United States District Court, E.D. California
December 20, 2019, the court heard defendant and
counterclaimant Wingstop Franchising LLC's motion for a
preliminary injunction against counter-defendants Morris CM
Enterprise LLC and Michael Morris. At hearing, Karen
Marchiano appeared for Wingstop Franchising LLC. Counsel for
Morris CM Enterprise and Michael Morris did not appear.
Having considered the moving papers and the arguments of
counsel, the court now GRANTS the motion.
November 15, 2019, defendant and counterclaimant Wingstop
Franchising LLC (“Wingstop”) removed from
Sacramento County Superior Court the suit filed there by
plaintiff and counter-defendant Morris CM Enterprises, LLC
(“Morris CM”) for wrongful termination of Morris
CM's franchise, breach of the covenant of good faith and
fair dealing and interference with economic relations. Not.
of Removal, ECF No. 1. The same day, Wingstop counterclaimed
for violations of the Lanham Act and breach of contract,
adding Michael Morris, the principal officer of Morris CM as
a counterdefendant. ECF No. 5. On November 19, 2019, Wingstop
moved for a preliminary injunction. ECF No. 8. Morris CM and
Michael Morris (“the Morris Parties”) did not
timely file an opposition and as noted have not otherwise
2008, Morris CM entered into a franchise agreement with
Wingstop Restaurants Inc., a national restaurant franchise
specializing in chicken wings. Compl., ECF No. 1 ¶ 6.
Wingstop Restaurants Inc. subsequently assigned its interest
in the franchise agreement to Wingstop Franchising LLC, the
counterclaimant in this action. Countercl., ECF No. 5 ¶
23. The franchise agreement granted Morris CM the right to
operate a Wingstop restaurant at 3541 N. Freeway Blvd., Suite
115, Sacramento, California. Compl. ¶ 6; Countercl.
¶ 20. The parties renewed their agreement under a
renewal rider on December 6, 2017. Countercl. ¶ 20.
Michael Morris was a guarantor of Morris CM's obligations
under the franchise agreement. Id. ¶ 6.
Inc. owns a variety of trademarks and copyrights used to
denote its restaurants. Id. ¶¶ 10-19. In
the franchise agreement and subsequent renewal, Wingstop
granted Morris CM a license to use various components of
Wingstop's intellectual property. Id.
¶¶ 20, 24; Franchise Agreement, ECF No. 8-7 at
22-25. Wingstop granted Morris CM the use of
several federally registered trademarks to distinguish its
restaurant. Countercl. ¶ 11. Wingstop also furnished
Morris CM with a license to use copyright protected
operations and advertising materials and protected trade
secrets (collectively the “Wingstop System”) in
operating its restaurant. Id. ¶¶ 15-16.
alleges Morris CM agreed to discontinue use of all Wingstop
intellectual property on termination of the franchise
agreement. Id. ¶ 25. The Franchise Agreement
states, in relevant part,
Upon the expiration or termination of the franchise,
Franchisee must immediately discontinue all further uses of
the Marks and Copyrighted Materials and take appropriate
action to remove the Marks from the premises in which the
Restaurant is located, to cancel any advertising relating to
Franchisee's use of the Marks or the Copyrighted
Materials, including yellow pages listings, and to cancel or
withdraw any assumed or fictitious name filings covering
Franchisee's use of Company's trade name. Franchisee
acknowledges and agrees that failure or refusal to comply
fully with these requirements will constitute willful
trademark and copyright infringement.
Agreement at 12(a)(10).
CM agreed it would take these remedial steps within seven
days of any termination of the franchise. Countercl. ¶
29; Franchise Agreement at 17(a). If it did not, Wingstop
would be entitled to injunctive relief without the necessity
of posting a bond. Franchise Agreement at 17(c), (h).
further alleges Morris CM agreed to comply with all federal,
state and local laws and regulations applicable to the
operation of the restaurant. Countercl. ¶ 28; Franchise
Agreement at 7(c)(20). The franchise agreement obligated
Morris CM to pay Wingstop weekly royalties of 5 percent of
gross sales and contribute 4 percent of gross sales to an
advertising fund. Countercl. ¶¶ 26, 27; Franchise
Agreement, 8(a)(1); 10(a), (b).
CM allegedly breached these provisions of the franchise
agreement by failing to pay royalties when due and failing to
contribute to the ad fund since May 2019. Countercl.
¶¶ 30, 31; Declaration of Steven Link (“Link
Decl.”), ECF No. 8-2, ¶ 26; Ex. H, ECF No. 8-11.
Wingstop also alleges Morris CM failed to pay approximately
$450, 000 dollars in sales taxes owed to the California
Department of Tax and Fee Administration, putting Morris CM
in breach of the clause requiring compliance with state law,
including tax law. Countercl. ¶¶ 32-34.
