HENRY T. WINGATE, District Judge.
Before this court is the motion of plaintiffs Asbury MS Gray-Daniels, L.L.C. and Asbury Automotive Arkansas, L.L.C., for a temporary restraining order, preliminary injunction and permanent injunction [docket no. 3]. Plaintiffs filed said motion pursuant to Fed.R.Civ.P. 65.
Plaintiff Asbury Automotive Arkansas, L.L.C. bought a car dealership sold by Robert E. Gray, Steven M. Inzinna, and defendant Noel E. Daniels pursuant to an Asset Purchase Agreement, which contained a non-competition provision [docket no. 1-2]. Daniels left employment with plaintiff Asbury MS Gray-Daniels, L.L.C. and soon thereafter began working for defendant Joe M. Usry, Jr., at Usry Enterprises, L.L.C. d/b/a Joe Usry Chrysler Jeep Dodge. Plaintiffs ask this court to find that Daniels has violated the non-competition provision of the Asset Purchase Agreement and to require Daniels and the other defendants to act in compliance with that provision. Upon due consideration, this court finds that the motion should be granted.
On April 4, 2001, Brandon Ford, Inc. d/b/a Gray-Daniels Ford ("Gray-Daniels"), along with its principals, Robert E. Gray, Noel E. Daniels, and Steven M. Inzinna ("the sellers"), entered into an Asset Purchase Agreement ("APA") with Asbury Automotive Arkansas, L.L.C. ("Asbury Arkansas") by which Asbury Arkansas purchased the Ford dealership known as Gray-Daniels Ford located in Brandon, Mississippi. Daniels remained employed by Asbury MS Gray-Daniels, L.L.C. ("Asbury MS") at Gray-Daniels until he terminated his employment there in late November 2010. By December 1, 2010, Daniels had begun employment with Joe Usry at Usry Enterprises, L.L.C. d/b/a Joe Usry Chrysler Jeep Dodge ("Usry dealership") in Jackson, Mississippi.
Plaintiffs Asbury MS and Asbury Arkansas allege that Daniels' ongoing employment with the Usry dealership violates the non-competition clause in Section 11.11 of the APA, which states:
....
Based on Daniels' alleged violation of the non-competition clause in the APA, plaintiffs filed suit in this court on January 18, 2001. Plaintiffs have brought the following causes of action: breach of contract, unfair competition pursuant to both the Lanham Act, Title 15 U.S.C. §§ 1051 et seq. and Mississippi common law;
Plaintiffs served defendants with their motion for injunctive relief as evidenced by a certificate of service therein [docket no. 3], and this court has held hearings, allowing arguments and presentation of evidence, on four occasions. Because defendants have received notice and all parties have been heard, the court will treat this motion as one for a preliminary injunction.
A preliminary injunction should issue if the movant establishes: (1) a substantial likelihood of success on the merits, (2) a substantial threat of irreparable injury if the injunction is not issued, (3) that the threatened injury if the injunction is denied outweighs any harm that will result if the injunction is granted, and (4) that the grant of an injunction will not disserve the public interest. Janvey v. Alguire, 628 F.3d 164, 174 (5th Cir.2010). The plaintiff bears the burden of establishing each element. Id.
This court has examined the four factors to determine the propriety of issuing a preliminary injunction and finds the factors weigh in favor of issuance. This court emphasizes that its ruling on plaintiffs' request for preliminary injunctive relief is not to be construed as a determination on the merits of this case.
In order to satisfy the first element, likelihood of success on the merits, plaintiffs must provide evidence sufficient to support a prima facie case, but the evidentiary standard is not as high as would be required to entitle them to summary judgment. Janvey, 628 F.3d at 175 (citation omitted). To assess the likelihood of success on the merits, this court looks to "standards provided by the substantive law." Id. (citing Roho, Inc. v. Marquis, 902 F.2d 356, 358 (5th Cir.1990) (citing Mississippi Power & Light Co. v. United Gas Pipe Line Co., 760 F.2d 618, 622 (5th Cir.1985) ("To evaluate the plaintiff's likelihood of success we determine what is the proper standard to be applied in evaluating plaintiff's claims, and then we apply that standard to the facts presented in the record."))).
