Baskin-Robbins Franchising LLC v. Pena

BASKIN-ROBBINS FRANCHISING LLC, et al., Plaintiffs, v. MICHAEL O. PENA, et al., Defendants.

Case No. 19-cv-06657-JSC

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

May 7, 2020

ORDER OF REASSIGNMENT AND REPORT AND RECOMMENDATION RE: PLAINTIFFS' MOTIONS FOR DEFAULT JUDGMENT AND ATTORNEYS' FEES AND COSTS

Re: Dkt. No. 19 & 29

Baskin-Robbins Franchising LLC and BR IP Holder LLC (together, "Baskin-Robbins" or "Plaintiffs") filed suit against Michael O. Pena, Jennifer Pena, and Palo Alto Sandwiches, Inc. (collectively, "Defendants"), asserting claims for breach of contract, trademark infringement, trade dress infringement, and unfair competition. (Dkt. No. 1.)¹ The Clerk of Court entered default as to all Defendants on November 27, 2019, after they failed to appear or otherwise defend themselves in this action. (See Dkt. No. 14.) Now before the Court is Plaintiffs' unopposed motion for default judgment pursuant to Federal Rule of Civil Procedure 55(b)(2), (Dkt. No. 19), and unopposed motion for attorneys' fees, (Dkt. No. 29). Because the Court has not obtained consent from all parties pursuant to 28 U.S.C. § 636, this matter must be REASSIGNED to a district court judge. See Williams v. King, 875 F.3d 500, 504 (9th Cir. 2017) (holding that magistrate jurisdiction "cannot vest until the court has received consent from all parties to an action"). After careful consideration of Plaintiffs' briefing, the Court RECOMMENDS that the newly assigned district court judge GRANT Plaintiffs' motion for default judgment and GRANT IN PART Plaintiffs' motion for attorneys' fees and costs.

BACKGROUND

I. Complaint Allegations

Upon the Clerk's entry of default, the well-pleaded factual allegations in the complaint, except those concerning damages, are deemed to have been admitted by the non-responding party. Geddes v. United Fin. Grp., 559 F.2d 557, 560 (9th Cir. 1977). The Court thus accepts the following allegations as true.

A. The Parties

Plaintiffs are Delaware limited liability companies with principal places of business in Massachusetts. (Dkt. No. 1 at ¶¶ 2, 3.) Baskin-Robbins Franchising LLC "is engaged in the business of franchising independent business persons [sic] to operate Baskin-Robbins shops throughout the United States." (Id. at ¶ 2.) BR IP Holder LP owns "the trademark, service mark, and trade name 'Baskin-Robbins' and related marks." (Id. at ¶ 3.) The membership of both Plaintiff LLCs ends with Dunkin' Donuts LLC, a Delaware limited liability company. (See id. at ¶¶ 4, 5.) "The sole member of Dunkin' Donuts LLC is Dunkin' Brands, Inc.[,] a Delaware corporation." (Id.) Thus, Baskin-Robbins is "an indirect, wholly-owned subsidiary of Dunkin' Brands, Inc." (Id., Ex. 1 at 14.) Dunkin' Brands, Inc.'s principal place of business is Canton, Massachusetts. (Id.) "Baskin-Robbins and its franchisees currently operate more than 7,800 shops worldwide, including over 2,500 shops in the United States." (Dkt. No. 1 at ¶ 18.)

Defendants Michael Pena and Jennifer Pena ("Individual Defendants") are citizens and residents of California. (Id. at ¶ 6.) Palo Alto Sandwiches, Inc. ("Palo Alto") "is a California corporation with its principal place of business in San Jose, California." (Id. at ¶ 7.) Mr. Pena is the President of Palo Alto and Ms. Pena is its Secretary. (Id., Ex. 1 at 16.) Mr. Pena and Ms. Pena "are the owners and operators of a retail Baskin-Robbins shop" in Scotts Valley, California, pursuant to a June 2016 Franchise Agreement. (Dkt. No. 1 at ¶ 7; see also id., Ex. 1.)

B. The Franchise Agreement

In June 2016 Defendants entered into a Franchise Agreement with Baskin-Robbins granting Defendants "the right to operate a Baskin-Robbins shop utilizing the Baskin-Robbins system." (Dkt. No. 1 at ¶ 20; see also id., Ex. 1.) In exchange for a license "to use the Baskin-Robbins trademarks, trade names, and trade dress in accordance with the terms of [the] Franchise Agreement," Defendants agreed to, in pertinent part:

(i) pay a franchise fee equal to 5.9% of gross sales of the business, (ii) pay an advertising fee equal to 5.0% of gross sales of the business, (iii) pay late fees, interest and costs on unpaid monies due under the Franchise Agreement, and (iv) pay all sums owing and any damages, interest, costs and expenses, including reasonable attorneys' fees, incurred as a result of Defendants' defaults.

