Goddard Sys., Inc. v. Gondal, Civil Action No. 17-1003-CJB

GODDARD SYSTEMS, INC., Plaintiff, v. HINA GONDAL, BILAL GONDAL, and BHSG & CO., Defendants,andROBERT STELLA and THE GEM SCHOOL, INC., Intervenors.

Civil Action No. 17-1003-CJB

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE

March 29, 2018

Douglas E. McCann and Jeremy D. Anderson, FISH & RICHARDSON, P.C., Wilmington, Delaware; Dean T. Fournaris, John M. Doroghazi and Jacob A. Sand, WIGGIN AND DANA LLP, Philadelphia, Pennsylvania, Attorneys for Plaintiff.

Gary E. Junge, SCHMITTINGER & RODRIGUEZ, P.A., Newark, Delaware; Christopher P. Coval, FENNINGHAM, DEMPSTER & COVAL, LLP, Trevose, Pennsylvania, Attorneys for Defendants.

Melvyn I. Monzack and Michael C. Hochman, MONZACK MERSKY MCLAUGHLIN AND BROWDER, P.A., Wilmington, Delaware, Attorneys for Intervenors.

MEMORANDUM OPINION

March 29, 2018

Wilmington, Delaware

BURKE, United States Magistrate Judge

This case, which was filed by Plaintiff Goddard Systems, Inc. ("Plaintiff" or "GSI") against Defendants Hina Gondal, Bilal Gondal, and BHSG & Co. ("Defendants"), relates to a Franchise Agreement (the "FA" or "Franchise Agreement") previously entered into between Plaintiff and Defendants. Pursuant to that FA, Plaintiff granted Defendants a preschool franchise located in Middletown, Delaware (the "Middletown Goddard School"). In the instant action, Plaintiff, inter alia, alleges that Defendants have breached various terms of the FA.

Presently before the Court is Plaintiff's Motion for Preliminary Injunction ("the motion"). (D.I. 8) With that motion, Plaintiff seeks to enjoin Defendants and any other persons "in active concert or participation" with Defendants—including Intervenors Robert Stella and The Gem School, Inc. ("The Gem School," and together with Mr. Stella, "Intervenors")—from taking certain actions in the future. (D.I. 8-5) Having heard oral argument, having considered the considerable amount of briefing and evidence presented by the parties, (see, e.g., D.I. 8-2, D.I. 18, D.I. 20, D.I. 52, D.I. 53-55, D.I. 57-58), and for the reasons set forth below, the Court DENIES Plaintiff's motion.

I. BACKGROUND

A. The Parties

1. Parties to the Litigation

GSI is a Pennsylvania corporation with its principal place of business in King of Prussia, Pennsylvania. (D.I. 1 at 1 at ¶ 1) Mrs. Hina Gondal and Mr. Bilal Gondal (collectively, "the Gondals") are a married couple who are residents of Middletown, Delaware. (Id. at 1-2 at ¶¶ 2-3) BHSG & Co. ("BHSG") is a Delaware corporation with its principal place of business in Middletown, Delaware. (Id. at 2 at ¶ 4)

2. Non-Party Intervenors

As noted above, the motion includes a request for injunctive relief that specifically names not just Defendants, but also Mr. Stella and The Gem School. (D.I. 8-5) Mr. Stella is a resident of Delaware, and is a real estate developer. (D.I. 53, ex. A (hereinafter, "Tr.") at 94, 162-63) The Gem School is owned by Mr. Stella; it is located in Middletown, Delaware and is run out of the former location of the Middletown Goddard School. (D.I. 18-2, ex. 3, D.I. 40 at 1; Tr. at 129)¹

B. Procedural Background

Plaintiff filed a Complaint against Defendants in the United States District Court for the Eastern District of Pennsylvania on May 5, 2017. (D.I. 1) The Complaint contained nine counts, each brought against all three Defendants: (1) a claim of trademark infringement and unfair competition (Count I); (2) a breach of contract claim based on the violation of a post-term covenant not to compete in the FA (Count II); (3) a breach of contract claim based on the violation of the in-term covenant not to compete in the FA (together with the post-term covenant not to compete, the "covenants not to compete") (Count III); (4) a breach of contract claim based on the violation of a confidentiality provision (the "confidentiality provision") in the FA (Count IV); (5) a breach of contract claim based on the violation of various other provisions of the FA (Count V); (6) a breach of contract claim based on the premature and wrongful termination of the FA and associated lost future royalties (Count VI); (7) a breach of the covenant of good faith andfair dealing (Count VII); (8) a misappropriation of trade secrets claim (Count VIII); and (9) a claim for specific performance (Count IX). (D.I. 1 at 22-33 at ¶¶ 43-102)

On May 22, 2017, Plaintiff filed the instant motion, (D.I. 8), and briefing on the motion was complete on June 23, 2017, (D.I. 20). The initial round of briefing on the motion did not include Intervenors, as they had not yet moved to intervene in the case. (D.I. 8-2; D.I. 18; D.I. 20)

