Big O Tires, LLC v. Felix Bros., Inc. et al

Filing 143

ORDER. Defendants' 119 , 121 motion to dismiss or stay are granted in part and denied in part. Plaintiff's breach of contract claims are stayed and, to theextent plaintiff seeks summary judgment on those claims, its 105 motion for summ ary judgment is denied without prejudice to refiling upon lifting of the stay of those claims. To the extent plaintiff seeks summary judgment on the trademark, trade dress, and trade secrets claims, its 105 motion for summary judgment is denied. Pursuant to Fed. R. Civ. P. 42(b), the trial scheduled to commence on 1/9/2012 will be limited to plaintiff's trademark, trade dress, and trade secrets claims. By Judge Philip A. Brimmer on 12/13/11.(mnfsl, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Philip A. Brimmer
Civil Case No. 10-cv-00362-PAB-KLM
BIG O TIRES, LLC, a Nevada limited
liability company f/k/a BIG O TIRES, INC.,
a Colorado corporation,
Plaintiff,
v.
FELIX BROS., INC., a California corporation,
RALPH FELIX, an individual,
ARMIDA FELIX, an individual,
ANGEL FELIX, an individual, and
MARIA FELIX, an individual,
Defendants.

ORDER

This matter is before the Court on the motion for summary judgment [Docket No.
105] filed by plaintiff Big O Tires, LLC (“Big O”) and the motion to dismiss or stay
[Docket Nos. 119, 121] filed by defendants . The motions are fully briefed and ripe for
disposition.
I. BACKGROUND1
Big O is a franchisor of automobile tire stores. Big O enters into franchise
agreements governing each franchise location. Pursuant to the agreements,
franchisees are given the right to use Big O trademarks, trade dress, and licensed
methods for a term of years in exchange for franchisees making royalty payments to

1

Unless otherwise indicated, the following facts are not in dispute.

Big O. Big O owns trademarks on “BIG-O” and “BIG O TIRES” and uses trade dress
which includes “decorative black and red stripes, a red and white interior, red and black
employee uniforms, point of purchase materials and a distinctive font.” Docket No. 105
at 2, ¶ 3; Docket No. 110 at 2, ¶ 3. Although the parties dispute the strength of Big O’s
system of advertising and selling tires, defendants do not dispute that Big O’s
trademarks and trade dress have been advertised widely.
On June 30, 1999, defendant Felix Bros., Inc. (“Felix Bros.”) opened a Big O
franchise in Quartz Hill, California after entering into a Big O franchise agreement
(“Quartz Hill Agreement”). Defendants Ralph, Armida, Angel, and Maria Felix (“the
Felixes”) all signed the Quartz Hill Agreement as guarantors. Manzano, Inc. became a
Big O franchisee in Palmdale, California (“Palmdale Agreement”) on April 25, 2001.
Ralph and Armida Felix signed the Palmdale Agreement as guarantors. On August 23,
2001, Felix Tires, Inc., with Ralph and Armida Felix as guarantors, became a Big O
franchisee in Lancaster, California (“Lancaster Agreement”).
The Quartz Hill Agreement expired at the end of December 2009. The Quartz
Hill Agreement imposed certain post-termination obligations on Felix Bros., such as deidentifying with Big O and returning proprietary material to Big O. Big O contends that
Felix Bros. did not promptly comply with its post-termination obligations. Defendants
respond that they immediately began operating the business at the Quartz Hill location
under the name Budget Tires and Automotive. Furthermore, defendants assert that
any delay in removing Big O trademarks and trade dress was on account of ongoing
negotiations with Big O regarding the possibility of negotiating a single termination date
for all three franchises or a buyout by Big O. Mr. Felix avers that he left the trademarks
2