(Dkt. No. 1 at ¶ 21-23 (citing id., Ex. 1 at §§ 5.2, 5.3, 5.7, 14.4.4, and 14.7.1).) The franchise and advertising fees are continuing fees that are due weekly. (See id., Ex. 1 at §§ 5.2, 5.3.) The Franchise Agreement provides that Defendants are in default if they "breach[ ] any obligation under the Franchise Agreement, including failing to pay any of the required fees." (Id. at ¶ 24 (citing id., Ex. 1 at § 14.0.1).) In the event of such default, Baskin-Robbins may terminate the Franchise Agreement if Defendants fail to timely cure the default; Defendants have seven days to cure the default upon receiving written notice of failure to pay the required fees. (Id. at ¶¶ 25, 26 (citing id., Ex. 1 at §§ 14.1.2, 14.6).) The Franchise Agreement further provides that Baskin-Robbins may terminate the Agreement without providing an opportunity to cure if Defendants have already received three notices of default in a consecutive 12-month period.² (Id. at ¶ 27; see also id., Ex. 1 at § 14.2.)

Upon termination of the Agreement, Defendants must cease using "the Baskin-Robbins proprietary marks and system," operating the franchise, and holding themselves "out as a present or former Baskin-Robbins' franchisee." (Dkt. No. 1 at ¶ 28 (citing id., Ex. 1 at §§ 14.6, 14.7.2, and 14.7.3).) The Franchise Agreement provides that "any unauthorized use of the Baskin-Robbins proprietary marks following termination of [the] Agreement would result in irreparable harm to Baskin-Robbins, and would constitute willful trademark infringement." (Id. at ¶ 29 (citing id., Ex. 1 at §§ 9.3, 10.3, 10.4, and 14.5).) As part of the Franchise Agreement, Mr. Pena and Ms. Pena executed a Personal Guarantee making them personally liable for the obligations of Palo Alto under the Agreement. (Id. at ¶ 30 (citing id., Ex. 1 at 5).)

C. Defendants' Breach and Subsequent Trademark Infringement

In October 2018 Baskin-Robbins sent Defendants a Notice to Cure informing Defendants that they were "in default of their Franchise Agreement based on [their] failure to pay required fees." (Id. at ¶ 32; see also Dkt. No. 20-4, Ex. 2 at 7.) Baskin-Robbins sent Defendants a second Notice to Cure in January 2019, informing Defendants that they were in default under the Agreement for failing to pay required fees. (Dkt. No. 1 at ¶ 33; see also Dkt. No. 20-4, Ex. 2 at 5.) In July 2019 Baskin-Robbins sent Defendants a third Notice to Cure for Defendants' failure to report gross sales and to make required payments. (Dkt. No. 1 at ¶ 34; see also Dkt. No. 20-4, Ex. 2 at 2-3.) Defendants did not cure their default after receiving the July 2019 Notice to Cure. (Dkt. No. 1 at ¶ 35.)

In October 2019 Baskin-Robbins sent Defendants a Notice of Termination that "terminated the Franchise Agreement, stated the grounds for termination, and requested that Defendants immediately comply with their payment and de-identification obligations as set forth in [the] Franchise Agreement." (Dkt. No. 1 at ¶ 36; see also Dkt. No. 20-5, Ex. 3 at 2-4.) Since receiving the Notice of Termination "Defendants have continued to operate the Baskin-Robbins shop using Baskin-Robbins' marks and system without . . . license to do so." (Dkt. No. 1 at ¶ 37.) Defendants' continued operation of the shop and "unauthorized use of the Baskin-Robbins marks and system is causing and will continue to cause Baskin-Robbins irreparable harm." (Id. at ¶ 38.)

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II. Procedural History

Plaintiffs filed their complaint on October 16, 2019, asserting claims for: (1) breach of contract against Palo Alto for breach of the Franchise Agreement; (2) breach of contract against the Individual Defendants for breaching the Personal Guarantee; (3) trademark infringement under "the Lanham Act, 15 U.S.C. § 1114 and applicable state law" against all Defendants; (4) unfair competition under "the Lanham Act, 15 U.S.C. § 1125(a) and applicable state law" against all Defendants; and (5) trade dress infringement under "the Lanham Act, 15 U.S.C. § 1125[ ] and the common law" against all Defendants. (Dkt. No. 1 at ¶¶ 41-65.)

Defendants did not appear following service of summons later that month, (see Dkt. Nos. 8-10), and Plaintiffs filed for entry of default with the Clerk of Court on November 25, 2019, (Dkt. No. 13). The Clerk entered default as to all Defendants on November 27, 2019. (Dkt. No. 14.) Plaintiffs filed the instant motion for default judgment on January 16, 2020. (Dkt. No. 19.)

The Court issued an order on February 26, 2020 vacating the hearing scheduled for February 27, and ordering Plaintiffs to file supplemental briefing detailing service of process on the individual and corporate defendants. (Dkt. No. 22.) The Court's Order also directed Plaintiffs to file supplemental briefing in support of their request for reasonable attorneys' fees and costs. On March 3, 2020, Plaintiffs' filed a supplemental declaration with exhibits in response to the Court's Order regarding service of process. (Dkt. No. 23.) Plaintiffs' submission did not address their request for attorneys' fees, however, and the Court issued another order on April 13, 2020 directing Plaintiffs to file their motion for attorneys' fees by April 27, 2020. (See Dkt. No. 28.) Plaintiffs did so. (Dkt. No. 29.) That motion is also unopposed.

DISCUSSION

I. Jurisdiction

District courts have an affirmative duty to examine their jurisdiction—both subject matter and personal jurisdiction—when default judgment is sought against a non-appearing party. In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999).

A. Subject Matter Jurisdiction

The Court has federal question jurisdiction under 28 U.S.C. § 1331 because Plain...