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Auto Driveaway Franchise Systems, LLC v. Auto Driveaway Richmond, LLC

United States Court of Appeals, Seventh Circuit

June 28, 2019

Auto Driveaway Franchise Systems, LLC, Plaintiff-Appellee,
v.
Auto Driveaway Richmond, LLC, and InnovAuto USA, LLC, Defendants, and Jeffrey Corbett, Defendant-Appellant.

          Argued February 4, 2019

          Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 18 C 4971-Manish S. Shah, Judge.

          Before Wood, Chief Judge, and Easterbrook and St. Eve, Circuit Judges.

          WOOD, CHIEF JUDGE.

         This litigation presents a clash between a franchisor and a franchisee who may (or may not) have allowed their agreement to expire. Auto Driveaway Franchise Systems, LLC ("Auto Driveaway") is a franchisor for commercial vehicle transportation services; Jeffrey Corbett was one of its franchisees. Through his company, Auto Driveaway Richmond, LLC ("AD Richmond"), Corbett ran Auto Driveaway franchises in Richmond (Virginia), Nashville, and Cleveland. The arrangement was satisfactory for some time, but it went downhill after Auto Driveaway heard that Corbett was opening businesses that competed with Auto Driveaway behind its back. Adding insult to injury, Corbett was also allegedly using Auto Driveaway's name to lend legitimacy to the new ventures. Taking the position that Corbett's actions breached the non-compete clauses of the franchise contracts and misused Auto Driveaway's trademarks, Auto Driveaway brought this suit. The case has come to us on Corbett's appeal from a preliminary injunction the district court entered. See 28 U.S.C. § 1292(a)(1).

         Before considering that injunction directly, we must address several procedural problems that relate to our appellate jurisdiction and the form of the injunction. We conclude that our jurisdiction is secure, but that the district court must revisit both the form of the injunction and the amount of security it required.

         I

         Corbett's three business locations were governed by separate, but substantively identical, franchise agreements with Auto Driveaway. Corbett signed each one as the sole owner of AD Richmond. Each agreement included the following: a non-compete clause, a non-disclosure clause, and a five-year term set to expire in 2016. Those expiration dates came and went, but both parties initially continued dealing as though the agreements were still in place. Not until November 2017 did Auto Driveaway mail a letter to Corbett offering formally to renew the franchise contracts for another five years beginning February 2018. Corbett never responded to the letter; instead, he continued operating his franchises as before.

         Some time after the November 2017 letter, Auto Driveaway learned that Corbett had been taking actions in apparent violation of the franchise agreements. Corbett, it learned, was building an app to compete against the app it had hired Corbett to build for itself. Auto Driveaway also suspected that Corbett was using Auto Driveaway's proprietary work product as a starting point. To make matters worse, Corbett was set to launch his own app through a new company, Inn-ovAuto, that also provided auto transportation services, in direct competition with Auto Driveaway. Auto Driveaway quickly filed this lawsuit seeking to stop Corbett, InnovAuto, and sales or use of the app. One month later it formally terminated its relationship with Corbett and AD Richmond.

         In his initial answer to the complaint, Corbett admitted that the franchise terms under his agreement with Auto Driveaway were extended on a month-to-month basis after they expired in 2016. He attempted to walk back that admission later in an amendment to his answer; the new version took the position that the franchise agreements expired and that the November 2017 letter from Auto Driveaway was a unilateral offer that Corbett never accepted.

         Several months later, Auto Driveaway discovered that Corbett had another competitive auto transport business, Tactical Fleet. Though Tactical Fleet was not named in the original complaint, Auto Driveaway asked the district court for a preliminary injunction to stop Corbett from operating that company as well as InnovAuto and the app. After a brief hearing, the district court issued an order granting Auto Driveaway's motion, based on evidence that Corbett was harming consumer goodwill toward Auto Driveaway and was taking Auto Driveaway customers through his competing businesses. In broad strokes, the order states that Corbett may not engage in any conduct that might violate the non-compete clause of the franchise agreement. The court required Auto Driveaway to post a $10, 000 bond as security for the injunction; it did so.

         II

         Before we can address the propriety of the injunction, we must ensure that it is properly before this court and free of procedural defects. There are potentially three problems with this injunction: its timeliness, its scope, and its specificity. We review each d ...


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