Gionino's Pizzeria, Inc. v. Reynolds

2021 Ohio 1289

• Court: Ohio Court of Appeals
• Decided: March 31, 2021
• Docket: 20 CA 0940
• Status: Published

Opinion

[Cite as Gionino's Pizzeria, Inc. v. Reynolds, 2021-Ohio-1289.]

IN THE COURT OF APPEALS OF OHIO SEVENTH APPELLATE DISTRICT CARROLL COUNTY

GIONINO'S PIZZERIA INC.,

Plaintiff-Appellant,

v.

JAMES F. REYNOLDS JR., et al.,

Defendants-Appellees.

OPINION AND JUDGMENT ENTRY Case No. 20 CA 0940

Civile Appeal from the Court of Common Pleas of Carroll County, Ohio Case No. 2019 CVH 29449

BEFORE: Cheryl L. Waite, Gene Donofrio, David A. D’Apolito, Judges.

JUDGMENT: Reversed and Remanded.

Atty. Clair E. Dickinson, Atty. Nicholas P. Capotosto, Atty. Daniel L. Silfani, and Atty. Christopher T. Teodosio, Brouse McDowell, L.P.A., 388 South Main Street, Suite 500, Akron, Ohio 44311, for Plaintiff-Appellant.

Atty. Jude B. Streb and Atty. Justin S. Greenfelder, 4277 Munson Street NW, Canton, Ohio 44718, for Defendants-Appellees. –2–

Dated: March 31, 2021

WAITE, J.

{¶1} Appellant Gionino’s Pizzeria, Inc., appeals from a judgment of the Carroll

County Court of Common Pleas granting in part and denying in part Appellant’s motion

for a preliminary and permanent injunction against Appellees, James Reynolds

(“Reynolds”) and Livinthedream, Inc. For the following reasons, we reverse the judgment

of the trial court and remand the matter for a hearing on Appellant’s motion for injunctive

relief.

Factual and Procedural History

{¶2} Appellant operates over 45 pizzeria franchises in the region. In 2006,

Jeremy Larkin (“Larkin”), Mark Mitchell and JAE Twin, Inc. (collectively “JAE Twin”),

entered into a franchise agreement with Appellant to open a Gionino’s Pizzeria franchise

in Carrollton, Ohio. In 2009 JAE Twin was looking to sell the franchise. JAE Twin

subsequently sold the franchise to Appellees, James F. Reynolds and Livinthedream,

Inc., purportedly pursuant to a written agreement. Reynolds had worked for JAE Twin at

the Carrollton Gionino’s franchise for a number of years and was familiar with the

operation of the pizzeria.

{¶3} The parties have differing accounts of the nature of the franchise sale,

including: (1) whether any contractual relationship exists at all between the parties; (2)

the terms and conditions of the sale of the franchise and whether the sale properly

incorporated the original franchise agreement between Appellant and JAE Twin. JAE

Twin, through the testimony of, Larkin, testified at trial that he drafted a written sale

Case No. 20 CA 0940 –3–

agreement and provided it to Appellees for signature. A copy of the Gionino’s franchise

agreement was attached to the sale agreement when given to Appellees. Both parties

agree that a fully executed sale agreement between JAE Twin and Appellees has never

been made part of the record. However, Appellees’ accountant produced a copy of a

written sale agreement containing only Appellee Reynold’s signature, which was not

witnessed. A copy of the Gionino’s franchise agreement was not attached. The sale

agreement signed by Reynolds was admitted into evidence at trial as Plaintiff’s Exhibit 5.

The sale agreement itself refers to “a certain Sales Agreement.” Appellant contends this

language is actually a reference to the Gionino’s franchise agreement. The lion’s share

of Appellant’s arguments are based on this sale agreement and the alleged incorporation

by reference of the Gionino’s franchise agreement. All described facts are derived from

a statement of evidence made pursuant to App.R. 9(C) and issued by the trial court, after

an opportunity for objections and amendments by both parties. A technical difficulty

prevented the hearing held by the trial court from being recorded.

{¶4} Exhibit 5 provides that “[s]eller shall assign all rights and liabilities created

by a certain Sales Agreement attached hereto and made with Gionino’s Pizzeria, Inc.”

(Statement of Evidence, p. 8.). Exhibit 5 also recites that Appellees were purchasing

“assets, goodwill, going concern value and right to use the name of Gionino’s Pizzeria”

for a purchase price of $65,000. (Statement of Evidence, p. 8.) Exhibit 5 allowed

Appellant the right of first refusal under the “aforementioned Agreement” which, again,

Appellant contends is a reference to the Gionino’s franchise agreement. (Statement of

Evidence, p. 8.)

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{¶5} Appellant asserts that the original franchise agreement incorporated into the

sale agreement required that any Gionino’s franchise assignment must be preapproved

by Appellant and that any assignment must also acknowledge that all rights assigned to

Appellees were subject to the rights of Appellant as set forth in that Gionino’s franchise

agreement, including a covenant not to compete. There is evidence that Appellant

provided consent to the transfer and Appellees paid the required $5,000 franchise transfer

fee, as memorialized in a letter dated March 30, 2009 from Appellant to JAE Twin, made

part of the record. (Statement of Evidence, Exh. 3.) In 2012 Appellees requested menu

changes to accommodate their lack of sales of certain items, which was approved by

Appellant. The Gionino’s franchise agreement required Appellees to purchase food items

from Appellant’s exclusive food distributor, Hillcrest Foods. Appellees acknowledged in

their written business plan that they were required to use Hillcrest Foods, but that they

also intended to purchase certain items at wholesale clubs in order to save money.

