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Tantopia Franchising Company v. West Coast Tans of Pa

January 22, 2013

TANTOPIA FRANCHISING COMPANY, LLC
v.
WEST COAST TANS OF PA, LLC, DONALD WEISS, RICHARD WEISS, CHRISTOPHER CONNORS, TMA INTERNATIONAL, LLC, CTG GROUP LLC, AND ROSALIND WEISS



The opinion of the court was delivered by: Thomas J. Rueter United States Magistrate Judge

MEMORANDUM OF DECISION

Presently before the court is plaintiff's Motion for Preliminary Injunction (the "Motion") (Doc. No. 2). Defendants filed a Response in opposition thereto (the "Response") (Doc. No. 22). On January 10, 2013, the parties filed proposed findings of fact ("FF") and conclusions of law ("Concl. Law") (Doc. Nos. 26 (Plaintiff's), 27 (Defendants')). A hearing was held on the Motion on January 11 and 14, 2013 (the "Hearing"). Pursuant to Rules 52 and 65 of the Federal Rules of Civil Procedure, the court makes the following Findings of Fact and Conclusions of Law:

I. FINDINGS OF FACT

A. The Philadelphia Salon

1. Plaintiff operates a retail indoor tanning salon franchise system and has registered its mark "Tantopia" with the United States Patent and Trademark Office (the "Tantopia Mark"). (Pl.'s FF No. 7.)

2. On October 24, 2002, plaintiff entered into a Franchise Agreement ("Franchise Agreement") with defendant West Coast Tans of PA, LLC ("West Coast Tans") for the operation of a Tantopia salon located at 2118 Cottman Avenue, Philadelphia, Pennsylvania (the "Philadelphia Salon"). (Pl.'s FF No. 8.) The term of the Franchise Agreement was for ten years. West Coast Tans was owned by Donald Weiss and his son, Richard Weiss.

3. Paragraph 17.3 of the Franchise Agreement contained a non-compete provision (the "Non-Compete Covenant") which stated as follows:

17.3 Franchisee covenants that, except as otherwise approved in writing by Franchisor, Franchisee shall not, for a continuous uninterrupted period of two (2) years commencing upon the date of: (a) a transfer permitted under Section 14 of this Agreement; (b) expiration of this Agreement; (c) termination of this Agreement (regardless of the cause for termination); (d) a final order of a court of competent jurisdiction (after all appeals have been taken) with respect to any of the foregoing or with respect to enforcement of this Section 17.3; or (e) any or all of the foregoing; either directly or indirectly, for itself, or through, on behalf of, or in conjunction with any person or legal entity, own, maintain, operate, engage in, be employed by, provide assistance to, or have any interest in (as owner or otherwise) any business that: (i) offers or sells products or services which are the same as or similar to the products and services offered by the Tantopia Tanning Centers Salon under the System, including, without limitation, tanning services, and related skin care and accessory products; and (b) [sic] is, or is intended to be, located at or within:

17.3.1 the Protected Territory; or

17.3.2 the county or municipality in which the Approved Location is located; or

17.3.3 five (5) miles of the Approved Location; or

17.3.4 ten (10) miles of any business operating under the Proprietary Marks; provided, however, that Sections [sic] 17.2.3 and this Section 17.3 shall not apply to the operation by Franchisee of any business under the System which may be franchised by Franchisor to Franchisee under a written Franchise Agreement.

4. The parties agree that under the terms of the Franchise Agreement, the Non-Compete Covenant would expire on or about October 23, 2014. (Pl.'s FF No. 33.)

5. Pursuant to a Guarantee (the "Guarantee"), defendants Donald and Richard Weiss guaranteed the obligations of West Coast Tans to plaintiff. See Franchise Agreement Ex. C. In the Guarantee, defendants Donald and Richard Weiss agreed as follows: "The undersigned hereby acknowledge and agree to be individually bound by all of the confidentiality provisions and non-competition covenants contained in Sections 10 and 17 of the [Franchise] Agreement."

6. Donald and Richard Weiss also executed a Confidentiality and Non-Competition Agreement. See Franchise Agreement Ex. B. The Confidentiality and Non-Competition Agreement contains a non-compete covenant almost identical to the Non-Compete Covenant in the Franchise Agreement. At the Hearing, the parties focused their attention and argument on the Non-Compete Covenant in the Franchise Agreement. The court will do so in this Memorandum of Decision.

