NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 11-4132
_____________
HEALTH AND BODY STORE, LLC; HOTHEADZ INTERNATIONAL, INC.,
Appellants
v.
JUSTBRAND LIMITED; JUSTIN SILVERMAN; BRANDON SINGER,
_______________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 11-cv-6638)
District Judge: Honorable Mitchell S. Goldberg
_______________
Argued: March 27, 2012
Before: FUENTES, SMITH, and JORDAN, Circuit Judges.
(Filed: May 11, 2012)
_______________
James J. Ferrelli, Esq.
Duane Morris
240 Princeton Avenue - #150
Hamilton, NJ 08619
Gregory A. Lomax, Esq.
Duane Morris
1940 Route 70 East - #200
Cherry Hill, NJ 08003
Robert M. Palumbos, Esq. [ARGUED]
Duane Morris
30 South 17th Street
United Plaza
Philadelphia, PA 19103
Counsel for Appellant
Michael D. LiPuma, Esq. [ARGUED]
325 Chestnut Street - #1109
Philadelphia, PA 19106
Counsel or Appellees
_______________
OPINION OF THE COURT
_______________
JORDAN, Circuit Judge.
Hotheadz International, Inc. (“Hotheadz”)1 and Health and Body Store, LLC
(“HBS”) (collectively, “Appellants”) appeal an order of the United States District Court
for the Eastern District of Pennsylvania denying their motion for a preliminary
injunction. The motion sought to preclude Appellees Justin Silverman and Brandon
Singer from independently operating two websites (the “Websites”) that the parties had
used together to conduct an Internet business. For the reasons that follow, we will vacate
the District Court‟s order and remand the matter for proceedings consistent with this
opinion.
1
Hotheadz‟s predecessors are Hotheadz of America, Inc. (“Hotheadz Inc.”) and
Hotheadz of America, LLC (“Hotheadz America”). Hotheadz Inc. was formed by Jay
Oxenhorn and Bruce Singer, the father of Appellee Brandon Singer. In 2006, a new
ownership team acquired Hotheadz Inc. and formed Hotheadz America. Thereafter,
Hotheadz America formed Hotheadz, which assumed ownership of Hotheadz America‟s
business assets and took control of its business operations. For ease of reference, we
refer to Hotheadz Inc., Hotheadz America, and Hotheadz collectively as “Hotheadz.”
2
I. Background
Hotheadz is in the business of manufacturing and selling products, including hats
and other apparel, designed for use in cold weather. Its distribution channels include flea
markets, kiosk retailers, television shopping channel retailers, and hardware stores. In
January 2005, Hotheadz hired Silverman and Singer as sales trainees. Eventually they
became involved in marketing to Hotheadz‟s kiosk customers.
A. The Websites
In 2007, while employed by Hotheadz, and with Hotheadz‟s permission,
Silverman and Singer began to independently operate an Internet business selling winter
apparel and health products. A majority of the items Silverman and Singer sold were
ones they had purchased from Hotheadz. They operated the Internet business through the
Websites, which were established when Silverman registered the domain names
www.healthandbodystore.com and www.thewarmingstore.com (collectively, the
“Domain Names”) in January and September 2007, respectively. After the Domain
Names were registered, Silverman and Singer put substantial effort into developing the
Websites. They created all of the content on the Websites and paid all advertising costs,
which included Internet advertising services. Eventually, as a result of their efforts, the
Websites earned approximately $55,000.00 to 60,000.00 in gross revenue in 2007,
$150,000.00 in 2008, and $170,000.002 in 2009.3
2
Although Silverman testified that the Websites generated approximately
$180,000.00 in 2009, his accounting records state that they earned $170,000.00 in 2009.
3
B. The Parties Discuss a Joint Venture
In late 2008, Hotheadz‟s Chief Executive Officer, Jeff Zelenko became concerned
that Silverman and Singer were devoting too much of their time at work to improving
their Internet business. When he approached them to discuss the issue, Zelenko informed
them that “they [had] a choice” to either “contribute the ... [Websites] into …
[Hotheadz‟s] business” and they could “work out some sort of a deal” with Hotheadz, or,
they could “leave [Hotheadz]” and continue to run their business independently. (App. at
549.) Zelenko also claimed that he offered Silverman and Singer the opportunity to
create a joint venture with Hotheadz. According to Zelenko, Hotheadz proposed: (1) that
it would own a 75% interest in the joint venture and that Silverman and Singer would
collectively own a 25% interest; (2) that it would provide “complete financial support for
… the growth of the [new] business”; and (3) that it would “offer its infrastructure to
manage the [new] business day in and day out.” (Id.)
