B6USA, Inc. v. Hite (In re B6USA, Inc.)

560 B.R. 179, 2016 Bankr. LEXIS 3697
CourtUnited States Bankruptcy Court, E.D. North Carolina
DecidedOctober 13, 2016
DocketCASE NO. 16-04666-5-JNC; ADV. PRO. NO. 16-00149-5-JNC
StatusPublished

This text of 560 B.R. 179 (B6USA, Inc. v. Hite (In re B6USA, Inc.)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, E.D. North Carolina primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
B6USA, Inc. v. Hite (In re B6USA, Inc.), 560 B.R. 179, 2016 Bankr. LEXIS 3697 (N.C. 2016).

Opinion

MEMORANDUM OPINION ON ORDER ALLOWING PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION AND DENYING DEFENDANT’S MOTION FOR PRELIMINARY INJUNCTION

Joseph N. Callaway, United States Bankruptcy Judge

The matters before the court in this adversary proceeding are the “Emergency [180]*180Motion for Preliminary Injunction, in Addition to Motion for Temporary Restraining Order Against Stephen M. Hite, Jr.” filed by the chapter 11 debtor-in-possession and plaintiff B6USA, Inc. (“B6USA”) on September 23, 2016, Dkt. 4 (the “B6 Motion”), the “Defendant’s Emergency Motion for Preliminary Injunction and Temporary Restraining Order” filed by the defendant Stephen M. Hite, Jr. on September 26, 2016, Dkt. 11 (the “Hite Motion”), and the response of Mr. Hite to the B6 Motion filed September 28, 2016, Dkt. 14 (the “Hite Response”). A hearing on the B6 Motion and the Hite Motion (together, the “Cross-Motions”) took place in Greenville, North Carolina on September 29, 2016.

B6USA filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code on September 6, 2016. On September 22, 2016, B6USA filed the complaint in this adversary proceeding, among other things seeking injunctive relief against Mr. Hite with respect to alleged interference with the debtor’s business operations and corresponding use of .the name “BaySix” in his post-petition business operations. Dkt. 1. On September 23, 2016, B6USA filed its emergency motion for preliminary injunction and temporary restraining order, seeking the same relief on an interim basis. Dkt. 4. On September 26, 2016, Mr. Hite filed an answer to the complaint, a counterclaim seeking injunctive relief against B6USA with respect to the use of the name “BaySix,” and a cross-motion for temporary restraining order and preliminary injunction. Dkts. 10, 11. As a result, in the Cross-Motions both B6USA and Mr. Hite contend that each owns the sole and exclusive right to the trade name and mark “BaySix” and similar names, and that each is actively interfering with the other’s legitimate business operations and creating confusion in the marketplace through misuse of the name “BaySix,” the operation of websites including the name “baysix” (or similar names and spellings), and holding itself out to the public as having an affiliation with the name “Bay-Six.”

This court has jurisdiction over this Adversary Proceeding and the' matters raised in the Cross-Motions pursuant to 28 U.S.C. §§ 157 and 1334, and by the General Order of Reference entered by the United States District Court for the Eastern District of North Carolina on August 3, 1984. The parties agree that the matte is a core proceeding. In its complaint, the plaintiff affirmatively consented to the entry of final judgment by this court, and by filing his counterclaim in this court, the defendant has impliedly consented to entry of final judgment by this court. In addition, both parties affirmatively sought in-junctive relief specifically from this court.

At the hearing, both parties presented testimony but no documentary evidence seeking to establish an exclusive right to use the name “BaySix” (and similar names and spellings) and to otherwise operate the business associated with that name. The court took the matter under advisement, and the parties submitted supplemental briefs on October 3, 2016. Dkts 20, 21. Due to the exigency of the matter, the court entered a short order allowing the plaintiffs motion for preliminary injunction and denying the defendant’s motion for preliminary injunction on October 4, 2016. Dkt. 23. This memorandum opinion further sets forth the basis for the court’s ruling.

FACTS

B6USA is a North Carolina corporation that manufactures, markets, and sells athletic apparel, jewelry, decals, and other accessories. It is currently operating as a debtor-in-possession under chapter 11 of the Bankruptcy Code, and its petition indi[181]*181cates that it also does business as “Bay-Six,” “Raleigh Embroidery,’’.“MyBaySix,” “BaySixUSA,” “BAYSIX USA.COM,” and formerly did business as “BaySix Group, Inc.” Dkt. 1 at 1. The petition was signed by Katherine D. Hite as its president. Dkt. 1 at 4. Ms. Hite and the defendant, Mr. Hite, were married at the time of B6USA’s formation and throughout its pre-bank-ruptcy operational history, but separated in 2015 and currently are in the process of dissolving their marriage.

The testimony established that Ms. Hite incorporated B6USA in March of 2005, and that she is the sole shareholder and the president, secretary, and treasurer of the corporation. B6USA was formed upon the closing and dissolution of TRG, Inc., a corporation owned by the defendant Mr. Hite that he used to operate a similar if not the same business. TRG apparently suffered from its own financial difficulties at that time including debts owed to the state and federal taxing, authorities. Its business operations were gradually “blended in” with those of BGUSA’s over an approximate two year period. No evidence was presented by either party to show that Mr. Hite was ever officially named an officer or director of B6USA, or that he ever held any shares in the company.

Both parties acknowledged, however, that Mr. Hite was heavily involved in the formation and subsequent operation of B6USA for over a decade, serving as its manager or chief operating officer from inception until his employment was terminated in September 2016. In that capacity, he communicated and met with trade vendors and suppliers, negotiated and executed contracts on .behalf of B6USA, and regularly interacted with customers. He traveled overseas extensively, making numerous trips to China and Honduras to meet with manufacturers and place orders. Mr. Hite testified that B6USA was established with his wife Ms. Hite as the sole shareholder in order to obtain certain perceived advantages associated with a woman-owned business, but that she had very little involvement in its daily operations and management during the ten years he operated the business. He was also concerned about the debts owed by TRG, particularly the taxes owed. Mr. Hite also testified that he and Ms. Hite had an oral agreement from the time of the formation of the corporation that Mr. Hite could purchase B6USA for $1,00, but no written evidence of this agreement has been presented in the case.

Mr. Hite maintains that categorically all of the marks and everything else associated with the name “Baysix” originated with and were exclusively controlled by him at all pertinent times, including the decade of B6USA use. Mr. Hite stated that he and a deceased former business partner first created the term “baysix” over twenty years ago, and that the business use of the name originated with his first operating corporation, Bay Six Group, Inc. He contends that the name and mark were subsequently used in his other businesses, including B6USA and its immediate predecessor TRG.

Mr. Hite testified that he created the term, generated the brand associated with “baysix,” never ceded control over' the term to B6USA or anyone else, and always intended to use the term within the athletic apparel industry only through business entities controlled by him. He admitted that the term or mark “baysix” was not registered with any governmental entity, such as the United States Patent and Trademark Office, until September of 2016, a few days after this bankruptcy case was filed, and that he allowed B6USA to use the name and mark during its pre-bankruptcy decade of operations under his helm. Mr. Hite contends that the debtor [182]

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Bluebook (online)
560 B.R. 179, 2016 Bankr. LEXIS 3697, Counsel Stack Legal Research, https://law.counselstack.com/opinion/b6usa-inc-v-hite-in-re-b6usa-inc-nceb-2016.