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JDS Group Ltd. v. M Supermarkets Franchising America, Inc.

United States District Court, W.D. New York

June 20, 2017

JDS GROUP LTD., Plaintiff,
v.
M SUPERMARKETS FRANCHISING AMERICA, INC., Defendant.

          DECISION AND ORDER

          MICHAEL A. TELESCA, UNITED STATES DISTRICT JUDGE

         I. Introduction

         Plaintiff JDS Group Ltd. (“JDS” or “plaintiff”) commenced the instant action on May 9, 2017, alleging that defendant M Supermarkets Franchising America, Inc. (“MSFA” or “defendant”) is violating the Washington State Franchise Investment Protection Act, Revised Code of Washington (“RCW”) §§ 19.100.010 et seq. (“FIPA”) and breaching the implied covenant of good faith and fair dealing by seeking to force JDS to install new operating software. Concurrently with the complaint, plaintiff filed a motion for a temporary restraining order and preliminary injunction (Docket No. 3) and a motion for an expedited hearing of its request for injunctive relief (Docket No. 2). The parties subsequently agreed to a briefing schedule, and defendant agreed to delay installation of the software until June 23, 2017. As a result, the Court finds that plaintiff's request for an expedited hearing is moot, and it is accordingly denied. For the reasons set forth below, plaintiff's request for a temporary restraining order and preliminary injunction is denied.

         II. Background

         The following facts are taken from the briefs, affidavits/declarations, and exhibits submitted by the parties.

         JDS is a Washington corporation with its principal place of business in Kent, Washington. It operates two franchises licensed by MSFA as retail vendors of m components used in various industries, pursuant to two franchise agreements. MSFA is a Canadian business entity with its principal place of business in Mississauga, Canada. This Court has diversity jurisdiction over the matter, and the franchise agreements contain a forum selection cause setting venue in this District.

         JDS has been a franchisee of MSFA for approximately 10 years, and operates two retail locations, one in Kent, Washington, and one in Portland, Oregon. JDS has used and continues to use a computer software platform known as “M Magic, ” which was provided to it by MSFA, in its stores. In 2012, MSFA determined that M Magic was outdated, inefficient, and unable to accommodate anticipated growth and functionality changes. As a result, MSFA undertook development of a new, modern software system. The development of this new software system, which is known as MetalTech, took three years and cost in excess of $1, 000, 000.

         MSFA began installation of MetalTech in 2015, starting first in stores that had not previously used M Magic, then in lower volume stores, then higher volume stores, and finally multi-unit franchised operations. Plaintiff maintains that MetalTech is unreliable and does not perform as required. Specifically, plaintiff contends that MetalTech is unable to generate accurate and reliable financial statements, readily calculate sales tax, “run more than a few checks at a time, ” reliably generate invoices, or effectively transfer materials between co-owned stores, and that MetalTech makes it more time-consuming to perform simple tasks than M Magic did. Plaintiff has submitted declarations from six other MSFA franchisees, all of whom report that they have encountered serious problems while using MetalTech that have negatively impacted their ability to do business. In opposition, defendant has produced evidence that 78 of 86 M Supermarket stores are currently using MetalTech, that no store has been forced to close as a result of the new software, and that, to the contrary, stores that have converted to MetalTech have, on average, seen a 7.4% increase in sales in the months following the conversion.

         In August 2016, plaintiff's then-counsel, purportedly acting on behalf of the “M Supermarkets Franchisee Association” (a now-inactive association of which plaintiff's co-owner was the registered agent), sent a letter to MSFA detailing concerns about MetalTech. As such, it is clear that plaintiff was on notice of the claimed issues with MetalTech at least by August 2016. Nevertheless, in January 2017, plaintiff executed new franchise agreements, which were negotiated by the same lawyer who sent the August 2016 letter. The new franchise agreements expressly provide that MSFA has the right to develop or designate computer software programs and accounting system software and require that plaintiff use them. Plaintiff maintains that it had “no choice” but to renew the franchise agreements, and that it expected that MSFA would not attempt to install MetalTech until it was functional.

         MSFA is seeking to install MetalTech in JDS' stores. Installation was originally scheduled to occur on May 14, 2017, but has been postponed and is now scheduled to begin on June 23, 2017. Plaintiff seeks a preliminary injunction preventing MSFA from installing MetalTech in its stores.

         III. Discussion

         “A preliminary injunction is an extraordinary remedy never awarded as of right.” Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 24(2008); see also Hanson Trust PLC v. ML SCM Acquisition, Inc., 781 F.2d 264, 273 (2d Cir. 1986)(a preliminary injunction is “one of the most drastic tools in the arsenal of judicial remedies”). “In order to obtain a preliminary injunction, a party must demonstrate: 1) that it is subject to irreparable harm; and 2) either a) that it will likely succeed on the merits or b) that there are sufficiently serious questions going to the merits of the case to make them a fair ground for litigation, and that a balancing of the hardships tips ‘decidedly' in favor of the moving party.” Genesee Brewing Co. v. Stroh Brewing Co., 124 F.3d 137, 142 (2d Cir. 1997).

         Here, JDS contends that it is likely to succeed on the merits of its claims for violation of the FIPA and that it will suffer irreparable harm to its business interests if forced to install ...


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