Small Bus. Bodyguard Inc. v. House of Moxie, Inc.

• Decision Date: 31 January 2017
• Docket Number: No. 14–cv–7170 (CM),14–cv–7170 (CM)
• Parties: SMALL BUSINESS BODYGUARD INC., Plaintiff/Counterclaim Defendant, v. HOUSE OF MOXIE, INC., Defendant/Counterclaim Plaintiff, v. Rachel Rodgers Law Office, PC et al., Additional Counterclaim Defendants.
• Court: U.S. District Court — Southern District of New York

230 F.Supp.3d 290

SMALL BUSINESS BODYGUARD INC., Plaintiff/Counterclaim Defendant,

v.HOUSE OF MOXIE, INC., Defendant/Counterclaim Plaintiff,

v.Rachel Rodgers Law Office, PC et al., Additional Counterclaim Defendants.

No. 14–cv–7170 (CM)

United States District Court, S.D. New York.

Signed January 31, 2017

Benjamin Stillwell Thompson, Tim Bukher, Thompson Bukher LLP, New York, NY, Jack Babchik, Jordan Marc Sklar, Babchik & Young LLP, White Plains, NY, for Plaintiff/Counterclaim Defendant.

Kandis M. Koustenis, Antigone Peyton, Cloudigy Law PLLC, McLean, VA, Norris David Wolff, David Michael Schechter, Kleinberg, Kaplan, Wolff & Cohen, P.C., New York, NY, for Defendant/Counterclaim Plaintiff.

DECISION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND PLAINTIFF AND COUNTERCLAIM DEFENDANTS' CROSS–MOTION FOR SUMMARY JUDGMENT

McMahon, C.J.:

Plaintiff/Counterclaim Defendant Small Business Bodyguard Inc. ("SBBI") brought this action against Defendant/Counterclaim Plaintiff House of Moxie, Inc. ("HOM"), which then brought counterclaims against SBBI, SBBI's CEO Rachel Rodgers ("Rodgers"), and Rodgers' law firm, Rachel Rodgers Law Office, PC ("RRLO").

Before the Court are HOM's motion for summary judgment (Dkt. No. 110) and SBBI, Rodgers, and RRLO's cross-motion for summary judgment (Dkt. No. 120).

As discussed below, both motions are GRANTED IN PART and DENIED IN PART.

Factual Background

I. Establishment of the Joint Venture

This case arises from a short-lived joint venture between HOM, owned by Ashley Ambirge ("Ambirge"), and a consulting entity owned by Rodgers, Rachel Rodgers Consulting LLC ("RRC," now SBBI), to sell an e-book called "Small Business Bodyguard" (the "SBB Product"), along with related instructional videos, audio lessons, and related products and services. (PSUF ¶¶ 3–4.)¹

HOM provides "strategic copyrighting advice and brand development services" and maintains an active online presence and an email list of over 20,000 small business owners. (DSUF ¶¶ 1–3.) Rodgers, in addition to founding the consulting entity RRC that later became SBBI, is an attorney, and practices intellectual property law under the firm name RRLO. (PSUF ¶ 2; PCSUF ¶¶ 5–6.) In February 2013, HOM signed a one-year engagement agreement with RRLO that provided that RRLO would represent HOM as its general business counsel. (DSUF Ex. 8.)

During the one-year term, RRLO performed various legal services for HOM, including the preparation of various corporate documents, tax filings, and trademark applications. (DSUF ¶ 8.) HOM decided not to continue the attorney-client relationship after the expiration of the one-year engagement agreement, which terminated on February 20, 2014. (Id. ¶ 9.)

About three months into the attorney-client relationship, Ambirge and Rodgers decided to form a joint venture to develop a new e-book for small businesses. HOM and RRC entered into a joint venture agreement (the "JVA") in May 2013 to develop the SBB Product, which was sold online via the website www.smallbusinessbodyguard.com (the "SBB Website"). (PSUF ¶¶ 4–5; Bukher Decl. Ex. B ("JVA").) The agreement provided that the profits of the joint venture would be divided equally between RRC and HOM, and paid on a monthly basis. (JVA § 4.1.)

II. Dissolution of the Joint Venture

Less than a year after forming the joint venture, the parties began to have difficulties working together and ultimately decided to terminate the JVA.

HOM accused Rodgers of "mishandling" joint venture assets as the parties were discussing dissolution—namely, by withholding two monthly payments from HOM and by compensating RRC for its expenses but failing to do the same for HOM. (See PCSUF ¶¶ 22–23; DSUF ¶¶ 24–26.) However, the JVA did not set any deadline for distribution of the payments and HOM has presented no evidence that it was ever denied reimbursement for any of its expenses. (JVA §§ 4.1, 4.2; PCSUF ¶¶ 22–26.)

HOM also accused Rodgers of making misrepresentations regarding the joint venture's intellectual property.

First, when Rodgers sought to register the trademark "Small Business Bodyguard" with the U.S. Patent and Trademark Office ("PTO") in July 2013, Rodgers represented that the name had been used by the joint venture in commerce since as early as June 21, 2013. (DSUF ¶¶ 27–31.) HOM claims that this representation was false because the SBB Product was not sold to customers until July 24, 2013. (Id. ¶ 32.)

