The Franchise Memorandum

A federal court in Virginia denied a franchisor’s motion to disqualify its former in-house counsel from representing two area developers in a lawsuit that was not “substantially related” to the work the lawyer had performed for the franchisor. Road King Dev., Inc. v. JTH Tax, LLC, 2021 WL 2003549 (E.D. Va. May 19, 2021). JTH Tax, franchisor of the Liberty Tax franchise system, uses area developers to support franchisees as part of its business model. Attorney Christopher Davis spent six years working in JTH’s in-house litigation team, ending in 2013. Davis’s responsibilities included enforcing JTH’s area development agreements and dealing with franchisee royalty issues, and he was generally privy to JTH’s litigation strategies. Seven years after he left JTH, two Texas Liberty Tax area developers retained him to represent them in a lawsuit against JTH involving their development agreement renewal and royalties allocation. JTH moved to disqualify Davis.

JTH argued that Davis should be disqualified because his in-house work was “substantially related” to the area developers’ lawsuit. The developers offered a contrasting depiction of Davis’s work for JTH, asserting that he primarily worked on franchisee post-termination obligations and covenants against competition. The court largely accepted JTH’s characterization of the work, but nevertheless concluded that it was not “substantially related” to the suit at hand. While Davis’s work for JTH involved disputes with area developers, it did not involve the area developers in the lawsuit. Those developers began working with JTH after Davis had left his employment with JTH, and the disputes at issue in the lawsuit first arose in the 2019-2020 period. The court concluded that Davis’s general familiarity with JTH’s litigation strategies in prior years did not make him privy to confidential information in a substantially related matter sufficient to support Davis’s disqualification.