Bar Method Franchisor LLC v. Henderhiser LLC
| Decision Date | 16 January 2022 |
| Docket Number | Civil Action No. 1:21-cv-03357-RMR |
| Parties | The BAR METHOD FRANCHISOR LLC, a Delaware limited liability company, Plaintiff, v. HENDERHISER LLC, a Colorado limited liability company, et al., Defendants. |
| Court | U.S. District Court — District of Colorado |
Susan Elizabeth Tegt, Larkin Hoffman Law Firm, Minneapolis, MN, Kelley B. Duke, Ireland Stapleton Pryor & Pascoe PC, Denver, CO, for Plaintiff.
Edward T. Schroeder, Schroeder Law LLC, Littleton, CO, for Defendants.
This case presents the issue of whether and to what extent a franchisor can enforce covenants not to compete and not to use its proprietary information when the franchise agreement has come to an end. Certainly such agreements may inhibit the former franchisee's ability to do business in a certain geographic area or in certain types of businesses, but Colorado courts generally, and this district in particular, have found that such agreements, in appropriate circumstances, are valid and enforceable. This case is no exception.
Plaintiff The Bar Method Franchisor LLC ("The Bar Method") has sued and moved the Court for a Temporary Restraining Order and a Preliminary Injunction, ECF No. 2, to stop its former franchisee, Defendant Henderhiser LLC and its owner Defendant Laura Henderson (the "Henderson Defendants") from breaching the surviving terms of their Franchise Agreement with The Bar Method. The Bar Method also seeks to enjoin the operations of Defendant Henderson's new business, Bravence Wellness Collective LLC ("Bravence"). For the reasons stated below, The Bar Method's motion is GRANTED IN PART, to the extent it requests a preliminary injunction, and is otherwise DENIED AS MOOT, to the extent it requests a temporary restraining order.
For six years, the Henderson Defendants owned and operated an exercise studio under a Franchise Agreement with The Bar Method Franchising Inc.—a successor to Plaintiff The Bar Method—in the Cherry Creek neighborhood of Denver, Colorado. The studio was located at 311 Steele Street, Suite 200 (the "Steele Street Site") and offered barre classes pursuant to The Bar Method's proprietary methods. ECF No. 35 (Stipulated [Proposed] Findings of Fact) ¶ 1; Pl. Ex. 11 (Franchise Agreement) at 1.
The original Franchise Agreement and subsequent renewals granted Defendant Henderhiser a franchise to own and operate a Bar Method studio in Cherry Creek. Pl. Ex. 1 § 1.B.; Id. at B-1, A-1. The term of the Franchise Agreement expired on November 30, 2021. ECF No. 1-3 at 3 (Amendment to Renewal Franchise Agreement § 4(A)). As part of that Franchise Agreement, Defendant Henderhiser agreed to in-term and post-term covenants of confidentiality and not to compete. Pl. Ex. 1 §§ 11, 12, 16. Additionally, Defendant Henderson agreed to be personally bound by the provisions of the Franchise Agreement. Id. at C-1 through C-4.
Under the Franchise Agreement's post-term covenant not to compete, The Henderson Defendants agreed that:
[N]either [Henderhiser] nor any of [its] Owners ... will: ... have any direct or indirect, controlling or non-controlling ownership interest in any Competitive Business which is located or providing services to clients at any location: (a) at the Site; (b) within a five (5)-mile radius of the Site; or (c) within a five (5)-mile radius of any Bar Method Studio then operating or under construction on the effective date of the termination or expiration.
Id. § 16.D. The Henderson Defendants made similar promises under the in-term covenant not to compete, which applied to any Competitive Business, "wherever located or operating." Id. § 12. "Competitive Business" is defined as follows:
The term "Competitive Business " means any gymnasium, an athletic or fitness center, a health club, an exercise or aerobics studio, or one or more similar facilities or businesses offering barre-based or other fitness-based instruction, or an entity that grants franchises or licenses for any of these types of businesses, other than a Bar Method Studio operated under a franchise agreement with [The Bar Method].
Id. § 12 (emphasis in original).
In September of 2021, The Bar Method learned that Defendant Henderson was advertising a new business called Bravence Wellness Collective, owned and operated by Defendant Henderson and ostensibly located less than two miles away at 660 South Colorado Boulevard in Glendale, Colorado. For example, on September 16, 2021, Bravence advertised its future opening on Instagram and Facebook, stating "GIVEAWAY – We're turning a bar into barre!" Pl. Ex. 6.
