Fourth Circuit Rules No Infringement On OBX Trademark: OBX Is In The "Linguistic Commons" As A Reference To North Carolina's Outer Banks

In the 1930's, North Carolina began an ad campaign describing the state as "Variety Vacationland."  UNC's Wilson library says that the advertising resulted in a "growing number of visitors to places like Asheville, Pinehurst, and the Outer Banks" and that it "heightened their reputation as excellent vacation areas."

What do places like Pinehurst and the Outer Banks have to do with business litigation in North Carolina?  The answer is in the Fourth Circuit Court of Appeals' opinion yesterday in OBX-Stock, Inc. v. Bicast, Inc.  The OBX case involves a trademark referencing the Outer Banks, and it discusses an earlier Fourth Circuit opinion addressing the "Pinehurst" trademark.

The Plaintiff had conceived of the OBX abbreviation to designate the Outer Banks of North Carolina, placing it on stickers, t-shirts, and other items. The Plaintiff was so successful that a broad variety of businesses began using the term as a shorthand designation for the Outer Banks.  The result, said Judge Niemeyer, was that "[t]he initials OBX are omnipresent in the Outer Banks and are universally understood as an abbreviation for 'Outer Banks.'"

The Defendant came into Plaintiff's crosshairs when it began selling stickers using the term OBXtreme "to denote the wide variety of extreme sports available at the Outer Banks."  The Plaintiff, which held four federally registered trademarks for OBX, sued for infringement.  It lost at summary judgment and the Court of Appeals affirmed.

The reason was that OBX wasn't identified with any product.  Instead, it was merely descriptive of a geographical location.  The Court held that the term had become so widely and generally used that it had "entered the 'linguistic commons' as an often-used, everyday abbreviation of 'Outer Banks.'"  Thus, In order to prevail, the Plaintiff needed to show that its descriptive mark had secondary meaning associated not with the Outer Banks, but with Plaintiff's products.  The Court said that there was no such evidence.

In an interesting sidelight, the Fourth Circuit held that OBX couldn't rely on its federal registrations because "the PTO only grudgingly issued the registrations after intervention by North Carolina's congressional delegation."  The registrations had been rejected five times by the PTO based on its determination that OBX "had become nothing more than an alternative to Outer Banks and the terms were used 'interchangeably.'"  The Court said that "quick process through the PTO," conversely, would "weigh[] in favor of validity."

In the earlier case involving the "Pinehurst" trademark, Resorts of Pinehurst, Inc. v. Pinehurst Nat'l Corp., 148 F.3d 417 (4th Cir. 1998), the Fourth Circuit held that Defendant had infringed by using "Pinehurst" in connection with its competing golf resort.  Pinehurst is a geographic location also, so what was the difference from the OBX case?  In Resorts of Pinehurst, the Court found the secondary meaning lacking in OBX, holding that the "Pinehurst" mark "had a clear secondary meaning in consumers' minds, making it an enforceable trademark even if it might have been geographically descriptive.  Resorts of Pinehurst communicated its name to the consuming public effectively to associate the name with a private provider of golf courses and golf services, and not the geographical location in North Carolina."

My partners Reid Phillips and David Sar represented the prevailing Defendant.

Send This On To Your Favorite Trust And Estates Lawyer: The NC Business Court Rules That Trusts Can Be Exempt From The Rule Against Perpetuities

The excitement from the Business Court today is a ruling on, of all things, the Rule Against Perpetuities.  The Opinion is in Brown Brothers Harriman Trust Co. v. Benson.

The subject of perpetuities is addressed in the North Carolina Constitution.  It says that "perpetuities and monopolies are contrary to the genius of a free state and shall not be allowed."  N.C. Const. Art. I, §34.

In 2007, however, the Legislature enacted G.S. §41-23, which repealed the common law Rule Against Perpetuities as well as the Uniform Statutory Rule Against Perpetuities (N.C. Gen. Stat. §41-15) as they apply to trusts created or administered in North Carolina.  N.C. Gen. Stat. §41-23(h).

The constitutionality of that statute was at issue in the Brown Brothers case, which involved a Trust formed by the grantor as a "perpetual or dynasty trust." With this type of trust, the principal is never transferred to any beneficiary.  Successive generations receive distributions, and the beneficiaries potentially avoid generation skipping taxes.  In the case of the Trust formed by Mrs. Benson, the Trustee had the specific authority to transfer title to the property owned by the Trust, a key factor in the Court's ruling.

