AAMCO TRANSMISSIONS, INC. v. SINGH

Filing 18

MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE ROBERT F. KELLY ON 10/1/2012. 10/1/2012 ENTERED AND COPIES MAILED TO PRO SE DEFENDANT AND E-MAILED.(sg, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
____________________________________
AAMCO TRANSMISSIONS, INC.
:
:
vs.
:
:
PARAMVIR SINGH a/k/a Perry Singh
:
____________________________________:

CIVIL ACTION

NO. 12-2209

FINDINGS OF FACT AND CONCLUSIONS OF LAW
ROBERT F. KELLY, SR. J.

OCTOBER 1, 2012

Currently before this Court is Plaintiff, AAMCO Transmissions, Inc.’s (AAMCO),
Motion for Preliminary Injunction. After a hearing on the Motion before this Court on
September 21, 2012, and after careful consideration of AAMCO’s Brief in Support of the
Motion, Defendant Paramvir Singh’s (“Singh”) Response, and AAMCO’s Reply, this Court
makes the following findings of fact and conclusions of law.

FINDINGS OF FACT
1. On April 25, 2012, AAMCO filed a Complaint against Singh alleging breach of a
franchise agreement. (Compl. ¶¶ 14-16.)
2. AAMCO is a Pennsylvania corporation with its principal place of business in
Horsham, Pennsylvania. (Id. ¶ 1.) Singh is an adult individual who is a citizen of the State of
Washington with a principal place of business at 18012 Bothell-Everett Hwy., Suite #4, Bothell,
WA 98012. (Id. ¶ 2.)
3. AAMCO filed a Motion for Preliminary Injunction on April 30, 2012 seeking to
enjoin Singh from operating a transmission business at the above address. (Doc. No. 3.) Singh
filed a Response to the Motion on June 27, 2012. (Doc. No. 9.) Thereafter on July 25, 2012,

Singh’s counsel filed a Motion to Withdraw and requested a stay for sixty days for Singh to
retain new counsel. (Doc. No. 13.) On August 7, 2012, we granted the Motion to Withdraw, but
denied the stay and ordered Singh to “obtain new counsel forthwith.” (Doc. No. 15.) AAMCO
filed a Reply to Singh’s Response on August 14, 2012. (Doc. No. 16.)
4. On September 21, 2012, a hearing was held before this Court on AAMCO’s Motion
for Preliminary Injunction. AAMCO presented the testimony of Brian O’Donnell (“O’Donnell”),
its Senior Vice President of Operations, in support of its Motion. Singh did not appear at the
hearing, nor did he request a continuance or inform the Court that he would not be present at the
hearing.
5. Since 1963, AAMCO has been engaged in the business of franchising or licensing
others to use the mark and name “AAMCO” in the operation of transmission and general
automotive repair centers throughout the United States and Canada. (Pl.’s Ex. P-1, O’Donnell
Affidavit at ¶ 3.)1
6. On June 17, 1997, AAMCO and Singh entered into a franchise agreement (“Franchise
Agreement”) in which Singh was authorized to use and did use the name “AAMCO” in
connection with the operation of an automotive center located at 13040 Bellevue-Redmond,
Road, Bellevue, WA (the “Center”). (Id. ¶ 5.)
7. Section 19.2 of the Franchise Agreement, entitled “Covenant Not-to-Compete,” states
in relevant part:
For a period of two (2) years after the termination of this
Agreement, Franchisee shall not directly or indirectly engage in the

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Plaintiff’s exhibits were offered at the September 21, 2012 hearing and we cite to them
accordingly.

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transmission repair business within a radius of ten (10) miles of the
former center or any other AAMCO Center. The two (2) year
period shall not begin to run until Franchisee commences to
comply with all obligations stated in this section 19.2(b).

