Segal v. Nyc LLC

• Decision Date: 22 February 2008
• Docket Number: No. 06-2897.,06-2897.
• Citation: 517 F.3d 501
• Parties: Jonathan SEGAL, on behalf of himself and derivatively on behalf of nominal parties Geisha LLC, a Delaware Limited Liability Company, and Osss Hospitality LLC, a Delaware Limited Liability Company, Plaintiff-Appellant, v. GEISHA NYC LLC, a Delaware Limited Liability Company, Osss Hospitality NYC, LLC, a New York Limited Liability Company, and Rick Wahlstedt, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

517 F.3d 501

Jonathan SEGAL, on behalf of himself and derivatively on behalf of nominal parties Geisha LLC, a Delaware Limited Liability Company, and Osss Hospitality LLC, a Delaware Limited Liability Company, Plaintiff-Appellant, v. GEISHA NYC LLC, a Delaware Limited Liability Company, Osss Hospitality NYC, LLC, a New York Limited Liability Company, and Rick Wahlstedt, et al., Defendants-Appellees.

No. 06-2897.

United States Court of Appeals, Seventh Circuit.

Argued November 30, 2007.

Decided February 22, 2008.

Jeffrey J. Mayer (argued), Freeborn & Peters, Chicago, IL, for Plaintiff-Appellant.

John M. Touhy, J. Gregory Deis, Mayer Brown, Chicago, IL, Jeffrey A. Berger (argued), Mayer Brown LLP, Washington, DC, for Defendants-Appellees.

Before BAUER, RIPPLE, and KANNE, Circuit Judges.

KANNE, Circuit Judge.

This case concerns the national expansion of Japonais, a popular Chicago restaurant located in the River North restaurant district. Japonais founder, Jonathan Segal, appeals from an order dismissing his complaint against Geisha NYC LLC ("Geisha NYC"), and others. Segal's sole federal claim—a derivative claim he asserts on behalf of Geisha LLC ("Geisha Chicago") and OSSS Hospitality LLC ("Hospitality Chicago")—alleges that the defendants misappropriated the Japonais name and design in violation of the Lanham Act, see 15 U.S.C. § 1125(a). The district court dismissed this federal count, and then dismissed the remainder of the complaint under 28 U.S.C. § 1367(c)(3). Because Geisha NYC's trademark use was authorized, we affirm these dismissals.

I. HISTORY

After learning that his co-founders expanded Japonais to new locations without notifying him or allowing him to participate, Segal filed suit against Rick. Wahlstedt, Jeffrey Beers, Miae Lim, and the entities that own and operate Japonais New York. Segal's complaint alleged the following facts, which we must accept as true. See St. John's United Church of Christ v. City of Chicago, 502 F.3d 616, 625 (7th Cir.2007).

In early 2003, Segal and Wahlstedt jointly developed the concept for Japonais, an up-scale restaurant and lounge that would serve a fusion of Japanese and European cuisine. To implement this concept, Segal and Wahlstedt hired a culinary expert (Lim), an architect (Beers), and others. Collectively, Segal, Wahlstedt, Lim, and Beers are the four "founders" of Japonais Chicago, and all four of them anticipated opening restaurants based on the Japonais concept throughout the United States.

After agreeing upon the concept and plans for its implementation and national expansion, the founders began their business venture with Japonais Chicago. On the advice of counsel, they created two limited liability companies (LLCs), organized under Delaware law, that are responsible for owning and operating Japonais Chicago. One of these LLCs, Geisha Chicago, owns the Japonais Chicago restaurant, as well as all intellectual property related to the Japonais name and design. According to Geisha Chicago's operating agreement, the other LLC, Hospitality Chicago, is Geisha Chicago's "Managing Member." Hospitality Chicago is also the only member listed on the membership schedule filed with Geisha Chicago's operating agreement. Section 6.1.1 of this operating agreement vests Hospitality Chicago with complete plenary authority over Geisha Chicago-among other things, Hospitality Chicago makes all decisions and takes all actions for Geisha Chicago and possesses the exclusive power to acquire, utilize, or dispose of any asset of the company. Section 6.1.1 also grants Hospitality Chicago the exclusive right to manage the business of Geisha Chicago.

