KEVIN MCNULTY, District Judge.
Before the Court are two motions by the Plaintiffs, Mister Softee, Inc. ("MSI"), Mister Softee Sales and Manufacturing, LLC ("MSSM"), and Spabo Ice Cream Corp. ("Spabo"). (I will generally ignore the distinction and refer to the plaintiffs collectively as "Mister Softee.") Mister Softee moves pursuant to Fed. R. Civ. P. 56 for summary judgment against Defendant Reza Amanollahi ("Amano")
Mister Softee's motion for summary judgment asks this Court to permanently enjoin Amano from using Mister Softee's federally registered trademarks and from violating the non-compete provisions. Mister Softee also moves for summary judgment on claims not previously determined at the preliminary injunction stage. Plaintiffs seek a ruling that they are entitled as a matter of law to: (1) lost future royalties under the Franchise Agreements; (2) amounts due under two promissory notes on ice cream truck sales (the "Truck Notes"); (3) recovery under a theory of unjust enrichment of amounts MSSM spent to repair Amano's ice cream trucks; and (4) attorney's fees under the terms of the Franchise Agreements and Truck Notes as well as under the Lanham Act, 15 U.S.C. § 1117. Moreover, the Plaintiffs seek summary judgment in their favor on Amano's counterclaims for (1) rescission of all 22 Franchise Agreements under the New York Franchise Act, N.Y. Gen. Bus. Law § 680 (the "NYFA"), and (2) breach of contract under the 22 Franchise Agreements.
For reasons set forth below and in my Opinion accompanying the July 1, 2014 Order, the Court is persuaded that Plaintiffs have met their burden of showing that a permanent injunction is proper as to both infringement of Mister Softee's trademarks and enforcement of the (now expired) non-compete provisions. Plaintiff's motion for summary judgment on this issue will therefore be granted. Because I am satisfied that Amano was not wrongfully enjoined, Mister Softee's motion for release of the injunction bond will also be granted.
Additionally, summary judgment will be granted in favor of Mister Softee for recovery of the balance due under the Truck Notes, entitlement to Attorney's fees, and on Amano's counterclaims. Summary judgment will be denied as to Mister Softee's entitlement to future royalties and recovery under a theory of unjust enrichment.
I assume the parties' familiarity with the facts in this case, most of which have not changed since I issued my July 1, 2014 Order and Opinion. For clarity, those facts are summarized below, along with new facts put forth in connection with the instant motion.
MSI is a New Jersey Corporation and the franchisor of Mister Softee mobile ice cream trucks. Those trucks are set up to sell ice cream and other food products and novelties. (Pl. Br. 4-5; Compl. ¶ 9).
MSI owns the trademarks for "Mister Softee," related logos, and (as any area resident can attest) a musical jingle, all registered on the Principal Register of the United States Patent and Trademark Office (Registration Nos. 2128918, 0667335, 0663456, and 2218017). (Id. at 5). Mister Softee also owns a federal trademark registration for the overall design of the Mister Softee ice cream truck (No. 2906357). Spabo licenses the right to use MSI's trademarks to its franchisees under the Franchise Agreements. (Id). The Franchise Agreements require franchisees to paint their Mister Softee trucks in a particular blue and white color scheme, with decals of MSI's trademarked logos. (Id. at 8). The Franchise Agreements also govern other aspects of the relationship between franchisees and either MSI or one of its sub-franchisors — in this case, Spabo. (Id. at 5).
The defendant, Mr. Amano, is a New Jersey resident and a franchisee of Mister Softee. (Compl. ¶¶ 5, 19; Pl. Br. at 8). On June 20, 2007, Amano entered into eight Franchise Agreements with Spabo. (Pl. Br. 8; Compl. ¶ 19). On January 1, 2012, he entered into fourteen more Franchise Agreements with Spabo, bringing the total to twenty-two. (Id.). All Franchise Agreements are substantially similar. (see FAs). The Franchise Agreements directed Amano to abide by several operating conditions, including that he park his trucks only at 337 Manida Street, Bronx, New York ("Manida Street Depot") (Pl. Br. 9; Compl. ¶ 20).
Amano also entered into two Truck and Equipment Sale Agreements with MSSM. Amano, as purchaser of the trucks, signed two Truck Notes attendant to those agreements, dated June 1, 2009. The Truck Notes obligated Amano to make instalment payments until the purchase price of the trucks were paid in full. (Pl. Br. 8; see TNs).
The following provisions of the Franchise Agreements are relevant:
The following provisions of the Truck Notes are also relevant:
Amano alleges that in 2009, he sold his franchises to four other individuals: Thomas Fotinakopoulos, Anthony Tsaros, Michael Vasiardis, and Tommy Dalageorgos (the "four transferees"), and has not personally engaged in the retail sale of ice cream since that time. (Def. Br. 2-3; Amano Cert. ¶¶ 5-6, 13). The four transferees operated out of an ice cream truck depot owned by another former Mister Softee franchisee, which is located in Long Island City (the "Tsirkos depot").
