Opinion
CASE NO. 09-60793-CIV-DIMITROULEAS.
August 13, 2009
ORDER GRANTING PRELIMINARY INJUNCTION
THIS CAUSE is before the Court upon the Plaintiffs' Motion for Preliminary Injunction [DE-2]. The Court has carefully considered the Motion, Defendant's Response with exhibits [DE-17] and Affidavit of Asif Ali [DE-16], Plaintiffs' Reply with exhibits [DE-18], the Notice of Plaintiffs of filing the Deposition of Jack Laudermilk [DE-19], and is otherwise fully advised in the premises.
The Court notes that Defendants originally filed a Response [DE-15] on July 21, 2009 and then refiled it on July 22, 2009, with exhibits attached.
I. BACKGROUND
Plaintiffs (collectively referred to as "Dunkin'") filed the above-styled action on May 28, 2009, bringing claims for breaches of franchise agreements, breach of personal guarantees, trademark and trade dress infringement, and unfair competition. They seek declaratory judgment, injunctive relief, and damages, as well as costs and attorneys' fees. They filed an Amended Complaint [DE-9] and subsequently, a Second Amended Complaint [DE-20-2]. This Court has jurisdiction pursuant to 28 U.S.C. §§ 1331, 1332(a), 1338, and 1367(a), §§ 34(a) and 39 of the Lanham Act, and 15 U.S.C. § 1116(a).
Dunkin' Donuts Franchised Restaurants LLC (DDFR), successor-in-interest to Dunkin' Donuts Incorporated and Dunkin' Donuts, LLC, is a Delaware limited liability company with its principal place of business in Canton, Massachusetts. All Dunkin' Donuts Franchise Agreements dated prior to May 26, 2006, have been assigned to DDFR. DDFR is engaged in the business of franchising independent business persons to operate Dunkin' Donuts shops throughout the United States. Dunkin' Donuts Franchising LLC ("DDF") is a Delaware limited liability company with its principal place of business in Canton, Massachusetts. It too is engaged in the business of franchising independent business persons to operate Dunkin' Donuts shops throughout the United States. DD IP Holder LLC ("DDIP") is the successor-in-interest to Dunkin' Donuts USA, Inc. It is a Delaware limited liability company with its principal place of business in Canton, Massachusetts.
DD IP Holder LLC is the owner of the trademark, service mark, and trade name "Dunkin' Donuts" and related marks (collectively "Dunkin' Donuts Marks"). DDIP has the exclusive license to use and license others to use the Dunkin' Donuts Marks, and has used them continuously since approximately 1960 to identify its doughnut shops, and the doughnuts, pastries, coffee and other products associated with those shops. It owns numerous federal registrations for the Dunkin' Donuts Marks, which are in full force and effect. DDFR and DDF franchisees are licensed to use the trade names, service marks, and trademarks of Dunkin' Donuts and to operate under the Dunkin' Donut system. There are approximately 5,600 shops in the United States and 2,000 shops outside the United States. The shops feature the distinctive Dunkin' Donuts' trade dress, including the pink and orange color scheme and frankfurter lettering style.
Defendant Fatima Ali, Inc. ("FAI") is a Florida corporation with its principal place of business in Deerfield Beach, Florida. At all times relevant to this action, it was the owner and operator of a retail doughnut shop located at 1200 E. Hillsborough Blvd., Deerfield Beach, Florida 33441, pursuant to a Franchise Agreement dated March 14, 1996. Defendant Yasmin Ali, Inc. ("YAI") is a Florida corporation with its principal place of business in Deerfield Beach, Florida. At all times relevant to this action, it was the owner and operator of a retail doughnut shop located at 811 SE 10th Street, Deerfield Beach, Florida 33441, pursuant to a Franchise Agreement dated January 3, 2006. Defendant A. and H. 2 LLC ("AH2") is a Florida corporation with its principal place of business in Deerfield Beach, Florida. At all times relevant to this action, it was the owner and operator of a retail doughnut shop located at 4499 North University Drive, Lauderhill, Florida 33351, pursuant to a Franchise Agreement dated October 26, 2006. Defendant A. and H. 3 LLC ("AH3") is a Florida corporation with its principal place of business in Deerfield Beach, Florida. At all times relevant to this action, it was the owner and operator of a retail doughnut shop located at 1101 S. Powerline Road, Deerfield Beach, Florida 33442, pursuant to a Franchise Agreement dated December 13, 2006. Defendant Ashiq Ali is a natural person and resident of the State of Florida. Ashiq Ali is a shareholder of FAI and YAI, a member of AH2 and AH3 and personally guaranteed the obligations of those entities. Defendant Asif Ali is a natural person and resident of the State of Florida. Asif Ali is a shareholder of FAI and YAI, a member of AH2 and AH3 and personally guaranteed the obligations of those entities. Defendant Yasmin Ali is a natural person and resident of the State of Florida. Yasmin Ali is or was a member of YAI and personally guaranteed the obligations of that entity.
