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Iceny USA, LLC v. M&M's, LLC

United States District Court, D. Maryland

October 10, 2019

ICENY USA, LLC, Plaintiff,
v.
M&M'S, LLC, MARVIN CASTRO MONDRAGON and GABRIEL EUGENE PICO, Defendants.

          MEMORANDUM OPINION

          THEODORE D. CHUANG UNITED STATES DISTRICT JUDGE.

         Plaintiff ICENY USA, LLC ("ICENY"), a company specializing in the preparation, marketing, and sale of Thai-style rolled ice cream products, has filed suit against Defendants M&M's, LLC, Marvin Castro Mondragon, and Gabriel Eugene Pico, alleging trademark infringement and breach of contract claims arising out of a franchise agreement authorizing Defendants to operate an ICENY Thai-style ice cream shop franchise. Pending before the Court is ICENY's Motion for a Temporary Restraining Order and Preliminary Injunction. On September 6, 2019, after a hearing at which Defendants failed to appear, the Court entered a temporary restraining order ("TRO") against Defendants. On October 1, 2019, the Court held a preliminary injunction hearing at which Defendants again failed to appear. For the reasons set forth below, the Motion, now construed as a Motion for a Preliminary Injunction, is GRANTED IN PART and DENIED IN PART.

         BACKGROUND

         ICENY, a company based in Silver Spring, Maryland, considers itself to be at the forefront of the development of contemporary ice cream shops featuring Thai-style smashed and rolled ice cream products. ICENY opened its first ice cream shop in the United States in 2016 and licenses such enterprises as franchises, stylized as "I-CE-NY" shops, across the country. Am. Compl. ¶ 1, ECF No. 9. ICENY has registered the mark "I-CE-NY" with a distinctive logo with the U.S. Patent and Trademark Office, which has assigned it registration number 5, 120, 527. Id. ¶ 12. ICENY also uses other unregistered trade names, marks, logos, and slogans in connection with the proprietary goods and services offered in I-CE-NY shops, specifically its system to prepare, market, and sell Thai ice cream rolls (the "ICENY System"). Included in the ICENY System are the slogans "they see me rollin"' and "lick me, I'm yours." Teeradej Naruenartwanich Deck ¶ 7, ECF No. 10-2.

         Employees at I-CE-NY franchises prepare Thai ice cream rolls tailored to customers' orders by pouring flavored, milk-based liquid onto a very cold metal surface, known as an "anti-griddle," and spreading and manipulating the liquid with small paddles as it freezes. Am. Compl. ¶ 10. The milk-based liquid is prepared according to ICENY's proprietary specifications and secret recipes which also allow for fruit, candy, or other flavoring to be mixed into the liquid base. As the liquid base freezes into ice cream on the surface of the anti-griddle, an employee uses a spatula to turn strips of the ice cream into rolls. The rolls are then served with toppings requested by the customer, who may choose from certain special combinations displayed in the shop.

         I. The Franchise Agreement

         Effective July 13, 2018, ICENY and M&M's, LLC ("M&M"), of which Castro and Pico are members, entered into a franchise agreement ("the Franchise Agreement") to open and operate an I-CE-NY ice cream shop at 1979 East 16th Street, Suite SB-7, Yuma, Arizona 85366 ("the Shop"). The Shop was the first Thai ice cream roll shop in the Yuma, Arizona area. ICENY alleges that, as franchisees, Defendants were taught how to make Thai ice cream rolls; trained in the management and operation of an I-CE-NY ice cream shop; and authorized to use ICENY's registered mark and other proprietary materials from the ICENY System, including confidential recipes and ingredient specifications, an operations manual, marketing photographs and other material for use on social media, distinctive exterior and interior decor, slogans, color schemes, fixtures, and furnishings. The Franchise Agreement permitted Defendants to operate the Shop as an I-CE-NY ice cream shop for a period of 10 years, but Defendants did so only from January 2019 until April 2019.

