1997 )

Opinions of the United
1997 Decisions States Court of Appeals
for the Third Circuit
7-3-1997
Beauty Time Inc v. VU Skin Sys Inc
Precedential or Non-Precedential:
Docket 96-3572
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1997
Recommended Citation
"Beauty Time Inc v. VU Skin Sys Inc" (1997). 1997 Decisions. Paper 146.
http://digitalcommons.law.villanova.edu/thirdcircuit_1997/146
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 1997 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
Filed July 3, 1997
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 96-3572
BEAUTY TIME, INC.; BEAUTY MAKERS, INC.;
& R. RICHARD RISO,
Appellants,
v.
VU SKIN SYSTEMS, INC.; BJV; DPM SKIN SYSTEMS,
INC.; & MARION M. VUJEVICH,
Appellees.
An Appeal from the United States District Court
for the Western District of Pennsylvania
D.C. Civ. No. 95-1176
Argued April 17, 1997
Before: GREENBERG, ALITO and ROSENN, Circuit Judges.
Opinion Filed July 3, 1997
Kenneth P. McKay (argued)
Law Offices of K. Patrick McKay
3755 Library Road
Pittsburgh, PA 15234-2266
Counsel for Appellants
Daniel P. McDyer (argued)
Anstandig, McDyer, Burdette &
Yurcon, P.C.
600 Gulf Tower, 707 Grant Street
Pittsburgh, PA 15219
Counsel for Appellees
OPINION OF THE COURT
Rosenn, Circuit Judge.
This appeal primarily presents a novel question in this
Circuit concerning the constructive notice provisions of the
Lanham Act, 15 U.S.C. § 1058, the application of a statute
of limitations borrowed from the state of Pennsylvania, and
the tolling principles of that state. The United States
District Court for the Western District of Pennsylvania
dismissed the action for fraudulent re-registration of a
trademark as time barred, and the remainder of the
complaint for lack of standing, failure to state a claim, and
pendant jurisdiction. The plaintiffs timely appealed. We
affirm in part and vacate in part.
I.
In 1981, Marion J. Vujevich filed an application for the
registration of the trademark "DPM" with the United States
Patent and Trademark Office ("PTO") for use in interstate
commerce of medicated and non-medicated cosmetics. In
1983, Vujevich obtained the registration of the trademark
and listing as the sole user of the trademark. Vujevich and
BJV, a limited partnership in which Vujevich participated,
used this trademark exclusively until 1987.
In 1987, Vujevich allegedly agreed to form a corporation
with R. Richard Riso to manufacture and distribute
products bearing the DPM trademark. This new
corporation, Beauty Time, Inc., a Delaware corporation, of
which Riso is the sole shareholder, began distributing
products in or about August 1987 bearing the DPM
trademark. Plaintiffs allege that Vujevich had orally
assigned the DPM mark to Beauty Time in 1987 for its
2
exclusive use and Beauty Time claims to have used the
mark exclusively from 1987 to 1991.
In February, 1989, Vujevich filed a combined §§ 8 and 15
declaration1 in his own name as owner and registrant with
the PTO seeking renewal of the trademark in accordance
with federal trademark registration law. Vujevich filed an
affidavit in connection with the declaration asserting that
he was the sole owner and user of the trademark. Vujevich
allegedly used Beauty Time packaging in support of this
declaration. In July, 1989, the ownership of the trademark
became "incontestable" and the PTO renewed Vujevich's
registration of the DPM trademark, with no mention of the
alleged assignment of the mark to Beauty Time and its
junior use of the mark.
In 1991, Vujevich allegedly began marketing and selling
items bearing the DPM trademark without the consent of
Beauty Time or Riso. According to the plaintiffs, these
products were distributed under the names VU Skin
Systems and DPM Skin Systems. Beauty Time
unsuccessfully sought to compel Vujevich to cease from
distributing these products bearing the DPM trademark. In
August, 1994, Vujevich informed a number of purchasers
and retailers of the Beauty Time products that he, Vujevich,
was the owner of the DPM trademark and that Beauty Time
was infringing on the trademark. Most of these customers
stopped purchasing Beauty Time products based upon
Vujevich's assertions of ownership.
In July, 1995, Riso ascertained that Vujevich had re-
registered the trademark in 1989 listing Vujevich as the
sole owner and user of the trademark. Soon thereafter, the
plaintiffs brought this action against the defendants
seeking cancellation of the trademark, declaratory and
injunctive relief, and monetary damages. The amended
_________________________________________________________________
1. 15 U.S.C. § 1058 (Supp. 1997) provides for the cancellation of a prior
registration of a mark "unless within one year next preceding the
expiration of [six years from the date of the original registration] the
registrant shall file in the Patent and Trademark Office an affidavit"
showing that mark is still in use. Upon filing of such affidavit, the right
to use the mark under certain conditions may become incontestable to
15 U.S.C. § 1065 (Supp. 1997).
3
complaint asserted eleven counts: four federal counts
[trademark infringement (I), false advertising (II), false
designation in interstate commerce (III), and fraud under
the Lanham Act (XI)] and seven state statutory and
common-law counts [violation of the state anti-dilution
statute (IV), common law trademark infringement (V),
fraudulent misrepresentation (VI), breach of contract (VII),
tortious interference with contract (VIII), unjust enrichment
(IX), and misappropriation (X)]. The district court dismissed
the amended complaint under Federal Rule of Civil
Procedure 12(b)(6) for failure to state a claim upon which
relief can be granted. The court dismissed Count XI as
time-barred, Counts I through V for lack of standing, and
the remainder for lack of pendant jurisdiction. The plaintiffs
appealed the order dismissing their amended complaint.
II.
A.
