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IN RE ARTHUR TREACHER'S FRANCHISEE LITIG.

April 6, 1982

In re ARTHUR TREACHER'S FRANCHISEE LITIGATION


The opinion of the court was delivered by: HANNUM

MEMORANDUM AND ORDER

I. INTRODUCTION

 On January 5, 1982, plaintiff-franchisor, Arthur Treacher's Fish & Chips, Inc. ("ATFC") filed an action in Delaware County Common Pleas Court against defendant-franchisee, Georgios D. Martinos. *fn1" The case was removed to this Court and a motion to remand was denied on January 18, 1982. *fn2" The complaint alleged a violation of the covenant not to compete contained in an agreement entered into by the parties. The covenant states:

 
Upon termination of this Contract, whenever and however such termination may occur, Licensee will not market any seafood product, or engage as an owner, manager, partner, officer, employee or stockholder, or in any other direct or indirect capacity, in any competing business firm for three (3) years after the date of such termination, within Licensee's Area or within a ten (10) mile radius of any Arthur Treacher's Fish & Chips restaurant, unless Licensee is acting pursuant to another Standard Unit License Contract to which Arthur Treacher's is a party. *fn3"
 
Filed with the complaint was a motion for a preliminary injunction seeking an Order that defendants "(c)ease marketing any seafood products in Delaware County, Pennsylvania and in any area within ten (10) miles of any Arthur Treacher's Fish & Chips restaurants for a period of three (3) years beginning from the date of January 5, 1982, in compliance with its Standard Unit License Contract." *fn4"
 
The Court conducted a hearing on this motion for a preliminary injunction on February 8-11, 1982. *fn5" Because the plaintiff has not demonstrated to this Court that it will suffer irreparable harm absent a grant of the preliminary injunction, the motion will be denied. This Memorandum shall constitute the Court's findings and conclusions in accordance with Fed.R.Civ.P. 52(a).
 
II. FINDINGS OF FACT
 
1. Plaintiff, ATFC is engaged in the business of owning and operating Arthur Treacher's Fish & Chips restaurants, and is also engaged in the business of licensing others, in return for a commission or a royalty, to own and operate Arthur Treacher's restaurants.
 
4. By 1970 defendant had invested $ 130,000.00, which amount represented his total savings including money obtained from the sale of his house, into the franchise. Pursuant to the Master Franchise Agreement entered into in 1969, defendant subsequently opened eight restaurants in Suffolk County, New York.
 
5. Prior to becoming an Arthur Treacher's franchisee, defendant had no experience in fast food operations. At the outset of their relationship, prior to opening his first store, defendant received training from plaintiff on how to operate an Arthur Treacher's restaurant.
 
6. Although initially trained by the plaintiff, it was primarily the efforts of defendant himself which caused his franchise to prosper. He served as a model franchisee training other franchisees and serving on various committees for the parent company assisting the franchisor in improving its own operations. The defendant was explicitly recognized by plaintiff as an outstanding and successful franchisee who developed his franchise by his own efforts and determination.
 
7. On December 23, 1974, defendant entered into a Master License Contract with the plaintiff granting defendant an exclusive right to own and operate Arthur Treacher's restaurants in Delaware County, Pennsylvania.
 
8. On December 20, 1975, pursuant to the Master License Contract entered into on December 23, 1974, defendant opened a restaurant in Sharon Hill, Pennsylvania (Delaware County). Defendant individually executed a Standard Unit License Contract granting him a license to operate this restaurant as an Arthur Treacher's outlet.
 
9. In 1978, defendant opened a second store in Delaware County. This second store was located in Drexel Hill, Pennsylvania. Although defendant never executed a Standard Unit License Contract for the Drexel Hill restaurant, he assumed that the obligations were the same for his Delaware County operations.
 
10. Defendant has invested $ 700,000.00 in the two Delaware County restaurants.
 
11. None of the named defendants, other than Georgios Martinos, entered into the Master License Contract for Delaware County or the Standard Unit License Contract for Sharon Hill.
 
12. Neither Dorothy Martinos nor Trend Enterprises, Inc., both named as defendants, has had any connection with the two Delaware County stores.
 
13. North Atlantic Corporation, named as a defendant, was formed in 1974 and had operated the two Delaware County stores prior to their conversion to Gulliver's Fish & Chips restaurants. See Findings No. 24-26 infra. Defendant Georgios Martinos presently operates these two stores as a sole proprietor.
 
14. Beginning in 1969, ATFC has registered various trademarks with the United States Patent and Trademark Office, including the name "Arthur Treacher's Fish & Chips" and various other logos used in the business. Plaintiff, however, in its trademark registrations has specifically disclaimed any right to the exclusive use of the generic phrase "fish & chips."
 
15. The Standard Unit License Contract entered into by defendant for the Sharon Hill restaurant granted to him the right to use the various trademarks in return for defendant's agreement to pay royalties equal to the greater of $ 500.00 or 5% of monthly gross receipts.
 
17. Thus, the relationship between the plaintiff and defendant, as in most franchising systems, contemplated a cooperative venture designed to be mutually beneficial.
 
18. In the latter part of 1977 and through 1978 this relationship began to deteriorate. The level of services which had been provided prior to 1978 began to steadily decline. At this point in time, defendant lost faith in the Arthur Treacher's concept.
 
19. Defendant stopped paying royalties to plaintiff in July, 1979, because of the diminution in services and defendant's belief that plaintiff no longer cared about the system.
 
20. Plaintiff has named Mr. Martinos as a defendant in three other lawsuits filed on July 10, 1980, September 18, 1980 and March 19, 1981, in which plaintiff seeks, inter alia, payment of past due royalties. In response to these lawsuits Martinos raised defenses and asserted counterclaims that the plaintiff and additional defendant, Mrs. Paul's Kitchens, Inc. (the owner of ATFC at the time of the hearing) were in breach of the contracts and had violated the antitrust laws and were not entitled to any royalties.
 
21. By letter dated May 18, 1981, defendant was terminated by plaintiff as an Arthur Treacher's franchisee. The termination letter stated in part:
 
You are to immediately cease using Arthur Treacher's trademarks, service marks, processes and secrets and any variation of them immediately and redeliver all manuals and other Arthur Treacher's property at once. Furthermore, you are no longer entitled to utilize Arthur Treacher's established distribution systems. You are further to remove all distinguishing characteristics from the restaurant premises which would in any way identify them as Arthur Treacher's restaurants, and in particular, remove any and all signs, including, where applicable, the Mansard Roof sign within ten (10) days of receipt of this letter. *fn6"
 
Despite receipt of this letter, defendant continued to use the Arthur Treacher's trademarks up to January 5, 1982. See Finding No. 25 infra.
 
22. Subsequent to defendant's termination, any services which the plaintiff had been providing to defendant ceased altogether.
 
23. The present lawsuit was filed on January 5, 1982 and seeks to enforce the covenant not to compete. See note 3 supra and accompanying text.
 
24. Defendant joined with another terminated franchisee of ATFC, Agostine Malerba, see Finding No. 55 infra, in the use of the name "Gulliver's Fish & Chips." The purpose for joining Malerba in the use of the name Gulliver's was to ...

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