When Zelenko explained his proposal to Silverman and Singer, he did not
expressly ask them to transfer ownership of the Websites to Hotheadz, and there is no
written documentation containing such an agreement.4 Nevertheless, although Silverman
and Singer did not explicitly agree to the terms Zelenko proposed for a joint venture,
3
During this period, Hotheadz also owned a website called www.hotheadz.net,
but, according to Hotheadz itself, the website was “undeveloped,” and “did a very
minimal amount of volume.” (App. at 546.)
4
Silverman testified that he specifically refused to transfer ownership of the
Domain Names unless the parties reached “a full agreement that outlined how this new
proposed business would have run,” and made clear that “[o]nce [the parties] came to an
agreement, that [the Websites were] going to be [his] contribution to the business.”
(App. at 855.)
4
they did begin to operate the Websites with Hotheadz in the latter part of 2009.
Before September 11, 2009, and sometime after the first discussion of a possible
business arrangement, Zelenko sent Silverman and Singer two versions of a “Letter of
intent to form [a] Partnership for Internet Division Between [Hotheadz] and Brandon
Singer and Justin Silverman” (collectively, the “Letters of Intent” or the “Letters”).
(App. at 198, 200.) The Letters of Intent acknowledged that the Websites were
“currently owned by Brandon Singer and Justin Silverman,” and the Letters included a
provision stating that the Websites “would be transferred to [Hotheadz] as of
[August/September] 2009” for “no financial consideration.” (App. at 198, 200.)
Silverman testified that he refused to sign the Letters of Intent because they were “very
incomplete” and “didn‟t have a lot of what [he] felt should be in a contract,” including
provisions governing revenue sharing (App. at 856), and Singer testified that he refused
to sign for the reasons that Silverman explained.
From August 2009 until January 2010, Silverman and Singer continued to operate
the Websites to support Hotheadz‟s business. During that period, Hotheadz purchased
the inventory sold on the Websites and paid a large portion of the out-of-pocket expenses
Silverman and Singer incurred in operating the Websites. Between September and
December of 2009, the Websites generated approximately $75,000.00 in gross revenue.
C. The Formation and Operation of HBS
On January 14, 2010, Hotheadz formed HBS as a limited liability company. The
new entity had no employees, and every individual who performed services for it,
including Silverman and Singer, was employed by Hotheadz. Although the record does
5
not contain a certificate of ownership interest, subsequent documents filed by the parties,
as well as Silverman‟s testimony during the preliminary injunction hearing, indicate that
the only members of HBS were Hotheadz5 and Justbrand Ltd. (“Justbrand”),6 a
Pennsylvania LLC owned and operated by Silverman and Singer.
Between January 2010 and October 2011, Silverman and Singer continued to
operate the Websites with Hotheadz‟s support. According to Charles Donato, Hotheadz‟s
Chief Financial Officer, Hotheadz provided HBS the following logistical and
administrative support during that period:
(a) [Hotheadz] paid Silverman and Singer their salaries. …;
(b) [Hotheadz] sold HBS the majority of the goods sold on
the Websites at [Hotheadz‟s] cost. …;
5
The Schedule K-1‟s generated from HBS‟s Internal Revenue Service Form 1065
for the year 2010 state that Hotheadz owned a 75% interest in HBS, and Justbrand owned
a 25% interest in HBS. HBS‟s Pennsylvania Enterprise Registration Form states that
Hotheadz owned a 50% interest in HBS and that Silverman and Singer each owned a
25% interest in the company. Thus, although the precise ownership interest of each party
is unclear, the documentation described above demonstrates, at a minimum, that either
Justbrand or Silverman and Singer were the only members of HBS besides Hotheadz.
6
Silverman testified that he and Singer formed Justbrand in order to hold their
ownership interest in HBS:
Q: Okay. Now you are also aware that [Justbrand] was
formed [sometime] in – was formed sometime in March of
2010?
