To Trademark or Not to Trademark, That is the Question. Quarterly Insights, Vol XI:

Judgment Debtors Ought to Pay Heed to Judgment Debts Related to Employees

One of the themes I keep returning to in this blog is cases about judgment debtors. Sometimes, like in the fourth quarter of 2024, the court refuses to amend a judgment, and the separateness of the entity holds. However, the cases where the court agrees to amend the judgment are more instructive for other lawyers, my clients, and prospective clients alike. In the first quarter of the year, there was one such case. In Anaya v. Hopkins, 2025 Cal. App. Unpub. LEXIS 592, a doctor operated their orthopedic surgeon practice through a medical corporation. The medical corporation employed an office administrator for several years until 2010, when the doctor allegedly fired the administrator. Id. In 2012, the office administrator sued the medical corporation for wrongful termination and violations of the Labor Code. Id. In 2014, the medical corporation and the employee settled by executing a stipulated judgment in the amount of approximately $195,000. Id. The doctor signed the settlement agreement on behalf of the medical corporation. Id.

Unbeknownst to the employee, the medical corporation had been placed into a receivership during the doctor’s divorce proceedings. Id. In fact, in 2013, the family court entered an order restraining the medical corporation or the doctor from transferring or encumbering any of the medical corporation’s assets. Id.

The medical corporation never paid any of the judgment owed to the employee. Id. The doctor formed a new practice in 2017 as a sole proprietorship, which provided patients with the same services he provided via the medical corporation at the office location previously occupied by the medical corporation. Id.

Fast forward to 2024, and the employee moved to amend the judgment against the medical corporation to also include the sole proprietorship, based on Labor Code § 200.3. Id. This section of the Labor Code provides, inter alia, that a successor entity that uses substantially the same facilities to offer substantially the same services as a judgment debtor is "liable for any wages, damages, and penalties owed to any of the judgment debtor's former workforce pursuant to a final judgment.” Id.

The trial court granted the motion to amend the judgment. Id. The appeal followed, with the appellant chiefly arguing that Labor Code § 200.3 took effect in 2021 and would not apply retroactively to the 2014 stipulated judgment; and that even if it did apply retroactively, it would only apply to the portion of the stipulated judgment related to Labor Code violations. Id. at 9.

The appellate court sidestepped analysis on whether Labor Code § 200.3 applied and found that the amendment had been justified by the “successor corporation” theory, as it had been in 2014. Id. at 3. Under that theory, "corporations cannot escape liability by a mere change of name or a shift of assets when and where it is shown that the new corporation is, in reality, but a continuation of the old”. Id. at 9-10. “Especially is this well settled when actual fraud or the rights of creditors are involved, under which circumstances the courts uniformly hold the new corporation liable for the debts of the former corporation.” Id.

The test, the appellate court said, is whether the alleged successor is the "mere continuation" of the judgment debtor. Id. at 10. The court then concluded that the sole proprietorship met the test. Id.

This opinion is not terribly groundbreaking, but I think it’s useful to demonstrate a few truths. First, debts to employees are especially problematic. Though the opinion did not necessarily turn on that, since amending judgments is an equitable doctrine, those optics will always be in play, even if just in the background. On a related issue, like other decisions I have read where the court agrees to amend, it’s important to note that the employee had received absolutely nothing in the judgment. Perhaps judgment creditors would do better to pay at least something on the judgment to improve the narrative on the question of whether the judgment ought to be amended to include others. Next, it’s a reminder to tie up loose ends that may exist from one business before starting the next if the next one is similar. Finally, in one respect, since I do not know all the facts in this case, it is not fair to “Monday morning quarterback” it. But one wonders if the maximum leverage for the judgment creditor would have been in the period after the medical corporation had ceased doing business, but before the sole proprietorship commenced.

Bootstrapping Entrepreneurs and Their Trademarks. Smoke Shop Edition

On the one hand, virtually every lawyer would advocate that a new business file its trademark with the USPTO. On the other hand, penny-pinching clients bootstrapping their business may question whether common law trademark rights suffice to protect the business. A trademark case percolated out of San Diego in the first quarter that offers a little of something for both sides of that debate.

