South Plains Sno, Inc. v. Eskimo Hut Worldwide, LTD. ( 2019 )

In The
Court of Appeals
Seventh District of Texas at Amarillo
No. 07-19-00003-CV
SOUTH PLAINS SNO, INC., APPELLANT
V.
ESKIMO HUT WORLDWIDE, LTD., APPELLEE
On Appeal from the 251st District Court
Randall County, Texas
Trial Court No. 73,454-C, Honorable Ana Estevez, Presiding
April 12, 2019
MEMORANDUM OPINION
Before QUINN, C.J., and CAMPBELL and PIRTLE, JJ.
This is an interlocutory appeal from the grant of a temporary injunction1 in a dispute
between a frozen-drink franchisor, appellee Eskimo Hut Worldwide, LTD, and one of its
franchisees, appellant South Plains Sno, Inc. The parties’ dispute centers on a frozen
drink marketed to the public as a to-go item. Their litigation began when South Plains
sued Worldwide alleging breaches of the franchise agreement. Worldwide filed a
1 See TEX. CIV. PRAC. & REM. CODE ANN. § 51.014(a)(4) (West Supp. 2018)
(providing appeal of an interlocutory order that grants or refuses a temporary injunction).
counterclaim also asserting breaches of the agreement. Worldwide sought a temporary
injunction which the trial court granted. We will overrule South Plains’ four appellate
issues and affirm the trial court’s injunction order.
Background
Worldwide president Kevin Morgan testified at the temporary injunction hearing
that Worldwide franchises Eskimo Hut convenience stores. The stores specialize in
selling frozen daiquiris to go, referred to in the record as “Eskimo Hut branded daiquiris.”
The company has more than twenty franchises with stores located in cities throughout
Texas. Morgan individually owns twelve stores. In 2014, South Plains became a
Worldwide franchisee under the Eskimo Hut brand. Hearing evidence showed South
Plains operates three Eskimo Hut stores in Lubbock.
Morgan explained in testimony that the Eskimo Hut frozen drink process begins
with a corn syrup “base mix” which Worldwide sells to its franchisees. The base mix,
water and, if desired, wine or another alcoholic beverage, 2 are combined and frozen. A
flavor of the customer’s selection is then added to create the desired drink.
While Worldwide approves the drink flavorings, the franchisee must supply the
alcohol, because for Worldwide to do so, according to Morgan, would not be legal.
Worldwide does not require franchisees to buy alcohol from a particular vendor nor does
it specify the type of alcohol franchisees may add to the drink mixture. The drink is mixed
according to Worldwide’s directions, but the franchisee determines what, if any, amount
2 Testimony at the hearing sometimes referred to the alcoholic beverage contained
in a daiquiri as wine and sometimes as alcohol. Henceforth we will use the word alcohol
for simplicity.
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of alcohol to add. Franchisees are not required to use alcohol at all in the frozen drinks
they sell.
According to Morgan’s testimony, South Plains has violated the franchise
agreement because it does not use the required base mix and flavors. There was hearing
evidence that South Plains has either stopped purchasing Worldwide’s base mix or is
purchasing an amount insufficient to prepare the drink product according to Worldwide’s
specifications. In his hearing testimony, Brad Salley, owner of South Plains, did not deny
that South Plains uses two ounces of Worldwide base mix in a drink batch rather than the
specified three gallons. On cross-examination he conceded, “I am not currently following
that exact recipe, no.”
Worldwide placed the franchise agreement in evidence at the hearing and on
appeal points to the following provisions as relevant:
Section 7.A. – Franchisee agrees to comply with the uniform standards for
quality, appearance, cleanliness, service, and promotion established from
time to time by [Worldwide]. Franchisee acknowledges that these
standards and the requirements of this Agreement are necessary,
reasonable, and desirable in order to preserve and enhance the identity,
reputation, and goodwill built by the Franchise System and the value of the
Franchise.
Section 7.D. – Franchisee agrees to promote, prepare, and sell only the
frozen drink and combinations as specified by [Worldwide] in the
Confidential Operating Manual, if any, and any operations bulletins supplied
by [Worldwide].
Section 7.F.(1) – Franchisee shall purchase only from [Worldwide] (if
offered directly to Franchisee by [Worldwide]) or from [Worldwide] approved
suppliers who have acquired such products through [Worldwide], all of its
requirements for frozen drink mixes and such other future products as may
then be required by Eskimo Hut Worldwide (collectively referred to as
“Required Products”).
Section 7.G.(1) – All drink products . . . shall be in full compliance with the
specifications set forth in the Confidential Operating Manual or any
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operations bulletins and . . . shall be purchased and procured by Franchisee
from either Eskimo Hut Worldwide (if offered by Eskimo Hut Worldwide),
from suppliers designated by [Worldwide], or from suppliers selected by
Franchisee and not disapproved in writing by [Worldwide].
