143 F.3d 800 (3rd Cir. 1998), 97-3473, Pappan Enterprises, Inc. v. Hardee's Food Systems, Inc.

Docket Nº:97-3473.
Citation:143 F.3d 800
Party Name: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.
Case Date:May 13, 1998
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit
 
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Page 800

143 F.3d 800 (3rd Cir. 1998)

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

May 13, 1998

Argued March 12, 1998.

Page 801

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.

Page 802

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.

Page 803

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...

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