HVN Clothing, Inc. v. Lomeway E-Commerce Limited

Background

HVN Clothing, Inc. and Harley Viera-Newton sued Lomeway E-Commerce (Luxembourg) Limited, doing business as Zaful, under the Copyright Act, the Lanham Act, and New York State law. Plaintiffs alleged violations involving the federally registered HVN mark and the copyrighted HVN Cherry Print.

The court granted plaintiffs’ requests for a temporary restraining order and preliminary injunction after Zaful failed to appear. Plaintiffs then asked Apple to remove Zaful’s app from the Apple App Store, and Apple apparently did so. After Zaful’s counsel appeared, the parties negotiated by email.

On February 17, 2022, plaintiffs proposed settlement terms requiring Zaful to pay $150,000, providing for mutual releases, requiring Zaful’s consent to a judgment and permanent injunction substantially similar to the preliminary injunction, and requiring plaintiffs to notify Apple that they had no objection to reinstating Zaful’s app. Plaintiffs’ counsel stated that acceptance would create an enforceable agreement, while also asking that the parties later prepare formal documents. Zaful proposed adding an affiliate to the release, and plaintiffs accepted that change the next day. Plaintiffs then contacted Apple, and Zaful later wired the $150,000 payment.

The parties exchanged drafts of a formal settlement agreement. Plaintiffs accepted most of Zaful’s proposed changes, including changes to the release language, but objected to two other provisions. Before responding to plaintiffs’ last proposal, Zaful filed counterclaims seeking invalidation of plaintiffs’ copyright and cancellation of their trademark. Zaful later voluntarily dismissed those counterclaims. Plaintiffs then moved to enforce the settlement.

Court’s analysis

The court applied four factors used to determine whether parties intended to be bound without signing a formal document: (1) whether they expressly reserved the right not to be bound without a writing; (2) whether they partly performed; (3) whether they agreed on all material terms; and (4) whether the agreement was the type usually put in writing.

The court found that the second factor strongly favored enforcement because Zaful paid $150,000 and plaintiffs notified Apple of the settlement. The fourth factor also strongly favored enforcement because the parties’ February 17 and 18 emails themselves recorded the agreement’s terms.

The third factor favored enforcement because those emails included all material terms: the payment, injunctive relief, plaintiffs’ commitment to contact Apple, and a mutual release. The court found that the emails identified the parties covered by the release and the conduct covered by it. It also found that the release language in Zaful’s later draft was consistent with the original email agreement and that plaintiffs accepted that language.

The first factor was the closest question. Plaintiffs’ email said that two of the four material terms would take effect upon email agreement and would not depend on final documentation. The court said this could suggest that the other terms would not become binding until formal documents were signed. But the court concluded that Zaful’s words and conduct showed an intent to be bound: Zaful accepted the proposal subject to one agreed change, did not object when plaintiffs contacted Apple, made the settlement payment, and later accused plaintiffs of breaching the “settlement in principle.” The court reasoned that this accusation made sense only if Zaful viewed the agreement as binding and enforceable.

The court added that even if the first factor favored Zaful, it would do so only slightly and would not outweigh the other three factors.

Ruling and disposition

The court GRANTED plaintiffs’ motion to enforce the parties’ settlement. It gave the parties two weeks to negotiate and execute definitive settlement documents, including a proposed consent judgment and permanent injunction on terms substantially similar to the preliminary injunction. If the parties had not done so by November 4, 2022, the court stated that it would sign and enter the proposed judgment and permanent injunction attached to plaintiffs’ motion.

In a footnote, the court declined to entertain plaintiffs’ passing request for attorney’s fees raised in their reply memorandum. The Clerk of Court was directed to terminate ECF No. 46.