The Franchise Memorandum

A federal court in New York has denied a franchisor’s motion for preliminary injunction aimed at preventing a former franchisee from operating a competing business in the same location as its former franchised business because the franchisor did not establish that it would suffer irreparable harm absent an injunction. Doctor's Assocs. LLC v. Khononov, 2023 WL 184389 (E.D.N.Y. Jan. 13, 2023). In August 2022, Subway franchisee Lyudmila Khononov closed her sandwich restaurant and Subway terminated the franchise agreement. She then opened a “Urway Subs” restaurant at the same location. Subway sued to enforce the franchise agreement’s noncompete provision and moved for a preliminary injunction.

The district court denied the motion, holding that Subway had failed to show it would suffer irreparable harm without a preliminary injunction. It held that Subway’s damages were likely quantifiable because the franchise agreement contained a liquidated damages provision and because other restaurants in the network would provide a basis for comparison in evaluating damages. The court also held that any loss of customer goodwill would be limited by the existence of several other Subway franchises within the noncompete area. Finally, the court rejected the argument that other franchisees would be emboldened to disregard their franchise agreements, holding that Subway could enforce noncompetes at a later stage of litigation.