The Franchise Memorandum

A federal court in Illinois denied a temporary restraining order to a terminated franchisee that sought to resume operations of its business after its franchise agreement was terminated because it repeatedly failed health audits. H Guys LLC v. The Hallal Guys Franchise, Inc., 2019 WL 3337116 (N.D. Ill. July 25, 2019). The franchisor, The Hallal Guys, conducted several health inspections of Steven Chong’s restaurants in May and July 2019. After finding persistent and worsening food safety and sanitary deficiencies, The Hallal Guys terminated Chong’s franchise agreement. Chong sued and sought a temporary restraining order, asserting claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the Illinois Franchise Disclosure Act by terminating the franchise agreement without good cause. Chong alleged that the CEO of The Hallal Guys personally disliked Chong and had tried to document problems with the franchise to push Chong out of the system, as evidenced by Chong’s text messages with a former employee of The Hallal Guys.

The court denied the motion because Chong was unlikely to succeed on the merits, there was an adequate remedy at law, and the potential for irreparable harm to Chong was offset by the public’s interest. The definition of “good cause” under the Illinois Franchise Disclosure Act includes repeatedly failing to comply with lawful provisions of the franchise agreement. The franchise agreement required Chong to comply with The Hallal Guy’s food safety standards. The court held that, at this stage, there was strong evidence that the agreement was terminated for good cause based upon Chong’s repeated failure of health inspections, and his failure to cure the detailed violations in each inspection report. Furthermore, the court found an adequate remedy at law because monetary damages were calculable, and the immediate irreparable harm to Chong was offset by the public’s interest in ensuring that food is handled in a safe manner. The court gave little weight to the text messages submitted by Chong because they were not made under oath, but the court also noted that despite whatever personal feelings The Hallal Guys had towards Chong, Chong still had an obligation to maintain food and safety standards.