Quinby & Co. v. Funston
| Decision Date | 29 August 1958 |
| Parties | QUINBY & CO., Incorporated, Plaintiff, v. G. Krith FUNSTON, as President of New York Stock Exchange, and Merrill Lynch, Pierce, Fenner & Beane, Defendants. |
| Court | New York Supreme Court |
Nixon, Hargrave, Devans & Dey, Rochester, W. Clyde O'Brien and Ned W. Roman, Rochester, of counsel, for plaintiff. Harris, Beach, Keating, Wilcox, Dale & Linowitz, Rochester, Charles Wilcox, Elliott Horton, Rochester, and A. Donald MacKinnon, New York City, of counsel, for defendant Funston, as President.
Moser, Johnson & Reif, Rochester, Byron Johnson, Jr., Alan J. Underberg, Rochester, and Howard H. Brown, New York City, of counsel, for defendant Merrill Lynch, Pierce, Fenner & Beane.
Plaintiff complains that defendants' conduct constitutes unfair competition. Plaintiff seeks a permanent injunction and money damages.
The conduct complained of consists in the publication and wide circulation by both defendants of pamphlets explaining and promoting the 'Monthly Investment Plan' (hereinafter called 'M.I.P.'). Plaintiff claims that certain statements contained in those pamphlets are false and derogatory and damaging to the plaintiff and that their publication and circulation constituted unfair competition; that unless defendants be enjoined, plaintiff in the future will suffer irreparable damage to its reputation and good will.
Plaintiff is a corporation of modest size (total fourteen employees, of whom nine are in the sales department and four in the office, plus plaintiff's president). Defendant Merrill Lynch, Pierce, Fenner and Beane, hereinafter called 'Merrill Lynch', is a very large brokerage house with branches throughout the country. It has one hundred seventeen partners of whom seventy-two are general and forty-five limited. Defendant New York Stock Exchange (hereinafter called 'Exchange') has six hundred fifty members, of whom some three hundred or more, scattered over the United States, sell to investors under M.I.P. One such member is Merrill Lynch.
In 1938 plaintiff's president, Mr. Quinby, commenced the promotion of a plan for the accumulation of Eastman Kodak common stock, called 'The Quinby Plan'. The plan offered various features including the purchase of the security by means of modest periodic payments, the automatic reinvestment of cash dividends and the privilege of buying parts of shares. There are other features of The Quinby Plan which need not be mentioned at this time.
In the year 1951 Mr. Quinby sold the business to the plaintiff. In 1950 the plan was broadened by increasing the number of stocks available to an investor from one to two, later from two to four, and finally from four to six. At the times with which we are concerned, when the offending pamphlets were being prepared and published and circulated, the plaintiff offered, and currently offers, to an investor a choice of any one of six stocks. In January of 1954 the Exchange published and both defendants extensively circulated a pamphlet (Ex. 21), which was designed to and did promote and explain M.I.P. The booklet contained this language: 'New--the most significant new idea * * * in decades * * *', 'a new personal investment program', also: It also says: 'The monthly investment plan is simply a method of purchasing shares by the dollars' worth * * * just as you can buy $2, $3 or $5 worth of gasoline.'
In 1956 defendant Merrill Lynch also in addition prepared, published and extensively circulated another pamphlet (Ex. 28) which also was designed to and did promote M.I.P. This latter pamphlet contains statements to the effect that only under M.I.P. could an investor buy parts of shares, automatically reinvest cash dividends and by means of periodic payments avail himself of 'dollar cost averaging'.
These (from both pamphlets) are the statements of which plaintiff complains which, it claims, have caused it loss of good will, prestige and income. It is urged that they disparage and are derogatory of the plaintiff and will cause plaintiff irreparable loss in the future.
Plaintiff contends these statements of defendants are false. We first examine this claim. In effect the statements claim that M.I.P. is novel and that it, alone, offers what cannot be obtained elsewhere, particularly stressing as novel and peculiar to it the three features already mentioned, viz.: small periodic payments, automatic reinvestment of dividends and the privilege of buying parts of shares. It will be remembered that these three features are currently offered as part of plaintiff's plan and have been so offered by it for many years before the advent of M.I.P.
