Mrs. Fields Famous Brands v. MFGPC ( 2019 )

FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS November 7, 2019
Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________
MRS. FIELDS FRANCHISING, LLC, a
Delaware limited liability company; MRS.
FIELDS FAMOUS BRANDS, LLC, a
Delaware limited liability company, d/b/a
Famous Brands International,
Plaintiffs Counterclaim
Defendants - Appellants,
v. Nos. 19-4046 & 19-4063
MFGPC, a California corporation,
Defendant Counterclaimant -
Appellee.
_________________________________
Appeal from the United States District Court
for the District of Utah
(D.C. No. 2:15-CV-00094-JNP-DBP)
_________________________________
Avery Samet, Storch Amini, New York, New York (Rod N. Andreason, Kirton
McConkie, Salt Lake City, Utah, with him on the briefs), appearing for Appellant.
Brian M. Rothschild, Parsons Behle & Latimer, Salt Lake City, Utah, appearing for
Appellee.
_________________________________
Before BRISCOE, KELLY, and LUCERO, Circuit Judges.
_________________________________
BRISCOE, Circuit Judge.
_________________________________
Plaintiffs and counterclaim-defendants Mrs. Fields Famous Brands, LLC
(Famous Brands) and Mrs. Fields Franchising, LLC (Fields Franchising) appeal from
the district court’s order granting a preliminary injunction in favor of defendant and
counterclaim-plaintiff MFGPC Inc. (MFGPC). In August 2018, the district court
entered partial summary judgment in favor of MFGPC on its counterclaim for breach
of a trademark license agreement that afforded MFGPC the exclusive use of the
“Mrs. Fields” trademark on popcorn products. The district court’s summary
judgment order left only the question of remedy to be decided at trial. 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. After conducting
a hearing, the district court granted MFGPC’s motion and ordered Fields Franchising
to terminate any licenses it had entered into with other companies for the use of the
Mrs. Fields trademark on popcorn products, and to instead comply with the terms of
the licensing agreement it had previously entered into with MFGPC. Famous Brands
and Fields Franchising argue in this appeal that the district court erred in a number of
respects in granting MFGPC’s motion for preliminary injunction. Exercising
jurisdiction pursuant to 28 U.S.C. § 1292(a)(1), we agree with appellants, and
consequently reverse the district court’s grant of a preliminary injunction in favor of
MFGPC.
2
I
The parties
Famous Brands is a limited liability company organized under the laws of the
State of Delaware with its principal place of business in Broomfield, Colorado. The
sole member of Famous Brands is Mrs. Fields Original Cookies, Inc. (MFOC), a
Delaware corporation with its principal place of business in Salt Lake City, Utah.
MFOC is not a party to this action.
Fields Franchising, LLC is a limited liability company organized under the
laws of the State of Delaware with its principal place of business in Salt Lake City,
Utah. The sole member of Fields Franchising is Famous Brands.
Defendant MFGPC is a California corporation with its principal place of
business in Mission Viejo, California.
The License Agreement and its relevant terms
Fields Franchising owns the rights to the “Mrs. Fields” trademark and licenses
those rights to allow other entities to manufacture, sell, and distribute products using
the “Mrs. Fields” trademark.
On April 30, 2003, MFOC entered into a Trademark License Agreement
(License Agreement) with LHF, Inc. (LHF), an affiliate of MFGPC. Aplt. App., Vol.
1 at 25, 45 (copy of actual agreement). On June 30, 2003, LHF assigned all rights
under the License Agreement to MFGPC, and MFGPC agreed to be bound by and
perform in accordance with the License Agreement. Id. at 25, 69 (copy of
assignment). The License Agreement granted MFGPC a license to develop,
3
manufacture, package, distribute and sell prepackaged popcorn products bearing the
“Mrs. Fields” trademark through all areas of general retail distribution. Id. at 46.
The License Agreement prohibited MFOC from competing with MFGPC by making
Mrs. Fields branded popcorn or licensing the right to use the Mrs. Fields trademark
for use on popcorn. Id., Vol. 5 at 866.
Section 5 of the License Agreement, entitled “LICENSE FEE AND
ROYALTIES,” required MFGPC to pay MFOC an “initial license fee” comprised of
two payments: (1) $50,000 on or before June 1, 2003; and (2) an additional $50,000
on the “first anniversary of th[e] Agreement.” Id., Vol. 1 at 50. Section 5 also
required MFGPC to pay MFOC “Guaranteed Licensing Fees and Running Royalties”:
Throughout the term (including Option Periods) of this Agreement the
Running Royalty shall be 5% of Net Sales of Royalty Bearing Products.
[MFGPC] shall remit such Running Royalties to [MFOC] on the last
day of the month following the end of each calendar quarter covered by
the Agreement. All Guaranteed Amounts and Running Royalties shall
be non-refundable for any reason whatsoever.
