Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_16-cv-01700/USCOURTS-azd-2_16-cv-01700-0/pdf.json

Nature of Suit Code: 840
Nature of Suit: Trademark
Cause of Action: 15:1125 Trademark Infringement (Lanham Act)

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WO 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

ReBath LLC, 

Plaintiff, 

v. 

New England Bath Incorporated, et al., 

Defendants. 

No. CV-16-01700-PHX-DLR

ORDER 

 This case involves a dispute between a franchisor of bathroom remodeling 

products and services and its former franchisee. Plaintiff ReBath LLC moves to 

preliminarily enjoin Defendants New England Bath Inc. and Jennifer Bylo from using 

confidential information obtained during operation of the franchise, displaying 

trademarks and logos, and operating a competing business in violation of a 

noncompetition clause. (Doc. 4.) The Court held oral argument on the motion on July, 6, 

2016. For the reasons stated below, the motion is granted. 

BACKGROUND

 For purposes of this Order, the following facts are undisputed unless otherwise 

noted. ReBath is a bathroom remodeling franchisor. (Doc. 5 at 2.) It provides 

operational and technical expertise to franchisees for use in marketing, selling, and 

installing ReBath products within an exclusive territory. (Id.) ReBath also provides 

confidential and trade secret information to franchisees, including a comprehensive 

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operating manual to assist in opening and operating the franchise. (Id.) 

 During 2008 and 2009, Defendants entered into three separate franchise 

agreements with ReBath, each with a term of seven years. (Id.) The agreements 

prohibited “Defendants from transacting business in any area outside of their exclusive 

territory” and required them to forward outside leads to the appropriate franchise. (Id. at 

4.) If Defendants violated this provision, they would be required to pay liquidated 

damages in the amount of gross profits received, and their franchise would be subject to 

immediate termination. (Id.) Renewal of the agreements was conditioned upon 

Defendants’ compliance with all provisions of the agreements and execution of ReBath’s 

renewal agreement. (Id.) 

 In addition, the agreements provide several post expiration provisions. Upon 

expiration of the franchise agreements, Defendants must immediately cease use of 

ReBath’s trademarks, logos, and service marks; turn over the manual; and provide 

ReBath with copies of all pending customer contracts. (Id. at 5-6.) The agreements also 

contain a noncompetition clause, which provides: 

for a period of one year thereafter, [Defendants may not] directly or 

indirectly, engage in or have any interest as an owner, partner, director, 

officer, employee, member, manager, consultant, representative, or in any 

other capacity, in or with any similar or competing business located within 

the Territory or 50 miles of the Territory. 

(Id.) Last, the agreements prohibit Defendants from using or disclosing any confidential 

information for five years after expiration. (Id.) 

 In October 2014, ReBath learned from another franchisee that Defendants had 

transacted business outside their exclusive territory. (Id. at 5.) ReBath ultimately 

discovered that Defendants had undertaken fifteen remodeling jobs outside their 

exclusive territory and demanded payment of liquidated damages. (Id.) Defendants 

refused. (Id.) 

 Thereafter, two of the franchise agreements expired on November 28, 2015, and 

the other expired on May 3, 2016. (Id.) ReBath twice notified Defendants of their postCase 2:16-cv-01700-DLR Document 43 Filed 07/15/16 Page 2 of 12
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expiration obligations, but Defendants continued to use ReBath logos and trademarks, 

failed to turn over the manual and customer contracts, and began operating a competing 

business at the same location under the name Bay State Kitchen & Bath. (Id. at 7.) 

Defendants also continued to use websites bearing the ReBath name and trademarks, as 

well as customer testimonials that resulted from installing ReBath products. (Id. at 8.) 

 On May 31, 2016, ReBath filed suit against Defendants alleging (1) trademark 

infringement, (2) false advertising, (3) breach of contract, and (4) trade secret 

misappropriation. (Doc. 1.) ReBath also moved to preliminarily enjoin Defendants from 

(1) using its trademarks in its showroom and on its websites, (2) suggesting that 

Defendants are affiliated with ReBath, (3) engaging in unfair competition and trademark 

infringement, (4) engaging in false advertising, (5) operating a competing bathroom 

modeling business in violation of the noncompetition clause, and (6) maintaining, using 

or disclosing the manual. (Doc. 4 at 1-2.) ReBath also requests the Court order 

Defendants to return the manual and all confidential information in their possession, 

provide copies of pending customer contracts, and modify the websites to remove all 

references to ReBath. (Id. at 2.) 

