SONIC INDUSTRIES, LLC, a Delaware limited liability company v. SIMPLE TIE VENTURES, LP, a limited partnership

UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
_________________________________
SONIC INDUSTRIES, LLC, a Delaware
limited liability company; SONIC
FRANCHISING, LLC, a Delaware limited
liability company; SONIC INDUSTRIES
SERVICES, INC., an Oklahoma
corporation; AMERICA'S DRIVE-IN
BRAND PROPERTIES, LLC, a Kansas
limited liability company,
Plaintiffs Counterclaim Defendants -
Appellees,
v.
SIMPLE TIE VENTURES, LP, a limited
partnership; DONALD R. WELSH, an
individual; THOMAS P. SCURRIA, an
individual; JEFFREY B. SOLOMON, an
individual; SCHAUM'S RESTCO, LP, a
Pennsylvania limited partnership; CROSS
RESTCO, LP, a Pennsylvania limited
partnership; TANGER RESTCO, LP, a
Pennsylvania limited partnership;
WILLOW GROVE RESTCO, LP, a
Pennsylvania limited partnership;
LIMERICK RESTCO, LP, a Pennsylvania
limited partnership; RAPHO RESTCO, LP,
a Pennsylvania limited partnership;
EXETER RESTCO, LP, a Pennsylvania
limited partnership; UPLAND RESTCO,
LP, a Pennsylvania limited partnership;
DRUMORE RESTCO, LP, a Pennsylvania
limited partnership; MADK, LP, a
Pennsylvania limited partnership;
LANCONE, LLC, a Pennsylvania limited
liability company; BERKSONE, LLC, a
Pennsylvania limited liability company;
LANCTWO, LLC, a Pennsylvania limited
No. 20-6120
(D.C. No. 5:20-CV-00183-J)
(W.D. Okla.)
FILED
United States Court of Appeals
Tenth Circuit
August 5, 2021
Christopher M. Wolpert
Clerk of Court
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liability company; MONT3, LLC, a
Pennsylvania limited liability company;
MONT1, LLC, a Pennsylvania limited
liability company; LANCFOUR, LLC, a
Pennsylvania limited liability company;
BERKSTWO, LLC, a Pennsylvania limited
liability company; MONT2, LLC, a
Pennsylvania limited liability company;
LANCTHREE, LLC, a Pennsylvania
limited liability company; DJTM, LLC, a
Pennsylvania limited liability company;
OX RESTCO, LP, a Pennsylvania limited
partnership; CHESTONE, LLC, a
Pennsylvania limited liability company;
MARIBOU, LLC, a Pennsylvania limited
liability company,
Defendants Counterclaimants -
Appellants,
and
SIMPLE TIE VENTURES, LP; DONALD
R. WELSH; THOMAS P. SCURRIA;
JEFFREY B. SOLOMON,
Defendants Third-Party Plaintiffs,
v.
SONIC RESTAURANTS, INC.,
Third-Party Defendant.
_________________________________
ORDER
_________________________________
Before HOLMES, BALDOCK, and MATHESON, Circuit Judges.
_________________________________
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This interlocutory appeal challenges the grant of a preliminary injunction.
After the parties completed their appellate briefing, the district court entered a
permanent injunction. We dismiss the appeal as moot.
I. FACTUAL AND PROCEDURAL BACKGROUND
Sonic Industries, LLC and its affiliates (collectively, “Sonic”) entered into
franchise agreements with Simple Tie Ventures, LP and affiliated entities and
individuals (collectively, “STV”). In exchange for operating Sonic restaurant
franchises and using Sonic’s registered trademarks, STV agreed to maintain quality
standards at the franchises and pay royalties and other fees to Sonic. After STV
failed to pay royalties and fees, Sonic terminated the agreements. Sonic demanded
that STV immediately stop operating the franchises, and Sonic gave STV 30 days to
cease holding them out as authorized Sonic franchises.
When STV failed to comply, Sonic sued STV for trademark infringement
under the Lanham Act, 15 U.S.C. § 1114, and for related contract claims. Sonic
alleged that STV was not authorized to use Sonic’s trademarks because the franchise
agreements had been terminated.
Sonic moved for a preliminary injunction, which the district court granted. It
enjoined STV from using Sonic’s marks in connection with the terminated
restaurants and from holding out the franchises as authorized Sonic franchises.
STV then filed this interlocutory appeal from the grant of the preliminary
injunction, invoking our jurisdiction under 28 U.S.C. § 1292(a)(1). After the parties
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submitted their appellate briefs, the district court granted most of Sonic’s motion for
summary judgment and entered a permanent injunction against STV. See Sonic
Indus. LLC v. Simple Tie Ventures LP, No. 5:20-cv-0183-J (W.D. Okla. July 12,
2021), ECF No. 136. The terms of the permanent injunction mirror those of the
preliminary injunction.
At this court’s request, the parties submitted briefs addressing whether the
permanent injunction moots this appeal.
