Geoffrey the Giraffe is casting an ominous shadow over one Texas family.
Last summer, almost immediately following the news that Toys “R” Us and Macy’s were teaming up to relaunch the iconic toy store in the U.S., The Toy Bookreported on a detour from that forward movement as Tru Kids Brands Inc. — the WHP Global-owned parent of the Toys “R” Us and Babies “R” Us brands — took a step backward and filed a lawsuit against an independent toy store in New Jersey.
At the time, Tru Kids alleged “trademark infringement” as the store, Toys & Beyond, had moved into the space that was previously occupied by one of the two, short-lived Toys “R” Us concept stores that opened in partnership with b8ta in 2019. At the center of the complaint were issues regarding the colorful logo of Toys & Beyond and the reuse of fixtures and signage, including Geoffrey’s Treehouse, Geoffrey’s Magical Mirror, and the Play Around Theater, that were left behind when Toys “R” Us abandoned the space at the Westfield Garden State Plaza in January 2021.
On Oct. 25, 2021, The Toy Book was first alerted to a nearly identical lawsuit filed in Texas against TOYZ, a family-owned toy store that opened nearly 20 years ago. Farida Afzal immigrated to Houston from Pakistan and built a business that eventually grew to include a distribution arm and several retail stores, including a small location on the lower level of Simon Property Group’s Galleria Mall.
In its response to the complaint filed by attorneys at Baker Botts on behalf of Tru Kids Brands, Afzal Ali Enterprises, Inc. dba TOYZ noted that its store peacefully co-existed with Toys “R” Us during the time that both stores were open in the Galleria. According to the response, the scuffle began months after Toys “R” Us closed, when the Galleria landlord offered TOYZ the opportunity to expand into the former Toys “R” Us store.
In Texas, it appears that Judge Charles Eskridge might agree.
On August 23, Judge Eskridge issued a scathing order against Tru Kids Brands and Toys “R” Us.
In the filing, Judge Eskridge denies a motion by Tru Kids to amend its complaint against TOYZ, stating that “the motion itself evinces undue delay and dilatory motive,” and that “the motion could also be considered abusive.”
“Toys ‘R’ Us is trying to shutter a family-owned toy store in an attempt to set a precedent for shutting down any toy store in the country that has a multi-colored logo,” Lema Barazi, lead attorney representing TOYZ for Lloyd & Mousilli tells The Toy Book. “We must — and I am confident that we will — prevail against Toys ‘R’ Us in its malicious tactics of burying small businesses in protracted litigation based on frivolous and overreaching trademark claims.”
And the tactics being used by Tru Kids brands are under scrutiny by the court itself.
Judge Eskridge says in his order that “substantial question exists regarding whether Tru Kids has initiated this action primarily for the purpose of harassing or maliciously injuring a competitor, and whether it is using the law’s procedures only for legitimate purposes.”
Tru Kids Brands was ordered “to provide by Sept. 13, 2022, an iteration of all actions it has initiated against any defendant worldwide since acquiring its interest in the Toys ‘R’ Us brand in January 2019, wherein it has alleged claims, as here, of trademark and trade-dress infringement, trademark dilution, unfair competition, or unjust enrichment relating to Toys ‘R’ Us intellectual property,” Judge Eskridge declared.
Attorneys for Tru Kids Brands did file documents to meet the Sept. 13 deadline but they did so in a sealed filing. Ahead of the deadline, The Toy Book reached out to WHP Global/Tru Kids Brands on Sept. 12, but the company did not respond to a request for comment.
While the legal dance continues to play out in court, Toys “R” Us is continuing to open its new store-within-a-store concepts in every Macy’s store ahead of an Oct. 15 completion date. Both the Galleria in Houston and the Westfield Garden State Plaza in New Jersey have Macy’s stores that are set to include Toys “R” Us departments.
Although Toys & Beyond closed its store in New Jersey, the space is currently occupied by yet another toy store: CAMP.
Established in 2015 and founded by two young, creative entrepreneurs, Instafuel is an innovativecompany that delivers fuel directly to customer vehicles, eliminating the need for consumers tospend time at gas stations. While there are a number of competitors in the mobile fuel deliveryindustry, Instafuel has successfully differentiated themselves by taking several measures to createa unique business model.
