A federal court has issued its decision in what has been called “a novel lawsuit between a leading bridal wear designer and the manufacturer from whose employ she resigned over the control and use of social media accounts.” In a mixed decision on Tuesday, the U.S. Court of Appeals for the Second Circuit held that the lower court got it right when it barred designer Hayley Paige Gutman from competing with former employer JLM Couture and using her name for business purposes, but sided with the former “Say Yes to the Dress” designer over who may control a number of social media accounts bearing her name, calling on the lower court to revisit the issue in the ongoing lawsuit.
In its recently-issued decision in the closely-watched Hayley Paige lawsuit, which JLM filed in December 2020, accusing Gutman of breach of employment agreement, trademark dilution, unfair competition, and conversion, the Second Circuit determined that despite Gutman’s arguments to the contrary, the district court did not err in ordering her not to compete with JLM or barring her from using the name “Hayley Paige Gutman” and its derivatives in trade or commerce, as such pleas by the designer are “foreclosed by the plain language of the contract” she entered into with JLM. (In March 2021, the district court awarded JLM a preliminary injunction, barring Gutman from competing with JLM through the end of her contractual term, and using her name and its derivatives in trade or commerce, and granted JLM exclusive control over three disputed social media accounts for the duration of the litigation, prompting Gutman to appeal to the Second Circuit.)
“Gutman agreed to sign away various rights to JLM in exchange for her salary, a stream of royalty payments, and JLM’s investment of time and capital in the Hayley Paige brand,” a panel of judges for the Second Circuit held. “She offers no persuasive reason why the Contract no longer binds her.”
Looking specifically to the non-compete agreement in her employment agreement with JLM, Judge Michael Park, writing for the majority, held that the provision is enforceable, as “New York recognizes the availability of injunctive relief ‘where the non-compete covenant is found to be reasonable and the employee’s services are unique.’” The court notes that Gutman “does not meaningfully contest the district court’s reliance on the fact that her services are ‘special, unique or extraordinary.’” Also weighing in the favor of the enforceability of the non-compete provision, the court states that it is limited enough, as it “does not even extend beyond Gutman’s contractual period of employment with JLM [and] was triggered only because Gutman stopped working before the Term was complete.”
The court also held that “Gutman impermissibly competed with JLM” by agreeing to appear at a bridal expo in her capacity as a designer (and used her name to promote the impending launch of a new bridal brand on Instagram and in a Business Insider interview last fall), and “may have continued doing so absent an injunction.”
In terms of her use of her name, JLM argued – and the Second Circuit agreed – that use is governed by the terms of the parties’ agreement, in connection with which Gutman granted JLM the exclusive right to use “her name ‘Hayley,’ ‘Paige,’ ‘Hayley Paige Gutman,’ ‘Hayley Gutman,’ ‘Hayley Paige,’ or any derivative thereof in connection with the design, manufacture, marketing and/or sale of bridal clothing, bridal accessories and related bridal and wedding items,” and to file (and own) any subsequently-earned federal trademark registrations for “any such name.”
JLM had claimed that Gutman breached their agreement “and infringed on the trademarks by using the @misshayleypaige Instagram account, whose handle is in the Designer’s Name, for third-party promotional deals.”
While the court largely sided with JLM, it did agree with Gutman on one point: the district court’s decision to award control over a number of social media accounts – namely, the @misshayleypaige Instagram, TikTok, and Pinterest accounts – to JLM, thereby, requiring Gutman to turn the accounts over to JLM for the duration of the Hayley Paige lawsuit. The court notes that the two parties disagree over who has exclusive ownership rights in the accounts, including the Instagram account, which “comes with direct access to [more than 1 million] followers and opportunities to monetize it,” and by one expert’s appraisal, “a single post on [which], on average, is worth nearly $30,000.” JLM contends that Gutman created the disputed accounts in her capacity as an employee, thus, the accounts are therefore owned by the company.
Gutman, on the other hand, argues that she “created the accounts in her personal capacity, that JLM did not acquire them simply by virtue of investing in the Hayley Paige brand, and that she did not cede ownership to JLM by agreeing to use her accounts to market Hayley Paige products or by occasionally giving other JLM employees direct access when it was in her interest to do so.”
Judge Park stated that the district court “recognized that the question of social media account ownership was ‘novel’ and declined at the preliminary injunction stage to evaluate the merits of those claims.” The lower court, nevertheless, “entered JLM’s proposed provision transferring control of the disputed accounts nearly verbatim,” Judge Park stated, asserting that the appeals court “do[es] not see how a grant of indefinite, exclusive control over the accounts could be a proper remedy for any of JLM’s other claims.”
Reflecting on the lower court’s decision, the Second Circuit found that it “exceeded its discretion by granting exclusive control over the accounts to JLM while explicitly declining to assess JLM’s likelihood of success on its claim that it owned the accounts.”
“While Gutman signed away several of her rights to JLM,” the court states that “she never forfeited her right to keep property that is legally hers,” which may or may not include the social media accounts. The appeals court further held that the district court “may well determine that some or all of the accounts do not belong to Gutman, or that additional relief is nevertheless appropriate.” But “in any event,” the court concluded that “the district court exceeded its discretion by effectively assigning valuable assets to JLM without first determining whether the company likely owns them.”
Judges Jon Newman and Gerard Lynch joined much of the majority opinion, but dissented in part, with Judge Newman asserting that JLM “has no right to such a sweeping prohibition on Gutman’s use of her name,” noting that “a prohibition on using one’s name ‘as trademarks,’ [as] contained in a subsection [in Gutman’s employment agreement] concerned with trademarks, is surely not a clear prohibition on using the name for non-trademark purposes.”
Meanwhile, Judge Lynch stated that he does not believe that the district court erred in transferring the social media accounts to JLM. “The district court did not purport to give JLM control over the Instagram account because JLM is the account’s rightful owner,” but instead, Lynch says that the injunction was granted – and thus, is proper – as it aims to “restore the operation and control of the account to the manner in which they were operated before Gutman unilaterally seized exclusive control, pending resolution of the case.”
The Hayley Paige lawsuit will now go back before the district court on remand.
In the wake of the Second Circuit’s decision, a rep for Gutman told TFL that the designer is “grate[ful] to the Second Circuit Court of Appeals for vacating a lower court ruling and returning control of her social media accounts to her.” At the same time, a spokesman for JLM stated that it is pleased with the outcome, noting that the appeals court did not order it grant Gutman access the accounts, and the court’s decision does not impact its control over the accounts.
The case is JLM Couture, Inc. v. Gutman, 1:20-cv-10575 (SDNY).