Heyman v. Ar. Winarick, Inc.

• Citation: 207 F. Supp. 78
• Parties: Everett HEYMAN, d/b/a Pleasure Products Co., Plaintiff, v. AR. WINARICK, INC., Ar. Winarick, Inc., Dura-Gloss Division, Jules Winarick, Hugo L. Bell, et al., Defendants.
• Decision Date: 13 July 1962
• Court: U.S. District Court — Southern District of New York

207 F. Supp. 78

Everett HEYMAN, d/b/a Pleasure Products Co., Plaintiff, v. AR. WINARICK, INC., Ar. Winarick, Inc., Dura-Gloss Division, Jules Winarick, Hugo L. Bell, et al., Defendants.

United States District Court S. D. New York.

July 13, 1962.

Bass & Friend, New York City, for plaintiff (Solomon H. Friend, New York City, of counsel).

Blackman & Willner, New York City, for defendants (Harold J. Blackman, New York City, of counsel).

COOPER, District Judge.

This is an action for damages, an injunction, and an accounting of profits based upon alleged acts of unfair competition, misappropriation of trade secrets, unjust enrichment and breach of contract by defendants.

The complaint embodies five causes of action each of which is premised upon substantially the same facts. By stipulation, a sixth cause of action alleging a conspiracy involving defendant Hanley has been withdrawn. Jurisdiction in the case at bar rests upon diversity of citizenship, 28 U.S.C.A. § 1332.

Stripped of surplusage, the complaint alleges that defendants entered into a confidential relationship with plaintiff, obtained knowledge of the secret formula and ingredients of plaintiff's liquid nail hardener, as well as information regarding plaintiff's customers, and then wrongfully breached that confidence by using such knowledge and information to their own advantage and to plaintiff's detriment.

Plaintiff contends that in November, 1957, he disclosed the formula and ingredients of his product to defendants, in confidence, in connection with certain negotiations for the sale of his business. He also asserts that although defendants refused to purchase the business they nevertheless appropriated certain customer lists and other related information allegedly revealed to the individual defendants Bell and Winarick during the negotiations. In this regard, the complaint avers that defendants breached the confidence reposed in them by subsequently soliciting customers whose names plaintiff allegedly disclosed to them during the course of the discussions concerning the possible purchase of his business.

Further, plaintiff asserts that defendants copied his advertising format and phraseology, that the so-called "dip" technique in connection with his product has acquired a secondary meaning and is generally associated in the public mind with that product, and that defendants are thus wrongfully palming off their product as that of plaintiff.

The factual background of the case, painted in broad strokes, emerges as follows:

Since October, 1956, plaintiff, a citizen of California, has conducted a business involving the manufacture and merchandising of a liquid finger nail hardener called "It's a Pleasure." Designed to strengthen the finger nails by their daily immersion in a prepared solution, this product was sold at drug stores and cosmetic counters in various parts of the country. Plaintiff asserts that he discovered and originated the product after considerable experimentation and research, and that his product was the first commercial nail hardener to use the dip technique.

Defendant Ar. Winarick, Inc., a New York corporation in existence for approximately forty-five years, is a large cosmetics firm with a multi-million dollar annual volume of business. In addition to its extensive line of hair preparations and other toiletries, it also manufactures and sells various lines of nail polishes and other finger nail preparations and accessories.

Defendant Jules Winarick, the President of Ar. Winarick, Inc., and defendant Hugo L. Bell, its General Sales Manager, are citizens of New York and Connecticut, respectively. Defendant Hanley, a business broker and consultant retained by the Winarick company, is a citizen of New York. Hence, since plaintiff Heyman is a citizen of California, the requisite diversity of citizenship plainly exists.

On September 26, 1957, plaintiff advertised in the Wall Street Journal (West Coast Edition) an offer to sell his nail hardener business for $80,000. The advertisement stated:

"NEW COSMETIC MFG. BUS. FOR SALE LOS ANGELES

National Sales now about $60,000 a month. Net profit about 40%. C.P. A. audit shown only to financially qualified buyers. No promoters, please. Full Price $80,000.

Box 34-W The Wall Street Journal 2999 W. 6th Street Los Angeles 5, Calif."

