KRISTI K. DuBOSE, District Judge.
This matter is before the Court on the Plaintiff's Motion for Preliminary Injunction (Doc. 2), the Response in opposition of the Defendants (excluding Defendant Richard E. Blow
Plaintiff Sylvan Learning Inc. ("Sylvan") is a corporation organized and existing under the laws of the State of Delaware, with its principal place of business in Baltimore, Maryland. (Doc. 1 at 1, ¶ 1). Sylvan has developed certain proprietary programs, systems, teaching and management techniques, individualized diagnostic tests and academic and prescriptive educational courses and programs which are designed to be personally taught, supervised, and administered by trained instructors (the "Sylvan System") for use in operating centers ("Sylvan Centers"). (E.g., Doc. 1-1 at 2). Sylvan licenses the Sylvan System to others for use in operating Sylvan Centers. (Id.). Such centers are identified by certain trade names, trademarks, service marks, logos, symbols, and other indicia of origin (collectively, "Licensed Marks"). (Id.).
On June 29, 2003, Defendant Learning Solutions, Inc. ("LSI") executed License Agreements with Sylvan allowing it to operate two Sylvan centers: one in the territory consisting of Hancock County, Mississippi (Doc. 1-2), and one in the territory consisting of Forrest and Lamar Counties, Mississippi (Doc. 1-3) (collectively, the "Mississippi Agreements"). The agreements granted LSI "a license to use the Sylvan System and the Licensed Marks" at Sylvan Centers it opened and operated within the agreements' prescribed territories. (Doc. 1-2 at 3, ¶ 1.1; Doc. 1-3 at 3, ¶ 1.1).
The Mississippi Agreements contain provisions allowing for them to be terminated prior to their expiration under certain conditions. (Doc. 1-2 at 18, ¶ 9.4; Doc. 1-3 at 20, ¶ 9.4). With regard to such conditions, both agreements state the following:
(Doc. 1-2 at 20-21, ¶ 10.3; Doc. 1-3 at 22-23, ¶ 10.3).
LSI is named as "Licensee" in the Mississippi Agreements. (Doc. 1-2 at 2; Doc. 1-3 at 2).
On March 25, 2009, Defendant Baldwin Management ("Baldwin") executed a License Agreement with Sylvan allowing it to operate a Sylvan center in the territory consisting of that area of Baldwin County, Alabama, lying south of Interstate 65 (the "Alabama Agreement") (Doc. 1-1). The agreement granted Baldwin "a license to use the Sylvan System and the Licensed Marks" at Sylvan centers it opened and operated within its prescribed territory. (Id. at 3, ¶ 1.1).
The Alabama Agreement also contains provisions allowing for it to be terminated prior to its expiration under certain conditions. (Id. at 20, ¶ 9.4). With regard to such conditions, the Alabama agreement states the following:
(Id. at 22, ¶ 10.3).
Baldwin is named as "Licensee" in the Alabama Agreement. (Id. at 2).
Defendant Richard E. Blow was a signatory to all three License Agreements. (Doc. 1-1 at 30; Doc. 1-2 at 30; Doc. 1-3 at 30, 32). Richard Blow signed the Mississippi Agreements in his capacity as President and 50% shareholder of LSI, and he signed the Alabama Agreement in his capacity as President of and 37.5% interest holder in Baldwin. (Id.).
On October 27, 2010, Richard Blow was charged with two counts: one of bank fraud and one of conspiracy to commit bank fraud, both counts being felonies. (Doc. 1-4). After a non-jury trial occurring on March 1 and 2, 2011, in the Southern District of Alabama, Richard Blow was convicted of both counts. (Doc. 1-7; Case No. 1:10-cr-00238-WS-M1, Doc. 70).
Sylvan sent Richard Blow a letter and notice dated April 1, 2011, in which it stated that it was terminating the Mississippi Agreements between it and LSI, effective the sooner of April 4, 2011, or delivery of the letter. As justification, Sylvan cited to Paragraph 10.3.8 of the agreements, stating that "any act by Licensee or any person listed on the signature pages of the License Agreements that results in any charge of, conviction of, or pleading of nolo contendere to a felony is an incurable breach under the License Agreements[,]" by which "Sylvan has the right to terminate the License Agreements [.]"