Section 7.H. – Franchisee understands that it is essential to the proper
preparation of all frozen beverage menu items that Eskimo Hut Worldwide’s
methods of preparation (according to specifications prepared and supplied
by Eskimo Hut Worldwide) be used, and that they must be used as directed.
Franchisee agrees to adopt and use such changes and methods and
materials in the preparation of all frozen beverage menu items, if any, as
may be directed from time to time by Eskimo Hut Worldwide.
Morgan further testified it is important that each franchisee deliver a consistent
drink product. When asked how this is possible, given the franchisee’s control of the
alcohol added to the drink mixture, Morgan explained the base mix contains the sugars
that give the drink its unique taste.3 On cross-examination when asked about drink
inconsistency because each franchisee could use a different alcohol, Morgan responded,
“you can get very close where you wouldn’t be able to taste a difference.”
Morgan testified he had “no idea of the product” South Plains was delivering. He
found the fact “terrifying” because “if [South Plains] puts in some cheap product and the
drink tastes terrible, I am liable to lose customers for the rest of my life that I can’t ever
get back.” Morgan’s direct examination questioning concluded with the following
exchange:
Q. And we have talked about brand integrity. What risk does [Worldwide]
have if [South Plains] is selling a different product than the other Eskimo
Huts?
A. Well, the risk is huge. I don’t know what product it is. It could be a bad
product. It could be a cheap product. I mean, it might turn people off and
then they never visit another Eskimo Hut ever again. Those people are hard
Elsewhere in his testimony Morgan told the court “It is the sugars that we use that
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make our product our product.”
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to get in your doors and they are hard to keep. I mean, retail is a very
difficult business.
Q. And is there any way for [Worldwide] to calculate the potential damage
that it is going to suffer if [South Plains] continues to use unauthorized
product?
A. No.
After hearing the evidence, the trial court granted temporary injunctive relief for
Worldwide, prohibiting South Plains from:
i. Selling, and/or using non-Eskimo Hut base mix in any store operated by
South Plains under the Eskimo Hut trade name; and
ii. Preparing and selling frozen drink products in any manner other than as
specified by [Worldwide] in the Confidential Operating Manual or any
operations bulletins supplied by [Worldwide].
South Plains perfected its appeal.
Analysis
I. Legal Background
“A temporary injunction is an extraordinary remedy and does not issue as a matter
of right.” Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002) (op. on reh’g) (citing
Walling v. Metcalfe, 863 S.W.2d 56, 57 (Tex. 1993)). The standard for appellate review
of an order granting or denying an application for temporary injunction is abuse of
discretion. Id. A trial court abuses its discretion when it acts unreasonably or in an
arbitrary manner or without reference to any guiding rules and principals. Id. at 211. A
trial court does not abuse its discretion if some evidence reasonably supports its decision.
Id. In its review of a trial court’s order of temporary injunction, an appellate court does
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not resolve factual disputes. Bright Land & Cattle, LLC v. PG-M Int’l, LLC, No. 07-16-
00336-CV, 2017 Tex. App. LEXIS 2083, at *6 (Tex. App.—Amarillo Mar. 9, 2017, no pet.)
(mem. op.). Instead, potentially conflicting evidence is interpreted in the light most
favorable to the trial court’s decision. Id. All legitimate inferences drawn from the
evidence are also interpreted in the light most favorable to the trial court’s decision. Id.
A temporary injunction preserves the status quo of the subject matter of a suit
pending a final trial of the case on its merits. Camp v. Shannon, 162 Tex. 515, 348
S.W.2d 517, 519 (1961). “Consistent with the purposes of a temporary injunction, an
appeal of such an order does not present the merits of the underlying case for review, but
only whether the trial court abused its discretion in determining whether or not the
applicant is entitled to the preservation of the status quo pending determination of those
merits.” Comed Med. Sys., Co. v. AADCO Imaging, LLC, No. 03-14-00593-CV, 2015
Tex. App. LEXIS 1762, at *11 (Tex. App.—Austin Feb. 25, 2015, no pet.) (mem. op.).
To obtain a temporary injunction, the applicant must plead and prove (1) a cause
of action against the defendant, (2) a probable right of recovery, and (3) a probable,
imminent, and irreparable injury in the interim. Butnaru, 84 S.W.3d at 204.
II. Probable Right of Recovery
A probable right of recovery is proven by alleging the existence of a right and
presenting evidence tending to illustrate that the right is being denied. Friona Indep. Sch.
Dist. v. King, 15 S.W.3d 653, 657 (Tex. App.—Amarillo 2000, no pet.). The movant for a
temporary injunction is not required to prove ultimate success on its cause of action;
rather, the movant’s burden is met simply by alleging a cause of action and presenting
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evidence tending to sustain it. Bright Land & Cattle, LLC, 2017 Tex. App. LEXIS 2083,
at *5.
