Faizi v. Temori

Background

Ahmad Mukhtar Faizi brought a shareholder derivative action on behalf of nominal defendant Falafel Flame, Inc. against directors Baktash Temori and Masoud Rustakhis and other entities. The complaint alleged that defendants operated or promoted restaurants using Falafel Flame’s federally registered FALAFEL FLAME® service mark without proper authorization.

On October 12, 2022, the court entered a preliminary injunction addressing trademark infringement. The injunction barred Temori, Rustakhis, the allegedly unapproved restaurant defendants, and persons acting with them from using the mark or confusingly similar marks, operating specified restaurants under the name “Falafel Flame,” suggesting an affiliation with Falafel Flame, or engaging in conduct likely to confuse consumers. It also required removal of the mark from online and physical advertising, signs, menus, and other materials. The injunction took effect after Faizi posted a $4,000 bond on October 24, 2022.

Motion for Contempt

Faizi moved on Falafel Flame’s behalf for a finding of civil contempt and sanctions. He requested disgorgement of the restaurants’ profits, a $2,500-per-day fine until defendants complied, and attorney’s fees incurred in bringing the motion.

The court applied the rule that the moving party must prove by clear and convincing evidence that the opposing parties violated a specific and definite court order. The court also explained that contempt requires more than a technical or minor violation and is not appropriate when the conduct resulted from a good-faith and reasonable interpretation of the order. Defendants acknowledged at the hearing that they had not attempted to comply with the injunction.

Faizi submitted process servers’ declarations and photographs showing continued use of the FALAFEL FLAME® mark on signs and menus at the Hayward, Sunnyvale, and Upland locations in December 2022 and January 2023. He also submitted screenshots indicating that all four allegedly unapproved locations continued to advertise or promote the mark online as of January 5, 2023. The court found this evidence clear and convincing as to Hayward, Sunnyvale, and Upland.

The court reached a different conclusion regarding San Jose. The evidence did not clearly establish that a functioning San Jose restaurant or “ghost kitchen” existed. Temori testified that the ghost kitchen no longer existed, and he represented that a separate Saratoga location was under construction and would not open under the name “Falafel Flame.” The court therefore found that Faizi’s screenshots and belief about a San Jose ghost kitchen did not provide clear and convincing evidence of contempt for that location.

Sanctions and Fees

The court denied profit-based sanctions because Faizi presented no evidence that would allow the court to calculate defendants’ profits. It also declined to impose the requested $2,500-per-day fine because Faizi did not show that the amount reflected an actual loss sustained by Falafel Flame.

Instead, the court adopted a sanction based on Falafel Flame’s stated $1,000 monthly licensing fee. The court concluded that this amount was logically tied to a quantifiable loss from defendants’ continued use of the company’s intellectual property. Assuming continued noncompliance, the court stated that defendants would owe Falafel Flame $12,000 as of February 21, 2023, calculated as $1,000 per month for each of three locations over four months. The sanctions would continue at $1,000 every thirty days for each of the Hayward, Sunnyvale, and Upland establishments that remained in violation.

The funds were to be deposited into an escrow account established on behalf of Falafel Flame and could not be released without a further court order. The court also agreed that Falafel Flame could recover reasonable attorney’s fees and costs connected with the contempt motion, but it did not set the amount. The parties were ordered to submit briefing and supporting documentation concerning the requested fees.

Disposition

The court granted in part and denied in part Falafel Flame’s motion for an order of contempt. It denied the motion as to the San Jose location, found Temori and Rustakhis in contempt as to the Hayward, Sunnyvale, and Upland locations, imposed the described civil contempt sanctions, ordered escrow deposits and compliance certifications, and established a process for deciding the attorney’s-fee request. Judge Virginia K. Demarchi signed the order on February 15, 2023.