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Big O Tires, LLC v. C&S Tires, Inc.

United States District Court, D. Colorado

May 24, 2017

BIG O TIRES, LLC, a Nevada limited liability company, Plaintiff,
v.
C&S TIRES, INC., a Nevada corporation, CRAIG A. BRADY, an individual, and SHERI E. BRADY, an individual, Defendants.

          RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

          NINA Y. WANG, UNITED STATES MAGISTRATE JUDGE

         This matter comes before the court on Plaintiff Big O Tires, LLC's Renewed Motion for Default Judgment Against All Defendants (“the Renewed Motion for Default Judgment” or “Renewed Motion”) [#39, filed Feb. 27, 2017], [1] which was referred to this Magistrate Judge pursuant to 28 U.S.C. § 636(b)(1); the Order Referring Case dated April 27, 2016 [#17]; and the Memorandum dated March 30, 2017 [#41]. Having now reviewed the Renewed Motion for Default Judgment, the originally filed Motion for Default Judgment [#24], [2] the supporting evidence to both motions including the evidence taken at an August 1, 2016 hearing as to the first Motion for Default Judgment, and the applicable law, this court respectfully RECOMMENDS that the Motion for Default Judgment be GRANTED for the following reasons.

         BACKGROUND

         Plaintiff Big O Tires, LLC (“Plaintiff” or “Big O”), is a Nevada company that transacts business in Colorado and has an address at 5025 Florence Street, Unit A, Denver, Colorado 80238. [#1 at ¶ 1]. Big O offers franchises of retail tire and automotive stores [id. at ¶ 8], and initiated this action against Defendants C&S Tires, Inc. (“C&S”), Craig A. Brady (“Mr. Brady”), and Sheri E. Brady (“Ms. Brady”) (collectively, “Defendants”), former Big O franchisees on March 28, 2016. [#1]. In the Complaint, Big O asserts four causes of action: (1) trademark infringement in violation of the Lanham Act, 15 U.S.C. § 1114(1) against all Defendants; (2) unfair competition in violation of the Lanham Act, 15 U.S.C. § 1125(a)(1) against all Defendants; (3) breach of contract against C&S; and (4) breach of the guaranty agreements contained in Schedule 3 to the Agreement against Mr. Brady and Ms. Brady. [#1]. In the Complaint, Big O averred that Defendants owed it $6, 424.20 for product purchases, royalties, and the national advertising fund. [Id. at ¶ 23].

         Big O served the summons and Complaint on Defendants on March 31, 2016, making a responsive pleading due on or before April 21, 2016. [#10, #11, #12]. None of the Defendants answered or otherwise responded. Big O then moved for the entry of default on April 25, 2016 [#13], which was denied for being non-compliant with Rule 55 of the Federal Rules of Civil Procedure. [#19]. Big O filed a second Motion for Entry of Default, and the Clerk of the Court entered default against each of the Defendants on May 5, 2016. [#23]. Big O then filed its original Motion for Default Judgment on June 28, 2016, seeking $6, 327.60 for product purchases, royalties, and the national advertising fund [#24 at ¶ 25]; damages for trademark infringement in the amount of $7, 800.00 in reasonable royalties for trademark infringement for the period between March 31, 2015 and May 5, 2015; attorney fees in the amount of $12, 341.00 and costs of $566.39; and pre-judgment interest in the amount of $1, 182.65, for a total of $28, 217.54 as of the filing of the instant Motion; and certain injunctive relief.[3] [#24]. In support of the Motion for Default Judgment, Big O submitted a Declaration from its counsel, Harold R. Bruno, III, that set forth facts regarding the filing and service of the Complaint; a Declaration from Rick O'Neil, a Western Division Vice President, who provided information regarding Big O's Marks and Trade Dress; the actions of Big O post-termination; and the calculation of damages sought by Big O. [#24-2]. Mr. O'Neil's Declaration also attached registration records from the United States Patent and Trademark Office [#24-2 at 7-16]; a copy of the Franchise Agreement [#24-2 at 17-75]; a copy of the First Amendment to the Franchise Agreement [id. at 76-100]; a copy of the Second Amendment to the Franchise Agreement with Reaffirmation of Guarantors [id. at 101-209]; a copy of the letter dated April 15, 2015 sent by Big O to Mr. Brady, reflecting its belief that C&S continued to use the Marks and Trade Dress [#24-2 at 110-111]; and a copy of the letter dated May 1, 2015 sent by Big O to Mr. Brady[4] [#24-2 at 114-115].

