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Digby Adler Group LLC v. Image Rent a Car, Inc.

United States District Court, N.D. California

February 6, 2015

DIGBY ADLER GROUP LLC, Plaintiff,
v.
IMAGE RENT A CAR, INC., et al., Defendants

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[Copyrighted Material Omitted]

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For Digby Adler Group, LLC, a California limited liability company, doing business as, Bandago LLC, Plaintiff: Karl Stephen Kronenberger, LEAD ATTORNEY, Jeffrey Michael Rosenfeld, Kronenberger Rosenfeld, LLP, San Francisco, CA; Conor Hughes Kennedy, Whitestone, NY.

For Van Rental Co., Inc., a New York corporation, Van Rental Co., Inc., a New York corporation, Gad Sebag, an individual, Shneior Zilberman, an individual, Defendants: Steven Heath, LEAD ATTORNEY, Heath and Steinbeck LLP, Santa Monica, CA.

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ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT

Samuel Conti, UNITED STATES DISTRICT JUDGE.

I. INTRODUCTION

Now before the Court are two motions for summary judgment.

One is brought by Plaintiff Digby Adler Group, LLC. ECF No. 122 (" Pl.'s Mot." ). The other is brought by Defendant Gad Sebag. ECF No. 134 (" Sebag Mot." ). Both motions are

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fully briefed,[1] and the Court deems them suitable for disposition without oral argument pursuant to Civil Local Rule 7-1(b). For the reasons set forth below, Plaintiff Digby Adler Group, LLC's motion for summary judgment is GRANTED in part and DENIED in part, and Defendant Gad Sebag's motion for summary judgment is DENIED.

II. BACKGROUND

A. Factual Background

Plaintiff Digby Adler Group, LLC (" Digby" ) has operated a van rental service under the name Bandago, LLC (" Bandago" ) through its website, bandago.com, since 2003. ECF No. 124 (" Laguana Decl." ) 1-2. On August 31, 2010, the United States Patent and Trademark Office (" PTO" ) issued federal trademark registration number 3839689 to Digby for the BANDAGO mark. ECF No. 123 (" Rosenfeld Decl." ) Ex. 18.

The defendants in this matter are two individuals -- Gad Sebag and Schneior Zilberman -- and two companies -- Image Rent A Car, Inc. (" Image" ) and Van Rental Co., Inc. (" Van" ) (Van and Image will be referred to collectively as the " Corporate Defendants" ). Mr. Zilberman operated a third rental car company called Adir Rent A Car, Inc., from 1996 through 2004. ECF No. 129 (" Zilberman Decl." ) ¶ ¶ 3-8. Adir folded in 2004, when a dispute with the car dealership that supplied its inventory resulted in the supplier refusing to let Adir use its cars. Id. ¶ ¶ 6-8. Mr. Zilberman's personal finances and credit were seriously damaged in the process. Id. ¶ 9. So Mr. Zilberman approached Mr. Sebag -- his brother-in-law -- asking for financial assistance to start a new company. Id. ¶ 9. Mr. Sebag agreed to form a rental car company, serve as its CEO, loan money to the company, and allow Mr. Zilberman to use his credit rating to obtain cars. ECF No. 130 (" Sebag Decl. I" ) ¶ ¶ 7, 9). However, according to both Mr. Sebag and Mr. Zilberman, Mr. Zilberman alone would control all of the company's operations. Id.; Zilberman Decl. ¶ ¶ 14, 17-19.

In October 2004, Defendant Image Rent A Car, Inc. (" Image" ) was incorporated under the law of New York State. ECF No. 21-4 (" Sebag Decl. II" ) at 1. Mr. Sebag filed for incorporation and was the company's CEO (though the corporate record kept by the New York Department of State reflects the name " Gao Sebaf" ) and sole shareholder; he also described Image as " my company." ECF No. 137 Ex. 13 at 16[2]; Rosenfeld Decl. Exs. 16, 42 at 14:3-11 (Sebag " owned and initiated [Image and Van]" ), 44 at 30:10-13. Defendant Shneior Zilberman served as Image's general manager. Id. Ex. 2 at 1. Image operated a car and van rental service primarily in New York, though it also had offices in Florida. Id. Image marketed its rental service through its website, imagerentacar.com. Id. Exs. 4-5 at Responses 19-20. Image's bylaws were simply blank form bylaws, without even the name of the corporation filled in. ECF No. 137 Ex. 13 at 17-66. Though the bylaws require a board of directors with at least three directors, Image never had a board of directors. Id.

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Ex. 13 at 2. Nor do Image's records indicate that it ever held shareholder meetings or keep corporate minutes. Id. Ex. 13 at 2, 15-66.

