In writing about control of the social media accounts used by wedding dress designer and defendant Hayley Paige during her now-terminated employment with JLM Couture, the court outlined the following areas of dispute:
JLM and Gutman agree that the Disputed Accounts are property belonging to one of them, but they disagree vigorously about whose accounts they are. JLM contends that Gutman created the Disputed Accounts in her capacity as an employee, that they are therefore owned by the company, and that JLM merely gave Gutman wide discretion as its agent to operate the accounts as she saw fit. In contrast, Gutman argues that she created the Disputed Accounts in her personal capacity, that JLM did not acquire them simply by virtue of investing in the Hayley Paige brand, and that she did not cede ownership to JLM by agreeing to use her accounts to market Hayley Paige products or by occasionally giving other JLM employees direct access when it was in her interest to do so. The parties also disagree about who had ultimate authority over posts, whether any such authority derived from ownership or from some power or duty under the Contract, whether either party recognized the other as the Accounts’ true owner during their course of dealing, the extent to which JLM was responsible for the growth of the Disputed Accounts, and which of these factors matter for identifying the Disputed Accounts’ true owner.
That’s a lot to disagree over.
JLM Couture argued conversion and trespass to chattels theories to claim right to the accounts (Hayley Paige had locked them out). The district court declined to address the theories, but nevertheless on a preliminary injunction transferred control of the accounts to JLM Couture, its reasoning unclear.
The Court of Appeals for the Second Circuit noted that the transfer of the accounts, and the remedy sought, sounded in property, not contract. However, the district court expressly declined to consider the property implications. If the transfer was instead based on contractual obligations, the transfer of the accounts was beyond the scope of JLM’s contractual rights. The appeals court vacated the portions of the preliminary injunction relating to the social media accounts, although giving discretion to the court in how to revise it:
We do not attempt to decide for the first time on appeal–without full argument from the parties–the correct framework for answering who owns the Disputed Accounts or what result that framework would dictate. On remand, the district court could choose to answer directly the question of JLM’s likelihood of success on the merits of its conversion and trespass claims, properly weigh the relevant injunction factors, and grant or deny injunctive relief accordingly. Alternatively, the court may prefer to decide that the balance of equities favors denying any property-based injunction and thereby avoid the merits question, leaving Gutman in control of the Disputed Accounts (subject to the strict conditions of the remainder of the injunction). Finally, the district court may choose to modify the vacated portion of the injunction to provide JLM with relief for JLM’s breach-of-contract claims that stems from Gutman’s obligations under the Contract. In any event, we conclude that the district court exceeded its discretion by effectively assigning valuable assets to JLM without first determining whether the company likely owns them. We therefore vacate the portion of the PI concerning the Disputed Accounts and remand for further analysis and clarification.
Judge Lynch, concurring, would have held that the preliminary injunction was proper, in that it only restored the status quo where both parties were able to use the account.
JLM Couture, Inc. v. Gutman, No. 21-870 (2d Cir. Jan. 25, 2022).
This work is licensed under a Creative Commons Attribution-NoDerivatives 4.0 International License.