1998 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

5-13-1998

Pappan Entr Inc v. Hardees Food Sys Inc

Precedential or Non-Precedential:

Docket 97-3473

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Recommended Citation

"Pappan Entr Inc v. Hardees Food Sys Inc" (1998). 1998 Decisions. Paper 109.

http://digitalcommons.law.villanova.edu/thirdcircuit_1998/109
Filed May 13, 1998 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

NO. 97-3473 

PAPPAN ENTERPRISES, INC. 

v. 

HARDEE'S FOOD SYSTEMS, INC.; 

MRO MID-ATLANTIC CORP., 

 Appellants 

v. 

LOUIS D. PAPPAN; PANAGIOTA PAPPAN 

On Appeal From the United States District Court 

For the Western District of Pennsylvania 

(D.C. Civil Action No. 96-cv-01778) 

Argued March 12, 1998 

Before: BEFORE: STAPLETON and ALITO, Circuit Judges, 

and O'KELLEY,* District Judge 

(Opinion Filed May 13, 1998) 

_________________________________________________________________ 

*Honorable William C. O'Kelley, United States District Judge for the 

Northern District of Georgia, sitting by designation. 
 Arthur I. Cantor (Argued) 

 Peter J. Klarfeld 

 Andrew P. Zappia 

 Wiley, Rein & Fielding 

 1776 K Street, N.W. 

 Washington, DC 20006 

 Attorneys for Appellants 

 Gene J. Brockland (Argued) 

 Mark R. Dunn 

 Lori F. Kutilek 

 Herzog, Crebs & McGhee, LLP 

 One City Centre, 24th Floor 

 515 North Sixth Street 

 St. Louis, MO 63101 

 Attorneys for Appellees 

OPINION OF THE COURT 

O'KELLEY, Senior District Judge: 

Hardee's Food Systems, Inc. ("Hardee's") and MRO MidAtlantic Corp. ("MRO") appeal from the district court's order 

denying their motion for a preliminary injunction to 

restrain Pappan Enterprises, Inc. ("Pappan") from using the 

ROY ROGERS marks owned by Hardee's and MRO.1 

Because we find that Hardee's and MRO have clearly 

established irreparable injury to their marks from Pappan's 

non-consensual use and that their irreparable injury as a 

result of that use outweighs any injury Pappan might suffer 

from the entry of a preliminary injunction, we will reverse 

the district court and remand with directions to grant the 

motion for a preliminary injunction. 

I. 

Pappan has been a ROY ROGERS franchisee since 

October, 1972. In 1990, MRO acquired the ROY ROGERS

_________________________________________________________________ 

1. The ROY ROGERS marks are registered with the United States Patent 

and Trademark Office. Hardee's became the owner of the marks in 1990. 

The marks are now owned by MRO. 

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restaurant system and assumed all of the rights and

obligations as franchisor under then-existing ROY ROGERS 

franchise agreements. At that time, pursuant to its

franchise agreements, Pappan operated nineteen (19) ROY 

ROGERS restaurants in the greater Pittsburgh, 

Pennsylvania metropolitan area. Thereafter, Hardee's 

acquired the stock of MRO, and MRO became a whollyowned subsidiary of Hardee's. 

Between 1990 and 1993, Pappan closed thirteen (13) of 

its ROY ROGERS restaurants and transferred one (1) to a 

third party. Beginning in April, 1993, Pappan ceased 

making royalty and advertising payments on its five (5) 

remaining restaurants as required by the franchise 

agreements. In October 1994, the parties entered into a 

letter agreement ("letter agreement"). The parties agreed 

that Pappan would begin making all required payments 

under its existing franchise agreements on November 1, 

1994, and would remain current on its payments 

thereafter. Further, the parties agreed that with respect to 

any restaurants sold or closed by Pappan by December 31, 

1995, all amounts owed up to November 1, 1994, would be 

forgiven. At Pappan's request, the December 31, 1995, 

deadline was extended to March 31, 1996. 