By its first issue, South Plains asserts Worldwide presented no evidence of a
probable right of recovery.
Hearing evidence showed that South Plains either stopped purchasing the only
approved base mix from Worldwide or purchased only a nominal amount. As noted, the
parties’ franchise agreement requires South Plains to comply with uniform standards and
prepare Eskimo Hut-branded frozen drinks according to recipes issued by Worldwide.
In his testimony, Salley described for the court the drink recipe South Plains uses.
As he described it, to make a batch of Eskimo Hut drinks South Plains uses two ounces
of base mix rather than the three gallons called for by the Worldwide recipe. He explained
the ingredient South Plains uses to substitute for the greater amount of Worldwide’s base
mix.4 Salley expressed his opinion that the resulting drink is “extremely close to what we
have always served.” When asked on cross-examination if South Plains was following
Worldwide’s specifications and recipes for drinks, Salley replied he no longer believed the
franchise agreement to be “legal.” He then acknowledged South Plains was not following
the Worldwide recipe.
Salley’s testimony provides evidence South Plains is not complying with the
franchise agreement, including section 7.A.’s uniform standards; section 7.G.(1) and
section 7.H.’s methods of preparation; section 7.D.’s mandate that the franchisee prepare
Salley later explained the “batch tank recipe” South Plains uses calls for a twelve-
4
liter bag of a product he described as “Other Than Standard Orange Wine” and two
gallons of water. Two ounces of Worldwide’s base mix are then added.
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and sell only the frozen drink products and combinations specified by Worldwide; and
section 7.H.’s requirement that the franchisee adopt Worldwide’s changes in methods
and material in preparation of frozen beverage menu items. We find Worldwide presented
sufficient evidence tending to substantiate its breach of contract cause of action.
By its fourth issue, South Plains asserts the provisions of section 7 of the franchise
agreement requiring that it prepare alcoholic drinks according to Worldwide’s
specifications are illegal and therefore unenforceable. As a result, the argument
concludes, Worldwide failed to show a probable right of recovery on its breach of contract
claim.
For its contention, South Plains relies on an excerpt from section 109.53 of the
Alcoholic Beverage Code. “Every permittee shall have . . . exclusive control of the entire
licensed premises in every phase of the storage, distribution, possession, and
transportation and sale of all alcoholic beverages purchased, stored or sold on the
licensed premises. Any device, scheme or plan which surrenders control of the
employees, premises or business of the permittee to persons other than the permittee
shall be unlawful.” TEX. ALCO. BEV. CODE ANN. § 109.53 (West 2007). South Plains cites
no case supporting its contention that “[b]y dictating the specific recipe to be used for the
alcoholic daiquiris made and sold by South Plains, [Worldwide] has concocted a scheme
which causes South Plains to surrender control of its business, in violation of Section
109.53 [of] the Texas Alcoholic Beverage Code.”
On the temporary hearing record before us, we cannot find South Plains presented
the trial court with a persuasive showing that illegality under section 109.53 precluded
Worldwide from establishing a probable right of recovery for breach of the franchise
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agreement. Because some evidence reasonably supported the trial court’s finding that
Worldwide demonstrated a probable right of recovery, no abuse of discretion has been
shown. South Plains’ first and fourth issues are overruled.
III. Probable, Imminent, and Irreparable Injury
By its second issue, South Plains argues the trial court abused its discretion by
granting a temporary injunction because no evidence supported a finding of probable,
imminent, and irreparable injury before trial. In its third issue, South Plains argues the
franchise agreement’s extraordinary relief clause was insufficient to prove irreparable
injury. We will discuss these issues jointly.
The movant for a temporary injunction must establish that it is threatened with an
actual irreparable injury if the injunction is not granted. See, e.g., Marketshare Telecom,
L.L.C. v. Ericsson, Inc., 198 S.W.3d 908, 925 (Tex. App.—Dallas 2006, no pet.) (citing
Markel v. World Flight, Inc., 938 S.W.2d 74, 80 (Tex. App.—San Antonio 1996, no pet.)).
“An injury is irreparable if the injured party cannot be adequately compensated in
damages or if the damages cannot be measured by any certain pecuniary standard.”
Butnaru, 84 S.W.3d at 204.
The franchise agreement in relevant part provides:
Extraordinary Relief. It is specifically understood and agreed that Eskimo
Hut Worldwide will incur incalculable and irreparable damage from any
violation of sections . . . 7.A. . . . of this Agreement . . . and that Eskimo Hut
Worldwide has no adequate remedy at law and is entitled to injunctive relief,
including specific performance, for any such action or threatened violation.
All remedies conferred on either party shall be cumulative.
