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H&R Block Tax Services LLC v. Santiago

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

March 28, 2019

H&R BLOCK TAX SERVICES LLC, Plaintiff,
v.
KIM SANTIAGO and MAX TAX, LLC, Defendants.

          ORDER GRANTING PRELIMINARY INJUNCTION

          NANETTE K. LAUGHREY, United States District Judge.

         Pending before the Court is Plaintiff H&R Block Tax Services LLC's (“H&R Block's”) Motion for Preliminary Injunction, as well as H&R Block's Suggestions in Support of that Motion. After review of that Motion, the evidence presented at the Preliminary Injunction Hearing held on March 28, 2019, all briefing and argument of counsel, the Verified Complaint, the record, and applicable law, the Motion is hereby GRANTED.

         I. JURISDICTION AND CHOICE OF LAW

         Personal jurisdiction over a non-resident defendant may be obtained by consent or by waiver. Whelan Sec. Co. v. Allen, 26 S.W.3d 592, 595 (Mo.Ct.App. 2000). Personal jurisdiction is an individual right, and that right may be waived in advance through a forum selection clause contained in a contract between the parties. Id. Under Missouri law, contractual choice-of-law provisions are enforced. PVI, Inc. v. Ratiopharm GmbH, 253 F.3d 320, 326 (8th Cir. 2001) (citing Rheem Mfg. Co. v. Progressive Wholesale Supply Co., 28 S.W.3d 333, 339 (Mo.Ct.App. 2000)).

         Section 27 of the Franchise License Agreement (“FLA”) between the parties, attached as Exhibit 1 to the Verified Complaint, specifies that Missouri law applies and further provides for jurisdiction and venue in this forum. Thus, Defendants have stipulated and consented to Missouri law as the choice of law and to personal jurisdiction in this Court.

         II. H&R BLOCK HAS SHOWN THAT IT IS ENTITLED TO THE REQUESTED RELIEF

         The following four factors are properly considered when determining whether a preliminary injunction should issue: (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); see also Dataphase Sys. Inc. v. C L Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981) (en banc). “No single factor in itself is dispositive; in each case all of the factors must be considered to determine whether on balance they weigh towards granting the injunction.” Baker Elec. Coop., Inc. v. Chaske, 28 F.3d 1466, 1472 (8th Cir. 1994) (internal quotations omitted). Moreover, in considering these factors, the court may properly consider evidence that would ordinarily be inadmissible, such as hearsay, in support of granting a preliminary injunction. See, e.g., Ass'n of Cmty. Organizations for Reform Now v. Scott, No. 08-CV-4084, 2008 WL 2787931, at *3 n. 5 (W.D. Mo. July 15, 2008).

         Here, every one of the relevant factors supports H&R Block's request for entry of a preliminary injunction to preserve the status quo and to protect H&R Block from ongoing irreparable injury attributable to Defendants' conduct.

         A. H&R Block Is Substantially Likely to Succeed on the Merits of Its Claims Against Defendants

         H&R Block has shown a substantial likelihood of success on the merits of its breach of contract claim against Defendants. The evidence presented in H&R Block's Verified Complaint and at the Preliminary Injunction Hearing demonstrates that Defendants-as well as other persons and entities acting in concert with them-have violated and are actively violating the FLA's reasonable, enforceable noncompetition and nonsolicitation covenants (collectively, the “Covenants”), by which they have agreed to be bound.

         1. The Covenants Are Enforceable and Reasonably Tailored

         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 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. 1985) (en banc) (“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 Osage Glass, 693 S.W.2d at 74 (“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.”); 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 FLA 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 Defendants from unfairly using such assets to compete with H&R Block, diverting away its clients, and obtaining an undue advantage for their 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 rights 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 FLA, subject to tolling for periods of noncompliance. Furthermore, the geographic area of the noncompetition provision is limited to Defendants' former Franchise Territory[1] and an area within twenty-five miles of that territory. 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); Long v. Huffman, 557 S.W.2d 911, 915 (Mo.Ct.App. 1977) (upholding a covenant barring competition for five years within a sixty-mile radius). The Covenants are also appropriate under Missouri law because they were agreed to as ...


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