JLM Couture, Inc. v. Gutman

Background

The case was before the court after the United States Court of Appeals for the Second Circuit affirmed part of, and vacated part of, the district court’s March 14, 2023 order modifying a preliminary injunction. The appeals court held that the district court had erred by giving JLM exclusive control over the Instagram and Pinterest accounts using the handle “@misshayleypaige.” It also held that the district court had improperly restricted Gutman from identifying herself as a designer of certain products based on Paragraph 10(e) of the parties’ employment contract.

The Second Circuit directed the district court to consider account ownership under the relevant framework and to examine whether the restrictions in Paragraph 10(e) were reasonable under New York law. The district court also noted that the appeals court had not disturbed earlier factual findings or the district court’s conclusions concerning JLM’s likelihood of success regarding ownership of particular content posted on the accounts or compilations of that content.

Additional Briefing

The court ordered simultaneous briefing on several remanded issues. Regarding the accounts, the parties must address whether Gutman owned them when they were created; whether she created them for personal use; how the platforms’ terms of service affect ownership; whether ownership was later transferred to JLM; and whether JLM acquired superior possession rights to account content, the handle, customer and potential-customer information and interactions, or associated goodwill.

The parties must also address whether JLM has shown a sufficient likelihood of success on claims including trespass to chattels or conversion to support a mandatory preliminary injunction concerning access to or control of the accounts. Regarding Paragraph 10(e), the briefing must address whether JLM has a legitimate interest supporting enforcement, whether the five-year term is reasonable, and whether JLM’s interpretation of the designer-identification restriction is reasonable in scope and not overly burdensome to Gutman. The parties must also brief the status and possible effect of JLM’s Chapter 11 bankruptcy proceeding.

Opening briefs were due March 29, 2024; opposition briefs were due April 12, 2024; and reply briefs were due April 19, 2024.

Interim Relief Concerning the Accounts

The court treated JLM’s request to retain sole access to the accounts as a request for a mandatory preliminary injunction. Such an injunction requires a more demanding showing than an ordinary preliminary injunction. The court concluded that JLM had not made that showing in the parties’ joint letter and that prior findings of irreparable harm, standing alone, were insufficient. JLM’s request for continued exclusive access was therefore denied.

Because the Second Circuit had vacated the provision granting JLM sole control, the court determined that Gutman was entitled to access while the remanded issues were being considered. The court described the relevant status quo as shared access. It directed JLM to provide Gutman, through counsel, with the current usernames and passwords for the accounts and any other assistance needed to access them by 5:00 p.m. Eastern Standard Time on March 5, 2024.

The court left in place restrictions that had not been vacated. Gutman could not change the account handles, delete or alter content, transfer the accounts or their use to someone other than JLM, communicate through the accounts for non-JLM promotional purposes, or post or communicate in connection with a non-JLM commercial venture without written permission from JLM’s chief executive officer, Joseph L. Murphy. She could post personal, noncommercial content only if it did not disparage JLM and was not inconsistent with the accounts’ dominant promotional character. The order’s provisions barring action to gain control of the accounts and requiring Gutman to take steps enabling JLM to maintain control were identified in the opinion’s footnotes as stricken under the Second Circuit’s decision.

Interim Relief Concerning Paragraph 10(e)

JLM sought an interim injunction enforcing Paragraph 10(e) while the court considered the remanded questions. The court said that the Second Circuit’s concern focused on the reasonableness of the restriction’s scope and duration, not on the earlier findings concerning irreparable harm, the balance of hardships, or the public interest.

Applying New York’s standard for restrictive covenants, the court found that JLM had shown a likelihood of success on two issues: that it had a legitimate interest supporting enforcement and that its interpretation of the designer-identification prohibition was reasonable in scope and not unduly burdensome. The court relied on its prior findings that JLM had built and promoted Gutman’s designer persona and that failing to enforce the restriction could harm JLM’s goodwill.

The court did not finally resolve whether the five-year duration was reasonable. It stated, however, that the record showed JLM was likely to establish that the restriction was reasonable for at least its first two years, which the court found sufficient for interim relief while it considered further submissions. The court therefore modified the preliminary injunction to enjoin Gutman from violating Paragraph 10(e) pending resolution of the issues concerning the provision’s breadth and duration.

Disposition

The court ordered additional briefing. JLM’s request for interim relief was granted in part and denied in part, and Gutman’s request for interim relief was granted in part and denied in part. The preliminary injunction was modified to provide Gutman access to the accounts while retaining specified restrictions and to continue the Paragraph 10(e) restrictions pending further proceedings. The order did not finally decide account ownership or the ultimate enforceability of the contract restrictions.