"Gutman's risky legal strategy paid off, but other designers and artists who have sold their names to third parties typically have to live with the consequences of that sale."
NEW YORK, NY – OCTOBER 10: model walks runway at Hayley Paige fashion show during Fall 2015 Bridal Collection on October 10, 2014 in NY
The conventional wisdom given to burgeoning designers is never to name your brand after yourself. Yet designers rarely heed that advice, hoping to capitalize on the cache associated with their names when they are first starting out, and then selling the exclusive rights to use their names to larger companies, especially those with a portfolio of other brands under their belts. While this is a tale as old as time in the fashion industry (just ask Gucci, Kate Spade, Tom Ford, and Paul Frank), the recent settlement between JLM Couture, a multi-label bridal house, and Hayley Paige Gutman, a fashion designer and social media influencer, tells a different story.
The Lawsuit
Hayley Paige Gutman is a designer well known among brides-to-be and fans of TLC's "Say Yes to the Dress" for her namesake wedding dress label, "Hayley Paige." Before becoming a staple on the popular show, Gutman was an up-and-coming designer who began working for JLM Couture after she signed an agreement granting the company "the exclusive worldwide right and license" to use her name in connection with the design, manufacture, marketing, and sale of bridal clothing. In connection with Gutman's employment, JLM registered for 10 different trademarks containing the designer's name and tasked her to promote the company and its associated brands on an Instagram account bearing her name.
During her employment, Gutman and JLM collaborated in managing the Hayley Paige Instagram account. In 2019, after JLM extended her employment, renegotiations over her social media responsibilities failed. This led Gutman to assert full control of the account, change the passwords, and refuse to post JLM-related content.
On December 15, 2020, JLM Couture filed a lawsuit against Gutman filed a lawsuit against Gutman, alleging, among other things, breach of contract, trademark dilution, and conversion of the company's Instagram, TikTok, and Pinterest accounts. JLM successfully obtained a temporary restraining order against Gutman, directing her to turn over control of the social media accounts to JLM, and prohibiting Gutman from altering or posting to the accounts without JLM's permission, and from using her name to advertise products or services of herself or others.
Following the Court's issuance of the TRO, Gutman posted a video to a separate Instagram account, announcing that she had decided to resign from her employment, and commenting about her time working for JLM and the impact of the litigation on her life. Citing these videos, JLM sought, and successfully obtained, a preliminary injunction against Gutman, barring her continued use of the company's social media accounts and mandating her adherence to the terms of her employment, including the prohibition of using her name in accordance with the exclusive license agreement.
JLM Couture Declares Bankruptcy
JLM's war path ended in October 2023 when it filed for chapter 11 bankruptcy under the recently enacted subchapter V. Unlike in a chapter 7 bankruptcy, where a debtor must liquidate all of its assets to satisfy its creditors' claims and therefore cease operations, a chapter 11 filing allows the debtor to remain in business, in accordance with a court-approved plan to reorganize their assets and pay off its debts. Under subchapter V, debtors with less than $7.5 million in debt can take advantage of the benefits of chapter 11, but in a more streamlined fashion (The $7.5 million debt limit applicable to subchapter V cases was a temporary increase that expired on June 21, 2024. For subchapter V cases commenced on or after June 21, 2024, the applicable debt limit is $3,024,725, as adjusted per 11 U.S.C. § 104). However, in order for the reorganization plan to be approved, a bankruptcy judge must determine that creditors who do not vote for the plan will be in a better position than they would otherwise be in if the company underwent a chapter 7 liquidation. (See 11 U.S.C. § 1129(a)(7)).
Gutman, sensing an opportunity, filed a motion to convert JLM's bankruptcy case to a Chapter 7 liquidation. Conversion would lead to the appointment of a chapter 7 trustee who would wrest control from the current management and liquidate JLM's assets to satisfy its creditors' claims.
In her motion, Gutman's counsel argued that JLM's financial history demonstrated severe distress and decline, in no small part due to JLM's own litigation against her. The motion highlighted that JLM's legal fees from the prolonged litigation against Gutman had significantly drained the company's value, with costs expected to exceed $750,000 annually if they did not settle.
Gutman argued that her public departure and the ensuing litigation had led to growing "industry animus" towards JLM. She presented sworn declarations from wedding industry players to support her claim that many key industry members, upon whom JLM relies, refuse to continue doing business with the company due to the company's treatment of Gutman and her designs.
These facts underpinned Gutman's argument under 11 U.S.C. § 1129(a)(7), that if JLM's bankruptcy case was not converted and its assets liquidated, JLM's creditors would receive less than what they would otherwise get in chapter 7. Essentially, Gutman contended that the company's reorganization plan was unfeasible, primarily due to its prolonged litigation against her and the resulting industry fallout.
The Bankruptcy Court never heard oral arguments for Gutman's motion to convert. Rather, on May 14, 2024, the parties reached a settlement. The settlement resolved all claims JLM asserted against Gutman in their litigation, including its demand for $8.95 million. Gutman agreed to pay JLM $263,000 and dismiss her motion to convert JLM's bankruptcy case. In return, JLM terminated its exclusive worldwide right and license to use her name in its business.
Given that JLM initially sought a much higher amount in its suit, this settlement was a significant victory for Gutman, one that likely would not have been possible without the leverage gained through her motion to convert. The company's aggressive litigation strategy led to significant legal expenses and industry backlash, which Gutman astutely amplified through her public statements. This pressure damaged JLM's reputation and financial stability, potentially pushing the company into bankruptcy. Once in bankruptcy, Gutman could argue that their reorganization plan under Chapter 11 was unfeasible due, in part, to the circumstances she herself had helped create. Consequently, JLM had no viable option but to relent, allowing Gutman to settle for a lower amount, regain control of her name and brand, and mitigate further litigation costs.
Gutman's Risk Paid Off
Gutman's risky legal strategy paid off, but other designers and artists who have sold their names to third parties typically have to live with the consequences of that sale. Makeup artist Bobbi Brown sold her namesake brand to Estée Lauder in 1991, giving up the rights to ever use her name in connection with the sale of cosmetics. Since Brown resigned from the company in 2016, she wore a necklace inscribed with the date October 26, 2020—the expiration date of her non-compete, and the birth date of her new cosmetics company, Jones Road. Some, like Brown, may simply "grin and bear" the terms of their agreements, abandon their eponymous collections, and then open shop again after generating enough buzz around their new brand ("Jones Road is the real Bobbi Brown"). But those who continue selling products under their personal names after giving up those rights to third parties are typically unsuccessful, as was the case with designers Catherine Malendrino and Joseph Abboud.
Looking at Gutman's end position and ability to reclaim the name Hayley Paige, it's possible that she got lucky. JLM's Bankruptcy put Gutman in a much better settlement position than she otherwise would have been in if she were left to fight for her name in the district court, especially following the injunction. On the other hand, to a certain extent, Gutman created her own luck. The bridal industry's steadfast support of Hayley Paige—the brand and the woman—arguably was what drove JLM into bankruptcy in the first place.
Originally published by IPWatchdog, 30 July 2024
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