UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF VIRGINIA

ALEXANDRIA DIVISION

 MEMORANDUM OF LAW IN SUPPORT OF THE MOTION TO DISMISS OR, IN THE ALTERNATIVE, FOR SUMMARY JUDGMENT AS TO DEFENDANTS FISHER AND BURTON

The Complaint filed against defendants Dean C. Fisher and David R. Burton should be dismissed pursuant to Fed R. Civ. P. 12(b)(6) for failure to state a claim upon which relief can be granted, or in the alternative, summary judgment should be granted pursuant to Fed. R. Civ. P. 56. Dismissal is proper on three independent bases. First, the alleged actions of defendants Fisher and Burton fall within the protection afforded by the Volunteer Protection Act of 1997. Second, their actions do not give rise to personal liability under trademark law. Third, their actions fall within the protections afforded by Va Code §13.1-870.1(B) limiting the liability of officers and directors in 501(c)(3) organizations.

Factual Background

The American Unitarian Association ("AUA") was incorporated in the State of Virginia on or about September 28, 2000, as a nonstock corporation organized for religious and charitable purposes. Defendant Burton is the incorporator, a director and President of the AUA and defendant Fisher is a director and Secretary and Treasurer of the AUA. Burton Affidavit, attached as Exhibit A, at ¶¶ 7-14, & 18; Fisher Affidavit, Exhibit B, at ¶ 18. Plaintiff Unitarian Universalist Association alleges that the defendants AUA, Fisher and Burton are using the name American Unitarian Association in violation of their rights under trademark law.

Legal Argument

I. The Alleged Actions of Defendants Fisher and Burton are Protected by the Volunteer Protection Act of 1997

The Volunteer Protection Act of 1997 ("Act"), 42 USC § § 14501-14505, clarifies and limits the liability risk assumed by volunteers to encourage the provision of services to nonprofit organizations. This statute, enacted in 1997, precludes liability on the part of Mr. Fisher and Mr. Burton for the causes of action set forth in the UUA’s Complaint.

The Act defines a volunteer as "an individual performing services for a nonprofit or a governmental entity who does not receive compensation (other than reasonable reimbursement or allowance for expenses actually incurred) or any other thing of value in lieu of compensation, in excess of $500 per year, and such term includes a volunteer serving as a director, officer, trustee or direct service volunteer." 42 USC § 14505(6).

Mr. Fisher and Mr. Burton have received neither compensation nor any other thing of value in lieu of compensation from the corporate defendant American Unitarian Association (the "AUA") or from any source in connection with their services performed for the AUA. (Burton Affidavit, Ex. A at ¶ 22; Fisher Affidavit, Ex. B, at ¶ 22.) Defendants Fisher and Burton are, therefore, volunteers within the meaning of the Act.

The American Unitarian Association is a non-stock not-for-profit religious organization and therefore falls within the definition of nonprofit organization set forth in the Act. 42 USC 14505(4). (Burton Affidavit, Ex. A at ¶ 14; American Unitarian Association Articles of Incorporation, attached as Exhibit C.)

The statute reads in relevant part:

§14503 Limitation on Liability for Volunteers

(a) Liability Protection for Volunteers

Except as provided in subsections (b) and (d) of this section, no volunteer of a nonprofit organization or governmental entity shall be liable for harm caused by an act or omission of the volunteer on behalf of the organization or entity if --

1. the volunteer was acting within the scope of the volunteer's responsibilities in the nonprofit organization or governmental entity at the time of the act or omission;
2. ***
3. the harm was not caused by willful or criminal misconduct, gross negligence, reckless misconduct or a conscious, flagrant indifference to the rights or safety of the individual harmed by the volunteer; and
4. ****.

All of the actions of Mr. Fisher and Mr. Burton were performed in their capacity as incorporator, director or officer of the American Unitarian Association and were within the scope of those responsibilities. (Burton Affidavit, Ex. A at ¶ 21; Fisher Affidavit, Ex. B at ¶ 21). Defendants Fisher and Burton each acted in good faith for no personal gain or profit. (Burton Affidavit at ¶ 22-23; Fisher Affidavit at ¶ 22.) They each acted to preserve the Unitarian heritage. (Burton Affidavit at ¶ 22; Fisher Affidavit at ¶ 23.) They each acted with due care and neither was negligent. (Burton Affidavit, ¶ ¶ 7-17; Fisher Affidavit at ¶ ¶ 7-17.) The harm to the plaintiff, if any, was not caused by willful or criminal misconduct. (Burton Affidavit, ¶ ¶ 7-17; Fisher Affidavit at ¶ ¶ 7-17.) There is no allegation that an individual was harmed by Mr. Fisher or Mr. Burton. Nor is it alleged the defendants were flagrantly indifferent to the rights of the plaintiff. (Burton Affidavit, ¶ ¶ 7-17; Fisher Affidavit at ¶ ¶ 7-17.)

