Fantastic Sams Salons Corporation v. Maxie Enterprises Inc et al

Filing 34

ORDER granting 22 Motion for Summary Judgment; denying as moot 23 Motion to Compel; deferring ruling on 23 Motion for Attorney Fees; granting 23 Motion for Extension of Time to Complete Discovery. Ordered by Judge Clay D. Land on 01/24/2012. (CGC)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF GEORGIA
ATHENS DIVISION
FANTASTIC SAMS SALONS
CORPORATION,

*
*

Plaintiff,
*
vs.

CASE NO. 3:11-CV-22 (CDL)
*

MAXIE ENTERPRISES, INC. and
PAUL RUBIN,

*

Defendants.

*
O R D E R

Plaintiff
Sams”)

brought

Fantastic
this

Sams

action

Salon
against

Corporation

(“Fantastic

its

hair

former

salon

franchisees, Defendants Maxie Enterprises, Inc. and Paul Rubin
(collectively, “Defendants”), alleging trade dress infringement
and breach of contract.

The breach of contract claim is based

in part on Defendants’ continued operation of a hair salon at
the location of the Fantastic Sams franchise, in violation of
the

franchise

agreement’s

restrictive

covenants.

Defendants

contend that the restrictive covenants are invalid, and they
seek partial summary judgment on that basis.

Defendants also

seek an order compelling Fantastic Sams to respond to certain
discovery

requests.

For

the

reasons

set

forth

below,

Defendants’ Motion for Partial Summary Judgment (ECF No. 22) is
granted, and Defendants’ Motion to Compel (ECF No. 23) is denied

as

moot.

The

Court

will

permit

Defendants

to

engage

in

additional discovery for sixty days from the date of this Order
and will award Defendants the attorney’s fees they incurred in
connection with their motion to compel unless Fantastic Sams
shows cause why the Court should not do so.
DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
I.

Summary Judgment Standard
Summary judgment may be granted only “if the movant shows

that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.”
Civ. P.

56(a).

Fed. R.

In determining whether a genuine dispute of

material fact exists to defeat a motion for summary judgment,
the evidence is viewed in the light most favorable to the party
opposing summary judgment, drawing all justifiable inferences in
the opposing party=s favor.
U.S. 242, 255 (1986).

Anderson v. Liberty Lobby, Inc., 477

A fact is material if it is relevant or

necessary to the outcome of the suit.

Id. at 248.

A factual

dispute is genuine if the evidence would allow a reasonable jury
to return a verdict for the nonmoving party.
II.

Id.

Factual Background
The following facts are undisputed for purposes of summary

judgment.

On

November

24,

2008,

Fantastic

Sams

Enterprises entered into a franchise agreement

and

Maxie

(“Agreement”).

Under that Agreement, Fantastic Sams granted Maxie Enterprises

2

the

right

to

operate

a

Fantastic

Sams

salon.

Under

the

Agreement, unless the Agreement was terminated, the Agreement
was to continue in full force and effect for either ten years
from the date on which the salon opened for business or eleven
years from the date of the Agreement, whichever was earlier.
Defendants opened their Fantastic Sams salon at 1431 Capital
Avenue

in

Watkinsville,

Georgia

in

January

2009,

so

the

Agreement was to be in effect until January 2019.
The

Agreement

contains

a

two-part

restrictive

covenant,

under which Defendants agreed:
12(d)(9) To refrain, for a period of two (2) years
from the effective date of expiration or termination
of this Agreement, from directly or indirectly
participating as an owner, partner, member, director,
officer, employee, consultant, lender or agent, or
serve in any other capacity in any business engaged in
the sale or rental of products or services the same as
or similar to those of the Fantastic Sams System,
within a five (5) mile radius of the Fantastic Sams
Salon operated pursuant to this Agreement; [and]
12(d)(10) To refrain from directly or indirectly
participating as an owner, partner, member, director,
officer, employee, consultant, lender or agent, or
serve any other capacity in any business engaged in
the sale or rental of products or services the same as
or similar to those of the Fantastic Sams System,
within a two and one-half (2 1/2) mile radius of any
Fantastic Sams Salon, for the greater of (a) the
remainder of the unexpired term of this Agreement had
this Agreement not been terminated, or (b) a period of
two (2) years from the actual date of expiration or
termination.
Pl.’s

Statement

of

Material

Facts,

Attach.

to

Ex.

