Red Roof Franchising, LLC v. Riverside Macon Group, LLC

• Court: Court of Appeals for the Sixth Circuit
• Decided: March 3, 2022
• Docket: 21-3648
• Status: Unpublished

Opinion

NOT RECOMMENDED FOR PUBLICATION File Name: 22a0093n.06

No. 21-3648

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT FILED RED ROOF FRANCHISING, LLC, ) Mar 03, 2022 ) DEBORAH S. HUNT, Clerk Plaintiff-Appellee, ) ) ON APPEAL FROM THE UNITED v. ) STATES DISTRICT COURT FOR ) THE SOUTHERN DISTRICT OF RIVERSIDE MACON GROUP, LLC; ) OHIO DEBA SHYAM, ) Defendants-Appellants. ) )

Before: SILER, LARSEN, and MURPHY, Circuit Judges.

MURPHY, Circuit Judge. This case shows the importance of not losing sight of the Federal

Rules of Civil Procedure in the heat of trial. Riverside Macon Group contracted with Red Roof

Franchising (“Red Roof”) to operate a Red Roof Inn. When Riverside did not make required hotel

improvements, Red Roof denied Riverside access to its online reservation system. On appeal,

Riverside argues that Red Roof breached the contract by failing to give it adequate time to cure its

defaults before removing it from this reservation system. But the jury rejected its argument. And

to preserve a challenge to the sufficiency of the evidence underlying the jury’s decision, Riverside

needed to move for judgment as a matter of law under Rule 50. Riverside failed to do so. We thus

cannot consider its appellate argument, and we affirm the district court’s judgment. No. 21-3648, Red Roof Franchising v. Riverside Macon Group, et al.

I

It cost an overnight guest just $9.99 to stay at the first Red Roof Inn when it opened outside

Columbus, Ohio, in 1973. Since that time, hundreds of these hotels have sprung up across the

country. Red Roof now operates through a “franchise” model. It allows independent contractors

to run hotels under its “Red Roof Inn” name in return for a fee. Like all trademarks, the “Red Roof

Inn” mark allows consumers to differentiate the company’s hotels from hotels run by competitors.

See 1 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 3:1 (5th ed.),

Westlaw (database updated Dec. 2021). So an Ohioan traveling in Georgia can stay at a Red Roof

Inn in that state confident that the hotel will be of the same quality as the Red Roof Inns the Ohioan

knows closer to home. See id. § 3.2; William M. Landes & Richard A. Posner, Trademark Law:

An Economic Perspective, 30 J.L. & Econ. 265, 269–70 (1987). Yet the trademark could not

perform this signaling function if franchisees could “free ride” off the mark by enticing customers

to stay at their hotel using the Red Roof Inn name but skimping on the amenities that they have

come to expect with that name. See Landes & Posner, supra, at 270. In its licensing agreements,

therefore, Red Roof requires franchisees to meet its quality standards.

Red Roof claims that Riverside did not live up to these standards. In February 2014, Riv-

erside bought a hotel in Macon, Georgia, that another franchisee had been operating as a Red Roof

Inn. The same month, Riverside entered into a “Franchise Agreement” with Red Roof that allowed

it to continue to use the Red Roof Inn name (and other proprietary marks) at this hotel. Agreement,

R.67-3, PageID 1283–84, 1294, 1323. The agreement also gave Riverside access to Red Roof’s

online reservation system. Id., PageID 1286. Through that system, prospective guests can visit a

general website to reserve rooms at Red Roof Inns across the country.

2 No. 21-3648, Red Roof Franchising v. Riverside Macon Group, et al.

In return, Riverside agreed to comply with Red Roof’s brand standards and pay various

fees. Id., PageID 1283, 1286–93, 1296. In a “Renovation Addendum,” Riverside also agreed to

substantially remodel the hotel according to a set schedule. Id., PageID 1328–35. Among other

improvements, Riverside needed to update the lobby and ensure that guest rooms came with proper

bedding, updated bathroom fixtures, and 32-inch flatscreen televisions. Id., PageID 1333–34.

Within two years, Red Roof discovered problems with Riverside’s operations. By Decem-

ber 2015, it learned that Riverside had not made improvements required under the Renovation

Addendum. That month, Red Roof wrote a letter to Riverside ordering the franchisee to complete

these updates (including, for example, the replacement of guest-room draperies and bedding) by

the end of January 2016. Letter, R.67-7, PageID 1363–64. If Riverside did not timely finish the

improvements, the letter warned, Red Roof would treat Riverside as in “default” of the agreement

and consider enforcing its contractual “remedies” for a default. Id., PageID 1363.

