GRAHAM C. MULLEN, District Judge.
This cause comes before the Court on Plaintiff's, Maaco Franchising, LLC ("Maaco"), Motion for Preliminary Injunction, due notice having been given to Defendants, Jeffrey R. Boensch ("J. Boensch"), Lori J. Boensch ("L. Boensch"), and Ronald E. Eason ("Eason") (collectively, the "Defendants"), the Court having considered Maaco's Verified Complaint (Doc. No. 1), Maaco's Motion for Preliminary Injunction (Doc. No. 18) (the "Motion"), Maaco's Memorandum of Law (Doc. No. 18-1) in support thereof, and the Defendants failure to appear or respond to the Motion, pursuant to Rule 7.1E, Rules of Practice and Procedure of the United States District Court for the Western District of North Carolina. The Court, having considered the authority and evidence submitted to the Court, and being otherwise fully advised in the premises, hereby makes the following findings of fact and conclusions of law:
1. Maaco filed its Verified Complaint on April 4, 2016. (Doc. No. 1).
2. Maaco served its Verified Complaint upon J. Boensch and L. Boensch (the "Boenschs") on April 21, 2016, and upon Eason on June 23, 2016. (Doc. Nos. 5, 7, 16).
3. Maaco filed and served its Motion for Preliminary Injunction and supporting Memorandum of Law on July 20, 2016. (Doc. Nos. 18, 18-1).
4. Maaco is a limited liability company organized and existing under the laws of the State of Delaware, with its offices and principal place of business located at 440 South Church Street, Suite 700, Charlotte, Mecklenburg County, North Carolina.
5. Defendants are citizens and residents of the State of Michigan residing in Saginaw County and Genesee County, Michigan.
6. Founded in 1972, Maaco developed a comprehensive operating system for its third-party franchisees to establish and operate vehicle painting and auto body repair businesses under a standard, unique, and uniform system that includes specially designed spaces containing proprietary equipment layouts, interior and exterior accessories, identification schemes, products, management programs, standards, specifications, proprietary marks and information (the "Maaco System") and to otherwise protect Maaco's image by ensuring uniform, high quality standards.
7. Maaco details its proprietary and unique Maaco System in its operations manual by setting forth the Maaco System's uniform operational standards and product specifications, as well as the Maaco System's policies and procedures (the "Operations Manual").
8. Over forty years after its founding, Maaco remains engaged in the business of franchising Maaco Collision Repair & Auto Painting Centers that utilize the Maaco System as set forth in its Operations Manual to specialize in automobile painting and body repair and in other automotive products and services. As a result of the consistently high level of customer service arising from the use of the Maaco System and the substantial amount of money and effort invested in advertising associated with Maaco's trademarks, service marks, trade names, and trade dress over the past forty years, Maaco enjoys a substantial amount of goodwill and a large pool of customers.
9. Maaco's substantial investments of time, money, and effort to develop, implement, and advertise the Maaco System has established and resulted in a favorable reputation and a positive image with the public as to the quality of goods and services available at Maaco vehicle painting and auto body repair centers.
10. In turn, Maaco franchises and licenses to third-parties the right to take advantage of Maaco's goodwill by operating a motor vehicle painting and auto body repair center using the Maaco System as detailed by the Operations Manual and displaying Maaco's trade names, service marks, and trademarks pursuant to the terms and conditions of its written franchise agreement.
11. In addition, Maaco provides its franchisees with specialized training and on-going business support to monitor and assist franchisees' compliance with the Maaco System.
12. In exchange for these benefits, Maaco requires its franchisees, among other things, to: (i) pay Maaco franchise royalties based on the weekly sales reported by its franchisees; (ii) contribute to Maaco's advertising fund; and (iii) forego involvement with any competing business during the term of the parties' written agreements and for one year thereafter.
13. Since its founding, Maaco has extensively used, caused to be advertised, and publicized throughout the United States certain distinctive color schemes, logos, and symbols as trademarks, service marks, and trade dress to identify the source, origin, and sponsorship of its system's facilities and services (the "Maaco Marks").
14. Among the Maaco Marks, Maaco owns the marks and, as applicable, related logos "Maaco Collision Repair & Auto Painting," "Maaco Auto Painting and Bodyworks" and "America's Bodyshop" which are registered with the United States Patent and Trademark OfficeNo. 3,006,015, No. 1,050,442 and No. 2,787,733, respectively.