Mrs. Benson's children instructed Brown Brothers to terminate the Trust immediately, contending that it violated the Rule and that the 2007 statute was unconstitutional.  This gave rise to the controversy before the Business Court, which held the Trust valid and the statute constitutional.

The Opinion by Judge Diaz is quite short.  It holds as follows

1. Section 41-23 of the North Carolina General Statutes, denominated as Perpetuities and Suspension of Power of Alienation for Trusts, (hereinafter the “Act”) is a valid exercise of the General Assembly’s legislative power to repeal both the common law Rule Against Perpetuities and the Uniform Statutory Rule Against Perpetuities, as they apply to trusts in North Carolina;

2. The prohibition against “perpetuities and monopolies” found at Article I, Section 34 of the North Carolina Constitution applies only to unreasonable restraints on the alienation of property and not to the vesting of remote interests; and

3. Because Plaintiff (as trustee of the Benson Trust) has the power to transfer title to any and all property that is part of the corpus of the Benson Trust, either by sale or by distribution to the trust beneficiaries, the Court holds that the Benson Trust is valid under the Act and does not violate the North Carolina Constitution.

The classic book on the Rule Against Perpetuities was written in 1886 by John Chipman Gray, a Professor at Harvard Law School who is pictured at the top.  You can imagine my great delight in discovering that Google has digitized the third edition of his book, published in 1914.  You can download the whole thing and read it at your leisure.

Plaintiff's Brief in Support of Motion for Summary Judgment

Defendant's Brief in Opposition to Motion for Summary Judgment

Plaintiff's Reply Brief in Support of Motion for Summary Judgment

Amicus Brief of North Carolina Bankers Association

Substantial Rights: The Right To An Interlocutory Appeal When The Issues Of Liability And Damages Are Bifurcated

You've certainly been caught in the gap between a trial court proceeding that isn't completely over, and an interlocutory appeal. One side wants to proceed ahead in the trial court, but the other wants a reversal in the appellate court. Can the trial court proceed?

The Business Court entered an Order today in the case of Land v. Land which involved exactly this situation.  The Court had bifurcated the trial on liability and damages, and the liability phase had ended with a verdict for the Plaintiffs.  The Defendants, wanting to avoid the damages phase of the trial, filed an interlocutory appeal.  The Plaintiffs objected, pushing for a resolution of the damages issue in the Business Court before heading to the Court of Appeals.

The issue was whether the Defendants would be deprived of a "substantial right" which would be "lost absent immediate review."  The authority to make this decision rests initially with the trial court, and the Court of Appeals ultimately makes the determination whether it will hear an appeal.

Judge Tennille concluded that the Defendants' appeal did not affect a substantial right permitting an immediate appeal.  He held:

In this case, the only right affected by denial of the interlocutory appeal would be the Defendants’ right to avoid the second phase of the bifurcated proceedings. While this may be inconvenient for the Defendants, it clearly does not trigger the substantial right provision for interlocutory appeals, since “[t]he avoidance of a rehearing or trial is not a substantial right.” . . .  There is no possibility of inconsistent verdicts present and no risk of an irreparable loss of any substantial right if the Defendants must await final judgment before pursuing their appeal. In short, the Court concludes as a matter of law that the Defendants’ appeal does not affect a substantial right.

The Court noted that it had the discretion to stay the case pending the conclusion of the appeal, but it declined to do so.  Judge Tennille observed that the bifurcation of the issues had come at the Defendants' request, over the Plaintiffs' objection, and that there would be a long delay before a final conclusion if he were to stay the case.  He stated:

The jury found liability.  It is time to complete damage discovery and have a trial on damages so that the appellate courts can review the case as a whole rather than in a piecemeal process that could result in the case lasting a decade.  It would be manifestly unjust if this case did not move forward.

The successful result for the Plaintiffs in the liability phase of the trial was the product of the great work of my partners, Reid Phillips and Jennifer Harrod.

Decisions Last Week From The North Carolina Court Of Appeals

There weren't any opinions from the Court of Appeals last week which would have been considered for the legal equivalent of an Oscar, but three cases are worth an honorable mention.  They involve arbitration, the statutory requirements for contracting with a municipality, and a healthcare law case involving Certificates of Need.


