JLM Couture, Inc. v. Gutman

91 F.4th 91

JLM COUTURE, INC., Plaintiff-Appellee, v. Hayley Paige GUTMAN, Defendant-Appellant.^*

No. 21-2535

No. 22-1694

August Term 2023

United States Court of Appeals, Second Circuit

Argued: September 19, 2023

Decided: January 17, 2024

On Appeal from the United States District Court for the Southern District of New York (Swain, C.J.)

Sarah M. Matz, Adelman Matz P.C., New York, NY (Gary Adelman, Adelman Matz P.C., New York, NY, on the brief), for Plaintiff-Appellee.

Joseph C. Lawlor, Haynes & Boone, LLP, New York, NY (Richard D. Rochford, Jr., Haynes & Boone, LLP, New York, NY, on the brief), for Defendant-Appellant.

Before: Calabresi, Park, and Nardini, Circuit Judges.

Park, Circuit Judge:

Fashion designer and social-media influencer Hayley Paige Gutman challenges a preliminary injunction and contempt order entered against her in litigation with her former employer, JLM Couture, Inc. The district court (Swain, C.J.) issued a preliminary injunction awarding JLM sole control of two social-media accounts—an Instagram Account and a Pinterest Account (together, the "Disputed Accounts")—and preliminary enforcement of a five-year restrictive covenant prohibiting Gutman from "identifying herself" as a designer of certain goods. The district court also held Gutman in civil contempt for a series of Instagram posts that it found to be "marketing" in violation of an earlier version of the preliminary injunction. Gutman argues on appeal that this was reversible error and that the preliminary injunction should be dissolved.

We dismiss Gutman's appeal from the district court's interlocutory contempt order for lack of appellate jurisdiction. We affirm the district court's refusal to dissolve its preliminary injunction based on the law of the case. We vacate in part the district court's order modifying its preliminary injunction because it erred in determining ownership of the Disputed Accounts and failed to assess the reasonableness of the five-year noncompete restraint on Gutman. We thus remand for further proceedings consistent with this opinion.

I. BACKGROUND

A. Factual Background

1. Employment History

In July 2011, Hayley Paige Gutman signed an employment agreement with JLM (the "Contract"). See Appellant's App'x at 376-94. Gutman agreed to design a line of bridal wear in exchange for a salary plus "additional compensation" tied to the sales of the products she designed. See Contract ¶ 4. The contract included provisions to protect JLM's investment in Gutman's name and brand association. Thus, among other terms, Gutman: (1) agreed not to use her name (or any derivatives of her name) in commerce once JLM registered a trademark thereof, id. ¶ 10(b)-(d); (2) agreed that various categories of creative material she produced would be JLM's property, id. ¶¶ 11-12; and (3) agreed to certain noncompete, nonsolicit, and nondisclosure restrictions, id. ¶ 9. The Contract allowed JLM to fire Gutman at any time, with or without cause, but included no provision for Gutman to terminate the arrangement. Although the parties amended the Contract in 2014, and JLM later exercised an option to extend it through August 1, 2022, the relevant features remained the same throughout the term of the Contract.

In 2019, the parties attempted to negotiate amendments to the Contract but were unable to reach agreement. That November, Gutman changed the passwords to the Disputed Accounts and refused to give JLM access. Although the accounts had been used to post content advertising JLM's products, Gutman informed JLM that she would "not be posting any JLM related business." JLM Couture, Inc. v. Gutman, No. 20-cv-10575, 2021 WL 827749, at *6 (S.D.N.Y. Mar. 4, 2021). JLM then filed this lawsuit. Relevant here, JLM alleged that Gutman had breached the Contract and that she was liable for conversion and trespass to chattels for taking control of the Disputed Accounts.

2. The Disputed Accounts

Gutman created the Pinterest Account on November 3, 2011 and the Instagram Account on or about April 6, 2012. For both, she used the handle "@misshayleypaige," a derivative of her name that she had used for other social-media profiles not in dispute, including several that were created before her employment with JLM. The Disputed Accounts were created using Gutman's name, personal cell phone number, and a personal email account that she also used for work purposes. She created her own passwords.

JLM did not direct Gutman to open the accounts. Gutman says she created them at the suggestion of a friend. JLM argues that she must have created them to advertise for the company, as the Contract required her to "perform such other duties and services commensurate with her position . . . as may be assigned to her by an officer of the Company, including . . . assisting with advertising programs." Contract ¶ 2.

