Office of Strategic Services v. Steven Sadeghian

Filing

UNPUBLISHED PER CURIAM OPINION filed. Originating case number: 1:11-cv-00195-CMH-JFA Copies to all parties and the district court/agency. [999130067].. [11-2157, 11-2160, 12-1082]

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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 11-2157

OFFICE OF STRATEGIC SERVICES, INCORPORATED, on behalf of US
Smoke & Fire Curtain, LLC,
Plaintiff – Appellant,
v.
STEVEN SADEGHIAN; US SMOKE & FIRE
DEVELOPMENT MANAGEMENT CORPORATION,

SERVICES,

LLC;

CYSA

Defendants – Appellees.

No. 11-2160

OFFICE OF
CHRIST,

STRATEGIC

SERVICES,

INCORPORATED;

STEWART

H.

Plaintiffs – Appellants,
v.
STEVEN SADEGHIAN; US SMOKE & FIRE
DEVELOPMENT MANAGEMENT CORPORATION,
Defendants – Appellees.

SERVICES,

LLC;

CYSA

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No. 12-1082

OFFICE OF STRATEGIC SERVICES, INCORPORATED, on behalf of US
Smoke & Fire Curtain, LLC; STEWART H. CHRIST; OFFICE OF
STRATEGIC SERVICES, INCORPORATED,
Plaintiffs – Appellees,
v.
STEVEN SADEGHIAN; US SMOKE & FIRE
DEVELOPMENT MANAGEMENT CORPORATION,

SERVICES,

LLC;

CYSA

Defendants – Appellants.

Appeals from the United States District Court for the Eastern
District of Virginia, at Alexandria.
Claude M. Hilton, Senior
District Judge. (1:11-cv-00195-CMH-JFA)

Argued:

January 29, 2013

Decided:

June 14, 2013

Before KING, WYNN, and DIAZ, Circuit Judges.

Affirmed in part, vacated in part, and remanded by unpublished
per curiam opinion.

ARGUED: Terrance Gilroy Reed, LANKFORD & REED, PLLC, Alexandria,
Virginia, for Office of Strategic Services, Incorporated, on
behalf of US Smoke & Fire Curtain, LLC, Stewart H. Christ, and
Office of Strategic Services, Incorporated.
C. Thomas Hicks,
III, DIMURO, GINSBERG PC, Alexandria, Virginia, for Stewart H.
Christ, and Office of Strategic Services, Incorporated.
Joseph
Luchini, REED SMITH, LLP, Falls Church, Virginia, for Steven
Sadeghian, US Smoke & Fire Services, LLC, and CYSA Development
Management Corporation.
ON BRIEF: Robert K. Moir, LANKFORD &
REED, PLLC, Alexandria, Virginia, for Office of Strategic
Services, Incorporated, on behalf of US Smoke & Fire Curtain,
LLC.
Bernard J. DiMuro, DIMURO, GINSBERG PC, Alexandria,
2

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Virginia, for Stewart H. Christ, and Office of Strategic
Services, Incorporated.
Edward A. Pennington, MURPHY & KING,
PC, Washington, D.C., for Steven Sadeghian, US Smoke & Fire
Services, LLC, and CYSA Development Management Corporation.

Unpublished opinions are not binding precedent in this circuit.

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PER CURIAM:
The torrent of claims in these consolidated appeals has its
genesis in smoke and fire curtains.

Fire curtains are products

used to compartmentalize fire zones and completely close off an
opening in a wall during a fire.

Smoke curtains, on the other

hand, do not completely close off openings, rather they create
smoke reservoirs or direct smoke to an engineered extraction
point.
The litigation fireworks in these cases began with Office
of Strategic Services, Inc. (“OSS”) filing a complaint asserting
eleven shareholder derivative claims against Steven Sadeghian,
U.S. Smoke & Fire Services, LLC, and CYSA Development Management
Corporation
that

they

(collectively,
usurped

the

corporate

“Sadeghian

Parties”),

opportunities

alleging

belonging

to

U.S.

Smoke & Fire Curtain, LLC (“Curtain”) and asserting violations
of

Curtain’s

intellectual

property

rights.

The

Sadeghian

Parties returned fire in their answer to the complaint, lodging
eighteen counterclaims 1 against OSS and Stewart Christ.
be

outdone,

OSS

and

Christ

replied

by

filing

five

Not to
counter-

counterclaims against the Sadeghian Parties.

1

The counterclaim purports to list nineteen claims, but
there is no Count 4 in the pleading. The pleading also purports
to lodge claims against an entity named Second Street Web
Design, but that party is not named in the caption.

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The district court dismissed the counter-counterclaims in
an order entered on August 12, 2011.

Following cross-motions

for summary judgment, the district court dismissed all other
claims.
For the reasons that follow, we affirm in part, vacate in
part, and remand. 2

I.
A.
We

begin

with

a

between the parties.
CYSA

Development

wholly

owned

Curtain.

by

brief

description

of

the

relationship

OSS, a company wholly owned by Christ, and

Management

Corporation

Sadeghian,

together

(“CYSA”),

own

a

a

third

company
company,

Christ is Curtain’s President, and Sadeghian its CEO.

Curtain was formed as a Virginia limited liability company on
July 7, 2009.
separate
Electroluk

U.S. Smoke & Fire Services, LLC (“Services”) is a

corporation
(“BLE”)

is

wholly
a

owned

British

by

CYSA.

corporation

Bradley
engaged

Lomas
in

the

business of manufacturing smoke and fire curtains.
Between 2003 and 2008, CYSA installed BLE’s smoke curtains
in various projects throughout the United States.
2

According to

We also deny the Sadeghian Parties’ separate motion to
amend the caption.

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the Sadeghian Parties, Sadeghian and BLE also discussed creating
a network of distributors for BLE’s fire curtains as early as
2008, and these discussions led to the formation of Curtain.
The Sadeghian Parties claim that OSS and Christ owned no part of
Curtain until the execution of the Curtain Operating Agreement
(the “COA”) on August 28, 2009.

Under the COA, CYSA owned 51%

of Curtain, and OSS owned the remaining 49%.
The COA provides that Curtain’s purpose is to “market, sell
and distribute smoke and fire curtains in the United States.”
J.A. 408.