Similarly, Booster Fuels is a mobile fueling company that began with an initial business model ofdelivering fuel to single customers. However, recently, Booster Fuels pivoted its business modelto more closely mirror Instafuel’s practices of delivering fuel to commercial fleets.
In 2015, Instafuel engaged with an investment entity interested in a potential businesspartnership. This partnership included the disclosure of trade secrets and confidential informationpertaining to Instafuel’s business model and company practices. In 2019, it was later discoveredthat these investors were strategic investors with Booster Fuels.
After further review, an internal audit and competitive analysis of Booster Fuels’ business modelwas conducted by Instafuel, only to discover that Booster Fuels implemented Instafuel’s sensitiveand confidential information directly into their own business model. This would allow BoosterFuels to secure funding faster and expand into competitive markets ahead of Instafuel.
Shortly after Instafuel filed suit against Booster Fuels in late 2019, Booster Fuels moved to dismissthe claims based on Texas’s Anti-SLAPP statute. In motions filed with the trial court, Booster Fuelsclaimed Instafuel’s suit should be dismissed because it was filed “with the intent to impedeBooster Fuels’ exercise of its First Amendment rights, specifically its rights to freely associate andfreely speak with whomever it so chooses...”
In responding to Booster Fuels motion to dismiss, Instafuel asserted that communicationsbetween co-conspirators to steal confidential and proprietary information was not the kind ofspeech protected by the First Amendment.
The trial court found in favor of Instafuel and denied Booster Fuels’ motion to dismiss. BoosterFuels then immediately filed an interlocutory appeal, effectively staying the entire case. After twoyears, on January 11, 2022, the Fourteenth Court of Appeals issued a decision affirming the trialcourt’s denial of Booster Fuels’ motion to dismiss.
Discontent with the appellate court’s ruling against it, Booster Fuels appealed the appellatecourt’s decision to the Supreme Court of Texas on March 28, 2022.
The latest ruling from the Texas Supreme Court on August 2, 2022 comes as a huge relief toInstafuel’s Co-Founder, Wisam Nahhas. “This has been a very long process and Booster Fuels hastried their best to constantly delay our lawsuit. We hope to see an end to their delay tactics andhope we can get the justice Instafuel deserves.”
Litigation Partner, Lema Barazi, serves as lead counsel in this matter with Feras Mousilli serving as strategic counsel. Llyod & Mousilli is proud to serve as counsel for companies like Instafuel to prevail against egregious and predatory business practices.
Lloyd & Mousilli is a boutique firm specializing in trademark, copyright, trade secret, and patentlitigation and transactional matters and represents numerous startups around the world.
“We are proud to be the law firm clients call on when David is bullied by Goliath-sized companies.Our expertise in intellectual property matters rivals the best in the nation and we arestaunch advocates of protecting small businesses,” said Feras Mousilli, managing partner atLloyd & Mousilli.
In a unanimous decision, the justices held that the US Court of Appeals for the Federal Circuit, which handles all patent appeals, has been using the wrong standard to decide where a patent lawsuit can be brought. Today's Supreme Court ruling in TC Heartland v. Kraft Foods enforces a more strict standard for where cases can be filed. It overturns a looser rule that the Federal Circuit has used since 1990.The ruling may well signal the demise of the Eastern District of Texas as a favorite venue for patent lawsuits, especially those brought by "patent trolls," which have no business outside of licensing and litigating patents.The TC Heartland case will affect the entire tech sector, but the parties here are battling over patents on "liquid water enhancers" used in flavored drink mixes. TC Heartland, an Indiana-based food company, got sued by Kraft Foods in Delaware, then sought to move the case back to its home turf. Neither the district court judge nor the Federal Circuit would allow such a transfer.If you are interested in learning how this ruling could impact your business litigation, please set up a consultation.
Prejudice occurs when you gain an advantage over the other party during the litigation process such that removing the case to arbitration would cause the other party to suffer a disadvantage.
However, it is hard to demonstrate that someone has waived the right to arbitration since there is a strong presumption in favor of it when an arbitration clause is present in an agreement. Id. at 590. The court will usually order the case to arbitration when it is not clear if the opposing party has suffered prejudice. Id. at 593.
