2013-00151901-CU-BC

Dalin Zhang vs. Ping Liu

Nature of Proceeding: Motion for Preliminary Injunction

Filed By: Peterson, Glenn W.

Plaintiff’s Request for Preliminary Injunction is DENIED.

Plaintiff requests the issuance of a Preliminary Injunction against Defendants, and
each of them, to restrain and enjoin them pending trial on this action from:

(a) using the trade name, trademark or service mark NEW HAPPY DAY SPA or any
derivations thereof, within 200 miles of 3890 Truxel Road, Sacramento, California;

(b) using any name or mark that conjoins the word “happy” with “spa” and/or “day” or
any derivations thereof, or is otherwise confusingly similar to HAPPY DAY SPA in
sight, sound or meaning; and

(c) using any name or mark prohibited by (a) or (b) above in advertising or promotional
materials, or on the internet, to identify a spa owned or operated by Defendants within 200 miles of Sacramento.

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The Complaint alleges four causes of action: the 1 for breach of contract, the 2 for
trademark infringement false designation of origin, (15 U.S.C. § 1125(a)(1)(A)) the 3rd

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for False Advertising (15 U.S.C. §1125(a)(1)(B)) and the 4 [also erroneously
enumerated as the 3rd] for Unfair Competition, False Advertising (Cal. Bus. & Prof.
Code §§ 17200, et seq.).

Facts

Plaintiff and Liu were business partners, sharing ownership of six separate
corporations, each one of which owned and operated a day spa at different locations
throughout the greater Sacramento area. The spas all operated under the
tradename/trademark HAPPY DAY SPA (“Mark”).

On March 1, 2013, Plaintiff and Defendant, Ping Liu (“Liu”) entered into a written
contract to dissolve their prior business relationship. The contract provided, inter alia,
they would divide ownership of the six corporations and the day spa shops each taking
sole ownership of three of the shops.

As part of their agreement to disassociate, the Contract expressly provided that neither
party would use the Mark on any additional or subsequent shop locations located
within 200 miles of the existing shops. (Zhang Decl., para. 7, Exhibit B.)

Zhang declares that in July 2013 he became aware that defendants had registered the
fictitious business name of NEW HAPPY DAY SPA and created a web site under the
URL “NewHappyDaySpa.com”. Thereafter, defendants opened a new spa in Natomas
within half a mile of plaintiff’s HAPPY DAY SPA with a large banner announcing NEW
HAPPY DAY SPA.

Plaintiff demanded that defendants cease and desist this violation of the terms of their
contract, but defendants have refused to comply.

Plaintiff declares that customers and potential customers are being misled to believe
that defendant’s new spa is operated by or affiliated with plaintiff’s Happy Day Spa.

Plaintiff declares that he is suffering irreparable harm as his business volume has
sharply declined and his sales are 20-30 percent below previous averages.
Additionally, potential customers have asked to receive the promotional pricing they
saw in defendant’s shop from plaintiff. (Zhang Dec. para. 13.)

Preliminary Injunction

In deciding whether to issue a preliminary injunction, a court must weigh two
“interrelated” factors: (1) the likelihood that the moving party will ultimately prevail on
the merits and (2) the relative interim harm to the parties from issuance of the
injunction. The greater the plaintiff’s showing on one, the less must be shown on the
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other to support an injunction. Butt v. State of California (1992) 4 Cal.4 668, 677-
678. A preliminary injunction may not be granted, regardless of the balance of interim
harm, unless it is reasonably probable that the moving party will prevail on the merits.
San Francisco Newspaper Printing Co. v. Superior Court (1985) 170 Cal. App. 3d 438,
442.
Likelihood of Prevailing

Plaintiff moves for preliminary injunction under the 2nd and 3rd causes of action for
trademark infringement and false advertising in violation of the Lanham Act only.

Trademark Infringement

Plaintiff’s 2nd cause of action is for trademark infringement, in violation of 15 U.S.C.
1125(a) (1) (A)

The Lanham Act, 15 U.S.C. § 1125(a)(1)(A) provides as follows: “ Any person who, on
or in connection with any goods or services, or any container for goods, uses in
commerce any word, term, name, symbol, or device, or any combination thereof, or
any false designation of origin, false or misleading description of fact, or false or
misleading representation of fact, which– (A) is likely to cause confusion, or to cause
mistake, or to deceive as to the affiliation, connection, or association of such person
with another person, or as to the origin, sponsorship, or approval of his or her goods,
services, or commercial activities by another person, . . shall be liable in a civil action
by any person who believes that he or she is or is likely to be damaged by such act.”