The arbitration case is WHD v. Mayflower Capital, LLC, in which the Court made a rare reference to the Commercial Arbitration Rules of the American Arbitration Association. The Defendant argued that the arbitrator had erred by failing to require the Plaintiff to produce a settlement agreement. The Court disagreed, noting the authority that an arbitrator has under AAA Rule 21 (permitting an arbitrator to direct the production of documents, and authorizing an arbitrator "to resolve any disputes concerning the exchange of information”) and AAA Rule 31 (stating that the parties “shall produce [at the hearing] such evidence as is relevant and material to the dispute.”).

The Court also rejected the Defendant's argument that the arbitrator had made a mistake by permitting the introduction of a criminal conviction of the Defendant which would not have been admissible under the Rules of Evidence.  It said twice in its opinion that “if an arbitrator makes a mistake, either as to law or fact, it is a misfortune of the party, and there is no help for it,” quoting an 1895 Supreme Court decision, Patton v. Garrett, 116 N.C. 848, 21 S.E. 679 (1895).  John Ormand in Brooks Pierce's Raleigh office represented the Plaintiff.

Contracting With Municipalities

The municipality case is National Railroad Museum and Hall of Fame, Inc. v. City of Hamlet.  Hamlet was the home of the National Railroad Museum and Hall of Fame.  According to the Court's opinion, the Museum housed "exhibits, antiques, artifacts, and general materials relating to the development of the railroad industry in North Carolina and the United States as a whole." 

The Museum operated in a building leased from the City, but the parties appeared to have agreed that the building would be torn down and that they would attempt to obtain financing to build a new home for the Museum's artifacts.  When that didn't happen, the Museum sued. 

Blocking the tracks for the Museum was Section 160A-16 of the General Statutes, which requires contracts by or on behalf of a city to be in writing, and which says "a contract made in violation of this section shall be void and unenforceable unless it is expressly ratified by the council."  Although the City Council had adopted a resolution supporting "the depot project," and it had submitted a funding application to the Department of Transportation, the Court of Appeals held that these facts didn't make out either an express contract or a duly ratified agreement.

Certificate of Need

Last, the CON decision is Total Renal Care of NC, LLC v. North Carolina Dept. of Health and Human Services, The Court held that when a party awarded a CON completes the construction of the facility and it becomes fully operational, an appeal challenging the award of the CON is moot.  The Court relied on a 2005 per curiam decision of the North Carolina Supreme Court in Mooresville Hosp. Mgmt. Assocs. v. N.C. Dep't of Health & Human Services, 360 N.C. 156, 622 S.E.2d 621 (2005), and held:

Both parties recognized during the pendency of this appeal that, as in Mooresville,  the appeal could become moot upon the completion of BMA's facility. We must presume that the General Assembly recognized such a possibility in enacting the CON Law. Even if the General Assembly failed to recognize this possibility prior to the Supreme Court's decision in Mooresville, in the more than three years since that case was decided, the General Assembly has not revised the CON Law to provide for a stay of either the construction or operation of a facility for which a CON has been issued pending an appeal from a final agency decision.

So if you are awarded a CON, build fast.  Or at least faster than the Court of Appeals can rule.

French Choice Of Forum Provision Enforced by North Carolina Business Court

The North Carolina Business Court ruled today on an issue of first impression -- when a North Carolina Court should apply the law of a foreign country -- and concluded that it would apply North Carolina law to a forum selection clause requiring the parties to litigate their dispute in the Commercial Court of Paris, under French law.

The result was that the Court enforced the forum selection clause and dismissed a crossclaim brought by an Arizona corporation (Swift) against a French Bank (Paribas), in Speedway Motorsports International Ltd. v. Bronwen Energy Trading, Ltd., 2009 NCBC 3 (N.C. Super. Ct., February 18, 2009).

The provisions specifying French law and a French choice of forum were contained in a series of Third Party Letter of Credit Agreements which had been submitted by Swift and another Defendant (Bronwen) to Paribas. They stated that French law would apply and that "[a]ny disputes arising [t]hereunder or in connection [t]herewith shall be exclusively submitted to the commercial court of Paris, France."

When the Bank moved to dismiss, Swift argued that the Bank had never signed the agreement, that Its tort claims were not in any event subject to the clause, and also that it would violate public policy to make it litigate its claims in a French court.

