1

The Honorable Michael J. Davis, United States District Judge for the District

of Minnesota.

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 07-3627

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Coyne's & Co., Inc., *

*

Plaintiff – Appellant, *

* Appeal from the United States

v. * District Court for the District

* of Minnesota.

Enesco, LLC, *

*

Defendant – Appellee. *

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Submitted: October 16, 2008

Filed: January 23, 2009

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Before LOKEN, Chief Judge, BYE and SMITH, Circuit Judges.

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BYE, Circuit Judge.

Coyne's & Co. appeals the district court's1

 denial of its motion for a preliminary

injunction. We affirm.

I

In 2005, Coyne's & Co. ("Coyne"), a Minnesota corporation, entered into a

distributor agreement (the "Agreement") with Country Artist, Ltd. ("CA"), a company
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formed under the laws of England. The Agreement granted Coyne the exclusive right

to sell, distribute, market, and advertise all CA products (the "Products"), as well as

the use of the trademarks and copyrights associated with the Products, in the United

States and Mexico through December 2007. In exchange, Coyne paid CA a 35-50%

mark-up on the Products.

On August 10, 2007, CA was placed into receivership under the United

Kingdom's Insolvency Act of 1986. The receivers for CA immediately entered into

an asset sale agreement with Enesco, LLC ("Enesco"), an Illinois corporation. CA

sold Enesco "such right, title and interest as it may have in the Business and Assets."

Enesco "acknowledge[d] that [the CA name] may not be the property of [CA] and that

accordingly any use of the Name by [Enesco] shall be at [Enesco's] own risk."

On August 21, 2007, Coyne received a letter from CA's receivers terminating

the Agreement pursuant to Section 5.4, which allows a party to terminate the

Agreement if the other party becomes insolvent. Because this section does not permit

an insolvent party to use its own insolvency to terminate the Agreement, Coyne

responded the termination had no legal effect.

On September 21, 2007, Enesco issued a press release announcing it would be

distributing the CA Products in the United States.

On September 29, 2007, Coyne filed suit against Enesco, alleging claims under

the Lanham Act, the Copyright Act, the Minnesota Deceptive Trade Practices Act, the

Minnesota Uniform Trade Secrets Act, and Minnesota common law (interference with

contractual relations, interference with prospective business relations, and

misappropriation of goodwill). The next day, it filed a motion for a temporary

retraining order and preliminary injunction to prevent Enesco from distributing the

Products in the United States.
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The MFA provides in relevant part: 

No person may terminate or cancel a franchise unless: (i) that person has

given written notice setting forth all the reasons for the termination or

cancellation at least 90 days in advance of termination or cancellation,

and (ii) the recipient of the notice fails to correct the reasons stated for

termination or cancellation in the notice within 60 days of receipt of the

notice . . . .

Minn. Stat. § 80C.14, subd. 3(a).

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Because the district court subsequently dismissed Coyne's trademark and

copyright infringement claims, Coyne's & Co., Inc. v. Enesco, LLC, 565 F. Supp. 2d

1027, 1043, 1044 (D. Minn. 2008), the appeal as to those claims is moot.

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The district court denied Coyne's motion. The court found Coyne could not

demonstrate a likelihood of success on its claims unless the Agreement was still in

effect. Coyne argued CA's termination was not valid, and thus the Agreement was

still in effect, because CA failed to comply with the Minnesota Franchise Act's (the

"MFA") termination requirements.2

 The district court rejected this argument, finding

Coyne did not pay CA a franchise fee, as required to bring the Agreement within the

scope of the MFA. Therefore, the Agreement was not still in effect, and Coyne had

not demonstrated a likelihood of success on its claims.

The district court also found, even if the Agreement was still in effect, Coyne

likely did not have standing to pursue a claim for infringement of intellectual property

rights against Enesco because it neither owned the copyrights and trademarks for the

products, nor did it have an exclusive license to those copyrights and trademarks.

On appeal, Coyne asserts the district court incorrectly determined the

Agreement was not subject to the MFA because Coyne paid CA a franchise fee.3
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II

Whether a preliminary injunction should issue turns upon: (1) the probability

of the movant succeeding on the merits; (2) the threat of irreparable harm to the

movant; (3) the balance between this harm and the injury in granting the injunction

will inflict on the non-movant; and (4) the public interest. Dataphase Sys. Inc. v. CL

Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981) (en banc). We review the denial of a

motion for preliminary injunction for abuse of discretion. Phelps-Roper v. Nixon, 509

F.3d 480, 484 (8th Cir. 2007), as modified on rehearing, 2008 WL 4755559. "An

abuse of discretion occurs where the district court rests its conclusion on clearly

erroneous factual findings or erroneous legal conclusions." Lankford v. Sherman, 451

F.3d 496, 503-04 (8th Cir. 2006).

