Acceleration Products v. Arikota et al

Filing 45

MEMORANDUM DECISION granting in part and denying in part 5 Motion for Preliminary Injunction. The defendants are to immediately cease operating the Scottsdale center pending the resolution of this case. Signed by Judge Dee Benson on 8/7/14. (jlw)

IN THE UNITED STATES COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION

ACCELERATION PRODUCTS, INC. dba
ATHLETIC REPUBLIC, a North Dakota
corporation,
MEMORANDUM DECISION AND
ORDER

Plaintiff,
vs.
ARIKOTA, INC., an Arizona corporation;
ECLECT, LLC, an Arizona limited liability
company; MICHAEL BIRKELAND, an
individual; CAROL BIRKELAND, an
individual; and KRISTOPHER BIRKELAND,
an individual,

Case No. 2:14-CV-00252
Judge Dee Benson

Defendants.

Before the court is plaintiff’s motion for a preliminary injunction requesting the court to
enjoin defendants from operating two Arizona sports training gyms in any way contrary to the
two franchise agreements entered into by the parties. (Dkt. No. 5). The court held a hearing on
the motion on June 16, 2014. At the hearing, plaintiff was represented Emily E. Duke and James
L. Ahlstrom. Defendants were represented by Daniel A. Schenck. After consideration of the
briefs submitted by the parties and the oral arguments presented by counsel, the court enters the
following Memorandum Decision and Order.
BACKGROUND
Plaintiff Acceleration Products Inc. (“API”) offers individuals and businesses the
opportunity to run franchised sports training centers under the Athletic Republic trademark. API

has developed a unique system to operate its training centers that provides high-level training to
athletes in a variety of different sports. API allows franchisees to use its trademarks, equipment
in which API holds patents, and copyrighted sports training protocols. API licenses this system
and protocols through individual franchise agreements.
I.

The Two Franchise Locations
On May 28, 2008, API and Arikota entered into a franchise agreement (the “Tempe
Agreement”) granting Arikota the right to operate an Athletic Republic training center in Tempe,
Arizona. The Tempe Agreement includes a non-compete provision wherein defendants agree to
not:
own, operate, lease, franchise, engage in, be connected with, have an interest in,
or assist any person or entity in any sports training or health fitness business
which is located within the Protected Territory1 or within a 25 mile radius of any
[Athletic Republic] training center.
Tempe Agreement, ¶ 11.A.
It also provides that defendants may not:
directly or indirectly, for a period of 2 years after the . . .termination of
this Agreement . . . own, operate, lease, franchise, conduct, engage in, be
connected with, have any interest in or assist any person or entity engaged in any
sports training or health fitness business that is located within the Protected
Territory or within a 10 mile radius of any [Athletic Republic] training center.
Id. ¶ 11.B (emphasis added).
Nearly two years after entering into the Tempe Agreement, API and defendant
Eclect entered into a franchise agreement (the “Scottsdale Agreement”) granting Eclect
the right to operate an Athletic Republic training center in Scottsdale, Arizona. The
Scottsdale Agreement is almost identical to the Tempe Agreement, and includes the same
provisions as described above.
1

The protected territory is set forth in Appendix D of the Tempe Agreement.
2

Additionally, in both agreements defendants agreed to be bound by certain obligations
upon termination of the franchise relationship, including “immediately ceasing to operate the
Training Center.”2 See Tempe and Scottsdale Agreements, 14. Defendants also agreed that they
would not use API’s confidential information, including its protocols, methods, processes, and
copyrighted manuals “in any other business or in any manner not specifically authorized or
approved in advance in writing” by API. Id. ¶ 8.G.
II.

Termination
At some point during 2013, defendants stopped paying royalties and fees as required
under both agreements and began operating the centers under the name “The Rise.” By written
notice dated March 28, 2014, API provided defendants with notices of termination
effective March 31, 2014, based on defendants’ defaults under Paragraph 13.B of the
agreements. Currently, defendants still operate both centers as sports training facilities but claim
that they are not in breach of either agreement. As a result, plaintiff brought the instant motion.
DISCUSSION

I.