Section 14502 of the Act generally preempts the laws of any State to the extent that such laws are inconsistent with it. Consequently, the Act serves to bar not only the plaintiff's federal statutory claims (Counts I-IV) but also their Virginia claims (Counts V-VII).

Accordingly, personal liability for Mr. Fisher and Mr. Burton is barred by section 14503 of the Act, and the Complaint fails to state a claim upon which relief can be granted.

II. The Alleged Actions of the Defendants Fisher and Burton do not Give Rise to Personal Liability under Trademark Law

 A corporate entity is a legal fiction that can only act through its officers, directors or other authorized agents. Consequently, the officers of a corporation generally are not liable for the acts they have taken on behalf of the corporation if their actions are authorized and within the scope of their responsibilities. The shield of officer and director liability also applies to patent or trademark infringements by a corporation.

The allegations in the UUA’s Complaint are directed at actions taken by defendants Dean Fisher and David Burton after the incorporation of the AUA and in their capacity as corporate officers, directors and, in the case of Mr. Burton, as the incorporator of the American Unitarian Association. Complaint at ¶ ¶ 22-39. Specifically, paragraphs 23, 24, 25, 30, 31, 33, 35, 36, 37 and 39 allege conduct by defendants AUA, Burton and Fisher collectively, acknowledging that Mr. Fisher and Mr. Burton were acting within the scope of their responsibilities. Paragraphs 26, 27, and 38 allege acts of the entity AUA only. Paragraphs 28 and 29 allege conduct of Mr. Fisher and Mr. Burton collectively, and clearly in their capacity as directors and officers of the defendant corporation, AUA. Paragraphs 22 and 34 allege the conduct of Mr. Burton was on behalf of the AUA. Paragraph 29 addresses conduct of Mr. Fisher in his capacity as a director and officer of the AUA.

Regardless of the accuracy and truth of each of the allegations, Mr. Fisher and Mr. Burton were authorized and acting within the scope of their officer, director and incorporator roles during the time period for all of the acts alleged as the basis of plaintiff’s Complaint. See also, Burton Affidavit at ¶ 21; Fisher Affidavit at ¶ 21. Neither Mr. Fisher nor Mr. Burton have gained any financial or pecuniary advantage or been compensated in any way by virtue of serving as officers or directors of the American Unitarian Association (Burton Affidavit at ¶ 22; Fisher Affidavit at ¶ 22.)

Dangler v. Imperial Machine Co., 11 F.2d 945 (Cir. 7, 1926) is the leading case with respect to officer and director liability in the case of patent infringement, and has been applied to tradename infringement as well. The Dangler Court held that "in the absence of some special showing, the managing officers of a corporation are not liable for the [patent] infringements of such corporation, though committed under their general direction. The uncertainty surrounding the questions of validity and infringement make any other rule unduly harsh and oppressive." Id. at 947 (emphasis supplied).

Drink Group, Inc. v. Gulfstream Communications, Inc., 7 F. Supp. 2d 1009 (N.D. Illinois, 1998) applied the Dangler requirement for a special showing to a trademark infringement case brought against a magazine and it officers. "Thus, when a person in a control position causes the corporation to commit a civil wrong, imposition of personal liability requires consideration of the nature of the wrong, the culpability of the act, and whether the person acted in his/her personal interest or that of the corporation," Id. at 1009-1010. quoting Hoover Group, Inc. v. Custom Metalcraft, Inc., 84 F.3d 1408, 1411 (Fed. Cir. 1996).

In Drink, defendants were the incorporators and officers of Drink Magazine which plaintiff alleged infringed its tradename by using of the name "Drink." The court granted the individual defendants 12(b)(6) motion, finding that the plaintiff had failed to allege any facts which demonstrated wrongdoing by the individuals:

The mere fact that Holmes and Amoroso incorporated Drink Magazine, LLP is innocuous in the absence of allegations that, at the time of incorporation, they were motivated by some improper purpose or acting outside the scope of their corporate duties. In other words, Plaintiff's averments fall woefully short of the "special showing" requirement in Dangler. Plaintiff's remaining allegations against Holmes and Amoroso regarding continuing infringement and their roles as the "principal" and "driving force" behind the infringement, are similarly unavailing. These conclusory statements, standing alone, run afoul of Plaintiff's obligation to adumbrate a claim with some supporting facts.