15. Maaco and its franchisees have continuously used and advertised Maaco's Marks throughout the United States and its Territories. Maaco's trademarks, trade dress, logos, and distinctive color scheme strongly distinguish its franchises from similar businesses and are widely known and recognized by consumers.
16. Since 1972, all goods and services lawfully manufactured, distributed or sold in the United States by Maaco and its authorized franchisees under the name "Maaco" and Maaco trademarks, trade dress, logos, and distinctive color scheme are done so pursuant to the licenses granted by Maaco under its franchise agreements.
17. Each franchisee or licensee who so manufactures, distributes, or sells such goods and services does so in association with the name "Maaco" and the Maaco Marks.
18. Maaco was the first to adopt and use the Maaco Marks as trademarks and service marks. Since that time, Maaco and its franchisees have spent many millions of dollars in the United States and abroad advertising, promoting, and publicizing the Maaco Marks, as well as Maaco motor vehicle painting and body repair businesses and Maaco's goods and services.
19. The substantial investment in advertising, promotion, and publicity, as well as in the development and implementation of the Maaco System, results in the Maaco Marks and the businesses, goods and services associated with those marks enjoying valuable goodwill, approval, and public recognition. As a result of this substantial investment, the Maaco Marks are strong and distinctive and have acquired a secondary meaning, as the consuming public associates Maaco's products and services with those items.
20. Maaco motor vehicle painting and body repair businesses, and those goods and services associated with the Maaco Marks, are approved, recognized, and understood by the public to be produced, marketed, sponsored, or supplied by, and/or affiliated with Maaco. The approval, recognition, and understanding are valuable assets to Maaco.
21. Maaco's goods and services are offered and sold in interstate commerce and all goods and services lawfully manufactured, distributed, and/or sold in the United States under the name "Maaco" and the Maaco Marks were manufactured, distributed, and/or sold pursuant to exclusive licenses granted by Maaco to approved franchisees.
22. All right, title, and interest in the Maaco Marks, as well as the design, decor, and image of Maaco® motor vehicle painting and body repair businesses, are owned by and remain solely vested in Maaco and/or its affiliates.
23. On or about January 7, 2009, Maaco entered into that certain "Maaco Franchising, Inc. Franchise Agreement" (the "Franchise Agreement") with Defendants relating to the operation of the franchised Maaco® Center at 2758 McCarty Road, Saginaw, Michigan 48603 (the "Center").
24. Pursuant to the Franchise Agreement, Maaco was required to provide Defendants with certain services. Those services are to: (i) provide Defendants' representative with an initial training program in the Maaco System; (ii) provide Defendants with one copy of Maaco's Operations Manual; (iii) use Defendants' initial advertising contribution to provide for the Center's opening promotion and initial advertising; (iv) use and administer the advertising contributions made by Defendants as set forth in the Franchise Agreement; and (v) provide Defendants with a set of specifications for the types and quantities of inventory, supplies, equipment, and signage necessary to operate the Center.
25. Maaco complied with each of these obligations in accordance with the terms and conditions of the Franchise Agreement.
26. Pursuant to the Franchise Agreement, Defendants are required to maintain and preserve full and accurate books, records, and accounts of the Center for at least seven (7) years from the dates of their preparation and to allow Maaco an opportunity to examine those books, records, and accounts at all reasonable times.
27. In addition, Defendants are required to (i) pay Maaco on a weekly basis a continuing franchise fee, or royalty, at the rate of 9% of the shop's gross revenue; (ii) pay a weekly advertising contribution in the amount of Eight Hundred Fifty Dollars ($850.00) or other such amount provided by Maaco; (iii) furnish Maaco with accurate weekly business reports of the Center's gross sales; and (iv) pay Maaco for paint and supplies ordered from Maaco.
28. Defendants violated the Franchise Agreement by failing to (i) cooperate with Maaco's efforts to examine the Center's books, records, and accounts and (ii) make royalty, advertising and merchandise payments to Maaco.
29. By letter dated October 7, 2015, Maaco provided Defendants with written notice of their breach of the Franchise Agreement for their failure to cooperate with the Center's audit (the "Notice of Default for Missing Records").
30. By letter dated November 16, 2015, Maaco provided Defendants with written notice of their breach of the Franchise Agreement for their failure to make all required payments due and owing under the Franchise Agreement (the "Notice of Default for Overdue Payments").