Id.1
Section 6 of the License Agreement, entitled “GUARANTEED ROYALTY,”
required MFGPC to pay MFOC a “Guaranteed Royalty . . . per year on the Net Sales
of Royalty Bearing Products during the initial term as set forth on the following
schedule:
1
The Definitions section of the License Agreement stated that “‘Guaranteed
Amounts’ shall have the meaning set forth in Section 5 hereof.” Aplt. App., Vol. 1 at
46. Section 5 of the License Agreement used the phrase “Guaranteed Amounts,” but
otherwise did not define it. Id. at 50.
4
INITIAL TERM
Year 1 $ 0.00
Year 2 $ 50,000
Year 3 $ 100,000
Year 4 $ 100,000
Year 5 $ 100,000
Id. at 50. “Royalty Bearing Products” were defined in the License Agreement as “the
food products described on Exhibit B hereto that are sold as prepackaged popcorn
products using the Licensed Names and Marks.” Id. at 48. Exhibit B to the License
Agreement stated that “Royalty Bearing Products” were “[h]igh quality, pre-
packaged, popcorn products.” Id. at 67.
The License Agreement required MFGPC to “deliver to” MFOC quarterly and
annual reports detailing “the amount of Royalty Bearing Products sold, including
sufficient information and detail to confirm the [royalties] calculations.” Id. at 51. It
also required MFGPC to “provide [MFOC] a [monthly] summary of all written
consumer complaints received regarding the quality of the Royalty Bearing
Products.” Id. at 52.
The “initial term” of the License Agreement began “upon the execution” of the
License Agreement and “continue[d] for a period of sixty (60) months (‘Initial
Term’).” Id. at 57. The License Agreement stated that, “[s]o long as [MFGPC]
[wa]s not in material default and . . . ha[d] met and/or paid Running Royalties based
on its Guaranteed Royalty,” the License Agreement “would then automatically renew
for successive five year terms (‘Option Periods’) until such time as either party
5
terminate[d] the Agreement upon no more than twenty (20) days prior written notice
to the other party.” Id.The License Agreement stated, in pertinent part, that it could be terminated in
the following manner:
(i) If [MFGPC] defaults in the payment of any Running
Royalties then this Agreement and the license granted hereunder may be
terminated upon notice by [MFOC] effective thirty (30) days after
receipt of such notice, without prejudice to any and all other rights and
remedies [MFOC] may have hereunder or by law provided, and all
rights of [MFGPC] hereunder shall cease.
(ii) If [MFGPC] fails to pay its Guaranteed Royalty . . . , then,
this Agreement and the license granted hereunder may be terminated
upon receipt of such notice by [MFGPC], without prejudice to any and
all other rights and remedies [MFOC] may have hereunder or by law
provided, and all rights of [MFGPC] hereunder shall cease.
(iii) If [MFGPC] fails to perform in accordance with any
material term or condition of this Agreement . . . and such default
continues unremedied for thirty (30) days after the date on which
[MFGPC] receives written notice of default, unless such remedy cannot
be accomplished in such time period and [MFGPC] has commenced
diligent efforts within such time period and continues such effort until
the remedy is complete, then this Agreement may be terminated upon
notice by [MFOC], effective upon receipt of such notice, without
prejudice to any and all other rights and remedies [MFOC] may have
hereunder or by law provided.
***
(v) If [MFOC] . . . files a petition in bankruptcy or for
reorganization . . . , then this Agreement and the License granted
hereunder may be terminated upon notice by [MFGPC], effective upon
receipt of such notice, without prejudice to any and all other rights and
remedies [MFGPC] may have hereunder or by law provided . . . .
(vi) If [MFOC] fails to perform in accordance with any
material term or condition of this Agreement and such default continues
unremedied for thirty (30) days after the date on which [MFOC]
6
receives written notice of default, then this Agreement may be
terminated upon notice by [MFGPC], effective upon receipt of such
notice, without prejudice to any and all other rights and remedies
[MFGPC] may have hereunder or by law provided.
Id. at 57–58.
MFOC’s assignment of its rights under the License Agreement
After entering into the License Agreement, MFOC assigned its rights and
obligations under the License Agreement to Fields Franchising. Id. at 35; Dist. Ct.
Docket No. 98 at 3 (“Counterclaim Defendants admit . . . that the rights of [MFOC]
under the License Agreement were assigned to” Fields Franchising).
The renewal of the License Agreement
Fields Franchising and MFGPC continued to operate under the License
Agreement through the end of 2014, a period of more than eleven years. According
to MFGPC, it “paid the royalties required of it during the first term of the License
Agreement, consisting of $450,000 in Guaranteed Royalties.” Aplt. App., Vol. 1 at
35. MFGPC alleges that it owed no Guaranteed Royalties during the subsequent
terms of the License Agreement, and instead was only required to pay Running
Royalties. MFGPC also alleges that in 2013, Fields Franchising “required MFGPC
to make a $50,000 investment in package design changes for its products which was
obviously premised on the license being in full force and effect.” Id.MFGPC’s non-payment of Running Royalties in 2013
“On January 13, 2013, there was a fire at a business next to MFGPC’s
chocolate drizzling co-packer.” Id., Vol. 2 at 319. “This left [the co-packer’s] plant
7
filled with smoke and damaged most all of the Mrs. Fields inventory and packaging,
rendering them valueless.” Id. MFGPC alleges that Fields Franchising’s CEO at that
time, Neal Courtney, “was sympathetic to the position that MFGPC had been put in
by the fire and he agreed that MFGPC could forego payment of Q4 2012 and all of
2013 Running Royalties until 2014 to assist it in getting its operations back into
production and restarting its revenue streams.” Id. at 319–320. Courtney disputes
that he agreed to allow MFGPC to forego paying Running Royalties.
