Paddington Corporation v. Major Brands, Inc.

Decision Date21 June 1973
Docket NumberNo. Civ-72-186.,Civ-72-186.
Citation359 F. Supp. 1244
CourtU.S. District Court — Western District of Oklahoma
PartiesThe PADDINGTON CORPORATION, a corporation, and Justerini & Brooks, LTD., Plaintiffs, v. MAJOR BRANDS, INC., a corporation, Defendant.

John B. Hayes, Watts, Looney, Nichols & Johnson, Oklahoma City, Okl., Shacter, Parris, Goldman & Ellison, New York City, Melvyn L. Cantor, Simpson, Thacher & Bartlett, New York City, for plaintiffs.

Patrick C. Ryan, Oklahoma City, Okl., for defendant.

MEMORANDUM OPINION

BOHANON, District Judge.

This action was commenced by The Paddington Corporation ("Paddington") and Justerini & Brooks, Ltd. ("Justerini") in March of 1972. The complaint and amended complaint seek a permanent injunction and damages flowing from defendant's unfair and deceptive trade acts and practices, common law and statutory trademark and trade name infringement and tortious interference with contractual rights. In its answer, which substantially admits plaintiffs' allegations although denies that plaintiffs are entitled to any relief, defendant Major Brands, Inc. ("Major Brands") sought to allege a counterclaim under the antitrust laws of the United States. The parties have engaged in discovery to the extent of serving upon one another comprehensive interrogatories and answers thereto.

Plaintiffs have moved for summary judgment on their complaint and for the purposes of the motion, have waived damages and seek only a permanent injunction against Major Brands ever again committing any of the acts of which complaint is made. Plaintiffs have also moved for summary judgment dismissing the counterclaim. This Court finds that there is no genuine issue as to any material fact in this proceeding and concludes that, upon the applicable authorities, plaintiffs' motion should be granted in all respects.

There is virtually no dispute as to the material facts in this matter, which may be summarized as follows:

Justerini1 is an English corporation without any offices or employees in the United States. It is the blender of a Scotch whisky commonly known as "J & B." Paddington is a Delaware corporation with its principal place of business in New York City and is Justerini's "sole representative" in the United States.

Major Brands is an Oklahoma corporation with its principal place of business in Oklahoma City. It states that it is an importer of various liquor products although, at present, the only license which it holds from the State of Oklahoma is a "bonded warehouse" license.

Justerini has no dealings with any United States purchaser of J & B Scotch whisky (except, of course, Paddington). All such dealings with United States customers are conducted by Paddington. Justerini's sole contact with United States purchasers is to fill orders submitted to it by Paddington.

Paddington sells J & B in two markets. One market, which constitutes approximately 99% of Paddington's business, is basically the wholesale liquor industry in the United States. The second market, constituting approximately 1% of its sales, is the "duty-free" or export market. For a number of reasons, including principally that Paddington (a) need pay no import duty on "duty-free" sales; (b) does no advertising in "duty-free" markets; (c) has neither sales force nor promotional expenses in "duty-free" markets; and (d) because of the goodwill involved, Paddington sells in the "duty-free" or export market at a lower price than it sells to wholesalers within the United States.

The transaction with which we are here concerned commenced on or about August 17, 1971, when a representative of the Druss Army and Navy Store ("Druss") of Galveston, Texas, called Paddington and spoke with a Miss Leona Silverman. Druss was evidently known by Miss Silverman and Paddington generally to be a "duty-free" merchant. In their conversation, the Druss representative stated to Miss Silverman that Druss wished to order 1,000 cases of J & B fifths and that shipment was to be made as soon as possible. Miss Silverman requested that the order be confirmed in writing.

Soon after August 17, 1971, Paddington received a written order from Druss for 1,000 cases of J & B fifths. The order stated: "no strip stamps affixed." Since strip stamps are necessary for importation and sale in the United States, this statement in the language of the trade constituted an express representation by Druss that the J & B ordered was for resale in "duty-free" markets.

In due course, the 1,000 cases of J & B were shipped to Druss, and on or about October 12, 1971, Paddington billed Druss in the amount of $14,250 or $14.25 per case. This amount is substantially below the price which Paddington charges to Oklahoma wholesalers, even after allowing for the fact that this figure did not include import duty and applicable tax.