Pappan re-commenced royalty and advertising payments 

on or about November 1, 1994, for its five (5) remaining 

restaurants. In November or December 1995, Pappan again 

ceased making royalty and advertising payments for each of 

the five (5) restaurants. It appears that Pappan has not 

made any of the required payments since that time. 

On September 26, 1996, Pappan filed the present action 

alleging breach of contract, breach of covenant of good faith 

and fair dealing, negligence, and tortious interference with 

business relations. Pappan contends that Hardee's and 

MRO have mismanaged the ROY ROGERS system and, as 

a result, it has lost significant value. By order dated 

February 20, 1997, the district court dismissed Pappan's 

claims for negligence and tortious interference with 

business relations. 

On March 7, 1997, Hardee's and MRO filed their answer 

denying the two (2) remaining claims. Hardee's and MRO 

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also filed a counterclaim for breach of contract based on 

Pappan's failure to pay royalty and advertising fees as 

required by the franchise agreements. As of March 6, 1997, 

Pappan was in arrears as to the five (5) remaining 

restaurants in the amount of $172,038.70. Pursuant to the 

franchise agreements, MRO sent Pappan a Notice of Default 

and Termination regarding the unpaid royalties and 

advertising fees for each store. The notice informed Pappan 

that it had ten (10) days to cure the default or Pappan's five 

(5) remaining franchise agreements would terminate.

Pappan received the notice on March 10, 1997, but failed to 

cure the default. 

By letter dated March 25, 1997, MRO confirmed to 

Pappan that the franchise agreements had terminated on 

March 20, 1997. MRO demanded that Pappan cease using 

the ROY ROGERS marks and comply with the other posttermination obligations in the franchise agreements. 

Pappan failed to do so. On April 3, 1997, MRO filed an 

amended counterclaim asserting additional claims arising 

out of the termination of Pappan's franchise agreements, 

including claims for breach of post-termination contractual 

obligations, unjust enrichment, and trademark 

infringement. 

On April 25, 1997, Hardee's and MRO moved for a 

preliminary injunction to restrain Pappan's continuing use 

of the ROY ROGERS marks. The district court denied 

Hardee's and MRO's motion, finding that the irreparable 

harm to Pappan from the entry of a preliminary injunction 

outweighed the irreparable harm to Hardee's and MRO from 

the denial of a preliminary injunction. MRO and Hardee's 

filed the instant appeal. Pappan admits that, despite the 

termination of the franchise agreements, it is continuing to 

use the ROY ROGERS marks and to hold itself out to the 

public as a ROY ROGERS franchisee. 

II. 

"We review the denial of a request for injunctive relief for 

an abuse of discretion." S & R Corp. v. Jiffy Lube Intern., 

Inc., 968 F.2d 371, 374 (3d Cir. 1992)(citing Opticians Ass'n 

of Am. v. Independent Opticians of Am., 920 F.2d 187, 192 

 4 
(3d Cir. 1990)). "A district court abuses its discretion when 

its decision rests upon a clearly erroneous finding of fact, 

an errant conclusion of law, or an improper application of 

law to fact." Hofkin v. Provident Life & Accident Ins. Co., 81 

F.3d 365, 369 (3d Cir. 1995)(citations omitted). This court 

"cannot reverse unless the trial court has committed an 

obvious error in applying the law or a serious mistake in 

considering the proof." Opticians, 920 F.2d at 192 (citing 

Freixenet, S.A. v. Admiral Wine & Liquor Co., 731 F.2d 148, 

150 (3d Cir. 1984)). 

When ruling on a motion for preliminary injunctive relief, 

a district court must consider four factors: (1) the likelihood 

that plaintiff will prevail on the merits at final hearing; (2) 

the extent to which plaintiff is being irreparably harmed by 

the conduct complained of; (3) the extent to which 

defendant will suffer irreparable harm if the preliminary 

injunction is issued; and (4) the public interest. Jiffy Lube, 

968 F.2d at 374 (citing Hoxworth v. Blinder, Robinson & Co., 

903 F.2d 186, 197-98 (3d Cir. 1990)); Opticians, 920 F.2d 

at 191-92 (citing Bill Blass, Ltd. v. Saz Corp., 751 F.2d 152, 

154 (3d Cir. 1984)). 

