957 F. Supp. 2d 186
E.D.N.Y2013Background
- GK Franchising entered a March 10, 2006 franchise agreement with Bullock to operate a Golden Krust at 1717 Dutch Broadway, Elmont, NY, including trademark license and non-compete terms.
- Agreement prohibited unauthorized use of trademarks and allowed termination for dishonest or unethical conduct affecting GK's goodwill.
- Defendants were found selling competitor products in GK packaging; GK terminated the Agreement on April 2, 2013 for this conduct, while defendants continued to operate using GK marks.
- Plaintiffs sought a TRO and preliminary injunction enforcing the Non-Compete and restricting use of GK trademarks; a TRO granted trademark relief but not the Non-Compete at that stage.
- Bennett, Bullock’s son, managed the former Franchise post-termination and continued operating the new Caribbean restaurant at the same location.
- Court narrowed the Non-Compete to protect GK goodwill, enjoining Caribbean-style restaurant operation within 4 miles of the Franchise and 2.5 miles of any other GK location, and ordered a $20,000 bond.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the Non-Compete provision enforceable as reasonable restraint? | Non-Compete necessary to protect GK goodwill and prevent confusion. | Provision overly broad and burdensome, restricting any restaurant within wide area. | Enforceable to the extent narrowed; 4-mile radius from Franchise and 2.5 miles from other GK locations deemed necessary and not unduly burdensome. |
| Irreparable harm and likelihood of success on the merits regarding the Non-Compete? | Loss of goodwill and continued misuse of GK brand constitutes irreparable harm. | No irreparable harm shown and merits lack clarity. | Irreparable harm shown for goodwill; likelihood of success on the merits established; trade secrets claim rejected as irreparable harm. |
| Are Bennett and other agents bound by the injunction under Rule 65(d)? | Bennett acted as Bullock's agent and thus is bound. | Bennett is not a party to the agreement and not bound. | Bennett bound as Bullock's agent; injunction enforceable against him if properly served. |
| What bond amount is appropriate for a preliminary injunction? | No bond or minimal bond is required. | substantial bond is necessary to secure potential damages. | Bond set at $20,000; proportional to anticipated lease-related harms and likelihood of success. |
Key Cases Cited
- Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7 (U.S. 2008) (four-part test: likelihood of success, irreparable harm, balance of hardships, public interest)
- Salinger v. Colting, 607 F.3d 68 (2d Cir. 2010) (adopted four-part framework including public interest and balance of hardships)
- Citigroup Global Mkts., Inc. v. VCG Special Opportunities Master Fund Ltd., 598 F.3d 30 (2d Cir. 2010) (adopted requirement of serious questions and decisive balance of hardships if no likelihood of success)
- Singas Famous Pizza Brands Corp. v. N.Y. Adver. LLC, 468 F.Appx. 43 (2d Cir. 2012) (upheld enforceability of a restrictive covenant with a ten-mile radius in context of franchised pizza stores)
- BDO Seidman, LLP v. Hirshberg, 93 N.Y.2d 382 (N.Y. 1999) (test for reasonableness of restrictive covenants: geography, duration, legitimate interest)
- Janice v. J.H. Elec., LLC, 69 A.D.3d 802 (N.Y. App. Div. 2d Dep’t 2010) (likelihood of success standard under New York breach of contract framework (contextual to proceedings))