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

United States District Court, N.D. Illinois, Eastern Division

July 23, 2019

Auto Driveaway Franchise Systems, LLC, Plaintiff/Counter-Defendant,
v.
Auto Driveaway Richmond, LLC, Jeffrey Corbett, et al., Defendants/Counter-Plaintiffs.

          MEMORANDUM OPINION AND ORDER

          Manish S. Shah United States District Judge.

         Plaintiff Auto Driveaway Franchise Systems, LLC, and defendants Jeffrey Corbett and Auto Driveaway Richmond, LLC, entered into franchise agreements that granted Corbett and AD Richmond a limited right to use some of Auto Driveaway's intellectual property. Auto Driveaway alleges that Corbett and AD Richmond continued those agreements on a month-to-month basis after they expired. If true, defendants' more recent conduct might have violated the agreements' two-year non-compete provisions. Defendant Tactical Fleet-a new corporation formed in the wake of AD Richmond's separation from Auto Driveaway-says it does not belong in this court at all. All defendants move to dismiss eight counts in the First Amended Complaint for failure to state a claim, and Tactical Fleet moves to dismiss all of the counts against it for lack of personal jurisdiction.

         I. Legal Standards

         A complaint must contain a short and plain statement that plausibly suggests a right to relief. Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009); Fed.R.Civ.P. 8(a)(2). In ruling on a motion to dismiss, although a court must accept all factual allegations as true and draw all reasonable inferences in the plaintiffs' favor, the court need not do the same for legal conclusions or “threadbare recitals” supported by only “conclusory statements.” Ashcroft, 556 U.S. at 678, 80-82. The plaintiff must provide “more than labels” or “a formulaic recitation of a cause of action's elements, ” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007), and the complaint must “contain either direct or inferential allegations respecting all the material elements necessary to sustain recovery under some viable legal theory.” Id. at 562.

         II. Facts

         Auto Driveaway provides vehicle transportation and shipping management services via franchised locations across the United States. See [86-2] at 8.[1] AD Richmond and Corbett contracted to operate three such franchises, [86-2]; [86-3]; [86-4], and, toward that end, signed franchise agreements that granted AD Richmond a limited right to use some of Auto Driveaway's intellectual property. See, e.g., [86-3] §§ 2.1, 6. Corbett signed as guarantor. See, e.g., [86-3] at 61.

         Each agreement contained a provision stating that the “initial term” of the agreement “shall be three (3) years from the Effective Date, ” see, e.g., [86-3] § 5.1, and that AD Richmond could “renew this Franchise for three (3) additional terms of five (5) years, ” provided certain conditions were satisfied (e.g., AD Richmond provided written notice and executed a new franchise agreement). See, e.g., [86-3] § 5.2. The Nashville Agreement had the latest effective Dated: February 1, 2013. [86-3] at 8.

         Two of the agreements stated a five-year date range on their first page. [86-2] at 2; [86-3] at 2. For instance, the dates, “February 1, 2013 - January 31, 2018” appear on the first page of the Nashville Agreement in bold font, alongside a logo, the title, “FRANCHISE AGREEMENT between AUTO DRIVEAWAY FRANCHISE SYSTEMS, LLC and Auto Driveaway Richmond, LLC, ” and the words, “Nashville, TN CBSA” (all in bold font as well). [86-3] at 2. The First Amended Complaint alleges that all three agreements had five-year terms because all three offices (Richmond, Nashville and Cleveland) were pre-existing offices. See [86] ¶¶ 36, 38, 40.

         The agreements also each contained integration clauses and covenants not to compete. See, e.g., [86-3] §§ 12.2, 12.3, 19.4. According to the covenants, upon each agreement's termination, AD Richmond and all “Bound Parties” were precluded from “engag[ing], directly or indirectly, as an owner, operator, or in any managerial capacity, in any Competitive Business, at or within a fifty (50) mile radius of the former Franchised Territory or any other Territory with an Auto Driveaway Office.” See, e.g., [86-3] § 12.3. The agreements define “Bound Parties” to include all members of AD Richmond, see, e.g., [86-3] § 12.1; [86] ¶ 2 (Corbett is allegedly AD Richmond's sole member), and define “Competitive Business” to mean “operating ‘for-hire' motor carrier businesses operating as either a common carrier or a contract carrier or any business which operates … a business that provides similar services and/or products as those offered by” Auto Driveaway. See, e.g., [86-3] § 1.

