Court Opinion

ID: 6345379
Source: CourtListenerOpinion
Date Created: 2022-05-31 16:00:32.440414+00
Date Added: 2024-06-11T09:13:14.118772
License: Public Domain

Appellate Case: 21-1151     Document: 010110690628        Date Filed: 05/31/2022       Page: 1
                                                                                   FILED
                                                                       United States Court of Appeals
                       UNITED STATES COURT OF APPEALS                          Tenth Circuit

                              FOR THE TENTH CIRCUIT                             May 31, 2022
                          _________________________________
                                                                           Christopher M. Wolpert
                                                                               Clerk of Court
  CORE PROGRESSION FRANCHISE
  LLC, a Colorado limited liability company,

        Plaintiff - Appellee,

  v.                                                          No. 21-1151
                                                 (D.C. No. 1:21-CV-00643-WJM-NYW)
  CHRIS O’HARE, an individual; CAO                             (D. Colo.)
  ENTERPRISES, INC., a North Carolina
  corporation,

        Defendants - Appellants.
                       _________________________________

                              ORDER AND JUDGMENT *
                          _________________________________

 Before TYMKOVICH, Chief Judge, CARSON, and ROSSMAN, Circuit Judges.
                  _________________________________

       Chris O’Hare entered into a franchise agreement with fitness chain Core

 Progression. Core Progression is based in Denver, and most of its franchises are in

 Colorado. In September 2019, O’Hare agreed to open Core Progression’s first franchise

 in North Carolina. But after only a few months of operation, O’Hare became frustrated

 with Core’s business model and the benefits the franchise provided. He stopped paying

 fees to Core Progression and prepared to open his own gym under a different name in the

 same location where he ran the Core Progression franchise. In addition, he tried to access

       *
          This order and judgment is not binding precedent, except under the doctrines
 of law of the case, res judicata, and collateral estoppel. It may be cited, however, for
 its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
Appellate Case: 21-1151      Document: 010110690628        Date Filed: 05/31/2022        Page: 2

 Core Progression’s clients and convert them to his new facility. When Core Progression

 learned of these violations, it terminated the franchise agreement.

        Core Progression sued to enjoin O’Hare from opening a competing gym in its

 former franchise location, and the district court granted a preliminary injunction under

 Federal Rule of Civil Procedure 65(a). O’Hare filed this interlocutory appeal. We agree

 with the district court that O’Hare likely violated the non-compete provisions of the

 franchise agreement, and that sufficient evidence supported the grant of a preliminary

 injunction. Accordingly, we AFFIRM.

                                   I.    BACKGROUND

        After an evidentiary hearing, the district court found the following facts. Over

 several months in 2019, Core Progression CEO Jonathan Cerf and O’Hare engaged in a

 negotiation over the North Carolina franchise agreement. O’Hare claims Cerf told him

 the Core fitness regimen was revolutionary, the franchise all but guaranteed high profit

 margins, and O’Hare would surely recoup his initial investment quickly.

        O’Hare agreed to open the franchise, but he did not immediately sign a contract.

 Instead, Core Progression gave O’Hare the preliminary franchise agreement to review

 two months before execution. In the franchise agreement, O’Hare agreed to not operate a

 competing gym within 25 miles of his Core Progression franchise for one year after the

 termination of the franchise. 1

        1
         The franchise agreement, signed by O’Hare, states that “[N]either [O’Hare
 nor his affiliates] will have [sic] for the period of one year . . . in any manner
 whatsoever, carry on . . . any Competitive Business . . . within a 25 mile radius of the
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          When Core Progression presented the final agreement for signature, a few clauses

 had changed. The changed clauses related to issues like equipment ownership, and none

 are at issue in this appeal. Further, the changed clauses were not material to O’Hare’s

 decision to sign with the agreement. 2 Thus, both parties agreed that O’Hare would

 operate a Core Progression franchise and be subject to all benefits and limitations in the

 franchise agreement.

