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APEX FOUNTAIN SALES v. KLEINFELD (04/06/87)

argued: April 6, 1987.

APEX FOUNTAIN SALES, INC., APPELLANT,
v.
KLEINFELD, ERNIE, FLO AIRE, INC., KEARNEY, JR., RALPH, KEARNEY, MICHAEL, RALPH KEARNEY & SON, INC., APPELLEE



On Appeal from the United States District Court for the Eastern District of Pennsylvania, D.C. Civil No. 83-6153.

Author: Becker

Opinion OF THE COURT

Before: SLOVITER, BECKER, Circuit Judges and FISHER, District Judge*fn*

BECKER, Circuit Judge.

This opinion concerns three separate appeals from seriatim orders of the district court in proceedings to enforce a consent decree. Most notably it addresses the question whether the district court erred in appointing as special masters the members of a panel whose role under the consent decree was to review design changes in certain champagne fountains manufactured and sold by defendant-appellee, Ralph Kearney & Son, to assure that they could not be identified as fountains made by plaintiff-appellant, Apex Fountain Sales. Because the question referred to the special masters was relatively simple, we conclude that the reference was inappropriate under Federal Rule of Civil Procedure 53.

The complex procedural posture of the case also requires us to review the propriety of the initial order of the district court affirming a decision of the design panel. We decide that the presentation of the evidence to the neutral panelist in the absence of the other panelists did not render the award unenforceable. We also conclude that statements in the panel's decision arguably determining the validity of Apex's trademark could not exceed the panel's authority because they were merely dicta.

Finally, we review the district court's acceptance of the masters' report insofar as the report presented pure questions of law. The court accepted the masters' view that Kearney need not continue to present its new design proposals to the design modification suggestions in the initial panel decision. We decide that the consent decree required Kearney to receive prior approval of a design before offering it for sale and that the arbitral panel had no authority to exempt appellees from this requirement. We therefore affirm in part and reverse in part and remand for further proceedings.

I. Facts and Procedural History

Apex Fountain Sales, Inc. manufactures champagne fountains for sale throughout the United States and Canada.*fn1 Prior to 1983, it purchased parts for its fountains from Ralph Kearney & Son, Inc., the principal appellee.*fn2 In early 1983, however, Apex stopped purchasing from Kearney, and in the wake of the ensuing contract dispute, Kearney began manufacturing and producing fountains virtually identical to Apex and even, apparently, using the Apex trademark. Apex sued for infringement of its mark and trade design under § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), which provides trademark protection for unregistered marks and trade designs under certain circumstances. The parties resolved their dispute through a settlement agreement which was incorporated into a consent decree entered by the district court on September 4, 1985.

In the consent decree, Apex agreed to purchase from Kearney all the tooling Kearney had used for several fountains advertised in its brochure, and Kearney agreed not to "manufacture or use any tooling which duplicates such tooling in the future." In addition, in paragraph one of the decree, Kearney stated that it:

acknowledge[s] the validity of and will not contest [Apex's] exclusive right, title and interest in the trademarks APEX FOUNTAINS, the vertical oblong slots on fountains, and the profile including the top bowl, column, top of lower bowl, spigot and jet stream . . . for champagne fountains in the United States and throughout the rest of the world.

In paragraph two, Kearney agreed not to use any mark or design "confusingly similar" to that of Apex. Then, in paragraph seven, the parties set out an arbitration provision for the approval of new fountain designs by Kearney:

Defendants will change their fountain design so that the fountains can no longer be identified as Apex Fountains had no longer use the Trademarks. Defendants will submit their new fountain designs for prior written approval to a panel consisting of Alvin Gruber, Ralph Kearney, Sr. and a third person to be chosen by the consent of Gruber and Kearney to decide on a majority basis whether the fountain designs meet the above standard and that decision will be binding on the parties.

The parties further stipulated that the agreement would be governed by Pennsylvania law, and in his order incorporating the consent agreement, the district court (Charles R. Weiner, J.) maintained ...


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