Amounts owed by Fields Franchising and MFGPC in 2014
Because of the accrued Running Royalties that it owed to Fields Franchising
for the fourth quarter of 2012 and all of 2013, MFGPC delayed invoicing Fields
Franchising and Famous Brands for orders of popcorn that MFGPC shipped directly
to them for resale in March and September of 2014. The accrued Running Royalties
were allegedly less than the combined open invoices payable from Fields Franchising
and Famous Brands to MFGPC. By December 2014, Fields Franchising and Famous
Brands together effectively owed MFGPC a balance of $26,660.43.
Fields Franchising’s notice of termination and MFGPC’s response
On December 22, 2014, Fields Franchising’s counsel sent a letter to MFGPC
notifying MFGPC that Fields Franchising considered the License Agreement to not
have automatically renewed in 2013 due to MFGPC’s failure to pay royalties since
the third quarter of 2012, and also due to MFGPC’s alleged failure to comply with
the terms of the License Agreement. Fields Franchising’s counsel further asserted
8
that, to the extent the License Agreement had automatically renewed, Fields
Franchising intended to terminate the License Agreement.
MFGPC’s counsel responded by letter on January 19, 2015, disputing Fields
Franchising’s authority to terminate the License Agreement, alleging that no royalties
were due by MFGPC to Fields Franchising, further alleging that Fields Franchising
and Famous Brands owed MFGPC $26,660.43, and indicating MFGPC’s intent to
hold Fields Franchising responsible for damages arising from the wrongful
termination. According to MFGPC, the result of Fields Franchising’s December 22,
2014 letter is that MFGPC has been effectively prevented from marketing and
shipping its prepackaged popcorn products.
Fields Franchising did not respond to MFGPC’s letter. Instead, as discussed
below, Fields Franchising filed this action against MFGPC.
Fields Franchising’s acquisition of Maxfield’s Candy Company
On December 24, 2014, two days after its counsel notified MFGPC of the
intent to terminate the License Agreement, Fields Franchising issued a press release
announcing its acquisition of Maxfield’s Candy Company. The press release stated
that, with the acquisition, Fields Franchising was acquiring the “Nutty Guys”
premium brand of “popcorn products.” Id. It is unclear from the record what, if
anything, Fields Franchising subsequently did with that brand.
Fields Franchising’s agreement with Perfect Snax
On September 22, 2017, while MFGPC’s initial appeal was pending before
this court (that initial appeal is discussed below), Fields Franchising entered into a
9
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.
Fields Franchising subsequently terminated the licensing agreement with Perfect
Snax on August 7, 2018. On August 27, 2018, seven days after the district court
entered partial summary judgment in favor of MFGPC, Fields Franchising entered
into a reinstatement agreement with Perfect Snax that effectively reinstated Perfect
Snax’s license under slightly more onerous terms than were contained in the original
agreement. Perfect Snax has plans to distribute a cookie popcorn product, called
CookiePop, that uses the Mrs. Fields trademark.
II
Fields Franchising’s complaint
On February 10, 2015, Fields Franchising initiated this diversity action by
filing a complaint against MFGPC in the United States District Court for the District
of Utah. The complaint sought a declaratory judgment “that the License Agreement
[w]as . . . properly terminated and [wa]s no longer in effect.” Id., Vol. 1 at 29. The
complaint also sought “contractual attorneys’ fees and costs.” Id.MFGPC’s counterclaim and cross-claims
On February 24, 2015, MFGPC filed a counterclaim and cross-claims against
Fields Franchising, Famous Brands, and Mrs. Fields Confections, LLC (MFC). The
first claim for relief alleged breach of the License Agreement by Fields Franchising.
The second claim for relief sought payment of $26,660.43 allegedly due from
Famous Brands to MFGPC for merchandise that MFGPC had “prepared, packaged,
10
and shipped” to Famous Brands “for sale by [Famous Brands] to its customers.” Id.
at 39. The third claim alleged intentional interference with prospective economic
advantage against Famous Brands and MFC. The fourth claim alleged negligent
interference with prospective economic advantage against Famous Brands and MFC.
The fifth claim alleged breach of the implied covenant of good faith and fair dealing
against Fields Franchising and Famous Brands.
MFGPC’s motion for TRO and preliminary injunction
On February 27, 2015, MFGPC filed a motion for temporary restraining order
and preliminary injunction “prohibiting [Fields Franchising] from interfering with the
right and ability of MFGPC to sell pre-packaged popcorn products bearing the ‘Mrs.
Fields’ trademark and trade name” under the License Agreement. Id. at 72. The
district court held a hearing on the motion on March 30, 2015, and, at the conclusion
of the hearing, denied the motion.
