IP Law Daily, TRADEMARK—N.D. Tex.: CiCi buffet restaurant franchisor secures preliminary injunction against franchisees’ use of marks, competition, (Apr 3, 2023)

By Justin Marcus Smith, J.D.

The covenant not to compete satisfied the Texas requirement that it be ancillary to or part of an otherwise enforceable agreement.

Franchisors of CiCi pizza restaurants made a successful case for preliminarily enjoining a terminated franchisee with respect to Lanham Act unfair competition and trademark misuse allegations, as well as with respect to the noncompete covenant in its franchise agreement, held the federal district court in Dallas. The court considered the Lanham Act issues separately from the non-competition issues, but the analysis was largely the same. The franchisors showed, in both instances, a likelihood of success on the merits; a threat of irreparable harm; a balance of likely harms that favored the franchisors; and that preliminary injunction would not disserve the public interest. In many instances, the franchisees offered little to dispute the franchisors’ allegations. The court ordered a bond to protect the franchisees, but otherwise denied the plaintiff’s application for attorney fees, at least for now (CICI Enterprises, LP v. Fogel Enterprises, Inc., March 30, 2023, Brown, A.).

Restaurant franchisor CiCi Enterprises, LP and Yes Caps, LLC (collectively, franchisors) applied for a temporary restraining order (TRO) and motion for preliminary injunction to enjoin franchisees Fogel Enterprises, Inc., Nolan B. Fogel, and Babette L. Fogel (collectively, Fogel) from infringing on plaintiffs’ federally-registered trademarks in violation of the Lanham Act, unfairly competing in violation of the Lanham Act, and breaching a post termination non-compete covenant under their franchise agreement with Plaintiffs. The plaintiffs also requested costs and expenses, including attorneys’ fees.

The court considered the TRO and preliminary injunction application in two parts based on whether the Lanham Act supported a preliminary injunction with respect to allegations about the use of trademarks and unfair competition, and separately as to whether the court ought to preliminarily enjoin the defendants from operating a pizza restaurant, even apart from any use of the disputed trademarks, for two years within ten miles. The court partially granted the preliminary injunction on both grounds, rendering the application for a TRO moot.

Lanham Act. The court found that if Fogel was using CiCi’s marks without consent, there was considerable likelihood of consumer confusion between the restaurant and authorized CiCi’s franchise locations. The only question here was whether Fogel’s use was unauthorized. The court found that the franchisors provided evidence, in a form establishing that CiCi’s had properly terminated the franchise agreement, establishing a substantial likelihood that the present use of CiCi’s marks was unauthorized. It appeared to the court that CiCi’s had served multiple notices of default on the franchise agreement with opportunities to cure and then served the required formal notice of termination. The court said the only evidence Fogel produced was “duplicative” of that the franchisors produced. The court concluded it was undisputed that Cici’s had a right to terminate and did terminate. Accordingly, the franchisors showed a high likelihood of prevailing on their trademark infringement claim and on the unfair competition claim as well.

As to irreparable harm, the court said Fogel failed to rebut the presumption of irreparable injury. Fogel had relied exclusively on their unsuccessful argument that the franchisors did not establish a likelihood of success on the merits of the trademark infringement claim. Accordingly, the court held that the franchisors had established a threat of irreparable harm.

In the balance of harms, the court found that Fogel did not provide any evidence of the harm they might suffer, other than being deprived of the ability to continue operating as a franchise. Here, the court found no reason to deviate from the common practice of finding that the threatened harm to franchisor plaintiffs outweighed that of the franchisees in improper trademark use cases.

Similarly, as to the public interest, the court said that courts commonly find a preliminary injunction in the public interest in cases where franchisor or other kinds of plaintiffs have established a likelihood of success on the misuse of trademarks. All told, the court concluded that all four factors were present in a way that weighed in favor of preliminarily enjoining Fogel from using the CiCi marks.

Restrictive covenant. As to the covenant not to compete after termination of the franchise agreement, the court likewise found that the franchisors met all four factors for a preliminary injunction against continuing to operate a competing business within the protected area. The non competition clause in the franchise agreement embodied an enforceable agreement, under Texas law, not to compete for two years after termination within a ten mile radius. It was part of a larger agreement and “ancillary” to that larger franchise agreement. This was because the consideration that the franchisors provided to Fogel was in exchange for not competing. The scope of the agreement was also necessary to protect the franchisor’s goodwill, reputation, and place in the market, most specifically, to be able to “re-franchise in the market.” The court noted that Fogel not only did not provide any evidence that the restriction was unreasonable, Fogel did not even address the non-compete covenant at all. The court also found it undisputed that the franchisors performed their end of the bargain by supplying Fogel with “training, information, and rights.” As to breach, it was again undisputed that Fogel continued using the franchisors’ marks in connection with operating a pizza restaurant within the restricted area.

The court found that irreparable harm was likely to goodwill, reputation, and ability to refranchise in the local market. The court said Fogel again had no response. The court acknowledged this would be difficult to calculate in terms of monetary damage, but the court said here that Texas courts only emphasized, in this situation, that breach of a non-compete was the “epitome of irreparable injury.”

The balance of harms and public interest analyses were similar to that supporting the preliminary injunction for the misuse of the marks and unfair competition. The court concluded that depriving Fogel from benefiting from wrongful conduct did “not disserve” the public interest.

The court granted a two-year preliminary injunction keyed to the two-year term of the non-compete agreement. The court did not find any reason to deviate from the 10-year geographical radius or other proscribed conduct details. However, the court put a $10 thousand bond in place in case Fogel would be found to have been wrongfully restrained.

The court did not cleave to the franchisors’ argument for attorney fees. The court found the request unsupported in the franchisors’ memorandum of law.

The Case is No. 3:22-cv-01202-E.

Attorneys: J. David Apple (Apple & Fink Law, LLP) for CiCi Enterprises LP. Sean M. Whyte (Spencer Fane LLP) for Fogle Enterprises, Inc.

Companies: CiCi Enterprises LP; Fogle Enterprises, Inc.

Cases: Trademark TexasNews