(Statement of Evidence, Exh. 6.). Appellant discovered that Appellees were purchasing

food items from other suppliers in breach of the franchise agreement, causing product

inconsistency. Appellees were then informed in writing that they were in breach of the

Gionino’s franchise agreement. A copy of the cease and desist letter was made a part of

the record filed under seal. (Statement of Evidence, Exh. 11.) Appellees failed to correct

their behavior and Appellant terminated the franchise on October 14, 2019. The cease

and desist letter included a termination notice which, pursuant to the Gionino’s franchise

agreement, required Appellees to: (1) cease and desist from holding themselves out to

be a Gionino’s Pizzeria franchise, including forfeit of the name, marks, recipes,

trademarks and trade secrets, signs or symbols; (2) submit all outstanding franchise

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reports along with all outstanding franchise fees, advertising fees and royalty payments;

(3) cease and desist from using any of Appellant’s confidential manuals, forms and

recipes; and (4) transfer their telephone number to Appellant. (Statement of Evidence,

Exh. 11.) After the termination of the Gionino’s franchise, Appellees changed their

business name to Jimmy’s Pizzeria, but continued to use the same location and the same

telephone number. Appellant contends this conduct violates the terms of the franchise

agreement and caused damage to Gionino’s reputation and goodwill by causing customer

confusion.

{¶6} According to Appellees’ version of events, they were never made a party to

the Gionino’s franchise agreement and never agreed to be bound by its terms. This

argument is entirely based on the failure to produce a fully executed sale agreement with

the reverenced attachment for the record. Appellees point out that Appellant is unable to

present a fully executed sale agreement and the agreement presented by Appellant does

not specifically refer to a “franchise” agreement. Appellees maintain they never entered

into a written sale agreement with JAE Twin and initially claimed to the trial court that a

sale agreement was never presented by JAE Twin. However, Appellee Reynolds

ultimately testified at the hearing that he did get such a document and gave a copy of the

agreement to his accountant. Once Appellant’s subpoenaed this accountant, Exhibit 5

was produced by Appellees. Appellee Reynolds has never disputed that it is his signature

on the only copy of the sale agreement entered into evidence and acknowledged that it

stated that Appellees were purchasing the assets, goodwill and going concern of

Gionino’s Pizzeria for $65,000. (Statement of Evidence, p. 10.) Appellee Reynolds also

testified in his deposition that he had signed a commercial security agreement with

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Portage Community Bank as the president of “Livinthedream, Inc. dba Gionino’s Pizzeria”

and a copy of that security agreement was made a part of the record. Appellees

acknowledge that Appellant’s approval was required for the transfer and do not dispute

that they paid the $5,000 franchise transfer fee. However, Appellees maintain on appeal

that they had only an oral contract with Appellant, the terms of which required they pay

Appellant a monthly royalty of 4% in exchange for the right to use the Gionino’s trade

name, recipes and trademarks and to have the Carrollton franchise listed on the Gionino’s

corporate website. Appellees state that after Appellant terminated the relationship on

October 14, 2019, they immediately ceased utilizing any of Appellant’s trade secrets and

no longer possess any of Appellant’s trade secrets or proprietary information. Appellees

argue that five days after termination they opened up “Jimmy’s Pizzeria” at the same

location as the Gionino’s franchise and using the same phone number because they were

not bound by any of the franchise termination requirements as alleged by Appellant. They

contend the only relevant term in this oral agreement was payment of a 4% monthly

royalty, but only so long as they were operating as a Gionino’s.

{¶7} Appellant originally brought suit against Appellees in Summit County

Common Pleas Court. That court transferred venue to Carroll County. According to the

verified complaint, Appellant raised claims regarding breach of contract, misappropriation

of trade secrets, unfair competition, and promissory estoppel. Appellant sought not only

monetary damages but asked the court for injunctive relief to enjoin Appellees from

operating a pizza shop in Carrollton at the same location and with the same phone

number, and to enjoin Appellees from using any of Appellant’s trade secrets or other

proprietary information.

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{¶8} On November 15, 2019, Appellant filed a motion for a temporary restraining

order and a preliminary injunction, asserting that injunctive relief was necessary to protect

their trade secrets, proprietary information and the unfair competition caused by

Appellees’ breach of the assigned franchise agreement. A deposition of Reynolds was

taken on December 18, 2019. At his deposition, Reynolds testified that he bought the

tangible assets of the Gionino’s franchise including the equipment, recipes and operations

manuals. He also testified that he was assigned the lease for the Gionino’s franchise.

{¶9} On January 7, 2020, the trial court held an evidentiary hearing, purportedly

on the preliminary injunction motion. Three witnesses testified at the hearing: (1) Samuel

Owen, President of Gionino’s Pizzeria; (2) Larkin, a Gionino’s franchise owner who had

assigned the franchise to Appellees; and (3) Appellee Reynolds. Owen testified that he

executed the Gionino’s franchise agreement between Appellant and JAE Twin. A copy

of that franchise agreement was admitted into evidence under seal. (Statement of

Evidence, Exh. 1.) Owens testified that he felt comfortable with Appellees taking over as

a Gionino’s franchisee because Appellee Reynolds had worked at the Carrollton location

since 2006. (Statement of Evidence, p. 3.) An unsigned copy of the sale agreement

transferring the franchise to Appellees was admitted into evidence (Statement of

Evidence, Exh. 2) as well as the March 30, 2009, letter memorializing the transfer of the

Gionino’s franchise and serving as a receipt for payment of the $5,000 transfer fee by

Appellees. (Statement of Evidence, Exh. 3.) Finally, a copy of an assignment of lease

related to the transfer of the lease for the real property in which the Carrollton Gionino’s

franchise operated was also admitted. (Statement of Evidence, Exh. 4.)

Case No. 20 CA 0940 –8–

{¶10} Larkin testified that he was the previous owner of the Carrollton Gionino’s

franchise and owns several other Gionino’s franchises. He also serves as an area sales

representative. Larkin testified that he entered into a signed sale agreement with

Appellees to transfer the Gionino’s franchise in question to Appellees. He testified that

four days before the hearing, Appellant had obtained, through a subpoena served on

Appellees’ accountant, a copy of the sale agreement signed only by Appellee Reynolds.

This copy of the sale agreement was also admitted into evidence at the hearing.

(Statement of Evidence, Exh. 5.) Larkin testified that he had searched his business files

for the sale agreement and found one from another franchise that was similar to the one

presented to Appellees. He recalled drafting Exhibit 5 and providing it, with the franchise

agreement attached to it, to Reynolds for his signature. (Statement of Evidence, p. 9.)

