Dual Groupe, LLC v. Gans-Mex LLC

Citations: 932 F. Supp. 2d 569; 2013 WL 1200361; 2013 U.S. Dist. LEXIS 45917Docket: No. 12 CV 1031

Court: District Court, S.D. New York; March 25, 2013; Federal District Court

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Dual Groupe, LLC alleges that defendants have unlawfully continued to use its trademark in relation to their restaurant, MPD, after terminating Dual Groupe's management role in January 2012. The plaintiff claims it licensed the trademark to the defendants on a royalty-free basis while managing MPD and asserts this ongoing use constitutes trademark infringement and dilution under the Lanham Act and New York state law. 

Defendants have moved to dismiss the complaint, arguing insufficient allegations regarding prior use of the unregistered trademark, lack of standing due to failure to meet New York publication requirements for limited liability companies, and that the court should not exercise supplemental jurisdiction over state law claims if federal claims are dismissed. 

The court denies the motion to dismiss, finding that Dual Groupe sufficiently establishes ownership of the trademark and that the complaint states a plausible claim for infringement and dilution due to the alleged breach of the licensing agreement. The court notes that defendants' claims regarding fraudulent management agreements and "naked licensing" present factual disputes inappropriate for resolution at this stage. Although Dual Groupe has not met New York's publication requirements, this does not bar its federal lawsuit; instead, the case may be stayed until compliance is achieved. The court maintains jurisdiction over the related state law claims due to the decision to not dismiss the federal claims. 

Legal standards for a motion to dismiss under Fed. R. Civ. P. 12(b)(6) are highlighted, emphasizing the need for plausible claims and the acceptance of alleged facts as true while disregarding legal conclusions. The court can consider documents integral to the claims and those of which the plaintiff had notice.

Defendant Gans-Mex is a New York-based limited liability corporation owning several restaurants, while Ginza, also a New York LLC, was one of Gans-Mex's owners. Brunetti served as a member or managing member of both companies. On December 21, 2009, Dual Groupe and Gans-Mex entered a Management Agreement, signed by Brunetti, for the development and management of a restaurant named 'MPD' at 73 Gansevoort Street, New York. The Agreement granted Dual Groupe full operational control, including authority over promotions and personnel, and established a fee structure based on the restaurant's gross receipts. It also allowed Gans-Mex to use the MPD brand royalty-free, although the trademark was not registered. The MPD restaurant, opened in October 2010, was successful, generating management fees of $364,989.10 for Dual Groupe in 2011. However, on January 30, 2012, the defendants terminated the Management Agreement, allegedly to avoid management fees, and continued to operate under the MPD name despite the termination of licensing rights. Brunetti registered the domain 'MPDRESTAURANT.COM' the next day.

The defendants dispute the factual allegations, claiming the Management Agreement is fraudulent, asserting Brunetti does not remember signing it, and alleging the MPD concept was not developed at that time. They contend they own the MPD trademark due to their financial and creative contributions and argue they terminated Dual Groupe's management due to mismanagement and harassment issues. They further assert that the lawsuit is part of Dual Groupe's efforts to sabotage their business relationships.

Dual Groupe has filed legal claims under federal and state law for Trademark Infringement, False Designation of Origin, and Trademark Dilution. Defendants counter that Dual Groupe lacks protected rights under the Lanham Act, arguing that the complaint fails to establish prior usage of the MPD brand.

Defendants claim that Dual Groupe did not have prior use of the MPD trademark, arguing that its use only began after allegedly licensing the trademark to them. They assert that Dual Groupe provided a service rather than independent usage of the mark, and thus, the Management Agreement lacked the authority to license MPD as Dual Groupe had no protected rights at that time. Furthermore, defendants contend that the licensing agreement is a "naked licensing" because Dual Groupe has not demonstrated control over the quality of MPD's offerings. They argue that the complaint fails to show that Dual Groupe exercised its management authority effectively.

Plaintiffs must establish ownership of the mark to support claims of trademark infringement and dilution under the Lanham Act. This requires demonstrating that they have a valid, protectable mark, that the defendant used it in commerce without consent, and that such use is likely to cause confusion regarding the affiliation between the parties. Additionally, to claim trademark dilution, the plaintiff must prove ownership, that the mark is famous and distinctive, and that the defendant's actions dilute it.

Ownership of an unregistered mark is established through prior use, which means the plaintiff must show they were the first to use the mark in a commercial context. A mark must be used publicly enough to distinguish the goods in the public's mind. Notably, a plaintiff can demonstrate prior use through licensing; the licensee's use is sufficient for the licensor to maintain enforceable rights, provided the licensor exercises control over the licensee's use of the mark.

Defendants argue that Dual Groupe abandoned its trademark through naked licensing, but the burden of proof lies with the party alleging abandonment, requiring clear and convincing evidence. Whether naked licensing has occurred depends on whether the licensor adequately policed the quality of the licensed products. The Management Agreement grants Dual Groupe significant control over operations, including promotions and staffing, countering the defendants' claim that there is no evidence of actual control exercised. The court clarifies that it is not Dual Groupe's obligation to plead actual control within the complaint. 

Regarding the publication requirement under New York Limited Liability Company Law (LLCL), defendants assert that Dual Groupe cannot pursue a lawsuit in New York due to noncompliance, which would suspend its authority to conduct business in the state. Dual Groupe contends that this limitation does not extend to federal courts, supported by statutory language regarding state court access. New York courts have allowed for nunc pro tunc application, meaning that compliance after the fact can retroactively validate a plaintiff's standing. Dual Groupe is in the process of fulfilling the publication requirement.

Failure to meet the publication requirement may necessitate a stay in proceedings until Dual Groupe fulfills this obligation; however, this does not warrant dismissal of the action. The court referenced RMS Residential Props. LLC v. Naaze, which stayed proceedings pending the plaintiff's receipt of a certificate of authority. Since the reporting requirement does not prevent Dual Groupe from litigating in federal court, a stay is deemed unnecessary. The court confirms it has subject matter jurisdiction over state law claims under 28 U.S.C. 1367(a) as they are related to the federal claims. Therefore, the court will maintain supplemental jurisdiction over these claims. The motion to dismiss is denied. While Dual Groupe initially sought preliminary and permanent injunctions, these are no longer applicable following the closure of the restaurant using the mark. Dual Groupe has applied to the USPTO for trademark registration of "MPD," but the defendant claims Dual Groupe did not respond to a Notice of Opposition, resulting in a Default Judgment. Dual Groupe has not asserted ownership of the MPD trademark through its USPTO application.