Mainstream Fashions Franchising, Inc. v. All These Things, LLC

• Decision Date: 09 April 2020
• Docket Number: Case No. 19-cv-02953 (SRN/TNL)
• Citation: 453 F.Supp.3d 1167
• Parties: MAINSTREAM FASHIONS FRANCHISING, INC., Plaintiff, v. ALL THESE THINGS, LLC; a North Carolina limited liability company; Grace & Love, LLC, a North Carolina limited liability company; CCP, LLC, a North Carolina limited liability company; Charlotte Cooper Parris, a North Carolina resident; Anitra Mitchell, a North Carolina resident; and Bradley Mitchell, a North Carolina resident, Defendants.
• Court: U.S. District Court — District of Minnesota

453 F.Supp.3d 1167

MAINSTREAM FASHIONS FRANCHISING, INC., Plaintiff,

v.ALL THESE THINGS, LLC; a North Carolina limited liability company; Grace & Love, LLC, a North Carolina limited liability company; CCP, LLC, a North Carolina limited liability company; Charlotte Cooper Parris, a North Carolina resident; Anitra Mitchell, a North Carolina resident; and Bradley Mitchell, a North Carolina resident, Defendants.

Case No. 19-cv-02953 (SRN/TNL)

United States District Court, D. Minnesota.

Signed April 9, 2020

Craig P. Miller, Lathrop GPM LLP, 80 South 8th Street, Suite 500 IDS Center, Minneapolis, MN 55402, and Maisa Jean Frank, Lathrop GPM LLP, 600 New Hampshire Avenue, N.W., The Watergate Suite 700, Washington D.C. 20037, for Plaintiff.

J. Michael Dady, Kristy Lynn Miamen, and Rachel Zaiger, Dady & Gardner, PA, 80 South 8th Street Suite 5100, Minneapolis, MN 55402, for Defendants.

MEMORANDUM OPINION AND ORDER

SUSAN RICHARD NELSON, United States District Judge

This matter comes before the Court on Plaintiff Mainstream Fashions Franchising, Inc.’s ("Mainstream") Motion for a Preliminary Injunction (Doc. No. 5), and Defendants All These Things, LLC; Grace & Love LLC; CCP, LLC; Charlotte Cooper Parris, Anitra Mitchell, and Bradley Mitchell's (collectively, "Defendants") Motion to Dismiss (Doc. No. 21) pursuant to Fed. R. Civ. P. 12(b)(6). For the foregoing reasons, the Court GRANTS IN PART and DENIES IN PART Mainstream's Motion for a Preliminary Injunction and DENIES Defendants’ Motion to Dismiss.

I. BACKGROUND

This case arises out of a dispute between a women's clothing franchisor and several former franchisees. The issues largely surround the terms of the parties’ Franchise Agreements (See Compl. Exs. A & B [Doc. No. 1-1] ) governing two former franchise locations in North Carolina, and the subsequent breakdown in the parties’ business relationship. While the parties agree on some facts, they strenuously dispute liability, the meaning of certain contractual provisions in the Franchise Agreements, as well as the application of Minnesota franchise law to the case.

The Court notes that its consideration of the record necessarily differs for each motion at issue. With respect to Defendants’ motion to dismiss, the Court "assumes as true all factual allegations in the pleadings, interpreting them most favorably to [Mainstream], the nonmoving party." Campbell v. Transgenomic, Inc. , 916 F.3d 1121, 1128 (8th Cir. 2019). However, with respect to Plaintiff's motion for a preliminary injunction under Fed. R. Civ. P. 65, the Court makes preliminary factual findings and conclusions of law based on the limited record before it. See CPI Card Grp., Inc. v. Dwyer , 294 F. Supp. 3d 791, 798 (D. Minn. 2018). The Court stresses, however, "that the facts recited herein are not final determinations of disputed matters binding in later stages of litigation[,]" as it is a " ‘general rule’ " that findings of fact and conclusions of law made by a court at the preliminary injunction stage are not binding at trial on the merits. Id. (citation omitted); see also Cambria Co. LLC v. Schumann , No. 19-cv-3145 (NEB/TNL), 2020 WL 373599, at *3 (D. Minn. Jan. 23, 2020) (noting that the court "is cognizant that discovery and the development of the record could change the likelihood of success" on the merits).

A. Parties

Plaintiff Mainstream is a Minnesota corporation with a principal place of business located in Minneapolis, Minnesota. (Compl. [Doc. No. 1] ¶ 5.) Mainstream is the franchisor of the Mainstream Boutique franchise system, which consists of a business "concept and system" for operating women's retail clothing and accessories businesses with a unique "style and character." (Id. ¶¶ 6, 17.) Mainstream utilizes several trademarks, trade names, and trade dress in the operation of its franchise, and sells products under the Mac and Me marks (collectively, "Marks"), which is exclusive to Mainstream. (Id. ¶¶ 18–19.) Franchisees of Mainstream are licensed to use Mainstream's Marks, exclusive products, and business system while operating their Mainstream franchised businesses. (Id. ¶ 20.) Currently, there are over eighty Mainstream Boutique retail locations in operation across the United States. (Aff. of Corey DeNicola [Doc. No. 8] at ¶ 8.)

Defendants Anitra and Bradley Mitchell ("A. Mitchell," "B. Mitchell," or, "the Mitchells") are residents of Winston-Salem, North Carolina. (Id. ¶ 8.)

