TIMOTHY S. BLACK, District Judge.
This matter is before the Court on Plaintiffs Dealer Specialties, Inc. and Dealer Specialties International, Inc.'s Motion for Summary Judgment. (Doc. 32). Plaintiffs' motion was filed March 31, 2016. Defendants have not filed a response to date.
A motion for summary judgment should be granted if the evidence submitted to the Court demonstrates that there is no genuine issue as to any material fact, and that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The moving party has the burden of showing the absence of genuine disputes over facts which, under the substantive law governing the issue, might affect the outcome of the action. Celotex, 477 U.S. at 323. All facts and inferences must be construed in a light most favorable to the party opposing the motion. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). A party opposing a motion for summary judgment "may not rest upon the mere allegations or denials of his pleading, but . . . must set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 248 (1986).
Plaintiffs allege that Defendants violated the covenants to compete they entered as part of their previous business relationship, in which Car Data 24/7 was a franchisee of Dealer Specialties, Inc. The Complaint specifically accuses Defendant Ell Jay Lindsey, president of Car Data 24/7 Inc. and the son of the other individual defendants, of taking various actions to divert Dealer Specialties customers to competitor known as HomeNet. Plaintiffs' motion requests summary judgment on their claim for a permanent injunction enforcing the terms of the covenants not to compete.
To prove a breach of contract under Ohio law, a party must prove four elements: (1) the existence of a valid contract; (2) performance by the plaintiff; (3) breach by the defendant; and (4) resulting damages. Pavlovich v. Nat'l City Bank, 435 F.3d 560, 565 (6th Cir. 2006).
There are three contracts at issue in this case. The first is a franchising agreement between Plaintiffs and Defendant Car Data 24/7, Inc. signed by a representative of Plaintiffs and by Defendants Gary and Sherry Lindsey on June 6, 2011. (Doc. 1-1, at 1-32). Gary and Sherry Lindsey also signed a personal guaranty agreement making them personally liable under the franchise agreement. (Id. at 41). Pursuant to the agreement and guaranty, Defendants Car Data 24/7 Inc., Gary Lindsey and Sherry Lindsey promised that, for a period of two years following termination, "[d]ivert or attempt to divert, any business of, or any customers of, the Dealer Specialties® Business franchised hereunder, nor those of any other Dealer Specialties® franchise, or of [Plaintiffs'] affiliates, to any Competing Business, by direct or indirect inducement or otherwise . . ." (Id. at 19). The franchise agreement also stated that the bound Defendants would not, for a period of two years following termination, own, engage, or participate in a competing business: (1) in Car Data 24/7, Inc.'s territory or within 20 miles of its territory. (2) in the territory or within 20 miles of the territory granted to another Dealer Specialties franchise, or (3) in the territory or within 20 miles of the territory in which Plaintiffs or their affiliates sell Dealer Specialties products or services.
The other contract at issue is a "Confidentiality/Non-Compete Agreement" signed by Defendant Ell Jay Lindsey, current president of 24/7 Inc. and son of Gary and Sherry Lindsey, on September 19, 2007. (Doc. 1-2). Pursuant to the non-compete agreement, Ell Jay Lindsey promised he would not, for a period of one year following termination of his access to the Dealer Specialties business system, directly or indirectly provide services to a competing business in connection with the sale, promotion, or distribution of any product or service that competes with any Dealer Specialties product or service. (Id. at 2). Furthermore, Ell Jay Lindsey promised he would not, for a period of one year following termination of his access to the Dealer Specialties business system, directly or indirectly solicit any Dealer Specialties clients he had contact with or whose account he serviced during his authorized use of Plaintiffs' business system. (Id.).
The restrictive covenants are reasonable, and Plaintiffs are entitled to enforce them. The covenants are supported by legitimate (and frequently recognized) business interests, including loss of control of reputation, loss of goodwill, and consumer confusion. See Economou, 756 F. Supp. at 1040. Here, Defendants had exposure to and training involving the Dealer Specialties® trade secrets and business model, considerable contact with Dealer Specialties® clients, and opportunities to develop industry relationships. See Petland, 2004 WL 3406089, at *3. Defendants plundered this information and used it to compete with Plaintiffs, which inevitably results in consumer confusion and leaves Plaintiffs' goodwill, tradename, reputation, prospective business opportunities, and proprietary information open to significant harm. See Economou, 756 F. Supp. at 1032; UZ Engineered Prods. Co. v. Midwest Motor Supply Co., 770 N.E.2d 1068, 1080 (Ohio Ct. App. 2001).
