United States District Court, N.D. New York
DECISION and ORDER
LAWRENCE E. KAHN, District Judge.
This matter returns to the Court on Plaintiff H&R Block Tax Services, LLC's ("Plaintiff, " or "H&R Block") Motion for a temporary restraining order seeking to hold Defendant Judy Strauss ("Defendant") in contempt of the Court's Memorandum-Decision and Order dated February 4, 2015. Dkt. Nos. 20 ("February Order"); 24 ("Motion"). On March 12, 2015, the Court held a hearing on the Motion and reserved judgment, permitting the parties to file memoranda of law on the issues of contempt and damages. See Dkt. Nos. 29 ("Transcript"); 30. Accordingly, Plaintiff submitted a Memorandum of law, Defendant responded, and Plaintiff filed a Reply. Dkt. Nos. 31 ("Memorandum"); 34 ("Response"); 35 ("Reply"). For the following reasons, the Motion is granted and Plaintiff is awarded damages and attorneys' fees and costs in the amount of $32, 816.40.
The Court presumes the parties' familiarity with the facts and history of this case, and recites only those facts necessary to the resolution of the pending Motion. For a complete statement of Plaintiff's claims and the history of this case, reference is made to the Complaint and the February Order. Dkt. No. 1 ("Complaint"); Feb. Order.
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 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.
On January 26, 2015, Plaintiff filed a Motion for a temporary restraining order alleging that Defendant was in breach of the SFA. See Dkt. No. 5. The Court held a hearing and subsequently ordered, in relevant part, that Defendant "(1) refrain from directly or indirectly offering tax return preparation and related services in or within forty-five miles of Cobleskill, New York; [and] (2) refrain from solicitation of clients of the former H&R Block office in Cobleskill." Feb. Order at 12.
On March 3, 2015, Plaintiff filed the instant Motion alleging that Defendant was in contempt of the February Order by (1) preparing income taxes at a new location in Freehold, New York, which was less than forty-five miles from Cobleskill, New York; and (2) continuing to solicit clients in Cobleskill by advertising "tax services" on the sign outside of her Cobleskill office, running a newspaper advertisement indicating her services, and by receiving clients' materials in Cobleskill and then transporting them to Freehold to conduct the actual tax preparation. See Mot. At a subsequent hearing on March 12, 2015, Defendant (1) conceded that the Freehold office was within forty-five miles of Cobleskill, but asserted that she made a good faith effort to comply with the geographical restriction in the February Order; (2) conceded that she was preparing income tax services at her new location in Freehold; (3) asserted that the newspaper article had been prepared weeks before and she had no control over its publication; and (4) conceded that she had not removed or altered the sign in front of her Cobleskill office due to inclement weather, but agreed to do so immediately following the hearing. See Tr. at 9-11. Because the issue of damages had not been fully briefed, the Court reserved judgment on the Motion, and ordered the parties to brief the Court on the prevailing legal standards for contempt in a civil action and the basis for the damages sought. See id. at 13.
Plaintiff seeks to hold Defendant in contempt of the February Order and to impose the following sanctions: (1) a one-year equitable extension of the covenant against competition and solicitation as set forth in the SFA; (2) lost profits from the revenue generated by Defendant's preparation of income taxes during the contempt period; and (3) attorneys' fees in connection with the contempt proceedings. See generally Mot.
Before addressing the issue of damages, the Court must first consider whether Defendant is in contempt of the February Order. Contempt is appropriate when "(1) the order the contemnor failed to comply with is clear and unambiguous, (2) the proof of noncompliance is clear and convincing, and (3) the contemnor has not diligently attempted to comply in a reasonable manner." Paramedics Electromedicina Comercial, Ltda. v. GE Med. Sys. Info. Techs., Inc., 369 F.3d 645, 655 (2d Cir. 2004). Neither party has raised an issue with respect to the first element; thus, the Court considers only whether Plaintiff has met its burden in establishing the second and third elements.
1. Clear and Convincing Proof of Noncompliance
The February Order provided, in relevant part, that Defendant must "refrain from directly or indirectly offering tax return preparation and related services in or within forty-five miles of Cobleskill, New York; [and] (2) refrain from solicitation of clients of the former H&R Block office in Cobleskill." Feb. Order at 12. At the hearing, Defendant's counsel conceded that Defendant had established a new office in Freehold, where she was performing income tax services, and that the Freehold office was less than forty-five miles from the Cobleskill location. See Tr. at 9-10, 12. Moreover, Defendant did not dispute that clients were dropping off their income tax information at Defendant's Cobleskill office, and those materials were then transferred to Freehold where the actual tax preparation service was performed. See id. at 9-10. Finally, Defendant also did not dispute that the sign in front of her Cobleskill office continued to display "tax services" and that subsequent to the February Order, a newspaper article ran in Cobleskill indicating that Defendant offered tax services. Id. at 8-9.
Defendant responds that Plaintiff's Memorandum relies in large part on the Chow Affidavit, which is comprised of inadmissible hearsay and thus fails to demonstrate a violation of the February Order. See Resp. at 2-3. However, the Court finds it unnecessary to determine whether the Chow Affidavit is based on inadmissible hearsay because Defendant has failed to refute-or even address-her earlier concessions described supra. Therefore, Defendant's undisputed admissions that she continued to prepare income taxes in a location less than forty-five miles from Cobleskill, failed to remove the sign in front of her business advertising tax services, and took part in a newspaper advertisement that ran after the February Order was issued, are sufficient to support a finding that Plaintiff has provided clear and convincing evidence of Defendant's noncompliance.
Having found clear and convincing proof of Defendant's noncompliance, the Court next considers whether Defendant diligently attempted to comply in a reasonable manner with the February Order and thus should not be held in contempt. First, regarding the preparation of income taxes in Freehold, Defendant asserts that her efforts to comply with the geographic restriction were diligent because she selected the location "based upon the assurances of her landlord." Resp. at 4. Defendant further states that she "then learned, ...