Second, HOM argues that RRC later falsely informed the PTO that a trademark assignment was pending before the parties formally agreed to dissolve the joint venture. (Id. ¶¶ 37–43.)

Third, although the original copyright registration application filed by Rodgers for the Small Business Bodyguard text and radio episodes listed Rodgers and Ambirge as co-authors, the copyright registration that was issued on October 17, 2014, Reg. No. SR 749–243 (the "SR Registration"), listed Rodgers as the sole author. (PSUF ¶¶ 78–81; PCSUF ¶¶ 45–47.) SBBI later filed a supplemental registration in December 2014 to correct this error and has taken other measures to correct it. (PSUF ¶¶ 81–83.) HOM filed a separate copyright registration application for the same Small Business Bodyguard text, again listing Ambirge and Rodgers as co-authors, and later assigned that registration (TX 7–907–164, the "TX Registration") and related registrations (TXu 190–8051 and TXu 190–8648, the "TXu Registrations") to SBBI. (PCSUF ¶¶ 55–59; see DSUF Ex. 84.)

The parties signed a joint-venture dissolution agreement (the "JVDA") on June 7, 2014. (PSUF ¶ 10; see Bukher Decl. Ex. A ("JVDA").) RRC's successor-in-interest SBBI agreed to purchase HOM's interest in the joint venture in exchange for (1) granting HOM an irrevocable license to sell the SBB Product (and updated versions of the SBB Product) for three years and (2) $15,000, to be paid in three $5,000 installment payments on June 30, July 30, and August 30, 2014. (PSUF ¶¶ 7, 15; JVDA § 2.1.)

The JVDA provided that the license granted to HOM to sell the SBB Product would be effectuated through a special hyperlink created by SBBI that would track the number of sales generated by HOM for purposes of calculating HOM's commission. (PSUF ¶¶ 13, 15; JVDA § 3.4.) HOM would receive a commission equal to 100% of the Gross Sales Price for the first two years of the license, and then 75% of the Gross Sales Price in the third and final year of the license. (JVDA § 3.7.) "Gross Sales Price" is defined in the JVDA as the "full retail price charged by RRC to consumers." (Id. ) HOM was also granted the right to periodically request from SBBI a "verifiable description of the referral partner settings" used to track HOM's sales, as well as a report calculating HOM's commissions. (Id. §§ 3.6, 3.9.)

The JVDA prohibited HOM from distributing or reproducing the SBB Product, from preparing derivative works based on the SBB Product, and from publicly speaking or writing in a manner that would "diminish or tarnish" the SBB Product's brand. (Id. §§ 3.1.1, 3.1.2.) HOM was also restricted to using only the current versions of SBBI's promotional materials. (Id. § 3.2.) The parties also mutually agreed "to refrain from making any public defamatory or inflammatory statements or comments regarding the other party, or any of the party's officers, directors, employees, personnel, agents, policies, services or products." (Id. § 10.1.)

An earlier draft of the JVDA apparently included a requirement that SBBI "not discontinue or cease selling" the SBB Product during the three-year term of the agreement, but the parties struck that sentence from the executed version. (Id. § 3.5.) After the end of the JVDA's three-year term, HOM had the option of signing on as an SBB affiliate if it wished to continue selling the SBB Product. (Id. § 5.3.)

III. The Parties' Performances Under the JVDA

After execution of the JVDA, accusations of breach came swiftly from both HOM and SBBI.

Almost immediately, HOM asserted that SBBI was in breach of the JVDA because it failed to provide HOM with a working affiliate hyperlink with which to sell the SBB Product. However, whatever problem may have existed with the link was quickly fixed. Ambirge herself testified that the link was functioning within three days (Ambirge Dep. at 161:3–163:16), and the link was apparently working well enough that HOM was able to sell $10,127 worth of the SBB Product during June 2014, the first month of HOM's license. (See Order Den. Prelim. Inj. at 12–13, Dkt. No. 99.)

A few weeks after the JVDA was signed, Rodgers changed the licensee link through which HOM's sales were tracked so that the link "expired" after 30 days (rather than the original 90 days), while other affiliates of SBBI had 60–day tracking periods. (PCSUF ¶ 84.) It is unclear from the record why this change was made, but it apparently had little or no effect on HOM's ability to generate sales using the link or on SBBI's ability to calculate HOM's commission payments in the following months. SBBI also apparently failed to provide HOM with verification of its sales tracking settings in response to HOM requests, as required by the JVDA, although it did give HOM access to a website called the "Affiliate Center" which allowed HOM to see its generated sales in real time. (Id. ¶¶ 85–86; see JVDA § 3.6.)

Next, HOM's first commission payment, for June 2014 sales, was delayed by approximately one month due to cash-flow issues at SBBI. HOM ultimately accepted the late payment. (PSUF ¶¶ 29, 35–36.)

SBBI then announced a "last chance" promotion of the SBB Product, after which the price would increase from $295 to $495. (PCSUF ¶ 82.) SBBI apparently failed to inform Ambirge or HOM about this planned promotion (either before it was announced or after). Nonetheless, when Ambirge found out about it, she sent an email to her list of potential customers and told them to take advantage of the promotion, and added that Rodgers would be taking over the whole SBB Product business. (Id. ¶¶ 82–83.)

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