Shoney's N. Am., LLC v. Smith & Thaxton, Inc.
| Decision Date | 29 December 2014 |
| Docket Number | Case No. 3:12-cv-00625 |
| Court | U.S. District Court — Middle District of Tennessee |
| Parties | SHONEY'S NORTH AMERICA, LLC, Plaintiff, v. SMITH & THAXTON, INC., BALLARD G. THAXTON and ANDRE SMITH, Defendants. |
MEMORANDUM OPINION
Before the Court are the plaintiff's objections (ECF No. 71) to the Report and Recommendation (ECF No. 68) filed by Magistrate Judge Cliff Knowles, recommending that the plaintiff's Renewed Motion for Summary Judgment (ECF No. 41) be denied.
After being served with a magistrate judge's recommended disposition, any party may, within fourteen days, "serve and file specific written objections to the proposed findings and recommendations." Fed. R. Civ. P. 72(b)(2). The district court must review de novo any portion of the report and recommendation to which objections are "properly" lodged. Fed. R. Civ. P. 72(b)(3); 28 U.S.C. § 636(b)(1)(B) & (C). In conducting its review, the district court "may accept, reject, or modify the recommended disposition; receive further evidence; or return the matter to the magistrate judge with instructions." Fed. R. Civ. P. 72(b)(3).
The plaintiff, Shoney's North America, LLC ("SNA") has lodged proper objections to each of the magistrate judge's findings and proposed ruling, and the Court has therefore conducted a de novo review of the record and the plaintiff's motion. For the reasons set forth herein, the Court will reject the magistrate judge's disposition and grant the plaintiff's motion for summary judgment. The Court deems the federal claims on which the plaintiff did not seek summary judgment to be abandoned and will dismiss those claims, but will enter final judgment in favor of the plaintiff on its state-law breach-of-contract claims against all defendants. The plaintiff's motion for a default judgment against defendant Andre Smith will be denied as moot, and this matter dismissed.
SNA filed the instant action on June 20, 2012 against defendants Ballard G. Thaxton, Andre M. Smith, and their company, Smith & Thaxton, Inc. ("S&T"), invoking this Court's jurisdiction under 28 U.S.C. §§ 1331 (federal question), 1338 (trademarks and unfair competition), and 1331 (diversity). (Complaint, ECF No. 1.) The plaintiff alleges that S&T entered into two identical License Agreements with its predecessor in interest, Shoney's, Inc., which granted S&T the right to establish and operate two Shoney's® family restaurants and to use the Shoney's trademarks and service marks in connection with the operation of the Shoney's® restaurants. The plaintiff alleges that, in connection with the License Agreements, Mr. Thaxton and Mr. Smith executed Guaranty Agreements pursuant to which they jointly and severally guaranteed the performance of S&T's obligations under the terms of the License Agreements. The complaint asserts that the defendants breached the License and Guaranty Agreements and infringed SNA trademarks and service marks in violation of the common law and federal law, specifically Sections 32 and 43(a) of the Lanham Act, 15 U.S.C. §§ 1114(1)(a) and 1125(a).
Mr. Thaxton and Mr. Smith secured counsel to represent both the corporate entity and themselves individually. Counsel filed a timely answer to the complaint, denying liability and raising affirmative defenses.
On December 10, 2012, SNA filed its original Motion for Summary Judgment, along with a supporting Memorandum of Law with Exhibits, Statement of Undisputed Material Facts, and the Declaration of Catherine Hite. (ECF Nos. 20-23.) On December 14, 2012, the defendants filed a Motion to Stay, invoking the dispute-resolution procedure set out in Section 18.H of the License Agreements. While the motion to stay was still pending, the defendants filed their response in opposition to the original motion for summary judgment and a response to the statement of undisputed facts. (ECF Nos. 29, 30.) Defense counsel then filed a motion to withdraw.
The Court granted the motion to stay on January 30, 2013, pending the parties' compliance with the dispute-resolution terms of the License Agreements. (ECF No. 37.) In the same order, the Court granted defense counsel's motion to withdraw and denied as moot all other pending motions, including the plaintiff's motion for summary judgment, in light of the stay.
The Court lifted the stay on June 6, 2013 pursuant to the plaintiff's unopposed motion representing that the parties had complied with Section 18.H(3) but had been unable to negotiate a resolution of their dispute. Thereafter, SNA filed its Renewed Motion for Summary Judgment (ECF No. 41), a one-page document that essentially incorporates by reference its original motion and supporting materials. As previously stated, the magistrate judge recommends that the motion be denied on the basis of disputed issues of fact, and the plaintiff filed objections to the magistrate judge's findings and conclusions.