The first issue for the Court was whether North Carolina law or French law should be applied to determine the validity of the forum selection provision.  The opinion is the first published decision under Rule 44.1 of the North Carolina Rules of Civil Procedure, which addresses a trial court's determination of the law of a foreign country.  Judge Diaz, relying on federal cases, determined that:

  • He had "broad authority to conduct [his] own independent research to determine foreign law," but that he had no duty to so.
  • It was the burden of both parties to "raise[]the issue that foreign law may apply in an action, and the burden of adequately proving foreign law to enable the court to apply it in a particular case."
  • When the "parties fail to satisfy either burden the court will ordinarily apply the forum's law."

The Business Court applied North Carolina law, because the parties hadn't provided the Court "with any authority or evidence from which it might discern how French law would evaluate the validity and scope of the forum selection clause in the" Agreements. 

Under North Carolina law, it didn't make a difference that Paribas hadn't signed the agreement.  Judge Diaz reasoned that the only signature required should be that of "the party to be charged therewith," that Swift had signed the Agreements, and that the Agreements spoke to Swift's obligations to Paribas  He also relied on cases involving arbitration provisions, which are often enforced against non-signatories when the claims are "intimately founded in and intertwined with the underlying contract obligations."  The Judge also noted the "strong seal of approval that our Supreme Court has given to contract clauses requiring litigation in a foreign jurisdiction."

Swift's argument that its claims sounded in tort, and that they were therefore outside the scope of the clause, was rejected.  The Court determined that claims stemmed from the contracts themselves, and that they could not be restyled as tort claims to avoid the agreement to the Parisian forum.

Lastly, the Court rejected the public policy argument that it simply wasn't fair for Swift to have to litigate its claims in France.  Swift said it would "be deprived of the full scope of discovery that would otherwise be available in" the Business Court.  Judge Diaz said there was "no authority . . . for the proposition that merely requiring a party to litigate in a forum with substantially different discovery rules than those applied in a U.S. court is sufficient cause to override the parties' choice of forum."  Swift was neither "deprive[d] of its day in court" nor "without an adequate remedy."

Brief in Support of Motion to Dismiss Crossclaim

Brief in Opposition to Motion to Dismiss Crossclaim

Reply Brief in Support of Motion to Dismiss Crossclaim


Preliminary Injunction Denied In Case Under North Carolina Trademark Registration Act

Today, the Business Court denied Plaintiff's Motion for a Preliminary Injunction in a state law trademark dispute between competing jewelry stores.  The Order in Windsor Jewelers, Inc. v. Windsor Fine Jewelers, LLC, 2009 NCBC 2 (N.C. Super. Ct. Feb. 16, 2009) dissolved a Temporary Restraining Order which had previously been entered in the case.  I wrote about the entry of the TRO back in November 2008.

Defendant bought two jewelry stores in Charlotte, planning to rename them "Windsor Fine Jewelers."  Plaintiff, which operates a single jewelry store in Winston-Salem under the name "Windsor Jewelers," sought to enjoin the use of the Windsor name in the Charlotte area.  It argued that it had sold jewelry there and that the use of the Windsor name would infringe on its common law trademark rights and its service mark registered under the North Carolina Trademark Registration Act.

Judge Diaz applied federal Lanham Act principles in deciding whether Windsor Jewelers had a sufficient market presence in the Charlotte area to warrant injunctive relief.  He said that "North Carolina's common law is no different" from federal law in determining the rights of a senior user. Op. n.7.

The established tests for injunctive relief when a senior user sues a junior user are "(1) the 'market penetration' test, which applies where the senior user actually uses its mark in the market in which it seeks an injunction; or (2) the 'zone of natural expansion' test, which applies where the senior user has not actually penetrated the market, but may be likely to do so."  Op. ¶70.

Windsor Jewelers failed the market penetration test.  Although it had averaged annual sales in Mecklenburg County of $66,024 over a fifteen year period, the level of sales had fluctuated over that time and the sales were inconsequential when measured against the total sales of jewelry in that area. Mecklenburg County jewelery stores had sold $138,578,260 of jewelry in 2006, for example, much of it undoubtedly available for much less now in area pawnshops. 

