Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. Colo: Red Robin unable to enjoin operation, require sale of franchise, (Feb 24, 2016)

By Michael Menzhuber, J.D., LL.M.

Restaurant franchisor Red Robin International was denied a motion for a preliminary injunction, barring a franchisee’s continued operation of its Red Robin restaurant and requiring the sale of the restaurant to the franchisor. The federal district court in Denver found that the heightened burden on showing a likelihood of success on the merits and that the threatened harm outweighed the harm to the franchisee was not satisfied (Red Robin International, Inc. v. Lehigh Valley Restaurant Group, Inc., February 23, 2016, Blackburn, R.).

The Lehigh Valley Restaurant Group, Inc. (LVRG) entered into a twenty-year franchise agreement to operate a Red Robin restaurant in Pennsylvania. The twenty-year term expired in November 2015. According to LVRG, it provided Red Robin with timely notice of its intent to renew and that it complied fully with all the requirements for a valid renewal of the franchise for an additional ten-year term.

Red Robin contended that LVRG did not meet all the requirements for a valid renewal and it considered the franchise agreement to have expired. LVRG continued to operate the restaurant and, according to Red Robin, this continued use of the Red Robin name, trade dress, and systems was a violation of the termination provisions in the franchise agreement.

After asserting claims for trademark infringement, trade dress infringement, unfair competition, and breach of contract, Red Robin filed a motion for a preliminary injunction to: (1) enjoin LVRG from infringing its alleged trademark and trade dress rights; (2) enjoin LVRG’s alleged unfair competition; and (3) require LVRG to comply with its post-termination obligations, which included a duty to sell the restaurant to Red Robin at fair market value.

A party seeking a preliminary injunction must show: (1) a substantial likelihood of success on the merits; (2) irreparable injury if injunctive relief is denied; (3) the threatened injury outweighs whatever damages the proposed injunction would cause the opposing party; and (4) the injunction, if granted, would not be adverse to the public interest.

The court noted that a party has a heightened burden of showing that these factors weigh heavily and compellingly in its favor if the preliminary injunction would disturb the status quo, be mandatory as opposed to prohibitory, or provide the party substantially all the relief he may recover after a full trial on the merits.

The court applied this heightened burden to Red Robin’s request because a preliminary injunction would: (1) disturb the status quo, which was when LVRG was operating the restaurant under the franchise agreement through the end of the twenty-year term; (2) require LVRG to take affirmative action by altering substantially the long-standing nature of its operation of the restaurant and to sell the restaurant to Red Robin despite its claims that it had a legitimate right to continue operating it; and (3) provide Red Robin with substantially all the relief it could recover after a full trial on the merits.

Applying this heightened burden to Red Robin’s request, the court found that there was not a likelihood of success on the merits because there were significant questions of fact and law which were required to be resolved before the validity of the LVRG’s renewal could be determined and the threatened injury to Red Robin was substantially outweighed by the injuries the proposed injunction would cause LVRG because Red Robin’s injuries could be addressed with a damage award while LVRG would lose a successful restaurant.

Given the failure of Red Robin to show a substantial likelihood of success on the merits, or that the threatened injury outweighed the damage the proposed injunction would likely cause LVRG, the court declined to address the remaining factors and denied Red Robin’s request for a preliminary injunction.

The case is No. 15-cv-02602-REB.

Attorneys: Allison Renee Grow (Cheng Cohen LLC) for Red Robin International, Inc. Neal J.G. McConomy (Law Offices of Snell & Wilmer) for Lehigh Valley Restaurant Group, Inc.

Companies: Red Robin International, Inc.; Lehigh Valley Restaurant Group, Inc.

Cases: FranchisingDistribution ColoradoNews