Court Opinion

ID: 625595
Source: CourtListenerOpinion
Date Created: 2012-03-19 15:01:07+00
Date Added: 2024-06-11T17:51:11.925495
License: Public Domain

11-1308-cv
Singas Famous Pizza Brands Corp. et al. v. New York Advertising LLC, FKA Ganesha Oak LLC et al.

                                 UNITED STATES COURT OF APPEALS
                                     FOR THE SECOND CIRCUIT

                                             SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO
A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS
GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S
LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH
THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC
DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY
ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

       At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Daniel Patrick Moynihan Courthouse, 500 Pearl Street, in the City of New York, on the 19th day
of March, two thousand twelve.

Present:
         ROBERT A. KATZMANN
         RICHARD C. WESLEY,
                     Circuit Judges,
         MARK R. KRAVITZ,
                     District Judge.*
________________________________________________
SINGAS FAMOUS PIZZA BRANDS CORP.,

               Plaintiff-Appellee,

SINGAS FAMOUS PIZZA & RESTAURANT CORP.,                                                No. 11-1038-cv

               Plaintiff-Counter-Defendant-Appellee,

                       v.

NEW YORK ADVERTISING LLC, FKA GANESHA OAK,
LLC, 11 CLASSIC, INC., SINGAS EXPRESS, INC.,
         Defendants-Appellants,

KAMINI VADHAN,

         Defendant-Counter-Claimant-Appellant.**
________________________________________________

         *
        The Honorable Mark R. Kravitz, of the United States District Court for the District of
Connecticut, sitting by designation.
         **
              The Clerk of the Court is directed to amend the caption as noted.
For Plaintiffs-Appellees:                  MICHAEL EINBINDER, Einbinder & Dunn, LLP, New
                                           York, N.Y.

For Defendants-Appellants:                 JOSEPH P. GARLAND, White Plains, N.Y.

      Appeal from the United States District Court for the Southern District of New York
(Holwell, J.).

       ON CONSIDERATION WHEREOF, it is hereby ORDERED, ADJUDGED, and

DECREED that the judgment of the district court be and hereby is AFFIRMED.

       Plaintiffs-Appellees Singas Famous Pizza Brand Corp. and Singas Famous Pizza &

Restaurant Corp. (collectively, “Singas”) operate or franchise nearly two dozen Singas Famous

Pizza restaurants in the tri-state area. Singas brings this action seeking to enjoin Defendants-

Appellants (“defendants”) from operating a former Singas Famous Pizza franchise located at 94

Avenue C in New York, New York (the “Avenue C Restaurant”) as well as a similar restaurant

doing business as Queens New York Famous Pizza, located at 35-68 73rd St. in Queens, New

York (the “Jackson Heights Restaurant”). By Memorandum Opinion and Order dated February

14, 2011, the United States District Court for the Southern District of New York (Holwell, J.)

granted Singas’s motion for a preliminary injunction barring defendants from operating both the

Avenue C and the Jackson Heights Restaurants. Defendants appeal the district court’s order

only insofar as it applies to the Jackson Heights Restaurant, contending that the ten-mile

geographic scope of a post-termination restrictive covenant in the parties’ Franchise Agreement

is unreasonably broad. We presume the parties’ familiarity with the underlying facts and

procedural history of this case.

        “We review a district court’s decision to grant or deny a preliminary injunction for abuse

of discretion. An abuse of discretion occurs if the district court (1) based its ruling on an

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erroneous view of the law, (2) made a clearly erroneous assessment of the evidence, or (3)

rendered a decision that cannot be located within the range of permissible decisions.” Oneida

Nation of N.Y. v. Cuomo, 645 F.3d 154, 164 (2d Cir. 2011) (internal citation and quotation marks

omitted). “Under abuse of discretion review, the factual findings and legal conclusions

underlying the district court’s decision are evaluated under the clearly erroneous and de

novo standards, respectively.” Id. (internal quotation marks omitted).

        “In order to justify a preliminary injunction, a movant must demonstrate (1) irreparable

harm absent injunctive relief; (2) either a likelihood of success on the merits, or a serious

question going to the merits to make them a fair ground for trial, with a balance of hardships

tipping decidedly in the plaintiffs favor; and (3) that the public’s interest weighs in favor of

granting an injunction.” Metro. Taxicab Bd. of Trade v. City of N.Y., 615 F.3d 152, 156 (2d Cir.

