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Strome v. DBMK Enterprises, Inc.

United States District Court, N.D. California

November 19, 2014

JENNIFER STROME, et al., Plaintiffs,
v.
DBMK ENTERPRISES, INC., et al., Defendants.

ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS SECOND AMENDED COMPLAINT Re: Dkt. No. 46

SUSAN ILLSTON, District Judge.

Defendants' motion to dismiss plaintiffs' second amended complaint ("SAC") is scheduled for a hearing on November 21, 2014. Pursuant to Civil Local Rule 7-1(b), the Court determines that this motion is appropriate for resolution without oral argument and VACATES the hearing.

BACKGROUND

This case arises out of a dispute among siblings over who owns the family business. The following allegations are taken from plaintiff's SAC. Docket No. 41, SAC.

"Mama's on Washington Square" ("Mama's") is a world famous restaurant located in San Francisco, CA. SAC ¶ 16. It was founded in 1967 by Frances Sanchez ("Frances"), and her husband Michael Sanchez Sr. ("Michael Sr."). Id. In 1970, Michael Sr. gave all his rights in Mama's to his wife Frances. Id. ¶ 17. Between 1991 and 1995, Elena Sanchez Arnau ("Elena"), one of Frances' eight children, operated the restaurant with Frances' consent. Id. ¶ 19. During this time, the restaurant's name was changed to "Mama's Girl on Washington Square, " and Elena paid Frances $1, 000 per month as consideration for the privilege of operating the restaurant. Id. In 1995, Elena became ill and, without Frances' consent, "turned over daily operation" of Mama's to Debra Sanchez ("Debra"), wife of Frances' son Michael Sanchez Jr. ("Michael Jr."). Id. ¶ 20. Debra subsequently changed the restaurant's name back to "Mama's on Washington Square, " and in 1997 Michael Jr. would join her in operating the restaurant. Id. At some unspecified time, Frances became aware that Michael Jr. and Elena were operating the restaurant, at which point "she reluctantly allowed Michael and Debra to operate the restaurant, with the understanding that the restaurant still belonged to [her]." Id. Frances also "took steps to ensure that all licenses were held by [her] and not by Debra and Michael [Jr.]." Id. ¶ 21.Michael Jr. and Debra made repairs and paid bills as consideration for the right to operate the Mama's. Id.

On August 13, 2000, Frances died intestate, with one-third of her estate (which included Mama's, and all intellectual property associated with the restaurant) passing to her husband Michael Sr., and two-thirds passing to her eight children in equal shares. Id. ¶ 23. In 2001, Vincent Sanchez ("Vincent"), one of the eight siblings, moved to Atlanta, GA to open "Lil' Mama's"-a restaurant which would eventually fail in 2003. Id. ¶ 41. In 2003, Michael Jr. and Debra, without notice to the family, formed a California corporation, DBMK Enterprises Inc. ("DBMK"), and purported to assign to it all assets and goodwill associated with Mama's. Id. ¶ 25. It was during this time, that Michael Sr.'s health began to decline, and a dispute among the siblings ensued over how his mounting medical expenses should be paid. Some of the siblings, believing that Michael Sr. owned Mama's, requested that profits from the restaurant be used to satisfy his medical bills; however, these requests were rebuffed by Debra, who refused to allow any profits derived from Mama's to be used for such purposes. Id. ¶¶ 25, 28.

After unsuccessful negotiations, in 2005, Elizabeth Cuny ("Liz") and plaintiff Jennifer Strome (both daughters of Frances and Michael Sr.) sued Michael Jr., Debra, and DBMK for declaratory relief, breach of fiduciary duty, fraud, unjust enrichment, conversion, and accounting. Id. ¶ 31. During the course of that litigation, Michael Jr. and Debra produced a bill of sale, notarized by Michael Sr. in 2005, purporting to have transferred Mama's to Michael Jr. and Debra in 1997 (while Frances was still alive). Strome believes they fraudulently obtained the document from Michael Sr. when he was "very ill and recovering from a number of small strokes." Id. ¶ 32; Exh. 3.

In 2006, Strome and Liz accepted Michael Jr.'s offer to resolve the dispute through mediation, on condition that they dismiss the lawsuit without prejudice; however, they were ultimately unable to come to a resolution through mediation. Id. ¶ 33-34. Michael Sr. eventually passed away on August 30, 2008, from complications following a stroke; he died intestate. Id. ¶ 39.

In the wake of the failed attempt at mediation, Debra and Michael Jr. continued to hold themselves out as the sole owners of Mama's. Id. ¶ 36. In December of 2006, Michael Jr. entered into a partnership to purchase and operate Pier 15, a bar and restaurant in San Rafael, CA where he served Mama's-themed menu items. Id. ¶ 35. Vincent attempted to open his own Mama's-themed restaurant in nearby Sausalito, CA, but was unsuccessful in doing so, and instead worked briefly for Michael Jr. at Pier 15. Id. ¶ 41. In 2009, the Pier 15 partnership failed, resulting in litigation between Michael Jr. and other partners, which eventually settled in July of 2014. Id. ¶ 42. In January of 2007, DBMK filed an application for registration of the Mama's mark with the United States Patent and Trademark Office ("PTO"), asserting that DBMK was the sole owner of the mark. On October 30, 2007, the PTO granted DBMK's registration for "Mama's on Washington Square" for "restaurant services." Id. ¶ 37.

