IN THE CIRCUIT COURT OF THE 17 TH JUDICIAL CIRCUIT IN AND FOR BROWARD COUNTY, FLORIDA GENERAL JURISDICTION DIVISION RESTORATION 1 FRANCHISE HOLDING, LLC, a Florida limited liability company, CASE NO.: CACE-15-015361 Plaintiff, v. ABRAHAM NEWMAN, et al. Defendants. / TEMPORARY INJUNCTION THIS CAUSE came before the Court for hearing on September 25 and October 2, 2015 upon the Plaintiff, Restoration 1 Franchise Holding, LLC s Motion for Temporary Injunction (the Motion ), and the Court having heard argument of counsel, the testimony of the witnesses, and reviewed the file and the documentary evidence submitted by the parties, and otherwise being fully advised in the premises, hereby makes the following factual findings: A. Factual Background 1. Plaintiff, Restoration 1 Franchise Holding, LLC ( Restoration 1 ) was founded by its sole member, Andor Kovacs, the company s CEO. (Comp., Kovacs Testimony ( T. ). Defendant, Restoration 1 of South Florida, LLC ( Restoration 1 South Florida ) is located at 1341 SW 21 st Terrace, Fort Lauderdale, Florida 33312. (Ans., 5). Defendant, Restoration 1 of Kendall, Inc. ( Restoration 1 Kendall ) is located at 1835 NE Miami Gardens Drive, Suite 537, North Miami Beach, Florida 33179. (Ans., 6). Defendant, Restoration 1 of Boca Raton, LLC ( Restoration 1 Boca Raton ) is located at 102 NE 2 nd Street, Suite 160, Boca Raton, Florida.
(Ans., 7). Defendant, Payless Response Team, LLC ( Payless Response ) is located at 1341 SW 21 st Terrace, Fort Lauderdale, Florida 33312. (Ans., 8). Defendant, Payless Response Team II, LLC, ( Payless Response II ) is located at 102 NE 2 nd Street, Suite 160, Boca Raton, Florida. (Ans., 9). Defendants, Abraham Newman ( Newman ) and Erick Aguilar ( Aguilar ) are the managing members of Restoration 1 South Florida, Restoration 1 Boca Raton, Payless Response, and Payless Response II and Newman is the sole officer of Restoration 1 Kendall. (Ans., 10, 11). 2. Restoration 1 licenses their twenty-four franchisees, including twelve in Florida, to operate businesses providing residential and commercial water, fire, smoke and mold restoration services using the Restoration 1 Marks, including the federally registered mark, Restoration 1. (Comp., 14, 16, 17, Kovacs T., Hearing Exhibit ( Hrg. Ex. ) 1). Since 2009, Restoration 1 and its franchises have engaged in marketing efforts, including through the Restoration 1 website. (Comp., 19, 20, Kovacs, Mitchell and Menendez T., Hrg. Exs. 3 and 4). The Restoration 1 Marks are a valuable asset and generate goodwill as a symbol of Restoration 1 and the property restoration services their system offers. (Comp., 19, 20, Kovacs and Menendez T.). 3. Restoration 1 currently provides four weeks of training to its new franchisees, including one week of on-site job training at one or more customer locations and, on at least an annual basis, conducts on-site field visits to its franchised locations. (Kovacs, Mitchell and Menendez T., Hrg. Ex. 6). 4. Newman and Aguilar signed receipts acknowledging their receipt of Restoration 1 s Franchise Disclosure Documents ( FDDs ). (Kovacs, Newman and Aguilar T.). Newman read and reviewed portions of the Restoration 1 FDDs, including Item 19. Aguilar did not review 2
the FDD for Boca Raton and relied upon Newman to conduct the negotiations for the Boca Raton franchise. (Newman and Aguilar T., Hrg. Exs. 7, 11, 13). Newman did not request, and Kovacs did not provide to Newman, any written substantiation for the financial performance representation contained in Item 19 of the FDDs. There was disputed testimony regarding an oral representation by Kovacs to Newman concerning potential profit of 40%. Kovacs denied making such a statement. 1 5. On May 24, 2011, Newman executed a Restoration 1 franchise agreement, referred to as the South Florida Franchise Agreement, but the agreement did not provide Newman with an exclusive territory. (Ans., 22, Kovacs and Newman T., Hrg. Ex. 10). On November 14, 2013, Newman and Aguilar both executed a Restoration 1 franchise agreement for a designated territory known as Boca Raton. (Ans., 23, Newman T., Hrg. Ex. 12). On January 9, 2014, Newman executed a Restoration 1 franchise agreement for a designated territory known as Kendall. (Ans., 24, Newman T., Hrg. Ex. 14). Prior to the executing the Boca Raton and Kendall agreements, Newman did not demand in writing that Restoration 1 provide Newman with an exclusive territory for his South Florida Franchise Agreement. (Kovacs and Newman T.). 2 6. Newman s and Aguilar s entities, Restoration 1 South Florida, Restoration 1 Boca Raton and Restoration 1 Kendall collected revenues from restoration services performed for their commercial and residential customers and reported those revenues to Restoration 1 and paid a 7% royalty on collected revenues. (Kovacs, Newman and Aguilar T.). According to Restoration 1 s records, Restoration 1 South Florida realized revenues in excess of $1,000,000 as of December 31, 2012. (Kovacs T., Hrg. Ex. 16). 1 In any event, Franchise Agreements contain a merger clause. 2 Newman testified that he did make oral requests to Kovacs. Kovacs denied this. 3
