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Mrs. Fields Franchising LCC v. MFGPC, Inc.

United States District Court, D. Utah, Central Division

March 19, 2019

MRS. FIELDS FRANCHISING, LLC, a Delaware limited liability company; and MRS. FIELDS FAMOUS BRANDS, LLC, a Delaware limited liability company, dba Famous Brands International, Plaintiffs,
v.
MFGPC, INC., a California corporation, Defendant. MFGPC, INC., a California corporation, Counterclaimant,
v.
MRS. FIELDS FRANCHISING, LLC, a Delaware limited liability company; and MRS. FIELDS FAMOUS BRANDS, LLC, a Delaware limited liability company, dba Famous Brands International, Counterclaim Defendants.

          DUSTIN B. PEAD MAGISTRATE JUDGE.

          MEMORANDUM DECISION AND ORDER GRANTING PRELIMINARY INJUNCTION

          JILL N. PARRISH, Judge United States District Court

         This matter is before the court on the Motion for Preliminary Injunction[1] (ECF No. 147) filed by Defendant and Counterclaim Plaintiff MFGPC, Inc. (“MFGPC”) seeking relief against Plaintiffs and Counterclaim Defendants Mrs. Fields Franchising, LLC and Mrs. Fields Famous Brands International (collectively “Mrs. Fields”)[2] on October 13, 2018. The court conducted a full evidentiary hearing on the motion on January 14, 2019 (“the Hearing”).

         At the Hearing, MFGPC was represented by Brian M. Rothschild and Cedar Cosner of Parsons Behle & Latimer. Mrs. Fields was represented by Rod N. Andreason of Kirton McConkie. At the hearing the court received MFGPC's Exhibits A-H, M-Q, and S-JJ, and Mrs. Fields' Exhibits 1-33 and 35-45. The court heard from the following witnesses: Christopher Lindley, Cameron Broadbent, Bradford Kullberg, Betsy Schmandt, Dustin Lyman, and Joshua Kirschbaum.

         The court has reviewed and considered the pleadings and orders on file, the testimony of the witnesses, exhibits received into evidence, and the parties' proposed findings of facts and conclusions of law. The court concludes that MFGPC has established each of the required elements for the court to grant temporary injunctive relief: 1) likelihood of success on the merits; 2) irreparable harm; 3) the potential harm to MFGPC outweighs any potential harm to Mrs. Fields; and 4) the requested injunction is not adverse to the public interest. MFGPC's Motion for Preliminary Injunction is hereby granted, and MFGPC is hereby restored to all of its rights under the Trademark License Agreement dated April 30, 2003 between the parties.

         FINDINGS OF FACT [3]

         1. Mrs. Fields is the owner of the “Mrs. Fields” trademark (“Trademark”), a highly recognizable and established brand of snack food cookie products. Prelim. Inj. Hr'g Tr. at 21:23- 22:6, Jan 14, 2019. (“Hr'g Tr.”).

         2. MFGPC is an operating company that was founded by Christopher Lindley to manufacture and produce prepackaged popcorn products bearing the Mrs. Fields Trademark. Hr'g Tr. 8:2-22.

         3. MFGPC and Mrs. Fields are parties to the Trademark License Agreement, dated April 30, 2003, a binding and enforceable written contract between MFGPC and Mrs. Fields comprising 21 single-spaced pages, under which the parties performed for more than 10 years. Ex. O (the “Trademark License Agreement”); Memorandum Decision and Order Granting MFGCP's Motion for Summary Judgment (“Order Mot. S.J.”) at 2, ECF No. 132; Memorandum Decision and Order Granting in Part MGFPC's Motion to Amend (“Order Mot. Amend”) at 3, ECF No. 171; Hr'g Tr. 6:25-7:7, 8:23-9:12.

         4. Under the Trademark License Agreement, Mrs. Fields granted MFGPC the exclusive, worldwide right to manufacture, market, and sell prepackaged, popcorn products bearing the Trademark. Ex. O; Order Mot. S.J. at 2; Hearing Tr. 12:5-14, 12:21-24, 16:3-12.

