Auto Driveaway Franchise Syste v. Jeffrey Corbett ( 2019 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 18‐3402
AUTO DRIVEAWAY FRANCHISE SYSTEMS, LLC,
Plaintiff‐Appellee,
v.
AUTO DRIVEAWAY RICHMOND, LLC, and
INNOVAUTO USA, LLC,
Defendants,
and
JEFFREY CORBETT,
Defendant‐Appellant.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 18 C 4971 — Manish S. Shah, Judge.
____________________
ARGUED FEBRUARY 4, 2019 — DECIDED JUNE 28, 2019
____________________
Before WOOD, Chief Judge, and EASTERBROOK and ST. EVE,
Circuit Judges.
WOOD, Chief Judge. This litigation presents a clash between
a franchisor and a franchisee who may (or may not) have
2 No. 18‐3402
allowed their agreement to expire. Auto Driveaway Franchise
Systems, LLC (“Auto Driveaway”) is a franchisor for commer‐
cial vehicle transportation services; Jeffrey Corbett was one of
its franchisees. Through his company, Auto Driveaway Rich‐
mond, LLC (“AD Richmond”), Corbett ran Auto Driveaway
franchises in Richmond (Virginia), Nashville, and Cleveland.
The arrangement was satisfactory for some time, but it went
downhill after Auto Driveaway heard that Corbett was open‐
ing businesses that competed with Auto Driveaway behind its
back. Adding insult to injury, Corbett was also allegedly us‐
ing Auto Driveaway’s name to lend legitimacy to the new
ventures. Taking the position that Corbett’s actions breached
the non‐compete clauses of the franchise contracts and mis‐
used Auto Driveaway’s trademarks, Auto Driveaway brought
this suit. The case has come to us on Corbett’s appeal from a
preliminary injunction the district court entered. See 28 U.S.C.
§ 1292(a)(1).
Before considering that injunction directly, we must ad‐
dress several procedural problems that relate to our appellate
jurisdiction and the form of the injunction. We conclude that
our jurisdiction is secure, but that the district court must re‐
visit both the form of the injunction and the amount of secu‐
rity it required.
I
Corbett’s three business locations were governed by sepa‐
rate, but substantively identical, franchise agreements with
Auto Driveaway. Corbett signed each one as the sole owner
of AD Richmond. Each agreement included the following: a
non‐compete clause, a non‐disclosure clause, and a five‐year
term set to expire in 2016. Those expiration dates came and
went, but both parties initially continued dealing as though
No. 18‐3402 3
the agreements were still in place. Not until November 2017
did Auto Driveaway mail a letter to Corbett offering formally
to renew the franchise contracts for another five years begin‐
ning February 2018. Corbett never responded to the letter; in‐
stead, he continued operating his franchises as before.
Some time after the November 2017 letter, Auto Drivea‐
way learned that Corbett had been taking actions in apparent
violation of the franchise agreements. Corbett, it learned, was
building an app to compete against the app it had hired Cor‐
bett to build for itself. Auto Driveaway also suspected that
Corbett was using Auto Driveaway’s proprietary work prod‐
uct as a starting point. To make matters worse, Corbett was
set to launch his own app through a new company, Inn‐
ovAuto, that also provided auto transportation services, in di‐
rect competition with Auto Driveaway. Auto Driveaway
quickly filed this lawsuit seeking to stop Corbett, InnovAuto,
and sales or use of the app. One month later it formally termi‐
nated its relationship with Corbett and AD Richmond.
In his initial answer to the complaint, Corbett admitted
that the franchise terms under his agreement with Auto Drive‐
away were extended on a month‐to‐month basis after they ex‐
pired in 2016. He attempted to walk back that admission later
in an amendment to his answer; the new version took the po‐
sition that the franchise agreements expired and that the No‐
vember 2017 letter from Auto Driveaway was a unilateral of‐
fer that Corbett never accepted.
