Category Archives: Current Affairs

May a Principal Officer be Held Liable for Corporate Actions?

Should a principal corporate officer be able to avail himself of the corporation’s liability shield which would protect his personal assets from suits arising from actions taken in his corporate capacity? When should a principal officer be held liable for the actions of a corporation based on the principle that the corporation is merely a façade in order to protect the officer from personal liability? These questions were addressed in the recent New York case, Deborah S. Carlone v. The Lion & The Bull Films, Inc. et al., 10 Civ. 6275 (S.D. N.Y. Apr 30, 2012).

The initial holding in that case was that the corporate defendant, L&B Films (“L&B” or “Defendant”), breached its contract with the plaintiff, Deborah Carlone (“Carlone” or “Plaintiff”). The factual basis of that holding was as follows. Plaintiff lent $115,000.00 to L&B for the purpose of making a motion picture.  The loan needed to be made rapidly, without the normal document review. As an incentive, L&B promised Carlone that the principal loan amount of $115,000.00 would be repaid within 30 days, along with an additional $185,000.00.

Plaintiff brought suit against the Defendant because she had not received any of the repayment. Carlone prevailed against L&B Films in her claim for breach of contract. Accordingly, she was awarded $300,000.00 plus prejudgment interest. Subsequently, Carlone sought to hold Mr. Luna, the principal officer, director and 50% shareholder of L&B, personally liable for the judgment by piercing the corporate veil.

New York law establishes two requirements for piercing the corporate veil and thus holding an individual liable for corporate action:

1) the owner exercised complete domination over the corporation with respect to the
transaction at issue; and

2) such domination was used to commit a fraud or wrong that injures the party seeking
to pierce the veil.

MAG Portfolio Consultant, GMBH v. Merlin Biomed Group LLC, 268 F .3d 58 (2d Cir. 2001).

Courts consider the following factors when determining whether it is appropriate to pierce the corporate veil:

1) the absence of the formalities and paraphernalia that are part and parcel of the corporate existence, i.e. issuance of stock, election of directors, keeping of corporate records and the like;

2) inadequate capitalization;

3) whether funds are put in, and taken out of, the corporation for personal rather than corporate purposes;

4) overlap in ownership, officers, directors, and personnel;

5) common office space, address and telephone numbers of corporate entities;

6) the amount of business discretion displayed by the allegedly dominated corporation;

7) whether the related corporations deal with the dominated corporation at arms-length;

8) whether the corporations are treated as independent profit centers;

9) the payment or guarantee of debts of the dominated corporation by other corporations in the group; and

10) whether the corporation in question had property that was used by other of the corporations as if it were its own. 

William Passalcqua Builders, Inc. v. Resnick Developers South, Inc., 933 F. 2d 131, 139 (2d Cir. 1991).

The District Court applied the factors set forth above to the facts of this case. L&B Films was exceedingly undercapitalized, having only $50.00, when it was formed.  Other than the money it had
received from the Plaintiff, the corporation had no other assets nor did it conduct any other business during its existence. Additionally, it did not have corporate headquarters; it conducted business out of Luna’s residence. The sole officers of the corporation were Luna’s and his partner Mr. Pereyra. The meetings between them were informal; there were no formal board meetings at which minutes were kept. There was no evidence of any exercise of discretion by L&B that was independent of Luna’s discretion.  Furthermore, Luna used his control of L&B to effect the entering into the agreement with the Plaintiff.

On this basis, the Court held that it was proper to pierce the corporate veil in order to hold Luna personally liable for the award against L&B Films because Luna completely controlled and dominated the corporation.

Creating a corporate entity will not always protect you from being personally liable for corporate actions. It is important to keep Carlone factors in mind when conducting business through an entity.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

New York Assembly Seeks to Restrict Anonymous Free Speech on the Internet

The New York State Assembly has proposed a law that would
make sweeping changes to how people communicate on the Internet.  The Bill called the “Internet Protection Act”
A:8688 /S.6779 would require the following:

A web site administrator upon request
shall remove any comments posted on his or her web site by an anonymous poster
unless such anonymous poster agrees to attach his or her name to the post and
confirms that his or her IP address, legal name, and home address are accurate.
All web site administrators shall have a contact number or e-mail address
posted for such removal requests, clearly visible in any sections where
comments are posted.

Clearly, this would create
profound problems for civil libertarians and others who believe that people should
be allowed to post their views anonymously.
In fact, it might be unconstitutional, to the extent that a court would
find that it violates the principle that anonymous free speech are matters of
public concern is protected by the First Amendment.

