IP Law Daily, TRADEMARK—D.N.J.: Mister Softee freezes former franchisee from operating, (Dec 18, 2024)

By Seth Abrams, J.D., M.A.

Default judgment and permanent injunction were entered against former franchisee operating in violation of franchise agreement in Connecticut.

The federal district court in Camden, New Jersey entered default judgment in favor of plaintiff ice cream truck franchisor Mister Softee Franchise LLC and Mister Softee, Inc. (together, “Mister Softee”) against defendants William Giannos and Mister Softee of Connecticut LLC. The court found that Mister Softee’s trademark infringement and breach of contract claims were sufficiently established to warrant the default judgment. It further found that the three default judgment factors were satisfied and also entered a permanent injunction against the defendants. Finally, the court found that Mister Softee was entitled to attorney fees and costs (Mister Softee Franchise LLC v. Giannos, No. 1:24-cv-02280-RMB-AMD (D.N.J. Dec. 16, 2024)).

Background. Mister Softee is a franchisor of ice cream trucks. It “entered into eight franchise agreements with the defendants between 2009 and 2015 to operate ice cream trucks under the Mister Softee brand” in Connecticut. In relevant part, these franchise agreements contained a non-compete clause for two years following termination of the agreement. In 2022, Mister Softee sent the defendants a notice of default for royalties and fees due. Defendants made a partial payment but ultimately did not cure the defaults, and Mister Softee terminated the franchise agreements. However, defendants have continued to operate unauthorized Mister Softee ice cream trucks in Connecticut. Additionally, defendants have failed to respond to the complaint in this suit after being served with process. Mister Softee does not seek damages, but instead entry of a permanent injunction against defendants and attorney’s fees and costs.

The court had subject matter jurisdiction because the case raises a federal question under the Lanham Act and supplemental jurisdiction over the state law breach of contract claim. It had personal jurisdiction due to a forum selection clause in the franchise agreement designating the state and federal courts of New Jersey as the proper forum to resolve disputes arising out of the franchise agreement. The court found that Mister Softee properly served defendants.

Trademark infringement. Mister Softee established that its trademarks are federally registered and its “validity, legal protectability, and ownership” are proven as a matter of law. The court found that the unauthorized use of the Mister Softee’s trademarks by the defendants will likely create confusion. It found that “[d]efendants are operating ice cream trucks that could easily be mistaken for a Mister Softee ice cream truck.” Because the marks are federally registered and will likely create confusion, the court found the defendants liable for trademark infringement.

Breach of contract. The court found that the non-compete clauses in the contracts were reasonable. They prohibited competition for a two-year period following termination. The non-compete clauses implicated a legitimate business interest by allowing Mister Softee time to find a new franchisee to operate in the territory. The clauses do not impose undue hardship on defendants as they are narrow in both temporal and geographic scope. Furthermore, the court found that they are not injurious to the public. Accordingly, the court found the defendants liable for breach of contract for operating ice cream trucks within two years of the termination of the agreement.

Default judgment. The court found that all three default judgment factors were satisfied. First, Mister Softee would be prejudiced absent a default judgment as the defendants “continue to operate under the Mister Softee trademark without a valid license to do so and in defiance of a reasonable non-compete clause.” Second, the defendants do not appear to have a litigable defense. Third, the court found that the delay was culpable as there is a presumption of culpability when a defendant fails to answer the complaint.

Permanent injunction. The court found that a permanent injunction against the defendants was appropriate. It found that Mister Softee established success on the merits. Second, it held that it was warranted because trademark injuries are irreparable as a matter of law and defendants’ ice cream trucks “could easily be mistaken for a Mister Softee ice cream truck.” In addition, Mister Softee would not be able to control the quality of the products sold by defendants under its trademark and the injunction will not result in greater harm to the defendants. The permanent injunction would be in the public interest, as the public has a right not to be deceived or confused.

Attorney fees and costs. The court found that the attorney fees were warranted because the defendants’ infringement was “knowing or willful.” As a result, in addition to the permanent injunction, an award of attorney fees and costs to Mister Softee was permitted.

The Case is No. 1:24-cv-02280-RMB-AMD.

Judge: Bumb, R.

Attorneys: Frank Anthony Reino (Fisher Zucker LLC) for Mister Softee Franchise LLC.

Companies: Mister Softee Franchise LLC

Cases: Trademark NewJerseyNews