William Wrigley Jr. Co. v. Waters, HLW-P
| Citation | 890 F.2d 594 |
| Decision Date | 28 November 1989 |
| Docket Number | HLW-P,No. 1306,D,HLW-W,1306 |
| Parties | WILLIAM WRIGLEY JR. COMPANY, Plaintiff-Appellee, Cross-Appellant, v. Eric WATERS, Eric Waters d/b/a Haseltine, Lake & Waters,atent Service, Co., Inc.,aters Service Co., Inc., Glenn Waters, and Glenn Waters d/b/a Haseltine, Lake and Waters and d/b/a Haseltine & Lake, Defendants-Appellants, Cross-Appellees. ockets 88-7069, 88-7289. |
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
James M. Leonard, New York City (Leonard, Kenny & Stearns, New York City), for defendants-appellants, cross-appellees.
Jonathan H. Hines, New York City (Debevoise & Plimpton, New York City, Anthony H. Handal, Handal & Morofsky, Norwalk, Conn., of counsel), for plaintiff-appellee, cross-appellant.
Before ALTIMARI and MAHONEY, Circuit Judges, and DEARIE, District Judge. *
Defendants-appellants and cross-appellees Eric Waters, Eric Waters d/b/a Haseltine, Lake & Waters, HLW Patent Service Co., Inc., and HLW-Waters Service Co., Inc., appeal from a judgment of the United States District Court for the Southern District of New York, Charles E. Stewart, Judge, entered following a non-jury trial, awarding plaintiff-appellee, cross-appellant William Wrigley Jr. Company damages in the amount of $135,429.33, plus interest, for the negligent performance of services and breach of contract by defendants-appellants, cross-appellees in connection with their role as Wrigley's trademark agents. Wrigley cross-appeals, challenging the district court's refusal to award one element of damages and the denial of punitive damages. The district court's opinion is reported at 5 U.S.P.Q.2d 1741 (S.D.N.Y.1987).
We consider now defendants-appellants' contentions that the district court erred in imposing a constructive trust with respect to damages assessed against them in favor of certain non-parties to this lawsuit, that the district court improperly pierced the corporate veil in imposing personal liability on Eric Waters, and that the court wrongfully awarded damages to Wrigley for "clean-up" costs. We affirm, reverse in part, and remand.
Plaintiff-appellee and cross-appellant, William Wrigley Jr. Company ("Wrigley"), is a corporation engaged in the business of selling numerous brands of chewing gum throughout the world under familiar trade names. During the relevant period, Wrigley, through various agents, actively protected its trademarks which are registered in over 153 countries where those products are distributed. Defendant Eric Waters ("Waters") is a trademark and patent agent who conducted business between 1977 and 1979 as a sole proprietorship, Haseltine, Lake & Waters. On June 22, 1979, Waters sold his trademark registration business but continued to do business as a trademark renewal specialist under the names HLW Patent Service Co., Inc. and later HLW-Waters Service Co., Inc. (collectively "defendants"). 1
This dispute concerns a once harmonious business relationship turned sour. From 1973 to early 1981 defendants were responsible for renewing approximately 3500 Wrigley trademark registrations worldwide. During that time Wrigley relied on defendants to ensure that its trademarks would continue to be protected. The process of renewing trademarks varies greatly from one foreign country to another. In the normal course, upon confirming that Wrigley wished to renew a particular trademark in a certain foreign country, defendants would retain a law firm or other trademark specialist in that country (the "foreign associate") to process the paperwork necessary to effect the renewal. The appropriate renewal forms and other required documentation were typically prepared and forwarded to the appropriate foreign associate by defendants.
Once this work was completed, defendants would periodically send Wrigley invoices, known as debit notes, which stated the amount Wrigley owed for the services performed by both the foreign associate and defendants. These debit notes listed only one amount, labelled "services and disbursements," but did not itemize the amounts attributable to the defendants' and the foreign associates' services.
In 1980, as part of a company plan to reduce costs and improve operational efficiency, Wrigley decided to discontinue use of outside trademark agents and instead to manage its trademarks in house. Wrigley hired Jacqueline Hill, an experienced trademark agent and former employee of defendants, and promptly wrote defendants and then the foreign associates to apprise them of the company's plans. Wrigley announced that it planned a gradual transition and solicited everyone's guidance and cooperation.
