Opinion ID: 420996
Heading Depth: 1
Heading Rank: 3

Heading: Material Breach Instruction

Text: 26 In its cross-appeal, BKC challenges the finding that some of the franchises were wrongfully terminated. The source of this complaint is the district court's instruction to the jury that a franchise could not be revoked absent a material breach of the particular agreement. This, BKC says, is an erroneous statement of Florida law. In essence, BKC urges that it was entitled to strictly enforce the termination provisions of the agreements without regard to the materiality of the alleged defaults. 27 Although the Florida courts have recognized that the terms of franchise agreements are enforceable, North Dade Imported Motors, Inc. v. Brundage Motors, Inc., 221 So.2d 170, 177 (Fla.Dist.Ct.App.), it is elementary that the mere breach of an agreement which causes no loss ... will not sustain a suit ... for damages, much less rescission. Block v. City of West Palm Beach, 112 F.2d 949, 952 (5th Cir.1940) (quoted in, Westcap Government Securities, Inc. v. Homestead Air Force Base Federal Credit Union, 697 F.2d 911, 913 (11th Cir.1983)). Pursuant to this rule, the Florida courts, and this court construing Florida law, have held that a party may not escape performance under a contract on the ground that a tender was not made by the date specified in the contract. Rather, a party who tenders late may enforce the contract with due allowance for any damage caused by the tardiness. See, e.g., Westcap Government Securities, Inc., 697 F.2d at 914; Blaustein v. Weiss, 409 So.2d 103 (Fla.Dist.Ct.App.1982); Jackson v. Holmes, 307 So.2d 470 (Fla.Dist.Ct.App.), cert. denied, 318 So.2d 404 (Fla.1975); Larsen v. Miami Gardens Dev. Corp., 299 So.2d 50 (Fla.Dist.Ct.App.1974); National Exhibition Co. v. Ball, 139 So.2d 489 (Fla.Dist.Ct.App.1962). Indeed, a Florida court has refused to countenance unilateral cancellation in that context even when the contract stipulated that time was of the essence. Jackson, 307 So.2d at 471-472. Thus, although as a general rule parties to a contract may strictly enforce its terms and the courts will not rewrite an agreement to undo the consequences of a bad bargain, see, e.g., Sapienza v. Bass, 144 So.2d 520 (Fla.Dist.Ct.App.1962), the Florida courts do not blindly sanction unilateral termination of contracts when a default causes no harm to the party seeking to avoid performance. 28 Consistent with this principle, the Florida courts have indicated that the materiality of a breach is relevant when a party seeks to terminate or rescind a contractual relationship. See, e.g., Callins v. Abbatecola, 412 So.2d 58 (Fla.Dist.Ct.App.1982) (when a party sought to terminate a real estate contract on the ground that the purchaser's check was returned for insufficient funds, the court stated that the question involved here is ... whether [the tender of a bad check] ... constituted such a material breach ... as to justify ... termination .... Id. at 59); Gittlin Companies, Inc. v. David & Dash, Inc., 390 So.2d 86 (Fla.Dist.Ct.App.1980) (rescission of distributorship contract was not justified when the defendant made direct sales in violation of the exclusive distribution provision of the distributorship agreement because the breach was not material or substantial). In Gittlin Companies, 390 So.2d at 86, the Florida court cited McAlpine v. Aamco Automatic Transmissions, Inc., 461 F.Supp. 1232 (E.D.Mich.1978), in support of its holding that an immaterial breach of a distributorship agreement did not excuse performance. The McAlpine opinion states the rule followed by the district court in this case: 29 A material breach would allow the franchisees to terminate their Franchise Agreements and discontinue future performance. An immaterial breach would allow the franchisees to sue for any damage caused, but they would still be bound to continue performance under the contract. 30 461 F.Supp. at 1249. 31 We conclude that the district court's instruction comported with substantial Florida case law and reject BKC's argument to the contrary. 6 IV. Post-Termination Trademark Use
32 Each of the franchise agreements stipulates that upon termination of the franchise, the franchisee must discontinue use of the Burger King trademarks. Following the May 1979 unilateral cancellation of all 27 of Mason's franchises, Mason sought an injunction to prohibit BKC from interfering with the operation of its restaurants as Burger King franchises. At the August 1979 evidentiary hearing on this motion, BKC advised the court that it would maintain the status quo, e.g. it would not force Mason to cease operating under the Burger King name, pending a final resolution of the franchise dispute. However, BKC conditioned this offer on its right to later pursue relief for the post-termination operation. Although Mason made no explicit response to this proposal, no further mention was made of this issue and Mason limited its proof and arguments to other remedies. Thereafter, BKC provided supplies to and accepted royalties from the Mason franchises during the litigation. 33 BKC amended its complaint to add a cause of action under the Lanham Act, 15 U.S.C. Sec. 1114(1)(a), for Mason's post-termination use of the Burger King trademarks. At the close of the 1980 jury trial, the district court granted Mason's motion for a directed verdict on the Lanham Act claim. After doing so, the district court permitted BKC to again amend its complaint to include claims for common law trademark infringement, unfair competition and breach of contract based upon Mason's use of the trademarks at any restaurants whose franchise revocations might be adjudicated valid in the second trial. Finally, following the second jury's finding that certain franchises had been legally terminated, the district court proceeded with a bench trial on BKC's common law trademark, unfair competition and breach of contract causes of action. The district court held that Mason breached the franchise provisions prohibiting use of the Burger King trademark after invalidation of the agreement. Concluding that Mason had been unjustly enriched by this breach, the district court awarded BKC the profits earned by Mason as a consequence of the post-termination operation of these franchises as compensatory damages for the violation. In this order, the court found that BKC did not consent to the post-termination use of the trademark.
