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MPC Franchise, LLC v. Tarntino

United States District Court, W.D. New York

May 14, 2014

MPC FRANCHISE, LLC, and MP CLEARY, INC., Plaintiffs
v.
BRENT TARNTINO, Defendant; BRENT TARNTINO and PUDGIE'S PIZZA CORPORATION - HORSEHEADS, INC., Counterclaim Plaintiffs
v.
MPC FRANCHISE, LLC and MP CLEARY, INC., Counterclaim Defendants

Decided May 13, 2014.

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[Copyrighted Material Omitted]

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For Plaintiffs/Counterclaim Defendants: Jeffrey Zucker, Esq., Max A. Staplin, Esq., Maria Jose Morinigo, Esq., Fisher Zucker LLC, Philadelphia, Pennsylvania; Paul L.Leclair, Esq., Leclair Korona Giordano Cole LLP, Rochester, New York.

For Defendants/Counterclaim Plaintiffs: George R. McGuire, Esq., Bond, Schoeneck & King, PLLC, Syracuse, New York.

OPINION

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DECISION AND ORDER

CHARLES J. SIRAGUSA, United States District Judge.

INTRODUCTION

This action involves Pudgie's Pizza, a formerly family-owned pizza business in Elmira, New York, several of whose individual restaurant locations now belong to first cousins, who are descendants of the original owners, and who are challenging each other for the rights to use the Pudgie's name, at least in certain geographic regions, and to franchise others to do so. Now before the Court are the following motions: 1) Defendant's motion [#32] for summary judgment; 2) Plaintiffs' cross-motion [#46] for partial summary judgment; 3) Defendant's motion [#51] to exclude late-produced documents; and 4) Defendant's motion [#56] to strike Plaintiff's cross-motion for partial summary judgment. Defendant's motion to exclude [#51] is granted in part and denied in part. Defendant's motion to strike [#56] is denied. Defendant's motion for summary judgment [#32] and Plaintiffs' cross-motion for partial summary judgment are each granted in part and denied in part. Defendant's summary judgment motion is granted as to Plaintiffs' first and third causes of action, but is denied as to Plaintiffs' second cause of action. Defendant's motion for summary judgment on his counterclaims is also denied. Plaintiffs' cross-motion for partial summary judgment is denied as to their first cause of action, which is being dismissed for lack of standing, but is granted as to their second cause of action, insofar as it alleges fraud, and Defendant's trademark registration is cancelled.

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BACKGROUND

Unless otherwise noted, the following are the undisputed facts of this case. In 1963, brothers Charles " Pudgie" Cleary, Frances Cleary and Michael Cleary, Sr., opened the first of several " Pudgie's" pizza parlors, on the north side of Elmira. This restaurant became known as " Northside Pudgie's." [1] In 1964, the Cleary brothers opened another pizza parlor on Elmira's south side, known as " Southside Pudgie's." [2] In 1970, the Cleary brothers opened another Pudgie's restaurant in Elmira Heights, known as the " Elmira Heights Pudgie's." [3] Elmira Heights is a village situated several miles north of the City of Elmira, between Elmira and the Village of Horseheads, New York.

In 1972, the Cleary brothers formed Pudgie's Pizza Franchising Corporation (" PPFC" ), for the purpose of licensing the Pudgie's mark. Subsequently, PPFC entered into numerous franchise agreements, allowing franchisees to use the Pudgie's name in connection with pizza parlors in New York and other states.

In 1973, the Cleary brothers' sister, Bernadette Tarntino (" Bernadette" ), entered into a franchise agreement with PPFC to operate a Pudgie's pizza parlor in the Village of Horseheads, which is approximately six miles north of Elmira. As previously mentioned, the Elmira Heights neighborhood lies between the City of Elmira and the Village of Horseheads. In connection with Bernadette's operation of the Horseheads Pudgie's, and since at least the " early 1980s," she advertised that she made deliveries to Elmira Heights. Specifically, the advertisements usually stated: " We deliver to Horseheads, Big Flats and Elmira Heights Limited Areas." [4] (italics in original).

As part of Bernadette's franchise agreement between PPFC, she specifically agreed that the Pudgie's mark, and all rights associated with it, " belong[ed] exclusively to Pudgie's [PPFC]." (Franchise Agreement, Docket Nos. [#46-8] at p. 4, [#33-7] at p. 14). Consequently, during the term of Bernadette's franchise agreement with PPFC, she did not gain any ownership rights in the Pudgie's mark.[5]

In 1978, PPFC obtained a federal registration of the Pudgie's mark, registration number 1102421.

