Court Opinion

ID: 902536
Source: CourtListenerOpinion
Date Created: 2013-06-14 19:00:59.450252+00
Date Added: 2024-06-11T09:08:35.278543
License: Public Domain

UNPUBLISHED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           SERVICES,    LLC;     CYSA
DEVELOPMENT MANAGEMENT CORPORATION,

                 Defendants – Appellees.

                              No. 11-2160

OFFICE OF     STRATEGIC   SERVICES,   INCORPORATED;     STEWART    H.
CHRIST,

                 Plaintiffs – Appellants,

         v.

STEVEN SADEGHIAN; US SMOKE & FIRE           SERVICES,    LLC;     CYSA
DEVELOPMENT MANAGEMENT CORPORATION,

                 Defendants – Appellees.
                             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          SERVICES,    LLC;   CYSA
DEVELOPMENT MANAGEMENT CORPORATION,

                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Affirmed in part, vacated in part, and remanded by unpublished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
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.

                                3
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        (collectively,   the       “Sadeghian    Parties”),     alleging

that       they   usurped   corporate    opportunities       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.                     Not to

be   outdone,      OSS   and   Christ    replied    by     filing   five   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.

                                          4
       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    brief   description     of       the   relationship

between the parties.         OSS, a company wholly owned by Christ, and

CYSA       Development    Management      Corporation     (“CYSA”),         a    company

wholly       owned   by   Sadeghian,      together      own    a    third       company,

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

Curtain was formed as a Virginia limited liability company on

July 7, 2009.        U.S. Smoke & Fire Services, LLC (“Services”) is a

separate       corporation       wholly   owned    by   CYSA.        Bradley       Lomas

Electroluk      (“BLE”)     is    a   British     corporation       engaged      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.                        According to

       2
       We also deny the Sadeghian Parties’ separate motion to
amend the caption.

                                           5
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   of   BLE’s    products    in    the   United   States[,]

including        both    smoke     and     fire   curtains.”        J.A.   466   ¶    34.

Sadeghian        and    Christ     formed    Curtain    in    furtherance     of     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    in    [the   United   States].”

                                              6
J.A.   383     ¶    2.1.            The     CDA    defined         “Products”         as    including

“Electrically         Operated             Automatic         Smoke       and    Fire       Curtains,”

“Fixed    Smoke      and        Fire       Curtains,”        and     “Associated          equipment.”

J.A. 382, 403.             In another subsection of the CDA, BLE granted

Curtain      “the    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          applications,           and        all     other

associated BLE products.”                    J.A. 383 ¶ 2.2.

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

granted      Curtain           a    license       to     use       its    trademarks         for     the

promotion, advertising, and sale of its products.                                     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       such       pursuant     to    the       terms    of   a

separate license agreement.”                      J.A. 390 ¶ 10.5.

       Three       days    after          the     CDA    was    signed,        Sadeghian          formed

Services as a subsidiary of CYSA.                              BLE and Services signed a

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

agreed    to   act        as       BLE’s    “exclusive         distributor           to    import    and

distribute the Products” in the United States.                                   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

                                                    7
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   other   than     those        he   was    pursuing      on

Curtain’s behalf.         J.A. 361 ¶ 35.        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        the

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

                                       8
       On March 12, 2010, Christ filed a trademark application in

Curtain’s     name    for   “U.S.   Smoke       &    Fire    Curtain     Life    Safety,

Accessibility, Design Freedom.”                 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”      without      seeking        BLE’s        consent.         This

application     was     granted     and    registered           as    U.S.    Reg.    No.

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.                          Specifically,

                                           9
OSS alleges that the Sadeghian Parties infringed upon trademarks

belonging     to     Curtain--including            “Elevator    Shield”     and     “U.S.

Smoke     &   Fire       Curtain       Life       Safety,    Accessibility,       Design

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

four    through     eleven       of   the     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.                         OSS and Christ

responded      by       filing    five      counter-counterclaims         against     the

Sadeghian Parties.           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

                                              10
CYSA’s derivative counterclaims and CYSA’s request to judicially

dissolve Curtain.

