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Marblelife, Inc v. Stone Resources

May 16, 2012

MARBLELIFE, INC., PLAINTIFF,
v.
STONE RESOURCES, INC., DEFENDANT.



The opinion of the court was delivered by: Tucker, J.

May ____, 2012

MEMORANDUM OPINION

Presently before the Court are Plaintiff's Renewed Motion for Contempt (Doc. 67), and the Response in Opposition thereto (Doc. 68). For the reasons set forth herein, and upon consideration of the evidence presented at the contempt hearing before this Court on March 15-16, 2012 and April 9- 11, 2012, Plaintiff's Motion will be granted.

I. PROCEDURAL HISTORY

The current motion stems from a contract dispute between Plaintiff, MarbleLife, Inc. ("MarbleLife") a franchisor, and, Defendant, Stone Resources, Inc. d/b/a Natural Stone Care ("Stone Resources" or "Natural Stone Care"), MarbleLife's former franchisee. This matter has been pending before this Court since Plaintiff filed a Complaint for Preliminary Injunction on May 21, 2010 ("the Injunction Action"). The Court granted Plaintiff's Motion on December 23, 2010 after a three-day evidentiary hearing. (Doc. 38, Civ. Act. No. 10-2480). Defendant filed a Motion for Reconsideration on January 3, 2011, which the Court denied on February 11, 2011.

(Doc. 56, Civ. Act. No. 10-2480). The February 11, 2011 Order also denied Plaintiff's First Motion for Civil Contempt and amended the December 23, 2010 Injunction Order. After Defendant filed a voluntary petition for relief under Chapter 11 of the Bankrupcty Code, Judge Madeline D. Coleman of the Bankruptcy Court stayed this Court's Injunction Order. Plaintiff filed a Motion to Dismiss the bankruptcy action or, alternatively, for relief from the automatic stay. Judge Coleman denied Plaintiff's Motion. Plaintiff then brought a Second Motion for Contempt as to Joseph Smith ("Smith"), the principal of Stone Resources, arguing that as a non-party to the action, Smith was not protected by the automatic stay. This Court denied Plaintiff's Motion on April 25, 2011. (Doc. 63, Civ. Act. No. 10-2480). However, on June 24, 2011, after an appeal by Plaintiff ("the Bankruptcy Appeal"), the Court determined that the Bankruptcy Court's denial of Plaintiff's Motion to terminate the automatic stay was in error, and ordered Defendant to comply with the Injunction Order. (Doc. 11, Civ. Act. No. 11-2526). The Court also amended the Injunction Order on June 24, 2011.*fn1 Upon Plaintiff's request, the Court held a hearing on July 8, 2011 in order to facilitate Defendant's compliance with the Court's Order. However, Plaintiff filed a Motion for Contempt on July 26, 2011 in the Bankruptcy Appeal. (Doc. 11, Civ. Act. No. 11-7689). Then, Plaintiff filed a renewed Motion for Contempt on August 11, 2011 in the Injunction Action. (Doc. 67, Civ. Act. No. 10-2480). Both of these contempt motions are based upon the same allegations of Defendant and Smith's continued noncompliance.*fn2 The Court held a hearing on the renewed Motion for Contempt on March 15-16, 2012, and on April 9-11, 2012.