Defendant Van Rental Co., Inc. (" Van" ) was incorporated under the law of New York State in July 2007. Rosenfeld Decl.d. Ex. 17. Initially founded with the objective of expanding Image's business into new areas, Van was defunct almost from the start and never actually operated. Id. Ex. 42 at 4:6-19, 5:6-12. Mr. Sebag was Van's CEO and sole shareholder. Id. Exs. 1 at 1, 42 at 14:3-11. Mr. Zilberman, who served as Van's president, recalls that Van either owned " none or very few" vehicles. See Id. Exs. 26 at 3, 42:14-19. Van's finances were run through Image, and the two companies operated essentially as one entity. Rosenfeld Decl. Ex. 42 at 8:14-18, 10:3-4.

In August of 2008, Van registered the domain name bandago.net (recall that Digby's website was bandago.com). Id. Ex. 7 at 6; Ex. 31. Though the account with the domain registrar listed Van as the owner, the contact email address supplied was info@imagerentacar.com. Id. Ex. 31 at 3. There was no website at bandago.net; the site simply redirected visitors to Image's website. Sebag Decl. II at 2. In addition to registering the bandago.com domain, Defendants bid on the Google AdWords search terms " bandago," " bandago van rental," and " bandago van rentals" (the " Bandago Search Terms" ). Rosenfeld Decl. Ex. 23. Google AdWords is a service that lets customers bid on certain search terms, so that the customer's website will show up as advertisement when Google visitors search for those terms. Defendants paid for advertisements that would direct users to Image's website when they searched for the Bandago Search Terms. Id. Ex. 24. The Google AdWords account was registered in Mr. Sebag's name, but Mr. Zilberman operated the account. Id. Exs. 9 at 2, 35.

On July 1, 2007, Digby's CEO, Sharky Laguana, created content for the Bandago website. The text on the website described Bandago's vans and rental services. Laguana Decl. 5 11, Ex. 3. Digby applied for a copyright registration to cover the text of the website, and the PTO granted the registration on January 31, 2011. Rosenfeld Decl. Exs. 19-20. Virtually identical text (sometimes modified very slightly to reflect Image's name and locations) appeared on Image's website. See id. Exs. 52-59.

On April 27, 2010, Philippe Naim (Mr. Sebag's uncle) formed a corporation called Group Travel Solution, Inc. (" GTS" ). Id. Exs. 49 at 8:6-23; 60. Mr. Naim recalls that GTS purchased Image's assets, including vehicles, phones, and websites. Id. Ex. 49 at 9:2-4. He does not recall exactly how many vehicles GTS purchased, but guesses that the number was " [b]etween fifty and sixty." Id. at 9:5-11. Digby asserts that GTS purchased 78 cars for one dollar each. See Pl.'s Mot. at 10. In support, Digby cites to GTS' 2010 tax returns -- a 39-page exhibit -- with no pincite or explanation. But those returns indicate only that GTS owned some large number of vehicles, and the tax returns do not indicate the vehicles' source or sources. See Rosenfeld Decl. Ex. 50 (filed under seal) at 11, 16-19, 22-27, 37-38. GTS' tax returns do, however, reflect the sale of 20 of the vehicles, and the sale prices and proceeds show that each was originally acquired for $1. See id. at 11, 24-27. On March 24, 2011, Van and Image filed for bankruptcy. Id. Exs. 25-26.

B. Procedural History

This case was filed on February 11, 2010. See ECF No. 1 (" Compl." ). The transfer of assets described above therefore

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took place after the filing of this lawsuit but before Van and Image declared bankruptcy. When the Corporate Defendants filed for bankruptcy, the Court stayed this case pending the outcome of the bankruptcy proceedings. See ECF No. 90 (" Stay Order" ). On May 23, 2014, the bankruptcy court dismissed both bankruptcy proceedings. See ECF No. 96 Exs. A-B. On June 16, 2014, the Court granted Digby's unopposed motion to lift the stay. See ECF No. 97. Digby then moved for summary judgment, alleging that Mr. Sebag and Mr. Zilberman are personally liable for Van and Image's actions because all defendants are alter egos of one another and because officers and directors of a corporation are liable for torts they authorize or in which they participate. Pl.'s Mot. at 19-21.

Defendants opposed the motion, but they conceded that the Corporate Defendants are liable for trademark and copyright infringement. They also concede two of the elements of cybersquatting. See Defs.' Opp'n at 1. However, Defendants argue that Mr. Sebag and Mr. Zilberman are not alter egos of Van or Image and that Mr. Sebag is not personally liable as an officer or director. Mr. Sebag then moved for summary judgment on the grounds that he cannot be held liable for the Corporate Defendants' actions. See Sebag Mot.

III. LEGAL STANDARD

Entry of summary judgment is proper " if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). Summary judgment should be granted if the evidence would require a directed verdict for the moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The moving party bears the initial burdens of production and persuasion. Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Cos., Inc., 210 F.3d 1099, 1102 (9th Cir. 2000).

IV. DISCUSSION

The Court begins with a discussion of the Corporate Defendants' liability, and then proceeds to analyze whether Mr. Sebag or Mr. Zilberman may be held ...


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