Basile Baumann Prost Cole & Assocs., Inc. v. BBP &
Assocs. LLC, 2012 WL 2426132 (D. Md.)
How can a company show its heritage when there’s been a split between founders? As this case shows, it can be a
risky endeavor, and the breakup agreement might not cover all the issues.
In 1990, Basile, Prost, and Baumann formed an economics and
real estate consulting firm, Basile Baumann Prost & Associates, Inc. It advised local, state, and federal agencies
and used the acronyms “BBPA” and “BBP,” and in 1995 launched bbpa.com. Basile and Prost worked mostly at the state
and local level, while Baumann spent most of his time with the US Navy. In 2006, Baumann sold his share to Cole, and
the company changed its name to Basile Baumann Prost Cole & Associates,
Inc., which began to refer to itself as “BBPC,” used as a logo and on business
cards, though the webside stayed bbpa.com.
The parties disputed whether the plaintiff, herein the Corporation,
stopped or continued using BBP and BBPA after Cole was added; Cole said it continued,
especially among clients “with longstanding relationships with the firm,” while
Basile said it didn’t. The Corporation’s
marketing materials included lists of awards the firm received and client
testimonials, e.g., “BBPC displayed aggressive, well organized efforts to
expedite the project .... BBPC went out of their [sic] way ... at short notice
to ensure financial documents were finalized.”
In 2009, Basile and Prost, who worked with state and local
governments, decided to split with Cole, who worked mainly with the Navy. The Corporation agreed to redeem Basile and
Prost’s shares in exchange for $1.8 million, 83 jobs, 138 “leads and
proposals,” and “[a]ll goodwill created on all past contracts and clients by
Basile and Prost [within the last four years] to include but not be limited to
any and all use of job qualifications and materials and job references for
Basile and Prost's contracts and clients.”
The Corporation “retain[ed] all [other] assets, properties[,] and
rights,” including the company name, office location and lease, telephone
number, domain name and website, two-thirds of the Corporation's staff, and 70
percent of its contracts by revenue, along with the direct federal
defense-related goodwill etc. A
noncompete clause provided that, for four years, Basile and Prost would not “in
any manner ... actively solicit business from any party who [wa]s currently a
prospective client or ha[d] been, at any time during the four ... years prior
to the date of [the] Agreement, an active client ... of ... Cole and the
Corporation.”
Basile and Prost then formed BBP & Associates LLC, an
“economics and real estate development advisory firm” in Annapolis. For some time, the LLC shared office space
with the Corporation. The LLC used the following logos, along with bbpallc.com:
Apparently internally, Basile proposed the following
statement distinguishing the LLC from the Corporation: “[i]f you must say when
we were organized, better wording might be ‘BBPC was founded in 1990, and in
2009 was legally restructured, resulting in the formation of BBP and Associates
LLC.’” The LLC then sent an announcement
to Basile and Prost's industry contacts and current, former, and potential
clients, stating that “BBP & Associates, LLC (BBP LLC) ha[d] moved to a new
location!” A mass email followed:
Ralph Basile and Jim Prost are
pleased to announce the establishment of BBP & Associates, LLC (BBP LLC).
The firm continues to service all of the state, local, private[,] and
non-direct Department of Defense work conducted by the firm that they founded
in 1990. That firm, which was reorganized at the end of 2009 and is trading as
BBPC, continues to service the remaining direct contract with the Department of
the Navy….
A past Corporation client forwarded the email to Cole and
asked whether the Corporation was going to change its name. The LLC’s financial manager testified that,
in 2010, several LLC clients sent payments to the Corporation, which would then
deposit the money and cut a check to the LLC.
The LLC gave presentations in North Carolina and Virginia using the
green BBP logo, describing itself as a nationally recognized firm with projects
in 47 states and 4/5 countries, serving over 1250 clients. The Corporation also received mail from the
city of Orlando intended for the LLC.
In May 2010, Basile told Cole that the Corporation had
violated the non-compete provision of their greement by improperly soliciting
local government work, and listing on its website two projects that Basile and
Prost had done in the past four years. The
Corporation removed the two projects from its website, then asked Basile and
Prost to stop using the BBP “service mark,” change the appearance of the LLC’s
website (specifically mentioning the color scheme and borders), and adopt a
replacement name. The LLC responded that
the Corporation had abandoned BBP and BBPA, but changed its website and logo:
Shortly, the LLC modified the logo further:
An entity called RKG submitted a proposal to a Rhode Island
planning authority listing the LLC as its subcontractor, describing the LLC in
terms similar to those above, stating that the LLC had been involved in Defense
Department/Navy downsizing, and including an LLC brochure listing many projects
purportedly completed by the LLC that were in fact completed by the Corporation
when Basile was a principal. The
planning authority awarded the contract in part because of RKG’s experience
with the Navy. The Corporation also
submitted a proposal under the name “Basile Baumann Prost Cole &
Associates, Inc.” Cole later wrote to a
representative of the Planning Authority to ask how another firm had been able
to obtain a copy of the Corporation's sealed bid. She responded that she
“remember[ed] [Cole's] firm and another who submitted a proposal having almost
the same name.” She “[did]n't know if
that [had] caused any confusion amongst the proposals.” A prospective client of the Corporation
forwarded it an email from the LLC describing the LLC’s work, including its
work in Baton Rouge; the client wrote that he’d “noted your work in Baton
Rouge.” There’s more, including alleged
confusion by a representative of the LLC’s insurer and another client who’d
been transferred from the Corporation to the LLC, but those events give the
flavor of what went on; the LLC continued to attribute to itself projects that
the Corporation had engaged in before the split, and claimed to have existed
for a number of years before its formation.