       On September 16, 2011, the district court entered a single-

page   order    stating     that    the       court       was    “of    the    opinion      that

Summary     Judgment      should       be     GRANTED           to    Defendants      on     the

Complaint      and    GRANTED     to    Plaintiff/Counterdefendants                   on    the

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,    2011,      the         district       court   entered      its

memorandum      opinion    and    order.           First,       the    court    granted      the

Sadeghian      Parties’    motion       for        summary       judgment      as   to     OSS’s

fiduciary duty claims.             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          to    sue.        Moreover,      the    court

                                              11
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.                                 Next, the

court     evaluated       OSS’s    claims        regarding           its     then-pending

trademark       of     “U.S.    Smoke      &     Fire     Curtain          Life     Safety,

Accessibility, Design Freedom” under common law.                           The court held

that     the    infringement      claims       failed     because          the    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.                 Finally, OSS’s cybersquatting

claim    in    count    one    failed   because       Curtain        did    not     own   the

“www.ussmokeandfirecurtain.com” domain or website.

       The     court   next    turned   to      OSS     and    Christ’s          motion   for

summary judgment on the counterclaims.                        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

                                           12
the   requisite         written      demand      upon    Curtain      before       filing    its

derivative        counterclaims,           and    it    was    too    late    to    cure     the

defect.     As a result, the court granted OSS and Christ summary

judgment on the Sadeghian Parties’ derivative counterclaims.

      The    district          court’s      accompanying         order       dismissed       the

entire action.            On    December         23,   2011,    the    Sadeghian        Parties

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

judgment.         The    district      court       denied      the    Rule    59    motion    on

January     31,    2012,       and   the     Sadeghian        Parties      gave    notice     of

appeal on February 6, 2012.                   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    district       court     disposed      of    this    case       at   summary

judgment,     we        review       the    facts       and     reasonable         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   breach     of

fiduciary duty claims in the derivative complaint.                             OSS contends

that the district court failed to consider Sadeghian’s fiduciary

                                                 13
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)
                                14
      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    are   constrained      to    agree    with    OSS    that    the   district

court     erred   in    granting     summary      judgment      on     the   breach   of

fiduciary duty claims.

      A corporate officer owes the duties of “utmost good faith”

and   loyalty     to    his    corporation.         Feddeman       &   Co.   v.   Langan

Assocs., 530 S.E.2d 668, 673 (Va. 2000). 5                      An officer breaches

his   fiduciary        duty   to   his    company    if    he    diverts       corporate

opportunities to himself.                Today Homes, Inc. v. Williams, 634

S.E.2d 737, 742-43 (Va. 2006).                  An officer also cannot compete

with his own company.           Williams v. Dominion Tech. Partners, LLC,

576 S.E.2d 752, 757 (Va. 2003).                 The duty of loyalty is enforced

by    imposing     upon       officers     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.

                                           15
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

                                          16
curtains    precisely         because   Sadeghian      failed     to    disclose    the

opportunity.          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     when   the     opportunity     to    sell     smoke

curtains first arose.            A jury could further find that Sadeghian

was     bound    to    disclose     that     opportunity     to    Curtain       before

exploiting it for himself.              Accordingly, we vacate the district

court’s    judgment      as    to   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)
                                           17
                                     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.

                                     18
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     (S.D.N.Y.   1997)       (applying    the    rule      in    a    trademark

action).     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,    there    is    no    evidence    that      Services      licensed

Elevator    Shield     from    BLE,      and   therefore      the     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 third-

party beneficiary, Virginia law requires that they show that the

                                          19
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    argues      that    the        district      court      erred    in   granting

summary       judgment               on         the      claims        regarding             the

“www.ussmokeandfirecurtain.com”                   website     and    domain    name.        OSS

argues    that     the   court        ignored         evidence     showing    that     Christ

created the marks.           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   ACPA   and     the     Lanham        Act    obligate       a   plaintiff     to       show

ownership     of     a     valid          protectable        trademark,       among        other

requirements.       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

                                                 20
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               website         and       owns     a      registered

copyright    for     the    site.       Although        OSS       contends     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   that      the     district     court      erroneously           found    that    the

trademark application was rejected, as the trademark has been

registered with the U.S. Patent and Trademark Office.

                                             21
       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.                            Doughney,

263 F.3d at 364.                The district court concluded that there was

“no    evidence         to    support    the   proposition      that    [the    Sadeghian

Parties]         used        [‘U.S.    Smoke     &    Fire    Curtain    Life    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       court    erred       in   dismissing    their   counter-

counterclaims.           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.

                                               22
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   derivative     claims       that       could    only        be    asserted     by

Curtain.    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     they       arise        out        of    the   same

transaction or occurrence.          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.                              Fed. R. Civ.