Plaintiffs first challenge the district court order
dismissing their claim of fraud under the Lanham Act as
time-barred. The district court's application of the statute of
limitations and the relevant tolling principles is subject to
plenary review. Sheet Metal Workers Local 19 v. 2300
Group, Inc., 949 F.2d 1274, 1278 (3d Cir. 1991). The
Lanham Act contains no express statute of limitations and
the general rule is that when a federal statute provides no
limitations for suits, the court must look to the state
statute of limitations for analogous types of actions. A claim
for fraud under the Lanham Act conforms to this general
rule. See Official Airlines Guides, Inc. v. Goss, 6 F.3d 1385,
1395 (9th Cir. 1993); Guardian Life Ins. Co. v. American
Guardian Life Assurance Co., 943 F. Supp. 509, 517 (E.D.
Pa. 1996). See also Wilson v. Garcia, 471 U.S. 261, 266-67
(1985). On this claim, it is undisputed that Pennsylvania's
two-year statute of limitations for fraud actions would
apply. 42 Pa. Cons. Stat. § 5524(7) (Supp. 1997).
Accordingly, Pennsylvania tolling principles would also be
applicable in determining whether this suit is time-barred.
See Wilson, 471 U.S. at 266-67; Board of Regents of the
Univ. of the State of New York v. Tomanio, 446 U.S. 478,
4
487-88 (1980); Johnson v. Railway Express Agency, Inc.,
421 U.S. 454, 462 (1975).
Under Pennsylvania law, the statute of limitations begins
to run at the time the "the right to institute and maintain
the suit arises." Pocono Int'l Raceway, Inc. v. Pocono
Produce, Inc., 468 A.2d 468, 471 (Pa. 1983). In the present
matter, the allegedly fraudulent act occurred in 1989, when
Vujevich re-registered the trademark with the PTO claiming
that he was the sole owner and user of the DPM mark.
Thus, absent any exceptions, the statute of limitations
would have run in 1991, two years after the fraudulent act
allegedly occurred.
Because we look to state law for the appropriate statute
of limitations, we also look to Pennsylvania law on the
closely related questions of tolling and application. See
Wilson, 471 U.S. at 264 n.17. It is well-established that
Pennsylvania law recognizes an exception to the statute of
limitations which "delays the running of the statute until
the plaintiff knew, or through the exercise of reasonable
diligence should have known, of the injury and its cause."
Urland v. Merrell-Dow Pharmaceuticals, 822 F.2d 1268,
1271 (3d Cir. 1987). Courts employ the "same ``knew or
should have known' standard whether the statute is tolled
because of the discovery rule or because of fraudulent
concealment." Id. at 1273. Generally, courts have followed
the old chancery rule adopted by the United States
Supreme Court that when a party "has been injured by
fraud and ``remains in ignorance of it without any fault or
want of diligence or care on his part, the bar to the statute
does not begin to run until the fraud is discovered, though
there be no special circumstances or efforts on the part of
the party committing the fraud to conceal it from the
knowledge of the other party.' " Holmberg v. Armbrecht, 327
U.S. 392, 397 (1946) (quoting Bailey v. Glover, 21 Wall.
342, 348).
Regardless of the grounds for seeking to toll the statute,
the plaintiff is expected to exercise reasonable diligence in
attempting to ascertain the cause of any injury. Urland, 822
F.2d at 1273-74. Reasonable diligence has been defined as
follows: "A fair, proper and due degree of care and acting,
measured with reference to the particular circumstances;
5
such diligence, care, or attention as might be expected from
a man of ordinary prudence and activity." Black's Law
Dictionary 457 (6th ed. 1991). As the court observed in
Urland, there are few facts which diligence cannot discover,
but there must be some reason to awaken inquiry and
suggest investigation. Urland, 822 F.2d at 1273. Plaintiffs
assert that they had no reason to check the registration of
the trademark with the PTO until they became aware that
the trademark had been re-registered in 1989 listing
Vujevich as its sole owner and user. The question thus
becomes when did or when should the plaintiffs have
become aware of the concerns regarding the re-registration
of the trademark DPM.
The dissent mistakenly believes that Pennsylvania has
carved out a separate tolling rule that "governs in fraud
actions," a rule which would inexplicably make it more
difficult to toll the statute of limitations when the defendant
has engaged in fraud. Under the dissent's view, the
discovery rule has no application in cases of fraud unless
the fraud thereafter has been actively concealed by the
wrongdoer. This erroneous concept arises out of a
misunderstanding of the origin and application of the
discovery and fraudulent concealment rules in
Pennsylvania's tolling of its statute of limitations.
Initially, Pennsylvania's Statute of Limitations (Act of
June 24, 1895, P.L. 236 § 2) provided that every suit to
recover damages for personal injuries not resulting in death
must be brought within two years from the time of injury.
Similarly, the statute provided for limitations for tortious
actions with respect to personal and real property, and
other specific misconduct. The statute made no provision
for tolling or reference to fraud.2 Thus, under that statute,
_________________________________________________________________
2. In 1982, the Pennsylvania legislature amended the statute of
limitations relating to torts by adding a provision specifically governing
fraud actions. The new section provides for a two-year statute of
limitations for:
Any other action or proceeding to recover damages for injury to
person or property which is founded on negligent, intentional, or
otherwise tortious conduct or any other action or proceeding
sounding in trespass, including deceit and fraud, except an action
6
even where a personal injury or other tort was unknown to
the victim, a claim not brought within two years was
barred. From time to time, Pennsylvania courts were
confronted with cases arising out of fraudulent misconduct
where the literal enforcement of the statute would leave the
victim without remedy, even when the fraud did not become
known to the victim until the statute of limitations had run.
Thus, in Smith v. Blachley, 198 Pa. 173, 47 A. 985(1901), the Supreme Court of Pennsylvania wrestled with
whether the general rule that the statutes of limitations
runs from the act complained of should admit an exception
at least on account of fraud. The exception, not in the
statutes, had been judicially introduced by some courts
"acting upon principles of equity." Id. at 985. Those courts
applied the principle that the fraud, although complete,
operates as a continuing cause of action until discovered.