He testified that the franchise agreement was referred to in the sale agreement as “Sales

Agreement”. (Statement of Evidence, p. 9.) The sale agreement obtained from

Appellees’ accountant contained a provision that Appellant had the option to purchase

the franchise pursuant to the “aforementioned Agreement,” which Larkin testified actually

meant the franchise agreement. (Statement of Evidence, p. 9.) Their agreement also

provided that Appellant had to consent to the transfer of the Gionino’s franchise to

Appellees. Larkin also testified that he had assisted in obtaining the transfer fee from

Appellees in the amount of $5,000. (Statement of Evidence, p. 9.)

{¶11} Appellees presented the testimony of James Reynolds. He testified that he

was aware the sale agreement existed and that the transfer letter he received from

Appellant and provided to his bank indicated that Appellant had approved of the transfer

“of the franchise agreement” in exchange for the payment of $5,000. The letter was

Case No. 20 CA 0940 –9–

admitted into evidence at the hearing. (Statement of Evidence, Exh. 3.) Reynolds

testified that while he had provided an affidavit earlier in the case stating he was not aware

that a written sale and franchise agreement existed between Appellant and JAE Twin, he

was now aware that such a sale agreement existed but he had never asked to see this

agreement. (Statement of Evidence, p. 10.) Reynolds stated he never saw the sale

agreement and that he did not recall giving it to his accountant. However, Reynolds did

not dispute that he had given it to her or that this sale agreement had come from her files.

(Statement of Evidence, p. 10.) Reynolds testified that he had been buying food items

from Atlantic Foods rather than exclusively from Hillcrest Foods even though the business

plan he had submitted to his bank to obtain a loan for the business reflected that he knew

he was required to buy from Hillcrest exclusively. A copy of the business plan was

admitted into evidence. (Statement of Evidence, Exh. 6.) Reynolds testified that after

termination of the Gionino’s franchise, he opened Jimmy’s Pizzeria and continued to use

the same telephone number and operate from the same location as the Gionino’s

franchise. Reynolds testified that Jimmy’s Pizzeria continued to use the same point of

sale system, a system that had collected customer data while he was operating the

Gionino’s franchise. Reynolds testified that he was aware a Gionino’s franchise

agreement contains restrictive covenants and that he was openly competing by operating

Jimmy’s Pizzeria and employing former Gionino’s employees. (Statement of Evidence,

p. 12.)

{¶12} On January 8, 2020, the day following the hearing, the parties filed a joint

stipulated protective order. The terms included that all documents produced during

discovery, including all exhibits, deposition testimony and responses to discovery, would

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be deemed confidential where necessary. Either party could designate documents as

confidential after making a good faith determination the document contained information

that was protected from disclosure; including confidential personal information, medical

information, trade secrets, personnel records, or other commercial information that was

not publicly available. Any documents labeled “confidential” would be filed under seal.

The opposing party could challenge the confidential designation of any document and the

trial court was then authorized to make a determination as to the confidential nature of

the document in question. On January 8, 2020, Appellant filed a motion to file a number

of items under seal to protect trade secrets and other proprietary information, including:

Appellant’s Gionino’s franchise agreement attached to their complaint as an exhibit; a

copy of the assignment of lease attached to the verified complaint; Appellant’s preliminary

injunction brief and the attached exhibits; and the deposition of James Reynolds. The

trial court granted the motion and the documents were ordered sealed in the record.

{¶13} On January 28, 2020, the trial court issued an order which purported to

grant the preliminary injunction in part and deny it in part. In this order the court

concluded: (1) Appellant’s motion for preliminary injunction on the basis of breach of

contract was denied because Appellant failed to prove a contract existed between

Appellant and Appellees; (2) regarding the relief sought for misappropriation of trade

secrets, Appellant presented sufficient evidence that Appellees possessed operations

manuals, recipes, printed forms and a point of sale system that tracked customers; (3)

regarding unfair competition, the trial court concluded that Appellant’s unfair competition

claim was essentially a noncompete claim, and better suited to Appellant’s breach of

contract argument, but that Appellant had failed to establish a breach of contract.

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{¶14} Based on the decision to partially grant a preliminary injunction, the trial

court ordered Appellees to stop using any of Appellant’s recipes, manuals, trade secrets,

programs, or customer lists, and to remove all customer information and data tracking

from equipment acquired prior to October 14, 2019. Appellees were also ordered to

review all of their advertising materials to ensure they contained no reference to

Appellant’s trademark name.

{¶15} The trial court’s App.R. 9(C) statement of evidence and the accompanying

exhibits were filed under seal pursuant to the joint stipulated protection order.

{¶16} It is from the January 28, 2020 order that Appellant filed this timely appeal.

Jurisdiction

{¶17} Before addressing Appellant’s assignments of error, we must consider

whether the preliminary injunction order is a final appealable order subject to appellate

review. The Ohio Constitution limits an appellate court’s jurisdiction to the review of final

judgments. (Section (3)(B)(2), Article IV, Ohio Constitution.) In the absence of a final

appealable order, we must dismiss the appeal for lack of subject matter jurisdiction.

Helmstedter v. Helmstedter, 9th Dist. No. 24237, 2009-Ohio-3559, ¶ 9. Generally, an

order denying a preliminary injunction is not a final order because preliminary injunctions

are considered interlocutory and impermanent in nature. N. Fairfield Baptist Church v.

G129, 12th Dist. Butler No. CA2009-11-281, 2010-Ohio-2543, ¶ 16. However, R.C.

2505.02 sets forth a two-prong test. If both prongs are met, the order will be considered

final and appealable. Id. It provides in pertinent part:

(A) As used in this section:

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***

(3) “Provisional remedy” means a proceeding ancillary to an action,

including, but not limited to, a proceeding for a preliminary injunction * * *

(B) An order is a final order that may be reviewed, affirmed, modified, or

reversed, with or without retrial, when it is one of the following:

(4) An order that grants or denies a provisional remedy and to which both

of the following apply:

(a) The order in effect determines the action with respect to the provisional

remedy and prevents a judgment in the action in favor of the appealing party

with respect to the provisional remedy.

