Get in Shape Franchise, Inc. v. TFL Fishers, LLC

• Decision Date: 09 March 2016
• Docket Number: Civil Action No. 15-12997-PBS
• Citation: 167 F.Supp.3d 173
• Parties: Get In Shape Franchise, Inc., Plaintiff v. TFL Fishers, LLC; Rosalyn R. Harris; Thinner for Life, Inc.; and Fit Chicks, LLC, Defendants.
• Court: U.S. District Court — District of Massachusetts

167 F.Supp.3d 173

Get In Shape Franchise, Inc., Plaintiff

v.TFL Fishers, LLC; Rosalyn R. Harris; Thinner for Life, Inc.; and Fit Chicks, LLC, Defendants.

Civil Action No. 15-12997-PBS

United States District Court, D. Massachusetts.

Signed March 9, 2016

Kathleen E. Ceglarski, Lee A. Harrington, Nixon Peabody LLP, Boston, MA, for Plaintiff.

Rosalyn R. Harris, Fishers, IN, pro se.

MEMORANDUM AND ORDER

Saris, C.J.

INTRODUCTION

This case involves a dispute between a franchisor of small group fitness studios for women and a former franchisee. Plaintiff Get In Shape Franchise, Inc. (GISFW) is a Massachusetts corporation with more than eighty franchise locations in sixteen states across the country that do business under the name “Get In Shape For Women.” GISFW brings this action against a former franchisee, TFL Fishers, LLC, alleging trademark infringement, breach of contract, breach of the covenants of good faith and fair dealing, unjust enrichment, unfair competition, and fraud. Defendant TFL Fishers, LLC, is an Indiana limited liability company; Defendant Rosalyn R. Harris is an Indiana resident and the president and sole member of TFL Fishers. Ms. Harris signed a franchise agreement with GISFW as the president of TFL Fishers in April 2013.

Ms. Harris owned and operated a GISFW studio in Fishers, Indiana pursuant to the franchise agreement for just over two years before terminating the agreement via email in June 2015. Shortly before termination, she filed the necessary paperwork with the State of Indiana to register Defendant Fit Chicks, LLC—an Indiana limited liability company owned by Ms. Harris's sister, Constance Harris.¹

Upon termination of the franchise agreement, Rosalyn Harris sold all the equipment and machines in the Fishers studio to her sister for $1, and began operating the studio under the name “Fit Chicks.” Rosalyn Harris currently serves as a full-time, volunteer manager at Fit Chicks.

GISFW now moves for a preliminary injunction enjoining the defendants from operating the allegedly competing business Fit Chicks, and from using GISFW's confidential information, in violation of the franchise agreement. Rosalyn Harris appears pro se , and argues that the Court should dismiss the case for lack of subject matter jurisdiction, lack of personal jurisdiction, and improper venue. Alternatively, she argues that the Court should deny GISFW's motion for a preliminary injunction on the grounds that GISFW failed to establish a likelihood of success on the merits, and failed to establish that it will suffer irreparable harm if the motion is denied. The other defendants have not appeared in the case.

After hearing,² the Court DENIES Ms. Harris's motion to dismiss for lack of subject matter jurisdiction, lack of personal jurisdiction, and improper venue (Docket No. 22), and ALLOWS in part GISFW's motion for a preliminary injunction (Docket No. 6) as against Ms. Harris. The Court further TRANSFERS the case to the Southern District of Indiana under 28 U.S.C. § 1404(a) and 28 U.S.C. § 1406(a).

FACTS

The following facts are taken from the Complaint (Docket No. 1), the deposition of Rosalyn Harris (Docket No. 47, Ex. 1), and the operative franchise agreement (Docket No. 50, Ex. 1). They are undisputed, except where stated otherwise.

I. The Warm-Up

On April 1, 2013, Ms. Harris, in her capacity as president of TFL Fishers, LLC, entered into a written franchise agreement with GISFW authorizing TFL Fishers to own, operate, and do business as “Get In Shape For Women” in Fishers, Indiana. Ms. Harris agreed to pay a transfer fee of $14,500 to GISFW through a one-year financing arrangement to assume rights to the Fishers, Indiana territory through July 28, 2020.³ Shortly thereafter, she assumed operation of a GISFW studio located at 11720 Olio Road, Suite 800, Fishers, Indiana.

Pursuant to the franchise agreement, Ms. Harris agreed to pay GISFW six percent of gross sales as royalties; to operate the studio in compliance with all GISFW systems and standards; to only use the GISFW system, names, and marks for the operation of the studio; and to attend an annual conference and various training sessions in Massachusetts, including a management training program called “Franchise School.” Ms. Harris attended five days of Franchise School at the GISFW corporate office in Needham, Massachusetts in 2013, at the start of the franchise relationship. Ms. Harris also acknowledged in the agreement that she obtained “knowledge of proprietary matters, techniques, and business procedures of Franchisor that are necessary and essential to the operation of the Studio,” which she did not know prior to execution of the contract. Docket No. 50, Ex. 1 ¶ 10(a).

