Certified Restoration Dry Cleaning v. Tenke, 07-1562.

• Citation: 511 F.3d 535
• Decision Date: 17 December 2007
• Docket Number: No. 07-1562.,07-1562.
• Parties: CERTIFIED RESTORATION DRY CLEANING NETWORK, L.L.C., Plaintiff-Appellant, v. TENKE CORP. d/b/a Rite Cleaners, and Stephen Dubasik, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

511 F.3d 535

CERTIFIED RESTORATION DRY CLEANING NETWORK, L.L.C., Plaintiff-Appellant, v. TENKE CORP. d/b/a Rite Cleaners, and Stephen Dubasik, Defendants-Appellees.

No. 07-1562.

United States Court of Appeals, Sixth Circuit.

Argued: November 29, 2007.

Decided and Filed: December 17, 2007.

ARGUED: Gary W. Faria, Ufer & Spaniola, Troy, Michigan, for Appellant. Michael D. Rossi, Guarnieri & Secrest, Warren, Ohio, for Appellees. ON BRIEF: Gary W. Faria, Ufer & Spaniola, Troy, Michigan, for Appellant. Michael D. Rossi, Guarnieri & Secrest, Warren, Ohio, for Appellees.

Before: KENNEDY, MARTIN, and CLAY, Circuit Judges.

OPINION

CLAY, Circuit Judge.

Plaintiff-Appellant Certified Restoration Dry Cleaning Network, L.L.C. ("Plaintiff") appeals the district court's denial of its motion for preliminary injunction. Plaintiff's underlying action seeks both monetary damages and injunctive relief for Defendant Tenke Corporation's and Defendant Stephen Dubasik's (collectively "Defendants") breach of a non-competition clause contained in the parties' franchise agreement. For the reasons that follow, we REVERSE the district court's order and REMAND the case to the district court with instructions to issue Plaintiff's requested preliminary injunction.

I. BACKGROUND

On June 6, 2002, Plaintiff, a citizen of Michigan, and Defendants, citizens of Ohio, entered into a written franchise agreement under which Plaintiff awarded Defendants a franchise to operate a "Restoration DC business utilizing the Restoration DC System and [Plaintiff's] Licensed Marks" within certain specified Ohio counties. J.A. at 31. This agreement offered Defendants the exclusive right to use Plaintiff's "business formats, methods, procedures, signs, standards, specifications," and customer lists within that geographic area. Id.

The franchise agreement states that the Restoration DC System is a restoration dry cleaning system "for cleaning smoke, water, and/or odor damaged clothing and other soft goods, from insured casualties, such as house fires." Id. The affidavit of Louis Bifano, Plaintiff's president, further explains that "[r]estoration dry cleaning differs from other dry cleaning principally with regard to the customer relationships involved and the sources of business." J.A. at 176. Restoration dry cleaning customers are typically, and in fact almost exclusively, "insurance companies and restoration contractors who by their nature have repeat business and are interested in ongoing established relationships with a proven capable restoration dry cleaner." Id. Plaintiff awards restoration dry cleaning franchises only to persons who already "own and operate quality dry cleaner establishments." J.A. at 31. As recognized by Plaintiff in its amended complaint, Defendants were such persons. See J.A. at 13. Prior to entering the franchise agreement, Defendants had operated not only a regular dry cleaning business, but also performed some restoration dry cleaning services. By entering the agreement, Defendants were seeking to use Plaintiff's proprietary system and customer lists as part of the restoration dry cleaning component of their business.

Section 13 of the franchise agreement provides for certain post-termination obligations of Defendants in the case of breach or cancellation of the contract. In particular, section 13.D contains a covenant not to compete which reads:

For a period of 24 months from the time of expiration or termination of this Agreement, you promise not to engage as owner, shareholder, partner, director, officer, employee, consultant, salesperson, representative, or agent or in any other capacity in any restoration dry-cleaning business, within:

1. the Territory as defined in Exhibit A of this Agreement;

2. the geographic area encompassed by the Territories of any Restoration DC Franchisees as of the date of the termination or expiration of this Agreement;

3. a geographic area that is contained in a circle having a radius of 25 miles outward from the borders of the Territory as defined in Exhibit A of this Agreement.

J.A. at 52. Exhibit A of the franchise agreement defines the Territory encompassed by the agreement to include all of Portage, Mahoning, Trumbull, Geauga, and Ashtabula counties and parts of Cuyahoga county. J.A. at 59.

