MJ Sushi Holding Company, Inc., et al. v. Meiling Li, et al.

Background

Wenyuan Fan and MJ Sushi Holding Company sued Meiling Li and six MJ Sushi restaurants that Fan and Li comanage under the MJ Sushi brand and trademark. Fan is the holding company's sole record shareholder, sole director, and chief executive officer. Li is the chief executive officer, chief financial officer, and secretary of each restaurant and is primarily responsible for financial matters; Fan is primarily responsible for operations.

The plaintiffs alleged that Li embezzled more than one million dollars from the restaurants, failed to pay employee salaries and vendor expenses, hired workers without valid employment-authorization documents, and paid compensation in cash to avoid state and federal tax obligations. They alleged that the holding company owns the MJ Sushi trademark and initially authorized the restaurants to use it, but later revoked that authorization.

The complaint asserted claims for false designation of origin and unfair competition under the federal Lanham Act, unfair competition under California's Unfair Competition Law, intentional infliction of emotional distress, and a declaration that the defendants have no continuing right to use the MJ Sushi trademark.

Abstention Rulings

The defendants asked the court to dismiss or stay the case under domestic-relations abstention, the Colorado River doctrine, and Burford abstention. Abstention means declining to decide a case, or temporarily stopping it, because another proceeding or state-law concern makes federal involvement inappropriate.

The court dismissed the intentional-infliction-of-emotional-distress claim and the non-trademark portions of the California Unfair Competition Law claim on domestic-relations abstention grounds. Those claims concern Li's management of the restaurants and issues that may involve marital fiduciary duties. The court specified that these claims were dismissed without prejudice.

The court held that domestic-relations abstention did not apply to the trademark claims because ownership of the trademark, rather than distribution of marital property, was the relevant issue. It also declined to stay the case under the Colorado River doctrine because the defendants did not show that the state-court proceedings would resolve the entire case. The court further held that Burford abstention did not apply because California had not concentrated trademark-infringement suits in a particular court.

Trademark Claims

The court applied the pleading standard requiring enough factual allegations to make a claim plausible, rather than merely possible. A trademark-infringement claim requires allegations of a valid and protectable mark, use of the same or a confusingly similar mark in commerce, and a likelihood of consumer confusion.

The court explained that trademark ownership generally depends on priority of use: the claimant must allege a first use of the mark in the sale of goods or services that predates the defendant's alleged first use. A federal registration can provide a presumption of ownership, and federal law also recognizes limited earlier priority dates based on certain applications, but the complaint did not allege facts establishing either actual or constructive priority of use.

The plaintiffs alleged that MJ Sushi Holding Company was the sole owner of the mark and had authorized the restaurants to use it. The court found that ownership allegation conclusory and held that, even viewing the complaint's allegations in the plaintiffs' favor, the complaint did not plausibly plead priority of use. The court therefore dismissed the Lanham Act trademark claims, the trademark-based California Unfair Competition Law claim, and the request for declaratory relief without prejudice.

Disposition

The court granted the motion to dismiss. The intentional-infliction-of-emotional-distress claim and non-trademark California Unfair Competition Law claims were dismissed without prejudice on abstention grounds. The Lanham Act and California Unfair Competition Law trademark-infringement claims and the request for declaratory relief were also dismissed without prejudice for failure to plausibly plead priority of use.

The court ordered the plaintiffs to file an amended complaint addressing the identified deficiencies by September 24, 2026, together with a color blackline comparison against the current complaint. The order resolved ECF No. 7.