Despite this language, the Sadeghian Parties say that

BLE agreed to allow CYSA to continue distributing BLE’s smoke
curtains outside of Curtain’s distribution network.
OSS and Christ, on the other hand, insist that in late 2008
and early 2009, both Sadeghian and Christ began discussions with
BLE

to

sell

“all

including

both

Sadeghian

and

of

smoke
Christ

BLE’s
and

products
fire

formed

in

the

curtains.”

Curtain

in

United
J.A.

States[,]

466

furtherance

¶

of

34.
this

arrangement, selecting the term “Smoke & Fire Curtain” based
upon Christ’s marketing analysis and recommendation.

J.A. 465.

B.
On July 13, 2009, Sadeghian, acting on behalf of Curtain,
signed a distribution agreement with BLE (the “CDA”).

Under the

CDA, Curtain agreed to act “as [BLE’s] exclusive distributor to
import

and

distribute

the

Products
6

in

[the

United

States].”

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¶

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2.1.

“Electrically
“Fixed

Smoke

“the

CDA

Operated
and

J.A. 382, 403.
Curtain

The

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defined

“Products”

Automatic
Curtains,”

Fire

Smoke
and

and

as

including

Fire

Curtains,”

“Associated

equipment.”

In another subsection of the CDA, BLE granted

exclusive

rights

to

sell

the

BLE

fire

curtain

products for fire door, fire shutter, and fire door replacement
applications” and “non-exclusive sales and installation rights
for

all

other

fire

curtain

associated BLE products.”

applications,

and

all

other

J.A. 383 ¶ 2.2.

The CDA also included a “Trademarks” section, in which BLE
granted

Curtain

a

license

to

use

its

trademarks

promotion, advertising, and sale of its products.

for

the

Per the CDA,

Curtain did not acquire any “right, title or interest in any of
the marks or any additional trademark which may be developed
unless

specifically

granted

separate license agreement.”
Three

days

after

the

such

pursuant

to

the

terms

of

a

J.A. 390 ¶ 10.5.
CDA

was

Services as a subsidiary of CYSA.

signed,

Sadeghian

formed

BLE and Services signed a

separate distribution agreement (the “SDA”), in which Services
agreed

to

act

as

BLE’s

“exclusive

distributor

distribute the Products” in the United States.

to

import

and

J.A. 244 ¶ 2.1.

“Products” was given the same definition that it had in the CDA.
See J.A. 263.

The SDA further provided that “[Services] will

have the rights to sell the BLE smoke & fire curtain products
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EXCEPT for fire door, fire shutter, and fire door replacement
applications.

[Services]

will

have

non-exclusive

sales

and

installation rights for all other fire curtain applications, and
all other associated BLE products.”

J.A. 244 ¶ 2.2.

The SDA

also contained a “Trademarks” section identical to that found in
the CDA.
OSS

and

Christ

complain

that

at

no

time

in

2009

did

Sadeghian disclose to Christ that he was negotiating with BLE
for

contractual

rights

Curtain’s behalf.

other

than

J.A. 361 ¶ 35.

those

he

was

pursuing

on

To the contrary, Sadeghian

hid the existence of the SDA from Christ until March 2010.

The

Sadeghian Parties respond that OSS and Christ were aware of the
SDA from the beginning of their participation in the venture.
C.
The parties agree that smoke and fire curtains were to be
sold

online.

To

facilitate

such

sales,

CYSA

purchased

domain “www.ussmokeandfirecurtain.com” on April 14, 2009.

the
CYSA

later contracted with another company to design a website using
that

domain.

According

to

the

Sadeghian

Parties,

when

a

customer wanted to purchase a fire curtain through the website,
Curtain processed the transaction, and when a customer wanted to
purchase a smoke curtain through the website, Services did the
honors.

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On March 12, 2010, Christ filed a trademark application in
Curtain’s

name

for

“U.S.

Smoke

&

Accessibility, Design Freedom.”

Fire

Curtain

Life

Safety,

The U.S. Patent and Trademark

Office initially rejected the application because, among other
reasons, the application was incomplete and the proposed mark
was descriptive.

The Sadeghian Parties say that the U.S. Patent

and Trademark Office issued a final rejection of the application
on February 2, 2011.

OSS and Christ, on the other hand, contend

that Curtain was granted the trademark on March 6, 2012.
On April 5, 2010, Christ filed a trademark application for
“Elevator

Shield”

application

was

without

granted

seeking

and

BLE’s

registered

consent.

This

U.S.

No.

as

Reg.

3,867,681.
The Sadeghian Parties allege that during March and April
2010, OSS and Christ began operating a “shadow” Curtain company,
using a

separate

bank

account

and

contact

information.

The

Sadeghian Parties also allege that OSS and Christ copied the
CYSA

website

for

this

purpose

and

linked

it

to

the

www.ussmokefirecurtain.com domain.

II.
The

first

three

counts

of

OSS’s

derivative

complaint

alleges intellectual property claims under the Lanham Act and
the Anticybersquatting Consumer Protection Act.
9

Specifically,

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OSS alleges that the Sadeghian Parties infringed upon trademarks
belonging

to

Smoke

Fire

“U.S.

Counts

of

the

Safety,

and

Freedom”--and copied Curtain’s website and domain name.
eleven

Life

Shield”

Design

through

Curtain

“Elevator

Accessibility,

four

&

Curtain--including

complaint

essentially

allege

(in

eight different ways) that Sadeghian breached his fiduciary duty
to

Curtain

by

using

CYSA

and

Services

to

usurp

Curtain’s

corporate opportunities.
The Sadeghian Parties filed eighteen counterclaims against
OSS and Christ, claiming to assert derivative claims on behalf
of Curtain as well as direct, personal claims.
responded

by

filing

Sadeghian Parties.

five

OSS and Christ

counter-counterclaims

against

the

The Sadeghian Parties moved to dismiss the

counter-counterclaims,

arguing

that

they

were

actually

derivative claims on behalf of Curtain, and thus should have
been filed as an amendment to the derivative complaint.