34 By way of cross-appeal, BKC asserts that the district court erred in directing a verdict favorable to Mason during the first jury trial on its Lanham Act claim for post-termination trademark infringement. 7 BKC maintains that it established the essential elements of federal trademark infringement when it proved that Mason displayed the Burger King marks after its right to do so had been revoked. We agree. 35 In order to prevail on a trademark infringement claim, the registrant must show that (1) its mark was used in commerce by the defendant without the registrant's consent and (2) the unauthorized use was likely to cause confusion, or to cause mistake or to deceive. 15 U.S.C. Sec. 1114(1)(a). Ordinarily, trademark infringement cases are predicated on the complaint that the defendant employed a trademark so similar to that of the plaintiff that the public will mistake the defendant's products for those of the plaintiff. See, e.g., Exxon Corp. v. Texas Motor Exchange of Houston, Inc., 628 F.2d 500 (5th Cir.1980). Also, it is well established that falsely suggesting affiliation with the trademark owner in a manner likely to cause confusion as to source or sponsorship constitutes infringement. Professional Golfers Ass'n of America v. Bankers Life & Casualty Co., 514 F.2d 665, 670 (5th Cir.1975) (emphasis supplied). See also, Control Components, Inc. v. Valtek, Inc., 609 F.2d 763, 770 (5th Cir.), cert. denied, 449 U.S. 1022, 101 S.Ct. 589, 66 L.Ed.2d 484 (1980). Thus, a trademark infringement case need not just involve imitation of the registrant's mark. The unauthorized use of a trademark which has the effect of misleading the public to believe that the user is sponsored or approved by the registrant can constitute infringement. Professional Golfers Ass'n, 514 F.2d at 670. The Lanham Act cause of action was based on the theory that by using the Burger King trademarks after the trademark license had been cancelled, Mason falsely suggested that its restaurants were sponsored by and affiliated with BKC. Because this type of infringement is cognizable under the Lanham Act, we must examine BKC's proof in light of the requirements of the statute. 36 Mason denies the use of BKC's trademark without consent because after the terminations, BKC provided supplies bearing the Burger King trademarks and accepted royalties from the Mason group. This point was stressed on several occasions in the district court. Mason advanced this argument for the first time during the hearing on Mason's motion for a directed verdict on the Lanham Act claim. The trial judge granted the motion without stating his reasons. Mason had insisted that a directed verdict was mandated because (1) BKC consented to the use of the trademark and (2) BKC did not show likelihood of confusion. Subsequently, BKC amended its complaint to allege common law trademark infringement, unfair competition and breach of contract arising from Mason's post-termination use of the trademarks. BKC and Mason stipulated that any relief for these claims would be determined by the district court in a bench trial following the second jury trial if any of the franchises were found to have been properly terminated. At the subsequent bench trial, Mason asserted that BKC could not recover for common law trademark infringement because BKC consented to Mason's continued use. The consent issue was finally resolved adversely to Mason by the district judge in his findings of fact rendered after the bench trial. The court found that rather than acquiescing in the infringement, BKC agreed at the August 1979 hearing that it would allow Mason to continue operating restaurants under the Burger King banner, provided that it retained its right to seek damages upon a later determination of its right to cancel any or all of the remaining franchises. The court found that Mason had ratified this proposal, and therefore, was estopped from claiming that BKC had agreed to the trademark use. 37 The trial court reasonably could infer that Mason acquiesced in BKC's offer to permit Mason to continue to operate its restaurants upon the condition that BKC retained its right to recover for post-termination trademark infringement. Mason did not object to this approach and acted in a manner consistent with acceptance until the close of the 1980 jury trial. From our review of the record, we cannot say that a finding of estoppel under these circumstances was clearly erroneous. 38 Because Mason used the Burger King trademarks after the revocation of that right without BKC's consent, a trademark infringement claim was established so long as the trademarks were employed in a manner that was likely to cause confusion, to cause mistake or to deceive. 