ORDER
This matter is before the Court on plaintiffs motion for preliminary injunction [Docket No. 45] and defendants’ motion to dismiss, to transfer venue, or, in the alternative, to stay the proceedings [Docket No. 43]. On April 1, 2010, defendants filed their motion to dismiss, transfer, or stay the action. On April 6, plaintiff filed its motion for preliminary injunction regarding the in-term covenant not to compete [Docket No. 45]. The motions are fully briefed, and the Court held a joint hearing on those motions on June 17, 2010. Thereafter, the parties filed supplemental briefs [Docket Nos. 80, 81]. The motions are ripe for disposition.
I. BACKGROUND
Plaintiff Big O Tires, LLC (“Big O”) “is a retail tire franchisor with approximately 500 independently-owned and operated locations in twenty states, each doing business as ‘Big O Tires,’ selling tires, wheels, shock absorbers, and other automotive goods and services.” O’Neil Deck [Docket No. 45-2] at 1, ¶ 2. Plaintiffs Western Division Vice President Richard S. O’Neil declares that the “relationship between Big O and each of the franchised locations is governed by franchise agreements that allow the franchisees, for a term of years, to use Big O’s marks, trade dress, and licensed methods in exchange for, among other things, payment of royalties.” O’Neil Deck [Docket No. 45-2] at 1-2, ¶ 2.
On June 30, 1999, defendant Felix Bros., Inc. entered into a Big O franchise agreement (“Quartz Hill Agreement”) and opened a Big O franchise in Quartz Hill, California. See Docket No. 1-1 at 8. Defendants Ralph, Armida, Angel, and Maria Felix were all parties to the Quartz Hill Agreement. Ralph and Armida Felix own 70% of defendant Felix Bros., with Angel Felix owning the remaining 30%. See Docket 1-1 at 47. On April 25, 2001, Manzano, Inc. became a Big O franchise in Palmdale, California (“Palmdale Agreement”). See Docket No. 1-3 at 8. Ralph Felix owns 51% of Manzano. See Docket No. 1-3 at 43. Ralph and Armida Felix, as guarantors of Manzano, signed the Palm-dale Agreement and agreed not to compete with Big O during the term of the Palmdale Agreement (“in-term covenant not to compete”). See Docket No. 1-3 at 26.
On August 23, 2001, Felix Tires, Inc., with Ralph and Armida Felix as guarantors, became a Big O franchise in Lancaster, California (“Lancaster Agreement”). See Docket No. 1-2 at 4. Pursuant to the Lancaster Agreement, Ralph and Armida Felix agreed, as guarantors of Felix Tires, agreed not to compete with Big O during the term of the Lancaster Agreement. See Docket No. 1-2 at 27. Ralph and Armida each own 50% of Felix Tires. See Docket No. 1-2 at 45.
In January 2010, Mr. Felix “began the process of de-identifying [his] Quartz Hill tire store from all Big O brand names and trademarks....” Docket No. 52-2 (“Felix Deck”) at 2, ¶ 5. He registered the Quartz Hill store under the name Budget Tires and Automotive. See id. On February 19, 2010, Big O filed this lawsuit and, on February 23, 2010, filed a motion for temporary restraining order and preliminary injunction [Docket No. 9], 2 seeking removal of all Big O trademarks and trade dress and return of proprietary information from the Quartz Hill store. Moreover, Big O sought enforcement of the in-term covenants not to compete in the Palmdale and Lancaster Agreements. Although they have de-identified Budget Tires and Automotive and returned proprietary information, defendants continue to engage in a tire business at the Quartz Hill location. See Docket No. 45-2 at 5.
The Quartz Hill Agreement contains a “Post Termination Covenant Not to Compete,” which provides that
[I]f Franchisee terminates this Agreement other than in a manner prescribed in Section 19.03 or if this Agreement is terminated for ‘good cause’ as defined in Section 19.01, Franchisee and its guarantors covenant that they shall not directly or indirectly, for a period of two (2) years after the Termination Date of this Agreement, engage in any business, other than as a Franchisee of the Big O System, which offers or sells tires, wheels, shock absorbers, automotive services, or other products or services which compete with Big O Products and Services within a ten (10) mile radius of the Premises or within a ten (10) mile radius of any other Big O Store which was operational or under construction on the Termination Date....