         5. Under the Trademark License Agreement, if Mrs. Fields sells Mrs. Fields Branded Popcorn, it must source that popcorn through MFGPC. Additionally, under the Trademark License Agreement, MFGPC is permitted to sell Mrs. Fields Branded Popcorn to Mrs. Fields at a profit, based on a most favored nations pricing structure, which is the lowest price for which MFGPC sells the product in the marketplace. Ex. O; Hr'g Tr. 14:9-15:2.

         6. Under the Trademark License Agreement, Mrs. Fields is prohibited from competing with MFGPC by making Mrs. Fields branded popcorn or licensing the right to use the Mrs. Fields Trademark for use on popcorn. Ex. O.; Hr'g Tr. 15:5-8. The Trademark License Agreement does not prohibit MFGPC from selling its business or its stock nor does it terminate the Agreement upon a change in control. Hr'g Tr. 15:12-20.

         7. Mrs. Fields has additional obligations relating to approval of packaging and ingredients, which are set forth in the Trademark License Agreement. Ex. O; Hr'g Tr. 36:24-38:7.

         8. MFGPC acquired the Trademark License Agreement by paying $450, 000 in licensing fees and guaranteed royalties during the initial term of the Trademark License Agreement. Hr'g Tr. 9:15-24.

         9. The Trademark License Agreement provided for an “Initial Term” of five years, beginning on April 30, 2003. At the end of the Initial Term, the Agreement automatically renewed for successive five-years terms (“Option Periods”) as long as MFGPC was not in material breach and “until such time as either party terminates the Agreement upon no more [sic] than twenty (20) days prior written notice.” To be effective, any attempted termination had to comport with the termination provisions set out in section 16(b) of the Agreement. See Trademark License Agreement § 16; Order Mot. S.J. at 4; Hr'g Tr. 16:3-11, 17:6-18.

         10. MFGPC and Mrs. Fields performed under the Agreement for over a decade. MFGPC produced gourmet cookie popcorn that it distributed throughout the United States and internationally in Canada and Asia. Hr'g Tr. 13:10-22, 20:24-21:19.

         11. MFGPC established relationships with co-packers, manufacturers, and retailers. Contracts with co-packers, manufacturers and retailers are established months before distribution can begin. Hr'g Tr. 151:4-13. MFGPC has maintained its relationship with co-packers and manufacturers. Hr'g Tr. 24:2-14. But MFGPC lost its relationships with retailers when Mrs. Fields wrongfully terminated its relationship with MFGPC. Hr'g Tr. 25:23-26:16.

         12. On December 22, 2014, counsel for Mrs. Fields, Avery Samet, sent a letter to MFGPC in which Mrs. Fields purported to terminate the Agreement due to MFGPC's alleged failure to pay royalties. Order Mot. S.J. at 4. Mrs. Fields then filed the complaint in this case, seeking a declaration that it had properly terminated the Trademark License Agreement. In response, MFGPC filed a counterclaim for breach of contract and sought a preliminary injunction to prevent the termination. The district court denied MFGPC's request for a preliminary injunction and later dismissed MFGPC's counterclaim for failure to state a claim. Mrs. Fields then voluntarily dismissed its claim for declaratory relief on July 18, 2016. MFGPC appealed on August 10, 2016.

         13. Neither Mrs. Fields' current senior director of licensing and franchising, Besty Schmandt, nor current CEO, Johshua Kirschbaum, were involved in Mrs. Fields' attempted termination of MFGPC. Betsy Schmandt has been with Mrs. Fields for three years (since February 2016). Hr'g Tr. 119:12-120:20. Joshua Kirschbaum first started working with Famous Brands in September 2017 and became CEO in November of 2018. Hr'g Tr. 194:3-22. Both witnesses joined Mrs. Fields during the pendency of this litigation.

