Rosati v. Rosati
| Decision Date | 18 August 2021 |
| Docket Number | 20-cv-07762 |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | MICHAEL ROSATI, individually and derivatively on behalf of Rosati's Franchise Systems, Inc. and WILLIAM ROSATI, individually and derivatively on behalf of Rosati's Franchise Systems, Inc., Plaintiffs, v. ANTHONY ROSATI, DAVID ROSATI, and POWER PLAY DISTRIBUTORS, LLC, Defendants, |
This case centers on a dispute between family members who run a pizza business. Since the 1960s, the Rosati name has been closely and famously associated with hot, fresh pizzas-served to sit-down diners and take-out customers alike. To encourage and manage the growth of this burgeoning business, the extended Rosati family formed a ten-shareholder corporation in 1988, known as Rosati's Franchise Systems, Inc. (“RFSI”), that was designed both to run the existing family empire and sell franchises to operate new Rosati's pizza restaurants.
As sometimes occurs in closely held enterprises, disputes arose about how to run the business. To quell this internal strife the shareholders concluded a series of agreements in 1998 to change RFSI into, essentially, an intellectual property holding company. RFSI, as a business entity, stopped selling franchises and instead entered into license agreements with each shareholder. Under those license agreements, which are functionally identical, the family licensees were allowed to run their restaurants separately, in exclusive territories and to sell additional franchises (provided those new restaurants did not invade another licensee's territory). This arrangement was intended to free each shareholder from having to coordinate dayto-day operations with other family members. To effect the scheme, each licensee was granted a “perpetual, non-exclusive and royalty-free” license “to use, and to sublicense the use of, ” the Rosati's trademarks and recipes “to operate Rosati's Pizza Restaurants....”
Fast-forward to 2020, when two shareholders, Defendants Anthony and David Rosati, began selling frozen thin-crust pizzas bearing the Rosati's name at Illinois grocery stores. Anthony and David Rosati did not, however, seek RFSI's permission to launch this new venture using RFSI's property. Plaintiffs Michael and William Rosati, two other shareholders of RFSI were unaware of the frozen pizza business until they discovered it during a visit to a local grocery store. This discovery led to a new period of family strife, culminating in the present lawsuit. Plaintiffs have sued Anthony and David Rosati, as well as the contracted distributor of the frozen pizzas, under the Lanham Act and various state law theories. Among other remedies, Plaintiffs seek a preliminary injunction enjoining Defendants from using the Rosati's name and marks in connection with frozen pizzas without authorization from RFSI. Significantly, Plaintiffs purport to act not only on their own behalf but also in the name of RFSI.
For the reasons that follow, the Court finds that Plaintiffs are entitled to a preliminary injunction. Defendants' use of the RFSI-owned marks cannot be justified under the existing licensing scheme, which permits the use of the Rosati's name only in connection with the operation of restaurants. In the Court's view, a limited license to operate a restaurant does not also permit the unrestricted distribution of frozen Rosati's pizzas made in a factory. And although Plaintiffs did not, as is ordinarily required, ask the RFSI board to assert RFSI's own rights before Plaintiffs filed this suit, the record, at least at this preliminary stage, shows that any demand on the RFSI governing board would have been futile due to personal interests at play between various family members.
Because a preliminary injunction is necessary to alleviate the ongoing and irreparable harm to Plaintiffs and RFSI's intellectual property-harm greater than what Defendants will suffer-the Court grants Plaintiffs' motion for entry of a preliminary injunction and denies Defendants' motions to dismiss the complaint. A distinct injunction order will be entered later, following further proceedings to be set by separate order.
Rosati's Pizza is a locally known chain of pizza restaurants founded by Ronald and Richard Rosati in 1964. (Dkt. 29 at 1-2.) This family business, which started in Mt. Prospect, Illinois, quickly became one of the country's largest pizza franchises and the largest regional pizza chain in the Chicago area. (Id. at 2.) As a brand, Rosati's Pizza is both famous and valuable.
It is aphoristic that success breeds success, and the Rosati's Pizza brand certainly leveraged its early success-not by magic or luck, but by good business practices. In 1998, the Rosati family formed Rosati's Franchise Systems, Inc. (“RFSI”) as part of an initiative to expand the family business through the franchising of individual, made-to-order pizza restaurants. (Id. at 3.) An enduring and successful business, RFSI now has ten shareholders (most, if not all, are members of the extended Rosati family) who each hold a 10% stake in RFSI. (Dkt. 49 (Amended Complaint) at ¶¶ 29-30.)
