The Franchise Memorandum

In Anytime Fitness, LLC v. Edinburgh Fitness, LLC, 2014 U.S. Dist. LEXIS 50337 (D. Minn. Apr. 11, 2014), a federal court in Minnesota enjoined a former Anytime Fitness franchisee from violating a franchise agreements’ post-expiration covenant against competition and from using the franchisor’s proprietary customer data. After electing not to renew its franchise agreement, the franchisee had opened a new fitness club at the same location as its former Anytime franchise and used confidential customer data to solicit former Anytime clients. Anytime brought suit for breach of contract and trademark infringement, and it moved for a preliminary injunction.

In granting Anytime’s motion, the court concluded that Anytime was likely to succeed on the merits of its claims. It held that the post-expiration covenant prohibiting competition within the former franchisee’s exclusive area, or within twenty miles of any other Anytime club (or within five miles in cities with populations of 50,000 or more) for a period of two years was reasonable and enforceable. The court further held that Anytime was likely to succeed on its claim concerning the franchisees’ use of customer data because the franchise agreement contained a provision stating that any customer data obtained while operating the franchise belonged to Anytime. Next, the court held that the franchisees’ continued operation of the competing club and use of customer data caused irreparable harm to Anytime’s goodwill and the franchise system as a whole. According to the court, the balance of harms weighed in favor of Anytime, as any harm suffered by the former franchisee was self-inflicted. Finally, the court noted that the public has an interest in the enforcement of bargained-for contract terms. The court also enjoined the former franchisee from using Anytime’s trademarks.