          Shortly after O’Hare opened his Core Progression location through his corporation

 CAO Enterprises, he decided the system was not so “revolutionary” after all. He wanted

 to end the franchise, claiming that it was “fake” and had provided him with nothing of

 value.

          But Core Progression established that it provided O’Hare with valuable trade

 secrets, training, and branding. In fact, O’Hare downloaded Core Progression’s client

 data, copied its website formatting for his new gym, and used its goodwill to recruit his

 own clients. He started his new gym, Altru Fitness, by simply changing the names on

 Core Progression’s social media accounts, maintaining all of Core Progression’s photos

 Core Progression Business.” Aplt. App. at 71. This clause appears in both the
 preliminary and final agreements.
        2
          O’Hare testified, in a conclusory manner, that the changes were “material.”
 But “[a]t no point did O’Hare testify that, had these changes been brought to his
 attention prior to his execution of the Franchise Agreement, he would have changed
 his conduct during contract negotiations, refused to sign the Franchise Agreement, or
 made a counteroffer to Plaintiff based on the differences.” Aplt. App., Vol. X at
 2427. Thus, though O’Hare said the word “material,” his testimony indicated that the
 changes were immaterial.
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 and reviews. The new titles, “Altru Fitness (formerly Core Progression),” implied that

 the business had only changed names.

        O’Hare stipulated to an injunction preventing him from using the Core

 Progression brand, and he agreed to return any items belonging to Core Progression. But

 he appeals the preliminary injunction directing him to cease operating a gym at the

 current location (or within 25 miles) and to cease the use of Core Progression trade

 secrets and information.

                                      II.    ANALYSIS

        The district court granted a preliminary injunction prohibiting O’Hare from

 operating Altru Fitness at the current location or using Core Progression’s trade secrets.

        We review the grant of a preliminary injunctions for abuse of discretion. United

 States ex rel. Citizen Band Potawatomi Indian Tribe v. Enter. Mgmt. Consultants, Inc.,

 883 F.2d 886, 889 (10th Cir. 1989); Fish v. Kobach, 840 F.3d 710, 723 (10th Cir. 2016).

 A district court’s decision crosses the abuse-of-discretion line if it imposes a preliminary

 injunction based on an erroneous legal conclusion or without a rational factual basis in

 the record. Id. (quoting Awad v. Ziriax, 670 F.3d 1111, 1125 (10th Cir. 2012)). Here, the

 district court applied the correct law, and its factual findings had rational bases in the

 record. Thus, we find that it did not abuse its discretion in issuing a preliminary

 injunction against O’Hare.

    A. Preliminary Injunction

        To obtain a preliminary injunction, Core Progression had to show: (1) a substantial

 likelihood of success on the merits, (2) that irreparable injury will result absent the

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 injunction, (3) that the threatened injury outweighs the harm to O’Hare, and (4) that the

 injunction is not adverse to the public interest. Free the Nipple v. City of Fort Collins,

 916 F.3d 792, 797 (10th Cir. 2019) (citing Beltronics USA, Inc. v. Midwest Inventory

 Distrib., LLC, 562 F.3d 1067, 1070 (10th Cir. 2009)). An injunction that changes the

 status quo, moreover, is disfavored and requires “a heavier burden on the likelihood-of-

 success-on-the-merits and the balance-of-harms factors.” Id. at 797.

        1.     Likelihood of Success on the Merits

        The district court concluded Core Progression has a high likelihood of success on

 the merits, based on the facts presented to it. First, O’Hare plainly violated the

 enforceable noncompete provision of the franchise agreement. 3 The district court found

 that O’Hare effectively conceded he breached the franchise agreement, and this finding

 has a basis in the record—O’Hare openly ran a new gym in the same location as the Core

 Progression gym before and immediately after Core Progression terminated the franchise

