Matrix Essentials, Inc. v. Cosmetic Gallery, Inc.

• Decision Date: 12 December 1994
• Docket Number: Civ. A. No. 92-3400 (JEI).
• Citation: 870 F. Supp. 1237
• Parties: MATRIX ESSENTIALS, INC., Plaintiff, v. COSMETIC GALLERY, INC., et al., Defendants.
• Court: U.S. District Court — District of New Jersey

870 F. Supp. 1237

MATRIX ESSENTIALS, INC., Plaintiff, v. COSMETIC GALLERY, INC., et al., Defendants.

Civ. A. No. 92-3400 (JEI).

United States District Court, D. New Jersey.

December 12, 1994.

Baker & Hostetler by Louis A. Colombo, R. Scott Keller, Cleveland, OH, for plaintiff.

Morgan Lewis & Bockius by Raymond Cullen, Charles J. Reitmeyer, Philadelphia, PA, for defendants.

IRENAS, District Judge.

This matter was tried before the court, sitting without a jury, on October 17, 18, 20 and 21, and on November 7, 9, and 10. Because of the prior grant of partial summary judgment in favor of the defendants, only three issues remained for trial: (1) whether the sale by defendants of Matrix products with removed batch or salon codes or other packaging defacement constitutes a violation of plaintiff's rights under the Lanham Act, 15 U.S.C. § 1051 et seq., or New Jersey principles of unfair competition; (2) whether the sale by defendants of Matrix permanent wave products constitutes a violation of plaintiff's rights under the Lanham Act, or New Jersey principles of unfair competition; and (3) whether the procurement and sale of Matrix products by defendants constitutes a tortious interference with plaintiff's contractual rights under the state law of New Jersey. Because we now find that Matrix failed to meet its burden of showing that defendants' conduct violated trademark or unfair competition laws, or that defendants tortiously interfered with Matrix's contracts, we find for defendants on all issues.

I. PROCEDURAL HISTORY

Matrix initiated this case in 1992, alleging claims of trademark infringement and unfair competition under the Lanham Act, 15 U.S.C. § 1051 et seq., New Jersey statutory and common law unfair competition, malicious interference with contractual relations and prospective economic advantage, the New Jersey Consumer Fraud Act, N.J.S.A. § 56:8-1 et seq., and conspiracy to commit these acts. The defendants filed an antitrust counterclaim. On February 26, 1993, the court granted defendants' motion to dismiss plaintiff's claim under the New Jersey Consumer Fraud Act, but denied that motion as to all other claims.

On March 31, 1994, the court granted plaintiff's motion for summary judgment on defendants' counterclaim, and granted in part and denied in part defendants' motion for summary judgment. The court: (1) denied defendants' motion on plaintiff's Lanham Act and unfair competition claims to the extent that plaintiff had shown that defendants sold defaced Matrix products or permanent waves, but granted the motion to the extent that defendants had sold unaltered non-permanent wave Matrix products; and (2) granted defendants' motion for summary judgment on all other claims. On July 22, 1994, the court partially granted Matrix's motion for reconsideration, and reinstated its tortious interference with contract claim to the extent it sought injunctive, rather than monetary, relief.

As a result of in limine motions decided October 12 and October 18, 1994, the court excluded as insufficient all plaintiff's evidence of compensatory and punitive damages. Because only injunctive relief remained, the matter was tried to the court, rather than a jury.

At trial, plaintiff produced the testimony of Patricia Urban, Sydell Miller, Denise Melroy, Ralph DiDonato, Jr., Dennis Gullo, Robert Gullo, Mary Ann Jones, Dr. John Murphy (through a deposition taken de bene esse), Diana Lea Sandonato, portions of the deposition transcripts of Charles and Larry Eisenberg as well as many exhibits. Defendants offered the testimony Charles Eisenberg and Larry Eisenberg as well as several exhibits. Defendants' motions for judgment in its favor on all issues under Fed.R.Civ.P. 52(c), made at the close of the plaintiff's case and at the end of the trial, were denied.

In accordance with the provisions of Fed. R.Civ.P. 52(a), the court shall "find the facts specially and state separately its conclusions of law...." On December 2, 1994, the court issued its initial findings of facts and conclusions of law as well as a final judgment, and now issues its amended findings of facts and conclusions of law.

All facts which the court finds to have been proven have been proven by a preponderance of the evidence. Where the court finds that a particular fact has not been proven, the party with the burden of proof has failed to prove that fact by a preponderance of the evidence.

II. FINDINGS OF FACT

1. The court deems proven each of the 16 stipulated facts set forth in Section II of the parties' Joint Final Pre-Trial Order and all other facts to which the parties stipulated during the course of the trial.