(b) The appealing party would not be afforded a meaningful or effective

remedy by an appeal following final judgment as to all proceedings, issues,

claims, and parties in the action.

R.C. 2502.02.

{¶18} The parties do not dispute that preliminary injunction is a provisional

remedy. However, the crux of the conflict is whether in denying some of the requested

relief, the court entirely precluded a judgment in Appellant’s favor and whether subsection

(b) applies. That is, whether Appellant would have a meaningful and effective remedy by

filing a later appeal following a later judgment. Appellant concedes that typically, a

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judgment denying a preliminary injunction in part or in whole is not final. In this case,

Appellant contends the preliminary injunction relates to a noncompete agreement and it

would suffer “immediate irreparable damage” because its trade secrets may be revealed,

its privileged information may be disclosed, and its business relationships with its

customers may be destroyed. (Appellant’s Reply Brf., p. 2.) Appellant also cites our

decision in Blakeman’s Valley Office Equip., Inc. v. Bierdeman, 152 Ohio App.3d 86,

2003-Ohio-1074, 786 N.E.2d 917 (7th Dist.). In Blakeman’s, an assignee of a buyer’s

interest in a sale agreement containing a covenant not to compete filed a complaint

against the seller. The trial court denied assignee’s motion seeking a preliminary

injunction. We reversed and granted the preliminary injunction, concluding the covenant

not to compete was assignable and enforceable. There was no analysis of whether the

trial court had issued a final appealable order, but we held: “This case is a final

appealable order under the current versions of R.C. 2502.02(A)(3) and (B)(4), which

specifically include a ‘preliminary injunction’ as a final appealable order.” Id. at ¶ 2.

Appellant cites Blakeman’s for the blanket proposition that the denial of preliminary

injunction seeking enforcement of a covenant not to compete is final and appealable.

{¶19} Appellees claim the partial denial of the preliminary injunction here does not

preclude a meaningful or effective remedy on appeal following final judgment because

Appellant is not precluded from pursuing any remaining breach of contract,

misappropriation of trade secrets, and unfair competition claims in the trial court, and has

not been denied a final remedy in the matter. Appellees argue that Appellant’s reliance

on Blakeman’s is misplaced for this reason.

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{¶20} In determining whether an appellant will be denied a meaningful, effective

remedy if the decision on the provisional remedy is not immediately appealable, the Ohio

Supreme Court has stated:

[R.C. 2502.02(B)(4)(b)] recognizes that in spite of courts’ interest in avoiding

piecemeal litigation, occasions may arise in which a party seeking to appeal

from an interlocutory order would have no adequate remedy from the effects

of that order on appeal from final judgment. In some instances, “[t]he

proverbial bell cannot be unrung and an appeal after final judgment on the

merits will not rectify the damage” suffered by the appealing party.

State v. Muncie, 91 Ohio St.3d 440, 451, 746 N.E.2d 1092 (2001).

{¶21} There have been instances where a preliminary remedy has been deemed

a final order where the order compelled documents containing trade secrets or production

of privileged communications or contained the denial of a request to enforce a

noncompete agreement. See Callahan v. Akron Gen. Med. Ctr., 9th Dist. Summit No.

22387, 2005-Ohio-5103, ¶ 28; LCP Holding Co. v. Taylor, 158 Ohio App.3d 546, 2004-

Ohio-5324, 817 N.E.2d 439, ¶ 28 (11th Dist.); Premier Health Care Serv., Inc. v.

Schneiderman, 2d Dist. Montgomery 18795, 2001 WL 1479241.

{¶22} In Blakeman’s, although there was no analysis, we concluded that because

the covenant not to compete was valid and assignable, it was necessary to have the

preliminary order reversed in order for Appellant to protect its rights under that covenant.

Blakeman’s, ¶ 40.

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{¶23} In the instant matter, Appellant sought both preliminary and permanent

injunctive relief in its complaint. The motion for a temporary restraining order and

preliminary injunction asserted that relief was necessary to protect their trade secrets,

proprietary information and to protect them from unfair competition based on three claims:

breach of contract; misappropriation of trade secrets; and unfair competition. The trial

court partially denied relief with regard to the unfair competition claims. However, the

court determined that Appellant failed to prove the existence of a contract between the

parties. The court also concluded that Appellant’s unfair competition claim was based on

the noncompete clause found in the Gionino’s franchise agreement, and that this claim

failed because there was no proof the parties agreed to be bound by any franchise

agreement. The trial court granted limited injunctive relief based on Appellant’s claim for

misappropriation of trade secrets and ordered Appellees enjoined from using any of

Appellant’s manuals, recipes, printed forms and the like; erasing some data from the point

of sale equipment; and reviewing all advertising and marketing materials to ensure that

Appellant’s proprietary information did not appear, to avoid creating customer confusion.

In reading the order as a whole, the trial court essentially completely disposed of

Appellant’s breach of contract and unfair competition claims. In ruling that no contract for

sale contract of the business existed, thus the parties were subject to no valid franchise

agreement, the trial court of necessity precluded any further action on these claims.

Based on the trial court’s ruling in preliminary injunction, the trial court has, in effect,

barred Appellant from any meaningful or effective remedy on the rest of Appellant’s

claims. Other than the trial court’s calling its decision a preliminary injunction, the decision

for all intents and purposes disposes of all of Appellant’s claims for relief. For this reason,

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we conclude that this is a final appealable order pursuant to R.C. 2502.02 and this Court

has subject matter jurisdiction over the matter.

ASSIGNMENT OF ERROR NO. 1

THE TRIAL COURT INCORRECTLY DETERMINED THAT THE SALES

AGREEMENT SIGNED BY MR. REYNOLDS DID NOT CONSTITUTE AN

ENFORCEABLE CONTRACT BECAUSE A COPY OF THE SALES

AGREEMENT SIGNED BY ALL PARTIES WAS NOT LOCATED.