        3
         Colorado law bars the enforcement of some noncompete agreements.
 C.R.S.A. § 8-2-113(2). But it allows enforcement of noncompete agreements against
 management personnel. C.R.S.A. § 8-2-113(2)(d). O’Hare argues that he was not an
 employee of Core Progression and so could not have been management personnel.
 But O’Hare was a manager of his own Core Progression franchise, and thus he may
 be subject to a noncompete agreement. See Fitness Together Franchise, LLC v. EM
 Fitness, LLC, No. 20-cv-02757, 2020 WL 6119470, at *9 (D. Colo. Oct. 16, 2020)
 (franchise owner is management personnel). Alternatively, the enforcement could
 also be authorized under § 8-2-113(2)(a), which allows noncompete agreements
 related to the sale of a business—here, Core Progression sold a franchise business to
 O’Hare. See, e.g., I Can’t Believe It’s Yogurt v. Gunn, No. 94-ok-2109, 1997 WL
 599391, at *21 (D. Colo. Apr. 15, 1997) (“[T]he purchase of a franchise is analogous
 to the purchase and sale of a business or the assets of a business”). Finally, it could
 be authorized under § 8-2-113(2)(c), which allows noncompete agreements for the
 protection of trade secrets. As discussed supra, protection of trade secrets is an
 essential part of the franchise agreement at issue.
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 agreement. Aplt. App. at 2425. O’Hare also tried to obtain Core Progression’s client

 data for use in his new gym, Altru Fitness. Aplt. App. at 2425-26. The district court’s

 finding that O’Hare breached the agreement has a firm basis in the record.

        O’Hare argues that even if he breached the franchise agreement, Core Progression

 should lose on the merits because the agreement is not an enforceable contract. He

 contends the agreement is not enforceable because (1) Core Progression withheld

 material provisions during negotiations, and (2) O’Hare relied on Jonathan Cerf’s

 misrepresentations in entering the agreement. The district court considered these

 arguments and found them to be unsupported by the record. As to the change in

 provisions from the advance copy of the agreement, O’Hare testified that the provisions

 would not have influenced his decision to sign the contract. Thus, the district court’s

 finding that the provisions were not material has a basis in the record. Further, it found

 that O’Hare was not mislead by any statements during negotiations, and that Cerf’s

 generic assurances that the franchise would be a great success were puffery, not material

 misrepresentations. The district court correctly found that Core Progression had a high

 likelihood of success on the merits.

               2.      Irreparable Injury

        O’Hare also contends that Core Progression suffered no injury that cannot be

 compensated in money damages. Thus, he argues that an injunction is inappropriate

 relief. But there is a basis in the record for the district court’s finding that Core

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 Progression sufficiently alleged ongoing harm that it cannot be adequately compensated

 for in money damages.

        O’Hare contends Core Progression has no intention of opening another location in

 North Carolina. He argues that its only injury, if any, was the damage to the franchise’s

 reputation in the North Carolina area. Core Progression argues that in addition to any

 reputational injury, it was also injured by the O’Hare’s continuing use of its trade secrets,

 which are its exclusive property.

        To be sure, a simple breach of contract is not sufficient to constitute irreparable

 injury to Core Progression. Instead, when determining whether a party will suffer

 irreparable injury, a district court may consider: “inability to calculate damages, harm to

 goodwill, diminishment of competitive positions in marketplace, loss of employees’

 unique services, the impact of state law, and lost opportunities to distribute unique

 products.” Dominion Video Satellite, Inc. v. Echostar Satellite Corp., 356 F.3d 1256,

 1263 (10th Cir. 2004).

        The district court found that, without a preliminary injunction, Core Progression

 would suffer irreparable injury. The district court mentioned that some trial courts apply

 a presumption of harm in franchise cases like this one. Op. Br. at 78. But it went on to

 quantify the specific harm to Core Progression. It held O’Hare’s use of Core

 Progression’s training system and marketing injured the franchise, as did Altru Fitness’s

 perceived (but false) affiliation with Core Progression. 4 The continued operation of Altru

        4
         This finding has a basis in the record: Core Progression’s CEO testified that
 “to teach somebody all of my systems, give them access to all of our market
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 Fitness conveyed to consumers that Core Progression really was a “fake franchise.” Aplt.

