Digby Adler Group LLC v. Image Rent a Car, Inc.
79 F. Supp. 3d 1095, 2015 U.S. Dist. LEXIS 14664, 2015 WL 525906 (2015)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A corporate officer is personally liable for torts they authorize, direct, or participate in. To hold a shareholder liable under an alter ego theory, a plaintiff must show both a unity of interest and ownership between the individual and the corporation, and that an inequitable result would follow if the corporate form were not disregarded.
Facts:
- Since 2003, Plaintiff Digby Adler Group, LLC ('Digby') has operated a van rental service under the name Bandago through its website, bandago.com, and later obtained a federal trademark for the BANDAGO mark.
- In 2004, Gad Sebag incorporated Image Rent A Car, Inc. ('Image') in New York at the request of his brother-in-law, Schneior Zilberman. Sebag was the CEO and sole shareholder.
- Zilberman acted as Image's general manager, controlling all day-to-day operations. Image disregarded corporate formalities, such as holding board or shareholder meetings, keeping corporate minutes, or having a board of directors.
- In 2007, Sebag incorporated Van Rental Co., Inc. ('Van'), which was also managed by Zilberman, was largely defunct, and operated as a single entity with Image.
- In August 2008, Van registered the domain name 'bandago.net', which redirected visitors to Image's website, imagerentacar.com.
- Defendants, using a Google AdWords account registered in Sebag's name but operated by Zilberman, bid on search terms including 'bandago' to direct internet traffic to Image's website.
- Image's website featured text that was virtually identical to copyrighted text from Digby's bandago.com website.
- After litigation began, Image's assets, including vehicles, were sold to a new corporation formed by Sebag's uncle for a nominal amount, such as $1 per vehicle.
Procedural Posture:
- Digby Adler Group, LLC sued Gad Sebag, Schneior Zilberman, Image Rent A Car, Inc., and Van Rental Co., Inc. in the U.S. District Court for the Northern District of California (the court of first instance).
- After the suit was filed, the corporate defendants, Image and Van, filed for bankruptcy, which resulted in a stay of the district court proceedings.
- The bankruptcy court later dismissed both bankruptcy proceedings.
- The district court then granted Digby's motion to lift the stay.
- Digby filed a motion for summary judgment against all defendants on all claims.
- Defendant Gad Sebag filed a cross-motion for summary judgment, arguing he could not be held personally liable.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Is a corporate officer and sole shareholder, who claims to have no operational involvement, personally liable for the corporation's intellectual property torts either through direct participation or under an alter ego theory, at the summary judgment stage?
Opinions:
Majority - Samuel Conti, United States District Judge
No, a genuine dispute of material fact exists as to whether the officer is personally liable. While the corporate defendants and the actively managing officer are liable for intellectual property torts, the liability of a passive officer and sole shareholder cannot be determined on summary judgment when there is conflicting evidence regarding their participation and control. The court found that the corporate defendants (Image and Van) were liable for trademark infringement, copyright infringement, and cybersquatting, as their actions were largely undisputed and demonstrated bad faith intent to profit from Digby's mark by diverting customers. The court also held Zilberman personally liable, as he admitted to directing and participating in the infringing activities. However, regarding Sebag, the court denied both parties' motions for summary judgment. Digby presented evidence of Sebag's ownership, title, and the use of his name on accounts, but Sebag and Zilberman provided sworn testimony that Sebag was a passive figurehead with no role in operations. Because determining Sebag's direct participation or alter ego status would require the court to weigh evidence and assess witness credibility—which is improper at the summary judgment stage—the issue of Sebag's liability must be decided by a trier of fact.
Analysis:
This case illustrates the high evidentiary burden for obtaining summary judgment on issues of personal liability for corporate officers, particularly when facts concerning control and participation are contested. The court's refusal to pierce the corporate veil or find direct liability against Sebag at this stage underscores that sworn testimony denying involvement can create a genuine dispute of material fact, even amidst substantial evidence of corporate malfeasance and a disregard for formalities. The decision serves as a key example for law students on the limits of summary judgment; it is not a substitute for trial when key issues hinge on witness credibility. It solidifies the principle that while an officer's participation leads to liability, mere status as an owner and CEO is not, by itself, sufficient to establish liability as a matter of law if that participation is credibly denied.
