Keller Corp. v. Kelley

• Citation: 187 P.3d 1133
• Decision Date: 15 May 2008
• Docket Number: No. 07CA0580.,07CA0580.
• Parties: KELLER CORPORATION, d/b/a The Blind Man of America, Plaintiff-Appellant, v. David KELLEY and Accent Window Coverings of Southern Colorado, Inc., Defendants-Appellees.
• Court: Court of Appeals of Colorado

187 P.3d 1133

KELLER CORPORATION, d/b/a The Blind Man of America, Plaintiff-Appellant, v. David KELLEY and Accent Window Coverings of Southern Colorado, Inc., Defendants-Appellees.

No. 07CA0580.

Colorado Court of Appeals, Div. I.

May 15, 2008.

Weeks & Luchetta, LLP, Jeffrey L. Weeks, Colorado Springs, Colorado, for Plaintiff-Appellant.

Buxman, Kwitek & Ohlsen, P.C., Mark A. Ohlsen, Pueblo, Colorado for Defendants-Appellees.

Opinion by Judge CRISWELL.^*

Plaintiff, the Keller Corporation, doing business as the Blind Man of America (Franchisor), appeals the trial court's order denying its motion for preliminary injunction against defendants, David Kelley and Accent Window Coverings of Southern Colorado, Inc. We reverse and remand for further proceedings.

I. The Trial Court Proceedings

Franchisor is in the business of selling and installing residential and commercial window coverings through franchises located throughout Colorado. These franchises are exclusive within specified territories, and the franchisees are permitted to make sales using Franchisor's name and procedures within these territories.

Kelley originally had entered into a franchise agreement with Franchisor for a franchise covering the Denver area. In April 2000, however, he terminated their agreement and purchased an existing franchise in Pueblo County from the previous franchisee. As a part of their agreement, Kelley received certain physical assets, such as signage, advertising materials and brochures, and customer and vendor records. In conjunction with his acquisition of this Pueblo County franchise, Kelley also entered into a new franchise agreement with Franchisor.

This latter agreement contained a covenant not to compete which prohibited Kelley from engaging in a similar window coverings sale and installation business within a fifty-mile radius of any of Franchisor's existing franchises within Colorado for a period of three years after termination of that agreement. These other franchises were located in Colorado Springs, Vail, Aspen, Fort Collins, Grand Junction, and Thornton. Additionally, this agreement prohibited the disclosure by Kelley of Franchisor's trade secrets.

Franchisor also provided Kelley with training in window blind sales and installation and in recordkeeping, including Franchisor's confidential business operations manual. Although this manual was not placed into evidence, the testimony was that the manual contained Franchisor's trade secrets and other confidential information. Franchisor also agreed to act in an advisory capacity to Kelley in his Pueblo operations.

Kelley's franchise agreement for Pueblo County terminated in August 2005. He then began operating a window coverings sales and installation business in the Pueblo area through a corporation, Accent Window Coverings of Southern Colorado, Inc. (AWC).

In October 2006, Franchisor commenced this action against both Kelley and AWC, seeking preliminary and permanent injunctive relief to enforce the non-competition provisions of the franchise agreement. It also sought liquidated damages against Kelley in the amount of $1000 per week for each week that he had violated the covenant. Finally, alleging that AWC had engaged in a civil conspiracy with Kelley to violate the agreement and that both defendants had engaged in unfair competition, Franchisor sought actual damages in an unspecified amount from AWC.

In response to this complaint, Kelley, on a pro se basis, filed an affidavit setting forth alleged facts upon which he was relying in defense against Franchisor's complaint. This affidavit was filed on behalf of "Kelley, a/k/a Accent Window Coverings of Southern Colorado, Inc." and asserted that he was the "sole owner of AWC Inc." Franchisor then moved to have a default entered against AWC, alleging that Kelley, a non-lawyer could not represent the corporation and that AWC had not filed any response to its complaint.

An evidentiary hearing was held upon Franchisor's request for a preliminary injunction. At that hearing, Franchisor asserted that the covenant not to compete in the pertinent agreement was authorized by section 8-2-113(2)(a) and (b), C.R.S.2007, because the franchise agreement was an agreement for the purchase and sale of a business and, also, because it was designed to protect its trade secrets. However, at the request of the trial court, its evidence focused on the nature of its trade secrets and Kelley's alleged use of those secrets. Franchisor also continued to assert that Kelley could not legitimately continue to represent AWC.

