OPPOSITION TO PLAINTIFF'S (Urantia Foundation) MOTION FOR PARTIAL JUDGMENT ..

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO

Civil Action No. 96-D-2004

URANTIA FOUNDATION, Plaintiff,

vs.

ERIC SCHAVELAND and KRISTEN MAAHERRA, Defendants.

OPPOSITION TO PLAINTIFF'S MOTION FOR PARTIAL JUDGMENT ON THE PLEADINGS ON RES JUDICATA AND COLLATERAL ESTOPPEL

I. INTRODUCTION

Defendant Kristen Maaherra ("Maaherra"), through her undersigned counsel, opposes the Urantia Foundation's ("the Foundation") motion for partial judgment on the pleadings on res judicata and collateral estoppel grounds. The Foundation's motion is based on a prior case between the parties in federal district court in Arizona which was settled two years ago ("Arizona case"). The motion must be denied on all grounds for the following reasons:

The doctrine of res judicata does not bar the defenses to the trademark claims or the counterclaim in this case because:

the present case asserts a different cause of action than did the Arizona case;
the Arizona case was settled and dismissed by agreement of the parties and neither party was awarded a judgment in its favor on the trademark issues; and
if the doctrine of res judicata were applicable to this case, it would constitute a legal bar to the Foundation's trademark claims, not merely Maaherra's defenses and counterclaims.

The doctrine of collateral estoppel does not bar Maaherra's counterclaim or any of her affirmative defenses to the Foundation's trademark claims for the following reasons:

the issues of acquiescence, laches, trademark misuse, unclean hands, collateral estoppel or res judicata were never decided in the Arizona case;
the affirmative defense based on genericness (affirmative defense no. 2) is not barred because the Arizona court's interlocutory order discussing the issue did not "actually decide" it in the manner necessary for applying the doctrine of collateral estoppel; and
in addition, collateral estoppel does not bar the genericness defense because: (a) the interlocutory order issued by the Arizona court was not necessary to the ultimate disposition of that case; (b) Maaherra asserts that the nature of the Foundation's trademark has changed in the more than two years since the ruling in the Arizona case; (c) recent case law applies a standard for determining whether a religious mark is generic that is materially different from the erroneous test employed in the Arizona case; and (d) it was not foreseeable to Maaherra that, subsequent to settling the Arizona case, she would be unable to assert the defense against the Foundation's claims in another case.

Neither res judicata nor collateral estoppel can be applied to the defenses raised by Defendant Eric Schaveland ("Schaveland") because:

he was not a party to the Arizona case;
he had no control over the course of litigation in that case; and
his individual interest was not represented by Maaherra in the Arizona case.

II. STATEMENT OF FACTS

On February 27, 1991, the Foundation filed an action against Maaherra in United States District Court for the District of Arizona (Civ. 91-0325-PHX-WKU). The Arizona case arose from a volunteer religious service effort of Maaherra in which she created a computerized study aid for The Urantia Book and distributed it on computer diskettes to other Urantians without charge.

The Foundation's complaint in the Arizona case asserted claims against Maaherra for copyright infringement, trademark infringement and related claims of deceptive practices and unfair competition. Maaherra's answer in that case denied that there had been any trademark infringement and set forth various defenses and counterclaims, including unclean hands, trademark misuse, and that the Foundation's purported trademarks were generic symbols and words used by a large body of religious believers to denote their religious activities and associations and allegiance to God and therefore are not subject to exclusive appropriation.

Maaherra's Answer in Arizona at 5-6, submitted as Hill Affidavit, Ex. A. The relevant counterclaims asserted by Maaherra were for a declaratory judgment on the same grounds.

The Arizona district court (Urbom, J.) granted judgment in favor of Maaherra on the Foundation's copyright claim and issued several interlocutory rulings relating to the trademark claims. Urantia Foundation v. Maaherra, 895 F. Supp. 1347 (D.Ariz. 1995). In a Memorandum and Order issued February 27, 1995, the court denied the Foundation's motion for partial summary judgment for trademark infringement, but ruled that Maaherra had not shown that the Foundation's marks were then generic or that the Foundation committed fraud in prosecuting its trademark applications. Urantia Foundation v. Maaherra, 895 F. Supp. 1338 (D.Ariz. 1995).

