Steelite International U. S.A. Inc. v. McManus

Background

Steelite International U.S.A., Inc. and DWH&S, Inc., formerly known as D.W. Haber & Son, Inc., sued Robert Kenneth McManus, who has long used the personal and professional name Kenny Mack. The plaintiffs sought a preliminary injunction, meaning a temporary court order issued before final judgment, to prevent McManus from competing with their Kenny Mack product business.

In 2010, McManus started Décor Home Accessories, LLC, doing business as Kenny Mack Designs. In 2016, Décor sold assets to DWH&S under an asset purchase agreement, and McManus entered an employment agreement with DWH&S. The asset agreement transferred listed intellectual property, including the Kenny Mack trade name and trademark, and the seller’s goodwill. The employment agreement contained a 12-month restriction on competing after a resignation or termination for cause.

In 2019, DWH&S sold assets, including rights to the Kenny Mack trade name and trademarks, to Steelite. Around the same time, McManus entered a separation agreement with DWH&S. That agreement barred him from using photographs of DWH&S products on a Kenny Mack website, selling product designs in the plaintiffs’ current catalog, soliciting certain manufacturers, and using the name Kenny Mack in commerce in connection with a competing business or to design goods for display in the food-service industry. A letter agreement with Steelite contained similar language.

After his termination, McManus contacted Resorts World Las Vegas about resin tableware products. He identified himself as Kenny Mack, formerly of Kenny Mack Designs, and told the Resorts World representative that the Kenny Mack products were owned and marketed under the Steelite brand. He later sent photographs of products he had designed. Resorts World ultimately purchased tableware from McManus rather than Steelite.

Claims and preliminary-injunction standard

The plaintiffs alleged that McManus breached the separation and letter agreements, infringed their trademarks under Section 43(a) of the Lanham Act, and committed unjust enrichment and false advertising. The court had previously denied the plaintiffs’ request for a temporary restraining order and held an evidentiary hearing on the preliminary injunction.

To obtain a preliminary injunction, the plaintiffs had to show irreparable harm—harm that is actual and imminent and cannot be remedied by money damages—and either a likelihood of success on the merits or sufficiently serious questions supporting the case, along with a balance of hardships favoring an injunction. The court also had to consider the public interest.

Restrictive-covenant claim

The court rejected the plaintiffs’ argument that the restrictions should receive the relatively permissive treatment applied to restrictions connected to the sale of a business. The separation and letter agreements were made three years after the 2016 sale of Décor’s assets and arose in the context of McManus’s termination and a dispute over whether he had violated his employment agreement. They therefore were not part of the earlier sale transaction. The court also declined to treat the agreements as ordinary employment restrictions without qualification, because the separation agreement more closely resembled a settlement of a developing employment dispute. The court applied the standard for restrictive covenants in ordinary commercial contracts, while noting that the result would likely be the same under the employment-contract standard.

Under that standard, a restriction must protect a legitimate business interest, have reasonable geographic and time limits, and impose no unreasonable hardship. The court found that the 2016 asset purchase agreement did not clearly transfer McManus’s personal name or the individual reputation associated with it. It transferred the Kenny Mack trade name and trademark and related goodwill, but not McManus’s personal reputation. Steelite therefore had a legitimate but limited interest in protecting the goodwill associated with the Kenny Mack brand, not in preventing McManus from using Kenny Mack as his personal name.

The court also found the restrictions unreasonable in scope and duration. They had no time or geographic limit and could prevent McManus from competing anywhere in the world forever, even if Steelite stopped selling Kenny Mack products or tableware. Several provisions were vague or broader than necessary, including restrictions involving substantially similar designs, products in the plaintiffs’ catalog, manufacturers, and designing goods for the food-service industry. The court also considered evidence that McManus may have faced an ultimatum between signing the separation agreement and being terminated for cause, potentially losing payments under his employment agreement. The plaintiffs did not show that the circumstances of the agreement supported enforcement.

The court declined to rewrite or partially enforce the covenant under the “blue pencil” rule, which can allow limited enforcement of an otherwise defective restriction in some circumstances. The court found that the entire covenant was overbroad and unlimited, and that the plaintiffs had not shown a likelihood of success or sufficiently serious questions on the contract claim.

Trademark-infringement claim

The court also found that the plaintiffs had not shown a likelihood of success on their claim under Section 43(a) of the Lanham Act. The plaintiffs had not alleged or shown that the Kenny Mack marks were registered. Because Kenny Mack is a personal name, the court treated it as a descriptive mark that would require proof of “secondary meaning”—that the public associates the name primarily with the business rather than the person.

The plaintiffs offered insufficient evidence of secondary meaning. McManus’s testimony that the Resorts World representative recognized the name did not show whether the value of the name came from McManus’s personal reputation or from the Steelite-owned brand. The plaintiffs also did not show a likelihood of consumer confusion. Although the products were similar and the names were identical, McManus told the representative that he formerly worked with Kenny Mack Designs and that the brand was now owned and marketed by Steelite. The court found that these explanations likely eliminated confusion, particularly given Resorts World’s sophistication. The court also noted uncertainty about whether the agreements permitted McManus’s use of the name personally and professionally, because the plaintiffs had not explained how that differed from prohibited use “in commerce.”

The court further stated that the plaintiffs had not shown a likelihood of success on their false-advertising theory. McManus’s statements to the Resorts World representative were not likely false or misleading because he accurately identified himself and explained that Steelite owned the Kenny Mack brand.

Irreparable harm, hardships, and public interest

The plaintiffs did not establish irreparable harm. They had not shown that Resorts World would have bought from Steelite absent McManus’s conduct, and any lost profits could be addressed through damages. The plaintiffs’ claims about future lost opportunities and reputational injury were speculative. The court also credited McManus’s testimony that he told Resorts World the Kenny Mack brand belonged to Steelite.

The balance of hardships weighed against an injunction. The plaintiffs had not shown significant likely harm, while an injunction would seriously restrict McManus’s ability to practice his trade, use his name and reputation, and fulfill the Resorts World order. New York’s policy against restrictive covenants and in favor of robust competition also supported denying relief.

Disposition

The court denied the plaintiffs’ motion for a preliminary injunction. The opinion states that its findings of fact and conclusions of law supported that ruling.