Allen v. Hub Cap Heaven, Inc.

• Decision Date: 05 March 1997
• Docket Number: Nos. A96A2051,A96A2052,s. A96A2051
• Citation: 225 Ga.App. 533,484 S.E.2d 259
• Parties: , 1997-1 Trade Cases P 71,761, 97 FCDR 1274 ALLEN et al. v. HUB CAP HEAVEN, INC. HUBCAP MASTERS INTERNATIONAL, INC. v. HUB CAP HEAVEN, INC.
• Court: Georgia Court of Appeals

Page 259

484 S.E.2d 259

225 Ga.App. 533, 1997-1 Trade Cases P

71,761, 97 FCDR 1274

ALLEN et al. v. HUB CAP HEAVEN, INC.

HUBCAP MASTERS INTERNATIONAL, INC. v. HUB CAP HEAVEN, INC.

Nos. A96A2051, A96A2052.

Court of Appeals of Georgia.

March 5, 1997.

Reconsideration Denied March 18, 1997.

Hassett, Cohen, Beitchman & Goldstein, Lee S. Goldstein, Atlanta, for Allen.

Wilson, Brock & Irby, Richard W. Wilson, Jr., Atlanta, James S. Teague, Jr., Macon, for Hubcap Masters International, Inc.

Drew, Eckl & Farnham, Peter B. Barlow, J. William Haley, Alston & Bird, G. Conley Ingram, Jay D. Bennett, Timothy G. Werner, Atlanta, for Hubcap Heaven, Inc.

JOHNSON, Judge.

Hub Cap Heaven, Inc. sued Clayton Allen, Barbara Hooper, Xanthus Holdings, Inc., and Hubcap Masters International, Inc., alleging fraud, theft of trade secrets, and breach of nondisclosure and noncompetition clauses in a franchise agreement. Hub Cap Heaven sought damages and an interlocutory injunction to prohibit the defendants from franchising, operating, or advising others about the operation of stores selling hubcaps, wheels, and related automotive accessories. The superior court granted the injunction with no geographic limits, but ruled that Allen and Hooper may work in one such store more than 50 miles outside the Atlanta city limits. Case No. A96A2051 is an appeal from the injunction by Allen, Hooper, and Xanthus. Case No. A96A2052 is Hubcap Masters' appeal from both the injunction and a later order denying its request for written findings of fact and conclusions of law. We reverse the grant of the injunction in both appeals, and in Case No. A96A2052 we affirm the order entered thereafter.

We may not reverse the grant or denial of preliminary injunctive relief absent an abuse of discretion, "or, as alternatively stated, unless there was no evidence on which to base the ruling." (Citations and punctuation omitted.) Glen Oak v. Henderson, 258 Ga. 455, 456(1), 369 S.E.2d 736 (1988). See OCGA § 9-5-8. When the evidence is not in material conflict, however, the applicable rules of law cannot be avoided on the basis of discretion. American Bldgs. Co. v. Pascoe Bldg. Systems, 260 Ga. 346, 348(1), 392 S.E.2d 860 (1990). Our review of the evidence, conducted with these principles in mind, shows:

Hub Cap Heaven franchises businesses that sell wheels, hubcaps, and other automotive accessories. Hooper bought a franchise to open a store in Atlanta, and transferred it to Xanthus Holdings, Inc., of which she is the sole stockholder. The franchise agreement provided in relevant part that: (1) The term of the agreement was five years from the opening of Hooper's store, which was July 1, 1993; (2) Hooper would not compete with Hub Cap Heaven anywhere during the term of the agreement, or within 50 miles of "the location franchised" for one year after the agreement was terminated; (3) The noncompetition covenant would survive transfer of the franchise; (4) Hooper would not disclose Hub Cap Heaven's business methods to third parties, during the term of the agreement or afterwards; (5) Hooper had to obtain the permission of Hub Cap Heaven to sell her franchise. Hub Cap Heaven could withhold permission if, among other things, Hooper was in default of the franchise agreement. Default was defined to include failing to comply with any contract requirements and engaging in a competing business.

Allen participated with Hooper in the franchise negotiations. For purposes of this appeal, Allen admits he signed a franchise agreement identical to Hooper's. Hooper later married Allen and put him on her franchise's payroll.

Hooper and Allen received training from Hub Cap Heaven. Allen then helped others set up similar businesses in other cities. These businesses operated under the name Hubcap Masters, though there was no formal Hubcap Masters umbrella organization. In 1994, Xanthus rented a warehouse under the name Atlanta Wheel and Cover Supply and began to sell inventory to the Hubcap Masters stores.

Xanthus sold its Hub Cap Heaven franchise June 26, 1995, with Hub Cap Heaven's permission. Hub Cap Heaven now claims this permission was based on promises by Hooper and Allen that they were not involved with Hubcap Masters; that they would not compete with Hub Cap Heaven; that they would sign a noncompetition agreement; and that they would buy a Hub Cap Heaven franchise in Naples, Florida.

