Maguire v. Garruso

Maguire v. Gorruso (2001-203); 174 Vt. 1; 800 A.2d 1085

[Filed 03-May-2002]


       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal  revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of  Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any  errors in order that corrections may be made before this opinion goes
  to press.


                                No. 2001-203


Robert W. Maguire and	                         Supreme Court
Robert W. Maguire, Ltd.
                                                 On Appeal from
     v.	                                         Rutland Superior Court


Samuel J. Gorruso, 	                         November Term, 2001
Sammy G. Media Corporation


Richard W. Norton, J.

John J. Welch, Jr., Rutland, for Plaintiffs-Appellees.

Kevin Ellicott of Ellicott, P.C., Rutland, for Defendants-Appellants.


PRESENT:  Amestoy, C.J., Dooley, Morse, Johnson and Skoglund, JJ.


       AMESTOY, C.J.    Defendants Samuel J. Gorruso and Sammy G. Media
  Corporation appeal  from a judgment, based on a jury verdict, in favor of
  plaintiffs Robert W. Maguire and Robert  Maguire, Ltd., awarding damages of
  $272,000 for unfair competition and $143,000 for conversion.   Defendants
  contend: (1) compensatory damages were unavailable as a matter of law for
  the common  law unfair competition claim of trade name or trade dress
  infringement; (2) the evidence was  insufficient to prove the elements of
  the infringement claim; (3) the court abused its discretion in  denying a
  motion to modify the conversion award; and (4) the court erred in allowing
  defendant 

 

  Gorruso to be held personally liable.  We remit the award for conversion, 
  and otherwise affirm the  judgment.
  	
       Viewed in the light most favorable to the judgment,  Hanes v. Golub
  Corp., 166 Vt. 228, 233, 692 A.2d 377, 380 (1997), the underlying facts
  may be summarized as follows.  For many years,  plaintiffs Robert W.
  Maguire and Robert Maguire, Ltd. (hereafter plaintiffs or Maguire) owned
  and  operated a weekly advertisement-based paper known as The Rutland
  Shopper and, later, as The  Rutland Tribune.  In March 1998, plaintiffs
  entered into a combined lease and purchase-and-sale  agreement with
  defendants Samuel J. Gorruso and Sammy G. Media Corp. (hereafter defendants
  or  Gorruso).  The agreement provided for defendants  to assume full
  operational control of the business,  including its equipment, inventory,
  trade names and receivables, and to pay plaintiffs a monthly  consulting
  fee until November 1999, when defendants would purchase the business for
  the sum of  $628,000.  

       Defendants operated the business under the name The Rutland Shopper
  until the end of June  1999, at which time plaintiffs resumed possession
  and operation of the business pursuant to a  subsequent agreement between
  the parties.  Under that agreement, dated June 24, 1999, all prior 
  contractual obligations between the parties were canceled, plaintiffs
  agreed to pay defendants a total  of $25,000, and defendants agreed to have
  no further involvement with the business and to refrain  from any use of
  the names The Rutland Shopper or The Rutland Tribune. Although the original 
  purchase/lease agreement contained a specific non-compete clause, the June
  1999 memorandum  canceling the agreement lacked such a clause.

       Almost immediately after the parties' June agreement, defendants moved
  to a separate  location in Rutland and commenced publication of an
  advertisement-based paper under the title 

 

  Sam's Good News Shopper.  Plaintiffs, in response, filed this action
  against defendants, alleging - among other claims - conversion of various
  items of property, including a customer list, computer  and photographic
  equipment, and other hardware;  unfair competition through misappropriation
  of  business assets as well as trademark and trade dress infringement; and
  fraud.  In addition to damages,  plaintiffs sought an injunction
  prohibiting defendants from using the name "Shopper" in their title.  
  Following a hearing in late July 1999,  the Rutland Superior Court issued a
  preliminary injunction  prohibiting defendants from publishing within
  Rutland County, during the course of the litigation,  any newspaper or
  advertising weekly using the word "Shopper" in the masthead,  or from using
  the  same format as the The Rutland Shopper.

