H&R Block Tax Servs., LLC v. Cardenas

• Decision Date: 03 March 2020
• Docket Number: Case No. 4:20-CV-00109-SRB
• Court: U.S. District Court — Western District of Missouri
• Parties: H&R BLOCK TAX SERVICES, LLC, Plaintiff, v. JUAN CARDENAS, JR., Defendant.

H&R BLOCK TAX SERVICES, LLC, Plaintiff, v. JUAN CARDENAS, JR., Defendant.

Case No. 4:20-CV-00109-SRB

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF MISSOURI WESTERN DIVISION

March 3, 2020

ORDER

Before the Court is Plaintiff H&R Block Tax Services LLC's ("H&R Block") Motion for Temporary Restraining Order and Preliminary Injunction. (Doc. #2). The Court set a hearing on the instant motion for March 3, 2020, at 10:00am. At that hearing, H&R Block appeared through counsel. Defendant Cardenas, Jr. did not appear, although he was provided notice of the motion and hearing on February 26, 2020. After a review of H&R Block's instant motion, all briefing and arguments of counsel, the Verified Complaint, the record, and applicable law, the motion is hereby GRANTED.

I. JURISDICTION AND CHOICE OF LAW

Personal jurisdiction over a non-resident defendant may be obtained by consent or by waiver. Whelan Sec. Co. v. Allen, 26 S.W.3d 592, 595 (Mo. App. E.D. 2000). Personal jurisdiction is an individual right, and that may be waived in advance through a forum selection clause contained in a contract between the parties. Id. Under Missouri law, contractual choice-of-law provisions are enforced. PVI, Inc. v. Ratiopharm GmbH, 253 F.3d 320, 326 (8th Cir. 2001) (citing Rheem Mfg. Co. v. Progressive Wholesale Supply Co., 28 S.W.3d 333, 339 (Mo. App. E.D. 2000)).

Paragraph 27 of the Franchise License Agreement ("FLA") between the parties, attached as Exhibit 1 to the Verified Complaint, specifies that Missouri law applies and further provides for jurisdiction and venue in this forum. (Doc. #1-1). Thus, Defendant has stipulated and consented to Missouri law as the choice of law and to personal jurisdiction in this Court.

II. H&R BLOCK HAS SHOWN THAT IT IS ENTITLED TO THE REQUESTED RELIEF.

The following four factors are properly considered by a district court when determining whether a temporary restraining order should issue: (1) the probability that the movant will succeed on the merits; (2) the threat of irreparable harm to the movant; (3) the state of the balance between this harm and the injury that granting the injunction will inflict on other parties; and (4) the public interest. Kroupa v. Nielsen, 731 F.3d 813, 818 (8th Cir. 2013) (citing Dataphase Sys. Inc. v. C.L. Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981)). The party requesting a preliminary injunction or temporary restraining order bears the burden of proving all the relevant factors. Gelco Corp. v. Coniston Partners, 811 F.2d 414, 418 (8th Cir. 1987). "No single factor in itself is dispositive; in each case all of the factors must be considered to determine whether on balance they weigh towards granting the injunction." Baker Elec. Coop., Inc. v. Chaske, 28 F.3d 1466, 1472 (8th Cir. 1994) (internal quotations omitted). Moreover, in considering these factors, a court may properly consider evidence that would ordinarily be inadmissible, such as hearsay, in support of the grant of a preliminary injunction. See, e.g., Ass'n of Cmty. Organizations for Reform Now v. Scott, No. 08-CV-4084, 2008 WL 2787931, at *3 n.5 (W.D. Mo. July 15, 2008).

Here, each of the relevant factors support Plaintiff H&R Block's request for the entry of a preliminary injunction to preserve the status quo and to protect H&R Block from ongoing irreparable injury attributable to the conduct of Defendant.

A. H&R Block Is Substantially Likely to Succeed on the Merits of Its Claims Against Defendant.

H&R Block has shown a substantial likelihood of success on the merits of its breach of contract claim against Defendant. The evidence presented in Plaintiff H&R Block's Verified Complaint demonstrates Defendant has violated and is actively violating the FLA's reasonable, enforceable noncompetition and nonsolicitation covenants (collectively, the "Covenants"), by which he has agreed to be bound.

1. The FLA and Its Covenants Are Enforceable

Under Missouri law, "[n]on-compete agreements are typically enforceable so long as they are reasonable." Healthcare Servs. of the Ozarks, Inc. v. Copeland, 198 S.W.3d 604, 610 (Mo. banc 2006). The Missouri Supreme Court has found that a noncompetition agreement is valid and enforceable if it: (1) "is no more restrictive than is necessary to protect the legitimate interest of the employer"; and (2) can be "narrowly tailored geographically and temporally." Id.; see also Osage Glass, Inc. v. Donovan, 693 S.W.2d 71, 74 (Mo. banc 1985) ("Covenants against competition must serve a proper interest of the employer in protecting the good will of a business, and must be reasonably limited in time and space.").

