United States District Court, N.D. Ohio, Eastern Division
MEMORANDUM OF OPINION AND ORDER [RESOLVING ECF NO.
Y. Pearson United States District Judge.
before the Court is Plaintiff Handel's Enterprises,
Inc.'s Motion for Preliminary Injunction. ECF No.
3. Defendants Kenneth S. Schulenburg, Juliana Ortiz, and
Moonlight101, Inc. have filed a response in opposition. ECF
Nos. 25 and 26. Plaintiff replied. ECF
No. 27. The Court has been advised, having reviewed the
record and heard oral argument. For the reasons that follow,
the Court grants Plaintiff's motion (ECF No.
action arises out of a franchise relationship between
Plaintiff Handel's Enterprises, Inc.
(“Handel's”) and Defendants Kenneth S.
Schulenburg, Juliana Ortiz, and Moonlight101, Inc.
(collectively “Defendants”). ECF No. 1.
Handel's was founded in 1945 and is a franchisor in the
ice cream industry with forty-one locations in nine states,
including company-owned and franchise locations. Id. at
PageID#: 6, ¶ 21. Handel's uses products,
equipment, methods operating manuals, suppliers, and recipes
exclusive to Handel's in furtherance of its tradition of
excellence and to distinguish itself from its competitors in
the ice cream industry. Id. at ¶ 23.
October 14, 2015, Defendant Schulenburg met with Handel's
in Ohio to discuss the possibility of purchasing a
Handel's franchise in the San Diego, California area.
Id. at PageID#: 7, ¶¶ 24-26. During the
meeting, Handel's provided Defendant Schulenburg with
certain franchise disclosures, including a proposed Franchise
Disclosure Document (“FDD”) that was registered
with the California Department of Business Oversight with an
effective date of April 13, 2015. Id. at ¶ 25.
The FDD includes a Unit Franchise Agreement (the
“Franchise Agreement”) that governs the terms of
the parties' franchisor-franchisee relationship.
Id. Defendant Schulenburg signed the FDD at the
October 14, 2015 meeting. Id. at ¶ 26.
the Franchise Agreement, Defendant Schulenburg was assigned a
three-mile radius surrounding the Lofts at Moonlight Beach in
Encintas, California, and was also awarded the option to open
a second franchise location in the Gaslamp Quarter of
downtown San Diego. Id. at PageID#: 8, ¶ 29. On
or about January 22, 2016, Plaintiff and Defendant
Schulenburg executed the Franchise Agreement, commenced a
five year initial term, and opened the Encinitas Franchise.
Id. at PageID#: 8, ¶ 30. In executing the
Franchise Agreement, Defendant Schulenburg agreed to
“maintain the absolute confidentiality” of
Handel's trade secret information, and to not compete
with Handel's “both during the time that he is a
franchisee and for a period of two years following the
termination of the Agreement. ECF No. 3-1 at PageID#:
318-19. Defendant Schulenburg attended a two-week
Handel's training in Ohio, at which Handel's provided
Defendant with confidential information pertaining to its
operations. ECF No. 1 at PageID#: 8, ¶ 32.
Similarly, in early 2016, Defendant Ortiz traveled to Ohio to
attend Handel's mandatory franchise training. ECF No.
26-2 at PageID#: 884, ¶ 4.
mid-2017, Defendant Schulenburg began to discuss the
development of his second Handel's location in San Diego,
California, and chose a location at 425 Market Street, San
Diego, California, which is in an area known as the Gaslamp
Quarter (the “Gaslamp location”). ECF No. 3-1
at PageID#: 320. Handel's did not approve the
development of a Handel's franchise at this location.
Id. In December 2017, Defendant Schulenburg informed
Handel's that he did not believe that paying a franchise
fee for the Gaslamp location was logical. Id. at PageID#:
323. As such, Defendant Schulenburg refused to provide
Handel's with both a copy of the final lease for the
Gaslamp location or pay the franchise fee. Id. On
December 15, 2017, Handel's sent Defendants a notice of
breach, informing Defendants of their failure to provide the
executed lease to Handel's and to pay the required
franchise fee, as required under the Franchise Agreement.
ECF No. 3-2 at PageID#: 387. On December 26, 2017,
Defendants informed Handel's that they “agreed to
sign off on the locations but want to do so in person,
” thus, Defendants would look “at flights to
Cleveland in Jan week 1 and 2 [of 2018].” ECF No.
27-4 at PageID#: 972.
these representations, on January 30, 2018, Defendants filed
an action in California state court (the “California
action”). ECF No. 3-1 at PageID#: 324. Under
the California action, Defendants sought relief from
Handel's alleged violation of California franchise
law-Handel's allegedly presented and had Defendant
Schulenburg sign an unauthorized FDD that was not yet
approved by the California Department of Business
Oversight. See ECF No. 23-6. The California
action was removed to the United States District Court for
the Southern District of California, No. 3:18-CV-00513 GPC
initiated the instant action against Defendants on March 5,
2018 and contemporaneously sought a preliminary injunction.
ECF Nos. 1 and 3. The Verified Complaint
asserts claims for federal trademark infringement, federal
trademark dilution, federal false designation of origin,
unfair competition, breach of contract, misappropriation of
trade secrets, fraud, fraudulent concealment, conversion,
declaratory judgment, and tortious interference. ECF No.
1. Handel's seeks a preliminary injunction against
Defendants for the misappropriation of trade secrets and
breach of the parties' Franchise Agreement, which
includes a non-compete covenant. ECF No. 3.