7. West Coast Tans operated the Philadelphia Salon until January 31, 2010, when it filed a form with the Pennsylvania Department of Revenue to go out of business. (Ex. D-36.) The Philadelphia Salon was operated by West Coast Tans inside a leasehold space of an entity known as Valley Video Entertainment, LLC ("Valley Video"). Valley Video was the lessee under the lease for the Philadelphia Salon. As a result of defaults under the lease, the lease for the space was terminated on December 1, 2009, and Valley Video and West Coast Tans ceased all operations at the Philadelphia Salon and abandoned all personalty located therein.

8. West Coast Tans did not inform plaintiff that it went out of existence or that the Philadelphia Salon ceased operations.

9. On December 1, 2009, CTG Group, LLC ("CTG") entered into a lease for a portion of the space at the Philadelphia Salon that had been surrendered by Valley Video and began to operate a tanning business under the name Tantopia, as well as a massage and anti-aging business under the unregistered names iMassage and iSpa. CTG was created on November 9, 2009. (Ex. P-12.) The assets of West Coast Tans were transferred to CTG in or about January 2010.

10. West Coast Tans did not inform plaintiff that CTG was the successor entity to West Coast Tans or that CTG was operating a Tantopia business at the Philadelphia Salon.

11. As noted supra ¶ 2, West Coast Tans was owned by Donald and Richard Weiss. CTG was owned ninety percent (90%) by Rosalind Weiss (wife of Donald Weiss) and ten percent (10%) by Richard Weiss.

12. CTG operated the Philadelphia Salon until October 26, 2012.

13. The Franchise Agreement expired on October 23, 2012.

14. By letter dated November 13, 2012 addressed to Donald and Richard Weiss and West Coast Tans, plaintiff exercised its option under section 16.8 of the Franchise Agreement to purchase the equipment used at the Philadelphia Salon. (Ex. P-2.) At the Hearing, counsel for defendants acknowledged that plaintiff exercised this option in a timely manner as required by the Franchise Agreement. Defendants did not fulfill their obligations under the Franchise Agreement when plaintiff exercised of this option.

15. In late summer/early fall of 2012, Donald Weiss realized that he would not be able to continue to operate the business at the Philadelphia Salon due to issues with the landlord. He attempted to find another location for the business. Donald Weiss found a potential business location on Welsh Road, in Northeast Philadelphia, PA, but was unable to obtain a lease for this location. See Gardner Dep. at 21-22 ("all I know he [Donald Weiss] was going to open up a store on Welsh Road and somehow or another that fell through").

16. On August 24, 2012, a Sheriff's Determination in Favor of Property Claim was filed in the Court of Common Pleas of Philadelphia County. (Ex. P-14.) The personal property at the Philadelphia Salon (including the video business), valued at $17,195, was determined to be owned by CTG. According to Exhibit P-14, the value of the tanning equipment at the Philadelphia Salon was $9,255 as of June, 2012.

B. The Southampton Salon

17. On November 5, 2012, TMA International LLC ("TMA") was created. (Ex. P-17.) The evidence does not reveal who created TMA.*fn1

18. On September 10, 2012, pursuant to a Bill of Sale, the tanning equipment, computer equipment, massage equipment, store fixtures and tanning and massage lotion inventory were sold by CTG to TMA for $3,000. (Ex. P-6.)*fn2 TMA has never paid the $3,000 purchase price. In lieu of paying the purchase price, Connors allowed CTG to use the equipment listed in the Bill of Sale for one month at the Philadelphia Salon.

19. Donald Weiss contacted Bernard Kanefsky ("Kanefsky"), the agent for the landlord at Redwood Village Shopping Center, Southampton, PA, inquiring about rental space located at 261 Second Street Pike (the "Southampton Salon"). (Kanefsky Dep. at 9-10.)*fn3

Kanefsky testified at his deposition about a meeting he had with Donald and Richard Weiss regarding the Southampton location. Id. at 17-18. Having never met with the landlord nor seen the space, Connors, on behalf of TMA, entered into a lease for the Southampton Salon. The lease is to commence on February 1, 2013. (Ex. P-16.)

20. In order for TMA to obtain funds to open the Southampton Salon, Donald Weiss contacted Jules Gardner, an old friend. (Gardner Dep. at 12.) Mr. Gardner testified that Donald Weiss is a friend and he dated Donald's daughter a few times. Id. at 7, 9. From the 1990's through 2005, Mr. Gardner lent/gave Donald between $20,000 and $30,000. Id. at 8-10. Sometime after 2005, Mr. Gardner gave Donald a car. Id. at 11. Mr. Gardner testified that he lent Donald Weiss funds because ...


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