International Shortstop, Inc. v. Rally's, Inc.
| Decision Date | 29 August 1991 |
| Docket Number | No. 90-8563,90-8563 |
| Citation | 939 F.2d 1257 |
| Parties | 1991-2 Trade Cases 69,556, 21 Fed.R.Serv.3d 277 INTERNATIONAL SHORTSTOP, INC., and Sam Talkington, Plaintiffs-Appellants, v. RALLY'S, INC., Defendant-Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Shannon H. Ratliff, Stuart N. Whitlow, Marc O. Kinisely, McGinnis, Lochridge & Kilgore, Austin, Tex., for plaintiffs-appellants.
Douglas L. Hilleboe, Scott R. Kidd, Brown, Maroney & Oaks Hartline, Austin, Tex., for defendant-appellee.
Appeal from the United States District Court for the Western District of Texas.
Before GOLDBERG, SMITH, and BARKSDALE, Circuit Judges.
In this trade-dress case, we must determine whether it was too precocious of the district court to strip the plaintiffs of a jury trial on their tortious interference claim before the facts were more fully clothed.
This case is on appeal following the entry of summary judgment by the district court. Concluding that there were no genuine disputes of material fact with respect to the defendants' affirmative defense, the district court held that the defendants were entitled to a judgment in their favor as a matter of law. On appeal, the plaintiffs contend that the district court should not have entered summary judgment until the outstanding discovery was complete. Plaintiffs also contest the district court's interpretation of the relevant substantive law and its conclusion that on the record before the court there were no disputed issues of fact precluding summary judgment.
Because this matter is before the court following summary judgment, we are obliged to construe all the evidence and reasonable inferences deduced therefrom in a light most favorable to the plaintiffs, the nonmoving party in the court below.
Plaintiffs are International Shortstop, Inc. and its president Sam Talkington (collectively referred to as "Shortstop"); the defendant is Rally's, Inc. ("Rally's"). They are direct competitors in the business of fast-food, take-out restaurants, specializing in the rapid service of hamburgers and other products of the culinary art sold at drive-through windows.
Shortstop was formed by Sam Talkington in 1984. Sometime in August 1988, Talkington began preliminary negotiations with Al Copeland for the sale of Shortstop to Copeland. Copeland was the majority shareholder of A. Copeland Enterprises, Inc., owner of the Popeye's fast-food chicken chain. Talkington hoped that the merger would offer Shortstop a network of franchise locations, franchisees, and other resources which would propel Shortstop's growth. At a meeting in late August, Copeland and Talkington agreed that Copeland would purchase Shortstop for $1.2 million. Both men believed that they reached a firm agreement concerning the Copeland-Shortstop purchase. They relegated to their financial officers the task of arranging for the structure of the deal. In late December the two men confirmed in a conversation that the Copeland-Shortstop deal would close sometime shortly after the completion of Copeland's takeover of the Church's Fried Chicken chain, which had begun in the fall of 1988.
Rally's was formed in 1985 and opened its first restaurant in Jeffersonville, Indiana, eighteen months after Shortstop opened its restaurant in Austin, Texas. By the fall of 1988, Rally's had several restaurant locations, including Miami, Florida, Shreveport, Louisiana, and Little Rock, Arkansas. Rally's began receiving complaints from these franchisees that Shortstop franchises were copying Rally's' building appearance, generating confusion among Rally's customers. Specifically, in January 1989, the Arkansas franchisee contacted Richard Sherman, President of Rally's (formerly president of Church's), to complain that a Shortstop franchise under construction looked very similar to the Rally's franchise.
In December 1988, Sherman had contacted a lawyer in connection with the alleged trade-dress infringement. This was not the first time that Rally's entertained the notion of protecting its perceived trade-dress: over the course of the previous three years, Rally's had pursued infringement claims against eight other companies, excluding Shortstop, and indeed, Rally's had appreciable success. It won two of the lawsuits it filed, settled three cases, and had pending suits against the remaining companies.
Meanwhile, throughout 1988, Sherman had expressed interest in expanding Rally's by purchasing surplus property from Church's. Aware of the pending takeover of Church's by Copeland, Sherman contacted Copeland in February 1989 to discuss the purchase of Church's locations upon consummation of the takeover. They met on March 1, 1989, to discuss the purchase. Sherman was already aware that Copeland had a general interest in also acquiring Shortstop but was apparently not aware of the precise negotiations which had transpired between Talkington and Copeland. During the March 1st meeting, however, Copeland told Sherman of the Copeland-Shortstop agreement. In response, Sherman commented that Shortstop was a "third tier" company that did not have a very strong franchise system, and that Copeland would be far better off associating with Rally's than with Shortstop. No mention was made at that meeting that Rally's was contemplating a trade-dress infringement lawsuit against Shortstop.
