Opinion
Case No. 21-06162-CV-SJ-BP
2022-04-21
BREADEAUX'S PISA, LLC, Plaintiff, v. BECKMAN BROS. LTD., d/b/a Main Street Pizza, Defendant.
Jeremy M. Suhr, Boulware Law LLC, Kansas City, MO, for Plaintiff. Andrew Mark Malzahn, Pro Hac Vice, Scott Edward Korzenowski, Pro Hac Vice, Dady & Gardner PA, Minneapolis, MN, Andrew J. Ennis, Phillip James Richard Zeeck, Polsinelli, Kansas City, MO, for Defendant.
Jeremy M. Suhr, Boulware Law LLC, Kansas City, MO, for Plaintiff.
Andrew Mark Malzahn, Pro Hac Vice, Scott Edward Korzenowski, Pro Hac Vice, Dady & Gardner PA, Minneapolis, MN, Andrew J. Ennis, Phillip James Richard Zeeck, Polsinelli, Kansas City, MO, for Defendant.
ORDER DENYING MOTION FOR PRELIMINARY INJUNCTION
BETH PHILLIPS, CHIEF JUDGE Pending is Plaintiff's Motion for a Preliminary Injunction. (Doc. 18.) For the following reasons, the motion is DENIED .
I. BACKGROUND
Plaintiff Breadeaux Pisa, LLC brought this case in December 2021. (Doc. 1.) According to the Amended Complaint, which is the operative pleading in this case, Plaintiff franchises pizza restaurants throughout the Midwest. (Doc. 5, ¶ 1.) In 2006, Plaintiff's predecessor-in-interest entered a Franchise Agreement (the "Agreement") with Defendant Beckman Bros, Ltd., under which Defendant would operate a Breadeaux Pizza franchise in Mt. Pleasant, Iowa. (Id. ) The Agreement contained a noncompete covenant (the "Noncompete Covenant") which provided that "[f]or a period of two years from the effective date of termination of this Agreement ... [Defendant shall not] directly or indirectly operate or own any interest in any business selling" pizza or pizza-adjacent items "within a radius of ten (10) miles from the Franchised Restaurant ...." (Doc. 16-1, p. 32 (the Agreement).) The Agreement also provided that Defendant "acknowledges and agrees that violation of this noncompetition covenant will result in immediate and irreparable injury to [Plaintiff] for which no adequate remedy at law will be available" and "consents to the entry of an injunction prohibiting any conduct ... in violation of this noncompetition covenant." (Id. at p. 17.)
The agreement terminated in May 2021, (id. at ¶ 12); however, according to the Amended Complaint, Defendant continued to operate a pizza restaurant at the same location using the name "Main Street Pizza," and for several weeks following the termination of the Agreement, continued to use the same telephone number as the discontinued Breadeaux franchise. (Id. at ¶ 15.) Defendant has now altered the restaurant's decor to cease using a color scheme associated with Plaintiff, changed the telephone number, begun using a separate website, changed the ingredients and ingredient supplier for Main Street Pizza, and otherwise shed any public association with the Breadeaux brand. (Doc. 25-2, ¶ 5 (Beckman Dec.).) The nearest Breadeaux franchise restaurant is in Oskaloosa, Iowa, 75 miles away from Main Street Pizza, and there are only fourteen Breadeaux franchises left in operation. (Id. at pp. 4, 6–8.)
On July 28, 2021, Plaintiff sent a letter to Defendant demanding that it cease operating Main Street Pizza; Defendant did not do so. (Id. at ¶ 8.) Plaintiff then brought this suit seeking injunctive relief, and has now filed a motion seeking a preliminary injunction requiring Defendant to cease operating Main Street Pizza and any other pizza restaurant for the next two years. (Doc. 18, p. 15.) Defendant opposes the motion. (Doc. 25.) The Court resolves these issues below.