 App. at 2450. Finally, the court concluded that although Core Progression did not yet

 have any other locations in North Carolina, it had reasonably relied on the expectation

 that O’Hare’s successful franchise would facilitate expansion in the state. With O’Hare’s

 damaging competition removed, Core Progression can restart its business in North

 Carolina, as it alleges it intends to.

        These findings are supported by the record, and the district court did not abuse its

 discretion in finding irreparable injury.

        3. Balance of Harm

        Because Core Progression demonstrated it would suffer loss of its trade secrets

 and damage to its business absent an injunction, the district court found that the balance

 of harms favored issuing a preliminary injunction. In balancing harms, a court looks at

 whether the moving party’s “threatened injury outweighs the injury the opposing party

 will suffer under the injunction.” Sierra Club, Inc. v. Bostick, 539 F. App’x 885, 889

 (10th Cir. 2013) (quoting Awad v. Ziriax, 670 F.3d 1111, 1125 (10th Cir. 2012)).

        O’Hare argues that because he is not able to participate in his chosen profession of

 gym ownership, his harm outweighs the harm to Core Progression. It is true that O’Hare

 will not be able to open a fitness facility within 25 miles of the former franchise, which

 temporarily limits his career outcomes if he is unwilling to relocate. But O’Hare agreed

 proprietary training, work on developing their location for a year, see [our] great
 success and then have the name be tarnished . . . it makes it look like my brand went
 to North Carolina and failed and was a fraud.” Aplt. App. at 2429.
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 to this provision when he signed the franchise agreement. Harms that a party brings on

 himself generally bear less weight in this balancing analysis. See Fitness Together

 Franchise, LLC v. EM Fitness, LLC, No. 120CV02757DDDSTV, 2020 WL 6119470, at

 *11 (D. Colo. Oct. 16, 2020) (citing Novartis Consumer Health, Inc. v. Johnson &

 Johnson, 290 F.3d 578, 596 (3d Cir. 2002)). Thus, the district court found that the risk of

 harm to Core Progression was more substantial than the risk of harm to O’Hare. This

 finding is supported by the record.

        O’Hare also argues that the district court failed to consider the harm to his First

 Amendment rights. He believes the preliminary injunction is a prior restraint designed to

 restrict his First Amendment rights, even though he concedes that it does not explicitly

 forbid him from any form of speech. He argues that because the preliminary injunction is

 designed to prevent further harm, including from his own damaging statements, it curtails

 his future speech. The only speech O’Hare must refrain from is divulging Core

 Progression’s proprietary trade information. This restriction does not run afoul of the

 First Amendment, and courts regularly uphold prohibitions on sharing trade secrets. See,

 e.g., Harvey Barnett, Inc. v. Shidler, 200 F. App’x 734, 73940 (10th Cir. 2006). There is

 no harm to O’Hare’s protected First Amendment interests. The district court did not

 abuse its discretion in finding that the balance of harms favors Core Progression.

        4. Public Interest

        Finally, the district court correctly found that an injunction was not adverse to the

 public interest. Colorado law expressly mandates that enforceable noncompete

 agreements further state policy, and it demonstrates that the public interest tilts in favor

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  of enforcement where a violation has been established. See, e.g., C.R.S.A. § 8-2-113

  (authorizing noncompete agreements for “management personnel”). Thus, the court

  concluded promptly enforced noncompete agreements are in the public interest. We

  agree.

                                                *     *   *

           In sum, all four preliminary injunction factors favor the grant of an injunction:

  Core Progression is likely to prevail on the merits of this case, it will face ongoing harm

  in the absence of a preliminary injunction, that harm is more significant than the harm to

  O’Hare, and a preliminary injunction is in the public interest. Thus, the district court did

  not abuse its discretion in granting the injunction.

           We AFFIRM.

                                      III.   CONCLUSION

           For the reasons stated above, we AFFIRM the decision of the district court.

                                       Entered for the Court

                                       Timothy M. Tymkovich
                                       Chief Judge

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