ASSIGNMENT OF ERROR NO. 2

THE TRIAL COURT'S FAILURE TO DETERMINE THAT THE FRANCHISE

AGREEMENT V/AS ASSIGNED TO MR. REYNOLDS AND

LIVINTHEDREAM WAS AGAINST THE MANIFEST WEIGHT OF THE

EVIDENCE.

ASSIGNMENT OF ERROR NO. 3

THE TRIAL COURT INCORRECTLY DETERMINED THAT GIONINO'S

WAS NOT ENTITLED TO INJUNCTIVE RELIEF TO ENFORCE THE

RESTRICTIONS IN THE FRANCHISE AGREEMENT AGAINST MR.

REYNOLDS AND LIVINTHEDREAM.

ASSIGNMENT OF ERROR NO. 4

THE TRIAL COURT INCORRECTLY DETERMINED THAT THE

TELEPHONE NUMBER ASSOCIATED WITH GIONINO'S CARROLLTON

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FRANCHISE LOCATION FOR THIRTEEN YEARS WAS NOT REQUIRED

TO BE TRANSFERRED TO GIONINO'S UPON TERMINATION OF THE

FRANCHISE.

ASSIGNMENT OF ERROR NO. 5

THE TRIAL COURT INCORRECTLY DETERMINED THAT MR.

REYNOLDS AND LININTHEDREAM'S CONTINUED USE OF THE

TELEPHONE NUMBER FOR "JIMMY'S PIZZERIA" IS NOT UNFAIR

COMPETITION WITH GIONINO'S INC.

{¶24} Appellant’s assignments of error relate to the two contracts at issue in this

matter: the alleged written sale agreement between JAE Twin and Appellees and the

original Gionino’s franchise agreement between Appellant and JAE Twin, which Appellant

contends was assumed by or assigned to Appellees when purchase of the franchise was

approved and finalized.

{¶25} Appellant argues in its first assignment of error that the trial court erred in

concluding no contract existed between the parties because copy of the agreement that

was signed by all parties was not submitted into evidence at trial. Appellant argues this

presents a matter of contract interpretation, which is a question of law requiring a de novo

review.

{¶26} A trial court’s judgment regarding whether to grant an injunction is reviewed

under an abuse of discretion standard. Danis Clarkco Landfill Co. v. Clark Cty. Solid

Waste Mgt. Dist., 73 Ohio St.3d 590, 653 N.E.2d 646 (1995), paragraph three of the

syllabus. An abuse of discretion is more than an error of judgment; it implies that the

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court's attitude is unreasonable, arbitrary, or unconscionable. Yashphalt Seal Coating,

LLC v. Giura, 7th Dist. Mahoning No. 18 MA 0107, 2019-Ohio-4231, ¶ 14, citing

Blakemore v. Blakemore, 5 Ohio St.3d 217, 219, 450 N.E.2d 1140 (1983). The purpose

of a preliminary injunction is to preserve the status quo between the parties pending a

judgment on the merits. Chapin v. Nameth, 7th Dist. Mahoning No. 08 MA 18, 2009-

Ohio-1025, ¶ 16. A party requesting a preliminary injunction must show: (1) there is a

substantial likelihood the party will prevail on the merits; (2) the party will suffer irreparable

injury if the injunction is not granted; (3) no third parties will be unjustifiably harmed if the

injunction is granted; and (4) the public interest will be served by the injunction. Chapin,

¶ 16. Each element must be established by clear and convincing evidence. Cleveland

v. Cleveland Elec. Illum. Co., 115 Ohio App.3d 1, 14, 684 N.E.2d 343 (8th Dist.1996). No

one factor is dispositive as the court must balance all factors and weigh the equities.

Blakeman’s, ¶ 20-21.

{¶27} Appellant moved for a preliminary and permanent injunction based on three

claims: (1) breach of contract; (2) misappropriation of trade secrets; and (3) unfair

competition. In reality, all of the Appellant’s grounds for seeking injunctive relief rely on

whether a contractual relationship exists between the parties. To prevail on a breach of

contract claim, Appellant must demonstrate the existence of a valid contract, performance

by one party, breach by the opposing party, and that the performing party suffered

damages or loss. Price v. Dillon, 7th Dist. Mahoning Nos. 07-MA-75, 07-MA-76, 2008-

Ohio-1178, ¶ 48. The question regarding the existence of a contract raises a mixed

question of fact and law. We accept the relevant facts found by the trial court that are

Case No. 20 CA 0940 – 19 –

supported by some competent, credible evidence, but review de novo the application of

the law to the facts.

{¶28} The trial court denied Appellant’s breach of contract claim concluding there

were two major defects. The first relates to Appellant’s first assignment of error and

involves whether an agreement existed between Appellees and JAE Twin for the sale of

the Gionino’s franchise. Neither party was able to produce a fully executed written sale

agreement between Appellees and JAE Twin. Citing American States Ins. Co. v.

Honeywell, Inc., 8th Dist. Cuyahoga No. 56552, 1990 WL 19319 *6, Appellant argues that

it was not necessary for both parties to sign an agreement for it to be enforceable against

the party to be charged with breach under the agreement. Known as constructive

ratification, a partially signed contract must be considered in light of the subsequent

conduct of the parties and whether their behavior shows that they were proceeding as if

the contract were in effect. Hocking Valley Community Hospital v. Community Health

Plan of Ohio, 4th Dist. Hocking No. 02CA28, 2003-Ohio-4243, ¶ 16. That is, a contract

may be found to exist where the parties’ behavior is consistent with the terms of an

unsigned or unwritten contract. Brown v. Lagrange Dev. Corp., 6th Dist. Lucas No. L-09-

1099, 2015-Ohio-133, ¶ 12 citing Richard A. Berjian, D.O., Inc. v. Ohio Bell Tel. Co., 54

Ohio St.2d 147, 152, 375 N.E.2d 410, 413 (1978). In Honeywell, a contract was found to

exist between a theft alarm company and a commercial customer where the customer

requested a series of changes in equipment orders as specified in the written contract,

although only the alarm company agent had signed the contract. This Court has held

that, conversely, where the record demonstrates one party has clearly not acted in

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accordance with an essential term of a contract, no constructive ratification has occurred.

