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WATERBURY GARMENT CORP. v. STRATA PRODUCTIONS

November 22, 1982

WATERBURY GARMENT CORPORATION, Plaintiff,
v.
STRATA PRODUCTIONS, INC., JERRY FOX, SARA FOX, RON KUTZ and DENISE SHAPIRO, Defendants; STRATA PRODUCTIONS, INC., JERRY FOX, SARA FOX, and RON KUTZ, Third-Party Plaintiffs, v. AMERICAN BROADCASTING COMPANY (A Division of the American Broadcasting Companies, Inc.) and AMERICAN BROADCASTING COMPANY MERCHANDISING, INC., Third-Party Defendants



The opinion of the court was delivered by: DUFFY

MEMORANDUM & ORDER

 KEVIN THOMAS DUFFY, D.J.:

 Plaintiff Waterbury Garment Corporation ("Waterbury") commenced this action against defendants Strata Productions, Inc. ("Strata") and Jerry Fox alleging infringement of certain trademarks for which plaintiff claims to be the exclusive licensee. Presently before me is defendants' motion to disqualify the attorneys representing plaintiff in this action, Herbert Adler, Philip Klein, and the law firm of Wendy, Adler & Liss, because of their previous representation of defendants in other matters. For the reasons set forth below, this motion is denied.

 FACTS

 In 1977, Herbert Adler first represented defendant Jerry Fox in an action against Fox's former employer, Sea Isle Sportswear. Approximately three years later Fox again contacted Adler to discuss the possibility of marketing garments with the names of soap operas and other television shows endorsed thereon. Adler informed Fox that in order to effectuate this plan, Fox would have to acquire licenses from the owners of the various trademarks. When Fox initially spoke with the owners of the trademarks, he found that these licenses were most likely granted to experienced manufacturers and that a substantial initial cash down payment was required. Consequently, Fox approached several established clothing manufacturers, including Waterbury, with his idea. After several discussions, Fox and Waterbury agreed to enter into a combined business venture whereby Waterbury was to obtain licenses from the companies involved in the production of the desired television shows and thereafter Fox was to act as the exclusive sales agent for all garments manufactured by Waterbury under these licenses. All the licenses obtained were granted in Waterbury's name. Adler, acting as Fox's attorney, drafted this initial agreement between Fox and Waterbury. Since that time, Adler and his firm have acted as legal counsel for the Waterbury-Fox business venture. Adler was responsible for the review of all license agreements including the ABC trademark which is the subject of this litigation. Adler was paid for these services by Waterbury.

 During this same time period, at Fox's request, Adler formed a new corporation, Fometco Sales, Inc. ("Fometco"). Fometco was established to conduct the mail order sales of the licensed garments. Fox assigned his interest in the Waterbury-Fox venture to Fometco to assure corporate participants an interest in commissions from the sales of licensed articles.

 In September, 1981, Waterbury's President, Jack Brownstein, expressed to Fox his desire to modify their existing agreement so that Fox would become an employee of Waterbury rather than an independent participant in the business venture. During the ensuing negotiations, Fox was purportedly represented by Philip Klein, another attorney with Wendy, Adler & Liss. The parties were, however, unable to agree on the terms of either an employee or a severance arrangement. According to Fox, the possibility of forming a new corporation and obtaining separate licenses from ABC for various types of merchandise was then discussed with Klein. Fox alleges that Klein subsequently disclosed this possibility to Waterbury's officers. In response to Klein's alleged breach of confidence, Fox engaged other counsel to represent him in negotiating his severance from Waterbury. The parties still remain unable to arrive at a mutually acceptable termination agreement.

 In late 1981, Fox set up a new corporation, Strata without the assistance of Wendy, Adler & Liss. Through Strata, Fox attempted to enter into a new license agreement with ABC Merchandising, Inc. ("ABC Merchandising") for supposedly different goods than had been licensed to Waterbury. Upon learning that Fox was offering certain clothing items apparently with Waterbury's ABC trademarks, Waterbury immediately notified Fox and ABC Merchandising on January 7, 1982, that it considered Fox's actions to be in violation of its exclusive license rights. ABC Merchandising subsequently refused to execute its license agreement with Fox.

 On January 8, 1982, Waterbury filed this action against Fox, Strata and Denise Shapiro, the ABC Merchandising employee who was negotiating the license agreement with Fox. *fn1"

 Waterbury's complaint alleges trademark infringement, false descriptions and false representations under the Lanham Act, unfair competition, common law trademark infringement, trademark dilution, and conspiracy to unfairly compete with plaintiff.

 Defendants' counterclaims allege unfair competition and malicious and willful interference with their lawful business. This claim is grounded upon Waterbury's alleged role in ABC Merchandising's decision not to execute a license with Fox.

 Defendants also filed a third-party complaint charging ABC and ABC Merchandising with breach of contract stemming from their failure to honor an alleged license agreement entered into in December, 1981. This complaint also seeks damages for alleged harm to defendants' business.

 DISCUSSION

 Determination of this motion to disqualify plaintiff's attorney requires a balancing of the plaintiff's right to retain his own freely chosen counsel, the defendants' right to untainted prosecution of the lawsuit, and society's need to maintain the highest ethical standards of professional responsibility. Emle Industries, Inc. v. Patentex, Inc., 478 F.2d 562, 564-65 (2d Cir. 1973). MacArthur v. Bank of New York, 524 F. Supp. 1205 (S.D.N.Y. 1981). Canon 4 of the American Bar Association's Code of Professional Responsibility protects these competing interests and provides that "[a] lawyer should preserve the confidences and secrets of a client." Canon 9 further provides that "[a] lawyer should avoid even the appearance of professional impropriety." See Silver Chrysler Plymouth, Inc. v. Chrysler Motors Corp., 518 F.2d 751, 753 (2d Cir. 1975) (The ...


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