Powerlift Door Consultants, Inc. v. Shepard

Powerlift Door Consultants, Inc., a South Dakota corporation, Plaintiff, v. Lynn Shepard, an individual, et al., Defendants.

Case No. 21-cv-1316 (WMW/ECW)

UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA

July 12, 2021

ORDER

This matter is before the Court on Plaintiff Powerlift Door Consultants, Inc.'s (Powerlift's) motion for a temporary restraining order, preliminary injunctive relief and expedited discovery against Defendants Lynn Shepard, Rearden Steel Manufacturing LLC, Rearden Steel Inc. and ABC Corporation. (Dkt. 6.) For the reasons addressed below, Powerlift's motion is granted in part and denied in part.

BACKGROUND

Powerlift is a South Dakota corporation operating in the hydraulic-lift-door industry and owns associated trademarks. Shepard is the owner and operator of Rearden Steel Manufacturing LLC (Rearden), a Powerlift licensee.¹ Rearden operates under the business name Powerlift Hydraulic Doors of Florida and is located in Fort Pierce, Florida. In 2014, Shepard, on behalf of Rearden, entered into a distribution agreement with Powerlift(Distribution Agreement). Powerlift alleges that on April 23, 2021, Shepard sent an ephemeral, self-destructing email to at least 12 Powerlift licensees across the United States, seeking support for a plan to fix what Shepard considers to be corporate- and product-related issues with Powerlift. Among other "Demands," Shepard's email expresses a desire to change Powerlift's corporate structure from a licensee-based to a franchise-based system.

Powerlift commenced this breach-of-contract and trademark-infringement action against Defendants on June 1, 2021. Powerlift's complaint alleges that Defendants breached the parties' 2014 Distribution Agreement and that Defendants are improperly using Powerlift's trademarks and confidential information. Powerlift brings 10 claims for relief. Powerlift's first and second claims seek a declaratory judgment under federal and state law. See 28 U.S.C. § 2201; Minn. Stat. §§ 555 et seq. Powerlift's third claim for relief alleges that Defendants breached the Distribution Agreement. Powerlift's fourth claim alleges that Defendants are misappropriating trade secrets, in violation of the Defend Trade Secrets Act, 18 U.S.C. §§ 1836 et seq. Powerlift's fifth claim alleges that Defendants are violating the Minnesota Uniform Trade Secrets Act (MUTSA), Minn. Stat. §§ 325C.01(a) et seq. Powerlift's sixth claim alleges that Defendants are engaging in unfair competition, in violation of 15 U.S.C. § 1125(a), by using Powerlift's trademarks to sell hydraulic lift doors. Powerlift's seventh claim alleges that Defendants are falsely advertising that they are affiliated with Powerlift, in violation of 15 U.S.C. § 1125(a). Powerlift's eighth claim alleges that Defendants are engaging in trademark infringement,in violation of 15 U.S.C. § 1114(1), by continuing to use Powerlift's trademarks. Powerlift's ninth claim alleges that Defendants are engaging in trademark infringement in violation of Minnesota law, see Minn. Stat. § 333.28, by improperly using Powerlift's trademarks in a way that is likely to deceive the public as to the nature of Defendants' and Powerlift's relationship. Finally, Powerlift's tenth claim alleges that Defendants are engaging in trademark dilution, in violation of Minn. Stat. § 333.285, by using Powerlift's trademarks in the advertising and sale of products.

Powerlift moves for a temporary restraining order, preliminary injunctive relief and expedited discovery. Powerlift seeks to enjoin Defendants from using Powerlift's trademarks and confidential information and to enforce the terms of the parties' Distribution Agreement, including its non-competition provisions.

ANALYSIS

Federal Rule of Civil Procedure 65 authorizes a district court to grant injunctive relief in the form of a preliminary injunction or temporary restraining order. When determining whether preliminary injunctive relief is warranted, a district court considers the four Dataphase factors: (1) the probability that the movant will succeed on the merits, (2) the threat of irreparable harm to the movant, (3) the balance between this harm and the injury that an injunction would inflict on other parties, and (4) the public interest. Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 114 (8th Cir. 1981). "A preliminary injunction is an extraordinary remedy," and the party seeking injunctive relief bears the burden of establishing that each factor favors granting such relief. Roudachevski v. All-Am. Care Ctrs., Inc., 648 F.3d 701, 705 (8th Cir. 2011). The core question in this analysis "is whether the balance of equities so favors the movant that justice requires the court to intervene to preserve the status quo until the merits are determined." Dataphase, 640 F.2d at 113.