Plaintiffs rely on a contract theory for preliminary injunctive relief. Thus, in order to determine plaintiffs' likelihood of success under a contract theory, this court
The APA prohibits Daniels from working with a competing dealership within particular temporal and geographic confines. The APA contains a clause concerning modification. Section 14.1 of the APA [docket no. 1-2] states:
The parties dispute whether the APA was modified by subsequent employment agreements and oral representations of one of plaintiffs' officers
New York law states:
NY CLS GEN. OBLIG. § 15-301(1). Under New York law there are few exceptions to overcome this requirement of a writing. In re: Hirschhorn, 156 B.R. 379, 386 (Bankr.E.D.N.Y.1993). Mississippi law, on the other hand, recognizes that a contractual clause requiring a writing for modification may be waived by the subsequent conduct of the parties. See Canizaro v. Mobile Comm. Corp. of America, 655 So.2d 25 (Miss.1995).
A district court hearing a diversity suit shall apply the choice-of-law rules of the state in which the action is brought. Cherokee Pump & Equip. Inc. v. Aurora Pump, 38 F.3d 246, 250 (5th Cir.1994) (internal citation omitted). Mississippi, the forum state for this case, recognizes that parties may legitimately control the
At the court's request, the parties submitted additional arguments and authority on the choice of law issue. Defendants argue in their submission that the choice of law provision in the APA should not apply because there is not a reasonable relationship between the parties and New York since the resident parties reside and work in Mississippi; the only corporate defendant is a Mississippi Corporation; and Asbury MS is a Delaware corporation that owns dealerships here.
Essentially, defendants argue, Mississippi has more contacts with this case. Whether Mississippi has more contacts than New York with the matter is not decisive. When the parties have contracted to litigate under a certain state's law, that choice will not be disturbed simply because the forum state has more significant contacts with the transaction. See Woods-Tucker Leasing Corp. v. Hutcheson-Ingram Development Co., 642 F.2d 744, 749-50 (5th Cir.1981) (The Fifth Circuit found that the law of Mississippi, the state designated in the choice-of-law provision should be applied instead of the law of Texas, the forum state, despite the fact that "[t]he Mississippi contacts with the transaction [were] not as substantial"). "[T]he parties' choice should be upheld unless the transaction lacks a normal connection with the state whose law was selected." Id. at 751. [T]he `reasonable relation' test ... limits party autonomy in the choice of law only to the extent that it forbids them to select the law of a jurisdiction that has "no normal relation to the transaction." Woods-Tucker, 642 F.2d at 750-51. The relationship should only be held to be unreasonable "when it is shown that the contact did not occur in the normal course of the transaction, but was contrived to validate the parties' choice of law." Id. at 751. The reasonable relation test is a more lenient standard than the due process minimum contact test. Superfos Invest., Ltd. v. FirstMiss Fertilizer, Inc., 809 F.Supp. 450, 453 (S.D.Miss.1992).
The question, then, is whether the APA is sufficiently connected to New York to satisfy the reasonable relation test. At this court's order directing affidavits for more information on this question [docket no. 11], plaintiffs filed the affidavit of Edward McGinty [docket no. 12], Asbury Automotive Group's director of market representation. McGinty worked at Asbury Automotive Group's headquarters during the negotiations of the APA. His affidavit attests to the following facts.
Asbury Automotive Group, L.L.C. ("Asbury Automotive") is the parent company of Asbury Arkansas. At the time of the negotiations of the APA, Asbury Automotive was headquartered in Stamford Connecticut, but its operations were controlled from the offices of the majority owners, Ripplewood Holdings, in New York, New York. Principals at Ripplewood Holdings served as Asbury Automotive's Board of Directors. Asbury Automotive's Board of
The defendants respond that Asbury Automotive is neither a party to this action nor a party to the APA. While these assertions are consistent with the record before this court, they do not negate plaintiffs' representations that: (1) Asbury Automotive is the parent company of Asbury Arkansas, a party to this action and to the APA, and (2) Asbury Automotive, as the parent company of Asbury Arkansas, made significant decisions concerning the APA, including its terms and final approval.
Consistent with the application of the reasonable relation test in this circuit and district, the contacts between the APA and New York constitute a reasonable relation. The Fifth Circuit and this district have both previously found a reasonable relation in consideration of facts similar to those before the court. See, e.g., Woods, 642 F.2d 744 (The Fifth Circuit determined that there was a reasonable relation to Mississippi, the state designated in the choice-of-law provision in a loan agreement, when it was the state where: the home offices of the appellant lender were located, the documents comprising the loan agreement at issue were executed, and the appellee borrower sent its initial monthly payments) and Superfos, 809 F.Supp. at 452-53 (This court, applying Miss.Code Ann. § 75-1-105, concluded that a reasonable relation existed where, inter alia, one party negotiated the contract and received payment as directed by the contract at a bank account in the state designated in the choice-of-law provision).