(Pl.’s Mot. for Prelim. Inj., Ex. A.)
8. The Covenant Not-to-Compete further states in pertinent part:
Franchisee acknowledges that because the business of AAMCO
and the strength of the AAMCO name and trademark, the
restrictions contained in this section 19.2 are reasonable and
necessary to protect the legitimate business interests of AAMCO
and that any violation of these restrictions will result in irreparable
injury to AAMCO. Therefore, Franchisee acknowledges that, in
the event of such violation, AAMCO shall be entitled to
preliminary and permanent injunctive relief and damages.
(Id.)
9. As a franchisee, AAMCO disclosed to Singh its propriety systems, information and
trade secrets for operating a successful automotive repair business which AAMCO had
developed over its history. (Pl.’s Ex. P-1, O’Donnell Aff. at ¶ 6.)
10. From April 21, 1997, through June 2, 1997, Singh attended AAMCO’s intensive
training class in Pennsylvania. Singh was provided with AAMCO’s operating and technical
manuals, national customer lists and specialized software. Singh also received periodic in-field
training, as well as access to AAMCO’s national customer hot line. (Id. ¶¶ 7-8.)
11. In September 2010, after conducting an audit of the Center, AAMCO discovered
widespread and continuing under reporting of sales at the Center in an attempt by Singh to avoid
payment of franchise fees which were calculated as a percentage of sales. (Id. ¶ 9.)
12. Thereafter, on or about July 15, 2011, in consideration of AAMCO’s agreement to

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release Singh from the substantial debt he owed to AAMCO, Singh sold the Center to AAMCO’s
affiliate company. On this same date, the Franchise Agreement was terminated. (Id. ¶ 10.)
13. Under the Franchise Agreement, the earliest date on which Singh’s Covenant Not-toCompete could expire is July 15, 2013. (Id.)
14. In violation of the Covenant Not-to-Compete in the Franchise Agreement, Singh is
currently operating a transmission repair business at 18012 Bothell-Everett Hwy., Suite #4,
Bothell, Washington, under the name “Mill Creek Transmissions and Auto Repair” (the
“Competing Business”) which is within ten miles of at least two AAMCO Transmission
Centers.2 (Pl.’s Ex. P-1, O’Donnell Aff. at ¶ 14.)
15. In advertising the Competing Business on his website,3 Singh makes reference to his
former tenure at the AAMCO Repair Center in Bellevue, Washington. Singh indirectly
references AAMCO in a derogatory manner stating that he “ran a successful national franchise
for 15 years in Bellevue and decided to go independent to better serve my customers.” (Pl.’s Ex.
P-5.) He also makes another indirect derogatory reference to AAMCO on his website stating that
“Mill Creek Transmissions & Automotive is your Honest, Independent alternative to dealerships
and high-priced national chain stores that don’t appreciate your business.” (Id.)
16. An owner of several AAMCO centers in the Puget Sound area of Washington
contacted AAMCO to complain that Singh’s Competing Business is unfairly competing with his
franchise businesses. (Pl.’s Ex. P-1, O’Donnell Aff. at ¶ 22.)

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A map of the ten mile radius surrounding Mill Creek Transmissions indicates that it is located
within ten miles of three AAMCO centers in Lynnwood, Shoreline, and Kirkland, Washington. (Pl.’s
Ex. P-3.)
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Singh’s website can be found at www.millcreektransmissions.com.

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17. Singh continues to operate a transmission and general repair business in the Puget
Sound area using his knowledge of AAMCO, its unique system of doing business and other
confidential information. (Id. ¶ 27.)
CONCLUSIONS OF LAW
1. This Court has original jurisdiction over the subject matter of this action pursuant to
28 U.S.C. § 1332, because the matter in controversy exceeds $75,000 and because AAMCO and
Singh are citizens of different states. See 28 U.S.C. § 1332.
2. The Franchise Agreement’s choice of law provision requires the application of
Pennsylvania law. Neither party challenges the application and enforceability of this provision.
Therefore, this Court will consider whether the non-compete clause is enforceable under
Pennsylvania law. (Ex. P-2, Franchise Agreement at § 21.1.)
3. A court must examine the following four factors when faced with a request for a
preliminary injunction: (1) plaintiff’s likelihood of success on the merits; (2) irreparable harm;
(3) the extent to which the defendant will be irreparably harmed if the injunction issues; and (4)
the public interest. Pappan Enters., Inc. v. Hardee’s Food Sys., Inc., 143 F.3d 800, 803 (3d Cir.
1998).
4. “A court will issue a preliminary injunction ‘[o]nly if the movant produces evidence
sufficient to convince the trial judge that all four factors favor preliminary relief.’” Rita’s Water
Ice Franchise Co., LLC, No. 10-4297, 2011 WL 101694, at *6 (E.D. Pa. Jan. 11. 2011) (citing
Optician’s Ass’n of Am. v. Indep. Opticians of Am., 920 F.2d 187, 192 (3d Cir. 1990)).
5. With regard to the first factor, we find that it is very likely that AAMCO would