         After the original Motion for Default Judgment was referred to the undersigned Magistrate Judge for Recommendation [#25], this court set an evidentiary hearing on the Motion for Default Judgment [#26, #27, #28]. At the hearing, the court admitted exhibits 4, 5, 6, 7, 8, 9, 10, 11 and 12 of the Amended Exhibit List [#31-1], and took testimony from James A. Bull, a Division Vice President of Big O. [#33; #34 at 3:10-12]. After review of the operative pleading and Motion for Default Judgment, this court respectfully recommended that the original Motion for Default Judgment be denied without prejudice on January 17, 2017. [#38]. This court found that it could not recommend default judgment because evidence presented as to the calculation of damages provided by Big O through its Motion for Default Judgment and the testimony at the hearing was insufficient to establish a precise quantum of damages. [Id. at 20-21]. This court further declined to address any liability on the part of Defendants Craig Brady and Sheri Brady as individual guarantors, reserving that issue for a renewed motion for default judgment, if any. [Id. at 24-25].

         On February 27, 2017, Big O filed this Renewed Motion for Default Judgment. In reviewing the Renewed Motion for Default Judgment, this court determined that it was not compliant with Local Rule 54.3, which requires that a request for an award of attorney's fees include, for each person for whom fees are claimed, a summary of relevant qualifications and experience, and Big O has also not provided any information as to why the requested billing rates were reasonable. Rather than simply recommend denial of any attorney's fees and costs, see Reg'l Dist. Council v. Mile High Rodbusters, Inc., 82 F.Supp.3d 1235, 1246 (D. Colo. 2015) (declining to entertain requests for attorneys' fees for two attorneys for whom “a summary of relevant qualifications and experience” was not submitted), this court requested that Plaintiff supplement its Renewed Motion for Default Judgment with the missing information. [#42]. Big O submitted its Supplement on May 22, 2017. [#44].

         LEGAL STANDARDS

         Pursuant to Rule 55(b) of the Federal Rules of Civil Procedure, a party may apply to the court for a default judgment after a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend against the action. Fed.R.Civ.P. 55(a), (b)(2). A court may conduct hearings to conduct an accounting; determine the amount of damages; establish the truth of any allegation by evidence; or investigate any other matter. Fed.R.Civ.P. 55(b)(2).

         There is no right to a default judgment, and whether to enter a default judgment is within the discretion of the court. Bixler v. Foster, 596 F.3d 751, 762 (10th Cir. 2010) (citing Nishimatsu Constr. Co. v. Houston Nat'l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975) (“[A] defendant's default does not in itself warrant the court in entering a default judgment.”)). In determining whether a default judgment is warranted, the court must first consider whether it has jurisdiction over the subject matter and the defendants. See Williams v. Life Sav. & Loan, 802 F.2d 1200, 1202-03 (10th Cir. 1986); CrossFit, Inc. v. Jenkins, 69 F.Supp.3d 1088, 1093 (D. Colo. 2014). It is well established that a judgment is void if the court that enters it lacks jurisdiction over either the subject matter of the action or the parties to the action. United States v. 51 Pieces of Real Prop., 17 F.3d 1306, 1309 (10th Cir. 1994). Plaintiff bears the burden of establishing jurisdiction.