The district court determined that the first and second 

factors -- the likelihood that Hardee's and MRO would 

prevail on the merits and irreparable harm to Hardee's and 

MRO as a result of Pappan's continued non-consensual use 

of the ROY ROGERS marks -- weighed in favor of granting 

preliminary injunctive relief. The district court then 

balanced Pappan's irreparable harm against Hardee's and 

MRO's irreparable harm and determined that the balancing 

of hardships weighed against granting preliminary 

injunctive relief. Accordingly, the district court declined to 

consider the fourth factor as all four (4) factors must favor 

the granting of injunctive relief. However, the court then 

noted that the public interest weighed in favor of granting 

preliminary injunctive relief. Report & Recommendation, 11 

n.13. 

A. 

With respect to the first factor, Hardee's and MRO must 

demonstrate that their claim of damage from unauthorized 

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trademark use is likely to succeed at trial. To prevail on an 

infringement claim under S 32 of the Act, Hardee's and 

MRO must demonstrate that Pappan's use of the ROY 

ROGERS marks was/is unauthorized. Jiffy Lube, 968 F.2d 

at 375 (citing United States Jaycees v. Philadelphia Jaycees, 

639 F.2d 134, 137 (3d Cir. 1981)). Under S 43(a) of the 

Lanham Act, Hardee's and MRO can demonstrate injury

from Pappan's use of the ROY ROGERS marks if such use 

is "likely to create confusion concerning the origin of the 

goods or services." Jiffy Lube, 968 F.2d at 375 (citing 

Opticians, 920 F.2d at 192). 

"Likelihood of confusion exists when consumers viewing 

the mark would probably assume that the product or 

service it represents is associated with the source of a 

different product or service identified by a similar mark." 

First Keystone Fed. Sav. Bank v. First Keystone Mortgage, 

Inc., 923 F. Supp. 693, 703-04 (E.D. Pa. 1996)(citing Fisons 

Horticulture, Inc. v. Vigoro Indus., Inc., 30 F.3d 466, 472 (3d 

Cir. 1994)). This court has held that where the identical 

mark is used concurrently by unrelated entities, the 

likelihood of confusion is inevitable. Opticians, 920 F.2d at 

195; United States Jaycees, 639 F.2d at 142. It appears to 

be undisputed that Pappan is continuing to use the ROY 

ROGERS marks. The district court determined that such 

use created a likelihood of confusion among consumers 

concerning the origin of the goods and services. Report & 

Recommendation, 4. Accordingly, the district court found 

that the first factor -- the likelihood that Hardee's and MRO 

will prevail on the merits -- weighed in favor of granting 

preliminary injunctive relief. We agree. 

Pappan disputes the district court's determination and 

alleges several Lanham Act defenses. 15 U.S.C. S 1115(b). 

Pappan asserts that these defenses render the likelihood 

that Hardee's and MRO will prevail on the merits 

speculative. If a defendant prevails on one of the statutory 

defenses in a trademark infringement case, "the plaintiff 

loses the presumption of validity, ownership and right to 

protection." First Keystone, 923 F. Supp. at 701 (citing Ford 

Motor Co. v. Summit Motor Prods., 930 F.2d 277, 291 (3d 

Cir.), cert. denied, 502 U.S. 939, 112 S.Ct. 373, 116 L.E.2d 

324 (1991)). Pappan asserts that the doctrines of laches 

 6 
and acquiescence apply in this case and preclude a finding 

that Hardee's and MRO are likely to prevail on the merits 

of their infringement claim. The district court considered 

Pappan's statutory defenses and determined that neither 

laches nor acquiescence was a viable defense to Hardee's 

and MRO's infringement claim. 

