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Mister Softee, Inc. v. Amanollahi

United States District Court, D. New Jersey

July 1, 2014

MISTER SOFTEE, INC., MISTER SOFTEE SALES AND MANUFACTURING, LLC, and SPABO ICE CREAM CORP., Plaintiffs,
v.
REZA AMANOLLAHI, Defendant.

OPINION

KEVIN McNULTY, District Judge.

This matter comes before the Court on the motion (Docket No. 9) of the Plaintiffs, Mister Softee, Inc. ("MSI"), Mister Softee Sales and Manufacturing, LLC, ("MSSM") and SPABO Ice Cream Corp. ("SPABO") (collectively referred to as "Mister Softee" or the "Mister Softee Plaintiffs"), pursuant to Fed.R.Civ.P. 65, for a preliminary injunction against Defendant, Reza Amanollahi ("Amano").[1] Plaintiffs request that the Court enjoin Amano from using Mister Softee's federally registered trademarks and from competing with Mister Softee, in violation of the non-compete clause in the Franchise Agreements entered into between Mister Softee and Amano.

I have reviewed the parties' submissions and heard oral argument on this matter on June 12, 2014. The parties agreed that an evidentiary hearing was not required. For the reasons set forth below, the Court is persuaded that Plaintiffs have met their burden of showing that an injunction is warranted. Plaintiff's motion for a preliminary injunction will therefore be granted.

I. BACKGROUND

As acknowledged by the parties during oral argument, the material facts are largely undisputed. Those facts, as outlined below, are gleaned from the parties' submissions as well as from oral argument.

A. The Parties

MSI is a New Jersey Corporation and the franchisor of Mister Softee mobile ice cream trucks. Those trucks are set up to sell soft-serve and hard ice cream as well as frozen desserts, novelties, stick items, and other products. Docket No. 9-1 ("Pl. Br.") at 1; Docket No. 1 ("Compl.") ¶ 9. MSSM is a New Jersey limited liability company that customizes and sells Mister Softee trucks for use by licensees and franchisees of Mister Softee, Inc. Compl. ¶ 3. SPABO is a New York corporation and a sub-franchisor of MSI. SPABO has the exclusive right to sell Mister Softee franchises in certain areas, including the Bronx, New York. Compl. ¶ 4.

Mister Softee owns the trademarks "Mister Softee, " related logos, and a musical jingle, all registered on the Principal Register of the United States Patent and Trademark Office (Registration Nos. 2128918, 0667335, 0663456, and 2218017). Pl. Br. at 2; Compl. ¶ 11. Mister Softee also owns a federal trademark registration for the overall design of the Mister Softee ice cream truck (No. 2906357). Mister Softee franchisees are licensed to use Mister Softee's trademarks and trade dress and to operate under the Mister Softee business system.

The Defendant, Mr. Amano, is a New Jersey resident, Compl. ¶ 5, and a franchisee of Mister Softee.[2] On June 20, 2007, Amano entered into eight Franchise Agreements with SPABO. Pl. Br. at 3; Compl. ¶ 19. On January 1, 2012, he entered into fourteen more Franchise Agreements with SPABO. See Compl., Exhibit B ("Franchise Agreements"). All Franchise Agreements are substantially similar and the parties do not cite any material differences between them. In total, Amano was granted the right to operate twenty-two Mister Softee franchises (each representing one truck) in Bronx County, New York. Pl. Br. at 3; Compl. ¶ 19, Exhibit B. Under the terms of the Franchise Agreements, Amano was authorized to park his trucks only at 337 Manida Street, Bronx, New York ("Manida Street Depot").

Amano also entered into two Truck and Equipment Sale Agreements with MSSM. Amano, as purchaser of the trucks, signed a promissory note requiring installment payments until the purchase price was paid in full. Compl. ¶ 21, Exhibit C.

Amano maintains that he was not given a prospectus at the time that he signed the various Franchise Agreements "with one possible exception." Def. Br. at 1; Docket No. 12 ("Amano Affidavit") ¶ 14 ("Of all the trucks I operated, I may have received one prospectus."); Amano Transcript at 46:17-47:5. Mister Softee submits that Peter Bouziotis, Secretary and Treasurer of SPABO Ice Cream Corp., offered Amano a Franchise Disclosure Document before Amano signed the Franchise Agreements, but that Amano refused to accept it "because he claimed he was a franchisee for approximately 10 years, and knew everything he needed to know about the Mister Softee system." Docket No. 18 (Pl. Reply") at 9-10; Docket No. 18-2 ("Bouziotis Affidavit") ¶ 2.

