TANYA WALTON PRATT, District Judge.
This matter is before the Court on a Motion for Turnover of Trademarks (and for any Funds Received as Royalties Since the Purported Transfer) ("Motion for Turnover") filed by Defendant Christopher Muylle ("Muylle") (
Muylle asks the Court to order that the "Wine and Canvas" trademark (the "Mark") be turned over to him, along with any royalties earned therefrom, until his judgments in this case against counterclaim defendants WNC, Anthony Scott ("A. Scott"), and Tamara Scott ("T. Scott") are satisfied. WNC originally registered the Mark, and it was owned by WNC when WNC commenced this suit. An agreement signed by WNC and non-party Wine and Canvas IP Holdings, LLC ("WNC IP") on January 1, 2012, purports to assign the Mark to WNC IP. Muylle argues two legal bases to compel the surrender of the Mark to him. First, WNC's transfer of the Mark to WNC IP was a fraudulent transfer under Indiana Code §§ 32-18-2-14 and 32-18-2-15, and, second, WNC IP is the alter ego of WNC and/or the Scotts. Under the first theory, WNC's transfer of the Mark would be voidable and ineffective regarding Muylle, which permits him to reach the Mark and its royalties in the hands of either WNC or WNC IP as if the transfer did not occur. Under the second theory, WNC and WNC IP are deemed to be one entity, which permits Muylle to reach the Mark and its royalties from WNC. The Court will treat Muylle's Motion for Turnover as part of the proceedings supplemental to collect his judgments.
This case was initiated on November 29, 2011, by WNC filing its original complaint in Indiana state court (
On August 15, 2014, the Court entered summary judgment against Muylle's counterclaim to cancel the Mark and against all of WNC's claims against Muylle except for its claims for trademark infringement and false designation of origin (
The Court earlier had entered default judgment against defendants Weisser, YN Canvas CA, LLC, and Weisser Management Group, LLC on WNC's claims, and the Court held a hearing on damages on March 2, 2015. It awarded WNC damages of $5,088.39 against YN Canvas CA, LLC. The Court also awarded WNC its costs and issued an injunction prohibiting these three defendants from infringing WNC's trademarks (
According to Muylle, as of June 2016, the only payments that he has received on his judgments has been T. Scott's remittance of $3,515.65 pursuant to a garnishment order (
On January 1, 2012, A. Scott signed an Intellectual Property Agreement ("IP Agreement") (
IP Agreement, ¶ 1. The agreement also provided that, in the interim, before full ownership "vested", WNC IP would have an irrevocable and exclusive worldwide license to use the Mark in its discretion, including "the exclusive right to license the Mark and to generate income therefrom." Id. The agreement provided that WNC IP would pay WNC one hundred dollars and grant it an irrevocable non-exclusive license to use the Mark in connection with WNC's Indianapolis location for a term of twenty years. Id.
The January 1, 2012 execution of the IP Agreement occurred one month after this suit was filed, nine months before Muylle filed his first counterclaims against WNC (for violation of California's franchising code and cancellation of the Mark), and sixteen months before Muylle filed his operative amended counterclaims, which added the claim for abuse of process and added the Scotts as counterclaim defendants on that claim.
The IP Agreement's initial recitals include an acknowledgement of the pendency of this suit. It also includes a recital explaining the genesis of the agreement. It states that, prior to this suit being filed, Weisser, serving as a consultant, was in the process of developing a system for expanding the Wine & Canvas concept throughout the United States. That system included the creation of WNC and WNC IP with WNC owning and operating the Indianapolis location and WNC IP owning and controlling all of the intellectual property. However, after Weisser left, it was discovered that he had organized only WNC and not WNC IP. The recital noted that WNC IP had since been organized
On August 29, 2014, an affidavit by A. Scott was submitted in support of WNC's motion to dismiss a separate copyright suit in the Middle District of Florida (
Near the end of the jury trial in November 2014, Muylle filed his Motion for Judgment as a Matter of Law (
On January 1, 2015, WNC and WNC IP executed a Trademark Ownership Acknowledgement ("Acknowledgement"). Id. at 9. A. Scott again signed on behalf of both parties, this time in his capacity as "President" of each entity. By this instrument, WNC and WNC IP acknowledged the occurrence of one of the "trigger events" in the IP Agreement by which WNC IP "automatically acquired ownership of the Mark," namely, the completion of the trial on the merits in this suit. They agreed that, pursuant thereto, "all rights, title and interest in and to the Mark that have no[t] previously been transferred by [WNC] to [WNC IP] are now transferred in full . . . ." Id. The Acknowledgement was executed after the November 2014 trial and verdict but before the March 2, 2015 damages hearing on the defaulted claims.