The parties do not dispute that Mister Softee was aware of and approved Amano's sales to the four transferees, nor do they dispute that following the sales, Amano remained responsible for collecting royalties and forwarding them to Spabo. (See, e.g., Def. Br. 8 n.7). The parties' explanations as to why Amano retains this responsibility differ slightly, however.
Amano alleges this responsibility was the upshot of de facto agreements with Mister Softee Vice President James F. Conway. The twenty-two franchises, says Amano, were created solely for the benefit of the four transferees. Conway, however, pressured Amano to remain the franchisee in title on the eight 2007 Franchise Agreements and also to become the franchisee in title on the fourteen 2012 Franchise Agreements. (Def. Br. 3; Amano Cert. ¶¶ 11-12). Amano also alleges that Conway required him to remain the responsible party in title on the Truck Notes (Def. Br. 4; see Keppler Cert., Ex. B 30:15-31:17). According to Amano, his name remains on each and every one of the relevant contracts as the result of Conway's coercion. (Def. Br. 4; Def. Counter. ¶¶ 16, 18-19).
The Plaintiffs, on the other hand, point out that Amano's sale of the franchisees was an instalment sale that will not be completed until 2019. They contend that Amano retained title in order to secure the four transferees' payment obligations. Only upon the final annual payment in 2019 will Amano officially transfer the franchises pursuant to Section 17 of the Franchise Agreements. (Pl. PI Reply 1; Pl. SUF ¶¶ 18-19).
Amano moved his trucks from the Manida Street Depot to the unapproved Tsirkos Depot, which he manages,
Neither Amano's relocation to the unapproved depot nor Amano's receipt of the notice is disputed. What is disputed is Amano's compliance with his post-termination obligations — mainly, ceasing use of and returning Mister Softee's trademarks and other intellectual property and adhering to the non-compete provisions of the Franchise Agreements. (Pl. Br. 11). Mister Softee alleges that Amano breached these obligations when his trucks continued to be operated — unaltered in appearance and in his former Mister Softee territories — following termination. (Id.).
Amano denies responsibility for the four transferees' use of the trucks and trademarks. (Def. Br. 1). He admits to having "pass-through" responsibility for forwarding payments from the four transferees to Mister Softee. (Def. Br. 8 n.7; Amano Cert. ¶ 14). He stresses, however, that after his transfer of the franchises, he personally participated in the ice cream industry only by managing an ice cream wholesale business located at the Tsirkos Depot. (Def. Br. 2-3; Amano Cert. ¶¶ 9-10).
This Court previously found Amano's abdication of responsibility unavailing, and explained:
Amanollahi I at *6. Amano has not raised any new colorable defense or submitted additional evidence to disturb this finding.
In addition to infringement and non-compete claims, Mister Softee alleges that Amano owes certain amounts as well as attorney's fees and costs under the Franchise Agreements and Truck Notes.
Amano repeats that because he sold his franchises to the four transferees, who are the "true owners and users" of the two trucks — all with the knowledge of Mr. Softee — he cannot be liable for royalties or outstanding payments under the contracts he signed. (Def. Br. 13-14). For these reasons, he contends, he also could not have been unjustly enriched by repairs made to the two trucks. (Id. at 15). Finally, he challenges Plaintiffs' requests for attorney's fees as premature and inappropriate. (Id. at 18-19).
Amano has asserted counterclaims for breach of Spabo's Section 5 obligations to Amano under the Franchise Agreements and for its violation of NYFA Section 683, which requires franchisors to register an offering prospectus with the New York Department of Law and to furnish a copy to franchisees. (Am. Answer ¶¶ 15-34 & p. 8). Amano seeks compensatory damages, rescission of the 22 Franchise Agreements, and attorney's fees and costs. (Id.). Amano does not cross-move for summary judgment on his counterclaims and does not dispute Plaintiffs' argument that his NYFA counterclaim fails as a matter of law in light of uncontroverted evidence that Amano was "provided" with at least one prospectus. (Def. Br. 15; see Pl. Reply 7).
The Mister Softee Plaintiffs submit no evidence to counter Amano's deposition testimony that MSI and Spabo failed to train him, consult on inventory, provide ongoing consultation and advice, assist with and enforce quality control measures, and provide a safe and sanitary warehouse environment at the ice cream truck depot to which it designated Amano's trucks. (See Def. Br. 16 (citing Keppler Cert., Exs. A-B. (Amano's 2014 and 2015 deposition testimony))). Rather, in rejoinder, Mister Softee relies exclusively on Section 22.3 of the Franchise Agreements, which requires 30 days' notice prior to commencement of any action for damages. (Pl. Reply 8). They contend that Amano's failure to satisfy this condition precedent bars his breach of contract counterclaims.
