Tserpelis v. Mister Softee, Inc. , 106 F. Supp. 2d 423 ( 1999 )

106 F. Supp. 2d 423 (1999)

George TSERPELIS, Michael Karanasios, and Susan Anastakos, As Mobile Soft Ice Cream Truck Franchisees of Mister Softee, Inc., Plaintiff,
v.
MISTER SOFTEE, INC.; Mister Softee Eastern New York Division, Inc.; Ro-Fi Corporation; C & C Distributors, Inc.; and Cones & Things, Inc., Defendants.

No. CV-99-2641 JM.

United States District Court, E.D. New York.

September 8, 1999.

Andrew B. Schultz, Lake Success, NY, for the plaintiff.

David J. Sutton, Garden City, NY, Tartamella, Tartamella & Fresolone, Hauppauge, NY, for the defendant.

Memorandum of Decision and Order

MISHLER, District Judge.

Plaintiffs move pursuant to Fed.R.Civ.P. 65, for a preliminary injunction enjoining, restraining and prohibiting the defendants from:

(A) terminating or attempting to terminate plaintiffs' present franchisee relationships with defendants as "Mister Softee" mobile soft ice cream truck franchisees;

(B) harassing, vandalizing, threatening or interfering in any way, directly or indirectly, with plaintiffs' operation, storage or maintenance of plaintiffs' "Mister Softee" mobile soft ice cream trucks; and

(C) interfering, directly or indirectly, with plaintiffs' own purchasing and obtaining of all supplies, items, goods and services, relating to operation of plaintiffs' "Mister Softee" mobile soft ice cream trucks, from manufacturers, wholesalers, distributors and suppliers other than defendants.

THE PARTIES

DEFENDANTS

Mister Softee, Inc. owns the trademark and trade name "Mister Softee." Mr. Softee franchises Mister Softee mobile ice cream trucks selling soft ice cream and other products to the public. Approximately 560 Mister Softee trucks sell Mister Softee soft ice cream in Connecticut, Delaware, Georgia, Illinois, Maryland, New Jersey, New York, Ohio, Pennsylvania and Virginia.

Mr. Softee Eastern New York Division, Inc., ("Softee E.N.Y.") is Mr. Softee's distributor in Queens, Nassau and Suffolk Counties.

Ro-Fi Corporation is an operating entity of Softee E.N.Y.

C & C Distributors, Inc. and Cones & Things, Inc. provide and supply Mister Softee franchises with merchandise and goods.

PLAINTIFFS

George Tserpelis purchased his truck and route from Ronald Baretela, a Mister Softee franchisee, in July 1997. He presently operates two Mr. Softee trucks in Jackson Heights in the Borough of Queens. Baretela assigned his Dealer Franchise Agreement to Tserpelis on or about July 18, 1997.

Michael Karanasios and Susan Karanasios purchased their trucks and route from Nicholas Mavidas, Mister Softee franchisee, on or about July 5, 1996. They operate three Mister Softee trucks in Jackson Heights in the Borough of Queens.

The Dealer Franchise Agreements under which plaintiffs received the right to sell Mister Softee soft ice cream and other products provides in pertinent part:

8. Assignment.

The franchise granted by this agreement is not assignable by Dealer except upon the following terms:

(a) Dealer shall first obtain the written consent of Distributor and Mister Softee, Inc.

(b) The purchaser shall be a financially responsible person acceptable to Distributor and Mister Softee, Inc.

(c) The purchaser shall enter into a new Dealer Franchise Agreement with Distributor in the form then current, before financing and sale contract have been completed and executed and title has been transferred.

* * * * * *

4. REQUIREMENTS OF DEALER

(a) In view of the fact that the consumer brand name "Mister Softee" and the "Mister Softee" ice cream truck franchises have been made valuable through the efforts of hundreds of "Mister Softee" Dealers in conforming to uniform plans, procedures and policies in conducting the "Mister Softee" mobile ice cream and frozen dessert business for the sale of soft-service ice cream, hard ice cream, frozen desserts, novelties, stick items and other products specifically approved and authorized by Mister Softee, Inc., Dealer agrees to maintain and operate his "Mister Softee" truck(s) in strict conformance with the plans, procedures and policies therefor from time to time prescribed by Mister Softee, Inc. and Distributor.