and trade dress in place in the event that Big O would take over the franchise. In
addition to seeking recovery for trademark and trade dress violations, plaintiff also
contends that “Felix Bros. and the Felixes failed to pay Big O all sums due upon
expiration of the Quartz Hill Agreement” in the amount of $14,427.02 as of April 7,
2011. Ralph Felix admits to a debt arising out of the Quartz Hill location, but testified
that he believed he owed a lesser amount. See Docket No. 110-5 at 2.2
In its motion, Big O also contends that defendants’ continued operation of a tire
business at the Quartz Hill location violates an in-term non-compete provision found in
both the Palmdale and Lancaster Agreements, which reads as follows:
Except for any businesses already operating and identified on the Summary
Pages, during the term of this Agreement, Franchisee and any guarantor(s)
hereof covenant, individually, not to engage in or open any business, at any
location, other than as a Franchisee of the Big O System, which offers or
sells tires, wheels, shock absorbers, automotive services, or other products
or services which compete with Big O Products and Services. The purpose
of this covenant is to encourage Franchisee and any guarantor(s) hereof to
use their best efforts to promote the Big O System, its Products and
Services, to protect its information and trade secrets, and to generate a
successful business at the Store.
See, e.g., Docket No. 105-5 at 25, § 17.01. In addition, plaintiff seeks payment of
unpaid royalty fees pursuant to the Palmdale and Lancaster Agreements in the
amounts of $21,931.89 and $40,929.15 respectively, as well as an outstanding balance
of $108,708.76 for consigned products pursuant to a Consignment Agreement entered
into for the Palmdale location which Ralph and Armida Felix signed as guarantors.
Defendants admit that money is owed pursuant to the agreements, but dispute the
amounts requested by plaintiff.
2

Defendants have supplied no statements or other financial records.
3

Other than the present action, there is ongoing litigation between the parties in
Superior Court in Los Angeles County, California. On December 2, 2009, two and a
half months before the present case was filed, defendants Ralph Felix and Felix Bros.,
Inc. joined a number of other Big O franchisees in a lawsuit against Big O for breach of
the franchise agreements and other business torts. In that action, Big O has filed
counterclaims against defendants alleging the same breaches of the franchise
agreements at issue in this case. See Docket No. 121-2 at 32-44. Big O, however, did
not file counterclaims for trademark, trade dress, and trade secrets violations.
II. DISCUSSION
A. Defendants’ Motion to Dismiss or Stay
After plaintiff filed its motion for summary judgment, defendants filed a motion to
dismiss or stay this action [Docket Nos. 119, 121]. As grounds for dismissal of
plaintiff’s case, defendants contend that plaintiff is asserting claims that were
compulsory counterclaims in the California state court action. As an initial matter, to the
extent defendants seek dismissal, their motion is untimely. Dispositive motions were
due on April 7, 2011. See Docket No. 104. Defendants filed their motion to dismiss on
September 28, 2011 [Docket No. 119] and an amended version of their motion to
dismiss on October 6, 2011 [Docket No. 121]. Defendants did not request or receive
leave to file their motion to dismiss out of time.
Moreover, defendants have not complied with the procedural requirements for
asserting their compulsory counterclaim defense. Pursuant to California law, “if a party
against whom a complaint has been filed and served fails to allege in a cross-complaint

4

any related cause of action which (at the time of serving his answer to the complaint) he
has against the plaintiff, such party may not thereafter in any other action assert against
the plaintiff the related cause of action not pleaded.” Cal. Civ. Proc. Code § 426.30(a);
see Valley View Angus Ranch, Inc. v. Duke Energy Field Services, Inc., 497 F.3d 1096,
1100 (10th Cir. 2007) (“[W]e look to state law to determine if a claim is a compulsory
counterclaim, and, if so, the effect of a failure to raise such a claim.”); 18 Charles A.
Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure § 4414
(2d ed. 2011) (“[F]ailure to make a counterclaim made compulsory in a state
proceeding by state law precludes later action on the claim in federal court.”).3
However, a party must plead a section § 426.30 defense and, as plaintiff points out, see
Docket No. 125 at 4, defendants “did not raise the issue of compulsory counterclaims in
their amended answer.” Nor did defendants raise the defense in their first motion to
dismiss [Docket No. 43] or the final pretrial order [Docket No. 114]. See Docket No. 82
at 13-14 (where, in addressing defendants’ request for a stay, the Court noted that,
“[a]lthough there are overlapping issues in the two actions, defendants have not argued
that plaintiff’s claims in this case constitute compulsory counterclaims in the state court

