Novus Franchising, Inc. v. Gary N. Brockbank, an Individual Marilee Brockbank, an Individual, Jeffery L. Palmer, an Individual, G.A.M.E.1 Inc.

• Court: U.S. District Court — District of Utah
• Writing for the Court: Judge Clark Waddoups
• Decision Date: 08 September 2016
• Docket Number: Case No. 1:16-CV-00078
• Citation: Novus Franchising, Inc. v. Brockbank, Case No. 1:16-CV-00078 (D. Utah Sep 08, 2016)
• Parties: NOVUS FRANCHISING, INC., a Washington State corporation Plaintiff, v. GARY N. BROCKBANK, an individual MARILEE BROCKBANK, an individual, JEFFERY L. PALMER, an individual, G.A.M.E.1 INC., a Utah corporation, JOHN DOES 1-10 Defendants.

NOVUS FRANCHISING, INC.,a Washington State corporation Plaintiff, v. GARY N. BROCKBANK, an individual MARILEE BROCKBANK,an individual, JEFFERY L. PALMER, an individual, G.A.M.E.1 INC.,a Utah corporation, JOHN DOES 1-10 Defendants.

Case No. 1:16-CV-00078

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH NORTHERN DIVISION

September 8, 2016

MEMORANDUM DECISION AND ORDER DENYING MOTION FOR PRELIMINARY INJUNCTION AGAINST DEFENDANTS

Judge Clark Waddoups

This matter is before the court on a motion for preliminary injunction filed by Novus Franchising, Inc. (Novus). (Dkt. No. 9). Novus seeks to enforce the non-compete provision of a franchise agreement against its former franchisee, Gary Brockbank, and Mr. Brockbank's wife and step-son, stop defendants' use of a confusing trademark, and protect its trade secrets and confidential information. After briefing from the parties, the court held a hearing on the motion on August 30, 2016 and took the motion on submission. (Dkt. No. 35). For the reasons explained below, the court now DENIES Novus' motion.

I. BACKGROUND

Plaintiff Novus Franchising, Inc. is a national windshield repair company who franchises its proprietary Novus® System to franchisees who operate automobile glass repair and replacement businesses using Novus's processes, business systems, trademarks, service marks, slogans, and logos. Defendant Gary Brockbank is a former Novus franchisee. The parties dispute Mr. Brockbank's history as a franchisee of the company.

Novus originally alleged that Gary Brockbank did not operate an auto glass windshield repair or replacement business prior to his relationship with Novus; he subsequently learned how to repair auto and other glass only by virtue of his contractual relationship with Novus. (Dkt. No. 8, p. 8; Dkt. No. 16, p. 25). Novus further claimed that Mr. Brockbank had been a franchisee with Novus since approximately 1993, receiving training, support, operational procedures, access to material and product suppliers who provided national account discounts, and use of the Novus mark. (Dkt. No. 16, p. 7). Over the years, according to Novus, Mr. Brockbank acquired up to 13 mobile repair unit franchises. Most recently, he renewed eight mobile repair unit franchises on February 1, 2008, serving a seven-county area of primary responsibility until May 26, 2016, when Novus terminated his franchise agreement for failure to pay royalties and submit gross revenue reports on a monthly basis. (Dkt. No. 16, pp. 7, 10-11). After his termination, Novus claims that Mr. Brockbank continued to use the Novus name, marks and suppliers, that he established a competing business using the name, "You Know Us Auto Glass," that was calculated to generate trademark confusion and exploit the goodwill associated with the Novus mark, and that his retention of operating manuals implies a threat that he will reveal Novus' trade secrets and/or confidential information. (Id. at pp. 12-14).

Mr. Brockbank tells a different story. He claims that he was trained by his father in the automobile glass repair and replacement business in approximately 1978, after which he began operating a business under the name of "Gary's Glass Repair." (Dkt. No. 27-1, p. 3). Inapproximately 1980, he states he changed the name of the business to "Glass Doctor," and sometime thereafter re-registered the name "Glass Doctor Windshield Repair" as a DBA with the State of Utah. (Id.) He states that he began purchasing resin for glass repair from a company he believed was affiliated with the Novus family of companies. (Id.) In approximately 1981, he claims to have acquired two subcontractors (Matthew Thomas and Rawlee Perkins) whom he trained to perform auto glass repair. These subcontractors paid him a portion of their revenue in exchange for training and business leads. (Id.) This relationship continued for decades until May 2016 when Novus terminated his franchise and, according to Mr. Brockbank, interfered with his subcontractor arrangement such that they no longer pay him a portion of their revenue. (Id. at p. 8).