Under Texas law, a court will consider who is making the request for arbitration, how much time has passed since the litigation was initiated, the mental state of the party requesting arbitration, and what type of litigation has occurred. We will first discuss the Texas standard before reviewing federal considerations.
Who is Making the Request for Arbitration?
To determine whether the judicial process has been invoked to the point of prejudicing the opposing party, the court will consider many different factors. Id. at 590-91. One consideration is if the person requesting arbitration is a defendant or plaintiff. Id. at 591. If the plaintiff moved for arbitration, the court may be less likely to grant it since the plaintiff invoked the judicial process by filling the case with the court.
For example, there was a case where a family filed suit against Comerica Securities for allegedly selling the family’s stock without authorization. Grumhaus v. Comerica Sec., Inc., 223 F.3d 648, 649 (7th Cir. 2000). The family requested arbitration after the state court dismissed their complaint. Id. at 651. However, the Seventh Circuit United States Court of Appeals found the family had waived their right to arbitrate because they filed the case in court rather than initiating an arbitration proceeding. Id. at 653.
How Much Time Has Gone By?
Another consideration is the length of time the party requesting arbitration waited before making the request. Id. However, delay alone does not establish waiver. In re Vesta Ins. Group, Inc., 192 S.W.3d 759, 763-64 (Tex. 2006). For example, in one particular case, a two-year delay before requesting arbitration did not take away the parties’ right to arbitrate. Id.
What is the Mental State of the Party Requesting Arbitration?
Although not common, it is possible that one party to a case may not have been aware of an arbitration clause within their agreement. In such situations, the court will consider when the party making the request for arbitration became aware of the arbitration clause. Perry Homes, 258 S.W.3d at 591.
In one particular case, a company argued it had not waived its right to arbitrate by engaging in the litigation process since it was a successor to the original contractor containing the arbitration clause and, as a result, had not been aware of the option to arbitrate. Patten Grading & Paving, Inc. v. Skanska USA Bldg., Inc., 380 F.3d 200, 205 (4th Cir. 2004). The court granted it leniency due to this unique situation and held the company still could exercise its arbitration rights. Id. at 205-06.
Another consideration is if the party requesting arbitration opposed it earlier in the case. Perry Homes, 258 S.W.3d at 591. If the party opposed arbitration earlier in the case, the court may see its request as more evidence that the party invoked the judicial litigation system. Id. at 600. The reason for this is because switching positions part of the way through the litigation process can appear to be an attempt to gain the system and prejudice the opposing party.
Just How Much Litigation Has Occurred?
Another consideration is how much and what kind of litigation procedures have happened prior to requesting arbitration. For example, if the pretrial activity related to the actual claims made in the case or if it was expensive and took up a lot of time, the court may view this as evidence against the request for arbitration. Id. The court will also consider if the party opposing arbitration was the primary cause for incurring litigation expenses. In re Vesta Ins. Group, Inc., 192 S.W.3d at 763. If the party requesting arbitration was not the main reason for incurring costs, the court probably will not be concerned over the expenses.
Yet another consideration is whether the request for arbitration appears more like a “late-game tactical decision” than preserving the right to arbitrate. Tuscan Builders, LP v. 1437 SH6 L.L.C., 438 S.W.3d 717, 722 (Tex. App.—Houston [1st Dist.] 2014, pet. denied). This means that you should not proceed with litigation under the assumption that you can later switch to arbitration if it looks like it will provide a better outcome.
If the trial date is approaching, you should keep in mind that it may become harder to enforce arbitration. The judicial system does not look favorably on a request for arbitration on the eve of the trial after full discovery has occurred. In re Vesta Ins. Group, Inc., 192 S.W.3d at 764.
However, some litigation activity will not waive your right to arbitration. Small v. Specialty Contractors, Inc., 310 S.W.3d 639, 646 (Tex. App.—Dallas 2010, no pet.). For example, sending and responding to the first set of discoveries is usually acceptable. Id. In fact, one case states that even a substantial invocation of the judicial process does not rule out arbitration as long as the party opposing arbitration did not suffer prejudice. In re Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex. 1998).
The Federal Arbitration Act states that the court should defer to arbitration if there is an agreement to do so and if the party requesting it is not “in default in proceeding with such arbitration.” 9 U.S.C. § 3. To determine if the moving party is in default, a federal court will typically consider the same factors listed above that a Texas court will examine.