The Bar Method declared a breach of the Franchise Agreement and made it clear that it intended to enforce its rights under the Franchise Agreement. On September 27, 2021, The Bar Method sent Defendant Henderson a cease and desist letter, demanding that she cease her violation of the Franchise Agreement's covenant not to compete through her ownership interest in Bravence, a business offering not just fitness-based instruction but barre classes, in particular, within five miles of the Steele Street Site. ECF No. 1-9 at 2. On October 12, 2021, The Bar Method filed suit near its headquarters in Minnesota District Court, (the "Minnesota Litigation") and filed a motion for temporary injunction in that case the same day. ECF No. 35 ¶ 9. On October 12, 2019, The Bar Method also filed a Demand for Arbitration with the American Arbitration Association (the "Arbitration"). Id. ¶ 10.
On October 17, 2021, in order to avoid litigation and in order to engage in settlement negotiations, the parties executed an Agreement to Stay Temporary Injunction Motion, effective from October 18, 2021 through November 1, 2021. Id. ¶ 11; Pl. Ex. 13 at 1, § 2. On November, 10, 2021, Defendant Henderson filed an affidavit in the Minnesota Litigation, in which she swore that "Bravence is at a separate location from [her] former franchised [Bar Method studio] business"; that Bravence was located in Glendale, Colorado; and that "Bravence's operation of a separate, independent business [was] not even competitive with The Bar Method." Pl. Ex. 25 ¶ 4. Upon the expiration of the Franchise Agreement on November 30, 2021, the parties signed a Settlement Agreement on December 2, 2021, with an effective date of December 1, 2021. ECF No. 35 ¶ 12; Pl. Ex. 14. Under the Settlement Agreement, the parties agreed to settle the Minnesota Litigation and Arbitration and to release each other from all claims arising under or related to the Franchise Agreement and the franchise relationship. Pl. Ex. 14 §§ 5–6. The parties agreed to a noncompete clause in the Settlement Agreement that is more limited than the post-term covenant not to compete in the Franchise Agreement.2 It provides:
The Henderson Defendants, and each of them individually, agree that, commencing on the date of execution of this Agreement and for a term expiring at 11:59 p.m. on May 31, 2023 (the "Restricted Period"), that they will not, whether as an owner, employee, agent, consultant or otherwise, engage in any business offering barre classes , as defined below, within a five (5) mile radius of 311 Steele Street, Suite 200, Denver, Colorado 80206 or within five (5) miles of any other The Bar Method Studio existing as of the date of this Agreement (the "Restricted Territory").
Id. § 3 (emphasis added).
The Settlement Agreement defines "barre class" as follows:
"Barre class" means a workout technique that is taught to focus on specific muscle groups to improve balance, strength and posture. A barre class predominantly uses the participant's own body weight for resistance and may include a few basic props: free weights, mats, sticky socks, sliders, a ball, or a resistance band. A barre class focuses on employing low-impact isometric exercises, which are static holds that do not require a range of motion. The minimal range of motion in a barre class relies on control rather than momentum.
Contrary to Defendant Henderson's representations in her sworn affidavit before the Minnesota court and other communications, at the time she entered into the Settlement Agreement Defendant Henderson had executed a lease extension to operate Bravence in exactly the same location where she had previously been operating the franchised business, but did not disclose this fact to The Bar Method. Furthermore, Defendants had already communicated with existing Bar Method clients regarding the opening of Bravence and its class offerings.
The Bar Method alleges that Bravence began offering barre classes on December 1, 2021, one day before the Settlement Agreement was signed, and that Bravence's scheduling website still referred to "barre" offerings as of December 7, 2021. ECF No. 21 ¶¶ 72, 74. The Bar Method also alleges that "[i]n other places on Bravence's website, Henderson and Bravence swap the use of the term ‘barre’ with ‘functional movement,’ " such as in its description of its "Signature" class offering. Id. ¶ 76. On December 7, 2021, The Bar Method observed one of these "Signature" classes and saw that it "used The Bar Method's proprietary instruction, verbal adjustment cues, and choreography and followed the exact same sequence of a Bar Method® class." Id. ¶ 82.
On December 14, 2021, The Bar Method filed its Complaint, ECF No. 1. The parties conducted expedited discovery on the present motion, see ECF Nos. 15–18. According to The Bar Method, it was during this discovery that it first learned that Bravence was operating at the Steele Street Site, the exact same location as the former franchised studio. Thus, on December 28, 2021, The Bar Method amended its Complaint and moved to supplement its briefing regarding the injunctive relief. ECF Nos. 20, 21. The Amended Complaint identifies eleven claims for relief: (I) fraud by all Defendants in inducing The Bar Method to enter into the...
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