Several months later, Auto Driveaway discovered that
Corbett had another competitive auto transport business, Tac‐
tical Fleet. Though Tactical Fleet was not named in the origi‐
nal complaint, Auto Driveaway asked the district court for a
preliminary injunction to stop Corbett from operating that
4 No. 18‐3402
company as well as InnovAuto and the app. After a brief hear‐
ing, the district court issued an order granting Auto Drivea‐
way’s motion, based on evidence that Corbett was harming
consumer goodwill toward Auto Driveaway and was taking
Auto Driveaway customers through his competing busi‐
nesses. In broad strokes, the order states that Corbett may not
engage in any conduct that might violate the non‐compete
clause of the franchise agreement. The court required Auto
Driveaway to post a $10,000 bond as security for the injunc‐
tion; it did so.
II
Before we can address the propriety of the injunction, we
must ensure that it is properly before this court and free of
procedural defects. There are potentially three problems with
this injunction: its timeliness, its scope, and its specificity. We
review each de novo. See Loertscher v. Anderson, 893 F.3d 386,
392 (7th Cir. 2018).
A
The first question is whether this appeal is now moot.
While it was pending, the district court granted Corbett and
Auto Driveaway’s request to amend their pleadings. Gener‐
ally, “[o]nce an amended pleading is interposed, the original
pleading no longer performs any function in the case.” Well‐
ness Cmty.‐Natʹl v. Wellness House, 70 F.3d 46, 49 (7th Cir. 1995)
(quoting 6 Charles Alan Wright, Arthur R. Miller, & Mary Kay
Kane, FEDERAL PRACTICE AND PROCEDURE § 1476 at 556–57,
559 (1990)). If later developments in the case have removed
the legs on which the order under review stands, it is our duty
as an appellate court to vacate the order and remand. See
United States v. Munsingwear, Inc., 340 U.S. 36, 39–40 (1950).
No. 18‐3402 5
The way in which this rule applies to preliminary injunctions,
however, depends on what the injunction covers: it might af‐
fect the entire basis of the lawsuit, or it might affect only some
of the claims or involve limited measures needed to preserve
the status quo pending final resolution of the case. Review of
the latter type of injunction normally leaves the underlying
dispute undisturbed.
In order to avoid mootness, there must be a live contro‐
versy in which the parties can obtain some relief from the
court. Powell v. McCormack, 395 U.S. 486, 496 (1969). Practically
speaking, the question for us in this case is what might be
gained by either party from our review of the challenged or‐
der. If either factual developments or procedural steps in the
district court have left us with nothing meaningful to do, then
we must dismiss the appeal as moot. See Honig v. Students of
Cal. Sch. for the Blind, 471 U.S. 148, 149 (1985) (“No order of
this Court could affect the parties’ rights with respect to the
injunction we are called upon to review.”).
Either type of change—factual or procedural—can render
an appeal from a grant or denial of a preliminary injunction
moot. For examples of cases in which the facts changed, see
Stotts v. Cmty. Unit Sch. Dist. No. 1, 230 F.3d 989, 991 (7th Cir.
2000) (denial of preliminary injunction mooted by graduation
from school); Henco, Inc. v. Brown, 904 F.2d 11, 13 (7th Cir.
1990) (preliminary injunction moot because injunction’s end
date passed while appeal was pending). The factual develop‐
ments in those cases erased the controversy because the rem‐
edies originally ordered and under review by the court of ap‐
peals no longer had any effect.
Similarly, procedural developments can moot an appeal
from a preliminary injunction. The easiest example of this
6 No. 18‐3402
occurs when the district court makes a final decision on the
merits while the interlocutory appeal is pending. See, e.g.,
Garner v. Dreyer, 94 F. App’x 366 (7th Cir. 2004) (citing United
States v. Estevez, 852 F.2d 239, 241 n.3 (7th Cir. 1988)). In such
a case, the interim phase of the case is over and so there is
nothing left to do or say about it. The proper course of action
then is to recognize that the interlocutory appeal is moot. That
often occurs when the controversy over the preliminary in‐
junction is overtaken by the entry of a permanent injunction.
The rulings effectively “merge,” and so the earlier prelimi‐
nary injunction no longer has any effect. Grupo Mexicano de
Desarrollo S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308, 317
(1999). In some instances, however, an appeal can outlive its
injunction. Our review of a dissolved preliminary injunction
may continue if a party is seeking damages from the improper
issuance of the injunction. N. Indiana Pub. Serv. Co. v. Carbon
Cnty. Coal Co., 799 F.2d 265, 268 (7th Cir. 1986).