       At the end of a five-day trial in January and February 2001,  the jury
  returned a verdict in  favor of plaintiffs, awarding damages of $143,000
  for conversion of property, $272,000 for unfair  competition, and $1.00 for
  punitive damages.  The jury found in favor of plaintiffs on defendants' 
  counterclaim for defamation.  In response to defendants' subsequent motion
  to alter or amend, the  court struck the $1.00 award of punitive damages,
  but otherwise denied the motion.  The court  subsequently entered an
  amended judgment in favor of plaintiffs, awarding damages totaling 
  $415,535.18  (the conversion and unfair competition awards plus costs). 
  This appeal followed. 

       Turning first to the unfair competition claim, defendants contend that
  equitable remedies  such as injunctive relief represent the exclusive
  remedy under Vermont law for common law claims  of unfair competition based
  on trade name or trade dress infringement. (FN1) Defendants also devote 

 

  considerable attention to the requisite elements of such claims, citing
  federal precedents under the  Lanham Act, 15 U.S.C.A. § 1125(a), and other
  authorities to demonstrate that "shopper" is a generic  term that is not
  protectable as a trade name, and to further demonstrate that plaintiffs
  were required - and failed - to establish the "secondary meaning"
  essential to their infringement claims. (FN2)  We  find, however, that a
  resolution of these questions is not essential to a disposition of the
  appeal. 

       We recognize, to be sure, that plaintiffs adduced several witnesses to
  substantiate their  contention that defendants' use of a similar name and
  format to the The Rutland Shopper caused 

 

  some initial confusion among some advertisers.  We note, as well, that the
  trial court was sufficiently  persuaded of the potential for confusion to
  issue a preliminary injunction prohibiting defendants  from using the name
  "Shopper" or from employing a format similar to the The Rutland Shopper.  
  Nevertheless, we need not determine whether this evidence was sufficient to
  support an unfair  competition claim based on trade name or trade dress
  infringement because we conclude that the  record evidence was more than
  adequate to support plaintiffs' alternative unfair competition claim 
  premised upon defendants' misappropriation of their business assets.  See
  Bruekner v. Norwich  Univ., 169 Vt. 118, 126 n.1, 730 A.2d 1086, 1093 n.1 
  (1999) (absent request for special verdict or  interrogatories, appellants
  must "establish error that undermines all theories of liability submitted
  to  the fact-finder. If any single theory of recovery is untainted by
  error, we will affirm the lower court's  judgment") (quoting Contractor's
  Crane Serv., Inc. v. Vt. Whey Abatement Auth., 147 Vt. 441, 446,  519 A.2d 1166, 1171 (1986)).  

       As noted, plaintiffs advanced two theories of unfair competition, one
  based on infringement,  the other on misappropriation. (FN3)  Although
  defendants here focus on issues related to the  infringement claim, the
  record reveals that plaintiffs' principal theory, and the bulk of their
  evidence  at trial, related to their assertion that defendants had engaged
  in unfair competition through the  misappropriation and exploitation of
  their principal business assets.  See, e.g., United States Sporting 
  Prods., Inc. v. Johnny Stewart Game Calls, Inc., 865 S.W.2d 214, 218 (Tex.
  App. 1993) (elements of  misappropriation include defendant's unfair use of
  plaintiff's product in competition, thereby 

 

  gaining unfair advantage);  Mercury Record Prods., Inc. v. Econ.
  Consultants, Inc., 218 N.W.2d 705,  710 (Wis. 1974) ("essence" of unfair
  competition-misappropriation claim is "defendant's use of the  plaintiff's
  product or a copy of it in competition with the plaintiff and gaining an
  advantage in that  competition"). 

       Plaintiffs here adduced substantial, albeit circumstantial, evidence
  that upon vacating the  premises of the The Rutland Shopper, defendants
  took a variety of business assets, including - as  noted - customer lists,
  bookkeeping records, photographic equipment, and computer software.  In 
  this regard, plaintiffs' expert witness testified that he had appraised
  plaintiffs' paper as worth  approximately $630,000 to $660,000 in
  mid-winter 1999, shortly before defendants left, and that by  August or
  September, the paper's value had plummeted to near zero.  The dramatic
  decline was  directly attributable, in the expert's view,  to plaintiffs'
  loss of these assets.