[Silverman]: Yes.
Q: And you and Mr. Singer caused that to be formed, is that
right?
[Silverman]: Yes.
Q: And you agreed to form that company to take your equity
in [HBS], is that right?
A: Yes.
(App. at 816.)
6
(c) [Hotheadz] … provided … all of HBS‟s warehousing,
shipping, accounting, informational technology, customer
services, and all of its management services and controls …;
(d) [Hotheadz] … routinely infused capital into HBS to cover
any budgetary shortfalls;
(e) [Hotheadz] … carr[ied] large receivables from HBS for
inventory sales; and
(f) … . [Hotheadz bore] [a]ll costs of operating the websites
….
(App. at 55.) However, that support came at significant cost – according to Silverman,
Hotheadz informed him that HBS would be charged $240,000.00 in “management fee[s]”
in 2010, and that Hotheadz would increase the management fee to $360,000.00 in 2011.
(App. 864.)
During 2010 and 2011, sales generated by the Websites increased substantially.
Between January 2009 and September 11, 2009, the Websites had generated
approximately $170,000.00 in revenue. In 2010, revenue from the Websites grew to
approximately $358,000.00. Hotheadz projected that revenue from the Websites would
grow to $1,100,000.00 in 2011. All of the revenue that HBS generated through the
Websites was deposited into a bank account that HBS opened with Wachovia Bank.
D. The Proposed Operating Agreement
In July 2011, Hotheadz‟s management team prepared and delivered to Silverman
and Singer a draft operating agreement (the “Operating Agreement”). Under the terms of
the Operating Agreement, Hotheadz was entitled to take a management fee of at least
$20,000.00 per month from the sales generated by the Websites. The Operating
Agreement also contained a provision requiring Silverman and Singer to transfer the
Domain Names and the Websites to HBS:
7
Title to property. All real, intellectual, and personal property
owned by the Company [i.e., HBS] shall be owned by the
Company as an entity and, insofar as permitted by applicable
law, no Member shall have any ownership interest in such
property in its individual name or right, and each Member‟s
interest in the Company shall be personal property for all
purposes. Moreover, the internet domain names, web site
addresses, and Pay Pal accounts … as well as all future
domain names, web sites and any other type of accounts used
by the Company, are hereby absolutely transferred and
conveyed to Company without further consideration.
(App. at 202.) Silverman and Singer did not sign the Operating Agreement.
E. Silverman and Singer Terminate their Relationship with Hotheadz
Sometime around August 2011, Silverman and Singer came up with a plan to
break off their operating relationship with Hotheadz and HBS. They began to quietly
acquire inventory on their personal credit and ship it directly to Silverman‟s home in
Philadelphia, Pennsylvania. Silverman testified that he began stockpiling the inventory
so that he and Singer could continue operating the Websites after they terminated their
employment with Hotheadz. Silverman and Singer also placed orders for Hotheadz‟s
products through a company called Novell Brands, LLC (“Novell”) at wholesale prices,
so that they could repurchase the same items from Novell after terminating their
operating relationship with Hotheadz. At the time, Silverman and Singer did not tell
Hotheadz and HBS of their preparation for terminating their employment with Hotheadz
and their relationship with HBS.
On October 11, 2011, Silverman and Singer resigned from Hotheadz and changed
the passwords associated with the Websites and the PayPal account that HBS used to
collect payments from customers purchasing Hotheadz‟s products on the Websites. By
8
changing those passwords, they cut Hotheadz off from any control over the Websites and
they seized the revenue generated through the Websites. Thereafter, Silverman and
Singer operated the Websites exclusively for their own benefit, as they had before the
formation of HBS. According to Hotheadz, the appearance of the Websites was identical
both before and after October 11, 2011.
F. Procedural History
Hotheadz and HBS commenced this action on October 24, 2011 by simultaneously
filing a complaint and a motion for a preliminary injunction. The complaint alleged
several claims under the Lanham Act, 15 U.S.C. § 1051 et seq., including trademark
infringement, unfair competition, and false designation of origin. It also asserted a
violation of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030, and various common
law claims, including misappropriation of trade secrets and confidential information,
unfair competition, breach of fiduciary duty, tortious interference with contract, and
conversion. The following day, the District Court entered an order requiring Justbrand,
Silverman, and Singer to refrain from using, “any trademark owned by Plaintiffs on the
websites „The Warming Store‟ (www.thewarmingstore.com) and „Health and Body
Store‟ (www.healthandbodystore.com).” (App. at 995.)
