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LLC v. 3 Natives Stuart, LLC

United States District Court, S.D. Florida

August 13, 2019

3 NATIVES FRANCHISING, LLC, Plaintiff,
v.
3 NATIVES STUART, LLC, MARY MILLER, CITY BEETS, LLC, MICHAEL MCLAUGHLIN, AND EMILY IRWIN, Defendants.

          ORDER ON PENDING MOTIONS (DE 8, 24 & 37)

          SHANIEK M. MAYNARD, UNITED STATES MAGISTRATE JUDGE

         THIS CAUSE comes before this Court upon the Plaintiff's Amended Motion for Temporary Restraining Order and/or Preliminary Injunction (DE 24) and the two Motions for Hearing (DE 8 and 37). Having reviewed the Motions and the Defendants' Response to the Amended Motion for injunctive relief, noting that the Plaintiff filed no Reply, this Court finds as follows:

         BACKGROUND

         1. This case concerns a failed franchise relationship. The Plaintiff is the franchisor. It owns the “3 Natives” juice cafe franchise. It licensed the right to operate a “3 Natives” juice cafe in Stuart, Florida to “3 Natives Stuart, LLC”, the franchisee. Mary Miller signed the Franchise Agreement as the corporate manager of 3 Natives Stuart LLC and as its guarantor. The Franchise Agreement that created that franchise relationship either was rescinded (according to the Defendants) or terminated (according to the Plaintiff). Each side blames the other for breach of contract. The Plaintiff-franchisor came to court first, suing the Defendant-franchisee and those associated with it.

         2. The Franchise Agreement that underlies this lawsuit is found at ¶ 19-1. One of that contract's primary concerns is the protection of the Plaintiff-franchisor's intellectual property assets (trademarks, proprietary information, trade secrets, trade dress, reputation, and goodwill). The contract refers to the Plaintiff's “System” as the term that summarizes that total collection of intellectual property assets. The proprietary “System” that the contract seeks to protect concerns “the establishment, development and operation of” the franchise; its offering of premium smoothies, juices, and other light food items based on proprietary recipes; maintenance of uniform standards, policies, and procedures; and so forth. In the contract the Plaintiff-franchisor represents that it has developed its comprehensive franchise “System” “through significant expenditures of time, skill, effort and money”.

         3. This Court recounts the history of the negotiations for and the parties' experience with the Stuart cafe for context and background. This Court draws that history from what is pleaded in the Amended Complaint, the Motion and Response, and the various attachments thereto including affidavits from the relevant parties. For ease of reference, this Court refers to “the Defendants” in the plural, consisting of the principal Defendant, 3 Natives Stuart, LLC, who is the franchisee (the party who entered the Franchise Agreement) and Defendant Mary Miller who signed the Franchise Agreement as guarantor. Because they are the parties to the contract, they are the principal Defendants who are defending against the Plaintiff's request for injunctive relief and hence the principal Defendants who are subject of the below discussion.

         4. The “3 Natives” franchise has grown from a single cafe in Tequesta, Florida, and the franchise company is still based there. That first cafe opened in 2013, roughly three years before the Defendants opened their cafe in Stuart. As of the time of this lawsuit, the Plaintiff claims the existence of twelve cafes in total from Palm Beach County to Tallahassee, with five more planned to open in Florida and Texas. In early 2016 the Plaintiff (through a sibling LLC) obtained trademark registration for the name “3 NATIVES” and for the circular graphic design that incorporates that name into a palm tree drawing above the words “raw-natural-fresh”. Those two trademark registration documents are at ¶ 19-2.

         5. Mary Miller is the owner of a health club gym in Stuart, Florida, and her cousin, Michael McLaughlin, manages it. Mr. McLaughlin asked Phillip Bambino, the owner and managing member of 3 Natives Franchising LLC, if someone was interested in opening a “3 Natives” cafe inside their gym. Rather than bring in an independently operated cafe, Mr. Bambino suggested that the Defendants become franchisees which he said would be the more financially advantageous to them. He made various representations about the franchise's financial performance to-date and the expected financial performance of the Defendants' cafe. He also stressed the practical advantages of the franchise's already established “System” and food commissary. Those two factors were key to the Defendants' decision to become a “3 Natives” franchisee because they had no food service experience of their own. The Defendants' plan was to rely on the Plaintiff for that support.

