S & R Corp. v. Jiffy Lube Intern., Inc.

Citation968 F.2d 371,23 USPQ2d 1201
Decision Date23 June 1992
Docket Number91-5887,Nos. 91-5614,s. 91-5614
PartiesS & R CORPORATION; and Steven Durst v. JIFFY LUBE INTERNATIONAL, INC., (a Nevada Corporation); Jiffy Lube International of Maryland, Inc.; W. James Hindman; and Edward F. Kelley, III. Jiffy Lube International, Inc., Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)

John B. Kearney, Gino J. Benedetti (argued), Kenney & Kearney, Cherry Hill, N.J., for appellees.

Hugh J. Hutchison (argued), Montgomery, McCracken, Walker & Rhoads, Philadelphia, Pa., Kathryn A. Winterle, Montgomery, McCracken, Walker & Rhoads, Cherry Hill, N.J., for Jiffy Lube Intern., Inc.

Peter J. Klarfeld, Christine E. Lanzon, Tacie H. Yoon, Brownstein Zeidman and Schomer, Washington, D.C., Neil A. Simon, The Intern. Franchise Ass'n, Washington, D.C., for amicus curiae, The Intern. Franchise Ass'n.

Before: HUTCHINSON, ALITO and ROTH, Circuit Judges.

OPINION OF THE COURT

ROTH, Circuit Judge.

This multi-faceted case began with a suit by Appellees S & R Corporation and Durst (collectively "Durst") against Appellant Jiffy Lube 1, claiming breach of a trademark license agreement. The present appeal arises from the district court's denial of Jiffy Lube's motion for a preliminary injunction to halt Durst's continued use of the Jiffy Lube trademark. Durst has continued to use this trademark despite formal termination of his franchise agreements in July of 1990. Because we find that Jiffy Lube has clearly established irreparable injury to its mark from Durst's non-consensual use, we will reverse the decision of the district court and will remand this case to that court with instructions to grant the injunction requested.

I.

Durst and Jiffy Lube are parties to several franchise agreements which permit the S & R Corporation, under Durst's direction, to operate three Jiffy Lube enterprises in southern New Jersey. The agreements give Durst the right to use the Jiffy Lube trademark and benefit from collective advertising in exchange for royalty payments pegged to monthly sales. 2 Participation in the franchise is conditioned on compliance with detailed regulations concerning shop appearance, employee hiring and training, and financial management. Jiffy Lube, on its part, covenants to make regular inspections of each member station.

Durst stopped paying royalties to Jiffy Lube in "late 1988 or early 1989," but has continued to operate the three service centers under the Jiffy Lube name. Durst contends that he was justified in halting payment because Jiffy Lube breached some of its contractual obligations under the franchise agreement. Specifically, Durst alleges that Jiffy Lube failed to maintain the quality of its other franchises in the Philadelphia area, causing Durst's franchises to suffer. In response to Jiffy Lube's perceived inadequacies, Durst crafted his own rules about how the franchises should be run: he adopted a new training schedule and fleet billing policy, and erected a new non-conforming neon sign at his Egg Harbor center.

Durst filed suit against Jiffy Lube International in October of 1989, claiming breach of the franchise agreements. Concurrently, because of Durst's failure to pay royalties, Jiffy Lube instituted termination proceedings against his three franchises. On May 19, 1990, Durst requested preliminary injunctive relief to prevent the terminations. Argument was heard by the district court on the request at that time. However, it was not until January 29, 1991, that the district court entered a formal order, denying Durst's request for an injunction. In the meantime, in July 1990, Jiffy Lube had terminated Durst's three franchises because of the failure to pay royalties. Durst continues to operate the service centers under the Jiffy Lube mark, claiming that the termination was improper.

On May 10, 1991, four months after the district court denied Durst's preliminary injunction request, Jiffy Lube filed the current motion for preliminary injunctive relief, seeking to prevent Durst from further use of its trademark. Jiffy Lube claimed that Durst had violated §§ 32 and 43(a) of the Lanham Act, which respectively protect trademark owners against infringement and unfair competition. See 15 U.S.C. § 1114 (infringement), 3 § 1125 (unfair competition). 4 The district court denied Jiffy Lube's motion on July 1, 1991. The court found that the termination dispute between the parties precluded a determination of Jiffy Lube's likelihood of success on the merits, a threshold requirement for preliminary injunctive relief. 5 As part of the order denying injunctive relief, the court ordered that current royalties be paid into escrow until the termination dispute was resolved.