After deciding these motions, the Arizona court set March 27, 1995 as the date for trial of the remaining trademark claims and defenses. Shortly before the trial date, on March 24, 1995, the parties entered into a settlement agreement resolving the trademark issues and related unfair competition and deceptive trade practices issues. Complaint at p. 9 (Paragraph 30). Maaherra entered into the agreement strictly for personal and financial reasons -- that is, she did not have the funds to pay the costs and attorneys' fees that would have been incurred if the case had gone to trial, and she believed that her time and effort could best be spent on future service projects which could then go forward because The Urantia Book had been declared to be in the public domain. Declaration of Defendant Kristen Maaherra at 1 (attached as Exhibit 1).

On October 25, 1995, the Arizona court entered the final Amended Judgment which granted judgment in favor of Maaherra on the copyright infringement claim and dismissed with prejudice the claims and counterclaims of both parties relating to trademark issues. (See Amended Judgment, Exhibit 2.)

On August 27, 1996, the Foundation commenced this action alleging trademark and service mark infringement, federal unfair competition, federal trademark dilution, breach of contract and copyright infringement. Complaint at pp. 10-13 (ParagraphParagraph 32-50). This action arises from Schaveland's activities in making the text of The Urantia Book freely available to others and for using the word Urantia as part of his "address" on the global computer network commonly referred to as the Internet. The Foundation asserts that the activities which gave rise to the trademark claims in this action commenced after the entry of final judgment in the Arizona case. [Footnote 1: In another brief filed in this case, the Foundation contends that its infringement claim does not present the same cause of action or claims described in the Arizona case because this suit arises out of activities by Defendants which occurred after the entry of judgment in the prior action. Plaintiff's Brief in Opposition to Defendants' Motions for Partial Summary Judgment as to Count V (Copyright Infringement) at 6.] Complaint at 6 (paragraph 18).

Maaherra filed her Answer and Counterclaim on October 15, 1996. Maaherra asserts ten separate affirmative defenses to the Foundation's trademark and copyright claims. The Foundation's motion relates only to Maaherra's second, eighth, ninth and tenth affirmative defenses and her counterclaim, and only to the extent that they apply to the trademark claims. [Footnote 2: Pending before the court are separate motions relating to the copyright claims.] The relevant affirmative defenses are that the alleged trademarks are invalid because they are generic designations (Maaherra's second affirmative defense); that the Foundation's claims are barred due to its acquiescence (the eighth affirmative defense); that the Foundation's claims are barred under the doctrine of laches (the ninth affirmative defense); [Footnote 3: Maaherra also asserts in her ninth affirmative defense the doctrines of res judicata and collateral estoppel. However, these defenses apply solely to the copyright claims on which she obtained a final judgment in her favor in the Arizona case.] and that the Foundation's alleged rights are unenforceable because it has engaged in misuse of its trademarks and copyright and because it has unclean hands (the tenth affirmative defense). Answer and Counterclaim at 5-6. Maaherra's counterclaim is for a declaratory judgment that she has not infringed any valid rights of the Foundation and that the Foundation's purported copyright and trademark rights are invalid. Id. at 6.

III. ARGUMENT

The Foundation has failed to meet its substantial burden of demonstrating that it is entitled to judgment in its favor on these issues as a matter of law. Accordingly, neither Maaherra's nor Schaveland's affirmative defenses to the Foundation's trademark claims should be barred under the doctrines of res judicata or collateral estoppel.

Applicable Legal Standards: Motion for Summary Judgment and Motions for Judgment on the Pleadings

For reasons set forth at Section III(E), infra, the Foundation's motion under Rule 12(c) for judgment on the pleadings should be treated as a motion for summary judgment under Rule 56(c). Nonetheless, Maaherra sets forth below the standards for considering motions under both rules.

