Alfred Dunhill Limited v. Interstate Cigar Company, Inc.
| Citation | 499 F.2d 232 |
| Decision Date | 27 June 1974 |
| Docket Number | Dockets 73-1177,No. 346,347,73-1402.,346 |
| Parties | ALFRED DUNHILL LIMITED and Alfred Dunhill of London, Inc., Appellees, v. INTERSTATE CIGAR COMPANY, INC., et al., Appellants. |
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
Noel W. Hauser, Brooklyn, N.Y. (Hauser & Rosenbaum, Brooklyn, N.Y., of counsel), for appellants Interstate Cigar Co., Inc., Jamaica Tobacco & Sales Corp., M. Shapiro Sons Smoke Shop, Inc. and Seckler Bros., Inc.
Victor S. Friedman, New York City (Fried, Frank, Harris, Shriver & Jacobson and Steven Kimelman, New York City, of counsel), for appellees Alfred Dunhill Limited and Alfred Dunhill of London, Inc.
Before MOORE, FRIENDLY and ANDERSON, Circuit Judges.
This is an appeal by defendants from an order of the United States District Court for the Southern District of New York, granting a permanent injunction prohibiting appellees from selling salvaged Dunhill brand tobacco without informing prospective purchasers of its origin and possible damaged condition and, in implementation thereof, further directing the appellees to permit Alfred Dunhill Limited and Alfred Dunhill of London, Inc. to label each tin of salvaged Dunhill tobacco in appellees' possession with the legend: "Subjected to Possible Water Damage."
Because we believe that plaintiffs have failed to state a claim upon which relief can be granted, we reverse and remand the decision of the District Court with instructions to vacate the injunction and dismiss the complaint.
Alfred Dunhill of London, Inc. (hereinafter "Dunhill") is the exclusive distributor in the United States of the tobacco and tobacco products manufactured by Alfred Dunhill Limited, a British corporation.
In February 1972 a large container filled with two hundred and sixty-eight fiberboard cases of Dunhill brand tobacco arrived, after a transAtlantic voyage, at Dunhill's New York warehouse in a damaged condition. Apparently, prior to delivery in New York, a hole had developed in the roof of the container in which the cases of tobacco had been packed and an undetermined amount of water had entered. Upon inspecting the merchandise, Dunhill set aside one hundred and sixty-eight cases of tobacco which it considered likely to have been damaged by exposure to water. It retained the remaining one hundred cases and marketed their contents in the regular course of business.
After receiving the shipment, Dunhill made a claim on its insurance carrier, William McGee & Company and Sun Insurance Company, for the water loss. Dunhill's insurance agreement with McGee provided:
Partial loss: In case of partial loss or damage caused by a peril insured against, the proportion of loss shall be determined by a separation of the damaged portion of the insured property from the sound and by agreed estimate (by survey) of the percentage of damage of such portion; or if such agreement is not practicable, then by public sale of such damaged portion for the account of the owner of the property and by comparison of the amount so realized with the sound market value on the day of sale.
Worman & Company, Inc., William McGee & Company and Sun Insurance Company's surveyor, examined the cases of allegedly damaged goods and, on behalf of the insurer, offered Dunhill twenty-five percent of the insured value of the one hundred and sixty-eight cases. Under the terms of its insurance contract, Dunhill was faced with the choice of either keeping the tobacco and settling for the immediate recovery of a fraction of its value or permitting the insurer to sell for its account the tobacco as salvage and collecting full face value. Dunhill agreed to the salvage sale and the goods were shipped to United Salvage Company (United) for disposition.
In June 1972, appellant Interstate Cigar Company, Inc., a wholesale merchant, purchased the tobacco from United. At the time of the purchase, Interstate was fully aware that the tobacco was salvaged goods and had been subjected to possible water damage. The bill of sale read "Dunhill Tobacco—As Is—Salvage," and the price paid was $8,000. No conditions were imposed upon resale of the tobacco.
On or about July 12, 1972, Dunhill received from Worman & Co. United's check to the order of Dunhill, Inc., in the amount of $7,559.18, representing the proceeds of the sale less United's commission. On or about August 23, 1972, Dunhill received a second check from William McGee & Company in the amount of $13,850.33 which apparently constituted the remainder of the invoice value and other costs of the damaged tobacco and non-tobacco merchandise and the amount received by Dunhill from United Salvage.
