JTH Tax LLC v. Gause

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JTH TAX LLC, d/b/a LIBERTY TAX SERVICES, Plaintiff, v. CHARLES GAUSE, and GAUSE ENTERPRISES LLC, d/b/a MR. CHARLES TAX, d/b/a MR CHARLES TAX Defendants.

No. 3:21-CV-00543-FDW-DCK

United States District Court, W.D. North Carolina, Charlotte Division

April 25, 2023

ORDER

Frank D. Whitney United States District Judge.

THIS MATTER is before the Court following the filing of Plaintiff's Motion for Summary Judgment, filed on December 7, 2022. (Doc. No. 60). For the reasons set forth below, Plaintiff's Motion for Summary Judgment is GRANTED IN PART and DENIED IN PART, to the extent it seeks summary judgment against Defendant Charles Gause, and DENIED AS MOOT, to the extent it seeks summary judgment against Defendant Gause Enterprises LLC.

I. Background^[1]

Plaintiff JTH Tax LLC d/b/a Liberty Tax Services (“Plaintiff”) filed this action against Defendants Charles Gause (“Mr Gause”) and Gause Enterprises, LLC d/b/a Mr Charles Tax (“Gause Enterprises,” and collectively with Mr. Gause “Defendants”), asserting claims arising from two franchise agreements (collectively, the “Agreements”). (Doc. No. 1, p. 1).

Liberty Tax Service® (“Liberty”) provides professional income tax preparation and filing services to the public through its franchisees located across the United States. (Doc. No. 1, p. 3).

Plaintiff is a franchisor of Liberty service centers across the country, including North Carolina. (Id. at 3). As such, Plaintiff enters into franchise agreements with franchisees, who may then operate income tax preparation service centers in a specified geographic territory. (Id. at 3-4). Pursuant to these franchise agreements, franchisees can use Plaintiff's trademarks, service marks, logos, and derivations thereof, (the “Marks”), and they are given access to Liberty's propriety business methods, including the Operations Manual, methods of operating a franchise, customer information, and marketing information (“Confidential Information”). (Id. at 4).

Defendant Charles Gause formed Gause Enterprises in September 2013, and he serves as its sole member and manager. (Doc. No. 61-5, p. 8). On July 1, 2013, Mr. Gause entered into a franchise agreement with Plaintiff for NC256, a territory located in Charlotte, North Carolina (“NC256 Agreement”). (Doc. No. 61-2). Thereafter, Mr. Gause operated a Liberty office from 7808 S. Tryon Street, Charlotte, North Carolina (the “256 Office”). (Doc. No. 1, p. 4). He renewed the NC256 Agreement on March 28, 2019, for a term of five years. (Doc. No. 61-4).

Mr. Gause entered into a second franchise agreement with Plaintiff on November 10, 2016, for NC239 (“NC239 Agreement”), after which he began operating his second Liberty office from 5716 Wyalong Drive, Suite G, Charlotte, North Carolina (the “239 Office,” and collectively with the 256 Office, the “Franchise Offices”). (Doc. No. 61-3; Doc. No. 1, p. at 4-5). Upon signing the Agreements, Mr. Gause received a copy of Plaintiff's proprietary Operations Manual. (Doc. No. 1, p. 5; Doc. No. 26, p. 4). The terms of the Agreements established each signing party's rights and obligations, both during the franchise relationship and after the Agreement's termination. (See Docs. Nos. 61-2, 61-3, 61-4).

The relationship between the parties-which, pursuant to the NC256 Agreement was to last through March 2024, and through November 2019 under the NC239 Agreement-began to deteriorate in 2020. Defendant admits that in April or May of 2020, he decided to leave Liberty, (Doc. No. 61-5, p. 42), and that he “voluntarily left” Liberty in December 2020, (Id. at 58). Plaintiff sent Mr. Gause Notices, on September 8 and again on September 14, informing Mr. Gause of alleged breaches of the Agreements and instructing that he cure any identified breach (“Notices to Cure”). (Docs. Nos. 61-1, 61-7, 61-8). Though Defendant received both Notices to Cure, Mr. Gause failed to respond. (Doc. No. 26, p. 4-5). On March 3, 2021, Plaintiff informed Mr. Gause that it terminated the Agreements for Mr. Gause's failure to cure the identified breaches,

which include, but are not limited to, [his] failure to maintain hours specified in the Operations Manual, [his] failure to submit [his] Gross Receipt Report, [his] failure to operate [his] offices for three (3) business days during this tax season, [his] failure to open an office by January 2, 2021, and [his] failure to pay amounts owing to Liberty.

(Doc. No. 61-9, p. 1) (“Termination Letter”). This Termination Letter also reiterated Mr. Gause's post-termination obligations as outlined therein and in the Agreements. (Id. at 1).

