Tgi Friday's Inc. v. Great Northwest Restaurants, Civil Action No. 3:09-CV-0083-D.

• Decision Date: 20 August 2009
• Docket Number: Civil Action No. 3:09-CV-0083-D.
• Citation: 652 F.Supp.2d 763
• Parties: TGI FRIDAY'S INC., Plaintiff-counterdefendant, v. GREAT NORTHWEST RESTAURANTS, INC., et al., Defendants-counterplaintiffs.
• Court: U.S. District Court — Northern District of Texas

652 F.Supp.2d 763

TGI FRIDAY'S INC., Plaintiff-counterdefendant, v. GREAT NORTHWEST RESTAURANTS, INC., et al., Defendants-counterplaintiffs.

Civil Action No. 3:09-CV-0083-D.

United States District Court, N.D. Texas, Dallas Division.

August 20, 2009.

COPYRIGHT MATERIAL OMITTED

Michael A. Logan, Brian M. Stork, Jeffrey Scot Seeburger, Kane Russell Coleman & Logan PC, Dallas, TX, for Plaintiff-counterdefendant.

Mark E. Smith, Michael Dean Tanner, Touchstone Bernays Johnston Beall Smith & Stollenwerck LLP, Dallas, TX, for Defendants-counterplaintiffs.

MEMORANDUM OPINION AND ORDER

SIDNEY A. FITZWATER, Chief Judge.

In this trademark infringement action, plaintiff-counterdefendant TGI Friday's Inc. ("TGIF") seeks a preliminary injunction to prevent defendants-counterplaintiffs, its former franchisees, from continuing to use its trademarks and service marks in connection with restaurants they own and operate in California, Oregon, and Washington. For the reasons that follow, the court grants TGIF's application and enters a preliminary injunction by separate order filed today.¹

I

This action arises from a failed franchise relationship between TGIF and defendants-counterplaintiffs Great Northwest Restaurants, Inc. ("Great Northwest"), Ten Forward Dining, Inc. ("Ten Forward"), TGIA Restaurants, Inc. ("TGIA"), PRC Restaurants, Inc. ("PRC"), Mike Alizadeh ("Mike"), and Abe Alizadeh ("Abe") (collectively, "defendants").

TGIF operates and franchises TGI Friday's-brand casual dining restaurants throughout the United States. Between 1997 and 2006, TGIF entered into 11 separate franchise agreements with defendants. It entered into agreements with Great Northwest to operate four franchise locations in Washington and one in Oregon, and with PRC to operate a franchise location in Washington. TGIF also entered into franchise agreements with Capital City Restaurants, Inc. ("CCR") to operate five franchise locations in California. Mike was the President and principal of Great Northwest, PRC, and CCR, and he guarantied the performance of all three corporations under the franchise agreements. In 2007 the five CCR franchise agreements were assumed by TGIA and Ten Forward, for which Abe serves as President and principal. TGIA assumed three of CCR's franchise agreements, and Ten Forward assumed the other two.²

The franchise agreements between TGIF and defendants are all substantially similar, and the court accordingly considers them together. Pursuant to the franchise agreements, TGIF authorizes defendants to use its trademarks and service marks in connection with the operation of their restaurants as TGI Friday's locations. The agreements expressly provide, however, that defendants must immediately cease use of TGIF's marks upon termination of the agreements. See, e.g., P.App. 45-46 ("Upon any termination . . . Franchisee shall . . . immediately cease to use . . . the Proprietary Marks and other distinctive signs, symbols and devices associated with the System.").³ Defendants are also obligated to make monthly payments to TGIF for royalties, advertising, and other related fees (the "franchise fees"). Failure to make a payment on the date payable constitutes a default event, after the occurrence of which TGIF may, after giving the franchisee notice and an opportunity to cure, terminate the franchise agreement.

Defendants admit that they ceased paying the requisite franchise fees in 2007. TGIF notified defendants by letter of the defaults, and it gave them a deadline to cure the defaults. No fewer than seven times, TGIF extended the deadline. After defendants failed to cure their defaults by the final deadline, TGIF terminated the franchise agreements by separate letters dated December 18, 2008. The termination letters demanded compliance with the terms of the franchise agreements, including the immediate cessation of use of TGIF's marks. Defendants concede that they did not cease using TGIF's marks on receipt of the termination letters, and that they continue to use the marks and hold their restaurants out as TGI Friday's locations.