On July 15, 1983, Bernadette renewed her final franchise agreement with FFPC. The franchise agreement was for a term of five years, with an option to renew for another five years.[6]

In 1985, the U.S. Patent and Trademark Office (" PTO" ) cancelled PPFC's federal registration of the Pudgie's mark, after PPFC failed to file a required declaration. Nevertheless, PPFC continued to operate its chain of Pudgie's Pizza parlors as before.

In 1990, Michael Cleary, Sr., died, owning 50% of the stock in PPFC. Additionally, at the time of Mr. Cleary's death, it appears that he owned two of the Pudgie's locations -- Pudgie's Southside and Pudgie's in Mansfield, Pennsylvania.[7] In that regard, it appears that at all relevant

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times Michael Cleary owned the intellectual property rights associated with those two restaurants either in his individual capacity or through a corporation he owned, M.P. Cleary, Inc. (" MP Cleary" ).[8] After Michael Cleary, Sr.'s death, his wife, Rosa, and his sons, David Cleary and Robert Cleary, became the owners of MP Cleary, which continued to operate the Southside Pudgie's and the Mansfield, Pennsylvania Pudgie's.

In July 1993, Bernadette's franchise agreement terminated.[9] On September 29, 1993, the PPFC corporation dissolved.[10] Thereafter, the former PPFC franchisees, including Bernadette, continued to operate their individual Pudgie's pizza parlors as previously, though independently, not pursuant to any franchise agreement or licensing agreement, and without a federal trademark registration. Plaintiffs agree that after Bernadett'e franchising agreement ended and PPFC was dissolved, her continued use of the mark resulted in her obtaining rights in the Pudgie's mark. However, based on the facts set forth thus far, such use was necessarily junior to Plaintiffs' use of the mark in connection with Southside Pudgie's.[11]

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At some point during the " early 1990's," the Elmira Heights Pudgie's closed.[12] After that, the Horseheads Pudgie's and Northside Pudgie's made a " co-existence agreement," that each would service areas within Elmira Heights.[13] Neither Horseheads Pudgie's nor Northside Pudgie's had a similar " co-existence agreement" with Southside Pudgie's concerning Elmira Heights.[14] In fact, Defendant maintains that Southside Pudgie's did not serve the Elmira Heights neighborhood at all. In that regard, Southside Pudgie's advertisements indicated that it would deliver its products to certain areas around Elmira, which did not include Elmira Heights.[15] Moreover, Plaintiffs agree that until about 2010 or 2011,[16] they generally[17] did not specifically advertise that they made deliveries to Elmira Heights. Instead, between 2003 and 2008, Southside Pudgie's advertised that it delivered only as far north as McCann's Boulevard, which lies to the south of Elmira Heights. However, Plaintiffs maintain that they always made deliveries to Elmira Heights, when asked. Specifically, Plaintiffs indicate that Southside Pudgie's delivered food to anyone who telephoned and placed an order, including persons in Elmira Heights.

In any event, for many years after the Elmira Heights Pudgie's closed, the parties co-existed peacefully, and even placed their advertisements together, in such a way that it would appear that their two locations, Horseheads and Southside, were merely two locations of the same Pudgie's " pizzeria & sub shop." [18] Those advertisements indicated, though, that persons seeking deliveries to Elmira Heights should call the Horsehead's Pudgie's telephone number.[19]

In or about 2004, MP Cleary looked into obtaining a new federal registration of the Pudgie's mark.[20] As discussed

