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Amerispec, L.L.C. v. Omni Enterprises, Inc.

United States District Court, W.D. Tennessee, Western Division

May 16, 2018

AMERISPEC, L.L.C., Plaintiff,
v.
OMNI ENTERPRISES, INC., ARNOLD MCLAURIN, and RENA MCLAURIN, Defendants.

          ORDER GRANTING PLAINTIFF AMERISPEC, L.L.C.'S MOTION FOR PRELIMINARY INJUNCTION

          THOMAS L. PARKER UNITED STATES DISTRICT JUDGE.

         Plaintiff AmeriSpec, L.L.C. (“AmeriSpec”) seeks a preliminary injunction to enforce a covenant not to compete provision in its contract with Defendants. (ECF Nos. 1, 9, 29.) Defendants Omni Enterprises, Inc. (“Omni”), Arnold McLaurin, and Rena McLaurin (collectively, “Defendants”) argue that the contracts have expired, so an injunction is not warranted. (ECF No. 24.) The Court held a Preliminary Injunction Hearing on May 8, 2018, at which Arnold McLaurin testified about his Declaration (ECF No. 24-1) and the Declaration of Gale Colvin, AmeriSpec's Brand Leader. (ECF No. 29-1.) For the following reasons, AmeriSpec's Motion is GRANTED, and the Court issues a preliminary injunction as described below as to all Defendants.

         BACKGROUND

         AmeriSpec is a national franchisor of residential and commercial property inspection services with 125 independently owned AmeriSpec franchises operating in 175 territories throughout the country. (ECF No. 1 at PageID 2.) In 1995, Arnold McLaurin (“Mr. McLaurin”) entered into an agreement to operate an AmeriSpec franchise for ten (10) years in a Designated Territory covering an area around Fayetteville, Cumberland County, North Carolina (the “Cumberland Franchise”). AmeriSpec and Mr. McLaurin renewed the Cumberland Franchise for ten (10) years on November 9, 2005, with another Franchise Agreement (the “Cumberland Franchise Agreement”). (ECF No. 1-1.) In December 2007, Mr. McLaurin, Rena McLaurin (“Mrs. McLaurin, ” collectively, the “McLaurins”), and their company, Omni, bought another AmeriSpec franchise of a Designated Territory covering an area around Lexington, Lexington County, South Carolina (the “Lexington Franchise”). (See ECF No. 1-2.) The parties entered into a separate ten (10)-year Franchise Agreement for this franchise (the “Lexington Franchise Agreement”).[1] (ECF No. 1-2.) Defendants operated both Franchises out of a single building behind the McLaurins' home, located at 7363 Fire Department Road, Hope Mills, North Carolina. (ECF No. 1 at PageID 1.)

         The Franchise Agreements contain identical language regarding the grant and renewal of the Franchises, stating in relevant part:

         3.) GRANT OF FRANCHISE AND RENEWAL OF FRANCHISE

(01) Subject to the provisions of this Agreement, the Company [AmeriSpec] grants to the Franchisee a Franchise for a term of ten (10) years, commencing on the date of this Agreement, to utilize the System of Operation and to use the Names and Marks of the Company in the conduct of a residential inspection business operated from one location to be selected by the Franchisee and approved by the Company within the geographic area (the Designated Territory) as described in Exhibit A.
(03)[2] If, upon expiration of the initial term or any renewal term of the Franchise, [3] the Franchisee has complied with all the provisions of the Franchise Agreement which is then expiring, has operated the Franchised Business utilizing and conforming to the System of Operation, has utilized exclusively the Names and Marks in the operation of the Franchised Business, and has upgraded the office of the Franchised Business to meet the Company's then standards, the Franchisee shall have the option to renew the Franchise for an additional term as defined by the then current agreement. To renew the Franchise, the Franchisee shall execute the Company's then current form of Franchise Agreement and all other agreements and legal instruments and documents then customarily employed by the Company in the grant of Franchises . . . . The Franchisee shall give the Company not less than two hundreed ten (210) days' prior written notice of an election not to renew the Franchise. Failure or refusal by the Franchisee to execute all agreements and documents within thirty (30) days after delivery to the Franchisee shall be deemed an election by the franchisee not to renew the Franchise.(04)[4] If the Franchise is renewed, the then current franchise agreement may contain terms inconsistent with those in this Agreement. To the extent that it is impossible for the renewing franchisee to comply with any such terms immediately upon renewal, the Company shall provide the franchisee a reasonable period of time, as defined by the Company, unless specifically otherwise provided in the agreement, for the franchisee to comply with any terms that are in fact inconsistent with those in this Agreement. All such terms and time periods will be addressed in writing at the time of renewal.