Standard for Motion for a Judgment on the Pleadings A motion for a judgment on the pleadings is subject to "a fairly restrictive standard" in ruling thereon because of the potential for the harsh result of denying a litigant its day in court. 5A Wright & Miller, Section 1367 at 509-510 (1990).
Judgment on the pleadings is appropriate only where the material facts are not in dispute and judgment on the merits can be rendered based on the content of the pleadings and any facts of which the court will take notice. Hamilton v. Cunningham, 880 F. Supp. 1407, 1410 (D.Colo. 1995), citing 5A Wright & Miller, Section 1367 at 509-510 (1990). In reviewing the motion, all well-pleaded material allegations of the opposing party's pleading[s] are to be taken as true, and all allegations of the moving party [that] are denied are taken as false. Judgment on the pleadings may be granted only if, on the facts so admitted, the moving party is clearly entitled to judgment. Hamilton, 880 F. Supp. at 1410, quoting Geltman v. Verity, 716 F. Supp. 491, 491 (D.Colo. 1989).
Summary Judgment Standard

If the Court elects to treat the Foundation's motion as for summary judgment, it still must be denied. A motion for summary judgment must be denied unless, when viewing the facts and reasonable inferences in the light most favorable to the non-moving party, there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c); Clough v. Rush, 959 F.2d 182, 186 (10th Cir. 1992). A material fact is one that may affect the decision; a genuine dispute exists where sufficient evidence is presented such that a reasonable finder of fact could decide the question in favor of the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

B. Res Judicata is not Applicable to Maaherra's Affirmative Defenses and Counterclaim

The doctrine of res judicata (often referred to as "claim preclusion") does not operate to bar the affirmative defenses and counterclaim alleged by Maaherra in this case.

The doctrine of res judicata prohibits a party from relitigating the same claim by asserting in a second lawsuit any matter that was asserted or might have been asserted by that party in the first lawsuit. Prospero Associates v. Burroughs Corp., 714 F.2d 1022, 1025 (10th Cir. 1983). The doctrine is applied to bar a claim or defense only if the party asserting it can establish all of the following elements:

the first suit proceeded to a final judgment on the merits;
the parties are identical or in privity; and
the suits are based on the same cause of action.

May v. Parker-Abbot Transfer and Storage, Inc., 899 F.2d 1007, 1009 (10th Cir. 1990).

Maaherra acknowledges that the second element of the res judicata test is readily satisfied -- that is, she and the Foundation were parties to the Arizona case. However, the doctrine of res judicata is not applicable in the case at bar because the facts, when viewed in the light most favorable to Maaherra, do not support the other two elements of the test.

The Doctrine Cannot be Applied Unilaterally The Foundation argues that the doctrine of res judicata should be applied only to dismiss Maaherra's defenses and counterclaim. In effect, the Foundation is asking this court to apply res judicata unilaterally against Maaherra, and to ignore the impact that the doctrine would have on its own trademark claim. There is neither support nor precedent for such a one-sided application of the doctrine. If a claim has been finally disposed of, neither party may relitigate the claim.
In the Arizona case, the court's judgment was neutral as to the trademark issues; it dismissed the trademark claims and counterclaims of both parties. See Exhibit 2. Thus, if the doctrine were applicable, it would operate to bar (and require dismissal of) the Foundation's trademark claim. However, for the reasons set forth below, the doctrine of res judicata is not applicable to the trademark issues in this case.
The First Suit did not Proceed to a Final Judgment on the Merits on Trademark Issues [Footnote 4: Defendant notes that the Foundation is seeking application of the doctrine of res judicata only as to certain of the Defendant's defenses or her counterclaim as they pertain to the Foundation's claims of trademark infringement. Plaintiff's Brief at 5. The copyright claim, unlike any of the other claims in the Arizona case, did proceed to judgment, but such judgment was granted by the Arizona court in favor of Maaherra. See Exhibit 2.]

The resolution of the trademark issues reached in the Arizona case, did not constitute a final judgment on the merits. For res judicata purposes, a judgment is "final" if it "finally dispose[s] of some matter which under the substantive law to be applied and the procedural law of the forum can be, and has been, disposed of." 1B J. Moore, Federal Practice Paragraph 0.409[1][1.-1] (1996).

The Arizona district court entered a judgment in favor of Maaherra on the copyright infringement claim, but dismissed the claims and counterclaims of both parties relating to trademark issues. Thus, only the copyright infringement claim was "finally disposed of" in the Arizona case for the purpose of applying res judicata. Indeed, the Foundation has argued that res judicata should not even apply to the copyright claim because the summary judgment was granted "without a hearing or trial on the merits." Plaintiff's Brief in Support of its Motion for Partial Stay as to Count V (Copyright Infringement) at 3.