Under federal law, there is also a strong presumption in favor of arbitration. For example, the Sixth Circuit described the high standard that must be met to waive arbitration by stating that a party “waives arbitration if it acts in a manner completely inconsistent with any reliance on an arbitration agreement or delays asserting arbitration to such an extent that the opposing party incurred actual prejudice.” Shy v. Navistar International Corp, 781 F. 3d 820 (6th Cir. 2015), 827-28.
Although the considered factors are the same, the Fifth Circuit and the Texas Supreme Court came to different conclusions in two similar cases. The cases dealt with class action lawsuits initiated against payday loan companies. The Fifth Circuit concluded that arbitration had been waived by the companies because the companies initiated criminal charges against the plaintiffs. Vine v. PLS Fin. Servs., Inc., 689 Fed. Appx. 800, 805-06 (5th Cir. 2017). On the other hand, the Texas Supreme Court held that a payday loan company did not waive the right to arbitrate by initiating criminal proceedings. Henry v. Cash Biz, LP, 551 S.W.3d 111, 118-19 (Tex. 2018). While the factors examined to determine if a party waived the right to arbitrate are the same, the final conclusions of the federal and state courts can vary.
The law surrounding when someone waives the right to arbitrate is complex. While the presumption is in favor of arbitration, a combination of certain factors can cause you to waive your right. It is clear however that the sooner you request arbitration, the better your chances will be of enforcing it. Please do not hesitate to contact us with questions you have about the arbitration process and how to enforce your rights.
HOUSTON, TX, UNITED STATES, September 11, 2021 — Claims of trade secret theft made by a Houston-based fuel delivery startup against a Total SA subsidiary were referred to arbitration on Wednesday. Senior U.S. District Judge Gray H. Miller issued an order compelling arbitration in Fuel Husky, LLC D/B/A Instafuel’s (“Instafuel”) case against Total Energy Ventures International, S.A.S., N/K/A Total Carbon Neutrality Ventures (“TEVI”).
Started by two young entrepreneurs in Houston, Texas, Instafuel is a mobile-fueling startup that delivers gas directly to customer vehicles, thereby eliminating the need for customers to spend time at gas stations. Instafuel was recently ranked the fastest growing company in Houston by Inc. 5000 thanks to its unique approach of targeting commercial fleets as its customer base, innovative business model, and highly researched pricing strategy, client lists, and fueling techniques.
Instafuel’s rapid growth unsurprisingly caught the attention of competitors and investors, as Total S.A. (“Total”), the French multinational oil and gas conglomerate, repeatedly expressed interest in becoming an investor in Instafuel. During these discussions, mutual non-disclosure agreements were signed by Instafuel and Total, but after receiving Instafuel’s trade secrets under these agreements, Total turned around and invested in Instafuel’s direct competitor, Booster Fuels, Inc. (“Booster Fuels”).
In 2019 Instafuel discovered that TEVI, a subsidiary of Total, misappropriated Instafuel’s trade secrets and shared them with Booster Fuels. Shortly after this blatant breach of the mutual non disclosure agreements and wrongful divulging of Instafuel’s proprietary information to their direct competitor, Booster Fuels changed significant aspects of their business model to copy the successful strategies found in Instafuel’s stolen trade secrets, down to copying Instafuel’s truck design and addressable market.
After discovering this unlawful conduct, Instafuel promptly retained thelaw firm and filed lawsuits against Total and Booster Fuels for misappropriation of trade secrets. In their case against Total, Instafuel has awaited the court’s ruling on arbitration since 2019 after Lema Barazi, the lead attorney representing Instafuel in these matters, argued that Total’s unlawful acts should not be subject to arbitration, especially considering the fraud involved.
“While we disagree that Total’s unlawful acts should be subject to arbitration, considering the fraud involved, we respect the court’s ruling and intend to aggressively prosecute Instafuel’s claims,” Barazi said.
Total is represented by William R. Taylor, Joseph M. Beauchamp and Alexander G. Hughes of Jones Day.
The case is Fuel Husky LLC v. Total Energy Ventures International SAS, case number 4:19-cv04277, in the U.S. District Court for the Southern District of Texas.
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