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Rpc Acquisition Corp. v. J&D World Corp.

United States District Court, Eighth Circuit

July 2, 2013

RPC Acquisition Corp., Plaintiff,
v.
J&D World Corp., Tyler Huynh, and Nghia Trinh Huynh, Defendants.

ORDER ON PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION

DONOVAN W. FRANK, District Judge.

The above-entitled matter came before the undersigned on the motion of Plaintiff RPC Acquisition Corp. ("RPC") for a Preliminary Injunction. Appearances by counsel were as noted.

Based upon the arguments of counsel, the memoranda of law in support and opposition, the declarations and supporting documents filed therewith and the entire file herein, the Court makes the following:

FINDINGS OF FACT

1. Under RPC's distinctive model, the brand positioning for PRO-CUTS salons is to be community-aware and connected - one that is rooted in the neighborhood. The PRO-CUTS Marks, trade dress, and Business System, is geared to project an image that has a neighborhood atmosphere and is friendly, relatable, approachable, clean, and honest. The facilities have a consistent look and feel, as well. RPC trains its franchisees on this model; franchisees are given trademark licenses to operate their business in compliance with this model. Over the years, RPC and franchisees have built up considerable goodwill in the PRO-CUTS Marks. A franchisee who pays for the right to operate under the PRO-CUTS marks benefits from that goodwill.

2. Defendant J&D World Corp. ("J&D") signed five franchise agreements with RPC for PRO-CUTS salons in the Dallas-Fort Worth metropolitan area. J&D's owners, Tyler Huynh and Nghia Trinh Huynh, are personal guarantors of each one of the five franchise agreements.

3. J&D's franchise agreements were validly terminated by Plaintiff after Plaintiff discovered that Defendants were diverting products out of franchise locations and failing to pay amounts due under the contracts. In further violation of the franchise agreements, Defendants refused to allow Plaintiff access to Defendants' books and records.

4. The confidentiality provisions in the franchise agreements allow for the communication and transmission of confidential and trade secret materials to franchisees, and require the franchisees to protect that information. Defendants agreed that they:

will not, during the term of this [Franchise]Agreement or thereafter, communicate, divulge or use for the benefit of any other person or entity any confidential information, knowledge or know-how concerning the methods of operation of a Pro-Cuts business which may be communicated to the FRANCHISEE... by virtue of this Agreement.

and they further agreed to limit access to such confidential information to employees with a need to know the information.

5. The non-competition provisions in the franchise agreements protect RPC's goodwill and confidential information by preventing terminated franchisees from being involved in competing enterprises for two years after termination, and within 6 miles of any RPC franchise location. Pursuant to Article 12.3 of the Franchise Agreements, Defendants agreed that they would not,

[F]or a period of two (2) years after the termination or expiration of this [Franchise] Agreement, on their own account or as an employee, agent, consultant, partner, member, officer, director or shareholder:
(A) seek to employ any person who is at that time employed by [RPC] or by any other Pro-CutsĀ® franchisee or Regis business, or induce any such employee to terminate his or her employment or
(B) own, operate, lease, franchise, conduct, engage in, be connected with, have any interest in or assist any person or entity engaged in any hairstyling, barber or other business that is in any way competitive or similar to the Pro-Cuts businesses conducted by [RPC] or [RPC's] franchisees, which is located within six (6) miles of either the Franchised Location or of PRO-CUTS' franchisees....

6. The franchise agreements also provide that upon termination, the franchisee must stop using all RPC confidential information and trademarks. Pursuant to Article 11.2 of the franchise agreements, Defendants agreed that "[u]pon expiration or termination of this Agreement for any reason, the FRANCHISEE's right to use the name Pro-CutsĀ®, the other Marks and the Business System will terminate immediately."

7. Pursuant to Article 11.4, Defendants agreed that, upon termination or expiration of the Franchise Agreements, they would immediately notify the telephone company or any other applicable local carrier of the termination or expiration of Defendants' rights to use all telephone numbers and all classified and other directory listings for the Franchisee's PRO-CUTS Business.

8. Pursuant to the provisions of the franchise agreements, Defendants were given copies of and access to many confidential materials related to PRO-CUTS. Specifically, Defendants have been provided with RPC's operations manuals, pricing information, product knowledge education, marketing strategies and information on upcoming marketing campaigns, and other information that is not publicly available and is kept confidential.

9. Defendants are continuing to operate hair salons in four of their former franchise locations in violation of the post-term covenants not to compete. Defendants further continue to use PRO-CUTS Marks ...


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