Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—M.D. Pa.: Motel franchisor denied injunction to prevent sale of property, (Aug 29, 2013)

By Peter Reap, J.D., LLM.

A motel franchisor and other entities, G6 Hospitality Franchising, LLC, G6 Hospitality IP, LLC, G6 Hospitality, LLC, and Motel 6 Operating LP (collectively, the “Plaintiffs”), were not entitled to a preliminary injunction enjoining the current owner of a property that was in breach of a franchise agreement from selling, refinancing, or otherwise encumbering the property, the federal district court in Harrisburg, Pennsylvania, has decided (Accor Franchising N.A., LLC v. HI Hotel Group, LLC, August 27, 2013, Kane, Y.). The Plaintiffs failed to demonstrate that they would be irreparably harmed by the denial of the requested injunction or that granting the relief would not cause the owner even greater harm.

Background. The current owner of the motel, defendant 1450 Hospitality PA, LLC purchased the real property at issue from defendant HI Hotel Group, LLC. At the time of the sale, the property was in breach of a Motel 6 franchising agreement that HI Hotel Group had previously entered into with one of the Plaintiffs.

After purchasing the property, 1450 Hospitality continued to operate the property as a Motel 6, despite their lack of authority to conduct business using the Motel 6 trademarks. On November 21, 2011, the Plaintiffs filed the instant lawsuit, alleging that the defendants HI Hotel Group and 1450 Hospitality infringed the Plaintiffs’ Motel 6 trademarks, and seeking damages under the Lanham Act and Pennsylvania common law. Before the court was the Plaintiffs’ motion for a preliminary injunction to protect the money damages they expected to eventually receive from the defendants at the conclusion of the lawsuit.

Injunctive Relief

To issue a preliminary injunction, courts evaluated: (1) whether the movant showed a reasonable probability of success on the merits; (2) whether the movant would be irreparably injured by denial of the relief; (3) whether granting preliminary relief would result in even greater harm to the non-moving party; and (4) whether granting the preliminary relief would be in the public interest.

Likelihood of success. The Plaintiffs’ complaint alleged that 1450 Hospitality violated Sections 1114(1), 1117, and 1125(a) of the Lanham Act, which also constituted trademark infringement under Pennsylvania common law. To prevail on their claims under the Lanham Act, the Plaintiffs must establish: (1) that the mark is valid and legally protectable; (2) that Plaintiffs own the mark; and (3) that Defendants’ unauthorized use of the mark is likely to cause confusion.

The Plaintiffs carried their burden of demonstrating that they would likely succeed on the merits of their trademark infringement claims against 1450 Hospitality under the Lanham Act and, Pennsylvania common law, the court ruled. The defendants did not dispute that the marks were valid and incontestable, that G6 Hospitality IP owned the marks at issue, and that 1450 Hospitality used the exact same marks without permission following their purchase of the hotel. Further, the court was satisfied that such use would likely lead to confusion.

Irreparable harm. The Plaintiffs stated in their supplemental brief that they “presented evidence that no other assets exists and that defendants intend to sell the property in the very near future,” and thus argued that they demonstrated irreparable harm. Yet, the Plaintiffs’ only evidence concerning 1450 Hospitality’s assets consisted of a “corporation search for assets of 1450 Hospitality,” which revealed that its only asset was the property. The Plaintiffs did not present evidence concerning defendants Patel and Shah’s individual assets. Nor did the Plaintiffs submit any evidence suggesting that 1450 Hospitality, Patel, or Shah, intended to sell the property in the very near future and then conceal any assets gained in the sale in an effort to evade a potential judgment, the court observed.

Given the high bar set by the Third Circuit, the Plaintiffs failed to adequately demonstrate irreparable harm, the court reasoned. Although the court was sensitive to the Plaintiffs’ concerns for the “collectability” of any potential judgment, the court was also mindful that risk existed in every case, yet issuing a preliminary injunction was an extraordinary remedy.

Greater harm. The Third Circuit mandated that district courts estimate the probable amount of the final judgment against the defendant whose assets were to be encumbered. However, the Plaintiffs’ averments and testimony did not allow the court to readily estimate the probable amount of a final judgment against the defendants, according to the court.

At the hearing, the Plaintiffs’ representative conceded that they would likely seek more in damages against 1450 Hospitality than the number submitted to the court for calculating the scope of the preliminary injunction. At this stage of the proceedings, the Plaintiffs did not submit adequate evidence concerning either the value of the potential judgment, or the amount of assets that would be encumbered by enjoining 1450 Hospitality or its agents from selling the property. Thus, the Plaintiffs failed to show that 1450 Hospitality or its agents would not suffer unnecessary harm by entry of Plaintiffs’ proposed preliminary injunction.

Public interest. Given that the Plaintiffs failed to make an adequate showing on the second and third prongs, irreparable injury and unnecessary harm, the court did not need to analyze whether the public interest would be served by the requested injunction.

Defendants’ failure to oppose Plaintiffs’ motion. The Plaintiffs also argued that they were entitled to the injunction solely on the grounds that the defendants failed to appear at the hearing or otherwise respond to their motion. However, the cases cited by the Plaintiffs were unpersuasive, as they did not concern preliminary injunctions directed at protecting a potential future damages remedy. Thus, this argument was rejected.

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

Attorneys: Edward A. Greenberg (Ward Greenberg Heller & Reidy, LLP) for Motel 6 Operating L.P. Bruce G. Baron (Capozzi & Associates, PC) for HI Hotel Group, LLC.

Companies: Motel 6 Operating L.P.; HI Hotel Group, LLC.; G6 Hospitality Franchising, LLC; G6 Hospitality IP, LLC; G6 Hospitality, LLC; 1450 Hospitality PA, LLC.

Cases: FranchisingDistribution PennsylvaniaNews