B. The Franchise Agreement Provisions, Proposed Transfer, and Termination

The Franchise Agreements contain various provisions that Plaintiffs maintain that Amano violated, resulting in termination of the agreements. Plaintiffs also submit that Amano voluntarily abandoned the agreements. Pursuant to Section 6.15 of the Franchise Agreements, Amano was required to park and store his Mister Softee trucks at a Mister Softee-sanctioned depot or storage yard. This requirement ensures that franchisees can store their trucks in a place that has electricity and running water so that franchisees can clean the trucks and ensure the safe storage of the ice cream products. Amano was assigned the Manida St. Depot in the Bronx. Pl. Br. at 4.

The Franchise Agreement also contains a non-compete provision. It provides that Amano cannot, for a two-year period, "directly or indirectly own, maintain, engage in, be employed by, lend money to, extend credit to, or have any interest in any other business which operates or licenses business featuring primarily the sale or ice cream or other frozen confections with the former Territory or within any System franchisee's territory."[3] Franchise Agreement § 16.2.

Pursuant to Section 18.2, the Franchise Agreements can be terminated immediately upon delivery of notice of termination if Amano breaches an agreement with Mister Softee. Pursuant to Section 18.2.11, the Agreements can be terminated if Amano voluntarily abandons his franchises or if he does not park his trucks in the designated depot. Pl. Br. 4-5.

According to Plaintiffs, Amano clearly manifested his intent to abandon the Franchise Agreements and operate his trucks independent of Mister Softee. For instance, he has ceased making payments and has moved his trucks from the designated Manida Street Depot, in contravention of Section 6.15 of the Franchise Agreements. Pl. Br. at 5; Compl. ¶¶ 33-33.

Amano does not deny that he abandoned his Mister Softee franchises and maintains that he is out of the retail ice cream business. He states that he participates in the ice cream industry only at the wholesale level, and as manager of the Tsirkos depot. Amano does not deny moving his trucks from the designated Manida Depot. He submits that he moved his trucks to the Tsirkos depot in Long Island City in response to a dispute with Mister Softee owner James Conway. Docket No. 17 ("Def. Br.") at 1-2.

In 2009, Amano decided to sell his franchises to four men (the "four transferees") - Anthony Tsaros, Thomas Fotinakopoulos, Michael Vasiardis, and Tommy Dalageorges[4] - who operated out of the Tsirkos depot. Amano and the four transferees met with James Conway of SPABO in New Jersey and Conway agreed to the transfer proposals.[5] Amano submits that, though the Franchise Agreements are still in his name, he is the franchisee only "on paper, " not in reality. Amano contends that Mister Softee never wanted to put these transfer agreements in writing, but that all parties have operated under these agreements de facto for the last five years. Thus, Amano says, he has been collecting royalties from the four transferees. He also collects note payments in cash from the men. Conway sends someone (oftentimes Conway's son) to Amano's place of business to pick up the cash. Id. at 2-3. Amano says that he performs these functions, not in his role as franchisee, but in his role as manager of the Tsirkos depot.

Mister Softee, for its part, does not deny that it knew Amano intended to transfer his franchises to the four transferees. Mister Softee submits, however, that Amano is still in the process of an installment sale of his trucks, and continues to be the responsible franchisee. To secure the buyers' payment obligations, Amano retained title to the franchises until the final tenth annual payment was made in 2019. Docket No. 18 ("Pl. Reply") at 1. Once the final payments were made, Amano would transfer the franchises pursuant to Section 17 of the Franchise Agreements.[6]

On February 18, 2014, Mister Softee sent Amano a Notice of Termination, which he received on February 19, 2014. Compl. ¶ 35, Exhibit E. The Notice of Termination advised Amano that the Agreements were terminated because he: (1) moved his trucks to an unapproved depot; (2) failed to make payments under the various promissory notes; and (3) abandoned his franchises. Pl. Br. 5. The Notice of Termination and receipt thereof terminated the Franchise Agreements.