The in-term covenant not to compete in the Palmdale and Lancaster Agreements reads as follows:
Except for any businesses already operating and identified on the Summary Pages, during the term of this Agreement, Franchisee and any guarantor(s) hereof covenant, individually, not to engage in or open any business, at any location, other than as a Franchisee of the Big 0 System, which offers or sells tires, wheels, shock absorbers, automotive services, or other products or services which compete with Big 0 Products and Services. The purpose of this covenant is to encourage Franchisee and any guarantor(s) hereof to use their best efforts to promote the Big 0 System, its Products and Services, to protect its Information and trade secrets, and to generate a successful business at the Store.
Ex. 2 to Compl. [Docket No. 1] at 19, § 17.01; Ex. 3 at 18, § 17.01.
In addition to its argument that defendants are violating the in-term covenant not to compete simply by operating Budget Tires and Automotive at the Quartz Hill location, Big O contends that defendants are diverting customers from their Big O stores in Palmdale and Lancaster to the Quartz Hill location. Although one Big O witness testified about an affidavit from a Big O employee who made pretext calls to the Lancaster and Palmdale stores to determine whether the employees there would refer a supposed customer to Budget Tires and Automotive, that affidavit was not introduced at the hearing. The only evidence of diversion came from Mr. Edgar Aguilar, an employee at the Palm-dale Big O location, who testified regarding a phone call he received from an individual claiming to be stranded with a flat tire in Quartz Hill. Mr. Aguilar estimated that the distance between the Quartz Hill location and the Palmdale Big O franchise was approximately 15 miles. 3 In light of the fact that the individual claimed to have a flat tire and therefore it would have been unsafe for the individual to try to drive to the Palmdale Big O store, Mr. Aguilar referred him to the nearby Budget Tires store.
At the June 17 hearing on Big O’s motion for preliminary injunction, Mr. Ralph Felix testified telephonically that he has no incentive to reduce his efforts to sell products at the Palmdale and Lancaster stores. Mr. Felix testified that he is working seven days each week exclusively at the Palm-dale and Lancaster locations and emphasized that each “store needs to meet their numbers and they need to increase sales.”
4
Moreover, he testified that he
II. ANALYSIS
A. Defendants’ Motion to Dismiss, Transfer, or Stay the Action
Defendants request that, prior to resolving the motion for preliminary injunction, the Court transfer venue pursuant to 28 U.S.C. § 1406(a) or stay the proceedings in light of ongoing litigation in state court in California [Docket No. 43]. The Court will address the motion to transfer venue and the motion to stay separately.
1. Improper Venue
Defendants contend that venue in this Court is improper, invoking 28 U.S.C. §§ 1391 and 1406 and Federal Rule of Civil Procedure 12(b)(3). Generally, the question of whether venue is proper in a particular judicial district is determined by reference to the requirements of the relevant venue statute. See 14D Charles Wright, Arthur Miller & Edward Cooper, Federal Practice and Procedure § 3804 (2009). Big O’s action raises federal claims and, therefore, implicates the venue provisions of 28 U.S.C. § 1391(b), which provides that
A civil action wherein jurisdiction is not founded solely on diversity of citizenship may, except as otherwise provided by law, be brought only in (1) a judicial district where any defendant resides, if all defendants reside in the same State, (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated, or (3) a judicial district in which any defendant may be found, if there is no district in which the action may otherwise be brought.
Section 1406(a) of Title 28 provides that the “district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought.” See Fed. R.Civ.P. 12(b)(3) (“[A] party may assert the following defenses by motion: ... improper venue.”). Because there is no allegation that any defendant resides, or may be found, in this district, defendants argue that venue is improper in this district because a “substantial part of the events or omissions giving rise to the claim” did not occur in the district nor is “a substantial part of property that is the subject of the action ... situated” in the district.