All three License Agreements contain the following provision:
(Id. at 25; Doc. 1-2 at 23; Doc. 1-3 at 25).
Paragraph 3.2.2 of each of the agreements states:
(Doc. 1-1 at 5-6; Doc. 1-2 at 6; Doc. 1-3 at 8).
Each License Agreement contains an identical Paragraph 11. 1, under which the Licensee agrees to undertake certain actions immediately upon the termination of the agreement. Such actions include ceasing to operate under the Sylvan name and using Sylvan's Licensed Marks, returning proprietary, confidential or trade secret materials to Sylvan, removing and destroying all signs, designs and insignia indicating that the Licensee is connected with Sylvan, ceasing to use its Sylvan Center phone numbers and transferring them to Sylvan upon demand, and refraining from contacting its Sylvan Center customers except in certain circumstances (collectively, "post-termination obligations"). (Doc. 1-1 at 23-24; Doc. 1-2 at 21-22; Doc. 1-3 at 23-24). Defendants have not undertaken any of these obligations since the agreements were terminated. (Transcript, Motion Hearing of May 25, 2011).
Paragraph 11.5.2 (the "non-compete covenant") of each of the three agreements states as follows:
(Doc. 1-1 at 25; Doc. 1-2 at 23; Doc. 1-3 at 25).
In addition to the agreement's Licensee, the "non-compete clause" is binding on the Licensee's "partners, directors, officers, and stockholders[,]" if the Licensee is a corporation or a partnership. (Doc. 1-1 at 24, ¶ 11.5; Doc. 1-2 at 22, ¶ 11.5; Doc. 1-3 at 24, ¶ 11.5)
Finally, all three agreements contain the following provision:
(Doc. 1-1 at 27, ¶ 19; Doc. 1-2 at 25, ¶ 19; Doc. 1-3 at 27, ¶ 19).
The License Agreement covering Forrest and Lamar Counties in Mississippi contains an additional provision stating:
(Doc. 1-3 at 6, ¶ 3.1).
On May 12, 2011, Sylvan filed a Verified Complaint against the Defendants, alleging trademark infringement, unfair competition, breach of contract, and violations of Alabama's and Mississippi's Trade Secrets Acts. (Doc. 1). That same day, Sylvan also filed a "Motion for a Temporary Restraining Order and for a Preliminary Injunction" (Doc. 2), which the Court treats as a motion for preliminary injunction (Doc. 6). A hearing on Sylvan's motion was held on May 25, 2011, and a briefing schedule was set (Doc. 21).
Our sister court in the Middle District of Alabama has recently and correctly summarized the proper standard of review for deciding a motion for preliminary injunction as follows:
Sylvan Learning, Inc. v. Gulf Coast Educ., Inc., No. 1:10-CV-450-WKW [WO], 2010 WL 3943643, at *1, 2010 U.S. Dist. LEXIS 107160, at *3 (M.D.Ala. Oct. 6, 2010).
N. Am. Med. Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211, 1218-20 (11th Cir. 2008).
In addition, "the Lanham Act's requirement that a franchisor demonstrate
All three agreements contain provisions that they be interpreted according to Maryland law. If a provision of an agreement is not enforceable under Maryland law, then that provision is to be interpreted under the laws of the state in which the agreement's territory lies.
Sylvan has a substantial likelihood of success on its claim that the Alabama Agreement was properly terminated. The agreement expressly states that "[a]ny act by Licensee or any person listed on the signature page hereof that . . . results in any charge of, conviction of or pleading of nolo contendere to a felony[]" constitutes a "material, non-curable" breach of that agreement by which Sylvan may terminate that agreement. (Doc. 1-1 at 22, ¶ 10.3) (emphasis added). It is uncontested that Richard Blow, a signatory to that agreement, was charged with and convicted of two felony counts in the Southern District of Alabama while the Alabama Agreement was in effect. Because Sylvan has properly terminated the Alabama Agreement, the agreement's license to use Sylvan's trademarks is no longer in effect.
