The Franchise Memorandum

Meanwhile, a federal court in Maryland recently granted in part and denied in part a preliminary injunction sought by a franchisor seeking to prevent its former franchisee from violating its post-termination obligations. ICENY USA, LLC v. M&M’s, LLC, 2019 WL 5082603 (D. Md. Oct. 10, 2019). M&M’s was a franchisee of an ICENY Thai-style ice cream shop in Yuma, Arizona. In April 2019, M&M’s ceased all communication with ICENY and stopped providing sales reports and making franchise fee and royalty payments as required by the franchise agreement. In June 2019, ICENY discovered that M&M’s had taken steps to change the name of the shop, but continued to display the ICENY mark, had not changed the interior décor, and continued to sell the same Thai ice cream rolls made pursuant to ICENY’s proprietary recipes and procedures, albeit under different names. As a result, ICENY terminated the franchise agreement.

Following termination, ICENY sought a preliminary injunction enjoining M&M’s from (1) using the ICENY mark and system; (2) operating any business or selling any goods or services under the name ICENY, or any mark confusingly similar to it; (3) failing to alter the formerly franchised shop in a manner necessary to distinguish it from the ICENY system; and (4) disclosing any trade secret, confidential, or proprietary information. ICENY also requested an injunction requiring that, for a period of one year from M&M’s compliance with the preceding restrictions, M&M’s refrain from operating any business that would violate the franchise agreement’s noncompetition clause. ICENY was only able to effectuate service of process on one co-owner of M&M’s, and not on M&M’s, or on its other owner. Therefore, ICENY narrowed its request to a preliminary injunction against the co-owner it was able to serve. The court granted its motion, finding that ICENY had documented numerous instances of M&M’s serious violations of the franchise agreement that supported termination. The motion was denied without prejudice as to ICENY’s request for a preliminary injunction against the remaining defendants, and the court also declined to enforce the part of the noncompetition clause that would bar the operation of any dessert business.