Brightstar Franchising, LLC v. N. Nev. Care, Inc.

• Decision Date: 04 September 2018
• Docket Number: No. 17 C 9213,17 C 9213
• Parties: BRIGHTSTAR FRANCHISING, LLC, Plaintiff, v. NORTHERN NEVADA CARE, INC., STEPHEN H. NEFF and TERESA R. NEFF, Defendants.
• Court: U.S. District Court — Northern District of Illinois

BRIGHTSTAR FRANCHISING, LLC, Plaintiff, v. NORTHERN NEVADA CARE, INC.,STEPHEN H. NEFF and TERESA R. NEFF, Defendants.

No. 17 C 9213

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

September 4, 2018

Hon. Virginia M. Kendall

MEMORANDUM OPINION AND ORDER

Plaintiff BrightStar Franchising, LLC ("BrightStar") filed this action against Defendants Northern Nevada Care, Inc. and its owners Stephen and Teresa Neff (collectively "NNC") seeking an order directing Defendants to cease operations of their business in Carson City, Nevada. (Dkt. No. 9.) Pending are BrightStar's Motion for a Preliminary Injunction and two Motions to Compel Arbitration. See (Dkt. No. 11); (Dkt. No. 37); (Dkt. No. 55). The Court grants all three motions for the following reasons. [11, 37, 55.]

PROCEDURAL HISTORY

On December 21, 2017, BrightStar filed a one-count complaint for breach of contract seeking permanent injunctive relief against NNC, which it amended on January 12, 2018. See (Dkt. No. 1); (Dkt. No. 9). The claim arises out of a Franchise Agreement entered into by the parties in June 2015 containing various provisions that BrightStar now alleges NNC has violated. Shortly after filing the Amended Complaint, BrightStar filed its Motion for a Preliminary Injunction seeking an order temporarily halting operations of NNC's health services company - Allevia Living - in northern Nevada pending review of the underlying complaint. See (Dkt. No. 11); (Dkt. No. 12) (Plaintiff's Motion and accompanying Memorandum in support of a Preliminary Injunction). On January 22, 2018, NNC moved to transfer the matter to a federal district court in Nevada, which this Court denied. See (Dkt. No. 20); (Dkt. No. 46). NNC subsequently answered the Amended Complaint on February 20, 2018 and followed with a Counterclaim against BrightStar alleging consumer fraud and common law fraud in violation of Nevada law on April 16, 2018. See (Dkt. No. 34); (Dkt. No. 48).

NNC filed its own Complaint in Nevada state court (the "Nevada Complaint") on January 12, 2018, against BrightStar alleging a claim similar to the Counterclaims for consumer fraud and common law fraud arising out of activities and events associated with the Franchising Agreement. See (Dkt. No. 38, at 1); see also Northern Nevada Care, Inc., et al. v. BrightStar Franchising, LLC, No. 18TRT000011B (1st Dist. Nev. 2018).¹ BrightStar moves to compel arbitration of the claim in the Nevada Complaint and the Counterclaims pursuant to the Federal Arbitration Act and corresponding provisions of the Franchise Agreement. See (Dkt. No. 37); (Dkt. No. 55).

On June 26, 2018, the Court held a preliminary injunction hearing during which the following witnesses testified: 1) Thomas Gilday ("Gilday"), chief financial officer of BrightStar Group Holdings, Inc.; 2) Peter Morris ("Morris"), owner and operator of the BrightStar franchise for the Reno-Sparks, Nevada territory; 3) Stephen Neff ("Neff"), co-defendant and owner of Allevia Living; and 4) James Kearns ("Kearns"), chief technology officer for BrightStar. The hearing provided the Court with the opportunity to determine the credibility of each witness through observation of their demeanors - including body language, tone of voice, facial expressions, mannerisms, and other indicative factors - as well as through the answers that each provided. Both parties also submitted post-hearing briefs in support of their positions on July 6 and 13, 2018, respectively. See (Dkt. No. 64); (Dkt. No. 65).

NNC narrowed the scope of its opposition to the preliminary injunction arguing two points: (1) BrightStar failed to show how it will suffer irreparable harm greater than that of the Defendant or to the public if the Court does not issue a preliminary injunction; and (2) BrightStar failed to show it is likely to prevail on the merits of its Amended Complaint. See (Dkt. No. 64, at 1.) For its part, BrightStar argues that is has shown both irreparable harm greater than that of Defendants or to the public, and also that it is likely to succeed on the merits of its Amended Complaint. See (Dkt. No. 65, at 2-5).