The founders became the only members of Hospitality Chicago, pursuant to its separate operating agreement. In drafting Hospitality Chicago's operating agreement, the founders included provisions that anticipated the national expansion of Japonais., Section 6.2.1 of Hospitality Chicago's operating agreement provides that. "if at least two" of the four founders "desire to open a restaurant in a location outside the greater Chicagoland area based upon the Restaurant's Concept (an Expansion)," these "expanding founders" could do so by delivering written notice to the others "setting forth the material terms of the Expansion as well as the terms and conditions pursuant to which the Non-Expanding Founders may invest in the Expansion." Section 6.2.2 of Hospitality Chicago's operating agreement defines the term "Concept," as a restaurant that is "substantially similar" that incorporates "the intellectual property of the Restaurant," which includes "the Restaurant's trade names, trade marks, service marks, trade symbols, emblems, signs, slogans, insignia, [and] copyrights . . ."

Japonais Chicago received immediate national acclaim and financial success, and in 2006, Wahlstedt, Lim, and Beers opened additional Japonais restaurants in New York City and Las Vegas. The new restaurants in New York and Las Vegas utilized the trade dress and design of Japonais Chicago without offering compensation to Geisha Chicago or Hospitality Chicago. The expanding founders modeled the corporate structure of Japonais New York on that of Japonais Chicago by creating two new LLCs to own and operate Japonais New York: Geisha NYC and OSSS Hospitality NYC ("Hospitality NYC"). The expanding founders controlled Geisha NYC through their membership in Hospitality NYC.

Segal's complaint asserted ten state-law claims and only one federal claim—for trademark infringement under the Lanham Act, 15 U.S.C. § 1125(a). The defendants filed a motion to dismiss in March 2006, which argued in part that Segal's trademark claims, including his federal Lanham Act claim, should, be dismissed because sections 6.2.1 and 6.2.2 of Hospitality Chicago's operating agreement explicitly authorize the defendants' use of Japonais Chicago's intellectual property.

In June 2006, the district court agreed that the "clear and unambiguous" language of Hospitality Chicago's operating agreement expressly authorizes "any two Founders to expand the restaurant concept and to do so using the intellectual property of the Chicago restaurant." As such, the district court held that there could be no likelihood of confusion as to source or affiliation as a matter of law, and dismissed Segal's Lanham Act count under Fed.R.Civ.P. 12(b)(6). After dismissing Segal's sole federal cause of action, the district court relinquished its jurisdiction over Segal's pendent state-law claims under 28 U.S.C. § 1367(c)(3). Thereafter, Segal filed a separate action seeking relief in Illinois state court, and filed this appeal.

II. ANALYSIS

On appeal, Segal argues that the district court erred by dismissing his Lanham Act count because he "adequately pled" the elements of the claim. Segal further contends that Hospitality Chicago's operating agreement was merely a contract intended to govern relations between the founders, and thus was not relevant to whether Geisha Chicago authorized the defendants' use of Japonais Chicago's intellectual property. Segal claims that only Geisha Chicago, "acting through its duly authorized members," can direct use of its intellectual property, and that the district court erred because Hospitality Chicago's operating agreement did not, and could not, authorize the New York entities' trademark use.

We will review the district court's dismissal of Segal's complaint for failure to state a claim under Fed.R.Civ.P. 12(b)(6) de novo, accepting as true "all of the factual allegations contained in the complaint." St. John's United Church of Christ, 502 F.3d at 625 (quoting Erickson v. Pardus, ___ U.S. ___, 127 S.Ct. 2197, 2200, 167 L.Ed.2d 1081 (2007)). "We may affirm the dismissal only if the complaint fails to set forth `enough facts to state a claim to relief that is plausible on its face.'" Id. (quoting Bell Att Corp. v. Twombly, ___ U.S. ___, 127 S.Ct. 1955, 1974, 167 L.Ed.2d 929 (2007)). And in engaging in this review we may examine the operating agreements of Geisha Chicago and Hospitality Chicago because attachments to a complaint become part of it "for all purposes." Fed.R.Civ.P. 10(c); see also, e.g., Local 15, Int'l Bhd. of Elec. Workers, AFL-CIO v. Exelon Corp., 495 F.3d 779, 782 (7th Cir.2007); Cont'l Cas. Co. v. Am. Nat'l Ins. Co., 417 F.3d 727, 731 n. 3 (7th Cir.2005).

Segal's initial assertion—that his complaint should not have been dismissed because he adequately pled the elements of his Lanham Act claim—confuses our civil-procedure jurisprudence and need not detain us for very long. While it is clear that Federal Rule of Civil Procedure 8(a) requires that a complaint adequately plead facts to put a defendant on notice of the plaintiffs claim, see Airborne Beepers & Video, Inc. v. AT & T Mobility LLC, 499 F.3d 663, 667 (7th Cir.2007); Twombly, 127 S.Ct. at 1974, it is equally clear that a complaint that satisfies Rule 8(a)'s...