Colo. Sec. Consultants, LLC v. Signal 88 Franchise Grp., Inc.

• Decision Date: 17 March 2017
• Docket Number: 8:16-CV-439
• Parties: COLORADO SECURITY CONSULTANTS, LLC, a Colorado limited liability company, et al., Plaintiffs, v. SIGNAL 88 FRANCHISE GROUP, INC., a Nebraska Corporation, et al., Defendants.
• Court: U.S. District Court — District of Nebraska

COLORADO SECURITY CONSULTANTS, LLC,a Colorado limited liability company, et al., Plaintiffs, v. SIGNAL 88 FRANCHISE GROUP, INC., a Nebraska Corporation, et al., Defendants.

8:16-CV-439

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEBRASKA

March 17, 2017

MEMORANDUM AND ORDER

The plaintiffs in this case, Colorado Security Consultants, Timothy Siman, and Jared Iungerich (collectively, CSC), are suing the defendants, Signal 88 Franchise Group and two associated LLCs (collectively, Signal 88), for several claims for relief primarily associated with Signal 88's alleged breach of the parties' franchise agreement. See filing 32. Signal 88 has claims of its own, alleging that CSC breached the contract and is tortiously interfering with Signal 88's business relationships. See filing 11.

The matter is before the Court on Signal 88's motion for a preliminary injunction (filing 12) seeking to enforce the noncompete provision of its franchise agreement with CSC. The Court finds, however, that Signal 88 has failed to establish the propriety of injunctive relief. See Roudachevski v. All-American Care Centers, Inc., 648 F.3d 701, 705 (8th Cir. 2011); see also H&R Block Tax Servs. LLC v. Acevedo-Lopez, 742 F.3d 1074, 1077 (8th Cir. 2014). Accordingly, the Court will deny Signal 88's motion.

BACKGROUND

Signal 88 is in the business of franchising a "unique management and business system for security services[.]" Filing 14-1 at 1. CSC was one of its franchisees, located in Colorado Springs, Colorado. Filing 14-1 at 2; filing 25-1 at 2. The franchise agreement between the parties contained a noncompete provision that barred a franchisee from engaging in the sale of services sold by Signal 88 within 75 miles of the franchisee's exclusive territory for a period of 3 years after termination of the franchise agreement. Filing 14-2 at 25. The noncompete provision also includes a no-defense clause, providing that the noncompete provision would be construed independent of the other provisions of the franchise agreement, and that "[t]he existence of any claim or cause of action of [CSC] against [Signal 88] will not constitute a defense to the enforcement by [Signal 88] of the covenants not to compete." Filing 14-2 at 25. And the noncompete provision expressly permits a court to reform its scope if necessary to enforce it. Filing 14-2 at 25-26.

The franchise agreement also contained a provision affording CSC a right of first refusal for any new Signal 88 franchises within a 30-mile radius of CSC's territory. Filing 14-2 at 27. The provision required Signal 88 to provide CSC with notice of any new proposed franchise within the 30-mile radius, and gave CSC 72 hours to notify Signal 88 of CSC's intent to exercise its right to purchase the proposed new franchise instead, on the same terms offered to the prospective new franchisee. Filing 14-2 at 27.

In January 2016, Signal 88 advised CSC that a potential new franchisee, Rebecca Resendes, was interested in getting a Signal 88 franchise in Colorado Springs. Filing 25-1 at 3. Over the next few months, the parties and Resendes discussed a number of different business arrangements, including Resendes purchasing CSC's franchise, reconfiguration of CSC's territory, or compensating CSC for the customer relationships it had established in territory that might become Resendes'. Filing 25-1 at 3-4. In June 2016, Resendes advised CSC that she had acquired a franchise, but CSC says that the parties continued to discuss various buy-out and reconfiguration arrangements. Filing 25-1 at 4. At the end of July, however, Resendes ended those discussions, and Signal 88 told CSC to stop servicing customers in Resendes' new territory, which was within the radius of CSC's right of first refusal. Filing 25-1 at 4.

The franchise agreement had first been executed in 2010, effective for a 3-year term. Filing 14-2 at 5, 28. The agreement wasn't formally renewed in 2013, but the parties agreed to extend the term of the agreement, and amended the agreement in 2015 to memorialize that extension. Filing 25-6 at 2; filing 14-6 at 1. The amendment modified the franchise term to continue the franchise agreement on a month-to-month basis, subject to a 30-day notice of termination, although CSC says it was assured by Signal 88 that the parties would formally renew the franchise agreement in 2016. Filing 14-6 at 1; filing 25-1 at 2. That had not happened before the Resendes negotiations took place, so when CSC was told to stay out of Resendes' new territory, the franchise agreement was still being extended month-to-month.

