Golden Krust Patties, Inc. v. Marilyn Bullock, No, 13-cv-2241 (RLM), 2013 WL 3766551 (S.D.N.Y. July 16, 2013)
In a recent case, Golden Krust Patties, Inc. v. Marilyn Bullock, No, 13-cv-2241 (RLM), 2013 WL 3766551 (S.D.N.Y. July 16, 2013), the U.S. District Court for the Eastern District of New York issued a preliminary injunction, enforcing the non-compete provision in franchisor Golden Krust’s franchise agreement with former franchisees.
Following the franchisor’s discovery that the then-franchisees were selling competing products in Golden Krust packaging in violation of the parties’ franchise agreement, the franchisor sent a notice of termination of rights letter. The franchisor then filed suit, asserting claims for breach of contract and misappropriation of trade secrets and sought a preliminary injunction enjoining the defendants from (1) using or displaying the franchisor’s trademarks or otherwise engaging in actions that would cause confusion as to the franchisee’s goods and services, and (2) operating a business within the geographical scope of the non-compete provision.
The court first turned to irreparable harm, which is the “single most important prerequisite for the issuance of a preliminary injunction” in the Second Circuit. Regarding the franchisor’s contention that it would suffer irreparable injury due to its loss of good will or business relationships, the court found significant photographs showing that even though the former franchisees removed the Golden Krust trade dress, they “brazenly” sought to exploit the franchisor’s good will by failing to adopt a new store name and displaying signs declaring “Come in. We are Open. Nothing has Changed Only Our Name,” and “Open. Same Great Food. Same Great Service. Thanks for Your Support!!! Come Again.” The court did not find, however, that the franchisor would suffer irreparable harm based on the franchisee’s misappropriation of trade secrets, reasoning that the franchisor failed to provide any specific details as to what trade secrets or confidential information was misappropriated and presented no evidence establishing the harm they would suffer absent an injunction.
As to the franchisor’s likelihood of success on the merits, the court found the non-compete covenant was enforceable, but blue-penciled the agreement’s restriction. Taking judicial notice of the dense population of New York City, the court concluded that restricting the defendants from operating a Caribbean-style restaurant within a four-mile radius of the franchise location and two-and-a-half-mile radius of other Golden Krust locations was reasonable.
Upon concluding that the balance of harms and public interest favored the issuance of an injunction, the court granted the franchisor’s motion.