The Franchise Memorandum

In another case litigated by Gray Plant Mooty, the Chief Judge for the United States District Court for the District of Nebraska granted a preliminary injunction prohibiting former The Maids franchisees and their two daughters from operating a competing residential cleaning business in violation of the noncompete and nonsolicitation provisions contained in the applicable franchise agreements. The Maids Int’l, Inc. v. Maids On Call, LLC, 2017 WL 4277146 (D. Neb. Sept. 25, 2017). The Maids International (“TMI”) terminated the franchise agreements because the franchisees were servicing customers outside of their territory, had failed to pay all of their required fees, and had abandoned their franchised businesses. Shortly thereafter, TMI learned that the former franchisees had transferred the assets of their franchises to a new, competing business operated by their daughters out of the same location and with the same employees. The defendants also failed to fully de-identify their formerly franchised businesses, leaving a sign reading The Maids outside their competing business until TMI filed its injunction action.

The defendants argued that the noncompete and nonsolication provisions of the franchise agreements could not apply to the daughters or their allegedly independent business because the daughters were not signatories to the franchise agreements. The court dismissed those arguments after the evidence demonstrated that the former franchisees and their daughters were working together to operate the new business and soliciting customers away from The Maids system. Among other things, the court noted that the former franchisees were involved in incorporating the new business and setting up the business’s website. In addition, the former franchisees had sent a letter to their customers stating that their daughters were ready to “take over”; assuring the customers that “most everything will remain the same”; and urging the customers to “continue” with the competing business. As part of the letter, the former franchisees also repeatedly used the terms “we,” “us,” and “our” in describing the new business. Finally, one of the daughters admitted that “many of the customers” of the formerly franchised businesses were now patronizing the defendants’ new business. Relying on another Nebraska federal court case litigated by Gray Plant Mooty, the court held that an apparent “continuity of operations” and the potential harm to TMI’s goodwill warranted injunctive relief against all of the defendants.