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BARMASTERS BARTENDING SCH., INC. v. AUTHENTIC BART

June 12, 1996

BARMASTERS BARTENDING SCHOOL, INC., EUGENE McILVAINE and PEGI McGOWAN, individually and t/a PHILADELPHIA SCHOOL OF BARTENDING
v.
AUTHENTIC BARTENDING SCHOOL, INC., JOANN CONNOR, STEVEN T. KLEIN and WITH A TWIST, INC.



The opinion of the court was delivered by: JOYNER

 JOYNER, J.

 JUNE 12, 1996

 Plaintiffs Barmasters Bartending School, Inc., Eugene McIlvaine and Pegi McGowan, individually and t/a Philadelphia School of Bartending have sued Defendants Authentic Bartending School, Inc., Joann Connor, Steven T. Klein and With a Twist, Inc. under the Lanham Act, 15 U.S.C. ยง 1125(a) for false designation of origin and false or misleading representations of fact. Claims under Pennsylvania's common law have also been asserted for unfair competition, intentional interference with prospective business relations, breach of contract and civil conspiracy.

 The action requests preliminary and permanent injunctive relief. This Court held a hearing on May 9, 1996 and has received proposed findings of fact and conclusions of law from the parties. The parties did not request transcripts and so there are no citations to the record in the following findings of fact.

 FINDINGS OF FACT

 The Parties

 1. Plaintiff Barmasters Bartending School, Inc. ("Barmasters"), is a Pennsylvania corporation with its principal place of business at 10050 Roosevelt Boulevard, Philadelphia, PA 19116.

 2. Plaintiffs Eugene McIlvaine and Pegi McGowan, individually and trading as the Philadelphia School of Bartending ("PSB"), maintain their offices at 10050 Roosevelt Boulevard, Philadelphia, PA 19116.

 4. Defendant Joann Connor resides in Levittown, PA. Defendant Steven Klein resides in Philadelphia, PA.

 5. Defendant With a Twist, Inc., is a New Jersey corporation with its principal place of business at 300 C Plainfield Avenue, Edison, NJ 08817.

 6. Non-defendant Without a Twist is a New Jersey corporation with its principal place of business in Paramus, NJ.

 The Parties' Businesses

 7. Since 1980, PSB has been in the business of operating bartending schools at various locations in Southern New Jersey and the Philadelphia area.

 8. Since 1991, Barmasters has been in the business of operating bartending trade schools and licensing others, through franchises, to operate bartending trade schools using the system developed by PSB.

 9. Since Barmasters was organized, PSB has been treated as a de facto franchise of Barmasters. In exchange for Barmasters's de facto license to PSB for the right to use the Barmasters trademarks and trade names without the normal franchise fee, PSB has given Barmasters the right to use, license and market its distinctive and unique instructional methods, programs, techniques, materials, methods of operation and marketing and promotional methods.

 10. Barmasters and PSB maintain their principal places of business at the same location. Many corporate formalities are not observed by these closely held companies.

 11. The original shareholders in Barmasters were McIlvaine and William Cahill, each of whom owned 50 of the 100 shares of outstanding common stock. In late 1995 or early 1996, Cahill sold and transferred all of his stock back to Barmasters for the nominal price of $ 1.00.

 12. PSB is owned by McIlvaine and his wife, McGowan.

 Relationship between the Parties

 13. In early 1992, Connor and a third party entered into discussions with McIlvaine and Cahill about investing in Barmasters and/or acquiring Barmasters franchises.

 14. As part of those discussions, McIlvaine hired Connor to assist with the management and operation of PSB so that she could familiarize herself with the Barmasters system and could assist in marketing Barmasters franchises.

 15. In June, 1992, Connor became a shareholder of Barmasters when McIlvaine and Cahill each surrendered five of their shares and Connor paid $ 10,000 to receive them. Connor remains a Barmasters shareholder to this day.

