Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_08-cv-01219/USCOURTS-azd-2_08-cv-01219-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 15:1051 Trademark Infringement

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The parties agreed at the hearing that Plaintiff’s request for a temporary restraining

order was unnecessary. 

WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Best Western International, Inc., an

Arizona non-profit corporation, 

Plaintiff/Counterdefendant, 

vs.

Sharda, LLC, a Utah limited liability

company; and Muljibhai M. Chaudhari, 

Defendants/Counterclaimants. 

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No. CV-08-1219-PHX-DGC

ORDER AND PRELIMINARY

INJUNCTION

On August 14, 2008, the Court held a hearing on Plaintiff’s motion for default

judgment (Dkt. #17), Plaintiff’s motion for a preliminary injunction (Dkt. #2), and

Defendant’s cross-motion for a preliminary injunction (Dkt. #24). Evidence and argument

were presented. For reasons stated on the record at the hearing, the Court denied Plaintiff’s

motion for default judgment. The Court will grant Plaintiff’s motion for a preliminary

injunction and deny Defendant’s cross-motion.1

I. Plaintiff’s Motion for a Preliminary Injunction.

A. The Evidence.

1. The following facts and conclusions were not disputed by Defendants:

a. Plaintiff owns and has registered the Best Western marks at issue

in this case. Plaintiff licenses these marks to persons or entities who enter into membership

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agreements with Plaintiff.

b. Plaintiff’s membership agreement provides that licensees must

stop using the Best Western marks when their membership agreements are terminated. 

c. Plaintiff’s Rules and Regulations provide that members will be

subjected to twice-annual inspections of their properties. These inspections begin with a total

of 1,000 points; deductions are then made for specific deficiencies found at the properties.

The minimum acceptable inspection score is 800. Properties receiving a score below 800 are

placed on probation. Plaintiff’s Board of Directors may cancel the membership agreement

with respect to any property that receives two consecutive scores below 800 or a single

inspection score below 600. 

d. Before cancelling a membership agreement, the Rules and

Regulations require that Plaintiff grant a hearing before its Board of Directors.

e. The parties entered into a membership agreement with respect

to Defendants’ Best Western Motor Inn hotel located in Delta, Utah. 

f. Defendants’ hotel was inspected by Plaintiff on February 20,

2008. The inspection score was 273. On the basis of this score, the Board of Directors

scheduled a hearing concerning Defendants’ membership. The hearing was held on March 1,

2008. Defendant Chaudhari appeared and attempted to persuade the Board not to cancel his

membership. On the basis of the 273 score, the Board formally terminated Defendants’

membership agreement. 

g. Defendants have continued to use the Best Western marks despite

the termination of their membership agreement.

2. At the preliminary injunction hearing on August 14, 2008, Defendants

argued that the March 1, 2008 hearing before Plaintiff’s Board of Directors was not fair.

Defendants asserted that the low score from the February 2008 inspection was due to

unusually cold weather that delayed property improvement projects, as well as the

unexpected resignation of six housekeeping employees. Defendants argued that Plaintiff

should not, on the basis of such unavoidable circumstances, terminate the membership of a

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property that has enjoyed membership for twenty years. Termination in these circumstances,

Defendants argued, violated the covenant of good faith and fair dealing implied in the

membership agreement and the other governing documents of Plaintiff’s organization,

including the Member Bill of Rights.

Defendant Chaudhari testified at the preliminary injunction hearing concerning the

cold weather and unexpected resignations that preceded the low inspection score. He

testified about his plans to improve the property, and improvements that have already been

made. He testified briefly about the March 1, 2008 Board hearing, noting that he explained

these same matters to the Board and that one Board member suggested he should invest one

million dollars in the property during the next six months. Defendants presented no other

evidence concerning the Board hearing, Plaintiff’s deliberations, or the reasons for Plaintiff’s

decision.

B. Plaintiff’s Entitlement to Injunctive Relief.

1. Plaintiff seeks preliminary injunctive relief with respect to its trademark

infringement claim under the Lanham Act, 15 U.S.C. § 1114. Dkt. #2; see Dkt. #1 ¶¶ 52-58

(Count IV). 

2. The traditional equitable criteria for granting preliminary injunctive

relief are “(1) a strong likelihood of success on the merits, (2) the possibility of irreparable

injury to the plaintiff if the preliminary relief is not granted, (3) a balance of hardships

favoring the plaintiff, and (4) advancement of the public interest (in certain cases).” L.A.

