Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_05-cv-05285/USCOURTS-cand-5_05-cv-05285-1/pdf.json

Nature of Suit Code: 196
Nature of Suit: Franchise
Cause of Action: 28:1441 Petition for Removal- Injunctive/Declaratory Relief

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 In its scheduling order of December 30, 2005, the Court granted Shieh leave to file a

reply brief by 5:00 p.m. on January 4, 2006. Shieh did not file a reply brief.

Case No. C 05-5285 JF (HRL)

ORDER DENYING APPLICATION FOR TRO

(JFLC2)

**E-Filed 1/6/06**

NOT FOR CITATION

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

JACK SHIEH,

 Plaintiff,

 v.

KUMON NORTH AMERICA, INC.,

 Defendant.

Case Number C 05-5285 JF (HRL)

ORDER DENYING APPLICATION

FOR TRO AND FOR ORDER TO

SHOW CAUSE RE PRELIMINARY

INJUNCTION

[Docket No. 6]

Plaintiff Jack Shieh (“Shieh”) seeks a temporary restraining order (“TRO”) prohibiting

Defendant Kumon North America, Inc. (“Kumon”) from terminating Shieh’s franchises and

notifying Shieh’s customers of the termination. Shieh also seeks an order to show cause why a

preliminary injunction should not issue. The Court has considered the briefing as well as the oral

arguments presented at the hearing on January 6, 2006.1 For the reasons discussed below, the

applications will be denied.

Case 5:05-cv-05285-JF Document 20 Filed 01/06/06 Page 1 of 6
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2

 The record does not contain any information as to what was said during the referenced

telephone conversation.

2

Case No. C 05-5285 JF (HRL)

ORDER DENYING APPLICATION FOR TRO

(JFLC2)

I. BACKGROUND

Kumon is a franchisor that offers a proprietary method used in its after-school learning

centers. Shieh, one of Kumon’s franchisees, operates two after-school learning centers in Santa

Clara County. In June 2004, Kumon learned from a televised news report that Shieh had been

arrested for inappropriately touching a child enrolled in one of Shieh’s franchised learning

centers. Shieh was charged with a violation of California Penal Code § 647.6(a) (annoying or

molesting a child under the age of eighteen). The franchise agreements between Kumon and

Shieh expressly provide for automatic termination of the franchise in the event the franchisee is

“convicted, plead[s] guilty to, or plead[s] no contest to a crime involving moral turpitude, a crime

against children under the age of eighteen, or a felony.” Franchise Agmts ¶ 15.3(c). Kumon

contacted Shieh to discuss the matter; the parties agreed that Shieh would not personally

participate in the operation of the franchises while the criminal charges were pending, and that

Shieh’s wife would take over actual operation of the centers during this interim period.

In May 2005, Shieh pled no contest to a violation of California Penal Code § 242

(battery) with respect to the child. He was sentenced to one year of probation and thirty hours of

psychiatric counseling, and a monetary fine was imposed but stayed. Shieh did not inform

Kumon of his conviction. On September 2, 2005, Shieh sent two Kumon employees an email

stating that “[a]s we discussed on the phone, my case of being wrongly accused is over.”2 Shieh

email of 9/2/05. The email further stated that Shieh had been “working” again, had been

welcomed back by students and parents and had obtained some new students. Kumon referred

the matter to its legal department for investigation. Id. In early December, 2005, Kumon

obtained court records reflecting Shieh’s plea and sentence. Shortly thereafter, Kumon sent

Shieh a letter terminating his franchises effective December 30, 2005. Kumon also notified the

parents of the students enrolled at Shieh’s franchises that those franchises would be closed and

that students could enroll in a nearby Kumon center at no additional charge.

Case 5:05-cv-05285-JF Document 20 Filed 01/06/06 Page 2 of 6
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Case No. C 05-5285 JF (HRL)

ORDER DENYING APPLICATION FOR TRO

(JFLC2)

Shieh filed the instant action for injunctive and declaratory relief in the Santa Clara

Superior Court on December 19, 2005. Kumon removed the action to this Court on the basis of

diversity jurisdiction on December 21, 2005. The action was assigned to the undersigned on

December 22, 2005.

II. DISCUSSION

The standard for issuing a TRO is the same as that for issuing a preliminary injunction. 

Brown Jordan International, Inc. v. Mind’s Eye Interiors, Inc., 236 F. Supp. 2d 1152, 1154 (D.

Hawaii 2002); Lockheed Missile & Space Co., Inc. v. Hughes Aircraft Co., 887 F.Supp. 1320,

1323 (N.D. Cal. 1995). In the Ninth Circuit, a party seeking a preliminary injunction must show

either (1) a likelihood of success on the merits and the possibility of irreparable injury, or (2) the

existence of serious questions going to the merits and the balance of hardships tipping in the

movant’s favor. Roe v. Anderson, 134 F.3d 1400, 1401-02 (9th Cir. 1998); Apple Computer, Inc.

v. Formula Int’l, Inc., 725 F.2d 521, 523 (9th Cir. 1984). These formulations represent two

points on a sliding scale in which the required degree of irreparable harm increases as the

probability of success decreases. Roe, 134 F.3d at 1402.

