Rather than allow for a “curious and contradictory” outcome of a multiple-defendant trial, a Federal Court judge in Mövenpick v. Inter-Management Services Limited et al. (2009 FC 358) stayed proceedings against a bankrupt defendant that had been noted in default, denying a motion by the plaintiff for default judgment.

Mövenpick claimed ownership of two trade-marks (registrations #460114 and #416921) for “Marché” in use associated with the operation of restaurants.

They had subsequently sued Inter-Management (IMSL) and co-defendants Gastro International in 2005, along with Hans and Marianne Reichert (individual defendants that were directors of both corporations), for violating Mövenpick’s trademark rightsby operating a restaurant under the name “Innisfil HeightsMarché”, and allegedly causing confusion with Mövenpick’s marks, which the defendants argued were invalid due to descriptiveness of their wares (under s. 12(1)(b) of the Trade-marks Act) and lack of distinctiveness under s. 18.

Due to IMSL’s declaration of bankruptcy during the proceedings, the suit was stayed until February 2008, when an order lifting the stay was granted by the Ontario Superior Court of Justice. After further un-cooperative behaviour on the part of IMSL and the other defendants, Movenpick filed in December 2008 to strike the defendants’ pleadings for abuse of process, a motion that was granted in part by a prothonotary of the Federal Court – IMSL’s pleadings were struck and they were noted in default, but Gastro were given leave to refile a Statement of Defence.

This division between the fates of the corporate defendants was at the root of the decision: while a default judgment would ordinarily be uncontroversial against a bankrupt defendant that had been foreclosed from defending themselves, the sole factual basis for such would be Mövenpick’s ownership of the trademarks that would still be at issue in the pending proceeding against Gastro and the Reicherts, which the court saw as a “genuine controversy”. While the Court noted that a default judgment against IMSL would not prevent a later judgment in favour of their co-defendant Gastro on the actual merits of the case, they still did not see such a divided outcome as desirable, or necessary given the “inactive” status of IMSL, and instead chose to indefinitely stay the proceedings against them, pending the resolution of the action against their co-defendants.