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The Franchise Memorandum

The Franchise Memorandum

Posts in Post-Termination Injunctions.

A federal court in Michigan denied a franchisor’s motion for a preliminary injunction and temporary restraining order against a former franchisee for violating its post-termination noncompete clause because the franchisor waited too long to file the motion. Detailxperts Franchise Systems LLC v. Deck Inc., 2019 WL 5294354 (E.D. Mich. Oct. 18, 2019). Deck was a franchisee of Detailxperts’ car-detailing franchise system, but Deck sought to rescind the franchise agreement alleging that he was fraudulently induced into signing the agreement. Detailxperts terminated the ...

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Meanwhile, a federal court in Maryland recently granted in part and denied in part a preliminary injunction sought by a franchisor seeking to prevent its former franchisee from violating its post-termination obligations. ICENY USA, LLC v. M&M’s, LLC, 2019 WL 5082603 (D. Md. Oct. 10, 2019). M&M’s was a franchisee of an ICENY Thai-style ice cream shop in Yuma, Arizona. In April 2019, M&M’s ceased all communication with ICENY and stopped providing sales reports and making franchise fee and royalty payments as required by the franchise agreement. In June 2019, ICENY discovered ...

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Franchisor World of Beer Franchising, Inc. (“WOB”) recently lost an appeal of the district court’s denial of its motion for a preliminary injunction. World of Beer Franchising, Inc. v. MWB Development I, LLC, 2017 WL 4618565 (11th Cir. Oct. 16, 2017). WOB and three franchisee entities owned and operated by Evan Matz were parties to three franchise agreements to operate World of Beer restaurants. After mutual termination of the agreements, Matz began operating competing businesses. WOB sought to enjoin Matz from using its marks, confidential information, and trade dress and ...

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A federal court in Texas has denied a franchisor’s motion to enjoin a former franchisee from using confidential information, misappropriating trade secrets, and infringing on trade dress in the post-termination operation of competing buffet restaurants. Stockade Cos., LLC, v. Kelly Rest. Grp., LLC, 2017 WL 4640443 (W.D. Tex. Oct. 16, 2017). Earlier in the case, the court had entered an order requiring the franchisee to de-identify its formerly franchised buffet restaurants. Subsequently, the franchisee rebranded and began operating the restaurants as a competing ...

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A federal court in Virginia recently denied a franchisor’s claim that a franchisee of its tax preparation system breached its post-termination obligations and awarded the franchisee $2,736,896.17 on its counterclaims. JTH Tax, Inc. v. Aime, 2017 WL 640092 (E.D. Va. Feb. 15, 2017). The matter arose out of the IRS’s revocation of Aime’s Electronic Filing Identification Number (“EFIN”), which the franchise agreements required Aime to maintain. Rather than simply terminate the franchise agreements for Aime’s nine offices, JTH entered into a purchase and sale ...

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A New Jersey federal district court granted a permanent injunction to Mister Softee against a former franchisee but declined to award lost future royalties based on the terminated franchise agreements. Mister Softee, Inc. v. Amanollahi, 2016 WL 5745105 (D.N.J. Sept. 30, 2016). Reza Amanollahi (“Amano”) entered into twenty-two franchise agreements pursuant to which he was permitted to operate Mister Softee ice cream trucks, provided that he park the trucks only at a specified location. Through an installment sale, Amano sold his franchises to four individuals (the ...

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The United States District Court for the District of Colorado recently denied a franchisor's motion for a preliminary injunction following the termination of one of its master franchisees. Intelligent Office System, LLC v. Virtualink Canada, Ltd., 2016 WL 687348 (D. Colo. Feb. 18, 2016). The parties had entered into an agreement that granted Virtualink the right to sublicense IOS's trademarks and office-sharing methods to subfranchisees throughout Canada. The dispute arose when Virtualink allegedly breached the master license agreement by, among other things, failing to ...

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A federal district court in New Jersey also recently denied a franchisor's motion to preliminarily enjoin the continued operation of five terminated franchises because the franchisor failed to demonstrate that it would suffer irreparable harm in the absence of injunctive relief. 7-Eleven, Inc. v. Sodhi, 2016 WL 541135 (D.N.J. Feb. 9, 2016). 7-Eleven had terminated the defendants' franchise agreements because they caused the net worth of their stores to fall below contractually mandated levels. While the court found 7-Eleven had demonstrated a likelihood of success on the ...