In this case, after the district court indicated that it was
granting a preliminary injunction, there were later procedural
changes (the revised pleadings) that we must examine to see
if they affected the substantive basis for the district court’s or‐
der. A quick look reveals that the new pleadings did no more
than to add Tactical Fleet to the list of parties; they had no
effect on Auto Driveaway’s basic grievance. The preliminary
injunction is still in place, and it is still constraining the actions
of Corbett and his companies. Real‐world consequences
would attend anything we were to do with it, whether affir‐
mance, modification, or dissolution. That is the definition of a
live controversy. We note as well that preliminary injunctions
by their nature are not set in stone. If circumstances change,
the parties are always free to return to the district court to ask
for changes.
No. 18‐3402 7
B
Corbett next argues that the preliminary injunction
strayed beyond the scope of the original complaint. He finds
fault in Auto Driveaway’s failures to name Tactical Fleet in its
complaint, to assert claims against him personally, and to in‐
clude post‐termination breaches of contract. These quibbles,
however, ignore the fact that the federal courts require notice
pleading, not fact pleading complete with all the minutiae. A
complaint need only provide notice of a plausible claim; there
is no rule requiring parties to plead legal theories or elements
of a case. See generally Bell Atlantic Corp. v. Twombly, 550 U.S.
544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009). We are
unpersuaded by Corbett’s attempt to portray the complaint
as presenting anything other than allegations of breach of
contract and trademark infringement on the part of Corbett
and his companies. Corbett was certainly on notice that this
lawsuit challenged the practices that Auto Driveaway be‐
lieved infringed on its business and good name. Any failure
to include the specifics Corbett identifies does not offend the
requirements of Federal Rule of Civil Procedure 8(a)(2). We
see nothing covered by the preliminary injunction that went
beyond the case or controversy before the court or that could
have surprised Corbett. We note as well that Auto Driveaway
could not have been expected to know facts that Corbett was
deliberately keeping from it.
C
Though the injunction falls within the scope of the com‐
plaint and has not been rendered moot by subsequent pro‐
ceedings in the district court, it suffers from a different prob‐
lem: failure to comply with Federal Rule of Civil Procedure
65(d). That rule requires that “[e]very order granting an
8 No. 18‐3402
injunction … must: (A) state the reasons why it issued; (B)
state its terms specifically; and (C) describe in reasonable de‐
tail—and not by referring to the complaint or other docu‐
ment—the act or acts restrained or required.” We interpret
Rule 65(d)(1)(C) to require that an injunction must be embod‐
ied in a standalone separate document. BankDirect Capital Fi‐
nance, LLC v. Capital Premium Financing, Inc., 912 F.3d 1054,
1057 (7th Cir. 2019), citing Gunn v. Univ. Comm. to End the War,
399 U.S. 383 (1970). While many injunctions are accompanied
by separate opinions that explain the district court’s reason‐
ing, Rule 65(d) requires that the injunction itself contain
enough information to render its scope clear. See Bethune
Plaza, Inc. v. Lumpkin, 863 F.2d 525, 527 (7th Cir. 1988). “A ju‐
dicial opinion is not itself an order to act or desist; it is a state‐
ment of reasons supporting the judgment.” Id. If the opinion
purports to award declaratory relief, but the judgment does
not, then the opinion is reduced to dictum. Id.
In this case, the district court issued a single order, styled
as a “PRELIMINARY INJUNCTION ORDER,” which contained the
court’s analysis and ended this way (after eight pages of ex‐
planation):
For these reasons, this Court orders that:
For the pendency of this litigation, until no later
than September 30, 2020, defendants Auto Driveaway
Richmond, LLC and Jeffrey Corbett are prohibited
from engaging, directly or indirectly, as an owner, op‐
erator, or in any managerial capacity, in any ‘for‐hire’
motor carrier businesses operating as either a common
carrier or a contract carrier or any business which op‐
erates or grants franchises or licenses to others to oper‐
ate a business that provides similar services and/or
No. 18‐3402 9
products as those offered by Auto Driveaway Fran‐
chise Systems, LLC at or within a fifty mile radius of
AD Richmond’s former offices or any other territory
with an Auto Driveaway office other than as an author‐
ized franchise owner of another Auto Driveaway of‐
fice.