In early 1972, plaintiffs learned that Druss had not, in fact, resold the J & B in "duty-free" markets as it had represented. Rather, it had resold it to Major Brands who had, in turn, paid the duty and applicable tax and then resold it to Oklahoma wholesalers at a price somewhat less than that being charged by Paddington to Oklahoma wholesalers.2

After purchasing the J & B from Druss, Major Brands proceeded to mutilate the J & B labels in the following respects:

(a) The words "duty-free," which had been placed on the labels to indicate that the goods could not legally enter the United States since no strip stamps had been affixed, were covered with a thin white label sticker bearing the legend "Imported by Major Brands, Oklahoma City."

(b) The words "Imported by the Paddington Corporation, New York, New York" were covered with a thin white label sticker.

Major Brands contended that at the time it ordered the J & B from Druss, it had no knowledge that it was to receive "duty-free" liquor. This contention is difficult to believe since Major Brands is obviously knowledgeable concerning the liquor industry and has demonstrated familiarity with the prevailing wholesale prices for liquor in Oklahoma and must have known that it was obtaining this liquor at a substantially lower price than generally available in Oklahoma. Moreover, Druss is evidently well-known as a merchant of "duty-free" liquor and Major Brands must have learned this fact at a conference which it admits was held between its officials and officials of Druss in August, 1971. These facts should at the least have put Major Brands on notice as to the fact that it would be obtaining "duty-free" liquor. There appears no other logical or reasonable conclusion and none has been argued or suggested. In any event, this Court need not resolve this factual question since Major Brands has admitted that when it received the 1,000 cases of J & B from Druss, the words "duty-free" were clearly imprinted on the label of each bottle, and it was Major Brands which proceeded to mutilate the label in the manner described above.

The uncontradicted affidavits on file also indicate that, upon learning that Major Brands had J & B for sale at a lower price than did Paddington, Oklahoma wholesalers became irritated and dissatisfied with Paddington, perhaps thinking that Paddington had given Major Brands a price advantage. It is also uncontroverted that at least one Oklahoma retailer complained to Paddington's representative that the mutilation of the labels by Major Brands had caused the retail consumer incorrectly to believe that Paddington and Justerini deal in "seconds" or Scotch whisky of an inferior quality to that ordinarily marketed under the brand name J & B.

Major Brands' action in mutilating the labels of J & B constitutes common law and statutory trademark infringement. Thus, in J. C. Penney Co. v. Parrish Co., 339 F.Supp. 726 (D.Idaho 1972), the defendant was enjoined from selling goods bearing plaintiff's private label, the Court noting that:

"The unauthorized advertising, display and/or sale by defendant of merchandise bearing plaintiff's `private label' trade names and/or trademarks constitutes statutory and common law trademark infringement. (15 U.S.C. § 1114)" Id. at 727.

Such activity, the Court stated, violated the rights of the plaintiff because it was "likely to cause confusion or misunderstanding as to defendant's affiliation, connection or association with, or certification by plaintiff." Ibid. Moreover, there was a substantial likelihood of "injury to plaintiffs' business reputation and of dilution of the distinctive quality of plaintiff's trade names and trademarks." Ibid.

In the opinion of this Court, Major Brands' mutilation of the J & B labels by designating itself as the importer in place of Paddington and pasting over the "duty-free" marking was an unconscionable attempt to deceive and mislead both wholesalers and consumers as to Major Brands' relationship with Justerini, and may well have injured the business reputation of both Justerini and Paddington. As noted above, wholesalers in Oklahoma became dissatisfied with Paddington, thinking that it had favored Major Brands with a substantial price advantage. Further, the mutilation of J & B labels misled consumers into believing that Paddington and Justerini deal in "seconds" or Scotch whiskies of an inferior quality to that marketed under the unmutilated J & B label. Such activity also constitutes a violation of the Oklahoma Deceptive Trade Practices Act, 78 O.S., §§ 51-54. This act, among other things, is designed to prevent a business entity from making a false representation as to the (1) "source, sponsorship, approval, or certification of goods . . ."; (2) "affiliation, connection, association with, or certification by another"; or other activity which (3) "disparages the goods, services, or business of another by false or misleading representation of fact; . . ." By mutilating the labels in the manner described and selling the J & B to Oklahoma liquor wholesalers, Major Brands violated the partially quoted provisions and possibly others.3

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