Case Number: BC545616    Hearing Date: July 23, 2014    Dept: 32
CASE NAME: Ber, LLC, et al. v. Frida Tacos Pasadena, LLC, et al.
CASE NO.: BC545616 [related with BC507652]
HEARING DATE: 07/23/14
DEPARTMENT: 32
CALENDAR NO.: 7
SUBJECT: Motion for Preliminary Injunction
MOVING PARTY: Plaintiffs Ber, LLC and Frida Restaurant Americana, LLC
RESP. PARTY: Defendants Frida Tacos Pasadena, LLC, Vicente Del Rio, and La Vaquita Corp.

COURT’S TENTATIVE RULING

Motion for Preliminary Injunction GRANTED with respect to (1) Defendants using of the service mark “Frida Restaurant” within seven miles of the Frida Restaurant located at the Americana at Brand shopping center, except in the city of West Hollywood (the “Seven Mile Radius”); and (2) Defendants using any mark which includes the word “Frida” in connection with the provision of restaurant or similar services within the Seven Mile Radius. This injunction does not apply to Frida Tacos Melrose located at 7217 Melrose Ave., Los Angeles, CA 90046.

The motion is DENIED insofar as it seeks to enjoin Defendants’ use of any recipes.

The court preliminarily requires Plaintiffs to provide an undertaking of $25,000 subject to additional argument at the hearing or, if necessary, supplemental briefing and declarations.

ANALYSIS

Defendants’ Evidentiary Objections

(1) Sustained only as to phrase “which lists the Recipes.” Overruled as to remainder.
(2) Overruled.
(3) Sustained as to phrase “were using … the Recipes”. Overruled as to remainder.
(4) Overruled.
(5) Sustained.
(6) Sustained.

Plaintiffs’ Evidentiary Objections

Declaration of Vicente Del Rio

(1) Overruled.
(2) Overruled.
(3) Overruled.
(4) Overruled.
(5) Overruled.
(6) Overruled.
(7) Overruled.
(8) Sustained.
(9) Overruled.
(10) Overruled.
(11) Sustained.
(12) Overruled.

Declaration of Jeffrey Adam Iloulian

(1) Overruled.
(2) Overruled.
(3) Overruled.

Declaration of Christopher Winter

(1) Overruled.
(2) Overruled.

Motion for Preliminary Injunction

This action arises from two written agreements entered into in July 2010 pursuant to which Defendants La Vaquita and Del Rio sold to Ber, LLC all service mark rights in the mark “Frida Restaurant,” within a seven (7) mile radius of Plaintiffs’ Frida restaurant in the Americana at Brand shopping Center in Glendale, California, for $210,000 and sold to FRA all recipes, processes and designs (collectively “recipes”) used in the sellers’ Frida Beverly Hills restaurant for exclusive use in the same 7 mile area for $ 160,000. The present motion for a preliminary injunction concerns Plaintiffs’ claims that Defendants are using the Frida name and recipes at a restaurant recently opened in the old town area of Pasadena, which is within 7 miles of Plaintiffs’ Glendale location. Plaintiffs seek to preliminarily enjoin the use of the Frida names and the recipes.

As set forth below, the court grants the motion as it relates to the use of the Frida name and denies the motion as it relates to the recipes.

CAUSES OF ACTION

The power to enjoin is an extraordinary power that must be exercised with great caution. The power should rarely, if ever, be exercised in a doubtful case. (Dawson v. East Side Union High School Dist. (1994) 28 Cal.App.4th 998, 1041.) In deciding whether or not to grant a preliminary injunction, the court looks to two factors, including “(1) the likelihood that the plaintiff will prevail on the merits, and (2) the relative balance of harms that is likely to result from the granting or denial of interim injunctive relief.” (White v. Davis (2003) 30 Cal.4th 528, 553-54.) It is error for the trial court to grant a preliminary injunction without considering the relative harms that would be imposed by denying or granting a preliminary injunction. (Id. at 560.) Irreparable harm may exist if the plaintiff can show an inadequate remedy at law. (CCP § 526(a).) The court will discuss below the issues raised in the motion in light of the above standard.

Plaintiffs’ Likelihood of Success

Breach of Contract

Plaintiffs submit evidence that in mid-July 2010, Ber Oberfeld (“Ber”) executed two agreements related to this action – the “Purchase and Sale Agreement of Mark for a Specific Territory” (the “Mark Agreement”) and the “Purchase and Sale Agreement of Food and Beverages Recipes.” (Ber Decl. ¶¶ 10, 11.)

