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Morning Star Associates, Inc. v. Unishippers Global Logistics, LLC

United States District Court, S.D. Georgia, Augusta Division

May 20, 2015



DUDLEY H. BOWEN, District Judge.

Presently before the Court is Defendant Unishippers Global Logistics, LLC's ("Unishippers") Motion to Dismiss and to Compel Arbitration (Doc. no. 11) and Plaintiff Chris Herrmann's ("Mr. Herrmann") Motion for Preliminary and Permanent Injunction (Doc. no. 20). For the reasons set forth herein, Unishippers' Motion is GRANTED IN PART. The parties are to submit to arbitration, and this matter shall be stayed until arbitration is completed. Because the Court finds that the parties must proceed to arbitration, Mr. Herrmann's Motion for Preliminary and Permanent Injunction is DENIED.

I. Factual Background[1]

The present dispute arises out of the termination of three franchise agreements between Defendant-Franchisor Unishippers and Plaintiffs-Franchisees Morning Star Associates, Inc. ("MSA"), Margaret Herrmann ("Ms. Herrmann"), Robert McMahon ("Mr. McMahon"), and Mr. Herrmann. Ms. Herrmann and Mr. McMahon are owners and officers of MSA. (Doc. no. 18, Exs. 5 & 10.) Mr. Herrmann worked as an administrator, sales agent, and manager of MSA. (Doc. no. 18, Ex. 1 ¶ 4.) All three individuals aver that their duties involved "handling and overseeing the administrative paperwork associated with shipping and freight, working with customers on bills of lading, and processing customers' shipments via common carriers, rail, and other means, " as well as assisting "with the pricing and most aspects of the shipping transaction." (Doc. no. 18, Ex. 1 ¶ 5; Id., Ex. 5 ¶ 5; Id., Ex. 10 ¶ 3.) At some undisclosed time in the past, MSA entered into three separate franchise agreements (collectively referred to as "the Franchise Agreement") with Unishippers for franchises located in Georgia, [2] North Carolina, and South Carolina. (Lathrop Decl., Doc. no. 12, Ex. 1, ¶ 4.)

A. The Franchise Agreement[3]

On September 29, 2014, the President of Unishippers sent MSA a Notice of Breach of the Franchise Agreement, alleging that MSA was in breach of certain revenue requirements, and provided MSA with approximately two months to cure the breach.[4] (Doc. no. 18-5, Ex. A.) On December 5, 2014, MSA received a Notice of Termination of its three franchises, informing MSA that the Franchise Agreement would be terminated pursuant to Section 6.04(b) (xiii).[5] (Id., Ex. B.) In the Notice of Termination, Unishippers presented MSA with two options: (1) MSA could submit a Letter of Intent to sell the rights to the franchises by February 6, 2015, or (2) if MSA did not wish to sign a Letter of Intent, Unishippers would terminate the Franchise Agreement on February 6, 2015. (Id.) If MSA chose the latter option, pursuant to Section 7.02(b)[6] of the Franchise Agreement, Unishippers would "authorize [MSA] to retain all customer lists for the Franchise; however, [MSA] [would] not be able to use any of the carrier companies that provide shipping services to Unishippers and its customers." (Id.)

MSA did not sign the Letter of Intent by February 6, 2015, but received an e-mail that day from Unishippers giving MSA additional time to sign a Letter of Intent. (Id., Ex. C.) However, MSA "had already shut down the franchise by that time and let employees go in reliance on [Unishippers'] Notice of Termination." (Pl. Resp., Doc. no. 17, at 4.) On February 20, 2015, Unishippers sent MSA a Termination Notice and Legal Demand, which terminated the three franchises pursuant to Section 6.04(a)[7] of the Franchise Agreement. (Id., Ex. D.) Unishippers demanded, inter alia, that MSA immediately cease all use of Unishippers' customer information; return all of Unishippers' customer information; cease servicing Unishippers' customers; pay all carrier obligations and franchise fees due to Unishippers; forward all accounts receivable to Unishippers; produce copies of the non-competition agreements signed by MSA employees; and otherwise comply with the post-termination provisions of the Franchise Agreement. (Id.) If MSA failed to comply, Unishippers stated that it "will have no choice but to bring legal action... for injunctive relief, damages and attorney's fees." (Id.) According to MSA, the February 20, 2015 letter "attempted to undo and rewrite its earlier termination on which [MSA] had already justifiably relied" by terminating the franchise under Section 6.04(a), a more onerous provision than Section 7.02(b). (Pl. Resp. at 4-5.)

Moreover, MSA contends that Unishippers never followed the three-step dispute resolution process outlined in the Franchise Agreement. (Id. at 5.) Pursuant to the Franchise Agreement, the parties must first meet face-to-face to try and resolve any dispute amicably. (Franchise Agreement, Doc. no. 12-2, § 9.01(a)(1).) If unsuccessful, the parties are to submit to non-binding mediation. (Id. § 9.01(a)(2).) As a final step, the parties are to submit to binding arbitration. (Id. § 9.01(a)(3).) The Franchise Agreement additionally contains a delegation provision, requiring all issues relating to arbitration and enforcement of the agreement to be decided by an arbitrator. (Id. § 9.01(f).) However, the Franchise Agreement provides certain exceptions to the arbitration requirement, expressly excluding from arbitration issues relating to: (1) the validity of trademarks or other intellectual property licensed to MSA; (2) Unishippers' rights to possession of real or personal property; (3) the parties' rights to obtain prejudgment remedies such as a writ of attachment; (4) Unishippers' right to receive and enforce equitable relief; and (5) Unishippers' or MSA's intentional interruption of business operations "with the exception of the provisions of Section 6 relating to Breaches, Defaults or Termination[.]" (Id. § 9.01(e).)