The initial judgment in favor of Fields Franchising
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.” Mrs. Fields Franchising, LLC v. MFGPC, 721 F.
App’x 755, 757 (10th Cir. 2018). The district court subsequently issued an order
granting Fields Franchising’s motion for judgment and award of attorney fees.
This court’s reversal and remand
MFGPC appealed. On January 8, 2018, this court issued an order and
judgment (a) affirming Fields Franchising’s voluntary dismissal of its claim for
11
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.” Id.The parties’ summary judgment motions
On remand, the parties moved for summary judgment with respect to
MFGPC’s counterclaim for breach of contract. On August 20, 2018, the district court
issued a memorandum decision and order denying Fields Franchising’s motion for
summary judgment and granting in part MFGPC’s motion for summary judgment.
The district court found that (a) “MFGPC paid the Guaranteed Royalty in full during
the Initial Term,” (b) “[i]n June 2008, at the end of the Initial Term, the Agreement
automatically renewed for a five-year Option Period that ran from June 1, 2008 to
April 30, 2013,” (c) “[t]he parties continued to perform under the Agreement, and it
automatically renewed for another five-year Option Period in June 2013 that ran from
June 1, 2013 to April 30, 2018.” Aplt. App., Vol. 2 at 317. The district court in turn
concluded that the December 22, 2014 letter sent by Fields Franchising’s counsel to
MFGPC “was inaccurate for a number of reasons.” Id. To begin with, the district
court noted, “there was no requirement that MFGPC pay ‘a Guaranteed Royalty of
$100,000 a year.’” Id. Rather, the district court concluded, “[t]he Guaranteed
Royalty [wa]s defined as four payments that MFGPC was required to make during
the Initial Term.” Id. Second, the district court concluded that “[t]he second Option
Period ended in 2013, not 2012.” Id. Third, the district court concluded that the
12
License “Agreement did automatically renew at the end of the second Option Period,
and MFGPC therefore retained a license to manufacture and sell ‘Mrs. Fields’
branded popcorn.” Id. at 317–18 (emphasis in original). Fourth, the district court
concluded that “the Agreement could not be terminated ‘pursuant to Section 16(b)(ii)
[based on] MFGPC’s failure to pay Guaranteed Royalties,’ because MFGPC had paid
the Guaranteed Royalty in full.” Id. at 318. The district court noted that, although
MFGPC’s counsel sent a letter to Fields Franchising on January 19, 2015, explaining
the inaccuracies in Fields Franchising’s counsel’s December 22, 2014 letter, Fields
Franchising “never responded and instead filed suit less than a month later.” Id. at
319.
The district court in turn concluded that Fields Franchising’s “actions—
sending the notice of termination [letter] and then refusing to respond to MFGPC’s
letter—unequivocally indicated that [Fields Franchising] no longer intended to
perform under the [License] Agreement.” Id. at 332. The district court further
concluded that Fields Franchising “had no right to terminate the [License] Agreement
under Section 16(b)(ii) because MFGPC had paid the Guaranteed Royalty in full.”
Id. The district court rejected, as inconsistent “with the plain language of the
[License] Agreement,” Fields Franchising’s assertion “that MFGPC was required to
pay ‘Running Royalties in an amount equal to the Guaranteed Royalty’ during the
Option Periods.” Id. The district court also concluded that, “[b]ecause Section
16(b)(ii) [wa]s not applicable,” Fields Franchising “would need to rely on either
Section 16(b)(i) or (b)(iii) to justify the notice of termination.” Id. at 334. “But
13
neither” of those subsections, the district court noted, gave Fields Franchising “the
right to terminate the Agreement effective immediately, so [Fields Franchising]
necessarily breached the Agreement by purporting to terminate it immediately.” Id.Lastly, the district court rejected Fields Franchising’s assertion that MFGPC had
breached the License Agreement in other ways, including by failing to pay Running
Royalties. The district court noted that “[t]he undisputed testimony of [MFGPC’s
CEO] establishe[d] that the parties had a practice of offsetting amounts [Fields
Franchising or its affiliates] owed for popcorn against the amount MFGPC owed in
Running Royalties.” Id. at 335.
Ultimately, the district court concluded that MFGPC “ha[d] established the
first three elements of its counterclaim: (1) the parties’ relationship was governed by
a valid contract, the Licensing Agreement; (2) MFGPC substantially performed under
the Agreement; and (3) [Fields Franchising] improperly repudiated the Agreement,
thereby committing an actionable breach.” Id. at 340. The district court further
concluded that “[t]he only issue that remain[ed] [wa]s damages.” Id. And the district
court concluded that the damages issue had to “be resolved through a subsequent
motion or at trial.” Id. at 339.
MFGPC’s motion for preliminary injunction
On October 13, 2018, MFGPC filed a motion for temporary restraining order
and preliminary injunction seeking specific performance of the License Agreement.