In Blachley, the court concluded that it would allow an
exception to toll the statute in cases of fraud only if the
wrongdoer added to his original fraud affirmative efforts to
mislead or prevent discovery. Id. at 987. This was
Pennsylvania's recognition, although modest, that in cases
of fraud an exception under certain circumstances should
be made, not with the objective of constricting the statute
of limitations but, as a matter of equity and fairness, to
relax it in matters of fraud.
More than a half-century later, however, Pennsylvania
had another opportunity to modernize its tolling principles
and make them more consistent with the humanizing
legislation that the State had enacted with the advent of the
20th century. Thus, in Ayers v. Morgan, 397 Pa. 282, 154
A.2d 788 (1959), the Supreme Court of Pennsylvania for the
first time announced its "discovery rule."3 In Ayers, the
_________________________________________________________________
or proceeding subject to another limitation specified in this
subchapter.
42 Pa. Cons. Stat. Ann. § 5524(7) (Supp. 1997). Prior to 1982, the
statute of limitations for fraud claims was six years. 42 Pa. Cons. Stat.
Ann. § 5527 (1981).
3. Ayers relied considerably in its analysis on Lewey v. H.C. Frick Coke
Co., 166 Pa. 536, 31 A. 261 (1895), a case decided six years before
Blachley, for its enunciation of the "discovery rule." Inexplicably,
Blachley makes no mention of Lewey. We discuss Lewey more fully
beginning at page 8.
7
court found itself confronted with a medical malpractice
case where the defendant surgeon allegedly left a sponge in
his patient's abdomen which was not discovered until
almost nine years later.
The trial court entered judgment for the defendant
because of the same two-year statute of limitations
considered by the court in Blachley in 1901. The Supreme
Court of Pennsylvania reversed. In announcing the
discovery rule, the court did not confine it merely to
personal injury actions. In fact, the court analogized that in
a contract action, "the plaintiff is not prevented from filing
suit after the statute of limitations has expired, if fraud has
intervened," Ayers, 157 A.2d at 792, and if he has not slept
on his rights. The court, therefore, held that the plaintiff
was entitled to proceed with his action against the surgeon
after the two-year statutory period expired because of the
nature of the concealment. Id. at 794.
The defendant in Ayers argued that there was no
concealment on its part. The court summarily dismissed
this argument with the statement that no "greater
concealment" was necessary than leaving a foreign
substance within the folds of a patient's intestines until its
discovery nine years later. Id. There is nothing in the
court's opinion that confines its rationale to personal injury
cases. On the contrary, it referred to tolling the statute in
contract actions where fraud has intervened, to criminal
actions where the defendant has fled the jurisdiction, and
to its earlier decision in Lewey v. H.C. Frick Coke Co., 166
Pa. 536, 31 A. 261 (1895), where the defendant had
committed outright fraud in extracting subterranean coal
from the plaintiff's land.
In Lewey, the plaintiff did not learn of the fraudulent
pilfering until seven years after the deed was done. 31 A. at
261. The trial court entered judgment for the defendant on
the basis of the six-year statute of limitations. In reversing
and ordering a new trial, the court stated that to hold that
the statute begins to run at the date of the trespass under
such circumstances -- a case clearly not involving a
personal injury -- constitutes "[a] result so absurd and so
unjust [as] ought not be possible." Id. at 263. The court
took notice of the equity rule in English courts: that "[i]t
8
was against good conscience to permit one who had taken
the property of another without the owner's knowledge, and
who had failed to disclose . . . what he had taken, to avail
himself of the statute [of limitations] while the owner
remained in ignorance of his loss." Id.
In Pocono Int'l Raceway, Inc. v. Pocono Produce, Inc., 468
A.2d 468 (Pa. 1983), the suit involved the negligent
operation of a truck which damaged a tunnel on plaintiff's
land. This case also concerned a suit over an injury to real
property and not a personal injury action. The trial court
entered summary judgment for the defendant on the
ground that the statute of limitations had expired. Pocono
Int'l, 468 A.2d at 470. The superior court reversed and
remanded for trial, holding that the discovery rule applied,
tolling the statute of limitations until the damage was
reasonably ascertained by the Raceway. Id. at 470-71. On
appeal to the Supreme Court of Pennsylvania, the court
reaffirmed the application of the discovery rule to property
actions and its holding in Lewey. Although it reversed the
superior court because it concluded that the plaintiff had
the ability to ascertain the cause of action and institute suit
within the applicable period of limitations, it held that the
discovery rule exception "arises from the inability of the
injured, despite the exercise of due diligence, to know of the
injury or its cause." Id. at 471.
One of the leading cases discussing the Pennsylvania
statute of limitations and its tolling principles is Gee v.
CBS, Inc., 471 F. Supp. 600 (E.D. Pa.), aff'd, 612 F.2d 572(3d Cir. 1979). Applying Pennsylvania law in a contract
dispute, then District Judge Edward Becker wrote:
As we understand the case law, there are several
separate inquiries we must make under facts as alleged
here. The first is whether the underlying events being
sued upon . . .sound inherently in fraud or deceit. If
they do then that, without more, will toll the statute of
limitations until such time as the fraud has been
revealed, or should have been revealed by the exercise
of due diligence by plaintiffs. This doctrine finds
expression in Justice Frankfurter's opinion in Holmberg
v. Armbrecht, 327 U.S. 392, 397, 66 S.Ct. 582, 585, 90
L.Ed. 743 (1946):
9
(T)his Court long ago adopted as its own the old
chancery rule that where a plaintiff has been injured
by fraud and remains in ignorance of it without any
fault or want of diligence or care on his part, the bar
to the statute does not begin to run until the fraud is
discovered, though there be no special circumstances
or efforts on the part of the party committing the fraud
to conceal it from the knowledge of the other party.
Holmberg is based on the premise that fraud as a
common-law cause of action is self-concealing by its
nature. . . . As long as plaintiff continues to reasonably
rely to his detriment on the knowingly misleading
representation the fraud continues, and of necessity it
is concealed from plaintiff. No additional special efforts
of concealment are then necessary.