2. The plaintiff, Matrix Essentials, Inc. (hereinafter "Matrix") manufactures and sells, inter alia, a wide variety of hair care products. During the course of this opinion we will refer to "liquid products" as shampoos, conditioners, mousses, glazes, styling aids and similar hair care products intended by Matrix to be used both by a cosmetologist on a customer's hair in a salon and by a retail purchaser at home. "Colors and perms" will be used to describe hair dyes, colorings, and permanent wave products which Matrix markets for use by cosmetologists in a salon, but does not market with the intent that these products be sold to individual consumers for home use.

3. Matrix was founded in August of 1980 by Arnie Miller and his wife, Sydell Miller. Mr. Miller was an experienced cosmetologist. First year sales were only $560,000, but by 1993 sales had soared to almost $200,000,000. Mr. Miller died a few years ago, and Mrs. Miller has recently sold the company for an undisclosed sum.

4. Defendant, Cosmetic Gallery, Inc. ("Cosmetic Gallery") operated four retail beauty supply stores in Cherry Hill, Marlton, Clementon and Pleasantville, New Jersey, under the trade name Cosmetique. These stores offer for sale to retail customers a wide range of liquid products and colors and perms manufactured by a large number of different manufacturers.

5. Defendant, C & L Beauty Supply, Inc. ("C & L") operated a wholesale beauty supply business which sold at least some of the products carried in the Cosmetique stores to other retailers on a wholesale basis. C & L's product line included liquid products and perms and colors.

6. On November 1, 1993, while this litigation was pending, the assets of Cosmetic Gallery and C & L were sold two Florida corporations with very similar names (the "Florida corporations"). The Florida corporations were joined as defendants in this litigation shortly before the commencement of trial. On October 18, 1994, the court stayed and bifurcated the case against the Florida defendants in accordance with Fed. R.Civ.P. 42(b).

7. Prior to the sale of assets to the Florida corporations, Charles Eisenberg and Larry Eisenberg each owned 50% of Cosmetic Galleries and 25% of C & L. The sale, however, does not appear to have changed the way Cosmetique or C & L are operated. Day to day management of the stores is still in the hands of defendant Charles Eisenberg. Charles Eisenberg is the President of the Florida corporation that owns Cosmetic Gallery, and Vice President of the Florida corporation that owns C & L.

8. Matrix markets its liquid products and its perms and colors through approximately 30 regional wholesale distributors, each with exclusive geographic territories. These distributors in turn sell the product to salons, barbershops, and beauty parlors (collectively "salons"). The exclusive Matrix distributor in the southern counties of New Jersey and Philadelphia is the DiDonato Corporation, which is located in Mercer County, New Jersey. DiDonato carries primarily Matrix and Nexxus products. Distributors agree with Matrix not to sell Matrix products to any purchaser other than a "salon," which Matrix defines as an operation that generates less than 50% of its income from the retail sale of hair care products.

9. It is well known in the industry that Matrix does not want its liquid products sold at retail by any seller other than a salon. Many of its products carry a legend which reads to the effect: "Guaranteed only when purchased in professional salons," (Plaintiff's Ex. 14Q); or "For sale only in professional beauty salons. Our products are formulated for very specific hair and skin needs. For complete satisfaction, purchase only after consultation at an authorized salon." (Defendant's Ex. 42.) However, it was not until 1990 that Matrix began entering into written contracts with individual salons which provided that the salons would not sell other than to a retail customer for home use. This provision is contained in what have been called the Synergy Salon Success Club agreements (the "salon agreements"). (See, e.g., Plaintiff's Exs. 18 and 19.) Paragraph 7 is the restrictive paragraph of the salon agreements. It seems clear that the phrase "Matrix retail products" as used in paragraph 7 of the salon agreements refers to liquid products. The salon agreements do not actually refer to perms and colors, although it is clear that both Matrix and the salons know that Matrix does not condone the retail sale of these products. These products carry a legend which reads: "For professional use. Not for retail sale." (See, e.g., Plaintiff's Ex. 14C, a box containing Opticurl Perm). The salon agreements are three party agreements signed by Matrix, the salon and the distributor.

10. Matrix is one of many manufacturers that desires to be known as a "salon only" seller of hair care products. Others include Nexxus, Redken, Paul Mitchell, L'Oreal, Zotos, Goldwell, Mastey, Sebastian, Sukesha, and apparently many others. There are more than 185,000 salons in the United States, some 30% of which sell some Matrix products, and clearly salon patrons are an audience of potential buyers with a much higher propensity to purchase as compared with a typical consumer in a drug store, beauty supply store, supermarket or other kind of retail outlet...