In my 700+ posts on this blog since 2007, the vast majority of which focus on a particular court case, my goal is not to regurgitate the facts and issues decided by the court, but to provide legal context and to draw larger lessons and offer takeaways that readers, be they business owners or lawyers, will find helpful in their own business planning and dispute resolution.

I can draw no insightful legal lesson or offer any truly helpful takeaways from the case I’m writing about in this post. In my world, advising business owners not to engage in “old-fashioned forgery,” or telling business divorce lawyers not to disregard “what the law is or what the evidence shows,” is like reminding someone not to stop breathing.

The quoted phrases come from a recent decision by U.S. District Court Judge Arun Subramanian (S.D.N.Y.) in a case ostensibly about trademark infringement, but really about company control. You can read the decision here. I’m purposefully not using the case name, the company name, or the individual parties’ names so as to avoid requests from so-called “reputation management” firms hired by the parties involved in the case, asking me to take down or “anonymize” my post showing up in Google searches.

“This case (and its many state-court siblings) has a tortured history,” is the opening line in Judge Subramanian’s decision. The “siblings” are five or so related lawsuits filed in New York State Supreme Court beginning in 2017 — the federal court lawsuit was filed some five years later — involving essentially the same parties, none of which according to the court dockets have been resolved as yet.

I won’t torture myself or readers with laying out the convoluted history of the state court cases run amok. I can only guess that the dispute landed in the federal forum in an effort by one side to bypass the state court logjam.

The Federal Court Complaint

The federal court complaint primarily asserts trademark infringement claims by several entities, including the original registrant and two sequential assignees. The suit was filed at the instance of an individual I’ll call Mr. A who holds either a 49% or 50% membership interest in the original trademark registrant organized as a Delaware LLC, and who effected the assignments.

The defendants are several individual defendants I’ll call Group B who hold the remaining 51% or 50% interest in the original registrant, which I’ll simply refer to as the LLC. (For reasons which will become clear below, the 1% swing had no impact on the case outcome.) As best as I can tell, Mr. A owns and controls the ultimate assignee of the trademarks to the exclusion of Group B.

The complaint recites the litany of state court lawsuits that erupted in 2017 between Mr. A and Group B, along with side excursions to bankruptcy court and arbitration. As best as I can tell, the complaint’s gravamen is not that Group B is actually using the disputed trademarks in commerce but, rather, that in the multiple litigations and otherwise it is “representing to the world, falsely, that they owned the [trademarks].”

The complaint’s multiple claims seek eight-figure damages and injunctive and other equitable remedies relief under the Lanham Act, RICO, and common law.

Act I: Who Controls the LLC?

At a hearing early in the case, as Judge Subramanian wrote, “the Court learned that this case turns on who has the valid version of a contract,” referring to the LLC’s January 2014 operating agreement, adding:

By “valid,” the Court does not mean the usual stuff of contract cases: meeting of the minds, fraudulent inducement, and the like. Instead, each side accuses the other of old-fashioned forgery.

The dueling accusations of “old-fashioned forgery” focused on the operating agreement’s provision for the removal of a managing member. Mr. A, named in the operating agreement as a managing member, offered a signed copy whose removal provision in Section 5.3 requires a “super majority.” The term super majority is defined in Section 4.5 of both of the dueling agreements (“Approval or Ratification of Acts or Contracts by the Managers”) as requiring approval by two-thirds of the membership interests. In the signed copy of the operating agreement proffered by Group B, Section 5.3 requires approval by a bare majority interest to remove a manager.

The conflicting agreements triggered a judicial aha moment, described in Judge Subramanian’s decision as his realization that “this case is a battle for control of [the LLC]” in the wake of Group B’s contention that they had previously used their alleged 51% interest to remove Mr. A as manager, thereby presumably invalidating his acts in regard to the trademarks and his standing to bring suit on the LLC’s behalf.

At the initial hearing Judge Subramanian made clear to the parties and their counsel the gravity of their dispute over whose version of the operating agreement was genuine, writing in his later decision:

After repeatedly reminding the parties of the seriousness and penalties of perjury, both sides stood firm. And both agreed that this super/majority issue was central to this and the state cases. So the Court suggested a trial on this “one . . . separate issue[]” to “expedite and economize” the litigation. Fed. R. Civ. P. 42(b). The parties agreed, and they waived their jury-trial rights. Dkt. 90. They also decided that they would not engage in any discovery (and no discovery had yet been conducted, despite this case’s eighteen-month pendency). Instead, they chose to rely on what had been produced in state-court discovery.

In the lead-up to this trial, the Court ordered the parties to submit their respective versions of the agreement.  Id.  With those submissions, counsel for each side signed letters certifying “that to the best of [his] knowledge, information, and belief, formed after an inquiry reasonable under the circumstances,” the version of the agreement he was submitting was true and correct. Id. (quoting Fed. R. Civ. P. 11).

The court subsequently held a two-day trial at which Mr. A and the four members of Group B each testified. The court admitted about a dozen exhibits, prompting Judge Subramanian to comment that “[t]he Court was surprised by how few emails and other documents were produced.” He then observed that “[o]n this thin record, credibility was important” but “the relevant events took place nearly ten years ago, making every account faulty.”