On November 3 and 4, 2011, the District Court held a hearing on the motion for a
preliminary injunction. After considering the parties‟ arguments and taking testimony
from witnesses, the Court issued an oral opinion denying the motion. The Court made
clear that the focus of its analysis was on the question of whether “there [was] a valid
partnership as it relates specifically to the web sites[.]” (App. at 7.) It found that the
9
parties never formed a partnership because there was “no meeting of the minds as to the
essential terms of any partnership,” including “percentage of ownership,” “the duties of
… partners,” “dissolution of the partnership,” and “profit distribution.” (App. at 10-11.)
In addition, the Court found that there was no evidence that the Operating Agreement,
which contained a provision governing ownership of the Websites, “was ever signed and
consummated.” (App. at 12.) Based on its determination that the parties did not form a
partnership, the District Court rejected Appellants‟ breach of fiduciary duty claim, saying
that “there has not been sufficient proof … of a showing of an agreement which would
give rise to [a fiduciary] duty so the claim of breach of fiduciary duty … fails.” (App. at
14.)
The District Court also held that Hotheadz and HBS were unlikely to succeed on
the merits of their Lanham Act claims. It found that their trademark infringement claim
was moot because Singer, Silverman, and their vehicle, Justbrand, agreed to remove all
of Hotheadz‟s trademarks from the Websites. As to the unfair competition and false
designation of origin claims, the Court rejected the contention that Singer, Silverman, and
Justbrand were “representing that the goods sold on the web sites [were] coming from
[HBS] when they‟re not actually coming from [HBS].” (App. at 14.) The Court
determined instead that the Domain Names “www.thewarmingstore.com” and
“www.healthandbodystore.com” were unlikely to cause confusion as to the source of the
goods sold on those Websites.
HBS and Hotheadz filed a timely notice of appeal.
10
II. Jurisdiction and Standard of Review
The District Court exercised jurisdiction over this case pursuant to 28 U.S.C.
§§ 1331 and 1367. We have jurisdiction under 28 U.S.C. § 1292(a).
“We review the denial of a preliminary injunction for „an abuse of discretion, an
error of law, or a clear mistake in the consideration of proof.‟” Kos Pharm., Inc. v. Andrx
Corp., 369 F.3d 700, 708 (3d Cir. 2004) (quoting Am. Tel. & Tel. Co. v. Winback &
Conserve Program, Inc., 42 F.3d 1421, 1427 (3d Cir. 1994)). “[A]ny determination that
is a prerequisite to the issuance of an injunction … is reviewed according to the standard
applicable to that particular determination.”7 Winback, 42 F.3d at 1427 (internal
quotation marks omitted). “Thus, we exercise plenary review over the district court‟s
conclusions of law and its application of law to the facts, but review its findings of fact
for clear error, which occurs when we are left with a definite and firm conviction that a
mistake has been committed.” Duraco Prods., Inc. v. Joy Plastic Enters., Ltd., 40 F.3d
1431, 1438 (3d Cir. 1994) (citations and internal quotation marks omitted). Our
deferential review
7
The familiar test for whether to grant a motion for a preliminary injunction,
requires a district court to ask:
(a) did the movant make a strong showing that it is likely to
prevail on the merits? (b) did the movant show that, without
such relief, it would be irreparably injured? (c) would the
grant or denial of a preliminary injunction substantially have
harmed other parties interested in, or affected by, the
proceedings? (d) where lies the public interest?
Klitzman, Klitzman and Gallagher v. Krut, 744 F.2d 955, 958-59 (3d Cir. 1984) (citation
omitted).
11
is appropriate because a court nearly always bases the grant
or denial of [a preliminary] injunction on an abbreviated set
of facts, requiring a delicate balancing of the probabilities of
ultimate success at [the] final hearing with the consequences
of immediate irreparable injury that possibly could flow from
the denial of preliminary relief.
Krut, 744 F.2d at 958.
