Mrs. Fields Franchising, LLC v. MFGPC

• Decision Date: 07 November 2019
• Docket Number: Nos. 19-4046 & 19-4063,s. 19-4046 & 19-4063
• Citation: 941 F.3d 1221
• Parties: MRS. FIELDS FRANCHISING, LLC, a Delaware limited liability company; Mrs. Fields Famous Brands, LLC, a Delaware limited liability company, d/b/a Famous Brands International, Plaintiffs Counterclaim Defendants - Appellants, v. MFGPC, a California corporation, Defendant Counterclaimant - Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

941 F.3d 1221

MRS. FIELDS FRANCHISING, LLC, a Delaware limited liability company; Mrs. Fields Famous Brands, LLC, a Delaware limited liability company, d/b/a Famous Brands International, Plaintiffs Counterclaim Defendants - Appellants,

v.MFGPC, a California corporation, Defendant Counterclaimant - Appellee.

Nos. 19-4046 & 19-4063

United States Court of Appeals, Tenth Circuit.

FILED November 7, 2019

Avery Samet, Storch Amini, New York, New York (Rod N. Andreason, Kirton McConkie, Salt Lake City, Utah, with him on the briefs), appearing for Appellant.

Brian M. Rothschild, Parsons Behle & Latimer, Salt Lake City, Utah, appearing for Appellee.

Before BRISCOE, KELLY, and LUCERO, Circuit Judges.

BRISCOE, Circuit Judge.

Plaintiffs and counterclaim-defendants Mrs. Fields Famous Brands, LLC (Famous Brands) and Mrs. Fields Franchising, LLC (Fields Franchising) appeal from the district court’s order granting a preliminary injunction in favor of defendant and counterclaim-plaintiff MFGPC Inc. (MFGPC). In August 2018, the district court entered partial summary judgment in favor of MFGPC on its counterclaim for breach of a trademark license agreement that afforded MFGPC the exclusive use of the "Mrs. Fields" trademark on popcorn products. The district court’s summary judgment order left only the question of remedy to be decided at trial. MFGPC then moved for a preliminary injunction, arguing that there was a substantial likelihood that it would prevail at trial on the remedy of specific performance. After conducting a hearing, the district court granted MFGPC’s motion and ordered Fields Franchising to terminate any licenses it had entered into with other companies for the use of the Mrs. Fields trademark on popcorn products, and to instead comply with the terms of the licensing agreement it had previously entered into with MFGPC. Famous Brands and Fields Franchising argue in this appeal that the district court erred in a number of respects in granting MFGPC’s motion for preliminary injunction. Exercising jurisdiction pursuant to 28 U.S.C. § 1292(a)(1), we agree with appellants, and consequently reverse the district court’s grant of a preliminary injunction in favor of MFGPC.

I

The parties

Famous Brands is a limited liability company organized under the laws of the State of Delaware with its principal place of business in Broomfield, Colorado. The sole member of Famous Brands is Mrs. Fields Original Cookies, Inc. (MFOC), a Delaware corporation with its principal place of business in Salt Lake City, Utah. MFOC is not a party to this action.

Fields Franchising, LLC is a limited liability company organized under the laws of the State of Delaware with its principal place of business in Salt Lake City, Utah. The sole member of Fields Franchising is Famous Brands.

Defendant MFGPC is a California corporation with its principal place of business in Mission Viejo, California.

The License Agreement and its relevant terms

Fields Franchising owns the rights to the "Mrs. Fields" trademark and licenses those rights to allow other entities to manufacture, sell, and distribute products using the "Mrs. Fields" trademark.

On April 30, 2003, MFOC entered into a Trademark License Agreement (License Agreement) with LHF, Inc. (LHF), an affiliate of MFGPC. Aplt. App., Vol. 1 at 25, 45 (copy of actual agreement). On June 30, 2003, LHF assigned all rights under the License Agreement to MFGPC, and MFGPC agreed to be bound by and perform in accordance with the License Agreement. Id. at 25, 69 (copy of assignment). The License Agreement granted MFGPC a license to develop, manufacture, package, distribute and sell prepackaged popcorn products bearing the "Mrs. Fields" trademark through all areas of general retail distribution. Id. at 46. The License Agreement prohibited MFOC from competing with MFGPC by making Mrs. Fields branded popcorn or licensing the right to use the Mrs. Fields trademark for use on popcorn. Id. , Vol. 5 at 866.

Section 5 of the License Agreement, entitled "LICENSE FEE AND ROYALTIES," required MFGPC to pay MFOC an "initial license fee" comprised of two payments: (1) $50,000 on or before June 1, 2003; and (2) an additional $50,000 on the "first anniversary of th[e] Agreement." Id. , Vol. 1 at 50. Section 5 also required MFGPC to pay MFOC "Guaranteed Licensing Fees and Running Royalties":

Throughout the term (including Option Periods) of this Agreement the Running Royalty shall be 5% of Net Sales of Royalty Bearing Products. [MFGPC] shall remit such Running Royalties to [MFOC] on the last day of the month following the end of each calendar quarter covered by the Agreement. All Guaranteed Amounts and Running Royalties shall be non-refundable for any reason whatsoever.