After the sale, Allen's uncle and his uncle's accountant formed Hubcap Masters International, Inc. Hubcap Masters' president and vice president are owners of Hubcap Masters stores. Hubcap Masters hired Allen to sell franchises, but he is not a stockholder or corporate officer. Hub Cap Heaven contends, however, that Hubcap Masters is essentially Allen's alter ego. In support of this contention, Hub Cap Heaven points to the deposition testimony of James Scarborough, the person named as Hubcap Masters' president in its corporate documents, showing he has little or nothing to do with corporate operations.

The superior court's injunction order recites the evidence the judge considered, and states that the injunction should be granted because Hub Cap Heaven has a substantial likelihood of success on the merits and no adequate remedy at law, and because granting it would further public policy against fraud. On appeal, Hub Cap Heaven urges four separate legal grounds for the injunction: Violation of the Georgia Trade Secrets Act, OCGA §§ 10-1-760 et seq.; breach of a confidential relationship; breach of the nondisclosure and noncompetition covenants contained in the franchise agreement; and fraud. The appellants correctly contend none of these grounds supports the grant of the interlocutory injunction.

1. In Case No. A96A2052, Hubcap Masters has presented no argument and cited no authority in support of its allegation that the trial court erred in refusing to enter findings of fact and more specific conclusions of law. Hubcap Masters has therefore abandoned this enumeration. See Court of Appeals Rule 27(c)(2). The remaining divisions address issues common to both appeals.

2. The Georgia constitution accords the Supreme Court of Georgia exclusive appellate jurisdiction in equity cases. Ga. Const. of 1983, Art. VI, Sec. VI, Par. III(2). Though this case involves an injunction, resolution of the appeal turns on legal issues. We therefore have jurisdiction over the case. See Firearms Training Systems v. Sharp, 213 Ga.App. 566, 445 S.E.2d 538 (1994).

3. Appellants claim the trial court could not validly base the injunction on the Georgia Trade Secrets Act. They claim all the supposedly secret business methods of Hub Cap Heaven are actually common practices, and are therefore not protected by the Act. Hub Cap Heaven responds by pointing to three categories of information it claims are trade secrets.

(a) Hub Cap Heaven claims that the unique way in which it combines otherwise mundane services gives it an advantage over its competition. Specifically, Hub Cap Heaven claims to be the first business to sell automotive trim pieces to body shops and car dealers by taking trucks full of unordered parts on regular sales routes, hoping to convince each dealer or body shop on the route to buy parts off the trucks.

Floyd Davidson, president of Hub Cap Heaven, admitted other businesses in the United States used similar methods, though they were not franchised. Moreover, by its very nature this "secret" information is conveyed to every customer on a sales route. Hub Cap Heaven has not made this information "the subject of efforts that are reasonable under the circumstances to maintain its secrecy," OCGA § 10-1-761(4)(B). Accordingly, it may not be protected as a trade secret. See Equifax v. Examination Mgmt., Svcs., 216 Ga.App. 35, 39-40(2), 453 S.E.2d 488 (1995).

(b) Hub Cap Heaven also claims it gave Allen information that would allow him to contact suppliers not generally known to competitors. OCGA § 10-1-761(4) provides that a "list of actual or potential customers or suppliers which is not commonly known by or available to the public" can be a trade secret in some circumstances. Under this statute, however, "only tangible lists of customers and suppliers are the property of the employer and warrant protection as trade secrets.... [U]tilization of personal knowledge may be forbidden through the use of restrictive covenants, but not under the Trade Secrets Act." (Citations omitted.) DeGiorgio v. Megabyte Intl., 266 Ga. 539, 540(3), 468 S.E.2d 367 (1996). Because Hub Cap Heaven does not claim Allen misappropriated a tangible supplier list, and his personal knowledge of Hub Cap Heaven's suppliers is not a trade secret, this argument has no merit.

(c) Hub Cap Heaven claims it told Allen which cities it considered good candidates for new franchises. While the parties have cited no cases deciding whether such information can be a trade secret, and our research has revealed none, we hold that oral information of this nature should be accorded even less protection under the Trade Secrets Act than customer lists. This is because a customer list reveals the identities of known buyers of the parent company's goods or services, while the name of a city reveals only the general location of unknown potential buyers. Because the specific identities of known customers are not trade secrets, DeGiorgio, supra, it follows that the general locations of unknown potential customers likewise cannot be considered trade secrets.

None of the information Hub Cap Heaven claims it needs to protect qualifies as a trade secret. Therefore, the Trade Secrets Act does not support the grant of the interlocutory injunction.

4. Appellants correctly maintain the injunction cannot be upheld as a remedy for breach of a confidential relationship, because no such relationship existed between them and Hub Cap Heaven.

A relationship is confidential when "one party is so situated as to exercise a controlling influence over the will,...