B,

Salon

License Agreement 19 ¶ 12(d)(9)-(10), ECF No. 30 at 40 of 49

3

[hereinafter

Salon

License

Agreement].

The

Agreement

also

contains the following severability clause:
If any article, section, part, term, sentence or
provision
of
this
Agreement
(including,
without
limitation, each of the separate parts of Section
12(d)) is determined to be invalid for whatever
reason, all of the remaining articles, sections,
parts, terms, sentences and provisions of this
Agreement will remain in full force and effect as if
the invalid item were deemed not to be a part of this
Agreement.
Id. at 23 ¶ 17(a), ECF No. 30 at 44 of 49.
Maxie

Enterprises

operated

the

Watkinsville until November 2010.
Enterprises

notified

Fantastic

Fantastic

Sams

salon

in

On November 2, 2010, Maxie

Sams

that

it

was

no

longer

operating the salon as a Fantastic Sams salon, and Fantastic
Sams deemed the Agreement to be terminated as of that date.
III. Discussion
Defendants

filed

a

counterclaim

asking

that

the

Court

declare the restrictive covenant in the Agreement to be invalid.
Answer & Countercl. 12 ¶¶ 7-9, ECF No. 9.
summary

judgment

on

their

counterclaim,

Defendants now seek
contending

that

the

restrictive covenant is unreasonable as to time, territory and
scope and is therefore unenforceable under Georgia law.
As
generally

discussed
provide

above,
that

the

covenants

Defendants

are

in

the

prohibited

Agreement
from

(1)

competing within five miles of the franchise location for two
years and (2) competing within 2.5 miles of any Fantastic Sams

4

Salon until January 2019.
that

the

second

part

Fantastic Sams appears to concede

of

the

restrictive

covenant—Paragraph

12(d)(10)—is unenforceable under Georgia law.
asserts

that

the

first

part

of

the

Fantastic Sams

restrictive

covenant—

Paragraph 12(d)(9)—is enforceable and that it can be separated
from

Paragraph

12(d)(10)

under

the

Agreement’s

severability

clause.
The Court need not determine whether Paragraph 12(d)(10)
can be severed from Paragraph 12(d)(9) because even if it were
severable,

the

restrictions

would still be unenforceable.

contained

in

Paragraph

12(d)(9)

Under Georgia law applicable to

the Agreement at issue here, restrictive covenants in franchise
agreements are subject to strict scrutiny, and they “must be
reasonable as to time, territory and scope.”1

Atlanta Bread Co.

Int’l v. Lupton-Smith, 285 Ga. 587, 589-90, 679 S.E.2d 722, 723
(2009).

Even though the time (two years) and territory (five

mile radius) restrictions are likely reasonable, see Watson v.

1

In 2010, the Georgia Constitution was amended to change Georgia’s
rules regarding “blue penciling.”
Under the new law, the courts may
now modify a restrictive covenant that is otherwise void and
unenforceable.
O.C.G.A. § 13-8-53(d); 13-8-54.
The new law only
applies to contracts entered into on or after the effective date,
November 2, 2010.
E.g., O.C.G.A. § 13-8-54, historical & statutory
notes (citing Ga. Laws 2009, Act 64 § 4).
The parties entered the
Agreement at issue in this action on November 24, 2008, so the law as
it existed prior to November 2, 2010 applies in this case. Under that
law, a franchise agreement “cannot be blue-penciled if found to be
unreasonable as to time, territory or scope.” Atlanta Bread Co. Int’l
v. Lupton-Smith, 285 Ga. 587, 591, 679 S.E.2d 722, 725 (2009).

5

Waffle

House,

Inc.,

253

Ga.