The franchise agreement also contains a covenant not to compete, grants GISFW the right of first refusal should the franchisee receive an offer to purchase the studio, and outlines detailed post-termination procedures in the event that one of the parties terminates the agreement. More specifically, section 13 of the franchise agreement prohibits the franchisee from “directly or indirectly” owning, maintaining, operating, engaging in, being employed by, or otherwise having any interest in “any fitness center, health club, personal training studio, or any other business concepts that directly compete with Get In Shape For Women® within an 8 mile radius” of the studio, or any other GISFW location, for two years following termination of the agreement. Docket No. 50, Ex. 1 ¶ 13(b). Section 13 specifically lists “starting any new business in competition with [GISFW],” “[a]ssisting in starting any new business in competition with [GISFW],” and “[s]oliciting franchisees or clients from [GISFW]” as examples of prohibited competitive activities. Id.

Section 16(d) requires the franchisee to notify GISFW of any bona fide written offers to purchase the studio, grants GISFW the right to purchase the studio itself for the same price and on the same terms as the offer, and requires the franchisee to obtain GISFW's prior written approval for any sale. Id.¶ 16(d). Section 18 of the agreement specifies the duties and obligations of the franchisee upon termination of the agreement, including requirements to cease using the GISFW system and “confidential methods, procedures, descriptions of products, and techniques;” turn over all customer lists, records, and files; cease holding itself out as a present or former GISFW franchisee; and comply with the covenant not to compete. Id.¶ 18(a)-(b), (e). Section 18 also grants GISFW the right to purchase “any or all inventory, equipment, supplies, signs, advertising materials, and items bearing Franchisor's Names and Marks, at fair market value,” and to assume the lease for the studio location, upon termination. Id.¶ 18(f)-(g).

Finally, section 19 contains an arbitration clause, choice-of-law provision, forum-selection clause, and attorneys' fees provision. Section 19(c) states:

Except insofar as Franchisor elects to enforce this Agreement by judicial process, injunction, or specific performance (as hereinabove provided), all disputes and claims relating to any provision hereof, any specification, standard or operating procedure, or any other obligation of Franchisee prescribed by the Franchisor, or any obligation of Franchisor, or the breach thereof (including without limitation, any specification, standard or operating procedure or any other obligation of Franchisee or Franchisor, which is illegal or otherwise unenforceable or voidable under any law, ordinance, or ruling) shall be settled by mandatory binding arbitration in Norfolk County, Massachusetts ....

Id.¶ 19(c). Section 19(g) contains the choice-of-law provision and forum-selection clause: “Except to the extent governed by the U.S. Trademark Act of 1946 (Lanham Act, 15 U.S.C. Section 1501 et. seq. ) or the U.S. Arbitration Act, this Agreement shall be governed by the laws of the State of Massachusetts, and venue shall lie in Norfolk County, Massachusetts.” Id.¶ 19(g). Section 19(h) specifies that the franchisor “shall be entitled to recover reasonable attorneys' fees and court costs” from the franchisee in the event that it “incurs legal fees in enforcing” the franchise agreement. Id.¶ 19(h).

Significantly, there is an “Indiana Addendum to the Franchise Agreement,” which states that, notwithstanding anything to the contrary in the agreement, “the laws of the State of Indiana supersede any provisions in the offering circular, the Agreement, or the State of Incorporation law, if these provisions are in conflict with Indiana law.” Docket No. 50, Ex. 1 at 130. The Indiana Addendum further specifies that “any provision in the Agreement which limits in any manner whatsoever litigation brought for breach of the Agreement will be void to the extent that [it] ... violates the Indiana Deceptive Franchise Practices Law.” Id.

II. The Cool Down

The relationship between GISFW and Ms. Harris appears to have started to cool down in early 2015. In May, Ms. Harris failed to attend a mandatory training program and failed to participate in a mandatory postcard-marketing program required by the franchise agreement. On June 24, 2015, Ms. Harris sent an email to Louis DeFrancisco, president of GISFW, notifying GISFW that she had sold the assets of the Fishers studio to a third party and was closing the studio. GISFW emailed her back and asked to speak with her immediately to discuss the contractual and legal issues involved with the closing, but Ms. Harris did not respond. On June 30, 2015, GISFW learned that the Fishers studio had not closed, but was now operating under the name “Fit Chicks.”

A photo taken on June 30, 2015, revealed that the GISFW building sign had only been partially covered by a tarp sign reading “Fit Chicks,” and that an A-frame marketing sign displaying the GISFW name and logo remained in place out front of the studio. Ms. Harris admits that she did not remove the GISFW building sign until July 27, 2015, and that the GISFW...