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Massage Envy Franchising LLC v. Goat Rodeo Ventures LLC

United States District Court, D. Arizona

August 30, 2018

Massage Envy Franchising LLC, Plaintiff,
v.
Goat Rodeo Ventures LLC, et al., Defendants.

          ORDER

          Honorable John J. Tuchi United States District Judge

         At issue is the Motion for Preliminary Injunction filed by Plaintiff Massage Envy Franchising LLC (Doc. 23). Defendants Goat Rodeo Ventures LLC, Pure Therapy LLC, Bovine Scat Holdings LLC, Triple T Gas LLC, Shonk-Bunch ME LLC, and Christopher R. Shonk have failed to timely file a Response to Plaintiff's Motion, see LRCiv 7.2(c), so Plaintiff is entitled to summary disposition of its Motion, see LRCiv 7.2(i). However, to comply with Federal Rule of Civil Procedure 65(d), the Court will now provide justification for the entry of a Preliminary Injunction, state its terms specifically, and describe in reasonable detail the acts restrained or required.

         On June 26, 2018, Plaintiff filed its Complaint (Doc. 1) against Defendants, raising two breach of contract claims, one pertaining to franchise agreements and the other pertaining to guaranty agreements. Defendants filed an Answer (Doc. 21) on August 8, 2018, and Plaintiff filed the present Motion for Preliminary Injunction (Doc. 23) on August 14, 2018.

         I. ENTITLEMENT TO PRELIMINARY INJUNCTIVE RELIEF

         To obtain a preliminary injunction, Plaintiff must show that “(1) [it] is likely to succeed on the merits, (2) [it] is likely to suffer irreparable harm in the absence of preliminary relief, (3) the balance of equities tips in [its] favor, and (4) an injunction is in the public interest.” Garcia v. Google, Inc., 786 F.3d 733, 740 (9th Cir. 2015) (citing Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 20 (2008)). The Ninth Circuit Court of Appeals, employing a sliding scale analysis, has also stated that “‘serious questions going to the merits' and a hardship balance that tips sharply toward the plaintiff can support issuance of an injunction, assuming the other two elements of the Winter test are also met.” Drakes Bay Oyster Co. v. Jewell, 747 F.3d 1073, 1078 (9th Cir. 2013) cert. denied, 134 S.Ct. 2877 (2014) (quoting Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1132 (9th Cir. 2011)). It is under this standard that the Court evaluates Plaintiff's breach of contract claims.

         A. Likelihood of Success on the Merits

         In its Motion (Doc. 23), Plaintiff produces evidence that it has trademark rights in its name, Massage Envy, and owns a system relating to the establishment and operation of personal health clinics under its name. Plaintiff entered into seven relevant Franchise Agreements with Defendants, and Shonk provided personal Guarantees for the Agreements. Defendants repeatedly breached the Agreements over a period from 2015 to 2017, and Plaintiff sent Defendants multiple Notices of Default over the same period. On July 8, 2017, Plaintiff sent written notice to Defendants stating that it had grounds to terminate the Agreements but giving Defendants a reasonable period of time to sell their clinics before Plaintiff exercised its termination rights. Defendants declined to do so and continued to breach the Agreements, and Plaintiff notified Defendants that it was terminating the Agreements on May 1, 2018.

         Under the Agreements, Plaintiff has 30 days from the date of written notice of termination to purchase Defendants' interests in the clinics as well as fixtures, furniture and the like. The purchase price is to be set at the fair market value at the time of Plaintiff's exercise of the purchase option. If the parties cannot agree on a fair market value, it is to be set either by an arbitrator (under three of the Agreements) or a panel of appraisers (under the other four Agreements).

         Upon terminating the Agreements, Plaintiff requested that Defendants provide a list of operating assets and their age for the purpose of assessing the assets' value. Defendants failed to cooperate and continued to operate the clinics under Plaintiff's name, in various states of disrepair, and out of compliance with the requirements of the now-terminated Agreements.

         Defendants have provided no evidence to oppose that provided by Plaintiff, and it is thus undisputed that the Agreements are valid and enforceable; Defendants breached the Agreements; Defendants failed to take the required steps to effectuate sale of the operating assets to Plaintiff; and Plaintiff has suffered and continues to suffer harm in the form of damages and injury to its brand and goodwill. Therefore, Plaintiff has demonstrated it is likely to succeed on the merits of its breach of contract claims and its request for specific performance. See Ocean Beauty Seafoods, LLC v. Pacific Seafood Grp. Acquisition Co., Inc., 648 Fed.Appx. 709, 710-11 (9th Cir. 2016); Malo, Inc. v. Alta Mere Indus., Inc., 2007 WL 1703454, at *4-5 (D. Nev. June 11, 2007) (concluding franchisor is likely to succeed on the merits in seeking to enforce purchase option under franchise agreement).

         B. Irreparable Harm and Balance of the Equities

         Plaintiff has also demonstrated it is likely to suffer irreparable harm to its brand and goodwill resulting from Defendants' breaches. For example, Plaintiff produced evidence that, if Defendants continue to refuse to relinquish the mismanaged clinics to Plaintiff and the clinics continue to fail-as two clinics have already-then Massage Envy customers will lack facilities at which they can use their annual memberships and are likely to become disenchanted with the Massage Envy brand, resulting in the loss to Plaintiff of not only reputation and brand value but also specific customers. The Court thus finds Plaintiff has sufficiently demonstrated it is likely to suffer irreparable harm in the absence of a preliminary injunction.

         Plaintiff has also shown the balance of equities tips in its favor, weighing the harm to Plaintiff's reputation, goodwill, and brand as well as the integrity of its franchise system, on the one hand, against any harm to Defendants created by their own breaches of the Agreements, on the other hand.

         C. ...


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