The Arizona district court did not make a final judgment on the merits of the trademark claim as is required for application of the doctrine of res judicata. Accordingly, the Foundation's motion must be denied. 3. The Arizona Case and This Case are not Based on the Same Cause of Action.

Res judicata is not applicable to the affirmative defenses and counterclaim raised by Maaherra because this case is not based on the same cause of action.

In determining what constitutes a single cause of action, the Tenth Circuit looks to "all or any part of the transaction, or series of connected transactions, out of which the action arose." May v. Parker-Abbot, 899 F.2d at 1007, citing Restatement (Second) of Judgments Section 24 (1982). The factual groupings that constitute a "transaction," as well as the groupings comprising a "series,"are to be determined pragmatically, giving weight to such considerations as to whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations or business understanding or usage.

Id. An obvious example of a separate transaction precluding application of res judicata is where the second action "draws on facts or seeks remedies that simply could not have been asserted in the first case." 18 Wright, Miller & Cooper Section 4409 at 80.

The Foundation asserts that its complaint arises out of activities by the Defendants which occurred after the Arizona case had been settled. Thus, the complaint draws on facts that could not have been asserted in the first suit. The alleged trademark infringement is substantially different than the alleged infringement in the Arizona case, which dealt with the labeling of diskettes with different forms of trademarks than are alleged here. Moreover, the Foundation asserts a claim under the federal dilution law -- a statute that was not even in effect until after the Arizona case had been settled. Federal Trademark Dilution Act of 1995, Pub. L. 104-98, 109 Stat. 985 (effective January 16, 1996).

The Foundation itself has argued in a prior brief submitted to this Court that its infringement claim "does not present the same cause of action or claims decided by the Arizona District Court." Plaintiff's Brief in Opposition to Defendants' Motions for Partial Summary Judgment as to Count V (Copyright Infringement) at 6. This admission alone is sufficient for the Court to find that res judicata does not bar Maaherra's affirmative defenses and counterclaim.
C. Collateral Estoppel does not Bar Maaherra's Defenses and Counterclaim

The Foundation also argues that the doctrine of collateral estoppel (often referred to as "issue preclusion") bars certain of Maaherra's affirmative defenses and her counterclaim. Other than citing cases discussing general principles, the Foundation provides no support for applying collateral estoppel in the case at bar. It neither sets forth the requirements of the doctrine, nor does it identify a set of undisputed facts that satisfy such requirements. Absent such a showing, the Court cannot apply the doctrine.

Collateral estoppel is appropriate only when each of the following factors is present:

(1) an issue raised in a prior decision is the same as an issue involved in a subsequent case;

(2) the issue is actually decided in the first action after a full and fair opportunity for litigation;

(3) it was necessary to decide the issue in disposing of the first action;

(4) the later litigation is between the same parties; and

(5) the role of the issue in the second action was foreseeable in the first action. Butler v. Pollard, 800 F.2d 223, 224-225 (10th Cir. 1986), citing 18 Wright, Miller & Cooper Section 4416 at 137-38.

As between the Foundation and Maaherra, there is identicality of parties. However, none of the other factors which are a prerequisite to the application of collateral estoppel have been established. Thus, the Court must deny summary judgment or judgment on the pleadings for the Foundation on this issue.

The Issues Raised in the Prior Decision and This Case are not the Same

The issues of collateral estoppel and res judicata were not issues in the Arizona case. The Foundation concedes this fact in its brief. Plaintiff's Brief at 5, fn. 2. Nor were the issues of acquiescence or laches. The trademark defenses of misuse of marks and unclean hands were pleaded in the Arizona case, but were never raised in a decision by the court. These defenses cannot be precluded under the doctrine of collateral estoppel because there is no identicality of issues.

Maaherra acknowledges that genericness was addressed in an interlocutory order issued in the Arizona case and that the identicality of issues element has been met as to this one issue. However, the Foundation's failure to prove the other required elements precludes the application of collateral estoppel on this issue.