LEGAL STANDARD

 “A plaintiff seeking a preliminary injunction must establish that he is likely to 

succeed on the merits, that he is likely to suffer irreparable harm in the absence of 

preliminary relief, that the balance of equities tips in his favor, and that an injunction is in 

the public interest.” Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 20 (2008); Am. 

Trucking Ass’n, Inc. v. City of L.A., 559 F.3d 1046, 1052 (9th Cir. 2009). These elements 

are balanced on a sliding scale, whereby a stronger showing of one element may offset a 

weaker showing of another. See Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 

1131, 1134-35 (9th Cir. 2011). However, the sliding-scale approach does not relieve the 

movant of the burden to satisfy all four prongs for the issuance of a preliminary 

injunction. Id. at 1135. Instead, “‘serious questions going to the merits’ and a balance of 

hardships that tips sharply towards the plaintiff can support issuance of a preliminary 

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injunction, so long as the plaintiff also shows that there is a likelihood of irreparable 

injury and that the injunction is in the public interest.” Id. at 1135. The movant bears the 

burden of proof on each element of the test. Envtl. Council of Sacramento v. Slater, 184 

F. Supp. 2d 1016, 1027 (E.D. Cal. 2000). 

ANALYSIS

 ReBath seeks to fully enforce the post-termination requirements of the franchise 

agreements. Defendants have certified to the Court that they have complied with several 

of these requests, including returning the manual, removing ReBath logos from service 

vehicles, removing signage from the showroom, ceasing use of the www.yrebath.com 

website, removing ReBath marks and logos from websites, removing testimonials from 

websites, and providing information regarding business leads and service calls. (Doc. 25 

at 1-2.) Given Defendants’ cooperation and their apparent concession that they are 

prohibited from using ReBath marks and logos in any fashion, the Court finds it 

unnecessary to analyze whether ReBath is likely to succeed on its trademark infringement 

and trade secret misappropriate claims. The only remaining issues are whether 

Defendants must comply with the covenant not to compete and whether Defendants may 

re-post certain testimonials on their website. Accordingly, the Court will address only 

whether ReBath is likely to succeed on the merits of its breach of contract and false 

advertising claims. 

I. Likelihood of Success on the Merits 

 A. Breach of Contract

 The central issue in this case is whether Defendants have breached the 

noncompetition provisions of the franchise agreements by continuing to operate their 

kitchen and bath remodeling business. The covenant prohibits Defendants from 

operating a competing bathroom remodel business within 50 miles of the franchise 

territory for one year. ReBath argues Defendants may operate the kitchen remodeling 

portion of their business, but not the bathroom remodeling aspect because it directly 

competes with ReBath’s business. Defendants assert the covenant is unreasonably broad, 

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and therefore unenforceable. 

 “Arizona law does not look kindly upon restrictive covenants.” Unisource 

Worldwide, Inc. v. Swope, 964 F. Supp. 2d 1050, 1063 (D. Ariz. 2013). “[A] covenant 

not to compete is invalid unless it protects some legitimate interest beyond the 

employer’s desire to protect itself from competition.” Valley Med. Specialists v. Farber, 

982 P.2d 1277, 1281 (Ariz. 1999). The restraint must not be “greater than necessary to 

protect the employer’s legitimate interest[.]” Id. at 1283.1

 

 Defendants argue the covenant does not protect any legitimate business interest 

because ReBath simply seeks to eliminate competition with current and future 

franchisees. This, however, does not appear to be the case. ReBath argues the covenant 

“is an important part of its franchise network” because it “protects ReBath’s ability to 

retain customers by virtue of its goodwill and reputation, and it protects ReBath’s ability 

to refranchise Defendants’ former territory.” (Doc. 5 at 12.) It also argues the covenant 

protects former franchisees from immediately utilizing and profiting off of ReBath’s 

confidential information and trade secrets. In other words, if a former franchisee is able 

to immediately open a competing business and simply rename it, ReBath’s business 

reputation and goodwill will suffer. 

 “Legitimate business interests include protecting confidential information, trade 

secrets, and business goodwill.” Or-Cal Inc. v. Tessendro Kerley Inc., No. CV-14-

01980-PHX-DGC, 2015 WL 751212, at *2 (D. Ariz. Feb. 23, 2015) (citing Bed Mart, 

Inc. v. Kelley, 45 P.3d 1219, 1221 (Ariz. Ct. App. 2002); Farber, 982 P.2d at 1281). 

