314 F.3d 48 (2nd Cir. 2002), 00-9094, Fashion Boutique of Short Hills, Inc. v. Fendi USA, Inc.

Docket Nº:00-9094.
Citation:314 F.3d 48
Party Name:FASHION BOUTIQUE OF SHORT HILLS, INC., Plaintiff-Appellant, v. FENDI USA, INC., and Fendi Stores, Inc., Defendants-Appellees.
Case Date:December 23, 2002
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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314 F.3d 48 (2nd Cir. 2002)

FASHION BOUTIQUE OF SHORT HILLS, INC., Plaintiff-Appellant,

v.

FENDI USA, INC., and Fendi Stores, Inc., Defendants-Appellees.

No. 00-9094.

United States Court of Appeals, Second Circuit

December 23, 2002

Argued: Dec 3, 2001

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Martin E. Karlinsky, Rosenman & Colin LLP (George F. Meierhofer and Gilly Nadel, on the brief), New York, NY, for Plaintiff-Appellant.

Steven Skulnik, Pavia & Harcourt (Richard L. Mattiaccio, Victor Genecin, and Paul B. Lyons, on the brief), New York, NY, for Defendants-Appellees.

Before WALKER, Chief Judge, NEWMAN and FJ. PARKER, Circuit Judges.

JOHN M. WALKER, JR., Chief Judge.

Plaintiff-appellant Fashion Boutique of Short Hills, Inc. ("Fashion Boutique"), challenges a host of rulings by the United States District Court for the Southern District of New York (Miriam Goldman Cedarbaum, District Judge) during this lengthy litigation arising from the demise of its business. Fashion Boutique, formerly a seller of Fendi products, claims that its business was ruined by a campaign of disparagement conducted by a competing boutique, defendant-appellee Fendi Stores, Inc. ("Fendi Stores") and its parent company, defendant-appellee Fendi USA, Inc. ("Fendi USA") (collectively, "Fendi").

Fashion Boutique contends principally that the district court erred as follows: (1) by granting the motion for partial summary judgment in favor of Fendi, dismissing plaintiffs claims under the Lanham Act, see Fashion Boutique of Short Hills, Inc. v. Fendi USA Inc., 942 F.Supp. 209 (S.D.N.Y.1996) ("Fashion Boutique /"); (2) by excluding plaintiffs expert testimony regarding the value of the lost business, see Fashion Boutique of Short Hills, Inc. v. Fendi USA, Inc., 75 F.Supp.2d 235 (S.D.N.Y. 1999) ("Fashion Boutique III"); and (3) by instructing the jury that general damages recoverable under New York law

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for slander were limited to the injury to its reputation in the minds of three individual customers.

For the following reasons, we affirm.

BACKGROUND

I. Overview

Between 1983 and July 1991, Fashion Boutique sold products bearing the internationally-renowned Fendi trademark in an upscale mall in Short Hills, New Jersey. Fashion Boutique was the only freestanding Fendi boutique in the greater New York metropolitan area until Fendi Stores opened on Fifth Avenue in New York City in October 1989. Both Fashion Boutique and Fendi Stores carried only the international line of Fendi products. This "exclusive" line is considered superior in quality to the domestic line sold in American department stores.

Two months after Fendi opened its Fifth Avenue Store, Fashion Boutique experienced a sharp decline in its sales and, by July 1991, Fashion Boutique closed its retail operations. Fashion Boutique alleged in its complaint that the precipitous fall in its sales was caused by a corporate policy carried out by Fendi to misrepresent the quality and authenticity of the products sold at Fashion Boutique.

Fashion Boutique conceded in the district court that it could not show that many of its customers heard disparaging statements first-hand at the Fifth Avenue store. Rather, its theory was and is that Fendi employees made misrepresentations to some customers at the Fifth Avenue store, those customers relayed the comments to others, and the false rumors were thus spread throughout Fashion Boutique's customer base. Prior to the close of its business, Fashion Boutique maintained a mailing list of over 8,000 customers.

Fashion Boutique claims that the actions by Fendi led to the destruction of its retail business, violated Section 43(a)(1)(B) of the Lanham Act, 15 U.S.C. § 1125(a) (1994), which prohibits misrepresentation of another person's goods or services in "commercial advertising or promotion," and violated New York law on product disparagement and slander.