Defendants urge that the substantial differences between M.L.P. and plaintiff's plan justify the language used and that the M.I.P. is novel and that it does offer what cannot be procured elsewhere. In other words the defendants say that the statements in their pamphlets were in fact true. A few of these important differences: M.I.P. offers a choice of some three hundred brokers through whom an investor can buy under M.I.P., a choice of approximately twelve hundred stocks as against the plaintiff, as one dealer, and his offering of any one of only six stocks. M.I.P. charges an odd lot commission, higher pro rata than the plaintiff's round lot commission. However, M.I.P. exacts no fee for buying other than the odd lot commission, whereas under plaintiff's plan the investor pays a substantial sum for 'sponsor's and custodian' fees. Plaintiff provides a trust company as custodian of the securities and M.I.P. has none such. Accordingly in some important respects M.I.P. in fact is different from the plaintiff's plan and to that extent it is new and does offer a combination of things which cannot be procured elsewhere. Nevertheless the statements complained of are certainly not wholly true because they do not tell the whole truth. To be completely truthful defendants probably should have stated with meticulous accuracy the respects and particulars in which their plan was new and the particulars in which it had adopted for use procedures which were already in use and not new. Then and only then would their statements be completely true, ethical and above reproach.
Assuming then that the statements of defendants were not completely truthful, do they constitute actionable fraud and unfair business competition or are they simply extravagant 'dealer' statements? I have come to the conclusion that they fall within the class last mentioned. One never picks up a magazine without reading in its advertisements statements either of facts or opinion at least as extravagant and exaggerated as those which defendants' pamphlets contain. Some of them could be mentioned as illustrations, particularly the statements put forth by distillers, importers, tobacco and cigarette manufacturers and others of the sort. Dealers have a way of extolling their own products to the buying public. Does the statement by a cigarette manufacturer that his cigarette 'filters best', by an automobile manufacturer that no car other than his provides such a smooth ride, that his car is the only completely new car on the road, constitute false and fraudulent advertising? Viewing these statements as they would be read by a prospective buyer, I am inclined to think that they would deceive no one and that they are simply 'puff' talk and so were the statements of the defendant. See Dale System v. General Teleradio, Inc., D.C., 105 F.Supp. 745, 750; Zenobia Co., Inc., v. American Pistachio Corp., 168 Misc. 312, 5 N.Y.S.2d 278, affirmed 259 App.Div. 806, 19 N.Y.S.2d 656, leave to appeal denied 259 App.Div. 864, 22 N.Y.S.2d 522; Lewyt Corp. v. Health-Mor, Inc., D.C., 84 F.Supp. 189, reversed in part on other grounds 7 Cir., 181 F.2d 855, certiorari denied 340 U.S. 823, 71 S.Ct. 57, 95 L.Ed. 605; Anheuser-Busch, Inc., v. Du Bois Brewing Co., 3 Cir., 175 F.2d 370, certiorari denied 339 U.S. 934, 70 S.Ct. 664, 94 L.Ed. 1353.
Plaintiff offered no evidence that anyone had been misled by the defendants' advertising. There is no proof that any investor had left plaintiff to go to defendants. It is difficult to see how defendants' statements would lure a prospective customer from plaintiff into their hands. An investor who contemplates accumulating securities through small periodic payments logically is a possible customer of either M.I.P., the plaintiff or someone of the many mutual Funds. The fact is that all of them offer these advantages which the defendants stressed in their pamphlets. If the investor first approached plaintiff, the various features which are advantages of plaintiff's plan might appeal and plaintiff would have him as a customer. If he rebelled at paying the 'front end load' (the fee of sponsor and custodian) he might take his business elsewhere, perhaps to M.I.P. or one of the mutual Funds. What plaintiff urges is that the false advertising of defendants would prevent a prospect from approaching plaintiff in the first instance. I cannot agree. Investors are adult and not so ingenuous and gullible as plaintiff believes. There is no reason to suppose that an investor would not consider and weigh the advantages and disadvantages of all the plans and procedures of which he had knowledge, nor that he would be prevented from subscribing to the plaintiff's plan by reason of the defendants' advertising.
No evidence has been offered of any pecuniary loss to plaintiff on account of defendants' advertising. His business has prospered. It may well be that the extensive advertising by defendants, of M.I.P., as well as the equally extensive solicitations by the various mutual Funds of the small investor has made accumulation of securities by modest periodic payments more popular and better known. This, instead of hurting, may have helped plaintif...
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...however, is permissible only where the ordinary purchaser would not be deceived by the exaggerated claims. Quinby & Co. v. Funston, 13 Misc.2d 134, 137, 177 N.Y.S.2d 736, 739 (1958). The ordinary purchaser must recognize the puffery for what it is, and realize that he is not expected to rel......