Holmes v. Lerner

Facts

D is a successful entrepreneur and an experienced business person. She and her husband were the original founders of Cisco Systems. When she sold her interest in that company, she invested in a venture capital limited partnership called '& Capital Partners.' P met D in late 1993 to matters related to horse training. After an initial six-month contract for training horses expired, P continued to train D's horses without a contract and without cost. In 1995, P took a manicuring kit and developed her own color for nail polish by layering a raspberry color over black nail polish. This produced a purple color that P liked. P showed the new color to D, who also liked it. They eventually discussed nail polish, and colors while Bosack (D), D's husband, was in and out of the room during the conversations. They tried to recreate the purple color P had made previously. D made a different shade of purple, and P commented that it looked just like a bruise. P then said that she wanted to call the purple color she had made 'Plague.' They discussed other names and Bosack (D) they use something with decay. P and D decided that 'Urban Decay' was a good name for their concept. They discussed starting a company. D told P that market research would have to be done and they would hire people, so they still had time to ride horses. P agreed that they would do those things. They did not separate out which tasks each of them would do but planned to do it all together. D called & Capital, and her business consultant. P heard her say 'Please check Urban, for the name, Urban Decay, to see if it's available and if it is, get it for us.' The telephone call to secure the trademark for Urban Decay confirmed in P's mind that they were forming a business based on the concepts they had originated in England and at the kitchen table that day. D's housekeeper heard D tell P: 'It's going to be our baby, and we're going to work on it together.' After P left, the housekeeper asked what gave D the idea to go into the cosmetics business, since her background was computers. D replied: 'It was all P's idea over in England, but I've got the money to make it work.' D told her housekeeper that she hoped to sell Urban Decay to Estee Lauder for $50 million. They began work on their idea immediately. P and D did market research by going to stores, talking with people about nail polish, seeing what nail polishes were available, and buying samples to bring back to discuss with each other. They met frequently and experimented with nail colors. They took pictures of various color mixing sessions. They met with a graphic artist, Andrea Kelly, and discussed putting together a logo and future advertising work for Urban Decay. P was concerned about financing the venture. D told her not to worry about it because D thought they could convince anyone that the nail polish business would be a good investment. She told P that & Capital Partners took care of her investment money. They attended meeting with others and referred to them as 'board meetings,' even though there was no formal organizational structure, and technically, no board. & Capital Partners reluctantly agreed to commit $500,000 towards the project. Neither P nor D invested any of their individual funds. They went to Kirker Chemical Company and learned about mixing and manufacturing nail polish colors. D returned to Kirker, but she never took P with her. Wendy Zomnir presented advertising and marketing concepts, and they decided to hire her. At the conclusion of the September board meeting, after P had left, D and Soward secretly made Zomnir an offer of employment, which included a percentage ownership interest in Urban Decay. A couple of meetings later P learned that Zomnir was the 'Chief Operating Officer' of Urban Decay. When she learned of the secret offer P asked D to define her role at Urban Decay. D responded: 'Your role is anything you want it to be.' When P asked to discuss the issue in more detail, D turned and walked away. At their regular board meetings, P participated with Soward, D, Zomnir, Kelly and another person in discussing new colors, and deciding which ones they wanted to sell, and which names would be used.  Soward signed an application for trademark registration as president of Urban Decay. Urban Decay was incorporated. P asked for a copy of the articles of incorporation but was given only two pages showing the name and address of the company. P decided to press for specific information. Soward tried to pay her a finder’s fee and scoffed at the idea of her having 50% of the company. P wanted something in writing, but D basically shined her on and told her to make her own way or get out of the way. P took the bait and worked twice as hard and worked in the warehouse without compensation. P had authority to hire and fire employees and to sign checks on the Urban Decay account. Urban Decay accountant Sharon Land testified that P 'contributed a great deal' to Urban Decay and directed the retail business. Soward, Lerner, and Zomnir seldom came to the office. Soward told Land that P was on the board of directors. P continued to attend board meetings and was told repeatedly she was a director. P received a document from Soward offering her a 1 percent ownership interest in Urban Decay. P then realized she was now being asked to become a minor partner. As late as the April board meeting, Ps was still actively engaged in Urban Decay business. Matters deteriorated to the point that Soward told P not to attend the July board meeting because she was no longer welcome at Urban Decay. P sued Ds. D and Soward claimed that Ps was never a director, officer, or even an employee of Urban Decay. D denied P had any role in creating the colors, names, or concepts for Urban Decay. D explained her statements to the press regarding Urban Decay being P's idea as misquotes or the product of her stress. The jury found in favor of Holmes on every cause of action. Ds appealed.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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