In TMSSS Enter. LLC v. Tooma, 2025 U.S. Dist. LEXIS 24732, Plaintiffs had owned and operated “high quality” smoke shops in California and Texas since 1997. Their mark strategy included the words “Vishions" and "Vishions Smoke Shop” and logo marks featuring their name over what appears to be a slender red eyeball. Id. at 2. Historically, Plaintiffs had not filed for federal trademark registration. Id.

The facts, at least the facts known here, are taken solely from the Plaintiffs because the case culminated in a motion for default judgment without response from the Defendants. Id. at 4. Alas, allegedly in March of 2022, while driving through Spring Valley, Plaintiffs observed a new smoke shop using the same name “Vishions Smoke Shop” and an identical and counterfeit version of the eye design logo on interior and exterior store signage for a competing business that sold the same goods and services, "including smoker's articles such as cigarettes, cigars, pipes, rolling papers, lighters, vaping products, as well as other merchandise, gifts and accessories.” Id. at 2, 3. Plaintiffs’ further research revealed, as well, that Defendants had allegedly filed fictitious documents with the San Diego Clerk and Recorder's Office under the name "Vishions Smoke Shop" and applied for two federal trademarks to the United States Patent and Trademark Office. Id. at 3.

Plaintiffs filed the complaint on January 3, 2024, for trademark infringement, unfair competition, false advertising, and unjust enrichment. Id. at 4. When Defendants failed to answer, Plaintiffs moved for summary judgment. Id. The first summary judgment was denied on the basis that Plaintiffs had not met the showing required with respect to their prior use of the mark and had failed to link the owners’ activities to the entity defendant sufficiently to make the owner personally liable. Id.

Plaintiffs were given twenty-one days to file an amended complaint curing the deficiencies and to make a renewed motion for default judgment, which they did. Id. at 5. Plaintiffs sought statutory damages in the amount of $200,000, a permanent injunction, cancellation of the Defendants’ pending trademark applications with the USPTO, and Plaintiffs’ attorneys’ fees and costs. Id.

We could at this juncture review this case for the legal analysis in it. But I think it’s more interesting to review it through the lens of the introduction to this section. I.e., should a bootstrapping client listen to the lawyer and file a trademark, or should they cross their fingers and rely on common law trademarks? Subject to many caveats, chiefly of which is the ever-present advice to seek your own counsel, and that this blog does not constitute legal advice, the case does demonstrate nicely some of the pros and cons.

The fact that Plaintiffs had to amend their complaint and provide further factual showing of their prior use is the first fact in favor of a hypothetical lawyer urging all of their clients to obtain federal trademark registration. When a Plaintiff has a federal trademark registration, that would constitute "prima facie evidence" that its mark is valid and protectable. Id. at 8. The more burdensome pathway is for the party claiming infringement to show it owns a mark and to show prior use in commerce. Id. at 10. Even here, when the Defendants did not participate in the proceedings, the court essentially sent the Plaintiffs back to the drawing board and made them add requisite factual allegations to assert a plausible claim that Plaintiffs were the senior user of the marks in question. Id. Here, aside from some lost time and additional administrative costs, Plaintiffs still managed to achieve a favorable outcome. Id. But, it should be added that this does not look like it was a close case. Id. Plaintiff’s prior use had been a long time in advance of the Defendants’ use, and the infringement was nearly exact. Id. And, of course, the Defendants were not there to challenge any evidence. Id.

However, in favor of the hypothetical bootstrapping entrepreneur, the court granted a permanent injunction against the Defendants in TMSSS Enter. LLC v. Tooma on the use of the marks in question. Id. at 15. This outcome would be the crux of any entrepreneur making a case for not spending money on filing a federal trademark. I.e., without the filing of a mark and without any filing or legal fees in connection with such filing, the Plaintiffs were able to obtain a permanent injunction preventing a competing business from using its mark. Id. Fair enough. But much like above, there are caveats here as well. The Plaintiffs had evidence of billboards, online advertising, and automobile advertising to promote their smoke shop, dating back to at least 2012. Id. at 21. So, it wasn’t difficult for these particular Plaintiffs to show that they had goodwill and a reputation in their marks. The next caveat is that the Plaintiffs found the infringing use in the Plaintiffs’ market. Id. at 3. Had Defendants, for example, used the marks in Nevada or Illinois, then perhaps Plaintiffs would have been left wishing they had filed a federal trademark registration.