Specifically,
in McIntyre v. Ohio Elections Commission, 514 U.S. 334 (1995), the United States
Supreme Court stated:

Anonymity is a shield from the tyranny of the
majority. . . . It thus exemplifies the purpose behind the Bill of Rights and
of the First Amendment in particular: to protect unpopular individuals from
retaliation . . . at the hand of an intolerant society

Id.at357.    

People
who post on websites, as well as webmasters, should follow this development to
see if the law ultimately is signed by the Governor, and if so, whether it
starts a nationwide trend.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

What Intellectual Property Issues Will Arise if The NBA Sells ad Space on Its Uniforms?

In July 2012, Adam Silver, the deputy commissioner of the NBA announced plans to allow corporate logos on team jerseys.  If the plan is formally approved, the ad space will be 2.5-in.-by-2.5-in. and will be placed below the left shoulder. This would be significant because prior to this year, none of the American big-four sports (the NBA, MLB, the NFL or the NHL) had contemplated providing
ad space on their players’ uniforms. 

The decision to allow advertisements to be placed on NBA members’ uniforms could undoubtedly generate large revenue per annum, but a bigger concern will be the intellectual property disputes that could arise from the deal. 

Is there a likelihood that the venture could create sponsorship confusion for basketball fans? If more than one brand advertises on a single player’s uniform, could this create confusion over corporate association and dilute the brand?  These are all important questions to consider as this initiative proceeds to fruition.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

Does Selling a Grey Market Goods In New York Confer Individual Jurisdiction Over the Trademark Infringer?

In Chloe v. Queen Bee of Beverly Hills, L.L.C., No. 09-cv (2d Cir. Aug. 5, 2010), the court was presented with a novel issue: whether a New York court would have jurisdiction over a California resident who was alleged to have engaged in one act of trademark infringement by sale of product to a Bronx resident.

In that case, Simone Ubaldelli (“Simone”), a California resident, was the owner of a California company that sold knock-off Padington bags by Chloé . These bags were  misrepresented as being products manufactured by Chloé.  The issue was whether Simone could be sued as an individual in New York for trademark infringement by her company, Queen Bee.

The New York court determined that it had jurisdiction over Simone because, although the she had only engaged in one transaction with a New York resident, her company had made at least fifty (50) sales of merchandise in New York that infringed on Chloé’s trademark.  As a result, there were enough contacts such that suit could proceed against Simone individually.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

Will the Request for a Poster’s Real Name When Logging Onto YouTube Begin to Remedy the Problem of Internet Defamation?

YouTube is aware that its user anonymity allows for an array of hurtful, judgmental, sexist and racist trolls. The site is now attempting to make users more accountable for their posts and prompting commenters to use their real names when logging in.

This policy change was initiated on June 29, 2012, and gives users the option of using a pseudonym or their real name.  However, this is not a mandatory policy, as users can simply elect not to switch to their real name or simply maintain their YouTube handle.  If a user decides to remain anonymous by clicking a button saying “I don’t want to use my full name,” that user will be directed to a dialogue box that asks them to explain why they do not want to display their real name.  Among the options a user can select for their explanation is “My channel is for personal use but I cannot use my real name,” or “I’m not sure, I’ll decide later.”

Even if a user decides to keep their pseudonym when initially prompted, the site allows users to change their settings at any time if it is eventually decided that they want to use their full name.  However, it is not clear whether new users will have the option of using a pseudonym or if they will be forced to use their real names when registering.

This new policy is part of Google’s (which owns YouTube) attempt at improving Internet posting. 

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

Is a Face Tattoo Displayed on a Character in a Film Protected Under the Copyright Law?

The Eastern District of Missouri recently denied a tattoo artist’s request for a preliminary injunction against Warner Brothers’ release of the Hangover IIWhitmill v. Warner Bros. Entertainment Inc., 11-cv-00752 (E.D. Mo. April 28, 2011).

In that case, artist S. Victor Whitmill (“Victor”), creator of Mike Tyson’s face tattoo, filed a lawsuit against Warner Brothers Entertainment Inc. (“Warner Brothers”) for not seeking his approval to use the tattoo design on the face of another character in the movie.  Victor had obtained a release from Mike Tyson after creating the tattoo and neither Tyson nor Warner Brothers sought his approval.  The movie used the tattoo design on another character’s face in a majority of the scenes.

In ruling, the judge examined four factors:

1) plaintiff’s likelihood of success on the merits;

2) whether plaintiff was threatened with irreparable harm;

3) the balance of the equities; and

4) the public interest.

