Novus Franchising, Inc. v. Superior Entrance Systems, Inc. et al

Filing 177

ORDER denying plaintiff's request for finding of contempt. Defendant Superior Glass to pay plaintiff $1,000 for violations of court's injunction; defendants to remove any reference linking Superior Glass, Inc. to windshield repair or rock-chip repair services. Signed by District Judge William M. Conley on 5/16/13. (krj)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN

NOVUS FRANCHISING, INC.,
Plaintiff,

OPINION AND ORDER

v.
12-cv-204-wmc
SUPERIOR ENTRANCE SYSTEMS, INC.,
SUPERIOR GLASS, INC., and KNUTE
PEDERSEN,
Defendants.

On March 19, 2013, the court ordered defendants to show cause why they should
not be held in contempt for violating the court’s injunction. On April 19, 2013, the
court held an evidentiary hearing on the matter. After considering the parties’ written
submissions and the evidence presented, the court will decline to find that defendants
acted in contempt of the court’s order, although they have come dangerously close.
BACKGROUND
On September 5, 2012, this court upheld, with modifications, the covenant not to
compete found in the Franchise Agreement between the parties. On December 28, 2012,
the court clarified that the blue-penciled covenant was enforceable as follows:
22.3 Post-Term Covenant Not-to-Compete
You agree that you, your Owners, [and] the Personal
Guarantors . . . will not, for a period of two years after the
termination or expiration of this Agreement, for your or their
own account or as an employee, agent, consultant, partner,
officer, director, member, or owner of any other person, firm,
entity, partnership, company, or corporation (a) seek to
employ any person who is at that time employed by us or by

any Novus® Franchisees without the prior consent of their
employer, (b) own, operate, lease, franchise, conduct, engage
in, consult with, be connected with, have any interest in, or
assist [Superior Glass, Inc. or] any person or entity [legally
connected with or in effective successorship to Superior
Glass, Inc.] . . .
(Dkt. #120, ¶ 7.)
On January 3, 2013, the court entered final judgment, enjoining defendants “from
violating the modified post-termination covenant not to compete in auto glass repair.”
(Dkt. #121.) On January 17, in response to defendants’ motion for clarification as to
when they had to come into compliance with the injunction, the court ordered Knute
Pedersen to “either divest all interest and control in Superior Glass, Inc., or ensure that
Superior Glass, Inc. does not perform any auto glass repair” within one month. (Dkt.
#130 at 4.)
Superior Glass subsequently sold its windshield repair business to a third party, a
company named “SGI Windshield Repair,” which it turns out is newly-formed, owned by
three Superior Glass employees (though not Pedersen), and located in the same building
as Superior Glass.

Moreover, Superior Glass has been actively referring its existing

customers and all new requests for windshield repair to SGI Windshield Repair.
Defendants concede that the transfer of business goodwill and referrals from
Superior Glass was a primary asset in the sale of its windshield repair business, and that
SGI Windshield Repair would not have bought the business without both.

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OPINION
Although defendants will not be found in contempt at this point, the court
remains disturbed by Superior Glass’s and Knute Pedersen’s deliberate orchestrated
transfer of the glass repair business to achieve only arguably technical compliance with
the terms (if not the spirit) of the court’s injunction, while at the same time preserving all
of its value with the least impact on Superior Glass. Under the terms of the covenant not
to compete, which the court’s injunction required be strictly followed, Superior Entrance
Systems and Knute Pedersen are not to “consult with, be connected with, have any
interest in, or assist [Superior Glass, Inc. or] any person or entity [legally connected with
or in effective successorship to Superior Glass, Inc.]”

Plaintiff argues that defendants

have violated this prohibition because Superior Glass, of which Knute Pedersen is the
President, is materially assisting an entity in effective successorship to Superior Glass,
Inc.’s auto glass repair business. Although it is a very close question, the court finds
otherwise.
The crux of the disagreement between the parties is whether Knute Pedersen’s
actions as President of Superior Glass qualify as consulting with, being connected with,
having any interest in, or assisting SGI Windshield Repair (SGIWR). Pedersen is not
assisting SGIWR, at least not directly, and defendants’ witness at the contempt hearing,
James Colborn, testified that Pedersen has scrupulously avoided involvement in all
dealings between Superior Glass and SGIWR. Since Superior Glass continues to assist
SGIWR (most notably by referring business and by employing its shareholders) and
Pedersen continues to assist Superior Glass, Pedersen is arguably indirectly assisting

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SGIWR. It is, as the court has said, a close question, but ultimately the court concludes
that the chain of causation is too remote, and that Pedersen has not violated the terms of
the covenant not to compete.
Defendants have, however, come very close to the line, and should have consulted
in advance of its implementation with opposing counsel (and if a disagreement remained,
with this court) to see if their plan would pass muster under the covenant and the court’s
injunction. Defendants’ obvious attempt to avoid the spirit of the injunction also smacks
of bad faith. Indeed, even the name given the new entity, SGIWR, was done to ensure
that it would be seen as an entity closely-affiliated with Superior Glass, as, of course was
the placement of its offices, the connections of the people who run and own both
businesses, and the referral service provided by Superior Glass.

All of these actions

establish SGIWR as a de facto, if not de jure, branch of Superior Glass.1
Still, Superior Glass, Inc. jumped through a number of legal hoops to divest itself
officially of its windshield repair business, at some cost to itself. It has also cancelled
relevant promotions, advertisements and signs, and jeopardized its existing windshield
replacement business by losing its replace/repair classification for insurance referrals.
These expenditures of money and time demonstrate defendants’ substantial compliance
with the injunction.

Plaintiffs also presented evidence of other minor violations of the covenant not to
compete by Superior Glass (and thus by Pedersen), such as representing on their website
and on the telephone that they offer a “rock-chip repair” service, and maintaining
“windshield repair” signage on an apparently non-functional van parked behind their
building. The court finds that these isolated infractions -- provided they are promptly
repaired -- warrant only minimal contempt sanctions even in light of defendants’ other
aggressive actions.
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Finally, plaintiff has asked for reimbursement of the attorneys’ fees and costs
incurred in enforcing the court’s injunction and in bringing this motion for contempt.
Because plaintiff has not succeeded on the merits of this motion, the court declines to
award the requested fees.

But in light of defendants’ sharp practices, failure to get

approval for its aggressive actions in advance, and remaining technical violations of the
court’s injunction, the court will order that defendant Superior Glass promptly pay
plaintiff

$1,000

and

immediately

remove

any

reference

(including

on

any

decommissioned vehicles, in telephone messages or on websites) linking Superior Glass,
Inc. to windshield repair or rock-chip repair services.
ORDER
IT IS ORDERED that:
(1) plaintiff's request for a finding of contempt is DENIED in substantial part; and
DENIED in smaller part for the reasons set forth here;
(2) defendant Superior Glass is to promptly pay plaintiff $1,000 for its violations of
the court’s injunction; and
(3) defendants must immediately remove any reference (including on any
decommissioned vehicles, in telephone messages or on websites) linking Superior
Glass, Inc. to windshield repair or rock-chip repair services.
Entered this 16th day of May, 2013.
BY THE COURT:
/s/
______________________________________
WILLIAM M. CONLEY
District Judge

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