Indeed, numerous courts have recognized a franchisor’s legitimate business interest in 

protecting its goodwill through use of restrictive covenants. See e.g., Bad Ass Coffee Co. 

of Hawaii v. JH Nterprises, L.L.C., 636 F. Supp. 2d 1237, 1246 (D. Utah 2009) (“there is 

 

1

 The franchise agreements contain an Arizona choice of law provision, but provide that the restrictive covenants are to be “limited by, and the enforcement thereof is 

subject to, any prevailing law or statutes of the state(s) in which the Territory is located.” (Doc. 26-2 at 47.) The parties agree that the laws of Arizona and Massachusetts regarding restrictive covenants are essentially the same. The Court will refer to both states’ law and note discrepancies where necessary. 

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a strong connection between [the franchisor’s] ability to stop a former franchisee from 

competing and [the franchisor’s] goodwill); O.V. Mktg. Assocs., Inc. v. Carter, 766 F. 

Supp. 960, 966 (D. Kan. 1991) (“Courts have recognized certain interests attendant to a 

franchise that are protectable by restrictive covenants, such as good will . . . .”). 

Defendants do not dispute that they acquired the right to use ReBath’s confidential 

information and openly operated as a ReBath franchise for several years, but then 

switched their business name to Bay State Kitchen & Bath. As the Court in Bad Ass 

Coffee noted, Defendants “overnight switch” to another business may signal to future 

ReBath customers that Defendants “lost faith in the [ReBath] brand.” 636 F. Supp. 2d at 

1246. It might also suggest that a franchisee can simply leave the ReBath franchise and 

“immediately start competing if they are unhappy with [ReBath].” Id. Accordingly, the 

Court finds the restrictive covenant likely is necessary to protect ReBath’s legitimate 

business interests, including its confidential information, trade secrets, and goodwill. 

 Defendants argue the covenant is unreasonable in scope because it prohibits any 

competing activity within 50 miles of the territory.2

 They also assert the language of the 

covenant is overbroad because it prohibits competition with ReBath in any capacity. 

Defendants maintain that the covenant is overly broad and, if strictly construed, Bylo 

would not even be permitted to work at Home Depot. 

 In support of their argument, Defendants cite Orca Communications Unlimited, 

LLC v. Noder, 314 P.3d 89 (Ariz. Ct. App. 2013). In Orca, a public relations company 

brought suit against a former employee alleging violation of a non-compete covenant. Id.

at 93. The covenant prohibited the employee from “directly or indirectly advertising, 

soliciting or providing Conflicting Services, which is defined as any product, service, or 

process that directly competes with one [the employee] worked on or acquired 

confidential information about during her employment[.]” Id. at 96. The court found the 

covenant overbroad because it was not limited to the employer’s protected interest in 

 

2

 The territory is defined as “The County of Suffolk” in Massachusetts. (Doc. 26-

2 at 55.) 

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protecting confidential information. Id. Rather, “it prevent[ed] [the employee] from 

pursuing any type of work in the public relations industry, even work that would be based 

on her skill and talents and not merely on confidential information or customer 

relationships.” Id. Consequently, the court found the covenant unenforceable. Id.

Orca is distinguishable from the present case. Unlike Orca, the covenant at issue 

here only prohibits Defendants from engaging in any activity related to bathroom 

remodeling. Defendants are currently operating a kitchen and bathroom remodeling 

company. ReBath, however, does not argue the kitchen component of Defendants’ 

business is prohibited. Nor does it assert that Defendants cannot do plumbing work, as 

long as it is not part of a typical bathroom remodel. ReBath is in the business of selling, 

marketing and installing bathtub and shower base liners, as well as other bathroom 

remodel-related products and services, and the covenant only prohibits engaging in 

activity that competes with that business. The Court finds that the language of the 

covenant is likely not overly broad.3

 

 Defendants also challenge the covenant’s geographic scope. ReBath asserts the 50 

mile radius is necessary to protect its goodwill and customer bases in the territory and 

surrounding area. Numerous courts have upheld similar restrictions in the franchise 

context. See e.g., Snelling and Snelling, Inc. v. Dupay Enter., Inc., 609 P.2d 1064-65 

