Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—M.D. Pa.: Franchisor not entitled to treble damages, prejudgment interest against franchisee, sham successor, (Mar 24, 2016)

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

A petition for treble damages, attorney fees, costs, and prejudgment interest against a former Motel 6 franchisee, the sham successor to the former franchisee’s operation, and individuals was granted in part and denied in part by the federal district court in Harrisburg, Pennsylvania. The court denied the franchisors’ requests for treble damages and prejudgment interest but granted their requests for attorneys’ fees and costs (G6 Hospitality Franchising LLC v. HI Hotel Group, LLC, March 22, 2016, Kane, Y.).

G6 Hospitality Franchising LLC, G6 Hospitality IP LLC, G6 Hospitality LLC, and Motel 6 Operating L.P. (collectively, “plaintiffs”) filed an action against HI Hotel Group and its members (collectively, “HI Hotel”) for breaching their franchise agreement by failing to pay required fees and maintain brand standards. The plaintiffs also filed a trademark infringement action against HI Hotel and 1450 Hospitality and its members (collectively, “1450 Hospitality”) for infringing the plaintiffs’ Motel 6 trademark. According to the complaint, HI Hotel continued to operate its hotel as a Motel 6 franchise after the motel was rebranded as a Travel Inn and later sold it to 1450 Hospitality, which continued to operate it as a Motel 6 franchise.

Prior to the trial, the parties stipulated that HI Hotel and 1450 Hospitality committed trademark infringement under the Lanham Act. A jury, in addition to awarding the plaintiffs actual damages on their trademark infringement claims, found the members personally liable for their respective hotel’s infringement and that three of the members were found to have infringed Motel 6’s trademarks “intentionally or willfully.” The court subsequently granted judgment as a matter of law on the plaintiffs’ breach of contract claim.

The plaintiffs later petitioned the court to award them treble damages, attorneys’ fees, costs, and prejudgment interest. The plaintiffs contended that they were entitled to treble damages under 15 U.S.C. § 1117(b) because (1) the sale of inauthentic services bearing an authentic trademark is counterfeiting and (2) holdover franchisors are counterfeiters for purposes of 15 U.S.C. § 1117(b). The court, however, disagreed. After noting legislative history that counterfeiting refers to the use of trademarks that are not “genuine or authentic”, it determined that 15 U.S.C. § 1117(b) did not apply because the defendants did not use a counterfeit mark but, rather, used an original trademark without authorization.

The court, however, determined that the case was “exceptional,” for purposes of awarding attorneys’ fees because: (1) the defendants’ response to the plaintiffs’ claim, that the former franchisee continued to use its trademarks without permission and then transferred the property in a sham transaction to operators who failed to rectify the trademark infringement, was that they promised to close a competing Motel 6 property; (2) eleventh hour delays by the defendants resulted in the trial date being rescheduled on eight occasions; and (3) three of the member defendants were found to have “intentionally or willfully” infringed Motel 6’s trademarks.

Based on the provisions of the franchise agreement, the plaintiffs were entitled to reasonable attorney fees and costs for its breach of contact claims against the defendants. The court determined that the hourly rates charged by the plaintiffs’ attorneys were reasonable based on their qualifications and experience and that the number of hours billed was reasonable in light of the amount and quality of work submitted by the attorneys.

The court declined to award the plaintiffs prejudgment interest because the case did not involve counterfeiting.

The case is No. 1:11-cv-02176.

Attorneys: Edward A. Greenberg (Ward Greenberg Heller & Reidy, LLP) for Motel 6 Operating L.P., G6 Hospitality IP LLC and G6 Hospitality Franchising LLC. HI Hotel Group, LLC, Pro Se.

Companies: Motel 6 Operating L.P.; G6 Hospitality IP LLC; G6 Hospitality Franchising LLC

Cases: FranchisingDistribution PennsylvaniaNews