Further leading to the Plaintiff's lack of success was that it had completed only 88 transactions in Mecklenburg County in 2006, but the average jewelry store there completed 1,718 transactions.  Plaintiff also hadn't done any advertising targeted at the Charlotte market. 

The Winston-Salem jeweler also struck out on the zone of natural expansion test.  Although it presented evidence that it had "considered" opening a Charlotte store, Judge Diaz found that Plaintiff had not taken any concrete steps to enter the Charlotte market. 

This opinion adds to the precious little bit of law under the North Carolina Trademark Act.   

Brief in Support of Motion for Temporary Restraining Order

Brief in Opposition to Motion for Preliminary Injunction

Reply Brief in Support of Motion for Preliminary Injunction 

Raleigh Business Court To Relocate To Campbell University's Law School In Fall 2009

The North Carolina Business Court in Raleigh will be relocating to Campbell University's Law School.  The move will happen in Fall 2009, when the Norman Adrian Wiggins School of Law finishes its own relocation, from Buies Creek to Raleigh.

North Carolina then will have two law schools with courtrooms on the premises.  The other one, of course, is the Business Court at the Elon Law School in Greensboro.

The plans at the top of this post shows the expected location of the Court on the third floor of the new Law School, which will be located at 225 Hillsborough Street in Raleigh.  That's an existing building which is being fully renovated.  A representative of Raleigh's Small Kane Architects, who are working on the project, said that the details of the plans may have changed.

There is more information about the project on the website of the Law School.

A Treasure Trove Of Material From North Carolina Superior Court Judges

If you were about to argue a motion in a case involving a breach of fiduciary duty, and the Judge hearing the motion had written a paper on that very subject, or had been to a presentation about it, wouldn't you want to know that?

I'm writing this post because if you are looking for insight into the judicial thought process, you will certainly find value in materials on the website of the North Carolina School of Government.

The SOG runs, twice a year, the North Carolina Superior Court Judges Conferences.  Presentations from the last 15 conferences are on the SOG website.  There are a number of papers and powerpoints there that might be really useful to you, and it's worth a look.

In October 2008, for example, Judge Robert Ervin gave a detailed presentation on cases involving claims for breach of fiduciary duty, and Judge Albert Diaz of the Business Court spoke about Recent Personal Jurisdiction Cases in North Carolina.  In October 2007, Judge David Lee spoke about Documentary, Voice Identification, and "E-Evidence" - Foundational Requirements.

Other items worth noting from other conferences are

Judge Robert Hobgood on Evidentiary Rulings and Enforcement of Settlement Agreements;

Judge Kimberly Taylor on Opinion Testimony by Experts;

Judge Richard Boner on Disqualification and Recusal of Judges

Judge Susan Taylor on Contempt;

Judge Lindsay Davis with a  powerpoint on Res Judicata and Collateral Estoppel and a paper on the subject; and

Judge J. Gentry Caudill on Jury Selection.

There are also high quality presentations here by lawyers, like Tom Fowler on Injunctive Relief; a powerpoint presentation and handout on TROs and Preliminary Injunction in Covenant Not to Compete Cases by Mark Weidemaier; and a presentation by David Pishko on the Trial of a Legal Malpractice Case.  Also, every June, Don Cowan does a summary of the prior year's significant appellate cases.  The 2008 presentation is here.

Another resource on the SOG website is the Orientation for New Superior Court Judges run periodically by the School.  The most recent Orientation took place just a few days ago, from January 26-30, 2009.  The new Judges heard from Judge Lee on A Judge's Perspective on Evidence, Judge Catherine Eagles on Jury Management, and from Judge Albert Diaz on Findings of Fact and Conclusions of Law, among other things.

There's a whole lot more on the SOG website not mentioned in this post.  The site is now searchable by keywords: you can go here to do that.



NC Supreme Court Rules That There Was Personal Jurisdiction Over Corporate Officer

Today, the North Supreme Court made it clear that there can be personal jurisdiction over a corporate officer even if his only contacts with the state were in  his capacity as a corporate officer.

The case is Saft America, Inc. v. Plainview Batteries, Inc.The opinion reverses the April 2008 decision of the Court of Appeals, which had ruled in a split decision that the officer didn't have sufficient minimum contacts with North Carolina to justify jurisdiction because he had no contact with the state in his "individual capacity."