Judge Subramanian commented further on the unreliability of the witness testimony, writing,

The Court did not find the witness testimony especially helpful. Each witness was also a party, and each testified according to his self-interest. None of the witnesses’ accounts was entirely consistent or credible. Plus, as noted, the relevant events occurred in early 2014, making recollections generally unreliable or at least incomplete.

For instance, no witness could explain the signature pages. Defendants produced three copies of their version of the agreement (from three different members) and Plaintiffs produced one. Each signature page has the signature of every member, and no two signature pages are identical. No witness could explain why that was so. Given that all the signatures were on one page, one would think that page would be attached to the original agreement and the rest would be copies. But the pages weren’t identical. Or maybe each member signed each other member’s copy at a board meeting. But that ring-around-the-rosy approach would be odd, and no witness said that happened. Both the witnesses and the lawyers were stumped.

Hence the decision rested mostly on the court’s highly detailed analysis of the documentary evidence, which I won’t replicate here. Among the highlights:

  • Mr. A relied on a email exchange shortly before the agreement’s signature date in which he wrote that “I thought all major decisions should be by Supermajority. I am just trying to think ahead and make more of a threshold for major decisions for the Company.” Due to its unusual, reverse chronological format (which prompted Judge Subramanian’s comment, “this exhibit reeks”), he ordered Mr. A to produce the whole exchange in its original form, which he did on the second day of trial. Lo and behold, the original showed that the excerpt in the prior day’s exhibit “was taken out of context”; that Mr. A was specifically referring to changing Section 4.5 to require supermajority consent, with no mention of Section 5.3.
  • Both the change to Section 4.5 and a second, unrelated change at least had “some paper trail,” whereas “all [Mr. A] has for his claimed change to Section 5.3 is his say-so.”
  • The judge also noted that changing only Section 4.5 “makes more sense.” Its supermajority requirement for manager acts and contracting protects the non-managing members from manager overreaching, while changing Section 5.3 to require supermajority approval to remove a manager “would have the opposite effect, protecting the manager.” Because of Mr. A’s 49% (or 50%) interest, a supermajority requirement for his removal “would insulate the manager from removal, potential potentially empowering the manager to entrench himself and causing the business to grind to a halt.”
  • The court also discounted Mr. A’s reliance on meeting minutes from February 2014 that he prepared, purporting to reflect a member vote and resolution that under Section 5.3, “all decisions of the LLC will be by Super Majority, 2/3 member voting units. All members representing a Quorum all say ay.” The court found that the minutes “lack any indicia of genuineness” given that they were never signed, circulated, or otherwise approved as accurate” and “sat on [Mr. A’s] computer for years, only to emerge to support his position in this litigation.” Also, queried the judge, why would the members need to vote to ratify a change to Section 5.3 if they had already signed the January 2014 operating agreement containing a supermajority requirement in that section?

Based on the above findings and more, Judge Subramanian found “by a preponderance of the evidence that Defendants’ version of the agreement is genuine and that Plaintiffs’ version is not.”

Act II: The Court Dismisses the Case

Following further proceedings, in a decision last week available on Westlaw, Judge Subramanian dismissed the case, his distaste for which shows up in the decision’s opening paragraph where he writes,

In part, this case is about the control of a company and its trademarks. In perhaps larger part, it is about personal grudges, with little regard for what the law is or what the evidence shows. The strange and lengthy procedural history of this case is recounted in an earlier opinion. Dkt. 104 at 1–2. That opinion was published after the Court held a bench trial on a single issue of fact: which of the company’s purported operating agreements was authentic. Id. The parties had promised that settling that issue would “expedite and economize” this case and the related state cases. Fed. R. Civ. P. 42(b). But it was not to be.

The decision proceeds to dismiss the complaint’s only remaining federal claims for infringement based on the absence of any allegation or proof that the defendants ever used the marks at issue. Judge Subramanian then declines to exercise supplemental jurisdiction over the remaining state law claims, and therefore dismisses them without prejudice to renewal in state court, writing:

Keeping the state claims in federal court would not benefit judicial economy. The real fight in this case is over control of the LLC, but those claims are part of the state cases, not this one. Indeed, the parties didn’t even conduct discovery in this case—they simply used the discovery from the state litigation. Nor would New York state court be inconvenient or unfair: All parties are citizens of New York, and they have multiple cases pending there already. In fact, the parties have complained that, in this case, they have had to travel from Long Island to Manhattan.

My Non-Takeaway

When I read about a case that turns on dueling accusations of forgery, in which a federal judge has to warn the parties and their counsel of the perils of committing perjury, and requires counsel to certify under the spectre of Rule 11 sanctions that the evidence they’re offering upon reasonable inquiry is “true and correct,” and writes a decision describing the case featuring evidence that “reeks” as being in large part “about personal grudges, with little regard for what the law is or what the evidence shows,” all I can say is, I’m glad the judge isn’t talking about me or my case.