MASTROIANNI, District Judge.
The 7-Eleven Corporation ("7-Eleven") entered into a franchise agreement with the "Grewal Corporation," owned by Mohinder Grewal ("Mrs. Grewal"), in 2005. Through an internal investigation, 7-Eleven determined that Mrs. Grewal and her husband, Mann Grewal ("Mr. Grewal"), president and director of the Grewal Corporation (collectively "Defendants"), engaged in a scheme to deprive 7-Eleven of significant profits. Specifically, 7-Eleven estimates that 18% of all transactions were conducted fraudulently between approximately January and June of 2014. As a result, 7-Eleven delivered a non-curable notice of Material Breach and Termination of the Franchise to Defendants in June of 2014.
When Defendants refused to vacate the premises and continued to operate a convenience store using 7-Eleven's marks, 7-Eleven filed a complaint in this court requesting injunctive relief and monetary damages. 7-Eleven then moved for a preliminary injunction to prevent Defendants from continuing to use its marks and to enforce the Franchise Agreement's post-termination non-compete clause. Defendants subsequently filed a motion for preliminary injunction, requesting the court to order 7-Eleven to reinstate their privileges under the Franchise Agreement. An evidentiary hearing for both motions took place on September 23, September 29, and October 30, 2014.
For the reasons set forth below, the court grants 7-Eleven's request for injunctive relief with respect to trademark infringement, and denies 7-Eleven's request with respect to enforcement of the non-compete clause. The court denies Defendants' motion for preliminary injunction in its entirety.
7-Eleven is an operator and franchisor of convenience stores, operating 50,000 stores worldwide. 7-Eleven also owns a
Mrs. Grewal is the owner of the Grewal Corporation, of which her husband, Mr. Grewal, is the president and director. On December 2, 2005, 7-Eleven entered into a Franchise Agreement with Mrs. Grewal.
Defendants have paid over one-hundred thousand dollars in costs associated with starting their 7-Eleven franchise business. For at least several years, Defendants legitimately operated a store that performed well, as it regularly registered average sales numbers which, as 7-Eleven's witnesses acknowledged, is an impressive feat given its location.
In early 2014, 7-Eleven's asset protection team noticed that the "price lookup" function of Store 22398's registers were being utilized considerably more than the usual amount, across 7-Eleven's other stores.
7-Eleven's investigation revealed that these "price lookup" inquiries increased during overnight hours, thereby correlating with the times during which Mr. and Mrs. Grewal would work at the store. Additionally, the footage showed Mr. and Mrs. Grewal extensively using the "grocery non-tax" and "beer non-tax" keys on the register.
Further, the normal purpose of the "beer non-tax" key is to ring up a purchase of an alcoholic beverage, for which 7-Eleven does not share in the profits. For that reason, when this key is used to ring up a non-alcoholic item, 7-Eleven is deprived of its deserved profits from that item. The surveillance footage presented to the court by 7-Eleven also displayed many instances in which Mr. and Mrs. Grewal rang up non-alcoholic items using the "beer non-tax" key; thereby constituting further evidence of impermissible activity under the Franchise Agreement, which requires the Grewals to prepare and furnish accurate sales data to 7-Eleven, among other obligations.
Defendants' fraudulent behavior frequently correlated with a nightly shutdown in the security camera directly above the register, taking place at times during which Mr. or Mrs. Grewal would work at the store. Analysis of the footage from a camera that continued to function, which displayed a view of the front of the register, revealed that before his shift each night, Mr. Grewal would routinely walk into the back office which contains the camera controls. Moments later, the camera above the register would go offline.
This termination notice identified several breaches, the most significant of which was Defendants' alleged "engage[ment] in a pervasive, fraudulent scheme of incorrectly ringing and failing to ring customer transactions." It discussed instances of specific conduct, upon which the decision to terminate the agreement was based, and it cited Defendants' willful abuse of the franchisor-franchisee relationship.
In spite of this notice and corresponding demand, however, Defendants continue to possess and operate a convenience store at the location of Store 22398. Defendants have admitted they intend to represent this store to the public as an authorized 7-Eleven franchise.