The Agreements at issue, however, contain a “Governing Law” clause which states that the parties “consent to ... venue in Denver, Colorado.”
See
Verified Compl. [Docket No. 1] (“Compl.”), ex. 2, § 29.01. Defendants believe that the clause is insufficient to establish this district court as a proper venue for this action, arguing that the clause is only permissive and that, in this circuit, forum and venue clauses with permissive language are not enforced.
See
Docket No. 43 at 6-7 (citing
K & V Scientific Co., Inc. v. Bayerische Motoren Werke Aktiengesellschaft,
However, defendants misunderstand the relevance of the case law they cite. The cases proffered by defendants, as well as others on the subject of mandatory versus
Section 29.01 of both the Lancaster and Palmdale Agreements contemplates that the Federal District Court in Denver, Colorado qualifies generally as a permissible venue. The clause in question — providing that the parties “consent to ... venue in Denver, Colorado” — is one of “geographic” rather than “sovereign” distinction.
See Am. Soda, LLP v. U.S. Filter Wastewater Group,
Even if California law governed this case, § 20040.5 does not address the present situation. According to its very terms, § 20040.5 applies to provisions that restrict venue to a forum outside of California, not to provisions that permit or consent to outside forums. In other words, by its plain meaning, § 20040.5’s prohibition against “provision[s] in a franchise agreement restricting venue to a forum outside this state” only addresses provisions that would prevent litigation from being brought within California. Section § 29.01 of the franchise agreement at issue in this case does not act as such a bar. Rather, as discussed below, it only serves as a prospective consent to venue — that is, waiver of the right to challenge improper venue — in a Court located in Denver, Colorado.
There do not appear to be any cases that have dealt with the particular issue of § 20040.5’s application to provisions which consent to venue in a court outside of California. The Court need not decide the more difficult question of whether the California legislature has the authority to prohibit such consent-to-venue clauses, for that does not appear to be its intent in passing § 20040.5. Rather, “[b]y voiding any clause in a franchise agreement limiting venue to a non-California forum for claims arising under or relating to a franchise located in the state, § 20040.5 ensures that California franchisees may litigate disputes regarding their franchise agreement in California courts.”
Jones v. GNC Franchising, Inc.,
The Lancaster and Palmdale Agreements also provide that “the parties consent to the exclusive jurisdiction of either Colorado state courts or the United States Federal District Court for the District of Colorado for any litigation relating to this Agreement or the operation of the Franchised Business thereunder.”
See
Docket No. 1-2 at 89, § 29.02. Even assuming this provision constitutes a mandatory forum selection clause, it does not render this district an improper venue.
See K & V Scientific,
The provisions upon which defendants base the present motion all involve the
propriety
of venue. The general venue statute, § 1391, indicates where venue is proper. Rule 12(b)(3) allows dismissal when the venue requirements of § 1391 have not been met, in other words, when venue is improper. And § 1406 permits a district court which lacks proper venue to transfer, rather than dismiss, the case to a district where venue is proper. Of critical importance in this case is the proposition that “[i]mproper venue is of course a defense personal to a party and may be waived.”
Thompson v. United States,
2. Motion for Stay
Defendants argue that, if venue is found to be permissible, the Court should stay the action because of an ongoing action filed by certain of the defendants and others against plaintiff in California state court. Although there are overlapping issues in the two actions, defendants have not argued that plaintiffs claims in this case constitute compulsory counterclaims in the state court action.
See Align Technology, Inc. v. Bao Tran,
B. Preliminary Injunction
1. Standard of Review
In order to obtain a preliminary injunction, the moving party bears the burden of establishing that four factors weigh in its favor: (1) a likelihood of success on the
“[T]he limited purpose of a preliminary injunction is merely to preserve the relative positions of the parties until a trial on the merits can be held.”
See Schrier v. University of Colorado,
The Court also notes that the Tenth Circuit has stated that, “where the moving party has established the three ‘harm’ factors tip
decidedly
in its favor, the ‘probability of success requirement’ is somewhat relaxed.”