The

district court granted that motion.
The

Sadeghian

Parties

subsequently

moved

for

summary

judgment on OSS’s derivative complaint, arguing that under the
CDA, Curtain did not have the right to distribute BLE smoke
curtains.

As a result, it was impossible for the Sadeghian

Parties to have improperly competed with Curtain or usurped any
corporate opportunity.

OSS filed a cross-motion for summary

judgment, and both OSS and Christ moved for summary judgment on
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CYSA’s derivative counterclaims and CYSA’s request to judicially
dissolve Curtain.
On September 16, 2011, the district court entered a singlepage

order

Summary

stating

Complaint

and

the

should

Judgment

that

be

GRANTED

court

was

to

the

opinion

that

Defendants

on

the

Plaintiff/Counterdefendants

on

the

to

GRANTED

“of

Counterclaims” and ordering the case removed from the court’s
trial docket.

J.A. 773.

The order indicated that a memorandum

opinion and order would be forthcoming.
On

November

29,

memorandum

opinion

Sadeghian

Parties’

and

2011,

the

order.

motion

fiduciary duty claims.

district
First,

for

summary

court

the

court

judgment

entered

its

granted

the

as

to

OSS’s

The court concluded that the CDA gave

Curtain the right to sell and distribute fire curtains only,
whereas the SDA gave Services the right to sell and distribute
smoke curtains.

Because Curtain did not have the right to sell

smoke curtains, it was not possible for the Sadeghian Parties to
have

taken

or

diverted

such

a

corporate

opportunity

from

Curtain.
The district court also granted summary judgment to the
Sadeghian

Parties

on

OSS’s

intellectual

property

claims.

Considering OSS’s claims under the Lanham Act, the court held
that neither OSS nor Curtain owned any of the alleged marks, and
therefore

they

lacked

standing
11

to

sue.

Moreover,

the

court

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noted that the Sadeghian Parties could lawfully use the alleged
marks because they owned the rights to the name “U.S. Smoke &
Fire Curtain.”
The

court

then

evaluated

the

claims

as

to

each

alleged

trademark: First, because OSS sought a trademark for “Elevator
Shield” without BLE’s consent, the trademarks were invalid and
could not be the basis for an infringement claim.
court

evaluated

trademark

of

OSS’s

“U.S.

claims

Smoke

&

regarding
Fire

its

Curtain

Next, the
then-pending

Life

Safety,

Accessibility, Design Freedom” under common law.

The court held

that

the

the

infringement

claims

failed

because

mark

was

descriptive, the Sadeghian Parties had prior use, and there was
no evidence that the Sadeghian Parties had used the phrase apart
from their promotion of Curtain.
claim

in

count

one

failed

Finally, OSS’s cybersquatting

because

Curtain

did

not

own

the

motion

for

“www.ussmokeandfirecurtain.com” domain or website.
The

court

next

turned

to

OSS

and

summary judgment on the counterclaims.

Christ’s

The court noted that,

under Virginia law, entity owners with interests antagonistic to
their entity cannot simultaneously represent it in a derivative
action.

Because CYSA was a defendant seeking judgment against

Curtain in OSS’s derivative suit, it could not simultaneously
serve as Curtain’s representative for purposes of the derivative
counterclaims.

The court further noted that CYSA did not make
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the

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requisite

derivative
defect.

written

demand

counterclaims,

Pg: 13 of 37

upon

and

Curtain

it

was

too

before
late

filing

to

its

cure

the

As a result, the court granted OSS and Christ summary

judgment on the Sadeghian Parties’ derivative counterclaims.
The

district

entire action.

court’s

On

accompanying

December

23,

2011,

order
the

dismissed

Sadeghian

the

Parties

filed a Rule 59 motion to alter or amend the district court’s
judgment.
January

The

31,

district

2012,

and

court
the

appeal on February 6, 2012.

denied

Sadeghian

the

Rule

motion

on

gave

Parties

59

notice

of

OSS and Christ also filed notices

of appeal.

III.
We address the issues raised by OSS and Christ in their
appeals before turning to the Sadeghian Parties’ cross-appeal.
Because

the

judgment,

district

we

review

court
the

disposed
facts

of

and

this

case

at

reasonable

summary

inferences

therefrom in the light most favorable to the non-moving party.
Bonds v. Leavitt, 629 F.3d 369, 380 (4th Cir. 2011).
A.
OSS first argues that the district court erred in granting
summary

judgment

to

the

Sadeghian

Parties

on

the

fiduciary duty claims in the derivative complaint.

breach

of

OSS contends

that the district court failed to consider Sadeghian’s fiduciary
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duty not to usurp corporate opportunities properly belonging to
Curtain and his duty to secure intellectual property rights for
Curtain. 3

OSS further contends that the district court did not

credit its evidence, which it claims should have been sufficient
to preclude summary judgment.

In addition, OSS claims that the

district court erred in failing to exclude parol evidence and in
relying on that evidence in deciding the motion. 4

3

We reject OSS’s claim that Sadeghian (through CYSA)
breached his fiduciary duty to acquire intellectual property
rights for Curtain.
The case cited by OSS, In re Access
Cardiosystems, Inc., 340 B.R. 127 (Bankr. D. Mass. 2006), is
factually inapposite.
There, a corporation was formed by its
president in order to design, manufacture, and sell emergency
defibrillators.
Id. at 134.
Once the product design was
complete, the president filed a patent application in his own
name, contending that he alone had conceived all of the
inventive portions of the product prior to the company’s
incorporation.
Id. at 149.
The court held that the president
had breached his fiduciary duty to the corporation by failing to
disclose that he intended to assert complete ownership over the
intellectual property. Id. at 150. The court also pointed out
that the corporation had spent millions to develop and
manufacture the product, and therefore ownership of the
underlying intellectual property was essential to its viability.
Id.
In contrast, Curtain was engaged in the business of
distributing
curtain
products,
not
creating
intellectual
property or trademarks. Nor are the marks at issue in this case
essential to Curtain’s viability.
In any event, as we explain
later, although there is conflicting evidence regarding the
development and original ownership of Curtain, it is clear that
CYSA used the phrase “U.S. Smoke & Fire Curtain” well before
Curtain’s formation.
4

OSS also argues that the district court erred in granting
the Sadeghian Parties’ motion in light of the court’s finding
that they had a conflict of interest. The court, however, found
(Continued)
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The Sadeghian Parties respond that they alone owned Curtain
when the opportunity to distribute smoke curtains first arose
and thus were free to exploit it for themselves.

