In re MCC Humble Auto Paint, Inc., CASE NO. 11-34994-H3-11

• Decision Date: 25 August 2011
• Docket Number: CASE NO. 11-34994-H3-11
• Parties: IN RE MCC HUMBLE AUTO PAINT, INC., Debtor,
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas

IN RE MCC HUMBLE AUTO PAINT, INC., Debtor,

CASE NO. 11-34994-H3-11

UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

Dated: August 25, 2011

MEMORANDUM OPINION

The court has held an evidentiary hearing on "Creditor Maaco Franchising, Inc.'s Emergency Motion for Relief from Automatic Stay Pursuant to 11 U.S.C. § 362(d)(1),(2)" (Docket No. 21). The following are the Findings of Fact and Conclusions of Law of the court. A separate Judgment will be entered granting the motion in part. To the extent any of the Findings of Fact are considered Conclusions of Law, they are adopted as such. To the extent any of the Conclusions of Law are considered Findings of Fact, they are adopted as such.

Findings of Fact

MCC Humble Auto Paint, Inc. ("Debtor") filed a voluntary petition under Chapter 11 of the Bankruptcy Code on June 7, 2011.

On July 18, 2006, James M. Gaarder, president of Debtor, entered into a franchise agreement with Maaco Enterprises, Inc., to open a "Maaco Center," defined under thefranchise agreement as a center "specializing in vehicle painting and body repair," in Humble, Texas. (Movant's Exhibit A).

Gaarder assigned his rights under the franchise agreement to Debtor on July 18, 2006. (Movant's Exhibit B).

On January 31, 2011, Maaco Franchising, Inc. (purporting to be the entity with which Debtor had a franchise agreement)¹ gave notice to Debtor and Gaarder that they were in default in, inter alia, paying franchise fees due under the franchise agreement. (Movant's Exhibit D).

On March 11, 2011, Maaco sent to Debtor and Gaarder a notice of termination of the franchise agreement. (Movant's Exhibit E). Gaarder testified that he received the notice on March 14, 2011. Ken Hamill, an employee of Maaco, testified that the franchise was terminated for lack of payment.

The franchise agreement provides in pertinent part:

15. OBLIGATIONS UPON TERMINATION OR EXPIRATION Upon termination or expiration of this Agreement:

A. Franchisee shall immediately cease to operate the business franchised under this Agreement, and shall not thereafter, directly or indirectly, represent to the public or hold itself out as a present or former franchisee of Maaco.

B. Franchisee shall immediately and permanently cease to use, by advertising or in any manner whatsoever, any equipment, confidential methods, procedures andtechniques associated with the System; the trade and service mark "Maaco Auto Painting & Bodyworks" or "Maaco Collision Repair & Auto Painting", and any Proprietary Marks and distinctive forms, slogans, signs, symbols, or devices associated with the System. In particular, Franchisee shall cease to use, without limitation, all signs, equipment, advertising materials, stationery, forms and any other articles which display the Proprietary Marks associated with the System.

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17. COVENANTS

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C. Franchisee covenants that for a period of one (1) year from whichever of the following events occur later: (i) the expiration or termination of this Agreement, regardless of the cause of termination; (ii) the date upon which Franchisee ceases to operate the business franchised hereunder following termination or expiration of this Agreement; or (iii) the date upon which Franchisee complies with this Paragraph 17C., Franchisee shall not either directly or indirectly, for himself or through, on behalf of, or in conjunction with any other person, persons, partnership or corporation:

(1) Do or engage in any act prescribed by Paragraphs 17B (1) and (2) of this Agreement, which are hereby incorporated by reference as if more fully set forth herein.

(2) Own, maintain, engage in, be employed by, finance, or have any interest in any business providing, in whole or in part motor vehicle painting or body repair services or products at the premises of the Center or within a radius of ten (10) miles of the Center or within a ten (10) mile radius of any existing or proposed Maaco location.

(Movant's Exhibit A).

In the instant motion, Maaco states that on May 11, 2011, it filed suit against Debtor and Gaarder, in the United States District Court for the Eastern District of Pennsylvania, seeking, inter alia, injunctive relief enforcing the covenants of the franchise agreement (the "Pennsylvania Case"). Maaco states that, in the Pennsylvania Case, a preliminary injunction hearing was set for June 7, 2011, the date on which the petition in the instant Chapter 11 case was filed. (Docket No. 21).

Kevin Taylor, a Maaco franchisee in the Houston, Texas area, testified that he visited Debtor's business premises during July, 2011, approximately one month before the date of the hearing on the instant motion. He testified that Debtor had signs on the outside and inside of the building identifying the business as Maaco, and as "America's Body Shop," a Maaco trade slogan. He testified that Debtor's employees were using shirts bearing the Maaco logo, and using business cards with the Maaco logo. He testified that Gaarder maintains a sign on Debtor's truck identifying the business as Maaco. He testified that Debtor is operating two web sites, with Maaco information. He testified that one of the sites directs visitors to Debtor's location. He testified that another site directs visitors to the telephone number Debtor had previously used. He testified that callers to Debtor's previous number are now directed to Taylor's shop. He testified that Maaco reassigned the telephone numberpreviously used by Debtor to his shop. Hamill testified that, on August 22, 2011, the day of the hearing on the instant motion, Debtor still was using the Maaco signs and identification.

Gaarder testified that Debtor is operating as an independent body shop and paint shop. He testified that Debtor is not operating as a Maaco Center. He testified that Debtor's truck or trucks no longer display Maaco logos and identification. Debtor has changed its telephone numbers, notified banks and vendors, and printed new business cards. He testified that Debtor has purchased new signs, that are not yet installed. He testified that Debtor has updated its website. He testified that the Maaco signs on the building have not been removed because Debtor has not had funds available to pay for their removal.

Conclusions of Law

In the instant motion, Maaco seeks lifting of the automatic stay, in order to seek an injunction prohibiting Debtor from conducting any operations. Maaco makes two arguments: First, Maaco argues that Debtor lacks a property interest in the franchise agreement, and thus the stay should be lifted because the debtor lacks equity in property necessary to an...