IP Law Daily, TRADEMARK—5th Cir.: Chef Molzan’s claims against former business partners may move forward, (Aug 13, 2024)

By Thomas K. Lauletta, J.D.

Only the district court’s dismissal of the federal dilution claim was upheld.

The U.S. Court of Appeals for the Fifth Circuit reversed, in almost its entirely, the decision of the district court that dismissed plaintiff Molzan’s trademark claims against former business partners based on a failure to state a claim under Federal Rule 12(b)(6). The appellate court held that the plaintiff’s complaint contained well-pleaded factual allegations to support his claims for (1) federal and state trademark infringement; (2) Lanham Act violations for false advertising competition; (3) trademark dilutions under Texas law; and (4) breach of contract and unjust enrichment under Texas law. The appellate court upheld the district court’s dismissal of the plaintiff’s federal trademark dilution claim on the ground that his restaurant trademark did not have national fame (Molzan v. Bellagreen Holdings, L.L.C., No. 23-20492 (5th Cir. Aug. 12, 2024)).

Plaintiff-Appellant Bruce Molzan is a chef of some renown in the Houston, Texas area. He provided restaurant services for over 40 years under various “RUGGLES” trademarks, including federally registered trademarks: RUGGLES®, RUGGLES GREEN®, and RUGGLES BLACK®. He further alleged that consequently “consumers have come to recognize the ‘RUGGLES’ trademarks and to associate them with restaurant services provided exclusively by him.”

In 2008, Molzan and two partners began the first of what would become a group of five Ruggles Green restaurants. Molzan alleged that in 2016, those partners forced a sale of the restaurants to one of the Bellagreen defendants (Hargett Hunter Capital Partners, LLC) and its affiliated companies. The “sale included transfer of a license from Molzan allowing use of the RUGGLES GREEN trademark for the name of the restaurants under the same license terms as the selling group had had.” Molzan “did not, however, sell his RUGGLES GREEN trademark” and “had only revocably licensed” it. Molzan also transferred the domain name, rugglesgreen.com, to the Bellagreen defendants.

In 2018, Molzan and the Bellagreen defendants entered a Settlement Agreement to resolve Molzan’s objections related to the defendant’s alleged misuse of the RUGGLES GREEN trademarks. Further, the agreement was to resolve Molzen’s objections to the defendant’s website that directed references to RUGGLES and RUGGLES GREEN to the defendant’s Bellagreen restaurants.

In February 2020 Molzan’s legal assistant discovered that Internet searches were erroneously giving the impression that Bellagreen restaurants were the same as RUGGLES GREEN restaurants. Looking into what was causing searches to associate RUGGLES GREEN with Bellagreen, it was discovered that an “unknown party” had acquired the rugglesgreen.com domain name and used it to support a subdomain, rugglesgreen.wpengine.com, in the HTML source code on the bellagreen.com website. A link in that source code redirected the search result to a webpage with a Bellagreen logo.

To recover the rugglesgreen.com domain name, Molzen initiated a proceeding under the Uniform Domain Name Dispute Resolution Policy (UDRP), a private, binding arbitration proceeding to resolve domain name disputes. The UDRP panel determined that the “unknown party” had registered and used the rugglesgreen.com domain in “bad faith.”

Based on his view that the Bellagreen was still not upholding the terms of the Settlement Agreement, Molzen filed a complaint against the Bellagreen and web defendants alleging claims of (1) federal and state trademark infringement, (2) false advertising and unfair competition, (3) trademark dilution, (4) breach of the Settlement Agreement and unjust enrichment.

District court decision. The district court granted the defendants’ motion to dismiss the entirety of the complaint on the ground that it did not state a claim under Federal Rule 12(b)(6).

Appellate court analysis. The appellate court noted that it reviewed de novo a district court’s judgment dismissing an action under Federal Rule 12(b)(6).

