Federal Court Decisions in the Advertising Law, Marketing Law and Commercial Speech Areas

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Lanham Act, New York Common Law and General Business Law - Statements by Lawyers in Advertisements - Federal Court Decision - Full Text

02 Civ. 4090 (JSM)

United States District Court for the Southern District of New York

August 16, 2002, Decided August 19, 2002, Filed

Memorandum Opinion And Order

John S. Martin, Jr., District Judge:

Plaintiffs Societe Des Hotels Meridien, Meridien S.A., Meridien Hotels, Inc., MHI Leasco Dallas, Inc., and MHI Leasco New Orleans (together, "Meridien") bring this motion to temporarily restrain and preliminarily enjoin Defendants LaSalle Hotel Operating Partnership, L.P., LHO New Orleans LM, L.P., LHO New Orleans Financing, Inc., LHO Financing Partnership I, L.P., LHO Financing Inc., LaSalle Partners Limited, LRP Dallas Hotel Limited Partnership, LaSalle Hotel Properties, Inc., Michael D. Barnello, Jon Bortz, Hans Weger (together "LaSalle"), and Starwood Hotels and Resorts Worldwide, Inc. ("Starwood") from publishing advertisements and other publications that falsely designate hotel properties at 614 Canal Street in New Orleans and 650 North Pearl Street in Dallas as being part of the Starwood hotel group. They also seek to enjoin Defendants from infringing and diluting Plaintiffs' trademarks in violation of the Lanham Act and New York law by reverse palming off, unfair competition and false advertisement. Plaintiffs also seek to enjoin Defendants from tortiously interfering with Plaintiffs' existing contractual relations and current and prospective business relations. Finally, Plaintiffs seek expedited discovery to determine to what extent Defendants are interfering with Plaintiffs' facilities and relationships with customers, employees and vendors.

For the reasons stated below, Plaintiffs' motion for a temporary restraining order and preliminary injunction and expedited discovery are denied.

Background

The parties currently before this Court are engaged in extensive litigation in Louisiana state court, in state court in Dallas, before the Texas Justice of the Peace Court, and soon before an arbitration panel in New York City. Although the underlying litigations are not the subject of this action, an understanding of the underlying dispute is necessary to rule on the merits of Plaintiffs' motion.

The parties' litigation concerns whether Meridien is unlawfully occupying the LaSalle-owned properties in Dallas and in New Orleans. Meridien had a lease with LaSalle allowing them to manage those properties as Meridien hotels through 2008. Under a change of ownership provision in the lease, LaSalle is entitled to buy out Meridien's interest in the property if there is a change in ownership of Meridien. (Lease, P 22.22.) If there is a transfer of Meridien's interest, notice must be given to LaSalle. This Notice triggers LaSalle's right as owner of the Hotels to purchase the Meridien interest at "Fair Market Value," and to assume control of the Hotels. Under Section 22.22(e), the parties agreed to close on the Purchase within sixty days, thus terminating Tenant's possession of the Hotels. Under Sections 22.22(f) and 22.23, if the parties do not agree on Fair Market Value, the issue goes to arbitration.

At issue in pending litigations in Louisiana and Texas is whether LaSalle properly terminated the lease, in which case Meridien is illegally occupying the LaSalle properties, or whether LaSalle's failure to pay Meridien the fair market value of Meridien's interest in the lease and properly close on the lease entitles Meridien to remain in the building.

Plaintiffs' claims in this action center around a Starwood hotel directory which lists the New Orleans and Dallas properties as Westin hotels (Westin is the brand name for hotels and resorts operated by Starwood), and statements made by representatives of LaSalle about the conversion of the Dallas and New Orleans properties to Westin-managed hotels.

Discussion

 Plaintiffs are entitled to a preliminary injunction upon showing:

both possible irreparable injury and either (1) a likelihood of success on the merits or (2) sufficiently serious questions going to the merits to make a fair ground for litigation and a balance of hardships tipping in the movant's favor. Stormy Clime, Ltd. v. Progroup, Inc., 809 F.2d 971, 973 (2d Cir. 1987) (quoting LeSportsac, Inc. v. K Mart Corp., 754 F.2d 71, 76 (2d Cir. 1985)).