3

Plaintiff asserts that any compulsory counterclaims in the state action cannot yet
be barred in this action because a “fundamental requirement of [section] 426.30 is that
the initial action be concluded to final judgment.” Docket No. 125 at 5. However,
“[s]ection 426.30 makes no mention of any requirement of a final judgment.” Pietak v.
State Farm Fire and Cas. Co., 189 F.3d 474 (table op.), 1999 WL 599478, at *2 (9th
Cir. Aug. 10, 1999) (“The purpose of the provision is ‘to require reciprocal rights flowing
from a common source to be determined in a single action, thus avoiding not only
unnecessary vexatious litigation, but also the contingency of conflicting judgments . . . .’
This policy would be undermined if a party against whom a complaint had been filed
were permitted to commence another action against the complainant alleging related
causes of action anytime before a judgment was final.”) (citation omitted).
5

action”). See Hulsey v. Koehler, 218 Cal. App. 3d 1150, 1158 (Cal. App. 3d Dist. 1990)
(“Since we find that a defense based on section 426.30 must be specially pleaded, we
reject Koehler’s contention that her affirmative defense of failure to state facts sufficient
to constitute a cause of action effectively incorporated the section 426.30 defense and
was sufficient to raise it.”). Defendants have not sought to amend their pleadings or the
final pretrial order. See Docket No. 114 at 8 (“Hereafter, this Final Pretrial Order will
control the course of this action and the trial, and may not be amended except by
consent of the parties and approval by the court or by order of the court to prevent
manifest injustice.”).
In the alternative, defendants request that the Court stay this case, relying upon
Landis v. N. Am. Co., 299 U.S. 248, 254 (1936), where the Supreme Court stated that
“the power to stay proceedings is incidental to the power inherent in every court to
control the disposition of the causes on its docket with economy of time and effort for
itself, for counsel, and for litigants.” Defendants’ request for a stay, however, is more
appropriately analyzed by reference to Colorado River Water Conservation Dist. v.
United States, 424 U.S. 800 (1976).4 As the court noted in Johnson & Johnson Vision
Care, Inc. v. Kenneth Crosby N.Y., LLC, 2010 WL 1030121, at *3 (M.D. Fla. March 17,
2010), “Landis . . . arose in the context of a federal district court staying a case in
deference to another federal district court, as opposed to a state court. Indeed, in
Colorado River, the Supreme Court specifically distinguished Landis (and cases like it),

4

See Hamilton v. Emerald Isle Lending Co., 2011 WL 1990568, at *11 n.2 (D.
Colo. April 6, 2011) (“The court may address abstention under the Colorado River
doctrine sua sponte.”) (citing Reinhardt v. Kelly, 164 F.3d 1296, 1302 (10th Cir. 1999)).
6

noting that the ‘difference in general approach between state-federal concurrent
jurisdiction and wholly federal concurrent jurisdiction stems from the virtually unflagging
obligation of the federal courts to exercise the jurisdiction given them.’” (citations
omitted).
The Colorado River doctrine allows federal courts to “dismiss or stay a federal
action in deference to pending parallel state court proceedings” where the federal court
would otherwise have concurrent jurisdiction with the state court. Fox v. Maulding, 16
F.3d 1079, 1080 (10th Cir. 1994) (citing Colorado River, 424 U.S. at 817). In such a
situation, the federal court may exercise its discretion and stay or dismiss the federal
suit “for reasons of wise judicial administration.” Id. at 1081 (quoting Colorado River,
424 U.S. at 817-18). Application of the doctrine is appropriate only in “exceptional”
circumstances. Id.
In order to defer to a state court under the Colorado River doctrine, a federal
court must first assess whether the state court suit is in fact “parallel” to the federal suit.
“Suits are parallel if substantially the same parties litigate substantially the same issues
in different forums.” Id. (quoting New Beckley Mining Corp. v. Int’l Union, UMWA, 946
F.2d 1072, 1073 (4th Cir. 1991)). In the Tenth Circuit, a court assessing whether state
and federal proceedings are parallel should consider the actual posture of the state
proceedings, instead of considering “how the state proceedings could have been
brought in theory.” Id. In this case, the Court finds that plaintiff’s breach of contract
claims against defendants are clearly parallel to the identical breach of contract
counterclaims it has asserted against the same parties in the California action. On the

7

other hand, plaintiff’s trademark, trade dress, and trade secrets claims, based on
alleged violations of federal and Colorado law, have only been asserted in this Court.
Having determined that the proceedings are, at least in part, parallel, the court
“must then determine whether deference to state court proceedings is appropriate” by
looking at a series of nonexhaustive factors laid out in Colorado River: “(1) whether
either court has assumed jurisdiction over property; (2) the inconvenience of the federal
forum; (3) the desirability of avoiding piecemeal litigation; and (4) the order in which the
courts obtained jurisdiction.” Id. at 1082. Other relevant factors may be “the vexatious
or reactive nature of either the federal or the state action,” “whether federal law provides
the rule of decision,” “the adequacy of the state court action to protect the federal
plaintiff’s rights,” and “whether the party opposing abstention has engaged in
impermissible forum-shopping.” Id. (citations omitted).5
The Court concludes, upon application of the relevant factors, that the Colorado
River doctrine applies. The first Colorado River factor is inapplicable here. Turning to
the second factor, defendants contend, and plaintiff does not dispute, that litigating this
matter in two forums presents a significant hardship. See Docket No. 121 at 15.6
5