The Franchise Agreement makes clear the covenants not to compete are an integral aspect of DSI's franchising model, which further supports the reasonableness of the restrictive covenants and their enforcement. See Petland, 2004 WL 3406089, at *3; Interstate Automatic Transmission Co. v. W.H. McApline, 1981 WL 2193, at *2 (N.D. Ohio June 17, 1981). In particular, Car Data 24/7 acknowledged in the Franchise Agreement "it would be impossible after having received extensive training and consultation in the use of copyrighted software and the Dealer Specialties® System, to operate any Competing Business, without using some or all of [DSI's] trade secrets and information . . . or without disclosing . . . trade practices, secrets, methods of operation and copyrighted information." (Franchise Agreement at § XII(B)). Further, the Franchise Agreement required Car Data 24/7 to cause each of its employees to enter into and abide by a confidentiality and noncompetition agreement. (Id. at § XII(E)).
In addition to supporting legitimate business interests, the covenants contain appropriate spatial and temporal restrictions. The Franchise Agreement proscribes competitive conduct within any territory, or within twenty miles of any territory, already occupied by DSI or its franchisees. The Non-Compete Agreement proscribes competitive conduct in Car Data 24/7's territory and in any other geographic area where Ell Jay Lindsey had contact with Dealer Specialties® customers, or supervised Dealer Specialties® employees who had contact with customers, during the twelve months preceding termination of the Franchise Agreement. Courts in Ohio have upheld similar and more expansive geographic restrictions. See, e.g., Try Hours, Inc. v. Douville, 985 N.E.2d 955 (Ohio Ct. App. 2013) (upholding nationwide covenant not to compete in expedited freight industry); Am. Logistics Grp., Inc. v. Weinpert, 2005 WL 2240987 (Ohio Ct. App. Sept. 15, 2005) (enforcing seventy-five mile geographic restriction in covenant not to compete); Blakeman's Valley Office Equip., Inc. v. Bierdeman, 786 N.E.2d 914 (Ohio Ct. App. 2003) (enforcing covenant not to compete that spanned three counties); Klaus v. Hilb, Rogal & Hamilton Co. of Ohio, 437 F.Supp.2d 706 (S.D. Ohio 2006) (holding customer restrictions may substitute for a geographic restriction). Likewise, the two-year time period in the Franchise Agreement and one-year time period in the Non-Compete Agreement are reasonable. Life Line Screening of Am., Ltd. v. Calger, 145 Ohio Misc.2d 6, 19 (2006) (collecting cases and observing "[n]umerous Ohio decisions have upheld contracts calling for two-year periods or longer"); UZ Engineered Prods., 770 N.E.2d 1068 (enforcing two-year restrictive covenant in employment agreement); Procter & Gamble Co. v. Stoneham, 747 N.E.2d 268 (Ohio Ct. App. 2000) (finding three-year non-compete with worldwide restriction was valid and enforceable).
There is no genuine issue of material fact to dispute that Plaintiffs have performed their obligations under the contracts at issue in this case. In their amended Answer, Defendants claimed that Plaintiffs began sending sales people into the territory that had been granted to Defendants under the franchise agreement to undercut Defendants and directly sign client car dealerships. (Doc. 19, at 12). Defendants acknowledge that, per the terms of the franchise agreement, Plaintiffs had the right to do this; however, they also claim that a verbal agreement between the parties gave Defendants exclusive rights to their territory, completely contrary to the written franchise agreement. (Id. at 11). Defendants also claim that Plaintiffs had published false and defamatory statements about Defendants to individuals including Defendants' clients. (Id. at 13).
However, none of Defendants' accusations regarding the Plaintiffs are supported by any evidence. During his deposition, Ell Jay Lindsey was asked about Plaintiffs' alleged breaches. Ell Jay Lindsey could not name any sales people who Plaintiffs had sent to Defendants' territory, could not name any dealership clients that had been lost as a result of Plaintiffs' alleged actions, could not name any individuals who defamed Defendants, could not identify when any defamatory statements were made, and could not even identify the individual who informed him about the defamatory statements, only being able to state that he heard it through the "grapevine." (Doc. 32-4, at 107-12). Conclusory accusations from Defendants' Answer without any supporting evidence will not defeat Plaintiffs' breach of contract claim at summary judgment.
Accordingly, Plaintiffs have demonstrated their own performance under their contract as is necessary to support their breach of contract claim.