         As relevant here, the Franchise Agreement required M&M to pay ICENY initial franchise fees, weekly royalties, and brand fund contributions, and to report weekly net sales. The Franchise Agreement also provided that M&M may not disclose "trade secrets and confidential and proprietary information and know-how" associated with the ICENY System "during the term of [the Franchise] Agreement or at any time thereafter" and may not use or duplicate, or disclose to others such that they might use or duplicate, the ICENY System within any other business. Franchise Agreement ¶¶ 15.1.1, 15.1.2, Mot. Prelim. Inj. Ex. 1 at 29-30, ECF No. 10-6. M&M is also not permitted to "sell, assign, transfer, convey, pledge, encumber or give away any direct or indirect interest" in the Franchise Agreement or "in substantially all of the assets" of the Shop without ICENY's prior written consent. Franchise Agreement ¶ 16.2. Upon termination or expiration of the Franchise Agreement, M&M must immediately cease operating the Shop and using the I-CE-NY mark and the ICENY System, pay any amounts owed to ICENY, and make any necessary alterations and modifications to the Shop to clearly distinguish it from its former appearance as an I-CE-NY franchise.

         Finally, the Franchise Agreement contains non-competition provisions that state:

You covenant and agree that, except as we otherwise approve in writing, during the Initial Term, and for a continuous period of one (1) year following the expiration, transfer or termination of this Agreement, you will not, either directly or indirectly, for yourself or through, on behalf of, or in conjunction with any person or legal entity . . . Own, maintain, operate, engage in, grant a franchise to, advise, help. . . or have any interest in, either directly or indirectly, any "Competing Business", which is defined as: (1) a restaurant business that offers as a core menu item ice cream, frozen yogurt, cakes, pies, smoothies, shakes, specialty beverages, frozen dessert products, or any menu item that constitutes fifteen percent (15%) of sales at I-CE-NY shops; or (2) whose method of operation or trade dress is similar to that employed by the System. During the term of this Agreement, there is no geographical limitation on this restriction. Following the expiration, transfer or termination of this Agreement, this restriction shall apply to any Competing Business located within a five (5) mile radius of [the Shop] and any Competing Business located within a five (5) mile radius of any then-existing I-CE-NY shop[.]

Franchise Agreement ¶¶ 15.2.2, 15.2.2.1 ("the Non-Competition Clause").

         In the Franchise Agreement, Castro and Pico, as owners and members of M&M, agreed to be personally bound by the Non-Competition Clause and the covenants requiring non-disclosure or unauthorized use of the ICENY System, and to personally guarantee and assume M&M's obligations under the Franchise Agreement.

         II. The Termination

         In early April 2019, Castro requested that ICENY Director of Operations Teeradej Naruenartwanich meet with M&M's landlord to discuss issues related to the lease for the Shop. On April 10, 2019, Naruenartwanich met with the landlord, who requested that Naruenartwanich sign a guarantee of the lease. Naruenartwanich told the landlord to send the document to him by email, as he could not sign an agreement he had not seen before. Naruenartwanich never received this document. Then, as of April 12, 2019, Defendants ceased all communication with ICENY. Specifically, they stopped providing sales reports and making franchise fee payments as required by the Franchise Agreement. Naruenartwanich and ICENY President Apisit Sutthisophaarporn unsuccessfully attempted to contact both M&M and Castro multiple times in May and June 2019.

         On June 23, 2019, Naruenartwanich traveled to Yuma, Arizona to assess the status of Defendants' business and their failure to pay franchise fees. Naruenartwanich discovered that Castro had taken steps to change the name of the Shop from "I-CE-NY" to "PARAD-ICE CREAM ROLLS." Naruenartwanich Decl. ¶ 4. Although the store had a sign referencing the business name "PARAD-ICE," the exterior sign on the Shop continued to display the I-CE-NY mark, the interior decor had not changed, and the cups and supplies inside the Shop continued to bear the I-CE-NY mark. The same Thai ice cream rolls sold under the I-CE-NY brand, and made pursuant to ICENY's proprietary recipes and procedures, were being sold under different names. When Naruenartwanich informed Castro that the changes were in breach of the Franchise Agreement, Castro advised that he had turned over the business to another party and was no longer involved in its operation. Before Naruenartwanich left Yuma, however, he returned to the Shop and observed Castro and his fiancee working inside.

