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GIDATEX, S.R.L. v. CAMPANIELLO IMPORTS

October 6, 1999

GIDATEX, S.R.L., PLAINTIFF,
v.
CAMPANIELLO IMPORTS, LTD., CAMPANIELLO IMPORTS OF FLORIDA, LTD., AND CAMPANIELLO ENTERPRISES, INC., DEFENDANTS.



The opinion of the court was delivered by: Scheindlin, District Judge.

OPINION AND ORDER

Plaintiff Gidatex, S.r.L. ("Gidatex") filed this suit against Defendants Campaniello Imports, Ltd., Campaniello Imports of Florida, Ltd., and Campaniello Enterprises, Inc. (collectively "Campaniello") in 1997, alleging violations of the Lanham Act, 15 U.S.C. § 1114(1)(a) and 1125(a), common law trademark infringement, and common law unfair competition. Jurisdiction is based on the Lanham Act, 15 U.S.C. § 1121 and 28 U.S.C. § 1331 (federal question), 1332 (diversity of citizenship), 1338 (jurisdiction to adjudicate cases involving infringement of a federally registered trademark and accompanying claims of unfair competition) and 1367(a) (supplemental jurisdiction).

Defendants assert, inter alia, the equitable defenses of unclean hands, laches and acquiescence. The Court bifurcated the equitable and legal claims, and the latter were tried to a jury from August 23 to August 31, 1999. The jury trial resulted in a verdict for plaintiff on all of its trademark and unfair competition claims and an award of defendants' profits in the amount of $50,000. Seeking to bar an injunction against their use of plaintiff's trademark, defendants now submit for the Court's consideration their affirmative defenses of unclean hands, laches and acquiescence. Final submissions on the equitable portion of the case were made on October 1, 1999. This opinion constitutes the Court's findings of fact and conclusions of law regarding these equitable defenses.

I. Findings of Fact

1. From 1974 to 1994, Campaniello acted as the exclusive sales representative for Saporiti Italia ("Saporiti"), an Italian furniture manufacturer. See Testimony of Thomas Campaniello, owner or Campaniello, Trial Transcript ("Tr.") at 462-3. In March 1994, Campaniello sued Saporiti for breach of contract, fraud, and misrepresentation, arguing, inter alia, that Saporiti violated the terms of the exclusive arrangement with Campaniello by taking direct orders from Campaniello's exclusive sales territories. (The "1994 Litigation"). See id. at 468-469.

2. During the course of the 1994 Litigation, Saporiti filed for the Italian equivalent of bankruptcy. Id. Subsequently, under the supervision of an Italian bankruptcy court, plaintiff Gidatex leased Saporiti's assets with the option to purchase them at a later date. Id. at 470.

3. Gidatex then entered into a distributorship agreement with Campaniello similar to the one between Saporiti and Campaniello (the "Agreement"). As part of the Agreement, Campaniello withdrew its 1994 Litigation against the Saporiti defendants. In return, Gidatex engaged Campaniello as the exclusive distributor of Saporiti Italia furniture in the United States and other Western Hemisphere countries through March 31, 1995, with an automatic five-year extension if Gidatex purchased Saporiti's assets.*fn1 The terms of the Agreement required Campaniello to make certain minimum purchases of Saporiti Italia furniture. Id. at 474-75, 812; Memorandum of Agreement, June 14, 1994, Defs.' Ex. R.*fn2

4. Between June 1994 and March 1995, Campaniello was displeased with the quality of the Saporiti Italia goods and Gidatex's delays and inaccuracies in filling its orders. See Tr. at 491, 495, 517, 814 (T. Campaniello); Correspondence from T. Campaniello to Gidatex notifying Gidatex of customer complaints, Defs.' Exs. CC, DD, EE, FF, GG, KK, MM, PP, XX, CCC, LLL, ZZZ, CCCC; Letter from Nurit Kandel, interior designer and Campaniello customer, to Campaniello voicing complaints with Saporiti Italia goods, Defs.' Ex. UU. To appease its customers, Campaniello provided refunds and discounts. See Correspondence from Campaniello to customers informing them of discount due to customer's displeasure with Saporiti, Defs.' Exs. YY, KKK; Correspondence from Campaniello to Gidatex informing Gidatex of refunds and discounts it offered to displeased customers, Defs.' Ex. EEEE. Ultimately, Campaniello did not place sufficient orders with Gidatex to meet its minimum purchase requirements. See Tr. 517 (T. Campaniello).

5. Gidatex purchased Saporiti Italia's assets, but refused to continue Campaniello's distributorship for the additional five years as provided by the Agreement, citing Campaniello's failure to meet its minimum required purchases. In April 1995, ten months after it entered into the Agreement, Gidatex verbally terminated its relationship with Campaniello. See Declaration of Thomas Campaniello, March 17, 1998 ("T. Campaniello Decl."), attached to Defendants' Post-Trial Memorandum of Law in Support of Unclean Hands Defense, Ex. A, ¶ 6.

6. At the time of the termination, Campaniello had approximately $1 million worth of Saporiti Italia furniture in its warehouses and showrooms. See Tr. 298 (Raffaele Saporiti, sole administrator of Gidatex), 531-32 (T. Campaniello). Gidatex refused to buy back the furniture, but allowed Campaniello to sell its remaining stock. Tr. 298 (R. Saporiti).

7. Despite the termination of the Agreement, Campaniello continued to use the Saporiti Italia trademark. Eight months after Gidatex's oral termination of the Agreement, Gidatex's counsel advised Campaniello's counsel that Campaniello was only permitted to use the Saporiti Italia trademark in connection with the sale of the remaining Saporiti inventory. See Letter of David A. Botwinik, Esq. to Stephen Hochhauser, Esq., December 22, 1995, Pl.'s Ex. 4. Specifically, Gidatex communicated the following:

    We therefore request that you advise your client to
  discontinue the use of the Saporiti trademark in
  connection with its business. A mere walkby of the
  Campaniello premises located [in New York City]
  indicates that the name Saporiti is displayed more
  prominently than Campaniello. It is an elementary
  principle of trademark law that the public should not
  be subjected to confusing trademarks. Thus, the
  Saporiti trademark should be removed from all
  locations on the Campaniello premises where it is
  prominently displayed. Of course, any remaining use
  of the Saporiti trademark must be limited to Saporiti
  products.
    In the event that Campaniello continues to
  improperly use the Saporiti trademark, we will, on
  behalf of our clients, pursue their remedies in all
  appropriate forums.

Id. Twenty-two months later, Gidatex's counsel sent a "cease and desist" letter to Campaniello. See Letter from Thomas G. Bailey, Jr., Esq. to Thomas Campaniello, October 16, 1997, Pl.'s Ex. III-A. That letter warned:

    It has come to our attention that without
  authorization from Gidatex, Campaniello is displaying
  Saporiti Italia signage at its retail locations,
  maintaining telephone listings under the Saporiti
  Italia name and otherwise using the Saporiti Italia
  trademark in ...

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