After the sale had been consummated and Interstate had received the goods, Walter Harris, Jr., president of Dunhill, and Sidney Spielfogel, president of Interstate, conversed over the telephone. Harris demanded that Interstate mark the cans as salvage or stop selling the tobacco. Spielfogel rejected this demand but offered to rescind the transaction and return the tobacco to Dunhill. Harris replied that he didn't want the tobacco back. On June 23, 1972 and on August 9, Dunhill sent letters to Interstate and Interstate's attorney, respectively, demanding that the tobacco be relabeled. No reply was made to either letter.
From June 1972 to September 1972, Interstate sold quantities of this Dunhill tobacco to defendants Seckler Bros., Inc. and M. Shapiro Sons Smoke Shop, Inc. and to nine other retailers. One of these retailers was Arnold's Cigar Store in Miami Beach, Florida. In spite of the fact that on June 21, 1972, Interstate circulated a memorandum among its sales personnel advising them that customers should be warned that the merchandise was salvage, there is proof to the effect (and the District Court found) that on at least one occasion Interstate sold a quantity of the tobacco in question without advising its customer that the goods had been subject to possible water damage. Morever, several retailers, while they placed the tobacco on sale at unusually low prices, did not give their retail customers specific notice that the tobacco was salvaged merchandise and had been subjected to possible water damage.1
On September 12, 1972, appellants filed their complaint in the United States District Court for the Southern District of New York, together with affidavits in support of an application for a temporary injunction and a Temporary Restraining Order, asking that Interstate be forbidden from selling the salvaged Dunhill tobacco under the Dunhill trademark. A Temporary Restraining Order was granted on September 12, 1972. On October 12, 13 and 17, the District Court held a consolidated hearing on applications for a temporary injunction and a permanent injunction. The Temporary Restraining Order continued in effect until February 7, 1973, when the District Court issued its memorandum opinion.2
The District Court held that defendants should be permanently enjoined from selling the tobacco "without taking effective steps to warn their customers that the tobacco had been subjected to possible water damage." On February 23, 1973, the District Court issued an Order of Permanent Injunction prohibiting all defendants from selling the salvaged tobacco without informing prospective purchasers of its actual origin and possible damaged condition. Furthermore, the Court directed defendants to permit plaintiffs to label each tin of tobacco remaining in defendants' possession with the legend: "Subjected to Possible Water Damage."
Dunhill successfully argued to the court below that Interstate violated Section 43(a) of the Lanham Trade-Mark Act of 19463 when it resold the Dunhill brand tobacco without removing the Dunhill labels or without affixing a warning to each of the cans cautioning potential customers that the tobacco had been subjected to possible water damage. Section 43(a) of the Lanham Act provides that:
Any person who shall affix, apply, or annex, or use in connection with any goods or services, or any container or containers for goods, a false designation of origin, or any false description or representation, including words or other symbols tending falsely to describe or represent the same, and shall cause such goods or services to enter into commerce . . . shall be liable to a civil action . . . by any person who believes that he is or is likely to be damaged by the use of any such false description or representation.
15 U.S.C. § 1125(a)(1970).
Although Dunhill concedes that Interstate never affixed to Dunhill containers false descriptions or representations or even used such descriptions or representations in connection with the sale of Dunhill tobacco products, it nevertheless asserts that the broad command of the Lanham Act was violated and a false impression was given consumers who purchased salvaged Dunhill tobacco, generally a high quality product, without being warned of the tobacco's unusual history. The District Court agreed, finding that:
Defendants have falsely represented the quality of the salvaged tobacco in violation of Section 1125(a). Sales of damaged tobacco in tins bearing trademarks associated with high quality tobacco, without adequate warnings to customers that the goods are damaged, involve false representations of their quality. False representations can be the product of affirmatively misleading statements, of partially correct statements or failure to disclose material facts. The public can be as easily misled by the purchase of damaged goods in their original containers which the purchasers do not know are damaged as they can be by statements that the goods are not damaged.
Alfred Dunhill Limited v. Interstate Cigar Co., 364 F.Supp. 366, 372 (S.D.N.Y. 1973).
Section 43(a) of the Lanham Act was intended to expand the rights of those who were harmed by unfair competition. It was meant both to enlarge the category by activities which are proscribed by federal...
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