II. DISCUSSION
"A preliminary injunction is an extraordinary remedy never awarded as of right." Winter v. Natural Resources Defense Council, Inc. , 555 U.S. 7, 24, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008). Consequently, "[t]he burden of establishing the propriety of a preliminary injunction is on the movant." Baker Elec. Co-op., Inc. v. Chaske , 28 F.3d 1466, 1472 (8th Cir. 1994).
Courts in the Eighth Circuit consider the four so-called " Dataphase factors" to determine whether a preliminary injunction is appropriate; those factors are "(1) the threat of irreparable harm to the movant; (2) the state of the balance between this harm and the injury that granting the injunction will inflict on other parties litigant; (3) the probability that movant will succeed on the merits; and (4) the public interest." Kroupa v. Nielsen , 731 F.3d 813, 818 (8th Cir. 2013) (citing Dataphase Systems, Inc. v. C L Systems, Inc. , 640 F.2d 109, 113 (8th Cir. 1981) ). The first of these factors is often determinative, because a party cannot obtain a preliminary injunction without showing a threat of irreparable harm. Baker Elec. Co-op, Inc. , 28 F.3d at 1472.
Plaintiff contends that Defendant waived the right to contest its request for a preliminary injunction, because in the Agreement, Defendant consented to the entry of a preliminary injunction should it breach the Noncompete Covenant. (Doc. 18, p. 10; Doc. 32, p. 8.) But although the Eighth Circuit has not expressly ruled on this issue, a large majority of courts have held the language of a contract, standing alone, is not sufficient to require the entry of injunctive relief—nor does such language, by itself, establish a threat of irreparable harm. Fulton v. Honkamp Krueger Financial Services, Inc. , 2020 WL 7041766, at *11 and n.15 (D. Minn. Dec. 1, 2020) (collecting cases); Leggett & Platt, Inc. v. Fleetwood Industries, Inc. , 2015 WL 4160401, at *3 (W.D. Mo. July 9, 2015) ; see also Barranco v. 3D Systems Corporation , 952 F.3d 1122, 1130 (9th Cir. 2020) (discussing a contract under which the defendant consented to the entry of an injunction upon violating the agreement, and holding that "the terms of a contract alone cannot require a court to grant equitable relief"); Dominion Video Satellite, Inc. v. Echostar Satellite Corp. , 356 F.3d 1256, 1266 (10th Cir. 2004) (although the parties agreed that the breach of a contract "would constitute irreparable harm and would warrant an award of injunctive relief, that stipulation without more is insufficient to support an irreparable harm finding"); Smith, Bucklin & Associates, Inc. v. Sonntag , 83 F.3d 476, 481 (D.C. Cir. 1996) ; Baker's Aid. v. Hussmann Foodservice Co. , 830 F.2d 13, 16 (2d Cir. 1987) ; see also RESTATEMENT (SECOND) OF CONTRACTS § 359, comment a ("[B]ecause the availability of equitable relief was historically viewed as a matter of jurisdiction, the parties cannot vary by agreement the requirement of inadequacy of damages ...."). Therefore, although the Court considers the language in the Agreement, it does so alongside the other factors that determine whether a preliminary injunction is appropriate.
The cases Plaintiff cites in which a court relied in part on the terms of an agreement in granting a preliminary injunction are not inconsistent with this holding; in each of those cases, the plaintiff had also made a separate showing of irreparable harm, which the language of the contract simply augmented. H&R Block Tax Services LLC v. Luu Le Dang et al. , 2019 WL 7593900, at *4 (W.D. Mo. Nov. 25, 2019) (along with an agreement, the plaintiff provided evidence that the defendant was using confidential information and records, along with the defendant's branding); H&R Block Tax Services LLC v. Thomas , 2018 WL 910170, at *3 (W.D. Mo. Feb. 15, 2018) (along with an agreement, the plaintiff provided evidence that the defendant was directly competing with the plaintiff, using proprietary and confidential information, and damaging customer goodwill).