Mr. Brockbank asserts that his formal franchisee relationship with Novus began around 1988, when he acquired a Novus auto glass repair franchise, to be distinguished from an automobile glass replacement franchise. (Dkt. No. 27-1, p. 3). Mr. Brockbank also states that he informed Novus of his existing subcontractor relationships at the time he acquired his first franchise in 1988, and that Novus did not object. (Id.). He further states that Novus did not offer glass replacement franchises at the time he began his franchisee relationship. He alleges that this was deliberate on the part of Novus because it allowed them, in marketing their services to automobile insurers, to demonstrate they had no financial incentive to perform more expensive replacements rather than repair of glass windshields. (Id.)

Mr. Brockbank also alleges that Novus did not provide him with training or assistance in the operation of his mobile repair business. (Dkt. No. 27-1, p. 6). Although he received Novus' operations manuals, he claims that he never read the manuals, does not know their contents, andreturned them in mid-June 2016, within weeks of Novus terminating his franchise. (Id.). He further states that after acquiring his Novus glass repair franchise in 1988 he continued to provide auto glass replacement services, and that his Novus franchise Sales Volume and Royalty Reports dated April 1998 make it clear that his franchise was for Novus Windshield Repair, and that replacement sales were "Not Applicable" to his franchise. (Id. at pp. 4, 17).

In late 1998, Mr. Brockbank states that Richard Inman, who Mr. Brockbank understood was either the President or Vice President of Novus, contacted him to inform him that they had changed their policy about glass replacement franchises. (Dkt. No. 27-1, p. 4). Mr. Inman allegedly indicated that Novus now offered glass replacement franchises and invited Mr. Brockbank to become a glass replacement franchisee. Mr. Brockbank claims he declined for several reasons: First, because he had already developed a strong glass replacement business and did not want it to become subject to a noncompete requirement; second, because Novus had not assisted him in developing his repair business notwithstanding his nearly 10-year repair franchise relationship with them, and third, because he believed that the margins of the glass replacement business would not support the payment of a franchise fee. (Id., pp. 4-5).

Mr. Brockbank claims that after declining Mr. Inman's offer he was told that he would be required to operate his glass replacement business under a different name from his Novus repair franchise. (Dkt. No. 27-1, p. 4). However, several weeks later, Mr. Inman reportedly contacted him again and stated that because Novus wanted to advertise that it could provide glass replacement services in the Salt Lake area, Novus now preferred that he operate his glass repair and replacement businesses under the Novus name. (Id.). When Mr. Brockbank declined again to place his glass replacement business under a Novus franchise agreement, Mr. Brockbank allegesthat Mr. Inman proposed that he operate his glass repair and replacement businesses under the Novus name, but that Novus would separate the replacement business from the repair franchise by excluding a high dollar amount of gross monthly revenue (in the amount of $79,666.00, known by the parties as the "Base Replacement Sales" exclusion) generated by Mr. Brockbank's automobile glass replacement business from any requirement to pay royalty fees to Novus. (Id., pp. 4-5). Further, Mr. Inman reportedly stated that the replacement business would not become a part of the Novus franchise unless Novus assisted Mr. Brockbank in generating that high dollar amount of gross monthly revenue. Mr. Brockbank claims that not once since then was he able to generate glass replacement business sales at the dollar amount required to make his replacement business part of the Novus franchise. (Id., p. 5)

Accordingly, during the ensuing years, Mr. Brockbank claims that he operated his glass replacement and repair businesses under the Novus name and paid Novus many hundreds of thousands of dollars in glass repair franchise fees. (Dkt. No. 27-1, p. 6). He alleges that Novus did not assist him in expanding his repair or replacement businesses, never provided any dealer or fleet accounts, and that they even allowed other Novus franchisees to operate in his service territory. (Id.) He also claims that throughout his time as a Novus franchisee, the majority of his contacts with Novus were when they communicated to him that that they intended to sell additional franchises in his service area unless he bought the franchises to avoid competition. This practice, Mr. Brockbank alleges, eventually led him to purchase so many franchises that he could no longer pay the demanded minimum franchise fees. (Id. at pp. 6-7).

Mr. Brockbank states that at this time he began contacting Novus to ask that they reduce the number of his franchises so that he could afford his franchise fees. (Dkt. No. 27-1, p. 7). Heclaims that he received assurances that they would do so. Nevertheless, in December 2015, Novus sent Mr. Brockbank its first payment demand letter for outstanding franchise fees. Mr. Brockbank indicates he has serious doubts about the accuracy of Novus's accounting and claims of money he still owes. (Dkt. No. 27-1, p. 9). Several weeks later, Mr. Brockbank states that he met with Novus representative Scott Rethwill, who informed him that Novus would reduce his franchises down to two and that his minimum franchise fee would be reduced to $700 per month ($350 per franchise). (Dkt. No. 27-1, p. 7). Mr. Rethwill also allegedly proposed that Mr. Brockbank continue to repay the outstanding balance owing in monthly installments of $2,800 (the amount of his prior minimum franchise fees) through the end of 2016,...