2. The Issues were not Actually Decided in the First Action After a Full and Fair Opportunity for Litigation

The doctrine of collateral estoppel does not apply to bar Maaherra's affirmative trademark defenses or counterclaim because none of these issues was "actually decided" in the Arizona case after a full and fair opportunity for litigation.
a. res judicata, collateral estoppel, laches, acquiescence, unclean hands, and misuse were not raised

As noted above, Maaherra's affirmative defenses of res judicata, collateral estoppel, laches, acquiescence, unclean hands and misuse were never the subject of a decision in the Arizona case. Some were never even pleaded; the others remained to be tried when the case was settled. Accordingly, these issues were not "actually decided" for the purpose of analysis under the doctrine of collateral estoppel, and should not be precluded.

b. the genericness issue was not actually decided

The only affirmative defense asserted by Maaherra in this case which was addressed in a decision in the Arizona case is the issue of genericness of the trademarks. The issue was the subject of a partial summary judgment opinion. This is not sufficient to determine that the defense was "actually decided." Moreover, there have been material changes in facts and relevant law since the Arizona court addressed the issue. Accordingly, the doctrine of collateral estoppel should not operate to bar Maaherra from asserting this defense. i. the partial summary judgment opinion is insufficient to determine that the genericness issue was actually litigated

The Arizona case was resolved by settlement agreement. Such an agreement does not give rise to collateral estoppel unless the parties clearly intended otherwise. 1B Moore's Paragraph 0.444[3] at 613-14. The intent of the parties is determined by resort to the principles of contract interpretation. Keith v. Aldridge, 900 F.2d 736, 740-41 (4th Cir. 1990), cert. denied, 498 U.S. 900 (1990).

Prior to the settlement of the case, the Arizona court issued an opinion denying the Foundation's motion for partial summary judgment on trademark infringement but granting partial summary judgment for the Foundation on the issue of genericness. Such an order is interlocutory in character. See 6 (Pt. 2) Moore Paragraph 56.20 [3.-4] at 704. It lacks the degree of finality required for application of collateral estoppel. Avondale Shipyards, Inc. v. Insured Lloyd's, 786 F.2d 1265, 1269, 1272 (5th Cir. 1986).

Ultimately, the Arizona court entered final judgment in favor of neither party on the trademark issues and dismissed with prejudice all trademark claims and counterclaims. (The only portion of the judgment that was expressly in favor of either party was a judgment in favor of Maaherra on the copyright claim.) Consistent with the holding in Avondale, this Court should decline to give preclusive effect to the interlocutory summary judgment opinion on the genericness defense.

In Avondale, a party attempted to assert collateral estoppel on the basis of a partial summary judgment order issued in a prior case that subsequently was resolved by the entry of a final judgment by consent. The final judgment by consent approved the settlement and dismissed the suit with prejudice; it made no reference to the to the partial summary judgment order or to the issues addressed therein. The court rejected the application of collateral estoppel. Id. at 1272.

A similar holding is required as to Maaherra's genericness defenses. In the Arizona case, an interlocutory order granted partial summary judgment on the issue of genericness. The Arizona case was then resolved by settlement agreement, which Maaherra entered into reluctantly due to her financial situation. This agreement disposed of claims "based on anything occurring prior to the date of this Agreement," but does not state that the parties intended for it to have collateral estoppel effect for all future claims. ii. changes in facts and law require a determination that the issue of whether the marks are presently generic was not actually decided

Even assuming, arguendo, that the Court determines that the genericness issue was sufficiently litigated, it must consider whether there have been changes in controlling facts or legal principles which preclude application of collateral estoppel. Montana v. United States, 440 U.S. 147, 155 (1979). See also 1B Moore Paragraph 0.448 at 837 ("an intervening factual change can displace a factual issue on which the initial judgment depended.").

