Hair Assoc. v. National Hair Replacement Services
| Decision Date | 18 November 1997 |
| Docket Number | No. 1:94-CV-574.,1:94-CV-574. |
| Parties | HAIR ASSOCIATES, INC., Plaintiff, v. NATIONAL HAIR REPLACEMENT SERVICES, INC., et al., Defendants. |
| Court | U.S. District Court — Western District of Michigan |
Elizabeth S. Holmes, Elizabeth S. Holmes Law Offices, Grand Rapids, MI, for plaintiff.
Scott H. Hogan, David L. Harrison, Tolley, Vandenbosch, & Walton, PC, Grand Rapids, MI, for defendant.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This trademark infringement action was tried without a jury on April 23 through April 26, 1996. Near the close of defendants' proofs on April 26, plaintiff raised an objection to the testimony of defendants' final witness, a damages expert. The issue was ultimately resolved by permitting the parties to conduct additional discovery with regard to damage issues and the parties submitted additional damage proofs by way of deposition transcripts. The court heard final closing arguments on November 18, 1996.
The issues subject to trial, as narrowed by the court's April 16, 1996, opinion regarding defendants' motion for summary judgment (docket no. 89) and the joint final pretrial order (docket no. 91), include the following:
1. Whether defendant Donald Hale ("Hale") is liable for breaching the franchise agreement annexed to the amended complaint as Exhibit 1 by failing to pay certain fees and royalties to plaintiff Hair Associates, Inc. ("Hair Associates").
2. Whether defendants Hale or National Hair Replacement Services, Inc. ("National") are liable for infringement of trademarks, owned by Hair Associates, in violation of the Lanham Act.
3. Whether defendants Hale and National are liable for unfair competition based on infringement of Hair Associates' common law trademark rights.
4. The amount of damages and/or nature of injunctive relief, if any, to which Hair Associates may be entitled.
Pursuant to Federal Rule of Civil Procedure 52(a), the court's findings of fact and conclusions of law with regard to these issues are set forth below.
The court notes at the outset that resolution of this dispute requires analysis of a series of complex transactions between the parties. The parties, in some instances, entirely failed to document the transactions; in other instances, the documentation prepared by the parties is simply incomplete. As a result, the court has been forced to reconstruct in some detail events which the parties, at the time the events occurred, did not consider sufficiently important to justify memorializing on paper, and now recall in contradictory ways. This posture frequently requires the court to pick one party's version of the events over the other party's, though neither is fully compelling nor internally consistent.
Jules Borenstein, president of plaintiff and plaintiff's principal witness, started Monte Carlo Hairpieces, Inc. ("Monte Carlo") in 1969 as a manufacturer of men's hairpieces. (I 22). In 1980 Monte Carlo brought together its best customers for the purpose of jointly developing the hair replacement business. Monte Carlo invited these customers to jointly contribute funds to develop uniform advertising, education and training, under the name "Hair Replacement Systems". (I 22-23; III 8-9; Smith 10).2
A hair replacement is a specially manufactured hairpiece. The custom hair replacements made by Monte Carlo require making a plaster of paris mold of the customer's head. A counter mold, which is a duplicate of the customer's head, is made from the first mold and sent to the factory. At the factory, base materials are made to conform to the counter mold and the hair is woven into the foundation. The resulting hair replacement is attached to the customer's head using a variety of methods. The customer must come in periodically to have the hair replacement serviced or replaced. Some customers' heads have a sufficiently regular shape and hair color to use premade stock hair replacements. (I 27-29, III 35-36). Several entities compete with Monte Carlo as manufacturers of hair replacements.
On June 4, 1980, Monte Carlo filed an application in the United States Patent and Trademark Office ("USPTO") to register the mark "Hair Replacement Systems" on the principal register for the provision of hair replacement services. (EX 14, B). The application was rejected by the USPTO because of the prior registration on the supplemental register of "Hair Replacement Centers" and because the mark was merely descriptive. (EX C). Accordingly, Monte Carlo amended the application to request registration only on the supplemental register. (EX C). The mark was registered on the supplemental register (Reg. No. 1,80,704) in accordance with the amended application. (EX 14). The mark shall be referenced herein as "the registered words." A copy of the registered words mark is annexed hereto as Attachment A.
