author: HAROLD A. ACKERMAN, District Judge.

text:
    EAGLE SNACKS, INC., Plaintiff, v. NABISCO BRANDS, INC., Defendant.
    Civ. A. No. 85-1552.
    United States District Court, D. New Jersey.
    Dec. 20, 1985.

      John F. Crane, Kuttner, Toner & DiBenedetto, Roseland, N.J., V. Bryan Medlock, Jr., Richards, Harris, Medlock & Andrews, Dallas, Tex., Jerre Swann, Kilpatrick & Cody, Atlanta, Ga., for plaintiff.
    Jeffrey W. Lorell, Clapp & Eisenberg, Newark, N.J., Frank J. Colucci, Robert Weisbein, New York City, for defendant.
   OPINION

HAROLD A. ACKERMAN, District Judge.

This is an action for common law trademark infringement and unfair competition under § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). The Court has jurisdiction thereof under 15 U.S.C. § 1121, and Title 28 U.S.C. § 1338. Venue is proper in this district under Title 28 U.S.C. § 1392(b).

Plaintiff, Eagle Snacks, Inc., is a Delaware corporation. It is a wholly owned subsidiary of Anheuser-Busch Companies, Inc. and has its principal place of business at One Busch Place, St. Louis, Missouri.

The defendant, Nabisco Brands, Inc., is also a Delaware corporation, having its principal place of business at Nabisco Brands Plaza, Parsippany, New Jersey. Both plaintiff and defendant develop, manufacture, package, advertise and offer for sale peanuts and other nut meat products.

Beginning in 1980, Eagle started marketing a nut product, made according to a process of coating nuts with honey and roasting them, using the words “Honey Roasted”, which it subsequently changed to “honey Roast.”

On April 2, 1985, contemporaneously with Nabisco’s launch of its PLANTERS honey roasted nuts into the marketplace, Eagle commenced this civil action by way of Order to Show Cause, seeking a temporary restraining order and, thereafter, a preliminary injunction to enjoin Nabisco’s use of the words “Honey Roast” and “Honey Roasted” in connection with its product.

On April 2, 1985, I denied Eagle’s application for a temporary restraining order and scheduled an evidentiary hearing on Eagle’s motions for preliminary injunction beginning on April 29, 1985.

Testimony was given by Jerome Warren Ohlsten, plaintiff’s first expert in market research; Robert C. Sorensen, plaintiff’s second expert in market research; H. Smith Kirman, a retired individual who worked in the business of the sale of peanuts; James Kalbach, President of Edwards Freeman, a manufacturer of peanut products; Allen William Sherman, Vice President of Brand Management for Eagle Snacks; Sumner Catlin Putnam, a Nabisco Brands employee who was involved in the honey roast nuts marketing effort; Oris Edwin Holloway, a manager of nut technology for Nabisco Brands; and Ivan Ross, defendants’ expert in market research.

On April 19, 1985, Nabisco served and filed its Answer and Affirmative Defenses. On the same date, Nabisco served and filed a cross-motion to dismiss the complaint, pursuant to F.R.Civ.P. 19, for failure to join Fisher Nut Company, a division of Beatrice Foods, Inc. and/or Beatrice Companies, Inc. (“Beatrice”), as an indispensable party.

The evidentiary hearing was held from April 29, 1985 to May 2, 1985. I make the following findings of fact and conclusions of law pursuant to Rule 52 of the Federal Rules of Civil Procedure.

In 1978, Anheuser-Busch’s New Products Development Group decided to investigate a line of snack products that would complement its existing business.

As part of its search for new snack food products, Anheuser-Busch contacted Carolina Peanuts of Robersonville, a company in North Carolina that manufactured “Honey Bunnies,” a sweet-salty nut product with a totally new taste profile.

Anheuser-Busch decided to promote this peanut product, and, after reformulating the product to modify its taste profile, Anheuser-Busch began to sell the product as “Honey Roasted” peanuts. There were several reasons why the name “Honey Roasted” was selected. Allen Sherman, who was in Anheuser-Busch’s New Product Development group and who was involved in selecting the words “Honey Roasted,” testified that “Honey” was a good word from the consumer’s standpoint because it connotated “good for you”, “healthful” and “sweetness.” “Roasted” was selected because it had a good connotation of “aromatic flavoring once the product is heated.”

The new “Honey Roasted” peanuts were first sold by Anheuser-Busch in 1980. In that same year, in an effort to strengthen the trademark, Anheuser-Busch initiated steps to change the mark to “Honey Roast,” and the change was completed by January, 1981.

In a further attempt to “strengthen” its purported trademark, Eagle in 1983 caused the letters “TM” to be placed above the word “Roast” and implemented the use of the word “Brand” to modify the mark. Eagle’s own marketing expert, Mr. Jerome Ohlsten recognized, however, that use of the letters “TM” and/or the word “Brand” in conjunction with a common or descriptive word would not make that word into a brand name or trademark. For example, “shredded wheat”, “ginger snaps” or “raisin bran” would not be a brand name merely because used in connection with the letters “TM” or “Brand.”

Eagle does not own a federal trademark registration of “Honey Roast.” Eagle did not file an application for Registration of “Honey Roast” with the United States Patent and Trademark Office (“PTO”) until June 2, 1983, nearly three years after the purported mark was adopted (Application Serial No. 428,563). Eagle’s application for registration of “Honey Roast” has been opposed by Beatrice, who on June 18, 1984 filed a Notice of Opposition with the PTO, Opposition No. 69,515. In its Notice of Opposition, Beatrice claims, inter alia, that it has the exclusive right to use the words “Honey Roasted” for peanuts, and that Beatrice is the prior user of these words for nut products in commerce. Beatrice also claims that Eagle’s statements in its application in the PTO were false and fraudulent and also omitted material information about prior use by Carolina Peanut Company, which Beatrice claimed packaged peanuts for it. The opposition is currently pending before the Trademark Trial and Appeal Board (“TTAB”).

On December 19, 1983, Fisher Nut Company, a division of Beatrice, filed an application (Application Serial No. 457,568) to register “Honey Roasted” as a trademark to be used in the marketing and sale of processed nuts. Fisher claimed a date of first use on May 10, 1978 and a date of first use in commerce of January, 1978 of “Honey Roasted”, approximately 2% years prior to the date of first use of “Honey Roast” claimed by Eagle. On June 21, 1984 the PTO denied Fisher’s application on the ground that the words “Honey Roasted” are “merely descriptive” because the term “immediately describes the fact that the goods are made with honey and roasted.” On November 2,1984, Fisher requested that its application be suspended pending completion of the opposition proceeding.

Taking advantage of Anheuser-Busch’s distribution network, Eagle honey roast nuts were initially sold to taverns and bars, which are referred to in the trade as “on-premise” establishments. In the fall of 1981, Eagle began attempts to expand its distribution of its nut product to “off-premise” establishments such as convenience stores, grocery stores and supermarkets, and to airlines.

Eagle honey roast nuts are currently available in approximately 100 markets east of the Mississippi River and in 30% of the markets nationwide. At the time of the hearing, Mr. Alan Sherman, Eagle’s Vice President of Brand Management, testified that Eagle honey roast nuts would be made available throughout the United States within thirty (30) days.

Plaintiff has advertised its “Honey Roast” nuts in tens of millions of fliers mailed to households or included in newspaper supplements. Plaintiff has extensively sampled the product with airline passengers. In 1981, plaintiff sold 1,460,000 units to airlines; in 1982, 37,000,000 units; in 1983, 76,000,000 units; and in 1984, 104,-000,000 units. Plaintiff’s efforts have met with commercial success. Its sales, for example, have grown from $2,336,000 in 1981 to $6,330,000 in 1982; $12,100,000 in 1983; and $27,280,000 in 1984.

One part of Eagle’s marketing strategy is the association of its products with the “Eagle” brand name and the association with Anheuser-Busch. All of Eagle’s marketing strategy, its advertising, promotional material and packaging for its honey roast nuts contain the name “Eagle” as well as the words “honey roast.” At no time have the words “Honey Roast” been used alone to promote Eagle’s honey roast nuts.

Advertising and promotional literature prepared by Eagle and distributed to its sales people clearly describes its nut products as being made with honey, “roasted with honey”, “roasted in honey” and “a combination of honey and salt and roasted to perfection.” In addition, Mr. Sherman, testified that Eagle’s sales people promote its nut products to the trade as being roasted with honey.

When shown a jar of Planters dry roasted nuts where the words "dry roasted” appeared in lower case and asked if the word “honey” were substituted for the word “dry”, would that be a descriptive usage of “Honey Roasted”, Mr. Ohlsten, a market research consultant called by plaintiffs, testified that it would. Mr. Ohlsten also thought that the words “Honey Roast” would tell the consumer about the type of nuts they would find in the package.

Sugar is the predominant ingredient of the solution with which the nuts are coated. Honey is, however, also contained in the solution used to coat the nut. The nuts absorb the honey through the roasting process and consequently give the nut the honey roasted flavor and color.