Laches is an equitable doctrine that prevents recovery 

when a defendant can show inexcusable delay in instituting 

suit and prejudice to the defendant resulting from such 

delay. First Keystone, 923 F. Supp. at 701 (citing University 

of Pittsburgh v. Champion Prods., Inc., 686 F.2d 1040, 1044 

(3d Cir.), cert. denied, 459 U.S. 1087, 103 S.Ct. 571, 74 

L.E.2d 933 (1982)). The doctrine of acquiescence applies 

when the trademark owner, by affirmative word or deed, 

conveys its implied consent to another. 4 McCarthy On 

Trademarks and Unfair Competition, S 31.51 at 31-76 (4th 

ed. 1997). The facts of this case show that Hardee's and 

MRO sought a preliminary injunction one (1) month after 

the franchises were terminated. 

Pappan asserts that the relevant time period in 

considering Hardee's and MRO's delay is the fifteen (15) 

month period during which Pappan was failing to pay the 

required royalty and advertising payments while continuing 

to use the ROY ROGERS marks. As the district court held, 

however, Pappan did not begin infringing on the ROY

ROGERS marks until Hardee's and MRO terminated 

Pappan's franchise agreements. Until that time, Hardee's 

and MRO had no basis upon which to seek an injunction, 

and their failure to do so does not constitute delay. 

Similarly, Pappan argues that Hardee's and MRO 

consented to Pappan's trademark infringement when they 

continued to do business with Pappan after Pappan began 

defaulting on its required fees in late 1995. But Pappan 

again confuses the relevant time period; Pappan did not 

begin infringing upon Hardee's and MRO's trademark until 

March 20, 1997. There is no evidence that Hardee's and 

MRO continued to do business with Pappan after this date. 

Accordingly, the district court determined that the

doctrines of laches and acquiescence were not applicable in 

that there was no unreasonable delay in applying for relief. 

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Report & Recommendation, 7. We agree and uphold the

district court's ruling on the issue of Hardee's and MRO's 

likelihood of success on the merits without further

discussion. 

B. 

The second factor a court must consider before granting 

preliminary injunctive relief is the extent to which plaintiff 

will suffer irreparable injury if preliminary injunctive relief 

is denied. Grounds for irreparable injury include loss of 

control of reputation, loss of trade, and loss of goodwill. 

Opticians, 920 F.2d at 195. Irreparable injury can also be 

based upon the possibility of confusion. Id. at 196. This 

court has held that once the likelihood of confusion caused 

by trademark infringement has been established, the

inescapable conclusion is that there was also irreparable 

injury. Opticians, 920 F.2d at 196-97 (citations omitted). 

The district court found that Hardee's and MRO had 

shown irreparable injury given that the court had 

previously found that the likelihood of confusion was 

inevitable because the identical trademark was being used 

simultaneously by both Pappan and MRO. Accordingly, the 

district court determined that the second factor weighed in 

favor of granting preliminary injunctive relief. Report & 

Recommendation, 9. 

C. 

The third factor a district court must consider before 

granting preliminary injunctive relief is the harm defendant 

might suffer should the relief be granted. In considering 

this harm, the district court must undertake to balance the 

hardships to the respective parties. Opticians, 920 F.2d at 

197. The court must "ensure that the issuance of an

injunction would not harm the infringer more than a denial 

would harm the mark's owner." Id. 

The district court found that Pappan would suffer 

irreparable injury should it be enjoined from using the ROY 

ROGERS marks. Report & Recommendation, 9. In support 

of this finding, the district court noted that Pappan had 

 8 
continued to invest money in the restaurants, including 

several months of logoed product, and had continued to 

build up the goodwill of its customers. Id. The district court 

then balanced the hardships to the parties and found in 

favor of Pappan. 

The district court determined that Hardee's and MRO had 

failed to specify in what manner they had been harmed. 

