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Lionel Corp. v. Klein

Court of Chancery of Delaware, New Castle County

June 23, 1954

LIONEL CORP.
v.
KLEIN.

Action to enjoin defendant from engaging in unfair competition with plaintiff in violation of fair trade agreement. On motion to dissolve a temporary injunction granted plaintiff, the Court of Chancery in and for New Castle County, Bramhall, Vice Chancellor, held that where plaintiff had been granted a temporary injunction against breach by defendant of fair trade agreements relating to toy electric trains manufactured by plaintiff, injunction would not be dissolved on basis of answer of defendant which set forth defenses pertaining to alleged general breakdown of fair trade prices on plaintiff's products, coupled with admission by defendant of sales below minimum fair trade prices, since rule that dissolution of preliminary injunction will not be granted on answer unless there is denial of the averments of the complaint was applicable.

Motion denied.

Where plaintiff had been granted a temporary injunction against breach by defendant of fair trade agreements, relating to toy electric trains manufactured by plaintiff, injunction would not be dissolved on basis of answer of defendant which set forth defenses pertaining to alleged price cutting on part of competitor of defendant, and alleged general breakdown of fair trade prices on plaintiff's products, coupled with admission by defendant of sales below minimum fair trade prices, since rule that dissolution of preliminary injunction will not be granted on answer unless there is denial of the averments of the complaint was applicable.

[34 Del.Ch. 512] Action by plaintiff to enjoin defendant from engaging in unfair competition with plaintiff in violation of the ‘ Fair Trade Act’ of the State of Delaware. Motion to dissolve temporary injunction.

Thomas Cooch, of the firm of Connolly, Cooch & Bove, Wilmington, for plaintiff.

David Snellenburg II, of the firm of Killoran & Van Brunt, Wilmington, for defendant.

BRAMHALL, Vice-Chancellor.

Plaintiff is engaged in the manufacture and sale of toy electric trains which it sells to distributors, wholesalers, and retailers under the brand or trade names of ‘ Lionel’ and ‘ Lionel Trains', and in containers which bear plaintiff's name and said brand or trade names. The word ‘ Lionel’ is a registered trade mark of plaintiff.

Plaintiff has entered into contracts known as ‘ Retail Price Maintenance Agreements', or ‘ Fair Trade Agreements' with many of the retail dealers who sell plaintiff's products in the State of Delaware. Plaintiff has also issued train catalogues and price lists showing the minimum resale prices for the products of plaintiff for retail sale in this state. Defendant is a merchant in the City of Wilmington and sells, among other articles, the product of plaintiff. Defendant is not, however, a party to any contract such as referred to above.

Page 526

In plaintiff's complaint defendant is charged with selling the products of plaintiff below the minimum fair trade price established by plaintiff. Defendant in his answer admits the sale of plaintiff's products below the minimum fair trade prices, but asserts that such sales were necessary to meet competition. Defendant also suggests a general breakdown in the Wilmington area of the minimum fair trade prices established for plaintiff's products. After argument plaintiff was granted a temporary injunction enjoining defendant from the sale of plaintiff's products for prices below the minimum fair trade prices established by plaintiff. Defendant has moved to dissolve this preliminary injunction on the ground that there has been a general deterioration of the resale price maintenance structure of the products of plaintiff and that by reason thereof the preliminary injunction [34 Del.Ch. 513] granted by this court would work substantial hardship on the defendant and afford no substantial benefit to plaintiff.

Plaintiff opposes the granting of the motion to dissolve the preliminary injunction on the grounds: (1) that a motion to dissolve a preliminary injunction will not be granted where the answer does not deny the basis for the injunction as stated in the complaint, but raises matters purporting to establish a ‘ counter equity’ by way of confession and avoidance; and, (2) that the affidavits filed are insufficient to show a ‘ general deterioration’ in plaintiff's resale price maintenance structure in the Wilmington area.

Does the answer of defendant deny the basis for the injunction as stated in the complaint or does it raise matters purported to establish a counter equity by way of confession and avoidance? In paragraph 8 of plaintiff's complaint it is alleged that defendant has sold and offered for sale and will continue to sell and offer for sale the products of plaintiff below the applicable minimum resale prices established by plaintiff. In the same numbered paragraph of the answer defendant admits that he has offered for sale and sold articles of plaintiff at prices below the fair trade prices established by plaintiff, averring that it was necessary for him to do so in order to meet the competition of other Wilmington retailers and competition generally in the United States. Defendant stated therein that he did not admit that the articles sold were in all particulars articles lawfully subject to minimum resale prices. However, the affidavits filed by defendant in support of his motion all relate to advertisements of merchants in the City of Wilmington and to specific sales of the products of plaintiff at less than the minimum resale price as established by plaintiff. There is no showing therein as to what articles sold were not in all particulars articles lawfully subject to the minimum resale prices.

The answer does not specifically deny the material allegations of the complaint. To warrant a dissolution upon the complaint and answer, the answer should deny the material allegations of the complaint with the same clearness and certainty with which they are charged. And for the purpose of such a motion, the answer is considered only in so far as it is responsive to the allegations of the complaint. New matter, therefore, not responsive to such allegations, [34 Del.Ch. 514] will not be considered on the hearing of a motion to dissolve. See High on Injunctions, Vol. 2, Sec. 1481, p. 1486. In this state this court has followed a similar rule. Maclary v. Reznor, 3 Del.Ch. 445; Ambursen Hydraulic Construction Co. v. Eastern Cement Gun Co., 10 Del.Ch. 207, 88 A. 559, 560. In the Ambursen case this court said:

‘ But the existence of a preliminary injunction presupposes a presentation of facts supporting the bill which are not overcome by the proofs on the part of the defendant. Therefore, it is right to require a full, frank and explicit denial in the answer, or by affidavits, ...


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