Privé owns and operates the Privé nightclub at the Planet Hollywood Resort and Casino in Las Vegas, Nevada, which first opened December 31, 2007. Levine is a Managing Partner and Tucker is Managing Director. Politz is the publisher of his own blog located at http://www.thevegaseye.com/, where he posts comments and other content relating to Las Vegas businesses and entertainment.
According to the complaint, after Politz was denied entry into the Privé club sometime in January, he posted some negative comments about the club on his blog and allegedly threatened to publish negative content regarding Tucker as well as supposedly contacted Levine and requested cash payment to be on his “good side.” The complaint also alleges that Politz sometime in March 2008 contacted another member of Privé management and admitted to posting negative content in exchange for a cash payment.
Between April and June 2008, four former hosts of Privé quit their employment with Privé and went to work for a competing club. On June 23, 2008, Privé filed a lawsuit against these four former employees for breaching a covenant not to compete and, for one of the hosts, stealing an using a supposedly confidential, proprietary customer list to solicit customers.
Around July 23, 2008, Defendant Politz published a blog post titled “IS THE PRIVÉ SHIP STARTING TO SINK?” which described the lawsuit filed by Privé against the four former employees, but then goes on to read as follows:
The question is WHY is all this energy being expended to shake these folks senseless? Does anyone really know? WE do. These four have information that Privé Management doesn't want getting out to anyone. And it has nothing to do with their client list. Something bizarre is boiling up beneath the surface at Privé. For instance what’s this we’re told about employees being shaken down for tip money by someone called “The Tax Man?” “The Tax Man” is apparently a Privé higher-up who uses the merest infractions – being late to meetings, wearing White after Labor Day-- as excuses to levy fines against employees as high as $500 a pop. The purloined tips go to feed something called “The Slush Fund.” Whatever that is. It's a mess. The winds of change are blowing at Privé, folks. We’ll batten down the hatches and keep our eyes peeled for the scoop, But don’t say you weren’t warned. Wear your seatbelts.
On August 12, 2008, Defendant Politz wrote another blog post entitled “Privé Exposed” which included a copy of an anonymous letter addressed to the Gaming Control Board. Plaintiffs argue that the content of the letter was libelous and defamatory. The Complaint cites many supposed false statements of fact in the letter, including accusations that Privé employees face continual harassment and a hostile and threatening work environment, hourly employees working overtime without pay, drug use on the premises, drug sales by management, minors being served alcohol, servers being screamed at when refusing to serve alcohol to minors, management sneaking underage girls into Privé, and tip money being taken from employees by management and never declared.
So what does all of this have to do with trademarks? After detailing all of the supposed false statements in the letter, the Complaint goes on to note that the title for this content on Defendant Politz’s TheVegasEye.com contained the Privé name with a red slash across it (pictured below), suggesting that the factually inaccurate and libelous statements within the Letter were in fact true, and separately tarnishing/disparaging Privé’s trademark. [Comment—I guess one person’s infringement/tarnishment is another person’s nominative fair use/free speech commentary? And I doubt that most people when seeing a red slash in this context will interpret such use to suggest that the statements within the letter are in fact true.]
What the complaint does not note (but Politz is happy to point out on his own blog post) is that on August 18, 2008, a picture showing (allegedly) a Privé staff member wearing a hat the makes its own possibly defamatory statement about Politz:
Who has a claim for defamation now?
In essence, Privé is alleging that Politz, as part of some alleged modus operandi of “extorting” businesses, is the source behind the anonymous letter – either having written it himself or working in conjunction with unknown individuals (i.e. the former Privé hosts now being sued by their own boss) – and thus he is responsible for the libelous content regarding the Plaintiffs as well as the tarnishment to Privé’s trademark.
While the primary causes of action are the state common law claims for Defamation Per Se, Commercial Defamation Per Se, Intentional Interference with Existing Business Relations, Intentional Interference with Prospective Business, and Extortion, the Complaint’s first cause of action is for trademark infringement/dilution by tarnishment. [Comment--I guess Privé believes its name is already famous after only eight months of use]. Of course, this particular cause of action is important because it is the sole basis for the federal court’s original jurisdiction. The court’s jurisdiction for the state law claims is based solely on the court’s supplemental jurisdiction.
So in addition to this being a fascinating story about the Las Vegas night club scene, it also demonstrates using a questionable trademark cause of action as a jurisdictional hook in order to get state law claims heard in a federal court.
The basis for a federal court having supplemental jurisdiction is 28 U.S.C. §1367(a), which states “In any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy . . .” Claims are so related as to form the “same case or controversy” when such claims are derived from a common nucleus of operative fact. Thus, a federal court only has supplemental jurisdiction over state law claims if they form part of the same “case or controversy” as the claim upon which original jurisdiction is based.
So Privé is relying on its “trademark infringement” claim to carry the day for its five state causes of action. Of course, it is a bit of stretch to say that the five state causes of action form part of the same “case or controversy” as the claim for trademark infringement given that the facts necessary to resolve those state claims are not likely to relate to the facts necessary to resolve a claim for trademark infringement (basically, ownership of a mark and likelihood of confusion)
In addition, courts may decline to exercise supplemental jurisdiction over claims if the state claims substantially predominate over the claim on which the district court has original jurisdiction in terms of proof, the scope of the issues raised, or the comprehensiveness of the remedy sought. See 28 U.S.C. § 1367(c)(2).
Here, the allegations predominantly relate to the false statements of fact about the Plaintiffs in the letter posted by Politz – the allegations of trademark infringement/dilution by tarnishment appear to rely primarily on Politz’s posting of the Privé trademark with a red slash across it in connection with Politz’s posting of the letter. Privé's argument is that this posting of Privé trademark in connection with Politz’s comments and posting of the letter irreparably infringed upon, disparaged, diluted and tarnished, damaged and reduced the value of the “Privé” trademark under §43(a) and (c) of the Lanham Act (15 U.S.C. §1125(a) (c)): “The infringement upon, dilution, tarnishment and disparagement of the ‘Privé’ trademark suggested that the factually inaccurate and libelous statements within the Letter were in fact true and further irreparably damaged Plaintiffs individually and collectively.”
To put it mildly, Privé’s case for trademark infringement is a little weak (nominative fair use anyone? ) and the case for dilution-by-tarnishment is even weaker (again, famous after eight months?). Some courts have found that a weak federal claim is an additional factor for courts to consider in determining if state law claims substantially predominate in a complaint. As such, I would think that a federal court judge would opt to decline to exercise supplemental jurisdiction over the state law claims in this case. Of course, whether that happens will ultimately be up to Politz to decide because if Politz decides to file a motion to dismiss the state law claims for lack of supplemental jurisdiction and the court chooses to decline to exercise supplemental jurisdiction over the state law claims, Privé could turn right around and file the same claims in state court, in which case Politz would then be faced with two concurrent lawsuits. Even though the court probably should not exercise supplemental jurisdiction over the claims, sometimes it’s better to fight the battle on one front rather than two.