31. Despite the opportunity and obligation to do so, Defendants failed and/or refused to cure their defaults of the Franchise Agreement.
32. On January 27, 2016, Maaco provided Defendants with written notice of its termination of the Franchise Agreement (the "Notice of Termination") and requested that the Defendants comply with the post-termination obligations set forth in the Franchise Agreement and under the law.
33. In the Notice of Termination, Maaco also requested that Defendants comply with their post-termination obligations as set forth in the Franchise Agreement and under the law. Specifically, Maaco demanded, among other things, that Defendants: (i) stop operating the Center in violation of the Franchise Agreement's non-competition provision; (ii) stop use of the Maaco System; (iii) stop use and display of the Maaco Marks; (iv) stop accepting new customers using Maaco's forms and paperwork; (v) modify and/or alter the Center to disassociate itself from Maaco; and (vi) return the Operations Manual and all other records, files, instructions, correspondence, and material related to Defendants' operation of the Center.
34. Despite receiving the Notice of Termination, Defendants continue to operate the Center in violation of their non-compete obligations and use confusingly similar trade names and trade dress, including the name "Jeffco" utilizing the same distinctive Maaco color scheme.
35. Moreover, Defendants continue to partially display signage containing a portion of Maaco's registered trademark "America's Bodyshop" and display exterior and interior signage and décor containing distinctive elements associated with Maaco locations, which were displayed during the Center's time as an authorized Maaco location.
36. Defendants continue to deceive the public by identifying the Center as a Maaco to prospective or actual customers contacting the Center by telephone.
In order obtain a preliminary injunction, Maaco must establish: "(1) that [it] is likely to succeed on the merits, (2) that [it] is likely to suffer irreparable harm in the absence of preliminary relief, (3) that the balance of equities tips in [Maaco's] favor, and (4) that an injunction is in the public interest."
Maaco seeks the issuance of a preliminary injunction based upon two claims: (i) breach of Defendants' non-competition provision; and (ii) violation of the Lanham Act as a result of Defendants' trademark infringement, trade dress infringement, and trademark dilution.
In Count I, Maaco pleads an action for breach of the non-competition provisions of the parties' franchise agreements. As relevant, Defendants agreed in paragraph 18C of the Franchise Agreement that:
Franchise Agreement at ¶ 18C.
In order to demonstrate the requisite likelihood of success on the merits, Maaco must show that it is likely to prove that the non-competition covenant is valid and enforceable. Under North Carolina law, courts review the enforceability of a non-competition covenant in the context of a sale of the franchisor's goodwill for a limited duration to a franchisee.
Maaco satisfies the first prong of the test because the non-competition covenant is necessary to protect multiple valid and legitimate business interests of Maaco. Among other interests, the covenant is specifically designed to protect Maaco's proprietary operating system, its confidential information, and the goodwill associated with its trademarks, service marks, trade name, and trade dress developed through the investment of substantial amount of time, money and effort.
Courts also recognize the franchise itself is a legitimate business interest sufficient to warrant the enforcement of a non-competition covenant because, among other reasons, the franchise typically includes a detailed business operating format and system of doing business not readily available through independent means.
Here, the undisputed facts demonstrate Maaco's proprietary operating system, confidential information, and the goodwill associated with its trademarks, service marks, trade name, and trade dress developed through the investment of substantial amount of time, money and effort, are legitimate business interests worthy of the protections of a restrictive covenant, as are Maaco's substantial investment of resources to develop its operating format, processes, manuals, advertising materials, goodwill, and national reputation as a provider of automotive services and maintain the integrity of its franchise and franchise system. This conclusion is also supported by Defendants' acknowledgement and agreement in the Franchise Agreement of the substantial value they received from Maaco's efforts.
Maaco satisfies the second prong of the test because the restrictive covenant at issue is reasonable with respect to both time and territory. The non-competition covenant is reasonable as to time because, among other reasons, the term is only for one (1) year which is a reasonable period to permit a franchisor the opportunity to retain the goodwill in the market area without any erosion arising from the former franchisee's provision of goods and services that do not meet the franchisor's standards.
The covenant is reasonable as to territorial restriction because, among other reasons, the territorial restriction is limited to ten (10) miles from the Center and any other Maaco centers. Such a radius is reasonable because it protects a franchisor, such as Maaco, from a former franchisee diluting its goodwill and reputation in the relevant trade area.