Pursuant to the terms of the Mark Agreement, “[Defendant La Vaquita] agrees to sell, convey and assign to [Ber, LLC], and [Ber, LLC] agrees to purchase and accept from [La Vaquita], in exchange for [$210,000] … the Rights to use, sell and assign to third parties the Mark.” The Mark is defined as “Frida Restaurant.” Also pursuant to the terms of the Mark Agreement, “The purchase of the Rights is coupled with the right to the exclusive use of the Mark by [Ber, LLC] within a seven (7) mile radius from the location of the Frida restaurant at the site located in the Americana at Brand (the “Shopping Center”) in Glendale, California.” (Ber Decl. ¶ 11, Exh. D.)

Pursuant to the terms of the Recipe Agreement, “[La Vaquita] agrees to sell, convey and assign to [Plaintiff Frida Restaurant Americana, LLC – FRA], and [FRA] agrees to purchase and accept from [La Vaquita], in exchange for [$160,000]… the Rights to use, sell and assign to third parties the Recipes.” Also pursuant to the terms of the Recipe Agreement, “The purchase of the Recipes is coupled with the right to the exclusive use of the Recipes (including therein the menu of the restaurant owned and operated by [La Vaquita] commonly known as “Frida Beverly Hills” and located in Beverly Hills, California) by [FRA] within a seven (7) mile radius from the location of the Frida restaurant at the site located
in the Americana at Brand (the “Shopping Center”) in Glendale, California.” (Ber Decl. ¶ 11, Exh. E.)

With the moving papers, Plaintiffs submit sufficient evidence in support of the breach of contract claim with respect to Defendants’ use of the name “Frida Restaurant” in connection with Frida Tacos Pasadena. The Mark Agreement gave Plaintiff the right to “exclusive use” of the Mark within seven miles of the Americana at Brand. As discussed further below, the names “Frida Restaurant” and “Frida Tacos Pasadena” are confusingly similar so that Defendants’ use of the latter could be a breach of the Mark Agreement. (See Ber Decl. ¶ 16.) Defendants also do not dispute that they opened Frida Tacos Pasadena on June 13, 2014, or that Frida Tacos Pasadena is within seven miles of the Americana at Brand. (See Del Rio Decl. ¶¶ 11-12.)

With the moving papers, Plaintiffs did not submit sufficient evidence to establish that Frida Tacos Pasadena would use the recipes that Plaintiffs purchased in the Recipe Agreement. Ber’s declaration is conclusory on this issue and insufficient to satisfy Plaintiff’s moving burden. (See Ber Decl. ¶ 16.)

In reply, Plaintiffs submit the declarations of Joan Raigosa, the executive chef of Frida Restaurant Americana, and David Handelman, the manager of Frida Restaurant Americana. Plaintiffs apparently contend that it could not have submitted these declarations earlier because Frida Tacos Pasadena had not yet opened. “While additional evidentiary matter submitted with the reply ordinarily should not be allowed, the court has discretion to consider it when it poses no prejudice to the opposing party.” (Hahn v. Diaz-Barba (2011) 194 Cal.App.4th 1177, 1193.) Here, Plaintiffs did not meet their moving burden on this issue and court sustained evidentiary objections to Plaintiffs’ evidence that the Recipe Agreement has been breached. Thus, Defendants could be prejudiced by this new evidence in reply.. Nevertheless, given that the Frida Tacos Pasadena location apparently just opened, the interest of justice are served by considering this evidence, subject, of course, to objections by the Defendants at the hearing and, if necessary, further briefing. Given the court’s tentative to deny the preliminary injunction as to the recipes, however, this would be unnecessary.

The reply declarations support a plausible inference that Defendants have used recipes covered by the Recipe Agreement at Frida Tacos Pasadena. (See generally Raigosa Decl.) Therefore, based on this reply evidence, Plaintiffs have shown at least some probability of prevailing on the claim for breach of the Recipe Agreement.

However, as discussed further below, a preliminary injunction is not warranted with regard to the recipes on the present record. Also, among other issues, the balance of harm does not favor Plaintiffs with regard to the recipes. Requiring Defendants to change the menu at Frida Tacos Pasadena just after its opening could result in a significant change to the Defendants’ business and cause them substantial harm. There are other problems with this aspect of the motion which will also be discussed below.