Upon concluding that the Colorado River doctrine applies, the preferred remedy
in the Tenth Circuit is a stay of the federal case instead of a dismissal. Id. at 1083. “In
the event the state court proceedings do not resolve all federal claims, a stay preserves
an available federal forum in which to litigate the remaining claims, without plaintiff
having to file a new federal action.” Health Care & Retirement Corp. of America v.
Heartland Home Care, Inc., 324 F. Supp. 2d 1202, 1204 (D. Kan. 2004) (citing Fox, 16
F.3d at 1083).
6

To the extent that hardship results from the inconvenience of litigating the
matter in two states, defendants have never sought a change of venue pursuant to 28
U.S.C. § 1404(a). As the Court has noted before, see Docket No. 82 at 13 n.6,
although the Court is empowered to address venue pursuant to § 1404(a) sua sponte,
8

Furthermore, plaintiff has invoked the state court’s jurisdiction over identical breach of
contract claims in the earlier-filed state case. The potential for piecemeal and
inconsistent rulings in such a situation weighs in favor of a stay. Plaintiff was granted
summary judgment in a companion state case to the one presently pending between it
and defendants in California. While awaiting a ruling on appeal of the order granting it
summary judgment, plaintiff consented to a stay of the California action. Yet, it now
seeks to have this Court resolve identical claims during the pendency of that stay. That
fact, together with the filing of breach of contract claims here that were available
counterclaims in the earlier-filed California action, raises the specter of forumshopping.7
Moreover, there is no indication that the state court will not protect the plaintiff’s
rights in regard to the breach of contract claims or that the state forum will be otherwise
prejudicial to plaintiff. Cf. Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp.,
460 U.S. 1, 28 (1983) (finding that to “stay [a case] under Colorado River, [the Court]
presumably [must] conclude[ ] that the parallel state-court litigation will be an adequate
vehicle for the complete and prompt resolution of the issues between the parties”).
With that said, plaintiff’s trademark, trade dress, and trade secret rights will be

the Court declines to do so in the absence of a specific request and briefing of the
issue.
7

Defendants also inform the Court that an administrative proceeding was initiated
against Big O by the California Department of Corporations on September 2, 2011.
See Docket No. 121-4 (letter from Department of Corporations to Big O regarding
allegations it violated the California Franchise Investment Law); cf. Lehman v. City of
Louisville, 967 F.2d 1474, 1478 (10th Cir. 1992) (“Burford [v. Sun Oil, 319 U.S. 315
(1943)] abstention arises when a federal district court faces issues that involve
complicated state regulatory schemes.”).
9

unaffected by any adjudication in state court. The Supreme Court made clear in Moses
H. Cone that, “[w]hen a district court decides to dismiss or stay under Colorado River, it
presumably concludes that the parallel state-court litigation will be an adequate vehicle
for the complete and prompt resolution of the issues between the parties,” and, “[t]hus,
the decision to invoke Colorado River necessarily contemplates that the federal court
will have nothing further to do in resolving any substantive part of the case, whether it
stays or dismisses.” Id. Such language should not be read, however, to preclude the
Court from entering a partial stay of the breach of contract claims that are pending in
state court, while proceeding with the trademark, trade dress, and trade secrets claims.
See Giles v. ICG, Inc., 789 F. Supp. 2d 706, 714 (S.D. W. Va. 2011) (finding
“unpersuasive the plaintiffs’ argument that a stay is categorically impermissible where a
plaintiff has asserted both state and federal causes of action” and concluding that the
“grant of a partial stay will efficiently sever the issues to be determined by this Court
and the Court of Chancery so that no court renders duplicative holdings”); In re
Countrywide Financial Corp. Derivative Litigation, 542 F. Supp. 2d 1160, 1171 (C.D.
Cal. 2008) (rejecting the argument that pursuant to Colorado River a “stay on any single
claim is impermissible where the state court case cannot ‘end the litigation’” because it
found “support only in excerpting from cases out of context” and granting a partial stay
of “claims that are proceeding in nearly identical form in Delaware, under the same
laws”); see also Krieger v. Atheros Communications, Inc., 776 F. Supp. 2d 1053, 1063
(N.D. Cal. 2011).8 Proceeding here on claims that are not presently before the state
8