"A preliminary injunction is an extraordinary and drastic remedy that is never awarded as of right." Voice of the Arab World, Inc. v. MDTV Med. News Now, Inc., 645 F.3d 26, 32 (1st Cir.2011) (internal quotations and citations omitted). "The purpose of ... a preliminary injunction is merely to preserve the relative positions of the parties until a trial on the merits can be held." University of Texas v. Camenisch, 451 U.S. 390, 395, 101 S.Ct. 1830, 68 L.Ed.2d 175 (1981) (internal quotations omitted). To obtain a preliminary injunction, a plaintiff must establish that (1) he is likely to succeed on the merits; (2) he is likely to suffer irreparable harm in the absence of a preliminary injunction; (3) the injury he will incur if injunctive relief is not granted will outweigh the harm which granting the injunctive relief would inflict on defendants; and (4) public interest favors an injunction. Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 20, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008).
On July 2, 2014, 7-Eleven moved for a preliminary injunction to (1) enjoin Defendants from further infringement of 7-Eleven's trademarks, and (2) enforce the non-compete clause of the franchise agreement, thereby preventing Defendants from operating a convenience store in Store 22398's location. (Dkt. No. 9.) For the reasons explained below, the court grants 7-Eleven's motion, insofar as it requests trademark-infringement relief. The court denies 7-Eleven's motion, insofar as it seeks to enforce the non-compete provision.
In the context of preliminary injunctions for trademark infringement, the most important issue is whether the plaintiff is likely to succeed on the merits of its claim for injunctive relief. See Borinquen Biscuit Corp. v. M.V. Trading Corp., 443 F.3d 112, 115 (1st Cir.2006) (importance of the merits element of preliminary injunction analysis is "magnified in trademark cases"). 7-Eleven has met its burden under this prong by showing it was likely entitled to terminate the franchise agreement, and is entitled to enjoin Defendants' use of its trademarks.
One provision of the Franchise Agreement requires Defendants to prepare and furnish actual sales data by appropriate use of the POS system. Through the testimony of 7-Eleven's Corporate Investigator, Michael Aldridge, in conjunction with video surveillance footage presented at the evidentiary hearing, 7-Eleven demonstrated its termination of the franchise agreement was justified. The evidence supports a conclusion, at this stage, that Defendants intentionally misused the POS system and therefore failed to accurately prepare and furnish their sales data. 7-Eleven presented many examples of Defendants' failure to adequately or accurately input sales data, including Defendants' numerous failures to enter sales into the POS system correctly and, in some cases, failure to
If a franchisee continues to use a franchisor's trademarks for the benefit of his business after justified termination for breach of agreement, then the franchisor has the right to enjoin the unauthorized use of its trademark pursuant to the Lanham Act. See 15 U.S.C. § 1125(a); Dunkin' Donuts, Inc. v. Gav-Stra Donuts, Inc., 139 F.Supp.2d 147, 158 (D.Mass. 2001). When a defendant does not dispute that a plaintiff owns the mark in question that the defendant utilizes, as is the situation here, the relevant inquiry becomes whether a defendant's use of the mark is likely to cause confusion among customers. See, e.g., Digital Equip. Corp. v. AltaVista Tech., 960 F.Supp. 456, 476 (D.Mass.1997). In cases where the use of the franchisor's mark is uncontroverted, a likelihood of consumer confusion is presumed. See Curves Int'l, Inc. v. Fox, 2013 WL 1946826, at *2 (D.Mass. May 9, 2013) (consumer confusion presumed when former franchisee persisted in operating a business identical to that of the former franchisor).
Here, Defendants do not deny they continue to operate a business purporting to be a 7-Eleven franchise,
"Few harms are more corrosive in the marketplace than the inability of a trademark holder to control the quality of bogus articles thought (erroneously) to derive from it." Hypertherm, Inc. v. Precision Products, Inc., 832 F.2d 697, 700 (1st Cir.1987). For that reason, in the trademark infringement context, the "irreparable harm" element is fulfilled if the aggrieved party "can show it is likely to prevail on the merits of its [trademark] infringement claims." See Digital Equip. Corp., 960 F.Supp. at 472. For example, in Curves Int'l v. Fox, after finding the plaintiff was likely to succeed on the merits of the trademark infringement claim, the court presumed the former franchisee's operation of a "rogue" facility would cause irreparable harm to the franchisor unless injunctive relief was granted. 2013 WL 1946826, at *2 (franchisee "suffers harm to its goodwill and reputation, and is unable to protect its other franchises" from the actions of the "rogue" franchisee) (citing I.P. Lund Trading ApS v. Kohler Co., 163 F.3d 27, 33 (1st Cir.1998)).
