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Third Circuit Affirms Holding That Franchisee Violated Injunction but Vacates Sanctions Award

In Lawn Doctor, Inc. v. Rizzo, 2016 WL 1445071 (3d Cir. Apr. 13, 2016), the United States Court of Appeals for the Third Circuit upheld an order holding the Rizzos, former franchisees of the Lawn Doctor system, in contempt of a consent injunction that prohibited them from operating a competing business after the termination of their franchise. The contempt finding was based on the Rizzos' transfer of their business to a third party while acting as the third party's lender. The Third Circuit affirmed the district court's finding that the act of providing financing to a competitor was specifically prohibited by the injunction.

As to the sanctions awarded, however, the district court had held that the Rizzos had failed to prove that they did not transfer Lawn Doctor's customer list to the third party and therefore awarded the value of the list to Lawn Doctor as a sanction. The Third Circuit held that it was error to place the burden on the Rizzos to prove that the list had not been transferred to the competitor, rather than on Lawn Doctor to prove that it had. Accordingly, the Third Circuit vacated the sanctions award and remanded for further proceedings.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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