US-DIST-CT, FRANCHISE-GUIDE ¶9930, Meineke Discount Muffler Shops, Inc. v. Wayne Smith and Stanley Smith., (Oct. 31, 1991)

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U.S. District Court, Northern District of Illinois, Eastern Division. No. 91 C 1117. Dated October 31, 1991.

Permanent Injunctive Relief--Ban on Post-Termination Trademark Use--Enforcement of Noncompetition Agreement--Deidentification of Former Franchise--Return of Confidential Materials.--Terminated muffler shop franchisees were permanently enjoined from continuing to use the franchisor’s trademarks and from engaging in any business similar to the franchisor’s within 20 miles of the franchise for one year following their cessation of trademark use. The former franchisees’ continued use of the franchisor’s trademark and service mark caused irreparable harm to the franchisor. Issuance of the permanent injunction served the public interest. Specifically, the franchisees were required to remove all signs bearing the franchisor’s marks from the former franchise location; to stop using the franchisor’s name on invoices, in advertising, or in any telephone directory listing; and to return the franchisor’s confidential operating manual as well as other policy, procedure, and training manuals.

Trademark Infringement--Post-Termination Use--Attorneys’ Fees--Willful and Deliberate Infringement.--A muffler shop franchisor was entitled to recover attorneys’ fees incurred in obtaining a permanent injunction against use of its trademark by terminated franchisees. The former franchisees’ willful and deliberate trademark infringement warranted an award of attorneys’ fees within both the franchise agreement and the federal trademark law.

ROSEMOND, Magis. J.: Whereas, the District Judge entered a Preliminary Injunction on July 18, 1991;

Whereas, the District Judge adopted the Report and Recommendation of the Magistrate Judge for entry of the Preliminary Injunction dated April 8, 1991.

Whereas, Defendants do not object to the entry of a permanent injunction, having indicated that they have no desire to have a trial on the merits, the Magistrate Judge hereby makes the following Findings of Fact and Conclusions of Law:

1. On or about May 7, 1981, Messrs. Stanley Smith and Wayne Smith (collectively the "Smiths") and Meineke Discount Muffler Shops, Inc. ("Meineke") entered into a License Agreement (the "Agreement") which granted the Smiths a franchise to operate a Meineke Discount Muffler Shop in Chicago, Illinois (the "Shop"). Under the Agreement, the Smiths were required to (i) submit weekly written reports to Meineke of the receipts generated by the Shop; (ii) pay to Meineke weekly royalties equal to seven percent (7%) of the gross receipts of the Shop; and (iii) pay Meineke an advertising contribution equal to ten percent (10%) of the Shop’s gross receipts.

2. The Smiths have not paid to Meineke the royalty fees and advertising contributions due under the Agreement.

3. On December 6, 1990, a Notice of Termination was sent to the Smiths advising them that the Franchise License granted to them in the Agreement would be terminated effective January 6, 1991, unless and until they cured the default enumerated in that Notice of Termination.

4. The Smiths did not cure the default enumerated in the Notice of Termination. Consequently, the Meineke license granted to them was terminated on January 6, 1991.

5. On February 7, 1991, Ted P. Pearce, Vice-President and General Counsel for Meineke, sent a letter to the Smiths advising them that they had not removed all Meineke signs from their business location and were still operating an automotive repair business under the name Meineke. The letter also advised the Smiths to cease and desist from infringing upon Meineke’s propriety marks, and that they were to remove their signs from the Shop premises.

6. The Smiths’ refusal to cease utilizing the Meineke trademark, service mark or name in connection with their automobile repair business caused customer confusion in that customers were led to believe that the Smiths’ automobile repair shop was associated with the nationally known chain of Meineke Discount Muffler Shops. In addition, consumers believed that by patronizing the Smiths’ Shop, they were entitled to participate in Meineke’s national warranty program, when in fact they were not.

7. By utilizing Meineke’s proprietary marks without Meineke’s authorization, the Smiths received the benefit of these marks for free when all other members of the Meineke system were required to pay for the right to use Meineke’s proprietary marks by paying to Meineke a weekly royalty in the amount of seven percent (7%) of the gross sales generated by their shops.

8. The Smiths’ continued use of Meineke proprietary marks caused Meineke irreparable injury because Meineke no longer had the ability to control the quality of services being performed at the Smiths’ business. Furthermore, consumers were no longer guaranteed to receive the quality of service that they had come to expect from Meineke Discount Muffler and Brake Shops.

1. Any of the foregoing Findings of Fact which may be deemed a Conclusion of Law is hereby adopted as a Conclusion of Law. Any of the following Conclusions of Law which may be deemed a Finding of Fact is hereby adopted as a Finding of Fact.

2. The Magistrate Judge has jurisdiction of the parties and the cause.

3. The Smiths’ continued use of the Meineke trademark and service mark and continued identification of their business as being affiliated with Meineke causes Meineke irreparable harm.

4. Issuance of the permanent injunction serves the public interest.

Accordingly, it is Adjudged, Decreed, and Ordered as follows:

1. Defendants Wayne Smith and Stanley Smith, their affiliates, employees, agents, attorneys, and assigns, together with all persons in active concert or participation with them, be and the same hereby are permanently restrained and enjoined from:

A. Displaying the Meineke trademark, service mark and name in any manner;

B. Using the Meineke registered trademark and holding themselves out as a Meineke franchisee or as a former franchisee of Meineke;

C. Using the Meineke name on service orders, invoices and/or any other manner;

D. Advertising themselves as a Meineke Discount Muffler Shop utilizing the Meineke trade name, trademarks or service marks, including but not limited to, a withdrawal from the Yellow Pages Directory in the Chicago, Illinois metropolitan market and any other local market;

E. Using the Meineke telephone listing which appears in certain yellow page directories for the Chicago, Illinois area; and

F. Using the Meineke registered trademark in any telephone directory listing for their business.

It is Further Ordered:

2. Defendants Wayne Smith and Stanley Smith, as well as their agents, servants and employees, are to immediately remove all signs identifying the business located at 9644 South Halsted Street, Chicago, Illinois, as a Meineke Discount Muffler Shop, and to keep them down.

3. Defendants are enjoined for a period of one (1) year from the date of de-identifying, hereby stipulated as June 1, 1991, from engaging in any business which is the same as, similar or competitive with any Meineke Discount Muffler Shop which, during that one year period from June 1, 1991, is located within a radius of twenty (20) miles of the shop operated by the Defendants at the time of termination.

4. Defendants are ordered to deliver to Meineke the Confidential Operating Manuals and all revisions or modifications and all other development, policies and procedures, training or other manuals which were given to Defendants by Meineke.

Whereas, a Petition for Attorney’s Fees with a supporting Affidavit was filed by Plaintiff on September 5, 1991, requesting attorney’s fees pursuant to Article 8(c) of the License Agreement and Section 1117(a) of the Lanham Act, 15 U.S.C., §1117(a);

Whereas, Defendants have failed to object or respond to the Plaintiff’s Petition for Attorney’s Fees;

Accordingly, the Magistrate Judge finds that Plaintiff is entitled to an award of attorney’s fees pursuant to the terms of the License Agreement. The Magistrate Judge further finds that Petitioner is entitled to an award of attorney’s fees pursuant to the terms of The Lanham Act due to Defendants’ willful and deliberate infringement of the Meineke trademark after termination of the License Agreement.

It is Further Ordered:

Meineke is awarded Twenty-two Thousand Eighty Dollars and forty-four cents ($22,080.44) as attorney’s fees to be paid by Defendants, jointly and severally.

So Ordered.