Plaintiff Hair Associates was established as a Delaware corporation in 1984. Its officers included Jules Borenstein, Edward Smith and Leo Benjamin. In 1984, the corporation applied for and received authority to transact business in Florida. (JFPO). Monte Carlo then assigned the Hair Replacement Systems mark to Hair Associates. (I 67).
Hair Associates converted the advertising cooperative of Hair Replacement Systems, initiated by Monte Carlo, into a franchising system. Hair Associates served as the franchisor, doing business as Hair Replacement Systems. The customers who were members of the advertising cooperative were offered the opportunity to become Hair Replacement Systems franchisees. (E. Smith 11-12). By way of example, Hair Additions of Nashville, Inc., a corporation then owned by defendant Hale, was initially a member of the advertising cooperative and thereafter a Hair Replacement Systems franchisee. (III 7-9).
On October 24, 1985, Hair Associates filed an application with the USPTO to register a trademark on the principal register consisting of the stylized letters "HRS" for hair and scalp products. (EX D). Hair Associates amended the application, changing the identification of goods from "hair and scalp products" to "cosmetics, namely hair shampoo, hair conditioner, hair lotions, hair spray and preparations for the scalp." (EX E). The mark was registered on the principal register on January 27, 1987 (Reg. No. 1,426,178) (EX 16). The mark shall be referenced herein as "the registered letters." A copy of the registered letters mark is annexed hereto as Attachment B.
On December 9, 1991, Hair Associates filed an application with the USPTO to register a service mark on the principal register consisting of the stylized letters "HRS" accompanied by the words "Hair Replacement Systems" arranged in a particular design for services, namely, procurement, sales, sizing, affixation, stylization and maintenance of hair pieces and related maintenance products for men and women. (EX F). Hair Associates amended the application, changing the identification of services to "retail store services featuring hair pieces and styling of same for men and women," and disclaiming the wording "hair replacement systems" apart from the mark as shown (EX G; I). The mark was registered on the principal register on December 8, 1992 (Reg. No. 1,738,805). (EX 15; I). The mark shall be referenced herein as "the registered logo." A copy of the registered logo mark is annexed hereto as Attachment C.
In 1986, Hair Associates of Michigan, Inc, was incorporated with Leo Benjamin as president, Jules Borenstein as secretary and David Bonaroti as manager. Hair Associates of Michigan, Inc., filed an assumed name certificate in April of 1986 as "Hair Replacement Systems." (JFPO). Hair Associates of Michigan, Inc. was formed as an alternative means to develop the Hair Replacement Systems franchise market. The corporation opened a Hair Replacement Systems studio in Grand Rapids, Michigan. The goal was to establish the studio as a successful business and then sell it. Mr. Borenstein intended to follow that model to open up studios all over the country. (I 43-44).
In 1987, Jules Borenstein asked Hale to help with the studio owned by Hair Associates of Michigan, Inc. in Grand Rapids. Hale worked at the studio for a period of two weeks in June of 1987 to investigate and remedy problems at the studio. When the old problems subsequently resurfaced later that year, Borenstein asked Hale to return permanently to Grand Rapids and manage the studio. Hale agreed and moved his family to Grand Rapids in late 1987. (JFPO).
Between the time he moved to Grand Rapids, and May 1, 1988, when he executed a franchise agreement for the Grand Rapids studio, Hale purchased the studio. However, the parties dispute how this was done. Hale contends he purchased the corporation Hair Associates of Michigan, Inc. (III 15). Borenstein contends he sold only the assets of the corporation to Hale (I 47-48). Since the nature of this transfer impacts the formation of the subsequent franchise agreement, and the parties cannot agree as to what type of transfer occurred, it is necessary for the court to decide. Unfortunately, there is no documentation of the sale (III 16).
Although the sale transaction was not memorialized in any document, subsequent documents in the record support Hale's contention. For example, Exhibit K is a federal tax return for Hair Associates of Michigan, Inc. for its fiscal year beginning February 1, 1988, and ending January 31, 1989. The return was prepared by Hale's tax professional at Hale's request. (IV 37-39, 62-64). The federal employer identification number is the same as that used by the corporation prior to the purchase. (EX 2). If Hale purchased only the assets, he would not have filed a tax return for the corporation.
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