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FREEDBERG v. LANDMAN

July 16, 1996

BARRY FREEDBERG and IRVING FREEDBERG, individually, and on behalf of and in the name and right of, BELLINI JUVENILE DESIGNER FURNITURE CORP. and BARRY IMPORTS, INC., Plaintiffs, against HARRIS LANDMAN, N. WHITNEY DELGIN, CAL-LINDA IMPORTS, INC., BERG EAST IMPORTS, INC., BERG FURNITURE USA, INC. and JOHN DOES "1 through 10," said names being false and fictitious, as the names of these additional Defendants are unknown at this time, Defendants.


The opinion of the court was delivered by: SEYBERT

 INTRODUCTION

 This is an action brought under the Lanham Act, and also on the basis of diversity jurisdiction, that arises out of a shareholder dispute between the shareholders of Bellini Juvenile Designer Furniture Corp. ["Bellini Corp."]. Bellini Corp. is engaged in the business of marketing furniture for children under the Bellini trademark. The plaintiff shareholders, Barry and Irving Freedberg, who bring suit both individually and derivatively on behalf of Bellini Corp., allege that the defendants have violated their rights secured under both federal and state law through, inter alia, their participation in a scheme whereby Bellini look-alike furniture is being manufactured and marketed within the plaintiffs' exclusive territory as delineated in a shareholder agreement.

 Pending before the Court is plaintiffs' motion for a preliminary injunction. If granted without modification, the preliminary injunction would enjoin defendants Landman, Delgin and Cal-Linda from disclosing any trade secrets or proprietary information, and from engaging in any marketing activity with respect to any furniture under the name Bellini, or any furniture resembling any line of furniture sold by Bellini franchises, within the plaintiff shareholders' exclusive territory. The territory at issue is essentially comprised, subject to certain exceptions, of those states situated east of the Mississippi River. The preliminary injunction also would enjoin defendant Berg from disclosing any trade secrets and proprietary information, and from manufacturing any furniture under the Bellini name, or any Bellini look-alike furniture.

 Plaintiffs' application for a temporary restraining order pending this hearing was denied on June 28, 1996.

 A hearing was held on this matter on July 10 and 11, 1996. This Opinion and Order constitutes the Court's Findings of Fact and Conclusions of Law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure.

 FACTUAL BACKGROUND

 Bellini Corp. is engaged in the nationwide distribution of baby and children's furniture though retail franchise outlets. Plaintiffs Barry and Irving Freedberg are 50% shareholders in Bellini Corp., while defendants Landman and Delgin hold the remaining 50% interest in Bellini. A shareholder agreement between these parties, executed in May 1985 [the "Shareholder Agreement"], differentiates exclusive geographical territories between the Freedbergs on the one hand, and Landman and Delgin on the other. Essentially, subject to certain exceptions, *fn1" the Freedbergs are provided the region east of the Mississippi River [the "Class A Territory"], while Landman and Delgin have been given the region west of the Mississippi River [the "Class B Territory"].

 According to the plaintiffs, the Shareholder Agreement expressly prohibits Landman and Delgin from engaging in any Bellini operations, pursuing business opportunities, or selling or purchasing any furniture in or from the Freedbergs' exclusive geographical territory.

 The plaintiffs allege that, notwithstanding this prohibition, Landman and Delgin, acting individually or through codefendant Cal-Linda, are presently engaged in Bellini business operations and pursuing business opportunities within the Freedbergs' exclusive geographical territory and also have purchased furniture from the Freedbergs' exclusive territory, all in contravention of the Shareholder Agreement and Landman and Delgin's fiduciary obligations to the plaintiffs.

 Plaintiffs further allege that, in the furtherance of the above acts, defendants Landman and Delgin have disclosed Bellini's trade secrets and confidential proprietary information -- including design and manufacturing specifications, pricing information and other data regarding its distinctive furniture -- to defendant Berg, a manufacturer within the Freedbergs' exclusive territory, for the purpose of purchasing furniture from Berg. According to the plaintiffs, these actions will have the effect of permitting Berg to engage in direct competition with the Freedbergs and their corporate entity, Barry Imports, Inc., *fn2" within the Freedbergs' exclusive territory.

 The defendants, in turn, contend that the Shareholder Agreement applies solely to the sale of Bellini furniture at the wholesale level, exclusive of manufacturing, and that therefore Cal-Linda's purchase of furniture from Berg does not abridge this agreement. The defendants contend that the limited scope of the Shareholder Agreement is suggested by the fact that at the time of the agreement's execution, Bellini purchased all of its furniture from Europe. Thus, the defendants contend that the contracting parties did not intend the Shareholder Agreement to prohibit a shareholder's purchase of manufactured goods from another's territory. According to the defendants, such intent of the parties is demonstrated through their subsequent conduct whereby each group of shareholders purchased goods from the other's territory without securing prior written consent.

 In addition, the defendants argue that the plaintiffs should not be entitled to injunctive relief because their delay of several weeks in bringing this lawsuit ...


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