Here, similar to the franchisor in Curves, Int'l, 7-Eleven will be unable to protect the quality of its brand in the absence of a consensual and ongoing franchisor-franchisee relationship. See 2013 WL 1946826, at *2. Since Defendants have admitted they continue to operate a convenience store as though it were a 7-Eleven
Where adjudication on the merits is likely to reveal defendants' trademark infringement, harm to a defendant that flows from a preliminary injunction is typically entitled to less consideration than other harms for the purposes of the balancing analysis. See Commerce Bank & Trust Co. v. TD Banknorth, Inc., 554 F.Supp.2d 77, 88 (D.Mass.2008); see also Opticians Ass'n of America v. Independent Opticians of America, 920 F.2d 187, 197 (3d Cir.N.J.1990) (despite the inevitable costs associated with replacing trademark-bearing items, harm to infringing party does not outweigh aggrieved trademark holder). Accordingly, an aggrieved plaintiff's claim is generally favored when a given defendant continues to use that plaintiff's brand following his objection. See Bay State Sav. Bank v. Baystate Fin. Servs., LLC, 338 F.Supp.2d 181, 190 (D.Mass.2004) ("risk was assumed by [the defendant] when it continued to use its name following [the plaintiff's] objection").
Courts reviewing motions for preliminary injunctions for trademark infringement tend to lack sympathy for trademark-infringing defendants when the trademark infringement results from those defendants' "recalcitrant behavior." See, e.g., Opticians Ass'n of America, 920 F.2d at 197 (infringing party "can hardly claim to be harmed, since it brought any and all difficulties occasioned by the issuance of the injunction upon itself"); Processed Plastic Co. v. Communications, Inc., 675 F.2d 852, 859 (7th Cir.1982) (court explained that, after a defendant intentionally copied plaintiff's toy design, it "cannot now complain that having to mend its ways would be too expensive").
In balancing respective harms in this context, courts also consider the amount of time, money, and effort expended by the aggrieved party to promote its brand. See Calamari Fisheries, Inc. v. Village Catch, Inc., 698 F.Supp. 994, 1014 (D.Mass.1988) ("defendants have engaged in relatively little advertising or promotional efforts," whereas "plaintiff has engaged in extensive advertising and promotional activities over the past 15 years"); see also A.J. Canfield Co. v. Vess Beverages, Inc., 796 F.2d 903, 909 (7th Cir.1986) (affirming court's finding that the plaintiff's injury outweighed harm to defendant by balancing the plaintiff's 13 years of marketing, promotional efforts, and distributorship arrangements against the defendant's "minimal investment and promotional activities").
7-Eleven has met its burden on this prong, in large part because of its likelihood of success on the merits of the trademark infringement claim. See Commerce Bank & Trust Co., 554 F.Supp.2d at 88. Also weighing in favor of 7-Eleven is that its termination of Defendants' right to use trademarked material was due to Defendants' impermissible conduct; yet Defendants continued to use 7-Eleven's brand after they received notification of this termination. See Bay State Sav. Bank, 338 F.Supp.2d at 190. Defendants have assumed the risk of any harm they may incur as a result of the court's granting of this motion. See id. Further, the court does credit Defendants' assertion they have expended eight years and significant money in pursuit of becoming a successful 7-Eleven franchisee, but these figures pale in comparison to the amount of time and effort expended by 7-Eleven in promoting and refining its brand. See Calamari
"Given the societal value of full disclosure and fair competition, together with the policy of the law to provide at least minimal protection to established trade names," courts are in agreement that "[p]reventing consumer confusion is clearly in the public interest." Hypertherm, Inc., 832 F.2d at 700; see Volkswagenwerk Aktiengesellschaft v. Wheeler, 814 F.2d 812, 820 (1st Cir.1987) (purpose of protecting trademarks from infringement is to allow "the public to depend on the constancy of the quality of products it seeks"). Accordingly, when success on the merits of a trademark infringement claim is likely, motions to preliminarily enjoin use of these trademarks will serve the public interest. See Boustany v. Boston Dental Group, 42 F.Supp.2d 100, 113 (D.Mass.1999).
Here, as 7-Eleven is likely to succeed on the merits of its trademark infringement action, it follows that consumer confusion is likely to ensue if the motion for preliminary injunction is not granted. See Dunkin' Donuts, Inc., 139 F.Supp.2d at 158 (D.Mass.2001). Therefore, the public interest will be served by the enjoinment of Defendants' use of 7-Eleven's marks. See Boustany, 42 F.Supp.2d at 113.