Under the Franchise Agreements, upon termination of an agreement, Amano is required to:

19.1. Cease using the Proprietary Marks, Copyrights and Confidential Information.
...
19.3. Return to SPABO the music box in [Amano's] Mister Softee vehicle, to SPABO, and return the Operations Manual and all other materials containing Confidential Information or reflecting the Proprietary Marks and Copyrights.
19.4. Remove from your vehicle all Proprietary Marks and Copyrights and provide SPABO satisfactory evidence that these items have been removed; or, in the alternative, [Amano] may return the vehicle to SPABO's headquarters for removal of these items.

Plaintiffs submit that, because the franchises are now terminated, Amano is infringing the Mister Softee trademark by operating ice cream trucks using the Mister Softee Mark without permission. He has allegedly violated the Agreements by failing to de-identify his trucks ( i.e., remove words and insignia identifying the trucks as Mister Softee trucks). He has also allegedly failed to return certain Mister Softee copyrighted material. See Franchise Agreement §§ 19.1, 19.3, 19.4. Plaintiffs also allege that Amano has violated the post-termination provisions of the Franchise Agreements because his trucks continue to operate in his former territory and in the territory of other Mister Softee franchisees, in violation of his non-complete obligations. Finally, Amano allegedly owes certain amounts under the Agreements.

On March 14, 2014, Plaintiffs filed a Complaint in this Court. In their Complaint, Plaintiffs assert several claims against Amano, which include: Trademark Infringement and Unfair Competition (Count 1); Breach of Contract-Post Termination Non-Compete (Count II); Breach of Contract-Future Royalties (Count III); Breach of Contract-Truck Notes (Count IV); and Unjust Enrichment (Count V). In his Answer, Docket No. 19, Amano denies all of Plaintiffs' allegations and alleges counterclaims against Plaintiffs, including breach of contract and rescission of the Franchise Agreements. Docket No. 19.

On April 14, 2014, Plaintiffs filed this motion for a preliminary injunction. Plaintiffs seek an order restraining Amano from unlawfully using Mister Softee's trademarks and violating the non-compete agreements contained in the Franchise Agreements. Docket No. 9. On June 12, 2014, I heard oral argument on the motion. At oral argument, Plaintiffs provided the Court with supplemental briefing on the issue of rescission of a franchise agreement based on the franchisor's failure to provide a prospectus under New York law. Docket No. 24. The Court granted Amano a week in which to file a responding brief, and Amano did so on June 18, 2013. Docket No. 28.[7]

II. DISCUSSION

Now before the Court is Plaintiffs' motion for preliminary injunctive relief. "A plaintiff seeking a preliminary injunction must establish [1] that he is likely to succeed on the merits, [2] that he is likely to suffer irreparable harm in the absence of preliminary relief, [3] that the balance of equities tips in his favor, and [4] that an injunction is in the public interest." Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008) (numbering added); accord American Express Travel Related Servs., Inc. v. Sidamon-Eristoff, 669 F.3d 359, 366 (3d Cir. 2012). Plaintiffs argue that the four preliminary injunction factors weigh in their favor and that this Court should enjoin Amano from continuing to use Mister Softee trademarks and from violating the non-compete provision of the Franchise Agreements. As explained below, I find that the Mister Softee plaintiffs are entitled to injunctive relief.

Before doing so, I point out that this action bears a close relationship to a case decided just a few weeks ago by District Judge Laura Taylor Swain. Mister Softee, Inc. v. Tsirkos, No. 14-CIV-1975, 2014 WL 2535114, at *7 (S.D.N.Y. June 5, 2014). That case, like this one, involved Mister Softee's application for a preliminary injunction. The franchise agreement at issue was substantially identical to the one at issue here, and the territory, like the one here, was in New York City. The defendant franchisee, like Amano here, at some point stopped paying royalties and stopped parking the trucks at the designated depot. In what may be a remarkable coincidence, and may be more, the franchisee in that case was one Dmitrios Tsirkos. Tsirkos is the very landlord who owns the depot of which Amano is now manager, where the trucks in this case are now parked and stored, contrary to the Franchise Agreements. In the Tsirkos case (unlike this one) there was at least a colorable defense to trademark infringement, because Tsirkos altered the trucks slightly (for example, they were marked "Soft King" or "Master Softee, " and they no longer used the musical jingle).