The procedural history is extensive, but the pertinent motion practice is as follows. Following my July 1, 2014 Order and Opinion granting a preliminary injunction, Plaintiffs filed a July 24, 2014 motion, replete with supporting evidence, to hold Amano and the four transferees in contempt for violating the July 1, 2014 Order (ECF No. 32). Plaintiffs filed a motion for replevin on August 6, 2014 (ECF No. 41), seeking to take possession of the two trucks on which Amano had failed to make payments under the Truck Notes. The motion for replevin was terminated by Order of the Court (Magistrate Judge Steven C. Mannion) dated October 6, 2014, referring the case to mediation pursuant to Local Civ. R. 301.1 (ECF No. 58). Following a settlement conference on August 13, 2015, the parties filed a Stipulated Order in lieu of the contempt motion (ECF No. 97). Therein, Amano denied wrongdoing but agreed, inter alia, (1) to inform any owner or operator of infringing ice cream trucks parked at his employer's depot that they must de-identify their trucks of all Mister Softee trademarks and trade dress features or else (2) to eject the offending party from the depot. The Court (Magistrate Judge James B. Clark, III) ordered the same on August 25, 2015 (ECF No. 98).
Now before the Court is Plaintiffs' motion for summary judgment.
Federal Rule of Civil Procedure 56(a) provides that summary judgment should be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ.P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Kreschollek v. S. Stevedoring Co., 223 F.3d 202, 204 (3d Cir. 2000). In deciding a motion for summary judgment, a court must construe all facts and inferences in the light most favorable to the nonmoving party. See Boyle v. County of Allegheny Pennsylvania, 139 F.3d 386, 393 (3d Cir. 1998). The moving party bears the burden of establishing that no genuine issue of material fact remains. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "[W]ith respect to an issue on which the nonmoving party bears the burden of proof ... the burden on the moving party may be discharged by `showing' — that is, pointing out to the district court — that there is an absence of evidence to support the nonmoving party's case." Celotex, 477 U.S. at 325.
Once the moving party has met that threshold burden, the non-moving party "must do more than simply show that there is some metaphysical doubt as to material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The opposing party must present actual evidence that creates a genuine issue as to a material fact for trial. Anderson, 477 U.S. at 248; see also Fed. R. Civ. P. 56(c) (setting forth types of evidence on which nonmoving party must rely to support its assertion that genuine issues of material fact exist). "[U]nsupported allegations ... and pleadings are insufficient to repel summary judgment." Schoch v. First Fid. Bancorporation, 912 F.2d 654, 657 (3d Cir. 1990); see also Gleason v. Norwest Mortg., Inc., 243 F.3d 130, 138 (3d Cir. 2001) ("A nonmoving party has created a genuine issue of material fact if it has provided sufficient evidence to allow a jury to find in its favor at trial."). If the nonmoving party has failed "to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial, ... there can be `no genuine issue of material fact,' since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Katz v. Aetna Cas. & Sur. Co., 972 F.2d 53, 55 (3d Cir. 1992) (quoting Celotex, 477 U.S. at 322-23).
In deciding a motion for summary judgment, the court's role is not to evaluate the evidence and decide the truth of the matter, but to determine whether there is a genuine issue for trial. Anderson, 477 U.S. at 249, 106 S.Ct. 2505. Credibility determinations are the province of the fact finder. Big Apple BMW, Inc. v. BMW of N. Am., Inc., 974 F.2d 1358, 1363 (3d Cir. 1992).
The summary judgment standard, however, does not operate in a vacuum. "[I]n ruling on a motion for summary judgment, the judge must view the evidence presented through the prism of the substantive evidentiary burden." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 254, 106 S.Ct. 2505, 2513, 91 L. Ed. 2d 202 (1986). That "evidentiary burden" is discussed in the following sections.
Mister Softee asks me to convert my preliminary injunction order into a permanent one. In support of his request, he points to Amano's failure to adduce new facts. (Pl. Reply 2). Because I agree that Amano has not presented evidence to create a genuine dispute as to material facts, I will briefly recast my previous findings under the appropriate standard and issue a permanent injunction. See Ciba-Geigy Corp. v. Bolar Pharm. Co., 747 F.2d 844, 847 (3d Cir. 1984) (lamenting the "confusion created when a district court converts an opinion granting a preliminary injunction into an opinion granting a permanent injunction without expressly recasting its findings accordingly").
I must consider the following four factors in determining whether to grant a permanent injunction: (1) whether Mister Softee has actually succeeded on the merits; (2) whether denial would irreparably harm Mister Softee; (3) a balancing of the harm that an injunction would inflict on Amano; and (4) whether the injunction would be in the public interest. Shields v. Zuccarini, 254 F.3d 476, 482 (3d Cir. 2001); see also Amoco Prod. Co. v. Vill. of Gambell, AK, 480 U.S. 531, 546 n.12, 107 S.Ct. 1396, 1404 n.12 (1987) ("The standard for a preliminary injunction is essentially the same as for a permanent injunction with the exception that the plaintiff must show a likelihood of success on the merits rather than actual success.").