Shieh asserts a single claim for declaratory relief, requesting an adjudication that Kumon

is obligated to allow Shieh to transfer his franchises to his wife or, alternatively, to give Shieh a

reasonable time to find a third party buyer. While the franchise agreements do provide that a

franchisee may transfer a franchise if the transferee meets specified requirements and Kumon

consents to the transfer, the franchise agreements do not provide an absolute right to transfer the

franchises as argued by Shieh. See Franchise Agmts ¶ 18. Moreover, the franchise agreements

expressly provide for automatic termination of the franchises without notice or right to cure in

the event that Shieh pleads no contest to a crime against a child under the age of eighteen. 

Franchise Agmts ¶ 15.3(c). It is undisputed that Shieh in fact pled no contest to battery of a child

under the age of eighteen. Based upon this record, the Court concludes that Shieh has not

demonstrated a likelihood of success on his declaratory relief claim or serious questions going to

the merits of that claim.

During oral argument, Shieh’s counsel argued that Kumon waived its contractual right to

Case 5:05-cv-05285-JF Document 20 Filed 01/06/06 Page 3 of 6
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 Counsel stated that the email was sent in July 2005, but the email submitted by Kumon

as exhibit 2 to Rachel Levine’s declaration is dated September 2, 2005.

4

 The franchise agreements also provide that any litigation filed by a franchisee against

Kumon must be filed in New Jersey. Franchise Agmts ¶ 21.2. To date, Kumon has not asserted

this provision as a defense to Shieh’s action or moved to transfer the action to New Jersey.

4

Case No. C 05-5285 JF (HRL)

ORDER DENYING APPLICATION FOR TRO

(JFLC2)

terminate Shieh’s franchises by delaying for several months after receiving Shieh’s September 2

email.3 When the Court clarified that Shieh’s email indicated that the criminal charges had been

resolved in his favor, and that Kumon had no actual knowledge of the conviction until December

2005, Shieh’s counsel argued that Kumon was on inquiry notice as of receipt of Shieh’s email

and thus should have discovered the conviction at that time. This argument is not persuasive, nor

is it supported by any legal authorities cited in Shieh’s brief.

Shieh’s counsel also argued that under California Business & Professions Code §

20021(i), Kumon was required to give notice of the termination notwithstanding the contractual

provision for automatic termination without notice. It is unclear whether California law applies,

because the franchise agreements specify application of New Jersey law, although the agreements

also permit application of the law of the state in which the franchise is located under certain

circumstances. Franchise Agmts ¶ 21.1.4 Even assuming that California law applies, § 20021

provides for “immediate notice of termination without an opportunity to cure” in the event that

the franchisee “is convicted of a felony or any other criminal misconduct which is relevant to the

operation of the franchise.” Cal. Bus. & Prof. Code § 20021(i). Kumon in fact did give notice of

the termination to Shieh almost immediately upon discovering that he had been convicted of

battery upon a child. 

Moreover, Shieh has failed to demonstrate that he is likely to suffer irreparable injury or

that the balance of hardships tip in his favor. Any injury flowing from Kumon’s alleged breach

of its obligations to permit Shieh to transfer his franchises is compensable by monetary damages. 

There is no evidence that Kumon is insolvent or otherwise unable to pay monetary damages in

the event that Shieh prevails.

Accordingly, the application for TRO will be denied, as will the application for an order

Case 5:05-cv-05285-JF Document 20 Filed 01/06/06 Page 4 of 6
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Case No. C 05-5285 JF (HRL)

ORDER DENYING APPLICATION FOR TRO

(JFLC2)

to show cause why a preliminary injunction should not issue. 

III. ORDER

Plaintiff’s applications for a TRO and for an order to show cause why a preliminary

injunction should not issue are DENIED.

DATED: 1/6/06

/s/ electronic signature authorized 

__________________________________

JEREMY FOGEL

United States District Judge

Case 5:05-cv-05285-JF Document 20 Filed 01/06/06 Page 5 of 6
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Case No. C 05-5285 JF (HRL)

ORDER DENYING APPLICATION FOR TRO

(JFLC2)

Copies of Order served on:

Michael Mayron mmayron@hinklelaw.com, acarlson@hinklelaw.com

Charles G. Miller cmiller@bztm.com, pbrown@bztm.com

C. Griffith Towle gtowle@bztm.com 

Albie Jachimowicz

Braid Pezzaglia 

Hinkle Jachimowicz & Pointer

2007 W. Hedding Street, Suite 100

San Jose, CA 95128

Case 5:05-cv-05285-JF Document 20 Filed 01/06/06 Page 6 of 6