Defendants' agreement to the time and scope of the non-competition provision also strongly supports the reasonableness of those time and scope provisions. "[A] further consideration by this Court, in recognizing the validity of these covenants, is that at the time of entering these contracts containing covenants not to compete both parties apparently regarded the restrictions as reasonable and desirable."
Maaco also satisfies the third prong of the test because the issuance of the requested preliminary injunction does not interfere with the interest of the public. Enforcement of this covenant will not violate public policy; rather, it will support North Carolina public policy. "[I]t is as much a matter of public concern to see that valid [covenants] are observed as it is to frustrate oppressive ones."
As such, Maaco is entitled to the issuance of a preliminary injunction based upon its claim in Count I of its Verified Complaint.
Maaco also seeks the issuance of a preliminary injunction based upon its claims in Count II for trademark infringement. In order to prevail on its claim for trademark infringement, Maaco must demonstrate that: (1) it owns a valid and protectable trademark; (2) Defendants used the trademark "in commerce" without authorization; (3) Defendants used the trademark "in connection with the sale, offering for sale, distribution, or advertising" of goods or services; and (4) Defendants use of the trademark is likely to confuse consumers. 15 U.S.C. §1114(1);
The undisputed facts establish the first three elements of the claim because: (1) Maaco owns the Maaco Marks, each of which is properly registered; (2) Defendants continue to display and/or use the Maaco Marks by, among other things: (i) displaying Maaco's federally registered "Maaco" trademark on its Facebook and Google profile pages, as well as forms and invoices; and (ii) partially and incompletely displaying Maaco's federally registered "America's Bodyshop" trademark on its building as the word "Bodyshop" remains even though the word "America's" was removed; and (3) using and/or displaying the Maaco Marks "in commerce" at its competing business. The undisputed facts also establish that Defendants' use of Maaco's trademark is likely to confuse consumers based on an analysis of the applicable factors. They are: (1) the strength and distinctiveness of Maaco's trademark as used in the marketplace; (2) the similarity of the two trademarks at issue from the consumer's perspective; (3) the similarity of the goods and services that the trademarks identify; (4) the similarity of the facilities used; (5) the similarity of advertising used; (6) defendant's intent; (7) actual confusion; (8) quality of defendant's product; and (9) the sophistication of the consuming public.
Each of the seven (7) remaining factors weighs heavily in Maaco's favor and four are beyond dispute. The second factor weighs heavily in Maaco's favor because the marks at issue— "Maaco" and "Jeffco" — are stylized in the same font, size, pattern, and color and "America's Bodyshop" and the partially modified "America's Bodyshop"—are the same from any perspective. Factors three, four, and five relate to the goods and services, facilities, and advertising at issue. The goods, services, and facilities under consideration are not only similar; they are identical because Defendants continue to offer the identical goods and services from the identical facility through the identical advertising media, which satisfies the critical question of whether the goods and services are sold in the same "channels of trade."
The remaining three factors—one, six, and seven—also weigh in Maaco's favor. The first factor considers whether Maaco's Marks are strong and distinctive. First, Maaco's trademarks— "Maaco" and "America's Bodyshop"—are strong and distinctive. The "Maaco" trademark is strong and distinctive because it is considered fanciful and inherently distinctive, as it is a made-up word created for the sole purpose of serving as a trademark.
The seventh and final factor for consideration considers the likelihood of confusion. "The test is likelihood of confusion; evidence of actual confusion is unnecessary."
The weight of the totality of the law and facts tips the analysis of each of the factors in determining a "likelihood of confusion" deeply in Maaco's favor. In combination with the analysis for the remaining elements, Maaco demonstrates a substantial likelihood of success on the merits of its claim for trademark infringement. As the Fourth Circuit noted, "[w]e may grant injunctive relief to the owner of a registered trademark whose rights to the mark have been infringed on by another's use of a copy or colorable imitation that is `likely to cause confusion, or to cause mistake, or to deceive.'"
Maaco also seeks the issuance of a preliminary injunction based upon its claims in Count III for trade dress infringement. In order to prevail on its claim for trade dress infringement, Maaco must demonstrate that: (1) its trade dress is primarily non-functional; (2) the alleged infringement creates a likelihood of confusion; and (3) the trade dress either (a) is inherently distinctive or (b) has acquired a secondary meaning.
Maaco established the first element as its trade dress is entirely non-functional because it is comprised of an arbitrary combination of colors and graphic elements that are neither essential to use of the goods or services provided by Maaco or related to the cost or quality of those goods or services.