         The court then must consider whether the well-pleaded factual allegations in the complaint support a judgment on the claims against the defaulting defendants. 10A Charles A. Wright, Arthur R. Miller & Mary K. Kane, Federal Practice and Procedure § 2688, at 63 (3d ed. 1998) (“a party in default does not admit mere conclusions of law”); see also Nishimatsu Constr. Co., 515 F.2d at 1206-08 (vacating district court's entry of default judgment because the pleadings were insufficient to support the judgment). “There must be a sufficient basis in the pleadings for the judgment entered.” Nishimatsu Constr. Co., 515 F.2d at 1206. The well-pleaded facts of a complaint are deemed true, as are any undisputed facts set forth in affidavits and exhibits. See Grady v. Swisher, No. 11-cv-02880-WYD-KLM, 2014 WL 3562794, at *12 (D. Colo. July 18, 2014); Samuels v. Feiner Trinh, Int'l, LLC, No. 10-cv-02574-MEH, 2012 WL 3545275, at *1 (D. Colo. Aug. 15, 2012). The court may also take evidence at a hearing to establish the truth of any allegation. Fed.R.Civ.P. 55(b)(2)(B). In addition, the entry of default does not establish the amount of damages that is reasonable. Damages may be awarded only if the record adequately reflects the basis for the award as supported by the evidence in the record. Klapprott v. United States, 335 U.S. 601, 612 (1949); Mathiason v. Aquinas Home Health Care, Inc., 187 F.Supp.3d 1269 (D. Kan. 2016).

         FINDINGS OF FACT

         The following facts are drawn from the Complaint and Demand for Injunctive Relief; information and filings on the court's Electronic Court Filing (“ECF”) docket; and evidence presented at the August 1 hearing.

