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Procraft Cabinetry, Inc. v. Sweet Home Kitchen and Bath, Inc.

United States District Court, M.D. Tennessee, Nashville Division

April 27, 2018

PROCRAFT CABINETRY, INC., Plaintiff,
v.
SWEET HOME KITCHEN AND BATH, INC., et al., Defendants.

          MEMORANDUM OPINION

          WAVERLY D. CRENSHAW, JR. CHIEF UNITED STATES DISTRICT JUDGE

         Procraft Cabinetry, Inc. (“Procraft Cabinetry”), alleges that two of its shareholders, Peter Huang and Jackey Lin, directed multiple entities to sell counterfeit cabinetry bearing its registered “PROCRAFT CABINETRY” trademark. (Doc. No. 235 at 18-125.) Before the Court is Procraft Cabinetry's Motion for a Temporary Restraining Order Against Procraft Cabinetry Florida, LLC (“Procraft Florida”)-a separate company run in part by Huang-Pending the June 5-6 Preliminary Injunction Hearing. (Doc. No. 205.) The Court had concerns that Procraft Cabinetry is not the proper plaintiff in this matter, and ordered supplemental briefing. (Doc. No. 232 at 1.) For the following reasons, it appears that a majority of shareholders failed to direct Procraft Cabinetry to file this lawsuit, and that this case should be dismissed. Therefore, pending a final determination, all discovery in this case is stayed except for as provided in the accompanying Order.

         I.

         On November 20, 2014, Hui (Sophia) Chen, Qiang (Peter) Huang, and Min Hua (Jackey) Lin executed the Shareholders' Agreement of Procraft Cabinetry, Inc. (Doc. No. 235-29.) With the execution of the Shareholder's Agreement, Chen became the President of the Procraft Cabinetry, owning half the shares and investing $2, 000, 000.00. (Id. at 2-3.) As President, Chen is responsible for all daily decisions that involve $5, 000.00 or less in all Procraft Cabinetry locations. (Id. at 3.) Huang and Lin became the Vice Presidents of the company, collectively owning half the shares and collectively investing $2, 000, 000.00. (Id. at 2-4)[1] Chen, Huang, and Lin all vote on all decisions that involve more than $5, 000.00, where the “majority vote will rule.” (Id. at 3-4.)

         When the three Shareholders vote, if two of the partners vote in support of a measure, the other partner is supposed to vote in agreement with the majority “to ascertain that the Partners will be unified, acting as a single group, even when there would be other shareholders in the Company other than the Partners alone.” (Id. at 4.) The Shareholders agreed not to compete with Procraft Cabinetry while employed at the company and for twelve months after leaving the company. (Id. at 4-5.)

         On October 19, 2017, Chen directed Procraft Cabinetry to file the instant lawsuit to protect its trademark. (Doc. No. 253 at 3.) There are no allegations that Huang or Lin voted to file the instant lawsuit. Chen has concerns about the corporation: it appears that Procraft Florida's President may have admitted in his deposition that his company is infringing on Procraft Cabinetry's trademark. (Doc. No. 187 at 155-58.) However, because Chen is not permitted to unilaterally direct the corporation to take actions, it appears at this stage that she was not permitted under the Shareholders' Agreement to unilaterally file this lawsuit.

         II.

         Procraft Cabinetry advances three arguments that Chen is allowed to unilaterally direct the corporation to file this lawsuit: (1) Tennessee Code Annotated § 48-13-102 gives corporations the ability to sue or be sued; (2) Chen has actual authority under the Shareholders Agreement; and (3) Procraft Florida does not have a right to challenge Chen's authority under Tennessee Code Annotated § 48-13-104(a).[2]

         A.

         “Unless its charter provides otherwise, every corporation” has the power to defend its interests, and that power includes to “[s]ue and be sued.” Tenn. Code Ann. § 48-13-102(1). Procraft Cabinetry relies on this statute to authorize it to bring this lawsuit. It is true that it would have been able to bring this lawsuit, but it overlooks the prefatory limitation of § 48-13-102- “Unless its charter provides otherwise.” That limitations constrains what a corporation can do, and in this case, whether it has the ability to bring this lawsuit.

         B.

         The Shareholders' Agreement is to be given primary consideration and control over any agreement or documents signed by the parties and the Articles of Incorporation, under Paragraph 13. (Doc. No. 235-29 at 6.) The Shareholders' Agreement gives each Shareholder the same “Main Tasks and Responsibilities.” (Id. at 3-4.) Chen, as President, has additional “Main Tasks and Responsibilities”:

(1) represent and warrant that all debts and liabilities have been paid in full prior to the ...

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