Dunkin' Donuts Franchising, LLC v. 14th Street Eatery, Inc. ( 2015 )


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  •                                   UNITED STATES DISTRICT COURT
    FOR THE DISTRICT OF COLUMBIA
    )
    DUNKIN’ DONUTS FRANCHISING,                              )
    LLC,                                                     )
    )
    Plaintiff,                            )
    )
    v.                                           )        Civil Action No. 15-cv-519 (TSC)
    )
    14th STREET EATERY, INC., et al.,                        )
    )
    )
    Defendants.                           )
    )
    MEMORANDUM OPINION
    Plaintiff Dunkin’ Donuts Franchising, LLC (“Dunkin’ Donuts”) brings this action against
    14th Street Eatery, Inc., Mohammad Hoque, and Yasmin Parveen (collectively, the
    “Defendants”) for breach of contract and trademark infringement. Dunkin’ Donuts alleges that
    Defendants failed to pay franchise and other fees, and as a result Dunkin’ Donuts terminated the
    franchise agreement between the parties. Despite this termination, Defendants continue to
    operate an eatery holding itself out as a Dunkin’ Donuts franchise, thereby infringing Dunkin’
    Donuts’ trademarks and violating the terms of a covenant not to compete. Before the Court is
    Dunkin’ Donuts’ motion for a preliminary injunction, which Defendants have failed to oppose.
    Upon consideration of the uncontested motion, the entire record, and for the following reasons,
    the motion is granted.1
    I.        BACKGROUND
    Dunkin’ Donuts is an international franchisor of eateries that sell doughnuts, coffee,
    bagels, and other related products. (Mot. 1-2). Dunkin’ Donuts and its franchisees currently
    1
    In an exercise of its discretion, the court finds that the motion can be decided without a hearing. LCvR 65.1(d).
    1
    operate over 3,700 stores in the United States and over 1,400 stores outside the United States.
    (Id. at 3). As part of its franchise model, Dunkin’ Donuts has developed a standardized system
    of operating and maintaining its restaurants. This system includes the use of registered Dunkin’
    Donuts trademarks.
    Dunkin’ Donuts and Defendants entered a franchise agreement in 2011 that permitted
    Defendants to operate a Dunkin’ Donuts franchise at 2001 14th Street NW in the District of
    Columbia. As part of the franchise agreement, Defendants were required to pay periodic
    franchise and advertising fees to Dunkin’ Donuts, calculated as a percentage of gross sales.
    (Compl. Ex. A).
    In early 2015, Defendants apparently failed to make the necessary payments. As a result,
    Dunkin’ Donuts notified Defendants in writing that Defendants were in breach of the franchise
    agreement and were required to immediately pay the outstanding fees. After receiving no
    response, in April 2015 Dunkin’ Donuts terminated the franchise agreement with Defendants.
    Defendants nonetheless continue to operate a restaurant purporting to be a Dunkin’ Donuts
    franchise. According to Dunkin’ Donuts, this infringes their trademarks and also violates a
    provision in the franchise agreement restricting Defendants right to operate a competing
    restaurant. As a result, Dunkin’ Donuts filed the instant lawsuit and moved for a preliminary
    injunction enjoining the Defendants from continuing to operate an unauthorized Dunkin’ Donuts
    franchise. The Court entered a scheduling order on the motion for a preliminary injunction
    which Dunkin’ Donuts served on Defendants, but Defendants have failed to respond in the three
    weeks since service was made.
    2
    II.       LEGAL STANDARD
    In order to prevail on a motion for a preliminary injunction, the movant must show “that
    he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of
    preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the
    public interest.” Winter v. Natural Res. Def. Council, Inc., 
    555 U.S. 7
    , 20 (2008). A preliminary
    injunction is an “extraordinary and drastic remedy” that is “never awarded as of right.” Munaf v.
    Geren, 
    553 U.S. 674
    , 689-90 (2008) (citations omitted). The moving party must demonstrate a
    likelihood of success on the merits, 
    id., and some
    injury, as “the basis of injunctive relief in the
    federal courts has always been irreparable harm.” Sampson v. Murray, 
    415 U.S. 61
    , 88 (1974)
    (quoting Beacon Theatres, Inc. v. Westover, 
    359 U.S. 500
    , 506-07 (1959)).
    III.      ANALYSIS
    a. Jurisdiction
    Because Defendants have not responded or appeared, the court will briefly address its
    jurisdiction to decide the motion. Dunkin’ Donuts brings claims for trademark infringement,
    therefore the court has subject matter jurisdiction pursuant to 15 U.S.C. §§ 1114 and 1116 and 28
    U.S.C. § 1338, and may assert jurisdiction over additional state and common law claims pursuant
    to 28 U.S.C. § 1367. Dunkin’ Donuts has also made a prima facie showing that the court has
    personal jurisdiction with respect to the Defendants. Mwani v. bin Laden, 
    417 F.3d 1
    , 7 (D.C.
