By Nicole D. Prysby, J.D.
Because the contract did not give a popcorn manufacturer a perpetual license to sell popcorn under the Mrs. Fields trademark, the manufacturer should not have been granted a preliminary injunction ordering Mrs. Fields to comply with the contract terms.
A popcorn manufacturer did not establish a strong likelihood that it will prevail on its claim against Mrs. Fields for specific performance and would suffer irreparable harm in the absence of a preliminary injunction, the U.S. Court of Appeals in Denver has decided. The decision reversed a preliminary injunction requiring Mrs. Fields to specifically perform under a licensing agreement, which the district court entered in favor of the popcorn manufacturer after finding that the manufacturer prevailed on its breach of contract claim against Mrs. Fields. The district court erred because it based its analysis on an erroneous finding that the popcorn manufacturer had a perpetual license to sell popcorn under the Mrs. Fields brand. But the contract did not actually provide for a perpetual license and at best, the manufacturer could have expected to continue using the license only so long as Mrs. Fields allowed the contract to automatically renew. Because Mrs. Fields could prevent the contract from automatically renewing, the manufacturer’s damages were limited to the remainder of the five-year term of the contract. Therefore, the district court erred in determining that the manufacturer established a strong likelihood that it will prevail on its claim for specific performance and would suffer irreparable harm in the absence of a preliminary injunction (Mrs. Fields Famous Brands, LLC v. MFGPC, November 7, 2019, Briscoe, M.).
Background. Popcorn manufacturer MFGPC had an exclusive licensing agreement to sell popcorn under the Mrs. Fields brand with Mrs. Fields receiving running royalties as well as guaranteed royalties. In 2014, Mrs. Fields terminated the agreement for failure to pay the guaranteed royalties. MFGPC objected to the termination, stating they owed no outstanding royalties. Mrs. Fields sued for a declaratory judgment that the license agreement was properly terminated and MFGPC counterclaimed for breach of contract.
In late 2015 and early 2016, the district court "granted a motion to dismiss MFGPC’s claims and allowed [Fields Franchising] to voluntarily dismiss its own claim for a declaratory judgment." The district court subsequently issued an order granting Fields Franchising’s motion for judgment and award of attorney fees. On January 8, 2018, the Tenth Circuit issued an order and judgment (a) affirming Fields Franchising’s voluntary dismissal of its claim for declaratory judgment, (b) affirming the dismissal of MFGPC’s account-stated claim "because MFGPC failed to plead an essential element," and (c) reversing the dismissal of MFGPC’s breach of contract claim "because [MFGPC’s] allegations in the complaint state[d] a plausible basis for relief."
On remand the district court entered partial summary judgment in favor of MFGPC on its counterclaim for breach of contract, after finding that MFGPC had paid the guaranteed royalty in full. MFGPC then moved for a preliminary injunction, arguing that there was a substantial likelihood that it would prevail at trial on the remedy of specific performance. The district court granted MFGPC’s motion and ordered Mrs. Fields to comply with the terms of the licensing agreement it had previously entered into with MFGPC. Mrs. Fields appealed.
MFGPC did not have a perpetual license. The district court’s decision was based in part on its finding that MFGPC’s license was effectively perpetual absent material breach. The contract renewal clause provided that as long as MFGPC was not in material default, the contract would automatically renew for successive five-year terms until such time as either party terminates the contract upon twenty days prior written notice. The contract termination clause outlined a set of six specific circumstances under which Mrs. Fields and MFGPC could otherwise terminate the contract (as opposed to preventing it from renewing). Reading the agreement as a whole meant that either party could prevent the contract from renewing at the end of each five-year period and could terminate it at other times if specific circumstances occurred. Thus, contrary to the district court’s finding, MFGPC did not have a perpetual license, the Tenth Circuit ruled. At best, MFGPC could have reasonably expected to continue using the license only so long as Mrs. Fields allowed the contract to automatically renew, and none of the specific circumstances outlined in the termination clause occurred and prompted Mrs. Fields to terminate the contract.
Likelihood of success and irreparable harm. The district court’s erroneous finding that the contract afforded MFGPC a perpetual license impacted its analysis of MFGPC’s likelihood of success on the merits and the existence of irreparable harm. The district court concluded it would be difficult to accurately calculate the damages to MFGPC of being permanently deprived of the right to use the Mrs. Fields trademark for popcorn. But because Mrs. Fields could prevent the contract from automatically renewing, MFGPC’s damages would be limited to a period of approximately two-and-a-half years (i.e., the remainder of the third five-year term of the contract). Consequently, the district court erred in determining that MFGPC established a strong likelihood that it will prevail on its claim for specific performance.
The district court concluded that MFGPC would be irreparably harmed in the absence of an injunction because it would be extremely difficult to calculate damages for the future and permanent deprivation of MFGPC’s right to exclusive use of the trademark. But MFGPC could only have suffered a "permanent deprivation" if the contract afforded it a perpetual license, which it did not. The district court also concluded that MFGPC’s prior profitability was not a good prediction of its future profitability because the great recession and the warehouse fire reduced its profits prior to the breach. However, the parties operated under the terms of the contract for nearly twelve years. The years prior to or following the recession could serve as a reasonable proxy to determine MFGPC’s damages, according to the appellate court. The warehouse fire did not occur until over ten years into the parties’ continuing business relationship, and approximately three-and-a-half years after the end of the recession. Setting aside the period of the great recession and the period following the warehouse fire, that left a total of approximately eight years and three months’ worth of sales data of MFGPC’s own products for the district court to consider for purposes of calculating damages.
Attorneys: Rod N. Andreason (Kirton McConkie) for Mrs. Fields Famous Brands, LLC d/b/a Famous Brands International and Mrs. Fields Franchising, LLC. Brian M. Rothschild (Parsons Behle & Latimer) for MFGPC.
Companies: Mrs. Fields Famous Brands, LLC d/b/a Famous Brands International; Mrs. Fields Franchising, LLC; MFGPC
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