There has been no assertion or showing that copies of the IP Agreement or the Acknowledgement were produced, or their terms were disclosed, to Muylle until March 2016.
In his Motion for Turnover, Muylle asserts that his counsel first became aware of the IP Agreement and the Acknowledgement on March 7, 2016, when his counsel was given copies of the documents during a creditors' meeting in WNC's bankruptcy proceeding. He asserts that the documents show that WNC did not own the Mark as of, at the latest, January 1, 2015, the date of the Acknowledgement. He also contends that the consideration that WNC IP gave to WNC for the transfer was substantially less than the reasonable value of the Mark. Muylle does not affirmatively and decisively assert that the Mark was, in fact, transferred to WNC IP. Rather he argues under two theories that, even if it was transferred, he is entitled to a turnover of the Mark and all royalties earned therefrom until his judgments are satisfied.
First, a transfer from WNC to WNC IP was a fraudulent transfer which renders it voidable as to him under Indiana Code §§ 32-18-2-14 and 32-18-2-15. In support of this argument, Muylle relies on the IP Agreement, the Acknowledgement, A. Scott's trial testimony, and the U.S. Patent and Trademark Office's electronic registration record of the Mark as of May 11, 2016, which shows WNC as the owner of the Mark. Second, Muylle argues that WNC IP is only an alter ego of WNC and/or the Scotts, which renders the Mark reachable through WNC. In support of this theory, Muylle refers to the Scotts' testimony at the hearing on proceedings supplemental and discovery responses.
WNC gives several responses. First, it argues that Muylle has not designated or authenticated admissible evidence in support of his motion. Second, because obtaining the Mark from WNC IP's possession under the theory of fraudulent transfer or from WNC's possession under an alter ego theory requires that a transfer occurred, Muylle must assert that there was a transfer, yet he takes no position on the question and has previously asserted that no transfer took place. Third, the Court lacks jurisdiction to hear what amounts to a new claim against non-party WNC IP to quiet title to the Mark without all the proper procedures of an independent suit, including trial.
Ind. Code § 32-18-2-14.
In Indiana, analysis of the first option for finding a fraudulent transfer under Section 14(1) "actual intent" is guided by consideration of whether "badges of fraud" are present. These include:
Continental Casualty Co. v. Symons, 817 F.3d 979, 988 n. 1 (7th Cir. 2016) (quoting Otte v. Otte, 655 N.E.2d 76, 81 (Ind. Ct. App. 1995)).
Muylle argues that WNC's transfer of the Mark bears seven of these badges of fraud. First, the transfer was made during the pendency of this lawsuit. While that is true, it is also true that the transfer took place soon after this suit was filed, nine months before Muylle filed any counterclaims against WNC, and sixteen months before he filed his abuse of process counterclaim and brought in the Scotts as additional defendants. The timing of the transfer in these circumstances does not indicate an attempt to spirit away assets to protect them from judgment execution. Muylle also does not offer any evidence or argument against A. Scott's explanation that there were plans, even before suit was filed, to organize WNC IP for the purpose of holding and licensing all intellectual property or his explanation that WNC retained ownership of the Mark in order to preserve its standing in this suit.
