MEDIA

August 11, 2000

Issues: Hostile Work Environment And Franchisor Liability

Published in: New York Law Journal | volume 224
Written by: Peter R. Schlam and Harvey M. Stone

This column reports on several significant, representative decisions handed down recently in the U.S. District Court for the Eastern District of New York, including those on the following topics: hostile work environment, franchisor liability and trademark and copyright law.

Hostile Work Environment

In P.F. v. Delta Air Lines, 99 CV 4127 (EDNY, June 20, 2000), Judge Jack B. Weinstein, granting summary judgment for defendant, held that plaintiff’s claims presented no basis for Title VII liability against her employer in connection with an alleged off-duty rape by a coemployee. To hold Delta liable on the facts here, the court stated, "would be to encourage unacceptable inquisitorial snooping and intrusiveness by employees into the private lives of their employees, contrary to fundamental American notions of privacy."

Delta sought summary judgment after a mistrial in which nine of the 10 jurors found that no sexual assault had in fact occurred. The evidence, viewed favorably to plaintiff, showed the following:

She was a 48-year-old flight attendant. Her purported assailant, in his late thirties, was also a flight attendant who happened to work with her on a Delta flight from Kennedy Airport to Rome, Italy. Upon arriving in Rome, the flight crew was driven to a hotel to stay overnight before their return trip to New York the next day. Responding to his offer of some wine, plaintiff went to his hotel room on the morning of their arrival in Rome. There he served her wine spiked with a "date rape" drug. She fell comatose on his bed, awakening intermittently and realizing, without being able to defend herself, that he was raping her. After five hours, she came to and returned to her room. Both of them worked on the return flight to New York.

For two weeks after the incident, plaintiff did not mention it to anyone at Delta. She then complained about it to another flight attendant, but asked that the information not be relayed to Delta management. Several weeks after the assault, plaintiff separately reported it to two supervisors, but declined to give her attacker’s name. About a month and a half after the rape, she revealed his identity.

Plaintiff alleged two encounters with her attacker as a basis for her hostile work environment claims against Delta – the alleged assault in the hotel room, and working with him on the return flight.

As to the hotel incident, Judge Weinstein concluded that the environment was not work related:

Plaintiff was not only off-duty, she voluntarily associated with defendant – someone who had no supervisory authority over her – for purely personal reasons. No evidence linking her decision to go to his room with her employment by Delta has been presented. Slip op. 19.

Also lacking, the court noted, was any evidence that Delta knew, or could have known, of any danger presented by the attacker as a sexual predator.

Nor could plaintiff impute liability to Delta for her unease during the flight back. Delta provided a reasonable avenue for complaint, through its comprehensive antidiscrimination policy and procedures covering sexual harassment. And, at the time of the return flight from Rome, Delta was not aware, nor could it have been, that a sexual assault had occurred.

In an attempt to show "constructive notice," plaintiff alleged that her attacker had been involved some years earlier in two other incidents: (1) the seduction of a female flight attendant at his home in Texas; and (2) sexual congress with yet another flight attendant, without her full consent, at his parents’ home in Florence, Italy. The court assumed these allegations to be true, even though no supporting evidence appeared in Delta’s records. Nevertheless, the instant case presented no material questions of constructive notice. As Judge Weinstein stated, these earlier incidents "involved non-work-related, off-duty encounters, substantially curtailing both the practical ability and the legal authority of Delta to investigate." Slip op. 21.

Franchisor Liability

In Wendy Hong Wu v. Dunkin’ Donuts, 98 CV 3020 (EDNY, June 9, 2000), Judge Allyn R. Ross held that, under New York law, the defendant franchisor did not exercise such control over its franchisee’s security measures as to make the franchisor vicariously liable to the franchisee’s employee for an attack on her by third parties. The court therefore granted summary judgment for the franchisor.

In 1992 Turnway entered into a franchise agreement with Dunkin’ Donuts (Donuts) to operate a donut store on Kissena Boulevard in Queens. After several robberies, the store owner and manager arranged for the installation of an alarm system, a plexiglass partition with a locked door between the employee area and the customer area, and a video security camera. Turnway did not seek prior approval from Donuts for these and other alterations designed to enhance security.

In 1994 Donuts distributed to its franchisees, through its internal newsletter, a series of articles on safety written by its security consultant.

Plaintiff Wu was working at the Turnway store at about 1:00 a.m. on May 25, 1995. Using a ruse, two young men got her to open the locked door and hand them a mop. They then raped and slashed her. The alarm system was allegedly not working, and there was no videotape in the security camera.

Plaintiff claimed here (among other things) that Donuts was vicariously liable for Turnway’s allegedly negligent provision of security. The issue was thus whether Donuts exercised "control" over Turnway’s security measures.

As Judge Ross observed, the control exercised by Donuts under the franchise agreement is primarily designed to maintain uniform appearance and quality among its franchisees. Turnway remains solely responsible for the day-to-day running of the business.

Plaintiff pointed to three practices to show Donuts’ "control" over security measures:

First, the franchise agreement required the Turnway store to remain open 24 hours a day, thus heightening the need for adequate security. But that provision, Judge Ross stated, "does not … mandate specific security measures or otherwise control or limit Turnway’s response to this increased risk." Slip op. 15.

