The Franchise Memorandum

In Pirtek USA, LLC v. Twillman, 2016 WL 5846978 (M.D. Fla. Oct. 6, 2016), a federal court granted, in part, Pirtek’s motion for a preliminary injunction seeking to enjoin the use of confidential information and the operation of a competing business by former franchisees, Michael Twillman, Dolores Twillman, and Donald Twillman, in Missouri. In February 2016, Michael Twillman executed a franchise agreement for the operation of a Pirtek franchise in Missouri. Each of the Twillmans also executed a personal guaranty. Both the franchise agreement and the personal guaranty prohibited the Twillmans’ unauthorized use of Pirtek’s confidential information or operation of a competing business. Approximately three weeks after they signed the franchise agreement and personal guaranty, the Twillmans requested cancellation of the franchise agreement and Pirtek refunded the partial franchise fee paid. Shortly thereafter, the Twillmans began operating a competing business under the name American Hydraulics.

Pirtek filed a motion to enjoin the Twillmans’ operation of the business and use of Pirtek’s confidential information. In response, the Twillmans explained they intended to open a Pirtek franchise, but were stymied by the activities and influence of a local union in Missouri, and they argued they properly canceled or “rescinded” the franchise agreement in accordance with the controlling FDD such that the noncompete provision did not apply. The court disagreed, finding that the FDD plainly explained the circumstances under which a franchise applicant would be entitled to a refund of franchise fees, but that there was no evidence that the FDD was integrated into the franchise agreement. Further, the court pointed out that cancellation of the franchise agreement is not equivalent to rescission, noting the franchise agreement expressly prohibited rescission unless both parties so agreed in writing, which never occurred. The court also noted the Twillmans did not allege any fraud, duress, or mistake that would support post-formation rescission. Finding that Pirtek had established the elements in support of its claim for injunctive relief, the court granted Pirtek’s motion but narrowed the scope of the remedy proposed by Pirtek to prevent only conduct constituting a clear violation of the franchise agreement’s restrictive covenants.