The district court also found that Hardee's and MRO had 

demonstrated a lack of interest in the ROY ROGERS system 

for years. The district court stated: 

 Hardee's and MRO's apparent efforts to disengage 

 themselves from the Roy Rogers system does not 

 suggest that they will suffer greater harm than Pappan 

 if the injunction is denied. Moreover, it was largely 

 because of [Hardee's and MRO's] failure to take any 

 action to terminate Pappan's franchises for fifteen 

 months knowing that it was not receiving their royalty 

 payments and advertising fees and their willingness to 

 forgive past due fees that Pappan continued to invest 

 monies into its restaurants. Under these 

 circumstances, it does not appear that the hardship 

 suffered by [Hardee's and MRO] at this juncture 

 outweighs the harm which would befall Pappan should 

 we grant the requested relief. 

Report & Recommendation, 10. This finding by the district 

court constitutes clear error, and we now reverse. 

The district court's determination that Hardee's and MRO 

failed to specify in what manner they had been injured is 

unsupported by the record. The district court found, and 

we agree, that Hardee's and MRO have clearly 

demonstrated irreparable injury as a result of Pappan's 

non-consensual use of the ROY ROGERS marks in the 

forms of loss of control of reputation and the inevitable 

likelihood of confusion to consumers. Pappan, on the other 

hand, has failed to demonstrate irreparable injury.

Moreover, any difficulties Pappan now faces were brought 

on by its own conduct in continuing to use the ROY 

ROGERS marks despite the termination of the franchise 

agreements. 

 9 
Irreparable harm "must be of a peculiar nature, so that 

compensation in money alone cannot atone for it." 

Opticians, 920 F.2d at 195 (citing Morton v. Beyer, 822 F.2d 

364, 372 (3d Cir. 1987)). The district court found that 

Pappan would suffer significant financial injuries should 

the injunction issue, including several months worth of 

logoed product. The district court, however, did not set 

forth what alleged injuries Pappan would suffer that could 

not be remedied by money damages. Pappan argues that it 

would suffer the loss of its customers' goodwill if it were 

forced to convert to a non-affiliated restaurant and then to 

another chain shortly thereafter. However, the portion of 

the case cited by Pappan in support of this argument 

addresses the injuries of the party whose mark is being 

infringed. Opticians, 920 F.2d at 195. The concept of 

customers' goodwill in the context of trademark law is 

goodwill for the mark, not for the specific restaurant. 

The self-inflicted nature of any harm suffered by Pappan 

also weighs in favor of granting preliminary injunctive relief. 

This court held in Jiffy Lube and Opticians that a party's 

self-inflicted harm by choosing to stop its own performance 

under the contract and thus effectively terminating the 

agreement is outweighed by the immeasurable damage 

done to the franchisor of the mark. Jiffy Lube, 968 F.2d at 

379; Opticicans, 902 F.2d at 197. Lastly, Mr. Demetrios 

Pappan, President of Pappan Enterprises, Inc., stated in his 

affidavit dated June 9, 1997, that "Pappan could stop using 

the ROY ROGERS marks in the next four to six months

without being harmed, ... ." Affidavit of Demetrios Pappan, 

P 8. Accordingly, it does not appear that Pappan will suffer 

irreparable harm should the preliminary injunction issue. 

In balancing the hardships to the parties, we believe that 

any injury Pappan might suffer as a result of the issuance 

of a preliminary injunction is outweighed by the irreparable 

harm Hardee's and MRO would continue to suffer as a

result of Pappan's non-consensual use of the ROY ROGERS 

marks. Pappan argues that the district court was correct in 

finding that because Hardee's and MRO had demonstrated 

a lack of interest in the ROY ROGERS system for years, any 

injury they might suffer as a result of Pappan's continued 

use of the marks was minimal. Pappan further argues that 

 10 
Hardee's and MRO's alleged injury is self-inflicted, resulting 

from Hardee's and MRO's failure to fulfill their obligations 

under the franchise agreements. 

We first note that Pappan is not arguing that Hardee's 

and MRO have abandoned the ROY ROGERS marks. 