Signal 88 notified CSC on September 30, 2016, that Signal 88 intended to terminate the franchise agreement effective October 31. Filing 25-5. Since then, CSC has been providing security services under the name "Guardhail." Filing 25-6 at 5. According to Signal 88, under the Guardhail name, CSC has "contacted Signal 88's customers, undercut Signal 88 on price, and caused anumber of customers to cancel contracts with Signal 88." Filing 14-1 at 4. CSC does not contradict those allegations, but does contend that it has "not used any of the names or trademarks of Signal 88," nor is it "using any of Signal 88's manuals or other alleged confidential information or materials in the Guardhail business." Filing 25-1 at 6; filing 25-6 at 5. Signal 88 moves the Court to enjoin CSC from providing security services within 75 miles of its former territory under the franchise agreement. Filing 12.

DISCUSSION

When deciding whether to issue either a temporary restraining order or preliminary injunction, the Court weighs the four Dataphase factors: (1) the threat of irreparable harm to the movant; (2) the state of the balance between this harm and the injury that granting the injunction will inflict on other parties; (3) the probability that the movant will succeed on the merits; and (4) the public interest. Johnson v. Minneapolis Park & Recreation Bd., 729 F.3d 1094, 1098 (8th Cir. 2013) (citing Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 114 (8th Cir. 1981) (en banc)). A preliminary injunction is an extraordinary remedy, and the movant bears the burden of establishing its propriety. Roudachevski, 648 F.3d at 705; see H&R Block, 742 F.3d at 1077.¹

THREAT OF IRREPARABLE HARM

To show a threat of irreparable harm, the movant must show that the harm is certain and great and of such imminence that there is a clear and present need for equitable relief. Roudachevski, 648 F.3d at 706. Stated differently, the harm "must be actual and not theoretical." Brady v. Nat'l Football League, 640 F.3d 785, 794 (8th Cir. 2011). And harm is not irreparable when a party can be fully compensated for its injuries through an award of damages. Gen. Motors Corp. v. Harry Brown's, LLC, 563 F.3d 312, 319 (8th Cir. 2009).

The Court does not, at this point, have any reason to question that Signal 88 faces a threat of harm. But the question is whether that harm is truly irreparable, or whether it could be remedied after the fact with a permanent injunction and damages. And Signal 88's evidence on the harm it faces is not particularly compelling. Kevin Jones, Signal 88's chief development officer, averred generally that

The noncompete agreements are included in the Franchise Agreement for a number of reasons including, protection of the[Signal 88 Security] System, to maintain customer goodwill, to avoid franchisees from acquiring confidential information from the Signal 88 System and then using that information to compete with Signal 88 and/or from taking Signal 88 customers.

Filing 14-1 at 3. And, as summarized above, Jones averred that CSC has established Guardhail, which operates within 75 miles of CSC's former Signal 88 territory and "offers services substantially the same as those offered by CSC when they operated as a Signal 88 franchisee within the [Signal 88 Security] System. Guardhail has contacted Signal 88's customers, undercut Signal 88 on price, and caused a number of customers to cancel contracts with Signal 88." Filing 14-1 at 4.

But identifying the purpose of the noncompete provision falls far short of explaining how CSC's present conduct is actually threatening Signal 88's goodwill. Nor is it clear how that could be occurring, given that CSC is not using Signal 88's marks. Factors such as price erosion, loss of goodwill, damage to reputation, and loss of business opportunities may all be valid grounds for finding irreparable harm. See Aria Diagnostics, Inc. v. Sequenom, Inc., 726 F.3d 1296, 1304 (Fed. Cir. 2013). And money damages may not provide complete relief where harm caused by a breach, even though economic in nature, is impossible to measure accurately. Ocean Spray Cranberries, Inc. v. PepsiCo, Inc., 160 F.3d 58, 61 (1st Cir. 1998); see, e.g., East St. Louis Laborers' Local 100 v. Bellon Wrecking & Salvage Co., 414 F.3d 700, 705 (7th Cir. 2005); Tom Doherty Assocs., Inc. v. Saban Entm't, Inc., 60 F.3d 27, 38 (2d Cir. 1995). But on the other hand, it has also been held that a loss of customers or customer goodwill is not truly "irreparable," in the sense that it can be addressed through money damages after a trial on the merits. Novus Franchising, Inc. v. Dawson, 725 F.3d 885, 895 (8th Cir. 2013); see World Wide Polymers, Inc. v. Shinkong Synthetic Fibers Corp., 694 F.3d 155, 161 (2d Cir. 2012). And accurate measurement is a matter of degree—courts have refused injunctions to enforce contracts involving ongoing business relationships even if it would be difficult to prove the revenues lost from the breach with perfect accuracy. Ocean Spray, 160 F.3d at 61. When the alleged harm is the loss of customers and business, that harm is compensable with money damages. See World Wide Polymers, 694 F.3d at 161.

The Court is unpersuaded, in this case, that Signal 88's conclusory evidence that CSC is soliciting Signal 88 customers establishes irreparable harm. Potential economic loss may constitute irreparable harm where the loss is so...