Eagle’s United States Patent No. 4,161,-545, describes it process of manufacture as a method for making a “honey coated roasted nut.” There is some evidence, although minimal, that the press refers to such nuts descriptively as “honey roasted.” An article appearing in the Detroit Free Press on Tuesday, April 9, 1985, used the words “Honey Roasted” in a descriptive way in referring to Planters’ new product.

The words “Honey Roast” or “Honey Roasted” are a short descriptive term for nuts roasted with honey. I found the testimony persuasive of Mr. Oris Holloway, an expert with 17 years of experience in the field of nut technology and also Nabisco’s Group Leader of Nut Technology, who unequivocally testified that the words “Honey Roast” and “Honey Roasted” accurately described the process by which the nuts are prepared. Mr. Holloway testified that the blanched nuts are encased in a honey solution and then, either through a dry roasting or oil roasting process, the honey is heated “and consequently heats up the outer layer of the peanut____ By heating it through the honey and the other ingredients, we in a sense are roasting.”

In support of its position that the words “Honey Roasted” are recognized by both the industry and the public as being common or descriptive words for processed nuts which have been treated with honey and then roasted, Nabisco conducted a national probability telephone survey. This survey was conducted by Dr. Ivan Ross, Professor of Marketing of the University of Minnesota, School of Management.

The purpose of the Ross survey was to determine whether consumers perceived the words “Honey Roasted” to be a brand name for a nut product or a common or descriptive name.

From a list of randomly generated telephone numbers, four hundred people nationwide who said they were over the age of eighteen were asked to identify whether four test names — Aspirin, Cellophane, Pepsi and M & M’s — were brand names or common or descriptive names. In addition to those four choices, two hundred of the respondents were asked whether Honey Roasted was a brand name or a common or descriptive name for a nut product. The other two hundred respondents were asked whether Dry Roasted was a brand name or a common or descriptive name for a nut product. The words Dry Roasted were tested as an exemplar of a term generally regarded in the trade as a common or descriptive name.

Aspirin and Cellophane were selected as common or descriptive names because they are very well known to the public as being product categories.

Pepsi and M & M’s were selected as brand names because they are generally regarded by the public as such.

The four test names were rotated to eliminate “order” bias. In addition, there was also a rotation as to whether the respondent was asked: “Would you say that is a common or descriptive or a brand name”, or “Would you say that is a brand name or a common or descriptive name.” This rotation was employed to eliminate the possibility of systematic bias being introduced as a function of whether the respondent heard “brand” or “common or descriptive” first as applied to a particular name.

The results of the survey were as follows:

(1) 91.5% and 84.75% of the respondents identified Pepsi and M & M’s as brand names, respectively;

(2) 91% of the respondents identified aspirin as a common or descriptive name and 91.25% identified cellophane as a common or descriptive name;

(3) Dry Roasted was identified by 91.5% of the respondents to be a common or descriptive name; and

(4) Honey Roasted was identified by 67% of the respondents as being a common or descriptive name. 33% of respondents answered that “HONEY ROASTED NUTS” was a brand name.

The survey results do demonstrate that the words “Honey Roasted” are significantly more apt to be perceived by consumers as the common or descriptive name for a nut product rather than as a brand name, but I do find that the survey was defective in a few minor ways which lead me to discount its results somewhat.

Plaintiffs contend that the survey was based on both a too broad and a too narrow universe. To qualify, a respondent must have used or purchased in the past year an array of five different products, several of which are wholly unrelated — e.g., cellophane and nuts. Accordingly, a number of qualified nut users and consumers may have been eliminated from the Ross universe. Out of a total of 400 interviews completed, 313 potential respondents were eliminated by the five product requirement. On the other hand, there was no effort to eliminate users and consumers who, for taste dietary or health reasons, would have no interest in a honey coated, roasted nut product. While these factors may have narrowed the field of respondents, I do not find that they cause the survey to be defective. Consumers were still interviewed on enough of a random basis to be representative, and whether one actually consumes a product has no bearing on one’s perception of the name of the product as a brand name or a common name.

I also do not find plaintiff’s concern over the “preconditioning” of respondents warranted. Plaintiff’s claim that respondents were told and thus preconditioned in the introductory or “screener” portion of the survey that nuts were a product and were then asked, in effect, whether “honey roasted nuts” was a product or a brand. Dr. Robert Sorensen, plaintiff’s expert witness in consumer surveys, testified, “[t]he presence of that word ‘nuts’ automatically, in my opinion, as a noun, as an object, causes any word coming prior to it, particularly a word ending in ‘e-d’ ..., to be viewed by the average person as being descriptive.” Such an approach does not, however, preclude a consumer from viewing the descriptive word as a brand name. The word “M & M” in a question about “M & M candies” could be perceived as descriptive and still be considered a brand name. A mark is to be viewed in relation to the product it identifies, so I find it only rational to conduct the survey in the manner defendants did.

The only criticism plaintiffs have of defendant’s survey which I find material to the weight I accord the survey is that Professor Ross selected two very well known and coined trademarks (Pepsi and M & M’s) and two very well known and common product names (aspirin and cellophane). No words in intermediate categories were included. Because of this, signals may have been given to respondents that in order to be a brand name, a name had to be of the strength of “Pepsi” or “M & Ms.”

This factor, however, does not disqualify the Ross survey. It indicates only that I should give less weight to the survey than I otherwise would. It is also an indication that the 67% of the respondents who found “Honey Roasted” to be more like “aspirin” and “cellophane" than “Pepsi” and “M & Ms” may not have found “Honey Roasted” to be as common a name as aspirin or cellophane but could still not call it a brand name as they did not find “Honey Roasted” to have the strength of the Pepsi or M & M mark. It does not follow by any means, however, that the inclusion of intermediate examples would have given the consumer a more complete understanding of what was being tested and would have produced a higher brand name response for “Honey Roasted Nuts.” I find it significant that plaintiffs made no effort to conduct a survey of their own to support their contentions that the results of the Ross survey would have been different had plaintiffs proposed methodology been followed.

In support of its position that the words “Honey Roast” have acquired brand name significance to consumers, Eagle introduced in evidence approximately 8,000 letters, which it had received over the years from consumers inquiring as to where they could purchase Eagle honey roast nuts. Eagle’s marketing expert, Mr. Jerome Ohlsten, testified that he reviewed two (2) of the nine (9) boxes of letters, which amounted to approximately 4,000 letters. Of these letters, 80% to 90% use “Honey Roast” with initial capitals, in quotation marks, in all capitals or underlined. Plaintiff’s experts found that this indicated a treatment and understanding of the term as a brand name. Defendant’s expert witness, Dr. Ross stated that it was not unusual for companies to get large volumes of consumer mail, particularly with respect to new products which are not yet in wide distribution. He testified that typically, when a consumer writes to a company about a particular product, they will have the product in front of them and in order to identify the product they will use all of the terms which are on the face of the product and will often underline them, put them in quotes, or use similar means of emphasis. This does not, however, signify that consumers recognize a particular word or words to be a brand name. For example, Dr. Ross testified that his analysis of thousands of letters written to General Mills regarding its “Betty Crocker” products showed that people would capitalize the “D” in “Devils”, the “F” in “Food” and the “C” in “Cake”. This does not indicate that consumers believe “Devils Food Cake” to be a brand name. I found Dr. Ross’s testimony persuasive in this respect. I would not find, however, as defendants urge, that the letters do not “shed any light on the question of brand name versus common/descriptive significance.” The letters are indicative of the descriptive nature of the term “Honey Roast Nuts” and they are some indication of plaintiff’s market penetration.

Dr. Sorensen portrayed the tremendous number of letters received by plaintiff as “a very popular name brand in the making.” I do not find the letters indicate so much a brand name in the making as they do consumer demand for a product of this nature.

Defendant Planters enjoys dominance in the grocery store segment of nut marketing. Only by creating consumer demand for its product can plaintiff hope to obtain shelf space. As the Vice President of Brand Management for Eagle Snacks testified, “it is possible if you develop a strong enough advertising campaign, if you can get enough people across the country demanding your product, [grocery store managers] will then have to succumb to the consumer demand.”

Plaintiff’s extensive sampling and promotion have generated substantial unmet demand for its “Honey Roast” product. Plaintiff has striven to meet that demand and has repeatedly increased its productive capacity and continues to investigate additional production facilities. Thus far, however, it has not been able fully to keep pace with consumer demand.

In mid-1984, defendant’s Planters Peanut group decided to enter the honey coated, roasted nut category and adopted “Honey Roast”, as the descriptive term for its new product. Planters fully appreciates the “opportunity” created by plaintiff’s efforts. It recognized, for example, that in 1983, honey coated roasted nuts accounted for 80% of the growth in the oil roasted category. In a 1984 “HONEY ROAST BUSINESS PROPOSITION,” Planters further observed that plaintiff had done a “marvelous job of national sampling (via airlines since ’79)____” and that “[t]his is definitely a viable business segment, which threatens the Planters current nut franchise.”

