Opinion
Civil Action No. 3:02-CV-0141-R
November 12, 2002
FINDINGS, CONCLUSIONS, AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
Pursuant to the District Court's Order of Reference, entered September 16, 2002, "Plaintiff's Application for Preliminary Injunction," filed August 28, 2002, has been referred to the United States Magistrate Judge for hearing, if necessary, and for recommendation. The Court held a hearing on this matter on November 4, 2002. For the following reasons, the Court RECOMMENDS that Plaintiffs motion be DENIED.
I. Background
On January 22, 2002, Plaintiff Total Car Franchising Corporation ("TCFC") filed the instant suit in the Northern District of Texas against Defendants David Esh ("Esh") and Perfect Appearance, Inc., ("PAI") on the grounds of diversity jurisdiction. On April 19, 2002, TCFC filed its First Amended Complaint, alleging breach of a non-competition agreement, breach of contract, unjust enrichment, violation of the Georgia Trade Secrets Act, violation of Texas trade secret laws, and breach of a covenant of good faith and fair dealing. (P.'s 1St Am. Compl. at 22, 25, 27, 28, 29.)
On February 22, 1995, Esh, on behalf of PAI, entered into a franchise contract with TCFC, a company that provides "mobile paint restoration for automobiles, trucks, certain types of water craft, and aircraft." (P.'s App. at 6, 15, 22; D.s' App. at 5, 14.) Under the franchise contract, TCFC granted PAI a "Colors on Parade" franchise with a territory that consisted of four automobile dealerships in the Atlanta, Georgia, metropolitan area. (P.'s App. at 6, 14; D.s' App. at 5, 13.) On January 31, 1997, Esh notified TCFC that he would be terminating his franchise effective April 1, 1997. (D.s' App. at 20.) However, on March 11, 1997, Esh notified TCFC that he wished to rescind his franchise termination and transfer his franchise to Dallas, Texas. (P.'s App. at 101.) According to Esh, Esh then abandoned his Georgia clients and his Georgia corporation — PAI — and moved to Dallas. (Esh Hearing Testimony 11/4/02.) Esh and TCFC have never modified in writing the franchise contract to reflect a transfer of the franchise to Dallas. (P.'s 1St Am. Compl. at ¶ 49; D.s' Resp. at 6.)
In relevant part, the franchise contract included a "Limited Rights Franchise Agreement," a "Non-Competition and Confidentiality Agreement," and a "Partial Assignment of Rights of Territory." (P.'s App. at 6-15, 16-17; D.s' App. at 5-14, 15-16, 17-18.)
Once in Dallas, Esh worked for TCFC Area Developer David Jordan ("Jordan"). (P.'s App. at 25, 26; Esh Hearing Testimony 11/4/02.) During the time that he worked for Jordan, Esh purchased supplies and equipment from TCFC. (P.'s Ex. 3, 5, 6; P.'s App. at 27-28; Esh Hearing Testimony 11/4/02.) In September 2001, Esh terminated his working relationship with Jordan over a compensation dispute. (P.'s App. at 29; Esh Hearing Testimony 11/4/02.) However, Esh retained the accounts that he had obtained while working for Jordan, and he currently works full-time on two accounts. (Esh Hearing Testimony 11/4/02.)
The parties dispute whether Esh worked for Jordan as a franchisee or as an employee.
TCFC seeks a preliminary injunction to prohibit Defendants from competing against TCFC in twelve counties in the Dallas-Fort Worth metropolitan area, as well as to prohibit Defendants from employing TCFC's trade secrets. (P.'s Br. at 17-22.) Defendants counter that the franchise contract is not enforceable and that, in any event, Defendants did not acquire any trade secrets from TCFC. (D.s' Resp. at 2-10, 10-11.)
The Court now turns to discuss the legal standards that will guide its analysis.
II. Legal Standards
"The grant of injunctive relief is an extraordinary remedy which requires the movant to unequivocally show the need for its issuance." Valley v. Rapides Parish School Bd, 118 F.3d 1047, 1050 (55h Cir. 1997). See also Canal Authoriy of the State of Florida v. Callaway, 489 F.2d 567, 573 (5th Cir. 1974) (recognizing that "a preliminary injunction is an extraordinary and drastic remedy which should not be granted unless the movant clearly carries the burden of persuasion"). Indeed, a preliminary injunction may not be issued unless the movant clearly demonstrates: "(1) a substantial likelihood of success on the merits; (2) a substantial threat of irreparable harm if the injunction is not granted; (3) that the threatened injury outweighs any harm that may result from the injunction to the non-movant; and (4) that the injunction will not undermine the public interest." Valley, 118 F.3d at 1051; Sund v. City of Wichita Falls, Texas, 121 F. Supp.2d 530, 547 (N.D. Tex. 2000). See also Clark v. Prichard, 812 F.2d 991, 993 (5th Cir. 1987) (holding that the movant "must satisfy a cumulative burden of proving each of the four elements enumerated before a . . . preliminary injunction can be granted"). A preliminary injunction order will not be disturbed on appeal unless it is "grounded upon a clearly erroneous factual determination, an error of law, or an abuse of discretion." Valley, 118 F.3d at 1051 (citing Roho, Inc. v. Marquis, 902 F.2d 356, 358 (5th Cir. 1990)).
The Court now turns to address the merits of the motion.
III. Analysis
As noted above, to be entitled to a preliminary injunction, TCFC must demonstrate, with clear evidence, each of the following four elements: "(1) a substantial likelihood of success on the merits; (2) a substantial threat of irreparable harm if the injunction is not granted; (3) that the threatened injury outweighs any harm that may result from the injunction to the non-movant; and (4) that the injunction will not undermine the public interest." Valley, 118 F.3d at 1051; Sund, 121 F. Supp.2d at 547. Because TCFC has not established a "substantial threat of irreparable harm," the Court need not address the other three elements.
TCFC contends that Defendants have caused, and continue to cause, irreparable harm to TCFC's franchise system and goodwill. (P.'s Br. at 14.) TCFC further contends that Defendants have caused TCFC to lose business, and the resulting revenues, "with . . . dealerships previously serviced by TCFC's franchise system." ( Id.) However, TCFC's allegations aside, the Court concludes that TCFC has failed to present evidence of irreparable harm. There is no indication in the record that any harm TCFC has suffered, or continues to suffer, could not be "redressed by the application of a judicial remedy after a hearing on the merits." Canal Authority of the State of Florida, 489 F.2d at 573. The mere existence of an "adverse effect" is insufficient to establish the irreparable harm" element of a preliminary injunction. Id. at 574. As such, Plaintiff's application for a preliminary injunction should be DENIED.
IV. Recommendation
For the foregoing reasons, the Court RECOMMENDS that "Plaintiff's Application for Preliminary Injunction," filed August 28, 2002, be DENIED.