Heideman v. South Salt Lake City,
In
Winter,
however, the Supreme Court held that a more lenient irreparable harm standard in cases where a plaintiff has shown a “strong likelihood of prevailing on the merits” is “inconsistent with [its] characterization of injunctive relief as an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief.”
2. Likelihood of Irreparable Harm
The Colorado Court of Appeals has stated that
Injunctive relief is the most common and generally preferred relief for breach of a covenant not to compete. The principal advantage of injunctive relief is that it terminates the prohibited conduct as well as prevents any future damages. In addition, ... past damages may not only be difficult to prove but may well be inadequate to cause the violator to terminate its prohibited activities. Injunctive relief may be available even though no or only nominal damages have been proven.
DBA Enterprises, Inc. v. Findlay,
The Court will apply “federal standards applicable to preliminary injunctive relief’ pursuant to Federal Rule of Civil Procedure 65.
Lyons v. Jefferson Bank & Trust,
Here, Big O requests a preliminary injunction and, therefore, unlike a final determination on the covenant at issue here, “[a]n injunction is a matter of equitable discretion; it does not follow from success on the merits as a matter of course.”
Winter,
Big O relies on the “generally accepted position that breach of an exclusivity clause almost always warrants an award of injunctive relief.”
Dominion Video Satellite,
Big 0 claims that defendants have violated the Lancaster and Palmdale Agreements by diverting customers to Budget Tires in Quartz Hill, but failed to offer any proof of such diversion. Edgar Aguilar, who works at the Big 0 franchise in Palm-dale, admitted that he referred one caller (apparently a phony call from a Big 0 employee) to Budget Tires in Quartz Hill, but only because the caller stated that he was from out of town and was stranded in Quartz Hill with a flat tire. Rather than showing an intent to improperly divert business to Budget Tires, this isolated incident simply shows good judgment and a sense of decency on Mr. Aguilar’s part. Although there were other calls of this sort to the Lancaster and Palmdale stores, there was no evidence of any referrals to any stores other than Big O stores. Mr. Felix testified that he specifically instructed his employees at the Lancaster and Palmdale locations not to divert any customers away from the Big O franchises.
Plaintiff argues that Mr. Felix, as a franchisee, has access to information regarding Big O’s marketing strategy, including planned promotions. Again, however, Big O has not identified any evidence that Mr. Felix is using such information at the Quartz Hill location to gain a competitive advantage, and Mr. Felix testified that he has held no promotions or sales at the Quartz Hill location since the termination of his franchise agreement.
Big O offered the expert testimony of Dr. Russell Mangum in support of its argument that enforcement of the covenant not to compete would have no discernible impact on competition in the relevant market for services that Big O stores provide.
8
Dr. Mangum testified that the relevant
Big 0 also argues that enforcement of the in-term covenant not to compete protects “the integrity of the Big 0 franchise system,”
see
Docket No. 80 at 3, because, by violating the covenant not to compete, defendants are able to “‘spy’ on Big O’s proprietary information ... to use to his advantage at Quartz Hill.” Docket No. 45 at 13. Big 0 contends that “[s]uch a situation strikes at the heart of the Big 0 system, citing,
inter alia,
the reasoning of
Bad
Ass
Coffee Company of Hawaii, Inc. v. JH Nterprises, LLC,
Here, defendants have not terminated, or been terminated, prematurely, and Big O is not seeking to enforce the post-termination covenant in the Quartz Hill Agreement. Nothing prevents Big O from opening a new store in Quartz Hill. Moreover, Big O has not presented any evidence of any Big O franchisees who have multiple franchise agreements with staggered termination dates, such as defendants, and who have a franchise agreement set to expire during this litigation. While the court in
BACH
noted that franchisees are a close-knit community and may be “emboldened to follow in Defendants’ footsteps,”
Big O is not permitted to rely on mere speculation. See RoDa Drilling, 552 F.3d at 1210 (“Purely speculative harm will not suffice, but rather, ‘[a] plaintiff who can show a significant risk of irreparable harm has demonstrated that the harm is not speculative’ and will be held to have satisfied his burden.”) (citation omitted). In short, Big O presents no evidence of any specific harm it is actually suffering, but simply identifies categories of harm it could theoretically suffer under a different set of circumstances. 9
The Court declines to address the remaining preliminary injunction elements, as the resolution of them will have no bearing on the outcome.
