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H & R INDUS. v. KIRSHNER

August 22, 1995

H & R INDUSTRIES, INC. d/b/a NORTHEAST PLUMBING SPECIALTIES and WAYNE REED, Plaintiffs, against ALVIN KIRSHNER, individually and d/b/a EAST SIDE PLUMBING SPECIALTIES, Defendants,


The opinion of the court was delivered by: THOMAS C. PLATT

 PLATT, Judge,

 I. BACKGROUND

 Plaintiff H & R Industries, Inc. ("H & R") was formed in 1978 by two brothers, Herbert and Alvin Kirshner. H & R sells and distributes plumbing repair and replacement parts and similar equipment to building managers, superintendents, management companies and others in the New York metropolitan area under the name Northeast Plumbing Specialists ("Northeast"). Northeast's principal place of business is Great Neck, New York.

 There are three shareholders of Northeast: Herbert and Alvin Kirshner who each own 40%, and plaintiff Wayne Reed, an officer and principal salesman, who owns 20% of this company. Until November 10, 1989, when he was removed by the Board of Directors, Alvin Kirshner ("defendant") also was a director and officer H & R. He remains, however, a shareholder of H & R.

 In 1984, with the assistance of his brother Herbert and approximately $ 30,000.00 in a line of credit from H & R, defendant opened East Side Plumbing Specialties Corporation ("East Side") in Manhattan. Alvin Kirshner is an officer, director and a 90% shareholder of East Side. Like H & R, East Side is in the business of selling plumbing supply parts and equipment.

 Competition Between the Parties

 A central dispute in this action is whether or not, or to what extent, the parties involved expected East Side to compete with H & R. Plaintiffs claim that they helped Alvin Kirshner open East Side as a retail plumbing supply store. They contend that the reason they helped Alvin Kirshner is because they wanted to see him succeed, and they relied upon his assurances that he did not intend to use or develop East Side into a competing venture that would sell plumbing supply parts in volume.

 Plaintiffs claim that more than once prior to November 10, 1989 they confronted Alvin Kirshner with their suspicions that he was competing with H & R, but each time defendant assured them that he was not. Finally, in 1989 they learned that defendant had misrepresented himself to H & R's computer consultant and catalogue publisher to gain access to Northeast's confidential information and price lists. The Board of Directors subsequently removed him on November 10, 1989. Plaintiffs claim that defendant continued to engage in these types of activities even after being removed from the Board.

 Defendant, on the other hand, argues that as early as 1984, the year East Side commenced operating, plaintiffs knew that East Side was competing with them by soliciting Northeast's customers. According to defendant, Herbert Kirshner admitted to knowing that between 1984 and 1989 Alvin Kirshner was soliciting H & R's clients. He also claims that plaintiff Wayne Reed admitted in his deposition that he learned in 1984 that one of H & R's larger customers, the "Schwab House" had given all of its business to East Side because it offered lower prices than H & R. Reed also stated that he learned that Alvin Kirshner was "going to [Northeast's] accounts and selling them." He claims that he spoke to Herbert Kirshner about these activities several times between early 1988 and November 10, 1989 but nothing was ever done. Finally, defendant claims that plaintiffs never demanded of Alvin Kirshner that these activities cease.

 Trade Secrets

 The second major factual dispute between the parties is whether or not information about H & R was confidential trade secrets. The parties also dispute how Alvin Kirshner came to possess the information over the years.

 It is undisputed that Alvin Kirshner was a director and officer of H & R until November 10, 1989. For some period prior to that time, he was provided with or was permitted access to customer lists, pricing information, distribution lists, inventory lists business development and marketing plans.

 Plaintiffs claim that the only information "given" to defendant was monthly sales reports, and then only until 1983. Moreover, whatever information defendant had, it was confidential, proprietary, contained trade secrets, was necessary to Northeast's competitive advantage in the marketplace, and most importantly, it was given to defendant in his position as a director and officer. Similarly, plaintiffs contend, any such information was given to its employees, officers and independent contractors with the understanding that it was confidential.

 Defendant argues that none of the information was confidential or contained trade secrets. He claims that he was given freely all price lists, monthly sales and commission reports between approximately 1979 until the end of 1983. For instance, at the time defendant established East Side, Herbert Kirshner gave him a complete price book and Northeast catalogs. Subsequently, East Side was billed for access to Northeast's price information which was provided until sometime in 1989.

 Defendant also claims that plaintiffs had no customer list prior to the litigation. Rather, defendant argues that "all of these customers are management companies that are publicly listed in telephone and other directories," and that H & R's business was generated by its salesmen who "knocked on doors." According to defendant, he was given a marked-up copy of Northeast's catalog in 1984, and later received copies of the catalogs from Northeast's dissatisfied customers. Finally, defendant claims that Northeast's price lists were given to all of its salesmen, and, it is further telling, that Northeast did not require any non-competition agreements from them.