They also say

that Curtain never had the right to distribute smoke curtains
because all parties understood that it was formed for the sole
purpose of distributing fire curtains.
We
court

are

erred

constrained
in

to

granting

agree

summary

with

OSS

that

judgment

on

the

the

district

breach

of

fiduciary duty claims.
A corporate officer owes the duties of “utmost good faith”
and

loyalty

to

his

corporation.

Feddeman

Assocs., 530 S.E.2d 668, 673 (Va. 2000). 5
his

fiduciary

duty

to

his

opportunities to himself.

company

imposing

upon

v.

Langan

An officer breaches
he

diverts

corporate

An officer also cannot compete

Williams v. Dominion Tech. Partners, LLC,

576 S.E.2d 752, 757 (Va. 2003).
by

Co.

Today Homes, Inc. v. Williams, 634

S.E.2d 737, 742-43 (Va. 2006).
with his own company.

if

&

officers

The duty of loyalty is enforced

the

burden

of:

(1)

disclosing

only that CYSA had a conflict of interest in filing derivative
counterclaims on Curtain’s behalf and rectified it by dismissing
those claims.
5

The COA is governed by Virginia law.

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corporate opportunities to the company, and (2) obtaining its
consent to exploit them.

Today Homes, 634 S.E.2d at 743.

The district court was wrong to grant summary judgment to
the Sadeghian Parties on the breach of fiduciary duty claims.
To

begin

with,

the

court

said

nothing

about

the

Sadeghian

Parties’ contention that Sadeghian owed no duty of loyalty to
Curtain

when

the

opportunity

to

sell

smoke

curtains

arose

because the Sadeghian Parties’ alone owned Curtain at the time.
That

contention,

however,

is

refuted

by

the

record,

which

includes a July 8, 2009, e-mail from Sadeghian to Christ in
which Sadeghian acknowledges that OSS is in fact a part owner of
Curtain.

See J.A. 500.

We note further that the distribution

agreement with BLE--where the opportunity to sell smoke curtains
first arose--was not signed until July 13, five days after the
email in question.

Thus, we have before us a classic factual

dispute on an issue that matters.
And because the issue matters, the district court’s stated
reason for granting summary judgment fails.

The district court

based its decision on the distribution agreements themselves,
concluding that their language showed that Curtain could not
distribute smoke curtains.

The district court, however, failed

to consider Sadeghian’s fiduciary duty to Curtain prior to the
execution of the distribution agreements and OSS’s argument that
the CDA may not have given Curtain the right to distribute smoke
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curtains

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precisely

opportunity.

because

Pg: 17 of 37

Sadeghian

failed

to

disclose

the

Moreover, although the Sadeghian Parties contend

that Christ understood that Curtain was created to distribute
fire curtains only, both the name of the company (“U.S. Smoke &
Fire Curtain, LLC”) and the statement in the COA that Curtain
was

formed

to

“market,

sell

and

distribute

smoke

and

fire

curtains in the United States” suggest otherwise.
In sum, on this record, a jury could find that that OSS
owned

part

of

Curtain

curtains first arose.
was

bound

to

when

disclose

judgment

as

opportunity

to

sell

smoke

A jury could further find that Sadeghian
that

exploiting it for himself.
court’s

the

to

opportunity

to

Curtain

before

Accordingly, we vacate the district

counts

four

through

eleven

of

OSS’s

derivative complaint and remand them for further proceedings. 6

6

In light of our decision, we need not reach OSS’s argument
that the district court improperly relied on parol evidence in
granting summary judgment to the Sadeghian Parties. Nor need we
decide whether (as the district court concluded) BLE’s alleged
refusal to allow Curtain to sell smoke curtains constitutes an
exception to the corporate opportunity doctrine.
We note that
Virginia courts have not yet addressed this particular issue.
The general rule though is that a refusal to deal does not, by
itself, constitute an exception:
“Where an officer claims the
reason he or she appropriated the opportunity is that the other
party would not have dealt with the corporation anyway, the
business transaction will not be immune from attack unless the
officer unambiguously discloses to the corporation the fact of
the other party’s refusal to deal, along with a fair statement
of the reasons for that refusal.”
3 Fletcher Cyclopedia of
Corporations § 862.10; see also Energy Res. Corp., Inc. v.
Porter, 438 N.E.2d 391, 394 (Mass. App. Ct. 1982).
We leave
(Continued)
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B.
OSS also challenges the district court’s grant of summary
judgment to the Sadeghian Parties on the intellectual property
claims (counts one through three) in the derivative complaint.
We address each claim separately.
1.
OSS

argues

that

the

district

court

erred

in

granting

summary judgment on the intellectual property claims related to
Curtain’s alleged trademark of “Elevator Shield.”

The district

court held that Curtain violated the CDA by filing its trademark
application without BLE’s consent, and thus the trademark is
invalid.

OSS contends that the Sadeghian Parties lack standing

to invoke BLE’s rights.

OSS also contends that the CDA does not

prevent Curtain from registering its own trademarks.
The Sadeghian Parties respond that OSS’s derivative claim
for

infringement

of

the

“Elevator

Shield”

trademark

fails

because Curtain could not validly obtain the mark in the first
place.

They contend that the terms of the CDA prevent Curtain

from registering a trademark for any BLE product.
In order to assert a claim for trademark infringement or
unfair competition under the Lanham Act, a plaintiff must prove,

this question (as well as the parol evidence issue) for the
district court to consider anew on remand.
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among other things, that he or she possesses the mark at issue.
See 15 U.S.C. §§ 1114, 1125(a); see also, e.g., People for the
Ethical Treatment of Animals v. Doughney, 263 F.3d 359, 364 (4th
Cir. 2001).

A party may assert the invalidity of the mark as a

defense to an infringement claim.