A number of the foreign associates responded to the announcement by advising Wrigley that they had not been paid by defendants for work performed on Wrigley's behalf. Wrigley was sensitive to the importance of maintaining good relationships with the foreign associates on whom it would continue to rely. The company also grew concerned about its then pending trademark renewal applications in the hands of the defendants. With these concerns in mind, Wrigley dispatched Hill to defendants' offices in New York. This trip and the events that followed marked a turning point in the relationship of the parties.
Upon her arrival in New York, Hill sought to determine the precise status of the pending renewal applications. Her review of defendants' work files was alarming. She found much of the information incomplete and inaccurate and in many cases simply unverifiable. Some files were missing. Her concerns intensified when her request to examine the original trademark documents to ascertain reliably the status of pending renewals was met with the response that those critical documents had been placed in storage in a warehouse.
Hill's preliminary review of defendants' limited documentation convinced her that she should not return to Wrigley's offices in Chicago without all the trademark files. She made her way to the warehouse, paid overdue storage charges and made arrangements to ship all the files to Chicago.
Wrigley's original plan for a gradual, orderly transition had to be abandoned. With Hill back in Chicago, there followed a mad scramble to review and, in many cases, reconstruct over 3500 files. Trademark renewals had to be verified. Critical documents and correspondence had to be located or recreated. All in all, Hill and others devoted countless hours to the painstaking process of restoring Wrigley's trademark files. This so-called "clean-up" work revealed a number of specific problems. Trademarks had lapsed. Others, about to lapse, were salvaged only by Hill's desperate, last minute efforts.
Wrigley's review and reconstruction of the files also revealed defective renewals and other costly problems occasioned by defendants' inattention. For example, defendants had arranged and supervised the attempted assignment of trademarks under Egyptian law. Wrigley's review of the files revealed that the assignment was prohibited under Egyptian law. Finally, Wrigley discovered that defendants also failed to maintain current records with respect to those countries which required newly-executed powers of attorney for each renewal. In this regard, defendants had required Wrigley to execute two new powers of attorney for every renewal that was filed. This procedure, however, was in many instances unnecessary and allegedly resulted in needless expense for Wrigley.
Wrigley commenced this action in June 1982 alleging that defendants had breached their duty of care as Wrigley's agents and were liable for negligent performance of services and breach of contract. Wrigley claimed extensive damages. First, Wrigley sought "clean-up" damages for expenses incurred in putting the trademark segment of its business back in order. This included processing renewals of trademarks neglected by defendants, correction of other inaccuracies with respect to several trademarks, and the reconstruction and replacement of trademark files lost while in defendants' possession. Second, Wrigley sought damages for the unnecessary signatures and seals defendants required Wrigley to provide in connection with the powers of attorneys that defendants caused Wrigley to sign.
Wrigley also requested the costs incurred due to lost registrations, that is, the costs of filing new registrations because of defendants' failure to make timely renewals. Wrigley claimed damages stemming from the Egyptian error (where it was wrongly advised on the assignment question), damages for excessive billing for renewals from July 1978 through December 1980, and an improper charge for pending renewals for February to June 1981. Finally, Wrigley sought the return of $30,811.77 paid to defendants for foreign associates' services and improperly retained by Waters.
Following an eleven day non-jury trial, the district court concluded that the defendants were liable to Wrigley for both negligent performance of services and breach of contract. Judge Stewart awarded Wrigley $135,429.33 plus interest in sustaining the bulk of Wrigley's damage claims. In making the damage award, the district court apportioned the amounts as follows:
1. Clean up $ 66,150.44
2. Costs of lost registrations 16,000.00
3. Egyptian error 3,711.90
4. Excessive billing 11,255.12
5. Charge for pending renewals 7,500.00
6. Unpaid debit notes 30,811.77
-----------
$135,429.23
With respect to the damages awarded for the unpaid foreign associate debit notes the district court imposed a constructive trust requiring Wrigley to distribute those funds to the appropriate foreign associates under the court's supervision. The district court did not award Wrigley damages for the powers of attorney mistakenly required by defendants and refused to...
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