Planters was aware of plaintiff’s use of the term “Honey Roast” but did not obtain a trademark search before employing “Honey Roast” for its product.

Prior to Nabisco’s entry into the honey roasted segment of the edible nut market, there were other companies making and selling honey roasted nuts, and using the words “Honey Roasted” on their product labels to describe their product to the public. As of the date of the hearing, the words “Honey Roasted” were in widespread use.

Nabisco introduced ten different nut products currently being marketed with use the words “Honey Roasted” on their packaging. They are:

1. FISHER honey roasted nuts — a product of Fisher Nut Company, a subsidiary of Beatrice;

2. SAY-ON honey roasted nuts — distributed by American Stores Buying Company;

3. SKAGGS ALPHA BETA honey roasted nuts distributed by American Stores Buying Company;

4. CHIPPER’s honey roasted nuts — a product of Chipper’s Nut Company;

5. KITCHEN KORNER honey roasted nuts — a product distributed by Long’s Drug Stores;

6. EVON’s honey roasted nuts — a product of John F. Sanfilippo & Son, Inc.;

7. GOURMET FOODS “New” honey roasted nuts — a product of Calnut, Inc.,;

8. BARREL ’0 FUN honey roasted nuts;

.9. HADLEY’S FRUIT ORCHARDS honey roasted nuts; and

10. RED SEAL honey roasted nuts.

Of the above uses of the words “Honey Roasted”, the use of Fisher (Beatrice) is the most significant — since Beatrice’s Fisher subsidiary is a major competitor in the edible nut market. Fisher, however, has not given its product active promotional support and Fisher and plaintiff are currently adversaries in a proceeding before the Trademark Trial and Appeal Board of the Patent and Trademark Office. Plaintiff has objected in writing to the use of “Honey Roasted” by other competitors. Plaintiff plans to pursue these other usages of “Honey Roasted” also.

There is a dispute between the parties as to whether the words “Honey Roasted” are widely used throughout the industry to describe nut products such as those at issue here. I find the credible testimony to be that the term is generally used in the industry, but that use of the term is of recent vintage, in the last two years. I find that plaintiff’s use of the term may have been the first, but that it was used as a general descriptive term throughout the industry shortly thereafter.

Nabisco initially used the words “Honey Roast” as the descriptor for its nut product, but in February of 1985 changed the descriptor to “Honey Roasted.” The change was made so as to be more consistent with the “oil roasted” and “dry roasted” descriptors widely used throughout the industry and as an attempt to accommodate Eagle in view of its asserted proprietary claim to the words “Honey Roast.”

CONCLUSIONS OF LAW

Defendant has moved to dismiss plaintiff’s complaint for failure to join Beatrice Companies as a party. I find that this motion is an attempt to raise a jus tertii defense.

I agree with Professor McCarthy regarding this defense who stated:

As a matter of policy, jus tertii should not be allowed as a defense in any trademark case. So long as plaintiff proves rights superior to defendant, that is enough. Defendant is no less an infringer because it is brought to account by a plaintiff whose rights may or may not be superior to the whole world. The plaintiff’s speculative dispute with a third party does not concern the defendant.
To permit a jus tertii defense would be an unwise judicial policy because it would expand many trademark disputes far beyond a mere two party conflict. Before plaintiff could prevail, it would have to prove that it was not an infringer of one or more third parties that the defendant can conjure up. If the defense were allowed, would the court then declare that the third party is an indispensable party to the case, or would it permit defendant to act as a surrogate advocate for the third party’s rights? By raising jus tertii, a defendant could effectively divert attention from its own alleged infringement and become a vicarious avenger of another’s purported rights against plaintiff (and assumably not against itself). A case could be expanded beyond reasonable bounds and effectively slowed to a crawl.
2 J. McCarthy, Trademark and Unfair Competition, 675 (1974).

Defendant’s motion to dismiss is therefore denied.

This civil action involves claims of unfair competition under the Trademark Act of 1946 as amended, 15 U.S.C. § 1125(a) and trademark infringement at common law.

As this matter is before me on application for preliminary injunctive relief, the criteria enunciated by the Third Circuit in In re Arthur Treacher’s Franchise Litigation, 689 F.2d 1137 (3d Cir.1982) are applicable. Specifically, the moving party must show (1) a reasonable probability of eventual success on the merits; (2) that the movant will be irreparably injured pendent lite if relief is not granted. As Judge Garth noted in the Arthur Treacher’s opinion, a failure to show either of these two essential elements “must necessarily result in the denial of a preliminary injunction.” Id. at 1143. Moreover, the district court “should take into account, when they are relevant, (3) the possibility of harm to other interested persons from the grant or denial of the injunction, and (4) the public interest. Id., quoting Oburn v. Shapp, 521 F.2d 142, 147 (3d Cir.1975). Accord, Kershner v. Mazurkiewicz, 670 F.2d 440, 443 (3d Cir.1982) (en banc); Constructors Association of Western Pennsylvania v. Kreps, 573 F.2d 811, 815 (3d Cir.1978).

I turn first to a consideration of the merits of plaintiff’s claim. Plaintiff seeks to enjoin defendants from using the terms “Honey Roast” or “Honey Roasted” on its nut products.

Under the common law and the Lanham Act, 15 U.S.C. §§ 1051-1127, owners of trademarks are protected from other marks that are likely to cause consumers of the products in question to be confused, deceived or mistaken as to the sources of the parties’ services. See Scott Paper Co. v. Scott’s Liquid Gold, Inc., 589 F.2d 1225, 1228 (3d Cir.1978).

The theories of relief advanced under the Lanham Act and the New Jersey common law of unfair competition and trademark infringment are essentially the same claims and substantially the same analysis are involved as to each under the facts of the instant case. See SK & F CO. v. Premo Pharmaceutical Laboratories, Inc., 625 F.2d 1055, 1065 (3d Cir.1980). The basic purpose of both federal trademark law and the common law of unfair competition is to prevent one person from passing off his goods as the goods of another. See American Steel Foundries v. Robertson, 269 U.S. 372, 46 S.Ct. 160, 70 L.Ed. 317 (1925). Before any consideration of whether there is a likelihood of confusion, it must be determined whether the words “Honey Roast” or “Honey Roasted” function as trademarks for nuts coated in a honey solution and then roasted. An analysis of this question must begin with a look at the purpose or function which trademarks are intended to serve.

A trademark is any word, name, symbol or device or any combination thereof adopted and used by a manufacturer to identify his goods and distinguish them from those manufactured by others. 15 U.S.C. § 1127. It is a merchandising shortcut which induces a purchaser to select what he wants, or what he has been led to believe he wants. Its function is simply to designate the goods as a product of a particular manufacturer and to protect his good will against the sale of another’s product as his. Once this is attained, the trademark owner has something of value. If another poaches upon the commercial magnetism of the symbol he has crated, the trademark owner can obtain legal redress. See Mishawaka Rubber & Woolen Manufacturing Co. v. S.S. Kresge Co., supra, 316 U.S. 203, 62 S.Ct. 1022, 86 L.Ed. 1381 (1942); United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90, 39 S.Ct. 48, 63 L.Ed. 141 (1918).

A mark’s eligibility for trademark status and the degree of protection afforded to words and terms may be divided into four classes. In ascending order the classes are: (1) generic, (2) descriptive, (3) suggestive, and (4) arbitrary or fanciful. Educational Development Corporation v. Economy Company, 562 F.2d 26, 28 (10th Cir.1977). See also, 1 McCarthy, Trademarks and Unfair Competition (2d Ed. 1984) § 11:1. Defendant contends that plaintiffs mark is a generic one. A generic term cannot become a trademark under any circumstances. Miller Brewing Co. v. G. Heileman Brewing Co., Inc., 561 F.2d 75, 79 (7th Cir.1977), cert. denied, 434 U.S. 1025, 98 S.Ct. 751, 54 L.Ed.2d 722 (1978). Thus, no matter how much money and effort the user of a generic term has poured into promoting the sale of its merchandise and what success it has achieved in securing public identification, it cannot deprive competing manufacturers of the product of the right to call an article by its name. Abercrombie & Fitch Company v. Hunting World, Inc., 537 F.2d 4, 9 (2d Cir.1976). This is so because to allow trademark protection for generic terms, even when they have been identified with the first user, would grant a monopoly, since a competitor could not describe his goods as what they are. CES Publishing Co. v. St. Regis Publications, Inc., 531 F.2d 11, 13 (2d Cir.1975).

