Frink America, Inc. v. Champion Road MacHinery Ltd.

48 F. Supp. 2d 198, 1999 U.S. Dist. LEXIS 7100, 1999 WL 304686
CourtDistrict Court, N.D. New York
DecidedMay 11, 1999
Docket96-CV-486, 96-CV-1576
StatusPublished
Cited by22 cases

This text of 48 F. Supp. 2d 198 (Frink America, Inc. v. Champion Road MacHinery Ltd.) is published on Counsel Stack Legal Research, covering District Court, N.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Frink America, Inc. v. Champion Road MacHinery Ltd., 48 F. Supp. 2d 198, 1999 U.S. Dist. LEXIS 7100, 1999 WL 304686 (N.D.N.Y. 1999).

Opinion

MEMORANDUM-DECISION & ORDER

McAVOY, Chief Judge.

I. BACKGROUND

A. Corporate Evolution

To the extent relevant, facts detailed in the Court’s prior decision in Frink America, Inc. v. Champion Road Machinery Ltd., 961 F.Supp. 398 (N.D.N.Y.1997) are also presented below.

The common corporate lineage of the parties involved in this action dates back to 1945, when Melvin 0. Simpson founded Combined Enterprises Limited, a holding company later to become known as Com-pro Limited (“Compro”). Compro later acquired two companies relevant to the present discussion. In 1958, Compro purchased Eastern Steel Products (“Eastern”), located in Cambridge, Ontario. In 1961, Compro purchased plaintiff Frink America (“Frink America”), a company headquartered in Clayton, New York and engaged in the manufacture of highway and airport snow plows in the United States. At the time Compro acquired Eastern, Eastern was manufacturing the Frink snowplow product line in Canada under license from Frink, and in fact later became known as “Frink Canada.”

In 1973, the Simpson family founded Melson Incorporated (“Melson”), a private Arizona holding company, fifty-percent of the stock of which was held by Simpson’s son, Melvin Jr., and fifty-percent by the Dorothy C. Simpson Family Trust of Scottsdale, Arizona. By 1980, Melson purchased the outstanding stock of Compro, and thereby controlled Compro, Eastern (Frink Canada) and Frink America. Accordingly, Frink America and Frink Canada were essentially two divisions of the same organization.

*201 B. The “Windrow” Plan

By the early 1990s, Melson and its subsidiaries apparently began suffering considerable losses. In an effort to make Frink America and Compro more competitive in the snow plow business, Melson developed a plan, “Operation Windrow,” that called for the combining of Compro and Frink America’s manufacturing operations at one location in the United States. Before this consolidation occurred, however, the continuing financial losses forced Melson to cease Frink America’s operations in Clayton and shift all production to the Eastern (Frink Canada) facility in Cambridge. As part of this move, in August 1991, certain of Frink America’s manufacturing plans, product drawings, jigs, dies, machine tools, technical manuals and other items (collectively the “intellectual property”) were transferred to the Eastern facility so that Frink Canada could satisfy Frink America’s outstanding obligations. The legal consequences of this transfer are the focus of defendant’s present motion. 1

By 1992, Frink America’s manufacturing operations had been fully integrated into Frink Canada’s operations at its Cambridge plant in Canada. Melson’s plan to consolidate the manufacturing operations of Compro and Frink America to one facility in the United States was abandoned, and Melson decided to renew Frink America’s operations at its Clayton, New York facility.

C. The Bankruptcy Proceedings

Compro’s financial problems persisted, as did friction within the ranks of Melson and Compro’s management. As a result, Compro’s chief financial backer, the Royal Bank of Canada (the “Royal Bank”), forced Compro into a Canadian bankruptcy proceeding sometime in 1992. At the same time, Frink America filed for protection under Chapter 11 of the Bankruptcy Code in the Northern District of New York.

Prior to filing Chapter 11, however, Frink America’s manufacturing operations were recommenced at the Clayton facility. Thus, the intellectual property “loaned” to Frink Canada in connection with the failed Windrow operation was transferred from Cambridge back to the Clayton facility in June of 1992. While defendant acknowledges that copies of drawings were retained by Frink Canada to complete orders on which it had been working, plaintiff alleges that defendant also retained jigs, fixtures and copies of drawings on its computer system. This transfer additionally served a function in a larger scheme: since the Royal Bank actually was a creditor of both Compro and Frink America (Frink America having acted as guaranty on certain loans by the Royal Bank to Compro), the return of the intellectual property was part of an agreement 2 executed by the three parties which, plaintiff contends, was approved by the U.S. Bankruptcy Court'in the Northern District and Ontario Court of Justice. The agreement further provided that “Compro would not replicate or retain any copies of any item belonging to Frink [America] or disseminate or deliver any copies to any other party other than Frink [America].” Amended Compl. at ¶ 24.

*202 In October of 1992, Peat Marwick Thorne, Inc. (“Peat Marwick”) was appointed Compro’s receiver in the Canadian bankruptcy proceeding. Peat Marwick sold Compro’s assets to 1004704 Ontario Inc , a corporation controlled by David Lowry (“Lowry”). 3 While Frink America was emerging from bankruptcy, Lowry transferred Compro’s assets to an entity called Frink Environmental, Inc. (“FEI”), serving as its president and chief executive officer. During the time Lowry controlled both Frink America and FEI, Lowry maintained copies of all of Frink America’s engineering drawings at FEI’s Cambridge facility.

In September 1992, Royal Bank forced FEI into bankruptcy in Canada, and Ernst & Young Ltd. (“Ernst & Young”) was appointed receiver of FEI in September 1994. Ernst & Young subsequently sold FEI’s assets to defendant Champion Road Machinery Ltd. (“defendant” or “Champion”). Accordingly, defendant allegedly came to possess the intellectual property of Frink America by way of this final transfer. Relevant to the parties’ dispute is whether Lowry made an effort to prevent Champion from retaining copies of Frink America engineering drawings located at FEI’s Cambridge facility, or informed Champion that intellectual property belonging to Frink America was in possession of FEI. 4

D. Post-Bankruptcy Events

On or about January 1995, Champion began manufacturing snow removal equipment at the Cambridge facility formerly owned by FEI. Defendant acknowledges that while its purchase of FEI’s assets provided it with the right to use the FRINK trademark in Canada, it did not possess the right to use the FRINK trademark in the United States. See Deft. 7.1 Stat. at ¶ 32. Defendant alleges that it “was always Champion’s policy to use the CHAMPION trademark when selling snow removal equipment in the United States.” Id. In 1996, Champion decided to phase out its use of the FRINK trademark and sell its snowplows in Canada exclusively under the CHAMPION trademark. See id. During this time, however, defendant discovered that old FEI literature bearing the FRINK trademark “was inadvertently sent to Champion’s United States dealers by an employee of Champion’s sales department.” Id. Defendant contends, and plaintiff does not dispute, that Champion took “immediate steps to insure that the material was either returned to Champion or destroyed.”

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48 F. Supp. 2d 198, 1999 U.S. Dist. LEXIS 7100, 1999 WL 304686, Counsel Stack Legal Research, https://law.counselstack.com/opinion/frink-america-inc-v-champion-road-machinery-ltd-nynd-1999.