At the conclusion of this evidentiary hearing, the court first denied Franchisor's motion for default against AWC, concluding that "there is no amount in controversy." It then found, as a fact, that certain information provided by Franchisor to Kelley constituted trade secrets, but that Kelley had not made any use of that information in the business conducted by AWC. It concluded, therefore, that it was not probable that Franchisor would ultimately succeed on the merits of its claim, that it had not suffered any irreparable injury, and that the balance of the equities favored Kelley. In doing so, it made no reference to Franchisor's claim that its agreement with Kelley was one for the purchase and sale of a business within the meaning of the pertinent statute.

Franchisor appeals from this order denying its request for a preliminary injunction.

II. The Representation of AWC

We first consider Franchisor's contention that the trial court erred in permitting Kelley to represent AWC at the preliminary injunction hearing. We conclude that that court must reconsider its order allowing such representation.

A corporation is an artificial entity created by law. BQP Indus., Inc. v. State Bd. of Equalization, 694 P.2d 337, 341 (Colo. App.1984). Thus, unlike a natural person, it generally cannot appear or act in a judicial proceeding in person, but must be represented by a licensed attorney. Id. However, section 13-1-127, C.R.S.2007, provides, in part, as follows:

(2) Except as otherwise provided [as to county courts], a closely held entity may be represented before any court of record or any administrative agency by an officer of such closely held entity if:

(a) The amount at issue in the controversy or matter before the court or agency does not exceed ten thousand dollars, exclusive of costs, interest, or statutory penalties, on and after January 1, 1991....

Here, Kelley appeared pro se at the preliminary injunction hearing, and the trial court permitted him also to represent AWC in that hearing. In its order denying the motion for preliminary injunction, the trial court determined that Kelley was permitted to represent AWC because "there is no amount in controversy."

We do not fully understand the court's ruling in this respect. While the hearing on the request for a preliminary injunction did not, itself, involve a request for monetary relief, the pertinent statute is not intended to be applied on such a piecemeal basis. That statute does not permit a closely held corporation to be represented by a lay person on a motion simply because the motion itself will not result in any monetary liability; it is, rather, the amount involved in the overall litigation that is the test under section 13-1-127(2)(a).

Here, it is quite clear that Franchisor was requesting liquidated damages against Kelley in an amount in excess of $10,000, but its complaint contained no specification of the amount of actual damages it was seeking against AWC. While its complaint did not seek to pierce AWC's corporate veil, it is unclear whether Franchisor asserts that AWC is jointly and severally liable with Kelley under its civil conspiracy claim for the liquidated damages it seeks.

If the amount in controversy between Franchisor and AWC is in excess of $10,000, the trial court is bound to strike Kelley's affidavit, to the extent that it may be deemed to have been filed on AWC's behalf. See In re Estate of Nagel, 950 P.2d 693, 694 (Colo. App.1997) (a pleading filed by a non-lawyer on behalf of a corporation is a nullity and must be stricken); Woodford Mfg. Co. v. A.O.Q., Inc., 772 P.2d 652 (Colo.App.1988). Unless the amount in controversy is determined to be less than $10,000, Kelley cannot represent AWC.

However, because the court's determination that there was "no amount in controversy" is clearly not supported by the record, we must remand this case to the trial court for its reconsideration of this issue. It may receive such evidence as it may determine to be appropriate for this purpose.

III. Preliminary Injunctive Relief

A trial court's ruling on a motion for preliminary injunction should be reviewed with deference, and that determination will not be overturned unless it is manifestly unreasonable, arbitrary, or unfair. State ex rel. Salazar v. Cash Now Store, Inc., 31 P.3d 161, 164 (Colo.2001). However, if only legal, rather than factual, questions are at issue, we review the court's preliminary injunction ruling de novo. See id.

A preliminary injunction is designed to preserve the status quo or to protect a party's rights pending the final determination of a cause. City of Golden v. Simpson, 83 P.3d 87, 96 (Colo.2004). Its purpose is to prevent irreparable harm prior to a decision on the merits of a case.

In considering a motion for a preliminary injunction, the trial court must determine whether the moving party has demonstrated (1) a reasonable probability of success on the merits; (2) a danger of real, immediate, and irreparable injury which may be prevented by injunctive relief; (3) the lack of a plain, speedy, and adequate remedy at law; (4) no disservice to the public interest; (5) the balance of equities in favor of the injunction; and (6) the preservation by the injunction of the status quo pending a trial on the merits. Rathke v. MacFarlane, 648 P.2d 648, 653-54 (Colo. 1982). If each criterion is not met, injunctive...