The opinion of the court was delivered by: David Alan Ezra United States District Judge
ORDER GRANTING IN PART AND DENYING IN PART WITHOUT PREJUDICE PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION
On December 8, 2011, the Court heard Plaintiffs' Motion for Preliminary Injunction. Milton M. Yasunaga, Esq., appeared at the hearing on behalf of Plaintiffs; Philip A. Davis, Esq., appeared at the hearing on behalf of Defendants. After reviewing the motion and the supporting and opposing memoranda, the Court GRANTS IN PART and DENIES IN PART WITHOUT PREJUDICE Plaintiffs' Motion for Preliminary Injunction. (Doc. # 2.)
The instant action arises from a dispute between Plaintiffs Just Tacos, Inc. and Resol Hawaii, LLC, franchisors and owners of the Just Tacos brand, and Defendants Just Tacos Pearl City, Inc. and Just Tacos Hawaii Kai, Inc., former corporate franchisees, as well as Defendant Michael Zezulak, the proprietor of those franchisees.
In 2005, Jesus Santoyo opened a take-out Mexican restaurant in downtown Honolulu named "Just Tacos Mexican Grill." ("Santoyo Decl.," Doc. # 2-2 ¶ 2.) The business was incorporated as "Just Tacos, Inc." ("JTI"). (Id.) On June 13, 2007, JTI registered the trade name "Just Tacos Mexican Grill & Cantina" with the State of Hawaii. (Id.; Doc. # 2-5.) Defendant Resol Hawaii, LLC ("Resol"), a company formed by Santoyo to hold his intellectual property, has filed applications for federal registrations for "Just Tacos Mexican Grill & Cantina" and "Just Tacos." (Id. ¶ 9.) Those applications are still pending. (Id.) Santoyo later opened a Just Tacos Mexican Grill & Cantina in Mililani in 2007 and in Ko Olina in 2009. (Santoyo Decl. ¶ 2, 15.)
In 2007, Santoyo began creating a Just Tacos in Pearl City. (Id. ¶ 10.) Since the Pearl City location was smaller, it was planned as a Grill, not a Cantina. (Id.) In 2008, Santoyo was introduced to Defendant Michael Zezulak, who was looking for an investment opportunity in Hawaii. (Id. ¶ 11.) Zezulak agreed to pay for the construction of the Pearl City Just Tacos Grill and it was agreed that it would be his restaurant. (Id. ¶ 12.) Zezulak also agreed to pay monthly fees to JTI in exchange for the use of the Just Tacos name, trade secrets, and procedures as well as the Just Tacos plan of organization and operation. (Id.; Doc # 2-4.) In March 2008, Santoyo and Zezulak signed a written Franchise Agreement ("Agreement"), which was prepared by Zezulak's attorney. (Santoyo Decl. ¶ 13; see "Agreement," Doc. # 2-4.) That Agreement contains the following relevant provisions:
b. At all times after the commencement of operation by Franchise Owner, Franchise Owner shall pay to Franchisor the following recurring fees:
i. A continuing fee equal to three percent (3.00%) of the Total Sales . . . per month no later than the 15th of the month . . . .
a. Franchise Owner expressly acknowledges Franchisor's rights in and to the Licensed Marks . . . .
b. Franchise Owner understands and agrees that any use of the Licensed Marks other than as expressly authorized by this Agreement, without Franchisor's prior written consent, may constitute an infringement of Franchisor's rights therein and that the right to use the Licensed Marks granted herein does not extend beyond the termination or expiration of this Agreement.
7. STANDARDS OF OPERATION
Franchise Owner shall maintain standards of quality, appearance and operation for the Franchised Business. For the purpose of giving distinctiveness to the Licensed Marks, enhancing the public image and reputation of businesses operating under the Just Tacos System and for the purpose of increasing the demand for services and products provided by franchise owners and Franchisor, the Franchise Owner agrees to operate the Unit in strict conformity with Franchisor's standards and all rules, regulations and policies.
8. CONFIDENTIAL OPERATING MANUAL
a. In order to protect the reputation and goodwill of the businesses operating under the Just Tacos System and to maintain standards of operation under the Licensed Marks, Franchise Owner shall conduct the Franchised Business operated under the Just Tacos System in accordance with various written instructions and confidential manuals . . . , all of which Franchise Owner acknowledges belong solely to Franchisor and shall be on loan from Franchisor during the term of this Agreement.
b. In the event this Agreement is terminated, expires, or is not renewed, . . . Franchise Owner must remove all signage and trade marked materials relating to the Just Tacos Franchise.
c. In the event of any termination, expiration or non-renewal of this Agreement, Franchise Owner agrees that it will never use Franchisor's confidential information, trade secrets, methods of operation or any proprietary components of the Just Tacos System in the design, development or operation of any business.
14. POST TERM OBLIGATIONS
Upon the expiration of this Agreement, Franchise Owner shall immediately:
a. Cease to be a franchise owner of Franchisor under this Agreement and cease to operate the former franchised business under the Just Tacos System. Franchise Owner shall not thereafter, directly or indirectly, represent to the public that the former franchised business is or was operated or in any way connected with the Just Tacos System or hold itself out as a present or former franchise owner of Franchisor at or with respect to the Premises;
b. Pay all sums owing to Franchisor, including those invoiced to Franchise Owner after this Agreement expires or is terminated. . .
c. Return to Franchisor the Confidential Operating Manual and all trade secret and other confidential materials, equipment and other property owned by ...