Buffalo Wild Wings Int'l, Inc. v. Grand Canyon Equity Partners, LLC, Civ. No. 11–3287 (RHK/LIB).

• Decision Date: 09 December 2011
• Docket Number: Civ. No. 11–3287 (RHK/LIB).
• Citation: 829 F.Supp.2d 836
• Parties: BUFFALO WILD WINGS INTERNATIONAL, INC., Plaintiff, v. GRAND CANYON EQUITY PARTNERS, LLC, GCEP–Goodyear, LLC, GCEP–Surprise, LLC, GCEP–Scottsdale, LLC, David Agado, Richard Folmar, Michael Merriman, and Ceasar Perez, Defendants.
• Court: U.S. District Court — District of Minnesota

829 F.Supp.2d 836

BUFFALO WILD WINGS INTERNATIONAL, INC., Plaintiff,

v.GRAND CANYON EQUITY PARTNERS, LLC, GCEP–Goodyear, LLC, GCEP–Surprise, LLC, GCEP–Scottsdale, LLC, David Agado, Richard Folmar, Michael Merriman, and Ceasar Perez, Defendants.

Civ. No. 11–3287 (RHK/LIB).

United States District Court, D. Minnesota.

Dec. 9, 2011.

Kerry L. Bundy, Christopher J.L. Diedrich, Faegre & Benson LLP, Minneapolis, MN, for Plaintiff.

Ronald K. Gardner, Jr., J. Mark Dady, Dady & Gardner, PA, Minneapolis, MN, for Defendants Grand Canyon Equity Partners, LLC, GCEP–Goodyear, LLC, GCEP–Surprise, LLC, GCEP–Scottsdale, LLC, David Agado, and Richard Folmar.

MEMORANDUM OPINION AND ORDER

RICHARD H. KYLE, District Judge.

INTRODUCTION

Plaintiff Buffalo Wild Wings International, Inc. (“BWW”) alleges that Defendants—three BWW franchisees, along with a related entity and four individual guarantors—are infringing its trademarks and breaching the terms of their franchise agreements by continuing to use its trademarks, trade names, slogans, symbols, etc. (the “marks”) and its system of doing business after their franchise agreements have terminated. BWW seeks a temporary restraining order (“TRO”) and preliminary injunction to stop this infringement and require Defendants to de-identify with the BWW brand. Because the Defendants have received notice and the Motion has been fully briefed, the Court will treat it as one for a preliminary injunction rather than a TRO. For the reasons set forth below, the Court will grant the Motion.¹

BACKGROUND

I. BWW and its Franchise Agreements with Defendants

BWW is the franchisor of more than 500 restaurants operating under the name Buffalo Wild Wings and using its marks nationwide. (Compl. ¶ 1.) BWW franchises are “grill and bar” restaurants known, as the name suggests, for serving wings. The instant dispute involves three BWW franchises in the Phoenix, Arizona, area that allegedly continue to operate using BWW's marks even though their franchises have terminated.

BWW entered into a Franchise Agreement with Defendant Grand Canyon Equity Partners, LLC (“GCEP”) in January 2004 for a restaurant located in Phoenix, Arizona (“Phoenix Restaurant”).² ( Id. ¶ 20.) BWW entered into another Franchise Agreement with Defendant GCEP–Goodyear, LLC (“GCEP–Goodyear”) in March 2006 for a restaurant in Goodyear, Arizona ( id. ¶ 18) and one with Defendant GCEP–Surprise, LLC (“GCEP–Surprise”) in October 2007 for a restaurant in Surprise, Arizona ( id. ¶ 19). The individual defendants are parties to the instant action as guarantors of the Franchise Agreements at issue.³

BWW's franchisees are authorized to use its trademarks, trade names, service marks, copyrights, building designs and specifications, slogans, logos, and symbols. ( Id. ¶ 14 & Ex. A.) They also gain access to BWW's “System,” or its method of doing business, which includes menu items, advertising materials and marketing techniques, bookkeeping systems, and entertainment. ( Id. ¶ 16.) It also includes manuals containing information such as BWW's operating policies, standards for food and service quality, and other details regarding its business and operations. ( Id.) BWW has invested substantial time and money into developing its System and considers it extremely valuable. ( Id. ¶ 25.) As part of each new franchise agreement entered into by BWW, the franchisee must acknowledge the nature of BWW's trade secret, proprietary, and confidential information and must agree not to disclose such information or to compete with BWW during the term of the franchise. ( Id. ¶¶ 26–28; Essick Decl. ¶ 3.) All of these provisions were part of the Franchise Agreements executed by Defendants, and Defendants received all of the benefits of BWW's System, use of its marks, and initial and ongoing training and support. (Essick Decl. ¶ 12.) In exchange for these benefits, Defendants were required to pay various advertising and other fees, make timely rent payments and payments to vendors, accept credit-card payments, and act in a manner that would not impair BWW's reputation or goodwill. ( Id. ¶ 13.)