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succeed on the merits of its action to enforce Singh’s Covenant-Not-to-Compete.
6. Under Pennsylvania law, a non-compete covenant is enforceable if: (1) the covenant
relates to either a contract for the sale of goodwill or other subject property; (2) the covenant is
supported by adequate consideration; and (3) the application of the covenant is reasonably
limited in both time and territory. Piercing Pagoda, Inc. v. Hoffner, 351 A.2d 207, 210 (Pa.
1976).
7. Neither party disputes that the first two requirements are fulfilled, since it is wellsettled that a non-compete clause in a franchise agreement relates to the sale of goodwill and
since the Franchise Agreement is supported by adequate consideration on both sides. See
Athlete’s Foot Mktg. Assocs. v. Zell Inv., Inc., No. 00–186, 2000 WL 426186, at *9–10 (W.D.
Pa. Feb 17, 2000) (citing Piercing Pagoda, 351 A.2d at 210).
8. Under Pennsylvania law, covenants not to compete are to be strictly construed since
they are “a partial restraint upon the free exercise of trade.” Hayes v. Altman, 266 A.2d 269, 271
(Pa. 1970); see also Maaco Franchise, Inc., No. 09-4548, 2010 WL 1644278, at *4 (E.D. Pa. Apr.
20, 2010).
9. A court’s interpretation of a contract is a matter of law. Roman Mosaic & Tile Co.v.
Thomas P. Carney, Inc., 729 A.2d 73, 77 (Pa. Super. 1999). The court’s duty when it interprets a
contract is to “ascertain the intent of the parties as manifested by the language of the written
agreement.” Glen–Gery Corp. v. Warfel Constr. Co., 734 A.2d 926, 929 (Pa. Super. 1999)
(quoting Standard Venetian Blind Co. v. Am. Empire Ins. Co., 469 A.2d 563, 566 (Pa. 1983)).
“The intention of the parties is paramount and the court will adopt an interpretation which under

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all circumstances ascribes the most reasonable, probable, and natural conduct of the parties,
bearing in mind the objects manifestly to be accomplished.” Bethlehem Steel Corp. v. MATX,
Inc., 703 A.2d 39, 42 (Pa. Super. 1997).
10. The Franchise Agreement, including the Covenant-Not-to-Compete, is not
ambiguous. The Covenant clearly states the intention of the parties that “[f]or a period of two (2)
years after the termination of this Agreement, Franchisee shall not directly or indirectly engage in
the transmission repair business within a radius of ten (10) miles of the former center or any
other AAMCO Center.” (Pl.’s Mot. for Prelim. Inj., Ex. A.)
11. The non-compete covenant is reasonable in time. The non-compete clause lasts for
two years and applies only to the transmission repair business. See Rita’s Water Ice Franchise
Co., 2011 WL 101694, at *7 (two-year non-compete covenant deemed reasonable); see also
Piercing Pagoda, 351 A.2d at 212 (granting injunctive relief to enforce a three-year restraint on
competition); Novus Franchising, Inc. v. Taylor, 795 F. Supp. 122, 128 (M.D. Pa. 1992) (finding
that the two-year time duration on the restrictive covenant at issue was reasonable).
12. The ten-mile geographic scope of the Covenant Not-to-Compete is also reasonable.
See Sidco Paper Co. v. Aaron, 351 A.2d 250, 256-57 (Pa. 1976) (affirming injunctive relief to
enforce non-compete covenants with portions of three states and all of the District of Columbia);
Piercing Pagoda, 351 A.2d at 212 (thirty-mile radius deemed reasonable); Wainwright’s Travel
Service, Inc. v. Schmolk, 500 A.2d 476 (Pa. Super. 1985) (affirming injunctive relief to enforce
non-compete covenants within employee’s primary business area of five states); Maaco Enters.,
Inc. v. Bremner, No. 98-2727, 1998 WL 669936, at *1 (E.D. Pa. Sept. 29, 1998) (ten-mile radius

