The Franchise Memorandum

A franchisor’s years-long battle to enforce a consent injunction against a terminated franchisee finally ended after a New Jersey federal court reissued sanctions for the franchisee’s breach of the injunction’s covenant against competition. Lawn Doctor, Inc. v. Rizzo, 2019 WL 1299671 (D.N.J. Mar. 21, 2019). As previously reported in The GPMemorandum, this matter began in 2012, when the Rizzos, former franchisees of the Lawn Doctor system, failed to adhere to the terms of their franchise agreement’s noncompete provision. The district court ultimately entered a consent injunction outlining the Rizzos’ obligations not to compete with Lawn Doctor. After finding that the Rizzos had violated the injunction, the district court issued a sanction in favor of Lawn Doctor equal to the fair market value of the Lawn Doctor customer list that the Rizzos had allegedly transferred to a third-party buyer of their business. The Third Circuit vacated the sanctions award, finding it was error to place the burden on the Rizzos to prove that the list had not been transferred, and remanded for further proceedings. On remand, after permitting limited discovery, the district court determined that Lawn Doctor put forth sufficient evidence to establish that the Rizzos sold Lawn Doctor’s customer list to the third-party buyer. As a civil contempt sanction for violating the consent injunction, the court required the Rizzos to pay Lawn Doctor the established fair market value of the customer list — $178,800.