Trademark infringement. In granting the motion to dismiss the federal and Texas trademark infringement claims, the district court ruled that the plaintiff’s allegations that the Bellagreen defendants use of the RUGGLES trademark was causing confusion was conclusory, without necessary explanation. To the contrary, the appellate court stated that the complaint specifically alleged several facts supporting the trademark infringement claim. These well-pleaded allegations included the fact that in February 2020, typing of the rugglesgreen.com domain redirected the user’s search to bellagreen.com, the website for the Bellagreen restaurants. Further, Google, Trip Advisor, and Yelp reviews of Bellagreen restaurants indicated that customers thought they are affiliated with Ruggles Green. Accordingly, the appellate court reversed the district court dismissal of the plaintiff’s federal and state trademark infringement claims.

Lanham Act false advertising and unfair competition. Lanham Act Section 43 provides a remedy for false designation of origin and unfair competition. Consistent with its trademark infringement ruling, the appellate court overruled the district court’s dismissal of these claims. In so ruling, the appellate court cited statements on the Bellagreen website that had the potential of leading customers into believing that Bellagreen was still affiliated with the plaintiff and his Ruggles Green restaurants.

Based on the plaintiff’s well-pleaded allegations, the appellate court reversed the district court’s dismissal of the complaint’s Lanham Act claims.

Federal and state trademark dilution. The appellate court affirmed the district court’s dismissal of the federal dilution claim, stating that the plaintiff on appeal conceded that his Ruggles marks for restaurant services did not have the national “fame” required for purposes of a federal dilution claim. This was not so for Texas trademark dilution, where the “extensive, continuous, and long-standing use and promotion of the Ruggles mark in Houston” make it facially plausible that Molzan’s Ruggles mark is famous in the Houston area. Because of this, the appellate court reversed the dismissal of the plaintiff’s state trademark dilution claim.

Breach of contract and unjust enrichment. The appellate court ruled that the complaint contained well-pleaded allegations that the Bellagreen defendants breached the Settlement Agreement. Examples included allegations of Bellagreen’s directing of web traffic in a search of Ruggles Green to a Bellagreen website. Additionally, Bellagreen agreed not to refer to Ruggles Green, but allegedly its advertising on the First Houston Corporation’s website did so.

Regarding the unjust enrichment claim, the appellate court noted that the district court dismissed the plaintiff’s unjust enrichment claim because it had dismissed his underlying trademark infringement and unfair competition claims. Because the appellate court ruled that the plaintiff’s trademark infringement and unjust enrichment claims survived the defendant’s Rule 12(b)(6) motion, the plaintiff’s unjust enrichment claims also could move forward. The appellate court overruled the district court’s dismissal of the breach of contract and unjust enrichment claims.

Necessity of Federal Rule 12(b)(2) ruling. Because the district court had dismissed all counts of the plaintiff’s complaint, it did not rule on the web defendants’ motion to dismiss under Rule 12(b)(2) for lack of personal jurisdiction. The appellate court noted that absent jurisdiction, a court could not proceed with claims against web defendants. The court dismissed the Rule 12(b)(6) ruling against the web defendants and directed that the district court on remand to consider as an initial matter the question whether it had personal jurisdiction over the web defendants.

Plaintiff’s leave to amend. The district court had denied the plaintiff’s motion for leave to amend its complaint on the ground that granting such an amendment would be “futile” and would create “undue delay.” When a district court denies a leave to amend based futility, the appellate court stated that it reviews that decision de novo. Because almost all of the plaintiff’s claims survived dismissal, the court remanded the case to the district court with instruction to reconsider the plaintiff’s claims.

Court action. The appellate court upheld the district court’s dismissal of the federal trademark dilution claim but reversed the dismissal of all other of the plaintiff’s claims.

The Case is No. 23-20492.

Judge: Davis, W.

Attorneys: Karen Bryant Tripp (Karen Bryant Tripp Attorney at Law) for Bruce Molzan. Collin Rose (K&L Gates, L.L.P.) for Bellagreen Holdings, L.L.C.

Companies: Bellagreen Holdings, L.L.C.

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