Close to the generic end of the spectrum are descriptive marks. Descriptive marks are those which “convey an immediate idea of the ingredients, qualities or characteristics of the goods” and which require little imagination or thought to interpret. Abercrombie & Fitch Company v. Hunting World, Inc., supra, 537 F.2d at 9. See also Miller Brewing Co. v. Falstaff Brewing Corp., 503 F.Supp. 896, 904 (D.R.I.1980), rev’d on other grounds, 655 F.2d 5 (1st Cir.1981). Trademark protection for descriptive marks is extended only where the user has proven secondary meaning. Secondary meaning is the association in the public’s mind between a product and its source which occurs when an inherently non-distinctive designation changes to being distinctive of the particular product. Mishawaka Rubber & Woolen Manufacturing Co. v. S.S. Kresge Co., supra, 316 U.S. at 203, 62 S.Ct. at 1023; Scott Paper Company, supra.

Plaintiff characterizes its mark as suggestive, the next of the four classes. Suggestive terms fall in between fanciful and descriptive terms. Educational Development Corporation, supra. The suggestive class was judicially created to fill the need for protection of marks which were neither exactly descriptive or fanciful. Id. at 29. These terms require the buyer to use “thought, imagination, or perception to connect the mark with the goods.” Id.

A suggestive mark is protected without any necessity for proving secondary meaning. McCarthy, supra § 11:20 at 488.

Lastly, there are arbitrary or fanciful terms, commonly designated as “strong marks.” These marks “bear so little relation to the product they identify that they are considered entitled to protection against all users.” Field Enterprises Educational Corp. v. Cove Industries, Inc., 297 F.Supp. 989 at 994 (E.D.N.Y.1969). I find that although these classifications are simply guidelines, rather than pigeonholes, see Zatarains, Inc. v. Oak Grove Smokehouse, Inc., 698 F.2d 786 (5th Cir.1983), a classification of “descriptive” most accurately indicates the strength and nature of the “Honey Roast” mark.

The mark is clearly not fanciful or arbitrary, and neither party seeks to categorize it as such. “Honey Roast” very logically relates to nut products, is not a unique combination of letters or symbols, and is not a “coined” word. See, e.g., Telechron, Inc. v. Telicon, Inc., 198 F.2d 903 (3d Cir.1952).

The mark is also not a generic mark, as defendants contend.

Plaintiffs use of initial capitals in letters larger than and above a generic nut designation is a use “as a symbol to attract public attention.” Venetianaire Corp. of America v. A & P Import Co., 429 F.2d 1079 (2d Cir.1970).

The clearest test for genericness was discussed by McCarthy in his treatise, and adopted by a number of courts:

A mark answers the buyer’s questions ‘Who are you? Where do you come from?’ ‘Who vouches for you?’ But the name of the product answers the question “What are you?’ ... [G]eneric designations tell the buyer what the product is, not where it came from.

McCarthy § 12:1 at 520, citing United States Jaycees v. San Francisco Junior Chamber of Commerce, 513 F.2d 1226 (9th Cir.1975) and CES Publishing Corp. v. St. Regis Publication, Inc., 531 F.2d 11 (2d Cir.1975), among other cases. The term “Honey Roast” nuts does not directly answer the question “what are you?” The term “honey and sugar coated, roasted” nuts would more properly be the answer to that question. Thus “Honey Roast” and “Honey Roasted” are not generic terms.

Eagle asserts that the words “Honey Roast” are suggestive because “[tjhought and imagination would have to be used to identify the plaintiff’s product — which is not merely a nut ‘roasted in honey’ but one produced by a process which coats the nutmeat or peanut with a salty-sweet coating.” The testimony and evidence, however, does not support Eagle’s claim.

Although “the descriptive-suggestive borderline is hardly a clear one,” McCarthy, supra § 11:21, “Honey Roast” lacks the degree of inventiveness or imaginativeness that would put it over the border into the suggestive category. As McCarthy summarizes in his treatise “the more imagination that is rquired on the customer’s part to get some direct description of the product from the term, the more likely the term is suggestive, not descriptive. Thus, while a descriptive term directly and clearly conveys information about the ingredients, qualities or characteristics of the product or service, the “suggestive” term only indirectly suggests these things. Judge Weinfeld’s formulation of the imagination test in the Stix ease is often quoted and applied:

A term is suggestive if it requires imagination, thought and perception to reach a conclusion as to the nature of the goods. A term is descriptive if it forthwith conveys an immediate idea of the ingredients, qualities or characteristics of the goods.”

McCarthy § 11:21 at pp. 491-492, citing Stix Products, Inc. v. United Merchants & Mfrs., Inc., 295 F.Supp. 479 (S.D.N.Y.1968). “Honey Roast,” while being slightly imaginative, forthwith conveys an immediate idea of the ingredients and qualities of the nut products offered by plaintiff. The testimony of Mr. Oris Holloway, an expert in the field of nut technology, is also persuasive on this issue. In describing the process by which the nuts are made, Mr. Holloway testified that the nuts are in fact roasted in honey. While it is true that the nuts are not submerged in a boiling vat of honey, it is, nonetheless, true that honey solution acts as a heat conductor, thereby facilitating the roasting process.

Similarly, Eagle’s own marketing expert testified that the words “Honey Roast” would convey to the consumer the fact that the nuts were roasted in honey and, therefore, could expect that the nuts had a honey roasted flavor. In addition, not only do articles in the press employ the words descriptively, but Eagle’s own advertising uses the words in a descriptive sense.

The suggestion of honey or sweetness as an ingredient or characteristic of the nuts is a direct suggestion in the name “Honey Roast” or “Honey Roasted.” Although the process is not exactly that of nuts roasted in honey, the image conjured up by “Honey Roast” or “Honey Roasted” is a sweet, roasted nut.

“Since each tangible product carries with it a ‘psychic load’ of intangible consumer psychological expectations about the product, a mark could be ‘descriptive of the product itself or those intangible expectations, or both.” McCarthy § 11.5 at p. 443. As Allen Sherman, a member of AnheuserBusch’s New Product Development Group, testified, the term “honey” connotes “healthful,” “good for you” and “sweetness.” Thus, “Honey Roast” is also descriptive of the intangible consumer expectations plaintiffs wish to arouse with their product.

This court finds “Honey Roast” and “Honey Roasted” to be a more indirect description of a product than “Shredded Wheat”, which the Supreme Court found to be generic. See Kellogg Co. v. National Biscuit Co., 305 U.S. 111, 59 S.Ct. 109, 83 L.Ed. 73 (1938). The terms “Honey Roast” and “Honey Roasted” are most analogous to the term “Raisin Bran.” See Skinner Mfg. Co. v. Kellogg Sales Co., 143 F.2d 895 (8th Cir.), cert. denied 323 U.S. 766, 65 S.Ct. 119, 89 L.Ed. 613 (1944). They describe the characteristics of the product accurately, but do so in a slightly creative way. The terms are, however, not so imaginative or creative to be suggestive.

As noted in my Findings of Fact, I have discounted the probative value of the Ross survey somewhat due to its choice of examples on extreme ends of the range of protectable trademarks. “Pepsi”, and “M & Ms” are very strong marks, easily categorized as arbitrary or fanciful. “Aspirin” and “Cellophane” are now commonly accepted generic terms. Because of the signals given to respondents that in order to be a “brand” name, a mark had to be of the strength of “M & Ms” or “Pepsi,” I find that any conclusion that 65% of the consumers perceive “Honey Roasted” to be generic would be incorrect. This defect would not, however, apply to a conclusion that approximately 65% of the consumers perceive “Honey Roasted” to be descriptive, as that classification is a step above the “Aspirin” or “Cellophane” category. In addition, respondents were asked to choose between the terms “brand name” or “common or descriptive name” to describe each of the marks surveyed. As common names do not warrant the protection that descriptive names sometimes do, consumer response on this question could support a finding of “Honey Roast” as a descriptive mark as well as a generic mark.

Since, however, the results of the survey are confusing due to these problems, all that I will conclude from the survey as it relates to the legal categorization of the mark is that it does not contradict my findings that the “Honey Roast” mark is descriptive.

As stated earlier, trademark protection for descriptive marks is extended only where the user has proven secondary meaning. If plaintiff’s mark has not become so associated with its goods “so that the use of the same or similar marks by another company constitutes a representation that its goods come from the same source,” there is no false designation and relief will be denied. Joshua Meier Company, Inc. v. Albany Novelty Manufacturing Co., supra, 236 F.2d at 147.

The burden of proving secondary meaning is on the party asserting it. Jean Patou, Inc. v. Jacqueline Cochran, Inc., supra, 201 F.Supp. at 861. The burden is ordinarily considered a heavy one, since one result may be to deprive the public of the free use of the particular term in relation to certain products. Each case must be decided on the facts relating to the impact which the term has had on the public consciousness. Ralson Purina Company v. Thomas J. Lipton, Inc., 341 F.Supp. 129, 134 (S.D.N.Y.1972). The test of secondary meaning is whether or not the effort to create it has been effective. Carter-Wallace, Inc. v. Procter & Gamble Co., 434 F.2d 794 (9th Cir.1970); 1 Gilson, Trademark Protection and Practice, § 2.09[1]. Substantial sales volume of the product bearing the alleged mark, although relevant, is not dispositive, for a “large expenditure of money does not in itself create legally protectable rights.” Smith v. Chanel, Inc., 402 F.2d 562, 568 (9th Cir.1968).

