FEDERAL FOLD. WALL CORP. v. National Fold. Wall Corp.

• Decision Date: 18 November 1971
• Docket Number: No. 68 Civ. 3130.,68 Civ. 3130.
• Citation: 340 F. Supp. 141
• Parties: FEDERAL FOLDING WALL CORP., Plaintiff, v. NATIONAL FOLDING WALL CORP., Defendant.
• Court: U.S. District Court — Southern District of New York

340 F. Supp. 141

FEDERAL FOLDING WALL CORP., Plaintiff, v. NATIONAL FOLDING WALL CORP., Defendant.

No. 68 Civ. 3130.

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

November 18, 1971.

Mackler Brothers, New York City, for plaintiff; Seymour G. Mackler, New York City, of counsel.

Doman, Spellman & San Filippo, New York City, for defendant; Augustin J. San Filippo, New York City, of counsel.

PALMIERI, District Judge.

Preliminary Statement

This action for trademark infringement and unfair competition was tried to the Court without a jury. The plaintiff, Federal Folding Wall Corp. (Federal) was created by one Jack Genison, a former contract employee of defendant National Folding Wall Corp. (National). It was created for the express purpose of competing with defendant National in precisely the same type of business in which Genison had engaged as National's employee. The contract by which Genison was bound to National was prepared largely by Genison himself and gave him a large measure of control and independence with respect to the sales and development of the products involved, namely the manufacture, sale and installation of wood folding or sliding walls, partitions, doors, wardrobes and similar goods. The agreement, which ran from June 27, 1963 to June 30, 1972, provided Genison with substantial financial and profit-sharing benefits; contained an automatic renewal clause, and provided that in the event of termination and a failure to arrive at a new agreement, Genison "shall not attempt to sell any products of the same nature . . . himself or for any other Company." It also gave Genison what amounted to a first refusal option in the event National were to sell its business. In effect, therefore, Genison had operated National pretty much as his own enterprise under the wing of a group of companies owned by one Louis Greco and his three sons. Towards the end of 1965, Genison recruited two employees of National and began perfecting his plans surreptitiously to set up the plaintiff Federal as a competing entity. In February of 1966 he confronted the Grecos with his decision, leaving Mr. Louis Greco frightened and shaken. He thereafter set up business under Federal taking two of National's employees with him. Eventually four others from National joined him. Apparently in the belief that offense is the best defense, Federal brought this baseless suit against National. It should be noted parenthetically that prior to this lawsuit the defendant had been unsuccessful in an arbitration proceeding involving the trade name Fairhurst in connection with its folding wall business. The defendant had acquired the right to use this mark pursuant to a license agreement which it held by assignment from Technoply Corporation and to which John T. Fairhurst Company, Inc. (Fairhurst) and Technoply Corporation were parties. The license agreement was held to have been validly terminated. Since National had sought to resist cancellation of the agreement and had failed to sustain its position in the arbitration proceeding, the plaintiff here pursued its cause of action with an assured sense of victory, having in the meantime secured the Fairhurst license for itself, confident that National, deprived of its license agreement, was fair game for claims of trademark infringement and unfair competition at the hands of plaintiff. The plaintiff had become the licensee of Fairhurst in 1966. But it should be stressed that the Fairhurst licensing background to this litigation has only a peripheral relevance. The facts before this Court demonstrate that if National was unable to continue in business and lost its license from Fairhurst it was due directly to the machinations of Genison and to his repudiation of his contractual obligations with National. National, after Genison's defection, was unable to comply with its obligations to Fairhurst. Genison appeared as a witness before this Court. His testimony proved to be largely unreliable and unpersuasive. There can be no doubt that Genison, aided and abetted by Zimmer and Sanchez, the two former employees of National, succeeded in causing National to lose its Fairhurst license, and in obtaining it for themselves in the name of Federal.