II. FACTUAL BACKGROUND

This action concerns allegations of breach of contract, trademark infringement, false designation of origin, and trademark dilution. The underlying dispute between the parties concerns the termination of a Franchise Agreement entered into by the parties on April 3, 2000. Plaintiff, a Texas corporation with its principal place of business in Sanford, Florida, is engaged in the business of restoring and repairing granite and other types of inorganic and organic surfaces. Plaintiff sells franchises of its business system by granting to franchisees across the United States the right to use its methods, trademarks, and related services and products. Stone Resources became a franchisee of MarbleLife in April 2000, and began doing business as MarbleLife of Delaware Valley, with its principal place of business in Media, Pennsylvania. Joe Smith ("Smith") was (and is) the principal and sole shareholder of Stone Resources, and his sister, Patricia (Pattie) Cooney ("Cooney") was the Vice President of Sales. The Franchise Agreement entered into by the parties granted Defendant certain rights including, inter alia, the right and license to operate a franchise in a specified territory. Additionally, Defendant was granted the right and license to use MarbleLife's registered trademark. In exchange for the rights granted to Stone Resources under the Franchise Agreement, Stone Resources agreed to pay Plaintiff royalties from its gross income, franchise fees and advertising assessments which accrued during the term of the Franchise Agreement.

The Franchise Agreement had an initial term of ten (10) years, which was not extended, and imposed certain requirements upon Defendant following its expiration, including the following: (1) an agreement not to compete during the term of the Franchise Agreement and for a period of two years following expiration of the Franchise Agreement; (2) a requirement to cease using the trademark and/or any System Rights; and (3) a limitation on the use of Plaintiff's confidential information only for the purposes of fulfilling Franchisee's obligations under this Agreement.

In the event of termination, the Franchise Agreement also included additional consequences of expiration, including the following: (1) the immediate termination of all rights granted to Defendant; (2) the transfer of business, customers, facilities, services, employees, and telephone numbers to Plaintiff; and (3) the return or disposal of certain specified information

(i.e., all advertising and promotional materials containing the MarbleLife trademark; all information relating to MarbleLife; all manuals and supplements; and all sales or marketing data relating to MarbleLife). In entering into the Franchise Agreement, Stone Resources further agreed that any violation of the non-compete provision and the confidentiality provisions would cause MarbleLife to suffer irreparable harm and thus MarbleLife could seek damages or injunctive relief against Stone Resources in a court of competent jurisdiction to address said harm.

On or around April 13, 2010, the Franchise Agreement between the parties expired. Defendant declined to renew its franchise and as a result, Plaintiff ceased receiving royalty payments, franchise fees and advertising assessments. Shortly thereafter, pursuant to the terms of the Franchise Agreement, Defendant commenced an arbitration proceeding in Dallas Texas alleging, inter alia, breach of contract and fraud. The gravamen of Defendant's arbitration complaint concerned Plaintiff's ownership interest in certain patents. Specifically, Stone Resources avers that it entered into the Franchise Agreement based on representations by MarbleLife that it owned certain patents and trademarks and that MarbleLife possessed unique business formats which could be used in the operation of a MarbleLife franchise. At the time the Arbitration Demand was made Defendant continued to operate its franchise despite the expiration of the Franchise Agreement and the covenant not to compete. Consequently, Plaintiff initiated this action seeking injunctive relief and enforcement of the covenant not to compete. This Court granted injunctive relief, and the current motion arises out of allegations that Defendant and Smith have been non-compliant with the Injunction Order. Plaintiff's averment of non-compliance stems from allegations that Stone Resources and Smith have continued to advertise Stone Resources as a stone restoration business; have continued operating via a business relationship with another company, Moore Jones; and have failed to relinquish phone numbers and email addresses associated with the business, all in violation of the Court's Injunction Order.

III. LEGAL STANDARD

To prove civil contempt, the moving party must demonstrate by clear and convincing evidence that "(1) a valid court order existed, (2) the defendant had knowledge of the order, and (3) the defendant disobeyed the order. Harris v. City of Phila, 47 F.3d 1311, 1326(3d Cir. 1995) (citing Roe v. Operation Rescue, 919 F.2d 857, 871 (3d Cir. 1990)). "A contempt citation should not be granted if there is ground to doubt the wrongfulness of' the defendant's conduct." Id. (quoting Quinter, 676 F.2d at 974). A defendant "may not be held in contempt as long as it took all reasonable steps to comply." Id. at 1324. "However, the burden is that of the defendant to introduce evidence beyond 'a mere assertion of ...


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