Because defendants are likely to incur some costs in
ensuring compliance with this injunction and because
it provides for a lengthy term, the risk of a wrongful
injunction must be secured by Auto Driveaway. Plain‐
tiff, through counsel Greensfelder, Hemker & Gale,
P.C., shall deposit with the Court ten thousand dollars
($10,000.00), either cash, check, cashiers’ check, certi‐
fied funds, or surety bond, as security to be held in the
Court Registry. The $1,000 used to secure the earlier
TRO may be applied toward the balance due for this
preliminary injunction.
Plaintiff’s motion for a temporary restraining order
and preliminary injunction, [55], is granted in part, de‐
nied in part.
Like the order in BankDirect, this order says that it is an in‐
junction. It reads like an injunction. But it is not a standalone
separate document that spells out within its four corners ex‐
actly what the enjoined parties must or must not do. It there‐
fore does not comply with Rule 65(d). The question is thus
what consequences, if any, flow from that noncompliance.
Our initial question is whether the failure to comply with
Rule 65 affects our appellate jurisdiction under 28 U.S.C.
§ 1292(a)(1). In the past, we have sometimes intimated that a
failure to comply with Rule 65(d) at least has the potential of
10 No. 18‐3402
depriving us of appellate jurisdiction. The logic is this: “there
is no standing to seek relief in the form of an appellate judg‐
ment” from an order that “places the parties under no obliga‐
tions.” Reich v. ABC/York‐Estes Corp., 64 F.3d 316, 320 (7th Cir.
1995); Original Great Am. Chocolate Chip Cookie Co., 970 F.2d at
276. (“An injunction that has no binding force at all simply
cannot be appealed.”). Along those lines, we have said that
“by reason of not complying with Rule 65(d) the order issued
by the district court is not an injunction at all, it places the
defendant under no obligations; and an order that is not actu‐
ally or at least potentially coercive … does not impose the sort
of tangible harm that Article III requires for standing to seek
judicial relief, including relief in the form of an appellate judg‐
ment.” Chicago & N. W. Transp. Co. v. Ry. Labor Executivesʹ
Assʹn, 908 F.2d 144, 149 (7th Cir. 1990).
But a closer look at our cases reveals that we have not
adopted a rigid rule rejecting jurisdiction in every case in
which Rule 65 is violated. Instead, we have said that “whether
a purported injunction is appealable” depends on “whether it
is in sufficient though not exact compliance with Rule 65(d)
[such] that a violation could be punished by contempt or
some other sanction.” Id. at 276. In other words, we may re‐
view those injunctions that contain enough content to permit
effective enforcement. For example, in Chicago & North West‐
ern Transportation Company, we held that we had jurisdiction
to review a “Memorandum Opinion and Order” since it was a
“technical rather than substantial” violation of Rule 65(d). 908
F.2d at 150 (emphasis in original). But when injunctions fail
that specificity test, we have said that “by virtue of the failure to
comply with Rule 65(d), there is no injunction, and we lack ju‐
risdiction to hear [the] appeal.” Reich, 64 F.3d at 320 (emphasis
added).
No. 18‐3402 11
The Supreme Court has confirmed that compliance with
Rule 65 and appellate jurisdiction are two different things,
and that what matters for jurisdiction is the practical effect of
the order. It has discussed both appellate jurisdiction and
compliance with Rule 65(d) in a number of cases. One of the
earliest was Gunn v. University Committee to End War in Viet
Nam, 399 U.S. 383 (1970), in which the Court found that it did
not have jurisdiction under 28 U.S.C. § 1253 to review an or‐
der from a three‐judge district court holding that the parties
were entitled to injunctive relief but not ordering any relief.
Id. at 389–90. It analyzed Rule 65(d) and section 1253 and
acknowledged that both were concerned with clarity, but then
it added the following in a footnote:
This is not to suggest that lack of specificity in an in‐
junctive order would alone deprive the Court of juris‐
diction under § 1253. But the absence of any semblance
of effort by the District Court to comply with Rule
65(d) makes clear that the court did not think that its
per curiam opinion itself constituted an order granting
an injunction.
