Flexitized, Inc. v. National Flexitized Corporation

• Decision Date: 03 August 1964
• Docket Number: Docket 28739.,No. 424,424
• Citation: 335 F.2d 774
• Parties: FLEXITIZED, INC., and Flexitized Sales Corporation, Plaintiffs-Appellees, v. NATIONAL FLEXITIZED CORPORATION and Dubin-Haskell Lining Corp., Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

335 F.2d 774 (1964)

FLEXITIZED, INC., and Flexitized Sales Corporation, Plaintiffs-Appellees, v. NATIONAL FLEXITIZED CORPORATION and Dubin-Haskell Lining Corp., Defendants-Appellants.

No. 424, Docket 28739.

United States Court of Appeals Second Circuit.

Argued April 15, 1964.

Decided August 3, 1964.

COPYRIGHT MATERIAL OMITTED

Hahn, Hessen, Margolis & Ryan, New York City (Robert J. Clerkin, New York City, of counsel), for plaintiffs-appellees.

Deane Ramey, New York City, for defendants-appellants.

Before WATERMAN, FRIENDLY and HAYS, Circuit Judges.

WATERMAN, Circuit Judge.

This action involves a claim of trademark infringement under the Lanham Act, 15 U.S.C. § 1051 et seq., together with claims of breach of contract and unfair competition. Jurisdiction rests upon 28 U.S.C. § 1338 and § 1332. 28 U.S.C. § 1338 grants to district courts original and exclusive jurisdiction over civil actions arising under any federal patent, copyright or trademark statute, and over any substantial and related claim for unfair competition which has been joined with such a statutory claim. 28 U.S.C. § 1332 grants jurisdiction in diversity of citizenship cases.¹

Plaintiffs, two California corporations named Flexitized, Inc. and Flexitized Sales Corp. were organized in September of 1953 as the manufacturer entity and the sales agency entity in a business operation devoted to the production and marketing of a flexible collar stay which plaintiffs' principals had developed. The term "Flexitized" was coined by plaintiffs' principals shortly after their development of the stay and shortly before they organized plaintiff corporations and used the term in the corporate names. The essential characteristics of plaintiffs' collar stays is their capacity, when sewn into a collar, to retain a configuration or style shaped by the wearer; and an unsuccessful attempt was made sometime after the organization of plaintiff corporations to patent the stay. By February 1, 1955, however, plaintiff Flexitized, Inc. was successful in having "Flexitized" registered with the United States Patent Office as its trademark. In late 1953, plaintiffs, having already secured the services of a distributor for their stays in the West Coast area, entered into negotiations with defendant Dubin-Haskell Lining Corp., looking toward the latter's undertaking to distribute, either by itself or through an affiliate, plaintiffs' product in the Eastern part of the United States. As a result of these negotiations a series of letters was exchanged.

The first of such letters was sent under date of December 4, 1953 from the president of both plaintiffs to Herbert Haskell of defendant Dubin-Haskell Lining Corp. In it, plaintiffs' president referred to a conversation of that day between Herbert Haskell and him and set forth "the major terms" of an agreement said to be reached during such conversation, and expressed the hope that the letter would serve as legal protection for the parties until such time as plaintiffs' attorneys could draft a formal agreement. In his answering letter dated December 8, 1953, Herbert Haskell alluded to the "contractual agreement of December 4" and suggested certain modifications of the terms spelled out in the December 4 letter. He also stated that, "As we both thought, it would be a good idea to get your attorney to write up an agreement covering all these points as we agreed and forward same to us to make this legally official," adding that, "In the meantime, as per your statement, we will proceed and start working on this product immediately." Under the major terms of the agreement set forth in these letters, defendant Dubin-Haskell Lining Corp. was to become plaintiffs' exclusive distributor in all of the United States except eleven Western states, and during the five year life of the contract was not to have the right to sell any competing product, directly or indirectly. Only one other written communication passed between the two parties regarding the distributorship agreement. That was a letter dated December 17, 1953, in which plaintiffs' counsel, acting on his clients' behalf, stated to Herbert Haskell that he had been informed that Dubin-Haskell Lining Corp. in order to carry out distribution of plaintiffs' product was intending to form an affiliate using the name "Flexitized" and that he had suggested to plaintiff corporations' president that the use of the name "Flexitized" in the proposed corporation be conditioned upon the faithful performance of the distribution agreement. Defendant Dubin-Haskell Lining Corp. did not respond to this letter.