In favor of the hypothetical lawyer’s advice to always file a mark, the Plaintiffs in the case had requested $200,000 in statutory damages. Id. at 15. The court denied this relief on a finding that statutory damages are available only for counterfeiting of a registered mark. Id. at 19. This one is pretty straightforward. Considering that the infringement appears to be direct and obvious in this case, the Plaintiffs may have actually been entitled to statutory damages had their case relied on a federal, registered mark. It did not. On the other hand, to give some credence to the bootstrapping entrepreneur who chooses not to file a mark, any civil practitioner will attest that the vast majority of cases end in a settlement, and this would not have been a consideration. Nevertheless, these Plaintiffs did not receive statutory damages because they did not have a federally registered trademark. Id. at 19.

Finally, though, in favor of the bootstrapping entrepreneur, the Plaintiffs in TMSSS Enter. LLC v. Tooma were granted their attorneys’ fees in the amount of $35,480 and costs in the amount of $480. Id. at 26. The court stated that in order to award attorney fees under 15 U.S.C. § 1117(a), the court is required to find that "the defendant acted maliciously, fraudulently, deliberately, or willfully. Id. This court concluded that the Defendants' lack of response to Plaintiffs' allegations was a concession of the willfulness of their actions. Id.

In many respects, this case should not be relied on as typical. Defendants usually show up, and perhaps in the majority of cases, the infringement is at least a degree less direct. But, for anyone considering whether it is worth it to file a federal trademark, it does illustrate a handful of pros and cons. Potential acquirers would typically query as to whether a business has a registered mark, and I would add that to the mix of considerations. And of course, seek legal counsel on your own scenario, preferably legal counsel from yours truly.

Multiple Agreements, Multiple Clauses, Which One Governs

What happens when there’s a dispute between the parties, but there are multiple agreements, and each of the agreements contains a different jurisdiction or dispute resolution clause? This issue comes up from time to time. The only short answer, unfortunately, is that it depends. But there was one such case in the first quarter, and reviewing it shows how the analysis might unfold in similar or nearly similar matters.

In Disruptive Nanotechonology v. Elliot, 2025 Cal. App. Unpub. LEXIS 1312, Disruptive Nanotechnology, Ltd. (“DNL”) entered into two agreements with defendant Innova Medical Group, Inc. in August of 2020 relating to the sale of Innova's Covid-19 tests in the U.K. Under the “Commission Agreement,” DNL would get a commission for the sale of tests when DNL facilitated a sale between Innova and a buyer. Id. Under the “Subdistribution Agreement,” DNL would directly sell the product to buyers. Id. at 2. In the initial Commission Agreement, DNL would receive 10% commission on all sales that they facilitated. Id. at 4-5. Significantly, as a result of DNL's efforts on or around September 16, 2020, Innova was awarded a $138,240,000 contract by the U.K. government to provide 18 million tests." Id. at 8. Innova paid DNL the agreed-upon commission under the Commission Agreement. Id.

From the point of view of DNL, the shenanigans began in October of 2020 when DNL was told that the market for the sale of Covid-19 tests was becoming increasingly competitive, so Innova could no longer sustain DNL's 10 percent commission rate. Id. A new First Amended Commission Agreement was executed, under which DNL earned only a 3% commission. Id. at 8-9. Simultaneously, DNL alleges that two executives informed Innova that the commission was 4%, but instead of paying DNL, the executives retained 1% of the commission by directing it to a company they owned. Id. at 9. Without going into unnecessary details, this schtick was repeated in the largest part twice more with a Second Amended Commission Agreement and later a Third Amended Commission Agreement. Id. at 11-13.