(ECF No. 1-1 at PageID 34-35; ECF No. 1-2 at PageID 81-82 (emphasis added).) The Franchise Agreements also contain the following Noncompete Clause, which reads, in relevant part:

         15.) COMPETITION

The Franchisee acknowledges the Company must be protected against the potential for unfair competition by the Franchisee's use of the Company's training, assistance, and trade secrets in direct competition with the Company. The Franchisee therefore agrees that it shall not, during the Term of the Franchise, either directly or indirectly, operate, own, be employed by, or consult with, any business conducting any type of residential inspections, or offering residential and commercial building inspection services and other related services permitted under the Agreement, other than one operated under this Agreement with the Company.[5] Further, the Franchisee agrees that it shall not, for a period of one year following the effective date of termination or expiration of this Agreement . . . either directly or indirectly operate, own, be employed by, or consult with, any business conducting any type of residential and commercial building inspections, or providing residential or commercial property inspection services, within the Designated Territory, within ten (10) miles of the Designated Territory, or within a radius of ten (10) miles from the location of any other AmeriSpec® office in existence at the time of expiration, termination, or assignment of this Agreement.[6]

(ECF No. 1-1 at PageID 46; ECF No. 1-2 at PageID 93.) Additionally, the Franchise Agreements require any modifications to be in writing and signed by both parties. (ECF No. 1-1 at PageID 57; ECF No. 1-1 at PageID 104.)

         From 1995 to 2015, the Court finds that the parties conducted business with one another according to the Franchise Agreements. Mr. McLaurin also served as a member of the AmeriSpec National Franchise Council, which is a group of AmeriSpec franchisees who meet quarterly to discuss issues related to the AmeriSpec franchise business. (ECF No. 1 at PageID 7.) It is undisputed that from 1995 until February 22, 2018, Defendants used the AmeriSpec's names and marks, its proprietary software-including training materials-email accounts, website, and, for all intents and purposes, operated as an AmeriSpec franchise.[7] Defendants have also used the same phone number, 910-426-4747, during the terms of the Franchise Agreements to the present, and they executed an assignment of that number to AmeriSpec in the Cumberland Franchise Agreement. (ECF No. 1-1 at PageID 66.) However, that phone number is still operable at Defendants' office where they are operating a property inspection business.

         The Cumberland Franchise Agreement was supposed to expire on November 20, 2015, (ECF No. 1-1 at PageD 34), but the parties continued to operate as if the contract remained in full force and effect. Mr. McLaurin states in his Declaration that after the expiration of the Cumberland Franchise Agreement, he “continued to remit services fees to AmeriSpec (which AmeriSpec continued to accept) and [he] continued to use the AmeriSpec mark in connection with [his] activities.” (ECF No. 24-1 at PageID 343.) “AmeriSpec knew that [he] continued to use the mark and expressed no objection.” (Id.)

