The Franchise Memorandum

Finding that the defendant franchisee failed to show likelihood of success on the merits, the United States District Court in Nebraska recently denied a motion for a preliminary injunction brought by a Home Instead franchisee who sought to keep operating under two expired franchise agreements. Home Instead, Inc. v. Florance, 2012 U.S. Dist. LEXIS 134554 (D. Neb. Sept. 20, 2012). The court relied solely on the interpretation of the language in the franchise agreements in denying the franchisee’s request to restore its pre-expiration “operational status quo.” The court stated that it did not need to consider the collective balance of other factors normally required for an injunction, such as irreparable harm. Rather, it found that the probability of success on the merits was “nil” because the franchise agreements did not support the franchisee’s position.

Prior to expiration, Home Instead offered to renew the franchise agreements but required that the franchisee sign a new agreement with a higher performance standard. The franchisee pointed to a section of the franchise agreement that stated the franchisee must maintain minimum gross sales of $30,000 per month after the end of the fifth year “of the operation of the Franchised Business through the end of the term of this Agreement or any renewal term of a renewal Franchise Agreement.” The franchisee argued this language meant the performance standard would remain at $30,000 per month for as long as the franchises were renewed. The court determined that the use of the word “minimums” when describing gross sales at $30,000 created a floor, not a ceiling. Nothing prohibited the franchisor from increasing the minimum amount; instead, the agreements stated that the right to renew was conditioned on the franchisee’s agreement to the current standards. The findings also were supported by the fact that, in a previous 2002 renewal, the parties had expressly retained the royalty fee structure for future renewals but did not expressly retain the performance standards.