Jiffy Lube's motion for reconsideration was denied on October 8, 1991. Jiffy Lube appealed the district court's July 1, 1991, and the October 8, 1991, orders. We consolidated the appeals for argument.

II.

The district court had diversity and trademark jurisdiction in this case, and we have appellate jurisdiction over denials of injunctive relief. We review the denial of a request for injunctive relief for an abuse of discretion. Opticians Ass'n of America v. Independent Opticians of America, 920 F.2d 187, 192 (3d Cir.1990). When ruling on a motion for preliminary injunctive relief, the district court must consider four factors: (1) the likelihood that the applicant will prevail on the merits at final hearing; (2) the extent to which the plaintiffs are being irreparably harmed by the conduct complained of; (3) the extent to which the defendants will suffer irreparable harm if the preliminary injunction is issued; and (4) the public interest. Hoxworth v. Blinder, Robinson & Co., 903 F.2d 186, 197-98 (3d Cir.1990). See Opticians, 920 F.2d at 191-92, citing Bill Blass, Ltd. v. Saz Corp., 751 F.2d 152, 154 (3d Cir.1984). All four factors should favor preliminary relief before the injunction will issue. Id. at 192. In this case, the legal dispute centers on the first factor.

Both Durst and Jiffy Lube allege that they are entitled to exercise their rights under the contract pending the resolution of their termination dispute. Durst claims that he should be able to continue using the Jiffy Lube trademark (in his admittedly innovative way) because Jiffy Lube's negligent supervision caused business to drop off and limited his ability to pay royalties. Jiffy Lube contends that it has the right under the contract to terminate the franchise because of Durst's failure to pay royalties; that this right is not affected by any alleged breaches on its part; and that Durst's unauthorized usage of the Jiffy Lube mark inflicts irreparable harm on the Jiffy Lube name.

The district court denied Jiffy Lube's request for a preliminary injunction. After reviewing the cases cited by the parties and by amicus curiae International Franchise Association, we find that the district court abused its discretion in denying this relief.

Initially, we must determine whether the termination dispute prevents us from granting Jiffy Lube's request for preliminary injunctive relief. We hold that it does not, although Durst argues, and the district court found, to the contrary.

The district court and Durst incorrectly rely on a decision from this circuit, Aamco Transmissions, Inc. v. Smith, 756 F.Supp. 225 (E.D.Pa.1991), as authority for the proposition that preliminary injunctive relief is not appropriate where concerns linger about contract breach. The Aamco court found that the non-federal unfair competition claims alleged by the plaintiffs could not be decided without resolution of the underlying contract dispute, which the court declined to do.

As Durst reads Aamco, the court found it necessary that the termination issue await trial. In fact, the court did not decide the termination issue because it concluded that it did not have jurisdiction. The court found that there was no diversity of citizenship between the parties and that the plaintiff had failed to allege a federal trademark infringement claim under 15 U.S.C. § 1114, which section's "infringement per se" rule would have put the parties and the termination issue properly before the court. Aamco, 756 F.Supp. at 227. Thus, the court's contract language is only dicta. Aamco does not help Durst in the present case, where we have diversity jurisdiction and the plaintiff has alleged infringement of federal rights under the Lanham Act.

We find that the district court here erred in failing to address the termination dispute. Though there are no cases directly on point in this circuit, we hold by reference to contract and trademark principles that a franchisor's right to terminate a franchisee exists independently of any claims the franchisee might have against the franchisor. The franchisor has the power to terminate the relationship where the terms of the franchise agreement are violated. Once a franchise is terminated, the franchisor has the right to enjoin unauthorized use of its trademark under the Lanham Act. Thus, Jiffy Lube will merit preliminary injunctive relief if it can adduce sufficient facts indicating that its termination of Durst's franchises was proper.

A.

Jiffy Lube must first demonstrate that its claim of damage from unauthorized trademark use is likely to succeed at trial. Under § 43(a) of the Lanham Act, this is possible if Durst's use of Jiffy Lube's valid trademarks is "likely to create confusion concerning the origin of the goods or services," Opticians, 920 F.2d at 192. To prevail on an infringement claim under § 32 of the Act, Jiffy Lube must demonstrate as well that Durst's use of the marks was unauthorized. See United States Jaycees v. Philadelphia Jaycees, 639 F.2d 134, 137 (3d Cir.1981).

We have held that "there is a great likelihood of confusion when an infringer uses the exact trademark" as the plaintiff. See Opticians, 920 F.2d at 195, citing Jaycees, 639 F.2d at 142. There is no question...

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