The Judge felt that Victor had a strong likelihood of prevailing and that he had suffered irreparable harm because he lost control over the tattoo image.  However, the balance of equities and public interest favored Warner Brothers.  The judge found that Warner Brother’s harm outweighed Victor’s because Warner Brothers would lose millions if the movie was enjoined as compared to Victor’s loss of one tattoo design that would not affect his entire business.  Further, the public’s desire to see the movie was considered and it was determined that non-parties such as theater owners and distributors would also lose money and be affected. Ultimately, all the factors considered as a whole were tipped in favor of Warner Brothers although the Judge reasoned that Victor would probably win the case.

Early this year, the case was settled.  The terms of the settlement were kept confidential, but Warner Brothers did mention that it will not have to digitally alter the film for the DVD release, as was previously considered.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

Is A Twitter Account A Trade Secret?

Businesses have long been able to protect their list of customers as a trade secret, keeping the information out of the hands of competitors. But should the list of customers in a business’ Twitter account be granted the same confidential protection?

The United States District Court for the Northern District considered this question in a recent case. PhoneDog v. Kravitz, 2011 U.S. Dist. LEXIS 129229 (N.D. Cal. Nov. 8, 2011). The plaintiff, PhoneDog, used a variety of social media – including Twitter – to share reviews of mobile products and services with its readers. The defendant, Noah Kravitz (“Kravitz”), was a product reviewer and video blogger for PhoneDog. The company permitted Kravitz to use the Twitter account “@PhoneDog_Noah.” Kravitz used the account to disseminate information and promote PhoneDog services on behalf of the company. He generated approximately 17,000 Twitter followers during the course of his employment. Kravitz used a password to access the account.

PhoneDog claimed that all of its “@PhoneDog_Name” Twitter accounts, as well as the passwords to those accounts, were proprietary, confidential information. When Kravitz ended his employment with PhoneDog in October 2010, the company asked him to stop using the Twitter account. However, Kravitz instead changed the name (or “handle”) of the account to “@noahkravitz” and continued to use it. PhoneDog, alleging that Kravitz’s behavior caused it to suffer at least $340,000 in damages, brought suit against Kravitz for misappropriation of a trade secret and three other claims. Kravitz filed a motion to dismiss the claims.

A motion to dismiss allows a court to terminate a lawsuit that fails to state a claim upon which the plaintiff can receive relief from the court. When considering a motion to dismiss, a court must accept all of the plaintiff’s allegations as true and construe them in the light that is most favorable to the plaintiff. Bell Atl. Corp. v. Twombly¸550 U.S. 544, 570 (2007). Kravitz argued the claim should be dismissed because neither the identity of the account followers or the password to the account constituted trade secrets. Under the California Civil Code, a trade secret is defined as information that:

1) derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and

2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

California Civil Code, sec. 3426.1(d)

Kravitz claimed the list of followers was not secret because the information was publicly available on Twitter. He also claimed that the password was not a trade secret because the password itself did not derive any actual or potential independent economic value. Kravitz also argued that PhoneDog failed to allege any act by him that would be considered misappropriation. Under the California Civil Code, misappropriation is defined as the:

1) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means;

2) disclosure or use of a trade secret of another without express or implied consent by a person who:

a) used improper means to acquire the knowledge of the trade secret;
b) at the time of disclosure of use, knew or had reason to know that his or her knowledge of the trade secret was:

i.) derived from or through a person who had utilized improper means to acquire it;
ii.) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
iii.) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use

c) before a material change of his or her position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake

California Civil Code sec. 3426.1(b)

The Court found that Kravitz failed to show any basis for a dismissal of the misappropriation claims. The Court determined that PhoneDog described the subject matter of the trade secret with sufficient particularity and that Kravitz had refused to stop using the password and account despite the company’s requests. Additionally, the Court found that determining whether Kravitz’s behavior constituted misappropriation required consideration of evidence, and thus the claim could not be dismissed.

The future decisions in cases such as this will be very significant for businesses who use Twitter or similar social networking tools as a means of collecting a group of potential customers and establishing a professional relationship between them. It is yet another example of how traditional trade secret law will need to adapt to a world where the relationship between businesses and customers continues to operate more and more online and thus in a less confidential setting.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

Can Google Maps Be Sued For Invasion of Privacy?

Many Americans are able to go online, enter their address into Google and zoom-in on the ensuing map so closely that they can see an image of their own home. However, few Americans have asked whether Google is invading anyone’s privacy by providing this capability.

In 2010, that question was proposed to the United States Court of Appeals for the Third Circuit. Boring v. Google Inc., 362 Fed. Appx. 273 (3d Cir. Pa. 2010). In 2008, a couple residing in Pennsylvania (“the Borings”) sued Google, claiming that the company’s “Street View” feature on Google Maps invaded their privacy. The Street View program allows users to see panoramic views of locations throughout the United States. To collect the images, Google attaches panoramic digital cameras to passenger cars and drives around cities photographing areas along streets and roads. Individuals are able to report and request the removal of inappropriate images they find on Street View.