    Cir. 2005). Defendant 14th Street Eatery, Inc. is a corporation organized under the laws of the
    District of Columbia with its principal place of business in the District, thus establishing personal
    jurisdiction. D.C. Code § 13–422. Defendants Hoque and Parveen are residents of the
    Commonwealth of Virginia; however, Dunkin’ Donuts avers that both defendants regularly
    conduct business in the District via their operation of the Dunkin’ Donuts franchise in the
    3
    District. (Compl. ¶¶ 4-5). This is enough to make a prima facie showing of personal jurisdiction
    under the District of Columbia’s long-arm statute. That statute allows a court in the District to
    exercise personal jurisdiction over a non-resident defendant with respect to claims arising from
    the defendant’s conduct in, inter alia, transacting business in the District of Columbia and
    contracting to supply services in the District of Columbia. D.C. Code § 13–423(a). Exercising
    personal jurisdiction over the individual defendants here comports with the requirements of due
    process, as Hoque and Parveen’s operation of the franchise shows that they have purposefully
    availed themselves of the benefits of conducting business in the District, thereby establishing the
    “minimum contacts” necessary to confirm that the “the maintenance of the suit does not offend
    traditional notions of fair play and substantial justice.” Int’l Shoe Co. v. Washington, 
    326 U.S. 310
    , 316 (1945) (internal quotation marks omitted).
    b. Likelihood of Success on the Merits
    Dunkin’ Donuts has shown a likelihood that it will succeed on the merits of its claims.
    According to the uncontested facts, Defendants failed to timely pay franchise, advertising, and
    other fees according to the terms of the franchise agreement. (Zullig Aff. ¶ 17). As a result,
    Dunkin’ Donuts notified Defendants of their breach and gave them an opportunity to cure (as
    was required under the agreement).2 When Defendants failed to cure (or apparently to respond at
    all), Dunkin’ Donuts exercised their contractual right to terminate the franchise agreement. After
    the termination, Defendants were no longer authorized to operate a Dunkin’ Donuts franchise or
    use Dunkin’ Donuts trademarks in the operation of their restaurant.
    2
    The franchise agreement required the parties to provide specific cure periods. These included a 30-day period and
    a 7-day period. (Compl. Ex. A). Dunkin’ Donuts sent Defendants two notices: the first provided a 15-day cure
    period, the second provided a 7-day cure period. (Id. Exs. B & C). It is not clear why Dunkin’ Donuts included a
    15-day cure period rather than a 30-day period in the first notice, but in any event Dunkin’ Donuts waited more than
    30 days until it sent the second notice.
    4
    Dunkin’ Donuts first basis for a preliminary injunction is that Defendants are infringing
    Dunkin’ Donuts’ trademarks by continuing to use those marks despite termination of the
    franchise agreement. To make out a claim for trademark infringement, a plaintiff must show
    “(1) that it possesses a mark; (2) that the defendant used the mark; (3) that the defendant’s use of
    the mark occurred ‘in commerce’; (4) that the defendant used the mark ‘in connection with the
    sale, offering for sale, distribution, or advertising’ of goods and services; and (5) that the
    defendant used the mark in a manner likely to confuse customers.” Newborn v. Yahoo!, Inc., 
    391 F. Supp. 2d 181
    , 189 (D.D.C. 2005) (citations omitted). Most of these elements are self-evident
    in this case. Dunkin’ Donuts possesses registered trademarks, which is prima facie evidence of
    the marks’ validity and ownership. 15 U.S.C. § 1115(a). It alleges that Defendants are using
    these trademarks in commerce to sell goods—e.g., doughnuts, coffee, etc. Dunkin’ Donuts
    further alleges that Defendants unauthorized use of its marks creates customer confusion because
    Defendants are operating what appears to be a Dunkin’ Donuts franchise, even though the
    franchise has been terminated and Defendants have no right to continue using Dunkin’ Donuts’
    trademarks. Given that a consumer would have no way of differentiating between an authorized
    and unauthorized franchise, it is likely that confusion will occur. See Burger King Corp. v.
    Mason, 
    710 F.2d 1480
    , 1492-93 (11th Cir. 1983) (“Common sense compels the conclusion that a
    strong risk of consumer confusion arises when a terminated franchisee continues to use the
    former franchisor’s trademarks . . . Consumers automatically would associate the trademark user
    with the registrant and assume that they are affiliated. Any shortcomings of the franchise
    therefore would be attributed to [the franchisor].”).
    Dunkin’ Donuts is also likely to succeed on its contract claims regarding the covenant not
    to compete. Pursuant to the terms of the franchise agreement, the covenant is governed by
    5
    Massachusetts law, which permits covenants not to compete as long as the limits are reasonable
    in nature and not aimed at restricting ordinary competition. Boulanger v. Dunkin’ Donuts Inc.,
    
    815 N.E.2d 572
    , 576-77 (Mass. 2004) (“A covenant not to compete is enforceable only if it is
    necessary to protect a legitimate business interest, reasonably limited in time and space, and
    consonant with the public interest.”); Marine Contrs. Co. v. Hurley, 
    310 N.E.2d 915
    , 921 (Mass.