Mem’l Coliseum Comm’n v. NFL, 634 F.2d 1197, 1200 (9th Cir. 1980). “In this circuit, the

moving party may meet its burden by demonstrating either (1) a combination of probable

success on the merits and the possibility of irreparable injury or (2) that serious questions are

raised and the balance of hardships tips sharply in its favor.” Id. at 1201. 

3. “In a trademark infringement claim, ‘irreparable injury may be

presumed from a showing of likelihood of success on the merits.’” GoTo.com, Inc. v. Walt

Disney Co., 202 F.3d 1199, 1204 n. 4 (9th Cir. 2000) (quoting Brookfield Communications,

Inc. v. W. Coast Entm’t Corp., 174 F.3d 1036, 1066 (9th Cir.1999)). “This presumption

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Because of these concessions, the Court need not address the likelihood of confusion

under the Ninth Circuit’s Sleekcraft test. See AMF Inc. v. Sleekcraft Boats, 599 F.2d 341,

348-49 (9th Cir. 1979).

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effectively conflates the dual inquiries of this prong into the single question of whether the

plaintiff has shown a likelihood of success on the merits.” Id. 

4. Section 1114 of the Lanham Act provides that any person who, without

consent of the trademark registrant, uses “in commerce any reproduction, counterfeit, copy,

or colorable imitation of a registered mark in connection with the sale, offering for sale,

distribution, or advertising of any goods or services,” in a manner “likely to cause confusion”

with the registrant’s goods and services, “shall be liable in a civil action[.]” 15 U.S.C.

§ 1114(1). Defendants do not dispute that Plaintiff is the owner and registrant of the Best

Western marks, that the marks are both valid and strong, that Defendants are continuing to

use the marks in commerce, or that their use of the marks is likely to cause confusion – to

suggest to the public that Defendants’ hotel is affiliated with Best Western.2

 Defendants

instead contend that their use of the marks is not unauthorized – that Plaintiff’s improper

termination of the membership agreement has not effectively rescinded the license contained

in the agreement.

5. The Court concludes that Plaintiff has demonstrated a strong probability

of success on the merits of its Lanham Act claim for trademark infringement. With respect

to Defendants’ sole defense – that termination of Defendants’ membership agreement was

improper – Plaintiff has established that Defendants’ membership was terminated on the

basis of the low inspection results, that Plaintiff had the express right under the Rules and

Regulations to terminate a membership agreement on this basis, that termination of the

membership agreement also terminated Defendants’ rights to use the Best Western marks,

and that Defendants’ continued use of the marks is therefore unauthorized.

6. Defendants assert that they provided good reasons for the poor

inspection score and that termination of the membership agreement therefore violated the

covenant of good faith and fair dealing. Defendants do not dispute, however, that they

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The Court cannot conclude that the comment of one Board member on the need to

invest one million dollars in improving the property constitutes bad faith by Plaintiff.

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received an exceptionally low score as a result of the February 2008 inspection: 273 points

out of a possible 1,000 points, with 800 being the acceptable minimum. Nor do they dispute

that Plaintiff’s Rules and Regulations grant Plaintiff the right to terminate the membership

agreement for any property receiving a single score below 600 points, or that Plaintiff

granted them a hearing as required by the Rules and Regulations before terminating the

membership agreement. Defendants complain about the result of the hearing, but they have

provided no evidence from which the Court can conclude that Plaintiff violated the covenant

of good faith and fair dealing or the Member Bill of Rights. Plaintiff exercised a right clearly

granted in its Rules and Regulations and did so after an undisputed low inspection score and

a hearing as required by the rules. The fact that Defendants strongly disagree with Plaintiff’s

decision does not constitute evidence that Plaintiff acted in bad faith, and Defendants have

presented no other evidence of bad faith.3

 Because the Court finds that Defendants have

presented no persuasive evidence to support their claim that Plaintiff acted in bad faith, and

Defendants have presented no other defense to Plaintiff’s Lanham Act claim for trademark

infringement, the Court concludes that Plaintiff has established a strong likelihood of success

on the merits of that claim.

7. Because Plaintiff has shown a likelihood of success on its trademark

claim, the Court presumes irreparable injury. See GoTo.com, Inc., 202 F.3d at 1204 n. 4.

8. Because Plaintiff has established a likelihood of success on the merits

and the possibility of irreparable injury, it is entitled to a preliminary inunction. See L.A.

Mem’l Coliseum, 634 F.2d at 1200.

