Novus Franchising, Inc. v. Dawson

• Decision Date: 05 August 2013
• Docket Number: No. 12–2982.,12–2982.
• Citation: 725 F.3d 885
• Parties: NOVUS FRANCHISING, INC., Plaintiff–Appellant v. Michael L. DAWSON; CarMike, Inc., Defendants–Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

725 F.3d 885

NOVUS FRANCHISING, INC., Plaintiff–Appellant

v.Michael L. DAWSON; CarMike, Inc., Defendants–Appellees.

No. 12–2982.

United States Court of Appeals, Eighth Circuit.

Submitted: June 13, 2013.

Filed: Aug. 5, 2013.

Kay Nord Hunt, argued, James Michel Susag and Susan Elizabeth Tegt, on the brief, Minneapolis, MN, for appellant.

Matthew Joseph Goggin, argued, Russell Rigby, on the brief, Minneapolis, MN, for appellee.

Before LOKEN, BRIGHT, and BYE, Circuit Judges.

BYE, Circuit Judge.

This is a dispute over an automotive glass repair franchise located in Richmond, Virginia. Novus Franchising, Inc. (Novus) appeals the district court's ¹ refusal to enforce a non-compete clause against franchisee Michael L. Dawson as part of a preliminary injunction which prohibits Dawson from using Novus's marks and products in his automotive glass repair business. The district court dismissed Dawson's corporation, CarMike, Inc., from the suit after concluding Novus failed to allege sufficient facts for a Minnesota court to exercise personal jurisdiction over the Virginia corporation; the district court also gave Dawson an extension of time in which to file an answer. In addition to challenging the scope of the injunctive relief granted by the district court, Novus appeals these two other aspects of the district court's order. We dismiss these two additional issues for lack of appellate jurisdiction, and affirm the district court's preliminary injunction.

I

Novus operates automotive glass repair franchises worldwide with a principal place of business in Minnesota. Dawson began a twenty-year relationship with Novus as one of its franchisees in 1990, when he and his father purchased a Novus franchise in Charlottesville, Virginia. Five years later, Dawson purchased his own Novus franchise covering the Virginia counties of Hanover and Henrico, including the metropolitan area of Richmond, Virginia. Dawson and Novus later entered into a ten-year franchise agreement covering the same Area of Primary Responsibility (APR) in 1998. Another ten years later in 2008, Dawson and Novus agreed to renew their franchise relationship. The 2008 franchise agreement the parties signed is the subject of this lawsuit.

The 2008 franchise agreement contained the following non-compete clause:

You agree that you, your Owners, the Personal Guarantors, and the members of your and their immediate families will not, for a period of two years after the termination or expiration of this Agreement, for your or their own account or as an employee, agent, consultant, partner, officer, director, member, or owner of any other person, firm, entity, partnership, company or corporation (a) seek to employ any person who is at that time employed by us or by any Novus franchisee without the prior consent of their employer, (b) own, operate, lease, franchise, license, conduct, engage in, consult with, be connected with, have any interest in, or assist any person or entity engaged in any other business that is in any way competitive with or similar to the Business System or the Business (including any glass repair and/or glass replacement or installation business) if that business is located within (i) your APR, (ii) or any area of primary responsibility we grant to any other Novus franchise or business, or (iii) within ten miles of any business location of any Novus franchise or business in the United States and its possessions.

Appendix at 71.

Dawson also agreed “that the time and geographical limitations set forth in [the non-compete] provision are reasonable and necessary to protect [Novus] and our franchises if this Agreement expires or is terminated by either party for any reason, and that this covenant not to compete is necessary to permit [Novus] the opportunity to resell and/or develop a new Novus business within [Dawson's] APR.” Id. In addition, Dawson agreed he would have no right to use the names and marks of the Novus business system upon the termination or expiration of the franchise agreement. Finally, Dawson agreed all legal actions between the parties would be venued in Hennepin County, Minnesota.

