In re Houbigant, Inc.

• Citation: 182 BR 958
• Decision Date: 07 June 1995
• Docket Number: Bankruptcy No. 93 B 45767 (JLG).
• Parties: In re HOUBIGANT, INC., Debtor.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

182 B.R. 958 (1995)

In re HOUBIGANT, INC., Debtor.

Bankruptcy No. 93 B 45767 (JLG).

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

June 7, 1995.

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Kaye, Scholer, Fierman, Hays & Handler, New York City, for debtor.

Axelrod, Cornachio, Famighetti & Davis, Mineola, NY, for Atlantis Intern., Inc. and Brian Appel.

MEMORANDUM DECISION ON DEBTOR'S MOTION FOR SUMMARY JUDGMENT EXPUNGING CLAIM

JAMES L. GARRITY, Jr., Bankruptcy Judge.

On January 31, 1995, Atlantis International, Ltd. ("Atlantis") and Brian Appel (collectively, "Claimants") filed a Proof of Priority Claim dated January 30, 1995 (the "Claim") against Houbigant, Inc. ("Houbigant" or "debtor") in the amount of $6,413,000.00. As support for that claim, Atlantis annexed a verified complaint dated January 30, 1995 (the "Verified Complaint"). The caption of the complaint reads: Atlantis International, Ltd. and Brian Appel v. Houbigant, Inc. D.I.P., Parfumes Parquet, Luigi Massironi, Ed Weinberg, Mike Sherman, Kidd Kamm & Company, C.P. Holdings, Inc., Renaissance Cosmetics, Inc., Thomas Bonoma, Terry Theodore and Sean Greene. The trial court is designated as the New York State Supreme Court, Nassau County. We understand that the complaint was not filed with the state court or served on any defendant. Houbigant objected to the Claim and has moved pursuant to Fed.R.Civ.P. 56(b) and Bankruptcy Rules 7056 and 9014 for summary judgment expunging it. For the reasons discussed below, the motion is granted.¹

Facts

On November 18, 1993 (the "Filing Date"), Houbigant and its domestic subsidiaries filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code ("the Code"). Since that time they have continued in possession and control of their businesses and assets as debtors in possession pursuant to §§ 1107 and 1108 of the Code. Pursuant to court order, these cases have been procedurally consolidated and are being jointly administered. No trustee or examiner has been appointed in any of the cases.

Houbigant is the parent of a group of domestic and foreign companies which, prior to the Filing Date, designed, marketed and distributed perfumes and toiletries worldwide. Its licensed brands are sold in the United States, the Netherlands, France, the United Kingdom, Germany and Canada. Its products include such brand names as "Chantilly", "Lutece", "Raffinee" and "Quelques Fleurs". Sherman Aff. ¶ 4.² Michael J. Sherman is the Executive Vice President —Special Projects of Houbigant. See Sherman Aff. ¶ 1. Luigi Massironi is Houbigant's Chief Executive Officer. See Massironi Aff. ¶ 1. Prior to the Filing Date, debtor was responsible for selling Houbigant products to the United States markets, while Houbigant Limited, Horley Laboratories, and Houbigant SARL, as debtor's wholly owned foreign subsidiaries, serviced foreign markets. Sherman Aff. ¶ 4. Those subsidiaries are not debtors herein, although each may be in bankruptcy, or its equivalent, under the laws of the country of its incorporation. Id.; Massironi Reply Aff. ¶ 7.

Post petition, Houbigant discontinued its design, marketing and distribution operations and became a trademark licensor. Sherman Aff. ¶ 4. On June 2, 1994, we authorized Houbigant to implement and effectuate a license agreement ("License Agreement") with New Fragrance License Corp. ("New Fragrance").³ Thereunder, in exchange for royalty payments, Houbigant licenses certain patents, trademarks, trade names, and/or application therefor and the technical knowledge with respect to them. Sherman Aff. ¶ 5; License Agreement § 2. The agreement mandates that Houbigant (i) fully and properly protect its licensed trademarks and (ii) police the markets covered by the agreement to prevent the entry and or distribution of grey market goods. Sherman Aff. ¶ 8; License Agreement, §§ 8(3), 12 and 13.⁴

As early as 1991, Houbigant was selling product to remarketers and diverters who resold it to other dealers, usually to close-out stores or similar-type retailers. Sherman Aff. ¶ 18. In 1991, Houbigant realized approximately $500,000 from those sales. Id. By fiscal year 1993, those sales approximated $3,000,000. Id. During the negotiations leading to the execution of the License Agreement, PPI expressed concern over the amount of grey market goods in the United States. Houbigant was similarly concerned because the royalties payable under the License Agreement are a function, in part, of sales of the licensed products. Thus, to the extent grey market products undercut PPI sales, debtor's royalty payment would be correspondingly reduced. Id.; see generally Sherman Aff. ¶¶ 17-23. On June 10, 1994, Sherman saw an advertisement placed by Chanel on the back page of Women's Wear Daily warning "mis-users" of its trademarks that it would protect its marks. See Sherman Aff. ¶ 27; Ex. C. He viewed it as an effective tool for Chanel to protect its trademarks and image, and, having recently negotiated and executed the License Agreement, and believing that there were unauthorized Houbigant products in the marketplace, he concluded that an advertisement or notice similar in form and content to Chanel's might be one way for Houbigant to fulfill its obligation under the License Agreement to protect and preserve its trademarks. Sherman Aff. ¶¶ 27-28. Sherman raised the concept of printing a notice like Chanel's with Thomas Bonoma, PPI's Chairman, who allegedly agreed that it was a good idea. Sherman Aff. ¶ 28.