Defendants entered into Dunkin' franchises on the dates detailed above. As franchisees, they were granted a license to use the Dunkin' Donuts trademark. In return, Defendants were obligated to pay certain fees to Dunkin'. The Franchise Agreements (attached as exhibits to the Affidavit of Gary Zullig, filed with the Complaint and Motion for Preliminary Injunction [DE-3]), are virtually identical. Pursuant to their Franchise Agreements, Defendants were required to pay weekly franchise fees, weekly advertising fees, and other amounts. Failure to make these payments in a timely manner would constitute a default under the Franchise Agreement. In the case of such a default, Dunkin' was required to give Defendants written notice and a seven day "cure period" within which to cure the default. Failure by Defendants to cure the default before the expiration of the cure period would allow Dunkin', upon written notice, to terminate the Franchise Agreement.
Upon such a termination, the Franchise Agreement also contained many provisions relating to the continued use of trademarks. Specifically, the Franchise Agreement provided that: (1) "Upon any termination or expiration of this Agreement . . . Franchisee shall immediately cease to use . . . any methods associated with the name "Dunkin' Donuts," any or all of the Proprietary Marks [of Dunkin' Donuts]."); (2) "[A]ny unauthorized use or continued use after the termination of this Agreement shall constitute irreparable harm subject to injunctive relief"; and (3) "Continued use by Franchisee of Dunkin' Donuts' trademarks, trade names, Proprietary Marks, and service marks after termination of this Agreement shall constitute willful trademark infringement by Franchisee."
II. DISCUSSION
A. STANDARD OF REVIEW
A district court has broad discretion in granting or denying a preliminary injunction. Sierra Club v. Georgia Power Co., 180 F.3d 1309, 1310 (11th Cir. 1999); United States v. Lambert, 695 F.2d 536, 539 (11th Cir. 1983). In order to obtain a preliminary injunction, the plaintiff must establish (1) a substantial likelihood that plaintiff will prevail on the merits of the underlying cause of action; (2) a substantial threat that plaintiff will suffer irreparable injury if the injunction is not granted; (3) that the threatened injury to plaintiff outweighs the threatened harm the injunction may have on the defendant; and (4) that public interest will not be adversely affected by granting the preliminary injunction. KH Outdoor, LLC v. City of Trussville, 458 F.3d 1261, 1268 (11th Cir. 2006); Alabama v. U.S. Army Corps of Eng'rs, 424 F.3d 1117, 1128 (11th Cir. 2005);Davidoff Cie, S.A. v. PLD Int'l Corp., 263 F.3d 1297, 1300 (11th Cir. 2001). A "preliminary injunction is an extraordinary and drastic remedy not to be granted until the movant clearly establishe[s] the burden of persuasion as to each of the four prerequisites." Siegel v. LePore, 234 F.3d 1163, 1176 (11th Cir. 2000) (quoting McDonald's Corp. v. Robertson, 147 F.3d 1301, 1306 (11th Cir. 1998)) (internal quotations omitted).
Defendants argue that the relief requested is mandatory, not prohibitive, and seeks to change the status quo, as it would require them to drastically change the character of their stores. Therefore, Plaintiffs face a higher burden and must establish a clear likelihood of success on the merits. However, as Plaintiffs point out, the Eleventh Circuit has rejected this argument. In McDonald's Corporation v. Robertson, 147 F.3d 1301, n. 2 (11th Cir. 1998), the Eleventh Circuit held that an injunction prohibiting a franchisee from operating a specific restaurant and from using trademarks was prohibitory, not mandatory, as it restrained action. The Court also noted that "trademark actions `are common venues for the issuance of preliminary injunctions.'" Id. at 1310 (citingFoxworthy v. Custom Tees, Inc., 879 F. Supp. 1200, 1219 (N.D. Ga. 1995)). Thus, the Court will examine each of the requirements under the standard described above.
