Buffalo Wild Wings, Inc. v. BW-3 of Akron, Inc.

BUFFALO WILD WINGS, INC., Plaintiff / Counter-Defendant-Appellee, v. BW-3 OF AKRON, INC., et al., Defendants / Counterclaimants-Appellants.

Case No. 17-4291

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

March 1, 2019

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION

File Name: 19a0098n.06

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OHIO

BEFORE: MOORE, CLAY, and DONALD, Circuit Judges.

CLAY, Circuit Judge. Defendant and Counterclaimant BW-3 of Akron, Inc. (BW-3 Akron) and co-counterclaimants Shirley K. Bord, Frederick Bord, Harry L. Bord, and Louise E. Hagstrom (the "Bords"), appeal from the order entered by the district court granting the summary judgment motion of Plaintiff Buffalo Wild Wings, Inc. (BWW) on the counterclaims against it. Specifically, BW-3 Akron appeals the district court's grant of summary judgment against BW-3 Akron's counterclaims for wrongful termination of the Licensing Agreement between BWW and BW-3 Akron, malicious litigation by BWW, and breach of BW-3 Akron's right of first refusal in the Licensing Agreement. For the reasons set forth below, we AFFIRM the district court's grant of summary judgment on BW-3 Akron's counterclaims.

BACKGROUND

Factual and Procedural History

BWW is the owner of the BWW franchise system and its trademarks. (R. 71-3, BWW Disclosure of Expert Testimony, PageID # 3822.) BWW oversees approximately 1,200 Buffalo Wild Wings restaurants, many run by franchisees who license the right to use BWW marks and methods of doing business. (R. 95-1, Deposition of James Schmidt, PageID # 6581.)

A. The Licensing Agreement

In 1990, BWW's predecessor entered into a licensing agreement (the "Licensing Agreement") with BW-3 Akron, owned by the Bords, for the right to operate a Buffalo Wild Wings restaurant in Akron, Ohio (the "Akron store"). (R. 8-1, Licensing Agreement, PageID # 200.) The Licensing Agreement authorized BW-3 Akron to use BWW's "Marks"¹ and "System,"² recognized that BWW may occasionally change the Marks and System, and provided that BW-3 Akron would be in default if it "should materially fail to operate its stores using the system developed by [BWW] or should fail in any other material way to maintain [BWW's] standard of quality and appearance." (Id. at PageID # 203-04.) The Licensing Agreement allowed BWW to immediately terminate the Licensing Agreement if BW-3 Akron was in default under the agreement's terms and did not cure the default within thirty days of receiving notice to cure. (Id. at PageID # 204.) The Akron store, before it changed to a different restaurant in response to the underlying lawsuit, was the only BWW restaurant operating under a licensing agreement ratherthan a franchise agreement. (R. 30, Amended Answer to Amended Complaint and Amended Counterclaim, PageID # 846.)

Paragraph Eleven of the Licensing Agreement provided territorial rights for BW-3 Akron. It granted BW-3 Akron a right of first refusal for the opening of any BWW store in Summit, Medina, Stark, Portage, or Mahoning counties (the "covered territories"). (R. 8-1, Licensing Agreement, PageID # 205.) Under the terms of the Licensing Agreement, BWW could not open or license a BWW store "in the designated counties without the prior written approval of BW-3 Akron without offering the Bords the opportunity to participate as a 50 percent owner in any [BWW] store upon terms not less favorable than those granted to the Bords with respect to BW-3 Akron." (Id. at PageID # 205-06.) Since the parties signed the Licensing Agreement, BWW restaurants have opened in four of the five enumerated counties. (R. 16, Defendant's Answer to Amended Complaint and Own Counterclaim, PageID # 774.) Bill Bord³ complained to his son at various times between 1992 and 1997 that BWW had not honored BW-3 Akron's right of first refusal before opening restaurants in the covered territories. (R. 61, Deposition of Kevin Bord, PageID # 1983-84.)

B. The Stadia Design

BWW periodically produces new restaurant designs, which it requires its franchisees to implement. (R. 95-3, Exhibit 44, PageID # 6596-6626.) The current design scheme is called the "Stadia" design. (Id. at PageID # 6615) In 2003, a dispute arose between the parties over whether a remodel of the Akron store was necessary, culminating in a lawsuit which the parties ultimately settled. (R. 74-1, 2003 Complaint, PageID # 4058.)

In late 2013, the Bords and BWW began discussing a potential buyout by BWW of BW-3 Akron's rights under the Licensing Agreement. (R. 74-3, Exhibit 18, PageID # 4196-97; R. 68, Deposition of Craig Marshall, PageID # 3394.) At a December 2013 meeting discussing the potential buyout, BWW recognized that significant renovations would be necessary to upgrade the building to the Stadia design. (R. 68, Deposition of Craig Marshall, PageID # 3396.) A BWW representative at the December meeting stated that "[o]nce [he] saw the condition of the restaurant that day, it was clear to [him] that it was in dire need of a remodel." (R. 88, Deposition of James Schmidt, PageID # 5372.) Later, BWW told the Bords that if the parties could not agree on a price for the buyout, "there will be no hard feelings on this end and we'll just simply need to shift our discussions to upgrades that need to be made to the Akron facility to bring it up to current standards." (R. 75-1, Internal BWW Email, PageID # 4252-53.)