The second element to consider is whether Maaco can establish that Defendants' use of the copied trade dress is likely to confuse consumers. In determining whether likely confusion exists, the Court considers how the two parties use the trade dress at issue to determine whether Defendants' use is likely to cause confusion.
The third element for consideration is whether Maaco's trade dress is either inherently distinctive or has acquired secondary meaning. Maaco fulfills the requirement to show its trade dress has acquired a secondary meaning due to Defendants' intentional and direct copying of Maaco's trade dress. "[E]vidence of intentional, direct copying establishes a prima facie case of secondary meaning sufficient to shift the burden of persuasion to the defendant on that issue . . ."
Defendants' trade dress displayed at Defendants' "Jeffco" auto body repair shop is an intentional and direct copy of Maaco's trade dress that is likely to confuse consumers and satisfy the final element. Specifically, both the Maaco and "Jeffco" trade dress, affixed on the front and side of the building, on signs entering the parking area, and within the Center itself, include the following: (1) thick white font used for the name "Jeffco" and "Maaco"; (2) bordered font shading of dark blue to a medium-tone blue around the white "Maaco" and "Jeffco" names; (3) a red, curved and tapering underline under the "Maaco" and "Jeffco" names; and (4) the word "Bodyshop" directly under the "Maaco" and "Jeffco" names in the exact same font, size and color. Only slight differences in color tone and font exist between the trade dress of Maaco and "Jeffco." Utilizing a combination of similar features in a "particular configuration of design features" establishes Defendants' efforts to intentionally copy Maaco's trade dress sufficient to establish secondary meaning.
Maaco is substantially likely to succeed on the merits of its trade dress claim and the issuance of a preliminary injunction is appropriate.
Defendants' continued unauthorized use of the Maaco Marks beyond the date of termination of the Franchise Agreement and operation of an identical business under similar or identical marks at the exact same location in violation of the covenant not to compete and the Lanham Act threatens Maaco, its authorized franchisees, and the consuming public generally with immediate and irreparable harm. Irreparable harm exists; Defendants' violation of the contractually agreed upon covenants not to compete adversely affect the value of legitimate, law abiding Maaco franchisees, thus harming the Maaco system as a whole. Moreover, Defendants' operation of a competing business within the covenanted geographical area using the knowledge, training and confidential and proprietary information gained from Maaco permit Defendants to unfairly achieve a significant competitive advantage over all of the other legitimate centers in their area by virtue of, among other things, not having to pay for the privilege of using Maaco's confidential and proprietary know-how.
Initially, any alleged potential harm to Defendants is the result of Defendants' own conduct. In such instances, this Court has uniformly held in franchisor-franchisee cases that such self-inflicted harm is far outweighed by the damage done by the infringement of a franchisor's trademark.
As set forth above, Maaco suffers irreparable harm. Such harm outweighs any potential harm to Defendants. Maaco satisfies the third element for injunctive relief.
The final element is whether a preliminary injunction will serve the public interest.
Here, the issuance of a preliminary injunction will serve the public interest. First, because it will encourage franchisors, like Maaco, to continue to invest substantial assets in providing franchisees with professional training, skills and the promotional advantages of a recognized trade name, which enable them to establish their own businesses at a reduced cost. Also, it will protect the investments franchisors make in developing those systems and prohibit a third-party from taking advantage of the skills and goodwill they were provided without paying what they agreed in exchange.
IT IS THEREFORE, ORDERED AND ADJUDGED, that
1. The Motion for Preliminary Injunction, (Doc. No. 18), is hereby GRANTED;
2. Defendants, and all persons acting on their behalf, in concert with them, or under their control, are hereby enjoined from:
3. Defendants, and all persons acting on their behalf, in concert with them, or under their control, are hereby ordered to:
4. Defendants, directly or indirectly, and all persons acting on their behalf, in concert with them, or under their control, are hereby enjoined and prohibited, for a period of one (1) year from the effective date of this order and injunction, from:
5. Defendants shall file with the Court and serve upon Maaco's counsel within ten (10) days after entry of this injunction a written notice, under oath, setting forth in detail the manner in which the Defendants have complied with this injunction;
6. Maaco is not required to post a bond; and
7. Maaco shall serve upon Defendants the Preliminary Injunction at Defendants' last known address(es) within three (3) business days of the date of this Order.
THIS ORDER shall remain in effect until further Order of this Court.