Although the district court did not find that Gutman created the Disputed Accounts for JLM, it did find that "the Instagram Account was utilized to showcase JLM's products almost immediately after its creation." Special App'x at 18. It also found credible the testimony of JLM's CEO that the creation of the Instagram Account was "timed to coincide with the week of the Fall 2012 New York bridal market." Id. The district court further noted that JLM products were featured in several of Gutman's early posts to the Instagram Account.

Gutman's earliest posts include pictures of wedding dresses, as well as pictures of the New York City skyline, chairs, dogs, a wine bottle, and what appears to be a beach vacation.

Over time, however, the Disputed Accounts came to serve as "critical advertising platforms" for JLM's products. JLM Couture, Inc. v. Gutman, No. 20-cv-10575, 2023 WL 2503432, at *4 (S.D.N.Y. Mar. 14, 2023). In addition to posts depicting bridal gowns, the Disputed Accounts provided information about JLM's promotional events, and Gutman used Instagram's messaging function to respond to sales inquiries. Promotional posts were interspersed with more personal content, in a strategy that JLM referred to as the "personal glimpse." Special App'x at 26. Other JLM employees came to assist in managing the Disputed Accounts and responding to customer messages and, by 2019, at least two other employees had access to the Instagram Account.

B. Procedural History

1. Preliminary Injunction and Contempt Order

On March 4, 2021, after discovery and an evidentiary hearing, the district court entered a preliminary injunction against Gutman. Gutman, 2021 WL 827749, at *1. As relevant here, the district court enjoined Gutman from:

[b]reaching the employment Contract, dated July 13, 2011, together with the amendments and extensions thereto, by . . . [d]irectly or indirectly, engaging in, or being associated with . . . , any person, organization or enterprise which engages in the design, manufacture, marketing or sale of: (i) bridal apparel, including bridesmaids', mother of the bride and flower girls' apparel and related items; (ii) bridal accessories and related items; (iii) evening wear and related items; and/or (iv) any other category of goods designed, manufactured, marketed, licensed or sold by JLM.

Id. at *23. The district court later denied Gutman's request for reconsideration but modified the preliminary injunction to expire on August 1, 2022, when the Contract expired. See JLM Couture, Inc. v. Gutman, No. 20-cv-10575, 2021 WL 2227205, at *8 (S.D.N.Y. June 2, 2021).

In a previous appeal, this Court affirmed the preliminary injunction in part and vacated it in part. JLM Couture, Inc. v. Gutman, 24 F.4th 785, 801-02 (2d Cir. 2022). We affirmed with respect to (1) Paragraph 3(a) of the preliminary injunction, which prohibited Gutman from using her name or derivatives in trade or commerce, id. at 796; (2) Paragraph 3(b) of the preliminary injunction, which prohibited Gutman from competing with JLM through the expiration of the Contract on August 1, 2022, id. at 795; and (3) the district court's ruling that JLM did not breach the Contract by failing to pay Gutman after she stopped working, id. at 801.

We vacated the portion of the preliminary injunction that awarded JLM control of the Disputed Accounts because the district court had neither concluded that JLM was likely to succeed on the merits of its conversion or trespass claims nor tied the injunctive relief to JLM's breach-of-contract claim. Id. at 797-800. We noted that, on remand, the district court could either "choose to answer directly the question of JLM's likelihood of success on the merits of its conversion and trespass claims, properly weigh the relevant injunction factors, and grant or deny injunctive relief accordingly"; "decide that the balance of equities favors denying any property-based injunction and thereby avoid the merits question, leaving Gutman in control of the Disputed Accounts"; or "modify the vacated portion of the injunction to provide JLM with relief for JLM's breach-of-contract claims that stems from Gutman's obligations under the Contract." Id. at 800.

While Gutman's first appeal was pending, the district court held her in contempt of the preliminary injunction based on a series of Instagram posts teasing her return to the bridal industry. JLM Couture, Inc. v. Gutman, No. 20-cv-10575, 2021 WL 4084573, at *1-3 (S.D.N.Y. Sept. 8, 2021). The district court reasoned that these posts constituted marketing of competitive goods, and it ordered Gutman to remove them within five days, not to post the same or similar content, and not to announce the name of her new brand. Id. at *4-5, *9. It further ordered Gutman to pay $5,000 for each day she remained out of compliance with the injunction. Id. at *9. Gutman filed a notice of appeal. Notice of Civil Appeal, JLM Couture, Inc. v. Gutman, No. 21-2535 (2d Cir. Oct. 8, 2021), ECF No. 1.

2. Modified Preliminary Injunction

On remand, the district court concluded that the Disputed Accounts were advertising platforms that JLM was contractually entitled to access. See JLM Couture, Inc...