671,

672,

324

S.E.2d

175,

178

(1985), the scope restriction is not.
The restrictive covenant in the Agreement broadly restricts
Defendants,

including

Paul

Rubin

himself,

from

“directly

or

indirectly participating as an owner, partner, member, director,
officer, employee, consultant, lender or agent, or serve any
other capacity in any business engaged in the sale or rental of
products or services the same as or similar to those of the
Fantastic Sams System.”

Salon License Agreement 19 ¶ 12(d)(9),

ECF 40 of 49 (emphasis added).

“The Georgia Supreme Court has

made clear that a covenant that restricts a former franchisee
from employment in a competing business ‘in any capacity’ is
overbroad and will not be enforced.”

Gandolfo’s Deli Boys, LLC

v. Holman, 490 F. Supp. 2d 1353, 1359 (N.D. Ga. 2007); accord
Fields v. Rainbow Int’l Carpet Dyeing & Cleaning Co., 259 Ga.
375,

375,

restrictive

380

S.E.2d

covenant

693,
that

693

(1989)

prohibited

(finding
owner

unenforceable

and

manager

of

franchise from “working for a competitor in any capacity”); see
also Howard Schultz & Assocs. of the Se., Inc. v. Broniec, 239
Ga.

181,

184,

236

S.E.2d

265,

268

(1977)

(noting

that

restrictive covenant is unreasonable where the employee agrees
not to accept employment with a competitor “in any capacity”).
The Georgia Supreme Court has also disapproved of restrictive
covenants “where the nature of the business activities in which

6

the

employee

is

forbidden

to

engage

is

not

specified

with

particularity” and instead simply states that the employee shall
“not

engage

in

or

be

employed

employer’s business.’”2

by

any

‘business

similar

to

Howard Schultz & Assocs., 239 Ga. at

184-85, 236 S.E.2d at 268.
Fantastic Sams points out that the Georgia Supreme Court
has upheld a restrictive covenant providing that the franchisees
could not compete with the franchisor restaurant company “by
engaging in the restaurant or fast food business within a fivemile radius for a period of two years.”
324 S.E.2d at 176.

Watson, 253 Ga. at 671,

In Watson, there was evidence that the

business of the franchisor was “such that the [franchisees] were
its heart and soul” and “[t]heir participation involved every
facet

of

the

business

and

they

gained

knowledge

[franchisor] has a reasonable stake in protecting.”

which

the

Id. at 672,

324 S.E.2d at 178.

For these reasons, the court found that “a

prohibition

engaging

against

in

the

restaurant

or

fast

food

business in such a narrow area for so short a time” was not
unreasonable.

Id.

In

this

case,

Fantastic

Sams

has

not

presented evidence that Rubin was the “heart and soul” of the
business or that his participation involved “every facet of the
business.”

Therefore, the Court cannot find that

2

Watson

is

For purposes of analyzing restrictive covenants, Georgia considers
franchise agreements to be analogous to employment contracts. Watson,
253 Ga. at 672, 324 S.E.2d at 177.

7

controlling here; under the rules articulated by the Georgia
Supreme Court in Fields and Howard Schultz & Associates, the
Court concludes that the restrictive covenant at issue here is
unenforceable

due

to

its

unreasonable

scope

restriction.

Fields, 259 Ga. at 375, 380 S.E.2d at 693; Howard Schultz &
Assocs., 239 Ga. at 184-85, 236 S.E.2d at 268.

Defendants’

motion for partial summary judgment is therefore granted.
DEFENDANTS’ MOTION TO COMPEL
Defendants

filed

a

motion

to

compel

respond to certain discovery requests.

Fantastic

Sams

to

Defendants also ask that

they be given additional time to complete discovery following
“proper

discovery

responses”

from

Fantastic

Sams.

Finally,

Defendants request attorney’s fees incurred in connection with
the motion to compel.
I.

The Court addresses each issue in turn.

Defendants’ Motion to Compel
Defendants first contend that Fantastic Sams did not verify

its

interrogatory

responses.

