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H&R Block Tax Services LLC v. Frias

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

February 16, 2018

H&R BLOCK TAX SERVICES LLC, Plaintiff,
v.
JUAN FRIAS, Defendant.

          ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION

          ROSEANN A. KETCHMARK, JUDGE UNITED STATES DISTRICT COURT

         Now before the Court is Plaintiff's Motion for Preliminary Injunction (the “Motion”) (doc. 3) and suggestions in support (doc. 4).[1] Defendant filed suggestions in opposition (doc. 20), the Court held a hearing on the Motion (doc. 25), Plaintiff filed supplemental suggestions in support (doc. 26), and Defendant filed supplement suggestions in opposition (doc. 28). After review of the Motion, all briefing and argument of counsel, evidence of record, and applicable law, the Motion is hereby GRANTED IN PART AND DENIED IN PART.

         I. PRELIMINARY INJUNCTIVE RELIEF

         When determining whether to issue preliminary injunctive relief, courts weigh the following factors: (1) the probability that the movant will succeed on the merits; (2) the threat of irreparable harm to the movant; (3) the state of the balance between this harm and the injury that granting the injunction will inflict on other parties; and (4) the public interest. Kroupa v. Nielsen, 731 F.3d 813, 818 (8th Cir. 2013) (citing Dataphase Sys. v. C L Sys., 640 F.2d 109, 113 (8th Cir. 1981)). No single factor is determinative; rather, they must be “balanced to determine whether they tilt toward or away” from granting the injunction. Noodles Dev., LP. v. Ninth Street Partners, LLP, 507 F.Supp.2d 1030, 1034 (E.D. Mo. Apr. 13, 2007).

         A. Substantial Likelihood of Success

         H&R Block asserts a claim for breach of contract arguing that Defendant, both personally and through his spouse, breached and continues to breach the noncompetition and nonsolicitation covenants (collectively, the “Covenants”) of his Franchise Lease Agreements (“FLAs”).

         H&R Block has shown a substantial likelihood of success on the merits of portions of its breach of contract claim against Defendant. The evidence of record demonstrates that Defendant has violated and is actively violating the FLAs' reasonable noncompetition and nonsolicitation covenants by which he has agreed to be bound.

         1. The FLAs and Their Covenants Are Enforceable

         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. banc 2006). The Missouri Supreme Court has found that 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.; see also Osage Glass, Inc. v. Donovan, 693 S.W.2d 71, 74 (Mo. banc 1985) (“Covenants 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.”).

         Reasonable restrictions are enforceable to protect “the employer's trade secrets or customer contacts.” Healthcare Servs., 198 S.W.3d at 610; see also Superior Gearbox Co. v. Edwards, 869 S.W.2d 239, 247 (Mo.Ct.App. 1993) (“[A] covenant restricting an employee's right to compete must be reasonably necessary to protect the employer's legitimate interests and reasonable as to time and geographic scope.”). The post-termination Covenants in the FLAs protect interests that Missouri recognizes as legitimate and are protectable as a matter of law, including: H&R Block's investment in the parties' transactions; H&R Block's established brand, goodwill, and confidential business information; and H&R Block's interest in preventing Defendant from unfairly using such assets to compete with H&R Block, diverting away its clients, and obtaining an undue advantage for his competing business. See, e.g., Safety-Kleen Sys., Inc. v. Hennkens, 301 F.3d 931, 937 (8th Cir. 2002) (“The Missouri courts have frequently held that . . . substantial and individualized customer contacts are a protectable interest warranting injunctive relief enforcing a covenant not to compete.”); Kessler-Heasley Artificial Limb Co. v. Kenney, 90 S.W.3d 181, 186 (Mo.Ct.App. 2002) (“Stock in customers, also referred to as customer contacts, are a legitimate protectable interest.”). H&R Block also has a legitimate and protectable interest in protecting its client information and client relationships from use by a competitor. See Mid-States Paint & Chem. Co. v. Herr, 746 S.W.2d 613, 617 (Mo.Ct.App. 1988) (“The employer has protectable interests in trade secrets and customer contacts.”); see also Naegele v. Biomedical Sys. Corp., 272 S.W.3d 385, 389 (Mo.Ct.App. 2008) (“In Missouri, the courts have identified two protectable interests of employers: customer contacts and trade secrets.”).

         In this case, the Covenants are also appropriately narrow in both time and geographic reach. First, the noncompetition and nonsolicitation provisions are limited to two years after the termination of the FLAs, subject to tolling for periods of noncompliance. Furthermore, the geographic area of the noncompetition provision is limited to Defendant's former franchise territories and an area within twenty-five miles of those territories. See, e.g., H&R Block Tax Servs. LLC v. Clayton, No. 4:16-cv-00185, 2016 WL 1247205, at *3 (W.D. Mo. Mar. 24, 2016) (Bough, J.) (upholding 2-year, 25-mile non-competition agreement in a franchise agreement); H&R Block Enters. LLC v. Ascher, No. 4:15-cv-00178, 2015 WL 12746197, at *2 (W.D. Mo. Apr. 3, 2015) (Bough, J.) (upholding three- or five-year, 50-mile non-competition agreement under an asset purchase agreement); Kessler-Heasley, 90 S.W.3d at 188 (upholding five-year limit within a 50-mile radius); Watlow Elec. Mfg. Co. v. Wrob, 899 S.W.2d 585, 587-88 (Mo.Ct.App. 1995) (upholding five-year time limit); Champion Sports Ctr., Inc. v. Peters, 763 S.W.2d 367, 368-70 (Mo.Ct.App. 1989) (enforcing a restrictive covenant barring the seller of a business from competing with it for eight years in three counties). The Covenants are also appropriate under Missouri law because they were agreed to as part of a business transaction. See Orthotic & Prosthetic Lab, Inc. v. Pott, 851 S.W.2d 633, 643 n.4 (Mo.Ct.App. 1993) (explaining that “Missouri courts have long recognized a distinction between covenants ancillary to a sale of a business and covenants merely ancillary to an employment contract, showing substantially greater liberality in enforcing the former”).

         The Covenants are valid under Missouri law and will be enforced against Defendant. They are reasonably tailored to protect H&R Block's legitimate interests and are reasonably tailored in time and geographic scope.

         2. Defendant Breached the Covenants

         The noncompetition and nonsolicitation Covenants run for two years following the termination of Defendant's FLAs (tolled for any periods of Defendant's noncompliance). The FLAs were terminated on ...


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