As proof of a secondary meaning, Eagle relies on the approximately 8,000 consumer letters which I discussed earlier. As I also stated earlier, it has made no attempt to commission a survey.

Failure of a trademark owner to run a survey to support its claims of brand significance and/or likelihood of confusion, where it has the financial means of doing so, may give rise to the inference that the contents of the survey would be unfavorable, and may result in the court denying relief. See Mushroom Makers, Inc. v. R.G. Barry Corp., 441 F.Supp. 1220, 1231 (S.D.N.Y.1980); Springs Mills, Inc. v. Ultracashmere House, Ltd., 532 F.Supp. 1203, 1218, fn. 25 (S.D.N.Y.1982).

Eagle maintains that the correspondence they have received from consumers supports their contention of secondary meaning. In support of this, they offer the testimony of their marketing experts, Mr. Jerome Ohlsten and Dr. Sorensen. Both Mr. Ohlsten and Dr. Sorensen testified that because the letter writers capitalized the words “honey roast,” or used initial capitals with respect to the “h” and the “r”, or underlined both words or put them in quotation marks, this demonstrated their state of mind that they perceived “Honey Roast” to be a brand name or trademark for the product.

This evidence, however, is not probative on the issues of whether a significant portion of the consuming public has understood the term "Honey Roast” as a designation of a product emanating from a single source. As Dr. Ross testified, the set of people who wrote letters to Eagle, is not a representative sample of the relevant universe. These letters were written by persons who, in all likelihood, had a package of Eagle’s product before them. Obviously, when a consumer bothers to write to a particular manufacturer to find out where they can purchase the product which is not yet in wide distribution, the consumer is going to go to great pains to make it clear to the manufacturer in his or her letter exactly which product he or she wants. Thus, the consumers use capital letters, quotation marks and underscoring. To deduce from this that the consuming public at large perceives “Honey Roast” to be a brand name is illogical. The fact that such a letter arguably underscores “Honey Roast” to refer to Eagle’s nuts does not imply that users of other brands of nuts understand “Honey Roast” to designate Eagle's nuts, or that other users of Eagle’s nuts have such an understanding, or even that the letter writers at some time when not communicating by letter to Eagle have such an understanding. See Loctite Corporation v. National Starch and Chemical Corp., 516 F.Supp. 190, 206-207 (S.D.N.Y.1981) [5,880 consumer letters analyzed by Dr. Sorensen held not to be probative of brand awareness and secondary meaning].

Plaintiff also contends that the “fact of copying alone is sufficient to support a finding of secondary meaning, on the basis that there would be no purpose in copying a look with no associations.” Ideal Toy Corp. v. Plawner Toy Mfg. Corp., 215 U.S. P.Q. 610, 612 (D.N.J.1981), aff'd as modified, 685 F.2d 78 (3d Cir.1982).

Copying is, however, indicative of secondary meaning only where the trade dress copied is arbitrary and non-functional such as the coloring on prescription drug tablets, see, e.g., Boehringer Ingelheim GmbH v. Pharmadyne Laboratories, Inc., 532 F.Supp. 1040, 1064 (D.N.J.1980), or the design on the outside of a “Rubik’s Cube,” see Ideal Toy Corp., supra. Where the mark is chosen because it accurately describes a product, the paramount consideration is not whether it was copied but whether policy reasons are such in the case that the descriptive words used may no longer be free for public use. There is always “the danger of depleting the general vocabulary available to all for description.” Farm Service Inc. v. United States Steel Corp., 90 Idaho 570, 414 P.2d 898 (1966); Telechron Inc., supra. Although plaintiff has expended considerable sums of money-in marketing its product, the court finds that they have not met their burden of demonstrating that “Honey Roast” is viewed by the public as designating the source of the product, “Honey Roast” or “Honey Roasted” simply designates a type of product which is marketed by a number of producers. Eagle Snacks has not shown sufficient secondary meaning for the “Honey Roast” or “Honey Roasted” term to warrant deprivation of the terms’ usage for the entire snack industry. The term “Honey Roasted” is now widely used in the nut industry. While plaintiff may have been the first to market such nuts extensively, its use of the term “Honey Roast” has not been so exclusive or so extensive that it is indicative of the source of origin of the nuts.

Because I find that the descriptive mark “Honey Roast” has not acquired secondary meaning, and is therefore not a protectable mark, there is also no likelihood of confusion. Generally descriptive words may be used freely by any number of businesses in advertising directly competing products. Use of words in their descriptive sense to inform the public about the product would not confuse the public as to the source of a particular product.

Confusion in the instant case is unlikely in view of the fact that Planters honey roasted nuts are packaged and advertised prominently displaying the well-known PLANTERS and MR. PEANUT trademarks, the distinctive Planters blue and yellow trade dress and the red corner triangle Nabisco house mark. The presence of such wellknown trademarks and trade dress prominently displayed on a product may defeat a claim of likelihood of confusion, especially where the purported mark is descriptive. See Uniroyal, Inc. v. Kinney Shoe Corp., 453 F.Supp. 1352, 1355 (S.D.N.Y.1978) (no likelihood of confusion between KINNEY KIDS and KEDS for footwear). Moreover, the prominent use of the “Eagle” trademark and reference to Anheuser-Busch on all of Eagle’s packaging, advertising and promotional material for the product, must be taken into account in determining whether there is a likelihood of confusion. Eagle cannot ignore the fact that it has deliberately chosen to link “Honey Roast” with the “Eagle” trademark and the Anheuser-Busch relationship, and that it has been successful in doing so.

Because plaintiff has not carried the burden of showing that either “Honey Roast” or “Honey Roasted” is a protectable trademark, I find it unlikely that plaintiff would succeed on the merits.

There is, therefore, no need to discuss whether there is irreparable harm.

Plaintiff’s motion for a preliminary injunction is accordingly denied.


source: Caselaw Access Project

author: PLUNKETT, District Judge.

license: Public Domain

text:
    RICHMOND WHOLESALE MEAT CO., Plaintiff, v. Robert HUGHES, Michael Weinberg, Sr., Warren Dominick (each sued individually and d/b/a Weinberg Bros. Foods, Inc.), and Weinberg Bros. Foods, Inc., a dissolved Illinois corporation, Defendants.
    No. 84C10956.
    United States District Court, N.D. Illinois, E.D.
    Dec. 20, 1985.

      John H. Ward, Antonow & Fink, Chicago, 111., for plaintiff.
    Robert D. Hughes, Chicago, 111., for defendants.
   MEMORANDUM OPINION AND ORDER

PLUNKETT, District Judge.

Plaintiff, Richmond Wholesale Meat Co. (“Richmond”), brings this action against Defendants Weinberg Bros. Foods, Inc. (“Weinberg Bros.”), Michael Weinberg, Sr. (“Weinberg”), Warren Dominick (“Dominick”) and Robert Hughes (“Hughes”) (collectively “Defendants”), in a three-count amended complaint (the “complaint”), alleging breach of contract, failure to pay the amount due on an account stated, and conversion of Richmond’s property. We have jurisdiction pursuant to 28 U.S.C. § 1332.

Defendants Dominick and Hughes filed a motion for summary judgment on June 25, 1985. Richmond filed a cross-motion for summary judgment against Dominick on Counts II and III of the complaint, and also moved to strike Dominick’s and Hughes’ motion for summary judgment. In an order dated July 17, 1985, this court denied Richmond’s motion to strike the motion of Dominick and Hughes. The briefing has since been completed and, accordingly, we now turn to the parties’ cross-motions.

Facts

Although the parties have presented the court with cross-motions for summary judgment, the facts are hotly disputed. As best we can discern, Richmond, a California corporation, is in the business of purchasing and selling meat and meat products. Richmond alleges that Weinberg Bros., an Illinois corporation, was, during the relevant time period, in the business of purchasing and selling various foods, including meat and eggs. Weinberg Bros., however, denies that it purchases or sells meat.

In March 1983, Dominick and Hughes purchased all of the outstanding stock in Weinberg Bros. Foods, Inc., with Dominick owning sixty percent of the stock. Dominick was elected vice president and treasurer of the company and also functioned as chairman of the board of directors. Dominick acts as the company’s accountant. Hughes owns the other forty percent of the stock. Hughes is the secretary and also a director. In addition, he acts as the company’s attorney. Both Dominick and Hughes deny that they took an active role in the management or operation of Weinberg Bros., contending that the company was run by the president, Weinberg, until he suffered a stroke in mid-1983. At that point, they state, Alex Chiagouris (“Chiagouris”), the controller, took over the management of Weinberg Bros.