The following week, Sherman inquired of Jim Flynn, president of Copeland Enterprises, regarding the availability of the surplus Church's locations. He also asked about the status of the Copeland-Shortstop deal.
Between March 7 and March 17, 1989, Sherman conferred with his counsel about instituting a trade-dress infringement action in Arkansas. According to Rally's, they had contemplated bringing such an action since December 1988, but there had been some delay in pursuing the action because counsel for Rally's was tied up with other, unrelated matters. In any event, Rally's' counsel soon contacted Talkington (Shortstop's president) to advise him of Rally's' intentions to file a trade-dress infringement action in Arkansas. 1 This was the first Talkington had heard of Rally's' concerns about alleged trade-dress infringement by Shortstop.
On March 22, 1989, Sherman and Talkington discussed the lawsuit. Sherman indicated that Rally's had filed the lawsuit on March 20, but that it had nothing to do with the Copeland-Shortstop deal. Settlement efforts failed. On the same day, Sherman called Flynn of Copeland Enterprises to congratulate him on the successful takeover of Church's. He also mentioned to Flynn that Rally's had instituted the Arkansas lawsuit against Shortstop, but indicated that the litigation had nothing to do with the Copeland-Shortstop deal. In fact, the lawsuit was not filed until the following day (the "Arkansas lawsuit").
Because of Rally's' Arkansas lawsuit against Shortstop, Copeland declined to consummate the purchase of Shortstop. In the words of Copeland himself, the lawsuit "interfered with the deal." In Copeland's view, the lawsuit threatened to undermine Copeland's intended expansion of Shortstop because if Rally's succeeded, Copeland would have been forced to change the image of all of the Shortstop restaurants. He also observed that "[f]ranchisees don't want to buy into companies that have major lawsuits."
Shortstop filed the instant lawsuit in Texas state court alleging, inter alia, that Rally's' Arkansas lawsuit was filed in bad faith and constituted tortious interference with the Copeland-Shortstop agreement. 2
Rally's removed the action to federal district court on August 11, 1989. Rally's promptly moved the court to dismiss the complaint. Shortstop amended the complaint, and Rally's again moved to dismiss. Once the motion was fully briefed, the court took the motion under advisement and by order dated May 7, 1990, denied the motion. Simultaneously, the district court set the case on the trial calendar commencing September 24, 1990, with a discovery cut-off deadline of August 13, 1990. The court admonished the parties that "Motions to Compel, Motions for Protective Order, and similar motions" were "discouraged."
The parties proceeded with discovery, which had already been underway since early in the case. On June 28, 1990, before the discovery cut-off, Rally's moved for summary judgment averring the absence of a genuine dispute of material facts. Specifically, Rally's contended that it was privileged as a matter of law to file the Arkansas lawsuit and that therefore, the Arkansas lawsuit could not form the basis of a tortious interference cause of action. In Rally's' view, the filing of a lawsuit, whether in bad faith or otherwise, was absolutely privileged. Rally's also maintained that Shortstop's cause of action necessarily would fail because the evidence in the record did not establish the requisite elements of tortious interference, namely, the existence of a contract between Copeland and Shortstop, willful and intentional interference by Rally's, proximate causation, and damages. Shortstop filed a timely response to the merits of Rally's' motion for summary judgment, but indicated in a footnote to its memorandum that several depositions were still pending.
Meanwhile, the parties were unable to resolve a discovery dispute: Shortstop sought from Rally's and its trade-dress lawyers disclosure of information concerning the Arkansas lawsuit in order to establish Rally's' bad faith in proceeding with that lawsuit. Rally's had refused to provide that information, invoking the attorney-client privilege and the attorney work-product doctrine. Left with no choice but to seek court intervention, Rally's moved the court on July 23, 1990 to quash and for a protective order; in turn, Shortstop moved to compel the discovery. All of the discovery motions were referred by the district court judge to a United States magistrate judge for resolution. The...
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...1996); White’s Landing Fisheries v. Buchholzer , 29 F.3d 229, 231-32 (6th Cir. 1994); International Shortstop, Inc. v. Rally’s, Inc. , 939 F.2d 1257 (5th Cir. 1991); Snook v. Trust Co. of Georgia Bank, N.A. , 859 F.2d 865, 870 (11th Cir. 1988). B. “The rule is intended to safeguard against ......
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