IP Law Daily Derivative suit proceeds against co-owners for misuse of DELMONICO marks
Friday, January 27, 2017

Derivative suit proceeds against co-owners for misuse of DELMONICO marks

The federal district court in New York City has permitted the owners of a 50% interest in two corporations that purchased Delmonico’s Restaurant in Manhattan and acquired trademarks rights in the name DELMONICO to proceed with a derivative suit against the owners of the other 50% interest in the jointly-owned corporations based on the defendants’ independent exploitation of the DELMONICO marks through the sales of DELMONICO-branded products and the opening of two DELMONICO restaurants. However, the plaintiffs’ claim for infringement under Section 32 of the Lanham Act was dismissed because none of the asserted marks were federally registered (Grguev v. Licl, January 26, 2017, Woods, G.).

Plaintiffs Omer and Ferdo Grgurev (the “plaintiffs”) and defendants Milan Licul and Branko Turcinovic (the “defendants,” and collectively with plaintiffs, the “co-owner parties”) are experienced restauranteurs and equal co-owners of nominal defendants Ocinomled Ltd. and 50/50 Restaurant Corporation.  The co-owner parties formed Ocinomled to purchase the iconic Delmonico’s Restaurant on Beaver Street in Manhattan. In acquiring Delmonico’s, Ocinomled acquired the right to use the “Delmonico’s” name, as well as “all other rights” to that name held by the seller, CIBE Beaver LLC. In 2004, Ocinomled applied to register the mark DELMONICO’S for restaurant services and in 2007, it applied to register DELMONICO’S in connection with various products and services. The USPTO suspended both applications, pending resolution of an unrelated proceeding.

The plaintiffs accused the defendants of exploiting the DELMONICO marks by usurping “opportunities for their own benefit, to the detriment of Ocinomled.” The defendants, through companies they owned (defendants Five M Corporation, 268 SH Restaurant Corporation, and Delmonico Distribution LLC) established two restaurants—Delmonico’s Kitchen and Delmonico’s of Southampton—and began selling products, including sauces, dressings, and marinades, using the DELMONICO mark.  Such unauthorized use of the DELMONICO marks allegedly created consumer confusion and undermined the goodwill associated with the marks. The plaintiffs also contended that the defendants misappropriated funds and resources that rightfully belonged to Ocinomled and the plaintiffs.

The plaintiffs filed suit against the defendants in December 2005. They named their jointly owned companies Ocinomled and 50/50 Restaurant Corporation as nominal defendants.  The amended complaint asserted ten derivative claims and four direct claims, including claims for federal trademark infringement and dilution, as well as state law claims for conversion, deceptive trade practices, breach of fiduciary duty, breach of the duty of loyalty, unjust enrichment, tortious interference with business relationships, and equitable accounting. The defendants counterclaimed for breach of the duties of loyalty and care and petitioned for dissolution.

Before the court were the defendants’ motions for realignment of the parties and for dismissal all of the plaintiffs’ claims, except trademark dilution under Section 43(c) of the Lanham Act and false designation of origin under Section 43(a).

Party realignment. The court granted the defendant’s realignment request, in accordance with the general rule that a corporation in a derivative suit should be aligned as a plaintiff since it is the real party in interest. Because the plaintiffs and defendants each owned 50% of Delmonico's Distribution LLC and Ocinomled Ltd., the corporations lacked the degree of antagonism necessary to be named as defendants.

Trademark infringement. The court granted the defendants’ motion to dismiss the plaintiffs’ claim under Section 32 of the Lanham Act. Section 32 provides a cause of action for a “registrant” to recover for infringement of a “registered mark.”  The plaintiffs argued that the suspended status of Ocinomled’s applications to register the DELMONICO’S marks did not deprive them of standing under Section 32. The Trademark Trial and Appeal Board already determined that Ocinomled had superior rights to the DELMONICO’S brand over the third-party in the concurrent use proceeding at issue, but the suspension remained place pending appeal pursuant to USPTO procedure.  According to the plaintiffs, the matter of pending registration was “merely ministerial and should not preclude Ocinomled’s claim.”

The court disagreed. The plaintiffs cited no authority for the proposition that an application that is suspended pending an appeal from a TTAB decision should be considered “registered” or that plaintiffs should be considered “registrants” under such circumstances, the court noted. Throughout the Lanham Act, Congress distinguished between the terms “applicant” and “registrant,” and would have used both terms in Section 32 had it meant for create a cause of action for trademarks subject to pending applications. The plaintiffs’ Section 32 claim was dismissed without prejudice, should the pending applications mature into registrations.

State law trademark-based claims. The court dismissed the plaintiffs’ derivative conversion claim to the extent it was premised on the defendants’ misappropriation of the “goodwill and value of the DELMONICO’S Marks.” An action for conversion of intangible property lies under New York law only where the converted property is a document into which intangible rights have merged, the court explained. Because trademarks rights are intangible, and have no existence apart from the good will of the product or service they symbolizes, they cannot support a claim of conversion. The derivative conversion claim survived to the extent it was based on alleged misappropriation of money or tangible property.

The court declined to dismiss the defendant’s claim for deceptive trade practices under N.Y. Gen. Bus. Law § 349. The plaintiffs pleaded facts sufficient to give rise to a plausible inference that the defendants engaged in materially misleading conduct, that the conduct was intended to-and, in fact, did-mislead consumers, and that Ocinomled was injured as a result.  The defendants’ unauthorized use of the DELMONICO’S name in connection with non-Ocinomled restaurants and products plausibly caused consumer harm or injury to the public, the court said.

The case is No. 1:15-cv-09805-GHW

Attorneys: Jamie Mark Brickell (Pryor Cashman LLP) for Omer Grgurev and Ocinomled Ltd. Alan C. Trachtman (Nourse & Bowles, LLP) for Branko Turcinovic, 50/50 Restaurant Corp., Five “M” Corp., 268 SH Restaurant Corp. and Delmonico's Distribution LLC. Jared Marc Lefkowitz (Law Offices of Jared M. Lefkowitz) for Dennis Turcinovic.

Companies: 50/50 Restaurant Corp.; Five “M” Corp.; 268 SH Restaurant Corp.; Delmonico's Distribution LLC; Ocinomled Ltd.

MainStory: TopStory Trademark NewYorkNews

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