Flexitized, Inc. v. National Flexitized Corporation

• Decision Date: 19 February 1963
• Citation: 214 F. Supp. 664
• Parties: FLEXITIZED, INC. and Flexitized Sales Corporation, Plaintiffs, v. NATIONAL FLEXITIZED CORPORATION and Dubin-Haskell Lining Corp., Defendants.
• Court: U.S. District Court — Southern District of New York

214 F. Supp. 664

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

United States District Court S. D. New York.

February 19, 1963.

COPYRIGHT MATERIAL OMITTED

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

Deane Ramey, New York City, for defendants.

TYLER, District Judge.

This action was tried before this court and a jury on January 9, 10, 11 and 14 through 18, 1963. Plaintiffs' complaint alleges three claims: breach of contract, trade-mark infringement, and unfair competition. In their prayer for relief plaintiffs seek money-damages on all three claims and an order enjoining defendants from unauthorized use of the trade name "Flexitized".

Jurisdiction of this court has been invoked by virtue of certain claims "arising under the laws of the United States" (28 U.S.C. § 1338) and on the basis of diversity of citizenship of the parties (28 U.S.C. § 1332).

With consent of the parties, the issues of liability for trade-mark infringement and unfair competition, resultant damages, if any, in the trademark infringement and unfair competition claims, along with the question of injunctive relief, were submitted to the court.¹ The issues of liability for breach of contract, as well as of damages, if any, for breach of contract, were to be decided by the jury.²

The product of the jury's deliberations in this case is in the form of answers to twenty-four written questions propounded by the court and submitted to the jury. These questions, and the answers to them, serve a dual function. With respect to the issues to be determined by the jury, the answers constitute the special verdict provided by F.R.Civ.P., Rule 49(a). With respect to the issues to be decided by the court, the answers are advisory only. F.R.C.P., Rule 39(c).³

By consent of the parties, judgment in all branches of the case was to abide the event of this opinion, which, accordingly, combines declaration of judgment under Rules 49(a) and 58, with the disposition, including findings of fact and conclusions of law, of the issues submitted to the court (F.R.C.P., Rules 39(a), 52(a)).

The following facts were established at trial.

Mr. Louis Graver, president of both plaintiff corporations, was for some time prior to 1953 engaged in various capacities in the manufacture and sale of textiles and related items. In the year 1953 Graver became attracted to the idea of developing a flexible garment "stay" which, when sewn into a portion of a garment, such as a shirt collar, would have the capacity of retaining a particular configuration or style to which the wearer could shape it.

Mr. Graver, together with others who were to become the principals of both plaintiff companies, developed such a product in 1953. In July or August of that year they coined the word "Flexitized" and on September 17, 1953, plaintiff Flexitized, Inc. as the manufacturer, and plaintiff Flexitized Sales Corp., as the sales agency, were organized under the laws of California.

Shortly thereafter, Alpha Dye Cutting and Manufacturing Co., a California corporation, became the plaintiffs' distributors for the West Coast area.

Late in 1953 there were conversations between Mr. Graver and representatives of defendant Dubin-Haskell Lining Corp. ("Dubin-Haskell") concerning the possibility of Dubin-Haskell or an affiliated company becoming plaintiffs' distributing agent, purchasing stays for resale to garment manufacturers in the area of the United States east of the Rocky Mountains. These conversations led to an exchange of letters between the parties.

The first of these, dated December 4, 1953, is from Graver to Mr. Herbert Haskell of Dubin-Haskell, and sets forth the "major" terms of an "agreement" reached "pursuant to our today's conversation" by telephone. There followed a reply letter, dated December 8, 1953, from Haskell to Graver which, referring to the "contractual agreement of December 4", suggests certain modifications of the terms stated in the December 4 letter.

The letter of December 8 states in part:

"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. In the meantime, as per your statement, we will proceed and start working on this product immediately."

No such formal written agreement was ever prepared or adopted by the parties. The letters do not, nor do they purport to, incorporate all the terms of the agreement reached by the parties. It is clear that the parties agreed that Dubin-Haskell, or an affiliated company, was to become the plaintiffs' exclusive distributor throughout the United States, with the exception of the eleven Western states; that the contract was to run for five years; and that "Dubin-Haskell would not have the right to sell a competing product, directly or indirectly (for the life of this contract)".