Id. at 389 n.4. This suggests a simple rule of “no relief, no in‐
junction.”
An example of an order that sufficed for appellate juris‐
diction appears in Schmidt v. Lessard, 414 U.S. 473 (1974). The
purported injunction at issue in Schmidt was similar to the one
in Gunn, but it differed in a critical respect. As the Court put
it, “[s]ince the opinion of the District Court by its own terms
authorizes the granting of injunctive relief … the judgment
here is sufficient to invoke our jurisdiction under 28 U.S.C.
§ 1253.” Id. at 475. The Court then held that “although the or‐
der below is sufficient to invoke our appellate jurisdiction, it
12 No. 18‐3402
plainly does not satisfy the important requirements of Rule
65(d).” Id. at 477.
The Court’s most recent word on the subject appears in
Abbott v. Perez, 138 S. Ct. 2305 (2018). There it reiterated that
appellate jurisdiction and compliance with Rule 65 are differ‐
ent requirements, which call for different inquiries. It did so
in the context of an appeal from a three‐judge district court
under 28 U.S.C. § 1253, rather than the more common inter‐
locutory appeal under 28 U.S.C. § 1292(a)(1). Importantly for
our purposes, it stated that these are “textually interlocked”
statutes, with the “same purpose” and “nearly identical” “rel‐
evant language.” Perez, 138 S. Ct. at 2320. The rules of con‐
struction and tests for the two, it confirmed, are the same. Id.
Perez thus puts to rest whatever doubt anyone may have re‐
tained about the applicability of Gunn and Schmidt to appel‐
late jurisdiction under section 1292(a)(1). Cf. BankDirect, 912
F.3d at 1058 (asking whether Section 1253 and Sec‐
tion 1292(a)(1) operate similarly with respect to appellate ju‐
risdiction over an order that does not comply with Rule
65(d)).
The Perez Court began its analysis of the purported injunc‐
tion with its jurisdiction, stating that:
§ 1253 must be strictly construed. But it also must be
sensibly construed, and here the District Court’s or‐
ders, for all intents and purposes, constituted injunc‐
tions barring the State from conducting this year’s elec‐
tions pursuant to a statute enacted by the Legislature.
Unless that statute is unconstitutional, this would seri‐
ously and irreparably harm the State, and only an in‐
terlocutory appeal can protect that State interest. As a
result, § 1253 provides jurisdiction.
No. 18‐3402 13
Perez, 138 S. Ct. at 2324 (citation omitted).
After confirming that it had jurisdiction, the Court turned
to Rule 65(d). The Court recalled that “as explained in Gunn
v. University Comm. to End War in Viet Nam, 399 U.S. 383, 389,
n. 4 (1970), [it had] never suggested that a failure to meet the
specificity requirements of Rule 65(d) would ‘deprive the
Court of jurisdiction under § 1253.’” Id. at 2321. Furthermore,
it emphasized that conflating the two doctrines would de‐
prive an appellate court of jurisdiction to review an order that
violates Rule 65(d). Such a result, it said, would defeat the
purpose of both the rule and appellate review:
A contrary holding would be perverse. Rule 65(d)
protects the party against which an injunction is issued
by requiring clear notice as to what that party must do
or refrain from doing. Where a vague injunction does
not comply with Rule 65(d), the aggrieved party has a
particularly strong need for appellate review. It would
be odd to hold that there can be no appeal in such a
circumstance.
For these reasons, we hold that we have jurisdiction
under § 1253 to hear an appeal from an order that has
the same practical effect as one granting or denying an
injunction.
Id. The “practical effects” test is in keeping with several im‐
portant interests: (1) the purpose of appellate review to relieve
parties of harmful erroneous orders; (2) the limits of standing
generally to injured persons, and (3) the command to construe
section 1292(a)(1) narrowly such that the court of appeals will
review only those orders in need of immediate attention. See
14 No. 18‐3402
Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271,
287–88 (1988); Carson v. Am. Brands, Inc., 450 U.S. 79, 84 (1981).
The order in our case, as we already have pointed out, had
the practical effect of an injunction on the parties, despite the
district court’s failure to comply with the letter of Rule 65(d).