Because of defendants' continued use of TGIF's trademarks and service marks, TGIF brought this action against them, asserting claims for Lanham Act infringement, 15 U.S.C. § 1114, Lanham Act false designations, 15 U.S.C. § 1125(a), common law trademark infringement, and common law unfair competition. Defendants assert a number of counterclaims that are largely irrelevant to this decision. See infra note 7 (discussing irrelevance of defendants' counterclaims). TGIF applies for a preliminary injunction to prevent defendants' further use of its marks in connection with the operation of their restaurants.⁴

II

The decision whether to grant a preliminary injunction is within the discretion of the court, but it is an extraordinary remedy that should only be granted if the movant has clearly carried its burden. See Miss. Power & Light Co. v. United Gas Pipe Line, 760 F.2d 618, 621 (5th Cir. 1985). To obtain a preliminary injunction, TGIF must establish (1) a substantial likelihood that it will prevail on the merits, (2) a substantial threat that it will suffer irreparable injury if the injunction is not granted, (3) that the threatened injury to it outweighs the threatened harm the injunction may do to defendants, and (4) that granting the preliminary injunction will not disserve the public interest. See, e.g., Jones v. Bush, 122 F.Supp.2d 713, 718 (N.D.Tex.) (Fitzwater, J.), aff'd, 244 F.3d 134 (5th Cir.2000) (per curiam) (unpublished table decision). TGIF must satisfy all four requirements. See id.

III

The court need only consider whether one of TGIF's claims—its action for trademark infringement brought under the Lanham Act, 15 U.S.C. § 1114—has a substantial likelihood of success. To succeed on a trademark infringement claim, a plaintiff first must show ownership of a legally protectable mark, and then it must establish infringement of the mark. See Am. Rice, Inc. v. Producers Rice Mill, Inc., 518 F.3d 321, 329 (5th Cir.2008). Under the Lanham Act, infringement exists if a person "uses (1) any reproduction, counterfeit, copy, or colorable imitation of a mark; (2) without the registrant's consent; (3) in commerce; (4) in connection with the sale, offering for sale, distribution, or advertising of any goods; (5) where such use is likely to cause confusion, or to cause mistake or to deceive." Id. (brackets omitted) (quoting Boston Prof'l Hockey Ass'n, Inc. v. Dallas Cap & Emblem Mfg., 510 F.2d 1004, 1009-10 (5th Cir.1975); citing 15 U.S.C. § 1114).

Defendants do not dispute that the proprietary marks referred to in the franchise agreements and registered by TGIF are owned by TGIF and are legally protected. Defendants also admit that they are using TGIF's marks in commerce in connection with the sale of goods. Defendants are using TGIF's exact marks, not merely similar marks, and are holding their restaurants out as TGI Friday's locations. Therefore, if they are using the marks without TGIF's consent, it is evident that there is a likelihood of consumer confusion between licensed TGI Friday's restaurants and defendants' restaurants. See Paulsson Geophysical Servs., Inc. v. Sigmar, 529 F.3d 303, 311 (5th Cir.2008) (holding that district court need not analyze all "digits of confusion" when alleged infringer is using exact marks of plaintiff); Burger King Corp. v. Mason, 710 F.2d 1480, 1492 (11th Cir.1983) ("Common sense compels the conclusion that a strong risk of consumer confusion arises when a terminated franchisee continues to use the former franchisor's trademarks."); Petro Franchise Sys., LLC v. All Am. Props., Inc., 607 F.Supp.2d 781, 788 (W.D.Tex. 2009) (holding that franchisees' unauthorized use of franchisor's marks establishes likelihood of confusion).

Accordingly, the only element of infringement in dispute is whether defendants are using TGIF's marks with its consent, or whether their use is unauthorized. The court finds and concludes that TGIF has established a substantial likelihood that defendants' use is unauthorized. The franchise agreements give defendants the right to use TGIF's marks while they are in effect; however, they expressly provide that defendants must immediately cease use of TGIF's marks upon termination of the agreements. See, e.g., P.App. 45-46 ("Upon any termination . . . Franchisee shall . . . immediately cease to use . . . the Proprietary Marks and other distinctive signs, symbols and devices associated with the System."). It is clear that if TGIF terminated the franchise agreements, defendants' continued use of its marks is unauthorized.

As discussed above, the events leading to and consummating the termination of the franchise agreements are largely undisputed. Defendants failed to pay their franchise fees, which constitutes a default under the agreements. Pursuant to the agreements' terms, TGIF notified defendants of each default in writing and gave them sufficient opportunity to cure the defaults. Defendants failed to cure the defaults, and TGIF subsequently terminated each franchise agreement by separate letters dated December 18, 2008. The termination letters demand compliance with the terms of the franchise agreements, including the immediate cessation of use of TGIF's marks.

Although defendants concede that they failed to make the requisite royalty payments and do not dispute that TGIF followed the termination procedure set forth in the franchise agreements, they contend that TGIF's termination of the agreements is "wrongful and improper."⁵ Ds. Br. 18. Defendants argue that TGIF is responsible for their inability to pay the franchise fees because the food distribution system implemented by TGIF is discriminatory and cost-prohibitive to them. According to defendants, prior to 2000 TGIF had in place a nationwide food distribution system that allowed for uniform food pricing across the country, including uniform freight charges. When the distributor who...