In December 1983, Weinberg Bros, was dissolved by the Secretary of State of Illinois for failing to pay franchise taxes. Richmond alleges, with supporting affidavit, that Weinberg Bros.’ registered agent received the bill for the franchise taxes, a subsequent warning from the Secretary of State that continued failure to pay would result in dissolution, and, finally, a notice of dissolution for failure to pay the tax. The affidavit further indicates that copies of these notices with explanatory cover letters were sent to Dominick by Morris Dyner, a partner of the registered agent for Weinberg Bros. Dominick denies having received any notice from the Secretary of State’s office, and thereby denies any knowledge of the dissolution of the corporation. Dominick does admit that he knows of the requirement that franchise taxes be paid periodically, and that he failed to ask Chiagouris whether the taxes had been paid. Weinberg Bros, was reinstated on December 6, 1984 and has since filed for protection under the Bankruptcy Code.

After Weinberg Bros, was dissolved, Weinberg, Dominick, and Hughes continued to do business under the name Weinberg Bros. Foods, Inc. Richmond alleges that on September 5, 1984, while Weinberg Bros, was still dissolved, Richmond sold to Weinberg Bros., on a sale or return basis, 199,200 pounds of “Sioux Preme” Brand pork chitterlings, 109,020 pounds of “Star” Brand pork spareribs and 159,810 pounds of “Jimmy Dean” brand pork spareribs, tendering its invoices for the agreed upon price for each. Richmond further alleges that on October 10, 1984 Richmond repurchased from Weinberg Bros, some of the “Jimmy Dean” brand pork spareribs. Richmond contends that, despite its repeated demands, Defendants have refused to pay the amounts due under the invoices. Meanwhile, Weinberg Bros, pledged the meat to American National Bank & Trust Co. (the “Bank”) to secure loans to Weinberg Bros. This action, Richmond alleges, was contrary to Richmond’s beneficial ownership interest remaining in the meat. The Bank thereafter foreclosed on and sold the meat to pay Weinberg Bros.’ indebtedness.

Dominick and Hughes present a completely different picture of the nature of the transaction. According to their deposition testimony and their answer to the request to admit, no sale between Richmond and Weinberg Bros, ever took place. Weinberg Bros, simply accepted a “transfer” of the products from Richmond. Similarly, they deny that Richmond “repurchased” the meat, contending instead that this too was merely a “transfer” completed at Richmond’s request. They admit that Richmond was never paid, but argue that Richmond never expected payment. Rather, the transaction represented an ongoing practice between the two companies, whereby Richmond would transfer products to Weinberg Bros, in the form of warehouse receipts so that Richmond could have a receivable on its books on which it could borrow. Weinberg would then take the negotiable warehouse receipts and borrow on them. In other words, Dominick and Hughes take the position that the two companies had a long-standing practice of double financing warehouse receipts, and Richmond suddenly decided to change that practice by demanding immediate payment. Hughes testified at his deposition that he explained to Richmond the consequences of its action, i.e., that Weinberg Bros, did not have the cash to pay off the loan, that the Bank was not going to give up the negotiable documents, and that if Richmond would not agree to continue the double financing arrangement, the Bank would undoubtedly take the collateral and sell it.

Richmond’s motion for summary judgment is brought against Dominick individually. It relies on Ill.Rev.Stat. ch. 32, § 3.20 (1985), which permits a cause of action against persons who assume to exercise corporate powers without authority. The motion is directed only at Counts II and III, alleging failure to pay the amount owing under an account stated and conversion. Dominick’s and Hughes’ motion goes to all counts, and basically argues that the statute does not operate to permit a finding of liability as to either of them. For the reasons set forth below, both motions are denied.

Discussion

We begin with a discussion of Dominick’s and Hughes’ motion. The thrust of their argument is that they cannot be held liable under § 3.20 because neither of them had any relationship with Richmond. Their position appears to be that because they did not personally enter into the arrangements with Richmond giving rise to this lawsuit, they do not come within the purview of the statute. They also insist that they had no knowledge of the dissolution. Furthermore, they contend that there is no reason to assume that they should have known about it. In support of this argument, Dominick and Hughes submit affidavits indicating that prior to their purchase of Weinberg Bros.’ stock in March 1983, they requested and received from the Secretary of State a letter indicating that the company was in good standing. Accordingly, they assert, they had no reason to suspect that the status of the company was any different at the end of 1983.

Richmond argues that Dominick and Hughes have construed the statute too narrowly. If the only persons who could be held liable under the statute were those who personally dealt with the plaintiff, then high level officers of a corporation could avoid liability simply by making sure that their subordinates performed the actual acts required to operate the corporation. Richmond urges that such a result would be unjust because it would make subordinates, who are generally not in a position to benefit from a corporation’s illegal activities, personally liable for acting at the specific or general instructions of their superiors, while those superiors, who are in a position to benefit from such activities and who are also in a better position to know whether the corporation is duly incorporated, would not be liable under the statute.

Ill.Rev.Stat. ch. 32, § 3.20 is entitled: “Unauthorized assumption of corporate powers,” and provides:

All persons who assume to exercise corporate powers without authority so to do shall be jointly and severally liable for all debts and liabilities incurred or arising as a result thereof.

We have found no Illinois authority directly addressing this issue. Richmond refers us to Steve’s Equipment Service, Inc. v. Riebrandt, 121 Ill.App.3d 66, 76 Ill.Dec. 612, 459 N.E.2d 21 (1984) and In re Estate of Plepel, 115 Ill.App.3d 803, 71 Ill.Dec. 365, 450 N.E.2d 1244 (1983); however, the defendant in both of those cases had had direct dealings with the plaintiff. In fact, in Plepel, the court expressly found that there was nothing to indicate to the claimants that they were dealing with a corporation or that the parties ever intended anything other than that the claimants should look to the individual for payment. The rule laid down by these courts is that “[a]n officer of a corporation dissolved for nonpayment of franchise taxes, who enters into contracts on behalf of the corporation after dissolution, may be held personally liable under this statute.” Steve’s Equipment, 121 Ill.App.3d at 70, 76 Ill.Dec. 612, 459 N.E.2d 21. See also Plepel, 115 Ill.App.3d at 806, 71 Ill.Dec. 365, 450 N.E.2d 1244. Dominick’s and Hughes’ motion is based on the very fact that they did not enter into any contracts on behalf of the corporation. Accordingly, these cases do not govern this situation.

A review of the law in other jurisdictions reveals that several other states have statutes quite similar to § 3.20, and these statutes have been subject to a variety of interpretations. In Futch v. Southern Stores, Inc., 380 So.2d 444, 446 (Fla.1979) for example, the court construed a Florida statute virtually identical to § 3.20 to mean that directors, officers, and agents of a dissolved corporation cannot be held personally liable in the absence of a showing that the creditor relied upon individual assets of the persons acting as a corporation. However, a different appellate district in Florida rejected that interpretation, finding no support for it in the language of the statute. Mobil Oil Corp. v. Thoss, 385 So.2d 726, 727 (Fla.1980). See also Moore v. Occupational Safety and Health Review Commission, 591 F.2d 991, 994-995 (4th Cir.1979) (describing different interpretations in different jurisdictions).

In Timberline Equipment Co. v. Davenport, 267 Or. 64, 514 P.2d 1109 (1973), the Oregon Supreme Court interpreted the following provision of the Oregon Business Corporation Act:

All persons who assume to act as a corporation without the authority of a certificate of incorporation issued by the Corporation Commissioner, shall be jointly and severally liable for all debts and liabilities incurred or arising as a result thereof.

The court found the language ambiguous, but concluded that:

the category of “persons who assume to act as a corporation” does not include those whose only connection with the organization is as an investor. On the other hand, the restriction of liability to those who personally incurred the obligation sued upon cannot be based upon logic or the realities of business practice. When several people carry on the activities of a defectively organized corporation, chance frequently will dictate which of the several active principals directly incurs a certain obligation or whether an employee, rather than an active principal, personally incurs the obligation.
We are of the opinion that the phrase “persons who assume to act as a corporation” should be interpreted to include those persons who have an investment in the organization and who actively participate in the policy and operational decisions of the organization. Liability should not necessarily be restricted to the person who personally incurred the obligation.

Id. 514 P.2d at 1114.

The language of the Oregon statute differs somewhat from § 3.20 in that the Oregon statute appears to address only the situation in which the individuals act as a corporation where the incorporation is defective, and not necessarily the situation in which individuals act as a corporation after that corporation is dissolved. Nonetheless, the court’s reasoning as to the personal liability of the individuals carries over into this context as well, and it has been so held. In Flanagan v. Jackson Wholesale Building Supply Co., 461 So.2d 761, 763 (Miss.1984), the court expressly-adopted the Timberline court’s interpretation of the phrase “persons who assume to act as a corporation” in construing Miss. Code Ann. § 79-3-285 (1972), which provides:

All persons who assume to act as a corporation without authority so to do shall be jointly and severally liable for all debts and liabilities incurred or arising as a result thereof.

