Asset Buyer Not Bound by Lanham Act Injunction Without Proof of Actual Notice

The buyer of most of the operating assets of a company subject to a Lanham Act injunction was held by the Eleventh Circuit not to be subject to the injunction, even though the seller’s CEO and owner became president and part-owner of the buyer as part of the sale. ADT LLC v. NorthStar Alarm Services, LLC, 2017 WL 1364978 (11th Cir. Apr. 14, 2017).  A year after the sale, the plaintiff, ADT, sought to enforce the injunction against the buyer.  But in an opinion authored by Judge Bill Pryor, the court held that ADT failed to prove that the buyer had the “actual notice” of the injunction required by Rule 65(d)(2) of the Federal Rules of Civil Procedure to be bound as a non-party, i.e., to be deemed in privity with the defendant-seller.  The court relied on the facts that the seller’s CEO did not testify that he had knowledge of the injunction and the sale agreement did not disclose its existence.

The district court had also concluded that the buyer and seller were not in privity, but nonetheless found that the buyer was bound by the injunction under the state-law de facto merger doctrine. The Eleventh Circuit disagreed with the latter conclusion, pointing out that whether a successor is bound by the de facto merger doctrine under state law does not govern the extent to which a federal injunction binds non-parties—a federal question.  Without a finding of the requisite “actual notice,” a non-party cannot be bound unless it is shown to be an aider and abettor of the violation leading to the injunction, which was not argued by ADT on appeal.

Posted by Tom Byrne.

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