15 U.S.C. § 1115; see also

Hiram Walker & Sons v. Penn-Maryland Corp., 79 F.2d 836 (2d Cir.
1935).
In general, a nonparty to an agreement may not enforce the
contract against one of the signatories.

See Food Lion, Inc. v.

S.L. Nusbaum Ins. Agency, Inc., 202 F.3d 223, 229 (4th Cir.
2000); see also General Cigar Co. v. GDM Inc., 988 F. Supp. 647,
661-62
action).

(S.D.N.Y.

1997)

(applying

the

rule

in

a

trademark

There is an exception to this rule when a contractual

relationship exists between the defendant in a trademark action
and the third party, which would give the defendant (usually a
licensee of the third-party’s mark) superior trademark rights if
the third party’s rights were vindicated.

Lapinee Trade, Inc.

v. Paleewong Trading Co., 687 F. Supp. 1262, 1264 (N.D. Ill.
1988).

Here,

Elevator

there

Shield

from

is

no

BLE,

evidence
and

that

therefore

Services
the

licensed

general

rule

applies, meaning that only Curtain and BLE have the right to
enforce

the

CDA

against

one

another.

To

the

extent

the

Sadeghian Parties are attempting to enforce the CDA as a thirdparty beneficiary, Virginia law requires that they show that the
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contracting parties clearly and definitely intended to confer a
benefit upon them.

Food Lion, 202 F.3d at 229.

Because the

record does not so show, the Sadeghian Parties are barred from
asserting

a

defense

to

the

trademark

claim

based

upon

BLE’s

rights.
Accordingly, the district court erred in dismissing the
“Elevator

Shield”

claims

in

counts

two

and

three

of

the

derivative complaint.
2.
OSS
summary

argues

that

judgment

the
on

district
the

“www.ussmokeandfirecurtain.com”
argues

that

the

court

created the marks.

court
claims

website

ignored

erred

granting

regarding

and

evidence

in

domain

showing

the

name.
that

OSS
Christ

The Sadeghian Parties respond that both the

website and the domain name belong to CYSA, and therefore OSS
lacks standing to assert the claims on behalf of Curtain.
OSS

has

alleged

violations

of

the

Anticybersquatting

Consumer Protection Act (“ACPA”) in count one of the derivative
complaint, and of the Lanham Act in counts two and three.

Both

the

show

ACPA

and

ownership

of

requirements.

the
a

Lanham
valid

Act

obligate

protectable

a

plaintiff

trademark,

to

among

other

See 15 U.S.C. § 1125(d)(1)(A) (“A person shall be

liable in a civil action by the owner of a mark . . . .”); Lone
Star Steakhouse & Saloon, Inc. v. Alpha of Va., Inc., 43 F.3d
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922, 930 (4th Cir. 1995) (holding that a “valid, protectable
trademark”

is

necessary

to

establish

a

claim

of

trademark

infringement or unfair competition under the Lanham Act).
The uncontroverted evidence shows that CYSA developed the
ussmokeandfirecurtain.com
copyright

for

the

site.

website

and

Although

OSS

owns

a

contends

registered
that

Christ

created the domain name, it presented no evidence supporting
this allegation.

Christ’s affidavit regarding the website says

only that he helped select the domain name, see J.A. 465-66, and
any legal conclusions in the affidavit were properly ignored by
the district court, see J.A. 466 ¶ 33; see also, e.g., Avrigan
v. Hull, 932 F.2d 1572, 1577 (11th Cir. 1991).
Because

OSS

does

not

own

the

intellectual

property

at

issue, it lacks standing to state claims under the Lanham Act or
the ACPA.

Accordingly, we affirm the district court’s grant of

summary judgment to the Sadeghian Parties on these claims.
3.
OSS next argues that the district court erred in dismissing
its Lanham Act claims related to its trademark of “U.S. Smoke &
Fire Curtain Life Safety, Accessibility, Design Freedom.”

OSS

argues

the

that

the

district

court

erroneously

found

that

trademark application was rejected, as the trademark has been
registered with the U.S. Patent and Trademark Office.

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The trademark registration, however, does not change the
fact that OSS failed to show that the Sadeghian Parties actually
used the mark.

A cause of action for trademark infringement or

unfair competition under the Lanham Act requires a plaintiff to
prove, inter alia, that the defendant used the mark.
263 F.3d at 364.
“no

evidence

Parties]

used

to

Doughney,

The district court concluded that there was
support

[‘U.S.

the

proposition

Smoke

&

Fire

that

Curtain

[the
Life

Sadeghian
Safety,

Accessibility, Design Freedom’] apart from business conducted on
behalf of Curtain.” 7

J.A. 803-04.

Our review of the record

confirms that the district court was correct, and we therefore
affirm the grant of summary judgment to the Sadeghian Parties on
these claims.
C.
Finally, in their supplemental brief, OSS and Christ assert
that

the

district

counterclaims.

court

erred

in

dismissing

their

counter-

OSS and Christ argue that the court erroneously

characterized the claims as derivative, and that they had the

7

At the time of the district court’s writing, Curtain had
not yet been granted a trademark of the phrase, and therefore
the court evaluated only that part of the alleged mark that had
not been previously rejected as “descriptive.” As a result, the
district court’s holding refers only to the “Life Safety,
Accessibility, Design Freedom” part of the alleged mark.
See
J.A. 803.

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right, under Fed. R. Civ. P. 13, to file the claims without
requesting leave of court.
The district court found that although the claims asserted
by OSS and Christ were nominally direct and personal, they were
in

fact

Curtain.

derivative

claims

that

could

only

be

asserted

by

In the court’s view, the proper vehicle for pursuing

these claims was via an amendment to the derivative complaint.
Rule 13(a)(1)(A) states that counterclaims must be included
in

responsive

pleadings

if

transaction or occurrence.

they

arise

out

of

the

same

Rule 15, on the other hand, allows

for amendment of existing pleadings as a matter of course within
twenty-one days of service.

Fed. R. Civ. P. 15(a)(1).

After

such time has expired, a pleading may only be amended with the
opposing party’s consent or with leave of court.
P. 15(a)(2).