Whether the Mississippi Agreements were properly terminated is less clear, as their terms detailing "material, non-curable" breaches differ from those in the Alabama Agreement. In those agreements, "material, non-curable" breaches include "[t]he insolvency, bankruptcy, or reorganization of the Licensee under the bankruptcy laws[]" and "[t]he conviction of Licensee of a felony or misdemeanor relevant to the operation of the Center." (Doc. 1-2 at 20-21, ¶ 10.3; Doc. 1-3 at 22-23, ¶ 10.3). LSI is named as "Licensee" in the Mississippi Agreements, (Doc. 1-2 at 2; Doc. 1-3 at 2), and no evidence has been presented showing that this entity committed any act constituting a breach under either of these provisions.
Both agreements contain provisions stating that "[f]or purposes of this Agreement `Licensee' may be an individual, corporation, partnership or other legal entity and shall include any corporation, partnership, individual or combination of individuals, or other legal entity which owns a majority interest of Licensee . . ." (Doc. 1-2 at 25, ¶ 20; Doc. 1-3 at 27, ¶ 20). Richard Blow has recently filed for bankruptcy, (Doc. 19), and he has been convicted of two felonies (though it is not immediately clear whether these felonies are "relevant to the operation of" Sylvan Centers). However, the Mississippi Agreements both list Richard Blow as owning a fifty-percent interest in LSI, with the other fifty percent held by Martha Blow, against whom no evidence of actions constituting breach has been introduced. (Doc. 1-2 at 30; Doc. 1-3 at 30, 32). Such a division of interest continues to this day. (Transcript, Motion Hearing of May 25, 2011). As such, Richard Blow does not own a majority interest in Licensee LSI and may not also be considered a "Licensee" under the Mississippi Agreements.
Sylvan attempts to characterize Richard Blow as being a "Licensee" under the License Agreements by pointing to language on the agreements' signature pages stating that "[i]f Licensee is a corporation . . .
Sylvan's only remaining recourse to justify termination of the Mississippi Agreements is to show that a "material, non-curable" breach occurred through "[a]ny act causing an incurable tarnishment of Sylvan's reputation." (Doc. 1-2 at 20, ¶ 10.3; Doc. 1-3 at 22, ¶ 10.3). Such a provision is quite broad and ambiguous—it is unclear who could even be held responsible for committing such an act.
The Maryland Court of Appeals has stated:
John L. Mattingly Constr. Co. v. Hartford Underwriters Ins. Co., 415 Md. 313, 999 A.2d 1066, 1074 (2010) (internal citations and quotations omitted).
A reasonably prudent person would have difficulty in determining whether "any act causing an incurable tarnishment of Sylvan's reputation" must be committed by a "Licensee" (which, as has been determined, Richard Blow is not) or may also be committed by a signatory, or any person with some connection to the Sylvan Center or the agreement, or even any person at all. A reasonably prudent person would most likely determine that such an act must be committed by the "Licensee," as most of the other "Material Breaches That Cannot Be Cured" specifically refer in some way to actions by the "Licensee." (Doc. 1-2 at 20-21, ¶ 10.3; Doc. 1-3 at 22-23, ¶ 10.3). In addition, the first paragraph in the section headed "Termination" in each agreement discusses procedures for default and termination notices "[i]f Licensee is in breach of any material provision of this Agreement . . ." (Doc. 1-2 at 18, ¶ 10. 1; Doc. 1-3 at 20, ¶ 10.3).
As such, this provision is ambiguous with respect to whom it applies, and under Maryland law the Court must construe it against the drafter of the License Agreements, Sylvan. The "incurable tarnishment" provision is not applicable to Richard Blow. Therefore, Sylvan has presented no valid grounds for terminating the Mississippi Agreements and may not now claim trademark infringement pursuant to these agreements, as their trademark licenses are still in effect. Because the
The Alabama Agreement clearly provides that the Licensee's license to use Sylvan's Licensed Marks does not extend beyond termination of the agreement. (Doc. 1-1 at 5-6). Moreover, Defendants admit that they continue to operate their Alabama learning center as a Sylvan Center, using Sylvan signs and Sylvan promotional material. (Transcript, Motion Hearing of May 25, 2011). After considering the factors set forth in Axiom Worldwide Inc., supra, the Court finds that, in addition to satisfying the other elements of a trademark infringement claim, Defendants' unauthorized use of Sylvan's Licensed Marks is likely to cause confusion among consumers. See also McDonald's Corp., 147 F.3d at 1308 (When terminated franchisee continue to operate as if they are still licensed franchisees, there exists "a substantial likelihood of confusion—indeed, a certainty of confusion—" of the terminated franchisees' products with the franchisor's certified products.), Burger King Corp. v. Mason, 710 F.2d 1480, 1492 (11th Cir.1983) ("The unauthorized use of a trademark which has the effect of misleading the public to believe that the user is sponsored or approved by the registrant can constitute infringement."). Therefore, the Court finds that Sylvan has shown a substantial likelihood of success on the merits of its trademark infringement claims pursuant to the Alabama Agreement.