* * * * * *

(e) Dealer agrees to purchase all supplies which are to be distributed to the consuming public (with or without processing) from: (a) Mister Softee, Inc., (b) an approved supplier of Mister Softee, Inc.; or (c) Any supplier whose product meets the standards and specifications set by Mister Softee, Inc. from time to time for a particular item.

With respect to the purchase by dealer of ice cream and/or ice milk mix, and notwithstanding anything to the contrary contained herein, the ice cream and/or ice milk mix shall comply with the standards and specifications set by Mister Softee, Inc. for the specific geographic area at the time of purchase. Mister Softee, Inc. shall have the right to request a sample from the Dealer of supplies utilized by the dealer for testing by Mister Softee, Inc. Dealer shall have the right to request Mister Softee, Inc. to test any item, at Dealer's expense, to determine whether it meets the current standards and specifications. Mister Softee, Inc. shall furnish Dealer upon Dealer's written request, delivered by Certified Mail, return receipt requested, or by personal delivery with written acknowledgment of receipt obtained from Mister Softee, Inc., its standards and specifications for any item of supply and its list of authorized suppliers. The failure of Mister Softee, Inc. to provide such written standards and specifications or list of authorized suppliers to Dealers within even (7) days from Dealer's written request shall permit Dealer to purchase such item of supply from any source reasonably deemed by the Dealer to be comparable to products sold by Mister Softee, Inc. or its authorized suppliers.

11. TERM

This Agreement shall continue in force for twenty years from its date and may be extended by Dealer for one additional period of ten years upon ninety days written notice to Distributor and Mister Softee, Inc., prior to the end of said terms.

THE COMPLAINT

The complaint alleges a violation of the Sherman Act, 15 U.S.C. § 1.^[1]

The alleged violation of the Sherman Act is based on the refusal of Mister Softee to issue a Dealer Franchise Agreement to plaintiffs upon the same terms and conditions contained in the agreements issued to Baretela and Mavidas. The complaint alleges the violation as follows:

29. In or about late 1998 or early 1999, defendants submitted a revised proposed franchise agreement to plaintiffs, which differed from the pre-existing Exhibit B in at least three material respects: (1) the proposed term was changed from 20 years with a 10 year renewal; to 10 years with a 5 year renewal; and (2) the franchisees would be precluded from buying supplies from "any supplier" whose products met Mister Softee, Inc. "standards and specifications" for the non-proprietary and nonsecret ice cream product mix approved by Mister Softee, Inc. for over 40 years; and (3) plaintiffs would be forced to utilized (sic) defendant's hand-picked "depot" instead of having reasonable choice to arrange appropriate depot facilities elsewhere.

30. Instead, franchisees such as plaintiffs would be forced into an illegal "tying arrangement" by which they would be required to buy all ice cream products and mix and supplies from and through defendants themselves, although defendants do not manufacture any of the mix and supplies but obtain it from defendants' designated sources; and would be forced to use only defendants' hand-picked depot operated by defendants' own representatives such as Richard Zoly.

The Court held an evidentiary hearing. The following background facts, contained in the affidavit of James F. Conway, Jr., General Manager of Mister Softee, are not in dispute:

Mister Softee is the franchisor of Mister Softee mobile ice cream truck businesses which sell soft-service ice cream and other products from ice cream trucks. Mister Softee franchisees operate in Connecticut, Delaware, Georgia, Illinois, Maryland, New Jersey, New York, Ohio, Pennsylvania and Virginia.

Mister Softee franchisees are licensed to use Mister Softee's trade names, service marks and trademarks and to operate under the Mister Softee business system, using specifically designed mobile trucks with special equipment, equipment layouts, interior and exterior accessories, menu displays, identification schemes, products, standards, specifications, proprietary marks and information. The relationship between Mister Softee and its franchisees is governed by the terms and conditions of the Mister Softee Dealer Franchise Agreement entered into between Mister Softee or its distributor and each franchisee.

Mister Softee owns the trademarks "Mister Softee" and related logos which are registered on the Principal Register of the United States Patent and Trademark Office at Registration Nos. 2128918, 0667335 and 0663456. Mister Softee also has a trademark application pending for the sensory mark which consists of the Mister Softee musical jingle (Serial Number XX-XXXXXX). Mister Softee also created and uses the marks "Tu-Tone Cone", "Twinkletop Conehead", "Cherry Top Conehead", "Chocolate Top Conehead" and "Devil's Delight Conehead". Mister Softee first began using its marks and trade dress in 1956 and first registered the above marks in 1958. The Mister Softee musical jingle was composed for Mister Softee in 1960.

