Diamond Supply Co. v. Prudential Paper Products Co., 81 Civ. 6891 (KTD).

• Citation: 589 F. Supp. 470
• Decision Date: 19 June 1984
• Docket Number: No. 81 Civ. 6891 (KTD).,81 Civ. 6891 (KTD).
• Parties: DIAMOND SUPPLY COMPANY, Plaintiff, v. PRUDENTIAL PAPER PRODUCTS CO., INC. and Midtown Paper and Supply Company, Defendants.
• Court: U.S. District Court — Southern District of New York

589 F. Supp. 470

DIAMOND SUPPLY COMPANY, Plaintiff, v. PRUDENTIAL PAPER PRODUCTS CO., INC. and Midtown Paper and Supply Company, Defendants.

No. 81 Civ. 6891 (KTD).

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

June 19, 1984.

James & Franklin, New York City, for plaintiff; Robert Epstein, New York City, of counsel.

Blum, Kaplan, Friedman, Silberman & Beran, New York City, for defendants; James K. Silberman, Steven Hartman, New York City, of counsel.

OPINION

KEVIN THOMAS DUFFY, District Judge:

Plaintiff Diamond Supply Company ("Diamond") commenced this action against Prudential Paper Products Company, Inc. ("Prudential") and Midtown Paper and Supply Company ("Midtown") alleging violations of federal trademark law, and state law. I held a bench trial on this matter from April 3, 1984 to April 5, 1984. The following shall constitute my findings of fact and conclusions of law.

Plaintiff Diamond is a New Jersey corporation with its principal place of business in New Brunswick, New Jersey. Both defendants are New York corporations with their principal places of business in New York, New York. Plaintiff is a wholesale distributor of stationery supplies. It sells its products to retail stationery stores, pharmacies, supermarket chains, and department stores, for resale to the general public. Prudential, on the other hand, manufactures paper products and sells its goods to wholesalers — such as Diamond — and to a lesser extent, directly to retail stores. For over twenty-five years, until 1979, Prudential was essentially Diamond's sole supplier of paper goods including wirebound composition notebooks, typing paper, and filling paper. Diamond sold some of its products under its "private label" consisting of the term "Garden State" with a New Jersey Map design and the designation "Distributed by Diamond Supply Co. — New Brunswick, New Jersey." "Private label" goods of small distributors is to be contrasted with sales of national brands by national distributors (such as Prudential). Plaintiff has been selling its private label goods since at least 1955. In 1979, Diamond's private brand gross sales were $146,000; in 1980, the amount was $140,000. Less than 30 percent of Diamond's sales are to customers outside of New Jersey, and these are divided between New York and Pennsylvania.

The advantage to Diamond of selling private label goods involves the opportunity for sales to smaller, independent retail outlets. These stores apparently would have trouble matching large chain store retailer's prices on national brands. Therefore, these independent stores sought out differentiated private brand products to reduce direct price competition.

Prudential manufactures private label goods for only a few wholesalers, constituting less than 5 percent of its gross sales.¹ Prudential's primary sales are in its own brands, and Diamond itself purchased some of these goods for resale. The products in dispute in this case involve Diamond's private label wire-bound spiral notebooks.

Prior to 1978, a Prudential salesman would meet with a Diamond representative early each year to discuss prices for the private label goods. At trial, Diamond's president William Salzberg contended that at this January meeting each year Diamond also would calculate its expected requirements for the upcoming year and that Prudential would orally agree to manufacture and floor stock the entire year's requirement by approximately March. I do not find this a credible understanding of the two parties' obligations. Rather, I find that as with all of its customers, Prudential utilized a "minimax" inventorying system to project plaintiff's requirements on an ongoing basis, and then manufactured the private label goods accordingly.² If Diamond ordered goods that Prudential did not have on hand, Prudential would supply plaintiff with comparable Prudential non-private label goods and or "back-order" the goods. By back-ordering, defendant would manufacture the nonsupplied goods as expeditiously as possible.³ On the other hand, if Prudential manufactured goods not subsequently ordered by Diamond, Diamond would purchase the surplus goods at year's end.⁴

Beginning in 1978, the new president Salzberg requested and Prudential agreed, to have a Prudential salesman visit Diamond at least once every month. The salesman, Edward Stelzer, would carry out the minimax calculations at Diamond's warehouse, and take any orders that plaintiff had. Plaintiff also continued to make telephone orders to Prudential during this time period.