Ameritech v. Hayman, 7th Dist. Jefferson No. 94-J-45, 1995 WL 708578, *2.

{¶29} In the instant matter, the trial court correctly found that neither party

presented a fully executed written sales agreement for the transfer of the Gionino’s

franchise from JAE Twin and Appellees. The only copy submitted was the product of a

subpoena to Appellees’ accountant, and this copy contained only Appellee Reynolds’

unwitnessed signature. Although Reynolds first testified that he did not remember ever

receiving a contract, he later testified that he did give it to his accountant and did not

dispute that his signature is on the contract or that it was held by his accountant. This

record reveals the only signature on this document is from the party who is not seeking

to enforce the contract. This is evidence that must be considered when determining

whether a valid sale contract existed. While this sale agreement does refer to an

attachment, the attachment is not specifically called a Gionino’s “Franchise Agreement.”

Instead, the document cites; somewhat confusingly, to another “Sales Agreement.” The

referenced “Sales Agreement” is not attached to the partially signed agreement for the

sale of the business. Thus, the terms of the incorporated “Sales Agreement” are in

question. But the record does show that Appellees were also aware of and operating

under at least some of the terms found in a Gionino’s franchise agreement, and there is

a Gionino’s franchise agreement in this record under which Appellant had operated and

which it transferred to Appellees in the sale.

{¶30} It is undisputed that Appellees sought and received financing for the

purchase of a Gionino’s franchise and subsequently began operating as a Gionino’s

franchise in 2009. They continued to so operate for ten years, until October 14, 2019.

Case No. 20 CA 0940 – 21 –

Appellees’ written business plan admitted into evidence states that Appellees sought

financing “to purchase Gionino’s Pizzeria” because “[t]his franchise has a great reputation

for a quality product and great customer service.” Appellees applied for $70,000 to “pay

the purchase price of $65,000 to JAE Twin, Inc. and to pay the franchise transfer fee of

$5,000,” acknowledging that a Gionino’s franchise was being transferred or assigned to

Appellees. (Statement of Evidence, Exh. 6.) The business plan also states that Reynolds

was aware that the Gionino’s franchise agreement stated Hillcrest Foods was the

exclusive food supplier for Gionino’s franchises, even though he was planning to

purchase some items from other wholesalers to lower costs. Moreover, Reynolds testified

in his deposition that he had purchased the assets of the franchise from JAE Twin and

executed an assignment of the lease for the location. The record is clear that although

no one presented a sale agreement executed by both Appellees and JAE Twin, the

parties all conducted themselves according to the terms and conditions of the sale

agreement. Richard A. Berjian, D.O., Inc. at 152. Moreover, Appellees acknowledged

the key terms of the sale agreement, including purchase price, the Gionino’s franchise

transfer fee requirement and the purchase of all assets of the franchise in their business

plan, and conducted themselves accordingly. It was the contractual relationship which

enabled Appellees to lawfully operate a Gionino’s franchise for ten years until it was

terminated by Appellant. A review of this record shows evidence establishes not only that

a valid sale agreement existed, thus a contractual relationship existed between Appellees

and JAE Twin, but also contains evidence that Appellees behaved as though they were

subject to the Gionino’s franchise agreement, as well.

Case No. 20 CA 0940 – 22 –

{¶31} According to the trial court, the second defect in Appellant’s breach of

contract claim is that Appellant failed to establish Appellees were bound by the terms of

the original franchise agreement, because the sale agreement, even if it existed, did not

adequately refer to a Gionino’s franchise agreement and the franchise agreement itself

was not attached to either sale agreement admitted into evidence. All of the claims

Appellant alleges relating to the noncompete and unfair competition claims are directly

dependent on the existence of a valid franchise agreement between the parties.

{¶32} Appellant asserts that the trial court erred in concluding the franchise

agreement was not transferred and assigned to Appellees and that Appellant was not

entitled to injunctive relief, including the transfer of the telephone number used to operate

as a Gionino’s pizzeria as required in the franchise agreement. Again, Appellant

maintains that the sale agreement adopted and included the Gionino’s franchise

agreement when it referred to “a certain Sales Agreement” within the sale agreement and

that this can only be a direct reference to the franchise agreement. Larkin testified he

understood that the language “a certain sales agreement” was intended to refer to the

Gionino’s franchise agreement. (Statement of Evidence, p. 9.) Reynolds disputed this,

and testified that this was not his understanding. However, he also testified that he had

never read the sale agreement. (Statement of Evidence, p. 10.) Owen and Larkin

testified that Larkin had attached a copy of the franchise agreement to the sale agreement

when he presented it to Appellees. Appellees did not dispute this fact. However,

Reynolds maintained that he had only an oral contract with Appellant which required him

to pay a 4% monthly royalty fee. He testified in his deposition that had met with Owens

Case No. 20 CA 0940 – 23 –

prior to the franchise transfer but maintains that he never signed a Gionino’s franchise

agreement or agreed to be bound by all of the terms of the Gionino’s franchise agreement.

An assignment is defined as a transfer to another person of the whole of

any property or right therein. Black’s Law Dictionary (6th Ed. 1990) 119. A

valid assignment may be oral or written, and should satisfy the requirements

of a contract, i.e., the legality of object, capacity of parties, consideration,

and meeting of the minds. 6 Ohio Jurisprudence 3d (2011), Assignments,

Section 25. An assignment, no matter how informal, may be found when

there is intent on the part of the assignor to assign the rights in question, an

intent on the part of the assignee to be assigned the rights in question, and

valuable consideration exchanged. Id; see also, Morris v. George Banning,

Inc. (1947), 77 N.E.2d 372, 374, 49 Ohio Law Abs. 530.