Things got worse over the next year. In November 2016, Red Roof sent Riverside another

letter providing “formal notice” of default. Letter, R.67-4, PageID 1336. By then, Riverside had

fallen behind in paying over $3,000 in fees. Id. In addition, Red Roof believed that Riverside still

had not completed many improvements, including replacing the bedding. Id., PageID 1343–44.

The hotel had also fallen below Red Roof’s quality measures. Only half of the surveyed customers

who stayed there, for example, suggested that they would recommend it to others. Id., PageID

1337. In its letter, Red Roof noted that it planned to immediately deny Riverside access to its

reservation system—a remedy that the agreement authorized in lieu of termination. Id. Red Roof

also warned that it would terminate the agreement if Riverside did not pay the fees within 5 days

and cure the hotel-improvement defaults within 30 days. Id.

3 No. 21-3648, Red Roof Franchising v. Riverside Macon Group, et al.

Despite the letter’s warning, Riverside expected Red Roof to give it time to cure its defaults

before removing it from the reservation system. Riverside quickly paid the overdue fees. It also

believed that it was adequately implementing the required improvements (and claimed to have

already made some of the changes that Red Roof flagged in its letter).

Yet Red Roof denied Riverside access to its reservation system shortly after sending this

letter. Because potential guests could no longer make reservations at Riverside’s hotel through

that online system, Riverside’s business declined substantially. To make matters worse, Riverside

discovered pervasive mold permeating the hotel around the same time. Riverside thus focused on

remediating the mold rather than improving the property. It also refused to pay any more fees to

Red Roof because it believed that Red Roof had breached the agreement by kicking it out of the

reservation system without providing an adequate cure period.

Although the parties attempted to work through their differences, these efforts failed. In

May 2017, Red Roof sent another “formal notice” of default to Riverside. Letter, R.67-5, PageID

1345. Riverside then owed over $14,000 in fees, and Red Roof claimed that Riverside had still

not completed required improvements. Id. Red Roof again warned that it would terminate the

agreement if Riverside did not pay the fees within 5 days and make the hotel improvements within

30 days. Id.

This time, Riverside did not even pay the fees. So Red Roof terminated the agreement that

September. Letter, R.67-6, PageID 1357. It told Riverside to cease using the “Red Roof Inn”

name and to remove its trademarks from the property. Id. Red Roof also noted that Riverside

owed, among other things, over $20,000 in fees. Id., PageID 1358.

But Riverside still refused to pay. Riverside also allegedly continued to hold itself out as

a “Red Roof Inn” by keeping the Red Roof Inn signs up and answering the phone as the Red Roof

4 No. 21-3648, Red Roof Franchising v. Riverside Macon Group, et al.

Inn. While admitting that it had failed to take down some hard-to-remove signs, Riverside claimed

that it had otherwise transitioned to operating the hotel as the “River Place Inn.”

Red Roof sued Riverside and its owner, Deba Shyam. (We will refer to both defendants

as “Riverside” for simplicity.) Red Roof asserted several claims, including breach of contract

under state law and trademark infringement under the Lanham Act, 15 U.S.C. §§ 1114, 1125.

Riverside responded with counterclaims of its own, including a claim that Red Roof had also

breached the agreement.

The district court granted Red Roof a preliminary injunction ordering Riverside to stop

holding itself out as a Red Roof Inn. It later granted summary judgment to Red Roof on its trade-

mark-infringement claim and on most of Riverside’s counterclaims. But it ordered a trial on the

competing breach-of-contract claims and on the amount of Red Roof’s trademark damages.

At trial, Riverside alleged that Red Roof had breached the agreement by kicking it out of

the reservation system in November 2016 without giving it 30 days to cure its defaults. In re-

sponse, Red Roof did not dispute that the agreement required this 30-day cure period. It instead

asserted that it had provided the required cure period because it had warned Riverside about the

defaults way back in the December 2015 letter. Riverside countered with testimony that it could

not confirm that it had ever received this 2015 letter. Kluchin Tr., R.80, PageID 1511–12. A Red

Roof employee also conceded that he did not have records showing its delivery. Limbert Tr., R.80,

PageID 1470–71. But this employee explained that Red Roof sends these types of notices via

certified overnight mail as its standard business practice. Id., PageID 1470–71, 1479.

The jury returned a verdict in favor of Red Roof. It found that Riverside had breached the

Franchise Agreement but that Red Roof had not. The jury awarded Red Roof $20,700 on its

5 No. 21-3648, Red Roof Franchising v. Riverside Macon Group, et al.

contract claim and $19,500 on its trademark claim. The district court entered a final judgment for

Red Roof in the amount of $40,200. Riverside now appeals.