We think the logic of these holdings is inescapable, and we too adopt this construction of the statutory language. We further find that Hughes and Dominick both had an investment in Weinberg Bros., as they own all the stock, and that, despite their protestations to the contrary, they were actively involved in the management of the company. It appears that all checks required one of their signatures, as did all warehouse receipts endorsed over to the bank. Dominick also apparently had a great deal of contact with the Bank regarding the pledging of the meat as collateral for a loan. Such involvement by an individual while the corporation was dissolved was deemed sufficient to hold the defendant liable in Timberline, and we find such actions to be sufficient in this case. Thus, we find that Dominick and Hughes could be held personally liable under § 3.20.

Dominick and Hughes argue that even if § 3.20 is found to apply to them, they still cannot be held liable because they did not know of the corporation’s dissolution, and had no reason to know of it. The argument raises an issue as to the scope of liability under the statute. The court in Steve’s Equipment Service, Inc. v. Riebrandt, 121 Ill.App.3d 66, 70, 76 Ill.Dec. 612, 459 N.E.2d 21 (1984) addressed this issue in considering the predecessor to § 3.20 and found “the better rule to be that a person who enters a contract on behalf of an involuntarily dissolved corporation is only personally liable under section 150 of the Business Corporation Act ... when, at the time he enters the contract, he knows, or because of his position should know, of the dissolution.”

Although our holding expands the potential for liability beyond that indicated by the court in Steve’s Equipment to include persons other than those who actually enter into contracts on behalf of a dissolved corporation, we agree with that court’s holding that some element of knowledge, whether actual or constructive, is required by the statute. (Indeed, our expansion of the potential liability makes this requirement all the more compelling.) The statute does not say “all persons who exercise corporate powers,” it says “all persons who assume to exercise corporate powers.” This to us implies a necessary element of knowledge or constructive knowledge.

Our finding does not result in summary judgment for Dominick and Hughes, however, because whether they knew or should have known of the corporation’s dissolution is a disputed issue of material fact. Should all the evidence indicate that Dominick and Hughes were actively operating the corporation while it was dissolved, and did know or should have known of the dissolution, they might well be found personally liable to Richmond. Accordingly, their motion for summary judgment is denied.

Because of the disputed issue as to Dominick’s knowledge, Richmond’s cross-motion must also be denied. Although we have held that an individual need not personally have incurred the obligation to be held liable under § 3.20, we have also held that the defendant must know, or because of his position should know, of the corporation’s dissolution. Dominick strenuously denies any knowledge of Weinberg Bros.’ dissolution, and further argues that there is no reason to attribute knowledge to him. A motion for summary judgment is appropriate when there is no genuine issue as to any material fact. Fed.R.Civ.P. Rule 56(c). Because Dominick’s knowledge of the dissolution is both material and disputed, Richmond’s motion for summary judgment is denied.

In addition, we would deny Richmond’s motion even if Dominick’s knowledge were not in dispute because it is unclear at this point whether Richmond has established the corporation’s liability. If Weinberg Bros, is not liable to Richmond, we need never reach the secondary question of personal liability.

Richmond’s motion premises liability on an account stated theory and on a conversion theory. An account stated has been defined as an agreement between parties who have had previous transactions that the account representing these transactions is true, so that the balance is correct, together with a promise, express or implied, to pay the balance. See Allied Wire Products, Inc. v. Marketing Techniques, Inc., 99 Ill.App.3d 29, 54 Ill.Dec. 385, 393, 424 N.E.2d 1288, 1296 (1981); Atria v. Geist, 64 Ill.App.3d 88, 21 Ill.Dec. 11, 15, 380 N.E.2d 1187, 1191 (1978); Soft Water Service, Inc. v. M. Suson Enterprises, Inc., 39 Ill.App.3d 1035, 351 N.E.2d 264, 268 (1976). An account stated may not be made the instrument to create an original liability; the whole point of an account stated is that it merely determines the amount of the debt where liability previously existed. See Allied Wire Products, 54 Ill.Dec. at 393-94, 424 N.E.2d at 1296-97.

Defendants have consistently disputed their liability to Richmond. They contest Richmond’s assertions that a sale ever took place and that Richmond was owed any money. Richmond points out that Hughes met with Richmond’s counsel in a restaurant in December 1984 and admitted that Weinberg Bros, owed Richmond the money and that he would help to see that it was paid. Richmond contends that an account stated was then established. In light of the widely divergent views as to the nature of the transaction, we think such an approach is too formalistic. At Hughes’ deposition, he conceded to making the extrajudicial admission, but indicated that he had learned a great deal about Richmond’s ongoing practice with Weinberg Bros, since then and was no longer certain that Weinberg Bros, owed Richmond any money. In our view, Hughes’ admission is insufficient to overcome the dispute that pervades this entire lawsuit; i.e., whether the deal was in the nature of a sale, as argued by Richmond, or simply a bookkeeping transfer, as argued by Weinberg Bros. This dispute cannot be resolved on a motion for summary judgment, and therefore, Weinberg Bros.’ underlying liability has not yet been established. Accordingly, Richmond’s claim on an account stated theory cannot prevail on summary judgment.

Richmond’s conversion claim has similar flaws. To state a claim for conversion, there must be an unauthorized assumption of the right to possession or ownership. Dickson v. Riebling, 30 Ill.App.3d 965, 333 N.E.2d 646, 648 (1975); Hobson’s Truck Sales, Inc. v. Carroll Trucking, Inc., 2 Ill.App.3d 978, 276 N.E.2d 89 (1971). We cannot tell whether there has been such an unauthorized assumption because it is unclear what the parties’ respective ownership interests were after the “sale” or “transfer.” Richmond refers to Dominick’s deposition, in which he indicated that he thought Richmond retained a beneficial ownership interest in the meat and that Weinberg Bros, owed Richmond the money. Richmond makes much of the fact that Dominick is an accountant and has earned a J.D. degree. However, we do not feel bound by Dominick’s legal conclusions as to which party had title to the meat. A review of the papers presented to us indicates that nobody is truly certain. Accordingly, summary judgment on Richmond’s conversion claim is inappropriate.

Conclusion

For all the foregoing reasons, the parties’ cross-motions for summary judgment are denied.

      . Richmond concedes that there is a disputed question of fact as to Hughes’ knowledge. Therefore, their cross-motion is directed only against Dominick.

      . Fla.Stat. § 607.397 (1977) provides:
      All persons who assume to act as a corporation without authority to do so shall be jointly and severally liable for all debts and liabilities incurred or arising as a result thereof.

      . We do not see any difference of significance between language implicating "all persons who assume to act as a corporation” and "all persons who assume to exercise corporate powers.”


author: LOUGHLIN, District Judge.

text:
    UNITED STATES of America, ex rel. Harold LaVALLEY, Robert Watts and Gilbert D. Beinhocker v. The FIRST NATIONAL BANK OF BOSTON.
    No. C85-357-L.
    United States District Court, D. New Hampshire.
    Dec. 20, 1985.

      Michael C. Harvell, Wiliiam J. Donovan, Sheehan, Phinney, Bass & Green P.A., Manchester, N.H., for plaintiffs.
    E. Susan Garsh, Thomas H. Walsh, Jr., Andrea H. Maislen, Bingham, Dana & Gould, Boston, Mass., for defendant.
   ORDER ON MOTION TO DISMISS OR, IN THE ALTERNATIVE, TO TRANSFER

LOUGHLIN, District Judge.

The defendant, First National Bank of Boston (FNBB), a national banking association with principal offices in Massachusetts, moves pursuant to Fed.R.Civ.P. 12(b)(2), (3), and 12(d) to dismiss this action for improper venue and lack of in person-am jurisdiction. Alternatively, the defendant requests the action be transferred to the District of Massachusetts pursuant to 28 U.S.C. § 1404(a).

The facts are briefly as follows. The plaintiff Relators, Harold La Valley, Robert Watts and Gilbert Beinhocker have filed this action on behalf of the United States government under the qui tarn provisions of the False Claims Act, 31 U.S.C. § 3730, to recover sums paid by the Farmer’s Home Administration (FmHA) under the terms of a loan guarantee by FNBB to the Elmdorf Board Corporation of Claremont, New Hampshire (Elmdorf). The complaint alleges FNBB fraudulently induced the FmHA to guarantee 90% of a loan made by FNBB to Elmdorf.

The initial issue to be considered by the court is defendant’s motion to dismiss for lack of jurisdiction over the person, pursuant to Fed.R.Civ.P. 12(b)(2).

To sustain in personam jurisdiction over a foreign corporation, the court must find both that personal jurisdiction is authorized by the local statute and that the exercise of such jurisdiction does not violate the due process requirement that the nonresident defendant have certain “minimum contacts” with the forum state.

