In re Leslie Fay Companies, Inc., Bankruptcy No. 93 B 41724(TLB)
| Decision Date | 23 December 1997 |
| Docket Number | Adversary No. 96-8215A (JHG).,Bankruptcy No. 93 B 41724(TLB) |
| Parties | In re The LESLIE FAY COMPANIES, INC., et al., Debtors. Albert NIPON and American Pop Marketing Group, Inc., Plaintiffs, v. The LESLIE FAY COMPANIES, INC., et al., Defendants. The LESLIE FAY COMPANIES, INC. and Leslie Fay Licensing Corp., Counterclaim-plaintiffs, v. Albert NIPON and American Pop Marketing Group, Inc., Counterclaim-defendants. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York |
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Spector Gadon & Rosen, P.C. by Daniel J. Dugan, Philadelphia, PA, for Albert Nipon and American Pop Marketing Group, Inc.
Weil, Gotshal & Manges LLP by R. Bruce Rich, New York City, for Leslie Fay Companies, Inc., et al.
This controversy was submitted on stipulated facts. The facts are considered as though they were received on trial. Albert Nipon ("Nipon") and American Pop Marketing Group, Inc. ("American Pop") seek a declaratory judgment1 against the Leslie Fay Company, Inc. ("Leslie Fay") to determine the manner in which Nipon may use his name in conjunction with American Pop goods.2 Leslie Fay and its subsidiary, Leslie Fay Licensing Corp. (together the "Leslie Fay Companies") counterclaim and allege (1) trademark infringement under 15 U.S.C. §§ 1114, 1116 and 1117 (or the Lanham Act); (2) trademark infringement and false sponsorship, association and endorsement under 15 U.S.C. §§ 1116, 1117 and 1125(a); (3) trademark dilution of a famous mark under 15 U.S.C. § 1125(c); (4) violations of New York General Business Law § 368-d; and (5) unfair competition under the common law. For the reasons set forth below, I decline to issue a declaratory judgment and find Plaintiffs in violation of the Lanham Act sections 32, 43(a) and 43(c), New York General Business Law § 368-d, and the common law unfair competition.
Nipon, a well-known clothing designer, was the founder and Chairman of the Board of Albert Nipon, Inc., of which he and his wife, Pearl Nipon, were the principal shareholders. Nipon is also the founder, sole shareholder, Chairman and Chief Executive Officer of American Pop. Leslie Fay is engaged in the design, manufacture, marketing and sale of women's apparel in the wholesale market and in the retail market through their own discount stores. In addition, Leslie Fay also licenses its brand names to producers of men's and women's accessories.
In 1987, Albert Nipon, Inc. filed for bankruptcy protection in the Eastern District of Pennsylvania. Its primary assets were its Albert Nipon trademarks and the goodwill connected with the Albert Nipon name. In 1988, the bankruptcy court approved a contract of sale (the "Sale Agreement") pursuant to which Albert Nipon, Inc. sold Leslie Fay certain of its assets, including substantially all of the existing Albert Nipon trademarks, trade names and related goodwill ("Nipon Trademarks") for $1,000,000. Section 3.1(m) of the Sale Agreement, signed by Nipon, provided that "no stockholder, officer, director or employee of the Seller owns or has any interest in any trademark, service mark, trade name, copyright or application therefor, or trade secret, if any, used by the Seller in connection with its business." Leslie Fay maintains a federal trademark registration for "Albert Nipon," "Nipon Boutique," "Executive Dress by Albert Nipon," "Albert Nipon Suits," "Nipon Studio," and "Nipon Petites."
The non-competition clauses also provided that after termination of the employment agreements (other than for material breach by the Nipons), the Nipons agreed to serve as lifetime consultants to Leslie Fay, and work a minimum of ten hours per week with compensation not less than $25,000 per annum attributed against royalties received.
The essence of the two transactions was that Nipon, who had made his name his trademark and built goodwill in it, transferred that trademark to his family owned corporation, Albert Nipon, Inc. That corporation had suffered financial reverses and obtained the protection of the Bankruptcy Code. Using the Code, Albert Nipon, Inc. stripped the trademark of its encumbrances and sold it to Leslie Fay for $1,000,000. The Nipons made their own deal with Leslie Fay to promote the trademark, for which they were paid millions of dollars in addition to what Leslie Fay paid the Albert Nipon, Inc. bankruptcy estate.
