The Franchise Memorandum

A federal court in Alabama recently granted a preliminary injunction ordering a former IHOP franchisee to deidentify and debrand its restaurants. IHOP Rests LLC v. Moeini, 2018 WL 762343 (S.D. Ala. Feb. 7, 2018). IHOP had terminated three franchise agreements with the franchisee, who had failed to operate the restaurants in compliance with IHOP’s standard procedures, polices, and regulations. Following the termination, Moeini continued operating the restaurants as IHOP franchised businesses, so IHOP sued and moved for a preliminary injunction seeking to enforce Moeini’s posttermination obligations and to prevent infringement of IHOP’s trademarks.

In granting the preliminary injunction, the court applied the familiar four-part preliminary injunction test and granted IHOP’s preliminary injunction. First, the court found that IHOP made a sufficient showing that it was likely to succeed in proving that the franchise agreements were properly terminated, that the continued use of the IHOP marks after the franchise agreements were terminated was unauthorized, and that there was a strong risk of consumer confusion. Moeini argued that the franchise agreements were not properly terminated because IHOP conducted operational evaluations before a 30-day cure period expired, but the court rejected that argument, noting that Moeini presented no evidence of cure during the 30-day period, regardless of when the inspections took place. Second, the court reasoned that, based upon evidence of extensive customer complaints (the highest number of complaints in the IHOP system), IHOP had shown that it would suffer irreparable injury unless the injunction was granted. Third, given the evidence of irreparable injury, the court reasoned that the potential injury to IHOP outweighed the potential damage to Moeini should the injunction issue. Fourth, the court reasoned that IHOP presented convincing evidence that customer safety was at risk at each restaurant, given the health and safety violations that were found, and thus the court reasoned that IHOP established that entering an injunction would not be adverse to the public interests.