Powerlift moves for both a temporary restraining order and preliminary injunctive relief. The legal standards for a temporary restraining order and a preliminary injunction are the same. See S.B. McLaughlin & Co. v. Tudor Oaks Condo. Project, 877 F.2d 707, 708 (8th Cir. 1989); Wachovia Sec., L.L.C. v. Stanton, 571 F. Supp. 2d 1014, 1031 (N.D. Iowa 2008) ("As this court has explained in past cases, it is well-settled in this circuit that applications for preliminary injunctions and temporary restraining orders are generally measured against the same factors, which were set forth in the seminal decision in Dataphase . . . ."). A court "may issue a preliminary injunction only on notice to the adverse party." Fed. R. Civ. P. 65(a)(1). Defendants filed a response and were heard at the June 16, 2021 hearing. Accordingly, this Court will consider whether a preliminary injunction is warranted.

I. Likelihood of Success on the Merits

In deciding whether to grant a preliminary injunction, the "likelihood of success on the merits is most significant." S & M Constructors, Inc. v. Foley Co., 959 F.2d 97, 98 (8th Cir. 1992). The moving party need not "prove a greater than fifty per cent likelihood that [it] will prevail on the merits," Dataphase, 640 F.2d at 113, rather the moving party must demonstrate a "fair chance of prevailing," Paisley Park Enters. v. Boxill, 253 F. Supp.3d 1037, 1043 (D. Minn. 2017) (internal quotations marks omitted). Here, Powerlift contends that it is likely to succeed on the merits of its breach-of-contract and trademark claims. Powerlift's likelihood of success as to each claim is addressed in turn.

A. Breach-of-Contract Claim

The Court first considers whether Powerlift has a likelihood of success on the merits of its breach-of-contract claim.

"Under Minnesota law, a breach-of-contract claim has four elements: (1) formation of a contract; (2) performance by plaintiff of any conditions precedent; (3) a material breach of the contract by defendant; and (4) damages." Nelson v. Am. Fam. Mut. Ins. Co., 899 F.3d 475, 480 (8th Cir. 2018). Defendants argue that (1) Powerlift did not validly terminate the Distribution Agreement, and (2) the Distribution Agreement's non-competition clause is unenforceable. Powerlift disagrees.

1. Termination

As an initial matter, Defendants maintain that Powerlift lacked grounds for terminating the Distribution Agreement and, because all of Powerlift's claims are premised on a valid termination of the Distribution Agreement, all of Powerlift's claims fail. Powerlift counters that it properly terminated the Distribution Agreement. Specifically, Powerlift argues that it terminated the Distribution Agreement because Defendants voluntarily abandoned it. Powerlift also argues that it properly terminated the Distribution Agreement because some of Defendants' statements in the April 23, 2021 email violated Article 3.A. of the Distribution Agreement. Finally, Powerlift argues that it had the rightto terminate the Distribution Agreement after providing 30 days' notice under Articles 11.B.1. and 11.C. for Defendants' failure to follow the terms of the Distribution Agreement.

Powerlift first contends that Defendants abandoned or repudiated the Distribution Agreement. Defendants disagree. The parties cite no legal authority to support their respective positions.

"It is basic hornbook law that an unconditional repudiation of a contract, either by words or acts, which is communicated to the other party prior to the time fixed by the contract for his [or her] performance constitutes an anticipatory breach." In re Haugen, 278 N.W.2d 75, 79 n.6 (Minn. 1979) (addressing repudiation in real estate context). "A repudiation by one party to a contract if acquiesced in by the other party is tantamount to a recission." Desnick v. Mast, 249 N.W.2d 878, 884 (Minn. 1976). "Whether a contract has been rescinded by mutual consent is a question for the trier of fact, but mutual abandonment, cancellation or recission must be clearly expressed, and acts and conduct of the parties to be sufficient must be positive, unequivocal, and inconsistent with the existence of the contract." Id. Contractual intent is based on objective manifestation of words and acts, not subjective intent. Minn. Ltd., Inc. v. Public Utils. Comm'n of Hibbing, 208 N.W.2d 284, 287 (Minn. 1973).

Here, Shepard's April 23, 2021 email expresses discontent with various aspects of Powerlift's products and Powerlift's corporate management. And Shepard's April 23, 2021 email provides that the Distribution Agreements "are [n]ull and [v]oid." Shepard'semail does not constitute a repudiation of the Distribution Agreement for at least two reasons, however. First, Shepard did not communicate this alleged repudiation to Powerlift. See Haugen, 278 N.W.2d at 79 n.6 (describing repudiation as "communicated to the other party" to the contract). Second, the "[n]ull and [v]oid" language appears under the section of the April 23, 2021 email titled "Demands to Rectify." It appears, therefore, that Shepard sought support from other licensees in renegotiating the terms of the Distribution Agreements. But this solicitation does not clearly and...