         AD Richmond and Auto Driveaway did not exchange written renewals at the end of the agreements' initial terms. [86] ¶¶ 47, 48. Nonetheless, Auto Driveaway says that AD Richmond and Corbett “extended the terms of the Franchise Agreements by agreement and continued their franchisor/franchisee relationship pursuant to” the terms of the original agreements, and that they did so on a month-to-month basis by acting as though the agreements had not expired. Id. ¶¶ 48, 49. To support this theory, Auto Driveaway alleges conduct that it says created an implied-in-fact agreement. For instance, it alleges that Corbett started an association for franchise business owners in January 2018, id. ¶ 50, and, as late as that August, was still telling others that he was operating under a month-to-month franchise agreement. [86] ¶ 53. In June 2018, while negotiating a non-disclosure agreement, AD Richmond and Corbett allegedly wrote that each of the franchise agreements “expired on January 31, 2018” and was “being continued on a month-to-month basis pending the finalization of a mutually acceptable First Renewal Franchise Agreement.” [86] ¶ 52; [111] at 2. And up through September 29, 2018, AD Richmond allegedly presented itself as a franchisee, made payments to Auto Driveaway for annual franchise fees and monthly royalty fees, booked, moved, and stored Auto Driveaway's customers' vehicles, and used Auto Driveaway's licenses, insurance, intellectual property, operations manual, email addresses, and accounts. Id. ¶ 54.

         Auto Driveaway alleges that it terminated the agreements on September 29, 2018. Id. ¶ 55. Auto Driveaway alleges that Corbett has sought to avoid the non-compete provisions by forming Tactical Fleet in order to engage in what would otherwise be prohibited conduct under the guise of a new corporate entity. See [86] ¶ 135. The First Amended Complaint alleges a number of facts that support this theory, too. For instance, shortly after it became known that Auto Driveaway and AD Richmond would be parting ways, Corbett allegedly told at least one AD Richmond employee that “even though Auto Driveaway was terminating the franchise agreements, he would branch out on his own, things would be business as usual, nothing would change” and he would “start putting everything in someone else's name.” Id. ¶ 140. In addition, Auto Driveaway alleges that Corbett is still involved in the day-to-day operations of Tactical Fleet, id. ¶ 151, and that Tactical Fleet hired at least thirteen former AD Richmond employees (in addition to two of AD Richmond's drivers). [86] ¶¶ 142, 143.

         The First Amended Complaint also alleges that Tactical Fleet completed paperwork showing it planned to engage in a business referred to as “Auth. For Hire, ” and that the cargo that Tactical Fleet plans to carry includes “General Freight, ” “Motor Vehicles, ” and “Drive/Tow Away, ” [86] ¶ 136; [86-19], and that Tactical Fleet's website described itself as a “full-service fleet management company” that provides an “innovative fleet assessment application tool” and “customized reporting options.” Id. ¶ 141; [86-20].

         Tactical Fleet disputes this characterization, and has submitted three affidavits to contest personal jurisdiction. According to Corbett's affidavit, Auto Driveaway transports and stores their client's vehicles, and hires drivers and detailers (and others) in order to provide that service, [130-3] ¶ 3, and AD Richmond used to provide “for-hire motor carrier options, ” and would occasionally provide individual divers to drive their clients' vehicles to their intended destination, id. ¶ 4, but neither Auto Driveaway nor AD Richmond have ever provided data management services. Id. ¶¶ 3, 4. Corbett also says he owned a 20% interest in Tactical Fleet and was its CEO for approximately six weeks in the fall of 2018, [130-3] ¶ 5, and that, during that time, Tactical Fleet had no clients and was focused on administrative preparations, such as setting up payroll. Id. ¶ 6.

