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Grooms v. Legge

March 17, 2009

JAMES GROOMS; BRYCEMARIE PHELAN; KNUKLE, INC., A COLORADO CORPORATION, PLAINTIFFS,
v.
JOHN LEGGE; GWEN LEGGE; KNUKLE, INC., A CALIFORNIA CORPORATION; ARTILLERY DISTRIBUTION; SEAN MYERS; DEVIN MERCADO; DOES 1-50, DEFENDANTS.



The opinion of the court was delivered by: Irma E. Gonzalez, Chief Judge United States District Court

ORDER ON PLAINTIFFS' MOTION FOR A TEMPORARY RESTRAINING ORDER

On March 11, 2009, plaintiffs filed a complaint and an application for a temporary restraining order. (Doc. Nos. 1, 4.) The Court heard oral argument on March 16, 2009 at 10:30 a.m., but defendants failed to appear. After consideration of the plaintiffs' submissions, and for the reasons set forth below, the Court GRANTS plaintiffs' application for a temporary restraining order.

BACKGROUND

A. The Parties

Plaintiffs James Grooms and Brycemarie Phelan are individuals residing in Colorado. Plaintiff Knukle, Inc. ("Knukle One") is a Colorado corporation with its principal place of business in Colorado Springs, Colorado. Knukle One was incorporated on November 28, 2009, but began as an unincorporated business entity in May 2008.

Defendants John Legge and Gwen Legge (collectively the "Legges") are a married couple living in Orange County, California. The Legges are part owners of defendant Knukle, Inc. ("Knukle Two"), a California corporation formed on September 19, 2008 with a principal place of business in Orange County, California.

Knukle Two may be partially owned by defendant Artillery Distribution, an unknown business entity with a principal place of business in San Diego, California. Defendants Sean Myers and Devin Mercado own and operate Artillery Distribution, which is a graphic design company.

B. Factual Background

i. Formation

In May 2008, Grooms and Phelan created the name "Knukle Inc" ("Knukle" was deliberately misspelled by omitting the "c" and turning the second "k" backwards). They created the name and some initial drawings, which combined the name Knukle Inc and a symbol representing brass knuckles. The name and these drawings became the genesis of a line of apparel and accessories targeted at fans of extreme sports and mixed martial arts. Grooms and Phelan reserved the domain name www.knuckleinc.com ("Knukle website") using an internet provider www.1and1.com.

On June 12, 2008, Grooms and Phelan filed a federal "intent to use" trademark application for the mark "Knukle" (with the second "k" turned backwards), serial number 77497169.

On July 8, 2008, after contacting various other vendors, Grooms and Phelan approached Artillery Distribution, asked for its assistance refining the Knukle designs, and requested estimates for printing designs on apparel and accessories. Over the phone, Grooms informed defendants Myers and Mercado of his trademark application and his intent to form the company "Knukle Inc."

During July 2008, Grooms and Phelan acted to establish Knukle Inc. They ordered business cards, established a merchant services account with Wells Fargo, and created Facebook and MySpace pages.*fn1 Additionally Grooms, Phelan, Myers, and Mercado attended the X-games in Long Beach and distributed promotional "Knukle, Inc" apparel to event attendees.*fn2 On August 7, 2008, Grooms and Phelan made their first internet sale of Knukle Inc apparel.

ii. The Business Relationship

During late August or early September of 2008, Grooms and Phelan placed an advertisement on www.craigslist.com, seeking investors for Knukle.*fn3

On September 9, 2008, Gwen Legge contacted Grooms and Phelan and expressed interest in investing in Knukle Inc. Grooms, Phelan, and the Legges agreed to meet on September 13, 2008.

On September 13, 2008, plaintiffs met with all defendants at a restaurant in Dana Point, California. Grooms and Phelan brought sample Knukle Inc apparel to the meeting. The Legges orally agreed to invest $115,000, up-front, in exchange for 50% ownership of "Knukle Inc." On September 16, 2008, Grooms drafted an email memorializing the oral agreement between the Legges, Grooms, and Phelan. This included a schedule of costs provided by Artillery Distribution.

After this meeting, John Legge established independent contact with Myers of Artillery Distribution. Together, John Legge and Myers informed Grooms they needed to change the Knukle website's webhost from Dreyson Solana to Bluehost in order to improve the site. Grooms agreed to the changes, but did not know the domain name was transferred to John Legge.