FINDINGS OF FACT

1. The Parties

BrightStar is an Illinois-based company that franchises its name and business model related to companion care, personal care, skilled nursing, wound care, post-operative care, infusion therapy, and other various forms of home-based health related services to franchisees throughout 37 states.² See (Dkt. No. 66, at 14) (Testimony of Thomas Gilday). Those agency-based franchise agreements - referred to as territories - are made up of zip codes that meet various statistical identifiers suggesting the area has a population of at least 200,000 people and a certain number of residents over the ages of 65 and 85 years. Id.

Stephen and Teresa Neff co-own NNC, a company incorporated in Nevada, that entered into a franchise agreement with BrightStar in order to provide health-related homecare to "frail, vulnerable people in [their] community." Id. at 98 (Testimony of Stephen Neff); see also (Dkt. No. 9, at ¶ 12). Although the Franchise Agreement covered a franchisor/franchisee relationship between BrightStar and NNC, the Neffs personally guaranteed all NNC obligations under theFranchise Agreement; essentially making them individual parties to this proceeding. See (Dkt. No. 9, at ¶ 12); (Dkt. No. 34, at ¶ 12). They currently operate a similar entity known as Allevia Living ("Allevia") in the same area where they previously operated the BrightStar franchise. See (Dkt. No. 66, at 168).

2. The Franchise Agreement

On June 2, 2015, NNC entered into a 10-year franchise agreement with BrightStar to operate as an in-home medical services provider in and around the area of Carson City, Nevada. Id. at 20; see also (Tr. Ex. 11).³ The entire contract is incorporated as filed in the Amended Complaint and entered as an exhibit during the preliminary injunction hearing. See (Dkt. No. 9, at Ex. A; Tr. Ex. 11). Portions relevant to this litigation are reproduced below as follows:

1.2 Operation of Franchise Limited to Territory; Incidental Advertising. ... All clients serviced must be in Franchisee's Protected Territory and cannot be clients with service addresses, or services performed, in another Franchisee's Protected Territory held under a Franchise Agreement or a previously awarded Area Development Agreement. ...

1.3 Cross-Territorial Service

Franchisor has established policies concerning soliciting and/or servicing clients in another franchisee's protected territory or development area or in a territory currently served by an Agency owned by Franchisor or an affiliate of Franchisor (the "Cross-Territorial Policy"). ...

Id. at 10-11. ...

11.2 Confidential Information. For purposes of this Agreement, "Confidential Information" means any information that the Franchisor regards as confidential or proprietary. "Confidential Information" includes, but is not limited to, the whole or any portion of know-how, knowledge, methods, specifications, processes, procedures and/or improvements relating to the BrightStar Agency Program, the Operations Manual, the methods of site selection, marketing methods, recruiting, service analysis and selectin, servicemethods and skills, prospective and current customer information, employee information, and any other business information that is not generally known to the Franchisor's competitors, as well as the content of this Agreement and any other document executed in connection with this Agreement.

11.3. Non-Use and Non-Disclosure of Confidential Information. ... Accordingly, Franchisee acknowledges that it will not, during the term of this Agreement or at any other time thereafter, use any Confidential Information for any purpose except to operate the Agency. ...

11.4 Non-Compete Covenants. Franchisee agrees that it will receive valuable training, goodwill, and Confidential Information that it otherwise would not receive or have access to but for the rights licensed to it under this Agreement. Franchisee agrees to the following non-competition covenants:

...

3. Franchisee covenants that it will not, for a period of eighteen (18) months after the ... termination of this Agreement ... either directly or indirectly, for itself, or though, on behalf of, or in conjunction with any person or entity, own manage, operate, maintain, engage in, consult with or have any interest in any Competing Business:

a. At the premises of the former Agency;

b. Within the Protected Territory of the former Agency; or

c. Within 25 miles of any BrightStar agency or other BrightStar location, whether franchised or owned by Franchisor or its affiliates that would be considered a Competing Business.

4. Franchisee covenants that it will not, for a period of eighteen (18) months after the ... termination of this Agreement ... solicit business from customers of the Franchisee's former Agency or from any National Accounts, or contact any of Franchisor's supplier or vendors for any competitive business purpose, or solicit any of its former Agency employees, or the employees of any agency operated by another franchisee, Franchisor or Franchisor's affiliates to discontinue employment.

Id. at 42-44. ...

14.1 Obligations upon Termination or Expiration. Upon the termination ... of this Agreement for any reason, Franchisee must immediately:

14.1.1 Cease to be a Franchisee or Franchisor under this Agreement and cease to operate the former Agency under the BrightStar Agency Program. Franchisee must not thereafter, directly or indirectly, represent to the public that the former Agency is or was operated or in any way to be connected with the BrightStar Agency Program or hold itself out as a present or former Franchisee or Franchisor.

...

14.1.5 Immediately cease using all telephone numbers and listing used in connection with the operation of the Franchised Business and direct the telephone company to transfer all such numbers and listing to Franchisor or Franchisor's designee

...