Cleaning Auth., Inc. v. Neubert

739 F.Supp.2d 807

The CLEANING AUTHORITY, INC.

v.Joanna NEUBERT, et al.

The Cleaning Authority, Inc.

v.M. Scott Aldrich, Denise Aldrich, and Jane Does.

Civil Nos. JFM 10-CV-00203, JFM 09-CV-03447.

United States District Court, D. Maryland.

Sept. 7, 2010.

Gil A. Abramson, Jackson Lewis LLP, Allison J. Caplis, Hogan Lovells US LLP, Joseph Harrison Young, Marc A. Marinaccio, Hogan Lovells US LLP, Matthew T. Murnane, Venable LLP, Baltimore, MD, Myriam Pierre Warren, William Lowell Killion, Faegre and Benson LLP, Minneapolis, MN, for Plaintiffs.

Allan P. Hillman, Kern and Hillman LLC, Hamden, CT, Natalma M. McKnew, Smith Moore Leatherwood LLP, Greenville, SC, Joseph Benjamin Wolf, Linda S. Woolf, Goodell Devries Leech and Dann, Baltimore, MD, for Defendants.

MEMORANDUM

J. FREDERICK MOTZ, District Judge.

These actions arise from disputes surrounding franchise agreements. In the first action, Plaintiff The Cleaning Authority ("TCA") brings several claims against Defendants Joanna Neubert and Frederick Neubert (collectively the "Neuberts") and/or Defendant Ashley N. Vanhook ("Vanhook").¹ In the second action, TCA brings many of the same claims against Defendants M. Scott Aldrich and Denise Aldrich (collectively the "Aldriches") and/or Jane Does.² The second action was transferred to me for consolidation on May 20, 2010. Several motions are now pending. The Neuberts filed a motion to dismiss portions of Counts I and III (breach of contract and conversion of TCA goodwill).³ They have also filed counterclaims. The Aldriches moved to dismiss portions of Counts I and III (breach of contract and conversion of TCA goodwill).⁴ Vanhookfiled a motion to dismiss for lack of personal jurisdiction.⁵ TCA challenged Vanhook's motion to dismiss and also filed a motion for leave to conduct jurisdictional discovery. For the following reasons, Vanhook's motion to dismiss will be granted, and the Aldriches' and Neuberts' motions to dismiss will be denied.⁶

I. FACTS

TCA is a Maryland corporation with its principal place of business in Columbia, Maryland. (Amended Complaint at ¶ 1.) For more than ten years, TCA has franchised THE CLEANING AUTHORITY® residential home cleaning business throughout the United States. TCA offers a "business format franchise," meaning it offers an entire method of doing business, including methods, standards, and specifications that constitute THE CLEANING AUTHORITY® system of doing business (the "System"). ( Id. at ¶ 9.) TCA also licenses franchisees to use its registered trade name, trade dress, and service marks, as well as certain other designs, phrases, logos, etc. ( Id. at ¶ 10.) As of December 2009, there were 180 domestically franchised THE CLEANING AUTHORITY® businesses in the United States. ( Id. at ¶ 12.) The franchisees offer residential home cleaning services, using TCA's exclusive "Detail-Clean Rotation System." ( Id. at ¶ 13.) The franchisees also use special training materials, sales techniques, and personnel management and management control systems, including TCA's customized, proprietary business management software called "TCA.net." ( Id. at ¶ 14.) TCA.net "is a software system that guides franchisees in essentially all aspects of their franchise operations, including managing initial contracts with potential customers and identifying critical information about customers (name, address, cleaning service dates, rates)." ( Id. at ¶ 36.)

On December 16, 2004, TCA entered a written franchise agreement with the Neuberts ("Neubert Franchise Agreement"), granting them the right to open and operate a TCA cleaning business within a specified territory consisting of certain Zip Codes in South Carolina. (Amended Complaint at ¶ 15.) Contemporaneously with their execution of the Neubert Franchise Agreement, the Neuberts also executed a Mailer Services Agreement ("MSA") with TCA's affiliate, S & T Management, Inc. d/b/a TCA Advertising or TCA Supplies ("S & T"), to mail customers advertisements for the franchised business. The term of the MSA was co-terminous with the term of the Neubert Franchise Agreement. ( Id. at ¶ 16.) As part of the consideration for receiving the franchise opportunity from TCA, the Neuberts agreed to pay TCA a percentage of the gross revenue they generated as franchisees, as well as a national advertising fee. They also promised to comply with certain terms and conditions. ( Id. at ¶ 17.) These terms included a noncompete clause, steps to protect the goodwill and other interests of TCA, and a promise to protect TCA's confidential and proprietary information including customer information. ( Id. at ¶¶ 18-31.)