A leading intellectual property judge has observed that trademark rights ". . . do not stay put. They are like ocean beaches; they shift around. Public behavior may affect them." G. Rich, Trademark Problems As I See Them Judiciary, 52 Trademark Rep. 1183, 1185 (1962), quoted in 4 J. McCarthy, McCarthy on Trademarks and Unfair Competition Section 32:88 (3d ed. 1996). In this connection, the determination as to whether a mark is generic depends upon public perception, which likely has changed in the two years since The Urantia Book went into the public domain. [Footnote 5: It is well established that when a book falls into the public domain, the book's name also becomes public property. G. & C. Merriam Co. v. Syndicate Publishing Co., 237 U.S. 618 (1915) ("further use of the name by which the publication was known and sold under the copyright cannot be acquired by registration as a trademark; for the name has become public property, and is not subject to such appropriation.") In this instance, the term "Urantia" is the significant component of the title of The Urantia Book. Since the work is in the public domain, this term also is public property.] Maaherra's assertion in her affirmative defense is that these changes in perception render the mark generic today. Since the court must accept this allegation by Maaherra as true at this juncture, it must be found that there has been a change in controlling facts which precludes application of the prior ruling. See Opryland USA Inc. v. The Great American Music Show Inc., 970 F.2d 847, 853 (Fed. Cir. 1992) (despite prior holding that the term "opry" was generic for country music shows, party was not estopped from presenting evidence of change in public perception); Plus Products v. Natural Organics, Inc., 223 USPQ 27, 28-29 (S.D.N.Y. 1983) (motion for summary judgment on collateral estoppel, based on a determination of likelihood of confusion in a prior case, denied because such decision may be "totally irrelevant" with respect to new market conditions).

Moreover, there has been a change in relevant law. In a decision released in March 1996, the Trademark Trial and Appeal Board ("TTAB"), an administrative court expert in trademark matters, issued a detailed opinion which addressed the appropriate standard for determining the genericness of a religious mark. See Stocker v. General Conference Corp. of Seventh-day Adventists, 39 USPQ2d 1385 (TTAB 1996). In what the TTAB noted as its "case of first impression . . . regarding the genericness of church/religion names," the Board examined whether the term "Seventh-day Adventists" was generic, and determined that the "relevant public" for this inquiry was not the general public, but only Adventist Christians. Id. at 1391, 1394.

The TTAB's test standard is contrary to that applied by the Arizona court in deciding the Foundation's partial summary judgment motion. In the Arizona case, the court defined the relevant public to include the general public, including persons who had never heard of the Urantia movement. This definition of the relevant public was overly broad; the proper test was whether the mark was perceived as generic by persons who might be familiar with the movement. This erroneous standard proved to be determinative of the outcome. Indeed, the Arizona court noted that the Foundation's marks "may be considered generic by a segment of the public that previously purchased The Urantia Book . . ." 895 F. Supp. at 1343.

At this stage of the case, Maaherra has shown sufficient changes in the controlling facts and the applicable law on the identical subject to require denial of the Foundation's motion.

3. It was not Necessary to Decide the Issues in Disposing of the First Action

The issue of genericness was not sufficiently decided for the purpose of applying collateral estoppel. However, even assuming, arguendo, that it was decided, that determination was not necessary to the judgment ultimately rendered in the Arizona case.

Where an issue is determined but the judgment is not dependent on the determination, collateral estoppel does not bar relitigation of the issue. Restatement (Second) of Judgments Section 27, comment h. Such a determination has "the characteristics of dicta. . . ." Id. The Restatement offers the following example:

A, as owner of a trademark, brings an action against B for infringement. B denies the validity of the trademark and denies infringement. The court finds that the trademark is valid, but that B had not infringed it, and gives judgment for B. Thereafter A brings an action against B alleging that since the rendition of the judgment B infringed the trademark. B is not precluded from defending this action on the ground that the trademark is invalid.

Id. (illus. 14).

The issue of genericness goes to the validity of the Foundation's alleged trademarks. Thus, under the Restatement, even if the Arizona case had gone to trial, the validity opinion might not necessarily be entitled to be given preclusive effect. Since the Arizona court's judgment dismissed the trademark claims of both parties without any determination of the infringement issue, there is even less reason to accord preclusive effect to that interlocutory decision. Clearly, the dismissal of the trademark claims was not dependent upon the prior interlocutory ruling. Therefore, that ruling should be treated as dicta and should not be given preclusive effect.