Gee, 471 F. Supp. at 622-23 (footnote omitted). Judge
Becker continued:
Fraudulent concealment does not depend, as do
Holmberg and Nesbitt, on the underlying cause of
action . . . being inherently fraudulent. Rather, it
requires independent acts of "fraudulent concealment"
of the events or circumstances constituting the
underlying cause of action, irrespective of whether
those underlying events are inherently fraudulent or
not.
Gee, 471 F. Supp. at 623.
This court has adopted the reasoning of Gee, recognizing
that "Pennsylvania's inherent fraud doctrine, as set forth in
Gee, focuses on whether the underlying events are based
on fraud or deceit. If they are, ``then that, without more, will
toll the statute of limitations until such time as the fraud
has been revealed or should have been revealed by the
exercise of due diligence by plaintiffs." Sheet Metal Workers,
949 F.2d at 1280 (quoting Gee, 471 F. Supp. at 622). The
court noted that the "alternative doctrine" of fraudulent
concealment applied "[i]rrespective of any inherent fraud."
Id. Thus, the dissent in this case has misconstrued
Pennsylvania's tolling principles and would apply the
fraudulent concealment doctrine in an action involving
inherent fraud. As noted above, when the underlying claim
10
sounds in fraud, the statute of limitations is tolled by the
tortious conduct, without any further action by the
wrongdoer, until the fraud should have been discovered by
the plaintiffs.
In the instant case, the dissent believes that the time
when the plaintiffs discovered or in the exercise of due
diligence should have discovered the fraud is irrelevant
because in an action for fraud in Pennsylvania the statute
of limitations is not tolled, even if fraud is concealed,
"unless such fraud has been actively concealed by the
wrongdoer," citing Turtzo v. Boyer, 370 Pa. 526, 88 A.2d
884, 885 (1952). There is no such general rule in
Pennsylvania, although this rule may apply in certain
special circumstances, such as a situation where the
plaintiff claims the defendant's wrongful conduct estops the
latter from pleading the statute of limitations. Were it the
general rule, a bank could not recover money secretly
peculated by a bank officer and not discovered until after
the statute of limitations had run, unless the wrongdoer
actively concealed the fraud. Thus, if there were no active
concealment of the peculation after the initial fraud, there
could be no recovery. That makes no sense.
Turtzo is inapposite. First, the Supreme Court of
Pennsylvania decided Turtzo before it announced the
"discovery rule" several years later in Ayers. Actually,
Turtzo is an application of the due diligence component of
the later announced discovery rule that when the plaintiff
reasonably could have timely discovered the filing of a
fraudulent nominating petition for Justice of the Peace and
had in fact "visited the office of the County Board of
Elections and inspected the petition within the week after
its filing," 88 A.2d at 885, the plaintiff cannot claim that
fraud vitiates the entire proceedings. "[F]raud when
discovered must be acted upon with dispatch." Id. However,
in the instant case, there is no evidence of record to show
when the plaintiffs reasonably could have discovered the
alleged fraud. Therefore, remand is required.
The cases relied upon by the dissent for the proposition
that the statute of limitations in an action grounded in
fraud is tolled only if the fraud thereafter has been actively
concealed by the wrongdoer are inapplicable to the instant
11
case. Turtzo addressed a very specific provision of the state
election code establishing a statute of limitations for
contesting nomination petitions and did not address the
state's general statute of limitations for tort claims. Turtzo,
88 A.2d at 885. In re Estate of Doerr, 565 A.2d 1207 (Pa.
Super. 1989), addressed a specific provision of
Pennsylvania's probate code establishing a statute of
limitations for challenging wills; In re Thorne's Estate, 25
A.2d 811 (Pa. 1942), addressed a statute of limitations
under the Fiduciaries Act. Again, neither case addresses
Pennsylvania's general statute of limitations for tort claims.
Additionally, Thorne's Estate and Dalzell v. Lewis, 97 A.
407, 408-09 (Pa. 1916), both preceded Ayres and the
development of the discovery rule in Pennsylvania, as did
Turtzo.
Northampton County Area Community College v. Dow
Chemical, U.S.A., 566 A.2d 591 (Pa. Super. 1989), cited by
the dissent, is also inapplicable. In that case, the college
asserted that Dow fraudulently misrepresented that a
chemical used in construction would not cause defects in
the building. Id. at 594. The trial court dismissed the claim,
finding it was barred by the six year statute of limitations
then applicable to fraud actions, 42 Pa. Cons. Stat.§ 5527.
Id. The college appealed, arguing that the statute was tolled
until the college discovered the alleged fraud. Id. at 599.
The superior court cited the rule of Turtzo, noting that "[i]f
the party committing fraud is also guilty of some acts of
concealment or deception which hides from the plaintiff
that he has a cause of action, then the statute will run
from the time discovery of the alleged fraud is made, or in
the exercise of reasonable diligence should have been
made." Id. (citing Turtzo v. Boyer, 88 A.2d 884 (Pa. 1952)).
The court then concluded that the college, in light of all the
circumstances, could not have reasonably relied on the
initial fraudulent misrepresentation, thereby determining
that no cause of action for fraud would lie, regardless of the
statute of limitations. Thus, Northampton County,
announcing a rule from Turtzo but not applying it, is simply
an insufficient basis upon which to disregard the
substantial body of precedent establishing that an act of
fraud, by itself, will toll the statute of limitations until that
12
fraud reasonably should have been discovered by the
plaintiffs. See Gee, 471 F. Supp. at 622.
In fact, as the Superior Court of Pennsylvania itself has
noted, the practical difference between the discovery rule
and fraudulent concealment in fraud cases has been "much
reduced." In Bickell v. Stein, the court said:
Appellee cites Smith v. Blachley, 198 Pa. 173, 179, 47
A. 985 (1901) and Turtzo v. Boyer, 370 Pa. 526, 528,
88 A.2d 884 (1952) for the proposition that in actions
for fraud, the statutory limitation may only be tolled by
proof of "fraudulent concealment" of the original fraud.
