The Franchise Memorandum

A federal court in Nevada recently denied a franchisee’s motion for preliminary relief in a dispute over renewal of a franchise. Terrier, LLC v. HCAFranchise Corp., 2022 WL 4280251 (D. Nev. Sept. 15, 2022). Terrier provided home care services under a franchise agreement with HCAF. At the end of the initial term and following a series of extension agreements, HCAF conditioned renewal on Terrier signing a new agreement, which contained, among other changes, a provision granting HCAF discretionary authority to purchase the franchise. Terrier argued that it was forced to either sell its business to HCAF pursuant to the discretionary authority or face enforcement of the original agreement’s covenant not to compete. Terrier sued HCAF and filed a motion for a temporary restraining order or preliminary injunction to preserve the status quo. The court denied the motion.

The court’s decision was primarily based on its conclusion that Terrier was unlikely to succeed on the merits of its claims—noting that Terrier failed to specify as to which claims it sought injunctive relief. The court held that Terrier had not shown it was likely to succeed on its claim that HCAF had breached the franchise agreement in its renewal conduct, as nothing in the initial agreement prohibited the terms offered by HCAF. The initial agreement provided that renewal was contingent upon Terrier’s signing a new agreement that may contain different terms than the initial agreement. The court further held that Terrier had not shown it was likely to succeed on its claim for declaratory judgment that the covenant not to compete was invalid. The could held that the covenant was likely enforceable under both New Mexico and Arizona law, as it lasted for two years and applied within 20 miles of Terrier’s location or that of another franchise.