United States District Court, E.D. Michigan, Southern Division
L.A. INSURANCE AGENCY FRANCHISING, LLC, Plaintiff,
DAVID T. ELIA, L.A. INSURANCE AGENCY NV2, INC., and GO INSURANCE, Defendants.
ORDER GRANTING PLAINTIFF'S MOTIONS FOR
PRELIMINARY INJUNCTION AND TO SUPPLEMENT THE RECORD
TERRENCE G. BERG UNITED STATES DISTRICT JUDGE
L.A. Insurance granted a franchise to Defendant David T.
Elia. Plaintiff alleges that after the expiration of its
franchising agreement, Defendant Elia continued operating an
insurance agency in the same location as the franchise, but
under a different name, in violation of the noncompete clause
in the franchise agreement. Plaintiff seeks a preliminary
injunction against Defendants Elia, L.A. Insurance Agency NV2
(“NV2”), Inc., and GO Insurance, to prevent them
from violating the terms of the franchise agreement. For the
reasons set out below, the Court GRANTS
Plaintiff's Motion for Preliminary Injunction (ECF No. 4)
with a limited scope. In addition, after oral argument on the
motion, Plaintiff filed a Motion to Supplement the Record.
ECF No. 11. The Court also GRANTS that
is an insurance agency franchisor and owns the “L.A.
Insurance®” federal trademark. ECF No. 4 PageID.87.
Plaintiff enters into franchising agreements with other
businesses, allowing them to use Plaintiff's trademark.
Id. at PageID.86-87. These agreements require the
franchisee to pay a fee and commissions to Plaintiff.
Id. at PageID.87. Franchisees must also “abide
by other obligations described in the franchise agreement,
” in exchange for being able to use the LA Insurance
name and related company assets. Id. The core of
Plaintiff's case is that Defendant is allegedly operating
an insurance agency-called GO Insurance-in Las Vegas in the
same location where he had previously been operating his L.A.
Insurance franchise. Id. According to Plaintiff,
this violates the non-compete clause of the franchise
and Defendants Elia and NV2 entered into a 10-year franchise
agreement that Defendant Elia signed on October 29,
2008. Id. at PageID.88. But Defendant
argues that the agreement was effective as of March 5, 2008.
Although this factual question was not fully developed in the
parties' briefing, at oral argument, the parties
explained that Plaintiff and Defendant Elia had a dispute
initially over which of two franchise agreements would
control the relationship between the parties, and they
submitted this matter to arbitration in early 2008. March 5,
2008 was apparently the day on which Defendant Elia deposited
both versions of the franchise agreement with the arbitrator
and agreed to be bound the arbitrator's decision
regarding which franchise agreement controlled the
relationship. ECF No. 10-1. Plaintiff later filed a Motion to
Supplement the Record containing a copy of judgment on the
arbitration. ECF No. 11.
franchise agreement was for a ten-year term, it was set to
expire either on March 5, 2018 or on October 29, 2018,
depending on the date used to mark its commencement. For the
purposes of determining whether Plaintiff is entitled to
injunctive relief, as explained below, it is not necessary at
this stage of the proceedings for the Court to determine
which date applies as the expiration date for the agreement.
September 2018, Plaintiff “learned that Defendant NV2
had removed the L.A. Insurance name from its location and
replaced it with signage identifying the agency as ‘GO
Insurance.'” ECF No. 4 PageID.88. On October 5,
2018, Plaintiff sent a letter to Defendants Elia and NV2,
stating that the franchise agreement would expire on October
29, 2018 and reminding Defendants of their obligations upon
expiration of the franchise agreement, which include:
• Cease using Plaintiffs trademarks; .
Close the insurance agency;
• Not compete with Plaintiff for two years;
• Not divert the agency's customers elsewhere.
Plaintiff notified Defendants Elia and NV2 that operating
“GO Insurance” violated Section 11.2 of the
franchise agreement, “which prohibits the operation of
competing businesses within two miles of the franchise
location for a two-year term following expiration of the
franchise agreement, and prohibits the diversion of business
and customers to a competing business.” ECF No. 8
PageID.89. Plaintiff filed suit on November 13, 2018. ECF No.
1. Yet, according to Plaintiff, Defendants continue to
operate in violation of the agreement. On December 12, 2018,
Plaintiff filed its Motion for a Temporary Restraining Order
and Preliminary Injunction. ECF No. 4. At issue now is only
whether Plaintiff is entitled to a preliminary
response, Defendants raise several factual disputes. First,
Defendants argue that they did not receive the
legally-required disclosures, notices, and proposed
agreements ten business days in advance of the date the
franchise agreement was executed. ECF No. 8-1 PageID.137.
Defendants further claim that Plaintiff was aware of this
deficiency. ECF No. 8-2 PageID.201. Defendants argue that
Plaintiff's failure to comply with the statutory
requirements for franchisors entitles Defendants to rescind
the franchise agreement contract in its entirety. If the
Defendants were correct that the contract should be
rescinded, it would not be appropriate to grant a preliminary
injunction to enforce the terms of that contract.
Defendants argue that because they converted the L.A.
Insurance franchise into GO Insurance, they are not operating
GO Insurance within two miles of an existing L.A. Insurance
franchise location. Id. at PageID.137-38. As a
component of this argument, Defendants maintain that the
franchise agreement expired on March 5, 2018, so that
converting to GO Insurance after that date also did not
violate the agreement.
Standard of Review
deciding whether to issue a preliminary injunction, a
district court should address four factors: (1) the
likelihood of success on the merits; (2) the irreparable harm
that could result if the injunction is not issued; (3) the
impact on the public interest; and (4) the possibility of
substantial harm to others.” Basicomputer Corp. v.
Scott, 973 F.2d 507, 511 (6th Cir. 1992). The parties
agree that this standard of review is the correct one. ECF
No. 8-1 PageID.138.
Court will analyze the four factors set forth in Sixth
Circuit case law to determine whether a preliminary
injunction is appropriate. As Defendants note, “a
preliminary injunction is an extraordinary and drastic
remedy, one that should not be granted unless the movant,
by a clear showing, carries the burden of
persuasion.” Mazurek v. Armstrong, 520 U.S.
968, 972 (1997) (emphasis in original). Plaintiff has met its
Likelihood of success on the merits
Complaint alleges breach of contract. ECF No. 1. In order to
prevail on a claim for breach of contract under Michigan law,
a claimant must show by a preponderance of the evidence that
“(1) there was a contract (2) which the other party
breached (3) thereby resulting in damages to the party
claiming breach.” Miller-Davis Co. v. Ahrens
Constr., Inc., 848 N.W.2d 95, 104 (Mich.
Michigan's Franchise Investment Law
contending that Plaintiff cannot show a substantial
likelihood of success on the breach of contract claim,
Defendants first argue that the franchise agreement is
subject to rescission under Michigan law because Plaintiff
failed to comply with Michigan's Franchise ...