7. Kovacs testified that Restoration 1 provided a copy of its confidential Operations Manual to Newman on July 21, 2011 (Kovacs T., Hrg. Ex. 29). On February 3 and 4, 2014, Newman and Aguilar signed for an updated Operations Manual (the Manual ) at the 2014 Annual Meeting and agreed to keep it confidential. (Kovacs T., Hrg. Exs. 25). The manual was developed over the course of several years by Kovacs and other members of the Restoration 1 team. (Kovacs T., Hrg. Ex. 2). Restoration 1 s Manual provides a complete guide to establish and market a restoration services company. (Kovacs and Mitchell T.). 8. The Restoration 1 Franchise Agreements in Section 17.2.2 and 17.2.2.1 contain a restrictive covenant against competition. 9. Section 17.1 of the Franchise Agreements states that once a franchisee s rights under the Franchise Agreement are terminated, a former franchisee is required to take steps to de-identify itself as a Restoration 1 franchisee, including, returning the Manual, cancelling any state or local registrations of the name Restoration 1, assigning all its telephone numbers to Restoration 1, and paying all outstanding sums due to Restoration 1. 10. In March, 2015, Restoration 1 and Newman jointly executed Addendums to the South Florida, Boca Raton and Kendall Franchise Agreements required by the United States Small Business Administration ( SBA ) as a condition for Newman obtaining SBA assisted financing, in which the parties acknowledged: The Franchise Agreement is in full force and effect. (Hrg. Exs. 10, 12 and 14, Addendums dated March 5, 2015). Following the execution of these Addenda, Newman obtained a loan in excess of $500,000. (Newman T.). 11. After May, 2015, Newman and Aguilar failed to report their revenues or pay royalties on those revenues to Restoration 1. (Kovacs, Newman and Aguilar T.). On July 13, 2015, Restoration 1 sent default notices to Newman and Aguilar in connection with their defaults 4
under South Florida and Boca Raton Franchise Agreements, and upon their failure to cure, sent termination notices on August 6, 2015 terminating these agreements effective August 10, 2015. (Ans., 34, 35, 37, 38, Hrg. Exs. 17, 18, 19). On July 13, 2015, Restoration 1 notified Newman that he was in default of his obligations under the Kendall Franchise Agreement for his failure to achieve the required level of sales and his failure to actively operate the franchise business for a period of more than five (5) days, and that as a result, the agreement was terminated effective July 16, 2015. (Ans., 36, Hrg. Ex. 20). 12. One day after the termination of the South Florida and Boca Raton Franchise Agreements, Newman and Aguilar filed their Articles of Organization for Payless Response and Payless Response II on August 7, 2015. (Ans., 39 and Comp., Ex. J). Newman and Aguilar maintain their Payless Response and Rapid Recovery offices in the same offices as they operated as Restoration 1 South Florida and Boca Raton and provide the same services they provided as Restoration 1 franchisees. (Ans., 40, 42, Comp., Ex. K, Newman and Aguilar T.). Newman and Aguilar continue to utilize their Restoration 1 company names to communicate with customers and insurance companies in connection with their efforts to collect substantial accounts receivables from services performed while they were Restoration 1 franchisees. (Ans., 41, Newman and Aguilar T.). Newman and Aguilar have not returned any copies of Restoration 1 s Manuals, and claim not to have received copies of them. (Kovacs, Newman and Aguilar T.). 13. While Newman and Aguilar have taken some steps to remove the Restoration 1 trade name from third party websites since the termination of the Agreements, Restoration 1 of South Florida and Restoration 1 Boca Raton continues to appear on third party websites. (Kovacs, Newman and Aguilar T.). At the hearing, Defendants counsel stipulated that the Defendants would make all reasonable efforts to remove the Restoration 1 trade name from 5
