A federal court in Florida overruled a former franchisee’s objections to a magistrate judge’s report and recommendation, granting in full a franchisor’s request for preliminary relief enforcing the covenant not to compete contained in the franchise agreements. JTH Tax, LLC v. Gilbert, 2022 WL 3098407 (M.D. Fla. Aug. 4, 2022). Franchisor JTH Tax terminated its franchise agreements with G-QTS after its principal, Stephen A. Gilbert, allowed an employee to submit federal tax returns using Gilbert’s own Preparer Tax Identification Number. JTH based the termination on a franchise agreement provision requiring the franchisee to obey all laws and another requiring that all tax preparers at the franchised business have their own, active Preparer Tax Identification Numbers. Federal law also requires that the tax preparer signing the return be the one with primary responsibility for its preparation. JTH sued to enforce the termination and sought preliminary relief enforcing the franchise agreement covenant not to compete at G-QTS’s current locations or within 25 miles of any JTH franchisee’s territory. G-QTS opposed the motion by arguing that the alleged conduct did not constitute a material breach of the franchise agreements or a violation of the law.
The court adopted in full, over G-QTS’s objections, the recommendation of the magistrate judge that the court find in JTH’s favor and grant all requested relief. The court held that the franchisee’s alleged conduct did violate federal law and constituted a material breach of the franchise agreements, in part because of franchise agreement language acknowledging that all obligations are “material and essential.” The court further held the covenant not to compete was narrowly tailored in its restriction on activities, geographic scope, and two-year duration. Finally, the court held that the restriction was reasonably necessary to protect JTH’s legitimate business interests. As a result, the court granted the preliminary injunction.
Craig Miller practices primarily in the areas of franchise and distribution litigation and commercial litigation. As a litigator, Craig represents companies and individuals in trial, arbitration, and other civil proceedings ...
Benjamin Podobinski assists clients in various litigation. He has experience in trial preparation including witness preparation, cross-examination, conducting depositions, and drafting pertinent documents like exhibit and ...
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.