       The bookkeeping records, for example, contained not only the identity
  of plaintiffs'  advertisers - information otherwise easily retrievable -
  but records relating to accounts receivable,  cashflow, and other financial
  data, the loss of which would require a laborious and debilitating 
  exercise in reconstruction.  The loss of plaintiffs' customer list - which
  the expert described as the  "lifeblood" of the paper - again entailed
  more than simply the names of advertisers; it showed each  customer's
  individual advertising rate, which vary depending upon discounts and other
  incentives,  and therefore contained "extremely valuable information" which
  - if appropriated by a competitor - would result in substantial billing
  confusion for plaintiffs and a decided competitive advantage for 
  defendants. The loss of distribution resources - including distribution
  racks and the names of  distributors and their territories - was also
  devastating to plaintiffs, according to the expert, because  advertisers
  demand timely advertisements and strategic distribution points.  The expert
  also testified 

 

  that the loss of computer software and graphics affected the quality and
  appearance of plaintiffs'  paper, to their competitive disadvantage.  These
  cumulative losses, in conjunction with a new  competitor, Gorruso, armed
  with the information and equipment appropriated from plaintiffs, were 
  sufficient - in the expert's opinion - to dramatically reduce the
  competitiveness and ultimately the  value of plaintiffs' paper.
              
       In closing argument, plaintiffs' counsel focused on the
  misappropriation theory,  arguing that  defendant Gorruso had "gutted the
  business, kept what he wanted and threw away the rest so that  [Maguire]
  had to start essentially from scratch, the business worth zero according to
  [plaintiffs'  expert] Mr. Grimes."  Consistent with this approach, the
  trial court instructed the jury on plaintiffs'  misappropriation theory -
  without objection - as follows: 

    Now, the Plaintiffs have claimed that the Defendants engaged in 
    common law unfair competition.  Unfair competition encompasses a 
    broad range of unfair practices which may generally be described
    as  misappropriation of the skill, expenditures and labor of
    another.   Common law unfair competition  must be grounded in
    either  deception or misappropriation of the exclusive property of
    the  Plaintiffs.  The Plaintiffs assert that the Defendants
    engaged in unfair  competition in two ways, principally.  First,
    they argue that the  Defendants misappropriated various items of
    property belonging to  the Rutland Shopper and used that property
    in establishing Sam's  Good News Shopper.  Second the Plaintiffs
    argue that Defendants  engaged in unfair competition by use of a
    trade name and dress so  similar to their own that it resulted in
    the infringment of their trade  name and dress.  

       Despite the evidence, argument and instruction on plaintiffs'
  misappropriation claim - summarized above - defendants assert that it was
  unavailing as a matter of law for essentially two  reasons.  First, in
  their opening brief, defendants argue that the misappropriation of a trade
  dress or  trade name is not a legitimate means of circumventing the other
  essential elements of an 

 

  infringement claim.  See 1 J. McCarthy, McCarthy on Trademarks & Unfair
  Competition  § 10.34[2]  at 10-142 (3d ed. 1996) ("one cannot dispense with
  the carefully constructed requirements for  trademark protection by
  blithely claiming that defendant 'misappropriated' some symbol of plaintiff 
  which may or may not be capable of trademark protection").  Defendants
  rely, in this regard, on a  statement in the trial court's order denying
  their motion to amend the judgment, to the effect that  plaintiffs have
  produced enlarged copies of both papers "suggesting misappropriation of
  trade dress  and graphics."  While defendants may be correct that the trial
  court's statement inartfully confused  the two unfair competition theories,
  they overlook the more essential point that the evidence,  argument, and
  instructions focused extensively - if not exclusively - on the alleged
  misappropriation  of certain proprietary information and tangible business
  assets, not simply plaintiffs' trade name or  trade dress.

       In their reply brief, defendants also argue that misappropriation
  claims are confined to  intangible property, such as trade secrets; that
  nothing in this case "looks remotely like a trade  secret;"and that at most
  plaintiffs stated a claim for conversion. The argument is unpersuasive.  
  Although, as defendants note, the Restatement (Third) of Unfair Competition
  refers to the  "misappropriation of intangible trade values," id. § 38,
  cmt. b at 409,  nothing in the Restatement  limits misappropriation claims
  to any particular category of property.  Indeed, the Restatement 
  specifically cautions that the "specific forms of unfair competition
  [described therein] do not fully  exhaust the scope of statutory or common
  law liability for unfair methods of competition."  Id. § 1  cmt. g.  Courts
  have long noted that common law unfair competition is a flexible and
  evolving  concept, not confined to any particular form of unethical
  behavior.  See Ojala v. Bohlin, 2 Cal Rptr.  919, 924 (Cal. Ct. App. 1960)
  ("The legal concept of unfair competition has evolved as a broad and 