(Ariz. Ct. App. 1980) (upholding covenant prohibiting competition by former franchisee 

within 35 miles of the franchise territory for three years); Economou v. Physicians Weight 

Loss Ctrs. of Am., 756 F. Supp. 1024, 1034 (N.D. Ohio 1991) (enforcing covenant not to 

compete within 50 mile radius of territory). The Court finds the geographic scope of the 

covenant is likely reasonable.4

 

3

 In addition, Orca involved the enforceability of a covenant not to compete in the employer/employee context, in which an individual’s ability to earn a living may be seriously impaired. See Gann v. Morris, 596 P.2d 43, 44 (Ariz. Ct. App. 1979). These types of covenants are subject to even greater scrutiny than those in the business to 

business context. Here, Defendants appear to be sophisticated business owners. 

4

 Defendants do not take issue with the covenant’s temporal scope of one year. In any regard, covenants not to compete for a year or longer are routinely upheld by courts. See e.g., Aspect Software, Inc. v. Barnett, 787 F. Supp. 2d 118, 128 (D. Mass. 2011); Bad 

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 Accordingly, because the noncompetition clause is necessary to protect ReBath’s 

legitimate business interests, is reasonable in temporal and geographic scope, and is not 

overly broad, the Court finds ReBath is likely to succeed on the merits of its breach of 

contract claim. 

B. False Advertising 

 ReBath argues Defendants’ posting of customer testimonials on Bay State Kitchen 

& Bath’s website constitutes false advertising. It asserts the work was performed using 

ReBath’s products and methods, and therefore the Defendants are reaping the benefits of 

the goodwill established by ReBath. To establish a claim for false advertising under the 

Lanham Act, ReBath must show: 

(1) a false statement of fact by the defendant in a commercial advertisement 

about its own or another’s product; 

(2) the statement actually deceived or has a tendency to deceive a 

substantial segment of its audience; 

(3) the deception is material, in that it is likely to influence the purchasing 

decision; 

(4) the defendant caused its false statement to enter interstate commerce; 

and 

(5) the plaintiff has been or is likely to be injured as a result of the false 

statement, either by direct diversion of sales from itself to defendant or 

by a lessening of the goodwill associated with its products. 

Skydive AZ, Inc. v. Quattrocchi, 673 F.3d 1105, 1110 (9th Cir. 2012). 

 Defendants argue the testimonials are truthful given that Defendants actually 

performed the work. Defendants relied on their experience in performing the work, and 

they should be able to reap the benefits. Defendants also argue that the nominative fair 

use doctrine protects their use of the testimonials and that they “do nothing to dilute the 

ReBath brand by identifying themselves as a former ReBath franchisee.” (Doc. 26 at 10.) 

 Defendants do not dispute that they performed these jobs using ReBath’s 

 Ass Coffee, 636 F. Supp. 2d at 1248 (enforcing two year covenant). 

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goodwill, proprietary materials, methods, and products. That Defendants actually 

performed the work is beside the point. The goodwill that Defendants acquired from 

performing work as a ReBath franchise belongs to ReBath, and Defendants’ 

advertisement of that goodwill misleads consumers into believing Bay State Kitchen & 

Bath is wholly responsible for that customer satisfaction. Here, the false statement has 

nothing to do with Defendants’ performance, but the implication that Bay State Kitchen 

& Bath is the entity who that earned the goodwill. 

 Relying on the nominative fair use doctrine, Defendants assert that they “can no 

more be prevented from advising consumers of their experience as a ReBath franchisee 

tha[n] Michael Jordan can be prevented from noting that he formerly played for the 

Chicago Bulls. (Id.) But this argument is off point. The nominative fair use doctrine 

protects fair use of trademarks, not goodwill. See Playboy Enter., Inc. v. Welles, 279 

F.3d 796, 801 (9th Cir. 2002). Here, the issue is not that Defendants are using the 

ReBath mark to describe some product or business, but that Defendants are capitalizing 

on the goodwill acquired from work performed as a ReBath franchise via the 

testimonials. Use of the testimonials evidences an intent by Defendants to trade off the 

goodwill acquired while operating as a ReBath franchise. The doctrine likely does not 

protect Defendants’ use of the testimonials, and ReBath is likely to succeed on the merits 

of its false advertising claim. 