II. Defendants’ Cross-Motion for a Preliminary Injunction.

Defendant’s cross-motion alleges that Plaintiff fraudulently induced Defendants to

purchase the hotel in Delta, Utah, fraudulently forced Defendants to expend large sums of

money on the hotel, failed to provide promised assistance and guidance, fraudulently and in

bad faith arrived at the score of 273 during the February 2008 inspection, wrongfully

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required Defendants to remodel the exterior of the hotel, and wrongfully terminated the

membership agreement. Dkt. #24. Other than the testimony at the preliminary injunction

hearing concerning wrongful termination of the agreement, Defendants have presented no

evidence to support this motion. No affidavits or other evidence were attached to the motion.

Dkt. #24. 

For reasons discussed above, the Court finds that Defendants have failed to present

any substantial evidence in support of their wrongful termination claim. Because Defendants

have presented no other evidence to support their motion, the Court finds that they have

failed to establish a probability of success on the merits. The Court therefore will deny

Defendants’ request for a preliminary injunction.

III. Bond Amount.

Rule 65 of the Federal Rules of Civil Procedure provides that “[t]he court may issue

a preliminary injunction . . . only if the movant gives security in an amount that the court

considers proper to pay the costs and damages sustained by any party found to have been

wrongfully enjoined[.]” Fed. R. Civ. P. 65(c). On the Court’s request, the parties submitted

supplemental briefing on this issue. Dkt. ##32, 33.

Plaintiff argues that the Court has discretion in setting the amount of the bond, that

the likelihood of Plaintiff’s success on the merits mitigates the chances of any injury being

incurred because of a wrongful injunction, and that Defendants have presented no evidence

to support a substantial bond. Plaintiff suggests a bond amount no greater than $25,000.

Dkt. #32.

Defendants ask the Court to require security in the amount of $400,000. Dkt. #33.

A portion of this amount, however, consists of an alleged 30% drop in Defendants’ business

due to the termination of Defendants’ participation in the Best Western computerized

reservation system. Id. at 3. Because that termination occurred earlier this year and is not

part of the preliminary injunction, any injury resulting from the termination is not properly

considered under Rule 65(c). See 11A Charles Alan Wright, Arthur R. Miller & Mary Kay

Kane, Federal Practice and Procedure § 2954 (“The security will not include any damages

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. . . for claims against a party who instituted the action other than those directly attributable

to the improvidently issued injunction.”).

Defendants further assert that they will lose $200,000 in profits from lost business due

to the injunction and incur another $185,000 to $200,000 in costs to rebrand the hotel, but

Defendants have presented no evidence to support these claims. Dkt. #33 at 3. Defendant

Chaudhari testified at the hearing that the loss of the Best Western marks would hurt his

business because 55% to 60% of this business is repeat customers, but he failed to attach any

value to that injury. He testified that switching to another brand of hotel would reduce his

average daily revenues, but he failed to attach any dollar amount to that reduction. Nor did

he testify about rebranding costs.

The Court nonetheless must set a bond amount under Rule 65(c). Given the nature

of this business and Plaintiff’s likelihood of success on the merits, the Court concludes that

security in the amount of $75,000 will reasonably protect Defendants against injury if this

injunction is entered incorrectly.

IT IS ORDERED:

1. Plaintiff’s motion for preliminary injunction (Dkt. #2) is granted. 

2. Defendants Sharda, LLC and Muljibhai M. Chaudhari, and their officers,

agents, servants, employees, attorneys, and other persons who are in active concert or

participation with them, are enjoined and restrained from using, displaying, or advertising

any trademarks or service marks owned by Best Western, including any colorable imitation

of Best Western trademarks or service marks, any Best Western sign, or any other mark that

is confusingly similar to Best Western trademarks or service marks, in connection with

Defendants’ hotel located in Delta, Utah. This preliminary injunction includes, but is not

limited to, road signs, door signs, building signs, business cards, telephones, ice buckets,

ballpoint pens, notepads, trash cans, drinking cups or glasses, stationary or envelopes, nonsmoking signs, toiletries, do not disturb signs, laundry bags, domain names, metatags,

Internet key words or banner ads, and any other item used or connected to Internet search

engines. Defendants Sharda, LLC and Chaudhari, as well as their officers, agents, servants,

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employees, attorneys, and any other persons who are in active concert or participation with

them, are further enjoined and restrained from engaging in any other acts likely to cause

others to believe that Defendants’ hotel in Delta, Utah, is connected to, associated with, or

sponsored by Best Western.

3. This preliminary injunction shall become effective upon Plaintiff’s posting of

a bond in the amount of $75,000. 

4. This preliminary injunction shall remain in effect until the conclusion of this

litigation or further order from this Court. 

5. Defendants’ cross-motion for a preliminary injunction (Dkt. #24) is denied.

6. The Court will schedule a Rule 16 Case Management Conference by separate

order. 

DATED this 20th day of August, 2008.

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