15 U.S.C. Sec. 1114(1)(a). Common sense compels the conclusion that a strong risk of consumer confusion arises when a terminated franchisee continues to use the former franchisor's trademarks. A patron of a restaurant adorned with the Burger King trademarks undoubtedly would believe that BKC endorses the operation of the restaurant. Consumers automatically would associate the trademark user with the registrant and assume that they are affiliated. Any shortcomings of the franchise therefore would be attributed to BKC. Because of this risk, many courts have held that continued trademark use by one whose trademark license has been cancelled satisfies the likelihood of confusion test and constitutes trademark infringement. See, e.g., United States Jaycees v. Philadelphia Jaycees, 639 F.2d 134 (3d Cir.1981); Professional Golfers Ass'n v. Bankers Life & Casualty Co., 514 F.2d 665 (5th Cir.1975); Prompt Electric Supply Co., Inc. v. Allen-Bradley Co., 492 F.Supp. 344, 349 (E.D.N.Y.1980); National Board of YWCA v. YWCA of Charleston, S.C., 335 F.Supp. 615, 628-629 (D.S.C.1971). BKC proved that Mason employed the Burger King trademarks after its franchise agreements were properly cancelled. This use was without BKC's consent and was likely to cause confusion. Accordingly, we hold that the district court erred in directing a verdict against BKC on its Lanham Act complaint and remand for a determination of the appropriate relief in conformity with 15 U.S.C. Sec. 1117. 8 39
40 As pointed out earlier, the district court concluded that Mason breached the provisions of the franchise agreements which prohibited the post-termination use of the Burger King trademarks. Although BKC also argued that Mason was guilty of common law trademark infringement and unfair competition through the continued use of the trademark, the district court made no findings on those claims. Then, after ruling that BKC had not shown certain consequential damages from the post-termination use of the trademarks, the court awarded BKC the profits that Mason earned at the properly terminated franchises as compensatory damages for the breach. BKC complains that the trial court should have allowed consequential damages; Mason, on the other hand, alleges that the trial court erred in ordering it to disgorge the profits. 41 BKC's assertions need not detain us long. It sought damages based on its contention that Mason's continued operation damaged its reputation and thwarted its plans to expand in the areas in which Mason franchises were located. After considering BKC's evidence in support of those damages, the district court determined that (1) BKC had not established that Mason had tarnished its image, and (2) BKC did not prove that Mason's failure to close its stores prevented BKC from carrying out its marketing or development plans. Contrary to BKC's suggestion, the district court did not deny damages because the amounts were uncertain--the court found that BKC did not prove that Mason's actions caused the claimed harm. 42 This factual finding was not clearly erroneous. A reading of the record confirms that BKC did not prove with sufficient certainty that Mason's continued operation caused the purported injury. While it is clear that a wrongdoer cannot escape liability simply because the harm he caused is difficult to value, see, e.g., ABC-Paramount Records, Inc. v. Topps Record Distributing Co., 374 F.2d 455 (5th Cir.1967), it is equally well established that a plaintiff must make a positive showing that the defendant was in fact responsible for the alleged damages. See, e.g., Asgrow-Kilgore Co. v. Mulford Hickerson Corp., 301 So.2d 441, 445 (Fla.1974). BKC simply failed to meet its burden of proof. 43 The award of profits is more troublesome. Mason and BKC focus their arguments on the propriety of ordering an accounting of profits for trademark infringement. As the parties recognize, a trademark infringer can be required to turn over the profits he earns during the period of the infringement subject to the discretion of the district judge and in light of the equities of the case. 15 U.S.C. Sec. 1117. See, e.g., Maltina Corp. v. Cawy Bottling Co., Inc., 613 F.2d 582 (5th Cir.1980); Mead Johnson & Co. v. Baby's Formula Service, Inc., 402 F.2d 19 (5th Cir.1968). However, the district court did not find that Mason infringed upon a trademark. Rather, faced with BKC's claims for trademark infringement, unfair competition and breach of the franchise agreements, the trial judge found only that Mason violated the franchise agreements. For that infraction, the court awarded Mason's profits as compensatory damages. 