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The Franchise Memorandum

Court Finds Former Franchisee in Contempt
Posted in Settlement

A Michigan federal court found a former franchisee in contempt of a court order after she failed to take affirmative steps to transfer the telephone number of her terminated franchise to the franchisor. In Allegra Network LLC v. Bagnall, 2012 U.S. Dist. LEXIS 48918 (E.D. Mich. Apr. 6, 2012), the franchisor filed a motion for preliminary injunction after learning that the franchisee was operating a competing printing business at the location at which it had previously operated its franchise. To settle that matter, the parties entered into a stipulated injunction in which the former franchisee agreed to “immediately” transfer the business’ telephone number to the franchisor. In late December 2011, the former franchisee’s counsel assured the franchisor that the transfer would happen within a week. However, the transfer did not occur until a few weeks later and without the franchisor’s knowledge. When the franchisor finally learned of the transfer, the number had been claimed by another party. The franchisor then filed a motion to hold the former franchisee in contempt.

The court found the former franchisee in contempt because she had violated the stipulated injunction by failing to transfer the telephone number to the franchisor. Her admission that she waited two weeks to contact the telephone service provider and did not provide it with a copy of the injunction was clear and convincing evidence that she had violated the injunction. The court concluded that the franchisee should have taken affirmative steps to have her husband transfer the number in a timely fashion, including having him execute a legal instrument transferring his interest in the number and seeking the assistance of her attorney. As a result, the court directed the former franchisee to take all actions necessary to transfer the number to the franchisor and levied a civil penalty for each day the number was not transferred.

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