Second, Muylle contends that the transfer rendered WNC insolvent or greatly reduced its assets. But he provides no basis for finding that WNC was rendered insolvent after the transfer; there is no showing or suggestion of WNC's post-transfer assets and liabilities then existing or reasonably expected. WNC responded that, at the time of the IP Agreement there were only two authorized Wine and Canvas locations, Indianapolis and Bloomington. At that time, WNC, as owner of the Mark and operator of the Indianapolis location, paid no licensing fees, and the Bloomington location paid no more than $300 per month for a little over six months. WNC contends that the licensing and expansion system had yet to be fully realized at the time of the IP Agreement and that WNC had no way of knowing then that there would be over fifty locations by the time ownership of the Mark automatically transferred at the end of trial, over two years later. The post-transfer expansion of the WNC business and the successful licensing of the Mark shows that the Mark did have substantial value at the end of the trial, but Muylle has not shown that the Mark's value then represented a reasonable assessment of its value over two years earlier, at the time of the IP Agreement.
Third, Muylle contends that the transfer was a secret or hurried transaction, not in the usual mode of doing business. In support, he points to the fact that (1) WNC did not disclose the transfer instruments to him or the Court while repeatedly representing during the litigation that WNC owned the Mark, and (2) WNC failed to amend the Mark's registration to identify WNC IP as the new owner until long after the transfer. According to the IP Agreement and the Acknowledgement, on which Muylle relies, WNC did in fact own the Mark, albeit temporarily, after the IP Agreement was executed, and it continued to own it up to the end of the trial. In addition, WNC took no additional action later to transfer ownership to WNC IP; rather, ownership automatically passed to WNC IP by operation of the agreement.
However, there was a lack of candor in WNC's and the Scotts' failures to disclose that the IP Agreement immediately transferred a vested future interest in sole ownership of the Mark to WNC IP, which interest would be realized upon the occurrence of the earliest of six possible triggering events, one of which was certain to occur.
WNC also affirmatively misrepresented the ownership of the Mark in one instance. In its March 27, 2015, proposed findings and conclusions submitted after the March 2, 2015, default damages hearing, WNC represented that it owned the Mark. All three versions if its findings and conclusions contain the identical relevant proposed finding:
(
This statement parallels the relevant averment in A. Scott's first Florida affidavit (described above), except that the Florida affidavit attributed ownership of the Mark to WNC IP, instead of WNC. According to WNC now, it did not, in fact, own the Mark at the time of the damages hearing. In addition, while not shown to be an affirmative misrepresentation, as opposed to neglect, neither WNC nor WNC IP amended the official registration of the Mark to identify the change in ownership until April 2016, long after the automatic transfer (
Fourth, Muylle contends that the transfer was conducted in a manner differing from customary methods, "including a transfer that was contingent on certain events, including the trial in this matter." But he does not explain or provide support for what the customary methods were or how the transfer differed from them. Many contracts contain provisions that are contingent upon certain occurrences. The Court draws no inference from this factor.
Fifth, Muylle contends that WNC retained benefits over the Mark after the transfer. While WNC temporarily retained ownership of the Mark after the IP Agreement, it immediately and irrevocably transferred exclusive licensing rights for the Mark to WNC IP. Thus, WNC retained only use rights for the Indianapolis location. After ownership was transferred to WNC IP at the end of trial, WNC retained an irrevocable and non-exclusive twenty-year license to use the Mark for the Indianapolis location. The use rights that WNC retained following either transfer are not significant enough to infer a deceptive intent behind the transfers.
Sixth, Muylle asserts that WNC IP gave little consideration in return for its acquisition of ownership. WNC IP paid $100 and granted WNC a non-exclusive license to use the Mark in connection with the Indianapolis location for twenty years. The Court finds this "badge of fraud" to be neutral. While the Mark was not earning a great deal of money at the time of the IP Agreement, WNC and the Scotts were implementing a plan for a licensing system and expansion, for which the Mark was intended to be a key asset and source of income. Their intentions and expectations were that the Mark would be generating income and those expectations eventually were realized. However, as noted above, it has not been shown that the future increase in value of the Mark was sufficiently concrete in January 2012 to infer that the consideration exchanged at that time shows an intent to defraud, or secure assets from, creditors in this or any other case.
Seventh, the transfer of the Mark was between related entities. This factor is undisputed.