As a relative matter, the recovery plaintiff seeks for its trademark and trade
dress claims are significantly more limited than its breach of contract claims.
10

court strikes an appropriate balance between the obligation to exercise jurisdiction and
the inefficiency, inconvenience, and potential for piecemeal litigation presented by the
adjudication of identical claims.
In light of the foregoing, the Court will bifurcate plaintiff’s breach of contract
claims, which are plaintiff’s fourth through seventh claims for relief, from the rest of this
action and stay proceedings as to the contract claims. See Fed. R. Civ. P. 42(b) (“For
convenience, to avoid prejudice, or to expedite and economize, the court may order a
separate trial of one or more separate issues, claims, crossclaims, counterclaims, or
third-party claims.”); see also Anaeme v. Diagnostek, Inc., 164 F.3d 1275, 1285 (10th
Cir. 1999) (stating that district courts have “‘broad discretion in deciding whether to
sever issues for trial’”) (citation omitted). Plaintiff’s motion for summary judgment, to
the extent it seeks resolution of its breach of contract claims, will be denied without
prejudice to refiling upon the eventual lifting of the stay. The Court, therefore, will
address only that aspect of the motion for summary judgment dealing with plaintiff’s
trademark and trade dress claims.9
B. Plaintiff’s Motion for Summary Judgment
1. Standard of Review
Summary judgment is warranted under Federal Rule of Civil Procedure 56 when
the “movant shows that there is no genuine dispute as to any material fact and the

9

Plaintiff has also asserted a trade secrets claim arising under Colorado law
against defendants. Despite seeking entry of judgment, however, plaintiff fails to brief
the question of whether it is entitled to summary judgment on its trade secrets claim.
Therefore, to the extent plaintiff’s motion seeks summary judgment on that claim, the
motion must be denied.
11

movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 248-50 (1986); Concrete Works, Inc. v. City &
County of Denver, 36 F.3d 1513, 1517 (10th Cir. 1994); see also Ross v. The Board of
Regents of the University of New Mexico, 599 F.3d 1114, 1116 (10th Cir. 2010). A
disputed fact is “material” if under the relevant substantive law it is essential to proper
disposition of the claim. Wright v. Abbott Labs., Inc., 259 F.3d 1226, 1231-32 (10th Cir.
2001). Only disputes over material facts can create a genuine issue for trial and
preclude summary judgment. Faustin v. City & County of Denver, 423 F.3d 1192, 1198
(10th Cir. 2005). An issue is “genuine” if the evidence is such that it might lead a
reasonable jury to return a verdict for the nonmoving party. Allen v. Muskogee, 119
F.3d 837, 839 (10th Cir. 1997). When reviewing a motion for summary judgment, a
court must view the evidence in the light most favorable to the non-moving party. Id.;
see McBeth v. Himes, 598 F.3d 708, 715 (10th Cir. 2010).
2. Trademark and Trade Dress Infringement
Plaintiff contends that defendants infringed its trademark and trade dress when
they continued to operate a tire business at the Quartz Hill location after expiration of
the franchise agreement. Section 43(a) of the Lanham Act provides a federal cause of
action for trademark and trade dress infringement. See 15 U.S.C. § 1125(a). “Under
§ 43(a) of the Lanham Act, a plaintiff has a cause of action against any person whose
use of a word, symbol or device is likely to cause confusion regarding the source or
origin of the plaintiff’s goods.” Sally Beauty Co., Inc. v. Beautyco, Inc., 304 F.3d 964,
977 (10th Cir. 2002) (citing 15 U.S.C. § 1125(a)(1)(A); Wal-Mart Stores, Inc. v. Samara