Defendant Hanley brought this advertisement to the attention of Ar. Winarick, Inc. Thereafter, he contacted plaintiff in California and indicated that his client might possibly be interested in the purchase of Heyman's business. Heyman forwarded the financial statement of his business to Hanley. A short time later Jules Winarick asked the Winarick company's General Sales Manager, Bell, who was then in California on a business trip, to see Heyman and obtain some general information concerning the business advertised for sale.

On October 18, 1957, defendant Bell met Heyman in Los Angeles and talked with him for about half an hour about the business "in a general sort of a way." At that meeting, Heyman described in general terms the manufacturing and marketing facilities for his product. During the course of their discussion they also briefly talked about such matters as the volume of sales, inventories, the net profit, the general type of acceptance the product had achieved, the business potential, and the possible effect of increasing competition from a similar nail hardener called "Amazing," marketed by Lanolin Plus, Inc. at the same retail price.

Defendant Bell took a rather dubious view of the advisability of purchasing plaintiff's nail hardener business and reported this view to Jules Winarick in Miami, Florida, about a week after his initial conference with plaintiff.

Subsequently, however, Winarick decided to go out to Los Angeles with Bell and see for himself. As a result of other business, Winarick was delayed for a day; but Bell met Heyman again on either November 7th or 8th at the latter's offices in Los Angeles. On the occasion of this second visit, Bell told Heyman that Jules Winarick was still "interested" in the possible purchase of the business, that he was due to arrive in California the following day and that they would want to discuss the matter further then and examine "the general trend of the business." In this connection, Bell stated that he wanted to determine whether there had been a steady growth of the business up until that time. He explained that for this purpose he wished to analyze what had happened in eight or nine "trading areas" or cities — that is, to ascertain how much had been spent in the way of advertising in each city, when the advertising ran, when the initial sales occurred, and the extent of reorders after the initial purchases. In compliance with this request, Heyman thereupon supplied Bell with certain information regarding the periods and amounts of advertising for "It's a Pleasure" and also the monthly orders of three or four customers in each of the eight cities. Bell concededly recorded this information on a separate sheet of paper for each city and subsequently went over these figures with Winarick.

On November 8th or 9th, plaintiff, Bell and Winarick met together and, in general, discussed certain aspects of plaintiff's business, including such matters as had been earlier discussed at Bell's previous meetings with Heyman. It is apparent that at this conference no immediate decision was made by Winarick as to whether he would recommend purchase of plaintiff's business. At the conclusion of the meeting, however, Winarick handed Heyman a document (Plaintiff's Exhibit 22) containing certain standard, general warranties which he stated would be essential prerequisites to any further consideration. This document can by no stretch of the imagination be deemed a contract. It consisted merely of certain points and representations that plaintiff would be required to put into any contract of sale if and when a deal were consummated.

Upon examining the document, plaintiff indicated that he would have no objection to incorporating such warranties in any future contract should an agreement be reached. Winarick told Heyman that he was returning to New York and would think the matter over and present the results of his conversation with plaintiff to the Board of Directors for its consideration. He promised to let plaintiff know of any decision with respect to further discussions or negotiations for the purchase of the business.

Shortly afterwards, on November 13, 1957, defendants sent a telegram to Heyman advising him that they no longer were interested in purchasing his business.

Some five months thereafter, in March 1958, the corporate defendant introduced on the market its own liquid nail hardener under the name of "Dura-Gloss Finger Nail Hardener." Defendant's product has been widely advertised and sells at a retail price which is approximately one-third that of plaintiff's product.

Plaintiff's major contentions are that during the course of the three meetings with defendants, he disclosed to them, in confidence, certain trade secrets, including the "formula" of his liquid nail hardener, as well as his "customer lists" and other information, and that defendants abused that confidence and appropriated such trade secrets to their own use and to plaintiff's detriment. Cf. Saul v. International Harvester Co., 276 F.2d 361 (7th Cir., 1960); Franke v. Wiltschek, 209 F.2d 493 (2nd Cir., 1953); Moore v. Ford Motor Co., 28 F.2d 529 (S.D.N.Y., 1928), aff'd 43 F.2d 685 (2nd Cir., 1930); Newell v. O. A. Newton & Son, Co., 104 F.Supp. 162, 165 (D.C., Del., 1952); RESTATEMENT, TORTS § 757 (1939).

Defendants Bell and Winarick admit that they were given certain general information concerning the business of plaintiff and that they were told something regarding the...