Commonwealth of Puerto Rico v. S.S. Zoe Colocotroni, 628 F.2d 652, 667 (1st Cir.1980) (citing World Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 289, 100 S.Ct. 559, 563, 62 L.Ed.2d 490 (1980); International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945)). Thus, the inquiry for in personam jurisdiction is twofold; (1) whether FNBB is reached by the New Hampshire “long-arm” statute for foreign corporations, and (2) whether FNBB has the required “minimum contacts” with New Hampshire required by due process.

The New Hampshire “long-arm” statute reads:

If a foreign corporation makes a contract to be performed in whole or in part by either party in New Hampshire, or if the foreign corporation commits a tort in whole or in part in New Hampshire, the acts shall be deemed to be doing business in New Hampshire by the foreign corporation and shall be deemed equivalent to the appointment by the foreign corporation of the secretary of the state of New Hampshire and his successors to be its true and lawful attorney upon whom may be served all lawful process in any actions or proceedings against the foreign corporation arising from or growing out of the contract or tort. The making of a contract or the committing of a tort shall be deemed to be the agreement of the foreign corporation that any process against it which is served upon the secretary of state shall be of the same legal force and effect as if served on the foreign corporation at its principal place of business in the state or country where it is incorporated and according to the law of that state or country.

N.H. RSA § 293-A:121 (Supp.1983).

The defendant contends New Hampshire cannot assert personal jurisdiction because the alleged tort relates exclusively to actions occurring outside New Hampshire, specifically, the demand for payment submitted by FNBB in Massachusetts to the FmHA Vermont Regional office. The court is not persuaded that the defendant has correctly interpreted the statute. FNBB had contracted with Elmdorf in New Hampshire. It structured a loan for Elmdorf, a New Hampshire corporation. The False Claims action, alleging FNBB fraudulently induced the FmHA to guarantee 90% of that loan assuredly arises or grows out of that loan agreement between FNBB and Elmdorf.

RSA § 293-A:121 is to be broadly construed and jurisdiction over foreign corporations should be allowed to the full extent of constitutional limits. Papafagos v. Fiat Auto S.p.A, 568 F.Supp. 692, 694 (D.N.H.1983) (citing Cove-Craft Industries v. B.L. Armstrong Co. Ltd., 120 N.H. 195, 198, 412 A.2d 1028 (1980); Engineering Associates v. B & L Liquidating Corp., 115 N.H. 508, 511, 345 A.2d 900 (1975)).

Thus defendant was doing business in New Hampshire within the meaning of the long-arm statute and this court may assert in personam jurisdiction over defendant. Service of process upon the Secretary of State was proper. Such was made on June 11, 1985.

The second step of this inquiry is whether the exercise of New Hampshire’s “long-arm” jurisdiction violates the due process requirement that the defendant have sufficient contacts with New Hampshire. These contacts “must be such that the assertion of jurisdiction comports with the ‘traditional notions of fair play and substantial justice.’ ” World Wide Volkswagen, 444 U.S. at 292, 100 S.Ct. at 564 (citing International Shoe, 326 U.S. at 316, 66 S.Ct. at 158). The plaintiff asserts that the defendant’s business contacts are of sufficient magnitude to satisfy both the statutory and constitutional requirements for New Hampshire to assert jurisdiction over FNBB. This court agrees with that conclusion. “The essential constitutional question is whether ... [the defendant] ‘purposefully availed] itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.’ ” Colocotroni, 628 F.2d at 668 (quoting Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1239, 2 L.Ed.2d 1283 (1958)).

According to the affidavit of T. McLean Griffin, Senior Vice President of FNBB and general counsel for the defendant, FNBB’s activities within New Hampshire consist of soliciting and servicing credit card accounts, servicing and obtaining commercial and consumer loan customers, owning “Mo-nee” automatic teller terminals, and contracting with various financial and retail establishments within the state concerning the operation and maintenance of those terminals, acting as co-manager with respect to a bond issue by the State, and providing financial advice to various communities and public entities within the state. Affidavit of Griffin, at 2 (Sept. 6, 1985).

The defendant’s activities within New Hampshire are continuous and systematic and can in no way be regarded as irregular or casual contact with the state. See International Shoe, 326 U.S. at 320, 66 S.Ct. at 160. The defendant, by exercising the privilege of conducting such business within New Hampshire, enjoys the benefits and protection of its laws. That privilege gives rise to obligations, and “a procedure which requires the corporation to respond to a suit brought to enforce [those obligations] can, in most instance, hardly be said to be undue.” Id. at 319, 66 S.Ct. at 160. In this factual context, the exercise of in person-am jurisdiction over FNBB pursuant to RSA § 293-A:121 does not offend traditional notions of fair play and substantial justice.

Defendant’s motion to dismiss for lack of personal jurisdiction (Doc. # 13) is hereby denied.

The defendant also seeks to dismiss for improper venue, pursuant to Fed.R.Civ.P. 12(b)(3). The False Claims Act contains the following venue requirement:

Trial is in the judicial district within whose jurisdictional limits the person charged with a violation is found or the violation occurs.

31 U.S.C. § 3730(b)(1).

Apparently, there exists a paucity of cases interpreting the venue provision of the False Claims Act. Nonetheless, the court concludes that FNBB is “found within the jurisdictional limits” of this court for venue purposes. The defendant is subject to jurisdiction under the New Hampshire “long-arm” statute, RSA § 293-A:121. Given the defendant’s systematic and continuous business presence within New Hampshire, the invocation of personal jurisdiction over FNBB does not violate defendant’s due process rights. Although FNBB arguably has no physical presence within the State, the magnitude of defendant’s contacts within New Hampshire are sufficient for it to be “found” there for venue purposes.

Venue is therefore properly in New Hampshire. The defendant’s motion to dismiss for improper venue (Doc. # 13) is hereby denied.

In the alternative, the defendant asks the court to transfer this action to the District of Massachusetts pursuant to 28 U.S.C. § 1404(a). That section provides for change of venue:

For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.

28 U.S.C. § 1404(a).

A determination on the appropriateness as to change of venue is a matter within the court’s discretion. Galonis v. National Broadcasting Co., Inc., 498 F.Supp. 789, 792 (D.N.H.1980). See also Garrett v. Ruth Originals Corp., 456 F.Supp. 376, 384 (S.D.Ohio 1978). There is no question that this action might have been brought in the District of Massachusetts. What remains to be examined are the “convenience of parties and witnesses”, and the “interest of justice”. Galonis, 498 F.Supp. at 792.

“Under section 1404(a), the court may transfer an action to a more suitable forum when the plaintiff’s choice of forum ... probably will work a substantial hardship upon the defendant and the witnesses, which hardship cannot be justified by a showing of countervailing convenience or necessity on the plaintiff’s part.” United States v. General Motors Corp., 183 F.Supp. 858, 860 (S.D.N.Y.1960). The plaintiff’s choice of forum is a factor to be considered, but carries less weight than under the doctrine of forum non conveniens. Norwood v. Kirkpatrick, 349 U.S. 29, 32, 75 S.Ct. 544, 546, 99 L.Ed. 789 (1955). The plaintiffs in the instant case are asserting the rights of the real party in interest, the United States Government, pursuant to the qui tarn provision of the False Claims Act. As such, the court believes the plaintiffs’ choice of forum should be given relatively little weight.

There is pending in the District Court of Massachusetts a similar companion action filed by Eugene Demchenko. The action pending before this court was filed prior to plaintiff Demchenko’s action. Eugene Demchenko, a relator and potential witness in the instant litigation, is a resident of Massachusetts. Two of the three plaintiffs in the instant case also reside in Massachusetts. Plaintiff Demchenko’s action apparently arises from the same set of facts. Many, if not all of the witnesses needed in the instant case will also be required to travel to Massachusetts. Finally, some of the witnesses for both the defense and the plaintiffs live or work in Massachusetts. The witness from the FmHA’s Vermont office will in all probability travel to Massachusetts for the action filed there.

The plaintiffs in this case have not convinced the court that the convenience of the parties and witnesses involved would be best served by keeping this action in New Hampshire. “The plaintiff may not, by choice of an inconvenient forum, inflict upon the defendant expense and trouble not necessary to plaintiff’s own right to pursue his remedy.” General Motors Corp. 183 F.Supp. at 860 (citing Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508, 67 S.Ct. 839, 843, 91 L.Ed. 1055 (1947); Koster v. (American) Lumbermens Mutual Casualty Co., 330 U.S. 518, 531-32, 67 S.Ct. 828, 835-36, 91 L.Ed. 1067 (1947)). The interest of justice will best be served by transferring this case to the district wherein a companion case has been filed.

The court further notes that if venue were improper in New Hampshire, this court has the authority to make such a transfer, in the interest of justice, to a district where it might have been brought, pursuant to 28 U.S.C. § 1406(a). That section states:

The district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought.

42 U.S.C. § 1406(a).

Accordingly, this action Civ. No. C-85-357-L, is hereby transferred to the District of Massachusetts pursuant to 28 U.S.C. § 1404(a).