The district court's conclusion that the Agreement was not governed by the

MFA because Coyne did not pay CA a franchise fee was not erroneous. The MFA

defines a franchise as:

(1) A right granted to the franchisee to engage in business using the

franchiser's trade name or other commercial symbol, (2) a "community

of interest" in the marketing of goods or services between the franchisee

and franchiser, and (3) a "franchise fee" paid by the franchisee.

Martin Investors, Inc. v. Vander Bie, 269 N.W.2d 868, 874 (Minn. 1978); see also

Minn. Stat. § 80C.01, subd. 4(a)(1).

The dispute centers around the third element—whether Coyne paid CA a

franchise fee. The MFA defines a franchise fee as:

[A]ny fee or charge that a franchisee or subfranchisor is required to pay

or agrees to pay for the right to enter into a business or to continue a

business under a franchise agreement, including, but not limited to, the
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payment either in lump sum or by installments of an initial capital

investment fee, any fee or charges based upon a percentage of gross or

net sales whether or not referred to as royalty fees, any payment for

goods or services, or any training fees or training school fees or charges;

provided, however, that the following shall not be considered the

payment of a franchise fee:

(a) the purchase of goods or agreement to purchase goods at a bona fide

wholesale price; . . . .

Minn. Stat. § 80C.01, subd. 9.

Coyne admits it did not pay what would ordinarily be considered a "franchise

fee," i.e., an up-front, direct fee for the right to distribute CA's products. Instead,

Coyne argues it paid an indirect franchise fee in the form of a minimum purchase

requirement and a 35-50% mark-up on the Products.

A. Minimum Purchase Requirement

A minimum purchase requirement can be a franchise fee "if the distributors

were required to purchase amounts or items that they would not purchase otherwise."

Twin Cities Galleries, LLC v. Media Arts Group, Inc., 476 F.3d 598, 601 (8th Cir.

2007) (quoting Upper Midwest Sales Co. v. Ecolab, Inc., 577 N.W.2d 236, 242 (Minn.

Ct. App. 1998)). To so determine, the Court applies an objective test, examining

"whether the [minimum purchase] requirements were unreasonable." Id. (quoting

Upper Midwest, 577 N.W.2d at 242).

Coyne does not assert, nor did it below, the minimum purchase requirement was

unreasonable, so the district court did not clearly err in finding the minimum purchase

requirement is not an indirect franchise fee under the MFA.
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B. Product Price Mark-Up

A price mark-up on goods above a bona fide wholesale price may constitute an

indirect franchise fee. Cambee's Furniture, Inc. v. Doughboy Recreational, Inc., 825

F.2d 167, 171 (8th Cir. 1987) (interpreting South Dakota's franchise regulation, which

is substantially similar to the MFA); Upper Midwest, 577 N.W.2d at 242; OT Indus.,

Inc. v. OT-tehdas Oy Santasalo-Sohlberg Ab, 346 N.W.2d 162, 166 (Minn. Ct. App.

1984). The question of whether the mark-up is a bona fide wholesale price or an

indirect franchise fee is a fact-specific inquiry.

The district court found the CA Product mark-up is not an indirect franchise

fee; rather, the mark-up merely represented CA's profits on the Products, i.e. a bona

fide wholesale price. Coyne argues the court was incorrect because it is illogical to

assume that all of the rights granted to Coyne under the Agreement—such as the

license to use the Trademarks, the limitation on CA's right to compete with Coyne in

the Territory, and CA's obligation to pay a substantial termination fee—are merely in

consideration for Coyne's payment of a bona fide wholesale price for CA products.

This argument, however, falls short of demonstrating the district court's factual

finding is clearly erroneous. See Commc'n Maint., Inc. v. Motorola, Inc., 761 F.2d

1202, 1206-07 (7th Cir. 1985) (holding that mark-up retained by alleged franchisor

was not an indirect franchise fee under Indiana's franchise regulation); Corporate Res.,

Inc. v. Eagle Hardware & Garden, Inc., 62 P.3d 544, 548 (Wash. Ct. App. 2003)

(holding that profit margins on installation contracts was not an indirect franchise fee

under Washington's franchise regulation). Therefore, the Court will not disturb the

district court's finding on appeal.

Accordingly, the district court did not clearly err in finding Coyne did not pay

a franchise fee, and the Agreement thus did not fall within the protections of the MFA

for purposes of a preliminary injunction.
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III

We affirm the district court.

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