To state a Lanham Act claim for trademark infringement, 15 U.S.C. § 1114, and unfair competition, 15 U.S.C. § 1125(a)(1), a plaintiff must show three elements: "(1) it has a valid and legally protectable mark; (2) it owns the mark; and (3) the defendant's use of the mark to identify goods or services causes a likelihood of confusion." A & H Sportswear, Inc. v. Victoria's Secret Stores, Inc., 237 F.3d 198, 210 (3d Cir. 2000). At the time I issued the preliminary injunction to Mister Softee, the evidence was undisputed that somebody had infringed Mister Softee's valid trademarks; Amano simply denied that he was personally responsible. Amanollahi I, 2014 WL 3110000, at *6.
Amano concedes the validity and ownership of Mister Softee's marks, but argues that it was the four transferees, not he, that "used" the Mister Softee marks. (Def. Br. 7, 10). These bare allegations miss the mark where, as here, the Plaintiffs have put forth undisputed evidence that Amano was the franchisee; that the four transferees continued to use Mister Softee's marks on Amano's trucks in an unquestionably confusing manner after termination of the Franchise Agreements; and that Amano supplied goods and services to the four transferees' illegal operations in the form of parking, supplies, and collection of royalties. (E.g., Reino Cert., Ex. A 36:15-19; 42:3-43:2; Def. Br. 8 n.7). See 800-JR Cigar, Inc. v. GoTo.com, Inc., 437 F.Supp.2d 273, 280 (D.N.J.2006) ("The theory of contributory infringement... requires proof of either an intent to induce another to infringe a trademark or continued supply of goods or services to one whom the supplier (contributory infringer) knows or has reason to know is engaging in trademark infringement.").
Amano denies that he is the franchisee under any of the Franchise Agreements (Def. Counter. ¶¶ 21-31). But these binding contracts leave no doubt that Amano bears legal responsibility to abide by their terms,
Amanollahi I, 2014 WL 3110000, at *8. See generally id. at *6-8.
Amano's alleged compliance with the preliminary injunction is no defense to entry of a permanent one. (See Def. Br. 11-12). "[A] defendant cannot automatically moot a case simply by ending its unlawful conduct once sued. Otherwise, a defendant could engage in unlawful conduct, stop when sued to have the case declared moot, then pick up where he left off." Already, LLC v. Nike, Inc., 133 S.Ct. 721, 727, 184 L. Ed. 2d 553 (2013) (citation omitted) (distinguishing between situations where a defendant's conduct cannot reasonably be expected to recur from situations where a defendant is free to return to his old ways). See also United States v. Gregg, 32 F.Supp.2d 151, 158-59 (D.N.J. 1998), aff'd, 226 F.3d 253 (3d Cir. 2000) (protestors' observance of preliminary injunction did not moot case and eliminate the need for a permanent injunction).
Construing all inferences in favor of Amano, I nevertheless find that there is no genuine dispute of material fact as to Amano's contributory infringement of the Mister Softee marks.
Mister Softee asks that the preliminary injunctive relief based on the non-compete covenant be extended to a permanent injunction. See Amanollahi I, 2014 WL 310000, at *17-18 (limiting the scope of geographic and subject matter restrictions to engaging in retail (but not wholesale) ice cream sales within a five-mile radius of his former Mister Softee territories (rather than within any franchisee's territory)). Amano counters only that he is not competing with the Plaintiffs and has not "for nearly two, full years." (Def. Br. 11-12). To that extent, Amano is correct; the non-compete is for a term of two years, and by its terms expired on July 1, 2016.
It is nevertheless necessary to rule on Mister Softee's contentions. They are not moot because Mr. Softee seeks release of the $50,000 bond posted to secure the preliminary injunction. See Am. Bible Soc. v. Blount, 446 F.2d 588, 594-96 (3d Cir. 1971) (because plaintiff had posted an injunction bond upon issuance of a preliminary injunction, plaintiffs' demand for a permanent injunction was not moot despite effectively mooted subject matter); see also Nokia Corp. v. InterDigital, Inc., 645 F.3d 553 (2d Cir. 2011) (holding that wrongfully enjoined parties are entitled to a presumption in favor of recovery against an injunction bond for provable damages). That is, Mister Softee must show actual success, rather than a likelihood of success, on the merits of the non-compete claims in order to demonstrate that Amano was not wrongfully enjoined.
