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H&R Block Tax Services LLC v. Thomas

United States District Court, W.D. Missouri, Western Division

February 15, 2018




         Pending is Plaintiff H&R Block Tax Services LLC's Motion for Temporary Restraining Order and Preliminary Injunction. Doc. #3. Upon review of the motion, briefing, the parties' arguments, the Verified Complaint (Doc. #1), and the applicable law, H&R Block's Motion for Temporary Restraining Order is granted. At this time, the Court is not issuing a ruling on H&R Block's Motion for Preliminary Injunction.

         I. BACKGROUND[1]

         In September 2011, Defendant William Thomas was paid $250, 000 by H&R Block to convert his tax preparation office in New York City to an H&R Block franchise office. In return, Thomas entered into a Conversion Agreement and a Franchise License Agreement (“FLA”) with H&R Block. Doc. #1-1. The FLA contained nonsolicitation and noncompetition covenants prohibiting Thomas from diverting former clients and directly or indirectly operating a competing business in or within twenty-five miles of Thomas's franchise territory for two years after he was no longer a franchisee.

         By April 2017, Thomas was in arrears to H&R Block for $112, 903 due to failure to pay royalties on tax preparation fees earned and supplies purchased by Thomas. H&R Block notified Thomas in writing of his breach of the FLA, and stated his failure to remedy the breach would result in termination of the FLA. Thomas failed to remedy the breach, and H&R Block terminated the FLA in December 2017. At that time, Thomas was reminded of his post-termination obligations.

         On February 2, 2018, H&R Block filed its Verified Complaint alleging breach of contract and seeking injunctive relief and damages. Doc. #1. H&R Block also filed its Motion for Temporary Restraining Order and Preliminary Injunction. Doc. #3. H&R Block alleges Thomas is breaching the FLA. Among other things, H&R Block alleges Thomas is operating or materially assisting with the operation of a tax preparation business at his former franchise office located at 2360 Adam Clayton Powell Jr. Boulevard, New York, NY 10030. H&R Block also contends Thomas has been diverting customers from H&R Block, and has been divulging and using information and knowledge concerning customers as well as H&R Block's methods and operations. H&R Block claims it has been and will continue to be damaged as a result of Thomas's breaches of the FLA; Thomas's mishandling, disclosure, and use of confidential information and trade secrets; loss of goodwill; loss of and impairment to client relationships; and loss of attendant current and future revenues. On February 14, 2018, the Court held a hearing on H&R Block's motion. H&R Block participated via counsel, and Thomas appeared on behalf of himself. Thomas's wife, Valerie Thomas, also participated in the hearing.


         A. Jurisdiction and Choice of Law

         Thomas is not a citizen of Missouri, and is believed to be a citizen of Georgia. Doc. #1, ¶¶ 12-13. Personal jurisdiction over a non-resident defendant may be obtained by waiver through a forum selection clause in a contract between parties. Whelan Sec. Co. v. Allen, 26 S.W.3d 592, 595-96 (Mo.Ct.App. 2000) (citations omitted). Additionally, a choice of law provision in a contract is generally enforced. See Raydiant Tech., LLC v. Fly-N-Hog Media Grp., Inc., 439 S.W.3d 238, ) (Mo.Ct.App. 2014) (citation omitted). Paragraph 27 of the FLA specifies Missouri law applies and further provides for jurisdiction and venue in this forum. Doc. #1-1, at 22. Accordingly, Thomas stipulated and consented to Missouri law as the choice of law and to personal jurisdiction in this Court.

         B. Factors for Issuance of Temporary Restraining Order

         Whether a temporary restraining order should be issued “involves consideration of (1) the threat of irreparable harm to the movant; (2) the state of the balance between this harm and the injury that granting the injunction will inflict on other parties litigant; (3) the probability that movant will succeed on the merits; and (4) the public interest.” Dataphase Sys., Inc. v. C.L. Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981) (en banc). The most important factor is the plaintiff's likelihood of success. S & M Constructors, Inc. v. Foley Co., 959 F.2d 97, 98 (8th Cir.), cert. denied, 506 U.S. 863 (1992). Consequently, the Court elects to consider that factor first.

         (1) Likelihood of Success on the Merits

         H&R Block has shown a substantial likelihood of success on the merits of its breach of contract claim. Under Missouri law, “[n]on-compete agreements are typically enforceable so long as they are reasonable.” Healthcare Servs. of the Ozarks, Inc. v. Copeland, 198 S.W.3d 604, 610 (Mo. 2006) (en banc). The Missouri Supreme Court has found a noncompetition agreement is valid and enforceable if it: (1) “is no more restrictive than is necessary to protect the legitimate interest of the employer”; and (2) can be “narrowly tailored geographically and temporally.” Id.

         Reasonable restrictions are enforceable to protect “the employer's trade secrets or customer contacts.” Healthcare Servs., 198 S.W.3d at 610; see also Osage Glass, Inc. v. Donovan,693 S.W.2d 71, 74 (8th Cir. 1985) (stating “[c]ovenants against competition must serve a proper interest of the employer in protecting the good will of a business, and must be reasonably limited in time and space.”). The FLA's post-termination covenants protect interests recognized in Missouri as legitimate and protectable. Those interests include, but are not limited to, H&R Block's investment in the parties' transactions; H&R Block's goodwill; H&R Block's confidential business information; and H&R Block's interest in preventing Thomas from using such assets to compete with H&R Block, diverting away its clients, and obtaining an undue advantage for a competing business. See Whelan Sec. Co., 379 S.W.3d at 845; Safety-Kleen Sys., Inc. v. Hennkens, 301 F.3d 931, 937 (8th Cir. 2002) (stating “Missouri courts have frequently held…substantial and individualized customer contacts are a protectable interest warranting injunctive relief enforcing a ...

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