I. Lanham Act Claims

Plaintiffs have sued both Starwood and LaSalle for various violations of the Lanham Act and violations of New York common law and General Business Law. Plaintiffs' claims against Starwood are for the publication of their "2002 Starwood Hotels & Resorts Worldwide Directory" which includes pictures of the LaSalle buildings in Dallas and New Orleans, labeled as Westin hotels. Inclusion of these pictures in the 2002 Directory was based on the fact that Starwood and LaSalle have executed a management contract stating that Starwood will operate these properties once Plaintiffs vacate the premises. (Affidavit of Steven Dubroff, P 8.) The pictures do not show the Meridien signs which currently mark these buildings as Meridien-run hotels. Plaintiffs have also sued LaSalle for statements made to the press and in SEC filings representing that the LaSalle properties in New Orleans and Dallas will be converted to Westin hotels.

 In order to succeed on most of the Lanham Act or New York trademark claims, Plaintiffs must show customer confusion. See Johnson & Johnson * Merck Consumer Pharm. Co. v. Smithkline Beecham Corp., 960 F.2d 294, 297 (2d Cir. 1992) (in false advertisement claim an advertisement must be literally false or, if true, likely to mislead or confuse consumers); Windsor, Inc. v. Intravco Travel Ctrs., Inc., 799 F. Supp. 1513, 1521 fn.2 (S.D.N.Y. 1992) ("the likelihood of confusion standard governs both trademark infringement and unfair competition claims brought under the Lanham Act").

In order to determine the likelihood of consumer confusion, courts employ a set of eight factors "designed to help grapple with the 'vexing' problem of resolving the likelihood of confusion issue." Lois Sportswear, U.S.A., Inc. v. Levi Strauss & Co., 799 F.2d 867, 872 (2d Cir. 1986) (citing Polaroid Corp. v. Polarad Electronics Corp., 287 F.2d 492, 495 (2d Cir.), cert. denied, 368 U.S. 820, 82 S. Ct. 36, 7 L. Ed. 2d 25 (1961)). Use of the factors does not follow some rigid formula, but rather must be viewed in context and used to "bear[] on the ultimate question of likelihood of confusion as to the source of the product." Id. In this case, an analysis of the Polaroid factors shows that Plaintiffs are not likely to succeed on their claim of consumer confusion and consequently, are not likely to succeed on their Lanham Act or New York state law claims.

A. Polaroid Factors

The difficulty with Plaintiffs' case is apparent upon analysis of the Polaroid factors. The fact that the Defendants do not use Plaintiffs' trademark means that some of the Polaroid factors are not even relevant to the current case.

1. Strength of the Mark

The first factor to consider is the strength of the mark. As Plaintiffs point out, there is no question about the strength of the Meridien mark. What Plaintiffs fail to note, however, is that Starwood does not use the Meridien mark. Starwood's directory shows a picture of the LaSalle properties in Dallas and New Orleans with no demarcation that it is a Meridien hotel. Meridien has not argued that there is anything distinctive about the buildings they rent that would tell a consumer that these are Meridien hotels.

While LaSalle used the Meridien name to state that they are planning to transition their properties from Meridien to Westin hotels this does not constitute an infringing use of Plaintiffs' mark. Under trademark law, it is a "fair use" when a Defendant uses a party's trademark to "describe the goods or services" of that party. 15 U.S.C. @ 1115(b)(4).

2. Degree of Similarity

Because Starwood has not used Plaintiffs' trademark in their Starwood directory, there is no issue as to the similarity of the two marks. LaSalle's use of the Meridien mark was only to identify the current managers of the properties. There is nothing in the record to suggest LaSalle has used the Meridien mark in a confusing manner.

3. Proximity

Proximity is one of the two factors that weighs in Meridien's favor. Proximity "addresses whether, due to the commercial proximity of the competitive products, consumers may be confused as to their source." Hasbro, Inc. v. Lanard Toys, Ltd., 858 F.2d 70, 77 (2d Cir. 1988). It is possible that a consumer picking up the Starwood directory and making a reservation with Meridien will neither take the time nor have the inclination to clear up the connection between the two hotel managers and instead will assume that the two are associated. Whatever erosion of Meridien's distinct identity this causes is presumed to cause harm to Meridien. See Home Box Office, Inc. v. Showtime/The Movie Channel, Inc., 832 F.2d 1311, 1314 (2d Cir. 1987; Deere & Co. v. MTD Prods., Inc., 860 F. Supp. 113, 122 (S.D.N.Y.), aff'd, 41 F.3d 39 (2d Cir. 1994).