Acme Co. v. Saunders TopSoil, 7th Dist. Mahoning No. 10 MA 93, 2011-Ohio-6243, ¶ 82,

J. Waite concurring.

{¶33} Any cause of action arising out of a contract may be assigned. In order to

demonstrate a valid and equitable assignment, the court may consider any words or

conduct demonstrating a party’s intent to assign a right or action, whether there appears

to be an intention of the other party to receive the benefit, and whether valuable

consideration was given. Langhals v. Holt Roofing Co., 47 Ohio App.3d 114, 116, 547

N.E.2d 401 (6th Dist.1988).

{¶34} The sale agreement between JAE Twin and Appellees that contains

Reynolds’ signature, obtained from Appellees’ accountant, satisfies all of the contract

Case No. 20 CA 0940 – 24 –

requirements, including the capacity of the parties, a meeting of the minds, and valuable

consideration. In exchange for the purchase price of $65,000 Appellees purchased

“business, property and assets” of the Gionino’s pizzeria franchise in Carrollton, Ohio.

This contract also required an assignment of the lease and, most notably, the sale

agreement was valid only after the consent of Appellant: “Seller shall seek the approval

of Gionino’s Pizzeria, Inc. within five (5) days from the signing of this Agreement. This

consent is a pre-requisite to this agreement having full force and effect.” (Statement of

Evidence, Exh. 5, )

{¶35} The trial court and Appellees place great emphasis on the fact that a

franchise agreement was not attached to this sale agreement and that the sale agreement

never specifically refers to a Gionino’s franchise agreement within in the document. While

both of these assertions are correct, it is clear from the terms of the sale agreement that

Appellees were purchasing the business franchise for Gionino’s pizzeria located in

Carrollton, Ohio for valuable consideration and agreed to be bound by all requisite terms,

including the consent and approval of Appellant. Although Reynolds maintains that he

had only an oral contract for purchase of the business to operate a Gionino’s, and the

only franchise requirement was that he pay a 4% royalty fee, Appellees’ conduct appears

to demonstrate otherwise. We have already determined that the parties’ conduct shows

they evinced an intention to be bound by the written contract, even if no completely

executed copy can be found. Included within that contract and the record as a whole are

multiple instances where Appellees accepted the terms of the Gionino’s franchise

agreement, including acknowledging the need for Appellant’s consent and the payment

of the transfer fee; signing off on the assignment of the lease for the premises; noting in

Case No. 20 CA 0940 – 25 –

their business plan and commercial security agreement that they were “Livinthedream,

Inc. dba Gionino’s Pizzeria” and that they were seeking bank financing for the purchase

of a Gionino’s franchise. Appellees continued to operate the franchise for a period of ten

years. Although the term “Gionino’s franchise agreement” is missing from the sale

agreement and a copy of the franchise agreement was not found attached, Appellees’

conduct appears to lead to the conclusion that they intended to be transferred and

assigned the rights of a Gionino’s pizzeria franchisee. Langhals, at 116.

{¶36} The original franchise agreement between Appellant and JAE Twin, while

not attached to the Exhibit 5 sale agreement, was admitted at trial as Exhibit 1. It is a

twenty-six page document which contains multiple restrictive covenants, including a

noncompete covenant; an exclusive supplier provision requiring Hillcrest Foods be the

sole food supplier to the franchise and Coca-Cola the sole beverage distributor.

(Statement of Evidence, Exh. 1.) The franchise agreement also sets out termination

provisions, including the obligations of the franchisee to cease and desist from use of the

Gionino’s name in all advertising, to pay all outstanding fees, and to cease and desist

from utilizing “all methods associated with the Seller or its name, marks, recipes, forms,

manuals, slogans, signs [sic] symbols, devices or any part of the GIONINO’S PIZZERIA

franchise.” (Statement of Evidence, Exh. 1.)

{¶37} The issue here is whether there the parties intended to be bound to two

separate contracts: the sale agreement between Appellees and JAE Twin and the

Gionino’s franchise agreement. The evidence of record reflects that, as a matter of law,

a valid sale agreement between Appellees and JAE Twin existed. The terms of that sale

agreement require adherence to and assignment of a Gionino’s franchise, as that is the

Case No. 20 CA 0940 – 26 –

only interest in the business of Gionino’s that JAE Twin (as seller) was able to convey to

Appellees (as buyer). Based on the specific facts in this record, including the conduct

and admissions of the parties, this record shows a valid sale agreement was entered into

by JAE Twin and Appellees for the assignment of a Gionino’s franchise. Based on this

record, the trial court erred in concluding that a contractual relationship did not exist.

Appellant’s first assignment of error has merit and is sustained.

{¶38} Appellant’s second, third, fourth and fifth assignments relate to the terms of

the franchise agreement and the availability of injunctive relief based on the assignment

of the franchise. The trial court concluded incorrectly that there was no contractual

relationship between the parties. However, in doing so, it also granted “preliminary”

injunction on some of Appellant’s claims, recognizing that Appellees owed some duties

to Appellant stemming from their operation of a franchise while at the same time deciding

that Appellees were not bound by a franchise agreement.

{¶39} Generally, injunctive relief is separated into three categories: (1) temporary

restraining orders, which can be granted ex parte and are to last only long enough until a

full hearing can be held; (2) preliminary injunctions, granted with notice and a hearing to

maintain the parties status quo until trial on the merits; and (3) permanent injunctions,

which are issued after a trial on the merits. City of Bexley v. Duckworth, 10th Dist. Franklin

No. 99AP-414, 2000 WL 249121 (Mar.7, 2000), *5 citing McCormac, Ohio Civil Rules

Practice, (2 Ed.1992) 403, Section 14.08. The United States Supreme Court has held

that “the purpose of a preliminary injunction is merely to preserve the relative positions of

the parties until a trial on the merits can be held.” Univ. of Texas v. Camenisch, 451 U.S.

390, 395, 101 S.Ct.1830, 68 L.Ed.2d 175 (1981).

Case No. 20 CA 0940 – 27 –

{¶40} Civ.R. 65(B) sets forth the procedure for hearings on preliminary injunctions:

(1) Notice. No preliminary injunction shall be issued without reasonable

notice to the adverse party. The application for preliminary injunction may

be included in the complaint or may be made by motion.

