In H&R Block Tax Svcs., LLC v. Juan Cardenas, Jr., the U.S. District Court for the Western District of Missouri granted H&R Block’s motion for temporary restraining order and preliminary injunction. H&R Block Tax Scvs., LLC v. Cardenas, 2020 WL 1031033, at *1 (W.D. Mo. March 3, 2020).
Juan Cardenas, Jr. (“Cardenas”) owned and operated an H&R Block franchise. See Cardenas, 2020 WL 1031033, at *1-2. As a franchisee, Cardenas entered a Franchise License Agreement (“FLA”) with H&R Block. Id. at *1. The FLA contained restrictive covenants prohibiting Cardenas from competing with or soliciting customers from H&R Block for a period of two years after the termination of the FLA. Id. at *2. The geographic area of the noncompetition provision was limited to Cardenas’ former franchise territory and an area within 25 miles of the territory. Id.
On October 9, 2019, Cardenas’ FLA was terminated. Cardenas, 2020 WL 1031033, at *3. The uncontroverted evidence presented in H&R Block’s Verified Complaint demonstrated Cardenas failed to turn over H&R Block assets and continued to operate a competing tax business at the former H&R Block franchise office. Id. at *3. Cardenas agreed in the FLA that a breach of the noncompetition and nonsolicitation covenants would cause irreparable injury to H&R Block such that temporary and permanent injunctive relief would be appropriate. Id.
H&R Block Showed It Was Entitled To The Requested Injunctive Relief
The Court analyzed whether H&R Block was entitled to the requested relief through considering the four factors used when determining whether a temporary restraining order should issue: (1) the probability that the movant will succeed on the merits; (2) the threat of irreparable harm to the movant; (3) the state of the balance between this harm and the injury that granting the injunction will inflict on other parties; and (4) the public interest. Cardenas, 2020 WL 1031033, at *1 (citations omitted). The Court noted that “[n]o single factor in itself is dispositive; in each case all of the factors must be considered to determine whether on balance they weigh towards granting the injunction.” Id. (quoting Baker Elec. Coop., Inc. v. Chaske, 28 F.3d 1466, 1472 (8th Cir. 1994)).
First, the Court held H&R Block was likely to succeed on the merits of its claims against Cardenas. Cardenas, 2020 WL 1031033, at *2. In making this determination, the Court analyzed two items: (1) whether the FLA and its covenants were enforceable; and (2) whether Cardenas breached the covenants. Id. at *2-3. The Court held the FLA and its covenants were enforceable because the FLA protected interests Missouri recognizes as legitimate and protectable as a matter of law, including but not limited to H&R Block’s investment in the parties’ transactions; H&R Block’s established brand, goodwill, and confidential business information; and H&R Block’s interest in preventing Cardenas from unfairly using such assets to compete with H&R Block. Id. at *2. The Court also determined the covenants in this case were lawfully narrowly tailored as to time (2 years) and geographic reach (within 25 miles of the defendant’s former franchise territories). Id. The Court applied Missouri law to determine that restrictive covenants restricting conduct for 2 years, within a 25-mile radius, was appropriate and lawful. Id.
Second, the Court held H&R Block will suffer immediate and irreparable injury if immediate injunctive relief is not granted. Cardenas, 2020 WL 1031033, at *3. The Court reasoned that if it did not intervene immediately to enjoin the defendant’s conduct, then H&R Block will continue to sustain irreparable damage in the form of lost clients and goodwill. Id. The Court also noted the defendant was competing against H&R Block for its clients in close proximity to the location of the defendant’s former franchise location and other H&R Block offices. Id. For these reasons, the Court held immediate injunctive relief was necessary. Id.
Third, the Court held the injury to H&R Block’s relationships with its clients and injury to its business and assets outweighs any potential harm that the proposed relief may cause Cardenas. Cardenas, 2020 WL 1031033, at *4. The Court noted any harm to Cardenas was “self-inflicted” and the restraints placed on the defendant were not greater than those to which the defendant already agreed. Id. Accordingly, the Court granted H&R Block immediate injunctive relief, in part, because of the injury to H&R Block’s business. Id.
Fourth, the Court held the public interest also favors H&R Block because Missouri courts have held the enforcement of restrictive covenants serves the public interest. Cardenas, 2020 WL 1031033, at *4 (citations omitted). The Court also reasoned that the public interest is furthered by preserving the enforceability of contractual relationships, such as the one at issue here. Id.
Federal courts in Missouri will not hesitate to enforce restrictive covenants against defendants so long as the restrictive covenants are properly narrowly tailored and protect a business’s legitimate protectable interests. Further, courts in Missouri will grant emergency injunctive relief to enforce such restrictive covenants so long as such restrictive covenants protect the company’s legitimate interests and are narrowly tailored temporally and geographically.
If you have a question regarding the enforceability of restrictive covenants in Missouri, do not hesitate to contact the attorneys with the Dolley Law, LLC for a confidential consultation.