2010) (internal citation and quotation marks omitted). “A showing of irreparable harm is the

single most important prerequisite for the issuance of a preliminary injunction.” Faiveley

Transp. Malmo AB v. Wabtec Corp., 559 F.3d 110, 118 (2d Cir. 2009) (internal quotation marks

omitted). “To satisfy the irreparable harm requirement, Plaintiffs must demonstrate that absent a

preliminary injunction they will suffer an injury that is neither remote nor speculative, but actual

and imminent, and one that cannot be remedied if a court waits until the end of trial to resolve

the harm.” Grand River Enter. Six Nations, Ltd. v. Pryor, 481 F.3d 60, 66 (2d Cir. 2007)

(internal quotation marks omitted).

        Under New York law, a restrictive covenant is “rigorously examined” and only enforced

if it is “reasonable[] . . . in terms of its time, space or scope” and not “oppressive[] [in] its

operation.” Am. Inst. Chem. Eng’rs v. Reber-Friel Co., 682 F.2d 382, 387 (2d Cir. 1982)

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(internal quotation marks omitted); see also, e.g., Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 69

(2d Cir. 1999) (finding in the employment contracting context that “[t]he issue of whether a

restrictive covenant not to compete is enforceable by way of an injunction depends in the first

place upon whether the covenant is reasonable in time and geographic area” weighing “the need

to protect the employer’s legitimate business interests against the employee’s concern regarding

the possible loss of livelihood”); Pantone, Inc. v. Esselte Letraset, Ltd., 878 F.2d 601, 608 n.2

(2d Cir. 1989) (“Under New York law, if there is a transfer of good will, an accompanying

covenant not to compete is valid unless it is more restrictive than is reasonably necessary.”

(internal quotation marks omitted)). “Generally, when a party violates a [reasonable] non-

compete clause, the resulting loss of client relationships and customer good will built up over the

years constitutes irreparable harm” for purposes of imposing a preliminary injunction. Johnson

Controls, Inc. v. A.P.T. Critical Sys., Inc., 323 F. Supp. 2d 525, 532 (S.D.N.Y. 2004) (citing

cases); see also Ticor Title, 173 F.3d at 69 (It is “very difficult to calculate monetary damages

that would successfully redress the loss of a relationship with a client.”). However, this Court

has rejected the proposition “that irreparable harm must inevitably be assumed in breach of

covenant cases.” Baker’s Aid, Inc. v. Hussmann Foodservice Co., 830 F.2d 13, 15 (2d Cir.

1987). “Though courts often issue preliminary injunctions when it appears likely that the

plaintiff will prevail in covenant-not-to-compete cases, this is not an automatic process, but

instead depends upon the factual particulars in each case.” Id.

       Here, defendants’ principal argument on appeal is that the ten-mile geographic scope of

the Franchise Agreement’s post-termination non-compete clause is unreasonably broad because

“[p]izza restaurants are inherently local.” Appellant’s Br. 11. For substantially the same reasons

expressed in the district court’s well-reasoned Memorandum Opinion and Order, we disagree.

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See Singas Famous Pizza Brands Corp. v. N.Y. Adver. LLC, 10 Civ. 8976, 2011 WL 497978

(S.D.N.Y. Feb. 10, 2011). As an initial matter, defendants expressly agreed in the Franchise

Agreement that the ten-mile geographic restriction was “fair and reasonable,” that the restriction

was “reasonable and necessary for the protection of the proprietary interest of [Singas],” and that

“violation of [the restriction] would cause substantial and irreparable injury to [Singas].” J.A.

76-77. We have previously held that a defendant’s agreement to such contractual provisions

“might arguably be viewed as an admission . . . that plaintiff will suffer irreparable harm were

[defendant] to breach the contract’s non-compete provision.” Ticor Title, 173 F.3d at 69.