In consultation with her siblings, plaintiff Jennifer Strome began exploring the possibility of expanding Mama's beyond its original location. In 2011, she met with potential investors in New York, NY, and received an offer for startup funding from a venture capital firm. Id. ¶¶ 45-46. Strome then flew to San Francisco, CA to share the news with her siblings. While in San Francisco, Strome obtained the signature of four of her siblings- Michael Jr., Liz, Laura, and Lynn-on a document which she terms a "partnership agreement letter" for the purpose of expanding the Mama's franchise. Id. ¶¶ 47-48, Exh 5. The document gave Strome the authority to negotiate and sign "franchising, licensing or other arrangements" on behalf of the signees. Id. Exh. 5. Strome held weekly meetings over Skype to keep all partners apprised of her progress. Id. ¶ 48, 52. Around this time, Strome became aware that defendants had filed an application with the PTO to register the trademark "Mama's on Washington Square." Id. ¶ 50. Thereafter, Strome offered to allow DBMK to continue operating the original Mama's in exchange for defendants promising to abandon pending and registered federal trademarks derived from the Mama's trademark. Id. ¶ 51. It is not specified whether this offer was ultimately accepted, although the SAC alleges that the parties did in fact agree that "territories between California and the northeast U.S. region would be available for franchising under the new Family entity." Id.

In August of 2011, Strome and Liz contributed $25, 000 of their own capital to the joint family venture, part of which was used to start LELJ, Inc., a New York corporation owned in equal shares by all five signees to the partnership letter agreement. Id. ¶ 54, Exh. 54. Strome hired an array of consultants to help her create a business plan, and LELJ filed three federal intent-to-use applications with the PTO for various marks which were Mama's menu items before Debra and Michael Jr. began operating the restaurant. Id. ¶¶ 55-56. In January of 2012, Strome formed a New York LLC, "Mama's Girls" for the purpose of bringing in investors. Id. ¶ 59, Exh. 8. One of the consultants Strome had hired to assist with the creation of the business plan decided to invest $50, 000 in startup capital. Id. ¶ 60, Exh. 9.

The partnership's momentum began to slow in early 2012, as Michael Jr. became increasingly skeptical of the partnership's goals and was uneasy about the idea of its co-existence with the original Mama's, which he purported to own. Id. ¶¶ 61, 63, 65. In April or May of 2012, Strome informed the partners that she had found a newly available location in San Francisco for Mama's to potentially expand. Id. ¶ 68. However, before Strome could arrange to inspect the location for the benefit of the partnership, Vincent, Debra, and Michael Jr. inspected the premises for their own expansion plans. Id. Vincent and Michael Jr. ultimately signed a lease to rent the location a few months later under the name of MSVS Corporation[1], with Vincent signing as "president." Id. ¶ 88, Exh. 15. Defendants later filed an application for a conditional use permit for this location with the San Francisco Planning Commission, which was signed by Vincent under oath and filed under the name "Mama's of San Francisco." Id. 89, Exh. 16. Strome believes that Vincent convinced or otherwise induced Michael Jr. to usurp this business opportunity from the partnership. Id. 73. Matters turned increasingly adversarial in the summer and fall of 2012, with Michael Jr. informing Strome through his attorney that Mama's Girls, LLC would need to pay DBMK a licensing fee to use Mama's-related intellectual property. Id. ¶ 72. In October of 2012, Strome responded by filing an "intent-to-use" trademark application with the PTO for the mark "Mama's Girls." Id. ¶ 76. Later that month, Strome and Liz filed a joint petition to cancel the registration of the mark for "Mama's on Washington Square" with the Trademark Trial and Appeals Board ("TTAB"), claiming that DBMK knowingly made false assertions in its application to the PTO. Id. ¶ 77. DBMK filed an opposition proceeding with TTAB against LELJ's trademark application for "Mama's Girls." Id. ¶ 78. As a result of the conflict between Strome and defendants, Laura and Lynn both decided to withdraw as partners from Mama's Girls, LLC. Id. ¶ 75.

In September of 2013 Strome and Liz petitioned to open probate proceedings on Frances' estate, learning that Frances' assets were held in constructive trust by the State. Id. ¶ 79. Strome was named administrator a month later. Id. ¶ 80. In March of 2014, Strome and Liz requested a suspension of the TTAB cancellation proceeding due to filing of the probate action.[2] Id. ¶ 81. On May 23, 2014, Strome initiated this action pro se, naming as defendants Michael Jr., Vincent, Debra, and DBMK. Docket No. 1. Strome alleges that defendants responded by potentially engaging in "spoliation of evidence" by destroying business records belonging to Frances and Michael Sr. SAC ¶ 83.

On June 17, defendants filed a motion to dismiss for failure to state a claim upon which relief can be granted. Docket No. 13. On June 24, Strome filed a first amended complaint, again pro se, but retained counsel thereafter. Docket No. 17. On that same day, this court denied defendants' motion to dismiss as moot. Docket No. 21. On July 10 and August 4, 2014 defendants filed motions to dismiss the FAC for failure to state a claim. Docket Nos. 22, 28. On September 9, 2014, the Court granted defendants' motions without prejudice. Docket No. 39. On September 22, 2014, Strome filed the SAC in her individual capacity and in her capacity as the administrator of Frances' estate, and added LELJ Inc. as a co-plaintiff. SAC. The SAC alleges causes of action for (1) cancelation of trademark registration (against DBMK), (2) declaratory judgment (against all defendants), (3) breach of contract (against Michael Jr.), (4) negligent misrepresentation and/or concealment (against Michael Jr.), (5) dilution (against all ...


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