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Small Business Bodyguard Inc. v. House of Moxie, Inc.

United States District Court, S.D. New York

March 20, 2015

SMALL BUSINESS BODYGUARD INC., Plaintiff/Counterclaim-Defendant,
HOUSE OF MOXIE, INC., Defendant/Counterclaim-Plaintiff,


COLLEEN McMAHON, District Judge.

Presently before the Court is Plaintiffs motion for a preliminary injunction against the defendant's new business, Sentences & Money. The Court entered a temporary restraining order preventing the defendant from conducting any scheduled Sentences & Money seminars and ordering that the website be temporarily disabled on March 17, 2015. A hearing on the motion is presently scheduled for March 30, 2015. This preliminary ruling will determine the scope of what needs to be decided at that hearing.

At issue is whether Defendant House of Moxie (HOM) violated the terms of the parties' Joint Venture Dissolution Agreement when it set up a web site/e-seminar business in direct competition with the business of its former joint venture partner, Plaintiff Small Business Bodyguard, Inc., (SBBI). Plaintiff and defendant were briefly partners in a joint venture to market SBBI's product, "Small Business Bodyguard, " an e-book and related media that provide small business owners with advice and information regarding the formation and administration of small businesses. The SBBI e-book includes samples of contracts, agreements, disclaimers, and other legal documents, and advises readers on how to use specific legal agreements to protect one's small business against liability. One of SBBI's principals is Rachel Rodgers, an attorney who operates a sole practice, the Rachel Rodgers Law Office, PC. Rodgers and her firm are third party counterclaim defendants in this action.

In June 2014, the parties dissolved their joint venture in an aptly named Joint Venture Dissolution Agreement (JVDA), the salient terms of which are as follows:

(1) SBBI[1] purchased HOMs interest in the SBB e-book and SBB assets in exchange for three installment payments totaling $15, 000 and certain commission payments.
(2) HOM received a non-revocable license to market, promote and sell the SBB e-book, and to use all associated intellectual property for that purpose (i.e., trademarks) for a period of three years.

Article 11 of the JVDA is entitled "Non-Competition." In pertinent part, it provides:

11.1 During the term of this Agreement, HOM (whether directly or indirectly, for compensation or not, for HOM's own account or on behalf of another) will not become involved or engaged in a business, or plan to become involved or engaged in a business that provides legal services, or sells products or goods (including books, e-books, and other works of authorship) that contain legal advice.

The Order to Show Cause

On March 16, 2015, this Court received, in the United States Mail, a document entitled

Plaintiffs Ex Parte Application for a Temporary Restraining Order to Disable Certain Websites and Order to Show Cause for Preliminary Injunction. (Docket # 64.) The document was filed on ECF sometime the previous Friday. It was not brought to the Court's attention at the time it was filed.[2]

The application urged that HOM-and its counsel of record in this matter, the Cloudigy Law Firm-had just set up an e-business, Sentences & Money, in direct competition with SBBI's product, and was soliciting enrollment for an e-seminar to be held on Tuesday, March 17, 2015. The Sentences & Money website advertises "a 4-week online mentorship program for aspiring professional writers who want to stop screwing around-and start making real money." The website outlines the course curriculum, which includes an introduction to writing as a profession and setting up a smart business model, how to attract clients and how to negotiate contract pricing, as well as a how-to section for "Proposals, Quotes, Contracts & Service Agreements." The website states, "We'll walk you step-by-step through House of Moxie's own client service agreement, what each section means, and what you absolutely need to have in your own." It then goes on to describe topics relating to client services, managing time, and how to accomplish one's goals as a professional writer.

The website introduces three special guest experts: (1) HOM's tax attorney, "who will help you understand the accounting pieces of the puzzle, " (2) an award-winning professional copywriter, and (3) Antigone Peyton, who is "Founder & CEO of Cloudigy Law, specializing in intellectual property litigation and strategic counseling around patents, trademarks, copyrights, unfair competition, DMCA violations, and acting as lead counsel in civil lawsuits across the United States." It also notes that Cloudigy Law is HOM's official intellectual property counsel.

SBBI argued that HOM's participation in this business violated section 11.1 of the JVDA, because the new business was a business that "sells products or goods (including book, e-books, and other works of authorship) that contain legal advice."

The Court refused to entertain the TRO application ex parte and ordered an emergency hearing for March 17 at 2 PM.

After the hearing, I concluded that a TRO should issue until the hearing on the motion for a preliminary injunction, which, as noted above, I scheduled for March 30, 2015. A written order to that effect issued on March 19, as part of the Court's denial of HOM's motion to reconsider.

At the hearing, HOM argued that its new business venture was not one that sold "products or goods (including books, e-books, and other works of authorship) that contain legal advice." The Court noted that the scope of the March 30, 2015 hearing would be affected by whether the clause "contain legal advice" was ambiguous or not. If the clause were unambiguous, it could be construed by the court as a matter of law, and the hearing would simply be directed toward an examination of the web site; If, however, the clause were ambiguous, we would also have to take parol evidence about the meaning of the phrase "contain legal advice"-not evidence about the parties' subjective understanding of what that term might mean (which is inadmissible), but evidence about drafts and discussions of both that phrase and the subject of non-competition generally during the negotiation of the JVDA.

I directed the parties to brief the issue of ambiguity by noon on March 19. They have done so.

General Principles of Contract Construction

The parties elected to have New York law govern the construction of the JVDA agreement. (JVDA § 7.1) I apply it here.

"The primary objective of a court in interpreting a contract is to give effect to the intent of the parties as revealed by the language of their agreement." Compagnie Financiere de CIC et de L'Union Europeenne v. Merrill Lynch, Pierce, Fenner & Smith Inc., 232 F.3d 153, 157 (2d Cir. 2000). When interpreting a contract, "words and phrases... should be given their plain meaning, ' and the contract should be construed so as to give full meaning and effect to all of its provisions.'" LaSalle Bank Nat. Ass'n v. Nomura Asset Capital Corp., 424 F.3d 195, 206 (2d Cir. 2005) (quoting Shaw Group, Inc. v. Triplefine Int'l Corp., 322 F.3d 115, 121 (2d Cir. 2003)). While a court is bound by plain terms of the agreement and cannot "strain language beyond its reasonable and ordinary meaning, " Shaw Group, 322 F.3d at 124, an interpretation that would render one or more clause of a contract superfluous is to be avoided.

In the ordinary course, New York follows the rule of contra preferentum: that is, any ambiguity in a contract is construed against its drafter if one party was responsible for the drafting. See, e.g., Guardian Life Ins. Co. of Am. v. Schaefer, 70 N.Y.2d 888, 890 (N.Y. 1987). In this case, the parties have abjured contra preferentum. The contract identifies HOM as the draftsman, but states, "It is expressly understood and agreed that this Agreement will not be construed against HOM as the party drafting the original version of it." (JVDA § 12.)[3] That section then goes on to impose its own rule of construction; it says, "[E]ach provision of this Agreement will be construed in a manner that is fair to both parties."

This Court is sitting in equity on this application for injunctive relief and so is quite comfortable applying the standard that was chosen by the parties themselves, whether interpreting Section 11.1 or any other term of the JVDA.

Standard for Determining Ambiguity

"Ascertaining whether or not a writing is ambiguous is a question of law for the trial court." Sayers v. Rochester Tsel. Corp. Supplemental Mgmt. Pension Plan, 7 F.3d 1091, 1094 (2d Cir. 1993). "Contract language is ambiguous if it is capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages ...

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