The Sixth Circuit held that the Bankruptcy Code’s automatic stay of proceedings against a bankruptcy debtor commenced before a bankruptcy petition, 11 U.S.C. § 362(a)(1), would not protect a debtor from complying with an injunction based on trademark infringement. Dominic’s Rest. of Dayton, Inc. v. Mantia, ___ F.3d ___, No. 10-3376, 10-3377, 2012 WL 2580741 (6th Cir. July 5, 2012).

Dominic Mantia and his son and daughter-in-law, Dick and Anne Mantia, operated an Italian restaurant called “Dominic’s” for 50 years in Dayton, Ohio. After the restaurant closed, Anne Mantia continued to market sauces and other products under the name “Dominic’s Foods of Dayton.” In 2007, Christie Mantia, Dominic Mantia’s granddaughter, started a new restaurant with Reece Powers and Harry Lee. Their pre-opening publicity promised to “bring back the original Dominic’s recipes.” Id. at *1.

Plaintiffs Anne Mantia and Dominic’s Foods of Dayton, Inc. brought an action against Defendants Christine Mantia, Powers, and Lee in the Southern District of Ohio for trademark infringement, trademark dilution, and various state law claims. The district court issued a temporary restraining order (“TRO”) directing the defendants to refrain from using the “Dominic’s” name and marks. After the defendants violated the TRO, the district court issued a contempt order and broadened its TRO to require the defendants to cease operating the restaurant. The district court later issued a preliminary injunction continuing the TRO’s ban on use of the “Dominic’s” mark and name and enjoined the defendants from opening the restaurant unless it used a court-approved menu. When the defendants violated the preliminary injunction, district court again found the defendants in contempt ordered them to close their restaurant. Id. at *1-2.

The defendants failed to respond to discovery and continued to operate the restaurant with an unapproved menu and a website referencing Dominic’s. Thus, the plaintiffs filed a motion for default judgment and another contempt motion. Defendant Powers responded by filing a Chapter 13 bankruptcy petition and argued that the proceedings were automatically stayed and the court could not rule on the motions. The district court concluded that the Bankruptcy Code’s automatic stay did not apply and granted default judgment and the contempt motion against Powers. Id. at *2-3.

The Sixth Circuit upheld the district court’s ruling that the Bankruptcy Code’s stay did not apply. While the Bankruptcy Code stays judicial proceedings that were commenced against the debtor prior to a bankruptcy action, 11 U.S.C. § 362(a)(1), it does not protect tortious uses of property by a debtor. Particularly persuaded by the history of multiple contempt findings, the Sixth Circuit reasoned that the application of the automatic stay would permit Powers to continue to use his restaurant to commit a tort, specifically the tort of trademark and service mark infringement. Id. at *3-4.

Lesson Learned: While a bankruptcy petition will bar a plaintiff seeking to enforce intellectual property rights from obtaining damages, a district court can proceed with injunctive relief, particularly where the court has already made preliminary findings of infringement.