Petro Franchise Systems, Llc v. All American Properties, EP-08-CV-387-KC.

CourtUnited States District Courts. 5th Circuit. Western District of Texas
Writing for the CourtKathleen Cardone
Citation607 F.Supp.2d 781
PartiesPETRO FRANCHISE SYSTEMS, LLC; and TA Operating, LLC, Plaintiffs, v. ALL AMERICAN PROPERTIES, INC.; et al., Defendants. All American Properties, Inc.; All American Plazas, Inc., Counter Plaintiffs, v. Petro Franchise Systems, LLC; and TA Operating LLC, Counter Defendants.
Docket NumberNo. EP-08-CV-387-KC.,EP-08-CV-387-KC.
Decision Date19 March 2009
607 F.Supp.2d 781
PETRO FRANCHISE SYSTEMS, LLC; and TA Operating, LLC, Plaintiffs,
v.
ALL AMERICAN PROPERTIES, INC.; et al., Defendants.
All American Properties, Inc.; All American Plazas, Inc., Counter Plaintiffs,
v.
Petro Franchise Systems, LLC; and TA Operating LLC, Counter Defendants.
No. EP-08-CV-387-KC.
United States District Court, W.D. Texas, El Paso Division.
March 19, 2009.

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Jeanne C. Collins, Mark N. Osborn, Richard Andrew Bonner, Kemp Smith LLP, El Paso, TX, for Plaintiffs.

Joseph L. Hood, Jr., Windle Hood Alley Norton Brittain & Jay, LLP, El Paso, TX, for Defendants.

ORDER

KATHLEEN CARDONE, District Judge.


On this day, the Court considered "Plaintiffs' Application for Preliminary Injunction Against Defendants All American Properties, Inc. and All American Plazas, Inc." ("Plaintiffs' Application") (Doc. No. 15) and "Defendants' Application for a Temporary Restraining Order and Preliminary Injunction" ("Defendants' Application") (Doc. No. 25). For the reasons set forth herein, Plaintiffs' Application is GRANTED in part, and Defendants' Application is DENIED.

I. BACKGROUND

The following derives from Plaintiffs' Application, the included "Declaration Under Penalty of Perjury" ("Plaintiffs' Declaration"), and the exhibits attached thereto; "Defendants' Response to Plaintiffs' Application for a Preliminary Injunction" ("Defendants' Response") (Doc. No. 21), the included "Declaration of Richard A. Mitstifer" ("Mitstifer Declaration"), and the exhibits attached thereto; "Plaintiffs' Reply to Defendants' Response to Plaintiffs' Application for a Preliminary Injunction" ("Plaintiffs' Reply") (Doc. No. 26), and the exhibits attached thereto; Defendants' Application; "Plaintiffs' Response to Defendants' Application for Preliminary Injunction" ("Plaintiffs' Response") (Doc. No. 30); "Defendants' Reply in Support of Their Application for a Preliminary Injunction" ("Defendants' Reply") (Doc. No. 31); Plaintiffs' "Complaint" (Doc. No. 1), and the exhibits attached thereto; "Defendants' Answer" (Doc. No. 13); "Defendants' Original Counterclaim" ("Counterclaim") (Doc. No. 29); and Plaintiffs' "Original Answer of Petro Franchising [sic] Systems[,] LLC and TA Operating LLC to Defendants' Original Counterclaim" ("Plaintiffs' Answer") (Doc. No. 32).

Beginning in 1975, Petro Franchise System, LLC ("Petro"), through its predecessor in interest, "developed . . . a unique system (the `Franchise System') for the operation of full-facility truck/auto travel centers [ ] comprised of fueling, merchandising, restaurant and preventative maintenance

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operations which are operated under the Petro trademark and trade name." Pls.' Decl. 1. As its name indicates, the Franchise System consists of franchises granted to individuals and businesses. Id. at 2. In 1998, Petro first granted franchises for travel centers located in Breezewood, Pennsylvania ("Breezewood Franchise") and Milton, Pennsylvania ("Milton Franchise"). Defs.' Decl. 1-2. The most recent franchise agreements for both Franchises took effect on October 23, 2003. See Pls.' Application Ex. 1 at 1-2 ("Breezewood Franchise Agreement"); id. Ex. 2 at 1-2 ("Milton Franchise Agreement").1

The Franchise Agreements provide for, inter alia, the franchisee's permissible use of Petro's proprietary marks, the scope of the franchisee's exclusive franchise area, the calculation of and procedure for franchise fees remitted to Petro, the franchisee's use of Petro's confidential information, events which may lead to default and termination, and the parties' rights and duties upon termination. See generally Pls.' Application Ex. 1 at 2, 4, 10-16, 26-31, 45-46.2 The Agreements are both governed by Texas law. Id. at 57. The proprietary marks referenced in the Franchise Agreements and the operating assets of the Franchise System are currently owned by Plaintiff TA Operating, LLC ("TA"). Pls.' Application 1. Plaintiff Petro is the current franchisor and has the right to sub-license TA's proprietary marks. Id. at 2. Defendants All American Properties, Inc., and All American Plazas, Inc. (collectively "Franchisees"), are the current franchisees of the Breezewood and Milton Franchises, respectively.

