United States District Court, D. Arizona
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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