Reasonable restrictions are enforceable to protect "the employer's trade secrets or customer contacts." Healthcare Servs., 198 S.W.3d at 610; see also Osage Glass, 693 S.W.2d at 74; Superior Gearbox Co. v. Edwards, 869 S.W.2d 239, 247 (Mo. App. S.D. 1993) ("[A] covenant restricting an employee's right to compete must be reasonably necessary to protect the employer's legitimate interests and reasonable as to time and geographic scope."). Here, the post-termination Covenants in the FLA protect interests that Missouri recognizes as legitimate and are protectable as a matter of law, including: H&R Block's investment in the parties' transactions; H&R Block's established brand, goodwill, and confidential business information;and H&R Block's interest in preventing Defendant from unfairly using such assets to compete with H&R Block, diverting away its clients, and obtaining an undue advantage for his competing business. See, e.g., Safety-Kleen Sys., Inc. v. Hennkens, 301 F.3d 931, 937 (8th Cir. 2002) ("The Missouri courts have frequently held that . . . substantial and individualized customer contacts are a protectable interest warranting injunctive relief enforcing a covenant not to compete."); Kessler-Heasley Artificial Limb Co. v. Kenney, 90 S.W.3d 181, 186 (Mo. App. S.D. 2002) ("Stock in customers, also referred to as customer contacts, are a legitimate protectable interest."). H&R Block also has a legitimate and protectable interest in protecting its client information and client relationships from use by a competitor. See Mid-States Paint & Chem. Co. v. Herr, 746 S.W.2d 613, 617 (Mo. Ct. App. 1988) ("The employer has protectable rights in trade secrets and customer contacts."); see also Naegele v. Biomedical Sys. Corp., 272 S.W.3d 385, 389 (Mo. App. E.D. 2008) ("In Missouri, the courts have identified two protectable interests of employers: customer contacts and trade secrets.").

In this case, the Covenants are also appropriately narrow in both time and geographic reach. First, the noncompetition and nonsolicitation provisions are limited to two years after the termination of the FLA, subject to tolling for periods of noncompliance. Further, the geographic area of the noncompetition provision is limited to Defendant's former Franchise Territory¹ and an area within twenty-five miles of those territories. See, e.g., H&R Block Tax Servs. LLC v. Clayton, No. 4:16-cv-00185, 2016 WL 1247205, at *3 (W.D. Mo. Mar. 24, 2016) (upholding a two-year, 25-mile non-competition agreement in a franchise agreement); H&R Block Enters. LLC v. Ascher, No. 4:15-cv-00178, 2015 WL 12746197, at *2 (W.D. Mo. Apr. 3, 2015) (upholding a three- or five-year, 50-mile non-competition agreement under an asset purchaseagreement); Kessler-Heasley, 90 S.W.3d at 188 (upholding five-year limit within a 50-mile radius); Watlow Elec. Mfg. Co. v. Wrob, 899 S.W.2d 585, 587-88 (Mo. Ct. App. 1995) (upholding five-year time limit); Champion Sports Ctr., Inc. v. Peters, 763 S.W.2d 367, 368-70 (Mo. App. E.D. 1989) (enforcing a restrictive covenant barring the seller of a business from competing with it for eight years in three counties); Long v. Huffman, 557 S.W.2d 911, 915 (Mo. Ct. App. 1977) (upholding a covenant barring competition for five years within a sixty-mile radius). The Covenants are also appropriate under Missouri law because they were agreed to as part of a business transaction. See Orthotic & Prosthetic Lab, Inc. v. Pott, 851 S.W.2d 633, 643 n.4 (Mo. App. E.D. 1993) (explaining that "Missouri courts have long recognized a distinction between covenants ancillary to a sale of a business and covenants merely ancillary to an employment contract, showing substantially greater liberality in enforcing the former").

The Covenants are thus reasonably tailored to protect H&R Block's legitimate interests and are reasonably tailored in time and geographic scope. In turn, they are valid and enforceable under Missouri law against Defendant.

2. Defendant Breached the Covenants.

The noncompetition and nonsolicitation Covenants run for two years following the termination of Defendant's FLA (tolled for any periods of Defendant's noncompliance). The FLA was terminated on October 9, 2019, and therefore the Covenants run until at least October 9, 2021. The evidence presented through the Verified Complaint establishes that Defendant has failed to turn over H&R Block assets and continue to operate a competing tax business at the former franchise office. Moreover, the evidence also shows that Juan Cardenas, Sr. and Alma Cardenas are acting in concert with Defendant to operate the competing tax business at the former franchise office. In sum, the evidence presented indicates Defendant is violating and has violated the Covenants.

Accordingly, H&R Block is likely to succeed on the merits of its breach-of-contract claim against Defendant, and this factor favors entry of the requested preliminary injunction.

B. H&R Block Will Suffer Immediate and Irreparable Injury if Immediate Injunctive Relief Is Not Granted.

Plaintiff H&R Block has also shown that it will suffer irreparable harm if injunctive relief is not granted. Irreparable harm is established if monetary remedies cannot provide adequate compensation for improper conduct. Rogers Grp., Inc. v. City of Fayetteville, Ark., 629 F.3d 784, 789 (8th Cir. 2010); Minana v. Monroe, ...