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Dunkin Donuts Franchising LLC v. Claudia Iii, LLC

United States District Court, E.D. Pennsylvania

July 14, 2015

DUNKIN DONUTS FRANCHISING LLC, et al., Plaintiffs,
v.
CLAUDIA III, LLC, et al., Defendants.

MEMORANDUM

GERALD AUSTIN McHUGH, District Judge.

I. Introduction

Plaintiffs own the trademarks of the well-known brands, "Dunkin' Donuts" and "Baskin-Robbins." Plaintiffs also oversee a national network of franchises that sell donuts, ice cream, and other food products using Plaintiffs' trademarks and other intellectual property. Defendants Manfred Marotta and Lynne Marotta operated one such Dunkin' Donuts franchise through their corporation, Claudia III, LLC (also a defendant in this action).

Plaintiffs and Defendants entered into a Franchise Agreement in 2009. Pursuant to this contract, Plaintiffs granted Defendants a license to use Plaintiffs' trademarks and trade dress and permitted Defendants to receive other forms of logistical and marketing support from Plaintiffs. Defendants agreed to pay certain fees to Plaintiffs and follow Plaintiffs' procedures. One provision of the Franchise Agreement required Plaintiffs to remodel and refurnish their shop periodically.

Defendants began, but did not complete, the required renovations. Defendants contracted with an architecture firm approved by Dunkin', A & A Architects, [1] to design the remodel. The architect drew up plans for a remodel and submitted the plans to local government authorities for approval of building permits. The plans called for placing a bathroom over a "well stub, " a plugged top of a water well, and county health officials objected to the placement of a well stub in the middle of a bathroom floor. Health officials refused to allow the renovations to continue until the plans changed.

For varied and sometimes vague reasons, the Parties have been unable to successfully revise the renovation plans. Mr. Marotta and the architect disputed billing for the revisions. Dunkin' did not approve Mr. Marotta's request to remove a Baskin Robbins freezer, which might have opened floor space and permitted the bathroom and well stub to be separated, until long after Mr. Marotta initially made the request. When the parties appeared before this Court for a preliminary injunction hearing, it was clear that no one had a solution to the well stub problem.

Defendants did not complete the remodel, and Plaintiffs terminated Defendants' Franchise Agreement in 2014. However, Defendants did not cease operating their shop as a Dunkin' Donuts.

Shortly after terminating the Franchise Agreement, Plaintiffs filed this lawsuit. The lawsuit alleges Defendants breached the Franchise Agreement and continued to operate their store and use Plaintiff's intellectual property without a license to do so, in violation of federal trademark and unfair competition law. Plaintiffs also sought to enforce a restrictive covenant in the Franchise Agreement.

II. Standard of Review

Plaintiffs have moved for summary judgment of their claims against Defendants. Federal Rule of Civil Procedure 56 instructs courts to "grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). When a plaintiff who bears the burden of proof at trial moves for summary judgment, that plaintiff must produce evidence satisfying each element of its claims and show there is "no genuine dispute as to any material fact that would prevent the court from rendering judgment in the movant's favor." Moore's Federal Practice § 56.40[1][a]. The plaintiff's burden to show it is entitled to judgment as a matter of law is a heavy one. As Moore's Federal Practice puts it, the plaintiff's evidence "must be so powerful that no reasonable jury would be free to disbelieve it." Id. at § 56.40[1][c]. "Moreover, any inferences to be drawn must be viewed in the light most favorable to the party opposing summary judgment." McCarthy v. Recordex Servs., Inc., 80 F.3d 842, 847 (3d Cir. 1996).

III. Discussion

a. Breach of the Franchise Agreement

A Franchise Agreement is a contract, and to prevail on a breach of contract claim, a party must show "(1) the existence of a contract, including its essential terms, (2) a breach of a duty imposed by the contract, and (3) resultant damages." Hart v. Arnold, 884 A.2d 316, 332 (Pa. Super. Ct. 2005). Here there is no dispute that a contract exists between Plaintiffs and Defendants. Nor is there doubt that the contract required Defendants to pay certain fees to Plaintiffs and to remodel their shop. Franchise Agreement Section 5 ("Fees, Payments and Reporting of Sales"); Franchise Agreement Section 8 ("Repairs, Maintenance, Refurbishment and Remodel").

Plaintiffs offer undisputed evidence that Defendants breached obligations imposed by the Franchise Agreement. Mr. Marotta conceded at the Preliminary Injunction hearing that the remodel had not taken place. See Transcript of Preliminary Injunction Hearing on June 23, 2014 at 113 (Direct of Manfred Marotta) (explaining the well stub issue needed to be resolved before renovations could complete). Dunkin' has produced Notices sent to Defendants informing them of their contractual defaults and instructing them ...


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