Morris CM Enterprises, LLC v. Wingstop Franchising LLC

District Court, E.D. California·Decided June 1, 2020·No. 2:19-cv-02306·Unknown

Opinion

1 2 3 4 5 6 7 10 11 MORRIS CM ENTERPRISES, LLC, No. 2:19-CV-02306-KJM-CKD 12 Plaintiff, 13 v. FINDINGS AND RECOMMENDATIONS 15 Defendant. 16 ___________________________________ 17 WINGSTOP FRANCHISING, LLC, 18 Counterclaimant, 19 v. 20 MORRIS CM ENTERPRISES, LLC, 21 Counter-Defendant. 22 23 Before the court is defendant and counterclaimant Wingstop Franchising LLC’s 24 (“Wingstop” or “counterclaimant”) motion for default judgment against plaintiff and counter- 25 defendant Morris CM Enterprise, LLC (“Morris CM” or “counter-defendant”). (ECF No. 30.) 26 Morris CM failed to file an opposition to the motion for default judgment in accordance with 27 Local Rule 230(c). Morris CM was given additional time to respond and was advised that the 28 1 failure to respond may result in a recommendation that default judgment be entered against it. 2 (ECF No. 34.) On April 29, 2020, Morris CM filed an opposition to the motion for default 3 judgment. (ECF No. 36.) On May 5, 2020, Wingstop timely filed a reply. (ECF No. 37.) The 4 undersigned has fully considered the briefs and record in this case and, good cause appearing, 5 finds as follows: 7 A. Factual Background 8 In 2008, Morris CM entered into a franchise agreement with Wingstop Restaurants Inc., a 9 national restaurant franchise specializing in chicken wings.1 (ECF No. 1 ¶ 6.) The franchise 10 agreement granted Morris CM the right to operate a Wingstop restaurant at 3541 N. Freeway 11 Blvd., Suite 115, Sacramento, California. (ECF No. 5 ¶ 20.) The parties renewed their 12 agreement under a renewal rider on December 6, 2017. (Id.) Michael Morris, the principal 13 officer of Morris CM, was a guarantor of Morris CM’s obligations under the franchise agreement. 14 (Id. ¶ 6.) 15 Wingstop owns a variety of trademarks and copyrights used to denote its restaurants. (Id. 16 ¶¶ 10-19.) In the franchise agreement and subsequent renewal, Wingstop granted Morris CM a 17 license to use various components of Wingstop’s intellectual property. (Id. ¶¶ 20, 24.) Wingstop 18 granted Morris CM the use of several federally registered trademarks to distinguish its restaurant. 19 (Id. ¶ 12.) Wingstop also furnished Morris CM with a license to use copyright protected 20 operations and advertising materials and protected trade secrets in operating its restaurant. 21 Wingstop alleges Morris CM agreed to discontinue use of all Wingstop intellectual 22 property on termination of the franchise agreement. (Id. ¶ 25.) The Franchise Agreement states, 23 in relevant part: 24 ///// 25 ///// 26 ///// 27 1 Wingstop Restaurants Inc. subsequently assigned its interest in the franchise agreement to 28 Wingstop Franchising LLC, the counterclaimant in this action. (ECF No. 5 ¶ 23.) 1 Upon the expiration or termination of the franchise, Franchisee must immediately discontinue all further uses of the Marks and 2 Copyrighted Materials and take appropriate action to remove the Marks from the premises in which the Restaurant is located, to cancel 3 any advertising relating to Franchisee’s use of the Marks or the Copyrighted Materials, including yellow pages listings, and to cancel 4 or withdraw any assumed or fictitious name filings covering Franchisee’s use of Company’s trade name. Franchisee 5 acknowledges and agrees that failure or refusal to comply fully with these requirements will constitute willful trademark and copyright 6 infringement. 7 (ECF No. 5-2 at 32.) 8 Morris CM agreed it would take these remedial steps within seven days of any termination 9 of the franchise. (ECF No. 5 ¶ 29.) If it did not, Wingstop would be entitled to injunctive relief 10 without the necessity of posting a bond. (Id.) 11 On April 25, 2019, Wingstop received a notice from the California Department of Tax and 12 Fee Administration (CDTFA) that Morris CM’s seller’s permit had been suspended for failure to 13 pay sales tax. (ECF No. 5 ¶ 34.) Wingstop then sent notices of default to Morris CM, and Morris 14 CM failed to cure the default. (ECF No. 5 ¶ 36.) 