As I explained above, compliance with a preliminary injunction is not a cognizable defense. To justify specific enforcement of the non-compete, Mister Softee need only show that the restraint is reasonable, to the extent it protects Mister Softee's brand name, business goodwill, and ability to replace terminated franchisees. See BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 388-89 (N.Y. 1999); Carvel Corp. v. Eisenberg, 692 F.Supp. 182, 186 (S.D.N.Y.1988). Amano has failed to present evidence contrary to the findings in my July 1, 2014 Opinion. In fact, he states that he does not contest the validity of the non-compete provisions.
I reach the same conclusions with respect to the irreparable harm and public interest factors. At the preliminary injunction stage, Mister Softee established irreparable injury to its business as a matter of law if Amano continued to contributorily infringe the Mister Softee trademarks, and established that its business goodwill and client relationships would be harmed if the non-compete provision were not enforced. Amanollahi I, 2014 WL 3110000, at *14. Mister Softee also established that injunctive relief would benefit the public by preventing consumer confusion and enforcing reasonable contractual obligations. Id. at *13-15. Amano did not raise material factual disputes as to those factors then, and does not do so now.
In opposition, Amano alleges that he is not liable for trademark infringement and has not competed with Mister Softee in years — incorrect and irrelevant arguments, respectively. He also says he would be unduly burdened by a permanent injunction, while simultaneously maintaining that he has no intention of re-entering the ice cream business. (Def. Br. 12-13; see Reino Cert., Ex. B 30:10-13). It is impossible to imagine how complying with federal trademark law would unduly burden Amano. Amano also argues that a permanent injunction will not benefit the public because children's predilection for ice cream makes them oblivious to distinctions between brands. This appeal to intuition lacks evidentiary support, but at any rate, "`brand indifferent' customers do not count in the equation of likelihood of confusion." McNeil Nutritionals, LLC v. Heartland Sweeteners, LLC, 511 F.3d 350, 366 (3d Cir. 2007) (quoting 4 Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 23:5 (4th ed. 2007)).
As there are no genuine factual disputes as to any of the requisite factors, I am ruling in favor of Mister Softee as to both trademark infringement and the non-compete provision. Mister Softee has not argued to extend the expiration date of the non-compete provision, and this Court has not been called upon to make any findings of fact on Mister Softee's motion for contempt, which might have warranted such an extension. (See Dkt. No. 97 (stipulated Order In Lieu of Contempt Motion)).
Beyond the permanent injunction, Mister Softee seeks a ruling that it is entitled to future royalties it would have received under the Franchise Agreements.
Section 19.2 requires Amano to pay Spabo "all unpaid fees" and "monies owed" upon termination. (FA § 19.2). The Agreements were terminated as of February 19, 2014. Amounts unpaid as of that date would have been owed.
What Spabo is claiming here, however, is an entitlement to lost future royalties in the amount of $462,400. Mister Softee calculates that amount by multiplying the number of remaining years on each of the 22 Franchise Agreements as of February 19, 2014 — the date of termination — by the $3,400 minimum annual royalty fee contemplated under Section 4.2 of the agreements. (Pl. Br. 23-24). Amano again simply denies liability under the contracts by virtue of the 2009 sale of the franchises to the four transferees. For the reasons discussed above, that argument is unavailing. If the agreements had continued, Amano would have continued to owe the fees, subject to reimbursement under whatever arrangement he has with the transferees. But we are getting ahead of ourselves.
I must first consider the scope of Spabo's entitlement to future royalties. Under New York law,
I therefore consider more fundamental principles of law. Hornbook law supplies a starting point:
13 Williston on Contracts § 39:32 (4th ed.); see also VFS Fin., Inc. v. Falcon Fifty LLC, 17 F.Supp.3d 372, 380 (S.D.N.Y. 2014) ("New York's doctrine of election of remedies provides that `the non-breaching party must choose between two remedies — it can elect to terminate the contract and recover liquidated damages or it can continue the contract and recover damages solely for the breach.'" (quoting ESPN, Inc. v. Office of Com'r of Baseball, 76 F.Supp.2d 383, 387-88 (S.D.N.Y.1999)).
The case law as to similar terminated franchise arrangements confirms that lost future royalties are not routinely available as damages. In ATC Healthcare Services, Inc. v. Personnel Solutions, Inc., a federal trial court applying New York law to a terminated franchise agreement declined to award lost future royalties where the plaintiff elected to terminate the contract rather than sue for an ongoing breach based on missed royalty payments. The court determined that the plaintiff's own actions, i.e., the termination, and not the defendant's breach directly deprived it of future royalties that would have been generated. No. 01 CV 762 CBA, 2006 WL 3758618, at *11-12 (E.D.N.Y. Dec. 19, 2006); see also Kissinger, Inc. v. Singh, 304 F.Supp.2d 944, 949-51 (W.D. Mich. 2003) (applying similar proximate cause analysis).
Other courts applying state laws similar to New York's have consistently reached the same result:
Dunkin' Donuts, Inc. v. Arkay Donuts, LLC, No. CIV. 05-387 (WHW), 2006 WL 2417241, at *5 (D.N.J. Aug. 21, 2006) (reaching the same result under New Jersey law and collecting cases from other jurisdictions).