On September 19, 2008, unbeknownst to plaintiffs, the Legges formed Knukle Two. During preparation for the Action Sports Retailers trade show ("ASR trade show") scheduled for January 2009, John Legge began meeting with Myers and Mercado without consulting Grooms or Phelan. On November 5, 2008, Gwen Legge told Grooms that the Legges had opened a merchant account. Grooms understood the Legges would need an Employer Identification Number (EIN) to open that account. When he inquired about the EIN, Gwen claimed the Legges were only thinking about opening a merchant account. At this point, Grooms and Phelan became nervous about the actions the Legges had taken. On November 28, 2008, Grooms formed Knukle One, a Colorado corporation.

iii. The Fracture of the Relationship

On December 16, 2008, Gwen Legge called Grooms to request that he and Phelan assign to her their individual interests in the Knukle marks. Further, she requested Grooms and Phelan agree to move the company headquarters to Orange County, California. Grooms declined both requests.

Later that evening, Myers and Mercado called Grooms and informed him that the Legges were covertly starting their own company around a line of apparel targeting fans of extreme sports and mixed martial arts. The Legges planned to market the apparel at the ASR trade show with the brand name "Knukle Inc" (with the second "k" turned forwards) (the "Knukle Two mark").

Still later on December 16, 2008, Grooms called John Legge to express his concern about the phone call he received from Artillery Distribution. Grooms explained that if the Legges left the company, they could not use the name "Knukle." John Legge replied with vulgarity and expletives. Grooms offered to assign his and Phelan's rights to the trademarks if he and Phelan retained 51% of the company. The Legges did not agree to those terms. Later that night, during a subsequent phone call, John Legge offered to allow Grooms and Phelan to buy him out for 120% of the initial investment. The following day, Grooms and Phelan offered to buyout the Legges for a percentage less than 120%, but John Legge said buyout was no longer an option.

On December 18, 2008, Knukle Two filed a federal "actual use" trademark application for the mark, "Knukle Inc" with the second "k" turned forwards, Serial Number 77636449. Knukle Two subsequently amended the filing basis to "intent to use" on March 4, 2009. On January 5, 2009, Knukle Two filed a second federal "actual use" trademark application under a different International Class. In these two applications, the Legges claim a first date of use as June 1, 2008 -- a claim plaintiffs assert is impossible.

On January 22-24, 2009, the Legges sent Myers and Mercado to the ASR trade show to procure orders for the sale of "Knukle Inc." designs and merchandise. This merchandise was obtained from Artillery Distribution and Abstrakt Printing. Plaintiffs did not attend the ASR show because Artillery Distribution released all of the "Knukle, Inc." merchandise to the Legges. Further, a trade show representative informed Grooms that only the Legges were allowed to attend the show.

On January 30, 2009, Grooms noticed a new website had been posted at www.knukleinc.com. Grooms was unable to log onto the website as the site owner. At that time, Grooms noticed the Knukle Inc Facebook and MySpace pages began receiving postings calling Grooms and Phelan imposters. These postings contained information that could only be known by someone with intimate knowledge of the business relationship between the parties.

On February 5, 2009, Grooms received an email from a representative retailer based in Bakersfield named "Fatal Impact." Fatal Impact stated he was excited to receive his shipment of new "Knukle, Inc." apparel. Grooms and Phelan never received an order from Fatal Impact. Fatal Impact requested a status update via MySpace on March 8, 2009. Further, a retailer named "Skin" posted a MySpace message stating he enjoyed meeting Knukle representatives. Skin had only meet defendants' representatives.

On February 10, 2009, Grooms contacted Don Petro of Big League Graphics to fill an order. Petro contacted Independent Trading Company, a blank sweatshirt wholesaler. Independent Trading Co. informed Petro that an order from "Knukle, Inc" had already been made for a design "Knukle Up." The order was for more than $200,000 of sweatshirts imported from China.

Since the dissolution of the business relationship, Knukle Two has promoted its product using the Knukle Two mark and the Knukle website. In the exhibits attached to the Grooms Declaration, plaintiffs catalogue how defendants are selling exact replicas of plaintiffs' products and mark; the only difference is the orientation of the second "k" in Knukle. See (Grooms Decl., Ex. 26-1 though 26-44.) In each of these situations, the mark is presented on the same color merchandise, written in the same font, written in the same color, and accompanied by the same designs and symbols.

C. Procedural Background

Plaintiffs filed a complaint alleging fifteen claims for relief: (1) unfair competition and false designation of origin of goods under 15 U.S.C. §1125; (2) cybersquatting, in violation of 15 U.S.C. § 1125(d); (3) violations of California Business & Professions Code §§ 17200, 17500; (4) unfair competition under California's common law; (5) trademark and trade name infringement; (6) conversion; (7) fraud; (8) intentional interference with prospective business advantage; (9) intentional interference with economic relationships; (10) defamation; ...


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