During the pendency of these proceedings, Mr. Ballard G. Thaxton passed away (ECF No. 49) and was terminated as a party to this action (ECF No. 52). The Court subsequently granted the plaintiff's motion to substitute party, substituting Mr. Thaxton's wife, Brenda K. Thaxton, in Mr. Thaxton's place. For clarity, however, the Court will continue to refer to Ballard Thaxton as a defendant.
The defendants have never retained new counsel after the withdrawal of their first attorney. The corporate defendant, S&T, cannot represent itself pro se. Even after being directed in November 2013 to retain counsel within 30 days and warned that failure to retain counsel could result in entry of default, S&T nevertheless failed to retain counsel. The Clerk entered default against S&T in March, 2014, and entered default judgment against the corporate defendant on May 2, 2014 in the amount of $59,430.27, plus prejudgment interest in the amount of $168.20 and post-judgment interest at the statutory rate.
The individual defendants still have not retained counsel; default has been entered against defendant Andre Smith, and plaintiff's motion for default judgment against Mr. Smith is pending. (ECF No. 103).
Although the defendants did not file a response in opposition to the renewed motion for summary judgment, the Court will consider the documents filed in response to the original motion for summary judgment, since the renewed motion simply incorporates by reference the original motion and supporting documentation.
On or about January 20, 2003, S&T entered into a License Agreement with Shoney's Inc., a corporate predecessor of plaintiff Shoney's North America, LLC, for the operation of a Shoney's® restaurant located in Farmville, Virginia (the "Farmville License Agreement"). (Compl. Ex. 2.) TheFarmville License Agreement specifically required that any person or entity holding a direct or indirect ownership interest of 10% or more in S&T would be required to execute the Guaranty Agreement attached as an exhibit to the License Agreement. (Compl. Ex. 2, Farmville License Agreement § 13, ECF No. 1-2.) Defendants Andre Smith and Ballard Thaxton, as "Guarantors," executed the Guaranty Agreement attached as Exhibit B to the Farmville License Agreement. The Guaranty Agreement provides that the Guarantors "guarantee the timely performance of all of the obligations" of S&T under the License Agreement, "including the prompt payment when due of all license fees, royalty fees, and production and regional co-op fund contributions." (Guaranty Agreement § 1, ECF No. 1-2, at 42.)
Also on January 20, 2003, S&T entered into an identical License Agreement for the operation of a Shoney's® restaurant in South Boston, Virginia (collectively with the Farmville License Agreement, the "License Agreements"), which is also accompanied by an identical Guaranty Agreement (collectively with the Farmville Guaranty Agreement, the "Guaranty Agreements"). (Compl. Ex. 3, ECF No. 1-3.)
Section 12.A of the License Agreements expressly provides that the Agreements are "fully transferable by [Shoney's, Inc.] and will inure to the benefit of any transferee or other legal successor to [Shoney's, Inc.'s] interests in th[e] Agreement[s]." The defendants aver, and the plaintiff does not dispute, that Shoney's North America Corp. ("SNAC") acquired all of the trademarks and rights associated with the Shoney's® brand in January 2007, pursuant to which Shoney's, Inc. assigned all of its rights in the License Agreements and Guaranty Agreements to SNAC. In January 2012, SNAC converted from a corporation to a limited liability company and became Shoney's North America, LLC, the plaintiff in this action.1
In a letter dated February 7, 2012, SNA sent S&T a "Notice of Termination," asserting that it had become aware that the S&T was in default of the License Agreements as a result of its having closed theFarmville and South Boston Shoney's® restaurants on January 27, 2012, without SNA's prior consent. SNA gave notice that it was exercising its right under Section 15.B(2)2 to terminate the License Agreements immediately as a result of such default. (Compl. Ex. 4, Feb. 7, 2012 Notice of Termination, ECF No. 1-4.) In its Notice of Termination, SNA demanded payment of liquidated damages in the amount of $56,500.35 pursuant to Section 16 of the License Agreements, plus an additional $2,929.92 in fees incurred pursuant to Section 17.B of the License Agreements, for total damages of $59,430.27. SNA also demanded that S&T "de-identify the Restaurant[s] by removing all signs (on premise and billboard/directional signs) and any identifying marks indicating that the location was a Shoney's Restaurant" and to provide "photographic evidence of de-imaging within thirty (30) days." (Id.)
Attached to the Notice of Termination was an Accounts Receivable Detail dated February 2, 2012, itemizing the damages and showing how they were calculated. In support of its motion for summary...
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