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deemed reasonable); Sparks Tune-Up, Inc. v. White, No. 89-664, 1989 WL 4132, at *1 (E.D. Pa.
Apr. 18, 1989) (ten-mile radius deemed reasonable); Am. Mutual Liab. Inc. Co. v. Kosan, 635 F.
Supp. 341, 344-45 (W.D. Pa. 1986), aff’d 817 F.2d 751 (3d Cir. 1987) (insurance agent restricted
from competing with former employer insurance firm within fifty-mile radius pursuant to
agreement).
13. We find that the Covenant-Not-to Compete is enforceable under Pennsylvania law
because all three factors have been met under Piercing Pagoda, 351 A.2d at 212.
14. In light of the facts of this case, we next find that AAMCO has met the second factor
in Pappan Enter., Inc., in that it has suffered irreparable harm. 143 F.3d at 803.
15. Irreparable injury results when a former franchisee competes against a franchisor in
breach of a restrictive covenant contained in the parties’ franchise agreement. See e.g. Rita’s
Water Ice Franchise Co., 2011 WL 101694, at *6; Maaco Enters.,Inc. v. Bremner, 1998 WL
669936, at *6 ; Rita’s Water Ice Franchise Corp. v. DBI Invest. Corp., No. 96-306, 1996 WL
165518 (E.D. Pa. Apr. 8, 1996).
16. “The irreparable harm requirement is met if a plaintiff demonstrates a significant risk
that he or she will experience harm that cannot adequately be compensated after the fact by
monetary damages.” Adams v. Freedom Forge Corp., 204 F.3d 475, 484–85 (3d Cir. 2000).
“Grounds for irreparable injury include loss of control of reputation, loss of trade, and loss of
goodwill.” Pappan Enters., Inc., 143 F.3d at 805.
17. If AAMCO is unable to enforce the Covenant-Not-to-Compete contained in the
Franchise Agreement, the values of all of its franchises are lowered. See Rita’s Water Ice

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Franchise Corp., 1996 WL 165518, at *5. This inability could induce other franchisees to violate
their franchise agreements and to use the goodwill established by the operation of its AAMCO
franchise to establish a competing business. Rita’s Water Ice Franchise Co., 2011 WL 101694,
at *6.
18. The Court appreciates that a preliminary injunction will force Singh to cease his
transmission operations and this will have financial repercussions for Singh. However, we note
that Singh will be able to continue in the auto repair business, with the exception of doing
transmission work.
19. The Court finds that the harm to AAMCO that will result if the Court does not enjoin
Singh from operating a competing business outweighs any harm to Singh. Singh was aware of
any potential harm when he signed the Franchise Agreement and then opened a competing
business following the termination of the Franchise Agreement. The harm to Singh “is of [his]
own making.” Rita’s Water Ice Franchise Corp., 1996 WL 165518, at *5. A balancing of the
hardships is necessary to ensure that the injunction will not harm the violator of the restrictive
covenant more than a denial of the injunction would harm the movant. In this case, enforcement
of the requested preliminary injunctive relief will impose no undue hardship on Singh, any harm
to Singh having been brought about by his own actions in continuing to operate in breach of his
Covenant-Not-to-Compete. Id.; see also Athlete’s Foot Mktg., Assoc., 2000 WL 426186, at *11.
20. Any hardship which results is not “undue” because Singh is merely having to live up
to the terms of his Franchise Agreement and the Covenant-Not-to-Compete. See e.g., Maaco
Enters., Inc., 1998 WL 669936, at *5 (balancing of the hardships of the parties favors the

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enforcement of the restrictive covenant).
21. We find that the “public interest” is served by granting the injunction. Papan Enters.,
Inc., 143 F.3d at 803.
22. The public interest is also served by ensuring the contractual rights and obligations of
the parties are upheld. Rita’s Water Ice Franchise Co., 2011 WL 101694, at *9. “[T]he public
interest is served by . . . maintaining the viability of franchise systems.” Maaco Franchise, Inc.,
2010 WL 1644278, at *4; see also AAMCO Transmissions, Inc. v. Dunlap, No. 11-4009, 2011
WL 3586225, at *9-10 (E.D. Pa. Aug. 16, 2011).
23. Since AAMCO has shown a reasonable probability of success on the merits, that
irreparable harm will result if the relief sought is not granted, that the harm it faces outweighs the
possible harm to Singh, and that granting relief is in the public interest, we will grant AAMCO’s
Motion for a Preliminary Injunction. Singh, his agents, servants, employees and those persons in
active concert or participation with him, are enjoined from operating a transmission repair
business at 18012 Bothell-Everett Hwy., Suite #4, Bothell, WA 98012, or anywhere else within
ten (10) miles of an AAMCO Repair Center.
24. In accordance with Federal Rule of Civil Procedure 65(c), the Court will require
AAMCO to post a bond in the amount of $5,000.
We, therefore, enter the following Judgment.

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