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After remanding to the federal district court for the Northern District of Illinois, the United States Court of Appeals for the Seventh Circuit affirmed the district court’s denial of a preliminary injunction motion under the Petroleum Marketing Practices Act (“PMPA”), finding that the franchisee’s multiple insufficient funds transactions constituted “failures” under the PMPA, thus justifying termination of the relationship. Joseph v. Sasafrasnet, LLC, 2013 U.S. App. LEXIS 22395 (7th Cir. Nov. 4, 2013). In November 2010, Sasafrasnet, an authorized British ...

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The United States District Court for the District of Maryland recently granted in part and denied in part a franchisor’s motion for a preliminary injunction against a terminated individual franchisee, but declined to enjoin the franchisee’s corporate operating company. Ledo Pizza Sys., Inc. v. Singh, 2013 U.S. Dist. LEXIS 153110 (D. Md. Oct. 24, 2013). After being terminated for failing to pay past due royalties and fees, Singh, a former franchisee of the Ledo Pizza chain, opened a competing pizza franchise at the same location as his former Ledo Pizza restaurant. Ledo filed a ...

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The United States District Court for the Middle District of Florida also granted 7-Eleven a preliminary injunction in 7-Eleven, Inc. v. Kapoor Brothers Inc., 2013 U.S. Dist. LEXIS 149063 (M.D. Fla. Sept. 13, 2013). The court found that, because of this franchisee’s incurable conduct, the franchisor did not have to comply with franchise agreement provisions requiring advance notice of the termination and the opportunity to cure. Fairly soon after Kapoor Brothers entered into two franchise agreements, 7-Eleven discovered that Kapoor Brothers had underreported sales by ...

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The United States District Court for the Eastern District of New York last month entered a preliminary injunction against franchisees that diverted profits from their five 7-Eleven convenience stores in violation of their franchise agreements. 7-Eleven, Inc. v. Khan, 2013 U.S. Dist. LEXIS 146696 (E.D.N.Y. Oct. 10, 2013). 7-Eleven terminated the franchise relationship, without giving the franchisees an opportunity to cure, after an investigation revealed that the franchisees had repeatedly underreported their sales and defrauded 7-Eleven out of royalty payments over a four ...

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In Native New Yorker Franchising, Inc. v. Shabaz, Inc., 2010 U.S. Dist. LEXIS 50065 (D. Ariz. April 29, 2010), the franchisor of Native New Yorker restaurants filed a preliminary injunction motion against a former franchisee for its continued operation of the restaurant and refusal to transfer the restaurant’s telephone number back to the franchisor. By the time the motion was heard, the former franchisee claimed that the motion was moot because it had ceased operating and was on the brink of bankruptcy. Injunctions, however, are only moot to the extent that it can be shown “that ...

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What started as a routine post-termination injunction case brought by a franchisor turned into a more fundamental dispute when a franchisor terminated the franchise agreements of two of its franchisees for non-payment of royalties and other fees in Dunkin’ Donuts Franchised Restaurants LLC v. Shrijee Investment, Inc., 2008 WL 5384077 (E.D. Mich. Dec. 23, 2008). Dunkin’ Donuts, represented by Gray Plant Mooty, began the case by suing the franchisees for their continued use of Dunkin’ trademarks after termination. The franchisees, in turn, sued Dunkin’ for allegedly ...

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In PuroSystems, Inc. v. John Fralc (In re Fralc), 2008 WL 1932311 (Bankr. D. Ariz. April 28, 2008), PuroSystems made a motion to the bankruptcy court seeking relief from the automatic stay in order to enforce injunctive relief, granted through arbitration, against its former franchisee. The bankruptcy court granted PuroSystems’ motion for relief from the automatic stay so that it could seek confirmation of its arbitration award in federal district court.

In 2006, PuroSystems terminated John Fralc after he failed to pay royalties due under the franchise agreement. Following ...

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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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