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Merchant Capital, LLC v. Melania Marks Skincare, LLC

United States District Court, S.D. Indiana, Indianapolis Division

August 27, 2014



JANE MAGNUS-STINS, District Judge.

Presently pending before the Court is Plaintiff/Counterclaim Defendant Merchant Capital, LLC's ("Merchant Capital") Motion to Reconsider. [Filing No. 96.]



The Court summarizes the background of this litigation, which is set forth in its Findings of Fact and Conclusions of Law issued after a three-day bench trial in November 2013. [Filing No. 94.]

In late 2010 or early 2011, Plaintiff New Sunshine, LLC ("New Sunshine") approached Melania Trump, a member of Defendant Melania Marks Skincare, LLC ("Melania Marks"), to discuss the possibility of forming a business relationship to develop and market high-end skincare products. Stephen Hilbert, New Sunshine's then Chief Executive Officer, knew Ms. Trump from previous business contacts with her husband, Donald Trump, and from occasional contacts through the years.

Formal negotiations began in 2011, and the parties decided to proceed under a licensing arrangement in which New Sunshine or a related entity would be the licensee and Ms. Trump or a company she would control would be the licensor. During the negotiation process, Melania Marks sought information regarding the ownership and/or control of New Sunshine. New Sunshine's organizational structure is reflected in the chart below, and the information provided in response to Melania Marks' inquiries did not show any actual or impending changes in New Sunshine's ownership or control.

Meanwhile, unbeknownst to Ms. Trump or anyone at Melania Marks who was involved in negotiating the licensing arrangement, Merchant Capital - which is owned and controlled by Menard, Inc. ("Menard") - and Mr. Hilbert were involved in an increasingly bitter business dispute by the summer of 2012. Subsequently, Menard's corporate legal manager and Merchant Capital's legal advisor sent two letters to Mr. Hilbert which purported to remove him from various positions at entities "upstream" from New Sunshine in its organizational structure.

The parties ultimately signed a License Agreement on November 1, 2012. On November 27, 2012, Merchant Capital and two private equity funds in New Sunshine's organizational structure ("Fund I" and "Fund II") filed suit against Mr. Hilbert and two entities upstream from New Sunshine ("Managing Member I" and "Managing Member II") in the Circuit Court of Eau Claire County, Wisconsin. Based on the purported removal of Mr. Hilbert from positions at entities upstream from New Sunshine, Merchant Capital, Fund I, and Fund II sought a temporary injunction enjoining Mr. Hilbert, Managing Member I, and Managing Member II from acting on behalf of Fund I or Fund II. Meanwhile, New Sunshine and Melania Marks proceeded to perform their respective obligations under the License Agreement.

On March 5, 2013, the newly-appointed Chief Executive Officer of New Sunshine sent an email to Ms. Trump stating: "As you probably have heard by now there have been some changes recently at New Sunshine, LLC. I want to assure you that we are confident that these changes will be unnoticed and your product launch will receive the required backing and utmost attention." Ms. Trump responded that same day via email, stating "Thank you for your kind note! We are very close to a launch date - very exciting - and I am sure all will go as planned. Looking forward to working with you and please do not hesitate to call me or e mail me if you have any questions. Hope to see you in NY in April."

On March 13, 2013, the Wisconsin State Court memorialized a February 19, 2013 oral ruling by issuing an Order granting Merchant Capital's, Fund I's, and Fund II's Motion for Temporary Injunction and stating:

[Mr.] Hilbert and [Managing Member I] are enjoined, until further Order of this Court, from: (i) serving and acting as Chief Executive Officer, President, and Manager of [Fund I], and from undertaking any act or exercising any power or right in such capacity, including, but not limited to, operating or managing Fund I or any of its investments and assets, which include the Subsidiaries or Portfolio Companies (as those terms are defined in the Operating Agreement of Fund I); and (ii) representing that they are, or otherwise holding themselves out as, the Chief Executive Officer, President, or Manager of Fund I or any of its Subsidiaries or Portfolio Companies....

The Order contained a nearly identical provision relating to Managing Member II and Fund II. It also provided that "[Managing Member I], [Managing Member II], and [Mr.] Hilbert shall turn over management of Fund I and Fund II to Merchant Capital, which has been appointed the Manager of Fund I and Fund II pursuant to the Fund I and Fund II Operating Agreements."

In March 2013, Merchant Capital's manager and sole employee and New Sunshine's Chief Executive Officer, reviewed New Sunshine's outstanding agreements, including the License Agreement. Based on that review, they recommended that Merchant Capital declare the License Agreement void so that it could be renegotiated on new terms more favorable to New Sunshine. On March 15, 2013, Menard's corporate legal manager and Merchant Capital's legal advisor emailed several ...

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