After

Defendants

filed

their

motion to compel and after the close of discovery, Fantastic
Sams did verify the interrogatory responses.

Accordingly, this

issue is now moot.
Defendants
sufficiently

also

respond

claim
to

that

Fantastic

Interrogatories

Sams
5,

6

did
and

not
7.

Interrogatory 5 asks Fantastic Sams to state the facts on which
its

allegations

regarding

Defendants’

8

continued

use

of

confidential and proprietary information regarding the Fantastic
Sams

system,

including

which

confidential

and

proprietary

information was used and the dates Defendants allegedly used it.
Defs.’

Mot.

to

Compel

Ex.

A,

Pl.’s

Resp.

to

Defs.’

1st

Interrogs. 4, ECF No. 23-1 [hereinafter Pl.’s Resp. to Defs.’
1st Interrogs.].
the

Fantastic Sams responded that Defendants used

“haircutting

style

learned

through

the

Fantastic

Sams

system” and “the basic information provided in the Fantastic
Sams proprietary training manual materials.”

Id. at 5.

In its

supplemental response, which was served after Defendants filed
their

motion

to

compel

and

after

the

close

of

discovery,

Fantastic Sams stated that the specific proprietary items used
by Defendants “include the Fantastic Sams Operations Manual, the
Fantastic

Sams

Fundamentals

Human

Manual,”

Resources
which

Manual,

“include

a

and

variety

the
of

Salon

specific

sections covering operations, training, marketing, cash flow and
P&L Management as well as information on proprietary Fantastic
Sams product line items.”
Compel

Attach.

2,

Pl.’s

Defs.’ Reply in Supp. of Mot. to
Supplemental

Resp.

to

Defs.’

1st

Interrogs. 2, ECF No. 33-2 [hereinafter Pl.’s Supplemental Resp.
to Defs.’ 1st Interrogs.].

Fantastic Sams also responded that

these manuals were in Defendants’ salon on December 7, 2010.
Id.

The Court finds that these responses to Interrogatory 5 are

sufficient

to

put

Defendants

on

9

notice

of

Fantastic

Sams’

contentions,

and

the

Court

declines

to

interrogatory responses to Interrogatory 5.

compel

further

However, given that

Fantastic Sams did not supplement its interrogatory responses
until after the close of discovery and that Defendants therefore
had

no

opportunity

to

ask

questions

about

the

supplemental

interrogatory responses during a deposition of a Fantastic Sams
representative, the Court will permit Defendants to engage in
additional discovery for sixty days from the date of this Order.
Interrogatory 6 asks Fantastic Sams to state the facts in
support
efforts

of

its

to

allegation

develop

that

new

Defendants

salons,

including

specific efforts to develop new salons.
1st

Interrogs.

5.

Fantastic

are

Sams

hampering

Fantastic

its

Sams’

Pl.’s Resp. to Defs.’

responded

that

Defendants

“have continued to occupy the specific location and to operate a
hair salon business at that location.”

Id.

In its supplemental

response, which was served after Defendants filed their motion
to

compel

and

after

the

close

of

discovery,

Fantastic

Sams

stated that its efforts “to develop new salons in or near the
Defendants’

salon

includes

the

Fantastic

Sams

website,

the

networking/development functions attended by Ben Smith . . . and
multiple other networking/development based meetings and events
attended

by

[Fantastic

Sams]

sales

personnel.”

Supplemental Resp. to Defs.’ 1st Interrogs. 3.

Pl.’s

Fantastic Sams

also stated that the “very existence at that location of the now

10

independent

salon

has

hindered

the

efforts

and

ability

[Fantastic Sams] to be able to market that specific area.”

of
Id.

The Court finds that these responses to

Interrogatory 6 are

sufficient

of

Fantastic

to

compel

to

contentions,

put
and

Defendants
the

on

Court

notice

declines

Sams’

further

interrogatory responses to Interrogatory 6.
Interrogatory 7 asks Fantastic Sams to give an account of
“all damages, losses and expenses” it claims to have suffered as
a result of Defendants’ actions.
Interrogs. 5.