In opposition, defendant asserts that The Lanham Act prohibits false and misleading
descriptions of products and services in interstate commerce. See 15 U.S.C. § 1125
(a). Cashmere & Camel Hair Mfrs. Inst. v. Saks Fifth Ave. (1st Cir. Mass. 2002) 284
F.3d 302, 310.

Here, both plaintiff and defendant operate local spas, in the Sacramento area which
draw clients from a radius of approximately 20 miles. No interstate commerce is
involved.

Further, pursuant to the express terms of the contract, the parties agreed to non-
exclusive use of the name Happy Day Spa, by agreeing to each operate three
separate spas with the same name. Thus the mark Happy Day Spa is not associated
solely with plaintiff or defendant’s goods, services or businesses.

False Advertising

The 3rd cause of action under 15 U.S.C. § 1125(a) (2) requires plaintiff to make a
showing that he will prevail in an action for misrepresentation in commercial
advertising, and requires proof of: (1) a misrepresentation; (2) that the
misrepresentation was material; (3) that the misrepresentation was part of a
commercial advertisement or promotion; and (4) that the misrepresentation was made
in interstate commerce .

Plaintiff’s false advertising claim under the Act fails for lack of any misrepresentation by
Defendants.

Again, pursuant to the express terms of the contract, the parties agreed to non-
exclusive use of the name Happy Day Spa, by agreeing to each operate three
separate spas with the same name. Thus the mark Happy Day Spa is not associated
solely with plaintiff or defendant’s goods, services or businesses.
Defendants have been truthful in marketing and promoting their business. They
advertise and promote the three spas previously owned with Plaintiff as agreed in their
Contract, as “Happy Day Spa,” and they promote their new spas as “New Happy Day
Spa.”

Again, neither party is acting in interstate commerce.

Plaintiff has not shown that he is likely to prevail on his false designation of origin and
false advertising claims under the Lanham Act, 15 U.S.C. 1125(a)

The Balance Of The Hardships

To be entitled to injunctive relief, it is not sufficient that plaintiff demonstrate a
likelihood of success on the merits of its claims. Plaintiff must also demonstrate a
likelihood that absent the injunction, it will be irreparably harmed by defendant’s
alleged infringing conduct.

In trademark cases, courts have found irreparable harm in the loss of control of a
business’ reputation, a loss of trade and loss of goodwill. Potential damage to
reputation constitutes irreparable injury for the purpose of granting a preliminary
injunction in a trademark case. CytoSport, Inc. v. Vital Pharms., Inc. (E.D. Cal. 2009)
617 F. Supp. 2d 1051, 1080.

The status quo to be maintained is set forth in the Contract. The Contract permitted
both plaintiff and defendant to operate three existing “Happy Day Spas” each, but
neither party was permitted to use the Happy Day Spa mark within 200 miles of the
shops already operating in the Sacramento area. (Contract, para. 6)

Plaintiff asserts that the status quo was disrupted when Defendants opened a
competing shop in Natomas using the name “New Happy Day Spa” and irreparable
harm is therefore presumed at law.

However, as shown above, the Court cannot conclude that the parties contractual
agreement to non-exclusive use of the mark “Happy Day Spa” gives either of them an
exclusive right to protect that mark. Plaintiff has failed to show that he is likely to
prevail on the merits of the two Lanham Act causes of action, therefore the motion for
preliminary injunction must be denied.

Plaintiff has a remedy at law for damages for breach of contract. Code Civ. Proc. § 526
(a)(4) [injunction may be granted (4) When pecuniary compensation would not afford
adequate relief.]; Estes v. Rowland (1993) 14 Cal.App.4th 508, 535 [“”There is no right
to equitable relief or an equitable remedy when there is an adequate remedy at
law.” (11 Witkin, Summary of Cal. Law (9th ed. 1990) Equity, § 3, p. 681 italics in
original); Brownfield v. Daniel Freeman Marina Hospital (1989) 208 Cal.App.3d 405,
410 [there must be an injury that “cannot be compensated by an ordinary damage
award”].)”]

The minute order is effective immediately. No formal order pursuant to CRC Rule
3.1312 or further notice is required.