Despite the existence of this sensible business framework, RFSI began to experience difficulties beginning in the mid-1990s. According to Plaintiffs, disputes arose among the Rosati family members concerning “their differing notions of how to run and build the business.” (Id. ¶ 34.) These disputes eventually were resolved by negotiation; and in 1998, the familial antagonists jointly executed a document entitled “Agreement Concerning Exclusive Territorial Rights” (the “Territory Agreement”). (Dkt. 49-4.) Through this new agreement, the ten shareholders “decided to cease franchising Rosati's Pizza Restaurants through RFSI, to limit the role of RFSI to maintaining the Rosati's Marks, and to permit each of the shareholders to continue running their pizza restaurants independently of each other.” (Dkt. 49 ¶ 34.) A central feature of the Territory Agreement was (and remains) an exclusivity provision that grants the restaurant franchisees “exclusive territorial rights” within a circular region bearing a roughly five-mile radius (“by roads”) surrounding any given restaurant.
Of present importance, the Territory Agreement memorialized the shareholders' consensus that RFSI assumed (and owns to this day) the right to the Rosati's Pizza name and the associated common law and registered trademarks. (Id.) In addition, the Territory Agreement contemplated, as a condition of the Agreement, that each of the ten original shareholders (and restaurant operators) was granted, among other rights and duties, a “perpetual, non-exclusive and royalty-free license to use, and to sublicense the use of, the Marks and Recipes [defined in the Agreement's “Whereas” clauses] to operate Rosati's Pizza Restaurants.” (Id. ¶ 36; Dkt. 49-1 ¶ 1; Dkt. 49-4 at 1.) This agreement, which was executed in September 1998, is referred to by the parties as the “License Agreement.” (Dkt. 49-1.)
These two 1998 agreements fostered a period of quiescence in the family discord. But the Pax Rosati dissolved in 2020 when Defendants Anthony and David Rosati, both shareholders in RFSI, began selling Rosati's frozen thin-crust pizzas in Illinois grocery stores in concert with Defendant Power Play Distributors, LLC. To the chagrin of Plaintiffs, sales of these frozen pies-the boxes bear the Rosati's logo and name (Dkt. 29 at 6; see also reproduced images at Section III.A.ii.a below) and use the Rosati's recipe (Dkt. 58 at 6)-include transactions at grocery stores within a five-mile radius of existing Rosati's restaurants owned by other shareholders. (Dkt. 29 at 1; Dkt. 29 at 5.) It is apparently undisputed that Anthony and David never presented the idea of selling Rosati's-branded frozen pizzas to the RFSI board for consideration. (Dkt. 29 at 7-8; Dkt. 65 at 11 n.10; Dkt. 53 at ¶ 15.)
Purporting to act both on behalf of themselves and, derivatively, on behalf of RFSI itself, Plaintiffs brought this Lanham Act and state law-based action challenging Defendants' use of the Rosati's Pizza marks on frozen pizzas. Plaintiffs contend that the License Agreement does not allow Defendants the right to use the Rosati's mark in the frozen pizza business. According to Plaintiffs, the License Agreement grants Defendants the right merely to operate Rosati's restaurants, not to sell frozen Rosati's pizzas. (Dkt. 49 ¶ 4.) Plaintiffs assert that they are entitled to bring their derivative claims without having made a demand-to-sue on the RFSI board because, they contend, any such demand would have been futile. Plaintiffs now seek a preliminary injunction barring Defendants from conducting further sales of infringing frozen pizzas pending final resolution of this lawsuit. (Dkt. 29 at 2.)
Defendants oppose a preliminary injunction, for several reasons. Defendants first contend that, because Plaintiffs failed to make the requisite shareholder demand on the RFSI board, this lawsuit is not properly before the Court. (Dkt. 58 at 10-13.) Defendants also argue that, even if the demand requirement can permissibly be excused, the terms of the License Agreement are sufficiently broad to permit the sale of Rosati's frozen pizzas. (Id. at 13-15.)
These arguments are addressed in turn. As explained below, because Plaintiffs have shown a likelihood of success on the merits and have otherwise demonstrated that the balance of harms works to their greater detriment, a preliminary injunction is warranted.
Preliminary injunctive relief is “an extraordinary and drastic remedy, one that should not be granted unless the movant by a clear showing, carries the burden of persuasion.” Mazurek v....
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