In 1993, Atlantis acquired in excess of 250,000 units of Chantilly and Raffinee brand perfumes from Unilex, Ltd. ("Unilex"). Appel Aff. ¶ 4; Ex. K.⁵ We understand that Unilex is a British company engaged in the distribution of perfumes worldwide. Id. Thereafter, Atlantis reached agreements with A. Rosenblum, Inc. ("A. Rosenblum"), Model Imperial Supply Company ("Model Imperial") and W.H. Kennys ("Kennys") for the sale of a total of 90,000 units of the product. Appel Aff. ¶ 6. On or about June 14, 1994, Appel met with Terry Theodore, PPI's president, and Sean Greene, its Vice President, at Houbigant's office in Ridgewood, New Jersey. During that meeting Theodore allegedly advised Appel that PPI would not be acquiring Atlantis' inventory of Chantilly and Raffinee fragrances. Appel Aff. ¶ 9. Theodore also allegedly informed Appel that Kidd Kamm & Company⁶, PPI and Houbigant would take the position that the Chantilly and Raffinee fragrances possessed by Atlantis were sub-standard and diluted. Id. Additionally, Theodore allegedly threatened to disparage Appel's products in the industry. Appel Aff. ¶ 10. On June 21, 1994, while Appel was at the Atlantis booth at the National Association of Chain Drug Store Trade Show, in New Orleans, Louisiana, Sean Greene allegedly advised him that advertisements were being run asserting that Atlantis' inventory of Chantilly and Raffinee fragrances was sub-standard. Appel Aff. ¶ 11. Greene also allegedly stated to Appel that he (Greene) had been telling people in the perfume industry that Atlantis' Chantilly and Raffinee fragrances were sub-standard and diluted. Id.

On June 24, 1994, Houbigant caused the following notice (the "Notice") to be published in Women's Wear Daily:

On June 2, 1994, the United States Bankruptcy Court for the Southern district of New York approved an exclusive, long term license to Parfums Parquet to manufacture, distribute and sell Houbigant, Inc.\'s Chantilly, Raffinee, Lutece, French Vanilla & Demi-Jour brands, among others.

Please be aware that there are rogue enterprises attempting to profit by selling grey-market, off-size, diluted, sub-standard, non-standard, foreign sourced and "knock off" merchandise that may resemble, but are not products of Houbigant, Inc.

Please be advised that we will use all resources available from the Bankruptcy Court, other courts and other agencies to the greatest extent permitted to protect and preserve the integrity of our products, our brand names, our trademarks and the license.

Be advised: if you are selling or considering buying grey-market, off-size, diluted, sub-standard, non-standard, foreign sourced or "knock off" copies of our brands, we will take appropriate legal action. These products are not covered by our product liability insurance and neither Houbigant, Inc. nor Parfums Parquet will warrant these products, nor recognize the under our usual return policy.

We will, of course, continue to provide our usual full-faith promotional support and return policies for those retailers selling genuine, authorized Houbigant, Inc. products.

Sincerely,

/s/ Michael J. Sherman Houbigant, Inc. D.I.P Michael J. Sherman Executive Vice President for Bankruptcy Matters

See Appel Aff. Ex. A. Sherman approved the final version of the Notice before signing it. Massironi reviewed a draft of the Notice and did not object to form or its content. Sherman Aff. ¶¶ 29-30; Massironi Aff. ¶¶ 13-14. Bonoma approved the text of a PPI advertisement appearing in the June 24 edition of Women's Wear Daily opposite the Notice. Although Sherman reviewed the final draft of that ad, Houbigant maintains that it was not involved in preparing or placing it. Sherman Aff. ¶ 32; Massironi Aff. ¶ 6.

On July 20, 1994, Claimants filed a Notice Of Motion For Disclosure Prior To Commencement Of Action under § 3102(c) of New York's Civil Practice Law and Rules⁷ in the Supreme Court of the State of New York, County of Nassau (the "Motion"), seeking precomplaint discovery of Houbigant, certain key directors and officers of Houbigant, PPI, and certain affiliates thereof and various officers of those entities. The factual predicate for the Motion is contained in Brian Appel's affidavit of July 20, 1994 (the "July Affidavit"). He contended that Claimants had been damaged by the Notice and the statements described above attributed by Appel to Greene. He advised that Claimants intended to commence an action...