2018-08-10 / Front Page

Daycare deemed OK to play

By Duke Harrington Staff Writer

KENNEBUNK — A daycare in Kennebunk that separated from its parent company will not be forced to close after a federal court ruled the owner did not violate a pre-existing franchise agreement.

Justice Jon Levy said in U.S. District Court in Portland Aug. 2 that the new Kennebunk Children’s Academy at 8 Independence Drive did not violate the intellectual property of Toddle Inn Franchising LLC when it opened July 30 to a reported enrollment of 140 children from 113 families.

Kennebunk Children’s Academy parent company KPJ Associates had operated under the Toddle Inn brand name until July 27, three days before the changeover, when it sent a letter to Toddle Inn corporate headquarters in Scarborough, advising it would drop the Toddle Inn name effective 6 p.m. that day.

On behalf of Toddle Inn founder Cheryl Carrier —who started the company in 1985, growing it to seven locations, not counting Kennebunk — attorneys Timothy Bryant and Benjamin Piper of Portland firm Preti Flaherty filed suit Aug. 1. They claimed the KPJ owners — Kathie L. Murphy, Patrick M. Murphy and James O. Haskell — violated Toddle Inn’s franchise agreements.

KPJ opened a Toddle Inn franchise at the Independence Drive location on July 19, 2006.

Among the requirements for operating a daycare center under the Toddle Inn brand, the KPJ’s franchise agreement included a non-compete clause. The clause barred it from opening another daycare center with 50 miles of the Kennebunk location for two years after the expiration or termination of the contract. The agreement was effective for an initial term of 10 years, subject to renewal.

Bryant and Piper argued that in addition to opening a daycare not only within 50 miles, but inside the same building, KPJ violated its agreement by continuing to use Toddle Inn’s brand-specific floor plan and custom furniture, as well as tapping employees already trained in the Toddle Inn management system.

However, Levy found KPJ never renewed its original franchise agreement, as scheduled in July 2016, even though it continued to operate as a Kennebunk Toddle Inn and pay royalties to Toddle Inn for the privilege.

The restraining order filed for Toddle Inn asked the court to make KPJ “immediately cease managing, operating, and/or owning an interest in a daycare center within 50 miles of the former Toddle Inn daycare center in Kennebunk.”

Toddle Inn also asked the court to effectively hand it the keys to the Kennebunk location now calling itself the Kennebunk Children’s Academy, or else allow it to absorb all children enrolled at other Toddle Inn locations.

It also demanded that KPJ, “immediately stop using Toddle Inn’s system, marks and confidential information, immediately stop holding itself out to the public as a former Toddle Inn franchisee, pay all sums owing to Toddle Inn within five days, provide Toddle Inn with all previously requested books and records, including tax returns, within five days, and return all records, files, instructions, brochures, agreements, disclosure statements, and any and all other materials provided by Toddle Inn to KPJ related to the operation of the daycare center.”

Levy ruled that Toddle Inn’s case has little “likelihood of success on the merits.”

He said, although KPJ continued to abide by some Toddle Inn rules after its contract expired in July 2016, it “did not abide by other terms.” And, perhaps more importantly, was not made to do so.

It was not until a March 23 letter that Toddle Inn Chief Operating Officer Beth LaSalle acknowledged KPJ was “in default of various requirements of the agreement” and “was not eligible to renew the agreement until it brought itself into full compliance.”

“These statements conflict with the assertion made [by] LaSalle that although the franchise agreement had expired, ‘Toddle Inn and KPJ nevertheless continued their relationship with an understanding that the Franchise Agreement remained in effect,’” Levy said.

Neither LaSalle nor Carrier assert that KPJ made any specific representations that would establish that KPJ believed it was bound to the terms of the franchise agreement after the agreement expired in 2016,” Levy said.

Regarding the 50-mile no-compete clause, Levy said there was little to recommend it even if the franchise contract had been properly renewed.

“Under Maine law, non-competition agreements are contrary to public policy and will be enforced only to the extent that they are reasonable,” he said, quoting precedent set in the 2005 case Everett v. J. Prescott Ross.

But more to the point, Levy said, “The facts presented do not establish that there were any communications between the parties regarding extending the non-compete period beyond the two-year period that began on July 19, 2016, the date the agreement itself expired.”

Levy said Toddle Inn’s claims that KPJ is violating its intellectual property rights by using such proprietary items as its floor plan, custom furniture, training methods, and management system, “may have merit.”

“However, there is no proof of the extent to which this is the case,” Levy ruled. “Because the assertions regarding possible misappropriation and unlawful use made [by] LaSalle and Carrier are general and nonspecific, there is insufficient evidence before the court with which to determine the likelihood that Toddle Inn will succeed on these claims.”

“Similarly, Toddle Inn’s assertion that KPJ may have misappropriated its trade secrets or confidential information is unsupported by any details as to the secrets or information at issue,” Levy said.

Levy went on to say Toddle Inn would “not suffer irreparable harm” without the requested restraining order, and that “the balance of hardships weighs in KPJ’s favor.”

Toddle Inn could not just take over the operation, Levy noted, because it is KPJ that holds the lease on the building.

Toddle Inn it could absorb KPJ’s current charges at its other locations in Saco, Scarborough and Westbrook. But Levy found it more likely that most of those families would eventually leave Toddle Inn for other more local services, even if they could not be provided by KPJ.

“A daycare facility’s proximity to a family’s home or caregiver’s workplace is often a major factor in deciding which daycare provider the family will use,” Levy wrote. “Thus, a temporary restraining order would likely disrupt the childcare arrangements of many of the families that currently patronize the Kennebunk daycare center.”

“Having previously been in the Toddle Inn system, my mission with Kennebunk Children’s Academy is to create a daycare center that is very different from the Toddle Inn,” Kathie Murphy, owner of Kennebunk Children’s Academy, said in a prepared release circulated by her attorneys at Portland firm Eaton Peabody.

“Our core mission is the children and their families. It begins and ends with them,” she said.

Attempts to reach representatives of Toddle Inn were unsuccessful.

Staff Writer Duke Harrington can be reached at news@kennebunkpost.com.

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