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Merchants Green Trading Stamp Co. v. Vornado Inc.

Decided: May 29, 1962.


Pashman, J.s.c. (orally).


This is the adjourned return date of an order signed by this court on May 16, 1962, directing the defendant, Vornado, Inc., to show cause why an interlocutory injunction should not be granted restraining and enjoining "the defendant, its officers, agents, servants, employees, subsidiary or affiliated corporations, and any person, firm, or corporation acting in concert with any of them, from (1) advertising or otherwise offering to exchange, redeem, purchase, or sell; (2) from exchanging, redeeming, purchasing, or selling; and (3) from in any other way dealing in or with plaintiff's trading stamps designated Merchants Green Trading Stamps."

I think it best, prior to considering and disposing of the varied intricate legal questions involved in this case, that I set forth with some degree of particularity the exact nature of the plaintiff's alleged cause of action.

This case was instituted by Merchants Green Trading Stamp Company (hereinafter referred to as Merchants) by the filing of a verified complaint wherein it was alleged that the defendant, Vornado, Inc., owns and operates a chain of retail and department stores in which it does business under the name of Two Guys From Harrison; that the plaintiff has been, since 1956, and is presently engaged in the business of promoting the sale of merchandise through the use and distribution of trading stamps through various retail establishments; that the plaintiff has expended considerable sums of money through the years to promote and [75 NJSuper Page 525] to assure the success of its stamp trading business; that as part of its business the plaintiff enters into franchise agreements with certain retailers whereby the retailers are given the exclusive right or franchise in expressed territorial boundaries set forth in the agreement to issue plaintiff's stamps to their customers; that the customers of authorized retailers may offer filled savings booklets for redemption at various redemption centers operated by the plaintiff; that plaintiff provides its retail merchants with services, signs, posters, and other advertising material, a supply of stamp books and a supply of redemption catalogs; that these retail merchants undertake to advertise the adoption and use of Merchants Green Trading Stamps, to purchase such stamps from the plaintiff, to offer such stamps to all customers making cash purchases, or prompt payment of credit purchases, to issue to customers one stamp for each ten cents paid on his purchase to be issued without charge to the customers, and to supply the customers with a stamp book and a redemption catalog; that each customer who receives a stamp from an authorized and franchised retail merchant does so subject to the following terms: (1) the title to the stamp remains in the plaintiff; (2) the stamps are not transferable without the written consent of the plaintiff; and (3) the only right which the customer acquires in the stamps is to paste them in the collector's book, and to present them when these books are filled for redemption, or to present them to the plaintiff for redemption in merchandise; that the operation and distribution of the plaintiff's stamps by its 300 retail merchant franchise agents has produced extensive good will and public acceptance for the plaintiff and its retail franchise agents; that the defendant issues its own trading stamps with food purchases made by customers at any of defendant's stores (any of the Two Guys From Harrison stores); that the defendant has offered to exchange partial or filled books of any trading stamps, stamp for stamp, with food purchases of $5 or more, subject to

a limit of one book of stamps per customer; that the said conduct which I have just described began on May 9, 1962, to the date that the complaint was filed; and that the defendant has exchanged, and is exchanging, and intends to continue to exchange the trading stamps of the plaintiff for its own Two Guys trading stamps.

The plaintiff then alleges that based upon the course of conduct pursued by the defendant, the following has occurred: (1) the defendant has falsely represented to the public and to those participating in plaintiff's stamp program that defendant is authorized to participate in the redemption and distribution of Merchants Stamps; (2) plaintiff and its franchise agents have suffered and will continue to suffer immediate, substantial and irreparable injury in certain respects as set forth in paragraph 14 (A) to (F) of the complaint; (3) defendant's actions constitute unfair competition, and the scheme contrived by the defendant has as its purpose the destruction of the plaintiff's business so as to eliminate the plaintiff as a competitor in such business; (4) defendant has maliciously interfered with the agreement between the plaintiff and its franchised retail merchants and is inducing the merchants to breach their contracts with the plaintiff; (5) that the defendant is maliciously inducing the retailers' customers to breach the understanding existing between the plaintiff, the retailer, and the customer; (6) that the defendant, with full knowledge of the plaintiff's organization and promotional activities, has intentionally undertaken to deceive the public into believing that it (that is, the defendant) is entitled to participate in the plaintiff's plan by its activities in offering that it will redeem by exchanging them for stamps of other trading stamp companies; and (7) the defendant, through its activities and without the consent of, or payment to the plaintiff, and without any right whatsoever, is appropriating for its own use and benefit the redemption system and the facilities of the plaintiff.