Having weighed these "badges of fraud," the Court finds that WNC's lack of candor regarding its transfer of a future interest in the Mark, its misrepresentations regarding ownership of the Mark in its findings and conclusions submitted for the damages hearing, and the transfer between related entities do not outweigh the contrary or neutral inferences from the other "badges." Muylle does not point to any requirement that WNC disclose the future interest transferred to WNC IP, and he could have been more diligent in discovering the details of the transfer.
The misrepresentation in WNC's proposed findings and conclusions is more troubling, considering that it was an affirmative misrepresentation and came after the Mark's value had become apparent. However, there is no indication that the misrepresentation was intentional or calculated to defeat the collection of Muylle's judgment rather than the result of a careless repetition of a previously corrected formulation. Finally, while the transfer was between related entities, that fact does not suggest a deceptive intent considering the counter evidence of a longstanding business plan to create WNC IP for the purpose of holding and licensing all of the WNC intellectual property. Therefore, the Court finds that Muylle has not shown an actual intent to hinder, delay, or defraud creditors under Indiana Code § 32-18-2-14(1).
To satisfy Indiana Code § 32-18-2-14(2), Muylle must show that WNC did not obtain a reasonably equivalent value in exchange for its transfer of ownership of the Mark and either (1) that it was engaged or about to engage in a business or transaction for which it had insufficient assets or (2) that it intended to incur or believed or reasonably should have believed that it would incur debts beyond its ability to pay. Regardless of the reasonable equivalence of the consideration to the Mark, Muylle presented no evidence or assertions regarding the state of WNC's assets and debts after the transfer in relation to any actual or intended business or transactions. Therefore, the Court finds that Muylle has not shown satisfaction of Indiana Code § 32-18-2-14(2).
Ind. Code § 32-18-2-15.
Because Muylle did not present or suggest any evidence that WNC was insolvent at the time the IP Agreement was executed or at the time complete ownership of the Mark was transferred at the end of the trial, the Court finds that he has failed to prove satisfaction of Indiana Code § 32-18-2-15. The Court concludes that Muylle has not shown that WNC's transfer of ownership of the Mark to WNC IP was fraudulent or voidable as to him under Indiana Code §§ 32-18-2-14 or -15.
Muylle argues that WNC IP is the alter ego of WNC, and therefore, its assets, including the Mark and the royalties earned therefrom, are WNC's assets and available to satisfy Muylle's judgments.
Symons, 817 F.3d at 993-94 (citations and quotation marks omitted).
Muylle alleges a series of assertions that he argues shows satisfaction of the Aronson factors:
(1) WNC IP pays the $3,500 monthly loan payment for a yacht owned by Boat and Breakfast Charters, LLC, a company owned by T. Scott that has no business operations. The promissory note is signed by Boat and Breakfast Charters, LLC, WNC, and A. and T. Scott. The yacht has no business purpose but is used for the personal benefit of the Scotts. Muylle refers to "discovery in proceedings supplemental" as the source of this information.
(2) WNC IP pays the $1,450 monthly lease payments for the Scotts' personal residence. Muylle does not refer to any source of this information.
(3) WNC and/or WNC IP "may be making or have made" loan payments for T. Scott's Bentley automobile. The source is "information and belief."
(4) WNC's and WNC IP's common owner is Kathy McCracken, the late defendant Donald McCracken's wife. Mr. McCracken was the previous owner. Muylle attributes this information to A. Scott's testimony at the hearing on proceedings supplemental.
(5) WNC and WNC IP are located at the same address. Muylle attributed this information to T. Scott's testimony at the hearing on proceedings supplemental.
(6) A. Scott is the president of both WNC and WNC IP. The source of this allegation is A. Scott's testimony at WNC's bankruptcy creditors' meeting.
(7) A. Scott receives $5,000 monthly income from Scott Staffing and Management Services, LLC, which is funded by $1,000 from WNC and $4,000 from WNC IP. The source of this information is A. Scott's testimony at the hearing on proceedings supplemental.
