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Buffalo Wild Wings, Inc. v. BW-3 of Akron, Inc.

United States District Court, N.D. Ohio, Eastern Division

November 14, 2017

BUFFALO WILD WINGS, INC., PLAINTIFF,
v.
BW-3 OF AKRON, INC., DEFENDANT.

          MEMORANDUM OPINION AND ORDER

          HONORABLE SARA LIOI, UNITED STATES DISTRICT JUDGE

         Before the Court are the following cross-motions for summary judgment: the motion of defendant BW-3 of Akron, Inc. (“BW-3 Akron”) for summary judgment on the claims of plaintiff Buffalo Wild Wings Inc. (“BWW”)[1] (Doc. No. 58 [“BW-3 Akron Mot.”]), and the motion for summary judgment of BWW on the counterclaims of BW-3 Akron and its co-counterclaimants[2](Doc. Nos. 59/69 [together, “BWW Mot.”]). Both motions are fully briefed[3] and ripe for determination.[4] For the reasons set forth herein, BW-3 Akron's motion is denied, and BWW's motion is granted.

         I. INTRODUCTION [5]

         BWW is a Minnesota corporation with its principal place of business in Minneapolis, Minnesota. From its origins in 1982, with a single restaurant in Columbus, Ohio, BWW now owns, operates, and franchises over 1, 000 casual sports bar restaurants in the United States, Canada, Mexico, and the Philippines, which are known for BWW's signature Buffalo, New York-style wings and sauces and the neighborhood atmosphere offering extensive multi-media systems for viewing sporting events. (FAC ¶¶ 1, 10, 11.)

         BW-3 Akron is an Ohio corporation with its principal place of business in Akron, Ohio. (Id. ¶ 2.) In 1991, BW-3 Akron entered into a licensing agreement (Doc. No. 71-1 [the “Agreement”][6]) with BWW's predecessor, JMS Associates, Inc. for the right to operate a single Buffalo Wild Wings restaurant at 456 East Exchange Street in Akron, Ohio (the “Akron Store”). (Id. ¶¶ 15, 17.) In June 1997, JMS Associates, Inc., fka bw-3, [7] was merged into what is now known as BWW, and BWW acquired the rights of JMS Associates under the Agreement. (Id. ¶ 16.) BW-3 Akron's was the oldest continuously operated restaurant and the only one that was a licensed restaurant rather than a corporate or franchise restaurant. (Countercl. ¶ 9.)

         BWW claims to have made significant investments in, among other things, the distinctive appearance and design of its restaurants, in order to ensure a consistent and widely recognized look and a positive customer experience. (FAC ¶ 12.)[8] It also claims that the goodwill arising from this customer experience is reflected in the BWW trademarks under which its various restaurant services are offered. (Id. ¶ 13.)

         The current dispute between the parties appears to have had its origin primarily (although not exclusively) in BW-3 Akron's refusal to comply with BWW's demand to remodel the Akron Store (id. ¶ 66) to bring it into compliance with BWW's evolving brand and design standards, including exterior and interior layout, design and color scheme, signage, decorations, furnishings and materials (id. ¶ 40), and, in particular, BW-3 Akron's refusal to remodel to the “Stadia” design (id. ¶26), which BW-3 Akron believes is not required under the Agreement.

         On April 1, 2016, BWW sent BW-3 Akron a Notice of Default and Opportunity to Cure. (Id. and Att. 18.[9]) BW-3 Akron failed (and refused) to cure the default within the requisite 30 days after the notice, and “the parties remain in stark disagreement concerning their rights and obligations under the Licensing Agreement.” (Id. ¶¶ 73, 75.) On May 17, 2016, BWW sent BW-3 Akron a Notice of Termination of Licensing Agreement, but stated that it was holding termination in abeyance pending resolution by this Court of BWW's declaratory judgment action filed on the same day. (Id., Att. 19.)

         II. DISCUSSION [10]

         As a preliminary matter, the Court notes that both parties moved for summary judgment on their opposing party's claims, but neither party moved for summary judgment on its own claims.

         In Count I of its FAC, BWW seeks a declaratory judgment that it may immediately and lawfully terminate the Agreement due to BW-3 Akron's refusal to implement BWW's current brand and design standards, [11] which BWW characterizes as a material breach. BWW also asserts Lanham Act claims of trademark infringement (Count II) for BW-3 Akron's use of BWW's Marks and System without compliance with its brand and design standards, an action claimed to be outside the license granted by the Agreement, and for unfair competition (Count III) due to BW-3 Akron holding out its allegedly substandard store as an authorized BWW store, causing confusion among the public and harming BWW's brand.

         Instead of awaiting a judicial determination of these issues, BW-3 Akron chose to abandon the Agreement and de-brand the Akron Store, remodel it, and operate it under the name of Gridiron Grill. Additionally, BW-3 Akron and its shareholders filed counterclaims against BWW. They assert a breach of contract due to BWW's alleged failure to honor BW-3 Akron's right of first refusal with respect to certain other restaurants in surrounding counties (Counterclaim I) and for wrongful termination of the Agreement (Counterclaim II). They further allege unfair competition by way of this litigation (Counterclaim III), characterizing it as “malicious litigation” aimed at driving BW-3 Akron out of business as a BWW store by bringing the Lanham Act claims against it and threatening treble damages and attorney fees and costs.