In 2022, Innova discovered the scheme of its executives and filed an action against the executives in Nevada state court in February 2023. Id. at 12. It was through this action that DNL learned of the alleged fraud of the executives. Id.

DNL then filed its own complaint alleging fraud and nearly a dozen other causes of action. DNL alleged in its complaint that the amendments to the Commission Agreement must be rescinded because they were procured by fraud. Id. DNL prayed for damages in excess of $500 million. Id. at 14.

  In response to DNL filing its complaint, the Defendants each filed a motion to compel arbitration. Id. The issue, it seems, is that the Commission and the Subdistribution Agreement contained different clauses about dispute resolution. Id. at 18.

The Commission Agreement (and each of the amended commission agreements) contained the same clause, which stated that the contract was governed by California law, and the venue for any action brought hereunder shall be proper only in courts in Los Angeles County, California, US. Id. at 5. The Commission Agreement also had an integration clause stating, "This Agreement contains the entire understanding between the parties hereto concerning the subject matter contained herein. Id. at 14. There are no representations, agreements, arrangements, or understandings, oral or written, between or among the parties hereto relating to the subject matter of this Agreement that are not fully expressed herein." Id. at 6.

Meanwhile, the Subdistribution Agreement had an arbitration clause stating, "Any and all claims, disputes, controversies or differences arising out of, or in connection with, this Agreement, which cannot be settled satisfactorily by means of negotiation between the parties, shall be submitted to arbitration in accordance with the Commercial Arbitration Rules (the 'Rules') of the American Arbitration Association. Id. at 7. The Subdistribution Agreement also had an integration clause. Id. at 8.

So, which would be controlling?

Defendants, among other things, argued that the arbitration provision in the Subdistribution Agreement controlled, because "the Subdistribution Agreement and Commission Agreement were contemporaneously negotiated, executed, and amended, and . . . the Agreements intertwined to govern DNL's business relationship with Innova. Id. at 15. They specifically alleged as well, that when the Commission Agreements were amended for lower commissions, the Subdistribution Agreement was simultaneously revised for more favorable provisions. Id. at 15.

The trial court had denied the motions to compel arbitration, and the Defendants appealed. Id. at 21. On appeal, the appellate court found that DNL’s claims were based on the Commission Agreement. Id. at 23. And further that its alleged damages were unpaid commissions under the Commission Agreement. Id. at 33.

Significantly, as well, the appellate court held that the Commission Agreement contained an integration clause, which stated in part that there are "no representations, agreements, arrangements, or understandings, oral or written, between or among the parties hereto relating to the subject matter of this Agreement that are not fully expressed herein." Id. at 24. "When the parties to an agreement express their intention that it is the final and complete expression of their agreement, an integration occurs. Id. Such a contract may not be contradicted by evidence of other agreements.” Id. Case authority also holds that when there are contemporaneous contracts, a party may not be compelled to arbitrate claims that arise out of a contract that does not contain an arbitration provision. Id. at 25.

It continued in its reasoning: The threshold questions presented by every motion or petition to compel arbitration are whether an agreement to arbitrate exists and, if so, whether the parties' dispute falls within the scope of that agreement. Id. at 27. Here, the factual allegations in the complaint show that DNL's claims have their origin in the Commission Agreement and do not have a significant relationship to the Subdistribution Agreement. Id. at 29.

On the surface, this seems right and somewhat basic. By way of example, if a person buys a book on the website of Barnes and Noble, and then two weeks later is injured at a physical location, it would not seem logical for the website’s arbitration clause to apply to the physical injury. Defendants had raised other cases with muddier waters. Scenarios where one agreement was viewed to be an “umbrella agreement” or where agreements may have referenced each other. Indeed, it may not always be as clear as this, but the analysis basically starts with the claims.

Finally, in your agreement, there are several reasons to select a jurisdiction clause that specifies where disputes are to be heard by the courts, as well as reasons to opt for arbitration. There may then be a good basis for the clauses to differ if you have multiple agreements between the same parties. But, obviously, if the clauses are congruent, then this issue never arises. As always . . . seek legal counsel.