Judge Swain found a likelihood of confusion, and a likelihood of success on the claim of trademark infringement. As in many commercial trademark infringement cases, the court had no trouble finding irreparable harm to plaintiffs' business good will, and found that there was a public interest in preventing consumer confusion. As to the non-compete clause, she applied New York law. She denied a claim for rescission, very similar to the one made here, because there was evidence that a prospectus was offered, and that any failure to provide one had not been shown to be material and willful. As to the reasonableness of the covenant, she noted that the territory covered some 100 miles, containing a population of millions, and that it broadly barred the former franchisee from any aspect of the ice cream business. She credited testimony that, in light of the short selling season, two years was not an unreasonable time to establish a replacement franchisee. Consequently, she narrowed the scope of the restrictive covenant. The franchisee was prohibited from competing in the retail ice cream business, within a five mile radius of his former territories in the Bronx, for a period of two years. That holding was well supported by citations to New York case law. 2014 WL 2535114 at *9.

Judge Swain entered her decision after a full evidentiary hearing and a more complete presentation than the same counsel proffered here. It was perhaps because of that recent experience that counsel agreed that no evidentiary hearing would be necessary in this case.

A. Likelihood of Success on the Merits

The first preliminary injunction factor requires the applicant to show that it is likely to prevail at the ultimate trial on the merits. Opticians Ass'n of Am. v. Indep. Opticians of Am., 920 F.2d 187, 192 (3d Cir. 1990); see also Wright & Miller, Federal Practice and Procedure, § 2948 (while "courts use a bewildering variety of formulations of the need for showing some likelihood of success... [a]ll courts agree that plaintiff must present a prima facie case but need not show that he is certain to win.") Failure to establish a likelihood of success on the merits, even standing alone, is fatal to an application for a preliminary injunction. American Express, 669 F.3d at 366, 374.

Amano does not deny that the Mister Softee trademarks and trade dress deserve protection under federal law. But since he is the franchisee "only on paper, " he argues, any injunctive relief would be futile and unnecessary because he is not the person who now operates the Mister Softee trucks. In regard to the non-compete provision, Amano makes two distinct arguments. First, he submits that Mister Softee's failure to provide him with the prospectuses associated with each agreement is grounds for rescission. He adds in the alternative that the non-compete provision is unreasonable in terms of duration and scope and is not reasonably necessary to protect Mister Softee's business interests.

1. Trademark Infringement

To state a claim for trademark infringement, 15 U.S.C. § 1114, and unfair competition, 15 U.S.C. § 1125(a)(1), under the Lanham Act, a plaintiff must show three elements: "(1) it has a valid and legally protectable mark; (2) it owns the mark; and (3) the defendant's use of the mark to identify goods or services causes a likelihood of confusion." A & H Sportswear, Inc. v. Victoria's Secret Stores, Inc., 237 F.3d 198, 210 (3d Cir. 2000).

There is little or no doubt that somebody is infringing a valid trademark owned by Mister Softee. First, the marks are valid and legally protectable because they have been registered in accordance with Section 1051 of the Lanham Act, 15 U.S.C. § 1051. Second, Mister Softee owns these marks. See Coach, Inc. v. Cosmetic House, No. 10 Civ. 2794, 2011 WL 1211390, *2 (D.N.J. Mar. 29, 2011) (citing 15 U.S.C. §§ 1057(b), 1115(a)) (A "certificate of registration issued by the United States Patent and Trademark Office constitutes prima facie evidence of the validity and ownership of a disputed mark" and is therefore sufficient to establish the first and second elements of trademark infringement and unfair competition claims.) Third, the trucks are using Mister Softee's exact marks, leading to inevitable confusion. S & R Corp. v. Jiffy Lube Int'l, Inc., 968 F.2d 371 (3d Cir. 1992).[8]

Amano does not deny that the Franchise Agreements were terminated, nor does he deny that the Mister Softee trademarks are entitled to protection under federal law. He does not dispute that the trucks are currently being operated, despite the termination of the Franchise Agreements, without any effort to remove the Mister Softee ...


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