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Naylor v. Case and McGrath Inc.

decided: October 11, 1978.


Appeal from a judgment of the United States District Court for the District of Connecticut, T. F. Gilroy Daly, Judge, dismissing an action under the Connecticut Unfair Trade Practices Act on the ground that the plaintiff was not within the class meant to be protected by the Act and accordingly had no standing to sue. Reversed.

Before Van Graafeiland, Circuit Judge, Markey,*fn* Chief Judge, United States Court of Customs and Patent Appeals, and Dooling,*fn** District Judge.

Author: Dooling

The questions raised on this appeal are whether the Court below should have abstained from deciding the question of Connecticut statutory interpretation on which its decision turned, and whether, if the question was properly before the Court, for decision, it was correctly decided.

Appellant commenced an action in the Superior Court, Fairfield County, on February 3, 1978, against two advertising agencies alleging that he had pending in the Fairfield County Superior Court a personal injury action in which he had requested a jury and that he was representative of a number of other people similarly situated; he alleged that appellee Case & McGrath, Inc. had published advertisements, three examples of which were annexed to the complaint, which, appellant alleged, contained unfair, deceptive and/or misleading statements and lies and untruths concerning the size of jury verdicts in personal injury actions; he alleged further that the advertisements suggested that jurors should disregard their oaths and that the judges did not caution jurors respecting their obligations; and the complaint pointed out alleged specific misstatements of fact in the illustrative data used in the advertisements. Appellant's complaint further alleged that Case & McGrath wilfully engaged in such "deceptive trade practices" in violation of Section 42-110b(a) of the Connecticut Unfair Trade Practices Act. In the first count appellant prayed a declaration that he represented a class, and he sought a temporary and permanent injunction against "unfair, deceptive, untrue and /or misleading advertising", an order requiring defendants to publish rectifying advertisements, and an award of punitive damages and reasonable attorneys fees. In a second count appellant further alleged that he and the class whom he represents have suffered an ascertainable loss of property through interference with their constitutionally guaranteed right to a fair and impartial jury trial; the prayer for relief in the second count added a claim for actual damages. A third count, framed under 42 U.S.C. § 1985(3), charged that the defendant advertising agencies exchanged information and coordinated advertising programs with a number of other companies and institutions with the design to deprive the plaintiff directly or indirectly of rights, privileges and immunities guaranteed by the Constitution and Laws of the United States and of Connecticut.

Defendant Case & McGrath removed the case to the United States District Court on March 1, 1978, on the federal question ground. The second named defendant, a partnership, Keiler, Garrett & McKinlay Advertising, joined in the removal petition.

Appellant had moved in the state court by order to show cause for a preliminary injunction, and, after removal, a renewed motion was filed on March 7th. Another action, Young, et al. v. Crum & Forster, et al., had earlier been removed from the state court to the district court and, on motion of Case & McGrath, the case of Naylor v. Case & McGrath, et al., was consolidated with Young, et al. v. Crum & Forster, et al. on March 10th. On March 21st to 23rd the insurance company defendants in the Young case and Crum & Forster moved to dismiss the action on the ground that the complaint did not state a claim upon which relief could be granted.

The memoranda of law submitted in support of the motions to dismiss argued the merits of the complaint, specifically contending that the defendant insurance companies were not subject to regulation under the Unfair Trade Practices Act but were regulated in respect of their advertising by a special Act applicable to insurance companies, that the plaintiff was not injured by the activities complained of and was not entitled to sue under the Act, that for a variety of reasons no case was made out under Section 1985(3), and that in any case the advertisements represented utterances on matters of public concern and in consequence were protected by the First Amendment. Appellant in answer contended that all of the issues raised by the defendants necessarily involved questions of fact which could not be decided upon motions to dismiss. Appellant met the contentions concerning the applicability of the Unfair Trade Practices Act by argument directed to the merits, presented an elaborate argument in support of the claim under Section 1985(3), and met defendant's First Amendment arguments with the contention that the advertisements were essentially commercial speech protected only to the extent that they were neither false nor misleading and were not broadly protected speech directed to matters of public concern. On April 6th, the date on which plaintiff's memorandum in support of its complaint was filed, appellant also filed a withdrawal of the Section 1985(3) count in the Case & McGrath complaint. On the same day the Attorney General of the State filed the State's brief Amicus curiae contending that insurance companies were subject to the state Unfair Trade Practices Act, and arguing, in response to a request of the Court that the point be briefed, that the District Court should invoke the doctrine of abstention, since the case presented a number of questions of first impression arising under the Unfair Trade Practices Act which should first be resolved in the State Court and the resolution of which might obviate the constitutional questions which the insurance companies raised under the First Amendment.

