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Top Tobacco, L.P. v. Midwestern Cash and Carry, LLC

United States District Court, Seventh Circuit

January 22, 2014

TOP TOBACCO, L.P. and REPUBLIC TOBACCO, L.P., Plaintiffs,
v.
MIDWESTERN CASH AND CARRY, LLC; YALE GAS AND FOOD; SOUTH CHICAGO ONE, INC.; SOUTHERN GAS AND FOODS, INC.; NUSRAT CHOUDHRI; BASHIR CHAUDRY; ZUBAIR KHAWAJA; and MUZAFAR ALI, Defendants.

MEMORANDUM OPINION AND ORDER

MARIA VALDEZ, Magistrate Judge.

This case alleging trademark infringement is before the Court on the parties' cross-motions for summary judgment on Plaintiffs' Third Amended Complaint, which alleges the following claims for relief: (1) Count I - Trafficking in Goods Bearing Counterfeit Paper Marks, 15 U.S.C. § 1114(1); (2) Count II - Trafficking in Goods Bearing Counterfeit Tobacco and Tobacco Products Marks, 15 U.S.C. § 1114(1); (3) Count III - False Designation of Origin and Trademark Infringement, 15 U.S.C. § 1125(a); (4) Count IV - Trademark Dilution, 15 U.S.C. § 1125(c); (5) Count V - Violation of Illinois Uniform Deceptive Trade Practices Act, 815 Ill. Comp. Stat. § 510 et seq.; (6) Count VI - Common Law Trademark Infringement; (7) Illinois Anti-Dilution Act, 765 Ill. Comp. Stat. § 1036/65; and (8) Common Law Unfair Competition.[1] The parties have consented to the jurisdiction of the United States Magistrate Judge pursuant to 28 U.S.C. § 636(c). For the reasons that follow, Plaintiffs' Motion for Summary Judgment [Doc. No. 186] is granted in part and denied in part, and the Individual Defendants' Motion for Summary Judgment [Doc. No. 191] is denied.

FACTS[2]

Plaintiff Top Tobacco, L.P. ("Top Tobacco") is a limited partnership organized under Delaware law that maintains its principal place of business in Illinois. (Pls.' LR 56.1(a)(3) ¶ 1.) Plaintiff Republic Tobacco, L.P. ("Republic") is also a Delaware limited partnership with its principal place of business in Illinois. ( Id. ¶ 4.)

Defendant Midwestern Cash and Carry, LLC ("MCC") is an Illinois limited liability company with its principal place of business in Illinois. ( Id. ¶ 7.) Midwestern operates as a wholesaler of general line groceries and tobacco products. ( Id. ¶ 8.) Defendant Nusrat Choudhri is the Managing Member, Principal, and President of Midwestern. ( Id. ¶ 9.)

Defendant Choudhri also owns the land on which several gas station/mini-marts are located, including defendants Yale Gas and Food, Inc. ("Yale"); Southern Gas and Food, Inc. ("Southern"); and South Chicago One, Inc. d/b/a Clark Gas and Food ("Clark"). ( Id. ¶ 10.) Defendant Bashir Chaudry is the President of Clark, an Illinois corporation operating as a Clark gas station, and he manages its day-to-day business activities. ( Id. ¶¶ 11-13.) Defendant Zubair Khawaja owns Southern, an Illinois corporation operating as a Mobil gas station, and he manages its business activities, including the purchase and sale of tobacco-related products. ( Id. ¶¶ 14-16.) Defendant Muzafar Ali owns Yale, an Illinois corporation operating as a BP gas station, and he manages its business activities.[3] ( Id. ¶¶ 17-18.)

This Court has personal jurisdiction over all of the defendants because they have engaged in business activities in, and directed to, the State of Illinois and within this judicial district. ( Id. ¶ 19.) The court has jurisdiction over the subject matter of this action pursuant to 15 U.S.C. § 1121(a) and 28 U.S.C. §§ 1338 and 1367, and venue is proper in this district pursuant to 28 U.S.C. § 1391 because it is the judicial district in which Plaintiffs reside, Plaintiffs and Defendants transact business in this district, and Defendants are subject to personal jurisdiction in this district. ( Id. ¶¶ 20-21.)

Plaintiffs are engaged in the distribution and sale of smokers' articles, including tobacco and related products such as cigarette rolling papers, and they are the largest distributors of roll-your-own tobacco cigarettes, rolling paper booklets, filter tubes, filters, and accessories in the United States. ( Id. ¶ 22.) Top Tobacco owns and maintains various federal word and design trademark registrations for use in connection with cigarette rolling papers, tobacco, and smokers' articles, including Registration Nos. 2, 739, 465 and 2, 831, 105 (the "TOP Marks"). ( Id. ¶¶ 27-28.) The TOP trademark is the oldest rolling tobacco trademark in the United States, having been first used in the early 1900s. ( Id. ¶¶ 2-3, 25.) TOP is the second leading selling brand of cigarette paper booklets in the United States. ( Id. ¶ 23.)

