California Attorneys Reid Dammann and Juliana Ferraz Prevail in Tequila Start Up Business Dispute

May 2021

Gordon Rees Scully Mansukhani California attorneys Reid Dammann and Juliana Ferraz recently prevailed on a challenging opposition to a motion for a preliminary injunction.

The firm's clients, a Tequila startup company, and its owner were sued for declaratory relief, trademark infringement, false impersonation on an internet website, intentional interference with contractual relations, and unfair competition.

In 2019, our client bought himself into a two-member startup tequila company in New Mexico. In 2020, one of the members (the plaintiff) started to act erratically, and a dispute arose. Together with the other member, the firm's client dissolved the New Mexico company and opened a new one with the same name and logo in California. When the plaintiff tried to modify the articles of incorporation with the Secretary of State behind the other prior members’ backs, he learned that the New Mexico company had been dissolved, and a new one with the same name and logo was opened in California.

The plaintiffs based their lawsuit on the false allegation that the client was never a member of the New Mexico company but only an investor with no management rights. Further, the plaintiffs claim that the California company was created with the specific intention of using it to confuse and defraud persons associated and that the members submitted fraudulent Articles of Dissolution to the New Mexico Secretary of State. Furthermore, the plaintiffs claimed a demand letter was sent to the tequila producer requesting it cease production of any tequila to the plaintiffs and instead direct production to the two other members. In addition, the plaintiffs argued that the California company website and online presence used the logo and marketing materials prepared by plaintiff and his photographs.

The California Central District Court denied the preliminary injunction. It found that the plaintiffs failed to demonstrate a likelihood of success on the merits of all causes of action but the false impersonation claim. The Court decided that certain questions remain as to whether plaintiffs actually have ownership of the trademark and whether the trademark is valid. The Court was also unpersuaded that confusion will result, given that the trademark has not yet been used in commerce, and as such, no consumer could be misled. Regarding the claim for intentional interference with contractual relations, the Court found substantial questions about the makeup of the partnership. And should our client and the other member be considered partners with the plaintiffs, they would also be parties to the distribution agreement and therefore could not be liable for intentional interference with contractual relations. Further, the Court found that the plaintiffs failed to demonstrate irreparable harm and that based on the records, the Court did not find that the balance of equities tips in either parties’ favor.

The firm's clients were pleased with the results.