The Neuberts operated their franchised business from December 2004 through December 2009, using TCA Marks, System, trade secrets, propriety information, training, and support. (Amended Complaint at ¶ 32.) During this time, on June 10, 2005, the Neuberts hired Vanhook as a cleaner of customers' residences. She was promoted several times, to a trainer, then a quality inspector, and finally as the office manager. ( Id. at ¶¶ 34-35.) As manager of the Neubert's franchised business, Vanhook was responsible for the daily operations of the franchise and had access to virtually all information on TCA.net. She was also responsible for the hiring, supervision, and firing of employees. ( Id. at ¶ 36.) TCA alleges that Vanhook knew or should have known that the Neuberts were subject to the Neubert Franchise Agreement.

In December 2009, when the Neuberts had an active base of approximately 370 customers, they terminated the Neubert Franchise Agreement. ( Id. at ¶ 33.) Under the terms of the Neubert Franchise Agreement, however, the term was for ten years and they could only terminate early if TCA was in material breach of the Agreement and failed to cure the breach within thirty days after written notice by the Neuberts. ( Id. at ¶ 38.) The Neuberts provided less than three hours' prior notice that they were terminating the franchise, in an email sent December 18, 2009. ( Id. at ¶ 40.) TCA further alleges that after this early termination, the Neuberts helped Vanhook continue to operate an identical cleaning business at the same location as the franchise, retaining the same employees, and using the same confidential customer information. ( Id. at ¶ 41.) The Neuberts and Vanhook refused to return customer keys or provide TCA with customer information and intentionally concealed their course of conduct. ( Id. at ¶¶ 42-44.) They also allegedly conducted other similar and related conduct in violation of the Neubert Franchise Agreement. ( Id. at ¶¶ 45-48.) TCA attempted to refranchise the area but found doing so difficult because Vanhook was conducting virtually the same business and refused to cooperate with transitioning TCA customers to a new franchisee. ( Id. at ¶¶ 51-52.)

In the second suit, TCA alleges similar circumstances with regards to the Aldriches and Jane Does. On December 9, 2003, TCA and the Aldriches entered into a written franchise agreement ("Aldrich Franchise Agreement") similar to the Neubert Franchise Agreement but covering a different area in South Carolina. They also executed the MSA agreement with S & T. (Second Amended Complaint at ¶¶ 15-31.) The Aldrich Franchise Agreement was also for a ten year term, so the Aldriches could only terminate it prior to December 8, 2013 if TCA committed a material breach of the Agreement and failed to cure it within thirty days of receiving written notice of the breach. ( Id. at ¶¶ 36-37.)

On October 7, 2009, the Aldriches sent an email to TCA, requesting verification of all brochure mailings for their franchise for the weeks ending August 8, 2009, August 15, 2009, and August 29, 2009. Although S & T and TCA were not obligated to provide this information, they sent the Aldriches an email verification of the mailers (by total pallet weight) based on the United States Postal Service Plan-Verified Drop Shipment Verification and Clearance Form 8125. ( Id. at ¶ 40.) The Aldriches found this information insufficient and provided TCA with a purported Notice of Breach, asserting that TCA failed to provide "proof of mailing" and failed to disclose in a Uniform Offering Circular that TCA has supposedly received "vendor rebates" from S & T. ( Id. at ¶ 41.) On November 21, 2009, the Aldriches sent an email to TCA threatening to stop paying for mailings as of November 28, 2009. ( Id.¶ at 42.) TCA's counsel responded by denying the supposed breaches, attempting to address the Aldriches' concerns, and advising them to seek legal counsel. ( Id. at ¶ 43.) The Aldriches served TCA with a purported Notice of Termination on December 2, 2009, stating that the Aldriches were giving TCA ten days notice of termination. ( Id. at ¶ 44.) After some additional correspondence, TCA's counsel advised the Aldriches that TCA would discontinue services as of December 13, 2009 and would seek to enforce TCA's legal rights. ( Id. at ¶¶ 45-48.)

TCA alleges that after termination, the Aldriches advised and assisted Jane Does in continuing to operate an identical cleaning business, at the same location, with the same employees, and serving the same customers. ( Id. at ¶ 49.) It is further alleged that the Aldriches and Jane Does intentionally concealed this conduct from TCA and refused to cooperate, much like the Neuberts and Vanhook. ( Id. at ¶ 50-51.) They also electronically terminated over 300 TCA customers from TCA.net and continued to provide services to those customers. ( Id. at ¶¶ 52-57.) TCA further alleges that the Aldriches have failed to pay $4,561.08 in outstanding fees and costs. ( Id. at ¶ 59.) TCA claims it is the process of locating a new franchisee for the territory but that it will be difficult to do so while the Jane Does continue to compete for the business. The Aldriches have refused to identify the Jane Does. ( Id. at ¶¶ 62-63.)

II. VANHOOK'S MOTION TO DISMISS UNDER Fed. R. Civ. P. 12(b)(2)

A. Standard of Review

The plaintiff bears the burden of showing that...