Defendant Charlotte Cooper Parris ("Parris") is also a resident of North Carolina; she lives in Davidson, North Carolina. (Id. ¶ 12.)

Defendant All These Things, LLC ("All These Things") is a North Carolina limited liability company with its principal place of business located in Winston-Salem, North Carolina. (Id. ¶ 7.) At the beginning of the parties’ relationship, Defendants Parris and A. Mitchell were equal co-owners of All These Things. (See Defs.’ Mem. in Opp'n of Mot. for Prelim. Inj. (Defs.’ PI Opp'n Mem.) [Doc. No. 31] at 4.) However, in 2014, Parris assigned her membership interest in All These Things to B. Mitchell. (Id. ) As such, All These Things is currently owned 50-50 by the Mitchells. (Id. ; see also Compl. ¶ 8.)

Defendant Grace and Love LLC ("G&L")¹ is a North Carolina limited liability company with its principal place of business located in Winston-Salem, North Carolina. (Compl. ¶ 9.) The Mitchells are 50-50 members of G&L. (Id. ¶ 10.)

Defendant CCP, LLC ("CCP") is a North Carolina limited liability company with its principal place of business located in Davidson, North Carolina. (Id. ¶ 11.) Parris is the sole member of CCP. (Id. ¶ 12.)

B. Factual Background

1. Creation of the North Carolina Franchises

As noted above, this case centers on two Mainstream Boutique franchises operated by Defendants in North Carolina. (Compl. ¶ 22.) The first franchise was created on June 14, 2011, when Mainstream and All These Things (then owned by A. Mitchell and Parris) entered in a Franchise Agreement granting All These Things the right to operate a Mainstream Boutique in the Winston-Salem, North Carolina area. (Id. ¶ 23; see also Compl. Ex. A.) This contract, which the Court will refer to as the Winston-Salem Franchise Agreement, had an initial term of ten years. (Compl. Ex. A, Art. 2.1.) Defendants A. Mitchell and Parris also executed a Personal Guaranty in which they guaranteed to Mainstream that they would be personally liable for the Agreement's obligations. (Id. at 31.) Moreover, B. Mitchell—A. Mitchell's spouse, not yet involved as a business party—also agreed to be bound by the Agreement's confidentiality and non-compete provisions. (Compl. ¶ 24; see also Compl. Ex. A at 31.) The Winston-Salem Mainstream Boutique operated at 110 Oakwood Drive, Suite D, Winston-Salem, North Carolina 27104. (Compl. ¶ 25.) In 2014, Parris assigned her membership interest in All These Things to B. Mitchell. (Defs.’ PI Opp'n Mem. at 4.) The parties dispute whether Mainstream was aware of this assignment. (See id. at 4; Pl.’s Reply in Supp. of Mot. for Prelim. Inj. (Pl.’s PI Reply) [Doc. No. 37] at 15–16.)

The second franchise was created on January 16, 2015, when Mainstream and the Mitchells entered into a Franchise Agreement granting the Mitchells the right to operate a Mainstream Boutique in the Mooresville, North Carolina area. (Compl. ¶ 26; see also Compl. Ex. B.) Much like the Winston-Salem location, this contract—which the Court will refer to as the Mooresville Franchise Agreement—had an initial term of ten years. (See Compl. Ex. B., Art. 2.1.) The Mooresville Mainstream Boutique operated at 126 Mooresville Commons Way, Mooresville, North Carolina 28117. (Compl. ¶ 27.)

2. Terms of the Franchise Agreements

Aside from a few differences in fee percentages and initial payments due to Mainstream, the two Franchise Agreements are materially the same.² The Court sets forth the relevant provisions in detail.

a. Operations Manual, Fees, and Transfers of Interest

Under the terms of both Agreements, Mainstream was obligated to provide its franchisees with an updated copy of its confidential Operations Manual, and the franchisees were obligated to conduct their business in accordance with the manual's terms, which could be revised by Mainstream at any time. (Compl. Ex. A, Art. 6.10.) In return, among other things, both Agreements required All These Things and the Mitchells to pay a certain percentage of their weekly net revenue to Mainstream, and both require payments—in some form—for Mainstream's marketing costs. (Id. , Arts. 4.2, 4.3, 4.7, 5.2.) Franchisees are restricted by a host of conditions, under the terms of the Agreements, in assigning or transferring their interest in the franchised business, including a requirement that Mainstream be notified of any assignment or transfer in writing. (Id. Art. 14.1–14.5.) The Agreements also provide that Mainstream is entitled to a "transfer fee" should such a transfer or assignment occur, equal to the lesser of the expenses incurred by Mainstream in facilitating or otherwise accepting the transfer, or $5,000. (Id. , Art. 14.6.)

b. Uniform Standards and Equipment

Both Agreements contain several provisions regarding quality control, uniformity, and other standards required by Mainstream of its franchisees in order to ensure that "all Mainstream Boutique businesses will be uniform in nature and will sell and dispense quality goods and services." (Id. Ex. A, Art. 6.) For example, each Agreement requires the franchisee to "construct and equip the Retail Location in accordance with MAINSTREAM's current approved specifications and standards pertaining to equipment, inventory, signage, fixtures, accessory features and design and layout of the Business." (Id. , Art. 6.3; Id. , Art. 6.6) (requiring compliance with Mainstream's standards "established by MAINSTREAM from time to time " (emphasis added); Id. , Art. 6.11 (requiring franchisee to purchase "equipment" to be used in conducting their business from suppliers approved by Mainstream).) The Agreements also...