         Mr. McLaurin recounts four other instances between June 2016 and June 2017 where AmeriSpec, apparently recognizing the expiration date, either sent him proposed amendments or new franchise agreements for his signature to extend the Cumberland Franchise Agreement. (ECF Nos. 24-5-24-9.) Mr. McLaurin did not sign most of them. Nevertheless, throughout this time-and up to February 22, 2018-Mr. McLaurin and Defendants continuously operated the Cumberland Franchise by providing residential and commercial property inspection services as AmeriSpec in the Fayetteville, North Carolina area and paid service fees to AmeriSpec. (See ECF No. 24-1.)[8] On March 31, 2017, Mr. McLaurin signed an Amendment extending the terms and conditions of the Cumberland Franchise Agreement to May 1, 2017. (ECF No. 1-1 at PageID 75.) Defendants executed a similar Amendment to the Lexington Franchise Agreement, which extended its terms and conditions to November 20, 2017. (ECF No. 1-2 at PageID 118.) The Court finds no evidence from before February 22, 2018 that Mr. McLaurin or Defendants notified AmeriSpec-either in writing or by their conduct-that they did not wish to renew the Cumberland or Lexington Franchise Agreements.[9]

         On February 23, 2018, Defendants opened a residential and commercial property inspection business called “American Property Inspection Services.” (ECF No. 24-1 at PageID 346.) AmeriSpec learned of Defendants' operation of American Property Inspection Services on the same day that the McLaurins posted a flyer on Mrs. McLaurin's Facebook page with the following announcement: “New Name, Same Team! PASS THE WORD FROM…Arnold & Rena McLaurin[:] Your Local AmeriSpec is now American Property Inspections.” (ECF No. 1-4.) Defendants advertised on their website for American Property Inspection Services that they have been in the property inspection business “for twenty two years, ” and that Mr. McLaurin “started his property inspection business by purchasing a national franchise brand.” (ECF No. 1-5 at PageID 128-29.) For a time, Defendants used forms that mention both AmeriSpec and American Property Inspection Services. (ECF No. 1-6.) Defendants admit they use the same 910-426-4747 telephone number and Fire Department Road address to run American Property Inspection Services.

         On March 8, 2018, as required by the Cumberland Franchise Agreement, AmeriSpec sent Defendants a Cease and Desist Letter informing them that AmeriSpec understood that they were violating the Noncompete Clause of the Franchise Agreements. (ECF No. 1-7 at PageID 141- 42.) The Letter notified Defendants that they had thirty (30) days to cure their default or otherwise respond to AmeriSpec's efforts to contact them. (Id.) Defendants did not respond to the March 8, 2018 Cease and Desist Letter, and AmeriSpec filed its Verified Complaint and the underlying Motion.

         LEGAL STANDARD

         Under Federal Rule of Civil Procedure 65(a), a district court may issue a preliminary injunction prior to a trial on the merits. AmeriSpec, Inc. v. Psaris, No. 09-2360, 2009 WL 10698732, at *2 (W.D. Tenn. Sept. 10, 2009) (citation omitted). The procedures are less formal and the evidence is less complete than at the time of trial, so “a party is not required to prove his case in full at a preliminary injunction hearing[, ]” and the court's findings of fact and conclusions of law are not binding at the trial on the merits. Certified Restoration Dry Cleaning Network, L.L.C. v. Tenke Corp., 511 F.3d 535, 542 (6th Cir. 2007) (quoting Univ. of Texas v. Camenisch, 451 U.S. 390, 395 (1981) (internal quotation marks omitted)); but see Leary v. Daeschner, 228 F.3d 729, 739 (6th Cir. 2000) (noting that “the proof required for the plaintiff to obtain a preliminary injunction is much more stringent than the proof required to survive a summary judgment motion”). A preliminary injunction is an equitable remedy, albeit an “extraordinay” one, that the district court has the sound discretion to grant or deny. See Friendship Materials, Inc. v. Michigan Brick, Inc., 679 F.2d 100, 102 (6th Cir. 1982).

         “A plaintiff seeking a preliminary injunction must establish [1] that he is likely to succeed on the merits, [2] that he is likely to suffer irreparable harm in the absence of preliminary relief, [3] that the balance of the equitites tips in his favor, and [4] that an injunction is in the public interest.” Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 20 (2008) (collecting cases). These four considerations are “factors to be balanced and not prerequisities that must be satisfied.” Certified Restoration Dry Cleaning Network, 511 F.3d at 542. (internal quotation marks and citations omitted). A plaintiff must show that irreparable harm is likely, ...


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