See In re Qwest Communications International, Inc. Securities Litig.,
After
Winter,
it is clear that the showing of irreparable harm cannot be lessened in light of a stronger showing on the merits. Although any discussion of the merits would be the Court’s “preliminary findings of fact and conclusions of law,” and “[o]bviously the findings and conclusions may be different after a trial on the merits,”
Hartford House Ltd. v. Hallmark Cards Inc.,
Finally, plaintiff has identified nothing about the balance of the equities or the public interest that would alter the conclusion reached here.
III. CONCLUSION
For the foregoing reasons, it is
ORDERED that defendants’ motion to take judicial notice [Docket No. 44], which the Court construes as a motion to supplement, is GRANTED. It is further
ORDERED that defendants’ motion to dismiss, transfer, or stay [Docket No. 43] is DENIED. It is further
ORDERED that plaintiffs motion for preliminary injunction [Docket No. 45] is DENIED.
Notes
. Mr. O’Neil testified at the June 17, 2010 hearing that he did not receive the letter until December 28, 2009, which is indicated by a date stamp on the first page of the letter. See Pl.'s Ex. 10 to March 31, 2010 Hearing.
. The Court held a hearing on the motion for temporary restraining order on March 1 and 2, 2010. On March 2, the Court granted that portion of the plaintiff's motion seeking return of the Quartz Hill franchise's customer list and transfer of the location's telephone number back to plaintiff. See Docket No. 30; see also Docket No. 31. The Court denied plaintiff's request to enforce the in-term covenant not to compete on the grounds that plaintiff failed to meet its burden of showing a likelihood of success on the merits, a likelihood that it would suffer irreparable harm, and that the equities balanced in favor of issuing an injunction. See March 2, 2010 Hearing Tr. [Docket No. 42] at 112-17.
. The driving distance from the Quartz Hill location to the Palmdale location is 12.84 miles and to the Lancaster location is 14.97 miles. See Pl.'s Ex. 9 to March 1, 2010 Hearing.
. During the hearing on the motion for temporary restraining order, Mr. Felix stated that "the stores are in their own market and they are supported by [themselves], so it would be a detriment for me not to run the stores at a hundred percent or more.” Docket No. 45-3 at 5-6.
. Defendants also contend that there was no meeting of the minds regarding the provision of the Agreement requiring litigation to occur in Colorado, which can only refer to § 29.02, as § 29.01 does not limit venue to Colorado. In support of that argument, defendants cite a California State Disclosure Addendum that provides that the “Franchise Agreement requires application of the laws of the State of Colorado and only permits you to sue us in Colorado. These provisions may not be enforceable under California law,” Ex. A to June 17 Prelim. Inj. Hearing;
see
Docket No. 43-3 at 3, ¶ 6, and rely upon
Laxmi Invs., LLC
v.
Golf USA,
. Defendants contend that enforcement of the forum selection clause would be unreasonable and, therefore, that it is unenforceable pursuant to
M/S Bremen v. Zapata Off-Shore Co.,
. The Court notes that the status quo is "the last uncontested status between the parties which preceded the controversy until the outcome of the final hearing.”
SCFC ILC, Inc. v. Visa USA, Inc.,
. The Ninth Circuit has stated that “it is well established that broad covenants not to compete are void unless they involve a situation where 'a person sells the goodwill of a business. ...' ”
Comedy Club, Inc. v. Improv West Associates,
. This abstract notion of harm is reinforced by plaintiff's submissions. For example, plaintiff's supplemental brief [Docket No. 80] identifies the purpose and benefits provided by covenants not to compete generally without supplying any basis to conclude that plaintiff is being specifically harmed in this case. Plaintiff has access to the sales figures at the three franchises (Lancaster, Palmdale, and the previous Quartz Hill Big O franchise) over the course of many years against which to compare Budget Tires’ business, but such data does not suggest that defendants are