12

Bros., 529 U.S. 205, 209 (2000)). “The elements of a trademark infringement claim are
that (1) the plaintiff has a mark that is protectable, and (2) the defendant’s use of an
identical or similar mark is likely to cause confusion among consumers.” B2A, LLC v.
Commlog, LLC, No. 09-cv-00528-WJM-BNB, 2011 WL 5569496, at *3 (D. Colo. Nov.
16, 2011) (citing Donchez v. Coors Brewing Co., 392 F.3d 1211, 1215 (10th Cir. 2004)).
To prevail on a trade dress claim, plaintiff must establish that “(1) the trade dress is
non-functional, . . . (2) there is a likelihood of confusion among consumers as to the
source of the competing products, . . . [and] [(3)] the trade dress is inherently distinctive
or has acquired secondary meaning.” General Motors Co. v. Urban Gorilla, LLC, 2010
WL 5395065, at *13 (D. Utah Dec. 27, 2010); see Hartford House, Ltd. v. Hallmark
Cards, Inc., 846 F.2d 1268, 1271 (10th Cir. 1988). Trade dress includes a product’s
“overall image and appearance, and may include features such as size, shape, color or
color combinations, texture, graphics, and even particular sales techniques.” Sally
Beauty, 304 F.3d at 977 (citation omitted). Defendants do not dispute that plaintiff has
established the elements of both its trademark and trade dress claims.
Defendants contend, however, that their conduct was “defensible,” arguing that
plaintiff’s are estopped from asserting the claims against them. See Docket No. 110 at
9. Defendants point out that they began taking steps to comply with their posttermination obligations, including de-identifying the Quartz Hill location as a Big O store.
Defendants “secured a license under a new business name and began removing signs,
painting, removing brochures, legally changing the business name.” Docket No. 110 at
2-3, ¶ 10. Ralph Felix states that he held off on completely de-identifying the Quartz

13

Hill location because, during January and February 2010, he believed Big O was
considering whether it would take over all three stores, leading him to believe that deidentification need not happen until that issue was resolved.
In a December 14, 2009 letter informing plaintiff that he would not be renewing
the Quartz Hill Agreement, Mr. Felix apparently requested early termination of the
Palmdale and Lancaster agreements or an extension of the three agreements so that
they would have a common termination date. See Docket No. 110-4 at 2, ¶¶ 4-6.10 Mr.
Felix requested a response by December 31, 2009. In a letter dated December 29,
2009, Big O’s Western Division Vice President Richard S. O’Neil informed Mr. Felix that
Big O had not received the letter until December 28, 2009 and would need until January
15, 2010 to respond. See Docket No. 110-4 at 4. The December 29 letter did not
reject the possibility of plaintiff purchasing the franchises or demand de-identification
while considering the proposals.
On January 15, 2010, Brian Maciak, Vice President and General Counsel of Big
O, responded to Mr. Felix’s letter. Mr. Maciak informed plaintiff’s counsel that Big O
“fully expect[ed] [Mr. Felix] to comply” with his in-term and post-term obligations under
the franchise agreements and that Big O rejected Mr. Felix’s proposal that he be
permitted to terminate the Palmdale and Lancaster Agreements early. See Docket No.
105-17 at 1. Yet, Mr. Maciak also told plaintiff that “he should feel free to submit a
modified proposal under which he essentially buys out of his obligations under these
agreements.” Docket No. 105-17 at 1.
10

Defendants failed to supply a copy of the December 14, 2009 letter along with
Mr. Felix’s declaration at Docket No. 110-4.
14

The letter did not address the proposal that Big O purchase the three locations.
But defendants assert that Mr. Felix’s proposal that “Big O . . . buy all three stores from
him to facilitate a common ending date,” Docket No. 110 at 4, ¶ 10, was discussed with
Mr. O’Neil as late as on February 8, 2010. See Docket No. 110-6 at 5. According to
Mr. Felix, Mr. O’Neil informed him that Big O was not interested in purchasing the
franchises, see Docket No. 110-6 at 5, but that, nevertheless, Big O “may have
something in the works in regards to negotiating another determination.” See id. at 6.
Furthermore, Mr. Felix declares that, on February 8, 2010, “Mr. O’Neil promised to
inform upper-level management at Big O about [his] offer to sell [his] stores,” and, as a
result, Mr. Felix “left all Big O signs and other references in[tact] in the event that Big O
would take them over.” Docket No. 108-9 at 3, ¶ 6.
During these apparently ongoing negotiations, a representative of Big O called
Mr. Felix on February 11, 2010 to schedule an appointment to “go over the post
termination obligations.” Docket No. 110-6 at 6. The appointment was scheduled for
February 19, 2010. See id. Mr. Felix further testified that, in advance of that meeting,
he “had been already de-identifying and had started to remove some of the items,” and
had “scheduled a sign company to come over . . . and take down all of the signage.”
Docket No. 110-6 at 7-8. Plaintiff filed the present lawsuit on February 19, 2010, see
Docket No. 1, and Mr. Felix declares that he “fully de-identif[ied] from Big O by February
26, 2010.” Docket No. 108-9 at 3, ¶ 7; cf. Docket No. 105-14 at 10 (where Ralph Felix
testifies that the re-branding was not complete until the first week of March).11
11