9 44 Although an award of the infringer's profits can be an appropriate measure for damages for federal or state trademark infringement, e.g. Maltina Corp., 613 F.2d at 584-585; 15 U.S.C. Sec. 1117; Fla.Stat.Ann. Secs. 495.131, 495.141 (West 1972), disgorgement of profits earned is not the remedy for breach of contract. Under Florida law, a contract plaintiff may recover damages in an amount which will place him in the position that he would have obtained but for the breach or the damages that are the natural and proximate result of the default, subject to the rules of foreseeability and certainty. 17 Fla.Jur.2d Damages Sec. 26 (1980); Juvenile Diabetes Research Foundation v. Rievman, 370 So.2d 33 (Fla.Dist.Ct.App.1979); Popwell v. Abel, 226 So.2d 418 (Fla.Dist.Ct.App.1969); Olin's Inc. v. Avis Rental Car System of Florida, Inc., 172 So.2d 250 (Fla.Dist.Ct.App.), cert. denied, 177 So.2d 482 (Fla.1965). In some cases, if the offending conduct causes the non-breaching party to lose profits, the defendant can be required to compensate the plaintiff for the lost profits. Sampley Enterprises, Inc. v. Laurilla, 404 So.2d 841 (Fla.Dist.Ct.App.1981). Consequently, if BKC had demonstrated that Mason's refusal to cease operation after the terminations, as required by the franchise agreements, caused the injury to its reputation or the delay in development as it claimed, those damages could have been recovered as the natural and proximate result of the breach. But the district court found that Mason's breach did not cause that harm. 45 There is no support in the record that the profits earned by Mason equalled BKC's damages from the breach. That would be correct only if BKC proved that it would have taken over the operation of the franchises after termination and BKC reasonably could have earned the profits that were generated by Mason from such operation. Because BKC failed to show that it was entitled to Mason's profits as compensation for the breach, the award of such profits as compensatory damages for breach of contract was error and must be vacated. 10 46
47 We have concluded that Mason's post-termination use of the Burger King trademarks at those restaurants whose franchise agreements were lawfully cancelled constituted trademark infringement under Sec. 1114(1)(a) of the Lanham Act. We also hold that it was error to award profits, a trademark infringement remedy, for breach of the franchise agreements. While it may be tempting to simply treat the profits fixed as damages for the breach of contract as the proper measure of recovery for the Lanham Act trademark infringement and, consequently, avoid the necessity of a remand, such a course of action would be an improper exercise of our appellate role. 48 The damages provision of the Lanham Act stipulates: 49 When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled, subject to the provisions of sections 1111 and 1114 of this title, and subject to the principles of equity, to recover (1) defendant's profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action. The court shall assess such profits and damages or cause the same to be assessed under its direction. In assessing profits the plaintiff shall be required to prove defendant's sales only; defendant must prove all elements of cost or deduction claimed. In assessing damages the court may enter judgment, according to the circumstances of the case, for any sum above the amount found as actual damages, not exceeding three times such amount. If the court shall find that the amount of the recovery based on profits is either inadequate or excessive the court may in its discretion enter judgment for such sum as the court shall find to be just, according to the circumstances of the case. Such sum in either of the above circumstance shall constitute compensation and not a penalty. The court in exceptional cases may award reasonable attorney fees to the prevailing party. 50 15 U.S.C. Sec. 1117 (emphasis supplied). 51 This section vests considerable discretion in the district court. Guided by the principles of equity, the court may award the defendant's profits. Additional extraordinary relief such as treble damages and attorney's fees are available under the statute if the district court believes that such an assessment would be just. The statute also provides for the adjustment of any profits award if it is inadequate or excessive. This remedial accommodation clearly envisions the exercise of the trial judge's discretion. Consequently, it would be inappropriate for this court to attempt a determination of damages in the first instance. See Boston Professional Hockey Ass'n v. Dallas Cap & Emblem Mfg., Inc., 597 F.2d 71, 78 (5th Cir.1979). This is the traditional and statutory function of the district court. 11