The motions for a preliminary injunction and to dismiss came on for hearing on April 10th. On that day the Court granted appellant leave to withdraw without prejudice the count framed under Section 1985(3) and approved a stipulation by which appellant dismissed the action against defendant Keiler, Garrett & McKinlay Advertising, pursuant to Rule 41(a)(1) of the Federal Rules of Civil Procedure.

When, therefore, the matter came on for hearing on April 10th the cause of action on which the case had been removed to the Federal Court had been dismissed, and, for the first time, diversity of citizenship apparently existed. That is not altogether clear on the face of the pleadings since the complaint alleges only that plaintiff was a resident of Connecticut and there is no allegation of the plaintiff's citizenship nor of the amount in controversy. The removal had been based on pendent jurisdiction grounds (28 U.S.C. § 1441(a), (b); United Mine Workers v. Gibbs, 1966, 383 U.S. 715, 725-726, 86 S. Ct. 1130, 16 L. Ed. 2d 218; Hazel Bishop, Inc. v. Perfemme, Inc., 2d Cir. 1963, 314 F.2d 399, 403; 1A Moore's Federal Practice 270-271, Par. 0.163 (4-5)), and, alternatively, on the ground that the count under Section 1985(3) was a separate and independent claim or cause of action and the case, therefore, was removable under 28 U.S.C. § 1441(c).

At the hearing the Court noted, after granting leave to withdraw the count under Section 1985(3), that, treating the remaining causes of action as remandable under Section 1441(c), "The Court has discretion to retain them or to remand them." Referring to Hazel Bishop, supra, 314 F.2d at 403, and 1A Moore's Federal Practice 173, the Court then expressed concern about the question of comity, and whether or not some of the issues raised, particularly in the Attorney General's brief, should not more appropriately be first determined by the State Court. None of the defendants urged remand or abstention on the Court, but the Attorney General pointed out that it "would be illuminating to have all the standing issues decided initially by a State Court" and also the issue "as to whether the advertising is commercial or noncommercial." Appellant's counsel stated

"The truth of the matter is that we really don't care where the case is. We raised the issues. We did our jobs. We felt that the Attorney General's brief did his. I don't care. We are not making any motion to remand.

"It's entirely within your jurisdiction to do it any way you see fit. And I felt that what the Attorney General's Office said was persuasive on the question of comity. And I felt that there are no real Federal constitutional issues involved here."

The Court did not then decide the issue but gave the parties time to submit memoranda. A further hearing was held on April 13th. The record of the proceedings on that day is incomplete, but it does appear that the question whether the advertisements were commercial speech was argued as well as the question of appellant's standing under the statute to sue for injunctive relief and for damages. The Court dismissed Counts 1 and 2 relating to the Connecticut Unfair Trade Practices Act for failure to state a claim upon which relief could be granted, and on the next day a judgment dismissing the action was entered.

On May 5 defendant moved to be relieved of the judgment pursuant to Rule 60(b) saying that the judgment had been entered after oral argument concerning plaintiff's lack of standing to sue under the Unfair Trade Practices Act if plaintiff was not a consumer or a competitor, and that after the entry of the judgment appellant's counsel learned of a case in the Connecticut Court dealing with "the exact point" which the District Court had asked counsel to argue the case of Mattatuck Bank & Trust Co. v. House of Elegance, Inc., et al., Superior Court, District of Waterbury, August 16, 1977. In that case House of Elegance had given a lien on its inventory to the plaintiff bank to secure a loan and later had sold part of the inventory to Pierpont. Pierpont, in turn, included the House of Elegance inventory in a Bulk Sale of its own inventory causing the plaintiff bank to lose its security interest. The bank sued Pierpont under the Unfair Trade Practices Act and the Court overruled Pierpont's demurrer to the bank's claim, impliedly rejecting the contention ...

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