         A. Standard of Review

         When a party files a motion for summary judgment, it must be granted “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). “A party asserting that a fact cannot be or is genuinely disputed must support the assertion by: (A) citing to particular parts of materials in the record . . .; or (B) showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact.” Fed.R.Civ.P. 56(c)(1).

         B. Analysis

         1. Declaratory Judgment -- Count I

         In Count I of its complaint, as amended, BWW seeks a declaratory judgment that (1) the Agreement is a valid and enforceable contract; (2) BW-3 Akron's failure and refusal to remodel as demanded by BWW is a material breach of the Agreement; (3) BW-3 Akron's failure and refusal to remodel as demanded by BWW is a default under the Agreement; (4) BW-3 Akron's failure and refusal to adopt and implement certain operational and procedural enhancements to the BWW System is a material breach of the Agreement; (5) BW-3 Akron's insolvency is a default under the Agreement; and (6) because BW-3 Akron has failed to timely cure these breaches and defaults, BWW may immediately terminate the Agreement in its entirety.

         In its motion for summary judgment, BW-3 Akron argues that “[t]he parties seem to agree that BWW's declaratory relief claim is now moot.” (BW-3 Akron Mot. at 1855.) This argument is based upon BW-3 Akron's apparent abandonment of the Agreement and its having ceased operations as a BWW restaurant. In its opposition brief, BWW agrees that Count I is moot, but only if BW-3 Akron will concede that (1) it is limited to the allegations in its counterclaim as pled; and (2) it will continue to treat the Agreement -- and all of its rights and obligations thereunder --as terminated. (BW-3 Akron Mot. Opp'n at 6563.) In reply, however, BW-3 Akron makes neither concession (and fails to even address them), arguing only that “BWW effectively terminated the Licensing Agreement in May 2016 when it filed its Complaint notifying [BW-3 Akron] that it no longer had the right to continue using the Marks and that it would hold [BW-3 Akron] liable for treble damages and attorney fees if it continued to do so.” (BW-3 Akron Mot. Reply at 7268.)

         Given that BW-3 Akron has not conceded that the Agreement is terminated and is no longer effective, including for any future purposes, Count I of BWW's complaint is not moot. Absent these concessions, there is no certainty that BW-3 Akron will not attempt to resume its allegedly wrongful use of BWW's Marks and System. BWW is, therefore, entitled to a judicial determination as to whether BWW has a right to terminate the Agreement.

         Although it appears very possible that BWW would prevail on Count I (especially in view of § 8 of the Agreement, dealing with default), neither party asked the Court to construe the contract and/or to grant summary judgment on Count I. Construction of a contract (presuming it is unambiguous) is for the Court, [12] and not the jury. Even so, absent a motion, the Court will not sua sponte rule in summary fashion on the declaratory judgment claim in Count I.[13]

         2. Breach of Contract (Wrongful Termination) -- Counterclaim II

         In Counterclaim II, BW-3 Akron asserts generally that BWW had no right to demand that it remodel the Akron Store, that BWW only made that demand in an attempt to coerce BW-3 Akron's shareholders into accepting a reduced buyout price for BW-3 Akron's rights under the Agreement, and that BWW intentionally caused BW-3 Akron's “default” by filing Lanham Act claims aimed at “wrongfully forc[ing] BW-3 Akron to shut the doors of its BWW restaurant under threat that it might possibly be found liable for treble damages and attorney fees if it continued to operate its restaurant under the BWW name.” (Countercl. ¶ 28.)

         In its own summary judgment motion, BWW argues that BW-3 Akron cannot maintain its action for wrongful termination where, as here, there was no termination. (BWW Mot. at 3756, citing Wilgus v. Gen. Elec. Co., No. 8-87-21, 1990 WL 35381, at *2 (Ohio Ct. App. Mar. 29, 1990) (no claim for wrongful termination where franchise agreement was not terminated but expired on its own terms).) In its opposition, BW-3 Akron argues that BWW “repudiated and breached the Licensing Agreement when it filed this action seeking treble damages and attorney fees . . . under the Lanham Act, as if the Licensing Agreement were no longer in full force and effect.” (BWW Mot. Opp'n at 6711-12, collecting cases.) In reply, BWW argues that neither the counterclaim, as pled, nor BW-3 Akron's argument point to any remodeling obligation as the basis for the alleged “wrongful” or “constructive” termination. Rather, BW-3 Akron points only to the filing of the Lanham Act claims. (BWW Mot. Reply at 7233-34; 7234 n. 8.)