Here, Mister Softee decided to terminate Amano's Franchise Agreements because Amano moved his trucks out of the Manida Street Depot and stopped making payments under the Truck Notes.
Under the Truck Notes, Mister Softee seeks $9,348.21 allegedly due as of May 18, 2015, plus 1.75% in prejudgment interest per month. Each Truck Note provides that upon an event of default — which includes failure to make payments due — MSSM has the right to accelerate all payments. (TN § 11.1).
Amano does not offer evidence in opposition or dispute these overdue amounts. Again, he only argues that he does not "own" the trucks and that Mister Softee is aware of this fact. (See Def. Counter. ¶¶ 39-43). For reasons articulated in Amanollahi I, see 2014 WL 3110000, at *6, and above, this argument fails. Amano admits both to being responsible for payments under the Truck Notes and to being the legal signatory and debtor under the notes. (See, e.g., Reino Cert., Ex. A 35:19-38:6 (testifying that he signed and took responsibility for payments under the Truck Notes even though the Four Transferees immediately took possession of the trucks because he expected to profit from their business at his depot commissary)). Having introduced no written amendments releasing him or naming the four transferees as debtors under the Truck Notes, Amano cannot simply remove himself from the process and tell Mister Softee to go after the transferees. MSSM is entitled to recover the $9,348.21 balance from Amano.
Whether MSSM may recover pre-judgment interest on this balance requires additional analysis. Pre-judgment interest "on contract and equitable claims is based on equitable principles," and lies within the court's discretion. County of Essex v. First Union Nat. Bank, 186 N.J. 46, 61, 891 A.2d 600, 608 (2006).
Finding no genuine dispute of material facts and, finding no reason to depart from the contractual interest rate or the unchallenged date of accrual MSSM submits, I will grant summary judgment in favor of Mister Softee on the balance of $9,348.21 plus prejudgment interest at the 1.75% monthly rate to which the parties contractually agreed, accruing from May 18, 2015. Post-judgment interest will accrue in accordance with 28 U.S.C. § 1961 from the date judgment is entered.
Under a theory of unjust enrichment, Mister Softee seeks to recover $1,362.15, inclusive of interest,
In broad strokes, to recover for unjust enrichment under New Jersey law,
An unjust enrichment claim must fail, however, where an express contract governs the relationship between the parties on the same subject matter. See In re Phillips/Magnavox Television Litig., No. CIV.A. 09-3072 PGS, 2010 WL 3522787, at *10 (D.N.J. Sept. 1, 2010); Moser v. Milner Hotels, Inc., 6 N.J. 278, 280 (1951)) ("It is a well settled rule that an express contract excludes an implied one. An implied contract cannot exist when there is an existing express contract about the identical subject." (internal quotation marks omitted)).
Neither party attempts to apply these nuanced requirements to the facts at hand with any particularity. Amano argues he was not "enriched" — i.e., that the four transferees, not he, benefited. Indeed, he claims he was not even aware of the repairs at the time they were made. (Def. Br. 15; Def. Counter. ¶¶ 46-47). Mister Softee contends that regardless of who actually possessed the trucks, Amano benefitted from the repairs because the four transferees paid rent to Amano to park the trucks in his depot and also purchased supplies from Amano's commissary. (Pl. Reply 6-7).
Mister Softee has failed to show the absence of genuine and material issues of fact. There is no evidentiary basis for Mister Softee's claim that it reasonably expected remuneration from Amano for repairs. Work orders and a monthly billing statement sent to "Metro Softee Inc." at the Manida Street Depot do not really speak to the issue. (See Reino Cert., Exs. G-H).
There may also be an issue as to whether the parties' explicit contract allocates repair expenses to Mister Softee or to the franchisee. Mister Softee submits work orders for the repairs and seeks prejudgment interest at a rate of 1.5% per month, seemingly on the basis of a monthly billing statement. (See id.). The silence of the Franchise Agreements may mean that the parties did not think it was important, or left it to be worked out informally. Finally, I cannot find any manifest injustice in MSSM's expenditure of a relatively small sum to service trucks from which its affiliates were still profiting in October of 2013 (i.e., over four months prior to termination of the Franchise Agreements). Mister Softee's motion for summary judgment on this claim is therefore denied.