B. ANALYSIS
1. Likelihood of Success
a. Breach of Contract
Dunkin' has established a likelihood of success on the merits of its claim for breach of contract. Pursuant to the Franchise Agreement, the breach of contract claims are governed by Massachusetts law. To establish a breach of contract claim under Massachusetts law, plaintiff must show that: (1) the parties reached a valid and binding agreement; (2) defendant breached the terms of the contract; and (3) plaintiff suffered damages from the breach. Coll v. PB Diagnostic Sys., Inc., 50 F.3d 1115, 1122 (1st Cir. 1995). The Franchise Agreement between Dunkin' and the Defendants provides that, upon Defendants' failure to pay their financial obligations, Dunkin' could provide them with written notice that they should cure the problem. If the Defendants failed to cure the problem within the applicable period, Dunkin' could consider the Franchise Agreement breached and, upon written notice, terminate it.
There is no dispute that the parties reached valid and binding agreements in the Franchise Agreements. As admitted, Defendants failed to make timely payments. Dunkin' then gave them an opportunity to cure that default, which they failed to do, and thus, Dunkin' appropriately terminated the Franchise Agreement. However, Defendants continued to operate their shops as if they were franchises, in violation of the Agreement. Plaintiffs have suffered damages by way of the non-payment and the unauthorized use of their trademarks and trade dress.
Defendants argue, however, that Dunkin' Donuts has waived its breach of contract claims because it did not immediately terminate the franchise rights. Instead, Plaintiff continued to treat Defendants' shops as being in good standing, without the payment of franchise fees until March 2009. "Under Massachusetts law, the burden of proving waiver is upon the party who makes the assertion. In order to establish waiver, the party must show clear, decisive and unequivocal conduct indicating that the opposing party would not insist that the contractual provision at issue be performed." Brennan v. Carvel Corp., 929 F.2d 801, 810 (1st Cir. 1991) (internal citations omitted). This is an "uncompromising" standard. Paterson-Leitch Co. v. Mass. Mun. Wholesale Elec. Co., 840 F.2d 985, 992 (1st Cir. 1988). Here, though the Plaintiffs allowed for some nine months of non-payment, they did then send the required notices of default and allowed an opportunity to cure. Additionally, the parties agreed in the Franchise Agreements (§ 13.0) that such conduct does not constitute a waiver. The Notices to Cure and of Termination also informed Defendants that Dunkin' was not waiving any of its rights. Therefore, Defendants have not pointed to clear and unequivocal evidence that would support a waiver by Dunkin'. See Dunkin' Donuts Franchised Restaurants LLC v. Cardillo Capital, Inc., 2007 WL 2209245, *4 (M.D. Fla. July 30, 2007); Dunkin' Donuts, Inc. v. Liu, 2000 WL 1868386, *3 (E.D. Pa. Dec. 21, 2000).
Defendants also argue that Plaintiff has unclean hands as it revoked a previous approval for a fourth location, for which Defendants had already spent $189,000.00. This caused Defendants the financial hardship that led to their being unable to stay timely with their payments to Plaintiff. However, a franchisor's right to terminate a franchisee "exists independently of any claims the franchisee might have against the franchisor,"McDonald's, 147 F.3d at 1309 (quoting S R Corp. v. Jiffy Lube Int'l, Inc., 968 F.2d 371, 375 (3d Cir. 1992)); see also, Liu, 2000 WL 1868386 at *4. Therefore, Defendants can assert their own claim against Dunkin' but cannot rely on Dunkin's wrongdoing to avoid the consequences of their own non-performance. Accordingly, the Court finds that plaintiffs have established a substantial likelihood of success on their breach of contract claims.
b. Infringement
The Court also finds that Plaintiffs have established a likelihood of success on their infringement claims as well. The Lanham Act, 15 U.S.C. § 1051 et seq., prohibits infringement of trademarks, trade names, and certain unfair competition. 15 U.S.C. § 1114(1) (infringement), § 1125(a) (unfair competition). To show a substantial likelihood of success on the merits of its trademark infringement claim the Plaintiff must show: "(1) that it has trademark rights in the mark or name at issue . . . and (2) that the defendant adopted a mark or name that was the same, or confusingly similar to the plaintiff's mark, such that there was a likelihood of confusion for consumers as to the proper origin of the goods [or services] created by the defendant's use of the . . . name . . ." Ferrellgas Partners, L.P. v. Barrow, 143 Fed. Appx. 180, 186 (11th Cir. 2005) (citing Conagra, Inc. v. Singleton, 743 F.2d 1508, 1512 (11th Cir. 1984)); see also,Davidoff, 263 F.3d at 1300-01 (quoting Robertson, 147 F.3d at 1307).