         On June 28, 2019, ICENY issued a Notice of Default and Termination to M&M. The Notice cited as grounds for termination the failure to pay franchise fees and royalties on sales; the failure to report net sales on a weekly basis; various activities that violated the Franchise Agreement, including selling unapproved products, using non-ICENY marks, and using ICENY's marks in a business with a different name; and transferring the business to another party operating an ice cream business without ICENY's consent. ICENY demanded that M&M pay past-due royalties and early termination damages and that it comply with the post-termination obligations outlined in the Franchise Agreement, including ceasing the use of the I-CE-NY mark and confidential and proprietary materials, and complying with the covenant not to compete with ICENY.

         In response, on July 2, 2019, an attorney for M&M and Castro, Jon Schneider, sent to ICENY's counsel a "Mutual Termination and Release Agreement," allegedly signed by Naruenartwanich and Castro on April 10, 2019 and sent to Sutthisophaarporn on June 19, 2019, four days before Naruenartwanich's June 23, 2019 visit to the Shop. Mot. Prelim. Inj. Ex. 3, ECF No. 10-8. The Mutual Termination and Release Agreement ("the Mutual Termination") purported to release all claims between the parties, waive certain post-termination requirements, such as the Non-Competition Clause, and acknowledge that M&M had made a $15, 000 cash payment as a complete settlement of its financial obligations. Both ICENY and Naruenartwanich strenuously dispute the validity of this document, deny ever receiving such cash payment, and assert that Naruenartwanich's signature on the document is either forged or copied from another document. Although the Mutual Termination contains a signature block for a notary public to attest that Naruenartwanich and Castro actually signed the document, that signature block was not completed. According to Naruenartwanich, and as confirmed by a recording of his meeting with Castro on June 23, 2019, Castro did not refer to the Mutual Termination during that meeting. After ICENY's counsel informed Schneider on July 9, 2019 that ICENY considered the Mutual Termination to be a forgery, Schneider informed ICENY on July 15, 2019 that M&M and Castro had retained new counsel, Leonard Sominsky. Sominsky later advised ICENY's counsel that he represented only Castro individually for purposes of filing a Chapter 7 bankruptcy.

         III. Post-Termination

         On July 24 and 29, 2019, ICENY reviewed the PARAD-ICE website and social media pages and notified Sominsky that Defendants were still improperly using the ICENY System and infringing on ICENY's mark in their operation of the Shop and in online marketing. ICENY specifically asserted that pictures viewable on the Shop's Yelp, Facebook, and Instagram pages used ICENY marketing images previously provided to Defendants before the termination of the Franchise Agreement, and that these pages also displayed images of I-CE-NY-branded serving cups, artwork, and slogans. Together with Naruenartwanich's observations of the Shop in June 2019, ICENY asserted that this conduct reflected that Castro was continuing to operate the Shop in violation of the Franchise Agreement's post-termination obligations.

         On July 30 and August 1, 2019, Sominsky reported to ICENY's counsel that Castro had "surrendered the store he once operated as . . . franchisee to his landlord" and had "handed over the keys to his manager Mr. Gabriel Pico," who continued to operate the Shop but apparently had not informed the landlord or ICENY. Sominsky Emails, Mot. Prelim. Inj. Ex. 8 at 1, 3, ECF No. 10-13. On August 19, 2019, however, the landlord informed Sutthisophaarporn that M&M and Castro remained in possession of the Shop, but that Castro wanted to assign the lease to another party.

         On August 22, 2019, Naruenartwanich again reviewed PARAD-ICE's Facebook, Yelp, and Instagram pages and saw that "they were largely unchanged" and continued to display the I-CE-NY mark and ICENY's artwork on cups and paper goods at the Shop. Naruenartwanich Deck ¶13.