(8) T. Scott was a W-2 employee of WNC, which paid her salary, but she performed work for both WNC and WNC IP. She is now a W-2 employee of Scott Staffing. Muylle refers to T. Scott's proceedings supplemental testimony as the source of this allegation.
These allegations speak to the Aronson factors of (1) payment by the corporation of individual obligations (relevant to WNC IP being an alter ego of the Scotts, not WNC), (2) common principal corporate officers (A. Scott is president of both) and common employees (T. Scott performed work for both entities in the past), (3) common corporate address, and (4) comingling of corporate assets (WNC and WNC IP split the funding of A. Scott's salary and T. Scott formerly was paid by WNC but performed work for both entities). Muylle did not make any allegations or assertions regarding the factors of undercapitalization; absence of corporate records; fraudulent representation by corporate shareholders or directors; use of the corporation to promote fraud, injustice, or illegal activities; failure to observe corporate formalities; other conduct of ignoring, controlling, or manipulating the corporate form; or same telephone numbers and business cards. It is fair to note that the factors of similar corporate names and business purposes are present despite not being asserted by Muylle.
Muylle did not submit or cite any evidence to support his allegations about, inter alia, corporate payments of the Scotts' personal obligations, common ownership of WNC and WNC IP, and funding of the Scotts' salaries, despite Muylle's references to court-proceedings testimony and proceedings-supplemental discovery, which should have been easy enough to submit (or cite, if already part of the Court's record). Even after WNC challenged the lack of admissible evidence to support Muylle's allegations, Muylle merely requested the Court to set the matter for a hearing if it "finds that there is a disputed issue or issues of fact . . . ." (
Because Muylle did not submit or cite any evidence in support of his alleged Aronson factors, the Court finds that he has not carried his burden of persuasion. His insistence that the Court schedule a hearing is a non-starter because the Court will not determine whether a hearing would be necessary or helpful until after it is given evidence. In addition, even had Muylle submitted or cited admissible supporting evidence, and the Court credited that evidence, the Court is not convinced that Muylle's showing carries his burden. The most significant factor in support of an alter ego relationship is the entities' payments of personal, non-business expenses and debts of the Scotts when A. Scott is the chief officer of both entities. The weight of the entities' common ownership (Ms. McCracken), officers (A. Scott), employees (T. Scott), and address is lessened considering that both WNC and WNC IP are small entities involved in the same overall business. But not all small, related entities are alter egos of each other. Without information regarding the entities' observances of corporate formalities, absence of corporate records, inter-entity payments of expenses and/or provisions of capital and funds, and other indications of separate or unified corporate existences, the Court is not convinced that the alleged Aronson factors lead to a certain conclusion. Finally, because A. Scott served as president of both entities, the fact that his total monthly income was funded by both of them, funneled through Scott Staffing, which was described as a payment processor, does not by itself suggest improper comingling of assets or an alter-ego relationship. Any significance to the particular percentages that each entity paid depends on the division and value of the work that A. Scott performed for each. The Court concludes that Muylle has not shown that WNC IP is the alter ego of WNC.
For the above reasons, the Court
WNC asks the Court to strike or disregard "Unsupported Factual Assertions, Legal Conclusions and/or Other Irrelevant, Scandalous and/or Harassing Allegations" contained in Muylle's Motion for Turnover (
WNC has provided no legal basis to grant its Motion to Strike, and the arguments in its Motion are generally a regurgitation of its arguments in its response brief to the Motion for Turnover. In light of the Court's decision noted above on Muylle's Motion for Turnover, and because the Court is able to discern unsupported factual assertions, legal conclusions, and irrelevant, scandalous, and harassing content, WNC's Motion to Strike (
WNC requests that the Court strike Muylle's combined reply/response brief at Docket Number 628, which is Muylle's reply in support of his Motion for Turnover and his response in opposition to WNC's Motion to Strike Unsupported Factual Assertions, Etc. (
As noted above, motions to strike are generally disfavored. In light of the Court's decision on Muylle's Motion for Turnover, WNC's Motion to Strike Omnibus Filing (
Christopher Muylle's Motion for Turnover of Trademarks (and for any Funds Received as Royalties Since the Purported Transfer) (