In denying Federal's motion for summary judgment in this litigation, Judge McLean of this court held that the arbitration award was not res judicata and could not work a collateral estoppel of defendant National; that Genison failed to deny the charge of breach of fiduciary obligation; that the arbitrators presumably found the termination of National's licensing agreement proper because its sales had not reached the required minimum, thus leaving open and undecided the question as to whether Genison breached his fiduciary obligation for his own benefit and had induced Fairhurst to exercise its right to termination. These open questions are here and now decided adversely to Genison and to Federal.

In amplification of what has already been said, the findings of fact and conclusions of law which follow are intended to demonstrate that the complaint must be dismissed with prejudice and that defendant is entitled to relief.

FINDINGS OF FACT

1. John T. Fairhurst Company, Inc. (Fairhurst) was the owner of the duly registered trademark "Fairhurst" and holds Certificate of Registration No. 550-184 for the said trademark issued by the United States Patent Office on October 30, 1951. In 1963 it licensed Technoply Corporation (Technoply) to use the trademark exclusively. In November 1964, Technoply assigned its exclusive license to defendant.

2. Fairhurst Industries, Inc. is the parent of Federal Folding Wall Corp., the plaintiff herein, and is not a party to this action. Plaintiff has failed to establish its right to the use of the Fairhurst trademark which is the subject of this litigation. Although plaintiff claims to have become the sole and exclusive owner of the trademark by virtue of an assignment from Fairhurst on or about June 1, 1966, the legal effect of this purported assignment was vitiated by the wrongful actions of plaintiff and its alter ego, Jack Genison, as more particularly described herein.

3. The advertising containing the name Fairhurst was being conducted by Fairhurst Industries, Inc. which uses its own name in these advertisements and not Federal Folding Wall, the plaintiff herein.

4. At no time did plaintiff Federal use the name Fairhurst in its advertisements.

5. Due to the continued, and subsequent to July 11, 1969, exclusive use of the Fairhurst trademark by Fairhurst Industries, Inc., said Fairhurst Industries, Inc. is an indispensable and proper party to the action.

6. The Fairhurst trademark was obtained by defendant on November 17, 1964, but not used until February 1966, and its use by defendant was terminated on July 11, 1969, the date of the American Arbitration Association's decision to the effect that Fairhurst had the right to rescind the assignment of its trademark to defendant.

7. The use of the name Fairhurst by defendant was lawfully continued until July 11, 1969, on the advice of counsel pending the decision of the American Arbitration Association.

8. The stockholders' agreement with respect to the new competing corporation, plaintiff herein, by Sanchez, Zimmer and Genison was prepared about a week before January 26, 1966, by plaintiff's present attorneys who also represented the John T. Fairhurst Company, Inc., the owner of the trademark, at the arbitration proceeding and who knew, at the time the agreement was prepared, that they were still employed by defendant National.

9. Genison had a written employment agreement with defendant National at the time he arbitrarily terminated his employment with it. He repudiated his contract in order to compete with defendant National by forming another corporation, the plaintiff Federal, and taking defendant's key employees with him, in clear violation of his written contract and his fiduciary obligations to the defendant.

10. Genison did not rescind or cancel his employment contract with defendant with the consent or acquiescence of defendant or its officers.

11. Genison, Sanchez and Zimmer decided to go into business together and to compete with their employer the defendant, around Christmas of 1965. They did not tell any of the Grecos (officers of defendant corporation) until the middle or end of January, 1966, and remained on the defendant's payroll as paid employees until February, 1966.

12. The three key employees of defendant's Fairhurst folding door division, to wit, Genison, Sanchez and Zimmer, left defendant's employ and formed their own business in competition with defendant in February, 1966.

13. Of the original twelve employees of defendant National, six became employees of plaintiff Federal after Genison left the defendant corporation and formed the plaintiff corporation in competition with his former employer.

14. Notwithstanding the use of the name Fairhurst and after the three key employees left defendant's employ, defendant's...