Common Law Trademark Infringement

The law with respect to this issue is as follows. “To state a claim of trademark infringement under California common law, a plaintiff need allege only 1) their prior use of the trademark and 2) the likelihood of the infringing mark being confused with their mark.” (Wood v. Apodaca (N.D. Cal. 2005) 375 F.Supp.2d 942, 947-948.) “The rule is the court must determine (1) the likelihood of confusion (2) in the mind of a prudent person in the relevant public (3) caused by the tradename as a whole.” (California Western School of Law v. California Western University (1981) 125 Cal.App.3d 1002, 1010.)

In California Western School of Law, supra, the Court of Appeal held that the trial court “could properly conclude ‘California Western University’ and ‘California Western School of Law’ are confusingly similar as a matter of law.” (Id. at 1011.) Thr Court also noted the following examples of confusingly similar tradenames: “’The Hollywood Motion Picture Academy’ was held to be a name which was prima facie confusing with ‘The Academy’ or ‘The Motion Picture Academy’ by which plaintiff’s organization had come to be known. [Citation.] The name, ‘Columbia Educational Institute’ has been held to be confusingly similar as a matter of law with ‘Columbia University.’ [Citation.] [¶] The two names, ‘American College of Trial Lawyers’ and ‘American Trial Lawyers Association,’ approximate similarity as a matter of law.” (Ibid., quoting Ball v. American Trial Lawyers Assn. (1971) 14 Cal.App.3d 289, 308-309.)

Here, as discussed in the moving papers at page 11, the words “Restaurant” and “Tacos” are generic designations and would likely receive less attention than the word “Frida” to consumers. Based on the authorities discussed above, Plaintiffs have met their moving burden of showing a likelihood of prevailing on the claim that “Frida Tacos Pasadena” is confusingly similar to “Frida Restaurant Americana.”

Misappropriation of Trade Secrets

To establish misappropriation of trade secrets, Plaintiff must establish Defendants’ “use of a trade secret of another without express or implied consent … [although they] knew or had reason to know that [their] knowledge of the trade secret was acquired under circumstances giving rise to a duty to … limit its use.” (Civ. Code § 3426.1(b)(2)(B)(ii).)

Under the UTSA, “trade secret” is “information… that: [¶] (1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and [¶] (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” (Civ.Code, § 3426.1(d).)

Plaintiffs have not met their moving burden of showing a probability of prevailing on this claim. Plaintiffs do not argue in the moving papers, or point to evidence, suggesting that the recipes sold in the Recipe Agreement are trade secrets pursuant to Civ.Code, § 3426.1. Plaintiffs submit no evidence that the recipes derive value from not being generally known to the public, or that Plaintiffs make reasonable efforts to maintain secrecy. Ber did not address this issue in his moving declaration. In the reply declarations, Raigosa and Handelman do not show that the recipes are trade secrets. Indeed, Raigosa’s declaration suggests that a competent chef could “reverse engineer” the recipes. (See Raigosa Decl. ¶¶ 10-19.)

Defendants’ Arguments in Opposition

Plea in Abatement

The Defendants point to the pendency of a case the court has deemed related, BC 507652, in which the Defendants here challenge the two subject agreements as void or voidable and seek their rescission and other relief. As a result, they contend this case should be abated.

“A plea in abatement pursuant to section 430.10, subdivision (c), may be made by demurrer or answer when there is another action pending between the same parties on the same cause of action. [Citations.] In determining whether the causes of action are the same for purposes of pleas in abatement, the rule is that such a plea may be maintained only where a judgment in the first action would be a complete bar [i.e. by res judicata] to the second action. [Citations.] Where a demurrer is sustained on the ground of another action pending, the proper order is not a dismissal, but abatement of further proceedings pending termination of the first action.” (Plant Insulation Co. v. Fibreboard Corp. (1990) 224 Cal.App.3d 781, 789.)

Defendants contend that Plaintiffs cannot demonstrate a likelihood of success on their claims because the action will likely be abated due to the currently pending matter Del Rio et al. v. Oberfeld, et al., BC507652. However, as reflected in Defendants’ counsel’s declaration, the two actions do not involve all of the same parties and causes of action. (See Iloulian Decl. ¶¶ 5-6.) For instance, as argued in reply, Frida Tacos Pasadena was apparently not created until after the related Del Rio action was filed. (Reply 10.) Thus, because the related Del Rio action would not be a complete bar to the instant action, Defendants’ plea in abatement argument is not persuasive. Moreover, Defendants cite no authorities holding that the court should consider a plea of abatement in connection with a motion for preliminary injunction. (Cf. People ex rel. Garamendi v. American Autoplan, Inc. (1993) 20 Cal.App.4th 760, 774 [“The rule of exclusive concurrent jurisdiction is not a defense to a request for a preliminary injunction.”].) Finally, neither side has addressed the underlying issues in the related case in any substantive way.