In its motion, MFGPC asserted that Fields Franchising was “continu[ing] to license
and market competing products using the Trademark in contravention of the terms of
14
the . . . License Agreement.” Id. at 345. MFGPC further asserted that it would suffer
irreparable harm unless the district court ordered Fields Franchising
to once again recognize [MFGPC] as the exclusive worldwide
manufacturer and distributor of Mrs. Fields-branded popcorn, forward
all popcorn orders to [MFGPC], resume sales and orders of [MFGPC’s]s
products for their stores, and cease manufacturing, purchasing, and
ordering popcorn from competitors.
Id. at 345–346. Fields Franchising opposed MFGPC’s motion.
The district court held a hearing on MFGPC’s motion on January 14, 2019.
On March 20, 2019, the district court issued a memorandum decision and order
granting a preliminary injunction in favor of MFGPC. The district court found, in
pertinent part, that “[t]he rights granted to MFGPC under the . . . License Agreement
[we]re valuable to MFGPC because . . . MFGPC’s license was effectively perpetual
absent material breach . . . .” Id., Vol. 5 at 870. The district court in turn concluded
that “[c]alculating damages for [Fields Franchising’s] wrongful termination of
MFGPC w[ould] be difficult, if not impossible.” Id. at 871. The district court noted,
in part, that “[c]alculating damages for permanent deprivation of the license w[ould]
be practically impossible and would require speculation because there [wa]s no
comparable transaction in the marketplace,” and because “proxy measures like prior
performance [we]re of limited use because they [we]re tainted by the great recession
preceding the breach and by a fire that significantly disrupted MFGPC’s ability to
ship its product.” Id. at 871–72. The district court therefore concluded it was
“highly unlikely that MFGPC could be made whole through an award of money
damages because (a) it would be difficult if not impossible to accurately calculate the
15
damages to MFGPC of being permanently deprived of the right to use the Mrs. Fields
Trademark for popcorn; and (b) no license for a comparable brand on such favorable
terms could be obtained.” Id. at 876–77. Ultimately, the district court concluded that
“MFGPC ha[d] established a strong likelihood that [the district] court w[ould] order
specific performance by [Fields Franchising] of the . . . License Agreement.” Id. at
878. “Thus,” the district court “conclude[d] that MFGPC [wa]s likely to succeed on
the merits of its claim for equitable relief.” Id.As for irreparable harm, the district court concluded that, “[i]n the absence of
an injunction, MFGPC w[ould] be deprived of an opportunity to distribute a unique
product—Mrs. Fields-branded popcorn.” Id. at 879. In other words, it concluded,
Fields Franchising “would be free to license to other third-parties, and MFGPC
would suffer a further diminishment of its competitive position in the marketplace.”
Id. The district court also concluded that “MFGPC (and the court) would have
extreme difficulty calculating damages for the future and permanent deprivation of
MFGPC’s right to exclusive use of the Trademark for selling Mrs. Fields Branded
Popcorn,” and “[t]he speculative nature of calculating damages w[ould] only increase
over time.” Id. “Thus, the [district] court conclude[d] that MFGPC w[ould] suffer
irreparable harm if the temporary injunction w[as] denied.” Id.As for the balance of harms, the district court noted that Fields Franchising
“w[ould] be harmed because it w[ould] not be able to continue its business
relationship with Perfect Snax.” Id. The district court concluded, however, that
“[a]ny harm to [Fields Franchising] ar[ose] from either (1) [Fields Franchising’s]
16
initial breach of the . . . License Agreement, or (2) [Fields Franchising’s] decision to
reinstate the Perfect Snax Agreement after [the district] court granted MFGPC’s
motion for Summary Judgment against Mrs. Fields.” Id. at 880 (emphasis in
original). The district court also noted that Fields Franchising “wrongly breached the
Agreement with MFGPC in attempting to terminate the Agreement.” Id. The district
court concluded that, “[i]n light of its behavior, [Fields Franchising could not] rely
on the harm that w[ould] be caused by the termination of its agreement as a reason
for denying an injunction.” Id. The district court also concluded that Fields
Franchising could not “rely on any harm to Perfect Snax” because Fields Franchising
“ha[d] the contractual right to terminate its licensing agreement with Perfect Snax
based on Perfect Snax’s failure to abide by the terms of that agreement.” Id. The
district court further noted that “any harm to Perfect Snax arising from an injunction
was caused by [Fields Franchising] and not MFGPC.” Id. The district court in turn
concluded that, “to the extent that Perfect Snax’s rights [would] be affected by an
injunction, Perfect Snax must seek compensation from [Fields Franchising].” Id. at
881.