4. Bridging the Gap

 The fourth Polaroid factor--bridging the gap--is closely related to the proximity factor. This factor also weighs in favor of Meridien because Meridien and Westin operate in the same market. See Hasbro, Inc., 858 F.2d at 78. The problem with both of these factors is that Plaintiffs have offered no evidence to indicate that a large number of consumers might be confused. Under the Lanham Act the issue is whether "an appreciable number of ordinary prudent purchasers" are likely to be confused as to the source of a product or service. Windsor, Inc., 799 F. Supp. at 1521 (citing Western Pub. Co. v. Rose Art Indus., Inc., 910 F.2d 57, 59 (2d Cir. 1990)). Meridien has not indicated that they will be able to show that "an appreciable number" of consumers have or will be confused.

5. Good Faith

 The good faith factor measures "the junior user's good faith in adopting the mark." Lois Sportswear, U.S.A., Inc., 799 F.2d at 875 (2d Cir. 1986). In this case, Starwood did not use Meridien's mark and LaSalle engaged in fair use. Because no one ever adopted Meridien's mark, and Starwood's clear intent was to avoid using Meridien's mark, this factor does not weigh in Meridien's favor.

6. Relative Quality of the Products

 This factor enables the trademark holder to protect the "good reputation associated with [its] mark from the possibility of being tarnished by inferior merchandise." Scarves by Vera, Inc. v. Todo Imports, Ltd., 544 F.2d 1167, 1172 (2d Cir. 1976). If anyone books a room in the Meridien through the Starwood directory, the confusion will be lifted upon checking into the room. At present, the hotel is still operated by Meridien. Meridien still has control over the quality of the rooms and services. Therefore, whatever harm might occur is avoided because the consumer will not associate Meridien with some inferior Westin hotel because the consumer is staying in a Meridien hotel.

7. Sophistication of Consumers

Determining which way to factor the sophistication of the Meridien and Westin consumer is difficult in the absence of the use of Plaintiffs' trademark. Generally, a sophisticated buyer is likely to transfer good will from the senior user to the infringer when the buyer encounters the similar or infringing trademark. See Grotrian, Helfferich, Schultz, Th. Steinweg Nachf. v. Steinway & Sons, 523 F.2d 1331, 1342 (2d Cir. 1975). This factor has little relevance in this case because the consumer is only exposed to Meridien's trademark and Meridien's service.

8. Actual Confusion

Actual confusion is probably the most important factor in this unique "trademark" case. While Plaintiffs have submitted several affidavits attesting to the confusion surrounding whether the LaSalle properties are Meridien or Westin hotels, employee and vendor confusion comes as much from the uncertainty engendered by the litigation surrounding the lease disputes as it does from any statements by LaSalle executives or from pictures in the Starwood directory.

The actual consumer confusion that has occurred as a result of the Starwood directory is not the usual confusion anticipated by the trademark laws whereby someone uses another company's trademark in an attempt to confuse the consumer into buying the infringer's product. Nowhere have Defendants coopted Plaintiffs' mark to try and lead consumers to believe a Westin product is a Meridien product. In this case, whatever confusion occurs happens when a consumer who reads the Starwood directory tries to book a Starwood-run hotel, but in fact reaches the Meridien reservation desk. This temporary direction of business to Meridien does it no harm.

Once at the hotel, a potentially-confused consumer is greeted by Meridien personnel, is treated to Meridien service and uses Meridien towels. Meridien has complete control over the quality of the product that this once-confused consumer is exposed to. Therefore, while there is a small risk of confusion to the small share of consumers who book a room in one of the two Meridien-run hotels because of an advertisement in the Starwood directory of over 750 properties, there is no danger that the consumer will be exposed to an "inferior" Starwood service which will become associated in their mind with Meridien. Meridien has control over the product that the buyer receives and the risk anticipated by the Lanham Act that the trademark's value will be diminished is not present. In fact, Meridien will have the opportunity to expose patrons who sought out a Starwood hotel to the luxury of a Meridien hotel, and potentially reap a benefit from the confusion that Starwood has engendered.

Because Plaintiff has not shown likelihood of success or sufficiently serious questions going to the merits to make a fair ground for litigation with respect to consumer confusion, Plaintiff cannot satisfy the burden of proof for a preliminary injunction on the Lanham Act claims. fn1

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fn1 Plaintiffs do not show likelihood of success on the state law claims of unfair competition, reverse palming off, or false advertising for the same reasons that they fail to show likelihood of success on the federal claims. See Weight Watchers Int'l, Inc. v. Stouffer Corp., 744 F. Supp. 1259, 1283 (S.D.N.Y. 1990)(state law claim for unfair competition resembles Lanham Act claim, but requires "an additional element of bad faith or intent."); Kregos v. Assoc. Press, 795 F. Supp. 1325, 1336 (S.D.N.Y. 1992)(standards for New York claim of passing off identical to Lanham Act standards); Winner Intern'l, LLC v. Omori Enter., Inc., 60 F. Supp. 2d 62, 74 (S.D.N.Y. 1999)(New York's false advertising requires misleading practice and injury). Plaintiffs do not have to show likelihood of confusion on the state anti-dilution laws, but they do have to show Defendants used the mark, which Defendants in this case have not. See Deere & Comp., 860 F. Supp. at 118.