Under date of December 17, 1953, Jesse Blattel, counsel acting on behalf of the plaintiffs, wrote to Mr. Haskell as follows:

"I am presently in the process of drawing a proposed agreement following generally along the lines outlined in your correspondence with Mr. Graver. He informs me that you intend to form a corporation which will incorporate the name `Flexitized'. I would like to know something about the manner in which the corporation is to be set up, including capitalization and stock ownership. I have suggested to Mr. Graver that the use of the name `Flexitized' in the proposed corporation be conditioned upon the faithful performance of the proposed agreement and that the corporation would agree to change its name in the event it no longer handled Flexitized stays.

"If either you or your attorneys have any suggestions regarding the proposed agreement, I would greatly appreciate your transmitting them to me."

It does not appear that defendants responded to this letter or to the points raised in it. Specifically, there appears to be no other writing relating to the terms under which Dubin-Haskell would organize its sales agency as distributor for plaintiffs' stays.

Defendant National Flexitized Corp. ("National Flexitized") was organized by Dubin-Haskell in the early part of 1954 as distributor for the plaintiffs' product. During the years 1954, 1955, and 1956, National Flexitized purchased, for resale to garment manufacturers, plaintiffs' stays in dollar volume in excess of $100,000 per annum.⁴

The trade-mark "Flexitized", Registration No. 601,713, was registered by the United States Patent Office on February 1, 1955 in the name of Flexitized, Inc. and such registration is still in effect. Earlier, the plaintiffs had applied for, but were not successful in securing, a patent on their "Flexitized" stay.

Sales by National Flexitized of the plaintiffs' stays fell off markedly in the latter part of 1956 and early part of 1957. The reason for this is, in part, disputed.

Defendants maintain that the sole cause was the entry onto the market of a stay made of a material called "mylar" which, though it did not have the property of being shapeable by the wearer, nonetheless was priced substantially below the plaintiffs' stay and was highly competitive with it.

During a substantial portion of 1956 and 1957 defendant National Flexitized, unbeknownst to plaintiffs, was selling stays, including the mylar stay, which were not made or sold by plaintiffs.

In a letter dated April 8, 1957, from Mr. Henry Amber of Flexitized Sales Corp., to Mr. Haskell, Mr. Amber stated:

"We are going to attempt to sell the product by other means. * * * I am sure you will understand as you were doing absolutely nothing with it and we cannot afford to have it be idle. We will of course, not leave you out on any limb and if in the next thirty days you have any requirements that need to be taken care of we will continue to service you for that period."

On July 16, 1957, Mr. Graver wrote as follows to Mr. Haskell:

"We have evidence to the effect that you are handling a competitive stay, which is in direct violation of our arrangement. Therefore, we have decided to terminate relations with National Flexitized Corporation, the same to take effect immediately. We will, however, fill any emergency orders up until August 1, 1957.

"Furthermore, we request that you immediately discontinue using the name `Flexitized' in your operations, as we have learned that you are selling other products under this name."

Plaintiffs transferred their business from the defendants to the Eagle Neckband Corp., a New York corporation.

During the life or the distributorship agreement between plaintiffs and defendants, the word "Flexitized" was used in advertising material paid for by defendants as well as by plaintiffs. This material included brochures, advertisements both in trade publications and in magazines of general circulation, and "hang tags" which were attached to garments containing the stays. Some of the advertising material was prepared by plaintiffs and forwarded to defendants for use by them.

Since the termination of this agreement, defendants have continued to use the word "Flexitized", both in the corporate name of defendant National Flexitized, and in connection with the marketing and distribution of stays not made or sold by plaintiffs.

THE BREACH OF CONTRACT CLAIM

On the claim for breach of contract, the jury expressly found: (a) that there was a contract between both plaintiffs on the one side and both defendants on the other;⁵ (b) that this contract provided that the defendants, as sales agents or distributors of the plaintiffs, undertook (i) not to sell competing products through defendant National Flexitized during the life of the contract and (ii) to use best efforts to sell plaintiffs' stays during the life of the contract; (c) that both these contractual provisions were breached by both defend...