Thus, the Court must assess whether Plaintiff has shown that it is entitled to a preliminary injunction under the Dataphase factors. The Court begins its assessment with the threat of irreparable harm, because without such a showing, Plaintiff cannot demonstrate that it is entitled to equitable relief. E.g., Hubbard Feeds, Inc. v. Animal Feed Supplement, Inc. , 182 F.3d 598, 603 (8th Cir. 1999) ; see also Novus Franchising, Inc. v. Dawson , 725 F.3d 885, 893 (8th Cir. 2013) ("[F]ailure to show irreparable harm is an independently sufficient ground upon which to deny a preliminary injunction[.]") (citation omitted). "In order to demonstrate irreparable harm, a party must show that the harm is certain and great and of such imminence that there is a clear and present need for equitable relief." Iowa Utilities Bd. v. F.C.C. , 109 F.3d 418, 425 (8th Cir. 1996). Harm is irreparable if legal remedies, such as monetary damages, are inadequate to address the harm. Sampson v. Murray , 415 U.S. 61, 88, 94 S.Ct. 937, 39 L.Ed.2d 166 (1974). Thus, "economic loss does not, in and of itself, constitute irreparable harm" because the party suffering the economic loss can receive full compensation through monetary damages. Iowa Utilities Bd. , 109 F.3d at 426.
In its initial motion and reply suggestions, Plaintiff raises three arguments to support its position that it faces a threat of irreparable harm; the Court finds that none of these arguments are sufficient to sustain Plaintiff's burden of proving a threat of irreparable harm. First, Plaintiff contends that the language in the Agreement providing that "violation of this noncompetition covenant will result in immediate and irreparable injury" is sufficient to establish a threat of irreparable harm. (Doc. 18, p. 12; Doc. 32, p. 16.) For the reasons discussed above, the Court disagrees. While the language in the Agreement may augment other showings of irreparable harm, it is not, in and of itself, sufficient.
Second, Plaintiff contends that there is precedent in the Eighth Circuit suggesting that "breach of a non-compete agreement typically amounts to a per se irreparable injury." E.g., Imo's Franchising, Inc. v. Kanzoua, Inc. , 2020 WL 5534425, at *3 (E.D. Mo. Sept. 14, 2020) (citing N.I.S. Corp. v. Swindle , 724 F.2d 707, 710 (8th Cir. 1984) ). Regardless of whether such a presumption exists under Eighth Circuit law, the reason for the presumption is that unrestrained competition by a former franchisee can result in the franchisor suffering "damage [to] its goodwill, reputation, and customer relationships, [and/or] depriv[ation] [of] control over its trademarks." General Motors Corp. v. Harry Brown's, LLC , 563 F.3d 312, 319 (8th Cir. 2009). And there is no hint of any such risks here. The nearest Breadeaux location is 75 miles from Main Street Pizza, so it is extraordinarily unlikely that Defendant has robbed Plaintiff of any of its customers; any such customer would need to drive over an hour out of her way to even reach Defendant's location. (See Doc. 25-2, p. 4.) Moreover, Defendant has ceased using the Breadeaux name, branding, color scheme, or telephone number, so there is no appreciable danger of damaging Breadeaux's trademarks or customer goodwill. (Id. at ¶ 5.) At any rate, Plaintiff has not introduced any concrete evidence of any lost customers, and the Court does not believe that the mere fact that Defendant allegedly breached a non-compete agreement establishes a threat of irreparable harm.
The Court notes that although N.I.S. Corp. affirmed the entry of a preliminary injunction to enforce a non-compete agreement, it contains no language that would support the broad proposition that plaintiffs seeking to enforce non-compete agreements are always (or even usually ) entitled to injunctive relief. See 724 F.2d at 710.
Third and finally, Plaintiff contends that allowing Defendant to continue breaching the franchise agreement might encourage its other franchisees to follow suit. (Doc. 18, p. 13; Doc. 32, pp. 15–16.) To support this argument, Plaintiff has introduced a declaration from Chris Konja, the Breadeaux brand manager, indicating that "at least two franchisee locations have indicated their reluctance to renew or sign a new Franchise Agreement" and that Konja believes the reason for this reluctance is "their desire to wait for the outcome of this lawsuit, as they see [Defendant's] example as cause to believe that they will be free to disregard their obligations under their Franchise Agreements." (Doc. 32-1, ¶ 19 (Konja Dec.).)