Unenforceable Mark Agreement

Defendants contend that the Mark Agreement cannot be enforced because the rights to use a trademark in a specific geographic area cannot be “sold,” only licensed. Defendants contend that the absence of quality control in the seller renders the Mark Agreement a “naked license” that conveyed no enforceable rights in the Mark to Ber, LLC. (Oppo. 7-8.) Defendants do not submit authorities or analysis with respect to the first argument, and the second argument is unpersuasive based on Defendants’ own cited authorities.

“‘Naked licensing’ occurs when the licensor ‘fails to exercise adequate quality control over the licensee.’ Id. at 596. Naked licensing may result in the trademark’s ceasing to function as a symbol of quality and a controlled source. Id. (citing McCarthy § 18:48). We have previously declared that naked licensing is ‘inherently deceptive and constitutes abandonment of any rights to the trademark by the licensor.’ Id. at 598. ‘Consequently, where the licensor fails to exercise adequate quality control over the licensee, ‘a court may find that the trademark owner has abandoned the trademark, in which case the owner would be estopped from asserting rights to the trademark.’ ” (FreecycleSunnyvale v. Freecycle Network (2010) 626 F.3d 509, 515-516 [emphasis added].)

As suggested by this italicized sentence from the Freecycle opinion, the “naked license” defense triggers the licensor’s (i.e. Defendants) loss of trademark rights. (See also Halo Management, LLC v. Interland, Inc. (N.D. Cal. 2003)
308 F.Supp.2d 1019, 1028.) Defendants fail to explain in their papers how this defense is relevant to Plaintiffs’ use of the Mark which derives from the subject contract between the parties to this case. If the Mark Agreement in fact is a “naked license,” that could prevent Defendants from asserting any rights in the Mark against Plaintiffs and others. At this stage, it is sufficient that the “naked license” defense does not bar a finding that Plaintiffs have a likelihood of success on the merits.

Waiver

Defendants contend that Plaintiffs’ present interpretation of the Mark Agreement and Recipe Agreement is inconsistent with Plaintiffs’ conduct. Specifically, Defendants contend that Frida Tacos Melrose (“FTM”) was opened in September 2010 after the parties entered the Agreements; FTM is within seven miles of Frida Restaurant Americana; and Plaintiffs have not objected. In reply, Plaintiffs point out that the seven-mile radius provided for in paragraph 1.4 of the Agreements specifically excludes the area of West Hollywood. It appears that FTM is located at 7217 Melrose Ave., Los Angeles, CA 90046. (Del Rio Decl. ¶¶ 7-8.) Neither party establishes that FTM is located within West Hollywood or requests judicial notice of a relevant map. Nevertheless, even assuming Plaintiffs did not enforce the Agreements as to FTM, one could reasonably conclude that the Melrose location and the Pasadena location present different competitive issues with respect to a restaurant located in the Americana in Glendale. Defendants fail to show that this conduct would waive Plaintiffs’ right with respect to any breach of the Agreements related to Frida Tacos Pasadena.

Summary – Likelihood of Success

Based on the foregoing, Plaintiffs have established some probability of success with respect to their claims that Defendants breached the Mark Agreement and Recipe Agreement and could be liable for common law trademark infringement. Based on the evidence presented, Plaintiffs have not established a likelihood of success on the claim that Defendants misappropriated trade secrets with respect to the recipes.

Balance of Harms

The balance of harms weighs in favor of Plaintiffs with respect to the territorial rights to the Mark “Frida Restaurant” that Plaintiffs purchased for $210,000 in the Mark Agreement. In the Mark Agreement, Plaintiff Ber, LLC, purchased the right to “exclusive use” of the Mark within a seven-mile radius of Frida Restaurant Americana and paid a substantial consideration for those rights.. As discussed above, the names “Frida Restaurant” and “Frida Tacos Pasadena” are confusingly similar. The two restaurants apparently serve similar foods, are located in the same Glendale-Pasadena area, and likely share the same or a similar customer base. There is also evidence that Frida Restaurant Americana is a sit down restaurant, while Frida Tacos Pasadena is a less formal and less expensive taqueria. (See Ber Decl. ¶¶ 11-16; Exh. F, I-N; see generally Raigosa Decl. and Handelman Decl.) While Defendants argue that monetary damages would be sufficient, there is no supporting evidence of this. In any case, the court concludes that proving that a future loss of business flowed from the Frida Pasadena restaurant as opposed to some other reason or reasons could prove a daunting task at trial. Therefore, Defendants’ continued use of the “Frida” Mark could, and would likely, cause irreparable damage to the reputation of Frida Restaurant Americana.