II. Termination of the Franchise Agreements

Defendants operated the restaurants successfully for a number of years despite an economic downturn. They have built a customer base and currently employ approximately 170 people. (Agado Aff. ¶ 7.) However, in 2010, economic conditions in Arizona continued to deteriorate and Defendants considered selling their restaurants. ( Id. ¶ 5.) They nearly reached an agreement to sell the restaurants back to BWW for $4.6 million, but after they were unable to renegotiate the leases for their restaurants, this deal was never finalized. ( Id.) In December 2010, Defendants allegedly breached their Franchise Agreements by failing to pay required royalty fees and advertising fees, make certain vendor payments, and accept credit cards. (Essick Decl. ¶¶ 14–15; Compl. ¶ 29.)

BWW sent Defendants several Notices of Default regarding their late and missed payments in December 2010 and January 2011. ( See Compl. Exs. E–F.) The defaults were not cured with respect to the Phoenix Restaurant, so BWW terminated its Franchise Agreement with GCEP regarding that restaurant location on February 10, 2011. ( Id. Ex. E.) In the termination notice, BWW also informed GCEP that it intended to “enforce its rights under the Franchise Agreements, including all post-termination obligations set forth therein.” ( Id.) It also reserved its rights to any causes of action against GCEP.

Following this termination, Agado had discussions with a representative of BWW, and BWW apparently agreed to allow GCEP to “temporarily operate” the Phoenix Restaurant until a “Close Date” of April 15, 2011.( Id.) As of the close of business on that date, GCEP was to permanently close and cease operating the Phoenix Restaurant. ( Id.) BWW wrote to GCEP on April 12, 2011, reminding it of the approaching Close Date and informing it that BWW would expect full compliance with all post-termination obligations set forth in the Franchise Agreements. ( Id.) Nonetheless, it appears that the Phoenix restaurant continued operating as it had been even after April 15.

Meanwhile, GCEP–Goodyear and GCEP–Surprise cured their initial defaults. In May 2011, however, BWW learned that they had again failed to make timely payments to a third-party vendor and to pay royalties and advertising fees they owed. ( Id. Ex. F.) Accordingly, BWW terminated the Franchise Agreements with respect to the Goodyear and Surprise restaurants on May 26, 2011.( Id.) BWW also informed GCEP–Goodyear and GCEP–Surprise in the termination notice of its intent to enforce the post-termination obligations set forth in the Franchise Agreements. ( Id.) These obligations include de-identifying the interior and exterior of the restaurant to eliminate identification as a BWW franchise and removing all of BWW's marks; they are set forth in Section 14 of the Franchise Agreements. (Compl. Exs. B–D.)

III. Limited Reinstatement Agreement

Following the termination of the Goodyear and Surprise Franchise Agreements, BWW and the GCEP entities commenced negotiations regarding the closure of the three restaurants at issue. Defendants wanted time to sell their interests in the restaurants, and BWW agreed to allow them to continue operating for a limited time while attempting to sell in order to preserve brand goodwill and avoid interruption of service. (Essick Decl. ¶¶ 17–20; Compl. ¶¶ 32–34.) On July 29, 2011, BWW and Defendants ⁴ executed a Limited Reinstatement Agreement to formalize this new arrangement. (Compl. Ex. G.)

The Limited Reinstatement Agreement reinstated the Franchise Agreements for a period of 90 days. It provided that its sole purpose was “to permit the GCEP Parties to sell or assign their interests in the Phoenix Restaurant, the Goodyear Restaurant, and the Surprise Restaurant,” and Defendants agreed to use “diligent efforts” to sell their interests during the reinstatement term. ( Id. §§ I.J, II.A.) It also provided that it would expire on October 20, 2011, “without any opportunity for any renewal or extension thereof.” ( Id. § II.A.) Various acknowledgements and waivers were also part of the agreement. Defendants acknowledged, for instance, that the Phoenix Franchise Agreement was terminated on February 10, 2011, the Goodyear and Surprise Franchise Agreements were terminated on May 26, 2011, and “the Notices of Default and the Terminations of the Franchise Agreements were valid and proper.” ( Id. §§ I.B, I.C.)

During the 90–day reinstatement period, Defendants spent “a considerable amount” of time and energy attempting to find potential purchasers for their restaurants. (Agado Aff. ¶ 9.) However, they were unable to reach an agreement with any potential purchasers prior to the October 20 expiration date. ( Id.)

IV. Expiration of the Limited Reinstatement Agreement

Pursuant to its terms, the Limited Reinstatement Agreement expired on October 20, 2011, and Defendants had not sold their franchises by that time. (Compl. ¶ 39.) The next day, a BWW Franchise Consultant, Conrad Skowronski, visited the three restaurants, observing that they continued using the BWW marks. (Skowronski Decl. ¶¶ 4–7.) For instance, each restaurant was still clearly marked with BWW signage, customers were ordering, eating, and drinking BWW menu items, and BWW trademarks, logos, symbols, and slogans were still in use throughout the interiors and exteriors of the restaurants. ( Id. ¶¶ 5–7.) Skowronski visited each restaurant again on October 28 and observed that nothing had changed. ( Id. ¶ 9.)

Nevertheless, Defendants continued to have interaction and communication with BWW after October 20 regarding their restaurant operations. (Agado Aff. ¶ 10.) For instance, on October 21, BWW withdrew $14,862.67 from Defendants' bank accounts for royalties and advertising fees ( id. ¶ 11), and on October 28 it withdrew an additional $12,994.81 for such fees ( id. ¶ 16.) On ...