         On September 26, 2019, a private investigator retained by ICENY visited the Shop and observed that it was still operating as a Thai ice cream roll business using materials from the ICENY System. Although the Shop uses the name PARAD-ICE, the I-CE-NY mark remains displayed above the front entrance to the Shop; the I-CE-NY name appears on the framed business license displayed inside the Shop; and the mark is stamped on the serving cups and spoons used at the Shop. The Shop also continues to prepare the Thai ice cream rolls using the same anti-griddle introduced by ICENY. As of September 30, 2019, the PARAD-ICE Facebook page associated with the Shop displayed pictures of Thai rolled ice cream, the I-CE-NY mark, and the ICENY slogan, "lick me, I'm yours." Second Apisit Sutthisophaarporn Decl. ¶ 2, ECF No. 27. The PARAD-ICE website refers to possible franchising of PARAD-ICE shops and references "Proprietary and Proven Recipes," which ICENY contends are its recipes made available to Defendants pursuant to the Franchise Agreement. Id.

         IV. Procedural History

         On August 21, 2019, ICENY filed suit in this Court against Defendants. In its Amended Complaint, filed on August 22, 2019, it seeks a declaratory judgment that the Franchise Agreement was validly terminated and that the Mutual Termination is invalid and unenforceable. ICENY also asserts claims for: (1) breach of contract for failure to pay franchise fees and royalties and to comply with post-termination obligations and the Non-Competition Clause; (2) federal and state trademark infringement and unfair competition for unauthorized use of the I-CE-NY mark and other proprietary materials and information associated with the ICENY System; and (3) unjust enrichment from Defendants' continued operation of the Shop and use of ICENY's mark, confidential recipes and procedures, and proprietary materials. ICENY also requests attorney's fees and costs.

         On August 23, 2019, ICENY filed its Motion for a Temporary Restraining Order and a Preliminary Injunction seeking to enjoin Defendants and their "agents, employees, affiliated companies, attorneys, and all those in active concert or participation with any of them" from, in substance: (1) using the I-CE-NY mark and ICENY System, including trade dress and confidential information, in any manner whatsoever; (2) operating any business or selling of any goods or services under the name I-CE-NY, or any mark confusingly similar to it, or under any name or mark in any manner likely to give the public the impression that Defendants are associated with the ICENY System; (3) failing to alter the formerly franchised Shop in a manner necessary to distinguish it from the ICENY System; and (4) disclosing any trade secrets, confidential or proprietary information, or know-how of the ICENY System, including without limitation, any recipes, procedures, techniques, or other data that ICENY provided to them. ICENY also requests an injunction requiring that, for a period of one year from Defendants' compliance with the preceding restrictions, Defendants refrain from operating a business that would violate the Franchise Agreement's Non-Competition Clause.

         On September 5, 2019, the Court held a hearing on the Motion. No Defendant appeared or opposed the Motion. At the hearing, ICENY's counsel advised the Court that Pico was formally served with process on August 28, 2019. Although copies of the Amended Complaint and Motion were sent by Federal Express with a signature requirement to the other Defendants' last known addresses, the packages were not delivered because no one was present to sign for them. ICENY also sent copies of the Amended Complaint, the Motion, and hearing notice to Sominsky, the last-known counsel for Castro, and the Court sent an email notice of the hearing to Sominsky, but there was no confirmation that Sominsky provided those materials to any of Defendants. Consequently, the Court considered only whether a TRO should be granted.

         Based on the submitted materials, the Court granted a TRO and enjoined Defendants for a period of 14 days from using the I-CE-NY mark, using or disclosing ICENY's confidential or proprietary methods, processes, or recipes obtained pursuant to the Franchise Agreement, or continuing to use slogans, tag lines, artwork, photographs, decor or other intellectual property provided by ICENY. The TRO also barred Defendants, pursuant to the Non-Competition Clause, from operating a business offering Thai ice cream rolls at the Shop or within a five-mile radius of the Shop or another I-CE-NY shop. The TRO went into effect on September 12, 2019, the date that ICENY posted the required bond, and was set to expire on September 26, 2019. Because ICENY continued to have difficulties effecting service of process on Castro and M&M, the Court found good cause to the extend the TRO, pursuant to two different orders, for a total of 14 additional days, until October 10, 2019.

         On October 1, 2019, the Court held a preliminary injunction hearing. Defendants again failed to appear or oppose the Motion. Because ICENY had yet to effect service of process on M&M or Castro, ICENY's counsel narrowed ...


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