III. Discussion
Hotheadz and HBS assert that the District Court abused its discretion by holding
that they are unlikely to succeed on the merits of their breach of fiduciary duty claim. To
determine whether the District Court‟s holding regarding that claim was an abuse of its
discretion, we must first decide whether the Court could justifiably have concluded that
the parties had no relationship giving rise to fiduciary obligations. Hotheadz and HBS
contend that there is no justification for the District Court‟s ruling because Hotheadz and
Justbrand “are both co-members of … HBS” – a relationship that necessarily “[gives] rise
to … fiduciary and other obligations … .” (Appellants‟ Opening Br. at 40.) Silverman,
Singer, and Justbrand respond that, even if HBS was duly formed, they never agreed to
transfer ownership of the Websites to HBS and, therefore, Justbrand could not have
breached any fiduciary duty to Hotheadz or HBS. That response is beside the point, and
Hotheadz and HBS have the far more persuasive position.
Under Pennsylvania‟s Limited Liability Company Law of 1994 (the “LLC Act”),
“[o]ne or more persons may organize a limited liability company,” Pa. Cons. Stat.
12
§ 8912, by filing a certificate of organization,8 id. at § 8913. Here, the parties did just
that. The evidence of record demonstrates that Hotheadz and Justbrand duly formed HBS
as a Pennsylvania LLC by filing a certificate of organization (the “Certificate”) with the
Commonwealth of Pennsylvania on January 14, 2010.9 The Certificate contains (1) the
name of the LLC (HBS); (2) HBS‟s initial registered office; (3) the name and address of
HBS‟s organizer; (4) a statement that “[a] member‟s interest in [HBS] is to be evidenced
by a certificate of membership interest”10; and (5) the hour, month, day and year of the
effective date of HBS. (App. at 246.) The evidence also reveals that Justbrand and
Hotheadz are the only members of HBS,11 and that Silverman and Singer are the only
members of Justbrand. As noted above, Silverman testified that he and Singer formed
Justbrand to hold their interest in HBS, and state and federal tax documents filed by the
parties demonstrate that Justbrand is a member of HBS. It seems plain, then, that
8
The certificate must contain: (1) the name of the LLC; (2) “the address,
including street and number, if any, of [the company‟s] initial registered office”; (3)
“[t]he name and address, including street and number, if any, of each of the organizers”;
(4) a statement of a member‟s interest in the company if that interest is “evidenced by a
certificate of membership interest”; (5) a statement that “management of the company is
vested in a manager or managers,” if the company chooses to vest management in
managers; (6) the hour, month, day, and year of the effective date of the company; (7) a
statement that the company is a restricted professional company, if applicable; and (8)
any other provision the members of the LLC choose to include in the certificate of
organization. 15 Pa. Cons. Stat. § 8913.
9
Hotheadz and HBS pointed this out to the District Court. (See App. at 521 (“[I]n
January of 2010 there was a reconfiguration of the relationship [between Hotheadz and
Appellees] … and that‟s when Health and Body Store, LLC was formed.”); id. at 525
(“[A]ll the indicia of a commonly owned partnership relationship existed, first in the form
of a partnership, secondarily, in the form of an LLC.”).)
10
We note that the parties did not include the “certificate of membership interest”
in the appellate record.
11
See supra notes 4 and 5.
13
Silverman and Singer, acting through Justbrand, cooperated with Hotheadz in the
formation of HBS, a valid Pennsylvania LLC, and that Hotheadz and Justbrand are the
members of that LLC.