The doctrine of fraudulent concealment appears
somewhat narrower than the discovery rule, because it
requires a showing that defendant himself prevented
plaintiff from discovering the facts by acts of deception
which were independent of the acts giving rise to cause
of action. However, the doctrine of fraudulent
concealment has been relaxed considerably with regard
to the deceptive intent of defendant's acts and their
independence of the underlying, operative facts (see
Nesbitt v. Erie Coach Co., 416 Pa. 89, 204 A.2d 473(1952); Schwab v. Cornell, 306 Pa. 536, 106 A. 449(1932); Gee v. CBS, Inc., 471 F.Supp. 600, 617-634
(E.D. Pa., 1979); Hedges v. Primavera, 218 F.Supp. 797(E.D. Pa., 1963)), so that the practical difference
between the two rules is much reduced. Furthermore,
Smith and Trutzo [sic] are reconcilable with the
discovery rule, because both are cases in which the
court observed that the fraud was obvious or easily
discoverable by a prudent individual.
435 A.2d 610, 612 n.3 (Pa. 1981).
Application of the discovery rule to fraud claims will not
eviscerate the statute of limitations because aggrieved
parties must still bring their claim within two years of when
they learned or should have learned, through the exercise
of due diligence, that they have a cause of action.4 "For
_________________________________________________________________
4. We concur with the dissent that the cases interpreting Pennsylvania's
tolling rules have not been entirely free from ambiguity. However, the
rule set forth in Gee and affirmed by this court is clear, and the courts
of Pennsylvania have not altered this rule despite the opportunity to do
so. See, e.g., Pocono Int'l Raceway, Inc. v. Pocono Produce, Inc., 468 A.2d
468 (Pa. 1983); Bickell v. Stein, 435 A.2d 610 (Pa. Super. 1981).
13
statute of limitations purposes, a claimant need only be put
on inquiry notice by ``storm warnings' of possible fraud."
Ciccarelli v. Gichner Systems Group, Inc., 862 F. Supp.
1293, 1301 (M.D. Pa. 1994). Therefore, we conclude that
the discovery rule applies in Pennsylvania when the
underlying cause of action sounds in fraud, and that the
statute of limitations is tolled until the plaintiff learns or
reasonably should have learned through the exercise of due
diligence of the existence of the claim.
B.
The district court determined that the plaintiffs are time-
barred from bringing the action based upon the
constructive notice provision of the Lanham Act that
registration of a mark "shall be constructive notice of the
registrant's claim of ownership thereof." 15 U.S.C. § 1072(1963). The court held that the plaintiffs "were on
constructive notice of any fraud committed by Vujevich in
re-registering the mark DPM as of the date that the re-
registration occurred in 1989." The plaintiffs argue,
however, that state law tolling principles would not
recognize constructive notice pursuant to § 1072 as
sufficient notice of the fraud to cause the running of the
statute.
The Lanham Act requires that the holder of a trademark
submit an affidavit between the fifth and sixth years after
registration of the trademark to establish that the mark is
currently in use in commerce. 15 U.S.C. § 1058 (Supp.
1997). The PTO registered the trademark DPM on April 19,
1983; therefore, Vujevich had to submit an affidavit
establishing the continued use of the mark by April 18,
1989 to maintain the registration. Pursuant to § 1058,
Vujevich submitted the allegedly fraudulent affidavits on
February 27, 1989, thereby successfully continuing the
registration of the trademark DPM listing Vujevich as the
sole owner and user of the mark. Use of this mark under
certain conditions became incontestable pursuant to 15
U.S.C. § 1065.
It does not appear that the constructive notice provision
of § 1072 under the Lanham Act applies to the submission
14
of affidavits under § 1058 to register the trademark or
under § 1065 to establish incontestability. The briefs of the
parties and our own exhaustive search reveal no case law
establishing that the act of confirming the trademark's
continued use in commerce satisfies the constructive notice
provision of § 1072. Additionally, the language of § 1072,
which speaks to "[r]egistration of the trademark on the
principal register" as constructive notice does not apply to
the submission of affidavits five years later pursuant to
§ 1058 and § 1065 of the Lanham Act. Thus, we agree with
the plaintiffs that, under Pennsylvania law, thefiling of the
user affidavits by Vujevich did not constitute constructive
notice sufficient to begin the running of the statute of
limitations.
The plaintiffs' claim may still be time-barred, however,
because they may have had actual notice of the alleged
fraudulent re-registration as early as 1991. The plaintiffs'
amended complaint charges that Vujevich began using the
DPM trademark improperly in 1991. The complaint states:
"On or about March 1991, Defendants began marketing
and selling in interstate commerce skin products under the
name VU Skin Systems. These skin products were sold
under the label DPM Skin Systems products and/or DPM,
using the mark DPM without license, or any other form of
approval, from Beauty Time (PA)." The language of the
complaint does not establish conclusively whether the
plaintiffs had actual knowledge of these dealings as early as
1991; they now assert that they did not become aware of
the allegedly improper use of the trademark by Vujevich
until 1994. If the plaintiffs were aware of the use in 1991,
this knowledge should have "awake[ned] inquiry and
direct[ed] diligence in a channel in which it would be
successful." Urland, 882 F.2d at 1273. Thus, if the
plaintiffs knew of this conduct in 1991, then the suit
should have been brought within two years of that
discovery and should now properly be deemed time-barred.
However, if the plaintiffs did not learn of this alleged fraud
until 1994, then the action brought in 1995 is well-within
the two-year statute of limitations for fraud established by
Pennsylvania law.
The district court, however, failed to determine when the
15
plaintiffs actually learned of the alleged fraudulent re-
registration. Thus, the order dismissing the complaint must
be vacated and the matter remanded to the district court
for further proceedings to determine when the plaintiffs
first became aware that Vujevich was using the DPM
trademark separate and independently of its use by Beauty
Time.5
C.
