Fourth Toro Family Ltd. Partnership v. Pv Bakery

• Citation: 88 F.Supp.2d 188
• Decision Date: 08 March 2000
• Docket Number: No. 97 CIV. 9009(AKH).,97 CIV. 9009(AKH).
• Parties: THE FOURTH TORO FAMILY LIMITED PARTNERSHIP, Plaintiff, v. PV BAKERY, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

88 F.Supp.2d 188

THE FOURTH TORO FAMILY LIMITED PARTNERSHIP, Plaintiff, v. PV BAKERY, INC., Defendant.

No. 97 CIV. 9009(AKH).

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

March 8, 2000.

Eric Weinstein and Seth Flaum, New York City, for Plaintiff and Cross-Defendant.

Richard A. Spehr, Mayer, Brown & Platt, New York City, for Defendant and Cross-Plaintiff.

MEMORANDUM AND ORDER

HELLERSTEIN, District Judge.

To New Yorkers and transplanted New Yorkers, a bagel¹ is quintessentially New York. The doughnut-shaped bread, boiled in water and baked to produce a crisp, mellow-brown skin and a delectable, chewy interior is an American success story. Brought to the United States by Jewish immigrants from Eastern Europe, the bagel has emerged from the obscurity of the tenements to become an American icon as beloved as apple pie. Yet, despite its far reaching achievements, the bagel remains a product of New York, judged for its taste and quality according to its degree of variation from a perceived New York ideal.

Helmer Toro and Hector Hernandez, immigrants from Puerto Rico, took up the path marked by earlier immigrants to New York City; they opened a bagel store and developed recipes and formulae, the reliable quality and taste of which won public acceptance. Their incorporated name — H & H Bagels, Inc. — became distinctive. This lawsuit contests the rights to that valuable name for bagels — H & H.

Background

In 1972 after active service in Vietnam, Helmer Toro and his brother-in-law Hector Hernandez opened a bagel store on Broadway and 80th Street on the West Side of Manhattan, incorporated as H & H Bagels, Inc.² and known as H & H Bagels. Two years later, Helmer and Hector opened a second bagel store on the East Side, on Second Avenue and 80th Street. The second store was separately incorporated as Yorkville Bagels, Inc., and assumed the tradename "H & H Bagels Midtown East." The bagels sold in both stores were baked according to the same recipe, and found substantial acceptance by the consuming public. Compl. ¶ 15.

In 1979, Hector and Helmer, seeking to expand H & H's wholesale bagel-baking operations, purchased a factory in the Bronx and incorporated it as North East Bakeries, Inc. The operation failed; loans cross-guaranteed by H & H Bagels, Inc. and Yorkville Bagels, Inc. were called, and a consolidated chapter 11 bankruptcy of all three companies resulted. An Examiner was appointed, and he determined, with the approval of the creditors and pursuant to an order of the bankruptcy court, that there should be an auction of both the West Side and the East Side stores, and that bidders could make offers on each store separately and on both combined, whichever would result in greater value to repay creditors.

Plaintiff bid for both stores, but was awarded only the West Side Store. Another bidder, Gotham Bagels, Inc., presented a winning, higher bid to acquire the East Side store. The Examiner issued separate bills of sale, conferring different rights, to each. In the years that followed, the West Side store and its original, continuing owners, using their H & H tradename, enjoyed growing and substantial revenues and profits, and ever greater renown. The East Side store was less successful, passing through successive managements which, under the tradename "H & H East," primarily sold to customers in their East Side neighborhood. The current owner of the East Side store, the defendant in this action, PV Bakery, Inc., initiated a more aggressive marketing program, seeking to compete in the same markets in a manner that impermissibly encroached on the H & H mark with the closely similar "H & H East" tradename. This lawsuit was the result.

The Current Action

The parties dispute their respective claims of right to the name H & H. The Fourth Toro Family Limited Partnership, the Plaintiff, claims exclusive right to the name H & H, and sues to prevent PV Bakery, Inc., the Defendant, from using it and for damages, invoking the Trademark Act, 15 U.S.C. §§ 1125(a), 1114(l), section 43(c) of the Lanham Act, 15 U.S.C. § 1125(c), section 368-d of the New York State Business Law and the common law of unfair competition.³ PV counterclaims, alleging that it, not Fourth Toro, has exclusive right to the H & H name, and that it is entitled to injunctive relief and damages.

Specifically, the parties contest plaintiff's exclusive right to Trademark Registration No. 1,736,851, issued December 1 1992 on application of December 24, 1990, for the slogan "H & H Bagels like no other bagel in the world," with a design including "H & H" on a stylized shopping bag. Plaintiff filed three additional applications for "H & H Bagels," and for the design "H & H" and the slogan "Like No Other Bagel in the World," on September 16, 1996. Compl. ¶ 25. Defendant filed Notices of Opposition with the Trademark Office to the three pending applications, and a Petition for Cancellation of Registration No. 1,736,851. Compl. ¶ 26.