The proposed corporation referred to in this letter of December 17, 1953 did materialize shortly thereafter, it being organized under the name of National Flexitized Corp. in the early part of 1954, and becoming, eventually, the second defendant in this action. National Flexitized Corp., after its organization in 1954, began to be the distributor of plaintiffs' collar stays in the East, and from that time until the distributorship agreement was terminated both plaintiffs and defendants paid for the preparation and circulation of various advertising materials using the term "Flexitized." During 1954, 1955, and part of 1956, defendant National Flexitized Corp. purchased collar stays from plaintiffs for resale to garment manufacturers at the rate of more than $100,000 per year, but sales by plaintiffs to National Flexitized fell off markedly in the latter part of 1956 and the early part of 1957. This drop in sales coincided with the selling, without plaintiffs' knowledge, by National Flexitized Corp. of collar stays which plaintiffs neither sold nor manufactured. In a letter to Herbert Haskell dated April 8, 1957, Henry Amber of plaintiff Flexitized Sales Corp., though not stating that plaintiffs had become aware that defendants were selling stays other than theirs, indicated that plaintiffs were going to attempt to sell their product through another means because defendants were "doing absolutely nothing with it" but stated that plaintiffs would continue to fill orders from defendants for another thirty days. Then, on July 16, 1957, plaintiffs' president wrote to Haskell informing him that plaintiffs had evidence that defendants were selling a competitive stay in violation of the agreement with plaintiffs, and that, although plaintiffs were willing to fill emergency orders until August 1, 1957, they had decided to terminate business relations with defendants. The letter also notified defendants immediately to discontinue using the name "Flexitized" in their operations. Thereafter defendant National Flexitized Corp. attempted to place an order by wire with the plaintiffs on August 1, 1957, but plaintiffs refused to fill it, explaining in a return wire and a covering letter that the refusal was for reasons stated in the letter of July 16. After termination of the agreement defendants continued to use the name "Flexitized" in the corporate name of defendant National Flexitized Corp. while marketing collar stays not made or sold by plaintiffs. Subsequently plaintiffs brought this action in the United States District Court for the Southern District of New York, claiming breach of contract, trademark infringement, and unfair competition. Plaintiffs' three claims were tried before the court, Tyler, J., and a jury, and, with the consent of the parties, the court took it upon itself to resolve all issues pertaining to the claims of trademark infringement and unfair competition and left to the jury the task of determining the issues raised by the breach of contract claim.

On the basis of its own and the jury's findings, the lower court found that defendants did breach the contract and entered judgment for plaintiffs to recover $27,000 damages plus interest and costs; that plaintiffs' registered trademark "Flexitized" was invalid and dismissed the claim for trademark infringement; and, as to the claim for unfair competition, it permanently enjoined defendants from using the word "Flexitized" in their corporate name and in connection with their sale of products competitive with plaintiffs' products, but refused to order an accounting and assessment of profits made by defendants in connection with the use of "Flexitized" by them. The decision below is reported at 214 F.Supp. 664.

Defendants have appealed from the entry of judgment on the breach of contract and unfair competition claims, and plaintiffs have cross-appealed from the portion of the judgment declaring their trademark invalid and from the lower court's refusal on the unfair competition claim to order an accounting. We affirm the judgment below in all respects except the refusal by the lower court to grant plaintiffs an accounting on their claim for unfair competition, and, as to this portion of the judgment, we reverse and remand for such an accounting.

We need give only brief attention to defendants' appeal on the breach of contract issue. The jury expressly found, and the trial court ruled that its findings were supported by adequate evidence, that plaintiffs and defendants had entered into an exclusive distributorship contract under which defendants promised to use their best efforts to sell plaintiffs' product and also promised not to sell a competing product during the life of the contract, that defendants had breached the contract, and that plaintiffs suffered resultant damages of $27,000. Our examination of the record convinces us that there was ample evidence to support the verdict, both on the issue of liability and on the issue of damages, to which defendants have directed their principal efforts on appeal. The parties to this contract having entered into it contemplating the deriving of profits thereby, any loss of profits by plaintiffs resulting from defendants' breach, if such lost profits were established with reasonable certainty, were clearly recoverable under the governing law of New York. Cramer v. Grand Rapids Show Case...