The case was subsequently transferred to the United States District Court for the District of Delaware on July 24, 2017, (D.I. 26), and was initially assigned to the Court thereafter. On September 1, 2017, Intervenors moved to intervene in this proceeding, and the Court granted that unopposed motion on September 8, 2017. (D.I. 40) On September 20, 2017, the parties filed a Notice, Consent, and Reference of a Civil Action to a Magistrate Judge, in which they consented to the Court conducting all proceedings in this case, including trial, the entry of final judgment and all post-trial proceedings. (D.I. 48) The District Court ordered that this consent was effective as of September 21, 2017. (D.I. 49)

The Court scheduled an evidentiary hearing on the motion, which was held on September 15, 2017. The parties and the Intervenors participated in the hearing. On September 19, 2017, the Court set a post-hearing briefing schedule—it called for Plaintiff to file a post-hearing opening brief, Defendants and Intervenors to separately file post-hearing answering briefs, and Plaintiff to file a post-hearing reply brief. Plaintiff filed a post-hearing opening brief on October 2, 2017, (D.I. 52), and Defendants and Intervenors each filed post-hearing answering briefs on October 11 and 12, 2017, respectively, (D.I. 53-54). Then, without leave of Court, on October 12, 2017, Plaintiff filed a supplemental post-hearing opening brief; that brief referencedadditional, new evidence purportedly supporting Plaintiff's motion—evidence relating to Intervenors' recent alleged use of Plaintiff's trademarks. (D.I. 55) Intervenors, also without leave of Court, then filed a response to that supplemental post-hearing opening brief on October 17, 2017. (D.I. 57) Lastly, Plaintiff filed its post-hearing reply brief on October 18, 2017, (D.I. 58), such that post-hearing briefing was completed on that date.

C. Facts Relevant to Resolution of the Motion

1. Goddard School Franchises, the Opening of the Middletown Goddard School and the Gondals' Agreements with GSI

GSI is the franchisor of THE GODDARD SCHOOL® businesses ("Goddard School(s)"), which specialize in offering to the public preschool early education programs for children. (D.I. 1 at 4 at ¶ 15) GSI enters into a business relationship with its franchisees, which enables each franchisee to operate one or more individual Goddard Schools. (Id. at 6 at ¶ 25) The business relationship between GSI and its franchisees is governed by the terms and conditions of a franchise agreement (like the FA, here). (Id.) As of the date of the filing of the instant motion, there were approximately 465 Goddard School franchisees nationwide, and four such schools operating in the State of Delaware. (D.I. 8-3 at ¶ 3)

In 2007, Mr. Gondal opened the Middletown Goddard School. (D.I. 18-1 at ¶ 2; Tr. at 170) Mr. Gondal's purchase of the franchise for the Middletown Goddard School is documented in the FA, which was executed by Mr. Gondal and GSI on July 11, 2007. (D.I. 1-1, ex. 1 at 1; D.I. 1 at 8 at ¶ 33) In December 2010, by way of an addendum to the FA, Mrs. Gondal "was added to the Franchise Agreement as a franchisee[.]" (D.I. 1 at 8 at ¶ 34; see also D.I. 1-1, ex. 2) The original term of the FA was 15 years. (D.I. 1-1, ex. 1 at ¶ 2(A))

The Gondals operated the school through several corporate entities. For example, in July 2013, the Gondals assigned their rights and obligations under the FA to BHSG, which was then owned and controlled by both Mr. Gondal and Mrs. Gondal. (D.I. 1 at 8 at ¶ 35; D.I. 1-1, ex. 3 at 1) Pursuant to that assignment agreement, the Gondals agreed to guarantee BHSG's performance "of its obligations under the Franchise Agreement and to continue to be bound by all of the provisions of the Franchise Agreement." (D.I. 1-1, ex. 3 at 1)

In January 2016, Mr. Gondal transferred all of his interests in BHSG to Mrs. Gondal, who, Plaintiff asserts, presently owns "all of the shares of BHSG." (D.I. 1 at 8 at ¶ 36; see also D.I. 8-3 at ¶ 24) At that time, "[Mr.] Gondal was removed from the Franchise Agreement and instead executed a Continuing Guaranty and Agreement to be Bound by Franchise Agreement . . . . and to personally guarantee BHSG's and [Mrs.] Gondal's full performance of all their duties and obligations under the Franchise Agreement." (D.I. 1 at 8-9 at ¶ 37; see also D.I. 1-1, ex. 4)

2. The School Building and Property

The Middletown Goddard School was located in a building at 100 Patriot Drive, Middletown, Delaware (the "school building"). Mr. Stella owned the property on which the school building sat, and he had constructed the school building in or around 2006 so that it could be leased to the Gondals for use as a Goddard School. (Tr. at 94-95, 170-71; D.I. 54, ex. C at 20; D.I 56, ex. 10 (July 2006 lease for the school building)) It was one of two buildings that Mr. Stella owned that housed Goddard Schools. (D.I. 54, ex. C at 27)

Mr. Stella (through a Delaware LLC known as VCII Ventures, LLC) entered into a lease agreement ("the lease agreement") with the Gondals (through a Pennsylvania corporation controlled by the Gondals known as Exquisite, Inc.), by which the Gondals leased the schoolbuilding. (D.I. 56, ex. 10; Tr. at 96-97) Under the terms of the lease, the Gondals had an option to purchase the building. (D.I. 56, ex. 10 at 19; Tr. at 96-97) According to Mr. Stella, this right to purchase was...