Case No. 8:06-CV-117-T-23TGW.
May 18, 2006
REPORT AND RECOMMENDATION
Plaintiff Wine Not International, Inc., is a franchisor of custom winemaking retail shops that granted a Tampa franchise to defendant 2atec, LLC. The Franchise Agreement was signed by defendant Robert French as an indemnitor, and he also signed a Non-Competition and Confidentiality Agreement. The Franchise Agreement was terminated by the plaintiff on several grounds, including the opening of an unauthorized shop in St. Petersburg.
The plaintiff alleges that, despite the termination, the two locations continue to operate as if they were Wine Not franchises. As a result, the plaintiff has moved for the entry of a preliminary injunction to stop 2atec, French, and another company connected to French, Aspirations Winery, LLC, from continuing to use its WINE NOT trademark and from engaging in unfair competition in violation of the Lanham Act. The plaintiff also seeks the entry of a preliminary injunction against 2atec and French based on breaches of the Franchise Agreement and the Non-Competition Agreement. The defendants have not meaningfully challenged the plaintiff's contentions.
The defendants, rather, have filed a motion to dismiss the claims and to compel arbitration, arguing that the plaintiff's claims are subject to a mandatory arbitration clause contained in the Franchise Agreement. This argument is baseless as to Aspirations Winery, LLC, because that defendant is not a party to any agreement containing an arbitration provision. Moreover, as to the other two defendants, the argument is overcome by the strong weight of authority holding that the existence of an arbitration provision does not preclude a court from entering a preliminary injunction pending arbitration.
Accordingly, I recommend that the Motion for Preliminary Injunction (Doc. 4) be granted against all three defendants. Further, I recommend that the defendants' Motion to Dismiss the Complaint and Motion to Strike Request for Preliminary Injunction and to Compel Arbitration (Doc. 14) be granted as to the request to compel arbitration of the claims against 2atec and French, but that it be denied in all other respects.
Plaintiff Wine Not is a Canadian corporation that franchises wine businesses. The business is a self-contained winery that manufactures and sells wine, teaches winemaking, and sells related wine accessories (Doc. 7-1, ¶ 2). The plaintiff uses the WINE NOT mark, which is a registered service mark (Doc. 7-2), to identify its wineries, the system under which they operate, and the wine they produce (Doc. 7-1, ¶ 3).
Defendant 2atec, LLC, is a Florida corporation that entered into a Franchise Agreement with the plaintiff to open a Wine Not franchise in Tampa, Florida (Docs. 7-3, 7-4). Robert French was the president of 2atec (Doc. 7-4, p. 25). Defendant Aspirations Winery, LLC, is a corporation managed by French and his partner, Richard Cresswell (Doc. 21, Ex. B).
When filed electronically, the Franchise Agreement was divided into two documents with page numbers different from the page numbers set forth in the agreement. Citations to pages will be to the page numbers set forth in the agreement, and not to the page numbers electronically assigned. The same is true of the page citations to the Non-Competition and Confidentiality Agreement.
French has stated in an affidavit that he sold all right, title and interest in 2atec after the termination of the Franchise Agreement (Doc. 15, ¶ 4e). French does not specify when, or to whom, he sold his interest in 2atec. Nonetheless, the present record indicates that he maintained involvement in the former Tampa franchise after the termination of the Franchise Agreement (see Doc. 6, ¶ 9; Doc. 7-1, ¶¶ 41, 43; Doc. 21, Ex. B).
The Wine Not system includes a distinct business format, a unique interior and exterior store design, a confidential operations manual, and a Wine Not proprietary software program (Doc. 7-3, p. 1, ¶ A; Doc. 7-1, ¶ 8). A Wine Not franchise owner makes wine by purchasing wine grape juice from pre-approved international suppliers, which the franchise owner ferments in customized vessels installed in the store (Doc. 7-1, ¶ 9). After the fermentation process, which takes four to six weeks, the franchise owner bottles the wine for sale. Labels with the WINE NOT mark are placed on the back of each wine bottle, and the patron may custom design a label for the front of the wine bottle (id. at ¶ 10). A Wine Not winery can produce over 40 varieties of wine (id. at ¶ 11). The plaintiff contends that its wine processing method allows the franchisee winery "to offer high quality wine at a fraction of the cost that a consumer would pay for comparable commercial brands" (id.).
On May 31, 2002, plaintiff Wine Not and defendant 2atec entered into a Franchise Agreement to operate a Wine Not store in Tampa (Docs. 7-3, 7-4). The agreement gave 2atec the right and license to use the Wine Not system and WINE NOT mark in connection with the operation of one Wine Not store (Doc. 7-3, p. 2, ¶ 1.01). The plaintiff also provided the franchisee training and education regarding the operation of a Wine Not franchise (Doc. 7-1, ¶¶ 25, 26, 28, 29).
Pursuant to the Franchise Agreement, 2atec agreed, among other things, to use and display the WINE NOT trademark only in the manner contemplated by the Franchise Agreement and to purchase only those supplies associated with the Wine Not system (Docs. 7-3, 7-4; ¶¶ 5.01(g), 5.03, 7.01, 7.02). The Franchise Agreement also included a non-competition provision that applied during the franchise's operation and for two years after its termination (id. at ¶¶ 11.01, 11.02). Further, French individually executed a Non-Competition and Confidentiality Agreement ("Non-Competition Agreement") which prohibited him from, among other things, competing with Wine Not in Florida for one year after the termination of his employment with the franchise (Doc. 7-5, ¶ 2). The Tampa Wine Not store was opened under the name "Aspirations Winery."
The plaintiff subsequently learned that several provisions of the Franchise Agreement and the Non-Competition Agreement were being violated. Thus, during the plaintiff's inspection of the Tampa store in November 2005, it found very little wine on the shelves, which was suspicious because the holiday season was the busiest time of the year for the Wine Not franchisees (Doc. 7-1, ¶ 35). Further investigation revealed that French was purchasing grape juice used to make the wine from a non-approved supplier, in violation of the Franchise Agreement (id. at ¶ 36).
Additionally, in December 2005, Wine Not learned that a second Aspirations Winery location had been opened in St. Petersburg, Florida (id. at ¶ 37). French is the store's president, and it is believed that the store is run through the entity Aspirations Winery, LLC (id. at ¶ 41; Doc. 21, Exs. A, B). The St. Petersburg store is not an authorized Wine Not franchise (Doc. 7-1, ¶¶ 38, 43). Nevertheless, the St. Petersburg store looks similar to a Wine Not franchise and offered for sale Wine Not custom-blended wine which was produced at the Tampa Aspirations Winery store (id.; Doc. 6, ¶¶ 3, 6, 7).
Wine Not sent French a Notice of Default dated December 2, 2005, which identified these and other alleged breaches of the Franchise Agreement and the Non-Competition Agreement (Doc. 7-6; Doc. 7-1, ¶ 44). Pursuant to the terms of the Franchise Agreement, a breach of the agreement, if not cured within ten (10) days after written notice of the failure, entitled the franchisor to terminate the franchise agreement (Doc. 7-1, ¶ 44; Doc. 7-4, ¶¶ 10.01, 10.02). French and 2atec did not cure the breaches (Doc. 7-1, ¶ 45). Consequently, by letter dated December 16, 2005, Wine Not formally terminated the franchise agreement (id.; Doc. 7-7).
In the termination letter, Wine Not reminded 2atec and French of their obligations to comply with the post-termination provisions imposed by the Franchise Agreement and Non-Competition Agreement (Doc. 7-1, ¶ 46). The Franchise Agreement included a provision that, in the event of termination, the right to use the WINE NOT system and mark ceased immediately (Doc. 7-4, p. 15, ¶ 10.03). Further, the plaintiff noted that French was obligated to cease operations of the unauthorized St. Petersburg store (Doc. 7-7, p. 4).
However, after the termination of the Franchise Agreement, both stores continued operations using the WINE NOT mark and system (Doc. 6, ¶¶ 2, 5, 8; Doc. 7-1, ¶¶ 40, 47, 48). Thus, no changes were made to the Tampa Aspirations Winery store (Doc. 7-1, ¶ 48). Further, on December 29, 2005, the plaintiff's bookkeeper, Susan Rasken, visited the Aspirations Winery in St. Petersburg (Doc. 6, ¶¶ 1, 2). She observed that the St. Petersburg store looked very similar to a Wine Not franchise store and that "Wine Not Inc." appeared on posters displayed in the store (id. at ¶¶ 3, 5). Upon inquiry, a male employee told Rasken that the store was affiliated with Wine Not, although it was in the process of severing the relationship (id. at ¶ 5). Rasken estimated that the St. Petersburg store contained 1,000 bottles of wine (id. at ¶ 7). Two bottles of wine she removed from the shelf contained the "Wine Not Inc." logo on the back label (id. at ¶ 8). Rasken said that the male employee told her that the wine was produced in the Aspirations Winery store in Tampa (id. at ¶ 6). Rasken said that another man in the store named Richard, who introduced himself as the store owner, explained that his partner ran the Tampa store and made the wines to supply the St. Petersburg store (id. at ¶¶ 9, 11). Richard told Rasken that the Tampa store did not produce much wine for its own sale but mainly produced wine for the St. Petersburg store (id. at ¶ 13).
Moreover, after the termination of the Franchise Agreement, Aspirations Winery continued to represent to the public that it was affiliated with Wine Not (Doc. 7-1, ¶ 48). Thus, as of January 20, 2006, Aspirations Winery in Tampa was the host of the website www.winenotfl.com, which referenced the WINE NOT mark and its affiliation to Wine Not several times, including, most prominently, in the website's name (Doc. 7-8, Ex. E). Advertisements on other websites also continued to promote Aspirations Winery as a Wine Not franchise (see Doc. 20-2, Exs. 7, 8).
Consequently, the plaintiff filed this lawsuit on January 20, 2006, asserting claims against the defendants for trademark infringement and false advertising under the Lanham Act, and against French and 2atec for breaching their obligations under the Non-Competition Agreement and Franchise Agreement, respectively (Doc. 1). The plaintiff seeks injunctive relief and an award of its legal expenses (id. at pp. 16-17).
Wine Not then moved for a preliminary injunction seeking to stop the defendants from, among other things, the continued use of the WINE NOT mark and system (Doc. 4). The defendants responded to the motion for preliminary injunction by filing a Motion to Dismiss Complaint and Motion to Strike Request for Preliminary Injunction and to Compel Arbitration (Doc. 14). The defendants argue that the plaintiff's claims should be dismissed because they are subject to an arbitration clause contained in the Franchise Agreement. The motion for a preliminary injunction and the defendants' responsive motion were subsequently referred to me for a report and recommendation (Doc. 24). A hearing was held on the motions (Doc. 30).
A preliminary injunction may be issued when necessary "to protect the plaintiff from irreparable injury and to preserve the district court's power to render a meaningful decision after a trial on the merits." Canal Authority of State of Florida v.Callaway, 489 F.2d 567, 572 (5th Cir. 1974). The remedy, however, is considered extraordinary and drastic. It may be granted only if the plaintiff clearly shows (1) a substantial likelihood that it will prevail on the merits; (2) a substantial threat that it will suffer irreparable injury if the injunction is not granted; (3) that its threatened injury outweighs the threatened harm the injunction may cause the opposing party; and (4) that granting the injunction will not disserve the public interest. Id. at 572-73. The motion should ordinarily be denied if the plaintiff fails to meet its burden as to even one of the foregoing prerequisites. United States v. Jefferson County, 720 F.2d 1511, 1519-1520 n. 21 (11th Cir. 1983).
The defendants virtually concede that the plaintiff has made the showing of the four factors that are necessary to obtain a preliminary injunction. Thus, the plaintiff made a strong showing of those four factors in its motion for preliminary injunction and its accompanying memorandum and materials. The defendants, in response, did not meaningfully controvert that showing, either in their opposition motion or at the hearing. Consequently, those factors may be succinctly addressed.
A. Likelihood of Success on the Merits
1. Lanham Act violations As indicated, the plaintiff alleges that the defendants' use of the WINE NOT mark and system constitutes trademark infringement and unfair competition in violation of §§ 32(a) and 43(a) of the Lanham Act (Doc. 5, p. 13). In order to succeed on the merits of a trademark infringement claim, the plaintiff must show that the defendants used the mark in commerce without its consent and "that the unauthorized use was likely to deceive, cause confusion, or result in mistake." Davidoff CIE, S.A. v. PLD Int'l Corp., 263 F.3d 1297, 1301 (11th Cir. 2001). An unfair competition claim requires the plaintiff to show that it had prior rights to the mark and that the defendants adopted a mark or name that was the same or confusingly similar to its mark, such that consumers were likely to confuse the two. Planetary Motion, Inc. v.Techsplosion, Inc., 261 F.3d 1188, 1193 (11th Cir. 2001). A typical case seeking relief under the Lanham Act for trademark infringement or unfair competition focuses on whether there is a likelihood of confusion from the use of the allegedly infringing mark. See Burger King Corp. v. Mason, 710 F.2d 1480, 1491-92 (11th Cir. 1983), cert. denied, 465 U.S. 1102 (1984); University of Florida v. KPB, Inc., 89 F.3d 773, 777 n. 7 (11th Cir. 1996).
In this respect, the plaintiff argues that the "[d]efendants — either as terminated franchisees or as an entity without any right to use Wine Not's marks — have misused the registered Wine Not™ mark by continuing to use the Wine Not™ mark at the Tampa and the unauthorized St. Petersburg stores, and by continuing to advertise using the Wine Not™ marks" (Doc. 5, p. 14). The plaintiff argues that, as a result, the public will purchase wine from the Aspirations Winery stores incorrectly believing that they are affiliated with Wine Not and that the product is an approved Wine Not wine (Doc. 1, p. 16). On this point, the plaintiff has presented evidence that, notwithstanding the termination of the Franchise Agreement, the Tampa franchise continued using the WINE NOT mark and system to produce and sell wine, and continued promoting to the public its affiliation with Wine Not (Docs. 6, 7, 20, 21). Moreover, the St. Petersburg store, which was never authorized to begin with, continued to operate.
Under these circumstances, there is a substantial likelihood that the unauthorized use of the WINE NOT mark would cause customer confusion. Thus, the Eleventh Circuit has held that likelihood of confusion may be established by proof that trademarks were used without the franchisor's consent after termination of the franchise agreement. Burger King Corp. v.Mason, supra, 710 F.2d at 1493. The court explained (id. at 1492-93):
Common sense compels the conclusion that a strong risk of consumer confusion arises when a terminated franchisee continues to use the former franchisor's trademarks. A patron of a [store] adorned with the [franchisor's] trademarks undoubtedly would believe that [the franchisor] endorses the operation of the [establishment]. Consumers automatically would associate the trademark user with the registrant and assume that they are affiliated. Any shortcomings of the franchise therefore would be attributed to [the franchisor]. Because of this risk, many courts have held that continued trademark use by one whose trademark license has been cancelled satisfies the likelihood of confusion test and constitutes trademark infringement.
This reasoning covers not only the Tampa store, but also the St. Petersburg location. Moreover, the evidence shows that the St. Petersburg store looks like an authorized Wine Not franchise, shares the same name as a former Wine Not franchise, and sells wine that is produced using the Wine Not system and is placed in bottles with the WINE NOT mark (Docs. 6, 7). Further, an employee even directly represented to a customer that the St. Petersburg store was affiliated with Wine Not (Doc. 6, ¶ 5). Thus, the likelihood that a consumer would erroneously conclude that the St. Petersburg Aspirations Winery store is affiliated with Wine Not is strong.
As indicated, the defendants have not presented any argument in response to the plaintiff's evidence. French, however, has submitted an affidavit, but that affidavit is wholly inadequate, as it is merely a series of conclusory statements that he did not do anything wrong (Doc. 15). These self-serving statements do not refute any of the plaintiff's specific and compelling evidence which shows the defendants' unauthorized use of the plaintiff's mark and system.
For example, French states, in a conclusory manner, that he has "fully and completely complied or [is] in the process of fully and completely complying with all the terms of the Franchise Agreement related to the termination of the Franchise Agreement" (Doc. 15, ¶ 4b) (emphasis added). This equivocal comment does not refute the plaintiff's allegations of wrongdoing. To the contrary, the statement that he is in the process of complying with the agreement, which was written almost two months after the termination of the Franchise Agreement, suggests that he has failed to abide by its terms.
Additionally, French asserts in a conclusory and ambiguous manner that, "[a]t no point in time was I or 2atec LLC doing business in any capacity as Aspirations Winery" (id. at ¶ 4a). The initial problem with this assertion is that it is unclear whether he is talking about the stores named Aspirations Winery, or the entity of Aspirations Winery, LLC. In all events, the assertion that French "[a]t no point in time was . . . doing business in any capacity as Aspirations Winery" is belied by the record, which includes correspondence from Aspirations Winery that was signed by French as the "Owner [of] Aspirations Winery" (Doc. 20-2, Ex. 2). Further, French is listed in a City of St. Petersburg Business License Report as the president of Aspirations Winery (Doc. 21, Ex. A). Moreover, French's business card identifies him as a winemaker, and his company as Aspirations Winery, and includes the telephone number and e-mail address for the Tampa Aspirations Winery store (Doc. 20-2, Ex. 5).
The plaintiff also submitted several newspaper articles which purport to show French's affiliation with Aspirations Winery (see, e.g., Doc. 20-2, Exs. 6, 11). However, I have an experience-based skepticism of the accuracy of newspaper articles and, therefore, I have not relied on them in this report and recommendation.
If French is attempting to disassociate himself from Aspirations Winery, LLC, any such attempt is defeated by the record. Thus, Aspirations Winery, LLC, shares the same name as the Aspirations Winery stores in Tampa and St. Petersburg, and its principal address is the location of the Tampa Aspirations Winery store (Doc. 20-2, Ex. 1; Doc. 21, Ex. B). Further, Robert French is listed as its manager and registered agent (Doc. 21, Ex. B). In addition, any assertion that French is not associated with Aspirations Winery, LLC, is inconsistent with the fact that all three defendants are represented by the same attorney.
The evidence also refutes French's statement that 2atec LLC "[a]t no point in time was . . . doing business in any capacity as Aspirations Winery" (Doc. 15, ¶ 4a). Of course, the Tampa franchise held by 2atec was operated under the name of "Aspirations Winery." Furthermore, the store's brochure and advertisements, as well as vendor statements, show that 2atec operated its Tampa Wine Not franchise as Aspirations Winery (Doc. 20-2, Exs. 1, 3, 4, 7, 8, 10). For example, vendor billing statements show that Aspirations Winery was purchasing wine juice for the Tampa Wine Not franchise (id. at Ex. 3). Thus, French's conclusory averment that he and 2atec had no connection to Aspirations Winery is not only unsubstantiated, but negated by the plaintiff's evidence.
In short, the defendants have not presently raised any meaningful response to the plaintiff's claims of trademark infringement and unfair competition. Therefore, from all that appears, the probability that the plaintiff will succeed on the merits of these claims is very high.
2. Breach of Contract
The plaintiff also seeks entry of a preliminary injunction against 2atec and French for alleged breaches of the Franchise Agreement and Non-Competition Agreement. In light of the fact that these claims would not support a preliminary injunction against Aspirations Winery, LLC, and that, as shown, the Lanham Act claims would support such relief against all three defendants, only a brief discussion of the breach of contract claims is warranted.
The plaintiff focuses on 2atec's alleged violations of Article 11 of the Franchise Agreement, which provides (Doc. 7-4, pp. 16-17):
11.01 Non-Competition Covenants — The Franchisee covenants that during the term . . . of this Franchise Agreement and for a period of two years after the effective date of termination or expiration of this Franchise Agreement, except as otherwise approved in writing by the Franchisor, the Franchisee shall not, either directly or indirectly, for the Franchisee, or through, on behalf of or in conjunction with any other person or legal entity:
(a) direct or attempt to divert any customer of the Store to any competitor by direct or indirect inducement or otherwise;
(b) employ, seek to employ or accept the services of any person who is or has been employed within the past six months by the Franchisor or by any other franchisee of the Franchisor; or
(c) own, maintain, engage in, be employed by or have a financial interest in any business which is the same as, or reasonably similar to, the business associated with the Store and that is located within a radius of 25 miles of any WINE NOT Store.
11.02 Other Covenants — The Franchisee covenants that after termination or expiration of this Franchise Agreement, regardless of the cause of termination or expiration, the Franchisee shall not, without the Franchisor's prior written consent, directly or indirectly:
(a) adopt, use, employ or trade under any of the Proprietary Marks . . .
(b) adopt, use, employ or trade under any description or representation that falsely suggests or indicates a connection or association with the Franchisor;
(c) copy, communicate, or otherwise use for the benefit of the Franchisee or of any other person any information deemed confidential pursuant to Article 9 [of the Franchise Agreement]. . . .
In addition, the plaintiff argues that French violated Section 2 of the Non-Competition Agreement which provides, in pertinent part (Doc. 7-5):
2. Non-Competition. The Covenantor [Robert French] shall not, while an employee of the Franchisee and for a period of one year from the date [he] ceases to be an employee of the Franchisee, directly or indirectly, in any manner whatsoever including, without limitation, either individually, in partnership, jointly or in conjunction with any other Person, or as employee, principal, agent, director, officer, employee, consultant, or in any other capacity whatsoever:
(a) carry on or be engaged in, concerned with or interested in, any undertaking; or
(b) have any financial or other interest (including any interest by way of royalty or other compensation arrangements) in or in respect of the business of any Person which carries on a business; or
(c) advise, lend money to, guarantee the debts or obligations of any Person which carries on a business;
which is the same as or substantially similar to or which competes with or would compete with the Business anywhere in the following territory:
(i) in the State of Florida;
(ii) within a 25 mile radius of any Wine Not store operating (whether owned or franchised) at the time of the breach. . . .
The plaintiff contends, and the evidence shows, that 2atec and French are violating their covenants not to compete with regard to the operation of the Tampa store and that French has willfully violated his covenant not to compete "in order to involve himself in the operation of a directly competitive business" by operating the unauthorized St. Petersburg store (Doc. 1, ¶ 55). The defendants have not presented any significant probative evidence to the contrary.
In order to show a substantial likelihood of success on its breach of contract claims, the plaintiff must additionally establish that the non-competition covenants are enforceable under the governing law. Both agreements contain provisions that the laws of Ontario and Canada govern this matter (Doc. 7-4, p. 22, ¶ 15.04; Doc. 7-5, ¶ 14). In Canada, "[a] covenant in restraint of trade is enforceable only if it is reasonable between the parties and with reference to the public interest."J.G. Collins Ins. Agencies Ltd. v. Elsley, 2 S.C.R. 916 (1978). In determining the reasonableness of a non-competition covenant, the pertinent considerations include whether (1) the employer has a proprietary interest worthy of protection; (2) the temporal and geographic restrictions are too broad; and (3) the covenant restricts competition generally, or only bars solicitation of the former employer's clients. Id.
In determining whether to apply the parties' choice of law provisions, the court must consider whether the foreign state's law is "harmonious in spirit with the forum state's public policy." Punzi v. Shaker Adv. Agency, Inc., 601 So.2d 599, 600 (Fla.App. 1992). Florida law is harmonious, as it similarly enforces non-compete covenants to protect legitimate business interests provided the covenants are reasonable in time, area and line of business. Fla. Stat., § 542.335.
Despite the plaintiff's detailed discussion of the enforceability of these agreements (Doc. 5, pp. 9-13), the defendants did not discuss any of these factors in their responsive memorandum. Rather, they merely state that "Defendants 2atec LLC and French do not dispute the existence, the applicability and effectiveness of the Franchise Agreement . . ." (Doc. 14, pp. 1-2). Thus, based on this statement and the lack of opposition in general, the defendants seemingly do not dispute for the purpose of the preliminary injunction the enforceability of these agreements.
Under these circumstances, the plaintiff has established a substantial likelihood of success on its breach of contract claims, as well as on its Lanham Act claims. Moreover, as discussed below, the other three factors considered in determining the propriety of a preliminary injunction also weigh in favor of the plaintiff.
B. Irreparable Injury.
It is well established that "a sufficiently strong showing of likelihood of confusion caused by trademark infringement may by itself constitute a showing of irreparable harm." McDonald's Corp. v. Robertson, 147 F.3d 1301, 1310 (11th Cir. 1998). As indicated, there is a strong showing of likelihood of confusion in this case, as the defendants have used the plaintiff's identical mark and system to sell the same product sold by the plaintiff.
Furthermore, the plaintiff's unrefuted evidence that the defendants have used juice from unauthorized suppliers to make wine that has been bottled with a Wine Not label clearly presents a strong threat of irreparable harm to the plaintiff's name and goodwill. Thus, the plaintiff asserts that the use of juice from unauthorized suppliers jeopardizes the quality of the wine (Doc. 7-1, ¶ 36). Clearly, the defendants' distribution of an allegedly inferior product which is associated with the plaintiff may tarnish the WINE NOT mark and the goodwill associated with it.Id. This harm, furthermore, cannot meaningfully be compensated by an award of damages. See Ferrero v. Associated Materials Inc., 923 F.2d 1441, 1449 (11th Cir. 1991).
Moreover, by executing the Non-Competition Agreement, French acknowledged that a breach of its provisions will result in irreparable harm (Doc. 7-5, ¶ 8). See also Vencor, Inc. v.Webb, 33 F.3d 840, 845 (7th Cir. 1994); Basicomputer Corp. v. Scott, 973 F.2d 507, 512 (6th Cir. 1992) (the loss of fair competition that results from a breach of a non-competition agreement is likely to irreparably harm an employer).
Finally, the defendants do not contend that the plaintiff cannot demonstrate irreparable injury. Indeed, their memorandum does not contain any argument on that factor. Therefore, this factor weighs overwhelmingly in favor of the plaintiff.
C. Balancing of Harm to the Defendants.
The defendants made no argument in their opposition memorandum regarding the factor of whether the injury to the plaintiff would outweigh the harm to them from a preliminary injunction. In this regard, French states only that "the making of wine is [his] livelihood and [his] only source of employ" (Doc. 15, ¶ 10). However, the defendants have not made any showing that they are entitled to use the plaintiff's mark or that the enforcement of the non-competition covenants is inequitable. See Burger King Corp. v. Majeed, 805 F.Supp. 994, 1006 (S.D. Fla. 1992) ("[O]ne who adopts the marks of another for similar goods acts at his own peril, since he has no claim to the profits or advantages thereby derived"). Therefore, in this circumstance the risk of irreparable harm to the plaintiff far outweighs the harm to the defendants from the entry of a preliminary injunction.
D. The Public Interest.
The fourth factor typically asks if "granting [a] preliminary injunction will disserve the public interest." See, e.g., E. Remy Martin Co., S.A. v. Shaw-Ross International Imports, Inc., 756 F.2d 1525, 1530 n. 13 (11th Cir. 1985). There is no indication in this case that an injunction would "disserve" the public interest. To the contrary, a preliminary injunction would affirmatively serve the public interest insofar as it prevents consumer confusion and protects the public's expectations that consumers who purchase a particular product will receive the same special characteristics each time. Davidoff CIE, S.A. v. PLD Int'l Corp., supra, 263 F.3d at 1304.
In sum, all four of the traditional factors for preliminary injunctive relief weigh in favor of the issuance of a preliminary injunction.
As indicated, the defendants' primary argument against the entry of a preliminary injunction is that an arbitration provision in the Franchise Agreement mandates the dismissal of this case and requires that the parties arbitrate this matter in Ontario, Canada (Doc. 14, p. 3). Indeed, it is virtually their only argument. However, the argument does not apply to Aspirations Winery, LLC, and it does not preclude the entry of a preliminary injunction pending arbitration against 2atec and French.
On this issue, the defendants point to ¶ 15.16 of the Franchise Agreement, which provides (Doc. 7-4, pp. 24-25):
15.16 Arbitration — If any dispute or difference shall arise between the parties out of or in any way connected with this Franchise Agreement . . . such dispute shall be arbitrated . . . under the Arbitration Act of Ontario . . . which decision will be final and binding upon the parties. Commencement and completion of such arbitration in accordance with this Franchise Agreement is a condition precedent to the commencement of any other proceeding, including any action at law or in equity, in respect of any matter required to be arbitrated.
Further, a choice of law provision that appears in the Franchise Agreement states (id. at p. 22; see also Doc. 7-5, p. 6, ¶ 14):
15.04 Applicable Law — This Franchise Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein. The parties hereby irrevocably attorn to the jurisdiction of the courts of the Province of Ontario.
Under the Federal Arbitration Act ("FAA"), arbitration agreements are to be placed on the same footing as other contracts and doubts regarding the arbitrability of a matter are to be resolved in favor of arbitration. EEOC v. Waffle House, Inc., 534 U.S. 279, 289 (2002). On the other hand, arbitration is not to be foisted on parties who did not agree to it.American Express Financial Advisors, Inc. v. Makarewicz, 122 F.3d 936, 940 (11th Cir. 1997), cert. denied, 523 U.S. 1022 (1988).
Here, as the defendants have acknowledged, the arbitration clause is clearly inapplicable to defendant Aspirations Winery, LLC, because it is not a party to the Franchise Agreement (see Doc. 14, p. 2; Doc. 15, ¶ 4a; Doc. 19, pp. 1-2). Thus, there is no basis to mandate arbitration of the Lanham Act claims against Aspirations Winery, LLC, which are the only claims asserted against it. American Express Financial Advisors, Inc. v.Makarewicz, supra, 122 F.3d at 940 ("the FAA does not require parties to arbitrate when they have not agreed to do so"). Since the claims against Aspirations Winery, LLC, are not foreclosed by an arbitration provision, and the claims remain viable, the defendants' motion to dismiss the complaint (Doc. 14) should be denied. Moreover, for the reasons previously stated, the plaintiff is entitled to a preliminary injunction against Aspirations Winery, LLC, to enjoin the Lanham Act violations.
However, the arbitration provision in the Franchise Agreement clearly applies to 2atec because that party signed the agreement as franchisee. Moreover, although the Non-Competition Agreement signed by French does not have an arbitration provision, French would appear to be covered by the arbitration provision in the Franchise Agreement, which French signed as indemnitor. Thus, the Franchise Agreement states that "the Indemnitor, individually and jointly, hereby agree[s] to be personally bound by each and every condition and term contained in this Franchise Agreement and agree[s] that this indemnity should be construed as though the Indemnitor and each of them executed an agreement containing the identical terms and conditions of this Franchise Agreement" (Doc. 7-4, p. 21, ¶ 14.05; see also id. at p. 24, ¶ 15.10 (Non-Competition Agreement incorporated into the Franchise Agreement)).
The conclusion that 2atec and French are covered by the arbitration provision in the Franchise Agreement thus raises the question whether, despite that provision, a court may enter a preliminary injunction pending arbitration. This question does not appear to have been addressed in an Eleventh Circuit or binding former Fifth Circuit decision. However, a number of courts of appeals have considered this issue and, with one exception, have concluded that a court may grant preliminary injunctive relief pending arbitration, provided the requirements for such relief are met. Teradyne, Inc. v. Mostek Corp., 797 F.2d 43 (1st Cir. 1986); Roso-Lino Beverage Distributors, Inc. v. Coca-Cola Bottling Co. of New York, 749 F.2d 124 (2nd Cir. 1984); Ortho Pharmaceutical Corp. v. Amgen, Inc., 882 F.2d 806 (3d Cir. 1989); Merrill Lynch, Pierce, Fenner Smith, Inc. v. Bradley, 756 F.2d 1048 (4th Cir. 1985); Performance Unlimited, Inc. v.Questar Publishers, Inc., 52 F.3d 1373 (6th Cir. 1995);Merrill Lynch, Pierce, Fenner Smith, Inc. v. Salvano, 999 F.2d 211, 213-14 (7th Cir. 1993); see also PMS Distrib. Co. v. Huger Suhner, A.G., 863 F.2d 639 (9th Cir. 1988) (relying on foregoing decisions of First, Second and Seventh Circuits to authorize issuance of writ of possession pending arbitration); contra Merrill Lynch, Pierce, Fenner Smith, Inc. v. Hovey, 726 F.2d 1286 (8th Cir. 1984). The decisions of the First, Second, Third, Fourth, Sixth and Seventh Circuits reason that preliminary injunctive relief is not expressly precluded by the FAA, and that the entry of a preliminary injunction actually fosters the FAA's liberal policy toward arbitration by ensuring that the status quo is maintained so that the arbitration proceedings remain meaningful. This court has also applied the principle that, notwithstanding a provision that all disputes will be settled by arbitration, a court has authority to issue a preliminary injunction pending arbitration.Merrill Lynch v. Dunn, 191 F.Supp.2d 1346, 1350 (M.D. Fla. 2002). Further, the Ninth Circuit, as indicated, has rendered a decision consistent with this rule, and only the Eighth Circuit in Hovey has held to the contrary.
It has been noted that another panel of the Eighth Circuit, subsequent to Hovey, has affirmed the grant of a preliminary injunction in an arbitrable dispute. Performance Unlimited, Inc. v. Questar Publishers, Inc., supra, 52 F.3d at 1380 n. 4.
In their memorandum, the defendants point to a provision in the Franchise Agreement which states that "[c]ommencement and completion of such arbitration in accordance with this Franchise Agreement is a condition precedent to the commencement of any other proceeding, including any action at law or in equity, in respect of any manner required to be arbitrated" (Doc. 7-4, p. 24, ¶ 15.16). The defendants, however, have not cited any authority holding that a provision such as this would negate a federal court's authority to issue a preliminary injunction pending arbitration. Further, a computer search has failed to locate any federal appellate decision supporting such a determination.
Moreover, Performance Unlimited, Inc. v. Questar Publishers, Inc., supra, shows that a provision like the one present here would not change the ruling that a federal court has authority to issue a preliminary injunction pending arbitration. That case involved a licensing agreement concerning the publication of a compilation of children's bible stories. The agreement stated ( 52 F.3d at 1376):
The Licensor [Performance] and the Publisher [Questar] agree that God, In His Word, forbids Christians to bring lawsuits against other Christians in secular courts of law . . . and that God desires Christians to be reconciled to one another when disputes of any nature arise between them. . . .
[I]n their resolution of any disputes that may arise under this Agreement, each party agrees that the provisions for mediation and arbitration set forth below shall be the sole and exclusive remedy for resolving any disputes between the parties arising out of or involving this Agreement.
It is further agreed that the Licensor and the Publisher hereby waive whatever right they might otherwise have to maintain a lawsuit-against the other in a secular court of law, on any disputes arising out of or involving this Agreement.
Despite the language making mediation and arbitration the "sole and exclusive remedy for resolving any disputes" and waiving any right to maintain a lawsuit in a secular court of law, the Sixth Circuit held that the federal district court had authority to issue a preliminary injunction pending arbitration. The similarity between the provision in Performance Unlimited, Inc., and the provision in this case warrants the same result.
As indicated, the reasoning underlying the federal appellate decisions upholding the authority of a district court to issue a preliminary injunction pending arbitration is that it advances the FAA's policy favoring arbitration by preventing the arbitration proceeding from being a hollow formality. See, e.g., id. at 1380. This reasoning is not affected by the provision in the Franchise Agreement stating that the arbitration shall proceed under the Arbitration Act of Ontario. In the first place, that Act has no application to Aspirations Winery, LLC, since that defendant is not a party to the Franchise Agreement.
Moreover, both sides have referred to the FAA in making their arguments on this point (Doc. 16, pp. 3-4; Doc. 19, pp. 6, 7). Those citations are appropriate since the entry of a preliminary injunction seems to be a procedural matter governed by federal law. See Southern Milk Sales, Inc. v. Martin, 924 F.2d 98, 101-02 (6th Cir. 1991); Wright, Miller Kane, Federal Practice and Procedure: Civil 2d § 2943, pp. 78-80.
In any event, even if Ontario law applied on this point, the outcome would be the same. Thus, the Arbitration Act of Ontario permits the entry of a preliminary injunction pending arbitration. Specifically, the Act provides, after stating generally that court intervention in arbitrations is limited, that "[t]he court's powers with respect to . . . interim injunctions . . . are the same in arbitrations as in court actions." Stat. Ont., ch. 17, s. 8. See Siemens VDO Automotive Inc. v. Rhodia Canada, Inc., 2005 WL 3417030 (Ont. Super. Ct. of Justice) (court may grant an interim injunction under §§ 6 and 8 of the Arbitration Act to ensure that the arbitration proceeds in accordance with the agreement and to preserve the plaintiff's rights under the agreement); Healthy Body Services, Inc. v.Muscletech Research Development Inc., 2001 WL 590205 (Ont. Super. Ct. of Justice).
For these reasons, the existence of an arbitration provision in the Franchise Agreement does not nullify the court's authority to enter a preliminary injunction pending arbitration. And, as demonstrated, the plaintiff has satisfied the factors that are required for the entry of a preliminary injunction.
It is noted that the preservation of the status quo does not mean the court is limited to "restoring the parties precisely to their pre-litigation position." Ortho Pharmaceutical Corp. v. Amgen, Inc., supra, 882 F.2d at 814. Rather, "the preservation of the status quo represents the goal of preliminary injunctive relief in any litigation" and "[i]f the existing status quo is currently causing one of the parties irreparable injury and thereby threatens to nullify the arbitration process, then it is necessary to alter the situation to prevent the injury." Id.
V.Therefore, I recommend that Wine Not's Motion for Preliminary Injunction (Doc. 4) be granted. However, the proposed preliminary injunction submitted by the plaintiff is somewhat problematic (Doc. 4-2, pp. 15-17). Thus, with respect to defendant 2atec, the injunction should only remain in effect until the plaintiff has had a reasonable opportunity to submit a request for a preliminary injunction to the arbitrator and the arbitrator has made a determination on that request. This limitation honors the need to preserve the status quo so that the arbitration does not become a hollow proceeding, while at the same time respecting the restriction in the Franchise Agreement concerning a court action. The same limitation should apply to French unless the arbitrator denies preliminary injunctive relief as to him on the ground that he is not subject to the arbitration provision.
It is also appropriate to add that item "F" on page 15 looks to me like an inappropriate "obey the law" provision. See, e.g., American Red Cross v. Palm Beach Blood Bank, Inc., 143 F.3d 1407, 1412 (11th Cir. 1998). There may be other provisions as to which the defendants have a substantial objection. Notably, the specific provisions of a preliminary injunction were not addressed in the memoranda or at the hearing. With respect to the proposed language of a preliminary injunction, the defendants can make appropriate objections, if they have any, in response to this report and recommendation.
As to security under Rule 65(c), F.R.Civ.P., the plaintiff has proposed a bond of $11,000 (Doc. 5, pp. 18-19). The defendants do not take issue with that amount.
In light of the fact that there is no basis for dismissing the complaint or denying preliminary injunctive relief as to Aspirations Winery, LLC, the defendants' motion to dismiss the complaint and the motion to strike the request for a preliminary injunction (Doc. 14) should be denied. However, the defendants' motion to compel the plaintiff to proceed to arbitration (id.) should be granted as to 2atec and French.