The Court does not believe this argument establishes a threat of irreparable harm, for several reasons. The question at this stage in the litigation is not whether the Non-Compete Covenant or the other obligations in the Agreement are enforceable, but whether preliminary injunctive relief is necessary to enforce them. Absent injunctive relief, Plaintiff could still win the case and recover significant monetary damages, and Plaintiff does not explain why that risk would be insufficient to deter other franchisees which are considering discontinuing their franchise agreements. Further, Defendant's position is that the Non-Compete Covenant is unenforceable—which, if true, could certainly encourage other franchisees to separate from Breadeaux—but the ultimate enforceability of the Non-Compete Covenant cannot be decided until this case reaches a resolution on the merits, regardless of whether the Court issues an injunction. Thus, the Court is not convinced that there is any causal relationship between a decision not to issue an injunction and Plaintiff's relationship with its franchisees.
The Court assumes without deciding that Konja is correct in surmising that other Breadeaux franchisees are watching this case to determine whether to renew their franchise agreements.
Moreover, Plaintiff has not cited any cases from the Eighth Circuit holding that a party satisfies the irreparable harm requirement by showing that third parties might be emboldened by the court's decision not to issue an injunction. And in Novus Franchising, Inc. v. Dawson , the Eighth Circuit upheld a district court's order rejecting the plaintiff's claim that "failure to enjoin [the defendant] will cause franchisees around the country to violate their non-compete agreements" as "too speculative," noting that "success on the merits is the proper deterrent for this potential harm, not injunctive relief." 725 F.3d 885, 895 (8th Cir. 2013) (quoting Novus Franchising, Inc. v. Dean , 2011 WL 1261626, at *3 (D. Minn. Mar. 30, 2011). Thus, the Court is unpersuaded that Plaintiff's arguments about other franchisees establish a "certain and great [harm] of such imminence that there is a clear and present need for equitable relief." Iowa Utilities Bd. , 109 F.3d at 425.
For the reasons discussed, the Court concludes that Plaintiff has not established a significant threat of irreparable harm. Because the absence of such a showing is "an independently sufficient ground upon which to deny a preliminary injunction," Novus Franchising, Inc. , 725 F.3d at 893 (citation omitted), Plaintiff is not entitled to a preliminary injunction, regardless of the other Dataphase factors. III. CONCLUSION
This conclusion makes it unnecessary to consider Defendant's argument that Plaintiff's alleged delay in bringing this case and/or seeking injunctive relief establishes that there is no threat of irreparable harm. (Doc. 25, pp. 23–24; see also Doc. 32, pp. 12–13 (Plaintiff's response).)
The Court notes, however, that balancing the equities appears to strongly favor Defendant. Defendant is an LLC owned by two individuals, Roger and Dale Beckman, who have invested a considerable amount of money in Main Street Pizza; Roger depends on the restaurant as his "sole livelihood and primary means to earn income." (Doc. 25-2, ¶¶ 11–12.) This indicates that an injunction would harm Defendant far more than the absence of an injunction would harm Plaintiff. See, e.g., Holt v. Schweiger Construction Co. , 2009 WL 10672254, at *7 (W.D. Mo. May 9, 2009) (balance of equities weighed against an injunction when doing so would "deprive [a party] of her livelihood"); Mainstream Fashions Franchising, Inc. v. All These Things, LLC , 453 F.Supp.3d 1167, 1205 (D. Minn. 2020) ("[T]he balance tips in favor of Defendants because the forced shutdown of one's business is itself an irreparable harm, particularly where the business constitutes the sole livelihood of the owner.") (citing Ryko Mfg. Co. v. Eden Services , 759 F.2d 671, 673 (8th Cir. 1985) ).
For the foregoing reasons, Plaintiff's motion for a preliminary injunction, (Doc. 18), is DENIED.