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February 7, 1973

ALFRED DUNHILL LIMITED and Alfred Dunhill of London, Inc., Plaintiffs,
INTERSTATE CIGAR CO., INC., et al., Defendants

Motley, District Judge.

The opinion of the court was delivered by: MOTLEY

MOTLEY, District Judge.

Findings of Fact and Conclusions of Law

 Plaintiffs seek injunctive relief against defendants for alleged violations of the trademark laws of the United States, 15 U.S.C. § 1051 et seq., and the New York General Business Corporation Law, § 360 et seq., McKinney's Consol. Laws, c. 20. The jurisdiction of this court is invoked pursuant to 15 U.S.C. § 1121 and 28 U.S.C. § 1338.

 A temporary restraining order was issued on September 12, 1972. The action came on for a hearing on September 19, 1972 on plaintiff's motion for a preliminary injunction. After several adjournments, the hearing on the motion for a preliminary injunction was ordered consolidated with the trial of plaintiffs' action for a permanent injunction which was held on October 12, 13, and 17, 1972. Permanent injunctive relief is granted for the reasons set forth below.

 Plaintiff, Alfred Dunhill of London, Inc., a Delaware corporation (Dunhill, Inc.), is the owner of several trademarks for tobacco products, including "Alfred Dunhill," "Dunhill," "My Mixture," "Dunhill, The Royal Yacht," and "Dunhill, London Mixture," all of which are duly registered. Each of said trademarks is valid and subsisting. Plaintiffs have also used the trademarks "Early Morning," "Aperitif," and "Ye Olde Signe" in connection with sales of Dunhill tobacco. Since 1922, plaintiff Dunhill, Inc., a wholly owned subsidiary of plaintiff Alfred Dunhill, Limited, a foreign corporation, has been the exclusive distributor in the United States of Dunhill products under the above named trademarks.

 These trademarks are well known to consumers of tobacco products. Plaintiffs have a reputation for selling high quality products and Dunhill, Inc., annually spends over $100,000 in promoting products marketed under these trademarks. Sales of tobacco and tobacco related products by Dunhill, Inc., have exceeded $4,000,000 in each of the last three years.

 On January 22, 1972, Alfred Dunhill, Limited, shipped a quantity of merchandise from England to Dunhill, Inc., in New York. The shipment included 268 cartons of smoking tobacco packed in two and four ounce tins, all bearing plaintiffs' trademarks, and a quantity of smoking accessories, also bearing plaintiffs' trademarks and trade names. Plaintiffs' merchandise was packed in a single 20 foot long container.

 The container arrived in New York with a 1 X 2 foot hole in its roof. On or about February 7, 1972, the container was delivered to the warehouse of Dunhill, Inc. At the time of delivery, water was running through the container. Dunhill, Inc., determined that all of the non-tobacco merchandise and 168 cartons containing tobacco products had been subjected to water damage. *fn1" At the same time, Dunhill, Inc., determined that 100 cartons had not been subjected to water damage based upon the appearance of the exteriors of the large cardboard cartons. These 100 cartons were subsequently sold by Dunhill, Inc., in the normal course of business without special labeling.

 Dunhill, Inc., made a claim for the full landed cost of the 168 cartons of tobacco against its insurance carrier, William McGee & Company and Sun Insurance Company in February, 1972. At this time plaintiff Dunhill, Inc., still owned the goods.

 Worman & Co., Inc. (Worman), a cargo surveying firm, was engaged by plaintiffs' insurer to examine the claim. Worman inspected the cartons on February 8 and February 10, 1972 at the premises of Dunhill, Inc. The surveyor, James J. Whalen, after having objected to the failure of Dunhill, Inc. to segregate damaged from undamaged tins, nevertheless determined that 168 cases had been subjected to water damage. Upon being informed that Dunhill, Inc., opposed any sales of the damaged cartons, Whalen suggested to Norair Hartunian, vice president and treasurer of Dunhill, Inc., that Dunhill had a choice of retaining the damaged cartons and being reimbursed for 25 percent of the insured value of the shipment or permitting the insurer to sell the tobacco as salvage. Hartunian eventually agreed to have the tobacco sold as salvage.

 Hartunian agreed to permit the tobacco to be sold as salvage because he assumed that the tobacco would be described and sold as salvage. The salvage company had also informed him that it had found a purchaser in West Virginia where the Dunhill name is not known and, consequently, where sales of damaged tobacco would be unlikely to damage the reputation of Dunhill, Inc.

 On behalf of the insurer, Worman agreed to pay to Dunhill, Inc., the full invoice value of the tobacco. Worman then engaged United Salvage Company to dispose of the 168 cartons at the best possible price. Worman subsequently instructed Dunhill, Inc., to release the cartons to United Salvage for sale. It then authorized United Salvage to sell the 168 cartons without explicit restrictions as to time, place or circumstances of resale, and without any requirement that the purchaser rebox or relabel the merchandise.

 Under the terms of the policy, the insurer was obligated to compensate Dunhill, Inc., fully for its loss, without regard to the amount of the payment the salvage company received for the cartons. Dunhill, Inc., had no control over the terms of the sale of the tobacco by United Salvage. Control, instead, was exercised by Worman which was acting on behalf of the insurer.

 The insurance policy did not include label and protection coverage which was offered by William McGee & Company and Sun Insurance Company at an increased premium. Such coverage would have provided that in case of loss or damage to goods bearing plaintiffs' trademarks while the goods were owned by Dunhill, Inc., the insured could require ...

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