Mister Softee has spent over 1.5 million dollars developing and promoting its marks.

Mister Softee franchisees are required to execute a Mister Softee Dealer Franchise Agreement for each truck the franchisee operates. A copy of Mister Softee's current Franchise Agreement is attached as Exhibit "A."^[2]

Among other things, the standard Mister Softee Dealer Franchise Agreement requires the franchisee to purchase ice cream mix and supplies from either Mister Softee or Mister Softee's approved supplier.

Mister Softee franchisees are required to purchase their ice cream mix and related supplies from Mister Softee or Mister Softee's approved suppliers. This purchase requirement enables Mister Softee to ensure that the ultimate consumer obtains a quality product.

Conway worked with Pramelait Welsh Farms ("Welsh Farms") to develop a proprietary 8% butterfat soft serve mix. A product was developed with Welsh Farms in which the soft serve mix would be 8%.

Welsh Farms has been Mister Softee's approved supplier since the late 1960's in all areas in Pennsylvania, New Jersey, New York and Delaware, except for the area of New York City, New York.

In that area, Horstmann's Mix & Cream, Inc. ("HMC") had been Mister Softee's supplier since the late 1950's.

In 1997, Mister Softee began receiving complaints from franchisees regarding the quality of HMC's mix. Specifically, Mister Softee franchisees complained that the mix was not always tip to standards.

As a result of the complaints Mister Softee received regarding HMC, Mister Softee felt it necessary, to protect the good will associated with its trademark, to switch to Welsh Farms.

Historically, Welsh Farm's mix has always been cheaper than HMC's mix. For example, in September 1998, Welsh Farms was selling its mix to wholesale distributors for $20.83 per case and HMC was selling it's mix for $26.00 per case. This year, when Mister Softee switched their approved supplier from HMC to Welsh Farms, HMC lowered its mix to a price below that offered by Welsh Farms and offered to sell direct to retail customers (i.e., Mister Softee franchisees).

PLAINTIFFS' POSITION

Plaintiffs claim that the Dealer Franchise Agreement that Mister Softee executes:

(a) requires that they "buy all ice cream products and mix and supplies from and through defendants themselves ... [including tied products consisting of] toppings, syrups, bottled soft drinks and water, novelties and paper goods." (Aff. of George Trespelis, Esq., ¶ 30 and ¶ 38.)

(2) forced to use only defendants' handpicked depot operated by defendants' own representatives.

We dispose of plaintiffs' challenge to Mister Softee's requirement that the trucks remain at a specified depot overnight for inspection by defendant Ro-Fi Corporation. We find that such inspection and examination is reasonable and necessary. It provides Mister Softee with a means for determining whether the conditions in the preparation and sale of the soft ice-cream mix are complied with.

We turn to the claim of tied products.

DISCUSSION

The Court in Gonzalez v. St. Margaret's House Housing Dev. Fund, 880 F.2d 1514, 1516-17 (2d Cir.1989) defines "tying arrangement" and the basis of finding a Sherman Act violation as:

a tying arrangement is "an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product." Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 5, 78 S. Ct. 514, 518, 2 L. Ed. 2d 545 (1958). A seller violates the antitrust laws through a tying arrangement when it uses its market power over one product to "force" a consumer to purchase a second product. Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 12, 104 S. Ct. 1551, 1558, 80 L. Ed. 2d 2 (1984). In the past we have required allegations and proof of five specific elections before finding a tie illegal; first, a tying and a tied product, second, evidence of actual coercion by the seller that forced the buyer to accept the tied product; third, sufficient economic power in the tying product market to coerce purchaser acceptance of the tied products; fourth, anticompetitive effects in the tied market; and fifth, the involvement of a "not insubstantial" amount of interstate commerce in the "tied" market. Yentsch v. Texaco, Inc., 630 F.2d 46, 56-57 (2d Cir.1980).

