Ninth Circuit Allows Delinquent Corporation To Sue And Own Trademarks

DartsIn Southern California Darts Association v. Zaffina, the Ninth Circuit held that a corporation, whose charter had been suspended by the state of California in 1977, had standing in 2012 to sue and to own trademarks as an unincorporated association.

The corporation in question, the Southern California Darts Association (“SCDA”), has organized and promoted darts tournaments at pubs since 1963.  SCDA was originally organized as a California corporation, but at some point it stopped paying its corporate franchise tax and, in 1977, it was suspended by the state.  Despite the suspension, SCDA continued to operate without incident until 2010.

In 2010, darts player Dino M. Zaffina got into a feud with SCDA over whether his middle initial should be printed in SCDA scoring reports. After Zaffina quit (or was kicked out, depending on who you ask), he got his revenge by registering his own entity with the state of California, also called the “Southern California Darts Association.”  After appointing himself president of the new entity, he started suing SCDA-affiliated pubs in state court for using the name without permission.

In 2012, SCDA brought suit against Zaffina, alleging violations of the Lanham Act and seeking injunctive relief. The Central District of California granted the injunction, and Zaffina appealed.  Zaffina’s arguments on appeal included his assertions that SCDA could neither sue in federal court nor own a trademark under the Lanham Act, since it ceased to exist as a legal entity in 1977.  The Ninth Circuit disagreed and affirmed.

Delinquent Corporation Can Sue As Unincorporated Association

Zaffina argued as a threshold matter that a “delinquent corporation” cannot bring legal claims in California.  The Court agreed that this was a correct statement of California law, and further agreed that, under Federal Rule 17, capacity to sue is normally determined based on the law of the party’s home state, in this case, California.

However, the Court held that California law did not apply in the present case. Under Fed. R. Civ. P. 17(b)(3)(A), an unincorporated association may sue in federal court to enforce federal rights, irrespective of its capacity to sue in state court. Here, the District Court’s findings supported the proposition that SCDA was an unincorporated association (defined as a “voluntary group of persons, without a charter, formed by mutual consent for the purpose of promoting a common objective”). Therefore, SCDA could bring suit in federal court as an unincorporated association, despite its apparent parallel status as a delinquent California corporation.

Unincorporated Association May Own Trademarks

Zaffina further argued that, even if SCDA had standing to sue under Rule 17, it did not have the capacity to own trademarks.  The Court held that, on the contrary, an unincorporated association’s right to own trademarks (provided it could show use in commerce) was “implicit” in previous decisions of the Ninth Circuit and explicit in at least one Seventh Circuit opinion.

Zaffina also argued that, because SCDA was a delinquent corporation, any use in commerce by it had not been “lawful,” and was therefore invalid. The Court agreed that use in commerce must be lawful in order to make out a case for trademark infringement, but held that unlawful conduct cannot preclude trademark protection when it is immaterial or collateral to the trademark issue in dispute.  Here, there was no nexus between the delinquent activity (failure to pay taxes) and the purpose of federal trademark law.  Therefore, SCDA’s use in commerce was recognized by the Court.

In addition to its precedential value in the Ninth Circuit, this opinion also may be of particular persuasive value in the First Circuit, because it was authored by Senior District Judge Mark L. Wolf of the District of Massachusetts, sitting on the Ninth Circuit by designation. Moreover, the opinion is likely a helpful one for other sports leagues, professional and amateur, which often operate as unincorporated associations.

 

Topics:  Corporate Charters, Delinquency Status, Lanham Act, Standing, Trademarks

Published In: Business Organization Updates, Civil Procedure Updates, General Business Updates, Communications & Media Updates, Intellectual Property Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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