third party websites upon receipt of notice from Restoration 1 as to the identity of the third party websites. 14. Since the termination of the Agreements, Restoration 1 has been unable to relicense the Boca Raton territory, its West Palm Beach franchisee has lost one of its plumbing referral sources and Restoration 1 has been unable to inspect the offices of its former franchisees. (Kovacs and Menendez T.). Restoration 1 s ability to maintain its competitive advantage through the continued compliance of its franchise agreements with other franchisees, the maintenance of the Restoration 1 Franchise System, its ability to re-market the territories serviced by these former franchisees, its goodwill associated with its trade names and trade mark in the Florida market and the value of its confidential Manual are threatened by Newman and Aguilar and their affiliated entities conduct in continuing to utilize the Restoration 1 trade name and to operate Payless Resource, Payless Resource II, and Rapid Recovery. (Kovacs, Mitchell and Menendez T.). B. Procedural History. Restoration 1 filed a Verified Complaint on August 26, 2015 seeking injunctive relief on Count I-Breach of Covenant Not to Compete; Count II-Breach of Covenant Not to Disclose Confidential Information; Count III-Common Law Unfair Competition, as well as a Verified Emergency Motion for Temporary Injunction. Following further briefing and limited discovery conducted by the parties, the Court conducted an evidentiary hearing on the Emergency Motion for Temporary Injunction. The testifying witnesses were Mr. Andor Kovacs, Mr. Derrick Mitchell, Mr. Erick Menendez, Mr. Abraham Newman, Mr. Erick Aguilar, Mr. Hal Sklar and Mr. Dan Delgado. 6
C. Plaintiff s Motion For Temporary Injunction. In seeking a temporary injunction, the movant must show: (1) irreparable harm; (2) a clear legal right; (3) no adequate remedy at law; and (4) that the public interest will be served. JonJuan Salon, Inc. v. Acosta, 922 So. 2d 1081, 1083 (Fla. 4 th DCA 2006). 1. The Restoration 1 Restrictive Covenants. At the hearing, Restoration 1 demonstrated that it has statutory and non-statutory legitimate business interests to support the enforcement of the restrictive covenants. Restoration 1 established that it has developed goodwill in its Restoration 1 Marks. Moreover, the evidence adduced demonstrated that Restoration 1 s long-term substantial relationships with its other franchisees, the preservation of the franchise system, as well as its ability to re-license territories associated with its former franchisees is being threatened. Restoration 1 also has legitimate business interests to protect in its confidential Manual. Mr. Kovacs testified as to the development of the Manual and both Kovacs and his franchisee, Derrick Mitchell, testified to the value of the Manual. Kovacs testified that the Manual distributed at the 2014 Annual Meeting was developed over the course of several years by Kovacs and other members of the Restoration 1 team. While the Manual may have been developed from publicly available information, the Court finds that Restoration 1 refined the information and compiled it in such a way that its Manual would permit an individual in possession of it to establish and market their own restoration business. See, e.g., Autonation, Inc. v. O Brien, 347 F. Supp. 2d 1299, 1307 (S.D. Fla. 2004) and Continental Group, Inc. v. KW Property Management, 622 F. Supp. 2d 1357, 1377 (S.D. Fla. 2009), finding the compilation of otherwise publicly available information can be protected as confidential information. 7
Restoration 1 also takes reasonable steps to protect its confidential information and requires its franchisees to execute Statements of Confidentiality acknowledging that they will maintain the confidentiality of the Manual. The Court finds that the restriction against the disclosure is reasonably tailored to protect Restoration 1 s legitimate business interests in protecting its confidential information and its efforts to market its services to its franchisees and its prospective franchisees. If such information is disclosed, Restoration 1 would be unable to measure or quantify the harm in terms of monetary damages since Restoration 1 s business methods, practices and operations would be available to a competitor and utilized for a competitive advantage. For these reasons, the Court finds that the restrictive covenant against non-disclosure is supported by Restoration 1 s legitimate business interests. See, 4UOrtho, LLC v. Practice Partners, Inc., 18 So. 3d 41, 43 (Fla. 4 th DCA 2009). Furthermore, the evidence