Second, according to plaintiff, Donuts "controlled" the purchase of security equipment and "require[d]" a functioning alarm system. "To the contrary," the court observed, the record "demonstrate[d] that Donuts merely made security equipment available for purchase and suggested that alarm systems and other … techniques were important." Slip op. 16. Even assuming there was a list of suggested equipment during the relevant period, Turnway did not take advantage of Donuts’s offered services. Rather, without informing Donuts of the prior robberies or seeking prior approval for alterations, Turnway hired its own consultant and installed its own security devices. Slip op. 16.

Third, plaintiff argued that Donuts "required" a site plan, making it evident to persons outside the store that plaintiff was alone at the time of the attack. As Judge Ross noted, however, though the franchise agreement states that Donuts will provide franchisees with its standard site plan, the agreement does not require that they conform with this plan, and Turnway made its own alterations in any event.

Finally, the security measures discussed in Donuts’s internal newsletter were merely advisory. Judge Ross added:

The possibility that the recommended security measures might have helped protect Ms. Wu highlights a public policy concern that the court believes also counsels against imposing liability on Dunkin’ Donuts under the circumstances of this case. Dunkin’ Donuts expressed a laudable desire to assist its franchisees in protecting their employees and customers. Imposing liability on the basis of such advice could discourage franchisors such as Donuts from taking steps to promote an awareness of security issues among franchisees. Slip op. 20.

Trademark, Copyright

In 777388 Ontario Ltd. v. Lencore Acoustics Corp., 99 CV 7953 (EDNY, May 25, 2000), Judge I. Leo Glasser denied defendants’ motion to dismiss the complaint in an action alleging Lanham Act violations of trademark and trade dress infringement and false advertising, and state law claims of unfair competition and misappropriation of trade secrets.

Plaintiff 777388 Ontario Limited (777388) holds a trademark called "Scamp" and related patents for technology used in sound masking products installed in office spaces to control background sound levels so as to render ambient speech unintelligible to persons out of range of face to face conversations. The Scamp Sound Masking System patent is manufactured by plaintiff K.R. Moeller Associates Ltd., also a Canadian company, under license from 777388.

Defendant Lencore Acoustics Corp. (Lencore) was the exclusive distributor in the United States of the Scamp system beginning in 1991 under a verbal distributorship agreement through which it purchased and installed over $3 million worth of equipment.

Plaintiffs’ Arguments

Plaintiffs alleged that the principals of Lencore orchestrated a plan to develop a sound masking system to compete with Scamp, beginning in 1996 (at the latest) with an application to register a trademark for a sound-masking system called "Spectra." Additionally, Lencore obtained engineering specifications and drawings from Moeller as trade secrets and in confidence, supposedly to apply for an ARL listing to satisfy building inspectors in the United States. Plaintiffs also alleged that Lencore (1) distributed marketing materials claiming that the products it was selling were its own products; (2) omitted the Scamp trademark and name in advertisements and on their web site; and (3) misrepresented that it had installed its own system where it had installed the Scamp system.

After learning of Lencore’s activities, Moeller notified it that it was acting in violation of Moeller’s rights and received Lencore’s assurance that it would comply with Moeller’s requests to provide advance copies of promotional materials and give notice to customers about Scamp trademarks and patents. But Lencore continued its infringing activities. Through investigators, Moeller discovered a January 1999 Newsday article in which Lencore’s principals claimed to have made sound masking equipment for many years and installed it in certain sites. Moeller knew the sites had Scamp installations.

Judge Glasser found no question that plaintiffs had sufficiently pleaded their unfair competition claims. The court pointed to allegations, first, that 777388 held registered patents and trademarks in a sound-masking system manufactured by Moeller under license and, second, that defendants, exclusive agents for distributing plaintiffs’ product, had engaged in a systematic campaign to subvert plaintiffs’ interests by (1) distributing deliberately misleading material, and (2) manufacturing a sound masking system of their own using proprietary information and trade secrets given to them by plaintiffs in confidence. Judge Glasser rejected defendants’ statute of frauds defense because an unfair competition claim derives from tort liability, which may arise separately from contract liability.

Court Findings

Upholding plaintiffs’ Lanham Act claims, the court found a 43 false advertising violation stated in allegations that defendants had been promoting and selling Scamp products as Lencore products by advertisements in brochures and postings on the Lencore web site. Judge Glasser also pointed to allegations that Lencore had manufactured a line of sound masking equipment and marketed it as the same as, or a continuation of, the Scamp sound masking system by using similar model numbers and other means to create confusion among users.

As the court also found, allegations that defendants (1) manufactured a line of sound masking equipment deliberately intended to induce confusion in plaintiffs’ customers, and (2) promoted plaintiffs’ equipment as if it were their own, were sufficient to state a claim for trademark infringement. Additionally, plaintiffs had sufficiently stated a claim for trade dress infringement by alleging that defendants (1) deliberately promoted Scamp sound masking products as Lencore products, and (2) used deceptively similar trade dress on Lencore products so as to make them indistinguishable from the Scamp line.

As to misappropriation of trade secrets, Judge Glasser found sufficient plaintiffs’ allegations that Moeller had provided engineering specifications of patented products to Lencore in confidence. Technical specifications and products manufactured under patent, the court noted, are trade secrets.

Peter R. Schlam and Harvey M. Stone are partners at Schlam Stone & Dolan.  Bennette D. Kramer, a partner of the firm, assisted in the preparation of the article.

[Reproduced with permission from New York Law Journal Volume 224, Friday, August 11, 2000.  Copyright 2000 ALM Properties, Inc.  All rights reserved.]

.