Missing only the self‐contained document that is required (a
glitch that went unremarked by any of the parties), the district
court’s order prevented Corbett from operating his business.
It also required Auto Driveaway to secure that order with a
$10,000 bond. See Rule 65(c). This is ample for purposes of
appellate jurisdiction; there is thus no need to remand this
case to cure the Rule 65(d) defect.
III
All that remains is for us to decide whether the district
court abused its discretion when it entered the preliminary
injunction. See Ashcroft v. Am. Civil Liberties Union, 542 U.S.
656, 664 (2004). Although we confess to having some misgiv‐
ings about this injunction, for the most part we conclude that
it passes muster. The Supreme Court has held that “[a] plain‐
tiff seeking a preliminary injunction must establish that he is
likely to succeed on the merits, that he is likely to suffer irrep‐
arable harm in the absence of preliminary relief, that the bal‐
ance of equities tips in his favor, and that an injunction is in
the public interest.” Winter v. Natural Res. Def. Council, Inc.,
555 U.S. 7, 20 (2008). (We have considered Corbett’s remaining
arguments, but none has merit.)
The district court should have said more about at least two
things. True, it found that Auto Driveaway was likely to suc‐
ceed on the merits on several key points: the enforceability of
the restrictive covenants in the agreement; the existence of an
No. 18‐3402 15
implied‐in‐fact contract; and breach of such a contract. The
court also found that harm to consumer goodwill and loss of
customer relationships—both of which Auto Driveaway
claims—are irreparable harms. It further concluded that the
harm to Corbett and his companies from the preliminary in‐
junction was “minimal.” But it did not explain why a remedy
at law—that is, an award of damages at the conclusion of the
lawsuit—was inadequate. See Roland Mach. Co. v. Dresser In‐
dus., Inc., 749 F.2d 380, 386 (7th Cir. 1984). Perhaps Corbett
would not be able to pay any ultimate damages, but perhaps
he can do so easily: it is impossible to say on this record.
We also do not know why the district court chose such a
modest amount, $10,000, for Auto Driveaway to pay to protect
Corbett against the harm he will incur during the pendency
of the litigation, should he prevail at the end. When setting
the amount of security, we have instructed district courts to
“err on the high side.” Mead Johnson & Co. v. Abbott Labs., 201
F.3d 883, 888 (7th Cir.), opinion amended on denial of rehʹg, 209
F.3d 1032 (7th Cir. 2000). In the second amended complaint,
Auto Driveaway mentions that Corbett spent approximately
$85,000 just on the development of software for InnovAuto.
The $10,000 amount does not come close to securing even that
potential loss for Corbett, not to mention his other predictable
losses from being barred from the business. In contrast to the
inexplicably low bond amount, the injunction itself is a
sweeping one. It forbids Corbett and AD Richmond “from en‐
gaging, directly or indirectly, as an owner, operator, or in any
managerial capacity, in any ‘for‐hire’ motor carrier businesses
operating as either a common carrier or a contract carrier or
any business which operates or grants franchises or license to
others to operate a business that provides similar services
and/or products as those offered by Auto Driveaway
16 No. 18‐3402
Franchise Systems, LLC at or within a fifty mile radius of AD
Richmond’s former offices or any other territory with an Auto
Driveaway office … .” The vague reference to “any other ter‐
ritory with an Auto Driveaway office” raises the potential of a
geographic scope far broader than one limited to Corbett’s
Richmond operation, or the three locations he owned. Again,
perhaps that is justifiable, but the scope of the injunction is
directly related to the amount of the security required.
Accordingly, we AFFIRM the order of the district court in‐
sofar as it preliminarily enjoins Corbett and AD Richmond
from operating as a franchisee or de facto franchisee of Auto
Driveaway, and insofar as it prohibits them from using any of
the contested technology, apps, or trademarks. On remand,
the district court should address the question whether to in‐
crease the security bond imposed on Auto Driveaway. Be‐
cause the district court is better suited than this court to con‐
sider the question of the adequacy of legal relief in the form
of damages as a full substitute for the injunction, we leave that
matter undisturbed. Corbett and AD Richmond may, if they
wish, ask the district court to reconsider that argument.
SO ORDERED.