In June of 2014, the Bords filed an action in Ohio state court alleging that BWW had breached the Licensing Agreement by allowing franchisees to open BWW restaurants within the covered territories without honoring the Bords' right of first refusal. (R. 75-2, 2014 Complaint, PageID # 4259.)⁴ In September 2014, BWW sent a letter to BW-3 Akron stating:

Although BWW thought the parties were still in negotiations for a potential buyout, BW-3 Akron sued BWW in June of 2014. From the allegations in the pleading and based on subsequent discussions between counsel, it appears to BWW that BW-3 Akron intends to not sell its rights in the Agreement, but instead plans to continue operating the BW-3 Akron store. Thus, BWW must now address BW-3 Akron's obligation to upgrade its restaurant to the "Stadia" design standard.

(R. 75-4, Exhibit 24, PageID # 4278.)

Although BW-3 Akron denied that an upgrade was required under the Licensing Agreement, the parties agreed to conduct a "walkthrough of the Akron store to consider the design and layout changes needed to bring the store into 'alignment' with Stadia, recognizing there are physical limitations to the Akron store that will require certain accommodations in that regard." (R. 95-17, Exhibit 58, PageID # 6683.) The parties conducted the "scope walk" of the Akron store on October 13, 2015. (R. 76-5, Exhibit 30, PageID # 4307.)

On March 8, 2016, BWW sent BW-3 Akron the scope walk report and notified BW-3 Akron that it "must provide to BWW within 30 days of BW-3 Akron's receipt of [the] letter, written evidence of its engagement of an architect to design, manage and implement the remodel, consistent with the attached Scope Walk Report." (Id.) BW-3 Akron responded that it did not plan to remodel the Akron store. (R. 77-1, Exhibit 31, PageID # 4322.) BWW then sent BW-3 Akron a Notice of Default on April 1, 2016. (R. 77-2, Exhibit 32, PageID # 4323.) The April 1 letter stated that if BW-3 Akron did not take steps to cure the default within thirty days, BWW would terminate the Licensing Agreement. (Id. at 4326.)

C. The Instant Lawsuit

On May 17, 2016, BWW filed a complaint in federal district court against BW-3 Akron, seeking treble damages for violation of the Lanham Act, 15 U.S.C. § 1114, and seeking a declaratory judgment that BWW could terminate the Licensing Agreement as a result of BW-3 Akron's alleged default. (R. 1, Complaint, PageID # 18-21.) On the same day, BWW notified BW-3 Akron that, while BWW believed it had the right to immediately terminate the Licensing Agreement, BWW would hold the termination in abeyance pending a declaratory judgment that termination was proper. (R. 77-3, Exhibit 33, PageID # 4358.)

In June of 2016, the Bords closed the Akron store and re-branded it as a new restaurant, the "Gridiron Grill." (R. 66, Deposition of Christine Bord-Ferris, PageID # 2702.) On July 1, 2016, BWW wrote BW-3 Akron and the Bords to notify them that BWW considered the re-branding to constitute a separate default under the Licensing Agreement and that the Licensing Agreement would terminate if the Bords did not cure the default by re-opening the Akron store as a BWW restaurant within thirty days. (R 78-2, Exhibit 37, PageID # 4404.)

In BW-3 Akron's answer to BWW's complaint, BW-3 raised several counterclaims. (R. 30, Amended Answer to Amended Complaint and Amended Counterclaim, PageID # 845-52.) BW-3 Akron sought damages against BWW for breach of the Licensing Agreement by failing to honor BW-3 Akron's right of first refusal in the covered territories; wrongful termination of the Licensing Agreement; and unfair competition through malicious litigation. (Id.)

The parties filed cross-motions for summary judgment on each other's claims. (R. 59, BWW Motion for Summary Judgment, PageID # 1908; R. 58, BW-3 Akron Motion for Summary Judgment, PageID # 1841.) On November 14, 2017, the district court granted BWW's motion for summary judgment on BW-3 Akron's counterclaims and denied BW-3 Akron's motion for summary judgment on BWW's claims. (R. 113, Memorandum Opinion and Order, PageID # 7362.) BWW voluntarily dismissed its claims against BW-3 Akron on November 21, 2017. (R. 126, Stipulated Notice of Dismissal, PageID # 7810.) BW-3 Akron filed its appeal of the district court's judgment on December 14, 2017. (R. 127, Notice of Appeal, PageID # 7813.) Only BW-3 Akron's counterclaims for wrongful termination, malicious litigation, and breach of the right of first refusal are at issue in this appeal.

DISCUSSION

Standard of Review

We review de novo a district court's grant of summary judgment. Holloway v. Brush,...