In addition to Gause Enterprises, Mr. Gause is also the sole member and manager of his insurance agency, Gause & Associates. (Doc. No. 61-5, p. 8). Defendant testified that from December 2020-prior to the termination-through March 2021-after the termination-he operated Gause Enterprises from his Gause & Associates office, located at 9731-F Southern Pine Boulevard, Charlotte, North Carolina, 28273. (Id. at 9). During that time and through 2021, Defendant prepared and filed tax returns from that location. (Id. at 27; see also Docs. Nos. 61-13, 61-14). However, following this Court's adoption of the parties' Stipulation of Preliminary Injunction, (Doc. No. 43), Mr. Gause testified that he only filed tax returns from his home address, 7016 McLothian Lane, Huntersville, North Carolina 28078. (Doc. No. 61-5, p. 26). Plaintiff also asserts that Mr. Gause has failed to return the Operations Manual, customer lists, tax returns, files, and other related records (“Confidential Information”), as required, nor has he paid the amounts owed at the time of the termination-including outstanding franchise fees, advertising fees, and royalties. (Doc. No. 1, p. 10-11). Finally, on November 15, 2022, days after his deposition occurred on November 11, (Doc. No. 61-5, p. 1), Mr. Gause filed Articles of Dissolution with the North Carolina Secretary of State to dissolve Defendant Gause Enterprises LLC, listing the dissolution's effective date as November 9, 2022. (Doc. No. 61-15).

Plaintiff filed the Complaint in this action on October 13, 2021, alleging nine claims:

(I) Breach of the Franchise Agreement (Monetary Claim) (Against Gause);

(II) Breach of the Franchise Agreements (Equitable Claim) (Against Gause);

(III) Tortious Interference with Contract (Against Gause Enterprises);

(IV) Violation of Defend Trade Secrets Act of 2016 (“DTSA”) (Against Defendants);

(V) Common Law Conversion (Against Gause);

(VI) Unjust Enrichment/Restitution (Against Defendants);

(VII) Unfair Competition (Against Defendants);

(VIII) Request for Preliminary Injunction (Against Defendants); and

(IX) Request for Permanent Injunction (Against Defendants).

(Doc. No. 1). Plaintiff also filed a Motion for Temporary Restraining Order (“TRO”) and Preliminary Injunctive Relief. (Doc. No. 4). Although Plaintiff's Motion was initially denied, (see Doc. No. 8), the Court granted Plaintiff's Motion for Temporary Restraining Order on November 1, 2021. (See Doc. No. 12). On November 15, 2021, the Temporary Restraining Order expired, and on December 8, 2021, the parties filed their Stipulation of Preliminary Injunction. (Doc. No. 25). Then, on January 20, 2022, Defendants filed their Answer, (Doc. No. 26), raising two counterclaims for breach of contract and attorney's fees, and Plaintiff subsequently filed its Motion to Dismiss Defendants' Counterclaims. (Doc. No. 30). On August 15, 2022, this Court granted Plaintiff's Motion to Dismiss Defendants' Counterclaims and adopted the Stipulation of Preliminary Injunction, thereby resolving Count VII of Plaintiff's Complaint. (Doc. No. 43).

Up to this point, Defendants were represented by an attorney. However, on September 22, 2022, Defendants' attorney moved to withdraw. (Doc. No. 44). After initially denying this Motion, (Doc. No. 45), Magistrate Judge David Keesler granted Defendants' Second Motion to Withdraw on September 30, but he warned that Defendant Gause Enterprises would not be permitted to proceed without counsel and advising that Defendant Gause Enterprises promptly retain representation. (Doc. No. 48).^[2]

On December 7, 2022, Plaintiff filed a Motion for Default Judgment, (Doc. No. 58), which this Court construed instead as a Motion for Entry of Default. (Doc. No. 58). Defendants jointly filed a pro se Response on December 19, 2022, (Doc. No. 62), and Plaintiff filed its Reply on December 20, 2022, (Doc. No. 63). On March 3, 2023, this Court entered an Order denying Plaintiff's Motion for Default Judgment as against Mr. Gause. (Doc. No. 64, p. 4). However, the Court granted the Motion as to the corporate Defendant, because the Court found Gause Enterprises' repeated failure to comply with court Orders to retain counsel constituted its failure to “otherwise defend.” (Doc. No. 64, p. 3-4). Accordingly, the Clerk entered default against Gause Enterprises pursuant to Rule 55(a) of the Federal Rules of Civil Procedure. (Doc. No. 65).

Also on December 7, Plaintiff filed the instant Motion in the Alternative for Summary Judgment. (Doc. No. 60). Defendants filed their joint pro se Response on December 19 and Plaintiff filed its Reply on December 20. (Docs. Nos. 62, 63). Having entered default against Gause Enterprises, on March 3, the Court denied Plaintiff's Motion for Summary Judgment as moot against the corporate Defendant. (Doc. No. 64, p. 5). Turning to Mr. Gause, the Court entered a Roseboro Notice to inform him of his right to respond to Plaintiff's Motion for Summary Judgment. (Id. at 5-6). Thus, the Court continued the trial to the term beginning on May 1, 2023, to give Mr. Gause the opportunity to file an additional response. (Doc. No. 64, p. 6). The deadline for doing so has now passed, and Mr....