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ACG Pizza Partners, LLC v. Mykull Enterprises, Inc.

United States District Court, M.D. Georgia, Macon Division

August 28, 2014

ACG PIZZA PARTNERS, LLC, Plaintiff,
v.
MYKULL ENTERPRISES, INC., and MICHAEL EUGENE ELLIS, Defendants.

ORDER

MARC T. TREADWELL, District Judge.

This action involves a dispute between a franchisor and franchisee of Stevi B's Pizza Buffet restaurants. Before the Court is the Plaintiff's motion for preliminary injunction to stop the Defendants from using Stevi B's trademarks. (Doc. 10). The Court held a hearing on the Plaintiff's motion on August 19, 2014. For the following reasons, the motion is GRANTED.

I. FINDINGS OF FACT

Based on the evidence produced prior to and during the hearing, and for the purpose of ruling on the Plaintiff's motion for preliminary injunction, the Court finds as follows:

The Stevi B's business model consists of family restaurants specializing in all-you-can-eat pizza and salad buffets prepared in accordance with particular recipes and procedures. (Doc. 1, ¶¶ 6, 7; Doc. 11-1, ¶¶ 4, 5). This business model and related intellectual property rights are licensed to others through written franchise agreements. In exchange for these rights, franchisees agree to pay their franchisor a recurring royalty based on a percentage of their gross receipts. (Doc. 1, ¶ 8; Doc. 11-1, ¶ 6).

The Plaintiff acquired the Stevi B's business model and associated trademarks in 2007 from Stevi B's Enterprises, Inc., a nonparty to this case. Through this transaction, the Plaintiff also received an assignment of Stevi B's Enterprises's then-existing franchise agreements and contract rights, which included the Franchise Agreement with Mykull Enterprises as well as the lease and sublease for the shopping center space in which the Defendants' restaurant operates.[1] (Doc. 1, ¶¶ 9-10, 14; Doc. 11-1, ¶¶ 7-8). Mykull Enterprises's obligations under the Franchise Agreement were personally guaranteed by Defendant Michael Ellis, who previously executed a written guaranty to that effect. (Doc. 1, ¶ 11; Doc. 1-1 at 73-76; Doc. 11-1, ¶ 10).

Termination of the Franchise Agreement ends the Defendants' right and license to use the Stevi B's business system and related trademarks. (Doc. 1, ¶¶ 17-18; Doc. 1-1 at 51-52; Doc. 1-2 at 3, 5; Doc. 11-1, ¶ 14). The Franchise Agreement's terms provide that it "shall terminate automatically upon delivery of written notice of termination" to the Defendants if, in pertinent part,

• the Defendants fail two or more times within a year to comply with the terms of the Agreement, regardless of whether these failures are corrected after they receive notice of the breach (Doc. 1-1 at 48, § XVI. B. 11.);
• the Defendants become insolvent or commit any affirmative act of insolvency (Doc. 1-1 at 48, § XVI. B. 8.);
• a final judgment against the Defendants remains unsatisfied for 30 days or more (Doc. 1-1, § XVI. B. 8.); or
• a lawsuit to foreclose any lien or mortgage against the restaurant premises or equipment is filed against the Defendants and is not dismissed within 30 days (Doc. 1-1 at 48, § XVI. B. 8.).

Moreover, the Agreement automatically terminates without further action by the Plaintiff or notice to the Defendants if the Defendants fail or refuse to pay royalty fees due to the Plaintiff. (Doc. 1-1 at 49, § XVI. C. 1.).

On April 28, 2014, the Plaintiff notified Ellis it was terminating the Franchise Agreement. (Doc. 1-3; Doc. 11-1, ¶¶ 12, 16). According to the notice, termination was authorized at that time because the Defendants

have not operated the franchised business in accordance with the franchise agreement on two or more occasions in the prior year; (2) have deceived [the Plaintiff] concerning [their] actual sales and, when caught, failed to account to [the Plaintiff] for the unreported revenues; 3) are insolvent; and (4) have pending against [them] one or more lawsuits seeking to foreclose a lien or mortgage against [their] business premises or equipment.

(Doc. 1, ¶ 16; Doc. 1-3 at 3; Doc. 11-1, ¶ 13). Despite the letter of termination, the Defendants continue to operate the ...


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