(2) Consolidation of hearing with trial on merits. Before or after the

commencement of the hearing of an application for a preliminary injunction,

the court may order the trial of the action on the merits to be advanced and

consolidated with the hearing of the application. Even when this

consolidation is not ordered, any evidence received upon an application for

a preliminary injunction which would be admissible upon the trial on the

merits becomes part of the record on the trial and need not be repeated

upon the trial. This subdivision (B)(2) shall be so construed and applied as

to save to the parties any rights they may have to trial by jury.

{¶41} Because of the nature of a preliminary hearing, procedures may be less

formal and evidence less complete than on a trial of the merits. Camenisch at 395. A

party is also “not required to prove his case in full at a preliminary-injunction hearing.” Id.

Thus, “it is generally improper to dispose of a case on the merits following a hearing for

a preliminary injunction without consolidating that hearing with a trial on the merits or

otherwise giving notice to counsel that the merits would be considered.” George P. Ballas

Buick-GMC, Inc. v. Taylor Buick, Inc., 5 Ohio App.3d 71, 74, 449 N.E.2d 403 (6th

Dist.1982). Courts have held that it is improper to dispose of a case on the merits after a

hearing on a preliminary injunction without formally consolidating that hearing with a trial

Case No. 20 CA 0940 – 28 –

on the merits or otherwise providing notice to counsel that the matter was being heard on

its merits. Id.

{¶42} Here, the trial court essentially decided all pending matters on the merits

following the preliminary injunction hearing when it concluded there was no contractual

relationship between the parties. A review of the judgment entry reveals the trial court

did not conduct a thoughtful analysis on Appellant’s preliminary injunction motion. In its

entry, the trial court did not determine on each claim presented by Appellant whether

Appellant had established by clear and convincing evidence that: (1) there was a

substantial likelihood they would prevail on the merits; (2) that they would suffer

irreparable injury if the injunction was not granted; (3) that no third parties would be

unjustifiably harmed if the injunction was granted; and (4) the public interest would be

served by the injunction. Chapin, ¶ 16. Despite this, and without warning the parties that

it intended to consolidate the request for preliminary relief into a final hearing on the

request for permanent relief, the trial court did, in fact, dispose of the merits of the case

in its determination that there was no contractual relationship between the parties.

Appellant’s complaint alleged breach of contract, misappropriation of trade secrets and

unfair competition. Each of these claims, however, stemmed from the presumption that

the parties operated under a contract, spelling out the rights and duties on which the

demands for relief were based. If no contractual relationship between the parties existed,

there are no rights and duties on which to base relief.

{¶43} Interestingly, the trial court did grant part of the injunctive relief requested

by Appellant, despite finding that no sale agreement existed and no valid Gionino’s

franchise agreement was enforceable in this matter. However, if the terms and conditions

Case No. 20 CA 0940 – 29 –

of the sale agreement and franchise agreement do not apply, there appears to be no

basis on which to grant any injunctive relief. Clearly, the court determined that the

Appellees were “operating” a Gionino’s “Franchise.” (1/28/20 J.E., p. 5.) In its judgment

entry, the trial court also recognized that Appellees were given access to trade secrets of

the Gionino’s franchise business. The trial court, however, does not attribute this to the

parties’ intent to be bound by the terms of any agreement. The trial court also does not

recognize Appellees’ actions, through their admissions and the exhibits presented, show

they intended to operate a business franchise and that such an enterprise is normally

subject to a franchise agreement. While there appears to be a question as to whether

the franchise agreement between Gionino’s and Appellees is fully binding on Appellees

and whether this document is actually referenced in the sale agreement when it discusses

“a certain Sales Agreement,” it is apparent that Appellant was selling, and Appellees did

purchase, a business franchise. It also appears Appellees understood that they were

bound to certain Gionino’s franchise requirements, requirements found within this

franchise agreement. Appellees acted on these requirements.

{¶44} Because the trial court improperly determined, following a preliminary

hearing, that no contractual relationship existed, the trial court in effect foreclosed any

avenue for Appellants to seek relief. While it does appear that the trial court intended to

hold additional proceedings in this matter, it does not appear that the court left Appellant

with any triable claims. The trial court’s actions in determining the merits of this case

following the preliminary injunction hearing without proper notice to the parties violated

Civ.R. 65(B). Further, as the parties did enter into a valid contract for the sale of the

business based on the record, the trial court’s determinations based on the assumption

Case No. 20 CA 0940 – 30 –

that no contract existed are erroneous even regarding a preliminary injunction request.

Further, the record reveals a question as to whether Appellees’ behaviors demonstrated

an intent to be bound by the Gionino’s franchise agreement, and this question was not

fully addressed below due to the trial court’s erroneous determination as to the underlying

sale agreement. Thus, this matter must be remanded for the trial court to undertake

another hearing on Appellant’s request for injunctive relief.

{¶45} Based on the foregoing, Appellant’s first assignment of error has merit and

is sustained. Because a new hearing must be held, Appellant’s second, third, fourth and

fifth assignments of error are moot. The judgment of the trial court is reversed and this

cause is remanded to the trial court for consideration of Appellant’s request for injunctive

relief and other damages relative to the parties’ contractual relationship.

Donofrio, P.J., concurs.

D’Apolito, J., concurs.

Case No. 20 CA 0940 [Cite as Gionino's Pizzeria, Inc. v. Reynolds, 2021-Ohio-1289.]

For the reasons stated in the Opinion rendered herein, Appellant’s first assignment

of error is sustained and its remaining assignments are moot. It is the final judgment and

order of this Court that the judgment of the Court of Common Pleas of Carroll County,

Ohio, is reversed. We hereby remand this matter to the trial court for further proceedings

according to law and consistent with this Court’s Opinion. Costs to be taxed against the

Appellees.

A certified copy of this opinion and judgment entry shall constitute the mandate in

this case pursuant to Rule 27 of the Rules of Appellate Procedure. It is ordered that a

certified copy be sent by the clerk to the trial court to carry this judgment into execution.

NOTICE TO COUNSEL

This document constitutes a final judgment entry.