Appellee's Brief, 22-23. Pappan instead appears to argue 

that because Hardee's and MRO have reduced the number 

of ROY ROGERS franchisees, they have demonstrated a

lack of interest in the ROY ROGERS system and thus 

Pappan's continued unauthorized use of the ROY ROGERS 

marks will cause them little harm. Courts have recognized 

that a trademark owner's decision to reduce the size of its 

business or to cease operations alone does not undermine 

the owner's legal right to enforce and protect its trademark. 

See Defiance Button Machine Co. v. C & C Metal Prods. 

Corp., 759 F.2d 1053, 1061 (2d Cir.), cert . denied, 474 U.S. 

844, 106 S.Ct. 131, 88 L.Ed.2d 108 (1985); Berni v. Int'l 

Gourmet Restaurants of Am., Inc., 838 F.2d 642, 646 (2d 

Cir. 1988). Moreover, Hardee's and MRO have clearly

established irreparable injury. 

With respect to Pappan's argument that Hardee's and

MRO's injury is self-inflicted and thus precludes the 

issuance of a preliminary injunction, the courtfinds 

Pappan's argument to be without merit. Pappan's nonconsensual use of the ROY ROGERS marks is the direct 

cause of Hardee's and MRO's irreparable injury. Pappan 

argues that Hardee's and MRO's injury is self-inflicted due 

to their failure to fulfill their contractual obligations to 

Pappan. In other words, Pappan argues that because 

Hardee's and MRO have failed to fulfill their contractual 

obligations, Pappan has been forced to continue using the 

ROY ROGERS marks following termination of the franchise 

agreements. 

"Under basic contract principles, when one party to a 

contract feels that the other contracting party has breached 

its agreement, the non-breaching party may either stop 

performance and assume the contract is avoided, or 

continue its performance and sue for damages. Under no 

circumstances may the non-breaching party stop 

performance and continue to take advantage of the 

contract's benefits." Jiffy Lube, 968 F.2d at 376. In Jiffy 

 11 
Lube, this court followed several other courts in applying 

this law to franchise termination disputes. This court held 

that "[w]here the franchise agreement gives the franchisor 

the power to unilaterally terminate the agreement under 

certain conditions, and those conditions exist, pretermination complaints are not relevant to infringement 

under the Lanham Act. Rather, pre-termination disputes 

affect the issue of damages." Id. at 377. We believe that 

Hardee's and MRO's irreparable injury is not self-inflicted. 

Accordingly, the balancing of the parties' hardships 

weighs in favor of granting preliminary injunctive relief. 

D. 

Lastly, a district court must consider whether the 

issuance of a preliminary injunction serves the public 

interest before granting preliminary injunctive relief. "Public 

interest can be defined a number of ways, but in a 

trademark case, it is most often a synonym for the right of 

the public not to be deceived or confused." Opticians, 920 

F.2d at 197. The district court found that Pappan's use of 

the ROY ROGERS mark is likely to create confusion. The 

district court then determined that this finding mandated a 

finding that the public interest would be damaged if Pappan 

is permitted to continue using the mark. We agree and find 

that the district court did not err in finding that the public 

interest weighed in favor of granting preliminary injunctive 

relief. 

Pappan argues that the public interest does not weigh in 

favor of granting preliminary injunctive relief. Pappan cites 

no law in support of its position. In addition, Pappan 

asserts that the district court did not actually find that the 

public interest weighed in favor of granting the relief 

because the order stated that the court was not addressing 

that issue. The court did, however, address the issue of 

public interest. Report & Recommendation, 11 n.13. 

Pappan's arguments regarding the public interest do not 

merit further discussion. 

III. 

Based on the foregoing analysis, we conclude that the 

district court clearly erred in denying Hardee's and MRO's 

 12 
motion for a preliminary injunction. The district court's 

order denying Hardee's and MRO's motion for a preliminary 

injunction is hereby reversed. This case is hereby remanded 

to the district court with instructions to grant Hardee's and 

MRO's motion for a preliminary injunction. 

A True Copy: 

Teste: 

 Clerk of the United States Court of Appeals 

 for the Third Circuit 

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