Lastly, the district court “conclude[d] that the public has a strong interest in
honoring and enforcing lawful contractual obligations,” and that “[t]he public interest
favor[ed] the issuance of MFGPC’s requested injunction, especially as this injunction
will discourage [Fields Franchising] from engaging in the type of behavior it has in
the past.” Id.17
The district court ordered Fields Franchising to, within thirty days of the date
of the order, (a) “refrain from using the Mrs. Fields Trademark in association with
Mrs. Fields-branded popcorn in accordance with the . . . License Agreement,” (b)
“refrain from licensing any third parties to use the Mrs. Fields Trademark in
association with Mrs. Fields-branded popcorn,” “(c) “terminate any licenses and
purported licenses to third parties to manufacture, market, and sell Mrs. Fields-
branded popcorn,” (d) “recognize MFGPC as the exclusive worldwide licensee and
source of Mrs. Fields-branded popcorn,” (e) “enforce MFGPC’s exclusive right to
use the Trademark in the world-wide territory in good faith,” (f) “forward all orders
received for Mrs. Fields-branded popcorn to MFGPC for fulfillment,” (g) “if [Fields
Franchising] chooses to sell Mrs. Fields-branded popcorn, to resume selling
exclusively MFGPC-manufactured Mrs. Fields-branded popcorn; and (h) “remove or
cause to be removed all competing Mrs. Fields-branded popcorn using the Mrs.
Fields Trademark from sale, including from all retailers and online distributors,
worldwide.” Id. at 882–883.
Fields Franchising’s notice of appeal
Fields Franchising filed a timely notice of appeal from the district court’s
memorandum decision and order granting preliminary injunction in favor of MFGPC.
III
Fields Franchising argues in this appeal that the district court erred in granting
a preliminary injunction in favor of MFGPC. In support, Fields Franchising argues
that the district court erred in finding that the License Agreement afforded MFGPC a
18
“perpetual license.” Fields Franchising further argues that the district court erred in
its analysis of each of the requirements for imposition of a preliminary injunction.
As discussed below, we agree with Fields Franchising that the district court erred in
finding that the License Agreement afforded MFGPC a “perpetual license.” And we
in turn conclude that this error fatally infected the district court’s analysis of the
requirements for imposing a preliminary injunction
Legal standards governing preliminary injunctions
“‘A preliminary injunction is an extraordinary remedy, the exception rather
than the rule.’” Free the Nipple–Fort Collins v. City of Fort Collins, Colo., 916 F.3d
792, 797 (10th Cir. 2019) (quotations omitted). “To succeed on a typical
preliminary-injunction motion, the moving party needs to prove four things: (1) that
she’s ‘substantially likely to succeed on the merits,’ (2) that she’ll ‘suffer irreparable
injury’ if the court denies the injunction; (3) that her ‘threatened injury’ (without the
injunction) outweighs the opposing party’s under the injunction, and (4) that the
injunction isn’t adverse to the public interest.’” Id. (quoting Beltronics USA, Inc. v.
Midwest Inventory Distrib., LLC, 562 F.3d 1067, 1070 (10th Cir. 2009)).
“But courts ‘disfavor’ some preliminary injunctions and so require more of the
parties who request them.” Id. (citing Schrier v. Univ. of Colo., 427 F.3d 1253,
1258–59 (10th Cir. 2005)). “Disfavored preliminary injunctions don’t merely
preserve the parties’ relative positions pending trial.” Id. “Instead, a disfavored
injunction may exhibit any of three characteristics: (1) it mandates action (rather than
prohibiting it), (2) it changes the status quo, or (3) it grants all the relief that the
19
moving party could expect from a trial win.” Id. “To get a disfavored injunction, the
moving party faces a heavier burden on the likelihood-of-success-on-the-merits and
the balance-of-harms factors: She must make a strong showing that these tilt in her
favor.” Id. (quotations omitted).
“District courts have discretion over whether to grant preliminary injunctions,
and we will disturb their decisions only if they abuse that discretion.” Id. at 796
(citations omitted). “A district court’s decision crosses the abuse-of-discretion line if
it rests on an erroneous legal conclusion or lacks a rational basis in the record.” Id.
“As we review a district court’s decision to grant or deny a preliminary injunction,
we thus examine the court’s factual findings for clear error and its legal conclusions
de novo.” Id. at 796–797.
The district court’s erroneous finding of a “perpetual license”
We begin our analysis by turning to the factual findings made by the district
court in its memorandum decision and order granting a preliminary injunction in
favor of MFGPC. Most of those findings simply recount the history of the
relationship between Fields Franchising and MFGPC and are undisputed. One key
finding, however, is disputed by Fields Franchising. In Paragraph 23 of its factual
findings, the district court stated: “The rights granted to MFGPC under the
Trademark License Agreement are valuable to MFGPC because . . . MFGPC’s
license was effectively perpetual absent material breach . . . .” Aplt. App., Vol. 5 at
870 (emphasis added). Fields Franchising argues, and we agree, that this finding is
20
clearly erroneous because the License Agreement did not, in fact, afford MFGPC a
perpetual license.
Section 16 of the License Agreement was titled “TERM AND
TERMINATION.” Id., Vol. 1 at 57. Section 16(a), entitled “Term,” specified that
“[t]he initial term of th[e] Agreement” was sixty months. Id. Section 16(a) in turn
stated that, “[s]o long as [MFGPC] was not in material default,” the Agreement
“would then automatically renew for successive five year terms (‘Option Periods’)
until such time as either party terminates the Agreement upon no more than twenty
(20) days prior written notice to the other party.” Id. In other words, this provision
of Section 16(a) allowed either party to prevent the License Agreement from
renewing at the end of each five-year period even in the absence of default or breach.