II. Irreparable Harm 

 ReBath bears the burden of establishing that it likely will suffer irreparable harm 

in the absence of a preliminary injunction. See Winter, 555 U.S. at 21-23. “The 

possibility that adequate compensatory or other corrective relief will be available at a 

later date, in the ordinary course of litigation, weighs heavily against a claim of 

irreparable harm.” Sampson v. Murray, 415 U.S. 61, 90 (1974). 

 Defendants argue that ReBath cannot demonstrate irreparable harm because they 

have returned the manual and stopped using ReBath’s marks and logos. This argument, 

however, fails to account for the irreparable harm to ReBath’s goodwill caused by 

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Defendants’ operation of a bathroom remodeling business in violation of the 

noncompetition covenant. Defendants operated their ReBath franchise out of the same 

building for nearly seven years. They service the same territory, and therefore at least 

partially benefit from the ReBath goodwill established over the years. As the Court has 

already noted, Defendants’ “overnight switch” to New England Bath Inc. may signal to 

potential customers that Defendants have lost faith in the ReBath brand. Bad Ass Coffee, 

636 F. Supp. 2d at 1246. This may cause ReBath to lose customers and make it difficult 

to establish another franchise in the territory. Indeed, “the majority of courts that have 

considered the question have concluded that franchising companies suffer irreparable 

harm when their former franchisees are allowed to ignore reasonable covenants not to 

compete.” Id. at 1249. The Court finds ReBath has established that it will likely suffer 

irreparable harm in the absence of preliminary relief. 

III. Balance of Harms and Public Interest 

 The balance of harms tips in favor of ReBath. Defendants will not suffer 

irreparable harm should the Court issue an injunction. Defendants may continue to 

operate their kitchen remodeling and plumbing business, and after a year has passed, may 

again remodel bathrooms. Although Defendants point out that they may have to close 

their bathroom showroom and let go of several employees, it was Defendants’ decision to 

open a competing business notwithstanding the noncompetition provision. Defendants 

cannot rely on self-inflicted harms in order to tip the balance in their favor. See id. at 

1251. As such, the Court finds the balance of harms weighs in favor of ReBath.5

 

 The public interest also weighs in favor of granting the injunction. It is generally 

in the public interest to enforce valid contracts and make “parties live up to their 

agreements.” See MarbleLife, Inc. v. Stone Resources, Inc., 759 F. Supp. 2d 552, 563 

(E.D. Penn. 2010). 

 

5

 Defendants argue that ReBath committed multiple breaches of the franchise 

agreements. (Doc. 26-1, ¶¶ 17-33.) But Defendants provide no evidence in support of their allegations. Instead, they refer only to complaints filed by them in another jurisdiction. Furthermore, even if true, the breaches would not excuse Defendants’ 

performance of their post-termination obligations set forth in the franchise agreements. 

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CONCLUSION

 In sum, ReBath has established that it is likely to succeed on the merits of its 

breach of contract and false advertising claims, that it will suffer irreparable harm in the 

absence of preliminary injunctive relief, and that the balance of harms and public interest 

weigh in favor of granting such relief. 

MOTION TO FOR LEAVE TO FILE UNDER SEAL 

 ReBath filed a motion to file the manual under seal in connection with its reply 

brief. (Doc. 30.) The Local Rules, however, do not permit such practice, given that the 

opposing party is left without an opportunity to respond. As such, the motion is denied. 

IT IS ORDERED that ReBath’s motion for preliminary injunction, (Doc. 4), is 

GRANTED, and ReBath’s motion for leave to file under seal, (Doc. 30), is DENIED. 

IT IS FURTHER ORDERED that Defendants cease: 

(1) using ReBath’s trademarks, service marks, and logos, and any 

confusingly similar marks and logos, including without limitation, any 

use of the www.yrebath.com domain name; 

(2) suggesting that Defendants are affiliated with, sponsored by, or 

endorsed by ReBath; 

(3) operating a competing bathroom remodeling business within 

Defendant’s former franchise territory or within 50 miles thereof until 

further notice of the Court, but lasting no longer than one year from the 

date of this Order; and 

(4) maintaining, using or disclosing ReBath’s Manual and Confidential 

Information and trade secret information. 

Defendants are further ordered to: 

(1) provide complete copies of all customer contracts and the status thereof 

to ReBath, and 

 

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(2) modify their websites to remove all proprietary materials provided by 

ReBath. 

Dated this 15th day of July, 2016. 

Douglas L. Rayes 

United States District Judge 

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