The Franchise Agreement forms the basis for many of Plaintiffs' claims. Plaintiffs assert that (1) Unishippers breached the Franchise Agreement and its duty of good faith and fair dealing (Compl. ¶¶ 24-28); (2) Unishippers was unjustly enriched (Id. ¶¶ 29-33); (3) Unishippers improperly converted and exercised ownership over Plaintiffs' property (Id. ¶¶ 37-39); (4) Unishippers falsely represented to Plaintiffs that it would perform under the Franchise Agreement, intentionally made these false representations, and intentionally concealed information from Plaintiffs (Id. ¶¶ 40-49); (5) Unishippers breached its duty to insure it performed its obligations under the Franchise Agreement (Id. ¶¶ 50-56); (6) Unishippers "induced a breach of contractual obligations and attempted to cause third parties to discontinue or fail to enter into an anticipated business relationship with Plaintiffs" (Id. ¶ 58); (7) Unishippers misappropriated Plaintiffs' trade secrets by using and disclosing them (Id. ¶¶ 63-72); (8) Unishippers engaged in unfair competition by using and obtaining confidential information, including customer lists and business opportunities (Id. ¶¶ 73-75); and (9) Unishippers conspired to push MSA, Ms. Herrmann, and Mr. McMahon out of the franchise and obtain MSA's client lists (Id. ¶¶ 76-79). Plaintiffs additionally seek a declaration that the Franchise Agreement was terminated in accordance with Section 7.02(b) (Id. ¶¶ 34-36), and request an interlocutory and permanent injunction to enjoin Unishippers from enforcing portions of the Franchise Agreement that were waived under Section 7.02(b) (Id. ¶¶ 80-82). Unishippers contends that these disputes must be submitted to binding arbitration pursuant to the Franchise Agreement.

B. Mr. Herrmann's Non-Competition/Non-Disclosure Agreement

Underlying this larger dispute is another between Unishippers and Mr. Herrmann only. Mr. Herrmann began his employment with MSA in 2005. (Chris Herrmann Decl., Doc. no. 18-1, ¶ 1.) As required by Section 3.09(a) of the Franchise Agreement, Mr. Herrmann signed a Non-Competition/Non-Disclosure Agreement (the "Non-Competition Agreement") with MSA. (Non-Competition Agreement, Doc. no. 18-1, Ex. A.) That agreement was drafted by Unishippers.[8] As its name suggests, the Non-Competition Agreement prohibits Mr. Herrmann from competing with MSA or Unishippers. (Non-Competition Agreement § 4.) It additionally prohibits Mr. Herrmann from using or disclosing confidential information after his termination date. (Id. §§ 2-3.) Although the agreement only specifically pertains to MSA and Mr. Herrmann, Unishippers is expressly contemplated as a third party beneficiary.[9] (Id. § 15.)

Pursuant to the Non-Competition Agreement, certain provisions may be mutually waived by Mr. Herrmann and MSA if signed and in writing. (Id. § 9.D.) The waiver of one provision in the agreement, however, would not constitute waiver of any other provision. (Id. § 14.) Purportedly out of a concern over the status of the franchises and his ability to secure future employment, Mr. Herrmann and MSA exercised this option on December 1, 2015. (Chris Herrmann Decl. ¶ 19 & Ex. B.) Mr. Herrmann and MSA specifically waived Sections 2 through 4 (the non-disclosure and non-competition provisions), as well as Section 15, which named Unishippers as a third party beneficiary. (Chris Herrmann Decl., Ex. B.) Nowhere in the waiver is there any mention of arbitration, aside from executing the waiver pursuant to Section 9, Paragraph D, which is the dispute resolution section of the Non-Competition Agreement. (See id.)

On February 17, 2015, Unishippers' counsel sent Mr. Herrmann a cease and desist letter, claiming that Mr. Herrmann was in breach of the Non-Competition Agreement. (Id., Ex. C.) In the letter, Unishippers demanded that Mr. Herrmann cease all competitive conduct and return all customer lists and other confidential information to Unishippers. (Id.) If Mr. Herrmann failed to comply with the letter, Unishippers informed him that it "will have no choice but to bring legal action against [him, his] company and associates for injunctive relief and monetary damages." (Id.) In Plaintiffs' complaint, Mr. Herrmann seeks a declaration that the Non-Competition Agreement is invalid and unenforceable, and also requests an interlocutory and permanent injunction to enjoin Unishippers from enforcing the Non-Competition Agreement.

C. Procedural History

Plaintiffs filed the instant complaint on February 27, 2015. In lieu of an answer, Unishippers filed a Motion to Dismiss and to Compel Arbitration. Plaintiffs responded and requested oral argument. Before Unishippers' motion was ripe for review, Mr. Herrmann filed a Motion for Preliminary Injunction on April 24, 2015. In that motion and at oral argument, Mr. Herrmann alleged that Unishippers continued to contact his customers and GlobalTranz Enterprises, Inc., a competitor of Unishippers with which Mr. Herrmann does business, specifically referencing that Mr. Herrmann was in violation of the Non-Competition Agreement. Unishippers maintained that an injunction is improper because ...

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