Lexington Management v. Lexington Capital Partners

• Decision Date: 27 February 1998
• Docket Number: No. 97 Civ. 9068(LAP).,97 Civ. 9068(LAP).
• Citation: 10 F.Supp.2d 271
• Parties: LEXINGTON MANAGEMENT CORPORATION, Plaintiff, v. LEXINGTON CAPITAL PARTNERS, Lexington Capital Company and Lexington Capital Assets, Defendants.
• Court: U.S. District Court — Southern District of New York

10 F.Supp.2d 271

LEXINGTON MANAGEMENT CORPORATION, Plaintiff, v. LEXINGTON CAPITAL PARTNERS, Lexington Capital Company and Lexington Capital Assets, Defendants.

No. 97 Civ. 9068(LAP).

United States District Court, S.D. New York.

February 27, 1998.

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Stephen W. Feingold, Stephanie M. Foster, Whitman, Breed, Abbott & Morgan, L.L.P., New York, NY, for Lexington Management Corporation, plaintiff.

Kenneth R. Puhala, Layton Brooks & Hecht, New York, NY, for Lexington Capital Assets, Lexington Capital Partners, Lexington Capital Co.

MEMORANDUM AND ORDER

PRESKA, District Judge.

Plaintiff Lexington Management Corporation moves for a preliminary injunction, pursuant to Fed.R.Civ.P. 65, enjoining defendant Lexington Capital Partners & Co., Inc.¹ from using the trademark "Lexington" in connection with defendant' activities as a retail broker in the financial services industry. Plaintiff claims that defendant's use of the "Lexington" service mark "in the financial services industry as a retail broker" constitutes trademark infringement, trademark dilution and unfair competition under both federal and state law. In its complaint, plaintiff's federal claims are brought pursuant to Sections 32, 43(a) & (c) of the Lanham Act, 15 U.S.C. §§ 1114, 1125(a) & (c)(1), and its state law claims are brought pursuant to New York's common law of unfair competition, as well as various provisions of New York's trademark infringement and dilution statutes. N.Y.Gen.Bus.L. §§ 349, 360-o, 360-l; N.Y. Arts & Cult. Aff.L. § 33.09. For the reasons set forth below, plaintiff's motion for a preliminary injunction on the basis of its Lanham Act claims is granted.

I. THE PARTIES

A. Plaintiff

1. Plaintiff's Business

According to the affidavit of its Managing Director, Lawrence Kantor, plaintiff Lexington Management Corporation, a Delaware corporation based in New Jersey, is a registered investment advisor and manages the "Lexington" family of eighteen mutual funds. (Verification of Lawrence Kantor, signed but not dated ("Kantor Ver.") ¶¶ 3, 7). These funds, which include such funds as the "Lexington Troika Dialog Russia Fund" (id. ¶ 9) and the "Lexington Strategic Investments (Gold) Fund" (Reply Verification of Lawrence Kantor, signed but not dated ("Kantor Reply Ver.") ¶ 12), represent over $2 billion in assets. (Kantor Ver. ¶ 7). Plaintiff also manages over $1.7 billion of institutional investment assets. (Id.). Plaintiff manages and services its funds for the benefit of "over 150,000 financial intermediaries, institutional and individual investors." (Id.). According to Kantor's affidavit, "Lexington funds are designed to provide a variety of investment options for retail investors, financial planners, and intermediaries and for the defined benefit and contribution marketplace, including the 401(k) market." (Id.).

Plaintiff is the successor-in-interest to two sister companies which operated under the names "Lexington Capital Management, Inc." and "Lexington Capital Management Associates" since 1985 and 1987, respectively. (Id. ¶ 13). These companies "provided advice to institutional clients and individuals with high net worth regarding not only mutual funds, but a diverse range of investment opportunities including stocks, bonds, futures, limited partnerships and other forms of financial products." (Id.).

The sister companies merged with plaintiff in 1996, and "the financial services offered by both companies have since been assumed under the umbrella" of plaintiff. (Id. ¶ 14). Plaintiff contends that despite the merger, the "Lexington Capital Management" mark is still associated with $400 to $500 million in client assets. (Id.).

Plaintiff contends that, as part of a current trend in the financial services industry, "numerous prominent companies such as Morgan Stanley, Goldman Sachs, Fidelity Investments, and Schwab & Co. have expanded into a range of financial service markets combining broker-dealer, financial advise, [sic] mutual fund and other services." (Id. ¶ 18). Plaintiff's 1996 consolidation with its affiliates "reflects this trend and [plaintiff's] strategy of integrating the financial products and services offered to its clients." (Id.).

Plaintiff also has a wholly-owned subsidiary named "Lexington Funds Distributor, Inc." This entity is a broker/dealer that markets and distributes plaintiff's mutual funds. (Id. ¶ 16). Lexington Funds Distributor also is responsible for marketing plaintiff's funds and in 1997 managed an advertising budget of over $2 million. (Id. ¶ 21).

