Menu
Blog Banner Image

The Franchise Memorandum

Despite Earlier Lack of Registration, Court Enforces in Term Noncompete Against Master Franchisor and Affiliated Parties

In a case handled by Gray Plant Mooty and first reported in Issue No. 131 of The GPMemorandum after a prior ruling, the court in Bonus of America, Inc. v. Angel Falls Services, LLC, 2010 U.S. Dist. LEXIS 67079 (D. Minn. July 6, 2010),  has now entered a preliminary injunction against a master franchisor and two affiliated parties through which the master franchisor was conducting business,  enjoining them from violating the in term noncompete provisions of the Master Franchisor Agreement (MFA) and from using the franchisor’s name, trademarks, or proprietary materials. The master franchisor had entered into an initial MFA with the franchisor in June 2007, and entered into a subsequent MFA in August 2007 that superseded the first agreement. When the parties entered into the first MFA, the franchisor was not registered as a franchisor in Minnesota, but had registered by the time the parties entered into the second agreement.

After the franchisor discovered the competing business, it immediately sought to enjoin the defendants from operating. In response to the motion, the defendants argued that the MFA—including its noncompete provisions—was unenforceable because the franchisor had not been properly registered in Minnesota at the time the  master franchisor  was sold its  franchise, as required by the Minnesota Franchise Act. The court held that although a franchisee is allowed to seek rescission for certain violations of that Act, Minnesota courts have declined to rescind contracts based on technical violations. Here, the court concluded that the violations alleged by the master franchisor were technical in nature and allowing rescission would lead to an unjust outcome. After considering the harm to the franchisor’s goodwill, the defendants’ unclean hands, the balance of harms, the likelihood of success on the merits, and the public interest involved, the court granted the franchisor’s request for injunctive relief against both the master franchisor (who had signed the MFA) and the other defendants (who had not), the latter on the ground that they were “in active concert and participation” with the master franchisor.

Email LinkedIn Twitter Facebook

The information contained in this post is provided to alert you to legal developments and should not be considered legal advice. It is not intended to and does not create an attorney-client relationship. Specific questions about how this information affects your particular situation should be addressed to one of the individuals listed. No representations or warranties are made with respect to this information, including, without limitation, as to its completeness, timeliness, or accuracy, and Lathrop GPM shall not be liable for any decision made in connection with the information. The choice of a lawyer is an important decision and should not be based solely on advertisements.

About this Publication

The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

To subscribe to monthly emails for The Franchise Memorandum, please click here

Topics

Archives

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

Blog Authors