Fed. R. Civ.

We review the court’s denial of leave to amend a

complaint for abuse of discretion.

Balas v. Huntington Ingalls

Indus., 711 F.3d 401, 409 (4th Cir. 2013).
The first question presented, therefore, is whether OSS and
Christ’s claims were direct and personal or whether they were
truly amendments to the derivative complaint.

We find that the

claims were derivative in nature and therefore could only be
pursued via an amendment to OSS’s complaint.
OSS
Sadeghian

and

Christ

Parties

for

attempted
(1)

to

breach
23

bring
of

the

claims
COA,

against
(2)

the

tortious

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interference

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with

Curtain’s

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rights

and

business

expectancies

under the COA and CDA, (3) statutory conspiracy to harm Curtain
by

diverting

contractual

and

business

rights

and

breaching

fiduciary duties, (4) common law conspiracy to do the same, and
(5) unjust enrichment via revenues belonging to Curtain.
J.A. 1071-76.

See

Despite their artful pleading, these claims all

deal with harm allegedly inflicted upon Curtain.

For example,

the revenues that are referred to in the unjust enrichment claim
belonged to Curtain; in the same way, if Sadeghian breached the
COA, he could do so only in his role as CEO of Curtain.
Corporate shareholders cannot bring direct individual suits
against officers and directors for breaches of fiduciary duty;
their

remedy

is

derivative

on

behalf

of

the

corporation.

Simmons v. Miller, 544 S.E.2d 666, 674 (Va. 2001).

Virginia has

declined to adopt the exception to this rule allowing individual
suits in cases of closely held corporations.
We

agree

with

the

district

court

Id. at 675. 8
that

the

counter-

counterclaims were in fact derivative and therefore should have
been asserted as amendments to the derivative complaint.

Nor

did the district court err in denying leave to amend.

The

8

We deal here with a limited liability company, but the
analysis remains the same.

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counter-counterclaims were filed late in the trial schedule--the
Sadeghian Parties’ responses to the claims would have been due
after discovery had closed and just days before exhibits and
witness statements were due to the court.

See J.A. 339-40.

We

have previously upheld a denial of leave to amend because its
timing would have unduly prejudiced the opposing party.

See,

e.g., Intown Props. Mgmt., Inc. v. Wheaton Van Lines, Inc., 271
F.3d 164, 170 (4th Cir. 2001).

We find no abuse of discretion

and therefore affirm the district court’s ruling.

IV.
We

turn

now

to

issues for our review.

the

cross-appeal,

which

presents

three

First, the Sadeghian Parties argue that

the district court erred in granting summary judgment to OSS and
Christ on CYSA’s derivative counterclaims due to CYSA’s conflict
of interest.
district

Second, the Sadeghian Parties contend that the

court

erred

in

dismissing

counterclaims with prejudice.

sua

sponte

their

direct

Finally, they assert that the

district court erred in granting without explanation OSS and
Christ’s

motion

for

summary

judgment

on

CYSA’s

claim

to

judicially dissolve Curtain.
We first dispose of a challenge to our jurisdiction over
the cross-appeal, before turning to the merits.

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A.
OSS and Christ question our jurisdiction over the crossappeal,

arguing

that

the

timely notice of appeal.

Sadeghian

Parties

failed

to

file a

OSS and Christ say that the September

16, 2011 order was the district court’s final judgment and that
the Sadeghian Parties’ Rule 59 motion, filed on December 23,
2011, could not have tolled the deadline for filing a notice of
appeal because it was filed more than twenty-eight days after
the final judgment.
The Sadeghian Parties respond that the district court did
not enter its final judgment in this case until it filed the
November 29, 2011 memorandum opinion and order.
the

Sadeghian

Parties

assert

that

their

As a result,

Rule

59

motion

successfully tolled the deadline for filing the appeal.
We hold that we have jurisdiction to consider the crossappeal.

Under

Rule

4

of

the

Federal

Rules

of

Appellate

Procedure, a notice of appeal must be filed within thirty days
of entry of the judgment or order.
A

timely

Rule

59

motion,

however,

Fed. R. App. P. 4(a)(1)(A).
serves

to

toll

the

time

requirement, and the time to file a notice of appeal runs from
the entry of the order disposing of the motion.
4(a)(4)(A)(iv).

Fed. R. App. P.

Rule 59 motions to alter or amend a judgment

must be filed within twenty-eight days of the entry of judgment.
Fed. R. Civ. P. 59(e).
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“[A]n

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order

is

final

if

Pg: 27 of 37

it

ends

the

litigation

on

the

merits and leaves nothing for the court to do but execute the
judgment.”

Penn-America Ins. Co. v. Mapp, 521 F.3d 290, 294

(4th Cir. 2008) (internal quotations omitted).

In determining

whether an ambiguous judgment is final, “the intention of the
judge to dispose of all the business before him or her” provides
valuable insight.

Vaughn v. Mobil Oil Exploration & Producing

Se., Inc., 891 F.2d 1195, 1197 (5th Cir. 1990).
“removal

of

a

case

from

a

court’s

‘active

Additionally,

docket’

is

the

functional equivalent of an administrative closing, which does
not

end

a

improbable.”

case

on

its

merits

or

make

Mapp, 521 F.3d at 295.

further

litigation

Therefore, “an otherwise

non-final order does not become final because the district court
administratively closed the case after issuing the order.”

Id.

We conclude that the November 29, 2011 order, rather than
the September 16, 2011 order, is the final judgment in this
case.

The

judgment

for

September
two

16

order

reasons:

did

First,

not

the

constitute

order

did

a

not

final
“leave

nothing for the court to do but execute the judgment” as the
court

still

had

to

prepare

and

file

the

opinion

and

order.

Second, the order did not unequivocally grant either motion.
Rather, the court said only that it was “of the opinion that
Summary Judgment should be GRANTED.”

J.A. 773 (emphasis added).

In our view, this language did not foreclosure the possibility
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that the district court could decide differently.