As was stated previously, the License Agreements are interpreted under Maryland law, to the extent that their provisions are enforceable under such law. The post-termination obligations called for in the Alabama Agreement do not appear unreasonable or objectionable to the Court, and Defendants have admitted that they have not fulfilled these obligations. (Transcript, Motion Hearing of May 25, 2011). Therefore, Sylvan has shown a substantial likelihood of success on the merits of its claims for breach of Defendants' post-termination obligations pursuant to the Alabama Agreement. See Prosperity Sys., Inc. v. Ali, Civil No. CCB-10-2024, 2010 WL 5174939, at *3, 2010 U.S. Dist. LEXIS 132414, at *7 (D.Md. Dec. 15, 2010) ("PSI is also likely to prevail on its breach of contract claims. There is no dispute that Mr. Ali is in breach of his post-termination contractual obligations . . . [T]he franchise agreement requires Mr. Ali to assign to PSI all telephone numbers used in association with his PIZZA BOLI'S restaurant, to return all copies of the PIZZA BOLI'S manual, and to destroy all materials bearing the PIZZA BOLI'S mark following the termination of the agreement. . . Mr. Ali has fulfilled none of these obligations.").
As to the non-compete covenant in the Alabama Agreement, Defendants do not contest that they continue to operate a learning center in the same location as they did before Sylvan terminated the agreement. (Transcript, Motion Hearing of May 25, 2011). The Court finds that Sylvan's non-compete covenant is reasonable and enforceable under Maryland law and does not conflict with Alabama public policy. See Gulf Coast Educ., Inc., 2010 WL 3943643, at *2-8, 2010 U.S. Dist. LEXIS 107160, at *4-23; Smallbizpros, Inc. v. Court, 414 F.Supp.2d 1245, 1248 (M.D.Ga.2006) ("To prevail on its claim based on Defendants' alleged breach of the covenant not to compete, Plaintiff must show that Defendants are violating an enforceable
The Eleventh Circuit has stated the analysis for determining irreparable injury as follows:
SME Racks, Inc. v. Sistemas Mecanicos Para, Electronica, S.A., 243 Fed.Appx. 502, 503-04 (11th Cir.2007) (per curiam).
As to the determination of irreparable injury in trademark infringement claims, the Eleventh Circuit has made note of a possible change in analysis:
Axiom Worldwide, Inc., 522 F.3d at 1227-28.
The Eleventh Circuit has made no further attempt to clarify eBay's application to Lanham Act claims. See Osmose, Inc. v. Viance, LLC, 612 F.3d 1298, 1320 (11th Cir.2010) ("Because the district court did not rely on a presumption of irreparable injury, we need not decide whether such a presumption still applies in the wake of eBay. Even in the absence of a presumption, the district court's conclusion as to the likelihood of irreparable harm was not an abuse of discretion.") The district courts of the Eleventh Circuit have taken varying approaches in addressing this issue. At least one has taken Axiom Worldwide to mean that irreparable harm can no longer be presumed by a finding of success on the merits in a trademark infringement claim. See InternetShopsInc.com v. Six C Consulting, Inc., Civil Action No. 1:09-CV-00698-JEC, 2011 WL 1113445, at *6, 2011 U.S. Dist. LEXIS 31222, at *16 (N.D.Ga. Mar. 24, 2011) ("[D]efendant argues that an injunction is not warranted because plaintiff has failed to show that it suffered an irreparable injury . . . In support of its argument, defendant correctly notes that the Court cannot presume irreparable harm based on a finding of infringement. . . See N. Am. Med. Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211, 1227-28 (11th Cir.2008)[.]"). At least one other has ignored the issue of eBay entirely. See Tiramisu Int'l LLC v. Clever Imps. LLC, 741 F.Supp.2d 1279, 1287 (S.D.Fla.2010) ("The Eleventh Circuit has also noted that `our prior cases do extend a presumption of irreparable harm once a plaintiff establishes a likelihood of success on the merits of a trademark infringement claim.' N. Am. Med. Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211, 1227 (11th Cir.2008). In its opinion, the court referenced its earlier decision in Tally-Ho, Inc. v. Coast Community College Dist., 889 F.2d 1018, 1029 (11th Cir.1989), in which it stated, `it is generally recognized in trademark infringement cases that (1) there is not adequate remedy at law to redress infringement and (2) infringement by its nature causes irreparable harm.'")