         6. The parties signed the Franchise Agreement on April 29, 2016. The Defendants paid $30, 000 and agreed to pay a monthly 6% gross revenue royalty fee. The contract gave the Plaintiff various inspection and accounting rights. The Defendants agreed to abide by the Plaintiff's operating standards and to protect its “System” of proprietary information. The Defendants agreed to restrictive covenants such as a non-compete agreement. The contract had a ten year term.

         7. In sharp contrast to how the Franchise Agreement describes the Plaintiff's well-developed “System”, in practice the Plaintiff gave them very little support in setting up and operating the cafe, the Defendants complain. What information they did receive was of no true proprietary value. They were left to figure everything out on their own. After Mr. Bambino had received payment of the fee and had set up the point-of-sale system to ensure notification of all sales activity, he no longer was in touch. The Plaintiff never inspected the Defendants' premises or lease arrangement. The Plaintiff did not complaint about the cafe's lack of a dedicated telephone line; instead the cafe shared the gym's already existing telephone line.

         8. They were left to figure out on their own how to physically construct and build out the cafe space, the Defendants complain. They received no substantive training. The Plaintiff's operating manuals conveyed no helpful or proprietary information. The manuals were brief and offered nothing more than generally known business information. There was no proprietary food preparation information; the Defendants taught themselves how to prepare the food. The contract bound the Defendants to vendors and suppliers who overcharged them for commonly available products that they could have sourced more cheaply on their own. What operational advice they did receive was unhelpful. What food recipes and food preparation techniques that the Plaintiff did give them were unpopular with customers. The Defendants had to figure out how to implement the marketing strategy on their own and had to pay for it out of their own pocket.

         9. Several key features of the franchising arrangement upon which the Defendants had relied did not pan out as anticipated. For one, they had hoped for the help of Allan Turner who at the time managed the franchise's flagship cafe. The Defendants were so dependent on Mr. Turner for operational help that they gave him equity in their business. Three weeks before the Defendants opened their cafe, the Plaintiff fired Mr. Turner. Afterwards Mr. Turner came to the Defendants to inform them that the Plaintiff had threatened him and that he could not work for the Defendants as planned. In Mr. Turner's place, the Plaintiff sent another one of its employees. As the Defendants put it, Mr. Turner's replacement “proved to be unfit to manage a 3 Natives Cafe”. Secondly, the Plaintiff stopped offering its commissary service whereby it delivered already prepared menu items to franchisees' cafes. The loss of that service forced the Defendants to build a food preparation area at substantial expense and inconvenience to their gym business.

         10. A third key term was the “protected territory” of the Defendants' Stuart cafe that they specially had negotiated with the Plaintiff. It prevented any competing “3 Natives” cafe from opening within the city limits of Stuart and Palm City. Nevertheless, in June 2018, the Plaintiff allowed a franchisee to open a “3 Natives” cafe in Palm City and did so without forewarning. Not only do the Defendants allege a breach of the parties' “protected territory” agreement (formalized as Exhibit A to the Franchise Agreement), but opening the competing cafe harmed the Defendants' business just as Mr. Bambino had conceded would happen. The Defendants identify specific ways in which the Palm City “3 Natives” cafe harmed its cafe. First, the competing Palm City cafe benefitted from the marketing that the Defendants already had undertaken (and paid for) in the Palm City area. Second, the Palm City cafe “cannibalized” the Defendants' sales, causing the Defendants' income to decrease. Third, the Defendants had to handle the complaints from customers of the poorly-run Palm City cafe. Customers assumed that the Defendants were responsible for it, too. Fourth, the Plaintiff became even less attentive to the Defendants after it had opened the competing (and allegedly contract-breaching) Palm City cafe.

         11. The Plaintiff alleges in turn that the Defendants breached the Franchise Agreement's non-compete restrictive covenant. The Plaintiff alleges that Defendants Miller and McLaughlin incorporated a new business entity, “City Beets LLC”, whose street address is the same as 3 Natives Stuart, LLC's. The Plaintiff alleges that Ms. Miller and Mr. McLaughlin formed City Beets LLC as part of scheme to hide revenue and to compete with the “3 Natives” ...


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