presented at the hearing showed that the scope of restrictive covenant and the time and geographic restrictions are reasonably tailored to protect Restoration 1 s legitimate business interests. The temporal restriction of two years from the date of termination is appropriate given the franchise relationship that existed between Restoration 1 and the Defendants. See, Medi-Weightloss Franchising USA, LLC v. Medi-Weightloss Clinic of Boca Raton, LLC, 2012 WL 260902 *5, (M.D. Fla. 2012). As for the geographic scope of the Agreements, the Court finds that the restriction only restricts the former franchisees from owning, managing or providing services to a restoration services business located or operating within a twenty-five mile radius of their current location or any other current Restoration 1 business. As such, Newman, Aguilar and their Payless Resource and Rapid Recovery entities are free to conduct restoration services outside of these boundaries. 8
With respect to the Defendants Affirmative Defenses, the Court finds that Defendants have not met their burden with respect to those defenses presented at the hearing. Restoration 1 s legitimate business interests have not been disproved. Restoration 1 has demonstrated a likelihood of success on the merits. 2. Restoration 1 Has Carried Its Burden Restoration I has demonstrated that it has no adequate remedy at law and that it will suffer irreparable harm in the absence of a temporary injunction. The harm to Restoration 1 under the circumstances presented here cannot be remedied with an award of monetary damages. As Kovacs testified, Restoration 1 s potential losses cannot be quantified as the threat does not involve the loss of a specific customer but rather the preservation and growth of the entire Restoration 1 franchise system and the protection of the Restoration 1 Marks. [A]n injury is irreparable where the damage is estimable only by conjecture, and not by any accurate standard. JonJuan Salon, Inc. v. Acosta, supra, at 1084 (internal citation omitted). Here, Newman and Aguilar are providing restoration services through their affiliated entities in the same Florida markets where Restoration 1 does business through its Florida franchisees. In addition, they are continuing to utilize the Restoration 1 trade name. As such, in accordance with section 542.335 (1) (j), Fla. Stat. (1996) the violation of their restrictive covenant against competition created a presumption of irreparable harm to Restoration 1. Based upon the record before it, the Court finds that the Defendants have not rebutted this statutory presumption. In addition, the franchise agreements protect Restoration 1 s confidential Manual from disclosure. 9
Defendants breaches of their non-competition covenants and threatened breaches of their non-disclosure covenants demonstrate that Restoration 1 is likely to succeed on the merits of its claims against them. Restoration 1 has shown that Newman and Aguilar breached their noncompetition covenant by establishing their Payless Resource and Rapid Recovery Team companies to perform the exact services they performed as Restoration 1 franchisees. Restoration 1 has further shown that Newman and Aguilar continue to use the Restoration 1 trade name by maintaining their State of Florida Division of Corporations registrations, by continuing to pursue collection efforts, by failing to de-identify on third party web sites and by continuing to use phone numbers associated with the franchise. Such uses of the Restoration 1 trade name constitute a breach of Newman s and Aguilar s post-termination obligations and threatens the goodwill associated with Restoration 1 Marks as Restoration 1 no longer has the ability to monitor and control the use of its trade name. The Defendants have not met their burden of showing any legal or equitable defenses to the imposition of a temporary injunction. Restoration 1 has further established that Newman s and Aguilar s threatened breaches of the restrictive covenant of non-disclosure and the resulting competitive advantage they or others would derive in the event of disclosure require the imposition of an injunction as an appropriate and effective remedy under section 542.335 (1) (j), Fla. Stat. (1996). An injunction will serve the public interest as Florida has expressly articulated a strong public policy favoring the enforcement of restrictive covenants in section 542.335, Fla. Stat. (1996). 3. Bond. In accordance with Fla. R. Civ. P. 1.610 (b), the Court determines that an appropriate bond amount is $200,000.00 to protect the interests of the Defendants, in the event that it is 10