P. 15(a)(2).      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    and   Christ    attempted         to    bring        claims       against     the

Sadeghian   Parties   for    (1)    breach          of     the    COA,       (2)    tortious

                                         23
interference       with   Curtain’s    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.                        See

J.A. 1071-76.        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.                 Id. at 675. 8

     We     agree    with    the   district     court    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.

                                         24
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   the   cross-appeal,       which   presents    three

issues for our review.         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.        Second, the Sadeghian Parties contend that the

district    court    erred    in    dismissing    sua   sponte   their     direct

counterclaims with prejudice.                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.

                                        25
                                        A.

      OSS and Christ question our jurisdiction over the cross-

appeal,   arguing    that    the    Sadeghian    Parties        failed       to   file a

timely notice of appeal.           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.                        As a result,

the   Sadeghian      Parties       assert     that     their     Rule        59   motion

successfully tolled the deadline for filing the appeal.

      We hold that we have jurisdiction to consider the cross-

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

A   timely   Rule    59   motion,    however,        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.                     Fed. R. App. P.

4(a)(4)(A)(iv).       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).

                                        26
        “[A]n       order    is    final     if    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).                              Additionally,

“removal       of     a     case   from    a      court’s       ‘active   docket’      is     the

functional equivalent of an administrative closing, which does

not     end     a    case     on    its    merits       or     make    further   litigation

improbable.”          Mapp, 521 F.3d at 295.                    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     September      16    order        did     not    constitute    a    final

judgment       for     two    reasons:         First,     the     order    did   not     “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

                                                  27
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    were   antagonistic        to    Curtain,       as   evidenced      by   the

Sadeghian     Parties’     motion       for     summary       judgment      on    OSS’s

derivative     complaint        as    well      as    the     Sadeghian       Parties’

counterclaims.      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.       Accordingly, the court granted OSS and Christ

summary      judgment     and        dismissed       the      Sadeghian       Parties’

counterclaims.

                                         28
       As an initial matter, a review of the Sadeghian Parties’

counterclaim reveals that the parties intended to assert direct

as well as derivative claims.                  The pleading explicitly states

that     CYSA     brought     certain    claims    “on    its    own       behalf   and

derivatively.”       J.A. 86.      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

                                          29
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   the     individual

defendants are represented by the same counsel.                  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

                                          30
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        to     Curtain       and    usurped     Curtain’s        business

opportunities,         but        the    Sadeghian       Parties’    responses        to     the

allegations         asked    the        district      court   to   invalidate        Curtain’s

intellectual property and contractual rights.                              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       CYSA’s       derivative       counterclaims      in    light      of    the

conflict       of    interest.            Rule   23.1    states     that   a     “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

                                                 31
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       “plaintiff’s             vindictiveness           toward       the

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

288   (applying       Davis    factors          to    determine        fair    and    adequate

representation under Virginia law).

      In   this     case,      the       Sadeghian         Parties’     defenses        to   the

derivative     complaint       sought       to       invalidate      Curtain’s        trademark

and   contract      rights,        creating      an     economic       antagonism       between

CYSA and Curtain.          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.                                  Finally,

given   the    pending      litigation           between       the     parties--i.e.,        the

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

reasonable      for     the        district          court    to     conclude        that    the

derivative      counterclaims            were    likely        filed    as     a     vindictive

response.

      In sum, because of the conflict of interest between Curtain

and   CYSA,    as   well      as    CYSA’s       failure       to    pass     the    “fair   and

adequate      representation”            test,       the     district       court     correctly

                                                32
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      court         should    have

dismissed these claims without prejudice.                    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   order   or    its     memorandum      opinion.         OSS    and     Christ

respond     that    the    district       court     properly     granted          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      CYSA       from   representing          Curtain        in    a

derivative suit.          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.

                                          33
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   to     make     the    relevant   distinction.      Some     of   the

claims     are       clearly     derivative,       see   Count    VIII   (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    and      II,     alleging    copyright     infringement      and

cybersquatting        as    to   ussmokeandfirecurtain.com,         because     CYSA,

rather than Curtain, owned the website.                  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.

                                            34
                                               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.                                See Va.

Code     § 13.1-1047             (providing     that        a      claim     for     judicial

dissolution of a limited liability company may be brought by any

of     its    members).             They     also        contend    that      the    judicial

dissolution         claim     is    properly        in    federal    court       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),

                                               35
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.                     See Ross

v.   Commc’ns   Satellite     Corp.,    759   F.2d   355,     363-64   (4th    Cir.

1985)   (refusing     to    independently      determine       whether      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).             We also vacate and remand

                                        36
the   district     court’s    dismissal    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