Section 16(b), entitled “Termination,” outlined a set of six specific circumstances
under which Fields Franchising and MFGPC could otherwise terminate the License
Agreement (as opposed to preventing it from renewing). Id. For example, Section
16(b)(iv) authorized Fields Franchising to terminate the License Agreement at any
time if MFGPC was “determined to be insolvent” or “file[d] a petition in
bankruptcy.” Id. Read as a whole, Section 16 authorized Fields Franchising and
MFGPC (a) to prevent the License Agreement from renewing at the end of each five-
year period, and (b) to terminate the License Agreement at other points in time if
specific circumstances occurred. In other words, as Fields Franchising asserts in its
opening brief, reading Section 16 as a whole “means that the [License] Agreement
c[ould] be terminated without cause prior to each five-year renewal and mid-term,
21
[and] with cause only upon specified [circumstances and] procedures.” Aplt. Br. at
31.
Thus, contrary to the district court’s finding, nothing in Section 16 afforded
MFGPC a “perpetual license.” Rather, at best, MFGPC could have reasonably
expected only to continue using the license so long as Fields Franchising was
interested in allowing the License Agreement to automatically renew, and so long as
none of the specific circumstances outlined in Section 16(b) occurred and prompted
Fields Franchising to terminate the License Agreement. As the undisputed facts
make clear, however, Fields Franchising clearly did not intend to proceed with the
License Agreement and it notified MFGPC of this fact. Even though Fields
Franchising may have breached the License Agreement by failing to comply with the
non-renewal procedure outlined in Section 16(a),2 it is apparent that Fields
Franchising would not have allowed the License Agreement to renew again. Indeed,
we essentially noted this fact in our earlier opinion: “the [L]icense [A]greement
would have allowed MFGPC to continue to sell the popcorn for roughly [2.5] more
years in the absence of a termination” by Fields Franchising. Mrs. Fields
Franchising, 721 F. App’x at 760–761.
2
The district court reached this conclusion in granting summary judgment in
favor of MFGPC on its breach of contract claim. Because that ruling is not before us
in the interlocutory appeal, we do not reach the merits of it. Instead, we simply
assume, without deciding, that Fields Franchising’s actions breached the License
Agreement.
22
As we shall proceed to discuss, the district court’s erroneous finding that the
License Agreement afforded MFGPC a “perpetual license” impacted its analysis of
MFGPC’s likelihood of success on the merits and the existence of irreparable harm.
More specifically, we conclude that the district court’s analysis of both of these
requirements is fatally flawed.
Likelihood of success - specific performance
The district court concluded that MFGPC “met its burden of showing a
likelihood that the court w[ould] order [Fields Franchising] to reinstate the
[L]icens[e] [A]greement with MFGPC.” Aplt. App., Vol. V at 875. In support of
this conclusion, the district court noted that, “[u]nder Utah law, a party seeking
specific performance must prove 1) that a contract exists; 2) that the essential terms
of the contract are clear and definite; and 3) that there is no adequate remedy at law.”
Id. (citing Tooele Assocs. Ltd. v. Tooele City, 251 P.3d 835, 835 (Utah 2011) and
South Shores Concession v. State, 600 P.2d 550, 552 (Utah 1979)). Focusing on the
last prong of this test, the district court concluded that calculating “damages due to”
Fields Franchising’s breach of the License Agreement would be “very difficult, if not
impossible.” Id. at 876. More specifically, the district court concluded it was
“highly unlikely” that “MFGPC could be made whole through an award of money
damages because . . . it would be difficult if not impossible to accurately calculate the
damages to MFGPC of being permanently deprived of the right to use the Mrs. Fields
Trademark for popcorn . . . .” Id. at 876–77 (emphasis added). The district court
23
also concluded that “no license for a comparable brand on such favorable terms could
be obtained.” Id. at 877.
Fields Franchising argues on appeal, and we agree, that the district court’s
likelihood of success analysis was flawed because it rested, in significant part, on the
erroneous finding that the License Agreement afforded MFGPC a perpetual license.
Specifically, the district court’s reference to “permanent deprivation” quite clearly
rested on the district court’s finding that the License Agreement gave MFGPC a
“perpetual license.” Although we have no doubt that it would be difficult to calculate
damages for a permanent deprivation of a license, that is simply not the case here.
Rather, as this court previously noted, it appears that MFGPC’s damages will be
limited to a period of approximately two-and-a-half years (i.e., the remainder of the
third five-year term of the License Agreement). And, as we shall discuss below, we
are not persuaded that calculating such damages will be impossible. Consequently,
we conclude the district court erred in determining that MFGPC established a strong
likelihood that it will prevail on its claim for specific performance.