The plaintiffs also argue that the district court erred in
dismissing Counts IV, V, and VI of their remaining claims
for lack of standing.6 A district court's decision to dismiss
an action for lack of standing is subject to plenary review.
Chem Service v. Environmental Monitoring Sys. Lab.-
Cincinnati of the United States Environmental Protection
Agency, 12 F.3d 1256, 1261 (3d Cir. 1993).
The district court held that the plaintiffs' state-law claims
for trademark infringement and violation of the
Pennsylvania Anti-Dilution Statute should be dismissed
because the plaintiffs failed to show an effective assignment
of the trademark and failed to establish that they had first
rights to the trademark, a prerequisite to ownership rights
in the trademark. The plaintiffs assert that they maintained
common-law rights in the trademark regardless of the
alleged inadequacies of the oral assignment, and that they
therefore had standing to bring these state law claims as
owners of the trademark.
The plaintiffs have not alleged that the trademark was
acquired in connection with the sale of a business or
otherwise transferred in connection with the goodwill
associated with the trademark. Accordingly, the attempted
_________________________________________________________________
5. Once the district court ascertains the date on or about which the
plaintiffs became aware of the alleged unauthorized use of the DPM
trademark, the court must determine whether that knowledge was
sufficient to begin the running of the statute of limitations on both the
claim of fraudulent re-registration as to ownership of the trademark and
the claim for failing to declare the plaintiffs' junior use of the trademark.
6. On appeal, the plaintiffs do not challenge the district court's order
dismissing Counts 1 through 3 and Counts 7 through 10.
16
oral assignment was an assignment in gross and was
invalid. See United Drug Co. v. Theodore Rectanus Co., 248
U.S. 90, 97 (1918); Family Circle Inc. v. Family Circle
Associates, Inc., 332 F.2d 534, 539 (3d Cir. 1964). The
Anti-Dilution Statute expressly provides a remedy only for
"a mark registered under this chapter, or a mark valid at
common law." 54 Pa. Cons. Stat. § 1124 (1996). Common
law trademark protections only apply when the trademark
is validly acquired. The plaintiffs did not acquire any
ownership rights in the trademark under Pennsylvania law,
and the mark is neither registered nor valid at common
law. See Browning King Co. of New York v. Browning King
Co., 176 F.2d 105, 105 (3d Cir. 1949) (under Pennsylvania
common law, trademarks cannot be transferred in gross).
Therefore the plaintiffs have no standing to bring a claim
for infringement or dilution under Pennsylvania law. Thus,
we perceive no error by the district court in dismissing
Counts IV and V of the plaintiffs' amended complaint
seeking relief for common-law trademark infringement and
violations of the state Anti-Dilution Statute.
Count VI of the plaintiffs' state law claims, which was
dismissed under the pendant jurisdiction doctrine for lack
of original jurisdiction over a state law claim, will be
reinstated pending resolution of the matters remanded to
the district court for further proceedings.
III.
Accordingly, the district court's order dismissing the
plaintiffs' amended complaint will be vacated with respect
to Count XI (fraud under the Lanham Act) and the case
remanded to the district court for further proceedings
consistent with this opinion. Additionally, the order
dismissing Count VI will be vacated and the claim
reinstated for further proceedings.
Costs taxed against the appellees.
17
ALITO, Circuit Judge, dissenting:
In this action, plaintiffs asserted a claim for fraud under
the Lanham Act. Since the Lanham Act does not specify a
statute of limitations for such a claim, we look to the state
statute of limitations that applies to an analogous state law
cause of action. It is undisputed that the applicable statute
of limitations here is the two-year bar for fraud actions
contained in 42 Pa. C.S. § 5524(7) and that this limitations
period begins to run at the time the fraudulent act is
completed. It is also undisputed that, in evaluating whether
§ 5524(7) bars plaintiffs' fraud claim, we borrow
Pennsylvania's tolling rules. Thus far I am in agreement
with the majority.
My disagreement with the majority lies in its choice of
tolling rules. The majority holds that the "discovery rule,"
under which the statute of limitations is tolled "until the
plaintiff learns or reasonably should have learned through
the exercise of due diligence of the existence of the claim,"
applies to fraud claims. Maj. Op. at 14. As I read the
Pennsylvania cases, however, the statute of limitations for
a fraud claim is tolled only if the tortfeasor, after carrying
out the concealment inherent in the tort, committed
additional acts of concealment. Turtzo v. Boyer, 88 A.2d
884, 885 (Pa. 1952). Because plaintiffs do not even argue
that defendants committed any such acts, plaintiffs cannot
obtain the benefit of tolling under Pennsylvania law, and
their Lanham Act fraud claim is time-barred.
I.
The Pennsylvania Supreme Court has squarely held that
"[i]n an action based upon a fraud" the statute of
limitations is tolled only if "such fraud has been actively
concealed by the wrongdoer." Turtzo, 88 A.2d at 885. As the
court explained, "fraud or concealment in the original
transaction" is insufficient to extend the time for filing suit;
"to excuse delay of the injured party in asserting his rights
there must be an independent act of fraud or concealment
which misled or prevented discovery." Id. This proposition
was established as a matter of Pennsylvania law as early as
1901, Smith v. Blachley, 47 A. 985 (Pa. 1901), and has
18
been repeatedly reaffirmed in recent years. Northampton
Cty. Area Commun. College v. Dow Chemical, U.S.A., 566
A.2d 591, 599 (Pa. Super. 1989) ("If the party committing
fraud is also guilty of some acts of concealment or
deception which hide[ ] from the plaintiff that he has a
cause of action, then the statute will run from the time
discovery of the alleged fraud is made, or in the exercise of
reasonable diligence should have been made."), aff'd, 598
A.2d 1288 (Pa. 1991) (per curiam); In re Estate of Doerr,
565 A.2d 1207, 1211 (Pa. Super. 1989) ("[A] cause of action
arising from fraud is complete when the transaction has
ended[;] . . . the statute of limitations begins to run at once,
unless discovery is prevented by active concealment.")