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Neither from the parties’ briefing nor in our own research have we located Texas
authority finding such contract language sufficient, standing alone, to authorize a court to
grant injunctive relief. See Wright v. Sport Supply Grp., Inc., 137 S.W.3d 289, 293-94
(Tex. App.—Beaumont 2004, no pet.) (considering effect of similar clause); Sec. Telecom
Corp. v. Meziere, No. 05-95-01360-CV, 1996 Tex. App. LEXIS 806, at *5-7 (Tex. App.—
Dallas Feb. 29, 1996, no writ) (not designated for publication) (finding such language in
non-competition agreement could not serve as a “stipulation” of the nature of the
damages suffered when the validity and enforceability of the agreement was at the core
of the merits of the case). At the least, however, the clause serves to emphasize that
brand recognition and uniform standards among franchisees are at the core of the parties’
agreement and benefit both Worldwide and South Plains. Through the extraordinary relief
clause South Plains agreed its violation of section 7.A. of the franchise agreement will
produce in Worldwide incalculable and irreparable damage for which no adequate remedy
at law lies. We find the trial court could have viewed the extraordinary relief clause as
providing some support for its conclusion South Plains’ actions placed Worldwide at risk
of irreparable injury. Cf. Wright, 137 S.W.3d at 293-94.
South Plains argues that because Worldwide does not control the amount or type
of alcohol added to the daiquiris, consistency among drinks sold by different franchisees
is impossible. It follows, South Plains argues, that Worldwide failed to prove it will suffer
irreparable injury without the injunction. But the trial court heard the following exchange
during Morgan’s cross-examination testimony:
Q. And you would agree with me that if every franchisee is using a different
wine, that there would not be a consistent product across the board for each
franchisee?
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A. No.
Q. No, you wouldn’t?
A. No, I would not.
Q. Okay.
A. The flavor comes out through the Base Mix and through the flavors. That
is how you get the taste. The wine is tasteless. That is what it is.
In a temporary injunction hearing the trial court, as factfinder, judges the credibility of the
witnesses and assigns what weight it chooses to their testimony. Sills v. Wedgeworth,
No. 09-17-00481-CV, 2018 Tex. App. LEXIS 5247, at *10 (Tex. App.—Beaumont July 12,
2018, no pet.) (mem. op.) (citing State Bd. of Ins. v. Prof’l & Bus. Men’s Ins. Co., 359
S.W.2d 312, 321-22 (Tex. Civ. App.—Austin 1962, writ ref’d n.r.e.)). We are bound to
view the evidence in the light most favorable to the trial court’s decision. Bright Land &
Cattle, 2017 Tex. App. LEXIS 2083, at *6. Contrary to South Plains’ argument, we find
the trial court could have resolved the conflicting evidence in favor of a conclusion that its
refusal to use the base mix in the prescribed proportions jeopardized the consistency of
Eskimo Hut branded daiquiris among franchisees, threatening Worldwide with an actual
irreparable injury. See, e.g., Marketshare Telecom, 198 S.W.3d at 925. Salley’s
testimony provided evidence of a difference in taste between daiquiris made with the
recipe South Plains uses and those made in Worldwide’s prescribed manner.5 That
testimony, coupled with that describing the significant difference in the recipe Worldwide
prescribes for drink batches and that being used by South Plains, allowed the trial court
5 He referred to Worldwide’s current recipe as “undrinkable,” and said South Plains’
is “a very, very good drink.”
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to conclude that in a practical sense South Plains was selling, as an Eskimo Hut branded
daiquiri, a different drink than other franchisees.
The undisputed refusal of South Plains to comply with the noted requirements of
the agreement and Morgan’s testimony provide some evidence of imminent injury.
Indeed, the evidence that its franchisee was making and selling a non-conforming product
allowed a reasonable inference that Worldwide was suffering ongoing harm.
Concerning irreparable injury, South Plains argues Worldwide’s damages are not
incalculable because it is possible to determine the profits it would have received from
the sale of base mix to South Plains. But based on the testimony it heard the trial court
was free to conclude that profits from sale of base mix was not the only interest of
Worldwide at risk from South Plains’ actions. Instead, it reasonably could infer that the
injury to Worldwide’s Eskimo Hut brand and reputation from South Plains’ marketing of a
non-conforming product is irreparable. Butnaru, 84 S.W.3d at 204. Such a conclusion is
consistent also with the parties’ agreement that a failure to observe uniform standards
would cause Worldwide irreparable damage.
Based on the evidence this record presents, viewed under the standard we are
bound to follow, we conclude the trial court reasonably could have found probable,
imminent, and irreparable injury before trial. In so finding, it did not abuse its discretion.
South Plains’ second and third issues are overruled.
Conclusion
Having overruled each of South Plains issues, we affirm the order of the trial court.
Per Curiam
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