 According to both parties' versions of the facts, it appears that in 1989 East Side was essentially "cut off" by H & R. Plaintiffs assert that they became aware that East Side was competing with H & R, and that Alvin Kirshner was in possession of confidential price and customer information and was misrepresenting the origin of East Side's goods by telling H & R's customers that he and East Side were "one and the same" with H & R. Thus, it was in 1989 that H & R ceased selling to East Side its price information or any products at cost. It was also the year that Alvin Kirshner was removed from the Board of Directors.

 The Memorandum

 Plaintiffs contend that the memorandum was a malicious attempt to destroy Reed's income and livelihood and that it caused H & R and Wayne Reed to lose customers and good will in the industry. They assert, inter alia, that the innuendoes within the memorandum are false and defamatory.

 Defendant admits that he gave copies of the memorandum to at least two other people, Esat Skepi and Sam Lamaj, but deny that he wrote, or participated in the preparation of the memorandum. Defendant argues that he did not know the author, but defendant believed the memorandum to be true because of conversations he had with a building manager named John Milne. Defendant also contends that he first saw the memorandum in 1990 when he received it in the mail, and gave a copy of it to Lamaj in 1991. Defendant does not state when a copy of the memorandum was given to Skepi or whether or not he distributed the memorandum in 1992 as plaintiffs contend.

 II. DISCUSSION

 (a) JURISDICTION

 This Court has subject matter jurisdiction over this case pursuant to 28 U.S.C. § 1331, and 15 U.S.C. § 1125, et seq, ("Lanham Trademark Act"). Accordingly, this Court exercises pendent jurisdiction over plaintiffs' State law claims pursuant to 28 U.S.C. § 1338(b) and § 1367.

 (b) STANDARD OF REVIEW

 Defendant seeks summary judgment in their favor as to the federal and State claims brought by plaintiffs. Summary judgment is awarded when, as a matter of law, a party is entitled to judgment in its favor because there are no material facts in dispute. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). It is the movant's burden to establish a prima facie case demonstrating the absence of genuine issues of material fact. Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986). Once a prima facie case is made, the non-moving party must establish that a "rational trier of fact could find for the non-moving party or that there is a genuine issue for trial." Historic Preservation Guild of Bay View v. Burnley, 896 F.2d 985, 993 (6th Cir. 1989) (quoting Matsushita, 475 U.S. at 587). Further, on a motion for summary judgment, a court is required to resolve all factual ambiguities in favor of the non-moving party. Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451, 456, 112 S. Ct. 2072, 2077, 119 L. Ed. 2d 265 (1992). Ultimately, however summary judgment may be granted "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case." Celotex, 477 U.S. at 322.

 (c) FEDERAL CLAIMS

 
any person who, on or in connection with any goods or services, . . . uses in commerce . . . any false designation of origin, false or misleading description of fact, or false or misleading representation of fact which -
 
(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or
 
(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities,
 
shall be liable in a civil action by any person who believes that he or she is likely to be damaged by such act.

 15 U.S.C. § 1125(a)(1)(A)-(B); see also PPX Enterprises Inc. v. Audiofidelity Enterprises, Inc., 818 F.2d 266, 270 (2d Cir. 1987) (stating that section 43(a) is regularly used to combat a variety of deceptive commercial practices). Thus, section 43(a) provides for two distinct causes of action: (a) false designation of origin or source, commonly known as "product infringement" claims and, (b) false description or representation, known as "false advertising" claims. Resource Developers, Inc. v. Statue of Liberty-Ellis Island Foundation, Inc., 926 F.2d 134, 139 (2d Cir. 1991). In this action plaintiffs claim that defendant's alleged statements that East Side and H & R were "one and the same" were false designation of the origin of its products. Plaintiff's claims based on the memorandum concerning amounts to trade disparagement, or a "false advertising" claim under the Lanham Act.

 Defendant seeks summary judgment on the claims brought under the Lanham Act on the grounds that they are time barred and, in the alternative, they are unsupported by the evidence. In addition, defendant seeks summary judgment on the Lanham Act claims on the grounds the Court lacks jurisdiction over the claims where the alleged misrepresentations were not disseminated in interstate commerce. This Court will address these claims in turn.

 (1) Statute of Limitations

 Defendant first seeks to dismiss the Lanham Act claims on the basis that they are not timely. Plaintiffs assert that this case is analogous to an action based on fraud, and that the relevant limitations period is six-years. N.Y. Civ. Prac. L. § 213(8) (McKinney's 1990). Arguing that a fraud analogy is inapplicable here because plaintiff has failed to allege scienter, defendant urges the Court to apply New York's three-year statute of limitations applicable to actions for tortious injury to property. N.Y. Civ. Prac. § 212(2) (McKinney's 1990). This determination is significant, for if this Court were to apply a three-year limitations ...


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