Trade dress is a category of trademarks that involves the "total image of a product," including "features such as size, shape, color or color combinations, texture, graphics, or even particular sales techniques." Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 764 n. 1 (1992). Trade dress encompasses even a product's design. Wal-Mart Stores, Inc. v. Samara Bros., Inc., 529 U.S. 205, 209 (2000). To establish trade dress infringement, it must be shown that 1) the trade dress is inherently distinctive or has acquired secondary meaning; 2) that the trade dress is primarily non-functional; and 3) that the defendant's trade dress is confusingly similar. Ambrit, Inc. v. Kraft, Inc., 812 F.2d 1531, 1535 (11th Cir. 1986). Moreover, "[t]he difference between trade dress and trademark is no longer of importance in determining whether trade dress is protected by federal law."Aromatique, Inc. v. Gold Seal, Inc., 28 F.3d 863, 868 (8th Cir. 1994).
It is well established that "falsely suggesting affiliation with the trademark owner in a manner likely to cause confusion as to source or sponsorship constitutes infringement." Prof'l Golfers Ass'n of Am. v. Bankers Life Casualty Co., 514 F.2d 665, 670 (5th Cir. 1975); see also, Control Components, Inc. v. Valtek, Inc., 609 F.2d 763, 770 (5th Cir. 1980). "Thus, a trademark infringement case need not just involve imitation of the registrant's mark. The unauthorized use of a trademark which has the effect of misleading the public to believe that the user is sponsored or approved by the registrant can constitute infringement." Burger King Corp. v. Mason, 710 F.2d 1480, 1491-1492 (11th Cir. 1983) (citing Professional Golfers Ass'n, 514 F.2d at 670).
The Eleventh Circuit, in Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), adopted as binding precedent all decisions of the former Fifth Circuit rendered prior to October 1, 1981.
Here, it is undisputed that Plaintiffs own the Dunkin' Donuts Marks and trade dress and that Defendants continued to use them after termination, without consent. It undisputed that the trade dress is inherently distinctive and/or has acquired secondary meaning and is primarily nonfunctional. It is also clear that using the Dunkin' Donuts Marks is likely to cause confusion among consumers, who will wrongly believe Defendants to be operating a franchised Dunkin' Donuts shop. S R Corp., 968 F.2d at 375;Mason, 710 F.2d at 1492-93. Consumers will thus be led to believe that Dunkin' endorses Defendants' operation of their shops.Mason, 710 F.2d at 1493.
Defendants argue, however, that Plaintiffs have a policy of allowing terminated franchisees to continue to use their marks pending a judicial determination. Defendants point to a deposition transcript from another case in New York. However, this simply establishes that at times Dunkin' chooses to seek injunctive relief pending suit and other times it waits for the litigation to run its course — it makes a business and litigation decision on a case-by-case basis. The Court does not find that this constitutes a waiver, especially given that the Franchise Agreement provides for a non-waiver of the provisions.See Burger King Corp. v. Lee, 766 F. Supp. 1149 (S.D. Fla. 1991) (allowing distributors to provide food to franchisee pending litigation did not constitute a waiver of termination franchise agreement; to otherwise find would run the risk of the plaintiff's marks being associated with potentially inferior products). Accordingly, the Court finds that plaintiffs have established a substantial likelihood of success on their trademark/trade dress infringement and unfair competition claims.See Cardillo, 2007 WL 2209245 at *5; Liu, 2000 WL 1868386 at *3.
2. Irreparable Harm
Irreparable harm means injury for which a monetary award cannot be adequate compensation. Cunningham v. Adams, 808 F.2d 815, 821 (11th Cir. 1987). "Although economic losses alone do not justify a preliminary injunction, the loss of customers and goodwill is an irreparable injury." BellSouth Telecomms., Inc. v. MCIMetro Access Transmission Services, LLC, 425 F.3d 964, 970 (11th Cir. 2005) (quotation omitted); Variable Annuity Life Ins. Co. v. Joiner, 454 F. Supp. 2d 1297, 1304 (S.D. Ga. 2006). In addition, the Eleventh Circuit has stated that "a sufficiently strong showing of likelihood of confusion [caused by trademark infringement] may by itself constitute a showing of . . . [a] substantial threat of irreparable harm." Davidoff, 263 F.3d at 1304 (quoting McDonald's Corp., 147 F.3d at 1310).
