The Franchise Memorandum

In JTH Tax, Inc. v. Noor, 2012 U.S. Dist. LEXIS 138657 (E.D. Va. Sept. 26, 2012), the franchisor filed a motion for contempt against the terminated franchisees for violating a default judgment order that, in part, enjoined the franchisees from operating a tax preparation business in violation of the franchise agreement’s noncompete provision and required the franchisees to return certain information and materials belonging to the franchisor. In support of its motion, the franchisor showed that, among other things, the terminated franchisees were preparing tax returns, soliciting the franchisor’s customers, and retaining customer lists, customer tax returns, and the franchisor’s operations manual in violation of the court’s order. Following a hearing on the franchisor’s motion—at which the franchisees failed to appear—the court held the terminated franchisees in contempt of court for not turning over the franchisor’s materials. But the court also found that the franchisor had failed to provide clear and convincing evidence that the franchisees were still operating a competing business in violation of the restrictions set forth in the covenant not to compete. Nonetheless, as a matter of equity, the court extended its injunction to run for two years from the time that the franchisees had come into compliance with the covenant.