In fact, the

district court’s only definitive action on September 16 was to
remove the case from the trial docket, which by itself did not
end the case on the merits.
The

Sadeghian

Parties

filed

their

Rule

59

motion

on

December 23, 2011, well within the twenty-eight days allowed
from the date of the district court’s entry of final judgment,
which we conclude occurred on November 29, 2011.

Accordingly,

we have jurisdiction over the cross-appeal.
B.
Turning to the merits, the district court found that CYSA’s
interests
Sadeghian
derivative

were

antagonistic

Parties’

motion

complaint

counterclaims.

as

to

Curtain,

for
well

as

evidenced

summary

judgment

as

Sadeghian

the

by

on

the

OSS’s

Parties’

As a result, the court held that CYSA had a

conflict of interest in representing Curtain in the derivative
counterclaims.

In

addition,

the

court

noted

that

CYSA

had

failed to make demand upon Curtain, as required by both Fed. R.
Civ. P. 23.1 and Va. Code § 13.1-1042B.

Although this error was

curable, the court noted that Virginia law afforded a company
ninety days to respond to a demand, and trial was less than
ninety days away.
summary

judgment

Accordingly, the court granted OSS and Christ
and

dismissed

counterclaims.
28

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Sadeghian

Parties’

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As an initial matter, a review of the Sadeghian Parties’
counterclaim reveals that the parties intended to assert direct
as well as derivative claims.
that

CYSA

brought

derivatively.”

certain

J.A. 86.

The pleading explicitly states

claims

“on

its

own

behalf

and

In addition, certain claims could only

have been brought directly, such as the copyright infringement
and

cybersquatting

claims

regarding

ussmokeandfirecurtain.com,

based upon the fact that CYSA, rather than Curtain, owned the
website.

As a result, we will consider the court’s dismissal of

the derivative and direct claims separately, beginning with the
former.
The Sadeghian Parties contend that CYSA had standing to
pursue

the

derivative

counterclaims

because

Curtain

was

improperly aligned with OSS and Christ, rather than with them.
Second, the Sadeghian Parties say that there were no procedural
defects in the derivative counterclaims.

They assert that the

statute cited by the district court was not in effect at the
time of their pleading, and that, in any event, the court’s
decision to dismiss the derivative counterclaims is an abuse of
its discretion and conflicts with its earlier denial of a motion
to dismiss these very same claims.

We find no error in the

district court’s decision as to these claims.
In

a

derivative

suit,

the

corporation

(or

as

here,

the

limited liability company) is initially named as a defendant to
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ensure its presence, after which it may be aligned according to
its real interests.

Smith v. Sperling, 354 U.S. 91, 97 (1957);

see also Lewis v. Odell, 503 F.2d 445 (2d Cir. 1974).

The

question of whether to realign the corporation as a plaintiff is
“a practical not a mechanical determination and is resolved by
the pleadings and the nature of the dispute.”

Smith, 354 U.S.

at 97.
Thus, if the complaint in a derivative action alleges
that
the
controlling
shareholders
or
dominant
officials of the corporation are guilty of fraud or
malfeasance, then antagonism is clearly evident and
the corporation remains a defendant.
On the other
hand, if the individual plaintiff is the majority
stockholder
or
a controlling
officer,
then
the
corporation cannot be deemed antagonistic to the suit
and it should be realigned as a plaintiff.
Liddy

v.

Urbanek,

707

F.2d

1222,

1224-25

(11th

Cir.

1983)

(internal quotations and citations omitted).
Some

courts

have,

however,

acknowledged

the

potential

conflict of interest that may arise when the corporation, on
whose

behalf

the

suit

has

been

filed,

and

defendants are represented by the same counsel.

the

individual

See, e.g., Bell

Atl. Corp. v. Bolger, 2 F.3d 1304, 1316 (3d Cir. 1993); Lewis v.
Shaffer Stores Co., 218 F. Supp. 238 (S.D.N.Y. 1963).

In Bell

Atlantic, the Third Circuit held that, frivolous cases aside,
when

a

derivative

action

alleges

breaches

of

the

duty

of

loyalty--including allegations of directors’ fraud, intentional
misconduct, or self-dealing--a conflict of interest arises, and
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the corporation should be represented by separate counsel.

2

F.3d at 1317.
We

need

not

decide

here

whether

Curtain

was

improperly

aligned or required separate representation, as we conclude that
the district court correctly identified a conflict of interest
between CYSA and Curtain and granted summary judgment on that
basis.

Not only did OSS allege that Sadeghian had breached his

fiduciary

duty

opportunities,
allegations

to
but

asked

Curtain
the

the

and

Sadeghian
district

usurped

Curtain’s

Parties’

court

to

business

responses

invalidate

intellectual property and contractual rights.

to

the

Curtain’s

See J.A. 806.

This created an actual conflict of interest between Curtain’s
interests and the Sadeghian Parties’ interest in prevailing in
the lawsuit.

See Jennings v. Kay Jennings Family Ltd. P’ship,

659 S.E.2d 283, 289-90 (Va. 2008).
The district court also correctly held that Fed. R. Civ. P.
23.1

barred

conflict

of

CYSA’s

derivative

interest.

Rule

counterclaims
23.1

states

in

that

light
a

of

the

“derivative

action may not be maintained if it appears that the plaintiff
does

not

fairly

and

adequately

represent

the

interests

of

shareholders or members who are similarly situated in enforcing
the

right

of

the

corporation

or

association.”

In

Davis

v.

Comed, Inc., 619 F.2d 588 (6th Cir. 1980), the Sixth Circuit
listed several factors that weigh against a plaintiff satisfying
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the fair and adequate representation test, including “economic
antagonisms between representative and class,” “indications that
the

named

plaintiff

was

not

the

driving

force

behind

the

litigation,” “other litigation pending between the plaintiff and
defendants,”

and

defendants.”

Id. at 593-94; see also Jennings, 659 S.E.2d at

288

(applying

“plaintiff’s

Davis

factors

vindictiveness

to

determine

fair

toward

and

the

adequate

representation under Virginia law).
In

this

derivative
and

case,

the

complaint

contract

sought

rights,

CYSA and Curtain.

