Little Caesar Enterprises v. RJL FOODS, Civ. A. No. 92-CV-71185-DT.

• Decision Date: 02 April 1992
• Docket Number: Civ. A. No. 92-CV-71185-DT.
• Citation: 796 F. Supp. 1026
• Parties: LITTLE CAESAR ENTERPRISES, INC., a Michigan corporation, et al., Plaintiffs, v. R-J-L FOODS, INC., a Michigan corporation, et al., Defendants.
• Court: U.S. District Court — Western District of Michigan

796 F. Supp. 1026

LITTLE CAESAR ENTERPRISES, INC., a Michigan corporation, et al., Plaintiffs, v. R-J-L FOODS, INC., a Michigan corporation, et al., Defendants.

Civ. A. No. 92-CV-71185-DT.

United States District Court, E.D. Michigan, S.D.

April 2, 1992.

Alan C. Harnisch, Bingham Farms, Mich., for plaintiffs.

David Hess, Warren, Mich., for defendants.

MEMORANDUM OPINION AND ORDER

EDMUNDS, District Judge.

I.

This matter is before the Court on Plaintiffs' motion for a preliminary injunction and Defendants' motion for a temporary restraining order (TRO) and/or preliminary injunction. Having heard arguments of counsel, and upon consideration of the parties pleadings and written submissions, the Court hereby grants Plaintiffs' motion and denies Defendants' motion.

Plaintiff Little Caesar Enterprises (LCE) operates and grants franchises for pizza stores and restaurants. The grant of a franchise authorizes the franchisee to use various licensed rights; including the name "Little Caesar" and other registered trademarks, service marks, trade names, logos, commercial symbols and copyrights developed by LCE.

Defendants/Counter-Plaintiffs R-J-L Foods (RJL) and the other named Defendants (hereafter Defendants or RJL Franchisees), currently own and operate ten "Little Caesar" stores in the state of Connecticut. Defendants purchased a total of thirteen stores from 1987 to 1991. Three of the franchises are no longer active. The franchise agreements¹ between Plaintiffs and Defendants contain forum selection and choice of law provisions which provide that Michigan courts and Michigan law applies in disputes such as the one presently before the Court. Under the franchise agreements, Defendants acquired the right to use the licensed rights in connection with the advertising and sale of pizza and related food products of LCE. Among Defendants' obligations were the requirements that Defendants operate the franchises in conformance with required product specifications; and to pay royalty, product, and advertising fees. The franchise agreements further required the franchise owner to pay its debts in a timely manner.

In late 1989/early 1990 LCE, through THE LITTLE CAESARS NATIONAL ADVERTISING PROGRAM (LCNAP), the other plaintiff in this case, commenced a new national advertising strategy for special or promotional products which included nationally advertised prices. LCNAP advertised in what Defendants describe as the RJL Franchisees "Area of Dominant Market Influence" (ADI) in Connecticut. Defendants conformed for a short time to LCE and LCNAP's first product and price promotion. Defendants claim that they suffered customer complaints due to the poor quality of the promotional goods, which they allege are inferior to LCE's standard products. The franchise owners further contend that they realized that they could not sell the allegedly inferior promotional products without suffering a loss of goodwill. RJL Franchisees therefore asked LCE to be exempted from the national advertising; or in the alternative, that the advertisements disclose to the customers that the "promotional" items were of lesser quality than LCE's standard goods. LCE apparently denied these requests. Defendants also requested that disclaimers be placed on the advertisements disclosing that the promotional items were not available in Connecticut at the price stated, such as was being done in Alaska and Hawaii. This request also was denied.

Defendants therefore decided to exercise their option under the franchise agreements to determine prices. (See Franchise Agreement § VIII). For some period of time, their prices exceeded the nationally advertised price.

On October 8, 1991 LCE notified the RJL Franchisees of its intent to terminate the franchise agreements for allegedly:

1. failing to file required royalty reports;

2. failing to pay royalty fees;

3. failing to pay advertising fees;

4. failing to pay its debts in a timely manner; and

5. failing to operate in conformance with required product specifications.

(See October 8, 1991 letter from LCE, Charles P. Jones, Vice Chairman, attached as Exhibit G to the Verified Complaint). The franchise agreements provide that the effective date of termination is thirty day from the franchise owner's receipt of the Notice. (See Franchise Agreement § XIX).

On November 14, 1991, the RJL Franchisees informed LCE of their intent to cure all arrearages. (See November 14, 1991 letter from RJL counsel, Philip G. Jameson, attached as Exhibit 1 to Plaintiffs' Brief). That letter states in full:

I am writing to you regarding Mary Jo Teel's letter to RJL Foods, Inc., dated November 6, 1991.