The Court would note that in North American Medical Corporation v. Axiom Worldwide, Inc., 522 F.3d 1211, 1227-29 (11th Cir. 2008), the Eleventh Circuit discussed the ramifications of eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) on the irreparable harm presumption as the Supreme Court had rejected applying categorical rules in granting injunctions. The Eleventh Circuit, however, declined to decide whether a district court could hold that trademark infringement gives rise to a presumption of irreparable injury — in other words, whether that would be the equivalent of the categorical rules rejected by the Supreme Court. Id. at 1228. The Eleventh Circuit noted that a district court could reach a decision without the benefit of the presumption "or it may well decide that the particular circumstances of the . . . case bear substantial parallels to previous cases such that a presumption of irreparable injury is an appropriate exercise of its discretion in light of the historical traditions." Id. (citing eBay, 547 U.S. at 394-97 (concurring opinions of Chief Justice Roberts and Justice Kennedy)). However, here, the Court is not simply granting the injunction "automatically, follow[ing] a determination that [there has been a likelihood the trademarks have been] infringed." eBay, 547 U.S. at 392-93. The Court is engaging in an analysis of the equitable balancing of the factors, though it notes that the establishment of the likelihood of confusion does weigh strongly in finding irreparable harm.
Although the instant case does involve monetary damages, Dunkin' has also established other injuries that would be irreparable. For example, because Defendants continue to use Dunkin's marks after Dunkin' terminated the Franchise Agreement, Dunkin' will lose control of its reputation, trade and goodwill among its customers. See, e.g., S R Corp., 968 F.2d at 377;Cardillo, 2007 WL 2209245 at *1; Liu, 2000 WL 1868386 at *4. Business will also be diverted away from licensed Dunkin' franchisees. These damages are sufficiently irreparable. Moreover, the Franchise Agreement itself states that use of Dunkin's marks in such a manner would constitute irreparable injury.
Defendants argue that the allegations of irreparable harm are speculative and illusory. However, the unauthorized use of licensed trademarks, the resulting loss of control over those marks, and damage to a long-established goodwill and reputation do not strike the Court as speculative and illusory. The Court finds that Plaintiffs have demonstrated irreparable injury warranting a preliminary injunction.
3. Balance of Potential Harms and Public Interest
In determining whether to impose a preliminary injunction, the Court must balance the hardships as to the respective parties.Int'l Cosmetics Exch., Inc. v. Gapardis Health Beauty, Inc., 303 F.3d 1242, 1247 (11th Cir. 2002). The Court will determine whether the probable loss of consumer goodwill and unfair competition outweighs the costs to the Defendants, who will be unable to sell the product using the trademark until a decision is reached on the merits. Davidoff, 263 F.3d at 1304.
Here, the Defendants will be forced to remove any infringing marks and to cease operating their stores as a Dunkin' franchise. While it is true that Defendants will be harmed if they are required to cease representing themselves as a Dunkin' franchisee, this harm is merely pecuniary, and thus may be addressed by monetary damages. See, e.g., S R Corp., 986 F.2d at 379. These damages do not outweigh the irreparable damages that Dunkin' will suffer if the Court does not issue a temporary injunction. Denial of the preliminary injunction will result in Dunkin' losing control over its trademark and trade dress during the course of this litigation, as well as loss of the goodwill it has built over the years. Moreover, any damage to Defendants would stem directly from Defendants' own failure to pay their financial obligations to Dunkin'. S R Corp., 986 F.2d at 379;Liu, 2000 WL 1868386 at *5. Accordingly, the Court finds that the harm to Plaintiffs outweighs the harm to Defendants will suffer if a preliminary injunction is granted. Furthermore, "the public interest is served by preventing consumer confusion in the marketplace." Davidoff, 263 F.3d at 1304; see also, Cardillo, 2007 WL 2209245 at *3-6; Liu, 2000 WL 1868386 at *3-5; Popular Bank of Fla. v. Banco Popular de Puerto Rico, 9 F. Supp. 2d 1347, 1364 (S.D. Fla. 1998).
III. CONCLUSION
Accordingly, for the aforementioned reasons, it is ORDERED AND ADJUDGED as follows:
1) Plaintiffs' Motion for Preliminary Injunction [DE-2] is GRANTED.
2) Defendants are hereby ENJOINED from infringing upon the trademarks and trade name associated with the Dunkin' Donuts system and from otherwise engaging in unfair competition with Dunkin' Donuts.
3) Defendants are hereby ORDERED, within thirty (30) days of the date of this Order, of serving on Plaintiffs, and filing with the Court, a report in writing and under oath, setting forth in detail the manner and form in which they have complied with the injunction.
DONE AND ORDERED