II

On appeal, Riverside renews its argument—made to the jury—that Red Roof breached the

Franchise Agreement by denying it access to the reservation system without giving it time to cure

its defaults. But we cannot review the jury’s contrary findings directly. And Riverside did not

preserve any sufficiency-of-the-evidence challenge to Red Roof’s proof at trial by moving for

judgment as a matter of law in the district court. Under well-established principles of civil proce-

dure, therefore, we cannot now consider Riverside’s challenge.

Those well-established principles start with the Seventh Amendment. It provides: “In Suits

at common law . . . the right of trial by jury shall be preserved, and no fact tried by a jury, shall be

otherwise re-examined in any Court of the United States, than according to the rules of the common

law.” U.S. Const. amend. VII. When this amendment covers a suit, it prohibits courts from setting

aside a jury’s fact findings except according to traditional common-law principles. See Gasperini

v. Ctr. for Humans., Inc., 518 U.S. 415, 432–33 (1996). Yet common-law courts long granted

directed verdicts (or judgments notwithstanding the verdict) to a party when the other side pre-

sented insufficient evidence to support a fact. See Galloway v. United States, 319 U.S. 372, 389–

90 (1943); Balt. & Carolina Line, Inc. v. Redman, 295 U.S. 654, 659–61 (1935). This procedure

comports with the Seventh Amendment because the question whether a party presented sufficient

evidence is one of law (for a court), not of fact (for a jury). See Gasperini, 518 U.S. at 435; 9B

Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2522, at 226 (3d ed.

2008); cf. Google LLC v. Oracle Am., Inc., 141 S. Ct. 1183, 1200 (2021). Federal Rule of Civil

Procedure 50 has since codified this limit on a litigant’s right to have a jury resolve factual claims.

6 No. 21-3648, Red Roof Franchising v. Riverside Macon Group, et al.

Before a case goes to the jury, the rule permits a party to move for judgment as a matter of law on

an issue if a reasonable jury would not have “a legally sufficient evidentiary basis” to find for the

opposing party on the issue. Fed. R. Civ. P. 50(a). And if the court does not grant this motion, the

party may then renew the motion after the jury’s verdict. Fed. R. Civ. P. 50(b).

On appeal, then, a circuit court does not review the jury’s factual findings. See Maxwell v.

Dodd, 662 F.3d 418, 420 (6th Cir. 2011). Rather, it reviews a legal question that does not implicate

the Seventh Amendment: Did the district court properly deny judgment as a matter of law under

Rule 50 because sufficient evidence supported the jury’s verdict? See Neely v. Martin K. Eby

Constr. Co., 386 U.S. 317, 319–22 (1967). This distinction is critical. It means that parties must

seek the district court’s resolution of any sufficiency-of-the-evidence questions by filing (and re-

newing) a Rule 50 motion at the proper times. See Hanover Am. Ins. Co. v. Tattooed Millionaire

Ent., LLC, 974 F.3d 767, 779–90 (6th Cir. 2020); Maxwell, 662 F.3d at 420–21. If a party fails to

do so, the party cannot raise such a challenge on appeal. See Ortiz v. Jordan, 562 U.S. 180, 189

(2011); Unitherm Food Sys., Inc. v. Swift-Eckrich, Inc., 546 U.S. 394, 403–05 (2006).

These principles resolve this case. On appeal, Riverside raises a sufficiency-of-the-evi-

dence challenge in all but name to the jury’s verdict that Red Roof did not breach the Franchise

Agreement. At trial, the parties agreed that the contract entitled Riverside to a 30-day window to

cure any default before Red Roof could remove it from its online reservation system. They also

agreed that Red Roof removed Riverside from this system in November 2016. They disputed only

whether Red Roof had provided the required 30 days’ notice to Riverside before this time. Red

Roof claims that it provided this notice in the December 2015 letter alerting Riverside of its de-

faults. According to Riverside, Red Roof did not present sufficient evidence at trial to establish

that it sent this letter using a method authorized by the agreement. But Riverside did not move for

7 No. 21-3648, Red Roof Franchising v. Riverside Macon Group, et al.

judgment as a matter of law on this issue under Rule 50(a) or renew such a motion under Rule

50(b) after the jury’s verdict. We thus may not consider its sufficiency challenge. See Maxwell,

662 F.3d at 420–21.

Indeed, Riverside does not offer a response on this procedural point. Although Red Roof

raised the point in its appellee’s brief, Riverside did not bother to file a reply brief. Its silence

speaks volumes.

We affirm.