15 On October 11, 2019, Wingstop notified Morris CM and Michael Morris (“Morris 16 Parties”) that the franchise agreement was terminated based on the failure to cure the defaults. 17 (ECF No. 5 ¶ 37.) The notification letter told the Morris Parties to comply immediately with the 18 post-termination obligation to remove Wingstop trade dress from the restaurant and discontinue 19 use of Wingstop’s trademarks and other intellectual property. (Id.) 20 Wingstop alleges Morris CM continues to use the Wingstop marks, the Wingstop System, 21 display Wingstop trade dress, and hold the restaurant out as a Wingstop franchisee. (ECF No. 5 22 ¶ 38.) Morris CM has taken none of the agreed-upon steps to remove trade dress and marks 23 identifying the restaurant as a Wingstop franchisee. (Id. ¶ 45.) As a result, Wingstop alleges 24 Morris CM and Michael Morris have violated the Lanham Act by continuing to use Wingstop’s 25 intellectual property after termination of the franchise, and that the violations are causing 26 Wingstop to suffer irreparable harm necessitating injunctive relief. (Id. ¶¶ 50-52, 55-57.) 27 ///// 28 1 B. Procedural History 2 On November 15, 2019, Wingstop removed from Sacramento County Superior Court the 3 suit filed there by Morris CM for wrongful termination of Morris CM’s franchise, breach of the 4 covenant of good faith and fair dealing, and interference with economic relations. (ECF No. 1.) 5 The same day, Wingstop counterclaimed for violations of the Lanham Act and breach of contract, 6 adding Michael Morris as a counter-defendant. (Id.) On November 19, 2019, Wingstop moved 7 for a preliminary injunction. (ECF No. 8.) On December 6, 2019, Wingstop filed a motion to 8 stay the claims asserted by Morris CM on the basis that they were subject to a binding arbitration 9 agreement. (ECF No. 9.) 10 Neither Morris CM nor Michael Morris filed an answer to the Counterclaim, nor did they 11 file an opposition to the motion for preliminary injunction. On January 3, 2020, the court granted 12 Wingstop’s request for a preliminary injunction. (ECF No. 17.) That same day, Morris CM 13 appeared in the action by filing an opposition to Wingstop’s motion to stay. (ECF No. 16.) 14 On January 6, 2020, the clerk entered default against the counter-defendants for failing to 15 answer the Counterclaim. (ECF No. 18). 16 On January 17, 2020, the court held a hearing on Wingstop’s motion to stay—at which 17 counsel for Morris CM and Wingstop appeared—and took the matter under submission. (ECF 18 No. 20.) 19 In March 2020, Wingstop voluntarily dismissed Michael Morris as a counter-defendant, 20 (ECF Nos. 25, 27), and moved for entry of default judgment against Morris CM. (ECF No. 30.) 21 Morris CM did not file an opposition to the motion for default judgment. Preferring to resolve 22 the action on the merits if possible, the court provided Morris CM with an additional opportunity 23 to respond. (ECF No. 34.) Morris CM then filed an opposition, to which Wingstop replied. 24 (ECF Nos. 36, 37.) The court now considers whether to grant the motion for default judgment. 25 ///// 26 ///// 27 ///// 28 ///// 2 Pursuant to Federal Rule of Civil Procedure 55, default may be entered against a party 3 against whom a judgment for affirmative relief is sought who fails to plead or otherwise defend 4 against the action. See Fed. R. Civ. P. 55(a). However, “[a] defendant’s default does not 5 automatically entitle the plaintiff to a court-ordered judgment.” PepsiCo, Inc. v. Cal. Sec. Cans, 6 238 F. Supp. 2d 1172, 1174 (C.D. Cal. 2002) (citing Draper v. Coombs, 792 F.2d 915

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Morris CM Enterprises, LLC v. Wingstop Franchising LLC, (E.D. Cal. 2020).

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