Sadeghian
to

creating

Parties’

invalidate
an

defenses

Curtain’s

economic

to

the

trademark

antagonism

between

Moreover, although CYSA filed the derivative

counterclaims as a member of Curtain, the interests represented
were likely to be that of its sole owner, Sadeghian, who was
named in the original suit as an officer of Curtain.
given

the

pending

litigation

between

the

Finally,

parties--i.e.,

the

derivative suit between OSS and the Sadeghian Parties--it was
reasonable

for

the

district

derivative

counterclaims

court
likely

were

to

conclude

filed

as

a

that

the

vindictive

response.
In sum, because of the conflict of interest between Curtain
and

CYSA,

adequate

as

well

as

CYSA’s

representation”

failure

test,

32

the

to

pass

district

the
court

“fair

and

correctly

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granted summary judgment to OSS and Christ on the derivative
counterclaims. 9
C.
The Sadeghian Parties also contend that the district court
erred in sua sponte dismissing their direct counterclaims, or,
in

the

alternative,

that

the

district

dismissed these claims without prejudice.

court

should

have

They note that OSS

and Christ did not move for summary judgment on the claims, and
the district court said nothing substantive about them in either
its

final

respond

order

that

or

the

its

memorandum

district

court

opinion.

OSS

properly

and

granted

Christ
summary

judgment on the claims after finding that CYSA had a conflict of
interest in representing Curtain.
The district court’s finding that CYSA had a conflict of
interest

prevented

derivative suit.

CYSA

from

representing

Curtain

in

a

That finding has no bearing, however, on the

Sadeghian Parties’ right to file direct claims against OSS and
Christ.

And

although

the

district

court

has

the

power

to

dismiss claims sua sponte, it gave no reason for taking such
9

Because we find support for the district court’s holding
in Rule 23.1, we need not reach OSS and Christ’s arguments that
the derivative counterclaims were also flawed as a matter of
Virginia state law.
Nor need we consider whether the district
court abused its discretion in granting the motion for summary
judgment after previously denying a motion to dismiss on the
same grounds.

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action here, nor did it give notice to the Sadeghian Parties of
its intention to do so.

See Chase Bank USA, N.A. v. City of

Cleveland, 695 F.3d 548, 558 (6th Cir. 2012) (requiring that a
party be given notice before the court dismisses the party’s
claims on its own motion).
It may be that the district court assumed all of the claims
to be derivative, particularly because the scattershot pleading
does

little

claims

to

are

make

clearly

the

relevant

derivative,

distinction.
see

Count

Some
VIII

of

the

(alleging

conversion/embezzlement of Curtain's funds), XI (alleging breach
of fiduciary duty), XIV (alleging breach of the COA and CDA), XV
(seeking a declaratory judgment as to Curtain’s rights to its
ongoing business), and XVI (alleging tortious interference with
the COA, CDA, and various dealer agreements).

On the other

hand, certain claims could only have been brought directly, such
as

Counts

I

cybersquatting

and
as

II,
to

alleging

copyright

infringement

ussmokeandfirecurtain.com,

rather than Curtain, owned the website.

because

and
CYSA,

Rather than parse the

claims ourselves, we will vacate the district court’s dismissal
of the counterclaims and remand for the court to determine (1)
on which side of the ledger (direct or derivative) each claim
falls; and (2) if direct, whether the claims may nonetheless be
disposed of at summary judgment.

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D.
Finally,

the

Sadeghian

Parties

argue

that

the

district

court erred in granting OSS and Christ summary judgment on their
counterclaim seeking judicial dissolution, and that the court
should

have

instead

granted

summary

judgment

to

CYSA.

In

support of their motion for summary judgment on the claim, OSS
and Christ argued that an application for judicial dissolution
should

be

filed

in

state,

rather

than

federal,

court.

In

addition, OSS and Christ noted that the COA prevented judicial
dissolution absent unanimous written agreement of all parties.
The

Sadeghian

Parties

respond

that

although

unanimous

consent is required for dissolution of Curtain under the COA, no
such agreement is necessary for judicial dissolution.
Code

§ 13.1-1047

(providing

that

a

claim

for

See Va.
judicial

dissolution of a limited liability company may be brought by any
of

its

members).

dissolution

claim

They
is

also

properly

in

contend
federal

that
court

the

judicial

because

the

district court had supplemental jurisdiction over the claim, and
principles of judicial economy support adjudicating all of the
claims together.
The district court gave no explanation for why it chose
to grant summary judgment to the OSS and Christ on this claim.
Although we may “affirm on any legal ground supported by the
record,” Jackson v. Kimel, 992 F.2d 1318, 1322 (4th Cir. 1993),
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we generally do so only when remand “would be an unnecessary
waste of judicial and litigant resources,” O’Reilly v. Bd. of
Appeals of Montgomery Cnty., 942 F.2d 281, 284 (4th Cir. 1991).
Because we have already determined that remand is appropriate,
few, if any, resources would be saved by de novo consideration
of the propriety of judicial dissolution, a question we think
best left to the district court in the first instance.
v.

Commc’ns

1985)

Satellite

(refusing

to

Corp.,

759

independently

F.2d

355,

363-64

determine

See Ross
(4th

whether

Cir.

summary

judgment may be affirmed in a case “involv[ing] a complex array
of subsidiary claims” when remand would “promote an informed
decision,

better

frame

the

contentions

of

the

parties,

and

ensure a proper record for review”), abrogated on other grounds
by Price Waterhouse v. Hopkins, 490 U.S. 288 (1989).

Therefore,

we vacate the district court’s grant of summary judgment on the
judicial

dissolution

counterclaim

and

remand

it

for

further

proceedings.

V.
In sum, we vacate and remand the district court’s dismissal
of OSS’s breach of fiduciary duty claims (counts four through
eleven of the derivative complaint) and intellectual property
claims regarding the “Elevator Shield” trademark (counts two and
three of the derivative complaint).
36

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court’s

dismissal

Pg: 37 of 37

of

the

Sadeghian

Parties’

counterclaims against OSS and Christ, as well as their separate
request

for

judicial

dissolution

of

Curtain.

We

affirm

the

district court’s dismissal of all other claims.

AFFIRMED IN PART,
VACATED IN PART,
AND REMANDED

37