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California Federal Court Denies Franchisor’s Motion for Temporary Restraining Order Against Franchisee’s Anticipatory Breach

A federal court in California recently denied a motion for a temporary restraining order against a franchisee of a pizza restaurant, concluding that there was not evidence that the franchisor would be irreparably harmed by a franchisee’s refusal to transfer its store back to the franchisor. Mountain Mike’s Pizza, LLC v. SV Adventures, Inc., 2021 WL 6136178 (E.D. Cal. Dec. 29, 2021). The initial term of the franchise agreement between franchisor Mountain Mike Pizza’s and franchisee SV Adventures was set to expire on January 2, 2022. In August 2021, SV Adventures informed Mountain Mike’s that it did not intend to renew its agreement. In November, Mountain Mike’s notified SV Adventures that it would exercise its right to purchase the restaurant and its lease under the franchise agreement. SV Adventures refused, saying that it intended to begin operating a new pizza restaurant at the same location. Mountain Mike’s sued and moved for a TRO, alleging that SV Adventures’ conduct was an anticipatory breach of its contractual duties and an attempt to capture the goodwill of Mountain Mike’s for its new business—which substantially copied the Mountain Mike’s menu.

The court denied Mountain Mike’s motion. The court found that Mountain Mike’s failed to produce sufficient evidence that it would suffer immediate, irreparable harm in the absence of emergency relief. SV Adventures showed it had taken down all signage for its new restaurant, and Mountain Mike’s could not show that the signage would be put up again or that SV Adventures would use Mountain Mike’s marks after the franchise agreement expired. The court also noted that economic injury is not irreparable harm and that evidence of harm to business goodwill typically incorporates information from sources besides the plaintiff itself. The court also held that SV Adventures’ refusal to assign its lease to Mountain Mike’s did not warrant emergency relief, because SV Adventures’ lease runs through 2027. Finally, the court concluded that Mountain Mike’s delay from November until January in bringing the motion counted against its assertions of irreparable harm.

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  • Robert  Zisk
    Partner

    Bob Zisk concentrates his practice on franchise and distribution and commercial litigation. 

    Bob has extensive experience as a franchise litigator and counselor. For over thirty years, he has represented national franchisors in ...

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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