(emendations in original) (quotation omitted). Accord In re
Thorne's Estate, 25 A.2d 811, 815 (Pa. 1942); Dalzell v.
Lewis, 97 A. 407, 408-09 (Pa. 1916); In re McKay, 110 B.R.
764, 767 (Bankr. W.D. Pa. 1990).
In Smith v. Blachley, the Pennsylvania Supreme Court
reviewed the precedents at length and discussed two
competing views of tolling in actions for fraud. The court
explained:
It is said, in general, that in cases of fraud the statute
runs only from discovery, or from when, with
reasonable diligence, there ought to have been
discovery. But a distinction is made in regard to the
starting point between fraud completed and ending
with the act which gives rise to the cause of action and
fraud continued afterwards in efforts or acts tending to
prevent discovery. On this distinction there are two
widely divergent views. It is held, on the one hand, that
the fraud, though complete and fully actionable,
operates as of itself a continuing cause of action until
discovery; while, on the other hand, it is held that,
when the cause of action is once complete, the statute
begins to run, and suit must be brought within the
prescribed term, unless discovery is prevented by some
additional and affirmative fraud done with that intent.
Id. at 985 (emphasis added). The court unambiguously
aligned itself with the latter view, declaring that "[w]e regard
the distinction as sound, well marked, and in harmony with
the spirit and letter of the statute." Id. at 987. The court
19
observed that a tolling rule that delayed the running of the
statute in all cases of fraud until discovery of the fraud
would be incompatible with the settled rule that a cause of
action for fraud accrues upon consummation of the fraud.
The cases which hold that, where fraud is concealed,
or, as sometimes added, conceals itself, the statute
runs only from discovery, practically repeal[ ] the
statute pro tanto. Fraud is always concealed. If it was
not, no fraud would ever succeed. But, when it is
accomplished and ended, the rights of the parties are
fixed. The right of action is complete.
Id.
In other words, the Pennsylvania Supreme Court
reasoned as follows: The statute of limitations for fraud
claims embodies a legislative judgment that, at least in
typical cases, the plaintiff should begin suit within the
specified period after the fraud occurs. Since the legislature
presumably realized that some concealment is inherent in
fraud, the legislature presumably realized as well that there
will typically be some lag time between the occurrence of
the fraud and its discovery by the victim. Thus, the
legislature presumably took this typical lag time into
account in framing the statute of limitations in thefirst
place and it is therefore not appropriate for the courts to
recognize a tolling rule to account for this sort of typical lag
time. Only when there is the atypical lag time that results
from subsequent acts of concealment is such a tolling rule
appropriate.
The majority opines that it would be "inexplicabl[e]" for
Pennsylvania to apply the liberal discovery rule to other tort
claims and to subject fraud claims to a different, tougher
tolling rule. Maj. Op. at 6. See also Maj. Op. at 11 (it
"makes no sense" to say that a victim of fraud who does not
discover the fraud during the two-year limitations period
cannot recover unless the defendant actively concealed the
fraud subsequent to its completion). I disagree.
While I might well agree that the majority's tolling rule
represents sound public policy, it does not seem to me to
be the rule that Pennsylvania has adopted, and I certainly
do not think that Pennsylvania's apparent choice is either
20
"inexplicabl[e]" or irrational. In my view, the foregoing
discussion and excerpt from Smith v. Blachley reveal why
fraud claims might be viewed as requiring different
treatment. Causes of action for fraud are unique in that
they always involve concealment. In contrast, only a
minority of actions for other torts involve conduct that was
concealed from the victim at the time it was committed. An
individual cause of action for personal injury, for example,
is distinguished from the norm when it is alleged that the
tortious conduct was concealed and that the plaintiff was
unable to discover it until a subsequent time. Thus, in
Ayers v. Morgan, 154 A.2d 788 (Pa. 1959), the court held,
notwithstanding the two-year statute of limitations, that the
plaintiff could maintain his suit against a surgeon who had
negligently failed to remove a sponge from the plaintiff's
intestines following surgery nine years earlier. Since the
statute of limitations was designed for the paradigmatic
personal injury case in which the plaintiff becomes aware of
the injury at the time when the defendant performs the
tortious act, it would be unfair and "illogical" to apply it to
a case in which the plaintiff "does not know, and cannot
know, for example, that a surgeon has negligently left a
rubber tube in his body." Id. at 789.
The same rationale applies to other causes of action. In
Lewey v. H.C. Frick Coke Co., 31 A. 261 (Pa. 1895), the
plaintiff sued the defendant in trespass, contending that it
had intruded onto his lands and stolen coal from beneath
the surface. As in Ayers, the court emphasized that the
plaintiff had no way of knowing that the invasion and theft
were taking place, since "[h]e [could not] be present in the
interior of the earth." Id. at 263-64. Many trespasses, like
many personal injuries, are immediately apparent to a
diligent plaintiff, but this particular trespass was not.
Therefore, while in the usual trespass case the statute of
limitations begins running upon commission of the
trespass, "the statute runs against an injury committed in
or to a lower stratum from the time of actual discovery, or
the time when discovery was reasonably possible." Id. at 264.1
_________________________________________________________________
1. Contrary to the majority's implication, Lewey is poor authority for the
application of the discovery rule to fraud causes of action for the
21
In contrast, since fraud always involves an element of
concealment, something more is needed to distinguish a
particular fraud claim from the norm. Accordingly, while
the presence of concealment in a particular personal injury
case might provide a sufficient reason to toll the statute in
that case, under the reasoning of the Pennsylvania
Supreme Court, something more, namely, an independent
act of concealment, is required for tolling in a fraud case.
This reasoning might lead one to question the wisdom of
the legislature's enactment of a two-year statute of
limitations for fraud claims. But it goes without saying that
we are bound to apply the law of Pennsylvania whether or
not we think it wise.