However, Plaintiffs do not make a sufficient showing of harm with respect to Defendants’ purported use of the recipes. As discussed above, Plaintiffs do not establish that the recipes constitute trade secrets so that Defendants’ use thereof creates a risk of destroying any value the recipes might have from being kept secret. Insofar as Plaintiffs allege breach of the Recipes Agreement, even assuming there may be proof issues on damages, a preliminary injunction is not warranted on this record. Given that Frida Restaurant and Frida Tacos Pasadena are apparently distinct types of restaurants (i.e., sit-down and taqueria), assuming a use of a different and not confusingly similar name, there is no basis on the record to conclude that that consumers would notice any similarities in the food at the two restaurants (See Raigosa Decl.)

Moreover, on the recipes issue the balance of harms weighs in favor of Defendants. Compelling Defendants to change their menu at this stage could be severely detrimental to the Frida Tacos Pasadena business and could, in effect, require Defendants to cease, or at least substantially change, operations of the restaurant.

Finally, unlike an injunction as to the name “Frida”, it would be difficult, if not impossible, for the court to enforce an injunction with respect to Defendants’ use of the recipes. The Raigosa declaration, for instance, suggests that a certain level of subjective analysis by a professional is required to compare the menus between the restaurants. “There is a strong tendency to avoid injunctions requiring continuing court proceedings to enforce them” or that involve “acts not subject to objective verification.” (Rutter, Civ. Pro. Before Trial ¶¶ 9:541, 9:542.)

Based on the foregoing, the motion is GRANTED with respect to (1) Defendants’ use of the service mark “Frida Restaurant” within seven miles of the Frida Restaurant located at the Americana at Brand shopping center, except in
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1
“Rights and interests arising in connection with contracts may be the subject of an injunction in some cases, such as a preliminary injunction issued as a provisional remedy for the breach of a contract where it appears that monetary relief would not afford adequate relief or that it would be extremely difficult to ascertain the amount of damages. However, generally, except as otherwise provided by statute, an injunction cannot be granted to prevent the breach of a contract, the performance of which cannot be specifically enforced.” (38 Cal. Jur. 3d Injunctions § 55; see also CCP § 526(b)(5) and Pacific Decision Sciences Corp. v. Superior Court (2004) 121 Cal.App.4th 1100, 1110.) Defendants assert no argument that the performance of the Mark Agreement could not be specifically enforced. Also, as discussed above, the court finds that it could be extremely difficult for Plaintiffs to ascertain reputational and lost profits damages for breach of the Mark Agreement.
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the city of West Hollywood (the “Seven Mile Radius”); and (2) Defendants using any mark which includes the word “Frida” in connection with the provision of restaurant or similar services within the Seven Mile Radius. The motion is DENIED insofar as it seeks to enjoin Defendants’ use of any recipes.

Undertaking

If an injunction is granted, the court must require an undertaking to the effect that the applicant will pay to the party enjoined any damages, not exceeding an amount to be specified, the party may sustain by reason of the injunction, if the court finally finds that the party was not entitled to the injunction. (CCP § 559(a).)

In the opposition papers, Defendants request a bond of $500,000 in the event the motion is granted. Defendants do not provide any evidence to establish that $500,000 in damages could occur should the injunction be improvidently granted. (Oppo. 10-11.) On the other hand, Plaintiffs fail to support their argument in reply that no bond is required, as the injunction would require Defendants to change the name and signage for Frida Tacos Pasadena. (Reply 11.)

The court preliminarily requires Plaintiffs to provide an undertaking of $25,000 subject to additional argument at the hearing or, if necessary, supplemental briefing and declarations.
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2
If Frida Tacos Melrose (FTM) is not within West Hollywood, the court also excludes FTM from the scope of the injunction. Plaintiffs did not show in the moving papers that the balance of harms would weigh for an injunction as to FTM given that Plaintiffs have not challenged the use of the mark “Frida” for a significant period of time. Plaintiffs also apparently do not seek an injunction as to FTM.