I must first address what Leslie Fay bought. The sale of a trademark includes the sale of the mark along with the goodwill and tangible business assets that go along with the trademark. United States Ozone Co. v. United States Ozone Co., 62 F.2d 881, 885-86 (7th Cir.1933); In re Gucci, 202 B.R. 686 (Bankr.S.D.N.Y.1996). It would be impossible for the Albert Nipon, Inc. bankruptcy estate to sell the trademark without the other essential items that go along with it. "A trademark is not a property right in gross which may be sold apart from the business or goodwill with which the trademark has been associated." Marshak v. Green, 746 F.2d 927, 929 (2d Cir.1984).
Moreover, "when a business purchases trademarks and goodwill, the essence of what it pays for is the right to inform the public that it is in possession of the special experience and skill symbolized by the name of the original concern, and the sole authority to market its products." Levitt Corp. v. Levitt, 593 F.2d 463, 468 (2d Cir.1979). Therefore, "to protect the property interest of the purchaser, then, the courts will be especially alert to foreclose attempts by the seller to `keep for himself' the essential thing he sold, and also keep the price he got for it." Id. (citing Guth v. Guth Chocolate Co., 224 F. 932, 934 (4th Cir.), cert. denied, 239 U.S. 640, 36 S.Ct. 161, 60 L.Ed. 481 (1915)).
Upon the acquisition of the Nipon Trademarks, Leslie Fay established a Nipon Division for the design and production of dresses and sportswear. In addition, Leslie Fay began designing and manufacturing "better priced" women's suits under the Nipon Trademarks through its Sassco Division. Since 1988, the Leslie Fay Companies have licensed the Nipon Trademarks to various companies; but not American Pop. The Leslie Fay Companies license the Albert Nipon Trademarks to companies for goods including women's suits, coats, and outerwear, and men's neckwear, slacks, coats, topcoats, rainwear, sports jackets, suits, dress shirts and formalwear. Leslie Fay does not produce or market watches, but is considering it. In 1991, Leslie Fay assigned the Nipon Trademarks to its subsidiary, Leslie Fay Licensing. In 1996, Leslie Fay grossed more than $35,000,000 from Nipon sales and license fees.
On April 5, 1993, Leslie Fay filed for protection under the Code. Pursuant to § 365(a) of the Code, Leslie Fay rejected the Nipons' employment agreements. The Nipons settled their claims against Leslie Fay for $100,000 each.
Nipon consulted Panitch Schwarze Jacobs & Nadel (the "Panitch Firm"), a Philadelphia law firm, on how he may use his name in connection with the design and manufacture of apparel. The Panitch Firm issued seven, not entirely consistent, opinion letters between May 6, 1993 and October 11, 1995.
In August 1995, American Pop entered into a license agreement with Kantor Brothers Neckwear Co., Inc. ("Kantor Brothers") for the use of the American Pop label on its men's and boy's neckties.3 The tie labels contained the American Pop trademark. Beneath the trademark, in smaller type, the label read "CREATED BY ALBERT NIPON." A hang tag, pinned to each tie, had the same information and the words, "THIS GARMENT IS NOT LICENSED OR UNDER THE AUTHORIZATION OF THE OWNER OF THE ALBERT NIPON REGISTERED TRADEMARKS." In January and February 1996, advertisements for American Pop neckwear, boxer shorts, suspenders, and watches appeared in "MR," a menswear retailing magazine.4 These Kantor Brothers goods, licensed by American Pop, were displayed at a semi-annual men's apparel trade show in Las Vegas, Nevada ("The Magic Show"). At the August 1995 Magic Show, there was a clash between Castle Neckwear, Inc. (a licensee of the Albert Nipon trademark by the Leslie Fay Companies) and Kantor Bros, each of whom was exhibiting products with the Albert Nipon name.
In November 1994, American Pop entered into a license agreement with Ankuo International Corp. ("Ankuo"), for the production, marketing and sale of watches. Ankuo sells the watches at stores in the United States and Europe. The Ankuo watches were initially packaged in a box with "AMERICAN POP" written on the top. On the bottom of the box was the "legend" "created by Albert Nipon," in the form of a signature, along with a disclaimer identical to the one used on Kantor Brothers' ties. After the initial packaging of the watch boxes, Nipon affixed a sticker on the front of the boxes with the same "legend" as the back and a...
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