2. Plaintiff's Marks

Plaintiff owns two federally registered trademarks. Reg. No. 836,088 registers the word "LEXINGTON" for "financial advisory services and for services of or relating to mutual funds." This mark was registered on September 26, 1967 and was first used in commerce in 1967. (Kantor Ver. ¶ 4, Ex. 1). Reg. No. 1,654,499 registers a composite mark containing a "minuteman" logo and the word "LEXINGTON" for "financial advisory and mutual fund distribution services." This mark was first used in commerce in 1984 and was registered in 1991. (Id. ¶ 5, Ex. 2).

Plaintiff also claims common law rights in the "LEXINGTON" mark "arising out of its use of this mark in the financial industry since 1938." (Id. ¶ 6). According to plaintiff, this common-law-protected mark has been used not only in connection with mutual fund services, but also "in conjunction with investment advice and broker-dealer services since the mid-eighties." (Id.). These latter services were provided by the sister-companies, Lexington Capital Management, Inc. and Lexington Capital Management Associates, which merged into plaintiff in 1996. (Id. ¶ 14).

Plaintiff claims to have "aggressively guarded the exclusivity of its trademarks through the use of watch services and independent investigations." (Second Supplemental Verification of Lawrence Kantor in Further Support of Plaintiff's Motion for a Preliminary Injunction, sworn to on February 10, 1998 ("Kantor Second Supp. Ver.") ¶ 4; Kantor Ver. ¶ 22). To this end, plaintiff has sent cease and desist letters to unauthorized users of the "Lexington" mark for financial services and successfully halted all such uses. (Kantor Second Supp. Ver. ¶¶ 4-12, Exh. B-G). According to plaintiff, defendant here is the first entity to refuse to acknowledge and yield to plaintiff's rights in the "Lexington" mark in relation to services regulated by the NASD or SEC. (Kantor Ver. ¶ 22; Kantor Second Supp. Ver. ¶¶ 8, 13).

Since plaintiff first used the "Lexington" mark in commerce in 1967, plaintiff "and several of its affiliates have used this mark in connection with financial advise [sic] and mutual fund services, and in keeping with the trends of the financial industry, have expanded their use of the mark in connection with a broad range of financial services." (Kantor Ver. ¶ 11).

Plaintiff alleges that defendant's use of the "Lexington" mark will "cause confusion and mistake in the minds of the purchasing public and falsely create the impression that the services of [defendant] are provided, sponsored or licensed by or affiliated with" plaintiff. (Id. ¶ 41).

B. Defendant

According to the affidavit submitted by its President and Chief Compliance officer, Charles S. Stoffers, defendant "Lexington Capital Partners & Co., Inc." is a broker/dealer registered with the NASD, the SEC, and the regulatory bodies of 47 states and the District of Columbia. (Declaration of Charles S. Stoffers in Opposition to Motion for Preliminary Injunction, Executed on January 30, 1998 ("Stoffers Decl.") ¶ 2). Until mid-1997, defendant was known as "First Hanover Securities." It changed its name to "Lexington Capital Partners & Co., Inc." after four individuals from a firm called "LMJG Partners Inc.," bought a controlling share of First Hanover in April 1997. (Id. ¶ 14).

Unlike plaintiff, defendant is not a registered investment advisor. (Id. ¶ 26). Defendant "derives most of its revenue from commissions on stock transactions in which it acts as a retail broker, from underwriting activities and from its market-making activities." (Id. ¶ 25). Defendant provides its clients with the opportunity to invest in mutual funds, but states that this activity makes up only a "very insignificant" part of its business, with commissions from such sales comprising less than one percent of its revenues. (Id.). Defendant's clients "range from inexperienced, unsophisticated investors to experienced sophisticated investors." (Id. ¶ 46). Defendant does not advertise apart from maintaining a web site on the Internet and otherwise derives its business exclusively from "existing clients, referrals and tele-marketing." (Id. ¶ 32). Defendant's brokerage services are performed by a major clearing agent, C.I.B.C. Oppenheimer & Co., Inc., which clears all trades made on behalf of defendant's clients. (Id. ¶¶ 34, 35). Defendant has not registered its use of the "Lexington" mark. (Id. ¶ 39, Exh. P).²

II. STANDARD FOR GRANTING A PRELIMINARY INJUNCTION

A preliminary injunction generally may be granted when the moving party can establish both (1) irreparable harm and (2) either (a) a likelihood of success on the merits or (b) sufficient questions on the merits to "make them a fair ground for litigation and a balance of hardships tipping decidedly" in the movant's favor. Warner-Lambert Co. v. Northside Dev. Corp., 86 F.3d 3, 6 (2d Cir. 1996). However, a higher standard applies where the requested injunction (1) will alter, rather than maintain the status quo, or (2) will provide the movant with substantially all the relief sought, and that relief cannot be undone even if the defendant prevails at a trial on the merits. Tom Doherty Associates, Inc. v. Saban Entertainment, Inc., 60 F.3d 27, 33-34 (2d Cir.1995). In such cases, the injunctive relief is deemed "mandatory" rather than "prohibitory", and should issue "only upon a clear showing that the...