Preliminary Injunction Standard
To obtain a preliminary injunction, the moving party must establish four factors: “(1) it is
substantially likely to succeed on the merits; (2) it will suffer irreparable injury if the injunction
is denied; (3) its threatened injury outweighs the injury the opposing party will suffer under the
injunction; and (4) the injunction would not be adverse to the public interest.” Beltronics USA,
Inc. v. Midwest Inventory Distribution, LLC, 562 F.3d 1067, 1070 (10th Cir.2009) (citation
omitted).

2

Training Center is a defined term in the Tempe Agreement and is defined as “the portion of
your business that is the training center that you develop and operate pursuant to this agreement.”
Tempe Agreement, ¶ 1.R.
3

a. The Scottsdale Center
In applying the above factors to this provision, the court is persuaded that a preliminary
injunction is appropriate with regard to the Scottsdale center.
Here, whether plaintiff has a substantial likelihood of success on the merits depends on
the validity of the agreement’s non-compete provisions. The post-termination non-compete
provision in the Scottsdale Agreement prohibits defendants from owning or operating any sports
training facility within the protected territory for a period of two years after termination. The
agreement clearly defines the geographic boundaries of this protected territory, and defendants’
Scottsdale center is unambiguously within those boundaries. See Scottsdale Agreement,
Appendix D. Upon applying Arizona law to this case, the court finds that the non-compete
provision is valid because it is narrowly tailored and not broader than necessary to protect the
legitimate interests of plaintiff. See Fitness Together Franchise Corp. v. Higher level Health,
2009 WL 2753026 (Aug. 27, 2009).
Additionally, plaintiff would suffer irreparable harm if defendants continued to operate
their center contrary to the non-compete provision. The court recognizes that “the majority of
courts that have considered the question have concluded that franchising companies suffer
irreparable harm when their former franchisees are allowed to ignore reasonable covenants not to
compete.” Bad Ass Coffee Co. of Hawaii, Inc. v. JH Enterprises, L.L.C., 636 F. Supp. 2d 1237,
1249 (D. Utah 2009). Allowing defendants to ignore their contractual obligations would harm,
among other things, plaintiff’s goodwill, customer relationships, and relationships with other
franchisees.
Next, although defendants will clearly be harmed if the injunction issues, the balance of
harms weighs in favor of plaintiff because defendants chose to operate the Scottsdale center
despite the covenant not to compete. Thus, any harm to defendants is self-inflicted. See Bad
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Ass Coffee, 636 F. Supp. 2d at 1251.
Lastly, a preliminary injunction is not against the public interest. Here, defendants
voluntarily entered into franchise agreements on two separate occasions and enjoyed the benefits
of these agreements for several years. Public policy favors the enforcement of such commercial
contracts. See e.g., Nilson v. JPMorgan Chase Bank, N.A., 690 F. Supp. 2d 1231, 1258-59 (D.
Utah 2009) (where the preliminary injunction merely required the contract’s signatories “to
comply with their own contractual obligations”).
Accordingly, this order immediately enjoins defendants from operating the Scottsdale
center pending further proceedings in this case.
b.

The Tempe Center

The court finds that plaintiff cannot meet their heavy burden with respect to the Tempe
Agreement’s non-compete provision. Like the Scottsdale Agreement, the protected territory in
the Tempe Agreement clearly defines the geographic boundaries of the protected territory. See
Tempe Agreement, Appendix D. Because defendants’ Tempe location is outside of those
boundaries, plaintiff is not likely to succeed on the merits in applying the agreement’s noncompete provision. See id. Accordingly, the court currently will not enjoin the continued
function of the Tempe center. Although the court is not issuing such an injunction, defendants
now bear the risk of operating, during the pendency of this case, the center in any way contrary
to the remaining provisions in the Tempe Agreement.

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CONCLUSION
Based on the foregoing, the court GRANTS plaintiff’s motion in part and DENIES it in
part, and hereby orders defendants to immediately cease operating the Scottsdale center pending
the resolution of this case.
DATED this 7th day of August, 2014.

___________________________________
Dee Benson
United States District Judge

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