The defendants also argue that even if there is a reasonable relation between New York and the transaction, the court should apply Mississippi law because imposition of New York law would violate Mississippi public policy by enforcing an ambiguous restrictive covenant. The Mississippi Supreme Court has held that it will not apply the substantive laws of another jurisdiction when to do so would be "contrary to the deeply ingrained and strongly felt public policy" of Mississippi. Boardman v. United Servs. Auto. Ass'n, 470 So.2d 1024, 1031 (Miss.1985).
The defendants cite Kennedy v. Metro. Life Ins. Co., 759 So.2d 362 (Miss.2000). In Kennedy, the Mississippi Supreme Court refused to enforce a non-compete provision against a former employee, who left to work for a competitor, because of evidence that the employee made a good faith effort to comply with the provision, but failed because of the ambiguity in the contract language. Id. at 367. The court found that the language of the non-compete provision was ambiguous, "subject to differing interpretations" concerning what the employee could do after separation from the employer. Id. The court held that "[g]iven the unfavored status of non-competition agreements in the eyes of the law, the burden properly falls on the employer to draft a non-competition agreement
Unlike the disputed agreement in Kennedy, the language of the APA does not put Daniels in "a very uncertain position," Kennedy, 759 So.2d at 367, as to whether he is violating the agreement. The language of the APA prohibits Daniels from competing with Gray-Daniels within a fifty mile radius of the Brandon Gray-Daniels dealership for whichever period is longer: (1) "the fifth (5th) anniversary of the Closing Date" or (2) "one (1) year from the termination (for any reason) of such Principal's employment." (APA, Sections 11.11(a) and (d)). This language is clear. It bars Noel Daniels from competing directly with Gray-Daniels within a specific geographic region and for a specific duration of time. This court finds no merit in defendants' argument that enforcement of the APA would violate Mississippi public policy. Kennedy, 759 So.2d at 366 ("courts have often enforced non-competition agreements which clearly prohibit an employee from practicing his trade at all within a given geographical area for a specified period.") Accordingly, this court will apply New York law in determining whether plaintiffs have a substantial likelihood of success concerning their contract theory under the APA.
As mentioned previously, Daniels was restricted by the APA from competing, i.e., acting in association with a car dealership, within fifty (50) miles from Gray-Daniels within one (1) year from his termination. After ending his employment with Gray-Daniels in late November, within weeks, at most, Daniels began to work for the Usry dealership located within fifty miles of Gray-Daniels.
Plaintiffs have made two arguments suggesting that plaintiffs will not be successful as to its breach of contract claim. The first argument is that Gray orally released Daniels from the non-competition provision in the APA or waived Asbury's right to enforce the non-competition provision in the APA. There are several problems with this argument. As mentioned above, New York law states that written agreements barring oral modification, such as the APA, can only be modified by written agreements. Thus, Gray's alleged oral modification was insufficient. Further, Gray testified that he did not know he or Daniels was still under the restrictions of the APA. (January 21, 2011, transcript, pp. 28-29). "Under New York law, a claim of waiver requires proof of an intentional relinquishment of a known right with both knowledge of its existence and an intention to relinquish it." Capitol Records, Inc. v. Naxos of Am., Inc., 372 F.3d 471, 482 (2d Cir.2004) (citation and internal quotation marks omitted). Clearly, Gray had no knowledge of an effective right to enforce the non-competition agreement; therefore, he could not have intended to waive that right on behalf of Asbury.
The defendants also argue that a March 8, 2002 letter [docket no. 13-3] nullified the non-competition provision in the APA. The letter, executed subsequent to the APA, was signed by Gray as CEO and by Daniels as an employee. The letter contains no restriction on competition but offers a change in terms of employment for Daniels, including salary, vacation, bonuses and the like. The defendants argue that the March 8, 2002, agreement changes the restrictions and benefits of Daniels' employment and thereby change the APA. This argument is problematic. The March 8, 2002, letter states that it is "an offer of employment only" and not a contract of employment. Whether the letter, according to its own terms, is binding is questionable.