    1974) (100-mile limit coincides with the area in which the plaintiff performs almost all of its
    work and was precisely drawn to protect its goodwill). In this case, the Defendants agreed that
    for a period of two years following the termination of the franchise agreement they would not
    operate a competing business within a five-mile radius of the former franchise location. The
    scope, length, and geographic restriction of the covenant are reasonable to prevent a former
    franchisee from opening a competing doughnut business in the vicinity of its prior location.
    Because it is likely this covenant not to compete would be upheld, and it is uncontested that
    Defendants violated the franchise agreement and are no longer franchisees, Dunkin’ Donuts is
    likely to succeed in enforcing the terms of the covenant. See Boulanger v. Dunkin’ Donuts 
    Inc., 815 N.E.2d at 581
    (upholding an identical covenant not to compete).
    c. Irreparable Harm
    Dunkin’ Donuts has shown that it is likely to suffer irreparable harm absent the issuance
    of a preliminary injunction because “trademark infringement raises a presumption of irreparable
    harm.” Cerveceria Modelo, S.A. de C.V. v. Cuvee, 
    227 F. Supp. 2d 39
    , 40 (D.D.C. 2002).
    Courts have found that infringement may lead to “the dilution of the distinctiveness of [a]
    trademark, the loss of control of [] reputation and the diminishment of [] good will,” all of which
    cause irreparable harm. Sears, Roebuck & Co. v. Sears Fin. Network, 
    576 F. Supp. 857
    , 864
    (D.D.C. 1983).
    6
    As Dunkin’ Donuts explains, “[d]espite the fact that the Franchise Agreement has been
    terminated, Defendant continues to operate a donut [restaurant] based at the former franchise
    location, the very same location[] as its former franchise, and it continues to use the Dunkin’
    Donuts Marks in connection with th[is] location[]. DD no longer exercises any control over the
    conditions in this store or the nature and quality of the products served therein. Thus, while
    customers of Defendant’s stores may believe they are dealing with an authorized DD franchisee,
    and may believe they are purchasing authentic DD products, they are not.” (Mot. 8). This is
    enough to establish a likelihood of irreparable harm—Defendants are operating an unauthorized
    Dunkin’ Donuts location and depriving Dunkin’ Donuts of the ability to control the use of its
    trademarks and assure the quality control necessary to protect the integrity of its reputation and
    goodwill. In addition, the possibility of consumer confusion (discussed above) is likely to cause
    irreparable harm. See Opticians Ass’n of Am. v. Indep. Opticians of Am., 
    920 F.2d 187
    , 196 (3d
    Cir. 1990) (collecting cases).
    Dunkin’ Donuts has also shown a likelihood of irreparable injury with respect to the
    covenant not to compete for many of the same reasons. As it stands, Defendants are operating an
    unauthorized Dunkin’ Donuts location within five miles (and in fact in the exact same location)
    of the previously authorized franchise. Defendants are competing with authorized franchises,
    and are doing so without the limitations (and protections) normally required by Dunkin’ Donuts.
    This endangers Dunkin’ Donuts’ goodwill and reputation. Absent relief, other franchisees may
    be incentivized to disregard their franchise agreements if they believe there are no adverse
    consequences to violating the covenant not to compete. This is further evidence that Dunkin’
    Donuts is likely to suffer irreparable harm absent a preliminary injunction.
    7
    d. Balance of Equities
    The balance of equities favors an injunction. A preliminary injunction here would merely
    reinforce what is already the case—that Defendants are not authorized to operate a Dunkin’
    Donuts location absent a valid franchise agreement, which they do not have. Based on the
    uncontested facts, Defendants brought this fate upon themselves by not paying contractually
    obligated fees. Therefore, any harm to Defendants in enjoining them from operating their
    restaurant is outweighed by the harm to Dunkin’ Donuts in allowing Defendants to continue
    operating an unauthorized franchise.
    e. Public Interest
    The public interest will be served by the issuance of an injunction. As already discussed,
    Defendants are currently operating a restaurant which for all intents and purposes appears to be
    an authorized Dunkin’ Donuts franchise, even though it is not. This deception may ultimately
    hurt the public not only by causing confusion over whether the location is actually a Dunkin’
    Donuts, but also because the quality and integrity of the product may suffer without the
    supervision of the franchisor.
    IV.      CONCLUSION
    For the foregoing reasons, Dunkin’ Donuts’ Motion for a Preliminary Injunction is
    granted. Defendants are enjoined during the pendency of this matter from using Dunkin’
    Donuts’ trademarks or operating a competing business within a five mile radius of the former
    franchise. Within 30 days, Defendants must file with the court a report in writing under oath
    setting forth in detail the manner and form in which the defendant has complied with the
    injunction. An appropriate Order accompanies this Memorandum Opinion.
    8
    Date: May 5, 2015
    Tanya S. Chutkan
    TANYA S. CHUTKAN
    United States District Judge
    9