Republic is the sole authorized master distributor for all TOP brand products in the United States. Top Tobacco contracts with Republic to market and sell TOP branded cigarette rolling paper booklets and smoking tobacco products nationwide to wholesalers, distributors, and retailers, such as convenience stores, food and drug stores, gas stations mini-marts, mass merchandisers, cash-and-carry businesses, and tobacco outlet chains. ( Id. ¶¶ 4-5, 30-31; Defs.' LR 56.1(a)(3) ¶ 35.)

Republic Technologies France is the sole manufacturer of TOP-brand cigarette rolling papers. TOP-brand cigarette rolling papers are manufactured to certain specifications and undergo testing and other quality measures in order to maintain the product's consistency and to ensure customer satisfaction. (Pls.' LR 56.1(a)(3) ¶ 29.) A case of legitimate TOP-brand rolling papers contains forty boxes of TOP cigarette rolling paper and is labeled as TOP paper. Each case also contains a UPC, a product description, and a shipping label, and each case is marked Republic Tobacco. ( Id. ¶ 48.)

On or about June 18, 2010, Chad Goldenberg, a Republic territory sales executive, visited MCC's warehouse for the purpose of counting MCC's inventory of TOP cigarette rolling papers. He observed sixteen purported cases of TOP papers containing only twenty-eight boxes each and noted that the cases were unmarked and did not resemble the packaging of legitimate TOP product. ( Id. ¶ 47.) On October 15, 2010, Republic investigators purchased what purported to be TOP-brand rolling papers from four gas stations in the Chicago area, including defendants Yale, Southern, and Clark. ( Id. ¶¶ 49, 51.) MCC was one of the suppliers of rolling papers to the four gas stations. ( Id. ¶ 50.) The product purchased appeared to be identical to authentic TOP product. ( Id. ¶ 53.)

In January 2011, samples of the product purchased in October 2010 were sent to Republic Technologies in France for testing. Republic Technologies found that the subject papers differed from authentic TOP product with regard to the composition, the glue used, the color of the blue leaves, and the box and cover, leading to a determination that all of the samples purchased were counterfeit. ( Id. ¶¶ 52-54.)

Papers from the same four gas stations were purchased again on March 19, 2011 and were sent to Republic Technologies for testing. These samples also appeared to be authentic, but Republic Technologies concluded that three of the four samples were counterfeit. The fourth sample, which was purchased from Clark, was determined to be authentic. ( Id. ¶¶ 55-58.) Republic Technologies concluded that the three counterfeit samples were nearly identical to the counterfeit product previously tested in January 2011. ( Id. ¶ 59.)

On April 8 and 9, 2011, investigators purchased two cases of purported TOP-brand rolling papers directly from MCC. The investigators found that MCC was selling sealed cartons of authentic TOP-brand rolling papers as well as smaller, unmarked cartons containing boxes of what were purported to be authentic TOP-brand papers. ( Id. ¶¶ 60-61.) The clerk working at the time explained that MCC sells "boxes of thirty" (the unmarked cartons) and "boxes of forty" (the sealed authentic product marked with Republic logos). ( Id. ¶¶ 62-64.) The "boxes of thirty" actually only contained twenty-eight boxes of papers, so the clerk had to remove the tape from the box and add two more boxes to total thirty. ( Id. ¶ 63.) Republic does not sell TOP-brand rolling paper in "boxes of thirty." ( Id. ¶ 65.) The investigators purchased a "box of thirty, " and samples were sent to Republic Technologies for testing on May 11, 2011. ( Id. ¶ 66.) The appearance of the papers was identical to the authentic product, but Republic Technologies determined again that all of the samples were counterfeit, and the technical characteristics of the product were nearly identical to the counterfeit product analyzed earlier. ( Id. ¶ 67.) Additional samples produced during defendant Choudhri's deposition on March 23, 2012 were also tested and determined to be counterfeit. ( Id. ¶ 68.)

All of the papers purchased from MCC and the gas stations include labels, graphics, and logos that are confusingly similar to, and/or are colorable imitations of, authentic TOP-brand products and the TOP Marks. ( Id. ¶ 69.) None of the Individual Defendants was able to differentiate authentic TOP rolling papers from the counterfeit rolling papers sold at their establishments. ( Id. ¶ 70; Defs.' LR 56.1(a)(3) ¶ 30.) Plaintiffs' investigator and salesman were also unable to differentiate between authentic and counterfeit booklets. (Defs.' LR 56.1(a)(3) ¶¶ 30, 36.)