4. Foreseeability

The concept of "foreseeability" is an additional limitation on application of collateral estoppel. 18 Wright, Miller & Cooper Section 4424 at 226. It was not foreseeable to Maaherra that the interlocutory order issued in the Arizona case and the subsequent final judgment dismissing the trademark claims of the parties would be asserted as a bar to a genericness defense in subsequent litigation involving a different activity.

Maaherra entered into the settlement primarily because she lacked the funds needed to proceed. Maaherra Decl. at 1 (Exhibit 1). Had she recognized at that point that the interlocutory order on the genericness issue would be asserted to preclude that defense in a subsequent action, she would not have forfeited her right to appeal in negotiating the settlement agreement. Id. at 1-2. In view of this fact, the court should not apply collateral estoppel to bar Maaherra's genericness defense to the Foundation's trademark claims.

D. Schaveland's Defenses and Counterclaims are not Barred under "Virtual Representation" Doctrine

Schaveland was not a party to the Arizona case. Even assuming, arguendo, that either doctrine applies to bar any of Maaherra's claims or defenses, the preclusive effect cannot be extended to encompass the claims and defenses of Schaveland..

The Foundation contends that Schaveland's affirmative defenses and counterclaim are barred under res judicata and collateral estoppel because he is the privy of co-defendant Kristen Maaherra. This claim is without merit.

The circumstances in which issue preclusion may operate against a non-party to the prior action are very limited. See, e.g., Parklane Hosiery v. Shore, 439 U.S. 322 (1979). In a case cited with favor by the Foundation, the court states the "prevailing federal rule" regarding use of issue or claim preclusion against a non-party:

First, a non-party who has succeeded to a party's interest in property is bound by any prior judgments against that party . . . Second, a nonparty who controls the original suit will be bound by the resulting judgment . . . Third, federal courts will bind a nonparty whose interests were represented adequately by a party in the original suit. Terell v. DeConna, 877 F.2d 1267, 1271 (5th Cir. 1989), citing Freeman v. Lester Coggins Trucking Co., 771 F.2d 860, 864 (5th Cir. 1977). Although it is not clear from its brief, the Foundation appears to be arguing that Schaveland either "controlled" the Arizona case or was "virtually represented" therein by Maaherra.

Schaveland did not Control the Prior Litigation

The Foundation alleges no facts in its complaint or elsewhere from which this Court can conclude that Schaveland controlled the prior litigation. The Foundation has not met its burden. In fact, the only evidence is to the contrary. See Declaration of Kristen Maaherra at Paragraph 3. At minimum, Maaherra's declaration raises a material disputed issue which precludes judgment on the pleadings or summary judgment for the Foundation on the question of whether Schaveland controlled the Arizona case.

2. Schaveland was not "Virtually Represented" in the First Suit

The Foundation alleges that Schaveland was "virtually represented" by Maaherra in the prior case. This argument is without merit. There is no support for the proposition that Maaherra was acting on behalf of Schaveland for the purpose of the issues raised in the current litigation. Courts consistently have held that in order to establish "virtual representation," a party must establish the existence of an express or implied legal relationship in which parties to the first suit are accountable to nonparties who file a subsequent suit raising identical issues." Freeman, 771 F.2d at 865.

As a case cited with favor by the Foundation states, virtual representation does not exist between parties merely because they have a familial relationship and raise similar claims. Terrell v. DeConna, supra, 877 F.2d at 1271. Something more is required; the claims of the parties must be legally related, not merely share common facts. Id. at 1271-2. In Terrell, the second spouse's claim of loss of consortium legally derived from the husband's prior personal injury claim. The court determined that these facts permitted application of issue preclusion against the spouse in the second suit.

In contrast, the court in Freeman rejected a claim of "virtual representation," despite the existence of a familial relationship and a factual relationship between the claims of the relevant persons. 771 F.2d at 865-66. In that case, a father who had lost a personal injury claim relating to an accident filed a second case alleging the wrongful death of his daughter in the same accident. The father filed the second suit on behalf of himself and the other surviving members of his family. The court ruled that the prior judgment barred only the father's claim in the second suit; not the claim, as it applied to the father as the representative of the remaining family members. The court reasoned that the other family members were not so "closely aligned in legal interest" with the father so as to justify barring their claims. Id.