By operation of law, because it is a member of HBS, Justbrand owes fiduciary
duties to its fellow member, Hotheadz. Under Pennsylvania‟s LLC Act, “[i]f [an LLC‟s]
certificate of organization does not contain a statement to the effect that [a] limited
liability company shall be managed by managers,” then the provisions of partnership law
govern the relations between the members of the LLC. See 15 Pa. C.S. § 8904 (“If the
certificate of organization does not contain a statement to the effect that the limited
liability company shall be managed by managers, the provisions of Chapters 81 (relating
to general provisions) and 83 (relating to general partnerships) govern, and the members
shall be deemed to be general partners for purposes of applying the provisions of those
chapters.”). Because HBS‟s certificate of organization does not state that it “shall be
managed by managers,” id., Pennsylvania partnership law governs the relationship
between Justbrand and Hotheadz, and “[t]here is a fiduciary relationship between
partners,” Clement v. Clement, 260 A.2d 728, 729 (Pa. 1970). The rationale for that rule
is that “[o]ne should not have to deal with his partner as though he were the opposite
party in an arms-length transaction,” and “should be allowed to trust his partner, to expect
that he is pursuing a common goal and not working at cross-purposes.” Id. Among the
fiduciary duties that partners owe each other are the duty of loyalty, id., and the
corresponding obligation to act for the benefit of the other members of the partnership,
see Hamberg v. Barsky, 355 Pa. 462, 465 (1947) (stating that a “confidential relation …
14
is one wherein a party is bound to act for the benefit of another, and can take no
advantage to himself” (internal quotation marks omitted)); Poeta v. Jaffe, 51 Pa. D. &
C.4th 78, 84 (Pa. Ct. Com. Pl. 2001) (“In general, partners owe a fiduciary duty to each
other to act in good faith during the life of the partnership.”); cf. 15 Pa. Cons. Stat. § 8334
(noting that partners have a duty to account).
Justbrand also owed fiduciary duties to HBS. Under Pennsylvania law, a partner
is accountable as a fiduciary to the partnership, which is here embodied in the LLC. See
15 Pa. Cons. Stat. § 8334 (“Every partner must account to the partnership for any benefit
and hold as trustee for it any profits derived by him without the consent of the other
partners from any transaction connected with the formation, conduct or liquidation of the
partnership or from any use by him of its property.”). Thus, “[w]here one partner has so
dealt with the partnership as to raise the probability of wrongdoing” it is his
“responsibility to negate that inference.” Clement, 260 A.2d at 729.
Here, the District Court abused its discretion by failing to recognize that Justbrand
owed fiduciary duties to Hotheadz and HBS, and by neglecting to examine whether
Justbrand breached those duties through the conduct of Silverman and Singer.12
12
Under Pennsylvania law, “[e]very partner is an agent of the partnership for the
purpose of its business and the act of every partner … for apparently carrying on in the
usual way the business of the partnership … binds the partnership … .” 15 Pa. Cons.
Stat. § 8321. Here, the record reveals that Silverman and Singer were the only members
of Justbrand and acted as agents of Justbrand. Thus, as agents of Justbrand (see App. at
177 (demonstrating that Silverman and Singer used website
www.healthandbodystore.com to further the business operations of Justbrand)), they were
obligated to operate the Websites in a manner consistent with Justbrand‟s fiduciary
obligations to Hotheadz and to HBS.
15
Specifically, the District Court did not consider whether Justbrand knowingly and
intentionally deprived HBS of access to, and use of, the Websites and associated bank
accounts, which were the sole means by which HBS marketed products and generated
and collected revenue. Nor did the Court appropriately consider whether Justbrand or its
agents breached fiduciary duties by using the Websites to market and sell the same
products HBS sold through the same Websites without putting consumers on notice that
HBS was not actually selling those products,13 and thus expropriating the goodwill
associated with the Websites.
Given the procedural posture of this case, we will not decide in the first instance
whether the actions of Singer, Silverman, and Justbrand constitute breaches of
Justbrand‟s fiduciary obligations to Hotheadz and HBS.14 See Forestal Guarani S.A. v.
13
Donato‟s affidavit states that “the Websites which the Defendants took from
HBS are absolutely identical to the Websites owned, operated and developed for nearly
… three years by HBS. There have been no material changes to them … .” (App. 59.)
14
Whether Singer and Silverman independently owed duties to Hotheadz and HBS
is a matter we also leave to the District Court to determine upon remand. It is worth
noting, for example, that there is evidence that Silverman was acting as an agent of HBS.
At times, Silverman represented that he was a “partner,” “owner,” “president,” and “vice-
president,” of HBS and he executed various agreements as a manager of HBS. To the
extent that Silverman actually held any of those positions with HBS, he was evidently an
agent of HBS and had fiduciary obligations to that company. See Garbish v. Malvern
Fed. Sav. & Loan Ass’n, 517 A.2d 547, 553-54 (Pa. Super. Ct. 1986) (“Under
Pennsylvania law, the duty of an agent to his principal is one of loyalty in all matters
affecting the subject of his agency, and the agent must act with the utmost good faith in
the furtherance and advancement of the interests of his principal.”) (citation and internal
quotation marks omitted); id. at 554 (“Because the relationship between the parties …
was an agency relationship, appellant owed appellees a fiduciary duty and its conduct
must be measured against the standard of care owed by a fiduciary.”).