Three MCC employees have primary responsibility over the purchase and sale of tobacco-related products. ( Id. ¶ 2.) Defendant Choudhri generally did not purchase or sell cigarette rolling papers himself. ( Id. ¶ 3.) MCC has bought TOP-brand rolling papers from several distributors since 2008. ( Id. ¶ 4.) From approximately February 16, 2009 until May 18, 2010, MCC regularly purchased authentic TOP-brand cigarette papers from Republic. MCC did not purchase additional papers from Republic until on or about May 3, 2011. (Pls.' LR 56.1(a)(3) ¶ 34.) In 2010, MCC engaged in a "barter transaction" with a company called Country Bright Imports in which it acquired 280 boxes of what purported to be TOP-brand cigarette rolling papers in exchange for bags, and no contemporaneous invoice was created. ( Id. ¶¶ 35-36.) MCC continued to sell TOP-brand product after the lawsuit was filed in June 2011. ( Id. ¶ 37.)

Yale offers TOP-brand cigarette rolling papers for sale to the general public. Yale does not keep records of individual sales but does keep some purchase invoices. ( Id. ¶ 38; Defs.' LR 56.1(b)(3)(B) ¶ 38; Defs.' LR 56.1(a)(3) ¶ 19.) A Yale employee, Faheem Hasan, is in charge of bookkeeping and buying inventory for Yale, although Ali has also done some purchasing. (Defs.' LR 56.1(a)(3) ¶¶ 17, 19; Pls.' LR 56.1(b)(3)(B) ¶ 17.) Hasan has purchased TOP tobacco products from several different vendors, including an individual named Oumar, who would bring product to the gas station in a van. (Pls.' LR 56.1(a)(3) ¶ 39; Defs.' LR 56.1(b)(3)(B) ¶ 39; Defs.' LR 56.1(a)(3) ¶ 18.)

Southern offers TOP-brand cigarette rolling papers for sale to the general public. Southern keeps invoices of its purchases of TOP-brand products but does not account for individual sales. (Pls.' LR 56.1(a)(3) ¶ 41; Defs.' LR 56.1(b)(3)(B) ¶ 41.) Defendant Khawaja, Southern's owner, purchases inventory on behalf of Southern from several different vendors in the Chicago area. (Defs.' LR 56.1(a)(3) ¶¶ 24-25.) Khawaja has occasionally bought purported TOP rolling papers from a person named Umer, who sold inventory out of a van. (Pls.' LR 56.1(a)(3) ¶ 42; Defs.' LR 56.1(a)(3) ¶ 25.) After receiving notice of the complaint, Khawaja inspected the box or boxes of TOP-brand rolling papers he had in inventory and continued to sell the product. (Pls.' LR 56.1(a)(3) ¶ 43; Defs.' LR 56.1(b)(3)(B) ¶ 43.)

Clark offers TOP-brand cigarette rolling papers for sale to the general public. Clark does not have a computer to record the sales of TOP tobacco products or other inventory, but it maintains vendor invoices. (Pls.' LR 56.1(a)(3) ¶ 44; Defs.' LR 56.1(b)(3)(B) ¶ 44; Defs.' LR 56.1(a)(3) ¶ 15.) Defendant Chaudry, Clark's president, purchases inventory on behalf of Clark, but he does not typically work behind the counter or sell any products, including TOP-brand rolling papers. (Defs.' LR 56.1(a)(3) ¶¶ 10-11.) After receiving notice of the complaint, Chaudry looked at the two boxes of TOP-brand rolling papers he had in inventory and continued to sell that product and to purchase additional TOP-brand rolling papers from MCC, although they most often bought product from Dearborn Wholesale. (Pls.' LR 56.1(a)(3) ¶¶ 45-46; Defs.' LR 56.1(b)(3)(B) ¶¶ 4546)

During his February 16, 2012 deposition, defendant Choudhri admitted that after receiving notice of the complaint, he disposed of all rolling papers bearing the TOP brand, regardless of when they were purchased or from whom they were purchased, except for one box of twenty-four booklets, which he gave to his attorney. (Pls.' LR 56.1(a)(3) ¶¶ 76-77.) The spoliation was the subject of a motion for sanctions, which this Court recommended be granted in part. The District Court then presiding adopted this Court's recommendation to: (1) instruct the jury that it may draw a negative or adverse inference based on the destroyed evidence; (2) bar Defendants from attempting to prove that the ...


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