The Franchise Agreement contains a restrictive covenant which prohibits Defendants from maintaining, operating, or engaging in a competitive business located at the site of Store 22398 for one year after the agreement's termination. Due to its valid termination of the franchisor-franchisee relationship, 7-Eleven now seeks to preliminarily enjoin Defendants from operating any convenience store at 539 Pleasant Street.
Since Defendants have admitted they continue to run a convenience store at the location of the former 7-Eleven, it follows that Defendants are likely in violation of this restrictive covenant. Therefore, if the court finds that the non-compete clause is likely to be deemed reasonable upon an adjudication on the merits, it must also find that 7-Eleven has met its burden on this prong of the preliminary injunction analysis.
In Massachusetts, "a covenant not to compete is enforceable only if it is necessary to protect a legitimate business interest, reasonably limited in time and space, and consonant with the public interest." Boulanger v. Dunkin' Donuts, Inc., 442 Mass. 635, 815 N.E.2d 572, 577 (2004). Applying these factors, the District of Massachusetts found a post-termination prohibition on a defendant's operation of any similar facility within ten miles of the location of another one of the plaintiff's
Unlike the preliminary injunction analysis for trademark infringement, a presumption of irreparable harm does not automatically follow from a finding that a plaintiff is likely to succeed on the merits of its motion to enforce a non-compete agreement. See Singas Famous Pizza Brands Corp. v. New York Adver. LLC, 468 Fed.Appx. 43, 46 (2d Cir.N.Y.2012) (rejecting proposition that irreparable harm must inevitably be assumed in breach of covenant cases). Therefore, though the court acknowledges 7-Eleven's restrictive covenant will probably be deemed enforceable, it is not clear that delaying the enforcement of this covenant will cause 7-Eleven irreparable harm. See Winter, 555 U.S. at 22, 129 S.Ct. 365 ("Issuing a preliminary injunction based only on a possibility of irreparable harm is inconsistent with our characterization of injunctive relief as an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief.") (emphasis added).
Specifically, when the value of one (or even two) year(s) of lost profit from one of 7-Eleven's 50,000 worldwide franchise establishments is viewed in proportion to the company's total annual profit, the losses would likely be miniscule. Additionally, denying this portion of 7-Eleven's preliminary injunction certainly would not cause it to lose its indisputably competitive position in the market. See Dominion Video Satellite, Inc. v. EchoStar Satellite Corp., 356 F.3d 1256, 1263-1264 (10th Cir.Colo. 2004) (observing that "irreparable harm findings are based on such factors as the difficulty in calculating damages, the loss of a unique product, and existence of intangible harms such as loss of goodwill or competitive market position"). A denial also would not cause 7-Eleven's brand to lose any goodwill in the community. Customers would have no reason to associate Defendants' convenience store with the 7-Eleven brand after 7-Eleven's marks are removed from the premises, assuming Defendants' convenience store continues to operate in accord with this order. See id. Finally, a denial would not render it impracticably difficult to calculate 7-Eleven's damages at a subsequent adjudication on the merits. See id.; Grease Monkey Int'l v. Ralco Lubrication Servs., 24 F.Supp.2d 120, 125 (D.Mass.1998) (financial harm aggrieved franchisor might suffer is not irreparable because it is "ordinarily compensable").
7-Eleven also has not demonstrated that the harm it will suffer, if injunctive relief is not granted, will outweigh the harm which granting the injunction would inflict on Defendants. See Winter, 555 U.S. at 22, 129 S.Ct. 365 (for a plaintiff to prevail on a motion for preliminary injunction, a clear showing of success on each element is required). When a former franchisor ultimately prevails on the merits in this context, its damages are approximately measurable and therefore compensable. See Grease Monkey Int'l, 24 F.Supp.2d at 125. By contrast, if a preliminary injunction is granted which effectively forces a former franchisee out of his business, that franchisee has suffered considerable,
While the court can not speculate as to an exact figure of monetary loss that 7-Eleven might incur if Defendants continue to operate a convenience store at Store 22398's location during the litigation, the resulting lost profit to the 7-Eleven corporation from its temporary lack of ability to operate one of its 50,000 store locations is not significant when compared to the harm that Defendants would suffer.