Some have noted, then sidestepped, the issue. See Burger King Corp. v. Cabrera, No. 10-20480-Civ-GRAHAM/TORRES, 2010 WL 5834869, at *9, 2010 U.S. Dist. LEXIS 141413, at *26-27 (S.D.Fla. Dec. 29, 2010) ("[W]e have no need to decide whether a court may still presume irreparable injury upon finding a likelihood of confusion in a trademark case, a difficult question indeed. Obviously, Plaintiff cannot obtain the benefit of the presumption in the instant case, where the Court finds no substantial likelihood that Plaintiff will prevail on the merits of its Lanham Act
Many have chosen to simply make findings of irreparable harm rather than rely solely on presumption. See Pandora Jewelers 1995, Inc. v. Pandora Jewelry, LLC, 703 F.Supp.2d 1307, 1316 (S.D.Fla.2010) ("Though eBay Inc. v. MercExchange, L.L.C. . . . does not categorically foreclose the possibility of a presumption upon a showing of likelihood of success on the merits, North American Medical Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211, 1228 (11th Cir.2008), Plaintiff has failed to demonstrate a likelihood of success on the merits. I find there is no presumption of irreparable injury and further, that Plaintiff has not demonstrated a likelihood of irreparable injury."), Sound Surgical Techs., LLC v. Rubinstein, 734 F.Supp.2d 1262, 1277-1278 (M.D.Fla.2010) ("even if Plaintiff is not entitled to a presumption of irreparable harm,[] the Court finds that Plaintiff has shown a substantial threat of consumer confusion and resulting irreparable harm to its reputation and the goodwill represented by its marks."), Chanel, Inc. v. Mesadieu, No. 6:08-cv-1557-Orl-31KRS, 2009 WL 2496586, at *7, 2009 U.S. Dist. LEXIS 70669, at *16-17 (M.D.Fla. August 12, 2009) ("In North American Medical Corporation v. Axiom Worldwide, Inc., . . . the Eleventh Circuit declined to decide whether a presumption of irreparable injury in a trademark infringement case "is the equivalent of the categorical rules rejected by the [Supreme] Court in eBay[]" . . . instead remanding the case to the district court to determine whether irreparable harm was shown without reliance on the presumption, among other things . . . Accordingly, I examine the well-pleaded allegations . . . to determine whether irreparable harm has been shown without reliance on the presumption."), Nike, Inc. v. Austin, No. 6:09-cv-796-Orl-28KRS, 2009 WL 3535500, at *5-6, 2009 U.S. Dist. LEXIS 100779, at *13-14 (M.D.Fla. Oct. 28, 2009) (same as Chanel, Inc., supra), Miranda v. Guerrero, No. 08-22326-CIV-MORENO/TORRES, 2009 WL 1381250, at *7, 2009 U.S. Dist. LEXIS 40898, at *16-18 (S.D.Fla. May 14, 2009) ("In eBay, the Supreme Court rejected application of categorical rules to the grant of denial or injunctive relief . . . [A] recent Eleventh Circuit opinion appears to have extended its holding to trademark infringement actions under the Lanham Act. See N. Am. Med. Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211, 1227-28 . . . Nonetheless, regardless of whether irreparable harm may still be presumed in trademark infringement cases, we find, based on the record evidence before us, that Plaintiff will indeed suffer irreparable harm if Defendant continues operating the website . . ."), FSC Franchise Co., LLC v. Express Corporate Apparel, LLC, No. 8:09-CV-454-T-23TGW, 2009 WL 3334138, at *5, 2009 U.S. Dist. LEXIS 92879, at *10-11 (M.D.Fla. Oct. 06, 2009) ("The Eleventh Circuit has said that "a sufficiently strong showing of likelihood of confusion caused by trademark infringement may by itself constitute a showing of irreparable harm." McDonald's Corp. v. Robertson, 147 F.3d 1301, 1310 (11th Cir. 1998). That principle would seemingly support a finding of irreparable harm in this case. But see North American Medical
Since the Court has already determined that Sylvan has demonstrated a substantial likelihood of success on the merits of its trademark infringement claim, the Court finds there is a presumption of irreparable injury in this claim as well. However, in light of eBay and Axiom, and out of an abundance of caution, a determination of whether the evidence demonstrates an actual threat of irreparable injury as to Sylvan's trademark infringement claim will also be made.