Franchisees state that they "enjoyed a good and valuable relationship" with Petro from the date of the agreement until May 30, 2007. Defs.' Application 3. On that date, Petro's predecessor was acquired by Travel Centers of America, LLC, an affiliate of Plaintiff TA,3 which operated five travel plazas within Franchisees' exclusive franchise area under the TA brand. Id. Franchisees claim that after the acquisition TA began to integrate the TA brand with the Petro brand by, for example, combining the brands' roadside assistance programs and rewards programs. Id. at 4. Franchisees believe that this integration diminished the value of the Petro brand and led to a substantial decline in their business. Id. at 4-5. Their concern led them to meet with other Petro franchisees and, in February 2008, with TA's senior management. Id. at 6.

On February 13, 2008, Franchisees' attorney sent Petro a letter responding to "[Petro's] purported notice of default set forth in [a] letter of December 28, 2007[,] regarding the Breezewood and Milton truck stop plazas...." Pls.' Reply Ex. C at 1. The letter stated that Franchisees "are no longer interested in having [a] truck stop plaza located at Frystown [, Pennsylvania] converted to a Petro franchise and accordingly, are seeking release from escrow of [ ] $500,000 being held. . . ." Id. Among the reasons given for Franchisees' disinterest was their "belie[f] that the Petro mark has substantially diminished in value since the acquisition of Petro by TA." Id. at 2.

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On March 11, 2008, Plaintiffs and Franchisees entered into a "Confidential Settlement Agreement and Mutual General Release." See Defs.' Resp. Ex. E ("Release"). The Release provided that the $500,000 of escrow funds would be disbursed to Petro "to cure the monetary default under the Breezewood Franchise Agreement," "to cure the monetary default under the Milton Franchise Agreement," "as advance payments for sums due Petro under the Breezewood Franchise Agreement and Milton Franchise Agreement," and "as a security deposit ... to secure the obligations of [Franchisees] under the Breezewood Franchise Documents and Milton Franchise Documents." Id. at 3-4. Additionally, Franchisees agreed to release Petro and its associated entities from any claims "relating to or in anyway [sic] connected to any matter, including ... [the] Breezewood Franchise Documents ... [the] Milton Franchise Documents ... and the allegations raised in [Franchisees' counsel's] letter of February 13, 2008...." Id. at 6. However, the Release did not extend to "claims first arising solely after the date of [the Release]." Id. at 7.

Plaintiffs state that the funds from the Release were applied to franchise fees owed for March 2008 and April 2008. See Compl. ¶¶ 46-47; Pls.' Application 9. They allege that "[s]ince that time, neither [Franchisee] has remitted any payments due under their respective [F]ranchise [A]greements." Pls.' Application 9. Franchisees do not dispute that they did not remit any payments for fees owed after April 2008. However, Franchisees argue that Plaintiffs "placed [Franchisees] in the position of being unable to pay [those] fees." Defs.' Reply 1. Pursuant to the default provisions of the Agreements, Petro sent Franchisees several notices in July 2008 and August 2008 notifying Franchisees that they had defaulted on the Agreements. See id. Exs. 4-7.

After Franchisees failed to cure their alleged default by making payments, and pursuant to the termination provisions of the Franchise Agreements, Petro sent letters to Franchisees confirming that the Franchise Agreements were automatically terminated as of August 29, 2008. Id. Exs. 8-9. In response, Franchisees stated that they "feel very strongly that they are not receiving the benefits of the [F]ranchise [A]greements" because TA's acquisition of Petro has "led to a substantial decrease in revenues[,] making it more and more difficult to pay...." Defs.' Resp. Exs. B-C.

Franchisees allege that they attended a meeting with TA on October 7, 2008, in which they attempted to resolve their "ongoing problems." Countercl. ¶ 22. On the same day, Plaintiffs filed their Complaint,4 alleging trademark infringement, false designation of origin, and dilution under the Lanham Act; unfair competition and unjust enrichment; trademark infringement under Texas law; breach of contract; and conversion. See Compl. 15-26.

On October 15, 2008, Plaintiffs filed their Application, seeking a preliminary injunction ordering Franchisees to stop using Plaintiffs' name and trademarks, to return Plaintiffs' proprietary materials, to refrain from utilizing Plaintiffs' copyrighted works, and to comply with the post-termination provisions of the Franchise Agreements. Pls.' Application 3.

On January 6, 2009, Franchisees filed their Response. In their Response, Franchisees noted that Petro continued to represent

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the Breezewood and Milton travel centers as Petro franchises on its website. Defs.' Resp. 10. On the same day, Petro sent an email informing their fleet-vehicle customers that "[a]ll programs run at [the Milton and Breezewood] locations as part of the Petro system are no longer available...." Defs.' Application Ex. A. On January 13, 2009, Plaintiffs filed their Reply, in which Plaintiffs stated that they have "taken a number of steps ... to prevent consumer confusion." Pls.' Reply 8. "The last of those steps," already completed on the date of the Reply, "was to remove [Franchisees] from Petro's website." Id.

Also on January 13, 2009, Franchisees filed their Counterclaim and their Application. In the Counterclaim, Franchisees allege that Plaintiffs breached the Franchise...

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