From March 1979 to July 1979 Prudential filled all of Diamond's orders for private label goods. A large percentage of plaintiff's sales normally would be concentrated soon thereafter during the "Back-to-School" phase from approximately mid-August to mid-September. On August 8, 1979, during a visit by Prudential's salesman Stelzer, Diamond placed an order that Prudential was only able to fill in part the following day.⁵ On September 4, 1979, plaintiff made a small order which defendant could not fill at all with private label goods.⁶ In both cases, Prudential substituted equivalent goods with its own label. The option of keeping or returning the substituted goods was Diamond's choice. On September 12, 1979, during a visit to Diamond, Stelzer authorized the return of some of the substituted goods; Diamond also retained some of them.⁷

Salzberg asserts that at this visit he indicated to Stelzer that Prudential was not meeting its obligations under the agreement, and that plaintiff would seek another private brand supplier. The objective and credible facts belie this assertion except to the extent that Salzberg did seek another supplier over the following months. For example, on September 17, 1979, Prudential sent Diamond a letter notifying it of the new price list for the coming year, citing the leftover goods on hand which Diamond was obligated to purchase by year's end. This letter, five days after Salzberg claims he notified Stelzer of the termination of their contract, makes no reference to a putative abrogation of plaintiff and defendant's twenty-five year relationship.⁸ On September 26, 1979, plaintiff returned some of the substituted equivalent goods. Although Salzberg asserts that the equivalent Prudential products were "completely unacceptable," Diamond retained some of the substituted goods. Furthermore, plaintiff did make a small order for private label goods after its supposed September termination of the contract.

Furthermore, although both Stelzer and Salzberg testified that at the September 12, 1979 meeting they agreed that Stelzer would no longer visit Diamond once a month, I find that this was not a result of the contract termination. They merely were reverting back to the prior longstanding practice of having a Prudential salesman visit Diamond only once at the beginning of the year. The above facts are thus inconsistent with Diamond's assertion that it notified Prudential of the termination of its contract. Indeed, it appears that plaintiff, not defendant, failed to attempt to resolve their differences; Salzberg did not deny that he refused to answer or return any of Stelzer's telephone calls over the following weeks.

During the late fall or winter of 1979, Diamond negotiated and contracted with Roaring Springs, Inc. ("Roaring Springs") to manufacture Diamond's private brand goods. There was a delay, however, before Roaring Springs was able to begin manufacturing Diamond goods. According to Salzberg, this delay resulted in the loss of virtually an entire quarter's revenues.⁹ Furthermore, Salzberg testified, many of Diamond's customers were "desperate" for goods that Diamond could not supply. He contended that this resulted in the permanent loss of a few customers.

Diamond's revenue loss, however, was of its own making. Prudential's September 17, 1979 letter revealed an existing supply of private brand goods. If Diamond were as desperate for private goods as Salzberg maintains, it could simply have ordered some of the goods Prudential had ready-made and/or on hand. Salzberg's refusal to deal with Prudential any longer, and even to refuse to answer or return Prudential's phone calls, exacerbated his company's supply bind. Furthermore, Salzberg claimed that the substituted Prudential goods were "unacceptable." Yet, save for the private label cover, the goods were identical. Moreover, plaintiff had, in the past, occasionally accepted the substitute goods for resale. Thus, the "desperate" shortage of goods experienced by plaintiff in the fourth quarter of 1979 was in part hyperbole, and in part self-induced.

By December Prudential was aware that plaintiff was no longer ordering its private brand stock and Diamond still refused to take or return Prudential telephone calls. In early 1980 at a toy fair, Prudential's President Alan Hodes met Salzberg. At that point Salzberg indicated that he did not care what Prudential did with the Diamond goods still in Prudential's inventory, a fact Salzberg repeated at trial. Therefore, Prudential discarded the unattached wirebound notebook covers printed with Diamond's private label.

Nevertheless, by letter dated May 4, 1980, Prudential again notified Diamond of the private label goods — finished goods only — which it had in its inventory. This amounted to 284 cartons worth approximately $6,100. Diamond chose not to respond. Therefore, Prudential sold some in "odd lots,"¹⁰ gave away some to charity, and was able to sell in July 1980 and in June 1981 at reduced prices a total of seventy-eight cartons to Midtown, and in September 1980, one carton to Barco-Ben Gold, another stationery distributor. The profit on the sales to Midtown and Barco-Ben Gold was approximately $80.00 to $100.00.

Plaintiff argues that the different inventory quantities quoted in the September 17, 1979 and May 4, 1980 letters as well as defendant's October 2, 1979 production evaluation report demonstrate that Prudential...