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earlier, PPFC previously registered the mark, but the PTO cancelled the registration in 1985. MP Cleary determined that another company, TruFoods, already owned the federal registration for the Pudgie's mark. Documents submitted by the parties are not entirely clear as to how TruFoods came to own the mark. Accordingly, the Court has examined, and takes judicial notice[21] of, the online records of the PTO, which indicate the following: On April 9, 1987, an individual named George Sanders filed an application with the PTO for the service mark " Pudgie's," consisting of a " design plus words, letters and/or numbers," which he was purportedly using in connection with a restaurant called " Pudgie's Famous Chicken." Sanders' application indicated that he began using the mark in 1982. On June 13, 1989, the PTO granted Sanders a registration for the mark " Pudgie's," Registration No. 1543938, for " restaurant carry out services." [22] On May 4, 1990, Sanders assigned the Pudgie's mark to Pudgie's Famous Chicken, LTD.[23] On June 3, 1998, Pudgie's Famous Chicken, LTD, assigned Registration No. 1543938 to Pudgie's Acquisition Corp..[24] On June 5, 1998, Pudgie's Acquisition Corp. assigned Registration No. 1543938 to Pudgie's Restaurant Corporation.[25] On August 15, 2000, Pudgie's Restaurant Corporation assigned Registration No. 1543938 to Pudgie's Famous Chicken, LLC.[26] On June 20, 2001, Pudgie's Famous Chicken, LLC assigned Registration No. 1543938 to Arthur Treacher's Inc.[27] On July 12, 2001, Arthur Treacher's applied to register the Pudgie's service mark, as a " typed drawing," for " restaurant and carry out restaurant services," and indicated that the mark had been in use since 1982. On April 30, 2002, the PTO issued Arthur Treacher's Registration No. 2565298 for that mark.[28] On May 29, 2002, Arthur Treacher's, Inc., assigned Registration No. 1543938 to PAT Franchise Systems, Inc..[29] On April 21,

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2008, PAT assigned the '938 mark to TruFoods.[30]

On July 19, 2004, TruFoods licensed MP Cleary to use the mark. Specifically, TruFoods and MP Cleary entered into a Trademark License Agreement, giving MP Cleary a non-exclusive, perpetual and transferable right to use the Pudgie's mark in connection with MP Cleary's existing businesses, which were as " restaurants, carry out and food service businesses that principally offer pizza, subs or other similar products." The licensing agreement provided that if a third party infringed the Pudgie's mark, and if TruFoods declined to pursue legal action against such third party, that MP Cleary had " the right to commence or defend such litigation." [31]

In 2007, Bernadette Tarntino died, and her three children, Brent Tarntino, Edward Tarntino and Kristen Tarntino, inherited her stock in Pudgie's Pizza Corporation - Horseheads, Inc., which owned and operated the Horseheads Pudgie's. The record indicates that Brent, Edward and Kristen each inherited an equal one-third share of the corporation.[32]

On October 21, 2009, MP Cleary formed a limited liability corporation, MPC Franchise, LLC (" MPC Franchise" ), for the purpose of opening Pudgie's pizza parlor franchises. Specifically, MP Cleary, which had licensed the Pudgie's federal mark from TruFoods, gave MPC Franchise a non-exclusive license to use the Pudgie's mark and to license others to do so. Subsequently, MPC Franchise began selling new Pudgie's pizzeria franchises.

While all of the events described above were occurring, the parties maintained their working relationship, and co-existed peacefully. However, beginning in 2010, the parties' working relationship began to unravel, ultimately leading to this lawsuit. Specifically, in or about early 2010, MP Cleary began advertising that Southside Pudgie's would make deliveries to Elmira Heights.[33] As mentioned earlier, Plaintiffs admit that previously, their advertising did not indicate that they delivered to Elmira Heights, though they maintain that they actually delivered to Elmira Heights for many years prior to that. In April 2010, when Brent Tarntino (" Tarntino" ) became aware of Southside Pudgie's new advertisement, he called Robert Cleary and complained.[34] As noted earlier, Tarntino is the son of Bernadette Tarntino, and a one-third owner of the Horseheads Pudgie's. Tarntino was intimately knowledgeable about the Pudgie's pizzerias around Elmira, including those owned by Plaintiffs, his first cousins, because he had worked in them at different points in his life. Consequently, Tarntino believed that the new Southside Pudgie's advertisements unfairly encroached on the Elmira Heights market, which, he maintains, had previously been serviced by Horseheads Pudgie's and Northside Pudgie's.

