Pappan Enterprises, Inc. v. Hardee's Food Systems, Inc.

• Decision Date: 13 May 1998
• Docket Number: No. 97-3473,97-3473
• Citation: 143 F.3d 800
• Parties: PAPPAN ENTERPRISES, INC., v. HARDEE'S FOOD SYSTEMS, INC.; MRO Mid-Atlantic Corp., Appellants, v. Louis D. PAPPAN; Panagiota Pappan.
• Court: U.S. Court of Appeals — Third Circuit

Page 800

143 F.3d 800

46 U.S.P.Q.2d 1769

PAPPAN ENTERPRISES, INC., v. HARDEE'S FOOD SYSTEMS, INC.; MRO Mid-Atlantic Corp., Appellants, v. Louis D. PAPPAN; Panagiota Pappan.

No. 97-3473.

United States Court of Appeals Third Circuit.

Argued March 12, 1998.

Decided May 13, 1998.

Arthur I. Cantor (Argued), Peter J. Klarfeld, Andrew P. Zappia, Wiley, Rein & Fielding, Washington, DC, for Appellants.

Gene J. Brockland (Argued), Mark R. Dunn, Lori F. Kutilek, Herzog, Crebs & McGhee, St. Louis, MO, for Appellees.

Before: STAPLETON and ALITO, Circuit Judges, and O'KELLEY, ^* District Judge.

OPINION OF THE COURT

O'KELLEY, Senior District Judge:

Hardee's Food Systems, Inc. ("Hardee's") and MRO Mid-Atlantic Corp. ("MRO") appeal from the district court's order denying their motion for a preliminary injunction to restrain Pappan Enterprises, Inc. ("Pappan") from using the ROY ROGERS marks owned by Hardee's and MRO. ¹ Because we find that Hardee's and MRO have clearly established irreparable injury to their marks from Pappan's non-consensual use and that their irreparable injury as a result of that use outweighs any injury Pappan might suffer from the entry of a preliminary injunction, we will reverse the district court and remand with directions to grant the motion for a preliminary injunction.

I.

Pappan has been a ROY ROGERS franchisee since October, 1972. In 1990, MRO acquired the ROY ROGERS restaurant system and assumed all of the rights and obligations as franchisor under then-existing ROY ROGERS franchise agreements. At that time, pursuant to its franchise agreements, Pappan operated nineteen (19) ROY ROGERS restaurants in the greater Pittsburgh, Pennsylvania metropolitan area. Thereafter, Hardee's acquired the stock of MRO, and MRO became a wholly-owned subsidiary of Hardee's.

Between 1990 and 1993, Pappan closed thirteen (13) of its ROY ROGERS restaurants and transferred one (1) to a third party. Beginning in April, 1993, Pappan ceased making royalty and advertising payments on its five (5) remaining restaurants as required by the franchise agreements. In October 1994, the parties entered into a letter agreement ("letter agreement"). The parties agreed that Pappan would begin making all required payments under its existing franchise agreements on November 1, 1994, and would remain current on its payments thereafter. Further, the parties agreed that with respect to any restaurants sold or closed by Pappan by December 31, 1995, all amounts owed up to November 1, 1994, would be forgiven. At Pappan's request, the December 31, 1995, deadline was extended to March 31, 1996.

Pappan re-commenced royalty and advertising payments on or about November 1, 1994, for its five (5) remaining restaurants. In November or December 1995, Pappan again ceased making royalty and advertising payments for each of the five (5) restaurants. It appears that Pappan has not made any of the required payments since that time.

On September 26, 1996, Pappan filed the present action alleging breach of contract, breach of covenant of good faith and fair dealing, negligence, and tortious interference with business relations. Pappan contends that Hardee's and MRO have mismanaged the ROY ROGERS system and, as a result, it has lost significant value. By order dated February 20, 1997, the district court dismissed Pappan's claims for negligence and tortious interference with business relations.

On March 7, 1997, Hardee's and MRO filed their answer denying the two (2) remaining claims. Hardee's and MRO also filed a counterclaim for breach of contract based on Pappan's failure to pay royalty and advertising fees as required by the franchise agreements. As of March 6, 1997, Pappan was in arrears as to the five (5) remaining restaurants in the amount of $172,038.70. Pursuant to the franchise agreements, MRO sent Pappan a Notice of Default and Termination regarding the unpaid royalties and advertising fees for each store. The notice informed Pappan that it had ten (10) days to cure the default or Pappan's five (5) remaining franchise agreements would terminate. Pappan received the notice on March 10, 1997, but failed to cure the default.

By letter dated March 25, 1997, MRO confirmed to Pappan that the franchise agreements had terminated on March 20, 1997. MRO demanded that Pappan cease using the ROY ROGERS marks and comply with the other post-termination obligations in the franchise agreements. Pappan failed to do so. On April 3, 1997, MRO filed an amended counterclaim asserting additional claims arising out of the termination of Pappan's franchise agreements, including claims for breach of post-termination contractual obligations, unjust enrichment, and trademark infringement.

