Antitrust Law Daily Wrap Up, FRANCHISING & DISTRINUTION—E.D. Cal.: Attempt to delay hearing on TGI Fridays’s injunction request squashed, (May 14, 2015)

By Peter Reap, J.D., LL.M.

Terminated franchisees of five TGI Friday’s Inc. restaurants were denied expedited discovery and a continuance of a hearing on the franchisor’s motion for a preliminary injunction to enjoin the franchisees’ infringement of its trademarks. The franchisees failed to show good cause for their overly broad request for expedited discovery and failed to articulate the bases of their vague defenses, according to the federal district court in Fresno, California (TGI Friday’s Inc. v. Stripes Restaurants, Inc., May 13, 2015, Boone, S.).

Background. After terminating the franchise agreements, the franchisor filed suit against the defendants (Stripes Restaurants, Inc., John Pardini, and Robert Pardini) for trademark violations, violation of California’s Unfair Competition Law, and breach of franchise agreements. The franchisor asserts that the franchisees breached the franchise agreements by failing to pay royalty fees, ad fees, and trade debts. It further alleges that it validly terminated the franchises following the franchisees’ breaches, but that the franchisees continued to operate their restaurants in violation of the Lanham Act.

On April 28, 2015, the franchisor filed a motion for a preliminary injunction seeking to enjoin the franchisees from infringing the franchisor’s marks. The motion is scheduled to be heard on June 1, 2015.

On May 12, 2015, the franchisees filed the present ex parte application. The franchisees argued that a continuance is warranted to allow the defendants to conduct “expedited discovery” to support their opposition to the motion for preliminary injunction.

Analysis. The franchisees intended to demonstrate that the franchisor breached its duties under the franchise agreements, caused any alleged breach by the franchisees, improperly terminated the agreements, and that the franchisor would not prevail on the merits of this action. The franchisees sought to depose certain individuals from the franchisor’s company and asked that the franchisor produce certain documents related to the franchisees’ alleged breach, the court noted.

Generally, Federal Rule of Civil Procedure 26(d) provides that discovery shall not commence until after the conference required by Rule 26(f). However, expedited discovery prior to the Rule 26(f) conference may be permitted by the court upon a showing of good cause. Factors courts consider when determining whether good cause exists to conduct expedited discovery include (1) whether a preliminary injunction is pending, (2) the breadth of the discovery requests, (3) the purpose for requesting the expedited discovery, (4) the burden on the defendants to comply with the requests, and (5) how far in advance of the typical discovery process the request was made.

Here, the discovery requested by the franchisees was overbroad and the franchisees did not articulate a valid need for the expedited discovery, the court determined. As an initial matter, the court noted that the franchisor, as the moving party, bore the burden of proof of demonstrating that the requirements for its requested injunctive relief have been met. Accordingly, the lack of discovery in this action was more prejudicial to the franchisor than the franchisees.

Furthermore, the franchisees’ ex parte application offered only vague labels and conclusions to justify the need for discovery, the court explained. The purported “defenses” raised in the ex parte application were vague and unclear. The franchisees argued that the franchisor interfered with their attempts to sell their franchises to a third party, but offered no explanation of how the franchisor’s actions were wrongful or how those actions excused or justified the franchisees’ alleged failure to pay the fees owed under the franchise agreements.

In addition to the franchisees’ failure to clearly articulate the bases of their defenses, they failed to explain how their discovery requests were related to those defenses, in the court’s view. Simply, the franchisees’ requests were overbroad. It was unclear why depositions were necessary of the franchisor’s Franchise Development Officer or the various corporate representatives on the topics listed in the proposed order submitted by the franchisees, such as the franchisor’s strategies for franchise expansion and retraction in California.

Because the franchisees failed to demonstrate good cause to warrant a continuance of the preliminary injunction hearing or to warrant expedited discovery procedures, the relief requested in their ex parte application was denied.

The case is No. 1:15-cv-00592-AWI-SAB.

Attorneys: Deborah S. Coldwell (Haynes and Boone LLP) for TGI Friday's Inc. Jennifer Mathis (Troutman Sanders LLP) for Stripes Restaurants, Inc.

Companies: TGI Friday's Inc.; Stripes Restaurants, Inc.

Cases: FranchisingDistribution CaliforniaNews