The court acknowledges the District of Massachusetts came to a different conclusion on this issue, when presented with marginally similar facts, in Curves Int'l See 2013 WL 1946826. This court, however, does not find that the holding and rationale in Curves Int'l, relative to the non-compete clause analysis, is applicable in this case. See Curves Int'l, Inc., 2013 WL 1946826, at *2. Specifically, the Curves Int'l court did not separate its discussion of trademark infringement from its discussion of preliminary enforcement of the non-compete agreement.
Additionally, this court recognizes that the District of Florida has come to a different conclusion with very similar facts, see 7-Eleven, Inc. v. Kapoor Bros., Inc., 977 F.Supp.2d 1211 (M.D.Fla.2013);
The public interest weighs in favor of granting 7-Eleven's request to enforce the non-compete clause. While the prospect of causing Defendants' business to close is certainly a compelling factor in this prong of the preliminary injunction analysis, the reality is that Defendants have not compensated 7-Eleven for the use of the premises since the termination of the Franchise Agreement several months ago, and further, they may be unable to pay 7-Eleven any amount of rent from this point forward. See Castillo v. Skoba, 2010 U.S. Dist. LEXIS 112004 (S.D.Cal. Oct. 21, 2010) (public interest does not favor the notion of allowing the plaintiff to live rent-free until the termination of his case). Similarly, given the court's ruling on the trademark infringement portion of 7-Eleven's motion for preliminary injunction and the likelihood of 7-Eleven's
The court recognizes the likelihood that granting 7-Eleven's motion to enjoin Defendants' use of its trademark will make it very difficult for Defendants to continue to operate a convenience store on the premises.
Additionally or alternatively, the court will consider a request by either party to schedule a trial in an expedited matter so the parties can fully litigate the matter in a timely fashion.
While not considered to be a mandatory prerequisite to the issuance of a preliminary injunction in the First Circuit, see Aoude v. Mobil Oil Corp., 862 F.2d 890, 896 (1st Cir.1988), the court may, in its discretion, require that a successful preliminary injunction movant post a bond "in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained." Fed.R.Civ.P. 65.
Accordingly, here, the court will condition its partial grant of 7-Eleven's motion for preliminary injunction upon 7-Eleven's posting of a 150,000 dollar bond.
Defendants have moved for a preliminary injunction which, if granted, would have the effect of forcing 7-Eleven to continue to fulfill its obligations to Defendants under the Franchise Agreement, including allowing Defendants to continue to utilize 7-Eleven's trademarked materials for the purposes of their business. (Dkt. No. 22.) Since 7-Eleven has demonstrated that it is likely justified in terminating its contract with Defendants, and since the court is granting 7-Eleven's motion to enjoin use
In their motion, Defendants have also asked the court "to enjoin the plaintiff from taking any measures to evict the defendants at their store located at 539 Pleasant Street, Holyoke, Massachusetts." (Dkt. No. 22 ¶ (f).) This provision of Defendants' motion can be interpreted in one of two ways, as it is unclear whether Defendants are referring to this specific litigation in which "eviction" constitutes one count of the complaint (Dkt. No. 1); or, alternatively, to the potential for 7-Eleven to initiate parallel eviction litigation in state court. Regardless of Defendants' intended meaning, the court denies the request.
In the first alternative, denial is appropriate because a preliminary injunction motion is not the proper procedural vehicle for Defendants to request that one of 7-Eleven's claims be dismissed. See Fed. R.Civ.P. 12. In the latter alternative, denial is appropriate because this court is unwilling to control state adjudicatory actions in the manner requested by Defendants. See Younger v. Harris, 401 U.S. 37, 45, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971) ("the normal thing to do when federal courts are asked to enjoin pending proceedings in state courts is not to issue such injunctions"); see also Seidel v. Wells Fargo Bank, N.A., 2012 WL 2571200, at *2 (D.Mass. July 3, 2012) ("Evictions are complex proceedings governed extensively by state law that implicate important interests of the state and its citizenry," and federal courts have routinely held that they are barred from enjoining state-court eviction proceedings.). Furthermore, one's right to access the courts is a fundamental. See Ellis v. Viles, 2010 WL 6465282, at *3 (D.Mass. Aug. 26, 2010) report and recommendation adopted 2011 WL 1344551 (D.Mass. Mar. 3, 2011) ("access to the courts" is a constitutional right). For these reasons, the court will deny this request.
For the reasons set forth above, the court:
It is So Ordered.