determined that an injunction has been wrongfully entered in this action. The injunctive relief set forth below will be effective as of the date and time the injunction bond is posted. The Clerk of Court is directed to accept the bond into the Court Registry. D. Conclusion. It is therefore, ORDERED AND ADJUDGED that Plaintiff s Emergency Motion for Temporary Injunction is hereby GRANTED as follows: 1. Defendants Abraham Newman and Erick Aguilar, and their affiliated entities, Restoration 1 of South Florida, LLC, Restoration 1 of Kendall, Inc., Restoration 1 of Boca Raton, LLC, Payless Response Team, LLC, Payless Response Team II LLC, and their respective agents, servants, employees, and attorneys, and all those persons in active concert or participation with them are hereby temporarily enjoined as follows: (a) For a period of two (2) years, either directly or indirectly, for themselves, or through, on behalf of or in conjunction with, any person, persons, partnership, corporation, limited liability company or other business entity: own an interest in, manage, operate or provide services to any Competitive Business (defined as any business that offers or provides or grants franchises or licenses to others to operate a business that offers or provides restoration services or other services the same or similar to those provided by Restoration 1 Businesses [referred to as a business providing residential and commercial water, fire, smoke and mold remediation services and related services such as cleaning and drying services and repair of structural damage]) located or operating within (a) a twenty-five (25) mile radius of the location of the Franchised Business Office and Storage, or (b) within a twenty-five (25) mile radius of any other Restoration 1 Business in existence at the time of termination or expiration; (b) From disclosing the Restoration 1 Manual and to immediately return to Franchisor the Manual; or to confirm in an affidavit that after diligent search that they have been unable to locate any of the manuals in their possession, custody or control; (c) From using the Restoration 1 Marks (defined as the service mark Restoration 1, and such other trade names, trademarks, service marks, trade dress, designs, graphics, logos, emblems, insignia, fascia, slogans, drawings and other commercial symbols of Restoration 1), and will take such action as may be necessary to cancel or assign to Franchisor, at Franchisor s option, any assumed name or equivalent registration filed with state, city or county 11
authorities which contains the name Restoration 1, including but not limited to, Restoration 1 of South Florida, LLC, Restoration 1 of Kendall, Inc. and Restoration 1 of Boca Raton, LLC; and (d) From using all telephone listings and numbers for the Franchised Business and assigning to Franchisor and shall notify the telephone company and all listing agencies of the termination or expiration of Franchisee s right to use any telephone numbers or facsimile numbers associated with the Marks in any regular, classified or other telephone directory listing and shall authorize transfer of same to or at the direction of Franchisor; including but not limited to (305) 501-2025; (305) 747-9031; (305) 710-7922; (786) 565-9945; (954) 942-3448; (786) 285-2600; (561) 997-5252; (561) 405-0242; (844)243-5663; and (800) 868-0027. 3 (2) The Plaintiff is directed to provide the Defendants with a listing of any third party websites utilizing the Restoration 1 trade name within two business days of the entry of this Order; and (3) The individual Defendants are directed to file an affidavit within (twenty) 20 days of the entry of the temporary injunction advising this Court of the status of their compliance with the injunction. IT IS FURTHER ORDERED that this Order shall not be effective unless and until Plaintiff executes and files with the clerk of this court a bond in the amount of $200,000.00 conditioned for the payment of costs and damages sustained by defendants if defendants are wrongfully enjoined. The clerk shall on the filing by Plaintiff of the bond required by this Order certify a copy of this Order for service on defendants. DONE at Fort Lauderdale, Florida October 19, 2015. Copies Furnished to: All Counsel of Record /s/ William W. Haury, Jr. WILLIAM W. HAURY, JR. CIRCUIT COURT JUDGE 3 Newman testified that he used his personal cell number in Restoration 1 promotional collateral. Newman was on notice of the de-identification and transfer requirements when he chose to do so. 12