 1. Contractual Agreements

 A. Shareholders' Agreement

 16. In connection with Connor's stock purchase, she executed a Shareholders' Agreement. Section 4 of that Agreement states that:

 
4. Joann Connor will be allowed to open three (3) franchised Barmasters locations at places and locations approved by the company without paying the initial fee required of all franchisees, but Ms. Connor will have to pay the standard ongoing Barmasters franchise fee required by the company of franchisees at the time she opens each location. No location will be opened within fifty (50) miles of any other Barmasters location without a written authorization to do so signed by Mr. McIlvaine and Mr. Cahill.

 B. Franchise Agreement

 17. In 1991, Barmasters created a form Franchise Agreement and has used only that agreement with its franchisees since then.

 18. Connor had read, reviewed and understood the Franchise Agreement before she entered into the Shareholders' Agreement. She had attempted to negotiate certain provisions of the Franchise Agreement, but those negotiations were unsuccessful.

 20. Section 18 of the Franchise Agreement reads:

 
COVENANT NOT TO COMPETE
 
During the term of the Franchise Agreement, Franchisee may not directly or indirectly engage in a business providing to the consuming public any courses or programs similar to those offered by Barmasters or its Franchisees. For a period of eighteen (18) months following termination of the Franchise Agreement, Franchisee may not directly or indirectly engage in any such business within ten (10) miles of his location nor within ten (10) miles of any Barmasters Franchisee or Company operation.

 C. Confidentiality Agreement

 21. McIlvaine testified that every Barmasters's employee was required to sign a Confidentiality Agreement. These Agreements were stored together in a file in the Barmasters offices, to which Connor and others had full access. This entire file of papers is now missing and has been since an undetermined date.

 22. The evidence proved that Connor signed a Confidentiality Agreement. Connor's denial of this was not credible given the testimony of two uninterested witnesses, one of whom witnessed Connor execute a document that Connor claimed was the Confidentiality Agreement.

 23. McIlvaine testified that Klein personally handed an executed Confidentiality Agreement to McIlvaine. We find that McIlvaine's testimony that Klein executed a Confidentiality Agreement is more credible than any evidence to the contrary.

 24. The Confidentiality Agreement reads, in pertinent part:

 
In any event the Associate is for any reason no longer associated with Bar Masters, he will absolutely not engage, for a period of two years, either directly or indirectly, as owner, partner, distributor, broker, advisor, consultant, salesman, employee, teacher, instructor, director or any other capacity, in any similar type of school[,] business or activity within forty-five miles of the location of the Bar Masters School [in] which he was employed.

 2. The Edison School

 25. Even after Connor became a shareholder of Barmasters, Connor continued to work for PSB in Philadelphia and continued to assist Barmasters's efforts to market Barmasters franchises.

 26. In April, 1993, Connor organized With a Twist to enable her to raise the money she needed to open a Barmasters location in Edison, New Jersey. With a Twist's shareholders were Connor, Klein, Cahill and a fourth person.

 27. The Edison Barmasters school was intended to be and actually was one of the three franchises Connor was permitted to own pursuant to the Shareholders Agreement. Testimony that the Edison school was just another Barmasters franchise or that it was a separate school that simply used the Barmasters name was contradicted by Connor and generally not credible.

 28. Connor tacitly assigned her rights to own a franchise under the Shareholders' Agreement to With a Twist.

 29. From the time the Edison school opened until this day, it has been known as the Barmasters Bartending School of Northern New Jersey. Until the events giving rise to this litigation, it has advertised its affiliation with Barmasters and PSB.

 30. For a year after the Edison school opened, Connor continued to work for PSB and split her time between the schools. In 1994, she ceased working for PSB and devoted her energies full time to her own franchises.

 31. As a franchise of Barmasters, With a Twist and the Edison school used the same promotional materials, letterhead and office forms, and when it first started up, utilized PSB's resources, such as its credit card merchant accounts, license approvals and ...


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