 

  flexible doctrine with a capacity for further growth to meet changing
  conditions, and there is no  complete list of activities which constitute
  unfair competition."); Ryan v. Carmona Bolen Home For  Funerals, 775 A.2d 92, 95 (N.J. Super. Ct. App. Div. 2001) (concept of unfair competition is
  "as  flexible and elastic as the evolving standards of commercial morality
  demand" to discourage  "deceptive practices which renders competition
  unfair") (internal citations omitted).  We are not  persuaded, therefore, 
  that the unfair competition claim was limited to the misappropriation of
  trade  secrets or other intangible trade values.  See United States
  Sporting Prods., 865 S.W.2d  at 218  (rejecting contention that
  misappropriation must be of a trade secret or confidential
  information). (FN4)

       Nor does the mere availability of a conversion claim preclude
  assertion of a claim for unfair  competition/misappropriation.  The essence
  of conversion is the exercise of dominion and control  over property to the
  exclusion of the owner's rights, or the withholding of possession from the
  owner  under claim of title.  See Williams v Chittenden Trust Co. 145 Vt.
  76, 83-84, 484 A.2d 911, 915  (1984).  The measure of damages for
  conversion is generally the value of the thing converted,  measured by its
  cost to produce or fair market value, at the time and place of the
  conversion.  See id.  (measure of damages for conversion of architectural
  plans is cost to architect to produce plans);  Zachair, Ltd. v. Driggs, 762 A.2d 991, 1003 (Md. Ct. Spec. App. 2000) (in action for conversion, 
  "plaintiff is entitled to the fair market value of the property at the time
  of conversion") (internal  citations omitted).  The gravaman of unfair
  competition through misappropriation - in contrast - is 

 

  the unfair competitive use to which defendants put the property, and the
  measure of damages is  generally the resulting loss to the plaintiff or
  gain to the defendant.  See Restatement (Third) of  Unfair Competition, §
  45(1) at 512 (defendant is "liable for the pecuniary loss to the other
  caused by  the appropriation or for the [defendant's] own pecuniary gain
  resulting from the appropriation").    Thus, plaintiffs could properly
  allege, and the jury could reasonably conclude, that defendants  engaged in
  unfair competition through the misappropriation and exploitation of
  plaintiffs' business  assets.  Accordingly, we discern no basis to disturb
  this portion of the judgment.

       Defendants also contend the trial court erred in denying their
  post-judgment motion to reduce  the conversion award from $143,000  to
  $1000.   Defendants assert that the evidence did not support  a finding
  that the converted assets were worth more than $1000, and that the jury's
  award  represented a duplication of the unfair competition award.  We agree
  with defendants in this regard.   Although plaintiffs defend the award by
  noting that a list of assets attached to the original purchase  and sale
  agreement valued the customer list at  $150,000,  the record demonstrates
  that the list's only  real value was based on its use in facilitating the
  sale of advertisements, and that this loss to  plaintiffs was subsumed in
  the unfair competition award.  Thus, as plaintiffs do not otherwise dispute 
  defendants' claim that the value of converted property did not exceed
  $1000, we will order that the  conversion award be remitted to $1000.

       Finally, defendants contend the evidence failed to support a finding
  that defendant Gorruso  was personally liable for conversion.  The basis of
  the claim is somewhat unclear.   To the extent that  it is premised upon
  the sufficiency of the evidence to "pierce the corporate veil," the claim
  was not  raised below, and therefore was not preserved for review on
  appeal.  In re Miller, 170 Vt. 64, 69, 742 A.2d 1219, 1223 (1999). To the
  extent that the argument is that the evidence was insufficient to 
  establish that Gorruso converted plaintiffs' business property,  the record
  evidence amply supported  

 

  a reasonable inference that Gorruso took the property in question when he
  vacated The Rutland  Shopper premises.  See Lockwood v. Lord, 163 Vt. 210,
  213, 657 A.2d 555, 557 (1994) (jury may  draw reasonable inferences from
  evidence).  Lastly, defendants contend that the special verdict form  was
  misleading because it failed to distinguish between the corporate and
  individual defendants.  The  claim was not raised below, and therefore was
  waived on appeal.  Ulm v. Ford Motor Co., 170 Vt.  281, 294, 750 A.2d 981,
  991 (2000).