II. Motion for Summary Judgment on the Lanham Act Claim

After the close of discovery, Fendi moved for summary judgment on Fashion Boutique's Lanham Act claim. Following certain pre-trial evidentiary rulings, the district court granted defendants' motion. See Fashion Boutique I, 942 F.Supp, at 217.

In challenging the district court's grant of partial summary judgment, Fashion Boutique relies primarily on reported conversations between Fendi personnel and nine undercover investigators hired to pose as shoppers and on declarations by forty Fashion Boutique customers. In none of the proffered interactions did employees at the Fifth Avenue store initiate conversations about Fashion Boutique. They commented on Fashion Boutique only after the customers mentioned plaintiff. For example, several customers who reported their conversations with Fendi employees went to the Fifth Avenue store seeking to repair or exchange products or were wearing Fendi products as they shopped at that store. After the customer informed Fendi personnel that the item had been bought at Fashion Boutique, the employee reacted by making critical comments about the quality of Fashion Boutique's merchandise and, on several occasions, refused to exchange or repair the product.

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(1) Incidents Prior to the Close of Fashion Boutique

Prior to Fashion Boutique's demise, Fendi personnel told a total of eleven customers that Fashion Boutique carried an inferior, "department store" line of products or that Fashion Boutique sold "fake" or "bogus" merchandise. During four visits to Fendi's Fifth Avenue store, undercover investigators were told that Fashion Boutique's merchandise was of inferior quality. Five shoppers and several undercover investigators related incidents in which Fendi employees described Fashion Boutique's goods as a "different line" from that sold at the Fifth Avenue store. In addition, Fendi employees made critical comments about the customer service at Fashion Boutique to six investigators and one customer.

Sixteen Fashion Boutique customers reported having "heard rumors" that Fashion Boutique sold fake Fendi merchandise "[d]uring the period 1990-1991." One shopper heard similar rumors but could not remember when she heard them.

(2) Statements Made After the Close of Fashion Boutique

Eight customers identified statements made after Fashion Boutique's demise in July 1991. Fendi employees told four of them that Fashion Boutique sold a "different line" of products, three others that Fashion Boutique sold inferior or fake Fendi goods, and one other that Fashion Boutique closed because it caused trouble or was too costly to maintain. In addition, a Fendi employee told one investigator that the owners of Fashion Boutique were filing for bankruptcy.

(3) Caroline Clarke Deposition

As evidence of the alleged policy of disparagement, plaintiff presented the deposition of Caroline Clarke, a former employee of Fendi USA. Although Clarke's superiors never explicitly told her of a policy to disparage Fashion Boutique, she learned from speaking to managers and salespersons at Fendi Stores that salespersons followed a practice of disparaging the customer service at Fashion Boutique.

(4) The District Court's Decisions

After carefully reviewing the evidence, Judge Cedarbaum determined that most of the evidence submitted by Fashion Boutique failed to support the Lanham Act claim. Specifically, the district court found that (1) the statements suggesting that Fashion Boutique sold a "different" line were not disparaging because "different" does not impugn the quality of the product; (2) the declarations by customers alleging to have "heard rumors" that Fashion Boutique sold fake items was inadmissable hearsay and thus could not be considered on a motion for summary judgment; and (3) disparaging remarks made after Fashion Boutique closed were not actionable under the Lanham Act and, because plaintiff and defendants were no longer competitors, were not relevant. See id. at 215.

Judge Cedarbaum concluded that the remaining evidence was insufficient to withstand a motion for summary judgment because it did not fall within the meaning of "commercial advertising or promotion" as set forth in the Lanham Act. The district court held that the Lanham Act is violated when the defendants proactively pursue customer contacts and disparage the plaintiffs goods or services. See id. at 215-16 (listing cases). Because each disparaging comment was made only after the customer initiated a discussion about Fashion Boutique, the district court concluded that the communications were reactive and not proactive. See id. at 216.

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Moreover, relying on the four-part test announced in Gordon & Breach Sci. Publishers S.A. v. Am. Inst, of Physics, 859 F.Supp. 1521, 1535-36 (S.D.N.Y.1994) ("Gordon & Breach I"), the district court held that to constitute "commercial advertising or promotion" the statements must be sufficiently disseminated to the relevant purchasing public. See Fashion Boutique I, 942 F.Supp, at 216. The district court concluded that...

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