         Warhurst, AD Richmond's former Director of Personnel, says she took over as CEO of Tactical Fleet in October 2018 and now owns a 70% membership interest. [130-1] ¶¶ 2, 4, 5. She agrees with Corbett's characterizations of Auto Driveaway and AD Richmond, id. ¶ 7, and says that Tactical Fleet is providing “data management services” such as “assisting clients with maintaining accurate data concerning their vehicles.” [130-1] ¶ 14; see also [130-2] ¶¶ 5, 6, 8 (Brian Smith, the Chief Operating Officer of Tactical Fleet, corroborates this description). Warhurst says Tactical Fleet hired seventeen former AD Richmond employees, [130-1] ¶ 10, and purchased $16, 000 worth of “furniture, fixtures and equipment” from AD Richmond once AD Richmond ceased operations (but did not assume any of AD Richmond's contracts). Id. ¶¶ 32, 33.

         Warhurst says that, at first, Tactical Fleet was providing “trucking services for non-operating or disabled vehicles” in order to generate cash, and was using one of the same websites that Auto Driveaway uses (Central Dispatch) to locate clients. [130-1] ¶¶ 24, 25. Since January 2019, however, Warhurst says that Tactical Fleet has been selling its trucks and trailers and no longer moves vehicles. [130-1] ¶ 26. She adds that Corbett has been removed from Tactical Fleet's bank accounts and health insurance, [130-1] ¶ 29, and is no longer involved in the daily operations of the business. [130-1] ¶ 10. According to her, Tactical Fleet does not have an office or any employees in Illinois, has not advertised in Illinois or conducted any business in Illinois, and maintains its business records, complies with corporate formalities, and does not comingle assets or funds with other entities. [130-1] ¶¶ 27, 31, 34-38.

         In response, Auto Driveaway has submitted an affidavit from Rodney Ruth, Auto Driveaway's CEO. [145-1] ¶ 1. Ruth avers that one of Auto Driveaway's drivers said he had “been hired by Tactical Fleet as a full time driver, ” [145-1] ¶ 5, and that another “gave notice that he was going to drive for Tactical Fleet in California.” [145-1] ¶ 6. He says that Tactical Fleet was once registered at the same address as AD Richmond's old offices (but is now located ten miles from that office). Id. ¶¶ 7-9.

         He has also attached screenshots from what purport to be Facebook posts tending to suggest that Corbett and Warhurst are now married. See [140-1] at 50-53. Other images purport to show that, in November 2018, Tactical Fleet wrote that it was “transporting our clients' vehicles both locally and Nationwide.” [145-1] ¶ 12; [145-1] at 36. He has also attached copies of reports from Central Dispatch that suggest users of that website were giving Tactical Fleet positive ratings until at least the middle of February 2019. [145-1] ¶ 13, 14; [145-1] at 40, 42, 43. Tactical Fleet had a booth at the National Association of Fleet Administrator's Fleet Management Expo in April 2019, [145-1] ¶ 21; [145-1] at 59, and based on photographs that show Corbett arriving outside (but not going inside) Tactical Fleet's offices, see [145-1] 54, 56, 57, Ruth believes he is still involved in day-to-day operation and management of Tactical Fleet. [145-1] ¶¶ 18-20.

         III. Analysis

         Auto Driveaway alleges that Corbett, AD Richmond, and Tactical Fleet breached the franchise agreements by, among other things, using Auto Driveaway's intellectual property in an unauthorized manner and failing to abide by the agreements' post-termination obligations (Counts V and X). [86] ¶¶ 209-215, 242- 248. It also brings claims against Corbett, AD Richmond and InnovAuto for trademark infringement under the Lanham Act (Counts I, III and IV), [86] ¶¶ 156- 169, 181-208, and the common law (Count II), [86] ¶¶ 170-180, a claim against Corbett for breach of the personal guaranty (Count VI), [86] ¶¶ 216-220, and a claim against all defendants seeking a declaratory judgment that Auto Driveaway owns certain technology (Count VIII). [86] ¶¶ 230-237. Defendants move to dismiss these portions of the First Amended Complaint for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6), [121], and Tactical Fleet moves to dismiss all claims against it for lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2). [129].

         A. The ...


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