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Rebath LLC v. New England Bath Incorporated

United States District Court, D. Arizona

July 15, 2016

ReBath LLC, Plaintiff,
v.
New England Bath Incorporated, et al., Defendants.

          ReBath LLC, Plaintiff, represented by Donna Howard Catalfio, Bergin Frakes Smalley & Oberholtzer PLLC.

          New England Bath Incorporated, Defendant, represented by Andrew Borders Turk, Clark Hill PLC.

          Jennifer Bylo, Defendant, represented by Andrew Borders Turk, Clark Hill PLC.

          ORDER

          DOUGLAS L. RAYES, District Judge.

         This case involves a dispute between a franchisor of bathroom remodeling products and services and its former franchisee. Plaintiff ReBath LLC moves to preliminarily enjoin Defendants New England Bath Inc. and Jennifer Bylo from using confidential information obtained during operation of the franchise, displaying trademarks and logos, and operating a competing business in violation of a noncompetition clause. (Doc. 4.) The Court held oral argument on the motion on July, 6, 2016. For the reasons stated below, the motion is granted.

         BACKGROUND

         For purposes of this Order, the following facts are undisputed unless otherwise noted. ReBath is a bathroom remodeling franchisor. (Doc. 5 at 2.) It provides operational and technical expertise to franchisees for use in marketing, selling, and installing ReBath products within an exclusive territory. ( Id. ) ReBath also provides confidential and trade secret information to franchisees, including a comprehensive operating manual to assist in opening and operating the franchise. ( Id. )

         During 2008 and 2009, Defendants entered into three separate franchise agreements with ReBath, each with a term of seven years. ( Id. ) The agreements prohibited "Defendants from transacting business in any area outside of their exclusive territory" and required them to forward outside leads to the appropriate franchise. ( Id. at 4.) If Defendants violated this provision, they would be required to pay liquidated damages in the amount of gross profits received, and their franchise would be subject to immediate termination. ( Id. ) Renewal of the agreements was conditioned upon Defendants' compliance with all provisions of the agreements and execution of ReBath's renewal agreement. ( Id. )

         In addition, the agreements provide several post expiration provisions. Upon expiration of the franchise agreements, Defendants must immediately cease use of ReBath's trademarks, logos, and service marks; turn over the manual; and provide ReBath with copies of all pending customer contracts. ( Id. at 5-6.) The agreements also contain a noncompetition clause, which provides:

for a period of one year thereafter, [Defendants may not] directly or indirectly, engage in or have any interest as an owner, partner, director, officer, employee, member, manager, consultant, representative, or in any other capacity, in or with any similar or competing business located within the Territory or 50 miles of the Territory.

( Id. ) Last, the agreements prohibit Defendants from using or disclosing any confidential information for five years after expiration. ( Id. )

         In October 2014, ReBath learned from another franchisee that Defendants had transacted business outside their exclusive territory. ( Id. at 5.) ReBath ultimately discovered that Defendants had undertaken fifteen remodeling jobs outside their exclusive territory and demanded payment of liquidated damages. ( Id. ) Defendants refused. ( Id. )

         Thereafter, two of the franchise agreements expired on November 28, 2015, and the other expired on May 3, 2016. ( Id. ) ReBath twice notified Defendants of their post-expiration obligations, but Defendants continued to use ReBath logos and trademarks, failed to turn over the manual and customer contracts, and began operating a competing business at the same location under the name Bay State Kitchen & Bath. ( Id. at 7.) Defendants also continued to use websites bearing the ReBath name and trademarks, as well as customer testimonials that resulted from installing ReBath products. ( Id. at 8.)

         On May 31, 2016, ReBath filed suit against Defendants alleging (1) trademark infringement, (2) false advertising, (3) breach of contract, and (4) trade secret misappropriation. (Doc. 1.) ReBath also moved to preliminarily enjoin Defendants from (1) using its trademarks in its showroom and on its websites, (2) suggesting that Defendants are affiliated with ReBath, (3) engaging in unfair competition and trademark infringement, (4) engaging in false advertising, (5) operating a competing bathroom modeling business in violation of the noncompetition clause, and (6) maintaining, using or disclosing the manual. (Doc. 4 at 1-2.) ReBath also requests the Court order Defendants to return the manual and all confidential information in their possession, provide copies of pending customer contracts, and modify the websites to remove all references to ReBath. ( Id. at 2.)

         LEGAL STANDARD

         "A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 20 (2008); Am. Trucking Ass'n, Inc. v. City of L.A., 559 F.3d 1046, 1052 (9th Cir. 2009). These elements are balanced on a sliding scale, whereby a stronger showing of one element may offset a weaker showing of another. See Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1131, 1134-35 (9th Cir. 2011). However, the sliding-scale approach does not relieve the movant of the burden to satisfy all four prongs for the issuance of a preliminary injunction. Id. at 1135. Instead, "serious questions going to the merits' and a balance of hardships that tips sharply towards the plaintiff can support issuance of a preliminary injunction, so long as the plaintiff also shows that there is a likelihood of irreparable injury and that the injunction is in the public interest." Id. at 1135. The movant bears the burden of proof on each element of the test. Envtl. Council of Sacramento v. Slater, 184 F.Supp.2d 1016, 1027 (E.D. Cal. 2000).

         ANALYSIS

         ReBath seeks to fully enforce the post-termination requirements of the franchise agreements. Defendants have certified to the Court that they have complied with several of these requests, including returning the manual, removing ReBath logos from service vehicles, removing signage from the showroom, ceasing use of the www.yrebath.com website, removing ReBath marks and logos from websites, removing testimonials from websites, and providing information regarding business leads and service calls. (Doc. 25 at 1-2.) Given Defendants' cooperation and their apparent concession that they are prohibited from using ReBath marks and logos in any fashion, the Court finds it unnecessary to analyze whether ReBath is likely to succeed on its trademark infringement and trade secret misappropriate claims. The only remaining issues are whether Defendants must comply with the covenant not ...


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