Goddard, Inc. v. Henry's Foods, Inc.

• Citation: 291 F.Supp.2d 1021
• Decision Date: 26 September 2003
• Docket Number: No. CIV. 01-1478RLE.,CIV. 01-1478RLE.
• Parties: GODDARD, INC. d/b/a Freshway Food Systems, Plaintiff, v. HENRY'S FOODS, INC., Defendant.
• Court: U.S. District Court — District of Minnesota

Page 1021

291 F.Supp.2d 1021

GODDARD, INC. d/b/a Freshway Food Systems, Plaintiff, v. HENRY'S FOODS, INC., Defendant.

No. CIV. 01-1478RLE.

United States District Court, D. Minnesota.

September 26, 2003.

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Joseph John Roby, Jr., Johnson Killen & Seiler, Duluth, MN, Richard L. Travis, Mark J. Arndt, May & Johnson, Sioux Falls, SD, for plaintiff.

Warrenn C. Anderson, Amy J. Doll, Fluegel Helseth McLaughlin Anderson & Brutlag, Morris, MN, for defendant.

ORDER

ERICKSON, United States Magistrate Judge.

I. Introduction

This matter came before the undersigned United States Magistrate Judge, pursuant to the consent of the parties, as authorized by Title 28 U.S.C. § 636(c), upon the Motions of the Defendant, Henry's Foods, Inc. ("Henry's"), to Enforce Settlement, and for partial Summary Judgment.¹ A Hearing on the Motion to Enforce Settlement was conducted on February 6, 2003, and a Hearing on the Motion for partial Summary Judgment was conducted on June 12, 2003. At both Hearings, the Plaintiff, Goddard, Inc., d/b/a Freshway Food Systems, ("Freshway"), appeared by Mark J. Arndt, Esq., and Henry's appeared by Amy J. Doll, Esq.

For reasons which follow, we deny Henry's Motion to Enforce Settlement, we grant Henry's Motion for partial Summary Judgment, and we decline Henry's request that we dismiss, without prejudice, Freshway's remaining State law claims, as an exercise of our supplemental jurisdiction.

II. Factual and Procedural History.

Since 1992, Freshway has operated a deli-style food service, through which it sells items such as deli-style sandwiches, salads, pizza, and chicken. See, Second Affidavit of Joan Goddard in Support of Motion for Preliminary Injunction, at ¶¶ 7-8 ("Goddard Aff.").² The food goods are packaged, and sold, under the Federal service mark "Freshway Food Systems." Id. at ¶ 8. Freshway currently maintains ninety-two food centers, which are primarily located in convenience stores throughout the upper Midwest, including twenty-three such stores in Minnesota. Id. at ¶¶ 9-10. Fresh-way franchises are purchased by local owners, most of whom are also convenience store owners and operators. Id. at ¶ 11. Prior to May of 2001, Freshway was a licensor, rather than a franchisor. Transcript of Evidentiary Hearing of May 8, 2002, at 37 ("Tr. 37").

In contrast, Henry's is a grocery and food service distributor. See, Affidavit of Terry Loeffler, at ¶ 2, Ex. 32 to Henry's Memorandum of Law in Opposition to Freshway's Motion for a Preliminary Injunction ("Loeffler Aff."). Since 1928, Henry's has supplied retail outlets with products, such as cigarettes, candy, paper products, and snacks, most of which were designed for resale. Id. Since 1987, Henry's has also been supplying its customers — including convenience stores, restaurants, drive-ins and taverns — with frozen, refrigerated, and dry groceries, which can be prepared in-store. Id.

In the mid-1990's, Henry's considered developing its own food service program for convenience stores but, after determining that the market was saturated, elected to remain in the distribution business. Id. at ¶ 3. In 1997, Henry's began delivering Freshway's food products to Freshway's licensed distributors. See, Goddard Aff., at ¶ 14. As a result of that relationship, Henry's was provided with copies of Freshway's operations and sales manuals, and Henry's personnel attended Freshway's employee training sessions. Id. at ¶ 16. Henry's maintains that, during the first two years of its relationship with Freshway, it heard frequent complaints about the quality, and service, provided by Freshway, as well as about the high prices of franchising, and branded concepts, generally. See, Loeffler Aff., at ¶ 3. Accordingly, in 1999, after a disagreement broke out between the parties, concerning the scope of their distribution agreement, Henry's initiated its Deli Max program ("Deli Max"), through which it offered pizzas, submarine and other sandwiches, salads, soups, chicken products, and bakery goods, that owners could prepare in their stores, and sell as retail food service items. Id. A number of Freshway's licensees changed to the Deli-Max program, at that time. Id.