Irreparable harm
Generally speaking, the “breach of an exclusivity clause almost always
warrants the award of injunctive relief.” Dominion Video Satellite, Inc. v. Echostar
Satellite Corp., 356 F.3d 1256, 1262 (10th Cir. 2004). That said, “the breach of an
exclusivity provision alone” does not “satisf[y] the irreparable harm factor of the
preliminary injunction test.” Id. In other words, “[d]espite the general
acknowledgment that irreparable harm often arises from the breach of [an
24
exclusivity] agreement, courts do not automatically, nor as a matter of course, reach
this conclusion.” Id. at 1263. “Rather, they have identified the following as factors
supporting irreparable harm determinations: inability to calculate damages, harm to
goodwill, diminishment of competitive positions in marketplace, loss of employees’
unique services, the impact of state law, and lost opportunities to distribute unique
products.” Id. (citing cases).
Here, the district court concluded that MFGPC “w[ould] be irreparably harmed
should the court fail to enter an injunction.” Aplt. App., Vol. 5 at 878. In support of
this conclusion, the district court stated, in pertinent part: “MFGPC (and the court)
would have extreme difficulty calculating damages for the future and permanent
deprivation of MFGPC’s right to exclusive use of the Trademark for selling Mrs.
Fields Branded Popcorn.” Id. at 879 (emphasis added). The district court also stated
that the terms of the License Agreement were “unusually licensee-friendly and would
be difficult, if not impossible, to obtain in today’s licensing environment.” Id. at
871.
These references, we conclude, indicate that the district court rested its
irreparable harm analysis, at least in part, on its erroneous finding that the License
Agreement afforded MFGPC a perpetual license. MFGPC could only have suffered a
“permanent deprivation” if the License Agreement afforded it a perpetual license. As
previously discussed, however, the License Agreement did not do so. As for the
district court’s reference to “unusually license-friendly” terms, the district court did
not identify what those terms were, and we, having carefully examined the License
25
Agreement, are left to conclude that the district court was referring only to its
erroneous conclusion that the License Agreement afforded MFGPC a perpetual
license. Even assuming, for purposes of argument, that the License Agreement was
“unusually licensee-friendly” in some other respect, the fact remains that the License
Agreement was not permanent in nature and it expressly afforded Fields Franchising
the right to terminate it. Thus, we conclude that the difficulty that MFGPC may face
in obtaining a similar agreement with another company simply is not a proper factor
to consider in determining whether irreparable harm exists.
The district court also, in discussing the issue of irreparable harm, pointed to
two other factors. First, the district court 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.” Aplt. App.,
Vol. 5 at 876. Second, and relatedly, the district court noted that “there [we]re no
comparable products from which [MFGPC’s] damage could be estimated.” Id. We
are not persuaded, however, that these factors support the district court’s irreparable
harm determination.
Generally speaking, “evidence of past profits in an established business” is the
best “proof of future profits.” Palmer v. Conn. Ry. & Lighting Co., 311 U.S. 544,
559 (1941). Here, it is undisputed that the parties operated under the terms of the
License Agreement for nearly twelve years. Presumably, MFGPC’s financial
statements for all of those years are or will be available to the district court for
26
assistance in calculating MFGPC’s damages.3 The district court questioned the
validity of such proof in this case “because,” it stated, “the great recession and the
warehouse fire reduced [MFGPC’s] profits prior to [Fields Franchising’s] breach.”
Aplt. App., Vol. 5 at 876. It is unclear to us, however, how the district court arrived
at this conclusion. The “great recession” mentioned by the district court did not
begin until approximately December of 2007, more than four years into the original
term of the License Agreement, and ended in June of 2009, approximately four-and-
a-half years prior to Fields Franchising’s decision to terminate the License
Agreement. See Robert Rich, The Great Recession (Nov. 22, 2013),
federalreservehistory.org/essays/great_recession_of_200709. Precisely why the
years prior to or following the recession cannot serve as a reasonable proxy to
determine MFGPC’s damages is unclear and was not discussed at all by the district
court. Similarly, the warehouse fire that was mentioned by the district court did not
occur until January 13, 2013, 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 leaves 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
3
According to Fields Franchising, the record before the district court included
MFGPC’s “financial statements for the six years pre-termination showing its
revenues, costs and profits for each year.” Aplt. Br. at 25. There is no suggestion by
MFGPC that additional years of financial statements are unavailable.
27
calculating damages.4 Nothing in the record or in MFGPC’s briefs persuades us that
this data cannot serve as a reasonable measure of MFGPC’s damages.
As for the purported lack of comparable products, we conclude that is
irrelevant, given the fact that there appears to be a wealth of actual data regarding the
sales of MFGPC’s own products.
For these reasons, we conclude that the district court’s irreparable harm
analysis was flawed and that, contrary to its conclusion, MFGPC failed to establish
the existence of irreparable harm.
Balance of harms and public interest
Having concluded that MFGPC failed to establish a likelihood of success on
the merits of its claim for specific performance, or, relatedly, the existence of
irreparable harm, it is unnecessary for us to address the remaining two requirements
for the imposition of a preliminary injunction.
III
We therefore REVERSE the preliminary injunction entered by the district
court in favor of MFGPC.
4
The period from April 2003 until December 2007 (excluding December
2007) yields a total of four years and eight months. The period from June 2009
through January 2013 (excluding January 2013) yields a total of three years and
seven months. Together, this results in a total of eight years and three months.
28