Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D.N.C.: Treble damages and attorney fees assessed against Dairy Queen franchisee, (Aug 15, 2014)

By Edward L. Puzzo, J.D.

Diary Queen was entitled to treble damages, attorneys’ fees, and a permanent injunction based on its former franchisee’s continued trademark infringement and other franchise violations after entry of a preliminary injunction, the federal district court in Raleigh, North Carolina has ruled (American Dairy Queen Corporation v. YS&J Enterprises, Inc., August 14, 2014, Britt, W.).

YS&L Enterprises and John Ribet operated a Diary Queen/Orange Julius franchise in Fayetteville, North Carolina. After the franchisees allegedly refused to cease operating their restaurant as required by the terms of their franchise agreement, franchisor Dairy Queen brought a lawsuit against the former franchisees on March 13, 2014, asserting claims for trademark infringement, false designation of origin, breach of contract, and unjust enrichment. Defendants did not respond and, on April 2, 2014, the court issued a preliminary injunction, enjoining defendants from displaying Diary Queen trademarks at their location, distributing trademarked products, or otherwise operating the subject restaurant. On June 2, 2014, at a show cause hearing where defendant Ribet did appear, the court found the defendants in civil contempt for failing to abide by the preliminary injunction. All Dairy Queen signage and trademarks were removed from the store by June 8, 2014. Diary Queen then moved for a default judgment.

Based on its earlier findings at the time of the preliminary injunction that Dairy Queen had shown a likelihood of success on the merits in its trademark infringement and breach of contract claims, the court ruled that Dairy Queen was entitled to default judgment on those claims, as well as the false designation of origin claim.

Damages. Dairy Queen was entitled to damages sustained as a result of the defendants’ unauthorized use of trademarks. The court noted that, based on the requirement under the franchise agreement that the franchisee pays monthly licensing and sales promotion fees, defendants owed those fees for the period of January 21, 2014 through June 7, 2014 as actual damages. Further, the court found it appropriate to award treble the amount awarded as actual damages for the injury to Dairy Queen’s goodwill and reputation, given defendants’ “intentional and willful infringement.”

Attorneys’ fees and injunction. The court also ruled that an award of attorneys’ fees against defendants was warranted, because the defendants ignored Dairy Queen’s cease and desist letters after termination of the franchise and continued their infringement after notice of this action, after issuance of the preliminary injunction, and after entry of default. Finally, the court converted the preliminary injunction to a permanent injunction, based on the defendants’ inaction in this case and the likelihood of continued infringement.

The case is Civil Action No. 5:14-CV-151-BR.

Attorneys: Isaac Augustin Linnartz (Smith Anderson Blount Dorsett Mitchell & Jernigan, LLP) and Kerry L. Bundy (Faegre & Benson, LLP) for American Dairy Queen Corporation.

Companies: American Dairy Queen Corporation, YS&J Enterprises, Inc.

Cases: FranchisingDistribution NorthCarolinaNews