On April 25, 1997, Hardee's and MRO moved for a preliminary injunction to restrain Pappan's continuing use of the ROY ROGERS marks. The district court denied Hardee's and MRO's motion, finding that the irreparable harm to Pappan from the entry of a preliminary injunction outweighed the irreparable harm to Hardee's and MRO from the denial of a preliminary injunction. MRO and Hardee's filed the instant appeal. Pappan admits that, despite the termination of the franchise agreements, it is continuing to use the ROY ROGERS marks and to hold itself out to the public as a ROY ROGERS franchisee.

II.

"We review the denial of a request for injunctive relief for an abuse of discretion." S & R Corp. v. Jiffy Lube Intern., Inc., 968 F.2d 371, 374 (3d Cir.1992)(citing Opticians Ass'n of Am. v. Independent Opticians of Am., 920 F.2d 187, 192 (3d Cir.1990)). "A district court abuses its discretion when its decision rests upon a clearly erroneous finding of fact, an errant conclusion of law, or an improper application of law to fact." Hofkin v. Provident Life & Accident Ins. Co., 81 F.3d 365, 369 (3d Cir.1996) (citations omitted). This court "cannot reverse unless the trial court has committed an obvious error in applying the law or a serious mistake in considering the proof." Opticians, 920 F.2d at 192 (citing Freixenet, S.A. v. Admiral Wine & Liquor Co., 731 F.2d 148, 150 (3d Cir.1984)).

When ruling on a motion for preliminary injunctive relief, a district court must consider four factors: (1) the likelihood that plaintiff will prevail on the merits at final hearing; (2) the extent to which plaintiff is being irreparably harmed by the conduct complained of; (3) the extent to which defendant will suffer irreparable harm if the preliminary injunction is issued; and (4) the public interest. Jiffy Lube, 968 F.2d at 374 (citing Hoxworth v. Blinder, Robinson & Co., 903 F.2d 186, 197-98 (3d Cir.1990)); Opticians, 920 F.2d at 191-92 (citing Bill Blass, Ltd. v. SAZ Corp., 751 F.2d 152, 154 (3d Cir.1984)).

The district court determined that the first and second factors--the likelihood that Hardee's and MRO would prevail on the merits and irreparable harm to Hardee's and MRO as a result of Pappan's continued non-consensual use of the ROY ROGERS marks--weighed in favor of granting preliminary injunctive relief. The district court then balanced Pappan's irreparable harm against Hardee's and MRO's irreparable harm and determined that the balancing of hardships weighed against granting preliminary injunctive relief. Accordingly, the district court declined to consider the fourth factor as all four (4) factors must favor the granting of injunctive relief. However, the court then noted that the public interest weighed in favor of granting preliminary injunctive relief. Report & Recommendation, 11 n. 13.

A.

With respect to the first factor, Hardee's and MRO must demonstrate that their claim of damage from unauthorized trademark use is likely to succeed at trial. To prevail on an infringement claim under § 32 of the Act, Hardee's and MRO must demonstrate that Pappan's use of the ROY ROGERS marks was/is unauthorized. Jiffy Lube, 968 F.2d at 375 (citing United States Jaycees v. Philadelphia Jaycees, 639 F.2d 134, 137 (3d Cir.1981)). Under § 43(a) of the Lanham Act, Hardee's and MRO can demonstrate injury from Pappan's use of the ROY ROGERS marks if such use is "likely to create confusion concerning the origin of the goods or services." Jiffy Lube, 968 F.2d at 375 (citing Opticians, 920 F.2d at 192).

"Likelihood of confusion exists when consumers viewing the mark would probably assume that the product or service it represents is associated with the source of a different product or service identified by a similar mark." First Keystone Fed. Sav. Bank v. First Keystone Mortgage, Inc., 923 F.Supp. 693, 703-04 (E.D.Pa.1996)(citing Fisons Horticulture, Inc. v. Vigoro Indus., Inc., 30 F.3d 466, 472 (3d Cir.1994)). This court has held that where the identical mark is used concurrently by unrelated entities, the likelihood of confusion is inevitable. Opticians, 920 F.2d at 195; United States Jaycees, 639 F.2d at 142. It appears to be undisputed that Pappan is continuing to use the ROY ROGERS marks. The district court determined that such use created a likelihood of confusion among consumers concerning the origin of the goods and services. Report & Recommendation, 4. Accordingly, the district court found that the first factor--the likelihood that Hardee's and MRO will prevail on the merits--weighed in favor of granting preliminary injunctive relief. We agree.

Pappan disputes the district court's determination and alleges several Lanham Act defenses. 15 U.S.C. § 1115(b). Pappan asserts that these defenses render the likelihood that Hardee's and MRO will prevail on the merits speculative. If a defendant prevails on one of the statutory defenses in a trademark infringement case, "the plaintiff loses the presumption of validity, ownership and right to protection." First Keystone, 923 F.Supp. at 701 (citing Ford Motor Co. v. Summit Motor Prods., 930 F.2d 277, 291 (3d Cir.), cert. denied, 502 U.S. 939, 112 S.Ct. 373, 116 L.Ed.2d 324 (1991)). Pappan asserts that the doctrines of laches and acquiescence apply in this...