       The amended judgment is modified by striking the damage award of
  $415,535.18 and  substituting in its place an award of $273,535.18.  In all
  other respects, the judgment is affirmed.       
  
      	                               FOR THE COURT:


                                       _______________________________________
                                       Jeffrey L. Amestoy, Chief Justice
                	               

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                                  Footnotes

                   	 
FN1.  Common law unfair competition includes a number of different tort
  theories, including  "passing-off," which is in effect the common law name
  for trademark infringement, trade-secret  violations, and misappropriation.
  Prosser & Keeton, The Law of Torts § 130, at 1015-1020 (5th ed.  1984).
  Trademark infringement, in turn, includes a variety of deceptive acts, such
  as false or  misleading advertising, trade name infringement (appropriating
  a competitor's descriptive terms or  names), and trade dress infringement
  (appropriating the design elements of a competitor's packaging  or
  product).  Restatement (Third) of Unfair Competition § 9 cmt f. at 82, & §
  16 at 156 (1995).  In  Vermont Motor Co. v. Monk, 116 Vt. 309, 313, 75 A.2d 671, 673 (1950), we recognized a common  law unfair competition claim for
  trade-name infringement, but affirmed the trial court's denial of 
  injunctive relief.  Much of the common law in this area has since been
  "federalized" - although not  preempted - by the Lanham Trademark Act of
  1946, 15 U.S.C.A. § 1125(a), which generally  proscribes false designations
  and representations, as well as codified through state trademark 
  registration acts, trade secret acts, and unfair or deceptive practices
  acts.  See generally Restatement  (Third) of Unfair Competition § 9 cmt. e.
  at 81-82; Prosser & Keeton, § 130, at 1018-1019.       

FN2.  The general rule is that one cannot acquire trade name rights in a
  "generic" designation,  i.e., a term that denominates a general type or
  class of goods, services, or business.  Restatement  (Third) of Unfair
  Competition § 15 cmt. a, at 142.  "Secondary meaning" refers to the concept
  that a  particular trade name or design has become "associated in the
  public mind primarily with the  plaintiff's product or business."  Prosser
  & Keeton, § 130 at 1017; see also Restatement (Third) of   Unfair
  Competition, § 13 cmt. e, at 108 ("A designation that is not inherently
  distinctive, such as a  word that describes the nature of the product on
  which it appears, nevertheless may become, as a  result of its use by a
  specific person, uniquely associated with that person's goods, services, or 
  business.  Such acquired distinctiveness is called 'secondary meaning.' "). 
  A lively doctrinal debate  has developed over whether, and under what
  circumstances, a trade name or trade dress may be  inherently distinctive,
  or whether proof of secondary meaning is required.  Compare Wal-Mart 
  Stores, Inc. v. Samara Bros., Inc., 529 U.S. 205, 212 (2000) (product
  design trade dress can not be  inherently distinctive), with Two Pesos,
  Inc. v. Taco Cabana, Inc. 505 U.S. 763 (1992), product  packaging trade
  dress may be inherently distinctive); see generally R. Harris & S.
  Winkelman, Why  Product Configurations Cannot be Inherently Distinctive, 91
  The Trademark Rep. 988, 989-1001  (2001) (reviewing and discussing
  doctrinal developments surrounding elements of infringement  claims).     

FN3.  "Within the broad scope of unfair competition are the independent
  causes of action such as  trade-secret law, 'palming off,' or passing off,
  and misappropriation, to name only a few."  United  States Sporting Prods.,
  Inc. v. Johnny Stewart Game Calls, Inc. 865 S.W.2d 214, 217 (Tex. App. 
  1993); See generally Prosser & Keeton, § 130 at 1013-1020. 

FN4.  We note that defendants have not argued that plaintiffs' unfair
  competition claim is  preempted by the Vermont Trade Secrets Act, 9 V.S.A
  §§ 4601-4609. The Act specifically  "displaces conflicting tort,
  restitutionary, and any other law of this state providing civil remedies
  for  misappropriation of a trade secret."  Id. § 4607; see Dicks v. Jensen,
  __ Vt. __, __, 768 A.2d 1279,  1285 (2001) (holding that Trade Secrets Act
  bars common law remedies for use of competitor's  customer list to solicit
  customers).   Here, however, defendants assert that plaintiffs' assets - 
  presumably including plaintiffs' customer lists - are not "remotely like a
  trade secret."