The plaintiff seeks, in addition to the interlocutory relief asked for at this time, the following: (1) to permanently enjoin the defendant from advertising or otherwise offering to exchange, redeem, purchase, or sell, from exchanging, redeeming, purchasing or selling, and from dealing in any other way in or with the plaintiff's trading stamps; (2) to compel the defendant to account to it, and to pay over to the plaintiff a sum of money equivalent to all profits realized as a result of the acts of unfair competition committed by it; (3) costs and disbursements; (4) an order directing the defendant to turn over to the plaintiff all Merchants Green Trading Stamps and stamp books which it has obtained in the manner described herein; and (5) such other relief and such other further relief which the court may deem proper.

Vornado, the defendant in this matter, has submitted several affidavits in opposition to the granting of any injunctive relief at this stage in the litigation between the parties. Mr. Melvin Sherman, the general manager of the Stamp Division of the defendant, Vornado, Inc., denies in his affidavit that the defendant has ever attempted to redeem any of the plaintiff's stamps and/or books. He states that Two Guys has never issued or sold plaintiff's stamps or stamp books, nor has Two Guys made any use of plaintiff's stamps or books received in exchange for Two Guys stamps.

This same deponent states further that Two Guys has never induced any person or organization connected with the plaintiff to repudiate or to breach any valid agreement between it and the plaintiff; nor has the defendant advertised that it would redeem the plaintiff's stamps, or that the defendant was authorized to participate in the Merchants Trading Stamp program.

In addition to the preceding affidavit to which I have referred, defendant also submitted an affidavit of Frank C. Meade, who made visits to several redemption centers of the plaintiff after he had received 150 Merchants stamps.

The substance of Mr. Meade's affidavit, which is denied by affidavits submitted on behalf of the plaintiff, is that in the six redemption centers visited, that is, Middletown Township, Old Bridge, Paterson, Hackensack, North Arlington and Elizabeth, the following was revealed: (1) none of the stores would give him the cash value of the 150 stamps, although he requested it; (2) each store refused to redeem the stamps for merchandise, the reason being that either a full book, or a book with more stamps than he had, was required before a customer could redeem for merchandise; and (3) that on at least three occasions, in three different stores, he was told there was no company policy against transferability.

The plaintiff also submitted separate, additional affidavits concerning the nature of the plaintiff's activities and the effect thereof on one retailer, that is, Charles Murphy, a franchise agent of the plaintiff, who stated that "the plan and scheme of Vornado, if permitted to continue, will destroy the advertising effect of my use of Merchants Trading Stamps; and will result in my terminating my relationship with the plaintiff," and Arthur Rosenberg, who is a senior vice-president of Food Fair Stores, Inc., which owns all of the plaintiff's outstanding stock, stated that the defendant's scheme was designed to entice retail customers away from Food Fair Stores, Inc., to the advantage of the defendant.

In support of its conclusion that the activities of the defendant constitute unfair competition, the plaintiff relies on the cases of Sperry & Hutchinson Co. v. Siegel, Cooper & Co. , 309 Ill. 193, 140 N.E. 864 (Sup. Ct. 1923); and Sperry & Hutchinson Co. v. Louis Weber & Co. , 161 F. 219 (C.C.N.D. Ill. E.D. 1908).

A close examination of these cases reveals the following. In the Siegel case the plaintiff, as the holder of approximately 12 million of the defendant's trading stamps, sought to compel the defendant to redeem the said stamps. The Supreme Court of Illinois held that the defendant has a

legitimate right to refuse to redeem the stamps in ...

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