The Franchise Memorandum

In Jackson Hewitt, Inc. v. DJSG Utah Tax Serv., LLC, 2011 U.S. Dist. LEXIS 2397 (D.N.J. Jan. 10, 2011), a New Jersey federal court issued a preliminary injunction against two former out-of-state tax services franchisees, denying their motions to dismiss or to transfer venue and ordering them to comply with their post-termination obligations. The former franchisees were located in Arizona and Utah, but their franchise agreements contained provisions in which they consented to personal jurisdiction in New Jersey and forum selection clauses designating the federal court in New Jersey as the forum in which all disputes would be litigated. On these bases, Jackson-Hewitt filed suit in New Jersey, seeking a preliminary injunction compelling the former franchisees  to remove all signage from their offices, transfer the telephone numbers they were using to the franchisor, comply with the franchise agreements’ two-year covenant not to compete, and turn over all client files. The former franchisees then moved to dismiss the action for lack of personal jurisdiction and, in the alternative, to transfer venue to Arizona on the ground that they never conducted business in New Jersey.

The district court denied the motions, noting that the “mere fact” that the franchise agreements contained forum selection clauses and an express acceptance of personal jurisdiction in New Jersey was evidence that the court had jurisdiction over the case. Thus, the fact that the former franchisees had not done business in New Jersey was “unavailing.” The court also granted Jackson-Hewitt’s preliminary injunction motion enforcing the franchise agreements’ post-termination clauses. Among other things, the court found that the franchisor had met its burden of demonstrating irreparable harm  because the former franchisees had retained possession of the franchisor’s trade secrets and confidential information after termination of the franchise agreements.