Many of the operational modifications suggested by LCE at the October 29, 1992, meeting have been put into place. However, there are a number of items which are yet to be addressed. Specifically, we would like to move forward without further delay with Mike Shaub's suggestion that he speak with our Landlords in an attempt to lower our rental obligations and in abolishing RJL's present manager's bonus program in favor of LCE's.

The marketing people have met in Connecticut and have agreed that the advertising budget has been slashed to the bone and that the current vehicles being used are correct given the current availability. The only issue to be addressed is attempting to lower the assertion rate which Mike Deitz will be addressing shortly.

As for Mary Jo Teel's letter, Rich Cueny and I will be speaking shortly to finalize negotiations to cure the present arrearages. It is my understanding that Mr. Cueny and Frank Lombardo have been addressing this issue and have finalized the amounts due.

I am under the impression from our last conversation that so long as we are making continuous and regular progress with regard to curing the arrearages that LCE will not take any definitive action to terminate our franchise and will us allow ample time to resolve this issue.

RJL sincerely appreciates all of the efforts that LCE has made and we hope that we will be able to move forward in this continuing spirit of cooperation.

Subsequently, Defendants requested an extension until December 16, 1991, (see Exhibit H to the Verified Complaint); which LCE granted. Defendants failed to cure on that date. Furthermore, the RJL Franchisees then informed LCE that although Defendants intended to make their food account current, they did not intend to pay their royalty or advertising accounts at that time. (See December 10, 1991 letter from Anthony J. Caputo, attached as Exhibit 2 to Plaintiffs' Brief). After continued attempts to work out a plan for curing the default were unsuccessful, LCE terminated Defendants' franchise agreements and all licensed rights on March 4, 1992.

Defendants concede that they are in arrears but contend that the termination is in reality an attempt to "bring them back into line" for refusing to participate in the marketing scheme. The RJL Franchisees refer to a letter sent by LCE to the RJL Franchisees which Defendants allege "makes clear that they had a limited future with LCE. (See September 17, 1991 letter from Mike Shaub, Regional Vice President, Northeast Franchise Development of LCE, to Frank Lombardo). This letter of course precedes the meetings and discussions in October and November where the defendant franchisees acknowledged the problem of their arrearages and expressed their appreciation with LCE's patience in working with them to cure the problem. In further support of this argument, Defendants point out that their termination immediately followed the election of Philip G. Jameson, an attorney and one of the RJL Franchisees, to the Board of Directors of the newly formed Association of Little Caesar's Franchisees, Inc.

In their motion for preliminary injunction, Plaintiffs request that this Court:

1. enjoin Defendants from using the "Little Caesar" name, trademarks, service marks, insignias or logos or any word or words confusingly similar to the licensed rights; from competing with LCE for a two year period after the effective date of terminations provided under section XVII. C. 3 of the Franchise Agreement; and diverting or attempting to divert any business or customer of LCE in accordance with section XVII. C. 1;

2. issue a mandatory injunction against Defendants, ordering them to remove immediately any and all indicia of the "Little Caesar" name and other registered trademarks and service marks; and further requiring Defendants to present an affidavit to the Court within thirty days of the order indicating any and all efforts taken to comply with the Court's order.

In contrast, Defendants seek a TRO and/or preliminary injunction ordering in principal part that:

1. the franchise agreements remain in full force and effect during the pendency of this matter 2. LCE sell to RJL Franchisees food and trademark supplies from its affiliate Blue Line Distributing, Inc. under its standard terms previously extended To Defendants prior to the March 4, 1992 termination; and

3. LCE and LCNAP are restrained from placing within RJL's Franchisees' ADI any television, radio, or printed advertisements which promote any specific product or products of different specifications than the standard LCE specifications.

II.

Both parties have brought motions for a preliminary injunction. A court must consider four factors in deciding whether to issue a preliminary injunction:

1. whether the movant has shown a strong or substantial likelihood of success on the merits;

2. whether the movant has demonstrated irreparable injury;

3. whether the issuance of a preliminary injunction would cause substantial harm to others; and

4. whether the public interest is served by the issuance of an injunction.

Parker v. United States Dep't. of Agric., 879 F.2d 1362, 1367 (6th Cir.1989). The foregoing are factors to be balanced, not prerequisites to be met. In re DeLorean Motor Co., 755 F.2d 1223, 1229 (6th Cir. 1985). Where the three factors other than...