Mister Softee asks that I rule as a matter of law that it is entitled to an award of reasonable attorney's fees and litigation costs pursuant to Section 9 of the Franchise Agreements, Section 13 of the Truck Notes, and the Lanham Act itself, see 15 U.S.C. § 1117(a). Under New York law, which applies to the Franchise Agreements, "a contract that provides for an award of reasonable attorneys' fees to the prevailing party in an action to enforce the contract is enforceable if the contractual language is sufficiently clear." NetJets Aviation, Inc. v. LHC Commc'ns, LLC, 537 F.3d 168, 175 (2d Cir. 2008). Similarly, under New Jersey law, which applies to the Truck Notes, "contracts which permit the aggrieved party to recover fixed or reasonable attorney's fees as part of his or her damages are enforceable unless some larger public policy mandates a contrary result." Merrill Lynch Bus. Fin. Servs. Inc. v. Comtel Techs., Inc., No. CIV. 06-4247 (DRD), 2006 WL 3327885, at *3 (D.N.J. Nov. 14, 2006) (quoting Belfer v. Merling, 322 N.J.Super. 124, 141 (App. Div. 1999)).
Section 9 of the Franchise Agreements provides that, if a franchisee is in breach of any material obligation under the Franchise Agreements or related agreements, and if Mister Softee "engages an attorney to enforce its rights (whether or not formal judicial proceedings are initiated), [franchisee] shall pay all reasonable attorney's fees, court costs and litigation expenses [Mister Softee] incurs." (FA § 9). Section 13 of the Truck Notes provides that if MSSM uses an attorney "to enforce this obligation or to protect the collateral secured," the buyer "shall pay to MSSM the collection costs incurred ... and the costs of suit, including attorney's fees and costs in any appeal taken, but in no event shall this sum for attorney's fees be less than 15% of the outstanding and unpaid indebtedness." (TN § 13).
That seems clear enough. See Mister Softee, Inc. v. Tsirkos, 2015 WL 7458619, at *6 (awarding Mister Softee attorney's fees under the same provision of the franchise agreements on a motion for default judgment). I perceive no ambiguity requiring factual development at trial. See Celanese Ltd. v. Essex Cty. Improvement Auth., 404 N.J.Super. 514, 528 (App. Div. 2009) ("The interpretation of a contract is ordinarily a legal question for the court and may be decided on summary judgment unless there is uncertainty, ambiguity or the need for parol evidence in aid of interpretation." (internal quotation marks omitted)); Gen. Phoenix Corp. v. Cabot, 300 N.Y. 87, 92 (1949) ("Where the intention of the parties may be gathered from the four corners of the instrument, interpretation of the contract is a question of law.").
Amano does not argue otherwise, or identify any countervailing public policy; he asserts only that an award of attorney's fees is premature and that it would be inequitable to permit Mister Softee to "profit off their own misdeeds." (Def. Br. 18). Mister Softee's entitlement to fees, however, is clear. To fix the amount, I agree, would be premature, but I will require appropriate submissions in connection with entry of final judgment. See Merrill Lynch Bus. Fin. Servs. Inc., 2006 WL 3327885, at *3 ("[A] claim for attorney's fees `is an element of damages which must be proved in the same manner as any other item and which must be assessed by the finder of fact as a matter of right and in the actual amount established by the proofs.'" (quoting Belfer, 322 N.J. Super. at 141)); Latona v. Latona, 621 N.Y.S.2d 973 (App. Div. 1994) ("Attorney's fees should not be awarded without conducting a hearing or requiring proof by affidavit substantiating the attorney's fees requested.").
Because Mister Softee is entitled to reasonable attorney's fees under the contracts, I do not reach the redundant issue of attorney's fees under 15 U.S.C. § 1117(a). Upon final judgment in this action, Mister Softee may prove up its attorney's fees and expenses pursuant to Federal Rule of Civil Procedure 54(d), and Amano will be given the opportunity to dispute any such submission.
Mister Softee seeks to dispose of Amano's counterclaims by summary judgment. Its burden is to show that there is no genuine dispute of material fact, or more simply that there is an absence of evidence supporting Amano's case. See Celotex, 477 U.S. at 325.
I found in Amanollahi I that Amano's claims for rescission under NYFA Section 683 with respect to the eight 2007 Franchise Agreements are barred by the three-year statute of limitations.
Amano claims that Mister Softee breached its obligations under the Franchise Agreements to provide training, periodic assistance, continuing consultation, and advice on such subjects as inventory and quality control standards. He also claims that Mister Softee breached its obligation to provide a clean and safe warehouse environment at prescribed truck depots. (See Am. Answer ¶¶ 32-34). Amano seeks money damages for these breaches. (Id. ¶ 34 & p.8).
Mister Softee argues that Amano's counterclaim should be disposed of as a matter of law because Amano did not comply with the condition precedent of 30 days' written
New York courts
Amano concedes, or at any rate does not contest, Mister Softee's interpretation of the Section 22.3 notice requirement. I nevertheless raise an interpretive issue. This section — drafted as a single sentence — states initially that timely notice is "a condition precedent to commencing an action for damages or for violation or breach of this Agreement." (FA § 22.3; emphasis added. I refer to this as "clause 1."). Because a counterclaim does not "commence" an action, the literal application of clause 1 to Amano's counterclaim is uncertain.