Drink Group, Inc. v. Gulfstream Communications, Inc. at 1010.

Like the plaintiff in Drink, the UUA has pled no facts demonstrating improper purpose or acts outside the scope of corporate duties. UUA merely relies on conclusory allegations in paragraph 28 ("…defendant ‘founders’ of the newly formed AUA have also expressed their intent to usurp the history and appropriate the name of the historic American Unitarian association for their own purposes…"), in paragraph 30 ("…defendants selected the name, American Unitarian Association, with the express intent to convert UUA's corporate history, good will and religious tradition to their own use, and then to compete with UUA for members and congregations.") and in paragraph 31 ("…defendant's usurpation of the American Unitarian Association name is intended to, and will, confuse and mislead researchers, donors, trustees, and potential members and congregations looking for the true corporate successor to the historic American Unitarian Association for legal, historic, religious or other reasons.") These conclusory allegations are not supported by specific allegations of fact. Thus, they do not sufficiently state a cause of action. See Davis v. City of Portsmouth, 579 F. Supp. 1205, 1210 (E.D. Va. 1983)(more detail is required than the bold statement by plaintiff that he has a valid claim of some type against defendant) citing Jackson v. Nelson, 405 F. 2d 872 (9^th Cir. 1968) (civil rights action dismissed when complaint contained a series of broad conclusory statements unsupported by specific allegations of fact); Harper v. United States, 423 F. Supp. 192 (D. S.C. 1976) (general conclusionary allegations unsupported by facts are insufficient to constitute a cause of action).

In this case, moreover, Mr. Fisher and Mr. Burton have established that they had no pecuniary motive. (Burton Affidavit at ¶¶ 22-23; Fisher Affidavit at ¶ ¶ 22-23.) Each defendant states his motive is to preserve the God-centered Unitarian tradition. This motive is not an "improper purpose" and plaintiff’s averments do not constitute a "special showing" within the meaning of Dangler and Drink.

The UUA's complaint does not plead a cause of action against defendants Fisher and Burton individually under trademark law and should be dismissed pursuant to rule 12(b)(6) or summary judgment.

III. The Alleged Actions of Defendants Fisher and Burton are Protected by Virginia Code §13.1-870.1(B)

Defendants Fisher and Burton are protected from personal liability by Virginia Code §13.1-870.1(B). This statute reads in pertinent part:

§13.1-870.1 Limitation on Liability of Officer and Directors; Exception

***

B. In any proceeding against an officer or director who receives compensation from a corporation exempt from income taxation under §501(c) of the Internal Revenue Code for his services as such, the damages assessed arising out of a single transaction, occurrence or course of conduct shall not exceed the amount of compensation received by the officer or director from the corporation during the twelve months immediately preceding the act or omission for which liability was imposed. An officer or director who serves such an exempt corporation without compensation for his services shall not be liable for damages in any such proceeding.

C. The liability of any officer or director shall not be limited as provided in this section if the officer or director engaged in willful misconduct or a knowing violation of the criminal law.

(Emphasis supplied.)

Both Mr. Fisher and Mr. Burton fall within the italicized definition of "An officer or director who serves such an exempt corporation without compensation for his services shall not be liable for damages in any such proceeding." Neither defendant has received any compensation for his services (Burton Affidavit at ¶ 22; Fisher Affidavit at ¶ 22.) Moreover, the actions of which the plaintiff complains were taken by defendants in their capacity as officers and directors of the defendant corporation. (Burton Affidavit at ¶ 21; Fisher Affidavit at ¶ 21.)

Section 501(a) of the Internal Revenue Code states:

(a) Exemption from Taxation

An organization described in subsection (c) or (d) or section 401(a) shall be exempt from taxation under this subtitle unless such exemption is denied under section 502 or 503.

Section 501(c)(3) provides tax exempt status for a religious or charitable organization such as the AUA. Section 501(c) states :

The following organizations are referred to in subsection (a):

***

(3) Corporations, and any community chest, fund or foundation, organized and operated exclusively for religious, charitable,*** literary or educational purposes, *** no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation ***.

