Virginia Lawyers Weekly

Attorneys for a restaurant chain specializing in spicy Buffalo wings are searching for assets and demanding nearly $70,000 in attorneys’ fees after eight months of effort to enforce a consent order against an “obstreperous” copycat eatery.

The owners of the alleged infringing restaurant were so derelict in following the terms of a consent order that Alexandria U.S. District Judge James C. Cacheris last month imposed harsh monetary sanctions, but stopped short of piercing the corporate veil, locking up the owners or shutting down the restaurant. (VLW 008-3-460)

The case of the competing wing merchants is Buffalo Wings Factory, Inc. v. Mohd, no. 1:07-cv-612 (E.D. Va. – Alexandria). It produced, to date, three noteworthy opinions.

The owner of the four “Buffalo Wing Factory” restaurants – the trademark lacks the ‘s’ of the corporate name – in Northern Virginia filed suit last year, claiming that two former employees used their inside knowledge and trade secrets to operate a competing restaurant in nearby Herndon that mimicked the food and atmosphere of their former employer.

The competing business was called “Buffalo Wing House.” Like the “Factory” restaurants, it was a sports bar-type restaurant located in a strip mall in the Dulles Corridor, and it used a similar slogan, menu and decor.

The alleged infringement went deeper than style, however. The plaintiff claimed the defendants stole the recipes for some of the sauces of the “Factory” restaurants.

These were not just any generic wing sauces, explained Wings Factory lawyer Michael C. Whitticar of Leesburg. He said the Wing House restaurant duplicated unusual selections such as “Spicy Crab Sauce” and “Eastern Shore Sauce.”

“They had a lot of these same sauce names,” he said.

Other menu items were designed to create customer confusion, Wings Factory claimed. An “Alley Cat” sandwich at the Factory restaurants was sold as a “Stray Cat” sandwich at the Wing House, Whitticar said. He said the competing restaurant also ran a lot of the same daily specials.

Whitticar said numerous customers had indicated that they were confused, mistaking the Wing House as part of the Wings Factory chain.

To avoid trial, the Wing House defendants agreed to a consent order entered on Mar. 3, 2008. They promised to make changes to avoid any further infringement and to make installment payments totaling $150,000.

“Our goal was not to make a profit, to hurt them, or to put them out of business. We wanted them to change and eliminate the confusion,” Whitticar said, adding that the payments were only to cover the fees and costs of having to sue.

Whitticar said one of the sticking points in negotiations was the number of sauces that would be offered at the Wing House. The Wings Factory restaurants offered wings with any of 30 different sauces. Apparently, the operators of the competing restaurant believed that offering a wide variety of wing flavors was critical to success in the wing business.

The final consent order called for no more than 20 sauces at the Wing House, spelling out detailed restrictions on the names and ingredients for various sauces.

Two months later, however, the Wing House defendants were back in court claiming their lawyer had sold them out. They did not think they could survive with just 20 sauces. They claimed they had never agreed to the settlement and asked the court to set aside the consent order. In a June opinion, Cacheris refused to do so. (VLW 008-3-238)

Another two months passed, and again the case came back to the judge. The Wings Factory owners claimed the Wing House defendants were ignoring their obligations under the consent order. The defendants countered that the consent order was not binding because the company sued was not the company that actually owned the restaurant.

Cacheris described the defendants’ arguments as “a desperate, last-ditch effort to elude [their] obligations under the CO.” This time, in August 2008, Cacheris imposed $81,000 in sanctions against the defendants for contempt of court. (VLW 008-3-294)
In October, the Wings Factory plaintiffs again contended the defendants had done nothing to comply with the obligations of the consent order. This time, the Wings Factory plaintiffs added additional individuals and another corporate entity they contended were involved in running the Wing House. Wings Factory demanded further contempt sanctions and asked Cacheris to lock up both the infringing restaurant and its owners.

On Oct. 15, Cacheris found that the defendants’ attempts to comply were “late, half-hearted, and insufficient.” (VLW 008-3-460) Cacheris found it a close case for “veil-piercing,” where a court can look beyond a corporate structure and penalize its officers, or its parent and subsidiary corporations. Cacheris said Virginia law would permit him to act even against affiliate corporations under the “alter ego” corporation theory.

Cacheris, however, said there was not enough evidence of bad intent to allow affiliate-to-affiliate veil-piercing against the new parties who had not signed the consent order. “Here, the Defendants and Respondents abused the corporate form, operating their restaurant with a clear disregard of corporate formalities. However, the abuse appears to have been the result of mistake and oversight rather than a scheme designed to defraud, evade an obligation, defeat public convenience, or disguise a wrong,” Cacheris wrote.

Cacheris found another option better suited to sanction the new parties. The Federal Rules of Civil Procedure allow a court to enforce injunctions against non-parties in “active concert or participation with” parties if the non-parties had actual notice of the court order that they violated.

Cacheris found that the newly added parties knew about the consent order, but continued to employ the original defendants, “who they knew would violate provisions of the CO, to the profit of [the new parties].”

Cacheris imposed civil contempt sanctions of $9,000 per week against the new parties and made them subject to the prior contempt sanctions imposed in August. Cacheris also banned the two former employees of the Wings Factory restaurants from working at the infringing business until the defendants complied with the consent order.

“[I]t will ensure at least partial compliance with the CO, since [the former employees] will no longer be creating the banned chicken wing sauces and will no longer be able to prepare any other food items that violate the CO,” Cacheris wrote.
Cacheris declined to imprison the former employees or padlock their restaurant.

Whitticar said the case quickly turned into a search for assets when he learned the Wing House assets were being sold. On Oct. 24, Wings Factory filed an emergency motion for a temporary restraining order. Evidence showed that the owner of the infringing restaurant had sold its assets to a relative of the former Factory employees for $110,000.

On Oct. 23, Cacheris ordered the remaining $20,000 payment for that sale to be paid into court, a payment that was made, according to Whitticar.

“The trick now is to recoup the assets that were transferred and try to enforce the judgment,” Whitticar said.

Court records show that, on Oct. 31, based on an emergency motion, Cacheris allowed immediate issuance of a garnishment summons for the remainder of the $90,000 sale price of the Wing House restaurant.

The motion for $70,000 in attorneys’ fees was filed on Oct. 29.

Whitticar remarked on the unusual amount of post-judgment activity in an otherwise routine infringement case. “It’s very frustrating for our clients and our firm to spend another eight months to litigate a case that we thought was settled,” he said. “When you have people who just thumb their noses at the court order, you have to take steps to bring them into compliance. They really left us with no alternative. It had been shown that just entering money judgments was not going to bring them into compliance.”

Contacted for response, the lawyer for the former Wings Factory employees wrote that he had little to say about the case. “To be fair,” wrote Ashraf Nubani, “I think it was a combination of unfortunate circumstances that led to the current result.” Nubani blamed at least part of the problem on the attorney who handled the consent order.

At last report, the former Buffalo Wing House was open under new ownership using the name “House of Wings.” The exact number of available sauces is not known.

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