Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—W.D. Wash.: Terminated dealer enjoined from selling competing wireless products and services, (Nov 5, 2015)

By Michael Menzhuber, J.D., LL.M.

The federal district court in Seattle, Washington granted MetroPCS Pennsylvania, LLC (MPCS) a final injunction which enjoined a former dealer and it vice-president from operating any type of competing wireless telephone or wireless internet data service, in violation of the parties’ dealer agreement (MetroPCS Pennsylvania, LLC v. Arrak, November 4, 2015, Robart, J.).

Background. City Wireless Inc. (CWI) entered into a dealer agreement with MPCS to sell MPCS wireless products and provide service to its customers. CWI’s vice-president, Aimen Arrak, signed the dealer agreement on behalf of CWI.

The dealer agreement contained non-solicitation and a non-compete provisions, both of which were in effect during the term of the agreement and for a period of six months after termination of the agreement. The non-solicitation provision prohibited CWI from soliciting or diverting MPCS customers from patronizing MPCS. The non-compete provision prohibited CWI from operating any type of wireless telephone or wireless Internet data service within a two-mile radius of MPCS storefront locations.

CWI later breached the dealership agreement and MPCS terminated the agreement. A month after terminating the agreement, MPCS learned that one of CWI’s former MPCS stores was still open and was selling wireless services for a MCPS competitor. After sending a cease-and-desist letter, MPCS filed an action against CWI and Arrak (collectively, “defendants”) seeking preliminary injunctive relief to stop the defendants from violating the terms of the dealership agreement’s non-solicitation and non-compete provisions. The court granted the motion for a maximum period of 142 days, the number of days remaining in the period of restriction under the non-solicitation and non-compete provisions.

The defendants did not modify their behavior and MPCS then moved for a final injunction.

Final injunction. The court noted that, to be entitled to a permanent or final injunction, a plaintiff must demonstrate: (1) actual success on the merits; (2) that it has suffered an irreparable injury; (3) that the remedies available at law are inadequate; (4) that the balance of hardships justifies a remedy in equity; and (5) that the public interest would not be disserved by a permanent injunction.

The court determined that dealership agreement’s non-solicitation and non-compete provisions were enforceable because they operated for only six months after termination of the dealer agreement and were reasonable necessary to protect MPCS’s business. Also, the non-compete provision operated only within a two-mile radius of the defendants’ former storefronts. The defendants were violating these provisions because they continued to sell competing products and services.

Additionally, MPCS had suffered irreparable harm and remedies at law would be inadequate based on MPCS’ showing that: (1) the nature of its business made it vulnerable to losing customer after its relationship with a dealer ended; and (2) the defendants were exploiting this vulnerability by offering competing products and services at their former MPCS storefront.

The balance of hardships justified an injunction. MPCS remained at risk of losing customers and sustaining damages to its goodwill absent injunction relief, and an injunction threatened the defendants only with the inability to compete with MPCS within a small area for only a few months.

Finally, the court determined that the public interest would not be disserved by a final injunction because: (1) the limited scope of the restrictions would make it unlikely to have a significant adverse impact on nonparties; and (2) the public interest benefits from the enforcement of business contracts, including reasonably necessary non-compete agreements.

The case is No. C15-0769JLR.

Attorneys: Timothy Michael Moran (Kipling Law Group PLLC) for MetroPCS Pennsylvania, LLC.

Companies: MetroPCS Pennsylvania, LLC; City Wireless, Inc.

Cases: FranchisingDistribution WashingtonNews