I hold, for the reasons expressed in this opinion, that both Fourth Toro and PV have rights to the name H & H, but unequally, with Fourth Toro having the stronger right.

Facts

The contest for the right to the H & H name stems from the stores' consolidated bankruptcy. Hector and Helmer continued to manage the two retail stores during the chapter 11 proceedings. In 1995, in anticipation of the Examiner's proposed sale of the two stores, Hector and Helmer incorporated The Excellent Bagels, Inc. and bid for both stores: $515,000 for the West Side store, $110,000 for the East Side store, and $625,000 as a combined bid. On April 15, 1985, Excellent Bagels was awarded the West Side store, but its bid was not the high bid for the East side store: Gotham Bagels, Inc., with a winning bid of $125,000, was awarded the East side store.

The bills of sale from the Bankruptcy Examiner to the two buyers defined the parties' respective rights to the H & H name. Hector and Helmer, through their company Excellent Bagels, purchased, by bill of sale dated April 23, 1985, not only the assets to the West Side store but, with those assets, the "goodwill and any other transferable intangibles of the Debtor ... including the tradename H & H Bagels (the business being sold)."⁴ Specifically, the West Side store's bill of sale provides:

The Debtor has sold, assigned and transferred by these presents, and does sell, assign and transfer unto The Excellent Bagels, Inc. its successors and assigns, any and all of its right, title and interest in and to [certain physical assets] .... Included in the sale are goodwill and any other transferable intangibles of the Debtor ... including the tradename H & H Bagels (the business being sold).

The bill of sale to Gotham for the assets of the East Side store, dated two days later, April 25, 1985, conveyed the Debtor's "right, title and interest in and to the tradename Yorkville Bagels, Inc., d/b/a H & H Midtown Bagels East ...," but not the Debtor's "goodwill" or "transferable intangibles." The bill of sale for the East Side store provides:

JOHN S. PEREIRA, as Examiner in Bankruptcy of H & H BAGELS, INC., and YORKVILLE BAGELS, INC., d/b/a H & H BAGELS EAST, Debtors, in a proceeding Under Chapter 11 ... has sold, assigned and transferred by these presents, and does sell, assign and transfer unto Gotham Bagels, Inc., its successors and assigns, any and all of its right, title and interest in and to the tradename Yorkville Bagels, Inc., d/b/a H & H Midtown Bagels East, the furniture, fixtures, inventory, machinery and equipment, and all of other physical assets of the Debtor contained in the former premises of the Debtor located at 1551 Second Avenue, New York, New York ...

The distinction made in the two bills of sale is crucial: Excellent (Hector and Helmer's company) acquired the "H & H Bagels" name and its attendant "goodwill"; Gotham (the East Side store) acquired only the precise tradename, H & H Midtown Bagels East.

The West Side Store

H & H Bagels has established itself as a culinary landmark on Manhattan's Upper West Side, producing more than 100,000 bagels daily and 36 million bagels a year: plain, cinnamon-raisin, pumpernickel, sesame, poppy and other varieties. A worldwide network of wholesale and retail stores distribute H & H's bagels from Mississippi and Wisconsin to Jerusalem and Tokyo. H & H's bagel-eaters buy and enjoy the breadstuff in Belgium, Canada, the Dominican Republic, France, Germany, Haiti, Israel, Japan, Jordan, Luxembourg and the Netherlands. Flaum Decl. at 4-5. By 1997 when this lawsuit was filed, Fourth Toro's annual revenues had grown to $11,360,307. Pl. Brief at 6.

The H & H Bagels' name has been spread by extensive advertising in local, regional and national media.⁵ H & H Bagels have been featured in select catalogs including Bloomingdale's by Mail, Gourmet Magazine and Starbucks. Press reports and guidebooks wax eloquent in characterizing the bagels' distinctive qualities: "the deftly modulated dough, the scent emanating from a warm bag that in itself will precipitate a Freudian regression" (New York, Bagels, Apr. 17, 1995)⁶; "that Microsoft among bakeries, which ships bagels to celebs like Kevin Bacon and Cher and to anyone else in the world who dials their 800 number" (Saveur Magazine, Lament for the Bagel, November 1998 at 132); "[o]ne of the larger palaces of unpretentious delights" (Where New York, Let's Schmear!, June 1997 at A64); and "a definitive bagel." (Engel, Allison and Margaret, Food Finds 28 (1991)). The store operates under a respected kosher certification and has participated at "Kosherfest," a Kosher food trade show.⁷

H & H Bagels has also become known through corporate promotions, charitable donations and publicity events. As part of the Fourth Annual New York Restaurant Week, H & H constructed the NY96 Tower of Bagels of 1,432 H & H Bagels (1,144 of which were regular-sized and 288 jumbo 21-inch bagels in assorted flavors). Four hundred pounds of H & H bagels...