The Supreme Court opinion is unfortunately a per curiam ruling, so it simply adopts without discussion the analysis of the dissenting opinion in the Court of Appeals.  The key portion of that opinion, by Judge Arrowood, read as follows:

In sum, under North Carolina precedent the determination of whether personal jurisdiction is properly exercised over a defendant does not exclude consideration of defendant's actions merely because they were undertaken in the course of his employment. In particular, the corporate actions of a defendant who is also an officer and principal shareholder of a corporation are imputed to him for purposes of deciding the issue of personal jurisdiction. On the other hand, personal jurisdiction cannot be based solely on a defendant's employment status as the agent or officer of a company with ties to North Carolina, or on personal connections to North Carolina that fall short of the requisite "minimum contacts."

The contacts relied upon by the Court of Appeals dissent were that the corporate officer had been the plaintiff's primary contact with the corporate defendant, he had traveled to North Carolina to visit the plaintiff's facility, he had submitted purchase orders on behalf of the corporate defendant. and he had been personally involved "in negotiating and carrying out the contracts that gave rise to the instant lawsuit."

As Judge Arrowood put it in the opinion adopted by the Supreme Court, it does not "correctly state the law in North Carolina" that "actions taken by an individual in the course of his employment or in his 'official' capacity do not 'count' as part of a defendant's contacts with the forum state." 


Funds Stolen By Lawyer At Closing: NC Court Of Appeals Rules On Whether Buyer Or Seller Bears The Loss

When the attorney closing a residential real estate transaction steals the closing proceeds, does the buyer or the seller bear the loss? 

The holding of the 2-1 majority today in the North Carolina Court of Appeals decision in Johnson v. Schultz is that in the typical transaction the loss will fall on the party whose lawyer absconded with the funds, at least in the absence of fault.

In North Carolina, that's in most cases going to be the buyer, who typically selects the closing attorney.  The holding of Judge Robert C. Hunter, concurred in by Judge Martin, was as follows:

we conclude that where, as here: (1) one attorney is used to handle a residential real estate closing, (2) the attorney misappropriates the remaining balance of the purchase price owed to the seller, and (3) the risk of loss must be allocated to one or more parties, courts should first consider the existence of fault. However, if fault does not exist and the risk must be allocated between essentially “innocent” parties, courts should then consider which parties had an attorney-client relationship with the wrongdoing attorney and impose the risk of loss on those parties. Where multiple parties to the transaction have an attorney-client relationship with the offending attorney, the risk of loss should be shared among them.

The Court rejected the approach taken by the trial court, which had followed what is known as the "entitlement rule." Under that rule, the loss fell on the seller, who was the party entitled to the funds in the hands of the attorney.  The theory of the entitlement rule is that that the holder of an escrow is the agent for the party for whom the funds are being held.  An earlier Court of Appeals decision, GE Capital Mortgage Services v. Avent, 114 N.C. APP. 430, 442 S.E.2d 98 (1994), had followed the entitlement rule in a case involving an escrow held following a residential closing, but it was distinguished by today's decision.

Judge Wynn dissented, and took a completely different approach.  He would have placed the risk of loss on the seller, because the seller had opted to take its proceeds in the form of a check drawn on the closing attorney's trust account, as opposed to the cash payment specified in the standard 2005 NCBA contract form.  The majority reasoned that requiring sellers to walk away from the closing with cash "would significantly disrupt the way real estate transactions are traditionally closed in North Carolina."

The opinion contains a detailed discussion of how residential real estate transactions are closed in North Carolina.  Those generally involve the "settlement closing" method, but sometimes involve what's called an "escrow closing."  The case also defines what an "escrow" is, for the first time in a reported North Carolina appellate opinion, and discusses obscure types of escrows like a "set-aside escrow" and a "deed and money escrow."  (You'll have to read the opinion if you want to know more about these things).

In the Johnson case, the closing attorney, now disbarred, had made off with more than $250,000 in closing proceeds owed to the seller.  The case was apparently a big deal in the residential real estate closing world.  The North Carolina State Bar weighed in with an amicus brief on behalf of the seller, which was countered by an amicus brief by the North Carolina Land Title Association for the buyer.

It's now on to the Supreme Court.  And even then, the case may not be over.  That's because the buyer claimed that the attorney had been acting for the seller as well, and the Court of Appeals held that the case needed to be remanded for resolution of this issue.