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H&R Block Tax Services, LLC v. Strauss

United States District Court, N.D. New York

February 4, 2015

H&R BLOCK TAX SERVICES, LLC, Plaintiff,
v.
JUDY STRAUSS, Defendant.

MEMORANDUM-DECISION and ORDER

LAWRENCE E. KAHN, District Judge.

I. INTRODUCTION

Plaintiff H&R Block Tax Services, LLC ("Plaintiff, " or "H&R Block") commenced this breach of contract action against Defendant Judy Strauss ("Defendant"). Dkt. No. 1 ("Complaint"). On January 26, 2015, Plaintiff filed a Motion for a preliminary injunction and temporary restraining order. Dkt. No. 5 ("Motion"). The Court held a hearing on the Motion on January 29, 2015. See Dkt. No. 12. Subsequently, Defendant filed a Response in opposition to the Motion. Dkt. No. 17 ("Response"). For the following reasons, the Motion is granted.

II. BACKGROUND

Plaintiff is engaged "in the business of licensing others to operate tax return preparation offices under the H&R Block service mark." Compl. ¶ 5. In September 1984, Defendant entered into a Satellite Franchise Agreement (the "SFA") with Plaintiff's predecessor-in-interest[1] to enable Defendant to operate a tax return preparation office in Cobleskill, New York under the H&R Block service mark. Id . ¶ 1. The SFA automatically renewed every five years, and the parties continued their contractual relationship until 2014. See id. ¶ 2; see also Dkt. No. 1-1 ("Exhibit 1") ¶ 4. Prior to the expiration of the most recent five-year term, Plaintiff informed Defendant that it would not be renewing the 1984 version of the SFA; instead, Plaintiff offered Defendant a "current form" of the franchise agreement. Compl. ¶ 2. Defendant declined to renew the SFA in its current form, and the franchise relationship expired on September 1, 2014. Id . ¶¶ 2, 12.

At issue are certain provisions in the SFA that are set to take effect upon termination of the agreement: (1) that Defendant will neither solicit clients to whom her franchise provided tax return preparation services, nor compete with Plaintiff in the business of preparing tax returns, for a period of one year and within forty-five miles of Cobleskill, NY; (2) that Defendant will assign Plaintiff the telephone number(s) used in connection with her franchised business; and (3) that Defendant will not lease the premises used for her franchised business to a party (other than Plaintiff or an approved transferee) for the purpose of preparing tax returns. Id . ¶ 9; Ex. 1 ¶¶ 12, 14. The SFA also provides that Defendant must require any person in her employ for the purpose of tax preparation services to agree to the same covenants against competition. Compl. ¶ 10; Ex. 1 ¶ 12.

Plaintiff alleges that since the SFA expired in September 2014, Defendant "has continued to operate a tax return preparation business at her formerly franchised location under the name J. STRAUSS & ASSOCIATES, and has posted a sign on her office reading, J. STRAUSS & ASSOCIATES BOOKKEPING & TAX SERVICE.'" Compl. ¶ 14. Plaintiff further alleges that "the telephone number listed to H&R BLOCK in Cobleskill continues to ring in [Defendant's] non-H&R BLOCK tax return preparation office." Id . Finally, Plaintiff claims that Defendant "admitted that she had agreed to lease office space to two tax professionals whom she had previously employed at her H&R BLOCK franchised office and that those individuals... continue to perform tax return preparation services for clients in the area at her formerly franchised location." Id . ¶ 15.

III. DISCUSSION

In the Motion, Plaintiff seeks to preliminarily enjoin Defendant from: (1) "directly or indirectly offering tax return preparation services in or within 45 miles of Cobleskill, New York"; (2) "soliciting clients of her former H&R BLOCK franchise"; and (3) "continuing to use, and refusing to assign to [Plaintiff], the telephone number listed under the name H&R BLOCK in Cobleskill." Dkt. No. 5-1 ("Memorandum") at 1.

Whether to grant or deny a preliminary injunction lies within the sound discretion of the district court. S.C. Johnson & Son, Inc. v. Clorox Co., 241 F.3d 232, 237 (2d Cir. 2001); CJ Prods. LLC v. Snuggly Plushez LLC, 809 F.Supp.2d 127, 140 (E.D.N.Y. 2011). A plaintiff seeking a preliminary injunction must establish that: (1) "he is likely to succeed on the merits" of his claim; (2) "he is likely to suffer irreparable harm in the absence of preliminary relief"; (3) "the balance of equities tips in his favor"; and (4) "an injunction is in the public interest."[2] Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008). Even if a plaintiff has not demonstrated a likelihood of success on the merits, a preliminary injunction may still be granted if the plaintiff shows "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." Metro. Taxicab Bd. of Trade v. City of New York, 615 F.3d 152, 156 (2d Cir. 2010). This alternative "permits a district court to grant a preliminary injunction in situations where it cannot determine with certainty that the moving party is more likely than not to prevail on the merits of the underlying claims, but where the costs outweigh the benefits of not granting the injunction." Citigroup Global Mkts., Inc. v. VCG Special Opportunities Master Fund Ltd., 598 F.3d 30, 35 (2d Cir. 2010).

The SFA contains a choice-of-law provision, which states that it shall be governed by Missouri law. Ex. 1 ¶ 25. "New York courts will generally enforce a choice-of-law clause so long as the chosen law bears a reasonable relationship to the parties or the transaction.'" Ergowerx Int'l, LLC v. Maxell Corp. of Am., 18 F.Supp. 3d 430, 439 n.5 (S.D.N.Y. 2014) (citation omitted). Plaintiff is a Missouri corporation, Compl. ¶ 5, and the SFA indicates that Plaintiff's principal office is also located in Missouri, Ex. 1 ¶ 29. Accordingly, the Court will address the relevant SFA provisions under Missouri law. However, as discussed infra, the Court notes that it would reach the same result under New York law as well.

A. Likelihood of Success on the Merits

Defendant does not contest that she has continued to conduct tax preparation services, directly and through her employees, at her former franchised location since the SFA expired. See generally Resp. Moreover, subsequent to the hearing, Defendant informed the Court that she consents to transfer the business telephone number to Plaintiff. See Dkt. No. 15 ("Strauss Affidavit") ¶ 16 ("I respectfully inform the Court that I consent to a transfer of the phone number at my office to the new H&R Block office."). However, Defendant challenges Plaintiff's likelihood of success on the merits on two grounds. First, Defendant argues that Plaintiff is in breach of the SFA because the agreement permits Plaintiff to decline to ...


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