In my view, the foregoing clearly establishes that, at least
at the time of Turtzo, it was the law in Pennsylvania that
the fraud statute of limitations was tolled only upon a
showing that the defendant engaged in affirmative acts of
concealment, independent of the original fraud. The
majority concludes that, at the present time, "there is no
such general rule in Pennsylvania," and indeed holds the
precise opposite: "when the underlying claim sounds in
fraud, the statute of limitations is tolled by the tortious
conduct, without any further action by the wrongdoer, until
the fraud should have been discovered by the plaintiffs."
Maj. Op. at 10-11. In reaching this conclusion, the majority
distinguishes the cases I have cited and relies upon some
_________________________________________________________________
additional reason that the court in Lewey actually held only that "the
equitable rule that the statute shall run only from discovery, or a time
when discovery might have been made, should be applied by courts of
law" confronted with claims for equitable relief. Id. at 264. I do not
dispute that "[g]enerally, courts have followed the old chancery rule
adopted by the United States Supreme Court that when a party ``has
been injured by fraud and remains in ignorance without any fault or
want of diligence or care on his part, the bar to the statute does not
begin to run until the fraud is discovered, though there be no special
circumstances or efforts on the part of the party committing the fraud to
conceal it from the knowledge of the other party.' " Maj. Op. at 5 (quoting
Holmberg v. Armbrecht, 327 U.S. 392, 397 (1946)). But that principle is
explicitly a principle of equity, and it is thus applicable only to claims in
equity. Here, it is not contended that plaintiffs' Lanham Act fraud claim
sounds in equity. The majority's reliance on Holmberg is thus unsound.
22
recent cases (mostly not decisions of the Pennsylvania
Supreme Court) that create some ambiguity regarding the
current state of Pennsylvania law with respect to the
requirement of fraudulent concealment independent of the
original fraud.2
I acknowledge that the cases have not been free from
ambiguity in confirming the vitality of the rule dating from
Smith v. Blachley. But the important point is that the Smith
v. Blachley rule has never been repudiated by the
Pennsylvania Supreme Court or Superior Court. Nor do I
see any clear evidence in the state appellate decisions that
the Pennsylvania Supreme Court would overrule Smith v.
Blachley if given the chance. At least without far stronger
evidence than we now have, I am not willing to predict such
a result.
_________________________________________________________________
2. In fact, several of the cases cited by the majority are at best
ambiguous in their support of its conclusion. In Bickell v. Stein, 435
A.2d 610 (Pa. Super. 1981), the court stated that the "doctrine of
fraudulent concealment appears somewhat narrower than the discovery
rule, because it requires a showing that defendant himself prevented
plaintiff from discovering the facts by acts of deception which were
independent of the acts giving rise to [the] cause of action." Id. at 612 n.3
(emphasis added). It is true that the court then went on to note its
opinion that the doctrine of fraudulent concealment had been "relaxed,"
id., but the case hardly stands clearly for the holding announced by the
majority. The same is true of Knuth v. Erie-Crawford Dairy Cooperative
Assoc., 463 F.2d 470, 482 (3d Cir. 1972), where we in fact held that "the
governing standard" was whether there was "an affirmative, independent
act of concealment." While in Sheet Metal Workers, Local 19 v. 2300
Group, Inc., 949 F.2d 1274, 1280 (3d Cir. 1991), we did hold the statute
of limitations tolled because of "inherent fraud" in the "self-concealing"
false statements in the defendant's certifications that it was making the
required benefit fund contributions, the fraudulent concealment (the
certifications) was in fact independent of the wrong sued upon (the
failure to pay the contributions). Finally, the majority relies on Pocono
Int'l Raceway, Inc. v. Pocono Produce, Inc., 468 A.2d 468 (Pa. 1983). The
court in Pocono, however, only discussed the discovery rule as a prelude
to finding that the plaintiff's claim was time-barred in any event because
it could have learned of its injury through the exercise of reasonable
diligence. Id. at 471. In addition to the cases cited by the majority, see
Deemer v. Weaver, 187 A.215, 216 (Pa. 1936).
23
II.
Accordingly, it seems to me that under Pennsylvania law,
as it now stands, a different showing is required to toll the
statute of limitations for fraud claims, § 5524(7), than for
other types of claims. While the statute is tolled for most
tort claims if the plaintiff, "despite the exercise of due
diligence, is unable to know of the existence of the injury
and its cause," Bohus v. Beloff, 950 F.2d 919, 924 (3d Cir.
1991), the statute is tolled for a fraud claim only if the
defendant actively conceals the completed fraud. Since
plaintiffs here do not even contend that defendants
committed any independent acts of concealment, I would
hold that plaintiffs cannot avail themselves of tolling under
the Pennsylvania law governing fraud actions. Here, as in
Turtzo, "[a]ssuming, as alleged, there were fraud in the
execution of the affidavit[ ] [in connection with the re-
registration application], there was no independent act of
fraud or concealment which misled plaintiff[s] or prevented
discovery." 88 A.2d at 886 (emphasis in original) (quotation
omitted). See also Smith, 47 A. at 987 ("It is true that the
defendant obtained the money, as the jury have found, by
a scheme of the grossest fraud and deception, and used all
possible efforts to prevent plaintiffs from finding out the
truth; but all these were in the transaction itself and prior
to its consummation."). Absent tolling, it is undisputed that
plaintiffs' Lanham Act fraud claim is barred by§ 5524(7)'s
two-year statute of limitations. I would therefore affirm the
district court's dismissal of plaintiffs' Lanham Act fraud
claim.3
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
_________________________________________________________________
3. I agree with the majority's affirmance of the dismissal of plaintiffs'
state law dilution and infringement claims. Plaintiffs have not appealed
the dismissal of the remainder of their federal claims, so I would affirm
the district court's decision not to exercise supplemental jurisdiction over
plaintiffs' other state law claims once all of their federal claims had been
dismissed.
24