Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—S.D.N.Y.: Former ice cream franchisee found in contempt of injunction order, (Jul 3, 2014)

By Linda O’Brien, J.D., LL.M.

The federal district court in New York City has found that a former ice cream truck franchisee was in contempt of a preliminary injunction order that barred him from using the franchisor’s registered trademarks and operating within his former franchise territory. Sanctions were also imposed (Mister Softee, Inc. v. Tsirkos, July 2, 2014, Swain, L).

Dimitrios Tsirkos was a former franchisee of Mister Softee, an ice cream truck franchisor. Tsirkos signed six franchise agreements with Mister Softee master franchisees, Mister Softee of Queens Inc. (MSQ), and Spabo Ice Cream Corp. (Spabo). Tsirkos stopped making royalty payments and parking his trucks at the designated depot. Consequently, he received a notice of termination in February 2014 that terminated the parties’ franchise agreements. After termination of the agreements, Tsirkos continued to operate in areas for which Mister Softee and its affiliates had granted franchises. In June 2014, the court granted the plaintiffs’ motion for a preliminary injunction which barred Tsirkos from using the franchisor’s registered trademarks and from competing with any other of the franchisor’s franchisees. Subsequently, the plaintiffs moved for entry of an order finding Tsirkos in contempt of the preliminary injunction order.

A contempt order is warranted if the moving party establishes by clear and convincing evidence that there was a violation of the court’s edict, according to the court. Mister Softee brand trucks have a distinctive appearance and the plaintiffs offered evidence of the operation of similarly decorated trucks in Tsirkos’ former territories. Tsirkos argument that he continued to operate his trucks because he failed to look at an email message from his attorney for several days was rejected as willful ignorance of the issuance of the preliminary injunction order.

Additionally, the preliminary injunction order was clear and unambiguous. Tsirkos personally participated in the preliminary injunction hearing and was well aware of the urgency and scope of the plaintiffs’ application. He did not act in good faith to ensure he would be aware of and promptly comply with the court’s decision. Accordingly, Tsirkos was in contempt of the preliminary injunction order and an award of profits earned during the violation, legal and investigative fees was an appropriate sanction, the court concluded.

In a similar action, Mister Softee, Inc. was entitled to a preliminary injunction against a former franchisee barring him from using Mister Softee trademarks and operating ice cream trucks in his former territories, the federal district court in Newark has ruled (Mister Softee, Inc. v. Amanollahi, July 1, 2014, McNulty, K.)

In 2007, Reza Amanollahi entered into franchise agreements to operate 22 Mister Softee franchises. The franchise agreements contained a non-compete provision that prohibited Amanollahi from directly or indirectly competing within his former territories. In 2009, Amanollahi transferred the franchises to four individuals in an installment sale but retained title to the franchises until the final payment was to be made in 2019. He ceased making royalty payments and moved his trucks from his designated depot to a depot used by Dimitrios Tsirkos. In February 2014, Mister Softee terminated his franchise agreements. Mister Softee filed suit against Amanollahi and subsequently moved for a preliminary injunction to restrain Amanollahi from using Mister Softee trademarks and violating the non-compete provisions of the franchise agreements.

It was undisputed that the Mister Softee trademark was valid and legally enforceable, the trucks continued to operate without any effort to remove the Mister Softee identifying marks, and the copyrighted materials were not returned to Mister Softee. Amanollahi’s argument that he was the franchisee only on paper and any injunctive relief was unnecessary since he did not operate the trucks was rejected. The court noted that, although Amanollahi outsourced the operation of the trucks, he was still the owner of the franchises and signed the franchise agreements.

Moreover, Amanollahi continued to supply ice cream products to the infringing transferees operating Mister Softee trucks and managed a depot used by Tsirkos who was another defaulting franchisee. Thus, Amanollahi was ordered to comply with his own post-termination duties under the franchise agreements and discontinue his acts of trademark infringement and contributory infringement.

The cases are Nos. 14CV1975-LTS-RLE and 2:14-CV-01687.

Attorneys: Jeffrey Alan Zucker and Frank Anthony Reino (Fisher Zucker LLC) for Mister Softee Inc., Mister Softee of Queens Inc., Spabo Ice Cream Corp., and Mister Softee Sales and Manufacturing, LLC. Nicholas John Damadeo (Nicholas J. Damadeo, PC) for Dimitrious Tsirkos. Lawrence N. Lavigne (Lawrence N. Lavigne, Esq., LLC) for Reza Amanollahi.

Companies: Mister Softee Inc.; Mister Softee of Queens Inc.; Spabo Ice Cream Corp.; Mister Softee Sales and Manufacturing, LLC

Cases: FranchisingDistribution NewYorkNews NewJerseyNews