Dawson stopped paying the royalties due under the 2008 franchise agreement in October 2010. He alleges he was unable to pay the royalty fees because Novus granted a franchise in his territory to another person, Barry Robinson, and the “resulting inter-franchise competition between Dawson and Robinson in what Dawson had been led to believe was his territory virtually destroyed Dawson's business, rendering it impossible for him to pay the minimum franchise fees.” Answer at ¶ 36. On February 11, 2011, four months after Dawson stopped paying royalties, Novus sent him a Notice of Default letter, informing him that his failure to submit gross revenue reports and royalties was a material breach of the 2008 franchise agreement. Novus told Dawson he had to cure the defaults or his franchise agreement would be terminated. Dawson did not cure the defaults. On October 21, 2011, a full year after Dawson stopped paying royalties, Novus notified him it was terminating the 2008 franchise agreement. The Notice of Termination reminded Dawson of his post-termination obligations under the non-compete clause of the agreement, as well as Dawson's loss of the right to use Novus's names or marks or business system.

Despite not paying royalty fees to Novus, Dawson continued operating an automotive glass repair business which advertised itself as “Novus Glass by CarMike, Inc.” On February 29, 2012, Novus filed suit against Dawson and CarMike in federal district court in the District of Minnesota. The suit asserted claims for breach of the franchise agreement, conversion of Novus's equipment, trademark infringement, violation of the Minnesota Deceptive Trade Practices Act, unjust enrichment, unfair competition, and a demand for an accounting. With respect to CarMike, Novus alleged Dawson was “a corporate officer of CarMike” and that Dawson “entered into the Franchise Agreement with a Minnesota-based corporation, carried on an extensive business relationship with a Minnesota corporation, and his breaches of contract have given rise to injuries in the State of Minnesota.” Complaint at ¶ 12. Dawson did not respond to the suit by filing an answer or moving to dismiss the complaint.

On March 26, 2012—over seventeen months after Dawson stopped making royalty payments—Novus filed a motion for a preliminary injunction seeking enforcement of the non-compete provisions of the franchise agreement and seeking to prohibit Dawson from using Novus's marks and products in his ongoing automotive glass repair business. Novus also requested a default judgment because Dawson had not responded to the complaint. The district court set a hearing for the two motions on May 8, 2012. Four days before the hearing, however, Dawson emailed the district court asking for an extension of the hearing date. The district court granted the request and reset the hearing for July 9, 2012. By the time of the July 9 hearing date, Dawson still had not filed an answer or moved to dismiss the complaint.

Dawson appeared at the July 9 hearing by phone, representing himself pro se. He explained he could not afford to hire an attorney because he was “barely putting food on the table and barely making our mortgage.” He said he had three children to support and “could be facing bankruptcy” as a result of the dispute with Novus. The district court questioned whether Dawson's corporation, CarMike, was subject to jurisdiction in Minnesota. The district court also asked Dawson whether he intended to file an answer to the complaint, and Dawson said he “would like to try to find a lawyer.”

On July 15, 2012, the district court entered an order granting Novus's motions in part and denying them in part. The district court dismissed CarMike from the suit for lack of personal jurisdiction after concluding Novus did not allege the corporation had any relationship to Dawson's franchise with Novus. The district court stated “Novus has not alleged any independent contacts that CarMike, Inc. has had with Minnesota, relying instead on Dawson's actions to establish jurisdiction over CarMike, Inc. However, Novus has not shown that Dawson was acting as CarMike, Inc.'s agent when he entered into a franchise agreement with Novus.” Addendum at 3.

The district court granted Novus's request for a preliminary injunction to prohibit Dawson from using Novus's marks and products. The district court did not, however, grant Novus's request to enforce the 2008 franchise agreement's noncompete clause as part of the preliminary injunction. The district court determined “Novus has not shown that it will suffer irreparable harm if Dawson continues to operate his business without using Novus products or services, nor has Novus shown that the balance of the harms or the public interest weighs against allowing Dawson to continue to operate his business without Novus marks or products.” Id. at 5.

The district court also gave Dawson sixty days to file an answer to the complaint. Dawson later retained an attorney and filed an answer. He also filed a counterclaim alleging that Novus engaged in common law fraud by inducing him to sign the 2008 franchise agreement without disclosing to him that his territory had been split and a new franchise had been offered to Robinson which included all of his APR. Dawson also alleged Novus violated the Minnesota Franchise Act during the negotiations for the 2008 franchise agreement.

Novus timely filed an interlocutory appeal of the district court's order. See28 U.S.C. § 1292(a)(1) (granting the courts of appeals jurisdiction over interlocutory orders of the district courts “granting, continuing, modifying, refusing or dissolving injunctions, or refusing to dissolve or modify injunctions”). On appeal, Novus contends the district court erred in refusing to enforce the non-compete provisions as part of the preliminary...