Pl.’s Resp. to Defs.’ 1st

Fantastic Sams initially responded that it had

not yet completed an itemization of its damages but that its
damages included amounts provided in the license agreement upon
termination, as well as legal fees and expenses Fantastic Sams
incurred “in dealing with this termination situation.”
6.

In

its

supplemental

response,

which

was

served

Id. at
after

Defendants filed their motion to compel and after the close of
discovery,

Fantastic

Sams

referred

Defendants

to

an

invoice

dated December 3, 2010, as well as a document entitled Rubin
Salon No. 11008 Prospective Fees and a document containing legal
fees and expenses.

The Court finds that these responses to

Interrogatory 7 are sufficient to put Defendants on notice of
Fantastic Sams’ contentions, and the Court declines to compel
further interrogatory responses to Interrogatory 7.

11

Defendants

further

contend

that

Fantastic

Sams

sufficiently respond to their document requests.

did

not

In response to

Defendants’ motion to compel, Fantastic Sams represented that it
had provided the requested documents.
of

the

motion

Fantastic

Sams

to

compel,

had

In their reply in support

Defendants

provided

the

did

not

requested

dispute

that

documents,

and

Defendants also did not point to any documents that have not yet
been produced.
II.

Accordingly, this issue is now moot.

Defendants’ Request for Additional Discovery
Again, given that Fantastic Sams did not supplement its

interrogatory responses until after the close of discovery and
that Defendants therefore had no opportunity to ask questions
about

the

supplemental

interrogatory

responses

during

a

deposition of a Fantastic Sams representative, the Court will
permit Defendants to engage in additional discovery for sixty
days from the date of this Order.
III. Defendants’ Request for Attorney’s Fees
Defendants filed their motion to compel after attempting to
confer

with

counsel

for

Fantastic

Sams

discovery responses without court action.

to

obtain

complete

Though Fantastic Sams

appears to assert that its original interrogatory responses were
complete, the Court disagrees.
verified

interrogatory

Fantastic Sams did not provide

responses

or

complete

interrogatory

responses until after Defendants filed their motion to compel

12

and after the close of discovery.
Procedure

37(a)(5)(A),

if

Under Federal Rule of Civil

“requested

discovery

is

provided”

after a motion to compel is filed, “the court must, after giving
an

opportunity

to

be

heard,

require

the

party

.

.

.

whose

conduct necessitated the motion, the party or attorney advising
that conduct, or both to pay the movant’s reasonable expenses
incurred in making the motion, including attorney’s fees.”
R. Civ. P. 37(a)(5)(A).

Fed.

Based on this rule, the Court must

award Defendants the attorney’s fees they incurred in connection
with their motion to compel unless Fantastic Sams shows cause
why the Court should not do so.3
Should Fantastic Sams wish to challenge the imposition of
attorney’s fees in connection with the motion to compel, it must
file a brief (not to exceed ten pages) on or before February 7,
2012.

Defendants may file a response (not to exceed ten pages)

on or before February 14, 2012.

There shall be no reply.

CONCLUSION
As discussed above, Defendants’ Motion for Partial Summary
Judgment (ECF No. 22) is granted, and

Defendants’ Motion to

Compel (ECF No. 23) is denied as moot.

The Court will permit

Defendants to engage in additional discovery for sixty days from
3

Defendants’ attorney represents that he has been practicing law since
1996 and that his hourly rate is $280 per hour. Defs.’ Reply in Supp.
of Mot. to Compel Attach. 8, Shipe Decl. ¶ 2, ECF No. 33-8.
Defendants’ attorney also represents that he spent 9.5 hours in
connection with the motion to compel. Id. ¶ 3.

13

the date of this Order and will award Defendants the attorney’s
fees they incurred in connection with their motion to compel
unless Fantastic Sams shows cause why the Court should not do
so.

IT IS SO ORDERED, this 24th day of January, 2012.
S/Clay D. Land
CLAY D. LAND
UNITED STATES DISTRICT JUDGE

14