Defendants assert that they continue to operate the Encinitas
Franchise under the terms of the Franchise Agreement, and
intend to operate the Gaslamp location independent of
Handel's. ECF No. 26 at PageID#: 860. Defendants
also assert that the Gaslamp location will be opened by June
8, 2018. Id. at PageID#: 867.
notice to the parties, the Court held a hearing on the motion
for preliminary injunction on May 9, 2018. ECF No.
19. Having been advised by a review of the record,
applicable law, and oral advocacy, including the presentation
of evidence, the Court grants Handel's motion for
preliminary injunction (ECF No. 3).
Law and Analysis
R. Civ. P. 65 requires the Court to balance four factors
when determining whether a preliminary injunction should
issue. The factors are: (1) likelihood of success on the
merits; (2) irreparable harm absent injunctive relief; (3)
substantial harm to others from the proposed injunction; and
(4) the broader public interest. Nat'l Credit Union
Admin. Bd. v. Jurcevic, 867 F.3d 616, 622 (6th Cir.
2017). These four considerations are “factors to be
balanced, not prerequisites that must be met.”
Certified Restoration Dry Cleaning Network, L.L.C. v.
Tenke Corp., 511 F.3d 535, 542 (6th Cir. 2007) (quoting
Jones v. City of Monroe, 341 F.3d 474, 476 (6th Cir.
2003), abrogated on other grounds by Anderson v. City of
Blue Ash, 798 F.3d 338 (6th Cir. 2015)). “The
district judge ‘is not required to make specific
findings concerning each of the four factors used in
determining a motion for preliminary injunction if fewer
factors are dispositive of the issue.'”
Id. “Although no one factor is controlling, a
finding that there is simply no likelihood of success on the
merits is usually fatal.” Gonzales v. Nat'l Bd.
of Med. Exam'rs, 225 F.3d 620, 625 (6th Cir. 2000).
balancing the four considerations applicable to preliminary
injunctions, the Court finds that equitable relief is
Likelihood of Success on the Merits
maintains that it is likely to succeed on the merits of the
action against Defendants for the breach of the Franchise
Agreement because Defendants misappropriated Handel's
trade secrets and violated the terms of the Agreement, which
included a non-compete covenant. ECF No. 3-1 at PageID#:
325-327. The Franchise Agreement is governed by Ohio
law. ECF No. 1-3 at PageID#: 266 (“This
Agreement will be construed in accordance with and governed
by the laws of the state of Ohio.”). Therefore, the
evaluation of the Franchise Agreement is guided by Ohio
Misappropriation of Trade Secrets
the Ohio Uniform Trade Secrets Act, Ohio Revised Code
§§ 1333.61-.69 (“UTSA”),
“[a]ctual or threatened misappropriation may be
enjoined.” O.R.C. § 1333.62(A). To
maintain its misappropriation claim, Handel's must
establish by a preponderance of the evidence: (1) the
existence of a trade secret; (2) the acquisition of a trade
secret as a result of a confidential relationship; and (3)
the unauthorized use of a trade secret. Heartland Home
Fin., Inc. v. Allied Home Mortg. Capital Corp., 258
Fed.Appx. 860, 861 (6th Cir. Jan. 7, 2008) (citing Hoover
Transp. Serv., Inc. v. Frye, 77 Fed.Appx. 776, 782 (6th
Cir. Sept. 12, 2003) (per curiam)). A trade secret is
“information” that “derives independent
economic value, actual or potential, from not being generally
known to, and not being readily ascertainable by proper means
by, other persons who can obtain economic value from its
disclosure or use” and is the subject of reasonable
efforts to maintain its secrecy. O.R.C. §
assert that Handel's has failed to adequately plead this
claim. In particular, Defendants argue that “Plaintiff
failed to identify with specificity the documents or specific
material it alleges contains confidential information that
was misappropriated.” ECF No. 26 at PageID#:
864. Defendants also contend that “even if the
Agreement is enforceable, and the parties identified specific
information as ‘trade secrets, '”
Plaintiff's allegations are insufficient “to prove
that its alleged trade secrets fall within the definition set
forth in Ohio Rev. Code Ann. § 1333.61(D).”
arguments are unavailing. Contrary to Defendants'
assertions, Handel's Verified Complaint alleges
significant information concerning its trade secrets. The
Complaint identifies Handel's “Confidential
Operations Manual.” ECF Nos. 1 at PageID#: 8-9,
¶¶ 32-33; 1-3 at PageID#: 254. The
Confidential Operations Manual “contains the
‘specifications, standards, and procedures' for
operating a Handel's franchise.” ECF Nos. 1 at
PageID#: 8-9, ¶¶ 32-33; 1-3 at PageID#:
254. The Franchise Agreement, attached to the Complaint,
further describes Handel's confidential information as
including the “total knowledge of [Handel's]
System, and construction, operation, and promotion” of
the Handel's franchise, something Defendants only became
aware of through their interactions with Handel's.
ECF No. 1 at PageID#: 8-9, ¶¶ 32-33. That
interaction included in-person training at Handel's
headquarters in Ohio. Id.; ECF No. 26-2 at
PageID#: 884, ¶ 4. The “System” that
Handel's seeks to protect is its system for the
establishment and operation of its business-information in
the Confidential Operations Manual, and information of its
“formulas, compilations, methods, techniques, and
processes, ” all exclusive to Handel's. ECF No.
1 at PageID#: 10, ¶ 37. The Franchise Agreement
requires that franchisees take steps to protect Handel's