The Franchise Memorandum

A federal court in New Mexico recently denied a request for a temporary restraining order made by franchisees of the Wyndham hotel chain that would have reinstated their terminated franchise agreement. Presidential Hospitality, LLC v. Wyndham Hotel Grp., LLC, 2018 WL 2604831 (D.N.M. June 2, 2018). After the franchisees repeatedly defaulted on their obligation to pay royalties, Wyndham terminated their franchise agreement and cut off their access to the Wyndham central reservation system. The franchisees then filed a motion for a temporary restraining order (TRO) to reinstate the franchise agreement.

In considering the requested TRO, the court applied the standard four-part test and concluded that the franchisees had failed to prove that they were likely to suffer irreparable harm in the absence of injunctive relief. The franchisees’ loss of revenue standing alone did not constitute irreparable harm because that loss could be compensated by money damages. From the evidence presented, the court was unable to conclude that the revenue loss was so severe as to cause the business to be “certain” to fail, notwithstanding an alleged 90 percent drop in revenue. The court suggested certain remedial steps (highway billboards, dropping prices, and internet advertising) that the franchisees could take to ameliorate the loss of reservations through the Wyndham system. Furthermore, the court declared that the harm to the franchisees’ goodwill did not amount to irreparable injury because businesses can “regain or exceed prior expectations of patronage.” The court also found that the franchisees were unlikely to succeed on the merits of their claims because the franchisees’ repeated monetary defaults were undisputed and Wyndham’s pre-litigation attempts to resolve the issues between the parties did not amount to waiver. Accordingly, the requested TRO was denied notwithstanding the court’s finding that Wyndham would suffer little if any harm from reinstatement of the franchise agreement and that the public could benefit from issuance of an injunction due to potential avoidance of layoffs of the franchisees’ employees.