Defendants have supplied the Court with a letter from Mr. O’Neil dated March
5, 2010 which outlines a settlement proposal whereby the franchise agreements would
15

The record contains evidence that Big O was, at a minimum, sending mixed
signals to Mr. Felix during January and February 2010. The Court concludes there is a
genuine dispute of material fact regarding whether plaintiff acquiesced in the use of its
marks during the ongoing negotiations in January and February 2010. “Acquiescence
is an affirmative defense that requires a ‘finding of conduct on the plaintiff’s part that
amounted to an assurance to the defendant, express or implied, that plaintiff would not
assert his trademark rights against the defendant.’” Creative Gifts, Inc. v. UFO, 235
F.3d 540, 547-48 (10th Cir. 2000) (citation omitted); Total Control Apparel, Inc. v. DMD
Int’l Imports, LLC, 409 F. Supp. 2d 403, 409 (S.D.N.Y. 2006) (“A trademark holder
‘communicates active consent by conduct that amounts to an explicit or implicit
assurance that plaintiff, with knowledge of defendant’s conduct, will not assert its
trademark rights.’”) (citation omitted).12 As defendants point out, plaintiff had previously
negotiated an extension of the Quartz Hill franchise agreement after the original

all be extended so as to have a uniform termination date. See Docket No. 110-3 at 3.
Plaintiff contends that the letter is inadmissible pursuant to Fed. R. Evid. 408, which
provides that “conduct or statements made in compromise negotiations” are “admissible
. . . either to prove or disprove the validity or amount of a disputed claim.” Fed. R. Evid.
408(a)(2); cf. PRL USA Holdings, Inc. v. U.S. Polo Ass’n, Inc., 520 F.3d 109, 115 (2d
Cir. 2008) (stating that “it seems clear that the firm prohibition [of Rule 408] should not
apply to the affirmative defense of estoppel by acquiescence, which depended on
issues distinct from the elements of the claim of infringement”). Plaintiff further argues
that, even if admissible, the letter is irrelevant because it falls outside the time period for
which plaintiff seeks to hold defendants responsible. The letter, however, has some
probative value in support of defendants’ contention that negotiations regarding the
termination of the Quartz Hill Agreement were ongoing in the first two months of 2010.
The Court need not resolve these issues, as the record otherwise contains evidence
sufficient to overcome summary judgment.
12

In their answer to plaintiff’s amended complaint, defendants asserted the
affirmative defense of acquiescence. See Docket No. 90 at 8.
16

termination date. There is no indication that defendants were expected to de-identify
during those earlier negotiations, only to re-identify upon a granting of the extension.
To the extent plaintiff was aware of the continued operation of the business and was
actively engaging in discussions regarding the possibility of the Quartz Hill location
remaining a Big O franchise in some form or another, a jury could conclude that plaintiff
implied that it would not assert its trademark and trade dress rights until all negotiations
over termination of the Quartz Hill franchise were complete. Consequently, plaintiff has
not established its entitlement to summary judgment on its trademark and trade dress
claims.
III. CONCLUSION
For the foregoing reasons, it is
ORDERED that defendants’ motion to dismiss or stay [Docket Nos. 119, 121] is
GRANTED in part and DENIED in part. It is further
ORDERED that plaintiff’s breach of contract claims are STAYED and, to the
extent plaintiff seeks summary judgment on those claims, its motion for summary
judgment [Docket No. 105] is DENIED without prejudice to refiling upon lifting of the
stay of those claims. It is further
ORDERED that, to the extent plaintiff seeks summary judgment on the
trademark, trade dress, and trade secrets claims, its motion for summary judgment
[Docket No. 105] is DENIED. It is further
ORDERED that, pursuant to Fed. R. Civ. P. 42(b), the trial scheduled to
commence on January 9, 2012 will be limited to plaintiff’s trademark, trade dress, and

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trade secrets claims.

DATED December 13, 2011.
BY THE COURT:

s/Philip A. Brimmer
PHILIP A. BRIMMER
United States District Judge

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