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B. False Advertising

The one Lanham Act claim for which Plaintiffs may not have to show consumer confusion is for a "literally false" false advertising claim. 15 U.S.C. @ 1125 (a)(1)(B). A claim for false advertising is stated if "the challenged advertisement is literally false, or (2) while the advertisement is literally true it is nevertheless likely to mislead or confuse consumers." Johnson & Johnson * Merck Consumer Pharm. Co., 960 F.2d at 297.

The statements issued by the LaSalle Defendants are literally true. LaSalle does expect the properties to be converted to Westin hotels and Plaintiffs cannot keep Defendants from discussing their business plans by claiming false advertising. If the "advertisement" is literally true, then Plaintiffs' must show it is "likely to mislead or confuse consumers." Id. While Plaintiffs' have claimed consumers are confused, they have offered insufficient evidence to show that this confusion likely stems from statements made by the LaSalle Defendants. The standard for New York's false advertising claim requires Plaintiffs to show they were harmed by Defendants' misleading statements. Winner Int'l, LLC v. Omori Enter., Inc., 60 F. Supp.2d 62, 74 (S.D.N.Y. 1999). Plaintiffs also fail to show likelihood of success on the state claim.

With respect to the Starwood Defendant, Plaintiffs' case is stronger. Defendant's advertisement of the LaSalle properties as a Westin-run hotel is neither literally true nor literally false. The picture is more complicated than that. Westin does have a contract to manage those properties, but, from their perspective, they cannot do so because Meridien is an unlawful holdover tenant. Nonetheless, the directory lists the buildings as Westin hotels, but if you dial the phone number advertised by Starwood, you will reach a Meridien-run hotel.

If this were a "literally false" claim, Plaintiffs would not have to show irreparable harm in order to obtain a preliminary injunction. See McNeil-P.C.C., Inc. v. Bristol-Myers Squibb Co., 938 F.2d 1544, 1549 (2d Cir. 1991). Because the legal status of Meridien as operator of that hotel is in dispute, this is not a literally false statement and Plaintiffs must make some showing of harm. Cf. Johnson & Johnson * Merck Pharm., 960 F.2d at 297 (when theory of recovery is based on an implied falsehood, plaintiff must show that statements mislead or confuse). Plaintiffs fail to make this showing. Rather than harm, Plaintiffs get a benefit when potential Starwood customers make a reservation with Meridien. As discussed earlier, there is also no risk of patrons associating any inferior quality with their Meridien experience because once they check in to the hotel, the quality of their stay is determined by Meridien.

II. Tortious Interference Claims

Plaintiffs have also failed to demonstrate a likelihood of success on their tortious interference with current and prospective business relations claims. Plaintiffs' tortious interference with existing contractual relations requires a showing that a defendant intentionally procured a third-party's breach of an existing contract with the plaintiff. World Wrestling Fed'n Entertainment, Inc. v. Bozell, 142 F. Supp. 2d 514, 531 (S.D.N.Y. 2001).

Plaintiffs' have not made such a showing. In an intentional interference with prospective relations, Plaintiffs must show that "defendants acted with the sole purpose of harming plaintiff or used dishonest, unfair, or improper means." World Wrestling Fed'n, 142 F. Supp.2d at 532. As discussed above, Plaintiffs have not demonstrated a likelihood of success on their showing of harm when receiving reservations through Starwood's directory.

Conclusion

Because Plaintiffs have failed to demonstrate either a likelihood of success on the merits or sufficiently serious questions going to the merits to make a fair ground for litigation, Plaintiffs' motion for a temporary restraining order and a preliminary injunction is denied. Additionally, Plaintiffs' request for "an order granting narrowly tailored, expedited discovery to accommodate their request for a preliminary injunction" (Plaintiff's Mem. in Support at 2), is denied as moot.

SO ORDERED.

Dated: New York, New York

August 16, 2002

JOHN S. MARTIN, JR., U.S.D.J.

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