         14. While MFGPC's appeal was pending, on September 22, 2017, Mrs. Fields entered into a new license agreement with Perfect Snax Prime, LLC (“Perfect Snax”), granting Perfect Snax a license to market and sell popcorn using the Mrs. Fields Trademark. Hr'g Tr. at 120:24- 121:17; see also Ex. HH, the “Perfect Snax Agreement.” 15. On January 30, 2018, the Court of Appeals for the Tenth Circuit reversed the district court's dismissal of MFGPC's counterclaim, holding that MFGPC had stated a claim for breach of contract and reinstating MFGPC's counterclaim for breach of the Trademark License Agreement. On remand, MFGPC seeks both specific performance of the Trademark License Agreement and damages for Mrs. Fields' breach of the Agreement. Mrs. Fields has no active claim, having voluntarily dismissed its claim for declaratory relief prior to the appeal.

         16. After remand, the parties filed cross-motions for summary judgment. Mrs. Fields filed on February 14, 2018 and MFGPC filed on May 16, 2018. While the summary motions were pending, Mrs. Fields continued to license to Perfect Snax the Trademark to produce and sell popcorn. But Perfect Snax failed to make required payments and, on July 3, 2018, Mrs. Fields sent Perfect Snax a notice of default. Mrs. Fields terminated the Perfect Snax Agreement on August 7, 2018. Ex. DD; Hr'g Tr. 124:2-6.

         17. A little over two weeks later, on August 20, 2018, this court issued its ruling on the cross-motions for summary judgment. The court held that under the plain language of the Agreement, MFGPC had no obligation to pay minimum Guaranteed Royalties after the initial five-year option period. As a result, Mrs. Fields' attempted termination of the Agreement constituted an improper repudiation and total breach of the Trademark License Agreement by Mrs. Fields. Order Mot. S.J. at 21. Thus, the court entered summary judgment in favor of MFGPC on the first three elements of its counterclaim holding that: 1) the parties' relationship was governed by a valid contract, 2) MFGPC had substantially performed, and 3) Mrs. Fields committed an actionable breach by improperly repudiating the contract. Because MFGPC had not moved for summary judgment as to the remedy, the court left the remedy issue to another time. Order Mot. S.J. at 28- 29.

         18. At the time the court entered partial summary judgment in favor of MFGPC, Mrs. Fields was not licensing the Trademark to Perfect Snax, having terminated its licensing agreement with Perfect Snax on August 7, 2018, nor had Mrs. Fields licensed the Trademark to anyone else. Then, seven days after this court had entered summary judgment against Mrs. Fields, on August 27, 2018, Mrs. Fields entered into a Reinstatement Agreement with Perfect Snax, reinstating Perfect Snax's license under slightly more onerous terms than were contained in the parties' original agreement. Ex. DD; Hr'g Tr. 124:2-6, 125:10-19, 126:2-4.

         19. Perfect Snax has plans to distribute a competing cookie popcorn product, Cookie Pop, using the Trademark in mass retail. Id. at 101:4-103:5, 104:11-105:6, 113:16-25; Ex. EE, Emails; Ex. 43.

         20. After the reinstatement of the Perfect Snax Agreement, Perfect Snax again breached the agreement by failing to submit the required royalty reports. At the hearing on MFGPC's motion for preliminary injunction, Mrs. Fields represented that it has the right to terminate the Perfect Snax Agreement. Hr'g. Tr. 125:20-22, 126:2-4, 16-18.

         21. MFGPC's exclusive right to market Mrs. Fields Branded Popcorn is being wrongfully denied by Mrs. Fields' grant of a competing license to Perfect Snax. Id. at 101:4-103:5, 104:11-105:6, 113:16-25; Ex. EE; Ex. 43.

         22. The exclusive right to market the Trademark is valuable because the Mrs. Fields Trademark enjoys extremely high international brand recognition, high favorability, and stands for premium quality, indulgence, and deliciousness in the baked goods category. ...


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