The Borings, who live on a private road, claimed that their privacy interest was disregarded by Google when the company took photos of their property and made those photos available to the public. In addition to alleging that Google invaded their privacy, the Borings also asserted claims for trespass, injunctive relief, negligence and conversion. In February 2009, the United States District Court for the Western District of Pennsylvania granted Google’s motion to dismiss all of the Borings’ claims. The plaintiffs appealed.

Under Pennsylvania law, there are four tort actions for invasion of privacy:

1) unreasonable intrusion upon the seclusion of another;

2) appropriation of another’s name or likeness;

3) unreasonable publicity given to another’s private life; and

4) publicity that unreasonably places the other in a false light before the public.

Burger v. Blair Med. Assocs., Inc.¸ 600 Pa. 194, 964 A.2d 374, 367-77 (Pa. 2009).

The Court followed the District Court’s interpretation of the Borings’ complaint as asserting claims for intrusion upon seclusion and publicity to private life. Plaintiffs stating a claim for intrusion upon seclusion must allege conduct that:

1) demonstrates an intentional intrusion upon the seclusion of their private concerns which was substantial and highly offensive to a reasonable person, and

2) avers sufficient facts to establish that the information disclosed would have caused mental suffering, shame or humiliation to a person of ordinary sensibilities.

Pro Golf Mtg., Inc. v. Tribune Review Newspaper Co., 570 Pa. 242, 809 A.2d 243, 247 (Pa. 2002).

The Court upheld the District Court’s decision and determined that the Borings’ claim for intrusion upon seclusion failed because the alleged conduct would not be highly offensive to a person of ordinary sensibilities. Boring at 280. “No person of ordinary sensibilities would be shamed, humiliated, or have suffered mentally as a result of a vehicle entering into his or her ungated driveway and photographing the view from there.” Id. at 279. The Court also referred to an example included in the Restatement (Second) of Torts that “knocking on the door of a private residence [is] an example of conduct that would not be highly offensive to a person of ordinary sensibilities.” Id. The Court reasoned that Google’s actions of photographing an external view of the Borings’ home was arguably less intrusive than knocking on a door. “The existence of that image…does not in itself rise to a level of an intrusion that could reasonably be called highly offensive.” Id.

The Court also agreed with the District Court’s decision that the Borings’ claim of publicizing private life failed. To state such a claim, a plaintiff must allege that the matter being publicized is:

1) publicity

2) given to private facts

3) which would be highly offensive to a reasonable person, and

4) is not something that is of legitimate concern to the public.

Harris v. Easton Pub. Co., 335 Pa. Super. 141, 483 A.2d 1377, 1384 (Pa. Super. Ct. 1984).

The Court determined that the Borings failed to allege sufficient facts to establish that the publicity given to them by Google’s actions would be highly offensive to a reasonable person. Boring at 280.

The Court’s decision suggests that attempts to sue Google for invasion of privacy over its use of residential images in its Google Map program are not likely to succeed. Courts could suggest that Google’s opt-out option provides a better route for residents who think that their privacy rights are being violated.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

Does the Discovery Rule Apply to Copyright Infringement?

In Urbont v. Sony Music Entertainment, No. 11 Civ. 4516 (S.D.N.Y. March 27, 2012), the federal District Court for the Southern District of New York was presented with the question of whether the discovery rule applies to causes of action under the Copyright Act.

The discovery rule allows parties to extend a statute of limitations because they did not have reason to know, nor did they know, that they had a potential cause of action.  In this case, application of the discovery rule would have extended the three (3) year statute of limitations under the Copyright Act for infringement.

The court determined that the discovery rule would not apply here because there was no evidence of material concealment of the fraud that led to the alleged infringement.  Instead, the plaintiff had complete access to all the information necessary to determine that an infringement had taken place, and he had simply not brought his cause of action within the applicable period.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

What Federal Jurisdiction Should Apply in the Lawsuit Concerning Dish Network’s Commercial-Skipping Television Broadcasting Capability

Dish Network is in a dispute with almost all of the major television networks over Dish Network’s offering to consumers that allows them to skip commercials in television shows.  The lawsuit is in its earliest stages.  The issue being decided now is what jurisdiction should hear the federal lawsuits.

The reason that this has become such a tangled issue is because not only have CBS, NBC, Fox and Dish itself filed separate lawsuits, but Dish’s lawsuit was filed in New York while the others were filed in California (ABC has not yet filed suit).  This is important because New York case law would appear to favor the Dish Network’s position more than that of the networks.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC