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Complete Nutrition Franchising, LLC v. J. Howell, LLC

United States District Court, D. Nebraska

March 6, 2018

COMPLETE NUTRITION FRANCHISING, LLC, and R2 DISTRIBUTION, LLC, Plaintiffs,
v.
J. HOWELL, LLC, et al., Defendants.

          MEMORANDUM AND ORDER OF PRELIMINARY INJUNCTION

          John M. Gerrard United States District Judge.

         This matter is before the Court on plaintiff Complete Nutrition Franchising, LLC's motion for a preliminary injunction (filing 16). For the following reasons, the Court will grant Complete Nutrition's motion.

         BACKGROUND

         Complete Nutrition is a retailer of nutritional supplements that has franchised retail stores across the country. Filing 18 at 4.[1] Defendant J. Howell, LLC operated the Complete Nutrition franchises in Knoxville, Tennessee and nearby Alcoa, Tennessee starting in 2015, when it bought the franchise rights from the previous owners. Filing 18 at 4. Defendants James C. Howell and James P. Howell are the members of J. Howell. Filing 18 at 1.

         J. Howell entered into two Franchise Agreements with Complete Nutrition in 2015-one for each store. Filing 19-1 at 24-112. The Howells executed personal guaranties for the stores agreeing to be personally bound by the Agreements. Filing 19-1 at 114-118. The Agreements were terminable by J. Howell only if J. Howell was in compliance with the Agreements and Complete Nutrition was not. Filing 19-1 at 47-48, 92-93. Complete Nutrition could terminate the Agreements for a number of specified reasons- including, as relevant, J. Howell's failure to meet its obligations under the Agreements, closure or abandonment of the stores, or sale of unapproved products. Filing 19-1 at 48, 93.

         As part of the Agreements, J. Howell promised that its stores would be used for no purpose other than operation of Complete Nutrition stores. Filing 19-1 at 31-32, 76-77. J. Howell agreed that neither it nor its owners would "directly or indirectly perform any services for, engage in or acquire, be an employee of, lender or guarantor of, have any financial, beneficial or equity interest in, or have any interest based on profits or revenues of any" competing business. Filing 19-1 at 43, 88. And J. Howell agreed that for 2 years after termination of the agreement, neither it nor its owners, nor any member of their immediate families, "will directly or indirectly perform any services for, engage in or acquire, be an employee of, have any financial interest in, loan money to, or have any interest based on profits or revenues of any" competing business within a 25-mile radius of each store. Filing 19-1 at 51, 96. Nor would J. Howell, its owners, or their immediate families "employ or seek to employ any person who is at the time employed by [Complete Nutrition] . . . at any other Complete Nutrition Store or otherwise directly or indirectly induce or seek to induce one of these persons to leave his or her employment." Filing 19-1 at 51, 96.

         But by early 2017, J. Howell had fallen behind on royalty payments for the Alcoa store and the telephone was disconnected. Filing 18 at 18. A private investigator sent by Complete Nutrition found the store closed. Filing 18 at 18. And in late October 2017, the Knoxville Complete Nutrition store had been rebranded as "Alpha Nutrition." Filing 18 at 18-19. Much (but not all) of Complete Nutrition's trade dress was removed from the store, and Alpha Nutrition began promoting itself as such, touting its new products and the lower prices purportedly made possible by no longer paying franchise fees. See filing 18 at 19-22. Alpha Nutrition also continued to sell its inventory of Complete Nutrition products, at sharp discounts. Filing 18 at 22; see filing 19-1 at 122.

         In response, Complete Nutrition sent J. Howell a demand letter, and when that received no response, initiated this litigation. Filing 19-1 at 120; filing 1. Complete Nutrition now seeks an injunction enforcing the non-compete provisions of the Agreements. Filing 16.

         DISCUSSION

         When deciding whether to issue a preliminary injunction, the Court weighs the four Dataphase factors: (1) the threat of irreparable harm to the movant; (2) the state of the balance between this harm and the injury that granting the injunction will inflict on other parties; (3) the probability that the movant will succeed on the merits; and (4) the public interest. Johnson v. Minneapolis Park & Recreation Bd., 729 F.3d 1094, 1098 (8th Cir. 2013); (citing Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 114 (8th Cir. 1981) (en banc)). A preliminary injunction is an extraordinary remedy, and the movant bears the burden of establishing its propriety. Roudachevski v. All-Am. Care Centers, Inc., 648 F.3d 701, 705 (8th Cir. 2011); see also Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008).

         THREAT OF IRREPARABLE HARM

         A preliminary injunction cannot issue without a showing of irreparable harm. Dataphase, 640 F.2d at 114 n.9. To show a threat of irreparable harm, the movant must show that the harm is certain and great and of such imminence that there is a clear and present need for equitable relief. Roudachevski, 648 F.3d at 706. Stated differently, the harm "must be actual and not theoretical." Packard Elevator v. I.C.C., 782 F.2d 112, 115 (8th Cir. 1986). And harm is not irreparable when a party can be fully compensated for its injuries through an award of damages. Gen. Motors Corp. v. Harry Brown's, LLC, 563 F.3d 312, 319 (8th Cir. 2009).

         The Court finds that Complete Nutrition has shown a threat of irreparable harm in this case.[2] Alpha Nutrition's business has been built, at least in part, on Complete Nutrition's goodwill, which Alpha Nutrition is now arguably misappropriating. Alpha Nutrition's business was also built, at least in part, on education and instruction provided to its employees by Complete Nutrition, as consideration for services that are no longer being provided. See filing 19-1 at 5. Alpha Nutrition's sale of Complete Nutrition's products alongside new products of unknown provenance, along with Alpha Nutrition's use of its own trade dress along with remaining elements of Complete Nutrition's trade dress, creates a likelihood of the sort of confusion that has often been held to establish an irreparable injury. Cf. United Healthcare Ins. Co. v. AdvancePCS, 316 F.3d 737, 741-44 (8th Cir. 2002).

         Complete Nutrition's evidence also suggests that its efforts to reestablish a franchise in the market will be impaired by the presence in the market of a former franchise. Filing 19-1 at 9. And it is difficult to assess the effect on Complete Nutrition's reputation and goodwill in the relevant market while Alpha Nutrition uses the springboard it received from Complete Nutrition as a basis to build its business, and Complete Nutrition is denied the presence in the market for which it contracted. It is also difficult to quantify the degree to which the defendants will be unjustly enriched by their use of the support they received from Complete ...


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