Plaintiffs contend that the Mister Softee trademark is a tying product and the soft ice cream mix is a tied product. We are guided by the principle that clearly shows that the trademark Mister Softee and the ice cream mix are inseparable and reject the plaintiffs' contention. The use of a trademark as the tying product is discussed by the Court in Power Test Petroleum Distributors v. Calcu Gas, 754 F.2d 91, 96-97 (2d Cir.1985):

The "metes and bounds" of a trademark are defined by the perceptions that exist in the minds of the relevant buying public. It is this customer perception which decides what property rights the trademark owner has. These property rights are often infringed; and what may be thereby impaired is both the consumer's right to be free from confusion and the trademark owner's right to a non-confused consumer and to control of his product's reputation. See 1 McCarthy, Trademarks and Unfair Competition, § 2.6 (2d ed.1984). This court many years ago stated:

[T]rademark is not a property in the ordinary sense but only a word or symbol indicating the origin of a commercial product. The owner of the mark acquires the right to prevent the goods to which the mark is applied from being confused with those of others and to prevent his own trade from being diverted to competitors through their use of misleading marks.

Industrial Rayon Corp. v. Dutchess Underwear Corp., 92 F.2d 33, 35 (2d Cir. 1937), cert. denied, 303 U.S. 640, 58 S. Ct. 610, 82 L. Ed. 1100 (1938).

Another way of putting it is that a trademark epitomizes the goodwill of a business. This creation and perpetuation of goodwill depends on customer recognition. The nature of good will is dictated by the consumer's desire to do business with the same seller. The buyer expects the same experience with each purchase — this is the reason d'etre for the sale. We need not know the specific reason behind the goodwill, only that it exists. Presumably, this is why independent businessmen such as Yonkers seek to obtain a license from a trademark owner and "pay for the privilege that gives a reasonable expectancy of preference." McCarthy, supra at § 2.8.

* * * * * *

The facts found below show that, under these trademark principles stressing the perception of the consuming public, the trademark and the product in this case are inseparable. The only product ultimately sold, the gasoline, comes from appellee Power Test, and, as the district court found, "[t]his is precisely the product the consumer attaches to the trademark Power Test." That trademark is thus inseparably connected with the gasoline.

Mister Softee's right to require franchisees to purchase their ice cream mix and related supplies from Mister Softee's approved supplier is found in this court's decision in Esposito, et al., v. Mister Softee, et al. (unpublished) decided December 14, 1979:

[Ice Cream Formula]

The issue is a closer one regarding the Mister Softee mix. Maintaining the quality of this product is, of course, essential to the continuing success of Mister Softee. In a similar context, Judge Friendly has indicated:

Although instances of impossibility of control through specification may indeed be rare in cases involving the proper functioning of mechanical elements of a machine ... such cases are scarcely relevant to the problem of controlling something so unsusceptible of precise verbalization as the desired texture and taste of an ice cream cone or sundae; that Carvel was able to specify this to its source of supply, whose product it regularly checked, does not show that administration could be confined to 400 dealers.

Susser v. Carvel, 332 F.2d 505, 520 (2d Cir.1964) (majority opinion).

The tied products consist of toppings, syrups, bottled soft drinks and water, novelties and paper goods. The toppings (including sprinkles, chopped nuts and shredded coconut) served with soft ice cream, are part of the service of the tying product, i.e., the ice cream mix. The court does not determine the right of Mister Softee to designate the source of supply for paper towels, napkins, straws, spoons, etc. Pending the outcome of the present action on the merits, however, plaintiffs' purchase of such products on the open market will not be deemed by the Court to violate the Dealer Franchise Agreement.

THE STANDARD FOR ISSUANCE OF A PRELIMINARY INJUNCTION

The burden is on the plaintiffs to show: (a) that they are likely to suffer irreparable injury and (b) either (1) a likelihood of success on the merits, or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly in the movant's favor. Maryland Casualty Co. v. Realty Advisory Board, 107 F.3d 979, 984 (2d Cir.1997); Reuters Ltd. v. United Press International, 903 F.2d 904, 907 (2d Cir.1990).

Plaintiffs may avoid the irreparable harm they claim by executing the Dealer Franchise Agreement offered to them.^[3] They waive their claim by refusing to continue as Mister Softee dealers.

I find no likelihood of success on the merits. I also find no serious questions going to the merits to make them a fair ground for litigation.

Plaintiffs' motion for a preliminary injunction is denied, and it is

SO ORDERED.

NOTES

[1] The Sherman Act provides:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony.

[2] As noted above, the Baretela and Mavidas Dealer Franchise Agreements required the purchaser of the agreement to "enter into a new Dealer Franchise Agreement with Distributors in the form then current." (Par. 8(c)).

[3] The agreement is appended to this Memorandum of Decision and Order.