April 25, 2019, Wingstop received a notice from the
California Department of Tax and Fee Administration (CDTFA)
that Morris CM's seller's permit had been suspended
for failure to pay sales tax. Link Decl., ECF No. 8-3, ¶
24; Ex. F, ECF No. 8-9. On May 20, 2019, Wingstop sent a
notice of default to Michael Morris noting low operational
assessment scores, failure to pay ad fund contributions and
royalties, and failure to pay expenses such as rent,
point-of-sale service provider fees and sales taxes. Link
Decl. ¶ 25; Ex. G, ECF No. 8-10.
September 10, 2019, Wingstop sent another notice of default
to the Morris Parties, this time focused on the failure to
pay ad fund contributions and royalties, as well as the tax
delinquency. Countercl. ¶ 35; Ex. D to Countercl., ECF
No. 5-4; Link Decl. ¶ 27; Ex. I, ECF No. 8-12. The
Morris Parties did not cure the defaults. Countercl. ¶
36; Link Decl. ¶ 28.
October 11, 2019, Wingstop notified the Morris Parties the
franchise agreement was terminated based on the failure to
cure the defaults. Countercl. ¶ 37; Ex. E to Countercl.,
ECF No. 5-5. The notification letter told the Morris Parties
to comply immediately with the post-termination obligation to
remove Wingstop trade dress from the restaurant and
discontinue use of Wingstop's trademarks and other
intellectual property. Link Decl. ¶ 29 & Ex. J, ECF
alleges Morris CM continues to use the Wingstop marks, the
Wingstop System, display Wingstop trade dress and hold the
restaurant out as a Wingstop franchisee. Countercl. ¶
38. Morris CM has taken none of the agreed-upon steps to
remove trade dress and marks identifying the restaurant as a
Wingstop franchisee. Id. ¶ 45. Steven Link
avers he visited the restaurant on November 7, 2019, nearly a
month after the termination letter, and found it still
operating using Wingstop trademarks and identifiers. Link
Decl. ¶¶ 33-35.
result, Wingstop alleges Morris CM and Michael Morris have
violated the Lanham Act by continuing to use Wingstop's
intellectual property after termination of the franchise.
Countercl. ¶ 49. It claims such acts constitute
trademark infringement and unfair competition under 28 U.S.C.
§ 1114(1) and 28 U.S.C. § 1125(a), respectively.
Id. ¶¶ 49, 54. Wingstop alleges the
infringement causes irreparable injury necessitating
injunctive relief. Id. ¶¶ 50-52, 55-57.
Wingstop also alleges breach of contract. Id. ¶
59. On November 19, 2019, Wingstop brought this motion for a
preliminary injunction preserves the relative position of the
parties until trial on the merits or the case is otherwise
concluded. Univ. of Texas v. Camenisch, 451 U.S.
390, 395 (1981). “A preliminary injunction is an
extraordinary remedy never awarded as of right[, ]”
Winter v. Natural Res. Def. Council, Inc., 555 U.S.
7, 24 (2008), and “should not be granted unless the
movant, by a clear showing, carries the burden of
persuasion[, ]” Lopez v. Brewer, 680 F.3d
1068, 1072 (9th Cir. 2012) (quoting Mazurek v.
Armstrong, 520 U.S. 968, 972 (1997) (emphasis in
original)). In determining whether to issue a preliminary
injunction, federal courts must consider whether the moving
party “ is likely to succeed on the merits, . . .
 is likely to suffer irreparable harm in the absence of
preliminary relief, . . .  the balance of equities tips in
[the movant's] favor, and . . .  an injunction is in
the public interest.” Winter, 555 U.S. at 20.
Ninth Circuit sometimes employs an alternate formulation of
the Winter test, referred to as the “serious
questions” test. Farris v. Seabrook, 677 F.3d
858, 864 (9th Cir. 2012). “‘A preliminary
injunction is appropriate when a plaintiff
demonstrates… that serious questions going to the
merits were raised and the balance of hardships tips strongly
in the plaintiff's favor.'” Alliance for
the Wild Rockies v. Cottrell, 632 F.3d 1127, 1134-35
(9th Cir. 2011) (quoting Lands Council v. McNair,
537 F.3d 981, 986-87 (9th Cir. 2008)) (internal quotations
omitted)). Under the “serious questions” approach
to a preliminary injunction, “[t]he elements of the
preliminary injunction test must be balanced, so that a
stronger showing of one element may offset a weaker showing
of another.” Lopez v. Brewer, 680 F.3d 1068,
1072 (9th Cir. 2012). Winter was decided after the
initial articulation of the “serious questions”
test, but does not overrule it. Cottrell, 632 F.3d
at 1135. However, the “serious questions” test
must be applied in conjunction with review of the other two
Winter factors, likelihood of irreparable injury and
whether the injunction is ...