II. LEGAL BACKGROUND
A district court may enter a preliminary injunction if “(1) the movant is
substantially likely to succeed on the merits; (2) the movant will suffer irreparable
injury if the injunction is denied; (3) the movant’s threatened injury outweighs the
injury the opposing party will suffer under the injunction; and (4) the injunction
would not be adverse to the public interest.” Fish v. Kobach, 840 F.3d 710, 723
(10th Cir. 2016) (quotations and alterations omitted). The standard for a permanent
injunction is substantially the same. “The only measurable difference between [the
standards for a preliminary and permanent injunction] is that a permanent injunction
requires showing actual success on the merits, whereas a preliminary injunction
requires showing a substantial likelihood of success on the merits.” Prairie Band
Potawatomi Nation v. Wagnon, 476 F.3d 818, 822 (10th Cir. 2007).
“Generally, an appeal from the grant of a preliminary injunction becomes moot
when the trial court enters a permanent injunction, because the former merges into
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the latter.” Grupo Mexicano de Desarrollo, S.A. v. All. Bond Fund, Inc., 527 U.S.
308, 314 (1999); see also Smith v. Ill. Bell Tel. Co., 270 U.S. 587, 588-89 (1926)
(granting a motion to dismiss the appeal “on the ground that the order for the
interlocutory injunction had become merged in the final decree”).
The purpose of a preliminary injunction is “to enjoin, pending the outcome of
the litigation, action that [the plaintiff] claims is unlawful.” Grupo Mexicano, 527
U.S. at 314. If the “lawsuit turns out to be meritorious—if [the plaintiff] is found to
be entitled to the permanent injunction that [it] seeks—even if the preliminary
injunction was wrongly issued (because at that stage of the litigation the plaintiff’s
prospects of winning were not sufficiently clear, or the plaintiff was not suffering
irreparable injury) its issuance would in any event be harmless error.” Id. at 314-15.
“The final injunction establishes that the defendant should not have been engaging in
the conduct that was enjoined” because the conduct was actually unlawful. Id. at
315.
III. DISCUSSION
Grupo Mexicano is controlling and requires dismissal of this appeal as moot.
On appeal, STV argues in its merits brief that the district court erred in
entering the preliminary injunction because Sonic had not shown irreparable injury,
that the balance of harms weighed in its favor, or that the preliminary injunction was
not adverse to the public interest. But under Grupo Mexicano, any error the district
court may have committed was “harmless.” See id.
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As the Fourth Circuit recently explained, once a defendant is preliminarily
enjoined from infringing on the plaintiff’s trademarks, an appeal of the preliminary
injunction becomes moot if there is a “final decision by the district court that . . .
finds that [the plaintiff’s] claims are meritorious.” See Fleet Feet, Inc. v. NIKE, Inc.,
986 F.3d 458, 465 (4th Cir. 2021). In that situation, the defendant cannot save the
appeal from mootness by contesting the district court’s preliminary injunction
analysis because to do so would be to argue “that it should have been free to”
unlawfully infringe on the plaintiff’s trademarks while the litigation was pending. Id.
at 466 (citing Grupo Mexicano, 527 U.S. at 314-15).
So too here. The permanent injunction required Sonic to show “actual success
on the merits.” Prairie Band Potawatomi Nation, 476 F.3d at 822. The district
court’s entry of the permanent injunction was a “final decision” that Sonic’s claims
were “meritorious” and that STV had been infringing Sonic’s marks since the
franchise agreements were terminated. See Fleet Feet, 986 F.3d at 465.
STV thus cannot argue—based on the district court’s alleged errors in finding
irreparable injury, weighing the balance of the harms, and finding the preliminary
injunction would not be adverse to the public interest—“that it should have been
free” to continue operating unauthorized franchises, “even if it was infringing” on
Sonic’s marks. See id. at 466.
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Because the permanent injunction has superseded the preliminary injunction,
we dismiss STV’s appeal as moot. 1
Entered for the Court
CHRISTOPHER M. WOLPERT, Clerk
1 In Grupo Mexicano, the Supreme Court announced an exception to the
general rule of mootness when “the substantive validity of the final injunction does
not establish the substantive validity of the preliminary one.” Grupo Mexicano, 527
U.S. at 315. That exception does not apply here.
Similarly unhelpful are the cases STV cites to argue the appeal is not moot.
In Stacey G. v. Pasadena Independent School District, 695 F.2d 949 (5th Cir.
1983), the Fifth Circuit saved a preliminary injunction appeal from mootness because
“the final judgment did not in terms resolve the issue . . . whether preliminary
injunctive relief was appropriate to require Pasadena to pay the entire interim costs of
Stacey’s private schooling prior to the final judgment.” Id. at 955. The Grupo
Mexicano exception would apply to Stacey G. because the question whether the
interim relief was valid was separable from the validity of the final relief. Here, the
terms of the permanent injunction continued the terms of the preliminary injunction.
To the extent Associated General Contractors of Minnesota v. International
Union of Operating Engineers Twin City Local No. 49, 519 F.2d 269 (8th Cir. 1975),
Medtronic, Inc. v. Janss, 729 F.2d 1395 (11th Cir. 1984), and International Union,
United Automobile, Aerospace and Agricultural Implement Workers of America-
UAW v. LaSalle Machine Tool, Inc., 696 F.2d 452 (6th Cir. 1982), suggest a different
outcome based on the ability of an enjoined party to recover for damages incurred by
a wrongfully issued preliminary injunction, those cases, which all predate Grupo
Mexicano, are unpersuasive.
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