Baldwin has already agreed that Sylvan would be entitled to injunctive relief in the event of trademark infringement because its remedy at law would be inadequate. (Doc. 1-1 at 25, ¶ 12, supra). Such a provision in a contract is not binding on the Court, and without more it does not establish irreparable injury. See Anago Franchising, Inc. v. CHMI, Inc., No. 09-60713-CIVALTONAGA/Brown, 2009 WL 5176548, at *11, 2009 U.S. Dist. LEXIS 123352, at *31-32 (S.D.Fla. Dec. 21, 2009) (A provision of a franchise agreement stating that, upon breach of the agreement, the franchisor "is entitled to an injunction without showing or proving any actual damage . . . `is not alone dispositive of the issue of irreparable harm, and does not insulate a plaintiff seeking a preliminary injunction from the need to prove that it will suffer imminent irreparable injury as a result of the [defendant's] conduct.'" (quoting Boston Laser, Inc. v. Qinxin Zu, No. 3:07-CV-0791, 2007 U.S. Dist. LEXIS 78021, 2007 WL 2973663, at *12 (N.D.N.Y. Sept. 21, 2007) (alteration added) (citations omitted))), State Comm'n on Human Rels. v. Talbot Cnty. Det. Ctr., 370 Md. 115, 803 A.2d 527, 542 (2002) ("The mere assertion that apprehended acts will inflict irreparable injury is not enough."). But see Great Am. Ins. Co. v. Conart Inc., No. 1:05-cv-038(WLS), 2006 WL 839197, at *6, 2006 U.S. Dist. LEXIS 17787, at *16-17 (M.D.Ga. Mar. 29, 2006) (In finding irreparable injury, the court stated only that "[d]efendants acknowledge in the Agreement that Plaintiff has no adequate remedy at law. The Agreement clearly states that the undersigned Defendants' failure to deposit `immediately upon demand, the sum demanded by the Surety as payment shall cause irreparable harm to the Surety for which the Surety has no adequate remedy at law . . .['] Therefore, the Court finds that absent enforcement of the Agreement, Plaintiff has no adequate remedy at law.").
However, courts have found such a provision to be at least persuasive in determining irreparable injury in a trademark infringement context. See Dunkin' Donuts Franchised Rests. LLC v. KEV Enters., 634 F.Supp.2d 1324, 1336 (M.D.Fla. 2009) (in addition to presumption of irreparable harm, citing provision in agreement stating "FRANCHISEE further agrees that any unauthorized use of the Proprietary Marks during the term of or after expiration or the earlier termination of this Agreement shall constitute an incurable default causing irreparable harm subject to injunctive relief[]" in finding that a substantial threat of irreparable harm had been established), Dunkin' Donuts Franchised Rests. LLC v. Cardillo Capital, Inc., No. 2:07-cv-278-FTM-29SPC, 2007 WL 2209245, at *5, 2007 U.S. Dist. LEXIS 54921, at *14 (M.D.Fla. July 30, 2007) (same).
The Eleventh Circuit has held:
Ferrellgas Partners, L.P. v. Barrow, 143 Fed.Appx. 180, 190-91 (11th Cir.2005).
Because Defendants continue to operate their Alabama learning center as a Sylvan Center without Sylvan's permission, Sylvan can no longer control the Defendants' operation of that Sylvan Center pursuant to the terms of the Alabama Agreement. Thus, Sylvan has lost control of its reputation and its ability to control the nature and quality of the services Defendants provide through the center. Sylvan has admitted as much in open court.
For these reasons, the Court finds that Sylvan stands to suffer irreparable harm from Defendants' unauthorized use of its trademarks in the operation of their Alabama Sylvan Center.