         BWW has the correct view. There was no termination by BWW. As addressed more fully infra, BW-3 Akron misapprehends the law relating to BWW's right to pursue its Lanham Act claims. The mere fact that BW-3 Akron made the business decision to voluntarily abandon the Agreement, in light of the potential for Lanham Act damages should BWW prevail on those claims, does not mean that BWW is responsible for the termination, actually or “effectively.”

         Because there was no termination by BWW and because, as explained below, BWW is entitled to pursue Lanham Act claims despite the existence of the Agreement, BWW is entitled to summary judgment on BW-3 Akron's counterclaim for wrongful termination (Counterclaim II).

         3. Lanham Act Claims - Counts II and III

         In its Lanham Act claims, BWW alleges that, due to BW-3 Akron's refusal to remodel, although operating its Akron Store under an otherwise valid licensing agreement, it “[was] not offering a customer experience consistent with BWW's brand and [was] not adhering to the quality standards and specifications in the Licensing Agreement.” (FAC ¶ 85.) This use of the Marks and System “while failing to meet BWW's brand standards and specifications has resulted and continues to result in devaluation of the BWW Marks by tarnishing their image and undermining uniformity across the BWW brand[, ]” (id. ¶¶ 86, 99), and “leaves BWW powerless to control and manage the BWW Marks, its brand image and related goodwill.” (Id. ¶¶ 87, 100.) BW-3 Akron's “failure and refusal to implement renovations to bring the Akron Store into alignment with the ‘Stadia' design [ ] is likely to cause confusion, mistake, or deception as to both the quality and the source of the products and services it offers.” (Id. ¶¶ 88, 101.) “Specifically, the non-conforming appearance of the Akron Store creates confusion by, among other ways, misrepresenting to consumers that BW-3 Akron's restaurant and offerings are approved products and services of BWW.” (Id.) BWW alleges that BW-3 Akron's actions “caus[e] damage, injury and irreparable harm to BWW's business, brand, reputation and goodwill.” (Id. ¶¶ 91, 103.) BWW alleges that BW-3 Akron's violations were “knowing, willful and in deliberate disregard of the rights of BWW.” (Id. ¶¶ 92, 104.)

         BW-3 Akron moves for summary judgment arguing that the Lanham Act trademark infringement claim fails because BWW consented to BW-3 Akron's use of BWW's Marks and System by way of the Agreement (BW-3 Akron Mot. at 1846), and its unfair competition claim fails because it is “highly questionable” that BWW is able to establish either a substantial economic effect on interstate commerce or a likelihood of confusion (id. at 1849-50). In fact, BW-3 Akron's entire argument relies upon the fact that it had a valid license agreement, which it believes completely immunizes it from any Lanham Act claim.[14] (Id. at 1851, citing Norwood Promotional Prods., LLC v. KustomKoozies, LLC, 835 F.Supp.2d 685, 699 (S.D. Ind. 2011).)[15]

         BWW argues in opposition to BW-3 Akron's motion that the mere continued existence of a valid license agreement does not immunize a licensee from liability under the Lanham Act. (BW-3 Akron Mot. Opp'n at 6553.) The relevant inquiry, according to BWW, is whether the licensee has used the trademarks in a manner not allowed by the license agreement. (Id. at 6554, citing, among other cases, Brennan's Inc. v. Dickie Brennan & Co. Inc., 376 F.3d 356, 366-67 (5th Cir. 2004) (allowing plaintiff to pursue Lanham Act claims “for uses outside of those contemplated and permitted in the agreement” (emphasis in original)) and Digital Equip. Corp. v. AltaVista Tech., Inc., 960 F.Supp. 456, 476 (D. Mass. 1997) (“Since it likely breached its license, ATI cannot use that license as a defense to an action for trademark infringement.”).)

         In order to defeat BW-3 Akron's summary judgment motion on the Lanham Act claims, BWW need only raise a genuine issue of fact as to (1) whether BW-3 Akron's use of the trademark was without BWW's consent, or (2) whether BW-3 Akron's unauthorized use likely caused confusion in the marketplace as to the origin or sponsorship of the product. U.S. Structures, Inc. v. J.P. Structures, Inc., 130 F.3d 1185, 1188-89 (6th Cir. 1997). BWW has succeeded in this respect. The record is replete with communications from BWW to BW-3 Akron stating that the refusal to remodel constituted both a breach of the Agreement and a default under the Agreement, and that BWW believed its brand was being harmed by BW-3 Akron. (See, e.g., Ex. 24 [Doc. No. 75-4], Ex. 26 [Doc. No. 76-1], Ex. 27 [Doc. No. 76-2], Ex. 30 [Doc. No. 76-5], Ex. 32 [Doc. No. 77-2], Ex. 57 [Doc. No. 95-16], Ex. 58 [Doc. No. 95-17]; see also, J. Schmidt Dep. [Doc. No. 88] at 5361, 5362, 5366, 5370; S. Yatchak Dep. [Doc. No. 79-1] at 4498, 4505, 4513.) A reasonable jury could agree.

         BWW is entitled to pursue its claims under the Lanham Act before a fact-finder. Therefore, BW-3 Akron is not entitled to summary judgment on Counts ...


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