The plaintiffs are likely to succeed in the face of the defendants' contention that oral and written agreements made subsequent to the APA nullified the non-competition provision in the APA. The defendants have presented this court with no evidence to support their argument that the non-competition provision in the APA is not effective. This court finds that the non-competition clause is clear, effective, and reasonable
In order for plaintiffs to be granted preliminary injunctive relief they must show a substantial threat that they would suffer irreparable injury if an injunction is not granted. In order to meet the burden of showing irreparable injury if not awarded an injunction, plaintiffs need to establish that they are under a substantial threat of harm which cannot be undone through monetary remedies. Parks v. Dunlop, 517 F.2d 785, 787 (5th Cir.1975). A showing of speculative injury is not sufficient; there must be more than an unfounded fear on the part of the movant. Janvey v. Alguire, 628 F.3d 164 (5th Cir. 2010).
For several reasons this court is satisfied that irreparable harm has been shown. First, plaintiffs claim damages such as loss of business and customer goodwill, which are very difficult, if not impossible, to calculate and remedy in terms of monetary damages. The indeterminate amount of business lost due to an employee who breaches a non-competition covenant can be grounds for the court to assume irreparable injury. See Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 69 (2d Cir.1999). Also, a loss of prospective goodwill can constitute irreparable harm. Tom Doherty Assocs. v. Saban Entm't, Inc., 60 F.3d 27, 38 (2d Cir.1995).
The threat of Irreparable injury is also suggested by the agreement of the parties that a breach of the APA would constitute irreparable injury. Section 11.11(e) of the APA states that:
Another consideration is the admission of both parties that Daniels has a special advertising skill and that his persona is a unique and highly effective car sales mechanism. According to Gray-Daniels and Usry, each dealership employed Daniels' primarily for his persona. New York law refers to such an attribute as a "unique service." The Second Circuit, applying New York law, has stated:
Ticor Title, 173 F.3d at 70-71 (internal citations and quotation marks omitted).
For these reasons, this court is persuaded that the factor of irreparable harm weighs in favor of ordering a preliminary injunction.
The threat of injury to the Asbury plaintiffs clearly outweighs the threat of injury that injunctive relief may cause the defendants. Plaintiffs' threat of injury includes loss of goodwill and loss of sales. By contrast, granting injunctive relief against the defendants will solely require them to abide by the terms of Daniels' agreement; that is, for a one year period, Daniels may not work with a car dealership within fifty miles of Gray-Daniels, including the Usry dealership. With an injunction in place, Daniels may still earn a living by using his persona to sell cars, and Usry and the Usry dealership can still sell cars. They would simply be required to do so under the terms to which Daniels agreed.
Requiring the defendants to comply with the non-competition provision during the pendency of resolution of the merits of this case will possibly delay the business development efforts of the Usry dealership. On the other hand, if Daniels is allowed to continue advertising for the Usry dealership in competition with Gray-Daniels, Daniels will be allowed to retain the full benefit of the APA, the $2,200,000.00 payment that was made to Daniels as consideration for abiding by the APA, while depriving plaintiffs of part of the benefit for which they paid. As such, this court finds
This court finds the public interest is served by granting a preliminary injunction. The public has an interest in ensuring that parties uphold valid contractual agreements entered into voluntarily and knowingly. Thus, this last factor also favors granting a preliminary injunction.
For the foregoing reasons, the plaintiffs' motion for preliminary injunction [docket no. 3] is granted.
IT IS THEREFORE ORDERED AND ADJUDGED that:
Plaintiffs request costs pursuant to the Indemnification Provision in the APA which essentially provides that if one of the sellers, here Daniels, breaches the APA, he will indemnify the buyers, the Asbury plaintiffs, for damages incurred as a result of his breach.
Alside and Unisource both suggest that limitation of a non-competition covenant is appropriate when the limitation is unreasonable or greater than necessary to prevent the likely irreparable injury. Unisource explains that "[i]f a court finds a limitation to be unreasonable, it can `blue pencil' the covenant to restrict the term to a reasonable geographic limitation, and grant partial enforcement for the overly broad restrictive covenant." 196 F.Supp.2d at 277. As mentioned above, under New York law, when a party to a non-competition provision stating that breach is an irreparable injury breaches the provision, the breaching party is assumed to agree with the provision. The provision at issue says such and also says that the terms of the restrictions in the non-competition provision are reasonable and necessary. Applying New York law, this court finds Daniels has conceded, as a signatory to the APA, that a one-year limitation on competition is reasonable and necessary as 11.11(e) of the APA states. Considering Daniels' concession and this court's previous finding that the terms were reasonable, this court finds no need to apply the blue pencil rule to modify the provision at issue.