After the lawsuit was filed, the LLC altered its website
claims to have “caused construction of over $7 billion of development in 47
states and 4 countries while assisting over 1,100 public sector clients meet
their development objectives” by adding a note, “*Includes locations where work
was managed and/or completed by senior BBP LLC staff, including assignments by
Basile and Prost when they were Principals and senior technical staff at other
consulting firms.” The LLC’s website
also used endorsements verbatim from the Corporation’s marketing materials
(sometimes with the substitution of the LLC’s name for the entity named in the
Corporation’s testimonials, e.g., “BBP LLC displayed aggressive, well organized
efforts to expedite the project .... BBP LLC went out of their [sic] way ... at
short notice to ensure financial documents were finalized”). After the Corporation sued, the LLC changed
these testimonials to refer to Basile and Prost, with brackets to indicate the
alterations. Below the testimonials, the
LLC added the same asterisked note. Of
36 testimonials on the LLC’s website, only 3 weren’t originally from the
Corporation’s marketing materials. Its
website also listed the same awards as the Corporation did, in the same order,
with the same photos; the asterisk also got added there.
The court denied the parties’ cross motions for summary
judgment on the Lanham Act claims.
First, the court rejected the LLC’s argument that the Corporation
doesn’t own “BBP,” since it transferred or abandoned the goodwill associated
with such marks. The Corporation argued
that it transferred only the personal goodwill of Basile and Prost. While a sale of a business and its goodwill
will carry with it the trademark of the business even if not expressly
mentioned, what happened here was more complicated. It was clearly not the sale of the Corporation’s entire business and goodwill, and
thus didn’t necessarily transfer the trademark.
Nor did the LLC meet its burden of showing that the Corporation abandond
BBP marks, at least as to services for state and local governments, by
transferring certain assets and agreeing not to compete with Basile and Prost
in that market for four years. The
Corporation was still using the bbpa.com website and BBPC mark; Cole also
testified that the firm still used “BBP” and “BBPA,” especially among clients
“with longstanding relationships with the firm.” There was also no showing that the Corporation
lacked the intent to use the marks in the reasonably foreseeable future; it was
still providing services to governments and institutional clients, and one
could reasonably read the parties’ agreement to bar the Corporation only from
soliciting certain clients of Basile and Prost's for four years.
The court also found sufficiently disputed facts on likely
confusion. The marks are similar; the
parties are both based in Annapolis and arguably perform similar work in
economics/real estate consulting. The
LLC’s ads had been similar to the Corporation’s, as had its website. A reasonable jury could find intent to
confuse because the second B in BBP refers to Baumann, who’d never been
affiliated with the LLC but did work for the Corporation. Defendants also made several representations
“that could reasonably be construed as attempts to present the LLC as the
Corporation.” In an email to an employee (which the court treated as relevant
without addressing whether this was a relevant audience), Basile said that the
Corporation had been “legally restructured, resulting in the formation of [the
LLC].” And in several bids for work and
in marketing materials, the LLC said that it existed long before its January
2010 formation and its claimed to have completed projects that were done by
Basile and Prost when they were principals at the Corporation. Its website said
that it had provided services to “literally hundreds of clients” when it had
advised “far fewer” than 70 to 80 clients.
Evidence of payments made to the wrong entity and
misdirected mail, etc. might not count as actual consumer confusion, but still
counted as evidence a reasonable jury could use to find likely confusion.
The Corporation also alleged that the LLC’s statements about
its clients, testimonials, projects, and awards and recognitions constituted
false advertising under the Lanham Act. The LLC argued that the Corporation failed to
show materiality or injury. The court
defined materiality as a claim to have “a characteristic that most consumers
would find appealing,” which I think is too narrow. Anyway, the LLC claimed to have served about
600 clients, which were mostly served by the Corporation; it claimed to have
accomplished a number of “firsts” in its industry, ditto; it claimed to have
completed 45 projects, ditto; and it used testimonials describing work done by
the Corporation and claimed awards given to the Corporation. The defendants argued that no customer would
purchase the LLC’s services by reading the website literature, but would rather
contact it directly and learn more; thus the claims weren’t material.
The Corporation disagreed; if the website didn’t help get
business, why would the LLC put it together?
The court found that a reasonable jury could find materiality. The claims at issue all related to
characteristics a consumer would want from a consulting firm, and materiality
is generally a question of fact for the jury.
Similarly, a jury could find likelihood of injury from sales
diversion/lessened goodwill.
Defendants also argued that they were just intending to tout
the achievements of Basile and Proust, but intent isn’t an element of a Lanham
Act violation. (It seems to me this is
better framed as a literal falsity/implied falsity argument.)
For similar reasons, the ACPA claim against bbpallc.com
survived. Defendants argued that there
was no confusing similarity, and based their argument in part on their Google
search for “BBP,” which didn’t turn them up; the search the court relied on a search for “BBP
Annapolis,” which produced links to the LLC’s site as the top two results and
the Corporation’s as the third. Given
the evidence on likely confusion, a jury could infer that the defendants
intended to divert customers by creating a likelihood of confusion as to the
source of the LLC’s site.
The evidence was, however, insufficient to grant the
Corporation’s cross motion for summary judgment. For example, the LLC’s business focuses
mainly on state and local government, while the Corporation is primarily
focused on the Navy. Because neither
targets the general public, a reasonable jury could find that consumers’ sophistication
made confusion unlikely. Even the
crossed wires on payments have other explanations: they were made shortly after
the transfer of contracts to Basile and Proust, and may have been transitional
artifcats. The other confusion instances
might be dismissed as de minimis. In
addition, a jury could favor the defendants on intent. They sent out a mass email distinguishing the
LLC from the Corporation, and changed their website and logo when the
Corporation complained.
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