On April 2, 2010, Plaintiffs sent an email to Horseheads Pudgie's, referencing a

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phone conversation the previous day between Robert Cleary and Tarntino, concerning Elmira Heights. Robert Cleary indicated that Southside Pudgie's had " always delivered to parts of the Heights," even when the Elmira Heights Pudgie's was open, and that Horseheads Pudgie's had not started to deliver to Elmira Heights until after the Elmira Heights Pudgie's closed.[35]

On July 2, 2010, Brent Tarntino, in his individual capacity, and with the assistance of his attorney, filed a federal trademark application for the Pudgie's mark with the PTO.[36] Tarntino sought to register the Pudgie's mark for " pizza parlors; Restaurant services featuring pizza, pasta and subs." [37]

Several aspects of Tarntino's application are significant, for purposes of this Decision and Order. First, Tarntino indicated on the application that he was the " owner" of the Pudgie's mark, and that he first used the mark " [a]t least as early as 01/01/1980." [38] However, in 1980, Brent Tarntino was eight years of age, at most, and was not using the Pudgie's mark. Moreover, at the time he filed the application, Tarntino was not in fact the owner of the mark, or even of the Horsehead's Pudgie's pizzeria. Rather, he was only a one-third owner of the corporation which owned the Horsehead's Pudgie's. Nevertheless, as part of the application, Tarntino signed a declaration indicating, in pertinent part, that he believed that he was the owner of the Pudgie's mark. Tarntino also indicated, in his declaration, that to the best of his knowledge, no other person had " the right to use the mark in commerce, either in the identical form thereof or in such near resemblance thereto as to be likely, when used on or in connection with the goods/services of such other person, to cause confusion, or to cause mistake, or to deceive." [39] In that regard, Tarntino did not inform the PTO of TruFoods' registration, even though he was aware of it, nor did he inform the PTO that Plaintiffs and others were also using the Pudgie's mark in connection with pizzerias. On February 22, 2011, the PTO issued Brett Tarntino a U.S. Trademark, Registration No. 3,922,745 (" the '745 registration" ).

Tarntino sought the registration because he intended to begin franchising new Pudgie's pizzeria locations.[40] In that regard, Tarntino was aware, as early as 2005, that his cousins, the Clearys, who had licensed the right to use the Pudgie's name from TruFoods,[41] were already " trying" to sell Pudgie's franchises through MPC Franchise, LLC. Tarntino believed, however, that by obtaining his own registration of the Pudgie's mark, for " pizza, pasta and subs," he could prevent the Cleary's from continuing to sell franchises: " I own the franchise company, so I don't know how I'd be competing with them. . . . I own the name." [42] Tarntino admittedly

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believed that he could register the Pudgie's mark for himself, since TruFoods' restaurants sold chicken, while he intended to sell pizza.[43] On this point, at deposition, Tarntino ridiculed the idea that TruFoods could have validly granted a license to MP Cleary, Inc. with regard to pizza shops, since TruFoods' restaurants primarily serve chicken:

Q. In [your] ninth affirmative defense . . . you say [about the] plaintiffs -- that's my clients the Clearys and their companies: 'Plaintiffs' claims are barred in whole or in part by the doctrine of unclean hands.' Can you explain factually what you're saying here?
A. Sure. I believe that the chicken guy, I don't even know who he is, it's so funny to me, the chicken guy --
Q. Help me out. I don't know who you're talking about.
A. I don't either. I don't know who he is. But his entity registered under the United States Patent and Trademark Office is restaurants -- [sic]
Q. Are you talking about TruFoods?
A. TruFoods. Whoever he is. So the TruFoods guy can't grant marks. And to me it sounds like, and I've never seen any of this information, nobody has ever showed me anything, but from what they're saying, is that they received permission or, I guess I don't know the real word, some sort of a contract with the chicken guy to sell pizza, pasta and subs. And to me that's not -- that's impossible. There's nothing that says the chicken guy can grant marks. I looked through all of the USPTO stuff and it never says the chicken guy can give anybody rights.
Q. Okay.
A. So I don't understand how these guys are running around saying we have the rights to pizza, pasta and subs. Show me. There's no, I looked, there's -- show me pizza, pasta and submarine sandwiches and this can go away.
Q. And in your sentence, these guys are running around doing this, are you talking about the Clearys or are you talking about the TruFoods guys?
A. The Clearys. The Clearys are claiming the chicken guy gave them pizza, pasta and submarine sandwich rights.

Brent Tarntino Deposition, Docket No. [#46-7] at p. 35.

It is apparent that Tarntino did not intend to pursue his franchising plan with Pudgie's Pizza Corporation - Horseheads, Inc., the corporation in which he was a one-third owner, along with his siblings. Instead, Tarntino intended to pursue the franchising business on his own. In fact, shortly after obtaining the registration, Tarntino stopped working at the Horseheads Pudgie's, and offered ...


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