As with trademark infringement, Baldwin has already agreed that Sylvan would be entitled to injunctive relief in the event that the non-compete covenant is breached because its remedy at law would be inadequate. (Doc. 1-1 at 25, ¶ 12, supra). As was stated previously, such a provision is not alone dispositive in establishing irreparable injury. See Anago Franchising, Inc., supra, State Comm'n on Human Rels., supra, though such provisions have been found to be at least persuasive in finding irreparable harm in a breach of contract. See Wine Not, Int'l v. 2atec, LLC, No. 8:06-CV-117-T-23TGW, 2006 WL 1766508, at *10, 2006 U.S. Dist. LEXIS 46218, at *25 (M.D.Fla. June 26, 2006) (noting, among other things, that "by executing the Non-Competition Agreement, [Defendant] acknowledged that a breach of its provisions will result in irreparable harm."). Cf. E.A. Renfroe & Co. v. Moran, 249 Fed.Appx. 88, 93 (11th Cir. 2007) (upheld district court's finding of irreparable injury, which included the observation that the appellants "`expressly acknowledged in writing the virtual impossibility of quantifying the damages that would be caused by a breach of confidentiality, and expressly . . . authorized the remedy of a preliminary injunction as appropriate.'").
In upholding a district court's grant of a preliminary injunction enforcing a covenant not to compete, the Eleventh Circuit held that "the loss of customers and goodwill is an `irreparable' injury." Ferrero v. Associated Materials, Inc., 923 F.2d 1441, 1449 (11th Cir.1991) (citing Spiegel v. City of Houston, 636 F.2d 997 (5th Cir., Unit A,
Curves Int'l, Inc. v. Mosbarger, 525 F.Supp.2d 1310, 1314-15 (M.D.Ala.2007).
Like the franchisor in Curves International, Sylvan has not presented evidence showing that it has lost customers as a result of Defendants' continued operation of their Alabama Sylvan Center or that it has had difficulty attracting new franchisees to the territory. Sylvan's bare assertions that such harm will occur do not show "actual and imminent" irreparable injury. The Court is also not convinced by Sylvan's arguments that its entire franchise system would break down if a preliminary injunction is not issued enforcing the Alabama Agreement's non-compete covenant. See Anago Franchising, Inc., 2009 WL 5176548, at *12, 2009 U.S. Dist. LEXIS 123352, at *41 ("[W]hile Anago claims the value of its master franchise agreements will be diminished and its business model threatened unless it can enforce the covenant not to compete in this case, `a denial of this preliminary injunction does not mean that [Anago] will be unable to enforce the covenant. It simply means that [Anago] must seek to enforce it at a later stage of the legal proceedings. . . . A denial . . . will not encourage other franchisees that they can abandon their franchise agreements as they may be held liable for doing so.'" (quoting Pirtek
Unlike the franchisor in Curves International, Sylvan can show that Defendants continue to operate and hold out their Alabama learning center as a licensed Sylvan Center, and that the equipment and materials they use to operate the center are Sylvan proprietary materials. Moreover, Defendants continue to operate their unlicensed Sylvan Center in the same location as their licensed Sylvan Center, whereas Jordan's Gym in Curves International, Inc. was never associated with the Curves International franchise. However, any such harm from this activity can be eliminated though a preliminary injunction based on Sylvan's trademark infringement claims, as well as the enforcement of some of the Alabama Agreement's post-termination obligations. Cf. Gandolfo's Deli Boys, LLC v. Holman, 490 F.Supp.2d 1353, 1361 (N.D.Ga.2007) ("[I]f a former franchisee infringes the franchisor's trademark, the proper recourse is to seek an injunction against the continued use of that mark, not to shut down the entire business[.]").
The Court finds that the following post-termination obligations of the Alabama Agreement are due to be enforced by preliminary injunction in the interest of preventing consumer confusion and protecting Sylvan's customers and goodwill:
The failure to grant injunctive relief as to any remaining post-termination obligations, to the extent they are not incidentally enforced by injunctive relief on Sylvan's trademark infringement claim, will not result in irreparable damage that cannot be compensated at law. Because the granting of preliminary injunctive relief as to trademark infringement and as to the above-listed post-termination obligations will remove the demonstrated irreparable harm of Defendants' breach of the non-compete covenant, the Court will not grant injunctive relief as to the non-compete covenant at this time.