Whether duties were owed independently or through Justbrand, even Singer,
Silverman, and Justbrand seemed to acknowledge at oral argument that it would be
16
Daros Int’l., Inc., 613 F.3d 395, 401 (3d Cir. 2010) (“We ordinarily decline to consider
issues not decided by a district court, choosing instead to allow that court to consider
them in the first instance.”). It is enough to say that the District Court abused its
discretion by failing to recognize that fiduciary duties were owed and by failing to
consider whether those duties were breached.15
fundamentally unfair for Silverman and Singer, acting as agents of Justbrand, to
undermine the interests of Hotheadz and HBS, to the extent that Justbrand owed those
entities fiduciary duties. Indeed, when asked during oral argument “if Justbrand were
found to be in violation of its fiduciary duties to Health and Body Store LLC because of
the actions of the only human beings associated with it …, would the response … by your
clients be „well that‟s Justbrand; we don‟t have anything to do with that,‟” counsel for
Singer, Silverman, and Justbrand responded, “no, I don‟t think that would be fair your
honor; I don‟t think that would be fair.” (Oral Argument at 18:23, Health and Body
Store, LLC and Hotheadz Int‟l, Inc. v. Justbrand Limited et al. (No. 11-4132), available
at http://www.ca3.uscourts.gov/oralargument/audio/11-
4132HealthandBodyStorev.JustbrandLtd.wma.)
15
Appellants also challenge the District Court‟s decision regarding their Lanham
Act unfair competition and false designation of origin claims. In order to succeed on a
false designation of origin or unfair competition claim under the Lanham Act, a plaintiff
must prove that: “(1) the mark [it seeks to protect] is valid and legally protectable, (2)
[the plaintiff] owns the mark, and (3) the defendant‟s use of the mark is likely to create
confusion concerning the origin of goods or services” associated with the mark. E.T.
Browne Drug Co. v. Cococare Prods., Inc., 538 F.3d 185, 191 (3d Cir. 2008) (citation
omitted) (elements of trademark infringement claim); see A & H Sportswear, Inc. v.
Victoria’s Secret Stores, Inc., 237 F.3d 198, 210 (3d Cir. 2000) (“We measure federal
trademark infringement, 15 U.S.C. § 1114, and federal unfair competition, 15 U.S.C.
§ 1125(a)(1)(A), by identical standards.”). At this juncture in the litigation, we lack a
sufficient evidentiary basis for determining whether the District Court abused its
discretion by denying Appellants‟ motion for a preliminary injunction as to their Lanham
Act claims because it is unclear who has a valid and legally protectable interest in the
identity and appearance of the Websites. We note that there appears to be considerable
overlap between the Lanham Act claims and the breach of fiduciary duty claim. Those
claims center on the allegation that Singer, Silverman, and Justbrand engaged in wrongful
behavior by using identical Websites both before and after they discontinued their
relationships with Hotheadz and HBS, and that, in doing so, they stole all of the business
17
IV. Conclusion
We will thus vacate the District Court‟s order denying Appellants‟ motion for a
preliminary injunction and remand the matter for further proceedings.16
and customer goodwill associated with the Websites. We leave it to the District Court to
decide in the first instance how the claims may be interrelated.
16
We say nothing about the remedy that may be appropriate in the event that the
District Court determines that HBS and Hotheadz are entitled to some form of
preliminary relief for breach of fiduciary duties. It is possible, of course, that no remedy
at all should be given, even if there has been a breach, since the balance of equities may
make a preliminary injunction inadvisable. Cf. Weinberger v. Romero-Barcelo, 456 U.S.
305, 312 (1982) (in deciding whether to award injunctive relief, “the court balances the
conveniences of the parties and possible injuries to them according as they may be
affected by the granting or withholding of the injunction.” (internal quotation marks and
citation omitted)). And, if some relief is warranted, that does not necessarily mean that
the relief HBS and Hotheadz seek is equitable or even feasible. Whether control of the
Websites can or should be returned to HBS or whether some other relief is in order is a
matter committed to the sound discretion of the District Court.
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