Pure Country, Inc. v. Sigma Chi Fraternity; Sigma Chi Corp.

Pure Country brought this action against Sigma Chi on March 23, 2001,
asserting (1) a cause of action for civil contempt alleging that Sigma Chi had violated
a court-ordered consent decree, Phi Theta Delta v. J.A. Buchroeder & Co., No. 683
(W.D. Mo. Oct. 17, 1969) (Decree and Order of Dismissal) (hereinafter "1969
Consent Decree"), entered in the United States District Court for the Western District
of Missouri to resolve litigation brought by J.A. Buchroeder & Co. ("Buchroeder")
against Sigma Chi Fraternity and another college fraternity (hereinafter referred to as
"the Buchroeder case") and (2) a cause of action under 28 U.S.C. § 2201 seeking a
declaration that: Sigma Chi's name and insignia are not protectable under state or
federal trademark law; Sigma Chi is barred under the 1969 Consent Decree from
taking certain actions including suing Pure Country for trademark violations; Sigma
Chi is barred by waiver, laches, or estoppel from seeking trademark protection; and,
even if Sigma Chi's trademark is protectable, Pure Country did not infringe upon it.
In its complaint Pure Country alleged the following facts:

[Pure Country] manufactures and sells afghans and tapestries, and
has been in business in Polk County, North Carolina since 1988. [Pure
Country] began creating and selling afghans with the Sigma Chi insignia
to Sigma Chi members in June 1996. For approximately two years,
[Pure Country] sold Sigma Chi afghans without any interference by [Sigma Chi]. In 1998, Sigma Chi represented to [Pure Country] through
its marketing agent, Affinity Marketing Consultants, Inc. ("Affinity"),
that [Pure Country] could not sell its insignia goods without a license
from Sigma Chi. Under pressure from [Sigma Chi] and without
knowledge of the [1969 Consent Decree], [Pure Country] signed a
licensing agreement with [Sigma Chi]. [Pure Country] terminated its
licensing agreement in September 1999. [Sigma Chi] ha[s] since then
repeatedly demanded that [Pure Country] either sign another licensing
agreement or stop making afghans with the Sigma Chi insignia. [Sigma
Chi] ha[s] also demanded that [Pure Country] pay [Sigma Chi] royalties
on [Pure Country's] sales of afghans with the Sigma Chi insignia.

Joint Appendix at 11-12 (Complaint, 11).

Sigma Chi moved to dismiss the complaint for failure to state a claim upon
which relief may be granted. In support of its motion, Sigma Chi argued that Pure
Country, as a non-party to the 1969 Consent Decree, lacked standing to assert rights
under the 1969 Consent Decree. Sigma Chi did not file an answer to the complaint.

While Sigma Chi's motion to dismiss was pending, Pure Country filed a
"Motion to File Amended Pleading and to Add Additional Parties." Pure Country
also filed, along with its motion, a proposed amended complaint. The amended
complaint contains new plaintiffs and defendants, modifications to the original facts
and causes of action, and two new causes of action. In its motion to amend the
complaint, Pure Country asserted: "Rule 15(a) Fed. R. Civ. P., provides that a party
may amend its pleading before a responsive pleading is filed ‘only by leave of court
or by written consent of the adverse party, and leave shall be freely given when
justice so requires.'" Joint Appendix at 32 (Plaintiff's Motion to File Amended
Pleadings and to Add Additional Parties at 1).

The district court thereafter granted Sigma Chi's motion to dismiss the original
complaint on grounds that Pure Country was essentially attempting to assert rights under the 1969 Consent Decree but lacked standing to do so because Pure Country
was not a party to the 1969 Consent Decree and is not an intended third-party
beneficiary under the 1969 Consent Decree. District Court Order at 6-11. The
district based its conclusion that Pure Country is not an intended third-party
beneficiary on language in the 1969 Consent Decree indicating that the decree
applies to the specific parties in the Buchroeder case and to "them only." See id. at
8 (citing 1969 Consent Decree (introductory paragraph and 3)). In the same order,
the district court denied as moot Pure Country's motion to file the amended complaint
and to add parties. See id. at 11. This appeal followed.

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Click the case caption above for the full text of the Court's opinion.

The order of the district court is affirmed in part and reversed in part, and the
case is remanded to the district court for further proceedings consistent with this
opinion.

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