In determining the balance of harms, "[t]he inquiry is whether the probable loss of consumer goodwill outweighs the cost of delay to the defendant who will be unable to sell the product using the trademark until a decision is reached on the merits." Cardillo Capital, Inc., 2007
Id. at *6, 2007 U.S. Dist. LEXIS 54921, *14-15.
No specific evidence has been provided that being unable to use Sylvan's Licensed Marks will force Defendants' Alabama learning center to close or lay off employees. Even assuming such things would come to pass, however, the Court agrees with the analysis in Cardillo Capital, supra, and finds that such consideration is still outweighed by Sylvan's loss of goodwill and of the control of its marks should an injunction not issue.
Moreover, "a franchisee that has breached the terms of its franchise agreement cannot then complain of harm from an injunction preventing further use of the franchisor's trademarks." Dunkin' Donuts Franchised Rests. LLC v. D & D Donuts, Inc., 566 F.Supp.2d 1350, 1361 (M.D.Fla.2008) (citing, e.g., S & R Corp. v. Jiffy Lube Int'l. Inc., 968 F.2d 371, 379 (3d Cir.1992), and Burger King Corp. v. Majeed, 805 F.Supp. 994, 1006 (S.D.Fla.1992)). Harm resulting from Defendants' failure to comply with the Alabama Agreement is a "self-inflicted injury" which is decisively outweighed by the immeasurable loss to Sylvan's goodwill. See id. at 1361-62. But see Scotts Co. v. United Indus. Corp., 315 F.3d 264, 283-284 (4th Cir.2002) ("[T]he district court gave impermissibly short shrift to the question of the harm that would be visited upon the defendants. The harm to a defendant, particularly a defendant in a false advertising case, could almost always be described as of the defendant's own making. If self-made harm is given substantially less weight, . . . then the balance of the harms will almost always favor the plaintiff, thus transforming a preliminary injunction from an extraordinary remedy into a routine occurrence. And when the purpose behind the requirement that the court balance the harms is recognized, it becomes apparent that it is error to dismiss as self-inflicted the harms that might be suffered by a defendant if an injunction were to issue.").
Any harm suffered by Defendants resulting from the enforcement of the post-termination obligations designated above, in Section IV(b)(2), is "self-inflicted" injury caused by Defendants' breach of the Alabama Agreement and is outweighed by the consideration that Defendants knowingly agreed to such obligations when entering the contract. See Dunkin' Donuts Franchised Rests. LLC v. D & D Donuts, Inc., supra.
As has already been determined, Sylvan has adequately demonstrated that Defendants' continued use of Sylvan's Licensed Marks at its Alabama learning center will likely cause confusion among consumers. Because "the public interest is served by preventing consumer confusion in the marketplace[,]" Davidoff & Cie, S.A. v. PLD Int'l Corp., 263 F.3d 1297, 1304 (11th Cir.2001), a preliminary injunction enjoining Defendants' unlicensed use of Sylvan's Licensed Marks is justified.
"As a matter of public policy, enforcement of contract terms is favored as long as said terms are not oppressive, onerous, or otherwise unconscionable." Great Am. Ins. Co., 2006 WL 839197, at *6, 2006 U.S. Dist. LEXIS 17787, at *19. See also Smallbizpros, Inc., 414 F.Supp.2d at 1251 ("The Court [] finds that enforcement of an ostensibly enforceable covenant not to compete would not be adverse to the public interest."). Because the post-termination obligations of the Alabama Agreement largely relate to ending Baldwin's operation of its learning center as a licensed Sylvan Center, and because none of the obligations appears overly harsh or objectionable, the public interest will be served by enforcing them as well.
"Federal Rule of Civil Procedure 65(c) requires that an applicant for a preliminary injunction provide security against the potential effects of a wrongly-issued injunction . . . This Court has stated previously, in dicta, that before a court may issue a preliminary injunction, a bond must be posted, but it is well-established that the amount of security required by the rule is a matter within the discretion of the trial court and the court may elect to require no security at all." BellSouth Telecomms., Inc., 425 F.3d at 970-71 (internal citations and quotations omitted). Because of the high likelihood of success on the merits of Sylvan claims as they pertain to the Alabama Agreement, the Court finds no need for a bond to issue.
For the reasons stated, it is