Id.¹

Section 6 of the License Agreement, entitled "GUARANTEED ROYALTY," required MFGPC to pay MFOC a "Guaranteed Royalty" ... per year on the Net Sales of Royalty Bearing Products during the initial term as set forth on the following schedule:

INITIAL TERM

 INITIAL TERM
                  Year 1    $    0.00
                  Year 2    $  50,000
                  Year 3    $ 100,000
                  Year 4    $ 100,000
                  Year 5    $ 100,000
                

Id. at 50. "Royalty Bearing Products" were defined in the License Agreement as "the food products described on Exhibit B hereto that are sold as prepackaged popcorn products using the Licensed Names and Marks." Id. at 48. Exhibit B to the License Agreement stated that "Royalty Bearing Products" were "[h]igh quality, prepackaged, popcorn products." Id. at 67.

The License Agreement required MFGPC to "deliver to" MFOC quarterly and annual reports detailing "the amount of Royalty Bearing Products sold, including sufficient information and detail to confirm the [royalties] calculations." Id. at 51. It also required MFGPC to "provide [MFOC] a [monthly] summary of all written consumer complaints received regarding the quality of the Royalty Bearing Products." Id. at 52.

The "initial term" of the License Agreement began "upon the execution" of the License Agreement and "continue[d] for a period of sixty (60) months (‘Initial Term’)." Id. at 57. The License Agreement stated that, "[s]o long as [MFGPC] [wa]s not in material default and ... ha[d] met and/or paid Running Royalties based on its Guaranteed Royalty," the License Agreement "would then automatically renew for successive five year terms (‘Option Periods’) until such time as either party terminate[d] the Agreement upon no more than twenty (20) days prior written notice to the other party." Id.

The License Agreement stated, in pertinent part, that it could be terminated in the following manner:

(i) If [MFGPC] defaults in the payment of any Running Royalties then this Agreement and the license granted hereunder may be terminated upon notice by [MFOC] effective thirty (30) days after receipt of such notice, without prejudice to any and all other rights and remedies [MFOC] may have hereunder or by law provided, and all rights of [MFGPC] hereunder shall cease.

(ii) If [MFGPC] fails to pay its Guaranteed Royalty ..., then, this Agreement and the license granted hereunder may be terminated upon receipt of such notice by [MFGPC], without prejudice to any and all other rights and remedies [MFOC] may have hereunder or by law provided, and all rights of [MFGPC] hereunder shall cease.

(iii) If [MFGPC] fails to perform in accordance with any material term or condition of this Agreement ... and such default continues unremedied for thirty (30) days after the date on which [MFGPC] receives written notice of default, unless such remedy cannot be accomplished in such time period and [MFGPC] has commenced diligent efforts within such time period and continues such effort until the remedy is complete, then this Agreement may be terminated upon notice by [MFOC], effective upon receipt of such notice, without prejudice to any and all other rights and remedies [MFOC] may have hereunder or by law provided.

* * *

(v) If [MFOC] ... files a petition in bankruptcy or for reorganization ..., then this Agreement and the License granted hereunder may be terminated upon notice by [MFGPC], effective upon receipt of such notice, without prejudice to any and all other rights and remedies [MFGPC] may have hereunder or by law provided ....

(vi) If [MFOC] fails to perform in accordance with any material term or condition of this Agreement and such default continues unremedied for thirty (30) days after the date on which [MFOC] receives written notice of default, then this Agreement may be terminated upon notice by [MFGPC], effective upon receipt of such notice, without prejudice to any and all other rights and remedies [MFGPC] may have hereunder or by law provided.

Id. at 57–58.

MFOC’s assignment of its rights under the License Agreement

After entering into the License Agreement, MFOC assigned its rights and obligations under the License Agreement to Fields Franchising. Id. at 35; Dist. Ct. Docket No. 98 at 3 ("Counterclaim Defendants admit ... that the rights of [MFOC] under the License Agreement were assigned to" Fields Franchising).

The renewal of the License Agreement

Fields Franchising and MFGPC continued to operate under the License Agreement through the end of 2014, a period of more than eleven years. According to MFGPC, it "paid the royalties required of it during the first term of the License Agreement, consisting of $450,000 in Guaranteed Royalties." Aplt. App., Vol. 1 at 35. MFGPC alleges that it owed no Guaranteed Royalties during the subsequent terms of the License Agreement, and instead was only required to pay Running Royalties. MFGPC also alleges that in 2013, Fields Franchising "required MFGPC to make a $50,000 investment in package design changes for its products which was obviously premised on the license being in full force and effect." Id.

MFGPC’s non-payment of Running Royalties in 2013

"On January 13, 2013, there was a fire at a business next to MFGPC’s chocolate drizzling co-packer." Id. , Vol. 2 at 319. "This left [the co-packer’s] plant filled with smoke and damaged most all of the Mrs....