Segal, Jonathan v. Geisha NYC LLC

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 06-2897
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.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 06 C 57—Joan B. Gottschall, Judge.
____________
ARGUED NOVEMBER 30, 2007—DECIDED FEBRUARY 22, 2008
____________
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”),
2 No. 06-2897
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 imple-
mentation and national expansion, the founders began
their business venture with Japonais Chicago. On the
advice of counsel, they created two limited liability compa-
nies (LLCs), organized under Delaware law, that are
responsible for owning and operating Japonais Chicago.
No. 06-2897 3
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 Hos-
pitality Chicago’s operating agreement provides that “if
at least two” of the four founders “desire to open a restau-
rant 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 condi-
tions 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 incorpo-
rates “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 . . . .”
4 No. 06-2897
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 member-
ship 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 agree-
ment 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 relin-
quished 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.
No. 06-2897 5
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 Chi-
cago’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 operat-
ing 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, 127 S. Ct. 2197, 2200 (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 Atl. Corp. v. Twombly, 127 S. Ct.
1955, 1974 (2007)). And in engaging in this review we may
examine the operating agreements of Geisha Chicago
and Hospitality Chicago because attachments to a com-
plaint 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
6 No. 06-2897
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 plaintiff ’s 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 pleading requirements might still warrant
dismissal under Rule 12(b)(6) if the facts pled cannot
result in any plausible relief, see Exelon Corp., 495 F.3d
at 785 (upholding dismissal for failure to state a claim
where arbitral award submitted with the complaint
barred any plausible relief).
Contrary to Segal’s second argument, it is obvious
that both LLC operating agreements are wholly relevant
to the question of whether Geisha NYC and Hospitality
NYC were authorized to use Japonais Chicago’s trade-
marks. Under Delaware law, an LLC operating agree-
ment allows the members to delegate control over the
company by contract. See Del. Code tit. 6, § 18-1101(b) (“It
is the policy of this chapter to give the maximum effect
to the principle of freedom of contract and to the
enforceability of limited liability company agreements.”);
see also Elf Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286,
291 (Del. 1999) (equating the Delaware LLC Act with the
Delaware Partnership Act, which accords partners “the
broadest possible discretion” in drafting governing agree-
ments). Therefore, we must examine Geisha Chicago’s
operating agreement to ascertain how Geisha Chicago
distributes its corporate powers.
Here, Section 6.1.1 of Geisha Chicago’s operating
agreement delegates all of its corporate powers to Hospi-
tality Chicago—its Managing Member and, indeed, its
only member. Section 6.1.1 of Geisha Chicago’s operating
agreement also vests Hospitality Chicago with total con-
trol over the company’s assets. In light of this express
language in Geisha Chicago’s operating agreement,
No. 06-2897 7
Hospitality Chicago has a clear mandate that allows it to
authorize use of Japonais Chicago’s intellectual property.
Thus, the district court properly examined the provisions
of Hospitality Chicago’s operating agreement that con-
templated expansion by the founders.
And we also agree with the district court that these
provisions illustrate that the entities in control of Japonais
New York were in fact authorized to use Japonais Chi-
cago’s intellectual property. Section 6.2.1 of Hospitality
Chicago’s operating agreement allows two founders to
utilize the Japonais “Concept” in order to expand the
restaurant nationally. Section 6.2.2 includes intellectual
property in its definition of “Concept.” Here, the entity
defendants are controlled by three founders—Wahlstedt,
Lim, and Beers—who employed the Japonais “Concept”
when expanding the restaurant to New York and Las
Vegas. Therefore, Hospitality Chicago’s operating agree-
ment authorized Japonais New York to use the Japonais
trademarks.
Because Geisha Chicago authorized Geisha NYC to
use Japonais Chicago’s intellectual property, Segal’s
Lanham Act claim fails as a matter of law. In order to
succeed on his Lanham Act claim, Segal must establish:
(1) that Geisha Chicago owns a protectible trademark, and
(2) that use of this mark by Japonais New York is likely
to cause confusion among consumers. See 15 U.S.C. § 1125;
Ty, Inc. v. Jones Group, Inc., 237 F.3d 891, 897 (7th Cir.
2001). But where the trademark holder has authorized
another to use its mark, there can be no likelihood of
confusion and no violation of the Lanham Act if the alleged
infringer uses the mark as authorized. See ITOFCA, Inc.
v. MegaTrans Logistics, Inc., 322 F.3d 928, 940 (7th Cir.
2003) (“A licensee infringes the owner’s copyright if its
use exceeds the scope of its license.” (internal quotation
marks and citations omitted)); Am. Legion v. Matthew, 144
F.3d 498, 499 (7th Cir. 1998) (“Without confusion about
8 No. 06-2897
source, sponsorship, or affiliation, there is no possible
claim under . . . § 1125(a).”); see also McDonald’s Corp. v.
Robertson, 147 F.3d 1301, 1307 (11th Cir. 1998) (“[I]n
order to prevail on a trademark infringement claim, a
plaintiff must show that its mark was used in commerce
by the defendant without the registrant’s consent and
that the unauthorized use was likely to deceive, cause
confusion, or result in mistake.”).
“The use of similar names to denote the identical product
of a single seller is no more confusing than the fact that
two bottles of Coca-Cola carry the same name.” AmCan
Enters. v. Renzi, 32 F.3d 233, 235 (7th Cir 1994). Likewise,
here it is not confusing to restaurant patrons that
Japonais New York and Japonais Las Vegas carry the
same name as Japonais Chicago—by definition they are
expanded locations of the same restaurant and share
three of the same founders and a “Concept.”
Finally, we note that Segal’s complaint asserted that
the district court had only supplemental jurisdiction over
his pendent state-law claims. Because the district court
properly dismissed Segal’s sole federal-law claim and
nothing bars Segal from pursuing his claims in state
court, it was completely appropriate for the court to
relinquish its jurisdiction over the remaining state-law
claims under 28 U.S.C. § 1367(c)(3). See also Williams v.
Rodriguez, 509 F.3d 392, 404 (7th Cir. 2007) (citing Wright
v. Associated Ins. Cos., 29 F.3d 1244, 1251-52 (7th Cir.
1994)).
No. 06-2897 9
III. CONCLUSION
We therefore AFFIRM the district court’s dismissal of
Segal’s complaint.
USCA-02-C-0072—2-22-08