Goldammer v. Fay, 7276.

• Decision Date: 06 January 1964
• Docket Number: No. 7276.,7276.
• Citation: 326 F.2d 268
• Parties: C. J. GOLDAMMER, L. K. Goldammer, and C. Jack Goldammer, d.b.a. Dairy Queen of Colorado, Appellant, v. Ralph E. FAY and Ruth E. Fay, Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

326 F.2d 268 (1964)

C. J. GOLDAMMER, L. K. Goldammer, and C. Jack Goldammer, d.b.a. Dairy Queen of Colorado, Appellant, v. Ralph E. FAY and Ruth E. Fay, Appellees.

No. 7276.

United States Court of Appeals Tenth Circuit.

January 6, 1964.

Owen J. Ooms, Chicago, Ill. (Philip A. Rouse, Denver, Colo., and Francis T. Drumm, Chicago, Ill., on the brief), for appellant.

Bernard L. Trott, Colorado Springs, Colo. (Howard J. Kunstle, Colorado Springs, Colo., on the brief), for appellees.

Before PICKETT, LEWIS and BREITENSTEIN, Circuit Judges.

PICKETT, Circuit Judge.

The Goldammers, doing business as Dairy Queen of Colorado, owned the right to use the trademark, trade name, and other business indicia of "Dairy Queen" in the State of Colorado. They did not operate Dairy Queen stores, but granted franchises to different individuals for the establishment and operation of stores as outlets for Dairy Queen products. On March 1, 1958 a franchise was issued to Ralph E. Fay and his wife, Ruth, for a Dairy Queen operation in a specified area in the City of Colorado Springs, Colorado. The franchise agreement required the Fays to conduct the business in a certain manner, including the use of a "mix" formula obtained only from sources approved by Dairy Queen, and to make fixed payments to the Goldammers in the nature of royalties. Provision was made for the termination of the franchise if its terms were not complied with. Upon termination or expiration of the franchise, the Fays agreed that they would not "directly or indirectly engage in any competitive business in said territory for a period of two (2) years after the termination or expiration of this Agreement." Fay failed to make the required payments and the franchise was terminated by the plaintiffs.

This action was brought to recover the amounts due under the contract, and for an injunction prohibiting the Fays from operating a competitive business in the territory, and for damages. The trial court entered judgment in favor of the Goldammers for the money claimed, but denied any relief for violation of the restrictive covenants. This is an appeal from that portion of the judgment which denied the injunction and damages for the alleged violation of the restrictive provisions of the franchise.

The essential facts are not in substantial dispute. "Dairy Queen" is a trade name used by stores operating through-out the United States for the sale of soft mix ice cream and other frozen food products prepared from a special formula. There were 27 of these stores in the State of Colorado, operating under franchises from the Goldammers. The franchise operators, at their own expense, are required to use a distinctive type of building, together with special signs and other appurtenances. The Dairy Queen products are nationally advertised. With the consent of the Goldammers, the Fays acquired one of these outlets in Colorado Springs, Colorado from an existing franchise owner, and later a franchise was issued directly to them. With the exception of some minor items, the Fays owned the building, machinery, signs, and other equipment necessary for the operation of the business. Following the termination of the franchise, and as soon as possible, they changed the Dairy Queen sign to "Dairy Bar" and the business was continued as "Fay's Drive-In." Although dairy products, including soft mix ice cream were sold, the operation was of a restaurant or coffee shop type of business.¹ They had a total of approximately $55,000 invested in the business. In the immediate vicinity of the Fay's eating place, there were numerous other businesses dispensing soft ice cream products.

In denying the injunction, the trial court assumed that the restrictive covenant was valid and that there had been a violation thereof, but found that the Goldammers had failed to prove they had been damaged because of the violation, and that there was no evidence of irreparable injury.²

To prove they were being damaged by the Fay's new operation, the Goldammers testified that they had not been able to sell another franchise in the area. There was evidence to the effect that they had negotiated with a number of persons interested in a franchise there, but other than the conclusions of the Goldammers, there was no credible evidence that the business operation of the Fay's was a controlling or important factor in the refusal of any party to acquire a franchise.

Injunction is a drastic remedy to be exercised with caution, and should be granted only in cases where the necessity therefor is clearly established. 43 C.J.S. Injunctions § 15. Compton v. Knuth, 117 Colo. 523, 190 P.2d 117. In the absence of a statutory provision, injunctive relief is not a matter of right, and the granting or refusing of such relief rests in the sound discretion of the court. Of course, the exercise of this discretion should not be arbitrary, and is subject to review. 43 C.J.S. Injunctions § 14; Allen v. City and County of Denver, 142 Colo. 487, 351 P.2d 390; Blanchard v. Holland, 106 Colo. 147, 103 P.2d 18, 139 A.L.R. 159. This rule is applicable in cases where there is an agreement not to compete in business. Dutch Maid Bakeries v. Schleicher, 58 Wyo. 374, 131 P.2d 630; De Soto v. De Jaquez, 44 N.M. 564, 106...