There is no genuine dispute that Ell Jay Lindsey, as president of Car Data 24/7 Inc., breached both contracts at issue in this case by exploiting his access to Plaintiffs' confidential information and using it to solicit Dealer Specialties customers. Months before the termination of the franchise agreement, Ell Jay Lindsey entered into a reseller agreement with a company called HomeNet that he acknowledged provides the same types of services as those offered by Plaintiffs. (Doc. 32-4, at 12-13). He also used his e-mail address for the franchised business to contact Dealer Specialties clients to notify them of his switch to HomeNet and informed them that he was no longer representing Plaintiffs in Car Data 24/7's franchise territory. (See id. at 23). Without question, Ell Jay Lindsey's conduct violated his obligation not to "solicit any Clients of Dealer Specialties or its Franchisee(s) upon whom I called or with whom I had contact. . . ." (Non-Compete Agreement at § IV). Car Data 24/7 Inc.'s breach of its franchise agreement with Plaintiffs implicates Gary and Sherry Lindsey, as well, due to their status as guarantors.
Accordingly, Plaintiffs have demonstrated that Defendants breached both the franchise agreement signed by Car Data 24/7 Inc.'s guarantors and the non-compete agreement signed by Ell Jay Lindsey.
Plaintiffs allege that as a result of Defendants' breach of contract, Plaintiffs lost over 70 dealership customers. (Doc. 32-1. at 6). The record contains testimony from Ell Jay Lindsey that he wrote emails referencing his switching Plaintiffs' customers to competitors. (Doc. 32-4, at 23-24). The record also demonstrates that Plaintiffs have had to make overtures to former clients that were converted by Defendants in an attempt to regain their business. (Doc. 32-3, at 18).
Accordingly, Plaintiffs have demonstrated the damages element of their breach of contract claims. Because Plaintiffs have shown each element of their breach of contract claims without any genuine dispute as to the material facts, summary judgment on Plaintiffs' breach of contract claims is warranted.
Plaintiffs' motion for summary judgment additionally requests summary judgment on Defendant Ell Jay Lindsey's counterclaim. The counterclaim alleges breach of contract claims against Plaintiffs. As discussed in Part III.A.2, supra, there is absolutely no evidence to support any breach of contract claim against Plaintiffs. Accordingly, summary judgment in favor of Plaintiffs is warranted.
Plaintiffs' Complaint requests that the Court issue a permanent injunction preventing any of the Defendants from competing with Plaintiffs, providing services to any of Plaintiffs' competitors, or attempting to solicit or recruit any of Plaintiffs' employees. (Doc. 1, at 10-11). Plaintiffs request this injunction be imposed for one year. (Id.). The alleged basis for Plaintiffs' request is Defendants' breaching of the Franchise Agreement and Guaranty as well as the Non-Compete Agreement that the parties jointly entered into as part of their business relationship.
A court considers four factors when considering whether a permanent injunction should issue: (1) whether the plaintiff has shown actual success on the merits; (2) whether the movant would suffer irreparable harm without the injunction; (3) whether the issuance of the injunction would cause substantial harm to others; and (4) whether the public interest would be served by the injunction. H.H. Franchising Sys., Inc. v. Aronson, No. 1:12-cv-708, 2015 WL 401343, at *8 (S.D. Ohio Jan. 28, 2015); see also ACLU of Ky. V. McCreary Cty., 607 F.3d 439, 445 (6th Cir. 2010) (recognizing the standard for a permanent injunction is essentially the same as that for a preliminary injunction except that a plaintiff must prove actual success on the merits rather than a likelihood of success on the merits).
As this Court has already discussed in Part III.A, supra, summary judgment in Plaintiffs' favor is appropriate as to their breach of contract claims. Accordingly, this factor weighs in favor of granting the permanent injunction.
Plaintiffs have demonstrated that they would suffer irreparable harm should injunctive relief not be granted. Evidence in the record indicates that Plaintiffs have already lost several customers as a result of Defendants' violation of the non-compete agreements they signed. Even though Plaintiffs have since made overtures to their lost clients, the vast majority of those lost through Defendants' breach have not returned. Allowing Defendants to continue to convert Plaintiffs' clients in violation of the noncompete agreements in place would exacerbate the irreparable harm already done to Plaintiffs.
Accordingly, this factor weighs in favor of granting Plaintiff permanent injunctive relief.
The injunctive relief requested by Plaintiffs will not bring any harm to third parties. The only injunctive relief requested is for Defendants to be held to the terms of their non-compete agreements with Plaintiffs for one year. Further, to the extent the public has an interest at all, it is in seeing that reasonable restrictive covenants are preserved and enforced. Id.; Bierdeman 786 N.E.2d at 920 ("Preserving the sanctity of contractual relations and preventing unfair competition have traditionally been in the public interest."). While Defendants may argue that granting this relief would harm their business, Defendants may not benefit from their breach of contract.
Accordingly, this factor weighs in favor of granting Plaintiffs' requested permanent injunction. Because all of the relevant factors are in Plaintiffs' favor, Plaintiffs' request for a permanent injunction is granted.
Accordingly, for the reasons outlined above, Plaintiffs' motion for summary judgment (Doc. 32) is
