E. & J. Callo Winery v. Callo Cattle Company

967 F.2d 1280 (9th Cir. 1992)

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Nature of the Case

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Facts

Ernest, Julio, and Joseph, are the children of Joseph Gallo (Sr.) and Assunto (Susie) Bianco, immigrants to Northern California from Italy in the early 1900s. On June 21, 1933, Joseph Sr. took Susie's life and his own. Susie left each son a one-third interest in her estate. On April 4, 1935, the probate court approved the first and final account of Susie's estate and entered a decree distributing a one-third interest in her stock and real property holdings to each son. The accounting for Susie's estate listed no wine business nor assets of a wine business. Ernest obtained a court order authorizing him to continue Sr.'s business, described as 'that of raising grapes and other crops and farming and selling produce.' On April 29, 1935, the probate court distributed a one-third interest in the remaining assets of the estate to each son. The account did not list any wine business or assets of a wine business, but it did list 'E. & J. Gallo Winery' as a creditor of the estate. Ernest and Julio formed P after their parents' deaths. The brothers had obtained a license to establish a bonded winery which could lawfully produce wine for medicinal purposes during Prohibition. Prohibition ended on December 5, 1933, and on that day the P began shipping wine out of Modesto in barrels marked GALLO. Joseph was only 13 years old when his parents died, and Ernest and Julio did not make him a partner in the Winery. He lived with his brothers, who became his legal guardians by order of the probate court on February 19, 1934. Ernest and Julio filed no inventory of the guardianship estate and eventually obtained an order from the probate court authorizing them to sell the shares of stock Joseph had inherited from Susie, but then loaned the proceeds to P without the court's authorization. Joseph attained majority and Joseph and his counsel filed objections to the accounting, claiming, in addition to the proceeds of Joseph's stock, the sum of $25,000 as his portion of the profits generated by the Winery through an unauthorized investment of guardianship funds. The probate court adopted Ernest and Julio's account, as supplemented by a payment from P to Joseph of $20,000. This sum was declared to be 'in full and complete settlement of' Ernest and Julio's liability arising from their use of Joseph's capital for investment in P. P obtained its first registered trademark including the word GALLO. By the early 1960s, they had established distribution of the Gallo brand in all major U.S. markets. GALLO wine has become the best-selling brand in the country. P had acquired eleven different registered trademarks. containing GALLO. Ernest and Julio themselves registered all but one of the eleven. Gallo Salame (independent of P) sold salami and other prepared meat products. It obtained a registered trademark consisting of a shield with the word 'Gallo' in script, together with a depiction of the Golden Gate Bridge and a cable car. P sued Salame for trademark infringement and dilution, and the parties settled, with Gallo Salame assigning its registered trademark to the Winery as part of the settlement. The settlement also licensed the GALLO SALAME mark back to Gallo Salame, which continues to manufacture and sell its products under the mark. Joseph refused to become a partner in P. but managed P's ranches until 1967. He purchased and farmed several pieces of land, including vineyards and a dairy. He used his name, 'Joseph Gallo', as a trade name. He sold grapes from his vineyards - many to the Winery - under the trade name 'Joseph Gallo Vineyards', and he operated his ranches under similar trade names incorporating his own name. D established the 'Gallo Cattle Company', a partnership, and he proceeded to raise and sell dairy cattle on the land not dedicated to the vineyards. It established a large dairy, and in 1983, it entered the cheese business. P learned that D was selling retail cheese labeled JOSEPH GALLO. P sued D for infringement. D raised twelve affirmative defenses and brought several counterclaims asserting a constructive trust, arguing that Joseph Sr. and Susie had founded the P and that he, therefore, had inherited a one-third interest in it. He also sought damages from Ernest and Julio for breach of fiduciary duty, deceit, and constructive fraud in the conduct of the guardianship. The judge granted P's motion for summary judgment on D's counterclaims. The court permanently enjoined D from using the GALLO mark on retail cheese packages and from using the GALLO name in advertising. D appealed.