The American Unitarian Association is a religious and charitable organization and thus an organization exempt from taxation pursuant to section 501(c)(3) and section 501(a). The Articles of Incorporation explicitly prohibit the corporation from engaging in any activities prohibited to a section 501(c)(3) organization. (AUA Articles of Incorporation, Exhibit C.) As directors and officers of a corporation exempt from taxation under section 501(c) serving without compensation, defendants Fisher and Burton qualify for the protection from personal liability in Va. Code § 13.1-870.1.

Subsection C contains an exception to this protection for a director or officer engaged in willful misconduct or a knowing violation of the criminal law. Virginia courts have described the showing required for willful misconduct in various factual circumstances. In the context of criminal statutes, ""[w]illful generally means an act done with a bad purpose, without justifiable excuse, or without ground for believing it is lawful." Ellis v. Commonwealth, 29 Va. App. 548, 554, 513 S.E. 2d 453, 456 (1999). Accord Snead v. Commonwealth, 11 Va. App. 643,645, 400 S.E. 2d 806, 807 (1991). These cases both follow the definition and line of reasoning in United States v. Murdock, 54 S.Ct. 223, 290 U.S. 389 (1933). In Murdock, the Supreme Court determined that conduct based on a good faith misunderstanding of liability under the tax code was conduct with a justifiable excuse and did not constitute an act undertaken with a bad purpose.

Under the workmen’s compensation statutes, where an employee cannot recover compensation if his/her injury resulted from willful misconduct, the Virginia courts have taken a similar approach. The seminal case, King v. Empire Collieries Co., 148 Va. 585, 139 S.E. 478 (1927) states:

'Wilful,' … imports something more than a mere exercise of the will in doing the act. It imports a wrongful intention. An intention to do an act that he knows, or ought to know, is wrongful, or forbidden by law. It involves the idea of premeditation and determination to do the act, though known to be forbidden. There cannot, however, be a wilful failure to perform an unknown duty. If the duty is unknown, the employee cannot deliberately determine that he will not perform it.

Id., 148 Va. at 589, 139 S.E. at 479. See Boward v. Leftwich, 197 Va. 227, 231, 89 S.E. 2d 32, 35 (1955) (distinguishing negligence, which conveys the idea of heedlessness, inattention, or inadvertence from willfulness, which conveys the idea of purpose or design.); Buzzo v. Woolridge Trucking, Inc., 17 Va.App. 327,331, 437 S.E. 2d 205, 208 (1993); Uninsured Employer’s Fund v. Keppel, 148 Va. 585, 590, 139 S.E. 478, 479 (1985).

The UUA's Complaint does not allege a factual basis for willful misconduct under any of the above definitions. No allegations of the Complaint cite facts or describe circumstances indicating that the alleged acts of defendants Fisher and Burton were done with wrongful intention, bad purpose or with knowledge their actions were unlawful. The conclusory allegations of paragraphs 28, 30 and 31 misrepresent the intent of defendants Fisher and Burton and have no factual basis. Notwithstanding such misrepresentation, ascribing intent to use the American Unitarian Association name falls far short of the allegations required to sufficiently plead a wrongful intention, bad purpose, acting without justifiable excuse or without ground for believing the action was lawful. At most paragraphs 28, 30 and 31 allege the exercise of will in performing an act, but intention alone is not willful misconduct under Virginia law.

Moreover, the affidavits of Mr. Fisher and Mr. Burton unequivocally establish that they acted prudently in gathering information and conducting legal research into the use of the AUA name, had a reasonable basis for concluding that the American Unitarian Association name was legally available for use, and acted with reasonable care and with proper purpose. (Burton Affidavit at ¶ ¶ 7-13, 22-23; Fisher Affidavit at ¶ ¶ 7-14, 22-23.)

For these reasons, the exception in Va. Code § 13.1-870.1(C) for willful misconduct does not apply to Mr. Fisher and Mr. Burton, and they are entitled to protection from liability pursuant to § 13.1-870.1(B). Therefore, dismissal pursuant to rule 12(b)(6) or summary judgment is appropriate.

Conclusion

Based on the foregoing law, the Complaint against defendants Fisher and Burton, individually, should be dismissed pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief can be granted or summary judgment should be granted pursuant to Fed. R. Civ. P. 56.

Respectfully submitted,

 _____________________________

Larry L. Goodman (Va. Bar # 32621)

Nancy Chase Burton

David R. Burton