(1) Big O is a Nevada company that transacts business in Colorado and has an address at 5025 Florence Street, Unit A, Denver, Colorado 80238. [#1 at ¶ 1].
(2) Effective March 31, 2000, C&S entered a franchise agreement (“Franchise Agreement”) with Big O, executed by Mr. Brady on behalf of C&S, as President. [#1-2 at 42].[5]
(3) C&S operated a Big O franchise at 828 South Boulder Highway, Henderson, Nevada 89015. [#1 at ¶ 17]. That franchise was known as store 28813. [#34 at 26:13-16].
(4) Mr. Brady and Ms. Brady executed Schedule 2 of the Franchise Agreement, verifying ownership interest in the franchisee [#1-2 at 44], and Schedule 3, personally guaranteeing “each and every covenant, payment, agreement and undertaking on the part of the Franchisee contained and set forth in or arising out of such Franchise Agreement.” [Id. at 45-48].
(5) Big O owns the following trademarks and service marks (“the Marks”) that are subject to this action: “BIG-O, ” Registration No. 993, 415, registered September 24, 1974; “BIG O, ” Registration No. 994, 466, registered October 1, 1974;“BIG O TIRES” and Design, Registration No. 1, 611, 160, registered August 28, 1990; “BIG O TIRES, ” Registration No. 2, 411, 926, registered December 12, 2000; and “EXTRA CARE” and Design, Registration No. 1, 417, 730, registered November 18, 1986. [#1 at ¶ 11].[6] The Franchise Agreement, among other things, licensed to C&S the use of Marks, including “BIG-O”; “BIG O, ” “BIG O TIRES, ” and “EXTRA CARE”. [#1-2 at 10; 12 at § 2.01; 18 at ¶ 9; 55-56 (Schedule 6)].
(6) Big O uses the Big O Tires and Design, Registration No. 1, 611, 160, BIG O TIRES on its signs, both in the interior and exterior of its buildings, and in-store signing and communication pieces. [#34 at 5:4-12].
(7) EXTRA CARE (Registration No. 73589583) is a branding program used to exemplify that beyond tires, Big O offers services like brakes, struts, alignments, other repairs. [Id. at 5:21 -6:4].
(8) The Team You Trust is a market program that Big O has used for approximately six to seven years in media and internal branding and external branding to customers. [Id. at 6:5 -13].
(9) Big O also owns trade dress associated with its franchised locations, including decorative black and red stripes, a red and white interior, red and black employee uniforms, various point of purchase materials and displays and a distinctive font that is part of the design for Registration No. 1, 611, 160 (collectively, “Trade Dress”).
(10) The Franchise Agreement also regulates the use of the Trade Dress, which is defined as “Any shop or architectural designs, fixtures, improvements, signs, color schemes or other elements of the appearance of the Store which in any manner suggest affiliation of the Store or Premises with Big O, or the System.” [#1-2 at 12].
(11) The Franchise Agreement states, “Franchisee understands and agrees that any use of the Licensee Marks other than as expressly authorized by this Agreement, without Big O's prior written consent is an infringement of Big O's rights therein and that the right to use the Licensed Mark granted herein does not extend beyond the termination or expiration of this Agreement.” [#1-2 at 11 ¶ 9.01].
(12) The Franchise Agreement further provides “[t]his Agreement is accepted by Big O in the State of Colorado and shall be governed by and interpreted in accordance with Colorado law, which law shall prevail in the event of any conflict of law. Big O and Franchisee consent to personal and subject matter jurisdiction and venue in Denver, Colorado.” [#1 at ¶ 7; #1-2 at 40 § 29.01].
(13) The Franchise Agreement has another provision entitled “Jurisdiction” that provides, in pertinent part: “the parties consent to the exclusive jurisdiction of either the Colorado state courts or the United States Federal District Court for the District of Colorado for any litigation relating to this Agreement or the operation of the Franchise Business thereunder.” [#1-2 at 40 § 29.02].
(14) The expiration date of the Franchise Agreement was March 31, 2010. [#1-2 at 7].
(15) The Franchise Agreement was renewed by amendments to provide for an expiration date of March 31, 2015. [#1 at ¶ 16].
(16) Big O and C&S entered a First Amendment to the Franchise Agreement (“First Amendment”) on or about June 23, 2009. [#1-2 at 69].
(17) A Second Amendment to Franchise Agreement with Reaffirmation of Guarantors (“Second Amendment”) was effective February 22, 2010. [#1-2 at 85]. The termination of the Franchise Agreement identified by the Second Amendment was March 31, 2012. [Id. at ¶ 1].
(18) The Second Amendment provided that each Guarantor reaffirms, confirms, ratifies, renews, accepts and adopts that their respective Guaranty shall remain in full force and effect throughout the term of the Franchise Agreement, as amended. [Id. at ¶ 2].
(19) The Second Amendment was executed by both Mr. Brady on behalf of C&S and on behalf of himself, as an individual, and Ms. Brady. [#1-2 at 86-87].
(20) The Parties entered a Third Amendment to the Franchise Agreement (“Third Amendment”) that was signed by Mr. Brady, on behalf of C&S, and Big O. [#37-9 at 1]. The Third Amendment extended the term of the Franchise Agreement to March 31, 2015. [Id.; #34 at 11:8-12:6].
(21) Mr. Brady and Ms. Brady reaffirmed their personal Guaranties as part of the Third Amendment. [#37-9].
(22) The Franchise Agreement between Big O and Defendants terminated on March 31, 2015. [#1 at ¶ 18].
(23) Defendants did not renew the Franchise Agreement and continued to use the Marks and the Trade Dress without permission in Henderson, Nevada. [Id. at ¶ 19].
(24) Defendants' use of the Marks and Trade Dress continued until May 4, 2015. [#24-2 at ¶ 27].
(25) On April 15, 2015 and May 1, 2015, Big O sent cease and desist letters to C&S and Mr. Brady, informing them that the continued use of the Marks amounted to infringement and a breach of Section 20 of the Franchise Agreement, and specifically that they had failed to comply with post-termination duties, such as payment of amounts due and owing, transferring telephone numbers, and providing customer lists, to Big O. [#1 at ¶¶ 20-22; #1-3, #1-4].
(26) Despite these letters, Defendants did not cease using the Marks and Trade Dress until after the March 31, 2015 expiration date, nor did C&S sign over the telephone numbers or provide the customer lists by the May 4, 2015 deadline. [#1 at ¶ 22; #24-2 at ¶ 23].
(27) C&S had not ceased identifying itself as a Big O Tire after March 31, 2015, and had not ceased as of on or about May 4, 2015. [#24-2 at ¶ 23].
(28) When Mr. Bull visited the location in December 2015, the store had been de-identified and was operating as Henderson Tire and Auto. [#34 at 23:19-24:1].
(29) Each defendant was served with a copy of the summons and complaint in this action on March ...

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