The franchise agreement contains a similar non-compete covenant, with slightly different language, in the provisions detailing Defendants' obligations while the contract is in effect. This covenant, found in section 6.A, reads:

You promise during the term of this Agreement, to not [] engage as an owner, partner, shareholder, director, officer, employee, consultant, agent or in any other capacity in any other business offering restoration dry cleaning services the same or similar to the services sold by the Franchised Business (except for other Franchises under Franchise Agreements we enter into with you).

J.A. at 40. In section 17 of the franchise agreement, Defendants agreed that "[t]he covenants not to compete set forth in this Agreement are fair and reasonable, and will not impose any undue hardship on [them], since [they] have other considerable skills, experience, and education which will afford [them] the opportunity to derive income from other endeavors." J.A. at 57.

Section 15 of the agreement provides that the "Agreement, the Franchise and all claims arising from the relationship between [Defendants] and [Plaintiff], will be governed by the laws of the state of [Plaintiff's] principal business address," which is Michigan. J.A. at 55, 31.

On November 6, 2006, Plaintiff terminated the franchise agreement because of Defendant's failure to make required payments under the agreement. In the following months, Plaintiff and Defendants exchanged several letters regarding their respective termination obligations under the contract. During the course of this correspondence, Plaintiff realized that Defendants had not ceased all of their restoration dry cleaning activities, but rather believed that they should be able to continue such activities with respect to clients they had served before entering the franchise agreement. Plaintiff threatened to bring legal action if Defendants continued to not comply with the non-compete covenant.

In December 2006, Defendants responded to Plaintiff's threat by filing a declaratory judgment action against Plaintiff in the Court of Common Pleas in Trumbull County, Ohio in which they sought a declaration of their obligations under the franchise agreement. On January 19, 2007, Plaintiff removed the action to the United States District Court for the Northern District of Ohio (the "Ohio action").

Shortly thereafter, on January 22, 2007, Plaintiff commenced the instant action against Defendants in the United States District Court for the Eastern District of Michigan (the "Michigan action"). Plaintiff's complaint, as subsequently amended on January 29, 2007, alleged that Defendants had violated various provisions of the franchise agreement, including the non-compete clause, and requested temporary, preliminary, and permanent injunctive relief together with monetary damages.

After commencing the Michigan action, Plaintiff filed a motion to dismiss the Ohio action on February 2, 2007. In support of this motion, Plaintiff argued that, because Defendants had improperly filed the Ohio declaratory judgment action in anticipation of Plaintiff's coercive action and because the franchise agreement's forum selection clause provided for the application of Michigan law and required that the action be brought in Michigan, the Ohio court was an improper forum and, accordingly, it would be more appropriate to resolve all issues relating to the agreement in the Michigan action. On February 6, 2007, Defendants filed a response to this motion to dismiss. On July 20, 2007, the Ohio district judge granted Plaintiff's motion and filed an order dismissing the action on the basis of the franchise agreement's forum selection clause. See Tenke Corp. v. Certified Restoration Drycleaning Network, L.L.C., No. 4:07-cv-170, 2007 WL 2114659, at *1 (N.D.Ohio July 20, 2007).

On February 13, 2007, following its motion to dismiss the Ohio action, Plaintiff filed a Motion For Temporary Restraining Order And For Preliminary Injunction in the Eastern District of Michigan. In support of this motion, Plaintiff submitted several exhibits and the affidavits of Robert Ufer and Louis Bifano. Plaintiff argued that Defendants were in breach of the non-compete clause of the franchise agreement and that injunctive relief was appropriate. In particular, Plaintiff requested that the district court issue an injunction that would prohibit Defendants from: (1) operating any restoration dry cleaning business during the next two years in the geographic area specified in the non-compete clause; (2) engaging in any contacts with customers or former customers of the formerly franchised business; and (3) using the telephone number of the formerly franchised business. The district judge denied the request for a temporary restraining order on February 14, 2007.

On February 26, 2007, in lieu of filing a response to Plaintiff's motion, Defendants filed an Answer and Counterclaim and a Motion for Partial Summary Judgment. In their answer, Defendants raised illegality of the contract as an affirmative defense. However, in their accompanying motion, Defendants essentially argued that they were not in violation of the terms of the non-compete clause. In particular, Defendants claimed that they were not and have never been a "restoration drycleaning business" and thus the non-compete covenant, by its own terms, did not apply to them.

On May 8, 2007, the district court issued an order denying Plaintiff's request for preliminary injunction and Defendants' motion for partial summary judgment. See Certified Restoration Dry Cleaning Network, L.L.C. v. Tenke Corp., No. 07-10341, 2007 WL 1343682, at *1 (E.D.Mich. May 8, 2007)....