This case is similar to Freeman. Although there is a familial relationship between Maaherra and Schaveland, and the claims against them share some common facts, the Foundation has not established that Schaveland's trademark defenses and counterclaim legally derive from the trademark defenses and counterclaim asserted by Maaherra in the Arizona case.

The focus of the present case is Schaveland's activities on his Internet home page, which displays the Urantian circles and makes The Urantia Book available to other Urantians. This activity was not the subject of the first suit. Had the Foundation desired to make Schaveland bound by the Arizona decision, it could have and should have made him a party, especially since the Foundation knew during the pendency of that case that Schaveland was then distributing in printed and magnetic form the text of The Urantia Book.

The Foundation also argues that Schaveland was "virtually represented" in the Arizona case because he is attempting to benefit from the final judgment in that case holding the Foundation's copyright invalid. This argument is also without merit. The judgment of the Arizona court held that The Urantia Book was in the public domain. Thus, the defense of invalidity is available to the public, i.e. any party against whom the Foundation files a suit for infringement of its copyright in The Urantia Book. Schaveland's reliance on the copyright decision places him in no special class.

The reported cases cited by the Foundation are easily distinguishable. Bell v. Board of Education, 683 F.2d 963 (6th Cir. 1982), involved a prior court decision which was deemed to be a class action. Similarly, in Jackson v. Hayakawa, 604 F.2d 1121 (9th Cir. 1979) the court found that the initial decision "was brought as a class action and treated by court as a class action." Id. at 1126. The Arizona case was a typical trademark and copyright case which dealt with the specific allegedly infringing activities of Maaherra and not the potential liability of any class.

In addition, Schaveland's interests were not adequately represented in the Arizona case. Ms. Maaherra chose not to pursue this case through conclusion. Had she done so, she might have ultimately prevailed on the merits, and/or successfully appealed the interlocutory opinion discussing the issue of genericness.

E. The Foundation's Motion for Judgment on the Pleadings Should be Treated as a Motion for Summary Judgment

Consistent with the Foundation's styling, Maaherra has responded to a motion for judgment on the pleadings. However, this is an incorrect characterization of the nature of the motion; the Foundation is actually moving for summary judgment. [Footnote 6: The Foundation's res judicata and collateral estoppel claims encompass additional matters outside the scope of the pleadings. See 5A Wright & Miller, Section 1368 at 530. Moreover, the Foundation has attached an affidavit of its counsel to the motion at bar, which constitutes material outside the scope of the pleadings. Thus, this motion is not a proper motion for judgment on the pleadings. See Ketchum v. Cruz, 961 F.2d 916, 919 (10th Cir. 1992).] As such, the motion should be rejected because it is not in accordance with this Court's procedural order governing summary judgment motions. While a motion for judgment on the pleadings may be treated as a motion for summary judgment where the movant pleads matters outside the pleadings, Fed. R. Civ. P. 12(c), a party should not skirt this Court's requirements by merely using an inaccurate characterization of its motion.

This Court's Order of October 22, 1996, establishes the procedures for this case, and sets forth specific requirements which must be followed by a party seeking summary judgment. These requirements include, inter alia, a "Statement of Undisputed Material Facts" with separately numbered paragraphs containing simple declarative statements accompanied by a specific reference to supporting material in the record. The Foundation's motion does not include such paragraphs. Therefore, the motion should be stricken as provided for in the Order, because it deprives Defendants of the clearest way to demonstrate the existence of disputed issues of material facts and makes more difficult the consideration of this issue by the Court.

IV. CONCLUSION

Regardless of whether the Court construes the Foundation's motion as one for judgment on the pleadings or one for summary judgment, the Foundation has not demonstrated that it is entitled to a judgment as a matter of law on any issue. Accordingly, the Foundation's motion should be denied.

Respectfully submitted,

Joseph D. Lewis
Dated: March 11, 1997

Peter A. Jaffe
Jaffe and Asher
2624 Catamount Creek Road
McCoy, CO 80463
Ph: 970/653-4361

Joseph D. Lewis
Scott J. Major
Cleary, Komen & Lewis, LLP
600 Pennsylvania Avenue, SE
Suite 200
Washington, DC 20003
Ph: 202/675-4700

Attorneys for Defendant Kristen Maaherra