Clause 1 is seemingly aimed at enforcing a pause, so that disputes can be adjusted before involving the courts. Clause 2 ensures that, in any case, Mister Softee will not pay damages for any lapse of which it was not properly notified. Mister Softee's interpretation of Section 22.3, which in any event is not contested, is a reasonable one.
Rather than dispute Mister Softee's interpretation of Section 22.3, Mr. Amano argues that he substantially complied with the notice requirement. He cites his own deposition testimony that he raised his grievances to Spabo orally over the course of their relationship. (See Keppler Cert., Ex. B ¶¶ 43-54). He admits he never furnished notice in writing, but argues that the writing requirement is "de minimis." (Def. Br. 18; Def. Counterstatement ¶¶ 52-57). I find these arguments insubstantial. The purpose of Section 22.3 is apparent: it aims to allow the parties to work out the routine complaints that arise in the relationship without resort to litigation. The requirement of written notice is a guarantor of clarity, and is therefore reasonable and essential. Claims that oral complaints were made, years after the fact, are precisely what this requirement was designed to avoid. Mister Softee is therefore within its rights in insisting on compliance.
Amano also seems to suggest that Mister Softee waived its right to enforce the condition precedent by choosing not to enforce other provisions of the Franchise Agreements. (Def. Br. 17-18). But in support, Amano points only to the fact that Mister Softee did not exercise its right under Section 18.2.1 to terminate the Franchise Agreements for Amano's failure to complete initial training (which he claims Mister Softee did not actually offer). Amano's argument fails. The plain language of Section 18 makes clear that a franchisee's failure to complete training is an occurrence upon which Mister Softee may elect to terminate the franchise relationship; it is not bound to do so, nor is termination automatic. (See FA § 18.2-18.2.1 ("SPABO has the right to terminate this Agreement . . . If you fail to complete initial training as provided in Section 7.")). Moreover, the Franchise Agreements do not detail what training entails and it is clear that whether a franchisee has completed training is a determination within Mister Softee's discretion. (Id. § 7 ("You shall attend and satisfactorily complete Mister Softee's training program. Mister Softee and/or Spabo will train you . . . and one other individual tuition-free.")).
It is hornbook law that "[t]he waiver of one right under a contract does not necessarily waive other rights under the contract; rather, the parties to a contract may waive parts of its provisions." 13 Williston on Contracts § 39:18 (4th ed.). Waiver requires knowing, voluntary, and intentional abandonment of contractual rights, which should only be found upon "a clear manifestation of intent to relinquish a contractual protection." Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset Mgmt., L.P., 7 N.Y.3d 96, 104 (2006) (internal quotation marks omitted). "Generally, the existence of an intent to forgo such a right is a question of fact," id., but here, I find that Amano has failed to raise any genuine question of material fact to suggest that Mister Softee intended to waive the protection of the wholly unrelated Section 22.3 condition precedent.
For these reasons, I grant Mister Softee's motion for summary judgment dismissing the breach of contract counterclaims based on lack of notice under Section 22.3.
Amano has not answered Mister Softee's motion to release the bond that it posted as a condition of this Court's issuance of the July 1, 2014 preliminary injunction.
For the foregoing reasons, Mister Softee's motion for summary judgment is
Summary judgment is
The Clerk of the Court is directed to release the Plaintiffs' $50,000 bond deposited as security pursuant to the Court's Preliminary Injunction Order, and to return the bond to Fisher Zucker, LLC on behalf of the Plaintiffs.
Reza Amanollahi and his agents, employees and any persons acting in concert with him who have actual knowledge of this injunction are hereby permanently enjoined from:
Counsel shall arrange for a conference call with the Court within 10 days, in order to identify outstanding claims and identify the steps required to poise the case for final judgment.
Amano also implies in a footnote that the Franchise Agreements Mister Softee has submitted as part of the record on this motion were manipulated and that his signatures were obtained by fraud in the factum. (See Def. Br. 18 n. 14)). Amano offers no supporting evidence or genuine argument, and at any rate, such a defense fails where, as the record shows here, the aggrieved party had a basic understanding of the contract he executed. See, e.g., Provident Bank v. Cmty. Home Mortg. Corp., 498 F.Supp.2d 558, 574 (E.D.N.Y. 2007) ("Where, as here, there is no evidence that the mortgagors were unaware that they were signing mortgage notes, or were falsely informed as to the nature of the notes, fraud in the factum cannot be asserted as a defense....").
It also does not seem equitable that Mister Softee may, without any effort to mitigate, simply collect up to ten years' worth of royalties on an agreement it terminated. In connection with the preliminary injunction, I found that two years was a reasonable duration for the non-compete, because that was an adequate time for Mister Softee to obtain substitute franchisees. Neither side has submitted relevant proofs, however, and Mister Softee, as the party with the burden of proof, will not prevail on this issue.