In November of 1999, due, in part, to Henry's foray into the retail food service business, Freshway terminated its distribution agreement with Henry's. See, Goddard Aff., at ¶ 17. Between February of 2000, and June of 2001, eight of Freshway's distributors/ licensees terminated their relationship with Freshway, and began operating Deli Max stores. See, Loeffler Aff., at ¶ 11. All eight of those licensees were convenience stores, which were located in Minnesota, and which had all been serviced by Henry's, during the period in which Henry's was operating as Freshway's food service distributor.

This litigation arises out of the Plaintiff's claim that, "[w]ith the exception of changing the name from Freshway to [Deli-Max], the appearance of the eight stores that were converted to [Deli-Max] remained nearly identical to the stores' appearances when they were Freshway locations." Goddard Aff., at ¶ 24. Fresh-way also complains that the Deli Max program utilizes the same four main menu items, menus which are substantially similar in look, name, price, and content, nearly identical ingredient labels, nearly identical profit analysis techniques, and substantially similar "Frequent buyer club" punch cards, as does Freshway. Id. at ¶ 25. As a result, arguing that Henry's purposefully copied the Freshway look, and concept, when it initiated its Deli Max program in the referenced eight stores, Freshway commenced this litigation, asserting claims of false representations and false designation of origin; Federal trademark/service mark infringement; Federal common law service mark infringement; Federal common law unfair competition; deceptive trade practices, in violation of Minnesota State law; State trademark infringement; State common law unfair competition; breach of contract; and conversion.

III. Discussion

Since a finding, that the parties had reached an enforceable settlement, would obviate any need to consider Henry's Motion for Summary Judgment, we commence our analysis with a consideration of Henry's Motion to Enforce Settlement.

A. Henry's Motion to Enforce Settlement.

While litigating their respective claims and defenses, the parties engaged in settlement negotiations, which started with Freshway's offer to settle the case, in a letter dated August 22, 2002, in which counsel for Freshway stated:

Pursuant to my phone conversation with you last week, we are forwarding an offer of settlement. Our client is willing to release Henry's Foods from all claims made in its Complaint, proposed Amended Complaint, and Motion for Preliminary Injunctive Relief currently pending in front of the Court in exchange for $50,000.00.

See, Exhibit A attached to Henry's Memorandum of Law in Support of Motion to Enforce Settlement ("Henry's Brief").

By letter dated October 4, 2002, defense counsel rejected that offer, on behalf of his client, stating, in part, that Henry's was "unwilling to offer any money," and was, instead, planning to move forward with its Motion for Summary Judgment. Exhibit B to Henry's Brief. Through counsel, Henry's further related that it was planning to include Freshway's breach of contract claim in its Motion for Summary Judgment, as it did not believe that there was any evidence that its contract, which Freshway claimed was breached, had ever been effected.

In response, in a letter dated November 1, 2002, Freshway transmitted, to Henry's, the documents which it believed supported its breach of contract claim, and related that it was continuing to gather other documents which would "support the value" of that claim, and would forward those documents when they were available. Exhibit C to Henry's Brief. Freshway represented that a "previous internal audit indicated the value of that contract claim was in excess of $10,000." Id. In addition, the letter advised that Freshway was "prepared to discuss a dismissal of the trade dress claims upon a resolution to the breach of contract claim," and asked Henry's counsel to contact Freshway's counsel if it had any interest in that proposal. Id.

Henry's responded by letter dated December 9, 2002. See, Exhibit D to Henry's Brief. Henry's first commented on the documents that had been produced by Freshway, on the proposed breach of contract issue, and thereafter, addressed the concept of a settlement. As to settlement, the letter stated:

My client feels very strongly it has not breached any agreement with Freshway and certainly never shorted Freshway on any rebates. For this reason, my client is unwilling to pay your demand of $10,000 to settle this case but will offer $3,000 to settle this matter along the lines of the enclosed Stipulation.

Id.

In addition to the proposed Settlement Agreement, Henry's also appended, to its letter, a Stipulation of Dismissal with Prejudice for Freshway's review.

Freshway responded on December 20, 2002, stating that Henry's "offer to settle this matter for a payment of $3,000.00 under the terms set forth in [the Defendant's] December 9, 2002 letter is rejected." Exhibit E to Henry's Brief. After discussing a number of on-going discovery disputes between the parties, Freshway returned to the issue of settlement, and stated that it agreed that "it may be in both parties' interest to resolve this matter without incurring additional legal expenses," but that, until Freshway received certain other discovery from Henry's, it could not "place a value on" its claim. Id. Freshway also related that it did not anticipate dismissing its trade dress claim without being fully compensated for the alleged breach of contract.

Henry's response was contained in a letter dated December 30, 2002. While no settlement proposal was made in the letter, Henry's counsel asked that, after reviewing the...