        More fundamentally, we conclude that, in the circumstances of this case, the non-

complete clause’s ten-mile geographic restriction is reasonable. There are nine Singas Famous

Pizza restaurants within ten miles of the Avenue C Restaurant, several of which are clustered

within a few miles of the Jackson Heights Restaurant. Moreover, the original Singas Famous

Pizza restaurant -- referred to by both parties in their briefs on appeal as Singas’s “flagship”

restaurant -- is located less than a mile away from the Jackson Heights Restaurant.

Further, defendants seek to characterize Singas’s legitimate business interest in enforcing the

restrictive covenant as limited to protecting its ability to install another franchise in the

neighborhood surrounding the Avenue C Restaurant. However, courts applying New York law

have recognized that restrictive covenants in franchise agreements are also necessary to

neutralize the “danger that former franchisees will use the knowledge they have gained from the

franchisor to serve its former customers, and that continued operation under a different name

may confuse customers and thereby damage the good will of the franchisor.” ServiceMaster

Residential/Commercial Servs., L.P. v Westchester Cleaning Servs., Inc., 01-CV-2229, 2001 WL

396520, at *3 (S.D.N.Y. Apr. 19, 2001). In the circumstances presented here, the danger posed

                                                   5
to Singas’s institutional know-how, reputation, and goodwill by the defendants’ continued

operation of the Jackson Heights Restaurant is readily apparent. As the first paragraph of

Franchise Agreement states, “[Singas] has developed a distinctive system for the operation of an

Italian pizza [restaurant] . . . and has developed good will and recognition with the public . . .

with regard to certain [items of intellectual property] including the tradename ‘Singas.’” J.A. 58.

Moreover, as conceded by defendants on appeal, the Jackson Heights Restaurant not only used a

menu that was “virtually identical” to that used at Singas Famous Pizza franchises, but also

adopted certain distinctive practices associated with Singas Famous Pizza restaurants, employed

at least some of the same personnel as the terminated Avenue C Singas Franchise, and used

certain custom-made equipment taken from the Avenue C Restaurant. Singas Famous Pizza,

2011 WL 497978, at *4. This is precisely the situation non-compete provisions in franchise

agreements are designed to protect against. Accordingly, in analogous cases, courts applying

New York law have not hesitated in enforcing comparable geographic restrictions in a franchise

agreement’s post-termination non-compete provision. See, e.g., Carvel Corp. v. Eisenberg, 692

F. Supp. 182, 186 (S.D.N.Y. 1988) (upholding provision “limiting the [former franchisee’s]

ability to operate an ice cream store within two miles of their present location for three years”);

Carvel Corp. v. Rait, 117 A.D. 2d 485, 487 (N.Y. App. Div. 2d Dep’t 1986) (same); DAR &

Assocs., Inc. v. Uniforce Servs., Inc., 37 F. Supp. 2d 192, 199 (E.D.N.Y. 1999) (upholding

provision restricting former licensee, a professional staffing business, from competing within

fifty miles of former place of business for one year); TKO Fleet Enters., Inc. v. Elite Limousine

Plus, Inc., 708 N.Y.S.2d 593, 596 (N.Y. Sup. Ct. 2000) (upholding provision restricting former

limousine franchisee from competing within fifty miles of Times Square for one year); cf. Maxon

v. Franklin Traffic Serv., Inc., 261 A.D. 2d 830, 832 (N.Y. App. Div. 4th Dep’t 1999) (striking

                                                  6
down as unreasonable a provision restricting former franchisee, a shipping company, from

competing within 300 miles for five years).

       Accordingly, we conclude that the ten mile geographic restriction in the Franchise

Agreement is reasonably calculated towards furthering Singas’s legitimate interests in protecting

its “knowledge and reputation” as well as its “customer good will.” See Johnson, 323 F. Supp.

2d at 532, 536. Moreover, for the reasons described, we conclude that the district court correctly

determined that, in the circumstances of this case, Singas would suffer irreparable harm if

defendants were allowed to continue operating the Jackson Heights Restaurant as an Italian pizza

restaurant, in violation of the Franchise Agreement’s restrictive covenant.

        We have considered defendants’ other arguments on appeal and find them to be without

merit. Accordingly, the judgment of the district court is hereby AFFIRMED.

                                              FOR THE COURT:
                                              CATHERINE O’HAGAN WOLFE, CLERK

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